John Locke Update / Research Brief

NC regulatory reform helped inspire a federal reform — and here’s what else it can do

posted on in Economic Growth & Development, Economics, Government Reform, Law & Regulation, Rights & Regulation
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  • North Carolina cut overregulation by 10 percent thanks to a 2013 regulatory reform championed by the John Locke Foundation: sunset provisions with periodic review
  • The federal Department of Health and Human Services (HHS) cited North Carolina’s success in a new rule to apply sunset with periodic review to HHS rules
  • NC should boost job creation in the aftermath of the coronavirus by speeding up the review period and applying sunset with periodic review to occupational licensing boards and their licenses

The federal Department of Health and Human Services (HHS) has just published a rule inspired and informed in part by a significant regulatory reform in North Carolina long promoted by the John Locke Foundation.

The reform is sunset with periodic review. It was a major feature of the Regulatory Reform Act of 2013, bearing strong results. With Locke’s urging, it was strengthened by the legislature in 2019.

Federal agencies have access to some periodic review of regulations, with mixed results. As HHS noted, the Regulatory Flexibility Act (RFA) of 1980 and several executive orders have all “directed agencies to submit plans for the periodic review of certain of their regulations.” Nevertheless, those measures have resulted in “limited retrospective review” of HHS’s rules. HHS wrote, however:

Several States, as well as jurisdictions outside the United States, have experimented with different ways of ensuring agencies engage in retrospective regulatory reviews so that legal requirements are updated in view of emerging evidence and changed circumstances. Among the lessons that have emerged is that while statutory mandates are helpful, one of the most important factors for ensuring agencies conduct retrospective reviews of their regulations is to provide for the sunset or automatic expiration of certain regulatory requirements after a period of time unless a retrospective review determines that the regulations should be maintained.

With those lessons in mind, and “in order to ensure evidence-based regulation that does not become outdated as conditions change,” HHS finalized this rule to provide for sunset with periodic review of all of its rules (with some exceptions). Initial sunset barring review would take place within five years of this proposed rule becoming effective, and then 10 years for any new rule or the last time a rule was reviewed.

HHS took note of North Carolina’s success with sunset provisions with periodic review:

Based on the experience of North Carolina, the Department estimates that approximately 10 percent of Reviewed rulemakings will be rescinded and 30 percent of Reviewed rulemakings will be amended in some way. …

Data from North Carolina’s sunset review process can be informative about the extent to which rules are likely to be rescinded, modified, or kept without change as part of a sunset review. A North Carolina public policy organization found that 19,361 rules were reviewed as part of that state’s sunset review process in recent years. Of these, 5,542 were sent back through the rule adoption process (28.6%), presumably to be updated, and 11,811 rules were automatically re-upped with no change (61.0%). About 10 percent of regulations reviewed under the recent sunset review process were rescinded, and this occurred under the supervision of the state Rules Review Commission that was overseeing the process.

These numbers reinforce that there is little empirical basis to support fears that thousands of regulations might accidentally expire as a result of the Department’s final regulation. The experiences in Idaho, New Jersey, Missouri and North Carolina demonstrate that sunset reviews tend to be orderly processes. Even in states like Idaho and Rhode Island, where significant portions of their regulatory codes were eliminated in recent years, these processes took place in an orderly fashion under the supervision of the state budget offices in those states.

It was for these reasons — an orderly, proven process for removing unnecessary rules and thereby boosting economic growth — that Locke championed and continues to champion sunset with periodic review. We noted in 2013 that “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.” Also, sunset with periodic review “takes 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.”

The original reform in 2013 divided rules facing sunset without review into three categories. “Unnecessary” rules were repealed, but rules deemed “necessary” by their originating agency were either subject to readoption as if it were a new rule (i.e., reviewed) or, if it received no public objections, it was automatically renewed without review. Renewing a rule automatically without review was counter to the actual intent of the reform, however, plus it was capturing the majority of rules facing sunset. We at Locke promoted getting rid of that category, and the General Assembly passed just such a reform in 2019.

Even so, sunset with periodic review was able to weed out over 10 percent of state rules. That’s a big deal because rules and regulations can be unseen detriments to economic growth. Just as barnacles cause boats to drag and a trunk full of bricks slows a car, unneeded government regulations slow down the state’s economy.

Cutting overregulation by 10 percent was impressive enough to capture the attention of federal reformers at HHS. Meanwhile, there are ways sunset provisions with periodic review can do even more for North Carolina. And none too soon, because an uncertain post-COVID economy looms.

How to improve and extend sunset with periodic review in NC

While most of political focus remains fixed on coronavirus numbers, the North Carolina economy faces serious trouble. In a year’s time, according to the most recent numbers from the Federal Reserve, through November 2020 the state had lost a net 222,300 jobs.

In May 2020 Locke warned of this problem and urged policymakers to be mindful of the dire situation when policymaking for a “Carolina Rebound.” Among other things, we highlighted:

Red tape and weighty bureaucratic rules prevent the state’s economy from growing as fast as it could and especially harm small businesses. Regulatory costs have been estimated to cost North Carolina’s private sector over $25 billion a year. It will be harder to withstand such costs in an economy struggling to revive after months of being shut down. …

The economic challenges before us are steep, but we can’t claw our way back fast enough if we’re entangled in red tape and bearing the weight of old special-interest favoritism. Wise policymakers after COVID-19 understand how vital it is to clear the way of unneeded government obstacles and not add any new ones.

Making more use of sunset with periodic review featured in two of our proposed reforms. One was general: to speed up the state’s sunset and period review process from once every 10 years to every five years. Why? Because “there are 10 years between reviews, while state agencies keep adding more rules.”

As HHS noted, other states with periodic review have faster review intervals than North Carolina. In Indiana and New Jersey, for example, it’s every seven years; in New York and Florida, every five; and in Texas, every four.

The other was more particular: to apply sunset with periodic review to all licensing boards and their licenses. It should be part of a package of reforms that would have the boards and licenses reviewed according to whether they are “demonstrably necessary, carefully tailored, and designed for legitimate health, safety, and welfare objectives” and meet the standard of “least-burdensome-state.”

As we pointed out then, the risk for policymakers and the state is in “not doing enough to get North Carolinians back to work for their families.” That was eight months ago. North Carolinians have seen precious little economic freedom restored ever since. So how much greater must that risk be now?

For more information and background, see:

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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