Federal administrative agencies exercise their policymaking powers in several different ways. The conventional way to describe agency activity is to distinguish between rulemakings and adjudications, each of which can be further subdivided into formal and informal types. In this post, I describe the features of each of these four types of agency action and offer some comments about the relative merits of each as a policymaking vehicle. Specifically, I discuss the degree to which each of these types of agency activity allows an agency’s expertise to work, facilitates democratic accountability, and protects the rights of the regulated.
In rulemaking an agency is said to operate in a quasi-legislative capacity. Through this process, the agency formulates rules which shall apply to regulated entities in a general and prospective manner to achieve policy ends which are embodied in the agency’s enabling legislation. Essentially, Congress, through legislation, lays out policy in broad terms and it often falls to administrative agencies to work out the particulars—in essence to sub-legislate under a delegation of congressional authority in order to achieve Congress’ policy goal. Some legislative enactments are quite vague. For example, anti-trust legislation prohibits anticompetitive business practices without specifying very well what those are. Agencies such as the FTC and DOJ, armed with economists and lawyers, are responsible for making specific rules about what activities fall within and without the statutory pale. Some statutes can be quite specific. Environmental legislation may specify allowable quantities of toxic substances down to the parts-per-million and tax laws specify what earnings are to be taxed at what rate and what exemptions are available. Thus, we might expect agencies such as the EPA and IRS to exercise less rulemaking discretion.
Informal rulemaking is the most common method by which federal administrative agencies promulgate new rules. This is the default method by which an agency promulgates substantive rules. Informal rulemaking, known also as notice-and-comment rulemaking, is set out in Section 553 of the Administrative Procedures Act (APA). This section requires that proposed rules be published, and interested members of the public are given opportunity to comment on the proposed rule (See the Federal Register here). This process is important for several reasons. First, it allows an agency to gather additional information from members of the public about the consequences of a proposed rule. This information may help the agency formulate a rule more carefully tailored to achievement of its mandate. Second, members of the public are afforded the opportunity to become aware of new rules that may affect their rights and obligations before those rules take effect and to participate in the formulation of those rules when necessary. Third, because an agency must notify the public of any proceedings associated with the proposed rule, describe its statutory authority to make the rule, and describe the operation of the rule itself, transparency and democratic accountability for agency actions are preserved in the rulemaking process.
Sometimes formal or on-the-record rulemaking is required by statute. Section 553 of the APA states that “when rules are required by statute to be made on the record after opportunity for agency hearing, sections 556 and 557 apply…” Under sections 556 and 557, although notice is still given for a proposed rule, the comment procedure is replaced by a process nearly identical to formal adjudication. The agency must hold evidentiary hearings with affected parties and base its rulemaking solely on the findings made through this process. “Formal rulemaking generally involves broad, complicated questions of policy which will affect substantial numbers of people” (Andreen 1989, 26), and is quite rare (Breyer, et al.).
Where required by statute, agency action may require an adjudication rather than a rule making. As Kerwin and Furlong put it: “Rulemaking, as a legislative process, is designed to sort through facts from multiple sources in order to select standards that will apply generally” (2011, 51). Adjudication, on the other hand, “is best used in situations when the status of an individual (as a petitioner, potential beneficiary, or regulated party) is in question, and the application of known rules depends on facts about that individual or his or her activities that may be in dispute or in need of elaboration.” Hence, where the rules are well-established but an individual’s rights under the rules require close inquiry into disputed facts, e.g., Social Security benefits eligibility determinations, adjudication may be required to safeguard individual rights under relevant statutes.
Formal adjudications are quasi-judicial procedures: specific in scope, usually affecting a small number of designated parties, and are more backward-looking in application. The requirements for formal adjudications are addressed in sections 554, 556, and 557 of the APA. These proceedings are primarily distinguished by the requirement that a decision be preceded by a formal hearing and is required whenever prescribed by enabling legislation or whenever sanctions or liability is imposed by an agency.
However, courts have sometimes required informal adjudications or “paper hearings” which are not provided for in the APA. In Overton Park, the Court indicated that these paper hearings simply involve the maintenance of a paper trail to facilitate a court’s review of agency action. The court is looking for the decision maker’s reasoning process and will determine if the appropriate facts were considered in an appropriate manner. Many of an agencies more routine administrative decisions fall into this last category.
Rulemakings clearly allow an agency’s expertise to work. Congress delegates to agencies because agencies are populated by subject matter experts with the time to analyze the particulars of a problem and formulate appropriate rules to achieve Congress’ purposes. Moreover, more so than other institutional actors, agency personnel have the capacity to monitor effects of policy mechanisms and adjust rules in a dispassionate manner somewhat insulated from the vagaries of politics and the coordination problems of political actors.
When it comes to democratic accountability, rulemakings are a superior vehicle of agency policymaking. Rulemakings, due to the public notice requirement, certainly makes agency action more transparent, especially in the age of the internet. Interested members of the public can be made aware of decisions that affect their lives before those decisions take effect and may participate either through the comment or hearing procedures. Although a majority of the public may not avail themselves of this opportunity, the same selective attentiveness can be observed with respect to congressional activities (See Arnold’s The Logic of Congressional Action 1990). In both cases, organized and vested interest groups have more of an incentive to be involved, aside from occasional periods of scandal. Few citizens followed Anthony Weiner prior to his sexting scandal just as few citizens followed the activities of the IRS prior to the Tea Party tax exemption scandal. The problem of selective attentiveness is endemic to democratic governance and not peculiar to the administrative state.
When it comes to protection of individual rights, the case is more mixed. Adjudications give individuals an opportunity to contest the particular application of a rule to their specific circumstances in an environment with court-like procedural protections, including an administrative law judge whose independence is guarded by the Office of Personnel Management and whose decisions are reviewable by an Article III judge. But while adjudication may correct the misapprehension of material facts or resolve the misapplication of a rule, it is not the most appropriate forum to address defects in the rule itself which may unfairly impact the rights of an individual. Defects in the rule itself must be addressed in the rulemaking process. As already noted, in the rulemaking process, individuals and groups have an opportunity to forestall the adoption of a rule which impacts them unfairly. Thus, both adjudications and rulemakings serve important functions in safeguarding individual rights.