RALEIGH — Gov. Bev Perdue surprised the General Assembly June 30 when she vetoed a regulatory reform bill that largely reflected an executive order she issued last year. Perdue claims she is “strongly in favor of regulatory reform,” but says the bill goes too far and may be unconstitutional. Legislative leaders disagree, citing legal opinions that differ with the governor’s conclusion.
In October 2010, Perdue issued Executive Order 70, the Rules Modification and Improvement Program. The order noted that “outdated, unnecessary, or vague rules often impose unnecessary costs and burdens on local governments, small businesses, and other regulated entities.” It urged state agencies to adopt new rules only “when required by federal or state law or when deemed necessary by the agency to serve the public interest” and made old rules subject to periodic review.
But eight months later, she vetoed Senate Bill 781 — the Regulatory Reform Act of 2011 — a bill that borrowed heavily from her order.
Her reasoning? A provision in the bill takes “final decisionmaking authority” away from state environmental agencies. She says that violates the separation of powers provision in the state constitution.
Final decisionmaking authority
Currently, when a state agency (such as the Department of Environment and Natural Resources) fines an individual (such as a homebuilder) for an alleged violation of a rule (such as loosening too much sediment), the individual can challenge that decision by filing a complaint with the Office of Administrative Hearings, a quasi-judicial executive branch agency established by the legislature.
The OAH uses administrative law judges, who act much like regular judges to settle disputes. With one major exception: If the ALJ rules against the agency, the agency can overrule that decision. A recent Associated Press report found that in 2010, agencies prevailed in the vast majority of disputed cases. But when the agency lost at the administrative level, the agencies overruled judges’ decisions 88 percent of the time.
In this system, the agencies act as judges in cases in which they are the defendants. The individual can challenge the agency’s final decision in Superior Court, but the process is expensive and redundant.
Builders who believe they have been fined and denied permits in error often must hire attorneys and go through the whole judicial process twice, said Lisa Martin, director of government affairs for the North Carolina Home Builders Association.
“It costs citizens and businesses a lot of time and money to have to take these extra steps,” she said.
Carolina Journal reported on such a dispute in May, a case that has lasted more than four years involving property developer and former college basketball announcer Billy Packer.
A provision in the Regulatory Reform Act, borrowed from House Bill 623, would save a step in disputes over environmental regulations. Environmental agencies no longer could overrule decisions made by administrative law judges; the Office of Administrative Hearings would make the final decision, subject to appeal in Superior Court.
In its original form, H.B. 623, sponsored by Rep. Sarah Stevens, R-Surry, would have barred all agencies, not merely ones dealing with environmental policy, from overruling ALJs.
Unconstitutional?
The governor’s office bases its concerns about the bill’s constitutionality from an opinion issued by then-Attorney General Mike Easley in 1999. In it, Easley said transferring final decisionmaking powers from agencies to the OAH would change its nature from executive to judicial, “likely in violation” of a constitutional provision that forbids the General Assembly from establishing courts, the opinion states.
In committee hearings on the bill, many, including Senate Minority Leader Martin Nesbitt, D-Buncombe, called the “unconstitutional” argument ridiculous. Attorney general opinions are suggestions and are not binding legally.
By contrast, a brief to bill sponsors by legislative staff attorney Karen Cochrane-Brown noted that the state constitution permits the General Assembly “to vest administrative agencies … with such judicial powers as may be reasonably necessary … to the accomplishment of the purposes for which the agencies were created.”
When “agencies administer their policies in a manner that deprives a citizen of a property interest or prejudices individual rights, it must do so in manner that satisfies the requirements of due process contained in the state and federal constitutions,” Cochrane-Brown wrote.
Allowing agencies to overrule administrative law judges could violate the due process rights of citizens, she suggested.
A more comprehensive bill
The Regulatory Reform Act was a watered-down version of Rep. Glen Bradley’s North Carolina Jobs Bill, House Bill 587.
Bradley, a freshman Republican from Franklin County, introduced the bill in April. It was stuck in committee until the similar S.B. 781 was introduced in June.
Much of the language from Bradley’s bill appeared in the Senate bill, “minus the parts with teeth,” said Daren Bakst, director of legal and regulatory studies for the John Locke Foundation.
For example, both bills call for an annual review of all of the state’s 18,000 rules and regulations. While the Senate bill encourages agencies to repeal rules that don’t meet certain standards, Bradley’s bill requires repeal.
Another provision in Bradley’s bill would give small businesses some flexibility in complying with new rules. Bakst said at least 30 states have some sort of law giving small business extra time and leniency in meeting burdensome and costly regulations.
Finally, Bradley’s bill created a study committee on occupational licensing that would recommend for repeal unnecessary licensing laws. The Senate bill did not include this.
Whether Perdue would have viewed Bradley’s bill more favorably than S.B. 781 is anyone’s guess. While the bill officially remains alive, Bradley doesn’t see it being considered in next year’s short session.
Rep. Marilyn Avila, R-Wake, a House sponsor of S.B. 781, said Bradley’s bill might have been badly received because it focused too much on obscure terms like “cost-benefit analysis” and “small business regulatory flexibility analysis.”
Bradley is more blunt. “Much of the House leadership simply didn’t understand the bill,” he said.
Sarah Burrows is an associate editor of Carolina Journal.