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Bill Kennedy: Regulations: Are they worth the cost?

Right Here Right Now

Posted: January 21, 2010 9:41 p.m.
Updated: January 22, 2010 4:55 a.m.
 
On Jan. 15, many community members gathered at Santa Clarita City Hall to participate in a public hearing on the topic of the cost of business regulation. The event was hosted by state Sen. George Runner and Assemblyman Cameron Smyth to gauge the impact state regulations are having on small businesses.

Based on the turnout and the passionate testimony that ran well over an hour past the scheduled time, with little or no loss in attendance, this is a hot-button issue for our community.

One after another, local business owners shared personal stories of onerous labor laws, excessively restrictive environmental mandates, nonsensical record-keeping requirements, unfriendly permitting procedures, excessive taxation, arbitrary penalties and fees and other suffocating bureaucratic practices.

The parade of speakers left little doubt why California is ranked as one of the two least-friendly policy environment states in the country, according to the Small Business and Enterprise Council report released last month.

As worrisome as conditions are for small businesses, the situation is not apt to get better soon, given the climate in Sacramento.  Historically, the free-spending Legislature has looked upon businesses as a ready source of capital to feed its addiction, and now, with record deficits looming, the temptation to impose greater fees and taxes on business will be stronger than ever.

But that could be exactly the wrong course of action. Rather than viewing businesses as a ready source of bailout funds, the Legislature should view them as a potential driver of economic growth and prosperity that could provide the capital needed to balance the budget. Rather than increasing the burden on businesses, the Legislature should free them of the fetters of over-regulation and excessive taxation to let them flourish.

This recommended course of action is supported by a study titled “Cost of State Regulations on California Small Businesses,” released last September by Varshney and Associates, a business consulting firm in El Dorado Hills.

Authored by two professors from the California State University College of Business Administration, the study measures both the direct and indirect cost of business regulation in California, and the findings are astonishing.

The study concludes the total cost of regulation in California is some $493 billion, which is almost five times the state’s general fund budget and almost one-third of the state’s gross product. What is more, these costs result in a loss of 3.8 million jobs.

The total costs cited in the Varshney report include the aggregate direct costs to business, as well as the second order costs.

In the latter category, for example, would be such items as the higher utility bills paid by consumers to cover the cost of environmental regulation and the ripple effect such costs have throughout our economy.

Moreover, the authors arrived at their aggregate cost figures after discounting the effect that federal regulations impose, which is another issue.

Many of the regulations affecting business were no doubt enacted with the best of intentions — protect the environment, protect workers, safeguard society and the like.

However, just as good businessmen make decisions after doing a risk/reward analysis, shouldn’t we apply the same standards to our legislative actions?

During these times of high unemployment, might not a vibrant economy merit attention as an “environmental” issue of some import?

Prudent leaders are wise to revisit decisions periodically to determine whether unintended consequences of a decision warrant a change.

In an economy that is faltering, I believe we need to embrace the findings of the Varshney study and take quick action to eliminate the state’s business regulations that are doing more harm than good.

There are obviously many views on this issue, and my hope here is to open a discourse. I would welcome your comments, which is why my contact information is listed below.

Together, let’s craft an agenda for a dialog intended to illuminate the actions we need to take to secure the prosperity of our fair community — Right Here, Right Now.

Bill Kennedy lives in Valencia and is a principal in Wingspan Business Consulting. He serves the community as a planning commissioner, chairman of the Santa Clarita Valley Economic Development Corp. and member of the following boards: SCV Chamber of Commerce, Valley Industrial Association, College of the Canyons Foundation and Habitat for Humanity SF/SCV. His column reflects his own views and not necessarily those of these organizations or of The Signal. Contact him at wkennedy@wingspanbusiness.com.

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