BILL ANALYSIS Ó
AB 866
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Date of Hearing: April 21, 2015
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE ECONOMY
Eduardo Garcia, Chair
AB 866
(Eduardo Garcia) - As Amended April 13, 2015
SUBJECT: Economic development: small business
SUMMARY: Expands the duties of the Small Business Advocate to include
assisting state rulemaking agencies in identifying the aggregate
number and size of business which may be affected by a proposed new or
amended regulation. To the extent information is available, the SBA
will also identify related small business stakeholder groups which the
rulemaking agency may include when disseminating public information
about the proposed new rule or amendment.
The bill also requires a state agency that develops a small business
compliance guide in partnership with federal agency, under the federal
Small Business Regulatory Fairness Act of 1996 (Public Law 104-121),
to notify the Office of the Small Business Advocate within 45 days
after the guide becomes available to the public. The notice is also
required to include information on how a small business or nonprofit
organization can obtain a copy of the guide.
EXISTING LAW:
1)Finds and declares that it is in the public interest to aid,
counsel, assist, and protect the interests of small business
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concerns in order to maintain a healthy state economy.
2)Finds and declares that the complexity and lack of clarity in many
regulations put small businesses, which do not have the resources to
hire experts to assist them, at a distinct disadvantage.
3)Establishes the Governor's Office of Business and Economic
Development (GO-Biz) to serve the Governor as the lead entity for
economic strategy and the marketing of California on issues relating
to business development, private sector investment, and economic
growth. In meeting its mission, GO-Biz is authorized to make
recommendations to the Governor and the Legislature regarding new
state policies, programs, and actions, or amendments to existing
programs, in order to advance statewide economic goals, respond to
emerging economic problems, and to ensure that all state policies
and programs conform to the adopted state economic and business
development goals.
4)Establishes the Office of the Small Business Advocate to serve,
among other things, as the principal advocate in the state on behalf
of small businesses, including, but not limited to, advisory
participation in the consideration of all legislation and
administrative regulations that affect small businesses.
5)Establishes basic minimum procedural requirements for the adoption,
amendment, or repeal of administrative regulations, including
assessing the potential adverse impact of an action on California
businesses and individuals with the purpose of avoiding the
imposition of unreasonable and unnecessary regulations, reporting,
recordkeeping, or compliance requirements. Among other
requirements, an agency is required to:
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a) Base decisions on adequate information;
b) Consider the impact of a proposed rule on an industry's
ability to compete with businesses in other states; and
c) Assess its impact on the creation or elimination of jobs and
new and expanding businesses.
FISCAL EFFECT: Unknown
POLICY ISSUE FRAME:
Although the state has a vigorous public process that is designed to
allow the rulemaking agency to fully consider the comments,
suggestions, and economic impacts of proposed regulations on all
business - especially small businesses - state agencies are often
unable to clearly identify which types of businesses are potentially
affected by a proposed rule and assess the cost and complexity of the
proposed implementation model on varying size businesses. An intrinsic
conflict to California's rulemaking process is that those businesses
that may be most affected have the least ability to monitor the broad
range of state rulemaking entities, recommend appropriate alternative
implementation models or engage meaningfully in the often complex and
highly technical rulemaking proceedings.
Given that nearly 3 million firms in California have no employees and
90% of firms with employees have less than 20, having implementation
methods that are appropriate for small businesses in terms of time,
money, and expertise are important state's economic growth.
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Without an easy to access and respected source for their own data or a
realistic method for small businesses to participate in the regulatory
process, it is difficult for state agencies to adopt rules that are
considerate of needs of small businesses while, still meeting the
intended policy standards.
This measure proposes that the Small Business Advocate assist state
agencies in their rule making process by providing reliable
information on the number and size of businesses within the industry
sector which could be impacted by the regulation. Further, the Small
Business Advocate would assist the rulemaking agency in identifying
key small business stakeholder groups, which should be included in the
public dissemination of information.
The Comment section of the analysis explores these issues more fully
and includes information on California small businesses, studies on
the cost of regulations, legislative attempts to reform state
rulemaking practices, small business advocacy, and summary of prior
legislation.
COMMENTS:
1)California's Small Business Economy: Small businesses form the core
of California's $2.2 trillion economy. Research shows that net new
job creation is strongest among businesses with less than 20
employees, that small businesses have historically led the state's
local and regional economies out of recessions, and that these
businesses are essential to the state's global competitiveness by
meeting niche industry needs.
Businesses with no employees make up the single largest component of
businesses in California, 2.9 million out of an estimated 3.6
million firms in 2012, representing over $149 billion in revenues
with the highest number of businesses in the professional,
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scientific, and technical services industry sector. As these
non-employer businesses grow, they continue to serve as an important
component of California's dynamic economy.
Excluding non-employer firms, businesses with less than 20 employees
comprise nearly 90% of all businesses and employ approximately 18%
of all workers. Businesses with less than 100 employees represent
97% of all businesses and employ 36% of the workforce. These
non-employer and small employer firms create jobs, generate taxes,
and revitalize communities.
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Reflective of their important role, the JEDE Committee Members
regularly hear testimony regarding the challenges small businesses
face in meeting the implementation requirements of state, local, and
federal regulations. While opponents of regulatory reform accuse
small businesses of trying to avert their responsibilities,
businesses that have testified before the Committee have continually
stated that their goal is to achieve a regulatory environment that
encourages small business development, while still maintaining
public health and safety standards. Consistent with these
recommendations, AB 866 does not call for the lowering of any
regulatory standard, and instead, proposes an expert source for
small business data and stakeholder groups within the existing
regulatory framework.
2)Cost of Regulations on Business: There are two major sources of
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data on the cost of regulatory compliance on businesses, the federal
SBA and the Office of the Small Business Advocate (OSBA). For the
last 10 years, the federal SBA has conducted a peer reviewed study
that analyzes the cost of federal government regulations on
different size businesses. This research shows that small
businesses continue to bear a disproportionate share of the federal
regulatory burden. On a per employee basis, it costs about $2,400,
or 45% more, for small firms to comply with federal regulations than
their larger counterparts.
The first study on the impact of California regulations on small
businesses was released by the OSBA in 2009. This first
in-the-nation study found that the total cost of regulations to
small businesses averaged about $134,000 per business in 2007. Of
course, no one would advocate that there should be no regulations in
the state. The report, however, importantly identifies that the
cost of regulations can provide a significant cost to the everyday
operations of California businesses and should therefore be a
consideration among the state's economic development policies.
Regulatory costs are driven by a number of factors including
multiple definitions of small business in state and federal law, the
lack of e-commerce solutions to address outdated paperwork
requirements, procurement requirements that favor larger size
bidders, and the lack of technical assistance to alleviate such
obstacles that inhibit small business success.
3)Different Approaches to Regulatory Reform: In general, the
Legislature's engagement on regulatory reforms has taken two basic
approaches. One set of policies have addressed specific regulatory
challenges on a case-by-case basis. The other approach makes
systemic change to the way in which rules are adopted, often adding
a supplemental more targeted review pre- or post-adoption.
Recommendations for systemic change have included:
a) Dynamic Fiscal Analysis in Appropriations Committee: These
bills required an analysis of bills before the Legislature on
their impact on business and the economy. Currently, the
Legislature's fiscal committee reviews focus on the bill's direct
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impact on state funds, and most specifically on the General Fund.
The fiscal committee's analysis is not intended to include
legislations' potential economic impact on the state.
b) Substantive Administrative Review: These bills shifted the
review of the Office of Administrative Law from a procedural
review of the regulation package to a substantive review of its
impact on business and the economy, including the sufficiency of
the assessment of alternatives. Alternatively, legislation has
suggested that another state entity, such as the State Auditor or
Legislative Analyst's Office, could be designated to undertake an
expanded review of proposed regulations.
c) Enhanced Analysis of Alternatives: These bills required a
more meaningful consideration of alternative implementation
models, which could lower costs or reduce the implementation
burden on small businesses.
d) Post Implementation Analysis: These bills required a review
of a regulation's impact five-years after its implementation.
Alternatively, legislation has been suggested that all
regulations have a sunset date, which would allow for full review
once the actual impacts could be identified.
Until now, the first approach has been the most successful, although
by its nature it has had very limited overall impact on California's
regulatory business climate. Due to their potential implementation
costs, a majority of the bills advancing the systemic approach to
regulatory reform have failed to move from the fiscal committees -
as illustrated in the comment on related legislation.
The most significant systemic change in recent years was approved in
SB 617 (Calderon), Chapter 496, Statutes of 2011, which required an
enhanced economic impact analysis for regulations anticipated to
have an impact of $50 million or more. The SB 617 process follows
the federal regulatory model (described below), however, it should
be noted that the state process is silent as to the assessment of
costs based on size of business.
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The Legislature heard several bills to refine the SB 617 process in
2013-14 session including AB 2723 (Medina), which would have
required rulemaking entities to consider the specific impact of
major regulations on sole proprietorships, and AB 1711 (Cooley)
which moved up the economic impact assessment to the initial
statement of reasons for all regulations. Ultimately, the Governor
signed AB 1711 (Cooley), Chapter 779, Statutes of 2014 and vetoed AB
2723 (veto message below).
5)Federal and State Small Business Advocacy: In 1976, the federal
government established the Federal Office of Advocacy (FOA) within
the Small Business Administration for the purpose of protecting and
effectively representing the nation's small businesses within the
federal government's legislative and rule-making processes. A few
years later, the Regulatory Flexibility Act of 1980 was enacted,
which provided a specific process for assessing and mitigating the
potential impact of federal regulations on small businesses. The
federal process, which has been updated over the years, includes the
annual publication of a regulatory agenda, an initial and final
regulatory flexibility analysis, a mandatory periodic review of
adopted rules, and direction for a possible judicial review of
regulations. The FOA serves as the "watchdog" agency for the
Federal Regulatory Flexibility Act.
In carrying out its duties, the FOA regularly reviews federal
regulations and makes recommendations on how to reduce the burden on
small firms and maximize small business participation within the
federal government. In 2013, the FOA issued 19 letters to federal
agencies requesting alternative implementation methods and
encouraging better technical review of proposed regulations.
Another FOA activity is the convening of issue-specific Small
Business Advocacy Review Panels. Utilizing the FOA as a facilitator
has proven to be particularly useful in developing more detailed
comments and making specific and technical recommendations to assist
the rulemaking entity in modifying a rule to lessen its impact on
small businesses, without reducing its policy objective.
Adopted over a series of years, California law currently has several
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but not all of the key elements of the federal model. As an
example, existing state law sets forth an extensive process for the
development and adoption of regulations, including requiring the
identification of potential adverse impacts on small businesses and
individuals, as well as the consideration of alternative.
The process, however, places the primary responsibility for
developing alternative implementation methods on the impacted
parties. As noted above, small businesses do not have the capacity
in terms of time nor expertise to follow every rulemaking process
that the state is undertaking in a given year, nor the expertise to
offer alternatives.
While California has an Office of the Small Business Advocate, the
state advocate does not currently have the staff to formally comment
on pending state regulations. On a case-by-case basis, the
Governor's Office of Business and Economic Development has been able
to engage with other agencies on current and proposed regulatory
proposals through its Office of Permit Assistance, but again, state
statutory direction is permissive and not mandatory.
AB 866 addresses these issues by leveraging the expertise of the
Small Business Advocate in providing good information on the size of
businesses affected, which should impact the initial development of
the implementation method by the rulemaking agency.
6)Impact on Business Varies by Size: Small businesses play differing
roles within industry sectors. The bullets below show the top three
industry sectors for California small businesses (employing 0-99
employees) by number of businesses:
a) The real estate and rental and leasing sector had the highest
percentage of small businesses in California, consisting of 98.1%
of the firms in the sector.
b) The health care and social assistance sector had the second
highest percentage of small businesses in California, consisting
of 97.8% of the firms in the sector.
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c) The professional, scientific, and technical services sector
had the third highest percentage of small businesses in
California, consisting of 97.7% of the firms in the sector.
Based on the number of employees, the top three industry sectors for
California small businesses (employing 0-99 employees) are:
a) The accommodation and food services sector, which had the
highest number of workers employed by small businesses in
California, with a total of 676,837 employees, consisting of 48%
of employment in the sector.
b) The health care and social assistance sector, which had the
second highest number of workers employed by small businesses in
California, with a total of 574,968 employees, consisting of 33%
of employment in the sector.
c) The professional, scientific, and technical services, which
had the third highest number of workers employed by small
businesses in California, with a total of 488,362 employees,
consisting of 43% of employment in the sector.
Implementation of AB 866 would assist state rule making agencies in
identifying more clearly the size of businesses impacted by a
potential regulation.
1)Related Legislation: Below is a list of bills from the current and
prior sessions.
a) Current Session
i) AB 19 (Chang) Review of State Regulations: This bill
requires the Governor's Office of Business and Economic
Development, under the direction of the Small Business
Advocate, to review all regulations affecting small businesses
adopted on or after January 1, 2016, in order to determine
whether the regulations need to be amended in order to become
more effective, less burdensome, or to decrease the cost impact
to affected sectors. Status: Scheduled to be heard on April
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21, 2015, in the Assembly Committee on Jobs, Economic
Development, and the Economy.
ii) AB 419 (Kim) Compiling of State Regulations: This bill
requires the Governor's Office of Business and Econmic
Development (GO-Biz) to annually compile all regulations
adopted by the state that affect small businesses and report
this information to the Legislature, as specified. Status:
Scheduled to be heard on April 21, 2015, in the Assembly
Committee on Jobs, Economic Development, and the Economy.
iii) AB 582 (Calderon) Professionals in Public Services Act of
2015: This bill establishes the Professionals in Public
Service Program, under the administrative oversight of the
Board of Equalization (BOE), for the purpose of utilizing the
expertise of private sector professionals to help make BOE
practices more accessible to small businesses. Status:
Scheduled to be heard on April 21, 2015, in the Assembly
Committee on Jobs, Economic Development and the Economy.
iv) AB 1286 (Mayes) Regulatory Review Council: This bill
establishes the California Regulatory Reform Council (Council)
for the purpose of analyzing the holistic impact of all levels
of state and local regulations on specific industries operating
within the state. The Council's recommendations may be made to
the Governor and the Legislature, as appropriate. Status:
Scheduled to be heard on April 21, 2015, in the Assembly
Committee on Jobs, Economic Development, and the Economy.
b) Prior Sessions
i) AB 393 (Cooley) GO-Biz Website: This bill requires the
Director of GO-Biz to ensure that the GO-Biz website contains
information on the fee requirements and fee schedules of state
agencies. Status: Signed by the Governor, Chapter 124,
Statutes of 2013.
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ii) AB 1098 (Quirk-Silva) Small Business Regulation Report:
As passed by JEDE, this bill would have directed the Office of
the Small Business Advocate within GO-Biz to commission a study
of the costs of state regulations on small businesses every
five years. Amendments taken in the Senate deleted the content
of the bill and added language relating to legal documents
provided over the internet with Assemblymember Gray as the
author. Status: Died in the Senate Committee on Rules, 2014.
iii) AB 1400 (Assembly Committee on Jobs, Economic Development,
and the Economy) Export Document Certificates: This bill
modifies the state's Export Document Program to accept requests
electronically, expedite approval of existing labels, and
extend the term of the export labels from 180 days to 365 days,
in order to alleviate backlog of exports of food, drug, and
medical devices. Status: Signed by the Governor, Chapter 539,
Statutes of 2013.
iv) AB 1711 (Cooley) Economic Impact Assessment: This bill
requires an economic impact assessment to be included in the
Initial Statement of Reasons that a state agency submits to the
Office of Administrative Law when adopting, amending, or
repealing a non-major regulation. Status: Signed by the
Governor, Chapter 779, Statutes of 2014.
v) AB 2723 (Medina) Small Businesses and Major Regulations:
This bill would have added statutory protections to ensure that
the costs of major regulations on the state's smallest size
businesses are considered when state agencies undertake their
economic impact assessment for major regulations. Status:
Vetoed by the Governor, 2014. The veto message reads: " This
bill would require the economic analysis for major regulations
to include a separate assessment of the impact on sole
proprietorships and small businesses. I signed legislation in
2011 to require a comprehensive economic analysis of proposed
major regulations. The analysis must assess whether, and to
what extent, the proposed regulations will affect all
California jobs and businesses. Agencies must also identify
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alternatives that would lessen any adverse impact on small
businesses. I am not convinced that an additional layer of
specificity based solely on the legal structure of a business
would add value to the comprehensive economic analysis already
required."
vi) SB 176 (Galgiani) Outreach on Administrative Procedures:
This bill would have amended the Administrative Procedure Act
by requiring state agencies to make a reasonable effort to
outreach and provide notice to affected entities when
developing regulations. Statutes: Held on the Suspense File
of the Assembly Committee on Appropriations, 2013.
i) SB 560 (Wright) Small Business Regulations: This bill
would have made a number of reforms to help small businesses
grow encouraging more realistic regulations and a real
assessment of the actual costs of regulations to the business
community. The bill would have: (1) authorized a state agency
to consult with "parties who would be subject to the proposed
regulations" rather than "interested persons." It also would
have required the agency to notify in writing the Office of
Small Business Advocate and the Department of Finance (DOF) if
the agency does not, or is unable to, consult with parties
subject to the regulation and reasons for not consulting the
impacted businesses; (2) revised the economic impact assessment
to include a small business economic impact statement as
specified; (3) required the notice of proposed adoption,
amendment, or repeal of a regulation to also include the small
business impact statement and removes the requirement for an
agency to make a specified statement in the notice of proposed
adoption, amendment, or repeal of a regulation if the agency is
not aware of any cost impacts that a representative private
person or business would incur in compliance with the
regulation, and instead required the agency to include a
statement describing how a private person or business could
comply with the proposed regulation without incurring a cost;
(4) required Office of Administrative Law to also return any
regulation to the adopting agency if the adopting agency has
not provided the above cost estimate and small business
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economic statement; and (5) added restrictions for regulations
relating to a new or emerging technology, as specified.
Status: Held in the Senate Committee on Environmental Quality,
2012.
i) SB 617 (Calderon) State Government and Financial and
Administrative Accountability: This bill revises the state
Administrative Procedure Act to require each state agency
adopting a major regulation to prepare an economic impact
analysis and requires state agencies to implement ongoing
monitoring of internal auditing and financial controls and
other best practices in financial accounting. Status: Signed
by the Governor, Chapter 496, Statutes of 2011.
ii) SB 981 (Huff) Review of Prior Regulations: This bill
would have required each state agency to review each regulation
adopted prior to January 1, 2014, and to develop a report to
the Legislature containing prescribed information. Among other
information, the report would have included the regulations
purpose, identification of impacted sectors, direct costs by
sector, and an assessment as to whether the regulation needs
updating. Status: Died in Senate Committee on Governmental
Organization, 2014.
iii) SB 1099 (Wright) Streamline Implementation of Regulations:
This bill requires new regulations to become effective on one
of four dates in any given year. This limitation is designed
to create a regulatory environment that is more predictable. In
addition, the bill requires regulations to be posted on the
internet website in an easily identifiable location for a
minimum of six months. Status: Signed by the Governor,
Chapter 295, Statutes of 2012.
REGISTERED SUPPORT / OPPOSITION:
Support
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Building Owners and Managers Association
California Asian Pacific Chamber of Commerce
California Business Properties Association
California Chamber of Commerce
California Manufacturers and Technology Association
Industrial Environmental Association
International Council of Shopping Centers
NAIOP - Commercial Real Estate Development Association
National Federation of Independent Business
USANA Health Sciences
Opposition
None received
Analysis Prepared by:Toni Symonds / J., E.D., & E. / (916) 319-2090
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