Special Message to the Congress on the Regulatory Agencies.

To the Congress of the United States:

I. INTRODUCTION

The discharge by the regulatory agencies of this Government of the responsibilities that the Congress has placed upon them must be a constant and continuing concern of both the Congress and the President. The responsibilities with which they have been entrusted permeate every sphere and almost every activity of our national life. Whether it be transportation, communications, the development of our natural resources, the handling of labor-management relationships, the elimination of unfair trade practices, or the flow of capital investment--to take only a few examples--these agencies and their performance have a profound effect upon the direction and pace of our economic growth. If it is in the public interest to maintain an industry, it is clearly not in the public interest by the impact of regulatory authority to destroy its otherwise viable way of life. Furthermore, the industries subject to their jurisdiction are intertwined with our national defense to such a degree that the health of these industries can well be regarded as an index of both our strength and our power to survive. Thus the capacity of these regulatory agencies to meet their responsibilities, and the efficiency with which they dispatch their business, become a subject of tremendous significance to the entire nation.

A. The Responsibilities of the Congress. Both the Congress and the President have a continuing duty to be watchful with respect to the activities of the regulatory agencies. The Congress must see that the statutes under which the agencies are organized and under which they operate adequately set forth the goals that the Congress seeks to achieve. These statutes should neither place responsibilities upon agencies beyond the practical limits of administrative action, nor couch their objectives in such indecisive terms as to leave vast areas open for the free play of agency discretion. The Congress also has the final responsibility to determine from time to time the extent of the influence that these agencies should exert, whether their authority should be withdrawn from or curtailed in one field or extended to and expanded in another. In addition, the Congress has a rightful concern with both the organization of the regulatory agencies and the fairness and efficiency with which they dispatch their business. Finally, inasmuch as the funds for their operations must be appropriated by the Congress, an intimate knowledge of their operations must be acquired if this function is to be discharged intelligently.

Invaluable hearings and investigations have been carried on by the Congress over the years, particularly in recent years, illuminating weaknesses in administration and the intrusion of practices that have undercut those standards of fairness and impartiality that the nation rightly expects its government to maintain. Congressional oversight is thus a spur to the formulation and enactment of necessary remedial measures.

B. The Responsibilities of the President. The President also has his responsibilities with respect to the operation of these agencies. In addition to a constitutional duty to see that the laws are faithfully executed, and other inherent Executive powers, it is his duty to staff the regulatory agencies, granted to him, with men and women competent to handle the responsibilities vested in them and dedicated to the goals set forth in the legislation they are appointed to implement. The President, moreover, is charged in many instances by the Congress with the specific responsibility of removing agency members for misfeasance, inefficiency or the neglect of duty. Coupled with this is the discretionary exercise of his duty to reward faithful public service by the reappointment of agency members, which requires him to form opinions as to the capability of his or his predecessor's appointees to handle the affairs that the Congress has entrusted to them. In short, the President's responsibilities require him to know and evaluate how efficiently these agencies dispatch' their business, including any lack of prompt decision of the thousands of cases which they are called upon to decide, any failure to evolve policy in areas where they have been charged by the Congress to do so, or any other difficulties that militate against the performance of their statutory duties.

This does not mean that either the President or the Congress should intrude or seek to intervene in those matters which by law these agencies have to decide on the basis of open and recorded evidence, where they, like the judiciary, must determine independently what conclusion will best serve the public interest as that interest may be defined by law. Intervention, if it be deemed desirable by the Executive or the Congress in any such matter, must be as a party or an intervenor in the particular proceeding; and such intervention should be accorded no special preference or influence.

C. The Need for Improvement. I have long felt that too little attention has been given to the overall operation of these agencies by the President, and that too little cooperation between the Congress and the President has characterized the discharge-each in their respective roles--of their appropriate responsibilities with regard to the operation of these agencies. This cannot continue. For it is now clear that some advance in the methods by which the regulatory agencies dispatch their business is essential if they are to become, as Congress originally intended, effective aids to the growth of our private enterprise system.

For these agencies are not merely regulatory: they are designed to further the expansion of certain facets of our economy, as well as the basic tenets that underlie our system of private enterprise. Delays in the disposition of agency business, and the failure to evolve, other than by a slow case-by-case method, policies essential for our national growth seriously handicap their effectiveness in meeting this function.

In certain areas, where large subsidies are involved, such as shipping and aviation, this promotional function is apparent. But it also underlies their regulatory activities. In the banning of unfair labor practices or the designation of employee representatives, the National Labor Relations Board seeks to Uphold the right of collective bargaining--a right upon which we, as a nation, base our hopes for peaceful and satisfactory labor-management relationships. In the banning of practices that characterized our security markets in the nineteen twenties, the Securities and Exchange Commission is more than merely regulatory; it seeks, by its emphasis upon fair dealing, to achieve a saner and sounder outflow of savings into investment. In the banning of monopolistic and unfair trade practices, the Federal Trade Commission seeks to defend those fair trade practices which are necessary for the promotion of our system of private competitive enterprise.

D. The Caliber of Appointed Personnel. No amount of reorganization or new procedures can be effective without, or substitute for, high quality personnel in charge of these agencies. No other single step can accomplish as much. In the past three months I have had the opportunity to bring to many of these agencies men whom I believe are both competent to handle their complex affairs and dedicated to their statutory aims. The Senate of the United States has cooperated in this effort. I shall continue to pursue that policy as the occasion demands, drawing from within and without the Government men of competence and imagination, who are anxious to further the ideals and goals that the Congress has formulated.

E. Coordination of Regulatory Action. Before turning to a more specific catalog of our administrative ills and suggestive remedial devices to cure them, there is one particular problem in this area that demands the attention of both the Congress and the President--namely, the lack of coordination of regulatory practices. This stems from the fact that the origin of most of our agencies arose out of the practices or the needs of a particular industry. The monopolistic position held by the railroads at the turn of the century brought the Interstate Commerce Commission into being and successively armed it with growing powers. The limitations of the radio spectrum and of our air space called for the creation of the Federal Communications Commission, the Civil Aeronautics Board and the Federal Aviation Agency. The necessities of maintaining an American flag merchant marine for the national defense and the promotion of commerce form the basis for the existence of the Federal Maritime Board.

This history has in many instances resulted in a compartmentalization of regulatory activities-the tendency of each agency to consider only a single industry, or even a single part of an industry. This is wrong. The emphasis must now in the national interest be placed upon the health and the practices of a series of industries, rightfully competitive but which--from a national standpoint--must be viewed as a whole. 'The problem of mass metropolitan transportation is not merely that of the railroads, but of highways and busses, of housing and even of helicopters. The Transportation Act of 1940 sought, so far as surface transportation was concerned, to describe as a goal a national policy that would give each method of transportation its appropriate role in our economy. It is disturbing, however, to note that, for example, our common carrier inland waterway traffic, our Great Lakes traffic, our inter-coastal and coastal traffic have been withering away, at a pace far more rapid than appears desirable in the light of the low-cost nature of this method of transportation and its potential role in the event of war. Of course, no method of transportation should outlive its useful life; but the absence of a firm and comprehensive policy as to what role, if any, existing methods should play in our national economy actually is a policy in itself. It is a policy, as a Senate Subcommittee only recently observed, of unrestrained and destructive competition guided by private interests rather than that of the public as a whole.

In broad areas where the interdependence of industries is apparent, and where we have assumed regulatory functions over all or a portion of them, new and careful articulation of our regulatory efforts is essential. For the pattern now is increasingly one of fragmentation of treatment rather than articulation. Economic effort encouraged by one agency may find discouraging treatment by another. Iron curtains are drawn between agencies operating in the same general area. Their concern is only with the particular segment of the industry over which they have been given jurisdiction, rather than its inter-relation to the whole. Indeed, a lack of cooperative effort often characterizes divisional efforts within a single agency. To correct these regulatory imbalances calls for the shaping of attainable goals and the cessation within agencies and among agencies of jurisdictional strife. Both the Congress and the President can and should play a part in this effort.

I have already initiated programs in the field of aviation to frame the goals we should set for ourselves for this decade. The attainment of these goals will involve careful, detailed and foresighted coordination on a large scale within the Government and several of its agencies. Similarly, a coordinated effort is underway to provide a better method for the allocation among governmental and nongovernmental users of the radio spectrum, and to improve the regulation over the method of their use. In the field of surface transportation, efforts are being made to work out positions that the administration as a whole should take towards the many remedial measures that have been and are being suggested with respect to its ills. The results of all these efforts will naturally be put before the Congress with such recommendations as they may contain.

II. SHARPENING OF AGENCY RESPONSIBILITY'

A. The Responsibility of the Chairman. But all this is not enough. It is essential, first of all, for both the Congress and the President to fix responsibility for the overall operation of an agency on an individual rather than on a group or a committee where responsibility can too easily be dissipated. A movement, now demonstrably valuable, was initiated in this respect by a series of reorganization plans proposed by President Truman in 1950. These plans sought to localize responsibility within the agencies themselves by giving broad managerial powers to the chairman of each agency and in turn holding that chairman responsible, not with respect to his tenure as a member of that agency, but with respect to those managerial powers that attach to his authority as chairman. Nothing in these plans impinged upon the ability of the members of the agencies to act independently with respect to controversies that might be before them for decision, or to participate freely and independently in the shaping of policies that the agency as a whole might seek to pursue. They did, however, pinpoint for the industries subject to their jurisdiction, for the President and for the Congress and the nation the managerial competence displayed by the agency under the guidance and leadership of its chairman.

These reorganization plans of the 1950's did not succeed in covering all the agencies. Too little authority, moreover, was granted to most agency chairmen. I urge that the chairman's role be more clearly defined and his responsibility fixed in every agency. Each chairman should be charged with the authority to staff the agency, subject, of course, to civil service requirements, and, in the important posts, to the advice and consent of his colleagues. Each chairman should be made responsible, subject to statutory requirements, for the form of his agency's organization, so as to enable it effectively to dispatch the business before it. It should be his business to review its budget estimates and subsequently to distribute appropriated funds according to major programs and purposes. In the performance of these managerial duties the chairman should be responsible to the President and serve as chairman at his pleasure, as is explicitly provided with regard to several of the major agencies.

This centralization of responsibility for the managerial functions of the agency will significantly further their ability to deal with the business before them, and better enable both the President and the Congress to reach more informed judgments with respect to the effectiveness with which an agency pursues its designated programs, and the most wise and efficient use of its personnel. As a first step I shall shortly send to the Congress a series of recommendations which will carry out this concept. B. Responsibility for Agency Decisions. One internal administrative device, capable of being immediately adopted by every regulatory agency and already adopted by four important agencies, three since the beginning of this year, needs still wider adoption. This is the practice of assigning to individual agency members the responsibility of being individually responsible for the formulation of the rationale underlying important agency decisions, its quality and its release to the public under the individual member's name. The practice of rendering anonymous decisions, which has hitherto generally prevailed, has served as a means of escaping precision and responsibility. When the actual source of the opinion is unknown save only that it is issued in the name of the agency, it not only impairs its value as a precedent, but also makes for that very dissipation of responsibility that we are trying to reduce in our administrative action.

Fortunately, from the beginning of American law, our judges assumed an individual responsibility for uttering the bases which underlay their decisions. This practice has made not only for conscientiousness in undergoing the travail of decision, but has invited examination of each proffered brick that would seek a place in the structure of our law. The adoption of this practice by the regulatory agencies would, in my opinion, tend to develop the law that they administer, as well as be a continual challenge to each agency member to make his contribution to the advancement of administrative justice. I am requesting a wider adoption of this practice.

III. THE REDUCTION OF EXCESSIVE DELAYS AND WORKLOADS

A. Allocation of Agency , Activities. The reduction of existing delays in our regulatory agencies requires the elimination of needless work at their top levels. Because so many of them were established in a day of a less complex economy, many matters that could and should in large measure be resolved at a lower level required decision by the agency members themselves. Even where, by the force of circumstance, many of these matters are now actually determined at a lower level they still must bear the imprimatur of the agency members. Consequently, unnecessary and unimportant details occupy far too much of the time and energy of agency members, and prevent full and expeditious consideration of the more important issues.

The remedy is a far wider range of delegations to smaller panels of agency members, or to agency employee boards, and to give their decisions and those of the hearing examiners a considerable degree of finality, conserving the full agency membership for issues of true moment. Such delegation would not be an abnegation of responsibility if the agency retained a discretionary right of review of all such decisions, exercisable either upon its own initiative or upon the petition of a party demonstrating to the agency that the matter in issue is of such substantial importance that it calls for determination at the highest agency level. (Nothing in such a procedural change would, of course, disturb the existing rights of a party to seek judicial review of administrative action.)

A similar procedure--the petition for certiorari--succeeded in clearing up the overburdened docket of the Supreme Court of the United States when it was evolved by the Congress in the Judiciary Act of 1925. Some progress in this direction has already been made by the Interstate Commerce Commission in the past two months, which has delegated to intra-agency boards some 18,000 matters which otherwise would have required the attention of a Commissioner, a panel of that Commission, or the Commission as a whole. But more progress in this agency and other agencies can be made if such a program is supported by concrete measures. I shall shortly submit a series of such measures to the Congress.

B. The Federal Power Commission. One situation, however, is not amenable to this general treatment. This is the condition that exists in the Federal Power Commission. In that Commission some 4,000 rate increases by independent natural gas producers and pipe lines are pending and are still unresolved. Under the existing law, these rate increases are suspended but nevertheless go into effect within six months after their filing, subject to the provision that such sums as are collected in excess of the rate ultimately found to be reasonable are to be refunded to the consumer. This incredible backlog of cases, consisting frequently of rate increases piled upon rate increases, involves hundreds of millions of dollars deemed ultimately refundable to the consumer. Indeed the annual amount of rate increases so suspended is over $500,000,000. The total amount of rates collected pursuant to such increases is well over one billion dollars.

This situation is paralleled by another just as serious. Under existing procedures and methods for processing applications for pipeline construction, some 193 applications, proposing construction of 5,761 miles of pipeline at a total estimated cost of some $850,000,000 were pending before the Federal Power Commission as of the end of February 1961. It is not to be assumed that all these applications would be granted; but it can safely be assumed that more prompt handling of these matters would release hundreds of millions of dollars for construction, giving substantial employment throughout the country and making firm commitments out of orders for materials that are now merely contingent-orders that in turn would provide jobs for men and women in mills, factories and foundries.

(1) Exemptions. The cause and cure of this administrative log jam--directly responsible for the exclusion of millions of dollars of construction funds from our economy and potentially responsible for an inordinate rise in the price of natural gas--go far beyond the organization and procedures of the F.P.C. I urge the Congress to enact new legislation reducing the Agency's work-load in the natural gas area in two ways:

--The Commission should be authorized to exempt from rate regulation up to 100% of the small individual producers of natural gas (under two billion cubic feet per year) whose sales in interstate commerce to pipelines account for but 10 per cent of the total. The price which the small producers can charge must of necessity be generally in line with those of the larger producers, and thus they cannot individually affect the general level of prices to the consumer. Such a step must be followed up in the Commission by a vigorous handling of all rate cases in the remaining area of jurisdiction, involving hardly more than 270 producers but affecting some 90 per cent of our natural gas production.

--With respect to the processing of pipeline construction permits, the Commission should be authorized to exempt from all or part of its procedures up to 100% of those applications by interstate pipeline companies which seek merely to enlarge, extend or replace existing facilities for the benefit of existing customers only, whenever it is assured that its action will not impair the preservation of reserves necessary to supply those consumers, or permit the indiscriminate invasion of one supplier's territory by another.

The formulation of these standards will require creative imagination; but the alternative is to defend bureaucracy for bureaucracy's sake.

(2) Additional Members. I also urge, because of the crucial situation in the Federal Power Commission, the increase of that Commission by the addition of two members. Normally, increasing the members of an agency adds little to its efficiency and may instead only handicap its function. But the situation in the Federal Power Commission is unique. That Commission possesses on the one hand jurisdiction over electric power projects and, on the other, under a wholly separate statute--the Natural Gas Act-jurisdiction over the production and transmission for sale in interstate commerce of natural gas. The techniques necessary for the handling of problems in the fields of electric power and natural gas are different. An understanding of one industry does not guarantee a background for dealing with the other. And the chaos and delay now characterizing the gas regulation field may soon increase in the electric power area, where in the coming years the problems surrounding the future of hydro-electric generation will call for re-appraisal and hence for added attention.

With the addition of two more members and the clear discretion to allocate or delegate decision-making to smaller panels as previously mentioned, the Commission's flexibility would be greatly increased. For example, the Chairman could establish three panels of two other members and himself, two working with gas and one with electricity or, one panel of three members could work in one area, while another panel of three covered the other, freeing the Chairman for administrative matters. Provision should also be made for the handling of the lesser matters coming before that Commission by single commissioners, hearing examiners and employee boards, subject always to the right of the Commission as a whole in its discretion to review any decision.

C. Protection of Consumers. In its hearings the Senate Subcommittee on Administrative Practice and Procedure has called attention to the inadequacy of consumer protection in those cases where a requested rate increase goes into effect subject to its subsequent approval by the regulatory agency, with a return to the consumer of any amounts later determined to be in excess. Where these requests are overstated the consumer is required to furnish to the utility the very capital on which he is also required to provide the return, the utility's credit standing is damaged by such a large contingent liability, and the actual return to each individual ultimate consumer is often impractical, if not impossible, of achievement.

I, therefore, strongly endorse the Subcommittee's informal recommendation to give increased authority to the Federal Power Commission and to any other regulatory agency where this is a major problem, to make sure that any excess rate which is ultimately disallowed will be returned to the consumer--particularly the power to require the deposit of any such collections in escrow until the rate is finally approved.

IV. THE IMPROVEMENT OF ADMINISTRATIVE PROCEDURES

A. An Administrative Conference. This nation has had 15 years of experience under the Administrative Procedure Act of 1946. That Act sought to achieve standards of due process and fairness in the handling of controversies before the regulatory agencies both with respect to adjudication and the issuance of regulations. That aim naturally should be maintained and refined. A large amount of work pointed toward objectives of this nature has been undertaken by the legal profession and by various commissions, as well as by committees of the Congress.

The process of modernizing and reforming administrative procedures is not an easy one. It requires both research and understanding. Moreover, it must be a continuing process, critical of its own achievements and striving always for improvement. Judicialization--the method of determining the content of a controversy by processes akin to those followed by the judiciary--may well be the answer in many cases. But new procedures for the analysis of facts, based upon more informal methods and mobilizing the techniques of other disciplines, can be the answer in other cases, provided always that the fundamentals of due process of law are maintained. There can be no single set of conclusive and abiding formulas appropriate for the effective dispatch of all the diverse and ever-changing issues that these agencies are called upon to resolve.

It is for this reason that I have today issued an Executive Order¹ calling at the earliest practicable date an Administrative Conference of the United States, to be organized and headed by an illustrious jurist and a distinguished council of lawyers and other experts from the Administrative agencies of this government, the bar, and university faculties. This council will consider the questions I have discussed, along with the desirability of making this Conference, if it proves itself, a continuing body for the resolution of these varied and changing procedural problems.

¹ Executive Order 10934, 26 F.R. 3233.

Meanwhile its organization can under the Executive Order be largely modeled upon the Judicial Conference of the United States created in 1922, which has been effective in unifying the judicial system of the United States and modernizing its procedures. Like that Conference, it should bring together the leading members of our regulatory agencies, outstanding practitioners, scholars and other experts. It can meet under the leadership of its Chairman and Council, and consider and propose changes in administrative procedure and organization that will make our regulatory processes more effective. It will be provided through the Department of Justice with a Secretariat, enabling it to become a day-by-day forum for concern with our many administrative problems.

The results of such an Administrative Conference will not be immediate but properly pursued they can be enduring. As the Judicial Conference did for the courts, it can bring a sense of unity to our administrative agencies and a desirable degree of uniformity in their procedures. The interchange of ideas and techniques that can ensue from working together on problems that upon analysis may prove to be common ones, the exchanges of experience, and the recognition of advances achieved as well as solutions found impractical, can give new life and new efficiency to the work of our administrative agencies.

B. Hearing Examiners. None of the regulatory agencies can be completely efficient and effective unless they are staffed by capable hearing examiners. The hearing examiner can relieve the agency of protracted adjudicatory processes, speed the disposition of the cases, and serve as a valuable aide in the decisional process. The importance of his position should be recognized by adequate provisions for responsibility and compensation.

The standards for appointments, compensation, promotion, and removal of Hearing Examiners are set forth in Section of the Administrative Procedure Act of 1946. But the application of those standards has been a continuing source of controversy. The examining procedures permit broad discretion without sufficient assurances of high qualifications. The determination of the proper grade and pay levels has been burdensome, involving almost continuing review of individual positions since 1946. The promotion process is inexact and has led to a concentration of almost all the positions in grade GS-15, the highest regular grade in the Classification. At the same time, further promotion has become virtually impossible.

In order to improve the stature and quality of hearing examiners I recommend the following:

I. Section II of the Administrative Procedure Act should be amended to remove the requirement that hearing examiners receive compensation in accordance with the Classification Act. Instead, they should receive salaries equivalent to that prescribed for a grade GS-16 or a grade GS-14. The higher salary would apply to examiners in the major regulatory agencies, whose decisions have a broad economic impact on the national welfare.

2. In order to recognize the administrative management responsibility of the Chief Hearing Examiner in each agency I recommend that he receive $500 per annum additional compensation.

3. The Civil Service Commission should review and raise its current examining standards and practices for hearing examiners. The increased responsibilities recommended in other sections of this message will require the most qualified people for these key positions.

It is my hope that raising the selection standards and increasing the compensation of the hearing examiners will improve both their stature and their general level of competence.

CONCLUSION

The preservation of a balanced competitive economy is never an easy task. But it should not be made more difficult by administrative delays which place unnecessary obstacles in the path of natural growth or by administrative incompetence that has a like effect.

These reasons alone justify the President and the Congress in having a continuous concern with the operations of our regulatory agencies. The cure for a particular ill may lie in legislation; it may, on the other hand, lie in administration. But given a lack of watchfulness on the part of both the President and the Congress maladministration or ill-conceived policies can endure and multiply to the consequent detriment of our economic and social welfare. It is our task to cooperate in achieving those legislative and administrative steps necessary to enable these agencies to fulfill more effectively their roles of promoting and protecting the national interest.

JOHN F. KENNEDY