J. Ellig, C.J. Conover, Presidential Priorities, Congressional Control, and the Quality of Regulatory Analysis: An Application to Healthcare and Homeland Security, in «Public Choice», vol. 161 (Nov-Dec 2014)
Research note by Jerry Ellig
Background
In the United States’ regulatory system, Congress typically delegates a great deal of rule-writing power to administrative agencies. Many of these agencies are part of the executive branch and hence nominally under the control of the president. Since 1981, U.S. presidents have sought to manage agency rule-writing by requiring agencies to conduct regulatory impact analysis for major regulations and giving the president’s Office of Information and Regulatory Affairs (OIRA) the power to review and return regulations to agencies if the analysis is inadequate or the regulation conflicts with the president’s policies. Requiring agencies to produce and publicly disclose more information about the likely effects of regulations and alternatives to regulation helps reduce the information asymmetries between the president and executive branch agencies (Posner 2001).
Congress and the president, however, also use other tools to influence regulations that may undercut agencies’ incentives to produce high-quality regulatory impact analysis. Congress can impose tight deadlines to ensure that the regulations get written while the congressional coalition that wrote the legislation still controls oversight and budgeting. In extreme cases, legislation may require or encourage agencies to issue “interim final” regulations. An agency can issue an interim final regulation without first soliciting comments from the public on a proposed regulation. The president and his staff direct agency rule-writing when they want to ensure timely issuance of rules that effectively implement the president’s most important policy priorities. When the president and Congress use top-down direction and deadlines to control agency rule-writing, they diminish agencies’ incentive and ability to conduct high-quality economic analysis of regulatory options.
Motivation for the study
Prior research suggests that this problem may be real, and not just a theoretical possibility. Former administration officials have identified cases when the president’s staff has initiated and directed agency rule-writing (Kagan 2001, Graham 2008). Government economists have noted instances in which White House staff directed OIRA to allow agencies to implement regulations that were accompanied by questionable analysis (Williams 2008). Several scholars find that legislative deadlines shorten the duration of rulemakings, and they reason that the quality of the regulations or accompanying analysis will therefore be reduced (O’Connell 2011, Gerson & O’Connell 2008). A series of case studies found that in numerous instances, deadlines forced agencies to ignore potentially useful scientific information or make decisions before regulatory impact analyses could be completed (Abbott 1987a, 1987b).
No prior research, however, has documented a quantitative correlation between presidential and congressional control strategies and the quality of regulatory impact analysis. This study fills that gap.
Subject matter of the study
This study assesses whether congressionally-mandated deadlines and top-down direction from the White House are correlated with differences in the quality of regulatory impact analysis for the signature policy priorities of the most recent two presidential administrations in the U.S. After 9/11, homeland security became the most significant policy priority identified with the G.W. Bush administration. Health care reform is the most significant policy priority identified with the Barak Obama administration.
Both sets of presidential priorities implemented legislation that required the issuance of regulations under tight deadlines. Consequently, many of these regulations were issued as interim final rules. We can thus compare the quality of regulatory impact analysis for four types of regulations:
- Interim final homeland security regulations under Bush and interim final healthcare regulations under Obama, which implemented signature presidential policy priorities and were subject to legislative deadlines;
- Other homeland security regulations under Bush and other health care regulations under Obama, which implemented signature presidential policy priorities but were not accompanied by legislative deadlines;
- Other regulations that were accompanied by legislative deadlines but addressed other topics; and
- Regulations that addresses other topics and did not have legislative deadlines.
The data we use on the quality of regulatory analysis are drawn from the Regulatory Report Card produced by the Mercatus Center at George Mason University (www.mercatus.org/reportcards). This project has assessed the quality and use of regulatory analysis for proposed, economically significant regulations issued by executive branch agencies since 2008. The Report Card consists of 12 criteria grouped into three categories: Openness, Analysis, and Use. Our primary results use the Analysis scores, because those are the only scores available for all of the regulations covered in this study. The Analysis score is the sum of scores on four criteria:
- Outcomes: How well did the analysis define the benefits or other outcomes the regulation is intended to produce, provide a coherent theory showing how the regulation will produce the outcomes, present evidence that the theory is correct, and assess uncertainties about the existence or size of the outcomes?
- Systemic Problem: How well did the analysis define the market failure or other systemic problem the regulation seeks to solve, provide a coherent theory explaining why the problem exists, present evidence that the theory is correct and the problem is widespread, and assess uncertainties about the existence or size of the problem?
- Alternatives: How well did the analysis develop alternatives to the proposed regulation and assess their effect on the desired outcomes?
- Cost-Benefit: How well did the analysis identify and calculate costs and compare them with benefits?
For each criterion, trained reviewers assigned each regulatory impact analysis a Likert scale score ranging from 0 (no useful content) to 5 (fairly complete analysis with one or more potential best practices). The Report Card methodology is explained in Ellig and McLaughlin (2012). Because the scores are ordinal, not cardinal, we use ordered logit regressions to identify factors that are correlated with the scores, following Ellig et. al. (2013).
Principal findings
After controlling for other factors that affect the quality of regulatory impact analysis, we find that the interim final prescriptive regulations implementing Bush homeland security and Obama healthcare initiatives clearly have lower-quality analysis than other prescriptive regulations. Based on our econometric results, interim final healthcare and homeland security regulations have a 70% chance of scoring four points or less (out of a possible 20) and a 97% chance of scoring below the sample mean of 8.5 points. Regulations that are not interim final rules have only a 6% chance of scoring four points or less and a 47% chance of scoring below the sample mean of 8.5 points.
Regulatory impact analyses have significantly lower scores only for interim final regulations that implement a presidential priority and are issued subject to a legislative deadline. Other regulations that either have statutory deadlines or reflect presidential priorities do not have lower-quality regulatory impact analysis. We expect this difference in results occurs because the interim final regulations had relatively tight deadlines – some as short as 60 days after passage of the legislation. We do not know the length of the deadlines for other regulations, but they were likely longer.
Our results are thus partly consistent with the theory. In extreme cases – the interim final regulations that combined very tight legislative deadlines with very tight White House oversight – the quality of regulatory impact analysis is lower. The difference is both statistically significant and quantitatively significant.
Conclusions
These findings suggest that institutional, rather than personal or partisan, factors explain why the quality of regulatory analysis declines when agencies implement significant presidential priorities on very short deadlines. They imply that the most likely way to improve the quality of regulatory analysis is by adopting institutional changes in the regulatory process. The challenge is designing alternative constraints that will promote production of higher-quality regulatory analysis even when presidential management short-circuits OIRA’s normal review function and legislative deadlines compress the time frame for analysis.
Two general types of reforms would seem to address the institutional problems we have identified. To prevent tight deadlines from undermining the quality of regulatory impact analysis, agencies could be prohibited from using legislative deadlines as “good cause” to issue interim final rules; instead, the need to conduct thorough analysis for major regulations could count as “good cause” for missing legislated deadlines. At a minimum, interim final rules could include a mandatory sunset provision if the rule is not finalized after a public comment period, to guarantee that these rules actually get revisited after they take effect.
To prevent top-down presidential management from undermining high-quality analysis, some entity outside the executive branch could be responsible for review of agencies’ regulatory impact analysis. This function could be housed in the Congressional Budget Office or Government Accountability Office, or established as an independent review agency. The strongest type of review would be judicial review; regulations could be challenged in court if the accompanying analysis fails to meet minimum quality standards specified in legislation. Another check would be to “crowdsource” review of agency analysis by requiring agencies to produce RIAs assessing alternative solutions and publish them for public comment before they write proposed regulations (Belzer 2009).
References
- Abbott, A. F. 1987a. The case against federal statutory and judicial deadlines: a cost-benefit appraisal,” Administrative Law Review, 39, 171–204.
- Belzer, R. B. 2009. Principles for an effective Regulatory Impact Analysis challenge function, Policy Horizons Canada Horizons, 10(3), 31–39.
- Case studies on the aosts of federal statutory and judicial deadlines, Administrative Law Review, 39, 467–87.
- Ellig, J. and P.A. McLaughlin. 2012. The quality and use of regulatory analysis in 2008, Risk Analysis, 32, 855-80.
- Ellig, J., P.A. McLaughlin, and J.F. Morrall III. 2013. Continuity, change, and priorities: the quality and use of regulatory analysis across U.S. administrations, Regulation & Governance 7, 153–73.
- Gersen, J.E., and A.J. O’Connell. 2008. Deadlines in administrative law, University of Pennsylvania Law Review, 157, 924-90.
- Graham, J.D. 2008. Saving lives through administrative law and economics, University of Pennsylvania Law Review, 157, 395–540.
- Kagan, E. 2001. Presidential administration, Harvard Law Review, 114, 2245-2385.
- O’Connell, A. J. 2011. Agency rulemaking and political transitions, Northwestern University Law Review, 105, 471-534.
- Posner, E. 2001. Controlling agencies with cost-benefit analysis: a positive political theory perspective, University of Chicago Law Review, 68, 1137–99.
- Williams, R. 2008. The influence of regulatory economists in federal health and safety agencies, Working paper, Mercatus Center at George Mason University, Arlington, VA.
Jerry Ellig, Mercatus Center, George Mason University, jellig@mercatus.gmu.edu
Jerry Ellig is a senior research fellow at the Mercatus Center at George Mason University and a former assistant professor of economics at George Mason University. He specializes in the federal regulatory process, economic regulation, and telecommunications regulation.
