What’s the Difference between “Major,” “Significant,” and ...

What's the Difference between "Major,"

"Significant," and All Those Other Federal

Rule Categories?

A Case for Streamlining Regulatory Impact Classification

By Clyde Wayne Crews, Jr.

September 2017

ISSUE ANALYSIS 2017 NO. 8

What's the Difference between "Major," "Significant," and all those other Federal Rule Categories?

A Case for Streamlining Regulatory Impact Classification

by Clyde Wayne Crews, Jr.

Executive Summary Bureaucracy, rather than interaction with elected representatives, dominates the relationship of the individual to the government. The number of rules promulgated by executive branch agencies far outstrips the number of laws passed by Congress, which makes getting a handle on the impact of federal regulation daunting. Further complicating the federal regulatory enterprise is an array of official designations of rule types and effects. Some types of rules are defined in legislation; some in executive orders; other designations were the creations of administrators.

Not knowing what to call regulatory actions nor how to clearly disclose their impact is a significant but artificially created obstacle to addressing regulatory overreach. As the administrative state grows, it becomes increasingly difficult to discern the significance of the various kinds of significant and major rules--as well as of the myriad seemingly minor rules. Policy makers need to increase democratic accountability for the rules and mandates with which Americans contend by reclaiming its Article I lawmaking power and ending over-delegation to the executive branch.

To facilitate this, lawmakers should inventory and simplify the federal bureaucracy's increasingly confusing nomenclature, which includes rule categories

like "major," "non-major," "significant," "economically significant," and numerous others. That streamlining must also extend to guidance documents, memoranda, interpretive bulletins, and other issuances that agencies use to implement policy without going through the Administrative Procedure Act's notice-and-comment rulemaking requirements.

Reporting on rules, especially on major ones, could be refined by deciding between the terms "significant" or "major" rules to create more uniformity, by greatly expanding reporting of guidance, and by subjecting guidance to reforms that treat guidance and other policyimplementing agency documents like ordinary rules.

The streamlined categories could be given greater clarity by assigning cost estimate tiers to rules--such as for example, those with estimated annual costs above $50 million and below $100 million, above $100 million and below $150 million, and so on. Further clarity would come from segregating regulations by categories such as paperwork, economic, social, safety, environmental; and those addressing agency internal operations.

This regulatory complexity helps preserve a large, unwieldy, and unaccountable bureaucracy that deadens our economy and society. It is time for some nomenclature scrubbing.

Crews: What's the Difference between "Major," "Significant," and all those other Federal Rule Categories?

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Table of Contents

Introduction

3

Time for Some Nomenclature Scrubbing

3

Rules for Rulemaking: A Burst on the Administrative State's Parameters

4

Rule Classifications and Reporting Requirements Specified in the Preceding Laws and Executive Orders 9

Additional Designations Used in Disclosure

19

Conclusion

20

Notes

22

About the Author

24

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Crews: What's the Difference between "Major," "Significant," and all those other Federal Rule Categories?

Introduction Bureaucracy, rather than interaction with elected representatives, dominates the relationship of the individual to the government. The number of rules promulgated by executive branch agencies far outstrips the number of laws passed by Congress. During calendar year 2016, Congress enacted 214 laws, while agencies issued 3,853 rules. That means agencies issued 18 rules for every law passed by Congress. The average annual ratio over the past decade has been 27.1

The sheer number of rules alone makes getting a handle on the impact of federal regulation daunting, but the challenge does not end there. Further complicating the federal regulatory enterprise is an array of official designations of rule types and their effects.

Policy makers should increase democratic accountability for the rules and mandates Americans have to comply with. Congress should restore its Article I lawmaking power and end over-delegation to the executive branch. To facilitate that, lawmakers need to inventory and simplify the federal bureaucracy's increasingly confusing nomenclature, which includes rule categories like "major," "non-major," "significant," "economically significant," and many others.

This proliferation of regulatory impact nomenclature obscures where it is intended to clarify. It perpetuates a larger administrative state. Thus, it creates ever more unserviceable administrative law, publications, interpretations, and

government jobs than should exist in a free society.

A helpful prerequisite for regulatory reform would be to consolidate and simplify the rule categorizations and clarify their meaning. That streamlining should extend to guidance documents, memoranda, interpretive bulletins, and other issuances that agencies use to implement policy without following the Administrative Procedure Act's (APA) notice-and-comment rulemaking requirements.

Time for Some Nomenclature Scrubbing In the beginning, there was the "rule."2 Born alongside the rule were "interpretative" rules (also known as "interpretive" rules, today often called guidance). After two generations, "major rules" appeared. In due course, "significant regulatory actions" emerged, as did their bulkier "economically significant" brethren. Today, there are so many kinds of rule classifications that they have become indecipherable not only to mere mortals, but to regulators themselves.

The many names of the many kinds of federal regulations complicate efforts to reform the federal regulatory enterprise, especially as regulators have incentives to regulate via the least-scrutinized methods, such as by avoiding the "significant" classification or by issuing guidance documents and memoranda rather than formal rules.3

Today, there are so many kinds of rule classifications that they have become indecipherable not only to mere mortals, but to regulators themselves.

Crews: What's the Difference between "Major," "Significant," and all those other Federal Rule Categories?

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The adoption of crisscrossing and overlapping designations over time makes regulatory practice today an insider's game.

It is time for some nomenclature scrubbing. Some types of rules are defined in legislation, some in executive orders; other designations were the creations of administrators. This complexity helps maintain the large, unwieldy, and undemocratic bureaucracy that deadens our economy and society.

Rules for Rulemaking: A Burst on the Administrative State's Parameters The following overview of the regulatory oversight regime highlights instances when kinds of rules and their treatment was first demarcated. The adoption of crisscrossing and overlapping designations over time makes regulatory practice today an insider's game.

Administrative Procedure Act (1946) Offspring: "rule," "interpretative rule" The basis of the modern federal regulatory apparatus is the Administrative Procedure Act of 1946 (P.L. 79-4044). The APA established the process (Section 553) of advance notification of rulemaking and opportunity for the public to provide comment on a published proposed rule before it is finalized in the Federal Register.5 However, the APA's rulemaking process allows for a great deal of wiggle room via its "good cause" exemption, which allows an agency to deem notice and comment for certain rules as "impracticable, unnecessary, or contrary to the public interest."6 Further, "interpretative rules" (often called

guidance) and "general statements of policy" on internal agency matters are not subject to notice and comment. Interestingly, the word "regulation" does not appear in the APA.

Regulatory Flexibility Act (1980) The Regulatory Flexibility Act (RFA), signed by President Jimmy Carter in 1980, directed federal agencies to prepare regulatory flexibility analyses to assess certain of their rules' effects on small businesses and to describe regulatory actions under development "that may have a significant economic impact on a substantial number of small entities."7 The Act did not name types of rules, but is noteworthy for a couple reasons. First, it ushered in the terms "significant" and "economic," which have become central in modern regulatory review. Second, the RFA created the twice-yearly "Regulatory Agenda," a reporting instrument shortly afterward supplemented by President Ronald Reagan's Executive Order 12291, which itself contributed to the expansion of regulatory taxonomy.

Executive Order 12291 (1981) Offspring: "regulation," "major rule," reaffirms "rule" A more activist central regulatory assessment and review process was formalized by President Reagan and implemented by the Office of Information and Regulatory Affairs (OIRA) within the Office of Management and Budget (OMB). OIRA had been created earlier by the Paperwork Reduction Act of 1980, which had been signed into law

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Crews: What's the Difference between "Major," "Significant," and all those other Federal Rule Categories?

by President Carter.8 OIRA's founding charge was reducing governmental and private sector paperwork burdens. President Reagan expanded its authority in 1981 with Executive Order 12291 on "Federal Regulation."9 The order directed that OIRA, acting as central reviewer, evaluate agencies' rules and analyses, and that any new "major" executive agency regulation's benefits "outweigh" costs where not prohibited by statute, and that agencies prepare a regulatory impact analysis (which could be combined with the already required regulatory flexibility analysis) "in connection with every major rule." Independent agencies, while subject to the APA's notice-and-comment requirement, are not subject to enforceable regulatory review under executive orders.10

Executive Order 12866 (1993) Offspring: "regulatory action," "significant regulatory action," and (indirectly) "economically significant," reaffirms "regulation" and "rule" On September 30, 1993, President Bill Clinton replaced Reagan's Executive Order 12291 with Executive Order 12866, "Regulatory Planning and Review," which largely still governs today.11 The order retained the central regulatory review structure but weakened central review by "reaffirm[ing] the primacy of Federal agencies in the regulatory decision-making process." The Reagan criterion that benefits should "outweigh"12 costs became a weaker stipulation that benefits "justify"

costs.13 The order retained requirements for executive branch--not independent-- agencies to assess costs and benefits of "significant" proposed and final regulatory actions, conduct cost-benefit analysis of what are now referred to as "economically significant" (those with $100 million or more in estimated annual economic impact), and assess "reasonably feasible alternatives" for OIRA to review.

Reagan's Regulatory Agenda became supplemented by the Regulatory Plan (along with the Unified Regulatory Agenda "of the most important significant regulatory actions that the agency reasonably expects to issue in proposed or final form in that fiscal year or thereafter." E.O. 12866 also declared that for purposes of preparing the Regulatory Agenda, "the term `agency' or `agencies' shall also include those considered to be independent regulatory agencies."14 Independent agencies remained exempt from preparing regulatory impact analysis for significant regulatory actions.

Unfunded Mandates Reform Act (1995) Offspring: a statutory characterization of "regulation," reaffirms "rule" and "significant regulatory action" While it did not introduce new terms, another reform affecting the regulatory oversight process was the Unfunded Mandates Reform Act (UMRA) of 1995 (P.L. 104-4).15 Dubbed "S. 1" in the Senate, the legislation was driven largely by complaints from local and state government officials about Washington

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rules and mandates disrupting their jurisdictions' budgetary priorities. The bill required the Congressional Budget Office to produce cost estimates of a regulation or rule (using the APA's meaning) imposing mandates that affect state, local, and tribal governments that it determines to rise above a then-$50 million threshold (now $77 million) and the private sector by over $100 million.

The U.S. Government Accountability Office (GAO) has noted numerous exceptions to the requirement to conduct analysis under UMRA over the years, which have undermined its usefulness.16 For example, while the $100 million threshold for preparing detailed "written statements" appears, the requirement holds only "before promulgating any final rule for which a general notice of proposed rulemaking was published." Proposed rulemakings often are not published in the first place, so the statements are sometimes not triggered.17 Also, as the Congressional Research Service has noted, the $100 million applies to "expenditures" imposed on lower-level governments or the private sector, which are different from the less direct economic effects that help determine rule significance.18

Comptroller General of the Government Accountability Office "a copy of the rule" (which includes guidance as well) and a descriptive statement including whether or not it is "major."19 The CRA was passed with significant bipartisan support as Section 251 of the Contract with America Advancement Act, which also contained the Small Business Regulatory Enforcement Fairness Act, which itself updated the Regulatory Flexibility Act.

Under CRA, the GAO submits reports to Congress on major rules--those with at least $100 million in estimated annual costs--that are maintained in a GAO database.20 The CRA gives Congress 60 legislative days to review a final major rule and pass a resolution of disapproval, which gets expedited treatment in the Senate. The CRA is one of the more important recent affirmations of congressional authority over regulation, but until the Trump administration's rejection of 14 rules as of August 2017, only one rule had been rejected--a Labor Department rule on workplace repetitive-motion injuries in early 2001. Agencies often fail to submit final rules properly to the GAO and Congress, as required under the law.21

Congressional Review Act (1996) Offspring: a statutory definition of "major rule," reaffirms "rule" The 1996 Congressional Review Act (CRA) requires agencies to submit to both houses of Congress and to the

Regulatory Right-to-Know Act (2000) Offspring: "non-major rule," reaffirms "major rule" Passed as part of the Treasury Department appropriations bill in 2000,22 the

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Crews: What's the Difference between "Major," "Significant," and all those other Federal Rule Categories?

Regulatory Right-to-Know Act formalized in statute the requirement for OMB to prepare an annual report to Congress "containing an estimate of the total annual costs and benefits of Federal regulatory programs, including rules and paperwork":

? In the aggregate; ? By agency, agency program, and

program component; and ? By major rule.23

This annual submission, the primary federal government document outlining some costs and benefits of major rules to the public, is now called Report to Congress on the Benefits and Costs of Federal Regulations and Agency Compliance with the Unfunded Mandates Reform Act.24

Executive Order 13422 and OMB Director Portman Bulletin on Guidance (2007) Offspring: "guidance document," "significant guidance document," "economically significant guidance document" President George W. Bush's Executive Order 13422, amending President Clinton's E.O. 12866, required identifying "the specific market failure" that regulations were presumed to address rather than general ones. The new order also subjected significant guidance to OMB review by stipulating that agencies provide OIRA "with advance notification of any significant guidance documents."25

Rob Portman, OMB director at the time and now a Republican senator from Ohio, issued shortly thereafter the 2007 Final Bulletin for Agency Good Guidance Practices--in effect, guidance for guidance.26 With respect to "significant guidance documents," and "economically significant guidance documents," some executive--though not typically independent--agencies comply or make nods toward compliance with the Good Guidance Practices (GGP), which include elements such as public participation, review, transparency, and publishing some of their guidance documents online. But like non-major rules or those not deemed significant, there is a great deal of lesser agencyissued guidance or potentially undeclared significant guidance that is not reviewed.27

Obama Executive Orders on Regulation President Obama's Executive Order 13497 revoked Bush's E.O. 13422 on guidance early in his presidency, but in March 2009, then-OMB Director Peter Orszag issued a memorandum to "clarify" that "documents remain subject to OIRA's review under [longstanding Clinton] Executive Order 12866."28

In 2011, President Obama issued three executive orders regarding regulation:

? Executive Order 13565, "Improving Regulation and Regulatory Review," which reaffirmed Clinton's Executive Order 12866 and expressed a pledge to address unwarranted

There is a great deal of lesser agency-issued guidance or potentially undeclared significant guidance that is not reviewed.

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