New Tool Targets N.C.’s Multibillion-Dollar Regulatory Burden

Regulation costs already reach at least $3.1 billion annually in North Carolina and might stretch to as much as $25 billion. A new John Locke Foundation Policy Report focuses on a tool designed to “rein in” state regulatory overreach.

That tool is a state-level Regulations from the Executive In Need of Scrutiny, or REINS, Act. It’s an idea approved in the U.S. House of Representatives for the federal government three times since 2011, including a vote this summer.

“Like the federal proposal, a REINS Act for North Carolina should increase accountability for and transparency in the regulatory process, return improperly delegated legislative authority, and bring about more carefully crafted legislation and rules,” said report author Jon Sanders, JLF Director of Regulatory Studies. “Those outcomes should produce a less exuberant regulatory environment, which the bulk of peer-reviewed economic literature suggests would encourage a more exuberant rate of economic growth.”

The regulatory cost estimates come from the Beacon Hill Institute, the research arm of the Department of Economics at Suffolk University in Boston. In an economic analysis released in conjunction with Sanders’ report, BHI researchers identified roughly 25,000 individual regulations in the 30 Titles of North Carolina’s Administrative Code. They narrowed their focus to 10,000 rules applying to the private sector, then tried to gauge those rules’ costs in three categories: fees paid to the state, spending in the state budget, and private-sector compliance costs.

The $3.1 billion figure represented a “starting-point estimation,” according to BHI research. The analysis also found that compliance costs for the private sector were 44 percent higher than fees and budget appropriations.

Researchers urge caution in using that $3.1 billion total. They consider it a “baseline” and suggest that it is “likely extremely low,” largely because their analysis includes no cost estimates for several titles in the administrative code. Nor was the BHI team able to estimate the “opportunity cost” of complying with regulations instead of devoting money to investment, research and development, and production of good and services.

“Using one research method, North Carolina’s state regulations cost the state economy over $25 billion annually,” the BHI economists note. “For this reason, we believe the actual total costs of North Carolina’s state regulations run far higher than the figures presented here.”

Regardless of the actual figure, a REINS Act would help North Carolina leaders avoid adding to them unnecessarily, Sanders said.

“REINS would offer extra scrutiny to proposed state rules that would have a ‘substantial’ economic impact,” he said. “Rather than go through the existing state rules review process, those major rules would require a vote from the General Assembly and the governor’s signature. Without that approval, the proposed rule would die.”

Proposed rules that fall short of the REINS threshold would continue to move through the existing state rules review process, Sanders said. That means legislators would keep their power to kill smaller rules but would not be forced to address every new rule proposed for state government.

“It’s important to note that North Carolina’s Supreme Court warned back in 1978 that the delegation of legislative rule-making power to state agencies should be ‘closely monitored,'” Sanders said. “Justices wanted to ensure that state agency decisions were not arbitrary and unreasoned. They also wanted to ensure that state agencies were not asked to make important policy choices which might just as easily be made by elected representatives in the legislature.”

Sanders’ report highlights multiple academic studies that point to the negative economic impact of overly burdensome regulation. One study estimated that federal regulation cost American consumers and businesses $1.88 trillion in 2014 in lost economic productivity and higher prices. Another study authored by researchers from North Carolina State and Appalachian State universities suggests that the U.S. economy is about one-fourth the size of its potential because of overly burdensome regulations.

“Costs imposed by regulation are especially burdensome on small businesses, which typically lack in-house legal and compliance staff to help them navigate them all,” Sanders said. “One study estimated that federal regulations cost large firms $7,755 per employee, while the same rules cost smaller firms $10,585 per employee.”

The John Locke Foundation’s First In Freedom Index ranks North Carolina 36th among the 50 states, and No. 8 among 12 Southeastern states, in regulatory freedom. “Over the past 15 years, the number of pages added to the North Carolina Register each fiscal year averaged 2,405,” Sanders said. “In the 1990s, the average was 2,282 pages.”

Legislators have enacted a series of regulatory reforms since 2011, including a valuable “sunset” provision in 2013 that subjects state rules to a periodic review, Sanders said. That review determines whether rules should be maintained or repealed.

More work remains. The REINS Act is one of a number of “sunrise” provisions that would limit overly burdensome regulations before they’re adopted, Sanders said. “Legislators also should consider such reforms as strong cost/benefit analysis, full consideration of alternatives to regulation, and a rule requiring that two old rules should be retired for every new one enacted.”

A state-level REINS Act should be the top priority. “The underlying aim of REINS is a regulatory process that is more transparent, more circumspect, and more accountable to the people, who are the ultimate authority,” Sanders said.