BILL ANALYSIS
AB 2692
Page 1
Date of Hearing: April 20, 2010
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
V. Manuel Perez, Chair
AB 2692 (Tran) - As Introduced: February 19, 2010
SUBJECT : Small Business Regulatory Reform Commission
SUMMARY : Establishes the seven member Small Business Regulatory
Reform Commission for the purpose of recommending regulatory
reforms that encourage the development and expansion of small
businesses. Specifically, this bill :
1)Establishes the Small Business Regulatory Reform Commission
(Commission) consisting of seven members who serve at the
pleasure of their appointing authority:
a) Four members appointed by the Governor;
b) Two members appointed by the Senate Rules Committee; and
c) One member appointed by the Assembly Speaker.
1)Authorizes members to receive per diem and be compensated for
reasonable travel expenses to attend meetings.
2)Authorizes the Commission to recommend reforms to state
regulations that will encourage the development and expansion
of California small businesses, including, but not limited to,
reforms that will decrease expenses incurred by small
businesses that result from state regulations and encourage
small businesses to hire employees and buy supplies and
materials in state.
3)Requires recommendations be submitted in an annual report to
the Governor and Legislature.
4)Sunsets the requirements of this bill on January 1, 2014.
EXISTING LAW
1)Finds and declares that it is in the public interest to aid,
counsel, assist, and protect the interests of small business
concerns in order to maintain a healthy state economy.
2)Establishes the Office of the Small Business Advocate (OSBA),
within the Governor's Office of Planning and Research, for the
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purpose of advocating for small businesses including
responding to complaints from small businesses concerning the
actions of state agencies and the operative effects of state
laws and regulations.
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;
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 purview of the state's regulatory process,
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however, OAL is not authorized to substitute its opinion
relative to specific content over that of the state adopting
agency. In submitting a regulation for OAL's review, the
agency is required to provide, among other things, a
description of reasonable alternatives to the regulation that
would lessen any adverse impact on small business and the
reason for rejecting those alternatives.
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
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 : Over the past 20 years, regulations have
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been created in California, often in a vacuum, without a
proper prospective in how they impact and affect the business
environment. This sometimes haphazard nature of regulation
has led to unintended consequences and California being
regularly rated as one of the worst states to create and do
business.
Small businesses are permanently closing their doors every day
in our state. This means that our communities are losing jobs
and our economy is continuing to suffer. Many small
businesses are closing because they cannot continue to meet
the demands placed on them by the Legislature and regulations
promulgated by California's departments and agencies.
If small businesses are closing up shop that means that we are
losing more and more jobs every day. And these are jobs in
our local communities. We must take action to address the
root of the problem, the over regulation and taxation that
paralyzes small businesses.
The Small Business Regulatory Reform Commission is established
by AB 2692 and tasked with identifying and recommending
reforms to state regulations that will encourage the
development and expansion of small businesses in California.
The Commission is authorized to perform its task until January
1, 2014 and will submit an annual report of its findings to
the Legislature.
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,
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licenses and other areas of regulatory compliance.
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 indicated 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)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
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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 its 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 regulation's impact to only information
supplied by interested parties. AB 2692 would establish a new
commission with the purpose of representing the interests of
small businesses within the existing rulemaking process.
Specifically, the commission would be charged with reviewing
and determining areas where regulations should be changed in
order to encourage small business development.
1)Federal model for regulatory reforms : In 1976, the federal
government established the Office of Advocacy (Federal Office)
within the Small Business Administration. The purpose of the
new Federal Office is to "protect, strengthen and effectively
represent the nation's small businesses within the federal
government's legislative and rule-making processes."
Among its duties, the Federal Office reviews federal
regulations and makes recommendations on how to reduce the
burden on small firms and maximize the benefits small
businesses can receive from the federal government. In 2009,
the Federal Office issued 39 letters to federal agencies, each
posted on the Federal Office website and accompanied by a fact
sheet summarizing advocacy's letter. The letters covered a
range of rulemaking including, but not limited to:
a) The Truth in Lending Proposed Rule, the US Treasury;
b) Stream Buffer Zone and Related Rules, Department of the
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Interior, Office of Surface Mining Reclamation and
Enforcement; and
c) Proposed Rule on Mandatory Reporting of Greenhouse
Gases, Environmental Protection Agency.
Having a specific government entity responsible for the review
and comment on federal regulations is particularly useful
because the Federal Office can provide more detailed comments
and make specific and technical recommendations to assist the
rulemaking entity to modify a rule to lessen its impact on
small businesses, without necessarily reducing its policy
objective.
While California has an OSBA, the state advocate does not
currently have the staff, or the directed statutory mission,
to formally comment on pending state regulations. AB 2692
would establish a new state commission to review regulations
but is silent as to whether the commission will engage during
the rulemaking process or after.
4)Existing small business boards and commissions : There are a
number of formal and informal small business boards and
advisory committees. Many of the entities focus on a single
aspect of small business development, such as state
procurement issues. The entity that has the broadest scope is
the California Small Business Board (Board). The Board is
administered through the Business, Transportation and Housing
Agency and was originally established to help guide the
development of the California Small Business Loan Guarantee
Program.
Today, however, the Board has the broader purpose of also
advising the Governor and the Legislature on issues and
programs affecting California's small business community
including innovation and economic expansion, export financing,
state procurement, technical assistance and access to business
capital issues. The author may wish to consider an
alternative to establishing a new commission by expanding the
scope of this existing Board.
2)Structure of the proposed Commission : AB 2692 proposes the
establishment of Small Business Regulatory Reform Commission
however the bill provides very little detail as to how it will
operate, including such things as who will staff the
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commission, how meetings will be convened, and its
relationship to the OSBA and the broader small business
community. The author and/or Committee may wish to address
some of these operational elements through amendments.
Another area that may need to be addressed is the proposed
Commission's relationship in the overall regulation process
including how it and the other state agencies will interact.
Due to the Commission's potentially sensitive oversight
responsibilities, it may be necessary to require that state
agencies respond and cooperate with the Commission as it
implements its mission. In considering its mission, there may
be a need to clarify whether the Commission is engaged in
commenting on regulations that are in the process of being
developed or just reviewing the impact of existing
regulations.
Beyond the structure and purpose of the Commission, Members
may wish to add more specificity as to the structure and
content of its recommendations. Without sufficient technical
detail, the Commission's annual reports may not provide the
guidance necessary for the Governor and Legislature to take
action, or at a minimum pursue their own oversight of
regulations.
3)Economic Recovery and Regulatory Reforms : The Legislature is
currently considering five economic recovery packages,
including initiatives prepared by the Assembly Committee on
Jobs, Economic Development and the Economy (JEDE), the
Governor's Office, the Senate Democratic Caucus, the Assembly
Moderate Democratic Caucus, and the Senate and the Assembly
Republican Caucuses.
In general, these initiatives are designed around four themes:
tax reforms, tort reforms, regulatory reforms, and programs
and services to support business and workforce development.
In March 2010, the Legislature passed and the Governor signed
approximately $400 million in tax incentives to support job
creation in the clean-tech and construction industries.
Limited action has been taken on the other proposals,
including proposals related to improving the state's
regulatory processes.
There are, however, an extensive list of bills related to
regulatory reforms. In general, these bills take two basic
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approaches. One set of bills recommends methods for
streamlining and fast tracking existing state requirements.
The other set of bills proposes changes in how regulations are
developed and/or approved. Below is a preliminary list of
pending regulatory reform legislation.
Bills that propose a fast-track or streamlined approach
include, but are not limited to:
a) 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: The bill is pending in Senate
Committee on Governmental Organization.
b) AB 2231(V. Manuel Perez) - Renewable Energy Action Team :
This bill requires the California Energy Commission (CEC)
to convene the Renewable Energy Action Team for the purpose
of developing the Desert Renewable Energy Conservation
Plan. Members of the team would include representatives
from the CEC, the Department of Fish and Game, and the
Natural Resources Agency. The bill would require the CEC
also to request the United States Fish and Wildlife Service
and the United States Department of the Interior Bureau of
Land Management to also participate in the team. Status:
The bill is pending before Assembly Committee on Natural
Resources.
c) SB 959(Ducheny) - Expedited Permit Review : This bill
requires Office of Planning and Research (OPR) to implement
an expedited permit process whereby interested applicants
for development projects could submit projects to OPR and
OPR would assist the applicant in identifying which permits
would be required and providing a copy of each of the
required permit applications. Status: The bill is pending
in the Senate Committee on Local Government.
d) SB 1351(Wright) - Require Commercially Available
Technology : This bill requires an agency that adopts a
regulation that requires the use of a new or emerging
technology or equipment in order to achieve the identified
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purpose of the regulation to post, as specified, upon the
effective date of the regulation, that the required
technology or equipment is commercially available or will
be commercially available prior to the effective date of
the regulation. This bill would, if the required technology
or equipment is not commercially available on the effective
date of a regulation, prohibit an agency from enforcing a
violation of the regulation until at least 6 months after
the technology. Status: Pending in the Senate
Environmental Quality Committee.
Bills that propose improvements to how regulations are
developed and approved include, but are not limited to:
a) AB 1949(Logue) - Regulations: Five-year Review : This
bill requires specified state agencies to review and report
to OAL on regulations that it adopts five years after
adoption. The bill would require that the review and
report include 10 specified factors, including a summary of
the written criticisms of the regulation received by the
agency within the immediately preceding five years and the
estimated economic, small business, and consumer impact of
the regulation. Status: The bill failed passage in the
Assembly Committee on Business, Professions and Consumer
Protection and reconsideration was granted.
b) AB 2196 (Smyth) - Small Business Advocate's Report on
Regulations : This bill requires the Office of the Small
Business Advocate to commission a study on the 10 costliest
regulations on California small businesses. The study is
required to be prepared by October 2011. Status: The bill
is pending before the Assembly Committee on Jobs, Economic
Development and the Economy (JEDE).
c) AB 2529 (Fuentes) - State Auditor Cost Benefit Analysis :
This bill requires the State Auditor to conduct a
specified cost benefit analysis of regulations. If a
proposed regulation is approved that has an annual
statewide economic cost of more than $10 million or that
the benefits of the regulation do not equal or exceed the
costs of the regulation, the State Auditor is required to
notify the Legislature and specified legislative committees
are then required to conduct a public hearing to review the
regulation. Status: The bill is pending in the Assembly
Committee on Business, Professions and Consumer Protection
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(BPCP).
d) AB 2603(Gaines) - Regulation Reductions : This bill
enacts the California Smart Regulation Act, which requires,
on or before July 1, 2011, that each 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 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 BPCP.
e) AB 2692 (Tran) - Small Business Reforms : This bill
establishes the seven member Small Business Regulatory
Reform Commission for the purpose of recommending
regulatory reforms that encourage the development and
expansion of small businesses. Status: The bill is
pending in JEDE.
f) SB 356 (Wright) - Impact of Regulations on Small
Businesses : This bill requires an agency considering the
adoption of a regulation to consult with those persons and
businesses potentially affected and would delete the
condition that the agency only involve those parties if the
proposal is large or complex. Status: Pending in Assembly
Business and Professions Committee.
g) SB 942(Dutton) - State Auditor: Analysis of Regulations :
This bill establishes new requirements in the rulemaking
process under the Administrative Procedure Act (APA) to:
1) require state agencies that are proposing a regulatory
action to submit more detailed information regarding the
costs of the proposed action, as specified, and (2)
enhance the authority of the OAL in reviewing the cost
estimates of proposed regulatory actions, as specified.
Also, SB 942 requires agencies to catalog and review its
existing regulations and to report its findings to the
Legislature. Status: The bill is pending in the Senate
Committee on Appropriations.
h) SB 954(Harman) - Joint Committee to Determine Economic
Impact : This bill enacts the Jobs Protection Act, which
would rename the Joint Committee on Boards, Commissions,
and Consumer Protection as the Joint Committee on Boards,
Commissions, and Consumer or Business Protection, and would
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create a new legislative procedure for determining the
economic impact of specified pending legislation. The
bill would require the joint committee to move a bill
estimated to generate a fiscal impact of $10,000 or more on
small business, as defined, or $50,000 or more on any other
business, to the suspense file of the joint committee for
further consideration, subject to specified procedural
requirements. Status: The bill is pending in Senate
Committee on Rules.
i) SB 960(Dutton) State Air Resources Board: regulations:
Office of Administrative Law : This bill requires the State
Air Resources Board to submit a major regulation, as
defined, to the OAL for the purpose of having an analysis
prepared as to the costs and benefits of the regulation and
whether the regulation is technologically feasible.
Status: The bill failed passage in Senate Committee on
Environmental Quality.
5)California's small business economy : 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.
Among other advantages, small- and medium-sized 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. 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, 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, Equifax is reporting that small
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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%.
REGISTERED SUPPORT / OPPOSITION :
Support
None received
Opposition
None received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916)
319-2090