Research & Commentary: New Jersey Needs to Remove Regulatory Shackles from Small Businesses

Published October 31, 2018

State and federal bureaucracies have dramatically increased in size and scope over the past few decades. As a result of this regulatory metastasis, businesses across the United States have been negatively impacted, and overall economic growth and job creation have been impeded.

In a recent ranking from the Small Business and Entrepreneurship Council (SBEC), New Jersey ranked 49th of 50 states for its policies affecting entrepreneurship and small businesses. In the study, SBEC analyzed 55 different policy initiatives, including taxes, government mandates, and rules and regulations.

A new bill, A-3578, has been introduced in the legislature that would work to improve the state’s regulatory system by requiring state agencies to consider the economic impact of recordkeeping and reporting for small businesses. State agencies would be required to consider these new requirements whenever they are proposing to continue existing recordkeeping and reporting requirements beyond their expiration date. The bill also would require agencies to consolidate or simplify compliance or reporting requirements for small businesses whenever public health, safety, or public welfare is not endangered. Additionally, the bill would expand the New Jersey Regulatory Flexibility Act so that more small businesses are covered by its provisions.

Enacted in 1986, the New Jersey Regulatory Flexibility Act was designed to minimize adverse economic impacts of proposed rules on small businesses. The law requires a state agency to issue a regulatory flexibility analysis examining how regulations governing compliance, reporting requirements, or timetables affect small businesses. Under current law, a “small business” is defined as a business that resides in the state, is independently owned and operated, not “dominant” in its field, and employs fewer than 100 full-time employees. The proposed bill would also include businesses with gross annual sales of less than $6 million, regardless of the number of people employed by the business.

A-3578 would also empower small businesses to petition agencies directly if they are adversely affected by a rule. If the agency were to reject the petition, the applying business may appeal the decision to a court of law.

A-3578 would be a good first step toward reducing the regulatory burden now facing New Jersey entrepreneurs, but there are other reforms lawmakers could take to further improve the state’s business climate.

One reform New Jersey should consider has already been approved in another state: the “Housecleaning Bill” passed recently in Arkansas. Sponsored by Arkansas state Rep. Jim Dotson (R- Bentonville) and signed by Republican Gov. Asa Hutchinson in March 2017, the Housecleaning Bill requires all state government agencies to review and assess every rule within their purview and make recommendations about burdensome rules that should be eliminated. During the review process, nearly 3,400 rules and regulations were inventoried, reviewed, and assessed. In a September news conference, Hutchinson announced that the state had approved over 800 outdated and unnecessary rules and regulations for repeal.

To limit and monitor the introduction of new regulations, New Jersey should also consider following Wisconsin’s lead in passing its own Regulations from the Executive in Need of Scrutiny (REINS) Act. The Wisconsin REINS Act aims to limit the growth of state regulations and bureaucracy by requiring the legislature to give final approval to any regulation that has an economic impact of $10 million or more within the first two years. The REINS Act gives legislators the authority to limit the power of unelected bureaucrats while leaving agencies appropriate flexibility to implement new regulations.

The following documents examine regulatory reform in greater detail.

Ten Thousand Commandments 2017
“Ten Thousand Commandments” is the Competitive Enterprise Institute’s annual survey of the size, scope, and cost of federal regulations, and how the U.S. regulatory burden affects American consumers, businesses, and the economy. Authored by CEI Vice President for Policy Clyde Wayne Crews, Jr., it shines a light on the large and growing “hidden tax” of America’s regulatory state.

Evaluating the Quality and Use of Regulatory Impact Analysis
Jerry Ellig of the Mercatus Center at George Mason University assesses how well executive branch agencies conduct regulatory analyses. “The Regulatory Report Card reveals that the quality and use of regulatory analysis by federal agencies do not live up to the standards articulated in executive orders and guidance the Office of Management and Budget has created for agencies. The average Report Card score for recent regulations barely exceeds 50 percent,” Ellig wrote.

The Cumulative Cost of Regulations
This study for the Mercatus Center uses an economic model that examines regulation’s effect on firms’ investment choices. “Using a 22-industry dataset that covers 1977 through 2012, the study finds that regulation—by distorting the investment choices that lead to innovation—has created a considerable drag on the economy, amounting to an average reduction in the annual growth rate of the US gross domestic product (GDP) of 0.8 percent,” the authors wrote.

Policy Tip Sheet: State Regulations From the Executive in Need of Scrutiny (REINS) Act
This Heartland Institute Tip Sheet examines how implementing a state REINS Act would slow the cost of regulation, which has had a dramatic effect on economic growth and job creation.

Taking the REINS on Regulation
James Gattuso of The Heritage Foundation examines the REINS Act and argues that, while it does not solve all of the nation’s regulatory problems, it is a commonsense step in the right direction. “REINS would significantly change the way regulations are imposed. Congress would no longer be able to pass hazy legislation and disclaim further responsibility. By increasing Congress’s accountability for regulatory policy, it would end the shell game for responsibility that Members have long played,” wrote Gattuso.

REINS Act, Aimed at Checking ‘Rogue Bureaucrats,’ On Verge Of Becoming Law
Brett Healy of the MacIver Institute examined the Wisconsin REINS Act proposal prior to its passage and explained how it would improve the state’s spending practices while encouraging regulatory transparency.

REINing in Regulatory Overreach  
In this article for the Competitive Enterprise Institute, Ryan Young discusses the federal REINS Act and how it would restore the balance between the legislative and executive branches. “The REINS Act, by requiring Congress to reclaim some of its legislative responsibilities from the executive branch, would partially restore this skewed balance of powers. REINS is a modest reform, which, as currently written, would require four or five extra congressional votes per month,” Young wrote.

REINS Act Stalls in the Senate?
Nick Novak of the MacIver Institute examines Wisconsin’s REINS Act proposals from 2016 and how groups within the state reacted to the proposed law.

Placing ‘REINS’ on Regulations: Assessing the Proposed REINS Act
This article by Jonathan H. Adler of the Case Western Reserve University School of Law examines the  REINS Act and its likely effects on regulatory policy. “It explains why constitutional objections to the proposal are unfounded and many policy objections overstate the REINS Act’s likely impact on the growth of federal regulation. The REINS Act is not likely to be the deregulatory blunderbuss feared by its opponents and longed for by some of its proponents. The REINS Act should be seen more as a measure to enhance accountability than to combat regulatory activity,” wrote Adler.


Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Budget & Tax News website, The Heartland Institute’s website, and PolicyBot, Heartland’s free online research database.

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