Fed proposes to unilaterally broaden regulatory authority

The Checks and Balances Letter delivers news and information from Ballotpedia’s Administrative State Project, including pivotal actions at the federal and state levels related to the separation of powers, due process and the rule of law.

This edition:

In this edition, we review President Donald Trump’s (R) nominee to serve as the administrator of the Office of Information and Regulatory Affairs (OIRA); advocacy efforts by the San Francisco Federal Reserve Bank to address climate change; a Trump administration challenge to the constitutionality of the Consumer Financial Protection Bureau; a proposed rule from the United States Department of Agriculture to limit states’ expansion of food stamp eligibility; and a series of executive orders from President Trump targeting administrative practices.

At the state level, we review a fight between the Kansas governor and attorney general over the proper means of instituting the state’s strict new online sales tax; a multi-state challenge to new Endangered Species Act rules; and the violation of a court order by a Texas agency.

As always, we wrap up with our Regulatory Tally, which features information about the 159 proposed rules and 276 final rules added to the Federal Register in September and OIRA’s regulatory review activity.

The Checks and Balances Letter

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In Washington

Fed proposes to unilaterally broaden regulatory authority

What’s the story? The San Francisco Federal Reserve Bank is preparing to host a November 8th conference on climate change—a subject upon which several of the central banks are increasingly active.
The bank has proposed including what it called green finance in the credits awarded to banks under the Community Reinvestment Act (CRA). The act, passed in 1977, monitors bank lending in low-to-moderate income communities. The proposed climate adaptation loans would be targeted for low-to-moderate income communities to respond to what it calls the “shocks and stresses of climate change.”
The proposal would allow the Fed to reinterpret the scope of its authority under the CRA.
The Federal Reserve Banks of Richmond and Dallas have also been active on climate-related issues. The Richmond Fed issued a report in 2018 claiming that rising summer temperatures could reduce economic growth. The Dallas Fed issued a report in July 2019 arguing that increased severe weather activity could have negative economic consequences.
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Trump administration asks SCOTUS to rule on CFPB constitutionality

What’s the story? The Trump administration filed a brief with the United States Supreme Court (SCOTUS) on September 17 in Seila Law v. Consumer Financial Protection Bureau (CFPB) arguing that the CFPB is unconstitutional and asking the court to weigh in.
The Trump administration asserts in its brief that the CFPB structure violates the separation of powers because it prevents the president from unilaterally firing the agency’s single director.
Selia Law, a national law firm, challenged the constitutionality of the bureau’s structure because its single director is only removable for cause. According to the firm, “the importance of the [separation of powers] question presented [by this case] cannot be overstated.”
The 9th Circuit Court of Appeals on May 6 upheld the bureau’s structure as constitutional, concluding that the for-cause removal protections are similar to those of the Federal Trade Commission (FTC) (which were upheld by the United States Supreme Court in the 1935 case Humphrey’s Executor v. United States).
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USDA challenges states’ expansion of food stamp eligibility

What’s the story? The U.S. Department of Agriculture (USDA) received more than 14,700 public comments by the September 23 deadline on a proposed rule to limit categorical eligibility—a policy that allows recipients of other forms of public assistance to qualify automatically for the Supplemental Nutrition Assistance Program (SNAP), commonly known as food stamps.
The Food and Nutrition Act of 2008 requires that households receiving means-tested benefits from the Temporary Assistance for Needy Families program be eligible to also receive federal SNAP benefits.
The USDA claims that some states have broadened the parameters of categorical eligibility to include programs that either do not require means-testing or have requirements that exceed SNAP eligibility. The agency estimates that 3.1 million SNAP recipients in 2020—roughly 8 percent of all SNAP recipients— will qualify through expanded categorical eligibility.
The proposed rule would redefine the type of benefits that confer categorical eligibility; and require state agencies to report all TANF benefits that qualify for categorical eligibility to the USDA.
Opponents argue that the Food and Nutrition Act grants states the authority to confer categorical eligibility, and any change to categorical eligibility would require action by Congress. The USDA asserts that the proposed rule does not change the law, but rather updates the regulations governing categorical eligibility requirements.
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Trump nominates new OIRA administrator

What’s the story? President Donald Trump (R) on October 1 announced his nomination Paul Ray to serve as the next administrator of the Office of Information and Regulatory Affairs (OIRA). Ray has been the acting administrator of the office since the departure in March of former OIRA Administrator Neomi Rao (who replaced Brett Kavanaugh on the United States Court of Appeals for the District of Columbia Circuit).
As the head of OIRA, Ray would oversee the Trump administration’s regulatory review process as well as its information collection requests, statistical practices, and privacy policies. OIRA’s regulatory review responsibilities include reviewing and coordinating significant regulatory actions by federal agencies.
“OIRA’s cost-benefit review ensures that agencies disclose their rules’ anticipated impacts, which is critical for public transparency and accountability,” said Ray at a September 13 administrative law conference at George Mason University’s Antonin Antonin Scalia Law School.
Ray joined OIRA as associate administrator in March 2018. He previously served as counselor to former Labor Secretary Alexander Acosta and as an associate with the law firm Sidley Austin LLP. Ray formerly clerked for Justice Samuel Alito on the Supreme Court.
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Trump issues executive orders to prohibit binding guidance, control agency spending

What’s the story? President Donald Trump (R) issued three executive orders on October 9 and 10 that aim to limit the use of guidance documents by federal administrative agencies, require agencies to provide fair notice of regulations, and control agency spending.
The first executive order prohibits agencies from issuing binding regulations through guidance documents. The order clarifies that agencies can only issue binding regulations through the rulemaking process or case-by-case adjudication.
The second executive order aims to curb what the order refers to as administrative abuses by prohibiting agencies from enforcing rules without first providing advance notice to the public.
The final executive order seeks to restore the principle of administrative pay-as-you-go (PAYGO)—a requirement that agencies include one or more proposals to reduce mandatory spending alongside a proposal to increase discretionary spending—by instructing agencies to submit administrative PAYGO proposals to the director of the Office of Management and Budget for review.
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In the States

Kansas officials quarrel over online sales tax

What’s the story? Kansas Attorney General Derek Schmidt (R) on September 30 issued a legal opinion calling on Governor Laura Kelly (D) to rescind the state’s new policy for collecting online sales tax. The policy, issued by the Department of Revenue, is considered one of the strictest in the nation because it does not include exemptions for small businesses.
The policy was made to comply with the United States Supreme Court decision in South Dakota v. Wayfair Inc., in which the court held that states can collect online sales tax even if the vendor does not have a physical presence in the state.
Schmidt argues that the Kelly administration exceeded its authority by unilaterally imposing the policy change through a notice. Instead, the agency should have instituted the policy through the rulemaking process, which requires public hearings and review by officials outside the department, Schmidt says.
“This is about protecting our friends and neighbors doing business on Main Street and throughout our local communities across Kansas,” said Kelly in response to Schmidt’s opinion. “They are working hard, playing by the rules and deserve to be on a level playing field with out-of-state retailers.”
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Multi-state coalition challenges new Endangered Species Act rules

What’s the story? A coalition of 17 states filed suit against the Trump administration on September 25 claiming that three new rules for enforcing the Endangered Species Act (ESA) are “arbitrary-and-capricious.”
Trump administration officials say that the new rules reduce the regulatory burden of the ESA and increase agency transparency. Opponents argue that the changes limit the authority of agencies to respond to perceived problems.
The Administrative Procedure Act instructs courts reviewing agency actions to invalidate any that they find to be “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”
The coalition filed suit in the United States District Court for the Northern District of California. The states joined in the lawsuit are California, Massachusetts, Maryland, Colorado, Connecticut, Illinois, Michigan, Nevada, New Jersey, New Mexico, New York, North Carolina, Oregon, Pennsylvania, Rhode Island, Vermont, and Washington.
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Texas officials admit to violating court order

What’s the story? Bryan Collier, executive director of the Texas Department of Criminal Justice (TDCJ), admitted in federal court on September 10 that the agency violated a settlement agreement requiring the placement of some inmates in air conditioned housing.
A group of inmates in the William Pack prison sued the department in 2014 for keeping them in housing where temperatures routinely exceeded 100 degrees. Seventy-five Texas prisons do not have air conditioning in inmate housing.
The state agreed last year to install air conditioning in the Pack prison and to keep the inmates involved in the lawsuit in air conditioned housing even if transferred to other facilities.
But inmates subject to the settlement filed a lawsuit on August 30 asserting that the state had repeatedly violated the court order and attempted to conceal its wrongful actions.
Collier testified that the agency had failed to adhere to the order and that officials were working to achieve compliance.
Ellison gave TDCJ officials 21 days to file a written briefing before determining sanctions against department officials.
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Artificial intelligence and agency transparency

A new paper by Michèle Finck, “Automated Decision-Making and Administrative Law,” examines the growing role of artificial intelligence (AI) in administrative law and its potentially negative consequences for transparency. Finck notes that AI tools, such as algorithms and predictive analytics, have been harnessed by administrative agencies to improve operations. However, she argues that the potential for AI to replace human decision making poses challenges for agency transparency. Finck concludes that AI systems can conceal both intentional and unintentional biases, make it difficult for citizens to contest outcomes, and pose security concerns for agencies.

The following excerpt from Finck’s paper highlights potential AI consequences for agency transparency:

“The resulting lack of transparency may prevent citizens from publicly challenging alleged rule violations in the courts, which, in effect, prevents aggrieved citizens from obtaining a legal remedy. Such circumstances are, of course, problematic from the perspective of the citizen but also from the perspective of the overall system of public accountability as those breaching legal principles are no longer held responsible, and the role of judicial review, which also serves as a dynamic feedback loop for lawmakers, is furthermore undermined.
“The transparency gap as a matter of fact risks breaching established administrative law principles in many jurisdictions. In the United States, concerns have been voiced regarding the compatibility of computational learning with constitutional due process guarantees. Here, administrative agencies are required to provide adequate procedural safeguards when taking certain decisions, including securing respect for the right to be heard.22 ADM, however, raises the question of how related procedural guarantees, such as an aggrieved party’s right to cross-examination, could be guaranteed.”
Click here to read the full paper.

Regulatory Tally

Federal Register

  • The Federal Register in September reached 51,936 pages. The number of pages at the end of each September during the Obama administration (2009-2016) averaged 59,770 pages.
  • The September Federal Register included 159 proposed rules and 276 final rules. These included new hour regulations for truck drivers, a defense procurement agreement with Australia, and revised safety standards for infant bath seats, among others.
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Office of Information and Regulatory Affairs (OIRA)

OIRA’s September regulatory review activity included:
  • Review of 42 significant regulatory actions. Between 2009-2016, the Obama administration reviewed an average of 45 significant regulatory actions each September.
  • Approved three proposed rules without changes.
  • Recommended changes to 35 proposed rules.
  • Agencies improperly submitted two rules.
  • Agencies withdrew two rules from the review process.
  • As of October 1, 2019, the OIRA website listed 129 regulatory actions under review.
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