BILL ANALYSIS �
Bill No: SB
560
SENATE COMMITTEE ON GOVERNMENTAL ORGANIZATION
Senator Roderick D. Wright, Chair
2011-2012 Regular Session
Bill Analysis
SB 560 Author: Wright
Introduced: February 17, 2011
Hearing Date: April 26, 2011
Consultant: Paul Donahue
SUBJECT : Regulations: Small Business
DESCRIPTION :
Existing law , the Administrative Procedure Act (APA),
governs the process for adoption, amendment, or repeal of
regulations by state agencies charged with the
implementation of statutes, and for legal review of those
regulatory actions. (Govt. Code � 11340 et seq.)
Existing law authorizes an agency considering adopting,
amending, or repealing a regulation to consult with
interested persons before initiating regulatory action, and
requires the agency to do so if the regulation involves
complex or numerous proposals.
This bill requires an agency, if it does not or is not able
to consult with these parties to inform the Office of Small
Business Advocate and the Department of Finance in writing
of its decision and the reasons for not consulting the
impacted businesses.
Existing law requires a state agency to include in a Notice
of Proposed Action to adopt, amend or repeal a regulation,
an Initial Statement of Reasons for proposing to take the
regulatory action, which shall include a description of any
reasonable alternatives that would lessen any adverse
impact on small business, and the agency's reasons for
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rejecting those reasonable alternatives.<1>
This bill requires the agency to describe its reasons for
rejecting each specific alternative, and would repeal the
law stating that an agency is not required to artificially
construct alternatives, describe unreasonable alternatives,
or justify why it has not described any.
This bill requires an agency to prepare a small business
economic impact statement that contains the following
information:
a) An identification and estimate of the number of
small businesses subject to the proposed regulation.
b) The estimated annual average cost of compliance by
a small business subject to the proposed regulation.
c) The estimated statewide annual average cost of
compliance by small businesses subject to the proposed
regulation.
This bill directs an agency adopting 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 a statement on its website and in the
California Regulatory Notice Register prior to 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 specifies that, if the required technology or
equipment is not commercially available on the effective
date of a regulation, the agency is prohibited from
enforcing a violation of the regulation until at least 6
months after the technology or equipment becomes
commercially available and the agency posts that
information.
This bill specifies that, in the event that a person or
business incurs costs purchasing new or emerging technology
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<1> The APA also states that the agency is not required, in
this initial statement, to artificially construct
alternatives, describe unreasonable alternatives, or
justify why it has not described alternatives.
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or other equipment that is required by a regulation, but
the agency determines that the regulatory program is not
workable because the new or emerging technology or other
equipment does not function as the agency intended, the
agency is responsible for reimbursing the person or
business for those incurred costs.
Existing law specifies that if an agency initially
determines that the adoption of a regulation will not have
a significant adverse economic impact directly affecting
business, that it include a declaration of that
determination.
This bill would delete that requirement and instead
require, if an agency declares that it is not aware of any
cost impact, that the agency include a statement describing
how a person or business could comply with the proposed
regulation without incurring a cost.
This bill specifies that a notice of proposed regulatory
action include the small business economic impact statement
that this bill requires an agency to prepare.
The APA requires the Department of Finance (DOF) to adopt
and update instructions for inclusion in the State
Administrative Manual prescribing the methods that any
agency is required to use in making the determinations
relating to mandates on local agencies or school districts.
This bill also requires DOF to adopt and update
instructions prescribing the methods that any agency is
required to use in making the determinations relating to
significant, statewide adverse economic impacts directly
affecting business.
Under existing law the Office of Administrative Law (OAL)
reviews, approves or rejects proposed regulations.
This bill would require OAL to reject a proposed regulation
if the adopting agency does not provide all relevant
information concerning the small business economic impact
statement.
Existing law authorizes any interested person to obtain a
judicial declaration as to the validity of specified
regulations or orders of repeal, by bringing a civil action
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for declaratory relief in the superior court.
This bill specifies that an interested person includes a
small business or an organization or trade association that
represents small businesses, and whose members are affected
by the regulation.
COMMENTS :
1) Purpose of the bill : The author states that this bill
makes a number of reforms to help small businesses grow by
encouraging more realistic regulations and requiring a
genuine assessment of the actual costs of regulations to
the business community. The author notes that California's
burdensome regulatory climate is driving businesses - and
jobs - to other states. With the US Department of Labor
reporting last month that California's jobless rate is now
the 2nd highest in the nation, it is essential that
California take steps to become a more attractive location
to remain and expand.
"California has lost 600,000 manufacturing jobs since 2000.
For the 3rd year, CEO Magazine ranked California as the
worst state for business, based on the opinions of over 600
CEOs surveyed. A 2010 Kosmont-Rose Institute survey on the
cost of doing business, based on a variety of fees and
taxes, found that California is home to one third of the 40
most expensive cities. Kosmont CEO Larry Kosmont stated,
'Just by being located in California, cities are at a
'cost' disadvantage right out of the gate.' A survey for
the Business Roundtable found that it costs 30% more to
operate in California than in the average western state."
2) Technology forcing regulations : Technology-forcing
regulations prescribe standards or levels of pollution
control even if no technologies exist to meet them at the
time regulators set the standards. Many of the extensive
environmental laws passed by the Legislature over the years
direct state agencies to adopt regulations that require the
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use of the "best available control technology,"<2> or that
will "achieve the maximum technologically feasible"<3>
emission reductions, or related standards.
Among other things this bill states that if an agency plans
to adopt a regulation that requires technology or equipment
that isn't commercially available, it cannot enforce
violations of the regulations until 6 months after the
technology becomes commercially available. These
regulations and standards have been strongly criticized by
the regulated community, and strongly defended by
regulatory agencies and environmentalists.
To illustrate, a trade group recently sued to block a rule
that limits the amount of volatile organic compounds
allowed in various kinds of paint and coatings. In
partially upholding the challenge to the South Coast Air
Quality Management District rule, the Court of Appeals
observed that the administrative record supporting the
proposed rule:
"shows there are zero -- count 'em, zero --
products that comply with the most recent limits
in two categories: quick-dry enamels and rust
preventative coatings. We have no evidence that,
in these categories, the technology is both
"available" and "achievable" to comply with the
district's amended limits; we have only
speculation that one day in the future the
technology will exist to comply with the limits."
<4>
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<2> See, e.g., Health & Saf. Code �40440, which specifies
that regulations shall require the use of best available
control technology for new and modified sources �of air
pollution] and the use of best available retrofit control
technology for existing sources.
<3> Health and Saf. Code � 38560 directs the state Air
Resources Board to adopt regulations that achieve the
maximum technologically feasible and cost-effective
greenhouse gas emission reductions from sources.
<4> National Paint & Coatings Assn., Inc. v. South Coast
Air Quality Management District (2009) 177 Cal.App.4th
1494, 1500. The case is currently pending review by the
California Supreme Court.
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By making it clear that the technology must be available
prior to enforcing rules based on its application, this
aspect of the bill attempts to strike a balance between the
interests of the regulated community in certainty and
cost-effectiveness, and the interests of the regulators in
applying the best technological solutions to perceived
environmental threats.
3) Requiring agencies to reimburse regulated persons : This
bill states that agencies are required to reimburse persons
or businesses for costs incurred purchasing new
technologies or equipment if the agency later determines
the regulatory program isn't workable because the required
equipment or technology doesn't function as intended by the
agency.
Realistically speaking, a state agency is unlikely to ever
make such a determination, even if it is the truth, so long
as this provision exists in law. If an agency were to so
conclude, it can reasonably be assumed that the
reimbursement claims process would be cumbersome to say the
least. It is highly likely that an agency would resist
prompt eligibility determinations and payments to reimburse
aggrieved persons and businesses. More likely, the agency
would require that all claims for reimbursement be
considered using a lengthy and detailed application
process, and could even require routing of the claim
through the California Victim Compensation and Government
Claims Board.
In light of the above, the committee may wish to consider
an amendment deleting this provision from the bill.
4) Supporters : The supporters state that, for too long,
regulations have been thrust upon businesses without
complete knowledge of their financial impact - especially
on small businesses. Supporters prefer regulations that are
necessary, cost-effective, fairly enforced, and regularly
updated to reflect changing conditions and needs. They
believe that agencies should be required to operate
transparently, to understand significant economic impacts,
find ways to achieve compliance at lowest cost, and update
regulations in response to new information and conditions.
5) Note : This bill is double referred to Senate Rules
Committee
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6) Related legislation :
SB 366 (Calderon, 2011) . Requires each state agency to
identify any regulations that are duplicative, overlapping,
inconsistent, or out of date, and adopt, amend, or repeal
regulations to reconcile or eliminate any duplication,
overlap, inconsistency, or out-of-date provisions. (Pending
in this Committee)
SB 396 (Huff, 2011) . Requires each state agency to review
each regulation adopted prior to January 1, 2011, and
report to the Legislature on the regulations. Beginning in
2018, at least every 5 years afterwards, each agency is
directed to review its regulations that have been in effect
for at least 20 years and submit a report to the
Legislature on its findings associated with the review.
(Senate Environmental Quality Committee)
SB 400 (Dutton, 2011) . Requires that an economic impact
assessment on a proposed regulation include additional
criteria, and that agencies submit economic assessments for
certain regulations to OAL for it to determine whether the
assessment is based upon sound economic knowledge, methods,
and practices. Requires OAL to reject a regulation if the
economic assessment is invalid. (Senate Environmental
Quality Committee)
SB 643 (Correa, 2011) . Requires that the housing costs
evaluation associated with adoption of a regulation include
estimated costs of compliance. If a proposed regulation has
an impact on housing, then the initial statement of reasons
must include the estimated cost of compliance and the
related assumptions used in determining that estimate.
(Senate Environmental Quality Committee)
SB 688 (Wright, 2011) Requires an economic impact statement
for a proposed regulation to include a detailed estimate of
the total actual costs of compliance for affected
businesses and individuals. Requires the adopting agency to
notify specified committees of the Legislature if the
estimated total costs of compliance exceed $10 million, and
that the regulation effective date is postponed in that
event. (On calendar today in this Committee)
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SB 356 (Wright, 2010) . Would have required an agency
considering a regulation to inform the Department of
Finance and the Small Business Advocate if it had not
consulted with interested persons before initiating
regulatory action, and specify its reasons for not
consulting affected businesses. Would have required a
state agency to describe the agency's reasons for rejecting
each specific alternative to the adoption of a proposed
regulation, and to submit an economic impact statement
containing specified information. (Held in Assembly Rules
Committee)
SB 942 (Dutton, 2010) . Would have established an Economic
Analysis Unit within OAL. Would have required agencies to
make publicly available and submit to the unit specified
cost estimates related to a proposed regulation and
specified information used to develop the cost estimates.
(Held in Senate Appropriations)
SB 954 (Harman, 2010) . Would have required 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 a newly created Joint
Committee for the preparation of an economic impact
analysis and a hearing and approval. Would have required
the Joint Committee to move a bill estimated to generate a
fiscal impact of $10,000 or more on small business, or
$50,000 or more on any other business, to the suspense file
of the committee for further consideration. (Dropped)
SB 1160 (Dutton, 2010) . Would have expanded a sunsetted
law requiring the Department of Finance and the LAO to
perform dynamic fiscal analyses of proposed regulations on
jobs and businesses. (Held in Assembly Budget Committee)
SB 1436 (Figueroa, 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. (Chap.
234, Stats. 2006)
AB 2330 (Arambula, 2006) Requires the Office of the Small
Business Advocate to examine the costs of state regulations
on small businesses. (Chap. 232, Stats. 2006)
SUPPORT:
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American Chemistry Council
American Council of Engineering Companies of California
California Association of Bed and Breakfast Inns
California Business Properties Association
California Chapter of the American Fence Association
California Construction and Industrial Material Association
California Fence Contractors' Association
California Grocers Association
California Hotel and Lodging Association
California Manufacturers and Technology Association
California Restaurant Association
California Retailers Association
California Small Business Association
Coalition of Small and Disabled Veteran Businesses
Consumer Specialty Products Association
Engineering and Utility Contractors Association
Engineering Contractors' Association
Flasher Barricade Association
Golden State Builders Exchanges
Marin Builders' Association
National Federation of Independent Business
Small Business Association
OPPOSE: None on file as of April 20, 2011
FISCAL COMMITTEE: Yes
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