BILL ANALYSIS Ó
Bill No: SB
617
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2011-2012 Regular Session
Bill Analysis
SB 617 Author: Calderon and Pavley
As Amended: September 8, 2011
Hearing Date: May 10, 2011
Consultant: Paul Donahue
SUBJECT : State government: Administrative regulations and
financial accountability
SUMMARY : Requires each state agency adopting a major
regulation that is subject to Office of Administrative Law
(OAL) review to prepare an economic analysis and requires
state agencies to monitor internal auditing and financial
controls.
Existing law :
1) The Administrative Procedure Act establishes rulemaking
procedures and standards for the adoption, amendment, or
repeal of regulations by state agencies charged with the
enforcement of state laws, and for the review of those
regulatory actions by the Office of Administrative Law
(OAL). (Govt. Code § 11340 et seq.)
2) Requires state agencies to determine if a proposed
regulation has the potential for significant, statewide
adverse economic impact directly affecting California
business enterprises.
3) Provides that state agency heads are responsible for the
establishment and maintenance of a system or systems of
internal accounting and administrative control within their
agencies, under the Financial Integrity and State Manager's
Accountability Act (FISMA) of 1983
This bill :
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1) Defines "major regulation" to mean any proposed
adoption, amendment, or repeal of a regulation that is
subject to review by the OAL which will have an economic
impact on California business enterprises and individuals
in an amount exceeding $50 million, as estimated by the
agency.
2) Requires agencies, when submitting to OAL an Initial
Statement of Reasons for a proposed regulation to identify
the problem the agency intends to address, and enumerate
the benefits anticipated from the regulatory action,
including the benefits or goals provided in the authorizing
statute.
The benefits may include non-monetary benefits such as the
(a) protection of public health and safety; (b) worker
safety; (c) the environment; (d) the prevention of
discrimination; (e) the promotion of fairness or social
equity; and (f) the increase in openness and transparency
in business and government, among other things.
3) On and after November 1, 2013, requires the agency to
include in its Initial Statement of Reasons for a proposed
major regulation a standardized regulation impact
assessment that is prepared in a manner prescribed by the
Department of Finance (DOF).<1> The assessment shall
address:
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,
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<1> The University of California, the Hastings College of
Law, and the Fair Political Practices Commission are exempt
from the requirements to prepare this assessment.
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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.<2>
4) Requires DOF to comment on the standardized regulatory
impact assessment within 30 days of receipt. State
agencies may update their analysis to reflect these
comments, as specified.
5) Requires DOF, in consultation with OAL and other state
agencies, to adopt regulations for conducting the
standardized regulatory impact assessments for major
regulations. The DOF regulations for these assessments
shall assist agencies in specifying the methodologies for:
a) Assessing and determining the benefits and costs of
the proposed regulation, expressed in monetary terms
to the extent feasible and appropriate;
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 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;
----------------------
<2> The bill authorizes state agencies, for the purpose of
completing the assessment, to derive information from
existing state, federal or academic publications.
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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.
6) Specifies that reasonable alternatives included in a
Statement of Reasons for a regulation include those which
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.
7) Requires an agency proposing to adopt 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.
8) 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.
9) Specifies that regulatory impact analyses shall inform
the agencies and the public of the economic consequences of
regulatory choices, not reassess statutory policy.
10) 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.
11) Requires state agencies proposing to adopt, amend, or
repeal a major regulation on or after January 1, 2013, and
that have prepared a standardized regulatory impact
assessment, to submit that assessment to DOF upon
completion.
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12) 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.
13) Requires state agencies to provide DOF and OAL ready
access to their records and full information and reasonable
assistance in any matter requested for purposes of
developing the regulations required by this bill. This
requirement shall not be construed to authorize an agency
to provide access to records required by statute to be kept
confidential.
14) 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
January 1, 2013.
15) Requires the notice of proposed adoption, amendment, or
repeal of a regulation submitted by the proposing agency to
OAL to also include:
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 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
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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.
16) Requires agencies when submitting to OAL a final
statement of reasons with the adopted regulation, to also
include:
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.
17) Requires agencies to include the economic impact
assessment or standardized regulatory impact analysis in
the file the agency maintains for each rulemaking.
18) Defines "noncompliance" to mean that the agency failed
to complete the economic impact assessment or standardized
regulatory impact analysis, or failed to include the
assessment or analysis in the file of the rulemaking
proceeding, as specified.
19) Requires OAL to return a regulation to the adopting
agency if the proposed regulation conflicts with an
existing regulation and the agency has not identified the
manner in which the conflict may be resolved or the agency
has not made the alternatives determination, as specified.
20) Provides that, notwithstanding any other law, the
return of a regulation to the adopting agency by OAL is the
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exclusive remedy for a failure to comply with certain
requirements, as specified.
21) Requires DOF and OAL to review the standardized
regulatory impact analyses for adherence to the regulations
adopted by DOF, as specified, from time to time.
22) Requires DOF 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, as specified, by January 1, 2014.
Allows DOF to include any recommendations from OAL for
actions the Legislature might consider for improving state
agency performance.
23) Authorizes OAL to notify the Legislature of
noncompliance by a state agency with the adopted
regulations, in any manner or form, as specified.
24) Provides that state agency heads are responsible for
the establishment and maintenance of effective,
independent, and objective ongoing monitoring of the
internal accounting and administrative controls within
their agencies.
25) Provides that monitoring systems and processes,
included with existing elements of a satisfactory system of
internal accounting and administrative control, are vital
to:
a) Ensuring that routine application of internal
controls do not diminish their efficacy over time;
b) Providing timely notice and opportunity for
correction of emerging weaknesses with established
internal controls;
c) Facilitating public resources and other decisions
by ensuring availability of accurate and reliable
information; and,
d) Facilitating production of timely and accurate
financial reports.
26) Requires state agency heads to implement systems and
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processes to ensure the independence and objectivity of the
monitoring of internal accounting and administrative
control as an ongoing activity, as specified.
27) Includes the Controller, the Treasurer, and the
Attorney General to the list of recipients of a biennial
report regarding the adequacy of each state agency's
systems of internal accounting, administrative control, and
monitory practices, as specified.
28) Requires the director of DOF, in consultation with the
State Auditor and the Controller, to establish, and modify
as necessary, a general framework of recommended practices
to guide state agencies in conducting active, ongoing
monitoring of processes for internal accounting and
administrative control.
COMMENTS :
1) Purpose of the bill : According to the author, this bill
"will require agencies to review regulations with an
estimated cost of more than $50 million and mandates that
the least burdensome, most cost-efficient method of
implementation be adopted to lessen the burden on affected
businesses." The author states that, as whole, the bill is
a straightforward package of process reforms that have the
goal of creating a revamped regulatory environment that
allows parties affected by regulations new avenues to bring
forward concerns about the economic effect of future major
regulations.
2) Major regulations : A regulation must have an economic
impact on California business to the tune of $50 million in
order to trigger the requirement to prepare a standardized
regulatory impact assessment. The adopting agency gets to
determine whether or not the economic impact exceeds $50
million, according to unspecified criteria. It is unclear
what standards, if any, would be employed by the state
agency in making this determination. For example, an
agency could determine the costs on an annual or
cumulative, long term basis.
3) Standardized regulatory impact analysis : The bill
requires DOF to adopt regulations for use by state agencies
in conducting the regulatory impact analysis, which must be
prepared whenever a "major" regulation is proposed to be
adopted.
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The DOF regulations are required to assist state agencies
in determining the monetary costs and benefits, but also
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 equity, the increase in the
openness and transparency of business and government and
other non-monetary benefits consistent with the statutory
policy or other provisions of law.
It would seem that the recently added<3> requirement that
the DOF regulations governing preparation of the regulatory
impact analysis by agencies consider these non-monetary
benefits of the proposed "major" regulation injects a
measure of ambiguity and vagueness into the agency
determination of economic impact of these major
regulations.
4) Exclusive remedy : This bill would enact a new provision
to the Administrative Procedures Act, providing that,
notwithstanding any other law, return of a regulation to
the adopting agency by OAL is the exclusive remedy for a
failure by a state agency to comply with the requirements
for a standardized regulatory impact for major regulations,
or for non-compliance with what must be provided by the
adopting agency in its notice of proposed adoption,
amendment, or repeal of a regulation.
5) Senate Rule 29.10 (d) : This bill is referred to this
Committee for review pursuant to Senate Rule 20.10 (d),
which requires that any bill amended in the Assembly in a
manner that rewrites the bill shall be referred to policy
committee for a hearing.
Upon re-referral of the bill, the Committee may either (1)
hold the bill or (2) return the bill to the Senate Floor
for consideration of the bill as it was amended in the
Assembly. It should be noted that amendments are not
permitted under this rule.
SUPPORT:
California Asian Pacific Chamber of Commerce
California Association of Bed & Breakfast Inns
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<3> This bill was amended in Assembly on September 8, 2011.
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California Building Industry Association
California Business Properties Association
California Chamber of Commerce
California Construction and Industrial Materials
Association
California Farm Bureau Federation
California Grocers Association
California Hotel & Lodging Association
California Independent Oil Marketers Association
California League of Food Processors
California Manufacturers & Technology Association
California New Car Dealers Association
California Professional Association of Specialty
Contractors
California Restaurant Association
California Retailers Association
Chemical Industry Council of California
Consumer Specialty Products Association
Industrial Environmental Association
International Fragrance Association - North America
Los Angeles Chamber of Commerce
National Federation of Independent Business - California
Pacific Merchant Shipping Association
Southern California Edison
Western States Petroleum Association
OPPOSE:
None on file
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