The blog of the Urban Institute
March 18, 2021

Biden’s Executive Orders Inject Racial Equity into Regulatory Review

March 18, 2021

On his first day in office, President Biden signed nine executive orders, beginning with a tone-setting declaration that federal agencies should advance racial equity and support underserved communities. Urban Institute experts offer rigorous data tools and analysis strategies that can help advance the goals of this executive order.

The administration has taken another important step to advance its racial equity priorities through an executive order on federal regulation and a memorandum on modernizing regulatory review that, together, reestablish sound principles of cost-benefit analysis in regulatory review and provide the tools to begin dismantling structural racism using the federal rulemaking process.

Regulatory review is a complex federal process with the power to transform lives. It examines the likely effects of rules, regulations, and policies; estimates their economic costs and benefits; and helps policymakers determine whether regulations should stay in place, be modified, or be repealed. These policies shape every aspect of our lives, from the government’s response to the COVID-19 pandemic, to economic recovery, and more.

Structural racism—distinct from personal racist beliefs or actions—is the set of historical and contemporary policies, practices, and norms that create and maintain white supremacy. Structural racism permeates the policies and practices encoded in federal regulation, just as it does other public and private institutions, and the rulemaking process should take racial equity considerations into account.

For example, if the rulemaking process had accounted for racial equity in 2019, it could have prevented the “public charge rule,” which made it easier to deny green cards and visas to immigrants if it was “more likely than not” that they would become recipients of public benefits. The cost-benefit analysis conducted for this rule cited billions of dollars in benefits to the government from reduced public benefits expenditures for immigrants and their families. But evidence shows that despite passing a cost-benefit test, the rule created immense hardship for immigrants and their families and negatively affected millions of families’ well-being.

Cost-benefit analysis on its own does not tell us which regulations most effectively advance racial equity and justice. Two regulations that would produce the same net benefits to society could impose higher costs or bestow lower benefits on Black people. Cost-benefit analysis alone would not differentiate between them, although one may be clearly preferable from a racial equity perspective.

Many regulatory initiatives that technically pass a cost-benefit test disproportionately burden underresourced communities and people of color. The administration’s new directives provide an opportunity to not only incorporate but also center racial equity in regulatory review.

Modernizing regulatory review to account for racial equity

President Biden recognized the federal government needs tools for incorporating racial equity into cost-benefit analyses, so his memorandum directs the Office of Management and Budget to work with federal agencies to develop recommendations for “how the regulatory review process can promote public health and safety, economic growth, social welfare, racial justice, environmental stewardship, human dignity, equity, and the interests of future generations.”

Federal policymakers could consider two technical changes that may help improve the way they measure equity and bolster the cost-benefit toolbox.

  • Incorporate weights into existing cost-benefit analyses so the review process acknowledges that costs and benefits affect some people more than others because of systemic disadvantages and privileges. Weighting is most commonly used to account for a policy’s effect on income inequality but could be controversial when applied to racial or ethnic groups because it would mean explicitly valuing one group more than another in the cost-benefit analysis.
  • Conduct distributional cost-benefit analysis, which measures a policy change’s impact on the benefits and costs of different groups in addition to calculating total net benefits. Distributional cost-benefit analysis aimed at racial equity would require additional statistical modeling and assumptions about the impact of proposed regulations on different racial and ethnic groups to determine whether one community was disproportionately affected by the policy change. Understanding how a policy affects different groups can help policymakers assess the trade-offs or complementarities between increasing net benefits and advancing racial equity.

These changes to cost-benefit analysis would incorporate racial equity into reviews of newly proposed rules, but dismantling structural racism—which is embedded in existing policy and practice—requires deeper scrutiny of current regulations. In addition to expanding the cost-benefit toolbox, federal agencies should consider conducting internal reviews to determine what rules and practices are reinforcing structural racism and what needs to be changed to advance racial equity.

To complement their internal reviews, agencies could invite the public and affected communities to identify what rules and regulations negatively affect them. Opportunities for public comment on proposed regulations inevitably attract input from organized and well-connected advocates, but agencies should also conduct outreach to communities that would be affected by policy to understand the barriers and challenges families face and what solutions they feel would be helpful. Although community members may not comment on formal regulatory proposals, their accounts of barriers and challenges can still identify the formal regulations that impede racial equity.

Correcting Trump’s departure from the rules of rulemaking

In addition to prioritizing racial equity in rulemaking, President Biden took an important step to return regulatory review to sound standards of cost-benefit analysis. Forty years ago, then-president Reagan issued an executive order on federal regulations, launching the modern regulatory review process that subjects “economically significant” regulations to a rigorous cost-benefit analysis. The process judged new rules by whether their total social benefits exceed their total social costs, also called a positive “net social benefit.”

Both Democratic and Republican administrations maintained this standard for decades. Former president Clinton modified the review process (PDF) to account for the difficulty of quantifying some costs and benefits but reaffirmed the centrality of the net benefit standard for judging new regulations.

This bipartisan consensus was jettisoned when former president Trump issued an executive order requiring that for every new regulation issued, an agency had to eliminate two existing regulations. The order also stipulated that in 2017, agencies could not increase regulatory costs at all, and that in subsequent years, the president would set annual limits on regulatory cost increases. This new approach rejected the net benefit standard in favor of cost cutting, even in cases where cost cutting might reduce net benefits for society.

Former president Trump’s focus on cost cutting affected all policy areas and undermined efforts to advance racial equity. For example, in July 2020, the US Department of Housing and Urban Development cited the need to cut regulatory costs when it announced that it was formally rescinding the 2015 Affirmatively Furthering Fair Housing (AFFH) rule.

The AFFH rule strengthened the fair housing assessments required by the 1968 Fair Housing Act and provided local communities with the tools needed to address racial inequities in housing and neighborhoods. Urban Institute researchers described the AFFH rule as the federal government’s “most rigorous attempt in nearly 50 years” to combat racial segregation. The Trump-era focus on the regulatory costs of AFFH rather than regulatory net benefits resulted in a step backward in the effort to dismantle structural racism in housing.

New opportunities for equitable regulation

President Biden’s executive order on federal regulation shifts regulatory review away from a focus on cost cutting and returns to the net benefit standard. This puts us back on track with sound principles of cost-benefit analysis.

Explicitly centering racial equity in the review process, as envisioned by Biden’s memorandum, would take rulemaking a step further and help root out structural racism in federal regulations.

(Hongyuan Zhang / Getty Images)

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