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F I S C A L I M P A C T R E P O R T

SPONSOR Marquadt

DATE TYPED 03/02/05 HB 970

SHORT TITLE Small Business Regulatory Relief Act

SB

ANALYST Ford

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

$150.0-450.0

See Narrative Recurring General Fund

$75.0-$300.0

See Narrative Recurring Various Other

Funds

(Parenthesis ( ) Indicate Expenditure Decreases)

Conflicts with HB 869, SB 842

SOURCES OF INFORMATION

LFC Files

Responses Received From

Attorney General (AGO)

Department of Corrections (NMCD)

Economic Development Department (EDD)

Energy, Minerals and Natural Resources Department (EMNRD)

Environment Department (NMED)

SUMMARY

Synopsis of Bill

House Bill 970 enacts the Small Business Regulatory Relief Act, makes related findings and

definitions, creates the small business regulatory advisory committee (the committee), requires

agencies to complete economic impact statements and regulatory flexibility analyses prior to

adopting rules that would adversely impact small businesses, requires all state agencies to review

existing rules for their impact on small business, and requires all agencies to review new rules

every 5 years.

Findings and Definitions: House Bill 970 makes a number of findings related to the unique na-

House Bill 970 -- Page 2

ture of small businesses and the potentially damaging impact of state rules on the success of

small businesses.

The bill establishes several definitions, including defining “small business” as a business entity,

including its affiliates, that is independently owned and operated and employs 50 or fewer full-

time employees. The bill defines “agency” as every department, agency, board, commission,

committee, or institution of the executive branch of state government.

Economic impact statements: The bill requires agencies, prior to the adoption of a proposed rule

that may have an adverse effect on small businesses, to prepare an economic impact statement

that includes the following:

•

Identification and estimate of the number of small businesses that will be subject to the

rule,

•

The projected reporting, recordkeeping and other administrative costs for compliance, in-

cluding the type of professional skills necessary to prepare the reports or records,

•

A statement of probable effect on affected small businesses,

•

A description of any less intrusive or less costly alternative methods of achieving the

purpose of the proposed rule

Regulatory flexibility analysis: Prior to adoption of a proposed rule that may adversely affect a

small business, each agency that promulgates rules that may affect small businesses shall prepare

a regulatory flexibility analysis. The analysis shall consider using regulatory methods that will

accomplish the objectives of applicable statutes while minimizing adverse impacts to small busi-

nesses. The agency shall consider each of the following methods of reducing the effect of the

proposed rule:

•

Establishment of less stringent compliance or reporting requirements for small busi-

nesses,

•

Establishment of less stringent schedules or deadlines for compliance or reporting re-

quirements for small businesses,

•

Consolidation or simplification of compliance or reporting requirements for small busi-

nesses,

•

Establishment of performance standards for small businesses to replace design or opera-

tional standards required in the proposed rule, and

•

Exemption of small businesses from all or part of the proposed rule.

Small business regulatory advisory committee: The bill creates the committee to consist of nine

members to be appointed by the governor. The committee is administratively attached to the

EDD, which shall provide staff for the committee.

The committee may direct an agency to prepare a regulatory flexibility analysis on a proposed

rule and may request the agency to prepare a final assessment in cases where the committee de-

termines that the information is critical to the committee’s determination that a proposed rule

will have a significant adverse impact on small businesses.

The committee is specifically barred from interfering with, modifying, preventing or delaying an

agency or administrative enforcement action, intervening in legal actions, or issuing subpoenas

to witnesses to testify or produce documents.

House Bill 970 -- Page 3

Agency review of rules: By July 1, 2010, each agency shall have reviewed all of its existing

rules to determine whether the rules should be continued without change or should be amended

or repealed to minimize the economic impact of the rules on small businesses. Rules adopted

after the effective date of the Act shall be reviewed every five years to ensure that they continue

to minimize economic impacts on small businesses.

Significant Issues

The basis of the bill, as established in the findings, is that small businesses may be dispropor-

tionately impacted by state regulations and thus, the state should be more acutely aware of the

impact its rules may have on small businesses.

The bill requires all agencies to complete an economic impact statement before final adoption of

a rule that would adversely impact small businesses. The determination of when this require-

ment applies is presumably made by the agency itself. The bill also requires agencies that prom-

ulgate rules that affect small businesses to complete a regulatory flexibility analysis before final

adoption of a rule that may adversely affect a small business. The committee has the authority to

direct any agency to develop a regulatory flexibility analysis during the rule making process.

This bill adds these two significant steps to an already-lengthy rule-making process. Agencies

would be required to prepare two documents containing detailed information. The bill does not

create a definition or threshold for adverse economic impact to small business. Presumably,

even an insignificant adverse impact to a single small business would trigger the reporting

requirement.

The bill does not specify what the committee is to do with the information it collects. The lan-

guage implies that the committee will make a determination as to whether the rule adversely af-

fects small businesses. However, it does not indicate what the consequence of such a determina-

tion would be. Is the committee meant to make recommendations to agencies, or issue reports to

the governor and/or legislature. As written, the bill requires agencies to prepare and submit ex-

tensive information but does not provide any use for that information.

NMED notes that it does not have the expertise to complete the economic impact analyses as re-

quired. It also points out that many rules are dictated by the federal government and the state is

unable to change the rules without putting the programs at risk of reverting to the federal gov-

ernment. NMED also notes that the bill is silent on whether the proceedings of the committee

are open to the public.

NMED and EMNRD both note that their rule making processes already provide for extensive

public participation. Some boards have industry representative and many rules already provide

less stringent requirements for small businesses.

FISCAL IMPLICATIONS

House Bill 970 will result in recurring costs to the general fund, as well as to any special funds

supporting specific boards, commissions or agency activities.

There are hundreds of agencies subject to this bill, some of which would be more significantly

impacted than others. The bill requires agencies to prepare two new significantly detailed re-

House Bill 970 -- Page 4

ports during the rule-making process. This will increase the amount of staff resources needed to

adopt new rules. The bill requires every state agency to review existing rules by July 1, 2010

and to review new rules every five years. It is likely that at least some agencies will require ad-

ditional staff resources to implement this bill. For example, EMNRD writes that it cannot absorb

the new requirements with its current resources. NMED writes that it would need additional per-

sonnel to implement the bill.

It is difficult to determine exactly what the fiscal impact would be to the state, but if even a small

percentage of agencies required one additional FTE to prepare economic impact statements and

regulatory flexibility analyses and review the existing and new rules, the total impact could be

quite significant, reaching several hundred thousand dollars per year or more.

In addition, the EDD will also incur costs to provide staff support to the committee, the total im-

pact of which would depend on how active the committee is. Since the bill does not define what

the committee is to do with the information it gathers, it is difficult to predict whether EDD can

provide the necessary support with existing resources.

ADMINISTRATIVE IMPLICATIONS

Every state agency would be required to review its existing rules and its new rules. Certain

agencies would have to prepare economic impact statements and regulatory flexibility analyses.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

House Bill 869 and Senate Bill 842 are similar to House Bill 870. Both propose to enact the

Small Business Regulatory Relief Act.

TECHNICAL ISSUES

It is unclear what the committee will do with the information generated by the agencies. Further

clarification is warranted. The bill is unclear as to the regulatory flexibility analyses. Is a sepa-

rate analysis to be prepared for each new rule. This should be clarified. The bill provides that

the committee may “direct” an agency to prepare a regulatory flexibility analysis but provides

that the committee may “request” an agency to prepare a final assessment report. Thus, it is un-

clear what authority the committee has over agencies.

OTHER SUBSTANTIVE ISSUES

This bill seeks to reduce regulatory burden on small businesses by creating a bureaucratic proc-

ess that could prove costly to state agencies. This could be counter-productive since small busi-

ness tax dollars help fund the activities of these agencies. For agencies or programs that are self-

funded through industry fees, the impact could be even more direct to small businesses. A pos-

sible alternative would be to craft a more narrowly targeted bill that would focus on those regula-

tions and/or agencies that small businesses find most burdensome.

EF/lg