Small Business Regulatory Flexibility Frequently Asked Questions

Q. Is this legislation really necessary?
A. Yes, the burden of regulations that are unnecessary and over-reaching at state level is a major concern of small businesses. Small businesses are impacted by local, state, and federal regulations. Regulatory reform is needed at all three levels to ensure that small businesses are not unduly burdened by unnecessary regulation. An advocacy research study, "The Impact of Regulatory Costs on Small Business", established that small businesses with less than 20 employees spend nearly $7,000 each year, per employee, just to comply with federal regulations and mandates. That is 60 percent more than the $4,463 estimated for firms with more than 500 employees.

Q. Is this a costly matter for state government?
A. No, in fact, the state saves money by getting input on costly or unnecessary regulation prior to implementation. Requiring small business analysis, input, and consideration of less burdensome alternatives ensures that state agencies make good final decisions. In fact, if regulations are poorly written and do not consider small business, they may need to be redone. That is more costly to state government than doing a thorough analysis the first time.

Q. Won't this cost the state agencies huge amounts of money to comply and conduct the economic impact statements?
A. No, many states already conduct a general regulatory impact analysis. Determining the impact on small business is a necessary additional step in the analysis. In addition, rules and regulations that are finalized without adequate impact analysis run the risk of being more costly to both the citizens and state agencies.

Q. Will this delay safety or health related regulations?
A. Better analysis and consideration of how regulations affect small business results in streamlined and effective implementation of government rules and regulations. Moreover, the legislation is intended to encourage burden reduction without sacrificing policy objectives such as safety and health.

Q. Won't this require a large staff in administrative rules? Are we creating another bureaucracy?
A. No. In fact, by including small business early in the regulatory process, state agencies can ensure better quality regulations. The objective of the legislation is to connect small businesses, and their trade and membership organizations, to regulatory policymakers. Such a connection ensures that regulations which will impact small business reflect a full consideration of their views. Connecting small business with regulatory officials does not necessarily require a large staff or a new bureaucracy. Many state agencies already have a small business office. In fact, the information that small businesses, as the regulated community, can provide agencies should lower the information gathering burden placed on the agency. Colorado and North Dakota recently passed similar legislation and their fiscal analysis showed that there was no cost to the budget associated with implementing this legislation. In Puerto Rico, this work is being done by their Small Business Ombudsman and one other person.

Q. Are these state regulations? Don't most regulations come from the federal government?
A. Small businesses are regulated at the federal, state, and local level. As noted in a 2004 report by the National Governors Association (NGA), streamlining duplicative paperwork and regulations is an important economic development tool. The report recommends that “States should pursue comprehensive reviews of rules and regulations to initiate reform efforts. Reviews may be focused on eliminating unnecessary or duplicative regulations, harmonize state and federal regulations to reduce compliance burdens, or providing waivers or variances.” In addition, the report notes that small business owners based their employment decisions not just upon the economic needs of their business but also upon the additional costs of taxes and regulations. Finally, the report points out that early-stage companies may be tempted to move to a jurisdiction where the regulations are less burdensome.

Q. How long have some states been doing this?
A. New York, Oklahoma and Arizona have years of experience. Colorado, North Dakota, South Dakota, and Wisconsin have all passed legislation in the last year and a half and are beginning to put their systems in place.

Q. Isn't this just a way to get rid of regulations?
A . Absolutely not. Health, safety and welfare issues are of major importance to state governments. The problem with the current rules process is that it attempts to put a one-size-fits-all regulation into place without taking into account the limited resources of small business to comply. If a new rule comes out that has a major negative economic impact on business, it is small businesses that are most likely to fail because of it. With small business accounting for over two-thirds of the net new jobs in the economy, it is important that they have a voice in the process. This is particularly true in regards to paperwork and reporting requirements.

Q. Is this legislation bad for state agencies?
A. No, the last thing a state agency wants to do is propose and finalize a rule with which small businesses cannot comply and which causes widespread industry burdens, results in layoffs, or business closures. The Regulatory Flexibility Act requires that economic analysis is done up front so these types of burdens are recognized. If there are alternative ways of achieving a public policy goal that is less burdensome to small business, it is a win-win situation for the agency and small business.

Q. How else can this even the playing field for small business?
A. Regulatory barriers to entry in certain sectors limit competition and increase prices. Ensuring that the regulatory burden is not excessive and regulations are straightforward and easy to comply with helps entrepreneurs enter those industries and increases competition, employment and tax revenues.