Among the regulatory memos and executive orders emanating from the White House in recent days, perhaps none is more important or has more lasting significance than the ‘two-for-one’ executive order signed by the President on January 30, 2017.  Entitled, “Reducing Regulation and Controlling Regulatory Costs,” the order would impose on Executive Branch departments and agencies two specific, related requirements as any such agency proposes a new regulation.  The Office of Management and Budget would be the umpire for the new rules.

The two requirements are, first, that each proposed new regulation also include a proposal to repeal two existing regulations.  This is the requirement that received the more press attention, though it is the less important of the two requirements.  The second requirement is that the costs (or savings via repeal) of the two regulations to be eliminated should equal or exceed the costs of the proposed new regulation.  This is where the bite is, and OMB owns the enforcement teeth.  If OMB does not find the cost evaluations credible, it sends the proposal back to the agency for more work.  This forecloses the option of an agency linking a significant new regulation with repeal of two insignificant existing rules.

There remain details to work out and questions to be answered, but the basic program is clear.  Since this is the head of the Executive Branch ordering how the members of the Executive Branch operate, with OMB in charge of administration, these are issues ‘within the family’ that can be resolved as implementation goes forward. 

There was some initial question as to which agencies were affected by the order, since it provides no definition, but the White House clarified that it did not intend the order to apply to independent agencies.  Moreover, the enforcement mechanism is applied through agencies clearing their regulatory proposals through OMB.  Independent agencies that do not clear their proposals through OMB would not be exposed to that disciplining process.  That limits the reach of the order.  For example, most financial regulators are outside of that process, but not all of them.  Treasury’s Financial Crimes Enforcement Network (FinCEN) is not excluded.  Most Executive Branch, rule-making agencies are covered.

There is also a two-step transition plan, one program that operates for the current 2017 fiscal year, and another that operates for FY2018 and thereafter.  The FY2017 structure is simpler, i.e. the cost of each new proposed reg must be matched by the cost of the two proposed for repeal. 

Starting with FY2018, agencies would be bound by the Regulatory Plans that they are already required to publish each year (harkening back to a Clinton Administration Executive Order issued in September 1993).  Those plans would be required to include cost estimates for any proposal that would increase costs as well as estimates of the offsetting savings from the repeal of the two regulations that the agency proposes to link to it.  In short, the regulatory agencies would be put on a regulatory budget, with each agency given by OMB a regulatory cost limit that it would not be allowed to exceed.  That limit from OMB may allow a net increase for the year or may even prescribe a net overall reduction.

As the costs on the economy from regulatory mandates have risen over the years, there has been much discussion of the need to put regulations on a budget as much as agency direct expenditures are governed by budgets.  The January 30, 2017, executive order means that for most agencies that talk appears to be moving toward operational reality.