BILL ANALYSIS Ó SB 1099 SENATE COMMITTEE ON ENVIRONMENTAL QUALITY Senator S. Joseph Simitian, Chairman 2011-2012 Regular Session BILL NO: SB 1099 AUTHOR: Wright AMENDED: As introduced FISCAL: Yes HEARING DATE: April 23, 2012 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; the problem the agency intends to address; benefits anticipated from the regulatory action; 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)(3)). A standardized regulatory impact analysis is required for a major regulation proposed on or after January 1, 2013. (§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 SB 1099 Page 2 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 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; benefits of the regulation). Additional requirements are specified for major regulations adopted, amended, or repealed after November 13, 2013, and for economic impact analyses of regulations (§11346.3). OAL must return any regulation to the adopting agency under certain conditions, including failure to complete the economic impact assessment or failure to include the assessment in the rulemaking proceeding. (§11349.1). c) Requires the notice of proposed adoption, amendment, or repeal of a regulation to include certain matters (e.g., policy statement overview explaining the broad objectives of the regulation and specific anticipated benefits; an evaluation of whether the proposed regulation is inconsistent or incompatible with existing state regulations; 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; a statement of the results of the economic impact analysis). (§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). e) Requires a regulation that is required to be filed SB 1099 Page 3 with the Secretary of State to become effective 30 days after the date of filing unless: a) otherwise specifically provided by statute under which the regulation was adopted, in which case it is effective on that date; b) a later date is prescribed by the state agency or is part of the regulation; or c) the agency makes a written request to OAL demonstrating good cause for an earlier effective date, in which case OAL may prescribe an earlier date. (§11343.4). f) Requires OAL to compile, print, publish the adopted, amended, or repeal regulations, and to also make this available on the Internet. (§11344). 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 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: SB 1099 Page 4 1) Replaces a requirement that a regulation or order of repeal filed with the Secretary of State becomes effective 30 days after the date of filing (§11343.4(a)), with a requirement that the regulation or order of repeal instead becomes effective on either of the following: a) July 1 if the regulation or order of repeal is filed on December 1 to June 1. b) January 1 if the regulation or order of repeal is filed on June 2 to November 30. 2) Requires OAL to also make available on its Internet website a list of, and a link to the full text of, each regulation filed with the Secretary of State that is pending effectiveness (#1 above). COMMENTS : 1) Purpose of Bill . According to the author, "Every year businesses face a barrage of new regulations promulgated by numerous agencies. These regulations go into effect 30 days after being filed with the Secretary of State's office, and this happens year round. The rules cover a broad spectrum of issues and sometimes are the direct result of recently passed legislation. Other times agencies are addressing issues as they arise under authority granted in the distant past." The author notes that "SB 1099 establishes two days annually on which new regulations can take effect. It allows for the emergency implantation of new regulations for the protection of the public welfare. It also requires the Office of Administrative Law to maintain a current listing on its website of proposed regulations awaiting implementation." The author believes that this bill will "take one step to making its regulatory environment more business friendly." 2) Regulatory costs . Sponsors of legislation relating to the Administrative Procedure Act frequently refer to economic SB 1099 Page 5 impacts of regulations. However, economic analyses by certain interests have also been reviewed by the Legislative Analyst's Office (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 - "Cost of State Regulations on California Small Business Study" (September 2009) which concluded that the state's regulations of all types resulted in reduction in the gross state product of $493 billion, and "Cost of AB 32 on California Small Business" (June 2009) which concluded 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." Some legislators have raised concerns about economic analyses of requirements under the California Global Warming Solutions Act of 2006. 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. According to a September 2010 Public Policy Institute of California Report titled Business Relocation and Homegrown Jobs, 1992-2006 by Jed Kolko, "Relying on the most recent data, this analysis reconfirms that business relocation-the movement of business establishments from one state to another-accounts for a very small share of California's employment fluctuations. In fact, relocation accounts for a smaller share of job gains and losses in California than SB 1099 Page 6 in most other states, in part because most California businesses lie far from the border of neighboring states. This report expands on our earlier research with a closer examination of births, deaths, expansions, and contractions of businesses, assessing in particular how much of these gains and losses occur among locally headquartered businesses. Although regional economic development policies often focus on encouraging businesses headquartered elsewhere to relocate, open, or expand local operations, the strong majority of job gains and losses are 'homegrown' in that they take place in locally headquartered businesses." 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 1099 Page 7 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 ? In response to business concerns over certain regulations, others 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 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 1099 Page 8 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 the sponsor of SB 1099, "Businesses in California are begging for relief from the entanglement of rules that they must follow, both at the state level and locally. California is almost always ranked last as a place to start a business based on its regulatory environment. This measure will go a long way toward providing certainty to California's businesses by allowing them to predict and prepare for new operating rules being mandated by the government." Sponsors also note that this bill "will alleviate the pressure of regulations being enacted at differing times and will lead to better compliance." According to the California Nurses Association and the National Nurses Organizing Committee, "For the past few years, regulatory reform has been a buzzword and dozens of bills have attempted to rewrite the regulatory process. Some even claim it was regulation itself that caused this economic crisis. On the contrary, it was deregulation - of the housing markets, financial institutions, corporate SB 1099 Page 9 accounting - that directly caused the financial collapse and the national recession. The residents of California need our agencies to focus on promoting good jobs, enforcing state labor laws, protecting our air and water, and preventing workplace injuries. We do not want agency personnel to have their hands tied by a process that appears to be aimed at decreasing protections for our citizenry." 6) Legislature addresses Administrative Procedure Act issues in 2011 . SB 617 (Calderon and Pavley) Chapter 496, Statutes of 2011, made several revisions to the Administrative Procedure Act relating to reasonable alternatives to regulations, economic impact assessments, standardized regulatory impact analysis for a major regulation which must be reviewed by the Department of Finance, enumeration of anticipated benefits, determination of more cost effective alternatives, and various other matters. 7) Outstanding issues . As noted above, the Administrative Procedure Act, California Global Warming Solutions Act of 2006, other ARB requirements, and Department of Finance procedures currently contain numerous requirements relating to analysis of regulations. Is it appropriate to delay the operative date of a regulation, as provided under SB 1099, to allow for review by the Legislature and others, and thereby enable the Legislature to restrict an agency's authority to enact a regulation that assists in implementing legislation approved by the Legislature? Does SB 1099 simply allow those who participated in the regulatory process, or had an opportunity to participate in the regulatory process, another opportunity to restrict implementation of legislation? If the committee believes fixed periods are appropriate for regulations to become effective (which also extends the operative dates of those regulations), but are concerned about regulations becoming effective January 1and July 1 of each year, the author and sponsor believe that having SB 1099 Page 10 quarterly fixed dates (i.e., January 1, April 1, July 1, October 1) is also acceptable. 8) Related bills extending the effective date of regulations . SB 688 (Wright) of 2011 established an exception to the effective date of a regulation by prohibiting a regulation that has a cumulative statewide cost in excess of $10 million from taking effect until the January 1 that is one year following the date that the regulation is filed with the Secretary of State. SB 688 failed in the Senate Environmental Quality Committee May 4, 2011 (2-5). AB 338 (Wagner) extended the effective of a regulation from 30 days to 60 days after the regulation is filed with the Secretary of State. AB 338 failed passage in the Senate Environmental Quality Committee July 6, 2011 (3-4). SOURCE : National Federation of Independent Business - California SUPPORT : American Chemistry Council, American Council of Engineering Companies of California, Associated Builders and Contractors of California, Associated General Contractors, California Asian Pacific Chamber of Commerce, California Association of Bed & Breakfast Inns, California Association of Health Facilities, California Chamber of Commerce, California Construction and Industrial Materials Assoc., California Grocers Assoc., California Hotel & Lodging Association, California Independent Grocers Assoc., California Independent Oil Marketers Association, California League of Food Processors, California Manufacturers & Technology Assoc., California Professional Assoc. of Specialty Contractors, California Retailers Assoc., California Small Business Assoc., Chemistry Industry Council of California, Coalition for Adequate School Housing, Coalition of Small and Disabled Veteran Businesses, Consumer Specialty Products Assoc., Golden State Builders Exchanges, Small SB 1099 Page 11 Business California, United Contractors, Western Growers Association OPPOSITION : California Board of Accountancy, California Labor Federation - AFL-CIO, California Nurses Association, National Nurses Organizing Committee, Environment California, Sierra Club California