Obama’s Regulatory Rampage
Fasten your seatbelts, because the courts and Congress won’t be able to slow it down much
Jan 28, 2013, Vol. 18, No. 19 • By ADAM J. WHITE
Despite all of the White House speechwriters’ labors on the Inaugural and State of the Union Addresses, their attempt to define the tone of the president’s second term is unlikely to improve upon the president’s own words, a year ago: “Where Congress is not willing to act, we’re going to go ahead and do it ourselves.” It would be “nice” to work with Congress, he conceded, but he and his regulators were ready to act unilaterally.
That threat echoed the White House press secretary’s own warning, just weeks earlier, that although Congress ought to act to improve the economy, the president “can also act independently—or, rather, administratively, and exercise his executive authority to benefit the American people in other ways. And he will continue to do that.” The White House called this the “We Can’t Wait” initiative.
Today, looking ahead at Barack Obama’s second term, many of his supporters still can’t wait. The New Republic’s Timothy Noah is among them. “With the election over,” he wrote last month, “the president can now take bolder action on a host of issues that don’t require cooperation—or even input—from Congress.” True, “some of these actions might be controversial,” but “that concern matters less now that Obama has faced voters for the last time.”
Noah needn’t fret. In his second term, the president will have every incentive to pursue an agenda predominantly, perhaps even exclusively, through unilateral executive branch action. Some call this the “regulatory cliff”; others, a regulatory “flood” or “tsunami” (as Sen. Rob Portman, the Wall Street Journal, and the Chamber of Commerce have put it). Call it what you will, but for the next four years, the Obama administration will govern primarily through the regulatory agencies. And Congress and the courts, having tied their own hands, can do little to stop it.
Before speculating what the president will do in his second term, consider briefly what he accomplished in his first. While Obama’s first four years were headlined by landmark legislation, such as the Affordable Care Act and the Dodd-Frank financial reforms, his administration’s agencies also imposed immense regulatory burdens.
According to the White House—specifically, the Office of Information and Regulatory Affairs (OIRA), the White House’s central office for regulatory analysis—the “major rules” enacted by executive branch agencies in President Obama’s first three years cost the public as much as $32.1 billion.
Now, the White House offered that figure as cause for celebration, claiming the alleged net benefits of those regulations were (by its own accounting) worth $91 billion—or, as the White House’s website boasts, “over 25 times the net benefits” of the Bush administration’s first three years. But one need not be a cynic to have doubts about the administration’s accounting. The first three years of Obama’s regulations weren’t just 25 times more “beneficial” than Bush’s; they were also 6 times more “beneficial” than Clinton’s first three years of regulations. The administration was evidently very, very confident of its own ability to regulate the nation into prosperity.
Still, even taking the administration’s analysis at face value, President Obama’s first term reflects a marked increase in regulatory burden: The Obama administration’s first three years of major rules, costing up to $26.7 billion, were five times more burdensome than the Bush administration’s first three years ($5.3 billion) and three and a half times more burdensome than the Clinton administration’s ($7.6 billion).
And that analysis is limited to just the administration’s “major rules”—rules costing more than $100 million annually—for which the agencies calculated costs and benefits. It neglects 41 other “major rules” for which benefits and costs had not been calculated, and is only “a fraction of the 317 significant regulations, and over 3,500 total regulations,” promulgated by the administration, according to Susan Dudley, director of George Washington University’s Regulatory Studies Center and former OIRA administrator under President George W. Bush.
But even the administration’s account of its “major rules” understates the cost of regulations. First, it includes only the “executive” agencies, and not the “independent” agencies, such as the Federal Reserve, the National Labor Relations Board, the Securities and Exchange Commission, and other agencies that are run by the president’s appointees yet partially shielded from his direct oversight. Those agencies have grown increasingly active in recent years, partly as a result of the financial crisis and subsequent enactment of Dodd-Frank, but they are subject to fewer or no cost-benefit analysis requirements—a point highlighted by an awkward interaction between Federal Reserve chairman Ben Bernanke and JPMorgan’s Jamie Dimon in 2011. When Dimon asked Bernanke, at a public event, “Has anyone bothered to study the cumulative effect of all” the Fed’s new rules, to ensure they did not unduly burden the economy, Bernanke responded with remarkable candor: “Has anybody done a comprehensive analysis of the impact on credit? I can’t pretend that anybody really has. You know, it’s just too complicated. We don’t really have the quantitative tools to do that.”
A second cause of underestimation is that the White House’s statistics cover only regulations, and not the myriad enforcement actions, permit application reviews, and other non-rulemaking activities. They do not include the administration’s rejection of the Keystone XL pipeline, for example, or the undeclared “permitorium” that blocked and delayed offshore drilling permit applications in the aftermath of the Gulf of Mexico oil spill, long after the federal courts struck down the administration’s officially declared moratorium.
In the absence of comprehensive government statistics stating the cost of regulations, critics have offered their own estimates. The American Action Forum, for example, estimates that the Obama administration’s regulations have cost $467 billion. Whether $467 billion or “merely” $32.1 billion, the Obama administration proved itself adept at imposing regulations in the first term. And it was just getting warmed up.
What, then, does the Obama administration have in store for the second term? Until recently—that is, until Election Day—the administration tried very hard not to tip its hand. Although longstanding executive orders require the administration to publish a “Unified Regulatory Agenda” semiannually, the administration refused to issue either a spring report or autumn report during the election year—an “unfortunate precedent,” according to the American Bar Association’s Administrative Law Section.
Only after Election Day did the White House finally release a 2012 regulatory agenda—and then only in a “news dump” on the Friday before Christmas. It identified 128 “economically significant” rulemakings, but took care to applaud once more the “remarkably high” benefits that the administration’s regulations allegedly have achieved.
The Unified Regulatory Agenda was not the only thing withheld until after Election Day. According to various reports, many agencies withheld controversial regulations until after the election. National Journal reported shortly before the election that “federal agencies are sitting on a pile of major health, environmental, and financial regulations that lobbyists, congressional staffers, and former administration officials say are being held back to avoid providing ammunition to Mitt Romney and other Republican critics.”
Once those concerns were mooted by the president’s reelection, the regulatory pipeline quickly reopened. On December 14, the Environmental Protection Agency issued a new “soot” rule, to limit pollution from automobiles and smokestacks. The EPA estimates the rule’s costs as ranging from $53 million to $350 million per year, leading Politico to ask whether the “significantly tightened” pollution limits are “a sign for the second term?”
A week later, EPA issued a new rule limiting mercury, acid gas, and other emissions from industrial boilers. The EPA estimates the rule’s costs at $1.4 billion to $1.6 billion per year.
Furthermore, in the weeks after the election, the EPA abruptly banned BP from bidding for new offshore drilling leases, an unexpected action that left Senators Mary Landrieu, Lisa Murkowski, and others grasping for answers. “I can’t figure out where this directive came from, what precipitated it, on what grounds it was issued,” said Landrieu, a Democrat.
As busy as the EPA was after the election, it certainly wasn’t alone. On November 30, the Department of Health and Human Services released a proposal to collect “user fees” from insurance companies listing health insurance in Obamacare exchanges created by the federal government. The fee, amounting to 3.5 percent of the value of the insurance policy, was highly controversial—first and foremost because it seems squarely illegal. Obamacare authorizes states to establish user fees for state-created health insurance exchanges, but the hastily drafted statute included no corresponding user-fee provision for exchanges established by the federal government for states that refused to set up their own exchanges. The administration’s aggressive legal interpretation sets the stage for yet another round of heated Obamacare-related litigation.
And the pace may be accelerating. Each day seems to bring word of new, ever more controversial executive regulatory actions. Last week, Politico reported that HHS is considering “Mandate Plus,” an escalation of Obamacare’s individual mandate that would increase the pressure on Americans to buy health insurance rather than paying the Supreme Court-approved “tax.” (Or, as Cass Sunstein and other behavioral economists might say, to give Americans a bit stronger “nudge.”) Just days later, the White House released a list of 23 “executive actions” that it will take to combat gun violence. Reprising its old “We Can’t Wait” campaign, the White House titled the plan “Now Is The Time.”
Those examples are significant in and of themselves, but, more important, they stand as the earliest symptoms of a trend toward a substantial increase in regulatory activity. For just as President Obama’s first term was much more active than Bush’s and Clinton’s first terms had been, his second term will likely be much more active than his first. This imminent increase owes to a number of pro-regulation incentives not present in the president’s first term but very present in the second.
First, and as TNR’s Timothy Noah already noted, the president no longer faces the discipline of the ballot box. While Noah sees that as a good thing, others would characterize it differently. Alexander Hamilton, for example, observed in Federalist 72 that a president ineligible for reelection would experience “a diminution of the inducements to good behavior.” Much as Madison’s separation of powers allows “ambition . . . to counteract ambition” between the branches of government, Hamilton saw that a president’s desire for reelection exemplified “the best security for the fidelity of mankind,” making presidents’ “interests coincide with their duty.” Invoking Hamilton years later, Arthur Schlesinger wrote in The Imperial Presidency that the president’s desire for reelection “more often has a salutary impact in increasing sensitivity to public needs and hopes”; the presidents’ term-limitation “purifies neither their own performance nor the national attitude toward them.”
Second, President Obama has far less incentive to try to collaborate with Congress today than he did four years ago. In 2009, the administration deferred substantial regulations while attempting first to enact its policies in legislation; if anything, the possibility of unilateral regulatory action was a weapon brandished to induce Congress to act.
The best example of this was the president’s climate change agenda. While President Obama came to office eager to impose a new greenhouse gas regulatory regime in the aftermath of the Supreme Court’s Massachusetts v. EPA decision, he first spent several months pushing for Congress to enact those policies in statutes. Just two months after his inauguration, the White House rebuffed environmentalists’ calls for the EPA to issue greenhouse gas regulations, stressing that Obama’s “strong preference” was “for Congress to pass energy security legislation that includes a cap on greenhouse gas emissions.” After the EPA issued its proposed “endangerment finding” in April 2009, both the administration and Democrats in Congress leveraged the threat of EPA regulation to promote the Waxman-Markey climate bill. The New York Times reported that while the president was pushing for a legislative solution, he was “holding in reserve a powerful club”—namely, the EPA’s regulatory power. In Congress, Rep. John Dingell warned his colleagues that if they wouldn’t act, then “greenhouse gases will be regulated by EPA. And if you want something to shudder about, I beg you to take a look at that.” The climate bill passed the House but stalled in the Senate; finally, the EPA went through with its regulatory program, finalizing its climate change “endangerment finding” in December 2009.
This time, by contrast, with a staunch Republican majority in the House and a divided Senate, the president has no serious prospects for achieving his regulatory policies through legislation; he can go straight to the regulatory option. And his proponents know this. Two days after his reelection, Greenwire reported that environmentalists “expected direction on climate change to come from the White House and EPA in the near future, not from Congress”; the president’s reelection had “perhaps free[d] U.S. EPA to move regulations forward with gusto.”
The third factor favoring regulatory activism in the new term is, simply put, the fact that the regulatory machinery already is in motion. Far from having to staff up the agencies and begin the regulatory process from a standing start, the second Obama administration inherits agencies that are at cruising speed. Regulations already in the works can be issued on Day One.
Fourth, and related, is the fact that statutes enacted in the president’s first term have left the administration with myriad regulatory obligations to fulfill in the second term. Again, Dodd-Frank and Obamacare are the starkest examples. Dodd-Frank requires federal agencies to undertake 398 rulemakings, according to the widely followed Davis Polk Dodd-Frank Progress Report; of those, only 136 have been finalized, and rules have been proposed for another 133. So regulators owe at least 129 more rulemaking proposals and 262 more final rules. Similarly, the Congressional Research Service identified more than 40 Obamacare provisions that permit or require the issuance of regulations.
Fifth, the administration’s regulators will learn from the mistakes they made in the first term. In 2011, for example, the administration suffered a major setback when the U.S. Court of Appeals for the D.C. Circuit struck down the Securities and Exchange Commission’s new “proxy access rule,” a shareholder rights regulation, in the Business Roundtable case. The court held that the agency had failed to analyze adequately the rule’s costs and benefits, as required by an SEC-specific statute. That decision’s shockwaves were felt well beyond the proxy access rule; fearing that other forthcoming rules suffered from similar defects, SEC regulators brought the process “to a near halt, with just 24 agency economists working full-time to provide analyses for dozens of proposed policies, including 28 unfinished Dodd-Frank rules,” according to Bloomberg Businessweek. In the president’s second term, many or all of those delayed rulemakings will finally be completed—and this time, the agency’s work may be able to withstand judicial scrutiny.
The final pro-regulatory factor reflects the Reagan-era adage “personnel is policy.” In August, Cass Sunstein left the White House to return to Harvard Law School. Sunstein, the White House’s administrator of the Office of Information and Regulatory Affairs, reportedly had been a primary bulwark against regulatory overreach. To conservatives who know Sunstein first and foremost as a liberal legal scholar and coauthor of Nudge—an analysis of how regulators can use the lessons of “behavioral economics” to “nudge” people toward government-favored outcomes—Sunstein was no favorite. But observers more familiar with his full body of work recognized in 2009 that he would be one of the major moderating influences inside the White House. Shortly before the president’s inauguration, the Wall Street Journal’s editors gave two cheers to Sunstein, “a regulator with promise—really.”
In fact, Sunstein had played a role in the Reagan administration’s original effort to improve the regulatory process: As a lawyer in the Justice Department’s Office of Legal Counsel in 1981, he helped to draft the landmark regulatory-review executive order, E.O. 12291, which required agencies to submit proposed regulations to OIRA for cost-benefit review. Nearly three decades later, as President Obama’s OIRA administrator, Sunstein seemingly justified conservatives’ (mild) praise, first and foremost by helping to block the EPA’s proposal to substantially tighten ozone standards in 2011. The Hill, which described the White House’s decision as a “huge defeat for environmental groups,” reported that Sunstein played a central role in circulating industry criticism of the rule within the White House. The New York Times quoted one outside adviser who said that “Cass was itching, itching, itching to” return the ozone rule to the EPA, because he was unconvinced that the rule’s benefits outweighed its costs.
Sunstein was able to succeed as a counterweight to EPA administrator Lisa Jackson and other eager regulators not just because of his national reputation as a scholar, but also because of his deep personal ties to President Obama, dating back to their time together on the University of Chicago law faculty in the 1990s. Sunstein’s successor has not yet been named, but he almost certainly will not have Sunstein’s professional credibility or personal relationship with the president, and thus will not be as effective in pushing back (always supposing he wants to push back) against the second-term regulatory tidal wave.
When the wave of regulations arrives, industries will turn to the courts to stem the tide. But there is only so much that the courts can do: The standards governing judicial review of agency action are very lenient, allowing the courts to remedy egregious violations of the law (such as the SEC’s failure to carry out the necessary cost-benefit analysis of its proxy access rule), but otherwise leaving the agencies with vast discretion to make factual and legal determinations.
Ironically, this deference to the Obama administration’s regulators is in large part the result of President Reagan’s success in reshaping the D.C. Circuit, the court primarily responsible for reviewing agency decisions. Much as modern conservative constitutional jurisprudence arose as a response to the liberal excesses of the Warren Court, modern administrative law largely reflects the Reagan administration’s response to liberal judges’ micromanagement of the regulatory agencies in the 1970s.
In a 1977 essay, for example, Antonin Scalia—then a law professor and American Enterprise Institute scholar—spoke for many conservatives when he criticized the courts for “impos[ing] upon the rulemaking process procedural requirements well beyond what was originally envisioned.” A few years later, when President Reagan appointed him to the D.C. Circuit and then to the Supreme Court, Scalia and his colleagues succeeded in substantially lightening the weight of judicial review on the agencies. But today some analysts, such as George Mason University’s Michael Greve, fear that the pendulum has swung too far in the other direction, so overwhelmingly deferential to federal agencies that it has become “woefully inadequate to the problems of the contemporary administrative state.”
The pendulum may begin to move the other way. Two of the most recent appointees to the D.C. Circuit—Judges Brett Kavanaugh and Janice Rogers Brown, both appointed by President George W. Bush—have offered indications that they are somewhat more willing to scrutinize and overturn the work of agencies; most recently, both judges strongly dissented from the court’s decision not to rehear challenges to the EPA’s greenhouse gas regulations. Furthermore, the Supreme Court may begin to pare back some of the regulators’ advantages. Two years ago, in Talk America v. Michigan Bell Telephone, Justice Scalia called on the courts to reconsider whether the federal agencies should continue to enjoy effectively unlimited deference in interpreting their own ambiguous regulations—a stark reversal, given that Scalia himself had authored many of the judicial opinions previously promoting such deference. More recently, the Supreme Court heard oral arguments last week in City of Arlington v. FCC, on the question of whether the courts should defer to agencies’ interpretations of the statutes defining the limits of the agencies’ own authority. But on the whole, barring any major revolution in the law, the courts’ application of the standards of administrative law offers only a light brake on the modern reinvigoration of the administrative state.
In fact, the change most likely to occur in the courts is one of judicial personnel, and this too favors the president. President Obama can fill vacant judgeships with judges more deferential to the agencies, judges less likely to overturn the regulatory policies of the next four years. The D.C. Circuit alone will have four vacant seats this year. President Obama has nominated two new judges to that court, and he may well attempt to fill all four vacancies.
He certainly recognizes the D.C. Circuit’s critically important regulatory-oversight role. In 2005, as a senator opposing Janice Rogers Brown’s nomination to that court, he took to the floor of the Senate and said,
Obama’s view of the D.C. Circuit’s importance likely has not changed in the last few years; if anything, the court has become even more prominent in debates over regulatory policy. Since striking down the SEC’s proxy access rule in Business Roundtable, the court has endured a barrage of public criticism from the administration’s supporters. The New York Times’s Floyd Norris, for example, denounced the court’s “judicial activists who seem quite willing to negate, on technical grounds, any regulations they do not like.” (Three years earlier, by contrast, the Times’s editorial board applauded the D.C. Circuit for striking down the Bush EPA’s rulemakings.) As regulation takes on a central role in his second term, President Obama may be all the more eager to seat judges whom he trusts not to disturb his regulatory accomplishments.
In the long run, the best check on regulatory overreach is Congress, which can pass laws improving the quality of regulatory agencies’ work by requiring them to consider rules’ cost and benefits in all cases and by heightening the standards governing the agencies’ factual and legal conclusions. To that end, the House Judiciary Committee has produced a number of strong reform bills, such as the Regulatory Accountability Act and the REINS Act. Both passed the House but stalled in the Senate; unfortunately, their prospects likely will not improve in the next four years.
In fact, much of the blame for our current predicament falls on Congress—that is, on previous Congresses that delegated vast power and discretion to regulators in open-ended statutes such as the Clean Air Act, then failed to rein in those agencies even after the dangers of those delegations became evident. And in recent years, Congress has exacerbated those problems by creating new agencies, such as the Consumer Financial Protection Bureau, which enjoy not just open-ended grants of power but also unprecedented insulation against oversight by the president and Congress.
Passing broadly worded statutes, Congress claimed credit for solving environmental, financial, or other policy problems, but handed off to regulators the discretion to tackle those problems however they saw fit. The creation of “independent” agencies did not merely make the agencies “independent” of the president and Congress; they made Congress “independent” of—that is, unaccountable for—the agencies.
In that respect, the best diagnosis of the modern regulatory state can be found in the late liberal legal scholar John Hart Ely’s War and Responsibility (1993):
It is common to style this shift [from legislative oversight to executive discretion] a usurpation, but that oversimplifies to the point of misstatement. … Congress (and the courts) ceded the ground without a fight. In fact, and this is much the message of this book, the legislative surrender was a self-interested one: Accountability is pretty frightening stuff.
For the next four years, congressional Republicans will have limited opportunities to check the regulatory state—oversight hearings, holds on executive branch nominations, and budget authority. But looking to the long run, the much more difficult question is how they will reform the regulatory state, under a future Republican president, to prevent us from returning time and time again to this dangerous moment.
Adam J. White is a lawyer in Washington, D.C.
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