Down deep in the Marianas Trench of state government, buried in California’s administrative law, is a mechanism by which private industry standards can be made enforceable. It’s a curious feature called “incorporation by reference.” It isn’t used much, but if a state agency wants to enforce, say, some organization’s copyrighted technical standards, it can do it.
But enforcing copyrighted codes can be problematic, and that’s why the law requires safeguards. It’s unclear exactly how many private standards are referenced in state law, and the practice is prone to abuse.
The legislative branch will sometimes authorize a private code in a statute, and then agency employees in the executive branch will draft a regulation defining how it will be enforced. To be enforceable by the executive branch, it must go through a rulemaking process that includes steps like proclamation in the state register, a notice-and-comment period, a public hearing, a cost-benefit analysis and an analysis of how the regulation will affect small businesses in the state. The required agency sign-offs can take months, even years if changes are required. Some agencies don’t have the time.
Take one agency, the Bureau of Real Estate Appraisers. It doesn’t submit versions of a private code of conduct to a required rulemaking. It enforces the code nonetheless. The code is called the “Uniform Standards of Professional Appraisal Practice,” and compliance is required of real estate appraisers, county assessor’s offices and practitioners of a few other specialties in the state. It’s published by a tiny Washington, D.C., nonprofit called the Appraisal Foundation.
The state agency has been enforcing it (and every new version of it) without a rulemaking for three decades – 23 versions total. If past versions of the state register and administrative code are any measure, the state agency has simply gone rogue. Meanwhile, the D.C. nonprofit has learned to monetize the arrangement at the expense, ultimately, of every property owner in the state. Insiders at the nonprofit travel internationally and the top officer of the 14-person operation reported compensation of over $760,000 in 2017, the most recent year for which records were available.
Meanwhile, the state agency is operating in open violation of the state’s administrative code and its Administrative Procedure Act. To thwart such activity, the keeper of the administrative code, the California Office of Administrative Law, maintains an “Underground Regulations” page on its website. California acknowledges it has a problem with maverick state agencies trying to enforce regulations without a required rulemaking.
I stumbled upon the activity while researching my recent book, “Dispatches from the Cosmic Cobra Breeding Farm.” The book deals with the rise of the practice of “incorporation by reference” among state and federal agencies. The feds put pressure on the states to adopt this particular code as new versions come out like clockwork. A short lead time between versions makes it a good test case. Agencies in states like Kansas, Maine, Wisconsin, Kentucky and Montana somehow get it right. Those in states like California can’t get a rulemaking done in time, so they bluff.
What’s happening here is everyone’s nightmare about the practice. On its own authority, the agency has delegated the people’s work of California to a private organization and its paid panels, seemingly in perpetuity.
On its end, the nonprofit engages in a process that has an alluring likeness to government rulemaking: a call for public input, discussion drafts, hearings, technical sessions, and action by a standards council. Heavily stage-managed hearings are held in hotel banquet rooms in places like Las Vegas, Kansas City and Denver. While the process is interesting to observe, it has no more bearing on California law than the random musings overheard among tourists at the Sonny Bono Salton Sea National Wildlife Refuge or deep conversations among sophisticates sipping jalapeno-infused reposado tequila at Good Times at Davey Wayne’s bar in Hollywood.
For starters, no panelist with the nonprofit has taken an oath to faithfully execute the duties of any federal or state office. But the state agency enforces the private standards year after year with no rulemaking as state law requires.
So, can a state agency traffic in such “underground regulations”? Yes. But strictly between us, the standards aren’t enforceable and never have been.
(Editor’s note: A version of this column ran in the print edition of the Modesto Bee.)