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Why Arizona Should Lift its Regulatory Moratorium

| Jun 26, 2014 | Opinion

Since the 2008 economic recession, governors in several states have taken their cues from business leaders and implemented various types of moratoria on new and pending regulations. Citing increased economic uncertainty and state budget crises, these state executives have called a halt to advancing new regulations for varying periods of time. Arizona’s current governor has implemented the longest of these regulatory moratoria, and it is now time for its ban on new regulations to come to an end.

Arizona Capitol BuildingMost state regulatory moratoria take effect for short periods of time, typically between 45 and 90 days, at the start of a new governor’s term of office. These so-called “soft moratoria” are often seen as useful because they allow incoming administrations some time to assess the regulatory lay of the land and ensure that a new governor’s policies are shaping the state’s administrative framework.

A few states have gone further and have adopted moratoria lasting longer than 180 days, but only Arizona continues to operate under a “hard regulatory moratorium” of several years in duration.

In the wake of the recent recession, Arizona Governor Jan Brewer issued the first of several executive orders imposing a moratorium on state regulations when she assumed office in January 2009. Calling regulations “job killers” and obstacles to economic growth, Governor Brewer, supported by the state legislature, has extended the regulatory moratorium in her state until the end of her term in 2014.

Is Arizona’s regulatory environment so harmful that it warrants a five-year long moratorium on rulemaking? The Grand Canyon Institute, a centrist think-tank led by a bi-partisan group of former state lawmakers, economists, community leaders, and academicians, recently completed an evidence-based analysis of Arizona’s regulatory state. Our study focused on environmental regulations because those regulations tend to generate the most negative responses from businesses. Our conclusions suggest that Arizona regulations have had no burdensome effect on the state’s economy. Indeed, a 12-year review of the state’s regulatory climate shows that it has been compatible with job growth.

Unlike many states, Arizona’s regulatory structure is fairly robust. The state implemented a comprehensive regulatory reform agenda in 1981, under then-Governor Bruce Babbitt. Those reforms have continued and been improved upon by subsequent administrations.

Arizona’s regulatory process now ensures that state officials take into account several important considerations, including a clear language explanation of why any new rules are necessary, an analysis of costs and benefits (including impacts on small business), an open public process, and, importantly, a retrospective review of approved final rules every five years, to ensure rules continue to accomplish what their adopting agencies intended.

Within this framework, we analyzed the volume of regulation occurring within the state between 2000 and 2012 under three different governors: Jane Dee Hull (R) (2000-2002), Janet Napolitano (D) (2003-2008), and Jan Brewer (R) (2009-2014). In addition, we specifically examined the environmental regulations approved during this period. We conducted our review while also keeping in mind key performance data on Arizona’s economy from 2000-2010.

Our analysis generated some surprising results. For example, more than 30% of all regulations approved during this period, and 40% of all environmental regulations, occurred during the last three years of Governor Hull’s administration. The estimated costs of the environmental rules were in the moderate (<$1 million) to minimal (<$10,000) range. The fewest environmental regulations have occurred under Governor Brewer (about 12%), which is not surprising given the regulatory moratorium in place. (One might well ask, of course, why any regulations at all were adopted during Governor Brewer’s term; the short answer is that the moratorium provides some exceptions for certain kinds of rules.)

Notwithstanding Governor Brewer’s heightened concerns about regulatory burdens, the estimated costs for the environmental rules adopted during her administration have been substantial (>$1 million). This is because almost all of these environmental regulations were used to raise revenues needed to help solve budgetary shortfalls. As these rules provided for fee increases, they were exempt from the state’s normal regulatory process – and the moratorium.

So how have regulations affected the Arizona economy? Until the 2008 recession, the state’s economy enjoyed fairly robust job growth, suggesting the regulatory structure in place prior to the moratorium did not result in excessive economic burdens. While not every Arizona regulation has been a wise one, the state’s regulatory process is structured to examine regulatory costs and to determine if proposed benefits of rules justify those costs. Overall, regulations have had little negative impact on job growth in the state.

Robust economic growth depends primarily on private sector innovation. But the shield of community protection that regulation provides also ensures that private interests do not overrun the public good. These two factors – private sector innovation and community protection – must be in balance. The benefits of any regulatory approach must always justify the costs to comply.

We have found that Arizona’s regulatory record is one characterized by pragmatic responsibility and does not deserve the anti-regulatory bias that targets all regulation as inherently bad. Unfortunately, the state’s hard regulatory moratorium encourages this sentiment. Additionally, the moratorium discourages state agencies from updating their current rules to ensure they are based on current scientific knowledge and continue to maximize net benefits.

Clearly, Arizona needs to end its moratorium on regulations. In addition, in the course of our analysis, we discovered two other steps that Arizona should take to improve its approach to regulation.

First, although our research shows that regulation has not been harmful to jobs and the economy, the state can still improve the process for analyzing benefit and cost information. Agencies should increase their efforts to secure specific data from both affected businesses on the cost side and affected communities on the benefits side. This can be accomplished by enhancing the capacity of state agencies through increased funding for analysis by third-party experts and through partnerships with Arizona’s universities that could provide contemporary public policy experience for senior graduate students.

Second, we urge greater efforts be made to enhance opportunities for citizen engagement in the state’s regulatory process. To extend the reach and purpose of agency regulatory work to more citizens throughout the state, state agencies should pursue more online communication through regular channels and social media, conduct direct outreach in different communities throughout the state, and pay greater attention to traditional media outlets. It is a good first step that the state’s main newspaper, The Arizona Republic, recently created a new “government accountability” beat that will feature significant regulations.

In short, the time has come for Arizona’s regulatory moratorium to end, but the state’s regulatory process can still be made more transparent for the benefit of all the public.



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