Rule changes to get scrutiny: State agencies now must consider economic impact

May 30, 2005

Indiana's small-business owners will encounter a friendlier regulatory environment in July, when sweeping legislation takes effect requiring state agencies to consider the impact of their policies on small businesses before adopting them.

House Enrolled Act 1822 should help ease the burden of what advocates consider unnecessary regulations on small businesses by requiring agencies that intend to change or adopt a rule to provide an economic-impact statement first.

The statement must include a regulatory-flexibility analysis that evaluates alternative methods that could minimize the financial impact on small businesses. Since the U.S. Small Business Administration says owners spend about $7,000 a year per employee to conform to new regulations, the legislation is a welcome change.

"There are tons and tons of rules and regulations," said Brian Bergsma, the Indiana Chamber of Commerce's director of small business and economic development. "This says they need to be very cognizant and make sure they do everything they can to help small businesses comply with the regulations, and not come down with a heavy hand."

Accompanying legislation, House Enrolled Act 1265, mandates that state agencies justify the costs of their proposals and requires them to assign a smallbusiness regulatory coordinator to each administrative rule proposed.

Last, but most importantly to many advocates, is language that provides immunity to small-business owners who voluntarily notify an agency of a rule vio- lation. They would not face civil or criminal liability in an administrative action if they provide the notice within 45 days after discovering the violation, correct the violation within a certain time, and cooperate with any investigation.

"They're not going to get whacked by the enforcement agency," said Jason Shelley, executive director of the Indiana office of the National Federation of Independent Business. "Right now, there's no incentive to come forward. This creates a better working relationship between small business and government, as opposed to an adversarial relationship."

More states are beginning to give small-business owners more flexibility in the regulatory arena. Only three states-Arkansas, New Mexico and Virginia-had adopted laws prior to this year. But 18 states, including Indiana, introduced legislation this year.

Gov. Mitch Daniels signed House Enrolled Act 1822, which had bipartisan support, into law May 6. Rep. Terri Austin, D-Anderson, authored the legislation, which was co-authored by Reps. Cindy Noe, R-Indianapolis; Carolene Mays, D-Indianapolis; and Randy Borror, R-Fort Wayne.

Mays backed the bill to give small businesses a larger say in government regulatory matters.

"What we want to do is hold the state agencies accountable," she said. "We want them to stop and think about what they're doing and that there might be unintended consequences. If we want small businesses to run effectively, we need to make sure the laws and regulations that we enact do not hinder them."

Any state agency can adopt a rule. The Indiana Occupational Safety and Health Administration of the state Department of Labor is one of the larger rule-makers. But anyone who violates an IOSHA rule is only immune from liability for minor infractions that do not harm the environment or an employee.

Both House Enrolled Acts 1822 and 1265 exclude the Indiana Department of Environmental Management, because IDEM already has similar rules in place.

The Greater Indianapolis Chamber of Commerce backed the legislation and is trying to get the City-County Council to pass a similar measure pertaining to city ordinances. The Chamber so far has been unsuccessful, said Mark Fisher, the organization's business-advocacy manager.

The Indiana Manufacturers Association joined the other business advocates in supporting the regulatory-flexibility legislation.

"It's something I know the business community has wanted for some time," said Patrick Bennett, the IMA's vice president of environment, energy and infrastructure. "They certainly know the importance of complying with regulation, but also need to have good partners in business. The manufacturing and business communities are hopeful the new administration will govern in ways that will embody the spirit of HB 1822."

EDGE reworked

Imagine the National Football League allowing other teams to bid on Peyton Manning before the Indianapolis Colts could renegotiate his contract. While the scenario may seem silly, Indiana businesses faced a similar situation due to an unusually crafted state law that encouraged bidding wars and put the state at risk of losing companies creating or retaining jobs.

The Legislature created the Economic Development for a Growing Economy, or EDGE, tax credits in 1994 as part of then-Gov. Evan Bayh's economic-development package. At the time, economicdevelopment leaders felt they needed a new weapon as the battle between states for economic-development projects intensified. Before the passage of EDGE, the General Assembly had to approve large incentive packages on a project-by-project basis. The requirement of a competing offer assured that the state used EDGE credits only for projects pursued by other states.

But those companies seeking EDGE tax credits no longer need the prerequisite. The General Assembly this year removed the requirement and reduced the number of employees an applicant must have to qualify from 200 to 75.

"That's a positive in terms of the opportunity for small businesses to apply," Bergsma said.

The measure passed both chambers by a wide margin: 74-2 in the House and 47-0 in the Senate.
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