The State That Works:
Reduce Regulatory Burdens to Create a Better Small Business Climate
Policy Goal: Give Indiana the best small business climate in America by taking a regulatory time-out until existing regulations are reviewed and by addressing the regulatory barriers to employment.
Vision Plan Goals Served:
Goal #1: Increasing private sector employment
Goal #2: Attracting new investment in Indiana, with emphasis on manufacturing, agriculture, life sciences and logistics
Goal #5: Improving the quality of the Hoosier workforce
Policy Steps:
- Issue an executive order on day one placing a moratorium on new regulations, and initiate a process to review all existing regulations, with some exceptions.[1]
- Make regulatory review and oversight a priority within the Indiana Office of Management and Budget (OMB) by redirecting resources at no additional cost to taxpayers.
- Order OMB to reduce red tape by reviewing existing regulations, business fees, and regulatory performance metrics to ensure they are the least-costly approach and impose the least burden on job creation.
- Provide customer service to businesses impacted by regulation and undertake rigorous cost-benefit analysis of all proposed regulations, a practice instituted by Governor Daniels when he created the OMB in 2005.[2]
- Support continual and systematic review of existing occupational licenses and sunrise review of legislation creating new licenses.
- Support legislation creating new occupational licenses only if necessary for job growth.
Rationale:
Every dollar not spent on regulatory paperwork is a dollar that Indiana businesses can spend putting Hoosiers to work.
There were 129 final regulations adopted by state agencies in 2011 and an additional 163 emergency regulations (see Chart 1).[3] That equals more than one new regulation every other day and more than 24 new regulations every month. The sheer number of regulations adopted by state agencies warrants a periodic review and evaluation of their effectiveness and impact on small business.
The health of the Indiana economy is dependent on the health of Indiana small businesses. There are more than 112,000 small businesses in Indiana, and they account for more than 48 percent of Indiana’s jobs.[4]
In the past thirty years, all net new job creation has taken place in business startups, many of which employ between one to four people.[5] And yet, in a recent survey, more than 50 percent of respondents said that regulations had a greater impact on small businesses than on large businesses.[6] Finally, one study found that regulatory costs per employee are 36 percent higher for small businesses than larger businesses.[7]
In some reports, Indiana ranks well compared to other states on measures of our state’s regulatory climate; in others Indiana does not fare as well.[8] A recent study gave a “C+” grade to Indiana’s regulatory oversight structures, suggesting that there is room for improvement.[9] Given the sheer volume of regulations adopted annually by Indiana agencies, and the onslaught of recent federal regulations, we cannot afford to take a defensive posture on our regulatory climate. We must continually work to create the best business climate in America.
A bill passed in the 2012 session of the General Assembly, SEA 311, requires OMB to review its cost-benefit analysis after a regulation has been in place for three years. Taking a time-out from new regulations will allow OMB to shift resources from reviewing new regulations to reviewing existing regulations as well as examining business fees, regulatory performance metrics, and its new responsibilities under SEA 311.
Indiana has 35 boards that regulate 70 occupations through more than 200 permits that directly regulate the occupations of more than 460,000 Hoosiers. Fully one in seven Hoosier workers is in an occupation regulated by the state of Indiana. Recent research cited by the Regulated Occupation Evaluation Committee (ROEC)[10] indicates that occupational regulation can create barriers to entering job fields and also raise prices for consumers.[11]
The sheer number of licensed occupations has been growing for some time (see Chart 2). ROEC was created to review all existing licenses and issue reports and recommendations to Indiana lawmakers. We will restructure ROEC for the express purpose of reducing the number of occupational licenses. The restructured board will be renamed the Eliminate, Reduce And Streamline Employee Regulation Committee (ERASER Committee) and should utilize crowdsourcing to solicit input from the public on occupational licenses under review. Starting in 2013, the ERASER Committee also should be enlisted to perform “sunrise” review of legislation creating new occupational licenses. Unless the ERASER Committee, working with legislators and key stakeholders, can show that a new regulation has benefits greater than the costs, those new regulations should not be supported.
Policy Background:
The moratorium will apply to all new regulations with certain exceptions including, but not limited to, federal mandates not subject to a waiver request, rules needed to reduce the cost and/or burden on job creation, and rules necessary to address emergency health or safety concerns. The moratorium would be imposed by executive order and lifted once OMB’s review of existing regulations is complete.
OMB will determine which regulations have a significant impact on the private sector[12] and work with the agencies to thoroughly review those regulations while allowing for ample input from the regulated entities themselves. For all other regulations, OMB will utilize crowdsourcing for review.[13] Crowdsourcing allows the general public, including those most impacted by regulations, to assess the impact and effectiveness of regulations. Crowdsourcing is a cost-effective way to review many regulations, and there is no greater source of expertise than those directly affected by the regulations themselves.
The OMB also will be charged with two other tasks. First, the OMB will ensure that the fees Hoosiers pay to do business do not exceed the costs of the services provided. Second, the OMB will review existing agency metrics to ensure that agencies are being evaluated based on their customer service to businesses, including turnaround time for license and permit applications and/or certifications. Some agencies are currently utilizing such metrics while others are not.[14]
The OMB is currently required to perform a cost-benefit analysis on each regulation proposed by a state agency.[15] The OMB provides guidance on the development of the cost-benefit analysis and works with the agencies to develop them for each proposed regulation.[16] The requirement for agencies to develop cost-benefit analyses for each proposed regulation should be supported and, if possible, enhanced.
ROEC is currently charged with the responsibility to evaluate professions regulated by the Indiana Professional Licensing Agency (IPLA) at least once every seven years. ROEC must make recommendations after its review, and said reports are due to the Governor and Legislative Services Agency on or before July 1 of each year. ROEC has already issued two reports.[17] ROEC is comprised of seven members.
In the future, ROEC should enhance the feedback it generates from the public, including the occupations regulated by licenses under review. It can do so by utilizing tools such as crowdsourcing.
In its first report, ROEC recommended that, in addition to annual evaluations of occupational regulation, it should also be considered for the task of evaluating legislation that creates new occupational regulation.[18] ROEC should be tasked with this assignment, which will enhance Indiana lawmakers’ ability to fairly evaluate legislation creating new occupational regulations. In performing the sunrise review of legislation, ROEC should provide opportunities for full input from the public.
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[1] The exceptions would be federal mandates not subject to a waiver request, rules needed to reduce the cost and/or burden on job creation, and rules necessary to address emergency health or safety concerns.
[2] See Executive Order 2005-02, located at http://www.in.gov/gov/files/EO_05-02_Creation_of_OMB.pdf.
[3] See Final Rules and Readoptions and Emergency Rules at the Indiana Register database, located at http://www.in.gov/legislative/iac/irtoc.htm?irv=ir06.
[4] See Small Business – Big Opportunity, The Travelers Institute, Exhibit 1 (2011), located at http://www.nelsonmullins.com/DocumentDepot/Travelers_Small_Business_White_Paper.pdf.
[5] http://www.kauffman.org/research-and-policy/bds-jobs-created.aspx.
[6]See Small Business – Big Opportunity, supra note 4, at 4.
[7] See Crain and Crain, The Impact of Regulatory Costs on Small Firms, page 8, U.S. Small Business Administration (September 2010), located at http://archive.sba.gov/advo/research/rs371tot.pdf.
[8] While the Mercatus Institute ranks Indiana as having the best regulatory climate in the country (see http://mercatus.org/freedom-50-states-2011/regulatory-policy) the Institute for Justice ranks Indiana in the middle of the pack on one measure of the burden of occupational regulations (see http://licensetowork.ij.org/report/7).
[9] See Schwartz, 52 Experiments with Regulatory Review, Institute for Policy Integrity at New York University School of Law (November 2010), located at http://policyintegrity.org/publications/detail/52-experiments-with-regulatory-review/.
[10] See Indiana Code 25-1-16.
[11] See Regulated Occupations Evaluation Report, Regulated Occupation Evaluation Committee, pages 4-5 (July 1, 2011), located at http://www.in.gov/pla/3331.htm.
[12] Significant impact could be either economic impact (i.e. the total costs of the rule) or the sheer number of private sector entities that have to comply with the rule.
[13] For an example of a proposal to utilize crowdsourcing to review federal regulations, see http://www.innovationfiles.org/crowdsource-regulatory-reform/.
[14] For example, the Indiana Department of Environmental Management has an agency metric that measures permitting efficiency based on the percent of statutorily allowed days in which permits are issued (see IDEM metrics on Indiana Transparency Portal, located at http://www.in.gov/itp/). The Indiana Department of Revenue does have metrics for renewals completed within 10 days and audits completed within statutory guidelines, but does not have a public metric associated with timely completion of business regulations. (see DOR metrics on Indiana Transparency portal, located at http://www.in.gov/itp/).
[15] See Indiana Code 4-3-22-16.
[16] See OMB Financial Management Circular 2010-4, located at http://www.in.gov/sba/files/fmc_2010-4_Administrative_Rulemaking.pdf.
[17] http://www.in.gov/pla/3331.htm.
[18] See Regulated Occupations Evaluation Report, Regulated Occupation Evaluation Committee, page 9 (July 1, 2011), located at http://www.in.gov/pla/3331.htm.
