Public Policy ActionRegulatory Reform

LAEDC Signs onto REAL Letter, Urges Revisions to SB 617 Implementation

By August 26, 2013 No Comments

August 26, 2013

Mr. Dennis Meyers
Principal Economist
Department of Finance
915 L Street
Sacramento, California 95814

RE: R.E.A.L. Coalition comments regarding draft regulations to implement Senate Bill (SB) 617

Dear Mr. Meyers:

On behalf of The Regional Economic Association Leaders (R.E.A.L.) Coalition, an association of California’s most influential business and economic development entities, representing more than 11,000 employers who collectively provide more than three million California jobs, we are pleased to offer the following comments on the Department of Finance’s (DOF) draft regulations (dated: March 20, 2013) to implement Chapter 496/2011 (hereinafter referred to as SB 617).

The R.E.A.L. Coalition was an early and strong supporter of SB 617, as well as other measures to more thoroughly analyze, better rationalize and more thoughtfully promulgate regulations and enhance regulatory processes to improve the state’s overall business climate and global competitiveness. Accordingly, we very much recognize and appreciate DOF’s efforts to adhere to the original intent and comport with the legislative purpose of SB 617, which set forth a statutory requirement for standardized regulatory impact analyses of “major” regulations (i.e., those exceeding $50 million in economic impact) that will be adopted, amended or repealed by a regulation implementing agency. It is with that shared goal in mind that we respectfully offer the following comments and recommendations to further guide DOF in its interpretation and implementation of the law’s provisions:

I. Determining what meets the “major regulation” threshold of $50 million or more in economic impact

Under the draft regulations, the Department of Finance is interpreting SB 617’s requirement that economic impact analyses be done on all [major] regulations that exceed $50 million in economic impact to mean those regulations that have an annual impact on the state economy of $50 million or more, versus cumulative impacts, and at any stage of implementation, versus at full implementation. This annual impact inference is especially striking considering there is nothing in the express text of the bill (SB 617) to support such a consequential interpretation. In fact, the final (chaptered) bill’s text defines “major regulation” simply as: “…any proposed adoption, amendment, or repeal of a regulation…that will have an economic impact on California business enterprises and individuals in an amount exceeding fifty million dollars ($50,000,000), as estimated by the agency.”

We have two issues with this unfounded, narrow interpretation. First, we are concerned that agencies can simply breakup regulations into smaller, bite-sized rulemaking events over two or more years in order to circumvent the $50 million threshold. And second, we are concerned that under this interpretation agencies can either ignore or intentionally skirt the cumulative impacts of a number of reasonably-connected regulations that flow from a single statutory scheme. Either scenario, we believe, offends the original intent, purpose and spirit of the law.

To address the above concerns, we urge the Department of Finance to include the following guidelines in its rulemaking framework:
 Proscribe regulation implementing agencies from unreasonably disaggregating regulations that implement functionally linked elements of a controlling statute into compound, isolated rulemaking actions over multiple years to avoid, contravene or invalidate the law’s reach.
 Prescribe formally that the “$50 million” threshold shall be determined by cumulative not annual impact.
 Require agencies in their initial statement of reasons to include their methodology and explanations for determining that a regulation is not a major regulation.
 Institute formal procedures for appealing/contesting agency determinations that a regulation is not a major regulation.
 Ensure that the opinions of those who will be affected by regulations, e.g., businesses, as well as the views of those individuals and organizations who may not be affected but have special knowledge or insight into the regulatory issues, e.g., other agencies, are acknowledged, emphasized and responded to when designing, executing and writing regulatory analyses.

After all, the dual goals of SB 617 are to provide transparency to regulated industries and to help decision makers effectively analyze and ultimately design regulations in the most efficient, least onerous and most cost-effective manner.

II. Instituting consistent economic impact analysis standards across agencies

Under the current DOF draft regulations, each regulatory implementing agency is charged with conducting its own economic impact study with DOF serving in a review, monitoring and selective oversight function. However, we are concerned that there is no real clarity as to whether there will be consistent standards applied across the almost 200 regulatory implementing agencies. Similarly, we are very concerned that not every agency has the requisite levels of staffing, expertise and/or capacity to satisfactorily carry out these types of economic impact analyses, including alternatives analyses, which may call for both a benefit-cost and cost-effective analysis.

To help overcome this, we recommend the Department of Finance – as it looks to prescribe standards across the state’s regulatory implementing agencies – incorporate in its own guidance many of the “best practices” contained in the Office of Management and Budget’s (OMB) Circular A-4. We believe OMB’s Circular A-4 provides indispensible guidance for economic analysis of rulemaking, standardizing the way benefits and costs of regulatory actions are measured and reported across multiple agencies and departments. We urge DOF to make use of many of the circular’s principles and absorb them into its own rulemaking guidelines for regulatory agencies to better anticipate and evaluate the likely consequences of rules and to determine which of a range of possible alternatives would be the most cost-effective.

The undersigned members of the R.E.A.L. Coalition once again thank the Department of Finance for its leadership in developing these new regulations. We share your aim to ensure that measures proposed in SB 617 are implemented in a way that improves transparency and the effectiveness of the state’s rulemaking process overall, and so we stand ready to work with you on this critically important matter.

Thank you for your consideration.

Bill Allen
President & CEO
Los Angeles County Economic Development Corporation

Robert Linscheid
President & CEO
San Francisco Chamber of Commerce

Paul Granillo
President & CEO
Inland Empire Economic Partnership

Cynthia Kurtz
President & CEO
San Gabriel Valley Economic Partnership

Cynthia Murray
President & CEO
North Bay Leadership Council

Gary Toebben
President & CEO
Los Angeles Area Chamber of Commerce

Randy Gordon
President & CEO
Long Beach Area Chamber of Commerce

Mark Cafferty
President & CEO
San Diego Economic Development Coporation

Lucy Dunn
President & CEO
Orange County Business Council

Roger Niello
President & CEO
Sacramento Metro Chamber of Commerce

Ron Addington
President & CEO
Business Council of San Joaquin County

Billie Greer
Southern California Leadership Council

Russell Hancock
President & CEO
Joint Venture

Joseph J. Haraburda
President & CEO
Oakland Metropolitan Chamber of Commerce

Jerry Sanders
President & CEO
San Diego Regional Chamber of Commerce

Matthew R. Mahood
President & CEO
San Jose Silicon Valley Chamber of Commerce

Al Smith
President & CEO
Greater Fresno Area Chamber of Commerce

Jim Wunderman
President & CEO
Bay Area Council

Tom Terrill
President & CEO
East Bay Leadership Council

Carl Guardino
President and CEO
Silicon Valley Leadership Group


Cc: Governor Jerry Brown
Senate President pro Tempore Darrell Steinberg
Senator Bob Huff, Minority Leader
Senator Fran Pavley
Senator Ron Calderon
Speaker of the Assembly John Pérez
Assemblymember Connie Conway, Minority Leader
Mike Rossi, Senior Advisor for Jobs and Business Development in the Office of the Governor
Kish Rajan, Director, Governor’s Office of Business and Economic Development