BILL ANALYSIS �
AB 2723
Page 1
Date of Hearing: April 22, 2014
ASSEMBLY COMMITTEE ON JOBS, ECONOMIC DEVELOPMENT AND THE ECONOMY
Jose Medina, Chair
AB 2723 (Medina) - As Amended: April 9, 2014
SUBJECT : Small business regulatory reform
SUMMARY : Clarifies that when rulemaking agencies are considering the
impact of proposed regulations that they include the impact on sole
proprietorships. Specifically, this bill :
1)Expands the legislative findings related to the review of
regulations to include a statement that recognizes the importance of
small businesses to the California economy and the importance of
evaluating the impact of regulations on small size businesses.
2)Clarifies that the consideration of the direct costs of regulations
on businesses includes a sole proprietorship and small business.
3)Removes the prohibition against considering a landscape architect,
an architect, or a building designer as a small business.
4)Removes the prohibition against considering nonprofit institutions
with less than 100 employees.
5)Makes other conforming changes to the calculation of the cost impact
regulations, including major regulations.
EXISTING LAW :
1)Finds and declares that it is in the public interest to aid,
counsel, assist, and protect the interests of small business
concerns in order to maintain a healthy state economy.
2)Finds and declares that there has been an unprecedented growth in
the number of administrative regulations in recent years and that
correcting the problems requires the direct involvement of the
Legislature, as well as that of the executive branch of the state
government. Further, statute finds and declares that 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.
3)Establishes basic minimum procedural requirements for the adoption,
AB 2723
Page 2
amendment, or repeal of administrative regulations, including
assessing the potential adverse impact of an action on California
businesses and individuals with the purpose of avoiding the
imposition of unreasonable and unnecessary regulations, reporting,
recordkeeping, or compliance requirements. Among other
requirements, an agency is required to:
a) Base decisions on adequate information;
b) Consider the impact of a proposed rule on an industry's
ability to compete with businesses in other states; and
c) Assess its impact on the creation or elimination of jobs and
new and expanding businesses.
4)Requires the Department of Finance to adopt, and rulemaking agencies
to follow, a specific set of regulations for undertaking an economic
impact analysis for regulations that are anticipated to have an
impact on businesses in excess of $50 million.
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's Purpose : According to the author, "AB 2723 adds statutory
protections to ensure that the costs of major regulations on the
state's smallest businesses are considered when state agencies
undertake the already mandated economic impact assessment.
Current law, including the SB 617 process for major regulations,
only requires that business impacts in general be considered. Given
that businesses with no employees make up the single largest
component (80%) of businesses in California fully understanding how
regulations affect these smallest size business is essential."
2)Framing the Policy Issue : This bill requires state rulemaking
agencies to calculate the impact of regulations on small businesses,
as well as large businesses. Although small businesses represent
the single largest number of businesses in the state, the current
process for calculating the cost of major regulations does not
differentiate in the compliance costs by size of business. Because
research at both the state and federal levels show that small
businesses bear the highest financial burden for regulatory
compliance, failing to determine the economic impact of new
regulations by size of business could impact the ongoing viability
AB 2723
Page 3
of the small businesses and the employment of their workers.
Nothing in the bill proposes a lower compliance standard, just
better cost assessments, which should result in smarter compliance
methods.
In deliberating the merits of the measure, Members may wish to
consider the role of government to provide an economic environment
that supports job creation and business development, the importance
of small businesses to the California economy, and the peer reviewed
studies that show that small businesses bare the highest cost of
regulations. The analysis includes detailed information on these
issues. Comment 6 includes amendment recommendations.
3)The Role of Small Business within the California Economy :
California's dominance in many economic areas is based, in part, on
the significant role small businesses play in the state's $2
trillion economy. Among other advantages, small businesses are
crucial to the state's international competitiveness and are an
important means for dispersing the positive economic impacts of
trade within the California economy. California small businesses
comprised 96% of the state's 60,000 exporters in 2009, which
accounted for over 44% of total exports in the state. Nationally,
small businesses represented only 31.9% of total exports. These
numbers include the export of only goods and not services.
Businesses with no employees make up the single largest component of
businesses in California, 2.8 million out of an estimated 3.5
million firms in 2010. As these businesses grow, they continue to
serve as an important component of California's dynamic $2 trillion
economy. Microenterprises, meaning businesses with less than five
employees represent approximately 93% of all businesses in the
state, or approximately 3.2 million of all businesses. Businesses
with 99 or less employees comprise nearly 98% of all businesses and
employ approximately 38% of all workers. These non-employer and
small employer firms create jobs, generate taxes, and revitalize
communities.
In hard economic times, smaller size businesses often function as
economic engines. In this most recent recession the trend
continued, with the number of nonemployer firms increasing from 2.6
million firms ($137 billion in revenues) for 2008 to 2.8 million
firms ($138 billion in revenues) by 2010. In the post-recession
economy, small businesses are expected to become increasingly
important due to their ability to be more flexible and better suited
to meet niche market needs.
AB 2723
Page 4
Their small size, however, also results in certain challenges in
meeting regulatory requirements, accessing capital, and marketing
their goods and services. California's network of SBDCs provide
small size businesses, including business start-ups, with access to
quality education, one-on-one counseling, and other business
development resources.
4)Cost of Regulations on Business : There are two major sources of
data on the cost of regulatory compliance on businesses, the federal
SBA and the state Office of the Small Business Advocate (OSBA). For
the last 10 years, the federal SBA has conducted a peer reviewed
study that analyzes the cost of federal government regulations on
different size businesses. This research shows that small
businesses continue to bear a disproportionate share of the federal
regulatory burden. On a per employee basis, it costs about $2,400,
or 45%, more for small firms to comply with federal regulations than
their larger counterparts.
The first study on the impact of California regulations on small
businesses was released by the OSBA in 2009. This first
in-the-nation study found that the total cost of regulations to
small businesses averaged about $134,000 per business in 2007. Of
course, no one would advocate that there should be no regulations in
the state. The report, however, importantly identifies that the
cost of regulations can provide a significant cost to the everyday
operations of California small businesses.
Regulatory costs are driven by a number of factors including
multiple definitions of small business in state and federal law, the
lack of e-commerce solutions to address outdated paperwork
requirements, procurement requirements that favor larger size
bidders, and lack of technical assistance to alleviate these
obstacles that inhibit small business success.
5)Adoption of Regulations in California : Existing law sets forth an
extensive process for the development and adoption of regulations,
including requiring the identification of potential adverse impacts
of regulations on California businesses and individuals. Statute
states that the purpose of the rulemaking process is to avoid the
imposition of unreasonable and unnecessary regulations, reporting,
recordkeeping, or compliance requirements. Businesses, however,
have repeatedly testified before this policy committee that they
believe that California's regulatory process is expensive, overly
burdensome, and that compliance has not necessarily provided a
AB 2723
Page 5
better quality of life for people in the state.
One of the criticisms of the process has been that the Office of
Administrative Law (OAL) has no real authority to ensure that the
intent of the law is enforced because its oversight is limited to a
procedural review. Other criticisms have included that regulations
are developed without adequate regard to their cumulative impact or
challenges faced by small versus large companies.
This means that while the rulemaking entity is required to consider
the impact of a regulation on businesses and consider alternatives,
OAL may only check to be sure that an assessment has been done.
Rulemaking agencies may even decline to consider alternatives and
may limit their assessment of a regulation's impact to only
information supplied by interested parties.
Given these challenges, regulatory reform continues to be a major
topic of legislation. Some progress was made in the 2011-12
legislative session when the Assembly and Senate leadership proposed
SB 617 (Calderon), Chapter 496, Statutes of 2011, which required an
enhanced economic impact analysis for regulations anticipated to
have an impact of $50 million or more. Given that the actual
economic impact analysis has been placed in regulation, OAL will
have an opportunity to address procedural error in assessing the
impact of the proposed regulations.
6)Technical Amendments : Staff understands that the author will offer
amendments to define an architect, land scape architect, or a
building engineer with less than 100 employees is a small business.
Current law excludes all of these businesses, regardless of size
from being considered a small business.
7)Related Legislation : Legislation related to this measure includes
the following:
a) AB 393 (Cooley) GO-Biz Website: This bill required the
Director of GO-Biz to ensure that the GO-Biz website contains
information on the fee requirements and fee schedules of state
agencies. Status: Signed by the Governor, Chapter 124, Statutes
of 2013.
b) AB 892 (Carter) Federal Pilot on Streamlining Environmental
Reviews: This bill provided for the extension of the California
Department of Transportation's National Environmental Policy Act
delegation authority by extending a waiver of sovereign immunity,
AB 2723
Page 6
as specified. Status: Signed by the Governor, Chapter 482,
Statutes of 2011.
c) AB 1037 (V. Manuel P�rez) Small Business Regulatory Reform:
This bill would have removed statutory barriers that inhibit the
full consideration of the impacts of state rules and regulations
on the economy, including the small business sector, and requires
a review of all regulations on small businesses after five years
to identify opportunities to mitigate negative impacts. Status:
Held on the Suspense File of the Assembly Committee on
Appropriations, 2011.
d) AB 1098 (Quirk-Silva) Small Business Regulation Report: As
passed by JEDE, this bill would have directed the Office of Small
Business Advocate within GO-Biz to commission a study of the
costs of state regulations on small businesses every five years.
Amendments taken in the Senate deleted the content of the bill
and added language relating to legal documents provided over the
internet with Assemblymember Gray as the author. Status:
Pending in the Senate Committee on Judiciary.
e) AB 1409 (V. Manuel P�rez) Small Business Regulation Reforms:
This bill would have modified the state rulemaking process to
require state agencies to consider alternative small business
compliance mechanisms. Rulemaking agencies would also have been
required to consider whether there are opportunities to
coordinate or harmonize compliance activities with other state
entities with similar or related rules. Further, the bill
encouraged the Small Business Advocate to solicit comments from
small businesses on proposed regulations and make recommendations
on reasonable alternatives as part of the rulemaking process.
Status: Held in the Senate Committee on Rules, 2012.
f) AB 1711 (Cooley) Economic Impact Assessment: This bill
requires an economic assessment to be included in the initial
statement of reasons that a state agency submits to the Office of
Administrative Law when adopting, amending, or repealing a
non-major regulation. Status: Pending in Assembly
Appropriations.
g) SB 176 (Galgiani) Outreach on Administrative Procedures: This
bill would have amended the Administrative Procedure Act by
requiring state agencies to make a reasonable effort to outreach
and provide notice to affected entities when developing
regulations. Statutes: Held on the Suspense File of the
AB 2723
Page 7
Assembly Committee on Appropriations, 2013.
h) SB 353 (Blakeslee) Economic Analysis of Regulations: This
bill would have required an agency to enter into an agreement for
the performance of an external economic peer review of an
agency's economic assessment for any major rule. The bill
prohibited an agency from taking any action to adopt the final
version of a major rule unless certain conditions relating to the
external economic peer review are met. Status: Held in the
Assembly Committee on Governmental Organization, 2012.
i) SB 366 (Calderon) Agency Review of Regulations: This bill
would have required each state agency to undertake specified
actions within 180 day of enactment of regulations that have been
adopted by a state agency, including but not limited to
identifying any regulations that are duplicative, overlapping,
inconsistent, or out of date, and adopting, amending, or
repealing regulations to reconcile or eliminate any duplication,
overlap, inconsistency, or out-of-date provisions, after
conducting a publicly noticed hearing and using procedures for
adopting emergency regulations. Status: Held in the Assembly
Committee on Governmental Organization, 2012.
j) SB 396 (Huff) Regulation Review Process: This bill would have
required each state agency to review each regulation adopted
prior to January 1, 1990, and to develop a report for the
Legislature with prescribed information on or before January 1,
2013. The bill also required each agency, on or before January 1,
2018, and at least every five years thereafter, to conduct
additional reviews of regulations that have been in effect for at
least 20 years and to submit an annual report to the Legislature
that identifies the regulations reviewed during that year and the
associated findings. Status: Held in the Senate Committee on
Environmental Quality, 2012.
aa) SB 560 (Wright) Small Business Regulations: This bill would
have made a number of reforms to help small businesses grow
encouraging more realistic regulations and a real assessment of
the actual costs of regulations to the business community. The
bill would have, among other things: 1) Authorized a state agency
to consult with "parties who would be subject to the proposed
regulations" rather than "interested persons"; 2) Revised the
economic impact assessment to also include a small business
economic impact statement; 3) Required the notice of proposed
adoption, amendment, or repeal of a regulation to also include
AB 2723
Page 8
the small business impact statement; 4) Removed 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 compliance with the
regulation, and instead required the agency to include a
statement describing how a private person or business could
comply with the proposed regulation without incurring a cost; 5)
Required OAL to return any regulation to the adopting agency if
the adopting agency had not provided the above cost estimate and
small business economic statement; and 6) Added restrictions for
regulations relating to a new or emerging technology, as
specified. Status: Held in the Senate Committee on
Environmental Quality, 2012.
bb) SB 617 (Calderon) State Government and Financial and
Administrative Accountability: This bill revises the state
Administrative Procedure Act to require each state agency
adopting a major regulation to prepare an economic impact
analysis, and requires state agencies to implement ongoing
monitoring of internal auditing and financial controls and other
best practices in financial accounting. Status: Signed by the
Governor, Chapter 496, Statutes of 2011.
8)Double Referral : The Assembly Committee on Rules referred this
measure to two policy committees for review. The bill was heard in
the Assembly Committee on Accountability and Administrative
Oversight on April 9, 2014 and passed the committee on a 13 to 0
vote.
REGISTERED SUPPORT / OPPOSITION :
Support
Air Conditioning Trade Association
America Institute of Architects, California Council
Associated Builders and Contractors of California
Associated Builders and Contractors-San Diego Chapter
Building Owners & Managers Association of California
California Business Properties Association
California Construction and Industrial Materials Association
California Association for Health Services at Home
California Association of Boutique & Breakfast Inns
California Business Roundtable
AB 2723
Page 9
California Chamber of Commerce
California Chapter of American Fence Association
California Fence Contractor's Association
California Grocers Association
California Hispanic Chamber of Commerce
California Hotel & Lodging Association
California Manufactures & Technology Association
Coalition of Small and Disabled Veteran Businesses
Commercial Real Estate Development Association, NAIOP of California
Family Business Association
Flasher Barricade Association
Industrial Environmental Association
International County of Shopping Centers
Los Angeles County Economic Development Corporation
Marin Builders Association
National Federation of Independent Business
Plumbing-Heating-Cooling Contractors Association of California
Small Business California
Southwest California Legislative Council
Star Milling Company
State of California Auto Dismantler's Association
The California Asian Pacific Chamber of Commerce
The California Association for Micro Enterprise Opportunity
The California Small Business Development Center Leadership Council
United Contractors
Western Electrical Contractors Association
Opposition
None received
Analysis Prepared by : Toni Symonds / J., E.D. & E. / (916) 319-2090