That sentence establishes the distinction between informal or notice-and-comment rulemaking under section 553, and formal or "on-the-record" rulemaking under sections 556 and 557.

Sections 556 and 557 include requirements that the agency support its rule with substantial evidence in an exclusive rulemaking record;21 that there be an oral hearing presided over by agency members or an administrative law judge;22 that the parties be permitted to conduct such cross-examination "as may be required for a full and true disclosure of the facts:"23 that there be no ex parte communication with the decisionmaker,24 and that parties be allowed to submit proposed findings and conclusions and present exceptions to the initial or recommended decisions of subordinate agency employees or to tentative agency decisions.25 Thus, formal rulemaking procedure is a trial-type procedure, even though not all of the APA's procedures for formal adjudication apply to such rulemaking. 26 Formal rulemaking always has been the

215 U.S.C. § 556(d), (e). 225 U.S.C. § 556 (b). 235 U.S.C. § 556(d). 245 U.S.C. & 557(d). This subsection was added by the Government in the Sunshine Act, § 4(a), Pub. L. No. 94-409, 90 Stat. 1241. The amendment was consistent with recommendations of the Temporary Administrative Conference of the United States, 1961-62, Selected Reports of the Administrative Conference of the United States, S. Doc. No. 24, 88th Cong., 1st Sess. 165-205 (1963). For a discussion of "ex parte" or off-the-record contacts in the informal rulemaking context, see Part III, Ch. 6, infra.

255 U.S.C. § 557(c).

26For example, 5 U.S.C. § 556(d) provides that in rulemaking "an agency may, when a party will not be prejudiced thereby, adopt procedures for the submission of all or part of the evidence in written form." Also, the separation of functions requirement for adjudication in 5 U.S.C. § 554(d) does not apply to formal rulemaking.

exception, rather than the norm,27 and it is used infrequently today.

The Supreme Court opened the way for greater use of informal rulemaking in United States v. Florida East Coast Ry.,28 a proceeding to establish future rates. The Court held that section 1(14)(a) of the Interstate Commerce Act did not mandate use of formal rulemaking procedures to establish incentive per diem charges applicable to railroad use of freight cars because that statute only required a decision "after hearing," rather than the precise phrase "on the record after opportunity for an agency hearing" used in section 553(c).29 There has been much debate on whether the magic words "on the record" must appear in a statute to trigger formal rulemaking. 30 For statutes antedating Florida East Coast Railway, they may not, but after that decision one would expect those words to appear in any statute requiring use of formal rulemaking procedure.31

27 See Hamilton, Procedure for the Adoption of Rules of General Applicability: The Need for Procedural Innovation in Administrative Rulemaking, 60 Calif. L. Rev. 1276, 1278-80 (1972).

28410 U.S. 224 (1973).

29410 U.S. at 241.

30 See, e.g., Nathanson, Probing the Mind of the Administrator: Hearing Variations and Standards of Judicial Review Under the Administrative Procedure Act and Other Federal Statutes, 75 Colum. L. Rev. 721 (1975); K. Davis, Administrative Law of the Seventies 209-240 (1976). See also Part III, Ch. 4, infra.

31For an example of a conscious legislative decision not to include the words "on the record" in a statute, see Commodity Exchange, Inc. v. CFTC, 543 F. Supp. 1340, 1345-48 (S.D.N.Y. 1982), aff'd, 703 F.2d 682 (2d Cir. 1983). On occasion, the question of whether to provide formal or informal rulemaking will be debated in Congress during the legislative development of a regulatory statute. See discussion in Industrial Union Dep't v. Hodgson, 499 F.2d 467, 472-75 (D.C. Cir. 1974).

C. Informal Rulemaking Under Section 553 of the APA

Most agency rulemaking is governed by section 553 of the АРА. Unless an exemption is provided, rulemaking under section 553 must comply with the following minimum procedural requirements:

(1) a notice of proposed rulemaking must be published in the Federal Register that includes a statement of the time, place, and nature of the public rulemaking proceedings; a reference to the legal authority under which the rule is proposed; and either the terms or a description of the subjects and issues to be addressed by the proposed rule:32

(2) interested persons must be given an opportunity to submit written data, views, or arguments on the proposal, "with or without opportunity for oral presentation;"33

(3) a concise general statement of the basis and purpose must accompany the final rule; 34 and

(4) subject to certain exceptions, publication of the final rule must take place "not less than 30 days before its effective date."35

Since the opportunity for oral presentation is left to agency discretion (item 2 above), section 553 procedure is accurately referred to as "notice-and-comment" rulemaking. The meaning and operational impact of these procedural requirements will be discussed in detail in later chapters of the guide.36 The following discussion deals with the numerous exemptions in

325 U.S.C. § 553(b). See Part III, Ch. 3, infra. 335 U.S.C. § 553(c). See Part III, Ch. 4, infra. 341d. See Part III, Ch. 7, infra.

355 U.S.C. § 553(d). See Part III, Ch. 7, infra. 36 See generally Part III.

section 553, under which certain kinds of rules are either totally or partially exempted from its requirements.

D. Rules Exempt From Section 553's Requirements

Two broad categories of rules -- those dealing with military or foreign affairs functions and those relating to agency management or personnel or to public property, loans, grants, benefits, or contracts -- are exempted from all the procedural requirements of section 553.37 Broad exemptions also exist for other types of rules, such as interpretive rules and procedural rules, and more limited exemptions apply to still other rules, such as rules which relieve restrictions. In carving out these exemptions, the drafters of the APA sought to balance the need for public input with competing societal interests favoring the efficient and expeditious conduct of certain government affairs. 38

Because these exemptions are exceptions to the APA's general policy of providing an opportunity for public participation in rulemaking, which was designed to foster the fair and informed exercise of agency authority, they have traditionally been "narrowly construed and only reluctantly countenanced."39

375 U.S.C. § 553(a).

38Thus, in American Hospital Association v. Bowen, the District of Columbia Circuit stated that the "reading of the § 553 exemptions that seems most consonant with Congress' purposes in adopting the APA is to construe them as an attempt to preserve agency flexibility in dealing with limited situations where substantive rights are not at stake." 834 F.2d 1037, 1045 (D.C. Cir. 1987). See also Department of Labor v. Kast Metals Corp., 744 F.2d 1145, 1153 (5th Cir. 1984) (noting the "tension" between agency efficiency and public input).

39 American Fed'n of Gov't Employees, AFL-CIO v. Block, 655 F.2d 1153, 1156 (D.C. Cir. 1981); Bonfield, Military and Foreign

The fact that a particular rule is exempted from the public procedures under section 553 does not mean that the exemption is mandatory, nor is it intended to discourage agencies from using public participation procedures. To the contrary, when Congress enacted the APA, it encouraged agencies to use notice and comment in some exempted cases, and many agencies follow notice-and-comment procedure as a matter of course in making certain kinds of exempted rules. Indeed, some agencies have published rules formally waiving section 553 exemptions, and courts have relied on an agency waiver to enforce statutory procedures that otherwise would not apply.40

1. Agency Organization, Procedure and Practice

"Rules of agency organization, procedure or practice" are exempted from all of the requirements of section 553.41 These rules are not, however, exempted from the APA's publication or petition provisions.42 This exemption has generally covered matters such as agency rules of practice governing the conduct of its proceedings and rules delegating authority or duties

within an agency.

Affairs Function Rulemaking Under the APA, 71 Mich. L. Rev. 221, 237 (1972).

40 See, e.g., Rodway v. USDA, 514 F.2d 809 (D.C. Cir. 1975). 415 U.S.C. § 553(b)(A). The reference to "this subsection" in the clause qualifying the § 553(b) exemptions is misleading because the exemptions also extend to § 553(c)'s comment opportunity. See Attorney General's Manual at 30, reprinted in ACUS Federal Administrative Procedure Sourcebook.

42The drafters of the APA specifically wanted publication of agency rules of practice and procedure so that the public would be aware of them. See authorities cited in Batterton v. Marshall, 648 F.2d 694, 707 n. 68 (D.C. Cir. 1980). The requirement for publication of procedural rules is at 5 U.S.C. § 552(a)(1), and is discussed infra, Part III, Ch. 7.