New rule exposes the regulatory watchdog that wasn’t

In April, the Office of Management and Budget made waves when it issued a memo ordering so-called “independent” agencies to subject their regulatory actions to more oversight from OMB. The memo was controversial because historically, these agencies have enjoyed a high degree of insulation from the president, and it could signal an end to that independence.

{mosads}As background, since the early 1980s, presidents have required “executive branch” agencies like the Environmental Protection Agency or Department of Health and Human Services — those whose directors serve at the pleasure of the president — to conduct cost-benefit analysis for their largest regulations. A small office within OMB, known as the Office of Information and Regulatory Affairs, or OIRA for short, reviews those rules and their accompanying analysis for quality control purposes.

To date, presidents have been unwilling to subject other, “independent” agencies like the Securities and Exchange Commission or the Federal Reserve — those whose heads can only be fired by the president for “cause” — to the same requirements as executive agencies. But the new OMB memo may change that; independent agencies are now being asked to conduct some analysis for major regulatory actions and then to submit rules to OIRA so it can confirm the economic impacts laid out in those analyses.

For now, this is simply being portrayed by OMB as an effort to force compliance with a 1990s law called the Congressional Review Act, which requires Congress be notified of any major regulatory actions. But the OMB memo could represent a first step towards imposing full-blown cost-benefit analysis requirements on independent agencies and subjecting their rules and analysis to scrutiny from OIRA, just like executive agencies.

Is this a good idea?

On the one hand, it’s a no brainer that independent agency rules should be scrutinized with economic analysis. That so many rules are finalized each year without doing such basic due diligence is a national embarrassment. But subjecting independent agency rules to review by OIRA is more complicated, and a look at OIRA’s recent history explains why:

First, OIRA has made a mess of the implementation of President Trump’s deregulation executive order, known as Executive Order 13771, which states that, “whenever an executive department or agency publicly proposes for notice and comment or otherwise promulgates a new regulation, it shall identify at least two existing regulations to be repealed.”

{mossecondads}The language of the order could not be clearer. And yet, OIRA has interpreted this “one-in, two-out” requirement so narrowly that the vast majority of new regulations — more than 90 percent — escape the offset requirement. OIRA routinely allows regulations to proceed for publication in the Federal Register without any offsets identified in the accompanying notice or anywhere else, directly contrary to the express language in the order. OIRA’s carve outs and lax enforcement are limiting the effectiveness of Trump’s regulatory reforms.

Next, despite OIRA’s reputation for expertise, the quality of the executive agency economic analyses that OIRA reviews is abysmal. Only a tiny fraction of rules each year — less than 1 percent — have anything close to complete analysis. Politics routinely interferes with cost and benefit estimates, and analyses systematically ignore basic economic concepts like opportunity cost.

OIRA was created in 1980 to manage paperwork burdens, but today the total number of hours of paperwork imposed by the federal government exceeds 11 billion at an estimated annual cost in excess of $143 billion. That’s up from as low as 2 billion burden hours in 1980. Some of these burdens are Congress’ fault, and OIRA’s methods of measuring burden hours have changed somewhat over time. But the bottom line is that paperwork burdens continue to grow under OIRA.

The new OMB memo also expands OIRA’s review powers over so-called “guidance documents,” which are letters regulatory agencies often use as an end-run around the rulemaking process. But OIRA already claims authority to review important guidance, and only does so sporadically, so it remains unclear whether the OMB memo will change anything.

Perhaps OIRA needs more teeth, or more funding and staff. But more likely, OIRA oversight is simply insufficient, as evidenced by the agency’s disappointing history. More and better oversight will have to come from elsewhere, such as Congress or the courts.

To be clear, there may well be a democratic argument for OIRA review. Giving the president more levers to control unelected bureaucrats could be good for democracy. But don’t expect the quality of independent agency regulations to improve much as a result of OIRA review. This regulatory watchdog may be more bark than bite.

James Broughel is a senior research fellow with the Mercatus Center at George Mason University.