Thursday, April 6, 2023: President Biden Issued “Modernizing Regulatory Review” Executive Order
Move Expected to Significantly Reduce Number of Regulations Subject to OMB Review
Includes Proposals as to How Federal Agencies May Spend Grant Monies
June 6, 2023 Comment Deadline on Proposed Changes to OMB Circulars A-4 & A-94
President Biden issued a new Executive Order (“E.O.”) titled Modernizing Regulatory Review. This Executive Order follows up on a memo the President issued on January 20, 2021 (his first day in office). The Executive Order directs the Office of Management and Budget (OMB) to change the criteria for proposed agency regulations subject to rigorous review by OMB in a way that will significantly reduce the number of proposed Rules OMB will “rigorously” review with cost-benefit analyses.
Wasting no time, OMB issued proposed Rules, discussed below, contemporaneously with the President’s publication of his April 6 Executive Order. These proposed Rules seek to change key OMB guidance documents prescribing how federal agencies calculate costs and benefits (Circular A-4) and how federal agencies may spend federal grant monies (Circular A-94).
These changes will “focus federal agency and Office of Information and Regulatory Affairs [(“OIRA”)] time and resources where they can have the greatest positive effect,” OIRA Administrator Richard L. Revesz in a corresponding blog.
“Significant Regulatory Action” Parameters
This is important. The new E.O. also increased the economic threshold for a “significant regulatory action” subject to “rigorous” regulatory cost-benefit analyses of those actions that have an annual effect on the economy of $200 million or more (up from the previous $100 million). It also directed the Office of Information and Regulatory Affairs (“OIRA”) Administrator to adjust this threshold for GDP growth every three years.
Note: Learning from Chick-fil-A: As federal regulatory activity has increased, especially in this Administration, we have observed OMB falling further and further behind on its docket. OMB has been suffering MUCH longer intervals between agency submission for approval and OMB disgorging its changes and approvals of agency proposals. One way to catch up is to simply shorten the line at the counter by creating a “drive though lane” (ala Chick-fil-A) and thus reduce the amount of work in line to process. Champagne corks are now popping throughout the federal agencies as they see these changes as giving them permission to take a shortcut to new requirements they wish to impose on their regulated communities. Now, the federal agencies may simply draft proposed Rules of less than $200 Million and will now get a “drive through” OMB approval. The federal agencies will also now chop their regulatory proposals into multiple smaller Rules so as to qualify for the “drive through” lanes at OMB.
President Jimmy Carter (D), a retired Navy nuclear engineer in Admiral Rickover’s nuclear Navy, first ordered up rigorous quantitative cost-benefit analyses after running for President on a platform of shrinking the federal government and getting its budget (then starting a small swell) under control. The federal government agencies, however, have always disliked President Carter’s required cost-benefit analyses. This is because cost-benefit analyses serve as an impediment to making changes to their regulatory enforcement schemes. Moreover, cost-benefit analyses transparently reveal to the public the economic impacts their Rules will have and weigh and balance those costs against the expected benefits from the proposed Rules.
And, at least until the Obama Administration—at which time the White House and Congress first ushered in the current era of unusually large national debts—OMB followed Jimmy Carter’s lead and looked at a federal agency’s economic impact requests as a “fixed pie.” That meant that an agency could not justify a change by suggesting the public incur more cost. Rather, OMB–before 2010–expected the agency proposing to change its regulatory scheme (absent new statutory authorizations which required new staffs and budgets), to give up some existing impact OMB had already approved. In other words, you could rearrange “the pie,” but could NOT enlarge it. (No McDonalds Supersizing allowed!)
For example, in her 2000 Rules installing a major overhaul of OFCCP’s Executive Order 11246 Rules, then OFCCP Director Shirley Wilcher created the concept of an “Organizational Profile” (an organizational chart in effect) as an alternative to OFCCP’s then more detailed and costly “Work Force Analysis.” OMB then allowed Shirley to transfer the projected cost savings to contractors (achieved from use of the “Organizational Profile” in lieu of the “Work Force Analysis”) to enact NEW regulatory requirements burdening federal contractors. For the first time, Shirley required covered federal Government contractors to undertake statistical analyses of hires, promotions and involuntary terminations of employment (so-called “Disparity Analyses” now contained at 41 CFR Section 60-2.17). The “economic impact” OMB had previously allowed OFCCP thus did NOT expand. Rather, OFCCP’s OMB-approved economic impact on contractors just changed as to the driver of the allowable impact.
Today’s OMB allows federal agencies to build bigger “pies” without giving up some existing “burden allocation” OMB has already approved for the agency. The new OMB Proposal would now go further and provide federal Executive Branch agencies an “unlimited spending checkbook” (up to $200 Million). In other words, OMB will, pursuant to the Proposal on the table, now accept agency spending uncritically if (a) it is in line with the President’s priorities, (b) does not interfere with the regulatory schemes of other federal agencies; and (c) does not exceed $200 Million worth of impact per year on the regulated community.
So, What Else Makes a Federal Agency Proposed Rule a “Significant Regulatory Action” Other than that it Must Now Have an Economic Impact of Greater Than $200 Million?
- It is likely to result in a rule that may 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, territorial, or tribal governments or communities;
- It creates a serious inconsistency or otherwise interferes with an action taken or planned by another agency;
- It materially alters the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or
- It raises legal or policy issues for which centralized review would meaningfully further the President’s priorities or the principles set forth in the E.O., as specifically authorized in a timely manner by the Administrator of OIRA in each case.
What Does This Mean for Employers and Federal Contractors?
For those regulatory actions that do not meet the above criteria, OMB is going to basically approve uncritically any Rule which does not offer $200 Million or more economic impact on the public. Thus, virtually every OFCCP (and employment law) proposed Rule will now enjoy at OMB a resistance-free “rubber stamp,” other than possibly some Fair Labor Standards Act issues (such as Rules proposing changes to exemptions from overtime and independent contractor status which might exceed $200M of economic impact on those who/which would be affected by the change).
Broader Public Participation
In addition, the E.O. directs the OIRA to take steps to encourage greater public participation, particularly among “underserved communities.” “OIRA has already been engaging with members of the public to seek feedback on ways to improve public participation in the regulatory process, and the executive order will build on this progress,” Administrator Revesz pointed out in his blog.
Proposed Rulemaking Changes in Response to Biden’s Executive Order
OIRA Administrator Revesz also announced via his blog that “OIRA is issuing proposed revisions to its government-wide guidance on regulatory analysis, Circular A-4, to help agencies better account for the full range of benefits and costs of their regulatory actions.“ The April 7 Federal Register notice of that proposal is here. Comments are due by June 6, 2023, and may be submitted here.
Circular A-4 was last updated in 2003. “Among other things, the proposed revisions aim to help agencies better account for the value of future regulatory effects and provide the greatest benefits for the American people,” Revesz wrote. “Specifically, the revision updates the discount rate that translates future costs and benefits into present-day values, provides greater support for analyzing distributional effects, and provides more thorough guidance for accounting for risk and uncertainty.”
Grant Monies Spending Revisions Also Proposed
OMB also proposed revisions to Circular A-94, last revised in 1992, which provides guidance on how federal grant money is spent each year. Circular A-94 guidance is separate from Circular A–4, which covers benefit-cost analysis of regulations, rather than spending. Comments are due by June 6, 2023, and may be submitted here.
Other Relevant & Related Documents
Additional documents relevant and related to the above actions include:
- Administrator Resvesz’s memo to regulatory policy officers at executive departments and agencies;
- OMB’s April 7 Federal Register notice requesting nominations of experts to peer review draft revisions of Circular A-4 – nominations may be emailed to MBX.OMB.OIRA.A4PeerReview@omb.eop.gov (subject line: Peer Review Nomination for Updating Circular A–4) no later than April 28, 2023; and
- OMB’s April 7 Federal Register notice requesting public comments on implementing Section 2(e) of the “Modernizing Regulatory Review” E.O. – submit comments here on or before June 6, 2023.