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Executive Order 12,866 requires benefit-cost analysis for any new regulation that is “economically significant,” which is defined as having “an annual effect on the economy of $100 million or more or adversely affect[ing] in a material way the economy, a sector of the economy, productivity, competition, [or] jobs,” or creating an inconsistency with other law, or any of several other conditions.[1] The Order established a “regulatory philosophy” and several “principles for regulation,” among them requirements to explicitly identify the problem to be addressed,[2] determine whether existing regulations created or contributed to the problem,[3] assess alternatives to direct regulation,[4] and design regulations in the most cost-effective manner.[5] § 1(a) summarizes this regulatory philosophy as follows:
Agencies were directed to fulfill these requirements though economic analysis,[6] most notably the preparation of Regulatory Impact Analyses (RIAs), as had been required under Executive Order 12,291, for regulations that “may [h]ave an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities.”[7] Regulations within this definition are colloquially termed “economically significant.”
Though the term “effect” is crucial for determining the likelihood that a rule is economically significant, the term was not internally defined. Rather, all interpretative determinations critical to implementation were delegated to the Office of Information and Regulatory Affairs (OIRA) within the Office of Management and Budget (OMB).[8]
The key procedural feature of Executive Order 12,866 is centralized review conducted on behalf of the President by OIRA, the same agency directed by Congress to implement the Paperwork Reduction Act. This alignment of Executive and statutory functions enhances the efficiency of Executive office oversight because virtually every rule contains information collection requirements. The key procedural difference between today’s Executive Order 12,866 and the 1980s-era Executive Order 12,291 is that, under Executive Order 12,291, OIRA formally reviewed all draft proposed and final rules before signature by the relevant agency official and transmission to the Federal Register for publication, whereas under Executive Order 12,866, OIRA formally reviews only those draft rules covered by § 3(f) (“significant regulatory action”). This distinction is significant, for during the 12.5 years in which Executive Order 12,291 was in place, OIRA formally reviewed an average of 2,382 draft rules per year, but during the 24 years that Executive Order 12,866 has been in force, OIRA formally reviewed only 596 draft rules per year.[9] This 75% reduction in the scope of OIRA review undoubtedly enabled more focused attention, but it did so at the expense of incentivizing agencies to evade OIRA review by misclassifying draft rules below the threshold set in § 3(f).
Under Executive Order 12,866, the procedure for determining whether a draft rule is significant (and thus subject to OIRA review) or economically significant (and thus subject to the requirement to prepare a Regulatory Impact Analysis), begins with agencies preparing entries to the semi-annual Unified Regulatory Agenda,[10] which OIRA reviews before publication in the Federal Register, along with each agency’s Regulatory Plan.[11] Agencies are required to engage in prior consultation with both private and public stakeholders before drafting notices of proposed rulemaking, and ensuring that they have at least 60 days for public comment.[12]
Agencies are required to provide to OIRA comprehensive lists of planned regulatory actions, such lists including agencies’ provisional determinations of whether each action is significant.[13] Drafts of significant regulatory actions must be transmitted to OIRA for review, along with assessments of their potential costs and benefits.[14] For economically significant regulatory actions, agencies also must provide OIRA with a Regulatory Impact Analysis.[15] After OIRA review is completed and each draft proposed or final rule is published in the Federal Register, agencies are required to make all analyses public and “[i]dentify for the public, in a complete, clear, and simple manner, the substantive changes between the draft submitted to OIRA for review and the action subsequently announced; and ... those changes in the regulatory action that were made at the suggestion or recommendation of OIRA.”[16]
OIRA may return a draft rule to an agency “for further consideration of some or all of its provisions,” accompanying any return with “a written explanation … setting forth the pertinent provision of [Executive Order 12,866] on which OIRA is relying.”[17]
The reach of Executive Order 12,286 was extended in 2011 to require agencies to conduct retrospective reviews of existing regulations.[18]
Regulatory Impact Analyses are governed by guidance issued by OMB, OMB Circular A-4.[19] This guidance requires agencies to clearly identify why regulation is needed, consider a reasonable number of alternative regulatory approaches, and for each alternative conduct a rigorous and objective benefit-cost analysis. OIRA reviews RIA’s for transparency, utility, and objectivity.
Executive Order 12,866 concludes with a statement “This Executive order is intended only to improve the internal management of the Federal Government and does not create any right or benefit, substantive or procedural, enforceable at law or equity by a party against the United States, its agencies or instrumentalities, its officers or employees, or any other person.” Enforcement of the Order occurs during a public comment period after the agency receives public comments, and before the agency publishes a final rule. Notices of Executive Order reviews are not published—an interested member of the public has to watch OMB’s web site daily to see when the agency submits a rule for review. OMB receives comments and will conduct meetings (with agency representatives present) to conduct reviews. These are not entirely satisfactory, since the final rule remains unpublished, and members of the public can only comment on the rule as proposed in an NPRM. Nonetheless, OMB does block or require further changes to a handful of rules every year.
The provisions of Executive Orders 12,866 and 13,563 were significantly narrowed in some respects and expanded in others by Executive Orders 13,771 and 13,777. Among the significant narrowing provisions are a more parsimonious description of the stated purposes of regulation. Whereas Executive Order 12,866 contained a long list of regulatory principles, in which the maximization of net social benefits is one of many, Executive Order 13,771 directs agencies “to be prudent and financially responsible in the expenditure of funds, from both public and private sources” and “manage the costs associated with the governmental imposition of private expenditures required to comply with Federal regulations.” The regulatory principles in Executive Order 12,866 not consistent with these cost-control principles appear now to be dormant.
Executive Order 13,771 expands upon Executive Order 12,866 in both substantive and procedural ways. Substantively, Executive Order 13,771 directs agencies to eliminate at least two existing regulations for every new regulation issued and abide by regulatory budget caps set by OMB. Substantively, Executive Order 13,771 restores and greatly expands the authority OMB had under Executive Order 12,291 as the final arbiter of benefits and costs and authorizes OMB to set regulatory cost caps. The Order also generally prohibits agencies from proposing or promulgating regulations not previously published in the Unified Regulatory Agenda. Procedurally, Executive Order 13,771 established additional steps agencies must follow, supervised by OMB, including the issuance by OMB of enforceable regulatory budget caps.
OMB issued final implementing guidance after publishing, and seeking public comment on, interim guidance. The final guidance clarifies several key issues. First, the scope of Executive Order 13,771 extends to conventional regulatory actions, deregulatory actions, and significant guidance documents. Second, Executive Order 13,771 focuses on regulatory cost alone without regard to regulatory benefits.
Executive Order 13,777 directs federal agencies to establish Regulatory Reform Officers (RROs) to “oversee the implementation of regulatory reform initiatives and policies to ensure that agencies effectively carry out regulatory reforms, consistent with applicable law.” RROs are responsible for identifying regulations that, inter alia, “eliminate jobs, or inhibit job creation.” “are outdated, unnecessary, or ineffective,” “impose costs that exceed benefits,” or “create a serious inconsistency or otherwise interfere with regulatory reform initiatives and policies.” In addition, existing regulations that rely on information that violates the Information Quality Act are specifically targeted for repeal, replacement, or modification.
Executive Order 13,777 specifically directs agencies modify the performance indicators established pursuant to the Government Performance and Results Act of 1993 (GPRA) to reflect Executive Order 13,771 goals. OMB implementing guidance expands upon the Order by enumerating specific requirements and expectations for agencies’ FY 2018 GPRA annual Performance Reports and FY 2019 annual Performance Plans. This is a key process change. OMB’s GPRA existing guidance does not reflect regulatory policy objectives, and the decision to include them is new.
Executive Order 12,866 replaced Executive Orders issued in 1981 and 1985. See Ronald W. Reagan, Exec. Order No. 12,291, Federal Regulation, 48 Fed. Reg. 13,193 (Feb. 19, 1981) and Exec. Order No. 12,498, Regulatory Planning Process, 50 Fed. Reg. 1036 (Jan. 8, 1985).
