John Locke Update / Research Brief

A Regulatory Reform That’s Working: Sunset Provisions with Periodic Review

posted on in Rights & Regulation
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When the General Assembly passed the Regulatory Reform Act of 2013, legislators gave the state an effective, empirically tested red-tape reduction measure: sunset provisions with periodic review. At that time the total stock of state rules had been estimated at 22,500.

This particular reform tested highest out of all the different kinds of regulatory review processes used in all 50 states.

Most review processes had little to no evidence they even work, according to a 2012 study written by College of Charleston visiting scholar Russell S. Sobel and Mercer University assistant professor of economics John A. Dove and published by the Mercatus Center at George Mason University. Sunset provisions with periodic review are the exception.

Sobel and Dove found sunset provisions to be “robustly statistically significant” in reducing a state’s total level of regulation. But that wasn’t all. They found that having sunset provisions was “economically significant” as well.

As I explained in my report on sunset provisions with periodic review in 2013 (emphasis added),

So whereas other kinds of regulatory review used in states across the nation proved to have little to no effect on reducing a state’s total level of regulation, sunset provisions had a significant effect, which translated into a strong, positive economic impact for a state.

Furthermore, Sobel and Dove report that this robust finding holds for reducing the flow of new regulations as well as reducing the total stock of regulations in a state. They conclude that, for leaders seeking policies to bring about effective regulatory reform, “The single most important policy in a state is the presence of a sunset provision.”

That insight is in keeping with the bulk of economic literature, which has shown regulation’s overall harmful effects on the economy. Doing more to remove red tape and clear out overregulation would have greater beneficial effects for economic growth.

Here is how North Carolina’s reform was set up. Each state rule is slated for automatic repeal (sunset) in 10 years without review (periodic review). After review, the rule falls 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 It gets repealed.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.

Since this reform passed, I have written several pieces about sunset provisions with periodic review. Most recent was my report in March, “Cleaning Up the Regulatory Toolshed,” when well over a third of state rules had undergone the process.

We are now at the halfway mark of the process. Here are the numbers now according to an August 2017 update from the state Rules Review Commission:

  • 11,361 total rules reviewed so far
  • 7,015 rules to remain unchanged
  • 2,918 rules subject to the readoption process
  • 1,428 rules to be removed

 

So about one-eighth of state rules are being removed under the current process. That’s good.

Still, about 62 percent of state rules are being re-upped without further scrutiny. That’s because they fall in the “necessary without substantive public interest” category.

A common-sense way to strengthen periodic review

Here’s how a good process can be even better: get rid of the “necessary without substantive public interest” category. That simple change would subject all “necessary” state rules to periodic review. (The “unnecessary” ones would still sunset immediately.)

The result would be more scrutiny of agency rules over time. It’s a common-sense reform favored by good-government advocates, including the chairman of the Rules Review Commission.

Just such a reform is included in Section 3 of House Bill 162. Versions of the bill passed both chambers earlier this year, and the Senate has already approved the conference report.

The House could consider it in the upcoming extra session starting Friday.

Jon Sanders is an economist studying state regulations, that spreading kudzu of invasive government and unintended consequences. As director of regulatory studies and research editor at the John Locke Foundation, Jon gets in the weeds of all kinds of policy… ...

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