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S. Hrg. 114–682 

THE ADMINISTRATIVE STATE: AN EXAMINATION 

OF FEDERAL RULEMAKING 

HEARING 

BEFORE THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

APRIL 20, 2016 

Available via the World Wide Web: http://www.fdsys.gov/ 

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs 

( 
(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

RON JOHNSON, Wisconsin Chairman 

JOHN MCCAIN, Arizona 

ROB PORTMAN, Ohio 

RAND PAUL, Kentucky 

JAMES LANKFORD, Oklahoma 

MICHAEL B. ENZI, Wyoming 

KELLY AYOTTE, New Hampshire 

JONI ERNST, Iowa 

BEN SASSE, Nebraska 

THOMAS R. CARPER, Delaware 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

TAMMY BALDWIN, Wisconsin 

HEIDI HEITKAMP, North Dakota 

CORY A. BOOKER, New Jersey 

GARY C. PETERS, Michigan 

CHRISTOPHER R. HIXON, Staff Director 

BROOKE N. ERICSON, Deputy Chief Counsel for Homeland Security 

DAVID N. BREWER, Chief Investigative Counsel 

SCOTT D. WITTMANN, Investigator 

SAMANTHA M. BRENNAN, Counsel 

GABRIELLE A. BATKIN, Minority Staff Director 

JOHN P. KILVINGTON, Minority Deputy Staff Director 

KATHERINE C. SYBENGA, Minority Chief Counsel for Governmental Affairs 

JAMES V. SECRETO, Minority Chief Counsel for Investigations 

KEVIN R. BURRIS, Minority Counsel 

ROBERT R. BERRIOS, Minority Counsel 

LAURA W. KILBRIDE, Chief Clerk 

BENJAMIN C. GRAZDA, Hearing Clerk 
(III) 

C O N T E N T S 

Opening statements: Page 

Senator Johnson ............................................................................................... 1 

Senator Heitkamp ............................................................................................ 16 

Senator Portman .............................................................................................. 19 

Senator Ayotte .................................................................................................. 22 

Prepared statements: 

Senator Johnson ............................................................................................... 41 

Senator Carper ................................................................................................. 43 

Senator Sasse .................................................................................................... 45 

WITNESS 

WEDNESDAY, APRIL 20, 2016 

Jonathan Turley, Shapiro Professor of Public Interest Law, George Washington University Law School ............................................................................. 3 

Randolph J. May, President, The Free State Foundation .................................... 5 

Hon. Bradford P. Campbell, Counsel, Drinker Biddle and Reath, LLP, and 

Former Assistant Secretary for Employee Benefits at the U.S. Department 

of Labor ................................................................................................................. 7 

William J. Kovacs, Senior Vice President, Environment, Technology, and Regulatory Affairs, U.S. Chamber of Commerce ..................................................... 9 

Robert Weissman, President, Public Citizen ......................................................... 11 

ALPHABETICAL LIST OF WITNESSES

Campbell, Hon. Bradford P.: 

Testimony .......................................................................................................... 7 

Prepared statement with attachment ............................................................. 88 

Kovacs, William J.: 

Testimony .......................................................................................................... 9 

Prepared statement .......................................................................................... 110 

May, Randolph J.: 

Testimony .......................................................................................................... 5 

Prepared statement .......................................................................................... 67 

Turley, Jonathan: 

Testimony .......................................................................................................... 3 

Prepared statement .......................................................................................... 47 

Weissman, Robert: 

Testimony .......................................................................................................... 11 

Prepared statement .......................................................................................... 141 

APPENDIX 

Majority Staff Report submitted by Senator Johnson .......................................... 190 

Majority Staff Report submitted by Senator Johnson .......................................... 230 

Minority Staff Memorandum submitted by Senator Carper ................................ 260 

Office of Legal Counsel Opinion submitted by Senator Carper ........................... 268 

Response to post-hearing questions for the Record: 

Mr. Campbell .................................................................................................... 281 

(1) 

1The prepared statement of Senator Johnson appears in the Appendix on page 41. 

2The prepared statement of Senator Carper appears in the Appendix on page 43. 

3The Majority report titled The Labor Department’s Fiduciary Rule appears in the Appendix 

on page 190. 4The Minority Memorandum on the Labor Department’s proposed conflict of interest rule appears in the Appendix on page 260. 5The Majority report titled Regulating the Internet: How the White House Bowled Over FCC 

Independence appears in the Appendix on page 230. 

THE ADMINISTRATIVE STATE: AN 

EXAMINATION OF FEDERAL RULEMAKING 

WEDNESDAY, APRIL 20, 2016 

U.S. SENATE,

COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:11 a.m., in room 

342, Dirksen Senate Office Building, Hon. Ron Johnson, Chairman 

of the Committee, presiding. 

Present: Senators Johnson, Portman, Ayotte, Ernst, McCaskill, 

Tester, Baldwin, Heitkamp, and Peters. 

OPENING STATEMENT OF CHAIRMAN JOHNSON 

Chairman JOHNSON. Good morning. This hearing is called to 

order. 

I have a little script here, which is unusual for me, so let me just 

read it. I ask unanimous consent that my full opening statement 

be entered into the record.1

Senator MCCASKILL. Without objection. 

Chairman JOHNSON. Without objection, so ordered. 

Senator Carper had a death in his family, his aunt, who he was 

very close to, so he will not be here today. We obviously send our 

sincere condolences to Senator Carper and his family, and I ask 

unanimous consent that his opening statement be entered into the 

record.2

Senator MCCASKILL. Without objection. 

Chairman JOHNSON. Without objection, so ordered. 

I also ask unanimous consent that the following documents be 

entered into the record: The Majority Staff report3 titled ‘‘The 

Labor Department’s Fiduciary Rule: How a Flawed Process Could 

Hurt Retirement Savers;’’ the Minority Staff memo4 on the Labor 

Department’s financial fiduciary rule; the Majority Staff report titled, ‘‘Regulating the Internet: How the White House Bowled Over 

the Federal Communications Commission (FCC) Independence;’’5

and a January 14, 1991, Office of Legal Counsel memorandum ti-
2 

1The Minority submission of the OLC Opinion titled Ex Parte Communication During FCC 

Rulemaking appears in the Appendix on page 268. 

tled, ‘‘Ex Parte Communications During FCC Rulemaking.’’1 Without objection, so ordered. 

I want to thank all of the witnesses for testifying here today and 

for taking the time and writing up what I think is some very 

thoughtful testimony. You did a good job, pretty thick testimony 

which will all be entered into the record. When you do speak, try 

to keep it down to about 6 minutes and then we will do rounds of 

questions. 

From my standpoint, this is just an incredibly important hearing. 

I have said repeatedly—well, first of all, this Committee actually 

has a mission statement. I come from a business background, so it 

is something Senator Carper and I developed. It is pretty simple, 

to enhance the economic and national security of America. Those 

are inextricably linked. 

How do you get a strong economy? From my standpoint, we are 

the world’s largest market, which is an enormous advantage in the 

global competition. We do have cheap and abundant energy. We 

should keep it that way while we protect our environment. 

Our weaknesses are we have an onerous regulatory environment, 

and we will probably have some differences of opinion on that, but, 

numerous studies talk about how the cost of Federal regulations 

are somewhere between $1.8 and $2 trillion. To put that number 

in perspective, only 9 or 10 economies in the world exceed $2 trillion. That is an enormous self-inflicted wound and burden. 

And, yes, I realize we need some regulations, and they protect 

workers and they protect our environment. That is a good thing. 

But, there is a point of over-regulation. We will talk a little bit 

about that. 

We hear about income inequality, which is a real problem. We 

hear about stagnant wages. Talking to one chief executive officer 

(CEO) of a paper manufacturing company in Wisconsin, he did a 

little cost study on just four regulations issued by this administration, just four, and, of course, we have hundreds of major regulations costing over $100 million. But, just four regulations, the cost 

to this paper company was the equivalent of $12,000 per employee 

per year. So, if you are wondering why wages have stagnated, look 

no further than the regulatory burden placed on the private sector 

by big government here in Washington, D.C. It is an enormous burden and we have to recognize that fact. 

The last point I will make, the Chancellor of the University of 

Wisconsin-Madison, Rebecca Blank, has come into my office the 

last 2 years, both times asking for relief from regulations. This last 

year when she came in, she had a research study. It was actually 

called the 2012 Faculty Workload Survey, done by the Federal 

Demonstration Partnership Research Report from April 2014, and 

basically, what that research showed is that 42 percent of researchers’ times in the research university are spent complying with Federal regulations—42 percent. Now, those research dollars, that 

grant money is spent to go into basic science, advancing human 

knowledge, curing diseases. If 42 percent of their time is spent just 
3 

1The prepared statement of Mr. Turley appears in the Appendix on page 47. 

complying with Federal regulations, think of the opportunity cost 

of that. 

So, again, the regulatory burden is a serious problem. We are 

going to be talking about just three rules where I think there are 

some real questions as to whether this administration issued those 

properly, not violated the Administrative Procedure Act. We are 

going to be talking about the Fiduciary Rule, the Federal Communications Commission Title II Internet regulation, and the Waters 

of the United States (WOTUS). I mean, these are three significant 

rules that are going to have a significant impact on our economy. 

The number one solution for debt and deficit or so many problems 

is economic growth and these regulations are stifling it. 

So, with that, it is the tradition of this Committee to swear in 

witnesses, so if you will all rise and raise your right hand. 

Do you swear the testimony you will give before this Committee 

will be the truth, the whole truth, and nothing but the truth, so 

help you, God? 

Mr. MAY. I do. 

Mr. KOVACS. I do. 

Mr. TURLEY. I do. 

Mr. CAMPBELL. I do. 

Mr. WEISSMAN. I do. 

Chairman JOHNSON. Please be seated. 

Our first witness is Professor Jonathan Turley. Professor Turley 

is the Shapiro Professor of Public Interest Law at the George 

Washington University Law School. Professor Turley. 

TESTIMONY OF JONATHAN TURLEY,1 SHAPIRO PROFESSOR OF 

PUBLIC INTEREST LAW, GEORGE WASHINGTON UNIVERSITY 

LAW SCHOOL 

Mr. TURLEY. Thank you so much, Chairman Johnson and Members of the Committee. It is a great honor to appear before you 

today to talk about the rise of the administrative State within the 

American constitutional system. 

I come to this with more of a constitutional perspective than an 

administrative law perspective. I have long been critical of the rise 

of what is often called the fourth branch in our system. And, while 

academics have good faith disagreements, I tend to view the rise 

of the administrative State as neither benign nor inevitable. I 

think it is a problem that we often treat this concept of administrative State as a fait accompli, like a reality like the weather, in our 

constitutional system. And, those of us who criticize it often appear 

quixotic, tilting at the windmills of Federal agencies. 

It is not a criticism of Federal agencies to question the degree of 

discretion and delegation that they currently enjoy, no more than 

it is to say that we need banks as an answer to calls for banking 

reform. The Federal agency is a reality of our system. It is part of 

modern government. But, the degree to which we have delegated 

authority, legislative authority, and discretion to the Federal agencies, in my view, is dangerous. 

Indeed, I doubt the Framers would recognize the system we have 

today. Well, they would recognize it in one sense. It is, in many re-
4 

spects, the system they sought to avoid. The Framers were focused 

on the danger of concentrated power and the need for participatory 

representative politics. Neither of that is present in the current 

system. 

Rulemaking is a virtual euphemism for agency legislation, and 

the two examples of that that I will discuss today, hopefully in 

more detail, include the United States v. Texas controversy over 

Deferred Action for Parents of Americans (DAPA), which showed 

how truly Section 553 of the Administrative Procedure Act (APA) 

has become without substance. The administration effectively ordered unilaterally changes that were denied by Congress. They did 

that not only through executive power, but, they even refused to do 

the notice and comment requirements under the APA. I have been 

a critic of the APA as a paper tiger, but in this case, it was not 

even that. 

The net neutrality controversy is another good example. I do not 

necessarily want to weigh in on the merits. There are smarter people that know a lot more about net neutrality and immigration 

than I do. I am much more concerned with the process, that is, 

what we have seen is the transfer of legislative powers to an 

opaque system where citizens have very little role or very little 

knowledge. The fact that you can have a visit with Chairman Tom 

Wheeler and have the change of a position of the FCC, it really 

speaks volumes to the problems that we are having now in terms 

of the shift from a representative democratic system to a more bureaucratic system. 

My fear is that while we can reverse this trend, we are fast approaching a certain constitutional failsafe line where the administrative state will become a fixed and unassailable reality of American government. I happen to agree with many things that President Obama has tried to achieve. I just do not agree with the 

means by which he is trying to achieve them. 

I am, in many ways, a stereotypical Madisonian scholar. I believe 

that the Legislative Branch is the thumping heart of our constitutional system and it is increasingly becoming irrelevant. I think 

that members are allowing the power of this institution to slip 

away into the midst of an administrative state. 

My testimony includes various things that can be done, but it 

cannot be done on the cheap. Congress has to join in a bipartisan 

way to fight for its authority the way the Framers thought that you 

would. This includes dealing with the discretion that is afforded 

under Chevron, the creation of non-delegation provisions to ensure 

that this body remains relevant, greater oversight with teeth in 

terms of agencies, the creation of an office that will focus more substantially on rulemaking, new APA procedures, new consent laws 

that have guillotine switches so that major regulations will come 

before this body, and finally, empowering citizens to help Congress 

monitor what has become a fourth branch in our system. All of 

these things can be done. 

I do not wish to sound particularly dire, but I believe this is a 

dire situation. I believe that what we are seeing is a different type 

of government. Now, it may be a better system according to some 

academics, but it is a system that the American people were never 

allowed to voice their view of. It is a substantial change in what 
5 

1The prepared statement of Mr. May appears in the Appendix on page 67. 

we call the American governmental system. It is less representative. It is less transparent. And, I believe that, in the end, it is destabilizing. 

As my testimony states, the Legislative Branch plays a critical 

role in transforming factional disputes. On this table, there are experts who I look forward to hearing from who are going to raise 

very important arguments on both sides of these divisive questions, 

but the Nation is divided. And, when we are divided, this is the 

body that was designed to transform those factional disputes into 

majoritarian compromises. If you remove these questions from Congress, you add the very instability that the Framers wanted to 

avoid and you are shifting it far away from the center of power. 

So, the center of gravity in our system has changed, but we can 

regain it, and I believe that should be a matter that all members 

and all citizens should join together to see. 

Thank you very much. 

Chairman JOHNSON. Thank you, Professor Turley. 

Our next witness is Randolph May. Mr. May is the founder and 

President of the Free State Foundation (FSF). Mr. May previously 

served as Assistant General Counsel and Associate General Counsel at the Federal Communications Commission from 1978 to 1981. 

Mr. May. 

TESTIMONY OF RANDOLPH J. MAY,1 PRESIDENT, THE FREE 

STATE FOUNDATION 

Mr. MAY. Mr. Chairman and Members of the Committee, thank 

you for inviting me to testify today. I am President of the Free 

State Foundation, a think tank that focuses its research primarily 

in the communications law and policy and administrative law 

areas. I have been involved for almost 40 years in communications 

law and policy in various capacities, including having served as Associate General Counsel at the FCC. My longstanding expertise at 

the intersection of communications law and policy and administrative law is outlined in my written testimony. 

The Committee’s identification of the FCC’s net neutrality rule 

as deserving of examination is wise. This rulemaking is instructive 

regarding the ways in which a faulty rulemaking process enables 

the growth of the administrative state and adversely impacts the 

economy, and in the case of the net neutrality rulemaking, compromises accepted rule of law norms. 

I want to highlight briefly in my oral testimony four areas in 

which the FCC’s net neutrality rulemaking is problematic. 

First, the rulemaking truly represents a case of the proverbial solution in search of a problem, or, as FCC Commissioner Ajit Pai 

put it recently, the rule, ‘‘was a 313-page solution that would not 

work to a problem that did not exist.’’ Put bluntly, in this case, 

there was no meaningful evidence of an existing market failure or 

consumer harm that required the Commission to adopt rules applying heavy-handed Ma Bell-era public utility-like regulation to today’s Internet service providers (ISPs). 

The dynamic, competitive marketplace in which Internet service 

providers operate today is far removed from the staid monopolistic 
6 

markets for which public utility regulation was devised, when, for 

example, it was applied to the railroads in 1887 and then to telephone and telegraph companies in 1934, when the Communications 

Act was adopted. There was no reason for the FCC to ignore 

Congress’s direction in the 1996 Telecom Act that the Internet 

should remain, ‘‘unfettered or by Federal or State regulation.’’ 

Second, as a result of the direct and indirect cost imposed on 

Internet service providers, the rules adoption most likely will have 

an adverse impact by chilling investment and innovation. Indeed, 

there is some persuasive evidence that it is already doing so. Of 

course, diminished investment in innovation translate into diminished jobs and consumer welfare. 

Third, the manner of President Obama’s direct involvement in 

the FCC’s net neutrality rulemaking in the aftermath of his involvement that resulted initially in confusion at the FCC, and then 

shortly afterward in an abrupt change in course that conformed to 

President Obama’s specific ask, raise questions about the FCC’s 

supposed independence. The manner in which the rulemaking was 

conducted serves to undermine the notion of the FCC’s independence in an agency whose decisions are primarily based on its specialized expertise rather than on political considerations. And this, 

in turn, jeopardizes the public’s confidence in the soundness of the 

Commission’s decisions and the agency’s institutional integrity. 

Of concern, just last week, the White House released a high-profile statement urging the FCC to adopt a specific course of action 

in the agency’s controversial and very problematic video navigation 

rulemaking. Repeated high-profile Presidential interventions like 

this further undermine the notion that the FCC acts independently 

and free from Executive Branch control. 

Finally, aside from issues relating to President Obama’s involvement, there are aspects of the net neutrality rule, specifically including adoption of the vague general conduct rule, which itself the 

FCC admitted is a, quote, ‘‘catch-all provision,’’ along with a 

catch-22 enforcement regime that the rule established, that call 

into question compliance with accepted rule of law and due process 

norms. These norms require that law be predictable and knowable 

in advance of the imposition of sanctions, which in the case of the 

net neutrality rule certainly is not the case. Failing to adhere to 

these norms also threatens to undermine the public’s confidence in 

the agency’s institutional integrity. 

Again, thank you for giving me the opportunity to testify today 

and I look forward to answering your questions. 

Chairman JOHNSON. Thank you, Mr. May. 

Our next witness is the Honorable Bradford Campbell. Mr. 

Campbell is the former Assistant Secretary of Labor for Employee 

Benefits. Mr. Campbell currently practices employee benefits law 

with the law firm Drinker Biddle and Reath. Mr. Campbell. 
7 

1The prepared statement of Mr. Campbell appears in the Appendix on page 88. 

TESTIMONY OF THE HONORABLE BRADFORD P. CAMPBELL,1

COUNSEL, DRINKER BIDDLE AND REATH, LLP, AND FORMER 

ASSISTANT SECRETARY FOR EMPLOYEE BENEFITS AT THE 

U.S. DEPARTMENT OF LABOR 

Mr. CAMPBELL. Well, thank you, Mr. Chairman and the Members 

of the Committee, the other Senators, for the opportunity to testify 

today about the need to reform the Federal regulatory process. 

Before I begin, though, I want to advise you that the views I express today are my own, not those of any client or my firm or my 

colleagues. 

The sheer scope of Federal regulation is remarkable. What we 

eat, what we wear, what we drive, how we work, how we save, 

even the air we breathe, nearly every activity of our lives is now 

at least partially subject to Federal regulations. While there is, of 

course, a necessary role for Federal regulation in interstate commerce, I think it is fair to say that the current regulatory environment and the practices of some Federal regulators are in significant need of review and reform. 

The regulatory authority that Congress delegates to Federal 

agencies was never intended to allow those agencies to become 

their own quasi-legislative bodies, making new laws and policies as 

they see fit. Instead, that authority was intended to facilitate the 

practical implementation of laws passed by Congress so that agencies could promulgate rules consistent with the intent and direction 

of Congress, and finalized only after a thorough and fair consideration of the economic impact, costs, and the alternatives available. 

Unfortunately, the reality of the Federal regulatory process all too 

often does not actually match this intent. 

Now, I am going to focus today on a particular example of regulatory overreach, the recently promulgated final regulation by the 

U.S. Department of Labor (DOL) redefining fiduciary investment 

advice. This incredibly broad and far-reaching rulemakes the Department of Labor a primary regulator of the conduct and compensation of financial advisors to more than $14 trillion—that is 

trillion with a ‘‘t’’—in Individual Retirement Accounts (IRA) and retirement plan assets, and it effectively allows the Department of 

Labor standards to trump the traditional role of other regulators, 

like the Securities and Exchange Commission (SEC). 

I am very familiar with this regulation and with this agency’s 

authority, because as the Chairman noted, I used to run this agency in the prior administration. 

This fiduciary regulation highlights what I see as two primary 

issues facing the Committee when considering reform. First, it was 

legislation by rulemaking, in which an agency fundamentally 

changes the law, and in this case counter to Congressional intent, 

taking over Congress’s role. 

And, second, it was an exercise of flawed regulatory process in 

which predetermined policy decisions drove the outcome, not real 

consideration of economic inputs or regulatory alternatives. 

Now, this real clearly is legislation by regulation. It was created 

out of whole cloth by the agency. The underlying law that it is reinterpreting, this potion has not changed since 1974, when it was 
8 

passed. And, in fact, the changes the rule ultimately makes, at 

least many of them, are contrary to the intent of Congress when 

it passed those laws. 

Congress created the Employee Retirement Income Security Act 

(ERISA) plans and IRAs at the same time, and it affirmatively 

chose not to apply the new fiduciary standard and new legal remedies that it created for ERISA plans to IRAs. Instead, Congress 

chose for IRAs to be protected through extensive Federal and State 

regulation of financial services with their applicable standards of 

care and legal remedies. 

Remarkably enough, these intentional Congressional decisions 

were cited as flaws by the Labor Department that it must correct 

to preserve Congressional intent. The Department, which, acting 

based on a Carter Administration reorganization of authority divided between the Labor Department and the Treasury Department, applied its new and very broad definition of fiduciary to the 

prohibited transaction rules in the tax code, and these rules apply 

to IRAs. 

The effect of this was to make advisor compensation that is legal 

under securities laws illegal under the tax code, and the Department of Labor then created an exemption, called the Best Interest 

Contact Exemption, which permitted some of that securities law 

compensation to remain legal, but only if the financial institution 

and the advisor agree to an ERISA-like fiduciary standard of care 

and to being sued in State court in class action litigation. 

So, in short, the Department in this regulation is forcing IRA advisors to accept a fiduciary standard and legal remedies that Congress affirmatively chose not to require, all in the name of Congressional intent. 

Now, whether you agree with the Department of Labor that IRAs 

should be treated more like ERISA plans or not is irrelevant for 

the purposes of this hearing. I think the issue should be that only 

Congress should overturn the prior judgments of Congress, not a 

Federal agency through a convoluted misapplication of its regulatory authority. 

And, further, as this Committee’s report amply demonstrates, the 

Majority report the Chairman previously entered into the record, 

the Department did not follow the requirements of the Executive 

Orders (EO) and the Office of Management and Budget (OMB) 

guidance governing the proper development of Federal regulations, 

the cost estimates and considerations of regulatory alternatives. Email exchanges in that report between the SEC staff and Labor officials revealed that the Department of Labor at the proposal stage 

refused to fully consider some of the alternative regulations on the 

grounds that doing so would be too time consuming. The staff at 

the Treasury Department raised concerns about whether the Department’s use of this authority was, in fact, consistent with Congressional direction in the rule. 

And the final rule continues to have unrealistic cost estimates, 

such as assuming that legal counsel that comply with the new rule 

will cost, on average, $134 an hour, which I think if you have gone 

out and priced legal counsel, particularly in a specialty area like 

ERISA, is a little bit underpriced. 
9 

1The prepared statement of Mr. Kovacs appears in the Appendix on page 110. 

They further estimated that it would take 10 minutes of one lawyer’s time to make certain disclosure changes, on which liability 

under a class action in State court might hinge. I assure you, it is 

going to cost more than $22.33 to analyze that particular provision 

for anyone complying with this rule. 

To conclude, as I described in more detail in my written testimony, I think the Committee should consider consolidating these 

fragmented requirements, some of which are in Executive Orders, 

some of which are overseen by OMB, some of which are in the law, 

to engage in a comprehensive legislative process that would make 

valid economic analysis and other essential elements of this process 

enforceable. 

Thank you very much for the opportunity and I look forward to 

any questions. 

Chairman JOHNSON. Thank you, Mr. Campbell. 

Our next witness is William Kovacs. Mr. Kovacs is the Senior 

Vice President for the Environment, Technology, and Regulatory 

Affairs at the U.S. Chamber of Commerce. Mr. Kovacs. 

TESTIMONY OF WILLIAM L. KOVACS,1 SENIOR VICE PRESIDENT, ENVIRONMENT, TECHNOLOGY, AND REGULATORY AFFAIRS, U.S. CHAMBER OF COMMERCE 

Mr. KOVACS. Thank you, Mr. Chairman, for inviting me to testify 

on The Administrative State: An Examination of Federal Rulemaking. 

Before beginning my testimony, I would like to thank the Committee for its bipartisan passage of the Federal permit streamlining 

legislation last year and for Chairman Johnson, Senators Portman 

and McCaskill, for their leadership on the effort. 

On the Waters of the United States, the Chamber greatly appreciates the efforts of Senator Heitkamp, a consistent leader on the 

effort, she has put forth in S. 1140 a very practical and workable 

solution to the Waters issue. 

Now, turning to examining Federal rulemaking, how Federal regulations are developed by agencies should be a bipartisan priority 

for Congress so as to ensure that the legislative powers that Congress delegates to the agencies are used to achieve Congressional 

intent. 

Controlling Federal agencies has been a challenge to Congress 

since the first agency was created in 1887. To circumscribe the legislative powers of agencies, Congress enacted the Administrative 

Procedures Act in 1946, and it has not been amended since then, 

to ensure fairness to affected parties by allowing them to test the 

soundness of an agency’s proposal through exposure to public comment and to develop evidence in the record to support their views 

so that you can have clear judicial review. 

Unfortunately, due to the broad laws passed by Congress, the 

APA’s informal rulemaking process has morphed into a process 

that allows agencies to issue very expansive regulations that are 

well beyond anything Congress intended. And, with the courts 

granting considerable deference to the agency decisions, agencies 
10 

avoid the stringent judicial review that is required by an independent agency and the Constitution. 

The consequence of this is regulations like WOTUS that are far 

broader in scope than Congress ever intended. Yet, these regulations are imposed by agencies with little effort. Legislating is hard 

work, but agencies can legislate with little work. 

In the WOTUS rule, the Environmental Protection Agency 

(EPA), under the pretext of clarifying a definition, added several 

new definitions, unintelligible definitions, to existing definitions, 

thereby producing a rule so confusing and all encompassing that 

the agencies could bring their jurisdiction to nearly every water 

feature and associated land under its jurisdiction. In essence, EPA 

turned itself into a national zoning board. 

The WOTUS rule has resulted in such uncertainty that 30 States 

and many stakeholders have filed lawsuits in 12 Federal District 

Courts and eight Federal Circuit Courts. 

EPA produced this unworkable rule by simply ignoring the procedures Congress had put in place for years and decades. They failed 

to evaluate the impacts under the Unfunded Mandates Reform Act 

(UMRA). They failed to look at the Information Quality Act (IQA). 

They ignored the Regulatory Flexibility Act (RFA). And, they failed 

to examine and do the analysis on job impacts for almost 40 years. 

Had EPA followed Congress’ direction, it would have learned that 

the States, not EPA, implement 96 percent of EPA’s delegated programs, and that by placing more and more of these massive regulations on the States without any new funding, it is straining the implementation, and that is really crucial, because if they are implementing 96 percent and in a 6-month period of time EPA put on 

ozone, Waters of the U.S., and clean power, that is amazing for a 

group of individuals who are not getting any more money than they 

got literally 20 years ago. 

EPA would have discovered, also, in the Waters of the United 

States, that counties—this was a point totally ignored by the agency, because they said we do not have to do unfunded mandate reviews—that counties that build and maintain almost half the roads 

in the United States, and under WOTUS, all of these counties, just 

to move dirt along the thousands of miles of roadside ditches that 

WOTUS considers tributaries, they are going to need a permit. And 

a dredge and fill permit costs about $150,000 per permit. 

So, moreover, the Government Accountability Office (GAO) then 

found that the millions of EPA’s alleged supporters were the creation of social media, which was a violation of the anti-lobbying 

statute. 

Here is the challenge for Congress. You cannot look at every 

rule. You have to preserve the efficiency of the informal process for 

the vast bulk of the 4,000 rules a year. But, for those rules that 

are extraordinarily complex and costly, and there are not a lot of 

them, the agencies must be required to do the extra homework to 

consult with the various parties. And, again, I do not want to keep 

on referring to S. 1140, but it is one of the requirements and it is 

very clear, and that is so important to getting the rule right. 

The agencies, when they are doing this, they need to ensure that 

they are going to do the extra work, but one of the bills that is before this Committee, S. 2006, the Regulatory Accountability Act 
11 

1The prepared statement of Mr. Weissman appears in the Appendix on page 141. 

(RAA) introduced by Senator Portman and referred to this Committee, really strikes that balance. The House has passed it four 

times and it is really time for the Senate to begin taking up this, 

because what it does is it distinguishes between the 3,700 regulations that basically keep society running and the five to 50 regulations that really cause problems, and it is so important. 

And, what it does is it establishes a clear process for the agencies 

to follow and clear procedures that the courts can review. It requires greater transparency, more homework by the agencies on 

complex rules, discussions with impacted parties, and understanding of the impacts of unfunded mandates, and a mechanism 

that allows the public to question the agencies to ensure that Congressional intent is achieved. I recommend you looking at this bill 

in any way. 

Thank you for allowing me to testify today and I would be glad 

to answer any questions. 

Chairman JOHNSON. Thank you, Mr. Kovacs. 

Our final witness is Robert Weissman. You have a pretty short 

bio here. You are the President of Public Citizen. Mr. Weissman. 

TESTIMONY OF ROBERT WEISSMAN,1 PRESIDENT, PUBLIC 

CITIZEN 

Mr. WEISSMAN. Thank you very much, Chairman Johnson and 

Members of the Committee. My written testimony goes into some 

detail about the three case studies of this hearing. My oral remarks 

will be focused more generally on the regulatory process itself. 

I wanted to make three points. The first is that although people 

focus on process all of the time, really underlying the thinking 

about process is some views about the benefits and costs of regulations themselves. And, so, I think we really should have as a starting point a recognition that regulation has made our country 

stronger, safer, more secure, cleaner, and healthier. It has made 

our economy stronger. It has reduced the risk of financial risk 

when regulations were properly maintained. It made our food safer, 

our cars safer. It made it easier to breathe, improved children’s 

brain development, empowered disabled persons, guaranteed a 

minimum wage, and far more. 

When there are serious efforts to try to weigh the costs and benefit of regulation, it is a problematic exercise, but the best effort 

by far is from OMB, which uses very conservative accounting methods for benefits. It finds, at a minimum, benefits outweigh costs by 

2-to-1, and maybe by as much as 15-to-1, consistently across time, 

across administrations. 

Chairman Johnson, you mentioned the $2 trillion figure for cost. 

I think if you examine the studies that make those claims in more 

detail, you will find that they are not credible studies. I am happy 

to discuss that further. 

Costs, it turns out, are regularly and routinely overstated by industry for understandable reasons. But, if we look back historically 

at most of the most severe claims about costs of impending regulation, it turns out retrospectively that the apocalyptic claims did not 

come true, for the environmental area, worker health and safety, 
12 

a vast array of consumer protection. Many of these are detailed in 

my written testimony. 

Additionally, there is no good evidence that regulation contributes to job loss. Before ending its survey for budgetary reasons, the 

Department of Labor collected information on why employers laid 

people off, and they rarely referenced regulation as the reason. 

Finally, in terms of thinking about benefits and costs of regulation, we should recognize the cost of regulatory failure. And if we 

are thinking about the economy at all, the most significant fact of 

our recent time, or even in the last 70 years in the economy, is the 

collapse in 2008. There is no way to understand what happened, 

whatever your accounting of it is, there is no way to understand 

that as anything but the result of a regulatory failure. The cost to 

the economy was on the order of $20 trillion, far exceeding any 

plausible cost of regulation. 

My second point, although I think it is important to understand 

the benefits of regulation, and the benefit as opposed to cost, there 

certainly are severe problems with the regulatory process. I think 

the number one for any of us involved in the rulemaking process 

is extended and unreasonable delay. Those delays have very real 

costs both in accruing the benefits of regulation and in denying 

businesses the certainty they need to make appropriate investment 

decisions. 

A bunch of case studies in my written testimony. Just to quickly 

reference two, Congress in 2008 passed a law requiring auto makers to install backup cameras or equivalent in their automobiles. 

You all set a statutory deadline of 2011 to do so. The Department 

of Transportation (DOT) failed to meet that deadline again and 

again and again. Only in 2014, after a lawsuit that my organization initiated, did the agency finally establish a deadline, and we 

will now in 2016 now have mandatory backup cameras going forward. The cost of that delay is hundreds of lives, mostly children, 

and tens of thousands of injuries that could have been averted. 

My second example, in the area of interest to many on this Committee, is oil trains, where the rulemaking process has been appallingly slow. Members on both sides of the aisle have complained 

about it, and that is not just an accident because the agency is 

inept. It is because of the rulemaking process itself. 

A second area of concern is weak enforcement. If we have existing rules, they ought to at least be enforced properly. 

And a third area, which I will just rush through because I am 

running a bit low on time, is the use of cost-benefit analysis moving beyond as an analytic tool but to the decisionmaking criteria 

has led to an industry slant that is now, I am afraid, characteristic 

of the entire rulemaking process and itself has infiltrated the judiciary. 

My third and final point, this Committee has been a welcome exception to much of the partisan divisiveness over the regulatory 

issue, but I do think there are areas of common ground for this 

Committee and others to explore. 

The first thing, in my view, should be the failure of agencies to 

adhere to statutory mandates. If Congress gives a deadline, the 

agencies ought to take that seriously. They do not, and no one in 

Congress should accept that. 
13 

Second, there is a huge problem in a number of agencies with revolving door, people going into agencies, out of agencies, and into 

regulated industry. I think that is an area where there can be common ground. I know there is interest on that issue in this Committee. 

The third area to look at would be proper regulatory enforcement. As I mentioned, we have—and partly it has to do with regulatory budgets, but agencies are not able to enforce the law properly. 

And as a final point, I think there ought to be more attention to 

how regulations can advance the interests of small business and especially promote market competition. Markets do not actually just 

happen on their own. They require appropriate rules. And in the 

absence of intervention from the government to assure fair market 

competition, we see too many oligopolies and monopolistic practices 

in the marketplace. 

Thank you very much. 

Chairman JOHNSON. Thank you, Mr. Weissman. 

First of all, nobody, I think, argues that you do not need regulations, or government, it is a matter of over-regulation, regulations 

that create a great deal of uncertainty, and that is—what is happening right now is this massive government is flooding the zone 

and it is almost impossible to comply with everything. There was 

a book written, what is it, Three Felonies A Day. You end up not 

a Nation ruled by law when you have so many laws, so complex, 

enforced at the discretion of prosecutors and regulators. I mean, 

again, it creates such a high level of uncertainty. 

For example, with the net neutrality rule, it is dampening investment. It is a real concern. We saw over-regulation in Europe, investment in the Internet declined. 

Professor Turley, I want to talk—because you were exactly right. 

Congress has given away its authority in so many areas. Here is 

an example, and I realize these numbers are always subject to dispute, but it gives you some indication. When Obamacare was 

passed, there were 380,000 words—I use words, because page count 

is different. Dodd-Frank was 368,000 words. Now, these are not 

exact numbers, so a caveat when I get PolitiFact checked on this. 

Obamacare now is approaching 20 million words. Dodd-Frank is 

somewhere around 15 to 16 million words. 

Who is writing that? It is certainly not Congress. So, Congress 

passes frameworks and basically, for a host of reasons—you mentioned the Chevron decision—just giving all of the authority to the 

agencies. It is giving it away. And, of course, the agencies have 

definitely accepted it. 

So, I want to talk a little bit about—you talked about the Administrative Procedure Act, which is supposed to try and set up a process for rulemaking that involves the private sector. What can we 

do to strengthen it, because if we do not catch it on the front end, 

the legal system is the only recourse, and I want to talk a little 

about that. But, let us talk about what we need to do on the front 

end, maybe at the Administrative Procedure Act, to prevent this 

type of fourth branch of government taking over this Nation. 

Professor Turley, can you speak to that. 
14 

Mr. TURLEY. Thank you, Mr. Chairman. I think that the two 

things that the Senate needs to keep in mind is that, first of all, 

the APA was never designed to be an alterative to the democratic 

process. It was never designed for that function, but it is functioning that way. It is functioning as a governing system. People 

elect you. They believe that you are the ones that write laws. But, 

I think we all recognize that is really not the case. You actually 

write a very small fraction of the laws that affect most people. 

So, partially, which I believe is important, is that this Congress 

has in the past tried to pull back a more active role when it comes 

to major regulations. I think that is a very good idea, as I say in 

my testimony. 

The second thing is I think the Congress has to be honest about 

what is sort of a noble lie. The APA talks about the public participating in the regulatory process. If you take a look at some of our 

recent controversies, like the one that was just heard in the Supreme Court involving immigration, the administration asked for 

changes from Congress. Those changes were not given by Congress. 

And then the administration just declared them general statements 

of privacy and not only ordered them unilaterally, but did not even 

satisfy the notice and comment period. 

And if you take a look at the net neutrality controversy, no matter how you feel about net neutrality, you cannot possibly believe 

that that is a good process for the American people. This is a huge 

issue involving billions of dollars. Millions of people are relying on 

it for communications. And yet it is this opaque system where rules 

change in short order and you can see the total disregard of the 

notice/comment period under the APA. 

So, I think that the most important thing for this body to recognize is regardless of what comes out of this, the APA is not functioning the way it is supposed to function and this body needs to 

be more active in the lawmaking part of this administrative state. 

Chairman JOHNSON. So, again, kind of new on the scene, here for 

5 years just watching this, not being an attorney, I am seeing the 

APA as a potential check because it is being violated. It is being 

ignored. Tell me how effective it has been in terms of court challenges when the administration violates it. 

And how long it takes. 

Mr. TURLEY. Well, I do not mean to laugh, but if it was not so 

sad, it would be a laughing matter. I mean, as a litigator, going forward on an APA claim is truly a quixotic endeavor. The agencies 

require very little for agencies to satisfy the APA. You have to 

allow for the notice and comment period. That is what was so 

shocking about United States v. Texas is that they were actually 

circumventing what is the least burdensome requirement in government. 

But, in reality, agencies are often criticized for reaching a conclusion and then sort of having this sort of Potemkin village of the appearance of participation and then issuing largely those same results. 

In my view, the APA serves very little in terms of public benefit, 

but when you go to court, as long as they check off those procedural 

requirements, which are a minimum, you are pretty much done. I 

mean, the courts do not really get into this very much. 
15 

Chairman JOHNSON. So, if you get an injunction against a particular executive action because you have not followed APA structure, you are really ignoring the will of Congress, basically, is that 

right? 

Mr. TURLEY. Yes. 

Chairman JOHNSON. Mr. May, I want to talk a little bit about 

the independence of an agency and the FCC. Now, in our report, 

it is pretty shocking. Supposedly an independent agency. You take 

a look at the timeline of where the FCC was going in terms of their 

open Internet rule and how they turned on a dime in reaction to 

President Obama’s statements on where he wanted to go with the 

regulation of this. Can you talk about how important it is, having 

been part of the FCC, to actually have an independent agency independent of the administration? Actually, by the way, the FCC is accountable to Congress, not the administration. 

Mr. MAY. Thank you, Senator Johnson, and thank you, by the 

way, for the report that the staff issued, because I know it is not 

easy getting that type of information, I assume, from the Commission, with those e-mails. But, they were useful and the report was 

very helpful and illuminated—— 

Chairman JOHNSON. It is a little bit like pulling teeth. 

Mr. MAY [continuing]. Well, I have tried to pull a lot of teeth 

over there in the last several decades. But, anyway, thank you for 

the report. 

The question of the agency’s independence, like a lot of these 

things, some of the lines are not hard and fast where you could 

draw a bright line. And to be honest with you, this process was 

troublesome, as I am going to explain. We are waiting for a D.C. 

Circuit decision that could come down any day on the FCC’s net 

neutrality rulemaking, so I am a little reluctant to say exactly 

what the FCC did as, unlawful, because maybe, unless the Supreme Court comes up, who knows what the court will say. 

But, here is the problem in this particular case. First, the way 

that the President intervened was much different and more high 

profile than anything that did occur, previously, in my experience, 

long experience. And by that, I mean, typically, the administration 

would submit comments during the comment period, this is our 

view, or write a letter, and there is nothing improper about that 

in terms of compromising the agency’s independence. 

In this case, what happened, the President released a video and 

a statement and it said in there, there is a bit of a wink and a nod, 

I know you are independent, but I am specifically asking that you 

take this course of action, which was the title to the public utility 

regulation. And then there is, as you know from what you uncovered, the staff had already prepared at Chairman Wheeler’s direction a draft notice which went in the other direction, the more light 

handed regulation, just to simplify it. 

Well, within days, they were directed to start drafting another 

notice which did specifically what President Obama asked them to 

do, and they did not issue a further notice seeking public comment. 

Now, another thing that makes that problematic is that in the 

original Notice of Proposed Rulemaking (NPRM), which had probably 500 questions in the notice, there were only two paragraphs 
16 

that were exploring—that asked about taking this Title II approach 

and, gazillions of others about the other approach. 

So, when you put that all together in terms of the context of 

what happened, it does give the appearances that the agency’s 

independence was compromised, and without doing an administrative law lecture here, the idea of these independent agencies like 

the FCC and SEC and the Federal Trade Commission (FTC), as 

you know, when they were set up, it was to be—they have multimember commissioners, staggered terms, fixed terms. All of that 

was to give them independence that is different from the Executive 

Branch agencies. The President can tell the head of EPA to do 

whatever he wants them to do. If they do not do it, he can fire 

them. That is not the case with the FCC’s Commissioners. 

So, when you have the context and you put it all together, what 

it does, I think, at bottom, as I said in my testimony, it jeopardizes 

the appearance that the FCC is independent and is acting on the 

basis of political considerations rather than on the basis of, its expertise, which as Professor Turley knows, of course, was the 

premise for establishing these agencies. 

Chairman JOHNSON. Well, it is pretty obvious they were not acting independently. 

You said it is very difficult, it is like pulling teeth to get information. We have yet to get that draft open Internet order—— 

Mr. MAY. Can I just say one thing? 

Chairman JOHNSON [continuing]. Or that draft Public notice. We 

cannot get it. Kind of, why is that? 

Mr. MAY. Just very quickly, I mentioned the high profile nature 

of this intervention. What is disturbing, too, is that the President 

also intervened in the same way in what is referred to as the municipal broadband preemption proceeding, and just last week, there 

is this very controversial proceeding, a lot of problematic areas 

about set-top box regulation, where the market seems to be working, really, fine. It is very dynamic. And he came out and essentially took a very specific position in another high profile way. And, 

so, I am worried if we see this become the pattern or the norm 

rather than historically what happened was he would file comments through the National Telecommunications and Information 

Administration (NTIA) in the FCC’s proceeding. 

Chairman JOHNSON. Well, one thing I entered into the record 

here, this 1991 Office of Legal Counsel letter on ex parte communication. I mean, here is the quote. ‘‘White House staff members 

should avoid even the mere appearance of interest or influence, and 

the easiest way to do so is to avoid discussing matters pending before the independent regulatory agencies with interested parties 

and avoid making ex parte contacts with agency personnel.’’ I 

would say President Obama kind of talked about it. Senator 

Heitkamp. 

OPENING STATEMENT OF SENATOR HEITKAMP 

Senator HEITKAMP. Thank you, Mr. Chairman. 

I would suggest that we be a little careful on how we define ex 

parte contacts, given that every one of us comments to agencies 

and calls them in during their regulatory process, whether it is 

DOL or whether it is EPA. So, we need to be a little careful, be-
17 

cause if you are worried about ex parte contacts, that could be not 

just the administration—— 

Mr. MAY. But there is a specific—— 

Senator HEITKAMP. I have a question. Mr. Kovacs, thank you so 

much for your comments, because I think that you hit the nail on 

the head, that this is an abrogation. This is Congress saying, these 

are too tough for us to deal with. We cannot find common ground, 

so we would rather rail at the administration, we would rather rail 

at the agencies that draft these rules, which, oh, by the way, they 

are going to reflect the politics of whoever sits in the President’s 

chair who appoints the person who sits at the cabinet table. 

So, we own this problem, in my opinion. We do not do 

things—and I go back to judicial review, and you said very seldom 

does this happen. Waters of the United States is a failure of judicial review to provide clear guidance. They have rejected the EPA 

definition not just once, but twice after very costly litigation. 

So, if I am going to solve this problem, what I am going to do 

is I am going to legislate. I mean, that is where we get into all of 

this discussion about railing against administrative agencies like 

we have no control. 

And, I would say, when we start out a sentence with, because of 

regulation, we are safer, regulation is done at the direction of the 

Congress. It should be because of legislation, we are safer, and we 

have not done what we need to do to be clear in legislation. Therefore, it takes hours and days, and you can criticize the length of 

the process, but I have a certain sympathy for agencies who cannot 

seem to get that work done when we have given them no resources 

to do it and these are such tough issues, we have dodged them, 

whether it is an issue of regulation, whether it is Waters of the 

United States. 

And, so, there are two issues here. No. 1, dealing with, I think, 

Mr. Kovacs, you talked about that small percentage of rules which 

really lead to a lot of the controversy and really having Congress 

take a greater role in analyzing those, but we should be here talking about APA changes, and we have had a number of discussions 

in the Subcommittee about what those changes should be, whether 

it is retrospective rulemaking, taking a look. 

We have some great legislation. Senator Portman has some great 

legislation on independent agencies. We think that we have done 

a pretty good job taking a look at appropriate pre-warning, whether 

that is Advanced Notice of Proposed Rulemaking, which has been 

criticized by the left because somehow they think that they do not 

have access to the same process, and depending upon who is sitting 

in the White House, we get different perspectives about what the 

overall process should be. 

I, personally, believe we need to amend the APA. We need to 

have a discussion about Advanced Notice of Proposed Rulemaking 

on major rules. We need to talk about what independent agencies 

should be required to do in terms of cost-benefit analysis, and for 

the life of me, I do not know—we are in a big debate about how 

we say that, right? I mean, that is the absurdity that we are at 

here. 

And, so, on all of these issues, if we could find common ground, 

I think that—and set a new path for amending the APA in areas 
18 

where we can all agree, which I think there are, but we way too 

often criticize regulatory agencies when the criticism really should 

be back at Congress for failure to respond. 

So, if you had to list the ten rules from your perspective, Mr. 

Kovacs, what would be those ten rules that you think Congress 

should legislate a solution to? 

Mr. KOVACS. Well, you can take—here is what the difficulty of 

taking ten rules, and there are. I could go through ten. 

Senator HEITKAMP. Yes. 

Mr. KOVACS. You go through Waters of the United States, you go 

through clean power, net neutrality, set-top boxes. I mean, we 

probably—— 

Senator HEITKAMP. Yes. DOL—— 

Mr. KOVACS [continuing]. If we sat around—DOL—we would 

probably all come to an agreement on what they are. 

You hit the nail on the head when you said Congress needs to 

amend the APA. That is the bible of the administrative state, and 

you need to, frankly, tell the agency, you have to check off this box, 

this box, and not just check off. If it says you have to talk to small 

business and see if they are hurt, they really have to talk to them. 

They cannot just check it off and say they are not here. 

The other thing is, by doing so, you give the court clear standards for review, which the court does not have. So, right now, the 

court is looking at two or three million pages of a record, and in 

that record they are saying, we do not know what the science is. 

We do not know what the economics are. We are going to give deference to the agency. It is really up to Congress to say, here is 

what we want the agency to do to get to this, because after all, the 

goal of all of this is to get a rulemaking that implements what Congress wants done. And then the court needs to be able to look at 

that in a very strict way, not just with general deference. 

And that alone for those 5, 10, 15, 20 rules, you really only probably get five or six a year, and the agencies can handle that, because they have 4,000 rulemakings and you are asking them to do 

more. And the best example is, I think it was about 10 years ago 

when the Occupational Safety and Health Act (OSHA) did 

ergonomics. The OSHA system is something you should really look 

at, because their on-the-record rulemaking, some of the opponents 

of it would say, well, it takes too long. They did the entire 

ergonomics rule, which is a multi-billion-dollar rule, they did it in 

less than a year. They did it faster than if you were going to 

have—if you were going to go through the informal process where 

you take in millions and millions of comments. 

But, the other thing that is really amazing about it is they give 

a record that a court can review. Courts understand findings of fact 

and conclusions of law and the agencies have to give it to the 

records, and that is—Senator Portman’s bill does a lot of that, to 

get you to that point where a court can actually review it. 

Senator HEITKAMP. Yes. I think the interesting thing is that if 

we had a Republican administration, the dialogue might completely 

shift between what the Republicans are saying and what the 

Democrats are saying, and we cannot have that kind of political 

roller coaster based on who is sitting in the White House. We have 

to have rules of the road. Policies will change based on who is run-
19 

ning the Congress. Policies will change based on who is the President. But, there should be a baseline, and I think we have lost, I 

think, a lot on both sides feel that that baseline has turned into 

quicksand. We do not know what the rules are anymore and we do 

not really have an independent place to go to get evaluation and 

analysis. 

And, so, we are going to continue to work on systemic changes. 

I am going to continue to work on legislating on Waters of the 

United States, because I think, ultimately, after, what, at least 20 

years of litigation in the Supreme Court, we ought to take some responsibility for the definition. 

But, I really believe that this should not be as partisan as what 

it is, that we really ought to have an opportunity to have a broader 

conversation, and I am going to keep pushing for that here. 

Mr. KOVACS. Thank you. 

Senator HEITKAMP. And, really appreciate your testimony. We 

really appreciate the work that you have done, the effort to kind 

of analyze this from, I think, a politically neutral kind of standpoint, because to me, this is not a political issue. This is about 

what are the rules, how are we going to evaluate whether people 

are complying with the rules, agencies are, but how are we going 

to better evaluate Congress’s failure to provide greater guidance in 

all of this, thereby enabling agencies to legislate—in fact, not just 

enabling, requiring agencies to legislate. And, so, these are problems that we should not look at through a political lens. 

So, thank you, Mr. Chairman. 

Chairman JOHNSON. Thank you, Senator Heitkamp. 

And, by the way, I am surprised that it is partisan. I mean, let 

us face it, every one of us who serve in this body meets multiple 

times a day with groups coming in, business groups, universities. 

They all complain about the same thing and they are all asking for 

relief from the regulatory burden here. So, it surprised me we could 

not put together our relatively modest little package of regulatory 

reform bills, have a process of subtraction as opposed to addition, 

but we were not able to do that, so let us continue to work with 

you and Senator Lankford and your Subcommittee to make this a 

nonpartisan issue and actually get some reform. Senator Portman. 

OPENING STATEMENT OF SENATOR PORTMAN 

Senator PORTMAN. Thank you. 

Now that she is leaving, I can say good things about her. [Laughter.] 

As a Republican, she might not want me to say, but what Senator Lankford and Senator Heitkamp have done in the Subcommittee is extraordinarily good work, in my view. One of the 

things Mr. Kovacs has spent a lot of time on, as you know, is the 

Regulatory Accountability Act and how do we reform the APA for 

the first time in 70 years. I mean, think how the world has 

changed since then, how much more complex the issues are we 

have to face. 

And the reality is, yes, Congress has not legislated in a way that 

gives the agency the guidance that they need, and it is partly because of the complexity of the issue, whether it is with regard to 

net neutrality or Waters of the United States or the fiduciary rule 
20 

or health care, and as a result, we need to update the APA. I mean, 

it is well meaning at the time, but I do think we have the right 

balance with regard to the Regulatory Accountability Act. It is bipartisan. It has been from the start. It has passed the House a few 

different times already. And it is the one broad sweeping bill. 

I want to thank Senator Johnson, because as Chairman of this 

Committee, he has tried to push these regulatory issues where we 

can find common ground, not to say we are going to go with the 

Regulations from the Executive in Need of Scrutiny (REINS) Act, 

even though there are lots of Republicans who support that, but 

how do we find something that can actually find common ground, 

and I think the independent agency part of the Regulatory Accountability Act is one of those relatively small bills that we should 

be able to get done, even in this environment. We have not been 

able to yet. But, I do think that the Regulatory Accountability Act 

is going to help to solve some of these problems. 

And, I would just ask you an interesting question right now, because we are in the middle of all of these very troubling rules. I 

was on a dairy farm over the weekend in Ohio talking about Waters of the United States. You can imagine this dairy farmer, who 

is struggling to try to keep the narrow margins that he has, looking 

at his ditch that only fills up in the spring with water and he is 

wondering whether he is going to have these costs imposed on him 

if he wants to develop that area or put a bridge across it or whatever. The EPA itself, I think, has said that the average cost is 

going to be $155,000 to alter a ditch on someone’s property. He 

does not have that $155,000. 

But, in your written statement, Mr. Kovacs, you talked about 

that the real victims of the Federal administrative state overreach 

are not just these individuals like this dairy farmer, but also our 

States, because the States are being asked to implement sweeping 

changes without their consultation or support. 

As you know, the Regulatory Accountability Act, which is 

S. 2006, you talked about, does not just update it. It ensures agencies are doing the legwork, have the transparency, have the meetings for the larger rules. As you said, there would be the kind of 

scrutiny you would expect to have with rules that have a greater 

impact at a public hearing, so there is a chance for a public administrative hearing to have these kind of points of view expressed. 

Here is my question for you. If the Regulatory Accountability Act 

had been in law at the time when the Waters of the United States 

was going through the rulemaking process, do you think the rule 

would look different than it does today? 

Mr. KOVACS. Well, it certainly would look different, just because 

of what the RAA would require. First of all, it would incorporate 

all of the provisions in the Executive Order, which brings in the 

cost-benefit analysis, the cumulative impact. 

Second, it would bring in the concepts that are in the Information Quality Act, which gets to the connectivity of water. It would 

require that they go through and set up the Small Business Regulatory Enforcement Fairness Act (SBREFA) panels, which are so 

important, because they actually bring in and talk to businesses. 

It would actually require that they pull in the jobs analysis that 

the agency has been required to do for 45 years and has not done. 
21 

But, more important, what it does is it sets up the specific issues 

that a court must review. So that when EPA right now says there 

are no unfunded mandates because the State is going to do it and 

it is only a definitional change, check the box, its indirect effect on 

small business, EPA checks the box, the court is now able to review 

and say, did you do the kind of analysis on Waters of the U.S. that 

you needed, and had they talked to these various people, they 

would have talked to the counties and the counties would have 

said, my God, you have just made all of the ditches on the side of 

the road a tributary and do you realize it is—according to the 

Corps of Engineers, it is $155,000 per permit? Well, how many 

hundreds of thousands or tens of thousands of miles are there of 

ditches? That is just one example. 

They would have talked to the small businesses. They would 

have talked to your farmer and they would have said, well, we 

have a problem. Maybe you are going to exempt farmers from the 

dredge and fill permit, but do you realize when we apply pesticides, 

we are actually doing a discharge under the Waters Act. I mean, 

and they would have learned these things. 

They went through the rule, saying it is a definitional change 

and we are not changing anything, and so it would have looked 

dramatically different, plus a better chance for court review. 

Senator PORTMAN. I think you are absolutely right, and the court 

would have been able to review the actual requirements in the 

RAA, which would have given us the basis, should the administrative agency overreach, to be able to have a better chance of overturning it. 

On the net neutrality rule, and I guess, Mr. May, you are the expert on that, I think it is another great example where if you had 

the RAA in effect, or even just the independent agency rule in effect, you would have a very different result. And, these numbers, 

but despite the President’s Executive Order 13579, where he said 

that independent agencies should comply with the Federal agency 

requirement to propose and adopt regulations only upon reasoned 

determination that its benefits justify its costs, despite that, independent agencies often still do not do any cost-benefit analysis for 

major rules. 

In fiscal year 2014, only one major rule out of 17 issued by independent agencies included a complete monetized cost-benefit analysis—only one. And if you look back over the last 3 or 4 years, the 

record is no better. 

So, my question to you is sort of the same. This is an independent agency that did not follow this. If they had undertaken a 

more thorough cost-benefit analysis, what would we have ended up 

with? Would we have ended up with a better rule? 

Mr. MAY. The short answer is, yes, we may have ended up possibly with no rule, or almost no rule. There are aspects of it which 

might have still some relevance. 

But, I think to illustrate this in a way that paints the picture, 

in the final order, the FCC—it was all put in conjectural terms, 

what might happen, could happen as opposed to any type of rigorous analysis. We counted over 250 times in the order where the 

FCC said this could happen or that might happen, as opposed to 

detailing evidence of incidents, other than a few. There are about 
22 

four acknowledged instances that happened that could be net neutrality-type violations that were quickly remedied. 

So, essentially, I do not think anyone argues there was a costbenefit analysis. Presumably, had there been one, the FCC would 

have determined that the rule was not needed, or perhaps this 

FCC might not have, but then a court, at least, would have had 

a record that would have been one that would have allowed it to 

review, really, the costs and benefits. 

Senator PORTMAN. Yes. And, judicial review of everything on the 

private sector side, and yet with these rulemakings, not having 

that judicial review is obviously a huge problem right now with the 

overreach. 

I am going to submit some more questions for the record to you, 

Mr. Campbell, because I agree with you on the fiduciary rule, and 

I also, sadly, having been at the Department of Labor and seeing 

this, you understand the impact, which is going to be keeping small 

businesses from having a plan. I think this is overreach into the 

IRAs. If you look at where their jurisdiction is, typically, it has 

been with regard to plans, company plans, and I think there are 

other concerns about the final rule, as well, that I am very concerned about for low-and moderate-income savers. 

But, I will be submitting some questions to the record for you. 

I hope you will be able to respond to those quickly and we will be 

able to better get those out. 

Mr. CAMPBELL. I look forward to it and be happy to, sir. 

Senator PORTMAN. Great. Thank you, Mr. Chairman. 

Chairman JOHNSON. Thank you, Senator Portman. Senator 

Ayotte. 

OPENING STATEMENT OF SENATOR AYOTTE 

Senator AYOTTE. Thank you, Chairman. 

I want to thank all of you for being here today. I, too, am an 

original cosponsor of the Regulatory Accountability Act. I would 

love to see us pass that and the REINS Act and many other efforts 

to reform this process. 

But, I have to ask, where do we fall in this, because it seems to 

me that we pass a lot of laws and we give the discretion to the 

agencies. I can think of many examples. I was not here when the 

Affordable Care Act (ACA) was passed, certainly, but there are 

more ‘‘Secretary shalls’’ in that. But, that is not the only piece of 

legislation that we can get that example. There is almost every 

major piece of legislation, we defer major decisions to these agencies. 

So, do we not have a part in this? Should we not be looking at 

more tighter drafting of the statutes that we put forward? Mr. 

May. 

Mr. MAY. Yes. Now, of course, it is true—I think Mr. Kovacs 

said, Congress cannot legislate all of the details of all regulatory 

programs. That is true. But, you can be more specific in some 

cases. I am going to give you an example from the communications 

area that I practice in. I know you are familiar with it, as well, 

from your Commerce—— 

Senator AYOTTE. Commerce Committee, yes. 
23 

Mr. MAY [continuing]. Committee perch. But, the Communications Act, as you know, delegates to the FCC the authority to act, 

‘‘in the public interest,’’ actually 110 times in the Communications 

Act. You can see I have done a lot of counting of these things. But, 

to my way of thinking, going to Professor Turley’s point, number 

one, if I were on the Supreme Court, that would be unconstitutional because it is a meaningless delegation to go act in the public 

interest, but the Supreme Court has—— 

Senator AYOTTE. Fairly broad, as you can imagine. 

Mr. MAY. Yes. I mean, the real definition of that is it means 

whatever three of the five FCC Commissioners say it does on any 

given day, and that is the truth. 

So, here is a concrete example, because I do have my communications expertise, and then I want to make one administrative law 

point. So, there is talk about rewriting the Communications Act, 

and when you think about that and when that is ultimately done 

next time, the Congress should specifically in the legislation include a requirement that FCC decisions should take into account 

marketplace competition and consumer welfare. Now, that 

sounds—I mean, that is typically what you are trying to figure out 

when you are thinking about legislation, but in the Communications Act, you have the public interest delegation rather than marketplace competition. 

But, the other thing I would say, really, is that it is 

important—so, Congress should legislate more specifically sometimes. But, the bills like the Accountability Act and things like that 

that at least focus attention on the major rules of economic significance, how those are defined, I mean, I think it is important that 

that type of legislation be passed so that at least the rules with the 

major impact can, in one way or another, receive more attention. 

Senator AYOTTE. Mr. Campbell, I know that Senator Portman 

touched briefly on the fiduciary rule that has been issued by the 

Department of Labor. The first reiteration of the rule also included 

Employee Stock Ownership Programs (ESOPs), and I helped lead 

the effort to get the ESOPs out of it because it would have really 

undermined, if not destroyed, that model of employee ownership. 

So, we were able to get some traction there when they reissued the 

rule. 

But, on the latest version, I share many of the concerns that Senator Portman has raised, and, in fact, last month, the Senate Banking Committee held a confirmation hearing for two SEC nominees 

and both nominees commented that they were concerned that the 

fiduciary rule would make it harder for American families to plan 

and save for retirement. But, because the rulemaking process, to 

a large extent, there have been lots of comments submitted, and I 

have not just had this experience with the fiduciary rule, but where 

you have a whole host of comments that are submitted from a wide 

variety of stakeholders and they seem to be pretty much ignored. 

And we now, I think, also are seeing it with some of the new 

rules that DOL has issued on overtime. I have nonprofits in my 

community. Literally, my nonprofit community has been going 

crazy, saying this is really going to hurt our ability to serve our 

constituents. 
24 

So, I would like to get your comment on the fiduciary rule, but 

what about this comment process in general, which seems to be 

largely ignored, as far as I can tell. There is once in a while where 

you can get a good example where they are taken into account, but 

for the most part, I do not see the comment period as—even when 

people legitimately participate in this process—having a lot of interest from the agencies issuing it really taking these comments in 

full consideration. 

Mr. CAMPBELL. Well, I think you make a very important point, 

which is the power of an agency to proceed with its own policy 

judgment is relatively unconstrained, provided they check the 

boxes on the processes they go through, and one of those boxes they 

check is we made an opportunity for public comment. We looked at 

the public comments. We may not have taken any of the public 

comments, but we did take them and we did look at them. And, 

that is an important distinction between actually being informed by 

them, learning from them and adopting changes in response. 

I think the fiduciary rule is a particularly egregious example of 

this in how rapidly they went through this process compared to the 

normal Department of Labor process for considering comments. 

They closed out the comment period on September 24 on the most 

ambitious regulation making the most changes, I think, in the history of the agency. I think that is a fair assessment of the scope 

of this rule. And, yet, by the end of January, roughly 4 months 

later, they had completed a final rule, adopted a final economic 

analysis, and sent it to the White House Office of Management and 

Budget for review. I do not see how they could have done a truly 

credible job of considering those comments in that period of time 

given the scope of the comments and the number of issues in that 

rule. 

Senator AYOTTE. Thank you, Chairman. 

Chairman JOHNSON. Thank you Senator Ayotte. 

Let me go right to what happens legally—I will go to you, Professor Turley—when an agency checks the box, gets the comments, 

potentially in some of these cases tens of thousands of comments, 

and just completely ignores it. Does that set up a legal challenge? 

Does that help them in any way, shape or form? Or because of the 

Chevron decision, it does not make any difference? 

Mr. TURLEY. Well, I think that is—you put your finger on the 

main problem facing citizens when they try to get responsive action 

from agencies, is that they run into this truck called Chevron. And, 

Chevron affords sweeping deference to these agencies. The courts 

are not going to sit there and say, did you really listen to them, 

or did you sort of listen to them. As long as they went through the 

procedural requirement, the courts removed themselves. 

And, the courts have adopted standards which I find are just 

completely unintelligible. The greatest example is that the court 

has said that while Congress cannot delegate its core authority to 

an agency, it can give directions as long as there are intelligible 

principles. But, that standard is actually unintelligible. There is no 

there there. 

Chairman JOHNSON. Well, I was expecting Congress to do so. 

[Laughter.] 
25 

Mr. TURLEY. And, so, what happens is that you get to these 

courts and the courts will accept most anything as an intelligible 

principle coming from Congress, including these broad provisions 

that we talked about earlier with Randy, and you get hit on both 

ends. They get huge amounts of deference under Chevron and they 

also have these procedures that are very easy to satisfy, but they 

give nothing to people in reality in terms of consideration. 

And, what is happening then is that the center of gravity of the 

legislative process has moved into these agencies and these systems are really a Potemkin village. They give the appearance of listening to citizens, but these agencies have the ability to dictate exactly what they wanted originally, as long as they tell the courts, 

yes, we listened to them and it turns out we were right all along. 

Chairman JOHNSON. So, from what I have witnessed, it seems 

like the main benefit of the comment period is if the public floods 

an agency with comments and they are all pretty much on the side 

against the agency, there is a political effect of that, and sometimes 

agencies back off. But, when you have an administration that says, 

I do not care, push through, there is really no legal redress. 

Mr. TURLEY. There is not, and one of the things I suggest is that 

Congress can take on Chevron. I mean, Chevron, once again, is 

being treated like it is a fixed part of our system. It is not that old. 

And what preceded Chevron, the Skidmore standard, was not particularly onerous for agencies, but it did allow courts to take a serious look at what these agencies were doing. 

Congress actually can take measures to curtail Chevron, and one 

of them is to get a handle on this non-delegation debate by making 

it clear—I suggest a Chevron provision making it very clear that 

courts are not to give that degree of deference in various areas. 

Mr. MAY. Could I add—— 

Chairman JOHNSON. Mr. May. 

Mr. MAY [continuing]. A quick word. I do not know whether Professor Turley will agree or not, and I do agree that taking Chevron 

is good, but as a lesser included step, I think Congress could say 

the independent agencies, like the FCC, are not to be accorded 

Chevron deference even if the executive agencies are not addressed, 

and the reason for that is when you look at Chevron, the primary 

rationale for the Chevron decision was that when Congress leaves 

an ambiguity, that you should look to the administration and the 

President. I think the Chevron decision refers to deference to the 

administration. 

Well, in line with what we have been talking about, the independent agencies, whatever their relationship to the President, is 

not the same as the Executive Branch agencies and there is a good 

argument that they should not receive the same degree of Chevron 

deference. Elena Kagan, now Supreme Court Justice, she in this 

law review article, long law review article she wrote when she left 

the Clinton Administration, she basically agreed. I have written 

two articles on this myself, but she agreed that because the independent agencies are not supposed to be subject to the same direction of the President, they should not receive the same Chevron 

deference. 
26 

So, in my written testimony at footnote 27, I cite two of my articles on this point about Chevron deference, and I do think it is 

worth looking at that discrete issue. 

Chairman JOHNSON. OK. Go ahead, Mr. Campbell. 

Mr. CAMPBELL. If I may, sir, I would say, though, that the comments, while they have very little effect in blunting a major policy 

or political view of an agency, do often have a significant effect in 

changing technical application. So, it is probably, in fairness to the 

agencies, the comment process is still useful and still something 

that we certainly want to preserve, because that does—— 

Chairman JOHNSON. When it is not ignored. 

Mr. CAMPBELL. When it is not ignored, which it typically is not 

on purely technical matters, but those often are quite important 

and would be expensive if they were done incorrectly. 

The other point I would make is while I agree that Chevron deference creates some significant concerns, I also think in looking at 

this as a matter for Congress to consider, how would you rewrite 

the law to address that, I would not want to create the same problem in reverse with the judiciary. I would not want to have the judiciary able to second guess all of these decisions, as well, and replace an unelected, unaccountable bureaucrat with an unelected, 

unaccountable judge. I do not know that that is a good tradeoff, either. 

Chairman JOHNSON. I think going to Professor Turley’s point, 

that it really ought to be Congress that kind of is the melting pot 

in terms of settling some of these disputes. It is a far more democratic process than an agency or nine Justices of the Supreme 

Court. 

Mr. TURLEY. Yes, and if I could add, and this follows up on what 

Randy said, one of the things, I think, that this body should seriously consider is also the city of Arlington case. When we are talking about barring Chevron deference, one of the more shocking 

things that has happened in the last few years was the Supreme 

Court saying that an agency would get deference even in interpreting its jurisdiction. 

Many of us who have been critics of Chevron believe that was 

really the rubicon, that no matter how bad it might get, an agency 

cannot get deference in defining its own jurisdiction. It would become a perpetual motion machine. And, that is something I think 

Congress should make a priority, in establishing that it is not delegating the authority to agencies to make that type of decision. 

Chairman JOHNSON. Mr. Kovacs. 

Mr. KOVACS. Just to follow up on what has been talked about, 

are comments worth anything, the application of deference by itself 

is what allows the agencies overreach, because they know the court 

is going to go along with them unless they are absolutely crazy. 

And, so, the advantage of amending the APA is that the Congress can set out clear standards for what the agency has to do as 

part of a rulemaking and the court has the ability to understand 

what Congress tells them to do so that they can be the kind of 

check on the agency power, because after all, in the end of the 

game, it is the court that is going to be looking at the record. 

So, you need to do two things. You need to really, in my opinion, 

you need to, one, give clear standards for how the agency proceeds, 
27 

what they need to do, whether it be principles or not, and that 

helps the courts, because the courts are the ones that apply the 

deference. So, it is not just Congress. We are sort of beating up on 

Congress. But, it is Congress gave enemies broad laws, but the 

court gave enemies deference. Both the courts and the Congress 

walked away and said, let the agencies do it, and both have to 

begin to getting reengaged. 

Chairman JOHNSON. I have a couple other lines of questioning, 

and one of the things I do want to do—just give you one thing to 

think about—I do want to go through these three examples, the 

costs and benefits, and Mr. Weissman, you can kind of chime in, 

as well, because we have been not asking you a whole lot of questions. 

I want to quickly go back to Professor Turley, though. You talked 

about giving deference to the jurisdiction of an agency. Is that not 

really the definition of the Consumer Financial Protection Bureau 

(CFPB)? 

Mr. TURLEY [Laughing.] 

Chairman JOHNSON. No, I am dead serious about that. I mean, 

is that not a real problem with that particular agency, which I 

think a lot of us would say is probably just an unconstitutional 

agency because it has total deference over its own jurisdiction? 

Its own budget? 

Mr. TURLEY. Well, I find it very troubling, and as you probably 

know, the D.C. Circuit panel raised questions along these same 

lines, of what a strange creature this is to find within our system, 

where it seems to be not directly accountable, even for in terms of 

budgetary requirements, to any branch. 

I find that deeply troubling. I do not have a dog in the fight in 

terms of the underlying merits of the Board. But, as someone coming from a constitutional standpoint, this is an entire different species. The Framers would not recognize creatures like this. 

Chairman JOHNSON. I mean, what constraint does it have? I 

know it has a name and it is supposed to be directed there, but it 

can just about go anywhere, right, and there are no constraints 

whatsoever by anybody. 

Mr. TURLEY. Yes, and I think I would beat up on Congress a little bit in this respect, and that is—— 

Chairman JOHNSON. Be my guest. 

Mr. TURLEY [Laughing.] The thing is, members have been playing with their own obsolescence for years. It is very easy to create 

independent bodies to shove tough questions over there, and when 

things go wrong, you can criticize it. And the same thing is true 

with the President. It gives insulation to politicians that the Framers did not want. The Framers actually did not want you to be insulated in these respects. 

And, so, that is why this whole system is becoming something 

other than what was intended by the Framers, and it is not a better system. I mean, that is what is interesting, is it is showing all 

of the dysfunctional problems that the Framers thought would 

occur. 

And, when people say, well, this is an entirely different government, a different reality, it is not. I mean, the Framers were very 

familiar with giving authority to remote individuals. They called it 
28 

a monarchy. Now, we might have a technocracy, but it is the same 

concentration of power and it is removal from public influence and 

from public observation, and I think that is what we are seeing. 

Chairman JOHNSON. Let us face it, Congress has been giving 

away its powers for decades. Power of the purse, you have twothirds of the budget off-budget. So, much of the discretionary part 

is tied to mandatory spending, so the government shuts down and 

somewhere about 10 percent actually shuts down. Everything else 

just keeps moving forward. Advice and consent, it comes—executive 

agreements, we do not say, no, this is really a treaty. So, I am with 

you on that. 

As a non-lawyer, I do want to continue down just the legal ramifications of this and how the courts tie into this. I want to talk a 

little bit about standing. You are aware of the fact that I tried to 

sue this administration to overturn a rule from the Office of Personnel Management (OPM), from my standpoint, clearly violated 

the very clear language of the Affordable Care Act in terms of allowing Members of Congress and their staff to have an employer 

contribution into the plans purchased through an exchange. I could 

not get standing. 

Mr. TURLEY. Right. 

Chairman JOHNSON. That is also a problem in terms of these 

other laws. Sometimes, it is just very difficult to even get standing 

to challenge. Can you just kind of talk about that issue. 

Mr. TURLEY. Well, I am glad you brought it up. For one thing, 

it allows me to beat up on another branch, and that is when I look 

at the dysfunctional state of Washington today, I actually put the 

principal blame on the courts, not on the Legislative or Executive 

Branches. The reason is the courts have removed themselves from 

these disputes. Members like yourself have serious separation of 

powers questions to raise and courts say, I am sorry, we are just 

not going to let you be heard on the merits. And the result, then, 

is it reduces the two other branches to muscle plays. That is what 

we are seeing. But, it is that because those two branches are trying 

to fight for their institutional authority and no one in the court is 

giving them their day in court, as was the case with your lawsuit. 

That is the reason for years I have argued that one of the great 

solutions that we could see in our lifetime would be to change 

standing, particularly to allow legislative standing. Members of 

Congress have skin in the game. They have important, particularly 

separation of powers, questions to raise. And I think that the court 

has made an utter mess of this area. 

The standing doctrine itself, of course, does not appear in the 

Constitution. It is derived from Article III in terms of what is a 

case or controversy. But, the courts allowed the standing principle 

to become so grotesque that even Members of Congress that have 

legitimate constitutional issues, as was in your lawsuit, are not 

even being heard. 

And, the reasons for that are really, in my view, implausible. It 

is, like, well, you cannot have all Members of Congress sue every 

time they believe that the President is acting unconstitutionally, 

and my answer is, why? Even if all of the members became litigious, it would be a drop in the bucket in terms of the number of 

cases that the courts deal with. 
29 

But, more importantly, members have the expertise, they have 

the perspective to raise separation of powers. And as someone who 

is a great advocate of a separation of powers doctrine, and admittedly, I am a formalist in that sense, we are at a new low in terms 

of the respect for the separation of powers and it is becoming more 

and more unstable. 

I mean, when we talk, as you have said so many times, about 

Congress just basically relenting, one of the most bizarre moments 

of my lifetime is when President Obama stood in front of Congress 

and told them, I intend to circumvent Congress because you failed 

to do what I asked you to do with the ACA and other areas. Now, 

what followed was really otherworldly. Half of that body applauded 

rapturously at the notion of their own obsolescence, and that is 

something that Madison, I do not think, anticipated. He really did 

believe ambition could fight ambition when it came to institutional 

authority. 

Chairman JOHNSON. Yes. The Members of Congress would actually hold their oath of office to support and defend the Constitution 

and jealously guard their powers, which is not happening. 

I wanted—and anybody who wants to comment on this—I mean, 

another, I think, incredibly dangerous process is sue and settle, 

where agencies, again, the executive, you cannot get Congress to 

pass a law so they will work with an outside group, get that outside group to sue the government, and then the agency settles, and 

now you have a court sanctioned result, again, completely circumventing this body. 

Does somebody want to speak to that? Mr. Kovacs. 

Mr. KOVACS. Sure. Well, sue and settle is obviously one of our 

large concerns, but it also relates to your standing issue. For example, Congress has put standing issues—has granted zone of interest/legislative standing to environmental groups in 20 of its environmental laws. So, while you cannot get standing to argue separation of powers issues, the environmental groups get standing to 

protect their vision of what the forest looks like. So, that gets them 

into court. 

And once they sue the agency, several things happen. The agency 

consents, and by consenting and going under a court order, the 

agency has now managed to make that issue a priority. So, whatever monies you appropriate, the agency takes and redirects them 

because they are now under a court order. 

So, what happens is the environmental community is actually 

implementing their agenda through the sue and settle process, and 

again the courts—and we might as well just keep on beating up on 

them too—the fact is that the courts treat, sue, and settle, major 

policy disagreements like utility Maximum Achievable Control 

Technology (MACT) or the Chesapeake Bay, they treat them the 

same as if two private parties came in on a contract dispute and 

they just signed it and said, get out of my courtroom. They do not 

even look at the comments, if the agency ever takes comments. 

They do not look at them and they are not presented to the court. 

It is just, here is the consent decree, and they do it. 

Chairman JOHNSON. When was the first time this was initiated, 

do you know? 

Mr. KOVACS. Sue and settle? 
30 

Chairman JOHNSON. Yes. 

Mr. KOVACS. That has been on and off for probably 20, 25 years. 

The only time it has really stopped between the Carter Administration and today was when Ed Meese was Attorney General (AG), 

and he had stopped it for a period of 4 years. Other than that, it 

has been continuous. The only difference is it was a few cases a 

year and a few cases within a term of the President, and I think 

in the first term of the Obama Administration, it was, like, 115. 

And some of the courts, it is not just one regulation that they implement. One of the courts in the Northern District of California 

actually did 28 regulations at a time. I think that is the highest. 

Chairman JOHNSON. Well, it has literally become the method of 

governing. Mr. May. 

Mr. MAY. Mr. Chairman, let me just give you the FCC version 

of what you called sue and settle, and probably other agencies, as 

well. It is a big problem. 

The FCC reviews mergers in the communications industry, as 

you know. It does it under the public interest standard that I have 

talked. In other words, that is what it is basing its decision on. 

Well, of course, that is indeterminate. So, what really happens, to 

make a long story short, is when companies have mergers pending 

before the FCC, before all is said and done, and that is usually at 

least a year after they file the applications—they end up coming 

forward and, ‘‘volunteering’’ certain conditions that, obviously, the 

FCC staff has communicated to them that they would like to see 

attached to the merger, but which may not and usually are not directly related to the specific competitive impact of the merger. In 

other words, they are other public interest types of things. 

So, you end up with regulation by condition. That happens all of 

the time, and I believe that is probably the equivalent of what you 

are talking about with sue and settle, and that is an example, 

again, of something that could be corrected by Congress if it revised the part of the Communications Act dealing with reviewing 

transactions and just made more specific what the FCC should look 

at the specific impact of that merger and not unrelated issues in 

that proceeding. 

Chairman JOHNSON. Does anybody else want to chime in on this 

one before I move on to the kind of cost-benefit? Mr. Weissman. 

Mr. WEISSMAN. I think we probably disagree with you on this. I 

know we disagree with Mr. Kovacs. I mean, we view the, what is 

termed ‘‘sue and settle,’’ really as private enforcement, actually carrying out Congressional intent. 

But, I thought it might be useful to step back to the standing 

issue, and I do not know that we would have agreement on this 

issue, but I do think there is probably agreement on the notion 

that there is a problem and that standing is far too narrow in too 

many cases. I mean, I think, interestingly, the environmental statutes are sort of unusual in granting a broader framework for standing. 

As a consumer organization, we find when we are trying to enforce consumer or public interest in cases, we often do not have 

standing, even when industry might, and that there is a disparity 

there. Actually, sometimes industry has trouble getting standing, 

too, less so than us, but—— 
31 

Well, he and I will have coffee and talk about it later. But, I 

think it is the case that the Supreme Court has narrowed standing 

in such a way that important disputes actually are not able to be 

adjudicated, and it is an area—it is a challenging problem, and 

Professor Turley is certainly more expert than me, because of the 

constitutional doctrine, it is not obvious to me how Congress can 

solve where the court is going with this. But, at least it ought to 

be scrutinized and we ought to be seeing—I think that we are seeing, actually, access to the courts as a means to resolve important 

disputes and even constitutional claims just being shut off because 

of an artificially constricted standing doctrine. 

Chairman JOHNSON. I certainly learned that lesson myself. 

Does anybody else want to chime in on this before we go into 

cost-benefit? OK. 

Mr. CAMPBELL. I would just say briefly, sir, that I think there is 

a distinction between expanding standing to include Congress and 

expanding the standing doctrine generally, which I think is also an 

important tool preventing frivolous litigation. 

Chairman JOHNSON. OK. What I would like to do is just, again, 

we have three test cases, and probably best to start with the potential cost and then talk about the benefit, and again, if that is OK 

with you, Mr. Weissman, it is kind of 3-to-1—— 

Mr. WEISSMAN. I think you get to decide that, sir. 

Chairman JOHNSON. So, let us start with the potential cost of the 

net neutrality rule, Mr. May, if you would like to speak to that, or 

not. 

Mr. MAY. No. I mean, I will, because I did during the proceeding. 

No. 1, I would just say at the outset, like someone else did, I am 

not opposed to all regulation or even all FCC regulation. But, in 

general, I do subscribe to the notion that if there is not a marketplace failure that is causing consumer harm, that is more than 

speculative, then you should be very careful about regulating, because cost—I mean, there is almost universal agreement among 

economists that costs do have an impact on economic activity. They 

tend to dampen investment. Now, that does not mean sometimes 

they cannot be outweighed by the benefits, particularly when we 

are talking about health and safety type regulation. 

But in the net neutrality case, there was a lot of people urged 

the FCC, that if it adopted the rule, it would have an adverse impact on investment and innovation, and there has been—it is early, 

but there has been some persuasive evidence, I think, already that 

is beginning to appear that it is having that impact on investment. 

Hal Singer with the Progressive Policy Institute, not a free market 

type of institute, but he has done a study that showed that in 2015, 

there was a decrease in the amount of investment from the 12 largest Internet service providers of about a half of a percent, or $250 

million. That has an impact on, obviously, the jobs that depend on 

the investment, as well. 

So, and I would just add that Commissioner Ajit Pai has identified, I think, eight different instances in which smaller Internet 

service providers have publicly said, announced, that they were 

cutting back on plans to increase their investment, as well. 

Chairman JOHNSON. And, by the way, this is significanct—because it sounds like a small reduction in investment, but the Inter-
32 

net has been a huge boon to our economy, so there have been all 

kinds of investment on an annual basis. The only time we really 

saw a reduction, I think, was after the 2009 recession and after the 

dot-com bubble burst. 

Mr. MAY. Yes. I mean, I think almost no one disagrees that since going back to 2000, there has been at least $1.3 trillion of investment by the Internet service providers. Now, I am not talking 

about all of the other parts of what we call the ecosystem. I am 

just talking about the Internet service providers. 

Chairman JOHNSON. Right. 

Mr. MAY. And the only other thing I would add is you 

cannot—it is hard to measure the amount of investment that does 

not take place as a result. You try and do it, but it is not an exact 

science. But, again, it is widely understood that—— 

Chairman JOHNSON. Yes, that is why I said, the fact that it actually declined is pretty—— 

Mr. MAY. Yes. 

Chairman JOHNSON [continuing]. Pretty significant versus it has 

always been growing. Mr. Weissman. 

Mr. WEISSMAN. Well, just look again, just focusing on the costs, 

and, of course, I think the benefits are important, as well, I think 

that data is wrong. Broadband ISP investment is up in the year 

since the rule was adopted as compared to the previous years. ISP 

profits are up and stock values, for what that is worth, are up, as 

well. 

I mean, I think one indication that the purported investment deterrence is actually not playing out and not nearly as significant 

at all as was claimed in advance of the rule is the distinction between what the companies have told—or said publicly about the potential impact of the rule in advance and what they have said in 

their SEC submissions, where they are required to be truthful. 

And, their SEC materials do not claim that the rule will have material harmful impact on them, and by and large say that they will 

be able to manage without any difficulty, and indeed, that has been 

proven true. 

I think as time goes on, the idea that this was going to have such 

a huge cost on industry is just going to float away—— 

Chairman JOHNSON. So, again, you are disputing the cost, but 

what about the benefit? Why was this issued? What is the benefit 

of what the FCC is trying to do here? 

Mr. WEISSMAN. Well, I think the benefits are enormous. The benefits are enormous, both on the consumer side—and, by the way, 

it has become a partisan issue here, unfortunately. It is not a partisan issue among the public, with self-identified conservatives 

overwhelmingly favoring what is called the net neutrality rule, and 

that is because it is essentially a freedom issue first. It has to do 

with whether or not there is going to be free, unfettered traffic, information exchange, over the Internet without toll keepers and 

without corporate sensors in the form of ISPs, and those are principles on which everyone should agree, apart from trying to monetize the value. 

There are monetary benefits, too. There are monetary benefits to 

consumers in avoiding excess tolls that would have been imposed 

if the Internet moved in a different direction. 
33 

And beyond that, there are massive pro-competitive—pro-innovation benefits to the rule. There had not been a ton of examples of 

blockage, but there have been a number of important ones where 

we saw ISPs trying to deter the growth of Skype, deter the growth 

of Facetime, interfere with Voice over Internet Protocol technology. 

And, of course, the Internet has been an area of massive innovation and expansion, but it actually—all of the apps that are going 

on, all of the innovation, it depends on the Internet being free, 

open, and unfettered, and not censored and not controlled. So, we 

are going to see enormous benefits. All the benefits we are talking 

about from the Internet actually would have been in peril if we had 

a whole different model of how the Internet was going to work. 

Chairman JOHNSON. Well, it depends on investment so we can 

continue to increase speeds. 

Let us talk a little bit about the fiduciary rule. Mr. Campbell. 

Mr. CAMPBELL. Yes. So, the Department of Labor’s rationale essentially is that securities laws are inadequate and that IRAs 

should be treated to a different standard, similar to employee benefit plans, and that as a result of that, there are conflicts permissible in the IRA space that would cost. And the estimates here became very difficult, frankly, I think, to agree with because they 

were pretty speculative. They were based on academic studies looking at one type of conflict and one type of product and whether this 

caused fees to be higher and returns to be lower, and I think it is 

very difficult to extrapolate that out. It also ignores an awful lot 

of other potentially positive effects that would go into that advisory 

relationship. 

For what it is worth, the Department did revise its estimates in 

the final rule to reduce the benefits somewhat and increase the 

costs by a proportional amount rather significantly, I think probably still rather significantly underestimating the costs. Again, in 

my testimony, I gave an example of just the legal fees alone. They 

look at the cost for particularly disclosures that they are requiring 

and they assign a number of minutes they think it is going to take 

an attorney to write that disclosure, and then they assign an hourly value to that attorney’s time. 

And I gave the example, one of those disclosures, they thought would take 10 minutes to write. And at $134 an hour, that would 

be $22.33. But, if you get that disclosure wrong, you have potentially blown the exception and committed a violation of this contract, which is exposing you to a class action in State court over 

the entirety of your IRA business, which could be tens of billions 

of dollars. So, no one is going to spend $22 to make sure that is 

right. They are going to spend whatever it takes to make sure that 

is right. 

And that is just one example of the way they do these economic 

analyses, which are not rigorous and, I think, are not really accurate, reflecting reality. 

Chairman JOHNSON. It is hard to monetize both costs and benefits, but I think it is pretty easy anecdotally to say they will not 

spend the costs. They will exit the business. I mean, is that not the 

real concern about the fiduciary rule, is people will just refuse to 

become a fiduciary because it exposes them to such enormous liability, they are just going to stop doing it, and so you have the 
34 

small to medium-sized investor that just will not have access to advice. 

Mr. CAMPBELL. I absolutely believe it will reduce choices and increase costs, and that will drive some of these small accounts and 

small plans sort of out of the ability to get advice. I think it is less 

a question of driving service providers out entirely as it is imposing 

new costs and legal liabilities and ongoing compliance obligations 

on those service providers that make it unaffordable to serve small 

accounts. 

So, it is not that they exit the business, going to the gentleman’s 

point about the SEC filings, are these service providers saying, oh, 

we are just going to have to close up shop. No, but that does not 

mean they are not going to pay a lot more to provide a similar 

service and that that is going to hurt people. 

Chairman JOHNSON. So, if you are a small investor, all of a sudden, you are seeing a cost of $500 or whatever, you just do not access the service, so it is kind of the same thing. 

Mr. Weissman, the benefit. 

Mr. WEISSMAN. Well, first on the cost side, so the Department’s 

cost estimate is really based on industry submitted data. It is one 

of the limits, by the way, of cost-benefit analysis. So, it is quite conservative and it really does rely on the framework that was provided by industry. They tweaked it around the edges. 

They also, by the way, as Mr. Campbell pointed out, they made 

non-trivial changes even in this current version of the rule in response to comments about ways they could reduce costs. 

In terms of the benefit, before thinking about the monetization, 

which—it is worth stepping back and thinking what the fiduciary 

rule actually is, which is a rule that requires investment advisors 

to have the interests of their customers at heart. That should not 

be that controversial. And, I think it is unfortunate that it has become so. And, it is for sure the case that consumers assume that 

that is the basis on which they are being served, even when it actually, it has not been. 

Now, the benefit estimate—and actually, and that in turn makes 

a difference. If you have a duty to advance the interest of your customer, you do not layer them with all kinds of hidden fees that materially reduce their returns. So, the estimate from the Council of 

Economic Advisors is about $17 billion a year annual savings from 

consumers as a result of the rule, and even that probably is a fairly 

conservative estimate, because they are only looking at a fraction 

of the accounts that would be affected. 

Chairman JOHNSON. Mr. Kovacs, let us talk about Waters of the 

United States. I know in Wisconsin, we are looking at potentially 

more than 90 percent of the land mass of Wisconsin now being subject to EPA jurisdiction and permitting, the $150,000 per permit, 

more than $30,000 per day types of fines. Can you just talk about 

what you look at as the cost of the WOTUS rule. 

Mr. KOVACS. Well, you certainly hit it. You described it perfectly. 

About 90 percent of the land in the United States would be subject 

to some form of EPA regulation, just because of the hydrology. It 

is $155,000 a permit, and I do not know how many permits that 

people would need, versus highway administrations and farmers or 
35 

whatever. You would also need discharge permits. And you have 

the $37,000 a day in fines, and fines goes up to a million. 

So, let me read to you—because it is only a few words—what the 

EPA says is the cost of all of this. ‘‘The rule establishing the definition of Waters of the United States by itself imposes no direct cost.’’ 

Then it just dismisses it and says, well, ‘‘each of these programs 

may subsequently impose direct or indirect costs as they are implemented,’’ and, therefore, they just wipe away the theory. 

And even on cost—and I am going to go back to unfunded mandates, because the States are really the ones getting saddled with 

this burden—if you went back to, I think it is 15 years, EPA issued 

8,400-and-some rules and they only found unfunded mandates in 

45 of them, and they only found that the States had to spend more 

money in five. So, it gives you an idea that whatever you are looking at in the cost-benefit is whatever the agency wants to tell you. 

Chairman JOHNSON. And, of course, the Waters of the United 

States basically redefines what I think most of us would view 

should come under Federal jurisdiction, navigable waters, because 

if you pollute something in Wisconsin into the Mississippi, it affects 

other States. I mean, there is interstate commerce and that is reasonable. And it turns that into things like intermittent streams, 

playa lakes, which I had to look up in a dictionary. It is a bigger 

puddle. It is a puddle, but it is a big one. But, it probably does not 

define how big a puddle. 

Again, Mr. Weissman, the benefit, then, again, recognizing the 

fact that we all believe that we want a clean environment and it 

is reasonable to have EPA jurisdiction over things like navigable 

waters, true navigable waters. 

Mr. WEISSMAN. Absolutely. Well, if you will permit me, I think 

there is—Senator Heitkamp is gone, but there is a point that she 

was raising that is important, particularly in this area, which is 

there has to be a definition. The statute exists and there has to be 

a definition, and the EPA has to figure something out. 

And they have been harshly criticized, by Chief Justice Roberts, 

among others, for not resolving a rule. So, the rulemaking had to 

occur. And, I think—because there had to be a workable definition. 

I mean, if you read the Chief’s comments on this, they are very 

harsh criticism. They have to establish what the scope of the Clean 

Water Act (CWA) is, and it has been murky around the edges as 

a result of the last two cases. 

So, I think, before getting directly to the question, there really 

is a role for Congress to—you are not going to probably have that 

detailed a definition as EPA can possibly get, but you could go back 

and revisit it if it seems problematic. 

Chairman JOHNSON. Well, by the way, they did try that, the 

Clean Water Restoration Act. It was not passed. And, again, it 

tried to redefine that and it was rejected. So, there was some definition that had been operating for a few decades, but go ahead. 

Mr. WEISSMAN. So, in terms of the costs and benefits, so Mr. 

Kovacs read that excerpt which is correct, although the EPA—but, 

first, to explain that, the EPA said, look, it is definitional. All we 

are doing is creating a definition. They did not deny the definition 

would have effects. They are saying the fact of creating the definition itself does not have an effect. 
36 

Then they said, OK, let us go ahead and then figure out what 

the impact would be. And, they said, in contrast to what he has 

suggested, it does narrow the scope of covered waters compared to 

the statutory definition. So, they said, we could stop there and say 

it actually is going to have less cost than the existing statutory definition. 

But, in fact, we recognize that it does expand around the margins compared to existing practice. And then they, therefore, did 

conduct a rough cost-benefit and say they believe the benefits will 

outweigh the costs by about two-to-one. 

Chairman JOHNSON. OK. I will just quickly go down the table 

here. Does anybody have a final comment, something that you have 

just got to get out before we close the hearing? Let us start with 

you, Professor Turley. 

Mr. TURLEY. Thank you, Mr. Chairman. What I really respect 

most about this Committee and your leadership is its interest in 

developing a nonpartisan approach to these questions, and I think 

what really comes out of this hearing—so, there are good faith arguments on both sides of these issues, but what we should agree 

on is the way in which we resolve these issues and for Congress 

to be relevant for that process. And, I do believe that the RAA is 

a good step. I happen to think that something like the REINS Act 

is a good step. 

There is an assortment of things that Congress can do, and one 

of those, by the way, is also increasing its staff to specifically monitor in a more substantial way rulemaking. We have not talked 

much about that, but part of the advantage the administrative 

state has is that its sheer size overwhelms Congressional staffers. 

And, so, this almost becomes arbitrary as to what issues can first 

come to the attention of Congress and what issues can be addressed. 

Congress has no choice if it is going to be relevant to get some 

boots on the ground, to actually have, what I recommend is an actual office that will be looking at rulemaking so that members are 

not in the blind. And, I think these are the types of steps that I 

hope members can agree on in a nonpartisan way, that they should 

be informed, they should be more involved, and they should fulfill 

what is probably the sacred function of our Constitution. That is, 

this is the place where the country has to resolve its disputes. It 

does not always resolve it. Sometimes, the country is terribly divided, and then less gets done. But, this is the place where the 

Framers wanted those questions to be resolved and I think we have 

to move back in that direction. 

Chairman JOHNSON. We have been trying. Mr. May. 

Mr. MAY. Thank you, Mr. Chairman. 

I would just say this in closing, that the FCC, unlike the other 

two agencies of the case studies, is considered one of the independent agencies, as we have discussed, so that makes it different. 

I mean, I will say that the whole nature of independent agencies 

under our tripartite system of government, constitutional system, 

is a little uneasy, but once we have them set up as they are with 

the notion of independence, which we do, at the core of that is the 

idea that they will rely primarily on their expertise and not so 
37 

much on political considerations as might probably be the case with 

the independent agencies. 

So, having said that, one thing that I—and we discussed this in 

the hearing, which I think was very useful, and thank you for that, 

I think it has been instructive. One thing I would like to see Congress think about is whether the Chevron doctrine which we have 

talked about here, if Congress does not change the law to even 

apply more broadly across all of the Federal agencies, whether it 

might be changed with regard to the independent agencies not to 

provide the same degree of deference that is provided in the other 

cases, and the rationale would be that these agencies are acting 

based on their expertise and not because of deference to the administration. Thank you. 

Chairman JOHNSON. Thank you, Mr. May. Mr. Campbell. 

Mr. CAMPBELL. Well, first of all, Mr. Chairman, I very much appreciate the work that this Committee has done, not just on this 

issue, but specifically on the fiduciary rule. The documents that the 

Committee gathered from the SEC, from the Treasury Department 

and other entities was invaluable in understanding what was going 

on, because no one but Congress would have had the authority to 

drag that out in that point in the process, so we appreciate that 

very much. 

One issue I would raise that should be considered in part of regulatory reform is that there are a number of areas in the law, and 

employee benefits is one of them, where you have significantly 

overlapping jurisdictions of different agencies. So, you have the 

SEC, the Department of Labor, the Treasury Department, the Financial Industry Regulatory Authority (FINRA), all of these different groups simultaneously regulating the same activities, or at 

least aspects of those activities, and where those agencies do not 

effectively coordinate, the regulated community gets whipsawed in 

the middle. 

And I think that is something that as the Committee looks at 

drafting, say, comprehensive legislation or considering one of the 

bills that is out there, that there be mandatory coordination between those entities so that we do not have one entity moving forward quickly, another not moving, and none of us knowing where 

we are ultimately going to end up. 

Chairman JOHNSON. An interesting point. One of the hearings 

we are trying to design is get case studies where, to comply with 

this regulation, you are in violation here, and we know those exist 

and just kind of point out that enormous problem. 

Mr. CAMPBELL. And the proposal for the fiduciary rule did exactly that. It required a disclosure that securities laws did not 

allow you to make. They did fix that in the final rule, but the fact 

that it was actually able to be proposed showed that they were not 

coordinating with the SEC and other entities in order to avoid such 

an obvious contradiction. 

Chairman JOHNSON. Mr. Kovacs. 

Mr. KOVACS. Well, again, I just want to bring up the fact that 

this Committee almost—not almost, it worked a miracle last year 

with permit streamlining. You were able to come together on an extraordinarily difficult regulatory issue and you came out with a 

great result, and we are working very cooperatively with OMB and 
38 

they have the cooperation of both the environmental groups and 

the business community. 

This issue in terms of the regulatory State, this should truly be 

a nonpartisan, bipartisan issue. The importance is not to the Republicans or Democrats. The importance of this issue is to Congress. This is an institutional issue. You have to find and get back 

into what your role is. There is only one institution in this country 

that can delegate power, you delegate it to the agencies with guidance as to how you want the rules written, not specific guidance, 

but you have to take these things in to account, because after all, 

it is all about homework and getting it right. But, the guidance to 

the agencies also give clear standards to the courts so that they 

know how to review it, and that is why the Regulatory Accountability Act is so important. 

Chairman JOHNSON. I appreciate that, and by the way, I appreciate you pointing out the fact that this Committee has really tried 

hard to try and find areas of agreement to actually unify us as a 

result. We literally passed 69 pieces of legislation, most of it unanimous, a lot of it bipartisan. I think it is 25 that have been signed 

into law. So, you actually can get a result by using that kind of approach. And, again, so these types of hearings—we are trying to, 

literally, ferret out and figure out where are those areas of agreement. Mr. Weissman. 

Mr. WEISSMAN. A few quick points. One is I think we have had 

a lot of discussion about the difficulty of having court review of regulations. From our perspective, in fact, there is very intense and 

heavy court review of most regulatory decisions, a lot of cases 

brought by the Chamber of Commerce, unfortunately from our 

point of view, with great success. I think just the empirical record 

is the courts look at these things very carefully and routinely strike 

down rules. 

A second quick point is there is more than a little bit of tension 

between the concerns about President Obama’s alleged role in the 

FCC rule and sort of undermining the independence of the agency 

and the proposal of the Independent Regulatory Agency Review 

Act, which would actually make the agencies directly accountable 

to the White House itself. 

A third quick thing, just to reference a point I made earlier that 

has been lost, I do think that there is a lot—it would be very fruitful for the Committee to look at missed statutory deadlines, sort of 

direct issue of accountability to Congress. 

And the last point, just to echo some of these comments, whatever the differences are, I think everybody appreciates the tenor of 

the conversation in this Committee on these issues, no small part 

to your role, and we really appreciate that. 

Chairman JOHNSON. Well, I appreciate that. 

Again, reading through your testimony, I know you put a lot of 

work into it. I think it really helps inform the record, so I appreciate that time, the time you took here to testify, and again, great 

answers to our questions. I think we really helped this Committee 

understand kind of the direction we need to move. 

So, with that, the hearing record will remain open for 15 days, 

until May 5 at 5 p.m., for the submission of statements and questions for the record. 
39 

This hearing is adjourned. 

[Whereupon, at 12:10 p.m., the Committee was adjourned.] 

(41) 

A P P E N D I X 
42 

Accountability Office found that EPA engaged in "covert propaganda" in generating public 

support during the rulemaking process. 

This hearing will further highlight the problem of unfair and unnecessary regulations and the cost 

to the American people. I look forward to your testimony. 
43 

Opening Statement of Ranking Member Tom Carper 

"The Administrative State: An Examination of Federal Rulemaking." 

April20, 2016 

As submitted for the record: 

Good morning. I want to thank Chairman Johnson for holding this hearing today. My thanks as 

well to our witnesses for joining us. As many of you have heard me say before, I believe that one 

of the most important jobs Congress has is to help create a nurturing environment for job 

growth. And one of the ways we can do that is to ensure the regulatory process results in 

common-sense regulations that provide businesses with the predictability they need. 

Of course, the regulatory process can be cumbersome at times. And regulations often do impose 

some additional costs and requirements on those who must comply with them. But I disagree 

with those who think that we have to choose between regulation and having a robust, growing 

economy. When done in a smart way, regulations can help grow our economy. Regulations also 

serve a number of very important public purposes. They protect our public health and 

safety. They protect our environment. They play a role in our daily lives, and usually in very 

positive ways. 

While discussions of regulatory issues often highlight disagreement among us, I believe 

everyone generally agrees that some regulation is necessary and good. Our job then is to help 

ensure the regulatory process is working, with a focus not just on reducing burdens, but also on 

ensuring transparency and efficiency. And we need to do this while achieving the greatest public 

benefit. 

While there are certainly things about the regulatory process that can be improved, 

disagreements about the content of a particular rule don't necessarily mean the process isn't 

working. The process we have in place today gives businesses, individual citizens, and really 

anyone interested in participating in the process the opportunity to do so. Agencies are required 

to take their input into account. But as we all know, that doesn't mean everyone will be happy 

with the final product. 

Over the past year, Chairman Johnson has made a number ofinquiries related to several of the 

Administration's rulemakings, including the Department of Labor's Fiduciary Rule, the 

Environmental Protection Agency's Waters of the United States Rule, and the Federal 

Communications Commission's Open Internet Rule. As Ranking Member of this Committee, I 

directed my staff to participate in these inquiries. After reviewing the information we received, 

we found that the process the Administration used to develop these rules was careful and 

deliberative. 

One example is the Department of Labor's Fiduciary Rule, which requires financial advisers to 

act in their clients' best interest when they give retirement investment advice. The rule is 

designed to address conflicts of interest in the industry that encourage some bad actors to push 

their customers into financial products that may generate higher fees and lower returns. My staff 
44 

found that the Department of Labor engaged in an extensive effort to solicit input from the public 

when developing the rule, including by receiving and reviewing hundreds of hours of testimony 

and thousands of comments. The Department also sought input from other agencies, which 

included high-level engagement between Secretary of Labor Tom Perez and Securities and 

Exchange Commission Chair Mary Jo White. As a result of these consultations, the Department 

of Labor was able to incorporate changes and improve the rule before it was finalized. 

Another example is the Environmental Protection Agency's Waters ofthe United States Rule, 

which clarifies the wetlands and streams that must be protected under the Clean Water Act and 

seeks to maintain safe quality standards in our rivers, bays, and coastal waters. The process the 

Environmental Protection Agency used to finalize this rule was not hasty, and in fact involved a 

public comment that was held open for more than 200 days and attracted more than one million 

comments. In addition, the EPA and Army Corps of Engineers held more than 400 meetings with 

stakeholders across the country and visited farms in nine states. All of this helped to shape the 

final rule for the better. 

Finally, the Federal Communications Commission also conducted a robust process to solicit 

input for its Open Internet Rule. Over a five month comment period, the Commission received 

approximately 3.7 million comments, which is the highest number of comments received on any 

rulemaking in the agency's history. 

I understand not everyone will agree with these three rules the committee is examining 

today. But I think we can take comfort in knowing the process to develop them was thorough 

and thoughtful. Since these rules have only been recently finalized, I plan to continue monitoring 

them closely to ensure they are implemented well. After participating in Chairman Johnson's 

inquires, my staff prepared a set of materials, including a memorandum summarizing our 

findings on the Fiduciary Rule. Mr. Chairman, I ask for unanimous consent that these materials 

be placed in the hearing record. 

Thank you, again, Mr. Chairman, for holding this hearing. 
45 

Senate Committee on Homeland Security and Governmental Affairs 

"The Administrative State: An Examination of Federal Rulemaking" 

April 20, 2016 

Statement for the Record 

Senator Ben Sasse 

As prepared for delivery: 

Chainnan Johnson and Ranking Member Carper, thank you for holding this important hearing. 

Government I 0 I teaches that the federal government has three branches. Congress, the 

legislative branch, writes the laws, the Executive Branch implements those laws, and the Courts 

decide cases and controversies in our nation. Unfortunately, this does not consider the powerful 

"fourth branch" of the federal government- the Administrative State. This powerful branch 

passes regulations and rules on a daily basis that carry with them the force of law without being 

held appropriately accountable to the people. 

One shocking Competitive Enterprise Institute study documented that 2015 was the record year 

for the number of pages published in the Federal Register- 82,036. To put this in perspective, 

federal agencies passed more pages of federal regulations in 2015 than the number of pages of 

the entire United States tax code. 

Unnecessary government regulations create a real regulatory burden on average Americans. For 

example, the Nebraska Homebuilders Association has explained to me that government 

regulations account for nearly 25% of the costs associated with the price of a single-family 

home. There are countless stories from Nebraskans who tell me that complying with burdensome 

regulations is costly, complex, and unnecessary. 

This growth of the Administrative state, and Congress' complicity in its growth, is not just 

undesirable or a costly burden; it is fundamentally dangerous for America and its future. 

Government officials are always tempted to amass more power for themselves. So our Founders 

devised a constitutional system with three separate branches to provide specific limits on the 

federal government through checks and balances. 

Article I of the Constitution gives Congress the authority to write our nation's laws, and Article II 

requires the President to enforce these laws, not unilaterally re-write, ignore, or create new laws. 

This hearing is timely held as the U.S. Supreme Court even this week heard oral arguments to 

determine whether the Obama Administration's executive actions regarding deferred action are 

in accordance with the rule oflaw and the President's duty to "take care" to enforce the laws. 

Regarding these executive actions, President Obama told Univision in 2014, "!am President. I 

am not a king .. .! can't do these things just by myself. We have a system of government that 

requires Congress to work with the executive branch to make it happen." 
46 

Yet President Obama and his executive branch has done the opposite. 

Today, this hearing will center on three specific examples of executive overreach- the EPA's 

"waters of the United States" (WOTUS) rule, the Department of Labor's Fiduciary Rule, and the 

FCC's net neutrality rule. 

The WOTUS rule is a dramatic expansion of EPA's regulatory power beyond the authority 

granted to it by Congress in the Clean Water Act. This expansion will have a substantial 

economic impact on numerous industries including farmers, ranchers, construction companies, 

conservation workers, as well as state, county, and city authorities. Unelected EPA bureaucrats 

finalized this rule after receiving nearly a million public comments on the rule, which included 

opposition from 34 out of 50 states. 

The costs and regulations associated with the Department of Labor's Fiduciary Rule may lead 

investment advisors to stop providing middle class families with the investment advice they want 

and need. The rule springs from the disdainful belief apparently held by federal 

bureaucrats/ Administration officials that Americans cannot make decisions about whether to pay 

someone for financial advice or when to trust that advice, and ultimately that they, the 

Washington D.C. central planners, can make better choices for Nebraskans than we can. 

The Net Neutrality rule is a unilateral power grab by the FCC over the internet using the 

authority from an 80-year-old telecommunications law that was passed long before the internet 

existed. FCC Commissioner Ajit Pai noted that the rule "gives the FCC the power to 

micromanage virtually every aspect of how the internet works. It's an overreach that will let 

Washington bureaucracy, and not the American people, decide the future of the online world." 

I oppose all three executive branch rules not only because of their enormous economic impact on 

Americans, but also because they are each a dramatic expansion of federal regulatory authority 

without the consent of Congress. 

The United States is in the midst of a constitutional crisis with an executive branch that has 

consistently circumvented the Constitution's limits by acting unilaterally. Nebraskans want a 

Congress and Executive Branch that respect the rule of law and the Constitution. If members of 

Congress pass bad laws, voters get to fire them. But when unelected bureaucrats ignore or 

unilaterally rewrite laws, voters are disenfranchised and lose confidence in the American 

Experiment 

I will continue to work with my colleagues to address these vital concerns. Congress must 

reclaim her Article I powers and hold this administration and future administrations- both 

Republican and Democrat- accountable to the principles enshrined in our nation's founding 

documents. 
47 

Written Statement 

Jonathan Turley, 

Shapiro Professor of Public Interest Law 

The George Washington University Law School 

"The Administrative State: An Examination of Federal Rulemaking" 

I. INTRODUCTION 

Dirksen Senate Office Building 

United States Senate 

April20, 2016 

Chairman Johnson, Ranking Member Carper, and members of the Committee, my 

name is Jonathan Turley and I am a law professor at George Washington University 

where I hold the J.B. and Maurice C. Shapiro Chair of Public Interest Law. It is an honor 

to appear before you today to discuss the rise of the Administrative State within the 

American constitutional system. 

I have long written about the rise of a "fourth branch" in our system and, while 

academics have good-faith disagreements over the implications of this trend, I believe 

that this rise of an Administrative State is neither benign nor inevitable. By dismissing 

the rising power of federal agencies as irreversible and inevitable, many academics 

portray the changes in our constitutional system as a fait accompli-a reality as fixed as 

the weather in our system. Conversely, critics are often portrayed as quixotic figures 

tilting at the windmills of federal agencies. There is a false association with the natural 

growth of the size of government and the emergence of an Administrative State. Clearly, 

the government has necessarily grown with the increasing size of our population and 

governmental function. That does not mean, however, that federal agencies must 

inevitably possess the type of insulated, independent power that they wield today. No 

one is seriously questioning the need for federal agencies and no one should deny the 

myriad of important and beneficial actions that agencies take in supporting our security, 

public health, economy, and environment. Citing the need for federal agencies therefore 

is hardly an answer to the criticism of the Administrative State--no more than 

recognizing the need for banks is an answer to a criticism of banking abuses. The 

fundamental issue raised in hearings like this is how to maintain a large system of federal 

agencies and offices, without altering the foundation of our constitutional systemparticularly our system of separation of powers. 

The unavoidable fact is that our system is changing in a fundamental way without 

a serious debate over the shifting of the center of governmental authority from the 

legislative process to an administrative process. 1 Indeed, the term "rulemaking" is 

This growth of agency power and independence is occurring at a time of greater 

unilateral executive power. The rise of the Administrative State combined with both the 
48 

something of a misnomer in suggesting that agencies create rules that simply implement 

the mandates set by the legislative and executive branches. These rules have every 

characteristic oflegislation, indeed frequently involving sweeping changes that impact 

large parts of our economy.2 As Chief Justice John Roberts noted recently, rulemaking is 

in all practical respects an exercise of legislative rather than executive powers. 3 While 

the Court continues to maintain that Congress cannot delegate legislative powers to 

agencies, the rhetoric behind decisions like Whitman v. American Trucking Assn. is 

difficult to square with reality.4 Rulemaking has become a virtual euphemism for agency 

legislation: the substitution of the Administrative Procedure Act (APA) for the 

constitutional legislative process. That shift has taken a system designed to guarantee an 

open process of representative democracy and removed it to an opaque process of 

administrative decision-making. While some academics may believe that modern 

government demands the type of ministry system found in Europe, the AP A was never 

intended to be the framework for a new bureaucratic government to replace 

representative democratic government. The AP A was not created to achieve the 

transformative political process embodied in the tripartite system. Likewise, the Framers 

did not create a carefully balanced tripartite system with the understanding that the 

system could be made discretionary with the emergence of an agency alternative to 

resolve social, political, and economic questions. Most importantly, the public has been 

given little voice in the emergence of the Administrative State. They are little more than 

the subject-rather than the source--of the power exercised by federal agencies. My fear 

is that while there is still time to reverse this trend, we are fast approaching the 

constitutional fail-safe line where the Administrative State will become a fixed and 

unassailable reality of American government. 

What is fascinating to me is how the rise of the Administrative State has secured 

what the Framers sought to deny-a new type of"royal prerogative." The Framers 

divided the powers of ~overnment against the backdrop of over 150 years of tension with 

the English monarchy. They were specifically aware of the circumvention of the 

legislative and judicial branches by sovereigns like James I. The King insisted that the 

enactment of laws was merely the starting point of legislation and that he himself-not 

just legislators or judges--played a critical role in perfecting laws. He insisted that "I 

rise of an "uber presidency" and the decline of congressional power is a perfect storm for 

our constitutional system. See generally Jonathan Turley, A Fox in the Hedges: 

Vermeule's Vision of Optimized Constitutionalism in a Suboptimal World, 82 U. CHI. L. 

REv. 517 (2015). 2 See Gary Lawson, Federal Administrative Law, (6th ed. 2013) ("When an agency 

engages in rulemaking, it does something that looks very much like a legislature passing 

a law."). 3 City of Arlington v. FCC, 133 S. Ct. 1863, 1877 (2013) (Roberts, C.J., dissenting) 

("as a practical matter ... exercise legislative power, by promulgating regulations with 

the force of law."). 4 531 U.S. 457, 487-90 (2001). 

See Julius Goebel, Jr., Ex Parte Clio, 54 COLUM. L. REV. 450,474 (1954); David 

Gray Adler, The Steel Seizure Case And Inherent Presidential Power, 19 CONST. 

COMMENT. 155, 164 (2002). 

2 
49 

thought law was founded upon reason, and I and others have reason as well as the 

judges."6 That was precisely the view rejected by the Framers. Thomas Jefferson wrote 

in 1783 with regard to the Virginia Constitution that "[b]y Executive powers, we mean no 

reference to the powers exercised under our former government by the Crown as of its 

prerogative ... We give them these powers only, which are necessary to execute the laws 

(and administer the government)."7 Likewise, James Wilson defended the model of an 

American president by assuring his colleagues that he "did not consider the Prerogatives 

of the British Monarch as a proper guide in defining the Executive powers. Some of these 

prerogatives were of a Legislative nature."8 While the Framers opposed this role in 

crafting the first three articles of the Constitution, a type of"agency prerogative" has 

arisen within the system that is founded on the very same premise articulated by James I. 

As with the use of unilateral executive power, agency decisions now claim to further the 

legislative process through administrative reasoning. Legislation is treated as merely the 

starting point of legislation with agencies "perfecting" the law through rulemaking. This 

prerogative is protected from meaningful judicial review by the Chevron doctrine and the 

administrative procedural system. In the last few years, we have seen such agency 

actions achieving the very legislative changes that the Administration failed to secure in 

Congress. Where the denial of such legislation was once considered the end of the matter, 

a failure in Congress is now treated as a prelude to seeking the same results by the 

alternative means of agency action. When signed by a president, congressional 

enactments were meant to be the completion, not the initiation, of the process of 

legislation. 

Congress still possesses the authority to reclaim its defining role over the 

legislative process. As discussed below, Congress can move to counter claims of 

delegated authority and even limit the degree of deference afforded agency decisionmaking. If Congress is to rebalance the system, however, it will need to enhance its staff 

and enlist the public in checking agency authority. This does not mean the end of 

rulemaking or the elimination of federal agencies. Likewise, no one is suggesting the 

micromanagement of federal agencies, but rather the placement of checks on agencies to 

guarantee that the term "Administrative State" remains a warning rather than a reality in 

our system. 

II. THE RISE OF A FOURTH BRANCH IN A TRIPARTITE SYSTEM. 

I have previously written9 and testified10 about the rise of the Fourth Branch and 

7 Sir Edward Coke, Reports 65, quoted in ROSCOE POUND, THE SPIRIT OF THE 

COMMON LAW 61 (1921). 7 This quote is from Jefferson's Draft of a Fundamental Constitution for Virginia. 

Adler, supra note 5, at 164 (citing CHARLES WARREN, THE MAKING OF THE 

CONSTITUTION 177 (Harvard U. Press, 1947)). 8 THE RECORDS OF THE FEDERAL CONVENTION OF 1787 at 62-70 (Max Farrand, ed 

1911); Adler, supra note 5, at 165. 9 See, e.g., Jonathan Turley, Madison ian Tectonics: How Form Follows Function in 

Constitutional and Architectural Interpretation, 83 GEo. WASH. L. REv. 305 (2015); 

Jonathan Turley, A Fox in the Hedges: Vermeule 's Vision of Optimized Constitutionalism 

3 
50 

the growing imbalance in our governmental system. The American governmental system 

has obviously changed dramatically since the founding, when the vast majority of 

governmental decisions rested with state governments. In 1790, the federal government 

was smaller than most modem city governments, employing only about one thousand 

nonmilitary workers. By 1962, that number had grown to 2,515,000 federal employees. 

Notably the first regulatory federal agency, the Interstate Commerce Commission, was 

not established until 1887. 11 The rise of the Administrative State is generally traced to 

the New Deal; though its roots preceded the Great Depression, there was a clear shift in 

the view of government. Before the New Deal, the government was often viewed as a 

necessary evil: a centralized system that overcame the problems of the Articles of 

Confederation, but that also remained an ever-present threat to individual liberty. With 

the onset of the Great Depression, the government was seen as the transformative 

institution to rescue the public from economic and public health threats. The academic 

literature also shifted during this period. Frankly, academics have a certain affinity for 

agency experts who share educational backgrounds as well as a common commitment to 

public policy. Conversely, there is little identification with Congress, which academics 

in a Suboptimal World, 82 U. CHI. L. REv. 517 (2015); Jonathan Turley, Recess 

Appointments in the Age of Regulation, 93 B.U. L. REv. 1523 (2013); Jonathan Turley, 

The Rise of the Fourth Branch of Government, WASH. POST (May 24, 2013); see also 

Jonathan Turley, Constitutional Adverse Possession: Recess Appointments and the Role 

of Historical Practice in Constitutional Interpretation, 2013 WIS. L. REv. 965 (2013) 

(discussing the separation of powers consequences in the reduction of legislative 

authority). 

10 See "The Chevron Doctrine: Constitutional and Statutory Questions in Judicial 

Deference to Agencies," United States House of Representatives, House Judiciary 

Committee, Regulatory Reform, Commercial and Antitrust Law, March 15, 2016; 

Authorization to Initiate Litigation for Actions by the President Inconsistent with His 

Duties Under the Constitution of the United States: Hearing Before the H. Comm. on 

Rules, !13th Cong. (2014) (prepared statement of Jonathan Turley, Shapiro Professor of 

Public Interest Law, The George Washington University Law School), 

http:/ldocs.house.gov/meetings/RU/RU00/20140716/1 02507/HMTG-113-RUOO-W stateTurleyJ-20 140716.pdf; Enforcing The President's Constitutional Duty to F aithfolly 

Execute the Laws: Hearing Before the H. Comm. on the Judiciary, 113th Cong. 30-47 

(2014) (testimony and prepared statement of Jonathan Turley, Shapiro Professor of 

Public Interest Law, The George Washington University Law School) (discussing 

nonenforcement issues and the rise of the Fourth Branch); Executive Overreach: The 

President's Unprecedented "Recess" Appointments: Hearing Before the H. Comm. on 

the Judiciary, !12th Cong. 35-57 (2012) (prepared statement of Jonathan Turley, Shapiro 

Professor of Public Interest Law, The George Washington University Law School); see 

also Confirmation Hearing for Attorney General Nominee Loretta Lynch: Hearing 

Before the S. Comm. on the Judiciary, !14th Cong. (2015) (prepared statement of 

Jonathan Turley, Shapiro Professor of Public Interest Law, The George Washington 

University Law School) (discussing the loss of legislative power and the role of 

confirmation hearings to address separation of powers issues). 11 Interstate Commerce Act, ch. 104,24 Stat. 445 (1887). 

4 
51 

view as turning on persuasion rather than proof. Not surprisingly, academic work tends 

to view agencies as public policy experts equipped to deal with complex issues while 

dismissing Congress as a body with transient interests and limited expertise in given 

fields. 

The New Deal brought young reformers to Washington with advanced degrees 

and unlimited optimism for the prospect that massive social problems could be eradicated 

through government intervention. In many areas, they were largely successful in 

correcting hazards in the workplace, cleaning up the environment, fighting poverty, and 

improving education. The role of federal agencies, however, began to change as 

Congress yielded more and more of its authority to agency decision-making, while courts 

removed themselves from meaningful review through the adoption of the Chevron 

doctrine and other rulings. The greatest barrier to this shift was the Separation of Powers 

doctrine. When Franklin Roosevelt proclaimed, "The day of enlightened administration 

has come,"12 it represented the end of the day for the traditional or formalist view of the 

Separation of Powers. It was not simply the creation and expansion of federal agencies, 

but rather their increasingly independent role. Agencies sought "enlightened" approaches 

to social problems based on scientific and policy expertise while Congress was 

increasingly viewed as uninformed, untrained, and unreliable in dealing with such issues 

with any degree of specificity. Strangely, it was a view that many in Congress seemed to 

accept or at least yield to over the course of time. 

As the scope and complexity of federal programs increased, Congress 

relinquished more and more authority over those programs. As discussed below, this 

trend led to the virtual evisceration of the "nondelegation doctrine"-the constitutional 

requirement that Congress cannot delegate its legislative authority to federal agencies. 

Active congressional control over agency actions became viewed as virtually 

anachronistic in the "Age of Regulation." Federal agencies-and many in the public and 

academia-viewed Congress as a choke point. Given the size of the federal government, 

the relatively small staff of Congress could do little to monitor, let alone direct, federal 

agencies. We now have roughly 2,840,000 federal workers in 15 departments, 69 

agencies, and 383 nonmilitary sub-agencies. 13 This does not count the millions of 

contractors and subcontractors working for the government. These federal offices and 

workers largely follow rules that arose organically within the agency. The agencies now 

have the elements of microcosmic government systems in and of themselves. They even 

hold town halls to measure public sentiment and explain their actions to citizens. Thus, 

12 Franklin D. Roosevelt, Campaign Address on Progressive Government at the 

Commonwealth Club, San Francisco, Cal. (Sept. 23, 1932), in 1 THE PUBLIC PAPERS 

AND ADDRESSES OF FRANKLIN D. ROOSEVELT, THE GENESIS OF THE NEW 

DEAL, 1928-32, at 752 (1938). 13 Turley, Recess Appointments in the Age of Regulation, supra note 9, at 1533; 

WALTER E. VOLKOMER, AMERICAN GOVERNMENT 231 (11th ed. 2006) (citing Bruce D. 

Porter, Parkinson's Law Revisited: War and the Growth of American Government, 60 

PUB. INT. 50, 50 (1980)). In 1816, the federal system employed 4,837 employees. 

Deanna Malatesta, Evolution of the Federal Bureaucracy, in 1 A HISTORY OF THE U.S. 

POLITICAL SYSTEM: IDEAS, INTERESTS, AND INSTITUTIONS 373, 380 tbl.1 (Richard A. 

Harris & Daniel J. Tichenor eds., 2010). 

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52 

the term "fourth branch" itself may itself be something of a misnomer. The agencies do 

not truly operate in concert. Rather they represent insular and largely self-contained 

government systems-much like administrative versions of feudal estates. There is no 

true center to the current system with its thousands of independently moving parts and 

agendas. White the White House clearly can dictate changes or priorities (as it recently 

did in areas like health care and immigration), most rulemaking changes arise organically 

within these agencies. Absent a relatively rare intervention from Congress, these changes 

are largely crafted, debated, and promulgated within agency systems. 

III. AGENCY LEGISLATION AND THE ADMINISTRATIVE STATE 

The growth in the size of the federal government resulted in a shift in the center of 

gravity for the system as a whole. Massive federal agencies now promulgate regulations, 

adjudicate disputes, and apply rules in a system that affords relatively little transparency 

or accountability to the public. While subject to congressional review in theory, the 

reality is that Congress has relatively few staff members and little time for such reviews. 

As a result, it is the Administrative State, not Congress, that now functions as the 

dominant "law giver" in our system. The vast majority of"laws" governing the United 

States are not passed by Congress but are issued as regulations, crafted largely by 

thousands of unseen bureaucrats. For example, in 2007, Congress enacted 138 public 

laws, while federal agencies finalized 2,926 rules, including 61 major regulations. 14 

Agencies now adjudicate most of the legal disputes in the federal system. A citizen is ten 

times more likely to be tried by an agency than by an actual court. In a given year, federal 

judges conduct roughly 95,000 adjudicatory proceedings, including trials, while federal 

agencies complete more than 939,000. This is not to imply that such regulations and 

adjudications are inherently tyrannical or that Congress has no influence over agencies. 

Rather, it states the obvious: this system is adopting new pathways and power centers 

that were never anticipated in the design of our system. 

The nondelegation doctrine is based on the notion that our carefully balanced 

system of government cannot fully function if the legislative process left to Congress in 

the vesting clause (including such guarantees as presentment and bicameralism) can 

simply be circumvented. U.S. Const. art. I, §1 ("All legislative Powers herein granted 

shall be vested in a Congress of the United States ... ").While the Supreme Court has 

long reaffmned the need for Congress to exercise such powers, it created a fluid test that 

allowed agencies to "fill up the details" left by legislation in the execution oflaws. 15 The 

Court allowed delegation ofrulemaking powers if there is an "intelligible principle"16: a 

standard that has proven perfectly unintelligible in allowing any statutory referenceshort of utter silence 17-to suffice for delegation. This reality was expressly 

14 Anne Joseph O'Connell, Vacant Offices: Delays in Staffing Top Agency Positions, 

82 S. CAL. L. REv. 913, 936 (2009). 15 United States v. Shreveport Grain & Elevator Co., 287 U.S. 77, 85 (1932). 16 Loving v. United States, 517 U.S. 748, 772 (1996). 17 Yakus v. United States, 321 U.S. 414, 426 (1944) ("Only if ... there is an absence 

of standards ... would we be justified in overriding [the congressional] choice of means 

for effecting its declared purpose."). 

6 
53 

acknowledged in the Court's decision in Whitman v. American Trucking Ass 'ns. 18 In that 

case, the Court noted "we have found the requisite 'intelligible principle' lacking in only 

two statutes, one of which provided literally no guidance for the exercise of discretion, 

and the other of which conferred authority to regulate the entire economy on the basis of 

no more precise a standard than stimulating the economy by assuring 'fair competition."' 

Thus, in Yakus, the Court upheld the Emergency Price Control Act (EPCA) when 

Congress gave to the Office of Price Administration (OP A) the power to set commodity 

prices that "in his judgment will be generally fair and equitable and will effectuate the 

purposes of the Act." 19 The Court had flipped the presumption and embraced the idea 

that Congress could pick the path of least resistance in yielding core legislative 

responsibilities to bureaucrats. The Court held that Congress "is free to avoid the rigidity 

of such a system, which might well result in serious hardship, and to choose instead the 

flexibility attainable by the use of less restrictive standards."20 That "flexibility" is often 

driven more by political than policy realities. Given the opportunity to pass highly 

generalized (indeed even aspirational) bills, Congress can often avoid tough calls and 

decisions by passing the more difficult substantive policy decisions off to federal 

agencies. This is precisely what the Framers had sought to avoid in forcing policy 

disagreements into the legislative process. The transfer of power is more than 

transferring these problems to bureaucrats; robs the system of its essential role in forcing 

majoritarian compromise. 

Madison believed that the separation of powers, as a structure, could defeat the 

natural tendency to aggrandize power that tended toward tyranny and oppression. In 

Madison's view, "the interior structure of the govemment"21 distributed the pressures and 

destabilizing elements of nature in the form offactions22 and unjust concentration of 

power.23 He envisioned what he described as a "compound" rather than a "single" 

structure republic and suggested it was superior because it could bear the pressures of a 

large pluralistic state. Alexander Hamilton spoke in the same terms, noting that the 

superstructure of a tripartite system allowed for the "distribution of power into distinct 

departments" and for the republican government to function in a stable and optimal 

fashion. 24 

The structure of this system represents more than just the rigid lines defining interbranch powers. The structure is meant to transform factional interests into majoritarian 

compromises. I have previously written about what I call a "conarchitectural" approach 

18 Whitman v. Am. Trucking Ass'n, 53! U.S. 457,474 (2001) (citing Panama 

Refining Co. v. Ryan, 293 U.S. 388 (1935); A. L.A. Schechter Poultry Corp. v. United 

States, 295 U.S. 495 (1935)). 19 !d. at 420. 20 !d. at 425-26. 21 THE FEDERALIST NO. 51, at 320 (James Madison). 22 See THE FEDERALIST No. I 0, at 79 (James Madison) (noting that the "causes of 

faction" are "sown in the nature of man."). 23 See THE FEDERALIST No. 51, supra note 21, at 320 (James Madison); see also 

Douglass Adair, "That Politics May Be Reduced to a Science": David Hume, James 

Madison, and the Tenth Federalist, 20 HUNTINGTON LIBR. Q. 343,348-57 (1957). 24 THE FEDERALIST No.9, at 72 (Alexander Hamilton). 

7 
54 

to constitutional interpretation and understanding the separation ofpowers.25 In 

architecture, the concept of structure has been developed to a far greater extent than in the 

law, despite our long-standing debate of form and functionalism. It is well understood 

that structure does not just protect those within but also directs their interrelationships. 

As Winston Churchill once said, "[t]here is no doubt whatever about the influence of 

architecture and structure upon human character and action. We make our buildings and 

afterwards they make us. "

2 The design of the structure both reflects and directs the 

action within it. In both architectural and constitutional theory, form follows function. 

The separation of powers forces a greater array of participating actors, and therefore 

interests, to be considered in the shaping of laws. A conarchitectural approach treats the 

structure itself as the expression of the Framers' vision of human nature and the optimal 

space for political deliberations.27 

As in architecture, constitutional structure plays a determinist role in shaping 

perspective and choice. The structural lines and spaces created by the Framers are best 

seen as a recognition of the need to frame not just the inherent powers but the perception 

of power within a system. By structuring political decision-making, constitutional 

structure funnels both the decision-making and political dialogue along particular 

pathways. The confmes of the tripartite system serve much of the same function as 

"choice architecture" in funneling political energies and actions. By maintaining 

separation, the Framers likely sought to achieve stability even within the dynamic and 

divisive political environment. The guarantees of separation ideally discouraged 

dysfunctional choices that Congress or a President might make in an effort to circumvent 

one another or "go it alone" through unilateral action.28 The structure was not only 

shaped by human realities, but would, in turn, even help shape those realities. The 

limitations on executive, legislative, and judicial powers were meant to limit the horizons 

of power; to influence the range of choices and expectations within the system. When 

viewed from this perspective, the rise of a system of federal agencies within the 

constitutional structure changed how those within it interact and react. The tripartite 

design of the Madisonian system is carefully calculated to resolve divisions in a 

pluralistic society. 

Social and political divisions were never meant to be resolved through an array of 

federal agencies, which are insulated from the type of public participation and pressures 

that apply to the legislative branch. A recent example is the intervention of a small 

federal office to force a result in the long-simmering public debate over the name of the 

25 See, e.g., Turley, Madison ian Tectonics, supra note 9; Jonathan Turley, A Fox in 

the Hedges, supra note 9. 26 Paul Goldberger, Why Architecture Matters 1 (Yale 2009) (quoting Churchill's 

address to the English Architectural Association in 1924). 27 This notion of constitutional structure can present classic "soft variable" issues for 

theories incorporating economic or risk elements into the analysis. See generally Turley, 

A Fox in the Hedges, supra note 9. 28 The controversy over the nonenforcement of federal law is a direct result of "bad 

choices" made in the absence of clear lines of separation as I have previously discussed 

before Congress. See Duty to Faithfully Execute Hearing, supra note 10, at 113-63; see 

also Jonathan Turley, The President's Power Grab, L.A. TIMES, Mar. 9, 2014, at A28. 

8 
55 

Washington Redskins football team.29 The Trademark Trial and Appeal Board voted to 

rescind federal trademark protections for the Redskins-a decision that could ultimately 

decide the controversy over the 80-year-old name. There are perfectly good reasons to be 

offended by this name, but the public remains deeply divided. Social and market 

pressures may still result in a name change but it should not come by some administrative 

edict of the little-known administrative body of a little-known board. The problem is that 

the board had at its disposal a ridiculously ambiguous standard which allows the denial of 

a trademark if it "may disparage" a "substantial composite" of a group at the time the 

trademark is registered. Congress should have addressed that ill-defined standard years 

ago, but the overreach of the board was breathtaking. We have seen other examples of 

agencies intervening in political or social controversies in ways that undermine the 

legislative Frocess as the means for resolving such conflicts, as I have previously 

discussed. 3 

While the future of the Redskins name is hardly a threat to our system of 

government, the circumvention of political process in such controversies is such a theat. 

We are gravitating toward the de facto creation of an English ministry system. 

Academics often treat the rise (and dominance) of the Administrative State as an 

inevitability and, accordingly, view those of us who cling to the Madisonian model as 

hopelessly naive and nostalgic. Until the American people decide to adopt a bureaucracy 

or technocracy as the principle form of government, however, Congress has a duty to act 

to preserve the essential components of our tripartite system. To do that, it must first deal 

with Chevron. 

Ill. RESTORING THE TRIPARTITE SYSTEM THROUGH THE 

RECLAMATION OF LEGISLATIVE AUTHORITY. 

What is particularly striking is how many academics treat the Administrative 

State as now an obvious and irreversible part of our constitutional system. Indeed, when 

I recently testified on the Chevron doctrine, I was struck by the critique of one of my 

colleagues of changes to the deference afforded to agencies as inimical to the 

Administrative State. It now seems that the Administrative State is so part of our 

governing system that it must be sustained like a symbiotic growth that is now essential 

to sustain the life of the host. While it is true that we practically cannot function without 

agencies, it is also true that agencies can function without sweeping deference or 

delegation. Yet, our system is fast approaching a point where this shift will become 

irreversible. Legislative authority is at its lowest point in the history of our Republic. If 

agencies are allowed to continue to solidifY governing authority, our system will 

gradually lose any real functional meaning as a representative democracy (as opposed to 

a government run by EU-like directorates or ministries). This may be (in the view of 

some academics) a better system, but it is not the system that citizens of this country 

accepted and any departure from that original model should be left to the citizens who 

will have to live under the new model. 

29 Jonathan Turley, Another Federal Agency Goes Outside of Bounds Over 

Redskins Name, WASH. POST (Sunday), June 22, 2014. 30 Jonathan Turley, Politics by Other Means, USA ToDAY, July 8, 2014. 

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A. Returning To The Pre-Chevron Model Of The APA. 

The good news is that the Administrative State is a creation-by both 

congressional action and acquiescence--of Congress. What Congress created, Congress 

can remake. As the Supreme Court has made clear, "Agencies are creatures of Congress; 

'an afency literally has no power to act ... unless and until Congress confers power upon 

it. "'3 Accordingly, this is an area where Congress can have a direct and pronounced 

impact. The question is not the authority but the desire of Congress to reassert its 

authority over agencies. Indeed, had Congress remained faithful to the original vision of 

the Administrative system (and had courts not removed themselves from this area 

through cases like Chevron), we would not be witnessing this unprecedented shift of 

governing authority to agencies. Congress expressly created a system of review to 

constrain agency abuses. Section 706(2) of the Administrative Procedure Act (APA) 

states that courts shall: 

hold unlawful and set aside agency action, findings, and conclusions found 

to be-

(A) arbitrary, capricious, an abuse of discretion, or otherwise not in 

accordance with law; 

(B) contrary to constitutional right, power, privilege, or immunity; 

(C) in excess of statutory jurisdiction, authority, or limitations, or short of 

statutory right; 

(D) without observance of procedure required by law .... 

The statutory duty to decide whether an agency action is "in excess of statutory 

jurisdiction, authority, or limitations, or short of statutory right" reflects a traditional 

judicial review standard. There is no license for yielding a substantial part of that duty to 

agencies as presumptively correct interpreters of the law. In the AP A, Congress 

specifically instructed courts to decide "all relevant questions oflaw."32 When read in 

combination with the AP A, Chevron reads as much a delegation of judicial function as 

legislative function. 

Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc. 33 addressed the 

question of how the Environmental Protection Agency (EPA) could treat "non-attainment" 

states that had failed to attain the air quality standards under the Clean Air Act. The 

Reagan Administration had liberalized preexisting rules requiring a permit for new or 

modified major stationary sources. The Natural Resources Defense Council challenged 

the EPA regulation and prevailed in court. With three justices not participating in the 

decision, the court voted 6-0 to reverse and order deference to the EPA's interpretation.34 

31 City of Arlington, 133 S. Ct. at 1880 (quoting Louisiana Pub. Serv. Comm 'n v. 

FCC, 476 U.S. 355, 374 (1986)). 32 5 U.S.C. § 706 (2016). 33 Chevron, 467 U.S. 837 (1984). 34 Chief Justice Rehnquist, Justice Thurgood Marshall, and Justice Sandra Day 

O'Connor recused themselves from the case. 

10 
57 

The Chevron decision proved to be something of a Trojan horse doctrine that 

arrived in a benign form but soon took on a more aggressive, if not menacing, character 

for those concerned about the separation of powers. On its face, the doctrine is 

unremarkable and even commendable in a Court seeking to limit the ability ofunelected 

judges to make arguably political decisions over governmental policy. As noted by Chief 

Justice John Roberts, "Chevron importantly guards against the Judiciary arrogating to 

itself policymaking properly left, under the separation of powers, to the Executive."35 

Chevron put forward a simple test for courts in first looking at whether the underlying 

statute clearly answers the question and, if not, whether the agency's decision is 

"permissible" or reasonable.36 That highly permissive standard shifted the center of 

gravity of statutory interpretation from the courts to the agencies, contrary to the 

language of the AP A. With sweeping deferential language, the Court practically 

insulated agencies from meaningful review. In a system based on checks and balances, 

the Court helped create an internal system that would flourish under a protective layer of 

agency deference. To be sure, the Court has repeatedly recognized the right of Congress 

to check federal agencies. In practice, however, Chevron has proven a windfall for 

agencies, advancing their priorities and policies in the execution of federal laws. It is the 

administrative equivalent of Marbury v. Madison. Rather than declaring courts as the 

fmal arbiter of what the law means in Marbury, Chevron practically resulted in the same 

thing for agencies, giving them the effective final word over most administrative matters. 

Even though Congress can override agency decisions, it is unrealistic to expect millions 

of insular corrections to be ordered over agencies decisions. 

Before Chevron, there was not a period of utter confusion and judicial tyranny in 

the review of agency decisions. Courts simply applied traditional interpretive approaches 

that looked at whether there was an ambiguity or gap in a statute as opposed to clarity on 

a given question. If so, it then reviewed the agency decision to determine whether it was 

legal and proper. This analysis was later developed further by the decision in Skidmore v. 

Swift & Co., where the Court articulated factors used to decide whether to overturn the 

particular agency's determinations.37 Notably, without granting sweeping deference, the 

Court in Skidmore already recognized that agency determinations would carry weight, 

just not controlling weight: 

We consider that the rulings, interpretations and opinions of the 

Administrator under this Act, while not controlling upon the courts by 

reason of their authority, do constitute a body of experience and informed 

judgment to which courts and litigants may properly resort for guidance. 

The weight of such a judgment in a particular case will depend upon the 

thoroughness evident in its consideration, the validity of its reasoning, its 

consistency with earlier and later pronouncements, and all those factors 

which give it power to persuade, if lacking power to control. 

ld. Justice Jackson referred to a historical treatment of agency interpretations with due 

35 

36 

37 

City of Arlington v. FCC, 133 S. Ct. 1863, 1886 (2013) (Roberts, C.J., dissenting). 

Chevron, 467 U.S. at 842-43. 

Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944). 

11 
58 

"respect" and "considerable weight." Id. at 140. Thus, the courts did not have a hostile 

or counter-agency position in such cases, but a fairly accommodating standard. Courts in 

the United States also have a well-understood and respected tradition of avoiding political 

questions and limiting judicial discretion. Chevron could have resulted in the very same 

way under this prior case law, but the Court instead created a new deferential standard 

that proceeded to expand as soon as the Court gave it breath. 

After decades of neglect during which the Court remained relatively passive in the 

face of the rising dominance of agencies in our system, the Court began to seek 

incremental limitations on the authority of agencies. While Justice Scalia called 

Skidmore "an anachronism"38 the Court would rediscover the value of more serious 

judicial review in other cases. For example, in Christensen v. Harris County/9 the Court 

suggested that the prior standard in Skidmore would apply to less formal agency 

decisions as opposed to those agency documents that carry "force oflaw." Justice 

Clarence Thomas drew a distinction of when an agency interprets a statute in a decision 

that has "the force of law" from more rudimentary decision. As noted by Professor 

Thomas Merrill,40 Thomas' proposal tracked a recommendation by the Administrative 

Conference of the United States.41 Thomas described the former category as including 

"formal adjudication or notice-and-comment rulemaking."42 Thus, because this case 

involved a Department of Labor opinion letter that was merely advisory on the meaning 

of the Fair Labor Standards Act, there was no deference extended under Chevron. In 

applying the Skidmore standard, the Court rejected the interpretation. Differing minority 

opinions added to the confusion of the current meaning of Chevron, including the 

dissenting opinion of Justice Breyer, who insisted that Chevron did not create a new 

standard, and that Skidmore remains the only standard for deference.43 Chevron, in his 

view, only extended the basis for deference on the basis that "Congress had delegated to 

the agency the legal authority to make those determinations."44 

The evolving and conflicting view of Chevron was also captured in the decision 

of United States v. Mead Corp.45 In that case of tariff classification rulings, the eightjustice majority opinion, recognized different deference tests under Skidmore and 

Chevron. Consistent with Christensen, the Court noted the application of Chevron for 

agency interpretations that have the "force of law."46 The Court embraced the notion of 

delegated authority from Congress for "the agency generally to make rules carrying the 

38 Christensen v. Harris Cty., 529 U.S. 576, 589 (2000) (Scalia, J., concurring in part 

and concurring in the judgment). 39 Christensen, 529 U.S. 576 (2000). 40 See generally Thomas Merrill, Chevron at 30: Looking Back and Looking 

Forward: Step Zero After City of Arlington, 83 FORDHAM L. REv. 731 (2014). 41 OFFICE OF THE CHAIRMAN, ADMIN. CONFERENCE OF THE U.S., 

RECOMMENDATIONS AND REPORTS, RECOMMENDATION 89-5; ACHIEVING JUDICIAL 

ACCEPTANCE OF AGENCY STATUTORY INTERPRETATIONS 31-33 (1989). 42 Merrill, Chevron at 30, supra note 40, at 587. 43 Id. at 596 (Breyer, J., dissenting). 44 Id 45 Mead, 533 U.S. 218 (2001). 46 Id at 226-27. 

12 
59 

force of law, and that the agenc1 interpretation claiming deference was promulgated in 

the exercise of that authority."4 However, the condition of what is an action with the 

force oflaw remained undefined. Yet, the ruling became the basis for the concept of 

"Chevron Step Zero," the courts first inquires into whether Congress delegated the 

authority before applying Chevron deference. If not, the less favorable standard in cases 

like Skidmore would apply. 

One of the more alarming applications of Chevron carne in City of Arlington v. 

FCC.48 The case concerned a 1996 amendment to the Federal Communications Act 

mandating that local land use agencies process applications for the construction or 

modification of wireless transmission towers "within a reasonable period of tirne."49 The 

statute provided an avenue with a "court of competent jurisdiction" for relief to parties 

who did not receive action on requests. The case perfectly captured the fluid authority 

and utter flexibility of agencies in exercising their interpretive powers post-Chevron. The 

Federal Communications Commission (FCC) initially disclaimed the authority under the 

statute, but then reversed itself and issued an order setting a 90-day limit for any tower 

expansion or 150-day limit for new construction under the rule. The jurisdictional 

authority of the FCC was challenged. For many years, it was generally thought that, no 

matter how expansively Chevron was read, the one area where an agency could not claim 

deference would be in the interpretation of its own jurisdictional powers. After all, as 

discussed above, the AP A specifically leaves to the court to determine if an agency has 

acted "in excess of statutory jurisdiction." Nevertheless, the Fifth Circuit held that 

Chevron would apply in an agency defining its own jurisdiction. The Supreme Court 

agreed in a 5-4 decision with Justice Scalia joining the majority. Chief Justice Roberts 

(with Justices Kennedy and Alito) dissented. Five Justices found no way to distinguish 

jurisdictional and non-jurisdictional questions. Indeed, in his separate decision, Justice 

Scalia called such distinctions little more than a "mirage."50 

Chief Justice Roberts, joined by Justices Kennedy and Alito, dissented, and 

expressed the view that such expanded authority raised transforrnative challenges for the 

federal system. Roberts decried the court for evading its core responsibility in drawing 

lines of authority within that system: "Our duty to police the boundary between the 

Legislature and the Executive is as critical as our duty to respect that between the 

Judiciary and the Executive ... We do not leave it to the agency to decide when it is in 

charge."51 In a chilling warning, Roberts further notes that "[i]t would be a bit much to 

describe the result as 'the very definition of tyranny,' but the danger posed by the 

growing power of the Administrative State cannot be dismissed." 

City of Arlington fulfilled many of our worst fears of the trajectory of Chevron. 

Despite tailoring in cases like Christensen and Mead, City of Arlington gave agencies a 

47 

48 

49 

Id. at 27. 

City of Arlington v. FCC, 133 S. Ct. 1863, 1886 (2013). 

47 U.S.C. § 332(c)(7)(B)(ii) (2012). 

Justice Scalia saw the distinction as another attack on Chevron that would be 

exploited in future cases. City of Arlington, 133 S. Ct. at 1873 (Scalia, J., concurring) 

("Make no mistake-the ultimate target here is Chevron itself. Savvy challengers of 

agency action would play the 'jurisdictional' card in every case.") 51 Jd. at 1886 (Roberts, C.J., dissenting). 

50 

13 
60 

critical and expansive power to define their own jurisdiction under the protection of a 

heavy Chevron deference standard. For that reason, the avoidance of Chevron analysis in 

the recent decision in King v. Burwell only deepened the uncertainty over the scope and 

meaning of the doctrine. The case would seem ripe for Chevron analysis in the 

interpretation of an agency of the meaning of state and federal exchanges within the 

overall scheme of the Affordable Care Act (ACA). Writing for a six-justice majority, 

Chief Justice Roberts, wrote: 

When analyzing an agency's interpretation of a statute, we often apply the twostep framework announced in Chevron. Under that framework, we ask whether 

the statute is ambiguous and, if so, whether the agency's interpretation is 

reasonable. This approach is premised on the theory that a statute's ambiguity 

constitutes an implicit delegation from Congress to the agency to fill in the 

statutory gaps. In extraordinary cases, however, there may be reason to hesitate 

before concluding that Congress has intended such an implicit delegation. 5

2 

It is the type of fluid, undefmed standard that has characterized not just the post-Chevron 

cases but many other areas of jurisprudence from the Court. The Court appears to believe 

that it will be self-evident when a court is dealing with a "question of deep economic and 

political significance."53 Of course, many, if not most, federal agency decisions have 

significant impacts. While King v. Burwell may reflect a degree of belated buyer's 

remorse, it will hardly correct an ambiguous standard by grafting on an equally 

ambiguous limitation on that standard. Indeed, the Court appears convinced that adding 

layers of ambiguity will somehow produce clarity under Chevron. Congress can 

introduce the very clarity that seems to escape the Court by expressly limiting or 

disavowing delegation in statutes, as discussed below. 

B. Restoring Legislative Control Over Agency Lawmaking. 

If Congress is to reassert its authority over agency lawmaking it will have to 

develop new pathways for information and limit areas of claimed delegation. The first 

priority is to reduce the informational costs and barriers for members in monitoring 

agency actions. I have strongly encouraged Congress to expand legislative staff to allow 

greater monitoring and correction measures vis-a-vis agency actions. While Congress 

required independent evaluation by the GAO under the Truth in Regulating Act of 

2000,54 there has not been sufficient funding of this function. Congress should reconsider 

the establishment of an office that is fully equipped to track and review federal rules and 

regulations, as proposed under the Strengthening Congressional Oversight of Regulatory 

Actions for Efficiency Act. 55 The first line of defense for Congress remains its ability to 

act to check agencies. The very size and complicity of federal regulations, however, 

make such monitoring sporadic and uncertain without an office with the expertise to 

52 

53 

54 

55 

Kingv. Burwell, 135 S. Ct. 2480,2488-89 (2015) (citations omitted). 

Id at2489. 

Pub. L. No. 106-312, 114 Stat. 1248-50 (2000). 

S. 1472, 113th Cong. (2013). 

14 
61 

facilitate this function. Notably, the Office of Management and Budget (OMB) has a 

budget of roughly $100 million annually and a staff of hundreds to monitor executive 

agencies and programs. The OMB is supported by thousands of agency employees who 

feed it information on new rulemaking as well as carry out directives on such programs. 

In comparison, the branch tasked with actually creating and changing the laws under 

which these agencies operate remains understaffed and overwhelmed. There is no way to 

do this on the cheap. Either Congress will maintain a staff capable of meaningful 

monitoring of rulemaking or it will retain a largely pedestrian role with regard to the 

Administrative State. Obviously, Committee staff serves as the eyes of Congress in 

different areas of the law. However, those staff members are tasked with other duties 

from drafting laws to holding hearings to addressing budgets. What is needed is a 

specialized staff within the legislative branch who can reassert congressional authority 

over agency law-making. 

Congress also needs to create new pathways for checking rulemaking. It has tried 

to do so in the past with little success. The Congressional Review Act (CRAi6 allowed 

Congress to block significant regulations. Yet, both houses had to pass resolutions of 

disapproval and the president had to sign the law. Not surprisingly, the law had little 

impact. Another compelling approach would be to classify rulemaking to focus enhanced 

procedures on the most impactful and substantial forms of rulemaking. That was the case 

with the proposed amending of the APA with the Regulatory Accountability Act 

(RAA). 57 Classifying regulations into three categories, "high impact" rules (with 

estimated effects of $1 billion or more in a year) would be subject to greater scrutiny and 

public proceedings. The creation of such formal procedures can not only create greater 

transparency, but (as discussed below) enlist the public and outside groups in evaluating 

agency rulemaking. 

The current notice and comment provisions under the AP A are often criticized as 

largely cosmetic for agencies, which have already set upon an intended course. While 

creating highly limited procedural rights and the appearance of participatory systems, 

agencies have to do relatively little in considering such views before promulgating final 

rules. Moreover, the process of administrative lawmaking is intransparent except for the 

perfunctory public comment period. Before and after such notice and comment, agencies 

are allowed to engage in ex parte communications in the crafting of their policies and 

programs. As Justice Kagan noted during her academic career, most of the agency 

deliberations are carried out without a record or public review.58 

As shown in the current immigration case heard this week by the Supreme Court, 

the goverrunent can implement sweeping changes even without such notice and comment. 

United States v. Texas is a chilling example of how agencies today operate independently 

from both Congress and the public in dictating changes affecting our society and 

economy in fundamental ways. While the APA's notice-and-comment requirements set 

forth at 5 U.S.C. § 553(b) have been repeatedly enforced by the courts as a precondition 

56 5 U.S.C. § 801, et seq. 

S. 1029, ll3th Cong. (2013); H.R. 2122, !13th Cong. (2013). 57 

58 Elena Kagan, Presidential Administration, 114 HARV. L. REV. 2245,2280 n.l42 

(2001) (noting that "[t]he APA contains no prohibitions on ex parte contacts between 

agency personnel and outside persons in notice-and-comment rulemaking"). 

15 
62 

for rules to have the force of law, the Department of Homeland Security simply chose to 

issue a November 20,2014, directive setting forth the provisions ofDAPA (Deferred 

Action for Parents of Americans and Lawful Permanent Residents). There was no 

advance notice or comment- a violation found by the district court in the case.59 When 

challenged over the circumvention of the notice and comment requirements, the 

Administration simply declared that the enormous program affecting the status of 

millions of undocumented person fell within an exception for "general statements of 

policy." In other words, DAP A was merely treated as an exercise of discretionary policy 

where neither Congress nor the public would play a meaningful role. It is a striking 

example of how far we have strayed from the original model of our constitutional system. 

DAP A represents a type of government by memoranda where agencies simply issue new 

laws by executive fiat. The objection is not to the merits of the program, but the method 

chosen by the Administration (or any future administration). With the President in 

DAP A openly admitting that he is unilaterally ordering the very reforms that he was 

denied in Congress, the need for new procedural safeguards on agency action should be 

obvious. Regardless who may be the next president, federallegis1ative authority cannot 

be allowed to slip away into the mist of agency decision-making. 

New APA procedures would help combat dangers of unilateral agency action as 

seen in United States v. Texas. However, that case showed how an agency can simply 

ignore relatively clear procedural requirements. A more robust and promising effort is 

found in reforms requiring legislative consent-an approach that I favor. Such an 

approach is found in the "Regulations from the Executive in Need of Scrutiny Act" or 

REINS.60 REINS would require regulations to secure congressional approval in order to 

take effect. It would flip the dynamic of CRA from allowing congressional intervention 

to requiring congressional approval for major new rules. The law, however, has a default 

against new rule: if Congress does not act on a major rule within 70 days, it would be 

deemed "not approved" unless the president makes a determination that failure to enact 

the rule would harm the health, safety, or national security or cause conflicts with 

criminal law or treaty obligations. While there are good-faith objections to REINS as 

possibly curtailing executive authority and running afoul of cases like Chadha, I believe 

that the premise of the law is sound and compelling in asserting legislative authority over 

the law-making functions of agencies. I believe that a congressional approval law would 

be constitutional.61 There are aspects of REINS that should be reexamined but the 

59 Texas v. United States, 86 F. Supp. 3d 591 (S.D. Tex. 2015); see also Texas v. 

United States, 787 F.3d 733 (5th Cir. 2015). 

60 See Regulations from the Executive in Need of Scrutiny ("REINS") Act of2011, 

H.R. 10, ll2th Cong.; see also Regulatory Accountability Act of2011, S. 1606, 112th 

Cong. (requiring regulators to adopt the "least costly" rule and imposing formal 

rulemaking procedures); Regulatory Accountability Act of2011, H.R. 3010, 112th Cong. 

f~ame).lmmigration and Naturalization Service v. Chadha, 462 U.S. 919 (1983), dealt 

with the one-house legislative veto. Obviously REINS avoids the bicameralism problem 

of a one-house veto and there is no reason why such a law cannot be crafted to avoid 

Presentment Clause problems. Notably, both Justice Stephen Breyer and Professor 

16 
63 

categorical objection to such a law is fascinating. Indeed, the arguments from critics that 

the law would alter our constitutional structure only highlights how engrained the 

Administrative State has become in our assumptions about government. A REINS 

approach would be both constitutional and, if properly written, beneficial in 

reestablishing legislative authority. 

Obviously, the easiest ways to prevent delegation rulings would be to expressly 

bar delegation or to impose clear limits. While distinguishing "strictly and exclusively 

legislative powers," Chief Justice John Marshall, in Wayman v. Southard,62 wrote for a 

unanimous Court in holding that Congress "may certainly delegate to others, powers 

which the legislature may rightfully execute itself." The issue remained one of line 

drawing, for courts to isolate that point ''which separates those important subjects, which 

must be entirely regulated by the legislature itself, from those of less interest, in which a 

general provision may be made, and power given to those who are to act under such 

general provisions, to fill up the details."63 This issue was in the forefront of the conflict 

between the Supreme Court and the White House during the 1930s, though admittedly 

the Court has routinely rejected nondelegation claims. 64 Yet, in 1928 in J. W. Hampton, 

Jr. & Co. v. United States, the Court upheld a statute that allowed the president to set 

tariffs because it contained an "intelligible principle" for implementing the statute.65 

Then, in 1935 inA. L.A. Schechter Poultry Corp. v. United States/6 the Court struck 

down a provision of the National Industrial Recovery Act under the nondelegation 

doctrine for lacking such a principle. Likewise, Panama Refining Co. v. Ryan/7 the 

Court held that no such principle was articulated when Congress gave the President 

authority to regulate the transportation of petroleum products. 

In part, the association with the anti-New Deal cases contributed to the demise of 

the doctrine.68 However, there was also a growing view that Congress could never 

practically address the myriad issues routinely addressed by agencies in the interpretation 

and enforcement of so many federal laws. The enactment in 1945 of the Administrative 

Procedure Act reflected this view by creating a quasi-legislative process for notice and 

comment on new federal rules. Past cases reaffirm that there is no inherent authority of 

agencies to carry out such actions and, as my colleague Dick Pierce noted, "an agency 

has the power to issue binding legislative rules only if and to the extent Congress has 

Lawrence Tribe have previously indicated that they also believed that such a law could be 

crafted to pass constitutional muster. See Stephen Breyer, The Legislative Veto After 

Chadha, 72 Geo. L.J. 785, 793-97 (1984); Laurence H. Tribe, The Legislative Veto 

Decision: A Law by Any Other Name?, 21 Harv. J. on Legis. 1, 19 (1984). 62 23 u.s. 1, 43 (1825). 63 Id 64 Justice William Rehnquist invoked this doctrine in his opinion in Industrial Union 

Department, AFL-CIO v. American Petroleum Institute (Benzene), 448 U.S. 607, 686 

p980) (Rehnquist, J., concurring). No other justice joined him in that position. 5 J.W. Hampton, Jr. & Co. v. United States, 276 U.S. 394, 409 (1928). 66 A. L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495 (1935). 67 Panama Refining Co. v. Ryan, 293 U.S. 388 (1935). 68 JOHN HART ELY, DEMOCRACY AND DISTRUST 133 (1980). 

17 
64 

authorized it to do so."69 Thus, even in carrying out the takeover of the steel mills during 

wartime, Justice Hugo Black demanded evidence of such congressional intent. Thus in 

Youngstown Sheet & Tube Co. v. Sawyer, he wrote: 

The President's power, if any, to issue the order must stem either from an act of 

Congress or from the Constitution itself. There is no statute that expressly 

authorizes the President to take possession of property as he did here. Nor is there 

any act of Congress to which our attention has been directed from which such a 

power can fairly be implied. Indeed, we do not understand the Government to 

rely on statutory authorization for this seizure?0 

Professor Merrill has tried to thread this jurisprudential needle by moving beyond a 

nondelegation doctrine toward an "exclusive delegation doctrine" that states that "the 

President and executive branch agencies can subdelegate only if and to the extent 

Congress has authorized subdelegation. The exclusive delegation understanding tells us 

the Executive has no inherent authority to exercise legislative power." 

Whatever perspective is applied, the legislative functions of agencies are based 

either loosely or directly on a delegation theory. As a result, Congress could alter Section 

706 of the APA71 to expressly reject any presumption of delegation for such 

interpretations, particularly with regard to the jurisdiction of a federal office or agency. 

The section currently authorizes judicial review of agency actions to determine if the 

action is "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance 

with law." ld. The APA could be altered to expressly reject any claimed presumption of 

delegation and to reject the application of the Chevron standard absent an express 

standard of deference given to an agency. Section 701 already limits judicial review "(1) 

if a statute expressly precludes review or provides another form of review under the AP A, 

that statute governs; or (2) the 'agency action is committed to agency discretion by law."' 

Id. § 701(a). Congress can change the APA to address the standard for review. Clearly if 

Congress can deny review, it can structure review under the belief that the lesser is 

contained in the greater in such use of congressional authority. 

Putting aside the AP A, Congress could also use a standard provision to add to 

statutes that expressly denies any delegation of authority to agencies to determine their 

jurisdiction. Such provisions could also deny any intended delegation over force of law 

interpretations while recognizing that provisions can be subject to a Skidmore-like 

standard of interpretation. Such standard clauses are already used for such legal issues as 

severability issues for judicial review. Courts could still evade such provisions but they 

will have to dispense with the pretense that the sweeping deference under Chevron is 

Congress' doing or delegated intent. Such an affirmative denial of delegation should not 

be necessary. As the court in United States v. Texas noted, Congress "knows how to 

69 1 KENNETH CULP DAVIS & RICHARD J. PIERCE, JR., ADMINISTRA T!VE LAW 

TREATISE § 6.3, at 234 (3d ed. 1994)); See also Thomas W. Merrill, Rethinking Article L 

Section 1: From Nondelegation to Exclusive Delegation, 104 COLUM. L. REv. 2097, 2109 

Foo4). 

0 Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579,585 (1952). 71 5 U.S.C. § 706 (2012). 

18 
65 

delegate discretionary authority" and courts should not presume such delegation.72 

However, an affirmative statement on nondelegation will reinforce such points in limiting 

the scope of agency action. 

Finally, there is little question that Congress lacks the personnel and the time to 

directly monitor all of the decisions made in all of the federal agencies. As previously 

noted, congressional committees (and staff) should be significantly expanded to allow for 

greater monitoring of agency decisions. Our federal government is simply too large for 

Congress to act with regard to more than a relatively small fraction of agency actions. 

When Congress has faced areas with such limited ability to monitor or identify 

governmental abuse, it has used private attorneys general or citizen lawsuits. Congress 

should continue to ally itself with the public in monitoring agencies by creating such 

provisions to allow citizens to more easily pursue nondisclosures and noncompliance in 

court. It can further reinforce this system by examining new limitations placed on what 

constitutes a "prevailing party" for the purposes of recovery of fees and costs in such 

actions. It should also pursue amendments oflaws that are information forcing, like the 

Freedom oflnformation Act, by addressing the long delays and expansive privileges 

imposed by agencies. In so doing, the public can help monitor and deter agency abuse. 

IV. CONCLUSION 

The notion of an Administrative State should be troubling to all members 

regardless of one's party affiliation. The concern is not that we live in an "Age of 

Regulation," which is and will remain an inevitable feature of modem government. 

Rather, it is the notion of a "state" unto itself that troubles some of us in watching the 

increasing independence and insularity of the agency system. As shown in the DAPA 

controversy, Congress has become merely one option for legislative changes in this new 

system. While the merits of a change like DAPA often obscures the constitutional 

implications of the method, the fact is the Congress is rapidly losing its relevance in such 

areas. While Madison hoped in Federalist No. 51 that "ambition must ... counteract 

ambition," personal ambition can prevail over institutional interests in modem politics, as 

members become agents of their own obsolescence. I happen to agree with much of what 

these agencies are seeking to achieve and I will admit an academic identification with 

agency expertise. However, our system is premised on the notion that how we reach 

decisions is as important as what we decide. It is the process of resolution in the 

legislative process that brings stability to our system. It is often frustrating and, when the 

nation is divided, less gets done. However, the convenience of handing governing 

authority to federal agencies is no answer to our political divisions. 

The separation of powers was intended first and foremost as a protection of 

individual liberty from the concentration of authority. It is easy to create a system that 

allows decisions to be made by an elite body. The Framers were all too aware of such a 

system in the form of a monarchy. They chose a system that was more difficult but more 

democratic in character. The accumulation of power in an agency rather than an 

individual is certainly different in character. It is more diffused and more difficult to 

discern. However, both forms of concentrated authority threaten the protections of 

72 Texas v. United States, 86 F. Supp. at 658. 

19 
66 

individual liberty. Indeed, the agency aggrandizement of power may be more dangerous 

in that it is more difficult to track and to challenge for individual citizens. Where the 

accumulation of power in an individual is called tyranny, the accumulation of power in 

agencies can become a type of technocracy where experts rule as benign lawgivers. This 

is not to suggest evil purpose or design. The motivations behind agency actions are 

generally positive. However, the Framers like Madison expressly rejected systems based 

on a presumption of good motivations. Indeed, some of the worst actions taken in our 

country have beenjustified by the best of motivations. As the great Louis Brandeis 

warned in his dissent in Olmstead v. United States/3 where he warned that the "greatest 

dangers to liberty lurk in insidious encroachment by men of zeal, well meaning but 

without understanding." 

Thank you again for the honor of addressing the Committee today. I am happy to 

answer any questions that you may have. 

73 

Jonathan Turley, 

Shapiro Professor of Public Interest Law 

The George Washington University Law School 

2000 H St., N.W. 

277 U.S. 438 (1928). 

Washington, D.C. 20052 

202-994-700 I 

jturley@law.gwu.edu 

20 
67 

Testimony of Randolph J. May 

President, The Free State Foundation 

Hearing on "The Administrative State: An Examination of 

Federal Rulemaking" 

before the 

Committee on Homeland Security and Governmental Affairs 

United States Senate 

April20, 2016 
68 

Summary ofthe Testimony of Randolph J. May 

President, The Free State Foundation 

The Committee's identification of the Federal Communications Commission's net 

neutrality rule as deserving of examination is wise. The Commission's rulemaking is 

instructive regarding the ways in which a faulty rulemaking process enables the growth 

of the burgeoning administrative state and adversely impacts the economy- while, at the 

same time, compromising rule oflaw norms. I want to highlight four areas in which the 

FCC's net neutrality rulemaking is problematic. 

First, the net neutrality rulemaking truly is a case of the proverbial "solution in 

search of a problem." Or as FCC Commissioner Ajit Pai put it recently, the rule "was a 

313-page solution that wouldn't work to a problem that didn't exist." To put it bluntly, in 

this case there was no meaningful evidence of an existing market failure or consumer 

harm that required the Commission to adopt rules applying Ma Bell-era Title II public 

utility-like regulation to today's Internet service providers. The dynamic, competitive 

marketplace in which Internet service providers operate today is far removed from the 

staid monopolistic markets for which public utility-type regulation was devised. 

Second, as a result of the direct and indirect costs and burdens imposed on 

Internet service providers, the rule's adoption most likely will have a deleterious 

economic impact by chilling investment and innovation. Indeed, there is some persuasive 

evidence that it is already doing so. Of course, diminished investment and innovation 

mean diminished jobs and consumer welfare. 

Third, at a minimum, the manner of President Obama's direct involvement in the 

FCC's net neutrality rulemaking, and the aftermath of his involvement that resulted 

initially in confusion at the Commission and then, shortly afterward, in an abrupt change 

in course, raise questions about the FCC's supposed independence. The manner in which 

the rulemaking was conducted serves to undermine the notion that the FCC's decisions 

are primarily based on its specialized communications law and policy expertise rather 

than political considerations. And this, in turn, jeopardizes the public's confidence in the 

soundness of the Commission's decisions and the agency's institutional integrity. Just last 

week, the White House released a high-profile statement urging the FCC to adopt a 

specific course of action in the agency's controversial video navigation device 

rulemaking. Repeated high-profile presidential interventions like this further undermine 

the notion that the FCC acts independently and free from executive branch control. 

Finally, aside from issues relating to President Obama's involvement, there are 

aspects of the net neutrality rule, specifically including the vague general conduct 

standard and the enforcement regime the rule creates, that call into question compliance 

with accepted rule of law and due process norms. These norms require that law be 

predictable and knowable in advance of the imposition of sanctions, which in the case of 

the net neutrality rule is not the case. Failing to adhere to these norms also threatens to 

undermine the public's confidence in the agency's institutional integrity. 
69 

Testimony of Randolph J. May 

President, The Free State Foundation 

Mr. Chairman, Ranking Member Carper, and Members of the Committee, thank 

you for inviting me to testify. I am President of The Free State Foundation, a non-profit, 

nonpartisan research and educational foundation located in Rockville, Maryland. The 

Free State Foundation is a think tank that, among other things, focuses its research in the 

communications law and policy and administrative law and regulatory practice areas. I 

have been involved for almost forty years in communications law and policy in various 

capacities, including having served as Associate General Counsel at the Federal 

Communications Commission. While I am not speaking on behalf of these organizations, 

by way of background I note that I am a past Chair of the American Bar Association's 

Section of Administrative Law and Regulatory Practice and its representative in the ABA 

House of Delegates. I am currently a Public Member of the Administrative Conference of 

the United States and a Fellow at the National Academy of Public Administration. So, 

today's hearing on the Administrative State and rulemaking, which includes a specific 

focus on the FCC, is at the core of my longstanding experience and expertise in 

communications law and policy and administrative law. 

I. The Administrative State Today: A Brief Overview 

Given the increase in regulatory activity during the years of the Obama 

Administration, it is certainly fitting to examine the ongoing expansion of the 

administrative state, and the role that rulemaking and related regulatory activities play in 

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70 

impacting our personal lives, our families, and, importantly, our nation's economy. As 

ChiefJustice John Roberts declared in 2013 in his opinion in City of Arlington v. Federal 

Communications Commission, "[t]he administrative state 'wields vast power and touches 

almost every aspect of daily life. "'1 He observed that the agencies which comprise 

today's administrative state typically combine legislative, executive, and judicial powers 

in one body, despite James Madison's warning in Federalist No. 47 that lodging these 

powers "in the same hands ... may justly be pronounced the very definition of tyranny." 

Not all of the 440 agencies listed in the Federal Register possess the authority to 

promulgate rules that have the force of law- so-called legislative rules- but many do.2 

In any event, as Chief Justice Roberts recognized, the accumulation of powers in the 

nation's federal agencies is no longer an exception to the original constitutional plan, "it 

is a central feature of modern American government."3 

There is a rich literature on the vast domain oftoday's administrative state and its 

expansion in recent years, and there is no need here to belabor the data.4 But a few facts 

and figures are useful to provide context for today' s hearing. In 20 14, federal regulation 

and intervention cost American consumers and businesses an estimated $1.88 trillion in 

lost economic productivity and higher prices. This amounts to an average of$14,976 for 

each American household's share of the economy-wide regulatory costs assuming these 

costs are passed along to consumers. 

1 City of Arlington v. FCC, 133 S. Ct. 1863, 1878 (2013), quoting Free Enterprise Fund v. Public 

Company Accounting Oversight Bd., 56! U.S. 477 (2010). 2 For a list of the 440 agencies, see the Federal Register, available at: 

https://www.federalregister.gov/agencies (accessed on April9, 2016). 3 City of Arlington, at 1878. 4 The figures in this paragraph and the next are taken from Clyde Wayne Crews, Ten Thousand 

Commandments 2015, Competitive Enterprise Institute (2015). I gratefully acknowledge the 

contribution of his annual Ten Thousand Commandments series. 

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71 

In 2014 alone, 3554 rules were issued by federal agencies. Of the 3415 

regulations then in the pipeline, 200 were deemed "economically significant," meaning 

each of the 200 was estimated to have at least a $100 million impact on the economy; 674 

were identified as affecting small businesses. As but one indication of the increase in 

regulatory activity during the Obama Administration years, of the six all-time highest 

Federal Register page counts, five have occurred, thus far, under President Obama. 

II. The Federal Communications Commission: An Agency Bent 

on Maintaining and Expanding Its Regulatory Power 

While there are other rich targets worthy of consideration in connection with an 

examination of the exercise of an agency's rulemaking authority, the Federal 

Communications Commission certainly deserves attention, and the remainder of my 

testimony will be focused on the FCC. Aside from the impact its actions may have, say, 

on non-economic matters such as First Amendment free speech rights and individual 

liberty, the communications and Internet sectors, which in one way or the other, are 

within the FCC's (asserted) regulatory ambit, comprise approximately one-sixth of the 

nation's annual economic output. This alone makes the FCC's actions worthy of review. 

In hearings before the House Subcommittee on Communications and Technology 

in 2011 and 2013, concerning reform of the FCC's processes,5 I set the stage for my 

testimony by quoting from a strategic plan entitled, "A New FCC for the 21 '

1 Century," 

released by then-FCC Chairman William Kennard in August 1999. The plan's first three 

sentences read: 

5 Reforming FCC Process: Hearing Before the Subcomm. on Commc'ns & Tech. of the H. 

Comm. on Energy & Commerce (20ll)(statement of Randolph J. May); Improving FCC Process: 

Hearing Before the Subcomm. on Commc'ns & Tech. of the H. Comm. on Energy & Commerce 

(2013) (statement of Randolph J. May). 

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72 

In five years, we expect U.S communications markets to be characterized 

predominately by vigorous competition that will greatly reduce the need for direct 

regulation. The advent of Internet-based and other new technology-driven 

communications services will continue to erode the traditional regulatory 

distinctions between different sectors of the communications industry. As a result, 

over the next five years, the FCC must wisely manage the transition from an 

industry regulator to a market facilitator. 6 

Chairman Kennard was proved right. The communications marketplace 

incontrovertibly is characterized by much more marketplace competition and 

technological dynamism now than in 1999. Economists and regulatory experts 

universally agree that increased marketplace competition should, at least to some 

meaningful extent, supplant the need for regulation. This is because the marketplace 

competition serves to protect consumers and does so more efficiently and effectively -

that is, by imposing less costs on the nation's economy- than regulation. But rather than 

transitioning to an agency fit for the 21st Century's competitive communications and 

Internet marketplace, as the 1999 strategic plan envisioned, the FCC, especially during 

the Obama Administration's years, has exercised its rulemaking authority in ways that 

make it every bit as much of an "industry regulator" now as it was in 1999. 

Not coincidentally, the number offmal rules issued by the FCC increased from 

109 in 2012 to 144 in 2014- and there has been no slowdown in rulemaking activity 

involving major matters in 2015 and this year. The FCC will spend an estimated $545 

million on regulatory development and enforcement during FY 2016,7 and the agency 

routinely accounts for several rules in the pipeline with an estimated $100 million in 

annual economic impact. 

6 FCC, "Strategic Plan, A New FCC for the 21" Century," August 1999, available at: 

https://transition.fcc.gov/21st centurv/draft strategic plan.pdf(accessed April9, 2016). 7 Susan Dudley and Melinda Warren, Regulators' Budget No. 37, May 19,2015, Table A-1, p. 

17, available at: https://wc.wustl.edulfiles/wc/imce/2016 regulators budget fmal.pdf(accessed 

April9, 2016.) 

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73 

III. The FCC's Net Neutrality Rule: A Case Study in a Faulty 

Rulemaking Process and the Consequences 

Although there are many other FCC rulemakings worthy of study (for example, at 

present, the agency's set-top box video navigation device and privacy rulemakings 

deserve close scrutiny), as requested by the Committee, I will focus the remainder of my 

testimony on the Commission's net neutrality rule.8 (The Commission refers to it as the 

"Open Internet" rule, but I prefer to call it, more properly I think, the "Internet 

Regulation" rule.) The Committee's identification of the net neutrality rule as deserving 

of examination is wise because the rulemaking is instructive regarding the ways in which 

a faulty rulemaking process enables the growth of burgeoning administrative state and 

adversely impacts the economy - while, at the same time, compromising rule of law 

norms. 

First, the net neutrality rulemaking truly is a case of the proverbial "solution in 

search of a problem." Or as FCC Commissioner Ajit Pai put it recently, the rule "was a 

313-page solution that wouldn't work to a problem that didn't exist."9 To put it bluntly, 

in this case there was no meaningful evidence of an existing market failure or consumer 

harm that required the Commission to adopt rules applying Ma Bell-era public utility-like 

regulation to today's Internet service providers. The dynamic, competitive marketplace in 

which Internet service providers operate today is far removed from the staid monopolistic 

markets for which public utility-type regulation was devised. 

8 "Protecting and Promoting the Open Internet," Report and Order on Remand, Declaratory 

Ruling, and Order, GN Docket No. 14-28, released March 12,2015. 9 "The FCC and Internet Regulation: A First-Year Report Card," Remarks of FCC Commissioner 

Ajit Pai before the Heritage Foundation, February 26, 2016. 

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74 

Second, as a result of the direct and indirect costs and burdens imposed on 

Internet service providers, the rule's adoption most likely will have a deleterious 

economic impact by chilling investment and innovation. Indeed, there is some persuasive 

evidence that it is already doing so. Of course, diminished investment and innovation 

mean diminished jobs and consumer welfare. 

Third, at a minimum, the manner of President Obama's direct involvement in the 

FCC's net neutrality rulemaking, and the aftermath of his involvement that resulted 

initially in confusion at the Commission and, shortly afterward, in an abrupt change in 

course, raise questions about the FCC's supposed independence. The manner in which 

the rulemaking was conducted serves to undermine the notion that the FCC's decisions 

are largely based on its specialized communications law and policy expertise rather than 

political considerations. 10 And this, in tum, jeopardizes the public's confidence in the 

soundness of the Commission's decisions and the agency's institutional integrity. Just last 

week, the White House released a high-profile statement urging the FCC to adopt a 

specific course of action in the Commission's controversial video device navigation 

rulemaking. Repeated high-profile presidential interventions like this further undermine 

the notion that the FCC acts independently and free from executive branch control. 

Finally, entirely aside from issues relating to President Obama's involvement, 

there are aspects of the net neutrality rule, specifically including the vague general 

conduct standard and the enforcement regime the rule creates, that call into question 

compliance with accepted rule of law and due process norms that require that law be 

predictable and knowable in advance of the imposition of sanctions, which in the case of 

10 See "Regulating the Internet: How the White House Bowled Over FCC Independence," A 

Majority Staff Report of the Committee of Homeland Security and Governmental Affairs, United 

States Senate, February 29, 2016. 

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75 

the net neutrality rule is not the case. This too threatens to undermine the public's 

confidence in the agency's institutional integrity. 

I wiii now say more about each of these problematic areas in turn. 

A. "A Solution in Search of a Problem" 

In the net neutrality rulemaking, after President Obama's unusual involvement in 

the proceeding, 11 the FCC abandoned the primary approach it had outlined in its Notice of 

Proposed Rulemaking12 and instead adopted rules that imposed a public utility-like 

regime on today's broadband Internet service providers ("ISPs"). In opting to classify 

broadband Internet service providers as "telecommunications carriers" rather than 

"information service" providers, the Commission subjected them to the same Title 1113 

common carrier regulatory regime initially applied to railroads in 1887 by the Interstate 

Commerce Act and to monopolistic Ma Bell in 1934 by the Communications Act of 

1934. At bottom, the most troublesome aspect of the FCC's net neutrality rulemaking is 

the fact that the Commission acted without any meaningful evidence of existing market 

failure in the Internet services marketplace or evidence of consumer harm. The 

Commission cited only three or four anecdotal instances throughout the 313-page order 

of ISP practices that might possibly have caused consumer harm. There certainly was no 

effort to conduct a meaningful cost-benefit analysis before adopting the rules. 

Instead, the whole rulemaking exercise was premised on the existence of 

hypothetical harms that the Commission imagined "might" or "could" occur. Even a 

11 I will address President Obama's involvement in more detail below. 12 "Protecting and Promoting the Open Internet," Notice of Proposed Rulemaking, GN Docket 

No. 14-28, released May 15,2014. 13 Title II ("Common Carriers") is the title of the Communications Act of 1934 that applies the 

traditional common carrier regulatory scheme to service providers classified as 

telecommunications carriers. 

8 
76 

casual perusal of the order reveals hundreds of pure FCC conjectures about what could or 

might occur absent adoption of new regulations, not credible evidence of actions that 

actually had occurred. 14 The Commission failed to engage in any real market power 

analysis. Instead, it was content to rely on bandying about a "gatekeeper" label to the 

Internet providers based merely on the assertion that ISP customers might (but not 

necessarily would) experience some difficulties or incur some costs in switching from 

one ISP to another. Of course, this in true in many other functioning markets as well. 

I don't want to address all of the arguments here concerning the Commission's 

asserted lack of legal authority to act as it did. The challenge to the FCC's action is 

pending before the D.C. Circuit Court of Appeals, and a decision may be issued at any 

time. I will just say here that, given the absence of meaningful evidence of any present 

market failure or consumer harm, the Commission's decision to reverse its previous 

policy of not applying Title II public utility regulation to ISPs -which it defended, 

successfully, all the way to the Supreme Court in 200515 flouts Congress's declaration 

that it is the policy of the United States "to preserve the vibrant and competitive free 

market that presently exists for the Internet and other interactive computer services, 

unfettered by Federal or State regulation." 16 

B. The Net Neutrality Rule's Deleterious Economic Impact 

Of course, there are many rules, especially health and safety regulations, that 

admittedly impose costs on the economy but that nevertheless are justified by their 

asserted benefits. I do not want to be understood as arguing against all federal regulation, 

14 Indeed, as an indication of the conjectural nature of the Commission's reasoning regarding 

evidence of harm resulting from ISP practices, the majority's order employed the speculative 

"might" and "could" over 250 times in the order. 1

' Nat'! Cable & Telecomms. Ass'n v. Brand X Internet Servs. 545 U.S. 967 (2005). 16 Communications Act of 1934, as amended, Section 230(b)(2), 47 U.S.C. §230(b)(2). 

9 
77 

or all FCC regulation. But in the case of the net neutrality rule, not only was there no 

evidence concerning the existence of an existing market failure, there was affirmative 

evidence that the costs imposed by the new regulations likely would impair investment 

and innovation. There are direct costs imposed by the net neutrality rule, such as 

increased operating expenses relating to compliance with additional regulatory 

obligations. And there are indirect costs related to less easily measurable, but nonetheless 

real, items such as foregone business opportunities attributable to the regulatory 

uncertainty created by many aspects of the new rule and the employment and consumer 

welfare losses stemming from the reductions in investment and innovation.17 

Many commenters, including the Free State Foundation, asserted in the 

Commission's rulemaking proceeding, that the direct and indirect costs imposed by the 

burdensome new regulations likely would chill future facilities investment by broadband 

ISPs18 - a contention consistent with the prevailing economic literature. While it may be 

some time before more definitive data become available, early indications are that the 

FCC's rule already is having a chilling impact on ISP capital investment. Hal Singer, a 

respected economist affiliated with the Progressive Policy Institute, has estimated that the 

capital expenditures of the twelve largest ISPs declined by $240 million in 2015 from the 

2014 level, a 0.4% year-over-year reduction. Only twice before have the capex 

investments of broadband providers declined, once after the dot-com bust in 2000 and in 

2008 at the beginning of the financial crisis. In his report on the 2015 investment results, 

Mr. Singer states: 

17 I will discuss below the problematic nature of one particular aspect oftbe uncertainty created 

by tbe net neutrality rule in relation to compromising rule of law norms. 18 There is little or no dispute that in the fifteen years prior to the adoption oftbe FCC's net 

neutrality order tbe private sector invested approximately $1.3 trillion in building out broadband 

networks. 

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78 

This is not to conclude that Title II solely caused capital expenditures to stagnate. 

Several factors could be at play. But when investment theory is corroborated by 

evidence, as it is here, it is reasonable to infer that reclassification of ISPs as Title 

II common carriers was not a good thing for investments. The theory provides a 

crisp prediction: Reclassification is a prerequisite for price regulation and 

mandatory unbundling, both of which are recognized in the economics 

literature ... to cause capital flight. 19 

Of course, the disincentive to investment extends far beyond the twelve largest 

ISPs, although they admittedly account for a large portion oftotal ISP capital 

expenditures. FCC Commissioner Ajit Pai has detailed the adverse impact on some 

smaller ISPs around the country. There are documented instances of these smaller ISPs 

scaling back facilities investment and discontinuing plans to extend broadband service to 

unserved communities.20 At the Free State Foundation's Eighth Annual Telecom Policy 

Conference held on March 23, 2016, Glenn Lurie, President & CEO, AT&T Mobility and 

Consumer Operations, stated that the FCC's net neutrality rule negatively impacted 

AT&T's investment plans for its broadband network in the United States. In answering a 

question, Mr. Lurie explained that, in light of the FCC's net neutrality order, AT&T has 

"invested in a whole bunch of other things," such as DIRECTV and overseas businesses, 

such as in Mexico. 21 

It bears emphasis that it is difficult to measure with any precision the adverse 

economic impact of foregone business opportunities by the ISPs and foregone 

productivity increases that are lost as a result diminished investment and innovation. But 

19 Hal Singer, "ISP Capital Expenditures in the Title II Era," available at: -the-title-ii-era-4qeditionl" https:/ /hal j singer. wordpress. com/20 16/02/24/isp-capital-expenditures-in-the-title-ii-era4g-edition/ (accessed Aprill1, 2016.) 20 See "The FCC and Internet Regulation: A First-Year Report Card," Remarks of FCC 

Commissioner Ajit Pai before the Heritage Foundation, February 26, 2016, at page 2. 21 "Something Isn't Right- Wheeler Wrong on AT&T Investment Post-Net Neutrality Order," 

Communications Daily, March 24,2016. 

11 
79 

it already looks like the decline in ISP investment is measurable. And even if it turns out 

to be only a decline in the rate of investment that otherwise would occur, the loss to the 

nation's economy will amount to tens of billions of dollars over the next few years. Of 

course, this loss to the economy translates into a real loss in jobs. 

C. The FCC's Supposed Independence Was Compromised by President 

Obama's Involvement and the Agency's Abrupt Change of Course 

At a minimum, the manner of President Obama's involvement in the FCC's net 

neutrality rulemaking and the aftermath at the agency of his involvement raise questions 

about the FCC's supposed independence and serve to undermine the notion that its 

decisions are largely based on it specialized expertise regarding communications law and 

policy. I want to state at the outset of this discussion that it is not my position that it is 

improper or inappropriate for executive branch officials, including the President, to 

present their views to the FCC in a rulemaking proceeding. The problem in this case 

arises from the timing and overall context of the manner in which the President's 

involvement occurred. 

The FCC, like the Securities Exchange Commission and the Federal Trade 

Commission and other similar multimember agencies, are commonly considered 

independent agencies. They are comprised of commissioners who serve fixed, staggered 

terms. Significantly, there may be no more than a bare majority of commissioners from 

the same political party, which, for the FCC, means that no more than three of the five 

commissioners may be from the same party. These are the primary indicia intended to 

12 
80 

give the FCC and similarly structured agencies a measure of independence and insulation 

from political control that differs from that accorded to executive branch agencies.22 

Ever since the Supreme Court in 1935 held in Humphrey's Executor v. United 

States that at least certain "good cause" limitations on the President's power to remove a 

member of the Federal Trade Commission ("FTC") were constitutional, agencies such as 

the FTC and the FCC have been considered, in at least some good measure, as a matter of 

law and established practice, "free from executive contro1."23 According Humphrey's 

Executor, as a predominantly quasi-legislative and quasi-judicial body, the FTC "is 

charged with the enforcement of no policy except the policy of the law"24 and "[i)ts 

duties are neither political nor executive."25 As such, the agency "cannot in any proper 

sense be characterized as an arm or an eye of the executive."26 Rather, Congress intended 

"to create a body of experts who shall gain experience by length of service - a body 

which shall be independent of executive authority, except in its selection, and free to 

exercise its judgment without the leave or hindrance of any other official or any 

department of the govemment."27 

22 The independents are sometimes characterized as the "headless fourth branch" of government 

The original reference to the "headless fourth branch" usage is from THE PRESIDENT'S 

COMMITTEE ON ADMINISTRATIVE MANAGEMENT, REPORT OF THE COMMITIEE WITH STUDIES OF 

ADMINISTRATIVE MANAGEMENT IN THE FEDERAL GOVERNMENT ( !93 7), reprinted in 

SUBCOMMITTEE ON SEPARATION OF POWERS, COMMITTEE ON THE JUDICIARY, U.S. SENATE, 

SEPARATION OF POWERS AND THE INDEPENDENT AGENCIES: CASES AND SELECTED READINGS, 

9lst Cong., 1st Sess. 345 (1969). For a useful scholarly study containing information on almost 

all independent agencies, see Marshall J. Breger & Gary J. Edles, Established by Practice: The 

Theory and Operation of Independenl Federal Agencies, 52 ADMIN. L. REV. Ill! (2000). 23 Humphrey's Ex'r v. United States, 295 U.S. 602, 628 (1935). 24 Id., at 624. zs Id. 26 Id., at 628. 27 ld., at 625-26 (emphasis in original.) For further reading, I discussed Humphrey's Executor and 

the independent agencies at much greater length in Randolph J. May, Defining Deference Down: 

Independent Agencies and Chevron Deference, 58 ADMIN. L. REV. 429 (2006), and Randolph J. 

May, Defining Deference Down, Again: Independent Agencies, Chevron Deference, and Fox, 62 

13 
81 

The Court's analysis, based primarily on the characteristics of the multimember 

agencies set forth above - fixed, staggered terms and bipartisan membership - should 

apply to the FCC as well. Indeed, when the Federal Radio Commission was created in 

1927, the direct predecessor agency of the FCC that was created with the same structure, 

the Senate Committee on Interstate Commerce's report declared that the agency's 

regulatory authority should be placed in the hands of"one independent body"28 that 

would become "an expert authority."29 

In the net neutrality rulemaking, as the Wall Street Journal reported in a lengthy 

investigative story, the President's open involvement in the proceeding came "after an 

unusual, secretive effort inside the White House, led by two aides who built a case for the 

principle known as 'net neutrality' through dozens of meetings" with online activists and 

others favoring the Title II public utility approach. The Journal reported that the White 

House acted "like a parallel version of the FCC itself."30 After the secretive White House 

process, on November 10,2014, President Obama issued a public announcement and 

accompany video urging the FCC to adopt the Title II regulatory approach.31 He ended 

his statement by "ask[ing] them [the Commissioners] to adopt the policies I have outlined 

here."32 At the Commission meeting in February 2016, the three Democrat 

commissioners did exactly what the President asked them to do in his statement, while 

the two Republicans dissented. 

ADMIN. L. REV. 433 (2010). 28 S. REP. No. 69-772, at 2 (1926) 29 S. REP. No. 69-772, at 2-3 ( 1926). 30 Gautham Nagesh & Brody Mullins, How White House Thwarted FCC Chief on Internet Rules, 

WALL ST. J., Feb. 4, 2015. 31 WHITE HOUSE, November 2014 The President's message on net neutrality, https://www.wh 

itehouse.gov/net- neutrality. 

32 Id. 

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82 

On February 29, 2016, the majority staff of this Committee released a report 

detailing the secret White House meetings; the briefing FCC Chairman Wheeler received 

from Jeffrey Zients, President Obama's economic advisor, shortly before President 

Obama's public announcement; President Obama's announcement; and the ensuing FCC 

staff confusion followed soon thereafter by an abrupt change of direction in the draft 

proposal to conform it to President Obama's "ask."33 Relying on the discovery of 

Commission emails and other documents, the majority staff report sets forth what 

transpired, and I see no need to burden my testimony by repeating here the information 

contained in the report. Rather, I want to offer some brief observations, based on my 

decades of experience observing the FCC, in conjunction with my administrative law 

expertise, regarding the troublesome nature of the process as it unfolded. 

As was common knowledge based on press reports at the time, and as this 

Committee's majority staff report confirms based on an examination of Commission 

emails, the FCC staff, at Chairman Wheeler's direction, already had produced a draft 

order, which was about to be circulated to the other commissioners, that opted for the less 

stringent, more flexible "commercially reasonable" approach under Section 706 of the 

Communications Act rather than the Title II common carrier approach ultimately 

adopted. While not absolutely foreclosing consideration of Title II regulation, the 

Commission had tentatively concluded in the May 2014 Notice of Proposed Rulemaking 

that it would rely on the less rigid Section 706. The Notice gave short shift to the Title II 

option. 

33 See "Regulating the Internet: How the White House Bowled Over FCC Independence," A 

Majority Staff Report of the Committee of Homeland Security and Governmental Affairs, United 

States Senate, February 29, 2016. 

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83 

In my view, as a matter of sound process and to in order to maintain its credibility 

as an independent agency, the Commission should have issued a Further Notice calling 

for another round of public comments after President Obama's announcement before 

abruptly abandoning the approach already embodied in the nearly completed draft order. 

Chairman Wheeler rejected allowing another comment round, although interested parties 

continued to offer views through ex parte meetings. Unfortunately for the Commission 

and the public, the manner in which the rulemak:ing was conducted created the 

widespread impression of an agency ultimately relying on political considerations rather 

than on its own presumed expertise. This impression diminishes public confidence in the 

integrity of the Commission's process and the soundness of its decisions. 

In a Perspectives from FSF Scholars, Enrique Armijo, a law school professor and 

member of the Free State Foundation's Board of Academic Advisors, summed up what 

had occurred this way: 

[Y]ou should find this level of politicization of an independent agency ru]emaking 

deeply troubling. The rulemaking process is expressly intended to insulate federal 

agencies from the political winds, and designed to give agency deliberations and 

interested parties' positions an open airing. And secretly held, off-the-record 

meetings in another part of the Executive Branch concerning pending agency 

action, the results of which are adopted by the agency itself as its final rule, are in 

headlong conflict with that approach.34 

Professor Armijo concluded that if evidence developed in the rulemaking process 

regarding investment incentives, technologically feasibility, or the like "can be trumped 

34 Enrique Armijo, Net Neutrality, "Administrative Procedure, and Presidential Overreach," 

Perspectives from FSF Scholars, Vol. 10, No. 39, November 19,2015, at 2, available at: 

http://freestatefoundation.org/images/Net Neutrality, Administrative Procedure, and Presidenti 

al Overreach 111915.pdf (accessed AprillO, 2016). It's worth noting that Professor Armijo 

stated that he "personally would likely conclude some form of net neutrality rules are a net 

benefit for Internet users." Nevertheless, as he explains, he fmds the process employed in 

adopting the net neutrality rule highly problematic. 

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84 

or cancelled out by a presidential statement delivered at the 11th hour of a years-long 

rulemaking proceeding, any decent administrative law attorney would have to consider 

advising the client to save its money or to spend it on lobbying the White House 

instead."35 This is a sad commentary on the FCC's net neutrality rulemaking process with 

which I concur.36 

D. The Net Neutrality Rule Compromises Basic Rule of Law Principles 

There are many substantive reasons why the Commission's net neutrality order is 

problematic as a matter of policy and law, too many to rehearse them all here. 37 Rather, 

in this fmal section, I intend to highlight one key aspect of the agency's order that is 

particularly troublesome from a rule of!aw perspective. Contrary to Chairman Wheeler's 

assertion, the FCC's order does not provide certainty. Indeed, by its very nature, it 

necessarily generates uncertainty. And this built-in uncertainty- apart from the economic 

harms it creates by chilling investment and innovation creates a rule of law problem 

with regard to the order's enforcement. 

35 Id., at 3. 36 It is worth noting that the form of the President's intervention, with the publicized video, was in 

and of itself unusual. In the past, the executive branch typically made its views known to the FCC 

through formal comments and letters submitted by the Department of Commerce's National 

Telecommunications and Information Administration during the course of the public comment 

process. Confirming to this traditional, less sensational manner of making the President's views 

known is likely to be more conducive to maintaining a rulemaking environment in which the 

agency's independence does not appear to be compromised or the role of its presumed expertise 

diminished. 

37 As a matter of policy, but for one example, see Randolph J. May, "Thinking the Unthinkable: 

Imposing the 'Utility Model' on Internet Providers," Perspectives from FSF Scholars, September 

29, 2014, available at: 

http:/ /freestatefoundation.org/imagesffhinking_ the_ Unthinkable_ 092914.pdf (accessed April 14, 

20 16). And, as a matter of law, but for one example, see Randolph J. May, "Why Chevron 

Deference May Not Save the FCC's Open Internet Order- Part 1" Perspectives from FSF 

Scholars, April23, 2015, available at: 

http:/ /freestatefoundation.org/irnages/Why _Chevron_ Deference_ May_ Not_ Save_ the _FCC_ s _ Op 

en_Intemet_Order_-_Part_I_042315.pdf(accessed April14, 2016). 

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85 

The net neutrality rule establishes what the Commission calls three "bright-line" 

rules prohibiting broadband Internet service providers from "blocking" or "throttling" 

Internet traffic or engaging in "paid prioritization."38 I very seriously doubt that even 

these supposed bright-line prohibitions will be free, over time, from ambiguities as to 

their meaning. In any event, this definitely is not the case for another prohibition, a 

"general conduct standard" that the Commission itself calls a "catch all."39 This conceded 

"catch all" standard provides that an ISP "shall not unreasonably interfere with or 

unreasonably disadvantage" end users or "edge" content or application providers.40 

The elastic nature of the inherently vague "no unreasonable 

interference/disadvantage" catch-all gives agency officials nearly unbounded discretion 

to determine that an Internet provider should be punished for violating the rule. The 

problem, of course, is that the catch-all provision- grounded as it is only in 

"reasonableness"- does not provide, in advance, a knowable, predictable rule consistent 

with due process and rule of law norms.41 And the fact that the entire Internet ecosystem 

is so dynamic, with both technology and business models changing at a fast-paced rate in 

response to quickly evolving consumer demands, compounds the difficulty confronting 

Internet service providers. As they contemplate new services and features to distinguish 

38 Open Internet Order, at paras. 14-19. 39 !d., at para. 21. 

4o Id. 41 The Commission provided what it called a "non-exhaustive" list of seven factors that it said it 

would use to assess the reasonableness of Internet provider practices. But highlighting the 

elasticity and vagueness of the catch-all provision, the Commission emphasized that, in addition 

to the non-exhaustive list, "there may be other considerations relevant to determining whether a 

particular practice violates the no-unreasonable interference/disadvantage 

standard." Id., at para. 138. 

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their offerings from their competitors,42 Internet providers are put in the position of 

guessing whether the Commission's view of reasonableness will comport with their own. 

This surely is not a recipe for the "permissionless innovation" regime that FCC Chairman 

Wheeler likes to tout.43 Rather, to put it in standard administrative law terms, it is an 

invitation for arbitrary and capricious rulings by government officials who may be 

disposed to exercise their "catch all" discretion to favor some regulated parties over 

others. This is the opposite of"permissionless innovation." 

To compound matters even further, the Commission delegated authority to 

enforce the "catch all" general conduct standard in the first instance to the agency's 

Enforcement Bureau staff.44 As if to concede the inherent vagueness built into the new 

general conduct standard, the Commission delegated authority to the Enforcement 

Bureau staff to establish a cumbersome, complex process by which private parties can 

seek "advisory opinions" that may not even be binding in any event.45 The establishment 

of the elaborate new regime for seeking advisory opinions regarding the lawfulness of 

42 The Commission is investigating various new zero-rating and sponsored data plans offered by 

wireless carriers under the general conduct standard, even though these new offerings, such as TMobile's Binge On plan, appear to be very popular with consumers. The zero-rating and 

sponsored data plans, in one way or another, allow consumers to access various content and 

applications without such usage counting towards data limits or incurrence of otherw 

ise applicable data charges. 41 Statement of Chairman Tom Wheeler, Protecting and Promoting the Open Internet, Gen Docket 

No. 14-28, available at: c/attachmatch/FCC-15-24A2.pdf, 

https://apps.fcc.gov/edocs public/attachmatch!FCC-15-24A2.pdf ("These enforceable, bright-line 

rules assure the rights of Internet users to go where they want, when they want, and the rights of 

innovators to introduce new products without asking anyone's permission."); John Eggerton, 

"FCC's Wheeler and the 'Common Good' Standard." Broadcasting & Cable, November 4, 2015. 

("Wheeler said the new rules were all about stimulating 'pennissionless innovation."'). 44 Of!ate, the staff has proven to be especially aggressive in imposing large fmes on regulated 

parties for actions that (as shown below) arguably were not known in advance to be unlawful. 

Margaret Harding McGill, "GOP Criticism Unlikely to Deter Aggressive FCC Enforcement," 

Law 360, November 25,2015. 45 Open Internet Order, at paras. 228-239. 

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proposals for new services is a good indication that "permissionless innovation" won't 

prevail. 

In short, the amorphous "general conduct standard," which it at the heart of the 

net neutrality rule, implicates fundamental rule of law norms and leads to arbitrary and 

capricious decisions. Friedrich Hayek, in his famous work, The Road to Serfdom, 

declared the rule of law "means the government in all its actions is bound by rules fixed 

and announced beforehand- rules which make it possible to see with fair certainty how 

the authority will use its coercive powers in given circumstances and to plan one's 

individual affairs on the basis of this knowledge."46 Federalist No. 62 (probably authored 

by James Madison) addresses the "calamitous" effects of mutable policy resulting from 

incoherent laws. The author declares: "Law is defined to be a rule of action; but how can 

that be a rule, which is little known and less fixed?" According to Federalist No. 62, this 

little known/less fixed conception of law "poisons the blessings of liberty itself." 

So, aside from the other problematic aspects of the net neutrality rule- the FCC's 

acting in the absence of evidence of market failure or consumer harm, the likely adverse 

economic effects, and the undermining of the agency's independence- the net neutrality 

rule also calls into question the FCC's adherence to fundamental rule oflaw norms. 

Thank you for giving me the opportunity to testifY today. I will be pleased to 

answer any questions. 

46 Friedrich A. Hayek, The Road to Serfdom 80 (1944). 

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Statement of Bradford P. Campbell, Esq. 

ERISA Attorney and Former U.S. Assistant Secretary of Labor 

For Employee Benefits 

Before 

The U.S. Senate Committee on Homeland Security and Governmental Affairs 

Hearing on 

The Administrative State: An Examination of Federal Rulemaking 

ApriiZO, 2016 

Introduction; 

Chairman Johnson and Ranking Member Carper, thank you for the opportunity to testify 

regarding the need to reform the Federal regulatory process. 

My testimony today reflects my personal views as a former Federal regulator and as a 

current ERISA attorney, and not those of any client, of my firm, or of my colleagues. I am 

not testifying on behalf of any client or any other party. 

I commend the Committee for holding this important hearing not just on the alarming 

growth in Federal rules and regulations, but also on the manner in which Federal rulemaking authority is being misused by some Federal agencies. 

The sheer scope of Federal regulation is remarkable. What we eat, what we wear, what we 

drive, how we work. how we save, even the air we breathe-nearly every fundamental 

activity of our lives is now at least partially subject to Federal regulations. While there is a 

legitimate role for Federal regulation, it is fair to say that the current regulatory 

environment-and the practices of some Federal regulators-are in significant need of 

review and reform. 

Current Regulatory Practices Qyerstep Intended Scope of Authority: 

Regulatory authority delegated to the Executive Branch by Congress was not intended to 

make Federal regulators an ersatz legislative body, but to facilitate the practical 

implementation of laws passed by Congress. The Administrative Procedure Act and related 

laws, as well as the various Executive Orders and Office of Management and Budget 

guidance documents governing the regulatory process, are intended to ensure that such 

rules are promulgated in a manner consistent with the intent and direction of Congress in 

Federal law, and only after a thorough and fair consideration of the economic impact, costs 

and alternatives available to achieve these goals. 
89 

Unfortunately, the reality of the regulatory process is all too often quite different. 

The ambition of some Federal regulators has eclipsed this limited delegation of authority, 

and we are increasingly seeing regulations that are, in effect, new Federal laws and policies 

created by unelected officials rather than Congress. These regulators are using the 

rulemaking process to make policy and legal judgments that are properly the responsibility 

of Congress-in fact, some regulators are promulgating rules that clearly conflict with the 

intent of Congress, but which they attempt to justifY through aggressive and convoluted 

interpretations of their delegated authority, knowing that costly litigation or a literal "act of 

Congress" is the only real brake on their efforts. 

Even more common, rather than using economic impact analysis to inform the 

development ofthe policy itself, carefully considering and choosing among alternatives as 

they are required to do, Federal agencies increasingly use the economic analysis as an 

after-the-fact paperwork exercise seeking to justifY the predetermined policy position of 

the agency. 

I believe the recently promulgated final rule by the U.S. Department of Labor governing 

investment advice related to $15 trillion in retirement savings is just such an example of a 

regulation that infringes on Congressional prerogatives, that is contrary to the intent of the 

legislation it claims to interpret, and that uses the economic analysis to justifY its 

predetermined policy decision, rather than to inform the development of its policy and to 

consider alternatives. 

Labor Department Fiduciary Rule Hiehliehts Why Reform is Necessary: 

As the former U.S. Assistant Secretary of Labor for Employee Benefits and head of the 

Employee Benefits Security Administration, I have personal experience with the scope of 

the Labor Department's authority, and in exercising that authority to implement the laws 

passed by Congress. One of my primary duties during my tenure was to promulgate 

regulations implementing the Pension Protection Act of 2006. 

In that law, Congress specifically delegated certain decisions to the agency, including the 

definition of a Qualified Default Investment Alternative ("QDIA"). This was a significant 

regulation, as it determined what investments commonly are selected for participants 

automatically enrolled in 401(k)-type plans, or who otherwise do not provide investment 

direction for their own accounts. Billions of dollars have been allocated to investment 

products and services that meet the definition we adopted in the final rule. However, we 

were exercising authority specifically delegated by Congress to make a particular decision 

based on extensive discussions with all of those affected by the rule, as well as a thorough 

public notice and comment rulemaking process. In my view, this is an example of the 

proper use of regulatory authority. 

By contrast, the new fiduciary regulation-which likely is the most sweeping change to 

retirement savings and financial regulation since the 401(k)-is entirely the product of the 

Department's own initiative. The law did not change. If anything, Congressional direction 

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90 

was for a fiduciary standard to be handled by the Securities and Exchange Commission 

("SEC") through a provision of the Dodd-Frank Act. 

• Labor Department Final Rule is Legislation-by-Rulemaking 

Even more concerning, the Labor Department decisions, though described as necessitated 

by changing circumstances in the retirement marketplace, are contrary to the intent of 

Congress. Congress did not intend for the Labor Department to become a primary 

regulator of the conduct and compensation of financial advisors to Individual Retirement 

Accounts ("IRA"). Congress did not intend for the unique fiduciary standard of care 

applicable to employee benefit plans under the Employee Retirement Income Security Act 

of 197 4 ("ERISA") to apply to IRAs. 

In fact, Congress created ERISA plans and IRAs at the same time, and affirmatively chose 

NOT to apply the ERISA fiduciary standard to IRAs. The reason is clear-in an ERISA plan, 

a fiduciary makes many decisions for me, and thus a fiduciary standard rooted in trust law 

strictly governs those decisions over which I have no control. By contrast, in an IRA, I make 

my own decisions, so Congress treated IRAs much as it treated other types of investment 

vehicles, and relied on the extensive network of Federal and state financial regulators and 

laws already protecting investors. Congress created a new private right of action and legal 

remedies for ERISA plans, but did not create a special cause of action for IRAs. Rather than 

create an IRA-only cause of action, Congress let recourse against investment advisors be 

determined by the Federal and state regulation applicable to the type of advisor. 

In other words, Congress made affirmative choices about the different roles of ERISA plans 

and IRAs, and while they share a common bond in the prohibited transaction rules, they 

were intended to be regulated quite differently otherwise. 

Remarkably enough, these intentional Congressional decisions are exactly the flaws the 

Labor Department cited to justify its new set of judgements displacing Congressional 

intent. Regulation is needed, said the Labor Department, because there is no independent 

fiduciary protecting the IRA owner. The Best Interest Contract (BIC) Exemption right for 

an IRA owner to bring a class action in state court for breach of contract is needed, said the 

Labor Department, because there is no separate cause of action for IRAs. Underpinning all 

of this is the belief by the Labor Department that securities, insurance and other financial 

laws applicable to IRA advisors generally are inferior to ERISA, and that IRAs should be 

treated more like ERISA plans, largely because ERISA plan assets are frequently rolled over 

into IRAs. 

To achieve this, the Labor Department took a legal two (or maybe three) step. First, it 

expanded the definition of what constitutes fiduciary investment advice under ERISA. 

Then, based on a 1978 reallocation of regulatory authority in the Carter Administration 

that gave the Labor Department interpretive authority over the prohibited transaction 

rules in both ERISA and the Tax Code, it applied that new fiduciary definition to the Tax 

Code prohibited transaction rules. These rules apply to IRAs. Thus, the final regulation 

turns an advisor to an IRA, whose compensation is entirely consistent with the securities 

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91 

laws (let's assume the advisor is a registered representative of a broker dealer) into a 

person committing a prohibited transaction under the Tax Code. The BIC Exemption is 

now necessary for that registered representative to give advice or to help a participant 

with a rollover, because the advisor's compensation is causing a prohibited transaction that 

the BIC Exemption will exempt. The BIC Exemption requires the broker-dealer and the 

registered representative enter into a contract in which they agree to a fiduciary standard 

of care based on ERISA, and to be subject to a class action lawsuit in state court if they 

breach the contract. 

In summary, by prohibiting the way certain financial advisors are commonly paid if they 

give advice regarding ERISA plans, IRAs, roll overs and distributions, and by then offering 

them a narrow way out through an exemption with conditions, the Labor Department foists 

onto advisors a standard of care and a legal liability Congress affirmatively chose not to 

impose. 

Whether you think the Labor Department is right that IRAs should be subject to the ERISA 

standard of care is not the issue. The issue is that this matter is something Congress 

previously addressed, and changing it should be a Congressional decision, not legislationby-rulemaking. 

• Labor Department Final Rule Is the Product of a Flawed Process 

Separate from concerns about the Labor Department's authority to issue the regulation 

given Congressional intent, there are a large number of concerns regarding how the 

Department promulgated the regulation, and regarding the content of its economic 

analysis. 

In an unusual step, the Office of Advocacy at the Small Business Administration and the 

Financial Industry Regulatory Authority ("FINRA") both offered formal comments on the 

public record after the proposed regulation was released. FINRA offered 21 pages of 

comments identifYing various problems, including direct conflicts with securities law and 

regulation, created by the ProposaJ.l While some of these were addressed in the final rule, 

not all of them were. 

The Small Business Administration's ("SBA") Office of Advocacy expressed concerns in its 

formal comment letter to the Department, questioning the Department's economic analysis 

and criticizing the Department for not sufficiently taking into account the effects of the 

Proposal on small businesses. The conclusion from focus groups held by the SBA was that 

"the proposed rule would likely increase the [advisers'] costs and burdens associated with 

serving smaller plans ... [and] could limit financial advisers' ability to offer savings and 

investment advice to clients ... ultimately lead[ing] advisors to stop providing retirement 

services to small businesses."2 

1 See, Comment letter from Financial Industry Regulatory Authority ("FINRA"), July 17, 2015. 

2 Comment letter from the Small Business Administration's Office of Advocacy, July 17, 2015, at 5-6. 

4 
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Even more significantly, this Committee issued a report detailing the findings of its 

inquiries with the SEC and other Federal agencies regarding their interaction with DOL. 

won't repeat in detail here the findings of the Committee's own report, but it contained 

remarkable information showing that: 

• Treasury Department officials questioned the rule's IRA provisions, and viewed 

them as contrary to Congressional intent; 

• The SEC staff raised many issues that the Labor Department ignored in the proposed 

regulation; and 

• Despite requirements to consider the costs and benefits of alternative approaches, 

Labor Department staff objected on the grounds that it would be difficult and delay 

the project. 

The Labor Department also persists in using unrealistic assumptions about the costs of 

implementing the final rule. To highlight just one example, let me address their estimates 

for the cost oflegal advice. The final rule estimates that the average hourly rate oflegal 

advice to assist in compliance with the rule would be about $134. As an ERISA attorney in 

private practice, I can assure you that this is an utterly unrealistic estimate. Similarly, in 

estimating the cost of using attorneys to write required disclosures, the Labor Department 

estimated that a simple disclosure would take only one attorney 10 minutes to write. As an 

ERISA attorney I can assure you that a disclosure that could be part of the basis for a class 

action lawsuit against a financial entity's entire book of business takes far longer than 10 

minutes to write, and is reviewed and debated by far more than one attorney. It does not 

cost $22.33 to meet that disclosure requirement. 

Finally, while the Labor Department makes much of the fact that it offered a lengthy 

comment period and held public hearings on the rule, it is important to note that all of the 

comments and hearings were only addressing the proposed rule. Rather than 

demonstrating an open process, these facts serve to highlight the complexity and ambiguity 

of the proposal itself. In my experience, it is very unusual for the Labor Department to 

move to a final rule when literally dozens of major issues regarding a proposal are in 

dispute. Further, the comments did not present the Labor Department with a binary choice 

on addressing those issues, but a range of options. 

Unfortunately, the Labor Department choose not to provide even a brief comment period 

on a revised rule, and as a result, the final rule is the first time we have seen how the 

Department addressed many of these concerns. The dozens of changes are therefore quite 

surprising. The final rule contains new provisions not even discussed in the proposal, such 

as making a recommendation as to the type of account a new form of fiduciary advice. 

It also makes major changes to the exemptions for new reasons not previously discussed. 

For example, the proposal removed individual variable annuities from PTE 84-24 (an 

exemption for annuities and insurance policies) and made only the BIC Exemption 

available. The rationale then was that such annuities are registered as securities and 

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93 

therefore should be under the BIC Exemption with most other securities. However, the 

final exemption removed not just individual variable annuities but also group variable 

annuities and fixed index annuities from PTE 84-24. The new rationale had nothing to do 

with status as a security (which the latter two are not), but rather with the Department's 

apparently new concerns about the marketing of such products. 

Given the large number of fundamental and new changes, the Department should have 

reproposed the rule for a brief comment period-instead, it forged ahead, making educated 

guesses about how to proceed. This is not consistent with the law or the Executive Orders 

and guidance addressing the process. 

The Bi~ Picture Re~ulator:y Reform js Needed to Address the Tension between 

Coneressional and Executive Authority: 

The Department of Labor's recent fiduciary regulation offers some valuable lessons in the 

way in which the rulemaking authority is misused by some agencies, as well as the 

standards, criteria and review process to which this authority is subjected. The rule 

illustrates two closely related challenges. 

First is the inherent difficulty Congress faces in finding the right balance between providing 

Executive branch agencies the authority needed to administer complex statues while 

retaining its Constitutional authority to legislate. How does such reform facilitate the work 

the Labor Department did on the QDIA regulation, but prevent the work it has done on the 

fiduciary rule? 

Second is the hazard inherent in maintaining the kind of broad grants of regulatory 

authority that have typically been incorporated into Federal laws such as ERISA. As I 

explained above, and as the Committee detailed in its own report, the regulatory authority 

here was used in a particularly convoluted way to achieve its objective. I believe it went 

too far, but that will likely be a matter settled in the courts. 

The ongoing tension between Congressional and Executive branch authority remains a 

political and public policy theme that is increasingly at the forefront of political 

disagreements. The Labor Department's recent actions may well be addressing an issue 

worthy of public debate, but the agency has done so by contorting the reasonable limits of 

the reach of its jurisdiction and unilaterally imposing new and costly requirements on a 

major part of our economy affecting all of us. Exercising necessary interpretive authority 

in response to changing circumstances and attempting to legislate through the regulatory 

process are two very different things, and Congress should be mindful of the latitude it has 

granted to agencies both in the statutes they implement, and in the regulatory process 

itself. 

It is in the gaps and ambiguities of the allocation of regulatory authority that controversial 

regulations of the sort we are increasingly experiencing take root. Complex statutes like 

ERISA, with their origins in an earlier era in which Federal agencies played a much smaller 

role and to which fairly broad authority was granted, are fertile ground for regulatory 

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94 

overreach. Federal rulemaking at an agency becomes an attractive policy alternative to 

Congressional action for an Executive Branch facing Congressional opposition to its views. 

This is a very worrisome development, because the regulatory process has relatively few 

checks and balances compared to the legislative process-the authority of the agency to 

push forward despite criticism and public outcry is relatively unfettered, except to the 

extent the agency does not follow the proper process or makes a decision this is "arbitrary 

and capricious" in the view of a Federal court. While public and notice comment 

rulemaking provides an opportunity for affected persons to make their views known on the 

record (at least with respect to the proposed regulation), the reality is that the agency is 

under no obligation to do more than properly consider those comments. Contrast this to a 

Congressional debate, where a majority must prevail in votes in two separate bodies 

against active internal opposition, and must then convince the President to agree or must 

override his veto with a two-thirds majority. At the end of the day, a Federal agency that 

intends to make policy and that has the will to proceed is very difficult to stop unless 

Congress takes a stand, or the courts overturn the action after the fact. 

The Fraemented and Not-Easily Enforced Current Regulatorv Process Needs Reform: 

• Fragmented Authority 

The ERISA fiduciary regulations also bring to light the problematic nature of the 

fragmented and sometimes piecemeal nature of the standards and criteria applicable to the 

promulgation of regulations. The basic procedural standards governing the process date 

back to 1946 with the Administrative Procedures Act (APA) and remain essentially the 

same today. The APA, reflecting the concerns of an earlier era, however, primarily 

addresses the procedural requirements and transparency of the rulemaking process rather 

than the scope of authority that is exercised or the quality of the supporting analysis or 

decision making that underlies a regulation. A variety of new requirements have been 

added through laws, Executive Orders and operational guidelines beginning in the 1980's, 

such as requiring that the impacts on small businesses be explicitly measured and 

considered, that any unfunded mandates on State and Local Governments be addressed, 

and that the regulatory decisions be undertaken on the basis of an evaluation of costs and 

benefits, including the use of alternatives that provide the most cost effective solution to a 

clearly defined need. 

• Difficult to Enforce Requirements 

These requirements, however, are often poorly coordinated and lack an effective 

mechanism to ensure they are fully complied with by regulatory agencies. Some of these 

requirements are contained in statutes and provide the basis for a legal challenge in the 

courts if not fulfilled. Others, especially the standards and criteria for a complete and 

credible economic impact analysis, are primarily within Executive Orders and Office of 

Management and Budget ("OMB") policy guidance, which provide essentially no means for 

the regulated community and Congress to ensure they are met. Although the Unfunded 

7 
95 

Mandates Reform Act of 1995 contains a requirement for regulatory impact analysis to be 

developed for rules that are likely to result in an expenditure of $100 million or more by 

the private sector, it does not specify meaningful standards for the scope or quality of this 

analysis and provides only for limited judicial review of agency compliance with these 

requirements. The more in depth and meaningful requirement for regulatory actions to be 

predicated on and developed on the basis of cost-benefit analysis are established in 

Executive Order 12866 and the standards for these set forth in OMB Circular A-4. Other 

related requirements that are in the Federal statutes apply primarily to small businesses. 

The absence of a comprehensive set of enforceable standards that governs the quality of 

regulatory decisions makes it very difficult to hold the regulatory agencies accountable for 

their actions. Meaningful recourse can typically only be pursued through costly and time 

consuming litigation. Executive orders and policies often disclaim any private cause of 

action and thus provide insufficient foundation for success in a legal challenge. 

Incorporating these various requirements and standards into a single comprehensive law 

that provides a readily accessible venue to challenge agency actions would go a long way to 

improving both the quality and accountability of the process. 

• The Role ofOMB as Gatekeeper is Conflicted 

The sources of quality control and recourse that currently exist are flawed and inherently 

weak in the outcomes they produce. The current regulatory review process within the 

Executive Branch is administered through the Office in Information and Regulatory Affairs 

("OIRA") within OMB. While certainly providing some degree of oversight and quality 

control over "routine" regulations, as well as a venue for affected parties to express their 

views during the review process, OIRA does not meaningfully protect the public from 

abuses of the process regarding major regulations because it is part of the Executive Office 

of the President, which ultimately determines the policies Federal agencies pursue. It 

cannot, as evidenced by the Labor Department's fiduciary rule, be relied on to impose 

meaningful standards and control on a regulatory priority that has been identified as a 

priority by the President to whom it directly reports. 

• Need for Additional Congressional Role 

Of course, Congress can and does provide oversight of the activities of Federal agencies. 

That is, after all, why we are here today. However, the primary mechanism in the 

Congressional Review Act has limited utility as a check on regulatory excess. While 

providing for delayed effective dates to enable some external review and to ensure time for 

Congress to consider a resolution of disapproval to overturn a regulatory action, such a 

resolution is subject to a Presidential veto necessitating the requisite two thirds majority to 

overturn. In the nearly twenty years since the enactment of these provisions, only a single 

regulation has been overturned through this process. A more robust and accessible form of 

Congressional review appears to be required to provide more consequential oversight. 

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Other Calls for Reform 

1 also want to mention that I serve on the Policy Board of the American Benefits Council 

(the "Council"P which has been working to review the regulatory process (this review is 

unrelated to the Labor Department rule). The Council formed a board-level Regulatory 

Process Task Force in the fall of 2015 and I have had the privilege of chairing that task 

force. The task force has been working on principles to guide us in reviewing the 

regulatory process and a draft version of that document is attached as an appendix to this 

testimony. 

The Council has separately developed four relevant principles that I commend to the 

Committee's attention. 

First, it is very important that the agencies adopt a "least burdensome compliance" 

standard that fully incorporates technological capabilities in conjunction with all 

regulations. Before imposing any new administration or reporting requirements, the 

agencies should be required to "verify they are unable to achieve the objective in a manner 

less burdensome on the regulated parties ... " 

Second, regulatory agencies should adopt a "good faith" standard for purposes of 

enforcement of many regulations. For example, a "good faith" standard would allow 

employers to use technology as it becomes available, rather than waiting for regulatory 

approval, where such adoption in good faith serves the requirements of the current 

regulations. 

Third, the agencies should eliminate duplicative, contradictory or excessive regulations 

that impose administrative burdens on employers. One way to improve the regulatory 

system would be to emphasize exception-based regulations that target employers with 

poor performance rather than imposing burdens on all employers. For example, in 

employee benefits, many regulations are intended to address real or perceived concerns 

related to small plan sponsors and yet those small plan sponsors often receive an 

exemption from the resulting regulations. 

Fourth, as previous discussed in my background materials, coordination of rules between 

Congress and the agencies- and across those agencies- should be improved. Employersponsored benefit plans are complex entities that are subject to the jurisdiction of different 

congressional committees and regulatory agencies. When multiple agencies share 

rulemaking authority on a particular issue, employers must accommodate differing (and 

sometimes contradictory) obligations. In addition, after important legislation is enacted, 

employers must comply with the statutory requirements until regulations are issued. 

3 The American Benefits Council is a public policy organization representing principally Fortune 500 

companies and other organizations that assist employers of all sizes in providing benefits to employees. 

Collectively, the Council's members either sponsor directly or provide services to retirement and health 

plans that cover more than 100 million Americans. 

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97 

Future legislation should clearly indicate enforceable timing for issuance of enabling 

regulations and/or make the statutory requirement effective date contingent on the 

promulgation of the regulations. 

Conclusion: 

Thank you Mr. Chairman and Ranking Member Carper for your commitment to reviewing 

the Federal regulatory process. I believe this Committee could significantly improve the 

current situation, protect Congress' Constitutional role, and ensure better and more 

efficient regulation through comprehensive regulatory reform. I appreciate the 

opportunity to discuss these issues with the Committee, and I would be happy to answer 

any questions you may have. 

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April2016 

The Guidance Process 

in the Context of the Voluntary Employer-Sponsored Health and 

Retirement Plan System: 

Principles to Guide Us 

The regulatory authority provided to federal agencies, as well as the authority such 

agencies exercise in issuing sub-regulatory guidance (as defined below), is a source of 

both comfort and concern to our members. When used properly, interpretive regulatory 

authority fills in the technical and practical gaps in the law (whether new or 

established) and facilitates smooth implementation while taking advantage of the input 

and technical expertise of the regulated community. In other circumstances the exercise 

of regulatory authority can amount to a unilateral exercise of agency authority without 

full consideration of the costs and burdens on the regulated community that exceeds the 

authority delegated to the federal agency or is inconsistent with the applicable 

guidelines, or worse, a pretext for law-making outside of Congressional direction. 

Similarly, sub-regulatory guidance can be a useful tool for quickly addressing our 

members' concerns, or a worrisome source of new policy that is unilaterally imposed 

without an opportunity for consultation and review. 

Recent experience provides examples of both outcomes, indicating the importance of 

making the process more consistent across the issues and federal agencies that exercise 

regulatory authority. This document proposes a set of principles tailored to the unique 

guidance structure applicable to employee benefits that can provide a policy framework 

that will improve the consistency and effectiveness of the regulatory and interpretive 

process. These principles are derived from our review of recent actions by federal 

agencies with the goal of promoting the proper use of the guidance functions. 

Any discussion of the guidance process regarding health and retirement plans needs 

to focus on two critical points. First, the objective of the employer-sponsored health and 

retirement plan laws is to provide important health care coverage and a secure 

retirement to the millions of working Americans. Second, the employer-sponsored 

system of benefits whether health or retirement- is a voluntary system 
99 

(notwithstanding penalties imposed on employers that do not offer health benefits), and 

employees and the federal government both benefit when it is easier for employers to 

remain actively engaged in sponsoring health and retirement coverage. Thus, it is 

especially important that the regulatory process work in a way that minimizes burdens 

and preserves incentives for employers to maintain plans. 

In addition, to ensure that regulatory agencies properly fulfill their role, in these 

situations, there should be a clear definition of the scope of the authority of Congress, 

i.e., to legislate, and of the executive branch agencies, i.e., to interpret and administer 

those laws. In our Constitutional system, executive branch agencies should not attempt 

to legislate through the interpretive process. Although Congress sometimes directs the 

development of regulations to flesh out the details of a new rule, regulators must take 

care not to pursue policy initiatives absent clear direction and a specific grant of 

authority from the legislature. 

In addition to administrative law (the law governing agency rulemaking), these 

basic principles should underlie any analysis of the guidance process or exercise of 

administrative authority. This requires that decisions regarding whether and how to 

regulate be made on the basis of good decision-making principles and sufficient 

consultation and knowledge and be limited to actions that can demonstrably support 

the extension, maintenance and security of health and retirement plans. Based on this 

framework, we have developed a set of principles that should guide the process with 

respect to the employer-sponsored system. It is our hope that these principles can lead 

to a robust dialogue regarding how best to improve and enhance the health and 

retirement systems. 

SUMMARY 

Economic Analysis Principle: A thorough economic analysis should support any decision to 

impose new burdens on employers maintaining a health or retirement plan and ensure that it 

results in the most cost effective outcomes. 

• Sub-principle #1: Any decision to develop new regulations or impose additional 

burdens should be supported by economic analysis that indicates the need and 

demonstrates how the action will achieve a positive outcome by evaluating the full range 

of direct and indirect impacts. 

• Sub-principle #2: Consistent with applicable Executive Orders and OMB guidance, the 

economic analysis should include an analysis of all feasible alternatives to achieve the 

desired policy result and explain how the proposed action was determined to be the least 

burdensome means of achieving that result. 

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• Sub-principle #3: Economic analyses should not examine any new proposed rule in 

isolation; it is critical that economic analyses consider the regulatonJ context, including 

other related rules. 

Notice and Comment Principle: To the greatest extent that is feasible and in any case where 

guidance or enforcement would establish new binding standards or impose new requirements or 

result in a material economic impact, the notice and comment process as set forth in Section 553 

of the Administrative Procedures Act (and associated requirement for an economic impact 

analysis) should be used. 

• Sub-principle #1: Whenever guidance or enforcement would impose new requirements, 

the notice and comment process should be used, rather than using sub-regulatory 

guidance. 

• Sub-principle #2: V\lhen any form of regulatonJ process is used, the final rules should 

not include new law, standards or requirements that were not subject to notice and 

comment. 

• Sub-principle #3: Whenever sub-regulatory guidance could result in economically 

significant outcomes, the notice and comment process should be used pursuant to widely 

overlooked Office of Management and Budget ("OMB") guidance. 

• Sub-principle# 4: In narrow circumstances, advance notice and comment is not 

appropriate where an existing rule is causing unintended and immediate harm or where 

the new guidance will relieve rather than establish new requirements or burdens. 

Treasury Adherence Principle: Treasury guidance should be subject to the foregoing 

principles, except in the narrow circumstances contemplated by Congress where rules can be 

issued without advance notice and comment in order to correct mistakes, prevent inequitable 

administration of the tax laws, or protect federal revenues. The default process should be the use 

of notice and comment. Any determination to issue rules without notice and comment should 

include a justification for why this approach is appropriate. 

Increased Private Sector Interaction Principle: In addition to the formal notice and 

comment process, government guidance would benefit from increased interaction between the 

government and stakeholders with respect to the challenges of implementation, anticipated costs 

and benefits, and the possibility of indirect or unintended effects. 

3 
101 

Congressional Effective Date Principle: The effective dnte of new statutory restrictions 

should be based on the publication of administrative guidance. If a statute has a fixed effective 

date, and, as is often the case, administrative guidance regarding the new restrictions is not 

issued sufficiently in advance of that effective date, compliance is very difficult. Moreover, in 

such cases, employers are often forced to restructure their operations once as of the statutory 

effective date and again as of the effective date of the administrative guidance. 

Rulemaking Authority Principle: When issuing regulations or other administrative guidance, 

the executive agencies should be careful to ensure their actions are within the grant of specific 

administrative authority provided by Congress. Agencies should include a complete explanation 

of how the specific exercise of any regulaton; authority falls within their specific remit of 

authority. 

Federal Intra-Agency Coordination Principle: Employer plans are often made subject to 

multiple regulatory regimes at the federal and state level. Often these regimes may impose 

similar, but not identical, requirements. To reduce confusion as well as the complexities and 

costs associated with complying with multiple regulatory schemes, the federal agencies should 

work together to fashion a coordinated set of rules or otherwise establish a deeming approach 

which would allow employers to be deemed in compliance with one scheme by complying with 

another. 

DISCUSSION 

Economic analysis 

Principle: A thorough economic analysis should support any decision to impose new burdens on 

employers maintaining a health or retirement plan and ensure that it results in the most cost 

effective outcomes. 

• Sub-principle #1: Any decision to develop new regulations or impose additional 

burdens should be supported by economic analysis that indicates the need and 

demonstrates how the action will achieve a positive outcome by evaluating the full range 

of direct and indirect impacts. 

o Too often, an economic analysis is developed to support what appears to 

be a pre-determined policy decision, rather than determinations that are 

supported by economic analysis to determine if there is an economic 

justification for any new rulemaking by either indicating substantial 

negative economic consequences of the current environment or 

demonstrable advantages that will accrue from the action. 

4 
102 

o Economic analysis, consistent with OMB guidance on implementing the 

applicable executive orders, should be complete in its scope by 

considering not just the direct impact of the action but also any indirect or 

collateral results that can be reasonably be expected to result from the 

action. 

o A thorough analysis should include consultation with experts from the 

private sector. Early discussions with the private sector can avoid the 

government pursuing regulatory paths that impose unnecessary costs and 

will not be effective in improving outcomes. 

o In order to gain more understanding of the economic effects of a possible 

proposal, the government should increase the use of "Requests for 

Information" prior to the issuance of proposed regulations. This can 

complement informal outreach to private sector experts in examining the 

economic effects of a possible proposal and ensure that the threshold 

decision to undertake a regulatory action is fully justified. 

• Sub-principle #2: Consistent with applicable Executive Orders and OMB guidance, the 

economic analysis should include an analysis of all feasible alternatives to achieve the 

desired policy result and explain how the proposed action was determined to be the least 

burdensome means of achieving that result. 

o Economic analysis should outline the full range of approaches to 

achieving a defined policy objective and assess the costs and benefits of all 

feasible alternatives to demonstrate how the decisions made in developing 

the rule are the most cost effective. This should be a major focus of the 

economic analysis and the work described above with private sector 

experts. 

o Economic analysis should include tailored efforts to target reforms at the 

situations where reforms are needed. For example, if a regulatory 

requirement is not necessary for businesses of a certain size (large or 

small), then appropriate exceptions should be crafted. Similarly, if 

problematic practices are limited to certain classes of businesses, such as 

small professional businesses, regulatory requirements should be limited 

to those classes of businesses, rather than burdening all businesses. 

• Sub-principle #3: Economic analyses should not examine any new proposed rule in 

isolation; it is critical that economic analyses consider the regulatory context, including 

other related rules. 

5 
103 

o Employee benefits plans fall within the direct and indirect authority of a 

wide range of federal agencies including the Departments of Labor, 

Treasury and health and Human Services and the Pension Benefit 

Guaranty Corporation which have specific direct regulatory 

responsibilities as well as a wide range of other agencies that oversee 

financial services, consumer protections, and a variety of aspects of labor 

law. 

o These disparate agencies often operate within their narrow areas of 

jurisdiction without adequate consultation with the other agencies that 

may have overlapping or related authority or fully contemplating the 

interaction of their rules with the complex web of requirements affecting 

the operation of employee benefit plans. 

o The laws, policies and procedures governing the regulatory process have 

been developed largely in consideration of agencies with more narrow 

and focused authority and do not include requirements to fully consider 

and address the need for consultation and coordination of requirements 

imposed by different agencies. 

o A good example of this problem are the numerous new disclosures and 

participant communications required by the Affordable Care Act (" ACA") 

and implementing regulations The ACA imposes a host of new reporting 

and disclosure requirements on employers and plans, including the 

employer exchange notice, advance notice of certain material 

modifications , expanded reporting of employer-sponsored group 

coverage, and employer reporting of employee enrollment in minimum 

essential coverage and employer compliance with the employer "shared 

responsibility" provisions. 

o The economic analyses performed with respect to each of these new 

disclosure and reporting requirements look solely at the incremental 

costs/burdens to employers and plans, and fail to take account of the 

overall costs of creating and furnishing all of these disclosures in the 

aggregate. 

o To engage in such a piecemeal economic analysis understates the overall 

burdens imposed upon employers by the current spate of disclosure 

requirements. It is important that future analyses take into consideration 

not just the new marginal burdens/ costs, but the overall effect on 

employers. 

6 
104 

Notice and comment process 

Principle: To the greatest extent that is feasible and in any case where guidance or enforcement 

would establish new binding standards or impose new requirements or result in a material 

economic impact, the notice and comment process as set forth in Section 553 of the 

Administrative Procedures Act (and associated requirement for an economic impact analysis) 

should be used. 

• Sub-principle #1: Whenever guidance or enforcement would impose new requirements, 

the notice and comment process should be used, rather than using sub-regulatory 

guidance. 

• Sub-principle #2: When any fonn of regulatory process is used, the final rules should 

not include new law, standards or requirements that were not subject to notice and 

comment. 

• Sub-principle #3: Whenever sub-regulaton; guidance could result in economically 

significant outcomes, the notice and comment process should be used pursuant to widely 

overlooked Office of Management and Budget ("OMB") guidance. 

• Sub-principle # 4: In narrow circumstances, advance notice and comment is not 

appropriate where an existing rule is causing unintended and immediate harm or where 

the new guidance will relieve rather than establish new requirements or burdens. 

o The Administrative Procedure Act(" AP A") requires that regulatory 

guidance establishing substantive new law or standards (what is termed 

"legislative rule making") be issued through a process that includes the 

publication of proposed regulations in the Federal Register, followed by a 

comment period before the issuance of final regulations. This process is 

set forth in Section 553 of the AP A. An exception to this process is 

provided for what are termed "interpretive" rules or what is often called 

"sub-regulatory guidance" where the agency is narrowly interpreting the 

meaning of a stature rather than establishing substantive law or 

requirements. 

o In January of 2007 the Office of Management and Budget issued a 

"Bulletin of Good Guidance Practices" (which ostensibly remains in effect) 

that establishes a presumption of the need to provide an economic 

analysis and justification for rules that entail a significant economic effect. 

o Regulatory agencies however are currently afforded broad discretion by 

OMB in determining which of their actions fall within these categories. 

This has resulted in circumstances in which rules and regulations of a 

7 
105 

substantive nature have been imposed without any notice and comment 

with the only recourse available to the affected community a costly and 

time consuming legal challenge in the courts. 

o Re-establishing the presumption that rule making activities that establish 

any new law or requirements should require pubic consultation through 

the notice and comment process and that any exceptions to this be made 

on the basis of a fully articulated justification that is made publically 

available in advance and approved by OMB would preclude the 

possibility of agencies imposing costly new requirements without the 

necessary pubic consultation. 

o An exception to this requirement is appropriate for the expedient 

provision of regulatory relief in circumstances where an existing rule is 

causing unintended or immediate harm or where the action of the 

agencies is to relieve rather than to impose new regulatory burdens. In 

these circumstances however the regulatory agency should be required to 

provide the rationale for using such an exception. 

Treatment of Treasury guidance 

Principle: Treasunj guidance should be subject to the foregoing principles, except in the narrow 

circumstances contemplated by Congress where Treasunj rules can be issued without advance 

notice and comment in order to correct mistakes, prevent inequitable administration of the tax 

laws, or protect federal revenues. The default process should be the use of notice and comment. 

Any determination to issues rules without notice and comment should include a justification for 

why this approach is appropriate. 

o Under Section 7805(b)(l)(C) of the Internal Revenue Code, Treasury may 

issue an immediately effective notice describing the substance of a 

regulation that will be issued. This allows Treasury to effectively establish 

immediately effective new rules without advance notice and comment. 

This authority was intended to allow Treasury to immediately protect 

federal revenue, correct mistakes, and avoid inequitable administration of 

the tax laws. 

o The authority was never intended to permit Treasury to set new social 

policy through the Code. Yet this is exactly what Treasury has done in 

several recent actions that imposed new restrictions on pension funds 

ability to offer lump sum payments to retirees already receiving benefits 

and in other actions that establish requirements under the Affordable care 

Act(ACA). 

8 
106 

o The default position should be that Treasury is required to justify its rules 

with an economic analysis. The relevant Executive Orders and OMB 

guidance establishing the requirement for an economic impact analysis do 

not specifically exempt Treasury. However, in practice, Treasury does not 

issue analyses of the economic effects of its guidance. 

o To the extent that Treasury is simply administering the tax laws and 

collecting revenue it may make sense that Treasury would not be required 

to provide an economic impact analysis providing a rationale for its 

decisions or need to quantify the economic effects of its guidance. 

However, in the retirement and health benefits areas, Treasury is not 

simply administering the tax laws; on the contrary, it is making retirement 

and health care policy In situations where Treasury is trying to achieve 

policy objectives wholly separate from collecting revenue, there is no 

justification for exempting Treasury from the rules requiring advance 

economic analyses. 

o If Treasury makes a decision to issue regulatory guidance under this 

statutory exception it should be required to provide an explanation and 

rationale for its determination in conjunction with the guidance that is 

subject to OMB review and concurrence with its determination to ensure 

that the exception is used only where appropriate rather than for purposes 

of expediency and to ensure that there is the maximum feasible 

transparency and public consultation on rule making with a material 

impact on the regulated community. 

Increased private-sector interaction in the guidance process 

Principle: ln addition to the formal notice and comment process, government guidance would 

benefit from increased interaction between the government and stakeholders with respect to the 

challenges of implementation, anticipated costs and benefits, and the possibility of indirect or 

unintended effects. 

o The structured notice and comment process stipulated by the AP A is often 

undertaken at a later stage in the rule making process after the agencies 

have already made a decision to promulgate a rule or have formulated a 

proposal. 

o The process is of limited value in these circumstances because the agencies 

may have based their determinations on an incomplete or inaccurate 

9 
107 

understanding of the operations of the affected entities or have not 

considered the full range of potential alternatives. 

o While there is a requirement under current law for the agencies to publish 

a semi-annual agenda of rule-making actions this has often devolved into 

a pro forma exercise in which initiatives remain on the list for many years 

without any meaningful activity or appear just prior to the issuance of a 

proposal. There are only limited requirements for regular and meaningful 

consultation with the regulated community and in some cases perceptions 

of limitations imposed by the AP A on communications. 

o Treasury publishes a guidance agenda that includes upcoming subregulatory guidance. This is extremely helpful in generating more 

interaction with the private sector. It would be helpful if other agencies 

could do this too, so that the private sector can provide input in advance. 

o The agencies do on occasion issue a formal Request for Information (RFI) 

as they contemplate future regulatory action which provides an 

opportunity for the provision of information. However, this process does 

not afford much opportunity for interactive communications. 

o Consideration should be given to encouraging the broader use of the RFI 

process and potentially requiring it for significant initiatives when 

feasible. 

Congressional effective dates 

Principle: The effective date of new statutonJ restrictions should be based on the publication of 

administrative guidance. If a statute has a fixed effective date, and, as is often the case, 

administrative guidance regarding the new restn'ctions is not issued sufficiently in advance of 

that effective date, compliance is very difficult. Moreover, in such cases, employers are often 

forced to restructure their operations once as of the statutory effective date and again as of the 

effective date of the administrati!'e guidance. 

o Frequently, administrative guidance is not published by the time that 

new statutory restrictions take effect. This means that the restrictions 

must be implemented without guidance. Even more troubling, this 

also means that plan operations may need to be restructured twice, 

once to comply with the statute and again later to comply with 

administrative guidance. 

10 
108 

o There are several examples with respect to departmental actions 

regarding the implementation of the ACA where they expressly 

delayed the application of a new statutory rule until after the issuance 

of administrative guidance. This approach should be required and be 

afforded an exception to any AP A requirements that may impede the 

delay of effective dates to allow required guidance to be completed. to 

ensure that agencies have time to engage in a careful and deliberate 

public rulemaking process. 

Adhering to congressional grant of rulemaking authority 

Principle: l!Vhen implementing regulations or other administrative guidance, the executive 

agencies should be careful to ensure their actions are within the specific grant of authority 

provided by Congress. Agencies should include a complete explanation of how the specific 

exercise of any regulaton; authority falls within their specific remit of authority. 

o There have been several instances where one executive agency has 

engaged in rulemaking that goes beyond its Congressional grant of 

authority. Such rulemaking should be avoided for several reasons. 

First, it is contrary to general Federalism principles. Second, it has the 

potential to result in confusion for the regulated community, including 

the scope of the application of the proposed rule. Third, there is an 

increased chance that stakeholders may not engage in full and 

meaningful comment with respect to a proposed rule if they are 

unaware that the agency intends for the new rule to apply to the 

stakeholders or their plans. Accordingly, any final rule may suffer 

from less than robust notice and comment and may not reflect best 

policy. 

Need for greater federal intra-agency coordination to minimize adverse effects of 

multiple regulatory schemes to employer-sponsored plans 

Principle: Employer plans are often made subject to multiple regulaton; regimes at the federal 

and state level. Often these regimes may impose similar, but not identical, requirements. To 

reduce confusion as well as the complexities and costs associated with complying with multiple 

regulatory schemes, the federal agencies should work together to fashion a coordinated set of 

rules or otherwise establish a deeming approach which would allow employers to be deemed in 

compliance with one scheme by complying with another. 

o One good example are employer-sponsored wellness programs, which 

are subject to a multitude of federal regulations administered by 

agencies with both direct and indirect authority over employee benefit 

11 
109 

plans including the Departments of Labor, Treasury, HHS and the 

EEOC. While several federal agencies worked together in the context 

of one of the applicable federal statutes, HIP AA, to fashion tri-agency 

regulations, wellness programs remained subject to significant 

regulatory and litigation risk with respect to the ADA administered by 

the EEOC whose proposed ADA regulations do not fully align the triagency regulations. 

o In the retirement area, a very recent example of a lack of coordination 

is the proposed DOL regulation giving states the ability to mandate 

payroll deduction IRAs. DOL did not place any meaningful constraints 

on state powers, so that the result may be a patchwork of different 

rules for national employers operating in many states. In fact, DOL's 

proposal is so open-ended that it is very possible that multi-state 

employers could be subject to conflicting rules established by different 

states with respect to the same employees. 

o Where possible, agencies should try to borrow from existing 

regulatory schemes rather than apply new and different rules to 

employer-sponsored plans. Otherwise, the effect is to increase the costs 

and burdens of plan sponsorship/maintenance within the framework 

of what is otherwise a voluntary system. 

o There should be a more formal requirement for consultation and 

coordination among the agencies and in the materials promulgating 

any new requirements the manner in which it has been coordinated 

12 
110 

Statement of the U.S. Chamber of Commerce 

ON: Hearing on The Administrative State: An Examination of 

Federal Rulemaking 

TO: U.S. Senate Committee on Homeland Security & 

Governmental Affairs 

DATE: Apri120, 2016 

1615 H Street NW I Washington, DC 120062 

The Chamber's mission is to advance human progress through an economic, 

political and social system based on individual freedom, 

incentive, initiative, opportunity and responsibility. 
111 

The U.S. Chamber of Commerce is the world's largest business federation 

representing the interests of more than 3 million businesses of all sizes, sectors, 

and regions, as well as state and local chambers and industry associations. The 

Chamber is dedicated to promoting, protecting, and defending America's free 

enterprise system. 

More than 96% of Chamber member companies have fewer than 100 

employees, and many of the nation's largest companies are also active members. 

We are therefore cognizant not only of the challenges facing smaller businesses, 

but also those facing the business community at large. 

Besides representing a cross-section of the American business community 

with respect to the number of employees, major classifications of American 

business--e.g., manufacturing, retailing, services, construction, wholesalers, and 

finance-are represented. The Chamber has membership in all 50 states. 

The Chamber's international reach is substantial as well. We believe that 

global interdependence provides opportunities, not threats. In addition to the 

American Chambers of Commerce abroad, an increasing number of our members 

engage in the export and import of both goods and services and have ongoing 

investment activities. The Chamber favors strengthened international 

competitiveness and opposes artificial U.S. and foreign barriers to international 

business. 

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112 

BEFORE THE COMMITTEE ON HOMELAND SECURITY & GOVERNMENTAL 

AFFAIRS OF THE U.S. SENATE 

Hearing on The Administrative State: An Examination of Federal Rulemaking 

Testimony of William L. Kovacs 

Senior Vice President, Environment, Technology & Regulatory Affairs 

U.S. Chamber of Commerce 

April20, 2016 

Good morning, Chairman Johnson, Ranking Member Carper, and distinguished Members 

of the Committee. My name is William L. Kovacs and I am senior vice president for 

Environment, Technology and Regulatory Affairs at the U.S. Chamber of Commerce. I was 

asked to discuss the Chamber's perspective on the current condition of our regulatory state. 1 

The goal ofthe regulatory process should be to produce regulations that implement the 

intent of Congress in the most efficient way possible. Accountability, transparency and integrity 

are the essential characteristics needed to achieve the development of good regulations. 

Considering that agencies utilizing a "New Deal" regulatory process have issued almost 200,000 

regulations between 1976 and today, the regulatory process has generally worked well in 

managing routine matters. Unfortunately, however, the system is not working as Congress 

intended for the most complex and high-cost regulations that have the most profound effect on 

the fubric of our society. Congress needs to pay far more attention to how agencies develop these 

critical rules since they govern major segments of the nation's activities. 

The Chamber has spent several years examining the regulatory process in detail? Our 

research indicates that, over time, Congress has enacted many broad and vague laws that 

1 Nothing in these comments shall constitute a waiver of any arguments the Chamber has made or will make in the 

context of any litigation involving the EPA and Army Corps of Engineers' definition of"Waters of the United 

States." 

2 See U.S. Chamber of Commerce, Truth in Regulating: Restoring Transparency to EPA Rule making (Apr. 20 15) 

available at https://www.uschamber.com/sites/default/files/021935 truthinregulating opt.pdf; U.S. Chamber of 

Commerce, Charting Federal Costs and Benefits (Aug. 2014) available at 

https://www.uschamber.com/sites/default/files/021615 fed regs costs benefits 2014reportrevise jm fin \.pdf; 

U.S. Chamber of Commerce, Sue and Settle: Regulating Behind Closed Doors (May 2013) available at 

https:/ /www .usc ham ber .com/s ites/dcfault/fi lcs/docum ents/fi I es/SUE ANDS ETTLEREPO RT -Final.pdf; U.S. 

Chamber of Commerce, Impacts of Regulations on Employment: Examining EPA 'sOft-Repeated Claims that 

Regulations Create Jobs (Feb. 2013) available at 

3 
113 

delegated significant policy making authority to agencies. As agencies began expanding their 

policy making power, Congress responded by enacting statutes requiring the agencies to analyze, 

as part of the rulemaking process, regulatory costs and benefits; unfunded mandates; the use of 

the best quality information, data and peer reviewed materials; impacts on small business and 

small local governments; as well as mandating, for at least one agency, the continuous evaluation 

of the potential loss or shifts in employment due to the agency's regulations. These analyses are 

intended to be a check on agency actions, but as demonstrated below, they are often ignored, to 

the great detriment of citizens, businesses and state and local governments. 

One agency in particular, the Environmental Protection Agency (EPA), has fallen down 

in its evaluation of critical impact analyses, and at the same time has expanded its regulatory 

footprint exponentially. Within a period ofless than six months in 2015, EPA finalized three 

massive regulatory programs the Waters of the United States (WOTUS) definition rule3

, 

greenhouse gas rules for existing power plants under the Clean Power Plan4, and the revised 

Ozone National Ambient Air Quality Standards (NAAQS).5 Together, these programs push the 

boundaries of federal authority further than they have ever been extended. Each of these 

regulatory initiatives seeks to greatly expand federal power at the expense of state and local 

governments--despite the fact that the states have long shouldered the vast majority of the 

burden of implementing and enforcing federal environmental laws, and the ultimate success of 

EPA's programs overwhelmingly depends on the states.6 These rules not only undermine the 

cooperative federalism model carefully crafted by Congress, they threaten to wreak havoc on the 

ability of states' to operate effective environmental programs. 

It is worthwhile to ask- how could this happen? How can federal agencies exercise 

authority to create laws broader than Congress could enact in a divided government? 

The short answer is that for the most costly, burdensome and complex regulations being 

issued by agencies, the regulatory process is critically dysfunctional. As a result, agencies make 

more law than Congress, all the while ignoring the impact analyses that Congress requires. 

Meanwhile, the courts too frequently avoid dealing with the complexity by deferring to agency 

decisions. And Congress has focused so intently on the problems with specific rules that it has 

https://www.uschamber.com/sites/default!files/documents/files/020360 ETRA Briefing NERA Study final.pdf; 

U.S. Chamber of Commerce, EPA's New Regulatory Front: Regional Haze and the Takeover of State Programs 

(July 20 12) available at 

https://www.uschamber.com/sites/defaultlfiles/documents/files/1207 ETRA HazeReport lr O.pdf; U.S. Chamber 

of Commerce, Project No Project, Progress Denied: A Study on the Potential Economic Impact of Permitting 

Challenges Facing Proposed Energy Projects (Mar. 2011) available at http://www.projectnoproject.com/wpcontent!uploads/2011/03/PNP EconomicStudy.pdf. 3 EPA and U.S. Army Corps of Engineers, "Definition of"Waters of the United States," Final Rule, 80 Fed. Reg. 

37,054 (June 29, 2015). 

'EPA, "Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units," 

Final Rule, 80 Fed. Reg. 64, 662 (October 23, 2015). 

'EPA, "National Ambient Air Quality Standard for Ozone," Final Rule, 80 Fed. Reg. 65, 292 (October 26, 2015). 6 Testimony ofTeresa Marks, Director, Arkansas Department of Environmental Quality and President, 

Environmental Council of the States, before the House Energy and Commerce Committee, Subcommittee on 

Environment and the Economy (February 15, 2013) at 3, available at 

http://docs.house.gov/meetings/IF/lF 18/20130215/1 00242/IIHRG-113-IF 18-Wstatc-MarksT -20130215 .pd!). 

4 
114 

ignored for almost seventy years one of the most important aspects of our complex society-that 

while regulators make many laws, all legislative power is still vested in Congress and Congress 

needs to better ensure that agencies carry out its intent. While some members of Congress may 

be pleased by specific agency action and others displeased, the administrative process has 

become about how unelected officials make laws. That process must be carried out with 

accountability, transparency and integrity if it is to provide the management of government the 

American people deserve. 

Reversing this dysfunctional situation is essential to protecting the integrity of Congress 

as it delegates authority to agencies, but most importantly, to ensure that Congress preserves 

constitutional checks and balances. 

I. BACKGROUND 

A complex society needs regulations; however, as federal agencies regulate more and 

more facets of American society, they must operate in an even-handed fashion, be open with the 

public, and follow the directives of Congress. 

Preserving transparency and the ability of Congress to manage federal agencies has been 

a continuing challenge since the day the first regulatory agency, the Interstate Commerce 

Commission, was created in 1887. Prior to 1935 and the creation of the Federal Register,7 every 

agency published its own new regulations and there was no central repository for interested 

parties to monitor. Moreover, agencies were not required to take public comment on their 

proposed rules and respond to those comments in the rulemaking record until 1946, when 

Congress enacted the landmark Administrative Procedure Act (APA). The APA established a 

uniform rulemaking process, citizen participation, procedural transparency, and standards for 

judicial challenges to agency rulemaking actions. 

A. The Administrative Procedure Act and Rulemakings 

Enacted in the wake of the New Deal's vast expansion of federal authority and the 

government's assumption of extensive control over the U.S. economy in order to fight World 

War II, the APA was called "the bill of rights for the new regulatory state."8 One commenter has 

noted that the APA expressed the nation's decision in 1946 to "permit extensive government, but 

to restrain agencies' unfettered exercise of their regulatory powers."9 

The APA was written as a compromise that allows agencies to use informal "notice and 

comment rulemaking," which means an agency only has to publish a notice of a proposed rule, 

allow some opportunity for public comment, and respond to any public comments when the 

agency finalizes the rule. Case law interpreting the APA has established a high bar to invalidate 

agency action, and courts frequently defer to agencies' technical expertise. The APA's 

7 Federal Register Act of 1935,44 U.S.C. Chapter 15. The first Federal Register notice was published on March 14, 

1936. 

8 Shepherd, G., Fierce Compromise: The Administrative Procedure Act Emerges From New Deal Politics, 90 

Northwestern University Law Review 1557, 1558 (1996). 9 See id. at 1559. 

5 
115 

compromise "struck between promoting individuals' rights and maintaining agencies' policymaking flexibility," 10 actually makes it relatively easy for agencies to issue new rules that, more 

often than not, will be upheld by the courts. 11 

Each year, federal agencies churn out thousands of new regulations (see Figure 1). For 

the vast majority of these rulemakings, the APA process has worked very well. Most of the 

thousands of small rules that agencies propose each year receive little or no public comment and 

require no procedural effort beyond publishing notices in the Federal Register. The ease with 

which agencies can write new rules helps explain how agencies could collectively issue almost 

200,000 final rules over a 40-year period, as illustrated below. 

Figure 1: 

250,000 

100,000 

!50,000 

100,000 

50,000 

Ill Cumulative Final Rules 

~Final Rules 

Cumulative Final Rules Since 1976 

Source: FederaJ Register 

Despite the historic success of the AP A in managing small, "run-of-the-mill" 

rulemakings, the ordinary notice-and-comment rulemaking process has become less and less 

capable of handling today's most extensive and costly regulatory actions, which include 

"significant rules" over $100 million in cost annually and "high-impact" over $1 billion 

annually. Hundreds of significant rules are issued each year (see Figure 2). Of all the significant 

10 !d. at 1558. 

n See, e.g., Joseph M. Feller, Have Judges Gone Wild? Plaintiffs Choices and Success Rates in Litigation Against 

Federal Agencies, 44 ENVT'L L 287, 295 (20 14) (citing to studies finding up to 76.6% rates of affirmances by 

courts in administrative law cases in 1984-85.). 

6 
116 

rules issued each year, as shown below, only 34 rules impose $1 billion or more between 2000 

and 20 15 in regulatory costs. 

Figure 2: 

Figure 3: 

Number of S:~gni(rcant Rules under E.O. 12866 

i 

a= 

i 

i= 

i 

i= 

j 

~""HR·-l!a.·"" 

4 

Source: Federal Register 

Billion Dollar Rules by Agency (2Q[J0.-2015 EPA; 20()0.1014 All oth11r agrmdes) 

$20 

so 

Sources: EPA rules from agency RIAs; other agencies' rules from OMB 2013, 2014, and 2015, 

Reports to Congress on Costs and Benefits of Regulations. 

7 
117 

The data shows that from 2000 to 2015, a total of34 rules from Executive Branch 

agencies, each with a cost of more than $1 billion per year, are now imposing nearly $125 

billion each year on the U.S. economy. 12 Significantly, EPA not only issued more of these rules 

than all the other agencies combined, the 20 EPA rules collectively imposed 82% of all the 

monetized compliance costs (see Figure 3). While the high cost of these rules is important, these 

rules are typically also highly complex and burdensome. Such rules are far more intrusive than 

"run of the mill" rules and have the potential to have profound effects (often unintentional) on 

fundamental sectors of our national economy (e.g., energy, financial institutions, health care, 

education, and the Internet). 

B. The APA Notice and Comment Process Does Not Work For Billion-Dollar-Plus 

Rulemakings 

One might assume that, because of their importance, agencies would proceed especially 

carefully when they prepare rules that cost a billion dollars per year or more. In those 

circumstances, an agency would be expected to analyze and understand how a massive new rule 

will affect specific regulated industries and the communities where those industries are located. 

Indeed, as the D.C. Circuit Court of Appeals has noted, the essential purpose of informal notice 

and comment rulemaking procedures is "(1) to ensure that the agency regulations are tested via 

exposure to diverse public comment, (2) to ensure fairness to affected parties, and (3) to give 

affected parties an opportunity to develop evidence in the record to support their objections to 

the rule and thereby enhance the quality of judicial review." 

Unfortunately, however, agencies often fail to achieve these important objectives, even 

for billion-dollar-plus rules. 13 Time and time again, informal notice-and-comment rulemaking 

procedures have proven insufficient to afford interested parties and the public adequate 

information about the most significant, complex, and costly proposed rules, or adequate time to 

give useful feedback to the agency in question. 

For the most costly and important new rules, informal rulemaking procedures are simply 

not adequate because of the following factors: 

• Agencies make unproven factual assumptions. Recent rulemakings have been grounded 

entirely on assumptions that are speculative and highly likely to be false (e.g., 65% of 

ozone emission reductions, according to data from EPA's own Regulatory Impact 

Analysis for its 2015 Ozone NAAQS rule, are estimated to come from unknown controls 

that the agency simply assumes will cost the same as existing control technologies 14). 

"Independent regulatory agencies (e.g. the Federal Communications Commission (FCC), Securities and Exchange 

Commission (SEC), and Commodities Futures Trading Commission (CFTC)) are not subject to Executive branch 

oversight by the Office of Management and Budget (OMB) and do not routinely perform regulatory impact analysis 

(RIAs) as directed by OMB Circular A-4 guidance on cost-benefit analysis. Consequently, even in the cases when 

independent regulatory agencies estimate the costs and benefits of their regulations, they generally do not adhere to 

the standards established and enforced by OMB and the cost estimates are often not complete or comparable. 13 International Union, United Mine Workers of America v. Mine Saftty & Health Admin., 401 F.3d 1250, 1259 

(D.C. Cir. 2005), citing Small Refiner Lead Phase-Down Task Force v. EPA, 105 F.2d 506, 547 (D.C. Cir. 1983). 14 NERA Economic Consulting, "Economic Impacts of a 65 ppb National Ambient Air Quality Standard for 

Ozone," February 2015, available at www.nam.org/ozone. (Study and estimates based on data from the EPA's 

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The informal notice-and-comment rulemaking process gives stakeholders virtually no 

real opportunity to disprove these assumptions, because agencies only have to show that 

they have considered an adverse comment and are essentially free to disregard it. 

• The public (and very often the agency itself) does not have enough information to fully 

understand how a rule will work in rea/life. Federal agencies frequently fail to grasp 

the impact that a large new regulation- added to prior rules and those of other agencies 

-have on businesses, communities, and the economy as a whole. 

• 30-, 60-, or 90-day comment periods are too short to allow stakeholders to develop 

detailed comments about complex or opaque proposed rules. Agencies often take years 

and sometimes decades to develop large and complex rules and the technical justification. 

But the public and affected stakeholders are given a far more limited amount of time to 

evaluate all of the information and data the agency relied upon. By the time a full 

analysis of a rule's impact can be completed, the rule is final and has already taken effect. 

• The information agencies rely upon is often of poor quality, or is not verifiable. 

Agencies often rely on data that is difficult to obtain or verity independently, that is based 

on too few data points, or was developed using improper methodology. 

• Agencies are required by law to consider the impacts a new rule will have on regulated 

entities, 15 but these reviews are limited, rushed, or ignored altogether. Agencies have to 

take shortcuts to meet tight rulemaking deadlines, and often do not complete the analyses 

necessary to develop a rule that accomplishes its purpose without inflicting unnecessary 

harm. 

II. A CASE STUDY ON REGULATORY DYSFUNCTION: mE "WATERS 

OF mE UNITED STATES RULE" 

The revised definition of"Waters of the United States" (WOTUS) issued jointly by the 

EPA and the U.S. Army Corps of Engineers (Corps) on June 29,2015, 16 expands federal Clean 

Water Act jurisdiction far beyond the limits explicitly established by Congress and affirmed by 

the courts. The rule gives EPA and the Corps unprecedented permitting and enforcement 

authority over land use decisions that Congress intentionally reserved to the States. 

The WOTUS rule is a critical example of the type of regulatory mess that results when 

agencies fail to comply with Congressional mandates. This section details many of the 

Regulatory Impact Analysis of the Proposed Revision to the National Ambient Air Quality Standards for GroundLevel Ozone, pp. ES-8, ES-9 (November 2014)). 

" See, e.g., Executive Order 12,866 (1993) (requiring interagency economic review of"major rules" that are likely 

to have an annual effect on the U.S. economy of$100 million or more); Regulatory Flexibility Act, 5 U.S.C. § 60 I, 

et seq. (requiring federal agencies to consider the impact their proposed rules will have on small businesses and 

small governments). Independent agencies such as FCC, SEC, CFTC, and OCC are not bound by this Executive 

Order. 

16 80 Fed. Reg. 37,054 (June 29, 2015). 

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fundamental problems with the WOTUS rule. The agency's procedural failures are detailed in 

later sections. 

1. The WOTUS Rule Greatly Expands Federal Jurisdiction Through Complex 

Definitions. 

The rule contains several key new definitions. These new definitions, while important by 

themselves, also fundamentally transform other existing Clean Water Act definitions. Besides 

being extremely difficult to fully understand, the interplay of these new and existing definitions 

has the potential to fundamentally change the relationship between the federal government and 

the states-all in the absence of any new Congressional directive. Importantly, the WOTUS Rule 

actually fails to define two critical terms used throughout the rule: "waters" and "dry land". The 

final rule preamble lists several types of features that are "waters" but then inexplicably states 

that features will be "identifiable by water ... " 17 The second undefined term is "dry land" which 

is used throughout the rule to describe certain types of features, mostly those intended to be 

excluded from the rule. The agencies concluded that "there was no agreed upon definition given 

geographic and regional variability". 18 Considering the complex terms the agency chose to 

define, it is quite telling that they were unable to define what is water and what is dry land. The 

new key definitions the agencies decided to include are: 

• "Significant nexus"- The final WOTUS rule states that any chemical, physical, or 

biological effect on jurisdictional waters not thought to be "speculative or insubstantial" 

will be considered "significant." This so-called "significant" effect can be caused by a 

single water or wetland or "in combination with other similarly situated waters in the 

region." The practical result of the Agencies' approach is that, if any effect exists, it is 

deemed significant. Moreover, a land user will need to consider not only the effect of the 

water or wetland on his property, but also the combined effects of other "similarly 

situated" waters throughout an entire watershed to determine if a nexus exists. 19 This 

expansion of federal authority is totally unjustified. The concept of a "significant nexus" 

historically arose in the narrow context of wetlands areas that actually abutted-and were 

therefore "inseparably bound up with"-traditional navigable waters.20 Now, the 

WOTUS rule requires an esoteric inquiry into whether an isolated water or wetland could 

-on its own or in combination with other similar waters-- theoretically have an impact 

on (or be impacted by) any other water within an entire watershed of a traditional 

navigable water, interstate water or territorial sea. The meaning of "significant nexus" in 

the context of chemical, physical, and biological effects could occupy the federal courts 

for years to come. 

• "Tributary"- The Agencies' definition of"tributary" is extraordinarily vague and 

overbroad. A "tributary" need only demonstrate the bare minimum evidence (including 

17 80 Fed. Reg. 37055 fn 1 (June 29, 2015). 18 ld at37099 19 The final rule provides a vague and unhelpful explanation of what it means to be "similarly situated": "waters are 

similarly situated when they function alike and are sufficiently close to function together in affecting downstream 

waters." 80 Fed. Reg. 37,108 (June 29, 2015). 20 Solid Waste Agency of Northern Cook Countyv. U.S. Army Corps of Engineers, 531 U.S. 159 at 172 (2001) 

(quoting U.S. v. Riverside Bayview Homes, Inc., 474 U.S. 121 (1985). 

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computer-generated evidence, irrespective of actual field conditions) of a water's flow 

through any channel, a bed, bank and ordinary high water mark. A tributary can be 

anything that "contributes" even the tiniest amount of water during rare, extreme 

precipitation events. A tributary may contribute water to major waters by an "indirect" 

route through another "water," which in tum also could convey only small, infrequent 

flows via indirect routes. A ditch could be a tributary, if it includes areas that can be 

characterized as "wetland" anywhere along its entire length, or if they occasionally 

receive stormwater overflow from any "wetland" or other water. Projects with any land 

disturbance that includes a ditch are much more likely to trigger a "dredge and fill" 

permit, and specifically an individual permit instead of a Nationwide permit under 

section 404 of the Clean Water Act (CWA). Businesses will have to incur the cost and 

project delays of many more of these permits-which EPA itself has estimated to have a 

median cost of$155,000.21 

• "Adjacent Waters"- The application of the term "adjacent" has historically only been 

used to bring wetlands under federal jurisdiction; however, the final WOTUS rule 

significantly expands the application of the term to bring "adjacent waters" under federal 

jurisdiction. The term "adjacent waters" also creates a new term- "neighboring"- which 

is lengthy, expansive and problematic in its own right. These definitions not only expand 

the universe of jurisdictional waters far beyond the traditional concept of "adjacency" 

(and the Supreme Court's interpretation of that concept), they create profound uncertainty 

as to which waters are likely to be jurisdictiona1.22 

Together, these definitions not only expand CWAjurisdiction well beyond anything 

Congress could have intended to include in the term "navigable waters," but they leave land 

users with virtually no way to assess the status of their local water, short of undertaking a 

complex and costly watershed study. A facility may find itself in WOTUS for the first time 

because it is "adjacent" to or "neighboring" a water, has one or more ditches that are a 

"tributary," or contains a water that somehow has combined "significant" effects with other 

"similarly situated" waters to create a nexus. 

Very often, the new definitions will create federal Clean Water Act jurisdiction over a 

vast geographic area previously regulated by the states. The extraordinarily broad scope inhibits 

the ability of a land owner to make any reasonable judgment concerning the jurisdictional status 

of any specific, local water. Moreover, by considering a particular water "in combination with" 

other waters located in such a broad region, the Agencies would examine the cumulative impacts 

of multiple waters, ranging from large to very small, in order to determine the jurisdictional 

status of a particular water in question. 

21 EPA and U.S. Army Corps of Engineers, Economic Analysis of EPA-Army Clean Water Rule (May 2015), 

http://www.usace.army.mii/Portals/2/docs/civilworks/regulatory/news/final CWR eco analysis.pdf. 22 US. v. Riverside Bayview Homes, Inc., 474 U.S. 121 at 135 (1985). 

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2. The WOTUS Rule Imposes Massive New Burdens on the States and the Business 

Community. 

Significantly, EPA itself developed detailed maps during the WOTUS rulemaking that 

indicate vastly expanded areas of federal Clean Water Act jurisdiction. These detailed maps, 

developed by EPA and the U.S. Geological Survey, were released to the public by the House 

Science Committee on August 27, 2014.23 The maps indicated more than 8.1 million miles of 

rivers and streams across the 50 states could be included under the proposed WOTUS 

definition?4 This sharply contrasts with a January 2009 EPA report to Congress that estimated 

3.5 million miles of rivers and streams categorized as WOTUS?5 Although the final WOTUS 

rule differs somewhat from the agencies' original proposal, the signification overreach of 

jurisdiction in the final rule remains. 

Based on these EPA maps, the WOTUS rule represents a potential expansion in federally 

jurisdictional stream miles of at least 130%. Critical to this analysis, and as discussed further 

below, EPA certified that the WOTUS rule had no significant impact under the Regulatory 

Flexibility Act since the rule actually narrowed the scope of waters covered and no small entities 

are made subject to any new requirements under the definitional changes. It is disingenuous and 

simply not credible for EPA on the one hand to generate maps demonstrating significant 

increases in federal jurisdiction, and on the other hand to certify that the rule actually narrows the 

scope of federal jurisdiction. 

Likewise, analyses by the states of their own waters reveals that the revised definition 

would increase the amount of stream miles under federal jurisdiction by orders of magnitude. 

For example, the state of Kansas has estimated that the proposed rule definition of"tributary" 

would increase the amount of jurisdictional stream miles from around 30,000 miles to 174,000 

miles, as shown below, an increase of approximately 460%.26 

23 Press Release, House Committee on Science, Space & Technology, "Smith: Maps Show EPA Land Grab" 

(August 27, 2014) (the map hyperlink is embedded in the release). 24 EPA and the Corps consider these revised maps to be good indicators of the extent of federal jurisdiction. The 

agencies noted that "[w]hen considering whether the tributary being evaluated eventually flows to [a navigable) 

water, the tributary connection may be traced using direct observation or U.S. Geological Survey maps, aerial 

photography or other reliable remote sensing information, or other appropriate information." 79 Fed. Reg. 22,202 

(April21, 2014) (emphasis added). 25 EPA Office of Water, National Water Quality Inventory: Report to Congress, EPA 841-R-08-001 (January 2009). 26 Senate Legislative Hearing on S. I 140, The Federal Water Quality Protection Act Before the S. Comm. on 

Environment and Public Works, I 14th Cong. (May 19, 2015) (Statement of Susan Metzger, Assistant Secretary, 

Kansas Department of Agriculture) ("Currently, in what's approved by EPA as our waters of the U.S. in the absence 

of the proposed rule, is what we consider those waters with designated uses that are by state statute put into our state 

surface water quality standards, and that encompasses about 30,000- a little better than 30, 000- stream miles in 

Kansas. As we interpret the blanket definition of "tributary" in the proposed rule, that would result in about 174,000 

stream miles. That's a 460% increase."). 

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Figure 4: 

Current WOTUS Streams in Kansas "Ephemeral" Streams Under Proposal 

The expanded jurisdictional areas depicted in maps prepared by EPA and the States, 

respectively, are based primarily on the inclusion of"ephemeral" streams-those that only flow 

after rains, perhaps only once every few years-as waters of the U.S. Ephemeral streams are 

currently regulated in the majority of States as "waters of the State."27 Regulating these waters 

(which look more like land than "waters" to most people)---and any small wetlands and ponds 

"adjacent" to them-as WOTUS would be one of the largest regulatory expansions in history. 

Although the WOTUS rule is ostensibly intended to simply clarify the scope of federal 

jurisdiction, the rule will federalize a much larger universe of clean water programs now run by 

States and localities: 

• Stormwater programs run by municipalities will be required to impose more stringent 

controls on facilities with parking lots, storage pads, or other large paved areas. These 

facilities would become subject to more stringent storm water management requirements, 

potentially including the requirement to obtain National Pollutant Discharge Elimination 

System (NPDES) permits for the first time, and to treat their stormwater before it leaves 

the property. This is likely to impact grocery stores, shopping centers, big box stores, 

stadiums, airports, schools, churches, hospitals, and many other kinds of commercial and 

institutional facilities; 

• The revised WOTUS definition requires businesses to update and expand their Spill 

Prevention, Control, and Countermeasure (SPCC) Plans under section 311, and their 

stormwater discharge permits/plans under section 402; 

• States will be immediately responsible for developing and issuing tens of thousandsmaybe hundreds of thousands-- of new and revised NPDES point source permits to 

sources under section 402; 

• States will also be required to establish water quality standards under section 303 for all 

newly regulated waters--including potentially 4.6 million miles of"ephemeral" 

tributaries, and innumerable small wetlands and ponds; 

" The Association of State Wetland Managers, "Report on State Definitions, Jurisdiction, and Mitigation 

Requirements in State Programs for Ephemeral, Intermittent and Perennial Streams in the United States" (April 

2014). 

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• The states will be required to certify that Federal actions meet those new water quality 

standards under section 401; 

• The expansion of jurisdictional waters is also likely to result in a greater number of 

"impaired" federal waters under section 303, with additional burdens on States to 

evaluate and list these waters, and assign Total Maximum Daily Load (TMDL) pollutant 

caps to these waters; and, 

• States will be required to implement their own TMDLs, or EPA-issued TMDLs, to 

achieve the new water quality standards for each newly regulated feature. 

The states would be responsible for implementing all of these expanded duties within 

their existing budgets and staffing levels. Because businesses depend on being able to get stateissued permits within a reasonable timeframe, the additional workload the revised definition 

would place on the states would become a serious obstacle to commercial activity. 

3. Real-World Impacts of the WOTUS Rule on Counties and Local Jurisdictions 

The WOTUS rule would impose a particularly heavy regulatory burden on counties and 

local government jurisdictions. Much of this burden would come in the form of permits and 

approvals never before required to conduct routine infrastructure maintenance. According to the 

National Association of Counties, the nation's counties are responsible for building and 

maintaining 45% of the roads in 43 states.28 Because the WOTUS Rule defines "tributaries" to 

include ditches, flood channels, and other infrastructure, counties would immediately be required 

to obtain section 402 and/or 404 permits for work in those areas that may disturb soil or 

otherwise add any "pollutant" that could affect the "tributary."29 County irrigation districts, flood 

control districts, road departments, weed control districts, pest control districts, etc., would be 

required to obtain these permits in addition to section 402 permits for discharges to these waters. 

Individual section 404 permits currently may take more than a year to obtain, and have an 

estimated median cost of $155,000.30 These permits are required by the CW A, regardless of the 

environmental benefit, if any, and permittees' lack of resources to address this new federal 

requirement? 1 

28 Testimony of Warren "Dusty" Williams, General Manager, ruverside County Flood Control & Water 

Conservation District, submitted on behalf of the National Association of Counties, before the House Transportation 

and Infrastructure Committee, Subcommittee on Water Resources and Environment (June 11, 2014) at page 2. 29 The final WOTUS rule does contain some exclusions for particular features under very specific circumstances, but 

the exclusions are complex, require technical analyses to determine if they apply, and are likely to be interpreted 

very narrowly. For example, some ditches are excluded from federal jurisdiction, but only if they were not originally 

excavated in a "tributary" as broadly defined by the rule, not a relocated "tributary" and do not drain a wetland. 80 

Fed. Reg. 31705 (June 29, 2015). However, any segment of such a ditch that intersects with a wetland is 

jurisdictional, and portions of the ditch up and down the stream of that wetland intersection must be assessed on a 

case by case basis. Id. at 37098. 30 EPA and U.S. Army Corps of Engineers, Economic Analysis of EPA-Army Clean Water Rule (May 2015), 

available at http://www.usace.army.mil/Portals/2/docs/civilworks/regulatory/news/final CWR eco analysis.pdf. 31 The Lake County, Oregon, Road Department, for example, located in a county with 7,711 residents in 2012, must 

maintain the county's road network, including ditches, culverts, and bridges, with only a dozen or so employees. 

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III. EPA DOES NOT FOLLOW CONGRESS' REGULATORY DIRECTIVES 

Since the first agency was established, Congress has attempted to control agency 

rulemakings through legislation, oversight and funding, but with little to no impact. Many of the 

adverse impacts of regulations would have been addressed by the agencies (or at least identified) 

had they merely implemented congressional mandates concerning the impact on jobs, the use of 

the best data in rulemakings, the impact of the regulations on small business, state and local 

governments, and the cumulative impact of regulations. As described below, the WOTUS Rule 

provides a textbook example of how a federal agency failed to follow congressional directives in 

a significant rulemaking. 

A. Tbe EPA Fails to Comply witb tbe Unfunded Mandates Reform Act 

The Unfunded Mandates Reform Act ("UMRA") requires federal agencies to assess the 

effects of a rule on state and local governments and the private sector before imposing mandates 

on them of $1 00 million or more per year without providing federal funding for state and local 

governments to implement the mandate. In essence, UMRA is intended to prevent federal 

agencies from shifting the costs of federal programs to the states. In the WOTUS rule, the EPA 

and the Corps certified that "[t]his action does not contain any unfunded mandate under the 

regulatory provisions of Title II of the Unfunded Mandates Reform Act of 1995, (12 U.S.C. §§ 

1531-153 8), and does not significantly or uniquely affect small govemments."32 This definitive 

statement is clearly at odds with the facts, however. 

For example, according to the National Association of Counties, 1,542 of the 3,069 

counties in the nation (50%) have populations ofless than 25,000,33 are considered "small 

governments" and are therefore protected by both the UMRA and RF A. These counties are 

responsible for building and maintaining 45% of the roads and associated ditches in 43 states,34 

which is where some of the largest permitting impacts of the WOTUS rule are expected to be 

felt. As a result of the WOTUS rule, these counties will be required to bear the cost of obtaining 

Clean Water Act permits in greatly-expanded areas, but will receive no additional federal 

funding for the increased responsibility imposed by the rule. 

See www.lakccountyor.org/govemmentlroad.master.php. Brown County, North Dakota officials have a1so cited 

concerns about WOTUS permit delays "for something as simple as replacing a culvert." Gary Vetter, Assistant to 

the Brown County Commissioners, cited in "'EPA's Proposed Definition Change Concerns County, Thune," 

Aberdeen News, Local News (posted August 16, 2014). 32 U.S. Environmental Protection Agency & U.S. Department of the Army, Economic Analysis of the EPA-Army 

Clean Water Rule (May 2015), at 61, available at http://www2.epa.gov/sites/production/files/2015-

05/documentsifinal_clean_ water_rule_economic_analysis_S-15 _2.pdf. See also Definition of"Waters of the United 

States" Under the Clean Water Act; Proposed Rule, 79 Fed. Reg. 22,220 (April21, 2014). 33 Testimony of Warren Williams, General Manager, Riverside County Flood Control & Water Conservation 

District, submitted on behalf of the National Association of Counties, before the House Transportation and 

Infrastructure Committee, Subcommittee on Water Resources and Environment (June II, 2014) at page 2. 

"Id. 

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B. The EPA Failed to Comply with the Regulatory Flexibility Act 

Congress passed the Regulatory Flexibility Act ("RF A") in 1980 to give small entities a 

voice in the federal rulemaking process.35 Put simply, the RF A requires federal agencies to 

assess the economic impact of their planned regulations on small entities and to consider 

alternatives that would lessen those impacts. The RF A requires each federal agency to review its 

proposed and final rules to determine if the rule in question will have a "significant economic 

impact on a substantial number of small entities."36 If the rule is expected to have such an 

impact, the agency must assess the anticipated economic impacts of the rule and evaluate 

whether alternative actions that would minimize the rule's impact would still achieve the rule's 

purpose. 

Since 1996, the EPA specifically has been required to conduct Small Business Advocacy 

Review Panels when a planned rule is likely to have a significant impact. This process is 

supposed to occur before a rule is even proposed. Small entity representatives -who speak for 

the sectors that are likely to be affected by the planned rule--advise the Panel members on realworld impacts of the rule and potential regulatory alternatives. The Panel process is the best 

opportunity for the EPA to get face-to-face interaction with small entities and get a sense of the 

ways that small entities differ from their larger counterparts in their ability to comply with 

regulatory mandates. Because the Panel occurs early, before the planned rule is publicly 

proposed, it also represents the best opportunity for small entities to have real input into the final 

design of a rule. 

In the case of WOTUS, the EPA certified without any factual evidence (and contrary to 

jurisdictional maps the agency itself generated) that the WOTUS rule actually represents a 

reduction in the regulatory burdens affecting small entities, and that the rule would not have a 

substantive or direct regulatory effect on any small entity, so the RFA doesn't apply.37 Yet, 

because the WOTUS rule defines "tributaries" to include ditches, flood channels, and other 

infrastructure, businesses and small governmental jurisdictions will be subject to section 404 

permitting requirements for work in ditches, on roads adjacent to ditches, on culverts and 

bridges, etc. that disturbs soil or otherwise affects the "tributary."38 These permits can take more 

than a year to obtain, at a median cost of $155,000?9 This is why the U.S. Small Business 

Administration's Office of Advocacy publicly advised the EPA and the Corps that they 

improperly certified the WOTUS proposal under the RF A. 40 

"5 u.s.c. §§ 601-612. 36 5 u.s.c. §605(b). 37 EPA again certified in the final WOTUS rule that the rule will not have a significant economic impact on a 

substantial number of small entities and that the RFA does not apply. 80 Fed. Reg. 37,102 (June 29, 2015). 38 See fn 29, supra. 39 EPA and U.S. Army Corps of Engineers, Economic Analysis of Proposed Revised Definition of Waters of the 

United States (March 2014) at 12. 40 Letter from Winslow Sargeant, Chief Counsel for Advocacy, to Gina McCarthy, Administrator, EPA and General 

John Peabody, Deputy Commanding General, Corps of Engineers, on Definition of"Waters of the United States" 

Under the Clean Water Act (October I, 2014) at 4. 

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C. The EPA Fails to Follow the Information Quality Act 

The Agencies' WOTUS rule neither complies with the Information Quality Act (IQA) as 

implemented under Office of Management and Budget (OMB) guidelines, nor EPA's own 

information quality guidelines.41 

The Agencies developed the WOTUS Rule based upon EPA's Report, Connectivity of 

Streams and Wetlands to Downstream Waters: A Review and Synthesis of the Scientific 

Evidence. The Report purports to establish a scientific basis for the connectivity of isolated, 

often evanescent "waters" to traditional "navigable" waters under the CW A. The Agencies 

argue that the hydrologic "connectivity" of these remote waters, which ultimately reach 

navigable waters, establishes federal jurisdiction over these waters. The information contained 

in the Agencies' Report clearly meets the OMB definition of"information." "'Information' 

means any communication or representation ofknowledge such as facts or data, in any medium 

or form, including textual, numerical, graphic .... "42 

The information at issue also meets the OMB definition of"influential" information. 

"Influential" means "that the agency can reasonably determine that the dissemination of the 

information will have or does have a clear and substantial impact on important public policies .. 

• • "

43 The Agencies have directly relied upon the Report in making findings regarding the extent 

of hydrologic connectivity sufficient to support an assertion of federal jurisdiction. OMB has 

stated that "influential information" should be held to a heightened standard of quality.44 The 

Report clearly meets the definition of "influential" information that needs to be of the highest 

quality. 

On the date the Agencies published the proposed WOTUS rule, EPA's Science Advisory 

Board (SAB) had not completed its review of the Report. In fact, the SAB did not complete its 

review of the Report until September 30, 2014. EPA and the Corps ultimately extended the 

public comment period until November 14, 2014. But commenters had no opportunity to 

consider EPA's response to the SAB, and only a limited time to review the final Report before 

the opportunity to comment had ended. EPA and the Corps should have re-proposed the rule 

with an updated discussion of the Report, or alternatively, the agencies should have extended the 

public comment period further to allow for informed input from stakeholders on the information 

quality of the Report. 

41 See Treasury & General Governmental Appropriations Act for Fiscal Year 2001, Pub. L. No. 106-554 § 515(a); 

44 U.S.C. § 3516 (notes); EPA Guidelines for Ensuring and Maximizing the Quality, Objectivity, Utility and 

Integrity oflnformation Disseminated by the Environmental Protection Agency, EP N260R-02-2008 (October 

2002). 

42 OMB Guidelines§ V.5. 43 OMB Guidelines§ V.9 44 67 Fed. Reg. 8,452 (February 22, 2002). 

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D. EPA Has Failed to Conduct the Congressionally Mandated Employment 

Impacts Evaluation 

Congress has debated whether environmental regulations cause job loss and adversely 

impact communities since the first environmental laws were debated in the early 1970's. During 

the debate over the 1972 Clean Water Act claims were raised by industry that environmental 

regulations cost jobs. While there was great debate over the issue, Congress specifically wanted 

to resolve this issue of whether environmental regulations cost jobs. 

Congress addressed this issue five times over two decades by placing similar 

provisions in the five major environmental statutes directing EPA to conduct continuing 

evaluations on potential loss or shifts in employment which may result from the issuance of 

regulations under the respective statutes. The congressional intent behind these provisions is 

clear: Congress knew that regulations, such as those issued under the Clean Water Act and Clean 

Air Act, would impact the operations of facilities, cause loss of job, and adversely impact 

communities but it did not know if such losses were the primary cause or if there were other 

causes. Congress wanted to resolve this issue but it needed information from the agencies issuing 

the regulations. 

During the 92nd Congress (1971- 1973), the debate over the Federal Water Pollution 

Control Act Amendments of 1972 addressed this issue for the first time. As part of the floor 

debate, Representative William D. Ford of Michigan offered an amendment mandating the 

continuous evaluation of the potential loss or shifts of employment resulting from the issuance of 

water regulations.45 In support of the amendment, Representative Bella Abzug of New York 

stated: 

45 33 U.S.C. § 1367(e) (1972)(e) Investigations of Employment Reductions, The Administrator shall conduct 

continuing evaluations of potential loss or shifts of employment which may result from the issuance of any effluent 

limitation or order under this chapter, including, where appropriate, investigating threatened plant closures or 

reductions in employment allegedly resulting from such limitation or order. Any employee who is discharged or 

laid-off, threatened with discharge or lay-off, or otherwise discriminated against by any person because of the 

alleged results of any effluent limitation or order issued under this chapter, or any representative of such employee, 

may request the Administrator to conduct a full investigation of the matter. The Administrator shall thereupon 

investigate the matter and, at the request of any party, shall hold public hearings on not less than five days notice, 

and shall at such hearings require the parties, including the employer involved, to present information relating to the 

actual or potential effect of such limitation or order on employment and on any alleged discharge, lay-off, or other 

discrimination and the detailed reasons or justification therefor. Any such hearing shall be of record and shall be 

subject to section 554 of title 5. Upon receiving the report of such investigation, the Administrator shall make 

findings of fact as to the effect of such effluent limitation or order on employment and on the alleged discharge, layoff, or discrimination and shall make such recommendations as he deems appropriate. Such report, findings, and 

recommendations shall be available to the public. Nothing in this subsection shall be construed to require or 

authorize the Administrator to modify or withdraw any effluent limitation or order issued under this chapter.) In 

subsequent statutes the job impact provision was split into two sections; one mandating the continuous evaluation of 

job impacts and one section authorizing employees impacted by the regulation to seek an on the record hearing with 

the administrator of EPA. See also: 45 The Clean Air Act, 42 U.S.C. § 7621(a), (1977); § 321(a); The Solid Waste 

Disposal Act, 42 U.S.C. § 6971 (I976); § 7001 (e); The Toxic Substances Control Ac~ 15 U.S.C. § 2623 (1976); § 

24(a); the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9610 (1980); § 

llO(e). 

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Mr. Chairman, I am pleased to rise in support of the amendment, which would require 

the Environmental Protection Administration to study and evaluate, on a continuing 

basis, the effect of effluent limitations upon employment. .. this amendment will allow 

Congress to get a close look at the effects on employment of legislation such as this, 

and will thus place us in a position to consider such remedial legislation as may be 

necessary to ameliorate those effects. This is a good amendment and I urge its 

adoption.46 

This amendment laid the framework for similar provisions in future legislation.47 

The 95th Congress (1977 -1979), again addressed the effects of regulation on 

employment in debate over the Clean Air Act. The Committee on Public Works noted: 

[I]t has been argued that environmental laws have in fact been responsible for 

significant numbers of plant closings and job losses. In any particular case in which a 

substantial job loss is threatened, in which a plant closing is blamed on Clean Air Act 

requirements, or possible new construction is alleged to have been postponed or 

prevented by such requirements, the committee recognized the need to determine the 

truth of these allegations. For this reason the committee agreed to ... a mechanism for 

determining the accuracy of any such allegation. 48 

In the Clean Air Act Amendments of 1977 Congress enacted a similar provision 

mandating EPA to conduct continuous evaluations of potential loss or shifts ofemployment.49 

That provision is codified as section 32l(a) of the Clean Air Act, which reads: 

(a) Continuous Evaluation of Potential Loss or Shifts of Employment 

The Administrator shall conduct continuing evaluations of potential loss or shifts of 

employment which may result from the administration or enforcement of the provision 

of this chapter and applicable implementation plans, including where appropriate, 

investigating threatened plant closures or reductions in employment allegedly resulting 

from such administration or enforcement. 5° 

Subsequent Congresses enacted similar legislative provisions in the Solid Waste Disposal 

Act/ 1 the Toxic Substances Control Act, 5

2 and the Comprehensive Environmental Response, 

Compensation and Liability Act. 53 

46 I Environmental Policy Division of the Cong. Research Serv., A Legislative History ofthe Water Pollution 

Control Act Amendments of 1972, at 658-59 (I 973) (Remarks of Rep. Abszug). 47 See 95 Cong. House Report 294 (Stating that "Section 304 ofthe committee bill [the Clean Air Act] is based on a 

nearly identical provision in the Federal Water Pollution Control Act.") 

48 !d. 49 See generally 95 Cong. Conf. Bill H.R. 6161; CAA 77 Leg. Hist. 24. 50 42 U.S.C. § 7621(a) (1977); § 321(a). 51 42 U.S.C. § 6971 (1976); § 7001(e). 52 15 U.S.C. § 2623 (1976); § 24(a). 53 42 U.S.C. § 9610 (1980); § IIO(e). 

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Unfortunately, EPA never conducted any of the evaluations of employment impacts 

required by the five environmental statutes. In response to a Freedom of Information Act request 

from the U.S. Chamber, EPA states that it cannot find any records that indicate it prepared a 

continuing evaluation of the potential loss or shifts of employment resulting from its regulations. 

Specifically, EPA stated: "after conducting searches, neither the Office of Air and Radiation nor 

the Office of Policy were able to find any documents pertaining to your request".54 

Therefore, the debate that started over 45 years ago and which resulted in Congress 

enacting provisions that would help it understand the adverse effects that environmental 

regulation have on employment remains unresolved due to EPA's failure to undertake the 

evaluations mandated multiple times by Congress. Congress wanted information to develop 

remedial legislation, if needed to protect jobs while it protects the environment. 

E. The EPA Failed to Examine Inconsistent or Incompatible Regulations as 

Required by Executive Order 12,866 

Executive Order 12, 86655 requires federal agencies to conduct several analyses prior to 

proposing or finalizing new regulations. The Executive Order makes agencies responsible to 

ensure that a new regulation is necessary (as opposed to a non-regulatory alternative); put 

another way, the agency must show that a problem exists that can only be successfully addressed 

through a regulation. In the case of the WOTUS rule, neither EPA nor the Corps showed that 

waters currently regulated by states and localities are not adequately protected. EPA and the 

Corps did not explain how the public would be better off if waters regulated by the states were 

transformed into areas under federal jurisdiction. Although EPA and the Corps inferred that the 

states were not doing an adequate job of protecting surface waters, it did not make the kind of 

showing that would typically be required to take federal control over a state's water quality 

program. 5

6 Similarly, the ozone NAAQS was updated in 2015 before the 2008 standard was 

even fully implemented. 

In the case of WOTUS, the final rule was issued at a time when two other major rules 

(Clean Power Plan and the Ozone NAAQS standard) were also issued. To be clear, during a sixmonth period of time in 2015, EPA imposed on the states three major rules that have significant 

impacts on this nation's economy and infrastructure. When issuing these three rules in 2015, the 

EPA should have fully considered how each rule, if finalized, might affect regulated entities' 

ability to comply with the other two. 

54 Letter from Jim DeMocker, Acting Director, EPA Office ofPolicy Analysis and Review to William L. Kovacs, 

U.S. Chamber of Commerce, Freedom oflnformation Request No. EPA-HQ-2012-001352 (June 14, 2013). 55 See Executive Order 12,866 (Sept. 30, 1993) available at 

https://www.whitehouse.gov/sitcs/default/fileslomb/inforeg/eo 12866/eo 12866 10041993.pdf. 56 33 u.s.c. § 304(1)(3). 

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For example, the EPA itself projects that the Clean Power Plan will cause significant 

coal-fired electric generating capacity to retire by 2022.57 To replace this generating capacity, 

utilities will need to construct fuel delivery infrastructure such as pipelines, storage, railroad 

track, and improved roads. In order to compensate for a lack of generating capacity, these 

infrastructure projects will have to be completed before the existing coal-fired generating units 

are taken off-line. Yet these projects will be subject to more extensive permitting and reviews by 

virtue of the WOTUS rule. 

The EPA did not properly account for the increased costs and delays that utilities, 

pipeline companies, railroads, and other companies will face in complying with the WOTUS 

rule, which is made necessary because of the need to comply with the Clean Power Plan. 

F. The EPA Failed to Analyze the Cumulative Impacts of the Regulations as 

Required by Executive Order 13,563 

Executive Order 13,563, issued by the Obama administration in 2011,58 even more 

clearly calls on federal agencies to review and understand the cumulative impacts of their 

regulatory programs. Section l(b)(2) provides that each agency must, among other things, 

"tailor its regulations to impose the least burden on society, consistent with obtaining regulatory 

objectives, taking into account, among other things, and to the extent practicable, the costs of 

cumulative regulations."59 Again, the EPA should have complied with this Executive Order 

when it planned to develop three massive rulemakings that would be timed to take effect 

virtually one on top of the other. 

G. What the EPA Would Have Discovered If It Had Used Congressionally and 

Executive Mandated Analytical Regulatory Tools 

If the EPA had chosen not to ignore the vast array of analytical requirements under the 

Clean Water Act, the Unfunded Mandates Reform Act; the Information Quality Act, and the 

Regulatory Flexibility Act, as well as Executive Orders 12,866 and 13,563, it would have 

discovered serious inconsistencies and conflicts between its three rules. Here are two examples 

of those inconsistencies as they relate to WOTUS specifically: 

57 See EPA, "Regulatory Impact Analysis for the Clean Power Plan Final Rule," (October 23, 2015) available at 

https:/ /www .eoa.gov /sites/production/filcs/20 15-08/documents/cpp-final-rule-ria.pdf. 

"Executive Order 13,563, "Improving Regulatory and Regulatory Review," 76 Fed. Reg. 3,821 (Jan. 18, 2011). 

"Id. at3,821 (emphasis added). 

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• As noted above, the massive new infrastructure requirements that are at the heart of the 

Clean Power Plan will be complicated, delayed and made more expensive by the 

expanded number of Clean Water Act permits required by the WOTUS rule. In addition 

to the cost of applying for federal permits, infrastructure developers will have to pay 

mitigation costs for wetlands restoration, which often approach or exceed all other project 

costs. 

• In its economic analysis of the WOTUS rule, the EPA based its conclusion that the rule 

would only increase the amount of federal jurisdictional waters under the CWA by 2.84% 

to 3.65% on a very small sample of negative determinations from two preceding years, 

essentially using just a tiny slice of pre-WOTUS determinations. The EPA ignored 

conflicting evidence from federal and state authorities that the rule could impose 

anywhere from a 300% to 800% increase in federal jurisdictional waters. EPA is 

supposed to work with these stakeholders to discuss these impacts, instead of ignoring 

them or denying them altogether. By ignoring these congressional mandates for 

developing effective regulations, the EPA fails to secure an understanding of the real 

world impacts of its rules. 

Undoubtedly, more examples of inconsistencies will be discovered as these three major 

regulations continue to move through the regulatory and judicial process and eventually must be 

implemented. Much of the confusion and deficiencies stemming from these inconsistencies 

could have been avoided had the EPA conducted a more thorough analysis of the cumulative 

impacts of these regulations. 

H. EPA Violated Anti-Lobbying Laws 

In addition to the legal and procedural deficiencies described above, the U.S. 

Government Accountability Office (GAO) also determined that during the rulemaking process, 

EPA violated prohibitions against publicity or propaganda and grassroots lobbying and violated 

the Antideficiency Act, 31 U.S.C. sec. 1341 (a)(I )(A). 60 In particular, the GAO determined that 

EPA's use of a Thunderclap social media campaign during the rulemaking process was 

unlawful. Thunderclap is a social media tool that first gathers "supporters" for a particular 

cause, then simultaneously blasts a message to each supporter's social media accounts, including 

Facebook, Twitter, and Tumblr.61 The purpose is to have the original message reach everyone 

who views its supporters' social media pages. Accordingly, EPA first solicited and secured 980 

supporters for its message promoting the WOTUS rule. However, and crucial to this analysis, 

when EPA's message was re-posted on supporters' accounts using Thunderclap, the message no 

longer identified EPA as the source. The GAO determined that these unattributed messages 

constituted "covert propaganda" and violated the Antideficiency Act. 62 According to the GAO, 

the improper communications associated with the Thunderclap campaign were estimated to have 

reached 1.8 million people.63 

60 B-326944, Dec. 14, 2015 (Environmental Protection Agency- Applicalion of Publicity or Propaganda and Antilobbying Provisions). 61 www.thunderclap.it/faq 62 B-326944, Dec. 14,2015. 63 Id. at 12. 

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Illegally soliciting support for the WOTUS rule from 1.8 million people is significant. A 

total of 1,081,166 public comments were received on the WOTUS rulemaking docket. Of those, 

approximately 1,050,000 comments were generated from mass comment campaigns. In the final 

WOTUS rule preamble, EPA relied upon that large number of public comments received to 

support finalizing the rule. Indeed, the Federal Register states that that "over 1 million public 

comments" were received on the proposed WOTUS rule, and "the substantial majority of which 

supported the proposed rule." 80 Fed. Reg. 37,057. These statements are now part of the official 

rulemaking record, which the agency is using to defend its rule in the ongoing WOTUS 

litigation. 

EPA Administrator McCarthy also testified before Congress about the purported wide 

public support for the rule, "we have received over one million comments and about 87.1 percent 

of those comments we have counted so far- we are only missing 4,000- are supportive of this 

rule. Let me repeat, 87.1 percent of those one plus million are supportive of this rule."64 

In sum, EPA unlawfully solicited support from 1.8 million people for its WOTUS rule. 

EPA then relied on more than one million mass mailing comments in support to justifY its 

WOTUS rule to the public, before Congress, and will no doubt use the same ginned up "support" 

to defend the WOTUS rule in court. 

In addition to using Thunderclap, EPA hyperlinked official EPA websites and social 

media pages to external websites that contained clear appeals to the public to contact Members 

of Congress in support of the WOTUS rule.65 The GAO found this activity constituted indirect or 

grassroots lobbying, in violation of the anti-lobbying provisions of the law. 

IV. THE WOTUS RULE CAUSES MASSIVE CONFUSION 

Shortly after the WOTUS rule was finalized, lawsuits were filed by at least thirty states 

and numerous industry groups and environmentalists, all objecting to the scope of the rule or the 

process by which it was promulgated. Lawsuits were filed in at least twelve different federal 

district courts and in eight different federal circuit courts of appeal. 

Lawsuits were filed in both district courts and courts of appeal because there is no 

agreement as to which court even has jurisdiction to hear the case. For example, the district 

court in North Dakota issued an injunction that prevents the rule from being implemented or 

enforced within the thirteen states that filed lawsuits in North Dakota. The Southern District of 

Georgia, however, denied a motion for injunction on the grounds that jurisdiction is proper at the 

court of appeal level; this decision has been appealed to the Eleventh Circuit. 

64 House-Senate Joint Hearing on State and Local Impacts of Administration's Proposed Expansion of Waters 

Regulation Before the S. Comm. on Environment and Public Works and H Comm. on Transportation and 

Infrastructure, 114~ Cong. (Feb. 4, 2015) (StatementofGinaMcCarthy, Administrator of the Environmental 

Protection Agency). 65 B-326944, Dec. 14, 20 !5. 

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Meanwhile, the lawsuits filed in the courts of appeal have been consolidated and will all 

be heard in the Sixth Circuit. The Sixth Circuit issued a nationwide injunction of the rule, 

preventing EPA and the Army Corps from implementing or enforcing the WOTUS rule during 

the pendency of litigation. A three-judge panel of the Sixth Circuit recently issued a fractured 

ruling (with three separate opinions) concluding that court has jurisdiction. But parties 

(including the U.S. Chamber) have requested a rehearing of the jurisdictional issue before the 

entire Sixth Circuit. 

Landowners are now waiting for a decision on the merits of whether the WOTUS rule is 

lawful or if the agencies must once again start from scratch. The confusion created by the 

WOTUS rule and the varied potential outcomes of the resulting litigation translate into an 

environment of uncertainty for landowners and business owners. 

V. STATES IMPLEMENT MOST FEDERAL ENVIRONMENTAL 

REGULATIONS, NOT THE EPA 

The real victims of the federal administrative state overreach are the states. According to 

the Environmental Council of the States (ECOS}, the states in 2013 implemented approximately 

96.5% of federal environmental laws through delegated programs.66 State agencies also conduct 

90% of all environmental inspections, enforcement actions, data collection, and issue the vast 

bulk of the permits needed to build or operate a facility. 67 

FigureS: 

Implementation of Federal Environmental 

Programs 

3.5% 

Source: ECOS 

• States 

• Federal and 

Other 

66 Testimony of Teresa Marks, Director, Arkansas Department of Environmental Quality and President, 

Environmental Council ofthe States, before the House Energy and Commerce Committee, Subcommittee on 

Environment and the Economy (February 15, 20 13) at 3, available at 

http://docs.house.gov/meetin gs/IF /IF 18/20130215/1 00242/HHRG-113-lF 18-Wstate-MarksT -20 130215.pd0. 

61 Jd. 

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In a February 15, 2013 hearing before the House Committee on Energy and Commerce, 

Subcommittee on Environment and the Economy, an ECOS witness testified that "[S]tates find 

themselves in 2013 with a lot more [environmental) rules, and the possibility of a lot less 

money to implement them. States are very unsure how much longer these two trends can 

continue before the core environmental programs in each state begin to significantly 

suffer."68 

The management of federal environmental programs is a tremendous burden for states, 

particularly from a time, money and resource perspective. To add to the difficulties that states 

face, annual budget data collected by the Congressional Research Service between 2004 and 

2015 confirms that EPA grants to the states have been flat or, in real terms have steadily declined 

since 2004.69 In 2015, Categorical Grants to the states, the federal funding to states for 

implementation of EPA regulatory mandates, were about 29% lower in inflation-adjusted dollars 

than they were in 2004. 

Figure 6: 

M 

. 

Ci 

':; "1 

I 

c 

0 

= ;;; 

0 

EPA categorical Grants to States 2004 to 2015 

Grants 

- - Total Categorical 

Grants (2013$) 

Z004 zoos Z006 2007 zoos Z009 2010 Z011 Z01Z Z013 Z014 Z015 

L-"·-··-·-·-··-····--····--

5ource: Congressional Research Service 

68 Testimony of Teresa Marks, Director, Arkansas Department of Environmental Quality and President, 

Environmental Council of the States, before the House Energy and Commerce Committee, Subcommittee on 

Environment and the Economy (February 15, 2013) (emphasis added), available at 

http://docs.house.gov/meetin gs/IF/1 F I 8/201302 I 511 00242/HHRG-113-lF I 8-W state-MarksT-20 130215.pd 0. 69 Likewise, a 2013 GAO report noted that "annual appropriations for these grants have decreased by approximately 

$85 million between fiscal year 2004 and fiscal year 2012." GAO, Funding for 10 States· Programs Supported by 

Four Environmental Protection Agency Categorical Grants,I3-504R Information on EPA Categorical Grants (May 

6, 2013). 

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At the same time that EPA's real-dollar grant assistance to the states declined 29%, the 

agency imposed approximately $104 billion in new annual regulatory obligations (see Figure 7). 

Figure7: 

$5 

Annual Cost of New EPA Regulations 

2004to 2015 

2()04 2()05 20()6 2007 2008 2()09 2010 

Source: EPA Regulatory Impact Analyses (RIAs) and Federal Register 

Significantly, as described above, in 2015 alone, EPA issued three new "mega-rules" that 

impose tremendous burdens on the states: WOTUS/0 the Clean Power Plan,71 and the revised 

Ozone NAAQS.72 Although each of these rulemakings imposes major new responsibilities on 

states, the agency certified in each case that the regulation imposed no unfunded mandates. In 

fact, the EPA has seldom acknowledged that any of its regulations impose unfunded mandates on 

the states. 

70 EPA and U.S. Army Corps of Engineers, "Definition of"Waters of the United States," Final Rule, 80 Fed. Reg. 

37,054 (June 29, 2015). 71 EPA, "Carbon Pollution Emission Guidelines for Existing Stationary Sources: Electric Utility Generating Units," 

Final Rule, 80 Fed. Reg. 64, 662 (October 23, 2015). 72 EPA, "National Ambient Air Quality Standard for Ozone," Final Rule, 80 Fed. Reg. 65,292 (October 26, 2015). 

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There were B~ 154 EPA rules finalfzed between 2000 and 2014~ of which 45 had a formal Regulatory Impact 

Analysis (RIA). Of the 45 RIA rules, EPA onlyfoumf that the rule had a federal mandate to the states un<fer 

UMRAJn 5 roses. 

Source: EPA 

lltSignifk:.ant Rules under E.O. 

12,866 

Ill Rules wfth RIA but no 

mandates on states 

Rules w~h federal mandate 

underUMRA 

States have complained in recent years that EPA increasingly ignores them or takes 

unilateral actions that the states disagree with. Rather than being treated by EPA as co-regulators 

with complementary powers, states complain that their views and concerns are increasingly 

ignored by EPA. As one state official put it, "the State role is now less partner and more 

pawn.'m EPA's failure to consult with the states violates the spirit, if not the letter, of Executive 

Order 13,132, "Federalism."74 

One result of EPA's failure to adequately consult with its state partners is a substantial 

increase in the number of Federal Implementation Plans (FlPs), representing an unprecedented 

federal takeover of state environmental priorities and programs. As the chart below clearly 

shows, the EPA under the current Administration has in fact imposed far more FIPs on states 

than any previous administration, ever. These FWs include 13 dealing with regional haze, 9 

relating to greenhouse gas permitting programs, and 28 for the cross-state air pollution rule. 

73 Letter from Becky Keogh, Director, Arkansas DEQ to Senator James M. Inhofe, Chairman, Senate Committee on 

Environment and Public Works (March 2, 2016) at I (emphasis added). Available at 

http://www.epw.senate.gov/public/ cache/tiles/89138698·8bc6-4cec-b624-eebe8 1 b3e25 1/arkansas.pdf. 74 64 Fed. Reg. 43,255 (August 10, 1999). 

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Figure 9: 

Clean Air Act FIPs by Administration 

George HW Bush Bill Ointon George W Bush 

Source: William Yeatman; Competitive Enterprise lnstituttt 

Barack Obama 

(through 2014) 

By requiring states to implement WOTUS, Clean Power Plan, and ozone NAAQS 

simultaneously, the inconsistent segments of each statute make planning impossible. While the 

EPA ignored potential inconsistencies created by issuing all three rules simultaneously, states 

simply cannot ignore the problems of implementing all three at the same time. For example, in 

writing a State Implementation Plan (SIP) for the Ozone NAAQS, states cannot ignore the 

probable shifts in criteria pollutant levels resulting from the Clean Power Plan and the expanded 

redefinition of WOTUS. Because the Clean Power Plan could require significant changes to the 

nation's electric generation infrastructure, reshuffling of the deck would dramatically shift the 

current map of criteria pollutant concentrations as power companies site new generation facilities 

away from existing sites. In particular, this could undermine the ability of many states to meet 

the current air and water standards as the states simultaneously implement WOTUS, Clean 

Power Plan, and ozone NAAQS. 

VI. LEGISLATIVE RECOMMENDATION 

The Regulatory Accountability Act Requires More Extensive 

Rulemaking Procedures for the Most Important New Federal Rules 

A modernized APA is needed to restore the kinds of checks and balances on federal 

agency action that the 1946 APA-the "bill of rights" for the regulatory state-intended to 

provide the American people. Congress must get the rulemaking process right since poorly 

written rules flood the federal judicial system as judges are asked to do the job that agencies 

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should. S. 2006, the Regulatory Accountability Act of2015, which rests in the jurisdiction of 

this committee, would address this deficiency. The legislation would put balance and 

accountability back into the federal rulemaking process for the most critical rules, without 

undercutting vital public safety and health protections. The bill focuses on the process agencies 

(including independent agencies) must use when they write the most important new regulations. 

The Regulatory Accountability Act would achieve these important goals for major and highimpact rules by requiring the following: 

• Defining "high-impact" rules as a way to distinguish the 1-3 rulemakings each year that 

would impose more than $1 billion a year in compliance costs. 

• Codifying many of the regulatory requirements in Executive Order 12866 and applying 

them to both executive and independent agencies. 

• Involving the public early in the process by allowing the public to propose alternatives 

for accomplishing the objectives in the most effective manner. 

• Requiring agencies to select the least costly regulatory alternative that achieves the 

regulatory objective, unless the agency can demonstrate that a more costly alternative is 

necessary to protect public health, safety, or welfare. 

• Requiring agencies to consider the cumulative impacts of regulations and the collateral 

impacts their rules will have on businesses and job creation. 

• Providing for on-the-record administrative hearings for the 1-3 most costly rules each 

year to verify that the proposed rule is fully thought out and well-supported by good 

scientific and economic data. 

• The rulemaking should be based upon the best available scientific, technical or economic 

infonnation. 

• Restricting agencies' use of"interim final" regulations, where the public has no 

opportunity to comment before a regulation takes effect. 

• Independent agencies would also have to comply with the new AP A requirements. 

For the most costly rules, the opportunity for a hearing- with the ability to ask specific 

questions to the agency- gives stakeholders the best way to verifY the underlying data an 

agency relies on, as well as the regulatory alternative the agency selected. In typical APA 

notice and comment rulemaking also known as "infonnal rulemaking," the agency is free to 

discount written comments and infonnation with which it does not agree. Stakeholders have a 

very limited ability to inquire directly of the agency why various choices were made and get a 

response. Even if those stakeholders get contrary data or other infonnation into the rulemaking 

docket, a reviewing court typically defers to the agency's detennination of which data to rely on. 

Under S. 2006, however, interested parties in the most costly rulemakings can petition the 

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agency to probe the data and evidence an agency is using through an administrative hearing.75 

This hearing would be on-the-record, meaning that a transcript of the proceedings would become 

part of the docket for the rulemaking. This transcript would be available for any subsequent 

legal challenges to the rule. 

In rulemakings involving the most costly regulations ($1 billion or more per year), where 

there is concern about whether an agency has grounded its regulation on adequate, reliable data 

and whether the agency has fully considered reasonable alternatives, an on-the-record hearing is 

the most effective way to ensure that these critical issues are explored in a manner that is open 

and transparent. 

The Occupational Safety and Health Act (OSHA) currently provides for a similar type of 

hybrid hearing at the request of interested parties. 76 Experience with these hearings has shown 

that they have minimal impact on an agency's ability to issue rules in a timely fashion. Indeed, 

in what was perhaps the highest profile example--the ergonomics regulation proposed at the end 

of the Clinton administration-the agency published the proposal, held a hearing, and issued the 

final rule within one year, even though it was one of the most complicated and controversial 

regulations in the agency's history. 77 

Hearings on the record are commonplace for other types of administrative proceedings, 

even relatively routine ones. The U.S. Department of Agriculture, Agricultural Marketing 

Service, for example, uses on the record hearings as part of the process of issuing milk pricing 

regulations. This type of hearing is particularly useful because it defines the facts that either 

support or call into question the proposed regulation. This type of hearing also focuses the 

relevant facts through truth testing, and it confines the facts upon which a rule may be issued to 

those within the hearing record. This process produces a hearing record that will be invaluable 

to a reviewing court. 

VII. CONCLUSION 

The goal of a regulatory agency should be to produce regulations that implement the 

intent of Congress in the most effective and efficient ways possible. Congress has provided 

significant guidance as to the analyses agencies must undertake to achieve Congressional intent. 

The analyses required by Congress are supposed to guide the agency to make decisions based on 

fact, sound science and economic reality. 

Unfortunately, over the decades, the EPA has ignored the guidance given by Congress 

and Executive Order for developing rules in a cost-effective manner that achieve congressional 

intent. The result of such conduct is an agency that issues massive mandates that the states and 

"In the case of major rules, a stakeholder could petition for the hearing, which the agency can deny. 76 29 U.S.C. § 655(b)(3). See also 29 C.F.R. §§ 1911.15-18. Other statutes require agencies to provide formal or 

"hybrid" rulemakings: 15 U.S.C. § 57a(c)(2)(B)(Federal Trade Commission); 21 U.S.C. § 371(e)(Food and Drug 

Administration); and 15 U.S.C. § 2603(b)(5)(EPA Toxic Substances Control Act). 

n The controversial ergonomics rule is the only rule to be formally disapproved by Congress and the Executive 

under the Congressional Review Act. SeeS. J. Res. 5, which became Public Law 107·5 (Signed by President Bush 

on March 20, 2001). 

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the business community must implement regardless of cost. As such, EPA becomes the primary 

lawmaker on environmental issues, not Congress. This is a travesty and Congress must regain its 

role as the primary legislative body. 

There is an even deeper harm however, inflicted by the EPA's failure to fully analyze the 

impact of its regulations. That harm is the deliberate avoidance of any attempt to understand real 

world impacts of regulations on people and the communities that will be adversely impacted by 

its actions. If the goal of every agency is to produce quality rules that implement the intent of 

Congress, why would an agency fail to evaluate job impacts, the cumulative impacts of 

regulations, develop regulations using peer reviewed studies, and use the best science and 

economics? The Regulatory Accountability Act of2015 would bring the Administrative 

Procedure Act of 1946 into the modem era. The Regulatory Accountability Act passed the House 

of Representatives on January 13, 2015 by a bipartisan vote of250-175.78 The Senate has the 

opportunity to make this reform a reality and should take up and pass S. 2006 as soon as 

possible. 

Thank you for allowing me to testifY today and I look forward to answering your 

questions. 

"The House passed previous versions of Regulatory Accountability Act in 2011 and 2013. H.R. 3010, the 

Regulatory Accountability Act of2011, passed the House on a bipartisan 253-157 vote on December 2, 2011. H.R. 

2122, the Regulatory Accountability Act of2013, passed the House as part ofH.R. 2804, the ALERRT Act, on a 

bipartisan vote of236-179 on February 27,2014. The Senate versions of those bills, S. 1606 and 8.1029, were not 

acted upon. 

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Written Testimony of 

Robert Weissman 

President, Public Citizen 

before the 

The Senate Committee On Homeland Security and Government Affairs 

on 

"The Administrative State: An Examination of Federal Rulemaking" 

April20, 2016 
142 

Mr. Chairman and Members of the Committee, 

Thank you for the opportunity to testify today on regulatory policy issues. I am Robert 

Weissman, president of Public Citizen. Public Citizen is a national public interest organization 

with more than 400,000 members and supporters. For 45 years, we have advocated with some 

considerable success for stronger health, safety, consumer protection and other rules, as well as 

for a robust regulatory system that curtails corporate wrongdoing and advances the public 

interest. 

Public Citizen chairs the Coalition for Sensible Safeguards (CSS). CSS is an alliance of more 

than 75 consumer, small business, labor, scientific, research, good government, faith, 

community, health and environmental organizations joined in the belief that our country's system 

of regulatory safeguards provides a stable framework that secures our quality of life and paves 

the way for a sound economy that benefits us all. Time constraints prevented the Coalition from 

reviewing my testimony in advance, and today I speak only on behalf of Public Citizen. 

Over the last century, and up to the present, regulations have made our country stronger, better, 

safer, cleaner, healthier and more fair and just. Regulations have made our food supply safer; 

saved hundreds of thousands oflives by reducing smoking rates; improved air quality, saving 

hundreds of thousands of lives; protected children's brain development by phasing out leaded 

gasoline; saved consumers billions by facilitating price-lowering generic competition for 

pharmaceuticals; reduced toxic emissions into the air and water; empowered disabled persons by 

giving them improved access to public facilities and workplace opportunities; guaranteed a 

minimum wage, ended child labor and established limits on the length of the work week; saved 

the lives of thousands of workers every year; protected the elderly and vulnerable consumers 

from a wide array of unfair and deceptive advertising techniques; ensured financial system 

stability (at least when appropriate rules were in place and enforced); made toys safer; saved tens 

of thousands oflives by making our cars safer; and much, much more. 

The benefits of rules adopted during the Obama administration, as with rules adopted during the 

Bush administration, vastly exceed the costs, even when measured according to corporatefriendly criteria. 

We have also seen in recent years with great clarity the impact of regulatory failure-lack of 

regulatory enforcement, regulations delayed or rolled back, and insufficient regulatory standards 

and protections in place. Most notably, it was regulatory failure that was significantly 

responsible for the Great Recession, which imposed far greater costs on the economy and cost far 

more jobs than regulations ever could. 

To review the facts of how regulation strengthens our country and safeguards jobs, however, is 

not to suggest that all is well with the regulatory system. There is a need for significant 

regulatory reform-including reforms to reduce regulatory delay, toughen regulatory 

enforcement, the imposition of inappropriate analytic obligations on agencies, address 

imbalances in judicial review of agency rulemaking, and address anti-competitive practices that 

injure small businesses, consumers and the national economy. 
143 

The first section of this testimony argues that regulatory benefits vastly exceed costs and that 

regulatory failure-inadequate rules, and too little regulatory enforcement-should be 

understood as a key cause of the Great Recession and ongoing economic weakness. The second 

reviews the rulemaking experience with the three rules on which this hearing 'Is focused: The 

fiduciary rule, the Net Neutrality rule, and the Clean Water Rule. The third section of the 

testimony focuses on needed reforms to strengthen our regulatory system- especially combating 

needless delay -- so that it fulfills its role of protecting the American people and strengthening 

our economy. 

I. Regulations are Economically Smart 

A. Regulatory benefits vastly exceed costs 

Rhetorical debates and cost-benefit abstractions can obscure the dramatic gains our country has 

made due to regulation. Regulation has: 

• Made our food safer. 1 

• Saved tens of thousands of lives by making our cars safer.2 

• Made it safer to breathe, saving hundreds of thousands of lives annually. 3 

• Protected children's brain development by phasing out leaded gasoline and dramatically 

reducing average blood levels.4 

• Empowered disabled persons by giving them improved access to public facilities and 

workplace opportunities, through implementation of the Americans with Disabilities 

Act.5 

• Guaranteed a minimum wage, ended child labor and established limits on the length of 

the work week. 6 

1 American Public Health Association. (201 0, November 30). APHA Commends Senate for Passing Strong Food 

Safety Legislation. Retrieved 24 February, 2012, from 

http://www.makeourfoodsafe.org/tools/assetslfiles/APHA Senate-Passage-Food-Act FINAL2.pdf 2 NHTSA's vehicle safety standards have reduced the traffic fatality rate from nearly 3.5 fatalities per 100 million 

vehicles traveled in 1980 to 1.41 fatalities per l 00 million vehicles traveled in 2006. Steinzor, R., & Shapiro, S. 

(201 0). The People's Agents and the Battle to Protect the American Public: Special Interests, Government, and 

Threats to Health, Safety, and the Environment: University of Chicago Press. 3 Clean Air Act rules saved 164,300 adult lives in 2010. In February 2011, EPA estimated that by 2020 they will 

save 237,000 lives annually. EPA air pollution controls saved 13 million days oflost work and 3.2 million days of 

lost school in 2010, and EPA estimates that they will save 17 million work-loss days and 5.4 million school-loss 

days annually by 2020. See U.S. Environmental Protection Agency, Office of Air and Radiation. (2011, March). The 

Benefits and Costs of the Clean Air and Radiation Act from 1990 to 2020. Available from: 

<http://www.epa.gov/oarlsect812/feb lllfullreport.pdf>. 4 EPA regulations phasing out lead in gasoline helped reduce the average blood lead level in U.S. children ages I to 

5. During the years 1976 to 1980, 88 percent of all U.S. children had blood levels in excess of I O~g/dL; during the 

years 1991 to 1994, only 4.4 percent of all U.S. children had blood levels in excess of that dangerous amount. Office 

of Management and Budget, Office oflnformation and Regulatory Affairs. (2011). 2011 Report to Congress on the 

Benefits and Costs of Federal Regulations an Unfunded Mandates on State, Local, and Tribal Entities. Available 

from: <http://www. whitehouse.gov/sites/default/files/omb/inforeg/20 ll_ cb/20 II_ cba _report. pdf>. 5 National Council on Disability. (2007). The Impact of the Americans with Disabilities Act. Available from: 

<http://www.ncd.gov/publications/2007/07262007>. 

'There are important exceptions to the child labor prohibition; significant enforcement failures regarding the 

minimum wage, child labor and length of work week (before time and a half compensation is mandated). But the 

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• Saved the lives of thousands of workers every year. 7 

• Saved consumers and taxpayers billions of dollars by facilitating generic competition for 

medicines. 8 

• Protected the elderly and vulnerable consumers from a wide array of unfair and deceptive 

advertising techniques. 9 

• For half a century in the mid-twentieth century, and until the onset of financial 

deregulation, provided financial stability and a right-sized financial sector, helping create 

the conditions for robust economic growth and shared prosperity. 10 

These are not just the achievements of a bygone era. Regulation continues to improve the quality 

oflife for every American, every day. Ongoing and emerging problems and a rapidly changing 

economy require the issuance of new rules to ensure that America is strong and safe, healthy and 

wealthy. Consider a small sampling of rules recently issued, pending, or that are or should be 

under consideration: 

Fuel efficiency standards. Pursuant to the Energy Policy and Conservation Act, the 

Energy Independence and Security Act and the Clean Air Act, the National Highway 

Safety and Transportation Agency and the Environmental Protection Agency have 

proposed new automobile and vehicular fuel efficiency standards. The new rules, on an 

average industry fleet-wide basis for cars and trucks combined, establish standards of 

40.1 miles per gallon (mpg) in model year 2021, and 49.6 mpg in model year 2025. The 

agencies estimate that fuel savings will far outweigh higher vehicle costs, and that the net 

benefits to society from 2017-2025 will be in the range of $311 billion to $421 billion. 

The auto industry was integrally involved in the development of these proposed 

standards, and supports their promulgation. 

• Food safety rules. In 2010, with support from both industry and consumer groups, and in 

response to a series of food contamination incidents that rocked the nation, Congress 

passed the Food Safety Modernization Act. The Act should improve the safety of eggs, 

quality of improvement in American lives has nonetheless been dramatic. Lardner, J. (20 II). Good Rules: 10 Stories 

of Successful Regulation. Demos. Available from: 

<http:llwww.demos.org/sites/defaultlfileslpublicationslgoodrules _l_ll.pdt>. 7 Deaths on the job have declined from more than 14,000 per year in 1970, when the Occupational Safety and Health 

Administration was created to under 4,500 at present. See AFL-CJO. (2015, April.) Death on the Job: The Toll of 

Neglect. p. I. Available from: 

<http:llwww.aflcio.org/content/download/154671/38684411DOTJ20 J 5Finalnobug.pdt>. Mining deaths fell by half 

shortly after creation ofthe Mine Safety and Health Administration. Weeks, J. L., & Fox, M. (1983). Fatality rates 

and regulatory policies in bituminous coal mining, United States, 1959-1981. American journal of public health, 

73(1J), 1278. 

'Through regulations facilitating effective implementation of the Drug Price Competition and Patent Term 

Restoration Act of 1984 ("Hatch-Waxman"), including by limiting the ability of brand-name pharmaceutical 

companies to extend and maintain government-granted monopolies. Troy, D. E. (2003). Drug Price Competition 

and Patent Term Restoration Act of 1984 (Hatch- Waxman Amendments). Statement before the Senate Committee on 

the Judiciary. Available from: <http://www. fda.gov/newsevents/testimonylucm 115033 .htm>. 9 See 16 CFR 410-460. 10 See Stiglitz, J. E. (2010). Freefa/1.· America,free markets, and the sinking of the world economy: WW Norton & 

Co Inc.; Kuttner, R. (2008). The Squandering of America: how the failure of our politics undermines our prosperity: 

Vintage. 

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dairy, seafood, fruits, vegetable and many processed and imported foods, but its effective 

implementation depends on rulemaking. Not so incidentally, food contamination 

incidents have major harmful economic impact on the agriculture and food industries and 

job creation and preservation in those industries. 

Energy efficiency standards. Pursuant to the Energy Security and Independence Act, 

the Department of Energy has proposed energy efficiency standards for a range of 

products, including Metal Halide Lamp Fixtures, Commercial Refrigeration Equipment, 

and Battery Chargers and External Power Supplies, Walk-In Coolers and Walk-In 

Freezers, Residential Clothes Washers. 11 The Department of Energy estimates the net 

savings from implementation of the Energy Security and Independence Act to be $48 

billion- $105 billion (in 2007 dollars). 12 

Rules to avert workplace hazards. By way of example, consider the case of beryllium, 

a toxic substance to which workers in the electronics, nuclear, and metalwork sector are 

exposed. The current OSHA beryllium standard, based on science from the 1950s, allows 

workers to be exposed at levels that are ten times higher than those allowed by 

Department of Energy for nuclear power plant workers. Public Citizen petitioned OSHA 

to update the standard in 200 l. In response, the agency began a rulemaking in November 

2002. It is a testament to major problems in the regulatory process that OSHA has still 

not issued appropriate rules. Issuance of a rule could avert thousands of cases of serious 

disease. 13 

• Controls on Wall Street. As discussed in more detail below, the 2008 financial crash 

was a direct result of regulatory failures. These failures including inadequate regulation 

of mortgages and other consumer financial products, on the one hand, and esoteric 

financial products and the markets on which they trade, on the other. Another critical 

failure was permitting the rise of too-big-to-fail financial institutions, traceable both to 

the failure to enforce existing rules and policies, and the repeal and nonissuance of 

important rules. Few people are entirely satisfied with the Dodd-Frank legislationPublic Citizen is highly critical of a number of important omissions-but the Act does 

include an array of very important reforms that will make our financial system fairer and 

more stable-if properly implemented through robust rulemaking. 

Among many other important provisions are crucial consumer protections. Dodd-Frank 

created the Consumer Financial Protection Bureau, charging the agency with the single 

mission of protecting consumers and empowering it to issue new consumer protection 

rules. Given the very considerable extent to which the financial industry has constructed a 

business model around trickery and unjust fees, CFPB rulemaking can afford consumer 

dramatic benefits. Such rules may concern matters including: requiring mortgage lenders 

11 List of Regulatory Actions Currently Under Review. Available from: 

<http://www.reginfo.gov/public/jsp/EO/eoDashboard.jsp>. 

12 U.S. Department of Energy. (2007). Energy Independence and Security Act of2007 Prescribed Standards. 

Available from: <http://www l.eere.energy.gov/buildings/appliance_ standards/m/eisa2007.html>. 13 U.S. Occupational Safety and Health Administration. (2007). Preliminary Initial Regulatory Flexibility Analysis 

of the Preliminary Draft Standard for Occupational Exposure to Beryllium. 

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to consider borrowers' ability to pay; prohibiting banks from charging excessive overdraft 

fees or tricking consumers into opting in to unreasonable overdraft fee harvesting 

schemes; eliminating forced arbitration provisions in consumer financial contracts; 

banning unfair practices in the payday loan industry; prohibiting kickbacks to auto 

dealers who steer buyers into overpriced loans; stopping student loan companies from 

tricking students into taking high-priced private loans before they exhaust cheaper federal 

loans. 14 

Generic competition for biotech medicines. An overlooked component of the 

Affordable Care Act was the creation of a process for the Food and Drug Administration 

to grant regulatory approval for generic biologic pharmaceutical products-essentially 

generic versions of biotech medicines. Because the molecular composition of biologic 

drugs is more complicated than traditional medicines, FDA had adopted the position that, 

with some exceptions, it could not grant regulatory approval for biologics under its 

previously existing authority. In an important provision of the Affordable Care Actsupported by the biotech industry-FDA was explicitly granted such authority. The 

provision wrongly grants extended monopolies to brand-name biologic manufacturers, 

but belated generic competition is better than none. Implementation of the new regulatory 

pathway for biogenerics, however, depends on issuance of rules by the FDA. Biogeneric 

competition will save consumers and the government billions of dollars annually. 

Crib safety. Pursuant to the Consumer Product Safety Improvement Act of2008, the 

Consumer Product Safety Commission (CPSC) finalized updated safety standards for 

cribs that halted the manufacture and sale of traditional drop-side cribs, required stronger 

mattress supports, more durable hardware and regular safety testing. These new crib 

safety standards mean "that parents, grandparents, and caregivers can now shop for cribs 

with more confidence---confidence that the rules put the safety of infants above all 

else." 15 

• The Physician Payment Sunshine Act. This component ofthe Affordable Care Act 

requires the disclosure of payments and gifts by pharmaceutical and medical device 

companies to physicians and hospitals. The mere fact of disclosure is expected to curtail 

the improper influence of industry over research, education and clinical decision making. 

Putting the Act into place required implementing rules. 16 

Although most regulations do not have economic objectives as their primary purpose, in fact 

regulation is overwhelmingly positive for the economy. It is worth underscoring this point, 

because concerns about particular rules or that the rulemaking process is unfair to regulated 

industry are usually rooted in economic arguments. 

14 National Consumer Law Center. (2010). An Agenda for the Consumer Financial Protection Bureau: Challenges 

for a New Era in Consumer Protection. Retrieved 24 February, 2012, Available 

from:<http://www.nclc.org/images/pdf/regulatory _reform/pr-ctpb-agenda.pdt> 15 Consumer Federation of America. (2011, June 28). Senators, CPSC, Consumer Advocates Applaud Strong Crib 

Safety Standard> to Prevent Infant Deaths and Injuries. Available from: <http://www.consumerfed.org/pdfs/cribstandards-press-release-6-28-ll.pdt>. 

16 42 CFR Parts 402 and 403. February 8, 2013. 

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While regulators commonly do not have economic growth and job creation as a mission priority, 

they are mindful of regulatory cost, and by statutory directive or on their own initiative typically 

seek to minimize costs; relatedly, the rulemaking process gives affected industries ample 

opportunity to communicate with regulators over cost concerns, and these concerns are taken 

into account. To review the regulations actually proposed and adopted is to see how much 

attention regulators pay to reducing cost and detrimental impact on employment. And to assess 

the very extended rulemaking process is to see how substantial industry influence is over the 

rules ultimately adopted-or discarded. 

There is a large body of theoretical and non-empirical work on the cost of regulation, some of 

which yields utterly implausible cost estimates. There is also a long history of business 

complaining about the cost of regulation-and predicting that the next regulation will impose 

unbearable burdens. More informative than the theoretical work, anecdotes and allegations is a 

review of the actual costs and benefits of regulations, though even this methodology is 

significantly imprecise and heavily biased against the benefits of regulation. Every year, the 

Office of Management and Budget (OMB) analyzes the costs and benefits of rules with 

significant economic impact. The benefits massively exceed costs. 

The principle finding of OMB's draft 2015 Report to Congress on the Benefits and Costs of 

Federal Regulation is: 

The estimated annual benefits of major Federal regulations reviewed by OMB from 

October I, 2004, to September 30,2014, for which agencies estimated and monetized 

both benefits and costs, are in the aggregate between $216 billion and $812 billion, while 

the estimated annual costs are in the aggregate between $57 billion and $85 billion. These 

ranges are reported in 200 I dollars and reflect uncertainty in the benefits and costs of 

each rule at the time that it was evaluated. 17 

In other words, even by OMB's most conservative accounting, the benefits of major regulations 

over the last decade exceeded costs by a factor of more than two-to-one. And benefits may 

exceed costs by a factor of 15. 

These results are consistent year-to-year as the following table shows. 

17 Office of Management and Budget, Office oflnformation and Regulatory Affairs. (2015). Draft 2015 Report to 

Congress on the Benefits and Costs of Federal Regulations an Unfunded Mandates on State. Local. and Tribal 

Entities. pp.f-2. Available at: 

https: 1 'W\\\V.\Vhitchousc.gov/sites dcrault/filc~;!omb.'inforeg/2015 cb/draft 2015 cost benetit r~port.pdf. 

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Total Annual Benefits and Costs of Major Rules by Fiscal Year (billions of2001 dollars) 18 

Fiscal Year Number of Rules Benefits Costs 

2001 12 22.5 to 27.8 9.9 

2002 2 1.5 to 6.4 0.6 to 2.2 

2003 6 1.6 to 4.5 1.9 to 2.0 

2004 10 8.8 to 69.8 3.0 to 3.2 

2005 12 27.9 to 178.1 4.3 to 6.2 

2006 7 2.5 to 5.0 1.1 to 1.4 

2007 12 28.6 to 184.2 9.4 to 10.7 

2008 II 8.6 to 39.4 7.9to9.2 

2009 15 8.6 to 28.9 3.7 to 9.5 

2010 18 18.6 to 85.9 6.4 to 12.4 

2011 13 34.3 to 98.5 5.0 to 10.2 

2012 14 53.2 to 114.6 14.8to 19.5 

2013 7 25.6 to 67.3 2.0 to 2.5 

2014 13 8.1 to 18.9 2.5 to 3.7 

The reason for the consistency is that regulators pay a great deal of concern to comparative costs 

and benefits (even though there is, we believe, a built-in bias of formal cost-benefit analysis 

against regulatory initiative 19; see further comments below). Very few major rules are adopted 

where projected costs exceed projected benefits, and those very few cases--one of which is the 

Congressional mandate for railroads to adopt Positive Train Controls, a technology that would 

have averted the recent Amtrak accident-typically involve direct Congressional mandates. 

It should also be noted that relatively high regulatory compliance costs, as discussed further 

below, do not necessarily have negative job impacts; firm expenditures on regulatory compliance 

typically create new jobs within affected firms or other service or product companies with which 

they contract. 

Moreover, the empirical evidence also fails to support claims that regulation causes significant 

job loss. Insufficient demand is the primary reason for layoffs. In extensive survey data collected 

by the Bureau of Labor Statistics, employers cite lack of demand roughly I 00 times more 

18 Office of Management and Budget, Office of!nformation and Regulatory Affairs. (20 15). Draft 2015 Report to 

Congress on the Benefits and Costs of Federal Regulations an Unfunded Mandates on State, Local, and Tribal 

Entities. Table 1-4. pp. 20-21. Available at: 

https://www.whitehouse.gov/sites/defhult1

files!omb/inforei.!./20 15 cl)idraft 2015 cost benefit reportpdf .. ; 2001-

2004 data from: Office of Management and Budget, Office oflnformation and Regulatory Affairs. (2011). 2011 

Report to Congress on the Benefits and Costs of Federal Regulations an Unfunded Mandates on State, Local, and 

Tribal Entities. Table 1-3, p. 19-20. Available at: 

http:."iwww. \Yhitehouse.gov'sites/dcfaultifiles/omb ·inforeg/20 1 l cb/20 11 cba repm1.pdf. 19 See, e.g., Shapiro, S. et al., CPR Comments on Draji 2010 Report to Congress on the Benefits and Costs of 

Federal Regulations 16-19 (App. A, Pt. C.) (2010), Available from: 

<http://www.progressivereform.org/articles/20 I 0 _CPR_ Comments_ OMB_Report.pdt>; Stcinzor, R. eta!., CPR 

Comments on Draft 2009 Report/a Congress on the Benefits and Costs of Federal Regulations 16-19 (App. A, Pt. 

C.) (2009), Available from: <http://www.progressivereform.org/articles/2009 _CPR_ Comments_ OMB _Report. pdf>. 

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frequently than government regulation as the reason for mass layoffs! 20 (Unfortunately, in 

response to budget cuts, the BLS ceased producing its mass layoff report in 2013.) 

Reason for layoff: 2008-201221 

2008 2009 2010 2011 2012 

Business Demand 516,919 824,834 384,564 366,629 461,328 

Governmental 5,505 4,854 2,971 2,736 3,300 

regulations/intervention 

It is also the case that firms typically innovate creatively and quickly to meet new regulatory 

requirements, even when they fought hard against adoption of the rules. 22 The result is that costs 

are commonly lower than anticipated. 

B. Job-destroying regulatory failure and the Great Recession 

Missing from much of the current policy debate on jobs and regulation is a crucial, overriding 

fact: The Great Recession and the ongoing weak jobs market and national economy are a direct 

result of too little regulation and too little regulatory enforcement. 

A very considerable literature, and a very extensive Congressional hearing record, documents in 

granular detail the ways in which regulatory failure led to financial crash and the onset of the 

Great Recession. "Widespread failures in financial regulation and supervision proved devastating 

to the stabiliti of the nation's financial markets," concluded the Financial Crisis Inquiry 

Commission. 3 "Deregulation went beyond dismantling regulations," notes the Financial Crisis 

Inquiry Commission. "[I]ts supporters were also disinclined to adopt new regulations or 

challenge industry on the risks of innovations."24 

The regulatory failures were pervasive, the Financial Crisis Inquiry Commission concluded: 

20 U.S. Department of Labor, Bureau of Labor Statistics. (2012, November). Extended Ma.u Layoffs in 201I. Table 

5. Reason for layoff: extended mass layoff events, separations, and initial claimants for unemployment insurance, 

private nonfarm sector. 2009-2011. Available from: <http://www.bls.gov/mls/mlsreportl039.pdt>. 21 U.S. Department of Labor, Bureau of Labor Statistics. (2012, November). Extended Mass Layoffi in 2011. Table 

5. Reason for layoff: extended mass layoff events, separations, and initial claimants fOr unemployment insurance, 

private nonfarm sector, 2010-20/2. Available from:< http://www.bls.gov/mls/mlsreport1043.pdt>. U.S. 

Department of Labor, Bureau of Labor Statistics. (2013, September). Extended Mass Layoffi in 2011. Table 4. 

Reason for layoff extended mass layoff events, separations, and initial claimants for unemployment insurance, 

private nonfarm sector, 2009-20/ I. Available from: <http://www.bls.gov/mls/mlsreport!039.pdt>; U.S. Department 

of Labor, Bureau of Labor Statistics. (20 II, November). Extended Mass Layoffs in 2010. Table 6. Reason for layoff: 

extended mass layoff events, separations, and initial claimants for unemployment insurance, private nonfarm sector, 

2008-2010. Available from: <http://www.bls.gov/mls/mlsreportl038.pdt>. 22 Mouzoon, N., & Lincoln, T. (2011). Regulation: The Unsung Hero in American Innovation. Public Citizen. 

Available from: <http://www .citizen.orgldocuments/regulation~innovation.pdt>. 23 Financial Crisis Inquiry Commission. (2011). The Financial Crisis Inquiry Report: Final Report of the National 

Commission on the Causes of the Financial and Economic Crisis in the United States. Washington, D.C.: 

Government Printing Office. p. 30. 24 The Financial Crisis Inquiry Report. p. 53. 

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The sentries were not at their posts, in no small part due to the widely accepted faith in 

the self-correcting nature of the markets and the ability of financial institutions to 

effectively police themselves. More than 30 years of deregulation and reliance on selfregulation by financial institutions, championed by former Federal Reserve Chairman 

Alan Greenspan and others, supported by successive administrations and Congresses, and 

actively pushed by the powerful financial industry at every turn, had stripped away key 

safeguards, which could have helped avoid catastrophe. This approach had opened up 

gaps in oversight of critical areas with trillions of dollars at risk, such as the shadow 

banking system and over-the-counter derivatives markets. In addition, the government 

permitted financial firms to pick their preferred regulators in what became a race to the 

weakest supervisor. 

The regulatory failure story can perhaps be summarized as follows: Financial deregulation and 

non-regulation created a vicious cycle that helped inflate the housing bubble and an 

interconnected financial bubble. Weak mortgage regulation enabled the spread of toxic and 

predatory mortgages that helped fuel the housing bubble. Deregulated Wall Street firms and big 

banks exhibited an insatiable appetite for mortgage loans, irrespective of quality, thanks to 

insufficiently regulated securitization, off-the-books accounting, the spread of shadow banking 

techniques, dangerous compensation incentives and inadequate capital standards. Reckless 

financial practices were ratified by credit ratings firms, paving the way for institutional funders 

to pour billions into mortgage-related markets; and an unregulated derivatives trade offered the 

illusion of systemic insurance but actually exacerbated the crisis when the housing bubble 

popped and Wall Street crashed. 

The costs of this set of regulatory failures are staggeringly high, and far outdistance any plausible 

story about the "cost" of regulation. 

To prevent the collapse of the financial system, the federal government provided 

incomprehensibly huge financial supports, far beyond the $700 billion in the much-maligned 

Troubled Assets Relief Program (T ARP). The Special Inspector General for the Troubled Assets 

Relief Program (SIGTARP) estimated that "though a huge sum in its own right, the $700 billion 

in T ARP funding represents only a portion of a much larger sum--estimated to be as large as 

$23.7 trillion--of potential Federal Government support to the financial system."25 Much of this 

sum was never allocated, and most of the T ARP funds were paid back. However, the regulatory 

reform policy debate should acknowledge that such unfathomable sums were put at risk thanks to 

regulatory failure. 

Even more significant, however, are the actual losses traceable to the regulatory failure-enabled 

Great Recession. These losses are real, not potential; they are at a comparable scale of more than 

$20 trillion; they involve an actual loss of economic output, not just a reallocation of resources; 

and they have imposed devastating pain on families, communities and national well-being. 

25 Special Inspector General for the Troubled Assets Relief Program (SIGTARP) (2009, July 21.) Quarterly Report 

to Congress. p. 129. Available from: 

<http://www.sigtarp.gov/Quarterly%20Reports/J uly2009 _Quarterly_ Report_ to_ Congress. pdf>. 

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A GAO study found that "[t]he 2007-2009 financial crisis, like past financial crises, was 

associated with not only a steep decline in output but also the most severe economic downturn 

since the Great Depression of the 1930s."26 Reviewing estimates of lost economic outfut, GAO 

reported that the present value of cumulative output losses could exceed $13 trillion. 2 

Additionally, GAO found that "households collectively lost about $9.1 trillion (in constant 2011 

dollars) in national home equity between 2005 and 2011, in part because of the decline in home 

prices."28 

The recession threw millions out of work, and left millions still jobless or underemployed. "The 

monthly unemployment rate peaked at around I 0 percent in October 2009 and remained above 8 

percent for over 3 years, making this the longest stretch of unemployment above 8 percent in the 

United States since the Great Depression," GAO noted.29 

The economic impact on families is crushing, even leaving aside social and psychological 

consequences. "Displaced workers-those who permanently lose their jobs through no fault of 

their own--often suffer an initial decline in earnings and also can suffer longer-term losses in 

earnings," reports GAO. For example, one study found that workers displaced during the 1982 

recession earned 20 percent less, on average, than their non-displaced peers 15 to 20 years 

later.30 Thanks to lost income and especially collapsed housing prices, families have seen their 

net worth plummet. According to the Federal Reserve's Survey of Consumer Finances, median 

household net worth fell by $49,100 per family, or by nearly 39 percent, between 2007 and 

2010. 31 

The foreclosure crisis stemming from the toxic brew of collapsing housing prices, exploding and 

other unsustainable mortgages and high unemployment has devastated families and communities 

across the nation.32 

The financial crash and Great Recession is also, not so incidentally, the primary explanation for 

historically high federal deficits. Reports GAO: 

From the end of 2007 to the end of 20 I 0, federal debt held by the public increased from 

roughly 36 percent of GDP to roughly 62 percent. Key factors contributing to increased 

deficit and debt levels following the crisis included (I) reduced tax revenues, in part 

26 U.S. Government Accountability Office. (2013, Jan. 13). Financial Crisis Losses and Potentia/Impacts of the 

Dodd-Frank Act. p. 12. Available from: <http://www.gao.gov/products/GA0-13-180>. 27 Financial Crisis Losses and Potentia/Impacts of the Dodd-Frank Act. p. 16. 28 Financial Crisis Losses and Potentia/Impacts of the Dodd-Frank Act. p. 21. There is necessarily a significant 

amount of uncertainty around such analyses. Other estimates have placed the loss somewhat lower. A recent 

Congressional Budget Office study estimates the cumulative loss from the recession and slow recovery at $5.7 

trillion." (Congressional Budget Office. 2012. The Budget and Economic Outlook: Fiscal Years 2012 to 2022. p. 

26.) One complicating issue is determining which losses should be attributed to the recession and which to other 

issues. For example, GAO notes, "analyzing the peak-to-trough changes in certain measures, such as home prices, 

can overstate the impacts associated with the crisis, as valuations before the crisis may have been inflated and 

unsustainable." Financial Crisis Losses and Potentia/Impacts of the Dodd-Frank Act p. 17. 29 Financial Crisis Losses and Potential Impacts of the Dodd-Frank Act. pp. 17-18. 3

° Financial Crisis Losses and Potentia/Impacts of the Dodd-Frank Act. pp. 18-19. 31 Cited in Financial Crisis Losses and Potentia/Impacts of the Dodd-Frank Act. p. 16. 32 Financial Crisis Losses and Potentia/Impacts of the Dodd-Frank Act. pp. 23-24. 

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driven by declines in taxable income for consumers and businesses; (2) increased 

spending on unemployment insurance and other nondiscretionary programs that provide 

assistance to individuals impacted by the recession; (3) fiscal stimulus programs enacted 

by Congress to mitigate the recession, such as the American Recovery and Reinvestment 

Act of 2009 (Recovery Act); and \4) increased government assistance to stabilize 

financial institutions and markets. 3 

It should be noted that there are, to be sure, dissenting views to narratives that place regulatory 

failure at the core of the explanation for the Great Recession and financial crisis. Perhaps the 

most eloquent version of this dissent is contained in the primary dissenting statement to the 

Financial Crisis Inquiry Commission. 

The dissent explained that "we ... reject as too simplistic the hypothesis that too little regulation 

caused the Crisis,'a4 arguing that the amount of regulation is an imprecise and perhaps irrelevant 

metric. This is a reasonable position (and it applies equally to those who complain about "too 

much" regulation); what matters is the quality of regulation-both the rules and standards of 

enforcement. 

The FCIC dissent began its explanation for the financial crisis with the creation of a credit 

bubble and a housing bubble, which it argued laid the groundwork for a financial crisis thanks to 

a series of other, interconnected factors, including the spread of nontraditional mortgages, 

securitization, poor functioning by credit rating firms, inadequate capitalization by financial 

firms, the amplification of housing bets through use of synthetic credit derivatives, and the risk 

of contagion due to excessive interconnectedness. 

However, to review this list is to see how the FCIC dissent also implicitly argued that the crisis 

can be blamed in large part on regulatory failure. For all of these factors should have been tamed 

by appropriate regulatory action. 

II. Homeland Security and Government Affairs Committee Hearing Case Study Examples 

This hearing on the administrative process is focusing especially on three recent, high-profile 

rules: the Department of Labor's Retirement Advice Conflict of Interest Rule, the Federal 

Communications Commission's Net Neutrality Rule, and the Environmental Protection Agency 

and Army Corps of Engineers' Clean Water Rule. These rules have little in common, making it 

hard to draw from them important lessons about the rulemaking process. Each of them does 

advance important public policy objectives, however, illustrating the crucial importance of the 

regulatory process to improving the quality of life for Americans. Each of them also highlights 

the care with which agencies generally approach rulemaking, and the extensive consideration 

given to the views of regulated industry. 

33 Financial Crisis Losses and Potential Impacts of the Dodd-Frank Act. p. 26. 34 The Financial Crisis Inquiry Report. {Dissenting Views By Keith Hennessey, Douglas Holtz-Eakin, and Bill 

Thomas.) p. 414. 

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A. Preventing Conflicts of Interest in the Provision of Retirement Advice- the Fiduciary 

Rule 

More than five years in the making, the Department of Labor earlier this month adopted a final 

version of its rule to eliminate conflicts of interest among those who provide investment advice 

to retirement savers.35 This crucial consumer protection rule is known as the "fiduciary rule" 

because clarifies the definition of what constitutes a "fiduciary" under the Employment 

Retirement Income Security Act of 1974 (ERISA). In short, the common-sense rule requires that 

retirement investor advisors must serve the best interests oftheir clients. 

ERISA established the definition of a fiduciary adviser as anyone who "renders investment 

advice for a fee or other compensation, direct or indirect, with respect to any moneys or property 

of such a plan, or any authority or responsibility to do so." In implementing the law, the 

Department of Labor created a five-part test that must be met for an adviser to be considered a 

fiduciary under ERISA. This significantly narrowed the statutory definition and created 

loopholes that became highly problematic over time. Broker-dealers, insurance agents and other 

sales-based advisers have used these loopholes to provide retirement advice without abiding by a 

fiduciary standard. Their advice was required only to be "suitable." 

Over the last several decades, the nation has seen a massive shift from defined benefit pension 

plans to defined contribution retirement accounts, such as 40 I (k)s, as well as the rise of 

Individual Retirement Accounts (IRAs). Defined contribution account and IRA holders are in 

charge of their investments, and need investment advice. The narrow definition of fiduciary prior 

to adoption of the fiduciary rule meant that those providing that advice could permissibly 

maintain undisclosed conflicts of interest. Given the increasing complexity of financial products 

and markets, this created an opportunity for significant abuse. 

The fiduciary rule aims to mitigate these conflicts of interest. Under the rule, any person 

compensated for making individualized recommendations to an IRA owner or pension plan 

participant is a fiduciary and must provide impartial advice in their client's best interest. 

It's hard to overstate how common-sense is this measure. Consumers assuredly expect that 

professionals on whom they rely for advice will serve their best interests. For many, navigating 

the complexities of the market is intimidating and confusing. Even sophisticated consumers need 

assistance- that is why they are seeking advice -and assume that their advisors are serving their 

clients' interests, not advancing the advisors' financial interests at the expense of clients. 

Consumers generally have little knowledge and understanding of the various legal categories that 

determine the duty ofloyalty owed them by advisors.36 Proportionately, very few consumers 

understand the significance of high fees in reducing long-term yield- even those fees that are 

properly disclosed-- making consumers extraordinarily vulnerable to manipulation.37 Yet, under 

35 Final Rule, Federal Register, Vol. 81, No. 68, AprilS, 2016,20946. 3636 Consumer Financial Protection Bureau, "Senior Designations for Financial Advisers," Aprill8, 2013, available 

at: http:.'/tiles.comumerlinance.gov/P20 1304 CfP[J Oldcrt\mericans Rep01i.pdf. 37 See, for example, Kate Stalter, "The Investment Fees You Don't Realize You're Paying," US News, December 

15, 2014, available at: http:!/money<usncws.com/moncytpersonal-f!nance/mutual-funds/articles/20 14! 12/15/thc~ 

investment- f ccs-vou-dom-real i Lc-voure-pav in g. 

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rules in place prior to adoption of the fiduciary rule, they were actually permitted to operate with 

conflicts of interest that did not have to be disclosed; give imprudent and disloyal advice; and 

steer IRA owners to investments based on their own, rather than the customers' best interest. 38 

Of course, many investment advisors even prior to adoption of the final rule operated to advance 

their clients' best interest. And, to be very clear, assuredly many of those who did not themselves 

serve their clients' best interest did not realize how conflicts alter the advice they give; the 

impact of conflicts of interest are often not apparent even to those conflicted. 

Yet just as assuredly, conflicts have been rife and materially harming consumers. After a 

thorough review of the available literature, the Council of Economic Advisers determined that 

conflicts reduce investor returns to IRAs by 1 percent a year, or $17 billion annually. 39 An 

individual consumer could easily retire with an investment account worth 20 percent less than it 

would otherwise be as a result of these expenses.40 

The fiduciary rule will assure that investment advisers serve the best interests of their clients, and 

eliminate the conflicts that cost consumers so significantly. 

Perhaps surprisingly, broker-dealers have objected to the new rule. While regulated entities 

commonly oppose the adoption of news rules that constrain abusive activity, it is still noteworthy 

that many in the industry have sought to prevent adoption of a standard that would require them 

to serve their clients' best interests. Predictably, those opposed to the fiduciary rule do not argue 

the merits of conflicts of interest. Instead, they contend that compliance costs will be excessively 

burdensome and might drive small firms out of business. Neither claim stands up under scrutiny. 

The Department of Labor's careful and detailed cost estimate- based significantly on data 

provided by industry-- place compliance costs at between $3.3 billion and $3.6 billion.41 While 

industry has stated publicly that compliance costs threaten business viability, leading companies 

are making contrary claims to their own investors. Referring to statements the companies have 

made in their Securities and Exchange Commission filings, Senator Elizabeth Warren and 

Representative Elijah Cummings write, "In contrast to their public doomsday predictions, 

industry leaders have told their own investors that they don't see this as a significant hurdle,' 

'will once again respond to marketplace or regulatory changes effectively,' and that they are 

well-positioned to adapt to any regulatory framework that emerges."'42 Meanwhile, large and 

small firms can continue to profitably serve small investors with affordable advice that's in their 

38 Final Rule, Federal Register, Vol. 81, No. 68, April 8, 2016,20946. 39 Council of Economic Advisers, The Effects of Conflicted Investment Advice on Retirement Savings, February 

2015, available at: https://www.\vhitehouse.gov/sitcs.tdet'ault/flles/docs/cea coi repon final.pdf. 4

° Council of Economic Advisers, The Effects of Conflicted Investment Advice on Retirement Savings, February 

2015, available at: hltps:J\vww.whitehousc.gov/sitcsfdet1wlt/files/docs/cea coi report tinal.pdf. 41 Department of Labor, "Regulating Advice Markets," April2016, available at: 

http: i/\'ofW\V .do I. go v J ebsa1pd t/con t1 ict-of-interest -ria.p d[ 42 Senator Elizabeth Warren and Representative Elijah Cummings, Letter to Secretary of Labor Thomas Perez and 

Office of Management and Budget Director Shaun Donovan, February II, 2015, available at: 

http: '/www. warrcn.senatc.govifilcs:documcnts/20 16-2-11 Letter to DOL and OMB.pdf. 

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best interest according to a wide variety of business models, including those that charge 

commissions, as an increasing number are starting to do in anticipation of the rule. 43 

The fiduciary rule is the product of more than five years of work. First proposed in 20 I 0, the 

Department withdrew its initial proposal to address concerns that were raised. Although it aimed 

to reintroduce the rule in early 2012, the next iteration was not proposed until2015. During the 

prolonged period of delay until it proposed the revised rule in April 2015, the Department 

consulted extensively, including with stakeholders and other government agencies, particularly 

the Securities and Exchange Commission and the Financial Industry Regulatory Authority 

(FINRA) 44 The revised proposal was sent to the Office ofinformation and Regulatory Affairs 

(OIRA) for review in February 2015. OIRA held 21 stakeholder meetings on the issue before 

releasing the proposal, including with Fidelity Investments, the Financial Services Roundtable, 

and the U.S. Chamber ofCommerce.45 

On April20, 2015, the Labor Department issued its updated proposal. After receiving requests 

for additional time to submit input on the revised rule, the Labor Department extended the 

comment period by two weeks in July and held a four-day hearing during the week of August 10, 

2015. The Department then re-opened the comment period again for an additional two weeks for 

additional public testimony and comments. In total, there were over I 00 days for the public to 

comment on the draft rule. The Department received 3,134 total comments, including 30 

petitions that encompass an additional 386,889 comments. 

The public participation in the process was dominated by investment and insurance industry 

firms and lobbyists as compared to public interest or consumer groups, and the final rule 

incorporates substantial revisions in response to comments received, intended especially to 

reduce compliance costs.46 

The Committee majority has issued a report raising concerns about inter-agency disagreements 

over the fiduciary rule. But there is no question as to the Department of Labor's jurisdiction over 

the matters covered by the fiduciary rule; and disagreements among staff are to be expected and 

are an important part of the deliberative process. The final fiduciary rule is a long overdue 

measure, needlessly delayed for years, to adopt commonsense protections for consumers. It will, 

conservatively, save consumers $17 billion every year, and materially advance the well-being of 

people in their retirement years. This is how regulation is supposed to work- albeit it should 

work more quickly. 

43 Michael Wursthorn, "Brokerages Adapt to Pending Labor Rule," Wall Street Journal, March 16,2016, available 

at: www.\vsi.com/miic1es/brokera~ws~adapt-to-pending-Jabor-rule-1458151260; Jason Zweig, "Saving for 

Retirement? The Rulebook is About to Change," Wall Street Journal, April4, 2016, available at: 

http: · /vnV\\'. ws j .com1 arti c les/new-governm en t -rule-rewrites-retirement -savings- 14 5 97 62202. 44 See Appendix to Senate Homeland Security and Government Affairs Committee, Majority Report, "The Labor 

Department's Fiduciary Rule: How a Flawed Process Could Hurt Retirement Savers," (2016). 45 EO 12,866 Meetings (2015) available at www.reuinfo.uov. 46 Department of Labor, "Regulating Advice Markets," April2016, available at: 

http:/ /wwv,.: .dol. gov I cbsa/pd r; conflict-of-interest-ria. pdf. 

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B. Net Neutrality 

The Federal Communication Commission's (FCC's) Open Internet ("Net Neutrality") order, 

adopted last year, is one of the most important developments in protecting consumers' access to 

a free and open internet. 

In February 2015, the FCC voted to reclassify broadband internet service as a 

telecommunications service and adopt rules requiring Network Neutrality. The order followed 

years of contentious debate and extensive litigation, including over the FCC's jurisdictional 

authority. The jurisdictional issues were resolved by the agency's decision to classify broadband 

as a telecommunications service; and the Net Neutrality rules finally resolve crucial questions 

about the degree to which Internet Service Providers (ISPs) could control the flow of content 

over the Internet. 

The rule establishes three bright line rules to protect a free and open Internet: 

No Blocking: broadband providers may not block access to legal content, applications, 

services, or non-harmful devices. 

No Throttling: broadband providers may not impair or degrade lawful internet traffic on 

the basis of content, applications, services, or non-harmful devices. 

No Paid Prioritization: broadband providers may not favor some lawful internet traffic 

over other lawful traffic in exchange for consideration of any kind-in other words, no 

"fast lanes." This rule also bans ISPs from prioritizing content and services of their 

affiliates. 47 

Policymakers of all stripes should celebrate the adoption of the Net Neutrality rule. It protects 

consumers, both from excessive tolls that could significantly impact their pocketbook, a 

diminished internet that would impose costs by diminishing their user experience48 and, even 

more importantly, from ISP censorship or undue influence over what they could see. It advances 

core First Amendment values, ensuring that all lawful speech is treated equally on the Internet, 

made available without the censoring hand of a corporate Big Brother49 Without the Net 

Neutrality rule, ISPs might have blocked or interfered with consumer access to information that 

they disfavored, or which is promulgated by speakers with limited financial backing and limited 

ability to pay ISP-imposed tolls. And, equally as significantly, the Net Neutrality promotes 

competition and innovation, preventinfc the ISPs controlling- and slowing the innovation that 

is occurring across Internet platforms. 0 

47 Federal Communications Commission, "Open Internet," available at: .b!ll2§:ewww.fcc.gov/genera]/open-internet. 48 J. Scott Holladay, A.J. Glusman, Steven Soloway, "Internet Benefits," October 3, 2011, available at: 

httn: "/policvintee.ritv .org.'publications/detail/internet -benefits 1. 49 Jay Stanley, "Network Neutrality I 0 I," American Civil Liberties Union, October 2010, available at: 

https:: .'wviw .ac Ju.org:report/net\vork-neutral ity-1 0 J -why-government-mu~t-act-preserve-free-and-opcninternet'?rcdirect-"'tl·ee-lipecch-technology-and-liberty.'network-neutralitv-1 0 1-whv-governrnent-must-act-preservefl·ee-aml-. (''Network neutrality is a consumer issue. but it is also one of the foremost free speech issues of our 

time.") 

50 Digital Media Association, "Competition and Net Neutrality," available at: http: /\H\'\V .digmedia.oro.'issucs·and12Q!icyi net -neutr~!l!Y· 

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Viewed properly, the Net Neutrality rule is fundamentally a pro-market and pro-business 5

1 rule. 

It removes not government control, but corporate goliath ISP gatekeepers that, in the absence of 

the rule, could stifle market competition and consumer freedom and liberty. 

The opposition to the rule came from a powerful vested interest, the broadband ISPs, but one 

year's time has already dispelled their claims that the rule would impose catastrophic costs on 

them. In fact, analysts have found that the "Profits and profit margins are at historic, monopolylike levels, and they continue to grow as ISPs exercise market power in an increasingly 

uncompetitive market." Broadband ISPs are increasing their capital investment as compared to 

the period before the rule, investing nearly $3 billion in 2015. Revenues across the industry are 

up, with 2015 revenues $22 billion above the previous year. Stock values have also increased.52 

The Net Neutrality rule ranks close to the top of the highest-profile rulemakings in history. It is 

the product of a very lengthy FCC process and extensive litigation. One may or may not like the 

outcome though the decision looks increasingly positive as time passes and promised harms do 

not materialize- but it is hard to argue the agency did not thoroughly vet the issue and engage 

the public. 

Following several legal battles that demonstrated the need for the FCC to clarify that Net 

Neutrality principles- which have been long been the de facto standard of the internet were 

binding commission standards, the FCC took its first steps toward the current Net Neutrality 

order in 2010 by proposing an Open Internet order. 5

3 This order was subsequently struck down 

by the DC Circuit Court of Appeals, but the court left open the possibility of the FCC issuing a 

statutorily justifiable Net Neutrality rule by reclassifying broadband services as 

"telecommunications services" under title II of the Communications Act. 5

4 In response, the FCC 

published a Notice of Proposed Rulemaking (NPRM) in May 2014 that fell short of adopting the 

reclassification of broadband services as "telecommunication services" but explicitly left open 

the possibility of doing so in the final rule. 5

5 After a robust public comment period that generated 

millions of public comments, the FCC released a final Report and Order in February 2015 that 

established strong net neutrality protections. The final order reclassified broadband services as 

telecommunications services; adopted Net Neutrality principles as binding rules; and invoked its 

discretion to forbear broadband providers from the vast majority of statutes and regulations that 

apply to regular telecommunication services. 56 That Order is currently being challenged in the 

DC Circuit Court of Appeals, although that court refused to stay the Order's enforcement 

pending a decision by the court. 

51 Alex Christensen, "4 Types of Businesses that Benefit from Net Neutrality," Global Risk Insights, March 10, 

20 15, available at: http://globalriskins ights.corn/20 I 5/03/4-types-of-businesscs-that-beneflt-fl·om-net-neutra litv. 52 See Free Press, "Same As It Ever Was: The U.S. Broadband Market Continues to Thrive One Year After the 

FCC's Historic Network Neutrality Vote," March 7, 2016, available at: 

J"t~ttp:/ ·\vww. free press. net/sites/default/files/resources/free press broadband markeJ one year later.pd f. 5

' Marguerite Reardon, "FCC Makes Net Neutrality Rules Official," CNet, December 21,2010, available at: 

\V\VW .CilCl.CO!n ;llC\\'S:'fcc-makl':s-ne1-11CUtraJ ity-ru j CS-0 f11c ial. 54 Verizon v. FEC, January 14,2014, available at: 

https: • ·www .cadc.uscourts. "ov "internet "opinions. nsf!JA F8134D938CDFEA685257C6000532062/$tlle1 ll-1355-

1474943.pdf. 

"FCC, Protecting and Promoting the Open Internet NPRM, May 15,2014, available at: 

https: i/ww \.\'. fcc ~docu m~ nt fprotccti n g -and-promoti ng-opcn-i ntcmet -nprm. 56 Final Order, https://www.fCc.gov!documcnt/fcc-retcascs-opcn-intcrnet-order. 

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The FCC's Net Neutrality rulemaking process was a true success in two respects. First, the 

agency received almost 4 million comments on the proposed rule through the public comment 

process (mostly in support of FCC's adoption of Net Neutrality).57 This is the largest number of 

comments ever submitted in a federal rulemaking process-something that should be both 

celebrated and emulated. The notice and comment rulemaking process is predicated upon 

"democratizing" the way in which government agencies craft rules by encouraging broad and 

diverse participation from the public through submission of written comments. Done well, 

notice-and-comment provides a crucial way for government agencies to hear from the public and 

offsets the influence of powerful industries with developed channels of access into the 

government. Congressional efforts to reform the rulemaking process should seek to emulate the 

FCC's Net Neutrality success by focusing on maximizing public participation from as broad a 

variety of stakeholders as possible. Instead, it appears some in Congress are focusing instead on 

increasing the number of opportunities for public comment. 58 This approach does little to 

increase participation by a wide variety of stakeholders and further entrenches the current 

disparity between comments submitted by regulated industries as compared to average citizens in 

most rulemakings.59 The solution is to make sure the government is hearing from as many voices 

as possible, not force the government to listen to the same voices even more times. 

Second, the Net Neutrality rulemaking constituted an example of a govermnent agency taking 

feedback from the public seriously, as is their legal requirement under the Administrative 

Procedure Act, and when appropriate making changes to their rules to respond to that feedback. 

It is the kind of responsiveness that should be celebrated by those who worry that public 

comments are ignored and notice-and-comment is meaningless because the outcome of the 

rulemaking is already pre-determined. 

Some, including on this Committee, have contended that President Obama inappropriately 

influenced the FCC and pushed it to change its approach from the proposed rule to the final 

order. 60 These claims are misplaced. First, there is no evidence of any attempt to directly 

influence the FCC's rulemaking by the President or the White House. The President's public 

statement of support for a strong Net Neutrality rule is well within the President's authority and 

responsibility to make his policy views clear to the public. Agency independence does not mean 

the President cedes his First Amendment rights or duties to the public; it is not analogous to the 

need for walls between the White House and criminal investigators. And, indeed, past presidents 

have frequently made their policy preferences publicly known while FCC rulemakings were 

underway, sometimes in far more direct ways. For example, Presidents Ronald Reagan supported 

retaining financial syndication rules by the FCC which led the agency to withdraw its first 

57 Edward Wyatt, "Net Neutrality Comments to F.C.C. Overwhelmingly One-Sided, Study Say," New York Times, 

September 18, 2014, available at: http://bits.b!ogs.nytimes.com/20 14/09! 18/net~neutralitv~comments-to~f-c~coverwhelminglv-one-sided-studv-savs 

58 See e.g. S. 1820, Early Participation In Regulations Act of2015 (114'' Congress) available at 

https ://www .congress. gov /bill/! 14th-congress/senate-hi 11/1820 59 Wendy Wagner, Katherine Barnes & Lisa Peters, Rulemaking in the Shade: Empirical Study of EPA's Toxic 

Emission Standards, 63 Admin. L. Rev. 99, 125 (2011). 60 Majority Staff Report, Committee on Homeland Security and Government Affairs, "Regulating the 

Internet,"February 29, 2016, available at: http: /w\v\v.hsgac.scnatc.gov/dmvnload/r~gulating-the-internct-how-thew h ite-house- boVt led-over-fcc-independence. 

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attempt at revising the financial syndication rules. 61 President George H.W. Bush then directed 

the agency to eliminate those same rules, which the agency subsequently did62 President Clinton 

also pushed the FCC to curtail adverting of hard liquor on TV, leading to a proposed rule by the 

FCC to do just that. 63 Finally, George W. Bush sent a personal letter to then FCC Chair Michael 

Powell asking him not to delay a commission vote on media ownership deregulation. 64 Powell 

then denied a request to delay the vote from fellow commissioners. Second, the President's 

proposal was substantially different from the FCC's final order in critical respects. The FCC's 

final order contained extensive forbearance for broadband providers from title ll restrictions on 

telecommunications providers and applied title II to interconnection as well. Finally, there is 

ample evidence that FCC Chair Wheeler was undecided on key issues in the rulemaking and was 

considering a wide array of possible choices, including title II, well before President Obama's 

announcement. 65 

It is important to note that this Committee's concern about independent agencies being unduly 

influenced by the President, however unfounded and misplaced it is in this context, would in fact 

be exacerbated by legislation the Committee passed last October, namely the Independent 

Agency Regulatory Analysis Act (S. 1607). That bill would require independent agencies to send 

their significant proposed and final rules to the Office of Information and Regulatory Affairs 

(OIRA) for review and feedback as part ofthe public comment process. OIRA's regulatory 

review currently only extends to executive branch agencies that are subject to the Executive 

Orders authorizing OIRA's review functions. The inability for OIRA to review independent 

agency rulemak.ings is one of the key elements that maintain independent agencies' 

independence from the executive branch, along with restrictions on removals of independent 

agency heads by the President. Given that one of the stated aims of OIRA review is to align 

agency rulemaking with presidential priorities, the Independent Agency Regulatory Analysis Act 

would lead to more presidential influence over the FCC and other independent agencies rather 

than less. Taking the Committee majority's concerns about the independence of the FCC at face 

value, we encourage Senators on the committee to revisit and withdraw their support for the 

Independent Agency Regulatory Analysis Act. 

C. The Clean Water Rule 

Issued by the Environmental Protection Agency and Army Corps of Engineers, the Clean Water 

Rule: Definition of "Waters of the United States" was published in the Federal Register on June 

29,2015 and became effective on August 28,2015. The purpose of the rule is to provide 

61 David Burnham, "Reagan Role in FCC Case Assailed," New York Times, February 4, 1984, available at: 

b.np: 1/www .nvtimes.corni 1984/02/04/arts/rcaganMrole-in-fcc-case-assailed.htm! (noting the interests of Reagan's 

personal friends in the outcome of the regulatory dispute). 62 John Lippman, "Sununu Defends White House Stand on TV Rerun Rules," Los Angeles Times, February 16. 

1991, available at: hltn:/,arl;cles.latimes. eom/ 1991-02- J 6/business/tl-984 J trhiie-housl!. 63 John Broder, "Clinton to Ask F.C.C. to Consider Restricting Liquor Commercials," New York Times, April!, 

1997, available at: http::'!\V\Y\\' .nytimes.com/ 1997:'04/0 L'us:'clinton-to-ask-fcc-to-consider-restricting-liuuorcorn men.: ial s. htrn I. 64 David Ho, "Bush Administration Pushes FCC on Media Ownership Review," Government Technology, April25, 

2003, available at: http:i/ww\v.govtech.com/policy-manae.ement/Bush-Administration-Pushes-rCC-on-Media.html. 65 Tom Wheeler, "This Is How We Will Ensure Network Neutrality," Wired, February 4, 2015, available at: 

http: '/wv.'w. wired"'.:om/20 15.'02/fCc-chairman-\vhcdcr-nct-neutralitv. 

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definitional clarity as to the waters regulated under the Clean Water Act, and to further the Act's 

purpose to restore and maintain the chemical, physical and biological integrity of the Nation's 

waters. Although the Clean Water Rule has become the source of contentious debate, it is in fact 

a modest measure aiming to provide more administrative certainty, and it actually reduces the 

regulatory scope of navigable waters and their tributaries (the key terms that determine the 

geographic application of the Clean Water Act). Nonetheless, in providing more regulatory 

certainty, the Clean Water Rule should contribute to the effective enforcement of the Clean 

Water Act, leaving our nation with cleaner and healthier streams and rivers. 

There is little doubt that the Clean Water Rule is needed. The precise scope of Clean Water Act 

jurisdiction became unclear following U.S. Supreme Court decisions in Solid Waste Agency of 

Northern Cook County (SWANCC) v. US. Army Corps of Engineers, 531 U.S. !59 (2001) and 

Rapanos v. United States 126 S.Ct. 2208 (2006). In his concurring opinion in Rapanos, Chief 

Justice Roberts harshly criticized the agencies for not issuing a definitional rule: "Given the 

broad, somewhat ambiguous, but nonetheless clearly limiting terms Congress employed in the 

Clean Water Act, the Corps and the EPA would have enjoyed plenty of room to operate in 

developing some notion of an outer bound to the reach of their authority ."66 

Following the instructions of Chief Justice Roberts and others, the Clean Water Rule establishes 

a more precise definition of navigable waters and tributaries. 67 A covered tributary must show 

the physical features of flowing water- a bed, bank and ordinary high water mark. The rule 

covers certain waters adjacent to rivers, lakes and their tributaries, because science shows these 

waters can impact downstream waters. The rule does not cover ditches not constructed in streams 

and that flow only when it rains. 68 The rule explicitly does not include puddles. 69 It does not 

change how storm sewer systems are treated under the Clean Water Act. Importantly to advance 

the objective of predictability and certainty, the rule limits the use of case-specific 

determinations. 

The scope of the rule is narrower than previously existing regulation, 70 although it will 

encompass some waters that had not been covered under field practice following the Supreme 

Court's decisions in SWANCC and Rapanos. 

Although the Clean Water Rule is merely definitional, and even though the scope of covered 

waters will be less than historic practice, this rule is vitally important. It will advance 

predictability and certainty in application of the Clean Water Rule, and should thereby help 

66 Rapanos v. United States, Roberts, C.J Concurring, 126 S.Ct. 2208, 2236 (2006). 67 Final Rule Text, § 328.3 See also: hl!J2!;:•!www.epa.Qov/sites/production!filcs/20 15-

05'documents/fact sh~_et sum1narY tina! !.pdf: 68 Final Rule Text,§ 230.3(s)(2)(iii) 69 Final Rule Text,§ 230.3(s)(2)(iv)(G) 7

° Federal Register, Vol. 80, No. 124,37054 ("The scope of jurisdiction in this rule is narrower than that under the 

existing regulation. Fewer waters will be defined as "waters of the United States" under the rule than under the 

existing regulations) in part because the rule puts important qualifiers on some existing categories such as tributaries. 

In addition, the rule provides greater clarity regarding which waters are subject to CW A jurisdiction, reducing the 

instances in which permitting authorities, including the states and tribes with authorized section 402 and 404 CW A 

permitting programs, would need to make jurisdictional determinations on a case-specific basis.") 

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enhance the cleanliness and health of our nation's waters. It is hard to exaggerate the importance 

of this objective. Almost one in three Americans- roughly 117 million people- get their 

drinking water from streams that lacked clear protection before issuance of the Clean Water 

Rule 71 Tens of millions of Americans every year use the waters for fishing, paddling, swimming 

and other forms of recreation. And countless businesses- from recreation industries to 

agriculture, tourism to manufacturing- rely on clean water. 

A decade in the making, the Clean Water Rule was subjected to an incredibly rigorous process of 

expert review and public comment. Vermont Law School Professor Patrick Parenteau, a Clean 

Water Act expert, comments, "In my 40+ years of experience with the Clean Water Act I cannot 

recall any other rulemaking that received more scientific review, public scrutiny, critical 

analysis, open debate aJ?d responsive action by the agencies" than the Clean Water Rule. 72 

Here's why Parenteau reaches that conclusion: 

In advance of the rulemaking, the EPA and Army Corps held more than 400 public 

meetings around the country, making special efforts to hear from farmers across the 

nation. 

• EPA and the Corps met with hundreds oflocal officials, with EPA's Local Government 

Advisory Committee hosting a series of meetings around the country. 

• The EPA's Science Advisory Board convened a special expert panel to review the EPA's 

draft report on the connectivity or isolation of streams and wetlands from larger bodies of 

water, such as rivers and lakes. This concerned arguably the central issue in the Clean 

Water Rule; tributaries and smaller bodies of water that have downstream impacts would 

be covered. The panel found that "the review and synthesis of the literature describing 

connectivity of streams to downstream waters reflects the pertinent literature and is well 

grounded in current science," but argued as well that the agency had taken too 

conservative an approach in identifying connectivity. 73 

The EPA and Army Corps prepared an extremely detailed, 75-page economic analysis of 

the costs and benefits of the proposed rule. The analysis noted that because the Clean 

Water Rule imposes no new regulatory requirements and, separately, because it will 

actually reduce the scope of waters covered as compared to the historic regulatory 

interpretation, it can be argued that the new rule will impose no new costs whatsoever. 

But the analysis also recognized that there will be expanded jurisdiction as compared to 

recent practice, and analyzed the impact in extraordinary detail. In sum, the analysis 

71 https :1/www .epa.gov /cwa-404/geograph ic-information-systems-analysis-surface-drinking-water-providedintennittent 

72 Patrick Parenteau, testimony before the Senate Judiciary Committee, June 10,2015, available at: 

<https:l/www .judiciary.senate.gov /imo/med i a/ doc/06-l 0-15%20 Parenteau%20T estimony. pdt>. 73 Letter from David T. Allen and Amanda D. Rodewald to EPA Administrator Gina McCarthy, October 17, 20!4, 

available at: 

https:/ 'yosemite .cpa,govisab/sabproducl.nst/02ad90b 1361'c21 c f85256cba00436459/ AF I A28537854F8AB85257D74 

005003D2/$File1EPA-SAB-l 5-00 I ! unsigned.pdf'. 

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concluded that economic benefits will definitely outpace costs, by as much as two-to-one, 

depending on what assumptions are made. 74 

The rule underwent notice-and-comment, per the Administrative Procedure Act. But the 

notice-and-comment process was not standard. The deadline for submitting comments 

was extended twice beyond the original 60-day comment period. The agencies received 

more than I million comments (the vast majority form comments, in support of the rule). 

The agencies meticulously organized and responded to each comment. In addition to 

broad responses to the mass mailing campaigns, the agencies grouped comments into 17 

distinct topic areas, and replied to every substantive issue and concern raised. Meaningful 

changes were made to the final rule in light of comments received. Altogether, those 

materials total more than a staggering 7,3 00 pages. 75 

Surprisingly, the EPA has actually been attacked for its effort at transparency and public 

engagement. The agency utilized a variety of online and social media tools to publicize its 

activities around the Clean Water Rule and urge public participation in the rulemaking process. 

Tenuous arguments have been made that a disclosure of EPA involvement was missing from 

tweets that were sent as part of a Thunderclap (although the agency was prominently labeled on 

the Thunderclap itself), and that the agency linked to two web pages that urged citizens to 

contact their Members of Congress76 Whatever the merits of these questionable claims, they 

should not obscure that they are made in the context of agency proactive etTorts at openness and 

public involvement. Nor should it be lost that they concern very minor matters as compared to 

the extraordinarily robust and open process that the agencies conducted to develop the final rule. 

III. Improving Regulation 

Recognizing the crucial role that regulation plays in improving our standard of living 

underscores the importance of ensuring that the regulatory process works well. Regulators 

should be nimble and flexible, able to act quickly with appropriate new rules in response to 

changing technologies, new science and social learning, evolutions in industry structure and 

other emerging trends and developments. At the same time, regulators must effectively enforce 

new and old rules; they must be adequately funded, equipped with needed regulatory tools 

including inspection powers and sufficiently tough penalties for lawbreakers, independent from 

the parties they regulate while maintaining appropriate responsiveness, and guided by leadership 

with sufficient political will and protected from interference. Unfortunately, those qualities by 

and large do not describe the current state of the regulatory process or enforcement. 

There is an acute need for regulatory reform, to address pervasive and harmful delay in the 

rulemaking process, increase and improve regulatory enforcement, improve transparency, 

74 Environmental Protection Agency and U.S. Department of the Army, Economic Analysis of the EPA-Army Clean 

Water Rule, May 20 1 2015, available at: ~·':v,.w•.v.epa.gov/sites/productionif1les/2015-06/documcnts "508-

final clean water rule economic ana!vsis 5-20-IS.pdL 75 Response to comments for the Clean Water Rule: Definition of"Waters of the United States," available at: 

https: i 'www .epa. gov! clean waterrule/respun~e-com m ents-cl ean-water -rule-de fin it ion-\.Vaters-u n ited-state~. 76 Letter from Susan Poling, GAO General Counsel, to Senator James 1nhofe, December 14,2015, available at: 

http:.'/vt\VW.Cp\\·.scnatc.gov1puhlici cachc/filcs/b7bb 1 98f-bbJ4-40 ll-a756-b3627cca-~:;fa l.'gao-opinion-cpa-socialmcdia-121415.pdL 

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address undue industry influence over the rulemaking process, address uneven judicial review of 

regulations, and adopt pro-competitive rules to level the playing field for small business and 

improve the economy and consumer well-being. I discuss these problem areas in this portion of 

my testimony, concluding each section or subsection with proposed remedies. 

A. Combating unreasonable delay 

Umeasonable delay permeates almost all aspects of the rulemaking process. The consequences 

of delay are serious. As opposed to issuance of new rules, delay creates the regulatory 

uncertainty that many business spokespeople denounce. Delay also means that lives are 

needlessly lost, injuries needlessly suffered, environmental harm needlessly permitted, consumer 

rip-offs extended, and more. 

Four years ago, Public Citizen conducted an analysis of public health and safety rulemakings 

with congressionally mandated deadlines. 77 Our analysis showed that most rules are issued long 

after their deadlines have passed, needlessly putting American lives at risk. Of the !59 rules 

analyzed, 78 percent missed their deadline. Federal agencies miss these deadlines for a variety of 

reasons, including having to conduct onerous analyses, dealing with politically motivated delays, 

inadequate resources or agency commitment, and fear of judicial review. 

A high proportion of pending rules with statutory deadlines are mandated by the Dodd-Frank 

Wall Street Reform and Consumer Protection Act. The financial regulatory agencies remain far 

behind schedule. The most recent report from the law firm DavisPolk finds that, through the last 

quarter of2015, regulators have still not complied with a quarter of the 271 statutory deadlines 

that have passed. This is five-and-a-half years after passage of the Act. 78 

The problem of protracted delay is pervasive in the rulemaking sphere and reflective of a 

rulemaking process gone askew. This is far more than a "bureaucratic" problem; the source of 

the problem is not inept govermnent officials and workers, but a thicket of legislatively 

mandated process and multiple analyses, along with inappropriate influence exerted by and for 

regulated parties. And the consequences are far more severe than a generic inefficiency-lengthy 

delay costs money and lives; it permits ongoing ecological destruction and the infliction of 

needless injury; it enables fraudsters and wrongdoers to perpetuate their misdeeds; and it denies 

businesses the regulatory certainty they need to make sound investment decisions. 

Although extended delay is arguably the defining feature ofrulemaking, the extent, severity, 

causes and consequences of such delay are not well understood. I highlight several illustrative 

examples here to illuminate these matters. 

1. Oil Train Safety 

17 Mouzoon, N. (2012). Public Safeguards Past Due: Missed Deadlines Leave Public Unprotected Public Citizen. 

Available from: <http://www.citizen.orgldocuments/public-safeguards-past-due-report.pdt>. 78 DavisPolk. (2016) Dodd-Frank Progress Report. Available from: <http://www.davispolk.com/Dodd-FrankRulemaking-Progress-Report>. 

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Last year, the U.S. Department of Transportation finalized new standards for trains transporting 

highly volatile oil, often through highly populated areas. The rule was a long-overdue response 

to the sharp increase in domestic oil production and rail shipment of oil and ethanol and a 

resulting series of deadly oil train disasters. In strengthening standards for oil tank car safety, 

requiring new braking standards, and designating new procedures for oil trains including 

notification to local government agencies, the rule should reduce the incidence oil train 

derailments and explosions 79 

The final issuance of the rule followed justifiable bipartisan criticism that the Department of 

Transportation had taken too long to put new rules in place while multiple oil train derailments 

and explosions occurred across the country. These explosions and crashes have led to numerous 

deaths, and shaken up communities across the country. Elected officials rightly demanded action, 

and were furious about the delays in responsive rulemaking. Safety experts echoed the concern. 

"Federal requirements simply have not kept pace with evolving demands placed on the railroad 

industry and evolving technology and knowledge about hazardous materials and accidents," 

testified the chair of the National Transportation Safety Board. 80 

The Department itself shared frustration with the slow pace of its rulemaking. One of the 

regulators made clear why the Department was unable to move faster saying, "To be clear, I 

think we have to function in the regulatory process that exists. And it's not built for speed. I wish 

it was. And no one is more frustrated by our regulatory process and how long it takes than I am 

on occasion. But if we are trying to govern and regulate as quickly as we possibly can, the 

rulemaking process is not the way to do it."81 

The Department could have expedited issuance of the rules by foregoing optional rulemaking 

steps that added to the regulatory delay. The Department's decision to issue an advanced notice 

of proposed rulemaking (ANPRM) instead of directly proceeding to propose a draft rule, likely 

added a year or more to the oil train rulemaking process. 

Unfortunately, this committee has passed legislation that would mandate the extra procedural 

step of ANPRMs for all major rules such as the oil train rule. 82 The oil train rule delay makes 

clear that there are real-world consequences- often a matter of life and death- to measures that 

delay the rulemaking process. It is a reminder as well that policymakers who support measures to 

slow and complicate the rulemaking process may find that, if they succeed, the required delays 

will boomerang to block regulatory action in areas of their priority concern. 

2. Cranes and derricks. 

79 https://www.transportation.gov/briefing-room/final-rule-on-safe-rail-transport-of-flammable-liquids 80 Chris A. Hart, testimony before the Committee on Transportation and Infrastructure, U.S. House of 

Representatives, "Oversight of the Ongoing Rail, Pipeline, and Hazmat Rulemakings," April I4, 2015, available at: 

http: /transportation.house.gov 'uploadedfiles/20 I 5-04-14-hmi.pdf. 81 Sarah Feinberg, Acting Administrator, Federal Railroad Administration, U.S. House Transportation and 

Infrastructure Committee, Oversight of the Ongoing Rail, Pipeline, and Hazmat Rulemakings, April !4, 2015, 

available at: http://transportation.house.gov/calendarieventslngle.aspx:?EventlD=398734. 82 See e.g. S. 1820, Early Participation In Regulations Act of2015 (114'' Congress) available at 

https:llwww.congress.gov/bill/114th-congress/senate-bill/1820. 

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The Occupational Safety and Health Administration's cranes and derricks rule, adopted in 20 I 0, 

is designed to improve construction safety. By the late 1990s, construction accidents involving 

cranes were killing 80 to I 00 workers a year. OSHA later estimated that a modernized rule 

would prevent about 20 to 40 of those annual tragedies. Worker safety advocates and the 

construction industry alike wanted an updated rule. 

Nonetheless, it took a dozen years to get a final rule adopted. "During the dozen years it took to 

finalize the cranes rule," a Public Citizen report summarized, "OSHA and other federal agencies 

held at least 18 meetings about it. At least 40 notices were published in the Federal Register. 

OSHA was required by a hodgepodge of federal laws, regulations and executive orders to 

produce several comprehensive reports, and revisions to such reports, on matters such as the 

makeup of industries affected by the rule, the number of businesses affected, and the costs and 

benefits of the rule. OSHA also was repeatedly required to prove that the rule was needed, that 

no alternative could work, and that it had done everything it could to minimize the effects on 

small businesses. The regulatory process afforded businesses at least six opportunities to weigh 

in with concerns that the agency was required to address. "

83 

3. Silica rule. 

After more than a dozen years of delay, OSHA's life-saving silica dust standard is finally set to 

take effect this year. More than two million workers in the United States are exposed to silica 

dust, especially construction workers and others who operate jackhammers, cut bricks or use 

sandblasters. Inhaling the dust causes a variety of harmful effects, including lung cancer, 

tuberculosis, and silicosis (a potentially fatal respiratory disease). The rule will reduce the 

permissible exposure limit for silica to 50 micrograms per cubic meter (from the currently 

allowed 100) over an 8-hour workday. "OSHA estimates that the proposed rule would prevent 

between 579 and 796 fatalities annually-375 from non-malignant respiratory disease, !51 from 

end-stage renal disease, and between 53 and 271 from lung cancer-and an additionall,585 

cases of moderate-to-severe silicosis annually."84 

The new standard requires employers to measure exposures, conduct medical exams for workers 

with high exposures and train workers about the hazards of silica. It requires effective measures 

to reduce silica exposure, which "can generally be accomplished by using common dust control 

methods, such as wetting down work operations to keep silica-containing dust from getting into 

the air, enclosing an operation ('process isolation'), or using a vacuum to collect dust at the point 

where it is created before workers can inhale it,"85 while giving businesses flexibility in choosing 

appropriate control methods. 

83 Lincoln, T. and Mouzoon, N. (2011, April.) Cranes & Derricks: The Prolonged Creation of a Key Public Safety 

Rule. Public Citizen. p. 4. Available from: <http://www.citizen.org/documents/CranesAndDerricks.pdt>. 84 OSHA. (2013). Preliminary Economic Analysis and Initial Regulatory Flexibility Analysis: Supporting document 

for the Notice of Proposed Rulemakingfor Occupational Exposure to Crystalline Silica. Available at: 

https; ·,www.o.c,ha.gov/silica/Silica PEA. pdf. 85 OSHA, OSHA's Proposed Crystalline Silica Rule: Overview, available at: 

https:l/www.osha.gov/silica/factsheets/OSHA FS-3683 Silica Overview.html. 

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OSHA has long acknowledged that its current silica dust standard, adopted in 1971, is obsolete. 86 

The first concrete action it took to update the standard was in October 2003, when it convened a 

small business panel to review its proposed rule. In 2011, OSHA submitted to OIRA a draft 

proposed rule to reduce exposure to deadly silica dust. Although OIRA is supposed to complete 

reviews in three months, it took years for OIRA to complete the review. No explanation for this 

delay ever emerged. After OIRA finally released the rule, the rule remained stuck at OSHA. 

Dating to OSHA's 1998 move of silica exposure standards to the pre-rule stage, the inexcusable 

delay in finalizing an updated health standard translates into the needless deaths of roughly 

12,000 people. Inexcusable is really far too gentle a term; the industry-led obstruction of the rule 

cost thousands of lives- not statistical abstractions, but the lives of real workers. 

Silica-related disease is not evenly distributed across the U.S. population. As a result, the 

benefits ofthe new rule will be felt most strongly among working class communities and 

communities of color. In Michigan, studies show the incidence of silicosis in African Americans 

is almost 6 times greater than that of Caucasians. 87 Latino workers now constitute 24 percent of 

the workforce in foundries, and almost 26 percent ofthe workforce in construction, are 

especially at risk for working jobs where silica dust exposure is paired with a lack of protection. 

OSHA estimates the rule will provide average net benefits of about $2.8 to $4.7 billion annually 

over the next 60 years (benefits calculated by assigning a dollar value to each anticipated life 

saved and illness avoided). 

4. Truck driver training. 

In 1991, Congress passed a law requiring a rulemaking on training for entry-level commercial 

motor vehicle operators. More than 20 years, three lawsuits, and another statutory mandate later, 

the Department of Transportation still has not enacted regulations requiring entry-level drivers to 

receive traininlf in how to drive a commercial motor vehicle. It now says it plans to complete the 

rule this year. 8 

In the Intermodal Surface Transportation Efficiency Act (IS TEA) of 1991, Congress required the 

Secretary of Transportation to report to Congress on the effectiveness of private sector training 

of entry-level commercial motor vehicle drivers by December 18, 1992, and to complete a 

rulemaking proceeding on the need to require training of all entry level drivers of commercial 

motor vehicles by December 18, 1993. The required report, which was submitted to Congress on 

February 2, 1996 (sligbtly more than three years later), concluded that training of new 

commercial motor vehicle drivers was inadequate; in an accompanying analysis, the agency 

determined that the benefits of an entry-level driver training program would outweigh its costs. It 

86 OSHA Occupational Exposure to Crystalline Silica, 75 Fed. Reg. 79.603 (2010, Dec. 20). 87 Rosenman, K. and Reilly, M.J. (2014, July 1). 2012 Annual Report Tracking Silicosis and Other Work-Related 

Lung Diseases in Michigan, Michigan State University, available at: 

http:· /W\\W.oem.msu.edu/userti !t:s/t'ile/ i\nnuaJI~'o20Repm1s/S il ica/20 l2S ilicosis OccLunoDisease 1\nnRpt.pd C 

"A full account of this history is included in In Re Advocates for Highway and Auto Safety: Petition for Writ of 

Mandamus, September 18,2014. Available fi-om: 

<http://www.citizen.org/documents/in-re-advocates-for-highway-and-auto-safety-petition-for-writ-ofmandamus.pdt>. 

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requested comments on the studies and held one public hearing on training entry-level drivers. In 

the next six years, however, the agency took no steps towards issuing a rule on entry-level driver 

training. 

In November 2002, organizations concerned about motor vehicle safety filed a petition for a writ 

of mandamus in the DC Circuit Court of Appeals, seeking an order directing the Secretary of 

Transportation to fulfill his statutory duty to promulgate overdue regulations relating to motor 

vehicle safety, including the regulation on entry-level driver training. As part of a settlement 

agreement between the organizations and DOT, DOT agreed to issue a final rule on minimum 

training standards for entry-level commercial motor vehicle drivers by May 31, 2004. 

On August 15,2003, almost 12 years after ISTEA was enacted, DOT (through the Federal Motor 

Carrier Safety Administration, FMCSA) published a notice of proposed rulemaking on minimum 

training requirements for entry-level commercial motor vehicle operators, and on May 21,2004, 

it published a final rule. 

Although the agency expressly acknowledged that training for entry-level drivers was inadequate 

and stated its belief that a 360-hour model curriculum developed by the Federal Highway 

Administration that includes extensive behind-the-wheel training "represents the basis for 

training adequacy," it proposed instead a weak rule that required only 10 hours of training. 

Advocates for Highway and Auto Safety, among others, subsequently filed a petition for review 

of the final rule, arguing that the rule was arbitrary and capricious because it did not require 

entry-level drivers to receive any training in how to operate a commercial motor vehicle. The DC 

Circuit agreed, holding that the FMCSA had "adopted a final rule whose terms have almost 

nothing to do with an 'adequate' CMV [commercial motor vehicle] training program." 

On December 26, 2007, approximately two years after the court ruling, FMCSA issued a 

stronger proposed rule. But, four years after the comment period had closed, the agency still had 

not issued a final rule. 

In 2012, Congress again directed DOT to conduct a rulemaking on the issue, requiring a final 

rule by October I, 2013. 

Yet instead of moving forward, the FMSCA published notice in September 2013 that it was 

withdrawing its proposed rule. 

We still have no proposed rule. In September 2014, Public Citizen with Advocates for Highway 

Safety filed another lawsuit, on behalf of a number of parties, asking that the agency be ordered 

to issue a rule in compliance with the law. That case is now stayed, in reliance on an agency 

statement that it plans to issue a rule by September 2016. 

More than 20 years have passed since Congress ordered the DOT to adopt an appropriate truck 

driver training rule, and there is still no rule. This is due in large part to the agency's overly cozy 

relationship with the trucking industry. Congress has mandated a driver training rule-twiceout of the recognition that better driver training will save lives; and the two-decade-long refusal 

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of the agency to comply with Congressionally imposed obligations means lives have been-and 

continue to be-lost needlessly. 

5. Backover rule89 

One night in 2002, Dr. Greg Gulbransen was backing up his SUV in his driveway when his twoyear-old son Cameron darted out into the driveway behind the vehicle. Too small to be seen by 

his father using any of the vehicle's rearview or sideview mirrors, Cameron was struck by the 

moving car and killed. Dr. Gulbransen's tragedy is not an isolated case; each week, 50 children 

are injured, two fatally, in these "backover" crashes, that is, collisions in which a vehicle moving 

backwards strikes a person (or object) behind the vehicle. Each year on average, according to the 

Department of Transportation, backovers ki11292 people and injure 18,000 more-most of 

whom are children under the age of five, senior citizens over the age of75, or persons with 

disabilities. Backovers generally occur when the victim is too small to be seen in the rearview 

mirror of the vehicle or too slow to move out of the way of the vehicle, even one moving at slow 

speed. 

To prevent the injuries and deaths caused by backovers, in 2008 Congress passed and the 

President signed the Cameron Gulbransen Kids Transportation Safety Act. The Gulbransen Act 

directed DOT to revise an existing federal motor vehicle safety standard to expand the area that 

drivers must be able to see behind their vehicles. (This can be done through the use of rear-view 

cameras, or other technologies.) The Gulbransen Act mandated that DOT issue the final rule 

within three years of the law's enactment-by February 28, 2011. The Act also allowed DOT to 

establish a new deadline for the rulemaking, but only if the otherwise-applicable deadline 

"cannot be met." 

When it prepared a draft final rule in 2010, DOT estimated that the proposed rule, which 

specified an area immediately behind each light vehicle that a driver must be able to see when 

the car is in reverse gear, would prevent between 95 and 112 deaths and between 7,072 and 

8,374 injuries each year. 

DOT failed to meet the February 2011 deadline. Instead, DOT repeatedly set a new "deadline," 

failed to meet it, and then set yet another "deadline," although the agency never made a showing 

that the statutory deadline could not be met. 

In light of the extent of the delay, the repeated self-granted extensions, and the hundreds of 

preventable deaths and thousands of preventable injuries that will occur while the public waits 

for the final rule, Public Citizen filed a petition with the United States Court of Appeals for the 

Second Circuit seeking a writ of mandamus compelling DOT to issue the rule within 90 days. 

The petition was filed September 25, 2013 on behalf of Dr. Gulbransen, Sue Auriemma (another 

parent who backed into her own child), and the consumer safety groups Advocates for Highway 

and Auto Safety, KidsAndCars.org, and Consumers Union. On March 31, 2014, one day before 

89 A full account of this history is available from In Re Dr. Greg Gulbransen: Petition for a Writ of Mandamus, 

September 25, 2013. Available from: <http://www.citizen.org/documents/In-rc-Gulbransen-Backover-Petition.pdf>. 

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the Second Circuit was scheduled to hear argument in the case, DOT issued the rear visibility 

safety standard that petitioners sought. 

In this case, much remains unknown about the cause of the protracted delay. The department had 

been on track to issue a rule by or near the Congressional deadline, but then pulled back. It is 

widely believed that the rule was delayed by OIRA out of concern about the agency's costbenefit analysis-the auto makers predictably made unrealistic claims about potential cost--or 

by political intervention from high officials in the White House. 

Whatever the cause, that delay led to the pointless deaths of hundreds and tens ofthousands of 

injuries. What a horrible tragedy it is for a parent to live with the knowledge that he or she ran 

over their child. But what a monstrous outrage for those tragedies to perpetuate because 

corrective action was delayed due to inappropriate political influence. 

6. Executive pay ratio rule. 

Section 953(b) of the Dodd Frank Act requires companies to disclose the ratio of CEO-to-median 

workers' pay. This is perhaps the simplest of Dodd Frank required rules. Companies already 

disclose their CEO compensation. Basic accounting requires them to know what they pay their 

employees, and determining the median pay for all employees is a simple enough determination. 

Figuring out the ratio between the two is a simple enough arithmetic calculation. Somehow, 

however, the nation's biggest firms have proffered the view that such a disclosure requirement 

and calculation would be incredibly burdensome. This hard-to-swallow claim, apparently, 

paralyzed the Securities and Exchange Commission. It proposed a rule in September 2013 with a 

standard 60-day comment period; but the final rule was not issued until August 2015. This is a 

modest measure to be sure-though it will provide important information to both investors and 

employees-but precisely because of its simplicity, the SEC should have been able to issue a 

rule expeditious!y90 

7. Blowout Preventers 

The April 20, 20 I 0 explosion aboard the Deepwater Horizon in BP' s Macon do Prospect killed 

II people and ultimately spewed 5 million barrels of oil directly into the Gulf of Mexico until 

the Coast Guard finally certified that efforts to permanently plug the well succeeded after 5 

months. 

The disaster was the result of cascading failures by all parties involved: BP, the manager of the 

operation; Transocean, the owner of the semi-submersible oil exploration platform; Halliburton, 

the company in charge of the oil well cementing; and Cameron International Corp., the Houston 

supplier of the failed blowout preventer. Cameron ended up agreeing to pay BP $250 million in 

December 2011 to settle the company's legal liabilities associated with the failures of its blowout 

preventer.91 

90 See Naylor, B. (20 15, June 2.) Mary Jo Wait. Huffington Post. Available from: 

<http://www.huffingtonpost.com/bartlett·naylor/mary-jo-wait b 7494336.html>. 91 Tom Fowler, "Cameron Will Pay BP to Settle Spill Claims,;; Wall Street Journal, December 17, 2011, available 

at: "" ".w;j.como'artick"ISB I 0001424052970204466004577102050498485784. 

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Cameron's blowout preventer was a five-story, 400-ton device that sat on the ocean floor, 

connected to the wellhead, that was supposed to "contain pressure within the well bore and halt 

an uncontrolled flow of hydrocarbons to the rig,"92 known as a blowout. A blowout preventer 

features a number of different components to allow deep water drillers to maintain well control, 

including the device's last line of defense, a blind shear ram, that cuts the drill pipe to seal the 

well in the event of a blowout. But all of Cameron's blowout preventer features failed on April 

20 and in the days afterword. 

Subsequent independent investigations detailed the failures of blowout preventers to be properly 

designed and tested to successfully prevent blowouts in deep sea drilling operations. 

President Obama created the National Commission on the BP Deepwater Horizon Oil Spill and 

Offshore Drilling one month after the explosion.93 The Commission's final report, issued in 

January 2011, faulted the industry's reliance on self-testing by blowout preventer manufacturers 

and well operators, and the fact that these tests were done on land, rather than under pressure 

deep underwater. In addition, the Commission recommended "design modifications" in blowout 

preventers to ensure they are "equipped with sensors or other tools to obtain accurate diagnostic 

information."94 

This self-certification that failed to replicate actual operating conditions was one reason that the 

U.S. Department of Interior proposed new rules governing just the testing blowout preventers on 

September 30,2010,95 including a new requirement for "independent third party verification that 

the blind-shear rams are capable of cutting any drill pipe in the hole under maximum anticipated 

surface pressure," minimum personnel training requirements for blowout preventer operators, 

and additional required testing once the blowout preventer is installed on the seafloor. 96 While 

first proposed in September 2010, the rule for third-party, independent, real-condition testing of 

blowout preventers did not become final until August 2012.97 

92 National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, Final Report, January II, 

2011, p. 114, available at: 

h1tp:/icvberccmetcrv.unt.edu/archivc/oilspilli~O I :21 :21 1 005636/hup://wvv·w .oi lspi!lcommission.gov/sitcs/dcf:miL'flles 

/ docu ments/Finrll Report Part I l.pdf. 93 www.whitehouse.gov/the-press-office/executive-order-national-commission-bp-deepwater-horizon-oil-spill-andotfshore-dri 

94 National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, Final Report, January II, 

2011, p. 35, available at: 

hlU!2.£X.QerceLn etery .unt. edp/archive/ o i lsp UL~_Q..U_I.2 I I 00 5 63 6. 1http:.'i\vww. o i Is pi llcom.m ission. gov is ites/ de fau It I files 

· docu ments/F i naiReport Part 11. pdf. 95 \V\\ w. do i. go v 1

11C\vs. prcssrc I cascs/Salatar-Announces-Regu lations~to-Strcngthenw Dri II ing-Safetv-Reduce-Risk -ofHuman-Enor-on-Off.:.;hore-Oil-and-Gas-Opcrations. 

96 W\\ \\ .doi.gov:sites/cloi.gov/files/migrated 1

!le\vsipressreleases 'upload iQ93 01 0 Pact -Sheet Drilling-SafetyRule.pdf. 

97 Final Rule, available at: 

www.bscc.gov;uplondcdFilesi£3SEE/Regulations and Guidancc/Ryccntly Finalized Rules/Final Drilling Safety 

Ru l_c/ AA02%,20FR %20publication%20( 08-22-1 ::m:9_~Ql.l1lliif. 

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While third-party, independent, real-condition testing is important, investigations concluded that 

a bigger challenge was that blowout preventers needed to be redesigned to actually work 

effectively. 

A December 2011 report by the National Academy of Engineering concluded that blowout 

preventer systems "are neither designed nor tested to operate in the dynamic conditions that 

occurred during the accident" and should be "redesigned, rigorously tested, and maintained to 

operate reliably."98 

Similarly, on April 12, 2016, the U.S. Chemical Safety and Hazard Investigation Board released 

a draft report on the Deepwater Horizon disaster, with one of their primary conclusions: "Testing 

limitations masked latent failures of the Deepwater Horizon BOP, affecting its operation 

on the day of the incident, and these latent failures will continue to exist for similarly designed 

blowout preventers unless modifications are made to current standard industry testing 

protocols"99 (emphasis added). 

The origins of the latest blowout preventer rule, designed to overhaul the design of blowout 

preventers, began with a technical conference hosted by the Bureau of Safety and Environmental 

Enforcement in May 2012, 100 with then-Deputy Interior Secretary David Hayes claiming a 

proposed rule would come by September 2012. 101 

But the Bureau of Safety and Environmental Enforcement didn't send its proposed rule to the 

Office oflnformation and Regulatory Affairs until December II, 2014. 10 The proposed rule 

wasn't published in the Federal Register until April2015103 The final rule wasn't released until 

April, 2016. 

It is unfathomable that the primary regulatory response to the worst environmental disaster in 

U.S. history took six years. Indeed, "unfathomable" was the very term used to describe the delay 

by S. Elizabeth Birnbaum, the head of the Minerals Management Service at the time of the BP 

oil blowout- a full two years before the final rule was issued! 

It's unfathomable that the administration has failed to act on the findings of the 

December 2011 report of the National Academy of Engineering, which gave us some 

very bad news about Deepwater Horizon's blowout preventer. 

98 National Academy of Engineering, Macondo Well-Deepwater Horizon Blowout, December 14,2011, available at: 

\-\'W\v.nac.edu1Publications/Reports/53926.a~. 

99 U.S. Chemical Safety and Hazard Investigation Board, "Drilling Rig Explosion and Fire at the Macondo Well," 

April 20, 20 I 0, p. 8, available at: 

W\\'W .Jropbox .com 1s/ oadxmn7 me Ox bd g9 12 0 1604 l2~~o:w Macond o';-'010 ru 11~·02 OExe..::%2 OS ummarv. pdf. 100 www. bsee .gov /BSEE-Newsroom/Press-Releases/20 12/Secretary -Salazar,-B SEE-Director-Watson-to-Kick -OffTechnical-Forum-on-Next-Generation-Biowout-Preventer-and-Control-Systems/ 

101 Paul Voosen, "Regs for blowout preventers imminent." Green wire. May 22,2012. 102 Phil Taylor, "White House reviewing rule to reduce blowout threats," E&E Reporter, December 15, 2014. 103 Final Rule, 

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Its massive cutting blades were supposed to slice through the drill pipe to stop the flow of 

gushing oil. But it turned out that these huge pieces of equipment were not adequately 

engineered to stop emergency blowouts in deep water. 

The academy's report was detailed and damning. Deepwater Horizon's blowout 

preventer "was neither designed nor tested for the dynamic conditions that most likely 

existed at the time that attempts were made to recapture well control," the report said. 

More troubling, the shortcomings of Deepwater's equipment "may be present" at other 

deepwater drilling operations, the report said. 

Administration officials promised an immediate response to the N.A.E. report, including 

regulations to set new standards for blowout preventers by the end of2012. Today, 16 

months after that deadline and four years after the blowout, we still have not seen even 

proposed rules. Deepwater drilling continues in the gulf. New leases are being offered by 

the government and sold to energy companies each year. Yet the N.A.E. report warned 

that a blowout in deep water may not be controllable with current technology. 104 

We may have escaped another BP-style disaster as a result of this unconscionable regulatory 

delay, but if so, it has merely been a matter of luck. The American people deserve better. 

8. Pipeline Safety 

Oil and gas pipeline spills have long been a concern for the public but the situation has 

deteriorated significantly since 2010. Major pipeline incidents have occurred in communities 

across the country, including Marshall, Michigan; San Bruno, California; Allentown, 

Pennsylvania; Sissonville, West Virginia; Harlem, New York; Mayflower, Arkansas; two spills 

into the Yellowstone River; in South Dakota a few days ago; and too many more. 

In response, Congress passed a critical new pipeline safety bill in 20 ll that required the Pipeline 

and Hazardous Materials Safety Administration (PHMSA) to produce dozens of new pipeline 

safety rules. Unfortunately, after almost 5 years, the law has yet to make any pipelines safer or 

prevent any future pipeline spills. This is because a broken regulatory process has left PHMSA 

unable to finalize a single new major safety rule despite strict deadlines set out by Congress in 

the law. As Cal Weimer of the Pipeline Safety Trust told the House Committee on 

Transportation and Infrastructure, there are several factors that have made PHMSA's rulemaking 

process dysfunctional and ineffective. Most important is that PHMSA must meet a demanding 

and rigid cost-benefit analysis standard when producing new safety rules. This requirement 

stems from the 1996 re-authorization of the pipeline safety program and was part of a broader 

and concerted effort in the mid-1990s to codify Executive Order requirements from Presidents 

Reagan and Clinton regarding regulatory cost-benefit analysis. Twenty years later, the results of 

this effort are clear: rather than improving rulemaking at PHMSA, cost-benefit analysis has led 

to regulatory paralysis at the agency. Specifically, pipeline operators control the information 

PHSMA requires to meet its cost-benefit requirement and are reluctant to agree to new reporting 

requirements that would provide this information to PHMSA. This put PHMSA in the "catch 22" 

104 S. Elizabeth Birnbaum and Jacqueline Savitz, "The Deepwater Horizon Threat," New York Times, Aprill6, 

2014, available at: hllp:i/www.nvtime,.com 1

20 14!04/17 iopinionilhc-dcffillil_tcr-horizon-threat.htmJO r-0. 

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of not being able to fix pipeline safety problems because it does not have the information to 

understand what and where the problems are at the outset. Making matters worse, PHMSA needs 

more resources and staff to meet its stringent cost-benefit requirement and often encounters 

delays entirely outside its control when its rules under~o excessively lengthy reviews at the 

Office oflnformation and Regulatory Affairs (OIRA). 05 

To illustrate the problems PHMSA encounters in meeting its cost-benefit mandate, one only has 

to look at PHMSA' s inability to regulate rural natural gas gathering lines. These pipelines pose 

many of the same risks as transmission pipelines, but because they are located in rural areas 

outside of the jurisdiction of any federal or state pipeline safety jurisdiction, there is little to no 

collection of information with respect to these pipelines. Thus, it is nearly impossible for 

PHMSA to pass regulations on rural natural gas gathering lines because PHMSA is unable to 

determine, much less quantify, the costs and benefits of the regulation. 

Remedies: There needs to be much more Congressional oversight of rulemaking delay. The 

agencies appear to treat congressionally mandated deadlines for the issuance of new rules as 

suggestions rather than duties; it is up to Congress to hold them accountable. 

The problem of industry exercising inappropriate influence at regulatory agencies, or even 

through the White House, is not easily cured. One important step to help would be new 

legislation to slow the revolving door between regulatory agencies and regulated parties. When 

agency officials and staff slide back-and-forth between working for the public and working on 

behalf of regulated parties, it's only natural that they will be overly sympathetic to industry when 

in public service, more deferential to requests for delay and less urgent in their advocacy for the 

public interest. The revolving door is a fundamental feature of the regulatory state. A recent 

report from the Project on Government Oversight (POGO) highlighted the pervasiveness of the 

problem at one agency, the Securities and Exchange Commission, finding that "from 200! 

through 2010, more than 400 SEC alumni filed almost 2,000 disclosure forms saying they 

planned to represent an employer or client before the agency." And those disclosures, POGO 

notes, "are just the tip of the iceberg, because former SEC emfloyees are required to file them 

only during the first two years after they leave the agency." 10 

Appropriate statutory reform would require longer cooling off periods before ex-agency staff can 

lobby their former agency for pecuniary purposes, broader detinitions of what constitutes 

lobbying activity, strong rules against the reverse revolving door (persons moving from regulated 

industry employment to regulating agencies) and with high standards for any exceptions. 

OIRA-caused delay is a less significant problem than earlier in the Obama administration, but 

reforms are necessary to ensure the agency does not contribute to delay or inappropriately 

105 Cal Weiner, Pipeline Safety Trust, testimony on "Reauthorization of DOT's Pipeline Safety Program, before the 

Subcommittee on Railroads, Pipelines and Hazardous Materials of the Committee on Transportation and 

Infrastructure, February 25, 2015, available at: http: :/transportationJlOuse.govluploadedfiles/20 16-02-?5-

weimer.pdf. 

106 Project on Government Oversight. (2013, February II.) Dangerous Liaisons: Revolving Door at SEC Creates 

Risk of Regulatory Capture. Available from: <http://pogoarchives.orglebooks/20130211-dangerous-liaisons-secrevolving-door.pdt>. 

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weaken rules. OIRA processes are closed and non-transparent. 107 What is known is that OIRA 

meetings with outside parties are dominated by regulated industries (with industry meetings five 

times more prevalent than those with public interest groups), and that meetings correlate with 

changes in rules. 108 If OIRA is going to continue to its current function, it must be subject to 

much more transparency requirements. For example, agencies should put in the rulemaking 

docket all documents submitted to OIRA, and all changes and comments that they receive on 

proposed and/or final rules from OIRA or other agencies. 

Most importantly, Congress must not act to make the problem of regulatory delay worse. In 

recent years, there have been numerous legislative proposals to further hinder agencies' abilities 

to do their jobs, imposing vast new analytic requirements on agencies and increasing the scope of 

OIRA authority. To review the record of persistent regulatory delay-and to recognize the 

degree to which current analytic requirements are responsible for that delay-is to understand 

how misguided these proposals are, and how serious would be their consequences. Many of these 

proposals would require agencies to perform new and additional cost-benefit analyses, a 

particularly flawed approach which 1 discuss in more detail below. 

B. Strengthening regulatory enforcement 

In general, it is fair to say that the inspection agencies are understaffed and under-resourced. 

Nowhere is the shortfall of inspectors more glaring than in the workplace safety and health area. 

"The federal Occupational Safety and Health Administration (OSHA) and the state OSHA plans 

have a total of 1,882 inspectors (8947 federal and 1,035 state inspectors) to inspect the 8 million 

workplaces under the OSH Act's jurisdiction," according to an AFL-CIO analysis. "This means 

there are enough inspectors for federal OSHA to inspect workplaces once every 140 years, on 

average, and for state OSHA plans to inspect workplaces once every 91 years." 109 Our nation's 

workers deserve better. 

To take another example among many, there is general agreement that the Food and Drug 

Administration (FDA) does not have sufficient resources to meet its statutorily mandated 

responsibilities to ensure the safety of drugs and medical products, including through inspection 

of overseas plants. "Our current examination of FDA's resources confirms that the agency's 

ability to protect Americans from unsafe and ineffective medical products is compromised," the 

GAO recently found. 110 GAO explained that "[tjhe structure of the agency's funding-its reliance 

on user fees to fund certain activities, particularly those related to the review of new products-is 

107 Government Accountability Office. (2009, April.) Federal Rulemaking: Improvements Needed to Monitoring and 

Evaluation of Rules Development as Well as to the Transparency ofOMB Regulatory Reviews. Available from: 

<http://www.gao.gov/new.items/d09205.pdf>. 

108 Steinzor, R., Patoka, J. and Goodwin, 1. Behind Closed Doors at the White House: How Politics Trumps 

Protection of Public Health, Worker Safety and the Environment. Center for Progressive Reform. 2011. Available 

from: <http://www.progressivereform.org/articles/OIRA_Meetings_llll.pdf>. 109 AFL-CIO. (2015, April.) Death on the Job: The Toll ofNeglect. p. 1. Available from: 

<http://www .atlcio.org/content/download/154671/3 868441/DOTJ20 15Finalnobug.pdt>. 110 Government Accountability Office. (2009, June.) Food and Drug Administration: FDA Faces Challenges 

Meeting Its Growing Medical Product Responsibilities and Should Develop Complete Estimates of'Jts Resource 

Needs. p.34. Available from: <http://www.gao.gov/new.items/d0958l.pdt>. 

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a driving force behind which responsibilities FDA does and does not fulfill. The approval of new 

products has increasingly become the beneficiary of the agency's budget, without parallel 

increases in funding for activities designed to ensure the continuing safety of products, once they 

are on the market." 

Of course, the issue with adequate enforcement is not solely a matter of resources. Many 

agencies do an inadequate job of enforcing rules due less to resource limitations than issues 

involving allocation of resources, prioritization and/or insufficient rigor. The 2013 fungal 

meningitis outbreak, for example, could and should have been prevented by FDA. The agency 

issued a warning letter to the New England Compounding Center in 2006, instructing the 

company to stop manufacturing-scale operations. However, FDA failed to follow up adequately. 

For whatever reason, whether inattentiveness or lack of compliance and legal resources, by not 

aggressively enforcing the regulations related to drug manufacturing and interstate commerce, 

the FDA allowed the company to continue its wide-scale manufacturing and interstate 

distribution operation of multiple high-risk drugs, including injectable steroids. The eventual 

result was the meningitis outbreak and 48 deaths. 111 

The GM ignition switch debacle provides another example of regulatory failure-resulting in at 

least Ill deaths, and climbing. What is unique here is that the agency, now under new 

leadership, acknowledges its failures. A recent NHTSA report blames GM for its horrible 

misconduct, but also assigns major responsibility to NHTSA itself. 112 The report's major 

findings: 

• GM withheld critical information about engineering changes that would have allowed 

NHTSA to more quickly identify the defect. 

NHTSA did not hold GM accountable for providing inadequate information. 

Neither GM nor NHTSA completely understood the application of advanced air bag 

technology in GM vehicles. 

• NHTSA did not consider alternate theories proposed by internal and external sources. 

• NHTSA did not identify and follow up on trends in its own data sources and 

investigations. 

Remedies: The agency resource problem is easily solved with sufficient political will, though 

budget tightening efforts have cramped rather than expanded enforcement budgets. This is surely 

a penny wise but pound foolish approach. In areas where regulators are able to apply stiffer 

penalties, they may be able to bring more money into the treasury than they expend. Far more 

important is the social cost accounting: the economic benefits of properly enforced laws vastly 

exceed costs. This is most obviously true in the financial sector, as the discussion earlier 

regarding the Great Recession and regulatory failure elaborates, but it is true in virtually all 

areas. The economic benefits of reducing food contamination through inspection and regulatory 

enforcement, for example, vastly exceed costs. Indeed, if regulatory budgets were set based on 

111 See Carome, M. and Wolfe, S. (2012, October 24.) Letter to Secretary of Health and Human Services Kathryn 

Sebelius. Available from: <http://www.citizen.org/documents/2080.pdf>. 112 Department of Transportation (2015). NHTSA's Path Forward. Available from: 

<http://www.nhtsa.gov/ About~NHTSA/Press+Releases/nhtsa-forming-new-safety-teams>. 

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the kind of cost-benefit analyses that are applied to new regulation, they would be dramatically 

larger. 

Ensuring a sufficiently robust enforcement culture at regulatory agencies is not a problem that 

lends itself to a simple solution, though and stronger Congressional oversight of agency 

enforcement would go a long way. The NHTSA example of critical self-reflection in the wake of 

horrendous failure-a major change for the agency-should be monitored, studied and, 

assuming it does generate a change in the culture and practice at the agency, emulated. 

C. An Appropriate Role for Cost-Benefit Analysis 

Whatever the benefits of cost-benefit analysis as a tool to assist in regulatory decision-making, it 

should be recognized that cost-benefit analysis is highly imperfect and, at least as implemented 

in the real world, suffers from a set of flaws that tend to systematically skew in favor of 

regulated parties and against the broader public interest, by overestimating costs and 

underestimating benefits. Even ardent supporters of cost-benefit analysis, such as Cass Sunstein, 

the former OIRA administrator, argue that cost-benefit analysis is more appropriate as a 

guidance tool for agencies, rather than as a definitive metric directing agencies into a particular 

course of action. 113 As such, it would be a mistake to require any additional cost-benefit analysis 

in the regulatory system, or to give it a more prescriptive role in regulatory decision making. 

The problems with cost-benefit analysis are legion. 

First, regulated industry typically has an undue influence over cost estimates, in large part 

because it controls access to internal corporate information, as well as because of its ability to 

commission studies that tend to support the interest of their funders. This information asymmetry 

is a significant problem in the conduct of cost-benefit analysis, including because businesses may 

not provide important cost information or disclose methodological assumptions in their 

submitted cost estimates. 114 

It should not be controversial to recognize that corporations have a natural bias to overestimate 

cost of rules that may affect the way they conduct business. As a result, while there is a long 

history of industry claiming that the next regulation under consideration would unreasonably 

raise the cost of doing business, those claims routinely prove to be overblown. 

Bankers and business leaders described the New Deal financial regulatory reforms in 

foreboding language, warning that the Federal Deposit Insurance Commission and related 

agencies constituted "monstrous systems," that registration of publicly traded securities 

constituted an "impossible degree of regulation," and that the New Deal reforms would 

113 U.S. Senate Comm. on Homeland Sec. and Governmental Affairs, Pre-hearing Questionnaire for the Nomination 

ofCass R. Sunstein to Be Administrator of the Office of information and Regulatory Affairs, p. 5. Available from: 

<http://www.ombwatch.org/fileslregs/PDFs/Sunstein_questions.pdf>. ("[C]ost-benefit analysis is a tool meant to 

inform decisions; it should not be used to place regulatory decisions in an arithmetic straightjacket"). 114 Ruttenberg, R. (2004). Not Too Costly, After All: An Examination of the Inflated Cost Estimates of Health, 

Safety and Environmental Protections. Available from <https:l/www.citizen.org/documents/ACFI87.pdf>. 

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"cripple" the economy and set the country on a course toward socialism. 115 In fact, those 

New Deal reforms prevented a major financial crisis for more than half a century-until 

they were progressively scaled back. 

• Chemical industry leaders said that rules requiring removal of lead from gasoline would 

"threaten the jobs of 14 million Americans directly dependent and the 29 million 

Americans indirectly dependent on the petrochemical industry for employment." In fact, 

while banning lead from gasoline is one of the single greatest public policy public health 

accomplishments, the petrochemical industry has continued to thrive. The World Bank 

finds that removing lead from gasoline has a ten times economic payback. 116 

Big Tobacco long convinced restaurants, bars and small business owners that smokefree 

rules would dramatically diminish their revenue-by as much as 30 percent, according to 

industry-sponsored surveys. The genuine opposition from small business owners-based 

on the manipulations of Big Tobacco-delayed the implementation of smokefree rules 

and cost countless lives. Eventually, the Big Tobacco-generated opposition was 

overcome, and smokefree rules have spread throughout the country-significantly 

lowering tobacco consumption. Dozens of studies have found that smokefree rules have 

had a positive or neutral economic impact on restaurants, bars and small business. 117 

Rules to confront acid rain have reduced the stress on our rivers, streams and lakes, fish 

and forests. 118 Industry projected costs of complying with acid rain rules of $5.5 billion 

initially, rising to $7.1 billion in 2000; ex-ante estimates place costs at $1.1 billion to $1.8 

billion. 119 

In the case of the regulation of carcinogenic benzene emissions, "control costs were 

estimated at $350,000 per plant by the chemical industry, but soon thereafter the plants 

developed a new process in which more benign chemicals could be substituted for 

benzene, thereby reducing control costs to essentially zero." 120 

• The auto industry long resisted rules requiring the installation of air bags, publicly 

claiming that costs would be more than $1000-plus for each car. Internal cost estimates 

actually showed the projected cost would be $206. 121 The cost has now dropped 

115 Lincoln, T. (20!!). Industry Repeats Itself: The Financial Reform Fight. Public Citizen. Available from: 

<http://www.citizen.orgidocuments/Industry-Repeats-Itself.pdf>. 

116 Crowther, A. (20!3). Regulation Issue: Industry's Complaints About New Rules Are Predictable-- and Wrong. 

p.S. Available from: <http://www.citizen.orgidocuments/regulation-issue-industry-complaints-report.pdf> 117 Regulation Issue: Industry's Complaints About New Rules Are Predictable-- and Wrong. p.l 0. 118 Environmental Protection Agency. Acid Rain in New England: Trend,. Available from: 

<http://www .epa. gov/re gion 1/ eco/acidrain/trends. html>. 119 The Pew Environment Group. (20!0, October).Industry Opposition to Government Regulation. Available from: 

<http://www.pewenvironment.org/uploadedFiles/PEG/Publications/Fact_Sheetllndustry%20Ciean%20Energy%20F 

actsheet.pdf>. 

120 Shapiro, l., & Irons, J. (20!1). Regulation. Employment, and the Economy: Fears ofjob loss are overblown. 

Economic Policy Institute. Available from <http://www.epi.orgifiles/2011/BriefingPaper305.pdf>. 121 Behr, P. (August 13, 1981). U.S. Memo on Air Bags in Dispute. Washington Post. 

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significantly below that. The National Highway Traffic Safety Administration estimates 

that air bags saved 2,300 lives in 2010, and more than 30,000 lives from 1987 to 2010. 122 

There is a long list of other examples from the last century-including child labor prohibitions, 

the Family Medical Leave Act, the CFC phase out, asbestos rules, coke oven emissions, cotton 

dust controls, strip mining, vinyl chloride 123 -that teach us to be wary of Chicken Little 

warnings about the costs of the next regulation. 

Second, cost-benefit analyses tend to include static estimates of cost, based on existing 

technologies and business systems. 13ut industry and our national economy is characterized by 

technological dynamism, and compliance costs regularly fall quickly once new rules are in place. 

Many of the examples above-from benzene to air bags-illustrate this point, and there are 

many other examples. Indeed, regulation spurs innovation and can help create efficiencies and 

industrial development wholly ancillary to its directly intended purpose. 

Looking at a dozen emissions regulations in 1997, Hodges found that early estimates of cost 

were at least double subsequent estimates or actually realized costs. (Interestingly, the Hodges 

study found that while emissions reductions estimated or actual costs fell dramatically over time, 

costs for clean-up typically exceeded estimates-underscoring the case for preventative 

regulation.) 124 

"Part of the reason for the error" of repeated overestimations of regulatory cost," Hodges found 

"is that, over time, process and product technologies change. An estimate of the cost of 

compliance with a particular regulation might be based on one technology while actual 

compliance costs are based on another." Once business must respond to implemented 

regulations, they stop bemoaning them and work to do so as efficiently as possible; technological 

innovation, learning by doing, and economies of scale routinely cut costs far below initial 

estimates. 125 

A decade ago, in a detailed report prepared for Public Citizen, Ruttenberg cited a series of factors 

that explained how technological dynamism led to actual costs far below those estimated in costbenefit analysis: 

• Cost-benefit analyses routinely exhibit inaccurate assumptions about the compliance path 

industry actually follows once new standards are in place; 

122 National Highway Traffic Safety Administration. (20!2). Traffic Safety Facts: Occupant Protection. Available 

from: <http://www-nrd.nhtsa.dot.gov/Pubs/8116!9.pdt>. 123 Regulation fssue: fndustry 's Complaints About Ni?W Rules Are Predictable-- and Wrong; Hodges, H. (1997). 

Falling Prices: Cost of Complying With Environmental Regulations Almost Always Less Than Advertised. 

Economic Policy Institute. Available from: <http://www.epi.org/publication/bp69>; Shapiro,!., & Irons, J. (2011). 

Regulation, Employment, and the Economy: Fears ofjob loss are overblown. Economic Policy Institute. Available 

from: <http://www.epi.org/files/2011/BriefingPaper305.pdt>. 124 Hodges, H. (1997). Falling Prices: Cost of Complying With Environmental Regulations Almost Always Less 

Than Advertised. Economic Policy Institute. Available from: <http://www.epi.org/publicationlbp69> 125 Hodges, H. (1997). Falling Prices: Cost of Complying With Environmental Regulations Almost Always Less 

Than Advertised. Economic Policy Institute. Available from: <http://www.epi.org/publicationlbp69> 

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• Cost-benefit analyses regularly fail to consider new adaptations of existing technologies 

to meet new standards; 

• Cost-benefit analyses generally do not consider the positive effects of learning by doing 

and economies of scale; 

• Cost-benefit analyses often fail to considering adaptations to technology already in place 

in other industries; and 

Cost-benefit analyses typically fail to account for new innovations that follow from new 

regulatory standards. 126 

Ruttenberg highlights the case of vinyl chloride as an illustrative case study. When OSHA began 

developing a new health standard to reduce the risk of workers developing liver cancer, the 

industry claimed that the new standard threatened to "shut down" the industry and estimated 

costs on the order of $65-90 billion. Once the standard was in place, industry quickly 

implemented six technological changes-ranging from improved housekeeping to reduce 

exposures to new computerized production processes that reduced exposures and saved moneywithin 18 months. Retrospective analyses of costs placed them at far below I percent of 

industry's pre-rule analyses, with actual costs placed at between $25 million to $182 million, 

depending on how costs are calculated. 127 

Third, although numerous business trade association papers suggest to the contrary, capitalintensive compliance costs do not continue to accumulate in perpetuity. When a new standard is 

in place, industry invests in improvements or new capital equipment to comply with new rules, 

after which costs are generally not recurring. (There are, to be sure, ongoing compliance costs in 

some instances, notably for ongoing reporting requirements, but those typically do not involve 

costs at the scale of regulations requiring significant capital investments.) One piece of evidence 

in this regard is that while industry regularly and aggressively contests new rules, at least in the 

health, safety and environmental areas, it does not continue to complain about rules once they are 

well established. 128 

Fourth, claims of precision notwithstanding, cost-benefit analysis is open to bizarre and secondand third-order accounting, in practice especially on the cost side. One deeply troubling example 

of bizarre cost-accounting is the "lost pleasure principle," an application of "consumer surplus" 

theory. Under this theory, when a regulation takes away an option from consumers or makes it 

less likely they will choose an option they would have in the absence of the regulation, costbenefit analysis should take into account the resulting "lost pleasure." This is not the kind of 

factor that proponents of cost-benefit analysis would normally factor on the benefit side, to say 

the least, as I discuss further below. But they urge it be considered on the cost side. And the 

value they attribute to this purported cost can be extraordinarily high, since they impute the price 

126 Ruttenberg, R. (2004). Not Too Costly, After All: An Examination ofthe Inflated Cost Estimates of Health, 

Safety and Environmental Protections. Available from <https://www.citizen.org/documents/ACF187.pd1>. pp 22-

32. 

127 Ruttenberg, R. (2004). Not Too Costly, After All: An Examination of the Inflated Cost Estimates of Health, 

Safety and Environmental Protections. Available from <https://www.citizen.org/documents/ACF187.pd1>. pp 32-

33. 

128 Lincoln, T. (2014, September 16.) Streamlining the Rules-Making Process. The Hill. Available from: 

<http:/ /the hi ll.com/blogs/ congrcss-b log/thc-adm i nistration/2 177 5 1-streaml inc-the-rules-making -process>. 

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that consumers were willing to pay for the product pre-regulation as the cost (multiplied by 

number of purchases). 129 

Confoundingly, some economists have even argued for application ofthe lost pleasure principle 

when regulations lead consumers to make new choices simply based on new information; one 

would actually anticipate that consumer welfare increases when consumers are better informed 

and make choices accordingly, with no diminution in consumer "pleasure." If I choose to eat 

apples instead of apple pie because nutrition labeling has educated me on the health impact of 

eating too much apple pie, it hardly makes sense to say a regulation has cost me pleasure. I've 

made my own choice, based on regulation helping me better understand my choices. 

Yet actual economists doing cost-benefit analysis that helps establish new government rules have 

employed exactly this Through-the-Looking-Glass logic. They have done so even in the case of 

an addictive product, cigarettes, 130 where there is a new layer of absurdity because most adult 

users actually say they would like to stop using it. 13 1 

Against all measures of common sense, these economists for a time succeeded in applying the 

lost pleasure principle to food labeling and tobacco regulations. After an ensuing public 

controversy-and deep concern expressed by a number of Senators-the Department of Health 

and Human Services scaled back, at least for now, use of the lost pleasure principle. 132 Thus, it 

appears that the ongoing outrage of the lost pleasure principle interfering with proper standard 

setting-at least in the consumer health area-has been alleviated, for now. But the serious 

suggestion of such an approach, which was held to reduce benefits by as much as 70-90 percent 

in some cases, shows how easy it is to manipulate cost-benefit analysis, and underscores the 

massive imprecision in cost-benefit exercises. 

Fifth, cost-benefit analysis systematically underestimates benefits. New regulatory costs canand should-also be considered benefits in many cases. That is, costs to regulated businesses are 

not the same as social costs. New productive capital investment helps create new demand, 

creates new jobs, and helps spur new technology. These benefits are rarely captured in costbenefit analyses, in part because they are uncertain, in part because they appear to be secondorder effects (even though they are the mirror image of direct costs). Yet these benefits are 

significant, which is why the actual impact on employment of consumer, health, safety and 

129 See Ashley, E., Nardinelli, C. and Lavaty, R. (2015.) Estimating the Benefits of Public Health Policies that 

Reduce Harmful Consumption. 24 Health Economics 5, 617-624. 130 See Begley, S. (2014, June 2.) FDA Calculates Costs of Lost Enjoyment ifE-cigarette Rules Prevent Smoking. 

Reuters. Available from: <http://www.reuters.com/article/20 14/06/02/us-fda-tobacco-insightidUSKBNOEDOA620140602>. 

131 See Chaloupka, F. et. al. (2014, December 30.) An evaluation of the FDA's Analysis ofthe Costs and Benefits of 

the Graphic Warning Label Regulation. Tobacco Control. 10.1136/tobaccocontrol-2014-052022; Song, A., Brown, 

P., Glantz, S. (2014, May 30). Comment on the Inappropriate Application of a Consumer Surplus Discount in the 

FDA's Regulatory Impact Analysis, Docket No. FDA-2014-N-0189. Available from: 

<https:/ltohacco.ucsf.edu/sites/tobacco.ucsf.edulfiles/u9/FDA-comment-consumer-surplus-May30-%20ljy-8cdpqb60.pdf>. 

132 Begley, S. and Clarke, T. (2015, March 18.) U.S. to Roll Back "Lost Pleasure" Approach on Health Rules. 

Reuters. Available from: <http://www.reuters.comlarticle/20 15/03/l8/us-usa-health-lostpleasureidUSKBNOMEODD20150318>. 

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environmental regulation is far less than anti-regulatory forces claim and in many cases may well 

register a net zero or positive impact. 

Cost-benefit analysis also systematically underestimates benefits because of its insistence on, or 

at least strong bias in favor of, monetization. Yet health, safety, consumer, environmental, 

employment and similar regulatory protections yield benefits that are not easily monetized; and 

attempts to translate these benefits into monetary terms almost always fall short of capturing the 

full range of improvements they afford to our standard of living. The benefits of not losing an 

arm, of not choking for air when breathing, of not dying a painful and early death from cancer, of 

not feeling the stress of debt collector calls or the prospect of losing your home go far beyond 

what can be captured in a dollar figure. So too many other benefits of regulation-enhanced 

privacy, dignity, equality, freedom and liberty, fairness, community, a functioning democracy 

and many others-evade easy capture by a dollar figure. 

What is the price tag on the pain a parent feels when they back their car over their child? That's 

not easily answered, but surely the benefit of preventing that pain is real. But such considerations 

generally do not merit inclusion in official cost-benefit analyses. 

When Congress directs the Department of Justice to eliminate prison rape but to avoid 

"substantial additional costs," should the government also conduct a cost-benefit analysis reliant 

in part on what victims would be willing to pay to avoid rape? It is common sense that the 

answer is no, but this actually occurred. Morally revolting on its face, Georgetown University 

Professor Lisa Heinzerling lays bare the logic of this exercise: "In the strange logic and twisted 

morality of cost-benefit analysis, the victim-not the perpetrator-must be willing to pay up to 

avoid the crime." She adds, pointedly, that "rape is a serious crime, not a market transaction" 

and "that framing rape as a market transaction strips it of the coercion that defines it." 133 

Last, and related to the previous point, while perhaps it is unavoidable in some areas of public 

policy, the idea of placing a dollar value on a human life should, at minimum, be approached 

with great hwnility-an attribute one would not normally associate with the practitioners of costbenefit analysis. 

Two years ago, 8 men and women were killed in an Amtrak crash near Philadelphia. 134 The 

National Transportation Safety Board says that crash could have been prevented if Positive Train 

Control technology had been in place, as the NTSB has long advocated. Yet although the NTSB 

has urged adoption of the technology since 1970, and although Congress in 2008 mandated that 

all railroads deploy the technology by December 31,2015, this objective was not met. (Amtrak 

appears to be ahead of most railroads in deployment.) There are plainly many factors accounting 

for the delay in meeting the Congressional mandate. But it may be that one reason for that 

133 Heinzerling, L. (20 12, June 14.) Cost-Benefit Jumps the Shark: The Department of Justice's Economic Analysis 

of Prison Rape. Available from: <http://www .progressivereform.org/CPRB!og.cfrn?idBiog=EB3B070D-F7 A0-

1489-8361 DA6B35ABC 16E>. 134 AP. (2014, May 14.) All8 Fatal Victims in Amtrak Crash Identified. Available from:< http://6abc.comlnewslall8-fatal-victims-in-amtrak-crash-iddl719973>. 

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regulatory delay was that some officials believed that the regulatory standard was not cost 

effective. 135 

That was easy enough to say when the deaths averted were just statistical abstractions. Now, 

with the horrible and apparently preventable deaths of identifiable human beings, things are 

dramatically different. The cost-benefit-analysis-influenced delay of the implementation of 

Positive Train Control technology now seems callous, cruel and fundamentally wrong-and it 

was. But all that has changed is we now replace statistical abstractions with human compassion. 

Remedies: Decision makers should recognize that cost-benefit analysis is a flawed analytic tool 

that may be of some assistance on some occasions, but not one that should be determinative in 

the rulemaking process. At bare minimum, Congress should not act to impose new cost-benefit 

analytic requirements on agencies, or to make cost-benefit determinations more controlling. 

D. Imbalanced and inappropriate judicial review 

Judicial review of agency action is an important and necessary part of our administrative process 

and general system of checks and balances, but judicial review ofrulemakings has gone awry. 

Most major rules are challenged in court upon issuance, and lengthy challenges by regulated 

parties are standard. One significant problem is that there is a major imbalance in the ability of 

regulated parties and the public to challenge rules (or the failure to issue rules) on procedural or 

substantive grounds. A second major problem is the misguided importation by courts of costbenefit requirements into review of agency action. There are other problems related to judicial 

review of agency action, notably an overly expansive view of corporate First Amendment speech 

rights, that are beyond the purview of this testimony, but worth noting. 

1. Imbalanced rights to challenge agency action: the standing problem. 

On behalf of consumers and the public whom all regulation is ultimately intended to benefit, 

Public Citizen has brought numerous challenges to agency regulations during our almost 45-

years of work. The challenges are an important tool for ensuring that agencies adhere to statutory 

requirements and make rational decisions based on the available information. Over the past 20 or 

so years, however, a series of unduly narrow standing decisions have impeded our ability, and 

the ability oflitigants representing the broad public interest, to obtain judicial redress for 

unlawful agency action that will cause them injury. 

The Supreme Court's and DC Circuit's standing decisions aim to confine the federal courts to 

their legitimate function of resolving "actual cases or controversies" and "to prevent the judicial 

process from being used to usurp the powers of the political branches." 136 But in too many cases, 

a court has denied standing to parties who are threatened with "certainly impending" injuries that 

are "fairly traceable" to an agency's action, 137 -even action that they claim violates a clear 

135 See Mann, T. (2013, June 17.) Rail Safety and the Value of a Life. Wall Street Journal. Available from: 

http:llwww.wsj.com/articles/SB 10001424127887323582904578485061024790402; Freedman, D. (2015, May 18.) 

Obama Official Once Said Train-Safety Cost Outweighed Benefit. Connecticut Post. Available from: 

<http:/ lwww .ctpost.corn!local/article/Obama-o fficia !-once-said-train -safety-cost-62 71486. php>. 136 Clapper v. Amnesty Int'/ USA, 133 S. Ct. 1138, 1147 (2013). 137 Clapper v. Amnesty Int'l USA, 133 S. Ct. 1138, 1143 (2013). 

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statutory limit on the agency's authority. In these cases, to dismiss the case for lack of standing 

constitutes an abdication of the judicial function of deciding cases. That abdication is all the 

more serious when, as has happened in several cases, it prevents adjudication of a legal issue that 

has profound national consequences. 

To be sure, "generalized grievances" are not a basis for standing. 138 And we do not suggest that 

the fact that a regulation or policy may be harmful means that the particular parties challenging it 

necessarily have standing. By the same token, the fact that a policy causes concrete harms to a 

many members of the public does not mean that each of those persons do not have standing to 

challenge it. 139 

For example, in one case, the DC Circuit's very narrow view of standing barred litigation of 

challenge to a NHTSA rule setting the standard for tire pressure monitoring systems that 

Congress directed the agency to make driving safer. Although the standard was intended for the 

benefit of the public, that court held that Public Citizen did not have standing to challenge it on 

behalf of our members (all at some point vehicle owners, drivers, passengers, or pedestrians) 

unless we could show statistically that the agency's rule presented a substantially increased risk 

of harm to consumers and that the ultimate risk is substantial. In addition, the court said that 

because the injury alleged was based on the government's regulation of auto makers, not 

regulation of Public Citizen members, to demonstrate standing we had to show that causation did 

not depend on choices made by the automakers. Specifically, we were instructed to show that 

automakers would not voluntarily exceed the safety standard that NHTSA adapted; that drivers 

would not seek to prevent injury to themselves or to other people by manually checking their 

tires and then inflating them properly; and to show that drivers will pay attention to the warning 

light that will be installed in cars. Not only had two of these topics had been addressed 

specifically in the Federal Register notices that accompanied issuance of both rules, but the 

court's instmction effectively questioned the conclusions of Congress in enacting the law 

requiring NHTSA to require these monitoring devices. 

When Congress has addressed the matter that is the subject of our suit and the agency failed to 

do what Congress asked it to do, the courts are an appropriate and proper place to hold the 

executive branch accountable for failure to abide by the law. It is simply not practicable or 

desirable to expect Congress to revisit the issue each time the agency does not live up to the 

legislative mandate. Congress, through the Administrative Procedure Act and statutes that 

authorize judicial review of agency actions, has confirmed that courts can and should entertain 

such suits. That does not mean that a plaintiff or a petitioner does not need to have stake in the 

case, because, after all, the case or controversy requirement comes from the Constitution, not 

from Congress. Once Congress has spoken, however, and the agency has acted, the courts have 

an important role to play. 

What is crucial to emphasize is that judicially created standing doctrine does not affect all parties 

evenly; instead, it creates a structural advantage for the corporate sector. In general, the courts 

typically hold that regulated parties have standing to challenge agency action. In contrast, 

organizations and individuals seeking to realize rights and protections conferred by Congress 

m Lance v. Coffman, 549 U.S. 437, 439 (2007). 139 See Federal Election Comm 'n v. Akins, 524 U.S. 11,24-25 (1998). 

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face much greater difficulties; under the case law, it is not uncommon that !lQ person or 

individual is deemed to have standing to enforce agency compliance with congressional 

directives. 

2. Judicially imposed requirements of cost-benefit analysis. 

The relationship between Congress, the regulatory agencies and the courts is a complicated one, 

not subject to simple formulaic rules about appropriate level of judicial deference to agency 

action. On the one hand, it is appropriate for the courts to ensure agencies are faithful to 

Congressional directives. On the other hand, the courts need show deference to the technical 

expertise of agencies, which are designed to convert broad Congressional directives into concrete 

rules. Judges should not abrogate well-crafted rules, nor invent requirements for rules to be 

justified by cost-benefit tests that are not statutorily required. 

Yet as cost-benefit analysis has intruded deeper into the rulemaking process, courts have begun 

to subject these analyses to scrutiny, or to impose their own cost-benefit requirements on agency 

decision making. Because of the inherent imprecision of cost-benefit analysis, and because of 

relative institutional strengths, courts should subject agency cost-benefit analyses to no or 

exceedingly deferential review and should not impose cost-benefit requirements on agencies. 

Business Roundtable v. SEC140 is a case that highlights the concern about courts and cost-benefit 

analysis. In Business Roundtable, the D.C. Circuit struck down rule 14a-11 (the "proxy access 

rule"). Adopted by the SEC pursuant to authority under the Dodd-Frank Act, the rule would have 

allowed long-term shareholders to include nominees for the board of directors in a publicly 

traded company's proxy statement. Without such a right, shareholders in most instances have no 

realistic means of running candidates for director against management-selected candidates. 

The D.C. Circuit held that the SEC had failed to meet its "unique obli~ation" 141 to analyze rules 

for their impact upon "efficiency, competition, and capital formation" 42 under Section 3(f) of the 

Exchange Act, 143 thereby rendering the SEC's promulgation of the rule "arbitrary and 

capricious.'" 44 Yet, nothing in the relevant legislative history indicates that Congress intended 

for the SEC's economic analyses relating to "effieiency, competition, and capital formation" to 

be akin to full blown cost-benefit analysis or take precedence over the SEC's primary mission to 

protect investors. 145 Nonetheless, in a string of recent cases, 146 the D.C. Circuit has interpreted 

this language as imposing a duty on the SEC to fully assess the costs and benefits of their 

regulations and determine, in some instances, that the regulation yields a "net benefit." 147 In the 

Business Roundtable opinion, the D.C. Circuit lambasted the SEC for "having failed once again 

140 Business Roundtable v. SEC 647 F.3d 1144 (D.C. Cir. 2011). 141 Business Roundtable v. SEC,1148. 142 Business Roundtable v. SEC,1148. 143 15 U.S.C. §§ 78c(f), 78w(a)(2), 80a-2(c). 144 Business Roundtable v. SEC, 1155. 145 See Generally James D. Cox and Benjamin J.C. Baucom, The Emperor Has No clothes: Confi'onting the D.C. 

Circuit's Usurpation of SEC Rule making Authority, 90 Tex. L. Rev 1811 (20 12). 146 Chamber of Commerce v. SEC, 412 F.3d 133 (D.C. Cir. 2005); American Equity lnv. Life Ins. Co. v. SEC, 613 

F.3d 166 (D.C. Cir. 2010). 147 Business Roundtable v. SEC, 1153. 

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... adequately to assess the economic effects of a new rule" 148 by having "inconsistently and 

opportunistically framed the costs and benefits of the rule; failed adequately to quantify certain 

costs or to explain why those costs could not be quantified; neglected to support its predictive 

judgment; contradicted itself; and failed to respond to substantial problems raised by 

commenters." 149 

Several features of the decision are remarkable. First, the SEC was acting pursuant to specific 

Dodd-Frank-conferred power, which authorized the agency to adopt a rule requiring "that a 

solicitation of proxy, consent, or authorization by (or on behalf of) an issuer include a nominee 

submitted by a shareholder to serve on the board of directors of the issuer. "

150 This fact was 

unmentioned in the court's decision, and earned the agency no deference. Second, the court failed 

to address the fact that the benefit of advancing shareholder democracy is inherently nonquantifiable. Third, the extraordinarily intrusive review of agency decision-making included a 

challenge to the benefit of shareholder democracy-a value that one might think speaks for 

itself, but in any case was clearly the underlying objective of Congress in authorizing the SEC to 

issue a proxy access rule151 

Remedies: Business Roundtable has cast a shadow over Dodd-Frank and other agency 

rulemaking, making agencies fearful and reluctant to proceed with rulemakings. Congress should 

act to establish clearer and more deferential standards of judicial review where agencies are 

acting in response to specific Congressional directives, and as regards cost-benefit analysis, and 

should make clear that courts are not to impose their own cost-benefit tests on agency action. 

E. Regulation to assist small business and promote competitive markets 

Much of the regulatory policy debate over the last couple years has misleadingly focused on the 

impact of regulation on small business, with regulation critics claiming that regulation poses 

unreasonable burdens on small business. In surveys and poll data, small businesses generally do 

not agree with their purported advocates. They cite inadequate demand and economic uncertainty 

as their biggest problems. 152 And regulatory law is replete with special and intentional 

protections for smaller firms, which are exempt from many rules. 

What has been missing from the regulatory policy debate is a focus on the ways that regulation 

does--or should-assist small business in creating a level playing field. 

148 Business Roundtable v. SEC, 1148. 149 Business Roundtable v. SEC, 1148-49. 150 Section 97!. 151 Business Roundtable v. SEC. ("By ducking serious evaluation of the costs that could be imposed upon companies 

from use of the rule by shareholders representing special interests, particularly union and government pension funds, 

we think the Commission acted arbitrarily.") 152 Small Business Majority. (2011 ). Opinion Survey: Small Business owners Believe National Standards Supporting 

Energy Innovation Will Increase Prosperity for Small Firms. Available from: 

<http://smallbusinessmajority.org/energy/pdfs/Ciean_Energy_Report_0920ll.pdf>. Similarly, in a 2011 informal 

survey, McClatchy/Tribune News Service found no business owners complaining about regulation. Hall, K. G. 

(2011, I September). Regulations, taxes aren't killing small business, owners Sil)'. McClatchy Newspapers. 

Available from: <http://www.mcclatchydc.com/2011/09101/122865/regulations- taxes-arent-killing.html>. 

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First, as a preliminary matter in this area, policymakers concerned about aiding small business 

might fruitfully focus on the issue of regulatory compliance. Small firms may on occasion have 

difficulty discerning what standards apply to them and what they must do to meet their 

obligations under various rules. There may be value in legislation encouraging agencies to 

conduct more outreach, education and compliance assistance to small businesses on their 

regulatory obligations. Agencies with Small Business Ombudsman offices could be tasked with 

ensuring that those offices are conducting effective regulatory outreach and education to small 

businesses. "Best practices" guidelines for federal agencies could be established, including those 

with Small Business Ombudsman offices, to follow when working to ease regulatory compliance 

for small businesses. 

A larger area of Congressional focus should aim to address the problem that leading sectors of 

the economy are highly concentrated, and that widespread anti-competitive conduct unfairly 

disadvantages small business, while also hurting consumers and overall economic efficiency. 

Congress and regulators should look to reinvigorate antitrust and competition policy. Action 

across a broad range of areas would very meaningfully advance small business success, and 

ensure smaller companies are not unfairly exploited, disadvantaged or eliminated by larger 

rivals. 

Large banks receive a massive implicit government subsidy thanks to the widespread 

market perception that these institutions are "too big to fail"-in other words, that 

protestations to the contrary, the government will in times of crisis bail out these giant 

banks to prevent a financial system meltdown. Because the market judges these 

institutions too big to fail, the giant banks are able to access capital at costs significantly 

below that are available to regular banks, as well as obtain other implicit subsidies. 

Various analysts place this benefit as ranging from tens of billions of dollars annually to 

more than $100 billion, with the scale of the subsidy varying over time. 153 

Remedies: This subsidy plainly disadvantages smaller banks and credit unions, and is 

itself a compelling reason-there are many other such reasons-to break up the giant 

banks. At bare minimum, this goliath bank subsidy emphasizes the imperative of a 

financial sector competition policy that removes the unfair advantage giant firms obtain. 

• Patent enforcement by patent acquiring entities--often known colloquially as "patent 

trolls"-imposes a significant tax on innovation, especially by small business. 

Enforcement actions and license fees by these entities are skyrocketing, now costing 

almost $30 billion a ~ear, with researchers finding only a quarter of this total flowing 

back to innovation. 1 4 

153 See Federal Reserve of Minneapolis. (2013, November 18-19). Workshop: Quantifying the Too Big to Fail 

Subsidy. Available from: < https:llwww.minneapo1isfed.orglpublicationslspecial-studies/too-big-to-faiVquantityingthe-too-big-to-fail-subsidy>. Bloomberg. (20 13, Feb 20.) Why Should Taxpayers Give Big Banks $83 Billion a 

Year. Available from: <http:llwww.bloomberg.comlnewsl2013-02-201why-should-taxpayers-give-big-banks-83-

billion-a-year-.htm1>. 

154 See Leibowitz., J. (2012, Dec. 10.) Patent Assertion Entity Workshop: Opening Remarks. Federal Trade 

Commission. Available from: <http:/lwww.ftc.gov/speecheslleibowitzll21210paeworkshop.pdt>; Skito1, R. (20 12, 

Dec. 14.) FTC-DOJ Workshop on Patent Assertion Entity Activities: Fresh Thinking on Potential Antitrust 

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Remedies: Stronger rules should protect small business innovators, and innovative large 

corporations as well, from improper patent enforcement actions. 

• Anti competitive practices are widespread in the energy industry, including in electricity 

markets. "Anti competitive agreements between sellers in regional wholesale electricity 

markets have forced consumers to pay hundreds of millions of dollars more for electricity 

than they would have in the absence of such conduct," notes the America Antitrust 

Institute's Diana Moss. "In these markets, which are structurally vulnerable to the 

exercise of market power, anticompetitive agreements spannin~ even a short time can 

result in large wealth transfers from consumers to suppliers." 15 Those consumers include 

small business. 

Recently, enforcement against anticompetitive conduct by the Federal Electric 

Regulatory Commission has picked up considerably, with FERC notably suspending 

companies found to have lied to regulators and engaging in anticompetitive actions. 

However, the deregulated structure of electricity markets creates the potential for 

anticompetitive activity, and suggests the need for new rules to ensure competitive 

benefits are actually accruing. 

Last year, for example, Public Citizen filed an emergency complaint at FERC156 alleging 

that Houston-based Dynegy, Inc. may have intentionally withheld several of its power 

plants from a power auction conducted by the Midcontinent Independent System 

Operator (MISO), the results of which were announced on April14, 2015. The auction 

was intended to procure adequate supplies through 2016 for most of downstate and 

midstate Illinois. The bidding strategies of Dynegy and other suppliers, combined with 

the rules under which the auction was conducted, pushed auction prices up for much of 

Illinois from $16.75 per megawatt-day last year to $150 this year, an increase of800 

percent. Even if illegal manipulation did not occur, the dramatic spike--resulting in a rate 

for Illinois that is more than 40 times that in neighboring states despite abundant 

generating capacity in Illinois-indicates a violation of the Federal Power Act's 

fundamental requirement that rates be just and reasonable. These are the sort of market 

abuses that impact small business and demand a regulatory response. 

Remedies: New rules should be created to ensure transparency standards apply to the 

non-governmental agencies, known as Regional Transmission Organizations, charged 

with running deregulated electricity markets. New rules should be established to ensure 

consumer, small business and state government representation in their decision-making 

Responses to Abusive Patent Troll Enforcement Practices. Available !Tom: 

<http://www .antitrustinstitute.org/-antitrust/sites/defaultlfiles/P AE%20Workshop%20(305132l I ).pdf>. 155 Moss, D. (20 13, Jan. l 0.) Collusive Agreements in the Energy Industry: Insights into U.S. Antitrust Enforcement. 

American Antitrust Institute. p. 6. Available !Tom: 

<http://www .antitrusti nstitute. org/-antitrust/sites/de raultlfiles/ AA I%20 W orking%20 Paper"/o2 0 13-

2 _ %20Section%20 I %20Encrgy .pdf>. 156 Public Citizen, Inc. v. Midcontinent Independent System Operator, Inc .. Emergency Section 206 Complaint of 

Public Citizen, Inc. And Request For Fast Track Processing, May 28,2015, Available !Tom: 

<http://www.citizen.orglpressroom/pressroomredirect.cfm?JD~SS33>. 

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processes. Additionally, legislation or perhaps new regulation is needed to overturn the 

"filed rate doctrine," which can immunize electricity traders from antitrust liability where 

conduct involves regulated, filed rates. 

• Private antitrust enforcement-an important tool for small firms victimized by unfair 

practices from larger competitors-has become increasingly difficult. One notable 

obstacle to effective private enforcement are unreasonably high pleading standards, 

which require victimized plaintiffs to make evidentiary showings that they frequently 

cannot make before undertaking discovery. 

Remedies: Congress should act to overturn the ruling in Bell Atlantic Corp. v. Twombly, 

550 U.S. 544 (2007), as well as Ashcroft v. Iqbal, 556 U.S. 662 (2009). 

• Forced arbitration provisions in contracts are denying small businesses and consumers 

effective access to justice on a large scale. These provisions also often unfairly treat small 

business franchisees, which are often victimized by forced arbitration provisions in their 

franchise agreements. 

In recent years, the Supreme Court has issued a series of rulings holding that the proarbitration preference of the Federal Arbitration Act preempts state rules designed to 

ensure consumers access to traditional civil courts, as well as state rules protecting 

consumers' rights to join together in class actions. As a result, large corporations are able 

to include forced arbitration provisions in standard form contracts; and to insert anti-class 

action language into their arbitration provisions as a way to block collective actions that 

are often critical to addressing wrongdoing that affects large numbers of people in a small 

way. 

The Supreme Court's 2013 decision in American Express v. Italian Colors Restaurant 

illustrates the potential stakes for small business. 157 In this case, American Express 

sought to enforce an arbitration agreement that prohibits merchants that accept its charge 

cards from filing class actions or otherwise sharing the cost oflegal proceedings against 

it. The merchants aimed to hold American Express liable for a tying arrangement that 

allegedly violated antitrust laws (American Express insists merchants accept its 

unpopular credit cards if they want to accept its popular charge cards), but because 

expensive expert testimony was required to prove the claims, the cost of arbitrating an 

individual case would dwarf any possible recovery. Even in this case, where the 

arbitration agreement and class action ban concededly made it impossible for a small 

business to bring an antitrust lawsuit against a large company, the Supreme Court held 

that the arbitration agreement was controlling. It did not matter to the Court that this was 

a case where a large company used its market power to force on small business a 

provision that prevents them from seeking a remedy to an abuse of market power. 

157 American Express v. Italian Colors Restaurant, 570 U.S. (2013). 

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Remedies: Congressional remedies to these problems should include a prohibition on 

forced arbitration provisions in consumer, employment and civil rights cases 158 and a 

restoration of states' authority to enforce their contract and consumer protection laws. 

III. Conclusion: Strengthening the System of Regulatory Protections 

to Strengthen America 

There is much to celebrate in our nation's system of regulatory protections. It has tamed 

marketplace abuses and advanced the values we hold most dear: freedom, safety, security, 

justice, competition and sustainability. We should celebrate the achievements of regulatory 

protections. 

But in its current form, the regulatory system is failing to meet its promise. Rather than looking 

at how to scale back or hinder the regulatory system, Congress should look to reforms to 

strengthen regulatory enforcement, stiffen penalties for corporate wrongdoing, speed the 

rulemaking process, address uneven judicial review of regulations, and adopt pro-competitive 

rules to level the playing field for small business and improve the economy and consumer wellbeing. 

m See the Arbitration Fairness Act, S. 1133, introduced by Senator AI Franken. 

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THE LABOR DEPARTMENT'S FIDUCIARY RULE: HOW A 

FLAWED PROCESS COULD HURT RETIREMENT SAVERS 

A Majority Staff Report ofthc 

Committee on Homeland Security and Governmental Affairs 

United States Senate 

Senator Ron Johnson, Chairman 

February 24, 20!6 
191 

EXECUTIVE SUMMARY 

For millions of Americans, retirement saving is an important step in ensuring a 

comfortable standard of living well past employment. However, the process of saving for 

retirement can be difficult, confusing, and scary. To navigate the wide array of saving plans and 

options, individuals often tum to investment advisors for advice. A 2015 study reported that 

receiving investment advice significantly increases retirement savings. I According to the report, 

among individuals with $100,000 or less in annual income, individuals who receive investment 

advice save at least 38% more than individuals who do not receive investment advice. 2 For 

individuals of retirement age (65 and older), the dispari\Y increases: advised individuals have 

more than double the assets of non-advised individuals. 

The Department of Labor issued a proposed rule ("rule," "proposed rule," or "proposal") 

on April 20, 2015, which would expand the definition of a fiduciary under the Employee 

Retirement Income Security Act of 1974 (ERISA). The Labor Department's proposed rule 

redefined the term "investment advice" to encompass activities that occur within pension and 

retirement plans, but that do not constitute investment advice under the existing definition of 

investment advice. The Labor Department touts its rule as a necessary reform to the investment 

advice industry to ensure that investment advisors avoid conflicts of interest and act in the best 

interest of their clients. 

In February 2015, Senator Ron Johnson, Chairman ofthe Senate Committee on 

Homeland Security and Governmental Affairs, initiated an inquiry to examine the Labor 

Department's fiduciary rulemaking. This inquiry found that career, non-partisan professional 

staff at the Securities and Exchange Commission (SEC); regulatory experts at the Office of 

Information and Regulatory Affairs (OIRA) within the Office of Management and Budget 

(OMB); and Treasury Department officials expressed numerous concerns to the Labor 

Department about its proposed rule. Documents obtained by the Committee also indicate that 

officials at the Labor Department disregarded many of these concerns and declined to implement 

recommendations from the SEC, OIRA, and the Treasury Department. The majority staff found 

that the Labor Department frequently prioritized the expeditious completion of the rulemaking 

process at the expense of thoughtful deliberation. Additionally, the majority staff found 

indications that political appointees at the White House played a key role in driving the 

rulemaking process at the inception of the redrafting effort. 

1 OLIVER WYMAN, TilE ROLE OF FINANCIAL ADVISORS IN THE US RETIREMENT MARKET 16 (2015) 2 Id; Restricting Advice and Education: DOL's Unworkable Investment Proposal for American Families and 

Retirees, Hearing B~fore the Subcomm. on Emp 't & Workplace Safety of the S. Comm. on Health, Educ .. Labor & 

Pensions, !14th Cong. (2015) [hereinafter Senate HELP Committee Hearing] (statement of Peter Schneider, 

President, Primerica, Inc.). 3 WYMAN, supra note l; Senate HELP Committee Hearing (statement of Peter Schneider), supra note 2. 

Majority Staff Report 

Committee on Homeland Security and Governmental Affairs 

United States Senate 
192 

Specifically, the report's findings include the following information: 

Despite public assurances that the Labor Department had collaborated with the SEC, 

emails between a Labor Department employee and an SEC expert reveal discord between 

the agencies about the rulemaking. The Labor Department employee wrote to his SEC 

counterpart: "Well, I hate to break it to you, but you're wrong," and "We have now gone 

far beyond the point where your input was helpful to me .... If you have nothing 

new to bring up, please stop emailing me." The SEC staffer responded: "I am now 

also utterly confused as to what the purpose of the proposed DOL rule is .... " 4 

• Career, non-partisan SEC staff identified at least 26 items of concern related to the 

substantive content of the proposed rule, and the Labor Department declined to fully 

resolve all of the concerns 5 

• After the Labor Department sought to address to the SEC's stated items of concern, a 

senior SEC official emphasized to the Labor Department that concerns remained: 

[W]e continue to believe that commentators are likely to raise concerns that the 

proposal may result in reduced pricing options, rising costs and limited access to 

retirement advice, particularly for retail investors. Commentators also may 

express concerns that broker-dealers, as a practical matter, may be unlikely to 

use the exemptions provided and may stop providing services because of the 

number of conditions imposed, likely compliance costs, and lack of clarity around 

several provisions. 6 

• The Labor Department rejected the SEC's recommendation and ignored the requirements 

of Executive Orders 12866 and 13563 to quantify the costs and benefits of alternative 

approaches. As a Labor Department employee explained, "We think this would be 

extraordinarily difficult and would appreciably delay the project for very little 

return ... . " 7 

• Treasury officials voiced concerns that the Labor Department's proposal, by attempting 

to regulate IRAs through the proposed rule, "fl[ies] in the face oflogic" and was contrary 

to Congressional intent. The Labor Department promulgated the proposed rule less than 

two weeks after circulating this draft, undoubtedly limiting the extent to which the 

Department considered the comments it received from the Treasury Department. 8 

• The Administration was predetermined to regulate the industry and sought evidence to 

justify its preferred action. In emails to senior White House advisors, a Labor 

Department official wrote of the "challenges in completing the [regulatory impact 

4 Infra Part I!( a). 5 Infra Part II( a). 6 Infra Part I!( a). 7 Infra Part Il(a)(iv). 8 Infra Part I!( d). 

Majority Staff Report 

Committee on Homeland Security and Governmental Affairs 

United States Senate 

2 
193 

analysis)" and of the need to find literature and data that "can be woven together to 

demonstrate that there is a market failure and to monetize the potential benefits of 

fixing it." In another email, a Labor Department official discussed "building the case 

for why the rule is necessary."9 

The Labor Department rejected OIRA's recommendation to add language stating that the 

rule would "permit firms to continue to rely on all common fee and compensation 

practices .... " The Labor Department responded that "[n]ot all fee practices will be 

permitted by the exemptions" and that "[b]y deleting 'all' we slightly soften this by 

leaving it at 'common fee and compensation practices."' 10 

Investment advisors, in general, do not dispute the importance of acting in the best 

interest of their clients, and many advisors already abide by a best interest standard. 11 However, 

experts have criticized the proposed rule as burdensome and complex, 12 and have challenged the 

Labor Department's claims that the rule will generate benefits for investors. 13 They contend that 

the Administration has reported inflated numbers for the harm that results from investors relying 

on "conflicted advice," 14 with one expert opining "[y]ou don't have to be an economist to 

recognize the Administration's $17 billion talking point significantly overestimates the costs, if 

any, to investors relying on the 'conflicted advice' ofbrokers." 15 Experts also caution that the 

proposal's conditions and requirements would create uncertainty for investment advisors and 

would increase compliance costs and litigation risks. They warn that the Labor Department's 

analysis overstates the rule's benefits and that the rule could actually result in net losses to 

retirement savers. 16 These experts emphasize that the rule would actually harm the investors it is 

supposed to protect; the rule would drive up the price of investment advice and would ultimately 

decrease the availability of advice for low- and middle-income investors. 

A 2015 report estimates that the rule will cause a loss of retirement savings of $68-80 

billion per year, and will "jeopardize retirement readiness for 11.9 million IRA and retirement 

participants." 17 Robert Litan, an economist and attorney who served as the associate director of 

9 Infra Part IV. 10 Irifra Part II( c). 11 E.g., Senate HELP Committee Hearing, supra note 2 (statement of Robert Litan). ,, Id. 

13 Id. (statement of Peter Schneider); QUANTRIA STRATEGIES, LLC, UNINTENDED CONSEQUENCES: POTENTIAL OF 

THE DOL REGULATIONS TO REDUCE FINANCIAL ADVICE AND ERODE RETIREMENT READINESS I (20 I 5) (prepared for 

Davis & Harman). 14 EXEC. OFFICE OF THE PRESIDENT, THE EFFECTS OF CONFLICTED INVESTMENT ADVICE ON RETIREMENT SAVINGS 

(2015). 

15 Craig M. Lewis, An Inflated $17 Billion Talking Point From the DOL, FORBES (Dec. 16,2015, 12:30 PM), 

http://www. forbes.com/sites/rea1spin/20 15/12/16/an-intlated-17-billion-talking-point-from-the-dol/#782b028439e 1. 16 QUANTRIA STRATEGIES, supra note 13, at I; Senate HELP Committee Hearing, supra note 2 (statement of Robert 

Litan). 

17 QUANTRIA STRATEGIES, supra note 13, at I; Senate HELP Committee Hearing, supra note 2 (statement of Peter 

Schneider). 

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the White House budget office in the Clinton Administration, ~redicts that seven million or more 

small investors could lose their brokers as a result ofthe rule. 1 This would be costly to 

investors, who may make worse investing decisions when they do not receive human investment 

advice. 19 

Some observers suggest that this is actually an intended effect of the rule, and that the 

Labor Department believes that low- and middle-income investors should receive advice 

primarily from robo-advisors to avoid conflicts of interest. 20 If accurate, it is alarming that the 

Labor Department is intentionally restricting low- and middle-income investors to robo-advice 

based on a presumption that those investors lack the sophistication to interact with an individual 

investment advisor and to understand options presented to them. 

As the majority staff puts forward its findings, it is important to note that Chairman 

Johnson performed this oversight in the face of continuous obstruction from the Labor 

Department. In February 2015, Chairman Johnson requested documents, including 

communications between the Labor Department and the White House and between the Labor 

Department and the SEC. However, to date, the Labor Department has not fulfilled Chairman 

Johnson's requests. The Labor Department has produced no material responsive to Chairman 

Johnson request for communications between the Department and the White House. The 

Department initially claimed that no responsive documents existed, but refused to provide 

Chairman Johnson with information about how Labor Department officials searched for 

documents. Chairman Johnson later received, from the SEC, communications between the 

Department and the White House. Additionally, the Department has produced only a limited 

subset of self-selected communications between the Department and the SEC and provided short 

briefings to the Committee. These productions fall short of full compliance. Most egregiously, 

the Labor Department even urged the SEC to similarly hinder Chairman Johnson's oversight 

work by asking the SEC to reject the Chairman's separate requests to the SEC for documents in 

the control and possession of the SEC. 

Due to the Labor Department's obstructionism, Chairman Johnson and the majority staff 

have not had the opportunity to review the full universe of documents and communications 

related to the rule. The analysis and findings in this report are based on the information received. 

However, the information that Chairman Johnson was able to obtain strongly suggests that the 

Labor Department engaged in a flawed rulemaking process to craft a rule that will hurt millions 

of American retirement savers. 

'" Senate HELP Committee Hearing, supra note 2 (statement of Robert Litan). 19 !d. 

20 !d. 

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TABLE OF CONTENTS 

EXECUTIVE SUMMARY ............................................................................................................ 1 

TABLE OF CONTENTS ................................................................................................................ 5 

I. INTRODUCTION .............................................................................................................. 6 

II. THE LABOR DEPARTMENT DECLINED TO INCORPORATE 

RECOMMENDATIONS FROM SUBJECT-MATTER AND REGULATORY 

EXPERTS ........................................................................................................................... 8 

a. The Labor Department Declined to Incorporate Recommendations from Career 

Experts at the SEC into the Proposed Rule ............................................................. 8 

b. The Labor Department Failed to Incorporate Principles from Existing Federal 

Securities Laws and FINRA Rules ....................................................................... 21 

c. The Labor Department Declined to Incorporate OIRA's Recommendations into 

the Proposed Rulemaking ..................................................................................... 23 

d. The Labor Department Did Not Fully Consider Concerns Raised by the Treasury 

Department ............................................................................................................ 24 

III. EXPERTS HAVE EXPRESSED CONCERNS ABOUT THE RULE'S ANTICIPATED 

HARM TO MIDDLE-INCOME AND SMALL BUSINESS INVESTORS ................... 26 

IV. THE ADMINISTRATION WAS PREDETERMINED TO REGULATE THE 

INDUSTRY AND SOUGHT EVIDENCE TO JUSTIFY ITS PREFERRED ACTION. 31 

V. THE ADMINISTRATION OBSTRUCTED CHAIRMAN JOHNSON'S INQUIRY BY 

LIMITING THE INFORMATION THE COMMITTEE WAS ABLE TO OBTAIN ..... 33 

a. The Labor Department Remains Uncooperative with Chairman Johnson's 

Requests for Information and Documents from February 2015 ........................... 33 

b. The Labor Department Attempted to Interfere with the SEC's Cooperation with 

the Chairman's Requests ....................................................................................... 3 6 

c. OIRA Declined to Provide a Full and Complete Response to Chairman Johnson's 

Requests ................................................................................................................ 37 

VI. CONCLUSION ................................................................................................................. 39 

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I. INTRODUCTION 

On April20, 2015, the Department of Labor issued a proposed rule to expand the 

definition of a fiduciary under the Employee Retirement Income Security Act of 1974 

(ERISA). 21 The Labor Department's proposed rule redefined the term "investment advice" to 

encompass activities that occur within pension and retirement plans, but do not constitute 

investment advice under the existing definition of investment advice. 22 The Labor Department's 

promulgation of this rule was the culmination of a years-long effort by the Department's 

Employee Benefits Security Administration (EBSA). 23 

Even before the latest proposal was announced, stakeholders began raising concerns that 

the rule would adversely affect access to investment advice for low- and middle-income 

Americans. 24 Additional questions were raised about the close involvement of the White House 

in shaping the proposal. 25 In light of these concerns, Senator Ron Johnson, Chairman of the 

Senate Committee on Homeland Security and Governmental Affairs, initiated an inquiry in early 

February 201526 

Under Senate rules and precedent, the Committee has legislative jurisdiction over 

intergovernmental relations and the regulatory process ofthe federal government. The 

Committee also has specific authority to examine "the efficiency and economy of all branches 

and functions of Government with particular references to the operations and management of 

Federal regulatory policies and programs."27 Chairman Johnson initiated the inquiry pursuant to 

these authorities. 

Chairman Johnson sought to examine the Labor Department's rulemaking process to 

ensure that the Department solicited and fully considered advice from career, non-partisan 

professionals with expertise in the proposal's subject matter. 28 As part of its inquiry, Chairman 

Johnson requested information and documents from the Securities and Exchange Commission 

21 CONG. RESEARCH SERV., R44207, DEPARTMENT OF LABOR'S 2015 PROPOSED FIDUCIARY RULE: BACKGROUND 

AND ISSUES I (20 15). 22 /d 23 Mark Schoeff, DOL Proposal of Fiduciary-Duty Rule Delayed Again, INVESTMENT NEWS (May 28, 2014, 8:30 

AM), http://www. in vestmentnews.com/article/20 14 0528/FREE/ 140 52993 2/dol-proposa 1-of-fiduciary-duty-ruledelayed-again. 

24 ld 25 E.g., Melanie Waddell, White House Getting Involved with DOL Fiduciary Redraft, THINK ADVISOR (July I, 

20 14 ), http://www. thinkadvisor .com/20 14/07/0 I /white-house-getting-involved-with-dol-fiduciary-re. 26 Appendix A, Ex. 1, Letter from Hon. Ron Johnson, Chairman, S. Comm. on Homeland Sec. & Governmental 

Affairs (HSGAC), to Hon. Thomas E. Perez, Sec'y, U.S Dep't of Labor (DOL) (Feb. 5, 2015). 27 S. Res. 73 § 12, !14th Cong. (2015). 28 See Appendix A, Ex. 1, Letter from Chairman Johnson to Sec'y Perez, DOL (Feb. 5, 2015); Appendix A, Ex. 2, 

Letter from Chairman Johnson to Sec'y Perez, DOL (Mar. 17, 2015). 

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(SEC),29 the Financial Industry Regulatory Authority (FINRA), 30 the Office of Information and 

Regulatory Affairs (OIRA)/ 1 the Department of the Treasury, 32 and the Labor Department. 33 In 

response, the SEC provided three document productions to the Committee. 34 These productions, 

which the SEC made despite the Labor Department's attempt to persuade the SEC to reject the 

Chairman's requests/5 shed significant light on the recommendations and concerns that career, 

non-partisan, professional staff at the SEC provided prior to the release of the proposal. The 

SEC documents also shed light on aspects of the recommendations and concerns offered by 

regulatory experts at OIRA and from Treasury Department officials. FINRA additionally 

provided two document productions to the Committee. 36 OIRA provided one document 

production, although it was largely nonresponsive to Chairman Johnson's requests. 37 Finally, 

the Committee received a limited subset of documents from the Labor Department regarding its 

communications with the SEC; however, the Labor Department continues to withhold other 

responsive documents from the Committee. 38 

Based on the information received by the Committee, the majority staff has found that 

career, non-partisan, professional staff at the SEC, regulatory experts at OIRA, and Treasury 

Department officials expressed concerns to the Labor Department about its proposed rule. While 

Chairman Johnson and the majority staff do not have access to the entirety of Labor Department 

records, it appears that the Labor Department ignored and rejected many concerns and 

recommendations by subject-matter and regulatory experts. 

29 Appendix A, Ex. 3, Letter from Chairman Johnson to Hon. Mary Jo White, Chair, SEC (Apr. 21, 2015); Appendix 

A, Ex. 4, Letter from Chairman Johnson to Chairwoman White, SEC (May 20, 2015); Appendix A, Ex. 5, Letter 

from Chairman Johnson to Chairwoman White, SEC (July 13, 2015). 30 Appendix A, Ex. 6, Letter from Chairman Johnson to Richard Ketchum, Chairman, FINRA (Sept. 16, 2015). 31 Appendix A, Ex. 7, Letter from Chairman Johnson Hon. Howard Shelanski, Admin'r, OIRA (May l, 2015); 

Appendix A, Ex. 8, Letter from Chairman Johnson to Admin'r Shelanski, OIRA (Dec. 3, 2015). 32 Appendix A, Ex. 9, Letter from Chairman Johnson to Hon. Jacob Lew, Sec'y, Treasury Dep't (Nov. 12, 2015). 33 Appendix A, Ex. 3, Letter from Chairman Johnson to Chairwoman White, SEC (Apr. 21, 2015). 34 Appendix A, Ex. 10, Letter from Chairwoman White, SEC, to Chairman Johnson (May 5, 2015); Appendix A, Ex. 

11, Letter from Tim Henseler, Dir., Office of Leg. & Intergovernmental Affairs, SEC, to Chairman Johnson (July 

27, 2015); Appendix A, Ex. 12, Letter from Tim Henseler, SEC, to Chairman Johnson (Sept. 15, 2015); Appendix 

A, Ex. 13, Letter from Tim Henseler, SEC, to Chairman Johnson (Nov. 25, 2015) (complete document productions 

on file with Committee). 35 Appendix A, Ex. 14, Letter from Adri Jayaratne, Acting Asst. Sec'y, Office ofCong. & Intergovernmental 

Affairs, DOL, to Chairman Johnson (July 8, 2015). 36 Appendix A, Ex. 15, Letter from Robert Colby, Exec. VP & Chief Legal Officer, FINRA, to Chairman Johnson 

(Oct. 15, 2015); Appendix A, Ex. 16, Letter from Robert Colby, FINRA, to Chairman Johnson (Oct. 29, 2015). 37 Appendix A, Ex. 17, Letter from Admin'r She1anski, OIRA, to Chairman Johnson (May 18, 2015); Appendix A, 

Ex. 18, Letter from Admin'r She1anski, O!RA, to Chairman Johnson (Jan. 20, 2016). 

'"Appendix A, Ex. 19, Letter from Acting Asst. Sec'y Jayaratne, DOL, to Chairman Johnson (Feb. 9, 2015); 

Appendix A, Ex. 20, Letter from Acting Asst. Sec'y Jayaratne, DOL, to Chairman Johnson (Feb. 23, 

2015);Appendix A, Ex. 21, Letter from Acting Asst. Sec'y Jayaratne, DOL, to Chairman Johnson (Mat. 23, 2015); 

Appendix A, Ex. 22, Letter from Acting Asst. Sec'y Jayaratne, DOL, to Chairman Johnson (Apr. 3, 2015); 

Appendix A, Ex. 23, Letter from Acting Asst. Sec'y Jayaratne, DOL, to Chairman Johnson (June 15, 2015); 

Appendix A, Ex. 14, Letter from Acting Asst. Sec'y Jayaratne, DOL, to Chairman Johnson (July 8, 2015); Appendix 

A, Ex. 24, Letter from Acting Asst. Sec'y Jayaratne, DOL, to Chairman Johnson (July 27, 2015). 

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The Department's proposal appears to be a solution in search of a problem, driven by 

ideology rather than a market need. As a result, some studies suggest that the proposal could 

result in losses to retirement savers of $68-80 billion each year and will drive smaller investment 

advisors out of the marketplace. 39 Experts have criticized the Labor Department's rule as 

burdensome and complex and caution that the rule's conditions and requirements will create 

uncertainty for investment advisors and drive up compliance costs and litigation risks. 40 

Ultimately, the rule will likely prompt investment advisors to increase the price of services they 

offer to investors and to reduce the services they provide to middle-income investors. 41 

II. THE LABOR DEPARTMENT DECLINED TO INCORPORATE 

RECOMMENDATIONS FROM SUBJECT-MATTER AND REGULA TORY 

EXPERTS 

a. The Labor Department Declined to Incorporate Recommendations from 

Career Experts at the SEC into the Proposed Rule 

Under the Dodd-Frank Act, the SEC has authority to regulate standards of care for 

broker-dealers and investment advisers. 42 Section 913 of the Dodd-Frank Act directed the SEC 

to examine existing regulations, evaluate their potential effects on retail customers, and to 

recommend fiduciary standards to govern the industry. 43 Additionally, based on the authority 

granted by the Investment Advisers Acts in 1940, the SEC has historically regulated the 

investment industry. 44 The SEC is, therefore, the proper entity with the appropriate securities 

law expertise, to consider issues such as requiring a best interest standard for investment 

advisors. The SEC has reported plans to issue a uniform regulation governing retail investment 

advice, which could result in "two incredibly burdensome and redundant rules"45 disseminated 

by the Labor Department and the SEC. 46 

39 QUANTR!A STRATEGIES, supra note 13, at I. 40 Infra Part Ill. 

<I Infra Part III. 42 The Dodd-Frank Wall Street Reform and Consumer Protection Act§ 913, 124 Stat. 1376 (2010). 43 I d.; MEGAN MILLOY, AM. ACTION FORUM, DOL'S PROPOSED FIDUCIARY RULE: NOT IN THE BEST INTEREST OF 

INVESTORS (20 15). 44 Investment Advisers Act of 1940, 15 U.S.C. §SOb-!. 45 Appendix A, Ex. 25, Letter from Daniel Gallagher, Comm'r, SEC, to Sec'y Perez, DOL (July 21, 2015). 46 SEC Office of Mgmt. & Budget Fall Agenda, Personalized Investment Advice Standard of Conduct, available at 

http://www.reginfo.gov/public/do/eAgenda ViewRule?pubJd~20 151 O&RJN~3235-AL27 (scheduling a notice of 

proposed rulemaking for October 2016); Mark Schoeff, Jr., SEC's Mary Jo White Says Agency Will Develop 

Fiduciary Rule for Brokers, INVESTMENT NEWS (Mar. 17, 20!5, 12:3 I PM), 

http://www. inveslmentnews.com/article/20 1503 17/FREE/150319919/secs-mary-jo-white-says-agency-will-developfiduciary-rule-for. 

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The Labor Department has authority under ERISA to regulate private-sector, employerprovided benefit plans. However, according to the former head ofEBSA, the Labor Department 

has significantly departed from its traditional view of its jurisdiction by attempting to regulate 

compensation and conduct for all types of financial advisors, including registered investment 

advisors and registered representatives of broker dealers. 47 At a minimum, given the SEC staffs 

expertise in securities regulation and the potential for conflict between the two rules, the Labor 

Department should have ensured that its rule incorporated recommendations and addressed 

concerns voiced by professional experts at the SEC. 

However, former SEC Commissioner Daniel Gallagher emphasized that the Labor 

Department did not collaborate with the SEC in the rulemaking process. 48 Commissioner 

Gallagher called the rulemaking a "fait accompli" and criticized the comment process for being 

"merely perfunctory."49 Commissioner Gallagher dispelled Department of Labor Secretary 

Thomas Perez's claims that the Labor Department "met substantively" with career, non-partisan 

staff at the SEC, pointing out that Commissioner Gallagher was not included in any such 

conversations. 5

° Commissioner Gallagher wrote that, in contrast to Secretary Perez's claims, 

"the [Labor Department's] actions, and the substance ofthe [Labor Department] Fiduciary 

Proposal, reflect a lack of concern for the [SEC's] views on these issues."51 He continued: 

Strikingly, the Fiduciary Proposal does not contemplate or even mention potential 

SEC rules or the SEC's existing regime for regulating broker-dealers and 

investment advisers. If the DOL were actually serious about working together 

with the SEC on an implementable standard, it could have-and should haveincluded in its proposal some type of substituted compliance mechanism, in which 

compliance with an SEC fiduciary standard would satisfy the DOL rules. 52 

Chairman Johnson has obtained information that supports Commissioner Gallagher's 

position that the Labor Department failed to work in good faith with the career, non-partisan, 

professional staff at the SEC. For more than a year preceding the Labor Department's 

promulgation of the proposed rule, SEC staff received draft portions of the proposed rulemaking 

package, including a draft regulatory impact analysis, draft global exemption (Best Interest 

Contract Exemption), and background on the point of sale disclosure. 53 Communications 

between the Labor Department and the SEC staff reveal numerous instances in which the Labor 

Department requested advice from SEC staff on fundamental aspects of the proposal, but 

47 Hearing on the Department of Labor's Proposed Fiduciary Rule Before the Subcomm. on Oversight of the H. 

Comm. on Ways & Means, I 14th Cong. (2015) [hereinafter House Ways & Means Committee Hearing] (statement 

of Bradford Campbell). 48 Appendix A, Ex. 25, Letter !Tom Comm'r Gallagher, SEC to Sec'y Perez, DOL (July 21, 2015). 

"ld 

50 !d. 

51 /d. 

52 !d. 53 Briefing by Staff, DOL, to Committee Staff, HSGAC (Aug. 28, 2015) (notes on file with Committee). 

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disagreed with the SEC's recommendations and, in doing so, disregarded the SEC staffs 

subject-matter expertise. 

Although Secretary Perez publicly assured stakeholders that the Labor Department 

collaborated with the SEC and "worked extensively with colleagues throughout the government, 

including and especially the [SEC]," 54 documents obtained by the Committee paint another 

picture. A series of emails in July and August 2012 reveal disagreements between Labor 

Department staff and SEC staff about the type of improper activity the proposal should measure. 

The SEC staff suggested that the proposal should measure conflicts of interest, whereas the 

Labor Department sought to measure investment returns. 55 These men were apparently 

classmates in a PhD program-which may account for the candid tone of the emails-but the 

email exchange suggests that the Labor Department disregarded an SEC expert's serious 

concerns about the rule. 56 In one email, after a lengthy discussion of the proposal, a Labor 

Department staffer wrote to an SEC staffer: 57 

54 Senate HELP Committee Hearing, supra note 2 (statement of Thomas Perez, Sec'y of Labor). 55 Appendix B, Ex. 1, Emai!s between Matthew Kozora, SEC, and Keith Bergstresser, U.S. Dep't of Labor (July 

2012), SEC-DOL008040-{)08052. 56 The Labor Department represented to Committee staff that the Labor Department employee, Keith Bergstresser, 

and the SEC employee, Matthew L. Kozora, attended school together. Mr. Bergstresser received a Ph.D. in 

Economics from the University of Maryland, College Park, in 2009, and has been an economist at the Labor 

Department since June 2009. See Linkedin.com, Keith Bergstresser, https://www.linkedin.com/in/keithbergstresser-10651482. He serves in the Office of Policy and Research within the Employee Benefits and Security 

Administration. In re: Conflict of Interest Proposed Rule, Related Exemptions, and Regulatory Impact Analysis 

Hearing, U.S. Dep't of Labor, Employee Benefits Security Admin. (Aug. 11, 2015). Mr. Bergstresserreports to the 

head of EBSA, Assistant Secretary Phyllis Borzi, a presidentially appointed official who has been described as the 

"main architect" of the fiduciary rule. Melanie Waddell, DOL to 'Simplify and Streamline' Fiduciary Rule: Borzi, 

THINKADYISOR (Oct. 20, 2015). Mr. Kozora received a Ph.D. in Finance from the University of Maryland, College 

Park, in 20 I 0, and has been a financial economist at the SEC since 2010. See Matthew L. Kozar a, Financial 

Economist, Office of Asset Management, SEC.gov, http://www.sec.gov/divisions/riskfin/economistbios/matthew-1-

kozora.shtml. Mr. Kozora serves in the Office of Asset Management within the Division of Economic and Risk 

Analysis. !d. As the SEC's "think tank," the Division provides "detailed, high-quality economic and statistical 

analyses, and specific subject-matter expertise .... " About the Division of Economic and Risk Analysis, SEC.GOV1 

https://www.sec.gov/dera!about. Ultimately, the SEC's regulatory authority is vested in a bipartisan, five-member 

commission who serve staggered terms-in the words of the SEC, ~·ensuring non-partisanship." The Investor's 

Advocate: How the SEC Protects Investors, Maintains Market Integrity, and Facilitates Capital Formation, 

SEC.GOV, https://www.sec.gov/abouUwhatwedo.shtml. While both men possess financial expertise, the different 

structures of their respective agencies and the Labor Department's advocacy for the rulemaking appear to have 

caused the men to adopt differing opinions about the Labor Department's proposal. 57 Appendix B, Ex. 1, Email from Keith Bergstresser, U.S. Dep't of Labor, to Matthew Kozar a, SEC (July 31, 2012, 

I :49 PM), SEC-DOL008057-008058. 

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From: Bergstresser. Keith - EBSA ........... li'ildol QQY] 

Sent: Tuesday, July 31, 2012 1:50PM 

To: Kozora, Matthew 

Subject: RE: question 

Well, I hate to break it to you, but you're wrong People do not respond to fees or 

any other costs. but they do chase returns. This and our other reasons tor 

choosing the disclosure that we have developed are laid out 1n the document that 

we've already sent over to you (attached). You might try reading the paragraph 

labeled "Portfolio Returns' on page 4. And do look into the references. They are 

very convincing. 

In a later email, Labor Department staff dismissively wrote to the SEC financial economist: 5

8 

From: Bergstresser, Keith - EBS:11!1!~·······:@dol qov) 

Sent: Tuesday, July 31, 2012 3:23 PM 

To: Kozora, Matthew 

Subject RE: question 

See my responses below. We have now gone far beyond the point where your 

input was helpful to me. You keep circling back to the same statements, many of 

which are unsupported conjectures on your part. and most of which I have 

addressed even before you brought them up. Yet, your statements do not seem 

to even acknowledge the points that I already made (with supporting evidence) in 

the document we sent. If you have nothing new to bring up, please stop em ailing 

me about this topic. 

58 Appendix B, Ex. I, Email from Keith Bergstresser, U.S. Dep't of Labor, to Matthew Kozora, SEC (July 31, 2012, 

3:22PM), SEC-DOL008056. 

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The SEC financial economist responded, expressing confusion about the fundamental purpose of 

the Labor Department's proposal: 5

9 

From: Kozora, Matthew g lSEC GOVJ 

Sent: Tuesday, July 31, 2012 3:~ PM 

To: Bergstresser, Keith- EBSA 

Subject: RE: question 

I apologize if I have overstepped my boundaries. This is a difficu~ topic for sure, 

and I was under the impression that my opinion was a. helpful and b. wanted. 

I am also now utterly confused as to what the purpose of the proposed DOL rule 

is then, ~not to limit advisor conflicts when providing retirement adv1ce? 

Considenng that my pnor is that the DOL wants to reduce advisor conflicts, tt just 

seems logical to me that the end result should measure advisory confiicts. 

Good luck with your rulemaking. 

Matt 

Finally, SEC staff expressed concern about "intent of the measure itself," and wrote that 

the SEC and the Labor Department "just have two opposing viewpoints on the matter."60 

Labor Department staff deferred continuing the conversation to a later date, 61 but 

documents the Committee received provide no indication of future discussion on this 

topic. The SEC staff also raised concerns about the Labor Department's reliance on 

psychology literature to draft the rule, which would result in comparisons that "have very 

little economic meaning and thus no value to consumers."62 

59 Appendix B, Ex. 1, Email from Matthew Kozora, SEC, to Keith Bergstresser, U.S. Dep't of Labor (July 31, 2012, 

3:42PM), SEC-DOL008055-{)08056. 60 Appendix B, Ex. 1, Email from Matthew Kozora, SEC, to Keith Bergstresser, U.S. Dep't of Labor (Aug. 2, 2012, 

1 I :57 AM), SEC-DOL008054-008055. 61 Appendix B, Ex. I, Email from Keith Bergstresser, U.S. Dep't of Labor, to Matthew Kozora, SEC (Aug. 2, 2012, 

2:00 PM), SEC-DOL008054. 62 Appendix B, Ex. I, Email from Matthew Kozora, SEC, to Keith Bergstresser, U.S. Dep't of Labor (Aug. 2, 2012, 

I 1:57AM), SEC-DOL008054-{)08055. 

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From: Bergstresser, Keith - EBSA 

Sent: Tuesday, July 31, 2012 4:15PM 

To: Kozora, Matthew 

Subject: RE: question 

@dol.gov] 

I would be happy to have a phone conversation to discuss the purpose of the 

rule, the purpose of the exemption conditions and distinctions between the two. 

don't think I want to try to have that conversation via email. I might have some 

time tomorrow, but I'm at a conference Thursday and Friday and then on 

vacation next week. 

from: Kozora. Matthew @SEC.GOVJ 

Sent: Thursday, August 02,2012 11:57 AM 

To: Bergstresser, Keith- EBSA 

Subject: RE: question 

Dear Keith. 

There is a fundamental difference between price variation and the risk investors bear. 

For instance. prices may not change over a given period of time but yet investors might 

still bear much risk. There will also be problems with respect to measuring price 

variation with respect to illiquid securities or securities that are not traded very often 

(mum bonds. structured products, real estate). You are also treating systematic risk 

with idiosyncratic nsk equally. Literature tells us (Sharpe (1964), Lintner (1965)) that 

such risks are not the same and should be treated much differently. 

I understand you want to measure returns due to the psychology literature, however, I 

am quite concerned your benchmarks based on ex-post price variation will make such 

comparisons have very little economic meaning and thus no value to consumers. I am 

also concemod as to the intent of tho measuro itself. Do you want to "woed out" bad 

providers of advice by reporting performance measures? Or do you want to "protect 

participants from connicts of interest" as proposed rule suggests? Those are two 

separate and different intents. 

If/when you have a formal rule proposal that you want comments on. 1 will be 

more than happy to share my thoughts and views. Otherwise, I think we just 

have two opposing viewpoints on the matter. 

Matt 

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It is evident from these emails that the SEC's expert staff had serious concerns 

about the rule. The financial economist at the SEC emailed Labor Department staff 

repeatedly and expressed serious concerns about fundamental principles of the rule. 

However, not only did the Labor Department dismiss the concerns, but the Department 

went a step further by actually demanding that the SEC expert stop emailing about the 

proposal. 

The Labor Department restricted the Committee's review of these emails to a 

limited in camera review. 63 The Committee, however, ultimately obtained the 

communications from another source. 

The SEC received the full proposed rulemaking package from the Labor Department in 

November 2014 and exchanged edits and comments with the Labor Department in January 

2015. 64 Career, non-partisan SEC staff identified at least 26 items of concern related to the 

substantive content of the proposed rule. 65 The SEC staff's concerns included issues of clarity in 

the rule's "best interest" standard, inadvertent consequences of a de minimis breach, conflicts 

with federal securities laws and FlNRA rules, and a lack of cost-benefit analysis of 

alternatives. 66 The SEC's point of contact in transmitting these concerns to the Labor 

Department was Sharon Block, a Senior Counselor to the Secretary of Labor, who formerly 

served as a political advisor in the Obama Administration, and whom President Obama recess 

appointed to be a member of the National Labor Relations Board, an appointment ultimately 

struck down by the Supreme Court. 67 The Labor Department repeatedly provided an incomplete 

response, declined to accept the SEC staffs recommendations, or incorrectly implemented the 

SEC expert's recommendations. 68 Specifically, in response to eight recommendations, the Labor 

Department declined to edit the operative language of the proposal, and instead merely modified 

or added language in the proposal's preamble. 69 The Labor Department outright rejected the 

SEC's two recommendations related to providing a quantitative cost-benefit analysis of 

considered alternatives to the rule. 7° Finally, the Labor Department implemented incorrect or 

63 The Department of Labor provided Committee staff with an in camera review of a limited subset of self-selected 

documents on August 28, 2015. Notes are on file with the Committee. 64 See Appendix B, Ex. 2, E-mail from Lana Nallengara, SEC, to Sharon Block, DOL (Jan. 26,2015,7:36 PM), 

SEC-DOL003234-{)03239 [hereinafter Items of Concern Chart] (attachment is a chart containing items of concern 

about the proposed rule). 

" !d. 66 /d. 

67 Edward-Isaac Dovere, White House Pulls Controversial NLRB Pick, POLITICO (Nov. 12, 2014), 

http://www.politico.com/story/2014/lllnlrb-sharon-block-lauren-mcferran-112833; Melanie Trottman, President 

Obama Taps Former NLRB Recess Appointee for Board Again, WSJ (July 11,2014,3:34 PM), 

http://www. wsj .com/articles/president -obama-taps-forrner-nlrb-recess-appointee-for-board-again-14051 0 l 02 8. 68 Appendix B, Ex. 2, Items of Concern Chart, SEC-DOL003234-{)03239. 69 !d. 

70 !d. 

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insufficient edits in response to at least four of the SEC's recommendations, evidenced by the 

SEC staff's follow-up on multiple issues of concern. 71 

Following the SEC staffs exchange of recommendations and concerns with the Labor 

Department, SEC experts continued to raise concerns "regarding the complexity of the 

proposal," and noted that the Labor Department had not fully addressed the SEC staffs 

enumerated issues of concern. 72 Then-SEC Chief of Staff Lona Nallengara, who has 20 years of 

experience in capital markets and corporate finance law, 73 explained in a January 26, 2015 email 

to Ms. Block: 74 

71 Appendix B, Ex. 3, Email from Lana Nallengara, SEC, to Sharon Block, DOL (Jan. 26, 2015), SEC-DOL003274-

003276. 

72 ld 73 Press Release, SEC, SEC ChiefofStaffLona Nallengara to Leave Agency (May 19, 2015). 74 Appendix B, Ex. 3, Email from Lana Nallengara, SEC, to Sharon Block, DOL (Jan. 26, 2015), SEC-DOL003274-

003276. 

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To: Nallengara, Lon~@SEC.GOVJ 

Cc: Hauser. Timothy ~@dol.gov]; Porter. Jennifer R~SEC.GOVJ 

FrM1: Block, Sharon 1- OSEC 

Sent: Mon 1/26/2015 7:40'58 PM 

Importance: Normal 

Subject RE: EBSA responses to SEC comments 

Thanks Lana. We appreciate all the time your team has put in and their thoughtful 

comments. 

From: Nallengara, Lon @SEC.GOV] 

Sent: Monday, January 26. 2015 7:37PM 

To: Block. Sharon I- OSEC 

Cc: Hauser. Timothy- EBSA; Porter, Jennifer R 

Subject: RE: EBSA responses to SEC comments 

Sharon, 

Thank you for sending the chart showing your responses to SEC staff comments on the 

rule package that we discussed with you in December. 

We asked the staff to review the chart and below are a few additional thoughts from the 

staff on several of the items that you can consider as you prepare your proposal (the 

staff has identified their comments using the item numbers in your chart). 

I would also like to note that although the chart shows that several changes were made 

to the proposal to address the potential concerns that we have discussed regarding the 

complexity of the proposal, we continue to believe that commenters are likely to raise 

concerns that the proposal may result in reduced pricing options, rising costs and limited 

access to retirement advice, particularly for retail investors. Commenters also may 

express concerns that broker-dealers, as a practical matter, may be unlikely to use the 

exemptions provided end may stop providing services because of the number of 

conditions imposed, likely compliance costs. and lack of clarity around several 

provisions 

We hope these comments will continue to be helpful to you as you finalize the proposed 

rules. 

Lona 

Documents received by the Committee and language in the promulgated proposed rule indicate 

that the Labor Department declined to resolve these outstanding concerns. 

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i. The "Best Interest" Standard 

SEC staff recommended that the Labor Department add language to clarify the meaning 

of the term "best interest" in the proposal. 75 The Labor Department disregarded the 

recommendation, and stated that they "would prefer to see what commenters say before adding 

any additional explanatory language." 76 

Indeed, commentators criticized the "best interest standard" in the promul~ated proposal 

and recommended that the Labor Department clarify the standard's requirements. 7 FINRA, the 

self-regulatory organization for the securities industry, focused on language requiring an 

investment advisor to provide advice that is in the best interest of the investor, "without regard to 

the financial or other interests" of the investment advisor. 78 FINRA explained that the "without 

regard to" phrase does not provide clear guidelines on limitations on compensation that varies 

depending on investment advice. 79 

Additionally, FINRA criticized the "best interest" standard's requirement that financial 

institutions and advisors act prudently, explaining that the "prudence standard" could be 

"interpreted to require the financial institution and adviser to provide ongoing advice to the 

customer." 8

° FINRA recommended that the Labor Department make clear that the best interest 

standard does not require ongoing monitoring, and that the terms of the contract should control 

whether the financial institution or advisor will provide ongoing monitoring. 81 

Finally, FINRA questioned whether the Labor Department intended the best interest 

standard to require an investment advisor "to recommend the investment that is 'best' for the 

customer." 82 FINRA reasoned that the Labor Department did intend such a result, and pointed to 

a statement by Secretary Perez, in which he stated: 

If you're an adviser operating under a suitability standard, once you narrow tbe 

options down to those that are suitable, you can recommend the one that is most 

lucrative for you--even though that might mean a lower return for the client. 

Under a best interest standard, you would need to choose tbe one that is the best 

for the client. 83 

75 Appendix B, Ex. 2, Items of Concern Chart, SEC-DOL003234-003239. 

"Id. 

77 Appendix A, Ex. 26, Letter rrom Marcia E. Asquith, Sr. Vice President & Corp. Sec'y, FINRA, to DOL, at 6-8 

(July 17, 2015) [hereinafter FINRA Comments]. 78 /d. at 6 (emphasis added). 

79 /d. 80 I d. at 7. 81 I d. at 8. 

"/d. at 7. 

"Id. 

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FINRA cautioned that such a standard "would impose unnecessary and untenable litigation risks 

on fiduciaries," and explained that reasonable investment advisors may consider different factors 

in evaluating products and may reach different conclusions about which product is the "best" 

product for the customer. 84 

ii. Accidental Forfeiture of the Best Interest Contract Exemption in Case of a 

de Minimis Breach 

SEC staff raised a concern about language in the proposal's Best Interest Contract 

Exemption, which required compliance with all applicable federal and state laws. 85 SEC staff 

warned that this requirement "could result in loss of exemption for trivial breaches," and 

suggested that the Labor Department clarify that a de minimis breach would not disallow the 

exemption. 86 According to this language, if an advisor violated a state law unrelated to the 

contract or to the service of providing investment advice, the advisor would not be compliant 

with applicable state laws, which could technically result in loss of the exemption. For example, 

an advisor's violation of a state law requiring a handicap-accessible ramp at the entrance to the 

building could result in loss of the exemption. The Labor Department attempted to implement 

the SEC staffs suggestion, 87 but failed to resolve the problem. The SEC staff again 

recommended that the Labor Department make additional changes to this provision of the rule. 88 

Career experts at the SEC later advised Labor Department officials that this problem had not 

been resolved, but the Labor Department failed to address the issue in the final proposal. 89 

Specifically, Section II( a) of the Best Interest Contract Exemption in the proposal 

requires that "the Advisor and Financial Institution enter into a written contract with the 

Retirement Investor that incorporates the terms required by Section JJ(b)-(e)." 90 Section II( d), 

in tum, requires that "[t]he Adviser, Financial Institution, and Affiliates will comply with all 

applicable federal and state laws."91 As such, by its terms, the Section could cause an advisor to 

forfeit the exemption for a small breach of state contract law. 

Despite feedback from career, expert SEC staff regarding the inadequate revision three 

months in advance of the promulgation of the proposed rule, 92 the Labor Department declined to 

84 /d. 

85 Appendix B, Ex. 2, Items of Concern Chart, SEC-DOLOOJ234-DOJ239. 86 /d. 87 /d. (responding that "as a result, failure to comply with law will not disallow the exemption"). 88 Appendix B, Ex. 3, Email from Lana Nallengara, SEC, to Sharon Block, DOL (Jan. 26, 2015), SEC-DOL003274-

00J276. 

89 Jd. 

9{) Best Interest Contract Exemption§ ll(a), 80 Fed. Reg. 21,960, 21,984 (proposed Apr. 20, 2015) (to be codified at 

29 C.F.R. pt. 2550) (emphasis added). 91 Best Interest Contract Exemption § ll(d)(I ), 80 Fed. Reg. at 21,984. 92 Appendix B, Ex. 3, Email from Lana Nallengara, SEC, to Sharon Block, DOL (Jan. 26, 2015), SEC-DOL003274-

003276. 

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update the rule. Therefore, the proposed rule contains language that requires compliance with 

federal and state laws for application of the exemption93 and creates the possibility of forfeiture 

of the exemption in case of a trivial breach. 94 

iii. Lack of a Cost-Benefit Analysis for Alternative Approaches 

The Labor Department rejected the SEC's recommendation to conduct quantitative 

analysis of the costs and benefits of alternative approaches to the rule, as required by Executive 

Orders (EOs) 12866 and 13563. 95 According to the Labor Department, expert, non-partisan, 

career SEC staff urged the Labor Department to "[ c ]onsider quantifying the costs and benefits of 

all the alternative approaches we considered and rejected." 96 The Department rejected the SEC 

expert's recommendation on the basis that its qualitative analysis sufficed: 

We think this would be extraordinarily difficult and would appreciably delay the 

project for very little return. The extensive qualitative descriptions of the bases 

for rejecting the alternatives included in the current [regulatory impact analysis] 

effectively explain the bases for rejecting the alternative approaches. We would 

prefer to get feedback from OMB before undertaking any additional quantitative 

analyses 97 

The Labor Department informed the Committee that following OMB's review of the rule, the 

Department declined to complete quantitative analysis because it found the regulatory impact 

analysis to be sufficiently "compelling." 98 

SEC staff also recommended that the Labor Department analyze the costs and risks 

associated with the possibility that the rule could decrease the availability of investment advice 

and could drive firms to switch to registered investment advisor models from broker-dealer 

models. 99 The Labor Department responded that the regulatory impact analysis addressed these 

93 Best Interest Contract Exemption§ II( a), II( d)( I), 80 Fed. Reg. at 21,984. 94 Appendix B, Ex. 2, Items of Concern Chart, SEC-DOL003234-{)03239. 95 Exec. Order No. 12866,3 C.F.R. 638 (1994); Exec. Order No. 13563,3 C.F.R. 215 (2012). 96 Appendix B, Ex. 2, Items of Concern Chart, SEC-DOL003234-{)03239. From the context of the document, it 

appears that "we" as used in this quotation refers to the Labor Department, rather than the Labor Department and the 

SEC collectively. The document was prepared by the Labor Department and transmitted to the SEC. See Appendix 

B, Ex. 2, Email from Sharon Block, DOL, to Lana Nallengara, SEC (Jan. 9, 20 15), SEC-DOL003234. Elsewhere in 

the document, the drafters used "we" to the exclusion of the SEC. See Appendix B, Ex. 2, Items of Concern Chart, 

SEC-DOL003234-{)03239 ("We have edited the language based on our conversations with SEC staff'; "We are 

confident that the language in the regulation lines up with the SEC and CFTC language, but are reaching out to the 

SEC regulatory team .... "). Nowhere in the document is the Labor Department referenced similarly in the third 

person. Based on this contextual evidence, it appears that the phrasing of the SEC's comments is the Labor 

Department's articulation of the SEC's concerns, rather than the SEC's own words. 97 Appendix B, Ex. 2, Items of Concern Chart, SEC-DOL003234-{)03239 (emphasis added). 

"Briefing by Staff, DOL, to Committee Staff, HSGAC (Aug. 28, 2015) (notes on file with Committee). 99 Appendix B, Ex. 2, Items of Concern Chart, SEC-DOL003234-{)03239. 

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issues, but that the Department was "reviewing to see if there is anything more ... to sa( on the 

topic," 100 and that it might "make additional edits after getting feedback from OMB." 10 

However, the Labor Department apparently did not conduct any additional follow-up work after 

OMB completed its review of the proposal. 102 

EOs 12866 and 13563 were enacted to improve the regulatory process. EO 12866 

requires a federal agency to "assess all costs and benefits of available regulatory alternatives, 

including the alternative of not regulating," and provides that the assessment should include 

"quantifiable measures." 103 EO 13563, which supplements EO 12866, requires a federal agency 

to "tailor its regulations to impose the least burden on society," to "choos[ e] among alternative 

regulatory approaches," and to "identify and assess available alternatives to direct regulation." 104 

EO 13563 also directs an agency to include "quantify[ing] anticipated present and future benefits 

and costs as accurately as possible." 105 EOs 12866 and 13563 permit agencies to conduct 

qualitative analysis in place of quantitative analysis where the costs and benefits are "difficult or 

impossible to quantifY." 106 EO 13563 offers guidance on the types of factors that are difficult or 

impossible to quantify: "human dignity, fairness, and distributive impacts." 107 Here, the costs 

and benefits associated with the Labor Department's proposed fiduciary rule do not seem to meet 

the "difficult" or "impossible" threshold. 

Additionally, OIRA issued a primer on EOs 12866 and 13563 to provide guidance to 

federal agencies in drafting a regulatory impact analysis. 108 OIRA emphasizes the importance of 

providing a quantitative analysis of alternatives and provides that agencies should conduct a 

quantitative analysis when at all possible. 109 For factors where quantification or monetization is 

not possible, OIRA instructs that the agency is not exempt from providing a quantitative analysis 

altogether and should still "present all available quantitative information." 110 Like the Executive 

Orders, OIRA also provides examples of values that are not readily quantifiable, includin¥ 

privacy, dignity, ecological gains, improvements to quality of life, and aesthetic beauty. 11 

OIRA dedicates the large majority of the guidance to explaining, in great detail, how 

agencies should conduct quantitative analysis. 112 OIRA focuses in particular on factors that are 

100 !d. 

!01 !d 102 Briefing by Staff, DOL, to Committee Staff, HSGAC (Aug. 28, 2015) (notes on file with Committee). 103 Exec. Order No. 12866 § l(a), 3 C.F.R. 638 (1994). 104 Exec. Order No. 13563 § l(b)(3), (b)(5), 3 C.F.R. 215 (2012). 

105 Jd § !(c). 106 Id 107 !d. 108 O!RA, REGULATORY IMPACT ANALYSIS: A PRIMER. 

109 /d. 110 !d. at 12. 111 !d. at 12, 13. 112 See id. 

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not easily quantified or monetized and on future projections and uncertainties. 113 Two full 

sections of the guidance are dedicated to analyzing "future benefits and costs" and "forecasts 

about the future." 114 OIRA instructs that while forecasts about the future may be uncertain, 

those uncertainties should be analyzed-agencies should specify potential scenarios, calculate 

the benefits and costs associated with each scenario, and construct ranges of values. 115 OIRA 

further emphasizes that this is the minimum agencies should do, and that agencies should assign 

probabilities and calculate expected values based on those probabilities, ifpossible. 116 

The Executive Orders and the OIRA guidance do not exempt the Labor Department from 

conducting a quantitative analysis simply because the analysis would involve complicated 

calculations and future projections. The examples provided in the Executive Orders and the 

OIRA guidance indicate that factors that qualify as "difficult" or "impossible" to quantify are 

factors with inherently intangible or subjective properties. 117 Monetary costs and benefits very 

clearly do not fit into this category because they are both countable and objective. The fact that 

determining costs and benefits may involve complex calculations and future uncertainties is a 

distinguishable obstacle. In fact, OIRA emphasizes the importance of providing a quantifiable 

analysis, even when it involves complex calculations or future uncertainties. 118 While the Labor 

Department might not be able to capture every potential cost and benefit of the rule, OIRA's 

guidance to agencies indicates that the Labor Department should have provided monetary and 

quantitative analysis of as many factors as possible. The Labor Department's approach of 

determining that it would be difficult to calculate costs and benefits, and thus abandoning the 

effort altogether, starkly contrasts with the guidance provided by OIRA. 

More broadly, the Labor Department's dismissive response of the SEC experts' 

recommendation calls into question the Department's priorities in the rulemaking process and its 

commitment to thoughtfully considering the SEC staff's input. The Labor Department's 

decision to not undertake additional analysis following OMB's review is indicative of the 

Department's prioritization of accelerating its release of the proposal at the expense of a 

thorough process that appropriately reflected the input of the SEC staff. 

b. The Labor Department Failed to Incorporate Principles from Existing 

Federal Securities Laws and FINRA Rules 

FIN RA-the Financial Industry Regulatory Authority-is the leading non-governmental 

regulator of brokerage firms and exchange markets and ensures that the security industry 

113 See id. 114 !d. at 11, 12. 115 !d. 116 !d. at 14-15. 117 /d. at 12, 13; Exec. Order No. 12866; Exec. Order No. 13563. 118 O!RA, REGULATORY IMPACT ANALYSIS: A PRIMER, supra note 108. 

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operates fairly and honestly. 119 FINRA writes and enforces rules for every brokerage firm and 

broker in the United States, and also enforces federal securities laws and Municipal Securities 

Rulemaking Board (MSRB) rules. 12° FINRA has authority from the SEC to discipline brokers 

and brokerage firms for violations of FINRA rules, federal securities laws, and MSRB rules. 121 

FINRA monitors more than 3,955 securities firms with approximately 643,320 brokers. 122 

In addition to ignoring substantive suggestions from subject-matter experts at the SEC, 

the Labor Department likewise apparently declined to incorporate existing federal securities laws 

and FINRA rules. Upon review of the proposed rule, FINRA provided critical feedback, stating 

that the rule "established principles that employ imprecise terms with little precedent in the 

federal securities laws or, in many cases, ERISA," and that "[i]n some respects these principles 

even conflict with FINRA rules." 123 

For example, FINRA highlighted that the proposed Best Interest Contract Exemption 

contains a provision that directly conflicts with FINRA rules. 124 Section Ill( a)(!) requires, prior 

to the purchase of a recommended asset, that an advisor project the total cost of investing in the 

asset for 1-, 5-, and 10-year periods, expressed as a dollar amount. 125 Such a projection requires 

the advisor to incidentally project investment performance because fees are tied to an asset's 

value. This requirement directly conflicts with FINRA Rule 2210, which generally prohibits 

broker-dealers from making performance projections to the public. 126 Thus, by requiring 

advisors to project the future value of assets under management, the Labor Department's rule 

would actually require advisors to violate FINRA rules. 

The Labor Department's failure to "build upon existing principles in the federal securities 

laws and FINRA rules" 127 is despite SEC staff urging the Labor Department to incorporate 

references to and aspects of federal securities laws and FINRA rules. In September and October 

2014, SEC staff provided to the Labor Department, on multiple occasions, lists of relevant laws 

and rules, including rules from the Securities Act, Advisers Act, Exchange Act, FINRA, the 

National Association of Securities Dealers (NASD), and the Municipal Securities Rulemaking 

Board. 128 

119 News Release, FINRA, NASD and NYSE Member Regulation Combine to Form the Financial Industry 

~~gulatory Authority-FINRA (July 30, 2007); About F!NRA, FINRA, http://www.finra.org/about. 

PI What We Do, F!NRA, http://www.finra.org/aboutlwhat-we-do. 

- News Release, FINRA (July 30, 2007), supra note 119; About FJNRA, supra note 119. 122 For Industry Professionals, FINRA, https://www.fima.org/industry. 123 Appendix A, Ex. 26, FINRA Comments, at II. 124 See id. at 14. 125 Best Interest Contract Exemption § III(a)(l ), 80 Fed. Reg. 21,960, 21,985 (proposed Apr. 20, 2015) (to be 

codified at 29 C.F.R. pt. 2550) (emphasis added). 126 FINRA, RULE 2210; Appendix A, Ex. 26, FINRA Comments, at 14. 127 Appendix A, Ex. 26, FINRA Comments, at II. 128 Appendix B, Ex. 4, E-mail from Jennifer Porter, SEC, to Timothy Hauser, DOL (Sept. 4, 2014, 3:55p.m.), SECDOLOOI768--DOI771; Appendix B, Ex. 5, E-mail from Jennifer Porter, SEC, to Timothy Hauser, DOL (Oct. 8, 

2014, 10:35 a.m.), SEC-DOL001900--DOI901. 

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Additionally, SEC staff identified several items of concern relating to the Labor 

Department's lack of incorporation of federal securities laws and FINRA rules. For example, 

SEC staff recommended that the Labor Department redraft definitions in the disclosure 

requirements and document retention provisions so that the provisions expressly referenced SEC 

and FINRA definitions. 129 SEC staff reasoned that this would ensure that the Labor Department 

would receive complete and sufficiently comparable data from investment advisors. 130 

However, the Labor Department dismissed the suggestion, instead merely including in the 

proposal's preamble a request for comment "as to whether the terms used and definitions are 

sufficient so that the information received will be reasonably comparable across different 

financial institutions." 131 

The Labor Department's failure to incorporate fundamental principles from federal 

securities laws and FINRA Rules further suggests that the Department did not thoroughly consult 

regulatory experts. This resulted in a rule that experts have highlighted as problematic, in part 

because of the conflicts it creates with existing and anticipated future regulatory frameworks. 132 

c. The Labor Department Declined to Incorporate OIRA's Recommendations 

into the Proposed Rulemaking 

OIRA employs regulatory experts who carry out the office's mission as the federal 

government's chief review and oversight authority on Executive Branch rulemaking measures. 

Career, non-partisan, professional staff at OIRA conduct reviews of draft and final regulatory 

proposals, coordinate interagency review of proposals, consider and review comments from 

outside groups on proposed rulemakings, and offer guidance on how rulemakings can best 

achieve the intended purpose. In several instances, it appears that the Labor Department 

disregarded OIRA's recommendations and concerns about the Department's fiduciary rule. 

The Labor Department declined OIRA's recommendation to add clarity to a particular 

provision of the rule. Specifically, OIRA instructed the Labor Department to add the qualifying 

adjective "all" to describe the types of common fee and compensation practices that the rule 

would preserve as exempt from ERISA's prohibited transactions rules. 133 OIRA proposed the 

following language: "the Department has worked to preserve beneficial models by separately 

proposing new exemptions from ERISA's prohibited transaction rules that will broadly permit 

firms to continue to rely on all common fee and compensation practices .... " 134 The Labor 

129 Appendix B, Ex. 2, Items of Concern Chart, SEC-DOL003234-003239. 1Jo Id 

\01 /d. 132 See Appendix A, Ex. 26, FINRA Comments, at 1 I. 133 See Appendix B, Ex. 6, Conflict oflnterest Rule, Apr. 8, 2015 Draft, EBSA Pass Back, SEC-DOL004832. 134/d. 

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Department rejected OIRA's changes and deleted "to rely on all," responding that "[n]ot all fee 

practices will be permitted by the exemptions" and explaining that, "[b]y deleting 'all' we 

slightly soften this by leaving it at 'common fee and compensation practices"' 135 This edit and 

the Department's explanation show that the Department envisioned the proposal as prohibiting 

some common fee and compensation packages. 

The Labor Department's deletion of the word "all" raises questions about the 

Department's commitment to transparency. The language in the provision emphasizes that the 

Labor Department is committed to preserving existing models and to permitting the continuance 

of common fee and compensation practices. However, this language appears to be misleading 

because the Labor Department surreptitiously retained its ability to exclude some fee and 

compensation practices from the exemption. It is difficult to understand how the Labor 

Department sought to preserve and permit the current compensation structure in the industry 

when it explicitly envisioned the possibility of prohibiting some fee and compensation packages. 

In another instance, OIRA questioned the Labor Department's use of the term "incidental 

advice" in connection with its discussion of the rule's seller's carve-out. 136 Regulatory experts at 

OIRA cautioned that exempting "incidental advice" could also "carve out advice given by a 

broker under the [guise] of being a mere order taker" 137 and noted, "[t]hat's where the SEC 

muddied the waters in the first place." 138 Documents received by the Committee contain no 

indication that the Labor Department fully responded to this concem. 139 Furthermore, this 

section of the preamble in the rule contains the same language as the draft rule, 140 showing that 

the Labor Department did not adjust the language to accommodate OIRA's concern, and further 

suggesting that the Labor Department did not thoroughly consider OIRA's comments. 

d. The Labor Department Did Not Fully Consider Concerns Raised by the 

Treasury Department 

The Treasury Department has enforcement authority over Individual Retirement 

Accounts (IRAs), which are a creation of the tax code, and thus the Labor Department's 

engagement with Treasury on the proposed rule is especially important. Given Treasury's 

authority and expertise in enforcing rules and regulations relating to IRAs, the Labor Department 

should have considered and remedied any concerns raised by Treasury officials about the 

proposed rule. 

m !d. (emphasis added). 136 !d. SEC-DOL004858. 

137/d. 

138 /d. (emphasis added). 139 !d. 14° Conflict of Interest Rule-Retirement Investment Advice§ (b)(l)(i), 80 Fed. Reg. 21,928,21,957 (proposed Apr. 

20, 20 15) (to be codified at 29 C.F.R. pts. 2509, 251 0). 

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Treasury officials and other experts have raised concerns about the Best Interest Contract 

Exemption (BIC exemption), because it would impose new requirements on fiduciaries with 

respect to IRAs. 141 IRAs are governed by the Internal Revenue Code, not by ERISA. Unlike 

ERISA, the Internal Revenue Code "does not directly impose responsibilities of prudence and 

loyalty on fiduciaries." 142 The Labor Department's rule, however, would create such 

responsibilities by requiring fiduciaries "to act in accordance with the Impartial Conduct 

Standards in transactions governed by the exemptions." 143 The rule's background section 

acknowledges that the proposal would more significantly increase requirements for advisors with 

respect to IRAs than it would for advisors of accounts governed by ERISA (the Employee 

Retirement Income Security Act) because ERISA already requires those advisors to meet 

prudence and loyalty standards. 

Former Assistant Secretary of Labor Bradford Campbell criticized this aspect of 

the rule as an effort by the Labor Department to sidestep Congress, stating that"[ d]espite 

their simultaneous creation in 1974, Congress expressly chose not [to] apply the ERISA 

fiduciary standard to IRAs." 144 According to Mr. Campbell, "the Department is 

attempting to do something through [the proposed rule J that Congress explicitly chose not 

to do."I45 

Treasury officials similarly voiced concerns about the Labor Department extending the 

reach of the rule to IRAs. Treasury officials commented that earlier amendments were made "to 

reflect Congressional intent," on the basis that Congressional intent was "being undermined by 

rules that [were] not reflective of current market practices." 146 Treasury officials argued that this 

amendment, by imposing requirements with respect to accounts governed by a different statute 

and under the jurisdiction of a different federal agency, "seems to fly in the face of the logic ... 

that these amendments are necessary to reflect Congressional intent." 147 The Labor Department 

responded by disagreeing and effectively dismissing the Treasury Department's concern. The 

Labor Department wrote: 

We think there's a difference here between the regulation and the exemptions. 

The purpose of the regulation expanding the definition of 'fiduciary' is to reflect 

Congressional intent. However, the purpose of this exemption is to say that if 

141 Appendix B, Ex. 7, Proposed Amendments to Class Exemptions, Apr. 21,2015 Draft, Treasury Comments (Mar. 

21, 2015), SEC-DOL005312. 142 /d. (emphasis added). 143 CONG. RESEARCH SERV., DOL'S 2015 PROPOSED FIDUCIARY RULE ON INVESTMENT ADVICE, IN FOCUS, IF10318, 

Nov. 12, 2015. The Impartial Conduct Standards require an advisor to act in the best interest of the client-investor 

and not to accept more than reasonable compensation. 144 House Ways & Means Committee Hearing, supra note 47 (statement of Bradford Campbell). 145 !d. 146 Appendix B, Ex. 7, Conflict oflnterest Rule, Treasury Comments, Mar. 21, 2015, SEC-DOL005312. 147 !d. 

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you're a fiduciary under the [Internal Revenue Code] (and Congressional intent), 

and want to receive variable compensation, then you have to comply with these 

conduct standards, even if they are not independently imposed by Congress. 148 

IRA advisors receive variable compensation, especially when providing advice to lowand middle-income investors. 149 Thus, IRA advisors would be subject to the rule's 

conduct standards. Despite Congress' intent to regulate IRA advisors under a different 

Jaw, the Labor Department would regulate them using variable compensation as a proxy. 

In a letter to Chairman Johnson on December 14, 2015, Treasury Department Assistant 

Secretary for Legislative Affairs, Anne Wall, stated that "Treasury believes that DOL 

appropriately considered Treasury's comments on the drafts during the OIRA process, including 

the comments specified in your letter" (and quoted above). 150 However, based on the 

documents, it is unconvincing that the Labor Department fully considered the comments of the 

Treasury Department experts. First, documents the Committee received provide no indication 

that the Departments discussed the Treasury Department's concern beyond the Labor 

Department's initial response to the Treasury Department, where it merely disagreed with 

Treasury's comment. Second, the Labor Department promulgated the proposed rule less than 

two weeks after circulating this draft and the accompanying comments, undoubtedly limiting the 

extent to which the Labor Department considered the comments it received from the Treasury 

Department experts on the draft. Finally, the promulgated proposal does not contain language 

signifying that the Labor Department edited the rule in accordance with the Treasury 

Department's stated concerns. For these reasons, it is difficult to conclude objectively that the 

Labor Department fully considered the Treasury Department's comments. 

III. EXPERTS HAVE EXPRESSED CONCERNS ABOUT THE RULE'S 

ANTICIPATED HARM TO MIDDLE-INCOME AND SMALL BUSINESS 

INVESTORS 

Chairman Johnson's inquiry raises concerns about both the process and the substance of 

the Labor Department's rulemaking. The Committee has received documents that demonstrate 

that the Labor Department prioritized expediting the drafting process at the expense of 

thoughtfully considering and addressing concerns from industry experts. In multiple instances, 

the Department disregarded advice from the SEC, OIRA, and Treasury, and failed to undertake a 

thorough cost-benefit analysis of the rule. The majority staff finds these actions especially 

148 !d. 149 Appendix A, Ex. 27, Letter from Commonwealth Financial Network to DOL (July 21, 2015). 150 Appendix A, Ex. 28, Letter from Hon. Anne Wall, Asst. Sec'y for Leg. Affairs, Dep't of the Treasury, to 

Chairman Johnson (Dec. 14, 2015). 

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troubling because of the concerns raised about the risk of the rule's anticipated harm to middleincome investors. 

Generally, industry experts, including investment advisors, support a best interest 

standard, but have criticized the rule on the grounds that it is overly complex and burdensome. 

For example, Peter Schneider, the President ofPrimerica, testified to Congress that he "agree[s] 

that firms and their representatives should always act in their clients' best interests." ISI He 

explained that he is concerned "that the requirements and uncertainties of the [Best Interest 

Contract Exemption] are so complex and burdensome that the exemption is neither 

administratively nor operationally feasible."I 52 

Similarly, former SEC Commissioner Daniel Gallagher has harshly criticized the rule, 

calling it a "mess," in part because advisors who adhere to a best interest standard still risk 

noncompliance with the rule because of its many complicated requirements. I 5

3 Commissioner 

Gallagher has cautioned that the Labor Department's rule would result in the "elimination of an 

entire class of accounts" for investors and would subject advisors to "unlimited liability."I 54 

Other experts and observers have also raised concerns that the conditions and requirements the 

rule imposes are ambiguous and unworkable, which will increase litigation risk and regulatory 

costs. Experts anticipate that advisors will incur initial compliance costs of $21.5 million and 

annual maintenance costs of $5.1 million, resulting in increased costs for retail investment advice 

by 73% to 196% as a result of the Labor Department's proposal. I 5

5 

Additionally, experts contend that the Administration has inflated the harm that results 

from investors relying on "conflicted advice." The White House and the Labor Department 

claim that conflicted advice from brokers costs investors $17 billion per year. I 5

6 Former SEC 

chief economist Craig Lewis has explained that the $17 billion estimate is based on a calculation 

that failed to account for discrepancies in the data and that used outdated data from the 1990s 

151 Senate HELP Committee Hearing, supra note 2 (statement of Peter Schneider); see also id. (statement of Robert 

Litan) ("[T]he notion that all retirement investment advisers should be held to a best interest of client standard is not 

controversial."). 

152 /d.; House Ways & Means Committee Hearing, supra note 47 (statement of Judy VanArsdale, Co-Owner, enrich 

Private Wealth Management). 153 Mark Schoeff Jr., SEC Commissioner: DOL Fiduciary Rule Would Create "a Mess", INVESTMENT NEWS (Aug. 

4, 2015, I: 18 PM), http://www.investmentnews.com/article/20150804/FREE/150809978/sec-commissioner-dolfiduciary-rule-would-create-a-mess. 

154 /d.; Speech to the Chamber of Commerce, Daniel Gallagher, Comm'r, SEC (Aug. 4, 2015), available at 

https://www.uschamber.com/event/discussion-sec-commissioner-daniel-gallagher. 

155 MILLOY, AM, ACTION FORUM, supra note 43; see a/so DELOITTE DEVELOPMENT LLC, REPORT ON THE 

ANTICIPATED OPERATIONAL IMPACTS TO BROKER-DEALERS OF TilE DEPARTMENT OF LABOR'S PROPOSED CONFLICT 

OF INTEREST RULE PACKAGE (2015) (reporting similar findings). 156 EXEC. OFFICE OF THE PRESIDENT, THE EFFECTS OF CONFLICTED INVESTMENT ADVICE ON RETIREMENT SAVINGS 

(2015). 

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and 2000s. 157 Mr. Lewis stated, "[y ]ou don't have to be an economist to recognize the 

Administration's $17 billion talking point significantly overestimates the costs, if any, to 

investors relying on the 'conflicted advice' ofbrokers." 158 

Experts have focused, in particular, on the negative impact that the rule will have on 

small-account owners-small businesses and middle-income investors. The Small Business 

Administration has commented that the rule "would likely increase the costs and burdens 

associated with servicing smaller plans ... [which] could limit financial advisers' ability to offer 

savings and investment advice to clients ... [which] could ultimately lead advisors to stop 

providing retirement services to small businesses." 159 Similarly, former Assistant Secretary of 

Labor Bradford Campbell testified that the rule "likely will harm the very retirement investors it 

is intended to help." 160 Mr. Campbell echoed the Small Business Administration's concerns that 

the rule will increase the cost and reduce the availability of advice to small plans and smallaccount IRA owners. 161 Finally, experts have pointed to an "advice gap" that has developed in 

the United Kingdom (U.K.) as a result of a 2013 rule change in the U.K. that is effectually 

identical to the Labor Department's rule. 162 According to ERISA experts, it is "widely accepted 

in the U.K." that "middle- and lower- income savers in the U.K. are being cut off from 

investment advice." 163 The United Kingdom government has "launched a major review of 

exactly that advice gap." 164 

First, the rule contains a carve-out that will not apply to small businesses. The "Seller's 

Carve-Out" exempts an investment advisor from fiduciary duties when the advisor sells or 

markets materials, as long as the advisor discloses that the advisor is paid to sell proprietary 

financial product and is not providing fiduciary advice. 165 However, the proposal prohibits 

advisors to small businesses from using the Seller's Carve-Out based on the assumption that 

small businesses lack financial sophistication. 166 Small businesses and ERISA experts have 

voiced concerns that the rule will deprive small businesses of access to guidance on investment 

157 Craig M. Lewis, An Inflated $!7 Billion Talking Point From the DOL, FORBES (Dec. 16,2015, 12:30 PM), 

http://www.forbes.com/sites/realspin/20 15/12/l6/an-intlated-l7-billion-talking-point-from-the-dol/#782b028439e I. ISR [J. 

159 Appendix A, Ex. 29, Letter from Claudia Rodgers, Acting Chief Counsel for Advocacy, and Dillon Taylor, Asst. 

Chief Counsel for Advocacy, Small Business Admin., to Hon. Phyllis Borzi, Asst. Sec'y, EBSA, DOL, at 5--{i (July 

17, 2015). 160 House Ways & Means Committee Hearing, supra note 47 (statement of Bradford Campbell). 161 fd 162 KENT MASON, DAVIS & HARMAN LLP, U.K. LAUNCHES REVIEW OF "ADVICE GAP" FOR SMALL ACCOUNTS 

FOLLOWING A 2013 RULE CHANGE WITH EFFECTS IDENTICAL TO WHAT DOL NOW PROPOSES (2015). \63 !d. 

164 fd 

165 Conflict of Interest Rule-Retirement Investment Advice § (b)(l)(i), 80 Fed. Reg. 21,928, 21,957 (proposed Apr. 

20, 2015) (to be codified at 29 C.P.R. pts. 2509, 2510) (Seller's Carve-Out); id pmbl. § IV(C)(I)(a) at 21,941-42 

(explaining the Seller's Carve-Out). 106 Senate HELP Committee Hearing, supra note 2 (statement of Darlene Miller, President & CEO, Permac 

Industries, Board Member, U.S. Chamber of Commerce). 

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options that are otherwise permitted by the carve-out. 167 Small businesses have additionally 

refuted the Labor Department's flawed assumption that small businesses lack the requisite 

sophistication to engage with investment advisors without statutorily imposed protections. 168 At 

a hearing before the Senate Committee on Health, Education, Labor and Pensions, a smallbusiness owner testified: 

I would not be able to run a successful business if I were not able to understand 

when I am involved in a sales discussion. . . . The assumption that small plans, 

participants and IRA owners cannot understand the difference between sales and 

advice does not match my real world experience. The [Labor] Department can 

protect participants, IRA owners and small plans with the same kind of 

disclosures that it requires of large plans under the large plan carve out, but 

without eliminating their right to choose the services and products that best fit 

their needs. 169 

Former Assistant Secretary Campbell similarly criticized the carve-out, stating "there is 

no clear basis to believe that plan size is a proxy for financial sophistication, and no basis 

to treat every IRA owner as if she is incapable of making informed choices." 170 

Additionally, experts have voiced concerns that the Best Interest Contract Exemption 

(BIC exemption) is unworkable and that firms will not use it. The BIC exemption allows certain 

broker-dealers and other fiduciaries to receive compensation that would otherwise be prohibited, 

such as commissions. 171 To take advantage of the BIC exemption, the investor and advisor must 

sign a contract acknowledging fiduciary status. 172 The advisor must act in the best interest of the 

client and must make numerous disclosures to the client and to the Labor Department. 173 

Experts contend that the BIC exemption is unworkable and will increase the cost of investment 

advice and services and will, consequently, decrease access to investment services for small 

investors. 174 Experts explain that the BIC exemption imposes conditions and requirements for 

advisors that are ambiguous, creating uncertainty and putting advisors at risk for penalties and 

lawsuits, including class action lawsuits. 175 Industry ~articipants caution that investment firms 

will consequently decline to use the BIC exemption. 1 6 

!67 ld. 168 /d. 169 /d. 170 /d. (statement of Bradford Campbell). 171 CONG. RESEARCH SERV., DOL'S 2015 PROPOSED FIDUCIARY RULE ON INVESTMENT ADVICE, IN FOCUS, IFI0318, 

Nov. 12, 2015. 

172 /d. 173 /d. 174 Senate HELP Committee Hearing, supra note 2 (statement of Darlene Miller). 175 /d. (statements of Darlene Miller and Peter Schneider). 176 !d.; House Ways & Means Committee Hearing, supra note 47 (statements of Judy VanArsdale and Bradford 

Campbell). 

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According to experts, the unworkability of the BIC exemption will inhibit middleincome, small-account owners' access to investment services. Experts explain that firms that do 

not use the exemption will likely convert their commission-based brokerage IRAs to fee-based 

accounts. 177 Fee-based accounts are more expensive to operate than commission-based accounts 

and, therefore, often require account minimums of$25,000 and higher annual fees. 178 Experts 

caution that these costs will inhibit access to investment services for small account owners and 

could result in losses in retirement savings of as much as $68-80 billion per year. 179 Even in the 

case of advisors who continue to provide services to small account owners, flat fees will present 

affordability challenges for middle-income investors who cannot afford to pay flat rates and 

currently rely on commission-based fees. 180 

Supporters of the rule have criticized large, publicly-traded investment firms for publicly 

predicting significant negative consequences, while simultaneously "assuring [investors] that the 

rule will have no significant impact on their companies" and that they "are well-positioned to 

'adapt to any regulatory framework that emerges."' 181 

However, these large investment firms are not the ones that will feel the most significant 

effects of the rule. Rather, the rule is likely to harm small- and mid-size investment firms. For 

example, Judy VanArsdale, the co-owner of a seven-employee wealth management company, 

testified before the House Committee on Ways and Means about her concerns about the rule. 182 

As a small wealth management company, Ms. VanArsdale's compan~ serves more than 2,500 

accounts, with more than 800 accounts containing less than $25,000. 83 Ms. VanArsdale 

explained that the rule increases litigation risk because of its lack of clarity and its creation of 

state-law class action lawsuits. 184 Ms. VanArsdale stated that, as a small-business owner, she 

feels "great concern over subjecting [her] business to increased business and litigation risk." 185 

According to Ms. VanArsdale, to avoid litigation risk, "small businesses ... may not feel 

comfortable using the BIC exemption, and ... would be restricted from serving retirement 

brokerage accounts." 186 While large firms may be better suited to withstand changes in the 

177 Senate HELP Committee Hearing, supra note 2 (statements of Darlene Miller and Peter Schneider); House Ways 

& Means Committee Hearing, supra note 47 (statement of Bradford Campbell). 178 Senate HELP Committee Hearing, supra note 2 (statement of Peter Schneider); House Ways & Means 

Committee Hearing, supra note 47 (statement of Bradford Campbell). 179 QUANTRIA STRATEGIES, supra note 13, at I. 180 Senate HELP Committee Hearing, supra note 2 (statement of Peter Schneider). 181 Appendix A, Ex. 30, Letter from Hon. Elizabeth Warren, U.S. Sen., and Hon. Elijah Cummings. U.S. House of 

Representatives, to Sec'y Perez, DOL, and Hon. Shaun Donovan, Dir., OMB (Feb. 11, 2016). 182 House Ways & Means Committee Hearing, supra note 47 (statement of Judy VanArsdale). 183 ld. 

184 ld. 

185 /d. 

186 /d. 

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regulatory regime, small- and mid-size investment firms-and the middle-class consumers they 

service--have less tolerance to weather such changes. 

IV. THE ADMINISTRATION WAS PREDETERMINED TO REGULATE THE 

INDUSTRY AND SOUGHT EVIDENCE TO JUSTIFY ITS PREFERRED 

ACTION 

The Labor Department refused to provide the Committee with its communications with 

the White House. However, the Committee obtained some of these communications from 

another party. The communications indicate that the Labor Department and the White House 

were predetermined to regulate the industry and sought evidence to justify their preferred action. 

The communications also suggest that the White House may have played an outsized role in the 

rulemaking, in conflict with the Administrative Procedure Act. 

In an email to Brian Deese-a senior political advisor in the Executive Office of the 

President-a Labor Department policy advisor wrote of the "challenges in completing the 

[regulatory impact analysis]." 187 In particular, he noted, "we need to determine whether the 

available literature, our work with RAND, and any other data we have not yet identified can be 

woven together to demonstrate that there is a market failure and to monetize the potential 

benefits of fixing it." 188 In another email to Mr. Deese, a Labor Department policy advisor 

discussed plans for packaging the rulemaking re-proposal. 189 The email noted a GAO rep.ort that 

the Labor Department intended to use to "build[] the case for why the rule is necessary." 90 

EOs 12866 and 13563--enacted to reform and improve regulations and the regulatory 

process-require agencies to identify a market failure or other compelling problem that justifies 

regulation before the agency begins the regulatory drafting process. Specifically, EO 12866 

provides that agencies should promulgate regulations only if they are "made necessary by 

compelling public need, such as material failures of private markets." 191 EO 12866 further 

provides that "in deciding whether and how to regulate, agencies should assess all costs and 

benefits of available regulatory alternatives, including the alternative of not regulating." 192 

However, as evidenced by these emails, the Labor Department and the White House worked 

187 Appendix B, Ex. 8, E-mail from Zachary A. Epstein, DOL, to Brian C. Deese, Exec. Office of the President, et al. 

(Oct. 25, 20 II, 7:30PM), SEC-DOL005872-005873. 188/d 

189 Appendix B, Ex. 9, Email from Chris Cosby, DOL, to Brian C. Deese, Exec. Office of the President, et al. (Nov. 

2, 2011,5:47 PM), SEC-DOL006041-006042. 190 !d. 191 Exec. Order No. 12866 § 1(a), 3 C.F.R. 638 (1994); see also Exec. Order No. 13563 § 1(b), 3 C.F.R. 215 (2012) 

(providing that an agency must "propose or adopt a regulation only upon a reasoned determination that its benefits 

justify its costs"). 192 Exec. Order No. 12866 § l(a), 3 C.F.R. 638 (1994). 

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backwards-they first determined that they wanted to create the rule, then searched for evidence 

to justify it. The way in which the Labor Department and the White House approached the 

regulatory impact analysis is opposite to the methodology required by executive order. 

The Administrative Procedure Act vests control of a rulemaking in the agency proposing 

the regulation. The Executive Office of the President-including OIRA, the National Economic 

Council, and other entities--exists to coordinate policy broadly across the executive branch, but 

ultimately each agency owns its particular rulemaking. With respect to the Labor Department's 

fiduciary rulemaking, it appears that the White House may have played an outsized role. 

Documents that the Committee received suggest that the proposal was initially driven by 

political appointees in the Executive Office of the President. First, the level of detail in email 

communications between the Labor Department and the White House indicates that White House 

advisors may have exceeded their coordination function in drafting the rule. For instance, in the 

email discussing a GAO report that the Labor Department felt could build a case for the rule, a 

Labor Department official provided specific page numbers and direct quotations from the report 

to the White House's Brian Deese. 193 Such detail suggests that Mr. Deese, and other policy 

advisors within the White House, were involved in crafting the basis for the rule and the 

regulatory impact analysis on a granular and collaborative basis. 

Additionally, in October and November 2011, the White House's National Economic 

Council convened a series of meetings among the Labor Department, the SEC, the Treasury 

Department, and the White House to discuss the rule's economic analysis. 194 These discussions 

appear to have been more than mere coordination meetings. Rather, it seems that White House 

officials were involved in developing material to justify the need for the Labor Department's 

proposal. 

Moreover, Assistant Secretary of Labor Phyllis Borzi, who has been described as the 

"main architect" of the fiduciary rule, 195 ranks as the twelfth most frequent visitor to the White 

House during the Obama Administration. 196 Since 2009, Ms. Borzi has visited the White House 

193 !d. 194 Brian Deese, then-Deputy Director of the National Economic Council, and Adriana Kugler, then-Chief 

Economist to then-Department of Labor Secretary Hilda Solis. hosted meetings at the White House in October and 

November 2011. White House staff, Labor Department staff, SEC staff, and Treasury Department staff attended the 

meetings. See Appendix B, Ex. 10, Email from Jessica Schumer, Exec. Office of the President, to Brian C. Deese et 

al. (Oct. 12, 2011) (October 20,2011 meeting), SEC-DOL005698; Appendix B, Ex. 11, Email from Jessica 

Schumer to Brian C. Deese et al. (Oct. 25, 2011) (October 27,2011 meeting), SEC-DOL005861; Appendix B, Ex. 9, 

Email from Chris Cosby, DOL, to Brian C. Deese et al. (Nov. 2, 2011) (November 2, 2011 meeting), SECDOL006041. 

195 Melanie Waddell, DOL to 'Simplify and Streamline' Fiduciary Rule: Borzi, THINKADVISOR (Oct. 20, 2015) 196 Jason Howerton, Here Are the 25 People Who Have Visited the Obama White House the Most (Feb. 8, 2016, 1:38 

PM), http://www. th eblaze .com/stories/20 16/02/08/here-are-the-25-people-who-ha ve-visited-the-obama-wh itehouse-the-most-no-3-is-apparently-shrouded-in-mystery/. 

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338 times. 197 Two other senior Labor Department officials rank as the ninth and sixth most 

frequent White House visitors, with 369 and 376 visits, respectively. 198 

Finally, a White House memorandum entitled "Draft Conflict oflnterest Rule for 

Retirement Savings" further illustrates the White House's significant involvement in the 

rulemaking process. The memorandum, circulated by White House Council of Economic 

Advisors Chairman (CEA) Jason Furman and CEA member Betsey Stevenson, to the President's 

senior advisors including John Podesta, Susan Rice, Jennifer Palmieri, and Valerie Jarrett, 

criticized current regulations relating to investment advice on retirement accounts. 199 The 

memorandum argued that aggressive regulatory action was necessary to remedy the inadequate 

existing consumer protections on investment advice. 200 The Department issued its proposal just 

four months later. 

V. THE ADMINISTRATION OBSTRUCTED CHAIRMAN JOHNSON'S INQUIRY 

BY LIMITING THE INFORMATION THE COMMITTEE WAS ABLE TO 

OBTAIN 

In the course of conducting oversight on the Labor Department's rulemaking, Chairman 

Johnson experienced tremendous opposition and noncooperation from the Administration. The 

Labor Department withheld documents and even went so far as to urge the SEC-an independent 

agency that is designed to be bipartisan-to do the same. OIRA also withheld documents. The 

Labor Department's and OIRA's refusals to fully cooperate with Chairman Johnson's oversight 

has prevented the Committee from obtaining relevant documents and has hindered the 

Chairman's overall inquiry. 

a. The Labor Department Remains Uncooperative with Chairman Johnson's 

Requests for Information and Documents from February 2015 

Chairman Johnson wrote a letter to the Labor Department on February 5, 2015, 

requesting information and documents relating to the Department's anticipated rule?01 After the 

Labor Department failed to produce communications in response to his request, Chairman 

Johnson reiterated the requests in another letter on March 17,2015. 202 Chairman Johnson 

requested communications about the Labor Department's rulemaking between the Labor 

197 Td. 

!98/d 

199 Memorandum from Jason Furman, Chairman, White House Council ofEcon. Advisors, and Betsey Stevenson, 

Member, White House Council of Econ. Advisors, to White House Senior Advisors (Jan. 13, 2015). 200 Td. 

201 Appendix A, Ex. 1, Letter from Chairman Johnson to Sec'y Perez, DOL (Feb. 5, 2015). 202 Appendix A, Ex. 2, Letter from Chairman Johnson to Sec'y Perez, DOL (Mar. 17, 2015). 

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Department and the SEC and between the Labor Department and the White House. 203 By its 

own admission, the Department has not produced all material responsive to Chairman Johnson's 

requests. 204 

Specifically, the Labor Department has not produced any material responsive to 

Chairman Johnson's request for communications between the Department and the White 

House. 205 In August 2015, Chairman Johnson signaled his objection to Adri Jayaratne's 

nomination to be the Labor Department's Assistant Secretary for Congressional and 

Intergovernmental Affairs because of the Department's failure-under Mr. Jayaratne's time as 

acting head of the Office of Congressional and Intergovernmental Affairs-to respond fully to 

the Chairman's requests. Subsequently, the Labor Department informed the majority staff that 

no responsive documents existed. 206 The Labor Department, however, refused to explain how 

the Department came to this conclusion or what type of search the Department conducted. 207 

The Committee later received, from another source, some communications between the 

Department and the White House about the rulemaking. 208 Still, later, in December 2015, the 

Labor Department again refused to provide the requested materials and declined to confirm 

whether it had sought consent from the White House to produce the materia1209 

The Labor Department has not fully responded to Chairman Johnson's request for 

communications between the Department and the SEC. The Labor Department has produced 

only a limited subset of self-selected communications between the Department and the SEC and 

provided short briefings. 210 The communications the Labor Department produced are mostly 

203 !d. 204 Chairman Johnson did not request to conduct transcribed interviews with Labor Department officials. In light of 

the Labor Department's repeated refusals to produce requested information and documents, its interference with the 

SEC's response to the Chairman's separate request to the SEC, and the Department's overall obstructive posture 

with respect to the Chairman's inquiry, it is likely that requests for transcribed interviews would have proved futile. 205 Email from Committee Staff, HSGAC, to Kathryn Garza-Ahlgren, DOL (Aug. 24,2015,2:00 PM) (on file with 

Committee). 

206 Phone Call between Committee Staff, HSGAC, and DOL (Aug. 5, 20 15); see also Email from Committee Staff, 

HSGAC, to Nikki McKinney, DOL (Dec. 17,2015, 1:19PM) (on file with Committee) (referencing the phone call); 

Email from Committee Staff, HSGAC, to Kathryn Garza-Ahlgren, DOL (Aug. 24, 2015, 2:00PM) (on file with 

Committee) (referencing the phone call). 207 Phone Call between Committee Staff, HSGAC, and DOL (Aug. 2015); see also Email from Committee Staff, 

HSGAC, to Nikki McKinney, DOL (Dec. 17,2015, 1:19PM) (on file with Committee) (referencing the phone call); 

Email from Committee Staff, HSGAC, to Kathryn Garza-Ahlgren, DOL (Aug. 24,2015,2:00 PM) (on file with 

Committee) (referencing the phone call). 208 The SEC produced to the Committee on November 23,2015, documents containing communications between the 

Labor Department and the White House. See Email from Committee Staff, HSGAC, to Nikki McKinney, DOL 

(Dec. 17,2015, 1:19PM) (on file with Committee). 209 Phone Call between Committee Staff, HSGAC, and DOL (Dec. 17, 2015); Email from Committee Staff, 

HSGAC, to Nikki McKinney, DOL (Dec. 17,2015, 1:19PM) (on file with Committee); Email from Committee 

Staff, HSGAC, to Nikki McKinney, DOL (Jan. 12,2016, 12:52 PM) (on file with Committee). 210 Appendix C, Dep't of Labor Document Production, DOLOOOOOl-002458; Emails between Committee Staff, 

HSGAC, and Elva Linares, DOL (Aug. 26-27, 20 15) (on file with Committee). Mr. Jayaratne's staff, moreover, 

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related to scheduling meetings and do not address substantive aspects of the rule drafting 

proccss.21! Moreover, the Department only produced these documents after the Chairman made 

a separate but similar request to the SEC for documents. 212 Additionally, during the briefings, 

Labor Department lawyers unilaterally limited the subject matter and timing of the briefings, 

leaving many questions unanswered. 

Regarding the Labor Department and SEC communications, the Labor Department 

refused to certify that the communications produced to the Committee constituted the full 

universe of communications responsive to the Chairman's request. 213 Furthermore, the Labor 

Department refused to provide information about the total number of responsive documents, or 

the methods the Department used to identify responsive material. 214 The majority staff has 

confirmed that these communications, in fact, do not constitute the full universe of responsive 

communications. Rather, it appears that the Labor Department combed through its 

communications with the SEC and deliberately omitted the large majority of communications 

that would inform Chairman Johnson's inquiry. The Committee has obtained documents from 

another source that contain many communications between the Labor Department and the SEC 

that the Department omitted from its production. The Labor Department has acknowledged to 

the majority staff that additional responsive material exists, though it refuses to produce such 

material 215 

In July 2015, Chairman Johnson spoke with Secretary Perez about the outstanding 

document requests. The majority staff has also communicated directly with Mr. Jayaratne about 

the Labor Department's unsatisfactory responses. Despite these interactions, and Chairman 

Johnson's continued objection to Mr. Jayaratne's confirmation by the Senate, the Labor 

Department still refuses to comply fully with the Chairman's requests. It seems that the Labor 

Department has only seriously engaged in discussions about fully satisfying Chairman Johnson's 

requests in an effort to advance Mr. Jayaratne's nomination. Ultimately, though, the Labor 

Department remains unwilling to produce all responsive documents to the Committee. 

placed unilateral time and content restrictions on these briefings, refusing to answer questions that they deemed 

outside the scope of the briefings. Emails between Committee Staff, HSGAC, and Elva Linares, DOL (Aug. 26-27, 

2015) (on file with Committee). 211 Appendix C, Dep't of Labor Document Production, DOLOOOOOI-002458. 212 Email from Committee Staff, HSGAC, to Adri Jayaratne, Acting Asst. Sec'y, Office ofCong. & 

Intergovernmental Affairs, DOL (July 8, 2015, 6:56PM) (on file with Committee). 213 Email from Kathryn Garza-Ahlgren, DOL, to Committee Staff, HSGAC (Aug. 21,2015,5:14 PM) (on file with 

Committee). 

214 Email from Committee Staff, HSGAC, to Adri Jayaratne, Acting Asst. Sec'y, Office ofCong. & 

Intergovernmental Affairs, DOL (July 8, 2015,6:56 PM) (on file with Committee); Email from Committee Staff, 

HSGAC, to Kathryn Garza-Ahlgren, DOL (Aug. 24,2015,2:00 PM) (on file with Committee). 215 Email from Kathryn Garza-Ahlgren, DOL, to Committee Staff, HSGAC (Aug. 21,2015,5:14 PM) (on file with 

Committee). 

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Finally, despite repeatedly refusing to produce responsive material, the Labor Department 

has not asserted any claim of privilege on the withheld material, and has refused to provide basic 

information about the scope, nature, and contents of the withheld material. 216 The Labor 

Department's stated reasons for noncompliance are all the more concerning given that its 

regulatory authority derives from an express grant of legislative authority from Congress to the 

Department. Congress-and, in particular, this Committee-retain broad oversight authority 

over the Labor Department's regulatory process and procedures. Ultimately, Congress also 

retains the authority to reject the Labor Department's rule through the Congressional Review 

Act. 217 Accordingly, the Committee ought to have access-and the Labor Department should be 

completely willing to provide access-to all ddcuments and communications related to the 

rulemaking. 

With little cooperation from the Labor Department, Chairman Johnson wrote to other 

agencies to seek information about the rulemaking. Under pressure from Chairman Johnson and 

after the Chairman threatened to compel production of the material, 218 the SEC ultimately 

provided a number of documents to the Committee that offered tremendous insight into the 

rulemaking. Similarly, FINRA also voluntarily assisted in providing useful information. 

b. The Labor Department Attempted to Interfere with the SEC's Cooperation 

with the Chairman's Requests 

In addition to withholding information from the Committee, the Labor Department 

admitted to Chairman Johnson that it had urged the SEC-an independent commission set up to 

be free of political pressure from the Executive Branch-to disregard Chairman Johnson's 

requests that he made separately to the SEC for documents in the SEC's possession and 

control. 219 Chairman Johnson made those requests to the SEC precisely because the Labor 

Department had declined to fully respond to his initial requests. 

The Labor Department's interference with Chairman Johnson's request to the SEC was 

inappropriate and is indicative of the De~artment's overall posture in responding to the 

Chairman's inquiry into the rulemaking. 20 The Chairman had made a separate request to the 

SEC for documents in the possession and control of the SEC-a request for which the 

216 Email from Committee Staff, HSGAC, to Adri Jayaratne, Acting Asst. Sec'y, Office ofCong. & 

Intergovernmental Affairs, DOL (July 8, 2015,6:56 PM) (on file with Committee). 217 See Congressional Review Act, 5 U.S.C. §§ 801-808 (2012). 218 Appendix A, Ex. 5, Letter from Chairman Johnson to Chairwoman White, SEC (July 13, 2015) ("If the 

Commission fails to immediately provide the requested documents, the Committee may consider use of the 

compulsory process."). 219 Appendix A, Ex. 14, Letter from Acting Asst. Sec'y Jayaratne, DOL, to Chairman Johnson (July 8, 2015). 220 Email from Committee Staff, HSGAC, to Adri Jayaratne, Acting Asst. Sec'y, Office of Cong. & 

Intergovernmental Affairs, DOL (July 8, 2015, 6:56PM) (on file with Committee). 

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Department had no standing to interfere. 221 For reasons unknown to the majority staff, the Labor 

Department was unwilling to produce-and went out of its way to attempt to prevent others from 

producing-documents to the Committee about its work on this important rulemaking. 

c. OIRA Declined to Provide a Full and Complete Response to Chairman 

Johnson's Requests 

Chairman Johnson wrote a letter to OIRA on May 1, 2015, requestin~ information and 

documents relating to OlRA's review of the Labor Department's proposal. 22 After OIRA failed 

to provide a complete response, Chairman Johnson again wrote to OIRA on December 3, 

2015. 223 To date, OIRA has provided non-specific, cursory responses to the Chairman's requests 

for information and produced limited materials that do not fully satisfy the Chairman's request 

for documents. 224 

Chairman Johnson's request stemmed from concern about whether OIRA conducted a 

thorough and thoughtful review of the rule. OIRA expedited its review, as evidence by the fact 

that the Labor Department promulgated the proposed rule just fifty days after OIRA received the 

proposal for review. 225 Chairman Johnson sought to ensure that OIRA conducted a thorough and 

thoughtful review of the proposed rule and to understand how OIRA incorporated suggestions 

from other Executive Branch departments and agencies and from stakeholders226 Specifically, 

Chairman Johnson asked OIRA to provide the following information: 

221 !d. 

l. Please provide all drafts of the Labor Department's proposed rulemaking, including 

comments and suggestions to the drafts. 

2. Please explain why OIRA required considerably less time to review the Labor 

Department's proposed rulemaking than the average review time for other Labor 

Department regulatory proposals and other economically significant rules. 

3. Please explain how OIRA incorporates suggestions from other Executive Branch 

departments and agencies, as well as stakeholders, into its review of the Labor 

Department's proposed rulemaking. 

4. Please explain how the version of the proposed rulemaking incorporated OIRA's 

suggestions. 

222 Appendix A, Ex. 7, Letter from Chairman Johnson to Admin'r Shelanski, OIRA (May I, 2015). 223 Appendix A, Ex. 8, Letter from Chairman Johnson to Admin'r Shelanski, OIRA (Dec. 3, 2015). 224 Appendix A, Ex. 18, Letter from Admin'r Shelanski, OIRA, to Chairman Johnson (Jan. 20, 2016). 225 Appendix A, Ex. 7, Letter from Chairman Johnson to Admin'r Shelanski, OIRA (May I, 2015). 226 ld. 

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228 

5. Please explain how OIRA evaluated the Labor Department's proposed rulemaking 

with respect to Executive Order 13563's requirements for coordination with other 

agencies and consideration of flexible approaches. 

OIRA's May 18, 2015 response to the Chairman provided general information about 

OlRA's review process that was not specific to OIRA's review of the Labor Department's 

proposal. 227 Regarding its review of the Labor Department's proposal, OIRA provided only 

vague information: 

OIRA devoted the time and resources necessary to ensure the review was 

consistent with EOs 12866 and 13563. This review included the participation of a 

number of relevant Executive Branch agencies. OIRA then concluded review of 

this draft on April 14, 2015. As background, EO 12866 provides O!RA up to 90 

days to review significant regulatory actions, though the agency can request an 

extension. The amount of time needed to complete review on any given rule can 

vary, but OlRA does endeavor to complete the process as quickly as feasible 

while ensuring proper review. 228 

This answer lacked any specific information about the review process that Chairman 

Johnson requested. 

OIRA's January 20, 2016letter similarly lacked the specific information that 

Chairman Johnson requested. 229 OIRA simply stated: 

Regarding the length of time the draft proposed rule was under review, I can 

assure you that 0 IRA devoted the time and resources necessary to ensure the 

review was in accordance with EOs 12866 and 13563. The amount of time 

needed to complete review on any given rule varies, but OIRA endeavors to 

complete the process as efficiently as possible while ensuring proper review. The 

review of the Conflict of Interest draft proposed rule included the participation of 

relevant Federal agencies. 230 

Again, this response contains a conclusory statement void of any specific information 

about OIRA's review of the Labor Department's rule. O!RA's document production also 

failed to satisfy Chairman Johnson's request. 231 OIRA provided drafts of the proposal, 

but the drafts do not contain comments or suggestions, which Chairman Johnson had 

227 Appendix A, Ex. 17, Letter !Tom Admin'r Shelanski, OIRA, to Chairman Johnson (May 18, 2015). 228ld 

229 Appendix A, Ex. 18, Letter !Tom Admin'r Shelanski, OIRA to Chairman Johnson (Jan. 20, 2016). 230 Jd 

231 ld (document production on file with Committee). 

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229 

requested. 232 OIRA also provided a list of meetings it took with members of the public 

related to the rule, and the materials provided to OIRA at the meetings. 233 The 

information and productions and that OIRA provided to the Committee fail to offer any 

insight into OIRA's review of the Labor Department's proposal. 

VI. CONCLUSION 

Chairman Johnson's inquiry into the Labor Department's proposed rule has revealed that 

the Labor Department prioritized an expedited rulemaking process at the expense of thoughtfully 

considering and incorporating advice and suggestions from industry experts. Additionally, 

career, non-partisan, professional staff at the SEC, career, non-partisan, regulatory experts at 

OIRA, and Treasury Department officials expressed concerns to the Labor Department about the 

rule. Yet, documents that the Committee received indicate that the Department failed to 

implement numerous recommendations from these government officials in other agencies. 

Chairman Johnson also encountered opposition and noncooperation from the Labor 

Department throughout its examination of the rulemaking process, calling into question the 

Department's commitment to transparency and accountability to Congress. From the 

information that the Committee was able to uncover, the Labor Department's flawed process in 

issuing its proposed "Conflict of Interest" rule could ultimately hurt American retirement savers. 

Whether intentionally or not, the proposed rule threatens to restrict access to retirement advice 

for those Americans who need it the most. 

232 ld. 

233 ld. 

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230 

REGULATING THE INTERNET: 

HOW THE WHITE HOUSE BOWLED OVER FCC INDEPENDENCE 

A Majority Staff Report of the 

Committee on Homeland Security and Governmental Affairs 

United States Senate 

Senator Ron Johnson, Chairman 

February 29, 2016 
231 

EXECUTIVE SUMMARY 

The Federal Communications Commission (FCC or Commission) is an independent 

federal agency charged with regulating interstate and international communications. Deriving its 

regulatory authority from Congress, the agency is governed by five presidentially appointed 

Commissioners from both political parties. This bipartisan structure is intended to ensure that 

the agency remains free of partisan political pressure, and independent of the policy aims of the 

Executive Branch. Yet, according to a media report in February 2015, the Obama 

Administration sought to impose its will on the FCC's so-called Open Internet (01) proposal. As 

detailed below, after the Obama White House weighed in, the FCC changed course and executed 

the President's preference. 

On February 4, 2015, FCC Chairman Tom Wheeler announced a plan to reclassify 

broadband as a telecommunications service subject to Title II of the Communications Act of 

1934 (47 U.S.C. 201 et. seq.). This announcement represented a shift from the FCC's previous 

light-touch approach of classifying broadband as an information service, and Chairman 

Wheeler's own statement in February 2014 that the FCC would use a roadmap outlined by the 

U.S. Court of Appeals for the D.C. Circuit (D.C. Circuit) in the court's ruling in Verizon v. FCC 

(740 F.3d 623 (2014)) that did not involve the reclassification of broadband as a common carrier 

service. 1 Concurrent with Chairman Wheeler's announcement, the Wall Street Journal reported 

that the White House may have inappropriately influenced the FCC decision to regulate 

broadband under Title II. 2 Specifically, the Journal noted "unusual, secretive efforts inside the 

White House, led by two aides."3 Notably, in November 2014, President Obama had weighed in 

on the debate, imploring the FCC to "reclassify consumer broadband service under Title II ... " 4 

On February 9, 2015, Senator Ron Johnson, Chairman of the Senate Committee on 

Homeland Security and Government Affairs and a senior member of the Senate Committee on 

Commerce, Science and Transportation, initiated an inquiry into the FCC's 01 Order in light of 

the information reported by the Journal. 5 In response to the Chairman's request, the FCC 

produced documents over the span of ten months and provided a staff briefing with key FCC 

staff members involved in the rulemaking. Nonetheless, the FCC withheld drafts of the OI 

proposal, including the draft that the FCC was in the process of finalizing just prior to the 

1 FED. COMMC'NS COMM'N, Statement by FCC Chairman Tom Wheeler on the FCC's Open Internet Rules (Feb. 19, 

20 14 ), available at https ;/ /www. fcc.gov/document!statement -fcc-chairman-tom-wheeler-fees-open-internet-rules. 2 Gautham Nagesh & Brody Mullins, How White House Thwarted FCC Chief on Internet Rules, WALL ST. J., Feb. 

4, 2015. 

3 ld. 

4 WHITE HOUSE, November 2014 The President's message on net neutrality, https://www.whitehouse.gov/netneutrality (last visited Feb. 22, 20 16). 5 Appendix C, Ex. 1, Letter from Ron Johnson, Chairman, S. Comm. on Homeland Sec. & Gov't Affairs, to Tom 

Wheeler, Chairman, Fed. Commc'ns Comm'n (Feb. 9, 2015). 

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President's statement. By withholding these key drafts, the FCC unnecessarily slowed and 

burdened the Committee's fact-finding regarding the process by which the FCC adopted its or 

Order. 

The investigation initiated by Chairman Johnson uncovered serious concerns with the 

President's undue influence on the FCC's decision-making process, 6 and also with the agency's 

compliance with the Administrative Procedure Act (APA). Specifically, the investigation found: 

• Although President Obama's statement was filed in the FCC's record along with millions 

of other commenters, its influence was disproportionate relative to the comments of 

members of the public. 7 Prior to the White House's announcement, the career, 

nonpartisan, professional staff at the FCC worked over the weekend to deliver Chairman 

Wheeler an or draft order to be considered on the FCC's December 2014 Open 

Meeting. 8 Immediately after the President's statement, FCC staff expressed confusion as 

edits were suddenly delayed and the rapid timetable of completing the draft or Order was 

"paused." 9 At the conclusion of the pause, Chairman Wheeler instructed FCC staff to 

change course and draft an order that would follow the President's proposal of a Title II 

reclassification. 10 

• The FCC staff raised concerns about the agency following proper notice-and-comment 

procedure, as required under the AP A. 11 Specifically, the FCC's career professional staff 

advised that the record to support Title II reclassification for both fixed and wireless 

6 As detailed below, while the President may lobby the FCC in favor of a certain policy outcome, the Justice 

Department cautions the White House to avoid the appearance of influence. See infra note 17. From the timeline 

presented in this report, a reasonable person could conclude that the FCC would not have ultimately chosen a Title II 

reclassification but for the President's support. See BLACK'S LAW DICTIONARY (lOth ed. 2014) (defining "undue 

influence" as "The improper use of power or trust in a way that deprives a person of free will and substitutes 

another's objective; the exercise of enough control over another person that a questioned act by this person would 

not have otherwise been performed, the person's free agency having been overmastered." (emphasis added)). 7 E-mail from Stephanie Weiner, Fed. Commc'ns Comm'n, to Nese Guendelsberger, Fed. Commc'ns Comm'n & 

Matthew DelNero, Fed. Commc'ns Comm'n (Nov. 17, 2014) (describing the president's announcement as "a 

significant development") (HSGAC-Ol-000 149). 8 E-mail from Claude Aiken, Fed. Commc'ns Comm'n, to Kristine Fargotstein, Fed. Commc'ns Comm'n (Nov. 7, 

2014) (HSGAC-OI-032662) ("We're still going to try to get something to OCH on Monday, but folks understand 

that we can't address everything if we just get edits Monday morning."). 9 See e.g., E-mail from Paula Blizzard, Fed. Commc'ns Comm'n, to Travis LeBlanc et al., Fed. Commc'ns Comm'n 

(Nov. 10, 2014) (considering how the President's statement would impact the OI draft) (HSGAC-0!-002796); Email from Kristine Fargotstein, Fed. Commc'ns Comm'n, to Thomas Parisi, Fed. Commc'ns Comm'n (Nov. 10, 

2014, 9:48AM) (HSGAC-OI-000220); 10 Briefing by Fed. Commc'ns Comm'n staff with S. Comm. on Homeland Sec. & Gov't Affairs staff (June 29, 

2015). 

11 This issue is currently before the U.S. Court of Appeals for the District of Columbia Circuit in United States 

Telecom Association v. FCC, No. I 5-l 063 (D.C. Cir.). 

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broadband was thin and needed to be bolstered. 12 Despite this recommend action, the 

FCC chose not to seek additional public comment, and proceeded with the President's 

proposal. 

o A draft of the Open Internet Public Notice (PN) dated November 17,2014, 

outlined nine issue areas of concern. 13 Yet, by November 19, it appears that the 

FCC's plan to seek further comment changed. Again, career professional staff 

expressed confusion in this redirection and a media aide pointed out to her 

colleagues: "NEED MORE ON WHY WE NO LONGER THINK RECORD IS 

THIN IN SOME PLACES." 14 

o To justify the FCC's sudden change in direction and to "beef up the record," FCC 

staff were asked if"additional comments filed since early November (2014] 

address some of the outstanding questions, i.e., mobile and forbearance?" 15 FCC 

staff were unable to establish an adequate basis to argue that recent public 

comments provided a sufficient justification for the Chairman's shifting 

approach. 1 To fill this void, General Counsel Jonathan Sallet solicited meetings 

with certain outside groups to support a rulemaking process for Title II 

reclassification. 

• Over the course of the Committee's investigation, the FCC refused to provide key 

responsive documents. Moreover, in the emails that were provided to the Committee, it 

12 While the FCC's 01 Notice of Proposed Rulemaking did pose a question "on the nature and the extent of the 

Commission's authority to adopt our open Internet rules relying on Title II, and other possible sources of authority, 

including Title Ill," it tentatively concluded "that the Commission exercise its authority under section 706, 

consistent with the D.C. Circuit's opinion in Verizon v. FCC, to adopt our proposed rules." Protecting and 

Promoting the Open Internet, 79 Fed. Reg. 37448,37467 (May 15, 2014) (to be codified at 47 C.P.R. 8). 13 E-mail from Claude Aiken, Fed. Commc'ns Comm'n, to Kristine Fargotstein, Fed. Commc'ns Comm'n (Nov. 17, 

2014) (Listing issues for the draft public notice to include "classification/reclassification question", "edge service 

classification issue", "mobile classification issue (reclassify vs. hybrid)", "CMRS definition issue (reclassify vs. 

hybrid)", "broad forbearance paragraphs", "mobilevspecific forbearance para/sentence", "mobile policy -

transparency & RNM", 1

'speclalized services", "interconnection") (HSGAC~OI-032431-34). 14 E-mail from Kim Hart, Fed. Commc'ns Comm'n, to Jonathan Salle!, Fed. Commc'ns Comm'n & Ruth Milkman, 

Fed. Commc'ns Comm'n (Nov. 21, 2014) (HSGAC-01-18252-53). 15 E-mail from Kim Hart, Fed. Commc'ns Comm'n, to Jonathan Salle!, Fed. Commc'ns Comm'n & Ruth Milkman, 

Fed. Commc'ns Comm'n (Dec. I, 2014) (HSGAC-01-18251-52). 16 While the court will look to all of the comments submitted during the notice and comment period, the Majority 

staff found that FCC staff specifically searched for comments in the November 20 14 time frame in order to justify 

why the record was no longer "thin"-Chairman Wheeler's initial explanation for the delay. See e.g., E-mail from 

Kim Hart, Fed. Commc'ns Comm'n, to Jonathan Salle!, Fed. Commc'ns Comm'n & Ruth Milkman, Fed. 

Commc'ns Comm'n (Nov. 21, 2014) (HSGAC-01-18252-53). 

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234 

appears that there was an attempt by some to thwart transparency and avoid ex parte 

filings. 17 

These issues, coupled with Chairman Wheeler's statements to the public and in 

Congressional testimony, raise real transparency and accountability issues. Specifically, 

Chairman Wheeler continues to assert "I was looking at a Title II and Section 706 approach 

before the President filed his position and we came out with a Title II, Section 706 approach." 18 

If it were as simple as Chairman Wheeler implies, then it is logical to assume that the FCC 

would have voted on its OI Order in December, as the career, nonpartisan, professional staff at 

the FCC originally targeted (and worked weekends in order to meet). Instead, the FCC moved 

forward in a completely new direction months later-following the President's direction and 

apparently with concern from the career staffthat there was insufficient notice to the public and 

affected stakeholders-with heavy-handed regulations on the broadband industry. 

17 Ex Parte Communications During FCC Rulemaking, 15 Op. O.L.C. 4 (1991) ("White House staff members 

should avoid even the mere appearance of interest or influence-and the easiest way to do so is to avoid discussing 

matters pending before the independent regulatory agencies with interested parties and avoid making ex parte 

contacts with agency personnel.") [hereinafter O.L.C. Opinion]. 18 Oversight of the Federal Communications Commission: Hearing Before the S. Commerce, Sci., and Transp. 

Comm., 114th Cong. (2015). 

Majority Staff Report 

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OPEN INTERNET ORDER TIME LINE 

Thursday, Nov. 6, 2014, 

Jeffrey Zients briefs 

Cha!rmon Wheeler on 

the President's pian to 

push for TitlE• II 

Friday, November 7, 

2014- Sunday, 

November 9, 2014 

Chairman Wheeler 

and senior political 

staff 'pause' 01 

drafting and spend 

the weekend rrJft!ng 

a response and press 

strateey that does not 

"shoot holes" at 

POTUS and Title IL 

November 1, 2014 Career staff state that they 

plan to circulate the "hybrld approach" 01 draft 

to other Commissioners on Nov. 20, 2014 in 

preparation for December Open Meeting 

Friday, November 7, 2014 Career staff plan to 

work through the weekend on the "hybrid" 

approach in order to get a draft to Chairman 

Wheeler by Nov. 10, 2014 

Monday, November 10, 

Monday November 10,2014 POTUS ~~ 2014 Career staff notice 

Statement advocating Title !1, utility-style VVH influence: 11At least 

regulation of the Internet the delays in edits from 

November 12, 2014 The Chairman's office 

tasked career staff with drafting a Public 

Notice to address "serious APA notice 

problems" 

November 21,2014 Public Notice canceled 

DecemberS, 2014 Chairman Wheeler writes 

about his "Damascus Road experience"-and 

embraces Title II 

February 26, 2015 FCC adopted the 01 Report 

& Order citing Title II authority 

above make sense.'1 

November 19, 2014 

FCC press team asks 

Gener,JI Counsel for 

urv10Hf- ON Wf-!Y 

LONC;ER H·l!NK THE 

KLCOf\D 1~ I HIN.'' 

NO 

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TABLE OF CONTENTS 

EXECUTIVE SUMMARY ............................................................................................................ 1 

OPEN INTERNET ORDER TIMELINE ....................................................................................... 5 

I. Introduction ......................................................................................................................... 7 

II. The White House exerted undue influence on the FCC's Open Internet rulemaking ........ 9 

III. FCC Staff recognized deficiencies in the record and worried about potential violations of 

the Administrative Procedure Act.. ................................................................................... 17 

IV. The FCC exhibited a lack oftransparency relating to its Open Internet Order ................ 22 

V. Conclusion ........................................................................................................................ 29 

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I. INTRODUCTION 

The FCC has been grappling with the issue of "net neutrality" for more than a decade. In 

2005, the FCC adopted a policy statement that consumers were entitled to access their choice of 

legal Internet content; use services and run applications of their choosing; and have competition 

among network, application, service and content providers. 19 In April 20 I 0, after the FCC had 

tried in 2008 to enforce an alleged violation of this policy statement against a company, its 

efforts were struck down by the D.C. Circuit in Comcast v. FCC20 

Despite any evidence of a problem, the FCC spent the rest of 20 I 0 working towards an 

order that would impose affirmative rules on broadband providers. In December 20 I 0, the FCC 

adopted, on a party-line 3-2 vote, its "Open Internet Order."21 In the 2010 order, the FCC 

carefully weighed whether or not to classify broadband services under Title II of the 

Communications Act. Title II regulations were crafted in the 1930s and designed to regulate 

"common carriers" or "public utilities." 

In the order, the FCC applied a light touch regulatory framework for fixed services, 

recognized the technical and competitive differences of wireless, and did not touch 

interconnection agreements. 22 The order specifically required broadband providers to disclose 

their network management practices and barred them from blocking legal traffic on their 

networks. 23 The rules also prohibited fixed broadband providers from unreasonably 

discriminating against Internet traffic, but did not apply this prohibition to wireless broadband 

providers. 24 Importantly, the FCC did not reclassify broadband as a Title II telecommunications 

service. 

The new rules were challenged in court. On January 14, 2014, the D.C. Circuit upheld 

the FCC's transparency rule but struck down the portions of the 2010 order that barred 

broadband providers from blocking content or unreasonable discrimination on their networks. 25 

The court reasoned that the FCC had chosen not to classify broadband providers as common 

carriers, and therefore could not impose common carrier obligations. At the same time, the court 

provided the FCC with a roadmap on how to impose rules on broadband providers that would 

address the type of conduct about which the FCC was purportedly concerned without subjecting 

19 Fed. Commc'ns Comm'n, New Principles Preserve and Promote the Open and Interconnected Nature of Public 

Internet (Aug. 5, 2005). 20 600 F.3d 642 (D.C. Cir. 2010). 21 Fed. Commc'ns Comm'n, Report and Order, In re: Preserving the Open Internet Broadband Industry Practices 

(Dec. 21, 2010). 22 Id. 

"Id. 

24 /d. 25 Verizon v. Fed. Commc'ns Comm'n, 740 F.Jd 623 (D.C. Cir. 2014). 

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such providers to common carrier requirements. FCC Chairman Tom Wheeler appeared to 

accept this direction, and in February 2014 announced that the FCC would pursue a new 

rulemaking based on this roadmap. 26 Specifically, Chairman Wheeler proposed that broadband 

providers could charge companies different prices for different services on their networks 

provided that such deals were "commercially reasonable." 27 On May 15,2014 the FCC issued a 

Notice of Proposed Rulemaking (NPRM) that largely reflected the Chairman's earlier proposal. 28 

By the end of2014, it became widelif reported that the FCC would move forward on a 

Final Order adopting a "hybrid approach." 2 The hybrid approach divided the Internet into 

"wholesale" and "retail" transactions. Wholesale transactions, or transactions conduced on the 

"back-end" of the Internet between the content provider and Internet service provider, would be 

regulated as a public utility. Meanwhile, retail transactions, or the transaction sending data from 

the Internet service provider to the consumer, would receive a lighter regulatory touch. 30 

The same week the FCC was preparing to circulate a draft proposal on the hybrid 

approach, the President directly weighed into the debate, stating: "I believe the FCC should 

reclassify consumer broadband service under Title II of the Telecommunications Act."31 On 

February 4, 2015, Chairman Wheeler revealed his plan to regulate broadband as a Title II utility 

service, treat wireless the same as fixed broadband, and assert jurisdiction over Internet 

interconnection agreements for the first time. 32 Not only did this plan constitute a monumental 

shift from the 20 I 0 FCC order, but it also represented a very large deviation from Chairman 

26 FED. COMMC'NS COMM'N, Statement by FCC Chairman Tom Wheeler on the FCC's Open Internet Rules (Feb. 

19, 2014 ), available at https://www.fcc.gov/documentistatement-fcc-chairman-tom-wheeler-fccs-open-internetrules; see also Oversight of the Federal Communications Commission: Hearing Before the S. Comm. on Commerce, 

Sci., and Transp., !14th Con g. (20 15). 27 See e.g, Fed. Commc'ns Comm'n, Notice of Proposed Ru1emaking, In re: Preserving and Promoting the Open 

Internet (May 15, 2014) (describing broadband providers ability to "serve customers and carry traffic on an 

individually negotiated basis" to be commercially reasonable). 28 Fed. Commc'ns Comm'n, Notice of Proposed Rulemaking, In re: Preserving and Promoting the Open Internet 

(May 15, 2014). 29 See e.g., Gautham Nagesh, FCC 'Net Neutrality· Plan Calls for More Power Over Broadband, WALL ST. J., Oct. 

30, 2014; Edward Wyatt, FCC Considering Hybrid Regulatory Approach to Net Neutrality, N.Y. TIMES, Oct. 31, 

2014. 

30 See E-mail from Tom Wheeler, Chairman, Fed. Commc'ns Comm'n, to Ruth Milkman eta!., Fed. Commc'ns 

Comm'n (Dec. 5, 2014) (describing the hybrid approach) (HSGAC-OI-031391-97). 31 WHITE HOUSE, November 2014 The President's message on net neutrality, https://www.whitehouse.gov/netneutrality (last visited Feb. 22, 2016). Please note that Title II of the Telecommunications Act of 1996 actually deals 

with broadcast services, but that the President clearly intended to refer to Title II of the Communications Act, which 

covers common carriers. 32 See FED. COMMC'NS COMM'N, Fact Sheet: Chairman Wheeler Proposes New Rules for Protecting the Open 

Internet (Feb. 4, 2015), available at https://apps.fcc.gov/edocs_public/attachmatch/DOC-331869Al.pdf; see also 

Tom Wheeler, This is how we will ensure net neutrality, WIRED, Feb. 4, 2015. 

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Wheeler's original NPRM and the light regulatory touch that had been applied to broadband 

services since the Clinton Administration. 

In an op-ed in Wired magazine, Chairman Wheeler explained that this evolution occurred 

because he became concerned that a commercial reasonableness standard might, down the road, 

be interpreted to mean what is reasonable for commercial interests, not consumers. 33 However, 

emails and information obtained by the Committee reveal that undue outside political pressure 

led the FCC to this decision. Documents produced to the Committee reveal concerns among 

FCC staff about potential APA violations stemming from Chairman Wheeler's shift to Title II 

regulation, as well as serious transparency failures from the FCC in terms of compliance with 

congressional oversight and ex parte requirements. 34 

II. THE WHITE HOUSE EXERTED UNDUE INFLUENCE ON THE FCC'S OPEN 

INTERNET RULEMAKING 

Congress established the FCC as an independent agency with the mission of regulating 

interstate and international communications within, from, and to the United States. As an 

independent agency, the president's influence over the FCC, by design, should be limited. 35 For 

example, the president's power to remove officers is not the same with leaders of an independent 

agency as it is with subordinate executive branch officers. The President can only remove 

independent agency heads "for cause," meaning that they cannot be removed for political 

disagreements. 36 These statutory limits on the president's power over independent agencieslike the FCC--demonstrate the importance of maintaining the agency's independence. 37 

The documents provided to the Committee do not paint the same picture that Chairman 

Wheeler outlined in his February 2015 Wired op-ed. In contrast, these documents suggest that 

the White House exerted undue influence on the FCC's decision to abandon its hybrid approach 

and regulate broadband under Title II. 

Emails show that the career, nonpartisan, professional staff at the FCC identified White 

House influence in the drafting process of the OI Order almost immediately after the President's 

33 Wheeler, supra note 24. 34 See O.L.C. Opinion, supra note 16. 35 In an executive agency, the President has many tools at his disposal to exert policymaking influence, one of which 

is the power to remove an executive officer at-will. See generally Myers v. United States, 272 U. S. 52 (1926). 36 See Humphrey's Executor v. United States, 295 U.S. 602 (1935) (finding that the President's unrestrained 

removal power does not extend to heads of independent agencies). 37 See e.g, Humphrey's Executor, 295 U.S. 602,629 ("one who holds his office only during the pleasure of another 

cannot be depended upon to maintain an attitude of independence against the latter's will"). 

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240 

public statement. 38 After President Obama came out in favor of Title II regulations, FCC career 

staff opined, "[ n Jot sure how this will affect the current draft and schedule-but I suspect 

substantially .... " 39 In another instance, an FCC employee who was assisting in drafting the OI 

Order responded to a news alert about the President's statement, writing "[t]his might explain 

our delay. " 40 The staff member, who spent her weekend working on the OI Order, separately 

wrote, "at least the delays in edits from above make sense .... " 41 

Mon 1111012014 4:02.32 PM 

01 ~ Obama says make tt title II 

Chri5 tmd Rosemal)· just ~Jlcrtcd me to breaking news Obamu says to mnkc it Title IL 

Prc~ilknt Obamalms (OlUC out in suppon of n;:dassi(yiug internet service a:s a utility. a mov~; 

thnt would allmv the Federal ('ommunications Commisston to enforce more robust rcgulatit)ns 

and protect net neutrality. "To put these prote~tions in plnce~ I'm nsking the FC'C to 

recl3ssirying interne( sen·ice under Tille II of a law known as the Telecommunications Act," 

Obama s.:1ys in a 'Otatl..'"mcnt this moming_. "ln plain English_ l'm asking {the f('C] to recognize 

tl1at t()r most :\m .... 'Ticans, the internet ha..11 become an essential part of everyday communication 

and eve1yday litC." 

hnr· \\w·,~,. .tlh'vl:rc~: cnm ·:o14· ~ 1 10 .,, 1.:~9\ 1.'f("r-'-l.h't.ld-re_t;l;l)'>\!)·"iJH~'"J!Ct-a..,:tmht) -~-~<HT)CJ­

"·1>'-

Not .~ure how thi' will ~tTect lht• t"tlrrcnt dr<tft ::~nd .;;chedule but I S.U'!ipr:>cr '>uhst<m!ially 

38 E-mail from Paula Blizzard, Fed. Commc'ns Comm'n, to Travis LeBlanc et aL, Fed. Commc'ns Comm'n (Nov. 

10, 2014) (HSGAC-Ol-002796); E-mail from Kristine Fargotstein, Fed. Commc'ns Comm'n, to Thomas Parisi, Fed. 

Commc'ns Comm'n (Nov. 10,2014, 9:48AM) (HSGAC-Ol-000220); E-mail from Thomas Parisi, Fed. Commc'ns 

Comm'n, to Kristine Fargotstein, Fed. Commc'ns Comm'n (Nov. 10, 2014) (HSGAC-Ol-007493); E-mail from 

Kristine Fargotstein, Fed. Commc'ns Comm'n, to Claude Aiken, Fed. Commc'ns Comm'n (Nov. !0, 2014) 

(HSGAC-0!-032602); E-mail from Melissa Droller Kirkel, Fed. Commc'ns Comm'n, to Claude Aiken et al., Fed. 

Commc'ns Comm'n (Nov. 10, 2014) (HSGAC·OI-018630). 39 E-mail from Paula Blizzard, Fed. Commc'ns Comm'n, to Travis LeBlanc et al., Fed. Commc'ns Comm'n (Nov. 

10, 2014) (HSGAC-01·002796). 40 E-mail from Kristine Fargotstein, Fed. Commc'ns Comm'n, to Thomas Parisi, Fed. Commc'ns Comm'n (Nov. 

10,2014, 9:48AM) (HSGAC·OI-000220). 41E-mail from Kristine Fargotstein, Fed. Commc'ns Comm'n, to Claude Aiken, Fed. Commc'ns Comm'n (Nov. 10, 

2014) (HSGAC-Ol-032602); E-mail from Melissa Droller Kirkel, Fed. Commc'ns Comm'n, to Claude Aiken et al., 

Fed. Commc'ns Comm'n (Nov. 10, 2014) (HSGAC·Ol·Ol8630). 

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Item 2: Email exchange between FCC employees (Nov. 10, 2014) 

Thomas Parisi 

From: 

S..,t: 

To: 

Subj&ct 

lt might in-deed, 

¥Tom; Krhi;tine Fargot:ste!n 

Thom~s Parisi 

Mondil:yc Novembet 10, 2014 9.49 AM 

Knsthe Fargotstoetn 

RE: Te-chnology Brealdng News 

Sent: P.1ondayr November 10, 201-l 9:48AM 

To: Thomas Parisi 

Subject: RE: Technology Breal<ing News 

From: Tho~s Pbr!si 

S<mt: Mor>doy, No•ember 10, 2014 9:49AM 

To: Kristine FetrgutStein 

Subject: RE: Technokl!ly BreilldlllJ News 

From; K-ristJne Fargotstf!jn 

Sent: Monday, November 10, 2014 '9:46AM 

To: Thomas Paris-I 

subject: FW: rechMkl!IY Breaking News 

FYI 

fn;)fl't; POUTICO Pr-o [rJ1~JitQ;j):O!!tu"f~l@:i!@pg~j'lJQ:.1pr.Q,r;;(¥1!} 

Sent: Monday1 November 101 20H 9;39 AM 

To: Knstine Fargotste!n 

SUbject: Technology Breaking Ne\01~ 

Pre:...ider.t llarack Ohama wnded directly into the dehatc over net neutrality t('lday, calling fur -strnnger reguJation 

of ~JPt.'TI lntcmct ruh.~. 

Majority Staff Report 

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Item 3: Email exchange between FCC employees (Nov. 10, 2014) 

From: KtiStlr'le Fargohtclt~ I 

Sent. ll/lU/1-Ill4 1:5-0 10 PP...1 

To: 

Subf«t RE: Claude FCC A!kf!n······· Daily News Sriefmg for Mondav, Novernc.e.r 10, 2014 

from: Clauele AIK~ 

Sent: ~lnnday, Novemter 10, 1014 8:50 A!-1 

To: l'-1elissd Droller Kirkel; Klistlne Fargdsteln.; Thomas Parisi~ Zachary Ross 

Subject: IU': FCC Dally News l>neling fo< Monday, No,ember !0, 2014 

I saw. Wtll t:ry to get to the bottom of this. th1s. morning . 

..,.,. Nun·Publlr: For Internal use Or)ty ,... 

-----Orig1nul Mes!..ag.e-· 

Frnm: f!.·lebss.a Droner t::irkel 

Sent: Monday, Novemb-er 10, l014 07:57AM £a.r;tern Standard Time 

To; Cldud.e Aiken; Kristine- Farg.ctstein; Thomas. Parisi; Zo'ichary Ross. 

Subject: FW: fCC Dail',' News Briefing for Monday, November 10,2014 

Them is al~o an article .llbout dt!layfrig the ite:m in the wal1 Streetjourn<);l but I don't have Mee'!t.S to ttH!. full.artic!e:L 

Confusion among the career professional staff at the FCC is not surprising after 

comparing the pace and momentum at which they were working before and after the President's 

statement on November 10,2014. An email from Scott Jordan, the FCC's Chief Technology 

Officer, to Matt Del Nero, Chief of the Wireline Competition Bureau (Deputy Chief at the time 

in question) and Eric Feigenbaum, a staffer in Office of Media Relations, confirms that, as of 

November I, 2014, there was a plan in place to circulate the OI Order on November 20, 2014. 42 

According to FCC precedent and common practice, November 20 would have been the last day 

to circulate the OI Order to FCC commissioners in time for it to appear on the December 2014 

Open Meeting agenda and also to stay in compliance with sunshine laws. 43 

42 E-mail from Scott Jordan, Fed. Commc'ns Comm'n, to Matthew DelNero, Fed. Commc'ns Comm'n (Nov. I, 

2014) (HSGAC-01-004977). 43 See, Michael O'Rielly, Commissioner, Fed. Commc'ns Comm'n, FCC's Pre-Adoption Process Also Needs Work, 

FCC Blog (April I, 2015, !2:55pm), available at https://www.fcc.gov/newsevents/b log/20 15/04/0 1 /fcc%E2%80%99s-pre-adoption-process-also-needs-work ("Commissioners receive meeting 

items from staff, on behalf of the Chairman, not less than three weeks in advance of a Commission Agenda Meeting 

.... During the first two weeks, outside parties may meet with Commissioners and staff to advocate their views and 

seek changes, if necessary. The last week of the three-week period is the Sunshine period."); Government in the 

Sunshine Act, 5 U.S.C. § 552(b) (1976); 47 C.F.R. § 1.1203 (2016). 

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As late as Sunday, November 9, career FCC staffers were working diligently to finalize a 

draft so that the OI Order could be considered by the commissioners at the FCC's Open Meeting 

scheduled for December II, 2014. Between November I and November 7, professional staff 

worked on edits with a goal of having a full draft ready for Chairman Wheeler's review by 

November 10. 44 Emails exchanged among FCC career staff responsible for drafting portions of 

the or Order between November 7 and 9 confirm that staff planned to and did work throughout 

the weekend prior to the President's statement in order to get a draft to "OCH [Office of the 

Chairman] on Monday."45 

While career professional staff worked weekend shifts on the draft or Order for 

Chairman Wheeler, senior staff at the FCC had already changed directions. 46 At a later hearing 

of the Senate Committee on Commerce, Science, and Transportation, Chairman Wheeler 

confirmed to Senator Johnson that he was briefed about the President's speech on Thursday, 

November 6, 2014 by Jeffrey Zients, Assistant to the President for Economic Policy. 47 During 

the weekend between Chairman Wheeler's briefing by Jeffrey Zients and the President's 

statement-the same weekend that career staff worked on the OI Order-the FCC media team 

and senior staff were focused on damage control. They crafted an internal "Q&A" document, 

with edits from Chairman Wheeler directly, in preparation for the anticipated media coverage of 

President Obama' s statement. 48 In the Q&A document, FCC media staff posed an anticipated 

"See E-mail from Claude Aiken, Fed. Commc'ns Comm'n, to Kristine Fargotstein, Fed. Commc'ns Comm'n (Nov. 

7, 2014) (making clear that the goal over the next couple of days, including the weekend, is to get a draft to the 

Chairman by Monday, November 10) (HSGAC-01-032662-63); see e.g., E-mail from Claude Aiken, Fed. 

Commc'ns Comm'n, to Aaron Garza et al., Fed. Commc'ns Comm'n (Nov. 6, 2014) (compiling sections of the OI 

draft and making style and grammar edits) (HSGAC-OI-032710-12). 45 E-mail from Kristine Fargotstein, Fed. Commc'ns Comm'n, to Claude Aiken, Fed. Commc'ns Comm'n (Nov. 7, 

20 14) (HSGAC-0!-032663) (making a chart of staff availability over the weekend); E-mail from Kristine 

Fargotstein, Fed. Commc'ns Comm'n, to Claude Aiken, Fed, Commc'ns Comm'n (Nov. 8, 2014) (reviewing edits 

on Saturday (11/8) and Sunday (1119) in order to make the Monday deadline) (HSGAC-01-032657); E-mail from 

Claude Aiken, Fed. Commc'ns Comm'n, to Denise Coca, Fed. Commc'ns Comm'n (Nov. 8, 2014) (soliciting edits 

from other staff on Saturday afternoon (1119)) (HSGAC-01-032546). 46 Documents show that General Counsel Jonathan Salle!, ChiefofStaffRuth Milkman, Senior Advisor Philip 

Verveer, and Media Relations Director Shannon Gilson-among others-were already pivoting away from the 

hybrid approach. Milkman, Verveer, and Salletjoined the FCC the same day Tom Wheeler became Chairman. See 

Press Release, Fed. Commc'ns Comm'n, FCC Chairman Tom Wheeler Announces Staff Appointments (Nov. 4, 

20 13), available at https:/lapps.fcc.gov/edocs_publiclattachmatch/DOC-323962A 1 .pdf (describing senior staff 

appointments by Chairman Wheeler). 4 Oversight of the Federal Communications Commission: Hearing Before the S. Commerce, Sci., and Transp. 

Comm., 114th Cong. (2015). 48 E-mail from Tom Wheeler, Chairman, Fed. Commc'ns Comm'n, to Shannon Gilson, Director, Office of Media 

Relations, Fed. Commc'ns Comm'n, Jonathan Salle!, General Counsel, Fed. Commc'ns Comm'n, Philip Verveer, 

Senior Counsel to Chairman, Fed. Commc'ns Comm'n, & Ruth Milkman, Chief of Staff, to Chairman, Fed. 

Commc'ns Comm'n (Nov. 9, 2014) (rationalizing that Wheeler "did not know the specific substance of the 

President's letter until he read the public document") (HSGAC-01-031304-07). 

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question of whether there were discussions between the White House and the FCC leading up to 

the President's statement. In response to a proposed answer that "there have not been 

substantive discussions," the document drafter asked incredulously: "IS THIS RIGHT?" 49 

Item 4: Q&A document prepared for Chairman Wheeler (Nov. 9, 2014) 

Q. Has there been dis,ussions between the WI! and the FCC leading up to this 

rollout? 

A. The FCC keplthe WH apprised of the process thus far, but there haw not been 

substantive discussions. (IS TillS IUGJrr!) 

While Chairman Wheeler claims that "he did not know the specific substance of the 

President's letter" until Monday, November 10 when it was made public/0 the editing process 

revealed deliberate efforts to avoid "shoot[ing] holes into POTUS'[s] proposal and taking a 

swing at Title II." 51 At a minimum, the weekend emails demonstrate that Chairman Wheeler 

was personally aware prior to the President's statement that the President would advocate for full 

Title II, utility-style regulation, which was presumably a topic of conversation at his November 6 

meeting with Jeffrey Zients. 52 

49 E-mail from Kim Hart, Press Secretary, Fed. Commc'ns Comm 'n, to Tom Wheeler et al., Fed. Commc'ns 

Comm'n (Nov. 9, 2014) (HSGAC-OI-031064). 50 E-mail from Tom Wheeler, Fed. Commc'ns Comm'n, to Shannon Gilson, et al., Fed. Commc'ns Comm'n (Nov. 

9, 2014) ("Q: How did the Chairman find out about the POTUS' letter? A: The Chairman was informed Thursday 

evening in the broadest possible terms. He did not know the specific substance of the President's letter until he read 

the public document") (HSGAC-Ol-031304-07); E-mail from Jonathan Sallet, Fed. Commc'ns Comm'n, to Tom 

Wheeler et al., Fed. Commc'ns Comm'n (Nov. 9, 2014) (editing Wheeler's response to the President's Nov. 10, 

2014 statement in favor of regulating the Internet as a utility) (HSGAC-01-031 067-72). 51 E-mail from Shannon Gilson, Fed. Commc'ns Comm'n, to Tom Wheeler, Fed. Commc'ns Comm'n (Nov. 9, 

2014) (HSGAC-Ol-031068). 52 Compare E-mail from Kim Hart, Press Secretary, Fed. Commc'ns Comm'n, to Shannon Gilson, Fed. Commc'ns 

Comm'n (Nov. 9, 2014, 7:43PM) (Kim Hart drafting a press Q&A document including the following: "Q: The 

Chairman says he shares the same position as the President, but POTUS is calling for Title II and the Chairman has 

called for 706 and a hybrid approach. So how can they share the same position if they are calling for different legal 

solutions? A: The Chairman and the President share the same goals- keeping the Internet open as[ a] platform for 

innovation, expression and economic growth. The Chairman has said all options are on the table and no final 

decision has been made.") (HSGAC-010031 063-66) with E-mail from Tom Wheeler, Fed. Commc'ns Comm'n, to 

Shannon Gilson et al., Fed. Commc'ns Comm'n (Nov. 9, 2014, 9:17PM) (Tom Wheeler editing the Q&A document, 

including the following: "Q: The Chairman says he shares the same position as the President, but POTUS is calling 

for Title II and the Chairman has called for 706 and a hybrid approach. So how can they share the same position if 

they are calling for different legal solutions? A: The Chairman and the President share the same goals- keeping the 

Internet open as [a] platform for innovation, expression and economic growth. The Chairman has often said he is 

opposed to Internet fast lanes and to accomplish that all options are on the table and no final decision has been 

made.") (HSGAC-OI-031304-07). 

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It is also clear from documents obtained by the Committee that President Obama's 

advocacy for Title II prompted the FCC to immediately pull the OI Order from the December 

2014 meeting agenda. In subsequent testimony, Chairman Wheeler admitted that the OI Order 

was scheduled for the December Opening meeting. 53 When asked for the reason of the delay, 

Chairman Wheeler stated "it was a bridge too far" and "you can whip the horse, but you can't 

make it go faster sometimes," and ultimately blaming "the staff' who "just couldn't get the work 

done."54 Based on emails, however, the career FCC staff was prepared and on schedule, albeit 

by working on the weekends, to move forward with the 01 Order at the December Open 

Meeting. The only impediment to 

getting the work done appears to be 

the White House's intervention. 

In June 2015, Committee 

staff received a briefing about the 

process of drafting the OI Order 

from Roger Sherman, then Chief of 

the Wireless Telecommunications 

Bureau, and Matt DelNero, Chief of 

the Wireline Competition Bureau 

(Deputy Chief at the time in 

question). 55 They informed 

Committee staff that, in the fall of 

2014, FCC career professional staff 

wrote a draft Ol Order that utilized 

the hybrid approach. 56 FCC staff 

apparently prepared several drafts of 

the order, all of which incorporated 

While it is true that the stock values of broadband 

providers did not crash immediately after the 

President's announcement, the FCC's 0! Order has 

had a clear impact on the market. According to the 

Progressive Policy Institute, in the first half of20 15, 

capital expenditures by major Internet Service 

Providers (ISPs) dropped an average of 12 percent. 

(See L. Gordon Covitz, Obamanet Is Hurting 

Broadband, Wall St. J. (Sept. 13, 2015)). As 

Commissioner Pai testified to Chairman Johnson at 

a Senate Commerce Committee hearing, "You have 

to pay the piper when it comes to Title II. And the 

proof is going to be in the pudding in the months to 

come, not in the ephemeral stock variations." 

(Oversight of the Federal Communications 

Commission: Hearing Before the S. Comm. on 

Commerce, Sci., and Transp., !14th Cong. (2015)). 

the hybrid approach. 57 According to the briefin~, Chairman Wheeler was aware of-and 

supported-this effort as late as October 2014. 5 

Mr. Sherman and Mr. DelNero confirmed that there was a "pause" of a few weeks after 

Chairman Wheeler met with Mr. Zients on November 6th so that the FCC could reconsider the 

merits of its hybrid approach and assess how the President's announcement affected the 

53 FCC: Process and Transparency: Hearing Before the H. Comm. on Oversight and Gov 't Reform, I 14th Con g. 

(2015). 

"/d. 

"Briefing provided by Fed. Commc'ns Comm'n staff for Comm. on Homeland Sec. & Gov't Affairs staff(June 29, 

2015). 

56 /d. 

"Jd 

ss Id 

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market. 59 During this time, career professional staff working on the OJ Order also recognized 

that the "Open Internet is on pause." 60 On November 21,2014, Jonathan Sallet, FCC General 

Counsel, began drafting written testimony for Chairman Wheeler regarding the 01 Order. 61 The 

draft testimony pointed to "the aftermath of the President's statement"-stability in the markets 

after the announcement-as "convincing proof that the application of Title U need not deter 

future investment." 62 With this justification in mind, at the conclusion of the few week "pause," 

Chairman Wheeler instructed FCC staff to follow a pure Title U reclassification. 63 

Chairman Wheeler in Congressional hearings and in public statements denies that the 

White House dictated the agency's decision on net neutrality. When questioned by Chairman 

Johnson in April2015, Chairman Wheeler stated:"! was looking at a Title II and Section 706 

approach before the President filed his position and we came out with a Title II, Section 706 

approach." However, if it were that simple, it strains credulity to believe that Chairman Wheeler 

was unable to "whip the horse" (that is, the FCC's professional career staff) to get the 01 Order 

on the December meeting agenda as planned. 64 This is particularly puzzling when it is clear that 

professional career staff worked weekends to stay on track and deliver Chairman Wheeler's 

original proposal in a timely manner. 

A review of the documents provided to the Committee demonstrates that the FCC was 

actively drafting an 01 Order using the hybrid approach prior to President Obama's November 

I 0, 2014 statement in favor of Title II, utility-style regulation. It is clear that once Chairman 

Wheeler was aware of the President's 

imminent statement, Chairman Wheeler and 

senior staff "paused" drafting the 01 Order 

even though career, professional staff were 

prepared and willing to get the draft finished. 

When the "pause" was over, Chairman 

Wheeler directed staff to draft an 01 Order 

embracing Title II. Chairman Wheeler even 

alluded to the White House's influence on the 

rulemaking during a speech at the Federal 

59 !d. 

"The FCC has approved President 

Obama's plan to ensure a free and open 

internet." -Email from the Democratic 

National Committee, February 27 2015. 

(Oversight of the Federal 

Communications Commission: Hearing 

Before the S Comm. on Commerce, Sci., 

and Transp., !14th Cong. (2015)). 

60 E-mail from Claude Aiken, Fed. Commc'ns Comm'n, to Alexis Johns, Fed. Commc'ns Comm'n (Nov. 10,2014, 

2:35PM) (HSGAC-01-009105). 61 E-mail from Jonathan Salle!, Fed. Commc'ns Comm'n, to Philip Verveer, Senior Counsel to the Chairman, Fed. 

Commc'ns Comm'n (Nov. 21, 2014) (HSGAC-01-018370). 62 !d. 63 Briefing provided by Fed. Commc'ns Comm'n staff for Comm. on Homeland Sec. & Gov't Affairs staff (June 29, 

2015). 

64 Oversight of the Federal Communications Commission: Hearing Before the S Commerce, Sci., and Transp. 

Comm., !14th Cong. (Mar. 2015). 

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Communications Bar Association's "Chairman Dinner," where he joked, "I would like to thank 

Mozilla Foundation for the first draft of my remarks tonight, and President Obama for his 

edits." 65 His jest had more than a kernel of truth to it: FCC staff was actively preparing a hybrid 

draft order up until the President's announcement in favor of Title II. 

III. FCC STAFF RECOGNIZED DEFICIENCIES IN THE RECORD AND 

WORRIED ABOUT POTENTIAL VIOLATIONS OF THE ADMINISTRATIVE 

PROCEDURE ACT 

Following the President's statement on November 10 urging the FCC to regulate 

broadband under Title II, the FCC shifted to a Title II approach. In doing so, however, 

documents show that career FCC staff worried that the sudden change would violate federal law 

governing agency rulemaking. 66 In particular, the AP A requires federal agencies to provide for 

"notice and comment" of proposed action. 67 Here, due to swift change in course, FCC career 

staff worried that the agency could be violating federal law. 

Under the APA, an agency is authorized to promulgate rules through a notice-andcomment process. 68 Because final agency orders are binding, proposals that go through noticeand-comment rulemaking are designed to give stakeholders and the public the opportunity to 

weigh in on how proposed rules would affect their interests. Typically, the agency proposes a 

rule, stakeholders and the public comment, and the agency considers those comments as it drafts 

a final rule. The process is not supposed to serve as a means for an agency to justify a 

predetermined outcome. 69 Courts have invalidated agency rules for not allowing the public 

sufficient opportunity to comment. 70 

Only two days into the "pause" period that resulted from the President's statement on net 

neutrality, Chairman Wheeler's office directed career professional staff at the FCC to identify 

65 Brooks Boliek et al., The FCC chair's Internet pivot, POLITICO (Feb. 2, 2015, 5:36AM), 

http://www.politico.com/story/2015/02/tom-whee1er-net-neutra1ity-114785. 

66 See e.g., E-mail from Matthew DelNero, Fed. Commc'ns Comm'n, to Jim Schlichting, Fed. Commc'ns Comm'n 

(identifying the application of Title II to mobile and the redefinition ofCMRS as "a serious APA notice problem") 

(HSGAC-01-032539). 

67 Administrative Procedure Act (APA), 5 U.S.C. §553 (1946). 68 Administrative Procedure Act (APA), 5 lJ.S.C. §551 et seq. (1946). 69 See HBO, Inc. v. FCC, 567 F.2d 9, 35-36 (D.C. Cir. 1977) (finding that the agency must provide notice to the 

~ublic before the final rule is adopted or the opportunity to comment is meaningless). 0 See All ina Health Servs. v. Sebelius, 746 F.3d 1102, 1110-11 (D.C. Cir. 2014) (vacating a rule because it was not 

a logical outgrowth and the agency "did not provide adequate notice and opportunity to comment"). 

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issues that would be covered in a Further Notice of Proposed Rulemaking (FNPRM), sometimes 

referred to as a Public Notice (PN). 71 The issues were to be separated into three buckets: 

1. "areas where there is a serious APA notice problem with substantial litigation risk," 

2. "areas where we could expect to have to argue that our actions were a logical 

outgrowth of the NPRM," and 

3. "areas we are confident that we have adequate notice but would be better informed by 

more targeted comment." 72 

Responses poured in from FCC staff working on the OI Order. 73 One career professional 

staffer in the Wireline Competition Bureau suggested "[w]e would want to seek further comment 

on changing the definition of 'public switched network,' including proposin~ a revised definition 

that would expand the term to refer to broadband Internet access networks." 4 Scott Jordan, 

Chief Technology Officer, wrote to General Counsel Jonathan Sallet warning that "[r]egarding 

discriminatory practices, refusals to upgrade capacity, and access fees, the notice is fairly poor, 

consisting mainly of a single general question." 75 With respect to forbearance-the process of 

determining which provisions of Title II would not apply-Mr. DelNero identified "forbearance 

for mobile generally" and "forbearance for rei classification of a service that reaches 

interconnection" as issues which "likely need more comment in the record." 76 

A draft of the Open Internet PN dated November 17,2014, outlined nine issue areas of 

concern. 77 Career professional staff compiled this draft for review by Roger Sherman and Julie 

71 See e.g., E-mail from Matthew DelNero, Fed. Commc'ns Comm'n, to Jim Schlichting, Fed. Commc'ns Comm'n 

& Joel Taubenblatt, Fed. Commc'ns Comm'n (Nov. 12, 2014) (making clear that the request for FNPRM topics was 

coming from "OCH") (HSGAC-01-008311). 72 E-mail from Matthew DelNero, Fed. Commc'ns Comm'n, to Jim Schlichting, Fed. Commc'ns Comm'n (putting 

the application of Title II to mobile and the redefinition ofCMRS in the category of"a serious APA notice 

~roblem") (HSGAC-Ol-032539). 3 See e.g., E-mail from Scott Jordan, Fed. Commc'ns Comm'n, to Jonathan Salle!, Fed. Commc'ns Comm'n (Nov. 

12, 2014) (analyzing gaps in the OI proceeding by comparing the notice and the record) (HSGAC-01-024547). 74 E-mail from Jennifer Salhus, Fed. Commc'ns Comm'n, to Joel Taubenblatt, Fed. Commc'ns Comm'n (Nov. 12, 

2014) (HSGAC-01-028347). 75 E-mail from Scott Jordan, Fed. Commc'ns Comm'n, to Jonathan Salle!, Fed. Commc'ns Comm'n (Nov. IJ, 2014) 

HSGAC-01-037046 (emphasis added). 76 E-mail from Matthew DelNero, Fed. Commc'ns Comm'n, to Jonathan Sallet, Fed. Commc'ns Comm'n (Nov. 12, 

2014) (HSGAC-01-008312); see also Email from Thomas Parisi, Fed. Commc'ns Comm'n, to Melissa Droller 

Kirkel, Fed. Commc'ns Comm'n (Nov. 14, 2014) (HSGAC-01-032465-66). 77 E-mail from Claude Aiken, Fed. Commc'ns Comm'n, to Kristine Fargotstein, Fed. Commc'ns Comm'n (Nov. 17, 

2014) (drafting a Public Notice to seek additional comment on "classification/reclassification question", "edge 

service classification issue", "mobile classification issue (reclassify vs. hybrid)", "CMRS definition issue (reclassify 

vs. hybrid)", "broad forbearance paragraphs", "mobile-specific forbearance para/sentence", "mobile policytransparency & RNM", "specialized services", "interconnection") (HSGAC-01-032431-34). 

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Veach, former Wireline Competition Bureau Chief. 78 Under FCC drafting procedures, after 

review by the Bureau Chiefs, the document was sent to the Chairman's office. 79 Career 

professional staff began preparations to release the PN to the federal register on November 21, 

2014. 80 

The FCC press team worked with the Chairman's senior staff to draft a media prep 

document on Tuesday, November 18,2014 for a Friday press conference. 81 The document 

makes clear that FCC stair believed additional comment to be necessary. 82 Specifically, the draft 

prep document references the need for additional public comment several times: 

Q: Does the President's letter affect the timing ofthe rules? Previously you said 

you'd have rules by the end of the year. 

A: [W]e have recently come to the conclusion that more work will be needed on 

these complex issues, including possibly additional public comment. 

Q: What sorts of questions have arisen that will require additional public 

comment? 

A: There are a number of substantive issues that would benefit from more public 

comment. Questions regarding forbearance and the application of Open 

Internet rules to mobile, for example . 

... Q: Do you plan on a Further Notice to strengthen the record? 

A: It's definitely one of the options we are currently considering to develop a 

strong legal record. 

. .. 

78 E-mail from Claude Aiken, Fed. Commc'ns Comm'n to Joel Taubenblatt et al., Fed. Commc'ns Comm'n (Nov. 

17, 2014) (HSGAC-01-013519-20). 79 See WCB Weekly Planning (summarizing items under consideration and the deadlines for drafting and 

consideration by Chairman Wheeler) (HSGAC-OI-028231). 80 E-mail from Kristine Fargotstein, Fed. Commc'ns Comm'n, to Zachary Ross, Fed. Commc'ns Comm'n 

(November 14, 2014) (HSGAC-01-032489). 81 E-mail from Kim Hart, Fed. Commc'ns Comm'n, to Daniel Alvarez et al., Fed. Commc'ns Comm'n (Nov. 18, 

2014) (HSGAC-01-13562-73). 82 I d. 

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Q: The WSJ reported that the record was thin and you would seek additional 

comment? Is that true and how do you need to beef up the record? (emphasis 

added). 

A: Yes. The Commission has been examining a number oflegal options, 

including a hybrid approach and Title II reclassification. Over the past few 

weeks, a number of substantive questions have been raised and it has become 

clear that Commission staff need more time to study the legal, technical and 

policy implications of different legal theories and that the Commission record 

needs to be beefed up in multiple areas, including whether the FCC has the 

current authority to cover mobile under Title II. (emphasis added) . 

... Q: How does Title II affect the FCC's ability to apply Open Internet rules to 

mobile? Do you plan to expand new neutrality rules to mobile carriers? 

A: The use of Title II authority ... raises questions that are Jess than fully 

developed in the record, specifically whether current laws and regulations 

give the FCC jurisdiction over mobile IP under Title II. 83 

Yet, by November 19, it appears that the FCC's plan to seek further comment had 

changed. Career professional staff expressed confusion upon receiving feedback on the draft 

PN, writing "my sense is that the scope of this PN is going to be narrowed substantially, 

potentially to include solely the 332 CMRS [commercial mobile radio service] definition 

issue." 84 Two days later, on November 21, General Counsel Jonathan Sallet and Chairman 

Wheeler's Chief of Staff, Ruth Milkman, discussed with the FCC media team how best to defend 

the decision not to issue a PN. 85 A media aide pointed out to her colleagues that the FCC needed 

a better answer for why additional public comments were unnecessary, writing: "NEED MORE 

ON WHY WE NO LONGER THINK RECORD IS THIN IN SOME PLACES."86 Mr. Sallet 

responded, referring to small group meetings conducted by FCC staff: "I think you want to point 

to recent ex partes and potentially we should consider whether some group meetings would be 

helpful."87 

83 !d. 84 E-mail from Joel Taubenblatt, Fed. Commc'ns Comm'n, to Jennifer Salhus, Fed. Commc'ns Comm'n & Daniel 

Ball, Fed. Commc'ns Comm'n (Nov. 19, 2014) (HSGAC-01-013599). The definition ofCMRS relates to the 

classification decision for mobile broadband Internet. 85 E-mail from Kim Hart, Fed. Commc'ns Comm'n, to Jonathan Sallet, Fed. Commc'ns Comm'n (Nov. 21, 2014) 

(HSGAC-01-18251-53). 

86 !d. 87 E-mail from Jonathan Sallet, Fed. Commc'ns Comm'n, to Kim Hart, Fed. Commc'ns Comm'n (Nov. 23, 2014) 

(HSGAC-01-18251-53). 

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Item 5: Q&A document prepared by FCC media team and general counsel for press inquiries (Dec. 1, 2014) 

Q; You md1cated that part'5 of the re(:Ord were- tt'un and needed to be beefed up. The Cha1rman also satd at the last pre!os 

cor,ff!f"ence that l'le wants. to fllake s.ur~ he has a fulsoml? record to o;.upport whatever nlle'i he puts forward. Are you now 

saymg you don't need more comment: in the re~ord? 

A: We of course welcome atl comments and feedback from all parties. on this important issue. [NEED MOR£ ON WHY WE 

NO LONGER THINK RECORD !5 THIN IN SOM£ PlAC£5 ·~ l thir.t iOu Wttr1f tn pnu11 !o r~t~ru e-x p.aott>s and potentra!ly w~ 

shou!d n);1s1der wru::>ttler so1'1e BJO<.Jp 1"1N'tif'\gs wov!d be nelpf1.1l] 

Q; I flear staff has been nlling some ootside parties asking them to submit more comment on speo:::ific que-stion, Th<~t 

seem!. !ike- you're hand<seler:tmg the t:of'r'rnent:s you nee.d to bol'ioter the .;:a<;e for the rule~ you pla;n to ~ropose. Why 

didn't vou pose tho!&e queStJOii'!o for everyone tu provide feedbat:k? 

A: Thf' N, pild.P. pn:JL{~'>S h hf'lphil, of coutse; th~· '>LlH h <>l>o t,?~\...ine n·eet•ngs thdt Jrt' reqqe'Hf'd b~· out:o>dt' parHf~S w 

Ul':iCIJS.S '>tlbStan!IV(: l:OSU<!'S, 

In an effort to "beef up the record," General Counsel Jonathan Sallet solicited meetings 

with certain outside groups such as the Center for Democracy and Technology. 88 He also 

solicited a meeting in November 2014 with Marvin Ammori, an outspoken net neutrality 

activist. 89 Reflecting the importance of the meeting-it had been solicited by General Counsel 

Sallet-another meeting attendee asked for "a list of questions you'd like to cover in our 

conversation, or some other sort of agenda."90 In the normal course of business, the request 

would typically be the reverse-the meeting request would originate from an outside party and 

the FCC employee would ask for an agenda. Yet, the FCC solicited these meetings to "beef up 

the record" to support a rulemaking process for Title II regulations. 

Looking for evidence to justify the scrapped PN to the press, on December 1, the FCC's 

media team asked senior FCC staffif"additional comments filed since early November address 

some of the outstanding questions, i.e., mobile and forbearance?" 91 Staff was only able to 

identify seven "OI mobile filings from the past two months."92 In other words, the FCC staff 

88 E-mail from Jonathan Salle!, Fed. Commc'ns Comm'n, to Nuala O'Connor, President & CEO, Center for 

Democracy & Technology (Nov. 26, 2014) (writing "[i]t would be great ifCDT staff could come in to meet with 

Stephanie on 01 issues, as we discussed") (HSGAC-01-014730). 89 E-mail from Jonathan Salle!, Fed. Commc'ns Comm'n, to Marvin Ammori, Ammori Group (Nov. II, 2014) 

("Marvin: Would you be able to come in to see us next week to talk about how the Commission might move forward 

on its Open Internet proceeding? Thanks, Jon") (HSGAC-01-008120). 90 E-mail from Alan Davidson, Vice President, New America, to Jennifer Tate!, Associate General Counsel, Fed. 

Commc'ns Comm'n (Nov. 14, 2014) (HSGAC-01-010130-31). 91 E-mail from Kim Hart, Fed. Commc'ns Comm'n, to Jonathan Sallet, Fed. Commc'ns Comm'n & Ruth Milkman, 

Fed. Com me 'ns Comm 'n (Dec. 1, 20 14) (HSGAC-01-18251-52). 92 !d.; E-mail from Jennifer Salhus, Fed. Commc'ns Comm'n, to Michael Janson, Fed. Commc'ns Comm'n & 

Daniel Ball, Fed. Commc'ns Comm'n (HSGAC-01-18366); E-mail from Michael Janson, Fed. Commc'ns Comm'n, 

to Daniel Ball, Fed. Commc'ns Comm'n (HSGAC-01-18366-67). 

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could not establish an adequate basis to argue that recent public comments-that is, comments 

filed around the time of the President's statement-provided a sufficient justification for shifting 

approaches. 93 

The FCC's Public Notice was never submitted to the Federal Register. The FCC never 

issued an FNPRM. Instead, after identifying nine separate areas in which additional comments 

were required, Chairman Wheeler chose to leave the record inadequate, abandon the PN that was 

carefully drafted by career professional staff, and forge ahead with the reclassification of 

broadband as a telecommunications service. He did so with the FCC staff aware of "serious" 

AP A concerns, sacrificing regulatory certainty for political expediency. 

IV. THE FCC EXHIBITED A LACK OF TRANSPARENCY RELATING TO ITS 

OPEN INTERNET ORDER 

Federal law contains a number of provisions designed to ensure transparency in 

government. Congressional oversight of executive branch activities is another mechanism for 

ensuring the integrity of government processes. In promulgating its 0! Order, the FCC burdened 

congressional oversight efforts and appeared to err on the side of secrecy with ex parte filings 

instead of transparency. 

A. The FCC withheld drafts of the Open Internet Order requested by Chairman Johnson 

In February 2014, Chairman Johnson requested that the FCC produce the draft 0! Order 

that was under consideration by the FCC in the fall of2014-at the time of the President's 

statement. 94 On April 8, 2015, FCC Chairman Wheeler responded by suggesting that no such 

draft existed. He wrote: "[T]here was not a draft net neutrality proposal that was finalized for 

circulation to my fellow Commissioners in late November or early December."95 

Although this carefully scripted answer may indeed be true-in that there was no 

proposal circulated to the commissioners in that period-it conveniently ignores the fact that the 

FCC possesses drafts of the 01 Order from that time frame. 96 (See Appendix A) As discussed 

above, it was not due to a lack of hard work by the career professional staff at the FCC that these 

drafts did not make it to the commissioners. Instead, a draft was never circulated among the 

93 See supra note 16. 94 Appendix C, Ex. I, Letter from Ron Johnson, S. Comm. on Homeland Sec. & Gov't Affairs, to Tom Wheeler, 

Fed. Commc'ns Comm'n (Feb. 9, 2015). 95 Appendix C, Ex. 3, Letter !Tom Tom Wheeler, Fed. Commc'ns Comm'n, to Ron Johnson, S. Comm. on 

Homeland Sec. & Gov't Affairs (Apr. 8, 20 15). 96 E-mail from Claude Aiken, Fed. Commc'ns Comm'n, to Jonathan Sallet eta!., Fed. Commc'ns Comm'n (Nov. 5, 

2014, !0:35PM) (HSGAC-01-006693) (emphasis added). 

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commissioners because the Chairman opted to change course and abandoned his original plan 

after the White House's intervention. 

Several documents produced to the Committee reference the existence of drafts of the 

Open Internet proposal prior to the President' statement in support of Title IL For example, in 

one email to General Counsel Jonathan Sallet and other senior FCC leaders dated November 5, 

2014, an FCC employee wrote: "[H]ere is an updated version of the OJ draft that includes all of 

the outstanding component ~arts. While still a work in progress, this is the most comprehensive 

and complete draft to date." 7 Mr. Sallet forwarded this e-mail to another FCC employee, asking 

him to print a hard copy. 98 Although this e-mail included an attachment with the draft proposal, 

the attachment was withheld from the Committee when the FCC produced documents. 

Other documents similarly show that the FCC considered additional drafts of its Open 

Internet proposaL 99 FCC staff even prepared summary documents to compare the changes made 

in various drafts of the proposaL 100 Neither the drafts nor the summary documents were 

produced to the Committee despite being 

responsive to Chairman Johnson's initial 

request. The majority staff repeatedly tried to 

obtain these documents from the FCC. 101 

However, the FCC indicated that it would 

prefer to offer a briefing on the subject, rather 

than provide responsive documents. 102 In 

addition to the drafts of the proposal, the FCC 

also circulated drafts of a potential PN in 

November 2014 requesting further comment 

97 ld 

"I'm proud of the process that the 

commission ran to develop the Open 

Internet Order. It was one of the most 

open and most transparent in 

commission history." 

-Chairman Wheeler, Testimony before 

the House Oversight and Gov't Reform 

Comm., March 17,2015 

98 E-mail fi"om Jonathan Sallet, Fed. Commc'ns Comm'n, to Richard Williams, Fed. Commc'ns Comm'n (Nov. 6, 

2014) (HSGAC-0!-006693). 99 See, e.g., E-mail fi"om Daniel Ball, Fed. Commc'ns Comm'n, to Joel Taubenblatt, Fed. Commc'ns Comm'n (Nov. 

7, 2014) (HSGAC-01-002721); E-mail fi"om Claude Aiken, Fed. Commc'ns Comm'n, to Jonathan Salle! et al., Fed. 

Commc'ns Comm'n (Oct. 31, 2014) (HSGAC-01-005003-{)4). 100 E-mail fi"om Thomas Parisi, Fed. Commc'ns Comm'n, to Claude Aiken, Fed. Commc'ns Comm'n (Nov. 5, 2014) 

(HSGAC-01-029491). 

101 E-mail fi"om staffofthe S. Homeland Sec. & Gov't Affairs Comm., to staffofthe Fed. Commc'ns Comm'n 

(Aprill7, 2015); E-mail fi"om staff of the S. Homeland Sec. & Gov't Affairs Comm., to staff of the Fed. Commc'ns 

Comm'n (May 21, 2015); E-mail fi"om staff of the S. Homeland Sec. & Gov't Affairs Comm., to staff of the Fed. 

Commc'ns Comm'n (June 2, 2015). 102 E-mail fi"om staff ofthe Fed. Commc'ns Comm'n, to the staff of the S. Homeland Sec. & Gov't Affairs Comm. 

(June 5, 2015). 

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on select policy issues. 103 Portions of the draft PN were provided to the Committee; however, 

the FCC failed to produce a full draft of the PN. 104 

B. The FCC circumvented ex parte communication requirements 

The FCC must obey the requirements of notice-and-comment rulemaking, which includes 

ensuring that the public has access to a record of all ex parte communications related to an 

agency proceeding. 105 The intention of these requirements is to bring transparency and 

accountability into the regulatory process. Throughout the FCC's process of drafting its OI 

Order, the Commission circumvented transparency by avoiding compliance with ex parte 

communication requirements. 

By definition, an ex parte communication is "an oral or written communication not on the 

public record with respect to which reasonable prior notice to all parties is not given." 106 A 

general exclusion exists for "status report" requests. 107 "At the FCC, 'ex parte' describes a 

communication directed to the merits or outcome of a proceeding" but which was not said or 

written to the public. 108 Any communication from a Member of Congress or the executive 

branch ofthe federal government is considered ex rarte if it is "of substantial significance and 

clearly intended to affect the ultimate decision." 10 Although a 1991 opinion from the Justice 

Department's Office of Legal Counsel opines that White House officials may advocate for a 

particular policy position in FCC rulemakings, the opinion also cautions that "White House staff 

members should avoid even the mere appearance of interest or influence--and the easiest way to 

do so is to avoid discussing matters pending before the independent regulatory agencies." uo 

103 See E-mail from Claude Aiken, Fed. Commc'ns Comm'n, to Kristine Fargotstein, Fed. Commc'ns Comm'n 

(Nov. 17, 20 14) (seeking additional comments because "[t]he response to the NPRM has brought to light additional 

issues that warrant further comment.") (HSGAC-01-032431-32). 104 See e.g., E-mail from Melissa Krikell, Fed. Commc'ns Comm'n, to Claude Aiken, Fed. Commc'ns Comm'n 

(Nov. 17, 2014) (describing the need for additional comment on forbearance "on the extent to which forbearance 

should apply if the Commission were to classifY mobile broadband Internet access service as a CMRS service 

subject to Title II.") (HSGAC-01-032465-66); E-mail from Kristine Fargotstein, Fed. Commc'ns Comm'n, to 

Claude Aiken, Fed. Commc'ns Comm'n (Nov. 17, 2014) (outlining additional questions related to Interconnection 

for the PN) (HSGAC-01-032431); But see, E-mail from Claude Aiken, Fed. Commc'ns Comm'n, to Julie Veach et 

a!., Fed. Commc'ns Comm'n (Nov. 17,2014, I 0:25PM) (describing an attached draft Public Notice "that is due to 

r,o to OCH on 11119", which was not provided to the Committee) (HSGAC-01-032423). 

OS 47 CFR 1.1206(b)(2) (2016). 

w6 5 U.S.C. 551; see also, 47 C.F.R. 1.1202. 107 5 U.S.C. 551; see also, 47 C.F.R. 1.1202(a). 108 Fed. Commc'ns Comm'n., Ex Parte Resources, https:llwww.fcc.gov/proceedings-actions/ex-parte/general/exparte-resources (last visited Feb. 5, 2016); 47 CFR 1.1202 (2016). 109 47 C.F.R. l.l206(b)(3). 110 O.L.C. Opinion, supra note 16 at 4 (emphasis added). 

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At the FCC, a summary of the written or oral ex parte communication must be filed in the 

record so that the public and stakeholders have the opportunity to review and comment. 111 For 

instance, after President Obama's statement supporting Title II regulation of the Internet and 

after senior White House official Jeffrey Zients met with Chairman Wheeler, the FCC entered ex 

parte filings into the record for both communications. 112 During the course of the OI Order 

drafting process, however, documents produced to the Committee revealed other examples in 

which FCC senior staff either did not file an ex parte notice or reasoned that one was not 

necessary. 113 

In one instance, a reporter questioned why ex parte notices had not been filed for 

Chairman Wheeler's dozen or more meetings at the White House. 114 In response to this inquiry, 

the FCC media team conferred with senior staff in Chairman Wheeler's office. In an effort to 

justify the decision not to file ex parte notices, Philip Verveer, Senior Counsel to the Chairman 

asserted, "I assume the answer is that there literally was no advocacy" during the meetings 

between Chairman Wheeler and White House personnel. 115 The reporter responded that he 

found that "hard to believe." 116 

The documents reviewed by the Committee make clear that Chairman Wheeler regularly 

communicated with presidential advisors. None of the communications reviewed by the 

Committee were submitted to the FCC's formal record in the form of ex parte notices although 

the OI Order was clearly discussed. 117 One email between Chairman Wheeler and Jeffrey Zients 

111 47 C.F.R. 1.1206(b)(l)-(2); see e.g, Protecting and Promoting the Open Internet, 79 Fed. Reg. 37448,37472 

(proposed May 15, 2014) (to be codified at 47 C.F.R. 8) (requiring that ex parte filings be submitted to the record 

within two days of the communication). 112 Ex Parte for President Barack Obama and Jeffrey Zients, Protecting and Promoting the Open Internet (GN 

Docket No. 14-28) (Nov. 10, 2014). 113 E-mail from Stephanie Weiner, Fed. Commc'ns Comm'n, to Markham Erickson, Partner, Steptoe & Johnson 

LLP (Nov. 19, 2014) (discussing 01 process but no ex parte was filed) (HSGAC-OI-013618); E-mail from Matthew 

DelNero, Fed. Commc'ns Comm'n, to Praveen Goyal, Counsel, Hogan Lovells US LLP (Nov. 12, 2015) 

(rationalizing that no ex parte was necessary) (HSGAC-OI-009711). 114 E-mail from Brooks Boliek, Reporter, Politico, to Kim Hart, Press Secretary, Fed. Commc'ns Comm'n (Nov. 19, 

2014) (HSGAC-0!-013791). 115 E-mail from Philip Verveer, Fed. Commc'ns Comm'n, to Kim Hart, et al., Fed. Commc'ns Comm'n (Nov. 19, 

2014) (HSGAC-01-013791). 116 E-mail from Kim Hart, Fed. Commc'ns Comm'n, to Philip Verveer, et al., Fed. Commc'ns Comm'n (Nov. 19, 

2014) (HSGAC-01-013791). 117 E-mail from Tom Wheeler, Fed. Commc'ns Comm'n, to David Edelman, Fed. Commc'ns Comm'n (April23, 

2014) (HSGAC-01-001232); E-mail from Tom Wheeler, Fed. Commc'ns Comm'n, to Jeffrey Zients, Exec. Office 

of the President, John Podesta, Exec. Office of the President, Jason Furman, Exec. Office of the President, Tom 

Power, Exec. Office of the President, & David Edelman, Exec. Office of the President (April24, 2014) (HSGAC01-001223); E-mail from Tom Wheeler, Fed. Commc'ns Comm'n, to Jeffrey Zients, Exec. Office of the President & 

Jason Furman, Exec. Office of the President (April29, 2014) (HSGAC-01-001227); E-mail from Tom Wheeler, 

Fed. Commc'ns Comm'n, to Jeffery Zients, Exec. Office of the President, Jason Furman, Exec. Office of the 

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and Jason Furman makes reference to a prior conversation about the OI Order. 118 Ex parte 

notices were not filed for either the email or the conversation. 

A~ pe ot;r discuss.o~' th1s is th1s afternoon's blog P81t on the Ooen lntP.rn~t NPRM. 

Ali O;J(nns cr the t:Jb!e ,we ore s.eek.ing cornrnents and input fo1low1~g the-: 1:nurt\ b!ueprinL 

T 

Item 7: Email from Chairman Wheeler to Jeffrey Zicnts, Jason Furman, & Tom Power (Apr. 23, 2014) rom: 

Sent: Wedn,--><tay, AtN•I 23, 2014 l0:15 I'l-l 

T · ""who.eop.g~~~ .. "'who.eop.gov>-Pcea.eop.g<W··· .. cea.eop.gov>; ~ostp rop.gov' -o.stp eop.gcv> 

SubJect: NYT story 1S wrong 

The NYr lS movmg a smry that the FCC JS gL1tlnQ tfle Open Inten-wt rule. !t !5 r'l~t out wrong. 

Unfortunately, it Ms been pkked up O'i various outlets witl'>out checkm,g, 

Tomwr-ow we wHI c~>rcL~a.te ta thC' CommlsSJon a new Open Internet proposal that w,i~l restore (and In 111 

the case of transparency which was a!H:Jwed to stand by tfl.E court, expa11d) the: concepts 1n the origmal 

Net Neutrallt't' Ord~r in a manner conststent 'IMit~ the cmJrt's n.tlt'fl9 in Ja(luary. 

There ts no "turnaroond If! policy." We are implementing the same policies m ;, manner that wltl pass 

coutt scrut1ny. We h.ave told the NYT they havt'! It wr(Jtlg. 

The same ruJes wm apply to an Internet contenL As witfl the original Open Internet rules,. and 

ccnSls:te:nt wttt1 the court's dcelslonf behavior that ,.,arms consumers or colnpd'itfan wiJl not be 

permtt:ed. 

We are moving a statement contcunin~ these points to the mOOJ~ riyht now. 

President, Tom Power, Exec. Office of the President, & John Podesta, Exec. Office of the President (April29, 2014) 

(HSGAC-01-001233). 

118 E-mail from Tom Wheeler, Fed. Commc'ns Comm'n, to Jeffrey Zients, Exec. Office of the President & Jason 

Furman, Exec. Office of the President (April29, 2014) (HSGAC-01-001227). 

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!1-)p most l'lflL).-'.''ffd oi whd~ h;'!";. been F:,G fH.~ c.n vnt!i :hr• O;A;1 n IPtFfr'lf't '~hlJt:gl-}t 

15 F:<Gctrv ""!p,.'1L 

from: Meribeth McCarnck 

Sent: Thursday, April 21, 2014 05:52PM 

To: Grgi Sohn; 'IVY; Shannon Grlsor>; Ned Gr~~e; Marl< Wi9freld; Sara Morris; Jonathan Sa!let; MaNa 

Krrby; Renee Gregory; Daniel Al"arez; Ruth Milkman; Stephanie Weiner; Rochelle Cohen; Julie V~!i~Ch 

Subject: CNIT: Calm down: FCC's position on Net neutralitv ha51l't d1anged 

Calm down: FCC's po•ltlon on Net ne11trality hasn't changed 

There's been a lot of confusion about what I he FCC is or Is not proposi1111 for its rewrite of Its 

O~en Internet rules. CNET's Marguerite Reardon breaks it down. 

by Marguerite Reardon 

April 24, 2014 2:10PM PDT 

htlll;/l.w.w.lx.tD~runi.m:wl!J;J;~,ruuJ1l!t=:ll~ll.llltalil't·basnt·cban&cd/ 

't~Vhrr- •: comes -cti,;cus<>mg tt,e "(Cs. fl::'cc-n! prcpn~al rt:writH"~B ftt; N+:t nf~Httd!ily rul£1--s~ 

t:>vef t\~"'e f't?edo:,. to !Ea(l? a d.P~p :''1 P-ath, sl:)w oc:wn and r heck tH;-ir fatt~, ~CC',)t'din~ tD FCC chairman 

·r i)i'. ·~v~··n~e!l?r, <.\·h:::se agr:·n{·~ 5€'1!P·~s tc have.~ knack for ir.:.dvet~;~ntly E")"T1ting the put>IK 0\iA..)f its 

p ... cpn·~Pd :Johcy oians.-. 

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Item 9: Email from Chairman Wheeler to Jeffrey Zients, Jason Furman, Tom Power, & John Podesta (Apr. 29, 2014) 

From: 

Se-nt; 

To; 

Subje<t: 

Attactlments: 

GentJemtrl 

rw 

r1.1esday, April ?9. 2014 7:52 PM 

Jeff l!entz"; ')a$on fllrman'; 1orn Power', 'Jahn D. Podes't;;f 

Open l11temet ~lpO~;~te 

NCT A F:nai4-29.door: 

Below is the link to today1

!i blog furthet expl~inlng the Open Internet ~PRM. The press reaction h?ls be~n what 

\\-e'tl hoped. that t have clarified pr!!vious misconct:ptions about how the proposal would ~-omchov.· ~ut lhc Open 

lntentt{ 

Attached i:-:; my ~peeci1 to ;. . .tCTA tom()rrow. The first t\VO pago;;-s ate about Ope11 Internet- 'ij nl~ssage delivered 

to the hroadbnnd provider:;; as to what will be expe-cted. 

Messuge m both: (I) il is a pwpo.sal on which we seck comment, (2) all option~ arc on the table, including Title 

II. anJ (J} I lnlve lht tHrl expressed skepticism lhM ,.,.e'd flnJ "connncrt:w.l reasonJblenes::. .. to b~ a route to 

exceptions to the n1le fDr ~peci«l de-als ;md prioritization. 

As ! ha\'c satd since february, the proposal is de~ignt'd lo dclivt:r on the ~J~ntls of tht: 2010 Open Internet Order 

{\VltH.:h, you'll recalL indudcd ;:1 .-ea~onab!em:ss test) and to do so in a rm:mner that fOllows. the D.C. Cir-cuit'!> 

roadrnap (and hopefully thus avoids litigation). 

The President has Sllpported dte Open Internet and ami·discrimination. Just like he supported the 1010 order 

v.·ith its reasonableness test there is no need to no change wilh this propos~ll. I helicve he can say that we are 

u:;;ing current hr\ .. ' tD its fullest (and in a manner that \Vas. prescrihed hy the <:~>Ut1) t<l assure an Open Internet and 

anti·di~u .. Timin~:~tion. The next ~tcp is to change !he law, even Tille lf has::! "just and reasonable" test. 

I lope this i::; helpful. 

The iniual coverage ha~ !x."Cn helpful and the fCcUh~,ck from the public mlcn:st gmt:ps better. I'll send you some 

cllps 'm a moment. 

T 

While neither the OLC Opinion nor the FCC rules further define the threshold for 

requiring an ex parte filing-beyond the communication being of "substantial significance and 

clearly intended to affect the ultimate decision"---emails between Chairman Wheeler and White 

House senior staff show the FCC's efforts to justify and further explain actions taken in relation 

to the OI Order. 119 Clearly, given the importance of this issue, the FCC and the White House 

should have taken great pains to even avoid the appearance that the White House influenced the 

FCC's independent rulemaking. As it is, the lack of transparency surrounding these 

communications is troubling and raises further questions about the development of the FCC's 

order. 

119 See e.g., E~mail from Tom Wheeler, Fed. Commc'ns Comm'n, to David Edelman, Fed. Commc'ns Comm'n 

(April23, 2014) (clarifYing !hat there is "no 'lurnaround in policy"') (HSGAC-01-001232); E-mail from Tom 

Wheeler, Fed. Commc'ns Comm'n, lo Jeffery Zients, Exec. Office of the President, Jason Furman, Exec. Office of 

the President, Tom Power, Exec. Office of the President, & John Podesta, Exec. Office ofthe President (April29, 

2014) Uustif)'ing that the FCC's proposed OJ rule can still be supported by the President) (HSGAC-01-001233). 

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V. CONCLUSION 

In February 2015, the Wall Street Journal reported that the President's "vision for 

regulating high-speed Internet traffic" "swept aside more than a decade of light-touch regulation 

of the Internet and months of work by [FCC Chairman] Wheeler toward a compromise." 120 

Chairman Wheeler shortly thereafter "lined up behind Mr. Obama" and announced that the FCC 

would follow the President's orders-it would classify the Internet under Title II of the 

Communications Act. 121 The documents that inform the Committee's inquiry confirm this 

report. 

An analysis of documents produced to the Committee in response to Chairman Johnson's 

request shows that the FCC bent to the political pressure of the White House, abandoning its 

work on a hybrid approach to "pause" and then pivot to reclassify broadband as a 

telecommunications service, subjecting broadband providers to regulation under Title II of the 

Communications Act. The FCC's staff worried that the process to adopt President Obama's 

preferred policy approach violated the Administrative Procedure Act. Most fundamentally, 

throughout this process-as the FCC shifted to a Title II approach and then responded to 

congressional oversight-it failed to live up to standards of transparency. 

It should be highly concerning that an independent agency like the FCC could be so 

unduly influenced by the White House, particularly on an issue that touches the lives of so many 

Americans and has such a significant impact on a critical sector of the United States economy. 

Documents produced to the Committee clearly show that the career professional staff at the FCC 

worked diligently on the Commission's or Order, despite its significant and last-minute change 

in direction. It is also clear that career professional staff worked expeditiously and thoroughly on 

the Commission's planned Public Notice, despite its ultimate abandonment by FCC leadership. 

Had the White House not inserted itself into the formal FCC rulemaking process, it is probable 

that the Open Meeting in December would have included the or Order. At the very least, if the 

FCC had issued a Public Notice, the record would presumably have been much more informed. 

Politics should never trump policy, especially not when an agency, like the FCC, was created for 

the expressed purpose of being independent and above the political fray. 

120 Nagesh supra note I. 121 See Nagesh supra note 1. 

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260 

MEMORANDUM 

February 24, 2016 

To: Members of the Committee on Homeland Security and Governmental Affairs 

From: Committee on Homeland Security and Governmental Affairs Minority Staff 

Re: Minority Staff Findings Concerning the Department of Labor's Proposed Conflict 

oflnterest Rule 

I. Executive Summary 

On February 5, 2015, the Chairman of the U.S. Senate Committee on Homeland Security and 

Governmental Affairs Committee initiated an investigation into the Department of Labor's 

efforts to change the fiduciary rules related to certain retirement plans. On April20, 2015, the 

Labor Department issued a proposed Conflict oflnterest rule for fiduciaries. The proposed rule 

would update the definition of a "fiduciary" under the Employee Retirement Income Security 

Act of 1974 (ERISA) to prevent conflicts of interest in advice provided for employee savings 

plans, including 40l(k) and Individual Retirement Accounts. The issuance of a proposed rule 

triggered a notice and comment period that allows stakeholders to submit comments before the 

final rule is issued. To date, the rule making is still ongoing, and the final rule has not yet been 

issued. The purpose of this memorandum is to provide the findings of the Committee's minority 

staff regarding the Chairman's investigation. 

As the Labor Department is still engaged in the process of finalizing this rule, the record 

before the Committee is incomplete and does not reflect the Labor Department or any other 

agency's final position regarding the rule. As such, broad conclusions about the policy impact or 

the content of the final rule are premature. 

However, a review of the record demonstrates that the Labor Department went beyond the 

requirements of the Administrative Procedure Act and conducted an extensive process to solicit 

comments and technical assistance from other federal agencies with expertise that may be 

relevant to the rule. This process started before the Labor Department proposed a revised rule in 

2015 and included at least 52 meetings or phone calls with the Securities and Exchange 

Commission (SEC), the Financial Industry Regulatory Authority (FINRA), the Department of 

the Treasury (Treasury), and the Office of Management and Budget (OMB). This process also 

included at least eight meetings or phone calls between the Secretary of Labor Tom Perez and 

SEC Chair Mary Jo White. As a result of these consultations, the Labor Department considered 

and incorporated comments and technical assistance before the proposed rule was published in 

the Federal Register on April20, 2015. 

In addition, the Labor Department made a significant effort to solicit input from the public 

and other stakeholders on the proposed rule. While conducting a formal regulatory review of the 

proposed rule, OMB's Office oflnformation and Regulatory Affairs held 21 meetings with 

stakeholders, including industry and consumer advocates. After extending the public comment 

period and hosting a four-day public hearing on the proposed rule, the Labor Department also 
261 

received a total of3,134 comments, including 30 petitions encompassing an additional386,889 

comments. 

II. Background 

The Department of Labor has the authority under ERISA to regulate fiduciary standards to 

protect the interests of retirement plan participants and their beneficiaries. 1 The Labor 

Department's Employee Benefits Security Administration (EBSA) is responsible for ensuring 

compliance with the provisions of ERISA. Under ERISA, a person who provides retirement 

investment advice has a fiduciary obligation and must act in the sole interest of the plan 

participant. The Labor Department issued regulations in 197S to define investment advice 

according to a five-part test, and an advisor is held to the best interest standard if the advice 

meets each part of the test. 2 

Since the passage of ERISA 42 years ago, retirement plans provided to employees have 

largely changed from "defined benefit plans," such as traditional pensions, to "defined 

contribution plans," such as 401 (k) retirement accounts. Many investment professionals and 

advisors for defined contribution plans give retirement investment advice that falls outside the 

current, narrowly-tailored definition of investment advice under ERISA and are not obligated to 

adhere to ERISA' s best interest standard. Conflicts of interest may arise in this context if 

retirement investment advice is given in order to provide greater commissions to the investment 

advisor and is not made in the best interest of the client. 

To address this issue, in October 2010, the Labor Department proposed a Conflict oflnterest 

rule to broaden the definition of a "fiduciary" under ERISA.3 The purpose of the rule was to 

prevent conflicts of interest by applying the best interest standard to investment advisors 

providing advice for defined contribution plans. Under the new definition, investment advisors 

such as broker-dealers would be considered fiduciaries under ERISA and would be required to 

abide by a best interest standard. During the notice and comment period for the proposed 20 I 0 

rule, stakeholders, Members of Congress, and the public raised concerns about the proposed rule 

and requested the agency to allow more opportunity for input. The Labor Department 

subsequently withdrew the rule in September 20 II to address those concerns with a goal of 

reintroducing a draft rule in early 20124 

On April20, 201S, the Labor Department proposed a revised Conflict oflnterest rule on the 

definition of"fiduciary" under ERISA. 5 The proposed rule initially provided for a 7S-day 

comment period from April 20, 20 IS to July 6, 20 IS. After receiving requests for additional time 

to submit input on the revised rule, the Labor Department extended the comment period by two 

weeks in July and held a four-day hearing during the week of August 10,2015. The Labor 

1 Employee Retirement Income Security Act of 1974,29 U.S.C. §§ 1001-1453 (2016). 

2 29 u.s.c. § 1104 (2016). 

3 75 Fed. Reg. 65263, 65278 (proposed October 22, 20 I 0). 

4 Department of Labor, US Labor Department's EBSA to Re-Propose Rule on Definition of a Fiduciary (Sept. 19, 

20 II )(!1-1382-NA T). 

5 80 Fed. Reg. 21927,21960 (proposed Apri120, 1015). 

2 
262 

Department then re-opened the comment period a~ain for an additional two weeks for additional 

public testimony and comments after the hearing. In total, there were over I 00 days for the 

public to comment on the draft rule. 

While the rulemaking process is ongoing, the Labor Department has indicated that the final 

rule would become effective 60 days after publication in the Federal Register, and the 

requirements of the rule would generally become applicable eight months after publication of a 

final rule. 

On February 5, 2015, the Chairman of the U.S. Senate Committee on Homeland Security and 

Governmental Affairs Committee began an inquiry into reported efforts of the Labor Department 

to change fiduciary rules related to retirement plans.7 At this time, the Department of Labor had 

not yet issued a proposed rule, but the majority initiated the investigation by citing concerns of 

the financial industry and others regarding the policy impact a revised rule could have.8 

Subsequently, Chairman Johnson sent letters to the SEC, FINRA, Treasury, and OMB seeking 

information regarding the ongoing rulemaking process. In total, Chairman Johnson sent nine 

information request letters to federal agencies and in response received sixteen letter responses; 

two briefings with Labor Department officials; and 12,763 pages of agency documents, including 

documents reviewed during two in camera reviews. An appendix to this memorandum includes 

the formal correspondence between the Committee and the entities that received requests for 

information. 

As the Labor Department is still engaged in the process of finalizing this rule, the record 

before the Committee is incomplete and does not reflect the Labor Department or any other 

agency's final position regarding the rule. As such, broad conclusions about the policy impact or 

the content of the final rule are premature. 

III. The Department of Labor's Process to Solicit Comments and Technical 

Assistance from Other Agencies was Extensive. 

The Department of Labor and other federal agencies have different statutory responsibilities 

with respect to regulating investment advisors and the financial securities market. While the 

Labor Department and Treasury are responsible for enforcing ERISA to protect the interests of 

retirement plan participants and beneficiaries, SEC is responsible for regulating many aspects of 

the financial securities market in accordance with the Investment Advisers Act of 1940. 

Similarly, FINRA, a self-regulatory organization of securities brokers, requires securities brokers 

and dealers to give investment advice that is suitable for the customer9 

6 80 Fed. Reg. 34869,34871 (June 18, 2015). 

7 Letter from Senate Committee on Homeland Security and Governmental (HSGAC) Chairman Johnson to 

Department of Labor Secretary Thomas Perez (Feb. 5, 2015). 8 !d., citing Mark Schoeff, DOL Proposal of Fiduciary-Duty Rule Delayed Again, Investment News, (May 28, 20 14) 

(quoting Securities Industry and Financial Markets Association President and Chief Executive Kenneth Bentsen Jr. 

and Financial Services Institute Vice President Chris Paulitz, among others). 

9 FINRARu1e2111 (2014). 

3 
263 

The Administrative Procedure Act prescribes requirements for stakeholder input through 

notice and comment periods, and these requirements do not require interagency consultation 

before an agency proposes a rule. Agencies, however, regularly do consult with each other in an 

effort to improve the quality of a proposed rule. Further, OMB 's Office of Information and 

Regulatory Affairs (OIRA) conducts a formal review process and ensures for significant rules 

agencies have the opportunity to weigh in during the proposed and final rulemaking stages. 

According to information obtained by the Committee, the Labor Department went beyond 

the requirements ofthe Administrative Procedure Act and conducted an extensive process to 

solicit comments and technical assistance from other federal agencies with expertise that may be 

relevant to the rule. These consultations started after the Labor Department withdrew the 20 l 0 

draft rule, continued through the years leading up to the proposal of the revised rule on April 20, 

2015, and included at least 52 meetings or phone calls with the SEC, FINRA, and Treasury. As a 

result of these consultations, the Labor Department considered and incorporated comments and 

technical assistance before the proposed rule was published in the Federal Register. 10 

In particular, the Labor Department engaged with the SEC to solicit input regarding the 

proposed rule on several occasions. Between November 2013 and January 2015, Labor 

Department officials from EBSA and SEC officials from many offices conducted at least 21 

meetings or phone calls regarding multiple aspects of the conflict of interest rulemaking. 11 They 

discussed the proposed rule, securities regulations, market dynamics, the exemption for principal 

transactions, point of sales disclosure, low-fee safe harbor, economic analysis including costbenefit analysis, and supporting data. 12 Meetings during this period included the participation of 

31 SEC employees from five separate SEC divisions, including the Office ofthe Chair, Trading 

and Markets, Investment Management, Economic and Risk Analysis, and the Office of the 

General Counsel. 13 

The Labor Department also engaged with FINRA to solicit input regarding the proposed rule 

on several occasions. Between Aprill3, 2011 and November 18,2013, the Labor Department 

and FINRA officials conducted 31 meetings or phone calls. 14 Meetings during this period 

included the participation of 54 employees, including 26 employees from the Labor Department 

and 27 employees from FINRAI 5 Between April4, 2014 and September 14, 2015, Labor and 

FINRA officials conducted an additional 18 meetings. 16 During this period, these meetings 

10 See EBSA Responses to SEC Comments (January 8, 2015)[SEC-DOL003236-SEC-DOL003239]. 11 Letter from the Securities and Exchange Commission Chairwoman Mary Jo White to HSGAC Chairman Johnson 

(May 5, 20 15). 

12 Letter from Acting Assistant Secretary Jayaratne to HSGAC Chairman Johnson (June 15, 20 15); see also Letter 

from the Securities and Exchange Commission Chairwoman Mary Jo White to HSGAC Chairman Johnson (July 27, 

2015). 

13 Letter from the Securities and Exchange Commission Chairwoman Mary Jo White to HSGAC Chairman Johnson 

(May 5, 20 15). 

14 Letter from FINRA Executive Vice President and Chief Legal Officer Richard Colby HSGAC Chairman Johnson 

(Oct. 29, 2015). 

15 !d. 

16 Letter from FINRA Executive Vice President and Chief Legal Officer Richard Colby to HSGAC Chairman 

Johnson (Oct. 15, 2015). 

4 
264 

included the participation of 31 employees, including 16 employees from the Labor Department 

and IS employees from FINRA. 17 Some of the topics discussed during these meetings included 

potential unintended consequences of the rule, an impartial conduct standard, salary structures, 

litigation, and remedies. 

The Labor Department also engaged with Treasury to solicit input regarding the proposed 

rule. Documents obtained by the Committee reflected several instances when Treasury and 

Labor Department officials exchanged comments about drafts of the rule and discussed the 

technical assistance provided by Treasury _IS In a December 14, 2015 letter to the Committee, 

Treasury stated it "believes that DOL appropriately considered Treasury comments on the drafts 

during the OIRA l§rocess, including the comments specified in [Chairman Johnson's November 

12, 2015]letter." 9 

Documents regarding the interaction between the Labor Department and other agencies on 

the proposed rule reflect occasionally frank and candid exchanges of views that would be 

expected during the deliberative interagency process when a proposed rule is under discussion. 

Since the rulemaking process is ongoing, however, the documents obtained by the Committee do 

not reflect the Labor Department's final position regarding the rule. 

IV. OMB's Office oflnformation and Regulatory Affairs Reviewed the 

Department of Labor's Draft Rule, Including the Cost-Benefit Analysis and 

the Rule's Consistency with Existing Federal Statutes. 

Before publication in the Federal Register, the Labor Department submitted the proposed 

rule to OIRA. OIRA ensures regulatory action is consistent with applicable laws, verifies agency 

policies do not conflict, and enables other relevant Federal agencies to provide their views. Much 

ofOIRA's regulatory oversight is govemed by Executive Order (E.O.) 12866, "Regulatory 

Planning and Review," and E.O. 13563, "Improving Regulation and Regulatory Review." 

When submitting a draft rule to OIRA, an agency generally provides a detailed cost-benefit 

analysis including an assessment of feasible alternatives to the proposed rule. During its review 

of the draft rule, OIRA also consults with various stakeholders. In accordance with E.O. 12866, 

OIRA meets with any party interested in discussing issues during the proposed and final stages 

of a regulatory review. Reviews are typically completed within 90 days. After conducting a 

review, OIRA sends the rule back to the agency. The most common type of action OIRA takes is 

"consistent with change," which indicates OIRA approves of the intent of the rule but made 

some substantive changes. If an agency receives approval from OIRA, it may then publish the 

rule in the Federal Register. Before finalizing the rule, the agency must identifY changes made to 

the rule between the draft submitted to OIRA for review and the final rule. 

17 !d. 

1

' See Proposed Best Interest Contract Exemption (Apr. 8, 2015) [SEC-DOL 005002]. 19 Letter from Assistant Secretary for Legislative Affairs of Treasury Anne Wall to HSGAC Chairman Johnson 

(Dec. 14, 2015). 

5 
265 

OIRA received the proposed Conflict of Interest rule from the Labor Department on 

February 23,2015. Between March 4, 2015 and AprillO, 2015, OIRA conducted 21 stakeholder 

meetings?0 Some of the stakeholders included Fidelity Investments, the Financial Services 

Roundtable, and the U.S. Chamber ofCommerce.21 OIRA concluded its review of the proposed 

rule on April 14,2015 and sent it back to the Labor Department as "consistent with change." In 

correspondence with the Committee, OIRA stated that its office "devoted the time and resources 

necessary to ensure the review was in accordance with the requirements of EOs 12866 and 

13563. The amount oftime needed to complete review on any given rule varies, but OIRA 

endeavors to complete the process as efficiently as possible while ensuring proper review."22 

V. The Department of Labor Made a Significant Effort to Solicit Comments 

from the Public and Other Stakeholders. 

The Department of Labor engaged in an extended public notice and comment period on the 

proposed conflict of interest rule. Notice and comment periods provide the public and 

stakeholders the opportunity to offer their views and recommendations. 23 These comments 

become part of the rulemaking record on which the Labor Department must base its reasoning 

and conclusions. 

Once the Labor Department re-proposed the revised rule, the initial comment period spanned 

75 days from April20, 2015 to July 6, 2015. After receiving requests to extend the comment 

period to allow for additional input to the rulemaking record, the Labor Department extended 

this comment period through July 21,2015 and announced it would hold hearings during the 

week of August 10,2015. The comment period was also re-opened on the day that hearing 

transcripts were published from September 8 to September 24, 2015?4 In total, the public 

comment period on the draft rule was open for over I 00 days. 

During this process, the Labor Department received a substantial number of comments. 

Between April 2015 and September 2015, the Labor Department received 3,134 individual 

comments as well as 30 petitions encompassing an additional386,889 comments.25 542 of these 

20 E.O. 12866 Meeting Records (2016). 21 Other stakeholders included Personal Capital, Better Markets, American Retirement Association, Davis & 

Hannan LLP, Consumer Federation of America, Public Investors Arbitration Bar Association, Fiduciary Institute, 

Securities Industry and Financial Markets Association, American Council of Life Insurers, Financial Services 

Institute, Franklin Square Capital Partners, Americans for Financial Reform, Insured Retirement Institute, Primerica, 

Investment Company Institute, and Rebalance IRA. 

22 Letter from OJRA Administrator Howard Shelanski to HSGAC Chairman Johnson (Jan. 20, 2016). 

23 Administrative Procedure Act of 1946,5 U.S.C. §§ 551-59 (2016). 24 Department of Labor, Public Hearing Announcement of Transcript Availability and Comment Period Closing 

Date for the Conflict of Interest Proposed Rule (Sept. 8, 2015). 

25 Petitioners were AARP, Financial Professionals through Softedge, New York Life Insurance, Public Citizen, Life 

Insurance Professionals, Close the Investment Advice Loophole, Protect our Retirement Nest Eggs, I Support the 

DOL Retirement Advice Rule, As Someone Saving for my Future, Independent Financial Advisors, National 

Association of Insurance and Financial Advisors State Associations, MoveOn.org Civic Action Individuals, 

Primerica Licensed Financial Professionals, U.S. Public Interest Research Group Individuals, Strengthen Retirement 

Advice Laws, Stop Wall Street from Draining Americans' Retirement Savings, Licensed Financial Professionals, 

National Association of Insurance and Financial Advisors Members, Americans for Financial Reform, CREDO 

6 
266 

comments were received after the Labor Department re-opened the comment period. The 

comments represented a wide range of views from the financial services industry, consumer 

advocacy groups, and Members of Congress from both the House and Senate. 

The Labor Department also beld four public hearings on the proposed rule from August I 0-

13,2015 at the Labor Department's Washington, D.C. headquarters. These hearings consisted of 

25 panels featuring 41 submissions of written testimony. 26 The hearing transcripts, which span 

1,305 pages, indicate groups ranging from the U.S. Chamber of Commerce to the AFL-CIO were 

able to provide testimony both in support and in opposition to the proposed rule. 

VI. Conclusion 

The rulemaking process for the proposed Conflict oflnterest rule is ongoing, and the final 

rule has yet to be published in the Federal Register. Because this process is ongoing, the record 

before tbe Committee is incomplete and does not reflect the Labor Department or any other 

agency's final position regarding the rule. As such, broad conclusions about the policy impact or 

the content ofthe final rule are premature. 

However, a review of the Committee record demonstrates that Labor Department conducted 

an extensive process to solicit comments and technical assistance from other federal agencies 

with expertise that may be relevant to the proposed rule. These consultations started after the 

Labor Department withdrew the 2010 draft rule and continued through the years leading up to 

tbe proposal of the revised rule published on April20, 2015. This process included at least 52 

meetings or phone calls with other agencies, including at least eight meetings or phone calls 

between Secretary of Labor Tom Perez and SEC Chair Mary Jo White. 

The Administration also made a significant effort to solicit input from the public and other 

stakeholders. OIRA held 21 meetings with stakeholders, including industry and consumer 

advocates, while conducting a formal review ofthe proposed rule. The Labor Department also 

held a public comment period on the rule generating 3,134 total comments, including 30 

petitions that encompass an additional 386,889 comments. These comments, including those 

made by Members of Congress and other stakeholders, express a wide range of opinions about 

the policy impacts of the proposed rule. All of the input submitted during the comment period 

Action, Fixed Insurance Agents, Washington Should Not Limit or Restrict our Advice and Retirement Savings 

Choices, The Department's Proposed Fiduciary Rule for Retirement Investment Advice is Unworkable, HardWorking and Concerned Investors, Advance and Alternative to the DOL's Fiduciary Proposal, Writing to Urge the 

Department of Labor to Reconsider, DOL Limiting Choices in IRAs, Americans for Financial Reform, OTC 

Securities, and Thank You for Seeking Practical Input on How to Develop a Best Interest Standard. 26 Testimony was submitted by Center for Retirement Research at Boston College, AARP, James D. Keeney, 

lnvestSense, Financial Planning Coalition, Financial Services Roundtable, Groom Law Group Chartered, Arthur B. 

Laby, Ron A. Rhoades, Jonathan Reuter, TIAA-CREF, 3ethos, Investment Company Institute (twice), Better 

Markets (three times), Save Our Retirement, Farmer's Insurance, Russell Investtnents, Pension Rights Center, 

America's Health Insurance Plans and Blue Cross Blue Shield Association, American Bankers Association, 

Raymond James, Association for Advanced Life Underwriting, Benjamin F. Cummings, Center for American 

Progress, Mercer Bullard, National Active and Retired Federal Employees Association, The Committee for the 

Fiduciary Standard, Managed Funds Association, American Society of Appraisers, CFA Institute, U.S. Securities 

Markets Coalition, PIABA (twice), Appraisal Institute, Financial Engines, Indexed Annuity Council, Insured 

Retirement Institute, and Weyn LLC. 

7 
267 

becomes part of the rulemaking record on which the Labor Department must base its reasoning 

and conclusions. 

8 
268 

OPINIONS 

OF THE 

OFFICE OF LEGAL COUNSEL OF THE 

UNITED STATES DEPARTMENT OF JUSTICE 

CONSISTING OF SELECTED MEMORANDUM OPINIONS 

ADVISING THE 

PRESIDENT OF THE UNITED STATES, 

THE ATTORNEY GENERAL 

AND OTHER EXECUTIVE OFFICERS OF THE FEDERAL GOVERNMENT 

IN RELATION TO 

THEIR OFFICIAL DUTIES 

VOLUME 15 

1991 

WASHINGTON 

1998 
269 

Atlorneys General 

William P. Barr 

Richard L. Thornburgh 

Assistant Allorney General 

Office of Legal Counsel 

J. Michael Luttig 

Deputy Assistant Auorneys General 

Office of Legal Counsel 

Douglas R. Cox 

Timothy E. Flanigan 

John C. Harrison 

John 0. McGinnis 

iii 
270 

OFFICE OF LEGAL COUNSEL 

Attorney-Advisers 

Barbara E. Armacost 

John E. Barry 

Steven G. Bradbury 

Benedict S. Cohen 

Paul P. Colborn 

Daniel P. Collins 

Steven M. Colloton 

Robert J. Delahunty 

Peter B. Davidson 

John F. Duffy 

James E. Gauch 

Eric Grant 

(1991) 

iv 

Rosemary A. Hart 

Daniel L. Koffsky 

David G. Leitch 

Herman Marcuse 

Mark L. Movsesian 

Richard A. Nagareda 

John C. Nagel 

George C. Smith 

Jeffrey K. Shapiro 

John J. Sullivan 

Carol A. Williams 

Marian E. Wysocki 
271 

FOREWORD 

The Attorney General has directed the Offtce of Legal Counsel to publish 

selected opinions on an annual basis for the convenience of the executive, 

legislative, and judicial branches of the government, and of the professional 

bar and the general public. The first fourteen volumes of opinions published 

covered the years 1977 through I 990: the present volume covers 1991. The 

opinions included in Volume I 5 include some that have previously been 

released to the public, additional opinions as to which the addressee has 

agreed to publication, and opinions to Department of Justice officials that 

the Office of Legal Counsel has determined may be released. A substantial 

number of Office of Legal Counsel opinions issued during 1991 are not 

included. 

The authority of the Office of Legal Counsel to render legal opinions is 

derived from the authority of the Attorney General. Under the Judiciary Act 

of 1789 the Attorney General was authorized to render opinions on questions of law when requested by the President and the heads of executive 

departments. This authority is now codified at 28 U.S.C. §§ 511-513. Pursuant to 28 U.S.C. § 510 the Attorney General has delegated to the Office of 

Legal Counsel responsibility for preparing the formal opinions of the Attorney General, rendering opinions to the various federal agencies, assisting the 

Attorney General in the performance of his function as legal adviser to the 

President, and rendering opinions to the Attorney General and the heads of the 

various organizational units of the Department of Justice. 28 U.S.C. § 0.25. 

v 
272 

Opinions of the Office of Legal Counsel in Volume 15 

Contents Page 

Ex Parte Communications During FCC Rulemaking 

(January 14, 1991) ........................................................................... .. 

Secretary of Education Review of Administrative Law Judge Decisions 

(January 31, 1991) ............................................................................. 8 

FBI Authority to Charge User Fees for Record Check Services 

(February 11, 1991) ...... .. ... ................. .... ........ ................ ....... ........ .... 18 

Application of the Airport and Airway Improvement Act 

to the Proposed Lease of the Albany County Airport 

(February 12, 1991) ........................................................................... 26 

Military Use of Infrared Radars Technology to Assist Civilian 

Law Enforcement Agencies (February 19, 1991) .............................. 36 

Severability of Legislative Veto Provision 

(February 28. 1991) ........................................................................... 49 

Indemnification of Treasury Department Officers and Employees 

(March 4, 1991) ................................................................................. 57 

Applicability of 18 U.S.C. § 219 to Members of Federal Advisory 

Committees (April 29, 1991) ............................................................. 65 

Liability of the United States for State and Local Taxes on Seized and 

Forfeited Property (July 9, 1991) ...................................................... 69 

Authority of the Nuclear Regulatory Commission to Collect Annual 

Charges from Federal Agencies (July 30, 1991) ............................... 74 

Comptroller General's Authority to Relieve Disbursing and Certifying 

Officials From Liability (August 5, 1991) ........................................ 80 

Legal Obligations of the United States Under Article 33 of the Refugee 

Convention (December 12, 1991)...................................................... 86 

Permissibility of Recess Appointments of Directors of the Federal 

Housing Finance Board (December 13, 1991) .................................. 91 

vii 
273 

OPINIONS 

OF THE 

OFFICE OF LEGAL COUNSEL 

viii 
274 

Ex Parte Communications During 

FCC Rulemaking 

Ex parte communications by White House officials to Federal Communications Commission 

commissioners that advocate positions on the FCC rulemaking proceeding to evaluate financial interest and syndication rules would be pennissible. 

According to FCC regulations, as interpreted by the FCC General Counsel, communications by 

the White House must be disclosed in the FCC rulemaking record if they are of substantial 

significance and clearly intended to affect the ultimate decision. 

Although solicitation of the views of White House officials by FCC commissioners would be 

permissible and need not be included in llle rulemaking record. any response by White 

House officials to such a solicitation would be subject to the same disclosure requirements 

that apply to unsolicited communications. 

MEMORANDUM OPINION FOR THE DEPUTY 

COUNSEL TO THE PRESIDENT 

January 14, 1991 

This memorandum responds to your request that we answer certain questions regarding ex parte communications between White House officials and 

Commissioners of the Federal Communications Commission ("FCC") in con· 

nection with the FCC's ongoing rulemaking proceeding to evaluate its 

financial interest and syndication rules relating to television network involvement in the programming marketplace. Specifically, you have asked 

(I) whether it is permissible for White House officials to contact FCC Com· 

missioners to advocate a position on this rulemaking; (2) whether any such 

communications would be subject to FCC disclosure requirements; and (3) 

whether it would be permissible for FCC Commissioners to solicit the views 

of White House officials and whether any such communications would be 

subject to the FCC disclosure requirements. 

We conclude that the communications by White House officials would be 

permissible and, according to FCC regulations, they must be disclosed in the 

FCC rulemaking record if they are of substantial significance and clearly 

intended to affect the ultimate decision. Solicitations of the views of White 
275 

House officials by FCC Commissioners would be permissible and need not 

be included in the rulemaking record. Any response by White House officials to such a solicitation, however, would be subject to the same disclosure 

requirements that apply to unsolicited communications. 

I. 

We believe it is clearly permissible, as a matter of general administrative 

Jaw, for White House officials, including senior members from the Council 

of Economic Advisors and officials from the Office of the Vice President, 

Office of Management and Budget, and Office of White House Counsel, to 

contact FCC Commissioners to advocate a position on this rulemaking. This 

conclusion is compelled by Sierra Club v. Cosrle, 657 F.2d 298 (D.C. Cir. 

1981 ), the leading ex parte contacts case under the Administrative Procedure 

Act ("APA"), 5 U.S.C. §§ 551-559,701-706. 

In Sier;ra Club, an Environmental Protection Agency ("EPA") rulemaking 

was challenged as procedurally defective in a variety of ways, including that 

the decisionmaking was influenced by an "undocketed meeting ... attended 

by the President, White House staff, other high ranking members of the 

Executive Branch, as well as EPA officials, and which concerned the issues 

and options presented by the rulemaking." ld. at 404. In holding that the 

meeting was permissible and need not have been "docketed" (i.e., a summary placed in EPA's rulemaking record), 1 the D.C. Circuit Court of Appeals 

recognize[d] the basic need of the President and his White 

House staff to monitor the consistency of executive agency 

regulations with Administration policy. He and his White 

House advisers surely must be briefed fully and frequently 

about rules in the making, and their contributions to 

policy making considered. The executive power under our Constitution, after all, is not shared - it rests exclusively with 

the President. 

/d. at 405. The court not only concluded that "[t]he authority of the President to control and supervise el(ecutive policymaking is derived from the 

Constitution," id. at 406, but added that 

the desirability of such control is demonstrable from the practical realities of administrative rulemaking. Regulations such 

'The Sierra Club holding on '"docketing'" did not modify the APA case law providing that purely 

factual and "conduil'' (i.e .. from interested panies outside the government) information provided in the 

course of such communications should be included in agency rulemaking records, See Contacts Be~ 

tween the Office of Manogement and Budget and £ucutiw? Agencies Under £ucutive Order No. 12,291, 

5 Op. O.L.C. 107 (1981). 

2 
276 

as those involved here demand a careful weighing of cost, 

environmental, and energy considerations. They also have 

broad implications for national economic policy. Our form of 

government simply could not function effectively or rationally 

if key executive policymakers were isolated from each other 

and from the Chief Executive. Single mission agencies do 

not always have the answers to complex regulatory problems. 

An over-worked administrator exposed on a 24-hour basis to a 

dedicated but zealous staff needs to know the arguments and 

ideas of policymakers in other agencies as well as in the White 

House. 

/d. (footnotes omitted). 

Just as the court found in Sierra Club that it was permissible under the 

APA for the President and other White House officials to meet with EPA 

officials in an effort to influence the results of an EPA rulemaking, we 

believe it is permissible for White House officials to contact FCC Commissioners in an effort to influence the results of an FCC rulemaking. The 

constitutional and administrative rationales set forth in Sierra Club are fully 

applicable to the FCC rulemaking on financial interest and syndication rules. 2 

Sierra Club makes it clear that, in addition to the general requirements of 

the APA, any more specific statutory requirements must be considered. /d. 

at 406-07. The only such requirements that we are aware of that might 

apply in the present situation are those contained in the laws and regulations 

governing FCC proceedings. The FCC's notice of proposed rulemaking expressly states that the FCC has determined that ex parte communications are 

permissible in this rulemaking proceeding. See 55 Fed. Reg. II ,222, 11,223 

(1990) ("After June 13. 1990. the proceeding will become a non-restricted 

proceeding, in which ex parte presentations will be permissible, subject to 

the disclosure requirements set forth in the Commission's rules.") The FCC's 

ex parte communication regulations, 47 C.F.R. Subpart H, apply by their 

terms to ex parte communications from any person outside the FCC, expressly including presentations from government officials. See 47 C.F.R. § 

'Sierra Club is not distinguishable on the basis that the FCC, unlike the EPA. might be viewed as an 

"independent agency." Sierra Club is the lending construction of the APA on e~ parte contacts during 

rule making, and the APA clearly applies equally to the FCC and the EPA. See 5 U.S.C. § 551( I), Thus, 

the Sierra Club rationale concerning "the practical realities of administrative rulemak:1ng," 657 F.2d al 

406, applies fully to all agency rulemaking, whether done by a purely executive or "independent"' agency. 

Indeed, the only exception to its holdmgs on White House contacts that Sterra Club specJfically 1den1i~ 

fies is where the contacts "directly concern the outcome of adjudications or quasi~adjudicatory proceed~ 

ings," thus implying that all rulemaking is covered by the main holding fd. at 407. Moreover, what· 

ever the constitutionality of restncting the removal of the heads of "independent agencies," there is no 

doubt that the President has the constitutional aulhority to inform (directly or through his stafn an 

"independent agency" of the Administration's program. in an effort to coordinate policy within the 

executive branch. See Morrisott v, 0/Jon. 487 U.S. 654 ( 1988). Accordingly, the President retains 

authority to auempt to innuence rulemaking decisions by "independent agencies" in the ways endorsed 

in Sierra Club. 

3 
277 

l. 1 206(a)( 1 )-(3) note 1 ("(P]resentations from members of Congress or their 

staff or from other agencies or branches of the Federal Government or their 

staff that are of substantial significance and clearly intended to affect the 

ultimate decision shall be treated as ex parte presentations .... "). Accordingly, 

we conclude that ex parte communications by White House officials in connection with this rulemaking are permissible under the FCC ex pane regulations. 

Although ex pane communications to FCC Commissioners by White House 

officials are thus legally permissible, we note the current White House policy 

guidance applicable to contacts with independent regulatory agencies like 

the FCC. See Memorandum for White House Staff, from C. Boyden Gray, 

Counsel to the President, Re: Prohibited Contacts with Agencies. That 

guidance states: 

As a general rule, no member of the staff should make an ex 

parte contact with a regulatory agency in regard to any particular matter pending before that agency, regardless of whether 

the proceedings are deemed to be rulemaking or adjudicative, 

when such a contact may imply preferential treatment or the 

use of influence on the decision-making process . 

. . . White House staff members should avoid even the mere 

appearance of interest or influence - and the easiest way to 

do so is to avoid discussing matters pending before the independent regulatory agencies with interested parties and avoid 

making ex parte contacts with agency personnel. Should an 

occasion arise ... where it appears necessary [for White House 

staff] to discuss general policy matters with the staff of an 

independent regulatory agency, to avoid any appearance of 

impropriety, [the White House staff individual) should first 

consult with the Office of the Counsel to the President to 

determine whether such contact would be appropriate under 

the circumstances. 

/d. at 1-2. 

II. 

You have also asked whether, if ex parte communications to FCC Commissioners by White House officials are permissible, the communications 

must be publically disclosed: i.e., included in the FCC's rulemaking record. 

Although Sierra Club makes it clear that such disclosure is not required as a 

matter of general administrative law, see 657 F.2d at 404-08, the FCC regulations on ex parte communications provide for disclosure of certain 

4 
278 

communications of that nature. We have consulted the FCC General Counsel's 

Office to ascertain the FCC's interpretation of its regulations] The following discussion is based on that interpretation.• 

As noted above, the FCC's notice of proposed rulemaking states that "ex 

parte presentations will be permissible" in this proceeding, "subject to the 

disclosure requirements set forth in the Commission's rules." 55 Fed. Reg. 

at 11,223. This statement is consistent with the FCC regulations, which 

provide that all informal rulemaking proceedings, except proceedings on 

allotment of specific radio or television channels, are "non-restricted proceedings," see 47 C.F.R. § l.l206(b)(l), in which "ex parte presentations are 

pennissible ... if [certain enumerated] disclosure requirements are met." 

47 C.F.R. § l.l206(a). The regulations specify which communications during a non-restricted proceeding from government sources outside the FCC 

should be viewed as ex parte communications that must be included in the 

rulemaking record: 

Unless otherwise exempted under Section 1.1204, presentations from members of Congress or their staff or from other 

agencies or branches of the Federal Government or their staff 

that are of substantial significance and clearly intended to affect the ultimate decision shall be treated as ex parte 

presentations and placed (if oral, a written summary of the 

presentation shall be prepared and placed) in the record of the 

proceeding by Commission staff or in accordance with the 

procedures set forth in Section 1.1206(a)(1 )-(3 ). 

47 C.F.R. § l.1206(a)(i)-(3) note I. Thus, unless otherwise exempted under 

section l.l204(b), all ex parte communications from government officials or 

employees that "are of substantial significance and clearly intended to affect 

the ultimate decision" must be placed in the rulemaking record. If the 

communications are oral, they may be placed in the record either by the 

means of a written summary prepared by Commission staff or by a written 

memorandum submitted by the ex parte "communicator" on the day of the 

communication. 47 C.F.R. § l.l206(a). 

Accordingly, the FCC regulations require the placement in the FCC 

rulemaking record of a memorandum summarizing any ex parte communication by a White House official to an FCC Commissioner in which the White 

House official advocates a position on this rulemaking, so long as the communication is "of substantial significance and clearly intended to affect the 

' We consulted David H. Solomon. Assistant General Counsel. Administrative Law Division. 

~ We do nor address in this memorandum the authority of the President to direct the FCC to change its 

regulations. 

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279 

ultimate decision." The regulations apply by their terms to all parts of the 

government and make no exception for communications from White House 

officials. Nor would any of the section 1.1204(b) exemptions appear to be 

applicable. In particular, the FCC does not believe that exemption (5) is 

available. See 47 C.F.R. § 1.1204(b)(5) (exempting presentations "to or 

from an agency or branch of the Federal Government or its staff [that] involve[] a matter over which that agency or branch and the Commission 

share jurisdiction"). In the view of the FCC General Counsel's Office, the 

exemption for agencies that "share jurisdiction" pertains only to other federal agencies that exercise statutory authority that overlaps with the FCC's 

authority; it is not addressed to a government entity that might supervise the 

FCC. Accordingly, the White House does not, within the meaning of the 

exemption, "share jurisdiction" with the FCC over financial interest and 

syndication rules. We believe that the FCC's interpretation of exemption (5) 

is reasonable. 

m. 

Finally, you have asked whether it would be permissible for an FCC Commissioner to solicit the views of White House officials and whether any such 

solicitation would be subject to the FCC disclosure requirements. We are 

unaware of any statutory or regulatory provisions that would prohibit such a 

solicitation or require that it be included in the rulemaking record. The 

conclusions reached above regarding Sierra Club should apply equally to a 

solicitation by an FCC Commissioner, because nothing in the court's rationale suggested that the protection of ex parte White House communications 

should be "one-way": i.e., protecting communications by White House officials· but not to them. 

Moreover, nothing in the FCC regulations would preclude such a solicitation (indeed, the regulations contemplate solicitaticans, see 47 C.F.R. 

§ l.l206(a)(3)) or require that it be docketed. The FCC General Counsel's 

Office has advised us that solicitations are permissible and whether they are 

recorded in the rulemaking record is discretionary. Any communication by 

a White House official in response to a solicitation, however, would be subject to disclosure under the same standards governing unsolicited 

communications. See 47 C.F.R. §§ 1.!204(b) note, l.l206(a)(3), l.l206(a)(l)-

(3) note I. 

CONICIL1l.J§ITON 

Ex parte communications by White House officials to FCC Commissioners that advocate positions on the ongoing FCC rulemaking proceeding to 

evaluate financial interest and syndication rules would be permissible. According to FCC regulations, as interpreted by the FCC General Counsel's 

Office, such communications must be disclosed in the FCC rulemaldng record 

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280 

if they are of substantial significance and clearly intended to affect the ultimate decision. Solicitations of the views of White House officials by FCC 

Commissioners would be permissible and need not be included in the 

rulemaking record. Any response by White House officials to such a solicitation, however, would be subject to the same disclosure requirements that 

apply to unsolicited communications. 

7 

JOHN 0. MCGINNIS 

Deputy Assistant Attorney General 

Office of Legal Counsel 
281 

Post-Hearing Questions for the Record 

Submitted to the Honorable Bradford P. Campbell 

From Senator Rob Portman 

Homeland Security and Governmental Affairs Hearing: "The Administrative State: An 

Examination of Federal Rulemaking" 

April 20, 2016 

I. Mr. Campbell, you've warned in the past year that the fiduciary rule will make it more 

difficult for small businesses to set up a retirement plan and obtain investment advice for 

their employees. Experts have further maintained that the "seller's exemption", which 

prohibits brokers from selling retirement plans to small businesses, is even more poorly 

designed under the final rule it was than under the proposed rule. For example, under the 

final rule, it is illegal to sell to a small business with assets less than $50 million, 

regardless of the business' number of employees. 

Are estimations available yet regarding how many small businesses in your estimation 

will lose access to their retirement plan under the final rule? Additionally, how many 

small businesses with lose access to a retirement plan going forward due to reduced 

services available to them under the rule? 

2. One change in the final rule that has received a lot of attention is the DOL's extension of 

the rule's implementation period from eight months to one year, with the rule taking full 

effect in January 2018. In your estimation, does this newly extended timeline constitute a 

significant change with respect to overall breadth of retirement services the financial 

services industry will ultimately able to offer? 

Witness responses to questions submitted for the record were not received 

by time of printing. 
282 

Æ 

Post-Hearing Questions for the Record 

Submitted to the Honorable Bradford P. Campbell 

From Senator Jon Tester 

Homeland Security and Governmental Affairs Hearing: "The Administrative State: An 

Examination of Federal Rulemaking" 

April20, 2016 

Mr. Campbell, I've been fairly skeptical about the Department of Labor's Fiduciary rule for quite 

some time now. I had concerns with the original proposal in 2011 and I had concerns with the 

re-proposallast year. Now it appears that the Department has addressed a number of concerns 

that I raised, but I'm still not quite convinced this rule won't cut off access to advice and 

products that are critically important to middle-class Americans looking to save for retirement. 

l) Would you please share with the Committee your thoughts on the final rule. 

2) Do you believe this rule will limit access to advice and products that currently exist? 

Witness responses to questions submitted for the record were not received 

by time of printing.