The Role of Efficient Regulation in Building Vibrant Economies

Some states are finding ways to make rules easier to navigate and less costly for business, while continuing to protect the public's interests.

The Role of Efficient Regulation in Building Vibrant Economies

State lawmakers and economic-development managers are always looking for opportunities to improve the regulatory climate for businesses. But too often, proposed solutions set up a false choice between growing the economy and adequately protecting public health, the environment, and consumers. The result is an unproductive debate between eliminating as many rules as possible or preserving each one at all costs without regard for changing circumstances.

Advocates for less regulation sometimes ignore the many important reasons that rules are put in place. Regulatory systems that function efficiently, with strong management oversight, help to minimize negative impacts while providing fair “rules of the game,” giving businesses less to fear from competitors who might exploit dysfunctional regulatory systems to cut their costs unfairly.

But governments can undermine opportunities for investment and job creation when businesses are forced to spend too much time or money navigating inefficient or unnecessary regulatory processes, or when new projects are delayed or canceled because companies don’t understand how to comply with the rules—or can’t afford to.

As recent research by The Pew Charitable Trusts illustrates, improvements in how regulatory agencies interact with businesses can make launching a company or bringing an innovative product to market quicker and easier. And by administering regulations more effectively and partnering with the private sector, states can lower compliance costs for businesses while still achieving important goals such as protecting the environment and public health.

While states’ attempts to improve how they regulate business are still in the early stages, policymakers now have a wide range of inventive and successful ideas to emulate. In 2017, Colorado agencies reported saving businesses 2.3 million hours, largely by eliminating unnecessary administrative tasks and making their dealings with the state more user-friendly. For example, Colorado reached out to large employers of pharmacists and through their insights learned about cumbersome licensing processes that were causing delays in hiring for this vital workforce. Ultimately, the state was able to reduce the time to get a pharmacist license from 114 days to 18. “It’s crazy,” former Colorado Gov. John Hickenlooper said at a Pew-hosted event last November, referring to the hurdles that businesses had faced. “That’s just a lot of time and a lot of efficiency that we didn’t know was being wasted out there.”

In 2015, the Arizona Government Transformation Office, under Gov. Doug Ducey, held a “permit blitz” to improve how dozens of permits were administered. The project brought together officials from 23 agencies to work on 40 permit processes. Even though the subject matter of these permits varied by agency, problems such as incomplete applications, excessive handoffs, internal review loops, and poor tracking were found to be slowing virtually every process. At the end of the project, the office reported that the average time to approve or deny a permit was reduced by more than 60 percent.

Often, common-sense solutions can have a large impact. Minnesota shortened the time it takes to get a building contractor’s license from six weeks to two, in part by simply allowing staff to call the applicant to ask questions about the application instead of requiring communication by mail.

Another example comes from the Washington State Department of Commerce, which has developed a feasibility worksheet for manufacturing firms exploring site options to help them navigate the city, county, state and federal regulatory requirements of each potential site. Especially valuable for small manufacturers, the worksheet provides guidance on how to work with the various agencies as well as estimates of the time and costs for fulfilling regulatory requirements. It's estimated that the worksheet can save a manufacturer two months in the process of determining whether a potential site would work.

Paying attention to how regulations are implemented is often inexpensive and can even lower costs for governments while yielding value for businesses. Unfortunately, states are not rigorously measuring the results of regulatory reforms, so we don’t know which new approaches provide the greatest economic benefit. A long-term commitment to improve regulatory processes and outcomes would include setting goals and then monitoring whether these goals have been achieved.

It's a commitment that governments can't afford not to make as they work to build more vibrant economies. As Hickenlooper put it, making regulatory operations more efficient is "powerfully essential for a state to grow its economy."

This article first appeared in Governing magazine.

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State Strategies to Help Businesses Launch and Expand

State governments can undermine opportunities for investment and job creation when businesses spend too much time or money on inefficient regulatory processes, or when new business projects get delayed because firms don’t understand how to comply with the rules. To address this challenge, state policymakers can focus on two types of reforms.