BILL ANALYSIS Ó
SENATE COMMITTEE ON
BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT
Senator Jerry Hill, Chair
2015 - 2016 Regular
Bill No: SB 1228 Hearing Date: April 11,
2016
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|Author: |Runner |
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|Version: |February 18, 2016 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant|Nicole Billington |
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Subject: Small business: California Small Business Regulatory
Fairness Act
SUMMARY: Authorizes a court to grant a small business relief
from a final order of a state agency based on mitigating
factors. Requires state agencies to provide 30 days notice and
an opportunity to comply with the law before imposing a civil
penalty or administrative fine on a small business. Requires
state agencies to assist small businesses in achieving
compliance with regulations and establish a policy to guide the
reduction of penalties for small businesses.
Existing law:
1)Requires, by the Administrative Procedure Act, that a state
agency make available to the public facts, evidence,
documents, testimony, or other evidence on which the state
agency relied to support the agency's determination that the
proposed action will not have a significant adverse impact on
business. (Government Code (GC) §§ 11346-11348)
2)Establishes the Office of Small Business Advocate within the
Governor's Office of Business and Economic Development
(GO-Biz) and establishes the duties and functions of the
Director of the Office of Small Business Advocate including
representing the views and interests of small businesses
before other state agencies whose policies and activities may
affect small businesses. (GC §§ 12098-12098.9)
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3)Requires each state agency that significantly regulates or
impacts small business to designate at least one person who is
required to serve as a small business liaison. (GC § 11148.5)
4)Requires, under the federal Small Business Regulatory
Enforcement Fairness Act, that federal agencies must have a
penalty reduction policy for small businesses, involve small
businesses in the development of some proposed rules through
Small Business Advocacy Review Panels, produce Small Entity
Compliance Guides for some rules, and be responsive to small
business inquiries about compliance with the agency's
regulations. (Title 5 U.S.C. Ch. 6 §§ 601-612)
This bill:
1)For purposes of the relief and notice provided to small
businesses, defines "small business" as having the same
meaning as set forth in Government Code § 14837.
2)Excludes the Franchise Tax Board and the State Board of
Equalization from consideration as a "state agency" for the
purposes of the small business relief outlined in the bill.
3)Requires a state agency to assist a small business:
a) In achieving compliance with statutes and regulations
administered by the state agency.
b) During an enforcement action by the state agency.
c) With participating in the rulemaking process required by
the Administrative Procedure Act (commencing with GC §
11340), which must include providing a small business with
information on how to participate in the rulemaking process
and the contact information of any ombudsman or small
business liaison that can assist the small business,
including, but not limited to, the Office of Small Business
Advocate.
4)Requires a state agency to include all of the following
information on any notice of regulatory violation, penalty
assessment, or other punitive action sent to a small business:
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a) How the small business can comply with the law or remedy
the violation, pursuant to proposed GC § 11367.2.
b) All administrative and judicial remedies available to
the small business.
c) The Internet Web site, if available, and contact
information for all of the following:
i) The Office of Small Business Advocate.
ii) Any applicable ombudsman that may assist the small
business.
iii) The small business liaison for the state agency.
5)Requires a state agency, before imposing any civil penalties
or administrative fines on a small business, to provide no
less than 30 days actual notice to the small business and
provide the small business with an opportunity to comply with
the law or remedy the violation of the law if ignorance of the
violation is reasonable under the circumstances and the
violation does not constitute a crime or a basis for strict
liability before, notwithstanding any other law.
6)Requires all other notices of regulatory violation, which
result in penalty assessment or other punitive action, sent to
a small business to be delivered as expeditiously as possible
to allow the small business to comply with the law and
mitigate any losses.
7)Requires notices mandated under this proposed section (GC §
11367.2) to be delivered to the small business in person by an
authorized agent of the state agency or by certified mail.
8)Requires a state agency to establish a policy to provide for
reduction, and under certain circumstances waiver, of civil
penalties for a small business based upon principles of equity
and fairness no later than December 31, 2017.
9)Requires a state agency to consider factors when adopting the
policy including, but not limited to:
a) The small business has not been subject to previous
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enforcement actions by the agency.
b) The violation by the small business did not involve
willful or criminal conduct.
c) The violation by the small business did not pose an
imminent health, safety, or environmental threat.
d) The violation by the small business was committed
inadvertently or without knowledge of the requirements for
compliance with the law.
e) The small business is unable to pay the penalty or the
penalty would impair the ability of the small business to
conduct business or compete effectively.
f) The small business has a low degree of culpability when
its conduct is judged in light of its size, length of
operation, and the sophistication of its owners or
managers.
g) The small business cooperated during any investigation
by the state agency.
h) The small business engaged in subsequent action to
correct the violation.
10)Establishes that a small business shall not be required to
meet all of the mitigating factors adopted by a state agency
to receive relief under the policy and a state agency shall
not require the mitigating factors to be weighed equally when
granting relief to a small business under the policy.
11)Allows a court, after administrative remedies are exhausted,
to grant equitable relief to a small business from a final
order of a state agency in the interest of justice.
12)Provides mitigating factors for the court to consider when
granting equitable relief under this section including, but
not limited to:
a) The small business has not been subject to previous
enforcement actions by the state agency.
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b) The violation by the small business did not involve
willful or criminal conduct.
c) The violation by the small business did not pose an
imminent health, safety, or environmental threat.
d) The violation by the small business was committed
inadvertently or without knowledge of the requirements for
compliance with the law.
e) The small business is unable to pay the penalty or the
penalty would impair the ability of the small business to
conduct business or compete effectively.
f) The small business has a low degree of culpability when
its conduct is judged in light of its size, length of
operation, and the sophistication of its owners or
managers.
g) The small business cooperated during any investigation
by the state agency.
h) The small business engaged in subsequent action to
correct the violation.
13)Does not require the courts to weigh the mitigating factors
equally.
14)Requires the court to review all evidence and facts de novo
and make its own independent decision when granting relief
under this section.
15)Allows a small business to seek judicial review and a stay of
an order of a state agency without exhausting administrative
remedies, notwithstanding any other law, if either of the
following apply:
a) The small business would suffer irreparable harm in the
absence of the court granting a stay on the order of the
state agency.
b) The state agency issuing the order that is before the
court has not established the policy required by Section
11367.4 of the Government Code.
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16)Deems a small business to have exhausted all administrative
remedies and requires the case to be heard by the court
sitting without a jury, if a court grants relief to a small
business under this section.
17)Specifies that the decision of the court to decline review or
deny relief under this section is not appealable.
FISCAL EFFECT: Unknown. This bill is keyed "fiscal" by
Legislative Counsel.
COMMENTS:
1.Purpose. The Author is the Sponsor of this bill. According to
the Author, California has routinely ranked as last among the
states in providing a business friendly environment.
Exasperated small business owners are stymied by delays and
expenses incurred in trying to comply with a vast array of
state and local regulations. Neither state regulatory agencies
nor California courts have statutory discretion to waive or
lower regulatory penalties based upon mitigating factors or in
the interest of justice. While punitive action should be
leveled at those who engage in egregious conduct, regulatory
agencies often cast a wide net. When a state agency is called
upon to enforce a law or regulate an industry, it often relies
upon a statutory formula which provides no discretion in the
imposition of penalties. Once put into motion a state
regulatory agency is not subject to legislative oversight and
cannot be restrained by the courts until administrative
appeals are exhausted. For some small businesses, fragile by
nature, this is too late.
SB 1228 would require California state agencies to assist
small business in crafting and complying with state
regulations. The bill would require each state agency to
adopt rules to permit reductions or waivers of small business
penalties based upon a variety of mitigating factors.
Additionally, SB 1228 would give California courts broader
jurisdiction to reduce regulatory penalties based upon
principles of equity and in the interest of justice to
intervene when disputed regulatory action would do
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inappropriate or irreparable harm to a small business.
2.Role of Small Business within the California Economy.
California's dominance in many economic areas is based, in
part, on the significant role small businesses play in the
state's $2.2 trillion economy. Among other advantages, small
businesses are crucial to the state's international
competitiveness and are an important means for dispersing the
positive economic impacts of trade within the California
economy. According to a 2015 U.S. Small Business
Administration report, California has more than 3.6 million
small businesses, over 1.2 million more than any other state.
The report also noted that California's small businesses
employed half of the state's private workforce in 2012 (6.5
million employees). According to the U.S. Census Bureau,
small businesses made up 99.2 percent of all employers in the
state for the same year.
In difficult economic times, smaller size businesses often
function as economic engines. The trend continued in the
recession with the number of non-employer firms increasing
from 2.6 million firms ($137 billion in revenues) for 2008 to
2.8 million firms ($138 billion in revenues) for 2010. In the
post-recession economy, small businesses are expected to
become increasingly important due to their ability to be more
flexible and better suited to meet niche market needs. Their
small size, however, results in certain challenges in meeting
regulatory requirements, accessing capital, and marketing
their goods and services. California's network of technical
assistance providers assist businesses with a range of
services, including access to quality training, one-on-one
counseling, mentoring, marketing data, and other business
development resources.
3.Governor's Office of Business and Economic Development
(GO-Biz) Small Business Assistance. Since its inception,
GO-Biz has served thousands of businesses, 95 percent of which
are small. The most frequent types of assistance include help
with permit streamlining, starting a business, relocation and
expansion of businesses, and regulatory challenges. In
addition to economic development programs, GO-Biz is
responsible for specialized assistance to small businesses
through the Office of Small Business Advocate (OSBA). OSBA
has four primary focus areas: Advocacy, Information
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Gathering/Dissemination, Agency Coordination, and Business
Assistance. OSBA directly engages with the small business
community through email communication, the GO-Biz website,
social media, live events, webinars, radio shows, and
teleconferences, among other methods. OSBA also manages an
Interagency Working Group, in partnership with the Permit
Assistance Unit at GO-Biz, which convenes small business
officers and advocates from various state agencies to discuss
new or changed regulations or to discuss small business
programmatic concerns. OSBA oversees the Capital Infusion
Program, which enables the California Small Business
Development Center (SBDC) Networks to expand their one-to-one,
no-cost, confidential consulting to small business owners. In
its first year, the Capital Infusion Program resulted in
roughly $202.6 million in documented capital infusion and
served just over 9,700 small business owners across the state.
In 2015, GO-Biz launched a new California Business Portal;
the site includes a Business Navigator feature, which provides
custom information regarding permits, licenses, and incentives
that relate specifically to the user's business.
4.Current Administrative Penalty Appeal Process. Generally,
before a court is authorized to inquire into the validity of
any final administrative order or decision, a business must
first exhaust the entire appeal process at the agency that
took the original action. Only after that can a court issue a
stay of an order of a state agency. The petitioner, in this
case a business, bears the cost of preparing the court records
and filing a petition. Currently, a court's inquiry in these
cases extends only to the questions of whether the agency
proceeded without or in excess of its jurisdiction, whether
the agency appeal process was executed correctly, and whether
there was any prejudicial abuse of discretion. Neither state
regulatory agencies nor California courts have statutory
discretion to waive or lower regulatory penalties based upon
mitigating factors or in the interest of justice.
5.Prior Related Legislation. SB 606 (Nielsen) of 2015 would have
established the Small Business Appeals Board and authorized
the board to grant a hearing and review the order, ruling,
action, or failure to act of any state agency upon petition of
any small business affected and to grant any remedy or impose
any penalty authorized under existing law governing
administrative procedures. ( Status: This bill died in the
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Senate Committee on Governmental Organization.)
AB 19 (Chang) of 2015 would have required GO-Biz to review
regulations affecting small businesses 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: This bill died in Assembly
Appropriations.)
AB 1711 (Cooley, Chapter 779, Statutes of 2014) required 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.
AB 2723 (Medina) of 2014 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: This bill was vetoed by the Governor.)
SB 1099 (Wright, Chapter 295, Statutes of 2012) revised the
dates in which a regulation or order of appeal becomes
effective and requires the Office of Administrative Law (OAL)
to post certain information in its website for at least six
months.
AB 1409 (Pérez) of 2012 would have clarified the nature of the
reasonable alternatives to be considered by an agency when
they are preparing their Initial Statement of Reasons a
regulatory change and would have required the Initial
Statement of Reasons to also include any reasonable
alternative submitted by the public of the Office of the Small
Business Advocate. ( Status: This bill died in the Senate
Rules Committee.)
SB 828 (Runner) of 2011 was nearly identical to SB 606
(Nielsen) of 2015 above. ( Status: This bill died in the Senate
Committee on Business, Professions and Economic Development.)
AB 29 (Pérez, Chapter 475, Statutes of 2011) established
GO-Biz within the Governor's Office for the purpose of serving
as the lead entity for economic strategy and marketing of
California on issues relating to business development, private
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sector investment, and economic growth.
SB 560 (Wright) of 2011 would have required an agency, if it
does not or is unable to consult with impacted businesses
during the process of considering a regulatory change, to
inform the Office of Small Business Advocate and the
Department of Finance in writing of the reasons for not
consulting the impacted businesses. ( Status: This bill died
in the Senate Committee on Environmental Quality.)
SB 688 (Wright) of 2011 would have required an economic impact
statement for a proposed regulation to include a detailed
estimate of the total actual costs of compliance for affected
businesses and individuals and would have required the
adopting agency to postpone the effective date and notify
specified committees of the Legislature if the estimated total
costs of compliance exceed $10 million. ( Status: This bill
died in the Senate Committee on Environmental Quality.)
SB 356 (Wright) of 2009 would have required state agencies
subject to the APA to make additional findings and
determinations regarding the impact their regulations may have
on small businesses, to consult with small businesses during
the regulatory process and provide additional information,
statements and justification for the adoption, amendment or
repeal of regulations which may have an impact on small
businesses. ( Status: This bill died in the Assembly Committee
on Rules.)
SB 1505 (McClintock) of 2004 would have amended the
Administrative Procedure Act to require a small business
impact statement and written 30 day notice to the California
Small Business Advocate before adopting, amending, or
repealing regulation. ( Status: This bill failed passage in
the Senate Judiciary Committee.)
6.Arguments in Support. Small Business California and other
small business advocacy groups support SB 1228, arguing that
California law does not allow much discretion to agencies and
courts when levying fines against a small business. They
believe that imposing penalties on business owners for a minor
violation is too harsh a penalty for minor cases where
noncompliance was unintended. SB 1228, they state, creates
flexibility by allowing courts to reduce penalties and
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requiring agencies to adopt rules allowing for penalty
reduction based on mitigating factors.
SUPPORT AND OPPOSITION:
Support:
California Association of Health Services at Home
California Manufacturers and Technology Association
Industrial Environmental Association
National Federation of Independent Business
Small Business California
Opposition: None on file as of April 5, 2016.
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