Rulemaking Reforms and Nonrule Policies: A Catch-22 for State Agencies
March 5, 1997
Lawrence Sellers- Tallahassee
By Kent Wetherell and Lawrence E. Sellers, Jr. and Wade L. Hopping*
“Catch-22?” Yossarian was stunned. “What the hell does Catch-22 got to do with
it?”
“Catch-22 . . . says you’ve always got to do what your commanding officer tells
you to do.”
“But the Twenty-seventh Air Force says I can go home with forty missions.”
“But they don’t say you have to go home. And regulations do say you have to obey
every order. That’s the catch. Even if the colonel were disobeying a
Twenty-seventh Air Force order by making you fly more missions, you’d still have
to fly them, or you’d be guilty of disobeying an order of his. And then
Twenty-seventh Air Force would really jump on you.”
“That’s some catch, that Catch-22,” [Yossarian] observed.
“It’s the best there is,” Doc Daneeka agreed.[1]
From an agency perspective, the 1996 amendments to Florida’s Administrative
Procedure Act (APA) must seem
somewhat like “Catch-22.” On one hand, agencies’ rulemaking authority has been
significantly restricted;[2] it is
easier for affected parties to challenge proposed rules;[3] agencies are liable
for attorneys’ fees and costs if their
proposed rules are held invalid;[4] and agencies remain under the Governor’s
mandate to reduce their rules by 50
percent.[5] On the other hand, the rulemaking mandate in former F.S. §120.535 is
retained,[6] and the ability of agencies to apply nonrule
policy on a case-by-case basis has been narrowed.[7]
This article focuses on these amendments and other provisions of the revised APA
that are intended to increase agency accountability in the exercise of delegated
legislative authority.
Background
The political climate surrounding the 1996 APA amendments helps to explain the
arguably mixed policy signals described above. Put simply, the Governor and the
legislature wanted less bureaucracy and more accountability from state agencies.
The revisions discussed in this article are infused with these different, but
interrelated, policies.
As a means to eliminate agency bureaucracy, the Governor called for the repeal
of F.S. §120.535, which he blamed for the dramatic increase in agency rules
since 1991. The legislature and the regulated community, however, objected to
the repeal of F.S. §120.535, claiming that it would result in the return of
“phantom government” and, therefore, would reduce agency accountability in the
implementation of legislative policy.
Enhancing agency accountability was the focus of many of the rulemaking reforms
in the 1996 legislation supported by the business and regulated communities. For
example, the new F.S. §120.536 was based, in part, on the testimony received by
legislative committees during the past three sessions describing various agency
abuses in the exercise of delegated legislative authority. The regulated
community also called for reforms to the rulemaking process. These reforms are
designed to reduce bureaucracy in the rulemaking process and to help agencies
make better rules by encouraging agencies to provide early and meaningful
opportunities for public participation and by requiring agencies to evaluate the
economic impacts of the proposed rule and to consider requested lower cost
alternatives.
Rulemaking Reform
Many of the rulemaking reforms in the 1996 legislation were modeled after
rulemaking procedures already employed by some of the more prolific rulemaking
agencies to ensure that these changes do not unduly discourage rulemaking or
upset the balance between efficiency and accountability in the rulemaking
process.
• Agencies Must Publish Notice of Rule Development
The 1996 legislation makes several changes that are designed to further
encourage informed public participation in the rulemaking process, particularly
during the early stages. One change requires agencies to provide advance notice
of the development of proposed rules by publishing a “notice of rule
development” in the Florida Administrative Weekly.[8]
The “notice of rule development” is designed to facilitate early public
participation. The notice must describe the subject area to be addressed. It
must include a short explanation of the purpose and effect of the rule
development and cite the specific legal authority for rule development. The
notice of rule development thus provides the public with considerable
information at an early stage, and it affords interested persons an opportunity
to learn more about the proposal and to inform the agency of relevant matters
while the agency is still developing its proposed rule.
• Agencies May Be Required to Hold Public Workshops
Public workshops provide agencies with an opportunity to explore alternatives
with interested persons and gather necessary information in an informal setting.
Agencies have long been authorized to conduct public workshops.[9] The 1996
legislation recognizes the benefits of providing an early opportunity for public
participation by requiring the agency to hold public workshops if
requested in writing by any affected person, unless the agency head explains in
writing why a workshop is unnecessary.[10] The legislation also
requires that, when a workshop or public hearing is held, the agency must ensure
that the persons responsible for preparing the proposed rule are available to
explain the agency’s proposal and to respond to questions or comments regarding
the rule being developed.[11]
• Agencies May Choose to Use Negotiated Rulemaking
Some agencies routinely make use of variously constituted advisory committees,
working groups, or other forms of negotiated rulemaking to generate a consensus
among interested parties prior to promulgating a proposed rule. These agencies
have found that negotiated rulemaking often results in faster rulemaking,
greater consensus among interested parties, and less litigation.
The 1996 legislation formally authorizes agencies to use negotiated rulemaking
in developing and adopting rules, and the legislation encourages agencies to
utilize negotiated rulemak- ing when rules are complex or controversial.[12]
“Negotiated rulemaking” uses a committee of designated representatives to draft
a mutually acceptable proposed rule.[13] An agency that intends to utilize this
specific negotiated rule- making process must publish notice of the
representative groups that will be invited to participate in the process. Other
persons may apply to participate. All meetings of the negotiating committee must
be noticed and open to the public. The negotiating committee must be chaired by
a neutral facilitator or mediator.
• Notice of Proposed Rule Must Include Additional Information
Once an agency settles on its proposed rule, the agency publishes notice of its
intended action. The notice includes a short, plain explanation of the purpose
and effect of the proposed action, the full text of the proposed rule or
amendment, and a summary thereof. In another effort to enhance public
participation in the rulemaking process, the 1996 legislation requires this
notice to include certain additional information. The notice must include a
summary of the agency’s statement of the estimated regulatory costs, if one has
been prepared.[14] The notice also must include a statement
that any person who wishes to provide the agency with information regarding the
statement of estimated regulatory costs, or to provide any proposal for a lower
cost regulatory alternative, must do so in writing within 21 days of the notice.[15]
Finally, the notice must include a description of the procedure for requesting a
public hearing on a proposed rule.
• Agencies Must Choose Lower Cost Alternative
Since 1992, agencies engaged in rulemaking have been required to evaluate
alternative approaches to any regulatory objective.[16] To the extent allowed by
law, agencies also have been required to choose the alternative that imposes the
lowest net cost to society or to provide a statement of the reasons for
rejecting that alternative in favor of the proposed rule. However, there has
been no sanction for an agency’s failure to comply with the requirement, so it
was often ignored.
Accordingly, the 1996 legislation seeks to put some teeth into this requirement
by requiring the agency to consider a good faith written proposal for a
lower cost regulatory alternative to the proposal that substantially
accomplishes the objectives of the law being implemented.[17] Such a proposal must be submitted by
a substantially affected person within 21 days of publication of the notice of
proposed rulemaking. The proposal may include the alternative of not adopting
any rule, so long as the proposal explains how the lower costs and objectives of
the law will be achieved by not adopting any rule.
The submission of the lower cost regulatory alternative triggers a requirement
that the agency prepare a statement of estimated regulatory costs (SERC) or
revise any previously prepared SERC.[18] The agency then must
adopt the proposed alternative or give a statement of its reasons for rejecting
the alternative in favor of the proposed rule.[19]
• New Statement of Estimated Regulatory Costs
Administrative rules often impose significant regulatory burdens on affected
persons. For this reason, the APA has long required agencies to prepare economic
impact statements under certain circumstances.[20] The quality and utility of
these economic impact statements have varied greatly, no doubt in part because
agencies often lacked or failed to provide adequate resources to prepare
meaningful analyses of the economic impacts of proposed rules.
The 1996 legislation replaces the old “economic impact statement” with the new
SERC.[21] Agencies are encouraged to prepare a statement
in appropriate cases,[22]
and they must prepare a statement if a substantially affected person
submits a good faith written proposal for a lower cost regulatory alternative to
a proposed rule.[23] The 1996 legislation also seeks to make the new SERC more
meaningful by narrowing the scope of the required economic analysis. For
example, the new SERC requires an analysis of specific “transactional costs”
likely to be incurred by those required to comply with the requirements of the
proposed rule.
• New SERCs Are Subject to Legal Challenge
The 1996 legislation also seeks to make it easier for affected persons to
enforce the requirement to prepare the new SERC. The legislation provides that
the failure of the agency to prepare or revise a SERC as required is a material
failure to follow the applicable rulemaking requirements of the APA and is,
therefore, grounds for determining the related proposed or adopted rule to be
invalid.[24] This provision is intended to overrule
legislatively earlier court decisions that limited the effectiveness of the
economic impact statement requirement by requiring only substantial compliance,
absent a showing of prejudice by an affected person.[25]
• Agencies Must Consider Impact on Small Counties and Small Cities
Agencies already are required to consider the impact of a proposed rule on small
businesses.[26] The 1996 legislation requires agencies also to consider the impact
of the proposed rule on small counties and small cities.[27] Whenever possible,
agencies are required to tier a proposed rule to reduce disproportionate impacts
on these small entities and to avoid regulating those that do not contribute
significantly to the problem the rule is designed to regulate.
• New Public Hearing Requirements
After the agency publishes notice of the proposed rule, the agency may schedule
a public hearing for the purpose of giving affected persons an opportunity to
present evidence and argument. If requested by any affected person, the agency
must schedule a public hearing.[28] The legislature
recognized the benefits of using the required public hearing to explain the
agency’s proposal, to respond to questions or comments about the proposal, and
to discuss changes to the proposal that would make it more acceptable to
affected persons. If a public hearing is held, the agency must ensure that the
persons responsible for preparing the proposed rule are available to explain the
agency’s proposal and to respond to questions or comments regarding the rule
being developed.[29]
• Agencies Required to Publish Adopted Changes to Proposed Rules
Agencies always have been authorized to make certain changes to a proposed rule
before filing the final rule for adoption[30] and they often
did so, typically as the result of comments at a public hearing or in response
to written comments. However, agencies were not expressly required to publish
notice of these changes. Rather, agencies were only required to give notice to
any person who requested it in writing or at the public hearing.[31] The 1996 legislation
requires agencies to publish notice of these changes in the Florida
Administrative Weekly.[32] This new requirement is particularly significant since
affected persons also will be given a new opportunity to challenge these changes
before they become effective.
New and Revised Remedies for Challenging Agency Rules
In addition to improving the rulemaking process, the 1996 legislation also seeks
to enhance agency accountability by upgrading the “impressive arsenal of
varied and abundant remedies for administrative error”[33] provided by the APA.
• Additional Time to Challenge Proposed Rules. Under prior law,
administrative challenges to proposed rules had to be filed within 21 days after
the proposed rule was published.[34] The 1996 legislation adds three new “windows” for filing
these challenges: 1) within 20 days of preparation of a SERC; 2) within 10 days
after the final public hearing is held on the proposed rule; and 3) within 21
days after publication of a notice of change in the proposed rule.[35] The
rationale for the establishment of two of these new “windows” is briefly
described below.
• Within 10 Days After the Public Hearing. Administrative agencies
regularly make changes to a proposed rule as a result of comments received after
the publication of the proposed rule, such as comments submitted at the public
hearing. In many cases, these changes address objections that would form the
basis for a challenge to a proposed rule. Often, the agency formally agrees to
adopt these changes at the public hearing, which is held after the expiration of
the existing 21-day time period for filing a challenge to a proposed rule. In an
effort to minimize unnecessary challenges to proposed rules, the 1996
legislation extends the time for filing challenges to proposed rules until 10
days after conclusion of the public hearing on the proposed rule.[36]
• Within 20 Days After Publication of Change in Proposed Rule. An
administrative agency may adopt a rule that is different from the proposed rule.
As a result, there often are instances in which an administrative agency has
approved a rule that includes provisions that were not included in the proposed
rule and, therefore, could not have been subject to an administrative challenge
prior to adoption.[37] The 1996 legislation addresses this
issue by requiring the agency to publish notice of any change in the proposed
rule and by extending the time for filing challenges to a proposed rule until 20
days after publication of this notice.[38]
• “Leveling the Playing Field” in Challenges to Proposed Rules. The opportunity
provided by the APA to challenge a proposed rule before the rule becomes
effective is unique among state administrative procedure acts.[39] However, there
was a perception that administrative agencies had come to enjoy too much of an
advantage in these rule challenge proceedings, and that the proceedings,
therefore, were not serving their intended purpose of discouraging the adoption
of invalid rules. The 1996 legislation makes several changes in an effort to
“level the playing field” in these proceedings. Two of these are discussed in
the following paragraphs.
• Presumptions. Under the old APA, a person challenging a proposed rule
(or an existing rule) had the burden of proving the invalidity of the rule by a
preponderance of the evidence.[40] However, courts often
applied a heavier burden to challengers by also deferring to an agency’s
construction of a statute the agency is charged with enforcing, or by otherwise
indicating that the agency’s interpretation is entitled to “great weight” and,
therefore, is not to be overturned unless “clearly erroneous.”[41]
Courts also have held that an agency’s interpretation of a statute need not be
the sole possible interpretation or even the most desirable one; it need only be
within the range of “possible” interpretations.[42] In
addition, courts occasionally have suggested that a rule enjoys a “presumption”
of correctness or validity.[43]
One particular decision—State Department of Health and Rehabilitative Services
v. Framat Realty, Inc., 407 So. 2d 238 (Fla. 1st DCA 1981)—came to symbolize the
advantage that agencies enjoyed in defending their rules, and many sought to
reverse the Framat Realty decision (and similar decisions) by legislative
changes that remove any presumption of correctness or validity.[44]
The 1996 legislation expressly provides that a proposed rule is not presumed to
be valid or invalid.[45] The legislation also seeks to ease the
burden on the challenger by simply requiring the challenger to state with
particularity the objection to the proposed rule and the reasons that the
proposed rule is an invalid exercise of delegated legislative authority. The
agency then has the burden to prove that the proposed rule is not an invalid
exercise of delegated legislative authority as to the objections raised.[46]
• Limitations on Rulemaking Authority. The 1996 legislation also seeks
legislatively to overrule judicial decisions giving administrative agencies
“wide discretion in the exercise of their rulemaking authority” whether “clearly
conferred or fairly implied,” so long as that authority is “consistent with the
agencies’ general statutory duties.”[47] The 1996 legislation
seeks to accomplish this by expressly providing that “[a] grant of rulemaking
authority is necessary but not sufficient to allow an agency to adopt a rule; a
specific law to be implemented is also required.”[48]
The 1996 legislation also makes clear that a rule will be determined to be
invalid for any of the seven reasons set out in the definition of “invalid
exercise of delegated legislative authority.” Several judicial decisions
appeared to require the agency’s rules to be sustained as long as they are
merely “reasonably related to the purposes of the enabling legislation, and are
not arbitrary and capricious.”[49] The 1996 legislation effectively overrules
these cases by expressly stating that “[n]o agency shall have authority to adopt
a rule only because it is reasonably related to the purpose of the enabling
legislation and is not arbitrary and capricious . . . .”[50]
The 1996 legislation recognizes that it imposes new restrictions on an agency’s
rulemaking. The legislation therefore establishes a procedure by which each
agency is to identify its previously adopted rules that exceed the rulemaking
authority as now limited.[51] The 1996 legislation then
“shields” those listed existing rules that do not meet this new test until the
legislature may consider whether specific authorizing legislation should be
enacted.[52]
• Additional Grounds for Challenging Rules. Both proposed and adopted rules
now may be determined to be invalid for two new reasons. First, a proposed or
existing rule is an invalid exercise of delegated legislative authority if the
rule imposes regulatory costs on the regulated person, county, or city that
could be reduced by the adoption of less costly alternatives that substantially
accomplish the statutory objectives.[53] Second, a proposed or
existing rule also is now an invalid exercise of delegated legislative authority
if it is not based on competent substantial evidence.[54]
New Limits on Agency Reliance on Nonrule Policies
Other provisions of the 1996 legislation sought to enhance agency accountability
by discouraging agencies from relying on nonrule policies in lieu of formal
rules adopted through the “improved” rulemaking process. This reliance on
nonrule policies by state agencies can be traced to McDonald v. Department of
Banking & Finance, 346 So. 2d 569 (Fla. 1st DCA 1977), in which the court held
that state agencies were not required to adopt all of their emerging or
“incipient” policies as rules. Instead, the court reasoned agencies may choose
not to adopt those policies as rules and explain, support, and defend such
policies in each case in which the policy is applied.
McDonald created an exception to the general rule that the formal rulemak- ing
process, with its attendant notice and public hearing requirements, must be used
to implement delegated legislative authority. However, as the late Professor Pat
Dore noted, “[b]efore long, . . . the limited McDonald exception
swallowed the rule, [because the courts] allowed the agencies themselves to
determine whether and when they were ready to proceed to rulemaking.”[55] This reliance on
adjudication instead of rulemaking to announce agency policy set the stage for
the enactment of F.S. §120.535 in 1991.
F.S. §120.535(1) for the first time clearly provided that “[r]ulemaking is not a
matter of agency discretion” and required agencies to adopt their policies
through rulemaking as soon as “feasible” and “practicable.”[56] The agency has the
burden to prove that rulemaking is not “feasible” or “practicable.” To meet this
burden, the agency must effectively demonstrate that the policy is, in fact,
incipient or evolving.
Along with §120.535, the legislature also enacted §120.57(1)(b)15. That section
specifically authorizes agencies to rely on nonrule policy in determining a
person’s substantial interests so long as the agency “proves up” the policy each
time it is applied. In this regard, F.S. §§120.535 and 120.57(1)(b)15. arguably
did little more than codify the McDonald decision.
Because the agency could continue to rely on its nonrule policy in subsequent
adjudicatory proceedings during the rulemaking process, the remedies provided by
§120.535 were incomplete, at best. A prevailing party was not entitled to an
award of attorneys’ fees and costs under F.S. §120.535 unless an agency
statement or policy previously determined to be an “unpromulgated rule” was
relied on by the agency to determine the person’s substantial interests and
the agency had not initiated the rulemaking process to formally adopt the
policy.[57]
The 1996 legislation contains several provisions which enhance agency
accountability by restricting the use of nonrule policies and encouraging
agencies to adopt their policies as rules. First, §120.54(7) includes a new
procedure by which an affected person can petition an agency to adopt a nonrule
policy through the formal rulemaking process. Second, the remedies in former F.S.
§120.535 are strengthened. Finally, §120.57(1)(e) places new restrictions on
agency policymaking through adjudication.
Section 120.54(7)(b) and (c): “Forced” Rulemaking?
An affected person now may petition the agency to initiate rulemaking for an
“existing rule which the agency has not adopted by the rulemaking procedures or
requirements [of the APA].” The agency may not deny petitions to initiate
rulemaking directed at an unadopted rule as freely as it may deny petitions
under the former §120.54(5).[58] The agency’s decision on the petition is vested
with agency discretion. Nothing in paragraphs (b) or (c) in the new §120.54(7)
affirmatively require the agency to grant the petition and initiate rulemaking.
The agency is only required to follow the notice and hearing procedures set
forth in paragraphs (b) and (c).
If, however, the record of the public hearing required by §120.54(7)(b)
demonstrates that adoption of the nonrule policy is “feasible and practicable,”
a reviewing court may conclude that the agency was required by §120.54(1)(a) to
adopt the policy as a rule and the agency had no discretion to refuse to
initiate rulemaking. Alternatively, the agency’s failure to initiate rulemaking
in such a circumstance may be considered an abuse of the agency’s discretion.
Under this new provision, the agency must either initiate rulemaking or provide
notice that the agency will hold a public hearing on the petition within 30 days
after the petition is filed.[59] The public hearing must be held within 30 days
after the notice is published. The purpose of the public hearing is to receive
public comments on the unadopted rule and to “consider whether the public
interest is served adequately by the application of the rule on a case-by-case
basis, as contrasted with its adoption by the rulemaking procedures or
requirements [of the APA].”[60]
Stated another way, the purpose of the public hearing is to determine whether
the agency’s policy has evolved to the extent that it should be formally adopted
by the agency as a rule.
Within 30 days after the public hearing, the agency must either initiate
rulemaking or issue a statement of its reasons for failing to do so.[61] This
statement must be published in the Florida Administrative Weekly and must be
filed with the Joint Administrative Procedures Committee (JAPC).[62] JAPC must
forward this statement to the legislative committee with primary oversight of
the agency, and that legislative committee may hold a hearing and may recommend
the introduction of legislation to make the unadopted rule a statutory standard,
or to limit or modify the au