California Forum

Good-governance measures would improve oversight, efficiency

Businesses have long been concerned about the California rule-making process because regulatory agencies are tasked with implementing legislation produced by one of the most active state legislatures in the country.

Indeed, the California Legislature often produces legislation with significant and far-reaching impacts that are felt within the state and beyond its borders. However, for as much national and global attention as the Legislature receives, it is California’s multitude of regulatory agencies, departments, commissions and boards that are adopting a plethora of regulations to implement the Legislature’s ambitious, but often detail-lacking, legislation.

There are more than 200 rule-making entities in the state that, collectively, promulgate over 500 regulations every year.

Regulatory proposals often receive much less attention than the legislative proposals. This is surprising because the impact that many of these regulations have on the business community sometimes exceeds that of the legislative proposals themselves.

To make matters worse, rule-making bodies often produce significant proposals with very little, if any, oversight – by the public, business community and the Legislature – occasionally resulting in poorly drafted regulations that lack any meaningful consideration of economic impacts, compliance challenges or litigation pitfalls. Many regulations, once finalized, do not function as intended and require modification.

However, regulations are rarely modified because the regulatory entity that adopted the regulation in the first place appears to be the only entity with the ability to say “we need to rethink this.” This is markedly different from the legislative process where issues are often revisited in great part because stakeholders and constituents demand it. Consequently, problematic regulations often linger to the detriment of the regulated community without any reconsideration.

Nonetheless, there are several checks in place for these rule-making activities. For example, the Legislature has oversight authority to review what regulatory agencies are doing and offer recommendations, but that authority is rarely used. Several bills over the years have attempted to strengthen the Legislature’s oversight.

For example, Senate Bill 617 from 2011 required rule-making bodies to engage in a more robust economic analysis for “major regulations,” which the bill defined as those having an economic impact on California businesses exceeding $50 million. The bill also required the Department of Finance to provide comments on and review the economic analysis before it is finalized.

Earlier this month, the independent Legislative Analyst Office issued a report titled “Improving California’s Regulatory Analysis,” which identified shortcomings in the review process and proposed the following recommendations to ensure that regulations implement legislative objectives more cost-effectively:

▪  establish more robust guidance and oversight;

▪  reduce requirements that provide limited value; and

▪  require agencies to conduct retrospective review of existing regulations.

As the LAO noted, while rule-making bodies often have options to implement legislative directives by adopting regulations, those agencies need to analyze the potential effects. This process, according to the LAO, helps regulators evaluate the trade-offs between different options and select the approach that best achieves the Legislature’s policy goals in the most cost-effective manner.

Unfortunately, for all of the shortcomings that the LAO has identified, common-sense legislative proposals such as those recently introduced by both parties, including Assembly Bill 12 by Ken Cooley, D-Rancho Cordova, and Assembly Bill 77 by Vince Fong, R-Bakersfield, have historically fallen short for no good reason.

For example, AB 12, which would require state agencies to review their regulations on the books to see if they are duplicative, outdated or too costly, could not even make it through the legislative process when it was introduced last year. AB 77, which would require legislative approval of major regulations, deserves serious consideration but nonetheless has a slim chance of passing.

Now the Legislature must consider whether to pursue all or some of the recommendations proposed by the LAO. Perhaps no recommendation is as warranted as the LAO’s proposal to require agencies to conduct retrospective reviews of major regulations. This will allow stakeholders to re-engage and provide input to the regulatory agency regarding what is working and what is not.

Of course, there will be additional costs associated with these types of reviews, but, according to the LAO, “if these additional resources resulted in even a small increase in regulatory benefits and/or decrease in regulatory costs, the statewide benefits would likely far outweigh the state fiscal costs.”

Unfortunately, those who call for improving oversight and efficiency are cast as advocating to upend the regulatory process, the results of which they occasionally do not like.

However, legislative intent is often ambiguous because complicated measures are often rushed through the process, forcing regulatory agencies to fill in the blanks with presumed authority beyond that which the Legislature intended. Even more, the regulations they produce often go unchecked and are rarely revisited.

Implementing reforms such as those introduced by Cooley and Fong, as well as those proposed by the LAO, are good-governance measures that would ensure that regulations achieve positive and effective public policy while minimizing economic impacts on businesses to the greatest extent practicable. These reforms would also ensure that regulations that are not working, or which are imposing unnecessary burdens on businesses, are revisited and modified in a way that achieves a fair balance of competing interests.

It appears that one of the reasons that passing such good-governance measures has become so difficult is that those affected by California’s regulatory process do not engage in it enough to adequately and articulately demonstrate the importance of the process to legislators. It would serve them and the integrity of the system well to start doing so.

Anthony Samson is a senior attorney and policy adviser in the California Government Affairs practice with Arnold & Porter Kaye Scholer LLP in Sacramento. He can be contacted at anthony.samson@apks.com. Chris Micheli is a principal with the Sacramento governmental relations firm of Aprea & Micheli Inc. He can be contacted at cmicheli@apreamicheli.com.

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