BILL ANALYSIS
AB 2196
Page 1
Date of Hearing: April 20, 2010
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel Perez, Chair
AB 2196 (Smyth) - As Introduced: February 18, 2010
SUBJECT : Small Business Advocate: report on regulations.
SUMMARY : Requires the Office of Small Business Advocate (OSBA)
to commission a study of the costs of specific state regulations
on small businesses, and identify the 10 costliest regulations
on small businesses. Specifically, this bill :
Requires the Office of the OSBA to commission a study of the
costs of specific state regulations on small businesses, which
shall identify the 10 costliest regulations on California
small businesses and, among other things, do all of the
following:
a) Parallel, to the extent feasible, the scope and study
prepared by the federal Small Business Administration on
the impact of regulatory costs on small firms conducted by
the federal Small Business Administration, with particular
focus on the 10 costliest regulations for California small
businesses;
b) Examine successful models from other states on
identifying regulatory costs and develop alternative
approaches that are less burdensome on small businesses.
c) Make recommendations on how California's regulatory
process can more effectively assess the impact on small
businesses including its cumulative impact, and methods for
developing policy-appropriate alternatives.
d) Avoid recommendations that could diminish wage and hour,
social insurance, or health and safety protections for
California workers.
2)Requires OSBA to convene a small business advisory committee
(SBAC) to provide advice on the study. The SBAC shall include
representatives from small business associations representing
a cross section of the small business community.
3)Requires the report to be submitted no later than October 1,
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2011, with recommendations to the Department of Finance, the
Legislature and specific policy committees.
EXISTING LAW :
1)Establishes the OSBA, within the OPR, for the purpose of
advocating for small business causes. Among other duties, the
OSBA maintains a website to provide key information for small
businesses, advocates the small business position on
legislation and regulations being considered by the
Administration, and serves as the state's primary liaison on
small business issues.
2)Finds and declares that it is in the public interest to aid,
counsel, assist, and protect, insofar as is possible, the
interests of small business concerns in order to maintain a
healthy state economy.
3)Requires the OSBA to report to the Legislature, every two
years, on the efforts of the state in assisting minority and
other small business enterprises, and make recommendations on
how to strengthen minority and other small business
enterprises.
4)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 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.
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:
a) Base decisions on adequate information;
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b) Consider its impact 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.
Further, no regulation adopted after January 1, 1993 may apply
to a business unless the state agency makes a finding that it
is necessary for the health, safety or welfare of the people
of the state.
6)Establishes the Office of Administrative Law (OAL) as the
entity with the purview of the state's regulatory process,
including assessing the impact of proposed regulations on
small businesses and consideration of reasonable alternatives
that would lessen identified adverse impacts.
7)Defines, for the purpose of state regulations, that a small
business means a business that is independently owned and
operated, not dominant in its field of operation and has
businesses activities in:
a) Agriculture with under $1 million in gross receipts;
b) General construction with under $9.5 million in gross
receipts;
c) Special trade construction with under $5 million in
gross receipts;
d) Retail trade with under $2 million in gross receipts;
e) Wholesale trade with under $9.5 million in gross
receipts;
f) Services with under $2 million in gross receipts;
g) Transportation and warehousing with under $1.5 million
in gross receipts;
h) Power transmission company generating and transmitting
with less than 4.5 million kilowatt hours annually;
i) A manufacturing enterprise with less than 250 employees;
or
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j) A health care facility with less than 150 beds or $1.5
million in annual gross receipts.
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's purpose : Small businesses are the backbone of
California's economy, accounting for the vast majority of
businesses in the state, and employing more than half of the
state's workforce. Unfortunately, the recent economic
downturn, coupled with costly and burdensome overregulation,
has led many small businesses to close their doors or leave
the state.
While the "Cost of State Regulations on California Small
Businesses" study painted a striking picture of the total
regulatory costs in California, it was light on details and
stopped short of identifying the specific regulations that
impose the greatest financial burden on California's economy.
This bill builds on that study by requiring the Office of the
Small Business Advocate to complete a study and report to the
Legislature on the ten regulations that impose the greatest
costs on small businesses in California.
2)Small business studies : Due to their importance in the state
economy, small business issues have been a particular focus of
the Assembly Committee on Jobs, Economic Development and the
Economy (JEDE) for the past several years. In March 2009,
JEDE produced a state economic recovery strategy that included
several key recommendations on the needs of small business,
including helping small businesses meet their short term
capital needs, the need for regulatory reforms, and workforce
development programs that more directly link to the needs of
businesses.
Later in the year, JEDE held a number of hearings specifically
to receive testimony from small businesses and manufacturers
about their economic recovery needs. During these hearings
small business prioritized two areas: increasing access to
capital and reducing the costs associated with doing business
in California, including costs related to business permits,
licenses and other areas of regulatory compliance.
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There are two major sources of data on the cost of regulatory
compliance on businesses, the federal Small Business
Administration and the state OSBA. For the last 10 years, the
federal Small Business Administration has conducted a peer
reviewed study that analyzes the cost of federal government
regulations on different sizes of 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 impact of California regulations on small businesses was
unknown until last year, when the study required by AB 2330
(Arambula), Chapter 232, Statutes of 2006, was published by
the OSBA. Although state agencies have been required to
consider the costs of adopted regulations on the California
economy, in general, and on small business, specifically,
state agencies have historically failed to meaningfully
undertake such an analysis, and instead, have checked the box
indicating that the need for the regulation was an overriding
state concern. This first state study found that total cost
of regulations to the State of California was $493 billion.
Since small businesses constitute 99.2 % of all employer
businesses in California and all of non-employer business, the
regulatory cost, according to the report, is shouldered
substantially by small business (averaging $134,123.00 per
small business in 2007).
AB 2330 also required that state agencies examine the
cumulative impact of regulations. Due, in part, to the
difficult economic times, state agencies have done a poor job
in meeting this new requirement when developing and amending
regulations.
3)Better defining outcomes : While the report developed pursuant
to AB 2330 was helpful, it lacked sufficient detail to assist
policy makers take the next step and mitigate some of the cost
pressures on business, in general, and small businesses,
specifically. Further, both the federal and state studies
focused on assessing cost and not on identifying why the
regulations are costly.
Sometimes regulations are costly because they protect a worker
undertaking a high risk job, such as mining. Other times
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regulations are costly because they are designed to be most
convenient to the bureaucracy rather than the public. In
designing a new study, it may be useful to narrow the scope of
the study and to be more specific about what is the expected
outcome.
4)Adoption of regulations in California : Existing law sets
forth an extensive process for the development and adoption of
regulations including requiring the identification of
potential adverse impacts of regulations on California
businesses and individuals. Statute states that the purpose of
the rulemaking process is to avoid the imposition of
unreasonable and unnecessary regulations, reporting,
recordkeeping, or compliance requirements. Businesses,
however, have repeatedly testified before this policy
committee that they believe that California's regulatory
process is expensive, overly burdensome, and that compliance
has not necessarily provided a better quality of life for
people in the state.
One of the criticisms of the process has been that OAL has no
real authority to ensure that the intent of the law is
enforced because their oversight is limited to a procedural
review. Legislative intent specifically states that neither
the OAL nor the courts may substitute its "judgment for that
of the rulemaking agency as expressed in the substantive
content" of the regulation.
This means that while the rulemaking entity is required to
consider the impact of a regulation on businesses and consider
alternatives, the OAL may only check to be sure that an
assessment has been done. Rulemaking agencies may even
decline to consider alternatives and may limit their
assessment of a regulations impact to only information
supplied by interested parties.
5)California Small Business : California's dominance in many
economic areas is based, in part, on the significant role
small businesses play in the state's $1.8 trillion economy.
Businesses with fewer than 100 employees comprise nearly 98%
of all businesses, and are responsible for employing more than
37% of all workers in the state.
As an example, small- and medium-sized businesses are crucial
to the state's international competitiveness and are an
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important means for dispersing the positive economic impacts
of trade within the California economy. Of the over 52,000
companies that exported goods from California in 2006, 95%
were small- and medium-sized enterprises (SME) with fewer than
500 employees. These SMEs generated nearly half (44%) of
California's exports in 2006. Nationally, SMEs generated only
29% of total exports.
Historically, small businesses have functioned as economic
engines, especially in challenging economic times. During the
nation's economic downturn from 1999 to 2003, microenterprises
(businesses with less than five employees) created 318,183 new
jobs or 77% of all employment growth, while larger businesses
with more than 50 employees lost over 444,000 jobs. From 2000
to 2001, microenterprises created 62,731 jobs in the state,
accounting for nearly 64% of all new employment growth.
Unfortunately during the current recession, small business
have been especially hard hit with small business bankruptcies
up 81% for the 12 months ending September 2009, as compared to
the same period in the previous year. Nationally, bankruptcy
filings were up 44%, according to Equifax Inc.
Because of their importance in the state economy, small
business issues have been a particular focus of the Assembly
Committee on Jobs, Economic Development and the Economy (JEDE)
for the past several years. In March 2009, JEDE produced a
state economic recovery strategy that included several key
recommendations on the needs of small business, including
helping small businesses meet their short term capital needs.
In May 2009, JEDE held a special hearing to learn more about
how the recession was impacting small businesses and in
October, JEDE's review of the California Enterprise Zone
Program included a panel on how the program responds to needs
of small business.
6)The Small Business Act : The Small Business Act, administered
through DGS, was implemented more than 30 years ago to
establish a small business preference within the state's
procurement process for the purpose of increasing the number
of contracts between the state and small businesses.
In 1989, a DVBE component was established with the Small
Business Act to address the special needs of disabled veterans
seeking rehabilitation and training through entrepreneurship
and to recognize the sacrifices of Californians disabled
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during military service. Under the requirements of the DVBE
program, each state agency is required, in awarding contracts
throughout the year, to honor California's disabled veterans
by taking all practical actions necessary to meet or exceed an
annual 3% DVBE participation goal.
Since 2001, there have been four Executive Orders (EOs) and a
number of statutory advancements made to strengthen the Small
Business Act, including SB 115 (Florez), Chapter 451, Statutes
of 2005, which required DGS to establish a DVBE incentive
program for state contracts; and AB 761 (Coto), Chapter 611,
Statutes of 2007, which specifically codified the 25% small
business participation goal for contracts related to revenues
expended from the 2006 infrastructure bonds.
Despite the longstanding existence of the Small Business Act,
statutory upgrades, and EOs, the state's success in obtaining
small business and DVBE participation goals in state
procurement contracts has been inconsistent.
Only twice since the small business participation target was
established in 2001 through EO, has DGS reported that the
state achieved its 25% goal. In fiscal year 2007-08 the state
did not achieve its small business target, as it only awarded
23.84%, or $2.62 billion, of the value of all contracts to
small businesses. Although, procurement contract awards were
down in 2007-08 there was an increase in the amount of
contract dollars awarded. The state also did not achieve its
3% DVBE participation goal in 2006-07, the most recent numbers
show a decrease from the 2.8% to only 2.39% DVBE contracts
awarded in 2007-08 and the state again, saw an increase in
awarded contract DVBE dollars to more than $194 million.
7)Related legislation : Below is a list of related legislation:
a) SB 356 (Wright) - Cost of Regulation : This bill
clarifies the term "any interested person" to include "a
small business or organization or trade association whose
members are affected by a regulation," as it relates to
obtaining a judicial declaration as to the validity of any
regulation or order of repeal by bringing action for
declaratory relief in Superior Court pursuant to current law
Status: This bill is pending in the Assembly Committee
on Business Professions and Consumer Protection.
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b) SB 942 (Dutton) -State Auditor: Analysis of Regulations :
The bill establishes a process whereby the State Auditor
would perform a cost-benefit analysis of specified
regulations to determine whether any of the regulations
impose a cost on private persons or business that exceeds
its benefit. The bill requires an adopting agency to
respond to the State Auditors determinations by either
amending or repealing the regulation or formally declining
to take any action to address the Auditor's determination.
Should the State Auditor find that an adopting agency's
response sufficient, the Auditor is authorized to recommend
to the Legislature that it enact legislation that will
function to amend or repeal the regulation. Status: The
bill is pending in the Senate Committee on Governmental
Organization.
c) SB 960 (Dutton) -State Air Resources Board: Regulations:
Office of Administrative Law : This bill imposes various
functions and duties on the State Air Resources Board
relating to reducing emissions of air pollutants. Existing
law authorizes the state board to adopt standards, rules,
and regulations necessary for the proper execution of those
duties. Existing law, the Administrative Procedure Act,
governs the procedure for the adoption, amendment, or
repeal of regulations by state agencies. Existing law
requires the Office of Administrative Law to review
specified regulations and make determinations using
prescribed standards. This bill would require the State Air
Resources Board to submit a major regulation to the Office
of Administrative Law for the purpose of have an analysis
prepared as to the costs and benefits of the regulation and
whether the regulation is technologically feasible.
Status: The bill is pending in Senate Committee on
Environmental Quality.
g) AB 978 (V. Manuel P?rez and Logue) - Streamlined State
Licensing : This bill requires the State Chief Information
Officer (CIO), in collaboration with other relevant
agencies, to develop an online master application for
businesses to file for state permits and licenses. This
bill will provide guidance to a $30 million information
technology project, which has been approved in a prior
budget year. Status: Pending in Senate Governmental
Organization.
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d) AB 1787 (Swanson) -Administrative Procedure: Regulations:
Narrative Description : This bill requires the agency to
include a narrative description of the additions to, and
deletions from, the California Code of Regulations.
Status: The bill is pending in Assembly Committee on
Business, Professions and Consumer Protection.
c) AB 1833 (Logue) - Regulations and Economic Impact
Analysis : This bill would require the California
Environmental Protection Agency, the Division of
Occupational Safety and Health, and the State Air Resources
Board, when proposing to adopt, amend, or repeal an
administrative regulation, to complete an economic impact
analysis of that action prior to the adoption, amendment, or
repeal. Status: The bill is pending in the Assembly
Committee on Business Professions and Consumer Protection.
d) AB 1949 (Logue) -Regulations: Five-Year Review and
Report : This bill would require the California
Environmental Protection Agency, the Division of
Occupational Safety and Health in the Department of
Industrial Relations, and the State Air Resources Board to
review and report on regulations that it adopts or amends on
and after January 1, 2011, five years after adoption, as
specified. Status: The bill is pending in Assembly
Committee on Business, Professions and Consumer Protection.
e) AB 2529 (Fuentes) -State Agencies: Regulations: Review :
This bill calls on the state to adopt the regulatory
philosophy and the principles of regulation, as outlined in
Presidential Executive Order 12866, in order to achieve the
same regulatory benefits within the state. This bill would
require the Department of Finance to assist state agencies
with the review of new and existing regulations for
compliance and consistency with these requirements, and to
review analyses performed by agencies in promulgating new
regulations or in reviewing existing regulations. Status:
The bill is pending in the Assembly Committee on Business,
Professions and Consumer Protection.
f) AB 2603(Gaines) Administrative Regulations: Reductions :
This bill requires, on or before July 1, 2011, that a state
agency determine how many regulations it imposes and, on or
before December 31, 2012, to reduce the total number of
regulations it has identified by 33%. The bill would also
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require, until December 31, 2021, that any new regulation
proposed by an agency also eliminate another regulation.
Status: The bill is pending in the Assembly Committee on
Business, Professions and Consumer Protection.
h) AB 2692 (Tran) -Small Business Regulatory Reform
Commission : This bill creates the Small Business
Regulatory Reform Commission, consisting of 7 members
appointed by Governor, the Senate Committee on Rules, and
the Speaker of the Assembly, and authorize the commission
to recommend reforms to state regulations that will
encourage the development and expansion of small businesses
operating within the state by submitting an annual report
to the Governor and Legislature. Status: Pending in the
Assembly Committee on Jobs, Economic Development and the
Economy, set for hearing April 20, 2010.
i) AB 2330 (Arambula) - Small Business Costs Study : This
bill requires the OSBA to commission a study of the costs
of state regulations on small businesses that is parallel
to the study on the impact of regulatory costs on small
firms conducted by the federal Small Business
Administration. The OSBA is required to make
recommendations on how to reduce the cost of existing and
future regulations on small businesses while achieving the
same policy and regulatory objectives. This bill also
convenes a small business advisory committee to provide
advice based on the study and recommendations. Status:
Signed by the Governor, Chapter 232, Statutes of 2006
j) SB 1436 (Figueroa) - Small Business Regulatory
Standards : This bill requires the Department of Technology
Services to create a link to state agency web sites at the
State of California Internet Portal so small businesses can
access information regarding startup requirements and
regulatory compliance. It requires each state agency that
significantly regulates or impacts small business, to
designate at least one individual to serve as a small
business liaison for the agency. It also requires each
agency to ensure that the state's procurement and
contracting processes are administered in order to meet or
exceed the 25-percent small business participation goal.
Status: Signed by the Governor, Chapter 234, Statutes of
2006
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REGISTERED SUPPORT / OPPOSITION :
Support
American Council on Engineering Companies
California Grocers Association
Opposition
California Teamsters Public Affairs Council
California Conference Board of the Amalgamated Transit Union
California Conference of Machinists
Engineers & Scientists of California IFPTE, Local 21
International Longshore & Warehouse Union
Jockey's Guild
Professional and Technical Engineers, IFPTE Local 21
UNITE HERE!
United Food & Commercial Workers
Analysis Prepared by : Mercedes Flores / J., E.D. & E. / (916)
319-2090