Regulatory Reform

Much has changed for the good concerning North Carolina's regulatory environment with the passage (and override of Gov. Bev Perdue's puzzling veto) of the Regulatory Reform Act (RRA) of 2011, tort reform, medical malpractice reform, and workers' compensation reform. Nevertheless, given the state's history for imposing onerous regulatory burdens, much more remains to be done.

Key Facts

  • Surveys of small business leaders consistently find regulatory burden as a major obstacle to growth and job creation. Government regulations force businesses to bear compliance costs and legal fees, taxing man-hours without production.
  • State agencies' rule-making power is legislative power delegated by the legislature to the executive branch.
  • The Rules Review Commission is tasked with reviewing regulations and keeping agencies from exceeding their authority. The commission's practical authority is highly limited, however.
  • Under RRA, state environmental rules can be no more stringent than federal rules without legislative action.
  • RRA requires the state to review existing rules and encourages the elimination of those that are burdensome, outdated, unnecessary or vague.
  • For disputes between a regulated party and a state environmental agency that are heard by the state Office of Administrative Hearings (OAH), RRA changed the way appeals were handled. Before RRA, if the OAH decision went against the agency, the agency could simply overrule it. Now both parties have to appeal to Superior Court. But this reform applies only to environmental agencies. Other state agencies can still overrule any unfavorable OAH decision.
  • RRA requires agencies to provide cost estimates for many kinds of rules as well as give at least two alternatives to any proposal with "substantial economic impact" (over $500,000). Those requirements are not, however, substitutes for true cost/benefit analysis.
  • The federal government has required cost/benefit analysis of proposed rules for nearly 40 years. Also, 32 states require periodic review of existing state rules.
  • 35 states require agencies to conduct "small business flexibility analysis" to test whether rules have a disproportionate impact on small businesses.
  • The legislature has passed many deleterious measures without regard for costs outweighing benefits. E.g., the state's renewable energy portfolio standard hikes electricity costs, its Clean Smokestacks Bill costs ratepayers over $3.2 billion, its high number of insurance mandates increases health insurance costs, and its high number of workers requiring occupational licenses (including barbers, auctioneers, and librarians) raises the cost of doing business and hurts job creation.
  • Overregulation's costs frequently go unseen. A case in point is North Carolina's unique automobile insurance system. Five players influence auto insurance rates in North Carolina: Rate Bureau, insurance commissioner, Reinsurance Facility, court system, and private insurers. This system disadvantages safe drivers but helps protect insurance companies.
  • A hidden tax — one auto insurers are forbidden from disclosing on statements — supports the mandated Reinsurance Facility, in which private insurers dump "risky" drivers. That surcharge on every auto insurance policy averages to about 6 percent a year.

Recommendations

  1. Expand the Regulation Reform Act's fix of the administrative appeals process to apply to all agencies, not just environmental agencies.
  2. Require agencies to quantify projected costs and benefits of proposed regulations, and require rejection of rules for which the costs exceed the benefits. Apply the same cost/benefit test to laws previously enacted by legislators, repealing those that fail the test.
  3. Implement small-business flexibility analysis for prospective rules to prevent regulations from running roughshod over small employers.
  4. Strengthen the Rules Review Commission to reject regulations unless the relevant agency can prove the rules are clearly within the limited power delegated to it by the legislature.
  5. Reform North Carolina's auto insurance market by eliminating guarantees of insurer profits, encouraging product innovation, disclosing any cross-subsidies on insurance bills, and reducing the extent to which ratepayers subsidize the premiums of risky drivers.

Analyst: Jon Sanders
Director of Regulatory Studies
919-828-3876 • jsanders@johnlocke.org

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