BILL ANALYSIS Ó
AB 1033
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Date of Hearing: January 13, 2016
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT, AND THE
ECONOMY
Eduardo Garcia, Chair
AB 1033
(Eduardo Garcia) - As Amended: January 4, 2016
SUBJECT: Small Business Regulatory Impact Analysis
SUMMARY: Authorizes a state agency to use a consolidated
definition of small business when preparing the economic impact
assessment for administrative regulations proposed for adoption,
amendment, or repeal. Specifically, the bill:
1)Specifies that for the exclusive purpose of conducting an
economic impact assessment on a regulation having a business
impact of less than $50 million, a state agency may use a
consolidated definition of small business, as defined.
2)Defines a small business as being independently owned and
operated, not dominant in its field, and having less than 100
employees.
3)Provides that the consolidated small business definition may
be used in determining the number of small businesses impacted
within the overall economy, a specific industry sector, or
geographic region.
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4)Requires that the use of the consolidated definition be
clearly identified by the state agency.
EXISTING LAW:
1)Finds and declares that it is in the public interest to aid,
counsel, assist, and protect the interests of small businesses
in order to maintain a healthy state economy.
2)Finds and declares that there has been an unprecedented growth
in the number of administrative regulations in recent years
and that correcting the problems requires the direct
involvement of the Legislature, as well as that of the
executive branch of the state government. Further, statute
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 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 prepare an economic impact assessment that evaluates the
following:
a) The creation or elimination of jobs within the state;
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b) The creation of new businesses or the elimination of
existing businesses within the state;
c) The expansion of businesses currently doing business
within the state; and
d) The benefits of the regulation on the health and welfare
of California residents, worker safety, and the state's
environment.
4)Defines a small business as:
a) Being independently owned and operated;
b) Not dominant in its field; and
c) Undertaking a business activity in agriculture, general
construction, special trade construction, retail trade,
wholesale trade, services, transportation and warehousing,
manufacturing, generation and transmission of electric
power, or a health care facility, unless specifically
excluded.
5)Excludes from the definition of a small business 18
professional and business activities, including:
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a) All financial institutions, investment advisors, and
security broker-dealers, as specified;
b) All insurance companies;
c) All mineral, oil, or gas brokers;
d) All land developers;
e) All architects and building designers;
f) All nonprofit institutions;
g) All entertainment companies, including those engaged in
activities related to motion picture production, stage
performance, or a television or radio station;
h) All petroleum producers, natural gas producers,
refiners, or pipeline operators;
i) A utility, a water company, or a power transmission
company generating and transmitting more than 4.5 million
kilowatt hours annually;
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j) A manufacturing enterprise exceeding 250 employees;
aa) A health care facility exceeding 150 beds or $1,500,000
in annual gross receipts;
bb) Agriculture, where the annual gross receipts exceed
$1,000,000;
cc) General construction, where the annual gross receipts
exceed $9,500,000;
dd) Special trade construction, where the annual gross
receipts exceed $5,000,000;
ee) Retail trade, where the annual gross receipts exceed
$2,000,000;
ff) Wholesale trade, where the annual gross receipts exceed
$9,500,000;
gg) Services, where the annual gross receipts exceed
$2,000,000; and
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hh) Transportation and warehousing, where the annual gross
receipts exceed $1,500,000.
FISCAL EFFECT: None
POLICY ISSUE FRAME: Nearly 3 million firms in California have
no employees and 90% of firms with employees have less than 20.
Existing law requires state agencies adopting and amending
administrative rules to undertake an assessment of those rules'
impact on businesses, including small businesses. The statutory
definition of small business, however, hasn't been updated in
over a decade and includes 18 special exclusions and/or
modifications, making the overall assessment framework overly
complex and a de facto barrier to soliciting public comments
from potentially affected small businesses.
Given that the state's rulemaking process places the burden for
suggesting alternative implementation methods on the affected
businesses rather than the rulemaking state agency, it is
important that the economic impact assessment be clearly
understandable to a majority of California businesses.
This measure proposes the use of a more standardized definition
of small business, which could be utilized by a rulemaking
entity when developing the economic impact assessment. The
analysis includes information on the California small business
economy, state rulemaking practices, and studies on the cost of
regulations to small businesses. Technical amendments are
discussed in Comment 6.
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COMMENTS:
1)Author's Statement: According to the author, "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
rarely hear from the broad range of small businesses that are
potentially affected. An intrinsic conflict within
California's rulemaking process is that businesses who 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.
AB 1033 tries to streamline the economic assessment process by
providing greater transparency and accessibility to
potentially impacted small businesses. Without having a
realistic process for small businesses to participate, it is
difficult for state agencies to develop and adopt regulations
that have flexible implementation methods reflecting the
limited administrative capacity of small businesses, while
still meeting the intended policy standards.
Given that nearly 3 million firms in California have no
employees and 90% of firms with employees have less than 20,
finding a means to address this challenge is important to the
state's economic growth."
2)California's Small Business Economy: Small businesses form
the core of California's $2.3 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
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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, 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. Even when 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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| 2011 Business Profile By Size (excludes non-employer firms) |
-------------------------------------------------------------
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
| Area | Employment | Number of | Percent of | Employees | Percent of | Annual |
| Description | Size | Firms | Firms | | Jobs | Payroll |
| | | | | | | ($1,000) |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|United States | Total | 5,684,424| | 113,425,965| |$5,164,897,905|
| | | | | | | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|California | Total | 689,568| 12% of | 12,698,427| 11% of all | $663,570,657|
| | | | U.S. Firms | | U.S. Jobs | |
--------------------------------------------------------------------------------------------------------
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| |
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|United States | 0-4 | 3,532,058| 62% of | 5,857,662| 5% of U.S. | $230,422,086|
| | | | U.S. Firms | | Jobs | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|California | 0-4 | 429,139| 62% of | 702,508| 5.5% of | $35,472,447|
| | | | CA Firms | | CA Jobs | |
--------------------------------------------------------------------------------------------------------
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| |
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|United States | <20 | 5,104,014|89.7% of U.S. | 20,250,874| 17.8% of | $732,759,369|
| | | | Firms | | U.S. Jobs | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|California | <20 | 614,538| 89.1% of CA | 2,386,296| 18.7% of | $99,417,066|
| | | | Firms | | CA Jobs | |
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| |
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|United States | 0-99 | 5,585,510|98.2% of U.S. | 39,130,875| 34% of | 1,478,844,420|
| | | | Firms | | U.S. Jobs | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|California | 0-99 | 672,360| 97% of | 4,587,628| 36.1% of | 194,611,832|
| | | | CA Firms | | CA Jobs | |
--------------------------------------------------------------------------------------------------------
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| |
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|United States | <500 | 5,666,753|99.6% of U.S. | 54,998,312| 48.4% of |$2,169,353,973|
| | | | Firms | | U.S. Jobs | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|California | <500 | 683,999| 99.1% of CA | 6,331,871| 49.8% of | $280,857,823|
| | | | Firms | | CA Jobs | |
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| |
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|United States | 500+ | 17,671| 0.3% of | 58,427,653| 51.5% of |$2,995,543,932|
| | | | U.S. Firms | | U.S. Jobs | |
|--------------+--------------+--------------+--------------+--------------+--------------+--------------|
|California | 500+ | 5,569| 0.8% of | 6,366,556| 50.1% of | $382,712,834|
| | | | CA Firms | | CA Jobs | |
--------------------------------------------------------------------------------------------------------
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| Source: U.S. Census |
|http://www.census.gov/econ/susb/index.html |
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Reflective of their important role, the JEDE Committee members
regularly hear testimony regarding the challenges small
businesses face when 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 owners who have testified
before the Committee have consistently stated that their goal
is to achieve a regulatory environment that encourages small
business development, while still maintaining public health
and safety standards. AB 1033 does not authorize the
lowering of any regulatory standard. The bill provides for a
simplified assessment of the economic impact of a proposed
new, amended, or repealed administrative regulation.
3)Cost of Regulations on Business: There are two major sources
of 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
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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 impediment 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.
4)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 and more targeted review
pre- or post-adoption. Recommendations for systemic change
have included:
a) Inclusion of a Dynamic Fiscal Analysis by the
Appropriations Committee or the legislative Analyst Office,
or the Office of the State Auditor;
b) Substantive rather than a Procedural Review by the
Office of Administrative Law;
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c) Heightened Focus on Small Business Impacts of Proposed
Regulation;
d) Enhanced Consideration of Alternative Implementation
Methods that meet similar Regulatory Standards; and
e) Review of Regulatory Impacts Post Implementation.
Historically, the first one-off legislative approach has been
the most successful, although by its nature it has had very
limited overall impact on California's regulatory business
climate. Bills proposing systemic changes have generally
failed to move from legislative 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 and standardized economic impact
analysis for regulations with an impact of $50 million or
more. In 2015, six major regulations were initiated. AB 1033
tries to bring greater clarity to rules for the majority of
other regulations that are adopted, amended, or eliminated
during the year.
6)Technical Amendments: Staff understands that the author will
be requesting the Committee's approval of technical amendments
to correct a cross reference. The amendments will clarify
that AB 1033 only applies to non-major amendments.
7)Related Legislation: Below is a list of bills from the
current and prior sessions.
a) Current Session
i) AB 12 (Cooley) State Government Administrative
Review*: This bill would have required state agencies
and departments to review, adopt, amend, or repeal any
applicable regulations that are duplicative, overlapping,
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inconsistent, or out of date, as part of a "look-back
mechanism" during a two-year window. Status: Held on
Suspense in the Senate Committee on Appropriations, 2015.
ii) AB 19 (Chang) Review of Regulations by the
Governor's Office of Business and Economic Development:
This bill would have required the Governor's Office of
Business and Economic Development, in consultation with
state Small Business Advocate, to review regulations
affecting small businesses for the purpose of determining
whether there is an alternative implementation method
that is less burdensome or costly to small business,
while still meeting the same policy objectives. Status:
Held on Suspense in the Assembly Committee on
Appropriations, 2015.
iii) AB 184 (E. Garcia) Small Business Technical
Assistance Act of 2015: This bill would have designated
the Governor's Office of Business and Economic
Development as the lead state entity for overseeing the
state's participation and collaboration with the federal
small business technical assistance programs. Status:
Held on Suspense in the Assembly Committee on
Appropriations, 2015.
iv) AB 419 (Kim) Web-Based Access to Small Business
Regulations: This bill requires the Governor's Office of
Business and Economic Development to establish a
web-access point for small businesses seeking information
about pending and current regulations affecting small
businesses. Status: Pending in the Senate Committee on
Business, Professions, and Economic Development, two-year
bill.
v) AB 582 (Calderon) Entrepreneur Partnership Pilot
Projects: This bill calls on the Legislative Analyst and
the California State Auditor to convene a work group to
determine the most appropriate state agency to house a
pilot program with the goal of making state government
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more streamlined and accessible to small businesses.
Status: Pending in the Senate Rules Committee, two-year
bill.
vi) AB 1286 (Mayes) California Regulatory Reform
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. Status: Pending in the Assembly Committee on
Appropriations, two-year bill.
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.
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.
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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 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.
vii) SB 560 (Wright) Small Business Regulations: This
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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 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.
viii) 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
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accounting. Status: Signed by the Governor, Chapter
496, Statutes of 2011.
ix) 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.
x) 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
None Received
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Opposition
None received
Analysis Prepared by:Toni Symonds / J., E.D., & E. / (916)
319-2090