Notice & Comment

The New Executive Orders on Guidance: Initial Reactions, by Nicholas R. Parrillo

Following up on Aaron Nielson’s post: The White House yesterday issued two executive orders relating to agency guidance documents. The first is titled Executive Order on Promoting the Rule of Law Through Improved Agency Guidance Documents, which I’ll call the Guidance EO. The second is titled Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication. This post is to give my rough, rapid, initial reactions to the first of the two EOs (the “Guidance EO”), in light of some related research I’ve done over the last few years. Comments welcome!

The Guidance EO’s most significant innovation appears to be that it requires executive agencies (though not independent agencies, see § 2(a)) to adopt procedural regulations for issuing “significant” guidance documents, which regulations must require the agency to take public comment on any such document before finally adopting it – and also to give “a public response” to “major concerns raised in comments.” § 4(a)(iii)(A). To be sure, the OMB Good Guidance Practices, adopted under Bush II and retained by Obama and Trump, have long required executive agencies to take public comment on guidance and issue a “response-to-comments document,” but that mandate applied only to “economically significant” guidance documents, which were defined narrowly as those anticipated to have “an annual effect on the economy of $100 million or more or [to] adversely affect in a material way the economy or a sector of the economy.” Agencies (at least under Obama) construed this mandate to kick in almost never (see here, pp. 104-06). By contrast, the mandate for notice-and-comment and response in the new Guidance EO applies more broadly to all “significant” guidance documents, a category the new EO defines to include not only documents with a $100 million annual effect or material effect on a sector of the economy, but also (among other things) any documents that “raise novel legal or policy issues.” See the new EO § 2(c).[1] All that said, the Guidance EO’s mandate has several exceptions and limits. Its triggers for what documents are “significant” are pretty vague to begin with (e.g., “novel legal or policy issues”), and it says that whether a document falls within that category is to be “determined by the Administrator of OMB’s Office of Information and Regulatory Affairs [OIRA].” § 4(a)(iii). It further says the OIRA Administrator “shall issue memoranda establishing exceptions from this [EO] for categories of guidance documents, and categorical presumptions regarding whether guidance documents are significant, as appropriate.” § 4(b). The OIRA Administrator and agency can jointly create an exemption from the procedural requirements if they think it warranted by “exigency, safety, health, or other compelling cause.” § 4(a)(iii). And the agency itself can unilaterally bypass notice and comment for guidance by making a finding modeled on the “good cause” exception in APA § 553. See EO § 4(a)(iii)(A).

Still, in areas where none of the exceptions and limits apply, it does seem executive agencies will be under a new centrally-imposed mandate to solicit and respond to comments before issuing guidance. How big a shift is this? It depends on the agency. At FDA, officials have taken pre-adoption comment on very broad categories of guidance documents for more than 20 years, so stakeholder participation there will be nothing new, but FDA traditionally has not written any response to the comments it gets, so having to respond will be new. At EPA, officials don’t solicit pre-adoption comment on defined categories of guidance documents, but they do solicit such feedback on a more ad hoc basis, when it seems helpful for the individual document, and when they do, they usually write some kind of response. So at EPA, the shift will be in expanding the officials’ existing notice-and-comment-and-response practice from one that’s frequent but ad hoc to one that’s categorical and comprehensive. At other agencies that rarely take any public comment on guidance (like OSHA or CMS), the EO is likely to have the greatest marginal effect. (For documentation of these various agencies’ practices on guidance, see my article, Should the Public Get to Participate Before Federal Agencies Issue Guidance?, esp. pp. 106-09.)

Even where the EO officially does apply and differs from an agency’s hiterto-usual practice, its impact could be blunted under certain circumstances. Consider this scenario, which is not uncommon: (1) a regulatory statute is written so that regulated parties have strong incentives to figure out what the agency wants and do it, say because the parties urgently need the agency to give them some license, grant, or benefit; and (2) officials have scant time and resources with which to process public comments on guidance and write responses to those comments. Under these circumstances, regulated parties are going to try to follow the agency’s wishes regardless of the format in which those wishes are expressed, or the formality with which they’re expressed. If officials issue draft guidance for public comment, but then don’t have the time or resources to process the comments and write a response, the guidance may remain in “draft” for a really long time, and regulated parties may nonetheless treat it as gospel because they expect the agency (if only implicitly) to follow the sentiments in the draft guidance in individual proceedings that decide licenses, grants, etc. (For examples of this happening with past mandates for public comment on guidance, see my article, pp. 109-119.) That said, even implicit agency reliance upon draft guidance in individual proceedings may be constrained by Wednesday’s second executive order (see §§ 4-5 thereof), depending on how broadly one construes that EO’s concepts of “unfair surprise” and “new or expanded claim[s] of jurisdiction.” Stay tuned on that.

Insofar as agencies don’t rely (or are constrained from relying) on draft guidance, even implicitly, then the Guidance EO’s new mandate for public comment can have a real effect. Will this be good or bad? It depends on the magnitude of different competing effects that are going to vary among regulatory schemes. On the one hand, more participation can provide higher-quality technical information to the agency and potentially increase stakeholder buy-in of agency policy. On the other hand, more participation (especially with an agency response) eats up agency resources and makes the finalization of guidance slower – something that can happen even when most or all stakeholders want guidance, as they often do. That said, we shouldn’t expect the EO to make the issuance of guidance as slow or onerous as legislative rulemaking has become. The reason is that legislative rulemaking’s present high cost and slowness are largely the result of pre-implementation judicial review and courts’ demand that agencies build a voluminous record to shield the rule against plaintiffs challenging its technical basis. (See my article, pp. 82-84.) Guidance documents are far less likely to be subject to pre-implementation judicial review, and that is because of judicial doctrines on which the new EO has no effect. (The cost and slowness of legislative rulemaking are also partly attributable to OMB review, but I don’t think the new EO necessarily alters the status quo for OMB review of guidance. Yes, it says significant guidance is subject to such review. § 4(a)(iii)(C)-(D) and § 5. But that has always been true, at least officially, under Obama and long before. What matters is the practical intensity of such OMB review, which has usually been less than it is for legislative rules. See here, pp. 79-82. Possibly the new EO signals a change in OMB’s practical level of scrutiny, and it’s possible the public comments mandated by the Guidance EO could provide OIRA reviewers with more of a basis for scrutinizing guidance than they usually have. Comments especially welcome on this from OMB mavens out there!)

Besides the new notice-comment-response mandate, the Guidance EO’s next-biggest innovation is probably that it says each agency’s procedures for issuing guidance (subject to certain qualifications) should require “approval [of each significant guidance document] on a non-delegable basis by the agency head or by an agency component head appointed by the President, before issuance.” § 4(a)(iii)(B). This seems to mean that any guidance raising a novel legal or policy issue must have the sign-off of a presidential appointee. That appears to be a departure from the practice at several agencies, where some guidance is issued by top political appointees, but some is issued only by high-level staff. For example, the SEC’s Division of Corporation Finance (whose director is not presidentially appointed) issues numerous “Compliance and Disclosure Interpretations” that come with the disclaimer that they “reflect the views of the staff of the Division of Corporation Finance” but have been “neither approved nor disapproved” by the five commissioners who run the SEC. As an SEC-regulated party, you cannot be assured that the five commissioners would follow the guidance if the question came before them, but practically, most questions never rise above the staff level, so you might want to simply find out what the staff thinks, since that’s all you need to know most of the time. The EO seems to prohibit this kind of staff-to-industry communication unless very high-level officials get involved. But will those high-level officials have the time (or for that matter, the minute technical knowledge) necessary to conduct the requisite review? If they don’t, then we may end up at one of two extremes: presidential appointees rubber-stamping staff guidance, or a slowdown in the issuance of staff guidance that industry may want. Of course one may counter that this is a price worth paying for increased political accountability and for ensuring that staff don’t arrogate too much power over industry to themselves. The world of guidance is fraught with tradeoffs, and this new EO shifts how some of them are being made.

Correction by Nick Parrillo, Oct. 23: In my haste to write this post within hours of the executive orders being issued, I included in the post’s last paragraph an illustration concerning an independent agency (the SEC) even though, as I noted in the post’s second paragraph, the Guidance EO doesn’t apply to independent agencies.  Sorry if my inapt illustration sowed confusion.

Nicholas R. Parrillo is Professor of Law at Yale. His report on guidance for the Administrative Conference of the United States provided the basis for the Conference’s new best practices on policy statements and also informed its new best practices on interpretive rules. The report’s findings have been published in the Yale Journal on Regulation and the Administrative Law Review.

[1] Note the Bush-originated OMB Good Guidance Practices defined an identical category of “significant” guidance documents but imposed only relatively minor procedural requirements on them—not pre-adoption notice and comment.

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