‘Economically significant’ regulations: an obituary

I never thought I’d miss “economically significant” rules and regulations. But Joe Biden’s Executive Order 14094 (“Modernizing Regulatory Review”) has redefined “Significant regulatory action.” In its wake, the longstanding convention of recognizing a costly rule as being “economically significant” is being dropped. This will matter a lot.

An “economically significant” action is, or rather was, a significant regulatory action sporting $100 million in annual economic effect.

Under Biden’s new order, any rule or regulation costing $100 million is no longer considered a “significant regulatory action.” Even a $199 million action is not automatically significant.

In fact, nothing is “economically significant” anymore. Rather, a rule with $200 million or more in annual effect is now a “Section 3(f)(1) Significant” rule. And that amount will be “adjusted every 3 years by the Administrator the OIRA [the Office of Management and Budget’s Office of Information and Regulatory Affairs] for changes in gross domestic product.”

Say what? “Section 3(f)(1) Significant” doesn’t quite roll off the tongue like “economically significant,” does it?

“Section 3(f)(1)” refers to a clause in the Clinton-era E.O. 12866 (“Regulatory Planning and Review”), which Biden’s order modifies.

Here, we shall pay our respects to “economic significance” in hopes of restoration of the lower cost threshold by looking back upon the origin/etymology of that term and warning anew of the now-decaying White House regulatory review process itself.

At the dawn of centralized regulatory review, Ronald Reagan’s E.O. 12291 (“Federal Regulation”), emphasized “major” rules. At that time, the term “significant” (let alone “economically” so), had not yet appeared with respect to classifying types of regulatory action.

Clinton’s 1993 E.O. 12866 reduced the body of rules requiring submission to OMB cost-benefit review from all of them, as required in E.O. 12291, to “significant” ones. E.O. 12866 did not employ the term “major” rules at all, although the category is still used.

There were similarities with the Reagan-era “major” designation, however. Section 3(f) of E.O. 12866 defines “Significant regulatory action” as “any regulatory action that is likely to result in a rule that may”:

1. Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities;
2. Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;
3. Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or
4. Raise novel legal or policy issues arising out of legal mandates, the President’s priorities, or the principles set forth in this Executive order

Biden’s modification of Sec. 3(f)(1) is verbatim from Clinton apart from the increased threshold for dollar-based “significance.”

An important caveat with respect to E.O. 12866 is that a “significant” rule could be one that OIRA director deems such whether the agency does or not, and that ability seems to remain. Just as the OMB under E.O. 12291 could declare an action to be major, the OIRA administrator under E.O. 12866 can deem a rule significant: “[T]hose [rules] not designated as significant will not be subject to review … unless, within 10 working days of receipt of the list, the Administrator of OIRA notifies the agency that OIRA has determined that a planned regulation is a significant regulatory action.”

Conversely, and controlling in today’s setting, is that an OIRA administrator may elect not to deem a rule as significant, even if it is to the affected: “The Administrator of OIRA may waive review of any planned regulatory action designated by the agency as significant.”   

OIRA, in its perpetually tardy Report to Congress on regulations – the last was for fiscal year 2019! – asserts that it conducts its reviews “under Executive Orders 12866 and 13563” and so reviews the larger body of “significant” rules rather than solely “major” ones. As such, out of over 3,000 rules each year, some 200-400 tend to get tagged “significant” for purposes of E.O. 12866.

By convention, the largest “Significant regulatory actions” have been called “economically significant.” The Biden administration is dispensing with the term. “This term [economically significant] was used for regulatory actions reviewed between September 30, 1993, when E.O. 12866 was issued, and April 6, 2023, when the Modernizing E.O. was issued,” the government website states. 

Something interesting emerges upon surveying the complex administrative state’s perhaps even more complex nomenclature as we reflect upon the retirement of the term “economically significant.” Surprisingly, in no inaugural law or executive order does the phrase “economically significant” actually appear.

Consider the annual Report to Congress in which OMB says it incorporates “economically significant” rules into its in-house definition of “major.” OMB explains as follows:

A regulatory action is considered “economically significant” under Executive Order 12866 § 3(f)(1) if it is likely to result in a rule that may have: “an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities”  

But, alas, E.O. 12,866 did not actually employ the term. We also see a definition of “economically significant” referenced in the introduction to The Regulatory Plan and the Unified Agenda of Federal Regulatory and Deregulatory Actions (the regulatory agendas set up by the Regulatory Flexibility Act and in the Reagan and Clinton executive orders noted above), which asks “What Information Appears for Each Entry?” Here one finds “economically significant” described as one of the several ways the Agenda classifies rules:

Economically Significant: As defined in Executive Order 12866, a rulemaking action that will have an annual effect on the economy of $100 million or more or will adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities. The definition of an “economically significant” rule is similar but not identical to the definition of a “major” rule under 5 U.S.C. 801 (Pub. L. 104-121).

The “economically significant” term has been a fixture in the Unified Agenda, which alone actually reports rules of that category, and is a reason the loss of the term and its $100 million threshold is such a blow now. Yet the Agenda’s own definition of “economically significant,” like that of the OIRA Report to Congress, refers back to E.O. 12866 in which the phrase does not actually appear.

Similarly, OIRA’s reginfo.gov page—still as of this writing—defines economically significant in circular fashion while articulating the importance of reviewing such rules:

Q. What does it mean when a regulation is determined to be “economically significant?”

A. These regulatory actions are a subset of those designated by OIRA as significant. A regulatory action is determined to be “economically significant” if OIRA determines that it is likely to have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities. For all “economically significant” regulations, the Executive Order directs agencies to provide (among other things) a more detailed assessment of the likely benefits and costs of the regulatory action, including a quantification of those effects, as well as a similar analysis of potentially effective and reasonably feasible alternatives.

The FAQ hasn’t gotten around to referencing the term in the past tense yet, but that may well  happen by the time the Fall 2023 Unified Agenda appears.

Especially notable now, the 2003 OMB Circular A-4 guidance to agencies on practices and procedures for regulatory analysis (now undergoing an ill-advised rewrite), noted that “Executive Order 12866 requires agencies to conduct a regulatory analysis for economically significant regulatory actions as defined by Section 3(f)(1).”

Tellingly, and this has escaped notice of observers, the new draft version omits the term “economically significant” altogether.

This foregoing has been a reluctant obituary for a term that, as it turns out, was always informal and used by convention. Calls for regulatory reform can and should formally reaffirm it. As we bid farewell to “economically significant,” we plot for not merely its resurrection but also its rock-solid definition on the statute books.