VETO MESSAGE ON HB 1010-S
May 16, 1995
To the Honorable Speaker and Members,
The House of Representatives of the State of Washington
Ladies and Gentlemen:
I am returning herewith, without my approval as to sections 110, 112, 113, 114, 115, 116, 119, and 504, Engrossed Substitute House Bill No. 1010 entitled:
"AN ACT Relating to regulatory reform;"
Over the last few years, the issue of regulatory reform has generated spirited discussion and debate. I have come to the conclusion that, like beauty, regulatory reform is really in the eye of the beholder. While there is widespread agreement about the problems, there is less clarity regarding solutions. This bill represents a path to regulatory reform that I believe will make significant changes in the regulatory climate. We all must embark upon this path in a spirit of cooperation and with the firm resolve to work together to successfully implement this legislation. Everyone who is concerned with these issues must have a place at the table: the regulated community, state agencies, local governments, the environmental community, labor, and interested citizens groups. Without this cooperative spirit, it will be impossible to implement significant, long-term change.
On August 9, 1993, I signed Executive Order 93-06. The executive order directed state agencies to initiate several efforts to coordinate among themselves and to provide better and more useful information to the public. I stated three goals for regulatory reform in the executive order. They are:
! To institute immediate management improvements in state regulatory functions, reducing inefficiencies, conflicts, and delays.
! To develop long-term solutions to complex regulatory issues that, if left unresolved, could impede the orderly growth and sustained economic development of the state.
! To ensure that any regulatory reform solutions designed to support economic benefits to the state also ensure continued protection of the environment, the health, and the safety of our citizens.
The Executive Order also created the Governor's Task Force on Regulatory Reform, composed of representatives from a cross-section of state citizens and interest groups. The task force established three subcommittees to address the major issue areas set forth in the executive order and made its interim recommendation in its December, 1993 report. The task force made its final recommendations in December, 1994.
Although this bill was not originally based on the task force recommendations, in its final form it has adopted many elements consistent with those recommendations, and I would like to applaud the legislature for incorporating those recommendations.
I want to focus first on the very significant positive steps in regulatory reform that are included in this bill. This bill represents what I hope will be meaningful change in the regulatory environment. At the same time, I believe that it meets the goals I set out when I established the task force: to establish long-term solutions to complex regulatory issues and to ensure that regulatory reform solutions ensure continued protection of the environment, the health, and the safety of our citizens.
I am signing the provisions of section 201 establishing new rule adoption criteria. These criteria were developed by the task force. The application of these criteria to the significant legislative rules of nine major agencies will result in detailed analyses of important factors in agency rulemaking. There are several changes made from the task force recommendations. The task force would have applied these criteria to a limited set of rules for a small number of agencies. It also established a sunset date to assure that the legislature would review these criteria and would determine their effectiveness. This bill expands both the rules and the agencies which must comply with these procedures. There is no sunset on these criteria, but I am hopeful that the legislature will evaluate the impact of these criteria over time. The Office of Financial Management will be reviewing and reporting to the governor and to the legislature on the impact of this section which will allow us to monitor its effects. I also have some reservations regarding the impact of this section in that these procedures may not result in better rules, but only in more litigation. However, I think we must go ahead and implement this section and all work together to make sure that this process does result in better rulemaking--not more delay and confusion.
I am also signing Part VI dealing with technical assistance in its entirety. These provisions will encourage cooperative relationships between agencies and the regulated community. It has always been my firm belief that people will comply with the rules as long as they understand them, and these provisions will make it easier to know how to comply.
I am also signing sections 901 through 905 which allow the recovery of reasonable attorney's fees from the state. The purpose of these sections is to allow individuals and small businesses access to the courts to challenge agency actions by authorizing courts to award attorney's fees when agency actions are successfully challenged. I believe it is important to allow access to our judicial system for those who may not have the necessary financial resources. I am concerned, however, that these provisions, in combination with the rule adoption criteria process in section 201, may create a significant incentive to challenge agency rules and other agency actions in the hope of recovering attorney's fees. These challenges are likely to be fought out over procedural issues rather than policy issues, and the potential fiscal impact of these provisions are significant. This will have to be monitored over time to determine the effects of these sections.
I am signing provisions establishing a process for an appeal to the governor if an agency refuses to begin rule making proceedings, for a streamlined rule repeal process, and for simplification of rule making for less significant rules.
I am also signing provisions directing the Department of Licensing to establish pilot programs on combined state and local business licensing. This provision is real regulatory reform. These pilot programs will assist businesses in obtaining permits and licenses from multiple jurisdictions, thus addressing one of the major complaints of both small and large businesses.
I am signing section 802 which changes the standard of judicial review of agency rules from the current standard that the rule "could not conceivably have been the product of a rational decision maker" to "arbitrary and capricious." This appears to be consistent with the Washington Supreme Court decision in Neah Bay Chamber of commerce v. Department of Fisheries, 119 W. 2nd 464 (1992). There is some language in the intent section that indicates that a different standard of review was intended. Consistent with the rationale of the Part I grants of authority sections, in which agencies are prohibited from relying on intent statements to develop substantive regulatory programs, the legislature cannot create a different standard of judicial review in an intent section than the standard created in the substantive section 802. Any other reading would suggest an amendment by reference of RCW 34.05.570. I am, therefore, approving section 802 with the understanding that the standard for review will be arbitrary and capricious as articulated by the Washington State Supreme Court.
Turning now to other provisions of the bill, Part I concerns the authority of some agencies to adopt rules. Many in the business community and in the legislature complain about the liberty they believe agencies take with their authority to implement legislation. This has led to an effort to modify what are referred to as "broad grants of rule making authority." The task force struggled with this issue and recommended a solution for future legislation. However, it was unable to find a solution for existing statutes that would not lead to unanticipated consequences. This legislation does not avoid those problems.
Upon careful consideration and after consulting with members of the legislature and with others, I have concluded that sections 101-109 and section 111 only limit the authority of an agency to adopt rules when there is no statutory authority, other than an intent section, for an agency to act. If an agency has been given authority to carry out specific statutory directives in a particular area, even though the statute does not provide explicit authority to adopt rules as part of its regulatory scheme, these provisions do not prohibit an agency from adopting rules to implement the legislature's expressed intent that the agency carry out its statutory responsibilities. The language of these sections prohibits agencies from adopting rules solely in reliance on an intent section in combination with the statute establishing the agency. Intent sections should not be used by the agencies or by the legislature as the sole authority to create substantive rules or law.
Section 112 is similar to sections 101-111 except that it contains additional provisions intended to address the issue of prevailing wage. The Department of Labor and Industries' authority to adopt rules governing prevailing wage issues is under attack in the courts. The department is currently in litigation over its authority to adopt rules under the prevailing wage statute. This section includes language indicating it is the intent of the legislature to retain the status quo. This very statement recognizes the possibility that the department's authority is in doubt. This stands to undermine the department's position in ongoing litigation.
Sections 113-116 relate to the authority of the Insurance Commissioner. Unlike the language in sections 101-109 and section 111, these sections directly restrict the commissioner's use of specific rulemaking authority to develop rules. For example, section 115 allows the commissioner to make rules regarding aspects of health care service contractor practices, including the maintenance of adequate insurance and cash deposits. It is the heart of the authority to regulate health care service contractors. The amendment would not allow the commissioner to rely on that section for rulemaking authority. Section 116 is the authority to regulate health maintenance organizations. This language provides that the commissioner may not rely on this specific authority. As I read this, it would leave the commissioner in the position where the commissioner's ability to regulate important aspects of the health insurance industry would be severely compromised. Removing this authority could create significant risk to consumers. Similarly, section 114 provides authority to regulate against unfair and deceptive practices. This is the heart of the commissioner's consumer protection authority. The commissioner must be able to act quickly as new circumstances arise to protect the public. I cannot sign sections that would significantly reduce the ability of the Insurance Commissioner to act for the public good.
It is important to note the difference in the language used in sections 101-111 and in sections 113-116 dealing with the Insurance Commissioner. In the commissioner's sections, the legislature clearly intended to limit the use of the grant of rule making authority. In sections 101-109 and section 111, however, there is no restriction on the use of the general grant of rule making authority in combination with other substantive provisions of law. It is because of this distinction that I am signing sections 101-109 and section 111.
Section 110 dealing with the Forest Practices Board creates problems due to the placement of the proviso language. This section is a specific grant of rule making authority (in the same manner as section 115 related to the Insurance Commissioner). It also contemplates that the board may specifically rely on RCW 76.09.010 which contains specific directives to the board regarding the development of comprehensive forest practices regulations as the basis for rules. This proviso, as placed, appears to give authority for rule making, then to take it away, then to give it back. It is so ambiguous as to create complete uncertainty for most of the board's regulations.
Section 119 exempts the agencies covered by sections 101 through 116 from the prospective grants of authority requirements of section 118 which apply to all agencies. We must ensure all agencies, including the Department of Labor and Industries, the Insurance Commissioner, and the Forest Practices Board, will be subject to the prospective restrictions on grants of authority in section 118.
It is important to note that the very significant provisions of this bill related to technical assistance, rule adoptions criteria, and judicial review all apply to the Department of Labor and Industries, the Insurance Commissioner and the Forest Practices.
Section 504 gives the Joint Administrative Rules Review Committee (JARRC) the ability, by a majority vote, to establish a rebuttable presumption in judicial proceedings that a rule does not comply with the legislature's intent. The burden of proof to establish that a rule was within legislative intent would be shifted to the agency from the individual challenging the rule. This would mean that 5 legislators out of a total of 147 members could determine legislative intent, regardless of their participation in the policy committees that developed the underlying legislation upon which the rule is based.
I have serious concerns about the constitutionality of section 504. This section violates the provisions of the state constitution which require legislative acts be done by the entire legislature with presentment to the governor for approval. Moreover, this violates the separation of powers doctrine, in that it intrudes unduly into those constitutional powers reserved for the executive and judicial branches of government. This is based primarily on the decision of the United States Supreme Court in Immigration & Naturalization Service v. Chadha, 462 U.S. 919 (1983), and the analysis of the overwhelming majority of state and federal court opinions on the subject.
It is my hope that the legislature will work with all interested parties to develop an alternative model to assure the appropriate legislative, executive, and judicial branch roles in reviewing agency rules. I have signed Engrossed Substitute Senate Bill No. 6037 today which commits to study an independent rules review commission as a possible alternative to JARRC. I intend to work with the legislature in exploring this option. In addition, the legislature retains the right to reject an agency rule through a bill adopted by both the House of Representatives and the Senate which goes to the governor for approval. This is consistent with the inherent constitutional principles concerning the appropriate role of the three branches of government.
There are other provisions relating to JARRC which give me great concern for similar reasons. One is in section 201(5)(a)(ii) which purports to allow JARRC to require any agency rule to be bound by the elaborate rule making criteria in section 201. This is not just for "significant legislative rules," as recommended by the task force, but for any rule. This includes interpretive and procedural rules which are within the unique province of agencies to adopt. However, because this provision is in section 201, I must either veto that entire section or allow this JARRC intrusion into executive branch affairs. I have reluctantly opted for the latter approach, in spite of the unconstitutional nature of this provision.
Section 404 allows JARRC to require agencies to prepare a small business economic impact statement when adopting rules to conform to federal law or regulation. This provision also raises constitutional questions; however, a veto of this section would result in the elimination of the underlying exemption from the automatic requirement for agencies to develop these statements. This would impose an unreasonable burden on state agencies. If JARRC seeks to implement this provision, I trust it will do so with appropriate restraint and with a view toward cooperation with the executive agencies. It is with that understanding, that I am approving this provision.
For these reasons, I have vetoed sections 110, 112, 113, 114, 115, 116, 119, and 504 of Engrossed Substitute House Bill No. 1010.
With the exception of sections 110, 112, 113, 114, 115, 116, 119, and 504, Engrossed Substitute House Bill No. 1010 is approved.
Respectfully submitted,
Mike Lowry
Governor