Policy Position

Red Tape and Regulatory Reform

in Government Regulation

Introduction

North Carolina’s regulatory environment has improved steadily in recent years. The General Assembly under Republican leadership has passed Regulatory Reform Acts regularly since 2011, preventing and even reducing some unnecessary red tape that holds back small businesses, domestic industries, and local entrepreneurs.

This effort is making North Carolina a national model for other states seeking ways to boost employment and job creation by giving risk-takers and job creators ever more room to move.

Still, plenty of work remains. The John Locke Foundation’s First in Freedom Index ranked North Carolina’s regulatory freedom 36th out of the 50 states — eighth out of the 12 Southeastern states.

Red tape and regulations harm economic growth. That is a consistent finding across the great bulk of economic studies of the issue. In 2016, federal regulation cost American consumers and businesses $1.9 trillion from lost economic productivity and higher prices. That’s so big it towers over the economies of all but six nations in the world.

Adding more and more red tape to an economy is like adding more and more bricks to the trunk of your car. Over time the engine loses fuel efficiency, the car can’t go as fast, and it takes progressively longer to reach mileposts than before. Take the bricks out, and you’ll restore speed and performance.

More lightly regulated industries grow much faster and produce at much greater rates than more regulated industries. Cutting red tape and keeping regulatory burdens light and up-to-date are important for economic growth — which means personal income growth, too.

There are several reforms open to leaders hoping to free North Carolina of unnecessary red tape. The goal is to produce good, common-sense rules only when needed and without unnecessarily hamstringing the economy.

Key Facts

  • A 2015 study by economists at Beacon Hill Institute at Suffolk University estimated that state regulations cost North Carolina’s economy as much as $25.5 billion that year. That’s just for one year. But the regulatory slowdown goes on, year after year, like a car loaded down with bricks.
  • In 2013, the General Assembly enacted a significant reform for administrative rules: sunset provisions with periodic review. By January 2018, the process was over halfway complete, with over 13,000 total rules having been reviewed.
  • Over 1,600 rules have been repealed so far. That’s about one out of every eight rules reviewed. Over 3,500 are to undergo the scrutiny of the rules review process to be readopted. Over 61 percent were re-upped without further review.
  • Implementing a “rules throttle” approach for rules that would require review of rules that impose a significant cost on the state’s private sector, whether directly or indirectly. A rule that meets a statutory threshold for significant regulatory cost would need ratification in the legislature, the lawmaking body accountable to the public, for it to come into full effect. The process adopted by Florida in 2010 has yielded strongly positive results and increased cooperation between the legislature and state agencies in rulemaking.
  • North Carolina is one of only six states without small-business regulatory flexibility. This reform lets agencies make common-sense adjustments to small businesses’ regulatory burdens, such as compliance and reporting requirements. Those things are more expensive for small businesses, which make up 99.6 percent of North Carolina’s employers.

Recommendations

  1. Tweak the periodic review process so that all rules under review are either repealed or subjected to the rules-adoption process again.
  2. Implement a “rules throttle” for legislative ratification of rules that would impose a significant cost on the private sector. If, during a five-year period, the rule (or set of rules) would be projected to cost a certain amount, the originating agency would be prohibited from adopting it and the rule would be subject to a more extensive review and adoption process.
  3. Enact small-business flexibility analysis and default mens rea statutes. A default mens rea statute would restore the crucial, common-law protection against penalties for breaking a rule or law unknowingly and without meaning to.
  4. Other reforms to consider include regulatory budgeting (also called regulatory reciprocity), stated objectives and outcome measures, implementing strong cost/benefit analysis, and expanding the no-more-stringent laws already placed on state environmental agencies to apply to all state agencies.

Data

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