Regulations Cost N.C. At Least $3.1 billion, Up To $25 Billion | Eastern North Carolina Now

    Publisher's note: This post was created by the staff for the Carolina Journal, John Hood Publisher.

New economic analysis estimates costs for Tar Heel individuals, businesses


    RALEIGH     State regulations cost North Carolina at least $3.1 billion and as much as $25 billion each year, according to a new economic analysis compiled for the John Locke Foundation. JLF is releasing the analysis along with its own report recommending a new tool to fight state regulatory overreach.

    The $3.1 billion figure combines $1.275 billion in state fees and budget appropriations, along with $1.831 billion in private-sector compliance costs. The numbers come from the Beacon Hill Institute, the research arm of the Department of Economics at Suffolk University in Boston.

    Researchers urge caution in considering those numbers. "After reviewing the North Carolina Administrative Code, we believe our figure represents a fraction of the total cost to the private sector," according to the report. "The number of regulations in which we were not able to identify costs is many times more than the number of regulations for which we were able to identify costs."

    For that reason, the real annual price tag of North Carolina regulations could be much larger. "Using one research method, North Carolina's state regulations cost the state economy over $25 billion annually," the report states. "For this reason, we believe the actual total costs of North Carolina's state regulations run far higher than the figures presented here."

    Whether the actual figure is closer to $3.1 billion or $25 billion, state policymakers can take steps to reduce the economic impact of overregulation. A new John Locke Foundation Policy Report recommends one new tool North Carolina could employ to put the brakes on regulatory overreach.

    BHI researchers identified roughly 25,000 individual regulations in the 30 Titles of North Carolina's Administrative Code. They narrowed their focus to more than 10,000 rules applying to the private sector, then tried to gauge those rules' costs in three categories: fees paid to the state, spending in the state budget, and private-sector compliance costs.

    Of the more than $1.2 billion in estimated 2015 costs linked to state fees, more than half ($743 million) of the cost was tied to the state Department of Transportation. Fees related to the Department of Environment of Environment and Natural Resources topped $93 million. Health and Human Services fees totaled more than $88 million.

    "Private-sector compliance costs run 44 percent higher than fees and appropriations that North Carolina residents and businesses pay to state regulatory agencies," according to the BHI research team.

    Within the $1.8 billion tabulated for compliance costs, more than $705 million was linked to the Department of Agriculture and Consumer Services. DENR compliance costs topped $346 million, while the Department of Insurance generated compliance costs of $221 million.

    As precise as the numbers look, the report emphasizes that BHI researchers were unable to calculate costs for many rules. "Another important factor that is not considered in our calculations is the impact regulations have on the private economy," according to the BHI team. "Regulations impact the private economy through several channels. First, the money households and businesses spend in fees could be spent in the private economy boosting consumption, savings, and investment, which would boost economic growth."

    "Also, the resources in time and effort that households and businesses employ to comply with regulations could be redirected to produce goods and services and also boost the economy," the report continues. "These represent the opportunity costs of regulations in North Carolina that, in their absence, would have benefited the state economy."

    The report places special emphasis on the economic impact of occupational licensing. North Carolina requires a license for more than 50 jobs, generating costs that extend beyond the price tag for obtaining and retaining the license.

    "Occupational licensing presents barriers that prevent people from entering some fields, and, as a result, it restricts the supply of practitioners in these fields," the report states. "The lower supply, in turn, drives up the price of providing these services to consumers and businesses."

    BHI economists place North Carolina's regulatory climate in a national context. "The financial crisis of 2008 and the ensuing Great Recession have engendered policy preferences for stronger regulation at the national level," according to the report. "And state governments tend to follow federal regulatory initiatives. But stronger regulations can impose immediate costs and often -- though not always -- uncertain benefits."

    "Not all regulation is unwelcome, but the state of North Carolina would be well-served by a complete review of outmoded regulations on firms and households," the BHI economists add. "The repeal and reform of outdated regulations -- some of which are obviously protectionist and anti-competitive -- should take place after a thorough cost-benefit analysis."
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