The Final Countdown: Projecting Midnight Regulations

The Final Countdown Report Cover
by Sofie E. Miller and Daniel R. Pérez
July 12, 2016

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Introduction

The final months of presidential administrations are accompanied by a significant increase in regulatory output as the executive branch relies increasingly on unilateral activity in a rush to implement its remaining policy priorities. This has come to be known as the “midnight period.” This report contains two robust, quantitative models that contribute to the scholarship in this area by: predicting the number of economically significant rules likely to be issued during the Obama administration’s final months, and finding that independent regulatory agencies do not increase their regulatory output during presidential transitions. These findings indicate that there is more than a 99% chance that executive regulatory agencies will increase their output of economically significant rules[1] during the midnight period. On average, these models suggest a threefold increase in economically significant rules—from an average of 4 to 12 per month during each midnight month. The report also details why this last-minute flurry of regulatory activity may be of concern and what incoming administrations can do to begin asserting their policy priorities as they necessarily deal with the remnants of the previous administration’s agenda.[2]

The Midnight Period

Although this report, and indeed most of the scholarship regarding the midnight period focuses on analyzing increases in regulatory output in recent decades, anecdotal evidence of the general tendency for the executive branch to increase its reliance on unilateral actions to continue shaping policy during its lame-duck period can be found as early as the 19th century.[3] Scholars have confirmed[4] the existence of significant increases in regulatory output during the midnight period as early as 1948. There is also a strong consensus within this literature that the primary cause[5] of this occurrence is the transition from one administration to another. The midnight period is most commonly defined as the final three months of an administration, occurring either when a president fails in his bid for reelection or they conclude their second term in office.

There are likely several explanations[6] that account for this spike in regulatory output, which occurs regardless of administration or political party. The most intuitive concerns the incentives faced by regulators, particularly the president’s political appointees,[7] racing to finish their regulatory agenda before priorities are shifted by the incoming administration. Staff at regulatory agencies, in general, are likely to rush to complete rules they have already put work into before they acquire new managers who might require them to either start over, or cause delays due to the need to get their new bosses “up-to-speed” on the details of the outstanding regulation.[8]

Susan E. Dudley, who served as Administrator of the Office of Information and Regulatory Affairs (OIRA) during the 2008 – 2009 midnight period, recounts her office’s experience in providing agency oversight during a surge of regulatory activity even after the President’s Chief of Staff had issued a memorandum to agencies in May 2008 urging them to “resist the historical tendency of administrations to increase regulatory activity in their final months” and had set a deadline of November 1, 2008 for completing rules:

Initially, there was broad support for avoiding the midnight crunch, but… we faced strong objections…not only from political appointees [but] career employees who had worked hard on many of the regulations, were disappointed when they did not get them across the finish line before the end…many…had been through presidential transitions before… [and] did not relish having to break in a new crew of political appointees before completing their projects.[9]

Presidential appointees, including agency heads, face additional incentives to complete their regulatory agenda since the transition to a new administration brings an end to their tenure.

Are Midnight Rules a Problem?

There are several normative claims made regarding the need for reforms that prevent or mitigate the occurrence of midnight rules.[10] The claim that rules issued during the midnight period might be of significantly lesser quality deserves the most attention. This might be the case for several reasons. Empirical studies have estimated that for each additional economically significant rule submitted to OIRA during the midnight period,[11] the mean review time for all regulations decreases by about two thirds of a day.[12] Additionally, as agencies rush to meet deadlines and significantly increase the pace with which they publish rules, it is possible that less time is spent on ensuring that the regulatory analysis justifying the need for the rule is of good quality. This likely also has important implications for the time that agencies spend on incorporating valuable public feedback during notice and comment periods into further improving their rules. Finally, agencies might lose the opportunity to incorporate feedback from the public altogether for any rules published as interim final rules.[13]

Although it is notoriously difficult to measure the quality of regulations (given their scope, the consideration of unintended consequences, etc.), scholars have attempted to do so.[14] Such findings corroborate that shorter review times correlate with lower-quality analysis. Rules reviewed during the midnight period, in particular, were rated among the lowest quality of analysis.[15] OIRA is tasked with improving the quality of regulatory analysis, but it is asked to do significantly more during the midnight period without an increase in staff or budgets to compensate.[16]

Responses to Midnight Rules

If there is a legitimate reason to be concerned with the quality of regulations published during the midnight period, then it is important to know what tools an incoming administration has at its disposal to begin asserting its control over the regulatory process. This report concludes with a list of actions that an incoming president and Congress can take to begin implementing their policy priorities. However, it is worth noting that to underestimate the durability of midnight regulations would be to ignore the empirical record. Scholars find that the vast majority of rules persist even in the face of scrutiny by incoming administrations.[17] In many cases newly-elected presidents, in particular, find that they “cannot alter orders set by their predecessors without paying a considerable political price…or confronting serious legal obstacles.”[18]

Quantitative Analysis: What to Expect this Midnight?

To summarize, there is a period of significantly increased regulatory activity known as the midnight period during an administration’s final months in office. There is also a reasonable concern regarding the quality of analysis that underlies these regulations due to the fact that important elements of the regulatory process—namely OIRA review and input provided to agencies via public comments—may be underutilized. Finally, midnight rules are not simple to undo; the vast majority of them survive the scrutiny of a newly-elected president and Congress.

Given these facts about midnight rules, this report presents two quantitative models to answer questions in preparation for thinking through the next presidential transition. How likely is it that the Obama administration will increase its regulatory output during the upcoming midnight period and to what degree? Are there systematic differences in the way that certain agencies behave during the midnight period? The report also concludes with a review of the tools available to the next president and Congress for addressing the midnight output of the previous administration.

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[1]    Executive Order No. 12866, 58 Federal Register 190 (Oct. 4, 1993): Sec. 3(f) (1): A rule is considered economically significant if it is likely to “have an annual effect on the economy of $100 million or more.”

[2]    This report reflects the views of the authors, and does not represent an official position of the GW Regulatory Studies Center or the George Washington University. The Center’s policy on research integrity is available at http://regulatorystudies.columbian.gwu.edu/policy-research-integrity.

[3]    For a description of John Adams’ appointment of “midnight judges” and other last-minute presidential actions see: William G. Howell and Kenneth R. Mayer, “The Last One Hundred Days.” Presidential Studies Quarterly. Vol 35, Issue 3 (September 2005).

[4]    Using quarterly page counts in the Federal Register as a proxy for regulatory output, see: Jay Cochran III “The Cinderella Constraint: Why Regulations Increase Significantly During Post-Election Quarters,” (October 2000) Mercatus Center, Working Papers in Regulatory Studies. For a monthly breakdown and extended dataset confirming Cochran’s results, see: Veronique de Rugy & Antony Davies, “Midnight Regulations and the Cinderella Effect, Journal of Socio-economics, Vol. 38, Issue 6 (December 2009).

[5]    Anne Joseph O’Connell “Agency Rulemaking and Political Transitions” Northwestern University Law Review, Vol 105, No. 2 (2011)

[6]    Jack M. Beermann “Midnight Rules: A Reform Agenda” Michigan Journal of Environmental & Administrative Law. Volume 2, Issue 2 (2013).

[7]    Susan Dudley “Reversing midnight regulations” Regulation Vol. 24, No. 1 (Spring 2001) available at: http://object.cato.org/sites/cato.org/files/serials/files/regulation/2001/4/dudley.pdf

[8]    Susan E. Dudley “Observations on OIRA’s Thirtieth Anniversary” Administrative Law Review Vol. 63, Special Edition (2011) pp. 113-129. Also Beermann (2013)

[9]   Dudley (2011) p. 122-3.

[10]   Ibid. Beermann catalogues a thorough list of reasons people object to midnight rules including: views that an incumbent administration might be attempting to illegitimately impose its agenda on a future administration, the fact that these rules are published throughout a period when a sitting president is less accountable to the electorate, and the fact that rules issued during midnight might be of significantly lesser quality (resulting in a loss of public welfare).

[11]   Housed within the Office of Management and Budget, OIRA is responsible for regulatory coordination and oversight of regulatory agencies. This includes providing feedback to executive regulatory agencies regarding the regulatory analysis that supports their proposed rules, with the purpose of improving its quality and ensuring that agencies reasonably considered public input (when applicable) before a final rule is issued.

[12]   Patrick A. McLaughlin “The Consequences of Midnight Regulations and Other Surges in Regulatory Activity” Public Choice, Vol. 147, Issue 3, (June 2011).

[13]   Curtis W. Copeland “Midnight Rulemaking: Considerations for Congress and a New Administration” CRS Report for Congress. November 24, 2008 available at: https://www.fas.org/sgp/crs/misc/RL34747.pdf

[14]   Patrick A. McLaughlin and Jerry Ellig, “Does Haste Make Waste in Regulatory Analysis?” (July 13, 2010). Available at SSRN: http://ssrn.com/abstract=1646743

[15]   Ibid.

[16]   Susan Dudley and Melinda Warren, “Regulator’s Budget from Eisenhower to Obama” George Washington University Regulatory Studies Center. Available at: https://regulatorystudies.columbian.gwu.edu/regulators%E2%80%99-budget-eisenhower-obama

[17]   Jason M. Loring and Liam R. Roth, “Empirical Study: After Midnight: The Durability of the ‘Midnight’ Regulations Passed by the Two Previous Outgoing Administrations” 40 Wake Forest Law Review (Winter 2005)

[18]   Howell and Mayer (2005)