Obama's Legacy: A Guide to Dismantlement

Howard Schweitzer
202.912.4855
hschweitzer@cozen.com

Robert Freeman
202.463.2515
rfreeman@cozen.com

What's Happening

President Obama has issued 260 executive orders, and his administration has written more than 20,000 new regulations — and all of those could potentially be subject to rollback under President-elect Trump, who has promised to “formulate a rule that says that for every one new regulation, two old regulations must be eliminated. So important.”

Why It Matters

There are a number of ways that Trump and Congress could roll back or dismantle the biggest (and even the smallest) rules of the Obama era. Executive orders are all subject to the whim of the president, and all of Obama’s can be immediately removed by an executive order from Trump. Rules and regulations that have been promulgated through a notice and comment period are much more difficult and time-consuming to remove, as the new administration must demonstrate grounds for any regulation's repeal through an entirely new rulemaking process that can withstand a potential legal challenge alleging that the Trump administration's actions are "arbitrary and capricious." This typically requires a lengthy comment and approval process of its own, which means that the Trump administration will need to prioritize which rules it chooses to dismantle. Only “midnight rules” that the Obama administration released in the last several months of the administration are subject to be quickly overturned, using the Congressional Review Act (CRA). Using the CRA, Congress has the ability to overturn any final rule submitted by the administration within the last 60 days of legislative business (or, in this case, after June 2) by only a majority vote in the House and the Senate.

What's Next

When Trump enters office, we expect that he will immediately overturn several of Obama’s most famous executive orders, including the amnesty orders for illegal immigrants and the Climate Action Plan. He will also set his agencies to the task of overturning or amending rules, including the Environmental Protection Agency’s (EPA) Clean Power Plan and the Department of Labor’s (DOL) fiduciary rule and overtime eligibility rule. Although these will start immediately, it will likely take at least a year — and possibly longer — until they are changed or overturn. Additionally, we expect Congress to use the CRA to overturn the methane regulations at the Department of Interior (DOI) and at the EPA, as well as to overturn the Federal Communication Commission’s (FCC) broadband privacy rule. Congress will need 60 votes in the Senate to overturn most other rules because they will be subject to a filibuster from Democrats. 

The Trump Team Gets to Work

Executive orders are easy to overturn with just the stroke of a pen. They can be replaced with new ones just as easily, or completely rescinded.
 
One of the first of Obama’s executive orders that we expect Trump to end formally will be the amnesty programs for immigrants, including the Deferred Action for Childhood Arrivals (DACA) and the Deferred Action for Parents of Americans (DAPA) programs. Although we do not expect that these classes of immigrants will be the focus of his initial arrest actions, these programs provided about 700,000 so-called Dreamers work authorization. Those who had enrolled in the programs would not only lose their right to work in the United States, but they would also be subject to the risk of deportation.  

There are other decisions that are not executive orders, but also did not go through a full rulemaking process, and are similarly easy to overturn. For example, we expect the Trump administration to quickly reverse the Army Corps of Engineers' recent decision to reconsider the permits awarded to the Dakota Access Pipeline. 
 
On the other hand, it is difficult for an incoming president to overturn the last administration’s rules and regulations that have gone through a full notice and comment period. The process requires that an agency holds a new full notice and listening process and promulgate a new order to overturn the rule, just as it had to do to write the original rule. The steps involved can each take months and include releasing a notice of proposed rulemaking, taking comments on that proposal, and then issuing a final rule. For large rules, this full process can take one to two years, and if agencies rush the rulemaking process or fail to offer sufficient evidence for their change in direction, their new rulemaking can be overturned in court on the grounds that is was arbitrary and capricious.
 
One of the first rules we expect the incoming administration to begin dismantling in this fashion is President Obama’s Clean Power Plan (CPP), which regulates greenhouse gas emissions from power plants. The CPP is currently under review by the U.S. Court of Appeals for the District of Columbia, which is expected to issue a ruling within the next month. If it is still tied up in the courts on January 20, Trump’s EPA could issue a request to remand the rule back to the agency to reconsider it. However, that reconsideration process would still require the administration to conduct the full rulemaking process yet again.
 
Alternatively, the Trump administration could abandon the rule to the courts and refuse to defend it, leaving the defense to environmental groups and attorneys general from blue states, and weakening the case for the rule in the process.
 
But the EPA could also attack several greenhouse gas rules at once, including both the CPP and Obama’s Corporate Average Fuel Economy Standards (CAFE) for autos, by addressing the underpinning rationale for the rules. In 2009, under orders from the Supreme Court, the EPA released an endangerment finding that proved greenhouse gases are harmful to human health and welfare. The finding triggered economy-wide regulations and has repeatedly been attacked by those that question the existence and/or impact of climate change. Although it will be difficult to convince the courts that the endangerment finding was false, EPA Administrator-designate Scott Pruitt has led attacks against the decision in the past, and, in leaked documents, the EPA transition team has suggested that the endangerment finding should be revoked.
 
Congress Gets to Work
 
To avoid the process of remanding and replacing a rule, the Republican Congress can just pass a law overturning that rule. But nearly any legislation is subject to the 60-vote filibuster in the Senate, and with Republicans holding only 52 seats, it will be tough to get eight Democrats on board for their more controversial proposals, such as repealing and replacing Obamacare and passing comprehensive tax reform.
 
Congress is planning to address both Obamacare and tax reform by using a process known as reconciliation, which allows Congress to attach legislation to a budgetary resolution that requires only a simple majority (50 votes) to pass — albeit through a complex process and with some budgetary restrictions. A reconciliation bill must pertain to budgetary and fiscal issues and can be used only once per budget cycle. Congress has yet to pass an FY17 budget resolution (which is different than actual appropriations legislation), so Republicans will be able to pass two budget resolutions next calendar year, one each for FY17 and FY18. This will give Republicans an opportunity to both repeal Obamacare and pass a conservative tax reform bill over the objections of Democrats
 
But we expect that complex process and the budgetary restrictions will frustrate Republicans, who view their wins in the House, Senate, and White House as a mandate to pass the legislation they have always dreamed about. Additionally, they will likely only be able to pass those two large bills as part of the reconciliation process in 2017 — meaning they will not be able to use the process to roll back any of Obama’s regulations.
 
This will likely add to their frustration at the slow rollback process on many of the Obama administration’s rules and regulations. For example, Republicans would like to change the Clean Air Act to make it impossible for the EPA to regulate carbon, but doing so would require 60 votes in the Senate. In the meantime, it will take years to remove the regulations working through procedures in the executive branch, and all of those rollbacks will be subject to lawsuits.
 
This frustration will add pressure to the Senate to move faster, and it is likely only a matter of time until Senate Republicans get fed up with not having the ability to pass wholly Republican legislation with only 50 votes and — recognizing that Democrats will have difficulty regaining the Senate in the next several years due to electoral math — they may use a procedural move known as the nuclear option to remove the 60-vote filibuster entirely from the upper chamber.
 
Doing so would not only open up Congress’s ability to address specific rules it dislikes, but also to pass legislation that would rein in the power of the executive branch to issue rules of which Congress does not approve. Two bills, in particular, are currently under consideration.
 
Senator Rand Paul’s (R-Ky.) and Rep. Todd Young’s (R-Ind.) Regulations from the Executive in Need of Scrutiny (REINS) REINS Act would, according to Young, “require any executive branch rule or regulation with an annual economic impact of $100 million or more — designated by the White House's Office of Management and Budget (OMB) as a 'major rule' — to come before Congress for an up-or-down vote before being enacted." Congress would then have 70 legislative days to pass a joint resolution rejecting the rule or else it would go into effect. In 2015, the Obama administration issued 81 rules that were classified as “major rules,” and one could imagine the process of serious governing in the executive branch taking six to eight months longer on each rule every time the party in the White House and the party in one of the two chambers of Congress does not align. If the White House and Congress are held by opposite parties entirely, then it is not hard to imagine nearly all governing on both sides grinding to a halt.
 
Rep. Darrell Issa’s (R-Calif.) Midnight Rules Relief Act is another bill that has gotten attention as a way to quickly overturn executive rulemakings, although it will be nearly impossible to pass without first eliminating the Senate filibuster. The legislation would allow Congress to amend or overturn a large number of administrative rules all at once. This would streamline a process already allowed in a rule-by-rule manner under the Congressional Review Act, which is a powerful tool that we expect the Republican Congress to use early in the Trump administration.
 
Congressional Review Act
 
The Congressional Review Act (CRA) is perhaps Congress’s most powerful tool at the beginning of the Trump administration to overturn Obama’s rules. It gives Congress 60 legislative days to pass a resolution to block regulations before they take effect. The 60-day period does not include days when the House or Senate are in recess, which they have been for much of the campaign season.
 
Consequently, the Congressional Research Service (CRS) estimates that any rule passed after June 2, 2016, is subject to a CRA resolution when the new congressional session begins in 2017. Importantly, rules that are passed in the last 60 days of a congressional session are subject to a reset at the end of that session to give Congress enough time to consider them. Thus, starting on January 3rd, Congress will have another 60 legislative days to address all of the rules finalized after June 2nd.
 
Additionally, as long as Congress follows certain procedures, the resolution is not subject to filibuster in the Senate, meaning it requires only a simple majority vote to pass—making it impossible for Democrats to block. The CRA has been used by Republicans five times this past year but has been vetoed each time by President Obama.
 
But under Trump's tenure, Republicans will no longer need to worry about the resolutions being vetoed. The CRA will give them free reign to overturn any regulation finalized in the final six months of the Obama administration.
 
The CRA is a particularly powerful tool because once a rule has been struck down, the administration cannot issue a new rule that is substantially the same as the rule that was just overturned unless Congress passes a new law authorizing that regulation. That means that any rule overturned cannot be re-imposed in a similar manner if a new Democratic administration takes over in four (or eight or more) years.
 
Although Obama has leaned heavily on rules and executive orders to carry out his agenda, he and his team were well aware of the impending deadline imposed by the CRA and have not released many major, controversial rules in the waning days of the administration. The following, however, are ones that investors should be aware of for being both potentially high impact and likely to be overturned:

  • BLM’s Methane And Waste Prevention Rule: This regulation from the Bureau of Land Management (BLM) at the Department of Interior (DOI) puts in place more stringent requirements for capturing methane and preventing leaks for onshore oil and gas operations on federal lands. It covers the full range of infrastructure, from wellhead to pipelines. As a sense of the size of the effect, in 2015, there were 23,770 onshore leases producing oil or gas. BLM predicted that the rule would cost the industry $110-279 million per year, but argued that the actual effects were only a small percentage of profits and that the average small business operators would see profit margins reduced by “less than two-tenths of one percent.” Nonetheless, Republicans in Congress have railed against the rule, and we expect it to be one of the first that Congress rolls back. 
     
  • EPA’s Standards To Cut Emissions From The Oil And Gas Sector: This rule from the EPA was reported to the House on May 20th, 2016, but was not published in the Federal Register until June 3rd. Because it is right on the edge of the possible deadline for Congress to use the CRA to overturn it, the final call on the fate of the rule will be up to the House and Senate parliamentarians next year. The regulation affects only new and modified oil and gas infrastructure, and requires that methane be captured at the wellhead and that leak detection, and repair systems be set up at processing centers and along pipelines. Environmental groups argue that the costs of these systems are largely offset by the sale of the captured natural gas. Additionally, this rulemaking also technically triggers a second rulemaking that would require cuts on methane from existing oil and gas infrastructure. But we do not expect the Trump administration to move forward on that new rule even if the original regulation is left in place.
  • FCC Broadband Privacy Rule: The Federal Communications Commission (FCC) passed broadband privacy requirements at its October 2016 meeting in a 3-2 partisan vote. Republican Commissioner Michael O’Rielly identified these requirements earlier this month as a key regulation that the Republican FCC would overturn. But because it was passed so late, the rule has also been identified by members of Congress as one they might potentially overturn. The privacy rule requires ISPs to obtain user consent before sharing “sensitive” data with a third party, but it has attracted opposition from broadband companies because of its broad definition of sensitive data, which includes “geo-location information, children’s information, health information, financial information, social security numbers, web browsing history, app usage history, and the content of communications such as the text of emails.” If Congress uses the CRA in this case, it would mean that the FCC could not release another broadband privacy rule. However, the Federal Trade Commission (FTC) would still be able to use its antitrust powers to target any broadband providers that it considers bad actors. The FCC’s rule is already similar to the existing Federal Trade Commission (FTC) privacy rules for “edge providers,” although the FCC’s version deemed a much broader scope of data as "sensitive" than the FTC had.