June 21, 2017

Improving Legislative Oversight and Achieving Better Regulation in Pennsylvania

Testimony before the Pennsylvania House Committee on State Government

Chairman Metcalfe and members of the committee:

Thank you for inviting me to speak about regulatory reform and oversight in Pennsylvania. My name is James Broughel, and I am a research fellow for the State and Local Policy Project at the Mercatus Center at George Mason University. 

My testimony today will address ways in which legislative oversight of regulation can be strengthened in Pennsylvania. Specifically, I will demonstrate how a cap on state regulation levels can achieve the following objectives:

  1. Empower the Pennsylvania General Assembly with more control over regulation, whilst preserving the role that agency expertise plays in the crafting of regulatory policy.
  2. Induce a culture change at regulatory agencies aimed at achieving a reduction in unnecessary “red tape” in Pennsylvania that will lead to greater overall benefits and fewer costs to state residents from justified regulations.

A cap should not be controversial or partisan. The policy has been applied successfully in other countries, like Canada and the United Kingdom, and the goal of a cap is to achieve better regulation and less red tape, as opposed to blanket deregulation.

IMPROVING LEGISLATIVE OVERSIGHT OVER REGULATION

The Pennsylvania General Assembly has recently devoted considerable attention toward strengthening oversight of state regulatory agencies. For example, several recent regulatory reform bills have focused on requiring legislative consent through a vote in the Pennsylvania House and Senate before regulations with significant economic impacts can be enacted. The aim of such legislation is to empower the legislature, which over the years has delegated considerable lawmaking powers to administrative agencies.

While this goal is laudable, there are several reasons to be skeptical that these kinds of procedural changes will improve legislative oversight of agencies. In addition to any potential legal or constitutional hurdles such legislation may face, having the legislature vote on new regulations may impose an obligation on the legislature that legislators do not want—or worse—are not capable of effectively managing, given their other responsibilities. Legislators delegate lawmaking powers to regulatory agencies in part because those agencies possess expertise that lawmakers lack. Without more information, such as independent analysis of the likely impacts of regulation, it is not clear whether legislators will make better decisions than regulators about the appropriateness of new regulations. 

By contrast, a cap on regulation levels will empower the legislature while preserving the role expertise plays at regulatory agencies. A cap looks a lot like something legislators already know well—the budget process. The legislature sets the initial level of the cap, for example by limiting the number of regulations, requirements, or restrictions that agencies can enact. Then in subsequent periods, the legislature has the ability to revisit the level of the cap, which can be allowed to rise, remain constant, or fall over time. Caps can even be set individually for different agencies. In this way, a cap on regulation can be thought of as embodying a kind of regulatory budget. A budget brings rationality to rulemaking; it simply reflects the sensible notion that the costs regulators can impose on society should not be unlimited.

A regulatory cap can also induce a culture change at agencies because it alters regulators’ incentives. Typically, regulators have strong incentives to write new rules; they are promoted or given pay raises for new rules, for example. They may also have the incentive to analyze the potential impacts of new rules due to procedures put in place to avoid ill-informed rulemaking. By contrast, regulators typically have very little incentive to analyze the consequences of old rules. In Pennsylvania, reviews of existing regulations are conducted on an ad hoc basis; reviews have not been institutionalized into the regulatory process.

A cap on regulation levels forces more careful consideration of both new and existing regulations. New rules will have to be deemed as being as important as old rules before they can be enacted. When a new regulation is determined to be important enough to put in place, this triggers the reconsideration of old regulations in order to identify rules for modification or repeal. Old rules that are unnecessary—in that they have little or no basis in the public interest—might be called “red tape.” These regulations should be eliminated. Some regulations will have a basis in the public interest, but it will be rare that these rules are achieving the maximum benefit for society relative to cost. Tailoring justified rules to both reduce costs and increase benefits is a primary goal of a regulatory cap. Finding this combination of less red tape and greater overall net benefits is what it means to achieve better regulation.

STRIVING FOR BETTER REGULATION SHOULD NOT BE A PARTISAN ISSUE

A regulatory cap should not be a partisan issue. Similar policies have been introduced elsewhere in the world and have avoided partisan rancor. For example, in 2015, Canada became the first country to pass a law requiring that the administrative burdens of each new regulation be offset by amending or repealing at least one existing rule. The law passed the Canadian parliament overwhelmingly by a margin of 245 yes votes to just one no vote.

A similar policy was instituted in the United Kingdom. In 2005, the UK began a Better Regulation initiative, and the country set a 25 percent target for reducing regulatory burdens. This eventually evolved into a “one-in, one-out” policy that was enacted in 2011, which became “one-in, two-out” in 2013 and is now a “one-in, three-out” policy. Under each policy, the costs of new rules have been offset by eliminating equivalent or greater burdens from old rules. The Better Regulation initiative in the UK has remained through the tenures of prime ministers from both the Labour and the Conservative parties in the UK, suggesting it has broad, bipartisan support.

A key reason these reforms have not been controversial is undoubtedly that they have focused on eliminating red tape as opposed to blanket deregulation that also eliminates justified regulations. Justified regulations are improved upon, and sometimes even strengthened, in the process of reviewing old regulations.

GETTING STARTED

The first step toward imposing a regulatory cap is to determine what the appropriate measure of regulation should be in Pennsylvania. Without a measure, a cap cannot be enforced. Once a measure is settled on, it makes sense to take an inventory of how much regulation exists in Pennsylvania. This will establish a baseline, or initial starting level, of regulation. From here, the legislature can decide if this baseline level should rise, fall, or stay the same over time. 

The legislature can also set a target for reducing the level of regulation from this baseline level. A cap should be accompanied by a reduction target when there is evidence that a considerable amount of the regulation on the states’ books is red tape. For example, the fact that Arizona’s administrative code has fewer than half as many restrictions as Pennsylvania’s suggests many restrictions in the Pennsylvania Code could be eliminated without jeopardizing health, safety, or the environment.

There should also be an oversight body to help institutionalize the regulatory cap, which is important to bring about a culture change at agencies. In Pennsylvania, the most logical place to house oversight responsibilities is the Independent Regulatory Review Commission (IRRC). The IRRC already reviews proposed and final regulations, and it plays an advisory role with respect to reviews of existing regulations. This commission could be given the task of ensuring that new regulatory burdens are offset by eliminating meaningful old ones and that no gaming of the cap is taking place at the regulatory agencies. The IRRC could also ensure that target reduction goals and deadlines are met, if applicable.

The Mercatus Center has tools available that can help Pennsylvania in these areas. A Mercatus Center project called State RegData uses “regulatory restrictions” as a measure of regulation. Restrictions are instances of the words “shall,” “must,” “may not,” “prohibited,” and “required” that occur in a state’s administrative code. I recommend this measure for being simple and objective. 

Additionally, an inventory of restrictions in the Pennsylvania Code has already been captured as part of Mercatus’s State RegData project. The Pennsylvania Code contains 153,661 regulatory restrictions, and this count can be broken down by title and by chapter within the code. This information is publicly available on a Mercatus-run website, QuantGov, and it can be used as an inventory system by both the IRRC and by regulators to identify those areas of the state administrative code with the most restrictions.

CONCLUSION

A regulatory cap empowers the legislature in a way akin to the budget process, while leaving the fine-tuning of policymaking to the agencies with the relevant expertise. At the same time, a cap can induce a culture change at agencies by creating stronger incentives to review old regulations. A more institutionalized review process should help to reduce unnecessary red tape in Pennsylvania, and just as importantly, to improve and modernize justified regulations. Achieving more benefits and lower costs for state residents is what better regulation is all about. This should not be a partisan issue—it’s just good governance.