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 .