Yesterday I wrote about progress the Administration is making to implement useful economic analysis of major regulations. The goal is to determine the most cost-effective approach to regulation, achieving the goals mandated by the Legislature while burdening businesses and consumers the least.
But this small step forward should not be the end of the march. The Governor and Legislature should pocket this reform and continue to increase transparency and information to improve quality of life without disrupting economic progress.
Here are a couple ideas to build on the 2011 reform:
Develop a process for cost-benefit or economic analysis of major legislation
Economic analysis of regulations is important to ensure that state policies are fully implemented in the least costly manner for a company, industry and the economy as a whole. This principle underlies the heightened economic analysis for major regulations, enforced by the Department of Finance.
But state regulations are inevitably the product of statutes adopted by the Legislature. Once a bill is enacted, a state agency must implement it, even if the controlling policy was conceptually inefficient economically. The Legislature inevitably will enact new laws that have expensive economic impacts or add new burdens to various industries. But they can mitigate these effects by undertaking their own economic analysis on major legislation.
First, the Legislature should staff an independent, nonpartisan economic analysis unit to inform the Assembly and Senate of the economic and competitiveness effects of major legislative proposals. The Legislative Analyst’s Office already prepares fiscal analyses of the Administration’s budget proposals, and other very useful policy, fiscal and even economic analyses on other proposals, usually on request.
However, a well-staffed unit to regularly and comprehensively analyze major legislative proposals would help shape these policies and, perhaps more important, bring to top-of-mind the economic effects of these proposals.
Democrats and Republicans alike in the United States Congress find the economic analyses prepared by the Congressional Budget Office useful to inform their legislative drafting and as cover for an authoritative outside analysis of the proposal.
Second, the Legislature should prepare a “suspense file” or special committee for major legislation that would affect the economy. Based on an initial economic analysis by the Legislative Analyst’s Office (or a new, separate analytical agency), the Rules Committees of each house should designate legislation with a potentially high economic price tag to a special committee (or a special hearing of the Appropriations Committees) to determine if the proposed policy is worth the cost to the economy (or affected industries) and to vote on whether to send the bill to the floor or back to a policy committee to mitigate the economic impacts.
Retrospective review of existing regulations
California’s regulatory code is made up of 28 volumes comprising thousands of pages, with administrative agencies annually add hundreds of pages of state rules. Even as technology, the economy, and society change over time, regulatory programs remain entrenched.
The Legislature should direct the Administration to review several existing, even old, regulations to ascertain whether they have been effective in solving the problem identified by the Legislature and whether they are still effective and worthwhile in addressing that problem. In any case the analysis should consider whether the regulation has addressed or is addressing the problem in the most cost-effective manner.
In particular, retrospective review would create a defined method and schedule for certain significant rules that are obsolete, unnecessary, unjustified, excessively burdensome, or modernizing rules where necessary or appropriate. Considerable academic and empirical research is available to inform this effort.
The outcome of a retrospective review of regulations would be to not only improve the economic efficiency of policy implementation, but also to signal to investors and employers that the state is willing to revisit its initial regulatory assumptions to improve how it implements the goals set by the Legislature.