October 6, 2017

Time Is Right for Changes in Colorado Regulation

James Broughel

Senior Research Fellow
Summary

Given Colorado's analytic capabilities and the resources it already invests in them, hard evidence should play a more central role in rule making.

Sometimes the most important government actions are highly technical, and therefore easy to miss. For example, this month a small, little-known state entity called the Office of Policy, Research and Regulatory Reform will finalize a report on Colorado's benefit-cost analysis (or "BCA") requirements for state regulations.

It sounds like an obscure topic. But Coloradans may want to pay attention to this one.

The report will help the state legislature and governor decide whether Colorado's BCA requirements should continue, because they are set to expire (or "sunset") in late 2018. The report should also help legislators consider changes to the process.

In a recent Mercatus Center at George Mason University study, I calculate that the Code of Colorado Regulations contains more than 11.5 million words and 151,000 restrictions (measured by words like "shall" and "must"). It would take 16 weeks to read all of it, assuming 40 hours per week of reading.

With more rules added each year, it's critical that they be backed by solid evidence. Regulations, while necessary, can impose costs on the public that increase prices for consumers, affect business investment, and slow economic growth. Some of these costs fall disproportionately on the poor.

Regulations also produce benefits like safer workplaces and a cleaner environment. But unless rules are crafted carefully using the best available evidence, they may not actually achieve those goals.

That's where BCA comes in. First, analysts lay out the various policy options that are available; then they quantify the pros and cons of each option. As part of this process, regulators organize the best available information-scientific, economic, and legal - about different ways to solve a problem, helping them identify the solution with the best results for society.

Without careful analysis, it is unlikely that regulators will solve the real-life problems people are experiencing without imposing unreasonable burdens. Plus, without rigorous analysis, regulators have no particular advantage in crafting policy over legislators who are accountable to voters.

Colorado, it turns out, is one of the more advanced states in its use of data. According to a Pew-MacArthur study published earlier this year, it is one of 11 states established in evidence-based policymaking.

But other states have set a pretty low bar, and being somewhat data-savvy is not enough. A 2010 report from New York University's Institute for Policy Integrity found that "Colorado's process is not well matched to its resources.agencies have the analytic capacity to be doing more analysis more consistently." Little has changed since. Luckily, there are some easy ways to improve Colorado BCA without a whole lot of additional costs to taxpayers.

First, merge the two remarkably similar types of analysis that Colorado regulatory agencies are tasked with producing. One is called a "regulatory analysis" and the other is a BCA. Since agencies report similar information in both, why not combine these reports into a single document?

Second, make sure BCA analyses don't come too late to be useful. Colorado regulators are usually asked to write a BCA after a proposed regulation has already been written. This makes little sense - why not produce it early enough to actually help shape the regulation?

Finally, require BCAs for important rules even when no public request has been made. Public input is very important, but shouldn't be the only driving force. There is no guarantee someone will make a request for all of the most consequential rules, while other more frivolous regulations may get an analysis. There should be a requirement that certain economic or legal factors trigger an analysis.

Given Colorado's analytic capabilities and the resources it already invests in them, hard evidence should play a more central role in rule making. Colorado lawmakers can be proud of their state's record on data-driven policy, but should make use of their opportunity over the coming year to set a higher bar that could serve as a model for other states.