by Jon Sanders
Research Editor and Senior Fellow, Regulatory Studies, John Locke Foundation
One thing about the administrative state in North Carolina is that it carries on regardless of the party in power.
Here’s a graph of the annual page counts in the North Carolina Register from Fiscal Years 2000 to 2019. This is a handy indicator of regulatory activity we have used for many years:
(Click the image for a larger size.)
This constant hum of regulatory activity is why sunset with periodic review is so important. As a regular cleanup of the state’s regulatory toolshed, periodic review has already been removing about one out of every 10 state rules examined.
But periodic review isn’t enough, because regulation is fraught with red tape and overregulation, which harm job creation and the state’s overall economic health. That’s why I favor a menu of reforms and good-government policies to ensure that the state’s regulatory environment is light, lean, up-to-date, and sensible. They include:
State agencies craft rules under authority delegated by the legislature to interpret and implement laws. It leaves the details to subject-matter experts in the various agencies, boards, commissions, etc. Sometimes, however, they can produce rules that would impose a significant cost on the state’s private sector, whether directly or indirectly. Those rules may be necessary, or they may be overreach.
A “rules throttle” would ensure legislative scrutiny of any rule over a defined major cost threshold. It would be a strong, good-government reform. Any deeply impactful rule from bureaucrats should be debated and okayed by legislators accountable to the people.
North Carolina’s state constitution recognizes everyone’s inalienable right to the enjoyment of the fruits of their own labor. Occupational licensing is the most restrictive regulation a state can place on someone trying to work in a legal occupation. It is an entry barrier making it illegal to provide any labor at all in a particular field without first obtaining a license from a state government licensing board.
Getting a license involves significant costs in money and time (paying fees, paying tuition, time spend taking mandatory classes, time spent studying, paying sitting fees for mandatory exams, paying licensing fees, etc.). These costs fall hardest on the poor, even as occupational licensing affects many low-income jobs. Because it artificially limits the supply of workers in a licensed field, occupational licensing leads to fewer options and higher prices for people who need licensed work done, and that also falls hardest on the poor.
Two structural reforms of occupation licensing include the Occupational Licensing Consumer Choice Act and the Right to Earn a Living Act. Occupational Licensing Consumer Choice retains the consumer protection aspect of licensing while fixing its entry barrier problem. Right to Earn a Living upholds a standard of least restrictive regulation necessary to accomplish legitimate state interests in consumer protection.
Over 99 percent of employers in North Carolina are small businesses. Unlike big firms, they tend to lack dedicated staff to help them comply with state and federal regulations. Seeing that regulatory costs are higher on small businesses than big firms, most states and the federal government have adopted small-business regulatory flexibility to help mitigate this cost disparity. It lets agencies make common-sense adjustments to small businesses’ regulatory burdens, such as compliance and reporting requirements.
North Carolina, however, is one of only six states without some form of small business regulatory flexibility statute.
Overcriminalization is a real problem that comes with regulation. The state’s administrative code is massive. No one can be expected to know it all. Under the old common-law protection known as mens rea, guilt for law-breaking included not just a criminal act, but also a guilty mind (i.e., the intent to commit a crime, to do something you know is illegal). Sometimes a violation is so bad for society that intent doesn’t matter. But especially for obscure administrative rules, it’s not enough for someone to blunder unknowingly into a violation if they had no intent or inclination to break any rule.
A default mens rea statute would restore this protection when state code is silent over the penalty for breaking a rule. If legislators or agency rulemakers want strict liability for a violation, they would have to include it deliberately in the code.
Even with periodic review, the total stock of rules tends to grow, as the chart above suggests. Accumulating regulations tends to slow the economy more and more over time. The idea of regulatory budgeting is to trim the existing stock of rules over time by having agencies retire some number of old rules for every new rule. Trading in two or three old rules for each new rule would not only streamline the state’s regulatory framework over time, but also it would introduce opportunity costs to agency rulemaking. The agencies would have to consider their own tradeoffs in considering a new rule.
Even a well-considered rule poses the risk of unintended, unforeseen consequences. A rule that fails to work as intended could create winners and losers by how it actually works. The winners would have a lobbying interest to keeping the rule in place, even if it’s not doing what it’s supposed to do.
Agencies should be mandated to include stated objectives and outcome measures for rules. That way, when the time for review arrives, the rule can be held accountable to its foundational purpose, not for any unintended, extraneous, isolated positive effects it has. Stated objectives and outcome measures would help make sure rules work as intended.
A good regulatory climate sets sensible boundaries in which the state’s citizens and businesses can operate, and otherwise it lets them be. These reforms, in turn, would set sensible boundaries for the regulators.