John Locke Update / Research Brief

How Restrictive Should N.C. Make Its Licensing of General Contractors?

posted on in Economic Growth & Development, Law & Regulation, Rights & Regulation
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A bill before the General Assembly (Senate Bill 55) would create new continuing education requirements for general contractors. Currently, the state doesn’t require any continuing education for general contractors. So right from the start, this bill would raise costs on being a general contractor in North Carolina.

The question before lawmakers should be whether such a change is justified or arbitrary.

According to the Legislative Analysis Division, here’s what currently someone needs to get an maintain a general contractor’s license in North Carolina:

pass an examination to establish that the applicant has an ability to read plans and specifications and has a proficient knowledge of the contracting business. The license, once granted, must be renewed annually by paying the requisite fee amount.

This bill, however, would impose another annual requirement on general contractors: passing eight credit-hours of continuing education. Why?

The requirement itself doesn’t provide much of an answer. Only two of those eight credits would be of a “mandatory course approved by the State Licensing Board for General Contractors.” The other six hours would be spent on “elective courses whose materials and instructors have been evaluated, approved, and accredited by the Board.” Elective courses?

Even if this new requirement were supposed to address an acknowledged need in the state, the fact that only two of the eight hours would be of a mandatory course strongly suggests it’s unnecessary.

Requiring six hours a year on elective instruction? What is that but to provide another source of income to the board and the course providers?

A Legislative Fiscal Note attached to the legislation demonstrates as much:

House Bill 55 (Second Edition) establishes three new fees for the North Carolina Licensing Board for General Contractors. It allows the Board to charge a fee, not to exceed $25.00 per credit hour, for the initial review of a course and a fee, not to exceed $12.50 per credit hour, for the annual renewal of a course previously approved. Also, it establishes a fee to be paid for by an approved course provider, not to exceed $5.00 per credit hour per qualifier, for each qualifier completing an approved continuing education course conducted by that provider.

The initial review of a two hour course would generate $50.00 in revenue for the Board. Each annual renewal of a previously approved two hour course would generate $25.00 in revenue for the Board. However, since this would be providing a service not currently available, it is not possible to provide an estimate on how many course providers or continuing education courses will be offered in North Carolina.

The $5.00 per credit hour per qualifier would be paid to the North Carolina Licensing Board for General Contractors by the course provider. Each qualifier would be required to complete eight hours of continuing education per year, including two hours of a mandatory course and six hours of an elective course. According to the Board, there are currently 30,000 qualifiers that would be required to complete the continuing education requirements on an annual basis. Those qualifiers would amass a total of 240,000 hours of continuing education, which would generate $1.2 million in additional revenue for the Board.

Arbitrary costs, negative consequences

There are other problems with this idea. First of all, requiring a license for general contractors to start with. Twenty-three states (nearly half of U.S. states) don’t require that general contractors be licensed.

Can the state protect occupational freedom in general contracting instead? If other states can, why can’t North Carolina? The concerns being overaddressed by licensing in North Carolina could probably be addressed through registration with the Secretary of State.

Even within a field that’s licensed, however, research shows that imposing higher costs harms employment and job creation in that field. The stricter and more costly the occupational regulation, the more it dampens job growth in that field.

Does this need to be said? The state should not be imposing arbitrary costs that would harm employment and job creation. North Carolina’s decision to license general contractors seems arbitrary already, given that about half the states find they can do without it. But then to raise costs on it?

Research also shows that these arbitrary limits on employment and job creation impose harm on consumers, especially lower-income consumers. Why? Because when there are fewer suppliers of a service, the ones who are around to do the work can charge higher rates, and these higher costs make consumers seek out riskier alternatives to licensed work.

Does this need to be said? The state should not be imposing arbitrary costs that would lead to higher service rates on and riskier choices by consumers, either.

Jon Sanders is an economist studying state regulations, that spreading kudzu of invasive government and unintended consequences. Serving as Senior Fellow of Regulatory Studies and also Research Editor at the John Locke Foundation, Jon gets in the weeds of all… ...

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