Topic: Regulatory Studies

Who’s Afraid of Political Speech?

With the dust barely settled following Harry Reid’s bombshell late last week—killing Senate filibusters of appellate court nominees, the obvious purpose of which was to enable the DC Circuit’s eventual rubber-stamping of Obama’s rule by executive order—the Wall Street Journal is now reporting that the Obama administration today “proposed a crackdown on the widespread use of tax-exempt organizations for political campaigning, seeking to reduce the influential role that the secretive groups have played in recent elections.” The timing is exquisite.

It’s hardly news that the administration (and the left generally) is obsessed with limiting political speech—and with the Supreme Court’s 2010 Citizens United decision in particular. Recall the president’s appalling breach of decorum when in his State of the Union Address two weeks later he ridiculed the captive justices sitting before him, to the cheers of the Democrats standing in applause over them. The obsession has continued, manifesting itself most notoriously in the IRS stonewalling of Tea Party applications for 501(c)4 tax-exempt status. Now, we’re told, the new “guidance” issued today “by the Treasury Department and the Internal Revenue Service would curtail a broad array of these tax-exempt entities’ activities, including campaign advertising, voter registration, get-out-the-vote efforts, and distribution of voter guides and campaign materials”—all designed, one Treasury official said, “to simplify the task of policing the groups for the IRS, by drawing brighter lines.”

Thus, under the current standard, the Journal reports,

a tax-exempt entity could run TV ads in the run-up to an election, congratulating a candidate for introducing a bill, and urging the legislature to enact it into law and viewers to support candidates who back that issue, officials said. Under the new standards, the group wouldn’t be able to count that as exempt activity if it is run within the 60-day or 30-day window.

Groups also are able to do voter registration drives and get out the vote efforts now, as long as it isn’t done in support of a particular candidate. But under the new standard, groups couldn’t do voter registration drives as part of their exempt activity, even voter drives that aren’t overtly partisan or political.

I won’t go into the arcane contribution limits or disclosure requirements that are contemplated by this proposal. But I will note that none of this would be necessary if only we could give directly to candidates and their parties far more than our crabbed current law allows. But that would mean that incumbents would face stiffer competition than they now do under current restrictions. And that’s the dirty little secret of our campaign finance law. It parades as corruption prevention, but at bottom it’s incumbent protection.

FDA Moves To Crush 23andMe

23andMe is a service that combines a home-based saliva testing DNA-sample kit combined with a web-based service to explain what the results mean and put you in touch with other users. At $99, it’s a breakthrough hit in affordable personal technology – and now the Food and Drug Administration is determined to snuff it out. I discuss this appalling development in a new post at Overlawyered: 

…Some of us want to seek out distant relatives and clues about national origins, or satisfy curiosity about patterns of disease in our family lines. For adoptive families, home genome testing can be hugely valuable in cases where one knows little about the medical history of an adoptee’s birthfamily. It’s our body, and our right to inform ourselves about it — or so we thought.

The FDA very likely has decent legal grounds to forbear from a crackdown should it choose to. But the key takeaway sentence from Matthew Herper’s piece in Forbes criticizing the company is: “This is not the way to deal with a powerful government regulator.” Disrespectful, anti-authority attitudes from someone an agency intends to regulate? Ask former Buckyballs CEO Craig Zucker where that gets you. …

Science blogger Razib Khan has suggested that information services like 23andme, rather than submit to expensive and cumbersome regulation as “medical devices,” may simply pack up and move offshore. But even if they do, that won’t be the end of our government’s jealous wish to regulate them – or so I predict in my post.

P.S. Is it relevant that governments themselves, through their law enforcement agencies, run elaborate saliva-, blood- and DNA-collection operations that are hedged with few of the protections of voluntariness, privacy and openness that one finds with 23andMe?

A Better Way to Finance Infrastructure

An article on page 1 of Thursday’s Wall Street Journal describes the financial problems faced by some private infrastructure owners because of reduced demand from the Great Recession. The story features the Foley Beach Express bridge in Alabama built as a toll concession in the early 2000s. The bridge filed for bankruptcy in July after traffic volumes were lower than projections leaving taxpayers on the hook for millions.

How can private infrastructure financing manage demand uncertainty? Cato’s Regulation answered the question in 2002 with an article entitled “A New Approach to Private Roads.”  Traditional private infrastructure concessions utilize a Build-Operate-and-Transfer contract in which a private company builds and subsequently collects tolls and operates a facility for a specified term (20 to 30 years). At the end of the contractual term, ownership of the infrastructure is transferred to the government. The problem with this contractual design is that it involves a combination of “front-loaded investment and substantial uncertainty about demand for the road.” This demand uncertainty increases the probability that revenues fall short of required bond payments causing insolvency.

The authors replace the traditional contract with what they term “Present-Value-of-Revenues” franchising. This method gives the concession to the firm that bids the lowest present value of toll revenues.  The franchise is not for a fixed term but ends instead when the present value of the bid is reached.  If toll revenues fall short of projections, the term of the franchise lengthens and bond payments are delayed contractually.  If revenues are higher than expected, the government can buy out the concession for the difference between the revenues received and the present value bid. The latter contingency avoids the problems found in Orange County (California) Route 91, where traffic volumes were higher than expected, but contract terms barred the county from increasing the capacity of the toll road.

For a good overview of infrastructure and prospects for more private involvement see Chris Edwards’ recent essay at Downsizing Government.

Further Reflections on Harry Reid’s Nuclear Bombshell

The post-mortems today, after Harry Reid yesterday dropped the “nuclear option” on the Senate floor, then headed out of town, contain few surprises. As expected, the editorialists at the New York Times, headlining their thoughts with “Democracy Returns to the Senate,” called the 52-48 vote to end filibusters for appellate court nominees “long overdue.” The Times’ history goes back all of five years, conveniently ignoring the origins of the practice in the 108th Congress, when Democrats were in the Senate minority, as I outlined here and here yesterday. (See here for a detailed discussion of the period before that.)

At the Washington Post, however, one might be surprised to find not only the editors but two reliably liberal columnists, Dana Milbank and Ruth Marcus, on the other side. But in an effort to be even-handed, the editors, among other things, call the Republican rationale for recently filibustering three Obama nominees to the DC Circuit Court of Appeals—that the court’s workload does not justify adding new judges—a “pretext.” Yet as I outlined yesterday, the facts say otherwise, clearly, and do so far more than when Democrats used that rationale, successfully, in 2006.

Harry Drops the Bomb

Well Harry Reid went nuclear, as he’d threatened to do all week. And by a vote of 52-48, Senate Democrats did his bidding just a couple of hours ago. I wrote about his hypocrisy at NRO this morning. He’s the same Harry Reid who assured us only a few months ago that “We’re not talking about changing the filibuster rules that relates to nominations for judges” (Press Briefing, 7/11/13) and “We’re not touching judges. That’s what they were talking about. This is not judges.” (NBC’s “Meet The Press,” 7/14/13). Well we are talking about judges. And we’ll be talking about them quite a bit more, I’m afraid.

The Democratic hypocrisy on the subject boils down to this. After sitting on George W. Bush’s appellate court nominees during his first two years when they controlled the Senate—never even holding hearings—Democrats for the next two years, after losing the Senate in the 2002 midterm elections, conducted unprecedented filibusters of Bush’s appellate court picks—all of which ended only with the “Gang of 14” compromise in 2005. But now that the Republican minority has used that same practice—directed this session only at the latest D.C. Circuit nominees—Democrats have moved to strip it from them—and not by a two-thirds vote of the Senate, as Senate rules require, but by a simple majority. It’s heads I win, tails you lose.

But it doesn’t end there. After Obama’s nominee Sri Srinivasen was unanimously confirmed for the D.C. Circuit last May, Republicans have filibustered Obama’s three latest nominees for that circuit for practical reasons, not for the ideological reasons that drove Democratic filibusters. As I outlined in my NRO piece, there simply isn’t enough work in the D.C. Circuit to justify three more judges. For 17 straight years that court has had the lowest number of appeals filed and the lowest number of appeals terminated of all the circuits.

So what’s the upshot of Reid’s move? The most obvious one is this: If Harry Reid is willing to drop the nuclear bomb for these three nominees—given all that that implies about the sanctity of Senate rules—he must be expecting some return. It’s not for nothing that the D.C. Circuit Court is called the second most important court in the land. It’s the court that will be deciding challenges to the vast executive branch “lawmaking” by which the Obama administration today is ruling America, covering everything from health care to environmental regulations, labor arrangements, financial affairs, and so much more. With a divided Congress, Obama can’t get things done the constitutional way, so he rules by diktat—and hopes the courts will uphold his unilateral decisions. Given the docket of the D.C. Circuit, rule by executive order just got easier.

But Obama has three more years to name judges for the other circuits as well, and possibly for the Supreme Court, and that got easier for him too. And of course it’s now easier to change other Senate rules by a simple majority. But what goes around comes around. And the way the polls are going in the wake of the Obamacare debacle, the Senate itself, already in play, may be more so come next November. If it turns out that way, Republicans should have no scruples about playing by the same opportunistic rules the Democrats have seen fit to employ. As is said, it couldn’t happen to a nicer bunch.   

TSA, Terrorism, and Civil Liberties

My new study on the Transportation Security Administration mainly focuses on the agency’s poor management and performance. The TSA has a near monopoly on security screening at U.S. airports, and monopoly organizations usually end up being bloated, inefficient, and providing low-quality services. 

The study proposes contracting out or “privatizing” airport screening, which is the structure of aviation security used successfully in Canada and many European countries.

I briefly discuss some of the civil liberties problems surrounding TSA. Note that Cato’s Jim Harper also addresses those issues in his work, as does Robert Poole of Reason Foundation. I noticed this recent blog post by Poole that nicely summarizes some of the realities of TSA, terrorism, and civil liberties:

A couple of years ago Jonathan Corbett, a tech entrepreneur from Miami, posted videos online showing him successfully passing through TSA airport body scanners with a metal box concealed under his clothing, seeking to demonstrate that the scanners are an ineffective replacement for walk-through metal detectors for primary screening. In 2010 he filed a lawsuit contending that body-scanning and pat-downs are both unreasonable searches that violate the Fourth Amendment.

As part of the discovery process, TSA provided Corbett with 4,000 pages of documents, many of them classified. He was allowed to produce two versions of his brief, one containing extracts of classified material, and available only to the court, and a heavily redacted version which could be made public. But as several news sites reported last month, a clerk in the US Court of Appeals (11th District) mistakenly posted the classified version online, and it was quickly noticed and reproduced on various websites. Although the court issued a gag order prohibiting Corbett from talking about the classified material, there was no way to stop others from doing so.

Supreme Court Should End Advertiser’s Kafkaesque Nightmare

Douglas Walburg faces potential liability of $16-48 million. What heinous acts caused such astronomical damages? A violation of 47 C.F.R. § 16.1200(a)(3)(iv), an FCC regulation that enables lawsuits against senders of unsolicited faxes.

Walburg, however, never sent any unsolicited faxes; he was sued under the regulation by a class of plaintiffs for failing to include opt-out language in faxes sent to those who expressly authorized Walburg to send them the faxes. 

The district court ruled for Walburg, holding that the regulation should be narrowly interpreted so as to require opt-out notices only for unsolicited faxes. But on appeal, the Federal Communications Commission, not previously party to the case, filed an amicus brief explaining that its regulation applies to previously authorized faxes too. Walburg argued that the FCC lacked statutory authority to regulate authorized advertisements. In response, the FCC filed another brief, arguing that the Hobbs Act prevents federal courts from considering challenges to the validity of FCC regulations when raised as a defense in a private lawsuit. Although the U.S. Court of Appeals for the Eighth Circuit recognized that Walburg’s argument may have merit, it declined to hear it and ruled that the Hobbs Act indeed prevents judicial review of administrative regulations except on appeal from prior agency review. 

In this case, however, Walburg couldn’t have raised his challenge in an administrative setting because the regulation at issue outsources enforcement to private parties in civil suits! Moreover, having not been charged until the period for agency review lapsed, he has no plausible way to defend himself from the ruinous liability he will be subject to if not permitted to challenge the regulation’s validity. Rather than face those odds, Walburg has petitioned the Supreme Court to hear his case, arguing that the Eighth Circuit was wrong to deny him the right to judicial review without having to initiate a separate (and impossible) administrative review. 

Cato agrees, and has joined the National Federation of Independent Business on an amicus brief supporting Walburg’s petition. We argue that the Supreme Court should hear the case because the Eighth Circuit’s ruling permits administrative agencies to insulate themselves from judicial review while denying those harmed by their regulations the basic due-process right to meaningfully defend themselves. The Court should hear the case because it offers the opportunity to resolve lower-court disputes about when the right to judicial review arises and whether a defendant can be forced to bear the burden of establishing a court’s jurisdiction.

These are important due-process implications raised in this case, and the Court would do well to adopt a rule consistent with the Eleventh Circuit’s holding on this issue—one that protects the right to immediately and meaningfully defend oneself from unlawful regulations. Otherwise, more and more Americans will end up finding themselves at the bad end of obscene regulatory penalties by unaccountable government agencies, with no real means to defend themselves.

The Court will decide whether to take Walburg v. Nack early in the new year.