Federal Regulatory Process

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David R. Burton

Senior Fellow in Economic Policy, The Heritage Foundation

David R. Burton focuses on tax matters, securities law, entrepreneurship, financial privacy and regulatory and administrative law issues as The Heritage Foundation’s senior fellow in economic policy.

Mr. Burton was general counsel at the National Small Business Association for two years before joining Heritage’s Roe Institute for Economic Policy Studies in 2013. He previously was chief financial officer and general counsel of the start-up Alliance for Retirement Prosperity, a conservative alternative to AARP.

Basic Rulemaking Structure

  • The Administrative Procedure Act (APA) requires an agency to publish in the Federal Register a Notice of Proposed Rulemaking (“proposing release” or NPRM)
  • The agency must then receive comments from the public and address those comments in the document releasing the final rule

The Proposing Release Must Contain:

  1. A summary of the proposed rule
  2. Information About how to provide comments
  3. The date by which comments are due (the comment period)
  4. The statutory authority for the proposed rule
  5. An explanation of the rule and the reasons for the proposed rule
  6. An initial regulatory flexibility analysis
  7. A discussion of the likely impact of the proposed rule on small entities
  8. An initial Paperwork Reduction Act analysis (If the rule requires the provision of information to the government)
  9. An office of Management and Budget Circular A-4 compliant cost benefit analysis and other OMB required material
  10. The actual proposed amendment to the Code of Federal Regulations (CFR)

The Final Rule Must Contain:

  1. A summary of the final rule
  2. The statutory authority for the final rule
  3. An explanation of the final rule and the reasons for the rule
  4. A discussion of the comments and the reasons why the agency accepted or rejected those comments
  5. A final regulatory flexibility analysis
  6. A discussion of the likely impact of the final rule on small entities
  7. A final paperwork reduction analysis (if the rule requires the provision of information to the government). 
  8. An Office of Management and Budget Circular A-4 compliant cost benefit analysis and other OMB required material
  9. The actual final amendment to the Code of Federal Regulations (CFR)
  10. The effective date of the final rule.

Statutory Authority

  • Congress provides the agency with the authority to promulgate a rule. 
  • All rules must point to a statute that grants the agency the authority to promulgate the rule in question
  • Political appointees should familiarize themselves with the relevant statutory language in their agency
  • Any rule that you choose to promulgate must fall within the statutory authority granted by Congress

What is Considered a Major Rule?

  • A major rule is defined generally as one that has resulted in or is likely to result in:
    • An annual effect on the economy of $100 million or more;
    • A major increase in costs or prices for consumers, individual industries, federal, state, or local government agencies, or geographic regions; or
    • Significant adverse effects on competition, employment, investment, productivity, or innovation, or on the ability of the United States-based enterprises in domestic and export markets

Guidance Documents and Interpretive Rules

  • Guidance Documents: Agencies have increasingly sought to evade teh APA notice and comment requirements by issuing so-called “guidance documents”
    • In principle, guidance documents do not have the force of law
    • In practice, however, they do since they inform the agencies’ enforcement posture
    • Unfortunately, the Biden Administration revoked a Trump era executive order which required agencies to post all guidance documents to a single, searchable, indexed website
  • Interpretive Rules: Under section 552 of the APA, “interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice” are exempt from the notice and comment requirements of the APA. 
    • So what is an interpretive rule?
      • Courts are all over the map when it comes to setting standards and analyzing guidance documents and interpretive rules
    • For clarity and certainty of enforcement, prospective conservative political appointees should avoid circumventing the notice and comment requirements by issuing a guidance document or deeming a rule interpretative 
  • Removing Guidance Documents
    • Guidance documents are much easier to remove than rules
    • Prospective political appointees should prepare a running list of guidance documents issued during the Biden years, evaluate those documents, and identify which should be withdrawn
    • This should be done during the first week of the new administration
  • Comment periods and Effective Dates
    • The APA imposes no statutory minimum comment period
      • Comment periods are generally around 60 to 90 days
      • The Biden administration has been criticized for its excessively short comment periods
    • The APA requires final rules to be published 30 days prior to their effective date
  • Basis & Purpose
    • The APA requires a general statement of a rule’s basis and purpose
    • You will need to put significant effort into explaining why your proposed rule makes sense from a legal, policy, and economics perspective - this will help ensure the proposed rule will survive judicial review
  • Notice, Comments, & Response to Comments
    • The APA requires the agency to provide notice and receive comments with respect to legislative or substantive rules
    • In your final rule, you need to address the issues raised by these comments
      • You do not need to accept the recommendations made in the comments
      • You do not need to address each comment separately
      • You do need to address legitimate issues and concerns raised by the comments in the final release and explain why you accept or reject the point made in the comment.
  • Office of Information & Regulatory Analysis (OIRA)
    • OIRA is an office within the Office of Management and Budget
    • OIRA plays a crucial role in the regulatory process
    • OIRA is one of the few agencies in government that limits the regulatory ambitions of other agencies
  • EO 12866 & OMB Circular A-4
    • Executive Order 12866
      • EO12866 was originally adopted by President Clinton
      • It has been amended several times, most recently by President Biden’s Executive Order 14094
      • The Biden Executive Order increases the threshold of a “significant regulatory action” from $100 million to $200 million, thus allowing more regulations to pass muster
    • OMB Circular A-4
      • OMB Circular A-4 lays out in detail how cost benefit analysis should be done and other regulatory requirements
      • Again, the Biden administration has proposed amending Circular A-4 in a manner that will let more regulations pass muster
    • What you need to know:
      • As a political appointee, you must ensure your agency complies with these rules as revised. 
      • Compliance is not optional
      • OIRA has the authority to return a rule to an agency for non-compliance
      • Poor cost-benefit analysis is a common reason why courts invalidate rules
  • Paperwork Reduction Act (PRA)
    • The Paperwork Reduction Act (PRA) was enacted to minimize the paperwork burden for individuals, small businesses, educational and nonprofit institutions, Federal contractors, State, local and tribal governments and other persons resulting from the collection of information by or for the federal government
    • Under the PRA, if an agency is going to institute a new information collection requirement, it must place a notice in the Federal Register separate from and before the proposed rule and seek public comment and then later provide notice that OIRA clearance has been requested
    • This process typically adds about six months to the overall rulemaking process
  • Regulatory Flexibility Act (RFA) 
    • The Regulatory Flexibility Act of 1980 requires federal agencies to examine the impact of their proposed and final rules on small businesses, small governmental jurisdictions, and small organizations and to solicit the ideas and comments of such entities for this purpose. 
  • Unfunded Mandates Reform Act
    • The Unfunded Mandates Reform Act of 1995 is designed to address federal legislation or regulation that imposes an enforceable duty on state, local, or tribal governments whether that involves costs or impedes those entities’ ability to collect revenue without a corresponding funding mechanism from the federal government
    • An agency that may impose such costs must provide a variety of information, including an estimate of the costs being imposed in both the proposing release and the final rule
  • Congressional Review Act (CRA)
    • The CRA has been used successfully about 20 times
      • It is usually used by an incoming Congress and new President to reverse so-called midnight regulations by a previous administration of the other party
    • Make sure that your rule is submitted to Congress and the GAO, as required, so that the CRA clock starts running
    • Try to get your rule out more than 60 legislative days before Congress adjourns sine die if a new administration might take office so that the disapproval resolution clock will have expired
  • Judicial Review
    • You should expect that any rule you promulgate will be challenged in a courtroom and draft your rule, the proposing release, and the final release assuming that will happen. 
    • Five major causes for rules being invalidated by courts:
  1. The rule is found to be arbitrary, capricious, or an abuse of discretion
  2. The rule is found to be contrary to constitutional right, power privilege, or immunity
  3. The rule is found to be in excess of statutory jurisdiction or authority
  4. The rule is found to be unsupported by substantial evidence
  5. The rule is found to have been promulgated in violation of some procedural requirement
  • 10 Recommendations to be an effective policy maker
  1. Download and completely read three or four proposed rules and three or four final rules published by the agency or agencies where you hope to work
  2. Download and read a few proposed rules and final rules from other agencies
  3. Download and read the section of the Unified Agenda of REgulatory and Deregulatory Actions at OMB that describes the regulatory agenda of the agency or agencies where you hope to hold office
  4. Read the following: The Administrative Procedure Act, the Regulatory Flexibility Act, the Paperwork Reduction Act, The Unfunded Mandates Reform Act, and The Congressional Review Act
  5. REad Executive Order 12866, as amended, and OMB Circular A-4
  6. Download and read the sections in the Office of the Federal Register’s Document Drafting Handbook relating to proposed rules and final rules
  7. Read the parts of the US Code that relate to the bureaucratic structure of the agency or agencies where you hope to work and the grant of authority ot the agency or agencies where you hope to work
  8. Become familiar with the statues that govern the general regulatory structure that applies to those whom your agency regulates
  9. Read chapter three in Project 2025’s Mandate for Leadership
  10. Read the relevant chapters in mandate for Leadership relating to the agency or agencies where you hope to work