General Politics

A Libertarian Approach to Regulatory Reform in California

By Brian W. Ryman, Co-Chair, Victor Valley Libertarian Alliance

The Libertarian Party of California af­firms in our platform that, “all individuals have the right to exercise sole dominion over their own lives, and have the right to live in whatever manner they choose, so long as they do not forcibly interfere with the equal rights of others to live in whatever manner they choose.” This is antithetical to the regulatory environment in California, which controls every aspect of our lives and our business dealings. It is the purpose of this portion of our program to show how we can reform the current system to rein in regulations and allow for greater individual freedom in the state.

The proposals here are not meant to be seen as the final goal of the Libertarian Party in regards to regulations in the state. Nor are they meant to be the only course of action in bringing about a freer society. These are actions that can be taken now, within the present framework established by the US and California Constitutions, federal and state law, and current regula­tory mechanisms and procedures.

Over-regulation is a problem for Cali­fornians. Before offering solutions, it is necessary to understand where we are and examine how we came to this point.

Current Problem

California’s economy is floundering as businesses–both large and small–are leav­ing the state at an alarming rate. The rea­son for this is clear: California is consis­tently rated the worst, or one of the worst, states in which to do business. According to the Tax Foundation’s 2015 State Busi­ness Tax Climate Index, California ranked 48th for corporate taxes (beating only New York and New Jersey); For 11 years in a row Chief Executive Network has rated California the worst state in which to do business; The California Business Roundtable reports that, “California’s regulatory environment is the most cost­ly, complex and uncertain in the nation.” The threefold burden of taxation, legisla­tive uncertainty, and regulations are mak­ing it next to impossible to run a profitable business in this state.

According to the state constitution,“[t]he legislative power of this State is vested in the California Legislature which consists of the Senate and Assembly” as well as “the powers of initiative and referendum” which are reserved to the people of the state. Ironically, neither the legislature nor the people are the source of most of the regulations. The vast majority are pro­posed by the more than 200 state agencies and commissions given that authority by the Legislature. When they are adopted by the rulemaking agency, approved by the Office of Administrative Law and filed with the Secretary of State, these regula­tions have the force of law.

Unfortunately, regulations adopted by state agents are often inconsistent across different agencies and lack transparency and accountability. These regulators often do not adequately understand the impact of their actions.

The detrimental effects of California’s regulatory climate cannot be over-stated. To frame it based on its economic im­pact, it is helpful to put it in perspective by comparing the cost of regulation to the cost of corporate taxation. While busi­nesses operating in California in 2009 paid ~$9,535,679,000 in Corporate income tax, the regulatory costs for these same businesses were over $467,814,918,000. In other words, the regulatory burden on California businesses is 49 times greater than their tax burden. The combination of excessive taxation and regulation has kept Californians from their potential prosper­ity.

How we got here

Overregulation in California is not a re­cent phenomenon. In 1977 Dow Chemical Corporation abandoned construction plans for a major facility. Dow gave govern­ment regulation and litigation regarding the environmental impact of the plant as the reason. The following year Standard Oil of Ohio abandoned a pipeline project in Long Beach for the same reasons. Both of these projects would have employed thousands of people in a state hit hard by the fiscal malaise of the late 1970s. These events and the subsequent popular revolt that culminated in the passage of the Peo­ple’s Initiative to Limit Property Taxa­tion (Proposition 13) in 1978 had people starting to question the scope and depth of government in their lives. This uprising of the people, and the fact that concerned citizens were alarmed that the California Administrative Code had grown from ~13,500 pages in 1974 to ~ 28,000 pages in 1979, made even government officials take notice.

In response to calls for regulatory reform, California’s legislators from both the Re­publican and Democratic parties proposed a number of bills during the 1978 and 1979 sessions. Most of the bills proposed by the Republicans relied on the legislative veto and the sunset clause for regulations. Democrat Assembly Speaker Leo T. Mc­Carthy, in order to stave off these sweep­ing reforms, put forth Assembly Bill 1111 (Administrative Procedures Act of 1979) on March 22, 1979. This compromise bill passed both the Assembly and Senate al­most unanimously.

Instead of placing regulatory respon­sibility back in the hands of the legisla­ture, AB 1111 established another layer of bureaucracy by creating the Office of Administrative Law (OAL) to oversee the regulatory process. AB 1111 required that any new administrative regulations from 122 rule-making agencies within the ex­ecutive branch of state government would have to be submitted to this new Office of Administrative Law.

The OAL was charged with assuring that any new regulation had to show the fol­lowing: Necessity – a proposed regulation must have “substantial evidence” that the regulation is needed to effectuate the purpose of existing legislation. Authority – the agency making or deleting a regula­tion must have authority to do so. Clarity – the meaning of regulations must be eas­ily understood by people directly affected by them. Consistency – regulations must be consistent with other laws and regula­tions. Reference – regulations must make clear reference to laws and/or regulations that they are modifying. Nonduplication – a regulation does not serve the same pur­pose as a state or federal statute or another regulation.

If a filing meets these standards, the OAL publishes the text of the proposed regula­tion in The California Regulatory Notice Register (Notice Register). At this point the public has 45 days to comment in writ­ing on the regulation as proposed. If there are substantive changes made as a result of this review, the comment period is ex­tended another 15 days. The agency may also opt for public hearings related to its proposals.

There is also a provision for “Emergency Regulations.” A state agency may adopt an emergency regulation if it can show that the regulation is necessary for the immediate preservation of public peace, health and safety, or general welfare. These regulations take effect immediate­ly, without public comment. The public can appeal these regulations directly to the OAL within 5 days. The OAL then has 10 days to substantiate the need for the emergency measure or reject it. Emer­gency regulations remain in effect for 120 days unless renewed.

AB 1111 and subsequent legislation and executive orders also called for a review of the existing regulations to insure that they met the criteria set forth in the new law. So what were the results of these measures?

During the first two years following im­plementation, the growth in new regula­tions averaged a reduction of 49%, and the adoption of emergency regulations was reduced by 63%. As for existing regulations–by the second year, 86 State Agencies had reviewed 23,942 regula­tions, repealed 5,690, and sent back 7,907 for amendment.

Some might see this as promising, but the appearance of meaningful reform was short lived. Many of the new regulations that were disapproved and old regulations that were eliminated were simply dupli­cative of existing statutes or regulations, and most of the regulations sent back for amendment were sent back for lack of clarity. One such rejection for clarity was due to the following language concerning operation of lift equipment on which a person stood on a platform: “Before ele­vating personnel, make sure that the mast is vertical in a sideways direction as well as forward and rearward.” The regulation was later approved with the substitution of the above sentence with the following one: “Before elevating personnel, make sure that the mast is vertical and/or the platform is level.”

Unfortunately, the Regulatory Reforms of 1979, the last major set of reforms at­tempted in the state, had little or no effect in curtailing the promulgation of regula­tions. In fact, the volume of regulations has more than tripled since their enact­ment. During the same period, the num­ber of agencies and commissions that can write regulations has increased by more than 100.

While there is no precise number of state regulations governing Californians to­day, the California Code of Regulations (CCR) consists of 28 Titles and occu­pies 44 bound volumes averaging ~2068 nominal pages (the term nominal is used here because while the pagination may in­dicate 2068 pages, some pages have other divisions- for example page 28 might be continued into 28.1, 28.2, 28.3, etc…). Based on random volume sampling, the estimated total number of pages of cur­rent regulations is between 90,992 and 118,289. Each of these pages may contain several regulations.

It may be that true reform was never in­tended. In 1996 in a series of interviews conducted with Leo T. McCarthy, the au­thor of AB 1111, he made it clear that he did not want to put “some kind of limit on freedom to act through regulations.” He acknowledged that, “One motive that prompted the law was that Democrats were being strongly criticized by Repub­licans for passing new laws that made government bigger and more costly.” This idea is further reinforced by his statement, “My motivation was to put the Democrat­ic Party in a more responsible position as far as the growth of the size of govern­ment is concerned.”

So if the Democrats and McCarthy were acting out of political motivations, why didn’t the Republicans call them on it and work for real reform? McCarthy had the answer to this: “For all the talk about big government, I find Republican legislators spending very little time on analyzing statutes and regu­lations adopted in the past. Their objec­tive to reduce government spending is not undertaken in any specific or analytical way.”

It is time to rectify the shortsightedness of the two establishment parties and enact legislation that will have a real and sub­stantive effect on regulations in Califor­nia. The Libertarian Party is poised to do this, and some of our proposed solutions are in the following section.

Solutions

The principles on which the Libertarian Party was founded call for a maximum of personal liberty and a minimum of gov­ernmental force. Therefore, any approach to Regulatory Reform must be geared to­ward the minimization of artificial gov­ernment regulations. Because of this, the following section offers means within our current system by which regulations can be curtailed and eliminated.

Past proposals have fallen far short. The two main Republican proposals of 1979, even if enacted, were flawed. The Legisla­tive Veto was found to be unconstitutional in 1983, and sunset laws, on their own, have proven ineffective where they have been enacted. Vern McKinley, in his re­search for the Resolution Trust Corpora­tion found that, “In practice, sunset pro­visions have not been very effective, and likely will do little to slow the growth of statutes, agencies, and regulations.”

Sunset clauses for regulations – clauses in a regulation that require periodic review of the rationale for the continued existence of the particular regulation–rarely lead to the end of a regulation. Among the states that use sunset provisions on a regular ba­sis, less than 21% of laws or regulations subject to sunset are allowed to end.

It is clear that more sweeping reforms are needed. These reforms should include a reworking of the Administrative Proce­dures Act to bring the legislative author­ity, now residing in the Regulatory Agen­cies within the Executive branch, back to the Legislature, as called for in the State Constitution.

While many may question the wisdom of vesting regulatory authority in the Cali­fornia Legislature, recent events show that the authority placed there would be less detrimental than leaving it with the Executive. Governor Jerry Brown has stated that he will use every authority at his disposal to push through petroleum- reduction provisions that the legislature properly removed from Senate Bill 350. He pledged to use the full force of his reg­ulatory authority to “change the very ba­sis of our industrial economy, and I think we’re making tremendous progress.”

The Administrative Procedures Act should be modified to redefine the Office of Ad­ministrative Law as an agent of the Legis­lature and not as an office within the Ex­ecutive Branch. The OAL should continue its current vetting process for regulations (including the public review process), but having met their mandated requirements, proposed regulations should be submitted to the legislature for approval. The regula­tion would then be signed into law by the governor as any other law. This procedure would avoid the Constitutional issues that invalidate the legislative veto and would slow the onslaught of regulations.

To further increase freedom and prosperi­ty in California, we should expand our use of sunset provisions to all regulatory laws and agencies. Every regulation should come up for review every three to seven years and every regulatory agency should come up for review every five years (with 1/5th of the total number of agencies be­ing reviewed each year). If a regulation is not reaffirmed at the end of the review, then it is stricken from the books. If an agency fails to have its charter extended upon review, then it will be eliminated.

These reforms address most regulations in California. The only others that need to be dealt with are those passed by public initiative or proposition. To curtail regu­latory expansionism through the initiative process, we call for an amendment to the California Constitution to place sunset provisions on all regulatory or tax propo­sitions allowed on the ballot.