AN ACT Relating to regulatory relief and reform; creating new sections; and making an appropriation.

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

NEW SECTION. Sec. 1. This act shall be known as and may be cited as the regulatory relief and reform act of 1987.

NEW SECTION. Sec. 2. The legislature finds that the regulatory climate in Washington state toward small business is characterized by a multitude of contradictory guidelines, unneccessary delays, and confusing requirements which increase the cost of doing business without benefit to any other societal interest. Efforts to improve our state's regulatory environment toward small business will make our state more attractive to outside business and will allow existing firms to grow and flourish without needless impediments.

NEW SECTION. Sec. 3. The department of trade and economic development shall prepare a proposal to submit to the legislature by December 28, 1987, on the least intrusive, most effective method of implementing the report of the Washington Institute for Policy Studies entitled "Regulatory Relief and Regulatory Reform, the Washington Agenda," set out in section 4 of this act.

NEW SECTION. Sec. 4. (1) Rule of Reasonableness. (a) Problem: Regulations are often imposed without an assessment of their practical impact in the workplace and the marketplace. This leads to colorful anecdotes which serve as "horror stories" directed against regulation in general.

(b) Special Examples: Building codes, worker safety rules, and hazardous waste regulation.

(c) Recommendation: Require an ECONOMIC IMPACT STATEMENT which includes small business input. The statement would provide not only an assessment of the costs imposed by regulation, but a rule of reasonableness to assure that specific requirements are not misplaced or even absurd in the range of situations to which they are applied. Provide an appeal process on grounds of destructive economic impact and unreasonableness.

(2) Presumption of Good Will. (a) Problem: Honest firms seek to comply with the vast range of regulatory requirements, but with the fear that a bureaucratic hatchet is hanging over them. Many small business people come to the point where they don't care if they are breaking a law, since it seems impossible to comply with everything. At the same time, they note some important regulations which are not always enforced. This creates a feeling inequity and has led some to conclude that courteous lying is more effective than honest protest in dealing with unreasonable regulations or with lax enforcement.

(b) Special Examples: Hazardous materials labeling and reporting warning.

(c) Recommendation: Agencies need to train regulators in the intangible known as ATTITUDE, which is mentioned again and again by small business people. Attitude would seem to have three dimensions:

(i) An awareness that even though some regulations have arisen because of abuses, the bulk of those regulated are not abusers.

(ii) Regulations are supposed to be compatible with desirable economic growth; they are not in themselves intended to serve as a means for preventing growth.

(iii) The demands of regulation, and the delays involved, can be crucial drains on a small business which relies on the energy and financial resources of one or a few persons.

If field personnel project an awareness of these facts, this goes a long way to create a climate of mutual good will which assists compliance and reduces resentment.

(3) Public access. (a) Problem: State agency regional office practices often have the effect of restricting CITIZEN ACCESS. These include: Variable or nonstandard business hours, lack of public parking, lack of clearly posted work areas for specific transactions, and the requirement that persons in each region of the state must deal with a designated office.

(b) Special Examples: Contractor licensing and regulation, Secretary of State and Department of Revenue.

(c) Recommendation: Maintain uniform business hours, provide at least one public parking place, post office hours, post office areas for specific transactions, allow visits to regional offices on a convenience basis. These steps would greatly assist small businesses in receiving the full benefit that the state intends to provide through its praiseworthy and recently implemented "uniform business identifier" program, which reduces paperwork and creates a "one-stop" registration process.

(4) "Up Front" List of Requirements. (a) Problem: Despite the masses of forms they require from business, regulators are often unwilling to provide a written statement of requirements or conditions for approval. As a result, those regulated are unsure what they are permitted to do and what they must do.

(b) Special Examples: Building permits and hazardous waste regulations.

(c) Recommendation: Establish in law the right of the regulated party to request and secure a WRITTEN STATEMENT of applicable regulations, compliance with which will result in approval. The basis for this strong requirement is that, since regulations are massive, they should be comprehensive; since standards are extensive, they should be decisive. Otherwise, the leeway for delay and arbitrary decision is too great. A positive tool for progress in this regard is the use of PRE-PERMIT CONFERENCES between regulators and regulated to reach an understanding and agreement on requirements.

(5) Uniformity and Clarity of Requirements. (a) Problem: A lack of consistency and precision in the wording of regulations leaves wide latitude for interpretation. This invites confusion and conflict, leading to delays and high costs.

(b) Recommendation: Provide agency review and rewrite for clarity, including a SYNOPSIS similar to a bill digest interpreting legislation, which would precede the text of the regulation.

(6) Coordinated Requirements. (a) Problem: State and local regulators whether shy away from or expand on federal regulations, but seldom coordinate their requirements. It is not clear which rules take precedence when they are inconsistent, in conflict, or even the reverse of one another.

(b) Special Examples: Building standards, food processing and restaurant operating rules, commercial printing and employee benefit requirements.

(c) Recommendation: A state-initiated process of federal-state-local COORDINATION of related regulations through inter-agency working groups. The second-best solution: A federal preemption statute spelling out which level of government takes precedence when rules are in conflict.

(7) Multiple Reviews and Audits. (a) Problem: Regulatory decisions by local offices of federal agencies often have to be approved by regional and/or national offices. This multiple review requirement creates major delays, and multiple audits impose time demands.

(b) Special Examples: Labor laws and worker health and safety rules.

(c) Recommendation: Adopt Grace Commission proposal that categories of decision be created in which local offices can make FINAL INTERPRETATIONS of federal rules. Require federal agencies to coordinate audit requirements among themselves and with state and local regulators, so the same information need not be provided repeatedly by firms.

(8) Regulatory Delays. (a) Problem: When delays occur in regulatory decision-making, they are often indefinite. This can have a devastating effect on project financing and can even violate contracts relating to construction schedules.

(b) Recommendation: Require regulators to state in writing why they are taking extra time with a decision, and to indicate how long the delay will be, based on a reasonable, published SCHEDULE of time requirements. If the timetable is exceeded, provision should be made permitting the small business firm to proceed.

(9) Sunset Law for Regulations. (a) Problem: Regulations over time can become detached from their original intent. Even those which remain relevant become part of an ever-larger body of law, since the tendency is to add new regulations without deleting old ones. The drain of time and energy required to comply with this mass of rules is in itself a major burden on small business operations.

(b) Recommendation: SUNSET LAWS have been used in many states for regular review of programs, which must prove their worth or be terminated. If anything, sunset laws are more appropriate to regulations than to programs and agencies. A "regulatory relief and reduction act" could provide that each regulation must, at least every five years, demonstrate it is relevant and proper, if it is to continue in force.

(10) Small Business "Cutoff Points." (a) Problem: Government bureaucracies are large organizations which relate more easily to corporations than to the world of small business. Voluminous reporting requirements assume the existence of specialized staff which small firms often lack. And regulation itself is premised on a level and impact of activity which small firms may not create.

(b) Special Examples: Mandated employee benefits and job classification rules.

(c) Recommendation: Small business CUTOFFS do exist for a number of regulations. These are size levels below which a firm is not subject to certain rules. There is need for constant review and use of judgment in setting the cutoff point. Ultimately, however, the goal of small business is not to pit big against small firms but to find a workable common denominator for all.

(11) Destruction of Existing Mechanisms. (a) Problem: Regulations often arise as a response by government to a few bad examples or cases of abuse which seems to justify imposing requirements upon all. This process often sweeps away informal or privately-provided arrangements which meet the intent of regulation effectively and at less cost.

(b) Special Examples: Private vocational school insolvency insurance.

(c) Recommendation: Require government regulations to exempt or otherwise recognize PREEXISTING ARRANGEMENTS covering all or part of an industry and satisfying all or part of a regulatory goal, and to coordinate government requirements with these arrangements whenever possible.

(12) Regulation of Work in Progress. (a) Problem: Good faith compliance efforts by firms are complicated when regulations are changed and applied to jobs in progress, particularly if fines are assessed while firms make modifications to comply with the new rules, a situation known as "unsafe condition while trying to get safe."

(b) Special Examples: Commercial construction.

(c) Recommendation: Regulators should be given, and encouraged to use, some leeway in applying rule changes to WORK IN PROGRESS where this involves disruption that could increase risk. Penalty assessments should not be applied to good faith efforts at compliance with regulatory changes on work in progress.

(13) Building Inspections. (a) Problem: There is a statewide building code. However, local governments are allowed to go beyond its requirements. So many jurisdictions and departments are involved in building inspections that it is difficult to obtain a clear picture of total requirements. The lack of coordination among agencies is aggravated by a lack of policy continuity within agencies.

(b) Special Examples: Historical building renovation, food processing facilities, marina developments and general manufacturing.

(c) Recommendation: Tighten the standards whereby local jurisdictions are allowed to depart from the STATEWIDE BUILDING CODE. Restrict variances to those dictated by unusual circumstances or needs. Establish a review process to assure this standard is met.

(14) New Building Technologies. (a) Problem: Building codes of many agencies fail to keep up with new construction and design technologies and to include them in the list of permitted methods.

(b) Special Examples: General manufacturing.

(c) Recommendation: Establish a building technologies advisory board at the state level which assesses new methods, and forwards information about them to state and local regulators. Require these regulators to incorporate into their codes a reference to each NEW BUILDING TECHNOLOGY or design feature within a reasonable time period.

(15) Regulation of Emerging Technologies. (a) Problem: In areas of new or changing technology, there is often a lack of sophistication and knowledge by regulators. Part of the state's push to attract high-tech business must be the ability to evaluate environmental health aspects of advanced industrial processes. Without this ability, regulators are tempted to block development or to hold the threat of shutdown over new operations. Another problem aggravated by the lack of technical expertise is that new processes can't be analyzed by the state unless the user provides a great deal of information, which at times amounts to giving away trade secrets.

(b) Special Examples: Hazardous materials regulation.

(c) Recommendation: As part of the state's economic development program, a small but qualified corps should be recruited to assess the use of materials in EMERGING TECHNOLOGIES and to develop APPROPRIATE REGULATIONS in a reasonable time. There should also be a legal means to assure confidentiality of information shared by firms for regulatory purposes.

(16) Mandated Employee Benefits. (a) Problem: Because some firms don't properly support their employees, mandated benefit laws have been created by the federal and state government. These laws place on honest firms a burden that can be heavy in low-profit margin industries. A particular sore point is experience rating systems. Many small business people feel these systems are used too broadly, causing prudent firms to be hit with costs based on the actions or failure of others. A parallel concern is the belief that rates are imposed on small firms which result from the hiring and layoff policies of large corporations.

(b) Special Examples: Pension requirements, rates for unemployment and disability & medical insurance.

(c) Recommendation: Experience RATING SYSTEMS should be closely monitored and made more specific so they do not impose costs on firms related to the actions and policies of others beyond their control. At the very least, the state needs to better explain current policies to the satisfaction of those who are subject to the current rate structure.

(17) Employer Liability. (a) Problem: Liability concepts have arisen which place sharply rising costs on many small firms for legal fees, awards, and insurance. Firms must pass on these costs or go out of business. The public does not realize this impact. Ultimately, its effect is to discourage business start-ups and help shut down existing firms.

(b) Special Examples: Worker injuries and disabilities.

(c) Recommendation: Provide by statute that the loser in a liability suit shall be RESPONSIBLE FOR LEGAL FEES, in order to provide an effective restraint on the growth of liability concepts which exempt would-be plaintiffs from a reasonable degree of responsibility. Also, redefine worker health laws which make an employer's CONTRIBUTORY RESPONSIBILITY into total responsibility.

(18) Financial Liability for Terminated Employees. (a) Problem: Employers who discharge workers for criminal or questionable actions, or for knowingly violating company rules, or whose employees quit and then claim they were fired, can be liable for up to 30 weeks of unemployment benefits because of BURDEN OF PROOF laws.

(b) Recommendation: Establish a FAST TRACK hearing process which covers the above types of cases. Set a maximum time period for review of such cases by a hearing officer, upon request of the employer. The decision would be preliminary; that is, the employee may appeal. But if the hearing officer finds for the employer, the burden of proof would shift to the employee and unemployment benefits would cease unless reinstated on appeal.

(19) Competition from Tax-Exempt Entities. (a) Problem: Tax-exempt entities have expanded into many commercial business lines because of excess capacity or extensive grants of authority. Tax-exempts have an unfair price advantage over tax-paying firms.

(b) Special Examples: Computer services, commercial printers, janitorial services, landscaping services, marinas, bookstores and some agricultural products.

(c) Recommendation: Restrict the competitive activities of not-for-profit entities either by limiting their charters or requiring them to pay in-lieu taxes on sales. Also, encourage non-profits to link their job-training programs with private employers rather than setting up competitive operations.

(20) State Contract Bids. (a) Problem: Many small firms no longer bid on state contracts, and a number of contracts have gone to out-of-state firms. The barriers include contract specifications, which at times are so broad they offer little guidance and at other times appear tailored to a sole source, resulting in price-gouging by the supplier. At the same time, state payments are slow and do not include payment of any finance charge. Payments must be reauthorized if they are to be made after the end of a fiscal year.

(b) Special Examples: Contractors' construction equipment.

(c) Recommendation: Establish a temporary task force in General Administration of state and business people to develop request for proposal (RFP) CRITERIA which offer adequate detail for realistic bids and encourage competitive bids from multiple suppliers. Implement these criteria through a requirement that, for each contract, the current supplier or someone else in the industry draft a specification which would include several competitors as potential suppliers, and submit this draft to the state. Require payment on a reasonable schedule with late fees, and provide automatic carryforward of amounts to be paid in the next fiscal year.

(21) Mandatory Bid Requirement. (a) Problem: Despite energetic policing by General Administration, many agencies ignore the mandatory bid requirement that all agencies buy from the supplier winning the contract award.

(b) Recommendation: Stronger ENFORCEMENT, including possible penalties such as voiding any contract found to be in violation of the mandatory bid requirement.

(22) Intrastate Truck Tariffs. (a) Problem: INTRASTATE truck tariffs (rates for truck hauls) have not been deregulated in line with interstate rates, and remain far above them. Similarly, an intrastate permit costs $70,000 vs. $1,500 for a routinely granted interstate permit, yet the former carries onerous restrictions regarding forbidden trips and loads.

A strange coalition has arisen of large, registered trucking firms which use high in-state rates to subsidize interstate trips, and unregistered truckers who haul in-state at interstate rates but don't comply with vehicle safety and insurance laws. The primary victims of the situation are in-state businesses seeking to supply other in-state firms. Interstate hauling rates are so much lower that suppliers in Portland or even Los Angeles can often prevail over those promoting trade between Seattle and Spokane. This works directly against the state's economic development goals.

(b) Recommendation: Repeal by the Utilities and Transportation Commission of existing INTRASTATE TRUCKING TARIFFS AND RESTRICTIONS on routes and hauls, and adoption of new rules conforming to Interstate Commerce Commission (ICC) standards for interstate trucking.

(23) Targeted Jobs Tax Credit. (a) Problem: The Department of Employment Security focuses primarily on finding jobs for people as quickly as possible. The Department has not been sympathetic with employer attempts to use the federal Targeted Jobs Tax Credit because of the time needed to process applications. The paperwork is difficult, and few employers have used the program thus far.

(b) Recommendation: The Targeted Jobs Tax Credit could have enormous impact, but so far has been responsible for the creation of only two percent of jobs added since its enactment. If every employer in the state added one worker under this law, the tax saving to firms in Washington would be an estimated $450 million. An effort to surmount the paperwork hurdle is beginning to succeed, and now requires Employment Security SUPPORT AND INVOLVEMENT.

(24) Small Business Financing. (a) Problem: A major barrier to small business expansion is the inability to obtain financing. The complaint is made that there is really no commercial loan market below $500,000. Instead, small business loans are in fact personal loans. Bankers respond with concern that many small business people do not realize that banks are prohibited by law from being investors and are restricted to being lenders. This means banks cannot provide funds in return for equity shares but only on the basis of security. Where firms require additional capitalization, this must come from investors.

(b) Recommendation: Through the Departments of Trade and Economic Development and Community Development, the state should build on its current efforts to EXPAND SMALL BUSINESS FINANCING. The state can encourage creation of more venture capital funds not only from groups of individual investors, but from community-based business consortia which would assist start ups and expansions in their region.

(25) Lack of Accountability. (a) Problem: Proper redress or correction of faulty or biased regulatory decisions are virtually impossible because no system of accountability affects the departments or individuals responsible. Regulatory bureaucracies often are expert in passing responsibility on to an endless procession of other departments or agencies. Errors are passed off as uncorrectable and redress is exceptionally difficult to effect since no concept of accountability process exists.

(b) Recommendation: Provide an OMBUDSMAN function responsive to failures in public service actions. Give such a unit the teeth and authority to bring about corrections and redress of faulty actions and the ability to confront the responsible individuals with career consequence actions.

NEW SECTION. Sec. 5. The sum of fifty thousand dollars, or so much thereof as may be necessary, is appropriated from the general fund to the department of trade and economic development for the biennium ending June 30, 1989, to carry out the purposes of this act.