JOINT CENTER
AEI-Brookings Joint Center for Regulatory Studies
The Regulatory Fair Warning Act
Testimony before the
Subcommittee on Commercial and Administrative Law
Committee on the Judiciary
U.S. House of Representatives
Robert W. Hahn
Testimony 99-2
June 1999
Robert W. Hahn is director of the AEI-Brookings Joint Center for Regulatory Studies, a resident scholar at AEI, and a research associate at Harvard University. A copy of this testimony can be obtained from the Joint Center's web site: www.aei.brookings.org. The author has benefited from the research assistance of Petrea Moyle and Amy Wendholt and the comments of Robert Litan. The views expressed here represent those of the author and do not necessarily reflect those of the institutions with which he is affiliated.
Executive Summary
Regulation is becoming increasingly important in many aspects of our economy. It is also becoming increasingly complex in many areas. The government has an obligation to make regulators and lawmakers more accountable for regulations by providing low-cost information on regulations to affected parties. At the same time, affected parties have an obligation to make a good-faith effort to comply with laws and regulations.
The Regulatory Fair Warning Act would help promote regulatory accountability by banning the imposition of sanctions in cases where the government did not take reasonable efforts to inform citizens about the requirements of a regulation. The act would help ensure that parties affected by regulations have easy access to those regulations in formal publications, such as the Federal Register. That access is critical to the integrity of the regulatory process. So, too, is a provision that a "reasonable person" must understand what is needed to comply with a rule.
The Regulatory Fair Warning Act
Robert W. Hahn
1. Introduction
I am pleased to appear before the committee to provide my views on the Regulatory Fair Warning Act (H.R. 881). I have studied and written about regulatory issues for over two decades. Recently, my colleague, Robert Litan, and I helped the two institutions with which we are affiliated--the American Enterprise Institute and the Brookings Institution--form a new Joint Center for Regulatory Studies. The Joint Center addresses several issues related to improving the regulatory process, including reviewing federal regulatory and legislative proposals.
I believe that the Regulatory Fair Warning Act is a good bill and Congress should adopt it, with some modifications. The bill would help ensure that parties affected by regulations have easy access to those regulations in formal publications, such as the Federal Register. That access is critical to the integrity of the regulatory process. So, too, is a provision that a "reasonable person" must understand what is needed to comply with a rule. While the bill represents a step in the right direction of promoting better accountability and more transparency in the regulatory process, more congressional attention needs to be paid to other issues that would enhance regulatory accountability. After analyzing the bill, I address some of those broader concerns.
The Regulatory Fair Warning Act
The Regulatory Fair Warning Act highlights three important themes that would promote regulatory accountability:
Regulations should be readily accessible to affected parties: The act would require that regulations be printed in the Code of Federal Regulations or the Federal Register before a sanction could be applied.
Regulations should be understandable: The act would require that a reasonable person making a good-faith effort could understand what the rule requires and that the rule be known to that person before a sanction could be applied.
Affected parties should be allowed to rely on written communications of agencies in attempting to comply with regulations: The act would invalidate retrospective sanctions if a person reasonably relied on written communications issued by the regulatory agency.
In principle, those ideas make sense and would hold regulators more accountable. The issue is how they would be applied in practice.
Evaluation of the Act
Agencies have a great deal of discretion in how regulations are implemented. While I believe that some discretion is desirable (e.g., for situations in which the underlying science is changing, or for dealing with unforeseen emergencies), the day-to-day business of regulating should be designed to promote transparency and trust in the system. Trust can be promoted by making it easy for people affected by regulations to know what is required of them to comply.
In addition to promoting trust in the regulatory process by requiring that the rules of the game be clearly defined, this act could also promote economic efficiency. The reason is that it would limit the discretion of regulators to change rules and interpretations of rules without first complying with certain guidelines. To the extent regulated parties know the rules and how they will change, they will be more certain about their property rights and be more inclined to make investments that would improve the return on their property.
While I believe that the act has many desirable features, I strongly recommend deleting the parts of the act that would require that the terms of the regulation be "known to the person" before a sanction could be applied. The government does have a responsibility to make the regulations clear and easily accessible, but citizens have a responsibility to find out which regulations directly apply to them.
Addressing Objections to the Act
In previous testimony, several objections have been raised to the act. Here, I address a few of the more important ones.
Objection 1: The act will expand the defenses for willful violators of regulations.
Response: The Act could expand the defenses for willful violators; however, it need not if the government adequately informs individuals of what they are required to do. Moreover, the act could also serve to promote higher levels of compliance by forcing regulators to write regulations that are clearer and by promoting greater trust in the system.
Objection 2: The act could weaken environmental, health, and safety regulation.
Response: To the extent that regulators currently use a great deal of discretion in implementing environmental, health, and safety regulation, regulators would need to change their behavior to ensure appropriate outcomes. In particular, they would be asked to make the regulatory process more transparent for regulated entities. I believe that regulators could adapt to the new law while continuing to maintain strong protections for the environment, health, and safety of citizens.
Objection 3: The act would encourage more litigation.
Response: In principle, the act could encourage more litigation. That is a clear potential cost of the act; over the longer run, however, the act could actually reduce litigation and legal costs by forcing regulators to make the regulatory process more transparent.
Objection 4: There are better ways to achieve the goals of the act.
Response: The truth is that policymakers have not been very successful at making regulations simple and clear for the regulated community. Many interest groups, including lawyers, lawmakers, regulators, and the regulated community, often have an interest in making laws and regulations complicated and ambiguous. I applaud attempts by Congress, including this act, that recognize the severity of the problem and attempt to develop constructive solutions. Until such approaches are tried, it is difficult to assess their effectiveness.
Other Issues Related to Promoting Regulatory Accountability
The Regulatory Fair Warning Act addresses only one issue--the imposition of sanctions--in a way that could hold regulators and lawmakers more accountable for regulation. Here, I address some broader concerns related to improving regulatory accountability and offer three recommendations. The essence of my approach is to improve the quality of economic information on the benefits and costs of regulation and to make the analyses and data supporting regulations more widely available.
Recommendation 1: Congress should create an independent or congressional agency to replicate the analysis supporting major regulations before they are implemented. Such an agency should also provide information to Congress on the benefits and costs of individual regulations and regulatory programs.
Discussion: The Congressional Office of Regulatory Analysis, which Robert Litan and I support, could implement that recommendation.
Recommendation 2: Congress should allow regulators to consider the costs and benefits of decisionmaking when they make regulatory decisions.
Discussion: Frequently, laws do not allow regulators to weigh costs and benefits. Such prohibitions should be removed.
Recommendation 3: Government assessments of major regulations should be readily available on the Internet. In addition, the public should be provided with greater access to data underlying major regulations.
Discussion: Just as the Regulatory Fair Warning Act would require greater transparency in final regulations, the process that led to those regulations should have greater transparency. Making analysis supporting major regulations (i.e., regulatory impacts analyses) readily available on the Internet would be a useful and doable first step. In addition, efforts should be made to provide the public with greater access to data supporting regulatory analyses.
6. Conclusion
Regulation is becoming increasingly important in many aspects of our economy. It has an important effect on our quality of life and the costs of goods and services; it also affects the ability of firms to compete in an increasingly global economy.
The Regulatory Fair Warning Act, if passed, will help enhance regulatory accountability. I support this act, provided it still holds individuals responsible for compliance when regulations are clear. But even if this act passes, more work is needed to improve the regulatory process.
Congress has traditionally paid much less attention to the benefits and costs of regulation than to directly budgeted expenditures. That imbalance needs to be rectified.
Congress needs to have better information on the likely benefits and costs of regulations that flow from the laws it passes. In addition, American citizens have a right to know how regulations are likely to affect them in everyday life.
Related Readings
AEI-Brookings Joint Center for Regulatory Studies. 1998. Conference Summary: Changing the Way We Think about Regulation. www.aei.brookings.org.
AEI-Brookings Joint Center for Regulatory Studies. 1999. Conference Summary: Should Scientists Be Required to Share Data? An Analysis of the OMB's Proposed Regulation. www.aei.brookings.org.
Cohen, Linda R. and Robert W. Hahn. 1999. Should Researchers Be Required to Share Data Used in Supporting Regulatory Decisions? Working Paper 99-1. Washington, D.C.: AEI-Brookings Joint Center for Regulatory Studies. May.
Crandall, Robert W., Christopher DeMuth, Robert W. Hahn, Robert E. Litan, Pietro S. Nivola, and Paul R. Portney. 1997. An Agenda for Federal Regulatory Reform. Washington, D.C.: AEI Press and Brookings Institution.
Hahn, Robert W. and Robert E. Litan. 1997. Improving Regulatory Accountability. Washington, D.C.: AEI Press and Brookings Institution.
Hahn, Robert W. and Robert Litan. 1999. The Regulatory-Right-to-Know Act and the Congressional Office of Regulatory Analysis Act, Testimony 99-1. Washington, D.C.: AEI-Brookings Joint Center for Regulatory Studies. April.
Lutter, Randall and Christopher DeMuth. 1999. "The Wizards of Ozone." The Weekly Standard 4: 17-19. June.
Onek, Joseph. 1998. Testimony of Joseph N. Onek Principal Deputy Associate Attorney General U.S. Department of Justice before the Subcommittee on Commercial and Administrative Law Judiciary Committee United States House of Representatives concerning H.R. 4049, the Regulatory Fair Warning Act. July 23.
Troy, Daniel. 1998. Testimony of Daniel E. Troy, Associate Scholar of Legal Studies, American Enterprise Institute for Public Policy, Partner, Wiley, Rein & Fielding, before the Subcommittee on Commercial and Administrative Law concerning the Regulatory Fair Warning Act of 1998 (H.R. 4049). July 23.
Vladeck, David C. 1998. Statement of David C. Vladeck, Esq., Director, Public Citizen Litigation Group before the House Committee on the Judiciary Subcommittee on Commercial and Administrative Law on H.R. 4049 - The "Regulatory Fair Warning Act of 1998." July 23.
Robert W. Hahn is director of the AEI-Brookings Joint Center for Regulatory Studies, a resident scholar at the American Enterprise Institute, and a research associate at the John F. Kennedy School of Government, Harvard University. Before that he worked for two years as a senior staff member of the President's Council of Economic Advisers. Mr. Hahn frequently contributes to general-interest periodicals and leading scholarly journals including the New York Times, the Wall Street Journal, the American Economic Review, and the Yale Law Journal. His most recent book, Reviving Regulatory Reform: A Global Perspective, will be published by AEI and Brookings later this year. Mr. Hahn has served as a consultant to government and industry on a wide variety of issues including regulatory reform, privatization, and antitrust. In addition, he is a cofounder of the Community Preparatory School, an inner-city middle school in Providence, Rhode Island, that provides opportunities for disadvantaged youth to achieve their full potential.