ALEC'S REGULATORY
FLEXIBILITY ACT
Introduction
Complaints from businesses that burdensome environmental, workplace
safety, and other federal regulations cost them significant amounts
of money and time led to the Regulatory Flexibility Act of 1980
and the Small Business Regulatory and Enforcement Fairness Act
of 1996.(1)
Inspired by this history, the Bush Administration’s Office
of Advocacy of the U.S. Small Business Administration (SBA) developed
similar legislation for the state level and presented it to ALEC’s
Commerce and Economic Development Task Force in December 2002.(2)
ALEC adopted the bill and is presenting it to state legislators.
The legislation would require all state agencies to develop economic
impact statements and regulatory flexibility analyses for “any
proposed regulation that may have an adverse impact on small businesses.”
The economic impact statements would include projections of how
many small businesses might be affected by the regulation and
what the probable effect would be, the costs and skills needed
for compliance, and any less demanding approaches that might achieve
the same goal. The regulatory flexibility analyses would present
alternative approaches to minimize the regulation’s impact
on small businesses, including exemption from part or all of its
requirements, weaker and more simplified reporting, extended deadlines
for compliance, and standards based on performance instead of
actual design or operations.
The legislation also provides small businesses “adversely
affected or aggrieved by final agency action” with the right
to have that state agency’s compliance with the terms of
the ALEC bill subjected to judicial review. Lastly, the bill mandates
that state agencies review all rules passed prior to the enactment
of the bill within four years, and review rules adopted afterwards
every five years and take action as appropriate to ensure that
the impact of all state regulations on small businesses is minimized.
While it is important to consider the impact of environmental
and other state regulations on all stakeholders – individuals
as well as businesses – there are many disturbing aspects
of the ALEC bill. Its definition of “small business”
is questionable – any “business entity, including
its affiliates, that is independently owned and operated and employs
fewer than 500 full-time employees or has gross annual sales of
less than six million dollars.” This is similar to (but
not the same as) the federal definition, which takes into account
the particular business field in addition to the number of employees
and annual receipts.(3)
According to the SBA, the federal definition includes more than
93 percent of U.S. businesses.(4)
Small businesses also have a disproportionate impact on the economy,
representing over 99.7 percent of all employers and 44.5 percent
of the total U.S. private payroll.(5)
Given these facts, institutionalized regulatory loopholes for
“small” businesses could effectively render state-level
environmental protection moot. Moreover, the National Caucus of
Environmental Legislators has warned that the legislation may
have a “ripple effect,” making the environmental regulation
of large businesses more difficult.
Somewhat ironically, the burden placed by the ALEC bill on state
agencies – which have significantly less resources than
federal agencies – would be considerable. The economic impact
and regulatory flexibility statements, possible judicial reviews,
and ongoing agency policy reviews would likely significantly slow
the adoption of new environmental safeguards and weaken existing
ones. This is expected to be especially true of strong policies
needed to protect and preserve the environment but which businesses
perceive to negatively affect their profit margin.
Moreover, this state-by-state approach may very well exacerbate
the tendency of some businesses to play states off against each
other in a “race to the bottom” with regard to environmental,
labor and other regulations maintaining citizens’ quality
of life. This likelihood is increased by the lack of a definition
for what constitutes a significant economic impact on small businesses.
In March 2002 Congressional testimony, the managing director of
the General Accounting Office’s strategic issues team asked
about vague federal guidelines, “Should the economic impact
of a rule be measured in terms of compliance costs as a percentage
of annual revenues or work hours? If so, is three percent of revenues
or one percent of revenues or work hours the appropriate measure?”(6)
The increasingly patchwork nature of state policy will also make
federal-state cooperation on environmental issues more complicated.
The Environmental Protection Agency has already cautioned about
large variances in state policy: “Inconsistencies in enforcement
can result in varied levels of environmental protection that put
public health and the environment at risk. The inconsistencies
we identified were caused by factors such as limited State and
local resources, State and local concerns that large penalties
would result in industry relocating, and State and local preferences
for different enforcement approaches.”(7)
So far, the ALEC bill has been enacted in North Dakota and has
been introduced in some form in Georgia, Missouri, New Jersey,
North Carolina, Oregon, Rhode Island, South Carolina, Texas, West
Virginia, and Wisconsin.
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Talking Points
- While it is important to consider the impact of proposed state
regulations on all stakeholders, the ALEC regulatory flexibility
bill would place significant additional burdens on state agencies
for the benefit of business but no other affected constituency.
- The bill’s definition of “small business”
is overly broad.
- The mandated economic impact and regulatory flexibility statements,
possible judicial reviews, and ongoing agency policy reviews
would slow the adoption of new environmental safeguards and
weaken existing ones.
- The bill does not include any method to ensure that the greater
“flexibility” of state regulations does not negatively
impact the environment or inadvertently result in weakened regulation
of large businesses.
- The bill does not define what constitutes a significant economic
impact on small businesses.
- The effective state-by-state deregulation will make federal-state
cooperation on environmental issues more difficult, and encourage
businesses to play states off each other in a “race to
the bottom” weakening environmental, labor, and other
important standards.
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Links to Relevant
Bills
California
SB
1505 (Introduced 2/19/04; Failed passage in committee 5/4/04)
Georgia
SB
361 (Introduced 3/28/03; Passed Senate 2/5/04; In House Judicuary
Committee 2/6/04)
Hawaii
HB
1391 (Introduced 1/23/03; Carried over to 2004 Regular Session
8/21/03)
Kansas
SB
375 (Introduced 1/27/04; Died in committee 5/27/04)
Nebraska
LB
1234 (Introduced 1/21/04; Indefinitely postponed 2/24/04)
New
Jersey
A
255 (Introduced and referred to Assembly State Government
Committee 1/13/04)
A
3626 (Introduced and referred to Assembly State Government
Committee 5/19/03)
S
1166 (Introduced 2/24/04; Referred to Senate Budget and Appropriations
Committee 5/10/04
S
2410 (Introduced 3/10/03; Passed Senate and referred to Assembly
State Government Committee 6/30/03)
North
Carolina
S
540 (Introduced 3/25/03; Referred to Committee on Commerce
3/26/03)
H
1041 (Introduced 4/9/03; Referred to Committee on Judiciary
4/10/03)
North
Dakota
HB
1212 (Introduced 1/9/03; Signed by Governor 4/16/03)
Oregon
HB
2967 (Introduced 3/6/03; Passed House 5/21/03; In committee
upon adjournment 8/27/03)
Pennsylvania
HB
2442 (Introduced 3/16/04; Referred to Senate Committee on
State Government 6/11/04)
Rhode
Island
H
8702 (Introduced and passed House 6/25/04; Signed by Governor
7/2/04)
S
2299 (Introduced 2/5/04; Referred to House Judiciary 5/18/04)
S
3233 (Introduced and passed Senate 6/25/04; Transmitted to
Governor 7/1/04)
South
Carolina
H
4130 (Introduced and referred to Committee on Judiciary 5/1/03;
Signed by Governor 5/11/04; Act No. 231 enacted 5/18/04)
S
758 (Prefiled 12/2/03; Recommitted to Senate Committee on
Judiciary 4/29/04)
Tennessee
HB
2887 (Introduced 1/28/04; Referred to committee 1/29/04)
SB
2941 (Introduced 1/22/04; In committee 4/14/04)
Texas
HB
2390 (Introduced 3/18/03; Left pending in Government Reform
Committee 4/22/03)
West
Virginia
SB
46 (Introduced and referred Committee on Judiciary and then
to Committee on Finance 1/8/03)
Wisconsin
SB
100 (Introduced 4/9/03; Signed by Governor 3/11/04)
AB
267 (Introduced 4/15/03; Vetoed by Governor 12/17/03)
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Press Clips
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