How to Reduce S.C.’s Regulatory Burden

FIRST PRIORITY FOR GOV. HALEY’S
REGULATORY TASK FORCE: A SUNSET LAW

Is the General Assembly alone empowered to make laws in South Carolina? Not exactly. No fewer than 21 state agencies, state boards, and state commissions have the power to create regulations that have the full force of law. These regulations touch almost every part of operating a business, and many parts of everyday life in South Carolina.

Yet it’s far easier to get a regulation issued than a law passed. There are, in fact, only two steps to creating a new regulation.

1. The agency must first publish notice in the state register, after which a public hearing on the proposed rule must be held if requested by 25 people.
2. Following this, the House Speaker and Senate President must refer the regulation to the appropriate committees where it will either be disapproved and fail to become law, approved and become law, or neglected for 120 days and become law.

At no point is a vote required by publicly elected officials in order for a proposed regulation to become law.

This process has generated a regulatory code that is 139 chapters long, as of today. These regulations add an as-yet unquantified burden on anyone attempting to do businesses in state. A new study in the Journal of Economic Growth has found that in 2005 U.S. GDP was only 28 percent of what it would have been had federal regulation remained at its 1949 level, prior to the modern regulatory explosion. The study contends that the growth in federal regulation since 1949 has cut GDP growth by 2 percent a year. If South Carolina’s regulatory culture has even a fraction of that effect on its economy as the federal government’s has on the nation’s, that’s a major blow to the state’s economy.

Another study, this one by the Mercatus Center, found that regulation can increase the level of unemployment through raising costs for industries. At the same time, regulations can increase the number of unproductive jobs whose sole or primary purpose is regulatory compliance. These effects, the study found, are often underestimated if taken into account at all by regulatory agencies.

While South Carolina’s economy has been suffering under this economic burden like every other state, it has also, like other states, been adding to the load with its own ever-growing regulatory burden. We have reported before that South Carolina is the tenth most extensively licensed state in the nation, but our regulators are not content to rest on these laurels. During the 119th session, 2011-2012, 105 new regulations gained the full force of law; this number represents nearly a third the size of all legislation introduced by the General Assembly that became law over the same time period.

While the stated reason for all regulation is beneficent, there is good reason to be skeptical. As economists James Buchanan and Gordon Tullock pointed out in their highly influential work on public choice theory, regulators and political actors do not become angels once they begin their work in the public sphere, but rather remain self-interested individuals. This often results in regulations and/or laws that benefit special interests groups to which public officials belong, or groups that are able to sway public officials through heavy lobbying. This theory has proven itself valid time and again, and recent examples documented by SCPC and The Nerve show that South Carolina is not exempt from these laws of politics and human nature.

Ineffective check

South Carolina currently has the Small Business Regulatory Review Committee which can request that an agency, before submitting a proposed regulation to the legislature, first submit a report to the Committee on the proposed regulation’s effect on small businesses. The report must contain the following:

• An estimate of the number of small businesses that will be subject to the regulation
• An estimate of the cost of compliance
• A description of a less costly method of achieving the purpose of the regulation

The submitting agency must also consider less stringent reporting or compliance requirements for small businesses or outright exemption for small businesses from some parts of the regulation.

South Carolina also requires agencies to review, but not vote on, all regulations they have created or administered once every five years from both a general perspective and from the perspective of their effects on small businesses.

Governor Nikki Haley has issued an executive order creating a Regulatory Review Task Force. The Task Force mission is to develop a report that evaluates South Carolina’s current regulatory burdens and “propose recommendations to relieve those burdens.” The task force’s report will be based largely on recommendations for repeal or amendment of overly burdensome regulation from each Cabinet Agency.

Sunset provisions

A new study by the Mercatus Center finds that none of the above measures taken by South Carolina have much of an effect on the level of overall regulation in a state. Various state-level attempts to limit regulation were analyzed in the study: for instance, cost benefit analysis, authority review, efficiency review, agency review, sunset provisions, voter initiatives, and reviews carried out by the legislature, executive, and independent groups.

The study’s conclusion: only sunset provisions proved to have a statistically and economically significant effect in reducing regulation in all of the studies models. A sunset provision places an expiration date on a particular regulation, and only if lawmakers and/or a regulating agency renews it will the regulation remain in force. If it is neglected, the regulation “sunsets” and ceases to function.

Another measure that proved to be effective – though not as effective as sunset provisions – was a cost-benefit analysis from the perspective of government finances. Regulators and legislators were shown to be (not entirely surprisingly, one might think) far more hesitant to impose a regulation when considering the high costs it may impose on government through expenditures or loss of revenue, than they were when considering potential high costs a regulation might impose on the private sector. This finding would seem to further support much of the public choice theory concerning regulation.

South Carolina can improve the state’s economic performance immeasurably by reducing the regulatory burden on its private-sector economy. That will mean (1) enacting sunset provision on all regulations, (2) requiring estimates of the governmental costs of imposing new regulations before they are enacted, and (3) requiring that no regulation become law without approval by elected officials.