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Monday, October 3, 2016

The Most and Worst Regulations Secretly Pass ‘Round Midnight

The lame duck president loves to regulate.

The Obama administration is on a regulation streak as President Obama works hastily to implement his policy goals before he leaves office. Narrowing the overtime pay exemption, limiting attorney-client privilege, treating e-cigarettes as tobacco products, and makingfinancial advice more costly are the results of just a few recent major executive branch regulations. All of these regulations were finalized this year, but could there be more so-called “midnight regulations” coming?

George Washington University Regulatory Studies Center’s Sofie Miller, the coauthor of a recent study on midnight regulations, explains the motivation behind President Obama’s regulatory onslaught over the past few months. She also lets us know what to expect from regulators before the new president takes the oath of office.

Jared Meyer: Your paper looked at the last three presidential transitions (Bush 41 to Bush 43) to see if there was any increase in “economically significant” or “major” rules during the final months of a president’s term. What did you find?

People might assume that there is not much regulatory activity going on in the final months of a presidency, but that is not the case.Sofie Miller: Our report, which I coauthored with my colleague Daniel Pérez, found strong empirical evidence of ramped up regulatory activity leading up to a presidential transition, which is typically referred to as the “midnight” period. People might assume that there is not much regulatory activity going on in the final months of a presidency, but that is not the case. During the midnight period, regulators are extremely active as they attempt to wrap up their outstanding regulatory priorities before a new president with new directives can change the course of their work.

Our report included a regression model, which finds that there is a statistically significant increase in economically significant rules after the November presidential election and before the next president is sworn in. While on average we see about four economically significant rules per month, our models predict that the number will increase threefold to 12 economically significant rules per month from November 2016 to January 2017. That adds up to the issuance of at least $1.2 billion in regulatory effects on the economy per month during the midnight period.

However, this increase in regulatory activity is only true for executive branch agencies, such as the Environmental Protection Agency and the Department of Labor. Independent agencies, such as the Consumer Financial Protection Bureau and the Securities and Exchange Commission, have historically not shown much of a surge in midnight regulation. This tells us that the structure of independent agencies, whose members do not all change after the election, alters the incentives of the regulators.

JM: Your findings seem intuitive. After all, why would presidents not want to get through as many regulatory changes as they could before they leave office? Are there any other concerns over midnight regulations besides their number?

SM: In addition to the sheer onslaught of new rules, midnight regulations can be problematic because the last-minute rush to regulate has been tied to less-thorough analysis, along with fewer opportunities for the public to participate in the rulemaking process. We know that rigorous regulatory analysis and public input are both crucial building blocks for a healthy regulatory process, and shortcutting these important inputs can lead to worse regulatory outcomes.

The regulatory process is especially important here because these last-minute rules tend to be the biggest ones: those economically significant rules that I mentioned earlier. Our report includes a probabilistic model that predicts that agencies will issue 60 economically significant rules from now until a new president is sworn in in January—that is at least $6 billion in annual regulatory impact, squeezed into just five short months. While the costs and benefits of those rules will be initiated during the Obama administration, their effect will continue to be felt during the next presidential administration and beyond.

JM: I thought the final push for significant regulations came before June. Can’t the next Congress and president repeal regulations that were issued during the midnight period by using their powers under the Congressional Review Act?

Historically, we have seen a major surge in midnight rules after the November presidential election.SM: The Congressional Review Act, which gives Congress the ability to pass a binding resolution of disapproval for a major rule, is a powerful tool—but it has only been used successfully once, and that was in 2001. In addition, the CRA is a “blunt” tool: after Congress passes a resolution of disapproval, the agency is prohibited from issuing a rule that is “substantially the same,” so it is not the proper tool for fine tuning a regulation.

Historically, we have seen a major surge in midnight rules after the November presidential election, despite those rules being technically eligible for CRA review. Because the CRA is a blunt tool that does not have a strong track record, we can anticipate that most, if not all of these rules, will survive through the next administration.

JM: Assuming that Congress does not use the CRA, is there any expedited process that the new administration can use to roll back midnight regulations passed in the last few months of President Obama’s term? Or does undoing midnight regulations still require the full regulatory process?

SM: Revising or withdrawing already-issued final rules will require restarting the rulemaking process from scratch. Still, there are a number of tools that the next President and Congress can use to tinker with a previous administration’s midnight regulations if they have not been published yet. Some of these are 1) withdrawing final rules that have yet to be published in the Federal Register, 2) requiring all final rules to be signed off on by the new administration before being published, and 3) delaying the effective date of new regulations. But these tools are used more for delay and making minor tweaks than for all-out regulatory rollback.

Another option is for the next administration to use the courts. For example, big rules like the Clean Power Plan and Waters of the United States will be litigated in the next few years, meaning the next administration can decide how vigorously it decides to defend in court the rules it doesn’t like. Ultimately, though, the vast majority of these rules will likely remain on the books, no matter who the next president is. 

JM: Even though you only looked at the last few administrations, I assume this was still a problem long before George H.W. Bush was finishing his term. What do the data show?

SM: That is exactly right: scholars have documented the midnight regulation phenomenon going back as far as 1948. History shows that midnight regulations are a bipartisan problem, affecting both outgoing Republican and Democrat administrations.

JM: How does the Obama administration compare to its predecessors? And is there still time to push through any more significant rules?

SM: In comparison to previous administrations, the Obama administration has issued more economically significant rules on average, and we expect that to continue during the midnight period as well. Drawing on historical rulemaking data, our model predicts a high likelihood—greater than 70%—that executive agencies will issue more economically significant rules during Obama’s midnight period than they did during any of his recent predecessors’. I mentioned earlier that we predict 60 economically significant rules between now and January 2017. For comparison, Bush 41, Clinton, and Bush 43 issued 41, 45, and 49 economically significant rules during the same time period, respectively.

While the “lame duck” session of Congress receives plenty of attention, midnight regulations are able to fly well below the public’s radar. There is still plenty of time for agencies to finalize dozens of new economically significant rules before the start of a new administration. Historically we see most midnight regulations issued after the November presidential election, so executive regulatory agencies will likely have a very busy fall ahead of them.

JM: In your opinion, what is the most harmful executive agency regulation that was finalized this year?

SM: Just last month, EPA released a pre-publication draft of its final fuel economy standards for medium and heavy-duty trucks, which would ban certain vehicles from the market and has a low-end cost estimate of $29 billion. These corporate average fuel economy (CAFE) standards are just the latest in a slew of rules that are driven by a misguided notion that government is a better judge of individual families’ and companies’ preferences than they are themselves. DOE is also prolific in this arena, and since January has already finalized eight energy efficiency standards for everyday appliances that increase prices, reduce choices, and are particularly harmful to low income families.

JM: While the “lame duck” session of Congress receives plenty of attention, midnight regulations are able to fly well below the public’s radar. In addition to the increase in economically significant regulations, the decrease in the quality of regulations over the last months of an administration should be a major concern for the public and lawmakers. Unfortunately, when it comes to regulating, the Obama administration is not done yet.

This article originally appeared on Forbes