BILL ANALYSIS Ó AB 1033 Page 1 CONCURRENCE IN SENATE AMENDMENTS AB 1033 (Eduardo Garcia) As Amended May 2, 2016 Majority vote -------------------------------------------------------------------- |ASSEMBLY: | 77-0 | (January 19, |SENATE: | 37-0 | (June 30, 2016) | | | |2016) | | | | | | | | | | | | | | | | | | -------------------------------------------------------------------- Original Committee Reference: J., E.D., & E. 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, this 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 AB 1033 Page 2 be used in determining the number of small businesses impacted within the overall economy, a specific industry sector, or geographic region. 4)Requires that the use of the consolidated definition be clearly identified by the state agency. The Senate amendments exclude regulations adopted by the Department of Insurance relating to insurance companies from the provisions of this bill. 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: AB 1033 Page 3 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 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: a) All financial institutions, investment advisors, and security broker-dealers, as specified; b) All insurance companies; AB 1033 Page 4 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; j) A manufacturing enterprise exceeding 250 employees; aa) A health care facility exceeding 150 beds or $1.5 million in annual gross receipts; bb) Agriculture, where the annual gross receipts exceed $1 million; cc) General construction, where the annual gross receipts exceed $9.5 million; AB 1033 Page 5 dd) Special trade construction, where the annual gross receipts exceed $5 million; ee) Retail trade, where the annual gross receipts exceed $2 million ff) Wholesale trade, where the annual gross receipts exceed $9.5 million; gg) Services, where the annual gross receipts exceed $2 million; and hh) Transportation and warehousing, where the annual gross receipts exceed $1.5 million. FISCAL EFFECT: None. COMMENTS: Nearly 3 million firms in California have no employees and 89.7% 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. AB 1033 Page 6 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 policy committee analysis includes information on the California small business economy, state rulemaking practices, and studies on the cost of regulations to small businesses. 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." Cost of Regulations on Business: There are two major sources of data on the cost of regulatory compliance on businesses, the federal Small Business Administration (SBA) and the Office of AB 1033 Page 7 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 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. Analysis Prepared by: Toni Symonds / J., E.D., & E. / (916) 319-2090 FN: 0003522 AB 1033 Page 8