Regulatory Reform — Existing Rules

Last week, Senate and  House committees approved separate bills requiring review of existing state agency rules.  Under  Senate Bill 32,  all existing environmental protection rules would expire on December 31, 2017 unless readopted and approved by the state’s Rules Review Commission.  The problems:  1. Rather than identifying and fixing rules that create an unnecessary burden, the bill  puts scarce state resources  (both staff time and cost)  toward  readoption of every rule now  in existence;  and 2. If DENR and the environmental commissions  cannot  readopt  all environmental rules within four years, some number of the rules could automatically expire without regard to public health, public safety  or the impact on federally delegated environmental programs.

The House Regulatory Reform Committee approved a new version of House Bill 74 (Periodic Review and Expiration of Rules). The  original House bill draft  basically mirrored Senate Bill 32 and required review and readoption of all state agency rules every ten years.  Responding to concerns about the cost/benefit of readopting all rules, the new  House bill draft requires state agencies to review rules every ten years and sort the rules into three groups:

● Rules that are necessary and of substantive public interest;

● Rules that are necessary and without substantive public interest; and

● Rules that are unnecessary.

The intent was to make the  process less burdensome by only requiring readoption of rules that have “substantive public interest”.  The problem is that “substantive public interest”   now includes  any rule affecting property interests and any rule that any person may object to.  Under that standard,  very few rules would avoid the readoption requirement.  (I am  an optimist by nature, but experience tells me that rulemaking paradise in which  lions and lambs all lie down together is not a realistic goal.)

The bill would also automatically repeal any rule that the adopting agency fails to review  — or fails to review on the schedule set by the state’s Rules Review Commission (RRC). The idea of automatic repeal is a problem for several reasons, but the most basic is that rules needed to protect public health, safety and welfare should not be repealed because of a bureaucratic  error or a slipping timeline.  The bill also gives the RRC  power to require an agency to review an individual rule at any time – which makes a hash of the scheduled review, potentially disconnects an individual rule from related rules,  and raises the prospect of automatic repeal if the agency cannot immediately respond to the RRC request.

Like Senate Bill 32, the House bill applies even to state rules that adopt federal standards needed to carry out a delegated federal program.    Before going in that direction, the state needs to know what effect the readoption and automatic repeal provisions may  have on  the U.S. Environmental Protection Agency’s approval of the state’s Clean Water Act, Clean Air Act, Safe Drinking Water Act and hazardous waste programs.  When the question came up in committee last week, bill sponsor Ruth Samuelson indicated  a willingness to look into the issue more before the Regulatory Reform Committee meets again today.

In short, It is not clear  what Senate Bill 32 and House Bill 74  would accomplish — or even what the General Assembly hopes to accomplish with new rule review legislation.  Just last session, the General Assembly amended the state’s Administrative Procedures Act (APA) to include a new rules review process. G.S. 150B-19.2 invites the public to identify rules that are unnecessarily burdensome and requires the rulemaking agency to respond to those complaints. The APA  has long had a provision allowing anyone to petition a state agency for a rule change – including repeal of a rule. Under  G.S. 150B-20,  the agency must provide a formal response to each petition for rulemaking;  if the agency decides  not to make the requested rule change, its decision can be appealed.

It would be possible to tie the public comment under G.S. 150B-19.2 more closely to petition for rulemaking under G.S. 150B-20. It may also be helpful to amend G.S. 150B-20 to expressly identify rule repeal as one use of a petition for rulemaking. ( I don’t think there is any question the petition process can be used to request repeal of a rule, but  members of the public may not realize that.) Using some variation on those existing laws also has the benefit of focusing in on problem rules — rather than using a shotgun approach that aims at everything and may hit nothing.

The Senate and House rule review proposals also seem to be disconnected from the realities of rulemaking.  Many agencies – and particularly the environmental   agencies– long ago reformed the rulemaking process  in ways the General Assembly  may not recognize. On complicated issues, environmental rulemaking looks very much like negotiated rulemaking. The Department of Environment and Natural Resources   (DENR) has not done a major environmental rule in fifteen years without involving representatives of the regulated community  in development of the rule.  Depending on the subject, rule development  may include the Manufacturers and Chemical Industry Council, N.C. Homebuilders Association, N.C. Realtors Association,  local government,  electric  utilities,  commercial fishermen, the N.C. Farm Bureau, Department of Agriculture, Department of Transportation and others.  Sometimes all of the above.

Where  Senate Bill 32 and House Bill 74 assume that each rule is discrete, in reality environmental rulemaking often involves give and take among stakeholders to reach a set of interlocking standards.  One example would be the water quality rules protecting the Falls Lake water supply – water quality in the lake can only be protected by addressing all of the major pollution sources, so the rules allocate pollution reductions among  wastewater dischargers, development activity and agriculture. Pulling out any one of those standards affects  the other stakeholders and the effectiveness of  the water quality strategy.

To work, regulatory reform and rules review legislation needs to start with an understanding of how rulemaking  actually happens and target specific problems. Otherwise, the result will be costly chaos  — uncertainty for the regulated community, conflict with federal program requirements, and  costs  out of all proportion to the benefits. One risk is that the only benefit may go to individual interest groups that can use the process to avoid (or undo) the compromises needed for effective and equitable environmental protection programs.