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How States Are Leading the Way on Regulatory Reform

Taking their cues from states as diverse as Arizona and Virginia, they are shredding red tape at a remarkable clip, freeing their economies and providing a map for what's needed at the federal level.

Much has been said over the past three years about the Trump administration's efforts to bring reforms to the executive branch and its regulatory agencies. But this worthy endeavor is not something that can be finished during a single term or administration. It will require a long-term effort, with collaboration across the government.

When setting out on a long journey, it is important to have a good map. Luckily for our federal executive branch, state governments have been hard at work over the past few years reforming their own regulatory codes and processes. In fact, there has been an impressive wave of bipartisan regulatory reform at the state level, with lawmakers and regulators working together to restore accountability — and, frankly, sanity — to their administrative codes.

That wave is gaining momentum, and we are poised to see some major progress over the next few years in removing unnecessary barriers that stifle opportunity, threaten the livelihoods of the least-fortunate Americans, and don't effectively solve big societal problems. Research from the Mercatus Center at George Mason University found that poorer households tend to spend a larger share of their budgets on goods and services that are highly regulated, such as energy, food, drugs and medical supplies.

Jurisdictions that have adopted red-tape-reduction programs in the U.S. and Canada have not experienced diminished protection for public health and safety or other adverse effects that critics warn of. Instead, many have experienced resounding economic success. British Columbia, for example, reduced its regulatory requirement count by fully 50 percent in a little over 18 years, from 330,812 requirements in 2001 to just 166,919 in 2019. B.C.'s economic growth was 1.9 percentage points below the Canadian average from 1994 to 2001, but 1.1 percentage points above the average from 2002 to 2006, and GDP grew outpaced the national average every year from 2002 to 2008.

Similar successes are happening south of the border, in states with both Republican and Democratic governors and legislatures.

In 2018, for example, Virginia enacted a red-tape-reduction pilot program, set to run for three years at the Department of Professional and Occupational Regulation and the Department of Criminal Justice Services, two agencies that disproportionately affect the lives of the less affluent by creating barriers to economic opportunity. The bill passed the Republican-controlled legislature with strong bipartisan support and was signed into law by Democratic Gov. Ralph Northam. Under the program, the agencies were each required to review all existing regulations and reduce the number of restrictions by 25 percent over three years.

After the first year of the program, the state's secretary of finance reported that both agencies were ahead of schedule, hitting a reduction target of about 10 percent. When the pilot program ends in 2021, the legislature will have the opportunity to expand it to the other 41 executive-branch agencies. Last year, CNBC ranked Virginia as the top state in the country for businesses, and among the factors it cited was the state's red-tape-reduction pilot.

Rhode Island took a different approach. In 2015, Democratic Gov. Gina Raimondo signed an executive order jumpstarting an effort to modernize and reform the state's entire regulatory code at once. The following year, state lawmakers passed additional reforms to the Administrative Procedures Act, which governs how rules are made. The result? In the process of putting the entire regulatory code into an online, searchable database, regulators reduced the volume of rules by 31 percent, removing more than 8,000. This initiative was crafted around reforms such as streamlining permitting processes to remove unnecessary rules that stifled small-business creation.

In Arizona, each agency is required by statute to review all its rules at least once every five years to determine whether anything should be amended or repealed. This law has helped Arizona maintain one of the least-complex regulatory codes in the country: It has fewer than 64,000 restrictive words — terms such as "shall," "must," "may not," "prohibited" and "required" — compared with neighboring California, which has nearly 400,000 and is the most heavily regulated state. Arizona's Republican governor, Doug Ducey, has been working to do even more. The state created an online portal for those who live and work under its regulations to make recommendations and tell their stories, and it exceeded its target to reduce red tape. Arizona was fourth in the nation for economic growth in 2018.

Idaho requires its Legislature to renew its entire regulatory code each year; last year the Legislature failed to renew the code, giving Republican Gov. Brad Little an opportunity to overhaul parts that were outdated or unnecessary. Thanks to the quick and dedicated work of executive-branch officials, the state was able to significantly reduce its regulatory burden and become what Little could plausibly claim to be the least regulated state in the country.

Additional states are considering regulatory reforms in their 2020 legislative sessions; this is a wave that states can and should continue to ride. It's also an opportunity to learn from our laboratories of democracy to inform future — and urgently necessary — reforms at the federal level.

Experts at the regulatory agencies should see lawmakers as their partners and allies, and vice versa. The effort to create a regulatory state that works requires collaboration and cooperation across government and across the aisle. On the other side of these reforms lie opportunities for more people to start a small business, make that career change, move to a new city, provide for their families, and ultimately build their own American dream without being stopped by unnecessary hurdles.

Director of regulatory initiatives at Stand Together
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