On April 5, 2017, the Trump Administration issued guidance on Executive Order (EO) 13771, “Reducing Regulation and Controlling Regulatory Costs.” The guidance, published by the Office of Information and Regulatory Affairs (OIRA), provides details on the policy established by the January 30, 2017 executive order that requires agencies to repeal two existing regulations for each new regulation they promulgate. This guidance supersedes the previous interim guidance published in February, and it reflects OIRA’s consideration of the comments received in response to the interim guidance.

EO 13771 mandates that for every new regulation issued, at least two prior regulations should be eliminated. For fiscal year (FY) 2017 and moving forward, the heads of all agencies are directed that the total incremental cost of all new regulations, including the cost savings associated with eliminating the two prior regulations, must be no greater than zero—unless otherwise required by law or consistent with written advice of the director of the Office of Management and Budget (OMB). The term ”total incremental cost” means the sum of all costs from EO 13771 regulatory actions minus the cost savings from EO 13771 deregulatory actions.

It appears that the EO is based solely on “cost.” In the interim guidance, the administration dictated that “costs” are to be measured as the “opportunity cost to society” and referenced OMB Circular A-4 to define this concept. In the April guidance, the administration dictated that “opportunity cost” would equal the sum of consumer and producer surplus, minus any fixed costs, and also referenced OMB Circular A-4. OMB Circular A-4, issued Sept. 17, 2003, does not actually define “opportunity cost to society.” Instead, it provides guidance for conducting a cost-and-benefit analysis as required by Executive Order 12866 issued by President Clinton in 1993, which applies to rulemakings that establish new rules as well as those that rescind or modify existing rules. OMB Circular A-4’s only reference to “opportunity cost” describes the concept in terms of “willingness-to-pay,” or the measure of “what individuals are willing to forego to enjoy a particular benefit,” as well as the amount of compensation individuals are “willing to accept” to forego the benefit. The OMB Circular A-4 may well be unhelpful in making a “zero-cost” analysis, as EO 13771’s focus is on monetary costs, and “opportunity costs” are difficult to estimate. Indeed, it is difficult to imagine a situation for implementing a regulation or even deregulating in which the cost is “zero.”

The April guidance notes that, in general, agencies can comply with the requirements of the EO by issuing two “deregulatory actions” for each new “regulatory action.” Beginning with FY 2018 and moving forward, the EO requires OMB to identify for each agency the total amount of incremental costs for all deregulatory and regulatory actions finalized during the fiscal year, based on the information that was submitted to OMB by each agency. The guidance defines “EO 13771 regulatory actions” as either: 1) a “significant regulatory action” (i.e., has an annual effect on the economy of $100 million or more, among other things. See EO 12866 3(f)) that has already been finalized and that imposes total costs greater than zero, or 2) a “significant guidance document” with costs above zero that has been finalized. The guidance further defines a “significant guidance document” as one that is reasonably anticipated to have a major impact on the economy, create inconsistency with an action taken or planned by another agency, materially alter the budgetary impact or entitlements, grants, user fees, or loan programs or the rights and obligations of the recipients thereof, or raise novel legal or policy issues.

The guidance defines a “deregulatory action” as an action that has been finalized and has total costs less than zero. It is unclear from the EO and guidance what “total costs less than zero” means. A “deregulatory action” qualifies as both: (1) one of the actions used to satisfy the provision to repeal or revise at least two existing regulations for each regulation issued, and (2) a cost savings for purposes of the total incremental cost allowance. “Deregulatory actions” can be issued in multiple forms, including rulemaking, guidance or interpretive documents, certain actions related to international regulatory cooperation, and information-collection requests that repeal or streamline recordkeeping, reporting, or disclosure requirements.

EO 13771 applies to each “executive department or agency,” but leaves a number of government regulatory functions outside of its scope. These include agencies involved in military, national security, and foreign affairs functions, as well as any government organization arising from the Legislative or Judicial branches. Also exempt are regulations that are legislative rules that qualify for a “good cause” exemption or for which compliance with the terms of EO 13771 would be impracticable or contrary to the public interest. Importantly, the guidance does not indicate which entity is ultimately responsible for making such determinations. Some other exemptions include expressly exempt actions, emergency actions, statutorily or judicially required actions, and de minimis actions.

On its face, EO 13771 could have a significant impact on the pace of federal rulemaking during the Trump Administration, however it remains to be seen what the practical impact of the EO will be. Further, it appears based on the EO itself and the guidance published thus far, it will be difficult for agencies to determine “cost” of implementing and eliminating regulations.

Note: There will be more guidance forthcoming relating to other aspects of the EO, such as Section 3, which concerns the “Annual Regulatory Cost Submissions to the Office of Management and Budget.” Hopefully the forthcoming guidance will shed more light into the EO and its requirements.