Trump Administration Issues Guidance on The “Two-for-One” Reduction in Regulations

Last week, the Trump Administration issued guidance on Executive Order 13771, “Reducing Regulation and Controlling Regulatory Costs.” The guidance, published by the Office of Information and Regulatory Affairs (OIRA), provides details on the policy established by the January 30, 2017 executive order that requires agencies to roll back two existing regulations for each new regulation they promulgate. As a candidate, President Trump regularly called for regulatory reform across multiple sectors of the economy, so his early moves to put a plan in place for reducing regulation are not particularly surprising.

Section 2 of the executive order creates a “regulatory cap” for FY 2017. In addition to the two-for-one requirement, Section 2 provides the following key requirements:

• “For fiscal year 2017 … the heads of all agencies are directed that the total incremental cost of all new regulations, including repealed regulations, to be finalized this year shall be no greater than zero, unless otherwise required by law or consistent with advice provided in writing by the Director of the Office of Management and Budget  ….” Section 2(b).
• “[A]ny new incremental costs associated with new regulations shall, to the extent permitted by law, be offset by the elimination of existing costs associated with at least two prior regulations.” Section 2(c).

Regulatory and Deregulatory Actions

The guidance notes that, in general, agencies can comply with the requirements of the executive order by issuing two “deregulatory actions” for each new “regulatory action.” Beginning with FY 2018, the executive order requires the Office of Management and Budget to identify for each agency the total amount of incremental costs (or a “regulatory cap” as stated in Section 2) for all deregulatory and regulatory actions finalized during the fiscal year.

Importantly, the guidance clarifies some terms and concepts set forth in the executive order. For instance, the guidance specifies that the executive order applies to “EO 13771 regulatory actions,” defined as either a “significant regulatory action” (with costs greater than zero) that has already been finalized, or a “significant guidance document” with costs above zero that has been finalized. The guidance further defines a significant guidance document as one that is reasonably anticipated to have a major impact on the economy, create inconsistency with an action taken or planned by another agency, materially alter the budgetary impact or entitlements, grants, user fees, or loan programs or the rights and obligations of the recipients thereof, or raise novel legal or policy issues. The term does not cover legal advisory opinions or other types of internal or investigatory documents.

Furthermore, the guidance defines a “deregulatory action” as an action that has been finalized and has total costs less than zero. An EO 13771 deregulatory action qualifies as both: (1) one of the actions used to satisfy the provision to repeal or revise at least two existing regulations for each regulation issued, and (2) a cost savings for purposes of the total incremental cost allowance. Deregulatory actions can be issued in multiple forms, including as rulemaking, as guidance or interpretive documents, certain actions related to international regulatory cooperation, and information-collection requests that repeal or streamline recordkeeping, reporting, or disclosure requirements.

To meet the “offsetting” requirement of the new rule, the incremental cost of an EO 13771 regulatory action must be appropriately counterbalanced by incremental cost savings from EO 13771 deregulatory actions, consistent with the agency’s total incremental cost allowance.

Exemptions

Notably, the definition of a “regulation” or “rule” set forth in the executive order excludes regulations issued with respect to a military, national security, or foreign affairs function of the United States. The guidance further explains this exemption, specifying that a regulation issued with respect to national security is a regulation for which the cost-benefit analysis demonstrates an anticipated improvement to national security as its primary direct benefit. Similarly, guidance documents that pertain to a military or foreign affairs function are exempt from the definition of a significant guidance document, although guidance on procurement or the import of non-defense articles and services is not exempt.

Also exempt are regulations that are legislative rules that qualify for a “good cause” exemption or for which compliance with the terms of EO 13771 would be impracticable or contrary to the public interest. Critically, the guidance does not indicate which entity is ultimately responsible for making such determinations, although the guidance encourages agencies to consult with OIRA when interpreting the executive order’s requirements.

There is also an important exemption for “transfer rules,” which cause only income transfers between taxpayers and program beneficiaries (such as regulations associated with Social Security or Medicare spending). The guidance provides that “an action that establishes a new fee or changes the existing fee for a service, without imposing any new costs, does not need to be offset; nor does an action that establishes new penalties or fines or changes those already in existence.”

Other exemptions include expressly exempt actions, emergency actions, statutorily or judicially required actions, and de minimis actions. This exemption resolves a major issue from the executive order — how to deal with regulations mandated by statute and judicial decisions (and presumably settlements that result in final judicial orders) — and clarifies that such regulations are not covered by the executive order.

Banking Cost Savings

Additionally, the guidance clarifies that the executive order allows agencies to “bank” cost savings and deregulatory actions for use in the same or subsequent fiscal year towards the requirement to identify at least two existing regulations to be repealed, and, separately, to comply with the total incremental cost allowance. The guidance establishes that because such surplus savings or deregulatory actions do not expire at the end of the fiscal year, they can be used in subsequent fiscal years.

In some cases, the agencies are turning to consumers and other stakeholders for recommendations on which regulations to cut. However, because the executive order leaves discretion as to which regulations to cut to agencies, their approaches to determining what stays and what goes will likely reflect their own priorities and views of their missions.

Another unresolved issue is the type of change that can satisfy the requirements of this executive order. For instance, the guidance provides that modifications to existing guidance and interpretive documents may be considered significant guidance documents, and the definition of a deregulatory action includes the revision of existing regulations. As agencies attempt to implement the requirements of this executive order, however, there are likely to be questions as to how small of a change will trigger the deregulatory requirement — and how small of a deregulatory action can in turn satisfy the two-for-one reduction requirement.