Capital Goods - September 2011

Bending the rules
By Scott Mooneyham

You don’t have to look hard to find a business owner, be it a big-time developer or a small retailer, with a story about unwanted government regulation. A good friend of mine, a Raleigh restaurant owner, has complained for years about the equipment requirements for his eatery — heavy-duty industrial refrigerators when a residential fridge would do; a one-piece, stainless-steel sink when a three-piece one used to be the norm.

After winning historic legislative majorities, Republicans came to Raleigh in January pledging to respond to complaints such as my friend’s. It took six months, but GOP lawmakers finally claimed their first victory on that front by overturning Gov. Beverly Perdue’s veto of the Regulatory Reform Act of 2011 in July. The sweeping legislation requires state agencies to, among other things, adopt only rules mandated by the federal or state government, review statutes annually to repeal outdated regulations and to cut any that overlaps those of another agency. But overall, its language is complicated and vague, leaving gaping holes for differing interpretations. And it may take years to figure out whether this victory causes more problems, lives up to expectations or has no effect at all. The reasons: No one is sure how the bill will work in practice, how state and federal agencies will respond or if any lawsuits will be filed against it.

Supporters say it will reduce redundant state regulations and make clearer the requirements for businesses when they build, expand or otherwise interact with government regulators. “We’re just trying to make this process friendlier, clearer, so you understand what [the rules] are and can abide by them,” state Sen. Harry Brown, a Jacksonville Republican, said when the legislation cleared his chamber in June. Environmentalists, however, predict calamity. “State agencies have been handcuffed from fulfilling their statutory obligation to create effective safeguards to protect North Carolina families and communities,” Molly Diggins, director of the Sierra Club’s North Carolina chapter, said after Perdue’s veto was overturned.

The governor’s veto didn’t have much to do with either of these arguments or the wider purposes of the legislation. She said the bill, in some cases, would take authority away from state agencies and give it to the Office of Administrative Hearings, the state’s administrative-law agency, which she labeled as unconstitutional. That’s a bit of a stretch. But it will impede her turf.

The meat of the regulatory reform bill lies elsewhere, in language that calls for state agencies to end overlapping rules, to conduct those annual reviews and to quantify the costs of any new ones. One provision will require agencies to develop at least two alternative possibilities if a proposed rule has a “substantial economic impact” — whatever that means.

Sounds fine, but how will that play in the real world? Back in the spring, Republican legislators went around the state holding public hearings as they prepared to unveil the 22-page bill. They heard an interesting complaint from proponents of regulatory reform. For the regulated, the problem isn’t always the regulation; it’s the uneven interpretation by government employees charged with enforcing it. Brown says the changes will make rules more static.

Legislators also got an earful from environmentalists, who were organizing to try to stop the changes. Their chief worry is that, by creating more hurdles and a lengthier rule-making process, it prevents state agencies from responding quickly when new safety and environmental threats arise. Derb Carter, director of the Southern Environmental Law Center, predicted that the changes would “grind rule-making to a halt.”

State officials aren’t sure much will change at all. One told me that his agency had no plans to alter its basic approach to adopting rules — a long-established process of public hearings and board review that takes several months each year. For instance, the bill says new state rules shouldn’t institute environmental standards greater than any imposed by the federal government. There are a few caveats, including rules required by acts of the General Assembly, court actions or new federal rules changes. But plenty of agency heads would say they never adopt rules that aren’t required by state or federal law. Plus, there’s already a Rules Review Commission, which was created by legislators in 1986 to provide a second level of review before state agencies could put new rules in place.

It’s ironic that even the bill created to simplify government isn’t exempt from legislative vagary. Like so much of government rule-making, it’s all in the interpretation.

Scott Mooneyham is the editor of The Insider, www.ncinsider.com.