The Regulatory Review

Controversy in Cascadia

Thu, 04 Mar 2021 05:03:16 GMT

A plan to close the National Archives and Records Administration’s Seattle facility threatens Pacific Northwesterners’ access to federal government records. The closure and sale would move documents concerning federal actions in Washington, Oregon, Idaho, and Alaska to new locations hundreds, if not thousands, of miles away from the Pacific Northwest.

The proposed plan, announced last year as part of a broader Trump Administration effort to reduce the federal government’s property portfolio, would move physical records to facilities in Missouri and Southern California, making government records about the Pacific Northwest effectively inaccessible to those living in the region.

Archival staff have reportedly digitized only one-thousandth of one percent of the Seattle facility’s holdings. Moving the documents to new locations would only further delay the digitization process.

The documents are practically, as well as historically, significant. For example, the Seattle facility houses Bureau of Land Management records dated from 1850 to 2011—for a region that includes more than 16 million acres of public land.

The facility’s Bureau of Indian Affairs holdings range from tribes’ governing documents, demographic records that often remain determinative of Indian legal status today, and treaty and property documents critical to settling land disputes.

The Seattle National Archives site may have been selected as a target for closure because it presents a valuable real estate opportunity for private investors. The facility sits in Seattle’s Windermere neighborhood, just two miles from the University of Washington, about six miles from Amazon’s corporate headquarters, and less than eight miles from downtown Seattle.

A federal report claimed in 2019 that selling the Seattle facility “will make 10 acres of highly valuable land available, likely for residential housing” in the city. A member of the federal Public Buildings Reform Board suggested in October 2020 that the plan could create a new source of tax revenue.

Elsewhere in the federal government, legislators have voiced concern about the expedited plan to move the Pacific Northwest’s federal records out of Seattle. A spokesperson for U.S. Senator Mike Crapo (R-Idaho) reportedly expressed frustration that only one federal legislator—U.S. Representative Pramila Jayapal (D-Wash.), whose district includes the site—received any notice about the sale plan.

A bipartisan coalition of legislators from both the House and Senate also coauthored a letter expressing doubt about the “net financial benefit” of the sale. These members of Congress highlighted the effects the plan could have on “current litigation, tribal membership and land claims, Forest Service timber sales, land claims and disputes, the navigability of federally owned waters, ongoing scientific research, and much more.”

Representatives of tribal interests have also decried the government’s attempt to move their records out of the region. David Z. Bean, chairperson of the Puyallup Tribe of Indians, wrote a letter denouncing the move by highlighting the historical and present legal significance of the Puyallup tribal documents housed in Seattle. Bean also criticized the fact that the federal government apparently did not consult with impacted tribes as required by Executive Order 13,175—nor did it even notify interested tribes of the planned sale.

Other critics of the sale have also noted that the site holds not only formal documentation critical to tribal governance and record-keeping, but also tribal histories critical to maintaining cultural integrity. In addition, Alaskan Native communities would have to travel even further to access their records after losing local access when the Anchorage National Archives facility closed in 2014.

In particular, the Seattle facility’s holdings relating to land allotment and treaties between the federal government and tribes are critical resources that help determine the jurisdictional boundaries of Indian Country—where tribal and federal law may apply in place of state law. As recently as the summer of 2020, such documentation helped the Muscogee (Creek) Nation regain previous guarantees of tribal control over much of modern Tulsa, Oklahoma.

In addition to concerns about archival access, legal controversy has bogged down the federal government’s expedited attempt to close and sell the Seattle facility. Washington State Attorney General Bob Ferguson filed a lawsuit alleging that the federal government illegally expedited the sale of the property and did not properly consult with local stakeholders.

As of early 2021, at least 29 tribes, the State of Oregon, and several interested community organizations had joined the suit as co-parties. On February 23, 2021, Judge John C. Coughenour of the U.S. District Court for the Western District of Washington reportedly blocked the property’s expedited sale.

With the arrival of the Biden Administration, the Seattle National Archives facility may now be spared. President Biden has demonstrated his willingness to revisit other controversial executive actions taken by the Trump Administration, such as a U.S. Department of Labor rule broadening the definition of an independent contractor and a U.S. Department of the Interior rule weakening protections for migratory birds. A reversal of the planned sale of the Seattle facility might well loom in the future.

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Can Public Banking Save the Postal Service?

Wed, 03 Mar 2021 05:03:34 GMT

In the early 1900s, Americans had such faith in the U.S. Postal Service that they trusted postal carriers to ship their children, just like any other parcel.

Today, although 74 percent of Americans approve of the Postal Service, the public’s trust has not translated to the institution’s financial stability. Over the past 11 years, the Postal Service has lost almost $70 billion in revenue. This financial hardship—combined with the challenges created by the COVID-19 pandemic and compounded by preexisting competition from privatized shipping—leaves the Postal Service’s future in question.

The solution, some policymakers suggest, is to revitalize a discontinued government program that would transform post offices into public community banks.

Proponents of postal banking suggest that it could relieve the Postal Service of its financial problems and provide an important service for consumers. Postal banking would provide “low-cost, consumer-driven” bank services, such as check cashing and small lending, to people who are not able to, or would prefer not to, access private banking systems. By providing these basic services, the Postal Service could reach individuals with limited access to financial and banking services. Through the program, the Postal Service could also secure its own survival, according to Senator Elizabeth Warren (D-MA).

A postal banking system is not a new concept. The Continental Congress founded a postal service before its members signed the Declaration of Independence. At that time, the new service united fractured communities and bound the country’s people together. Today, the Postal Service states that its history is rooted in the principle of providing equal service to all people, “no matter who, no matter where.”

Congress created the U.S. Postal Savings System in 1911 to further that mission and offer a public banking option to marginalized households and unbanked people. Calls to broaden public access to the system grew throughout the 1920s, but private banking’s collapse during the Great Depression spurred farmers and labor organizers to push for a public national banking system. At the same time, public distrust in private banking caused the Postal Savings System to flourish.

Despite a grass-roots campaign to nationalize all financial institutions, a national public banking system never materialized. Instead, the government reformed the financial sector, and private banking regained some of the consumer trust it had lost. Consequently, Congress abolished the Postal Savings System in 1966.

Some politicians have called for the re-establishment of the Postal Savings System. Senator Bernie Sanders (D-VT) included the plan in both of his recent presidential campaign platforms, and Senator Kirsten Gillibrand (D-NY) proposed legislation in 2018 that would revive and expand the system. Senator Gillibrand’s plan would have incorporated retail banks into 30,000 pre-existing locations administered by the Postal Service, a plan that tracked a proposal developed previously by law professor Mehrsa Baradaran.

This past September, Senators Sanders and Gillibrand together reintroduced the system in a bill to fund the Postal Service and provide financial reprieve for families affected by the pandemic. The core of their proposal, according to Senator Gillibrand, would provide 10 million people in underserved communities with access to essential financial services.

In addition to providing consumers with financial options, the Gillibrand–Sanders bill would also offer the Postal Service much needed revenue necessary for its financial viability.

Senator Gillibrand also recognizes that the Postal Service is the only institution in the United States that already serves every community—making it the perfect conduit for community banking. As big banks abandon low-income and rural areas, the Postal Service remains an equalizing force because of this reach.

Even if the Postal Service is unable to turn a profit through the banking program, advocates argue that providing financial support to unbanked people is a necessary goal. Regardless of broader societal benefits, some postal banking critics worry that because the postal service currently loses money every year, taxpayers could also end up paying for a failed postal banking system.

According to Professor James O’Rourke, however, the Postal Service runs at a deficit because Congress holds it to a more demanding retirement funding program than other government agencies. The post office must pre-fund its employee retirement 75 years in advance. Without that requirement, the Postal Service would operate at a profit.

A report by the USPS Inspector General showed that—at least before the COVID-19 pandemic—postal banking could generate $9 billion in revenue for the Postal Service every year. If true, even with the mandated retirement system, new revenue from postal banking would exceed the Postal Service’s yearly deficit.

Still, some critics of postal banking have called the proposal anachronistic, while others posit that post office banks in underserved areas might not profit any more than traditional bank branches.

Despite potential benefits, a postal banking system would entail significant investments in services, employees, and security. The upheaval caused by the COVID-19 pandemic could serve as the impetus for Congress to make that investment.

People still trust the Postal Service, and the economic turmoil caused by the pandemic has left an increasing number of Americans unbanked. A postal banking system worked for an economic crisis once: during the Great Depression. If proponents of the system are correct, perhaps underserved Americans and the Postal Service could rely on one another once again to weather the current economic emergency.

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The Accredited Investor Exemption Must Go

Tue, 02 Mar 2021 05:06:02 GMT

Federal securities law in the United States consists of many rules and regulations, but they all boil down to one simple concept: Knowledge is power. Investors with sufficient information can evaluate companies and make sound investment decisions. Those without enough information are left guessing if the businesses they invest in will succeed or fail.

The U.S. Securities and Exchange Commission (SEC) is supposed to protect investors by requiring companies to give investors the information they need to assess their risk before they invest. Yet for decades, the SEC has allowed companies to sell securities to certain investors without providing them with any information about the company.

In August 2020, the SEC expanded the group of investors who can buy securities without information. Andrew Vollmer, a scholar with the Mercatus Center at George Mason University, criticizes this decision in a recent paper. He argues that, rather than expanding the group of unprotected investors, the SEC should reverse its decades-old policy and require companies to provide every investor with a minimum level of information.

Companies sell securities, such as stocks and bonds, to raise money to start or expand their business. Historically, companies have offered securities in public markets, where anyone could buy them. Before offering securities to the public, companies must disclose extensive information to investors.

When the U.S. Congress passed the Securities Act of 1933, it created an important exception to this mandatory disclosure requirement. Under the exception, companies are allowed to avoid the expense of disclosing information to investors if they sell securities “not involving any public offering.” The U.S. Supreme Court interpreted this statute in SEC v. Ralston Purina to mean that companies can offer securities to investors without registering them or disclosing information in “private offerings” if the investors have access to enough information on their own to “fend for themselves.”

In his paper, Vollmer explains that the SEC has applied the Supreme Court’s decision by creating a category of investors known as “accredited investors.” Accredited investors are primarily wealthy investors who do not have access to any private information about the companies they invest in. The SEC allows companies to sell securities to accredited investors without providing them with more information because it considers accredited investors wealthy enough to “bear the risk of a loss.” In its August 2020 rulemaking, the SEC expanded the criteria for accredited investors to include not only wealth, but also financial sophistication based on education and professional experience—such as licensed brokers and portfolio managers at investment funds.

The SEC argues that it expanded the accredited investor exemption to include financially sophisticated investors because these investors have enough experience to fend for themselves and do not need mandatory disclosures to invest in private offerings. By allowing companies to sell securities to experienced investors in private offerings, those companies can raise capital without incurring significant costs to prepare mandatory disclosures for public offerings.

In his paper, Vollmer, a former deputy general counsel at the SEC, argues that the SEC’s entire accredited investor exemption strays too far from the Supreme Court’s intent in Ralston Purina and allows investors to participate in private offerings with too little information. He proposes that the SEC eliminate the exemption altogether and replace it with mandatory limited disclosures for private offerings.

Vollmer claims that Ralston Purina and subsequent federal court rulings only allow companies to offer securities to investors without providing disclosures if the investors have access to the same type of information they could get from mandatory disclosures. He argues that neither wealth nor financial sophistication can protect investors if they have insufficient information about a company.

Instead of allowing wealthy and financially sophisticated investors to invest in private offerings without any disclosures, Vollmer proposes that the SEC allow all investors to buy securities in private offerings with limited disclosures. Under this proposal, companies offering private securities would need to provide disclosures that are less comprehensive than public disclosures, but still sufficient to protect investors according to Ralston Purina’s “access to information” requirement.

These limited disclosures would be similar to the existing disclosure requirements for small and medium-sized companies that use crowdfunding. They would include essential information about the company, such as the type of business, material risk factors, and the structure of the securities offered. They would also cost less for companies to prepare than the extensive disclosures required for publicly traded securities.

Critics of Vollmer’s proposal may argue that allowing companies to raise capital from all investors through private offerings with limited disclosures would cause private markets to replace public markets entirely because companies would no longer need to make public offerings to gain access to capital from the general public. This could ruin public markets and the robust disclosures they require.

Vollmer addresses this concern by proposing that the SEC maintain other restrictions on private offerings that will continue to make them less attractive to companies than public offerings. Such restrictions include prohibitions on general solicitation, limiting the amount of money a company can raise each year through private offerings, and limiting who investors can trade securities with after buying them in a private offering. Vollmer anticipates these restrictions would be significant enough to discourage most publicly traded companies from switching to private offerings.

Another concern with Vollmer’s proposal is that eliminating the exemption would increase costs for privately financed businesses that currently do not have to provide investors with any disclosures. Vollmer addresses this issue by pointing out that most companies voluntarily choose to provide limited disclosures to investors during private offerings. Mandating limited disclosures would thus impose only a minor increase in compliance costs on companies, while increasing protection for investors trading private securities.

In exchange for this small expense, Vollmer claims, companies would gain access to a large group of potential investors who previously were not allowed to invest in private offerings because the SEC classified them as non-accredited. In addition, mandating limited disclosures for all private offerings would guarantee that every investor had access to adequate information to evaluate risk in an investment, enhancing investor protection for accredited investors who currently receive minimal or no disclosures.

By expanding the accredited investor definition to include financially sophisticated investors, the SEC has once again chosen to reject mandatory disclosures at the expense of investors. It is time, Vollmer argues, for the SEC to eliminate the accredited investor exemption and give those investing in private offerings the information they need to protect themselves.

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The Constitutional Foundations of Communications Law and Policy

Tue, 02 Mar 2021 05:03:19 GMT

The U.S. Constitution is the foundational source for authorizing all legitimate government activity and is thus the source for restraining illegitimate activity. The realm of communications law and policy, in some instances, is still beset by government regulatory controls—including public utility-like regulation of telecommunications carriers and programming content mandates for broadcasters and cable operators, among other controls—that originally were designed to address 20th century monopoly-like marketplace conditions.

Such government dictates at least strain certain constitutional values, if not violate constitutional requirements.

But the 21st century communications marketplace—which is enabled by digital technologies and internet protocol-based broadband services delivered over wired, wireless, satellite, and hybrid delivery platforms—is vibrant and competitive. As a result, the tension between many regulatory controls on communications services and constitutional requirements is much greater than ever before. Today’s dynamic marketplace calls for a modernized communications law and policy that is consistent not only with technological advances but with a proper understanding of the U.S. Constitution.

The Constitution embodies foundational principles that the U.S. Congress and the Federal Communications Commission (FCC) ought to follow when establishing and administering federal communications law and policy. These principles include protection of private property, freedom of contract, and freedom of speech, as well as support for private enterprise and an open interstate commercial marketplace.

The Constitution’s framers understood that one of the primary purposes of government is to protect rights to keep, use, and acquire property. Different constitutional provisions, including the Due Process Clauses of the Fifth and Fourteenth Amendments, help secure private property rights. As the framers also understood, private property ownership is not only a matter of natural right, but it also encourages productive uses of resources. Property owners are more likely to cultivate and seek the most beneficial uses of property because they own it.

The federal regulation of communications services implicates private property in many ways. For example, now-repealed net neutrality restrictions—that effectively imposed rate controls or required capacity set-asides for carrying traffic that broadband internet service providers might prefer not to carry—deprive those internet service providers of control over their own property. And legacy rules that impose program carriage and other access requirements on cable and satellite operators limit their property rights.

Furthermore, in the framers’ understanding, free speech is a natural right. Indeed, the First Amendment protects freedom of speech from government interference. But it does not authorize government to equalize speech or enable more speech by one party at the expense of another party’s rights. And because communications technologies and services are widely used for distributing speech, they should receive First Amendment free speech protections.

Historically, an inherent tension exists between federal regulation of communications services and the First Amendment rights of providers of those services. Regulation of broadcast and cable services has dictated what broadcast and cable service providers may or may not say, as well as content they are required to carry and the terms of such content. These regulations negate and undermine private editorial decisions.

For example, “must carry” regulation requires cable and satellite operators that offer multichannel video subscription services to carry content not of their own choosing. Those requirements abridge these service providers’ editorial speech rights to determine content programming and channel lineup placement. Previous iterations of net neutrality regulation have also threatened the free speech rights of broadband internet service providers by requiring those providers to carry speech content that they might prefer not to carry.

Although the Constitution does not formally institute or require a particular economic system, the framers’ philosophical commitments to private property rights, reflected in several provisions of the Constitution, serve as essential building blocks to support a free market enterprise that facilitates individual liberty and human flourishing.

Importantly, the framers and later generations recognized that a free marketplace is primarily the domain of private enterprise, and federal communications law and policy has long favored private sector competition. Under private sector leadership, broadband internet service providers successfully have deployed wireline and wireless services. For example, between 2011 and 2019, wireless network investment totaled $261 billion. Between 1996 and 2019, capital expenditures by fixed wireline broadband providers totaled over $1.7 trillion.

Government should not seek to compete with private market providers. For example, the U.S. Department of Defense’s recent proposal to enter the commercial 5G wireless market would harm taxpayers. Defense Department market entry could also undermine billions in private capital investment and encourage the government to privilege itself over private sector providers. The government should avoid such entry, absent some demonstrable, compelling national security interest that private sector competition cannot satisfy.

Similar fiscal and policy problems arise from state and local government efforts to own and operate broadband internet networks in competition with private market providers. And as a matter of constitutional federalism, neither Congress nor the FCC should interfere with state laws or state-level safeguards concerning municipal broadband projects.

In addition to favoring private enterprise, the framers established a system for uniform federal regulation to ensure an open interstate marketplace. The Constitution’s Commerce Clause grants Congress the power to regulate commerce among the states. Exercise of that authority, in conjunction with the Supremacy Clause, preempts state and local regulations that conflict with nationwide commercial policy objectives. The framers and other early generations of American leaders and jurists recognized federal preemption’s purpose in eliminating state-level protectionist barriers to interstate commerce.

States, however, retain significant constitutionally protected authority within their jurisdictions. States have approval authority over the siting of cell towers, antennas, and other wireless network infrastructure. But federal law even imposes limits here. Wireless networks are channels of interstate commerce, and the Communications Act bars state regulatory actions that effectively prohibit the siting or modification of cell sites. The FCC has enforced those limits, and courts have largely upheld the FCC’s preemptive authority in this area.

Maintaining exclusive federal jurisdiction is critically important for broadband internet access services. Broadband internet networks routinely send and receive data traffic from interstate and foreign websites and hosts. As a practical matter, intrastate aspects of their operations cannot be detected and separated. State regulation of broadband networks therefore unavoidably burdens interstate commerce.

Under the Communications Act, information services—electronic services that, among other functions, generate, process, and store data—are jurisdictionally interstate. The FCC has shared this view going back to at least its 2002 cable modem order. Indeed, the jurisdictional status of today’s information services, which were called enhanced services prior to the Telecommunications Act of 1996, as interstate traces directly back to the FCC’s seminal Computer II decisions in the early 1980s.

The clash between the light-touch, free-market oriented federal policy on interstate information services and state net neutrality laws that purport to impose public utility regulation on those same services is evident.

The FCC should consider the constitutional backdrop of Commerce Clause and Supremacy Clause jurisprudence and maintain a uniform standard for broadband internet services. Such an approach—which has been demonstrated since the adoption of the 2017 “Restoring Internet Freedom” order—will promote the investment and innovation that is essential to the creation and implementation of robust private sector internet networks.

Members of Congress swear an oath to uphold the Constitution. Accordingly, they should reject legislation that jeopardizes private property and free speech rights that are foundational to free enterprise and free markets. So too should FCC commissioners and other federal officials—who swear the same constitutional oath—strive to avoid even potential infringement of constitutional rights.

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The Justice Department Should Preserve Home Confinement

Mon, 01 Mar 2021 05:03:25 GMT

In the waning days of the Trump Administration, the U.S. Department of Justice cast doubt on the futures of nearly 8,000 people currently living in home confinement.

In a short memorandum released just five days before President Donald J. Trump left office, the Department declared that the Federal Bureau of Prisons must return people in home confinement back to prison at the end of the COVID-19 pandemic. But doing so would cause enormous disruption and unnecessary suffering for incarcerated people and their families. The Biden Administration should revise this declaration and allow the Bureau to continue supervising people in home confinement when the pandemic subsides.

Prior to the pandemic, incarcerated people could only spend six months or ten percent of their sentences in home confinement, whichever was less. Under the CARES Act, however, the U.S. Congress authorized the Bureau of Prisons to permit federally incarcerated people to spend longer periods of their sentences at home.

But an important legal question arises for those currently on home confinement: When the Act’s covered emergency period ends, must they return to prison to complete their sentences?

According to the Trump Administration’s Office of Legal Counsel (OLC), the answer is “yes.”

The text of the CARES Act, however, is actually silent on this question. And in fact, the better reading of both the CARES Act and other laws governing the Bureau’s home confinement authority would allow the Bureau to permit people who are currently assigned to home confinement to remain confined to their homes after the pandemic ends.

Key language in the CARES Act states that “during the covered emergency period,” if the conditions of the COVID-19 pandemic so require, “the director of the Bureau may lengthen the maximum amount of time for which the director is authorized to place a prisoner in home confinement.”

Under the Trump Administration, OLC interpreted this language to mean that, when the COVID-19 emergency is over, the Bureau of Prisons must abide by preexisting federal law, which only permits home confinement for short periods of time. OLC explained that when the covered emergency period ends, the Bureau must “recall” those currently in home confinement back to federal prisons, unless they would still be eligible for home confinement under the pre-CARES Act guidelines.

Yet contrary to the Trump OLC’s assertions, the CARES Act does not explicitly require that people in home confinement be recalled to federal prisons. What the CARES Act limits to the covered emergency period is the Bureau Director’s authority to lengthen the permissible amount of time that people can spend in home confinement. Once a person’s home confinement period is properly lengthened by the Bureau—during the emergency, when the Bureau has the authority to do so—nothing in the law requires that someone’s period of home confinement must be shortened once the pandemic is over. The statute only limits when the Bureau of Prisons has authority to move people into home confinement for longer durations of their sentence.

In short, the CARES Act does not speak at all to whether the Bureau may drag people in home confinement back to federal prisons after the pandemic ends, let alone demand that the Bureau do so.

The Trump OLC’s interpretation also contradicts the purpose of the home confinement program, which is to “afford the prisoner a reasonable opportunity to adjust to and prepare for his reentry into the community.” Removing people from their homes and re-incarcerating them after they have already begun the process of reentry would cause enormous disruptions for incarcerated people and their families, which undermines the program’s goals.

OLC reasoned in its January memo that the Bureau’s expanded home confinement authority is “circumscribed by” the emergency conditions surrounding the enactment of the CARES Act. OLC gestured at the CARES Act’s expiration provision—which provides that the Bureau’s expanded authority ends 30 days after the emergency period ends—as evidence that Congress wanted the Bureau of Prisons to re-incarcerate people when the emergency subsides. In support of this position, OLC asserted that the “decision to place a prisoner in home confinement is not a one-time event” because the Bureau has continuous discretion to relocate people under its supervision.

But this reading of the CARES Act language strains credulity.

The act of placing someone in a new location does not require “ongoing action” just because that person can be moved or monitored. The Bureau of Prisons, of course, does have discretion to relocate incarcerated people, including moving them from home confinement back to prison. But a decision to do so must be made subsequent to the decision to place that person in home confinement in the first place. The more logical reading of the CARES Act is that Congress sought to limit the Bureau’s authority to initiate transfers of people into longer periods of home confinement—and the Bureau’s authority to do so ends when the covered emergency period does.

In addition, the Trump Administration’s OLC asserted that, after the covered emergency period ends, the Bureau of Prisons is not statutorily authorized to keep people in home confinement for long periods because home confinement is not a “penal or correctional facility.” According to OLC, the definition of “facilities” does not include homes. But this argument, too, is supported by supposition only, without any explicit support in the statutory text.

When people are placed in home confinement or house arrest, they are subjected to conditions that do make home confinement both “penal” and “correctional.” They may be subject to extensive electronic monitoring and restrictions on their freedom of movement. Those people are also required to comply with imposed special conditions, including participation in treatment programs and consistent reporting requirements. If prisoners in home confinement fail to report to their probation officers or to other specified locations, they are considered “escapees.”

Even if the proper reading of the CARES Act were a close call—and it is not—the Trump OLC’s interpretation runs contrary to the spirit of the rule of lenity. Under this rule, when a statute related to criminal law is ambiguous, court must adopt the interpretation that favors people accused of crimes. Although the rule of lenity typically operates when courts are interpreting statutes that define criminal offenses, its principles should apply in the home confinement context, where people have already been convicted of federal crimes.

Rather than construe the CARES Act narrowly, the Trump OLC presented an overly broad interpretation of the law in order to subject people on home confinement to harsher and more punitive conditions.

The Trump OLC’s interpretation is not only inconsistent with lenity; it is also incompatible with compassion and human decency.

The OLC memo calls for taking individuals away from their families and reincarcerating them, even after the Bureau of Prisons has determined that living at home is more appropriate for these individuals than living in prison. It demands that people who have started transitioning to life outside of prison once again say goodbye to their loved ones and return to life in prison, even if they have done nothing but comply with the Bureau’s supervisory conditions while in home confinement.

Under the Biden Administration, OLC can change its interpretation of the CARES Act by revoking the memo it rushed to release in the closing days of the Trump Administration and issuing a new one. President Joseph R. Biden, his Attorney General, or the General Counsel of the Bureau of Prisons should ask OLC to do so. OLC should remedy its error and come to a conclusion that better accords with the CARES Act and better advances principles of justice.

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Is Your Dietary Supplement Safe?

Sat, 27 Feb 2021 05:05:37 GMT

From weight loss pills to protein powder, dietary supplement consumption is on the rise. But some dietary supplements boast unsubstantiated claims and may be contaminated with pesticides or toxic heavy metals.

The U.S. Food and Drug Administration (FDA) categorizes dietary supplements as products with ingredients such as herbs, vitamins, and minerals. Dietary supplement companies can market these products in forms including powders, tablets, or liquids.

Dietary supplements have less stringent safety requirements than prescription and over-the-counter drugs do. Companies can send their products to market without conducting any safety or quality testing—such as clinical trials to prove their products’ alleged health benefits. Current FDA regulations only require “reasonable assurance” that dietary supplements do not pose “a significant or unreasonable risk of illness or injury” when the product is used as directed, or with regular use if the label does not include directions.

The Dietary Supplement Health and Education Act (DSHEA) allows FDA to regulate dietary supplements as a special category distinct from conventional food and drug products. The statute also authorizes the agency to remove products it deems unsafe from the market.

FDA, however, lacks the ability to review the safety and effectiveness of dietary supplements before consumers can buy these products. Although the DSHEA allows FDA to remove a dietary supplement from the market, the agency can only do so after it demonstrates that the product in question presents a significant risk to consumers.

But this standard can be difficult to meet for two reasons. First, because dietary supplements are usually self-prescribed or available over-the-counter, medical professionals do not consistently monitor them for negative side effects. Second, because reporting adverse reactions to dietary supplements is voluntary for consumers and health professionals, toxic products can circulate in the market before FDA proves injury to consumers and pursues manufacturers.

Many dietary supplements, however, are safe. For example, millions of consumers take multivitamins regularly without harmful side effects, and many manufacturers provide detailed ingredient disclosures and claims on their products.

This week’s Saturday Seminar examines the regulatory framework for dietary supplements and highlights suggestions for how FDA can improve regulation of these products.

To protect consumers, FDA and other agencies should promote safety in dietary supplements by improving detection, deterrence, and prevention measures, Amy Christine Brown of the University of Hawai’i at Manoa claims in a Food and Chemical Toxicology article. Because FDA has limited resources to detect contamination in the dietary supplement marketplace, Brown advocates tightening labeling laws and imposing future criminal penalties under existing laws to hold corporations that violate regulations accountable. She further suggests that a centralized FDA reporting system and timely enforcement of existing laws and regulations against companies that adulterate drugs could improve the regulation of dietary supplements.
Pieter Cohen of Harvard Medical School explains the challenges of pharmaceutically adulterated supplements—products labeled as botanical dietary supplements, but which actually include active drugs—in a JAMA Network article. Cohen argues that FDA’s current voluntary recall process for these supplements is deficient because too many products remain in the marketplace, leaving consumers at risk of “inadvertently ingesting unknown quantities of pharmaceutical drugs.” Cohen suggests that the U.S. Congress amend the DSHEA to provide “FDA with more effective enforcement tools, such as immediately revoking a product’s registration if a supplement is found to be adulterated with pharmaceutical drugs.”
Even under a statute such as the DSHEA, the “quality and safety” of dietary supplements “can be highly variable,” Purdue University’s Regan L. Bailey argues in a Critical Reviews in Food Science and Nutrition article. For example, Bailey highlights that the DSHEA does not address bioavailability—whether a person’s body can absorb the ingredients in a dietary supplement. In addition, she calls for dietary supplements to face controlled trials to determine any health benefits and demonstrate a product’s efficacy. Although the DSHEA notes that dietary supplement products are not designed to treat diseases, most consumers “use supplements primarily for health-related reasons,” according to Bailey.
In an article in the Academy of Management Journal, the University of Oxford’s Pinar Ozcan and La Salle Ramon Llull University’s Kerem Gurses detail the regulatory battle between FDA and manufacturers over how to categorize dietary supplements. Ozcan and Gurses focus on the process of regulatory categorization, which determines the legal conditions of how a product is produced and distributed. They note that dietary supplement producers established an entirely new regulatory category by garnering public support with a national campaign against FDA. The agency’s “scientific approach,” efforts to educate the public, and policing of the industry “allowed supplement makers to portray the regulator as arrogant and aggressive, and themselves as victims,” Ozcan and Gurses claim.
Although dietary supplement regulations vary internationally, rules for these products often seem “directed more toward promoting commerce than protecting public health,” Mi Kyung Lee of Murdoch University and Colin W. Binns and Andy H. Lee of Curtin University argue. In an article in the Annual Review of Public Health, Binns and his coauthors claim that dietary supplement regulation should include minimum safety requirements, such as a uniform registration system for supplements, a list of permitted substances, and more standardized labeling requirements. Although consumers have increased their consumption of dietary supplements in recent years, Binns and his coauthors suggest that consumers may benefit more from choosing a diet of nutritious foods rather than relying on underregulated supplements with dubious ingredient compositions and benefits.
In a Regulatory Toxicology and Pharmacology article, FDA’s Shradda Thakkar and her coauthors compare and contrast dietary supplement regulation internationally. Thakkar and her coauthors argue that countries often regulate similar products differently because “the regulatory definition and categorization” of medicines and supplements vary widely across different countries. For example, FDA treats green tea extract as both a dietary supplement and a medicine, but Canada and Australia classify it as a medicine, and the European Union, China, Japan, and New Zealand regulate it as a supplement. To harmonize dietary supplement regulation internationally, Thakkar and her coauthors encourage “establishing centralized information on botanical standards.”

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Week in Review

Fri, 26 Feb 2021 05:03:06 GMT

IN THE NEWS

The U.S. Food and Drug Administration (FDA) issued guidance for medical products targeting COVID-19 variants. The guidance specifically addressed vaccines, diagnostic testing, and therapeutic products meant to prevent, detect, or treat emerging variants of the virus that causes COVID-19. One of FDA’s recommendations allows vaccine developers to conduct shorter clinical trials for COVID-19 vaccines that are modified to prevent contracting the disease’s new variants. Janet Woodcock, acting FDA commissioner, reportedly stressed that new medical products may not be necessary to target new variants of COVID-19 depending on the efficacy of current vaccines.
President Joe Biden announced changes to the Paycheck Protection Program, including an application period exclusively for companies with fewer than 20 employees and a new loan calculation formula to make loans more accessible for sole proprietors, independent contractors, and self-employed individuals. The Administration will also now allow individuals with a non-fraud criminal conviction and individuals who have been delinquent on their federal student loans to receive funds through the program. In support of the changes, President Biden stated that “small businesses are the engines of our economic progress” and the “heart and soul of our communities.”
Illinois Governor JB Pritzker signed legislation that eliminates cash bail, prohibiting judges from setting bail for a defendant charged with a crime. Instead, judges will evaluate if suspects should be held in jail or released through a risk assessment process. Governor Pritzker called the legislation “a substantial step toward dismantling the systemic racism that plagues our communities, our state, and our nation and brings us closer to true safety, true fairness, and true justice.” Amanda Pyron, executive director of The Network: Advocating Against Domestic Violence, praised the bill for “ensuring those accused of non-violent crimes are not punished for being poor.”
The Public Utility Commission of Texas ordered utility companies to offer deferred payment plans to consumers and to stop processing disconnections for non-payment. The order was reportedly the result of a meeting between state lawmakers of both the Republican and Democratic parties, the Utility Commission, and Texas Governor Greg Abbott, who has criticized the high electricity bills faced by consumers of variable pricing plans during the recent snowstorm and power outages. The order was one of a slew of recent regulatory waivers designed to help alleviate financial hardship for Texans, including automatic renewal of benefits under the Supplemental Nutrition Assistance Program, a waiver allowing expanded gasoline production, and the addition of 500 new plumbing licenses to help fix burst pipes across the state. Federal Energy Regulatory Commission Chairman Richard Glick stated that he is prepared to impose new mandatory standards to weatherize critical infrastructure in response to the recent storm.
The Supreme Court of the United Kingdom held that Uber drivers are not self-employed but deemed “workers,” which entitles them to certain rights and privileges under U.K. law even though the drivers are not working under an employment contract. The Court noted that employment protection laws apply to vulnerable individuals who have little or no say over their pay and working conditions. Because Uber controls drivers through the Uber application, the Court ruled that drivers are strictly controlled by the company, entitling them to workplace protections including a minimum wage and paid annual leave. Yaseen Aslam, a plaintiff in the case and president of the App Drivers and Couriers Union, reportedly called the decision “a massive achievement” to “stand up against a giant.”
The Federal Aviation Administration issued an Emergency Airworthiness Directive requiring operators of airplanes equipped with Pratt & Whitney PW4000 engines to conduct thermal acoustic image inspections, which can find microscopic cracks in engine fan blades, before flight. The PW4000 engines have been tied to a series of reported mishaps, allegedly causing debris to rain down on populated areas and forcing a plan leaving Okinawa, Japan to make an emergency landing in December. The directive followed shortly after Japan’s Ministry of Land, Infrastructure, Transport, and Tourism ordered Japanese airlines to ground all planes with the PW4000 engines. At a press briefing, the National Transportation Safety Board presented the results of a preliminary investigation into the engines, which revealed that the engines experienced fan blade cracks that could be discovered by regular maintenance protocols.
The U.S. Environmental Protection Agency (EPA) issued preliminary determinations to regulate under the Safe Drinking Water Act two harmful substances known as PFOS and PFOA, which EPA has informally classified as “forever chemicals” because they do not break down naturally in the environment. EPA also issued a proposed rule that would require water utilities to monitor the amount of 30 additional similar contaminants and report their findings to the agency after two years. EPA indicated that it will use the data to determine whether federal limits on the amount of these substances in drinking water are needed to protect public health. EPA Acting Assistant Administrator for Water Radhika Fox celebrated the actions, saying that they “will underpin better science, better future regulation, and improved public health protections.”
Senator Bob Menendez (D-N.J.) reintroduced the Improving Corporate Governance Through Diversity Act, which would require public companies to disclose the gender and racial composition of their board of directors and executive officers to the Securities and Exchange Commissioner. The bill would also require the U.S. Securities and Exchange Commission to establish a diversity advisory group that would submit annual reports about the state of corporate diversity to the U.S. Congress. The U.S. Chamber of Commerce and several interest groups—including the National Urban League and American Bankers Association—endorsed the bill. When introducing the bill, Senator Menendez stated that “greater diversity in top corporate positions” is necessary for the United States to “compete with other leading economies” and “progress toward full inclusivity.”
Senators Mitt Romney (R-Utah) and Tom Cotton (R-Ark.) plan to introduce a minimum wage bill as a counterpoint to the Democratic proposal to increase the minimum wage to $15 per hour by 2025. After the pandemic ends, the bill would increase the minimum wage to $10 per hour over four years but would also require all employers to use an electronic verification service to avoid hiring undocumented workers. Senator Romney stated that the “federal minimum wage has not been increased in more than 10 years” despite the “rising cost of living.” Senator Cotton added that it was “unfair” that workers competed with undocumented immigrants, and that the bill would end “the black market” for undocumented labor.

WHAT WE’RE READING THIS WEEK

In an article in Stanford Law Review, Erin A Scharff and Joshua Sellers, law professors at Arizona State University, examined structural preemption, the means by which a state government displaces a local government’s autonomy over designing or changing its government institutions and processes for political participation. Arizona, for example, structurally preempted the city of Tempe, Arizona from implementing an ordinance requiring disclosures of large election donations after the Arizona legislature passed a conflicting bill. Instead, Arizona required the city to follow its bill. Scharff and Sellers argued that state officials, courts, and scholars should consider four key values—administrative cost, democratic accountability, democratic deliberation, and pluralism—when evaluating preemption disputes. A values-based approach, Scharff and Sellers noted, would highlight the political consequences of structural preemption for citizens better than the evaluative methods traditionally used by courts.
In an issue brief, Janet Weiner, co-director for health policy at the Leonard Davis Institute of Health Economics at the University of Pennsylvania, developed an overview of state and international long-term care programs to provide long-term care financing solutions to federal policymakers. Weiner and her coauthors explained that the current federal system in the United States leaves many people responsible for financing long-term care themselves. By analyzing long-term care financing solutions, Weiner and her coauthors aimed to show U.S. policymakers options for alleviating U.S. families’ burdens of paying for long-term care.
In an article in The Journal of Things We Like (Lots), Jack Beermann, professor at the Boston University School of Law, drew a comparison between the challenges faced by patent examiners and those faced by regulatory agencies. Beerman cited research by Jennifer Freilich, a professor at the Fordham University School of Law, who argued that less deference should be given to U.S. Patent and Trademark Office determinations when challenged in court because patent examiners must rely upon voluminous disclosures and biased information provided by applicants when granting patents. Beerman argued that this informational challenge is comparable to that of administrative agencies, which frequently must review mountains of comments on a proposed rule. Beerman suggested that administrative law scholars consider this similarity when thinking about how much deference should be given to administrative agency rulings.

FLASHBACK FRIDAY

In an essay in The Regulatory Review, Susan Dudley, director of the George Washington University Regulatory Studies Center, argued that the public comment process on proposed regulations has provided stability and democratic accountability over the past decade. Dudley observed that recent presidential administrations have held significant policymaking power compared to Congress. She explained that after the Clinton Administration’s 1993 Executive Order 12,866, which required the Office of Information and Regulatory Affairs to review all significant regulatory actions, has remained largely unchanged. Dudley argued that by giving Presidents control over administrative agencies’ actions, the process of centralized review forces bureaucratic institutions to reflect democratic preferences.

The post Week in Review first appeared on The Regulatory Review.

Finding Common Rules to Wrangle Big Data

Thu, 25 Feb 2021 05:03:01 GMT

The idea of “big data” generates both fear and hope. Apple’s Tim Cook has portrayed data availability as a warring enemy, warning that personal information “is being weaponized against us with military efficiency.” In contrast, other commentators praise data availability as a revolutionary force for good across industries such as health care and finance.

In a new paper, William Magnuson, a law professor at Texas A&M University School of Law, explains these conflicting perspectives. Magnuson describes how both angst and excitement about data revolve around three common values: fairness, efficiency, and stability. The increasing magnitude and availability of data can either undermine or promote these values, depending on how those data are managed and used.

Magnuson also explains that existing data laws and regulations have limited applicability but that data do not—and neither should data rules. Given common problems and opportunities of data, Magnuson argues for a set of common approaches to data governance; a unified set of principles to enshrine in laws and regulations.

One set of problems and opportunities revolves around fairness. Magnuson first introduces the view that the expanding scope of data usage creates harm. Decisions may incorporate data points that correlate with race, religion, or sex in a way that leads to discrimination. A bank could use factors that correlate with race—say, zip codes or first names—to decide on issuing mortgages, leading to race-based discrimination. Or sentencing algorithms may rely on data about prior offenses or personality disorders, which could reinforce discriminatory patterns of conviction or diagnosis.

Widespread data may also undermine fairness by eroding human dignity and privacy. Decisions that treat humans as statistics do not respect the dignity of individuals. And uses of personal data by companies without individual consent unfairly disregard privacy.

But Magnuson points out that this perspective on fairness is only one side of the story. Availability of personal data also allows people to share information to their benefit, such as by disclosing purchasing histories that build credit. Another perspective also presents data analysis as a protector of dignity and equality, providing the tools to shine a light on bias and compensate for human flaws.

A similar dichotomy exists around efficiency, Magnuson reasons. He describes how targeted ads based on consumer data profiles border on predatory, exploiting vulnerabilities to push products and services. Not only can companies leverage data to manipulate consumer behavior, but they also can use customer data to hinder competition, protecting market position and raising prices. Having more data could also lead to erroneous decisions because decision-makers may defer to concrete algorithms when a more complex judgment is required, Magnuson explains.

On the other hand, data can lead to more efficient consumer decisions by empowering informed choices. Data can improve competition by giving small startups in areas such as fintech and health care more avenues to compete against incumbents. And data can sharpen decisions when analyzed for applications such as autonomous vehicles or vaccine development.

Finally, the increasing availability of data both stabilizes and destabilizes systems. Data availability expands opportunities for a more responsive government, enhancing stability. Destabilizing forces also can increase, however, when data are readily accessible. Governments that have access to troves of data about residents can retaliate for civil dissent. And algorithms that trade on high frequency information about markets can trigger erratic market shifts.

Magnuson presents unified solutions to minimize these problems across fairness, efficiency, and stability while still capturing beneficial opportunities.

He argues that individuals should have “substantial control” over their data, including cell phone data, health data, and financial data. Magnuson points out that even though this rule of individual control seems self-evident, it remains contested. Individual control would include property rights, and people could decide for themselves whether to maintain privacy or sell their information, striking their own balance of values.

Although individual control would be foundational, Magnuson argues that governments should have an “eminent domain” power over data—the right to access and collect data—for legitimate goals related to society’s health or safety. This right of governments would have limits to ensure transparency to the public and reviewability by courts.

Finally, Magnuson advocates requirements that companies with data should follow appropriate security procedures and implement systems to protect data from breaches. He also favors expansive liability rules so that individuals harmed by hacks can pursue compensation, further deterring careless storage of information.

The current regulatory environment for data governance is complex, varying by industry and location. The Health Insurance Portability and Accountability Act regulates health data, the Gramm-Leach-Bliley Act regulates financial data, and the Federal Information Security Modernization Act regulates federal government data. At the same time, California has the California Consumer Privacy Act and Massachusetts has the Act Relative to Consumer Protection From Security Breaches. Abroad, Europe has the General Data Protection Regulation.

In contrast to this patchwork of regulations, Magnuson contends that relying on unified regulatory principles across contexts is the best way to handle widespread data diffusion. Common solutions should address the reoccurring problems of fairness, efficiency, and stability.

The post Finding Common Rules to Wrangle Big Data first appeared on The Regulatory Review.

Rallying Around Paid Family Leave

Wed, 24 Feb 2021 05:06:38 GMT

After his wife was diagnosed with stage-three colon cancer, Terrence Walker spent six years struggling to balance family care and a full-time job because no paid family leave program existed in Virginia.

Stories like Walker’s have become common across the United States. A lack of a national policy on paid leave has left the rules in state hands, and yet only a handful of states have implemented paid-leave policies. The resulting fragmented set of policies puts individuals like Walker in difficult situations and confronts employers with sometimes inconsistent state and local labor laws.

Now, a growing number of family advocates and business groups are encouraging a federal paid-leave program.

To date, only nine states and the District of Columbia have enacted paid family leave laws. With the recent November election, Colorado became the latest state to do so—joining California, New Jersey, Rhode Island, New York, Washington, Massachusetts, Connecticut, and Oregon. A number of municipal governments have also passed paid family leave laws.

In other states, legislators have started to consider similar laws. Walker shared his story with legislators in Virginia as it became the first Southern state to consider a system entitling all employees to paid leave to care for themselves or a loved one. Still, most Americans cannot access paid family leave. A September news release from the U.S. Bureau of Labor Statistics reported that only 21 percent of civilian workers have access to paid family leave.

At the federal level, the Family and Medical Leave Act provides certain employees with up to 12 weeks of unpaid leave each year. The law provides job and health insurance protection, but employers need not pay employees during their leave.

The first federal mandate for paid family leave came in response to the COVID-19 global pandemic. In March, Congress passed the Families First Coronavirus Response Act, allowing paid leave for certain employees in specified circumstances, such as those needing to care for a family member subject to quarantine. Congress renewed these paid-leave protections with the Consolidated Appropriations Act, 2021, but the protections will expire at the end of March 2021 unless Congress further renews them. Strikingly, many Americans have not taken advantage of this federally mandated paid leave because they do not know about it.

Because the emergency stimulus package applies only in limited circumstances related to the current crisis, stakeholders continue to call for a more permanent solution.

For example, more than 200 comments flooded in after the U.S. Department of Labor Women’s Bureau published a request for information seeking comments on paid family and medical leave in July. Many expressed support for a federal paid-leave program.

Even groups that have previously opposed federal paid family leave measures, such as the HR Policy Association and the U.S. Chamber of Commerce, submitted comments on how to structure a federal paid-leave program. The HR Policy Association noted the “labyrinth of regulations” that employers must currently deal with, and it suggested that a uniform federal standard preempting state and local requirements would reduce compliance costs. Likewise, the U.S. Chamber of Commerce emphasized the need to relieve employers of having to comply with state and local laws. The Chamber advocated a policy allowing employers to opt into a federal program or remain in state or local programs.

Many individuals, too, submitted comments in support of a federal paid-leave policy. A mother from Iowa described having to leave two careers to take care of her disabled daughter, noting the limited protection provided by the Family and Medical Leave Act. A social worker wrote that mothers should not have to choose between putting food on the table and caring for a sick child.

Other proponents of paid family leave highlighted the positive economic impacts of attracting more women to the workplace. According to an S&P Global study, bringing more women to the workforce could grow GDP by up to 10 percent in a few decades.

For women, paid family leave has become more important during the COVID-19 “she-cession,” with a disproportionately high number of women leaving the workforce. By supporting women’s ability to stay in the workforce, paid family leave can improve lifelong employment trajectories and earnings.

Critics of federal paid-leave policy, however, have highlighted the damaging impact that a federal mandate might have on small businesses. The National Federation of Independent Business (NFIB), which represents small and independent business members, has emphasized that many small businesses cannot operate if required to offer paid leave to their employees. NFIB has explained that about half of its members operate businesses with five or fewer employees, making it difficult to manage sudden leaves and pay for replacements. In addition, many small businesses have small profit margins and often cannot realistically raise the prices of their goods or services to cover paid-leave benefits. NFIB expressed opposition to any kind of federal paid-leave mandate but suggested that, if a federal paid-leave program must be implemented, the program should exempt small businesses.

As policymakers consider the various views about paid family leave, workers continue to face the challenge of balancing demands for work with the necessity to care for family members. With an increasing number of stakeholders advocating greater access to paid family leave, it remains to be seen how policymakers will respond.

The post Rallying Around Paid Family Leave first appeared on The Regulatory Review.

Oh, When the Feds Go Marching-In

Wed, 24 Feb 2021 05:03:39 GMT

Health care providers are vaccinating Americans against COVID-19 free of charge with vaccines provided by the federal government.

But what if vaccine manufacturers had sat on their patents and dawdled? Would the federal government have had any option but to wait?

The 1980 Bayh-Dole Act offers federal agencies “march-in rights” to license private patents to others, bypassing a patent’s usual exclusivity. Although federal agencies are unlikely to march-in on COVID-19 vaccine-related patents given the progress in administering vaccines, such threats threats to do so can spur companies to change course, and past efforts to march-in may inform future attempts. The government’s right to authorize the sharing of patents with others presents a powerful option for the federal government when dealing with patented inventions, although doing so could impact innovation activity more broadly.

The Bayh-Dole Act is better known for stimulating the commercialization of innovations by facilitating nonprofits and small businesses’ ability to patent inventions that they develop with federal funding. And in its four decades, the legislation has reportedly “directly contributed to well over $1.3 trillion in U.S. economic growth, more than 4.2 million jobs, and over 11,000 new startup companies.”

The Bayh-Dole Act prioritizes getting new developments from the laboratory into the public’s hands. The law’s authorization of march-in rights provides another avenue for the federal government to help transform technological breakthroughs into usable forms. When a federal agency marches-in, it requires the patent holder “to grant a nonexclusive, partially exclusive, or exclusive license in any field of use to a responsible applicant.”

To march-in on a patent, the federal government must satisfy several conditions. The patent must result from federal funding. The patent holder must have refused to grant a license, and the ensuing march-in license must be “reasonable under the circumstances.” In addition to meeting these requirements, the funding federal agency must also determine that one of the following four circumstances applies to justify marching-in:

The patent holder cannot or appears unable “to achieve practical application of the” invention in “a reasonable time.”
The patent holder cannot reasonably “alleviate health or safety needs” that the invention would address.
The patent holder cannot reasonably “meet requirements for public use specified by federal regulations.”
The patent holder has not satisfied another provision of the Bayh-Dole Act that requires substantially manufacturing the invention domestically.

Despite the Bayh-Dole Act’s transformative effect on U.S. innovation by reportedly facilitating over 420,000 invention disclosures, no federal agency has ever exercised a march-in right. On about a dozen occasions over the years, however, third parties have petitioned a federal agency, usually the National Institutes of Health (NIH), to march-in. Even though federal agencies have uniformly refused to march-in, their rejections reveal principles that may guide future evaluations of march-in petitions.

In the first petition, biotechnology company CellPro asked the NIH in 1997 to march-in on Johns Hopkins University patents on stem cell separation and grant CellPro a license, alleging that Hopkins and its licensees were acting too slowly to commercialize the technology and to “alleviate health or safety needs.” A court had found that CellPro’s stem cell separation device infringed on the Hopkins patents, and so CellPro pursued marching-in as a way to get around this infringement.

Describing the march-in right as applying in “very limited circumstances,” the NIH rejected the petition. The NIH credited Hopkins and its licensees’ clinical trials and prototype testing as sufficient efforts to develop the invention. The NIH also concluded that Hopkins and its licensees adequately met health and safety needs, especially given their promise—which the NIH would monitor for fulfillment—to serve any hospitals then relying on CellPro’s rival technology.

The NIH established that the availability of a single treatment satisfied patient access concerns and set a high bar for demonstrating unreasonable addressal of unmet health needs. The NIH also emphasized that it focuses on supporting biotechnology development generally, rather than any specific company such as CellPro, and expressed a reluctance to intervene in markets due to the potential to hinder unrelated, future innovation development.

In 2004, after Abbott Laboratories raised the price of an AIDS-drug, Norvir, almost fourfold, public citizens and Congresspersons petitioned the NIH to march-in on Norvir-related patents to enable production of a cheaper generic. The NIH rejected the petition, finding that Abbott adequately enabled public use of Norvir and a lack of evidence that marching-in would address “any health or safety needs.” The NIH called marching-in an “extraordinary remedy” inappropriate for resolving drug pricing issues, which it felt Congress was better positioned to address.

In 2010, patients with Fabry Disease petitioned the NIH to march-in on Genzyme-held patents for the Fabrazyme treatment to increase supply given Genzyme’s manufacturing challenges. The NIH rejected this request as well, with heavy emphasis on the practical inability of marching-in to address the scarcity issue.

The NIH assessed that no other company was positioned to use the Fabrazyme patents quickly enough to increase supply faster than Genzyme’s own estimated production increases, but the NIH did indicate that it would reevaluate marching-in if another such company did emerge. Ultimately, no company did, and the NIH monitored Fabrazyme production to ensure that Genzyme fulfilled its promise to boost supply.

The NIH also rejected several other march-in petitions in 2004, 2013, and 2016 for similar reasons and has reportedly rejected an additional handful of requests in unpublished decisions.

In August 2020, 34 state attorneys general petitioned the NIH, U.S. Food and Drug Administration, and U.S. Department of Health and Human Services to march-in on Gilead’s remdesivir for COVID-19 management, alleging that Gilead was unable to supply remdesivir adequately and that the price was too expensive.

The agencies have not yet publicly responded to this request, but commentators are doubtful that marching-in will result, disputing whether remdesivir’s development relied on federal funding. Commentators also highlight previous resistance to apply marching-in to drug pricing, question whether remdesivir’s price is indeed inappropriately expensive, challenge how quickly another manufacturer could meet demand, and warn of the potential chilling effect on other, unrelated research and development activities.

Although marching-in is an extraordinary remedy, proponents may wonder when marching-in would ever be appropriate, if not “during an unprecedented worldwide pandemic.” But many other observers still have cautioned against marching-in for fear of introducing uncertainty in an already productive American innovation landscape and the potential for negative consequences of any marching-in—COVID-19-related or otherwise—to reverberate well beyond the patent marched-in on.

Even if the federal government never marches-in, however, the mere possibility of a march-in may be enough to nudge companies and nonprofits to act to ensure that they never face a march-in.

The post Oh, When the Feds Go Marching-In first appeared on The Regulatory Review.

Time to Rescue the Rescue Dog Industry?

Tue, 23 Feb 2021 05:06:47 GMT

Dogs are in.

New homes take in millions of dogs in a typical year, but with the pandemic keeping people at home and in search of companionship, a canine craze has sunk its teeth into the United States.

For dog rescue organizations, keeping up with consumer demand has been a challenge.

“Rescue dogs”—extremely popular among consumers as “an easy way to take feel-good action”—usually refer to dogs adopted from nonprofit organizations that see their mission as one of rescuing dogs from breeders, kill-shelters, or inhumane conditions. These groups often rely on donations and internet fundraising to sustain their work. Some rescue groups, such as the Delaware Valley Golden Retriever Rescue or Nittany Greyhounds, focus on a specific breed.

But various animal rights advocacy groups, such as the Humane Society, decry what they view as a lack of regulatory oversight that enables the dog rescue industry to create a market for some of the same inhumane dog practices that dog rescue groups claim they try to stop.

According to the Humane Society, there are around 10,000 animal rescue groups in North America and around 3,500 brick-and-mortar shelters in the United States that sometimes work with rescue organizations.

Partly because of the success of previous dog rescue efforts, the number of available dogs in the United States has shrunk while demand has grown.

The decline in adoptable dogs has increasingly led rescue groups to turn to the two remaining government-regulated dog auction houses in the United States to purchase animals, according to an investigation published in The Washington Post. The rescue groups, many rolling in donation cash, often try to outbid one another to build their supply of dogs. The auction dogs are allegedly then re-labeled as a “rescue” and sold to a final consumer, sometimes at a profit. The happy owner, thinking they have adopted a “rescue” and averted a canine casualty, may have little way of knowing whether the rescue group paid for the dog or where the dog came from.

According to the owner of Southwest Auction Service—the larger of the two government-regulated dog auctions—some dog rescue groups are “malicious, lying, cheating” organizations that spread lies to increase their bottom line.

In the past decade, dozens of rescue groups have allegedly spent collectively nearly $2.7 million purchasing thousands of dogs at auction, driving a market for breeders. Located in rural Missouri, the two remaining government-licensed dog auction houses host breeders who can sell their dogs to anyone who will pay. Both houses maintain strict rules prohibiting cameras or recordings inside the facility, claiming customers want to avoid being potentially maligned on animal-activist websites.

Although the average price paid per canine is around $465, rescue groups, padded with donations, routinely pay several thousand dollars for a single dog. And the prices can go even higher: a single Cavalier King Charles Spaniel sold at auction to a rescue group in Alabama for $10,000.

This deceptive cycle of breeder-dog turned “rescue” dog has prompted calls for increased regulation of dog auctions and rescue groups. Mike Bober, president of the Pet Industry Joint Advisory Council—an organization that promotes animal well-being and represents “the pet care community to legislative, regulatory, and governing bodies”—is urging regulators at both the federal and state level to increase governmental oversight of canine transactions.

The two dog auction houses are regulated by both the Missouri Department of Agriculture (MDA) and United States Department of Agriculture (USDA).

USDA is charged with enforcing the Animal Welfare Act (AWA). Enacted in 1966, the AWA is “the only federal law in the United States that regulates the treatment of animals in research, exhibition, transport, and by dealers.” Although dog auctions must be licensed under the AWA and be subject to regular USDA inspections, the Animal Legal and Historical Center notes the licensing requirements are quite broad and that inspection is a “nice word but an unrealistic practice.”

The problem is that there are too few USDA inspectors to ensure breeders are in compliance with the AWA. Moreover, the AWA has historically not applied to nonprofit rescue groups.

Missouri adopted its own set of regulations for anyone acting as a dog dealer or engaged in breeding or auctioning dogs. Administered by the MDA, the Animal Care Facilities Act details licensure requirements for dog dealers, standards that facilities must meet to pass annual inspections, and the penalties—ranging from $1,000 civil fines to criminal punishment—that come from noncompliance.

Similar to the AWA, however, the Animal Care Facilities Act mostly does not apply to dog rescue groups, and there are too few MDA inspectors “to make oversight a useful tool.”

The public previously enjoyed access to AWA inspection and enforcement records from the USDA’s website. But soon after taking office, the Trump Administration removed this information, which, according to the Humane Society, made it more difficult to ensure that USDA was “properly regulating and inspecting facilities.”

In response, the Humane Society sued USDA, claiming the agency violated open-records laws by not releasing the inspection and enforcement reports.

USDA, in a possible attempt to address the growing regulatory concerns over dog rescue groups, issued a bulletin suggesting that under the AWA, any “non-profit organization that buys, sells, adopts or transports dogs” may need to “obtain a USDA license or registration.”

Critics of USDA’s announcement claim that targeting rescue groups does not address the underlying problem of excess canines. Although the numbers of dogs have declined dramatically in the past two decades, nearly 700,000 dogs that could not be placed in a shelter or home are still euthanized each year. Requiring rescue groups to obtain a USDA license does nothing to regulate breeders that supply the dogs to the Missouri auction houses, the Humane Society maintains.

Indeed, with adoption rates soaring and consumers willing to pay, the “retail rescue” industry built around buying dogs at auction shows no signs of slowing down.

The post Time to Rescue the Rescue Dog Industry? first appeared on The Regulatory Review.

How a Racist Home Loan Program Created a Climate Crisis

Tue, 23 Feb 2021 05:03:49 GMT

As the world gets warmer, extreme weather events are increasingly common and increasingly devastating.

In the United States, heat waves have emerged as the leading cause of weather-related fatalities, and communities of color often face the greatest risks. The Centers for Disease Control and Prevention estimates that extreme heat kills over 600 Americans each year, which amounts to more fatalities than deaths caused by hurricanes, tornadoes, and floods combined.

Temperatures are rising all over the country, but cities have felt the brunt of the change because metropolitan areas are generally hotter than their natural surroundings. Hallmarks of urban development account for the difference: Asphalt and tall buildings trap heat.

Researchers have known about these “urban heat islands” since the 19th century but have only recently recognized a correlation between the hottest neighborhoods and a racist mortgage-lending practice known as redlining.

Redlining began in 1933, when the federal government created the Home Owners’ Loan Corporation (HOLC) to stabilize and encourage homeownership as the nation recovered from the Great Depression. HOLC provided loans to banks and homeowners who were unable to pay their mortgages. HOLC also evaluated and assigned grades to neighborhoods based on the perceived risks to lenders.

HOLC’s grading system included four designations: “best,” “still desirable,” “declining,” or “hazardous.” Neighborhoods with Black or immigrant populations were considered to be risky for investors and were often labeled “hazardous.” In some cases, a single Black family was enough for HOLC to assign the lowest rating. When HOLC created maps to illustrate these designations, it outlined the “riskiest” areas in red.

Due to these perceived risks, residents of redlined neighborhoods could not secure mortgages from HOLC or the Federal Housing Administration (FHA). Between the 1930s and 1960s, when redlining became illegal, only about 2 percent of FHA loans were given to people of color. For many people, homeownership builds wealth that they can pass down to the next generation. In fact, some economists argue that inheritance and other intergenerational transfers “account for more of the racial wealth gap than any other demographic and socioeconomic indicators.” Unsurprisingly, by the time the Fair Housing Act banned redlining in 1968, the damage was deeply entrenched. Today, 74 percent of redlined neighborhoods are deemed to be “low-to-moderate income” and many remain “hyper-segregated.”

Another result of decades of disinvestment in redlined neighborhoods is unequal urban heat distribution. In many cities, green space is concentrated in affluent and predominantly white communities. Unlike more affluent white homeowners, minority and low-income renters did not have the power to lobby city officials or landlords for more green space. Over time, property values dropped and have remained low. Urban planners have even used the cheap land for constructing highways and large building complexes out of heat-absorbing materials, such as asphalt and concrete.

As a result, historically redlined neighborhoods experience temperatures today that are hotter than the city average. In the summer, intracity temperatures can vary by more than 10 degrees Fahrenheit. Even more modest differences can create significant livability issues. During heat waves, the risk of dying increases by 2.5 percent for every one degree increase in temperature.

In Philadelphia, where redlined areas are around three degrees hotter than the city average, residents’ risk of dying in a redlined neighborhood is 7.5 percent greater than the city average. In Baltimore, the risk can increase by nearly 15 percent.

Even before factoring in the risks of extreme heat, redlined area residents’ life spans are 20 to 30 years shorter than those in wealthier neighborhoods due to higher rates of chronic diseases, including diabetes, asthma, and hypertension. Extreme heat exacerbates all of these conditions and presents the risk of other life-threatening ailments, such as heat stroke and dehydration.

Reducing the urban heat island effect will require long-term, targeted action. But cities can act immediately to protect their most vulnerable residents.

In Philadelphia, the Office of Sustainability spent eight months engaging with residents in Hunting Park, one of the city’s poorest and hottest neighborhoods. Officials and residents worked together to share information on utility assistance programs, build mobile resource stations, and decide where to install cooling infrastructure. They also identified opportunities to use existing neighborhood assets, such as by extending community pool hours and coordinating with local business that can act as cooling stations.

Cities can also begin planting trees right away. Trees cool the environment by absorbing water and releasing it back into the air. In addition, urban tree canopies cover asphalt so that it does not trap and radiate as much heat. Trees grow slowly, however, and may not provide their full benefits for 15 years. Other vegetation, such as vines, shrubbery, and grass may grow more quickly and are also effective coolants.

The most meaningful interventions will require long-term investment because many urban heat island effects are attributable to neighborhood design. Cities will have to incorporate cooling features into the existing swaths of highway and building complexes. They can offer tax credits for installing green roofs that use living vegetation to shade and cool buildings. In addition, replacing segments of street with pavement that reflects rather than absorbs heat will lower both surface and ambient temperatures.

When planning for the future, cities can amend their land-use and zoning codes to mandate additional green space in new developments and require varied building height to allow air to flow more freely. Cities can also create climate action plans that prioritize the development of green infrastructure in the hottest neighborhoods.

These solutions will carry significant costs. The total cost of large-scale infrastructure improvements is not yet clear but will certainly bear a hefty price tag. Still, even though planting one tree can cost a city as much as $65 annually, the benefits can reach triple that amount.

Nevertheless, cities will have to identify funding sources or even create their own. Atlanta, for example, recently issued its first environmental impact bond, which provides millions of dollars for green infrastructure.

Fundraising is not the only challenge cities will face. Local officials must ensure that solutions to heat distribution do not exacerbate other inequities. Researchers warn that increasing green space in low-income areas can accelerate gentrification. To avoid pushing residents out of their neighborhoods, experts suggest collaborating with local housing advocates to develop anti-displacement strategies alongside environmental initiatives. For example, officials in Richmond, Virginia plan to create more affordable housing near parks to combat gentrification.

Reducing the urban heat island effect will certainly not erase the full legacy of redlining. But it is a crucial step forward in the struggles for environmental and racial justice.

The post How a Racist Home Loan Program Created a Climate Crisis first appeared on The Regulatory Review.

Compassionate Release During COVID-19

Mon, 22 Feb 2021 05:05:03 GMT

Since the pandemic began, at least 222 people serving federal prison sentences have died due to complications from COVID-19. But they did not all have to die in prison.

The U.S. Congress has established a process for sick and vulnerable people in federal prisons to seek “compassionate release”—a process through which sentencing courts can reduce an incarcerated person’s sentence to “time served.” When compassionate release is granted, the Federal Bureau of Prisons—the federal agency responsible for overseeing the sentences of people convicted of federal crimes—releases people from prison immediately.

As part of the First Step Act of 2018, Congress increased “the use and transparency of compassionate release.” An incarcerated person may qualify for compassionate release if a court determines that “extraordinary and compelling reasons” justify a sentence reduction.

Under the First Step Act, incarcerated people have two tracks through which they can get compassionate release requests before courts.

The first track is through the Bureau of Prisons’ administrative remedy program. Incarcerated people must submit a request for administrative remedy to the warden of their facility, explaining why they qualify for release. These requests must, at minimum, contain an explanation of the extraordinary and compelling reasons present and the details of a person’s proposed release plans, including where they will live and how they will receive any necessary medical care.

Prison wardens will then review each request. When wardens agree that extraordinary and compelling reasons exist, they submit the request to the Bureau of Prisons General Counsel. If the General Counsel concludes that the request should be approved, then the Bureau of Prisons Director makes a final decision. The Director can deny the warden and General Counsel’s recommendation, which people in prison cannot appeal—but if the Director approves a recommendation, the Bureau will file a motion for compassionate release on the person’s behalf with the court that imposed the person’s prison sentence.

In practice, wardens tend to deny requests—leaving incarcerated people to appeal to the Bureau General Counsel, which can grant a request or affirm the warden’s rejection. The General Counsel’s decision on appeal is a final administrative decision that the person seeking release cannot appeal further.

Before 2018, this administrative process afforded people in prison their only opportunity for compassionate release. The First Step Act, however, now empowers incarcerated people to seek compassionate release themselves by bringing a motion to their sentencing courts directly, creating an important second track for obtaining compassionate release.

Incarcerated people filing their own compassionate release motions must demonstrate that they have exhausted their administrative remedies. People can demonstrate such exhaustion by showing that they have concluded the administrative remedy process, either with the Bureau of Prisons Director’s refusal to file a motion on their behalf or the General Counsel’s rejection on appeal.

Importantly, people seeking release can demonstrate exhaustion in a second way—without completing the administrative remedy process. To do so, incarcerated people must show that 30 days have passed since they submitted their original request to their wardens, who either denied or ignored those requests. Once people seeking release meet that burden, their motions may be deemed ripe for review in court.

Between March and May of 2020, the Bureau of Prisons had approved no more than 2 percent of requests for release. Given this inaction, incarcerated people now are using the second track to take their requests to court themselves.

When compassionate release motions finally come before sentencing courts, those courts must determine whether extraordinary and compelling reasons warrant reducing a person’s sentence.

Although Congress has not defined what counts as an extraordinary and compelling reason, the U.S. Sentencing Commission—an independent agency responsible for establishing sentencing practices among federal courts—has issued a policy statement describing conditions that may satisfy the extraordinary and compelling requirement, including a person’s age, medical conditions, and family circumstances.

Some district courts have determined that extraordinary and compelling reasons exist only when incarcerated people can demonstrate that one or more of the Sentencing Commission’s enumerated conditions are present, or when the Bureau of Prisons has moved for release on a person’s behalf.

But many courts—including four federal appellate courts—have concluded that the Sentencing Commission guidance does not contain a binding or exhaustive list of extraordinary and compelling circumstances. One appellate court recently held that when incarcerated people file compassionate release motions on their own behalf, district courts may consider any reasons for release that a petitioner presents. As a result, sentencing courts can consider many factors when reviewing motions for compassionate release, such as a person’s demonstrated rehabilitation, the Bureau of Prisons’ inability to provide proper medical care to incarcerated people, and gross disparities between a petitioner’s sentence and one that would be imposed today.

With the onset of the COVID-19 pandemic and its prevalence in prison facilities, many federal courts have held that the conditions of confinement during the pandemic contribute to the extraordinary and compelling reasons justifying compassionate release. For example, courts have observed that prisons are “powder kegs for infection” due to “greater risks of infectious disease spread within detention facilities.” Data kept by the Bureau of Prisons confirm these concerns, as more than 46,000 federally incarcerated people—approximately one third of people in federal custody—have tested positive for COVID-19.

Furthermore, many people in prison have characteristics that correlate with increased likelihood of hospitalization and death due to COVID-19. About 40 percent of people incarcerated in federal prisons have chronic conditions, including high blood pressure, diabetes, and obesity—conditions that the Centers for Disease Control and Prevention have identified as presenting heightened risk of severe illness from COVID-19. About 20 percent of all people in federal prison facilities are over 50 years old, another factor suggesting a greater chance of more severe illness.

In addition, race and ethnicity correlate with worse COVID-19 outcomes, and people of color are incarcerated at disproportionately high rates—about 40 percent of the federal prison population is Black and about 30 percent is Hispanic. Together, these factors suggest that people in prison are more likely to suffer from severe COVID-19 illness than the general population is.

Many sentencing courts are starting to see that the risk of contracting COVID-19 in prison, combined with conditions and characteristics that may make people more susceptible to severe COVID-19 illness, present circumstances that warrant compassionate release. And even without the imminent threat of contracting COVID-19, courts have recently authorized compassionate release for people with excessive sentences and exceptional disciplinary records.

But other courts have held that the possibility of contracting COVID-19 is not independently sufficient to demonstrate extraordinary and compelling reasons for release, and as a result, many people remain incarcerated as courts have denied their motions.

As courts across the country continue to take different approaches to compassionate release, people incarcerated in federal prisons are likely to continue using this tool as a way to return home.

The post Compassionate Release During COVID-19 first appeared on The Regulatory Review.

Inside Insider Trading

Sat, 20 Feb 2021 05:05:03 GMT

Insider trading occurs when people trade stocks based on material nonpublic information—private knowledge of critical aspects of a company that could influence its share price. Little legislation, however, covers insider trading. Courts therefore have developed most of the governing law.

The U.S. Securities and Exchange Commission (SEC), the federal agency that regulates the securities markets—platforms for trading financial assets, such as stocks or bonds—issued rule 10b-5 in 1942. Rule 10b-5 prohibits employing “any device, scheme, or artifice to defraud,” making an “untrue statement of a material fact,” or engaging in any kind of fraud or deceitful practice. Although the SEC did not define insider trading in rule 10b-5, the rule has evolved into one of the most important federal tools in combatting securities fraud.

But demonstrating 10b-5 violations can be difficult. For instance, if investment bankers knowingly forward their boss’s false statements in emails sent to investors, are the investment bankers liable for making false statements of material fact? Or do individuals engage in insider trading when they are the fourth or fifth person in a chain of information sharing?

One legislative attempt to curb insider trading is the Stop Trading on Congressional Knowledge Act (STOCK Act). But the law only applies to members of the U.S. Congress and congressional employees. Before the stock market crashed in March 2020, four U.S. senators engaged in trades that may have violated the STOCK Act. These senators allegedly received briefings—supposedly containing classified information—about the economic threat of the coronavirus.

Only one criminal investigation—that of Senator Richard Burr (R-N.C.)—reportedly continued into the summer. As with 10b-5 violations, insider trading under the STOCK Act can be difficult to prove. The Act is designed to prevent trading on “material, non-public information.” But it is hard to demonstrate that a particular trade was made based on inside knowledge. For example, Senator Burr has claimed that he executed his trades using public information, instead of impermissibly acting on any information he received through his senatorial briefings.

In this week’s Saturday Seminar, scholars discuss insider trading regulation, the SEC’s efforts to combat securities fraud, and proposals to resolve ambiguity in existing law.

The biggest challenge of regulating insider trading is striking the appropriate balance between stopping unfair access to potential returns-generating information while preserving “sufficient incentives for research to promote market efficiency,” Jill E. Fisch of the University of Pennsylvania Law School claims in an article in SMU Law Review. One approach, Fisch suggests, would be for statutes or legislation to provide clarification about insider trading, such as defining the scope of liability. Fisch argues, however, that doing so would “require policymakers to reach consensus on the appropriate scope of the prohibition,” and that leaving the issue to the courts instead can be advantageous for insider trading liability “to respond to evolving market practices.”
In 2000, the SEC enacted Regulation Fair Disclosure—or Regulation FD—which requires a company that discloses nonpublic information to securities market professionals or shareholders toelease that information to the public at large. The SEC intended that this provision promote market fairness, Michael Guttentag of Loyola Law School claims in a Florida Law Review Guttentag argues that Regulation FD has had a “wide-ranging impact” on how companies disclose information that may affect the market. In fact, nearly all public companies now prohibit their employees from disclosing material nonpublic information, Guttentag notes.
In an article in the Michigan Law Review, Adam Pritchard of the University of Michigan Law School critically examines insider trading law by reviewing Sheelah Kolhatkar’s Black Edge, which covers the federal investigation of SAC Capital Advisors. Pritchard explains that the Securities Exchange Act never explicitly mentions insider trading. Instead, U.S. courts have developed insider trading law—a history that Pritchard argues has created ambiguities in defining the kind of behavior that is prohibited and thus constitutes insider trading. Pritchard calls for Congress to create new legislation that defines more clearly what constitutes insider trading.
The U.S. House of Representatives passed the Insider Trading Prohibition Act in December 2019. In an article in the New York Law Journal, Ernest Edward Badway of Fox Rothschild LLP considers the potential effect of the bill on insider trading law. Badway explains that the bill would expand liability for insider trading and clarify the boundaries of permissible behavior in securities trading. The “overwhelming bipartisan support in the House” bodes well for the future of the bill and insider trading law, Badway claims
Regulating insider trading aims to maintain “the integrity of the disclosure” that securities law requires of public companies, explains James J. Park of the UCLA School of Law. In an article in the Wisconsin Law Review, he argues that current mandatory disclosure regulations—which intend to grant all investors equal access to companies’ important financial information—do not fulfill their purpose. The United States uses a system of periodic disclosure, where companies continuously compile information but only have to release it to the public on a quarterly basis. According to Park, this delay creates an opportunity for insiders to profit from this information before it reaches the public—an outcome antithetical to the goals of mandatory disclosure. Park concludes that insider trading regulations should focus more on “ensuring equal access” to disclosure information than on trying to police all trades.
In an article in the Washington University Journal of Law and Policy, Mississippi College School of Law’s John P. Anderson concludes that a primary justification for regulating insider trading—that is, promoting “public confidence in securities markets”—is unfounded. According to Anderson, the claim that investors are less likely to participate in the market without strict regulation of insider trading lacks empirical evidence. Because this market confidence theory has not been proven, Anderson warns against regulators using it to justify greater enforcement and penalties for insider trading.

The post Inside Insider Trading first appeared on The Regulatory Review.

Week in Review

Fri, 19 Feb 2021 05:05:34 GMT

IN THE NEWS

The U.S. Senate acquitted former President Donald J. Trump of the impeachment charge of inciting the attack on the U.S. Capitol. A majority of senators voted to convict President Trump, but the majority fell short of the two-thirds vote needed to convict. Although seven Republican senators voted to convict the former President, most Republicans indicated their view that the impeachment of a President who is no longer in power is unconstitutional. Senate Minority Leader Mitch McConnell (R-Ky.), for instance, called President Trump’s actions a “disgraceful dereliction of duty,” but voted to acquit because he did not believe the impeachment trial was permissible. Since the Senate did not convict former President Trump, he could hold public office in the future.
The U.S. Census Bureau announced that it will not release the data necessary for voting redistricting until September 2021—a six-month delay from its original March 2021 deadline. The Census Bureau explained that the delay is necessary to ensure the accuracy of redistricting data. According to news reporting, the coronavirus pandemic and the Trump Administration’s efforts to cut the census collection short contributed to the delay. Kathay Feng, national redistricting director of Common Cause, posited that the delay will enable widespread gerrymandering, reportedly saying that “legislators will simply use a special session to secretly pass maps with zero public scrutiny, and then count on a tight timetable to eke out at least one election cycle.”
President Joe Biden declared a state of emergency in Texas, where a severe winter storm has caused multiple deaths and widespread power outages for over four million residents. The declaration enabled the Federal Emergency Management Agency to mobilize resources and cover 75 percent of local emergency relief efforts with federal funding. Texas Governor Greg Abbott thanked President Biden for approving the emergency declaration and approved the deployment of the Texas National Guard to assist in escorting residents to designated warming centers throughout the state.
The World Health Organization (WHO) approved two versions of the AstraZeneca/Oxford COVID-19 vaccine for emergency use, clearing the way for vaccine distribution in developing countries through the organization’s COVAX program. Reflecting its motto that “no one is safe, unless everyone is safe,” the COVAX program aims to ensure equitable access to the COVID-19 vaccine for countries that have been unable to secure doses for their citizens. Lauding the emergency use approval of the vaccine, Mariângela Batista Galvão Simão, a physician on WHO’s headquarters leadership team, called for continued momentum in the “scale-up of manufacturing capacity and developers’ early submission of their vaccines for WHO review.”
The National Association for the Advancement of Colored People (NAACP) filed a lawsuit alleging that then-President Trump and Rudy Giuliani conspired with the Proud Boys and Oath Keepers, two hate groups, to incite the January 6, 2021 insurrection at the Capitol. The lawsuit alleged that President Trump caused the insurrection by promoting misinformation regarding the validity of the 2020 presidential election. The complaint quoted statements by the former President endorsing or failing to condemn acts of violence by his supporters in protesting the election results. U.S. Representative Bennie Thompson (D-Miss.), another plaintiff in the lawsuit, reportedly emphasized the need to hold President Trump “accountable for the insurrection that he so blatantly planned” after the Senate failed to do so through an impeachment conviction.
Facebook blocked Australian users from sharing news stories after the Australian House of Representatives passed legislation that, if enacted, would require Facebook and Google to pay Australian news companies to share news content on their platforms. Facebook maintained that the law “fundamentally misunderstands the relationship between our platform and publishers who use it to share news content.” Facebook argued that the proposed law is unfair because “the value exchange between Facebook and publishers runs in favor of the publishers.” Facebook reported, for instance, that last year it generated 5.1 billion in free referrals for the publishers, whereas Facebook gained minimal profits. Australian Prime Minister Scott Morrison condemned Facebook’s ban, allegedly calling Facebook’s actions to “unfriend” Australia “as arrogant as they were disappointing.”
The U.S. Department of Housing and Urban Development, U.S. Department of Veterans Affairs, and U.S. Department of Agriculture announced a coordinated effort to expand and extend temporary COVID-19 foreclosure relief programs through June 30, 2021. The updated relief programs will include an extended foreclosure moratorium, additional time for homeowners to enroll in the mortgage payment forbearance program, and an additional six months of mortgage payment forbearance for existing participants of the program. The Biden Administration indicated that the action would provide immediate help for homeowners, support communities of color, and offer centralized support for housing assistance.
U.S. Secretary of State Antony J. Blinken removed the terrorist designation status from the Yemenite Houthi group, a movement fighting Yemen’s Sunni-majority government that holds significant control over certain regions. Blinken said that the decision to revoke the terrorist designation status despite the group’s “malign actions and aggression … is a recognition of the dire humanitarian situation in Yemen,” as the designation prevented the United States from providing aid to areas controlled by the Houthi.
The United Kingdom Ministry of Defense announced a path for LGBTQ+ veterans and soldiers to reclaim medals that the military revoked on the basis of their sexuality. Until 2000, the U.K. government allowed the military to convict soldiers for homosexual behavior or discharge them based on their sexuality. Prime Minister Boris Johnson said that the program will “address this historic wrong.” Veteran Joe Ousalice reportedly said that the program “is nowhere near enough” because the policy does not restore discharge benefits retroactively. Craig Jones, joint chief executive of Fighting With Pride, reportedly called the announcement a “first step” and emphasized the need to restore commissions, warrants, convictions, and royal pardons.

WHAT WE’RE READING THIS WEEK

In a recent paper, Matthew Kugler, professor at the Northwestern Pritzker School of Law, gauged the public sentiment around “deepfakes,” videos in which an individual’s face is replaced with that of another person using machine learning technology. Kugler found that whereas people objected less often to deepfake videos that do not involve defamatory conduct, respondents overwhelmingly viewed deepfakes involving nonconsensually-produced pornographic videos as harmful and even criminal. Based on these surveys, Kugler recommended that pornographic deepfakes be subject to the same regulatory treatment as nonconsensual pornography, which receives an enhanced level of legal scrutiny above the less-protective law of defamation.
In a forthcoming article, Ryan Doerfler, professor at the University of Chicago Law School, and Samuel Moyn, professor at Yale Law School, discussed the possibility of reforming the U.S. Supreme Court. Doerfler and Moyn argued that the court reform debate should center on how to make the Court more democratic and less political. Doerfler and Moyn discussed several types of expansive court reforms, distinguishing between reforms to personnel and reforms that remove power from the Court. For instance, they highlighted proposals that limit the number of Justices that can be appointed to the Court by Presidents of the same political party. Doerfler and Moyn explored other proposals that remove the Court’s ability to hear certain types of cases, such as cases about abortion or gun control. Instead, they argue that legislatures should address these more controversial issues.
In a report for the Brookings Institution, senior fellow and research director Carol Graham argued that the Biden Administration should form a federal interagency task force to address “addiction and despair.” Graham suggested that the decline of the white working class and popularity of candidates such as President Trump stem from a lack of hope among Americans—particularly white, poor, rural Americans. Graham wrote that substance abuse along with poor economic prospects have driven an increase in the despair that Americans feel, which has increased amid the COVID-19 pandemic. Graham argued that the multifaceted nature of this problem necessitates coordinated action across agencies to address mental health, addiction, job training, and education.

FLASHBACK FRIDAY

In an essay in The Regulatory Review, Elizabeth Golberg, former director at the European Commission, argued that the European Commission’s “one-in-one-out” policy, requiring that for each new law enacted, one must be repealed, may lack meaningful benefit while imposing serious harm. The European Commission aimed to create a more cost-conscious legislature by preventing lawmakers from endlessly adding additional financial commitments, but Golberg suggested that this goal could be achieved by other means, without adding lengthy legislative procedures when enacting a new law. Golberg argued that resources should be dedicated to assessing the benefits of old laws without stifling the passage of new ones.

The post Week in Review first appeared on The Regulatory Review.

Regulatory Reset

Fri, 19 Feb 2021 05:03:02 GMT

Upon taking office in January, President Joe Biden wasted no time in setting the federal government on a regulatory path very different from his predecessor. On his first evening in office, he froze regulations in the pipeline and reversed President Donald J. Trump’s regulation-related executive orders. He also issued a memorandum on “modernizing regulatory review” that signaled continuity in some regulatory practices and potentially dramatic shifts in others.

The memorandum “reaffirms the basic principles set forth” in President Bill Clinton’s 1993 Executive Order 12,866 and President Barack Obama’s 2011 Executive Order 13,563. These longstanding, bipartisan principles call for agencies to analyze the effects of alternative regulatory approaches before they issue rules, with the goal of ensuring that federal policies do more good than harm. They are key to what I have called “regulatory humility,” which appreciates that no matter how well-intentioned and intelligent regulators are, they lack essential information on how policies will work in practice.

The ex ante regulatory impact analysis that these orders require holds regulators accountable to the public by making them show their work. Agencies must demonstrate that regulatory decisions are based on a balanced understanding of competing considerations, including a holistic, evidence-based assessment of all regulatory impacts—negative as well as positive, and unintended as well as intended.

In addition to acknowledging the value of existing practices, the memorandum also directs the Office of Management and Budget (OMB) to work with agencies to develop new recommendations to improve and modernize regulatory review to “promote public health and safety, economic growth, social welfare, racial justice, environmental stewardship, human dignity, equity, and the interests of future generations.” It focuses on several areas of reform, some of which have more promise than others.

The memorandum specifically calls for revisions to OMB’s Circular A-4, the 2003 blueprint for conducting regulatory analysis. Although there likely are “developments in scientific and economic understanding” that could improve these guidelines, OMB should make modifications judiciously.

Circular A-4 has served as an authoritative source on regulatory analysis throughout the world because it is grounded in theory and empirical evidence, rather than prevailing political passions. The open process for issuing the Circular also contributes to its acceptance and to its stability across changes in administrations. When revising Circular A-4, the Biden Administration should ensure opportunities for meaningful public comment and avoid engagement only with selected “stakeholders.”

It is concerning that the focus of the recommended revisions appears unbalanced—targeted at avoiding “harmful anti-regulatory or deregulatory effects”—without attention to harmful effects of potentially excessive regulation. This revision is an understandable reaction to the last Administration’s expressed devotion to reducing regulatory costs. Despite former President Trump’s rhetoric, however, the Office of Information and Regulatory Affairs (OIRA) continued to examine each individual regulation based on its expected net benefits. This Administration’s rhetoric might also be tempered by experience.

The memorandum also seeks recommendations for “procedures that take into account the distributional consequences of regulations.” Elsewhere, I have discussed the importance of analyzing distributional impacts for setting “more compassionate, just, and equitable policies.” Although distributional impacts have long been an important element of regulatory impact analysis, regulations would benefit from a more rigorous approach to understanding the potential benefits and burdens of alternative policies on different segments of the population. This approach is particularly important for policies that affect the “disadvantaged, vulnerable, or marginalized communities” noted in the memorandum.

Here, regulatory humility calls for an objective and dispassionate examination of the incidence of both regulatory benefits and costs to understand how alternative approaches to addressing a problem affect different groups. Regulatory interventions in the economy create opportunities for rent seeking, as well-connected interest groups lobby for policies that benefit a few, while individuals bearing the costs lack the resources to push back. A sound approach to distributional analysis will be cognizant of these rent-seeking costs, and carefully and objectively evaluate both regulatory benefits and costs to avoid well-intentioned policies that can harm vulnerable populations—for example, by reducing employment or other opportunities.

I am troubled that the memorandum directs OMB and other agencies to “consider ways that OIRA can play a more proactive role” such that “regulatory review serves as a tool to affirmatively promote regulations that advance” the Administration’s priorities.

OIRA review has always played an important coordinating function across an administration. As part of the Executive Office of the President, it is well-positioned to work with policy officials to ensure agencies’ regulatory actions reflect presidential priorities. This new language, however, suggests that OIRA should take a more active role in identifying and promoting new regulatory initiatives. As a former administrator and analyst at OIRA, I find this suggestion unrealistic.

OIRA has a staff of about 45 career civil servants, a tiny fraction of the hundreds of thousands of regulatory staff at federal agencies who are highly motivated to expand their jurisdictions in new ways. Across its functions, OMB contributes to good government by serving as a check on agencies’ natural desire to want more for their particular missions—including more resources, more legislative authority, and more procurement—and OIRA is no exception. Asking OIRA, which is already stretched thin, to identify new regulatory initiatives is akin to asking the budget examiners to find new ways for agencies to spend tax dollars.

I am also not sure what the memorandum means when it asks agencies to “identify reforms that will promote the efficiency, transparency, and inclusiveness of the interagency review process.” Although transparency and inclusiveness hardly seem controversial, those principles should not invite those of us outside the government to peer into the inner workings of the interagency review process—no matter how much we would like to.

When it comes to interactions with entities outside the executive branch, OIRA’s review process is already more transparent than most other areas of government, with meetings and participants recorded and posted online for the public. But interagency review is done before agencies officially propose or finalize policies. This review is protected as a deliberative process, and appropriately so. Were it to occur in a fishbowl, staff across the government would be less willing to exchange insights, analyses, and concerns candidly—and policies would be worse for it.

But procedures to improve transparency of guidance documents will be needed. In revoking former President Trump’s regulatory executive orders, President Biden threw at least one baby out with the bathwater. He abandoned Executive Order 13,891, which required agencies to seek public input when developing significant new guidance and to make all their guidance readily accessible online. This executive order was one Trump initiative that received general support from a wide range of law and policy experts who have worried about lack of transparency and abuse of guidance for decades.

Agencies have already begun to walk back from the transparent practices they had adopted in response to the Trump order, including the posting of guidance documents in a central location. The new Administration should work quickly to ensure the progress made on making agency guidance transparent is not lost.

All told, the memorandum calls on OMB and other agencies to take some important steps to modernize regulatory review, but it also exudes a confidence in the federal government’s ability to act swiftly to address a series of challenges without recognizing the potential unintended consequences of acting too quickly or aggressively.

It foreshadows a move away from the bipartisan emphasis on evidence-based policy and from regulatory humility, which “requires a disciplined approach to understanding regulatory impacts and tradeoffs; maintaining practices that encourage accountability; a commitment to learning, feedback, and evaluation; an openness to diverse views and inputs;” as well as “reliance on flexible regulatory tools.”

President Biden certainly displays more personal humility than his predecessor. If his ambitious regulatory agenda is to be successful, he must embrace regulatory humility as well.

The post Regulatory Reset first appeared on The Regulatory Review.

Colleges Confronting COVID-19

Thu, 18 Feb 2021 05:06:07 GMT

COVID-19 has been a test for higher education, but this year’s students are not the only ones feeling the pressure of a harsh curve. The Centers for Disease Control and Prevention (CDC) released a study showing that in the fall, COVID-19 infection rates declined where schools transitioned to remote learning and increased where schools taught in person. As schools implemented plans for the spring semester, the higher education industry faced heightened scrutiny.

In a forthcoming article, Patricia Salkin and Pamela Ko review the unique challenges of preventing the spread of COVID-19 in college and university settings. They evaluate the different approaches schools took and continue to take to navigate the pandemic and look to how COVID-19 will affect the future of higher education considering how different approaches could save the industry.

Colleges and universities function as microcosms for controlling and defeating the pandemic, according to Salkin and Ko. But unlike local governments, which rely on tax revenue, colleges and universities depend on tuition, housing, and other fees to remain financially viable.

To help schools address operating challenges presented by the pandemic, the CDC released guiding considerations and principles for institutions of higher education.

But despite information from the CDC and because institutions of higher education must also comply with state and local requirements, schools have varying reopening policies. Salkin and Ko analyze differences in COVID-19 testing, housing, and enforcement of distancing and masking regulations to provide a catalog of the different approaches that institutions of higher education have taken. Colleges and universities’ varying responses to the pandemic began during initial shutdowns and continued throughout the pandemic.

During initial shutdowns in the United States in March of 2020, the U.S. Department of Education granted institutions of higher education special exemptions authorizing remote instruction without loss of accreditation. But state policies were more difficult to comply with, Salkin and Ko argue.

Although colleges and universities could require on-campus residents to vacate their housing, administrators could not mandate that off-campus residents return home. Administrators struggled to enforce state orders and comply with travel bans when students were still living off campus and former on-campus residents wanted to return to retrieve their belongings. At Syracuse University, for example, administrators attempted to balance travel restrictions and students asking to retrieve personal belongings.

Some schools implemented a surveillance testing system where the entire student population or a random segment of the population was tested for COVID-19 on a regular basis. Many schools required students to get tested for COVID-19 prior to moving into a campus residence hall. Other schools only offered symptomatic testing. For example, Clemson University apparently required weekly testing for students living on campus, but Iowa State University required testing prior to move in and then randomly chose students for asymptomatic testing.

Due to concerns about students spreading the coronavirus through Thanksgiving holiday travel, some governors either made COVID-19 testing available to students or required students to have a negative COVID-19 test result to leave campus.

Beyond testing, Salkin and Ko observe that colleges and universities face unique housing challenges due to shared spaces and bathrooms. Many schools implemented a tiered approach to move in and restricted access to dormitories.

Many colleges and universities provided housing and dining refunds to students no longer using those services, but few colleges and universities provided tuition refunds. Salkin and Ko argued that the potential for remote instruction to continue for multiple semesters motivated multiple lawsuits from students asking for refunds.

In an effort to prevent multiple semesters of remote learning, colleges and universities implemented enforcement and disciplinary systems. Some schools bound students to agreements that outlined expectations for appropriate behavior and regulate student conduct both on and off campus.

Students have challenged the pandemic prevention measures and disciplinary actions through litigation alleging that the school response caused financial and reputational damages. Salkin and Ko conclude, however, that schools take action to control off-campus student activities due to community relations concerns if the institution of higher education receives the blame for community spread.

In the wake of uncertainty and a growing threat of class action lawsuits challenging school policies and alleging that schools owe students tuition refunds, Salkin and Ko provide examples of contractual changes colleges and universities have implemented to limit their liability in case they are sued for tuition, housing, or dining refunds. For example, the University of Maryland College Park reportedly amended its housing contract to reserve the right to close down housing to protect the health and safety of students and the community.

But students are not the only ones holding colleges and universities accountable. State and local governments pressure schools as well. Some states have required colleges and universities to submit plans for approval before reopening efforts could move forward.

Currently battling many lawsuits and anticipating more to come, colleges and universities face a complex regulatory framework when attempting to appease students, protect surrounding communities, and comply with federal, state, and local COVID-19 restrictions.

Salkin and Ko argue that COVID-19 has been a disrupter in higher education, challenging institutions to develop and implement regulatory schemes similar to local governments while balancing concerns about maintaining economic viability. Institutional approaches have varied due to the confines of state and local COVID-19 regulations and provide a range of potential solutions for reopening.

Salkin and Ko observe that the diversity of approaches to reopen colleges and universities demonstrate how regulations can succeed and how they can fail to protect students, community members, and the higher education industry. The myriad approaches to reopening under trying economic constraints provides the potential to show how colleges and universities can proceed during future semesters of uncertainly.

The post Colleges Confronting COVID-19 first appeared on The Regulatory Review.

Flipping the Mission of Regulatory Review

Thu, 18 Feb 2021 05:03:18 GMT

President Joe Biden’s memorandum, “Modernizing Regulatory Review,” sets in motion a number of modifications to regulatory review.

The memorandum shifts the focus of regulatory review to public interest values and directs the Office of Management and Budget (OMB) to recommend ways to modernize regulatory review that promote these values. It also seeks to incorporate new developments and improvements to cost-benefit analysis into regulatory review.

These moves are substantial, but one possible change is unlike the rest and would make modernizing regulatory review even more significant than it might already seem.

President Biden strongly suggests that the Office of Information and Regulatory Affairs (OIRA), a predominantly reactive agency within OMB, should have responsibility to develop regulations that advance the Administration’s values. President Biden wants to flip the mission of OIRA.

Whether this change occurs depends on OMB. The memorandum asks OMB for “proposals that would ensure that regulatory review serves as a tool to promote affirmatively regulations that advance” the values set forth in the Biden memorandum. In addition, it instructs OMB to “consider ways that OIRA can play a more proactive role in partnering with agencies to explore, promote, and undertake regulatory initiatives that are likely to yield significant benefits.”

But the writing is on the wall as far as the role of OIRA is concerned. President Biden is pointing to an official role for OIRA in the affirmative promotion of regulations to address the United States’ pressing crises.

How does a formal change in OIRA’s role reflect a strategy for presidential control of major regulatory policy?

Looking at prior administrations, President Biden has choices for affirmatively promoting regulations. He could capitalize on the strategy of President Bill Clinton: issuing presidential directives. As then-Professor Elena Kagan documented in her path-breaking article, President Clinton popularized the practice of sending memoranda under his signature to particular agency heads, instructing them to consider a specific regulation consistent with his priorities. Presidential directives are different from executive orders because they specifically address regulations that apply to parties outside the government. President Clinton used them to “instigate” regulations, as if legislation bypassed requiring an agency to issue a regulation.

White House policy advisors—“notably those in the Domestic Policy and the National Economic Councils”—typically devised and prepared these directives. According to Kagan, “the staff, deputies, or heads of the agencies and White House policy councils typically resolved any disagreements” with and among executive branch agency officials that arose in discussions, “with the level of decision-making dependent on the matter’s importance; on very few occasions did disputes reach the President himself before one side deferred to another.”

Presidential directives had been around before the Clinton Administration, but President Clinton made more regular use of them. In contrast, President Ronald Reagan issued nine directives; President George H.W. Bush issued four; and President Clinton issued 107.

Presidential directives get high marks on the presidential control scale. As Kagan explains, they affirmatively promote regulatory policy in a manner that is targeted and concrete. For these reasons, she continues, they are a particularly effective tool of presidential control and are likely to produce regulations that track presidential preferences.

Kagan further argues that presidential directives increase political accountability on matters of social and economic significance. Transparent and signed by the President himself, presidential directives convey presidential “ownership” of regulatory policy. For this reason, President Clinton used presidential directives to great effect—although not all of the resulting regulations survived judicial review.

President Biden could also use this practice to achieve his goals—and he might. But he is also pushing in a different direction. Faced with a number of major, continuous, and complex national crises, President Biden is looking to OIRA to promote his goals. This approach is not entirely new.

During the George W. Bush Administration, John Graham, as OIRA administrator, used prompt letters to promote cost-effective agency rules. His letters, similar to presidential directives, went out to particular agency heads and instructed them to consider specific rules consistent with presidential priorities. They were targeted, concrete, and transparent. These letters were also effective for presidential control, albeit a weaker form of political accountability since they were signed by Graham and not the President.

Importantly, Graham’s prompt letters benefited from the resources that OIRA brings to bear for regulatory review, including access to information and dedicated, expert staff. Graham issued only 13 prompt letters in the span of a year and a half, and no more because he discovered that he could effectively spur regulations through meetings with agencies.

President Biden could use OIRA’s asserted prompt power to achieve his goals under the modified and expanded set of principles in his memorandum.

Arguably, President Barack Obama followed this approach. In his regulatory review executive order, President Obama articulated changes to cost-benefit analysis, instructing OIRA, for example, to consider in its analysis distributional consequences of regulation. These changes addressed critics’ concerns that OIRA produced flawed or skewed cost-benefit analysis, and that OIRA killed regulations more than promoted them. Cass Sunstein, who served as OIRA administrator under the Obama Administration, wrote an article after he left his position describing the progress that OIRA had made in implementing President Obama’s vision for regulatory review.

President Biden, however, aims to go further. And in some sense, he already has, simply by announcing a wider, bolder set of values to govern regulatory review, in addition to focusing attention on improving cost-benefit analysis. Moreover, President Biden has set the stage for a larger role for OIRA in promoting presidential priorities than it had before, by making “affirmative promotion” of his goals a fixture—rather than an option—of the regulatory review process, and an official responsibility for OIRA—not an assumed one.

When viewed in light of the alternatives, President Biden has good reason to favor a formal expansion of OIRA’s role, which has features that make it normatively desirable. This approach combines the best aspects of previous efforts to promote regulatory policy and minimizes the worst. The memorandum pre-commits to a set of values while handing OIRA the responsibility to advance those values. If OIRA is provided with adequate resources, President Biden’s approach promises a more systematic, continuous, pro-regulatory, and expertise-driven response to the United States’ crises than relying on sporadic presidential directives or prompt letters.

The memorandum conveys a sense of presidential “ownership” of this plan for addressing public needs, which enables the President to claim credit for meeting the moment. “Ownership” of this public interest-centered plan also facilitates political accountability, which makes the suggested approach normatively desirable as well as politically appealing.

Despite this ownership of the general regulatory plan, the President will not take “ownership” of actual regulations, which presents both a practical presidential control problem and a political accountability problem. OIRA could promote regulations that stray from presidential preferences, and the President could evade blame when OIRA supports regulations that impose harsh burdens.

But the President has familiar safeguards against the risk of policy drift, including the threat of removing the OIRA administrator. The involvement of other officials in both the White House and executive branch agencies also provide a check on OIRA’s choices. As for the accountability risk, the President is always free—with the possible exception of presidential directives—to blame an agency under his control for unpopular choices. To a large extent, modern regulatory government is grounded on an acceptance of this risk, and it is no worse for OIRA than elsewhere in the executive branch.

Flipping OIRA’s mission is ingenious when considering that it also might help facilitate a beneficial and lasting change in OIRA’s culture. OIRA has long had the reputation of housing career economists with outmoded training and an anti-regulatory orientation. This concern has potentially aged out or will age out on its own over time.

In any event, to apply the President’s values and to carry out a proactive role, OIRA must have career economists with modern training and dedication to account fully for the benefits and distributional consequences of regulation. OIRA also must have civil servants with other relevant expertise—including, by the terms of the memorandum, cutting-edge scientists, sociologists, and policy planners with expertise in public health, racial justice, and climate change. The inclusion of this expertise promises that other relevant considerations will set the tone and drive the regulatory process, rather than arise as an afterthought or impediment to efficient regulation.

But a formal change in OIRA’s role is not without downsides.

Once an institutional change comes to pass, it is difficult to undo. A formal increase in OIRA’s power to address major crises now makes that power available for future administrations with less sanguine motives, so the President should be careful what he wishes for. The proof is in the future.

Creating a modern role for OIRA goes beyond modernizing the principles that govern traditional regulatory review. Enlisting OIRA to help proactively address the United States’ problems would allow the President to capitalize on OIRA’s resources to follow through on his platform, promote political accountability in the regulatory review process, and intensify the need for OIRA to bring in the next generation of career staff.

Time will tell whether President Biden flips the mission of regulatory review. But enthusiasm and optimism are warranted if he succeeds.

The post Flipping the Mission of Regulatory Review first appeared on The Regulatory Review.

Community Land Trusts Get a California Makeover

Wed, 17 Feb 2021 05:06:41 GMT

California dreamin’ has turned into a nightmare for many Californians, as residents of the state often face high housing costs and some of the longest car commutes in the United States. But due to two state laws that took effect in the past year, community land trusts may soon help keep roofs over Californians’ heads and frustrated commuters off the highways, delivering environmental benefits as well.

California’s high housing costs are the “most significant driver of inequality in the state.” The state’s housing stock has failed to increase with its population in recent decades, and building affordable housing costs about three times as much in California as in Texas or Illinois. Even the COVID-19 pandemic has not slowed soaring home prices, which rose by an average of 17 percent across the state in 2020.

Meanwhile, lawmakers have scrambled to protect millions of tenants from eviction in light of the economic strain of the pandemic, and to increase housing options for Californians experiencing homelessness, who make up one-fourth of American homeless persons. In 2019 alone, California Governor Gavin Newsom signed over 20 bills targeting the California housing crisis.

Some of this legislation seeks to address California’s housing woes by expanding the presence of community land trusts, which promote affordable housing by decoupling land costs from home costs. In a community land trust model, a mission-driven organization—for example, a nonprofit—owns underlying land, while low to moderate-income individuals lease or buy housing on top. The organization enforces housing requirements, such as mandating the number of affordable units and restricting resale prices.

These measures keep housing affordable for multiple generations of buyers, as the community land trust residents are shielded from paying for the increasing market value of the land itself. Through this model, California land trust groups have managed to secure more than $220,000,000 in community assets.

In contrast, other ways of making housing more affordable, such as providing low-income earners with mortgage assistance to subsidize a home purchase, may be “lost” whenever a house is resold for a higher price. The Northern California Land Trust discovered that between 2000 and 2016, the amount of assistance that a low-income buyer would need to afford the same house in a local county would have tripled if the trust did not own the underlying land. But after assessing 40 of their properties, the Trust found that when a community land trust imposed restrictions on resale prices, any initial subsidy or mortgage assistance was not only retained, but appreciated by 1,150 percent.

Despite the purported benefits of community land trusts, in practice these trusts have faced an expensive obstacle: California tax codes. Although a 2016 state law attempted to apply tax exemptions to such land trusts, tax assessors persisted to use trust properties’ market values to assess higher taxes—without differentiating land and housing costs, much less considering affordability restrictions. As a result, community land trusts paid “very costly if not prohibitive” taxes while properties were under development.

A 2019 state law sought to remedy this problem. Senate Bill 196 exempts community land trusts from property taxes between the time that a trust acquires a property and when housing is sold. Land trusts are then taxed on the affordable housing sale value instead of the market value of the property, and resale restrictions are accounted for. After acquiring real estate, community land trusts also enjoy a “welfare exemption” from state property taxes for five years. In this way, the state treats trust property in the same ways as other property owned by nonprofits and used “for religious, hospital, scientific, or charitable purposes.”

Despite the tax advantages provided by Senate Bill 196, community land trusts are now burdened with an additional set of transportation requirements, imposed by Senate Bill 743. Effective this past summer, this law aims to reduce Californians’ car commutes by requiring municipalities to evaluate and limit vehicle miles traveled (VMT) by residents when planning new housing developments, including community land trusts.

VMT measures the miles traveled by daily car trips to and from a development, as part of an impact analysis required under the California Environmental Quality Act. Under the law, land trusts must now abide by “reasonable” VMT thresholds set by their municipalities, or “exchange” VMT by developing additional transit-related projects, such as bus stops or bike routes.

Through a recent lawsuit and community organizing efforts, affordable housing activists have opposed lawmakers’ attempts to make VMT restrictions more stringent. Activists argue that VMT restrictions encourage wealthy developers to “infill” areas near city centers and transit options—and to push low-income workers out of urban housing. But since community land trusts often prioritize developments near transit options, Senate Bill 196 tax exemptions may give land trusts new power to compete with other developers near city centers, regardless of VMT restrictions.

The mere existence of Senate Bill 196 may also indicate that California policymakers are comfortable promoting community land trusts, even as they have rejected more direct attempts to legislate affordable, transit-oriented housing. In early 2020, a bill aimed at increasing affordable housing near “major transit” hubs failed for the third time. Some legislators argued that the bill’s “upzoning” requirement, which would have removed zoning prohibitions across the state and increased building heights near transit stops, stripped too much control from local governments.

Finally, tax exemptions and VMT restrictions may create an opportunity for community land trusts to harmonize affordable housing and environmental sustainability goals. Since VMT restrictions track carbon emissions from car travel related to a development, VMT restrictions in effect regulate some of the carbon emissions that community land trusts produce. But trusts also enable low-income communities to engage in other kinds of sustainable development. For example, a community land trust in Irvine, California has developed affordable housing that meets Irvine’s green housing requirements, including a recent “urban infill” site that meets energy efficiency standards for new construction.

Looking to the future, community land trusts could also help increase low-income communities’ resilience to climate change impacts. As California wildfires continue to intensify, community land trusts may be able to acquire damaged properties and rebuild disaster-resistant, affordable housing, similar to how a Florida community land trust responded to a hurricane in 2017.

Although the eventual impact of community land trusts on the state’s housing crisis, car commutes, and environmental resilience remains to be seen, at least the recent policy changes that aim to promote the development of affordable, public transit-focused housing have given Californians more room to dream.

The post Community Land Trusts Get a California Makeover first appeared on The Regulatory Review.

Rejecting the Trump Anticanon of Regulatory Mismanagement

Wed, 17 Feb 2021 05:03:47 GMT

President Joe Biden’s day-one presidential memorandum on “modernizing regulatory review” reasserts the importance of evidence, analysis, and expertise in regulatory decision-making.

After a four-year long experiment in abandoning these norms of good governance, the Biden memorandum should comfort anyone who cares about cultivating a regulatory system that can improve the well-being of people in the United States.

The Biden memorandum highlights the need to improve continually the process of regulatory review and the methodology of cost-benefit analysis. In particular, the memorandum calls for a more proactive role for the Office of Information and Regulatory Affairs (OIRA), increased transparency of interagency review, and greater attention to distribution and equity.

These areas are important for continued development, and the Biden Administration should be commended for highlighting them. What is most critical, however, in this memorandum is not in the changes that it might bring, but rather in the longstanding values that it preserves and reinforces.

Readers of The Regulatory Review are well aware of the substantial bipartisan history of regulatory review and cost-benefit analysis in the United States. These practices gained a foothold in the Nixon and Carter Administrations, but it was former President Ronald Reagan’s Executive Order 12,291 that placed these practices at the heart of the contemporary administrative state.

In its early years, cost-benefit analysis saw strong opposition from protection-oriented groups and many congressional Democrats, who saw cost-benefit analysis as an anti-regulatory presidential power grab under the guise of good government.

But over the intervening decades, regulatory review and cost-benefit analysis have shown that, when executed well, they can help rationalize and improve the regulatory system. These tools are also entirely consistent with strong protections for values such as public health and a clean environment.

As Richard Revesz and I document in our recent book, a breakdown of the bipartisan consensus over cost-benefit analysis became apparent during the Obama Administration. The Obama Administration’s success in using cost-benefit analysis to support a strong regulatory agenda led many in the Republican party to abandon their prior support for the technique. Instead, politicians and interest groups engaged in rhetorical posturing that attempted to shift attention away from costs and benefits. For example, President Trump echoed many in the Republican party when he referred to new protections as “job-killing regulations” and accused the Obama Administration of engaging in a regulatory “war on coal.”

President Trump also took many concrete steps to undermine regulatory rationality during his time in office. These include his executive order requiring agencies to eliminate two regulations for every one new regulation, which disregarded the benefits of the prior rules. That order also established a regulatory budget of zero costs, meaning that no new net costs could be imposed on industry, no matter how great the benefits.

For the next four years, the Trump Administration followed through on the former President’s commitment to ignoring the benefits of regulation. President Trump appointed senior officials who were hostile to their agency’s mission. Agencies engaged in a wide array of dishonest accounting to hide the benefits of regulatory protection, such as ignoring indirect benefits or attempting to censor science-based public health. Agencies adopted regulations based on shoddy decision-making and without following proper legal procedures.

This recent history serves as a backdrop for the Biden memorandum—a document that represents an almost radical return to normalcy after four years of recklessness. The memorandum embraces the values of expertise and analysis. Even the substance of the Biden memorandum’s calls for reform are grounded in a long, bipartisan tradition.

With respect to equity considerations during regulatory review, the Clinton, Bush, and Obama Administrations all took small steps toward encouraging distributional analysis. Increasing the transparency of regulatory review was among the many innovations in President Bill Clinton’s Executive Order 12,866. These pro-transparency practices were continued during subsequent administrations of both parties. In terms of a proactive role for OIRA, it was during the George W. Bush Administration when former Administrator John Graham instituted the practice of issuing prompt letters to urge agencies to action when there were likely net benefits to be had from more regulation.

Progress can, and should, be made by the Biden Administration on all of these fronts. But the emphasis in the Biden memorandum on these three areas for reform is a further sign of continuity between this Administration and the pre-Trump era.

It is understandable if many Americans would like to forget about the Trump Administration and focus on the future. United control of government represents a relatively rare policymaking opportunity for Democrats. For Republicans, it is no fun to dwell on its former disastrous leader.

But lawyers know that anticanons—decisions that are famous for being profoundly wrong—can be as illuminating as correctly decided cases.

In fact, as much as our constitutional law is made up of actual precedents, it is also made up of cases that have earned universal condemnation, such as Dred Scott v. Sandford, Plessy v. Ferguson, Lochner v. New York, and Korematsu v. United States. In the area of presidential administration, the Trump Administration may come to be seen as an anticanon of everything that can go wrong—a negative example that points the way toward a more productive path.

But anticanons do not end debate. We can agree that Lochner was wrongly decided without agreeing on the appropriate role of government in regulating the marketplace. There will still be plenty to disagree about concerning regulatory review and cost-benefit analysis, even if—as I hope happens—the Trump Administration is seen as an aberration that is roundly rejected across the political spectrum.

The Biden memorandum takes an important step in that direction, reaffirming longstanding, bipartisan practices, marking out areas for further articulation and development, and starkly turning away from the prior Administration’s dangerous ways.

The post Rejecting the Trump Anticanon of Regulatory Mismanagement first appeared on The Regulatory Review.