BILL REQ. #:  S-0616.1 

Read first time 02/14/2005.   Referred to Committee on International Trade & Economic Development.

     AN ACT Relating to regulatory flexibility; amending RCW 19.85.011, 19.85.020, 19.85.025, 19.85.030, 19.85.061, and 34.05.320; adding new sections to chapter 19.85 RCW; creating a new section; and repealing RCW 19.85.040 and 19.85.050.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

Sec. 1   RCW 19.85.011 and 1994 c 249 s 9 are each amended to read as follows:
     The legislature finds that:
     (1) A vibrant and growing small business sector is critical to creating jobs in a dynamic economy;
     (2) Administrative rules adopted by state agencies can have a disproportionate impact on the state's small businesses because of the size of those businesses((. This disproportionate impact reduces competition, innovation, employment, and new employment opportunities, and threatens the very existence of some small businesses));
     (3) Fundamental changes needed in the regulatory and enforcement culture of state agencies to make them more responsive to small business can be made without compromising the statutory missions of the agencies;
     (4) When adopting rules to protect the health, safety, and economic welfare of this state, state agencies shall seek to achieve statutory goals as effectively and efficiently as possible without imposing unnecessary burdens on small employers;
     (5) Uniform regulatory and reporting requirements impose unnecessary and disproportionately burdensome demands, including legal, accounting, and consulting costs, upon small businesses with limited resources;
     (6) The failure to recognize differences in the scale and resources of regulated businesses adversely affects competition in the marketplace, discourages innovation, and restricts improvements in productivity;
     (7) Unnecessary rules create entry barriers in many industries and discourage potential entrepreneurs from introducing beneficial products and processes;
     (8) The practice of treating all regulated businesses as equivalent leads to inefficient use of regulatory agency resources, enforcement problems, and actions inconsistent with the legislative intent of health, safety, environmental, and economic welfare legislation;
     (9) Alternative regulatory approaches that do not conflict with the stated objective of applicable statutes are available to minimize the significant economic impact of regulations on small businesses; and
     (10) The process by which state rules are developed and adopted must be reformed to require agencies to solicit the ideas and comments of small businesses, to examine the impact of proposed and existing regulations on these businesses, and to review the continued need for existing regulations.
     The legislature therefore enacts the Small Business Regulatory ((Fairness)) Flexibility Act with the intent of reducing the disproportionate impact of state administrative rules on small business.

Sec. 2   RCW 19.85.020 and 2003 c 166 s 1 are each amended to read as follows:
     Unless the context clearly indicates otherwise, the definitions in this section apply through this chapter.
     (1) "Small business" means ((any business entity, including a sole proprietorship, corporation, partnership, or other legal entity, that is owned and operated independently from all other businesses, and that has fifty or fewer employees)) a commercial retail service, industry entity, or nonprofit corporation, including its affiliates, that:
     (a) Is, if a commercial retail service or industry service, independently owned and operated; and
     (b) Employs fewer than one hundred full-time employees or has gross annual sales or program service revenues of less than five million dollars.
     (2) "Small business economic impact statement" means a statement meeting the requirements of RCW ((19.85.040 prepared by a state agency pursuant to RCW)) 19.85.030.
     (3) "Industry" means all of the businesses in this state in any one four-digit standard industrial classification as published by the United States department of commerce. However, if the use of a four-digit standard industrial classification would result in the release of data that would violate state confidentiality laws, "industry" means all businesses in a three-digit standard industrial classification.

Sec. 3   RCW 19.85.025 and 1997 c 409 s 212 are each amended to read as follows:
     (1) Unless an agency receives a written objection to the expedited repeal of a rule, this chapter does not apply to a rule proposed for expedited repeal pursuant to RCW ((34.05.354)) 34.05.353. If an agency receives a written objection to expedited repeal of the rule, this chapter applies to the rule-making proceeding.
     (2) This chapter does not apply to a rule proposed for expedited adoption under RCW ((34.05.230 (1) through (8))) 34.05.353, unless a written objection is timely filed with the agency and the objection is not withdrawn.
     (3) This chapter does not apply to the adoption of a rule described in RCW 34.05.310(4).
     (4) An agency is not required to prepare a separate small business economic impact statement ((under RCW 19.85.040)) if it prepared an analysis under RCW 34.05.328 that meets the requirements of a small business economic impact statement, and if the agency reduced the costs imposed by the rule on small business to the extent required by RCW 19.85.030(3). The portion of the analysis that meets the requirements of RCW ((19.85.040)) 19.85.030 shall be filed with the code reviser and provided to any person requesting it in lieu of a separate small business economic impact statement.

Sec. 4   RCW 19.85.030 and 2000 c 171 s 60 are each amended to read as follows:
     (1) ((In the adoption of a rule under chapter 34.05 RCW, an agency shall prepare a small business economic impact statement: (a) If the proposed rule will impose more than minor costs on businesses in an industry; or (b) if requested to do so by a majority vote of the joint administrative rules review committee within forty-five days of receiving the notice of proposed rule making under RCW 34.05.320. However, if the agency has completed the pilot rule process as defined by RCW 34.05.313 before filing the notice of a proposed rule, the agency is not required to prepare a small business economic impact statement.
     An agency shall prepare the small business economic impact statement in accordance with RCW 19.85.040, and file it with the code reviser along with the notice required under RCW 34.05.320. An agency shall file a statement prepared at the request of the joint administrative rules review committee with the code reviser upon its completion before the adoption of the rule. An agency shall provide a copy of the small business economic impact statement to any person requesting it.
     (2))) Before an agency submits to the joint administrative rules review committee for review a rule that may have a significant adverse impact on small businesses, the agency, if directed by the small business regulatory review committee, shall prepare:
     (a) An economic impact statement that includes the following:
     (i) An identification and estimate of the number of small businesses subject to the proposed rule;
     (ii) The projected reporting, recordkeeping, and other administrative costs required for compliance with the proposed regulation, including the type of professional skills necessary for preparation of the report or record;
     (iii) A statement of the economic impact on small businesses; and
     (iv) A description of less intrusive or less costly alternative methods of achieving the purpose of the proposed rule;
     (b) A regulatory flexibility analysis in which the agency, where consistent with health, safety, and environmental and economic welfare, shall consider using regulatory methods that accomplish the objectives of applicable statutes while minimizing a significant adverse impact on small businesses.
     (2) The agency shall consider, without limitation, each of the following methods of reducing the impact of the proposed rule on small businesses:
     (a) Establishment of less stringent compliance or reporting requirements for small businesses;
     (b) Establishment of less stringent schedules or deadlines for compliance or reporting requirements for small businesses;
     (c) Consolidation or simplification of compliance or reporting requirements for small businesses;
     (d) Establishment of performance standards for small businesses to replace design or operational standards required in the proposed rule; and
     (e) Exemption of small businesses from all or a part of the requirements contained in the proposed rule.
     (3) Based upon the extent of disproportionate impact on small business identified in the statement ((prepared under RCW 19.85.040)), the agency shall, where legal and feasible in meeting the stated objectives of the statutes upon which the rule is based, reduce the costs imposed by the rule on small businesses. Methods to reduce the costs on small businesses may include:
     (a) Reducing, modifying, or eliminating substantive regulatory requirements;
     (b) Simplifying, reducing, or eliminating recordkeeping and reporting requirements;
     (c) Reducing the frequency of inspections;
     (d) Delaying compliance timetables;
     (e) Reducing or modifying fine schedules for noncompliance; or
     (f) Any other mitigation techniques.

NEW SECTION.  Sec. 5   A new section is added to chapter 19.85 RCW to read as follows:
     A small business that is adversely impacted or aggrieved in connection with the adoption of a rule is entitled to judicial review of agency compliance with the requirements of this chapter. A small business may seek that review during the period beginning on the date of final agency action.

NEW SECTION.  Sec. 6   A new section is added to chapter 19.85 RCW to read as follows:
     (1) Within five years of the effective date of this act, each agency shall review all agency rules existing at the time of the effective date of this act to determine whether to continue the rules without change or amend or repeal them to minimize economic impact of the rules on small businesses in a manner consistent with the stated objective of applicable statutes. If the head of the agency determines that completion of the review of existing rules is not feasible by the established date, the agency shall publish in the state register a statement certifying that determination.
     (2) Rules that take effect on or after the effective date of this act must be reviewed within five years of the publication of the final rule in the state register and every five years after that to ensure that they minimize economic impact on small businesses in a manner consistent with the stated objectives of applicable statutes.
     (3) In reviewing rules to minimize their economic impact on small businesses, the agency shall consider the:
     (a) Continued need for the rule;
     (b) Nature of complaints or comments received concerning the rule from the public;
     (c) Complexity of the rule;
     (d) Extent to which the rule overlaps, duplicates, or conflicts with other federal, state, and local governmental rules; and
     (e) Length of time since the rule has been evaluated or the degree to which technology, economic conditions, or other factors have changed in the area affected by the rule.

NEW SECTION.  Sec. 7   A new section is added to chapter 19.85 RCW to read as follows:
     (1) The small business regulatory review committee is established within the department of community, trade, and economic development. For purposes of this chapter, "committee" is the small business regulatory review committee and "department" is the department of community, trade, and economic development.
     (2) The duties of the committee, in determining if a proposed permanent rule has a significant adverse impact on small businesses, are to:
     (a) Direct the adopting agency to prepare the regulatory flexibility analysis described in RCW 19.85.030 no later than the end of the public comment period that follows the notice of the proposed rule as provided in RCW 34.05.320;
     (b) Request, at the committee's discretion, the office of financial management to prepare a final assessment report of the proposed permanent rule no later than the end of the public comment period that follows the notice of the proposed rule. The committee may request a final assessment report from the office of financial management only in cases where the committee determines that information in addition to the agency's economic impact is critical in the committee's determination that a proposed permanent rule has a significant adverse impact on small business. The office of financial management:
     (i) Within the review and comment period, shall perform a final assessment report of the rule on small businesses within sixty days of a request for assessment by the committee, and the adopting agency has sixty days to complete a regulatory flexibility analysis; and
     (ii) May request additional information from the agency. The sixty-day final assessment report deadline must be tolled until the time that the office of financial management receives the requested additional information; and
     (c) Submit to the adopting agency, no later than thirty days after receipt of the regulatory flexibility analysis prepared by the adopting agency and, if requested by the committee, after receipt of the final assessment report prepared by the office of financial management, a written statement advising the agency that a proposed permanent rule has a significant adverse impact on small business.
     (3) This section does not limit the committee's ability to petition a state agency to amend or repeal an existing rule.
     (4) Staff support for the committee must be provided by the department. The department shall act only as a coordinator for the committee, and may not provide legal counsel for the committee.

NEW SECTION.  Sec. 8   A new section is added to chapter 19.85 RCW to read as follows:
     (1) The committee consists of eleven members, appointed as follows:
     (a) Five members to be appointed by the governor;
     (b) Three members to be appointed by the president pro tempore of the senate; and
     (c) Three members to be appointed by the speaker of the house of representatives.
     (2) In addition, the chair of the labor, commerce, research and development committee of the senate and the chair of the commerce and labor committee of the house of representatives, or their designees, shall serve as nonvoting, ex officio members of the committee. During the committee review process, the director, or a designee, of the adopting agency shall be available at the request of the committee for comment on the proposed rule.
     (3) Appointments to the committee must be representative of a variety of small businesses in this state. All appointed members must be either current or former owners or officers of a small business.
     (4) The initial appointments to the committee must be made within sixty days from the effective date of this act. The department shall provide the name and address of each appointee to the governor, the president pro tempore of the senate, the speaker of the house of representatives, the chair of the senate labor, commerce, research and development committee, and the chair of the commerce and labor committee of the house of representatives.
     (5) Members initially appointed to the committee shall serve for terms ending December 31, 2006. Thereafter, appointed members shall serve two-year terms that expire on December 31st of the second year.

NEW SECTION.  Sec. 9   A new section is added to chapter 19.85 RCW to read as follows:
     (1) The governor shall appoint the initial chair of the committee from the appointed members for a term ending December 31, 2006, and shall appoint subsequent chairs of the committee from the appointed members for two-year terms that expire on December 31st of the second year.
     (2) The committee shall meet as determined by its chair.
     (3) A majority of the voting members of the committee constitutes a quorum to do business. The concurrence of a majority of the members of the committee present and voting is necessary for an action of the committee to be valid.
     (4) An appointed committee member may not serve more than three consecutive terms.

NEW SECTION.  Sec. 10   A new section is added to chapter 19.85 RCW to read as follows:
     (1) For adopted rules, the committee may file a written petition with the agency that has adopted the rules opposing all or part of a rule that has a significant adverse impact on small business.
     (2) Within sixty days after the receipt of the petition, the agency shall determine whether the impact statement or the public hearing addressed the actual and significant impact on small business or if conditions justifying the rule have changed. The agency shall submit a written response of its determination to the committee within sixty days after receipt of the petition. If the agency determines that the petition merits the amendment or repeal of a rule, the agency may initiate proceedings in accordance with the applicable requirements of chapter 34.05 RCW, the Administrative Procedure Act.
     (3) If the agency determines that the petition does not merit the amendment or repeal of a rule, the committee promptly shall convene a meeting for the purpose of determining whether to recommend that the agency initiate proceedings to amend or repeal the rule in accordance with the Administrative Procedure Act. The review must be based upon the actual record presented to the agency. The committee shall base its recommendation on any of the following reasons:
     (a) The actual impact on small business was not reflected in, or significantly exceeded, the economic impact statement formulated by the office of financial management under section 7(2) of this act;
     (b) The actual impact was not previously considered by the agency in its economic impact statement formulated under RCW 19.85.030(1)(a) or its regulatory flexibility analysis formulated under RCW 19.85.030(1)(b); or
     (c) The technology, economic conditions, or other relevant factors justifying the purpose for the rules have changed or no longer exist.
     (4) If the committee recommends that an agency initiate rule-making proceedings for a reason provided in subsection (3) of this section, the committee shall submit to the speaker of the house of representatives and the president pro tempore of the senate an evaluation report and the agency's response as provided in subsection (2) of this section. The legislature may take later action in response to the evaluation report and the agency's response as the legislature finds appropriate.

NEW SECTION.  Sec. 11   A new section is added to chapter 19.85 RCW to read as follows:
     (1) Notwithstanding another provision of law, an agency authorized to assess administrative penalties or administrative fines upon a business may waive or reduce an administrative penalty or administrative fine for a violation of a rule by a small business if the:
     (a) Small business corrects the violation within thirty days or less after receipt of a notice of violation or citation; or
     (b) Violation was the result of an excusable misunderstanding of the agency's interpretation of a rule.
     (2) Subsection (1) of this section does not apply if:
     (a) A small business has been notified previously of the violation of a rule by the agency under subsection (1) of this section and has been given an opportunity to correct the violation on a previous occasion;
     (b) A small business fails to exercise good faith in complying with the rule;
     (c) A violation involves willful or criminal conduct;
     (d) A violation results in imminent or adverse health, safety, or environmental impact; or
     (e) The penalty or fine is assessed under a federal law or rule, for which a waiver or reduction is not authorized by the federal law or rule.

Sec. 12   RCW 19.85.061 and 1995 c 403 s 404 are each amended to read as follows:
     Unless so requested by a majority vote of the ((joint administrative rules)) small business regulatory review committee under ((RCW 19.85.030)) section 7 of this act, an agency is not required to comply with this chapter when adopting any rule solely for the purpose of conformity or compliance, or both, with federal statute or regulations. In lieu of the statement required under ((RCW 19.85.030)) section 7 of this act, the agency shall file a statement citing, with specificity, the federal statute or regulation with which the rule is being adopted to conform or comply, and describing the consequences to the state if the rule is not adopted.

Sec. 13   RCW 34.05.320 and 2004 c 31 s 2 are each amended to read as follows:
     (1) At least twenty days before the rule-making hearing at which the agency receives public comment regarding adoption of a rule, the agency shall cause notice of the hearing to be published in the state register. The publication constitutes the proposal of a rule. The notice shall include all of the following:
     (a) A title, a description of the rule's purpose, and any other information which may be of assistance in identifying the rule or its purpose;
     (b) Citations of the statutory authority for adopting the rule and the specific statute the rule is intended to implement;
     (c) A short explanation of the rule, its purpose, and anticipated effects, including in the case of a proposal that would modify existing rules, a short description of the changes the proposal would make, and a statement of the reasons supporting the proposed action;
     (d) The agency personnel, with their office location and telephone number, who are responsible for the drafting, implementation, and enforcement of the rule;
     (e) The name of the person or organization, whether private, public, or governmental, proposing the rule;
     (f) Agency comments or recommendations, if any, regarding statutory language, implementation, enforcement, and fiscal matters pertaining to the rule;
     (g) Whether the rule is necessary as the result of federal law or federal or state court action, and if so, a citation to such law or court decision;
     (h) When, where, and how persons may present their views on the proposed rule;
     (i) The date on which the agency intends to adopt the rule;
     (j) A copy of the small business economic impact statement and the regulatory flexibility analysis prepared under chapter 19.85 RCW, or an explanation for why the agency did not prepare the statement or the analysis;
     (k) A statement indicating whether RCW 34.05.328 applies to the rule adoption; and
     (l) If RCW 34.05.328 does apply, a statement indicating that a copy of the preliminary cost-benefit analysis described in RCW 34.05.328(1)(c) is available.
     (2)(a) Upon filing notice of the proposed rule with the code reviser, the adopting agency shall have copies of the notice on file and available for public inspection. Except as provided in (b) of this subsection, the agency shall forward three copies of the notice to the rules review committee.
     (b) A pilot of at least ten agencies, including the departments of labor and industries, fish and wildlife, revenue, ecology, retirement systems, and health, shall file the copies required under this subsection, as well as under RCW 34.05.350 and 34.05.353, with the rules review committee electronically for a period of four years from June 10, 2004. The office of regulatory assistance shall negotiate the details of the pilot among the agencies, the legislature, and the code reviser.
     (3) No later than three days after its publication in the state register, the agency shall cause either a copy of the notice of proposed rule adoption, or a summary of the information contained on the notice, to be mailed to each person, city, and county that has made a request to the agency for a mailed copy of such notices. An agency may charge for the actual cost of providing a requesting party mailed copies of these notices.
     (4) In addition to the notice required by subsections (1) and (2) of this section, an institution of higher education shall cause the notice to be published in the campus or standard newspaper of the institution at least seven days before the rule-making hearing.

NEW SECTION.  Sec. 14   The following acts or parts of acts are each repealed:
     (1) RCW 19.85.040 (Small business economic impact statement--Purpose -- Contents) and 1995 c 403 s 403 & 1994 c 249 s 12; and
     (2) RCW 19.85.050 (Agency plan for review of business rules--Scope -- Factors applicable to review -- Annual list) and 1989 c 175 s 74 & 1982 c 6 s 5.

NEW SECTION.  Sec. 15   This act may be known and cited as the "Small Business Regulatory Flexibility Act."