New Washington Research Council report examines Washington’s “costly and uncertain” regulatory environment

In a new report on Washington’s regulatory system, the Washington Research Council concludes

…the regulatory environment is costly, unpredictable, and untimely. An improved regulatory environment would increase the competitiveness of manufacturing in Washington.

The report, the third in a WRC series on manufacturing, reviews various efforts by state leaders to reform the regulatory structure, including Gov. Lowry’s regulatory reform talk force, Gov. Locke’s Competitiveness Council, Gov. Gregoire’s executive orders to streamline permitting, and more. The WRC also reviews the state auditor’s performance audits on state regulatory reform efforts. From these efforts, initiatives have been launched by various state agencies to improve performance, examine costs and benefits, and the lawmakers have passed regulatory reform legislation. 

Yet, it has been a bumpy path. The Council summarizes.

Regulations serve an important role in our economy, but if they are too costly, they can have a negative impact. Consequently, cost-benefit analysis of proposed regulations has long been considered a best practice. Federal regulations could cost up to $2 trillion a year, and regulations are particularly costly for manufacturers. Washington ranks poorly in interstate comparisons of state regulatory burdens.

Washington has laws that require analysis and review of regulations, and several governors have made regulatory reform a priority. Streamlining, coordination, andcommunication have been recurring themes. Efforts haven’t always delivered, though, as the State Auditor’s Office found in a recent series of performance audits.

The paper focuses on manufacturing, a sector heavily impacted by regulation. Drawing on research examining the costs of federal regulations, the WRC writes,

Manufacturing Impacts. Regulations are particularly costly for the manufacturing sector. Crain and Crain found that in 2012, federal regulations cost firms across all sectors $233,182 ($9,991 per employee). Regulations cost manufacturing firms $864,125 ($19,564 per employee). Much of the difference is due to the disproportionate impact that environ- mental regulations have on the manufacturing sector.

Additionally, regulatory costs per employee are highest for smaller firms, and small manufacturing firms face especially high costs. Across all sectors, firms with fewer than 50 employees have regulatory costs that are 17 percent higher than for average firms. Manufacturing firms with fewer than 50 employees have regulatory costs that are 77 percent higher than for average manufacturing firms. (Crain and Crain 2014)

While those numbers are based on federal regs, Washington is known for its above-average regulatory burdens.

In 2015, the Pacific Research Institute ranked the states on their regulation of small business. Overall, Washington ranks 9th most burdensome. There are two broad components to this ranking:On labor regulations (e.g., workers’ com-pensation and minimum wage regula- tions), Washington ranks 6th most bur- densome; and on business regulations (e.g., regulatory flexibility for small busi- nesses and land use and energy regula- tions), Washington ranks 16th most bur- densome. (Washington ranks 7th most burdensome on both the land use and energy subcomponents.)

The report concludes with specific policy recommendations.

• Create statewide permitting templatesthat could “reduce process frictionand guarantee certainty, reducing public costs and drawing private investment into areas where there isreticence to invest” (WRC 2016a). This would help the continued development of the manufacturing sector across the state. Similarly, the Regulatory Roadmaps developed by the De- partment of Commerce are a promising initiative….

• Give “a single agency the authorityover particular permitting procedures” (WRT and WRC 2011)…

• Improve the cost-benefit analysis process. Although Washington requires such analysis for certain rules, it is not all-encompassing.

  • Ensure that new regulations are not duplicative. As the WCC noted, regulations are adopted piecemeal, without regard to a “rational plan”…

  • Create an independent commission to periodically review regulations and make recommendations as to whether they are still needed. This could be modeled after Washington’s CitizenCommission for Performance Measurement of Tax Preferences.

The WRC’s conclusion:

State leadership has consistently recognized the need for regulatory reform. By continuing to follow these noncontroversial regulatory principles, the regulatory burden will be less costly and more certain—without reducing the benefits regulations are meant to effect. This would make Washington a more welcoming place for manufacturing

We commend the report to your attention, along with the two previous reports in the series: