You asked to what extent other states use cost/benefit analysis in their regulation adoption process, either before or after a regulation is adopted. (This memo uses the terms rule and regulation interchangeably. )

SUMMARY

Colorado, Idaho, Kentucky, North Dakota, Washington, and Wisconsin require agencies, under certain circumstances, to prepare a cost/benefit analysis of proposed rules, and Michigan has pending legislation that would impose similar requirements. The analysis typically identifies the costs of complying with the proposed regulations and administering them and the benefits the agency proposing them believes they will produce. In most cases, the requirements only apply under limited circumstances, for example if the proposed rule would impose costs on small businesses or upon the request of the legislative committee that has cognizance over the subject matter. Colorado, North Dakota, and Washington require agencies to consider alternatives to the proposed rule.

In addition to these provisions, at least five states require agencies to estimate a proposed regulation's fiscal impacts on the private sector, most commonly the costs it will impose on small business. These states are Arkansas, (Ark. Code § 25-15-204), Massachusetts (30A Mass. Gen. Laws § 5), Indiana (Ind. Code § 4-22-2-29), Nebraska (Neb. Rev. Stat. § 84-907. 09), and Utah (Utah Code § 63-46a-4). These states do not require a comparison of the costs with the benefits of the proposed regulation.

Florida requires a cost-effectiveness analysis under limited circumstances. (Cost effectiveness compares the relative costs of two or more courses of action in accomplishing a particular task, as distinct from the costs and benefits of the agency's actions. ) When a person affected by the proposed rule submits a lower cost regulatory alternative, the agency must prepare a statement outlining the expected costs of the rule and explaining why its approach minimizes those costs (Fla. Rev. Stat. § 120. 541). The agency must adopt the lower cost alternative or explain why it was rejected. However, the Florida legislature does not have the authority to approve rules. If a statement is not prepared when required, the Administrative Procedures Committee merely advises the agency concerned.

We have found no states that require the preparation of a cost/benefit analysis or related analysis after a regulation is adopted.

COLORADO (COL. REV. STAT. § 24-4-103 (2. 5)(A))

Colorado law requires an agency to submit (1) a draft of any proposed rule or rule amendment and (2) a statement in plain language concerning its subject matter or purpose to the Department of Regulatory Agencies. This must be done when an agency files a notice of proposed rule-making with the secretary of state. The department may determine if the proposed rule or amendment may harm Colorado's economic competitiveness or small business in the state. If the department determines that the proposed rule or amendment may have such negative impact, it may direct the submitting agency to perform a cost/benefit analysis. This must be done at least 20 days before the hearing on the rule or amendment.

The cost/benefit analysis must include:

1. the reason for the rule or amendment;

2. its anticipated economic benefits, which must include economic growth, the creation of new jobs, and increased economic competitiveness;

3. its anticipated costs, which must include the direct costs to the government to administer the rule or amendment and the direct and indirect costs to businesses and other entities required to comply with the rule or amendment;

4. any adverse effects on the economy, consumers, private markets, small businesses, job creation, and economic competitiveness; and

5. at least two alternatives to the proposed rule or amendment that can be identified by the submitting agency or a member of the public, including the costs and benefits of pursuing each alternative.

The agency must complete the analysis at least five days before the hearing on the proposed rule, make it available to the public, and provide a copy to the department. Failure to complete a requested analysis precludes the adoption of the rule or amendment. But if an agency has made a good faith effort to comply with these requirements, the rule or amendment will not be invalidated on the ground that the contents of the cost/benefit analysis are insufficient or inaccurate. Any proprietary information provided to the Department of Revenue by a business or trade association for the purpose of preparing an analysis must be kept confidential.

The Department of Regulatory Agencies must study the analysis and may urge the agency to revise the rule or amendment to eliminate or reduce the negative economic impact. The department may inform the public about the negative impact of the proposed rule or the proposed amendment to an existing rule.

These provisions do not apply to orders, licenses, permits, adjudication, or rules affecting the direct reimbursement of vendors or providers with state funds. The provisions will be repealed on July 1, 2013, but before the repeal, the provisions regarding the preparation of a cost/benefit analysis must be reviewed under the state's sunset law.

Further information about Colorado's regulatory process is available at www. dora. state. co. us/opr/co_regulatory_structure. htm.

IDAHO (IDAHO CODE § 67-5223)

When an agency files its notice of proposed rulemaking, it must provide the notice, the full text of the rule under consideration, and a statement of the substance of the intended action to the director of legislative services. If the proposed rulemaking is based upon a

requirement of federal law or regulation, a copy of the law or regulation must also be provided. The director must analyze and refer the material under consideration to the germane legislative subcommittee.

The agency must prepare and provide to the subcommittee an economic impact statement with respect to a proposed rule to the subcommittee upon its written request. The statement must contain an evaluation of the rule's costs and benefits, including any health, safety, or welfare costs and benefits. The adequacy of the statement's contents is not subject to judicial review.

KENTUCKY (Ken. Rev. Stat. § 13A. 240)

Kentucky requires agencies to file a regulatory impact analysis and tiering statement when they propose regulations. They must provide an analysis of how entities will be affected by the implementation of a new or amended regulation. The analysis must at least include:

1. a detailed explanation of the actions the affected entities will have to undertake to comply with the regulation,

2. an estimate of the costs imposed on the affected entities to comply, and

3. the benefits that may accrue to the affected entities as a result of complying.

The statement must also include an estimate of how much it will cost the administrative body to implement the regulation, both initially and on a continuing basis.

MICHIGAN

A bill currently before the Senate (SB 559, as reported as substitute SB 1, copy attached) would require agencies, before initiating any changes or additions to rules, to electronically file a request for rule-making with the State Office of Administrative Hearings and Rules. The request would have to include the following:

1. the state or federal statutory or regulatory basis for the rule,

2. the problem the rule intends to address, and

3. an assessment of the significance of the problem.

The bill would also require a request to include a cost/benefit analysis regarding any new rule or changes to an existing rule. The analysis would have to identify the businesses, groups, or individuals who would be affected directly by, bear the cost of, or benefit directly from the rule. The request would also have to include estimates of:

1. the cost of rule imposition on the agency promulgating the rule;

2. the actual statewide compliance costs of the proposed rule on businesses and other groups;

3. the primary and direct benefits of the rule;

4. any cost reductions to businesses, individuals, groups of individuals, or governmental units as a result of the rule;

5. any increase in revenue to state or local governmental units as a result of the rule; and

6. any secondary or indirect benefits of the rule.

NORTH DAKOTA (N. D. CENT. CODE § 28-32-08)

North Dakota requires an agency to issue a regulatory analysis of a proposed rule if:

1. within twenty days after the last published notice date of a proposed rule hearing, the governor or a member of the legislative assembly files a written request for the analysis; or

2. the proposed rule is expected to have an impact on the regulated community in excess of $ 50,000.

The analysis must contain:

1. a description of the classes of persons who probably will be affected by the proposed rule, including classes that will bear the costs of the proposed rule and classes that will benefit from the proposed rule;

2. a description of the probable impact, including economic impact, of the proposed rule;

3. the probable costs to the agency of the implementation and enforcement of the proposed rule and any anticipated effect on state revenues; and

4. a description of any alternative methods for achieving the purpose of the proposed rule that were seriously considered by the agency and the reasons why they were rejected in favor of the proposed rule.

Each regulatory analysis must quantify data to the extent practicable. The analysis must be available on or before the first date of public notice as provided for in the law.

The agency must mail or deliver a copy of the analysis to anyone who requests one. Errors in a regulatory analysis, including erroneous determinations concerning the impact of the proposed rule on

the regulated community, are not a basis for challenging the validity of a rule.

In addition, the state requires most agencies to prepare a regulatory analysis before adopting a proposed rule. In the analysis the agency must consider using regulatory methods that will accomplish the objectives of applicable statutes while minimizing the adverse impact on small entities, consistent with public health, safety, and welfare. Small entities are (1) small businesses that employ fewer than 25 full-time employees or have gross annual sales of less than $ 2. 5 million (2) any not-for-profit enterprise that is independently owned and operated and is not dominant in its field; and (3) political subdivisions with fewer than 5,000 people.

The agency must consider the following methods in reducing the proposed rule's impact on small entities:

1. establishing less stringent compliance or reporting requirements for small entities;

2. establishing less stringent schedules or deadlines for compliance or reporting requirements for them;

3. consolidating or simplifying compliance or reporting requirements for them;

4. establishing performance standards for small entities to replace design or operational standards required in the proposed rule; and

5. exempting small entities from all or part of the requirements contained in the proposed rule.

Before adopting a proposed rule that may have an adverse impact on small entities, the adopting agency must prepare an economic impact statement that considers:

1. the small entities subject to the proposed rule;

2. the administrative and other costs required for compliance with the proposed rule;

3. the probable cost and benefit to private persons and consumers who are affected by the proposed rule;

4. the probable effect of the proposed rule on state revenues; and

5. any less intrusive or less costly alternative methods of achieving the purpose of the proposed rule.

The adopting agency must provide the legislature's Administrative Rules Committee copies of any regulatory analysis or economic impact statement when the committee is considering the rules. The provisions do not apply to rules mandated by federal law.

For any rule subject to these provisions, a small entity that is adversely affected or aggrieved by final agency action is entitled to judicial review of agency compliance with the requirements. The small entity must file a petition for judicial review within one year of the date of final agency action.

WASHINGTON (WASH. REV. CODE § 34. 05. 328)

By law, “significant legislative rules” must be adopted in a process that includes a cost/benefit analysis. A “significant legislative rule” is one that (1) adopts substantive provisions of law pursuant to delegated legislative authority when a violation subjects a violator of the rule to a penalty or sanction; (2) establishes, alters, or revokes qualifications or standards for the issuance, suspension, or revocation of a license or permit; or (3) adopts a new, or makes significant amendments to, a policy or regulatory program. These requirements apply to rules adopted by the departments of Ecology, Labor and Industries, Health, Revenue, Social and Health Services, and Natural Resources, and Employment Security, the Forest Practices Board, the Office of the Insurance Commissioner, and certain rules of the Department of Fish and Wildlife. Agencies can voluntarily subject other regulations to this process. The legislature's Administrative Rules Review Committee can require submission of other regulations within 45 days of receiving the notice of proposed rulemaking.

Before adopting a rule, the agency must clearly state in detail the general goals and specific objectives of the statute that the rule implements. It must determine that the rule is needed to achieve the statute's general goals and specific objectives and analyze alternatives to rule making and the consequences of not adopting the rule.

The agency must also provide notice that a preliminary cost/benefit analysis is available. The preliminary analysis must determine that the probable benefits of the rule are greater than its probable costs, taking into account both the qualitative and quantitative benefits and costs and the specific directives of the statute being implemented.

Before adopting the final rule, the agency must determine, after considering alternative versions of the rule and the cost/benefit analysis, that the rule being adopted:

1. is the least burdensome alternative for those required to comply with it that will achieve the general goals and specific objectives of the administrative procedures act;

2. does not require those to whom it applies to take an action that violates requirements of another federal or state law; and

3. does not impose more stringent performance requirements on private entities than on public entities unless required by federal or state law.

In making its determinations, the agency must place in the rule-making file documentation of sufficient quantity and quality so as to persuade a reasonable person that the determinations are justified.

These provisions do not apply to procedural or emergency rules, those that set forth the agency's interpretation of statutory provisions it administers and several other types of rules, including those relating only to internal governmental operations; those adopting or incorporating by reference without material change state or federal statutes or regulations; those whose content is explicitly and specifically dictated by statute; those that set or adjust fees or rates pursuant to legislative

standards; or Department of Social and Health Services rules relating only to client medical or financial eligibility and rules concerning liability for care of dependents.

WISCONSIN (WIS. STAT. § 227. 137)

When certain agencies publish a statement of proposed rule-making, a municipality; an association that represents a farm, labor, business, or professional group; or five or more persons that would be directly and uniquely affected by the proposed rule may petition the Department of Administration asking that it direct the agency to prepare an economic impact report for the proposed rule. The requirement applies to rules proposed by the departments of Agriculture, Trade and Consumer Protection; Commerce; Natural Resources; Transportation; and Workforce Development.

If directed to prepare a report, the agency must also prepare an economic impact report before submitting the proposed rule to the legislature for its review if the Department of Administration directs the agency to prepare that report. The department must direct the agency to prepare an impact report if the department determines that the following apply:

1. the petition was submitted to the department no later than 90 days after the publication of the proposed rulemaking or no later than 10 days after publication of the notice for a public hearing, whichever is earlier; and

2. the proposed rule would cost affected persons $ 20 million or more to comply with the rule during each of the first five years after its implementation, or the rule would adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or state, local, or tribal governments or communities.

The impact report must contain information on the proposed rule's effect on specific businesses, business sectors, and the state's economy. When preparing the report, the agency must solicit information and advice from the Department of Commerce and from governmental units, associations, businesses, and individuals that may be affected by the proposed rule. The agency may request information that is needed for the preparation of an economic impact report from other state agencies, governmental units, associations, businesses, and individuals. The impact report must include:

1. an analysis and quantification of the problem, including any risks to public health or the environment, that the rule is intending to address;

2. an analysis and quantification of the rule's economic impact, including costs reasonably expected to be incurred by the state, governmental units, associations, businesses, and affected individuals; and

3. an analysis of benefits of the rule, including how the rule reduces the risks and addresses the problems that it is intended to address.

The agency must submit the impact report to the legislative council staff, the Department of Administration, and the petitioner. These provisions do not apply to emergency rules.

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