Idaho and Colorado Lead in Smart Regulation—Other States Should Catch Up

The New Jersey Division of Alcoholic Beverage Control recently started enforcing rules limiting the number of events breweries can hold per year. Meanwhile, owners of these breweries warn that these events are crucial to their business models and the regulations will cause severe financial harm.

While regulatory policy isn’t typically the most exciting dinner table topic, mundane regulations hinder workers and small business owners across America. And while the regulatory juggernaut in Washington, D.C. gets all the attention, regulations have grown to unprecedented levels in the states.

Of course, some regulations are needed for a safe, functioning, and well-run society. But state agencies have made it abundantly clear: They need to be kept in check. States need to act now to constrain the regulatory webs their own agencies are spinning. Cost-benefit analysis and regulatory sunsets offer solutions. 

State bureaucrats implement many rules with high costs, limited benefits, and little oversight. For example, the New Mexico Department of Workforce Solutions recently implemented rules around paid sick leave without consulting local businesses, leading to disproportionately increased costs for small businesses in the state. 

But states have the power to control their bureaucracies. For example, states should require a cost-benefit analysis (CBA) for any rulemaking, and give individuals and businesses the opportunity to voice opinions on proposed rules. Most states require a form of CBA, but the analysis often plays little to no role in the rulemaking process. States should have to prove that a rule’s benefits outweigh its costs before it becomes law. 

Wisconsin tried to bring accountability to rulemaking in this fashion, but the state only requires legislative approval for regulations that cost $10 million over a 2 year period. Such a lenient rulemaking procedure will do little to truly improve a state’s regulatory environment. 

Colorado, however, requires a better form of CBA for rules. It also has an independent review agency, the Colorado Office of Policy, Research and Regulatory Reform (COPRRR), to make sure that rules live up to expectations. Colorado makes every CBA publicly available for individuals and small businesses to view and comment on, virtually or in-person. 

Colorado’s regulatory practices create better and more thoughtful regulations. For example, after a review of athletic trainer licensing and input from state residents, COPRRR recommended repealing the requirement, and state rulemakers followed through on the recommendation. 

Another regulatory practice, sunset reviews, can also play a key role in confirming that rules fulfill their proposed benefits. Idaho implemented a regulatory sunset review and let the entire state regulatory code expire in 2019, requiring each good rule too be re-created with proper justification for its need and impact. This sunset review of the state code led to a 75 percent reduction in old and unnecessary regulations. 

Rhode Island Governor Gino Raimondo put her state’s rules through a similar sunset process in 2016. She reduced the number of regulations by over 31 percent and simplified many others. This led to the state removing an archaic regulation requiring hair braiders to be licensed and trained before selling their services.

Sunset reviews and CBA can help create rules that are future-proof and fit the needs of the state and its residents. Without such solutions, states will continue to endure well-intentioned, but out-of-date regulations that stay on the books for years. For example, it took almost 60 years for Virginia to update the state licensing laws on cosmetology training. These rules kept well-qualified individuals from entering the workforce and cost hairdressers thousands of extra dollars before their business ever brought in money. 

Some regulations are needed to protect consumers and small businesses. However, there needs to be safeguards like cost-benefit analysis and sunset reviews in place to eliminate the burdensome regulations that do more harm than good. Otherwise, state governments will continue to create regulations that reduce freedom, promote bureaucracy, and hinder economic growth.