BILL ANALYSIS Ó SB 401 SENATE COMMITTEE ON ENVIRONMENTAL QUALITY Senator S. Joseph Simitian, Chairman 2011-2012 Regular Session BILL NO: SB 401 AUTHOR: Fuller AMENDED: As introduced FISCAL: Yes HEARING DATE: May 2, 2011 URGENCY: No CONSULTANT: Randy Pestor SUBJECT : ADMINISTRATIVE PROCEDURE ACT SUMMARY : Existing law : 1) Under the Administrative Procedure Act (APA) (Government Code §11340 et seq.), establishes rulemaking procedures and standards for state agencies. State regulations must also be adopted in compliance with regulations adopted by the Office of Administrative Law (OAL). The APA, among other things: a) Requires every agency to prepare and submit a specified notice of the proposed action and make certain information available to the public (e.g., draft regulation in "plain English"; statement of reasons for proposing the adoption, amendment, or repeal of a regulation; evidence to support a determination that the action will not have a significant adverse economic impact on business). (§11346.2). The statement of reasons must identify each technical, theoretical, and empirical report upon which the agency relies in proposing the regulation. (§11346.2(b)(2)). b) Requires state agencies in proposing to adopt, amend, or repeal any regulation to assess the potential for adverse economic impact on California business enterprises and individuals. In assessing the potential for adverse economic impact, state agencies must meet certain requirements (e.g., be based on adequate information concerning the need for, and consequences of, proposed action; consider industries affected SB 401 Page 2 including the ability to compete with businesses in other states). State agencies must also assess whether, and to what extent, regulations will affect certain matters (e.g., creation or elimination of jobs in the state, creation of new businesses or elimination of existing businesses in the state, expansion of businesses currently doing business in the state). (Government Code §11346.3). OAL must return any regulation to the adopting agency under certain conditions, including failure to comply with this requirement to assess potential adverse economic impacts. (§11349.1). c) Requires the notice of proposed adoption, amendment, or repeal of a regulation to include certain matters (e.g., include specified information if there may be a significant, statewide adverse economic impact; description of all cost impacts to be incurred by a private person or business; statement of the results of the economic impact assessment). (§11346.5). d) Requires OAL to either approve a submitted regulation and transmit it to the Secretary of State for filing, or disapprove it, within 30 working days. If OAL fails to act within 30 days, the regulation is deemed approved and OAL must transmit it to the Secretary of State. (§11349.3). 2) Provides the California Air Resources Board (ARB) with primary responsibility for control of mobile source air pollution, including adoption of rules for reducing vehicle emissions and the specification of vehicular fuel composition. (Health and Safety Code §39000 et seq. and §39500 et seq.). When making information available to the public under the APA relating to studies and reports that ARB relied upon, ARB must also make information public that is related to, but not limited to, air emissions, public health impacts, and economic impacts before the comment period for any regulation proposed for adoption by the ARB. (§39601.5). 3) Requires each board, department, and office within the SB 401 Page 3 California Environmental Protection Agency, before adopting any major regulation, to evaluate alternatives and consider whether there is a less costly alternative or combination of alternatives that would be equally effective in achieving increments of environmental protection in a manner that ensures full compliance with statutory mandates within the same amount of time as the proposed regulatory requirements. Under this provision, "major regulation" means any regulation that will have an economic impact on the state's business enterprises in an amount exceeding $10 million. (Public Resources Code §57005). This bill , under the APA: 1) Requires 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: a) reviews the regulation scheduled for repeal within the next year, b) determines there is a continued need for the regulation, c) conducts a noticed public hearing that provides for public participation and consideration of public comments about continued need for the regulation, and d) submits the amended regulation to OAL for purposes of filing the amended regulation with the Secretary of State. Certain provisions of the APA are not applicable if the regulation is amended to only extend the repeal date. 2) Requires the regulation to be repealed on the repeal date and be otherwise inoperative if the regulation is not amended prior to the repeal date as provided above. 3) Provides that an expired regulation can be readopted if the agency complies with the APA. 4) Requires OAL to return any regulation to the adopting agency if the regulation does not include provisions for repeal of the regulation. COMMENTS : SB 401 Page 4 1) Purpose of Bill . According to the author, "Businesses that have left California, contemplated leaving California, or dismissed ever relocating to California often cite California's regulatory climate as the primary reason for their decision. California is currently rated the 48th worst state to do business in by CEO Executive Magazine, and job gains in Texas and Arizona far outpace those of California as we look for economic recovery." The author believes that "With over 200 State regulatory agencies now promulgating new regulations, the California Code of Regulations has grown to voluminous proportions. It is only reasonable that we build in a way for these regulations to have a minimal review following a period of their enactment. In other words, the agencies should be required on a periodic basis to justify the continued need for the rules they promulgate." 2) Response to concerns over economic analysis . Some legislators raise concerns about analyses of requirements and regulations. For example, SB 295 (Dutton) of 2009 was an effort by the author to respond to the LAO's recommendations by requiring additional ARB analysis of the AB 32 scoping plan. SB 295 failed in the Environmental Quality Committee May 20, 2009 (3-4). ARB released an updated economic analysis of the scoping plan March 24, 2010. According to the ARB, the analysis shows fuel expenditures drop by 4.9% in 2020 with a total cost savings of $3.8 billion in reduced consumption of gasoline and diesel as a result of increased investment in energy efficiency and cleaner fuels, 2 million jobs will be created by 2020 which is consistent with the business-as-usual case, the economy will continue to grow at a rate of 2.4% per year, and divergence from the AB 32 Scoping Plan (i.e., limiting requirements for oil companies or utilities) increases costs and shifts these costs to Californians and small businesses. Economic analyses by other interests have also been reviewed by the LAO. For example, Assemblymember DeLeon requested the LAO to analyze the methodologies, data, and reliability of the findings of two studies by Varshney and Associates - SB 401 Page 5 "Cost of State Regulations on California Small Business Study" (September 2009) concluding that the state's regulations of all types resulted in reduction in the gross state product of $493 billion (referenced by the author of SB 396), and "Cost of AB 32 on California Small Business" (June 2009) concluding that AB 32 will cost the state's small business $183 billion in lost output each year. The LAO concluded that "Both of the two studies you have asked us to review have major problems involving both data, methodology, and analysis. As a result of these shortcomings, we believe that their principal findings are unreliable." 3) Costs of inaction . While some parties may disagree over various economic studies, delays in acting on certain matters, such as climate change, can also result in costs. A recent Climate Action Team (CAT) draft assessment on climate change provides analyses on climate change impacts relating to various matters, such as warming trends, precipitation, sea-level rise, agriculture, forestry, water resources, and public health. For example, regarding sea-level rise the report notes that "Sea level measured over several decades at California tide gage stations has risen at a rate of about 17 cm (7 inches) per century. The sea-level rise projections in the 2008 Impacts Assessment indicate that the rate and total sea-level rise in future decades may increase substantially above the recent historical rates. The 2008 estimates represent a significant departure from those in the 2006 CAT report." According to the report, "By 2050, sea-level rise could range from 30 to 45 cm (11 to 18 inches) higher than in 2000, and by 2100, sea-level rise could be 60 to 140 cm (23 to 55 inches) higher than in 2000. As sea level rises, there will be an increased rate of extreme high sea-level events, which can occur when high tides coincide with winter storms and their associated high wind wave and beach run-up conditions. The draft CAT report notes that "analysis reveals that $100 billion of property and 475,000 people are located in Bay and open coast areas vulnerable to inundation in 2099. However, risk is not evenly distributed among the counties in the San Francisco Bay, SB 401 Page 6 with San Mateo and Alameda counties having 40 percent of assets at risk, the greatest amount in the Bay Area. Marin, Santa Clara, and San Francisco counties are also exposed to a high degree of risk; exposure to risk in these counties is higher than in all other counties along the Pacific coast, with the exception of Orange County. Exposure to risk in Sonoma and Napa counties is relatively modest. While all sectors are vulnerable to the impacts from sea-level rise, 70 percent of all assets at risk are residential, followed by the commercial sector with 20 percent. In addition to buildings and their contents, a wide range of other critical infrastructure, such as roads, hospitals, schools, emergency facilities, water and wastewater treatment plants, and others will also be at increased risk of flooding. Continued development in vulnerable areas would put additional assets and people at risk." 4) What about health impacts and costs ? The author of SB 401 cites costs to businesses relating to regulations. Others, however, also note the effect on California residents and their health from poor air quality and costs relating to those effects. According to ARB regarding regulations requirements on heavy-duty diesel-fueled vehicles for particulate matter (PM) emissions and nitrous oxides (NOx) emissions, for example, "The regulation is projected to provide significant diesel PM and NOx emissions reductions that would have a substantial positive air quality impact throughout California. PM emissions are projected to be reduced by about 13 tons per day in 2014 and 3.5 tons per day in 2023. NOx emissions are projected to be reduced by about 124 tons per day and 98 tons per day, for 2014 and 2023, respectively. These reductions are critical towards meeting federal clean air standards. The regulation would also reduce diesel PM emissions by the maximum level achievable from inuse on-road diesel vehicles. Staff estimates that approximately 9,400 premature deaths statewide would be avoided by the year 2025 from the implementation of the regulation, and would provide associated health benefits of $48 to $69 billion." ARB also notes that "The cost impact of the regulation is not SB 401 Page 7 expected to be significant. While it is expected that most fleets will pass through these costs to their customers, this is expected to result in a negligible impact on consumers, equating to about a few cent increase for a pair of shoes, less than one one hundredth of a cent increase per pound of produce, or an increase of from $3 to $10 for a new car." According to a recent RAND Corporation report, "Meeting federal clean air standards would have prevented an estimated 29,808 hospital admissions and ER visits throughout California over 2005-2007." The report notes that Medicare spent $103,600,000 on air pollution-related hospital care during 2005-2007, Medi-Cal spent $27,299,199, and private health insurers spent about $55,879,780 on hospital care. According to the RAND report, "These results suggest that the stakeholders of public programs may benefit substantially from meeting federal clean air standards. Private health insurers and employers (who contribute to employee health insurance premiums) may also have sizable stakes in improved air quality." 5) Support and opposition concerns . According to supporters of SB 396, "California prides itself on being innovative and forward thinking - the state wants to lead the nation on environmental and social policies. While achieving those goals, we should also adopt bold and creative approaches to maintain a favorable regulatory climate." According to the California Nurses Association and National Nurses Organizing Committee in opposing SB 396, "Proponents of these bills suggest that regulations are to blame for the dismal economy. On the contrary, it was deregulation - of the housing markets, financial institutions, corporate accounting - that directly caused the financial collapse and the national recession. Reviving our economy means creating jobs, not dismantling worker, consumer, and patient protections." 6) Related Senate legislation . SB 353 (Blakeslee) creates the Office of Economic and SB 401 Page 8 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, sets other economic impact analysis requirements, and makes other APA revisions. SB 353 is with the Senate Governmental Organization Committee. SB 357 (Dutton) requires an agency to estimate the cost to the state in revenues that are lost as a result of a regulation that would make equipment obsolete. SB 357 was approved by the Senate Governmental Organization Committee April 26, 2011 (8-2), and will be heard by the Senate Environmental Quality Committee May 2, 2011. SB 366 (Calderon, Pavley) sets procedures for review of state agency regulations and enacts a streamline permit review process. SB 366, an urgency measure, will be heard by the Senate Governmental Organization Committee May 10, 2011. SB 396 (Huff) requires each state agency to review each regulation adopted before January 1, 2011, and report to the Legislature on certain matters relating to those regulations by January 1, 2013. Each agency must also report on each regulation that is at least 20 years old by January 1, 2018, and at least every five years thereafter. SB 396 was approved by the Senate Governmental Organization Committee April 12, 2011 (8-4), and will be heard by the Senate Environmental Quality Committee May 2, 2011. SB 400 (Dutton) expands economic impact analysis requirements and requires OAL analysis of regulations under certain circumstances. SB 400 was approved by the Senate Governmental Organization Committee April 12, 2011 (7-5), and will be heard by the Senate Environmental Quality Committee May 2, 2011. SB 553 (Fuller) requires a regulation or regulation repeal having an adverse economic impact of at least $10 million to become effective 180 days after the regulation of repeal is filed with the Secretary of State. SB 553 is with the Senate Governmental Organization Committee. SB 401 Page 9 SB 560 (Wright) requires an agency to submit an economic impact statement and a small business economic impact statement, requires OAL to reject a proposed regulation in certain circumstances, and makes other APA related revisions. SB 560 was approved by the Senate Governmental Organization Committee April 26, 2011 (10-1), and is with Senate Rules Committee. SB 591 (Gaines) requires 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. SB 591 failed in the Senate Governmental Organization Committee April 26, 2011 (5-6). SB 639 (Cannella) requires 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. SB 639 will be heard by the Senate Environmental Quality Committee May 2, 2011. SB 643 (Correa) requires the initial statement of reasons to include the estimated cost of compliance and related assumptions used in determining that estimate if the proposed regulation impacts housing. SB 643 was approved by the Senate Governmental Organization Committee March 22, 2011 (12-0), and will be heard by the Senate Environmental Quality Committee May 2, 2011. SB 688 (Wright) requires 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. SB 688 was approved by the Senate Governmental Organization Committee April 26, 2011 (8-1), and is with Senate Rules Committee. 7) Outstanding issues . As noted above, the Administrative Procedure Act, California Global Warming Solutions Act of 2006, other ARB requirements, and Department of Finance SB 401 Page 10 procedures currently contain numerous requirements relating to analysis of regulations. Is additional review of regulations necessary? What sources of funds are available to cover agency costs in implementing this bill? If the committee believes additional analysis and review is necessary, as required by SB 401, should state agencies also be required to identify, for example: a) benefits to the regulation (including environmental and health benefits); c) reduced costs to the public by the regulation; and d) any cost shifts from large businesses to small business, and from businesses to the public by changing the regulation? SOURCE : Senator Fuller SUPPORT : American Chemistry Council, American Council of Engineering Companies of California, Association of California Water Agencies, Associated Builders and Contractors of California, California Association of Bed and Breakfast Inns, California Business Properties Association, California Chapter of the American Fence Association, California Construction and Industrial Materials Association, California Fence Contractors' Association, California Hotel & Lodging Association, California Manufacturers & Technology Association, California Restaurant Association, California Retailers Association, Consumer Specialty Products Association, Engineering and Utility Contractors Association, Engineering Contractors' Association, Flasher Barricade Association, Golden State Builders Exchanges, Marin Builders' Association OPPOSITION : American Lung Association, Breathe California, California Conference Board of the Amalgamated Transit Union, California Conference of Machinists, California Labor Federation - SB 401 Page 11 AFL-CIO, California Nurses Association, California Official Court Reporters Association, California Teamsters Public Affairs Council, Engineers and Scientists of California, Coalition for Clean Air, Health Access California, International Longshore and Warehouse Union, National Nurses Organizing Committee, Professional and Technical Engineers (Local 21), Sierra Club California, The Trust for Public Land, TransForm, UNITE HERE!, United Food and Commercial Workers (Western States Conference), Utility Workers Union of America (Local 132)