Governor Moore Should Emulate Virginia's Regulatory Reform Efforts

 Maryland Governor Wes Moore talks a good game (well, sometimes!) about making Maryland's government more efficient, effective, and accountable. But talking and doing are two different things. 

During the last decade, my Free State Foundation colleagues have often offered ideas, across Democrat and Republican administrations, for implementing meaningful regulatory reform measures in Maryland. While reducing wasteful spending in Maryland's budget is important, of course, cutting red tape and eliminating unnecessary regulations also serves leads to cost savings that enhances consumer welfare.

 

At an event yesterday, Virginia Governor Glenn Youngkin announced that the state had surpassed his target of cutting regulatory requirements by 25%. To lead his regulatory reform efforts, Governor Youngkin quickly established a new Office of Regulatory Management (ORM), initially led by Andrew Wheeler and for the last couple of years directed by Reeve Bull, a well-known expert regarding regulation and administrative law.

 

In this piece, "Regulatory Reform in the Old Dominion," Susan Dudley, herself one of the nation's foremost scholars on regulation, chronicles what was achieved in Virginia by Governor Youngkin, Reeve Bull, and the regulatory reform team – and how they did it.

 

If you are interested in improving Maryland's economic climate and benefitting consumer welfare by eliminating red tape, it's worth reading Susan Dudley's piece and getting inspired by Governor Youngkin's effort. More to the point, I commend it to Governor Moore – hoping it might not be too late for him to gaze across the Potomac and get inspired too.

Maryland Needs to Improve Its Regulatory Climate

Earlier this month, the Mercatus Center at George Mason University released a report comparing the regulatory restrictions in each state. Maryland is “only” the 21st most regulated state in the United States, but it still has over a hundred thousand state rules in its regulatory code. Perhaps its ranking makes it seem that Maryland is doing all right compared to other states, as it is in the middle of the pack. But a deeper look at the results shows a more troubling picture.

The report was produced by Mercatus Center Senior Research Fellow and Policy Analytics Director Patrick McLaughlin and Professor Dustin Chambers from Maryland’s Salisbury University. They found that the U.S. Code of Federal Regulations and Code of Maryland Regulations place over 1.2 million regulatory restrictions on Marylanders. Furthermore, the report asserted Maryland’s regulatory growth between 1997 and 2015 put over 109,000 Marylanders in poverty, causing the state to lose 2,292 jobs yearly and experience a 7.35% price increase.

The report doesn’t just compare the total number of regulations in each state; it breaks them down by sector. While Maryland’s overall regulatory regimes could be described as mediocre at best, it over-regulates some industries and regulates only a few less than the national average. For example, Maryland has over 5,000 more health service regulations than the average state. Additionally, it has around 2,000 more administrative services regulations and 1,500 more transportation regulations than the average state.

There are also some industries where Maryland has fewer regulations than average, such as Waste Management, Commerce, and Chemical Manufacturing. To some extent, these industries reduce the impact of the above overregulated sectors on Maryland’s score, which is why Maryland is wedged between Maine and Mississippi as the 21st most regulated state. However, Maryland still has more rules than many states that have heavy-handed regulatory systems, such as Hawaii, Connecticut, and Vermont.

The report proposes multiple solutions to address Maryland’s growing regulatory system, focusing on policies that balance regulation creation with regulation elimination. The first suggested reform is to create a “regulatory budget,” which would place a cap on how many regulations the state can have at one time. Requiring some percentage of rules to be cut, or a “one in, X out” rule, would be ways to accomplish this. Another reform would be to adopt regulatory sunsets, which require the legislature to explicitly renew regulations in order for them to continue, forcing periodic legislative reviews of existing rules.

While Maryland’s regulatory scheme is not as overbearing as some states, the negative impacts of its current system are real. Maryland should look at the results of this report and move in the direction many other states are: removing unnecessary red tape for businesses and ordinary citizens. That way, Maryland can come closer to becoming an economic leader.

On Regulatory Reform, Maryland Should Follow Virginia's Example

 In an op-ed published in January of this year, "Wes Moore Should Follow Glenn Youngkin's Regulatory Reform Model," I called attention to the important regulatory reform program initiated by Virginia Governor Glenn Youngkin. Here is part of what I wrote then:

"In June 2022, Virginia Governor Glenn Youngkin issued an Executive Order establishing a new Office of Regulatory Management – similar to the federal Office of Information and Regulatory Analysis (OIRA) that's part of the Office of Management and Budget. The executive order requires the new office, in coordination with the various state executive agencies, to "streamline the regulatory process and provide important institutional controls." And it establishes a concrete objective for the office: oversee a 25% reduction in regulatory requirements across state executive branch agencies."

As I explained, in December 2022, Virginia's Office of Regulatory Management released a Regulatory Economic Analysis Manual which I summarized this way:

"Written in clear, concise language free from economic jargon, the manual is a step-by-step guide for implementing an effective and efficient process for reviewing proposed and existing regulations. It explains how to perform the analyses required to ensure that the costs of new regulations, or ones already on the books, don't exceed their benefits. To achieve this, the manual describes the process for properly identifying the problem a regulation is intended to address and for identifying alternative approaches to addressing the problem that are the least intrusive and least costly, while still accomplishing their intended objective."

In my January 2023 op-ed, I urged newly inaugurated Governor Moore to look across the Potomac for good ideas regarding implementation of a regulatory reform program of his own.

Now, Reeve Bull, the Deputy Director of the Virginia Office of Regulatory Management, and an acknowledged expert on regulatory matters, has provided a useful update on the Virginia experience in an essay published in Penn Law's The Regulatory Review. In his piece, "A New Approach to Regulatory Budgeting in Virginia," Mr. Bull provides helpful information regarding the establishment of a "regulatory budget," one of the foremost regulatory reform tools. As he explains: "The idea is similar to a budget on government spending: agencies can regulate up to a certain amount, but, beyond that level, they need to get rid of old regulations in order to adopt new ones."

Easy to say, but the devil is in the implementation details, of course. So, Mr. Bull usefully discusses the nitty-gritty of several different regulatory budgeting approaches, including the one on which Virginia has chosen to focus: seeking to reduce the total number of regulatory restrictions by 25 percent by the end of the Youngkin Administration."

To be clear, we're not talking about willy-nilly deregulation for deregulation's sake. Mr. Bull emphasizes, and I agree, that the overriding goal is "to roll back regulatory burdens while still preserving necessary public protections." A proper balance can be achieved if the right reform tools are put in place.

In his inauguration remarks last January, Governor Moore acknowledged that, among the states, Maryland is "44^th in the nation in the cost of doing business." The existence of excessive regulatory burdens – regulations that are no longer needed because of changed conditions or in which the costs exceed the benefits – are a significant contributor to Maryland's poor "cost of doing business" ranking.

Improving Maryland's business climate, including by reducing unnecessary regulatory burdens, shouldn't be a partisan issue.

Thus far, Governor Moore has not devoted much attention to implementing a meaningful regulatory reform program in Maryland. For the sake of the state's economic health, he should. And, by way of example, he would be wise to look to Governor Youngkin's regulatory budgeting model and the other reform work undertaken by Virginia's Office of Regulatory Management. 

 

Governor Hogan Should Reestablish the Regulatory Reform Commission

At the beginning of each year, for the past three years, Free State Foundation President Randolph May and I have published a Perspectives from FSF Scholars addressing the meaningful progress made by Governor Larry Hogan’s Regulatory Reform Commission (RRC). In December 2017, the RRC published its final report identifying 844 outdated or unnecessary regulations over its three-year term, which Governor Hogan ultimately eliminated or altered in some way. Now that Governor Hogan has been reelected for a second term, he should reestablish the Commission with the goal of achieving further regulatory reform over the next four years.

In January 2016, Randolph May and I commended Governor Hogan for creating the RRC, and we suggested ways Maryland could reform its regulatory process. Specifically, we proposed that Maryland consolidate its twenty departments into just eight. We also suggested creating a “sunset” date for all new regulations. This would require that regulations expire after a certain period of time if they are not affirmatively readopted by the sunset date.

In January 2017, we applauded the RRC for identifying 187 regulations that it found “redundant, unreasonable, unnecessary, unduly burdensome or obsolete.” We also recommended that Maryland adopt a central office within the executive branch to review regulations before they are promulgated to determine whether the projected benefits outweigh the costs – similar to the Office of the Information and Regulatory Affairs (OIRA) at the federal level. The office certainly doesn't need to be large, but it should be led by an economist with expertise in cost-benefit analysis.

In January 2018, we highlighted the RRC’s final report, which recommended 657 changes to outdated or unnecessary regulations that Governor Hogan ultimately accepted. And we took the opportunity to repeat some of our earlier proposals for process reform in Maryland.

Governor Hogan made a worthy effort during his first term to eliminate unnecessary or outdated regulations as part of his effort to stimulate Maryland's economy and improve its business climate. As I noted in an October 2018 blog, Governor Hogan’s tax and regulatory reform had a positive impact on Maryland’s overall fiscal condition. And according to some studies, Maryland’s business climate has improved over the past several years relative to other states. (See here and here.)

Although the Regulatory Reform Commission did a good job identifying nearly 850 regulations that were outdated or unnecessary and Governor Hogan wisely accepted the Commission’s recommendations, there certainly are areas where Maryland can further improve, like reducing occupational licensing requirements. Now that Governor Hogan will be returning to Maryland’s gubernatorial seat for another four years, he should reestablish the Regulatory Reform Commission and direct the Commission to continue its work searching for unnecessary and costly regulations to eliminate or modify.

The RRC also should be tasked with identifying unnecessary taxes and fees that stifle competitive entry and artificially raise prices for consumers. Given the positive impact that broadband and wireless services have on Maryland’s economy, the RRC particularly should focus on eliminating or reducing excessively high taxes and fees that slow broadband deployment and harm consumers.

In a forthcoming blog, I will discuss how Maryland’s burdensome regulations and fees stifle broadband deployment and how its exorbitantly high wireless tax rates negatively impact consumers.

Maryland's Fiscal Condition Improves Under Governor Hogan

Earlier this month, the Mercatus Center at George Mason University released its 2018 edition of "Ranking the States by Fiscal Condition," which analyzes each state’s financial health based on short- and long-term debt and other key fiscal obligations, such as unfunded pensions and healthcare benefits. 

In the 2018 edition, Maryland ranks 33rd among the states in overall fiscal condition. This is an increase of 13 spots from 46th overall in 2017. Importantly, this report uses data from fiscal year 2016, which is the first full year of Maryland Governor Larry Hogan's term. As Free State Foundation President Randolph May and I have discussed in three different Perspectives from FSF Scholars, Governor Hogan has made commendable efforts to improve Maryland's business climate by eliminating or reducing unnecessary regulations and taxes. (See here, here, and here.)

In the Mercatus report, assessment of fiscal condition is broken down into five categories:

• Cash solvency. Does Maryland have enough cash on hand to cover its short-term bills? Compared to other states, Maryland is cash insolvent, ranking 41st but moving up five spots from 46th in 2017.

• Budget solvency. Can Maryland cover its fiscal year spending with current revenues? Yes, Maryland revenues cover 102% of expenses. This ranks Maryland 27th in the country, moving up twelve spots from 39th in 2017.

• Long-run solvency. Can Maryland meet its long-term spending commitments and will there be enough money to cushion it from economic shocks or other long-term fiscal risks? No, Maryland’s net asset ratio is -1.69 and Maryland ranks 44th in long-run solvency, which is the same as its 2017 rank.

• Service-level solvency. How much “fiscal slack” does Maryland have to increase spending if citizens demand more services? Maryland ranks in the top half of U.S. states at 17th in the country, falling just one spot from last year.

• Trust-fund solvency. How much debt does Maryland have and how large are its unfunded pension and healthcare liabilities? Maryland ranks 17th, moving down three spots from 14th in 2017.

One significant issue Maryland policymakers should address is the state's looming unfunded liabilities. Maryland has nearly $21 billion in unfunded pension liabilities and has a funded ratio of 71%. This means the value of the state’s assets are 71% of the value of the state’s pension obligations. The most effective plan for decreasing Maryland's long-term debt and fixing its fiscal condition goes hand-in-hand with Governor Hogan’s efforts to improve the state's business climate.

By reducing the burdens of taxes and regulations, Governor Hogan's reforms are intended to continue to attract more businesses into Maryland. In turn, this will expand Maryland's tax base, increase tax revenue, and improve Maryland's fiscal condition by diminishing the amount of unfunded liabilities overtime. Moreover, lessening the burden on current and future taxpayers by decreasing long-term debt will stimulate the economy and create more jobs throughout Maryland.

It is fairly clear that Governor Hogan's tax and regulatory reforms are having a positive impact on Maryland's overall fiscal condition. In the first full fiscal year of Governor Hogan's term, Maryland moved up 13 spots in the Mercatus ranking. Based on the achievements that the Hogan Administration has made over the last couple of years in terms of eliminating outdated and unnecessary regulations, Maryland's fiscal health ranking should continue to improve.

In the meantime, the Maryland General Assembly should work harder to collaborate with Governor Hogan's efforts to decrease tax and regulatory burdens. This will have a positive impact on Maryland's long-term fiscal condition.

Maryland Should Reform Its Occupational Licensing Regime

This week, the Mercatus Center at George Mason University published a new study titled “Changes in Occupational Licensing Burdens across States.” Authors Matthew Mitchell and Anne Philpot used data from 2012 to 2017 to measure the breadth – the number of occupations that each state licenses – and the burden – the stringency of occupational licensing requirements in each state – to determine how occupational licensing has changed over the last five years. Unfortunately, Maryland had the greatest increase in the breadth and burden of occupational licensing over that span.

Maryland’s breadth and burden of occupational licensing increased 29% from 2012 to 2017 and the state regulates five more occupations than it did in 2012: animal breeders, athletic trainers, and three types of gaming occupations. Maryland's occupational licensing fees increased by an average of 6%, and the days lost to education and experience requirements by Maryland entrepreneurs increased by 3%.

As I wrote in a July 2015 blog, Maryland’s occupational licensing regime harms consumers by restricting competition, which subsequently leads to higher prices. Importantly, unnecessary occupational licensing harms the poorest residents in the state, who are unable to afford the fees and training required with such licensing, therefore stifling upward mobility for poor entrepreneurs. 

In the blog, I stated:

Because consumers ultimately pay higher prices as a result of the restricted competition, the increase in prices is disproportionately harmful to the poorest consumers. The higher a person’s income, the more willing that person is to adapt to price increases. Therefore, artificial increases in prices through occupational licensing have a large negative marginal impact on the poorest consumers. For example, pawnshops in Maryland, which can provide inexpensive goods, additional income, or short-term loans to poor individuals, are charging higher prices and interest rates than they would be able to charge if workers were not required to have an occupational license.

But the poorest individuals also experience the greatest burden on the other side of the market – as workers. Poor people often do not have the resources to acquire the mandated training, take the required tests, or pay for the licensing fees. This pushes them out of a labor market in which they may be skilled enough to compete. For example, a licensed plumber in Maryland must complete 3,700 hours in training. But a poor person with only 1,000 hours of training may be perfectly capable of fixing a toilet. It is not illegal for him/her to do so, but it is illegal to accept money for the service.

The Hogan Administration has done a good job reducing the overall burden of regulations over the last few years. As FSF President Randolph May and I noted in a January 2016 Perspectives from FSF Scholars, the Regulatory Reform Commission’s initial report recognized that Maryland’s occupational licensing regime was overly burdensome and was not protecting consumers. In a January 2017 Perspectives from FSF Scholars, we commended the Regulatory Reform Commission for identifying many occupational licenses that were unnecessary, outdated, or overly burdensome. And Governor Larry Hogan accepted all of the recommendations put forth by the Commission.

However, the data presented in the Mercatus Center study shows that there is more work to be done in Maryland. Although the 2018 legislative session has ended, occupational licensing reform should be a goal for the 2019 Maryland General Assembly. If Maryland wants to continue to produce economic growth and business investment throughout the state, it should lessen the burden of occupational licenses and enable more entrepreneurs to enter the labor market.

Welcome News for Maryland on the Regulatory Reform Front

We’re not shy about pointing out studies that show that Maryland’s fiscal situation or business climate compare unfavorably with its neighbors, such as Virginia, Delaware, or West Virginia. We surely don’t do so out of any sense of glee, but rather in the hope that highlighting such information will help spur Maryland’s citizens – and its policymakers – to embrace budgetary, tax, and regulatory reforms that will improve the welfare of the state for all.

While we’re not shy about suggesting ongoing reforms for moving Maryland ahead, we also are pleased when we can take note of good news. Some of that comes in the form of a new study from George Mason University’s Mercatus Center which shows that Maryland has less regulatory “red tape” than its neighboring states. Make no mistake, even though a cursory review of Maryland’s existing regulatory landscape indicates that there is more work to be done, it is nevertheless gratifying to take note of Maryland’s favorable position relative to its neighbors.

Over the last two years we have praised Governor Larry Hogan’s regulatory reform efforts, even as we have offered ideas for further reforms. Governor Hogan’s focus on regulatory reform, and the results so far, have a direct impact on Maryland’s fiscal and business climate. Here is the way the Mercatus’ James Broughel and Nick Zaiac put it in a December 15 Baltimore Sun essay:

One reason for Maryland’s competitive footing with its neighbors may be Gov. Larry Hogan and Lt. Gov. Boyd Rutherford’s prioritization of regulatory reform. Mr. Hogan convened a regulatory reform commission soon after taking office, which Mr. Rutherford helps lead.

The commission has documented dozens of problematic regulations that the governor’s administration has modified or repealed. These include rollbacks of certain rules from the Department of Labor, Licensing and Regulation — the state’s third biggest regulator, based on restriction count.

Occupational licensing regulations, which require people in certain professions like cosmetology and landscaping to get state approval before they can work, are often crafted with the best of intentions. But they also limit upward mobility by creating barriers for people looking to find well-paying jobs or start small businesses to support their families.

So, it’s only right and proper to welcome and acknowledge the positive results attributable, at least in part, to the Hogan administration’s Regulatory Reform Commission and other efforts. And it’s only right and proper to urge that the focus on efforts to eliminate or at least modify costly, burdensome regulations that are no longer necessary – if ever they were – continue apace.