Opinion: Daily Journal

Putting State Rules Under the Microscope

The use of sunset laws and periodic review can prove effective in reducing a state’s regulatory burden. A bill before the General Assembly, House Bill 74, would bring periodic review to North Carolina and have the Rules Review Commission set expiration dates for all rules according to where they appear in the Administrative Code, barring review by the agencies that adopted them. Afterward, rules would have to be reviewed by their originating agencies at least once every 10 years; without review, they would expire.

A three-step process

H.B. 74 would institute a three-step process for reviewing rules. First, the agency would initially determine whether it considered the rule necessary or unnecessary. If necessary, the agency would determine whether it would affect the property interest of the regulated public or would have people objecting to it — i.e., whether the agency would classify the rule as necessary with or without what is called “substantive public interest.”

The agency would seek public comment on that initial determination on its website as well as submit its determination to the Office of Administrative Hearings for online posting and reception of public comments for at least 60 days. Afterward, the agency would submit a report to the RRC with its initial determination, public comments about it, and its response to those comments.

Next, the RRC would review the report and the public comments. Part of this review would be deciding whether each public comment had merit (i.e., whether it addresses the substance of the rule and relates to the RRC’s statutory standards for review). Based upon that, the RRC could change the agency’s designation of a rule as “unnecessary” or “necessary without substantive public interest” to “necessary with substantive public interest.”

The RRC would then draft a final determination report to submit to the Joint Legislative Administrative Procedure Oversight Committee, which comprises eight members apiece from the House and Senate. This report would include the agency’s report items along with the RRC’s determinations of public comments.

The following regulatory actions would result from that report once it became effective:

  • Rules deemed “unnecessary” would expire on the first day of the month after the report’s effective date
  • Rules deemed “necessary without substantive public interest” would remain in effect
  • Rules deemed “necessary with substantive public interest” — including, based on public comments of merit, rules initially deemed by the agency as “unnecessary” or “necessary without substantive public interest” — would have to be readopted as new rules

In the final step, the RRC’s final determination report would become effective either when the agency consulted with the oversight committee or, barring a consultation, on the 61st day following delivery of the report.

Should the oversight committee disagree with the determination on a specific rule, it could recommend that the General Assembly direct the agency to review that rule within a year.

Potential limits on effectiveness

Two factors would greatly affect the strength of the review process outlined in H.B. 74. First, as with former Democratic Gov. Bev Perdue’s Rules Modification and Improvement Program (PDF) and the Republican-led legislature’s Regulatory Reform Act of 2011, this review would put much weight on public input, which is limited by public knowledge of the process. At the agency level, H.B. 74 makes space for acknowledging that regulating parties may not know their interests are affected and would object if they did. There is no such allowance afforded the RRC in its review of the agency’s initial determination, however.

The review process could therefore be strengthened by a simple definitional change under Section 2 in the bill, from:

A rule is also “necessary with substantive public interest” if the rule affects the property interest of the regulated public and the agency knows or suspects that any person may object to the rule.

to

A rule is also “necessary with substantive public interest” if the rule affects the property interest of the regulated public and or the agency or Commission knows or suspects that any person may object to the rule.

The second factor relates to having controversial rules — those the agencies consider necessary but which the regulated public finds (or would likely find) objectionable — go through the adoption process again as proposed new rules. The idea is welcome, but its effectiveness ultimately hinges on the process for adopting proposed new rules.

An effective sunset approach needs an effective “sunrise” approach. Rules slated for review would have to undergo the same scrutiny given to proposed new rules. For that reason, the state needs a solid policy foundation for new rules.

Sunrise complements to a sunset law would include a REINS law, strong cost/benefit analysis, requiring agencies to consider alternatives to regulation, stating regulations’ objectives and outcome measures by which to hold them accountable, no-more-stringent laws, and small business flexibility analysis.

Jon Sanders (@jonpsanders) is director of regulatory studies for the John Locke Foundation.