The Heritage Foundation

Executive Memorandum #367 on Regulation

October 8, 1993

October 8, 1993 | Executive Memorandum on Regulation

Clinton's Regulatory Reform is Not Likely to Cut Red Tape

President Bill Clinton last week signed an executive order outlining the process by which his Administration will oversee rule-making by federal agencies. The President claims the new procedure will "lighten the load for regulated industries and make government regulations that are needed more efficient." Unfortunately, that is unlikely to be the result.

The new executive order does retain much of the White House review system set up by Presidents Carter, Reagan, and Bush -- which did rein in excessive rule-making to some degree. But the Clinton order also creates loopholes which will allow regulatory activists to pursue their agenda, making it unlikely that the flow of red tape will diminish. Federal regulation is conservatively estimated to have cost the economy between $595 billion and $667 billion in 1992.

One such loophole is that the order gives more power to the federal agencies and a reduced role to the Office of Information and Regulatory Affairs (OIRA) located within the Office of Management and Budget. During the Reagan years, the function of OIRA was extended beyond minimizing the agencies' paperwork requirements to making sure that agencies conducted cost-benefit analyses on proposed regulations. The office was overshadowed during the Bush Administration by Vice President Dan Quayle's Competitiveness Council, which acted as a referee between federal agencies and tried to reduce the burden of new regulations. OIRA still retains a role in the regulatory process in the new order. But the order declares that a purpose of the new procedure is "to reaffirm the primacy of Federal agencies in the regulatory decision-making process" -- essentially ending OIRA's critical role as a restraint on excessive regulation by agencies.

Under the order, OIRA will review only those regulations that it or the agencies consider "significant," or will cost the economy more than $100 million annually. This is not crucially different from the procedure under the Reagan Administration, when OIRA played a key role in overturning costly regulations. But there is now to be a subtle but significant change. If OIRA and the agency cannot agree on what is a "significant" regulation, the dispute is to be resolved by Vice President Gore, who has shown an inclination to side with proponents of regulation. Moreover, OIRA must now review agency submissions under very strict timetables. OIRA Administrator Sally Katzen has said that this could cut by one-third the number of regulations OIRA has time to review.

New Age Cost-Benefit Analysis
To its credit, the executive order retains the cost-benefit basis for regulatory review set up under Reagan. And the order recommends that agencies consider the "degree and nature" of risks in setting regulatory priorities and identify alternatives to regulation such as "marketable permits." The problem is that the executive order also contains language that potentially could undermine the cost-benefit test. For instance, it expands the definition of costs and benefits to include not only "quantifiable measures" but also "qualitative measures... that are difficult to quantify," such as "the enhancement of health and safety, the protection of the natural environment, and the elimination or reduction of discrimination or bias." Because these types of benefits are impossible to quantify, it will be much easier for an agency to claim that the benefits of a proposed regulation outweigh the costs.

For the first time, the Vice President is explicitly named as "the principal advisor to the President" on regulatory policy. Al Gore, who is an outspoken environmentalist and was a strident critic of the now defunct Competitiveness Council, is given responsibility for coordinating "the development and presentation of recommendations concerning regulatory policy, planning, and review, as set forth in this executive order." A review of the first nine months of the Clinton Administration suggests that the Vice President is unlikely to stand in the way of aggressive regulatory agencies. Example: As of this October 1, the number of pages in the Federal Register (51,563), in which all new regulations are published, exceeded the pages from last year (45,558) by roughly 10 percent.

Example: The Clinton Administration already is using executive orders, thereby circumventing the public notice and comment provisions of the Administrative Procedures Act, to enact environmental policies with significant implications for industry. Benchmarks for Success. The next few months will tell Americans just how serious the Clinton Administration is when it pledges to reduce the burden of red tape, and it will show whether the executive order does indeed open the door to regulatory mischief. And while the Clinton Administration could hardly be expected to lead a crusade against regulation, there are a number of actions the White House should take to show it is serious about regulatory relief. For example, it should:

Conduct a thorough review of existing regulation. To Clinton's credit, the executive order calls on federal agencies to submit to OIRA within ninety days a policy under which the agency periodically will review "existing significant" regulations to determine whether any of these can be eliminated. Vice President Gore and the OIRA administrator must prove to the American people that this is not a meaningless exercise.

Adopt the Airline Commission's recommendation to implement a regulatory budget. The National Commission to Ensure A Strong Competitive Airline Industry report recommends that the Federal Aviation Administration subject regulations, except for emergency safety regulations, to an annual regulatory cost budget. Such a budgetary frame of reference would compel regulators to consider the overall cost picture as they look at individual regulatory issues. The Clinton Administration should adopt and expand upon this, recommending that other agencies experiment with this idea.

Insist that all federal mandates be fully funded by Congress and administered by the federal government. At the very least, the Clinton Administration should adhere to its National Performance Review report recommendation that "The President should issue a directive limiting the use of unfunded mandates by the Administration." OIRA should also make sure that the agencies adhere to the executive order's requirement that they assess the ability of state and local governments to carry out federally regulated mandates.

Fulfill Gore's pledge to strengthen the Regulatory Flexibility Act and support the proposed Paperwork Reduction Act Amendments. Although neither of these legislative measures would by themselves roll back the regulatory tide, they enjoy bipartisan support in Congress. Moreover, legislation has been introduced to implement the National Performance Review recommendation that there be judicial review of the Regulatory Flexibility Act, thereby putting teeth in a statute meant to ensure that agencies consider the impact of proposed regulations on small business. In addition, the Administration should work for passage of the Nunn- Danforth-Bumpers Paperwork Reduction Act, which would, among other things, overturn the 1990 Dole v. United Steelworkers of America decision that currently exempts over a third of agency rule-making from OIRA paperwork review.

In a perfect world, the language of President Clinton's executive order might achieve his goals of easing the regulatory load on business and creating a more streamlined regulatory system. But in the world within the Washington Beltway, and judging from the early record of the Administration, the new executive order creates a review process that will in practice be exploited by regulatory activists inside and outside the government. The American economy is not likely to experience any significant reduction in the mountain of red tape created by Washington.

Susan M. Eckerly, former Walker Senior Policy Analyst in Economics and Deputy Director of Domestic Policy Studies

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