The two most basic practical problems in implementing a regulatory budget system concern politics and legality. The first problem has to do with whether a regulatory budget could, or should, be established administratively rather than through legislation. The second problem concerns the authority of the President to enforce the constraints of a

regulatory budget system.

A.        Administrative vs. Legislative Establishment of a Regulatory Budget

A question frequently asked by those in the Federal government (especially the executive branch) who are interested in the idea of a regulatory budget is whether it could be adopted administratively without new legislation.

There appear to be two principal reasons for the interest in an administrative regulatory budget.  First, as noted in Chapter 1, the budgeting of regulatory compliance costs is viewed as a logical next step in the evolution of the reform efforts that began with the "Quality of Life Review" under President Nixon and evolved into President Ford's “Inflation Impact Statement" program and President Carter's "Improving Government Regulations" program. All of those efforts were instituted by executive action without legislation.

Second, the legislative politics of enacting a regulatory budget into law appear daunting. The budgeting process would affect programs under the supervision of virtually every committee of the Congress. It could also affect the division of political authority between the executive and legislative branches.

On strictly legal grounds, a strong brief could be written for the position that the President has the constitutional authority to institute a regulatory budget by executive action. While the matter might ultimately have to be settled in the courts, the regulatory budget as outlined in Chapter 1 would pertain to procedures and practices that are well within the scope of executing the laws passed by the Congress—traditionally, the exclusive preserve of the executive branch of the Federal government.

On closer scrutiny, however, an administrative regulatory budget would suffer from a defect so grave as to render it not worth the effort. It would ignore the crucial political function of the regulatory budget—that of compelling general agreement on an overall limit to Federal regulatory activities, quite apart from the merits or demerits of particular regulatory actions. Such a political function must perforce include the Congress in a systematic manner. By extension, a workable regulatory budget system would have to be developed jointly by the administration and the Congress, and then enacted into law. Thus, the legislative politics of a regulatory budget, however daunting, would have to be confronted.

The late 1970s have been a time of retrenchment in American politics, characterized by efforts to consolidate the activities of government after the boom years of the 1960s and 1970s. During the past decade many of the traditional institutions and ideas that had limited the role of government in American life—for example, the congressional seniority system; the coalition of Republicans and southern Democrats; and the dominance of the political parties in selecting and promoting public officials—were greatly weakened or collapsed altogether. There is today little or no disposition either to revive the discarded political institutions or to repeal the legislation that followed their demise. Nevertheless, the current era is one of searching for new—and more formal—institutions of political discipline.

The most conspicuous and controversial attempts to establish new forms of political discipline have been directed at fiscal limitation. An early instance, in 1973-74, was President Nixon's policy of selective impoundment: of congressional appropriations. The policy provoked furious opposition in the Congress and elsewhere, and it fared poorly in the courts. Even .so, it did spur Congress to take major steps, such as the establishment of budget committees and a Congressional Budget Office, to exert more control over legislative appropriations.

More recently, there have been numerous attempts to place explicit institutional restrictions on the size and scope of government. A number of referendums and proposed Constitutional amendments to limit state taxing or spending have passed, such as California's Proposition 13. Currently there are efforts to amend the U.S. Constitution to tie Federal expenditures to economic growth, or to require a balanced fiscal budget.

The regulatory reform movement is perhaps less controversial than the fiscal limitation movement, but it is motivated by the same quest for new forms of governmental restraint. Efforts to reform the Federal regulatory process reflect a desire to consolidate and better manage the enormous growth of regulation since the late 1960s. There is also a concern to reduce the impact of regulation on the U.S. economy.

Thus, regulatory reform is the policy complement of fiscal limitation. Regulation differs from fiscal action in that it promotes policy objectives not by the spending of public funds, but rather by causing private funds to be spent differently than they otherwise would have been. As the Federal government's direct administrative expense on regulation is relatively small, and as at present the other costs of regulation are not accounted for in government decision making, the Federal government has a built-in incentive to increase its reliance on regulation for the pursuit of social goals. Success in imposing fiscal limitation (such as the proposed constitutional amendments currently being debated) would serve to sharpen that incentive. Thus, the efforts to tighten fiscal discipline in the absence of a corresponding effort to tighten regulatory discipline could give the paradoxical result of reducing rather than increasing the political accountability of government.

One need not, however, favor tighter fiscal discipline to favor regulatory reform in general, or a regulatory budget in particular. A regulatory budget would be a counterpart of the fiscal budget. Both are means of working toward agreement on the overall size of the public (Federal) sector, and on the allocation of expenditures to particular uses or programs.

As noted earlier, a system of budgeting regulatory compliance costs is in one sense an outgrowth of the current regulatory review program in the executive branch. However, it would have fundamentally different purposes: (a) accounting for publicly mandated expenditures resulting from Federal regulations; (b) requiring agreement on an overall ceiling (more or less flexible, as in the case of the fiscal budget) on such expenditures; and (c) allocating regulatory expenditures among programs in accordance with prevailing views about the relative social benefits of the programs.

It is important to recognize that the second and third functions of a regulatory budget would be a supplement to—not a substitute for—the benefit-cost analyses of individual regulatory decisions that the current regulatory review program calls for. Regulatory budgeting would implicitly acknowledge the impossibility of measuring precisely the benefits of Federal regulatory programs, and would thus leave the decision on relative benefits to be made in an explicitly political way, through the allocation of the agreed-upon total regulatory expenditures.

The balancing of competing social demands in that manner is not simply an executive management function.  Neither is it just a matter of deciding whether a particular regulatory proposal is necessary, unnecessary, or excessive under a particular statutory directive. Rather, it is a matter of deciding how much of the nation's resources to devote, in the aggregate, to the pursuit of all of the legislatively-mandated social goals, as well as how much of the total to devote to each of the particular goals set forth in legislation (e.g., environmental quality or occupational safety).

The closest functional analogy to a regulatory budget is not the current regulatory review program, but rather the fiscal revenue and appropriations process. Thus the Congress must be involved in regulatory budgeting not because of any particular line of legal precedent, but because it is a policymaking process which under our Constitution is performed jointly by the executive and legislative branches. This is the basic reason why it is pointless to debate whether the President could legally impose a regulatory budget without congressional authorization.

B.        The Legal Aspects of a Regulatory Budget System

An effective regulatory budget system—one that would motivate regulatory officials to set clear priorities and to choose cost-effective measures in particular cases—would have to be enforceable. As a practical matter this means that the President would have to have unambiguous executive authority to dismiss regulatory officials who failed to live within their regulatory budgets or who otherwise refused to cooperate in the budgeting process. For the program to be complete, the President's authority would have to extend to       the independent regulatory commissions as well as to the executive branch agencies.

For political if not for strictly legal reasons, the President probably could not unilaterally assert such authority over either type of regulatory agency. However, the President plainly could, as a Constitutional matter, exercise such authority according to statutory mandate, and he could do so in a way that would not compromise any independence that the Congress might wish to maintain in the independent agencies.

To illustrate, suppose that a President were to go beyond the occasional reconciliation of regulatory disputes within the Executive Branch (as in President Carter's action in the cotton dust dispute), and embark upon a systematic policy of ordering substantial reductions (or increases!) in proposed regulatory actions.  Immediate congressional complaints and court challenges would be a certainty. A legal and political precedent here would be President Nixon's executive fiscal impoundment program, mentioned earlier. The courts, in cases such as Train, Administrator, EPA v. City of New York, 420 U.S. 35 (1974), State Highway Commissioner of Missouri v. Volpe, 479 F.2d 1099 (8th Cir. 1973), American Federation of Government Employees  v. Phillips, 358 F. Supp. 60 (1973), and Gnadamuz v. Ash, 368 F. Supp. 60 (1973), held that the President was without authority to impound funds appropriated by Congress to be spent for particular purposes. This was so even if in the President's judgment a lower level of spending was required for purposes transcending those of the statutes involved (such as reducing inflation).

It could be argued that those cases should be distinguished from regulatory impoundment. Not only did they involve appropriated Federal funds rather than revision of executive branch decisions, but also the impounded funds were grants to specific private groups rather than funds for general management and enforcement activities. However, the Congress' statutory reaction to the fiscal impoundment challenge suggests that it would react similarly to any systematic Presidential intervention in specific regulatory decisions.[1]

It would be possible to resolve this issue through a statute explicitly authorizing the President or his subordinates to take part, on a case-by-case basis, in final decisions on formal rule-making or informal regulatory proposals. Indeed, the Exposure Draft of the American Bar Association's current study of the regulatory process proposes "enactment of a statute authorizing the President to direct certain regulatory agencies to take up, decide, or reconsider, critical regulatory issues within a specified period of time, and thereafter to modify or reverse certain agency actions relating to such issues."[2] It is doubtful, however, that regular participation in detailed regulatory decisions (as envisioned by the ABA Exposure Draft) would be a useful expenditure of the President's time, or that any President would wish to have such formal authority.[3]

The legal precedent is quite thin regarding the President's authority to govern the activities of independent and executive-branch regulatory officials, either directly as proposed by the American Bar Association or indirectly through a regulatory budget process. The two most important decisions, both of which concern the President's authority to dismiss Federal officials, are Myers v. United States, 272 U.S. 52 (1926), and Humphrey's Executor v. United States, 295 U.S. 602 (1935).

In Myers, the President unilaterally removed a postmaster before the expiration of his term, although the postal statute stipulated that removals required the advice and consent of the Senate. The postmaster's administratrix sued to collect her husband's salary for the balance of his term, arguing that the President had exceeded his executive powers under the statute. She lost, the Court holding that the statute itself violated the President's constitutional authority as chief executive officer. The court noted that (272 U.S. at 135):

the ordinary duties of officers prescribed by statute some under the general administrative control of the President by virtue of the general grant to him of the executive power and he may properly supervise and guide their construction of the statutes under which they act in order to secure that unitary and uniform execution of the laws which Article 2 of the Constitution evidently contemplates in vesting general executive power in the President alone. (Emphasis supplied.)

The executive power (including the power to remove as well as to supervise and guide) being a constitutional one, it could not be compromised by congressional action. The court noted, however, that the President's authority over Federal officials was not unlimited (id.):

Of course, there may be duties so peculiarly and specifically committed to the discretion of a particular officer as to raise a question whether the President may overrule or revise the officer's interpretation of his statutory duty in a particular instance. Then there may be duties of a quasi-judicial character imposed on executive officers and members of executive tribunals whose decisions after heaping affect interests of individuals, the discharge of which the President cannot in a particular case properly influence or control.

The Humphrey's Executor case was similar to Myers in almost every respect except that the official involved was a Commissioner of the Federal Trade Commission rather than a postmaster. The Commissioner, a Hoover appointee with several years left in his statutory term, was removed by President Roosevelt on grounds of political incompatibility.  The Commissioner's executor later sued to collect his pay for the remainder of his term. The executor won, on grounds that the FTC, being "predominantly quasi-judicial and quasi-legislative…occupies no place in the executive department and…exercises no part of the executive powers vested by the Constitution in the President" (295 U.S. at 624). In other words, the President's executive authority under the Constitution did not extend to officers whose functions were more judicial or legislative than executive. As to such officers, the Court held that "no removal can be made during the prescribed term for which the officer is appointed, except for one or more of the causes named in the applicable statute." (The FTC statute provided     for removal by the President only in cases of "inefficiency, neglect of duty or malfeasance.")

Taken together, the Myers and Humphrey's Executor cases establish the following distinction: On the one hand, the President may unilaterally remove appointees whose functions are purely executive—who serve as an arm of the President in his role of chief executive officer. On the other hand, the President may not remove appointees whose functions are essentially legislative or judicial—who serve to render their judgments based on the merits of particular claims.  Under those cases, the President's exclusive power to remove executive officers is grounded in the Constitution, so that Congress may not compromise it by contrary statutory provisions governing removal. It is important to note, however, that the President's lack of power to remove quasi-judicial officers is not a constitutional requirement. Rather, it is based upon (a) judicial assessment of legislative intent regarding removal of quasi-judicial officers, combined with (b) judicial opinion that the President does not have the power, on constitutional grounds, to remove Federal officials whose functions are non-executive.

Legislative intent may be clear when the Congress provides by statute that officials may be removed by the President only for "inefficiency, neglect of duty or malfeasance," as it has in the case of most of the independent regulatory commissions. But where the Congress fails to specify the nature of the removal authority, the courts will decide the matter according to the statutory function of the official involved. In Weiner v. United States, 357 U.S. 349 (1959), the Supreme Court held that the President lacked the power to remove a hold-over appointee whose function was quasi-judicial (he was a member of the War Claims Commission, even though the law in question (the War Claims Act) did not restrict the removal power in any way.

Thus, the issue of the President's ability to enforce a regulatory budget cuts across the regulatory programs of both the independent commissions and the executive branch agencies. As the Myers decision noted, even within the executive branch the President's constitutional authority to "supervise and guide" Federal officials is limited.  It may not include the authority to (a) "overrule or revise" interpretations of statutory duties "peculiarly and specifically committed to the discretion of the particular officer," or (b) "influence or control" duties of a "quasi-judicial character” —those involving "decisions after hearing [that] affect interests of individuals."  Again, however, there is no constitutional barrier to the broader Presidential authority if statutes so provide; for. example, the President is authorized by statute to intervene in the award of international airline routes.

While a regulatory budget system would certainly affect agencies both in establishing priorities and in deciding particular cases, it would do so largely indirectly, through the allocation of budget ceilings, rather than through direct Presidential involvement in particular cases. As a legal matter, the regulatory budget would be preferable to the case-by-case Presidential involvement in the regulatory process as proposed by the American Bar Association. A statute authorizing the President to intervene in particular regulatory decisions would raise acute problems of judicial review that would be difficult to resolve in advance by statute. In every case where a proposed regulation was modified by the President and then, after final publication, challenged in court, the court would have to decide not only whether the responsible official had correctly interpreted the requirements of the statute in the first instance, but whether the President himself had correctly interpreted the requirements of both the statute and the regulatory-review statute.

A regulatory budget would avoid these problems while achieving the same goal of placing overall discipline on the regulatory process. The discretion of regulatory officials in interpreting their statutory duties would not be constrained in particular cases (at least not by the budget process itself), but such officials would be obliged to live within a compliance-cost budget formulated by the President and Congress, just as they must at present remain within their appropriations. The President would not be pressured more, and could well be pressured less, than he is at present to take action in particular regulatory controversies. Challenges to regulations would not be complicated by judicial review of Presidential decisions that weighed the requirements of a regulatory statute in a particular case  against, say, inflation or other countervailing considerations permitted by a regulatory-review statute.

As under any management control system, difficult decisions would have to be made under a regulatory budget system. Consider the case of a regulatory agency charged with enforcing a statute that gave it little or no discretion in a specified factual situation (for example, the Delaney Clause requiring FDA prohibition of food additives found to cause cancer). The agency might be forced to take action that would cause it to exceed its regulatory budget for a given period.  Cases such as this, however, could be handled by supplemental authorizations of authority to impose compliance costs, analogous to the supplemental appropriation used in the: fiscal budget.  It does not appear that adding an economizing restraint to the regulatory process would have legal implications different from those of the current fiscal budget process.

The Myers and Humphrey's Executor decisions suggest that the independence of the so-called independent regulatory commissions is a matter of congressional determination rather than constitutional requirement. Presumably this extends not only to the President's authority to remove officials, but also to his authority to oversee their conduct while they remain in office. If Congress may constitutionally permit the President wide rather than narrow discretion in removing members of the regulatory commissions,  a fortiori it may permit him to "supervise and guide their construction of the statutes under which they act" just as closely as is his prerogative, according to Myers, in the case of executive officials.

Indeed, there is good reason to doubt that Humphrey's Executor, standing alone, obliges the President to show as much deference to the independent commissions as is common (viz., President Carter's exclusion of the commissions from his "Improving Government Regulations" program). Humphrey's Executor was concerned with back-pay. It did not present the Supreme Court with the more difficult practical issue of whether a commission member could continue to exercise authority against the opposition of the President—much less the issue of whether the President may direct the commissions' general management and procedures apart from deciding particular cases. It should be noted in this connection that the Humphrey's Executor decision was one of statutory interpretation, and that the statutes under which the independent commissions operate nowhere prohibit the President from influencing their general policies.

The Exposure Draft of the American Bar Association's report on regulatory reform has this to say concerning the legal applicability of executive branch regulatory review to the operations of the independent commissions (p. 108):

As originally proposed, the Carter Order (Executive Order 12044) would have imposed its discipline on independent agencies as well as executive branch agencies. The final Order, however, leaves the "independent" agencies untouched. A majority of the Commission regrets this omission. In the Commission's views, the President has constitutional power, in the present absence of any statute to the contrary, to prescribe housekeeping or procedural requirements for an independent Federal agency that leave intact the policy-making and adjudicatory authority of the agency. Should the contrary point of view on this issue prevail, the Commission supports enactment of a statute expressly authorizing the President to impose such disciplines on the independent agencies.

Nevertheless, the legal necessity of the President's deference toward the independent commissions is certainly less important than its roots in political custom.  President Carter, it should be noted, excluded the independent commissions from his regulation-review program not on the advice of lawyers, but after being strongly admonished to do so by numerous members of the Congress. It seems safe to assume that, if the President attempted on his own to include the independent commissions in a regulatory budget system, the result would be an intense political controversy and prompt court challenge that would seriously compromise the success of the system from the start.  The important point, then, is not only that a management tool such as a regulatory budget may be extended to the independent commissions by statute, but that doing so would put an end to the current bifurcated nature of regulation-review under President Carter’s administrative program.

In summary, if the Congress elected to establish a regulatory budget system, it could give the President the legal authority to require full adherence to the constraints of such a system.  In contrast, a Presidential attempt to impose a regulatory budget without a legislative mandate would encounter enormous political obstacles and strenuous legal challenges.