President Donald Trump recently made headlines when he signed two new regulatory reform executive orders. Trump has made cutting burdensome regulations a major priority of his administration, and these new orders build on his other efforts by singling out a particularly nasty kind of red tape: agency guidance. This is more good news for regulatory reformers, but a robust implementation will make all the difference.
Agency guidance is a catch-all term for the various directives, memoranda, circulars and other policy documents agencies sometimes issue. These forms often don’t go through the usual regulatory procedures, but they can have huge and lasting impacts — just like regular regulations do — which is why they are sometimes referred to as “stealth regulation,” “backdoor regulation,” or “regulatory dark matter.”
Sometimes these documents touch on hot-button social issues. For example, the Justice and Education departments got into hot water a few years ago when they issued guidance to public schools regarding the treatment of transgender students. Guidance can also have large economic impacts, such as when the Consumer Financial Protection Bureau issued guidance to auto lenders, arguing that they could be liable for discrimination if their portfolios showed evidence of disparate lending practices across racial groups.
Standard agency regulations go through a process whereby public feedback is gathered and regulators have to respond to public concerns. Rules that are expected to have large economic impacts are subject to the scrutiny of cost-benefit analysis. But agency guidance, despite its importance, often escapes these minimal checks and balances.
Trump’s new executive orders try to address this problem by requiring agencies to post various types of guidance on their websites in a central location. Agencies will also have to craft formal regulations, outlining their procedures for issuing guidance, which will include a period of public comment for significant guidance and oversight by the Office of Management and Budget.
These are important first steps, but as is always the case with federal reforms, the devil will be in the details. Trump’s orders leave a lot of discretion to OMB with respect to implementation. To ensure the executive orders roll out smoothly, OMB should consider the following:
First, rather than simply posting guidance on their own websites, agencies could house guidance on a central government-wide database. The state of Virginia has a guidance document site that is simple and easy to navigate. It could serve as a model.
Second, Trump’s order says agencies have 120 days to move guidance into the new online system, and that any remaining guidance will not be valid. OMB should clarify what documents this applies to and that the 120-day mark is an explicit expiration date after which all existing guidance documents will be inactive, unless moved into the new system. This will create a sense of urgency among regulators and certainty for the regulated community.
Third, OMB will start performing systematic quality control review of new significant guidance, but this policy should extend to existing significant guidance. Currently, all agencies have to do in order to keep a guidance document is move it online and submit a report to OMB with some explanations, upon request. Forcing the existing significant guidance through OMB review raises the burden of proof.
Finally, Trump’s order says that significant guidance must comply with requirements set forth in several previous presidential executive orders, but it’s vague about what this means. One previous order, from President Bill Clinton, requires cost-benefit analysis for significant regulations. Another, issued by Trump, requires that for each new regulation agencies add, two must be identified for elimination. OMB should instruct agencies that cost-benefit analysis requirements and the one-in, two-out policy apply to all significant guidance.
The new executive orders will pack a lot of punch if these topics are clarified. The potential for mass expiration of agency guidance is perhaps the most powerful part of the new Trump directives. Rhode Island recently set an expiration date for its entire state regulatory code and eliminated 30 percent of rule pages in the process. The federal government now has an opportunity to do something similar with agency guidance.
The spirit of Trump’s new executive orders is clear and consistent with his past priorities. OMB just has to make sure they are executed without any hiccups.
James Broughel is a senior research fellow with the Mercatus Center at George Mason University and an adjunct professor of law at the Antonin Scalia Law School.
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