John Hood: State’s regulatory reform working

Published 11:41 pm Tuesday, January 15, 2019

By John Hood

RALEIGH — Milton Friedman once observed that “nothing is so permanent as a temporary government program.” To be sure, spending bills or regulations initially sold as limited responses to specific conditions often take on a life of their own. They create constituencies that receive funds or protection from the program and thus have a strong interest in converting the temporary into the permanent.

But these constituencies need not always win. Citizens who desire to control the size and scope of government have some tools at their disposal to defeat the special interests. Some are constitutional, such as spending limitations and referendum requirements for public debt. Others are statutory.

A good example of the latter is North Carolina’s regulatory-sunset law. Enacted in 2013, it subjects every rule on the books to a 10-year lifespan. If the administrative agency responsible for the rule fails to review the regulation within the time allotted, or concludes that its costs exceed any continuing benefits, the regulation goes away.

On the other hand, if the agency concludes that the rule remains relevant and cost-beneficial, it stays in force. If such a rule has attracted public comments over the preceding two years, then it must be go back through the regulatory process for re-adoption.

As of early 2018, some 13,500 rules had been subjected to periodic review by state agencies. Most, 62 percent, were kept in place unchanged. Regulators deemed 26 percent to require a re-adoption process. The remaining 12 percent, about 1,600 outmoded rules, went “poof.”

While policies enacted by the North Carolina General Assembly on taxes, spending, education, and election laws may have attracted more attention, regulatory reform may well be the most important legacy of the state’s conservative governance since 2011. There have been meaningful changes in specific rules or regulatory procedure every single year.

Unfortunately, while Friedman’s observation turns out not to apply to every government program, the effects of special-interest pleading and bureaucratic torpidity remain powerful. Despite the efforts of some state lawmakers and activists, North Carolina has yet to make much headway on occupational licensing, which artificially constricts labor markets and entrepreneurship, and the certificate-of-need law, which artificially constricts consumer choice and competition in medical services.

I hope that state lawmakers return to these two specific regulatory matters, at least, during the 2019 session of the General Assembly. But they should also consider building on the periodic-review-and-sunset system they created in 2013 with more broad-based reforms to North Carolina’s regulatory process.

My John Locke Foundation colleague Jon Sanders has some suggestions along these lines. For example, he recommends North Carolina add a “regulatory throttle” — a requirement that if the estimated costs of proposed state regulations exceed a certain threshold, executive agencies can’t issue them on their own. A vote of the General Assembly would be required.

Sanders also points out that North Carolina is one of only six states lacking formal protections of small business in regulatory proceedings. Agencies should be encouraged to “make common-sense adjustments to small businesses’ regulatory burdens, such as compliance and reporting requirements,” he writes, so small firms aren’t disadvantaged in competition with large companies that can afford teams of specialized compliance officers and attorneys.

State regulations certainly can be necessary to protect public health and safety. When households or businesses act in ways that damage the lives, liberty, and property of others, lawsuits by the affected parties are not always a feasible or sufficient remedy. Provided the health or safety benefits exceed the cost of the rule, government should respond with properly designed regulations.

But as Friedman observed long ago, and everyday experience confirms, those who administer government programs tend to act in ways to ensure the continued existence of those programs. That doesn’t make them villains. It makes them human. Inertia, familiarity and self-interest influence their behavior, just as they affect us all.

That’s why we need procedural and constitutional safeguards against imprudent expenditures, excessive public debts, and perpetual regulations. These policies serve the public interest by maximizing the public’s freedom.

John Hood is chairman of the John Locke Foundation and appears on “NC Spin,” broadcast at 7:30 p.m. Friday and 12:30 p.m. Sunday on UNC-TV.