Quantifying State Regulatory Burden is Important for Small Businesses

By at 15 April, 2019, 7:16 pm

by Raymond J. Keating-

Many small business owners will tell you that regulatory burdens can be just as costly to their enterprises as taxes are. Indeed, some will say that the costs of regulations can be even weightier than the tax burden. And that’s the case not only for federal regulations, but also for state and local regulations.

The actual burdens of regulations are best understood by small business owners due to their disproportionate impact. One of the dangers of regulation is that the costs remain largely hidden from consumers, workers and voters. Elected officials will take credit for a regulatory initiative, while only mentioning possible positives outcomes, which tend to be grossly overstated. Meanwhile, the costs are ignored.

Consumers, workers and small businesses, however, are affected through increased costs, fewer choices, and reduced economic opportunities. But it’s often hard for voters, consumers and workers to make the connections between regulation and the losses they experience.

Again, the main group that grasps the realities of increased regulatory burdens are small business owners. After politicians take credit, and then pass the buck to bureaucrats and appointees to create specific rules and requirements, small business owners are left with the tasks of how to deal with the new and often significant costs – especially when added on top of the costs of existing regulatory burdens.

In the policy arena, part of the work that needs to be done is to get a handle on and report to lawmakers, business owners and the public the costs of regulatory regimes and proposals.

At the federal level, solid work has been done for years on estimating the costs of regulations spewing from the federal government. That includes, for example, an estimate of federal regulatory costs on the economy, manufacturers and small business most recently undertaken and published by the National Association of Manufacturers, as well as an annual report authored by Clyde Wayne Crews titled “Ten Thousand Commandments: An Annual Snapshot of the Federal Regulatory State,” published by the Competitive Enterprise Institute.

Of course, state and local governments also inflict significant regulatory burdens. However, it’s a significant task to estimate such costs state by state. To its credit, the Mercatus Center at George Mason University has started that much-needed process by publishing “snapshots” of regulation by state. (See the center’s “State and Local Regulations.”)

The latest was published on April 9, 2019 – “A Snapshot of Alabama Regulation in 2019.” Here are a few key points from that latest report:

“Researchers at the Mercatus Center at George Mason University developed State RegData, a platform for analyzing and quantifying state regulatory text.”

Looking at the online version of the 2019 Alabama Administrative Code(AAC), Mercatus reported that “the three industries with the highest estimates of industry-relevant restrictions in the 2019 AAC are chemical manufacturing, petroleum and coal products manufacturing, and waste management and remediation services.”

“State RegData also reveals that the 2019 AAC contains 107,063 restrictions and 7.5 million words. It would take an individual about 419 hours—or more than 10 weeks—to read the entire AAC. That’s assuming the reader spends 40 hours per week reading and reads at a rate of 300 words per minute. By comparison, there are 1.09 million additional restrictions in the federal code. Individuals and businesses in Alabama must navigate these different layers of restrictions to remain in compliance.”

This effort is only a start, but it is a critical step. As pointed out in the Mercatus report on regulations in Alabama:

“Researchers are only beginning to understand the consequences of the massive and growing federal regulatory system on economic growth and well-being in the United States. Meanwhile, the effects of state regulation remain largely unknown. If this snapshot of Alabama regulation in 2019 is a good indicator, then the states are also active regulators, suggesting that the full impact of regulation on society is far greater than that of federal regulation alone.”

Indeed, ask most small business owners – the people on the regulatory frontlines – and they’ll confirm this unfortunate, costly reality.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.


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