The Informal Rulemaking Process

Neil Eisner U.S. Department of Transportation

April 2002

Handout Material

The SlidesRulemaking Requirements

What We Will Cover

What is rulemaking?What is a rule?What are the legal requirements for the informal rulemaking process?How does the process work?

o Why is a rule issued?o How is a rule developed? o What is the role of OMB, the White House, SBA/Advocacy,

and the Congress?What is the role of the courts?What are the agency’s responsibilities after a rule is issued?

Background

Pre-1946

Agency presumed to know what is best

Administrative Procedure Act (APA) 1946

• Openness• Agency adjudication• Agency rulemaking• Judicial review of agency action

Growth of Rulemaking

But Remember:

• Numbers of documents or pages in the Federal Register do not indicate whether

• Issuing a rule• Issuing a good or bad rule• Rescinding a rule• Fixing a bad rule• Among thousands of routine and frequent “Rules-

of-the-Road” type rules

Post - APA

Increasing complexityCourt decisionsCurrent trend: significant, additional requirements

What Is Rulemaking?

Rulemaking

The “agency process for formulating, amending, or repealing” “an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or practice requirements of an agency….”

Other Processes for Imposing Requirements

Formal Rulemaking

Used where a statute other than APA requires rule to “be made on the record after opportunity for an agency hearing”Rarely used, except for ratemaking, food additives, and other limited categories

Hybrid Rulemaking

Additional statutory requirements--e.g., OSHA, Clean Air Act, FTC Act. . .

Adjudication

Used to issue an agency’s final disposition “in a matter other than rulemaking but including licensing”

Rulemaking Vs. Adjudication

Rulemakingo Fairero Normally prospectiveo Greater clarity/uniformityo More flexible (can provide

exceptions, etc.)o Better control of

agenda/policy; do not have to wait for issue to be raised in a controversy

Adjudicationo Avoids rulemaking

complexityo Evaluates past conduct or

current rightso Modifications easiero Conflict minimizedo Avoids over and under

inclusiveness

What is a rule?

Legislative/Substantive

Imposes a binding requirement on those to whom it applies; it has the force of law

Interpretative Rule

Interprets existing statutes or rules; it tells the public what the agency thinks a statute or rule means

Hoctor Case

Statute: Animal Welfare Act authorized the USDA to adopt rules “togovern the humane handling, care, treatment, and transportation ofanimals by dealers.”

Legislative rule: “Structural Strength” 9CFR §3.125(a). Facility housinganimals “must be constructed of such material and of such strength asappropriate for the animals involved.”

Purported interpretive rule: Memorandum to inspectors that all dangerousanimals must be included inside a perimeter fence at least 8 feet high.Issued w/o notice and comment.

Policy Statement

Tells the public how the agency intends to exercise a discretionary power

Management or Procedural Rule

May also be substantive; two categoriesManagement or Personnel: Involves running or supervising agency’s business; concerns agency and does not affect the publicOrganization, Procedure, or Practice: Describes the agency’s structure and functions and the way in which its determinations are made

Statutory Implementation ProcessStatute

E.g., no unfair competition

Legislative Rule

E.g., unfair if significantly

lower prices when new entrant

Legislative Rule

E.g., unfair if lower prices more than 10%

when new entrant

Interpretative Rule

E.g., unfair competitionmeans lower prices

more than 10% when new entrant

AgencyAdjudication

Agency must prove conduct was unfair

competition

No Agency Action

Private Litigation

Court is generally bound by agency legislative

rule and may defer to agencyinterpretation

Interpretative Rule

E.g., significantly lower means

more than 10%

AgencyAdjudication

Agency must prove 10% is significant

AgencyAdjudication

Agency must only prove

prices lowered 10%

AgencyAdjudication

Agency must prove conduct

was unfair competition; interpretation

binding on adjudicator but

not regulated entity

Agency Adjudication

Agency must only prove prices

lowered 10%; interpretation

binding on adjudicator but not

regulated entity

N.B. Assume: in all cases, agency can prove a regulated entity has lowered price by more than 10% and that there was a new entrant

Judicial ReviewCourt may defer to agency interpretation (generally, agency adjudicatory

decisions are reviewable in federal courts; some agency enforcement may be initiated in federal court rather than agency)

Points to RememberVague or general statutes/legislative rules may be easier to adoptBut they increase agency’s burden in adjudication or litigationInterpretative rules may provide more specificsBut they are not legally binding on regulated entities or courtsAdjudication and court decisions have precedential effect equivalent to a legislative rule for those subject to jurisdiction of the adjudicator or court

What are the Legal Requirements?

The APA Requirements

Basic Requirement for Informal Rulemaking

Simple processo NPRMo Public commentso Final rule (with basis and purpose)o Exceptions

Notice of Proposed Rulemaking

Contents:PreambleRule text optional

Comment period

Exceptions from APA Informal Rulemaking Requirements

Military or foreign affairs functionsAgency management or personnel, or public property, loans, grants, benefits or contracts

Exceptions from Notice and Comment Requirements

Unless otherwise required by statute, these exceptions are available:

Good cause (“impracticable, unnecessary, or contrary to the public interest”)Interpretations and policy statementsRules of agency organization, procedure, or practice

Preamble

Explains need and authority for ruleExplains rule text or subjects and issues involvedMay ask questionsGenerally summarizes or provides various analyses

Logical Outgrowth Test/Scopeof Notice

NPRM must “fairly apprise interested persons” of the issues involvedChanges may be made based on the comments received, if the public is adequately apprised of their possibilityLogical outgrowth/reasonably anticipated

Comment period

APA - no minimumBut (with exceptions)o E.O. 12866 - 60 dayso Agency procedures

Can extend or reopenCan provide reply period

Docket

Public AccessRulemaking and supporting documentsPublic commentsEx Parte communicationsLate comments

Increasing internet-access

Final Rule

PreambleResponses to public commentStatement of basis and purpose

Rule Text

Response to Public CommentComments can be very helpfulProblems

o Assertions without datao Conflicting datao “Cross-town hypocrisy”o May ignore each other

May get 10s, 100s, 1000s . . .May be very detailed or postcardsNot a vote

Effective DateSubstantive rules: not less than 30 days after publicationExceptions

o Granting exemption or relieving restrictiono Interpretative rules and policy statementso Good cause

Also:o Implementation dateo Compliance date

Notice and comment needed for subsequent delay

Publication Requirements

Legislative rulesMust be published in Federal Register or personallyserved to have effect

Interpretative rules, policy statements and staff manuals

If not published or actual and timely notice isnot provided, must be electronically availablebefore the agency can rely on them, use them,or cite them as precedent

Dissemination of Rulemaking Documents

IssuancePostingPublicationSelective distributionAvailable to all when given to one

Exemptions from Rules

For unique circumstances not considered during rulemaking

Ex Parte Rules

APA has no requirements for informal rulemakingMany agencies do prohibit ex parte communications after NPRM

Judicially Imposed Requirements

Notice--of significant studies relied upon by agencyExpanded preambles to final rule, including response to commentsVermont Yankee

Extras

ANPRMSNPRMIFRRequest for commentsHearingsSecond round of commentsReply commentsNegotiated rulemakingElectronic rulemakingAlso: Direct Final Rule

Other Requirements Affecting the Informal Rulemaking Process

Statutes

Freedom of Information Act (FOIA)

Requires agencies to make information available to the public, with specified exceptionsElectronic FOIA: Requires agencies to make policy statements, interpretations, and administrative staff manuals and instructions to staff that affect the public electronically available

Federal Advisory Committee Act (FACA)

Requires agencies that meet with more than one person outside the Federal government for the purpose of receiving group advice/consensus recommendations to comply with specified requirements, including charters and notice of public meetings

Sunshine Act

Requires multi-headed agencies to hold open meetings for their decision making

Lobbying/Registration Act

Imposes broad requirements on lobbyists who attempt to influence government decisions

Paperwork Reduction Act

Requires agencies to:Analyze information collection burdensProvide opportunity for notice and commentObtain OMB approvalPrepare an Information Collection Budget (ICB)Attain Reductions in ICBAllow electronic maintenance, submission and disclosure, and electronic signature, when practicable, by October 2003

We can lick gravity, but sometimes the paperwork is overwhelming.

Wernher von Braun

Regulatory Flexibility Act

Requires agencies to:Consider impacts on small entities

If significant economic impact on substantial number of small entities (SEIOSNOSE), prepare a regulatory flexibility analysis at proposed and final rule stage (unless NPRM not required)If not, must certify no SEIOSNOSE

Review of rules with SEIOSNOSE within 10 years

Small Business Regulatory Enforcement Fairness Act

Requires agencies to take additional steps to help small entitiesThese include compliance guides, informal guidance programs, ombudsman, reduction/waiver of penalties, and fairness boards

Unfunded Mandates Reform Act

Requires agencies to assess effect of rules on state, local and tribal governments and on private industryWhere rule requires annual expenditure in excess of $100 million (adjusted annually for inflation), agency is required to consider reasonable number of alternatives and select the least costly, most cost-effective, or least burdensome alternative that achieves objective of rule or explain why it could not

Trade Agreements Act

Prohibits agencies from setting standards that create unnecessary obstacles to foreign commerceRequires agencies to use performance standards, where appropriate

National Technology Transfer and Advancement Act

Requires agencies to use technical standards developed/adopted by voluntary consensus standards bodies unless inconsistent with law or impractical

Assessment of Federal Regulations and Policies on Families (FY 1999 Omnibus Appropriations Act)

Requires agencies to assess rules that may affect family well-being

Environmental Requirements

Various statutes, regulations, executive orders, and agency orders, including, the National Environmental Policy Act, impose requirements for considering environmental impacts of agency decisions

Executive Orders

Regulatory Planning and Review (E.O. 12866 )

Provides for or requires of agencies:Regulatory philosophy and principlesPlanning mechanismReview of existing regulationsOMB review of significant regulationsAssessment of economically significant regulationsEarlier, more meaningful public participation and use of consensus mechanismsPresidential resolution of conflicts

Federalism

Requires agencies to consult with state and local governments and consider the impacts of their rulemakings on them when the actions have federalism implications

Indian Tribal Governments

Requires agencies to consult with Indian tribal governments and consider the impact of their rulemakings on them when the actions have tribal implications

Civil Justice Reform

Requires agencies to comply with requirements to improve rulemaking drafting to reduce needless litigation

Governmental Actions and Interference with Constitutionally Protected Property Rights

Requires agencies to be guided by principles in the order (e.g., mere assertion of safety purpose is insufficient to avoid a taking) when formulating or implementing policies that have takings implications

Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations

Requires agencies to develop a strategy that identifies and addresses disproportionably high and adverse human health or environmental effects of actions on minority and low-income populations

Protection of Children from Environmental Health Risks and Safety Risks

Requires agencies to address disproportionate risks to children that result from environmental health or safety risks to the extent permitted by law or appropriate

Implementation of the North American Free Trade Agreement

Requires agencies to provide a 75-day comment period for any proposed technical regulation

Energy

Requires agencies to prepare a statement considering adverse energy effects and reasonable alternatives for significant energy actions

Other Executive Orders

Impose a variety of procedural and substantive requirements (e.g., regulations concerning access for the disabled must be cleared with DOJ)

Presidential/White House Memoranda

Plain Language(Presidential Memorandum)

Requires agencies to use plain language in rulemaking documents

Regulatory Review Plan (Presidential Chief of Staff Memorandum)

Requires review and approval of all proposed or final rules by an appointee of President Bush

Agency Procedural Requirements

How does the Process Work?

IDENTIFICATION OF NEEDStatutory Mandate•Agency identification of problem

•Inspector reports/agency oversight•Accident•Enforcement issues•Requests for interpretation

•Petition•Changes in state-of-art•Policy initiatives•Independent agency recommendations•Etc.

DEVELOPMENTAnalysis of alternativesConsideration of legal authority/ requirementsConsideration of additional actions/rule stageBriefing of senior Departmental officials,as appropriate

Preparation of supporting analyses and rulemaking documents

AGENCY REVIEW•Concurrence of various initiating office officials•Briefing and coordination with Departmental officials, as appropriate•Approval by Administrator (or designate)

NONSIGNIFICANT

DEPARTMENTAL REVIEWAppropriate review and approval by secretarial offices•In some cases, other parts of department may review•Secretary must approve

OMB REVIEWOMB must approve most rulemakings;review may include other Federal agencies

FEDERAL REGISTER

Rulemaking Process - Proposed Rule

SIGNIFICANT

REVIEW OF COMMENTS

DEVELOPMENT

Including decision whether to issue final rule, SNPRM, withdraw, etc.

AGENCY REVIEW

NONSIGNIFICANT SIGNIFICANT

DEPARTMENTAL REVIEW

OMB REVIEW

FEDERAL REGISTER

Rulemaking Process - Final Rule

The Proposed Rule Process

Normal rulemaking process involves proposed and then final ruleAny time during process, an agency may develop justification for exceptions or additions

Why is a Rule Issued?

Identification of Need for a RuleStatutory Mandate/Authority

GeneralSpecificConflictingVague or problematic

Agency identification of a problemInspector reports/agency oversightAccidentsEnforcement issues/problemsRequests for interpretation/exemptionEtc.

Petitions from the publicChanges in state of the artPolicy initiativesNTSB or similar recommendationsEtc.Role of risk assessments

How is a Rule Developed?

Consideration of alternatives

Non regulatory alternatives; e.g.,Market place incentivesTax incentives

Regulatory alternatives; e.g.,Information disclosure/labelingPerformance vs. design standardAlternative methods of compliancePhase-inTiering

Continued - Consideration of Alternatives

Substantive alternativesDifferent ways to fix the problemSome may achieve more benefitsSome may cost more

Role of economic and other analyses

Consideration of Various Requirements

StatutesExecutive OrdersAgency OrdersEtc.

Legal Authority

Must haveMay impose conditionsMay impose conflictsMay impose procedural requirements

Legal Process Requirements

Covered Earlier

Preparation of Supporting Analyses and Rulemaking Document

Analyses:Valuable decision-making toolsBut may be expensive and time-consuming

Risk Assessments

DeterminationProbability of problem occurring (e.g., accident) Probability of problem causing harm (e.g., death)

IssuesMethodologyDataAssumptionsRange and distribution of risks

Continued - Risk Assessments

Comparison to other risksRisk tradeoffsPeer reviewEtc.

TimingShould be done prior to cost-benefit analysis

Economic/Cost-Benefit AnalysesDetermination

Costs and benefits of the rule (and alternatives)Issues

Regulatory objectiveMethodologyDataAssumptionsDirect vs. indirect effectsNonquantifiable costs or benefitsValue of life

Continued - Economic/Cost-Benefit Analyses

Benefits not within agency authorityDouble-counting benefitsWho pays/who benefits“Tombstone mentality”Cost effective vs. cost beneficialDiscount rateReasonable alternativesSensitivity analysesTotal costs/total benefitsDifferent costs and benefitsEtc.

Continued - Economic/Cost-Benefit Analyses

DecisionGenerally: do benefits justify costsWhere legally constrained, analysis may justify effort to change requirements

TimingThis should form the basis of decision:

o Whether rulemaking is justifiedo What alternative should be chosen

The Logic of the DecisionProblem fixedSensibleCosts and benefitsConflicts

SubstantivePolicy

Unintended consequencesFederalismSmall entitiesEtc.

The Final Rule ProcessReview of public comments and any new dataReconsideration of proposal and analyses to decide whether to:

Issue proposed as a final ruleModify proposal (supplemental proposal or final rule)Withdraw proposal

issuesPreparation of supporting analyses similar to proposed stage

Scheduling the Rulemaking

Statutory deadlinesAct Act by date certainAct by date certain or:

Statutory standard goes into effectAgency budget is cutEtc.

Judicial deadlinesAdministrative deadlinesAPA ReasonablenessNeed to fix problem quickly or by a certain date

Time Constraints

Higher prioritiesUnable to determine reasonable actionDisagreement within agency or executive branchInadequate resourcesNeed further researchPrefer not to actWaiting to see if “marketplace” solves problemDo not believe there is a problemPoor drafting or analysisInadequate control of rulemaking schedule

Delay - Reasonable vs. Unreasonable

Continued - Delay

Multiple statutory and executive order requirementsFailure to consider applicable requirementsPolitical pressureAction by private partiesAdverse court decisionsStrict judicial reviewConflicting, outmoded, or vague statutesEtc.

Effect of Delay

Pollution continuesSafety device is not mandatedUnnecessary equipment continues to berequiredEtc.

What is the Role of OMB, the White House, SBA/Advocacy, and the Congress?

The Role of OMB/White HouseOMB review

Significant rules60-day listsSubmission of rulemaking documents/supporting analyses

o Logged on interneto Agency must note change

Other agenciesThe WHTime factorsThe issues

o Economic analyseso Alternativeso Etc.

SBA Office of Advocacy

Review of rulesAdvocates for small businessExperts on small businessAmicus briefsMOU with OMB

The Role of Congress

Congressional Review (Provisions in SBREFA)

Requires submission of final rules to Congress before they can take effectProvides for expedited reviewDelays effective date of a major rule; exceptions providedIf overturned, rule treated as if never took effectCongress can only disapprove; it cannot changeIf disapproved, agency cannot adopt a “substantially the same” rule unless authorized by new statute

Congressional Oversight

HearingsReports to CongressMeetingsRequirements in reports and appropriations actsSubstantive legislation

Truth in Regulating ActRequires GAO to prepare and submit to the Congressional committees of jurisdiction, within 180 days of a request from a committee chairman or ranking member, an independent evaluation of the agency’s analysis of an economically significant rule (including the costs, benefits, and alternatives)This is a 3-year (2000-2002) pilot projectCongress has not appropriated the funds authorized under the Act

What is the Role of the Courts?(Judicial Review)

Various statutes impose different standards, but under APA can challenge a rule because:

Arbitrary, capricious, abuse of discretion,or illegalUnconstitutionalIn excess of statutory authorityFailed to follow legal procedure

Can also “compel action unlawfully withheld or unreasonably delayed”

Legal Standards for ReasonablenessReasonable application of statutory criteriaFactual support for agency’s conclusionDisclosure of data on which decision based -- for public commentAdequate explanation for chain of reasoningReasonable consideration of important aspects of the problemAdequate explanation for any change in positionAppropriate consideration of important alternativesAdequate consideration and response to relevant and significant commentsFairness of remediesReasonable decisionmaking catch-all

What are the Agency’s Responsibilities After the Rule is Issued?

Implementation of RulesGuidance/interpretationsPolicy statementsCompliance and enforcement activities

TrainingReporting requirementsInspectionsEnforcement

Reviews of Existing Rules

Required by statute (Regulatory Flexibility Act) and Executive Order 12866 Some rules force via sunset datesGood practice

o Problems not always solvedo Changes in state of the arto Etc.

Time consumingPublic can petition for changes under APA

Conclusion