Regulatory reviews stymied

By Sean Hao
Advertiser Staff Writer

A board created nearly four years ago to ensure that Hawai'i agencies don't create rules that stifle businesses said it isn't getting the cooperation from the state needed to do its job.

The Small Business Regulatory Review Board, which was created by the Legislature in July 1998, is supposed to review and recommend changes to all new and existing state rules created that affect businesses.

However, the board has not filed a required annual report to the Legislature on behalf of small-business concerns since 2000. And board members said they've played a role in altering only a handful of the state's regulations.

This week, board members said a report on their progress between 1998 and 2002 will be delivered soon. The report, which was due in late December, is expected to point to a lack of cooperation from state agencies. In separate interviews, board members said they could do a better job if they received more support from the Department of Business, Economic Development and Tourism, which oversees the board.

As state officials wrestle with ways to remove regulatory burdens on small businesses and stimulate the economy, the role of the relatively unknown board is expected to receive greater scrutiny.

Last year, a national survey by the Small Business Survival Committee in Washington ranked Hawai'i 50th among the 50 states and the District of Columbia in creating a good environment for entrepreneurs, partly because of high taxes and other business costs. The District of Columbia ranked 51st.

The regulatory review board was created by the Hawai'i Small Business Regulatory Flexibility Act, which has been praised by some outside the state, including the Small Business Association Office of Advocacy, as model legislation meant to curb burdensome state rules.

The problem, regulatory review board members and others said, is in the implementation of the law.

"The law is great, but we really haven't had any real recognition or help from the state of Hawai'i," said Denise Walker, a former board chairwoman and current board member. "It has been pure hell. We have met an awful lot of resistance."

For example, the act forming the board requires each state agency to identify all rules affecting small businesses, explain why they're needed, and submit a list to the board. Those lists, which were due 1999 and 2001, were never delivered to the board, Walker said. Another list by all state agencies is due this summer.

Checks this week with the Department of Land and Natural Resources and the Department of Labor and Industrial Relations showed that neither agency had compiled a list. But officials with both departments said they intend to comply.

For its part, DBEDT denied stifling the work of the regulatory review board. Tom Smyth, administrator of DBEDT's business support division, said the board receives all the support it asks for, within the constraints of the department's tight budget.

The problem, he said, is getting other agencies to identify which rules affect small businesses. According to state statutes, any new rule or rule change must be reviewed to determine the number of small businesses affected and to what extent.

"The biggest problem is it's very difficult for an agency that doesn't do a lot of these, to know how to do a really good economic impact statement," Smyth said.

Any rule deemed to affect small business is forwarded to DBEDT, which then is supposed to forward them to the regulatory review board. Since 1998 the regulatory review board, made up of 11 volunteer business leaders, has reviewed 111 agency rules, according to its yet-to-be filed annual report. Of those, the board opposed four. Neither the board or DBEDT could discuss how that position affected the adoption of the four rules.

DBEDT also could not provide figures on the total number of new or changed rules affecting small businesses that were adopted by state agencies since 1998.

"I don't keep those numbers," Smyth said. "We're too busy doing the work than counting what we do.

"When you cut staff by 40 percent, accountability is one of the things that gets cut."

Walker said she suspects there were many more rules that should have gone before the board during that period, but didn't, because agencies, including DBEDT, decided there was no small-business impact. The board can't review rules it does not see, she said.

Further, the board does not receive sufficient money and staff from DBEDT to do its job and gets little support when it comes to pushing other agencies to comply with the law, Walker said.

"DBEDT doesn't want to beat up on its brothers and sisters," she said. "So now we end up looking like a complete jerk."

Katsumi Tanaka, chairman of the regulatory review board, agreed that some board members have expressed frustration with the amount of staff resources received from DBEDT. However, he said the board itself could be more efficient. Often, monthly discussions bog down over debate of the regulatory review board's authority and responsibility, he said.

"We ourselves don't know, so we end up debating what we're supposed to be debating," Tanaka said. "That ties up a lot of time.

"I believe we haven't been productive enough. I hope we will be productive very soon."

Lawmakers who drew up the regulatory flexibility act also expressed disappointment over how the regulatory review board is being run.

"We crafted something to solve a problem, and then it's out of our hands," said Rep. Bob Herkes, D-5th (Ka'u, S. Kona). "I think there's been some problem with DBEDT not letting them do their job."

In addition to reviewing new and changed rules, the regulatory flexibility act allows businesses to formally protest rules adopted by state agencies. Still, despite continued criticism of the state's business climate by business owners, legislators and the administration, there hasn't been a single formal protest filed by a business against an agency rule in the act's nearly four-year history.

The lack of complaints against agencies was attributed to inadequacy in educating the public about the regulatory review board, and a distrust of government.

"Part of the problem is a lot of businesses don't go to the board because they think it it won't do any good," said Sen. Sam Slom, R-8th (Kahala, Hawai'i Kai). "They haven't done anything until now."

That highlights another problem, which the board's low visibility does little to address, Herkes said.

"Businesses are afraid of their own government," he said.

Smyth agreed that businesses have not been forthcoming in raising specific complaints about agencies. He said more emphasis now is being placed on raising awareness of the regulatory review board.

Criticisms about the level of cooperation by agencies with the regulatory review board aren't new. The predecessor to the regulatory review board was the Small Business Task Force on Regulatory Relief. Bill Wong, a former member of that task force, said that group struggled with many of the same issues as its successor.

"From the very get go agencies were balking at trying to comply," he said.

If the regulatory review board is to fulfill its promise, support must come from the top of state government down, Herkes said.

"It's a task I think for the Lingle administration," he said. "They say we're open for business. To be truly open for business we need to deregulate. That's the best stimulus for the economy."

Reach Sean Hao at 525-8093 or shao@honoluluadvertiser.com