Rulemaking Tips for Agencies and their Counsel

Jeb Boyt

Government Law & Liability Conference

October 2011

This paper will discuss some of the procedural issues to consider as part of a rulemaking: when
to engage in rulemaking, how to engage in rulemaking, what to include in a proposed rule, when
to publish notice of a proposed rule, when to hold a public hearing, how to respond to public
comment, and when to republish.

I. When to engage in rulemaking

Deciding when to engage in rulemaking can be either a business decision or a legal decision. It
is important to recognize, though, when an agency is required to engage in rulemaking. The
Administrative Procedures Act (APA) provides that an “agency shall: (1) adopt rules of practice
stating the nature and requirements of all available formal and informal procedures.” Tex. Gov’t
Code § 2001.004. Under the APA:

"Rule":
(A) means a state agency statement of general applicability that:
(i) implements, interprets, or prescribes law or policy; or
(ii) describes the procedure or practice requirements of a state agency;
(B) includes the amendment or repeal of a prior rule; and
(C) does not include a statement regarding only the internal management or organization
of a state agency and not affecting private rights or procedures.

§ 2001.003(6). The key element being that a rule is a “statement of general applicability.”

A. Agency authority

As a threshold matter, an agency must have the statutory authority to adopt a rule. See, e.g., El
Paso Hosp. Dist. v. Texas Health & Human Serv. Comm’n, 247 S.W.3d 709, 714 (Tex. 2008);
Texas Orthopedic Ass’n v. Texas St. Bd. of Podiatric Med. Exam’r, 254 S.W.3d 714, 718-722
(Tex. App.--Austin 2008, pet. denied). An agency acts within its authority if a rule is in harmony
with the general objectives of the statute. State Bd. of Ins. v. Deffebach, 631 S.W.2d 794, 798
(Tex. App.--Austin 1982, writ ref’d n.r.e.); Chrysler Motors Corp. v. Texas Motor Vehicle
Comm’n, 846 S.W.2d 139, 141 (Tex. App.--Austin 1993, no pet.). If an agency lacks express
authority for a rule, it must be determined whether the authority may be implied as being
reasonably necessary for the agency to fulfill the express functions and duties prescribed by the
Legislature.” Reliant Energy, Inc. v. Public Util. Comm’n, 62 S.W.3d 833, 837 (Tex. App.--
Austin 2001, no pet.). An agency may not exercise authority on the mere basis that it is
expedient for administrative purposes. Id. In some instances, rules adopted to comply with
federal law may be exempt from a prohibition in state law. Brazoria County v. Texas Comm’n
on Envt’l Quality, 128 S.W.3d 728, 743 (Tex. App.--Austin 2004, no pet.).

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B. Statements of general applicability

The Supreme Court has held that

By “general applicability,” the APA definition references statements that affect the
interest of the public at large such that they cannot be given the effect of law without
public input. The definition does not reference statements made in determining
individual rights, even if the number of individuals is large and they can be described as
falling within a defined class.

Railroad Comm’n v. WBD Oil & Gas Co., 104 S.W.3d 69, 79 (2003). The key distinction being
between a statement of general applicability and a determination of individual rights.

Following are examples of instances where courts have determined that agency actions were
rules and where actions were found to not be rules:

Rules:

• Setting a cutoff date for qualifying payments that amended a rule definition for a “base
year.” El Paso Hosp. Dist., 247 S.W.3d 709 at 714.
• For purposes of a temporary injunction, there was a probable right of recovery
regarding agency memos that imposed binding instructions as to the constitutionality of a
statute and that affected the property rights of all owners of eight-liners. Texas Alcoholic
Beverage Comm’n v. Amusement & Music Operators of Tex., 997 S.W.2d 651, 660 (Tex.
App.--Austin 1999, pet. dism’d w.o.j.) (TABC) (Improper reliance on Attorney General
Opinion regarding the constitutionality of a statute rather than a decision from a court of
law).

Not rules:

• Oilfield rules promulgated through a contested case proceeding. WBD Oil & Gas, 104
S.W.3d at 79.
• Advisory letters issued by Lottery Commission regarding configuration and operation of
eight-liners. TABC, 997 S.W.2d at 659, interpreting Brinkley v. Texas Lottery Comm’n,
986 S.W.2d 764 (Tex. App.--Austin 1999, no pet.).
• Minute orders setting environmental speed limits. Brazoria County, 128 S.W.3d at 737-
739 (Based on specific authority to alter prima facie speed limits by minute order).

Thus, there can be a fine line between when an agency action requires rulemaking and when it
does not. Therefore, the prudent decision will often be to engage in rulemaking whenever an
agency promulgates a statement of general applicability.

C. Petitions for rulemaking

Section 2001.021 of the APA allows interested persons to submit a petition to an agency
requesting adoption of a rule.

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 (a) An interested person by petition to a state agency may request the adoption of a rule.
(b) A state agency by rule shall prescribe the form for a petition under this section and
the procedure for its submission, consideration, and disposition.
(c) Not later than the 60th day after the date of submission of a petition under this
section, a state agency shall:
(1) deny the petition in writing, stating its reasons for the denial; or
(2) initiate a rulemaking proceeding under this subchapter.

§ 2001.021. The key requirement here is that within 60 days an agency must either deny the
petition or initiate rulemaking. Significantly, when the agency accepts a petition, there in no
requirement or deadline for when a proposed rule must be published in the Texas Register.

D. Legal challenges to a rule

When a rule is challenged, an agency should first evaluate whether the rule might be amended to
address the concerns raised or whether to defend the rule in court. If there are valid concerns
regarding the clarity or interpretation of a rule, an agency may be better off engaging in further
rulemaking than expending the effort to defend a questionable rule, particularly when procedural
defects are claimed. When engaging in rulemaking, an agency has a great deal of authority and
ability to set the agenda, schedule, and scope of discussion. If a rule may be amended in
response to a challenge, eliminating weaknesses or ambiguities, then an agency will likely be
better off exercising its authority by engaging in further rulemaking. Similarly, if a district court
finds that a rule is invalid, the agency should evaluate whether it would be better to amend the
rule in response to the district court’s decision or pursue an appeal.

As a case study, we may benefit from the experience of the Board of Podiatric Medical
Examiners. See Texas Orthopaedic Ass’n, 254 S.W.3d 714. After adopting a rule defining the
term “foot,” the Board received an opinion from the Attorney General that the rule
impermissibly expanded the practice of podiatry to the treatment of the tibia and fibula. Id. at
718. The Board was then sued, and while the district court upheld the definition, the court of
appeals did not. Id. at 720-722. Ultimately, the Board’s petition for review was denied by the
Supreme Court. If the Board had proposed amending its definition in response to the concerns
identified by the Attorney General, it could have avoided more than eight years of litigation, or at
a minimum, define the issues to be litigated in a manner more advantageous to the agency.
“[T]he army values being victorious; it does not value prolonged warfare.” Sun-tzu, The Art of
War, Waging War 174 (Ralph D. Sawyer, trans., Barnes & Noble 1994).

II. Informal versus formal rulemaking

Once an agency has decided that rulemaking is necessary, it is then important to consider when
and how to proceed. First we need to distinguish between informal rulemaking and formal
rulemaking. Informal rulemaking includes all discussions and preparation of draft rules prior to
publication of a proposed rule in the Texas Register. Formal rulemaking includes the procedures
set forth in the APA and generally begins with publication in the Texas Register. An agency
generally has wide latitude and discretion over how it may carryout informal rulemaking. In

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contrast, formal rulemaking includes numerous, specific requirements. Once a rule has been
published in the Texas Register, it must be adopted within six months or it is withdrawn by
operation of law. § 2001.027.

It is usually wise for agencies to take full advantage of the flexibility offered during informal
rulemaking. During informal rulemaking an agency can request information on issues relating to
the contemplated rulemaking, discuss draft rules at public board meetings, circulate draft rules
for comments from interested stakeholders and the public, and hold workshops on the draft rule.
At times, it can even help for an agency to circulate an outline for a draft rule in order to generate
comments and as an indication to the public that the agency does not have a set idea on how to
proceed with a contemplated rulemaking. “Public participation tends to assure that the agency
will have access to diverse facts and divergent views concerning the subject before it establishes
rules and procedures that will have a substantial impact on those regulated.” Deffebach, 631
S.W.2d at 800. The benefits of public participation can be even greater when the public is
invited to participate before a proposed rule appears in the Texas Register. Inviting the public to
participate in the preparation of a draft rule can also help an agency to identify issues and resolve
concerns with a rule before it is published in the Texas Register.

III. What to include in a proposed rule

The APA sets what is required to be included in the notice of a proposed rule:

(a) The notice of a proposed rule must include:

(1) a brief explanation of the proposed rule;
(2) the text of the proposed rule, except any portion omitted under Section 2002.014,
prepared in a manner to indicate any words to be added or deleted from the current text;
(3) a statement of the statutory or other authority under which the rule is proposed to
be adopted, including:
(A) a concise explanation of the particular statutory or other provisions under
which the rule is proposed;
(B) the section or article of the code affected; and
(C) a certification that the proposed rule has been reviewed by legal counsel
and found to be within the state agency's authority to adopt;
(4) a fiscal note showing the name and title of the officer or employee responsible for
preparing or approving the note and stating for each year of the first five years that the
rule will be in effect:
(A) the additional estimated cost to the state and to local governments
expected as a result of enforcing or administering the rule;
(B) the estimated reductions in costs to the state and to local governments as
a result of enforcing or administering the rule;
(C) the estimated loss or increase in revenue to the state or to local
governments as a result of enforcing or administering the rule; and
(D) if applicable, that enforcing or administering the rule does not have
foreseeable implications relating to cost or revenues of the state or local governments;

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 (5) a note about public benefits and costs showing the name and title of the officer or
employee responsible for preparing or approving the note and stating for each year of the
first five years that the rule will be in effect:
(A) the public benefits expected as a result of adoption of the proposed rule;
and
(B) the probable economic cost to persons required to comply with the rule;
(6) the local employment impact statement prepared under Section 2001.022, if
required;
(7) a request for comments on the proposed rule from any interested person; and
(8) any other statement required by law.
(b) In the notice of a proposed rule that amends any part of an existing rule:
(1) the text of the entire part of the rule being amended must be set out;
(2) the language to be deleted must be bracketed and stricken through; and
(3) the language to be added must be underlined.
(c) In the notice of a proposed rule that is new or that adds a complete section to an
existing rule, the new rule or section must be set out and underlined.

§ 2001.024. Proposed rules must also include a local employment impact statement and .
2001.022. A rule that would have an adverse economic effect on small businesses or micro-
businesses must also include an economic impact statement and regulatory flexibility analysis. §
2006.002; see HB 3430 Small Business Impact Final Guidelines, available at
www.oag.state.tx.us/AG_Publications/pdfs/hb3430guidelines2008.pdf. Some proposed rules
may also require the preparation of a major environmental rule regulatory analysis. § 2001.0225.
The Attorney General’s Administrative Law Handbook also contains an overview of the
requirements for rulemaking. Available at
www.oag.state.tx.us/AG_Publications/pdfs/adminlawhb.pdf.

The purpose of the APA’s provisions dictating the content of a notice of proposed rulemaking is
to assure that the public receives adequate notice to allow them to confront the agency’s factual
suppositions and policy preconceptions. Unified Loans, Inc. v. Pettijohn, 955 S.W.2d 649, 651
(Tex. App.--Austin 1997, no pet.). An agency’s notice for a proposed rule should “appraise[]
affected parties of the pertinent issues to allow them to comment and participate in the
rulemaking process in a meaningful and informed manner.” Texas Workers Comp. Comm’n v.
Patient Advocates of Tex., 136 S.W.3d 643, 650 (Tex. 2004).

In one case, a court found that an agency’s assertion of costs to state and local governments
carried a clear implication that there were no other fiscal impacts. Brazoria County, 128 S.W.3d
at 742-743. In the absence of any evidence or argument regarding additional fiscal impacts from
the plaintiff, the court relied on the agency’s fiscal note. Id.

A major environmental rule regulatory impact analysis is required when a rule would exceed a
federal standard. Brazoria County, 128 S.W.3d at 741-742. However, the rule challenged in
Brazoria County merely sought to meet the relevant federal standard and, though the methods
and control strategies required under the rule exceeded comparable federal rules, those methods
and strategies were not themselves standards. Id. Thus, the agency wasn’t required to prepare a
major environmental rule regulatory impact analysis. Id.

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IV. When to hold a public hearing

If requested, an agency is required to hold a public hearing on a proposed rule:

A state agency shall grant an opportunity for a public hearing before it adopts a
substantive rule if a public hearing is requested by:
(1) at least 25 persons;
(2) a governmental subdivision or agency; or
(3) an association having at least 25 members.

§ 2001.029(b). If an agency anticipates that a public hearing may be requested, it is generally a

good idea to schedule the hearing in advance and announce the hearing date and location in the
notice of the proposed rule. Some practitioners have been known to wait to request a public
hearing until a few days, if not hours, before a meeting to adopt a rule. This can greatly
inconvenience an agency where the board typically meets only quarterly and could result in the
withdrawl of a proposed rule if there isn’t time for the board to meet again before the deadline
under § 2001.027x. As there is no time limit on when a hearing may be requested, it is prudent
to state in the notice of the proposed rule that a request for a public hearing must be received by
the deadline for public comments. If a proposed rule will impact a definite population in an area
of the state, the agency may want to hold the hearing in that area in order to facilitate public
participation. If a proposed rule of interest to a large number of stakeholders will have a
statewide effect, the agency will probably want to consider holding several public hearings in
multiple locations across the state.

Notice allows persons an opportunity to ascertain whether protection of their interests requires
them to request a hearing. Deffebach, 631 S.W.2d at 800.

V. Responding to public comment

Before presenting a proposed rule for adoption, an agency must respond to all of the comments
received on the rule and prepare a reasoned justification for adoption of the rule. The APA
describes what must be included in an agency order adopting a rule:

(a) A state agency order finally adopting a rule must include:

(1) a reasoned justification for the rule as adopted consisting solely of:
(A) a summary of comments received from parties interested in the rule that
shows the names of interested groups or associations offering comment on the rule and
whether they were for or against its adoption;
(B) a summary of the factual basis for the rule as adopted which demonstrates
a rational connection between the factual basis for the rule and the rule as adopted; and
(C) the reasons why the agency disagrees with party submissions and
proposals;
(2) a concise restatement of the particular statutory provisions under which the rule is
adopted and of how the agency interprets the provisions as authorizing or requiring the
rule; and

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 (3) a certification that the rule, as adopted, has been reviewed by legal counsel and
found to be a valid exercise of the agency's legal authority.
(b) Nothing in this section shall be construed to require additional analysis of alternatives
not adopted by an agency beyond that required by Subdivision (1)(C) or to require the
reasoned justification to be stated separately from the statements required in Subdivision
(1).

§ 2001.033. If requested, an agency is also required to provide a concise statement of the

principal reasons for and against adoption of a rule. § 2001.030.

A. Comments

The APA requires that “[b]efore adopting a rule, a state agency shall give all interested persons a
reasonable opportunity to submit data, views, or arguments, orally or in writing.” § 2001.029(a).
Oral comments are generally only accepted at a public hearing on the proposed rule. See
2001.029(b). In responding to the comments received, an agency will need to (1) identify each
comment and (2) draft a proposed response to each comment. In order to identify all of the
comments, some of the comment letters may need to be carefully parsed. Drafting responses
will also often require work from both legal and technical staff. Consequently, it is important to
allow time to prepare a draft response.

B. Reasoned Justification

For a rule to be valid, it must be adopted in substantial compliance with the requirements of the
APA and include a reasoned justification that “demonstrates in a relatively clear and logical
fashion that the rule is a reasonable means to a legitimate objective.” § 2001.035.

(a) A rule is voidable unless a state agency adopts it in substantial compliance with
Sections 2001.0225 through 2001.034.
(b) A person must initiate a proceeding to contest a rule on the ground of noncompliance
with the procedural requirements of Sections 2001.0225 through 2001.034 not later than
the second anniversary of the effective date of the rule.
(c) A state agency substantially complies with the requirements of Section 2001.033 if
the agency's reasoned justification demonstrates in a relatively clear and logical fashion
that the rule is a reasonable means to a legitimate objective.
(d) A mere technical defect that does not result in prejudice to a person's rights or
privileges is not grounds for invalidation of a rule.

Id. A challenge to an agency’s reasoned justification for adoption of a rule is reviewed using an
arbitrary and capricious standard with no presumption that facts exist to support the agency’s
order. Reliant Energy, 62 S.W.3d at 841; Brazoria County, 128 S.W.3d at 740.

A reasoned justification must include: (1) a summary of comments the agency received
from interested parties; (2) a summary of the factual basis for the rule; and (3) the reasons
why the agency disagrees with a party’s comments. To satisfy the reasoned justification

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 requirement, an agency’s order adopting a rule must explain how and why the agency
reached the conclusion it did.

Id., following Reliant Energy, 62 S.W.3d at 840 (citations omitted). To be reasonable, a rule
must be based on some legitimate position. McCarty v. Texas Parks & Wildlife Dep’t, 919
S.W.2d 853, 854 (Tex. App.--Austin 1996, no pet.). “The rule need not be wise, desirable, or
even necessary.” Id. A rule is arbitrary and capricious when it lacks a legitimate reason to
support itself” or when it omits a factor required by the Legislature, considers an irrelevant
factor, or reaches an unreasonable result despite weighing the relevant factors. Id.; Reliant
Energy, 62 S.W.3d at 841. An agency must demonstrate that it “considered all relevant factors
and engaged in reasoned decisionmaking.” Reliant Energy, 62 S.W.3d at 841; Lambright v.
Texas Parks & Wildlife Dep’t, 157 S.W.3d 499, 505 (Tex. App.--Austin 2005, no pet.). The
agency’s decision “must include how and why the agency reached the conclusions it did for
adopting the rule, and the conclusions must be presented in a relatively clear, precise, and logical
fashion.” Patient Advocates, 136 S.W.3d at 648; Reliant Energy, 62 S.W.3d at 840; Texas
Medical Ass’n v. Texas Workers Comp. Comm’n, 137 S.W.3d 342, 353 (Tex. App.--Austin 2004,
no pet.).

The essential legislative objective of the reasoned justification requirement is to give

notice of the factual, policy, and legal basis for the rule, as adopted or construed by the
agency, in light of all the evidence gathered by the agency and submitted by interested
parties during the comment period. [There are] two fundamental goals of the reasoned
justification requirement: (1) to ensure the agency fully considered the comments
submitted and (2) to provide the factual basis and rationality of the rule as determined by
the agency.

Id. at 841.

Ultimately, courts expect an agency to show its work and to demonstrate compliance with the
requirements of the APA and other relevant laws. The response to comments and reasoned
justification must also be presented, in writing, to the board members or commissioners that will
vote on adoption of the proposed rule.

VI. When to republish

If a rule has been substantially changed in response to public comments or due to further
deliberations by the agency, then the rule may need to be republished. “[S]hould the proposed
rules, as originally published, be ignored and others adopted or should other subjects or persons
be affected by the altered rule, a new round of notice and comment should be required.”
Deffebach, 631 S.W.2d at 801. “The relevant inquiry . . . is whether the agency’s notice fairly
appraises affected parties of the pertinent issues to allow them to comment and participate in the
rulemaking process in a meaningful and informed manner.” Patient Advocates, 136 S.W.3d at
650.

VII. Conclusion

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When engaging in rulemaking, an agency should act with deliberation and with notice to the
public. To withstand judicial review, a rule need merely comply with the requirements set forth
under the APA and not be arbitrary or capricious.