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The Regulatory Improvement Act: A 'Least-Best' Solution for Regulatory Inefficiency

Monday, September 30, 2013

A commission with teeth is needed to review and eliminate outdated and inefficient regulations.

On July 30, 2013, U.S. Senators Roy Blunt (R-Missouri) and Angus King (I-Maine) introduced the Regulatory Improvement Act of 2013 (S. 1390). If passed into law, the act will create in the legislative branch a nine-member, bipartisan “Regulatory Improvement Commission” with the intention of reducing compliance costs, encouraging economic growth and innovation, and improving national competitiveness. The Commission is charged with researching, reviewing, and providing recommendations for modifications, consolidation, or repeal of administrative rules (“covered regulations”) governing an industry sector or specific area that are considered outdated, duplicative, or inefficient. During this review process, the Commission will evaluate the effectiveness of specific regulations by employing quantitative metrics; industry, federal agency, and public testimony and comment; and staff research to reach its final conclusions and recommendations in a report delivered to both houses of Congress. After expedited congressional committee review, the recommendations will be considered by members on a straight up-or-down vote without amendment.

Since 2002, every annual edition of the Federal Register has contained over 70,000 pages of text, with the annual average volume during this period exceeding 75,000 pages.

“Missourians and job creators nationwide,” said Senator Blunt, “are burdened with too many confusing, inefficient, and duplicative government regulations that continue to stifle economic growth.” Senator King adds that “business owners and entrepreneurs in Maine regularly tell me that the single greatest obstacle to their economic growth continues to be overly burdensome regulations, but as thousands of more rules are promulgated every year, Congress isn’t taking any serious steps to address the mountain of regulations that already exist.”

The co-sponsors of the bill emphasize that the Commission does not target regulations “essential to broad priorities like the environment, public health, and safety.” Nor is the goal of the Commission to circumvent congressional, executive, or agency authority, but instead “to complement existing procedures and create a mechanism that acts expeditiously and incorporates broad stakeholder input,” with public and stakeholder involvement identifying outdated regulations. The Commission will operate for a designated period of time, with congressional reauthorization required each time a retrospective regulatory review is requested.

The senators argue that past retrospective regulatory reviews have fallen short, either because agency staff limitations or bureaucratic inertia have limited the ability of agencies to reduce outdated, duplicative, or inefficient regulations, or because the retrospective review processes tend to focus on regulations in isolation, rather than evaluating the cumulative economic impact of regulations both within and among federal agencies. The U.S. Code of Federal Regulations (Federal Register), first established in 1936, contains all the nation’s administrative rules, proposed administrative rules, presidential documents, and federal agency documents. Since 2002, every annual edition of the Federal Register has contained over 70,000 pages of text, with the annual average volume during this period exceeding 75,000 pages. Furthermore, the Office of Management and Budget (OMB) estimates that annual compliance costs for administrative rules issued over the last decade range between $57 and $84 billion. More regulation is on the way. James L. Gattuso and Diane Katz of the Heritage Foundation have recently identified 131 major regulations (each having an expected economic impact of at least $100 million in annual compliance costs) on the Obama administration’s agenda, including many implementing Dodd-Frank and the Affordable Care Act.

In past years, regulatory self-review processes have been undertaken by the federal government with limited success at best.

In past years, regulatory self-review processes have been undertaken by the federal government with limited success at best. Most recently, President Barack Obama in 2011 signed Executive Order 13563, Improving Regulation and Regulatory Review, which required the OMB’s Office of Information and Regulatory Affairs to conduct a comprehensive review of all regulations by federal agencies under the authority of the executive branch (thus exempting independent agencies from this requirement). The results of this high-profile Obama administration regulatory review and effectiveness initiative did not have a noticeable positive impact on an important sector of the U.S. economy – the American small business community. As reported in the August 2013 “Small Business Optimism Index” survey conducted by the National Federation of Independent Business, the nation’s premier small business association, 21 percent of its membership surveyed cited “government regulations and ted tape” as a major concern for future growth and business optimism, up significantly from 13 percent in its January 2011 survey results.

If the Regulatory Improvement Act appears draconian, it is because that is what it is meant to be, as both Senate sponsors have concluded that the present federal regulatory environment for obtaining effective retrospective review warrants a blunt public policy response. This proposed legislation is modeled on the congressionally authorized Defense Base Realignment and Closure Commission (BRAC Commission), an independent, bipartisan commission established in the late 1980s whose purpose is to reduce the number of military facilities in the United States. If a blunt public policy mechanism is to be offered, this model has a history of success. The BRAC Commission is responsible for successfully recommending to Congress the closure or realignment of some 200 major military installations over five rounds in 1989, 1991, 1993, 1995, and 2005, resulting in billions of dollars in net revenue saved.

As Thomas Stemberg, founder of Staples, wrote in an op-ed in the Wall Street Journal: “The BRAC Commission gave politicians what they crave most: cover. Nobody back home could blame them for losing a military base. The King-Blunt proposal will give representatives the same cover with regulations.” Furthermore, like the BRAC Commission, the Regulatory Improvement Commission operates for a designated period of time and requires congressional reauthorization each time a retrospective regulatory review is requested.

Sam Batkins, director of regulatory studies at the American Action Forum, and Ike Brannon, director of research at the R Street Institute, insightfully argue in their article in Regulation: The Cato Review of Business and Government (Summer 2013):

Once government implements a rule, no one pays any heed to how well – or whether – it is working and it is scarcely thought of again, except by those who must devote resources to it. . . . We need to force the government regulatory bureaucracy to re-examine regulations and make an attempt to improve them whenever possible.

If the Regulatory Improvement Act appears draconian, it is because that is what it is meant to be.

The proposal of a heavy-handed retrospective regulatory review mechanism, as embodied in the Regulatory Improvement Commission, is a public acknowledgement that our democratic institutions are not effectively working. The Regulatory Improvement Commission offers a pragmatic solution to reining in regulatory expenses by holding the federal government accountable for its decisions – at least, in this case, for a modest, reasonable expectation of reducing the economic impact of outdated, duplicative, and inefficient regulations on a sputtering U.S. economy. Regrettably, there is little evidence that previous retrospective regulatory reviews offered through traditional institutional processes have reduced federal regulatory costs for American businesses and consumers. In this case, S. 1390 should be regarded as the “least-best” potential solution for a public policy problem with long-term, negative economic consequences. Over the last two months, there have been no additional Senate co-sponsors of S. 1390, any companion bill introduced in the House of Representatives, nor a groundswell of support from traditional business interests, leaving one to conclude that this will be an uphill battle for eventual Congressional passage.

Thomas A. Hemphill is associate professor of strategy, innovation and public policy at the University of Michigan-Flint’s School of Management.

FURTHER READING: Hemphill also writes “The Paradox of Patent Assertion Entities” and “Deregulating Occupations: Is Michigan Leading the Way?”James Pethokoukis contributes "10 More Things House GOPers Should Demand Before Raising the Debt Ceiling." Arnold Kling explains “Why We Need Principles-Based Regulation,” while Jeffrey Eisenach asks "Can the FCC Regulate the Internet?" Mark J. Perry shares “Red Tape Facts: Regulatory Costs Are Now the Second Largest Item in a Typical Family’s Budget” and "Federal Regulations Reduce Economic Growth and Make Us All Poorer. Exhibit A: The sad case of Marty the Magician."

Image by Dianna Ingram / Bergman Group

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