BILL ANALYSIS �
SB 560
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator S. Joseph Simitian, Chairman
2011-2012 Regular Session
BILL NO: SB 560
AUTHOR: Wright
AMENDED: As introduced
FISCAL: Yes HEARING DATE: May 4, 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) Authorizes an agency that is considering adopting,
amending, or repealing a regulation to consult with
interested persons before initiating regulatory action.
(�11346).
b) 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 include an identification of each
technical, theoretical, and empirical report upon which
the agency relies in proposing the regulation
(�11346.2(b)(2)), and a description of reasonable
alternatives and the agency's reasons for rejecting
those alternatives, as well as alternatives to the
regulation that would lessen any adverse impact on small
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businesses. (�11346.2(b)(3)).
c) 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
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).
d) 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). An agency
must make a specified statement if the agency is not
aware of any cost impacts that a representative private
person or business would incur in compliance with the
regulation.
e) Requires OAL to return any regulation to the adopting
agency under certain conditions, including failure to
comply with the requirement to assess potential adverse
economic impacts. (�11349.1).
f) 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).
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g) Requires a regulation that is required to be filed
with the Secretary of State to become effective 30 days
after the date of filing unless: a) otherwise
specifically provided by statute under which the
regulation was adopted, in which case it is effective on
that date; b) a later date is prescribed by the state
agency or is part of the regulation; or c) the agency
makes a written request to OAL demonstrating good cause
for an earlier effective date, in which case OAL may
prescribe an earlier date. (�11343.4).
h) Authorizes any interested person to obtain a judicial
declaration as to the validity of any regulation or
order of repeal by taking certain actions. (��11350 and
11350.3).
i) Requires the Department of Finance (DOF) to adopt and
update instructions for inclusion in the State
Administrative Manual for methods to make determinations
and estimates for provisions of �11346.5 relating to
state mandates and costs or savings to local and state
entities. These instructions must include guidelines
for estimating costs or savings to public agencies.
(�11357).
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
California Environmental Protection Agency, before adopting
any major regulation, to evaluate alternatives and consider
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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:
1) Authorizes an agency to consult with "parties who would be
subject to the proposed regulations" rather than
"interested persons." Also requires the agency to notify
in writing the Office of Small Business Advocate and the
Department of Finance if the agency does not, or is unable
to, consult with parities subject to the regulation and
reasons for not consulting the impacted businesses.
(�11346).
2) Requires the description of reasonable alternatives to
cover "each specific alternative." (�11346.2(b)(3)).
3) Revises the economic impact assessment to also include a
small business economic impact statement, and requires a
small business economic impact statement that must include:
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, and c) the
estimated statewide annual average cost of compliance by
small businesses subject to the proposed regulation.
(�11346.3).
4) Requires the notice of proposed adoption, amendment, or
repeal of a regulation to also include the small business
impact statement; strikes the requirement for an agency to
make a specified statement in the notice of proposed
adoption, amendment, or repeal of a regulation if the
agency is not aware of any cost impacts that a
representative private person or business would incur in
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compliance with the regulation, and instead requires the
agency to include a statement describing how a private
person or business could comply with the proposed
regulation without incurring a cost. (�11346.5).
5) Requires OAL to also return any regulation to the adopting
agency if the adopting agency has not provided the above
cost estimate and small business economic statement.
(�11349.1).
6) Provides that for any interested person to obtain a
judicial declaration as to the validity of any regulation
or order of repeal by taking certain actions, "interested
person" includes but is not limited to, "a small business
or an organization or trade association that represents
small businesses and whose members are affected by the
regulation." (��11350 and 11350.3).
7) Requires the DOF instructions for inclusion in the State
Administrative Manual to include methods to make
determinations and estimates for several other provisions
of �11346.5. These instruction guidelines must also
address costs or savings estimates to small businesses;
criteria to be used in determining whether the cost of a
regulation will have a significant, statewide adverse
economic impact on businesses; and criteria to be used in
determining what costs, if any, may be incurred by an
individual or business that complies with a proposed
regulation. (�11357).
8) Adds restrictions for regulations relating to a new or
emerging technology (�11346.6) that:
a) Require an agency adopting a regulation that requires
a new or emerging technology, or other equipment to
achieve the regulation's purpose, to post on its
Internet website and in the California Regulatory Notice
Register upon the effective date of the regulation that
the required technology is commercially available or
will be commercially available prior to the regulation's
effective date. A new or emerging technology cannot be
determined to be commercially available unless it is
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available on the market from at least two providers or
manufacturers.
b) Prohibit an adopting agency from enforcing a
violation of the regulation until at least 6 months
after the required technology or other equipment becomes
commercially available and the information is posted, if
a new or emerging technology, or other equipment, is not
commercially available on the effective date of the
regulation.
c) Require an agency to reimburse a person or business
for costs incurred for a new technology that does not
function as intended by the adopted agency.
9) Provides that the above amendments may be cited as the
Regulatory Reform Act of 2011.
COMMENTS :
1) Purpose of Bill . According to the author, "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
2nd highest in the nation, it is essential California
become a more attractive location for business to remain
and expand."
In response to his concern, SB 560: a) authorizes an agency
to consult with "parties who would be subject to the
proposed regulations," rather than consulting with
"interested parties," and if the agency does not consult
with those parties then it must inform certain entities in
writing; b) requires descriptions of "specific
alternatives" to a regulation, rather than "alternatives;"
c) requires an additional small business economic impact
statement, with various requirements; d) revises agency
requirements if there is not a cost impact on a private
person or business; e) requires an agency to post
information that required technology is commercially
available or will be commercially available prior to the
effective date of the regulation, and if it is not
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commercially available, the adopting agency cannot enforce
a violation of that regulation until at least six months
after the required technology is commercially available; f)
requires OAL to return any regulation to the adopting
agency if certain information required under the bill has
not been provided; g) further specifies those who may
obtain a judicial declaration as to the validity of any
regulation; and h) requires the Department of Finance to
provide additional information to agencies regarding cost
estimates under this bill.
2) Regulatory costs . Economic analyses by certain interests
have also been reviewed by the Legislative Analyst's Office
(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) which concluded 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) which concluded 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."
Some legislators have raised concerns about economic analyses
of requirements under the California Global Warming
Solutions Act of 2006. 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
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businesses.
According to a September 2010 Public Policy Institute of
California Report titled Business Relocation and Homegrown
Jobs, 1992-2006 by Jed Kolko, "Relying on the most recent
data, this analysis reconfirms that business relocation-the
movement of business establishments from one state to
another-accounts for a very small share of California's
employment fluctuations. In fact, relocation accounts for
a smaller share of job gains and losses in California than
in most other states, in part because most California
businesses lie far from the border of neighboring states.
This report expands on our earlier research with a closer
examination of births, deaths, expansions, and contractions
of businesses, assessing in particular how much of these
gains and losses occur among locally headquartered
businesses. Although regional economic development policies
often focus on encouraging businesses headquartered
elsewhere to relocate, open, or expand local operations,
the strong majority of job gains and losses are 'homegrown'
in that they take place in locally headquartered
businesses."
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,
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
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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 560
cites costs to businesses relating to certain regulations.
Others, however, note the effect on California residents
and their health from poor air quality and costs relating
to those effects. According to ARB regarding regulations
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
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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
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 560, "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."
Supporters "support this bill to delay the effective dates
of major regulations and provide information to the fiscal
committees of the legislature to allow sufficient time for
legislative review and perhaps action related to the agency
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authority to enact regulation."
According to the Breast Cancer Fund, "SB 560 requires an
unnecessary and mostly duplicative economic analysis and
other new requirements that offer no substantive benefit to
small business, but could substantially delay
environmental, public health and other regulations
important to the public interest." Legal Community Against
Violence and California Chapters of the Brady Campaign to
Prevent Gun Violence oppose provisions that would affect
new and emerging technologies (e.g., handgun
microstamping), and other provisions, such as "unreasonable
narrow�ing] the pool of individuals with whom an agency may
consult prior to adopting, amending, or repealing a
regulation."
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 approved by the Senate Environmental
Quality Committee May 2, 2011, with amendments (4-0).
SB 366 (Calderon, Pavley) sets procedures for review of state
agency regulations and enacts a streamlined permit review
process. SB 366, an urgency measure, will be heard by the
Senate Governmental Organization Committee May 10, 2011.
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
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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 failed in the Senate
Environmental Quality Committee May 2, 2011 (2-4).
SB 400 (Dutton) expands economic impact analysis requirements
and requires OAL analysis of regulations under certain
circumstances. SB 400 was approved by the Senate
Governmental Organization Committee April 12, 2011 (7-5),
and failed in the Senate Environmental Quality Committee
May 2, 2011 (1-4).
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 failed in the Senate
Environmental Quality Committee May 2, 2011 (1-4).
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 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
Safety and Health to prepare an economic impact analysis
prior to the adoption, amendment, or repeal of a
regulation. SB 639 is held in the Senate Environmental
Quality Committee at the request of the author after a
hearing on this bill May 2, 2011.
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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 approved by the Senate Environmental
Quality Committee May 2, 2011, with amendments (5-0).
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 will be heard by the
Senate Environmental Quality Committee May 4, 2011.
7) Deterrence to drive for new and emerging technology
(�11346.6) . It is unlikely that an agency can make a
determination that a required technology is available when
a regulation is adopted and effective. Also, potential
manufacturers of a technology may not proceed to more
aggressively develop and market a device until they are
assured that a requirement has been adopted and is
effective.
While there are many examples where new requirements drive new
and cleaner technologies, the premise of SB 560 is that new
requirements will be driven by the availability of the
technology upon the effective date of the regulation.
Based on that premise, the state would not be able to
pursue, for example, emission reduction measures (e.g.,
Phase II reformulated gasoline, diesel truck emission
standards, on-board diagnostics for heavy duty trucks, low
emission vehicles, and "AB 1493 (Pavley) clean car
standards"), lead free product requirements, reduction of
hazardous substances (ROHS) standards, and energy saving
product standards, until there are assurances that the
technologies are available.
A provision similar to this SB 560 provision was also included
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in SB 1351 (Wright), but was stricken due to committee
concerns at the April 22, 2010, Senate Environmental
Quality Committee hearing (see April 28, 2010, version of
SB 1351; page 3, lines 35 to 40, and page 4, lines 1 to
25). Therefore, this provision conflicts with a prior
committee action.
8) 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, including costs associated with
additional Department of Finance requirements?
Should agencies be limited to consulting with parties subject
to regulations before initiating regulatory action, rather
than "interested persons" as required under current law?
If the committee believes additional analysis and review is
necessary, as required by SB 560, should state agencies
also be required to identify, for example: a) benefits to
the regulation (including environmental and health
benefits); and b) reduced environmental impacts and reduced
costs to the public from the regulation?
SOURCE : Senator Wright
SUPPORT : 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 Materials Association, California
Fence Contractors' Association, California
Grocers Association, California Hotel & Lodging
Association, California Manufacturers &
Technology Association, California Restaurant
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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
OPPOSITION : Breast Cancer Fund, California Chapters Brady
Campaign to Prevent Gun Violence, Legal
Community Against Violence.