Christian Rice

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Overview of Regulatory Reform in the U.S. from The Base Realignment and Closure Act

The Base Realignment and Closure (BRAC) Act of 1988 was created to close or realign excess military bases in order to save money. Since Department of Defense (DoD) spending can attract millions of dollars to a politician’s constituents every year, they will rarely vote to close unneeded bases. The BRAC Act worked around this problem by creating a commission of independent experts (the Base Realignment and Closure Commission) who, along with the DoD, would recommend base closures and realignments.

The DoD used military need as its primary criterion for deciding which bases should be realigned or closed. The BRAC commission then amended the DoD’s recommendations to ensure that they adhered to a set of criterion created by Congress and sent final recommendations to the president for approval or disapproval.

The president cannot make any changes to the recommendations and must either approve or disapprove of the entire set. If approved, the president sends the recommendations to Congress which then has 60 days to pass a resolution of disapproval. If Congress does not pass such a resolution, the BRAC commission’s recommendations automatically become final.

Results from the BRAC Act of 1988

After years without significant military base reform through the traditional legislative approach, the BRAC Act of 1988 resulted in the closure of 16 major U.S. military bases and the realignment of 11 others. This and subsequent BRACs have been estimated to save about $7 billion annually.

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In 2003, the Dutch improved their regulatory situation through the “Dutch Administrative Burden Reduction Programme.” This program sought to reduce the cost of regulatory burdens on businesses by 25 percent cumulatively in just four years.

To put this in domestic terms, for the United States to meet such a goal, it would have to cut about $450 billion in business regulation – quite an ambitious goal.

To meet the 25 percent target, the Dutch established two new organizations: the Interministerial United for Administrative Burdens (IPAL) and the Advisory Board on Administrative Burdens (ACTAL).

IPAL was created to organize the process between various ministries and to overcome political obstacles. IPAL performs its function in part through the Standard Cost Model, which measures administrative costs and burdens to businesses from regulations. This ensures the regulatory cost measurement process is accurate and consistent across agencies.

The SCM requires each government ministry to measure the burdens traced to legislation that falls under its purview, according to the SCM handbook. Each ministry hires consultants to identify regulations, survey and hold discussions with business representatives to get feedback and conduct experiments to accurately measure the cost of regulation (such as the stopwatch-method). The consultants are coordinated by the Ministry of Finance to ensure all agencies are consistently measured.

IPAL measures regulatory costs; ACTAL then advises the Dutch government on regulatory reduction efforts and works to ensure ministries meet their reform goals.

By 2006, the Netherlands was on track to meet the 25 percent reduction in regulatory costs according to the World Bank. Now, many European countries, including the UK, Germany and Norway, use the SCM.

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Overview of the Red Tape Challenge

In early 2011, the UK started the Red Tape Challenge to gather ideas as to how it could improve its regulatory state. Every few weeks, the UK government publishes regulations relating to a specific “theme” on this government website. People and businessmen alike can then comment as to which regulations are unnecessary or overly-burdensome in any given theme. Furthermore, people can recommend how regulations can be fixed, or recommend that a regulation be eliminated.

The relevant department that administers a regulation then collects these thoughts and makes regulatory policy proposals using the “evidence” obtained in the comments section of the Red Tape Challenge website. Department ministers have three months to justify the existence of a regulation and are “challenged” by relevant stakeholders.

The “Star Chamber,” which consists of Cabinet Office members and various ministers, then decides if a regulation is justified. If a regulation is not justified, the Star Chamber makes a regulatory policy recommendation to the relevant department. The relevant department responds to this recommendation in a proposal.

The “Reducing Regulation Committee” and other Cabinet sub-committees then consider the Star Chamber’s proposal against the relevant department’s proposal. These committees ultimately decide which proposal to accept and their decision is then implemented.

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In 2001, the United Kingdom passed the “Regulatory Reform Act” which allowed a government minister (similar to the head of a government agency in the U.S.) the ability to reduce regulatory burdens. A minister had the ability to write a government order which would then be reviewed by both Parliamentary houses and voted on without debate.

 Results from UK Regulatory Reform

Within four years, 27 “regulatory reform orders” had been made and estimated annual savings were in the hundreds of millions of pounds.

For instance, the Regulatory Reform Fire Safety Order of 2005 simplified legislation that had previously been spread over more than 50 public acts. These 50 acts were complied into a simpler fire safety regulation which was estimated to save between £47 million and £137 million per year.

Lessons from the UK

This 2001 bill was undoubtedly successful as it allowed ministries to deregulate themselves, and refrained from granting ministries the power to extend regulations. Evidently, when given the opportunity, agencies will sometimes reduce burdensome and unnecessary regulations. In the U.S., this could result in hundreds of millions or even billions of dollars in savings if the heads of our agencies act similarly to their UK counterparts. But even if an agency deregulates to a small degree, there will still be savings to the economy.

Another advantage to the 2001 bill is that it still allowed for parliamentary authority and accountability. Since Parliament had to vote on the proposed regulatory reforms, the people knew how their representatives were voting. This put pressure on Parliament to vote for reform rather than for burdensome and unnecessary regulations.

If the UK’s experience is any guide, the U.S. economy could benefit from a law like the 2001 regulatory reform act.

To see the previous post in this series on regulatory reform, please read Lessons on Regulatory Reform: Texas.

Texas

Overview of Regulatory Reform in Texas

In 1977, the Texas legislature passed the Texas Sunset Act which would forever improve state government.

This act, now codified in the Texas Government Code, mandates that every state agency be abolished by a specific date unless the legislature passes legislation to continue it. But the legislature cannot pass this legislation until it receives a recommendation from the “Sunset Advisory Commission.”

This commission’s 12 members — 10 legislators and two members of the public — review the functions of all agencies through each agency’s self-evaluation report. The commission reviews the evaluation, takes public comments and prepares a recommendation for the state legislature. Before the final recommendation is submitted, an agency-review hearing is held.

The commission then makes a final decision to either continue the agency as is, modify the agency, merge the agency with another or disband the agency altogether. Thus far, the state legislature has approved a large majority of the recommendations by the Sunset Commission.

Results from Texas Regulatory Reform

Through this process, the commission has abolished 78 state agencies and saved $945.4 million in a 29-year period. Since the Sunset Commission’s expenditures over this time period were just $32.8 million, every dollar spent on this program has yielded about $29 in return.

Lessons from Texas

The advantage of a sunset act such as the one in Texas is that it puts pressure on agencies to justify their regulations, expenditures and existence. This encourages agencies to repeal unnecessary and overbearing regulations and perform their functions efficiently.

Sunset review also allows Texans to participate in agency review. This allows citizens to laud effective agencies, highlight abuse or ineffectiveness in their public comments and otherwise hold agencies accountable. These regulatory reforms have likely added to the success of the Texas job market, which has added as many jobs in the last decade as the rest of the nation combined.

Just about everything in your life is regulated by the government; from the alarm clock that wakes you up in the morning to the size of the holes in your Swiss cheese at lunch, to the pillow you sleep on at night.

We don’t often think about these regulations because they seem to have no impact on our lives, but, in fact, they cost us quite a lot.

Want to build a house? On average, you will be spending an extra $77,655 on costs associated with government regulations. Own a small business and want to add two employees? That’s an extra $21,170 per year in regulatory burdens.

But regulations affect everyone. Last year, government regulations cost the average taxpayer $15,491.

Thankfully, this theft of our wealth can be easily prevented through regulatory reform, thereby increasing the prosperity of the entire nation. Keep an eye out for a new series of blog posts on regulatory efforts at home and abroad that will show how America can shake its economic doldrums.