OMB has new procedures for agencies to follow in making significant guidance documents transparent.
We posted an extensive discussion on OMB’s Bulletin on Good Guidance Practices, and recently OMB issued an implementation memorandum. Yesterday we commented on the first task facing federal regulatory agencies: assembling and publishing online lists of guidance documents.
Today we address another fundamental question: What constitutes a “significant” guidance document, an d how is this determination made?
WHAT IS “SIGNIFICANT”?
OMB’s Bulletin on Good Guidance Practices (GGP) defines a “significant” guidance document as:
a guidance document disseminated to regulated entities or the general public that may reasonably be anticipated to:
- lead to an annual effect of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities;
- create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;
- materially alter the budgetary impacts of entitlements, grants, user fees or loan programs or the rights or obligations of recipients thereof; or
- raise novel legal or policy issues arising out of legal mandates, the President’s priorities, or the principles set forth in this Executive order.
See Sec. I(4).
This definition is complicated, but it’s not new. It was first established in Executive Order 12866. The GGP simply borrows the existing language as it applies to regulations and extends it to guidance. An action that would be significant if issued as a regulation is significant if issued as guidance. Agencies have 14 years’ experience interpreting this language as it applies to regulation, so they should have little difficulty applying it to guidance.
Many readers are unfamiliar with (or have long since forgotten) the text of EO 12866, so the discussion below may serve as either an introduction or a refresher.
First, notice that the four numbered elements of the definition are linked with “or.” this means triggering any one of the four is sufficient to make a guidance document “significant.” Also, the decision maker must exercise judgment concerning whether the criteria that follow “may reasonably be anticipated.”
Now, let’s examine each of the numbered criteria separately.
1. Lead to an annual effect of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities
It’s not obvious what’s included and what’s not. The $100 million threshold is straightforward, but what’s being measured is not. The term “effects” is not defined in the GGP or in its parent Executive Orders 12966 and 13422. Because OMB knows other terms that are more clearly defined, such as costs and benefits, but chose not to use them, it’s reasonable to infer that “effects” has a broader meaning. One good reason for using a broader term is that the redistribution of an asset or a liability is neither a cost not a benefit, as those terms are defined by economists, but they are clearly important. For these reasons, we infer that the term “effect” encompasses all such changes.
Second, the $100 million “effects” threshold is but one way that a guidance document could become significant. A guidance document also is significant if it affects “adversely and in a material way”–
- the economy
- a sector of the economy
- the environment
- public health or safety
- State, local, or tribal governments or communities
It’s easy to get lost in the weeds of this list and miss the critical part of the text, which isn’t in the list, which is designed to be exhaustive rather than constraining.
First, only effects that are adverse are covered. Effects that are beneficial are exempt.
Second, effects must be more than just adverse; their adversity must be material.What is a material effect?
Material is not a scientific or technical term; it’s a legal word. Black’s Law Dictionary(5th ed) defines material as:
Important; more or less necessary; having influence or effect; going to the merits; having to do with matter, as distinguished from form.Representation relating to mater which is so substantial and important as to influence party to whom made is “material.”
In a regulatory context, a guidance document therefore is material if it influences how a regulated party chooses to act in response to a regulation. (To influence how a regulated party chooses to It act, a guidance document need not be dispositive; that level of control goes well beyond the definition of material and implies a controlling effect. Normally, we would infer controlling effects only from regulations.)
This hints at the nature of the implementation challenge ahead. To reduce the burden of inventorying and publicizing guidance documents, as the GGP now requires, agencies will have a strong incentive to construe as many guidance documents as possible to be non-significant. But guidance documents that agencies define as non-significant must per se have no influence on the behavior of regulated parties. It’s as if the affected public need not bother ever learning about them because, in the eyes of the issuing agency, they really don’t matter.
This suggests a useful three-part heuristic. A guidance document meets the materiality test if any of the following conditions applies:
- The agency suggested or recommended adherence to its provisions, or intended it to influence behavior, or applied it to a regulated party
- A regulated party was influenced
- A regulated party would have been influenced if it had known about it
In short, guidance documents have effects that are either beneficial or adverse. If the effects are beneficial, the guidance is exempt from the GGP. If the effects are adverse, then the guidance is “significant” if these effects are material.
The GGP requires agencies to inventory and publish a web-based list if all significant guidance documents on or before August 23, 2007. Guidance documents that do not make this list are presumptively non-significant, meaning that their effects are either (a) beneficial or (b) adverse but de minimis.
2. Create a serious inconsistency or otherwise interfere with an action taken or planned by another agencyAny guidance document issued by Agency X that conflicts or interferes with Agency Y is significant.
To “create a serious inconsistency” or “otherwise interfere” is sufficiently broad as to capture virtually any interagency conflict. It is OMB’s institutional role to referee interagency conflicts.
A regulation or guidance document whose effects are not “adverse” (criterion #1 above) still may be significant because of interagency conflicts.
3. Materially alter the budgetary impacts of entitlements, grants, user fees or loan programs or the rights or obligations of recipients thereof
This criterion needs to be parsed into two components:
- materially alter the budgetary impacts of entitlements, grants, user fees or loan programs; or
- materially alter .. the rights or obligations of recipients thereof
Component (a) concerns the federal budget irrespective to whether it has “effects,” or whether they are “adverse.” Component (b) concerns those who benefit from or are burdened by budgetary effects. In sum, this language ensures that any guidance document of concern to the “budget side” of OMB is “significant.”
4. Raise novel legal or policy issues arising out of legal mandates, the President’s priorities, or the principles set forth in this Executive order.
Though this criterion is something of a catch-all, what’s being caught is peculiar to the separation of powers inherent to American governance. A “legal mandate” may be statutory (i.e., originating with Congress) or judicial (i.e., the result of judicial action). In either case, guidance implementing or responding to such a mandate is significant if it raises “novel legal or policy issues.” Completing the triumvirate, any guidance that arises from a presidential initiative, policy or other action also may be significant under such circumstances.
The GGP (defines “novel legal or policy issues.” The general understanding is that anything that sets a precedent, however immaterial or insignificant it might be in substance, becomes significant if it is precedential.
HOW IS THE SIGNIFICANCE OF A GUIDANCE DOCUMENT ASSESSED?
Executive Order 13422 extended the existing centralized review procedures for regulations to guidance documents. The EO, in combination with the GGP and the implementing memorandum, direct agencies to establish new or modified procedures to make initial determinations. Ultimately the decision rests with OMB, which is consistent with the oversight and supervisory roles it has been assigned by statute or delegated by the president.
These new procedures apply to newly issued guidance documents. However, by August 23, 2007, agencies must list all their currently applicable guidance documents and publish this list online. That means they must first assemble all their guidance documents in one place, and second, they must classify each one as “significant ” or “non-significant.”
The criteria for classification are the same, but classification errors are bound to occur. Neutral Source will monitor the process and update readers on the agencies’ progress. We’ll also examine the lists as they are published and analyze their usefulness for the regulated community.
“Significant regulatory action” means any regulatory action that is likely to result in a rule that may:
(1) Have an annual effect on the economy of $100 million or moreor adversely affect in a material way the economy, a sector of the economy,productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities;
(2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency;
(3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or
(4) Raise novel legal or policy issues arising out of legal mandates, the President’s priorities, or the principles set forth in this Executive order.