Extending Executive Order 12866 to Independent Regulatory Agencies

Originally published by the Society for Benefit-Cost Analysis

February 03, 2021

View this Essay (benefitcostanalysis.org)


The Department of Justice recently released an opinion on “Extending Regulatory Review Under Executive Order 12866 to Independent Regulatory Agencies.”1 The memorandum, dated October 8, 2019, concludes that “The President may direct independent regulatory agencies to comply with the centralized review process prescribed in Executive Order 12866.” The opinion means that the President can require the independent agencies to perform benefit-cost analyses of all significant regulations and submit the regulations for review to the Office of Information and Regulatory Affairs in the Office of Management and Budget.

The opinion is the latest development in a 40-year-old debate over whether executive orders on benefit-cost analysis of administrative rules could or should be extended to rules issued by the independent regulatory agencies. A typical independent agency differs from executive agencies in that it is headed by a commission or a board appointed by the President. Their members have staggered terms and cannot be removed except for cause, such as (in the case of the Federal Trade Commission) “inefficiency, neglect of duty, or malfeasance in office.” 

The question is: Do the constraints on the president’s ability to remove members mean their regulations must be exempt from requirements of presidential executive orders? The statutes establishing the agencies did not indicate any independence beyond “for cause” removal. Indeed, although the President cannot remove commissioners and board members, he can remove other employees of independent agencies.2 

Presidents have excluded independent agencies from requirements for benefit-cost analysis and centralized regulatory review since at least 1981, when Reagan issued Executive Order 12291. Subsequent executive orders on benefit-cost analyses and centralized review – EO 12866 (Clinton), EO 13563 (Obama), EO 13771 (Trump), and EO 13777 (Trump) – all followed suit in exempting the independent agencies. Although some have encouraged the agencies to voluntarily follow EO 12866,3 no administration has taken the step of requiring it.

Throughout the past 40 years, however, there have been calls to extend the benefit-cost executive orders to the independent regulatory agencies. Indeed, many former OIRA Administrators have endorsed subjecting independent regulatory agencies to EO 12866. The OIRA “2018, 2019 and 2020 Draft Report to Congress on Benefits and Costs of Federal Regulations and Agency Compliance with the Unfunded Mandates Reform Act” concludes that for “informing the public and obtaining a full accounting, it would be highly desirable to obtain better information on the benefits and costs of the rules issued by independent agencies.”4 

The Department of Justice memorandum concurs with previous arguments that independent agencies are subject to Presidential executive orders.5 Assuming President Biden’s lawyers agree with the opinion, the only remaining reason to exclude them could be the view that independent agency regulations do not need benefit-cost analysis and centralized regulatory review on the grounds that the regulatory charges are different from executive agencies, but that seems weak. There’s little evidence that independent agencies differ in substantive ways from executive agencies. Indeed, Congress has required them to comply with the analytical and procedural requirements of the Paperwork Reduction Act and Regulatory Flexibility Act.6 Moreover, in many product areas there is close connection between executive branch and independent agency regulations. For example, we can find examples (such as dietary supplements) where the Food and Drug Administration (an executive agency) regulates the nature of a product, the independent Consumer Product Safety Commission regulates its packaging, and the independent Federal Trade Commission regulates fraud associated with the product. Homeland security  is another example of common responsibilities, with the Department of Homeland Security (an executive department), the Federal Communications Commission, and several other independent and executive agencies issuing security rules. 

One other reason to exempt independent agencies might be that they are already carrying out benefit-cost analyses, rendering EO 12866 redundant. OIRA and other studies, however, have found that the independent agencies do not perform benefit-cost analyses for most of their regulations Moreover, when independent agencies do perform benefit-cost analyses they typically fall short of the analyses performed by the executive branch agencies.7  

Six Presidents (Reagan, Bush, Clinton, Bush, Obama, and Trump) have hesitated to include the independent agencies under the benefit-cost and centralized review requirements, perhaps out of concern for impinging on the prerogative of the legislative branch.  By resolving that question, the recent Justice Department opinion may give President Joe Biden the support needed to end the 40-year exemption and hold independent regulatory agencies accountable to the same regulatory benefit-cost analysis other agencies have long used in developing new regulations. It is long past time to do so.


Footnotes
1 https://www.justice.gov/olc/file/1349716/download
2 President Biden recently fired the general counsel of the National Labor Relations Board, an independent agency. 
For example, see EO 13579--Regulation and Independent Regulatory Agencies (July 14, 2011).
4 https://www.whitehouse.gov/wp-content/uploads/2019/12/2019-CATS-5899-REV...
5 C. Boyden Gray. “The President’s Constitutional Power to Order Cost-Benefit Analysis and Centralized Review of Independent Agency Rulemaking.” Mercatus Working Paper, Mercatus Center at George Mason University, Arlington, VA, 2017.
6 The independent agencies issuing most regulations are the Board of Governors of the Federal Reserve System, the Consumer Product Safety Commission, the Federal Communications Commission, the Federal Deposit Insurance Corporation, the Federal Energy Regulatory Commission, the Federal Housing Finance Agency, the Federal Trade Commission, the National Labor Relations Board, the Nuclear Regulatory Commission, the Occupational Safety and Health Review Commission, the Securities and Exchange Commission, the Bureau of Consumer Financial Protection, and the Office of the Comptroller of the Currency. 
7 Fraas, Arthur, and Randall Lutter. "ON THE ECONOMIC ANALYSIS OF REGULATIONS AT INDEPENDENT REGULATORY COMMISSIONS." Administrative Law Review 63 (2011): 213-41. Accessed January 9, 2021. http://www.jstor.org/stable/23065483.