We’ll See Your Executive Order and Raise You a Real Regulatory Review

On January 18th, President Obama announced an executive order in the Wall Street Journal directing that federal agencies amend or repeal regulations unnecessarily impeding economic growth. The president wrote that the effort is intended to “…root out regulations that conflict, that are not worth the cost, or that are just plain dumb.”

The president’s announcement is welcome. It marks a substantial shift for an administration that spent its first two years in office trying to convince the nation that the federal government can successfully direct private economic activity. But is this anything more than a mid-term pivot to placate the business community? It won’t take long to tell.

The volume of pending regulation from laws passed by the 111th Congress is staggering by any measure. An early test of the president’s pro-business conversion will be how these new rules are written. If the administration’s old way of doing business is to change, the change should start right here.

Unfortunately, the president’s executive order doesn’t seem to be directed at the current rule-making binge. In fact, from his rhetoric, it seems clear that President Obama is not as interested in “…writing rules with more input from experts, businesses and ordinary citizens” when it comes to this spate of rule-making.

Even if the president limits the regulatory review to existing rules only, it’s hard to see how any administration can effectively review, in depth, the regulatory structure supporting federal government programs. Unless the Office of Management and Budget makes the president’s initiative a core priority in 2011 the executive order won’t be worth the paper it’s printed on. This means harassing Cabinet officials and other politically-appointed staff across the government to make the review a priority, something that OMB—backed by the White House—can do.

The cynic in all of us knows this is overblown pre-election year hype, right? You bet it is. But there is some real potential if Congress decides to get in on the act, too.

Can Congress really help the process along? Of course it can.

House Committee on Oversight and Government Reform Chairman Darrell Issa has already put significant pressure on federal agencies to justify how programs are operated. The topic of the House Financial Services Committee’s first hearing of the 112th Congress was the uncertainty that American businesses face due to the changing regulatory landscape.

The House and Senate Appropriations Committees can also have a major impact by requiring all federal agencies subject to annual appropriations to implement a rigorous regulatory review. The power of the purse has significant potential to make the president’s executive order have teeth.

What type of impact could a regulatory streamlining have on economic output? Dr. Chad Moutray, former Chief Economist for the Small Business Administration’s Office of Advocacy does a good job of telling us. Writing in the Washington Post, Dr. Moutray says that federal regulations cost the American economy $1.75 trillion every year. These costs are disproportionately borne by small businesses, which shoulder higher per employee regulatory compliance expenses.

While it is self-evident that regulation matters, Dr. Moutray helps bring this into focus by putting a price tag on how the federal government conducts business, so to speak. Even a casual review of the federal regulatory burden could have a substantial economic impact.

Why is this important? Small businesses employ just over half of all private sector employees. If employment is going to grow in 2011, this is where the growth will take place. Dr. Moutray’s regulatory price tag tells us that how we regulate does matter and it matters a great deal. This is why a regulatory review across the federal government can make a real difference in the economy.

Take the Federal Housing Administration as an example. FHA requires condominiums to meet certain standards before the agency will agree to insure mortgages on units in the development. This is good public policy. It protects condominium owners from poor management and it protects taxpayers from losses. As a result many condominium boards have adopted rules that mirror and enforce FHA program requirements.

That’s where the common sense stops. FHA has recently decreed that all condominiums that have adopted FHA’s own safety and soundness requirements are ineligible for FHA’s mortgage insurance programs.

Let me say that again: if a condominium adopts the same rules that FHA uses to qualify the development for its programs, FHA prohibits all owners in the condominium from receiving FHA-insured mortgages.

If you own a condo, that’s a big deal. FHA accounted for approximately 38 percent of all home purchase loans and 9 percent of mortgage refinances nationwide according to its fiscal year 2010 report to Congress.

Going back to President Obama’s editorial in the Wall Street Journal, FHA’s condominium rules seem to fit the bill for regulations that are “…just plain dumb.”

This is the type of regulatory nonsense that businesses across the country are subject to. The more of these types of regulations the president can eliminate the better. American businesses and workers (and condo owners, too) could use that kind of stimulus.

The president is on to something; Congress, it’s up to you to see he follows through.

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