SB 24-REGULATIONS: ADOPTION & JUDICIAL REVIEW SENATOR DAVE DONLEY, prime sponsor of SB 24, presented SB 24. SENATOR DONLEY said the bill is similar to legislation he has had before the Legislature for six or eight years and revises the current system of adoption and implementation of regulations under the Administrative Procedures Act. SENATOR DONLEY stated there is a huge volume of regulations that now exist and all of them carry the power of law. SENATOR DONLEY explained the Legislature does not have the power to change regulations by any means other than passing new legislation inconsistent with them. SENATOR DONLEY asserted that the process by which a regulation is adopted is not as stringent as the legislative process and the regulations that may be adopted can be quite different from the proposed regulations noticed for public comment. SENATOR DONLEY stated that the legislative process is much more open to the public; he proposed SB 24 would open up the regulation process. SENATOR DONLEY explained he has heard complaints from constituents about excessive and burdensome regulations and SB 24 is an attempt to change the process of adopting regulations in several ways. First, most proposed regulations would be noticed again if there was a substantial change from the initial proposal. This would allow the public to comment on final versions of regulations to be adopted. Second, SB 24 requires the department to do a cost/benefit analysis on every proposed regulation to determine if the proposed regulations are "more trouble than they are worth." SENATOR DONLEY said this is a very positive and minimal thing to ask of a bureaucracy imposing "new laws," and added SB 24 does exempt emergency regulations. SENATOR DONLEY observed there is a sectional analysis of the bill available for further explanation. SENATOR DONLEY explained the proposed committee substitute, saying it alleviates the concerns of the Alaska Court System and does not allow challenges to regulations to be heard in District Court. The Board of Fish, Board of Game, the Limited Entry Commission and the Department of Corrections are all exempt from the requirements of SB 24 and SENATOR DONLEY stated he is open to arguments about further valid exemptions. Number 180 SENATOR TORGERSON asked why some departments should be exempted from the cost/benefit analysis requirement. SENATOR DONLEY replied a cost/benefit analysis may be difficult to do for resource questions, and these departments are faced with the necessity of making quick management decisions in response to a quickly changing environment. SENATOR DONLEY said he did not want to bog them down. SENATOR TORGERSON argued these departments would be exempt from analyzing emergency regulations anyway and perhaps they should be required to do the analysis if and when they permanently adopt regulations. Number 216 SENATOR DONLEY moved the adoption of the committee substitute dated 1-26-99. Without objection, the committee substitute was adopted. MR. JACK KREINHEDER, representing the Office of Management and Budget, testified that the Administration supports and shares the objective of making the regulatory process more responsive to and accommodating of the public. MR. KREINHEDER mentioned several steps that have been taken in this direction. For example, Executive Order 157, issued in 1995, directed all state agencies to use plain English, minimize the cost of compliance with regulations and work closely with the public to accomplish the objectives set out in the statutes underlying regulations. MR. KREINHEDER remarked that agencies have done a good job on this and also on conducting a review of existing regulations. MR. KREINHEDER explained regulations are like statutes and are a necessary response to new issues raised in our complex society. In addition to Executive Order 157, HB 130 (also passed in 1995) required state agencies to solicit and consider the cost to the public of compliance with proposed regulations. Agencies have been doing a good job of trying to minimize costs to the public, according to MR. KREINHEDER. MR. KREINHEDER concluded by saying the committee substitute makes some improvements to SB 24 but the Administration still has concerns, particularly with the cost/benefit analysis requirement. MR. KREINHEDER repeated that the Administration supports the concept behind the bill but thinks implementation may be costly and impractical. MR. KREINHEDER further stated that in many cases the costs and benefits behind proposed regulations are difficult to calculate, and added that the calculations behind these cost/benefit analyses must be thorough enough to stand up in court. He said this analysis may delay new regulations, and he estimated the cost of implementation of SB 24 in excess of 1.5 million dollars. MR. KREINHEDER congratulated CHAIRMAN TAYLOR on his appointment to the Regulation Review Committee. Number 321 CHAIRMAN TAYLOR recalled a bill requiring a cost/benefit analysis of federal mandates that the Governor vetoed in 1995. CHAIRMAN TAYLOR said the Governor told him the Administration wanted to do what was required in the bill, but did not want to be forced to do it. CHAIRMAN TAYLOR commented that the question seems to be if the public should know how much the cost imposed by a new regulation will be. CHAIRMAN TAYLOR noted SB 24 has twenty-five fiscal notes from departments that say it will be near impossible to do, basically, the very thing that is already being done under Executive Order 157. CHAIRMAN TAYLOR stated you can not minimize the cost of compliance with a regulation without first knowing what the cost is. MR. KREINHEDER responded by saying there is a difference between minimizing the cost of compliance and doing a full cost/benefit analysis that also attempts to quantify a proposed regulation's benefit to the public. MR. KREINHEDER explained there are many areas like public safety in which the benefit is difficult to quantify. He told the committee a good job requires research and information. SENATOR DONLEY called attention to the fact that Executive Order 157 required the submission of a report on existing regulations that examined the cost to the public. SENATOR DONLEY said this constitutes a cost/benefit analysis and the Administration's opposition to doing the same thing for future regulations seems inconsistent. MR. KREINHEDER replied that agencies looked at costs but not specifically in regard to all regulations. He reiterated this bill will require a hard dollars and cents analysis. SENATOR TORGERSON asked MR. KREINHEDER for specific examples in which proposed regulations were changed to minimize the cost to the public. MR. KREINHEDER cited the establishment of mixing zones as a remedy to the high cost of meeting federal water quality standards. MR. KREINHEDER said he would be happy to compile more examples and present them to the committee. SENATOR TORGERSON replied he would appreciate that. Number 423 SENATOR DONLEY recognized there may be non-economic issues that are not easily quantified. He asked MR. KREINHEDER if the bill would be better if it included recognition of non-economic issues. MR. KREINHEDER said that, and the recognition that the dollars on the benefit side don't always have to exceed the dollars on the cost side, would help. SENATOR DONLEY said he was willing to work on this. Number 440 CHAIRMAN TAYLOR showed the committee a pile of documents composed of regulation changes submitted to the Lt. Governor. CHAIRMAN TAYLOR noted the significant changes made in longhand to these documents and wondered who made them. CHAIRMAN TAYLOR found out these changes were made by the Department of Law after the whole process had been completed. CHAIRMAN TAYLOR said the public has no opportunity to see or comment on any of these changes even though the change in one word may have a huge impact on an effect of a regulation. MS. DEBORAH BEHR, Assistant Attorney General and Regulations Attorney for Alaska, testified that the committee substitute for SB 24 is an improvement but the department still has concerns with the bill. MS. BEHR stated the concepts in the bill have been presented in the past and rejected because of the significant fiscal impact and the opportunity for challenge of regulations particularly in an attempt to obstruct development. MS. BEHR said the mandatory requirements within the bill can oblige the court to void regulations under review if processes are not precisely followed. Regarding the cost benefit analysis, MS. BEHR expressed concern with non-economic costs and the inability to quantify some benefits. MS. BEHR used the difficulty of opening the Hall road as an example. MS. BEHR stated that if this bill had been in place, she does not believe the road could have been opened. She concluded by saying this is just one example among many. Number 503 MS. BEHR explained the definitions of many terms in the bill such as "cost" and "benefit" as well as "public" are not clear and this could be very problematic. MS. BEHR brought to the committee's attention a cost/benefit analysis of one regulation promulgated by the Department of Fish and Game. She pointed out the sheer volume of the analysis and said, even after this lengthy analysis, there is no certainty that the benefit can precisely be shown to exceed the cost. If it were challenged, it might not stand up in court. MS. BEHR indicated that several things have been done to reduce costs and provide better public notice of proposed regulations and changes. MS. BEHR has modified the public notice forms for regulations to include a section soliciting ideas on the cost of compliance. MS. BEHR worked on the passage of HB 130 which mandated that the cost of compliance to the public be considered in the adoption of all new regulations. She assured the committee that if there is not a statement that cost has been taken into account on a regulation adoption order, she will not accept the adoption order. MS. BEHR remarked that regulations are adopted in a public forum, like the legislature. MS. BEHR concluded that, on the surface, the bill looks good, but budget cuts and other circumstances often require statutory amendments be done by regulation, and that would not stand up under this bill. MS. BEHR also commented that a view of the budget is a different perspective than a view of an individual regulation and she is concerned how the cost/benefit analysis provision in SB 24 would work in a climate where we don't have the money to do analyses that will stand up in court. MS. BEHR also expressed concern with the availability of business proprietary information that would be necessary to do a cost/benefit analysis on regulations affecting business. Given the constitutional right to privacy, MS. BEHR doubted she could get this information even if she had a subpoena. Number 548 MS. BEHR addressed SENATOR DONLEY'S concern about regulations which are on the books but are not working. MS. BEHR remarked this is a valid concern but observed that under SB 24, a cost/benefit analysis would have to be done in order to take these old regulations off the books. Furthermore, if the analysis was challenged, the Commissioner would have to show with the precision of a cost/benefit analysis that those regulations should be removed. MS. BEHR offered some suggestions to reduce the fiscal impact of SB 24. First, she suggested Commissioners be given discretion to determine when costs and benefits are not reasonably identified, or when it would be cost prohibitive to do so. Second, MS. BEHR suggested the requirement of a cost/benefit analysis could be restricted to only major projects. The danger with this is these very cost/benefit analyses may provide grounds for a legal challenge of regulations in order to halt large development projects. Third, MS. BEHR suggested that a regulation should not be allowed to be overturned simply on the grounds of the cost/benefit analysis. MS. BEHR stated that even with the above changes, SB 24 will have a fiscal impact. Number 572 MS. BEHR addressed the issue of supplemental public notices and said SB 24 would require new rounds of public comment at a cost of possibly $1,500 - $3,700 per round. The bill does say only significant changes require additional public comment, but MS. BEHR agreed with CHAIRMAN TAYLOR that sometimes even a minor change may be determined significant by the court. TAPE 99-05, SIDE B Number 584 MS. BEHR worried that agencies do not have the money in their budgets to implement SB 24. She also worried that delays to a project may mean its death, and another round of public comment on a last minute legal change to a regulation may mean missing a construction season. MS. BEHR noted that certain programs require quick changes that need to be done by regulation, and SB 24 would make that difficult to do. She maintained that there are checks within the Administrative Procedures Act on the amount of change an agency can make to regulations. First, a change must fit within the scope of the public notice; MS. BEHR regularly tells agencies they cannot make a change because it does not fit the scope of what has been noticed. Second, an agency must have the legal authority to make a proposed change; if they do not, there is no change made. Additionally, if a change is way out of line, it may be challenged in court. MS. BEHR stated that some Commissioners are now posting regulations on the Internet and she encourages them to do so. Regulations are a matter of public record and the public always has access to them. MS. BEHR offered other cost-saving proposals that might improve things: continued posting of regulations on the Internet, exemption of Boards and Commissions (which adopt regulations in public meetings), exemption of rules made as a result of negotiated rule- making and the consideration that regulations not be voided if somehow "someone gets it wrong." Number 545 SENATOR DONLEY asked MS. BEHR if she could explain administrative rule making. She replied negotiated rule-making allows the establishment of a working group comprised of public and private interests to negotiate regulations. If the group can not agree on regulations, they submit a report identifying any consensus they have reached. This is the point at which proposals go out for public comment. MS. BEHR said negotiated rule-making has worked very well and the public responds well to it but, due to a lack of funding, it is not used as often as it might be. MS. BEHR reported the third major factor to consider is that SB 24 sets up a presumption of invalidity. This means a regulation can not be upheld by a court unless it is shown to be the least intrusive on those affected, or unless the state can show a compelling interest in maintaining it. MS. BEHR said a compelling interest will have to be quite significant. Currently, the law presumes validity until a challenge is decided on in court. This establishes some stability for business that could not be guaranteed under SB 24. Number 516 CHAIRMAN TAYLOR inquired if this least intrusion standard is the same standard used with condemnation proceedings and the right of eminent domain. MS. BEHR was not certain. CHAIRMAN TAYLOR commented that courts have had to make this type of decision for many years. DEBORAH BEHR stated there is a broad range of different types of regulations, some of which do not lend themselves to an easy determination of the least intrusive standard. She suspected it would be hard to tailor a bill to fit across such a broad spectrum of programs. MS. BEHR used public safety concerns as examples of issues that would be easily challenged in court and she said, basically, "The State loses unless we show." MS. BEHR said departments will have a hard time enacting regulations to implement the will of the Legislature unless they can provide a positive cost/benefit analysis. She proposed SB 24 will cause many unintended consequences. MS. BEHR stated that the current standard is adequate and suggested that the Legislature may enact statutes to prohibit the adoption of regulations in certain areas. In relation to the committee substitute, MS. BEHR agreed with the removal of review at the District Court level. Regarding review of regulations, MS. BEHR said the Regulation Review Committee now has the power to review regulations. She commented the bill overlooks two agencies that promulgate regulations, the Office of the Governor and the University of Alaska. She suggested another approach to regulation review might be to audit problem areas within the administrative code rather than review the entire code. She ended her testimony by saying she would be willing to work with the committee on this issue. Number 461 CHAIRMAN TAYLOR asked about the problem of issues being endlessly tied up in "the political merry-go-round" of administrative law. He expressed concern about the due process aspects of regulations and the means by which the public can get a final decision on a regulation question. MS. BEHR replied she would refer this question to one of the hearing officers who deal with this type of issue every day. SENATOR TORGERSON asked MS. BEHR for examples of regulations which have been adopted that substantially changed or subverted the intent of the Legislature. MS. BEHR replied that Alaska is unique in the fact it does not have committee reports or consensus reports that reflect the will and intent of the Legislature. She suggested that in order to avoid confusion, the Legislature should provide as much information as possible through purpose and intent statements as well as through the legislation itself. MS. BEHR said the biggest problem in deciding regulation questions is divining what the intent of the Legislature was many years after the fact. Number 401 SENATOR TORGERSON recalled hearing "war stories" of regulations that surpassed not only the intent, but even the letter of the law. He mentioned that including a new section in every bill with language to prohibit certain regulations might be a good idea. MS. BEHR clarified that type of language would be adopted as a part of each individual bill, not in a bill like SB 24 which deals with the structure of the Administrative Procedures Act. CHAIRMAN TAYLOR observed there exists a type of "pocket veto" when no regulations are created to implement a bill that the Governor has opposed. He said this has happened to bills he has introduced. On the other hand, sometimes the Administration brings forward legislation which fails to pass and the affected department(s) subsequently enact regulations which carry out essentially the same objectives, according to CHAIRMAN TAYLOR. Number 354 MS. BEHR observed that the Regulation Review Committee can ask for a progress report from a department at any time. SENATOR DONLEY thanked MS. BEHR for her constructive, new suggestions. He asked what might be a better standard for the court in place of "compelling". He commented he likes the idea of giving the Commissioners discretion in cost/benefit analyses and he agrees with CHAIRMAN TAYLOR'S idea to include some sort of statute of limitations on how long things can be tied up in the regulatory process. SENATOR DONLEY said after a certain amount of time, an issue should go directly to court. CHAIRMAN TAYLOR brought up an example of inconsistency of regulations within different departments. He would like to see more openness and less politics in the regulation process. Number 301 SENATOR TORGERSON asked MS. BEHR if she could provide the committee with information about the number of regulations she reviews per month and the average time line of processing a regulation. MS. BEHR observed that due to staff levels, the Department of Law does not submit perfect regulations. Instead, regulations are drafted by a trial attorney, then go through the process and end up on the desk of MS. BEHR, who is a regulation specialist. MS. BEHR returns any substantive changes to the department for readoption, or she may disapprove proposed regulations if they do not follow the law. Number 236 MS. PAM LABOLLE, President of the Alaska State Chamber of Commerce, reported that regulatory reform has been a priority for the Chamber for years. She pointed out that the business community is active in the legislative process, but it is more difficult to participate in the administrative process with as much success. MS. LABOLLE declared the Chamber supports the bill and has promoted other legislation encouraging cost/benefit analyses. She said it appears that Executive Order 157 and HB 130 have been deemed too costly and ignored. MS. LABOLLE said businesses worldwide make cost/benefit decisions every day and even the Legislature uses fiscal notes to assess the cost of proposed legislation. She said it seems agencies are not concerned with increasing costs unless their accountability also increases. MS. LABOLLE expressed support for a fixed time line for the adoption of regulations and a repeal of regulations by the Legislature of regulations that do not follow their intent. She said these regulatory issues have been building up as business struggles to function in the face of excessive regulation. MS. LABOLLE remarked she would be willing to work on this issue. MS. LABOLLE said, unfortunately, companies are reluctant to disclose problematic regulations, unless they are egregious, out of fear of damaging their relationship "with this agency that has control over their lives." Number 139 MR. DOUG WOOLIVER, Administrative Attorney for the Alaska Court System, clarified that the reason for the amendment removing the provisions relating to District Courts had nothing to do with the competence of the Courts. Rather, District Courts do a different type of work and are designed to handle a large body of cases that can be fairly quickly resolved. MR. WOOLIVER stated that District Court judges are as competent as Superior Court judges, but the type of case they deal with is different; that was the only concern of the Court System. SENATOR DONLEY replied it might be good to try the cases in District Court in order to increase public access and speed up the process. Number 60 SENATOR DONLEY reported that he would work on developing a committee substitute incorporating the work done today and he would bring it before the committee. CHAIRMAN TAYLOR said he would schedule the bill at SENATOR DONLEY'S convienence.