Who Regulates the Regulators?

In Beltway terms, the Federal Communications Commission’s $350 million budget request for 2013 is practically a rounding error. Yet it costs the American people a lot more than that. In fact, it is the third-most-expensive federal agency, but thanks to a lack of transparency, very few people are aware of that fact. That’s because the FCC’s regulations impose compliance costs of $142 billion per year — more than 400 times its budget. Only the Environmental Protection Agency and the Department of Health and Human Services cost American taxpayers more.

To put that in context, consider that the cost of FCC regulations is in the same ballpark as the entire 2011 national gross domestic products of Vietnam ($123 billion) and Hungary ($140 billion). The $77 billion cost of the FCC’s wireless spectrum regulations alone is bigger than Ecuador’s entire $66 billion economy.

How many FCC regulations are there? The FCC won’t say, but combing through the Federal Register produces a total of 2,705 final rules issued from 2000 to 2012. Omar Al-Ubaydli and Patrick McLaughlin of the Mercatus Center searched the text of the Code of Federal Regulations, which lists all federal regulations, for terms like “required,” “prohibited,” “must” and the like. They found that the title with all federal telecommunications regulations contains 25,574 separate restrictions as of 2010. That’s a lot of thou-shalts and thou-shalt-nots.

The burden is growing, too. Last year, the FCC issued 108 final regulations, the equivalent of a new rule every 2.3 working days. The most recent edition of the Federal Register’s “Unified Agenda of Federal Regulatory and Deregulatory Actions,” which lists upcoming rules, contains an additional 86 regulations from the FCC.

This is important information, and the public should know it. That’s why the Competitive Enterprise Institute is releasing a series of report cards, collecting all this scattered information in one place, easily accessible to the public. This will make it easier for people to gauge how effectively agencies are pursuing their missions. Agencies should be releasing such reports on their own. Better yet, Congress should seek input from independent auditors, since agencies tend to overstate their rules’ benefits and understate their costs. Until that day arrives, though, we are happy to lead by example.

In fact, then-Sen. Olympia J. Snowe, Maine Republican, introduced a bill last Congress that would have created regulatory transparency report cards. It did not become law, and no one has picked up the baton yet in the new Congress. Given the pressing need for regulatory transparency, someone should.

Transparency is not the FCC’s only problem. It is also prone to regulation without representation. Recall that the Constitution gives “all legislative powers granted herein” to Congress. Not too long ago, that Congress considered and rejected net neutrality legislation, which would impose price controls on Internet service providers and prevent them from prioritizing the types of data flowing over their networks — such as, for example, disaster-response communications versus streaming of movies — and thus violate the Fifth Amendment’s protection against regulatory takings.

Congress declined to pass the bill and this should have settled the matter. Instead, the FCC passed net neutrality regulations on its own, without any enabling legislation. The rules are currently being challenged in court. In addition to being an unconstitutional power grab, this kind of regulation without representation is tying up resources in court that could be spent on innovation instead.

The FCC’s biggest upcoming initiative is a wireless spectrum auction, which could generate tens of billions of dollars of revenue. The goal is to reallocate spectrum away from lower-valued uses, such as over-the-air television broadcasts, toward higher-valued ones, such as increased Wi-Fi and 4G LTE network capacity.

The FCC is forbidden by law from turning away qualified bidders from auctions. However, observers fear that the agency might deliberately shut out Verizon and AT&T from the auction for political reasons, by capping the amount of spectrum any one holder may own. This would cause real consumer harm to those firms’ data-hungry customers and could potentially reduce the auction’s proceeds. This should be a concern in this time of trillion-dollar deficits.

Justice Louis Brandeis was right when he said that sunshine is the best disinfectant. An easy way to spread some sunshine on the FCC — and all other agencies — is to collect important information that is currently scattered to the four winds into a single report card-style document. The first step toward bringing regulatory costs under control is for the public to get a better sense of what they are.