Sunset requirements would help reduce N.C. overregulation

June 4, 2013

Click here to view and here to listen to Jon Sanders discussing this Spotlight report.

RALEIGH — Legislators can take one of the most effective steps toward fighting overregulation in North Carolina by setting expiration dates for state rules. Support for end dates — or sunsetting — is one of the key findings in a new John Locke Foundation Spotlight report.

“More than 200 years ago, Thomas Jefferson recognized that ‘a law of limited duration is much more manageable than one which needs a repeal,'” said report author Jon Sanders, JLF Director of Regulatory Studies. “Just last year, researchers from the Mercatus Center at George Mason University confirmed Jefferson’s observation. They concluded the ‘single most important policy in a state is the presence of a sunset provision.'”

The Mercatus Center research showed a sunset provision was both statistically and economically significant in reducing a state’s regulatory burden, Sanders said.

“Other kinds of regulatory reviews used in states across the nation proved to have little to no effect on reducing a state’s total level of regulation, but sunset provisions had a significant effect, which translates into a strong, positive economic impact for a state,” he said.

Sanders is releasing his report as lawmakers consider House Bill 74, which includes a provision dealing with expiration dates for rules. The N.C. House endorsed the measure by a 90-24 vote May 13. The bill now sits in the Senate.

Regulatory reform would have a minimal short-term impact on state government revenue, Sanders said. “Unlike tax reform, which deals with monetary distribution, cutting burdensome regulations essentially just gets rid of deadweight loss,” he said. “Regulations are taxes on time. Restoring lost time to industry doesn’t reduce the state’s General Fund. Instead it encourages more entrepreneurship, more job opportunities, and more economic growth.”

The report outlines key elements of H.B. 74. “The state Rules Review Commission would set expiration dates for all rules according to where they appear in the Administrative Code, barring review by the agency that adopted the rules,” Sanders said. “Afterward, rules would have to be reviewed by their originating agencies at least once every 10 years. Without review, they would expire.”

This process offers an additional advantage, Sanders said. “Sunsetting takes the politics out of the decision to revisit a rule by slating all rules to end after a certain amount of time without readoption or amendment.”

H.B. 74 would lead to a busier Rules Review Commission, with likely increases in its workload and costs, Sanders said. “Nevertheless, these would be more than offset by the positive economic effects that would result from weeding out unnecessary, outdated, excessive, or controversial regulations.”

Sanders explains the review process linked to H.B. 74, then adds a recommendation for strengthening that process. “As with other rules review procedures, this review would put much weight on public input and knowledge of the process,” he said. “A simple definitional change would enable the Rules Review Commission to acknowledge cases when commission members know or suspect a rule might raise objections. In the current bill, only the state agency that adopted the rule can make that determination.”

Introducing new expiration dates would require controversial rules to go through the rule adoption process again. That means lawmakers need to focus attention on that adoption process as well, Sanders said.

“An effective sunset approach needs an effective ‘sunrise’ approach,” he said. “Among the ideas lawmakers should consider are a REINS law, strong cost-benefit analysis, requiring agencies to consider alternatives to regulation, stating regulations’ objectives and outcome measures by which to hold them accountable, no-more-stringent laws, regulatory reciprocity, and small-business flexibility analysis.”

Sanders spells out details of each of these proposed reforms, including one called the “Stossel Rule.” “Fox Business Network host John Stossel has a simple idea for regulators: ‘For every new rule, repeal two old ones,'” Sanders explained. “This idea would reduce the total number of regulations over time. State agencies also would have to consider trade-offs of creating a new rule.”

With 22,500 permanent administrative rules, North Carolina faces a significant problem with overregulation, Sanders said. “Overregulation is a significant drag on the North Carolina economy,” he said. “It causes businesses to shift resources away from productive tasks into chasing compliance. Leaders across the political spectrum have long recognized the ill effects of overregulation.”

Lawmakers can build upon regulatory reform packages approved in each of the past two years, Sanders said. “Effective periodic review, especially in combination with good regulatory sunrise policies, would further the legislature’s recent accomplishments in regulatory reform,” he said. “More importantly, as the state recovers from a recession and years of lagging economic performance, it would help reduce the state’s regulatory burden and thereby help jump-start entrepreneurship, job creation, investment, economic growth, and government revenues.”

Jon Sanders’ Spotlight report, “Not Written In Stone: How sunset laws can improve North Carolina’s regulatory climate,” 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].