How Trump's New Policy to Cut Regulatory Costs Will Actually Work

The Trump administration has issued a set of strict rules governing how federal agencies can offset costs as part of the president’s new regulatory reform policy, though it allowed some broad carve-outs and exempted an entire swath of offices.

In new guidance, the Office of Management and Budget instructed agencies that Trump’s one in, two out policy would not require they repeal regulations outright to meet new demands. Instead, they can take “deregulatory actions” to offset opportunity costs to society, including streamlining certain logistical procedures.

The policy will not apply at all to independent regulatory agencies, such as the Securities and Exchange Commission, nor will it apply to rules with an economic impact of less than $100 million. It also allows for exemptions in which agencies can issue new regulations without any offsets, such a situations involving critical health, safety, financial matters or “some other compelling reason” as determined by each agency’s Office of Information and Regulatory Affairs desk officer and OMB.

The interim guidance applies only to fiscal 2017, during which agencies must add no new net regulatory costs. All cost offsets must take place by the end of September, though agencies can simply announce their plans for regulations to eliminate by that date. While Trump’s memorandum specifically stated that for any new rule an agency proposes “it shall identify at least two existing regulations to be repealed,” the guidance specified any “deregulatory action” would suffice.

Agencies can only count cost reductions going forward when making projections on savings of revoking regulations, meaning they cannot attribute sunk costs toward their tabulations. They also cannot count costs removed by a court striking down an existing regulation. They can, however, apply costs stripped out after Congress overturns a regulation. Republican lawmakers spent last week using their Congressional Review Act authority to undo rules finalized in the waning days of the Obama administration. The House has already voted to repeal the Obama Fair Pay and Safe Workplaces rule, for example, which the government estimated would cost contractors $458 million in the first year of implementation.

While the Defense Department, NASA and the General Services Administration jointly issued the Fair Pay rule -- with further guidance from the Labor Department -- the government will only be able to count the savings once, as spelled out in the guidance. Agencies can transfer cost savings from deregulation to different components within their organization, but need special permission to apply the savings from other agencies.

OMB advised agencies to spell out exactly what deregulatory actions they plan to implement in the preamble to each new proposed rule. Regulations and deregulations can be addressed in the same rules, and agencies should attempt to move both forward on the same timeline. Agencies can implement a new rule without first revoking existing ones, but must at least put forward their plans for future repeal. New regulations and deregulatory actions coupled together must be “logically connected,” OMB said.

Opponents of Trump’s policy have said the deregulation requirement would put the public at risk by ignoring the potential benefits of regulatory action. OMB maintained, however, the reform would have “no effect” on the consideration of regulatory benefits.

“The goal of the requirement to eliminate two existing regulatory actions for each new significant regulatory action is to provide a mechanism for agencies to identify and repeal outdated, ineffective or unnecessary regulatory actions,” OMB said.