An obscure but significant improvement in business regulation is taking shape deep inside the Brown Administration.
Following up legislation adopted in 2011, the state’s Department of Finance has begun reviewing major regulations to determine whether agencies have properly analyzed the economic and competitiveness effects of their rule makings.
While this may seem a small step and an essentially bureaucratic function, it portends important changes.
First, never before has an agency within the Administration been directed to enforce economic analysis of state regulations. Two decades ago, a unit within the then-Trade and Commerce Agency monitored regulatory filings and occasionally commented when those filings were light on necessary analysis. But agencies were free to ignore this advice.
Second, the methodology by which a regulations’ economic impact (and benefits) are determined is transparent and easily accessible. Everybody from the regulating agency to the regulated party to the advocacy groups knows how to measure economic impact.
Third, the cumulative effect of an outside, expert agency reviewing dozens of major regulations, plus the ability of affected interests and advocates to peer inside this process will create a learning laboratory to drive further improvements to this system.
While the first year of this new era in regulatory reform has shown promise, its true potential will not be realized unless regulated industries embrace this opportunity. The tools for agency accountability are within reach, but systemic changes will not be fully realized unless affected industries use them.
- When faced with a new regulatory package, regulated industries should assess whether they face a “major regulation,” meaning a $50 million annual gross economic impact – which triggers the higher level of accountability by the Department of Finance.
- If subject to a major regulation, affected companies and industries should devote resources to their own high quality economic analysis and share the results with both the rule making agency and the Department of Finance.
- Companies and industry groups should carefully monitor and analyze the documentation between the rule making agency and Finance to provide comments and ensure the agency is being held to a high analytical standard. The Department of Finance is not required to consider industry comments on its own analysis, but useful and thoughtful submissions may be considered informally.
- Finally, regulated companies and advocates should advise the Administration generally about the successes and shortcomings of this new regulatory reform. Such a process, which adds new burdens to the regulator, must attract a chorus of advocates if this reform is to persist and become integral to the regulatory process.
The bottom line for industry is to use these economic analyses to drive better and more cost effective alternatives to the regulation being proposed. This is not analysis for the sake of analysis, but better information to improve economic regulation.
The Legislature also must continue its oversight of regulatory analysis since, after all, the Administration is largely implementing laws passed by the Legislature. A potentially good step is Assemblyman Ken Cooley’s proposal to engage the Legislature more closely in monitoring the development of major regulations and direct regulators to identify duplicative, overlapping or inconsistent regulations.
During his reelection campaign, Governor Brown lamented the “enactment of tens of thousands of laws” and the “ever-growing reach of state bureaucracy.” He also committed to “do a lot more follow-through work in the next four years.” Diligent implementation of current regulatory reform requirements is a necessary first step on that follow-through work.