Deregulation forcing agencies, businesses to rethink practices
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On the first Monday of his term, President Trump vowed to cut 75 percent of federal regulations and “maybe more,” he said. While 75 percent is likely unrealistic, the White House has already issued two executive orders and interim guidance intended to set agencies on a rapid path toward significant deregulation. These efforts raise serious issues for agencies, businesses and the public. 

The first executive order, issued Jan. 30, requires most federal agencies to eliminate two existing regulations for every new regulation issued (with exceptions for military, national security and internal agency organizational measures). It also requires that the incremental costs of any new regulations be offset by the cost savings of eliminated regulations. 

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The “two-for-one" order also requires each agency to meet a yearly regulatory budget, set by the Office of Management and Budget (OMB), for the net costs of new regulations —the 2017 fiscal year budget for agencies is zero. While the OMB may allow an agency’s annual costs to exceed its savings, it may similarly require the inverse.

 

The OMB then issued “interim guidance” for agencies to follow for fiscal year 2017. The guidance clarifies that the two-for-one order applies only to “significant regulatory actions” — those costing the economy at least $100 million — and that emergencies addressing critical health, safety or financial matters may qualify for a waiver. 

The guidance defines costs to mean “opportunity costs to society” based on existing OMB guidance. It specifies that agencies could not consider past costs incurred by regulated entities (“sunk costs”) when totaling savings from repealed regulations, and it decrees that existing regulatory costs have to be measured anew, even if previously determined.

 A second order issued on Feb. 24 established regulatory reform officers and task forces at the agency level to identify regulations to be eliminated. Taken together, these measures will have significant impacts on the agencies, the regulated community and the public. 

For agencies, the president’s actions mean that agencies will now need to focus limited resources on measuring current regulatory costs and identifying rules to repeal, rather than on responding to new regulatory needs. This alone may stifle regulatory action as much as the limits on net regulatory costs. 

Agencies will no doubt seek to be creative in characterizing new regulations as falling within exemptions like “national security” and will likely seek to extend influence through non-regulatory channels, such as industry task forces.

At the same time, agencies will need to ensure statutory requirements are met, particularly for protection of public health and safety. This will require difficult choices. For example, should the Food and Drug Administration reduce regulations of some products to offset the costs of regulating new products? Will the Environmental Protection Agency choose to control one pollutant, while deregulating an equally hazardous pollutant?

The OMB, while always playing a key role in reviewing regulations, now has a significantly greater influence on agency management. The OMB now has authority to set agency budgets, determine whether to exempt certain agencies or regulations, and to approve (or disapprove) each new regulation.

For regulated entities, the White House’s actions will have real impact. Businesses seeking new rules considered critical for their markets will not only need to advocate for their favored rules, but will need to identify other rules to repeal. 

Other businesses will need to play defense, trying to block efforts to repeal regulations they see as vital. Such efforts will need to be fought on two fronts — at the agency and at the OMB — each fiscal year. Litigation is inevitable, as decisions to regulate and to repeal are challenged.

However doubtful the White House’s goal of eliminating 75 percent of federal regulations may be, the president’s deregulatory actions will certainly change agency practice, and will require increased attention from the business community.  

 

Jim Rubin is a partner at the international law firm Dorsey & Whitney. Before going into private practice, Rubin served for 15 years in the Environment and Natural Resources Division of the U.S. Department of Justice. Chip Magid is a partner at Dorsey & Whitney and head of its Washington, D.C. office. He's also the co-chair of the firm-wide Products Liability practice.


The views expressed by contributors are their own and not the views of The Hill.