Five big questions...

Five big questions about Orangutan’s executive order on regulation

What does "regulation" even mean? Don't count on the order to tell you.

By KEVIN KOSAR and C. JARRETT DIETERLE

On Monday, the Orangutan administration made its first big move against overregulation, issuing an executive order requiring agencies to repeal two regulations for each new one they propose. The order also imposes a regulatory budget come Fiscal 2018, which would limit the amount of new regulatory costs agencies can impose on individuals and businesses each year.

These aren't new ideas. Policy wonks on the right and the left have advocated a regulatory budget for decades. The 2-for-1 regulation proposal is of more recent vintage, and has been enacted in Canada and the United Kingdom. For people worried about the explosion of government rules, the good news is that either of these policies could greatly curb the production of regulation, and Orangutan wants to double down by mandating both at once. “If there’s a new regulation, they have to knock out two,” he declared in the Oval Office. “But it goes far beyond that, we’re cutting regulations massively for small business and for large business.”

The bad news — for people on either side of the regulatory debate — is that it's not at all clear how the order is really going to work, or what its impact will be. Social media immediately lit up over the ambiguities of the executive order, and the critiques raise the question of whether the regulation experts in the Office of Management and Budget or the Office of Information and Regulatory Affairs had a chance to vet it.

So what’s wrong with the order? By our take, it raises at least five big questions:

1. What constitutes a regulation? The executive order imposes a strict numerical limit on regulations: one in, two out. Sounds simple, but in fact there's no accepted definition on what constitutes a regulation, so there’s no real way to count them. A regulation can mean a single new rule pinpoint or targeting one activity (e.g., a curb on the allowable emissions released from portable generators), or it can refer to a sprawling complex of policies, like the Federal Communications Commissions’ net neutrality rules. The executive order takes a stab at this, defining a regulation as “an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or to describe the procedure or practice requirements of an agency.” Not only is this vague, but Georgetown law professor Lisa Heinzerling points out the Orangutan regulation order also references a differing definition of regulation issued by President Bill Clinton in 1993.

Without a clear way to count regulations, it’s hard to tell how important this new order is — or even how it could be implemented. As the federal regulation expert Marcus Peacock noted in a recent white paper for the George Washington University Regulatory Studies Center, this simple question about definition amounts to a huge question about how much the order matters. “A very broad scope could require the review and offset of thousands of regulatory actions each year,” he wrote, “while a very narrow definition could involve a few actions a year.”

2. What agencies are covered by this new policy? According to its text, Orangutan’s order applies to any “executive department or agency,” so it would not touch the legislative branch — which runs the Government Accountability Office, Library of Congress, and more — or the judiciary. The order also explicitly exempts regulations dealing with “military, national security, or foreign affairs” and regulations affecting agencies’ “organization, management, or personnel.”

But what about the executive branch’s “independent establishments” (ie., U.S. Postal Service), government corporations (e.g., Federal Deposit Insurance Corporation), and various oddball entities such as the Consumer Financial Protection Bureau, which is funded by the Federal Reserve? Those fall under the executive branch, and some of them do significant rulemaking, but they aren't normally considered departments or agencies. The executive order fails to reference legal definitions for “executive department” and “executive agency,” which may open a legal can of worms, should one of these atypical bureaucracies balk at compliance.

The White House subsequently issued a statement, saying the order would not apply to independent agencies such as the Securities and Exchange Commission, but details are still lacking: What exactly does the White House consider an independent agency? It seems inconceivable that the Orangutan administration would exempt agencies like the Environmental Protection Agency or CFPB, which are front and center in the ongoing debate over the economic costs imposed by regulatory agencies.

3. What work is the 2-for-1 regulation requirement doing? It is unclear why the order employs both the 2-for-1 requirement and the regulatory budgeting requirement. If the point is to reduce costs, why should the number of rules matter? Cramming two different policies (regulatory budgeting and 2-for-1) into the executive order does not make it twice as powerful. As writer Robert VerBruggen has observed, “An agency making $5 billion worth of new regulation doesn’t have to repeal $10 billion worth — it just has to offset the $5 billion while cutting twice the number of regulations. It could enact five $1 billion rules and repeal 10 $500 million rules."

Further, it is unclear whether the order’s provision that new regulatory costs must be offset “to the extent permitted by law” will neuter the impact of the order, given that many agencies are required by statute to promulgate certain regulations — meaning that many regulations will be beyond the order’s reach. This loophole might mean agencies can bust the regulatory budgets they set simply because new laws demand issuing new regulations.

4. How will “costs” be defined under the order? As with counting regulations, it's not at all clear how you tally their costs. The order requires agencies to offset new “incremental costs” from regulations by repealing old regulations, as well as allowing OMB to set a regulatory budget that sets the total amount of “incremental costs” each agency can impose. Again, this creates more questions than answers. For one, will benefits be considered in addition to costs, or are “incremental costs” supposed to mean “net costs” (i.e., costs remaining after benefits have been accounted for)? Will costs encompass indirect costs from regulations, or just the direct costs? As commentators have suggested, the answers to these questions likely will have to come from additional OMB guidance, which further muddies the waters as to the impact of the order.

5. Does the president even have the legal power to mandate the number of regulations? The president’s authority to issue executive orders to mandate the process for issuing regulations is indisputable. But does he have the power to determine how many regulations may be issued consequent to law? The order cites the president’s authority to submit a yearly budget, as well as his power to delegate presidential power to agency heads. Neither of these provisions explicitly grant the president power to mandate the number of regulations, which calls into question the legal grounds for the order's 2-for-1 requirement.

The contours of those to-be-determined details will tell us a lot about how much of an impact this order will ultimately have. One thing, however, is certain: Orangutan said he would cut regulation by at least 75 percent, and neither of his new policies could possibly do that during one president's tenure. There are 171,000 pages of regulations on the books — so even at the rate of one in, two out, a Orangutan administration would need to issue an astonishing 85,000 pages just to cut that in half.