Monthly Archives: November 2013

Regulatory Reform and the Environment II: Targeting Environmental Rules

November 21, 2013.   In North Carolina,  “regulatory reform” has had a strong focus on environmental rules for  nearly twenty years. An earlier post sketched a very broad history of regulatory reform in N.C. starting with the creation of the Rules Review Commission in 1986. But from 1977 into the early 1980s,  the General Assembly  actually had an Administrative Rules Review Committee made up of legislators. The committee tracked the number of rules adopted by state agencies and reviewed rules for statutory authority. I was able to find committee reports from 1979-1983. (After that, the online  trail went cold.)  The reports list all of the rules the committee objected to for lack of statutory authority and how those objections were resolved. Environmental rules didn’t  receive  much   attention from the committee; some of the most common objections concerned rules assessing fees not authorized by law; state agencies creating criminal penalties by rule;  and professional licensing  boards overstepping their authority.

Environmental rules may have had a lower profile simply because of  the times. Congress  had just adopted the major federal environmental protection laws  in the early to mid-1970s —  the Clean Air Act  in 1970, the Clean Water Act  in 1972, the  Safe Drinking Water Act in 1974 and the Resource Conservation and Recovery Act (regulating hazardous waste)  in 1976.  In the 1970s and early 1980s,  state environmental agencies were  adopting rules  needed to run delegated permitting programs under those federal laws: water quality  and air quality standards; drinking water regulations;  hazardous waste permitting rules;  and regulations for petroleum underground storage tanks. Environmental rulemaking may not have been without controversy, but  there was also significant support for environmental programs and for the most part  the General Assembly seemed to let the  regulatory agencies  handle the controversies.

That started to change as water quality rules in particular began to have a greater impact on development activity. The first generation of  environmental permitting rules largely affected local government and  industry.  In the water quality program, local government wastewater treatment plants  and industries directly discharging wastewater to a stream  needed a Clean Water Act permit.    A developer only needed an environmental permit if the project involved filling wetlands or a segment of stream.  As  the state  began to grapple with the impact of development activity on  coastal resources and water quality in the late 1980s, environmental  permitting came to have a much greater effect on developers and private property owners.

By 1984, the state’s Coastal Resources Commission had adopted the first standards for development on the state’s ocean and inlet beaches. Those rules included oceanfront setbacks and restrictions on use of seawalls and jetties to protect oceanfront structures from erosion.  In the late 1980s, the state’s water quality program  began  work on  rules to address high bacteria levels in coastal shellfish waters.  Those  rules included the first state stormwater management requirements for new development projects.  Since then, a  series of water quality initiatives have used stormwater  standards, density limits and  riparian buffers to reduce the impact of polluted runoff from developed areas. A combination of density limits, buffers and stormwater controls became part of the basic water supply watershed program designed to prevent pollution of drinking water supplies. Those same tools became part of the comprehensive water quality strategies to reduce nutrient over-enrichment in the Tar-Pamlico River, Neuse River,  Falls Lake and Jordan Lake.  In the nutrient  strategies,  development standards represented one part of a much larger set of pollution reduction measures  that also  included  tighter controls on wastewater discharges and  best management practices to limit agricultural runoff.

Legislative  Disapproval of  Environmental Rules.  Legislative action on regulatory issues can  take other forms, but tracking disapproval bills gives a fair indication of where legislative attention has been  focused. For the first few years after the General Assembly amended the Administrative Procedure Act to allow for legislative disapproval of rules, virtually all of the disapproval bills concerned environmental rules.  The first disapproval bills introduced in the General Assembly (in 1998) targeted the Neuse River stream buffer rules and the Tar-Pamlico nutrient  rules (which also included buffer and stormwater requirements).   Based on a  search of the General Assembly bill database, legislators introduced bills to disapprove at least 41 state agency rules between 1998 and 2012.   Sixteen of the disapproval  bills  targeted environmental protection rules;  in some cases, a single bill  covered multiple rules. Another four bills proposed to disapprove Wildlife Resource Commission regulations. All of the other regulatory programs in state government (public health, worker safety, building code, occupational licensing boards, food safety, insurance regulation, etc.)  accounted for just another 16 disapproval bills during the same period. (See Legislative Disapproval Bills for a complete  list of the disapproval bills that I  found.)

Of the 16  bills to disapprove environmental  rules, ten concerned water quality rules.  The list  includes the Neuse River  buffer rules, the Tar-Pamlico River nutrient rules, coastal stormwater rules, rules classifying streams as trout waters or Outstanding Resource Waters,  water quality standards for municipal storm sewer systems,  and the Falls Lake and Jordan Lake nutrient management strategies. That list of water quality rules includes  the most debated (and negotiated) environmental rules adopted in the last 15 years, addressing some of the state’s most complicated water quality  problems. One common thread  is that all of those regulations  use development standards as one tool to address a water quality problem. The other common (and related) factor is that all encountered opposition from realtors,  developers, and owners of waterfront property.

Amending the APA to make environmental rulemaking more difficult. There has also been an effort to make environmental rulemaking more difficult by putting limits or requirements on environmental rules that don’t apply to other kinds of regulations. In 2005, the General Assembly  amended G.S. 150B-21.4 ( fiscal notes on rules) to require a special fiscal analysis of environmental rules — and only environmental rules — affecting state highway projects. The change responded in part to expansion of   stormwater  requirements,  which affected state highway projects as well as conventional building projects.

In 2009, several House and Senate bills proposed to put a moratorium on  rulemaking by the state’s Environmental Management Commission (the citizen commission  that adopts air quality and water quality rules).  House Bill 1335 actually passed the House and received a favorable report from a Senate committee before being pulled off the Senate floor without a vote.  But the 2011 Regulatory Reform Act, Session Law 2011-398, picked up the effort to restrain environmental rulemaking  and put new  limits on environmental rules that do not apply to other state rules.   G.S. 150B-19.3 prevents a state environmental agency from adopting a rule that is more stringent than a corresponding  federal environmental rule except in very limited circumstances.  As a practical matter,  the new law  will  be much more difficult to apply than legislators may have expected. Many federal environmental rules  provide  a framework for regulation rather than comprehensive standards and permitting procedures, making the “more stringent than” comparison difficult to impossible — although it should provide fertile ground for argument.  More about the policy implications of handcuffing state environmental regulations to federal rules in  a future  post.

The focus on environmental regulations continued in the  2013 Regulatory Reform Act, Session Law 2013-413.  The  most recent  legislation requires review of existing rules every ten years causes rules to automatically expire if the review does not occur. Although the review requirement  applies  to all state regulatory programs, the legislation specifically directs the  Rules Review Commission to schedule existing state water quality and wetland rules for the first round of review in 2014. The legislation also puts a one-year moratorium  on adoption of local government ordinances that address environmental issues  covered  by state and federal environmental rules. During that year,  the legislature’s Environmental Review Commission will study local government authority to adopt environmental ordinances. Like the 2011 limitation on state environmental rules, the moratorium on local ordinances almost certainly has some unintended consequences. More about that in a future  post as well.

Why has regulatory reform come to focus so heavily on water quality rules?   In one way, water quality rules seem  to be an odd focus for so much regulatory reform activity since federal requirements drive so many of the rules.  But while  federal law requires the state to  reduce  pollution causing impaired water quality  (like the nutrient problems in the Tar Pamlico River, Neuse River, Falls Lake and Jordan Lake), federal rules do not dictate the remedy.  The legislative disapproval bills have targeted the remedy —  a comprehensive strategy that reduces direct discharges of the pollutant (from wastewater treatment plants and industrial dischargers) and indirect runoff from agriculture and developed areas.

In these instances, things happening under the banner of “regulatory reform” are not so much about eliminating unnecessary and burdensome regulations. It is really about how the state will  solve complicated environmental problems and whether  the burden of pollution reduction will be shared by all of the sources contributing to the problem.  Since  2013  legislation also delayed further implementation of the Jordan Lake rules to  convene a  legislative study committee on Jordan Lake water quality (see Session Law 2013-395), the current General Assembly will have  a chance to  struggle with  those questions.

Regulatory Reform and the Environment I: A Brief History

November 8, 2013.

In 2013, the N.C. General Assembly adopted another round of “regulatory reform” legislation.   Session Law 2013-413 ( House Bill 74 , Regulatory Reform Act of 2013)  comes in the  third decade of regulatory reform activity in North Carolina.  One thing has been clear from the beginning — regulatory reform  has a strong focus on  environmental standards.   Regulatory reform  as a reaction against environmental  rules  has become so  clear  that it is worth looking at the reasons as well as the result.

Later posts will talk about the reason for the focus on environmental standards and new limitations on  state and local environmental standards. But first, a brief history of regulatory reform in N.C. (seen through the lens of environmental rules) to understand  the starting point for those reforms.

 Legislative Control Over Rulemaking.  The history of modern regulatory reform in North Carolina probably begins around 1986 when the General Assembly took the first steps toward exercising more legislative control over rulemaking.  State agencies  can only adopt rules if the  legislature grants that authority, but then the tension begins —  state agencies that adopt rules work for the governor and not for the legislature.  Although laws adopted by the General Assembly grant rulemaking authority and set the boundaries around rule adoption, the legislature  does not  directly control what happens from there.

In 1986, the General Assembly took the first step toward exercising more control over rules by creating the state’s  Rules Review Commission (RRC).   The 10- member commission, appointed by legislative leaders,  reviews all new state  rules — from water quality standards to nursing home  regulations. New rules (or amendments of existing rules) cannot go into effect until approved by the  commission under four standards:

1.   Is there statutory authority for the rule? (Does state law  give the agency that adopted the rule the  power to adopt that kind of rule?)

2.   Is the rule clear and unambiguous?

3.   Is the rule necessary?

4.  Did the state agency  meet all of the rulemaking requirements set out in  the  N.C.  Administrative Procedures Act ( such as publishing notice of the  draft  rule; allowing public comment;  and providing a fiscal analysis if the rule  imposes significant costs).

The Rules Review Commission has had a significant impact on rule writing — pushing agencies to make rule language more clear, explain terms, and  eliminate  conflicts  within rules.  But perhaps to the surprise of the General Assembly, the RRC has found very few rules that exceed agency rulemaking  authority.   Early on, the RRC also decided not to second-guess the necessity of an agency  rule given the special expertise needed to make that judgment — expertise most often found in the citizen commissions and state agency staff  given authority to adopt the rule.

In 1995, the General Assembly  took another step to  increase legislative control over the rulemaking process. (Perhaps because creation of the Rules Review Commission did not stop agencies from adopting rules that created political pain for legislators.)  Session Law 1995-507  delayed all new rules  and rule amendments from going into effect until the 31st day of the next legislative session that started at least 25 days after  Rules Review Commission  approval of the rule. The idea was to allow time for legislators to file a bill to disapprove the rule. If a legislator filed a disapproval bill within the first 30 days of session, the rule remained in limbo until either the General Assembly took action on the bill or the legislative session ended.    Since that approach  delayed many uncontroversial rules  — including rules benefiting the people being regulated —  the General Assembly  modified the law in 2003 to only  delay a rule for legislative review if  the Rules Review Commission received at least 10 letters of objection to the rule.

There are no criteria for legislative disapproval of a rule beyond the need to get enough votes  to pass both  houses of the General Assembly and survive a veto.

Considering the Cost of Rules. Also in 1995, the General Assembly began to require state agencies to provide a fiscal analysis of any rule with a substantial economic impact. At the time, “substantial economic impact” meant  $5 million in costs per year to comply with the rule.  (The  dollar figure represents a statewide total of  the cost to every person, business or institution required to comply with the rule.) Since then, fiscal analysis requirements have become more demanding; the threshold for a fiscal analysis is now $1 million. State agencies also have to look specifically at the fiscal impact of new rules on local government. Environmental agencies must  do an additional  analysis of the cost that new environmental rules add to state highway projects.

Agency Reform of the Rulemaking Process. On a different track, state environmental agencies began to experiment with a different kind of rulemaking  reform.  Solutions to  complex  environmental problems can affect  local governments, developers, agriculture, property owners,  communities  and industry.   In the 1990s,  North Carolina’s  environmental programs began to ask for more input on rule development from these and other interested parties very early in the rulemaking process. The state’s Administrative Procedures Act only requires a state agency to put a draft rule out for public review and comment after the rule has been  written.   But over the last 15-20  years, DENR environmental programs have increasingly used advisory groups representing  business, industry, agriculture, local government and environmental organizations  to  actually develop draft rules.

Every controversial set of  water quality rules  adopted in recent years (municipal stormwater rules;  the Jordan Lake and Falls Lake nutrient rules; coastal stormwater rules) has been  the product of “stakeholder” groups that influenced the development of the  rules from first draft through final adoption. Since many of these rules  require a balancing of the burdens and benefits of pollution reduction among many different parties,  the water quality program in particular  moved toward something that in practice looked very much like negotiated rulemaking.

Legislative regulatory reform efforts have never acknowledged the agency-driven change in rulemaking and in some ways work against it.  Ironically,  some negotiated  rules have become   the focus of legislative disapproval bills. One reason may be that  stakeholder negotiations  can  even  out the influence of participants who  otherwise do not have equal political power.   That sometimes means that  more powerful interests do not feel bound by the result and  try to use political influence to alter the outcome in  the legislature.  (Few disapproval bills have resulted in legislative repeal of a rule, but a number of major environmental regulations have been modified by legislation.)

The Search for Burdensome and Unnecessary Rules.  Late in 2010, Governor Beverly Perdue issued Executive Order 70 on rulemaking.  The executive order set out  rulemaking principles, but also  created a process for identifying  burdensome and unnecessary rules. Under Executive Order 70, the Office of State Budget and Management (OSBM) set up a website to  allow any citizen to identify a rule for change or repeal.  OSBM sent comments that seemed to have merit to the appropriate state agency for response.

In 2011, the new Republican majority in the General Assembly created a joint legislative committee on regulatory reform. The  Regulatory Reform Committee set out to receive input on “outdated,  unnecessary, unduly burdensome, or vague rules and rulemaking procedures that are an impediment to private sector job creation”  in a series of public meetings across the state.

In the end, efforts  to  find and eliminate  unnecessarily burdensome rules probably had less impact than expected for a number of reasons:

—  Comments often concerned  individual pieces of more comprehensive regulatory programs and pulling one thread would unravel a larger fabric.  For example, a number of comments have suggested eliminating or limiting  stormwater and stream buffer  rules  in  the   Neuse River basin, the Tar-Pamlico River basin and the  Jordan Lake watershed where  excess nutrients (nitrogen and phosphorus)  have  caused algal blooms and fish kills.  Since buffers and  stormwater controls reduce  nutrient run off from  developed areas, those rules became part of  larger water quality strategies  to meet  EPA-approved nutrient reduction targets required under the Clean Water Act.  The comprehensive nutrient strategies also put tighter controls on wastewater treatment plants and required agricultural operations to take steps to reduce agricultural runoff.   Eliminating stormwater and buffer requirements  won’t  make the nutrient reduction targets go away. It  just means that the pollution reductions from developed areas would have to be  made up by additional reductions from other nutrient sources  — potentially increasing the cost to agriculture, industry and municipal wastewater systems.

None of this means that existing  rules are sacred and cannot be changed. It does mean that looking  at a rule in isolation carries the  risk of  relieving one  person’s pain  at the cost of creating a greater hardship to someone else.

— Some rule comments had to do with program implementation  (such as overlapping agency authority and inconsistent rule interpretation) rather than  the content of rules.

—   Many comments  turned out to be about federal requirements, state laws and local government ordinances rather than state agency rules.  The layering of federal, state and local requirements clearly creates confusion and some degree of frustration among the public.  But as it turns out, a complaint about a state rule may not be about a state rule at all.

—  In the Regulatory Reform Committee’s public  meetings, comments supporting environmental standards often  matched or even outnumbered complaints about environmental rules. Legislators also heard comments on a  number of perhaps unexpected issues.  (Legalization of marijuana comes to mind.)

You can find copies of the annual  Executive Order  70 reports prepared by the Office of State Budget and Management here. The reports include a brief summary of  each public comment that merited further review. The legislative Regulatory Reform Committee never  released  a complete record of public comments received by the committee and never produced a formal report.

Recap. Going into the regulatory reforms of 2011- 2013, the rulemaking landscape in North Carolina looked something like this:

—  For almost 30 years,  the  legislatively appointed Rules Review Commission has had the ability to stop state agency rules that exceed the  authority actually granted by the General Assembly.

— Since 1995 , the General Assembly has had the power to disapprove an agency   rule for any reason (or for no reason at all).

—  Fiscal analysis required for proposed rules has increased, although the resources available to do fiscal and economic analysis have not.

— Environmental programs have unofficially reformed the rulemaking process, creating something  that closely resembles negotiated rulemaking on  large, complex environmental problems.   But  negotiated rulemaking  doesn’t fit legislative assumptions about what rules are and how rulemaking  decisions are made, so some  regulatory reform efforts  undermine  those efforts.

NEXT: The regulatory reform movement’s focus on environmental standards and the most recent turn in regulatory reform .