Few people noticed, but in 2013, the North Carolina General Assembly enacted a major reform: a sunset provision with periodic review for state rules.1 It’s a reform with proven effectiveness against red tape.
The reform created a systematic approach to dealing with a growing heap of state rules. By 2013, the total stock of state rules had grown to over 22,500.2 Some applied to state government, but the rest affected private individuals and businesses in countless ways.
Without review, old rules can clutter up the regulatory “toolshed.” Rules can be — or become — unclear, unnecessary, outdated, obsolete, unduly burdensome, ineffective, and inefficient. Agencies might not even remember why they adopted them in the first place.3
As rules pile up, they can become real obstacles to economic growth.
There are many ways states try to deal with this problem, but most attempts have mixed results, at best. What makes a sunset provision with periodic review such a consequential reform is that it has proven effectiveness.
A 2012 study from the Mercatus Center at George Mason University found that most rules review processes used by the states yielded inconsistent, little, or no evidence of actual reduction in regulatory burdens. A sunset provision with periodic review, however, had “robustly statistically significant” evidence of the reform working. Not only that, its results were positive — and “economically significant.”4
Red tape is costly, and it just gets worse
The simple fact of the matter is this: red tape is bad for the economy. Here are the main takeaways from recent studies on government regulation:
- Regulations harm economic growth — a consistent finding across the great bulk of economic studies of the issue.5
- In 2014, federal regulation cost American consumers and businesses $1.88 trillion from lost economic productivity and higher prices.6
- Accumulating federal regulations slowed U.S. economic growth by 2 percent a year on average.7
- More lightly regulated industries grow much faster and produce at much greater rates than more regulated industries.8
- In 2012, if federal regulation remained at the same level it was in 1980, the U.S. economy would have been $4 trillion bigger (about 25 percent bigger). That amounts to about $13,000 per person lost.9
- In 2015, state regulations cost North Carolina’s economy as much as $25.5 billion.10
What do those annual loss figures mean? This: economic productivity has ongoing, compounding positive effects. Preventing economic productivity prevents those positive effects from coming about, meaning it has ongoing, compounding losses.
Those losses are not evident. They represent the absence of positive effects of the economic productivity that is being prevented.
All those things are why cutting red tape and keeping regulatory burdens light and up-to-date are important for economic growth — personal income growth, too. A sunset with periodic review makes agencies drag old rules out of the toolshed, dust them off, and determine if they’re actually needed.
How sunset with periodic review works in North Carolina
Under the reform of 2013, state rules are slated for automatic repeal (sunset) in 10 years without review (periodic review). After review, state rules fall in one of three categories:
- “Unnecessary.” A rule the agency no longer finds necessary. It gets repealed.
- “Necessary with substantive public interest.” A rule the agency considers necessary and has attracted public comment within the past two years. It must be readopted as if it is a new rule.
- “Necessary without substantive public interest.” A rule the agency considers necessary and hasn’t attracted public comment. It is automatically re-upped.
North Carolina agencies have been in the process of reviewing rules since this reform passed. While the process is not yet half complete, its results so far have been encouraging.
Already North Carolina is seeing its stock of rules streamline. Its regulatory burden is lightening. About one-eighth of the rules reviewed so far are being removed. Another one-fourth of rules have to undergo further scrutiny through the rule adoption process, meaning it’s possible more are repealed.
Still, most (61.9 percent) of the rules reviewed so far have been retained. As a result, the chairman of the state Rules Review Commission has urged legislators to make the process stricter to ensure scrutiny of each rule – either the rule is repealed or sent back through the rulemaking process as if newly proposed. Carolina Journal reported:
“When 61 percent of the rules that are going through this process are staying in the code with no change, they’re not getting the full exposure to public comment or careful examination,” [state Rules Review Commission chairman Garth] Dunklin said. That “bothers us from a policy standpoint.”
In early December, Dunklin appeared before the Joint Legislative Administrative Procedure Oversight Committee and recommended the General Assembly revise the law to eliminate the option allowing agencies to simply maintain rules without review.
Eliminating the “middle bucket” would bring the law closer to its original objective, “simply that every bill in the code would expire on certain dates, and have to be readopted,” similar to a process other states use, Dunklin said.
“The concept there was to make agencies pick up and look at their rules, and examine their continuing usefulness and efficacy, expose them to the process of public comment that is a part of our rulemaking process,” Dunklin said. Outdated rules could be stricken from the code, and the remaining rules could be improved with renewed scrutiny.11
A bill progressing in the General Assembly as of this writing would take Dunklin’s approach. It would remove the “with” or “without necessary public interest” classification of rules deemed “necessary.” As part of periodic review, any rule considered “necessary” would go back through the scrutiny of the rules adoption process as if new.12
Conclusion and recommendations
The 2013 reform that created a sunset provision with periodic review of state rules is already streamlining the state’s stock of rules. North Carolina’s regulatory burden is lightening, a welcome sign for economic growth and job creation.
Still, as Rules Review Commission chairman Dunklin pointed out, the reform could be stronger. The answer would be to have all “necessary” rules go back through the rules adoption process as if new. That would allow more thorough scrutiny of agency rules.
A sunset provision with periodic review prevents old rules from cluttering up the state regulatory toolshed and helps keep state rules up-to-date. Reform-minded lawmakers can now consider other regulatory reforms. The goal would be to produce good, common-sense rules only as needed and without unnecessarily hamstringing the economy. They include:
- Red-tape reduction initiative — working with state agencies to identify the full scope of regulatory requirements and reduce them to an agreed-upon goal (in British Columbia’s exemplary reform, that goal was reduction by one-third in three years; in fact they achieved a 37 percent reduction)13
- One in, two (or more) out — also known as regulatory budgeting or regulatory reciprocity, it is a stepwise reduction in red tape by creating an opportunity cost at the agency level for crafting new rules: for each new one, the agency must retire a select number of old ones14
- Default mens rea — restoring the common-law protection against penalties for breaking a rule or law unwittingly and without intending to15
- Small business flexibility analysis — over two-thirds of states and the federal government have this ability to adjust regulatory burdens (such as compliance and reporting requirements) as they apply to small businesses, since regulations’ impact on them are disproportionately greater than on big businesses16
- REINS principles — any proposed rule that would impose a significant cost on the state’s economy must receive an affirming vote in the legislature, the lawmaking body accountable to the public, in order for it to continue in the rulemaking process17
- Stated objectives and outcome measures — a rule under review should be judged according to its foundational purpose, not whether it created an unintended benefit for a particular group who then has a lobbying interest in retaining it18
- Strong cost/benefit analysis — including a rejection requirement if a proposed rule would impose more costs than benefits (properly defined); a decision to establish a law whose costs exceed its benefits should belong to the publicly accountable legislature, not a state agency19
- Full consideration of alternatives to regulation — not only weighing the projected impacts of alternate rules, but also including in the comparison the projected impact of not adding a rule20
1. Session Law 2013-413, “Regulatory Reform Act of 2013,” http://www.ncga.state.nc.us/gascripts/BillLookUp/BillLookUp.pl?Session=2013&BillID=h74&submitButton=Go.
2. Kevin Maurer, “N.C. bill on regulation reform targets 22,500 administrative rules,” StarNews (Wilmington, N.C.), February 13, 2013, http://www.starnewsonline.com/news/20130213/nc-bill-on-regulation-reform-targets-22500-administrative-rules.
3. As reported by Dan Way, “Rules review head wants more regulations scrapped,” Carolina Journal, January 4, 2017, https://www.carolinajournal.com/news-article/rules-review-head-wants-more-regulations-scrapped, in an early December 2016 appearance before the Joint Legislative Administrative Procedure Oversight Committee, State Rules Review Commission chairman Garth “Dunklin noted that many agency heads who were asked by a Rules Review Commission member what a particular rule was, ‘the response, disturbingly frequently, would be, I’m not really sure, it’s just always been there, he said.’”
4. Russell S. Sobel and John A. Dove, “State Regulatory Review: A 50 State Analysis of Effectiveness,” Mercatus Working Paper No. 12-18, Mercatus Center, George Mason University, June 2012, https://www.mercatus.org/publication/state-regulatory-review-50-state-analysis-effectiveness.
5. John W. Dawson and John J. Seater, “Federal Regulation and Aggregate Economic Growth,” Journal of Economic Growth, Springer, vol. 18(2), June 2013, pp. 137–177; Working Paper version viewable at http://www4.ncsu.edu/~jjseater/regulationandgrowth.pdf. Studies they cite include Goff (1996), Nicoletti, Scarpetta, and O. Boylaud (2000), Bandiera, Caprio, Honohan, and Schiantarelli (2000), Nicoletti, Bassanini, Ernst, Jean, Santiago, and Swaim (2001), Bassanini and Ernst (2002), Djankov, LaPorta, Lopez-de-Silanes, and Shleifer (2002), Nicoletti and Scarpetta (2003), Alesina, Ardagna, Nicoletti, and Schiantarelli (2003), Kaufman, Kraay, and Mastruzzi (2003), Loayza, Oviedo, and Serven (2004, 2005), and Djankov, McLiesh, and Ramalho (2006).
6. Clyde Wayne Crews Jr., “Ten Thousand Commandments 2015: An Annual Snapshot of the Federal Regulatory State,” Competitive Enterprise Institute, May 8, 2015, https://cei.org/10kc2015.
7. Dawson and Seater, “Federal Regulation and Aggregate Economic Growth.”
8. Antony Davies, “Regulation and Productivity,” Mercatus Research, Mercatus Center at George Mason University, May 8, 2014, http://mercatus.org/publication/regulation-and-productivity.
9. Bentley Coffey, Pietro Peretto, and Patrick McLaughlin, “The Cumulative Cost of Regulations,” Mercatus Working Paper, Mercatus Center at George Mason University, April 26, 2016, https://www.mercatus.org/publication/cumulative-cost-regulations.
10. Paul Bachman, Michael Head, and Frank Conte, “The Regulatory Burden in North Carolina: What Are the Costs?” Beacon Hill Institute at Suffolk University, July 2015.
11. Way, “Rules review head wants more regulations scrapped,” https://www.johnlocke.org/research/the-regulatory-burden-in-north-carolina-what-are-the-costs/
12. Senate Bill 16, “Amend Administrative Procedures Laws,” ed. 2, North Carolina General Assembly, 2017-2018 session, http://www.ncga.state.nc.us/gascripts/BillLookUp/BillLookUp.pl?Session=2017&BillID=S16.
13. See Laura Jones, “Cutting Red Tape in Canada: A Regulatory Reform Model for the United States?” Mercatus Research, Mercatus Center at George Mason University, November 2015, https://www.mercatus.org/publication/cutting-red-tape-canada-regulatory-reform-model-united-states.
14. See discussion in Jones, “Cutting Red Tape in Canada” and in Jon Sanders, “Reining in Regulation: Proposing a State REINS Act to Address the Costly Regulatory Burden in North Carolina,” Policy Report, John Locke Foundation, November 2015, https://www.johnlocke.org/research/reining-in-regulation, p. 16.
15. See Jon Guze, “Mens Rea Reform: The Law Shouldn’t Turn Innocent People into Criminals,” Spotlight No. 487, John Locke Foundation, March 9, 2017, https://www.johnlocke.org/research/mens-rea-reform-the-law-shouldnt-turn-innocent-people-into-criminals.
16. See discussion at “Reform Five” of Daren Bakst, “Regulating the Regulators: Seven Reforms for Sensible Regulatory Policy in North Carolina,” Policy Report, John Locke Foundation, February 2010, https://www.johnlocke.org/research/regulating-the-regulators-seven-reforms-for-sensible-regulatory-policy-in-north-carolina, pp. 10–12.
17. Sanders, “Reining in Regulation,” pp. 13–15.
18. Jon Sanders, “Stated objectives and outcome measures: making sure rules work as intended,” The Locker Room blog, John Locke Foundation, February 21, 2017, http://lockerroom.johnlocke.org/2017/02/21/stated-objectives-and-outcome-measures-making-sure-rules-work-as-intended.
19. Sanders, “Reining in Regulation,” p. 15.
20. Sanders, “Reining in Regulation,” pp. 15–16.