Reduced regulations a ‘silver lining’ from sequester slashing

Many businesses and conservatives have made no secret that they like the $85 billion of across-the-board federal spending cuts this year because of their long-standing agenda to “starve the beast” of government.

But less understood is how they welcome the sequester cuts because some of the deepest reductions target agencies busy preparing a slew of rules that businesses contend are onerous and will harm the economy.

Since entitlement programs such as Social Security and most programs for the poor are exempted from the cuts, regulatory offices are getting slashed far more deeply than the governmentwide 2 percent average, with cuts of 7.6 percent to 8.2 percent — at a time when the Obama administration has shifted into high gear to publish sweeping regulations on health care, climate change, Wall Street oversight, labor and other areas.

President Obama made clear in his State of the Union address that he intends to use his executive and regulatory powers in the next four years to enact changes he wants if Congress fails to act on legislation — a vow that particularly resonates in areas such as climate change and financial reform where Congress is hopelessly gridlocked and the president can act on his own.

Conservatives and businesses not only want to block those rules, but they believe that doing so will help the economy. One study by the Phoenix Center, a business and academic think tank, found that regulatory budget cuts of 5 percent to 10 percent actually could offset the negative impact from the sequester cuts of reduced government services and furloughs by forcing the government to publish fewer regulations. It would free up $75 billion to $149 billion a year in corporate profits that otherwise would have been spent complying with the regulations, enabling businesses to invest in new projects and hire from 1.2 million to 2.4 million new workers, the study found.

Lawrence J. Spiwak, a co-author of the study, hailed the prospect of reduced regulations as a “silver lining” in the much-criticized sequestration fight. “It may be that whatever economic activity is lost from the reduction in government expenditures could be made up by the stimulation of economic activity in a less-regulated economy,” he said.

Regulatory agencies have divulged little of their plans to delay or cut regulations, instead publicizing cuts aimed at popular public services such as the National Park Service in a campaign critics say has been directed from the White House to rouse public opinion against the cuts. But because the reductions are so deep, regulatory analysts say there’s no way they could not put a dent in the president’s ambitious regulatory plans.

Health law targeted

Perhaps the most critical area where Mr. Obama has a big onslaught of regulations in store is health care, with the government gearing up to implement in the next year the most far-reaching rules to hit American businesses and citizens in a generation.

The Department of Health and Human Services, along with the Internal Revenue Service, under the 2010 health care law must lay out rules for companies and consumers to comply with its history-making mandates to purchase health care coverage starting next year or pay a penalty. On top of the encyclopedic list of regulations needed to carry out the health law, about half of the states have dumped on HHS the responsibility for setting up health insurance marketplaces where people can purchase insurance — an expensive mission that likely will be difficult to carry out without sufficient funds from Congress.

Conservative groups such as the Club for Growth, having exhausted most other avenues for resisting the law in the courts and at the ballot box, are now pressuring the House Republican majority — which has primary control of the purse strings for executive budgets under the Constitution — to starve the agencies charged with carrying out the health law of funds.

“Congress should not pass a sequestration replacement” for the immediate sharp cuts in agency budgets, said Chris Chocola, president of the Club for Growth. The anti-spending group wants House leaders to go even further than the nearly one-tenth cuts in agency budgets and slash all funding for carrying out the health care law in the spending bill needed to avoid a government shutdown at the end of the month and fund federal operations through the end of the fiscal year. In a nod to the lingering strong opposition to the law, GOP leaders once again proposed to repeal the law in the House budget resolution.

EPA furloughs

Other engines of regulation much hated by business — the Environmental Protection Agency and Securities and Exchange Commission, to name two — also will be hit hard by the cuts, if not throwing their missions into jeopardy, at least guaranteeing that it will take the agencies significantly longer to promulgate the rules most resisted by business and Wall Street.

The EPA is planning to furlough some of its staffers through the end of September, with acting Administrator Bob Perciasepe declaring that “furloughs are inevitable” in a recent email to employees, Reuters reported. The EPA has a long list of regulations businesses are fighting, starting with a rule expected this spring requiring new power plants to, for the first time, curb emissions of carbon dioxide, the principal greenhouse gas. The administration is under pressure from environmental groups to extend that rule to existing power plants to attain Mr. Obama’s goal of a 17 percent cut in emissions by 2020 in a potential broadening that would reverberate through the power sector and the economy.

Another regulatory powerhouse, the SEC, has one of the heaviest regulatory caseloads to carry out under the 2010 Wall Street reform law, and already has delayed many of its pending rules because of inadequate resources, SEC officials have testified. Other top regulators with major Wall Street reform rules pending are the Commodity Futures Trading Commission, the Federal Deposit Insurance Corp. and the Consumer Financial Protection Bureau.

Not all of the rules delayed by sequestration are anathema to business. In fact, some — such as the SEC’s “crowd-funding” rule which already has been delayed because of resource constraints — have been long sought by businesses. Further delays would raised consternation among business groups such as the American Institute of Architects, whose members stand to gain work from funds raised for startup businesses on the Internet under the new rules.

Delays expected

None of the agencies has advertised whether and how its rule-making will be hampered by the cuts, but delays already have been announced in some major rules, including the 2010 Wall Street reform’s contentious limits on in-house trading by the biggest banks. Analysts expect many more delays to follow.

And with only a few more years in office, some businesses likely hope that key Obama initiatives will be delayed so long by sequestration and litigation that they won’t take effect before a potentially more sympathetic successor takes office.

The Phoenix study gives fuel to the regulatory opponents, finding that eliminating the job of a single regulator results in additional growth in the U.S. economy of $6.2 million and nearly 100 private sector jobs a year. But environmental and consumer groups dispute that, contending that the cuts will simply result in more deaths, illnesses and fraud against the public.

Heritage Foundation analyst Alison Acosta Fraser argues that the cuts in regulatory budgets are justified, given the 78 percent increase in inflation-adjusted spending in such areas since 1992.

“Although entitlements are where the big money is, Congress should continue reducing nondefense discretionary spending,” she said. “The federal government has overreached its proper role.”