Setting a Sensible Reduction Target for Ohio's Administrative Rules

Chair Wilkin, Vice Chair White, Ranking Member Sweeney, and members of the House Government Oversight Committee:

Thank you for the opportunity to submit this testimony. My name is James Broughel. I am a senior research fellow at the Mercatus Center at George Mason University and an adjunct professor at the Antonin Scalia Law School. My research focuses on regulatory institutions, economic analysis of regulations, and the effects of regulations on economic growth.

My testimony today centers around Senate Bill 9 (SB 9), which is currently being considered by this committee. Specifically, I have three main points to convey:

1. Regulations have unintended consequences. These include many regressive effects that disproportionately burden the most vulnerable Americans. Regulations can also increase mortality, which is a hard-learned lesson from the ongoing pandemic.
2. Some states are reviewing their regulatory codes, either in response to the pandemic or as a more general good-housekeeping reform. As part of these efforts, some states have set reductions targets in range of 25 to 33 percent in recent years.
3. Regulatory reductions in this range are achievable, given recent experiences in states such as Idaho and Missouri, with no apparent adverse effects on safety or welfare.

The Unintended Consequences of Excessive Regulation

It is now well known that the process of regulatory accumulation—the buildup of administrative rules over time—can stunt economic growth and lower living standards below what would be otherwise. A coauthor and I recently conducted a review of peer-reviewed studies that rely on measures of regulation constructed by the World Bank and Organisation for Economic Co-operation and Development, and we found an apparent consensus that regulations that affect entry of new firms into an industry and regulations with anticompetitive product and labor market effects are generally harmful to productivity and growth.

Unintended consequences of regulation extend into the realm of health, as became apparent in 2020. Regulations in a wide variety of areas have had to be relaxed or suspended in order to facilitate the public health response to the COVID-19 pandemic. Examples of such waived or relaxed regulations include (a) regulations that restrict telehealth services by preventing medical professionals from meeting with their patients virtually; (b) occupational licensing and scope-of-practice regulations, which restrict who can work in certain professions and what services they can provide; (c) regulations governing clinical laboratories, which determine who can perform diagnostic tests, such as COVID-19 tests; and (d) certificate-of-need laws, which require healthcare providers to seek permission from the government before they offer new services or expand or build new facilities. Had these regulations not been rolled back during the emergency, the devastation from the pandemic would likely have been far higher.

Beyond the pandemic, regulations have other unintended consequences that affect incomes and health. A recent report from the Mercatus Center, which was based on underlying peer-reviewed studies, finds that the increase in federal regulations from 1997 to 2015 is associated with 236,454 more people living in poverty in Ohio, 3.6 percent higher income inequality in the state, 287 fewer businesses annually, 4,508 lost jobs annually, and 7.35 percent higher prices (see the attachment to this testimony).

These unintended consequences affect ordinary citizens, and they can even increase health and safety risks inadvertently. Compliance costs from regulations reduce business profitability, and these losses are passed on to workers in the form of lower wages and to customers in the form of higher prices. By extension, families have less income to spend on doctor’s visits, safer vehicles, or living in more secure or less polluted neighborhoods. Across society, some risks inevitably rise as growing regulatory burdens push incomes down.

When regulatory costs rise enough, one can expect more deaths to occur than otherwise would because the assortment of rules increases risks for some hardworking Americans who are on the margins. Recent research suggests that for each $40 million to $110 million or so in regulatory costs, there will be one expected death owing to this impoverishment effect. Relatedly, as federal regulation of states’ economies rises so does state mortality, even after controlling for other factors that explain mortality.

Regulatory Rollbacks in the States

The fact that so many regulations have had to be rolled back to protect public health during the pandemic raises the question as to whether these suspended or relaxed regulations ever made sense to begin with, even during normal times. It is not surprising, therefore, that governments are engaging in reviews of regulations waived or suspended during the pandemic. In Arizona, Governor Doug Ducey signed an executive order in early 2021 directing state agencies to conduct a comprehensive review of regulations suspended during the COVID-19 emergency to determine whether suspensions should be made permanent. In Idaho, Governor Brad Little signed an order that requires regulators to initiate rulemakings to remove regulations waived during COVID-19.

These reviews form part of a broader state regulatory reform movement. Even before the pandemic hit, a wave of regulatory reforms was sweeping the states, as states such as Virginia and Idaho were making substantial headway at trimming regulatory clutter that had accumulated over decades. Ohio has been part of this movement to some extent with the passage of its one-in, two-out provision in 2019.

Regulatory agencies involved in efforts to cut red tape need goals so that they have something to aspire toward and so that they know when they have succeeded. Thus, every regulatory reform should have some goal in mind. A regulatory reform without a goal is like a ship captain sailing aimlessly without a destination, and with no course charted.

Determining the appropriate goal is ultimately a political decision. Several factors, however, can inform the decision as to how much red tape is the appropriate amount to cut. In SB 9, Ohio legislators have proposed a 30 percent reduction target, which would put the state’s count of regulatory restrictions (274,000 as of 2020) closer to—but still above—neighboring Pennsylvania (163,000), and still substantially above that of the average state with 135,000.

A 30 percent reduction goal may sound large, but it is similar to goals in other jurisdictions, including British Columbia (33 percent), Kentucky (30 percent), Missouri (33 percent), Oklahoma (25 percent), and Virginia (25 percent).

One factor to consider is whether the same reduction target should apply broadly across the whole government or whether each agency should have to meet a unique target. Some states, such as Idaho and Missouri, have achieved substantial reductions in their regulatory codes in aggregate (see table 1), but the reductions vary greatly by agency. A single, across-the-board reduction target can be made more flexible with an average goal that is exceeded at some agencies but not at others.

Or there could be a process whereby agencies can petition to be exempt from meeting a target (similar to the process SB 9 would create whereby agencies can appeal to the joint committee on agency rule review for their reduction requirement to be lessened). Some states, such as Virginia, have set targets that apply only to discretionary regulations—that is, regulations that can be amended or repealed without further legislative changes—and have identified backup enforcement mechanisms if targets are missed.

A 30 percent reduction goal such as the one SB 9 creates may sound ambitious, but several states have achieved reductions in this range in recent years. Table 1 presents the top six states to have reduced regulatory counts in recent years. Notably, Idaho and Missouri saw the biggest reductions in regulatory restrictions in percentage terms, and both of these states have attempted to reduce red tape using a regulatory restrictions metric to help guide their efforts. Idaho saw a 37 percent reduction in regulatory restrictions, and Missouri saw a 30 percent reduction. Kentucky also instituted an effort to cut red tape under its previous governor, Matt Bevin, which explains why the state saw the fourth-largest percentage reduction in the country. Nebraska had the sixth-largest reduction, following a regulatory reform executive order from the governor in 2017.

Deciding What to Measure

The choice of what measure to use to guide a state’s regulatory reform effort is an important one. Any effort to cut red tape should start with a measure of regulation in mind so that reformers can track their progress. Some may question a state’s decision to set a reduction goal based on counts of restrictive terms.

Tradeoffs inevitably arise between simple and more complicated metrics. A complicated measure, such as regulatory cost, could be hard to apply broadly, since relatively few policies have credible cost estimates. A more easily applied measure, like restrictive term counts, may only roughly approximate the true regulatory burden, but can be applied broadly to a wide swath of law easily. The optimal tradeoff might be to use simple measures applied broadly to as many laws as possible and to supplement them with more complicated measures on a case-by-case basis (for example, for some of the largest individual regulations).

Ohio already has experience reporting counts of regulatory restrictions by department, as doing so was a requirement in the 2019 budget. Many regulatory departments have already reported their base inventories of regulatory restrictions, meaning that Ohio is well-positioned to move forward with further regulatory reforms. The base inventory reports contain meaningful information about departments’ regulatory requirements. Real people are taking time to look up individual restrictions and explain their purpose. Having an oversight authority, such as the Joint Committee on Agency Rule Review or the Common Sense Initiative, can continue to ensure that reporting contains meaningful information, which is likely why these bodies have been assigned oversight roles in SB 9.

Conclusion

Regulatory agencies seeking to cut red tape need a concrete measure of regulation to track their progress and to have a goal in mind so that they have something to aspire toward and so that they know when they have succeeded. Just as a ship captain needs a compass, a red tape cutter needs a guide for his or her journey. To continue the ship analogy, a regulatory reform without a goal is like a captain sailing without a course charted to a destination.

Ohio is already on the path to meaningful regulatory reform. Legislation being considered before this committee would continue Ohio down that path. Thank you for the opportunity to submit this testimony. I am happy to answer any questions you may have.

Attachments

Dustin Chambers and Colin O’Reilly, “The Regressive Effects of Regulations in Ohio” (Mercatus Policy Brief, Mercatus Center at George Mason University, Arlington, VA, December 2020).