l> - REVIEWING INDEPENDENT AGENCY RULEMAKING S. Hrg. 114-477 REVIEWING INDEPENDENT AGENCY RULEMAKING======================================================================= HEARING BEFORE THE SUBCOMMITTEE ON REGULATORY AFFAIRS AND FEDERAL MANAGEMENT OF THE COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS UNITED STATES SENATE ONE HUNDRED FOURTEENTH CONGRESS SECOND SESSION __________ SEPTEMBER 8, 2016 __________ Available via http://www.fdsys.gov Printed for the use of the Committee on Homeland Security and Governmental Affairs
U.S. GOVERNMENT PUBLISHING OFFICE22-477 PDF WASHINGTON : 2016 ________________________________________________________________________________________ For sale by the Superintendent of Documents, U.S. Government Publishing Office, http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free). E-mail, COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS RON JOHNSON, Wisconsin, ChairmanJOHN McCAIN, Arizona THOMAS R. CARPER, DelawareROB PORTMAN, Ohio CLAIRE McCASKILL, MissouriRAND PAUL, Kentucky JON TESTER, MontanaJAMES LANKFORD, Oklahoma TAMMY BALDWIN, WisconsinMICHAEL B. ENZI, Wyoming HEIDI HEITKAMP, North DakotaKELLY AYOTTE, New Hampshire CORY A. BOOKER, New JerseyJONI ERNST, Iowa GARY C. PETERS, MichiganBEN SASSE, Nebraska Christopher R. Hixon, Staff Director Gabrielle A. Batkin, Minority Staff Director John P. Kilvington, Minority Deputy Staff Director Laura W. Kilbride, Chief Clerk SUBCOMMITTEE ON REGULATORY AFFAIRS AND FEDERAL MANAGEMENT JAMES LANKFORD, Oklahoma, ChairmanJOHN MCCAIN, Arizona HEIDI HEITKAMP, North DakotaROB PORTMAN, Ohio JON TESTER, MontanaMICHAEL B. ENZI, Wyoming CORY A. BOOKER, New JerseyJONI ERNST, Iowa GARY C. PETERS, MichiganBEN SASSE, Nebraska John Cuaderess, Staff Director Eric Bursch, Minority Staff Director Rachel Nitsche, Chief Clerk C O N T E N T S ------ Opening statement: Page Senator Lankford............................................. 1 Senator Heitkamp............................................. 3 Senator Ernst................................................ 10 Senator Portman.............................................. 11Prepared statement: Senator Lankford............................................. 31 Senator Heitkamp............................................. 33 WITNESSES Thursday, September 8, 2016Robert R. Gasaway, of Counsel, Kirkland & Ellis, LLP............. 5Adam White, Fellow, Hoover Institution........................... 7Cary Coglianese, Ph.D., Edward B. Shils Professor of Law and Professor of Political Science, Director, Penn Program on Regulation, University of Pennsylvania Law School.............. 8 Alphabetical List of WitnessesCoglianese, Cary Ph.D.: Testimony.................................................... 8 Prepared statement........................................... 69Gasaway, Robert R.: Testimony.................................................... 5 Prepared statement........................................... 34White, Adam: Testimony.................................................... 7 Prepared statement........................................... 48 APPENDIXReport submitted by Adam White................................... 87Responses to post-hearing questions for the Record: Mr. White.................................................... 121 Mr. Coglianese............................................... 126 REVIEWING INDEPENDENT AGENCY RULEMAKING ---------- THURSDAY, SEPTEMBER 8, 2016 U.S. Senate, Subcommittee on Regulatory, Affairs and Federal Management, of the Committee on Homeland Security and Governmental Affairs, Washington, DC. The Committee met, pursuant to notice, at 10:02 a.m., in room 342, Dirksen Senate Office Building, Hon. James Lankford, chairman of the Subcommittee, presiding. Present: Senators Lankford, Portman, Ernst and Heitkamp. OPENING STATEMENT OF SENATOR LANKFORD Senator Lankford. Good morning. Welcome to today"s Subcommittee hearing entitled ``Reviewing Independent Agency Rulemaking."" This is the 13th hearing in the regulatory process that this Subcommittee has held during this Congress. All our prior hearings the Subcommittee has reviewed the regulatory actions of executive branch agencies. Today we turn to the rulemaking record of independent regulatory agencies. First of all, I want to recognize Senator Portman for his work on this topic, and as the Subcommittee moves toward addressing shortcomings independent agencies regulate, we have Senator Portman to thank for his tireless work in this area and the foundation he has laid regarding common sense solutions to fixing problems associated with independent agency rulemaking. Independent regulatory agencies were conceived to accomplish varied missions, but they have one thing in common. They were structured to be somewhat independent from the influence of the President, the Administration, or originally, the Judiciary. However, independent agencies should not be exempt from oversight. When an agency is independent of the executive branch, it does not require that they are also independent of Congress and the American people. Congress created each independent agency and Congress still has the authority to oversee the agency they created. No public entity should be exempt from oversight. Independent agencies take regulatory action just like their executive branch counterparts. They promulgate rules, issue guidance, take enforcement actions. Accordingly, independent regulatory agencies should be held to the same procedural standards as executive branch agencies. I would actually argue that independent regulatory agencies require a heightened level of oversight over their regulatory regimes because the Executive Orders (EO) that have structured every aspect of the rulemaking process for executive branch agencies, and have been endorsed by both Democrat and Republican administrations for decades, do not apply to independent regulatory agencies. Part of the question we will have today is why not? According to the Office of Management and Budget (OMB"s) 2015 Report to Congress on the benefits and costs of Federal regulations from 2005 through 2014, Federal agencies issued 549 major rules. Independent regulatory agencies were responsible for 141 of these rules, which equates to roughly 25 percent of rulemaking. There is cause for concern when it comes to the analysis to support those rules. In the same report, OMB found that in 2014, only 10 of the 16 major rules issued by independent agencies provided some information on the benefits of the cost of regulation and that independent agencies continue to struggle in providing monetized estimates of benefits of cost and regulation. Another study published by the independent well-respected Administrative Conference of the United States in 2013 found that no major rule issued by an independent agency in 2012 contained a complete cost benefit analysis. Many of these rules that are issued without a cost benefit analysis are financial regulations issued by the Consumer Financial Protection Bureau (CFPB), the Commodity Futures Trading Commission (CFTC), the Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Corporation (FDIC) and have a direct impact on the smaller community banks that small business owners and farmers depend on. Take for example the CFPB"s qualified mortgage rule. CFPB designed this in an attempt to extend credit only to those who can afford to repay a mortgage, preventing another mortgage crisis. Instead, the agency failed to monetize any of the costs and benefits and issued a one-size-fits-all rule that has crippled the ability of community banks to issue mortgages. Rules like this show that when agencies are not required to conduct a full cost benefit analysis before issuing a regulation, unintended consequences were likely to follow, such as uncertainty among community banks that limits their ability to issue credit to farmers and small businesses. Although community banks account for only 22 percent of all current loans, they hold three-quarters of all agricultural loans and half of all small business loans. Uncertainty for community banks means uncertainty for job creation. This Administration has made efforts to urge independent regulatory agencies to improve some of their regulatory processes. In July 2011, the President issued Executive Order 13579, which urged independent regulatory agencies to comply with the analytical requirements that applied to executive branch agencies. Requiring independent regulatory agencies to follow the analytical requirements of Executive Order 12866 and 13563 would be a reasonable and significant step toward achieving transparency and predictability for regulatory entities. We are pleased to have three witnesses today, and I look forward to hearing from each of you and what Congress can and should do to ensure that all agencies work for and hold accountable these independent agencies for the American people. With that, I recognize Ranking Member Heitkamp for her opening remarks. OPENING STATEMENT OF SENATOR HEITKAMP Senator Heitkamp. Thank you, Mr. Chairman. Today"s hearing builds on the Subcommittee"s thorough investigation of the current State of Federal rulemaking. Together, we have explored virtually every aspect of the rulemaking process in a comprehensive and, I believe, bipartisan way. We have sought out views and opinions from individuals across the political spectrum in order to identify sensible steps Congress should be able to agree upon to make needed improvements to the regulatory system. Our focus today is independent agencies which occupy a unique position in our national government. They were deliberately, deliberately established by Congress to operate independent of the President. Among other things, they are charged with vital public health and safety functions, ensuring economic and financial stability and serving as stewards and guardians of fairness and equity on a wide range of public policy issues. These are critical responsibilities and those responsibilities will certainly require independent agencies to issue regulations when authorized or required by statute. What I want to explore today is how Congress can ensure such rulemaking is of the highest quality. I remain committed to making the Nation"s regulatory system more transparent, efficient, effective and certainly accountable. First, Congress cannot lessen its own authority through inaction on critical issues by blurring the lines between legislative, judicial and executive functions. In some cases though, excessive delegation to agencies, I think Congress has ceded their responsibility. I do not think there is any doubt about it. The clearest example that I can provide is Waters of the United States, where clearly over decades of litigation and decades of rulemaking there is not a clear answer. One would imagine in that factual situation Congress would see the important role of stepping in and providing the guidelines that need to be provided, the laws that need to be provided. But yet we do not do it because we would rather pound the table and complain about regulatory agencies. Simply stated, Congress must pass good laws by taking full responsibility for clearly articulating priorities and goals in legislation. If our statutory directives are unambiguous, we will not see as many claims of agency overreach. Second, while rulemaking is often mandated by statute, we must continue to understand the benefits and costs of regulation. That means that Congress must fulfill its obligation to the American people through oversight of the regulatory process and this has to include independent agencies whose rules in many cases have more impact on today"s business world and today"s health and safety world. To be clear, independent agencies face significant challenges in quantifying costs and benefit in the same manner as executive agencies. Nevertheless, in my opinion, their regulatory decisions should be based upon good regulatory analysis. It is not always easy to quantify cost and benefits. Decades of scholarship have revealed that it is often far easier to tabulate costs for regulation and much harder to capture benefits and quantify benefits. That just means that there will always be a role for quantifying cost and benefits in the regulatory analysis. We should be wary of imposing a one-size-fits-all requirement which would have serious unintended consequences. We must also be mindful of the regulatory resources if we expect agencies to compete and complete regulations in a timely fashion. Today I want to hear from our witnesses, all enormously gifted and knowledgeable in this area, on how to improve the regulatory process for independent agencies, with a focus on how best to improve congressional oversight. I look forward to continuing my work with Senator Lankford and the rest of my colleagues on these important issues, and I look forward to the testimony today and our continuing dialogue. Thank you, Mr. Chairman. Senator Lankford. Thank you. At this time, we will proceed with testimony from our witnesses. Robert Gasaway is of Counsel at Kirkland & Ellis, specializing in appellate litigation, where he represents clients before the Federal and State court and administrative agencies. He clerked for Judge James Buckley of the U.S. Court of Appeals for the D.C. Circuit. He has twice been recognized as one of the top lawyers in the country by the Legal 500. Adam White is a fellow at the Hoover Institution, adjunct professor at George Mason"s Scalia Law School, and of counsel at Boyden Gray & Associates. He serves on the leadership council of the American Bar Association (ABA), of the Administrative Law and Regulatory Practice, and on the executive committee of the Federalist Society"s Administrative Law and Regulatory Practice Group. He clerked for Judge David Sentelle; is that correct? Mr. White. Sentelle. Senator Lankford. Sentelle, of the U.S. Court of Appeals to the D.C. Circuit. Cary Coglianese is the Edward Shils Professor of Law and professor of political science at the University of Pennsylvania, where he serves as the director of the Penn Program on regulation. He specializes in the study of regulation and regulatory process with an emphasis on the empirical evaluation of alternative regulatory strategies and the role of public participation, negotiation and business and government relations and policymaking. He holds an M.P.P., J.D. and Ph.D. from the University of Michigan. I would like to thank all of our witnesses for not only your preparation, your written testimony, but also being here personally for your oral testimony as well. It is the custom of this Subcommittee to be able to swear in all witnesses that appear before us. I would like you to please stand, raise your right hand so you can be sworn in for your testimony. Raise your right hand, please. Do you swear the testimony you will give before this Subcommittee will be the truth, the whole truth and nothing but the truth, so help you, God? Mr. Gasaway. I do. Mr. White. I do. Mr. Coglianese. I do. Senator Lankford. Thank you. You may be seated. Let the record reflect all witnesses answered in the affirmative. We are using a timing system today. You will see it in front of you with a 5-minute countdown to it. We will be somewhat lenient on that, merciful, maybe 4 or 5 seconds or so past. But we are trying to stick as close as we can so we can have a lot of questions and dialogue. The goal of this conversation will be not only receiving your testimony, your input, which has been excellent for all three of you, but it is also for us to have an open dialogue on some of these issues. So with that, Mr. Gasaway, we would be honored to be able to receive your oral testimony first. TESTIMONY OF ROBERT R. GASAWAY,1 OF COUNSEL, KIRKLAND & ELLIS, LLP Mr. Gasaway. Thank you very much, Chairman Lankford. And Senator Heitkamp, thank you as well. I am going to try to be very brief and give an overview and pick up on the statements that we just heard, both from you Senator Lankford and Senator Heitkamp. These are incredibly important hearings. We have a number of different issues in the administrative state. Some of them are chronic syndromes and some of them are breaks and sprains.--------------------------------------------------------------------------- 1 The prepared statement of Mr. Gasaway appears in the Appendix on page 34.--------------------------------------------------------------------------- We are going to talk a little bit about breaks and sprains in the independent agencies, some of the specific issues that go to them. And these are very critical issues and they need to be addressed, but I think there are easy issues and easy things that can be done to address them. But I think you also have to look at the harder issues, the chronic syndromes. They are particularly acute in the administrative agencies for reasons that Senator Heitkamp referred to. They are independent of the executive branch, largely the Congressional Branch, and political accountability. And then we have to tie that back in, as Senator Heitkamp said, to the larger issues of this hearing. So see if I can do that with the remaining 4 minutes. First of all, the issue extending the Executive Orders 12866 and 13563, I think that is on the level of a no-brainer. More information is better information. I think it would clearly make a difference in agency decisionmaking. I do not think there is any good reason for exempting them. Their independence can be preserved through a carve-out, as has been effected in other statutes, and I do think it would make a difference. The American Equity Investment Life Insurance Company case is one, where as you know, under Section 2(b) of the Exchange Act, economic analyses are required because there was no Office of Information and Regulatory Affairs (OIRA) review, because there were no standards at that time at the SEC. They committed a very remarkable error of failing to measure the effects of their program against the existing legal baseline of State regulation. I think those are exactly the kinds of mistakes that would not happen if the Executive Orders were extended by statute. And again, there have been carve-outs in other statutes to preserve independence. I think that could be done. There are technical issues to be sure, and Professor Coglianese has looked at some of them. What is the threshold? Do you use cost or benefits? I like costs because they are more measurable. Is it adjusted for inflation? What is an independent agency? But those are all technical issues. The no-brainer is you should go ahead and do it. OIRA has an extraordinary wealth of capability. There would be an extraordinarily greater degree of coordination and the technical issues can be overcome. Now segueing briefly, I think that you also have to look at wider issues of actually bringing them under congressional control. And I stated briefly in my written testimony that I think an adaptation of the Red Tape Act that Senator Sullivan has introduced could function that way. I think, obviously, there are some challenges and there is a discussion that needs to be made. But the key point there is you overcome this cultural problem--and I will come back to that--that you see in Professor Coglianese"s testimony. He says retrospective review is not part of the culture of agencies. We want to push our agencies forward. The great thing about the Red Tape Act, the one-in, one-out, is that retrospective review is bound up with the prospective review, right? You have to take regulatory costs off the table to move it forward. So now everybody"s pushing together. And that division that we see reflected in Professor Coglianese"s testimony becomes unified. Looking at old regulations, doing new regulations all become one. So I would greatly encourage all the Members of the Committee to take a hard look at how that legislation could be adapted. And then third, I do have to go back very briefly within my time to the issues that you have been struggling with, the mega issues of over-delegation, and I will just hit on them briefly there. The ``Chevron"" issue and over-delegation, Non-Delegation Doctrine in the Supreme Court is one of the challenges of this Congress and of our time. I am extraordinarily impressed with the testimony the Committee has received. I have tried to summarize that testimony in a new way and crystalize it in a new way, and I would urge the Committee to go back to previous witnesses and see if I have that right. Because if I do, ``Chevron"" is extraordinarily vulnerable and candidly more vulnerable than I expected when I first came to this Committee record. Second, very briefly, I emphasize that Congress does have to get back into the game. I put a couple novel proposals on there for using fast track administrative processes, just like you have fast track processes in the trade area. And then finally, I want to return to that word ``culture."" Professor Herz gave testimony that it was a quote ``completely infelicitous phrase, a completely infelicitous choice of language in "Chevron" to say administrators are freed unless Congress has quote, "spoken to precise issues."" He is absolutely correct about that. It has had pervasive cultural effects in independent agencies and executive agencies alike, and I would urge the Committee to return attention to that issue. Thank you. Senator Lankford. Thank you. Mr. White. TESTIMONY OF ADAM WHITE,1 FELLOW, HOOVER INSTITUTION Mr. White. Chairman Lankford, Ranking Member Heitkamp, and other Members of the Subcommittee, thank you for inviting me to testify today. In my written statement, I try to make three basic points. First, I recognize that so-called independent agencies have a long and varied history in American government. Nevertheless, the justifications for their independence from the President reflect largely a bygone era.--------------------------------------------------------------------------- 1 The prepared statement of Mr. White appears in the Appendix on page 48.--------------------------------------------------------------------------- Today, the rules of most independent agencies are largely indistinguishable from those of executive agencies, whose major rules are subject to full cost benefit analysis under OIRA"s oversight. 35 years ago, the Reagan Administration made a prudential choice not to subject independent agencies to OIRA oversight because those agencies were at the time relatively unimportant. Today the regulatory world is completely different, with independent agencies like the Federal Reserve Board (FRB) of Governors, the SEC, the CFPB, the Federal Communications Commission (FCC) and even the Federal Energy Regulatory Commission (FERC), making immensely consequential policy decisions. Independent agencies issued at least 17 major rules from October 2013 through September 2014, according to OIRA and the Government Accountability Office (GAO). It is time for the Congress and the President to take down the artificial and increasingly arbitrary wall that insulates independent agencies from OIRA"s review, as both the American Bar Association Section on Administrative Law and the Administrative Council of the United States have both long urged. My second point, we now see clearly what happens when independent agencies" cost benefit analyses do not face meaningful review or interagency coordination. As to meaningful review, I cite criticism of the Government Accountability Office, the CFTC"s Inspector General (IG), the D.C. Circuit, and others who have found independent agencies" analyses woefully lacking. This week my wife and I are sending our kids back to school, and just as our schools do not trust students to grade their own homework, we should not leave the independent agencies free to grade their own homework. This is not intended to cast aspersion on the agencies motives or their dedication, but only to point out a basic fact of human nature: We do our best work when we know that someone else will eventually grade it. And as to interagency coordination, this is perhaps the most important role that OIRA plays, even more than cost benefit analysis. The OIRA framework facilitates an interagency dialogue that helps to coordinate agency policies, but also to ensure that each agency is getting the best possible expertise and advise from its sister agencies in the context of White House, OIRA oversight. Independent agencies should be fully incorporated into the OIRA framework for precisely this reason. The third point that I make in my testimony, as you focus on subjecting independent agencies to greater OIRA oversight perhaps, I urge you to subject independent agencies to greater congressional oversight, and not just in terms of oversight hearings, but more importantly, in terms of the way that you structure independent agencies and fund them. I think right now the trend is in the wrong direction in terms of giving independent agencies too much independence, not just from the President but also structurally and financially from Congress. If I may add just one final note to reemphasize the basic point of my testimony and what I see to be the crux of the issue before the Subcommittee. Cost benefit analysis and interagency coordination are not simply ends in and of themselves. The point of cost benefit analysis, as I see it, is not to come up with some precise, absolutely correct numerical answer. As Senator Heitkamp noted in her opening remarks, I doubt that is even possible. I doubt the cost benefit analysis could even accomplish this, even if we wanted it to. And I think there is risk in putting too much faith in seemingly objective economic analysis. Rather, the point of cost benefit analysis, as I see it, is the process. It creates a framework for agencies to think through these issues rigorously, think through the impacts of their decisions, and just as importantly, to look back at their analyses years down the road to see where their previous assumptions were right and where they were wrong. That is the retrospective reviews that my fellow witnesses have mentioned. This process should teach agencies and all of us to be more modest in our predictions and our arguments and to be more accountable to the public. Thank you. Senator Lankford. Dr. Coglianese. TESTIMONY OF CARY COGLIANESE, PH.D.,1 EDWARD B. SHILS PROFESSOR OF LAW AND PROFESSOR OF POLITICAL SCIENCE, DIRECTOR, PENN PROGRAM ON REGULATION, UNIVERSITY OF PENNSYLVANIA LAW SCHOOL Mr. Coglianese. Chairman Lankford, Ranking Member Heitkamp, and other Members of the Subcommittee, thank you for the opportunity to be here today. And let me also thank you for your service to the Nation. I am pleased to talk about ways that Congress might help encourage independent agencies to engage in smarter regulation. Smarter regulation requires sound analysis, both upfront before rules are adopted prospectively as well as rigorous research after rules are adopted, to find out how well they are working, or retrospective analysis.--------------------------------------------------------------------------- 1 The prepared statement of Mr. Coglianese appears in the Appendix on page 69.--------------------------------------------------------------------------- With respect to prospective analysis, as has already been indicated, one option would be for Congress legislatively to codify the outline of and requirements in Executive Order 12866 and apply them to independent agencies. This would have the advantage of making symmetrical the analytical requirements between independent and executive agencies, but it would mark a major shift in the norms of independent decisionmaking by independent agencies. That is because Executive Order 12866 not only contains requirements for prospective analysis, but also establishes an institutional structure that places the President, and the president"s staff, in a more central role in regulatory decisions. This option would also require a major increase in funding and staffing for OIRA. Let me suggest an alternative to that, which would have a similar advantage of creating symmetry in regulatory analysis requirements between independent and executive agencies, but would not bring with it the kinds of institutional changes and challenges that would accompany the first option. The alternative would be to eliminate the exemption in the Unfunded Mandates Reform Act (UMRA) for independent agencies. The Unfunded Mandates Reform Act simply imposes a requirement that all agencies, for certain rules, apply benefit-cost analysis to them, and that requirement is something that is enforceable through judicial review. The courts can make sure that the agencies have done that analysis, and then the quality of that analysis would form part of the standard arbitrary and capricious review that courts would give. If Congress should go forward with either of these options and apply a new mandate to independent agencies, it obviously should keep in mind that effectively implementing any such mandate will require resources by independent agencies, and even with these resources and the stronger incentives that a mandate would bring, regulatory analysis will always remain somewhat provisional. A mandate should not expect agencies always to be able to monetize costs and benefits, or at least all costs and all benefits, for every regulation. Let me turn in my remaining time briefly to retrospective analysis and possible steps to be taken to improve agencies study of their rules after they are adopted. Such analysis is absolutely vital to inform prospective analysis and it is something that is underproduced by both executive agencies and independent agencies. The Obama Administration"s Look Back Initiative has been a good move forward in this regard. And Congress, I think, could help by codifying a model like that Initiative and applying it to independent agencies, which have been exempt from the regular status reporting that executive agencies have had to make on their retrospective reviews. I would also suggest that requiring all agencies to develop some kind of structural evaluation plans at the time they adopt new rules would help shape their thinking about evaluation early on in the process, as well as form a basis for more rigorous review after the fact. The very frameworks that are called for in the Smarter Regs Act of 2015, for example, strike me as quite useful. Finally, as with prospective analysis, of course, ensuring high quality retrospective analysis requires resources, and Congress would need to allocate those as well. In these various ways, and for the reasons I have elaborated in my written testimony, Congress has an opportunity to strengthen the capacity for smarter regulatory decisions by the Nation"s independent agencies, by both encouraging better prospective and better retrospective analysis. Thank you very much for your time and dedication to these issues. Senator Lankford. Thank you, all three of you. The ranking member and I are going to defer our questions to the end, and I recognize Senator Ernst. OPENING STATEMENT OF SENATOR ERNST Senator Ernst. Thank you very much. I appreciate that. And thank you, gentlemen, for appearing before us today. I am going to take just a moment and kind of set the stage, walk you through an issue that I have seen, and then certainly get your feedback on it. As you may know, in February, the FCC published its Notice of Proposed Rulemaking on the Set-Top Boxes that are now required. And I have received several letters from small cable companies in my State that are very concerned, serious concerns about what this rule means for the vitality of their business, some of which have been family owned for many decades. According to the Small Business Administration (SBA"s) Office of Advocacy, the FCC published an Initial Regulatory Flexibility Analysis (IRFA), with its notice of proposed rulemaking (NPRM). However, the FCC did not attempt to quantify or describe the economic impact that its proposed regulation might have on small entities. SBA goes on to say that the FCC"s analysis ``Simply describes compliance requirements without making any attempt to explain what kinds of costs small multi channel video programming distributor (MVPDs) might incur in order to comply, and without any discussion of how those costs might be disproportionately burdensome for small entities."" So my questions to you are two-fold. Can either of you, Mr. White or Mr. Gasaway, comment on the FCC ruling and the quality control of that economic analysis, and with your experience and background, would you believe further defining what an economic analysis should entail from the Regulatory Flexibility Act side and how it could improve economic analysis of those independent agencies? How can we do better, if you would please? Mr. Gasaway. Well, I will take a crack at that. Senators, first of all, let me say that I am aware that that rule is out there. I have not studied it and so it is hard for me to talk, but I am a lawyer, so I will talk at length. Senator Ernst. Thank you. Of course. Mr. Gasaway. It is hard for me to talk about. I would be surprised if there was a quality Small Business Regulatory Enforcement Fairness Act (SBREFA) analysis. It could well be that that is the case. But unless there is a reason for doing a quality SBREFA analysis, often times it gets lost in the fact that there are limited resources at agencies, and I think the empirical work at independent agencies shows that many times they cut short those types of analyses. So I would not be at all surprised if in fact it was cut short. I do think the types of steps that we are talking about today can help. One of them, obviously, is subjecting SBREFA type analysis or other type of analysis to either the Small Business Administration Office of Advocate or Counsel of Revenue. It would be tying that more closely, tying it more closely to OIRA. But I would again say that there is not going to be better decisionmaking until there is some sort of fundamental reform. Now, one reform that people often think about is just making SBREFA judicially enforceable. And if you had only one card in your deck that might do it there. And I always support positive incremental reforms. But without spinning out of control, I do think that it shows the larger problems of administrative agencies and the larger problems this Committee has been dealing with. Remember, the FCC or any other agency is going to be thinking, I have a programmatic mandate, and my programmatic mandate is not to promote small businesses; it is to promote good telecommunications. And promoting good telecommunications requires the small Set-Top Box rule. So the SBREFA requirements are always going to be the caboose, and what I was trying to suggest with some of my broader reforms in my testimony is if you are going to change that culture, that word that I appropriated from my fellow witness, you are going to have to think very seriously about one of these other proposals that are on the table and these larger issues. I do not think there is a clear answer to that, but I do see the problem. Senator Ernst. Very good. And Mr. White, I cannot help but notice those Iowa Hawkeye cufflinks. They are glaring at me. This is a Cy-Hawk weekend, right? Mr. White. I know, Senator. Thank you, and thank you very much for bringing the Committee to my hometown of Dubuque, Iowa last month. Thank you very much. If I may just add very briefly to what my friend just said. Senator Ernst. Absolutely. Thank you. Mr. White. I think the key word, if I heard it correctly from the SBA, was the FCC did not attempt an economic analysis. And that is key. It is not even that they did it and did it poorly. It is that they did not even attempt it, which I think goes to the cultural, the regulatory culture issue that Mr. Gasaway mentioned. I read a recent report by an economist named Hal Singer--I am sorry. I do not have it off the top of my head, but I would be happy to submit it for the record1--focusing on the broader problems of the lack of economic analysis at the FCC. The FCC"s former chief economist called the recent Open Internet Order, he quipped that it was an economics free zone. And I think that is from the FCC"s own former chief economist. I think the same could be said for a lot of what the FCC is doing.--------------------------------------------------------------------------- 1 The report submitted by Mr. White appears in the Appendix on page 87.--------------------------------------------------------------------------- Senator Ernst. OK. Thank you, gentlemen, very much. Thank you. Senator Lankford. Senator Portman. OPENING STATEMENT OF SENATOR PORTMAN Senator Portman. Well, first of all, thank you very much for holding the hearing. I mentioned to Senator Heitkamp a moment ago, I hold these two up as my model at other hearings. I chair the PSI Subcommittee, saying that they allow Members to come and ask their questions and leave, because our lives are all so crazy and busy rather than monopolize the microphone. So thank you for letting me ask a question. I did just get here, so I missed some of your opening remarks. I did have a chance to look through your testimonies. Senator Lankford. You missed all my kind remarks about all your work for independent agencies. We talked about you positively even when you were not here. Senator Heitkamp. Major moment of suck up. Senator Portman. I missed it, but exactly, I heard about it, and I was not going to suck up again, as you--no, no. Seriously, thank you for mentioning that. And look, we have been working this a long time. Senator Warner deserves a lot of credit too, and I know some of you have disagreements with us in the way in which we make these agencies accountable, but give me a break. I mean, the American people are shocked to learn that independent agencies who play a bigger and bigger role in all of our lives do not have to go through a basic cost benefit analysis. I mean, they are shocked by that. And we have to figure this out. I am looking at some of these comments about how independent agencies are not subject to any influence from the White House. That is just not true. I mean, I would point you to April, when President Obama publicly announced his support for the FCC Set-Top Box proposal. I mean, Homeland Security Committee, this Committee, issued a report finding that the White House had duly influenced the FCC"s decisions to reclassify broadband Internet under Title II. I mean, there is influence. I wish there was not that kind of influence, but there is. So this notion that they are somehow not subject to any kind of political pressure, unfortunately they are, but they do not have the same accountability. And I just think people really are ready to come up with some way. We can look, do the benefits outweigh the costs or not? And I think that is the least we should be asking for. So the way Senator Warner and I approach it is, as you know, is to have the independent agencies at least provide information to OIRA and have OIRA play an advisory role. There are various ways to do this, but I hope you will work with us on this. The President said that he is for it. All we really want to do is codify what the President has said through his Executive Order, and it has to be done legislatively because these are independent agencies. OMB found that 10 of the 16 major rules issued by independent agencies in 2014, which is the last year we have data for, included some information. That means six contained no information on cost or benefits and zero included a full analysis of the type of analysis required by executive agencies, zero. So I think we have a real problem here, and this Subcommittee has been terrific at focusing on it. We had hoped to get this Independent Agency Regulatory Analysis Act as part of a broader package on maybe six or seven bills. It seemed to have some bipartisan consensus. We were not able to get that done. Senator Heitkamp was helpful in trying to get that done, by the way, as were other Democrats, but there were others who just could not go along with the broader package. But I hope this is something that this Subcommittee can continue to work on and push on so we can get it done. I guess, Mr. White, if I could just ask you a couple questions, I would appreciate it. You have been at this for a while. I read your testimony. I thought it was very informative, very well done. I think our legislation is pretty modest. It does not go as far as maybe you would like us to go and some others would. The American Bar Association, the Justice Department under President Reagan and President Clinton, the Administrative Conference of the United States, legal scholars across the spectrum, including Cass Sunstein, who all of you know, have said that the President, as head of the executive branch, has the authority to bring independent agencies under the same regulatory analysis and review framework that applies to executive agencies. And as you said, agencies currently are able to grade their own homework. Can you explain what you see as the benefits of having an outside entity review an independent agencies cost benefit analysis in terms of how it increases the quality of their work, and perhaps tell us the problems that come from a lack of accountability. Mr. White. Sure. Well, with respect to the benefits, I think that oversight, while it provides an accountability mechanism for the people, I think it also helps make the agencies the best version of themselves when they know that they will have to explain and justify their analysis to a superior authority, whether it is in the White House or a Federal court, not to be micro-managed by the White House or the court, but just have someone kicking the tires seriously on their analysis and questioning their assumptions. I think that will spur the agencies to do better work. The Set-Top Box example, which again, I am not an expert on, but I have heard a lot about, is a worrisome example. The Open Internet Order, which I am involved in in litigation, I should make clear, is another example where everybody from the dissenting commissioner, Ajit Pai, to the dissenting judge, Judge Steve Williams of the D.C. Circuit, who is a former regulatory scholar himself, all had serious, serious criticism of the assumptions and often self-contradictions within the meager economic analysis that the FCC undertook. I think it is a glaring example of the need for serious accountability and cost benefit analysis before these rules are imposed on the public. Senator Portman. Thank you. I do not want to overindulge you guys. Thank you for letting me come and ask the question, and I look forward to hearing more from you guys with other questions. And thank you, Mr. Chairman. Senator Lankford. Senator Heitkamp. Senator Heitkamp. Thanks so much. We have covered kind of the whole watershed here from regulatory analysis to where that needs to be done all the way through judicial review and ``Chevron."" I want to focus on independent agencies, because of all of the things that we have worked on, taking Senator Portman, and Senator Warner"s bill, trying to sell it in a political sense, has been a lot tougher than I ever thought it would be, because it seems so common sense to me that if you have a major rule that is being promulgated, no matter who is promulgating it, all the rules should be the same for major rules, and that is not what we have. And so I am going to offer you some of the criticisms that we have heard from the independent agencies about that concept and ask you to kind of help me work through--if we are going to do a full frontal attack, right, and say we are going to do this no matter what, and it is going to go to OIRA, then we are going to lose politically, I can tell you that. We have already been--I know it is hard to imagine, because when you look at it and you look at the history of this, it has been very bipartisan. But it has been very difficult. And so let us walk through some of the criticism that we have received. First off, OIRA is an agency, a sub agency of OMB and under the control of the President, and simply giving regulatory review to OIRA under this procedure would in fact interject and interfere with independence. Now, what we have tried to do in response to that is look at another agency, whether it is the IGs, whether it is GAO, take a look at some other place where we could put that kind of regulatory analysis. Because I agree with you, Mr. White, I mean, none of this is ever going to be perfect, but if there is no level of scrutiny or analysis, work can be pretty sloppy, right? Your dog ate your homework every day, right? So how do we overcome, or how do we respond to an argument that OIRA is a sub-agency of the President and interference would be--Mr. Gasaway? Mr. Gasaway. With the Paperwork Reduction Act (PRA) precedent. You just say this is for analysis purposes only. There is a carve-out. It has to go to the expert agency within the Federal Government on regulatory analysis for their comments. Senator Heitkamp. That makes a lot of sense. However, the bill is very modest in terms of--I mean, it does not say they can stop the regulation. Mr. Gasaway. Non-binding. Senator Heitkamp. Yes, it is not binding. There is nothing in this legislation that would give OIRA any authority to stop the regulation. It just would give them review authority. And we still hear the argument that it is over-burdensome and attacks the independents. Mr. Gasaway. Well, then I would say this is like sending a medical question to the experts at the National Institutes of Health (NIH), or something like that, for non-binding review. The greatest repository of medical information in our government, I think, is at NIH. And maybe somebody is taking a policy decision and they need medical input. You do not have to do what they say, but you have to ask the question. OIRA is a terrific agency with a terrific bipartisan level of competence. And obviously, Professor Sunstein is great, but many of his predecessors are. And it is absolutely inconceivable to me, if I were the United States senator, which I am not, that I would want independent agencies to avail themselves of that expertise. And that is what I would say. Do you really just want them to not avail themselves of that expertise? Senator Heitkamp. I am looking for an alternative word, because we have said all these things. That is not the problem. The problem is not that we are not graded arguing our position. The problem is that we have reached this impasse that we need to somehow get over. And Mr. White, I am curious, I forget which witness talked about the need for coordination. I think it was you. Obviously, OIRA has a much better handle on all of the agency major rulemaking and probably is the best place to balance, what is the Department of Commerce doing against what, the Consumer Finance Protection Bureau might be doing. So it is dangerous to take it out of OIRA, but yet we need to get this kind of review. We need to change the culture of, I should not say lack of accountability, but kind of this, we have our own funding stream, we have our own--once we get an appointment and confirmation, which is getting tougher to get because of these issues, in my opinion, so now hands off, we are in charge. And so we are trying to get beyond that. How do we find a mechanism or find a way to do a work-around that would accommodate what we all here believe needs to happen? Mr. White. Well, if I may, I want to make clear, I do not mean to focus on OIRA to the exclusion of anything else. Whether it is accountability to the executive branch or to Congress, either through existing mechanisms or some new congressional office of regulatory review, or through the courts, at the end of the day, for me the most important point is there being a measure of accountability and oversight, not one particular branch doing it. And so I am open-minded on all these proposals. Senator Heitkamp. One of the concerns that I have about leaving this up to judicial review, and I am not being critical, and maybe I am, but you will hear agency heads saying, we are going to implement this rule. If the court does not issue a stay on the rule, then the rule is going to take effect even though the rule was bad. So it is not a process that provides for immediate reaction or some kind of contemporary analysis. And so it fails. Judicial review fails and should be a last resort. That is my position. The Chairman and I have had long debates about reform of judicial review, but I am looking for some way to get this concept over the finish line in a way that we have legitimacy to the argument that we are not imposing Presidential review on an independent agency. Mr. White. If I may just add on that point, at the end of the day, like I said, this is about accountability, not just to Congress, but to the people. In the last few years, especially in the aftermath of Dodd-Frank, where independent agencies on financial policy have had ever greater power, you see so many of these regulations. No matter what they say in terms of marketing them as anti-Wall Street, ultimately these regulations benefit the biggest banks and the biggest companies first and foremost, whether it is because of the compliance burdens that the community banks and other small entities face, whether it is through the Financial Stability Oversight Council and others seeming to place a too big to fail stamp on the biggest players. At the end of the day, if an agency is truly independent and not accountable to the people, there is the greater risk that the biggest, most influential corporate players will have a disproportionate voice on policymaking, and whether it is through the President or Congress or through the courts, if the people do not have a real means of accountability for these agencies, at the end of the day, they will have a disproportionately quieter voice relative to the bigger players. Senator Heitkamp. I would like your thoughts. Mr. Coglianese. Yes. Well, first, let me just say that from a constitutional structure point of view, if a president wanted to apply OIRA review just to a single agency---- Senator Heitkamp. He could. Mr. Coglianese . He could, right. The Executive Order is the president"s prerogative to design however he or she would like. The fact is that there is one piece of legislation that requires agencies to provide statements of cost and benefits of major rules, a piece of legislation that Congress has expressly exempted independent agencies from. So one way of making a cultural change might be for the Congress to say fundamentally, in what we have required of all other agencies, we are going to require of independent agencies as well. That would be a step forward. And it would address something that one reads time and again in responses by general counsel or others at independent agencies on these issues that, ``oh, we are not required, we have no legal obligation"". Amending the Unfunded Mandates Reform Act would, at least for those rules that pass that threshold, eliminate the ability to make that excuse. So that is one step, I think, that could be taken by the Congress that would also avoid the kinds of political issues that you have talked about, Senator Heitkamp. There are obviously limitations, right? I mean, this is not maybe providing the optimal level of oversight, peer review, and so forth. But the possibility exists for there to be judicial review, and the ex-post threat of judicial review does offer some ex-ante incentive for agencies upfront to do their homework. With respect to homework, I think the way I would characterize this is, yes, it would be great to get feedback from a teacher, but what is different about Executive Order 12866 is it involves not just a grade from the teacher, but also permission to graduate to the next grade. So there is this lever, the hammer that hangs over it, and that is causing the kind of constraints and responses that you are talking about, Senator Heitkamp. One other possible approach, and it is not mutually exclusive, might be for Congress to impose on, quite frankly, all agencies, something along the lines of the peer-review guidelines that OIRA has in place already for various scientific analyses that agencies are conducting. This would bolster the Information Quality or Data Quality Act provisions where agencies could in real time get that kind of feedback through a peer-review process. Maybe that peer review could come from other agencies. Maybe it could come from outside experts, but at least there would be some process of someone reviewing, providing feedback if indeed the option of having analysis reviewed by the White House staff is not politically feasible or wise for other reasons. Senator Lankford. I want to open this up and I want to open it up for the full dais to be able to talk about questions, be able to interact, but I want to give you a broad philosophical question that you are going to think I am kidding, but I am not. Independent of who? They are an independent agency. Independent of who? Mr. Gasaway. I will give the answer. I think it is not independent of who but independent for what? To exercise independent judgment. And I think the key word there is judgment and I think the key thought is in Adam"s testimony. They are originally thought of as kind of specialized courts, not as specialized legislatures. And I think unless you go back to that model of more an independent court with more circumscribed jurisdiction, I think you are going to have problems. Senator Lankford. I ask that question because the common question here is we cannot impose 12866 on them, we cannot put them in UMRA, we cannot put them in all these things because they are independent of the executive agencies and independent of Congress, and it is always they are independent of who. I think we have lost the why they were created, because they were supposed to be non-political, supposed to give faster judgments with greater expertise than what the Federal courts could do or other entities. They were going to be specialized in their area to be able to get faster, non-political responses, and now we have independents like the FCC where it is really a five-member board, that three members are selected by the president"s party and by the president, and so they are not non-political, they are not faster, and they are not cheaper. And so we are back to the same issue. We still have these independent entities that Congress seems to argue about who are they independent from and we have lost the why that they ever existed as an independent. And I think the argument really boils down to a philosophical argument of if we are going to determine what to do with the agencies that are creating billions of dollars in regulatory schemes and giving answers to people based on statutes that we are at a loss to figure out where it connected actually to statutes, then we have to figure out if they are really independent. Independent of who? Is it independent of Congress, independent of the executive branch, independent of the Judicial Branch, independent of the American people? Who are they independent of, and then how are they going to actually be formed? I know that may be a bigger philosophical argument, but we have not resolved that basic question, quite frankly, as a Congress, and if we can ever resolve that issue, I think it is going to go to the next step. Do we need agents to have better independent agencies anymore, and if we do, how do we reform them? Because they are not functioning as apolitical bodies any more. They very much seem to have a political agenda in their timing and their cost seems to be equated to other Federal benches. Mr. White. Mr. White. I agree with all of that. And if I may add a further point, as I said earlier, I think the trend line is in the wrong direction with respect to independence from Congress. Independence from the president raises a whole host of questions in and of itself, but independence from Congress should not be a question at all. These agencies should be accountable. But in recent years, from Sarbanes-Oxley to the Affordable Care Act to Dodd-Frank, the move has been to make these agencies structurally independent from Congress, and that is very dangerous, and not just for these particular agencies but going forward. The New Deal era agencies and the ones before, from the Federal Trade Commission (FTC), the FCC and so on, they basically set the paradigm for the next 60 years or more. That defined what the benchmark for independent agencies would be. And if Congress does not take steps to correct the structural mistakes that it made, with all due respect, in the Sarbanes-Oxley Act, the Affordable Care Act, and Dodd-Frank in making these agencies even more independent, that will become the paradigm for independent agencies going forward. The next independent agencies will not be modeled on the FTC. They were modeled on, for example, the CFPB. I think that is very dangerous. Senator Lankford. And the CFPB, as of now in Oklahoma, 24 percent of our commercial banks no longer do home mortgages strictly based on the issues that Consumer Financial Protection Bureau created these set of regulations. There is so much liability now, they walked away from doing mortgages. 24 percent of our banks in Oklahoma. It is becoming more and difficult, especially in rural areas of my State, to be able to get a home loan because the banks have walked away from doing that because people have seasonal income, because their income does not come in every month in a predictable format that CFBP wants. It comes in when the crops come in or when there is a sale. So that seasonal income not consistent, too much risk. Those are things that should have been determined in a cost benefit analysis that should have oversight, and CFPB, as we all know extremely well, has no oversight. So I am back to the same issue. How do we get to a set of independents, that there is a sense that they are not independent of the American people? Congress created them. They are not independent of Congress" oversight by far. If Congress created them, Congress can turn it off as well. But there has to be some level of oversight. All of us have oversight, and if there is an entity that has no oversight, that is more independent than our Constitution ever conceived of in any mindset. Does anyone want to make a quick comment on that, just---- Mr. Coglianese. You have asked a great question, and one of the reasons it is challenging, just to pick up on your last point about the Constitution, it really speaks to the independence from factions, if we go back to Madison. Both factional influences through political branches of government and through influence by private interests, through, say, regulatory capture-- both of those speak to the type of independence that is reflected in the concern that motivates independence for agencies. I think that the formal structures are not always fully aligned with actual independence. It was mentioned before--I think Chairman Lankford you mentioned the comments by a president reflecting a policy preference for what action the FCC might take, and the FCC then pursuing that action. There are opportunities for influence, I agree, Senator Portman, for influence by members of either Article I institutions or Article II institutions to influence independent agencies. And there are also some executive branch agencies that operate with a great deal of actual practical autonomy. I think ultimately it is a challenging question because we are looking for something where there is at least independence on factual determinations, expert judgment. We want that to be pure and based on sound scientific assessment. We do not want that to be influenced. But on the other hand, we are a democracy and agencies must make value choices. The fundamental values that are reflected in policy choices that independent agencies make should indeed reflect those of the Congress and the elected officials. Senator Lankford. So should we assume that executive agencies then will not have bipartisan or will not have non-political answers that are based on sound science and only independence can do that? Or should we assume that for both? Mr. Coglianese. No, I think that is not the implication--I mean, the Food and Drug Administration (FDA) has historically had a very strong reputation for operational independence on making those kinds of scientific judgments. Senator Lankford. So I am back to the same issue. Where we have evolved at this point in the structure of independent agencies and what has happened, whether it be Mr. White in all of your very good analysis just on the history and what happened in the Reagan Administration and opting out from OIRA at that time and some of the decisions that have been made and then the acceleration since then, is there a reason that we should have independent agencies separate from executive agencies, that they have two different structures due to operations? Because as all three of you noted in your written testimony, it is tough to get even a definition of what an independent agency is. I mean, there is the 19 that are listed, but operationally, it is ``can the president fire the head of it without cause just to fire the head of it"", and ``are they under OIRA review"" are the basics of it. But even that has some breakdown in some of the agencies that are called independents. So the issue is at this point, why do we have some entities now under current operation that are called independent and some are called an executive and have two sets of rules under them when they are all processing the same regulations? Mr. White. Mr. White. While we are talking now about rulemaking, it is important to keep in mind that independent agencies do a lot of adjudication. The FTC and some of the other agencies do a lot of case by case adjudication. That really was in the core function of independent agencies at their origin, and I do think some measure of independence, a limited measure of independence is important for those functions. And another word---- Senator Lankford. But independent from who at that point? Mr. White. Right. Again, at that point, it is independent from direct control and decision by the president, or at least insulation from it. And I am not saying that the president is constitutionally barred from getting involved in that. I am just saying I understand why that is a specific subset of agency action that might justify some measures---- Senator Lankford. Because it is more judicial? Mr. White. It is more judicial. As they used to say, it is quasi-judicial, which was the whole justification for their independence, and the Humphrey"s Executor case that recognized agency independence. And I will say with the independent commissions, when you have a multi-member structure, that does help build in an internal check and balance, right? At the very least, when the FCC makes a decision, you might have two dissenting commissioners who, like judges on a court, are going to have dissenting opinions and in some limited ways, force a dialogue within the agency. I think that is a very important and very good aspect of independent regulatory commissions, that they have that multi-member body. And so that is a useful function, especially in that quasi-judicial context. Senator Lankford. So how are they functioning different than an administrative law judge, which is also quasi-judicial, but they are in executive agencies? Mr. White. Well, that is a very fair point. I might say in the independent agencies, it is like the difference between a court of appeals and district court judge. An administrative law judge (ALJ) makes an independent decision and then it goes on to the multi-member head. But you are right, in the executive agencies, that is a very good question why that should go directly to an executive branch official. Senator Lankford. Other thoughts? Mr. Gasaway. I will just say that I think you are hitting the nail right on the head, and I think these are very, very complicated and critical issues and I do not have a blithe answer to them other than just to say that I do worry about giving too much in legislation and trying to extend this, because if you extend it only in a way that preserves too much independence, you are in a sense sending a signal that they really are independent. Senator Lankford.
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Yes, and that is really the concern for me, is that we are creating more and more sense that they really are truly independent of everyone, and with no accountability, we have a big issue. When you get to CFPB, that their funding does not connect to Congress, their oversight is not here, there is no oversight in the presidency, no board even to be able to check a single member of that same leader, you really have created a fourth branch o