[Senate Hearing 114-682]
[From the U.S. Government Publishing Office]
S. Hrg. 114-682
THE ADMINISTRATIVE STATE: AN EXAMINATION OF FEDERAL RULEMAKING
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HEARING
BEFORE THE
COMMITTEE ON
HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
APRIL 20, 2016
__________
Available via the World Wide Web: http://www.fdsys.gov/
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
RON JOHNSON, Wisconsin Chairman
JOHN McCAIN, Arizona THOMAS R. CARPER, Delaware
ROB PORTMAN, Ohio CLAIRE McCASKILL, Missouri
RAND PAUL, Kentucky JON TESTER, Montana
JAMES LANKFORD, Oklahoma TAMMY BALDWIN, Wisconsin
MICHAEL B. ENZI, Wyoming HEIDI HEITKAMP, North Dakota
KELLY AYOTTE, New Hampshire CORY A. BOOKER, New Jersey
JONI ERNST, Iowa GARY C. PETERS, Michigan
BEN SASSE, Nebraska
Christopher R. Hixon, Staff Director
Brooke N. Ericson, Deputy Chief Counsel for Homeland Security
David N. Brewer, Chief Investigative Counsel
Scott D. Wittmann, Investigator
Samantha M. Brennan, Counsel
Gabrielle A. Batkin, Minority Staff Director
John P. Kilvington, Minority Deputy Staff Director
Katherine C. Sybenga, Minority Chief Counsel for Governmental Affairs
James V. Secreto, Minority Chief Counsel for Investigations
Kevin R. Burris, Minority Counsel
Robert R. Berrios, Minority Counsel
Laura W. Kilbride, Chief Clerk
Benjamin C. Grazda, Hearing Clerk
C O N T E N T S
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Opening statements:
Page
Senator Johnson.............................................. 1
Senator Heitkamp............................................. 16
Senator Portman.............................................. 19
Senator Ayotte............................................... 22
Prepared statements:
Senator Johnson.............................................. 41
Senator Carper............................................... 43
Senator Sasse................................................ 45
WITNESS
Wednesday, April 20, 2016
Jonathan Turley, Shapiro Professor of Public Interest Law, George
Washington University Law School............................... 3
Randolph J. May, President, The Free State Foundation............ 5
Hon. Bradford P. Campbell, Counsel, Drinker Biddle and Reath,
LLP, and Former Assistant Secretary for Employee Benefits at
the U.S. Department of Labor................................... 7
William J. Kovacs, Senior Vice President, Environment,
Technology, and Regulatory Affairs, U.S. Chamber of Commerce... 9
Robert Weissman, President, Public Citizen....................... 11
Alphabetical List of Witnesses
Campbell, Hon. Bradford P.:
Testimony.................................................... 7
Prepared statement with attachment........................... 88
Kovacs, William J.:
Testimony.................................................... 9
Prepared statement........................................... 110
May, Randolph J.:
Testimony.................................................... 5
Prepared statement........................................... 67
Turley, Jonathan:
Testimony.................................................... 3
Prepared statement........................................... 47
Weissman, Robert:
Testimony.................................................... 11
Prepared statement........................................... 141
APPENDIX
Majority Staff Report submitted by Senator Johnson............... 190
Majority Staff Report submitted by Senator Johnson............... 230
Minority Staff Memorandum submitted by Senator Carper............ 260
Office of Legal Counsel Opinion submitted by Senator Carper...... 268
Response to post-hearing questions for the Record:
Mr. Campbell................................................. 281
THE ADMINISTRATIVE STATE: AN EXAMINATION OF FEDERAL RULEMAKING
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WEDNESDAY, APRIL 20, 2016
U.S. Senate,
Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 10:11 a.m., in
room 342, Dirksen Senate Office Building, Hon. Ron Johnson,
Chairman of the Committee, presiding.
Present: Senators Johnson, Portman, Ayotte, Ernst,
McCaskill, Tester, Baldwin, Heitkamp, and Peters.
OPENING STATEMENT OF CHAIRMAN JOHNSON
Chairman Johnson. Good morning. This hearing is called to
order.
I have a little script here, which is unusual for me, so
let me just read it. I ask unanimous consent that my full
opening statement be entered into the record.\1\
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\1\ The prepared statement of Senator Johnson appears in the
Appendix on page 41.
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Senator McCaskill. Without objection.
Chairman Johnson. Without objection, so ordered.
Senator Carper had a death in his family, his aunt, who he
was very close to, so he will not be here today. We obviously
send our sincere condolences to Senator Carper and his family,
and I ask unanimous consent that his opening statement be
entered into the record.\2\
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\2\ The prepared statement of Senator Carper appears in the
Appendix on page 43.
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Senator McCaskill. Without objection.
Chairman Johnson. Without objection, so ordered.
I also ask unanimous consent that the following documents
be entered into the record: The Majority Staff report\3\ titled
``The Labor Department's Fiduciary Rule: How a Flawed Process
Could Hurt Retirement Savers;'' the Minority Staff memo\4\ on
the Labor Department's financial fiduciary rule; the Majority
Staff report titled, ``Regulating the Internet: How the White
House Bowled Over the Federal Communications Commission (FCC)
Independence;''\5\ and a January 14, 1991, Office of Legal
Counsel memorandum titled, ``Ex Parte Communications During FCC
Rulemaking.''\1\ Without objection, so ordered.
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\3\ The Majority report titled The Labor Department's Fiduciary
Rule appears in the Appendix on page 190.
\4\ The Minority Memorandum on the Labor Department's proposed
conflict of interest rule appears in the Appendix on page 260.
\5\ The Majority report titled Regulating the Internet: How the
White House Bowled Over FCC Independence appears in the Appendix on
page 230.
\1\ The Minority submission of the OLC Opinion titled Ex Parte
Communication During FCC Rulemaking appears in the Appendix on page
268.
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I want to thank all of the witnesses for testifying here
today and for taking the time and writing up what I think is
some very thoughtful testimony. You did a good job, pretty
thick testimony which will all be entered into the record. When
you do speak, try to keep it down to about 6 minutes and then
we will do rounds of questions.
From my standpoint, this is just an incredibly important
hearing. I have said repeatedly--well, first of all, this
Committee actually has a mission statement. I come from a
business background, so it is something Senator Carper and I
developed. It is pretty simple, to enhance the economic and
national security of America. Those are inextricably linked.
How do you get a strong economy? From my standpoint, we are
the world's largest market, which is an enormous advantage in
the global competition. We do have cheap and abundant energy.
We should keep it that way while we protect our environment.
Our weaknesses are we have an onerous regulatory
environment, and we will probably have some differences of
opinion on that, but, numerous studies talk about how the cost
of Federal regulations are somewhere between $1.8 and $2
trillion. To put that number in perspective, only 9 or 10
economies in the world exceed $2 trillion. That is an enormous
self-inflicted wound and burden.
And, yes, I realize we need some regulations, and they
protect workers and they protect our environment. That is a
good thing. But, there is a point of over-regulation. We will
talk a little bit about that.
We hear about income inequality, which is a real problem.
We hear about stagnant wages. Talking to one chief executive
officer (CEO) of a paper manufacturing company in Wisconsin, he
did a little cost study on just four regulations issued by this
administration, just four, and, of course, we have hundreds of
major regulations costing over $100 million. But, just four
regulations, the cost to this paper company was the equivalent
of $12,000 per employee per year. So, if you are wondering why
wages have stagnated, look no further than the regulatory
burden placed on the private sector by big government here in
Washington, D.C. It is an enormous burden and we have to
recognize that fact.
The last point I will make, the Chancellor of the
University of Wisconsin-Madison, Rebecca Blank, has come into
my office the last 2 years, both times asking for relief from
regulations. This last year when she came in, she had a
research study. It was actually called the 2012 Faculty
Workload Survey, done by the Federal Demonstration Partnership
Research Report from April 2014, and basically, what that
research showed is that 42 percent of researchers' times in the
research university are spent complying with Federal
regulations--42 percent. Now, those research dollars, that
grant money is spent to go into basic science, advancing human
knowledge, curing diseases. If 42 percent of their time is
spent just complying with Federal regulations, think of the
opportunity cost of that.
So, again, the regulatory burden is a serious problem. We
are going to be talking about just three rules where I think
there are some real questions as to whether this administration
issued those properly, not violated the Administrative
Procedure Act. We are going to be talking about the Fiduciary
Rule, the Federal Communications Commission Title II Internet
regulation, and the Waters of the United States (WOTUS). I
mean, these are three significant rules that are going to have
a significant impact on our economy. The number one solution
for debt and deficit or so many problems is economic growth and
these regulations are stifling it.
So, with that, it is the tradition of this Committee to
swear in witnesses, so if you will all rise and raise your
right hand.
Do you swear the testimony you will give before this
Committee will be the truth, the whole truth, and nothing but
the truth, so help you, God?
Mr. May. I do.
Mr. Kovacs. I do.
Mr. Turley. I do.
Mr. Campbell. I do.
Mr. Weissman. I do.
Chairman Johnson. Please be seated.
Our first witness is Professor Jonathan Turley. Professor
Turley is the Shapiro Professor of Public Interest Law at the
George Washington University Law School. Professor Turley.
TESTIMONY OF JONATHAN TURLEY,\1\ SHAPIRO PROFESSOR OF PUBLIC
INTEREST LAW, GEORGE WASHINGTON UNIVERSITY LAW SCHOOL
Mr. Turley. Thank you so much, Chairman Johnson and Members
of the Committee. It is a great honor to appear before you
today to talk about the rise of the administrative State within
the American constitutional system.
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\1\ The prepared statement of Mr. Turley appears in the Appendix on
page 47.
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I come to this with more of a constitutional perspective
than an administrative law perspective. I have long been
critical of the rise of what is often called the fourth branch
in our system. And, while academics have good faith
disagreements, I tend to view the rise of the administrative
State as neither benign nor inevitable. I think it is a problem
that we often treat this concept of administrative State as a
fait accompli, like a reality like the weather, in our
constitutional system. And, those of us who criticize it often
appear quixotic, tilting at the windmills of Federal agencies.
It is not a criticism of Federal agencies to question the
degree of discretion and delegation that they currently enjoy,
no more than it is to say that we need banks as an answer to
calls for banking reform. The Federal agency is a reality of
our system. It is part of modern government. But, the degree to
which we have delegated authority, legislative authority, and
discretion to the Federal agencies, in my view, is dangerous.
Indeed, I doubt the Framers would recognize the system we
have today. Well, they would recognize it in one sense. It is,
in many respects, the system they sought to avoid. The Framers
were focused on the danger of concentrated power and the need
for participatory representative politics. Neither of that is
present in the current system.
Rulemaking is a virtual euphemism for agency legislation,
and the two examples of that that I will discuss today,
hopefully in more detail, include the United States v. Texas
controversy over Deferred Action for Parents of Americans
(DAPA), which showed how truly Section 553 of the
Administrative Procedure Act (APA) has become without
substance. The administration effectively ordered unilaterally
changes that were denied by Congress. They did that not only
through executive power, but, they even refused to do the
notice and comment requirements under the APA. I have been a
critic of the APA as a paper tiger, but in this case, it was
not even that.
The net neutrality controversy is another good example. I
do not necessarily want to weigh in on the merits. There are
smarter people that know a lot more about net neutrality and
immigration than I do. I am much more concerned with the
process, that is, what we have seen is the transfer of
legislative powers to an opaque system where citizens have very
little role or very little knowledge. The fact that you can
have a visit with Chairman Tom Wheeler and have the change of a
position of the FCC, it really speaks volumes to the problems
that we are having now in terms of the shift from a
representative democratic system to a more bureaucratic system.
My fear is that while we can reverse this trend, we are
fast approaching a certain constitutional failsafe line where
the administrative state will become a fixed and unassailable
reality of American government. I happen to agree with many
things that President Obama has tried to achieve. I just do not
agree with the means by which he is trying to achieve them.
I am, in many ways, a stereotypical Madisonian scholar. I
believe that the Legislative Branch is the thumping heart of
our constitutional system and it is increasingly becoming
irrelevant. I think that members are allowing the power of this
institution to slip away into the midst of an administrative
state.
My testimony includes various things that can be done, but
it cannot be done on the cheap. Congress has to join in a
bipartisan way to fight for its authority the way the Framers
thought that you would. This includes dealing with the
discretion that is afforded under Chevron, the creation of non-
delegation provisions to ensure that this body remains
relevant, greater oversight with teeth in terms of agencies,
the creation of an office that will focus more substantially on
rulemaking, new APA procedures, new consent laws that have
guillotine switches so that major regulations will come before
this body, and finally, empowering citizens to help Congress
monitor what has become a fourth branch in our system. All of
these things can be done.
I do not wish to sound particularly dire, but I believe
this is a dire situation. I believe that what we are seeing is
a different type of government. Now, it may be a better system
according to some academics, but it is a system that the
American people were never allowed to voice their view of. It
is a substantial change in what we call the American
governmental system. It is less representative. It is less
transparent. And, I believe that, in the end, it is
destabilizing.
As my testimony states, the Legislative Branch plays a
critical role in transforming factional disputes. On this
table, there are experts who I look forward to hearing from who
are going to raise very important arguments on both sides of
these divisive questions, but the Nation is divided. And, when
we are divided, this is the body that was designed to transform
those factional disputes into majoritarian compromises. If you
remove these questions from Congress, you add the very
instability that the Framers wanted to avoid and you are
shifting it far away from the center of power.
So, the center of gravity in our system has changed, but we
can regain it, and I believe that should be a matter that all
members and all citizens should join together to see.
Thank you very much.
Chairman Johnson. Thank you, Professor Turley.
Our next witness is Randolph May. Mr. May is the founder
and President of the Free State Foundation (FSF). Mr. May
previously served as Assistant General Counsel and Associate
General Counsel at the Federal Communications Commission from
1978 to 1981. Mr. May.
TESTIMONY OF RANDOLPH J. MAY,\1\ PRESIDENT, THE FREE STATE
FOUNDATION
Mr. May. Mr. Chairman and Members of the Committee, thank
you for inviting me to testify today. I am President of the
Free State Foundation, a think tank that focuses its research
primarily in the communications law and policy and
administrative law areas. I have been involved for almost 40
years in communications law and policy in various capacities,
including having served as Associate General Counsel at the
FCC. My longstanding expertise at the intersection of
communications law and policy and administrative law is
outlined in my written testimony.
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\1\ The prepared statement of Mr. May appears in the Appendix on
page 67.
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The Committee's identification of the FCC's net neutrality
rule as deserving of examination is wise. This rulemaking is
instructive regarding the ways in which a faulty rulemaking
process enables the growth of the administrative state and
adversely impacts the economy, and in the case of the net
neutrality rulemaking, compromises accepted rule of law norms.
I want to highlight briefly in my oral testimony four areas
in which the FCC's net neutrality rulemaking is problematic.
First, the rulemaking truly represents a case of the
proverbial solution in search of a problem, or, as FCC
Commissioner Ajit Pai put it recently, the rule, ``was a 313-
page solution that would not work to a problem that did not
exist.'' Put bluntly, in this case, there was no meaningful
evidence of an existing market failure or consumer harm that
required the Commission to adopt rules applying heavy-handed Ma
Bell-era public utility-like regulation to today's Internet
service providers (ISPs).
The dynamic, competitive marketplace in which Internet
service providers operate today is far removed from the staid
monopolistic markets for which public utility regulation was
devised, when, for example, it was applied to the railroads in
1887 and then to telephone and telegraph companies in 1934,
when the Communications Act was adopted. There was no reason
for the FCC to ignore Congress's direction in the 1996 Telecom
Act that the Internet should remain, ``unfettered or by Federal
or State regulation.''
Second, as a result of the direct and indirect cost imposed
on Internet service providers, the rules adoption most likely
will have an adverse impact by chilling investment and
innovation. Indeed, there is some persuasive evidence that it
is already doing so. Of course, diminished investment in
innovation translate into diminished jobs and consumer welfare.
Third, the manner of President Obama's direct involvement
in the FCC's net neutrality rulemaking in the aftermath of his
involvement that resulted initially in confusion at the FCC,
and then shortly afterward in an abrupt change in course that
conformed to President Obama's specific ask, raise questions
about the FCC's supposed independence. The manner in which the
rulemaking was conducted serves to undermine the notion of the
FCC's independence in an agency whose decisions are primarily
based on its specialized expertise rather than on political
considerations. And this, in turn, jeopardizes the public's
confidence in the soundness of the Commission's decisions and
the agency's institutional integrity.
Of concern, just last week, the White House released a
high-profile statement urging the FCC to adopt a specific
course of action in the agency's controversial and very
problematic video navigation rulemaking. Repeated high-profile
Presidential interventions like this further undermine the
notion that the FCC acts independently and free from Executive
Branch control.
Finally, aside from issues relating to President Obama's
involvement, there are aspects of the net neutrality rule,
specifically including adoption of the vague general conduct
rule, which itself the FCC admitted is a, quote, ``catch-all
provision,'' along with a
catch-22 enforcement regime that the rule established, that
call into question compliance with accepted rule of law and due
process norms. These norms require that law be predictable and
knowable in advance of the imposition of sanctions, which in
the case of the net neutrality rule certainly is not the case.
Failing to adhere to these norms also threatens to undermine
the public's confidence in the agency's institutional
integrity.
Again, thank you for giving me the opportunity to testify
today and I look forward to answering your questions.
Chairman Johnson. Thank you, Mr. May.
Our next witness is the Honorable Bradford Campbell. Mr.
Campbell is the former Assistant Secretary of Labor for
Employee Benefits. Mr. Campbell currently practices employee
benefits law with the law firm Drinker Biddle and Reath. Mr.
Campbell.
TESTIMONY OF THE HONORABLE BRADFORD P. CAMPBELL,\1\ COUNSEL,
DRINKER BIDDLE AND REATH, LLP, AND FORMER ASSISTANT SECRETARY
FOR EMPLOYEE BENEFITS AT THE U.S. DEPARTMENT OF LABOR
Mr. Campbell. Well, thank you, Mr. Chairman and the Members
of the Committee, the other Senators, for the opportunity to
testify today about the need to reform the Federal regulatory
process.
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\1\ The prepared statement of Mr. Campbell appears in the Appendix
on page 88.
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Before I begin, though, I want to advise you that the views
I express today are my own, not those of any client or my firm
or my colleagues.
The sheer scope of Federal regulation is remarkable. What
we eat, what we wear, what we drive, how we work, how we save,
even the air we breathe, nearly every activity of our lives is
now at least partially subject to Federal regulations. While
there is, of course, a necessary role for Federal regulation in
interstate commerce, I think it is fair to say that the current
regulatory environment and the practices of some Federal
regulators are in significant need of review and reform.
The regulatory authority that Congress delegates to Federal
agencies was never intended to allow those agencies to become
their own quasi-legislative bodies, making new laws and
policies as they see fit. Instead, that authority was intended
to facilitate the practical implementation of laws passed by
Congress so that agencies could promulgate rules consistent
with the intent and direction of Congress, and finalized only
after a thorough and fair consideration of the economic impact,
costs, and the alternatives available. Unfortunately, the
reality of the Federal regulatory process all too often does
not actually match this intent.
Now, I am going to focus today on a particular example of
regulatory overreach, the recently promulgated final regulation
by the U.S. Department of Labor (DOL) redefining fiduciary
investment advice. This incredibly broad and far-reaching
rulemakes the Department of Labor a primary regulator of the
conduct and compensation of financial advisors to more than $14
trillion--that is trillion with a ``t''--in Individual
Retirement Accounts (IRA) and retirement plan assets, and it
effectively allows the Department of Labor standards to trump
the traditional role of other regulators, like the Securities
and Exchange Commission (SEC).
I am very familiar with this regulation and with this
agency's authority, because as the Chairman noted, I used to
run this agency in the prior administration.
This fiduciary regulation highlights what I see as two
primary issues facing the Committee when considering reform.
First, it was legislation by rulemaking, in which an agency
fundamentally changes the law, and in this case counter to
Congressional intent, taking over Congress's role.
And, second, it was an exercise of flawed regulatory
process in which predetermined policy decisions drove the
outcome, not real consideration of economic inputs or
regulatory alternatives.
Now, this real clearly is legislation by regulation. It was
created out of whole cloth by the agency. The underlying law
that it is reinterpreting, this potion has not changed since
1974, when it was passed. And, in fact, the changes the rule
ultimately makes, at least many of them, are contrary to the
intent of Congress when it passed those laws.
Congress created the Employee Retirement Income Security
Act (ERISA) plans and IRAs at the same time, and it
affirmatively chose not to apply the new fiduciary standard and
new legal remedies that it created for ERISA plans to IRAs.
Instead, Congress chose for IRAs to be protected through
extensive Federal and State regulation of financial services
with their applicable standards of care and legal remedies.
Remarkably enough, these intentional Congressional
decisions were cited as flaws by the Labor Department that it
must correct to preserve Congressional intent. The Department,
which, acting based on a Carter Administration reorganization
of authority divided between the Labor Department and the
Treasury Department, applied its new and very broad definition
of fiduciary to the prohibited transaction rules in the tax
code, and these rules apply to IRAs.
The effect of this was to make advisor compensation that is
legal under securities laws illegal under the tax code, and the
Department of Labor then created an exemption, called the Best
Interest Contact Exemption, which permitted some of that
securities law compensation to remain legal, but only if the
financial institution and the advisor agree to an ERISA-like
fiduciary standard of care and to being sued in State court in
class action litigation.
So, in short, the Department in this regulation is forcing
IRA advisors to accept a fiduciary standard and legal remedies
that Congress affirmatively chose not to require, all in the
name of Congressional intent.
Now, whether you agree with the Department of Labor that
IRAs should be treated more like ERISA plans or not is
irrelevant for the purposes of this hearing. I think the issue
should be that only Congress should overturn the prior
judgments of Congress, not a Federal agency through a
convoluted misapplication of its regulatory authority.
And, further, as this Committee's report amply
demonstrates, the Majority report the Chairman previously
entered into the record, the Department did not follow the
requirements of the Executive Orders (EO) and the Office of
Management and Budget (OMB) guidance governing the proper
development of Federal regulations, the cost estimates and
considerations of regulatory alternatives. E-mail exchanges in
that report between the SEC staff and Labor officials revealed
that the Department of Labor at the proposal stage refused to
fully consider some of the alternative regulations on the
grounds that doing so would be too time consuming. The staff at
the Treasury Department raised concerns about whether the
Department's use of this authority was, in fact, consistent
with Congressional direction in the rule.
And the final rule continues to have unrealistic cost
estimates, such as assuming that legal counsel that comply with
the new rule will cost, on average, $134 an hour, which I think
if you have gone out and priced legal counsel, particularly in
a specialty area like ERISA, is a little bit underpriced.
They further estimated that it would take 10 minutes of one
lawyer's time to make certain disclosure changes, on which
liability under a class action in State court might hinge. I
assure you, it is going to cost more than $22.33 to analyze
that particular provision for anyone complying with this rule.
To conclude, as I described in more detail in my written
testimony, I think the Committee should consider consolidating
these fragmented requirements, some of which are in Executive
Orders, some of which are overseen by OMB, some of which are in
the law, to engage in a comprehensive legislative process that
would make valid economic analysis and other essential elements
of this process enforceable.
Thank you very much for the opportunity and I look forward
to any questions.
Chairman Johnson. Thank you, Mr. Campbell.
Our next witness is William Kovacs. Mr. Kovacs is the
Senior Vice President for the Environment, Technology, and
Regulatory Affairs at the U.S. Chamber of Commerce. Mr. Kovacs.
TESTIMONY OF WILLIAM L. KOVACS,\1\ SENIOR VICE PRESIDENT,
ENVIRONMENT, TECHNOLOGY, AND REGULATORY AFFAIRS, U.S. CHAMBER
OF COMMERCE
Mr. Kovacs. Thank you, Mr. Chairman, for inviting me to
testify on The Administrative State: An Examination of Federal
Rulemaking.
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\1\ The prepared statement of Mr. Kovacs appears in the Appendix on
page 110.
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Before beginning my testimony, I would like to thank the
Committee for its bipartisan passage of the Federal permit
streamlining legislation last year and for Chairman Johnson,
Senators Portman and McCaskill, for their leadership on the
effort.
On the Waters of the United States, the Chamber greatly
appreciates the efforts of Senator Heitkamp, a consistent
leader on the effort, she has put forth in S. 1140 a very
practical and workable solution to the Waters issue.
Now, turning to examining Federal rulemaking, how Federal
regulations are developed by agencies should be a bipartisan
priority for Congress so as to ensure that the legislative
powers that Congress delegates to the agencies are used to
achieve Congressional intent.
Controlling Federal agencies has been a challenge to
Congress since the first agency was created in 1887. To
circumscribe the legislative powers of agencies, Congress
enacted the Administrative Procedures Act in 1946, and it has
not been amended since then, to ensure fairness to affected
parties by allowing them to test the soundness of an agency's
proposal through exposure to public comment and to develop
evidence in the record to support their views so that you can
have clear judicial review.
Unfortunately, due to the broad laws passed by Congress,
the APA's informal rulemaking process has morphed into a
process that allows agencies to issue very expansive
regulations that are well beyond anything Congress intended.
And, with the courts granting considerable deference to the
agency decisions, agencies avoid the stringent judicial review
that is required by an independent agency and the Constitution.
The consequence of this is regulations like WOTUS that are
far broader in scope than Congress ever intended. Yet, these
regulations are imposed by agencies with little effort.
Legislating is hard work, but agencies can legislate with
little work.
In the WOTUS rule, the Environmental Protection Agency
(EPA), under the pretext of clarifying a definition, added
several new definitions, unintelligible definitions, to
existing definitions, thereby producing a rule so confusing and
all encompassing that the agencies could bring their
jurisdiction to nearly every water feature and associated land
under its jurisdiction. In essence, EPA turned itself into a
national zoning board.
The WOTUS rule has resulted in such uncertainty that 30
States and many stakeholders have filed lawsuits in 12 Federal
District Courts and eight Federal Circuit Courts.
EPA produced this unworkable rule by simply ignoring the
procedures Congress had put in place for years and decades.
They failed to evaluate the impacts under the Unfunded Mandates
Reform Act (UMRA). They failed to look at the Information
Quality Act (IQA). They ignored the Regulatory Flexibility Act
(RFA). And, they failed to examine and do the analysis on job
impacts for almost 40 years.
Had EPA followed Congress' direction, it would have learned
that the States, not EPA, implement 96 percent of EPA's
delegated programs, and that by placing more and more of these
massive regulations on the States without any new funding, it
is straining the implementation, and that is really crucial,
because if they are implementing 96 percent and in a 6-month
period of time EPA put on ozone, Waters of the U.S., and clean
power, that is amazing for a group of individuals who are not
getting any more money than they got literally 20 years ago.
EPA would have discovered, also, in the Waters of the
United States, that counties--this was a point totally ignored
by the agency, because they said we do not have to do unfunded
mandate reviews--that counties that build and maintain almost
half the roads in the United States, and under WOTUS, all of
these counties, just to move dirt along the thousands of miles
of roadside ditches that WOTUS considers tributaries, they are
going to need a permit. And a dredge and fill permit costs
about $150,000 per permit.
So, moreover, the Government Accountability Office (GAO)
then found that the millions of EPA's alleged supporters were
the creation of social media, which was a violation of the
anti-lobbying statute.
Here is the challenge for Congress. You cannot look at
every rule. You have to preserve the efficiency of the informal
process for the vast bulk of the 4,000 rules a year. But, for
those rules that are extraordinarily complex and costly, and
there are not a lot of them, the agencies must be required to
do the extra homework to consult with the various parties. And,
again, I do not want to keep on referring to S. 1140, but it is
one of the requirements and it is very clear, and that is so
important to getting the rule right.
The agencies, when they are doing this, they need to ensure
that they are going to do the extra work, but one of the bills
that is before this Committee, S. 2006, the Regulatory
Accountability Act (RAA) introduced by Senator Portman and
referred to this Committee, really strikes that balance. The
House has passed it four times and it is really time for the
Senate to begin taking up this, because what it does is it
distinguishes between the 3,700 regulations that basically keep
society running and the five to 50 regulations that really
cause problems, and it is so important.
And, what it does is it establishes a clear process for the
agencies to follow and clear procedures that the courts can
review. It requires greater transparency, more homework by the
agencies on complex rules, discussions with impacted parties,
and understanding of the impacts of unfunded mandates, and a
mechanism that allows the public to question the agencies to
ensure that Congressional intent is achieved. I recommend you
looking at this bill in any way.
Thank you for allowing me to testify today and I would be
glad to answer any questions.
Chairman Johnson. Thank you, Mr. Kovacs.
Our final witness is Robert Weissman. You have a pretty
short bio here. You are the President of Public Citizen. Mr.
Weissman.
TESTIMONY OF ROBERT WEISSMAN,\1\ PRESIDENT, PUBLIC CITIZEN
Mr. Weissman. Thank you very much, Chairman Johnson and
Members of the Committee. My written testimony goes into some
detail about the three case studies of this hearing. My oral
remarks will be focused more generally on the regulatory
process itself.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Weissman appears in the Appendix
on page 141.
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I wanted to make three points. The first is that although
people focus on process all of the time, really underlying the
thinking about process is some views about the benefits and
costs of regulations themselves. And, so, I think we really
should have as a starting point a recognition that regulation
has made our country stronger, safer, more secure, cleaner, and
healthier. It has made our economy stronger. It has reduced the
risk of financial risk when regulations were properly
maintained. It made our food safer, our cars safer. It made it
easier to breathe, improved children's brain development,
empowered disabled persons, guaranteed a minimum wage, and far
more.
When there are serious efforts to try to weigh the costs
and benefit of regulation, it is a problematic exercise, but
the best effort by far is from OMB, which uses very
conservative accounting methods for benefits. It finds, at a
minimum, benefits outweigh costs by 2-to-1, and maybe by as
much as 15-to-1, consistently across time, across
administrations.
Chairman Johnson, you mentioned the $2 trillion figure for
cost. I think if you examine the studies that make those claims
in more detail, you will find that they are not credible
studies. I am happy to discuss that further.
Costs, it turns out, are regularly and routinely overstated
by industry for understandable reasons. But, if we look back
historically at most of the most severe claims about costs of
impending regulation, it turns out retrospectively that the
apocalyptic claims did not come true, for the environmental
area, worker health and safety, a vast array of consumer
protection. Many of these are detailed in my written testimony.
Additionally, there is no good evidence that regulation
contributes to job loss. Before ending its survey for budgetary
reasons, the Department of Labor collected information on why
employers laid people off, and they rarely referenced
regulation as the reason.
Finally, in terms of thinking about benefits and costs of
regulation, we should recognize the cost of regulatory failure.
And if we are thinking about the economy at all, the most
significant fact of our recent time, or even in the last 70
years in the economy, is the collapse in 2008. There is no way
to understand what happened, whatever your accounting of it is,
there is no way to understand that as anything but the result
of a regulatory failure. The cost to the economy was on the
order of $20 trillion, far exceeding any plausible cost of
regulation.
My second point, although I think it is important to
understand the benefits of regulation, and the benefit as
opposed to cost, there certainly are severe problems with the
regulatory process. I think the number one for any of us
involved in the rulemaking process is extended and unreasonable
delay. Those delays have very real costs both in accruing the
benefits of regulation and in denying businesses the certainty
they need to make appropriate investment decisions.
A bunch of case studies in my written testimony. Just to
quickly reference two, Congress in 2008 passed a law requiring
auto makers to install backup cameras or equivalent in their
automobiles. You all set a statutory deadline of 2011 to do so.
The Department of Transportation (DOT) failed to meet that
deadline again and again and again. Only in 2014, after a
lawsuit that my organization initiated, did the agency finally
establish a deadline, and we will now in 2016 now have
mandatory backup cameras going forward. The cost of that delay
is hundreds of lives, mostly children, and tens of thousands of
injuries that could have been averted.
My second example, in the area of interest to many on this
Committee, is oil trains, where the rulemaking process has been
appallingly slow. Members on both sides of the aisle have
complained about it, and that is not just an accident because
the agency is inept. It is because of the rulemaking process
itself.
A second area of concern is weak enforcement. If we have
existing rules, they ought to at least be enforced properly.
And a third area, which I will just rush through because I
am running a bit low on time, is the use of cost-benefit
analysis moving beyond as an analytic tool but to the
decisionmaking criteria has led to an industry slant that is
now, I am afraid, characteristic of the entire rulemaking
process and itself has infiltrated the judiciary.
My third and final point, this Committee has been a welcome
exception to much of the partisan divisiveness over the
regulatory issue, but I do think there are areas of common
ground for this Committee and others to explore.
The first thing, in my view, should be the failure of
agencies to adhere to statutory mandates. If Congress gives a
deadline, the agencies ought to take that seriously. They do
not, and no one in Congress should accept that.
Second, there is a huge problem in a number of agencies
with revolving door, people going into agencies, out of
agencies, and into regulated industry. I think that is an area
where there can be common ground. I know there is interest on
that issue in this Committee.
The third area to look at would be proper regulatory
enforcement. As I mentioned, we have--and partly it has to do
with regulatory budgets, but agencies are not able to enforce
the law properly.
And as a final point, I think there ought to be more
attention to how regulations can advance the interests of small
business and especially promote market competition. Markets do
not actually just happen on their own. They require appropriate
rules. And in the absence of intervention from the government
to assure fair market competition, we see too many oligopolies
and monopolistic practices in the marketplace.
Thank you very much.
Chairman Johnson. Thank you, Mr. Weissman.
First of all, nobody, I think, argues that you do not need
regulations, or government, it is a matter of over-regulation,
regulations that create a great deal of uncertainty, and that
is--what is happening right now is this massive government is
flooding the zone and it is almost impossible to comply with
everything. There was a book written, what is it, Three
Felonies A Day. You end up not a Nation ruled by law when you
have so many laws, so complex, enforced at the discretion of
prosecutors and regulators. I mean, again, it creates such a
high level of uncertainty.
For example, with the net neutrality rule, it is dampening
investment. It is a real concern. We saw over-regulation in
Europe, investment in the Internet declined.
Professor Turley, I want to talk--because you were exactly
right. Congress has given away its authority in so many areas.
Here is an example, and I realize these numbers are always
subject to dispute, but it gives you some indication. When
Obamacare was passed, there were 380,000 words--I use words,
because page count is different. Dodd-Frank was 368,000 words.
Now, these are not exact numbers, so a caveat when I get
PolitiFact checked on this. Obamacare now is approaching 20
million words. Dodd-Frank is somewhere around 15 to 16 million
words.
Who is writing that? It is certainly not Congress. So,
Congress passes frameworks and basically, for a host of
reasons--you mentioned the Chevron decision--just giving all of
the authority to the agencies. It is giving it away. And, of
course, the agencies have definitely accepted it.
So, I want to talk a little bit about--you talked about the
Administrative Procedure Act, which is supposed to try and set
up a process for rulemaking that involves the private sector.
What can we do to strengthen it, because if we do not catch it
on the front end, the legal system is the only recourse, and I
want to talk a little about that. But, let us talk about what
we need to do on the front end, maybe at the Administrative
Procedure Act, to prevent this type of fourth branch of
government taking over this Nation.
Professor Turley, can you speak to that.
Mr. Turley. Thank you, Mr. Chairman. I think that the two
things that the Senate needs to keep in mind is that, first of
all, the APA was never designed to be an alterative to the
democratic process. It was never designed for that function,
but it is functioning that way. It is functioning as a
governing system. People elect you. They believe that you are
the ones that write laws. But, I think we all recognize that is
really not the case. You actually write a very small fraction
of the laws that affect most people.
So, partially, which I believe is important, is that this
Congress has in the past tried to pull back a more active role
when it comes to major regulations. I think that is a very good
idea, as I say in my testimony.
The second thing is I think the Congress has to be honest
about what is sort of a noble lie. The APA talks about the
public participating in the regulatory process. If you take a
look at some of our recent controversies, like the one that was
just heard in the Supreme Court involving immigration, the
administration asked for changes from Congress. Those changes
were not given by Congress. And then the administration just
declared them general statements of privacy and not only
ordered them unilaterally, but did not even satisfy the notice
and comment period.
And if you take a look at the net neutrality controversy,
no matter how you feel about net neutrality, you cannot
possibly believe that that is a good process for the American
people. This is a huge issue involving billions of dollars.
Millions of people are relying on it for communications. And
yet it is this opaque system where rules change in short order
and you can see the total disregard of the notice/comment
period under the APA.
So, I think that the most important thing for this body to
recognize is regardless of what comes out of this, the APA is
not functioning the way it is supposed to function and this
body needs to be more active in the lawmaking part of this
administrative state.
Chairman Johnson. So, again, kind of new on the scene, here
for 5 years just watching this, not being an attorney, I am
seeing the APA as a potential check because it is being
violated. It is being ignored. Tell me how effective it has
been in terms of court challenges when the administration
violates it.
And how long it takes.
Mr. Turley. Well, I do not mean to laugh, but if it was not
so sad, it would be a laughing matter. I mean, as a litigator,
going forward on an APA claim is truly a quixotic endeavor. The
agencies require very little for agencies to satisfy the APA.
You have to allow for the notice and comment period. That is
what was so shocking about United States v. Texas is that they
were actually circumventing what is the least burdensome
requirement in government.
But, in reality, agencies are often criticized for reaching
a conclusion and then sort of having this sort of Potemkin
village of the appearance of participation and then issuing
largely those same results.
In my view, the APA serves very little in terms of public
benefit, but when you go to court, as long as they check off
those procedural requirements, which are a minimum, you are
pretty much done. I mean, the courts do not really get into
this very much.
Chairman Johnson. So, if you get an injunction against a
particular executive action because you have not followed APA
structure, you are really ignoring the will of Congress,
basically, is that right?
Mr. Turley. Yes.
Chairman Johnson. Mr. May, I want to talk a little bit
about the independence of an agency and the FCC. Now, in our
report, it is pretty shocking. Supposedly an independent
agency. You take a look at the timeline of where the FCC was
going in terms of their open Internet rule and how they turned
on a dime in reaction to President Obama's statements on where
he wanted to go with the regulation of this. Can you talk about
how important it is, having been part of the FCC, to actually
have an independent agency independent of the administration?
Actually, by the way, the FCC is accountable to Congress, not
the administration.
Mr. May. Thank you, Senator Johnson, and thank you, by the
way, for the report that the staff issued, because I know it is
not easy getting that type of information, I assume, from the
Commission, with those e-mails. But, they were useful and the
report was very helpful and illuminated----
Chairman Johnson. It is a little bit like pulling teeth.
Mr. May [continuing]. Well, I have tried to pull a lot of
teeth over there in the last several decades. But, anyway,
thank you for the report.
The question of the agency's independence, like a lot of
these things, some of the lines are not hard and fast where you
could draw a bright line. And to be honest with you, this
process was troublesome, as I am going to explain. We are
waiting for a D.C. Circuit decision that could come down any
day on the FCC's net neutrality rulemaking, so I am a little
reluctant to say exactly what the FCC did as, unlawful, because
maybe, unless the Supreme Court comes up, who knows what the
court will say.
But, here is the problem in this particular case. First,
the way that the President intervened was much different and
more high profile than anything that did occur, previously, in
my experience, long experience. And by that, I mean, typically,
the administration would submit comments during the comment
period, this is our view, or write a letter, and there is
nothing improper about that in terms of compromising the
agency's independence.
In this case, what happened, the President released a video
and a statement and it said in there, there is a bit of a wink
and a nod, I know you are independent, but I am specifically
asking that you take this course of action, which was the title
to the public utility regulation. And then there is, as you
know from what you uncovered, the staff had already prepared at
Chairman Wheeler's direction a draft notice which went in the
other direction, the more light handed regulation, just to
simplify it.
Well, within days, they were directed to start drafting
another notice which did specifically what President Obama
asked them to do, and they did not issue a further notice
seeking public comment.
Now, another thing that makes that problematic is that in
the original Notice of Proposed Rulemaking (NPRM), which had
probably 500 questions in the notice, there were only two
paragraphs that were exploring--that asked about taking this
Title II approach and, gazillions of others about the other
approach.
So, when you put that all together in terms of the context
of what happened, it does give the appearances that the
agency's independence was compromised, and without doing an
administrative law lecture here, the idea of these independent
agencies like the FCC and SEC and the Federal Trade Commission
(FTC), as you know, when they were set up, it was to be--they
have multi-member commissioners, staggered terms, fixed terms.
All of that was to give them independence that is different
from the Executive Branch agencies. The President can tell the
head of EPA to do whatever he wants them to do. If they do not
do it, he can fire them. That is not the case with the FCC's
Commissioners.
So, when you have the context and you put it all together,
what it does, I think, at bottom, as I said in my testimony, it
jeopardizes the appearance that the FCC is independent and is
acting on the basis of political considerations rather than on
the basis of, its expertise, which as Professor Turley knows,
of course, was the premise for establishing these agencies.
Chairman Johnson. Well, it is pretty obvious they were not
acting independently.
You said it is very difficult, it is like pulling teeth to
get information. We have yet to get that draft open Internet
order----
Mr. May. Can I just say one thing?
Chairman Johnson [continuing]. Or that draft Public notice.
We cannot get it. Kind of, why is that?
Mr. May. Just very quickly, I mentioned the high profile
nature of this intervention. What is disturbing, too, is that
the President also intervened in the same way in what is
referred to as the municipal broadband preemption proceeding,
and just last week, there is this very controversial
proceeding, a lot of problematic areas about set-top box
regulation, where the market seems to be working, really, fine.
It is very dynamic. And he came out and essentially took a very
specific position in another high profile way. And, so, I am
worried if we see this become the pattern or the norm rather
than historically what happened was he would file comments
through the National Telecommunications and Information
Administration (NTIA) in the FCC's proceeding.
Chairman Johnson. Well, one thing I entered into the record
here, this 1991 Office of Legal Counsel letter on ex parte
communication. I mean, here is the quote. ``White House staff
members should avoid even the mere appearance of interest or
influence, and the easiest way to do so is to avoid discussing
matters pending before the independent regulatory agencies with
interested parties and avoid making ex parte contacts with
agency personnel.'' I would say President Obama kind of talked
about it. Senator Heitkamp.
OPENING STATEMENT OF SENATOR HEITKAMP
Senator Heitkamp. Thank you, Mr. Chairman.
I would suggest that we be a little careful on how we
define ex parte contacts, given that every one of us comments
to agencies and calls them in during their regulatory process,
whether it is DOL or whether it is EPA. So, we need to be a
little careful, because if you are worried about ex parte
contacts, that could be not just the administration----
Mr. May. But there is a specific----
Senator Heitkamp. I have a question. Mr. Kovacs, thank you
so much for your comments, because I think that you hit the
nail on the head, that this is an abrogation. This is Congress
saying, these are too tough for us to deal with. We cannot find
common ground, so we would rather rail at the administration,
we would rather rail at the agencies that draft these rules,
which, oh, by the way, they are going to reflect the politics
of whoever sits in the President's chair who appoints the
person who sits at the cabinet table.
So, we own this problem, in my opinion. We do not do
things--and I go back to judicial review, and you said very
seldom does this happen. Waters of the United States is a
failure of judicial review to provide clear guidance. They have
rejected the EPA definition not just once, but twice after very
costly litigation.
So, if I am going to solve this problem, what I am going to
do is I am going to legislate. I mean, that is where we get
into all of this discussion about railing against
administrative agencies like we have no control.
And, I would say, when we start out a sentence with,
because of regulation, we are safer, regulation is done at the
direction of the Congress. It should be because of legislation,
we are safer, and we have not done what we need to do to be
clear in legislation. Therefore, it takes hours and days, and
you can criticize the length of the process, but I have a
certain sympathy for agencies who cannot seem to get that work
done when we have given them no resources to do it and these
are such tough issues, we have dodged them, whether it is an
issue of regulation, whether it is Waters of the United States.
And, so, there are two issues here. No. 1, dealing with, I
think, Mr. Kovacs, you talked about that small percentage of
rules which really lead to a lot of the controversy and really
having Congress take a greater role in analyzing those, but we
should be here talking about APA changes, and we have had a
number of discussions in the Subcommittee about what those
changes should be, whether it is retrospective rulemaking,
taking a look.
We have some great legislation. Senator Portman has some
great legislation on independent agencies. We think that we
have done a pretty good job taking a look at appropriate pre-
warning, whether that is Advanced Notice of Proposed
Rulemaking, which has been criticized by the left because
somehow they think that they do not have access to the same
process, and depending upon who is sitting in the White House,
we get different perspectives about what the overall process
should be.
I, personally, believe we need to amend the APA. We need to
have a discussion about Advanced Notice of Proposed Rulemaking
on major rules. We need to talk about what independent agencies
should be required to do in terms of cost-benefit analysis, and
for the life of me, I do not know--we are in a big debate about
how we say that, right? I mean, that is the absurdity that we
are at here.
And, so, on all of these issues, if we could find common
ground, I think that--and set a new path for amending the APA
in areas where we can all agree, which I think there are, but
we way too often criticize regulatory agencies when the
criticism really should be back at Congress for failure to
respond.
So, if you had to list the ten rules from your perspective,
Mr. Kovacs, what would be those ten rules that you think
Congress should legislate a solution to?
Mr. Kovacs. Well, you can take--here is what the difficulty
of taking ten rules, and there are. I could go through ten.
Senator Heitkamp. Yes.
Mr. Kovacs. You go through Waters of the United States, you
go through clean power, net neutrality, set-top boxes. I mean,
we probably----
Senator Heitkamp. Yes. DOL----
Mr. Kovacs [continuing]. If we sat around--DOL--we would
probably all come to an agreement on what they are.
You hit the nail on the head when you said Congress needs
to amend the APA. That is the bible of the administrative
state, and you need to, frankly, tell the agency, you have to
check off this box, this box, and not just check off. If it
says you have to talk to small business and see if they are
hurt, they really have to talk to them. They cannot just check
it off and say they are not here.
The other thing is, by doing so, you give the court clear
standards for review, which the court does not have. So, right
now, the court is looking at two or three million pages of a
record, and in that record they are saying, we do not know what
the science is. We do not know what the economics are. We are
going to give deference to the agency. It is really up to
Congress to say, here is what we want the agency to do to get
to this, because after all, the goal of all of this is to get a
rulemaking that implements what Congress wants done. And then
the court needs to be able to look at that in a very strict
way, not just with general deference.
And that alone for those 5, 10, 15, 20 rules, you really
only probably get five or six a year, and the agencies can
handle that, because they have 4,000 rulemakings and you are
asking them to do more. And the best example is, I think it was
about 10 years ago when the Occupational Safety and Health Act
(OSHA) did ergonomics. The OSHA system is something you should
really look at, because their on-the-record rulemaking, some of
the opponents of it would say, well, it takes too long. They
did the entire ergonomics rule, which is a multi-billion-dollar
rule, they did it in less than a year. They did it faster than
if you were going to have--if you were going to go through the
informal process where you take in millions and millions of
comments.
But, the other thing that is really amazing about it is
they give a record that a court can review. Courts understand
findings of fact and conclusions of law and the agencies have
to give it to the records, and that is--Senator Portman's bill
does a lot of that, to get you to that point where a court can
actually review it.
Senator Heitkamp. Yes. I think the interesting thing is
that if we had a Republican administration, the dialogue might
completely shift between what the Republicans are saying and
what the Democrats are saying, and we cannot have that kind of
political roller coaster based on who is sitting in the White
House. We have to have rules of the road. Policies will change
based on who is running the Congress. Policies will change
based on who is the President. But, there should be a baseline,
and I think we have lost, I think, a lot on both sides feel
that that baseline has turned into quicksand. We do not know
what the rules are anymore and we do not really have an
independent place to go to get evaluation and analysis.
And, so, we are going to continue to work on systemic
changes. I am going to continue to work on legislating on
Waters of the United States, because I think, ultimately,
after, what, at least 20 years of litigation in the Supreme
Court, we ought to take some responsibility for the definition.
But, I really believe that this should not be as partisan
as what it is, that we really ought to have an opportunity to
have a broader conversation, and I am going to keep pushing for
that here.
Mr. Kovacs. Thank you.
Senator Heitkamp. And, really appreciate your testimony. We
really appreciate the work that you have done, the effort to
kind of analyze this from, I think, a politically neutral kind
of standpoint, because to me, this is not a political issue.
This is about what are the rules, how are we going to evaluate
whether people are complying with the rules, agencies are, but
how are we going to better evaluate Congress's failure to
provide greater guidance in all of this, thereby enabling
agencies to legislate--in fact, not just enabling, requiring
agencies to legislate. And, so, these are problems that we
should not look at through a political lens.
So, thank you, Mr. Chairman.
Chairman Johnson. Thank you, Senator Heitkamp.
And, by the way, I am surprised that it is partisan. I
mean, let us face it, every one of us who serve in this body
meets multiple times a day with groups coming in, business
groups, universities. They all complain about the same thing
and they are all asking for relief from the regulatory burden
here. So, it surprised me we could not put together our
relatively modest little package of regulatory reform bills,
have a process of subtraction as opposed to addition, but we
were not able to do that, so let us continue to work with you
and Senator Lankford and your Subcommittee to make this a
nonpartisan issue and actually get some reform. Senator
Portman.
OPENING STATEMENT OF SENATOR PORTMAN
Senator Portman. Thank you.
Now that she is leaving, I can say good things about her.
[Laughter.]
As a Republican, she might not want me to say, but what
Senator Lankford and Senator Heitkamp have done in the
Subcommittee is extraordinarily good work, in my view. One of
the things Mr. Kovacs has spent a lot of time on, as you know,
is the Regulatory Accountability Act and how do we reform the
APA for the first time in 70 years. I mean, think how the world
has changed since then, how much more complex the issues are we
have to face.
And the reality is, yes, Congress has not legislated in a
way that gives the agency the guidance that they need, and it
is partly because of the complexity of the issue, whether it is
with regard to net neutrality or Waters of the United States or
the fiduciary rule or health care, and as a result, we need to
update the APA. I mean, it is well meaning at the time, but I
do think we have the right balance with regard to the
Regulatory Accountability Act. It is bipartisan. It has been
from the start. It has passed the House a few different times
already. And it is the one broad sweeping bill.
I want to thank Senator Johnson, because as Chairman of
this Committee, he has tried to push these regulatory issues
where we can find common ground, not to say we are going to go
with the Regulations from the Executive in Need of Scrutiny
(REINS) Act, even though there are lots of Republicans who
support that, but how do we find something that can actually
find common ground, and I think the independent agency part of
the Regulatory Accountability Act is one of those relatively
small bills that we should be able to get done, even in this
environment. We have not been able to yet. But, I do think that
the Regulatory Accountability Act is going to help to solve
some of these problems.
And, I would just ask you an interesting question right
now, because we are in the middle of all of these very
troubling rules. I was on a dairy farm over the weekend in Ohio
talking about Waters of the United States. You can imagine this
dairy farmer, who is struggling to try to keep the narrow
margins that he has, looking at his ditch that only fills up in
the spring with water and he is wondering whether he is going
to have these costs imposed on him if he wants to develop that
area or put a bridge across it or whatever. The EPA itself, I
think, has said that the average cost is going to be $155,000
to alter a ditch on someone's property. He does not have that
$155,000.
But, in your written statement, Mr. Kovacs, you talked
about that the real victims of the Federal administrative state
overreach are not just these individuals like this dairy
farmer, but also our States, because the States are being asked
to implement sweeping changes without their consultation or
support.
As you know, the Regulatory Accountability Act, which is
S. 2006, you talked about, does not just update it. It ensures
agencies are doing the legwork, have the transparency, have the
meetings for the larger rules. As you said, there would be the
kind of scrutiny you would expect to have with rules that have
a greater impact at a public hearing, so there is a chance for
a public administrative hearing to have these kind of points of
view expressed.
Here is my question for you. If the Regulatory
Accountability Act had been in law at the time when the Waters
of the United States was going through the rulemaking process,
do you think the rule would look different than it does today?
Mr. Kovacs. Well, it certainly would look different, just
because of what the RAA would require. First of all, it would
incorporate all of the provisions in the Executive Order, which
brings in the cost-benefit analysis, the cumulative impact.
Second, it would bring in the concepts that are in the
Information Quality Act, which gets to the connectivity of
water. It would require that they go through and set up the
Small Business Regulatory Enforcement Fairness Act (SBREFA)
panels, which are so important, because they actually bring in
and talk to businesses. It would actually require that they
pull in the jobs analysis that the agency has been required to
do for 45 years and has not done.
But, more important, what it does is it sets up the
specific issues that a court must review. So that when EPA
right now says there are no unfunded mandates because the State
is going to do it and it is only a definitional change, check
the box, its indirect effect on small business, EPA checks the
box, the court is now able to review and say, did you do the
kind of analysis on Waters of the U.S. that you needed, and had
they talked to these various people, they would have talked to
the counties and the counties would have said, my God, you have
just made all of the ditches on the side of the road a
tributary and do you realize it is--according to the Corps of
Engineers, it is $155,000 per permit? Well, how many hundreds
of thousands or tens of thousands of miles are there of
ditches? That is just one example.
They would have talked to the small businesses. They would
have talked to your farmer and they would have said, well, we
have a problem. Maybe you are going to exempt farmers from the
dredge and fill permit, but do you realize when we apply
pesticides, we are actually doing a discharge under the Waters
Act. I mean, and they would have learned these things.
They went through the rule, saying it is a definitional
change and we are not changing anything, and so it would have
looked dramatically different, plus a better chance for court
review.
Senator Portman. I think you are absolutely right, and the
court would have been able to review the actual requirements in
the RAA, which would have given us the basis, should the
administrative agency overreach, to be able to have a better
chance of overturning it.
On the net neutrality rule, and I guess, Mr. May, you are
the expert on that, I think it is another great example where
if you had the RAA in effect, or even just the independent
agency rule in effect, you would have a very different result.
And, these numbers, but despite the President's Executive Order
13579, where he said that independent agencies should comply
with the Federal agency requirement to propose and adopt
regulations only upon reasoned determination that its benefits
justify its costs, despite that, independent agencies often
still do not do any cost-benefit analysis for major rules.
In fiscal year 2014, only one major rule out of 17 issued
by independent agencies included a complete monetized cost-
benefit analysis--only one. And if you look back over the last
3 or 4 years, the record is no better.
So, my question to you is sort of the same. This is an
independent agency that did not follow this. If they had
undertaken a more thorough cost-benefit analysis, what would we
have ended up with? Would we have ended up with a better rule?
Mr. May. The short answer is, yes, we may have ended up
possibly with no rule, or almost no rule. There are aspects of
it which might have still some relevance.
But, I think to illustrate this in a way that paints the
picture, in the final order, the FCC--it was all put in
conjectural terms, what might happen, could happen as opposed
to any type of rigorous analysis. We counted over 250 times in
the order where the FCC said this could happen or that might
happen, as opposed to detailing evidence of incidents, other
than a few. There are about four acknowledged instances that
happened that could be net neutrality-type violations that were
quickly remedied.
So, essentially, I do not think anyone argues there was a
cost-benefit analysis. Presumably, had there been one, the FCC
would have determined that the rule was not needed, or perhaps
this FCC might not have, but then a court, at least, would have
had a record that would have been one that would have allowed
it to review, really, the costs and benefits.
Senator Portman. Yes. And, judicial review of everything on
the private sector side, and yet with these rulemakings, not
having that judicial review is obviously a huge problem right
now with the overreach.
I am going to submit some more questions for the record to
you, Mr. Campbell, because I agree with you on the fiduciary
rule, and I also, sadly, having been at the Department of Labor
and seeing this, you understand the impact, which is going to
be keeping small businesses from having a plan. I think this is
overreach into the IRAs. If you look at where their
jurisdiction is, typically, it has been with regard to plans,
company plans, and I think there are other concerns about the
final rule, as well, that I am very concerned about for low-and
moderate-income savers.
But, I will be submitting some questions to the record for
you. I hope you will be able to respond to those quickly and we
will be able to better get those out.
Mr. Campbell. I look forward to it and be happy to, sir.
Senator Portman. Great. Thank you, Mr. Chairman.
Chairman Johnson. Thank you, Senator Portman. Senator
Ayotte.
OPENING STATEMENT OF SENATOR AYOTTE
Senator Ayotte. Thank you, Chairman.
I want to thank all of you for being here today. I, too, am
an original cosponsor of the Regulatory Accountability Act. I
would love to see us pass that and the REINS Act and many other
efforts to reform this process.
But, I have to ask, where do we fall in this, because it
seems to me that we pass a lot of laws and we give the
discretion to the agencies. I can think of many examples. I was
not here when the Affordable Care Act (ACA) was passed,
certainly, but there are more ``Secretary shalls'' in that.
But, that is not the only piece of legislation that we can get
that example. There is almost every major piece of legislation,
we defer major decisions to these agencies.
So, do we not have a part in this? Should we not be looking
at more tighter drafting of the statutes that we put forward?
Mr. May.
Mr. May. Yes. Now, of course, it is true--I think Mr.
Kovacs said, Congress cannot legislate all of the details of
all regulatory programs. That is true. But, you can be more
specific in some cases. I am going to give you an example from
the communications area that I practice in. I know you are
familiar with it, as well, from your Commerce----
Senator Ayotte. Commerce Committee, yes.
Mr. May [continuing]. Committee perch. But, the
Communications Act, as you know, delegates to the FCC the
authority to act, ``in the public interest,'' actually 110
times in the Communications Act. You can see I have done a lot
of counting of these things. But, to my way of thinking, going
to Professor Turley's point, number one, if I were on the
Supreme Court, that would be unconstitutional because it is a
meaningless delegation to go act in the public interest, but
the Supreme Court has----
Senator Ayotte. Fairly broad, as you can imagine.
Mr. May. Yes. I mean, the real definition of that is it
means whatever three of the five FCC Commissioners say it does
on any given day, and that is the truth.
So, here is a concrete example, because I do have my
communications expertise, and then I want to make one
administrative law point. So, there is talk about rewriting the
Communications Act, and when you think about that and when that
is ultimately done next time, the Congress should specifically
in the legislation include a requirement that FCC decisions
should take into account marketplace competition and consumer
welfare. Now, that sounds--I mean, that is typically what you
are trying to figure out when you are thinking about
legislation, but in the Communications Act, you have the public
interest delegation rather than marketplace competition.
But, the other thing I would say, really, is that it is
important--so, Congress should legislate more specifically
sometimes. But, the bills like the Accountability Act and
things like that that at least focus attention on the major
rules of economic significance, how those are defined, I mean,
I think it is important that that type of legislation be passed
so that at least the rules with the major impact can, in one
way or another, receive more attention.
Senator Ayotte. Mr. Campbell, I know that Senator Portman
touched briefly on the fiduciary rule that has been issued by
the Department of Labor. The first reiteration of the rule also
included Employee Stock Ownership Programs (ESOPs), and I
helped lead the effort to get the ESOPs out of it because it
would have really undermined, if not destroyed, that model of
employee ownership. So, we were able to get some traction there
when they reissued the rule.
But, on the latest version, I share many of the concerns
that Senator Portman has raised, and, in fact, last month, the
Senate Banking Committee held a confirmation hearing for two
SEC nominees and both nominees commented that they were
concerned that the fiduciary rule would make it harder for
American families to plan and save for retirement. But, because
the rulemaking process, to a large extent, there have been lots
of comments submitted, and I have not just had this experience
with the fiduciary rule, but where you have a whole host of
comments that are submitted from a wide variety of stakeholders
and they seem to be pretty much ignored.
And we now, I think, also are seeing it with some of the
new rules that DOL has issued on overtime. I have nonprofits in
my community. Literally, my nonprofit community has been going
crazy, saying this is really going to hurt our ability to serve
our constituents.
So, I would like to get your comment on the fiduciary rule,
but what about this comment process in general, which seems to
be largely ignored, as far as I can tell. There is once in a
while where you can get a good example where they are taken
into account, but for the most part, I do not see the comment
period as--even when people legitimately participate in this
process--having a lot of interest from the agencies issuing it
really taking these comments in full consideration.
Mr. Campbell. Well, I think you make a very important
point, which is the power of an agency to proceed with its own
policy judgment is relatively unconstrained, provided they
check the boxes on the processes they go through, and one of
those boxes they check is we made an opportunity for public
comment. We looked at the public comments. We may not have
taken any of the public comments, but we did take them and we
did look at them. And, that is an important distinction between
actually being informed by them, learning from them and
adopting changes in response.
I think the fiduciary rule is a particularly egregious
example of this in how rapidly they went through this process
compared to the normal Department of Labor process for
considering comments. They closed out the comment period on
September 24 on the most ambitious regulation making the most
changes, I think, in the history of the agency. I think that is
a fair assessment of the scope of this rule. And, yet, by the
end of January, roughly 4 months later, they had completed a
final rule, adopted a final economic analysis, and sent it to
the White House Office of Management and Budget for review. I
do not see how they could have done a truly credible job of
considering those comments in that period of time given the
scope of the comments and the number of issues in that rule.
Senator Ayotte. Thank you, Chairman.
Chairman Johnson. Thank you Senator Ayotte.
Let me go right to what happens legally--I will go to you,
Professor Turley--when an agency checks the box, gets the
comments, potentially in some of these cases tens of thousands
of comments, and just completely ignores it. Does that set up a
legal challenge? Does that help them in any way, shape or form?
Or because of the Chevron decision, it does not make any
difference?
Mr. Turley. Well, I think that is--you put your finger on
the main problem facing citizens when they try to get
responsive action from agencies, is that they run into this
truck called Chevron. And, Chevron affords sweeping deference
to these agencies. The courts are not going to sit there and
say, did you really listen to them, or did you sort of listen
to them. As long as they went through the procedural
requirement, the courts removed themselves.
And, the courts have adopted standards which I find are
just completely unintelligible. The greatest example is that
the court has said that while Congress cannot delegate its core
authority to an agency, it can give directions as long as there
are intelligible principles. But, that standard is actually
unintelligible. There is no there there.
Chairman Johnson. Well, I was expecting Congress to do so.
[Laughter.]
Mr. Turley. And, so, what happens is that you get to these
courts and the courts will accept most anything as an
intelligible principle coming from Congress, including these
broad provisions that we talked about earlier with Randy, and
you get hit on both ends. They get huge amounts of deference
under Chevron and they also have these procedures that are very
easy to satisfy, but they give nothing to people in reality in
terms of consideration.
And, what is happening then is that the center of gravity
of the legislative process has moved into these agencies and
these systems are really a Potemkin village. They give the
appearance of listening to citizens, but these agencies have
the ability to dictate exactly what they wanted originally, as
long as they tell the courts, yes, we listened to them and it
turns out we were right all along.
Chairman Johnson. So, from what I have witnessed, it seems
like the main benefit of the comment period is if the public
floods an agency with comments and they are all pretty much on
the side against the agency, there is a political effect of
that, and sometimes agencies back off. But, when you have an
administration that says, I do not care, push through, there is
really no legal redress.
Mr. Turley. There is not, and one of the things I suggest
is that Congress can take on Chevron. I mean, Chevron, once
again, is being treated like it is a fixed part of our system.
It is not that old. And what preceded Chevron, the Skidmore
standard, was not particularly onerous for agencies, but it did
allow courts to take a serious look at what these agencies were
doing.
Congress actually can take measures to curtail Chevron, and
one of them is to get a handle on this non-delegation debate by
making it clear--I suggest a Chevron provision making it very
clear that courts are not to give that degree of deference in
various areas.
Mr. May. Could I add----
Chairman Johnson. Mr. May.
Mr. May [continuing]. A quick word. I do not know whether
Professor Turley will agree or not, and I do agree that taking
Chevron is good, but as a lesser included step, I think
Congress could say the independent agencies, like the FCC, are
not to be accorded Chevron deference even if the executive
agencies are not addressed, and the reason for that is when you
look at Chevron, the primary rationale for the Chevron decision
was that when Congress leaves an ambiguity, that you should
look to the administration and the President. I think the
Chevron decision refers to deference to the administration.
Well, in line with what we have been talking about, the
independent agencies, whatever their relationship to the
President, is not the same as the Executive Branch agencies and
there is a good argument that they should not receive the same
degree of Chevron deference. Elena Kagan, now Supreme Court
Justice, she in this law review article, long law review
article she wrote when she left the Clinton Administration, she
basically agreed. I have written two articles on this myself,
but she agreed that because the independent agencies are not
supposed to be subject to the same direction of the President,
they should not receive the same Chevron deference.
So, in my written testimony at footnote 27, I cite two of
my articles on this point about Chevron deference, and I do
think it is worth looking at that discrete issue.
Chairman Johnson. OK. Go ahead, Mr. Campbell.
Mr. Campbell. If I may, sir, I would say, though, that the
comments, while they have very little effect in blunting a
major policy or political view of an agency, do often have a
significant effect in changing technical application. So, it is
probably, in fairness to the agencies, the comment process is
still useful and still something that we certainly want to
preserve, because that does----
Chairman Johnson. When it is not ignored.
Mr. Campbell. When it is not ignored, which it typically is
not on purely technical matters, but those often are quite
important and would be expensive if they were done incorrectly.
The other point I would make is while I agree that Chevron
deference creates some significant concerns, I also think in
looking at this as a matter for Congress to consider, how would
you rewrite the law to address that, I would not want to create
the same problem in reverse with the judiciary. I would not
want to have the judiciary able to second guess all of these
decisions, as well, and replace an unelected, unaccountable
bureaucrat with an unelected, unaccountable judge. I do not
know that that is a good tradeoff, either.
Chairman Johnson. I think going to Professor Turley's
point, that it really ought to be Congress that kind of is the
melting pot in terms of settling some of these disputes. It is
a far more democratic process than an agency or nine Justices
of the Supreme Court.
Mr. Turley. Yes, and if I could add, and this follows up on
what Randy said, one of the things, I think, that this body
should seriously consider is also the city of Arlington case.
When we are talking about barring Chevron deference, one of the
more shocking things that has happened in the last few years
was the Supreme Court saying that an agency would get deference
even in interpreting its jurisdiction.
Many of us who have been critics of Chevron believe that
was really the rubicon, that no matter how bad it might get, an
agency cannot get deference in defining its own jurisdiction.
It would become a perpetual motion machine. And, that is
something I think Congress should make a priority, in
establishing that it is not delegating the authority to
agencies to make that type of decision.
Chairman Johnson. Mr. Kovacs.
Mr. Kovacs. Just to follow up on what has been talked
about, are comments worth anything, the application of
deference by itself is what allows the agencies overreach,
because they know the court is going to go along with them
unless they are absolutely crazy.
And, so, the advantage of amending the APA is that the
Congress can set out clear standards for what the agency has to
do as part of a rulemaking and the court has the ability to
understand what Congress tells them to do so that they can be
the kind of check on the agency power, because after all, in
the end of the game, it is the court that is going to be
looking at the record.
So, you need to do two things. You need to really, in my
opinion, you need to, one, give clear standards for how the
agency proceeds, what they need to do, whether it be principles
or not, and that helps the courts, because the courts are the
ones that apply the deference. So, it is not just Congress. We
are sort of beating up on Congress. But, it is Congress gave
enemies broad laws, but the court gave enemies deference. Both
the courts and the Congress walked away and said, let the
agencies do it, and both have to begin to getting reengaged.
Chairman Johnson. I have a couple other lines of
questioning, and one of the things I do want to do--just give
you one thing to think about--I do want to go through these
three examples, the costs and benefits, and Mr. Weissman, you
can kind of chime in, as well, because we have been not asking
you a whole lot of questions.
I want to quickly go back to Professor Turley, though. You
talked about giving deference to the jurisdiction of an agency.
Is that not really the definition of the Consumer Financial
Protection Bureau (CFPB)?
Mr. Turley [Laughing.]
Chairman Johnson. No, I am dead serious about that. I mean,
is that not a real problem with that particular agency, which I
think a lot of us would say is probably just an
unconstitutional agency because it has total deference over its
own jurisdiction?
Its own budget?
Mr. Turley. Well, I find it very troubling, and as you
probably know, the D.C. Circuit panel raised questions along
these same lines, of what a strange creature this is to find
within our system, where it seems to be not directly
accountable, even for in terms of budgetary requirements, to
any branch.
I find that deeply troubling. I do not have a dog in the
fight in terms of the underlying merits of the Board. But, as
someone coming from a constitutional standpoint, this is an
entire different species. The Framers would not recognize
creatures like this.
Chairman Johnson. I mean, what constraint does it have? I
know it has a name and it is supposed to be directed there, but
it can just about go anywhere, right, and there are no
constraints whatsoever by anybody.
Mr. Turley. Yes, and I think I would beat up on Congress a
little bit in this respect, and that is----
Chairman Johnson. Be my guest.
Mr. Turley [Laughing.] The thing is, members have been
playing with their own obsolescence for years. It is very easy
to create independent bodies to shove tough questions over
there, and when things go wrong, you can criticize it. And the
same thing is true with the President. It gives insulation to
politicians that the Framers did not want. The Framers actually
did not want you to be insulated in these respects.
And, so, that is why this whole system is becoming
something other than what was intended by the Framers, and it
is not a better system. I mean, that is what is interesting, is
it is showing all of the dysfunctional problems that the
Framers thought would occur.
And, when people say, well, this is an entirely different
government, a different reality, it is not. I mean, the Framers
were very familiar with giving authority to remote individuals.
They called it a monarchy. Now, we might have a technocracy,
but it is the same concentration of power and it is removal
from public influence and from public observation, and I think
that is what we are seeing.
Chairman Johnson. Let us face it, Congress has been giving
away its powers for decades. Power of the purse, you have two-
thirds of the budget off-budget. So, much of the discretionary
part is tied to mandatory spending, so the government shuts
down and somewhere about 10 percent actually shuts down.
Everything else just keeps moving forward. Advice and consent,
it comes--executive agreements, we do not say, no, this is
really a treaty. So, I am with you on that.
As a non-lawyer, I do want to continue down just the legal
ramifications of this and how the courts tie into this. I want
to talk a little bit about standing. You are aware of the fact
that I tried to sue this administration to overturn a rule from
the Office of Personnel Management (OPM), from my standpoint,
clearly violated the very clear language of the Affordable Care
Act in terms of allowing Members of Congress and their staff to
have an employer contribution into the plans purchased through
an exchange. I could not get standing.
Mr. Turley. Right.
Chairman Johnson. That is also a problem in terms of these
other laws. Sometimes, it is just very difficult to even get
standing to challenge. Can you just kind of talk about that
issue.
Mr. Turley. Well, I am glad you brought it up. For one
thing, it allows me to beat up on another branch, and that is
when I look at the dysfunctional state of Washington today, I
actually put the principal blame on the courts, not on the
Legislative or Executive Branches. The reason is the courts
have removed themselves from these disputes. Members like
yourself have serious separation of powers questions to raise
and courts say, I am sorry, we are just not going to let you be
heard on the merits. And the result, then, is it reduces the
two other branches to muscle plays. That is what we are seeing.
But, it is that because those two branches are trying to fight
for their institutional authority and no one in the court is
giving them their day in court, as was the case with your
lawsuit.
That is the reason for years I have argued that one of the
great solutions that we could see in our lifetime would be to
change standing, particularly to allow legislative standing.
Members of Congress have skin in the game. They have important,
particularly separation of powers, questions to raise. And I
think that the court has made an utter mess of this area.
The standing doctrine itself, of course, does not appear in
the Constitution. It is derived from Article III in terms of
what is a case or controversy. But, the courts allowed the
standing principle to become so grotesque that even Members of
Congress that have legitimate constitutional issues, as was in
your lawsuit, are not even being heard.
And, the reasons for that are really, in my view,
implausible. It is, like, well, you cannot have all Members of
Congress sue every time they believe that the President is
acting unconstitutionally, and my answer is, why? Even if all
of the members became litigious, it would be a drop in the
bucket in terms of the number of cases that the courts deal
with.
But, more importantly, members have the expertise, they
have the perspective to raise separation of powers. And as
someone who is a great advocate of a separation of powers
doctrine, and admittedly, I am a formalist in that sense, we
are at a new low in terms of the respect for the separation of
powers and it is becoming more and more unstable.
I mean, when we talk, as you have said so many times, about
Congress just basically relenting, one of the most bizarre
moments of my lifetime is when President Obama stood in front
of Congress and told them, I intend to circumvent Congress
because you failed to do what I asked you to do with the ACA
and other areas. Now, what followed was really otherworldly.
Half of that body applauded rapturously at the notion of their
own obsolescence, and that is something that Madison, I do not
think, anticipated. He really did believe ambition could fight
ambition when it came to institutional authority.
Chairman Johnson. Yes. The Members of Congress would
actually hold their oath of office to support and defend the
Constitution and jealously guard their powers, which is not
happening.
I wanted--and anybody who wants to comment on this--I mean,
another, I think, incredibly dangerous process is sue and
settle, where agencies, again, the executive, you cannot get
Congress to pass a law so they will work with an outside group,
get that outside group to sue the government, and then the
agency settles, and now you have a court sanctioned result,
again, completely circumventing this body.
Does somebody want to speak to that? Mr. Kovacs.
Mr. Kovacs. Sure. Well, sue and settle is obviously one of
our large concerns, but it also relates to your standing issue.
For example, Congress has put standing issues--has granted zone
of interest/legislative standing to environmental groups in 20
of its environmental laws. So, while you cannot get standing to
argue separation of powers issues, the environmental groups get
standing to protect their vision of what the forest looks like.
So, that gets them into court.
And once they sue the agency, several things happen. The
agency consents, and by consenting and going under a court
order, the agency has now managed to make that issue a
priority. So, whatever monies you appropriate, the agency takes
and redirects them because they are now under a court order.
So, what happens is the environmental community is actually
implementing their agenda through the sue and settle process,
and again the courts--and we might as well just keep on beating
up on them too--the fact is that the courts treat, sue, and
settle, major policy disagreements like utility Maximum
Achievable Control Technology (MACT) or the Chesapeake Bay,
they treat them the same as if two private parties came in on a
contract dispute and they just signed it and said, get out of
my courtroom. They do not even look at the comments, if the
agency ever takes comments. They do not look at them and they
are not presented to the court. It is just, here is the consent
decree, and they do it.
Chairman Johnson. When was the first time this was
initiated, do you know?
Mr. Kovacs. Sue and settle?
Chairman Johnson. Yes.
Mr. Kovacs. That has been on and off for probably 20, 25
years. The only time it has really stopped between the Carter
Administration and today was when Ed Meese was Attorney General
(AG), and he had stopped it for a period of 4 years. Other than
that, it has been continuous. The only difference is it was a
few cases a year and a few cases within a term of the
President, and I think in the first term of the Obama
Administration, it was, like, 115.
And some of the courts, it is not just one regulation that
they implement. One of the courts in the Northern District of
California actually did 28 regulations at a time. I think that
is the highest.
Chairman Johnson. Well, it has literally become the method
of governing. Mr. May.
Mr. May. Mr. Chairman, let me just give you the FCC version
of what you called sue and settle, and probably other agencies,
as well. It is a big problem.
The FCC reviews mergers in the communications industry, as
you know. It does it under the public interest standard that I
have talked. In other words, that is what it is basing its
decision on. Well, of course, that is indeterminate. So, what
really happens, to make a long story short, is when companies
have mergers pending before the FCC, before all is said and
done, and that is usually at least a year after they file the
applications--they end up coming forward and, ``volunteering''
certain conditions that, obviously, the FCC staff has
communicated to them that they would like to see attached to
the merger, but which may not and usually are not directly
related to the specific competitive impact of the merger. In
other words, they are other public interest types of things.
So, you end up with regulation by condition. That happens
all of the time, and I believe that is probably the equivalent
of what you are talking about with sue and settle, and that is
an example, again, of something that could be corrected by
Congress if it revised the part of the Communications Act
dealing with reviewing transactions and just made more specific
what the FCC should look at the specific impact of that merger
and not unrelated issues in that proceeding.
Chairman Johnson. Does anybody else want to chime in on
this one before I move on to the kind of cost-benefit? Mr.
Weissman.
Mr. Weissman. I think we probably disagree with you on
this. I know we disagree with Mr. Kovacs. I mean, we view the,
what is termed ``sue and settle,'' really as private
enforcement, actually carrying out Congressional intent.
But, I thought it might be useful to step back to the
standing issue, and I do not know that we would have agreement
on this issue, but I do think there is probably agreement on
the notion that there is a problem and that standing is far too
narrow in too many cases. I mean, I think, interestingly, the
environmental statutes are sort of unusual in granting a
broader framework for standing.
As a consumer organization, we find when we are trying to
enforce consumer or public interest in cases, we often do not
have standing, even when industry might, and that there is a
disparity there. Actually, sometimes industry has trouble
getting standing, too, less so than us, but----
Well, he and I will have coffee and talk about it later.
But, I think it is the case that the Supreme Court has narrowed
standing in such a way that important disputes actually are not
able to be adjudicated, and it is an area--it is a challenging
problem, and Professor Turley is certainly more expert than me,
because of the constitutional doctrine, it is not obvious to me
how Congress can solve where the court is going with this. But,
at least it ought to be scrutinized and we ought to be seeing--
I think that we are seeing, actually, access to the courts as a
means to resolve important disputes and even constitutional
claims just being shut off because of an artificially
constricted standing doctrine.
Chairman Johnson. I certainly learned that lesson myself.
Does anybody else want to chime in on this before we go
into cost-benefit? OK.
Mr. Campbell. I would just say briefly, sir, that I think
there is a distinction between expanding standing to include
Congress and expanding the standing doctrine generally, which I
think is also an important tool preventing frivolous
litigation.
Chairman Johnson. OK. What I would like to do is just,
again, we have three test cases, and probably best to start
with the potential cost and then talk about the benefit, and
again, if that is OK with you, Mr. Weissman, it is kind of 3-
to-1----
Mr. Weissman. I think you get to decide that, sir.
Chairman Johnson. So, let us start with the potential cost
of the net neutrality rule, Mr. May, if you would like to speak
to that, or not.
Mr. May. No. I mean, I will, because I did during the
proceeding. No. 1, I would just say at the outset, like someone
else did, I am not opposed to all regulation or even all FCC
regulation. But, in general, I do subscribe to the notion that
if there is not a marketplace failure that is causing consumer
harm, that is more than speculative, then you should be very
careful about regulating, because cost--I mean, there is almost
universal agreement among economists that costs do have an
impact on economic activity. They tend to dampen investment.
Now, that does not mean sometimes they cannot be outweighed by
the benefits, particularly when we are talking about health and
safety type regulation.
But in the net neutrality case, there was a lot of people
urged the FCC, that if it adopted the rule, it would have an
adverse impact on investment and innovation, and there has
been--it is early, but there has been some persuasive evidence,
I think, already that is beginning to appear that it is having
that impact on investment. Hal Singer with the Progressive
Policy Institute, not a free market type of institute, but he
has done a study that showed that in 2015, there was a decrease
in the amount of investment from the 12 largest Internet
service providers of about a half of a percent, or $250
million. That has an impact on, obviously, the jobs that depend
on the investment, as well.
So, and I would just add that Commissioner Ajit Pai has
identified, I think, eight different instances in which smaller
Internet service providers have publicly said, announced, that
they were cutting back on plans to increase their investment,
as well.
Chairman Johnson. And, by the way, this is significanct--
because it sounds like a small reduction in investment, but the
Internet has been a huge boon to our economy, so there have
been all kinds of investment on an annual basis. The only time
we really saw a reduction, I think, was after the 2009
recession and after the dot-com bubble burst.
Mr. May. Yes. I mean, I think almost no one disagrees that
since going back to 2000, there has been at least $1.3 trillion
of investment by the Internet service providers. Now, I am not
talking about all of the other parts of what we call the
ecosystem. I am just talking about the Internet service
providers.
Chairman Johnson. Right.
Mr. May. And the only other thing I would add is you
cannot--it is hard to measure the amount of investment that
does not take place as a result. You try and do it, but it is
not an exact science. But, again, it is widely understood
that----
Chairman Johnson. Yes, that is why I said, the fact that it
actually declined is pretty----
Mr. May. Yes.
Chairman Johnson [continuing]. Pretty significant versus it
has always been growing. Mr. Weissman.
Mr. Weissman. Well, just look again, just focusing on the
costs, and, of course, I think the benefits are important, as
well, I think that data is wrong. Broadband ISP investment is
up in the year since the rule was adopted as compared to the
previous years. ISP profits are up and stock values, for what
that is worth, are up, as well.
I mean, I think one indication that the purported
investment deterrence is actually not playing out and not
nearly as significant at all as was claimed in advance of the
rule is the distinction between what the companies have told--
or said publicly about the potential impact of the rule in
advance and what they have said in their SEC submissions, where
they are required to be truthful. And, their SEC materials do
not claim that the rule will have material harmful impact on
them, and by and large say that they will be able to manage
without any difficulty, and indeed, that has been proven true.
I think as time goes on, the idea that this was going to
have such a huge cost on industry is just going to float away--
--
Chairman Johnson. So, again, you are disputing the cost,
but what about the benefit? Why was this issued? What is the
benefit of what the FCC is trying to do here?
Mr. Weissman. Well, I think the benefits are enormous. The
benefits are enormous, both on the consumer side--and, by the
way, it has become a partisan issue here, unfortunately. It is
not a partisan issue among the public, with self-identified
conservatives overwhelmingly favoring what is called the net
neutrality rule, and that is because it is essentially a
freedom issue first. It has to do with whether or not there is
going to be free, unfettered traffic, information exchange,
over the Internet without toll keepers and without corporate
sensors in the form of ISPs, and those are principles on which
everyone should agree, apart from trying to monetize the value.
There are monetary benefits, too. There are monetary
benefits to consumers in avoiding excess tolls that would have
been imposed if the Internet moved in a different direction.
And beyond that, there are massive pro-competitive--pro-
innovation benefits to the rule. There had not been a ton of
examples of blockage, but there have been a number of important
ones where we saw ISPs trying to deter the growth of Skype,
deter the growth of Facetime, interfere with Voice over
Internet Protocol technology.
And, of course, the Internet has been an area of massive
innovation and expansion, but it actually--all of the apps that
are going on, all of the innovation, it depends on the Internet
being free, open, and unfettered, and not censored and not
controlled. So, we are going to see enormous benefits. All the
benefits we are talking about from the Internet actually would
have been in peril if we had a whole different model of how the
Internet was going to work.
Chairman Johnson. Well, it depends on investment so we can
continue to increase speeds.
Let us talk a little bit about the fiduciary rule. Mr.
Campbell.
Mr. Campbell. Yes. So, the Department of Labor's rationale
essentially is that securities laws are inadequate and that
IRAs should be treated to a different standard, similar to
employee benefit plans, and that as a result of that, there are
conflicts permissible in the IRA space that would cost. And the
estimates here became very difficult, frankly, I think, to
agree with because they were pretty speculative. They were
based on academic studies looking at one type of conflict and
one type of product and whether this caused fees to be higher
and returns to be lower, and I think it is very difficult to
extrapolate that out. It also ignores an awful lot of other
potentially positive effects that would go into that advisory
relationship.
For what it is worth, the Department did revise its
estimates in the final rule to reduce the benefits somewhat and
increase the costs by a proportional amount rather
significantly, I think probably still rather significantly
underestimating the costs. Again, in my testimony, I gave an
example of just the legal fees alone. They look at the cost for
particularly disclosures that they are requiring and they
assign a number of minutes they think it is going to take an
attorney to write that disclosure, and then they assign an
hourly value to that attorney's time.
And I gave the example, one of those disclosures, they
thought would take 10 minutes to write. And at $134 an hour,
that would be $22.33. But, if you get that disclosure wrong,
you have potentially blown the exception and committed a
violation of this contract, which is exposing you to a class
action in State court over the entirety of your IRA business,
which could be tens of billions of dollars. So, no one is going
to spend $22 to make sure that is right. They are going to
spend whatever it takes to make sure that is right.
And that is just one example of the way they do these
economic analyses, which are not rigorous and, I think, are not
really accurate, reflecting reality.
Chairman Johnson. It is hard to monetize both costs and
benefits, but I think it is pretty easy anecdotally to say they
will not spend the costs. They will exit the business. I mean,
is that not the real concern about the fiduciary rule, is
people will just refuse to become a fiduciary because it
exposes them to such enormous liability, they are just going to
stop doing it, and so you have the small to medium-sized
investor that just will not have access to advice.
Mr. Campbell. I absolutely believe it will reduce choices
and increase costs, and that will drive some of these small
accounts and small plans sort of out of the ability to get
advice. I think it is less a question of driving service
providers out entirely as it is imposing new costs and legal
liabilities and ongoing compliance obligations on those service
providers that make it unaffordable to serve small accounts.
So, it is not that they exit the business, going to the
gentleman's point about the SEC filings, are these service
providers saying, oh, we are just going to have to close up
shop. No, but that does not mean they are not going to pay a
lot more to provide a similar service and that that is going to
hurt people.
Chairman Johnson. So, if you are a small investor, all of a
sudden, you are seeing a cost of $500 or whatever, you just do
not access the service, so it is kind of the same thing.
Mr. Weissman, the benefit.
Mr. Weissman. Well, first on the cost side, so the
Department's cost estimate is really based on industry
submitted data. It is one of the limits, by the way, of cost-
benefit analysis. So, it is quite conservative and it really
does rely on the framework that was provided by industry. They
tweaked it around the edges.
They also, by the way, as Mr. Campbell pointed out, they
made non-trivial changes even in this current version of the
rule in response to comments about ways they could reduce
costs.
In terms of the benefit, before thinking about the
monetization, which--it is worth stepping back and thinking
what the fiduciary rule actually is, which is a rule that
requires investment advisors to have the interests of their
customers at heart. That should not be that controversial. And,
I think it is unfortunate that it has become so. And, it is for
sure the case that consumers assume that that is the basis on
which they are being served, even when it actually, it has not
been.
Now, the benefit estimate--and actually, and that in turn
makes a difference. If you have a duty to advance the interest
of your customer, you do not layer them with all kinds of
hidden fees that materially reduce their returns. So, the
estimate from the Council of Economic Advisors is about $17
billion a year annual savings from consumers as a result of the
rule, and even that probably is a fairly conservative estimate,
because they are only looking at a fraction of the accounts
that would be affected.
Chairman Johnson. Mr. Kovacs, let us talk about Waters of
the United States. I know in Wisconsin, we are looking at
potentially more than 90 percent of the land mass of Wisconsin
now being subject to EPA jurisdiction and permitting, the
$150,000 per permit, more than $30,000 per day types of fines.
Can you just talk about what you look at as the cost of the
WOTUS rule.
Mr. Kovacs. Well, you certainly hit it. You described it
perfectly. About 90 percent of the land in the United States
would be subject to some form of EPA regulation, just because
of the hydrology. It is $155,000 a permit, and I do not know
how many permits that people would need, versus highway
administrations and farmers or whatever. You would also need
discharge permits. And you have the $37,000 a day in fines, and
fines goes up to a million.
So, let me read to you--because it is only a few words--
what the EPA says is the cost of all of this. ``The rule
establishing the definition of Waters of the United States by
itself imposes no direct cost.'' Then it just dismisses it and
says, well, ``each of these programs may subsequently impose
direct or indirect costs as they are implemented,'' and,
therefore, they just wipe away the theory.
And even on cost--and I am going to go back to unfunded
mandates, because the States are really the ones getting
saddled with this burden--if you went back to, I think it is 15
years, EPA issued 8,400-and-some rules and they only found
unfunded mandates in 45 of them, and they only found that the
States had to spend more money in five. So, it gives you an
idea that whatever you are looking at in the cost-benefit is
whatever the agency wants to tell you.
Chairman Johnson. And, of course, the Waters of the United
States basically redefines what I think most of us would view
should come under Federal jurisdiction, navigable waters,
because if you pollute something in Wisconsin into the
Mississippi, it affects other States. I mean, there is
interstate commerce and that is reasonable. And it turns that
into things like intermittent streams, playa lakes, which I had
to look up in a dictionary. It is a bigger puddle. It is a
puddle, but it is a big one. But, it probably does not define
how big a puddle.
Again, Mr. Weissman, the benefit, then, again, recognizing
the fact that we all believe that we want a clean environment
and it is reasonable to have EPA jurisdiction over things like
navigable waters, true navigable waters.
Mr. Weissman. Absolutely. Well, if you will permit me, I
think there is--Senator Heitkamp is gone, but there is a point
that she was raising that is important, particularly in this
area, which is there has to be a definition. The statute exists
and there has to be a definition, and the EPA has to figure
something out.
And they have been harshly criticized, by Chief Justice
Roberts, among others, for not resolving a rule. So, the
rulemaking had to occur. And, I think--because there had to be
a workable definition. I mean, if you read the Chief's comments
on this, they are very harsh criticism. They have to establish
what the scope of the Clean Water Act (CWA) is, and it has been
murky around the edges as a result of the last two cases.
So, I think, before getting directly to the question, there
really is a role for Congress to--you are not going to probably
have that detailed a definition as EPA can possibly get, but
you could go back and revisit it if it seems problematic.
Chairman Johnson. Well, by the way, they did try that, the
Clean Water Restoration Act. It was not passed. And, again, it
tried to redefine that and it was rejected. So, there was some
definition that had been operating for a few decades, but go
ahead.
Mr. Weissman. So, in terms of the costs and benefits, so
Mr. Kovacs read that excerpt which is correct, although the
EPA--but, first, to explain that, the EPA said, look, it is
definitional. All we are doing is creating a definition. They
did not deny the definition would have effects. They are saying
the fact of creating the definition itself does not have an
effect.
Then they said, OK, let us go ahead and then figure out
what the impact would be. And, they said, in contrast to what
he has suggested, it does narrow the scope of covered waters
compared to the statutory definition. So, they said, we could
stop there and say it actually is going to have less cost than
the existing statutory definition.
But, in fact, we recognize that it does expand around the
margins compared to existing practice. And then they,
therefore, did conduct a rough cost-benefit and say they
believe the benefits will outweigh the costs by about two-to-
one.
Chairman Johnson. OK. I will just quickly go down the table
here. Does anybody have a final comment, something that you
have just got to get out before we close the hearing? Let us
start with you, Professor Turley.
Mr. Turley. Thank you, Mr. Chairman. What I really respect
most about this Committee and your leadership is its interest
in developing a nonpartisan approach to these questions, and I
think what really comes out of this hearing--so, there are good
faith arguments on both sides of these issues, but what we
should agree on is the way in which we resolve these issues and
for Congress to be relevant for that process. And, I do believe
that the RAA is a good step. I happen to think that something
like the REINS Act is a good step.
There is an assortment of things that Congress can do, and
one of those, by the way, is also increasing its staff to
specifically monitor in a more substantial way rulemaking. We
have not talked much about that, but part of the advantage the
administrative state has is that its sheer size overwhelms
Congressional staffers. And, so, this almost becomes arbitrary
as to what issues can first come to the attention of Congress
and what issues can be addressed.
Congress has no choice if it is going to be relevant to get
some boots on the ground, to actually have, what I recommend is
an actual office that will be looking at rulemaking so that
members are not in the blind. And, I think these are the types
of steps that I hope members can agree on in a nonpartisan way,
that they should be informed, they should be more involved, and
they should fulfill what is probably the sacred function of our
Constitution. That is, this is the place where the country has
to resolve its disputes. It does not always resolve it.
Sometimes, the country is terribly divided, and then less gets
done. But, this is the place where the Framers wanted those
questions to be resolved and I think we have to move back in
that direction.
Chairman Johnson. We have been trying. Mr. May.
Mr. May. Thank you, Mr. Chairman.
I would just say this in closing, that the FCC, unlike the
other two agencies of the case studies, is considered one of
the independent agencies, as we have discussed, so that makes
it different.
I mean, I will say that the whole nature of independent
agencies under our tripartite system of government,
constitutional system, is a little uneasy, but once we have
them set up as they are with the notion of independence, which
we do, at the core of that is the idea that they will rely
primarily on their expertise and not so much on political
considerations as might probably be the case with the
independent agencies.
So, having said that, one thing that I--and we discussed
this in the hearing, which I think was very useful, and thank
you for that, I think it has been instructive. One thing I
would like to see Congress think about is whether the Chevron
doctrine which we have talked about here, if Congress does not
change the law to even apply more broadly across all of the
Federal agencies, whether it might be changed with regard to
the independent agencies not to provide the same degree of
deference that is provided in the other cases, and the
rationale would be that these agencies are acting based on
their expertise and not because of deference to the
administration. Thank you.
Chairman Johnson. Thank you, Mr. May. Mr. Campbell.
Mr. Campbell. Well, first of all, Mr. Chairman, I very much
appreciate the work that this Committee has done, not just on
this issue, but specifically on the fiduciary rule. The
documents that the Committee gathered from the SEC, from the
Treasury Department and other entities was invaluable in
understanding what was going on, because no one but Congress
would have had the authority to drag that out in that point in
the process, so we appreciate that very much.
One issue I would raise that should be considered in part
of regulatory reform is that there are a number of areas in the
law, and employee benefits is one of them, where you have
significantly overlapping jurisdictions of different agencies.
So, you have the SEC, the Department of Labor, the Treasury
Department, the Financial Industry Regulatory Authority
(FINRA), all of these different groups simultaneously
regulating the same activities, or at least aspects of those
activities, and where those agencies do not effectively
coordinate, the regulated community gets whipsawed in the
middle.
And I think that is something that as the Committee looks
at drafting, say, comprehensive legislation or considering one
of the bills that is out there, that there be mandatory
coordination between those entities so that we do not have one
entity moving forward quickly, another not moving, and none of
us knowing where we are ultimately going to end up.
Chairman Johnson. An interesting point. One of the hearings
we are trying to design is get case studies where, to comply
with this regulation, you are in violation here, and we know
those exist and just kind of point out that enormous problem.
Mr. Campbell. And the proposal for the fiduciary rule did
exactly that. It required a disclosure that securities laws did
not allow you to make. They did fix that in the final rule, but
the fact that it was actually able to be proposed showed that
they were not coordinating with the SEC and other entities in
order to avoid such an obvious contradiction.
Chairman Johnson. Mr. Kovacs.
Mr. Kovacs. Well, again, I just want to bring up the fact
that this Committee almost--not almost, it worked a miracle
last year with permit streamlining. You were able to come
together on an extraordinarily difficult regulatory issue and
you came out with a great result, and we are working very
cooperatively with OMB and they have the cooperation of both
the environmental groups and the business community.
This issue in terms of the regulatory State, this should
truly be a nonpartisan, bipartisan issue. The importance is not
to the Republicans or Democrats. The importance of this issue
is to Congress. This is an institutional issue. You have to
find and get back into what your role is. There is only one
institution in this country that can delegate power, you
delegate it to the agencies with guidance as to how you want
the rules written, not specific guidance, but you have to take
these things in to account, because after all, it is all about
homework and getting it right. But, the guidance to the
agencies also give clear standards to the courts so that they
know how to review it, and that is why the Regulatory
Accountability Act is so important.
Chairman Johnson. I appreciate that, and by the way, I
appreciate you pointing out the fact that this Committee has
really tried hard to try and find areas of agreement to
actually unify us as a result. We literally passed 69 pieces of
legislation, most of it unanimous, a lot of it bipartisan. I
think it is 25 that have been signed into law. So, you actually
can get a result by using that kind of approach. And, again, so
these types of hearings--we are trying to, literally, ferret
out and figure out where are those areas of agreement. Mr.
Weissman.
Mr. Weissman. A few quick points. One is I think we have
had a lot of discussion about the difficulty of having court
review of regulations. From our perspective, in fact, there is
very intense and heavy court review of most regulatory
decisions, a lot of cases brought by the Chamber of Commerce,
unfortunately from our point of view, with great success. I
think just the empirical record is the courts look at these
things very carefully and routinely strike down rules.
A second quick point is there is more than a little bit of
tension between the concerns about President Obama's alleged
role in the FCC rule and sort of undermining the independence
of the agency and the proposal of the Independent Regulatory
Agency Review Act, which would actually make the agencies
directly accountable to the White House itself.
A third quick thing, just to reference a point I made
earlier that has been lost, I do think that there is a lot--it
would be very fruitful for the Committee to look at missed
statutory deadlines, sort of direct issue of accountability to
Congress.
And the last point, just to echo some of these comments,
whatever the differences are, I think everybody appreciates the
tenor of the conversation in this Committee on these issues, no
small part to your role, and we really appreciate that.
Chairman Johnson. Well, I appreciate that.
Again, reading through your testimony, I know you put a lot
of work into it. I think it really helps inform the record, so
I appreciate that time, the time you took here to testify, and
again, great answers to our questions. I think we really helped
this Committee understand kind of the direction we need to
move.
So, with that, the hearing record will remain open for 15
days, until May 5 at 5 p.m., for the submission of statements
and questions for the record.
This hearing is adjourned.
[Whereupon, at 12:10 p.m., the Committee was adjourned.]
A P P E N D I X
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