New Jersey: Common Sense Drives Regulatory Reform - A Positive Influence Outside Our Own State

Sunday, April 3, 2011 - 11:14

Elected as New Jersey's first Lieutenant Governor in November 2009, Ms. Guadagno also heads Governor Christie's Red Tape Review Commission, which is tasked with identifying and reducing regulations that hurt New Jersey's economy. Concurrently serving as New Jersey's 33rd Secretary of State and New Jersey's chief election official she oversees promotion of New Jersey's $38 billion tourism industry and administers programs related to the arts, culture and history. For more information please visit http://www.state.nj.us/governor/lt/.

Editor: Please tell our readers about your role as New Jersey's first Lieutenant Governor and your appointment as head of the Red Tape Review Commission (RTRC).

Guadagno: In addition to my position as Secretary of State, I manage the Partnership for Action, which is the centerpiece for all State economic activities. The Partnership consists of the Economic Development Authority (the State's "bank" for business development), Choose New Jersey (a privately funded 501(c)3, comprised of leading corporations that market New Jersey among major industry sectors) and the Business Action Center (BAC), within the State Department.

BAC also plays a key role in helping to retain and attract business to New Jersey. BAC offers a "one-stop shopping" experience for coordinated assistance with financing programs, permitting and regulations, programs and resources for international trade, and relocation assistance for companies new to or expanding in New Jersey. The role of RTRC to rein in needlessly burdensome regulation is a logical part of this effort to streamline the business-to-government interaction and create a more attractive climate for businesses and job creation.

Editor: You have announced that "it's a new day in New Jersey, one defined by an environment welcoming to business and amenable to investment." What is the RTRC's role in creating this environment?

Guadagno: Initially, we held 18 fact-finding meetings with a variety of industry groups, individual business owners, healthcare professionals and educators. While high taxes topped the list of complaints about conducting business in New Jersey, red tape frustrations were a close second.

The administration has resisted raising taxes and tax cutting is on the horizon, but one thing we can do immediately is take steps to improve the business-to-government interaction.

In fact, Governor Christie did so on his first day in office by signing Executive Orders (EO) #1 through #3, which froze proposed regulations; directed state departments and agencies to comply with the Common Sense Principles for Rulemaking; and created the Red Tape Review Group, respectively. To contribute to a favorable business climate in New Jersey, the RTRC seeks to eliminate needlessly burdensome regulations while safeguarding the health and welfare of the public and the environment.

In addition to the executive orders, which direct the executive branch departments, legislators on the RTRC have helped pass legislation that embodies our red tape recommendations. For example, Governor Christie recently signed A-2720, which amends the Administrative Procedure Act (APA) to allow agencies, when proposing regulations, to be much more flexible and responsive to stakeholder comments.

While the APA may seem esoteric to most people, the real-world effect of that amendment is quite significant, and the business community was heartened by the change.

Governor Christie also signed A-2853, which creates a program within the Department of State to review permits issued by state and local agencies to eliminate redundancy and to promote consistency and expediency.

Also, the Governor will designate one official or employee to manage complex business development projects and guide them through a multi-agency approval process.

Moreover, in January 2011, Governor Christie signed into law the state's Business Retention and Relocation Assistance Grant (BRRAG) program (S-2370). This legislation revised and expanded the BRRAG incentive program to keep New Jersey competitive with surrounding states, and it has kept up to 10,000 jobs in New Jersey.

Editor: Tell us about the "Common Sense Principles" espoused by Governor Christie's executive order. (For example, there is a requirement that state departments must detail and justify every instance when proposed rules exceed federal requirements.) How have these principles contributed to meaningful reform?

Guadagno: In EO #2, Governor Christie defined the Common Sense Principles for Rulemaking. The purpose of these principles is to preclude the passage of overly burdensome rules by broadening stakeholder input and to increase the predictability, transparency and timeliness of the regulatory process. The Common Sense Principles can be summed up as follows:

• Engage in the "advance notice of rules" by soliciting opinions from knowledgeable sources outside the state government before rules are proposed. This consultation should improve the quality of the rulemaking process and is probably the principle most welcomed by stakeholders.

• Adopt the "time of decision" rule, defined as the requirement that any permit or approval is governed by the rules in effect at the time of filing (unless specifically provided otherwise in a state or federal law). Applicants will therefore not experience the phenomenon of "moving goalposts." (Note: On May 5, 2010, Governor Christie signed S-82 into law, requiring local governments to base decisions for development applications on the local laws in force when the original application was submitted.)

• Adopt rules for waivers to recognize that strict compliance can, at times, be unduly burdensome or conflicting. The waivers and the appropriate policy must be posted on the agency's website.

• Employ cost/benefit analysis that may utilize scientific and economic research from other jurisdictions.

• Detail the justification for every instance when proposed rules exceed federal requirements. When promulgating proposed rules, agencies shall recognize federal pre-emption unless specifically required by state statute or unless stricter regulation is necessary to achieve a specific policy goal for New Jersey.

• Value performance-based outcomes and compliance over the punitive imposition of penalties for violations that are technical in nature.

Editor: What are some examples of how Common Sense Principles have been implemented?

Guadagno: Regulations that were proposed or pending (i.e., not adopted) when EO #2 was signed were "frozen" (as long as public safety or federal funding were not jeopardized), and the executive branch departments were given 90 days to review the proposed regulations for consistency with the Common Sense Principles.

As a result, 12.5 percent of the frozen regulations were withdrawn. The departments were given 180 days to review existing regulation, and, as a result, 131 regulations were proposed for repeal or amendment and six entire chapters of the Administrative Code were eliminated.

Editor: What has been done to eliminate rules that were duplicative?

Guadagno: Many of the rules amended or repealed were duplicative of federal regulations. In light of the common sense principle regarding federal preemption, the Department of Health and Senior Services, for example, proposed to deem hospitals compliant for certain licensure standards if the hospitals had been accredited by the Centers for Medicare and Medicaid Services. This change not only would eliminate paperwork for the hospitals, but would eliminate time-consuming inspections that divert attention from patient care. The Department of Labor and Workforce Development changed the New Jersey requirements for the practice of rounding for employee time clocks to be the same as federal requirements.

The Division of Gaming Enforcement, within the Department of Law and Public Safety, essentially will operate with one chapter of regulations. It has proposed allowing entire chapters to expire, because changes in federal reporting requirements now conform to what New Jersey had required all along (with regard to Suspicious Activity Reports). Since New Jersey has access to the federal data, the dual reporting is superfluous.

The Public Access Rules promulgated by the Department of Environmental Protection (DEP) were found to defy common sense with respect to their overreach. The rules not only provided public access to beaches, but also mandated that all property owners along ocean and tidal waters either provide public access 24-7 to that body of water or pay for off-site public access. The rules applied whether the property was a marina, an industrial site, or a nuclear power plant.

In June 2010, DEP changed its policy to exempt businesses involved in dredging, port facilities, and facilities that restrict access because of federal requirements (such as Homeland Security concerns). Among other amendments, new regulations will be proposed that exempt commercial marinas from providing 24-hour access, but will instead require reasonable public access.

Editor: How have the RTRC's efforts changed the regulatory environment in Trenton?

Guadagno: Perhaps more important than the elimination of outdated or duplicative regulations, or the preclusion of these regulations from adoption in the first place, is the consciousness of red tape that has begun to pervade the culture in Trenton. Last year, DEP created a new assistant commissioner position for Economic Growth and Green Energy. The Vision Statement on DEP's website describes its Core Principles of Transformation:

• Direct DEP's resources to DEP's priorities;

• Change the culture of DEP to be more customer service focused;

• Require leadership and management at all levels of the DEP;

• Recognize that our people are our biggest assets;

• Maximize technology;

• Encourage stakeholder input;

• Integrate economic considerations into statutes and regulations;

• Promote communications and transparency;

• Simplify business practices;

• Provide systematic review of regulations to "untie our hands;" and

• Rely on metrics to measure success and identify challenges.

These principles truly are transformative for this agency and recognize that environmental stewardship and economic growth are not mutually exclusive goals.

Editor: We understand that, so far, the RTRC has reduced the size of the New Jersey Register and Administrative Code by more than 50 percent. How did you accomplish this, and what is the final goal?

Guadagno: In general, the departments may be more mindful of the red tape aspect of rules before they propose them. Specifically, compliance with the Common Sense Principles, such as mandatory "pre-proposal" stakeholder input may also have the effect of lessening the number of proposed regulations. Also, the legislature may have become more mindful of the red tape cost of doing business in New Jersey, and therefore, less inclined to pass laws that require elaborate regulatory schemes for implementation.

Editor: On March 2, 2011, you convened the first public meeting of the RTRC. Please tell our readers about the highlights and key issues discussed.

Guadagno: To focus the discussion in our public meetings, we select a theme or topic for the discussion. The theme of the first meeting was licenses and permits. An important issue was raised concerning the backlog of licensing applications for regulated professions. These licenses, of course, tie directly to job creation. The Commission has already begun its follow-up with management at the Division of Consumer Affairs and the appropriate boards and professionals. At the macro level, we heard interesting remarks about the need to define the differences among the entities labeled "boards," "commissions" and "committees," to establish markers for the creation of boards, commissions and committees and to establish a sunset provision for these entities when they are first formed.

Editor: How important are small and medium-sized businesses as drivers of economic recovery and job creation?

Guadagno: Small and mid-sized companies are clearly the drivers of job creation. According to the Kaufman Foundation of Entrepreneurship, firms less than five years old accounted for all net job growth in the U.S. When start-ups are excluded, firms from one to five years old accounted for two-thirds of job creation in 2007. We are nurturing these small to mid-sized businesses with a multipronged approach that addresses the business-to-government interaction; taxes; financial incentives and programs and specific departmental programs.

Streamlining the government-to-business interaction is perhaps most important for the small and mid-sized companies, so they are obvious beneficiaries of the efforts of the RTRC. In addition, we have revised our Business Portal to be more user-friendly and will continue to add more features that businesses will find useful. Whether visitors to the Portal are starting a business, obtaining a license, signing up for the Urban Enterprise Zone program, or trying to find a workshop on business marketing strategies, our goal is to create a one-stop shopping experience for the business-to-government interaction. For more complex matters or unique questions, businesses can email BAC or speak to a person via telephone at the BAC customer service center, with a 24-hour guaranteed response time.

Editor: What are the Christie administration's overall strategies for nurturing these important segments of New Jersey's business environment?

Guadagno: Small companies would experience tax relief under Governor Christie's proposed budget, with a 25 percent reduction in the minimum corporate business tax paid by S-corporations. In addition, "loss-netting" would be permitted, so that business owners would be able to use losses from one business to offset tax payments in another business. Moreover, a business could carry tax losses forward to offset future tax obligations.

Through the Small Business Fund, the Main Street Business Assistance Program, the Statewide Loan Pool Program and the New Jersey Business Growth Fund, the Economic Development Authority ("EDA") offers a variety of financing assistance options that include below-market interest rate loans, loan participations, loan guarantees and line-of-credit guarantees. In February, EDA partner PNC Bank doubled its commitment to the Business Growth Fund to $50 million for 2011. EDA has also formed a strategic partnership with the Union County Economic Development Corporation, which provides micro-lending and award-winning training programs.

EDA administers the Technology Business Tax Certificate Transfer Program in which tech/ biotech firms with proprietary intellectual property may capitalize their net operating losses or R&D tax credits by selling them to profitable firms. Governor Christie's proposed budget doubled the commitment to this program with $60 million in funding. The proposed budget would also phase in an increase in the R&D tax credit rate to 100 percent by January, 2012. New Jersey would also provide $250,000 in funding for the Small Business Development Center network, a primary resource for business counseling in the state.

Executive branch departments offer a variety of programs that provide support to small and mid-sized businesses. For example, the Department of Labor and Workforce Development provides customized training grants for businesses to upgrade the skills of their employees in New Jersey. Through the Workforce Development Partnership (WDP), companies with 250 employees or fewer may receive up to $50,000 in matching grants.

Through the Main Street New Jersey program, traditional business districts receive technical support and training from the Department of Community Affairs. Direct Install is a new program at the Board of Public Utilities designed for small to mid-sized commercial and industrial facilities (maximum 100kw usage for the past 12 months). A pre-qualified contractor will conduct a walk-through energy assessment to determine which energy measures might qualify for installation, and the program will cover up to 60 percent of the installed costs (with a cap of $50,000 per project).

Editor: We and The New Jersey Business & Industry Association have noted widespread concerns on the part of small business over a lack of transparency in New Jersey's regulatory process, with respect to the standards applied in enforcing the law. How will the RTRC address this concern?

Guadagno: As a threshold matter, the Common Sense Principle that directs departments to clearly delineate waivers furthers transparency, as does the principle discouraging an emphasis on "technical" performance rather than substantive outcomes. For example, DEP outlined its four criteria for a waiver application. DEP will consider a waiver application if one of the following conditions exist: (1) conflicting rules; (2) unduly burdensome (standard is "exceptional and undue hardship" or where another method of compliance would have the same or better results at significantly lesser cost); (3) net environmental benefit; and (4) public emergency.

In addition, businesses have complained about agencies that undercut the transparency of the regulatory process by effectively "regulating" with the use of guidance documents. Legislators from the RTRC have promulgated bills that would preclude that practice.

Editor: What is the current infrastructure whereby the State of New Jersey communicates information about the laws applicable to businesses?

Guadagno: Information about business laws, such as the passage of legislation, is posted on our business portal. In addition to their websites, each department uses its own means of communication to broadcast information.

Editor: What recommendations do you anticipate will be made by the RTRC to stimulate job growth by removing uncertainties that can retard business growth?

Guadagno: The Common Sense Principles that concern time of decision and pre-proposal stakeholder consultation address important regulatory uncertainties. Future recommendations of the RTRC will continue to promote predictability, transparency and timeliness. Of necessity, the RTRC takes a macro view, so it depends on input from business people "on the ground," living in the regulated community, to bring specific problematic regulations or processes to its attention. This is an important reason for the RTRC public meetings.

Editor: How will the RTRC's efforts in New Jersey serve as a model for the nation?

Guadagno: On January 18, 2011, President Obama signed an executive order requiring an agency review of existing federal regulations and charging "federal agencies to ensure that regulations protect our safety, health and environment while promoting economic growth." Among others, newly elected governors in Florida, Nevada, New Mexico and North Carolina have instituted rule freezes or other New Jersey-inspired red tape initiatives. In difficult fiscal times such as these, governments can make a big difference and encourage business and job creation by cutting through the red tape. In many cases, this results in a "win-win" situation because government itself can realize efficiencies and cost savings by eliminating excessive red tape. So, New Jersey already has served as a positive influence outside our own state.