Donald Trump campaigned on reducing regulation by identifying and removing all “needless job-killing regulations.” One particular pledge is, superficially, both appealing and simple: eliminate two regulations for each new regulation (two for one). But as with most campaign promises, the devil is in the details. Never was that aphorism more true than with the Executive Order 13771 (EO) issued January 30, 2017, “Reducing Regulation and Controlling Regulatory Costs” (82 Fed. Reg. 9339). Less than a week after the EO’s issuance, the Office of Management and Budget (OMB) issued a longer clarification in a memorandum to federal agencies, “Interim Guidance Implementing Section 2 of the Executive Order of January 30, 2017.”

Executive Order 13771

In 919 words, President Trump laid forth both a regulatory philosophy (“be prudent and financially responsible in the expenditure of funds”) and specific new standards and tests that now must be met by the federal government. Section 2 of the EO requires:

• Whenever “an executive department or agency (agency) publicly proposes for notice and comment or otherwise promulgates a new regulation, it shall identify at least two existing regulations to be repealed.” 
• The two-for-one requirement goes further by requiring that “any new incremental costs associated with new regulations” be “offset by the elimination of existing costs associated with at least two prior regulations.” 
• For fiscal year 2017, the total incremental cost of all new regulations, including repealed regulations, to be finalized this year is to be no more than zero, “unless otherwise required by law or consistent with advice provided in writing by the Director of the Office of Management and Budget.”

These requirements do not apply to a military, national security, or foreign affairs function of the United States, or to actions related to agency organization, management, or personnel.

New Power for the OMB

The EO portends a new mini bureaucracy in OMB to translate this reduction in regulatory costs. The EO calls for OMB to standardize the measurement and estimation of regulatory costs, creating standards for determining what qualifies as new and offsetting regulations; standards for determining the costs of existing regulations that are considered for elimination; processes for accounting for costs in different fiscal years; methods to oversee the issuance of rules with costs offset by savings at different times or different agencies; and emergencies and other circumstances that might justify individual waivers of the requirements of this section. OMB will scrutinize each agency’s compliance annually and integrate its findings into the budget process. OMB currently has responsibilities for monitoring the costs of regulation, but this new mandate will almost certainly exceed its current capabilities.

Guidance from OMB: “Significant Regulatory Action” Only

Acting Administrator Dominic J. Mancini issued “interim guidance” in the form of a memorandum to agency heads on February 2, 2017 (OMB Memo). Rep. Mick Mulvaney (R-S.C.) is yet to be confirmed by the Senate as Director.
Two and a half times longer than the EO, the OMB Memo endeavors to answer 23 specific questions. It employs a new term—“regulatory action”—in favor of “regulation” as used in the EO. Thus the two-for-one need not come straight out of the Code of Federal Regulations. 

OMB clarified that the goal of the two-for-one requirement “is to provide a mechanism for agencies to identify and repeal outdated, ineffective, or unnecessary regulatory actions.” Similar to fiscal spending caps, the goal of the regulatory cost cap “is to provide a mechanism for the prudent management and control of regulatory costs imposed on society by agencies attempting to achieve regulatory benefits.”

The EO applies only to what Executive Order 12866 defined as a “significant regulatory action” in 1993: (1) has an annual effect on the economy of $100 million or more, or adversely affects the economy in a material way; (2) interferes with an action of another agency; or (3) materially alters the budgetary impact of entitlements, grants, user fees, loan programs, or the rights and obligations of the recipients thereof.

OMB instructs agencies that for any rule contemplated prior to September 30, 2017, they must (1) identify “two existing regulatory actions the agency plans to eliminate or propose for elimination”; (2) execute the elimination on or before September 30, 2017 (although OMB later states that this need be only “to the extent feasible”); and (3) announce the two-for-one swap within a “reasonable period of time before the agency” takes that action. OMB will later issue additional guidance for the following fiscal year.

The OMB Memo clarifies that emergencies addressing critical health, safety, or financial matters, or for some other compelling reason, may qualify for a waiver from some or all of the requirements of Section 2. Transfer payments such as Medicare spending and Pell Grants are exempt except to the extent that a new rule creates new reporting or recordkeeping costs. OMB offers that “burden reduction through the repeal or streamlining of mandatory reporting, recordkeeping, or disclosure requirements may also qualify” in the two-for-one equation. Consistent with the administration’s disdain for clean energy, “future energy cost savings for rules that require the adoption of more energy efficient technologies” would not be counted against the compliance costs of a regulatory action in “most circumstances.” 

OMB invites comments on its guidance by February 10, 2017.

Independent Agencies Exempt

The OMB Memo clarified that independent agencies do not have to comply with the EO’s Section 2 mandate. But OMB would “encourage independent regulatory agencies to identify existing regulations that, if repealed or revised, would achieve cost savings that would fully offset the costs of new significant regulatory action.” These independent agencies include:

Board of Governors of the Federal Reserve System
Commodity Futures Trading Commission
Consumer Product Safety Commission
Federal Communications Commission
Federal Deposit Insurance Corporation
Federal Energy Regulatory Commission
Federal Housing Finance Agency
Federal Maritime Commission
Federal Trade Commission
National Labor Relations Board
Nuclear Regulatory Commission
Occupational Safety and Health Review Commission
Postal Regulatory Commission
Securities and Exchange Commission

Conclusion

The EO will lead to oodles of litigation in various ways, including a broad constitutional challenge to executive authority. Congress in long-enforced statutes has directed a multitude of actions to be taken by a bevy of different federal agencies. Many of those mandates are in conflict with the EO by definition. The OMB Memo attempted to clarify that significant regulatory actions that need to be finalized in order to comply with an “imminent statutory or judicial deadline” may be allowed even if they are not able to identify offsetting regulatory actions by the time of issuance. Regardless, agencies in that position must “identify additional regulatory actions to be repealed in order to offset the cost of the new significant regulatory action, even if such action is required by law.” Whether that identification equals repeal is unclear.

The fate of guidance, no-action letters, and other guidance that are not rules is unclear. OMB said that those would be addressed on a case-by-case basis. Even deregulation steps—if they create a new cost for individuals or entities—must have a Section 2 analysis.

Candidate Trump pledged to reduce the burden of regulation on American business. President Trump told business leaders that he believes he can cut regulations by 75 percent or “maybe more” and maintain “protections.” He wants to cut regulations and taxes “massively.” But as onerous and excessive as regulations may be, they are orderly and predictable. Business leaders hate unpredictability. And regulations can be influenced through defined processes and, if necessary, litigated. Trump’s intervention has created much uncertainty.