As we are about to begin President Barack Obama’s second term, the landscape is roughly the same as it has been for the past two years, with a few key dynamics slightly altered. President Obama remains in the White House, although he will not have to worry about re-election. The Republicans retain a comfortable margin in the House, although the caucus may be more fractious than it has been. And, the Democrats now hold a slightly larger advantage in the Senate, but will still not control the 60 votes necessary to overcome Republican opposition on contentious issues.
Notwithstanding the potential for further legislative deal making on issues left unaddressed in the recent fiscal cliff compromise, the partisan gridlock in Congress is likely to continue for the near future. The President, meanwhile, will be increasingly concerned with defining his legacy. With diminished prospects for achieving major legislative goals, he will likely turn, as have many of his predecessors, to executive branch policymaking and administrative or regulatory activity. Therefore, it is critical for organizations facing existing or prospective regulation to take stock of how the regulatory process works in general as well as how different, and sometimes competing, priorities throughout the administration can influence outcomes.
In the two months since the election, a number of significant rules pertaining to the Affordable Care Act (ACA), food safety and pollution abatement have been proposed or finalized. This increased regulatory activity was expected after the polls closed, but the “regulatory tsunami” predicted by some of the President’s fiercest opponents has not materialized. Looking forward to 2013 and 2014, the administration will be under increased pressure to issue more regulations, including but not limited to those delayed in the lead-up to the election. Constituent groups claiming credit for the President’s re-election are impatient for more progress on their issues, and political appointees who have announced their intentions to step down are invested in finalizing their initiatives before their departures.
At the same time, the pace of regulatory activity since the election suggests the continuation of the policy announced by the President in January 2011: promoting sensible and cost-effective regulation while rejecting rules that are unnecessarily heavy-handed or unduly prescriptive. The President has often acknowledged the fragility of the economic recovery, and he would likely not want to derail the recovery or impede continued growth with regulations where the benefits do not justify the costs. While disagreement as to what constitutes either reasonable or excessive regulation will occur, the administration’s guiding principles are clear: regulate where necessary and where a solid basis for action exists, and seek out the most effective and least costly way of doing so.
In practice, these principles have been and will continue to be applied by the Office of Information and Regulatory Affairs (OIRA) in the Office of Management and Budget. In effect, this office acts as a “regulator of the regulators” in the executive branch. OIRA’s review of draft proposals and final rules aims to ensure that significant rulemaking activities are coordinated across the executive branch and that, where permitted, agencies consider and account for the costs and benefits associated with their regulations. OIRA’s approach is rigorous, multifaceted and substantive. The review process involves careful examination of the economic analysis underlying each rule and consideration of whether the chosen approach is preferable to potential alternatives. This critical step in the regulatory process offers stakeholders a unique opportunity to submit feedback on a proposed rule to an agency with ultimate oversight responsibility, but whose involvement is guided primarily by the principles of sound regulation rather than a particular policy objective.
Apart from OIRA’s involvement, the regulatory agencies will likely face a number of constraints on issuing regulations over the next few years. Whatever the ultimate outcome of negotiations on the sequester, most agencies can expect straight-lined budgets, if not significant cuts, that will force regulators to focus their resources and do more with less. In addition, aggressive judicial review has prompted agencies to take additional steps to bolster their administrative records and explain in greater detail the analyses undertaken and the reasoning followed in making regulatory decisions. Agencies are also likely to continue receiving intense scrutiny from House Republicans, who can use congressional oversight authority to influence or delay the rulemaking process. All of these factors will serve as a check on regulatory activity, but will not prevent agencies from continuing to pursue their priority objectives. Agencies may, however, be more receptive than usual to constructive input from stakeholders, if that input is well supported and presented properly — in order to avoid lengthy delays that can result from technical defects or judicial or congressional roadblocks.
In terms of specific areas of activity, implementation of the ACA and Dodd-Frank will likely be top priorities for the administration in 2013, given the investment of two years of ongoing work and the significance of these initiatives to the President’s legacy. Another immediate focus for agencies across the executive branch will likely be completing additional major first-term initiatives. It is also likely that the President will use regulation, or deregulation, to advance some of the broad objectives he outlined on the campaign trail. Although sweeping transformation may require legislation, incremental but significant policy changes can be made through the regulatory process in areas as far ranging as energy production, food safety, domestic manufacturing, home ownership and environmental protection. It is also important to remember that these changes can take a variety of forms, such as definitional modifications, jurisdictional guidance, disclosure requirements, adjustments to program eligibility rules, permitting restrictions and performance standards.
Ultimately, however, much of the coming term’s regulatory agenda depends on a series of unknowns. It remains unclear who will take the helm or remain at the top of various agencies and departments, as well as who will head up different program-level offices. Several senior political appointees may not depart until some of their priority regulations from the first term are finalized, while others may depart immediately, leaving unfinished rules in the hands of their successors. Given changing demographics and the role that young Hispanic voters played in the President’s re-election, some have suggested that 2013 might be the year Congress acts on comprehensive immigration reform. If that occurs, agencies will have to address a host of new rules and implementation issues. Finally, the tenor and ultimate resolution of the debate over the sequester, the debt ceiling, entitlements and tax reform will likely affect the President’s appetite for further deal making and, in turn, his willingness to pursue his policy objectives more aggressively through the regulatory process.
It is imperative that those organizations affected by different regulatory issues consider how all of these factors might influence relevant agency actions and prepare themselves to respond to such actions with merit-based information and/or viable policy alternatives in order to have their messages heard. The Podesta Group will continue to provide our clients the smart counsel vital to navigating major developments in this area and assist clients seeking to understand the regulatory process and help develop strategies and arguments that will be effective when engaging in it.