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To Reform Agency Rulemaking, Consider Regulation by Trial
Minnesota’s unique administrative process can provide a model for the federal government and other states
The Administrative Procedure Act (APA) of 1946 outlines the process by which federal agencies enact regulations. It prescribes two kinds of rulemaking, formal and informal. Formal rulemaking is similar to a court proceeding; it involves adjudicatory-like hearings, oversight from an administrative law judge, witnesses, cross-examination and an exclusive record. But most federal regulations are now made via informal rulemaking. The informal process is mostly written, with administrative agencies announcing a new regulation by publishing a notice in the Federal Register, receiving public comments and then promulgating the final regulation.
Formal rulemaking has proved controversial at the federal level because it seems to establish roadblocks in the way of rules that may promote the public interest. The process does place some up-front burden on agencies before a rule can be enacted. That said, regulations emanating from a formal rulemaking process may be more successful at promoting the public interest than those that face a lower hurdle to enactment. Rules may better reflect consensus, for example, and requiring more up-front work on the part of the agency may make regulations more resilient against court challenges later. Most importantly, rules may have a stronger evidence base, perhaps increasing the probability of achieving sought-after outcomes. Despite these benefits, the downsides to formal rulemaking should be weighed against the potential improvements; formal rulemaking may not make sense in every situation. Thus, the active scholarly debate on the merits of formal rulemaking should continue.
One way to contribute to this debate is to look at the evidence from states that employ a process similar to formal rulemaking. Minnesota in particular has an administrative rulemaking procedure that involves oral hearings overseen by an administrative law judge, a burden-of-proof requirement for state agencies and public involvement in hearings, including the ability to question agency representatives or witnesses. While the state’s processes aren’t identical to formal rulemaking under the federal APA, they are quite different from informal rulemaking, and they could provide a model for rulemaking reforms at the federal level as well as in other states.
Formal Rulemaking and Alternatives
Sections 556 and 557 of the 1946 APA outline the federal formal rulemaking process. The presider over the hearing—either an agency official or an administrative law judge—is granted specified powers. Among these are the power to subpoena, administer oaths, exclude evidence, limit questioning, allow depositions, hold prehearing conferences and encourage alternative dispute resolutions.
The formal rulemaking process resembles a trial in an ordinary court, since the presider has many powers similar to judges in ordinary courts. Under formal rulemaking, ex parte communication is banned (communication relevant to the regulation that takes place without one party present), and the proponent of the rulemaking must provide enough evidence to persuade the hearing presider that the rulemaking is necessary.
Since the 1973 Supreme Court decision United States v. Florida East Coast Railway, formal rulemaking has rarely been used in the federal government. In that decision, the Court created what came to be known as a “magic words” test for when formal rulemaking is to take place: The statute under whose authority the agency is regulating must contain the words “on the record.” Few statutes contain those words in this context. Therefore, the informal rulemaking process is almost always used in administrative procedure. This is also called “notice-and-comment rulemaking” and, as noted earlier, involves the agency publishing a proposed rule, taking comments from the public and then revising the rule into its final form.
Alternatives also exist, such as “hybrid rulemaking,” which contains elements of both formal and informal rulemaking. This most often occurs when specific statutes—such as the Clean Air Act, the Occupational Safety and Health Act or the Magnuson-Moss Act (affecting the Federal Trade Commission)—impose requirements beyond the standard informal rulemaking requirements, such as requirements to hold public hearings or establish a factual record of evidence supporting a rule. “Negotiated rulemaking” also occurs, whereby representatives of various industry, consumer or advocacy groups come together and negotiate the terms of a regulation. The idea behind negotiated rulemaking is to achieve a consensus before moving forward with a proposed or final regulation.
The preamble of Minnesota’s APA states that its main purpose is to increase public access and participation, holding “the expectation that better substantive results will be achieved in the everyday conduct of state government by improving the process by which those results are attained.” The standard form of rulemaking in Minnesota is called “dual notice rulemaking,” where the agency publicly announces a hearing and a proposed rule simultaneously. There is a template that agencies use for notices, so the notices have a uniform appearance across state agencies.
Agencies prepare a publicly available statement of need and reasonableness (SONAR) that demonstrates the need and reasonableness of a proposed rule from eight different angles, including classes of people affected, costs and rule interactions with existing state or federal rules. The SONAR is an important input in the administrative law judge’s decision on whether the rule is reasonable.
Rule hearings in Minnesota are overseen by administrative law judges from the Office of Administrative Hearings (OAH). The OAH was created in 1975 (originally called the Office of Hearing Examiners, it assumed its current name in 1981). The office is overseen by a chief administrative law judge, who is appointed by the governor and confirmed by the state senate to serve a six-year term. This unelected, nonpartisan position was intentionally created to be independent from the rest of the political process, and the six-year term was chosen so as to not coincide with the governor’s four-year term, thereby insulating the position from some political pressures.
Unlike the federal government’s unitary executive, the Minnesota Constitution of 1858 divided executive power among six different statewide officeholders: the governor, lieutenant governor, secretary of state, treasurer, auditor and attorney general. Most administrative rulemaking was originally done by the legislature itself, ad hoc commissions and local governments until the early 20th century. Eventually, the legislature began to merge commissions and bureaus with similar purviews into statewide executive branch departments, beginning with the Department of Labor and Industries in 1913. In 1957, a desire for more uniformity across departments motivated the legislature to pass a law establishing procedures for hearings. But those hearings were still conducted by the agencies, just like federal agencies under the federal APA.
In 1975, the legislature created the OAH, giving it the authority to adjudicate administrative disputes and create a uniform process for all agencies to conduct hearings. The only major change since 1975 occurred in 1995, removing the power to give final rule approval from the attorney general and giving it to the chief administrative law judge instead. Because Minnesota’s process has been mostly the same since 1975, a strong institutional culture has developed in Minnesota administrative procedure. A group called the Interagency Rules Committee has put out a manual of best practices for rulemaking every year since 1996. Hearings are assigned to administrative law judges randomly, to avoid the problem of agencies seeking out judges friendly to their cause. The independence of the OAH is prized.
What We Can Learn from Minnesota
The Minnesota system is not without its critics, as some view its procedures as time consuming or unnecessarily duplicative. Downsides to Minnesota’s process may include reduced nimbleness or ability to act swiftly in times of crisis, similar to concerns voiced about formal rulemaking at the federal level. Nevertheless, the OAH makes do with 12 administrative law judges to oversee hearings in the state, indicating that the hearings don’t unduly burden the state government’s resources. Moreover, expedited processes and emergency provisions in the state APA allow regulations to circumvent the standard hearing procedures when expedience is important. An agency may also proceed with a proposed rule without a hearing when fewer than 25 people request one.
Furthermore, what Minnesota may lose in speed on the front end, it may compensate for with uniform and clean regulations that emerge at the end of the process. Minnesota has a low level of state regulations compared with some of its neighbors in the Great Lakes region. Its administrative procedures may play a role in keeping the overall volume of rules in the state under control.
When confronting a problem with the federal government, it is always wise to look to the 50 state governments to see if any of them have practices that could improve upon the experience at a federal level. It seems Minnesota’s administrative rulemaking system is one from which the federal government could learn. Further research should explore how Minnesota’s rulemaking process works in more detail, and ultimately how this process affects the quality of rulemaking in the state and, most importantly, state residents’ quality of life.