Secret storm: Congress battles White House over reform of rulemaking process
In January, the president quietly issued a new executive order that set out new rules for how federal agencies like HUD could proceed with regulatory reforms and issue guidance. Now, many months later, political debate about the true implications of the new executive order is just starting to heat up. Read on to learn why Congress is concerned about OMB’s growing control over the rulemaking process, what they are doing about it now and what the power play on Capitol Hill could mean for RESPA reform.
In the early dawn of 2007, President George W. Bush quietly issued a new executive order that set out new rules for how federal agencies like HUD could proceed with regulatory reforms and issue informal guidance.
Executive Order (E.O.) 13422 made new amendments to E.O. 12866 on Regulatory Planning and Review. As RESPA reform watchers might recall, it was under the aegis of E.O. 12866 that the OMB held nearly 20 meetings with industry members in 2004 to discuss the issues that were then on the table.
In January, government watchdog groups and policy officials said that the newest executive order made the biggest changes to the regulatory process yet. For details on that, see: “New Bush policy changes rulebook for RESPA reform, guidance.”
Now, many months later, political debate about the true implications of the new executive order is just starting to heat up.
GAO to investigate rulemaking process
E.O. 13422 officially took effect on July 24, just one week after Rep. Henry Waxman, chairman of the House Committee on Oversight and Government Reform, sent a letter to the Government Accountability Office (GAO) asking that it take a fresh look at the federal regulatory process, which Waxman observed has “grown increasingly complicated as congressional and presidential directives have expanded procedural and analytical requirements for rulemakings.”
Waxman asked the GAO to “examine how these requirements are affecting the agencies’ ability to issue timely and effective rules,” emphasizing that “it would be problematic if the numerous layers of analysis and review were playing a role in delaying and weakening agency rules.”
Waxman also asked that the GAO look at how agency interactions with the OMB’s Office of Information and Regulatory Affairs (OIRA) may contribute to delays.
In a 2003 report, GAO found OIRA was taking a more active role in agency rulemakings, acting more as a “gatekeeper” than a “counselor.” GAO noted that OIRA is increasingly conducting informal reviews of draft rules before the rules are formally submitted and said these reviews can have a “substantial effect on the agencies’ regulatory analysis and the substance of the rules.”
Waxman expressed concern about the transparency of OIRA’s informal review process, noting that “OMB could hold up a rule for months in an informal review but appear to approve the rule quickly during the formal review process.”
Waxman asked GAO to examine, among other things, which analytical and procedural requirements an agency must comply with in order to issue a major rule; how long it takes agencies to issue rules and how it compares to the length of time it takes independent agencies such as the SEC; what the cumulative impact of the required analyses and review on the length of time it takes for an agency to finalize a new rule is; how recent changes have affected the rulemaking process; and how agency interactions with OIRA help or hurt the rulemaking process.
Naturally, the results of such a review could be quite relevant to the real estate industry, which has been dragged through the federal rulemaking morass for years on the caboose of HUD’s RESPA reform train.
The regulatory superpower
Earlier this year, the House Science and Technology Subcommittee on Investigations and Oversight held two hearings on E.O. 13422, questioning whether it was “good governance or regulatory usurpation.”
In a charter released following those hearings, the subcommittee noted that, for the first time, the order requires agencies to identify in writing the “specific market failure or problem” that warrants a proposed regulation or guidance; that a Presidential appointee in each agency be designated as regulatory policy officer (RPO) and that the RPO approve each regulatory undertaking by the agency.
The subcommittee also examined the role of OIRA, noting that it “has quietly grown into the most powerful regulatory agency in Washington.”
According to the subcommittee, “The cumulative effect of OIRA’s behavior since 2001 has been to intimidate agencies into running away from pursuing their statutory responsibilities rather than get caught up in the political struggles associated with moving regulation forward. Supporters of this approach are happy to see some office moving to slow agency actions and argue that the net result of OIRA’s actions is a more defensible regulation at the end of the day.”
Regarding E.O. 13422, the subcommittee observed, “OIRA is putting in place an economic criteria — market failure — for regulation and guidance that may have nothing to do with the values established in statute. This effort is coming with no consultation or input from Congress.”
The subcommittee also expressed concern about the appointment of RPOs for each agency, particularly in cases where agencies name their general counsel as RPO. “Will the general counsel make a claim of attorney-client privilege in response to FOIA requests (and even Congressional requests) related to any work on a proposed regulatory action?” the subcommittee wondered.
On HUD’s Couch
This could prove to be a concern for the real estate industry, as HUD has now named its general counsel, Robert Couch, as its RPO. Couch took the seat left warm by former general counsel Keith Gottfried, whose energetic suggestions for improved RESPA guidance won him many friends in the real estate industry during his brief tenure.
However, all indications thus far show that Couch has been open about meeting with industry leaders and addressing their concerns. Indeed, Couch invited the National Association of Realtors to submit a list of RESPA questions for him to pursue with HUD’s RESPA office in the interest of obtaining some clearer answers. In this way, Couch has shown signs of carrying on at least the spirit of the Gottfried guidance initiatives, if not the substance of the draft proposals.
This openness is especially important now that E.O. 13422 has hampered the agencies’ ability to provide official guidance documents in lieu of a full-blown rulemaking.
Under the amendment, each agency is to provide OIRA with advance notice of all proposed significant guidance documents. If OIRA chooses to hold up any guidance documents for review, there is no time limit on how long it could delay their release.
“The impact on agency conduct may be very, very significant and could potentially sweep up thousands of such proposals each year,” the House subcommittee said.
Wanted: Guidance — dead or alive
For an agency like HUD that was already fighting suggestions that it provide more guidance, adding new regulatory hoops to jump through seems like the kiss of death for progress on that front. (Notably, HUD mentioned a proposal titled “Access to Compliance Guidance” in its most recent semi-annual regulatory agenda, slating its release for April, but April has come and gone without a peep from HUD on the proposal.)
The House subcommittee concluded its remarks by noting that the reemergence of OIRA as a “gatekeeper” suggests that E.O. 13422 “will be used very aggressively to stall agency action,” which, they said, poses a concern for legislators.
“Should Congress passively accept an executive order that, just as an example, places presidential appointees in a position where they can arbitrarily block career agency officials from carrying out the purposes of the law Congress charged them with?” the subcommittee asked. “This new executive order invites Congress as a body, and the many, many committees that are affected, to undertake a vigorous and thorough review of the changes in [OIRA] since 2001.”
Lawmakers play their cards
Subcommittee Chairman Brad Miller (D-NC) is said to be “actively considering” offering legislative language that will enhance the transparency of the actions by RPOs. In the interim, Miller introduced an amendment to prohibit OMB from using funds appropriated in this year’s Financial Services Appropriations Act to implement E.O. 13422.
The House voted to approve the amendment on June 27, during a markup hearing on the appropriations bill. However, the Senate did not include a similar provision in its markup hearing on the appropriations bill in early July.
In the interest of easing regulatory burdens, the House has also approved legislation that would expand the ability of the Small Business Administration (SBA) to aid small businesses in complying with federal and state regulations.
The “SBA Entrepreneurial Development Programs Act of 2007” would give new responsibilities to existing regional Small Business Development Centers (SBDCs) to provide small businesses with regulatory compliance advice. SBDCs would provide free training and educational services and free “in-depth counseling” to small business owners and operators. The bill would also expand online sharing of regulatory compliance assistance information.
The objective of the bill is to reduce or eliminate the burden imposed on small businesses by those regulations SBA identifies. The bill would also raise the profile of those regulations and subject them to greater scrutiny by the White House and lawmakers. It is currently pending in the Senate.
The best/worst is yet to come
It is still just as unclear as it was January what the true impact of the new executive order will be. A Congressional Research Service report on E.O. 13422 stated, “The ultimate impact of these changes to the regulatory review process … will likely depend on how the changes are implemented by OIRA and the agencies.”
In terms of RESPA reform, HUD has already made it clear that the new proposed rule will be vetted through OMB and possibly Congress before it is released to the public, meaning that the new regulatory review guidelines and enhanced authority given to OIRA could delay the rule even more. On the other hand, as RESPA reform has long been a priority of the Bush Administration it doesn’t seem likely that it would attempt to impede the progress of its own initiatives.
But if Congress does embroil the White House in a power play over control of the regulatory process, who knows what havoc that could wreak on the advancement of pending proposals.
As for when the rule will be out, all current signs still point to an end of the year release.