What Are the Fiscal Analyses Performed in California Rulemaking?

A state agency in California is required to estimate the costs of a proposed regulation. The “cost impact” means the amount of a reasonable range of direct costs, or a description of the type and extent of direct costs, that a representative private person or business necessarily incurs in reasonable compliance with the proposed regulatory action.

The purpose of the regulatory impact analysis is to inform the agencies and the public of the possible economic consequences of regulatory choices, but not to reassess statutory policy. The baseline for the regulatory analysis is the most cost-effective set of regulatory measures that are equally effective in achieving the purpose of the regulation in a manner that ensures full compliance with the authorizing statute or other law being implemented or made specific by the proposed regulation.

A state agency is required to assess the potential for adverse economic impact on California business enterprises and individuals, avoiding the imposition of unnecessary or unreasonable regulations or reporting, recordkeeping, or compliance requirements. This requirement, like the others, is set forth in California’s Administrative Procedure Act (APA).

In addition, a state agency proposing to adopt, amend, or repeal a regulation that is not a major regulation must prepare an economic impact assessment that assesses whether and to what extent it will affect the following:

• The creation or elimination of jobs within the state;
• The creation of new businesses or the elimination of existing businesses within the state;
• The expansion of businesses currently doing business within the state; and,
• The benefits of the regulation to the health and welfare of California residents, worker safety, and the state’s environment.

If a state agency makes an initial determination that the action may have a significant, statewide adverse economic impact directly affecting businesses, the state agency is then required to include specified information in the notice of proposed action. The information required includes the following:

• Identification of the types of businesses that would be affected;
• A description of the projected reporting, recordkeeping, and other compliance requirements that would result from the proposed action; and,
• A specified statement.

There is an additional economic impact assessment that must be done for a major regulation. For each state agency proposing to adopt, amend, or repeal a major regulation, the agency must prepare a standardized regulatory impact analysis, including the following:

• The creation or elimination of jobs within the state;
• The creation of new businesses or the elimination of existing businesses within the state;
• The competitive advantages or disadvantages for businesses currently doing business within the state;
• The increase or decrease of investment in the state;
• The incentives for innovation in products, materials, or processes; and, 
• The benefits of the regulations, including, but not limited to, benefits to the health, safety, and welfare of California residents, worker safety, and the state’s environment and quality of life, among any other benefits identified by the agency.

The state agency that has prepared a standardized regulatory impact analysis must submit that analysis to the Department of Finance (DOF) upon completion. The DOF and OAL review the standardized regulatory impact analysis.