Market Failures, Policy Officers, and Chevron – a Toolkit for the Unitary Executive

Much to the relief of administrative law jocks everywhere (to borrow a Dorfian phrase) word finally got out about the Bush administration’s latest attempt to maximize their executive power in the face of a diminished influence in Congress. The NY Times reported on Tuesday that President Bush has amended Executive Order 12866 to “give the White House much greater control over the rules and policy statements that the government develops to protect public health, safety, the environment, civil rights and privacy.”

Executive Order 12866 (EO) deals with the administration’s policy for an efficient regulatory system. To lay out the history a bit, Executive Order 12866 was issued by Clinton in October of 1993 to replace Regan’s executive orders 12291 and 12498. The order set out the Clinton administration’s idea of how regulatory principles and policies should be implemented. Clinton’s 12866 required that agencies issue regulations in three circumstances: 1. when “required by law," 2. when "necessary to interpret the law," and 3. when "made necessary by compelling public need, such as material failures of private markets to protect or improve the health and safety of the public, the environment, or the well-being of the American people."

The Bush Administration has essentially eviscerated reasons one and two by setting out a new first principle that requires agencies to issue regulations only when they have “in writing” identified a “specific market failure” that “warrants new agency action.”

In case the agency was unsure of how the Bush administration defines market failure, (There is no definition in the EO other than a brief listing of examples – “externalities, market power, [and] lack of information”) they can easily ask their brand new, politically appointed Regulatory Policy Officer or, more colloquially, their RPO. The amendments to the EO require all agencies to “designate one of the agency's Presidential Appointees to be its Regulatory Policy Officer.” This Regulatory Policy Officer (RPO) will then ensure the agency’s compliance with requirements for issuing “significant guidance documents.” [i.e., anything the agency puts out]

To make sure we don’t underestimate the powers of the RPO let’s take a peek at how the EO defines “significant guidance document.”

A guidance document is one that is reasonably anticipated to:
(A) Lead to an annual effect 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;
(B) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;
(C) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights or obligations of recipients thereof; or
(D) Raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in this Executive order”

Well, we wouldn’t want the RPO to feel useless I suppose. In case you were worried that there was not a check on the RPO’s omnipotence, never fear – he or she is, of course, removable by the President and, if the agency head happens to disagree well, I’m sure he or she can say so.

In addition to giving the regulatory state it’s very own “big brother,” the Bush administration has also told agencies that they may not impose not impose new legal obligations on anyone and the may not use mandatory language such as ‘shall,’ ‘must,’ ‘required’ or ‘requirement’ in their regulations. Interesting to see what a new regulation will look like. Something akin to, “The entity must may demonstrate that they have not exceeded the required suggested level of radioactive waste disposal in the required suggested time period of 2 years however many years you’d like.” Sounds like a truly effective and enforceable regulatory state.

An interesting question regarding the market failure threshold has to be, how much regulation do we really think we’ll see? Don’t get me wrong, I know that’s the point. I get that this EO was aimed at the EPA and other agencies with whose very existence the Bush Administration takes issue. However, the EO provides no further delineation of “market failure” other than to list examples. It is certainly within the realm of possibility to think that the EPA will now be unable to regulate very much. If we couldn’t use Chevron to get the agency to interpret it’s own way out of organic statutory requirements, we can now get the RPO to do it.

Taking just a couple of leading administrative law cases at their word leads me to think that this type of end run around the checks and balances and separation of powers is wrong. In Clinton v. City of New York, the Supreme Court held that the President could not constitutionally cancel certain portions of a bill he had signed into law. Though this case dealt with the President’s explicit veto of a specific part of a bill, to what extent is Bush’s recent EO any different? Certainly the veto is being exercised through an executive appointee, but I doubt that the Clinton court would have come out differently if the President had merely appointed someone to pick out the parts of the Congressional budget of which he disapproved. A regulatory state entirely subject to executive control, even to the point of eviscerating the agency’s individual organic statutes, is an unconstitutional scheme that violates the basic tenets of separation of powers. Everyone concedes that the President, as the Executive, can guide the policy of agencies, what the EO does however, is allow the President the ability to countermand Congressional directive. Congress says we need an EPA, the President says we need an EPA only where the market can’t do the job Congress wants the EPA to do.

Let’s also take a look at INS v. Chadha for a minute. There the Supreme Court held that Congress could not retain it’s own legislative veto over power it had imbued in the executive through the office of the Attorney General. It was considered to be an attempt at Congressional aggrandizement of power. If a Regulatory Policy Officer is not the exact same attempt at aggrandizement, this time by the executive, I’m not sure what is. An RPO is like having a mini-President, or Karl Rove if you will, sitting in on every agency decision. We know from Chevron and other cases that the unchecked agency exercise of legislative power is premised upon agency expertise. As a political appointee, what will the RPO add to that expertise? Is George Bush going to suggest a seasoned environmental scientist become the RPO of the EPA? Doubtful.

One other quick Chevron thought, if an agency is given deference for their decisions of interpretation regarding their own statutes through regulation and guidance documents, what role has the RPO played in that interpretation, and to whom is the court now giving deference? It would seem that deference now goes to the specific policy decisions of the executive, and to the market and its sage ability of achieving legislative goals.

If you can agree with Eric Posner that the cost-benefit analysis requirement of Clinton’s EO 12866 was a tool by which the executive retained control over regulation and not an efficiency management mechanism, then you will not be able to deny that the “market failure” analysis of Bush’s EO 12866 is simply a pure power grab. Heck, even if you don’t agree with the Posner-of-lesser-fame, it’s still pretty hard to deny.