It's Time to Regulate the Regulators

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For the past 30 years, first under President Reagan's Executive Order 12291, and then succeeded by President Clinton's Executive Order 12866, U.S. government executive branch agencies have been required to prepare a regulatory impact analysis, including a cost-benefit analysis, for all major federal administrative rules ("regulations") having an annual effect on the economy of $100 million or more, or those having an adverse effect on the economy or a federal agency action. Yet over this same three decades there has been a major exclusion to this cost-benefit requirement: all independent regulatory agencies of the federal government. These independent agencies include the Federal Communications Commission, the Securities Exchange Commission, the National Labor Relations Board, and the Consumer Product and Safety Commission. Independent agencies, while constitutionally part of the executive branch, exist outside of executive departments and are thus not directly accountable to presidential authority.

How extensive are federal independent agencies' promulgation of major regulations? For 2011, the U.S. Government Accountability Office (GAO), an independent, nonpartisan agency that performs investigative work for the U.S. Congress, reported that independent agencies issued a total of 17 major final rules in 2011. The GAO reported that none of these 17 rules assessed both anticipated benefits and costs. Of these 17 rules, only seven actually underwent a cost analysis, with six of these rules being issued by the Securities and Exchange Commission. In 2010, there were also 17 major final rules issued by independent agencies with no complete cost-benefit analysis, while in 2009, there were 13 major final rules issued by independent agencies with no complete cost-benefit analysis. The GAO estimated that there were nearly 200 major final rules issued by independent agencies between 1996 and 2011, with none of these rules requiring a cost-benefit analysis incumbent upon major regulations issued by executive branch departments.

The fact that federal independent agencies are exempt from mandatory cost-benefit analysis has not gone unnoticed, with the American Bar Association recommending in 1986 that cost-benefit analysis of major new rules be made mandatory for these exempt agencies. Interest in pursuing cost-benefit analysis for independent agency rulemaking re-emerged a quarter century later. In August 2011, Sally Katzen, former Clinton Administrator of the Office of Information and Regulatory Affairs, Office of Management and Budget, called for an extension of Executive Order 12886 requirements of cost-benefit analysis and centralized review to all independent agencies. Shortly thereafter, in January 2012, the Obama Administration's Council on Jobs and Competitiveness recommended that Congress require independent agencies to conduct cost-benefit analysis for economically significant regulations.

The methodology of cost-benefit analysis has not been without controversy, as critics rightly point out its analytic limitations in monetizing costs and (especially) benefits when it is applied in evaluating federal regulations. Nevertheless, with these methodological limitations considered, cost-benefit analysis can help independent agencies select regulations that have positive net social benefits for American society; play an important role in evaluating the economic impact of uncertainty on the net benefits of different proposed regulations; assess the potential value of new information on the design of new regulations; and assist in identifying critical weaknesses in the understanding of specific regulations while revealing how sensitive the its' results are under different policy assumptions.

In August, U.S. Senators Susan Collins (R-ME), Rob Portman (R-OH), and Mark R. Warner (D-VA) introduced "The Independent Agency Regulatory Analysis Act of 2012" (S.3468). This bipartisan bill would grant the President the authority to require that independent agencies produce a regulatory impact analysis on major proposed or new regulations that take into account the quantified costs and benefits of the rules (where feasible), and consider less costly alternatives. Furthermore, under S.3468 the independent agencies would submit significant proposed and final major rules, along with supporting agency analysis, to the Office of Information and Regulatory Affairs (OIRA) for review. Although OIRA would not be granted the authority to reject a major new rule, the agency could evaluate the quality of the independent agency's cost-benefit analysis and release its analytic assessment for public review. If OIRA found that an independent agency failed to comply with regulatory impact analysis requirements, the agency could be obligated to respond to OIRA's assessment and justify its underlying analysis of the proposed or new major rule.

While it is unlikely that the Senate Committee on Homeland Security and Governmental Affairs will seriously consider this bill in the remaining months of this Congress, it will likely return in the new 113th Congress. Importantly, a federal independent agency still retains final rulemaking authority and therefore maintains its "independence", as the proposed legislation does not grant OIRA the authority to reject a major new rule. What S.3468 will do is require that federal independent agencies perform reasonable due diligence in evaluating the economic impact of major rules on the American economy, providing important monetized cost and benefit information that informed commission and board members should consider in their decision-making process. This is regulatory accountability that is long overdue.


Thomas Hemphill ( is a policy advisor to The Heartland Institute, and professor of strategy, innovation and public policy, School of Management, University of Michigan at Flint. 

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