The Checks & Balances of the Regulatory State

The Checks & Balances of the Regulatory State

 PART 5:

This is the fifth in a series on the major policy ideas — from Left and Right — that should guide the next presidential administration's agenda. (For the opposing view, see Philip Hamburger, "Administrative Power.")


The regulatory state is deeply misunderstood. No one denies the importance of federal agencies in formulating the rules that shape the modern economy and civil society. But the regulatory state is not, as its critics maintain, an illegitimate “Fourth Branch” of government, operating on its own. It is, instead, a vital function of government, which is part of the executive branch (though not within the White House), and is subject to numerous constitutional checks and balances.

The most important of these checks and balances is that the regulatory state is an empty vessel until Congress acts to fill it. And Congress has done so since the Founding (think customs officials and military paymasters). Congress turns the spigot on or off based on legislation it wants to be implemented, and the federal agencies, such as the Securities and Exchange Commission, the Food and Drug Administration, and the Social Security Administration, respond (as the many thousands of Federal Register pages attest to).

Congress also provides procedural rules (such as the Administrative Procedure Act and the Freedom of Information Act) that control the agencies in dealings with regulated entities and the public. It also decides whether or not to grant agencies substantive rulemaking authority, which gives agencies legislative-like power.

But Congress is not done yet: It also holds oversight hearings (which can be terrifying experiences for agency heads), and can use its budgetary power explicitly to stop agency actions. Finally, Congress has created the civil service, which assures career and non-political management of much agency activity. (This latter point is the subject of my recent New York Times op-ed and the theme of my forthcoming book, Valuing Bureaucracy: The Case for Professional Government.)

The judicial and executive branches also place checks and balances on the regulatory state. The courts review agency actions to decide whether they are lawful (not “arbitrary and capricious”) and consistent with congressional dictates. This is also where the contested Chevron doctrine comes in. Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. is a landmark case in which the Supreme Court held that federal agencies should be given “administrative deference” (now sometimes called “Chevron deference”) in interpreting their statutes when congressional intent is ambiguous. The assumption the Court makes is that when the law is not clear, agencies, who are closest to the situation, should have the first shot at interpretation. My take on Chevron (which I recently stated in an article in The Hill) is that it honors the separation of powers by deferring to the two elected and political branches (Congress and the executive), rather than having the unelected judicial branch take the lead.

The executive branch also provides checks and balances over agencies under the Article II of the Constitution, according to which the president has the duty to see that laws are faithfully executed. One way this duty is manifested is by appointing (often with senate concurrence) agency leaders and, if necessary, removing them for performance failures.

Another way the president assures faithful execution of the laws is by reviewing significant agency rules for consistency with administration policy and for efficiency (e.g., costs and benefits). This function is performed by Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA), and its mission is sometimes controversial. Much of that controversy can be overcome if it is understood that the president is not, as a New York Times piece from last summer put it, the “prolific author of major regulations,” but, instead, the coordinator of regulatory policy. Congress usually makes the agency heads the author of regulations by placing authority in them directly.

So why, with all these checks on the power of federal agencies, is Congress unhappy with the “out of control” bureaucracy? It's really a question of two things: 1) the enormous grants of regulatory authority Congress has provided over the decades; and 2) the realities of divided government.

The Republican Congress deeply resents the Obama administration’s exercise of executive power through existing agency rulemaking powers, rather than coming to it for statutory authority (which would not be forthcoming). In response, Republicans in the House recently passed a bill, H.R. 4768, the “Separation of Powers Restoration Act,” to “reverse” Chevron and to require de novo judicial review of all questions of law. They also passed the Review Act (H.R. 3438) to slow down, if not stop, agency rules. The latter says that no high-impact agency rule can go into effect if it is challenged in court within 60 days of promulgation and a stay is issued. While the anti-Chevron act is not so consequential — judges were adept at judicial review before Chevron and they will be after it — the Review Act could stymie the regulatory state. After all, it applies to all important rules whether they add to or decrease regulatory burdens and takes policymaking power away from the executive. If we get a Republican president and the bill passes both houses, I doubt he would sign it. 

What, then, should we do to improve and control the regulatory state, rather than trying to stop it in its tracks? Three ideas come to mind, which should appeal to whoever takes the White House.  

1. It’s true that there are many inconsistent, outmoded, and burdensome rules. To combat this we should encourage agencies to do retrospective review of rules to see whether they should be modified, eliminated, or strengthened. The Obama administration made some progress in this regard, with billions in reduced regulatory costs, despite its pro-regulation reputation. Though some in Congress are considering giving the rule review task to a separate agency, the best way to go is to have OIRA, which knows about rules, do the job. OIRA will need people to do this, of course, in addition to the current staff of 45. A small investment here will have a big impact. And, since agency officials know best of all where the rule problems lie, federal agencies, themselves, should also be bolstered to perform the retro review function. That will mean more staffing for independent agencies, which are not subject to OIRA review.

2. We should also give the next president reorganization authority. Such authority was granted by Congress as a matter of course until the mid 1980s, but not since — despite the fact that President Obama had some good ideas about how to make agencies more effective by reorganizing them. If left uncoordinated, the regulatory state becomes too large and less effective. Here we should learn from the congressional Government Accountability Office, which has carefully studied reorganization.

3. Finally — my favorite — we should reform the civil service. Bipartisan legislation to fix the way we hire and fire civil servants is long overdue (the last effort was in 1978), and it will make a real difference to the way the regulatory state operates. Today, we have the same number of government employees President Kennedy had available over 50 years ago. Since then, the GDP has grown by more than five times and we have created many new agencies with broad missions (e.g., the Environmental Protection Agency and the Department of Homeland Security). Because we do not have sufficient numbers of civil servants, nor the right kind (e.g., technology experts), the regulatory state is increasingly run by contractors, who often cost more and perform inherently governmental decisional roles that jeopardize constitutional values. Contractors can do many things for government if they are properly supervised by responsible and motivated career and political officials — but these are in short supply.

When the above steps are taken, the regulatory state will work better, cost less, and might even be smaller.


Paul R. Verkuil is former chairman of the Administrative Conference of the United States (2010–2015) and senior fellow at the Center for American Progress.


Author’s Recommended Reading:

Paul R. Verkuil, “The Case for Bureaucracy,” The New York Times (October 3, 2016).

Paul R. Verkuil, Valuing Bureaucracy: The Case for Professional Government (forthcoming).

Richard J. Pierce, Jr., Sidney A. Shapiro, and Paul R. Verkuil, Administrative Law and Process 6th edition (Foundation Press, 2014).

Daniel R. Ernst, Tocqueville's Nightmare: The Administrative State Emerges in America, 1900-1940 (Oxford: Oxford University Press, 2014).


(Read the response by Philip Hamburger.)

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