Last month, on July 13, I published a blog titled, “Maryland
Needs to Improve Its Regulatory Climate.” There I commended Governor Larry
Hogan’s recent announcement that he has created a new Regulatory Reform
Commission to examine regulations to determine which ones are unnecessarily
burdensome. In announcing the panel’s formation, Governor Hogan stated: “For
years, over-burdensome and out-of-control regulations were making it impossible
for businesses to stay in Maryland.”
As I stated in the earlier piece, even though it appears the
new panel may not have any role beyond identifying regulations that should be
considered for elimination or modification, “the establishment of the
commission is a welcome step in any event for the focus it brings to the need
for regulatory reform.”
Here I wish to carry on the discussion of regulatory reform
and offer some further suggestions. But first, to put matters in the proper
context, I want to repeat what I said in my July 13 blog:
“Not all regulations are bad, of
course. Many serve important purposes, most especially those directly related
to protecting public health and safety in carefully targeted ways. But all
regulations impose costs upon those they affect, be they ordinary citizens or
business. And, this is the important point: these regulatory costs – although
“off-budget” – have the same economic effect as taxes.
So, just as reducing unnecessary
spending is important to improving Maryland’s fiscal health, so too is
eliminating unnecessary or unduly burdensome regulations. The positive economic
effect that results from leaving more productive resources in the realm of the
private sector is the same in both instances.”
The context is important. So please note that I said that
many regulations serve important purposes, especially those related closely to
protecting public health and safety. But it is also true that leaving in place
unnecessary or unduly burdensome regulations has negative economic effects for consumers
and for Maryland’s overall economy.
In my July 13 piece, I suggested that Governor Hogan’s new
commission might benefit from inclusion of individuals with academic or public
policy expertise regarding regulatory policy or regulatory economics. Aside
from additional expertise, this might give the panel additional credibility in
the face of critiques that it is composed only of business representatives. And
I asked whether there should be some central entity within the executive branch
to review regulations before they are promulgated to determine that the
projected benefits outweigh the costs and they are not inconsistent with other
regulations.
Here is a brief sketch of the current process as I
understand it.
Proposed State agency regulations are reviewed by the Joint
Committee on Administrative, Executive and Legislative Review (AELR) “with
regard to the legislative prerogative and procedural due process.” The AELR Committee
is comprised of twenty members of the General Assembly, ten appointed by the
Senate President and ten by the House Speaker. Moreover, periodic review and
evaluation of existing regulations are monitored by the Committee.
A Maryland statute (§§10-130—10-139,
Annotated Code of Maryland) requires that each State agency that has
adopted regulations review them every eight years. (There are some exceptions.) According to the criteria specified in the
statute, the purpose of the review is to determine (1) whether the regulations
are necessary for the public interest; (2) continue to be supported by
statutory authority and judicial opinion; (3) or are appropriate for amendment
or repeal.
There is an Executive
Order (Executive Order 01.01.2003.20), adopted in 2003, that implements the
periodic regulatory review process established by the statute. The Executive
Order supplements the above statutory criteria by providing that an agency also
should consider whether regulations “under review are effective in
accomplishing the intended purpose of the regulations.”
The above description indicates that Maryland does have a form
of regulatory review process in place. This is good – as a starting point.
But there is room for improving the process. Here are some observations that,
my view, warrant further consideration:
- Neither the process for considering proposed regulations or for those already adopted is as rigorous as it ought to be in taking into account regulatory costs and benefits. The criteria applied by the AELR Committee at the adoption phase do not come close to amounting to any sort of weighing of costs and benefits or effectiveness test. And the criteria specified by law for the periodic regulatory review do not meet this test either. While a purpose of the review is to determine whether the regulations “are necessary for the public interest,” this standard is too vague to require even a standard weighing of costs and benefits.
- The Executive Order does require a determination as to “whether regulations under review are effective in accomplishing their intended purposes.” This requirement gets closer to dictating the performance of a more rigorous analysis than that required by a generalized “public interest” determination. But including some reference to requiring a cost-benefit analysis would strengthen the review. For example, the Executive Order could be revised to provide that an agency “should consider whether regulations under review are effective in accomplishing their intended purposes, taking into account the costs and benefits of such regulation.” And, for regulations that are not intended to protect public health and safety, but rather fall in the category of economic regulation, there should be a requirement to assess marketplace competition to determine whether there is an existing market failure.
- Not all regulations are equally significant, of course, in their projected impacts on the economy. There should be a process for identifying those major regulations that are projected to have the most significant economic impact on Maryland’s economy, say, over $5 million per year, so they can be subjected to more rigorous scrutiny at the outset than those that will have a less significant impact.
- The eight-year review cycle is a bit long for periodic review of all regulations, given the pace of technological change and dynamism in many segments of today’s economy. Of course, this is not true of all segments, but there is little doubt that the pace of change is quickening, especially in areas such as telecommunications, high-tech, health care, and energy. It is more common to consider periodic regulatory review cycles in the 4-5 year range. If the review cycle is not shortened across the board, perhaps it should be shortened for agencies with regulations in subject areas known to be susceptible to rapid change or those regulations identified as economically significant.
I am sure there are other ideas worthy of consideration as
well, and I hope to explore some of them in the future. For now, my purpose is
to stimulate further discussion and thinking.
As I said, Governor Hogan’s formation of the Regulatory
Reform Commission is commendable. Unnecessary or overly burdensome regulations
adopted or left in place impose a cost on all of Maryland’s citizens. So, it is
worthwhile for Governor Hogan, his new commission, and the General Assembly to
keep focusing on ways to improve the regulatory process.
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