COALITION FOR regulatory innovation www ... · primary scientific questions and the primary policy questions that needed to be answered in drafting the rule.”10 The public, then,

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www.coalitionforregulatoryinnovation.com

I. Introduction

Theconceptoftransparencyis“oftenpositedasanunalloyedgoodandahallmarkofdemocraticgovernment,”for“inademocraticsociety,thepeopleareentitledtoknowhowtheirrepresentativesgovern.”1Thisbasicprincipleenjoyssupportacrossthepoliticalspectrum.Manyobserversagreethattransparencyisessentialtotheregulatoryprocess,asitpromotesfairness,objectivity,andsoundpolicy.

TransparencyenablesCongresstomoreeffectivelyconductoversightofregulatoryagenciesandprovidesthecourtswithinformationnecessarytojudgewhetherregulationsconformtogoverningstatutes.2Italsomakesclearwhetherthebenefitsofregulationsoutweightheircosts.Regulationscanraisepricesforenergyandotherconsumergoods,costingconsumersandbusinessesbillionsofdollars.Thereverseisalsotrue:failuretoregulateappropriatelyandeffectivelycanholdbackinvestmentandpreventneededeconomicgrowth.Assuch,thepublicneedstoknowwhetherwhatthey’repayingforproducesmeaningfulpublichealthandenvironmentalbenefits.

Transparencyisnotanendinitself,butatoolthathelpsimprovepolicyoutcomes.Forexample,greatertransparencycanhelpexposepotentialmistakesofjudgmentandinterpretation.Dr.JohnGraham,formeradministratoroftheWhiteHouseOfficeofInformationandRegulatoryAffairs(OIRA),explainedthatan“analyticmistake”byregulators“cancausenumerouspeopletobecomesickorlosetheirlivesduetoinappropriatelyhighlevelsofenvironmentalpollution.”Moreover,“[i]ferroneousinformationaboutthehazardsofanindustrialchemicalorpesticideisdisseminated,theaffectedcompanycanloseanentireproductlineandpeoplecanlosetheirjobs.”3

PresidentObamaexpressedsupportforthesefundamentalideasinamemorandumtofederaldepartmentsandagenciestitled,“TransparencyandOpenGovernment.”“Transparency,”thePresidentwrotein2009,“promotesaccountabilityandprovidesinformationforcitizensaboutwhattheirGovernmentisdoing.”Moreover,“[o]pennesswillstrengthenourdemocracyandpromoteefficiencyandeffectivenessinGovernment.”4

So,whatdoestransparencymean?Theconcepthasdifferentmeaningsfordifferentstakeholders,policymakers,andevenAdministrations.Aworkingdefinition,derivedinpartfromataskforcereportbytheUniversityofPennsylvaniaLawSchool,includesthefollowingthreeaspects:

1JerryBritoandDrewPerraut,“TransparencyandPerformanceinGovernment,”TheNorthCarolinaJournalofLawandTechnology,11N.C.J.L.&TECH.ON.161(2010)(http://mercatus.org/sites/default/files/publication/Brito%20and%20Perraut%20v11%20161-194.pdf)2“TransparencyandPublicParticipationintheRulemakingProcess:ANon-PartisanPresidentialTransitionTaskForceReport,”byCaryCoglianese,HeatherKilmartin,EvanMendelson,UniversityofPennsylvaniaLawSchool,2008(http://www.hks.harvard.edu/hepg/Papers/transparencyReport.pdf).3TestimonyofDr.JohnGrahambeforetheHouseScienceCommittee,legislativehearingonthe“SecretScienceReformActof2014,”February11,2014(http://docs.house.gov/meetings/SY/SY18/20140211/101743/HHRG-113-SY18-Wstate-GrahamJ-20140211.pdf).4MemorandumfortheExecutiveHeadsofDepartmentsandAgencies,January21,2009(https://www.whitehouse.gov/sites/default/files/omb/assets/memoranda_fy2009/m09-12.pdf)

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• “[T]heavailabilityof,andeaseofaccessbythepublicto,informationheldbythegovernment”;

• “Agencydecisionsareclearlyarticulated,therationalesforthesedecisionsarefullyexplained,andtheevidenceonwhichtheyarebasedispubliclyaccessible”;

• The“variedopportunitiesforcitizens,nongovernmentalorganizations,businesses,andothersoutsidethefederalgovernmenttocontributetoandcommentonproposedrules.”5

Fromthecivictechnologyindustry,afourthaspect,datatransparency,emerges:ifgovernmentsmodernizethetechnologiestheyusetopublishandcollectdata–byadoptingconsistentdatafieldsforinternalcitations,forinstance,orbyusingwebformsthatcanautomaticallyconnecttoaregulatedcompany’ssystems–thentherelationshipbetweengovernmentsandtheprivatesectorbecomemorepredictableandefficient.6

AvailabilityofInformation

Regulatorsfrequentlyrelyoninformation—e.g.,scientificstudiesanddata—toformulaterules.Attimes,suchinformationbecomesadrivingforceforregulatoryaction,andinothersitservesasthebasisfortheregulationsthatagenciesdevelop.Inmanyinstances,agenciesprovidefederalfunding(viagrants)toresearcherstoconductstudiesthatareusedforregulatorypurposes—andnotjustforregulationsperse,butforguidanceandothertechnicaldocuments.

Whentaxpayerdollarsareinvolved,orwhenregulationsarepredicatedoncertainstudies,thepublicshouldhaveaccesstotherawdatainthosestudiestodeterminewhethertheirconclusionscanbe“reproduced”—orindependentlyverified—totesttheiraccuracyandreliability.Thisisafundamentalcomponentofthescientificmethod.Asoneacademicexpertexplained,“[i]fthescientificandtechnicaldataunderpinningthe[regulatory]determinationsarenottransparentandreproducible,itcanbequitedifficultforscientistsinanimpactedcompanyoranyscientisttodeterminewhetherthedeterminationisvalid.”7

Moreover,asnotedabove,havingaccesstorelevantinformationhelpsimprovepolicyoutcomes.Whenpeoplehaveaccesstotheinformationuponwhichtheagencyrelies,“theycanmoremeaningfullyspeaktotheaccuracyandadequacyoftheinformationandtheconclusionsthatanagencychoosestodrawfromit.Betterpubliccommentsfoundedonbetterinformationshouldleadtobetterrules.”8

5Ibidat2.6See,e.g.,“StateoftheUnionofOpenData,2016,”byAlisonGill,AdamHughes,andHudsonHollister,October2016,(http://www.datafoundation.org/state-of-the-union-of-open-data-2016/).7TestimonyofDr.JohnGrahambeforetheHouseScienceCommittee,legislativehearingonthe“SecretScienceReformActof2014,”February11,2014(http://docs.house.gov/meetings/SY/SY18/20140211/101743/HHRG-113-SY18-Wstate-GrahamJ-20140211.pdf).8Ibidat2.

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AccessibleandFullyExplainedInformation

Regulatorsshouldpresentinformationusedinrulemakingsclearlyandcompletely.Inaddition,thepublicshouldhaveopportunitiestounderstandwhetherthatinformationisbeingusedappropriately;thatis,whetheritsuseislawfulandscientificallysound.Suchinformationshouldalsobeeasytofind,andavailabletoall.

Timingisalsoimportant.Regulatorsshouldpresentcriticalinformation,suchasthedatafromscientificstudiesonwhichrulesarebased,earlyintheregulatoryprocess,sothatthepubliccanproperlyevaluateitandincorporatetheirassessmentsintheirrulemakingcomments.“Thelackofmeaningfulaccesstoimportantinformation,”accordingtotheUniversityofPennsylvaniareport,“detractsfromthepublic’sabilitytocontributetotheformulationofbetterrules.”Moreover,“[i]tmeansthattheparticipationthatdoesoccurwilllikelybelessinformed,andthereforepotentiallylesshelpfulormeaningful,thanitotherwisecouldbe.”9

Thisiscriticallyimportantinthecaseofscientificinformationusedforrulemakingpurposes.Scientificinformationshouldbeproperlydistinguished,“orisolated,”asonescholarputit,sothatanagencycanbetterexplain“therolescientificinformationplaysinitsultimatedecisionandexplainshowitensuredthatscientificinformationwasrigorous.”Specifically,theBipartisanPolicyCenterhasrecommendedthat“asectionoftheFederalRegisternoticeforanyproposedguidanceorrulethatisinformedbyscientificstudiesdescribetheprimaryscientificquestionsandtheprimarypolicyquestionsthatneededtobeansweredindraftingtherule.”10Thepublic,then,“hasabasisagainstwhichitcanevaluateboththescientificandpolicyjudgmentsembeddedintheagency’sdecision.”11

PublicParticipation

Anotherfacetoftransparencyinvolvespublicparticipation.Publicparticipationmeans“theinvolvementbycitizens,smallbusinesses,nongovernmentalorganizations,tradeassociations,academicsandotherresearchers,andothersoutsidegovernmentinhelpingdevelopagencyrules.”12FormerEPAAdministratorWilliamRuckelshaus,inhislandmark1983memo,urgedEPAemployeestooperateasif“inafishbowl.”Heestablishedageneralprinciple:“[y]ouareencouragedtoreachoutasbroadlyaspossibleforviewstoassistyouinarrivingatfinalrules.”13

TheAdministrativeProcedureAct(APA)includesprovisionsthatrequirepublicinputatvariousstagesoftherulemakingprocess.Buttherearevalidquestionsaboutwhetherthoserequirementsaresufficient.Bytakingstepstoencouragegreaterinvolvement,andavoidingpreferentialtreatmenttocertaingroupsbasedon

9Ibidat2.10“ImprovingtheUseofScienceinRegulatoryPolicy,”TheBipartisanPolicyCenter:ScienceforPolicyProject,August5,2009(http://bipartisanpolicy.org/wp-content/uploads/sites/default/files/BPC%20Science%20Report%20fnl.pdf)11“ScienceinRegulation:AStudyinAgencyDecisionmakingApproaches,”byWendyWagner,UniversityofTexasSchoolofLaw,Feb.18,2013.(https://www.acus.gov/sites/default/files/documents/Science%20in%20Regulation_Final%20Report_2_18_13_0.pdf).12Ibidat5.13Memorandum,EPAAdministratorWilliamRuckelshaus,May19th,1983(https://www.epa.gov/aboutepa/ruckelshaus-takes-steps-improve-flow-agency-information-fishbowl-policy#memo)

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politicalconsiderations,agenciescancreatea“fairprocess”basedonthenotion“thatallcitizenshavetheabilitytoparticipateandalsothatanagencywilllistentoallinterests.”14

Diversityofviewsandopinionscanleadtobetterpolicyoutcomes.Forexample,inareviewofEPA’sprocessfordevelopingrisk-assessments,theNationalResearchCouncil,inareporthighlycriticalofEPA’sapproach,concludedthat“greaterstakeholderinvolvementisnecessarytoensurethattheprocessistransparentandthatrisk-baseddecision-makingproceedseffectively,efficiently,andcredibly.”15

DataTransparency

MostU.S.regulatoryagenciestypicallypublishproposedrulesasdocuments,usingPDForotherdocumentformats.Similarly,mostagenciesusedocument-basedformstocollectcompliancereportsfromtheentitiesthattheyregulate.

Byreplacingdocumentswithdata,agenciescouldmaketheseprocessesmoreopenandefficient.Forexample,theConsumerFinancialProtectionBureaupublishesitsregulationsinadataformatthatallowsthepublictonavigateinternalreferenceselectronicallyandtrackrevisionsovertime.16Similarly,thegovernmentofAustraliaadoptedasingledataformatforalltheinformationthatmultipleregulatoryagenciescollectfromtheprivatesector.17Becausethedatafieldscollectedbymultipleagencies–companies’names,IDnumbers,andfinancialfigures,forinstance–areexpressedconsistently,Australiancompanies’softwaresystemscanautomaticallyreporttomultipleagenciesatonce.Thisreform,knownas“StandardBusinessReporting,”savesAustraliancompaniesover$1billioninannualcompliancecosts.18

II. TheProblem

WhiletheAPAandotherexecutivedirectivesrequiretransparencyintheregulatoryprocess,moreneedstobedone.Withmoreandmorerulesimposingbillionsofdollarsofregulatorycompliancecostsonbusinessesofallsizes,itisimperativethatthepublichaveaccesstothetechnicaldatathatregulatorsfrequentlyrelyontomakedecisions.Moreover,theregulatoryprocessmustensurethatallvoicesareheardduringrulemakings—andthatagenciesarepreventedfromfavoring,orinsomecasesactivelycolludingwith,intereststhatsharetheirpoliticalpersuasions.

It’sfartoocommonthatagencieshaveregulatedwithoutsharingtheessentialunderlyinginformationonwhichmajorrulesrest.ConsiderthecaseoftheEnvironmentalProtectionAgency(EPA).Forovertwodecades,theagencyhasreliedontwolong-termstudiesconcerningtheassociationbetweenparticulatematterandmortalityasthebasisforestablishingnationalambientairqualitystandardsandotherregulations

14RTIActinIndia:FuturesandImplications,PankajKPShreyasgar,McGraw-Hill2013.15“ScienceandDecisions:AdvancingRisk-Assessment,”reportbytheNationalResearchCouncil,2009(http://www.nap.edu/download.php?record_id=12209#).16See“AbouteRegulations,”ConsumerFinancialProtectionBureau(https://www.consumerfinance.gov/eregulations/about).17See“StandardBusinessReporting:OpenDatatoCutComplianceCosts,”byHudsonHollister,JosephKull,MichaelMiddleton,andMichalPiechocki,March2017(http://www.datafoundation.org/standard-business-reporting-2017/).18Ibid.

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undertheCleanAirAct.BothCongressandoutsideresearchershaverequestedtoobtaintheunderlyingdatasetstotestthestudies’reliability.DespitetheserequestsEPAhasfailedtocomplythusfar,allthewhilecontinuingtopublishfar-reachingruleswhosebenefitscannotbeconfirmedbutoutsideparties.

Otherregulatoryagencieshavesimilarlyfailedthetransparencytest.A2013bulletinpublishedbytheCFPBpressuredlendinginstitutionstoeliminateautodealer'sabilitytoofferdiscountedautoloanstoconsumers.Thisguidancewasissuedwithoutanypriornoticeanddidnotallowforpubliccommentorhearingsontheissue.TheCFPBneveranalyzedtheimpactofitsguidanceonconsumersandthisactionhasmadeautoloanslessaffordableandaccessibleforthemarginallycreditworthyandcouldpushthemoutoftheautomarket.19NationalAutomobileDealersAssociationChairmanDavidWestcottcriticizedtheagencyforitslackoftransparency,writing,"Whenafederalagencyseekstoupendanenormouslyefficient$783billionmarket,itshouldonlydosoinamannerthatistransparent,thoroughlyresearched,andthatbenefitstheinteragencycoordinationandpublicfeedback."20

In2012,theConsumerFinancialProtectionBureau(CFPB)collecteddataondebitoverdraftpracticesfrom9banks.21Criticschargedthatchoosing“9”wasconspicuous,asitappearedtodeliberatelyavoidtriggeringthePaperworkReductionAct.ThatactrequirespubliccommentandasubmissionforreviewtoOMBwheneverafederalagencyseeksinformationfrom10ormoreparties.In2013,theCFPBpublishedtheresultsofitssearchinawhitepaper.Yetascriticsnoted,“NeitherthestructureofthesurveynorthedataitgatheredweremadeavailableforpublicreviewandcommentotherthanwhatwasselectivelyofferedintheBureau’swhitepaper.”ThevalidityoftheBureau’sinitialdatafindings“couldnotbereviewed—letalonetested—bythepublic.”

Improveddatastandardsarenecessary,especiallyforscientificdata,as"scientistsmightinterpretresearchdataandtheirpolicyimplicationsdifferently"and"opposinginterestgroupsmightbringconflictingscientificdatatobearondecision-making,"accordingtotheCongressionalResearchService.22Greateraccesstodatawouldinspirepublicconfidenceintheintegrityofthegovernment'sruleandallowthepublictoreplicatethegovernment'sanalysesandtherebyeitherrefuteorconfirmthefindingsusedtojustifytheregulation.

Today,notonlyaredatahiddenorobscured,butmanyofthelegalmandatesissuedbythebureaucracyoccur“undertheradar.”Agencieschooseotheravenues,suchas“guidancedocuments,”toavoidpublicparticipationandtheusualrequirementsofrulemaking.ThisphenomenonisdescribedbyClydeWayneCrews,Jr.,as“regulatorydarkmatter,”whichconsistsofthe“proclamationsandissuances,includingmemos,guidancedocuments,bulletins,circulars,andannouncementswithpracticalregulatoryeffect.”23Theproblem,asCrewsnotes,stemsfromthestructureoftheAdministrativeProcedureAct(APA),whichdoesnot

19SeeNationalAutomobileDealersAssociationissuebrief,"CongressUrgedtoPreserveConsumerDiscountsonAutoCredit."(https://www.nada.org/WorkArea/DownloadAsset.aspx?id=21474849417)20"NADAChairman:'CFPBGuidanceLacksTransparencyandResearch,'"May30,2013(http://www.fi-magazine.com/channel/compliance/news/story/2013/05/nada-chairman-cfpb-guidance-lacks-transparency-and-research.aspx)21TheDCCircuitCourtofAppealsruledonOct.11,2016thattheCFPB’sstructureisunconstitutional:https://www.cadc.uscourts.gov/internet/opinions.nsf/AAC6BFFC4C42614C852580490053C38B/$file/15-1177-1640101.pdf.22Fischer,EricA.“PublicAccesstoDatafromFederallyFundedResearch:ProvisionsinOMBCircularA-110.”CongressionalResearchService.01Mar.2013.23“MappingWashington’sLawlessness2016:APreliminaryInventoryofRegulatoryDarkMatter,”byClydeWayneCrews,Jr.,December2015(https://cei.org/sites/default/files/Wayne%20Crews%20-%20Mapping%20Washington%27s%20Lawlessness.pdf).

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applyto“interpretativerules,generalstatementsofpolicy,orrulesofagencyorganization,procedure,orpractice.”24

Accordingtoarecentstudy,agenciesavoidedthe“notice-and-commentprocess”inalmost52percentofregulationsfinalizedfrom1995to2012.25Agencieshaveexploitedthelegalambiguitiessurroundingregulatorydarkmatter.DePaulUniversitylawprofessorDavidFranklinpointsoutthatthe“distinctionbetweenwhatisbindingregulationandwhatisexemptfromnoticeandcommenthasbeencalled‘tenuous,’‘baffling,’and‘enshroudedinconsiderablesmog.’”26AstheD.C.CircuitobservedinAppalachianPower:

Thephenomenonweseeinthiscaseisfamiliar.Congresspassesabroadlywordedstatute.Theagencyfollowswithregulationscontainingbroadlanguage,open-endedphrases,ambiguousstandardsandthelike.Thenasyearspass,theagencyissuescircularsorguidanceormemoranda,explaining,interpreting,definingandoftenexpandingthecommandsinregulations.Oneguidancedocumentmayyieldanotherandthenanotherandsoon.Severalwordsinaregulationmayspawnhundredsofpagesoftextastheagencyoffersmoreandmoredetailregardingwhatitsregulationsdemandofregulatedentities.Lawismade,withoutnoticeandcomment,withoutpublicparticipation,andwithoutpublicationintheFederalRegisterortheCodeofFederalRegulations.27

Finally,U.S.agencies’failuretoadopttransparentdatatechnologiesfortheregulatoryprocessimposesunnecessarycosts.A2011studyfoundthatalargeU.S.companywasobligedtoreportsubstantiallythesameinformation,formatteddifferently,totheSecuritiesandExchangeCommission,FederalReserve,CensusBureau,andBureauofEconomicAnalysis.28

III. Solutions

Topreventtheseabusesfromoccurring,Congressshouldenactpoliciesthatincreasetransparency,withthegoalofenhancingthecredibilityandlegitimacyoftheregulatoryprocessandimprovingregulatoryoutcomes.ThereareseveralstepsthatCongresscantaketoachievetheseresults.Examplesincludethefollowing:

• Beforeagenciesproposeorfinalizerulesorguidancedocuments,theymustfirstpubliclyreleaseallrelevantunderlyingdataandtechnicalinformationsupportingthem.Morespecifically,astheBipartisanPolicyCenterhasrecommended,“studiesusedintheformulationofregulationshouldbesubjecttodataaccessrequirementsequivalenttothoseundertheDataAccessAct(ShelbyAmendment)anditsimplementingcircularregardlessofwhofundedthestudy.”Thereleaseofsuchdatashouldenableindependentresearcherstoindependentlyanalyze,andattempttoreproduce,anyresearchresultsonwhichagenciesrelytoformulaterulesorguidance;

24P.L.79-404,Section553.25ConnorRaso,“AgencyAvoidanceofRulemakingProcedures,”AdministrativeLawReview67,No.1(2015):101-167.26DavidL.Franklin,“LegislativeRules,NonlegislativeRules,andthePerilsoftheShortCut,”YaleLawJournal,Vol.120,No.2,November2010,pp.276-326,http://www.jstor.org/stable/20799513?seq=1#page_scan_tab_contents.27AppalachianPowerCo,etalv.EPA,No.99-1200(D.C.Cir.2003)28“BetterDataforBetterDecisions:StandardstoImproveCorporateGovernmentReporting,”reportbyXBRLUS,October2011(https://xbrl.us/wp-content/uploads/2011/12/BetterReporting.pdf).

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• Agenciesmustprominentlyandinatimelyfashiondisclosemeetingswithinterestgroupspertainingtospecificrulemakingsandothersignificantagencypolicymakingdecisions.Theyalsomustestablish“opendoor”protocolstoensurebroad-basedinvolvementthroughouttheentireprocessofdevelopingthoserulesordecisions;

• Withrespecttoguidancedocuments(andotherregulatory“darkmatter”referencedabove),Congressshouldmandatethatfederalagenciespublishadvancednoticesbeforeproposingguidancedocuments;engageinnoticeandpubliccommentbeforefinalizingguidancedocuments;releasealldataonwhichtheguidanceisbased;provideacost-benefitanalysisofanyrequirementsneededtoconformtotheguidance;andrequirethatguidanceisnotlegallybinding.

• Agenciesshouldadopttransparentdatatechnologiestomodernizethewaytheypublishrulesandcollectcompliancereports.

Greatertransparencyandpublicparticipationintheregulatoryprocesscanhelpexposecriticalerrorsinanalysisandflawsindatathatcanimpairthequalityofregulations—whichcanleadtoruleswithcoststhatfaroutweighanybenefitstosociety.Moreover,makingpublictheempiricalandscientificfoundationsofrulemakingswillinstilldisciplineinregulatorsandleadtoasmarter,moreresponsiveregulatoryprocessthatfacilitateseconomicgrowthwhilepreservingkeyprotections.Finally,datatransparencywillmakecompliancecheaper–ifagenciescompleteatransformationfromdocument-basedprocessestodata-centricones.

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COALITION FOR regulatory innovation www ... · primary scientific questions and the primary policy questions that needed to be answered in drafting the rule.”10 The public, then,

Documents