Public Comments

Public comments have been submitted on the Department of Homeland Security (DHS) concerning its Initial Regulatory Flexibility Analysis (IRFA) for the proposed safe-harbor rule. These comments utilized the IRFA to show that aggregate employer costs would likely exceed $1 billion, and that the rule also would generate tens of billions of dollars in social costs from the forced unemployment of authorized workers, who are innocent bystanders to immigration law enforcement. These estimates were premised on the assumption that the IRFA was soundly designed and properly implemented with respect to its choice of models, data, assumptions and analytic methods.

In this comment, the assumption of sound analytic design is shown to be false. The IRFA uses as the domain for the proposed rule about 140,000 Educational Correspondence (“EDCOR”) letters sent to employers by the Social Security Administration (SSA) for TY 2006. Employers with fewer than 10 no-matches with earnings comprising less than 0.5% of payroll are currently exempt from receiving an EDCOR letter as a matter of SSA administrative convenience. However, SSA also sends millions of additional letters annually when they cannot locate a subject employee (about two million letters to about 880,000 employers for TY 2002). Nevertheless, both letters constitute “written notice” as defined by the proposed rule. Failing to adhere to the safe-harbor provisions of the rule after receiving either type of letter may give rise to civil or criminal liability by the inference of constructive knowledge.

By restricting its analysis to the 140,000 employers receiving EDCOR letters and ignoring the million employers receiving two million or more Employer DECOR letters, DHS has assumed away a large fraction of likely employer costs that are cognizable under the Regulatory Flexibility Act. In addition, these assumed-away costs are disproportionately borne by the smallest of small entities – those with less than 10 no-matches whose earnings comprise less than 0.5% of payroll. For TY 2002, the average number of no-matches per employer is 2.2.

By any reasonable standard, this is a fatal design defect in the IRFA. The IRFA presents no justification for ignoring millions of Employer DECOR letters. Rather than address these other letters, the IRFA does not even acknowledge that they exist.

EXECUTIVE SUMMARY

The Department of Homeland Security (DHS) has published for public comment an Interim Regulatory Flexibility Analysis (IRFA), as required by the Regulatory Flexibility Act, in response to the preliminary injunction issued in AFL-CIO v. Chertoff (D.E. 135, N.D. California, October 10, 2007). The IRFA shows that the proposed rule establishing safe-harbor procedures for employers who receive no-match letters from the Social Security Administration (SSA) will cost U.S. employers approximately $1 billion per year to implement. This is ten times the threshold for an “economically significant” or “major” regulation under Executive Order 12,866 and the Congressional Review Act, respectively. In its 2006 proposed rule, DHS Secretary Chertoff certified that the rule “would not mandate any new burdens on the employer and would not impose any new or additional costs on the employer” and “would not result in an annual effect on the economy of $100 million or more” (71 Fed. Reg. 34284). These certifications were reiterated in the 2007 final rule (72 Fed. Reg. 45623). The IRFA shows that both certifications were false.

The Regulatory Flexibility Act does not require agencies to estimate the effects of proposed regulations on employees, though nothing in the law forbids agencies from doing so if they are interested in ensuring that their legitimate statutory objectives are achieved at minimum social cost. At best, DHS’ analysis adheres to the bare statutory minimum analytic requirement.

Nevertheless, the DHS Safe-Harbor IRFA contains enough information to derive estimates of the social costs the rule imposes on authorized employees – persons who are not targeted by either immigration law or the proposed rule. These costs turn out to be substantial. Across the five scenarios DHS examined, the safe-harbor rule would force between 37,000 and 165,000 authorized employees into potentially permanent unemployment. An illustrative estimate of the social costs of forced unemployment is derived assuming that the value of each such worker’s labor is $25,000 per year and this value is foregone for 15 years. Aggregate social welfare loss to authorized workers would range from $8 billion (assuming 20% of no-matches are authorized workers) to $37 billion (assuming 90% are authorized). These costs would be borne largely by workers least able to navigate multiple state and federal bureaucracies.

The DHS Safe-Harbor IRFA also does not address other unintended but predictable consequences of the safe-harbor rule. For example:

1. The rule does not provide a genuine safe harbor from the twin risks of immigration law enforcement and civil liability under federal civil rights law. The IRFA assumes that employers will help employees navigate the federal bureaucracy to correct errors in their records. However, the rule itself strongly discourages employers from providing any help whatsoever unless it is provably identical for all no-match employees when judged after the fact in federal court.The rule provides no safe harbor from unwarranted, frivolous or vexatious private litigation.
2. The rule will significantly increase identity theft by making it more valuable (and potentially essential) for unauthorized workers to have names and Social Security Numbers that match. Virtually all of these matched pairs will belong to authorized workers, the vast majority of whom will be citizens and permanent legal residents with Spanish surnames. These workers will face significant new burdens proving to the satisfaction of federal authorities that they are legally permitted to work.Those who are unable to do so will be forced into unemployment.
3. The rule will shift some unauthorized workers into independent contracting and the cash (i.e., “underground”) economy, where immigration law enforcement triggered by mismatched names and Social Security Numbers cannot reach them.These workers will face some risk of tax law enforcement by the Internal Revenue Service, but laws protecting the privacy of tax records will shield them from immigration authorities.
4. The rule will be followed by more rounds of rulemaking because the number of unauthorized workers submitting mismatched names and Social Security Numbers will decline faster than the number of unauthorized workers seeking employment. DHS has failed to consider how unauthorized workers will adapt to the rule, but adapt they will. DHS will find itself permanently chasing these adaptations with new regulations that impose rising costs on employers and authorized employees.
5. The rule will intensify concerns about the privacy and security of personal data stored in government databases, and the potential for these data to be compromised by security lapses or used for inappropriate purposes such as surveillance.
   

The Regulatory Flexibility Act also requires agencies to examine a range of alternatives that would be less burdensome to small entities. The purpose of this requirement is to motivate agencies to think creatively about how to cost-effectively address the problem they are trying to solve, taking into account the inherent inability of small entities to take advantage of economies of scale. The DHS Safe-Harbor Rule IRFA does not include a genuine examination of alternatives, nor does it examine cost effectiveness critically. Instead, DHS merely acknowledges that the rule would require employers to act cost-ineffectively to minimize their risk legal liability for discrimination. For any draft regulatory action with likely impacts greater than $100 million in any one year, Executive Order 12,866 requires the preparation of a Regulatory Impact Analysis.

For draft regulatory actions with effects exceeding $1 billion, OMB guidance strongly recommends the preparation of a comprehensive uncertainty analysis. These requirements were established not to burden agencies with process hurdles, but to improve the quality of the major rules they promulgate. The DHS Safe-Harbor IRFA provides sufficient evidence that both a Regulatory Impact Analysis and a comprehensive uncertainty analysis are needed to achieve these good-government objectives that have been in place since 1981.

Belzer RB. 2006. "Regulatory Checkbook Comments on OMB’s Draft 2006 Report to Congress on the Costs and Benefits of Federal Regulation," 20 pp.

Belzer RB. 2006. Regulatory Checkbook Comments on OMB's Proposed Risk Assessment Bulletin, 47 pp.

Belzer RB. 2006. Letter to John D. Graham, Administrator, Office of Information and Regulatory Affairs, 9 pp.

Testimony Before the Subcommittee on Energy Policy, Natural Resources and Regulatory Affairs of the Committee on Government Reform, U.S. House of Representatives, February 25, 2004.

Belzer RB. 2003. Letter to John D. Graham, Administrator, Office of Information and Regulatory Affairs, 31 pp.

Belzer RB. 2002. Letter to Kim Nelson, Chief Information Officer, US Environmental PRotection Agency. 9 pp.