50 OIRAs? Another State (New Jersey) Drinks the Regulatory Review Kool-Aid

James Goodwin

March 29, 2010

It’s official: Centralized regulatory review is trickling down to the states. Last month, in one of his very first actions as the newly elected Governor of New Jersey, Chris Christie issued a pair of sweeping executive orders (no. 1 and no. 2) mandating centralized review of all state agency regulations to ensure that they are justified by cost-benefit analysis (CBA). The orders’ provisions mirror those of a controversial executive order issued by New York Governor David Paterson last August (for critiques of the Paterson order, see Rebecca Bratspies and Sidney Shapiro). New York and New Jersey join a growing number of states that employ some form of centralized regulatory review—a group that includes Arizona, Hawaii, Illinois, Oklahoma, Pennsylvania, Virginia, and Wisconsin. Will more states follow New York and now New Jersey by instituting their own version of the Office of Information and Regulatory Affairs (OIRA)?

Executive Order no. 1 creates the “Red Tape Review Group” and directs it to oversee “a new common sense approach to the adoption and promulgation of administrative rules and regulations.” The Order also suspends all proposed regulations for 90 days so that the Red Tape Review Group can review them. Executive Order no. 2 directs state agencies to review existing regulations to determine whether, among other things, they pass a CBA test. Though it's not completely clear (the orders are hardly sterling examples of quality legal draftsmanship), it appears that the Red Tape Review Group is supposed to oversee this review. The agencies must then rewrite or eliminate any rules that are “inefficient, needlessly burdensome, or that unnecessarily impede economic growth.” Executive Order no. 2 further directs agencies to design all future rules so that they “impose the least burden and costs to business, including paperwork and other compliance costs, necessary to achieve the underlying regulatory objective.”

Similar concerns with reducing paperwork burden and compliance costs for businesses motivated the creation of OIRA in the early 1980s. Since that time, OIRA has become one of the most powerful entities in the federal government, wielding significant influence over the substance and goals of regulations developed by federal agencies.

Understandably, New Jersey’s public interest groups are alarmed that the Red Tape Review Group and the state agencies will use the executive orders to roll back crucial health, safety, and environmental regulations. After all, the orders authorize these entities to work behind closed doors—with little transparency or public accountability—to weaken or block regulations on the basis of how they measure up under a CBA. CBAs are an inherently flawed tool for assessing the economic efficiency of regulations, given that they systematically overstate regulatory costs while undercounting regulatory benefits. As such, these orders invite undue interference from regulated industries.

Recent events at OIRA illustrate how this kind of interference can have a massively disruptive effect on federal agencies’ ability to protect people and the environment. While reviewing EPA’s proposed rule for regulating coal ash waste, a veritable parade of representatives from coal-fired power plant and coal ash reuse industries have passed through OIRA’s doors in order to attack the rule and intimidate EPA into weakening or abandoning it. This industry interference has lasted for more than five months (well beyond OIRA’s 120-day limit for reviewing rules), causing EPA to postpone issuing its proposed rule. (The agency had originally planned to release the proposed rule in December; now the expected release date is supposed to be sometime in April.)

Bringing similar OIRA-type interference to the state level introduces unique concerns as well. In many issue areas, state regulatory agencies are the first line of defense when it comes to protecting people and the environment. For example, several federal environmental laws, such as the Clean Air Act, authorize state environmental agencies to carry out regulatory programs. State-level centralized regulatory review threatens to inhibit these agencies ability to carry out these programs effectively.

Moreover, state-level regulatory agencies have stepped up to fill in gaps created by federal regulatory failings, as insufficient resources, outdated laws, and political interference have prevented their federal counterparts from carrying out their statutory missions. Many states (including New Jersey) have adopted health, safety, and environmental regulations that are more protective than what is required under federal law. Unfortunately, state-level centralized regulatory review could undo this “race to the top.” Indeed, the two New Jersey executive orders seem to presume that state regulations that are more protective than what is required under federal are economically inefficient, flagging them as likely candidates for rules that the state agencies need to weaken.

As these states will soon learn, what’s true at the federal level is also true at the state level: Centralized regulatory review conducted through the lens of CBA can be a handy one-two punch for leaving people and the environment unprotected from a variety of potential harms. Like my brief love affair with ska music in high school, hopefully these experiments with centralized regulatory review are just a phase that the states will grow out of soon.

Read More by James Goodwin
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