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Comparison of Executive Orders 13771 and 13777 to Texas H.B. 1290

I. Analysis of Federal Executive Orders (“EO”) 13771 and 13777

A. Executive Order (“EO”) 13771 Summary

1. Overview of EO 13771

On January 30, President Donald Trump issued EO 13771, which requires executive branch agencies to repeal two rules for every one issued. Entitled “Reducing Regulation and Controlling Regulatory Costs,” EO 13771 also directs that all new agency regulations promulgated promulgated during fiscal year 2017 should not impose a net increase in costs.

2. Regulations subject to EO 13771

Only new significant regulations by executive branch agencies require an agency to identify two regulations to offset costs by repeal. The EO does not apply to independent agencies such as the Federal Energy Regulatory Commission, but OMB encourages voluntary compliance with the EO. There are several other exemptions, including regulations (1) required to be issued by statute or judicial order, (2) affecting only other government agencies, (3) affecting only agency management and organization and (4) relating to the military, national security or foreign affairs. The Director of OMB also may grant waivers on a case-by-case basis for new regulations related to critical health, safety or financial matters. “Critical” matters are not defined.

3. “Significant Regulation”

A “significant regulation” was defined in EO 12866[1] as a generally applicable regulation that imposes annual costs of $100 million or more or otherwise imposes a material effect on the economy, competition, jobs or state, local or tribal governments.[2] Significant regulations can also include those that raise novel legal or policy issues, even if they do not impose significant costs.[3]

4. Calculation of Cost of Existing Regulations

The Interim Guidance directs agencies to calculate opportunity costs in accordance with OMB Circular A-4, to determine the cost of any regulation identified for repeal in conjunction with a new significant regulation. To calculating opportunity costs, one must make an estimate of “the net benefit” that money spent to comply with a regulation “would have provided in the absence of the requirement.”[4] Therefore, agencies must estimate the value of investments never made. This will require new analyses of existing rules and agencies may not rely on the Regulatory Impact Analysis of any rule that is a candidate for repeal. This may bring further scrutiny to how agencies calculate the costs of both new and existing rules and judicial review of agency cost calculations may become more common.

5. EO 13771 Interaction with Statutory Law

Executive orders cannot contradict or modify federal statutes. EO 13771’s language adheres to this rule, containing eight statements indicating that agencies must only comply with the EO 13771’s requirements “unless otherwise required by law.” Significant regulations can be promulgated under statutes that do not expressly allow for the consideration of costs, such as the Clean Air Act National Ambient Air Quality Standards. Therefore, it is not yet understood how EO 13771would apply to regulations issued under these statutes.

6. EO 13771 Effective Period

Section 2 of the EO, establishing a requirement to identify two regulations to be repealed for every new significant regulation promulgated, explicitly applies to only FY 2017 ending September 30, 2017. However, Sections 3(a) and 3(d) establish a regulatory budgeting program requiring OMB to allocate to agencies a total amount of incremental costs that will be allowed for issuing regulations in FY 2018 and beyond. OMB will issue a new guidance memorandum to agencies for those years. It is not yet clear whether the “two-for-one” repeal requirements will continue to apply after September 30.

7. Office of Management & Budget (“OMB”) Interim and Final Guidance[5]

The February 2 guidance is in the form of 23 questions and answers. The April 5 guidance is in the form of 39 questions and answers; it applies to FY 2017 and later. This latter document supplements the interim guidance issued on February 2. Where the two memoranda are in conflict, the April 5 instructions supersede the previous guidance. The April 5 memorandum reflects OIRA’s consideration of the comments received in response to the February 2 interim memorandum.

B. EO 13777 Summary

1. Overview of EO 13777

On March 1, 2017, President Trump’s EO 13777, Enforcing the Regulatory Reform Agenda, was published.[6] This EO follows closely the previous EO 13771. However, it is different because it is intended to further enforce EO 13771 as well as EO’s issued in prior administrations.

2. Regulatory Reform Officer

EO 13777 directs the head of every agency, save those receiving a waiver, to designate a Regulatory Reform Officer (“RRO”), who will “oversee the implementation of regulatory reform initiatives and policies to ensure that agencies effectively carry out regulatory reforms,” including the following:

EO 13771 of January 30, 2017 (Reducing Regulation and Controlling Regulatory Costs), regarding offsetting the number and cost of new regulations;

EO 12866 of September 30, 1993 (Regulatory Planning and Review), as amended, regarding regulatory planning and review;

Section 6 of Executive Order 13563 of January 18, 2011 (Improving Regulation and Regulatory Review), regarding retrospective review; and

The termination, consistent with applicable law, of programs and activities that derive from or implement EOs, guidance documents, policy memoranda, rule interpretations, and similar documents, or relevant portions thereof, that have been rescinded.

3. Regulatory Reform Task Forces

EO 13777 also establishes Regulatory Reform Task Forces (“RRTF”), consisting of the agency RROs and other designated agency officials, which will evaluate existing regulations and make recommendations to the agency head regarding their repeal, replacement, or modification. Each RRFT is tasked with identifying regulations that:

(i) eliminate jobs, or inhibit job creation;

(ii) are outdated, unnecessary, or ineffective;

(iii) impose costs that exceed benefits;

(iv) create a serious inconsistency or otherwise interfere with regulatory reform initiatives and policies;

(v) are inconsistent with the requirements of section 515 of the Treasury and General Government Appropriations Act, 2001 (44 U.S.C. 3516 note), or the guidance issued pursuant to that provision, those regulations that rely in whole or in part on data, information, or methods that are not publicly available or that are insufficiently transparent to meet the standard for reproducibility; or

(vi) derive from or implement Executive Orders or other Presidential directives that have been subsequently rescinded or substantially modified.[7]

Within 90 days of the EO, the RRTFs are also directed to provide a report to the agency head detailing the agency’s progress toward the following goals:

(i) improving implementation of regulatory reform initiatives and policies pursuant to section 2 of this order; and

(ii) identifying regulations for repeal, replacement, or modification.[8]

4. Waiver

Agencies that generally issue very few or no regulations may be eligible for a waiver, but the agency head must file a request with the Director of the Office of Management and Budget (“OMB”) for a waiver, and waivers can be revoked at any time.

5. EO 13777 Interaction with Statutory Law

EO 13777’s language contains statements indicating that agencies must only comply with the EO 13777’s requirements “unless otherwise required by law.”

6. Office of Management & Budget (“OMB”) Interim and Final Guidance Documents

This memorandum provides guidance regarding sections 4 and 5 of EO 13777.[9] The memorandum states:

Section 4 requires the OMB to issue guidance about the performance indicators that agencies listed in 31 U.S.C. § 901(b)(1) must incorporate into their annual performance plans. The performance indicators measure progress toward the following goals:

•improving implementation of regulatory reform initiatives and policies pursuant to section 2 of EO 13777; and

•identifying regulations for repeal, replacement, or modification.

The agencies subject to EO 13777 are only those agencies subject to the regulatory review requirements of EO 12866.2 While independent regulatory agencies are not subject to EO 13777, they are still encouraged to comply.

….

Beginning with the FY 2019 Annual Performance Plan (“APP”) agencies must, at a minimum, include in their plans the following performance indicators for the fiscal year:

1. Number of evaluations to identify potential EO 13771 deregulatory actions that included opportunity for public input and/or peer review;

2. Number of EO 13771 deregulatory actions recommended by the Regulatory Reform Task Force to the agency head, consistent with applicable law;

3. Number of EO 13771 deregulatory actions issued that address recommendations by the Regulatory Reform Task Force;

4. Number of EO 13771 regulatory actions and, separately, EO 13771 deregulatory actions issued; and

5. Total incremental cost of all EO 13771 regulatory actions and EO 13771 deregulatory actions (including costs or cost savings carried over from previous fiscal years).

….

In their FY 2019 APP, agencies must establish performance goal(s) associated with each indicator. They must also set a target for the level of performance to be achieved within the time period. These actions should be consistent with the guidance in Part 6 of OMB Circular A-11. Agencies must also include in their FY 2019 APP the above performance indicators and set targets for the corresponding performance goals for FY 2018. Beginning with their FY 2018 Annual Performance Reports, agencies must report the appropriate performance data for each performance indicator and goal, and identify each action evaluated for indicator 1, each Regulatory Reform Task Force recommendation for indicator 2, and each EO 13771 regulatory and EO 13771 deregulatory action for indicators 3 and 4 respectively.

In addition, agencies should establish and report other meaningful performance indicators and goals for the purpose of evaluating and improving the net benefits of their respective regulatory programs (i.e., all of the existing regulations in place that address a specific regulatory objective). This likely will require measuring the costs and benefits of regulatory programs and setting goals for improving those programs’ net benefits….

C. Federal Court Challenge.

Two environmental groups and a union have challenged the EO in federal court, contending that the repeal of any regulation for cost reasons would be arbitrary; that the EO directs agencies to violate numerous health, safety and environmental statutes; and that the EO violates the Constitution.[10] The suit is a facial attack, claiming that under no circumstances could any federal agency ever comply with the EO. The plaintiffs’ complaint includes hypothetical examples of how the EO might be applied to proposed regulations. Plaintiffs then argue that the EO prohibits agencies from accounting for the benefits of regulations and that it would require agencies to violate authorizing statutes, the Administrative Procedure Act and the Constitution.

Fourteen Republican attorneys general argue in a recently filed legal brief with the U.S. District Court for the District of Columbia that Trump’s "one in, two out" executive order would “restore regulatory authority” to their states. “Over the last several years, the administrative state has accelerated further the long-term growth of new regulatory burdens, while rarely eliminating unnecessary regulations issued in the past,” the attorneys general write. “The result is a situation where agencies have implemented far more regulatory burdens than Congress ever envisioned,” they added. “This unlawfully-imposed burden has been largely borne by the states and their citizens.”

The attorneys general argue that Trump's executive order “fits squarely within long-standing tradition.” “Presidents of both parties have put mechanisms in place to ensure centralized review of regulations,” they write. “These past presidents have also issued executive orders instructing federal agencies to consider … the cumulative costs of regulations.” The states supporting "one in, two out" include West Virginia, Wisconsin, Alabama, Arizona, Arkansas, Georgia, Kansas, Louisiana, Michigan, Nevada, Oklahoma, South Carolina, Texas and Wyoming.

II. Analysis of Texas House Bill (H.B.”) 1290

A. H.B. 1290 Summary

1. Overview of H.B. 1290

On May 30, the Texas Legislature forwarded to Governor Greg Abbott for signature H.B. 1290, which requires executive branch agencies to repeal one rule for every one issued. H.B. 1290 also directs that all new agency regulations proposed after September 1, 2017 should not impose a net increase in costs.

2. Regulations subject to H.B. 1290

"State agency" means a department, board, commission, committee, council, agency, office, or other entity in the executive, legislative, or judicial branch of state government. This term does not include an agency under the authority of an elected officer of this state.

A state agency rule proposal that contains more than one rule in a single rulemaking action is considered one rule for purposes of this section. Except as provided in the law, a state agency may not adopt a proposed rule for which the fiscal note for the notice states that the rule imposes a cost on regulated persons unless on or before the effective date of the proposed rule the state agency:

(1) repeals a rule that imposes a total cost on regulated persons that is equal to or greater than the total cost imposed on regulated persons by the proposed rule; or

(2) amends a rule to decrease the total cost imposed on regulated persons by an amount that is equal to or greater than the cost imposed on the persons by the proposed rule.[11]

This law does not apply to a rule that:

(1) relates to state agency procurement;

(2) is amended to:

(A) reduce the burden or responsibilities imposed on regulated persons by the rule; or

(B) decrease the persons' cost for compliance with the rule;

(3) is adopted in response to a natural disaster;

(4) is necessary to receive a source of federal funds or to comply with federal law;

(5) is necessary to protect water resources of this state as authorized by the Water Code;

(6) is necessary to protect the health, safety, and welfare of the residents of this state;

(7) is adopted by the Department of Family and Protective Services, Department of Motor Vehicles, Public Utility Commission, Texas Commission on Environmental Quality, or Texas Racing Commission;

(8) is adopted by a self-directed semi-independent agency; or

(9) is necessary to implement legislation, unless the legislature specifically states this section applies to the rule.[12]

3. “Significant Regulation”

The law does not define “significant regulation”, other than to say the cost impact of the “new” regulation may not exceed the cost impact of the “old” regulation.

4. Calculation of Cost of New Regulations

A state agency must prepare a government growth impact statement for a proposed rule. The state agency must reasonably describe in the government growth impact statement whether, during the first five years that the rule would be in effect:

(1) the proposed rule creates or eliminates a government program;

(2) implementation of the proposed rule requires the creation of new employee positions or the elimination of existing employee positions;

(3) implementation of the proposed rule requires an increase or decrease in future legislative appropriations to the agency;

(4) the proposed rule requires an increase or decrease in fees paid to the agency;

(5) the proposed rule creates a new regulation;

(6) the proposed rule expands, limits, or repeals an existing regulation;

(7) the proposed rule increases or decreases the number of individuals subject to the rule's applicability; and

(8) the proposed rule positively or adversely affects this state's economy.[13]

The comptroller must adopt rules to implement this section. The rules must require that the government growth impact statement be in plain language. Each state agency must incorporate the impact statement into the rule notice.[14]

5. H.B. 1290 Interaction with Statutory Law

H.B. 1290’s language does not make a statement regarding contradiction or modification of federal statutes. Any contradiction of federal statutes or regulations by state regulations would very likely result in the preemption of the state regulation.

6. H.B. 1290 Effective Period

H.B. 1290 is effective on and after September 1, 2017 unless amended or repealed.

7. Overview of EO 13777

There are no provisions in H.B. 1290 equivalent to President Trump’s EO 13777, Enforcing the Regulatory Reform Agenda, was published.[15] It is very likely that some state agencies and possibly the comptroller will develop guidelines to comply with the “one in, one out” law.

H.B. No. 1290 AN ACT

relating to the required repeal of a state agency rule and a government growth impact statement before adoption of a new state agency rule.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subchapter A, Chapter 2001, Government Code, is amended by adding Section 2001.0045 to read as follows:

Sec. 2001.0045. REQUIREMENT FOR RULE INCREASING COSTS TO REGULATED PERSONS. (a) In this section, "state agency" means a department, board, commission, committee, council, agency, office, or other entity in the executive, legislative, or judicial branch of state government. This term does not include an agency under the authority of an elected officer of this state.

(b) A state agency rule proposal that contains more than one rule in a single rulemaking action is considered one rule for purposes of this section. Except as provided by Subsection (c), a state agency may not adopt a proposed rule for which the fiscal note for the notice required by Section 2001.024 states that the rule imposes a cost on regulated persons, including another state agency, a special district, or a local government, unless on or before the effective date of the proposed rule the state agency:

(1) repeals a rule that imposes a total cost on regulated persons that is equal to or greater than the total cost imposed on regulated persons by the proposed rule; or

(2) amends a rule to decrease the total cost imposed on regulated persons by an amount that is equal to or greater than the cost imposed on the persons by the proposed rule.

(1) relates to state agency procurement;

(2) is amended to:

(A) reduce the burden or responsibilities imposed on regulated persons by the rule; or

(B) decrease the persons' cost for compliance with the rule;

(3) is adopted in response to a natural disaster;

(4) is necessary to receive a source of federal funds or to comply with federal law;

(5) is necessary to protect water resources of this state as authorized by the Water Code;

(6) is necessary to protect the health, safety, and welfare of the residents of this state;

(7) is adopted by the Department of Family and Protective Services, Department of Motor Vehicles, Public Utility Commission, Texas Commission on Environmental Quality, or Texas Racing Commission;

(8) is adopted by a self-directed semi-independent agency; or

(9) is necessary to implement legislation, unless the legislature specifically states this section applies to the rule.

(d) Each state agency that adopts a rule subject to this section shall comply with the requirements imposed by Subchapter B and Chapter 2002 for publication in the Texas Register.

SECTION 2. Subchapter B, Chapter 2001, Government Code, is amended by adding Section 2001.0221 to read as follows:

Sec. 2001.0221. GOVERNMENT GROWTH IMPACT STATEMENTS. (a) A state agency shall prepare a government growth impact statement for a proposed rule.

(b) A state agency shall reasonably describe in the government growth impact statement whether, during the first five years that the rule would be in effect:

(1) the proposed rule creates or eliminates a government program;

(2) implementation of the proposed rule requires the creation of new employee positions or the elimination of existing employee positions;

(3) implementation of the proposed rule requires an increase or decrease in future legislative appropriations to the agency;

(4) the proposed rule requires an increase or decrease in fees paid to the agency;

(5) the proposed rule creates a new regulation;

(6) the proposed rule expands, limits, or repeals an existing regulation;

(7) the proposed rule increases or decreases the number of individuals subject to the rule's applicability; and

(8) the proposed rule positively or adversely affects this state's economy.

(c) The comptroller shall adopt rules to implement this section. The rules must require that the government growth impact statement be in plain language. The comptroller may prescribe a chart that a state agency may use to disclose the items required under Subsection (b).

(d) Each state agency shall incorporate the impact statement into the notice required by Section 2001.024.

(e) Failure to comply with this section does not impair the legal effect of a rule adopted under this chapter.

SECTION 3. Section 2001.0045, Government Code, as added by this Act, applies only to a rule proposed by a state agency on or after the effective date of this Act. A rule proposed before that date is governed by the law in effect on the date the rule was proposed, and the former law is continued in effect for that purpose.

SECTION 4. Not later than October 1, 2017, the comptroller shall adopt rules required under Section 2001.0221(c), Government Code, as added by this Act.

SECTION 5. Section 2001.0221, Government Code, as added by this Act, applies only to a proposed rule for which the notice required under Section 2001.023(b), Government Code, is filed on or after November 1, 2017.

SECTION 6. This Act takes effect September 1, 2017.

[1] 58 Fed. Reg. 51,735, 51,738 (Oct. 4, 1993).

[2] Examples are the Clean Power Plan, the sulfur dioxide National Ambient Air Quality Standard review and proposed CERCLA financial responsibility requirements for certain mining facilities.

[3] EPA’s Clean Water Act general permit for point source discharges from the application of pesticides was deemed to be a significant regulation, despite having an estimated annual cost of $10 million.

[4] OMB, Circular A-4, “Regulatory Analysis” at 19 (Sept. 17, 2003).

[5] Memorandum from Dominic J. Mancini, Acting Admin., Office of Information and Regulatory Affairs, “Interim Guidance Implement Section 2 of the Executive Order of January 30, 2017, titled ‘Reducing Regulation and Controlling Regulatory Costs.’” (Feb. 2, 2017) (Interim Guidance). Also, Memorandum: Implementing Executive Order 13771, Titled "Reducing Regulation and Controlling Regulatory Costs" (April 5, 2017); M-17-21; Memorandum For: Regulatory Policy Officers at Executive Departments and Agencies and Managing and Executive Directors of Certain Agencies and Commissions.

[6] 82 Fed. Reg. 12285.

[7] EO 13777.

[8] Id.

[9] Memorandum from Dominic J. Mancini, Acting Admin., Office of Information and Regulatory Affairs, Titled “Guidance on Regulatory Reform Accountability under Executive Order 13777”, (April 28, 2017); M-17-23.

[10] See Public Citizen, Inc. v. Trump, Case No. 17-cv-00253 (D.D.C.) (filed Feb. 8, 2017).

[11] Sec. 2001.0045.

[12] Sec. 2001.0045(c).

[13] Sec. 2001.0221(b).

[14] Sec. 2001.0221(c).

[15] 82 Fed. Reg. 12285.