BILL ANALYSIS �
SB 688
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator S. Joseph Simitian, Chairman
2011-2012 Regular Session
BILL NO: SB 688
AUTHOR: Wright
AMENDED: March 29, 2011
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) 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).
e) 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).
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
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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
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) Revises the economic impact assessment requirement
(�11346.3; 1 b) above) to require state agencies proposing
to adopt, amend, or repeal any regulation to also prepare a
detailed estimate of the cumulative statewide cost impacts
for affected businesses. The agency must notify the
Legislature's fiscal committees and the appropriate policy
committees if the estimated cumulative statewide cost
impact for affected businesses exceeds $10 million. This
notification is "intended to provide the Legislature
sufficient time, to the extent the Legislature may
disapprove of the regulation, to enact a statute that
restricts the statutory authority of the agency to enact
the regulation."
2) Establishes an exception to the effective date of a
regulation (�11343.4 (1 e) above) by prohibiting a
regulation that has a cumulative statewide cost in excess
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of $10 million from taking effect until the January 1 that
is one year following the date that the regulation is filed
with the Secretary of State.
COMMENTS :
1) Purpose of Bill . According to the author, "California's
burdensome regulatory climate is driving businesses - and
jobs - to other states. According to the non-partisan
Southern California Leadership Council, over 2,562
companies with three or more employees relocated out of
California since January 2007 taking over 100,000 jobs with
them. For the 3rd year, CEO Magazine ranked California as
the worst state for business based on opinions of over 600
surveyed."
In response to the author's concern, SB 688: a) requires
state agencies to prepare a detailed estimate of the
cumulative statewide cost impacts for affected businesses
relating to proposed regulations, and to notify the
Legislature's fiscal committees and the appropriate policy
committees if the estimated cumulative statewide cost
impact for affected businesses exceeds $10 million to
provide the Legislature sufficient time, to the extent the
Legislature may disapprove of the regulation, to enact a
statute that restricts the statutory authority of the
agency to enact the regulation; and b) prohibiting a
regulation that has a cumulative statewide cost in excess
of $10 million from taking effect until the January 1 that
is one year following the date that the regulation is filed
with the Secretary of State (the author would like to
clarify that this does not affect the adoption of emergency
regulations).
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
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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
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,
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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
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
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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 688
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
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
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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 688, "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 opponents, "regulations benefit the public
through enhanced environmental quality and avoided public
health and safety impacts. SB 688 requires agencies to
assess the cost of regulation in its economic analysis, but
does not require agencies to balance this against the
benefits of 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
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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
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 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
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certain circumstances, restricts regulations relating to
new or emerging technologies, and makes other APA related
revisions. SB 560 was approved by the Senate Governmental
Organization Committee April 26, 2011 (10-1), and will be
heard by the Senate Environmental Quality Committee May 4,
2011.
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.
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).
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?
If the committee believes additional analysis and review is
necessary, as required by SB 688, should state agencies
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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?
Is it appropriate to delay the operative date of a regulation
and provide for cost review by the Legislature in order to
enable the Legislature to restrict an agency's authority to
enact a regulation - as provided by SB 688?
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
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 : American Lung Association, Breathe California,
Clean Water Action, Sierra Club California,
Union of Concerned Scientists