Regulatory reform bill’s public hearing requirement will hinder agencies’ attempts to regulate.
Professor Kent Barnett recently opined in The Regulatory Review that formal rulemaking really is not that bad and may actually be a good thing in certain circumstances. His argument deserves closer review because the proposed Regulatory Accountability Act (RAA) would require the equivalent of formal rulemaking—or what the bill calls a “public hearing.” Barnett may well be right to suggest that in some situations the costs of formal rulemaking could be justified, but he could not be more wrong to argue that the circumstances that would trigger formal rulemaking under the RAA are among those situations.
As Barnett acknowledges, the U.S. Supreme Court, scholars, policy makers, and other interested parties all have condemned formal rulemaking. Why? Because formal rulemaking utilizes a judicial, trial-like procedure to adopt rules that are legislative, not adjudicative, in nature. Therefore, its procedural requirements are fundamentally at odds with the nature of legislative decision-making.
Ever since the beginning of the last century, when the Supreme Court decided cases such as Londoner v. Denver and Bi-Metallic Investment Company v. State Board of Equalization, the law has recognized the essential difference between proceedings that decide adjudicative facts applicable to a particular person, and proceedings applying more general and universal legislative facts. Even the authors of the Administrative Procedure Act (APA) recognized this distinction.
The legislative history of the APA reveals that, although nearly identical language was used to trigger formal procedures in adjudication and rulemaking, the triggering language for formal adjudication was meant to be more liberally interpreted than for formal rulemaking, precisely because of the distinction between adjudication and rulemaking. That legislative intent was given effect by the Supreme Court in its seminal cases of United States v. Allegheny-Ludlum Steel Corporation and Florida East Coast Railway Company v. United States, in which the Court recognized the distinction between rulemaking and adjudication and the difference in the appropriate procedures for both.
More recently, the Administrative Conference of the United States, an entity whose members comprise private practitioners, agencies, and legal scholars, likewise has concluded that formal rulemaking procedures are “cumbersome” and only “rarely” appropriate for legislative rulemaking.
Despite all this, Barnett has made five arguments in favor of formal rulemaking—none of which withstand scrutiny.
First, relying on a law review article by Professor Aaron Nielson, Barnett suggested that the burdens of formal rulemaking have been exaggerated. Much of Nielson’s article is devoted to rebutting the idea that the U.S. Food and Drug Administration’s (FDA) peanut butter debacle is typical or was necessary. It took the FDA more than ten years and 8,000 pages of transcript to establish whether peanut butter had to contain at least 90 percent peanuts or only 87 percent. It may be that the peanut butter rule was extreme. Nevertheless, anyone who has been involved in complex adjudication knows the difficulty involved in the proceeding itself. If the RAA were adopted, it would only add to the difficulties already involved in rulemaking. For example, in addition to the policy analysts, economists, scientists, engineers, and attorney-advisors that agencies already need to involve in a rulemaking, agencies will now need litigating lawyers, because the formal rulemaking will function as a highly contested trial.
Moreover, the policy analysts, economists, scientists, and engineers will all have to be prepared for trial, because they could be examined and cross-examined, taking them away from their primary functions. In addition, the suggestion that excesses are not necessary because the agency can exercise control over the proceedings is naive. Administrative law judges (ALJs) control the proceedings, and agencies have no control over ALJs. Just imagine what attorneys for the numerous private interests that would be affected by a major regulation could do to tie up the proceeding through direct examination of its own witnesses and cross-examination of the government’s witnesses.
Barnett’s second argument was that Allegheny-Ludlum and Florida East Coast Railway were “strikingly unpersuasive opinions.” Persuasiveness, like beauty, may be in the eye of the beholder, but Allegheny-Ludlum was unanimous, and the two dissenters in Florida East Coast Railway dissented only because they believed the proceeding was adjudicatory, not legislative, in nature. Whether or not the opinions are persuasive, the outcome in the cases was favorably received by both the academy and the private bar. Any lack of technical craftsmanship in the opinions is hardly an argument in favor of reviving formal rulemaking, which most had thought was well laid to rest because of its inherent problems.
The third argument made in favor of formal rulemaking is that it “is not necessarily industry-friendly.” This is either naive or disingenuous. The proposed requirement in the RAA for formal rulemaking for certain rules certainly does not have any support from non-industry interests. The effect of the provision would to make it harder to adopt any rule that will likely have a $1 billion “effect on the economy.” Barnett suggests the word “effect” could include both savings and costs, so that repealing a regulation could likewise trigger the formal rulemaking requirement. “Effect,” however, is not defined by the RAA, and its application is left to the Office of Information and Regulatory Affairs (OIRA). OIRA is not going to find that repeals will cause an effect on the economy which would trigger formal rulemaking. The provision will be used to retard regulatory, not deregulatory, actions.
Barnett’s fourth argument responds to concerns that requiring formal rulemaking may give regulated parties an unfair advantage over the public and beneficiaries, because only regulated firms would have access to lawyers to participate in the formal proceedings. He asserted that this is not a meaningful problem, because he expects that public interest groups can field the necessary lawyers to participate. And in any case, he claimed, the agency’s interest would align with the public, not with the regulated parties.
Public interest groups currently participate in important rulemakings, but as noted above, in a formal rulemaking, interested parties need an additional resource beyond what is required in informal rulemaking. They need litigating lawyers. And even if the agency’s interest is not aligned with that of the regulated parties, that does not mean that it is necessarily aligned with public interest groups who regularly find agency proposals inadequately protect the public health, safety, or the environment.
Finally, Barnett suggested that formal rulemaking would be particularly appropriate when some combination of the following circumstances exists: where facts, instead of discretionary decisions, are determinative; where the rules at issue are significant; where particular parties are especially affected; and where regulatory capture is likely.
However, the only RAA triggering provision that relates to Professor Barnett’s list is that the proposed rule must have a $1 billion effect on the economy. To trigger a “public hearing”—again, the RAA’s term for formal rulemaking—the RAA requires a person to petition the agency for a public hearing. The agency is then required to proceed by way of formal rulemaking if the proposed rule is “based on conclusions with respect to 1 or more specific scientific, technical, economic, or other complex factual issues that are genuinely disputed,” and the resolution of the disputed factual issues would likely have an effect on the costs and benefits of the proposed rule.
As to the first requirement, what rule is not based on at least one “scientific, technical, economic, or other complex factual issue”? What is the cancer slope factor for dioxin? To what extent do human activities affect climate change? And invariably any resolution of the disputed fact will likely have an effect on the costs or benefits of the regulation. In short, if a regulation would have a $1 billion effect on the economy, it will require formal rulemaking, without regard to whether there are any particular factors that might actually call for it.
And, of course, that is the purpose of the RAA’s public hearing provision: to slow down, if not make impossible, the development of regulations that have major effects on the economy. It does not matter how many lives the regulation might save. At the now current EPA standard for valuing human lives, less than 150 affected lives would provide benefits of over $1 billion. But if the regulation would cost $1 billion, the public will have to wait forever for that rule to emerge from formal rulemaking.
This essay is part of a series, entitled Assessing the Regulatory Accountability Act.