Low-Energy Fridays: Should independent regulators be subject to the White House?

President Donald J. Trump recently issued a new executive order (EO) that will require “independent agencies” to submit their rulemaking to the Office of Management and Budget (OMB) for review. Interestingly (but unsurprisingly), this led to a deluge of news articles and quotes from opponents of the administration decrying the move as a power grab and part of an anti-regulatory agenda. But these articles seem to misunderstand what OMB review means. In truth, Trump’s latest move is one that regulatory reformists have suggested as far back as 1990 and would address a longstanding concern that not all government regulation is held to a suitably high standard.

Independent agencies and the gap in oversight

The federal government promulgates many regulations, which mainly come from conventional agencies like the U.S. Environmental Protection Agency or from independent agencies like the Securities and Exchange Commission (SEC) or the Federal Energy Regulatory Commission (FERC). Both types are tasked with regulating in a manner that captures net benefits to the public. (Past Low-Energy Fridays pieces have explained the difference between good and bad regulation.) But while regular agencies and independent agencies aren’t all that different in practice, they are accountable in different ways.

Independent agencies are so named because their actions are normally governed by a voting body of Senate-confirmed commissioners who, unlike most agency heads, can’t simply be replaced at the pleasure of the president. They also typically have a different mission than conventional regulatory agencies—they may focus on reducing costs or fraud, whereas other regulators address issues like public health or safety.

Despite differences in mission and accountability, both conventional and independent agencies similarly produce regulations that impose substantial costs on the public. Regulations should carry benefits that outweigh their costs, but the potential for missing that mark due to shoddy work was always a foreseeable problem. The solution came in the form of President Ronald Reagan’s EO 12291, which mandated that regulators ensure their regulations carry a net benefit. Regulatory actions were scrutinized further by President Bill Clinton’s EO 12866, which mandated that regulators submit their work for OMB review to ensure compliance with applicable guidance. This happens through the Office of Information and Regulatory Affairs (OIRA), which ensures that high-cost regulations are accompanied by cost-benefit analyses. Simply, EOs 12291 and 12866 require regulators to show their work and prove that their proposed regulations capture the claimed benefits.

Clinton’s EO exempted independent agencies from the requirement. Consequently, they haven’t had to defend the quality of their rulemaking and do not have to quantitatively demonstrate that their regulations are a net benefit to the public. Additionally, because independent agencies don’t have to estimate their regulations’ economic impact, the necessary thresholds for Congress to overturn regulation via the Congressional Review Act are seldom reached. Trump’s new EO changes this by requiring these agencies to submit their work for OMB review, just like other regulators.

The quality of regulation from independent agencies is largely a mixed bag. Some are inclined to produce higher quality rules than their counterparts. While R Street can point to FERC as an example of a bipartisan regulator that tends to stay in its lane, other agencies would benefit from additional scrutiny. A good example of this is the SEC, whose proposed climate disclosure rule was underpinned by untrue assumptions as noted by R Street.

Regulator accountability should not be a partisan issue

The idea that independent agencies, which also implement economically significant regulations, should have to show their work isn’t new—and it’s not partisan. As the former administrator of OIRA under the George W. Bush administration noted, the idea that independent agencies should be held to the same standards of quality in rulemaking as regular agencies is well-regarded on both sides of the aisle. OIRA review requirements certainly did not impede the agenda of regulatory-heavy presidents like Barack Obama or Joe Biden, but it likely did improve the quality of the regulations they implemented.

That said, while OIRA review of independent agencies is good policy that makes sense, one warranted critique of the new EO is that it also expands political requirements at these agencies. The new requirements—which would create liaison positions and standards for staff—would subordinate the independent agencies to the administration’s political priorities. It’s rare that making an independent body more susceptible to a president’s politicking is fruitful in the long term. Those who favor this move because they align politically with the current administration are sure to be disappointed when a future administration uses these same new functions to advance their agenda.

Ultimately, OMB review is important because regulations are growing in both size and cost. It simply makes sense that any regulator proposing a policy with a significant economic impact should be held to a high standard. While the new EO may have stirred up a hornet’s nest, its primary effect is simply to adopt a 30-year-old policy proposal. Although provisions unrelated to rulemaking quality warrant some consternation, more scrutiny of regulators is in the public interest.