Minnesota regulators feel caught in middle as Feds pare rules

WASHINGTON – Last week, the U.S. Senate killed a rule that in part required federal contractors to report and correct safety violations in order to keep getting government business. The Chamber of Commerce branded the rule "black listing" and praised its death.

Such is the anti-regulatory fervor in the nation's capital these days.

President Donald Trump has already delayed a Department of Labor fiduciary requirement that financial advisers act in the best interest of their clients, a rule opposed as too confusing by the Financial Services Roundtable run by ex-Minnesota Gov. Tim Pawlenty.

Trump has issued an executive order that establishes a regulatory reform task force that will review other regulations with an eye toward repeal. He has issued an order to review Wall Street reforms sparked by the Great Recession.

Caught in the middle are Minnesota state regulators who will need to adjust to a new era of less regulation from Washington.

"There could be a window of time when it is not clear who's monitoring what and what is going on," said Mehmet Konar-Steenberg, an administrative law expert at St. Paul's Mitchell Hamline School of Law.

The White House did not answer a request for a specific list of the regulatory changes the president and Congress have put in place in the administration's early days. But with oil, coal and gas companies spared from additional royalty payments, water pollution control rules put on hold, and federally ordered consumer and worker protections on the chopping block, it appears that the more changes the business community asks for, the more it will get from the Trump administration and the Republican-run Congress.

The upshot is that businesses in Minnesota and around the country are beginning to enjoy freedom from federal oversight they have not seen in decades. At the same time, their customers and workers may lack some protections they once had.

It is too soon to say how much that liberates businesses or constrains consumers. But it changes the calculus for state regulators, who will need to decide whether to take a more active role.

"If the federal government drops off, the job at the state level becomes more difficult," said Minnesota Attorney General Lori Swanson, a DFLer.

Also, there are places where the state lacks jurisdiction. Swanson cited antitrust issues in corporate mergers and the fiduciary rule for investment advisers as examples.

But even where states can act, they may not have the clout of the federal government.

"The feds carry a big stick," Swanson said.

Republicans say regulations place limits on businesses that curtail growth and job creation.

"Thankfully, President [Donald] Trump and the 115th Congress are committed to making the American people a priority again by getting the meddling hands of the federal government out of our daily lives," Republican Rep. Tom Emmer of Minnesota's Sixth District said. "So far, through Congress' efforts under the Congressional Review Act, Trump has already signed three joint regulations to overturn the mountain of regulations we accumulated under [President Barack] Obama, and our work has just begun."

Democratic Sens. Amy Klobuchar and Al Franken of Minnesota say there needs to be a balance between business and consumer interests.

"While there may be some federal regulations that deserve a second look, many that this administration have rolled back, reversed or delayed are critical for Minnesotans, like measures to protect consumers from fraud and to keep homes safe from formaldehyde," Klobuchar said.

In a Senate floor speech before the vote to repeal safety violation reporting rules, Franken told colleagues, "It doesn't make sense to keep rewarding companies like this with lucrative contracts while they repeatedly and … willfully disregard basic safety protections."

Still, with executive orders and the Congressional Review Act, Trump and the Senate and House have the power to gut certain rules that they say are unduly restrictive.

Paul Larkin of the conservative Heritage Foundation makes no bones about how the act should be used. "The Congressional Review Act allows Congress to invalidate an agency rule via a joint resolution of disapproval signed by the President," Larkin explains on the Heritage website. "The CRA applies to whatever document an agency could use, such as regulations and guidance documents, to strong-arm a regulated party into complying with the agency's views."

Konar-Steenberg said the CRA does not apply to a majority of federal regulations. So in most cases it will take as long to undo a regulation as it did to make it — usually months.

"Of course, rules are different than policies," Konar-Steenberg explained. "Policies are expressions of how an agency intends to use discretion under the law. Those things can change without the same kind of process as repealing a rule."

Taking up the regulatory slack from disappearing or eviscerated federal rules could become funding and manpower challenges for Minnesota regulators, especially if they were not expecting the federal rules to be dumped or restricted.

"Both the federal and state levels operate with limited resources," said Kristin Hickman, an administrative law expert at the University of Minnesota law school. "You have to prioritize. That's just the real world in which we live."

At the Minnesota Department of Commerce, which oversees 20 industries, Commissioner Mike Rothman said he is still studying how broad-brush executive orders emanating from the White House will translate into policy specifics.

"My job here is to protect Minnesotans under existing authority," Rothman said. "In some areas we collaborate with the feds. In some areas we don't."

For instance, Rothman oversees state-chartered banks but not federally chartered banks. Rothman is also concerned that Trump's plan to remove some Wall Street reform rules that followed the Great Recession creates risks for Minnesotans that he cannot necessarily address.

"These are important protections for mainstream Minnesotans that need to stay in place," he said.

With Trump's senior adviser Steve Bannon promising to end the "administrative state," nothing is assured.

Attempts by federal officials to negate state rules through a concept of federal supremacy called pre-emption remains a concern for Minnesota regulators. Moves by the administration and Congress to stop implementation of new rules will be less disruptive than taking down rules that have been in effect for a long time, said John Linc Stine, commissioner of the Minnesota Pollution Control Agency.

"The larger concern is: What is the floor for state environmental and public health protection?" Stine said.

With the federal government withdrawing from its watchdog role, Minnesota regulators say the ultimate impact on the state's citizenry could depend on the president's feelings about a state's right to regulate as it chooses.

"If he is not talking about interfering with states' rights, I am less concerned," Stine said, "because in Minnesota, we have a long history of protecting the environment."

What the state risks in sticking by its regulatory standards for environmental, consumer and worker protections is a loss of businesses that might find it easier and cheaper to operate in places with less oversight.

"That," Konar-Steenberg said, "could start a race to the bottom with neighboring states."

Jim Spencer • 202-662-7432