This week marks a small but significant change in how state regulators must justify and develop major new regulations.
Beginning November 1, state agencies proposing a major new regulation must undertake a rigorous economic analysis, ultimately geared toward helping the Administration determine which regulatory alternative will be most effective at the least cost to meet the goal of the underlying statute.
The new rules were initiated by legislation passed in 2011 responding to an outpouring of criticism from businesses and investors complaining about the proliferation of unnecessarily burdensome regulations. The Little Hoover Commission also released a report in 2011 outlining steps the state could take to improve economic analysis of regulations, many of which are reflected in these new rules.
These tougher analytic standards, overseen by the Department of Finance, also strike a goal for open government. They require an enhanced level of disclosure and transparency by state agencies that propose major regulations. What’s more, the Finance Department will be overseeing the performance of state agencies in complying with these analytic requirements. Nothing like a powerful agency holding a regulator’s feet to the fire to improve accountability and compliance.
Speaking of accountability, the California Supreme Court has also weighed in on the importance of a state agency diligently complying with regulatory analysis requirements. In a case about the economic impact of a property tax assessment rule promulgated by the State Board of Equalization, the Supreme Court found that the Administrative Procedures Act requires that an economic impact analysis of a regulation be based on facts and evidence, not on an agency’s beliefs. Tellingly, the Court stated that “Although we do not understand this (economic impact analysis) requirement to impose a heavy burden on the agency, we cannot deem it satisfied by an opaque calculation unsupported by any facts or other evidence explaining its validity as a reasonable estimate.”
What the Supreme Court found to be a “modest requirement of rationality and transparency” has been beefed up by legislative and administrative actions. With diligent oversight and a little luck, we may be witnessing a reversal in the tide of California regulatory overreach.