Alleviating Small Business Regulatory Burdens

Alleviating Small Business Regulatory Burdens
A recent Washington State Auditor's Office performance report determined state agencies are not fully complying with Regulatory Fairness Act requirements. Proponents of HB 1120 argue it would provide those entities with greater understanding of the law, and encourage cost reductions for small business. Photo: Kenny Louie

After a recent Washington State Auditor’s Office (SAO) performance audit determined state agencies are falling short when complying with the Regulatory Fairness Act (RFA), lawmakers are pushing legislation to fine tune the law to make sure small businesses aren’t disproportionately affected. At the end of last week, HB 1120 received a public hearing for the first time in the Senate, after passing the House unanimously.

Regulations Are ‘Top Concern’ 

Although public testimony was short, the bill has strong support moving forward.

“I can tell you that regulations are the top concern of phone calls that we get from small businesses,” Gary Smith, Executive Director of the Independent Business Association, told the Senate State Government Committee on Friday, March 17. “They outnumber questions on taxes three to one.”

For Mark Johnson, Vice President of Government Affairs for the Washington Retail Association, the bill “increases the accountability and transparency of the RFA and makes it more robust and strengthens it,” he said.

In January, business advocates testified that the regulatory environment for small businesses becomes overwhelming for an employer, and the bill would help state agencies better consider those employers and reduce compliance costs.

The legislation stems from a December 2016 SAO performance audit which found that state agencies “did not always provide clear, fully-supported, and complete information consistent with the complex requirements of the RFA,” according to the report. Of the 331 proposed rules affecting businesses filed in 2014 and 2015, 46 percent claiming RFA exemptions were proven to be invalid.

Smith: ‘Undue, Disproportionate Burden’

State Rep. Norma Smith (R-10) told committee members the audit showed Washington’s agencies “in significant measure” were not complying with RFA. She added HB 1120 was crafted to add clarity to the law and solve the problem administratively.

Smith is prime sponsor of the measure, and cosponsors include State Reps. Jeff Morris (D-40), Minority Whip Dave Hayes (R-10), Derek Stanford (D-1), and Luanne Van Werven (R-42).

“When the auditor did a performance audit of the RFA it’s because we as the legislature had recognized years ago that what everyone else knows; there’s a reason that we have one of the highest failure rates in the nation for our small businesses,” Smith told the committee.

“Regulation has an undue burden on small business and a disproportionate burden,” she added. “We had enacted the RFA to ensure our small business have a voice and that we are mitigating that undue and overstrenuous burden.”

Considering Job Creation

On March 2, the State House approved the measure in an unanimous vote. During executive session, Morris argued for the bill’s passage as a way to encourage the success of those small companies, to create new jobs, and stimulate the state’s economy.

“We are doing what we can control here in the state of Washington by this act to make sure that we don’t have an adverse impact on small businesses because frankly when you look at job creation, it’s really those small businesses and the business that are bringing their second product to market that create the bulk of the new jobs in the economy,” he said. “That’s why it’s important to continuously look at how we are impacting these folks because we have an economic upswing, this is where most of the innovation and creation happens.”

In 1982, the state legislature enacted the RFA to address the negative impacts of state regulations on small business.

Under RFA, a state agency proposing a rule with more than a minor cost to a business must create a small business economic impact statement (SBEIS). A SBEIS must include a calculation of whether the regulation would cause a disproportionate impact on small business, the number of jobs created or lost by complying with the rule, and efforts made to reduce the cost for those business or a stated reasoning for why this could not be achieved, among other information.

If the rule would have a disproportionate impact on businesses with 50 of fewer employees according to the SBEIS, the agency must reduce the costs of complying with the rule where feasible. To achieve this, agencies must consider eliminating or reducing substantive, bookkeeping, or reporting requirements, cutting down the rate of inspections, adjusting the fines for breaking the rule, or examine suggestions from business stakeholders.

Under HB 1120:

-An agency proving a rule would not affect small business would be exempt from creating a SBEIS;

-The Office of Regulatory Innovation and Assistance (ORIA) would act as the liaison for state agencies to work with for complying with RFA and prove appropriate resources;

-An agency must consider all of the suggested methods in the RFA for reducing compliance costs if a rule would only affect small businesses;

-An agency must reduce those costs if a proposed rule would create more than a minor cost to small business and the agency lacks adequate data to prove a disproportionate impact; and

-Sometime after June 30, 2020, the SAO must perform a follow-up performance review of agency cooperation with RFA.

Following Smith’s remarks and business stakeholder comments in committee, Chair State Sen. Mark Miloscia (R-30) assured panel members the measure would receive a do pass recommendation.

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