Recent court decisions have faulted the Securities and Exchange Commission for failing to assess adequately the economic impact of proposed regulations. Last year, the U.S. Circuit Court of Appeals spared no words in its assessment of the SEC's performance:
We agree with the petitioners and hold the Commission acted arbitrarily and capriciously for having failed once again—as it did most recently in American Equity Investment Life Insurance Company v. SEC, 613 F.3d 166, 167-68 (D.C.Cir.2010), and before that in Chamber of Commerce, 412 F.3d at 136—adequately to assess the economic effects of a new rule. Here the Commission inconsistently and opportunistically framed the costs and benefits of the rule; failed adequately to quantify the certain costs or to explain why those costs could not be quantified; neglected to support its predictive judgments; contradicted itself; and failed to respond to substantial problems raised by commenters.
Business Roundtable v. SEC, 647 F. 3d 1144 (D.C. Cir. 2011). These decisions seem to invite further challenges to federal rulemaking. In fact, Broc Romanek wrote in December about a lawsuit filed against the Commodity Futures Trading Commission alleging that among other things the CFTC failed to conduct an adequate cost-benefit analysis in adopting rules that limit positions that investors may take in certain commodities. (Broc posted this update on the suit earlier this week.)
Do California agencies do a better job in assessing the economic impact of their rules? According to the California Office of Administrative Law, the agency charged with reviewing proposed rulemaking packages, the answer is no. In written testimony to the Little Hoover Commission last year, two OAL officials gave this blunt appraisal:
“The economic impact analysis required by the California Administrative Procedure Act is illusory and ineffective because it allows an agency to make a perfunctory, after-the-fact, assessment of impact that is more symbolic than real . . . . Consequently, it is not effective in achieving the purpose of informing the decision-making process with empirical knowledge to make the process more transparent and accountable."
Quoted in Better Regulation: Improving California's Rulemaking Process (2011).
Very late in last year's session, the legislature took action to address some of these concerns by enacting SB 617 (Calderon) to impose additional requirements on state agency rulemaking. We'll have to wait and see whether these new requirements will change economic impact analysis from "illusory and ineffective" to "real and effective".
