How a New President Can Roll Back Bureaucracy, Part 5: Scrutinize Informal ‘Guidance’ Documents

This is the fifth entry in a series on how the next president can reduce the scope of bureaucracy. Earlier installments have addressed a freeze on rulemaking, the role of law and economics staff in policymaking, rule review and repeal and stricter cost analysis.

Part 5: Scrutinize All Agency Decrees That Affect the Public, Not Just Formal “Rules” 

When a new president scrutinizes agency rules as we have called for in this series, he or she also needs to bring “guidance documents” under the microscope.

Guidance documents are increasingly popular with regulators, because they get around not just the need for Congress to pass a law, but also the Administrative Procedure Act’s requirement to publish a formal notice of poposed rulemaking (NPRM). The NPRM requirement, such as it is, doesn’t apply to “interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice.” This loophole applies in addition to the “good cause” exemption legislative rules already use to avoid holding their horses until notice and comment is complete  (P.L. 79-404. Section 553).

As regulatory dark matter—the guidance, “non-legislative” rules, memoranda, notices, and bulletins and such with practical, if not technically legal, effect—gains ground on the readily observable, it means further loss of control of the regulatory enterprise. Creative agencies may enact policy directly or indirectly; policy “interpretations” may be articulated, and regulated parties feel pressured to comply without an actual formal regulation or understanding of costs.

Notable recent examples of guidance include the Department of Labor’s Wage and Hour Division “administrative interpretations” on independent contracting and franchising; the National Highway Traffic Safety Administration’s Federal Automated Vehicles Policy; the  Environmental Protection Agency’s Clean Water Act jurisdictional guidance on “Waters of the United States”; and President Obama’s waivers of Patient Protection and Affordable Care Act elements.

There are many more. As a July 2012 U.S. House of Representatives Committee on Oversight and Government Reform report expressed it:  

Guidance documents, while not legally binding or technically enforceable, are supposed to be issued only to clarify regulations already on the books. However… they are increasingly used to effect policy changes, and they often are as effective as regulations in changing behavior due to the weight agencies and the courts give them. Accordingly, job creators feel forced to comply.

With tens of thousands of agency proclamations annually, Office of Management and Budget review of executive agency “significant” or “major” rules is already inadequate, particularly given that independent agencies aren’t even brought into the purported cost-benefit mix at all. So we know guidance gets very little review, as matters stand.

Guidance document volume seemingly dwarfs that of rulemaking, which is not surprising when no one can even say with authority how many agencies exist. This has been known for a long time: A 1992 Duke Law Journal article noted that “Federal Aviation Administration rules are two inches thick while corresponding guidance totals forty feet; similarly, IRS rules consume a foot of space while supporting guidance documents total over twenty feet” (Strauss, Peter L. 1992. “The Rulemaking Continuum”) It seems an understatement to conclude that “the body of guidance documents (or nonlegislative rules) is growing, both in volume and in importance.”

With regulatory liberalization already difficult, it’s certainly likely that attempts to force more informal regulatory dark matter into the notice and comment stream might induce agencies to become even more creative in skirting review, such as with informal provision of information regarding agency expectations, perhaps of the “Nice business ya got there, shame if something were to happen to it,” variety. Since this series is about what a new president might do about bureaucracy, we must note scholarship pointing out that agencies can also raise the costs of presidential review of what they do, “self-insulating” their decisions with “variations in policymaking form, cost-benefit analysis quality, timing strategies, and institutional coalition-building.” 

Dark matter and ordinary rules alike must be treated more like ordinary legislation. That requires Congress to reassert its role as lawmaker, something recommended in the 2016 House GOP Task Force reports. Lesser options on the part of executive branch leadership are numerous but can still have some positive effect, from requiring more notice and comment, to insisting upon cost analysis of guidance where statute doesn’t bar it (see “Why Congress Must End Regulation By Guidance Document.” A new president also can enhance OMB review of guidance, just as he or she has the option of enhancing OMB review of ordinary regulations. 

“Sub rosa” regulation is a longstanding concern, more urgent in a highly technical economy that can be mightily damaged by regulatory zeal that at the same time faces employment challenges. Robert A. Rogowski summarized the concern in the 1989 book Regulation and the Reagan Era:

Regulatory bureaucracies are able to accomplish their goals outside the realm of formal rulemaking….An impressive underground regulatory infrastructure thrives on investigations, inquiries, threatened legal actions, and negotiated settlements. … Many of the most questionable regulatory actions are imposed in this way, most of which escape the scrutiny of the public, Congress, and even the regulatory watchdogs in the executive branch.

All potentially significant decrees by agencies need scrutiny, not just “rules.” But a highly engaged president, especially one working with Congress, can draw attention to and definitively address quasi- or semi-regulatory activity embodied by the world of regulatory dark matter.   


Also in this Series:

How A New President Can Roll Back Bureaucracy, Part 1: Freeze Regulations Temporarily

How A New President Can Roll Back Bureaucracy, Part 2: Boost Regulatory Review Resources and Free Market Law and Economics Staff at Agencies

How A New President Can Roll Back Bureaucracy, Part 3: Professionalize Review, Revision, Repeal and Sunsetting of Regulations

How A New President Can Roll Back Bureaucracy, Part 4: Expand Number of Rules Receiving Cost Analysis

This series builds upon recommendations in “One Nation Ungovernable? Confronting the Modern Regulatory State,” in Donald J. Boudreaux, ed., What America’s Decline In Economic Freedom Means for Entrepreneurship and Prosperity, Fraser Institute and Mercatus Center at George Mason University (2015), pp. 117-181.