March 1993
The Legislature often directs executive branch agencies to develop rules that specify or implement a statute. Once properly adopted, rules have the force and effect of law. Minnesota, like the federal government and most other states, has an Administrative Procedure Act (APA) that is intended to protect the public from abuse of agency power. The act establishes minimum due process requirements and specifies the procedures that state agencies must follow in adopting rules.
Since agencies are supposed to carry out legislative policy when they adopt rules, legislators are justifiably interested in how well the APA is working, whether it is achieving its goals, and whether agencies follow required procedures. In addition, many agency staff think that rulemaking has become too cumbersome, while some citizens complain that rulemaking has become so complicated and technical that the public is ill-prepared to participate.
In light of these concerns, the Legislative Audit Commission directed us to study administrative rulemaking in Minnesota. Our study addressed the following questions:
To answer these questions, we analyzed all 262 rules reviewed by the Attorney General's Office and Office of Administrative Hearings in fiscal years 1991 and 1992 and conducted phone interviews with agency staff for a sample of 54 of those rules. In addition, we sent a questionnaire to a sample of individuals on agency mailing lists related to the 54 rules and analyzed the 341 responses we received. We also analyzed data from the Revisor of Statutes, Legislative Commission to Review Administrative Rules, State Register, and other sources, including legislation and recent court cases. Finally, we interviewed people knowledgeable about rulemaking in Minnesota and surveyed the national literature.
We evaluated the processes agencies use to adopt rules against the following criteria: 1) rules should be legally authorized and adopted according to appropriate statutory procedures; 2) agency rules should reflect the policies established by the Legislature; 3) public participation should be encouraged; 4) rules should be technically sound; 5) the rulemaking process should be flexible; and 6) the public should be generally satisfied with the rulemaking process. <FN - See Arthur Earl Bonfield, State Administrative Rulemaking (Boston: Little Brown, 1986).>
Our evaluation shows that Minnesota's rulemaking requirements are generally flexible. However, the rulemaking process does not always offer meaningful opportunities for public participation. We found that a majority of people affected by rules who responded to our survey say they hear about rules too late for their input to make a difference. For several reasons, important decisions affecting the content of rules are often made outside the formal part of the rulemaking process. We also found that current rule review mechanisms emphasize legal compliance with procedural requirement, but may not ensure that rules are acceptable to the Legislature and the public. We recommend changing the Administrative Procedure Act to improve opportunities for meaningful public participation and to strengthen oversight of agency rules. We also recommend changes aimed at making agency rulemaking more efficient and less cumbersome.
There have been an average of 126 rules adopted each fiscal year since 1981. As shown in the figure below, the general trend has been slightly upward.
We found that:
When the Legislature enacts new programs, agencies have to adopt rules to implement them. In addition, agencies have to amend existing rules to incorporate legislative changes to existing programs, as well as to reflect technological, economic, social, and other changes. Of the 262 rulemaking actions in fiscal years 1991 and 1992, 82 (31 percent) were proposed new rules, 175 (67 percent) were amendments to existing rules, and five (2 percent) were repeals of existing rules.
We also found that:
These come in the form of statutes that establish new programs and require or permit agencies to adopt rules to implement and administer a program. About 10 percent of the rulemaking actions in fiscal years 1991 and 1992 were prompted by changes in federal programs that required commensurate changes in state rules to remain in compliance and retain eligibilty for federal funds.
During fiscal years 1991 and 1992, a total of 56 agencies developed 262 rules that went through the formal APA process. Three agencies, the Pollution Control Agency (30 rules), the Department of Human Services (30 rules), and the Department of Health (27 rules), wrote substantially more rules than others. These agencies accounted for one-third of all the proposed rules and almost half of the rules that had a public hearing.
The Legislature has changed the Administrative Procedure Act (APA) a number of times since it first enacted procedural rulemaking requirements in 1945. The changes made over the years reflect efforts to balance the APA goals of public participation and agency accountability, and the general concern for government efficiency. The APA was substantially revised in 1975 in response to concerns that the existing law did not guarantee sufficient due process or provide enough checks against possible agency abuse. In 1980, the APA was changed to allow agencies to adopt some rules without a public hearing.
The three types of formal rulemaking proceedings established in 1980--rules adopted with a hearing, rules adopted without a hearing, and emergency rules--remain in effect today. The three types of proceedings have different requirements for public notice and participation, as well as different rules review procedures. Agencies may adopt a rule without a public hearing unless 25 or more people request one during the 30-day comment period.
We compared Minnesota's APA to the 1981 "Model State Administrative Procedure Act," which many other states have used as the basis for their APAs, and we conclude that:
Minnesota's APA contains public notice-and-comment provisions that are similar to the Model APA, but the latter does not provide for alternative processes. By providing for alternative rulemaking and rules review processes, Minnesota's APA encourages agencies to negotiate with interested parties before proposing a rule, in order to avoid the time and expense of a public hearing. Typically, therefore, before the public hearing occurs, the agency has had considerable informal contact with at least some interested people and has heard the various points of view.
In contrast, under the Model APA, the agency presides at "oral proceedings," which are held to give interested persons an opportunity to present arguments in person to the agency. In Minnesota, an administrative law judge from the state's Office of Administrative Hearings, an independent agency not affiliated with the agency proposing the rule, presides at rulemaking hearings, and agencies are billed for the services provided by administrative law judges. We were able to identify only three other states where public rulemaking hearings are presided over by administrative law judges.
We examined how long the administrative rulemaking process takes in Minnesota and how much it costs.
We conclude that:
We estimate that for the 125 to 130 rules adopted each year, the rulemaking process costs about $3.4 million annually. On average, it takes about 16 months to adopt a rule in Minnesota from the time agency staff begin working on it until it becomes effective. The large majority of rules--over 80 percent--are adopted without a public hearing, and these take an average of 14 months to adopt. The APA also provides for an emergency rulemaking process, which contains fewer requirements and takes less time. However, this process is rarely used (emergency rules represented 5 percent of rules reviewed in fiscal years 1991 and 1992). Agency staff told us the timeframe for emergency rules is too short to permit development of good rules that eventually must be adopted as permanent rules.
We also found that:
Rules that require a public hearing tend to be more controversial: they are more likely to regulate industries, affect health or safety, involve multiple competing interests, impose large costs, or involve highly technical issues. Controversial rules take longer because conflicts left unresolved by the Legislature when it enacts a law may have to be resolved during rulemaking. Under Minnesota's APA, agencies are encouraged to negotiate with affected parties, reach a compromise, and avoid a public hearing, with no enforceable limits on the length of time agencies have to do so.
We also found that:
The above figure also shows that almost 70 percent of rulemaking time is spent drafting the rule, not meeting APA requirements. This is the case regardless of whether a rule requires a hearing or not. Agency staff told us that rulemaking delays are more likely to be caused by insufficient staff, vague or ambiguous legislation, or controversies associated with a rule, than by the formal APA process. In addition, we conclude that:
We found that 28 percent of proposed rules contained procedural or substantive errors, which resulted in delays and higher costs. For instance, when errors were made, the formal adoption process took nearly three months longer than when there were no errors. Between 7 and 10 percent of rules contain the type of errors that require an agency to republish a proposed rule, and sometimes to hold a second public hearing. In addition, we found some inaccurate perceptions of APA provisions and requirements among agency staff.
We evaluated agency rulemaking as both a legal and a political process. We examined the due process requirements in Minnesota's Administrative Procedure Act to see whether they ensure that people affected by proposed rules <R>receive timely notice and have adequate opportunity to provide comments. We also assessed the informal ways in which agencies negotiate with the conflicting groups and interests that are often involved in rulemaking. Finally, we asked people affected by rules for their opinions about the adequacy of <R>agencies' rulemaking performance.
We found that:
However:
"Negotiated" rulemaking is now commonplace. We estimate that for about 80 to 85 percent of all rules, agencies solicit informal comments from affected parties before officially proposing a rule. Sometimes agencies even negotiate to get people to withdraw their requests for a public hearing. We learned from our survey of affected parties that those people who are in direct personal contact with agency staff and who participate during the rule drafting phase, for example, by serving on a rules advisory committee, are much more likely to have favorable opinions about agency rulemaking performance.
One unintended consequence of negotiated rulemaking is that the public participation process mandated by the APA has become less important because the content of rules is largely decided during the negotiation phase. As a <R>result, by the time a rule is formally published in the State Register with a request for public comments, an informal agreement between an agency and parties to the negotiation may already have been reached. Those groups and individuals not consulted often are left out. Nearly 70 percent of the affected parties who responded to our survey said they hear about rules too late for their input to make a difference. People who live outside the Twin Cities area were much more likely to feel unable to influence the rulemaking process and to express dissatisfaction with agency rulemaking performance generally.
Furthermore, the rule negotiation process is not part of the official rulemaking record nor subject to statutory controls or legal review that would guarantee equal access. Therefore, it can easily be dominated by those groups and organizations with more resources. In the absence of formal guidelines or standards, agency practices vary, and some agencies are better than others at obtaining broad-based input.
We also conclude that:
Only a small minority of the people affected by rules whom we surveyed (between 10 to 15 percent) were very familiar with Administrative Procedure Act requirements and found the process easy to follow. Furthermore, few people hear about rules from the State Register, which is where proposed rules are published. This makes agencies' own efforts to notify people even more important. Fewer than 25 percent of affected parties who responded to our survey communicate directly with agency staff about rules. The remaining three-quarters of survey respondents are on an agency's regular mailing list or hear about rules only indirectly from organizations they belong to. Those who learn about rules indirectly may hear too late to submit comments that an agency is likely to use.
Although the initial public notice (to solicit outside opinion) is published for 62 percent of all rules, it is not uniformly understood and used by agency staff. We found that for an additional 15 to 20 percent of rules, an agency did not publish the required notice when it should have. Agency staff told us that the notice to solicit outside opinion usually does not elicit useful comments because it does not contain enough information about the rule. This assessment was confirmed by a number of affected parties we surveyed.
Finally, many agency staff are reluctant to change a rule after it has been published in the State Register, in part because they misunderstand the APA provision prohibiting substantial changes. In fact, large changes are frequently permitted, and rules are almost never rejected by the offices that review rules (Attorney General's Office and Office of Administrative Hearings) for violation of the substantial change provision.
In Minnesota, a rule is defined as "every agency statement of general applicability and future effect" and must be adopted in accordance with the APA. In addition, all changes to existing rules (regardless of magnitude and including rule repeals), as well as "interpretive rules," which make specific an existing statute, must go through the formal rulemaking process.
We found that:
We could not determine the extent to which agencies may be avoiding formal rulemaking by issuing improper policy "guidelines," applying general standards in case-by-case decisions that should be rules, or permitting seriously outdated rules to remain in effect instead of formally amending them. Both agency staff and people affected by rules told us these things happen, but we do not know how often.
But neither forcing agencies to comply fully with the current definition nor changing it to permit greater agency discretion is a practical solution that also meets the goals of the Administrative Procedure Act. Agencies would like to be able to issue informal policy guidelines--without the force and effect of law--that can be changed more easily than rules. However, if agencies expect regulated parties to follow their guidelines, they would be equivalent to rules, in practice, and should be adopted following appropriate procedures. If agencies do not expect their guidelines to be followed, it is not clear what purpose they would serve. In our opinion, efforts to permit agencies to make enforceable policies without appropriate legislative delegation or proper procedures and oversight raise serious legal questions. We think the solution lies in better prioritization of agency rulemaking.
We also conclude that:
The establishment of fees to offset program costs has become a common method of funding some services. We found that there is confusion about which fees should be established by rules and conclude that legislative clarification is needed. Also, there is no policy covering exemptions to rulemaking, and some programs are exempt from formal rulemaking while similar ones are not. In addition, we found that there is almost no external review of exempt rules, even though exempt rules also have the force and effect of law.
The Legislature wants agencies to adopt technically sound rules that are also sensitive to the costs that rules impose on people affected by them. It has tried to accomplish these goals by enacting procedural requirements for agencies to follow.
We found that:
The APA requires that agencies prepare written "statements of need and reasonableness" that justify their rules. Agency staff told us that these statements help them to write better rules. However, some agency staff misunderstand how they should be be written, and we found that the quality of these statements varies widely. The results of our survey suggest that most people affected by rules do not think that agencies provide adequate justification for their rules.
We also found that:
Agency compliance with these requirements is inconsistently reviewed and enforced, and few rules are modified as a result of them. Occasionally, however, if the Office of Administrative Hearings or Attorney General's Office finds that a special requirement was not addressed when it should have been, it can force an agency to restart the rulemaking process and hold another public hearing.
All states with APAs provide for review of proposed rules by entities outside the agency. The main reason is that, unlike the Legislature which authorizes rules, the agency staff who write them are not directly accountable to the public. Typically, rules are reviewed to ensure that they are legally authorized, that the appropriate procedures were followed, and that they are reasonable, in the public interest, and consistent with legislative intent. External review also minimizes judicial challenges to agency rules.
We found that:
Minnesota has an unusual structure for rules review. It emphasizes legal review of proposed administrative rules by judicial or quasi-judicial offices. The Attorney General's staff play a dual role in rulemaking: they act as legal counsel to agencies, helping them write rules, and they review the over 80 percent of rules that do not require a public hearing. The Office of Administrative Hearings' administrative law judges also have two rulemaking roles: they preside at public hearings, and they review the approximately 19 percent of rules that require a public hearing.
We found that both offices carefully review rules to ensure that agencies have statutory authority to adopt a rule and that they comply with the APA's due process requirements. However, with respect to whether a rule is needed and reasonable, deference is given to the agency. Both offices apply a standard that requires an agency to demonstrate a rational basis for a rule but does not require the agency to show that it is the "best" rule. This is the same standard applied by the courts, if and when a rule is subjected to judicial review.
Rules reviewed by the Office of Administrative Hearings receive closer scrutiny, in part because these rules are more complex and controversial. This office found substantive errors in 47 percent of the rules it reviewed, compared to substantive errors in 5 percent of the rules reviewed by the Attorney General's Office. The Attorney General's review does not include determining whether a rule is consistent with legislative intent. While the Office of Administrative Hearings assesses consistency with legislative intent for the rules it reviews, administrative law judges find it difficult to do so. In determining legislative intent, administrative law judges told us they rely on statutory language even when legislators submit written comments or testify at a hearing, which they occasionally do.
Minnesota, along with 40 other states, also provides for legislative review of administrative rules. Most legislatures provide for systematic review of proposed rules by a bipartisan commission, like Minnesota's Legislative Commission to Review Administrative Rules, by appropriate legislative standing committees, or both. The Legislative Commission to Review Administrative Rules reviews rules in response to specific complaints. Most of the <R>complaints the commission has investigated have involved the contents of a rule rather than the process of adopting it. The commission has rarely used its formal power to suspend a rule, in part because the constitutionality of such a suspension is in question.
In making our recommendations, we were mindful of the careful balance an APA strives to achieve between meaningful public participation and public accountability over agency rulemaking, and the need for government efficiency.
We considered a number of alternatives for equalizing public access to agency rulemaking and increasing public accountability for agency rules, including replacing Minnnesota's APA with the Model APA, requiring publication of rulemaking notices in major newspapers, lengthening the public comment period, adding requirements to govern agencies' informal rulemaking, and strengthening gubernatorial oversight of agency rules. However, we think that these alternatives--while they might be appropriate for some rules--would add unnecessary costs and time to other rules, without commensurate benefits.
Therefore, we recommend that:
The Legislature should consider amending the Administrative Procedure Act to require that a "notice of regulatory action" be published in the State Register and mailed to all affected parties when an agency begins drafting a rule.
We also recommend that:
The recommendations we make are designed to revitalize the formal rulemaking process, ensure more equitable access to agencies at a time when comments can reasonably be considered, and strengthen public accountability over agency rules. We think that replacing the current "notice to solicit outside opinion," which is published for 62 percent of all rules, with a mandatory "notice of regulatory action" will not represent an undue burden on agencies. The current notice is not widely distributed and does not contain enough information to enable interested parties to respond. Therefore, we recommend that the new notice should contain more information about the rule and the process to be used in drafting it, and that it should receive wider distribution than the current notice. A mandatory rulemaking docket, to be submitted to the Legislature and made available to the public upon request, should help the Legislature monitor rulemaking and provide better oversight.
Also, we recommend the following additional changes to the Administrative Procedure Act:
These recommendations are designed to: 1) shorten the rulemaking process; 2) ensure minimum due process, recognizing the political nature of rulemaking; 3) strengthen legislative oversight; and 4) minimize the requirements that may be appropriate for only a few rules. For example, we recommend replacing the current special rule justification requirements that apply to all rules, but which have had limited effectiveness, with a provision that would restrict regulatory analyses to the few rules where one is justified.
The recommendation for consolidating rules review duties within the Office of Administrative Hearings is based on the following rationale. The dual role played by the Attorney General's Office--providing legal advice to agencies during rulemaking and subsequently reviewing rules without a public hearing--is confusing and has the appearance of conflict of interest. In addition, the two rule review offices have different rules governing their procedures and do not always apply the same standards, criteria, and definitions in reviewing rules. Given that the Attorney General's primary role is acting as agencies' <R>legal counsel, it would appear more appropriate for the independent Office of Administrative Hearings to function in the rules review capacity for all rules. The majority of affected parties we surveyed said staff of this office were fair and impartial in carrying out their rule-related responsibilities.
In addition, we recommend that:
In addition to changing the APA and other statutes that govern agency rulemaking, we recommend that:
For example, they should make a greater effort to educate the public about how to receive direct information about rulemaking actions and make greater use of agency-held public hearings or widely publicized public meetings early in the rulemaking process. They should also include circulation of rule drafts and "statements of need and reasonableness" earlier and more widely among all parties affected by rules. Finally, agencies should terminate the negotiation process when it fails to make progress toward resolving issues and either proceed more quickly to an official public hearing, employ the services of a professional negotiator or mediator, or return to the Legislature for guidance.
Adopting these recommendations should shorten the informal process, broaden public input in the early stages of rulemaking, and make rules more responsive to the Legislature.
