May 17, 2017 – The Wisconsin State Senate on May 3 approved 2017 Senate Bill 15, which, if approved by the Assembly and signed by the governor, will make sweeping changes to the administrative rulemaking process in Wisconsin.
The specific legal requirements to which Wisconsin businesses are subject are often found not in the Wisconsin Statutes, but rather in the administrative rules and regulations promulgated by the various state agencies whose responsibility it is to administer and enforce those statutes.
Businesses routinely encounter administrative rules in connection with environmental permitting, employee relations, profession licensing, taxation, and myriad other matters.
Given the size and complexity of modern state government, administrative rules are a necessity. Some argue, however, that the rulemaking process has exceeded its boundaries, and that state agencies have gone above and beyond simply administering the law and become a “fourth branch” of government.
The Current Rulemaking Process
Currently, the rulemaking process begins with a “scope statement” prepared by the agency and approved by the agency head and governor. The agency may not begin drafting a rule prior to receipt of the governor’s approval of the scope statement.
Once a scope statement is approved, the agency drafts a rule, together with various supporting documents, including an economic impact analysis, “plain-language” analysis, and fiscal estimate. The proposed rule and supporting analyses are submitted to the nonpartisan Wisconsin Legislative Council for review.
In most cases, the agency then holds a public hearing to solicit input from the public. Comments are received, reviewed, and incorporated when appropriate, and the rule is submitted to the governor for approval. If the governor approves the rule, the final draft is submitted to committees within both the Assembly and Senate for review, as well as to the Joint Committee for Review of Administrative Rules (JCRAR).
Following review, the rule is submitted to the Legislative Reference Bureau and published in the Wisconsin Administrative Register.
Currently, rules that are expected to result in implementation and compliance costs in excess of $20 million are subject to additional scrutiny by the Department of Administration prior to submission to the Legislature. (Note: This particular provision was found unconstitutional as applied to the Wisconsin Department of Public Instruction in Coyne v. Walker, 2016 WI 38).
Certain exceptions exist to this procedure for emergency rules intended to protect public peace, health, safety, and welfare. Emergency rules are subject to an abbreviated review process and are generally of temporary duration.
The Senate Bill 15 Framework
Senate Bill 15, as approved by the state Senate, makes several significant changes to the rulemaking process:
Scope statements will be submitted in the first instance to the Department of Administration, instead of the governor. The Department of Administration will conduct a preliminary review prior to submitting the scope statement to the governor for approval.
Following approval by the governor, scope statements will be submitted to the co-chairs of the JCRAR, either of whom may require a hearing on the contents of the scope statement. This hearing is in addition to any future hearing on the actual text of the rule.
If the economic impact analysis performed in connection with the rule results in a finding that the rule will cost business, local government, and/or individuals more than $10 million over a two-year period, the agency must stop all work on the proposed rule unless and until: (i) the agency either modifies the rule to reduce its economic impact; or (ii) the Legislature authorizes the promulgation of the rule by statute.
A co-chair of JCRAR may, prior to a rule being submitted to the governor for final review and approval, request an independent economic analysis of the proposed rule. The agency may not submit the rule for final approval until the independent economic analysis is completed. If the independent economic analysis shows a significant variance in cost from the agency’s own economic analysis, the agency will be charged for the cost of the independent analysis.
Emergency rules, while exempt from the new economic impact analysis provisions, are subject to the preliminary hearing requirement for scope statements.
Judicial Changes as Well?
In addition to the legislative activity surrounding Senate Bill 15, the Wisconsin Supreme Court has signaled that it may weigh in on the degree of deference accorded to administrative agencies’ interpretation of statutes.
Both federal and state courts have historically deferred to agencies’ interpretation of statutes under Chevron U.S.A., Inc. v. National Resource Defense Council, Inc., 467 U.S 837 (1984), and its progeny.
At the federal level, the Supreme Court has questioned this “Chevron deference,” at least where a regulation has “deep economic and political significance.”1 Legislation has also been introduced in Congress to limit Chevron deference, and the issue was discussed at some length during the recent confirmation hearings for Supreme Court Justice Neil Gorsuch.
In Tetra Tech EC, Inc. and Lower Fox River Remediation LLC v. Department of Revenue,2 the Wisconsin Court of Appeals applied the traditional deferential standard of review to a determination by the Wisconsin Tax Appeals Commission that certain pollution remediation services were taxable under Wisconsin’s sales tax statutes.
In upholding the Tax Appeals Commission, the Court of Appeals stated that the Commission’s interpretation of the sales tax statutes was entitled to “great weight.”
On Monday, April 24, 2017, the Wisconsin Supreme Court granted review of Tetra Tech, and specifically asked the parties to brief the question: “Does the practice of deferring to agency interpretations of statutes comport with Article VII, Section 2 of the Wisconsin Constitution, which vests the judicial power in the unified court system?”
Interestingly, this question was neither raised in the petition for review nor argued at any step in the proceedings.
Differing political and business interests will undoubtedly put very different spins on these developments. Some will describe them as necessary safeguards against administrative overreach, while others will characterize them as roadblocks to indispensable regulation. Whichever view one ascribes to, the landscape for administrative rulemaking in Wisconsin may be undergoing a sea change.
This article was originally published on the State Bar of Wisconsin’s Business Law Section Blog. Visit the State Bar Sections or the Business Law Section web pages to learn more about the benefits of section membership (login required).
1 King v. Burwell, 135 S. Ct. 2480 (2015).
2 2017 Wis. App. 4, 373 Wis. 2d 287, 890 N.W. 2d 598 (Wis. Ct. App.).