November 18, 2017
    President Trump signs executive order into the federal regulatory process

    Significant changes for nonprofits

    The authors are located in Venable LLP's DC office.

    On Jan. 30, 2017, President Trump issued an Executive Order, “Reducing Regulation and Controlling Regulatory Costs,” which if properly implemented may herald the most significant changes in the federal regulatory process since 1981, when President Reagan instituted formal White House Regulatory Review of rules issued by federal executive departments and agencies.

    At this stage, analysis of the likely practical effects of this presidential initiative is difficult, because the order contains little more than broad outlines of three new principles that covered federal agencies are to follow: (1) a “two-for-one” rule requiring elimination of two existing regulations for each new rule issued; (2) a regulatory cap, imposed on an agency-by-agency basis, on the costs that may be imposed in rules issued during fiscal year 2017, which may constitute a de facto moratorium on issuance of many major rules; and (3) in the most potentially significant step, the creation of a regulatory budget on an agency-by-agency basis, that would allow centralized White House control over the total incremental costs that a rulemaking agency may impose on nonprofit organizations and others.

    The authority to devise implementation criteria and to make important substantive decisions to carry out these three principles is delegated to the director of the federal Office of Management and Budget, acting in consultation with the White House staff. If the order is developed and implemented carefully, it could be the first step in a significant modification of the federal regulatory process to focus on its total costs to the economy, to complement the current emphasis on the net benefits of individual rules after subtracting their costs.

    Implications for retrospective review

    For several years, some regulatory experts have called for agencies to engage in retrospective review of regulations. Federal agencies subject to the White House Regulatory Review process typically have conducted ex ante analyses of the projected costs and benefits of rules they propose to issue, but have not gone back after the fact to conduct an ex post review of the actual costs of their rules. In a “retrospective review,” agencies are required to analyze existing regulations for effectiveness and revise or eliminate rules or aspects of rules that proved more costly than expected. Indeed, President Obama issued an executive order in 2011 that encouraged agencies to engage in retrospective reviews, but this directive generated relatively few results.

    The new order does not formally require that agencies engage in retrospective review. But the creation of a regulatory budget is likely to create incentives for agencies to build into their new rules data collection and analytical techniques that they could use after the fact in a retrospective review to determine if a rule has been implemented at a lower cost than projected originally, or to identify rules that have cost more than expected and thus may be candidates for possible revision or repeal. Agencies may conclude that the value of generating cap space under the regulatory budget by reducing regulatory costs makes it in their institutional self-interest to place greater emphasis on retrospective reviews in their rulemaking processes.

    Conclusion

    The new order lacks many details about how its requirements will be implemented. The actual process by which the Trump administration will seek to limit regulatory costs is very much a work in progress. The order does, however, direct the director of OMB to provide guidance to the agencies on the implementation of its provisions. This guidance will specifically address, among other issues, the standardization of the measurement and estimation of regulatory cost, the definition of new or offsetting regulations, and what constitute emergencies and other circumstances that might justify individual waivers of the requirements of the order.

    We will continue to monitor this issue as the White House releases more details about the implementation of the order and as the OMB director issues implementing guidance.

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