January 21, 2016

The Impact of Federal Regulation on Wyoming

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Federal regulation is applicable in the same way in all 50 states. Each state’s economy, however, includes a unique mix of industries, so federal policies that target specific sectors of the economy will affect states in different ways. 

Federal regulations can, by design, target some industries more than others. For example, the Dodd-Frank Wall Street Financial Reform Act of 2010 directed federal regulatory agencies to create approximately 400 new regulations targeting the financial services sector.1 These new regulations will have a national effect because financial services matter in all states, but they will be felt more in New York than in South Carolina, simply because of the relative importance of the financial services industry in the former state. 

Using the RegData database, we can examine the relative impact of federal regulation on a particular state. RegData creates an industry regulation index by counting the number of words and phrases in the Code of Federal Regulations that indicate a specific mandated or prohibited activity and then by classifying those regulatory “restrictions” according to which industry or industries they likely target. The 10 most-regulated industries in the United States for 2014 are listed in table 1. 

By weighting industry restrictions using the importance of an industry to a state relative to its importance to the country overall, we can produce a single Federal Regulation and State Enterprise (FRASE) index that measures the impact of federal regulation on individual states. The index is thus a ratio of the impact of federal regulations on a specific state’s industries to the impact of federal regulations on the nation’s industries in a given year. A value of 1 would indicate that a state’s private sector is affected by federal regulations to exactly the same degree as the national private sector, while a score higher than 1 would indicate a higher impact of federal regulation on a state’s private sector. 

For 2013, Wyoming scored a 1.59 on the FRASE index. By design, the FRASE index for the United States overall in any year will equal 1, so a score of 1.59 indicates that the impact of federal regulation on Wyoming’s industries was almost 60 percent higher than the impact on the nation overall. 

While there is some fluctuation from year to year in the ratio of the impact of federal regulation on the state to its impact on the nation, more dramatic growth occurs in the total number of such regulatory restrictions affecting the state since 1997. One way to measure this impact is to scale the weighted restrictions to the total weighted restrictions for the national economy in 1997. Doing so allows us to calculate the growth of the FRASE index relative to 1997. For Wyoming, the FRASE index, scaled by total weighted restrictions for 1997, has grown by 38 percent from 1997 to 2013. 

So why is the impact of federal regulation higher for Wyoming than for the country overall? The answer lies in the particular industries that make up the state’s economy and how regulated those industries are. The numbers of regulatory restrictions affecting the top five industries by contribution to Wyoming’s private sector are shown in figure 1, and the contributions of those industries to the state and national private sector are compared in figure 2. 

As shown in figure 1, the two most important industries in Wyoming are mining and oil and gas extraction. The mining industry contributes about 32 times as much to Wyoming’s economy as to the national private sector, while the oil and gas extraction industry contributes more than nine times as much. Both of these industries are highly regulated. For 2013, RegData associates about 9,300 restrictions with the mining industry and about 14,900 restrictions with the oil and gas extraction indus- try. It comes as no surprise then that Wyoming bears a significant burden from federal regulation. 

The industry that contributes the most to Wyoming’s private sector—and to its overall FRASE index score—is mining. So who is doing the regulating? The top five regulators of mining are shown in figure 3. 

The top regulator is the Office of Surface Mining Reclamation and Enforcement, which accounts for more than 3,000 restrictions. The other top agencies are, in descending order, the Bureau of Land Management, the Mine Safety and Health Administration, the Office of Workers’ Compensation Programs, and the Environmental Protection Agency. As one might expect, since Wyoming’s top industries are dependent on natural resources, environmental regulators have the most impact on the state’s economy. 

The landscape of federal regulations can change from year to year, as can the makeup of a state’s economy. As those changes occur, residents of affected states may have to learn new sets of regulations or deal with different regulators. Policymakers from Wyoming are uniquely situated to comment on the impact of federal regulation in their state and whether that impact is adequately represented in the current debate about regulatory and legislative impact accounting.2