President Trump has signed an executive order entitled “Reducing Regulation and Controlling Regulatory Costs,” also known informally as the “2-for-1 Order,” that directs agencies to take a number of actions aimed at deregulating a variety of industries.  The Order is considerably vague, relying instead on the Office of Management and Budget (OMB) to issue additional implementation guidance.  As a result, it remains unclear how this new regulatory approach will operate in practice.

2-for-1 Regulatory Identification Process

The Executive Order, signed January 30, 2017, directs each department or agency to identify two regulations to be repealed any time it proposes or finalizes a new regulation. It is worth noting that the Executive Order never expressly requires these regulations to actually be repealed; rather, merely identified.  Importantly, the Order provides that this 2-for-1 regulatory identification process need only be followed if it is permitted by law.  That is, Congress often passes laws that require certain administrative agencies to promulgate implementing regulations.  To this end, the Order cannot and does not block regulations required by statute.  Instead, only discretionary regulations would be eligible for elimination.

Critics of the Executive Order view this 2-for-1 regulatory identification process as an illogical approach to industry deregulation, arguing that this approach demonstrates a dearth of understanding about how and why regulations are actually issued. For example, in its examination of costs, the Executive Order ignores expected long-term cost savings, and only focuses on annualized regulatory costs.  Accordingly, agencies might be required to eliminate regulations whose benefits greatly outweigh their regulatory costs, simply to meet this arbitrary regulatory standard.  Supporters contend, however, that a requirement to eliminate regulations in order to promulgate new ones forces agencies to review and update existing regulations.  This perceived lack of periodic of review and update is something that has long troubled many in regulated industries.

Offsetting Total Incremental Cost of New Regulations

The second aspect of the Executive Order addresses “total incremental cost” of regulations finalized between January 20 and September 30, 2017. According to the White House Interim Guidance on implementation of this Executive Order issued on February 2, 2017 (“Interim Guidance”), the costs of new regulations should be measured as the annualized “opportunity cost to society,” consistent with OMB Circular A-4.  Interestingly, the Interim Guidance instructs that agencies cannot use previous cost estimates from Regulatory Impact Analyses (RIA) in determining cost estimates for the purpose of this Order.  While agencies may look to those estimates for guidance, they must use the most current information on projected cost in evaluating current cost estimates.

Any new incremental costs associated with new regulations must be offset by the elimination of two prior regulations with equal or greater existing costs. The Interim Guidance clarifies that future cost savings expected to be achieved through the regulation are not to be counted as offsets to regulatory costs.  Additionally, although the Executive Order contemplates the wholesale repeal of two regulations to offset new regulatory costs, the Interim Guidance suggests that new costs can be offset by issuing two “deregulatory actions,” which includes revision to existing regulations, e.g., streamlining mandatory reporting, recordkeeping or disclosure requirements.  Like the 2-for-1 requirement, this cost requirement is limited to instances where it is consistent with federal law.  Moreover, the Interim Guidance instructs that agencies should confirm that they can continue to achieve regulatory objectives after deregulatory action is taken, which may further limit the impact of this Order.

Implementation and Operationalization of the Executive Order

As a practical matter, the many exceptions to this Executive Order may render this Executive Order somewhat toothless. First and foremost, the “as permitted by law” exceptions may broadly exempt a range of regulations as many agencies regulations are, in fact, mandated by law.  This exception may also cause some regulatory confusion, as the extent to which a regulation hews to a statutory mandate is sometimes the subject of debate.

A range of additional exceptions contained in the Interim Guidance further limit the impact of this Order. For this Order to apply to future rulemaking, the rule being proposed or finalized must:

  • Be a “significant regulatory action”: The Interim Guidance clarifies that this Order only applies to “significant regulatory actions,” as defined by Executive Order 12866. Under this definition, significant regulatory action means that the action is likely to (1) result in an annual adverse effect on the economy of more than $100 million, (2) create serious Administrative inconsistencies, (3) materially alter budgetary impact of existing programs, or (4) raise novel or legal policy issues.
  • Not fit into certain exempt categories of regulations: The Interim Guidance exempts certain regulations, e.g., organizational regulations pertaining to the military, national security or foreign affairs that do not affect the public, and federal spending transfer rules.
  • Not be issued by an independent regulatory agency: The Interim Guidance clarifies that the Executive Order does not apply to independent regulatory agencies, as defined by 44 U.S.C. § 3502(5); however, it does encourage these agencies to identify existing regulations that, if repealed or revised, would offset the cost of new regulatory actions.

Although there are numerous exceptions that may limit its reach, the Order does demonstrate a commitment by the Trump Administration to pursue both industry deregulation and lowered regulatory costs. The newly confirmed Director of OMB, Mick Mulvaney will have a significant role in the implementation and operationalizing this regulatory overhaul.  Given his reputation as a budget hawk, expect to see OMB press for the elimination of costly regulations.  If implemented to its fullest extent, this Order may pose a particular challenge to an agency like the Food and Drug Administration, where the rapid pace of innovation requires regulators to constantly adapt to an evolving technological and biomedical landscape.

Regardless of how this Order is ultimately implemented and operationalized, the Order is likely to stifle future regulations. The vague and complicated requirements set forth this Executive Order will hamper the ability of agencies to promulgate regulations as they will have to spend additional time completing these additional regulatory prerequisites.  Viewing this in conjunction with the Trump Administration’s regulatory freeze, expect to see slowed regulation in FY 2017.