BILL ANALYSIS Ó
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|Hearing Date:June 25, 2012 |Bill No:AB |
| |1409 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Curren D. Price, Jr., Chair
Bill No: AB 1409Author:V. Manuel Perez
As Amended:June 19, 2012 Fiscal: Yes
SUBJECT: Regulations: small businesses.
SUMMARY: Clarifies the nature of the reasonable alternatives to be
considered by an agency when they are preparing their initial
statement of reasons for proposing adoption, amendment, or repeal of a
regulation; requires the initial statement to also include any
reasonable alternative submitted by the public of the Office of the
Small Business Advocate and an assessment of whether there are similar
or related state regulation(s) that have been adopted and determine
whether there are opportunities to coordinate and harmonize compliance
activities in order to reduce the cost and regulatory burden on small
business, and that in making this consideration that the compliance
method will result in full compliance with the implementing statute or
law. Also requires the Department of General Services to provide in
its State Administrative Manual guidance on procedures that facilitate
the review of existing regulations and the implementation of new and
modified regulations, as specified, and requires the Director of the
Office of Small Business Advocate to comment and gather input from
small business on reasonable alternatives to be proposed and existing
regulations.
NOTE : This measure was heard in this Committee on June 28, 2011 and
referred to the Committee on Appropriations. However, it was
substantially amended in Senate Appropriations Committee on March 21,
2012, and was re-referred by Rules Committee to this Committee as well
as Environmental Quality Committee, second, on April 19, 2012.
Existing law:
1)Creates the Milton Marks "Little Hoover" Commission on California
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State Government Organization and Economy to assist the Legislature
and the Governor in promoting economy, efficiency, and improved
service in the transaction of public business in state government.
(Government Code (GC) § 8501 et seq.)
2)Creates the Office of Small Business Advocate to represent the views
and interest of small businesses before the state agencies and
specifies the duties and responsibilities of the Director of the
Office. (GC §§ 12098 - 12098.5)
3)Establishes the Office of Administrative Law (OAL) and declares that
it is in the public interest for OAL to be charged with the orderly
review of adopted regulations and that the purpose of such review
shall be to reduce the number of administrative regulations and to
improve the quality of those regulations which are adopted and
specifies other duties and powers of OAL. (GC §§ 11340.1 - 11342.4)
4)The Administrative Procedures Act (APA), governs the procedures for
the adoption, amendment, or repeal of regulations Ýor emergency
regulations] by state agencies and for the review of those
regulatory actions by the OAL, and includes as part of the state
agencies determination in adopting the regulation whether the
regulation has the potential for significant, statewide adverse
economic impact directly affecting California business enterprises,
in particular "small businesses" as defined. (GC, Chapter 3.5.
Administrative Regulations and Rulemaking, §§ 11340 - 11361)
5)Defines "major regulation" to mean any proposed adoption, amendment,
or repeal of a regulation subject to review by OAL, as specified,
and that will have an economic impact on California business
enterprises and individuals in an amount exceeding $50 million, as
estimated by the agency.
6)Requires agencies to include, when submitting an initial statement
of reasons (ISOR) for adopting, amending, or repealing a regulation
to the OAL, the problem the agency intends to address, enumerating
the benefits anticipated from the regulatory action, including the
benefits or goals provided in the authorizing statute. Provides
that the benefits may include non-monetary benefits such as the
protection of public health and safety; worker safety; the
environment; the prevention of discrimination; the promotion of
fairness or social equity; and, the increase in openness and
transparency in business and government, among other things. (GC §
11346.2 (b)(1))
7)Requires a standardized regulation impact analysis, as specified, be
included in the ISOR for a proposed major regulation on or after
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January 1, 2013. (GC § 11346.2 (b)(2))
8)Specifies that reasonable alternatives included in the ISOR include
alternatives that are proposed as less burdensome and equally
effective in achieving the purposes of the regulation in a manner
that ensures full compliance with the authorizing statute or other
law being implemented or made specific by the proposed regulation.
(GC § 11346.2 (b) (5))
9)Requires agencies proposing to adopt, amend, or repeal a regulation
that is not a major regulation or that is a major regulation
proposed prior to November 1, 2013, to prepare an economic impact
analysis, as specified, that includes the benefits of the regulation
to the health and welfare of California residents, worker safety,
and the state's environment.
(GC § 11346.3 (a) (3) and (b))
10)Requires agencies proposing to adopt, amend, or repeal a major
regulation on or after November 1, 2013, to prepare a standardized
regulatory impact assessment as prescribed by the Department of
Finance (DOF), as specified, addressing the following: (GC §
11346.3 (c))
a) The creation or elimination of jobs within the state;
b) The creation of new businesses or the elimination of existing
businesses within the state;
c) The competitive advantages or disadvantages for businesses
currently doing business within the state;
d) The increase or decrease of investment in the state;
e) The incentives for innovation in products, material, or
processes; and,
f) The benefits of the regulations, including benefits to the
health, safety, and welfare of California residents, worker
safety, and the state's environment and quality of life, among
any other benefits identified by the agency.
11)Exempts the University of California, the Hastings College of Law,
and the Fair Political Practices Commission from the requirements of
preparing an impact assessment. (GC § 11346.3 (c) (2))
12)Allows state agencies, for the purpose of completing the
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assessment, to derive information from existing state, federal or
academic publications. (GC § 11346.3 (c) (3))
13)Specifies that analyses conducted pursuant to this bill are
intended to provide agencies and the public with tools to determine
whether the regulatory proposal is an efficient and effective means
of implementing the policy decisions enacted in statute or by other
provisions of law in the least burdensome manner. Specifies that
regulatory impact analyses shall inform the agencies and the public
of the economic consequences of regulatory choices, not reassess
statutory policy. Provides that the baseline for the regulatory
analysis shall be the most cost-effective set of regulatory measures
that are equally effective in achieving the purpose of the
regulation in a manner that ensures full compliance with the
authorizing statute or other law being implemented or made specific
by the proposed regulation. (GC § 11346.3 (e))
14)Requires state agencies proposing to adopt, amend, or repeal a
major regulation on or after November 1, 2013, and that have
prepared a standardized regulatory impact assessment, to submit that
assessment to Department of Finance (DOF) upon completion. Requires
DOF to comment, within 30 days of receipt of the assessment, on the
extent to which the assessment adheres to the regulations adopted,
as specified. Authorizes state agencies to update their analysis to
reflect these comments, as specified. (GC § 1136.3 (f))
15)Requires DOF prior to November 1, 2013, and in consultation with
OAL and other state agencies, to adopt regulations for conducting
the standardized regulatory impact analyses, as specified, and
provides that DOF's regulations shall assist the agencies in
specifying the methodologies for: (GC § 11346.36)
a) Assessing and determining the benefits and costs of the
proposed regulation, expressed in monetary terms to the extent
feasible and appropriate. Assessing the value of non-monetary
benefits such as the protection of public health and safety,
worker safety, or the environment, the prevention of
discrimination, the promotion of fairness or social equality, the
increase in the openness and transparency or business and
government and other nonmonetary benefits consistent with the
statutory policy or other provisions of law.
b) Comparing proposed regulatory alternatives with an established
baseline so agencies can make analytical decisions for the
adoption, amendment, or repeal of regulations necessary to
determine that the proposed action is the most effective, or
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equally effective and less burdensome, alternative in carrying
out the purpose for which the action is proposed, or the most
cost-effective alternative to the economy and to affected private
persons that would be equally effective in implementing the
statutory policy or other provision of law;
c) Determining the impact of a regulatory proposal on the state
economy, business, and the public welfare, as specified;
d) Assessing the effects of a regulatory proposal on the General
Fund and special funds of the state and affected local government
agencies attributable to the proposed regulation;
e) Determining the cost of enforcement and compliance to the
agency and to affected business enterprises and individuals; and,
f) Making the estimation if a regulation is to be deemed a major
regulation.
16)Requires DOF to convene a public hearing or hearings and take
public comment on any draft regulation, affording representatives
from state agencies and the public at large the opportunity to
review and comment on the draft regulation before it is adopted in
final form. (GC § 11346.36 (c))
17)Requires DOF to submit the adopted regulations to the Senate and
Assembly Committees on Governmental Organization and to publish them
in the State Administrative Manual by November 1, 2013. (GC §
11346.36 (f))
18)Requires the notice of proposed adoption, amendment, or repeal of a
regulation submitted by the proposing agency to OAL to also include:
(GC § 11346.5)
a) A policy statement overview of the benefits anticipated by the
proposed adoption, amendment, or repeal of a regulation,
including, to the extent applicable, nonmonetary benefits such as
the protection of public health and safety, worker safety or the
environment, the prevention of discrimination, the promotion of
fairness or social equity, and the increase in openness and
transparency in business and government, among other things;
b) An evaluation of whether a proposed regulation is inconsistent
or incompatible with existing state regulations;
c) A statement of the results of the economic impact assessment
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or the standardized regulatory impact analysis, as specified;
and,
d) A statement that the adopting agency must determine that no
reasonable alternative considered by the agency or that has
otherwise been identified would be more cost-effective to
affected private persons and equally effective in implementing
the statutory policy or other provision of law. For a major
regulation proposed on or after January 1, 2013, the statement
shall be based upon the standardized regulatory impact analysis
of the proposed regulation, as specified, as well as upon the
benefits of the proposed regulation, as specified.
19)Requires agencies when submitting to OAL a final statement of
reasons with the adopted regulation, to also include: (GC §
11346.9)
a) A determination with supporting information that no
alternative considered by the agency would be more cost effective
to affected private persons and equally effective in implementing
the statutory policy or other provision of law. For a major
regulation proposed on or after November 1, 2013, the
determination shall be based upon the standardized regulatory
impact analysis of the proposed regulation, and upon the
statement of benefits, as specified; and,
b) An explanation setting forth the reasons for rejecting any
proposed alternatives that would lessen the adverse economic
impact on small businesses including the standardized regulatory
impact analysis for a major regulation, as well as the benefits
of the proposed regulation, as specified.
20)Requires DOF on or before November 1, 2015, to submit to the Senate
and Assembly Committees on Governmental Organization a report
describing the extent to which submitted standardized regulatory
impact analyses for proposed major regulations adhere to the
regulations adopted on November 1, 2013. Allows DOF to include any
recommendations from OAL for actions the Legislature might consider
for improving state agency performance. (GC § 11349.1.5 (b))
21)Authorizes OAL to notify the Legislature of noncompliance by a
state agency with the adopted regulations, in any manner or form, as
specified. (GC § 11349.1.5 (c))
22)Requires OAL to review all regulations adopted, amended, or
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repealed pursuant to specified procedures and make determinations
using the standards of: (GC § 11349 and § 11349.1)
a) "Necessity," as defined.
b) "Authority," as defined.
c) "Clarity," as defined.
d) "Consistency," as defined.
e) "Reference," as defined.
f) "Non-duplication," as defined.
23)Specifies that OAL, at the request of any standing, select, or
joint committee of the Legislature, shall initiate a priority review
of any regulation, group of regulations, or series of regulations
that the committee believes does not meet the above standards. (GC
§ 11349.7)
This bill:
1)Specifies that the Legislature finds and declares that having a
well-functioning economy that encourages innovation and new business
development is highly dependent on an effective and efficient
regulatory environment that addresses key public health, safety, and
environmental conditions. Government practices that unnecessarily
increase costs and result in project delays can threaten the state's
long-term economic growth.
2)Provides that the ISOR include, as part of the description of
reasonable alternatives to the regulation that would lessen any
adverse impact on small business and the agency's reasons for
rejecting those alternatives, that it also may provide alternatives
that include, but are not limited to, phasing of implementation to
take into account the compliance capacity and resources of small
business, performance standards to provided compliance flexibility
for small business, simplification of reporting and compliance
standards, differing methods for small and large businesses, and
partial or total exemptions based on the firm's actual degree of
activity within the regulated activity. Alternative approaches to
regulatory compliance shall meet the same regulatory objectives.
3)Provides that even though the ISOR does not require an agency to
artificially construct alternatives or describe unreasonable
alternatives, the agency shall list any alternative that was
submitted to the agency by the public and the Office of the Small
Business Advocate and determined to be unreasonable.
4)Provides also that the ISOR shall include an assessment by each
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state agency as to whether there is a similar or related regulation
that has been adopted and determine whether there are opportunities
to coordinate and harmonize compliance activities in order to reduce
the cost and regulatory burden on small businesses. In assessing
and potentially developing coordinated and harmonized approaches to
regulatory compliance the state agency shall ensure that the
compliance method can result in full compliance with the authorizing
stature or other law being implemented or made specific by the
proposed regulation.
5)Specifies that the Department of General Services shall provide in
the State's Administrative Manual guidance of procedures that do
both of the following:
a) Facilitate the periodic review of existing significant
regulations by the rulemaking entity to determine whether the
regulation has become outmoded, ineffective, insufficient, or
excessively burdensome, and to modify, streamline, expand or
repeal them in accordance with what has been learned. Reviews
shall be undertaken in a cost-effective manner that reflects a
government entity's staffing, funding, purpose and legal
authorities.
b) Facilitate the orderly implementation of new and modified
regulations, including, limiting the implementation date of new
and modified regulations that require compliance by private firms
to two standardized dates, except in circumstances where there is
evidence that delaying implementation could result in significant
harm to the public.
6)Specifies that the duties and functions of the Director of the
Office of Small Business Advocate shall include, in addition to
representing the views and interests of small businesses before
other state agencies whose policies and activities may affect small
business, that the Director also comment on and gather input from
small businesses, and make suggestions on reasonable alternatives to
proposed and existing regulations.
FISCAL EFFECT: Unknown. This bill has been keyed "fiscal" by
Legislative Counsel.
COMMENTS:
1.Purpose. The Author is the sponsor of this measure. According to
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the Author this bill modifies the state rulemaking process by:
Requiring state agencies to consider alternative small
business compliance mechanisms.
Requiring state agencies to consider whether there are
opportunities to coordinate or harmonize compliance activities
with other state entities with similar or related rules.
Encouraging the Small Business Advocate to solicit
comments from small business on proposed regulations and make
recommendations on reasonable alternatives as part of the
rulemaking process.
The Author states that this bill is consistent with actions taken
at the federal level by President Barack Obama who issued an
executive order in January 2012, to reduce the regulatory burden on
small business by, among other things, directing federal agencies
to increase coordination and simplify and harmonize regulations.
The Author notes that existing law sets forth an extensive process
for the development and adoption of regulations, including
requiring the identification of potential adverse impacts of
regulations on California businesses and individuals. The statute
states that the purpose of the rulemaking process is to avoid the
impositions of unreasonable and unnecessary regulations, reporting,
recordkeeping, or compliance requirements. The Author contends,
however, that businesses have repeatedly testified before his
Committee, the Assembly Jobs Committee that they believe that
California's regulatory process is expensive, overly burdensome,
and that compliance has not necessarily provided a better quality
of life for people in the state.
1.Background.
a) Adoption of Regulations in California. The APA governs the
adoption of regulations by state agencies for purposes of
ensuring that they are clear, necessary, legally valid, and
available to the public. In seeking adoption of a proposed
regulation, state agencies must comply with procedural
requirements that include publishing the proposed regulation with
a supporting statement of reasons; mailing and publishing a
notice of the proposed action 45 days before a hearing or before
the close of the public comment period; and, submitting a final
statement to OAL which summarizes and responds to all objections,
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recommendations, and proposed alternatives that were raised
during the public comment period. The OAL is then required to
approve or reject the proposed regulation within 30 days.
More specifically, the APA requires state agencies proposing to
adopt, amend, or repeal any administrative regulation to assess
the potential for adverse economic impact on California business
enterprises and individuals, and avoid imposing unnecessary or
unreasonable regulations. Agencies are required to consider the
proposal's impact on business, with consideration of industries
affected, including the ability of California businesses to
compete with businesses in other states. Additionally, agencies
are required to assess whether and to what extent the proposed
regulation change will affect the creation or elimination of
jobs, the creation of new businesses or the elimination of
existing businesses, and the expansion of businesses currently
doing business within California.
SB 617 (Calderon and Pavley, Chapter 93, Statutes of 2011) made
some significant changes with respect to the adoption, amendment,
or repeal of what is defined as a "major regulation." SB 617
revised the APA by requiring each state agency to prepare a
standardized regulatory impact analysis with respect to the
adoption, amendment, or repeal of a major regulation on or after
January 1, 2013, and submit the analysis to DOF for review and
comments. SB 617 also required DOF to adopt regulations for
conducting the standardized regulatory impact analyses to be
utilized by state agencies in developing the standardized
regulatory impact analysis. SB 617 also included some additional
considerations and requirements of state agencies in adopting,
amending or repealing regulations. This measure expands on some
of those requirements.
b) Recent Hoover Commission Report on Regulatory Reform. In June
2010, the Little Hoover Commission (Commission) initiated a study
to evaluate what changes could be made in the regulatory process
to improve transparency and accountability, consistency and
predictability. Subsequently and more specifically, Senator Bob
Dutton (R-Inland Empire) and Assembly Member Felipe Fuentes
(D-Los Angeles) asked the Commission to focus on how regulatory
agencies developed and used economic assessment in developing new
rules. The Commission spent over a year looking at the way state
agencies develop regulations.
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On October 25, 2011, the Commission released its report, Better
Regulation: Improving California's Rulemaking Process. Its
conclusion: "In order to better protect its citizens and
encourage economic development, California must improve its
regulatory process." The Commission indicated the California had
taken an important first step with the signing of SB 617 into
law, which will start the process of improving how regulations
are made. "But there is more work to do." The Commission
indicated that its report was not focused on creating fewer or
more regulations, but rather "better" regulations - rules
developed through a transparent and interactive process that
places the least burden on the California economy.
The conclusions and recommendations of the report were based upon
written and oral testimony presented in public hearing and a
public advisory committee meeting, as well as extensive
interviews and staff research. The Commission found that too
often regulations are developed in isolation by a department's
technical staff then released for public comment. This prevents
affected parties from offering their expertise about real world
conditions or suggesting alternative and possibly more
cost-effective approaches to meet the same goal before the
proposed regulation is released for public comment. The
Commission also found that while the APA requires agencies to do
an economic impact analysis of proposed rules, few agencies do it
in a systematic and rigorous manner.
The report had five basic recommendations which were aimed at
increasing transparency, efficiency, and accountability with the
goals of finding the least burdensome alternative to solving the
identified regulatory problems and improving confidence in the
regulatory process and its oversight:
Recommendation 1 : The state should require departments
promulgating regulations or rules that impose costs on
individuals, businesses or government entities to perform an
economic assessment that takes into account costs that will be
incurred and benefits that will result.
Recommendation 2 : The state should require departments proposing
a major regulation (a regulation that would impose an annual cost
of $25 million or more) to perform a high-quality, rigorous
economic analysis.
Recommendation 3 : The state should create guidelines that set
out standards and the appropriate use of different types of
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economic assessment methodologies and data quality that can be
used to properly describe and analyze the economic impact of new
regulations. The use of these guidelines should be mandated by
the Administrative Procedure Act.
Recommendation 4 : To improve the quality of regulations
promulgated by California agencies, and to ensure the process of
developing regulations is consistent and transparent, the
Governor should form an Office of Economic and Regulatory
Analysis.
Recommendation 5 : The state should create a look-back mechanism
to determine whether regulations are still needed and whether
they work.
c) Small Business Studies and Hearings . Due to their importance
in the state economy, small business issues have been a
particular focus of the Author's Committee on Jobs, Economic
Development, and the Economy (JEDE) for the past two legislative
sessions. In March 2009, JEDE produced a state economic recovery
strategy that included several key recommendations on the
challenges facing small business, including how the state can
help small businesses access short-term capital, the importance
of regulatory reforms, and workforce development programs that
can more directly link to the needs of businesses.
Later in the year, JEDE held a number of hearings specifically to
receive testimony from small businesses and manufacturers about
their economic recovery needs. During these hearings small
business prioritized two areas: increasing access to capital and
reducing the costs associated with doing business in California,
including costs related to business permits, licenses and other
areas of regulatory compliance.
There are two major sources of data on the cost of regulatory
compliance on businesses, the federal Small Business
Administration and the state Office of Small Business Advocate
(OSBA). For the last 10 years, the federal Small Business
Administration has conducted a peer reviewed study that analyzes
the cost of federal government regulations on different sizes of
businesses. This research shows that small businesses continue
to bear a disproportionate share of the federal regulatory
burden. On a per employee basis for firms with less than 20
employees, it costs about $10,585, or 36%, more for small firms
to comply with federal regulations than their larger
counterparts.
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In the federal peer reviewed study, the most costly regulations for
small businesses were found to be environmental compliance where
small business costs were 364% higher than in large-size firms.
The regulatory category with the least disproportionate cost
impact between large and small businesses related to occupational
safety and health and homeland security.
The impact of California regulations on small businesses was
unknown until 2009, when the study required by AB 2330 (Arambula,
Chapter 232, Statutes of 2006) was published by the OSBA.
Although state agencies have been required to consider the costs
of adopted regulations on the California economy, in general, and
on small business specifically, state agencies have historically
failed to meaningfully undertake such an analysis, and instead,
have indicated that the need for the regulation was an overriding
state concern. This first state study found that total cost of
regulations to the State of California was $493 billion. Since
small businesses constitute 99.2 % of all employer businesses in
California and all of non-employer business, the regulatory cost,
according to the report, is shouldered substantially by small
business (averaging $134,123 per small business in 2007). AB
2330 also required that state agencies examine the cumulative
impact of regulations. Due, in part, to the difficult economic
times, state agencies have done a poor job in meeting this new
requirement when developing and amending regulations.
d) Federal Model for Regulatory Reforms. In 1976, the federal
government established the Office of Advocacy (FAO) within the
federal Small Business Administration. The purpose of the FAO is
to "protect, strengthen and effectively represent the nation's
small businesses within the federal government's legislative and
rule-making processes."
Among its duties, the FAO reviews federal regulations and makes
recommendations on how to reduce the burden on small firms and
maximize the benefits small businesses can receive from the
federal government. In 2010, the FAO issued 46 letters (up from
39 in 2009) to federal agencies, each posted on the FAO website
and accompanied by a fact sheet summarizing key points in the FAO
letter. The letters covered a range of rulemaking including, but
not limited to:
The Truth in Lending Proposed Rule, the U.S. Treasury;
National emission standards for hazardous air pollutants
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for major and area sources: industrial, commercial and
institutional boilers, Environmental Protection Agency; and,
Proposed changes to the consultation procedures rules at
the Department of Labor, Occupational Safety and Health
Administration.
Another activity of the FAO is the convening of issue specific
Small Business Advocacy Review Panels. Having a specific
government entity responsible for the review and comment on
federal regulations is particularly useful because the FAO can
provide more detailed comments and make specific and technical
recommendations to assist the rulemaking entity in modifying a
rule to lessen its impact on small businesses, without
necessarily reducing its policy objective.
While California has an OSBA, the state advocate does not
currently have the staff, or the directed statutory mission, to
formally comment on pending state regulations. AB 1037 proposes
to improve the quality of alternatives by requiring rulemaking
agencies to outreach to individuals and organization that can
help to develop alternatives that may be less burdensome. The
bill also directs agencies to consider a coordinated regulatory
scheme that builds upon other related regulations as a means for
reducing cumulative effect.
a) New Federal Flexibility Act. In January 2011, President Obama
signed Executive Order 13563 (EO) for the purpose of improving
regulation and regulatory review. Among other factors, the EO
stated that the federal "regulatory system must protect public
health, welfare, safety and our environment while promoting
economic growth, innovation, competitiveness, and job creation."
In furtherance of these objectives, the EO outlines the steps
federal agencies are required to take in adopting regulations,
including tailoring rules to impose the least burden on society,
while achieving policy objectives; developing rules through an
open exchange of perspectives from affected stakeholders in the
private sector (among others); and promoting the use of
retrospective analysis on impacts of previously adopted
regulations. The EO also states that federal regulators should
recognize that some industries face significant regulatory
requirements, some of which are redundant, inconsistent and
overlapping. Federal agencies are then directed to increase
coordination, simplification and harmonization of regulations
applied to the same industry when rulemaking.
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b) California Small Businesses. California's dominance in many
economic areas is based, in part, on the significant role small
businesses play in the state's $1.9 trillion economy. Businesses
with fewer than 100 employees comprise nearly 98% of all
businesses, and are responsible for employing more than 37% of
all workers in the state.
Small- and medium-sized businesses are crucial to the state's
international competitiveness and are an important means for
dispersing the positive economic impacts of trade within the
California economy. Of the over 57,461 companies that exported
goods from California in 2008, 96% were small- and medium-sized
enterprises (SME) with fewer than 500 employees. These SMEs
generated nearly half (44%) of California's exports in 2008.
while nationally, SMEs represented only 31% of total exports.
These numbers include the export of only goods and not services.
Small businesses function as economic engines, especially in
challenging economic times. During the nation's economic
downturn from 1999 to 2003, microenterprises (businesses with
fewer than five employees) created 318,183 new jobs or 77% of all
employment growth, while larger businesses with more than 50
employees lost over 444,000 jobs. From 2000 to 2001,
microenterprises created 62,731 jobs in the state, accounting for
nearly 64% of all new employment growth.
Unfortunately, during the current recession, small businesses have
not been able to play their traditional economic recovery role
due to, among other reasons, the double impact of losing their
access to capital resulting from the financial crisis and a drop
in consumption. Equifax reports that small business bankruptcies
were up 81% for the 12 months ending September 2009, as compared
to the same period in the previous year. Nationally, bankruptcy
filings were up 44% during the same term.
1.Related Legislation This Session. SB 1099 (Wright) revises the
dates that a regulation or order of repeal is effective, requires
filing a state agency's regulation with the Secretary of State (SOS)
to post the regulation on the Internet Web site and requires the
state agency to keep the regulation on its Internet Web site for at
least six months from the date the regulation is filed with the SOS.
Requires the OAL to provide on its Web site a list of, and a link
to, the full text of each regulation filed with the SOS that is
pending effectiveness. This measure is awaiting a hearing in the
Assembly Business, Professions and Consumer Protection Committee.
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AB 1982 (Gorell and Wagner) increased from 30 to 90 days the time
period that a regulation or an order of repeal becomes effective
after being filed with the Secretary of State (SOS). This bill
required the Office of Administrative Law (OAL) to submit all major
regulations packages to the Legislature for review. This measure
was held on the Assembly Appropriations suspense file.
AB 2091 (Berryhill) required state agencies proposing to adopt, amend
or repeal an administrative regulation requiring the use of a new or
emerging technology or equipment to determine if that technology is
available and effective for at least two years, as specified. This
measure failed passage in the Assembly Business, Professions and
Consumer Protection Committee.
2.Prior Related Legislation (2011). SB 617 (Calderon and Pavley,
Chapter 93, Statutes of 2011) requires each state agency adopting a
major regulation that is subject to Office of Administrative Law
(OAL) review to prepare a more extensive economic analysis for those
regulations defined as "major regulations" and requires state
agencies to monitor internal auditing and financial controls.
AB 29 (J. Perez, Chapter 475, Statutes of 2011) creates within the
Governor's Office the Office of Business and Economic Development
(or "Go Biz") as the lead agency to develop economic strategy and
marketing of California's inherent advantages for commerce. Also
creates a California Business Investment Services Program to assist
people and businesses who want to invest in, and expand, California
trade and industry.
AB 410 (Swanson, Chapter 495, Statutes of 2011) requires an agency,
upon a request from a person with a visual disability or other
disability for which effective communication is required to provide
that person a narrative description of the proposed regulation and
for an extended public comment period for that person. This bill is
pending on the Assembly Floor.
SB 353 (Blakeslee) created the Office of Economic and Regulatory
Analysis within the Department of Finance to review and approve
economic analyses of proposed regulations, exempts OAL actions from
the California Environmental Quality Act, set other economic impact
analysis requirements, and made other APA revisions. Held in Senate
Governmental Organization Committee.
SB 396 (Huff) required each agency to review each regulation adopted
prior to January 1, 2011, and develop into a report specified
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information for each regulation. The agency must consult with
parties affected by the regulation in developing the report and must
submit the report to the Legislature by January 1, 2013. Also
required each agency, by January 1, 2018, and at least every 5 years
thereafter, to review each regulation that is at least 20 years old
and has not been reviewed within the last 10 years. The review must
be developed into a report and submitted to the Legislature and each
agency must annually report to the Legislature that identifies the
regulations reviewed during the previous year and the associated
findings. This measure failed passage in the Senate Environmental
Quality Committee.
SB 400 (Dutton) expands economic impact analysis requirements and
requires OAL analysis of regulations under certain circumstances.
Failed passage in the Senate Environmental Quality Committee.
SB 401 (Fuller) required every regulation proposed by an agency on or
after January 1, 2012, to include a provision that repeals the
regulation in five years after OAL approval of the regulation. The
agency may amend the repeal date and extend that regulation another
five years if the agency conducted another regulatory review of the
regulation. This measure failed passage in the Senate Environmental
Quality Committee.
SB 560 (Wright) required an agency to submit an economic impact
statement and a small business economic impact statement, required
OAL to reject a proposed regulation in certain circumstances, and
made other APA related revisions. Failed passage in the Senate
Environmental Quality Committee.
SB 591 (Gaines) required OAL to review a proposed regulation for
burden and enacts the California Smart Regulation Act, requiring
agencies to reduce 33% of its regulations by December 31, 2013.
Failed passage in the Senate Governmental Organization Committee.
SB 639 (Cannella) required the California Environmental Protection
Agency (including boards, departments, and offices within the
Agency) and the Division of Occupational Safety and Health to
prepare an economic impact analysis prior to the adoption,
amendment, or repeal of a regulation. Held in the Senate
Environmental Quality Committee.
SB 643 (Correa) required the initial statement of reasons to include
the estimated cost of compliance and related assumptions used in
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determining that estimate if the proposed regulation impacts
housing. Held on the Assembly Appropriations suspense file.
SB 688 (Wright) required agencies to produce a cumulative statewide
cost impacts for affected business and prohibits a regulation from
taking effect until January 1, next, one year following the date the
regulation is filed with the Secretary of State if that estimate
exceeds $10 million. Failed passage in the Senate Environmental
Quality Committee.
AB 1307 (V. Manuel Perez) is similar to AB 1409 in providing changes
to reasonable alternatives considered by the state agency when
preparing their initial statement of reasons for regulations, but
also made more extensive changes in the regulatory requirements for
state agencies and increased thresholds for business activities of
small businesses and required agencies to reassess regulations five
years from adoption. This bill was held in the Assembly
Appropriations Committee.
AB 127 (Logue) required that a regulation or an order of repeal of a
regulation become effective on the following January 1 after a
90-day period following the date it is filed with the Secretary of
State (SOS), instead of 30 days after the date of filing, except
where already exempted. This bill was held in the Assembly
Business, Professions and Consumer Protection Committee.
AB 213 (Silva) required agencies to mail or electronically mail a
notice of prosed action to adopt, amend, or repeal a regulation to
local government agencies or local government agency representatives
that are likely to be affected by the proposed action. This bill
was held in the Assembly Appropriations Committee.
AB 273 (Valadao) required the Department of Finance (DOF) to adopt
and update instructions for inclusion in the State Administrative
Manual prescribing the methods that any agency shall use in making
certain determinations, estimates, statements, and findings relating
to the economic and cost impacts of a regulation on businesses and
private individuals. This bill was held in the Assembly
Appropriations Committee.
AB 338 (Wagner) increased the effective date for a regulation or an
order of repeal of a regulation from 30 days to 90 days and requires
the OAL to submit a copy of disapproved regulations to the
Legislature when certain criteria are met, as specified. This bill
was held in the Senate Environmental Quality Committee.
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AB 425 (Nestande) required each state entity that promulgates
regulations to review those regulations, and repeal or report to the
Legislature those identified as duplicative, archaic, or
inconsistent with statute or other regulations or deemed to inhibit
economic growth in the state by December 31, 2012. This bill was
held in the Assembly Appropriations Committee.
AB 429 (Knight) required an agency, for any regulation that it has
identified as having a gross cost of $15 million or more, an
increased cost of 5% or more over the cost of an existing
regulation, or both, to submit a copy of the rulemaking record for
that regulation to the appropriate policy committee in each house of
the Legislature when the agency submits the regulation to the OAL
for approval. This bill was held in the Assembly Business,
Professions and Consumer Protection Committee.
AB 530 (Smyth) required a state agency, when it files a notice of
proposed action with the OAL, to include technical, theoretical, and
empirical studies, reports, or similar documents, upon which the
agency relied in rejecting each reasonable alternative.
Additionally, this bill would prohibit an agency from rejecting a
reasonable alternative unless the statement of reasons includes at
least one of these documents. Further, this bill requires an agency
to determine whether a proposed regulation will have a significant
adverse economic impact by completing an economic impact statement,
using a form developed by DOF, as specified. This bill was held in
the Assembly Appropriations Committee.
AB 535 (Morrell) required a state agency to review and report to the
Legislature on regulations that it adopts or amends on and after
January 1, 2012, five years after adoption, as specified. This bill
was held in the Assembly Appropriations Committee.
AB 541 (Morrell) required the California Small Business Board, until
January 1, 2014, to review the state's licensing and permitting
regulations as they impact small businesses, with special attention
to the regulatory impact on small business startups, and would have
required each state agency to cooperate with the board in that
review. This bill was held in the Assembly Appropriations
Committee.
AB 586 (Garrick) required standing committees of the Legislature to
hold informational hearings regarding any proposed regulation with a
gross cost in excess of $10 million. This bill was held in the
Assembly Business, Professions and Consumer Protection Committee.
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AB 632 (Wagner) required state agencies to submit to the Legislature
a notice of a proposed action to adopt, amend or repeal a
regulation, if the notice identifies an economic impact, cost
impact, statement or finding related to the proposed regulation, as
specified. This bill was held in the Assembly Business, Professions
and Consumer Protection Committee.
AB 1037 (V. Manuel Perez) increased the threshold for business
activities under the definition of "small business" and requires
agencies to reassess regulations five years after adoption, as
specified. This bill was held in the Assembly Appropriations
Committee.
AB 1213 (Nielsen) authorized a chair or vice chair of a standing,
select, or joint committee of the Legislature to initiate a priority
review of any regulation, as specified. This bill was held in the
Assembly Business, Professions and Consumer Protection Committee.
AB 1322 (Bradford) adopted the regulatory philosophy and the
principles of regulation, as outlined in Presidential Executive
Order 12866, in order to achieve the same regulatory benefits within
the state, as specified. This bill was held in the Assembly
Appropriations Committee.
3.Arguments in Support. The National Federation of Independent
Business (NFIB) is in support of this measure and indicates that
this bill would remove statutory barriers that inhibit the full
consideration of the impacts of state rules and regulations on the
economy, including the small business sector. The NFIB argues that
time and again, regulations prove to be one of the most significant
inhibitors of any private sector business entity doing business in
California, and small business on average pay more than big
businesses to comply with these often complex, conflicting, and
onerous rules. "It is not surprise that our state's number one job
creators cite regulations as one of their primary reasons for
closing their doors, laying people off, and relocating to other more
business-friendly states." NFIB believes that the changes proposed
in this bill to the rule making process will send a message to
investors and employers that California is taking a meaningful step
in the direction of growing our economy and creating jobs by
requiring a robust economic analysis for major regulations. "This
bill supports more transparency in rulemaking, improves oversight of
agencies and encourages policymakers to implement the most
cost-effective ways to achieve societal goals."
The Sacramento Black Chamber of Commerce and the California Asian
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Pacific Chamber of Commerce (CAPCC) are also in support of this
measure. The CAPCC indicates that this bill would ask state
agencies to consider alternative small business compliance
mechanisms and believe this is an important component of what should
occur during the regulatory process. Additionally, the CAPCC argues
that this bill is consistent with actions taken at the federal level
by President Obama who issued an executive order to reduce the
regulatory burden on small businesses by directing federal agencies
to increase coordination, simplify and harmonize regulations.
The Regional Council of Rural Counties (RCRC) is in support and
indicates this measure would clarify a number of issues surrounding
the passage and implementation of new regulations, attempt to
minimize duplicative regulations in multiple agencies, and seeks to
ensure the adequate involvement of the Small Business Advocate and
the pubic in the regulatory process. The RCRC argues that county
governments are in the unique position of being both part of the
regulated community and part of the enforcement and implementation
structure of many state regulations. This gives our members a full
picture of how the high cost of regulatory compliance has affected
rural communities in recent years, particularly because rural areas
are often disproportionately affected by the financial burdens of
new regulations. The RCRC further argues that for many years
California's regulatory agencies have gotten far out in front of
federal requirements and those in other states, causing the loss of
many jobs because of the hardships to businesses trying to compete
in our current economic downturn.
4.Arguments in Opposition. The California Labor Federation (CLF) and
the State Building and Construction Trades Council of California
(SBCTCC) are opposed to this measure because it endorses a flawed
report and promotes regulatory reforms that could undermine worker
health and safety. The bill Ýin its current form] begins with
legislative findings based on the Hoover Commission report and this
report is so flawed and so controversial that it prompted an unusual
and stinging dissent from a fellow commissioner who pointed out that
"the report makes untested inferences and adopts recommendations and
could frustrate the policy judgments of elected officials, make
promulgating regulations potentially more costly and ultimately
result in failure to act the could adversely affect the lives,
health and savings of Californians." Both the CLF and the SBCTCC
also argue that this bill proposes changes to the regulatory process
that are deeply problematic for workers. It changes the assessment
of reasonable alternatives in a way that permits an agency to
substitute its own policy perspective for that of the Legislature.
In addition, the CLF and the SBCTCC argue that this bill would
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require a state agency to assess whether there is a similar
regulation that has been issued by another agency and "coordinate
and harmonize compliance activities in order to reduce the cost and
the regulatory burden on firms and individuals," and that this
could have the effect of an agency not deciding to enforce its own
rules regarding worker safety since there are other rules which
already exist but the other agency may actually have "less
protective" rules. Lastly, the CLF and the SBCTCC state that last
year SB 617 was passed which was a comprehensive regulatory reform
measure and that the Legislature should allow time to implement and
evaluate the dramatic changes enacted by SB 617 rather than enacting
additional proposals to restructure rulemaking.
The California Nurses Association (CNA) is also opposed to this
measure for similar reasons and argues that it endorses a flawed
report, undermines worker health and safety and creates additional
burdens in the rule making process. The CNA argues that the
recommendations of the Hoover Commission report proposed new hurdles
to agencies already burdened with significant budget cuts, layoffs
and hiring freezes and would slow down the regulatory process making
it more difficult to implement consumer protections, protections in
health and safety, environmental protections, and worker rights.
The CNA also argues against the changes to the reasonable
alternative assessment by the agency and the requirement that the
agency "coordinate and harmonize compliance activities in order to
reduce the cost and regulatory burden on firms and individuals."
The CNA believes that if such a requirement had been in place then
nurse to patient ratios would not have been considered because of
its "costs" to businesses. The benefits of nurse to patient ratios
in saving lives, improved healthcare quality, bringing nurses back
into the workforce and creating high paying jobs far out weights the
overall potential "costs." The CNA states that "for the past years,
regulatory reform has been a buzzword and dozens of bills have
attempted to rewrite the regulatory process. Some even claim that
it was regulation itself that caused this economic crisis. On the
contrary, it was deregulation - of the housing markets, financial
institutions, corporate accounting - that directly caused the
financial collapse and the national recession."
5.Recent Amendments to Address Concerns of Opposition. Recent
amendments further clarified the reasonable alternatives to be
considered by the state agency when preparing their initial
statement of reasons and in determining whether similar or related
regulations can be coordinated and harmonized in order to reduce
costs and regulatory burdens. They also eliminated the findings and
declarations regarding the Hoover Commission Report. It is unknown
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whether this addresses all of the concerns of the opponents to this
measure.
NOTE : Double-referral to Environmental Quality Committee, second.
SUPPORT AND OPPOSITION:
Support:
Coachella Valley Enterprise Zone
Calexico County Enterprise Zone
California Asian Pacific Chamber of Commerce
California Association of Micro Enterprise Opportunity
California Association for Local Economic Development
National Federation of Independent Business - California
Regional Council of Rural Counties
Sacramento Black Chamber of Commerce
Opposition:
California Labor Federation
California Nurses Association
State Building and Construction Trades Council of California
Consultant:Bill Gage