BILL ANALYSIS
Bill No: SB
942
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2009-2010 Regular Session
Staff Analysis
SB 942 Author: Dutton
As Amended: April 5, 2010
Hearing Date: March 23, 2010
Consultant: Chris Lindstrom
SUBJECT
State Auditor: analysis of regulations.
DESCRIPTION
SB 942 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 Office of Administrative Law
(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.
Specifically, this bill:
1)Adds a new article to the Government Code entitled, Cost
Estimate Analysis of Proposed Regulations.
2)Creates the Economic Analysis Unit (EAU) within the
Office of Administrative Law (OAL). Requires EAU to
review cost estimates of proposed regulations.
3)Requires each agency to disclose to the public, at the
time it disseminates the notice of proposed action to
adopt, amend, or repeal a regulation, the costs of the
regulation, as required by existing law under the APA.
Also, requires each agency to disclose to the public the
SB 942 (Dutton) continued
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nonproprietary information used to develop those costs
estimates.
4)Requires each agency to disclose to EAU, at the time it
disseminates the notice 45 days prior to the public
hearing and close of the public comment period to adopt,
amend or repeal a regulation the costs of the regulation,
as required by existing law under the APA. Also,
requires each agency to disclose to EAU all proprietary
and nonproprietary information used to develop those
costs estimates. EAU shall treat as confidential any
information identified as proprietary. Further, requires
EAU to disseminate any information submitted to the
agency from parties affected by the proposed regulatory
action.
5)Requires each agency to disclose to the public and to
submit to EAU a final revised cost estimate for a
proposed regulation 30 working days prior to submitting
the proposed regulation to OAL for final review.
6)Requires EAU to review final revised cost estimates for a
proposed regulation for which the agency has provided an
estimated cost of fifty million dollars ($50,000,000) or
more.
7)Authorizes EAU to review cost estimates pursuant to #3
and #4 above for a proposed regulation for which the
agency has provided an estimated cost of fifty million
dollars ($50,000,000) or more.
8)Provides that stakeholders may petition OAL to direct EAU
to review final revised cost estimates for a proposed
regulation that has an estimated cost that is less than
fifty million dollars ($50,000,000). Empowers the
director of OAL, in his or her sole discretion, to
approve or deny the petition.
9)Provides EAU's review of the cost estimates shall
determine if the submitting agency used an appropriate
methodology to develop those cost estimates and whether
the submitted cost estimates are a fair assessment of the
estimated cost of the regulation based on the information
available to the agency to develop the cost estimate.
10) Requires EAU to approve or reject a cost estimate
within 50 working days. If EAU rejects the cost
SB 942 (Dutton) continued
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estimate, the proposed regulation shall be returned to
the agency with a written statement of reasons for the
rejection, which shall also be made available to the
public. If EAU approves the cost estimate, then EAU
shall notify the agency and OAL that the proposed
regulation is eligible for final approval by OAL.
11) Provides that OAL may concurrently review a proposed
regulation while EAU reviews the proposed regulation,
except that OAL shall not approve a regulation until EAU
approves the cost estimates for that regulation.
12) Adds a new section to the Government Code to require
each agency to:
a) Review each regulation adopted prior to January 1,
1990. The review shall be developed into a report
that includes, but is not limited to, the following
information for each regulation:
i) The date that OAL approved the regulation.
ii) The purpose.
iii) The statutory authority.
iv) The identification of impacted sectors.
v) The direct costs by sector.
vi) Whether the regulation is duplicative
of other regulations.
vii) Whether the regulation is still
relevant.
viii) Whether the regulation needs to be
updated in order to become more effective or less
burdensome.
b) Consult with parties affected by the regulation in
developing the report.
c) Submit the report to the Legislature on or before
January 1, 2013.
13) Provides that if an agency is a component member of
another agency, the member agency shall submit a copy of
its report to the highest ranking agency head prior to
submitting the report to the Legislature. The agency
head shall review the reports for each component agency
for the purpose of identifying duplicative or conflicting
regulations between departments.
14) Adds a new section to the Government Code to require,
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on or before January 1, 2018, and at least every five
years thereafter, each agency shall review each
regulation that is at least 20 years old and has not been
reviewed within the last 10 years. The review shall be
developed into a report that shall be submitted to the
Legislature and includes, but is not limited to, the
following information for each regulation:
a) The date that OAL approved the regulation.
b) The purpose.
c) The statutory authority.
d) The identification of impacted sectors.
e) The direct costs by sector.
f) Whether the regulation is duplicative of other
regulations.
g) Whether the regulation is still relevant.
h) Whether the regulation needs to be updated in order
to become more effective or less burdensome.
15) Requires each agency to submit an annual report to
the Legislature that identifies the regulations reviewed
during the previous year and the associated findings.
EXISTING LAW
Existing law, the Administrative Procedure Act, governs the
procedure for the adoption, amendment, or repeal of
regulations by state agencies, including a requirement that
the notice of proposed action contain prescribed cost
estimates associated with the proposed regulation.
Existing law also provides for the review of these
regulatory actions by OAL to ensure that regulations follow
the rulemaking procedures outlined in the APA.
Existing law requires the notice of proposed adoption,
amendment, or repeal of a regulation to include, among
other things:
1)An estimate, prepared in accordance with instructions
adopted by the Department of Finance, of the cost or
savings to any state agency, the cost to any local agency
or school district that is required to be reimbursed,
other nondiscretionary cost or savings imposed on local
agencies, and the cost or savings in federal funding to
the state.
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2)If a state agency, in proposing to adopt, amend, or
repeal any administrative regulation, makes an initial
determination that the action may have a significant,
statewide adverse economic impact directly affecting
business, including the ability of California businesses
to compete with businesses in other states, it shall
include the following information in the notice of
proposed action:
a) Identification of the types of businesses that
would be affected.
b) A description of the projected reporting,
recordkeeping, and other compliance requirements that
would result from the proposed action.
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 business, including the ability of
California businesses to compete with businesses in
other states. The (name of agency) (has/has not)
considered proposed alternatives that would lessen any
adverse economic impact on business and invites you to
submit proposals. Submissions may include the
following considerations:
i) The establishment of differing compliance or
reporting requirements or timetables that take into
account the resources available to businesses.
ii) Consolidation or simplification of compliance
and reporting requirements for businesses.
iii) The use of performance standards rather than
prescriptive standards.
iv) Exemption or partial exemption from the
regulatory requirements for businesses.
3)A description of all cost impacts, known to the agency at
the time the notice of proposed action is submitted to
the office, that a representative private person or
business would necessarily incur in reasonable compliance
with the proposed action. If no cost impacts are known
to the agency, it shall state the following:
"The agency is not aware of any cost impacts that a
representative private person or business would
necessarily incur in reasonable compliance with the
proposed action."
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4)A statement that the action would have a significant
effect on housing costs, if a state agency, in adopting,
amending, or repealing any administrative regulation,
makes an initial determination that the action would have
that effect.
Existing law requires OAL to review all regulations
adopted, amended, or repealed and submitted to OAL for
publication in the California Code of Regulations
Supplement and for transmittal to the Secretary of State
and make determinations using all of the following
standards:
1) Necessity.
2) Authority.
3) Clarity.
4) Consistency.
5) Reference.
6) Nonduplication.
Existing law restricts OAL in reviewing regulations to
restrict its review to the regulation and the record of the
rulemaking proceeding. The office shall approve the
regulation or order of repeal if it complies with the
standards set forth in this section and with this chapter.
Existing law requires OAL to adopt regulations governing
the procedures it uses in reviewing regulations submitted
to it. The regulations shall provide for an orderly review
and shall specify the methods, standards, presumptions, and
principles the office uses, and the limitations it
observes, in reviewing regulations to establish compliance
with the standards. The regulations adopted by OAL shall
ensure that it does not substitute its judgment for that of
the rulemaking agency as expressed in the substantive
content of adopted regulations.
BACKGROUND
Purpose of the bill . According to the author's office,
"Businesses often point to regulatory burden as one the
biggest factors for the economy's poor performance, yet
there is little agreement on which regulations are the most
damaging. This bill would provide policy makers with the
objective information needed to identify those job-killing
regulations that are strangling the economy.
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"Despite the procedures set forth under the APA,
California's economy is struggling due to onerous and
duplicative regulations. A Sacramento State study found
the total cost of regulation is approximately $493 billion,
or 3.8 million jobs lost - a tenth of the state's
population. Forbes Magazine ranks California as the most
costly state to do business, while the Chief Executive
Magazine finds California's business climate as the worst
in the nation for the 4th year in a row.
"Businesses often point to regulatory burden as one the
biggest factors for the economy's poor performance, yet
there is little agreement on which regulations are the most
damaging. This bill would provide policy makers with the
objective information needed to identify those job-killing
regulations that are strangling the economy. With
unemployment at 12.4%, it is vital that the Legislature
enact meaningful reform to reduce barriers to economic
prosperity.
"The Office of Administrative Law (OAL) reviews and
approves all regulations. The OAL determines whether
rulemaking agencies have properly complied with the APA,
but the OAL does not review the cost information to
determine whether it is accurate. "
Background . OAL is responsible for reviewing
administrative regulations proposed by over 200 state
regulatory agencies for compliance with standards set forth
in California's APA, for transmitting these regulations to
the Secretary of State, and for publishing regulations in
the California Code of Regulations. OAL assists state
regulatory agencies through a formal training program, as
well as through other less formal methods, to understand
and comply with the APA. Through its Reference Attorney
service, OAL provides direct legal advice to state agencies
and members of the public regarding California rule making
law.
Existing law requires OAL to adopt regulations governing
the procedures it uses in reviewing regulations submitted
to it. The regulations adopted by OAL shall ensure that it
does not substitute its judgment for that of the rulemaking
agency as expressed in the substantive content of adopted
regulations.
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In response to petitions by interested persons, OAL
evaluates whether rules being used by state agencies
constitute underground regulations which have not been
properly adopted pursuant to the requirements of the APA
and issues formal determinations reflecting those
evaluations.
OAL oversees the publication and distribution, in print and
on the Internet, of the California Code of Regulations and
the California Regulatory Notice Register.
Administrative Procedures Act . The APA establishes
rulemaking procedures and standards for state agencies in
California. The requirements set forth in the APA are
designed to provide the public with a meaningful
opportunity to participate in the adoption of state
regulations and to ensure that regulations are clear,
necessary and legally valid.
Impact on OAL . This bill would establish the Economic
Assessment Unit within OAL. OAL currently consist of
approximately 20 employees, most of which are attorneys.
OAL does not have any economists on staff or the type of
professionals to do the type of assessment required by the
bill. This bill would require OAL to hire personnel or
contract out to perform this type of assessment.
Additionally, the Governor's Budget proposed to convert OAL
from being a General Fund agency to be funded by billable
services. The Governor's Budget includes a reduction of
$1.7 million General Fund and $1.1 million Central Service
Cost Recovery Fund to be replaced with $2.8 million from
the new Regulatory Oversight Revolving Fund. This will
shift the OAL to a fee-for-service model wherein OAL bills
client departments directly for the review of proposed
administrative regulations, training, and investigations
related to the usage of underground regulations. This
change may complicate the transition from the General Fund
to fees-for-services.
Arguments in support . Supporters argue that this bill will
establish an Economic Analysis Unit in the Office of
Administrative Law to receive and review cost estimates of
proposed regulations that meet a certain cost threshold, or
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for lesser-cost regulations upon petition by a stakeholder,
at the discretion of the Director of OAL.
While the APA requires that agencies provide cost estimates
in the regulatory process, the review process by the OAL
does not look behind the agency determination to ensure
that the cost estimates are based on solid information
using a consistent and reliable methodology. Now
stakeholders have little recourse to contest agency cost
estimates and the OAL does not provide more than cursory
review. Independent and unbiased oversight provided by OAL
will improve cost estimation by the agencies and will
enhance public support of their determinations.
We also support the regulation review process proposed in
SB 942. It is appropriate that agencies start and maintain
a process of reviewing old regulations and reviewing new
regulations on a periodic cycle, such as five years. The
reports to the legislature could be used for more effective
oversight of agencies to ensure they are appropriately
funded, are using resources wisely, and are achieving their
objectives.
Californians want regulations to be up-to-date and serving
important public purposes. They also want government to be
mindful of the costs of regulation. The processes
recommended by this bill are a good step to provide more
discipline and transparency to the regulatory process.
Arguments in opposition . The California Conference Board
of the Amalgamated Transit Union, California Conference of
Machinists, United Food and Commercial Workers Region 8
States Council, UNITE-HERE!, Engineers and Scientists of
California, IFPTE Local 20, Professional and Technical
Engineers, IFPTE Local 21, International Longshore and
Warehouse Union, Jockey's Guild, and California Teamsters
Public Affairs Council argue that SB 942 simply imposes
unnecessary expense on government to perform its essential
regulatory functions.
California Labor Federation and California Nurses
Association argue "The Administrative Procedures Act (APA)
governs the regulatory process in California. The APA was
drafted to ensure fairness, transparency, and opportunity
for public participation." In addition, the APA
specifically states, "It is the intent of the Legislature
that agencies shall actively seek to reduce the unnecessary
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regulatory burden on private individuals and entities."
"Beyond trying to reduce regulation, the APA is also
designed to limit the impact of regulations on business.
Every agency proposing a regulation puts businesses at a
competitive disadvantage with our-of-state companies.
"The regulatory process also provides for significant
public input. For a regulation to become final, an agency
must publicize a notice of the proposed regulation, along
with a statement of the reasons. The notice triggers a
45-day public comment hearing. The agency then considers
public comment on any significant changes trigger
additional public comment. If there are no change, the
agency submits the final regulation to the Office of
Administrative Law (OAL).
"The OAL reviews all regulations to ensure that they meet
the following requirements: (1) it is necessary; (2) it is
within the authority granted by the authorizing
legislation; (3) it provides clarity for those impacted;
(4) it is consistent with existing law; (5) it references
the underlying statute; and (6) it is non-duplicative of
other regulations. If the regulation fails any one of
those tests, it is rejected and returned to the agency.
"SB 942 would add another layer of bureaucracy by requiring
the OAL to create an Economic Analysis Unit to review cost
estimates of all regulations. Such a requirement is
duplicative of existing law and is not a wise use of scarce
taxpayer dollars. The existing regulatory process already
seeks to minimize regulations. It also requires an
analysis of the impact of every proposed regulation on
California businesses and their ability to compete.
"SB 942 is unnecessary and duplicative. It would simply
make rulemaking take longer and be less efficient."
"Proponents of this bill suggest that regulations are to
blame for the dismal economy. On the contrary, it was
deregulation - of the housing markets, financial
institutions, corporate accounting - that directly caused
the financial collapse and the national recession.
Reviving our economy means creating jobs, not dismantling
worker protections."
PRIOR/RELATED LEGISLATION
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SB 356 (Wright), 2009-2010 Legislative Session . 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. (Pending
in Assembly Business and Professions Committee)
SB 954 (Harman), 2009-2010 Legislative Session . Enacts the
Jobs Protection Act. Renames the Joint Committee on
Boards, Commissions, and Consumer Protection as the Joint
Committee on Boards, Commissions, and Consumer or Business
Protection, and would create a new legislative procedure
with regard to any bill, as defined, that may have a
statewide economic impact affecting business. Requires the
Assembly Committee on Rules and the Senate Committee on
Rules to refer any bill that may have a statewide economic
impact affecting business, as specified, to the joint
committee for the preparation of an economic impact
analysis and a hearing and approval. Requires 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. Requires the joint
committee to make an annual report in that regard.
(Pending in Senate Rules Committee)
SB 1160 (Dutton), 2009-2010 Legislative Session . Restores
and expands a law that sunset in 2000 to require the
Department of Finance and the Legislative Analyst's Office
to perform dynamic analyses of tax bills that have
significant fiscal effects, as defined, and further, to
require state agencies to perform a dynamic analysis of
proposed regulations on jobs and businesses. (Pending in
Senate Governmental Organization Committee)
SB 1351 (Wright), 2009-2010 Legislative Session . 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 purpose of the regulation to post on
its Internet Web site and in the California Regulatory
Notice Register, upon the effective date of the regulation,
that the required technology or equipment is commercially
available or will be commercially available prior to the
SB 942 (Dutton) continued
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effective date of the regulation. Provides that, if the
required technology or equipment prescribed by the
regulation is not commercially available on the effective
date of a regulation, the adopting agency is prohibited
from enforcing a violation of the regulation until at least
six months after the technology or equipment becomes
commercially available and the agency posts on its Internet
Web site and in the California Regulatory Notice Register
that the required technology or equipment is commercially
available. Requires an agency to make any implementation
schedule, procedure, or form that is necessary for
compliance with a proposed regulation available to the
public upon the agency's final adoption of that regulation.
Provides that, if the implementation schedule, procedure,
or form necessary for compliance with the regulation is not
available on the effective date of the regulation, the
agency is prohibited from enforcing a violation of the
regulation for at least six months after the implementation
schedule, procedure, or form becomes available and the
agency posts on its Internet Web site and in the California
Regulatory Notice Register that the that the require
implementation schedule, procedure, or form has become
available. (Pending in Senate Governmental Organization
Committee)
SBX8 60 (Harman), 2009-2010 8th Extraordinary Session .
Enacts the Jobs Protection Act. Renames the Joint
Committee on Boards, Commissions, and Consumer Protection
as the Joint Committee on Boards, Commissions, and Consumer
or Business Protection, and would create a new legislative
procedure with regard to any bill, as defined, that may
have a statewide economic impact affecting business.
Requires the Assembly Committee on Rules and the Senate
Committee on Rules to refer any bill that may have a
statewide economic impact affecting business, as specified,
to the joint committee for the preparation of an economic
impact analysis and a hearing and approval. Requires 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. Requires the joint committee to make an
annual report in that regard. (Held in Senate Rules
Committee)
AB 2466 (Smyth), 2009-2010 Legislative Session . Requires
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OAL to also submit to the Legislature for review a copy of
any regulation that it submits to the Secretary of State.
Requires that a regulation become effective on the 90th day
after it is filed with the Secretary of State, unless
prescribed conditions occur. Requires the Legislature to
refer a copy of every regulation submitted to it by OAL to
an appropriate policy committee for review of its
consistency with the intent of the Legislature in regard to
the statute that authorizes the particular regulation and
to offer recommendations as to whether the regulation
should be repealed by statute. (Pending in Assembly
Business and Professions Committee)
AB 2529 (Fuentes), 2009-2010 Legislative Session . Adopts
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.
Requires 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. Requires
an agency to annually provide to the department a list of
its planned regulatory actions for that year and indicate
the actions which the agency believes are significant
regulatory actions. Requires an agency, for each
significant regulatory action, to submit prescribed
information to the director at least 30 days prior to
issuing a notice of proposed action. Requires the director
to review the submitted information. Requires the
department, in order to establish a baseline for the
determination of the costs and benefits of significant
regulatory actions that it reviews, to complete a review of
all significant regulatory actions completed by state
agencies since January 1, 2004, and summarize the costs and
benefits of those actions in a report to be completed prior
to July 1, 2011. Requires the Governor to convene an
interagency group with specified duties for the purpose of
formulating an effective methodology for performance of the
analysis and cost-benefit studies by state agencies, as
specified. (Pending in Assembly Business and Professions
Committee)
AB 2603 (Gaines), 2009-2010 Legislative Session . Enacts
the California Smart Regulation Act which will sunset on
December 31, 2021. Requires state agencies, on or before
July 1, 2011, to determine how many regulations it imposes
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and, on or before December 31, 2012, to reduce the total
number of regulations it has identified by 33%. Requires,
until December 31, 2021, that any new regulation proposed
by an agency also eliminate another regulation. (Pending
in Assembly Business and Professions Committee)
AB 2652 (Niello), 2009-2010 Legislative Session . Declares
the intent of the Legislature to enact legislation that
would require OAL to submit copies of proposed regulations
to the appropriate policy committee in each house of the
Legislature and that would require the policy committees to
conduct a hearing for the purpose of reviewing the proposed
regulation.. (Pending in Assembly Business and Professions
Committee)
SUPPORT: As of April 9, 2010:
Associated Builders and Contractors of California
Association of California Insurance Companies
California Chapter - American Fence Association
California Chapter of the American Fence Association
California Construction and Industrial Materials
Association
California Farm Bureau Federation
California Fence Contractors' Association
California Fence Contractors' Association
California Grocers Association
California Hospital Association
California League of Food Processors
California Manufacturers & Technology Association
Chemical Industry Council of California
Engineering & Utility Contractors Association
Engineering Contractors' Association
Engineering Contractors' Association
Flasher/Barricade Association
Flasher/Barricade Association
Howard Jarvis Taxpayers Association
Industrial Environmental Association
Inland Action, Inc.
League of California Cities, Orange County Division
Marin Builders' Association
Marin Builders' Association
Western Growers
Western States Petroleum Council
OPPOSE: As of April 9, 2010:
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California Conference Board of the Amalgamated Transit
Union
California Conference of Machinists
California Labor Federation
California Nurses Association
California Teamsters Public Affairs Council
Engineers and Scientists of California, IFPTE Local 20
International Longshore and Warehouse Union
Jockey's Guild
Professional and Technical Engineers, IFPTE Local 21
United Food and Commercial Workers Region 8 States Council
UNITE-HERE!
FISCAL COMMITTEE: Senate Appropriations Committee
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