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Reassessing Implementation of the Regulatory Fairness Act

November 10, 2020 Download this report as a PDF »

Washington’s small businesses are an essential part of the state’s overall economy, creating jobs and sparking innovation. However, they often face proportionally higher costs compared to big companies when complying with some state regulations.

Both federal and state lawmakers recognize that the disproportionate impacts of regulatory costs on small businesses can harm them. Disproportionate costs can reduce competition, innovation and new employment opportunities. In addition, they can potentially threaten the survival of the businesses themselves.

The state’s Regulatory Fairness Act (RCW 19.85) requires agencies to take the financial effects of proposed regulations into account as they finalize them. They must also calculate the costs to businesses. Finally, where feasible, they must mitigate costs that are disproportionate for small businesses.

When we audited this issue in 2016, we recommended the Legislature designate a central authority to help agencies meet the requirements of the law. In 2017, the Legislature assigned that responsibility to the Governor’s Office of Regulatory Innovation and Assistance (ORIA). This audit was designed to assess whether agencies improved since 2016.

Read a two-page summary of the current report.

 Report Credits Report Number 1027267

Key results

The results of the current audit are far better than the 2016 audit. Agencies were more consistent in completing the Small Business Economic Impact Statement (SBEIS) when required. They did a much better job of documenting the circumstances when they did not need to complete one. In addition, the agencies were overwhelmingly positive about the level of support and guidance in navigating the requirements of the Act that the Governor’s Office of Regulatory Innovation and Assistance (ORIA) gave them.

Maintaining an equitable regulatory environment for small businesses is always important. And given the difficult times we are experiencing now, it is even more so. ORIA and the state agencies deserve commendation for the tremendous improvement they have made in administering the Regulatory Fairness Act since our last review. You can read the previous report on our website here.

We found state agencies have made substantial progress in their compliance with the Regulatory Fairness Act. Our three key results:

  • Agencies have significantly improved their execution of requirements since the previous audit.
  • Agency staff report that ORIA’s tools and support have greatly helped them comply with the Act.
  • While overall compliance with the Act has improved, some agencies struggled to correctly apply allowable exemptions

Background

The state’s Regulatory Fairness Act set up a framework to address disparity in how regulation affects small versus large businesses. Enacted in 1982,  it requires state agencies to assess their rules’ effects on businesses. They must then develop strategies to mitigate the disproportionate impact of some regulations on small businesses.

This audit follows up on the State Auditor’s 2016 report “Assessing Implementation of the Regulatory Fairness Act.” It assesses agency compliance with the Act since the previous audit to understand whether compliance has improved following legislation requiring the Governor’s Office of Regulatory Innovation and Assistance (ORIA) to provide tools and assistance to regulatory agencies.

That 2016 performance audit examining agencies’ compliance with the Act found most agencies struggled to follow the law. Agencies frequently could not support their conclusions that the costs of new regulations were minimal. In addition, they often claimed exemptions from the Act that did not exist. Furthermore, we found they rarely prepared complete SBEIS, one of the Act’s main requirements.

Improved execution

Agencies have significantly improved their execution of Regulatory Fairness Act requirements since the previous audit. They attributed progress in large part to help provided by the Office of Regulatory Innovation and Assistance  

Agencies claimed 47 percent of rules in our sample were exempt from the Act. For the other 53 percent, agencies provided sound support for their cost-related claims most of the time. Nearly 90 percent of the less-than-minor cost claims were fully supported. This is a significant improvement from the last audit, when only half were fully supported. Compliance with the Small Business Economic Impact Statement (SBEIS) greatly improved since the last audit. We found 75 percent in our sample were substantively complete.

However, one key area where agencies continue to struggle is in accessing reliable, consistent data about the businesses they regulate.

ORIA a great help

Agency staff said that ORIA’s tools and support have greatly helped them comply with the Act.

ORIA has provided extensive support to agencies in navigating requirements of the Act. Agencies in our audit were aware of ORIA’s resources, and most use them regularly. Furthermore, agencies praised ORIA’s efforts and asked for expanded help. Some agencies suggested it could be helpful to have additional improvements in the standardized forms used to propose new or revised rules.

More training and advice

While overall compliance with the Act has improved, some agencies struggled to correctly apply allowable exemptions.

All the exemptions claimed in our sample were actual legal exemptions, which is far better than in the previous audit. While all the exemptions claimed were allowed by law, agencies were entitled to claim only about two-thirds of them. Agencies would benefit from additional training on the application of exemptions.

Recommendations

We directed our recommendations to the Office of Regulatory Innovation and Assistance (ORIA). We suggest ORIA focus its efforts to help agencies comply with the Regulatory Fairness Act in several ways. For example, ORIA should make it easier for agencies to:

  • Access information and data about small businesses in Washington. ORIA could facilitate sharing summary data among agencies. It might serve as a repository for data which agencies need to make their calculations.
  • Access training and help in how to apply exemptions to their proposed rules

In addition, we recommended ORIA work with agencies and the Office of the Code Reviser with the goal of improving the standardized form used for proposed new or revised rules.