August 25, 2015

Maryland needs to improve its regulatory climate

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Gov. Larry Hogan in July with members of the regulatory reform commission he had just appointed. Photo by Governor's Office

Gov. Larry Hogan in July with members of the regulatory reform commission he had just appointed. Photo by Governor's Office

This article is republished with permission of the Free State Foundation. 

By Randolph J. May

The Free State Foundation  

Last month, I published a blog titled, “Maryland Needs to Improve Its Regulatory Climate.” There I commended Gov. 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, Gov. 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

“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.

How regulations are reviewed now

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 comprises 20 members of the General Assembly, 10 appointed by the Senate President and 10 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.”

Improving the regulatory review process

The above description indicates that Maryland does have a form of regulatory review process in place. This is a 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, Gov. 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 Gov. Hogan, his new commission, and the General Assembly to keep focusing on ways to improve the regulatory process.

  • charlie hayward

    I recommend the Commission determine which regulations WERE NOT due-processed through COMAR. Evaluate the justification for each such regulation; was COMAR improperly circumvented? This is an objective analysis that has the potential to disclose a variety of reform possibilities. Why? Because any regulation not passing through COMAR’s due process was probably not subject to public comment.