Chapter%207%20Powers%20and%20Functions%20of%20Administrative%20Agencies

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Chapter 7Powers and Functions of
Administrative Agencies
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Chapter Objectives

• 1. Explain the rulemaking function of
  administrative agencies.
• 2. Describe the investigation and adjudication
  functions of agencies.
• 3. Identify how agency authority is held in
  check.
• 4. List laws that make agencies more accountable
  to the public.
• 5. Discuss the relationship between state and
  federal agencies.

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Agency Creation and Powers

• Under the U.S. Constitution, Congress may
  delegate the task of implementing its laws to
  government agencies.
• By delegating the task, Congress may indirectly
  monitor an area in which it has passed
  legislation without becoming bogged down in the
  details relating to enforcement of the
  legislation.

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Enabling Legislation

• Administrative agencies are created by enabling
  legislation, which usually specifies the name,
  composition, and powers of the agency.

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Types of Agencies

• There are two basic types of administrative
  agencies
• Executive agencies
• Independent regulatory agencies
• The significant difference between the two types
  of agencies lies in the accountability of the
  regulators.

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Organization of the Federal Trade Commission
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Executive Departments and Important Subagencies
(cont.)
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Administrative Process

• Three functions of administrative process are

Rulemaking
Enforcement
Adjudication
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Rulemaking

• Agencies are authorized to create new
  regulations.
• This power is conferred on an agency in the
  enabling legislation, and these rules are as
  important as formal acts of Congress.

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Rulemaking

• Notice-and-comment rulemaking is the most common
  rulemaking procedure.
• Notice of Proposed RulemakingBegins with the
  publication of the proposed regulation in the
  Federal Register.
• Opportunity for CommentAfter notice is
  published, time is allowed for private parties to
  comment on the proposed rule.
• Publication of the Final RuleAfter the agency
  reviews the comments, it drafts the final rule
  and publishes it.

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Case 7.1 ATT Corp. v.Iowa Utilities Board

• In 1996, Congress enacted the Telecommunications
  Act to end the state sanctioned monopolies. The
  act required existing local exchange carriers
  (LECs) to share elements of their networks
  (loops, switches, and trunks) with their new
  competitors. The act ordered the Federal
  Communications Commission (FCC) to issue rules to
  implement this requirement. The LECs, and
  others, filed suits across the U.S. which were
  combined into a single case. The U.S. Supreme
  Court concluded that the FCC did not interpret
  the terms of the Telecommunications Act in a
  reasonable fashion and vacated Rule 319.
• Why doesnt Congress always define specifically
  what an administrative agency is to consider when
  making rules?

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Investigation

• Administrative agencies investigate the entities
  that they regulate.
• They conduct investigations during the rulemaking
  process to obtain information and after rules are
  issued to monitor compliance.

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Investigative Tools

• The most important investigative tools available
  to an agency are the following

Subpoenas Orders that direct individuals to
appear at a hearing or to hand over specified
documents.
Inspections and Tests Used to gather information
and to correct or prevent undesirable conditions.
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Limits on Administrative Investigations

• Limits on administrative investigations include
  the following
• The investigation must have a legitimate purpose.
• The information being sought must be relevant.
• The demand for testimony or documents must be
  specified.
• The burden of the demand is on the party from
  whom the information is sought.

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Case 7.2 Federal Deposit Insurance Corp. v. Wentz

• Directors of a failed bank refused to comply with
  a subpoena of their personal financial records,
  claiming that it intruded on their privacy. The
  court upheld the order to enforce the subpoena.
• What factors did the court consider in reaching
  its decision?
• If the FDIC covers most of the customers losses,
  why would anyone care whether the bank directors
  channeled some bank funds for their personal
  benefit?

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Adjudication

• After a preliminary investigation, an agency may
  initiate an administrative action against an
  individual or organization by filing a complaint.
  Most such actions are resolved at this stage,
  before they go through the formal adjudicatory
  process.
• If there is no settlement, the case is presented
  to an administrative law judge in a proceeding
  similar to a trial.

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Case 7.3 Buck Creek Coal, Inc. v. Fedl. Mine
Safety Health Admin.

• When an inspector for the MSHA found loose coal
  and coal dust in a feeder area, the agency issued
  a citation and an ALJ assessed Buck Creek a fine
  of 2,000. Buck Creek appealed.
• The court found the ALJs order to be reasonable
  and based upon the evidence.
• What role does common sense play in the
  application and review of administrative rulings?

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Limitations on Agency Powers

• Combining the functions normally divided among
  the three branches of government into an
  administrative agency concentrates considerable
  power in a single organization.
• As a result, several controls exist to place such
  power in check, including
• Judicial Controls
• Executive Controls
• Legislative Controls

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Judicial Controls

• Administrative agencies are subject to the
  judicial review of the courts. However, such
  review is not automatic. Parties seeking review
  must show
• The action is reviewable (the APA presumes this).
• The party must have standing to sue.
• The party must have exhausted all possible
  administrative remedies.
• There must be an actual controversy.

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Judicial Controls

• A court may review whether
• An agency has exceeded the scope of its enabling
  legislation.
• An agency has properly interpreted the laws.
• An agency has violated the U.S. Constitution.
• An agency has complied with all applicable
  procedural requirements.
• An agencys actions are arbitrary or capricious,
  or an abuse of discretion.
• An agencys conclusions are not supported by
  substantial evidence.

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Case 7.4 Sierra Club v. Thomas

• The Forest Service issued a plan for cutting
  timber from the Wayne National Forest. The
  Sierra Club challenged the plan in an appeal to
  the chief of the Forest Service, Jack Ward
  Thomas. Thomas affirmed the plan, and Sierra
  Club, and others, filed a suit against Thomas,
  and others, arguing that the Forest Service did
  not comply with the National Forest Management
  Act. The court agreed with Thomas, but the case
  was later remanded by the U.S. Court of Appeals.
• Why isnt every agency action subject to
  automatic judicial review?

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Business Opportunity Scams

• Promises that sound too good to be true usually
  are. One way to tell whether a business
  opportunity is legitimate is to request the
  document that the FTC requires under its business
  opportunity disclosure rule.
• This document must include audited financial
  statements and other disclosures important to a
  decision to invest.
• What should a potential entrepreneur do to
  protect himself or herself from fraudulent
  business opportunities?

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Executive Controls

• The president can control administrative
  agencies through appointments of federal officers
  and through vetoes of legislation creating or
  affecting agency powers.

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Legislative Controls

• Congress can give power to an agency, take it
  away, increase or decrease the agencys finances,
  or abolish the agency.
• The Administrative Procedure Act of 1946 also
  limits agencies.
• Specific statutes also make agencies accountable
  to the public.

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Public Accountability

• As a result of growing public concern over the
  powers exercised by administrative agencies,
  Congress passed several laws to make agencies
  more accountable through public scrutiny.
• Three of the most significant of these laws are
• Freedom of Information Act of 1966
• Government-in-the-Sunshine Act of 1976
• Regulatory Flexibility Act of 1980

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Freedom of Information Act of 1966

• Requires the government to disclose records to
  any person on request.

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Government-in-the Sunshine Act of 1976

• Requires the following
• Every portion of every meeting of an agency
  must be open to public observation.
• Procedures must be implemented to ensure that the
  public is provided with adequate advance notice
  of the agencys scheduled meeting and agenda.

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Regulatory Flexibility Act of 1980

• Concern over the effects of regulation on the
  efficiency of business, particularly smaller
  ones, led Congress to pass the Regulatory
  Flexibility Act in 1980.
• The act requires a regulatory flexibility
  analysis whenever a new regulation will have a
  significant impact upon a substantial number of
  small entities.

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State Administrative Agencies

• States create agencies that parallel federal
  agencies to provide similar services on a more
  localized basis.
• If the actions of parallel state and federal
  agencies conflict, the actions of the federal
  agency will prevail.

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For Review

• 1. How are federal administrative agencies
  created?
• 2. What are the three operations that make up the
  basic functions of most administrative agencies?
• 3. What sequence of events must normally occur
  before an agency rule becomes law?
• 4. How do administrative agencies enforce their
  rule?
• 5. How do the three branches of government limit
  the power of administrative agencies?