Amended in Senate August 18, 2014

Amended in Assembly May 1, 2014

Amended in Assembly April 9, 2014

California Legislature—2013–14 Regular Session

Assembly Bill No. 2723

Introduced by Assembly Member Medina

(Coauthor: Assembly Member Fox)

February 21, 2014

An act to amend Sections 11340, 11342.535, 11342.610, 11346.3, and 11346.5 of the Government Code, relating to administrative procedure.

LEGISLATIVE COUNSEL’S DIGEST

AB 2723, as amended, Medina. Administrative procedure: small businesses.

The Administrative Procedure Act governs the procedures for the adoption, amendment, or repeal of regulations by state agencies and for the review of those regulatory actions by the Office of Administrative Law.

Existing law requires the notice of proposed adoption, amendment, or repeal of a regulation to include, among other things, a description of all cost impacts, known to the agency at the time the notice of the proposed action is submitted to the Office of Administrative Law, that a representative private person or business would necessarily incur in reasonable compliance with the proposed action. Existing law defines “cost impact” as the amount of reasonable range of direct costs, or a description of the type and extent of direct costs, that a representative private person or business necessarily incurs in reasonable compliance with the proposed action.

This bill would define “cost impact” to include those direct costs that a representative private person or sole proprietorship, small business, and business necessarily incurs in reasonable compliance with the proposed action.

Existing law requires every state agency to prepare and submit to the Office of Administrative Law a final statement of reasons with the adopted regulation that includes, among other things, an explanation setting forth the reasons for rejecting any proposed alternatives that would lessen the adverse economic impact on small businesses, as defined. Under existing law, a “small business” does not include, among others, a landscape architect, an architect, or a building designer or an entity organized as a nonprofit institution.

This bill would instead provide that a “small business” does not include a landscape architect, an architect, or a building designer with 50 or more employees or an entity organized as a nonprofit institution with more than 100 employees.

begin delete

Existing law requires all state agencies proposing to adopt, amend, or repeal a regulation that is not a major regulation or that is a major regulation proposed prior to November 1, 2013, to prepare an economic impact assessment that assesses whether and to what extent the proposal will affect, among other things, creation of new businesses or the elimination of existing businesses within the state. Existing

end delete

begin insert Existing end insert law requires each state agency proposing to adopt, amend, or repeal a major regulation on or after November 1, 2013, to prepare a standardized regulatory impact analysis in the manner prescribed by the Department of Finance. Existing law requires the standardized regulatory impact analysis to address, among other things, the creation of new businesses or the elimination of existing businesses within the state.

This bill would require begin delete the assessment to assess whether and to what extent the proposal will affect, and would require end delete the analysis to address, the creation of new businesses or the elimination of existing businesses within the state, including the impact on sole proprietorships and small businesses, as defined.

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 businesses, including the ability of California businesses to compete with businesses in other states, existing law requires the state agency to include certain information in the notice of the proposed action, including, but not limited to, identification of the types of businesses that would be affected.

This bill would require that information to additionally include the size of businesses that would be affected.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 11340 of the Government Code is
amended to read:

11340.  

The Legislature finds and declares as follows:

(a) There has been an unprecedented growth in the number of
administrative regulations in recent years.

(b) The language of many regulations is frequently unclear and
unnecessarily complex, even when the complicated and technical
nature of the subject matter is taken into account. The language is
often confusing to the persons who must comply with the
regulations.

(c) Substantial time and public funds have been spent in adopting
regulations, the necessity for which has not been established.

(d) The imposition of prescriptive standards upon private persons
and entities through regulations where the establishment of
performance standards could reasonably be expected to produce
the same result has placed an unnecessary burden on California
citizens and discouraged innovation, research, and development
of improved means of achieving desirable social goals.

(e) There exists no central office in state government with the
power and duty to review regulations to ensure that they are written
in a comprehensible manner, are authorized by statute, and are
consistent with other law.

(f) Correcting the problems that have been caused by the
unprecedented growth of regulations in California requires the
direct involvement of the Legislature as well as that of the
executive branch of state government.

(g) The complexity and lack of clarity in many regulations put
small businesses, which do not have the resources to hire experts
to assist them, at a distinct disadvantage. Given the importance of
small businesses within the California economy, it is especially
important that regulations that may have significant impacts on
the private sectors be evaluated to determine the potential impact
on these smaller size businesses.

SEC. 2.  

Section 11342.535 of the Government Code is amended
to read:

11342.535.  

“Cost impact” means the amount of reasonable
range of direct costs, or a description of the type and extent of
direct costs, that a representative private person or sole
proprietorship, small business, and business necessarily incurs in
reasonable compliance with the proposed action.

SEC. 3.  

Section 11342.610 of the Government Code is amended
to read:

11342.610.  

(a) “Small business” means a business activity in
agriculture, general construction, special trade construction, retail
trade, wholesale trade, services, transportation and warehousing,
manufacturing, generation and transmission of electric power, or
a health care facility, unless excluded in subdivision (b), that is
both of the following:

(1) Independently owned and operated.

(2) Not dominant in its field of operation.

(b) “Small business” does not include the following professional
and business activities:

(1) A financial institution including a bank, a trust, a savings
and loan association, a thrift institution, a consumer finance
company, a commercial finance company, an industrial finance
company, a credit union, a mortgage and investment banker, a
securities broker-dealer, or an investment adviser.

(2) An insurance company, either stock or mutual.

(3) A mineral, oil, or gas broker.

(4) A subdivider or developer.

(5) An entity organized as a nonprofit institution with more than
100 employees.

(6) An entertainment activity or production, including a motion
picture, a stage performance, a television or radio station, or a
production company.

(7) A utility, a water company, or a power transmission company
generating and transmitting more than 4.5 million kilowatthours
annually.

(8) A petroleum producer, a natural gas producer, a refiner, or
a pipeline.

(9) A manufacturing enterprise exceeding 250 employees.

(10) A health care facility exceeding 150 beds or one million
five hundred thousand dollars ($1,500,000) in annual gross receipts.

(11) A landscape architect, an architect, or a building designer
with 50 or more employees.

(c) “Small business” does not include the following business
activities:

(1) Agriculture, where the annual gross receipts exceed one
million dollars ($1,000,000).

(2) General construction, where the annual gross receipts exceed
nine million five hundred thousand dollars ($9,500,000).

(3) Special trade construction, where the annual gross receipts
exceed five million dollars ($5,000,000).

(4) Retail trade, where the annual gross receipts exceed two
million dollars ($2,000,000).

(5) Wholesale trade, where the annual gross receipts exceed
nine million five hundred thousand dollars ($9,500,000).

(6) Services, where the annual gross receipts exceed two million
dollars ($2,000,000).

(7) Transportation and warehousing, where the annual gross
receipts exceed one million five hundred thousand dollars
($1,500,000).

SEC. 4.  

Section 11346.3 of the Government Code is amended
to read:

11346.3.  

(a) State agencies proposing to adopt, amend, or
repeal any administrative regulation shall assess the potential for
adverse economic impact on California business enterprises and
individuals, avoiding the imposition of unnecessary or unreasonable
regulations or reporting, recordkeeping, or compliance
requirements. For purposes of this subdivision, assessing the
potential for adverse economic impact shall require agencies, when
proposing to adopt, amend, or repeal a regulation, to adhere to the
following requirements, to the extent that these requirements do
not conflict with other state or federal laws:

(1) The proposed adoption, amendment, or repeal of a regulation
shall be based on adequate information concerning the need for,
and consequences of, proposed governmental action.

(2) The state agency, prior to submitting a proposal to adopt,
amend, or repeal a regulation to the office, shall consider the
proposal’s impact on business, with consideration of industries
affected including the ability of California businesses to compete
with businesses in other states. For purposes of evaluating the
impact on the ability of California businesses to compete with
businesses in other states, an agency shall consider, but not be
limited to, information supplied by interested parties.

(3) An economic assessment prepared pursuant to this
subdivision for a proposed regulation that is not a major regulation
or that is a major regulation proposed prior to November 1, 2013,
shall be prepared in accordance with subdivision (b). An economic
assessment prepared pursuant to this subdivision for a major
regulation proposed on or after November 1, 2013, shall be
prepared in accordance with subdivision (c), and shall be included
in the initial statement of reasons as required by Section 11346.2.

(b) (1) All state agencies proposing to adopt, amend, or repeal
a regulation that is not a major regulation or that is a major
regulation proposed prior to November 1, 2013, shall prepare an
economic impact assessment that assesses whether and to what
extent it will affect the following:

(A) The creation or elimination of jobs within the state.

(B) The creation of new businesses or the elimination of existing
businesses within the begin delete state, including the impact on sole
proprietorships and small businesses, as defined in Section
11342.610. end delete begin insert state. end insert

(C) The expansion of businesses currently doing business within
the state.

(D) The benefits of the regulation to the health and welfare of
California residents, worker safety, and the state’s environment.

(2) This subdivision does not apply to the University of
California, the Hastings College of the Law, or the Fair Political
Practices Commission.

(3) Information required from state agencies for the purpose of
completing the assessment may come from existing state
publications.

(c) (1) Each state agency proposing to adopt, amend, or repeal
a major regulation on or after November 1, 2013, shall prepare a
standardized regulatory impact analysis in the manner prescribed
by the Department of Finance pursuant to Section 11346.36. The
standardized regulatory impact analysis shall address all of the
following:

(A) The creation or elimination of jobs within the state.

(B) The creation of new businesses or the elimination of existing
businesses within the state, including the impact on sole
proprietorships and small businesses, as defined in Section
11342.610.

(C) The competitive advantages or disadvantages for businesses
currently doing business within the state.

(D) The increase or decrease of investment in the state.

(E) The incentives for innovation in products, materials, or
processes.

(F) The benefits of the regulations, including, but not limited
to, benefits to the health, safety, and welfare of California residents,
worker safety, and the state’s environment and quality of life,
among any other benefits identified by the agency.

(2) This subdivision shall not apply to the University of
California, the Hastings College of the Law, or the Fair Political
Practices Commission.

(3) Information required from state agencies for the purpose of
completing the analysis may be derived from existing state, federal,
or academic publications.

(d) Any administrative regulation adopted on or after January
1, 1993, that requires a report shall not apply to businesses, unless
the state agency adopting the regulation makes a finding that it is
necessary for the health, safety, or welfare of the people of the
state that the regulation apply to businesses.

(e) Analyses conducted pursuant to this section are intended to
provide agencies and the public with tools to determine whether
the regulatory proposal is an efficient and effective means of
implementing the policy decisions enacted in statute or by other
provisions of law in the least burdensome manner. Regulatory
impact analyses shall inform the agencies and the public of the
economic consequences of regulatory choices, not reassess
statutory policy. The baseline for the regulatory analysis shall be
the most cost-effective set of regulatory measures that are equally
effective in achieving the purpose of the regulation in a manner
that ensures full compliance with the authorizing statute or other
law being implemented or made specific by the proposed
regulation.

(f) Each state agency proposing to adopt, amend, or repeal a
major regulation on or after November 1, 2013, and that has
prepared a standardized regulatory impact analysis pursuant to
subdivision (c), shall submit that analysis to the Department of
Finance upon completion. The department shall comment, within
30 days of receiving that analysis, on the extent to which the
analysis adheres to the regulations adopted pursuant to Section
11346.36. Upon receiving the comments from the department, the
agency may update its analysis to reflect any comments received
from the department and shall summarize the comments and the
response of the agency along with a statement of the results of the
updated analysis for the statement required by paragraph (10) of
subdivision (a) of Section 11346.5.

SEC. 5.  

Section 11346.5 of the Government Code is amended
to read:

11346.5.  

(a) The notice of proposed adoption, amendment, or
repeal of a regulation shall include the following:

(1) A statement of the time, place, and nature of proceedings
for adoption, amendment, or repeal of the regulation.

(2) Reference to the authority under which the regulation is
proposed and a reference to the particular code sections or other
provisions of law that are being implemented, interpreted, or made
specific.

(3) An informative digest drafted in plain English in a format
similar to the Legislative Counsel’s digest on legislative bills. The
informative digest shall include the following:

(A) A concise and clear summary of existing laws and
regulations, if any, related directly to the proposed action and of
the effect of the proposed action.

(B) If the proposed action differs substantially from an existing
comparable federal regulation or statute, a brief description of the
significant differences and the full citation of the federal regulations
or statutes.

(C) A policy statement overview explaining the broad objectives
of the regulation and the specific benefits anticipated by the
proposed adoption, amendment, or repeal of a regulation, including,
to the extent applicable, nonmonetary benefits such as the
protection of public health and safety, worker safety, or the
environment, the prevention of discrimination, the promotion of
fairness or social equity, and the increase in openness and
transparency in business and government, among other things.

(D) An evaluation of whether the proposed regulation is
inconsistent or incompatible with existing state regulations.

(4) Any other matters as are prescribed by statute applicable to
the specific state agency or to any specific regulation or class of
regulations.

(5) A determination as to whether the regulation imposes a
mandate on local agencies or school districts and, if so, whether
the mandate requires state reimbursement pursuant to Part 7
(commencing with Section 17500) of Division 4.

(6) 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 under Part 7 (commencing with
Section 17500) of Division 4, other nondiscretionary cost or
savings imposed on local agencies, and the cost or savings in
federal funding to the state.

For purposes of this paragraph, “cost or savings” means
additional costs or savings, both direct and indirect, that a public
agency necessarily incurs in reasonable compliance with
regulations.

(7) 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 and size 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 differing size of businesses.

(ii) Consolidation or simplification of compliance and reporting
requirements for differing size of businesses.

(iii) The use of performance standards rather than prescriptive
standards.

(iv) Exemption or partial exemption from the regulatory
requirements for differing size of businesses.”

(8) If a state agency, in adopting, amending, or repealing any
administrative regulation, makes an initial determination that the
action will not 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 make a declaration to that effect in the notice of proposed
action. In making this declaration, the agency shall provide in the
record facts, evidence, documents, testimony, or other evidence
upon which the agency relies to support its initial determination.

An agency’s initial determination and declaration that a proposed
adoption, amendment, or repeal of a regulation may have or will
not have a significant, adverse impact on businesses, including the
ability of California businesses to compete with businesses in other
states, shall not be grounds for the office to refuse to publish the
notice of proposed action.

(9) 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.”

(10) A statement of the results of the economic impact
assessment required by subdivision (b) of Section 11346.3 or the
standardized regulatory impact analysis if required by subdivision
(c) of Section 11346.3, a summary of any comments submitted to
the agency pursuant to subdivision (f) of Section 11346.3 and the
agency’s response to those comments.

(11) The finding prescribed by subdivision (d) of Section
11346.3, if required.

(12) (A) 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.

(B) The agency officer designated in paragraph (14) shall make
available to the public, upon request, the agency’s evaluation, if
any, of the effect of the proposed regulatory action on housing
costs.

(C) The statement described in subparagraph (A) shall also
include the estimated costs of compliance and potential benefits
of a building standard, if any, that were included in the initial
statement of reasons.

(D) For purposes of model codes adopted pursuant to Section
18928 of the Health and Safety Code, the agency shall comply
with the requirements of this paragraph only if an interested party
has made a request to the agency to examine a specific section for
purposes of estimating the costs of compliance and potential
benefits for that section, as described in Section 11346.2.

(13) A statement that the adopting agency must determine that
no reasonable alternative considered by the agency or that has
otherwise been identified and brought to the attention of the agency
would be more effective in carrying out the purpose for which the
action is proposed, would be as effective and less burdensome to
affected private persons than the proposed action, or would be
more cost effective to affected private persons and equally effective
in implementing the statutory policy or other provision of law. For
a major regulation, as defined by Section 11342.548, proposed on
or after November 1, 2013, the statement shall be based, in part,
upon the standardized regulatory impact analysis of the proposed
regulation, as required by Section 11346.3, as well as upon the
benefits of the proposed regulation identified pursuant to
subparagraph (C) of paragraph (3).

(14) The name and telephone number of the agency
representative and designated backup contact person to whom
inquiries concerning the proposed administrative action may be
directed.

(15) The date by which comments submitted in writing must
be received to present statements, arguments, or contentions in
writing relating to the proposed action in order for them to be
considered by the state agency before it adopts, amends, or repeals
a regulation.

(16) Reference to the fact that the agency proposing the action
has prepared a statement of the reasons for the proposed action,
has available all the information upon which its proposal is based,
and has available the express terms of the proposed action, pursuant
to subdivision (b).

(17) A statement that if a public hearing is not scheduled, any
interested person or his or her duly authorized representative may
request, no later than 15 days prior to the close of the written
comment period, a public hearing pursuant to Section 11346.8.

(18) A statement indicating that the full text of a regulation
changed pursuant to Section 11346.8 will be available for at least
15 days prior to the date on which the agency adopts, amends, or
repeals the resulting regulation.

(19) A statement explaining how to obtain a copy of the final
statement of reasons once it has been prepared pursuant to
subdivision (a) of Section 11346.9.

(20) If the agency maintains an Internet Web site or other similar
forum for the electronic publication or distribution of written
material, a statement explaining how materials published or
distributed through that forum can be accessed.

(21) If the proposed regulation is subject to Section 11346.6, a
statement that the agency shall provide, upon request, a description
of the proposed changes included in the proposed action, in the
manner provided by Section 11346.6, to accommodate a person
with a visual or other disability for which effective communication
is required under state or federal law and that providing the
description of proposed changes may require extending the period
of public comment for the proposed action.

(b) The agency representative designated in paragraph (14) of
subdivision (a) shall make available to the public upon request the
express terms of the proposed action. The representative shall also
make available to the public upon request the location of public
records, including reports, documentation, and other materials,
related to the proposed action. If the representative receives an
inquiry regarding the proposed action that the representative cannot
answer, the representative shall refer the inquiry to another person
in the agency for a prompt response.

(c) This section shall not be construed in any manner that results
in the invalidation of a regulation because of the alleged inadequacy
of the notice content or the summary or cost estimates, or the
alleged inadequacy or inaccuracy of the housing cost estimates, if
there has been substantial compliance with those requirements.