BILL ANALYSIS
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|Hearing Date:April 27, 2009 |Bill No:SB |
| |356 |
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SENATE COMMITTEE ON BUSINESS, PROFESSIONS
AND ECONOMIC DEVELOPMENT
Senator Gloria Negrete McLeod, Chair
Bill No: SB 356Author:Wright
As Amended:April 16, 2009 Fiscal:Yes
SUBJECT: Regulations: small businesses.
SUMMARY: Revises the Administrative Procedures Act (APA) to require
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. Also modifies the
definition of small business for the purposes of the APA.
Existing law:
1)Establishes, through the Administrative Procedure Act (APA), the
requirements for the adoption, publication, review and implementation
of regulations promulgated by state agencies and does the following:
a) Authorizes an agency considering the adoption of a new
regulation or amending or repealing an existing one to consult
with interested parties before initiating the regulatory action.
b) Requires an agency to involve parties who would be subject to
the regulation before publishing a notice of proposed action, if
the proposed regulations involve complex proposals or a large
number of proposals.
c) Defines "small business:"
i) As business entity in agriculture, general construction,
special trade construction, retail trade, wholesale trade,
services, transportation and warehousing, manufacturing,
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generation and transmission of electric power or health care
facility that is independently owned and operated and is not
dominant in its field of operation.
ii)
Excludes the following professional and business activities from
the small business definition:
(1)
Financial institutions as defined and insurance companies.
(2)
Mineral, oil or gas brokers.
(3)
Subdividers or developers.
(4)
Landscape architects, architects or building designers.
(5)
Nonprofit institutions.
(6)
Entertainment activities or productions, including motion
pictures, stage performances, television or radio stations,
or production companies.
(7)
Utility, water companies or power transmission companies
generating and transmitting more than 4.5 million kilowatt
hours.
(8)
Petroleum producers, natural gas producers, refiners or
pipelines.
(9)
Health care facilities exceeding 150 beds or $1.5 million in
annual gross receipts.
iii)
Excludes the following business activities from the small business
definition:
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(1)
Agriculture with annual gross receipts exceeding $1 million.
(2)
General construction with annual gross receipts exceeding
$9.5 million.
(3)
Special trade construction with annual gross receipts
exceeding $5 million.
(4)
Retail trade with annual gross receipts exceeding $2
million.
(5)
Wholesale trade with annual gross receipts exceeding $9.5
million.
(6)
Services with annual gross receipts exceeding $2 million.
(7)
Transportation and warehousing with annual gross receipts
exceeding $1.5 million.
d) Requires state agencies subject to the APA to submit with a
notice of the proposed regulatory action an initial statement of
the reasons for the proposed adoption, amendment or repeal of a
regulation. The initial statement must also include a description
of reasonable alternatives that would mitigate any adverse impacts
on small business and the agency's reason for rejecting those
reasonable alternatives. The APA does not require the agency to
artificially construct alternatives, describe unreasonable
alternatives or justify why it has not described alternatives.
e) Requires state agencies to assess the potential of a proposal
to adopt, amend or repeal a regulation to adversely affect
business enterprises and individuals.
f) In the event an agency makes an initial determination that the
adoption, amendment, or repeal of a regulation will not have a
significant statewide adverse economic impact on business,
requires the agency to make a declaration of that determination in
the notice of proposed action.
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g) Requires agencies to prepare and submit to the Office of
Administrative Law (OAL) the adopted regulation along with a final
statement of reasons that must include, among other things, an
explanation for rejecting any proposed alternatives that would
lessen any adverse economic impact on small businesses.
This bill:
1)Makes a number of legislative findings regarding the importance of
small business to California's economy, the regulatory challenges
they face and the ways in which regulations affecting small business
should be developed.
2)For the purposes of the APA, defines "small business" as an entity,
including its affiliates that is owned and operated by a person, as
defined by Revenue and Taxation Code 17007, and meets one the
following conditions:
a) Employs fewer than 100 full-time employees.
b) Has average annual gross receipts of less than $10 million over
the previous three years.
3)Requires state agencies to consult with interested parties before
initiating regulatory action, whether the action be the adoption,
amendment or repeal of a regulation.
4)Requires the initial statement of reasons for seeking the regulatory
action to include a small business economic impact statement that
includes the following:
a) An identification and estimate of the number of small
businesses affected by the proposed regulation.
b) The estimated average cost of compliance by a small business
affected by the regulation, including the projected reporting,
recordkeeping and other administrative costs required for
compliance with the proposed regulation.
5)Requires the reasonable alternatives in the initial statement of
reasons for the seeking the regulatory action to include:
a) Less burdensome compliance or reporting requirements for small
businesses.
b) Less burdensome schedules or deadlines for compliance or
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reporting requirements for small businesses.
c) The consolidation or simplification of compliance or reporting
requirements for small businesses.
d) The use of performance standards for small businesses instead
of design or prescriptive standards.
e) The exemption of some or all small businesses, if appropriate
to the imposed cost burden from any or part of the requirements in
the proposed regulation.
6)Specifies that if an agency rejects a reasonable alternative for
small business, it must state its reasons for rejecting the
alternative.
7)Requires state agencies, before submitting a proposal to take
regulatory action to the Office of Administrative Law (OAL), to
consider the proposed regulation's impact by preparing a small
business economic impact statement on the affected industries,
including the ability of the state's small businesses to compete with
other small businesses in other states, and permits the agencies to
consider information supplied by interested parties.
8)Requires the small business economic impact study to include:
a) An identification and estimate of the number of small
businesses affected by the proposed regulation.
b) The estimated average cost of compliance by a small business
affected by the regulation, including the projected reporting,
recordkeeping and other administrative costs required for
compliance with the proposed regulation.
c) A description of reasonable alternatives to the regulation that
would mitigate the impact on small business, including but not
limited to:
i) Less burdensome compliance or reporting requirements for
small businesses.
ii) Less burdensome schedules or deadlines for compliance or
reporting requirements for small business.
iii) The consolidation or simplification of compliance or
reporting requirements for small business.
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iv) The use of performance standards for small businesses
instead of design or prescriptive standards.
9)Requires the OAL to ensure compliance with the provisions of this
bill and requires it to return any rulemaking package to an agency,
along with a statement identifying any incomplete provisions, if the
OAL determines the economic impact statement does not meet the
criteria established by this bill.
10)Requires agencies to involve parties who would be subject to the
regulation before publishing a notice of proposed action.
11)Requires, in the event an agency makes an initial determination that
the regulatory action may have a direct adverse impact on small
business, including the ability to compete with small business in
other states, the agency to include the following information in the
notice of proposed action:
a) An identification and estimate of the number of small
businesses affected by the proposed regulation.
b) The estimated average cost of compliance by a small business
affected by the regulation, including the projected reporting,
recordkeeping and other administrative costs required for
compliance with the proposed regulation.
c) The following statement: "The (name of agency) has made an
initial determination that the (adoption/amendment/repeal) of this
regulation may have a significant, statewide adverse economic
impact directly affecting small business, including the ability of
California businesses to compete with small businesses in other
states. The (name of agency) (has/has not) considered proposed
alternatives that would lessen any adverse economic impact on
small business and invites you to submit proposals."
d) Permits submissions to the agency to include suggestions on:
i) Alternative compliance, reporting requirements or
timetables that consider the resources available to small
business.
ii) Consolidation or simplification of compliance and reporting
requirements for small business.
iii) The use of performance standards for small business,
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instead of prescriptive or design standards.
iv) The exemption of small business, if appropriate to the
imposed cost burden from any or part of the requirements in the
proposed regulation.
12)Requires, if an agency makes an initial determination that the
regulatory action will not have a significant statewide adverse
economic impact on small business, the agency to make a declaration
to that effect in the notice of proposed action and requires the
agency to provide facts, evidence, documents, testimony or other
evidence used to make that determination for the record.
13)Specifies that an agency's initial determination on proposed
regulatory action, whether it adversely impacts small business or
not, is not grounds for the OAL to deny permission for the agency to
publish the notice of proposed action, unless OAL determines that the
small business economic impact statement is incomplete pursuant to
item #9) above.
14) If an agency determines the regulation would have a significant,
statewide adverse impact on small businesses, the agency must submit
to the OAL a final analysis that includes:
a) A summary of the small business community's significant issues,
a summary of the agency's assessment of those issues and a
statement of changes made in the proposed regulation as a result
of those comments.
b) An identification and estimate of the number of small
businesses affected by the proposed regulation.
c) The estimated average cost of compliance by a small business
affected by the regulation, including the projected reporting,
recordkeeping and other administrative costs required for
compliance with the proposed regulation.
d) A description of the agency's steps to minimize the significant
economic impact on small businesses, including a statement of the
factual, policy and legal reasons for selecting the alternative
adopted in the final regulation and an explanation for the
rejection of other alternatives.
15) Permits any person, including but not limited to, a small business
or organization or trade association whose members are affected by
the regulation, to obtain a judicial declaration as to the validity
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of any regulation or order of repeal by bringing action for
declaratory relief in Superior Court.
16)Requires the Department of Finance (DOF) to adopt and update as
necessary instructions in the State Administrative Manual that
prescribe how state agencies should make the determinations and
estimates that, according to this bill, must be included in the
notice of proposed action and requires the instructions to include
criteria to be used to determine whether a regulation will have a
significant adverse economic impact.
17)Makes a number of clarifying and conforming changes.
FISCAL EFFECT: Unknown. This bill is keyed "fiscal" by
Legislative Counsel.
COMMENTS:
1.Purpose. According to the Sponsors, the California Small Business
Association (CSBA) and the National Federation of Independent
Business (NFIB), this measure brings more accountability to the
regulatory process and stimulates small businesses by requiring
agencies to involve these job creators early in the regulatory
process. Existing law only requires that agencies consult with
"interested parties," not necessarily including small businesses, and
this process may result in agencies consulting with large
corporations to develop regulations without the input of small
businesses. They argue that including small businesses during the
drafting process will generate more goodwill and potentially save
valuable state funds by reducing the need for repetitive amendments
and public comment periods.
Additionally, the Sponsors make the following assertions about this
bill and believe it will:
Strengthen existing economic impact analysis provisions by
closing loopholes that allow agencies to declare that a proposed
regulation has no significant economic impact without providing an
explanation. By allowing agencies to explain their reasoning
behind such a conclusion, small businesses and the public are
better served and able to check the work of the agencies
responsible to regulating them.
Stimulate small business growth by building on existing
provisions that encourage agencies to consider "reasonable"
alternatives that are less burdensome to California small
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businesses. This bill closes a loophole that allows agencies to
state there is no "reasonable" alternative without providing any
justification for not pursuing an alternative.
Recognize fiscal resources are limited and the regulations
place more burden on private entities, including businesses, trade
associations and labor groups for the enforcement of these
requirements. This bill also simplifies the definition of "small
business" that agencies will use in analyzing the economic impact
of proposed regulations saving the state valuable state funds.
Finally, the Sponsors state, "This bill does not stop or delay needed
protections for California's employees and the environment. It
simply requires a fair assessment of the impact of government
regulations on California small businesses. In fact neighboring
states, such as Arizona and Nevada, have even more extensive
processes in place that have significantly benefited the economy of
those states to our detriment."
1.Small Businesses in California. Small businesses form the core of
California's $1.7 trillion economy, comprising more than 98% of all
businesses and are responsible for employing more than 50% of all
workers in the state. In 2006, the state had an estimated 3.6
million small businesses.
2.Small Business and Entrepreneurship Conference. In November 2008,
Governor Schwarzenegger invited leaders of small business
organizations and entrepreneurs representing the spectrum of the
state's economy to this two-day conference in Los Angeles, to discuss
ideas on improving the partnership between the private sector and
state government to stimulate the economy. Since May 2008,
individuals from the small business community groups prepared over
100 draft proposals for discussion by conference participants on
topics ranging from access to capital to regulatory reform. At the
conclusion of the conference, participants made a number of policy
recommendations to help bolster state support for small business
which include the following:
Ask the Legislature to restore investment in programs that
support small businesses.
Work with the California Air Resources Board (CARB) to
perform a comprehensive assessment of the interim costs for AB
32 implementation that affects small businesses and identify
financing programs that could help alleviate those costs.
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Regulatory reform.
This measure seeks to implement the small business regulatory reform
discussed at the conference.
1.U.S. Small Business Administration Study. A 2005 study conducted by
the U.S. Small Business Administration found that federal regulatory
compliance cost small businesses (20 or fewer employees) 45 percent
more than it did for large businesses (500 or more employees). A
California specific study mandated by AB 2330 (Arambula, Chapter 232,
Statutes of 2006) is currently 18 months overdue, but is expected to
be released this Spring.
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|2005 Federal Study |Cost per employee for firms with: |
|Results | |
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|----------------+--------+-----------+--------------+------------|
|Type of |All |<20 |20-499 |500+ |
|Regulation |Firms |employees |employees |employees |
|----------------+--------+-----------+--------------+------------|
|Federal |$ 5,633 |$ 7,647 |$ 5,411 |$ 5,282 |
|Regulations | | | | |
|----------------+--------+-----------+--------------+------------|
|Economic |$ 2,567 |$ 2,127 |$ 2,372 |$ 2,952 |
|----------------+--------+-----------+--------------+------------|
|Workplace |$ 922 |$ 920 |$ 1,051 |$ 841 |
|----------------+--------+-----------+--------------+------------|
|Environmental |$ 1,249 |$ 3,296 |$ 1,040 |$ 710 |
|----------------+--------+-----------+--------------+------------|
|Tax Compliance |$ 894 |$ 1,304 |$ 948 |$ 780 |
| | | | | |
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Source: September 2005 "The Impact of Regulatory Costs on Small Firms"
SBA Office of Advocacy, http://www.sba.gov/advo/research/rs264.pdf .
2.Policy Concerns. This bill would require state agencies, prior to
seeking regulatory action, to make a number of specified findings and
determinations on the impact of the proposed regulations on small
business. However, it is not clear if state agencies have the
resources or expertise to make some of the findings and
determinations required by this bill. While it may be fairly simple
to identify and estimate the number of small businesses affected by a
proposed regulation, agencies may not have the expertise or access to
information to determine small business' estimated average cost of
compliance for the proposed action. Similarly, the bill requires the
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economic impact statement to include "less burdensome" compliance,
reporting requirements, compliance schedules, or deadlines for small
business, but does not provide any guidance as to what that means, or
how the agency or small business community can determine what is
"less burdensome."
Additionally, the bill does permit state agencies to use information
gathered from small businesses to make the findings and
determinations required by the bill, but if agencies do not have the
expertise to evaluate the provided information, there is no way for
them to determine whether small business is providing them accurate
and truthful information on the impact of the proposed regulatory
action. This may lead to agencies receiving false and misleading
information and using that incorrect information develop statewide
regulations.
To address these policy concerns, the Author may wish to consider
amendments to scale down some of the findings and declarations
required by this bill and/or further clarify how, in practice, the
provisions of this bill will work.
3.Related Legislation. AB 2854 (Mendoza, 2008) would have required,
upon available funding, the Office of the Small Business Advocate
(Advocate) to create a one-stop website for small business-related
announcements and funding opportunities offered by state agencies.
The measure was vetoed by the Governor.
AB 2330 (Arambula, Chapter 232, Statutes of 2006) required the Office
of the Small Business Advocate to examine, October 1, 2007, the costs
of state regulations on small businesses, as specified.
AB 3058 (Assembly Committee on Jobs, Economic Development, and the
Economy, Chapter 233, Statutes of 2006) required the Office of the
Small Business Advocate, in cooperation with the Office of Emergency
Services and the Department of Industrial Relations, to develop a
web-based handbook for small businesses on emergency preparedness,
emergency response, and recovery strategies.
SB 1436 (Figueroa, Chapter 234, Statutes of 2006) enhanced the
state's technical assistance to small businesses by improving the
state's Internet information for small businesses and requiring the
designation of agency-level small business liaisons.
4.Arguments in Support. A number of organizations are in support of
this bill (see Support listed below) because it will require state
agencies to solicit the input of small business before pursuing
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regulations; regulations which may be costly and burdensome and
adversely impact a small business' ability to thrive and compete, and
require agencies to submit a detailed economic impact statement that
includes less stringent alternatives for small businesses. They
believe that by requiring agencies to work in closer coordination
with small business owners, they will be able to help mitigate the
disparate regulatory costs on small businesses.
5.Arguments in Opposition. The California Labor Federation opposes
this measure as they believe it would "slant the regulatory process
even more in favor of employers and business interests, at the
expense of workers" and that there is no evidence that regulations
have a disproportionate impact on small businesses or that the
existing regulatory process marginalizes small businesses. They
state there is no equivalent requirement for reviewing a regulation's
impact on workers or explaining why a regulation that would have
afforded workers greater protection was rejected. The California
Labor Federation acknowledges that businesses are hurting in this
economy, but the solution is not to water down workplace protections
in regulatory process that favors business and ignores the interests
of workers.
The Consumer Federation of California (CFC) and the Sierra Club
California also oppose
this measure as they believe it would pile a host of expensive and
time consuming new requirements on any agency considering adopting,
amending or repealing a regulation. They assert agencies would be
required to consider, and to justify not adopting wholesale
exemptions and loopholes for small business and that many of the
bill's provisions offer multiple litigation opportunities for parties
wishing to delay or negate the regulatory process.
SUPPORT AND OPPOSITION:
Support:
California Small Business Association (Co-Sponsor)
National Federation of Independent Business (Co-Sponsor)
Acclamation Insurance Management Services
American Council of Engineering Companies- California
Apex Envirotech, Inc.
California Chamber of Commerce
California Black Chambers of Commerce
California Hispanic Chambers of Commerce
California Association of Competitive Telecommunications Companies
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(CALTEL)
California Association of Health Facilities
California Automotive Business Coalition (CalABC)
California Chapter of the American Fence Contractors' Association
California Construction Industry Materials Association
California Council American Society of Landscape Architects
California Dump Truck Owners Association
California Farm Bureau Federation
California Fence Contractors' Association
California Hospital Association
California Hotel & Lodging Association
California Metals Coalition
California Independent Grocers Association
California Independent Oil Marketers Association
California Manufacturers' & Technology Association
California Restaurant Association
California Service Station and Automotive Repair Association
Engineering Contractors' Association
Flasher/Barricade Association
Greater San Fernando Valley Chamber of Commerce
Independent Waste Oil Collectors
Marin Builders' Association
Metal Finishing Association of Southern California
National Association of Women Business Owners- California
Small Business Action Committee
Small Business California
TechAmerica
Western Growers Association
Valley Industry Commerce Association (VICA)
Opposition:
Amalgamated Transit Union
California Conference of Machinists
California Labor Federation
California Teamsters Public Affairs Council
Consumer Federation of California
Engineers and Scientists of California
IFPTE Local 21
International Longshore and Warehouse Union
Sierra Club California
Strateic Committee of Public Employees, Laborers' International
Union of North America
UNITE HERE!
United Food and Commercial Workers Union, Western States Council
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Consultant:Sieglinde Johnson