RALEIGH — North Carolina has seen early benefits from a regulatory reform with “proven effectiveness” in battling the red tape that slows economic growth. That’s one key fact highlighted in a new John Locke Foundation Spotlight report.
A unanimous N.C. Senate approved a measure in February to strengthen the reform’s positive impact.
The reform adopted in 2013 is called a “sunset provision with periodic review.” “What that means is that state rules are slated for automatic repeal, or sunset, within 10 years unless the government officially reviews them and determines that they’re still needed,” said report author Jon Sanders, JLF Director of Regulatory Studies.
“Without review, old rules can clutter up the regulatory toolshed,” Sanders said. “Rules can be — or become — unclear, unnecessary, outdated, obsolete, unduly burdensome, ineffective, and inefficient. Agencies might not even remember why they adopted the rules in the first place.”
To date, more than 8,900 rules have faced an official review, out of roughly 20,000 that eventually will be subjected to the review process. Reviewers have removed 1,077, or 12 percent, of reviewed regulations from the state’s rulebook. Another 2,337 (26 percent) face the extra scrutiny of going through a lengthy readoption process.
“Already North Carolina is seeing its stock of rules streamlined,” Sanders said. “Its regulatory burden is lightening.”
The current review process leaves more than 60 percent of reviewed rules that have been retained without further scrutiny. That could change in the future.
“The chairman of the state Rules Review Commission has urged legislators to make the process stricter,” Sanders said. “His proposal would ensure scrutiny of each rule. Either a rule would be repealed, or it would be sent back through the rulemaking process as if newly proposed.”
Recent research offers good news about this type of regulatory reform, Sanders said. “A 2012 study found that most state rules review processes yielded inconsistent, little, or no evidence of actual reduction in regulatory burdens,” he said. “In contrast, a sunset provision with periodic review offered ‘robustly statistically significant’ evidence that the reform works. Its results were positive and, according to the researchers, ‘economically significant.’”
Those findings prove important because regulation has a clear negative economic impact, Sanders said. “The simple fact of the matter is: Red tape is bad for the economy,” he said. “Studies consistently show that regulations harm economic growth. In 2014, federal regulation cost American consumers and businesses $1.88 trillion from lost economic productivity.”
“Accumulating federal regulations slowed U.S. economic growth by 2 percent a year on average,” Sanders added. “More lightly regulated industries grow much faster and produce at much greater rates than more regulated industries. Without the regulatory accumulation seen since 1980, the U.S. economy would be 25 percent larger today. That translates into about $13,000 per person.”
Research even points to regulation’s negative impact on this state. “In 2015, state regulations cost North Carolina’s economy as much as $25.5 billion,” Sanders said.
“Economic productivity has ongoing, compounding positive effects,” he said. “Preventing economic productivity prevents those positive effects from coming about. This means red tape can create ongoing, compounding economic losses.”
Sanders endorses the current proposal to strengthen North Carolina’s sunset provision and periodic review. Senate Bill 16 includes that provision. Senators voted 44-0 on Feb. 23 to approve that bill.
The report also recommends that legislators consider other types of regulatory reform. They include a red-tape reduction initiative, a law to force the General Assembly to make final decisions about the costliest rules, and a law to force two or more old rules to go away any time a new rule is adopted.
“Cutting red tape and keeping regulatory burdens light and up to date are important for economic growth and personal income growth,” Sanders said. “A sunset with periodic review makes agencies drag old rules out of the toolshed, dust them off, and determine if they’re actually needed.”
Jon Sanders’ Spotlight report, “Regulation Reform: Cleaning Up the Regulatory Toolshed,” is available at the JLF website. For more information, please contact Sanders at (919) 828-3876 or [email protected] To arrange an interview, contact Mitch Kokai at (919) 306-8736 or [email protected]