BILL ANALYSIS �
SB 400
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator S. Joseph Simitian, Chairman
2011-2012 Regular Session
BILL NO: SB 400
AUTHOR: Dutton
AMENDED: As introduced
FISCAL: Yes HEARING DATE: May 2, 2011
URGENCY: No CONSULTANT: Randy Pestor
SUBJECT : ADMINISTRATIVE PROCEDURE ACT
SUMMARY :
Existing law :
1) Under the Administrative Procedure Act (APA) (Government
Code �11340 et seq.), establishes rulemaking procedures and
standards for state agencies. State regulations must also
be adopted in compliance with regulations adopted by the
Office of Administrative Law (OAL). The APA, among other
things:
a) Requires every agency to prepare and submit a
specified notice of the proposed action and make certain
information available to the public (e.g., draft
regulation in "plain English"; statement of reasons for
proposing the adoption, amendment, or repeal of a
regulation; evidence to support a determination that the
action will not have a significant adverse economic
impact on business). (�11346.2). The statement of
reasons must identify each technical, theoretical, and
empirical report upon which the agency relies in
proposing the regulation. (�11346.2(b)(2)).
b) Requires state agencies in proposing to adopt, amend,
or repeal any regulation to assess the potential for
adverse economic impact on California business
enterprises and individuals. In assessing the potential
for adverse economic impact, state agencies must meet
certain requirements (e.g., be based on adequate
information concerning the need for, and consequences
of, proposed action; consider industries affected
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including the ability to compete with businesses in
other states). State agencies must also assess whether,
and to what extent, regulations will affect certain
matters (e.g., creation or elimination of jobs in the
state, creation of new businesses or elimination of
existing businesses in the state, expansion of
businesses currently doing business in the state).
(Government Code �11346.3). OAL must return any
regulation to the adopting agency under certain
conditions, including failure to comply with this
requirement to assess potential adverse economic
impacts. (�11349.1).
c) Requires the notice of proposed adoption, amendment,
or repeal of a regulation to include certain matters
(e.g., include specified information if there may be a
significant, statewide adverse economic impact;
description of all cost impacts to be incurred by a
private person or business; statement of the results of
the economic impact assessment). (�11346.5).
d) Requires OAL to either approve a submitted regulation
and transmit it to the Secretary of State for filing, or
disapprove it, within 30 working days. If OAL fails to
act within 30 days, the regulation is deemed approved
and OAL must transmit it to the Secretary of State.
(�11349.3).
2) Provides the California Air Resources Board (ARB) with
primary responsibility for control of mobile source air
pollution, including adoption of rules for reducing vehicle
emissions and the specification of vehicular fuel
composition. (Health and Safety Code �39000 et seq. and
�39500 et seq.). When making information available to the
public under the APA relating to studies and reports that
ARB relied upon, ARB must also make information public that
is related to, but not limited to, air emissions, public
health impacts, and economic impacts before the comment
period for any regulation proposed for adoption by the ARB.
(�39601.5).
3) Requires each board, department, and office within the
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California Environmental Protection Agency, before adopting
any major regulation, to evaluate alternatives and consider
whether there is a less costly alternative or combination
of alternatives that would be equally effective in
achieving increments of environmental protection in a
manner that ensures full compliance with statutory mandates
within the same amount of time as the proposed regulatory
requirements. Under this provision, "major regulation"
means any regulation that will have an economic impact on
the state's business enterprises in an amount exceeding $10
million. (Public Resources Code �57005).
This bill , under the APA, expands the economic impact
reporting requirements (#1 b) above) to:
1) Revise the reporting requirements relating to adoption,
amendment, or repeal of regulations to: a) require
identification of short-term and long-term creation or
elimination of jobs in individual sectors within the state
(rather than creation or elimination of jobs within the
state); b) the cost of enforcement to the agency and
regulated entities; c) assess whether the proposed
regulation is inconsistent, incompatible, or duplicative of
other local, state, or federal agency regulations; d) make
a determination with supporting information that no
alternative considered by the agency would be more
effective in carrying out the purpose for which the
regulation is proposed or would be equally effective and
less burdensome to affected private persons than the
proposed regulation; and e) explain reasons for rejecting
any proposed alternatives that would less the adverse
economic impact on small businesses.
2) Requires the proposed economic assessment to be submitted
to OAL before the notice of proposed adoption, amendment,
or repeal.
3) Requires OAL to review the economic assessment for a
proposed regulation with an estimated impact of $100
million or more, and determine within 30 days whether it is
based upon sound economic knowledge, methods, and
practices. OAL is authorized to contract with a
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third-party reviewer to conduct the review and adopt the
findings of that third-party reviewer. A "stakeholder" may
petition OAL to review the assessment for a proposed
regulation with an estimated impact below $100 million, and
the OAL director may approve or deny the petition. If the
petition is approved, the assessment must be reviewed in
the same manner as an assessment with an estimated impact
of $100 million or more.
4) Prohibits OAL from approving a regulation that does not
satisfy the above requirements, and requires OAL to reject
a regulation if OAL determined that the assessment was not
based upon sound economic knowledge, methods, and
practices, and the submitting agency did not revise its
assessment to address the deficiencies.
COMMENTS :
1) Purpose of Bill . According to the author, "Despite the
procedures set forth under the APA, the OAL does little
more with the EIS other than simply check off a box that
the form has been included. As such, there is no assurance
that agencies are adequately assessing the cost to business
of proposed regulations or enacting the most cost-effective
regulations. As the nation's economy slowly recovers,
California's economy continues to lag behind, with
unemployment now second highest in the nation. A
significant reason for California's struggles is its poor
business climate as a result of onerous and/or poorly
implemented regulations. For instance: Forbes Magazine
ranks California's regulatory climate 43rd worst in the
nation �, and] Chief Executive Magazine, for the 6th year
in a row, finds that California's business climate is the
worst in the nation. One CEO noted, 'California is
anti-business with anti-business regulations,' while
another said, 'we have actually walked away from business
rather than deal with the government in Sacramento.'"
The author notes that "This bill would be a first-step towards
improving the regulatory process so that needed regulations
can be implemented in a cost-effective manner."
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2) Response to concerns over economic analysis . Some
legislators raise concerns about economic analyses of
requirements and regulations. For example, SB 295 (Dutton)
of 2009 was an effort by the author to respond to the LAO's
recommendations by requiring additional ARB analysis of the
AB 32 scoping plan. SB 295 failed in the Environmental
Quality Committee May 20, 2009 (3-4). ARB released an
updated economic analysis of the scoping plan March 24,
2010. According to the ARB, the analysis shows fuel
expenditures drop by 4.9% in 2020 with a total cost savings
of $3.8 billion in reduced consumption of gasoline and
diesel as a result of increased investment in energy
efficiency and cleaner fuels, 2 million jobs will be
created by 2020 which is consistent with the
business-as-usual case, the economy will continue to grow
at a rate of 2.4% per year, and divergence from the AB 32
Scoping Plan (i.e., limiting requirements for oil companies
or utilities) increases costs and shifts these costs to
Californians and small businesses.
Economic analyses by other interests have also been reviewed
by the LAO. For example, Assemblymember DeLeon requested
the LAO to analyze the methodologies, data, and reliability
of the findings of two studies by Varshney and Associates -
"Cost of State Regulations on California Small Business
Study" (September 2009) concluding that the state's
regulations of all types resulted in reduction in the gross
state product of $493 billion, and "Cost of AB 32 on
California Small Business" (June 2009) concluding that AB
32 will cost the state's small business $183 billion in
lost output each year. The LAO concluded that "Both of the
two studies you have asked us to review have major problems
involving both data, methodology, and analysis. As a
result of these shortcomings, we believe that their
principal findings are unreliable."
3) Costs of inaction . While some parties may disagree over
various economic studies, delays in acting on certain
matters, such as climate change, can also result in costs.
A recent Climate Action Team (CAT) draft assessment on
climate change provides analyses on climate change impacts
relating to various matters, such as warming trends,
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precipitation, sea-level rise, agriculture, forestry, water
resources, and public health.
For example, regarding sea-level rise, the report notes that
"Sea level measured over several decades at California tide
gage stations has risen at a rate of about 17 cm (7 inches)
per century. The sea-level rise projections in the 2008
Impacts Assessment indicate that the rate and total
sea-level rise in future decades may increase substantially
above the recent historical rates. The 2008 estimates
represent a significant departure from those in the 2006
CAT report." According to the report, "By 2050, sea-level
rise could range from 30 to 45 cm (11 to 18 inches) higher
than in 2000, and by 2100, sea-level rise could be 60 to
140 cm (23 to 55 inches) higher than in 2000. As sea level
rises, there will be an increased rate of extreme high
sea-level events, which can occur when high tides coincide
with winter storms and their associated high wind wave and
beach run-up conditions." The draft CAT report notes that
"analysis reveals that $100 billion of property and 475,000
people are located in Bay and open coast areas vulnerable
to inundation in 2099. However, risk is not evenly
distributed among the counties in the San Francisco Bay,
with San Mateo and Alameda counties having 40 percent of
assets at risk, the greatest amount in the Bay Area.
Marin, Santa Clara, and San Francisco counties are also
exposed to a high degree of risk; exposure to risk in these
counties is higher than in all other counties along the
Pacific coast, with the exception of Orange County.
Exposure to risk in Sonoma and Napa counties is relatively
modest. While all sectors are vulnerable to the impacts
from sea-level rise, 70 percent of all assets at risk are
residential, followed by the commercial sector with 20
percent. In addition to buildings and their contents, a
wide range of other critical infrastructure, such as roads,
hospitals, schools, emergency facilities, water and
wastewater treatment plants, and others will also be at
increased risk of flooding. Continued development in
vulnerable areas would put additional assets and people at
risk."
4) What about health impacts and costs ? The author of SB 400
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cites costs to businesses relating to certain regulations.
Others, however, also note the effect on California
residents and their health from poor air quality and costs
relating to those effects. According to ARB regarding
regulations requirements on heavy-duty diesel-fueled
vehicles for particulate matter (PM) emissions and nitrous
oxides (NOx) emissions, for example, "The regulation is
projected to provide significant diesel PM and NOx
emissions reductions that would have a substantial positive
air quality impact throughout California. PM emissions are
projected to be reduced by about 13 tons per day in 2014
and 3.5 tons per day in 2023. NOx emissions are projected
to be reduced by about 124 tons per day and 98 tons per
day, for 2014 and 2023, respectively. These reductions are
critical towards meeting federal clean air standards. The
regulation would also reduce diesel PM emissions by the
maximum level achievable from inuse on-road diesel
vehicles. Staff estimates that approximately 9,400
premature deaths statewide would be avoided by the year
2025 from the implementation of the regulation, and would
provide associated health benefits of $48 to $69 billion."
ARB also notes that "The cost impact of the regulation is not
expected to be significant. While it is expected that most
fleets will pass through these costs to their customers,
this is expected to result in a negligible impact on
consumers, equating to about a few cent increase for a pair
of shoes, less than one one hundredth of a cent increase
per pound of produce, or an increase of from $3 to $10 for
a new car."
According to a recent RAND Corporation report, "Meeting
federal clean air standards would have prevented an
estimated 29,808 hospital admissions and ER visits
throughout California over 2005-2007." The report notes
that Medicare spent $103,600,000 on air pollution-related
hospital care during 2005-2007, Medi-Cal spent $27,299,199,
and private health insurers spent about $55,879,780 on
hospital care. According to the RAND report, "These
results suggest that the stakeholders of public programs
may benefit substantially from meeting federal clean air
standards. Private health insurers and employers (who
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contribute to employee health insurance premiums) may also
have sizable stakes in improved air quality."
5) Support and opposition concerns . According to supporters
of SB 400, "California prides itself on being innovative
and forward thinking - the state wants to lead the nation
on environmental and social policies. While achieving
those goals, we should also adopt bold and creative
approaches to maintain a favorable regulatory climate."
According to the California Nurses Association and National
Nurses Organizing Committee in opposing SB 400, "Proponents
of these bills 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, consumer, and
patient protections."
6) Related Senate legislation .
SB 353 (Blakeslee) creates the Office of Economic and
Regulatory Analysis within the Department of Finance to
review and approve economic analyses of proposed
regulations, exempts OAL actions from the California
Environmental Quality Act, sets other economic impact
analysis requirements, and makes other APA revisions. SB
353 is with the Senate Governmental Organization Committee.
SB 357 (Dutton) requires an agency to estimate the cost to the
state in revenues that are lost as a result of a regulation
that would make equipment obsolete. SB 357 was approved by
the Senate Governmental Organization Committee April 26,
2011 (8-2), and will be heard by the Senate Environmental
Quality Committee May 2, 2011.
SB 366 (Calderon, Pavley) sets procedures for review of state
agency regulations and enacts a streamline permit review
process. SB 366, an urgency measure, will be heard by the
Senate Governmental Organization Committee May 10, 2011.
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SB 396 (Huff) requires each state agency to review each
regulation adopted before January 1, 2011, and report to
the Legislature on certain matters relating to those
regulations by January 1, 2013. Each agency must also
report on each regulation that is at least 20 years old by
January 1, 2018, and at least every five years thereafter.
SB 396 was approved by the Senate Governmental Organization
Committee April 12, 2011 (8-4), and will be heard by the
Senate Environmental Quality Committee May 2, 2011.
SB 401 (Fuller) requires every regulation proposed by an
agency on or after January 1, 2012 to sunset in five years,
unless certain requirements are met within the one year
period prior to the sunset. SB 401 failed in the Senate
Governmental Organization Committee April 12, 2011 (6-6),
was approved by the Senate Governmental Organization
Committee April 26, 2011 (8-4), and will be heard by the
Senate Environmental Quality Committee May 2, 2011.
SB 553 (Fuller) requires a regulation or regulation repeal
having an adverse economic impact of at least $10 million
to become effective 180 days after the regulation of repeal
is filed with the Secretary of State. SB 553 is with the
Senate Governmental Organization Committee.
SB 560 (Wright) requires an agency to submit an economic
impact statement and a small business economic impact
statement, requires OAL to reject a proposed regulation in
certain circumstances, and makes other APA related
revisions. SB 560 was approved by the Senate Governmental
Organization Committee April 26, 2011 (10-1), and is with
Senate Rules Committee.
SB 591 (Gaines) requires OAL to review a proposed regulation
for burden and enacts the California Smart Regulation Act,
requiring agencies to reduce 33% of its regulations by
December 31, 2013. SB 591 failed in the Senate
Governmental Organization Committee April 26, 2011 (5-6).
SB 639 (Cannella) requires the California Environmental
Protection Agency (including boards, departments, and
offices within the Agency) and the Division of Occupational
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Safety and Health to prepare an economic impact analysis
prior to the adoption, amendment, or repeal of a
regulation. SB 639 will be heard by the Senate
Environmental Quality Committee May 2, 2011.
SB 643 (Correa) requires the initial statement of reasons to
include the estimated cost of compliance and related
assumptions used in determining that estimate if the
proposed regulation impacts housing. SB 643 was approved
by the Senate Governmental Organization Committee March 22,
2011 (12-0), and will be heard by the Senate Environmental
Quality Committee May 2, 2011.
SB 688 (Wright) requires agencies to produce a cumulative
statewide cost impacts for affected business and prohibits
a regulation from taking effect until January 1, next, one
year following the date the regulation is filed with the
Secretary of State if that estimate exceeds $10 million.
SB 688 was approved by the Senate Governmental Organization
Committee April 26, 2011 (8-1), and is with Senate Rules
Committee.
7) Outstanding issues . As noted above, the Administrative
Procedure Act, California Global Warming Solutions Act of
2006, other ARB requirements, and Department of Finance
procedures currently contain numerous requirements relating
to analysis of regulations. Is additional review and cost
analysis of regulations necessary?
What sources of funds are available to cover agency costs in
implementing this bill, and OAL costs in reviewing the
economic assessment or contracting for this review?
If agencies are required under SB 400 to analyze short-term or
long-term job impacts in individual sectors, what "sectors"
is the author referring to?
If the committee believes additional analysis and review is
necessary, as required by SB 400, should state agencies
also be required to identify, for example: a) benefits to
the regulation (including environmental and health
benefits); b) environmental impacts and costs to the public
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by making a regulation "less burdensome;" c) reduced costs
to the public by the regulation; and d) any cost shifts
from large businesses to small business, and from
businesses to the public by changing the regulation?
SOURCE : Senator Dutton
SUPPORT : American Chemistry Council, American Council of
Engineering Companies of California, Associated
Builders and Contractors of California,
California Association of Bed and Breakfast
Inns, California Building Industry Association,
California Business Properties Association,
California Chapter of the American Fence
Association, California Chamber of Commerce,
California Construction and Industrial
Materials Association, California Fence
Contractors' Association, California Forestry
Association, California Framing Contractors
Association, California Grocers Association,
California Hotel & Lodging Association,
California Independent Marketers Association,
California Manufacturers & Technology
Association, California Restaurant Association,
California Retailers Association, Chemical
Industry Council of California, Consumer
Specialty Products Association, California
Taxpayers Association, Engineering and Utility
Contractors Association, Engineering
Contractors' Association, Flasher Barricade
Association, Golden State Builders Exchanges,
Industrial Environmental Association, Marin
Builders' Association, National Association of
Independent Business, Regional Council of Rural
Counties
OPPOSITION : American Lung Association, Breathe California,
California Conference Board of the Amalgamated
Transit Union, California Conference of
Machinists, California Labor Federation -
AFL-CIO, California League of Conservation
Voters, California Nurses Association,
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California Official Court Reporters
Association, California Teamsters Public
Affairs Council, Center for Biological
Diversity, Engineers and Scientists of
California, Health Access California,
International Longshore and Warehouse Union,
National Nurses Organizing Committee, National
Planning and Conservation League, Professional
and Technical Engineers (Local 21), Sierra Club
California, Union of Concerned Scientists,
UNITE HERE!, United Food and Commercial Workers
(Western States Conference), Utility Workers
Union of America (Local 132)