Ringside: The Regulatory Burden that Prevents Abundance

The cost-of-living has become a national issue, a favored topic of partisan debate. The debate is governed by emotions, ideology, and widely divergent economic theories, probably in that order. Our contribution to this debate, drawing on all three of those influences, is simple: Abundance lowers prices, and deregulation enables abundance. Conversely, scarcity increases prices, and excessive regulations create scarcity.

To expand a bit further on those premises: regulations empower large corporations while destroying small emerging competitors who might drive prices down, and the most significant variables affecting the cost-of-living are the price and the availability of energy and water, because affordable access to those inputs drive the cost to produce almost everything else.

Having briefly summarized both our bias and our focus, maybe the best way to explore the timely issue of affordability would be to describe just how hard it has become to do business in California. And what better way to do this than to simply list the host of agencies that a small company has to deal with. The following lists were provided by a small business owner who prefers anonymity. Among other things, creating and distributing their product requires earth moving and trucking. Any one of these agencies can shut them down:

Federal: Army Corps of Engineers, Dept. of Agriculture, Agency for Toxic Substances, Bureau of Reclamation, Bureau of Safety & Environmental Enforcement, Census Bureau, Dept. of Labor, Environmental Protection Agency, Federal Mine Safety & Health, US Geological Survey, Mine Safety & Health, Occupational Safety & Health Administration, Occupational Employment Dept., Surface Mining & Reclamation Enforcement, Federal Dept. of Weights & Measures. 

It is reasonable to wonder why, with all this federal oversight, it is necessary for any additional regulatory oversight to be required by the state. Which is, by the way, the governing sentiment in dozens of state legislatures where it is much easier to do business, and much more affordable. But not in California.

Here’s what our state adds: Air Resources Board, Dept. of Drug & Alcohol Programs, Division of Apprenticeship Standards, CAL EPA, CALTRANS, Dept. of Conservation, Contractor’s State License Board, State Comp Insurance Fund, DMV, EDD Industry Verification, Unemployment Insurance Program, California Dept. of Fish & Wildlife, Franchise Tax Board, Dept. of Food & Agriculture, California Highway Patrol, Dept. of Industrial Relations, Dept. of Labor Standards & Enforcement, Office of Mine Reclamation, Secretary of State, Disabled Veterans Business Program, Dept. of Toxic Substances Control, Dept. of Transportation, Dept. of Water Resources. 

And here, at least for this particular business, is what their county adds: Agricultural Commission – Weights & Measures, Air Pollution Control District, Integrated Waste Management, Hazardous Waste Program, Stormwater Resources Board, Building & Planning Dept., Public Works, and Regional Water Quality Control Board.

In all, this company reports to 18 federal agencies, ten of which conduct regular inspections, and eight of which collect fees. This is dwarfed by the state and county burden, where they have to report to 33 state and county agencies, 21 of which conduct regular inspections, and 22 of which collect fees.

It isn’t sufficient to merely point out how time consuming and costly it must be to deal with 18 federal agencies, and then on top of that another 33 state and county agencies. But compliance itself requires far more than competence and good intentions. As the owner puts it, “Every government agency comes and goes with the complexity of its regulations and the ability of meeting those requirements. Quite frequently it is the competing regulations between Federal, State and County that are most difficult to decipher, which one do I follow, which one supersedes the other.”

Which is to say, these myriad regulations aren’t merely complicated and change frequently, but they are often in conflict with each other. And even this doesn’t begin to describe how hard it has become to do business in California, because many regulations are grossly unreasonable. Again from the owner:

“The cost of having to purchase new equipment or new motors to meet the State Air Resource Board is the most financially burdensome. I am being forced to replace motors with an annual usage of less than 200 hours. The same goes for the heavy equipment with low hours. Large companies can simply purchase new equipment in California and move the older equipment to Arizona, or any other State in the Union. Insurance is also hard to get in California. Often I simply cannot get a competitive insurance rate, and on many occasions I can only get one quote as no other insurance company is quoting heavy construction in California. I am trying to compete with large corporations that are self-insured.”

How the burden of compliance falls harder on small companies is another reason so many productive entrepreneurs avoid California. As the owner wrote, “The regulatory burden of having to start a new business in California is simply too much. A young person wanting to get into business gets hit hard with regulations that cannot be met by completing paperwork after the workday was done, as my parents’ generation did. Regulations, compliance and the paperwork involved takes up a major portion of the workday. I like to tell people thinking of starting a business that 50 percent of your work is going to be paperwork. California is over-regulated, over-litigated, and over-taxed, so much so that many are quitting and moving out or simply not starting a new business with new ideas and a fresh approach.”

There is growing bipartisan agreement that California needs to deregulate, but so far the politically viable solutions are limited. The consensus seems to be we can deregulate high-density housing but must retain urban service boundaries. Or that we should deregulate renewable energy yet continue to attack providers of conventional energy. As for water, are there even limited examples of deregulation?

Until meaningful deregulation is enacted in California, all the nascent talk among politicians in both parties of “abundance” is just posturing for cameras, and pandering for votes. Against these headwinds, with no relief in sight, the bravery of California’s embattled yet enduring small businesses is heartrending.