A Menu of Options for Oklahoma Regulatory Reform

Testimony before the Oklahoma interim study committee on administrative rules reform

Thank you for the opportunity to speak with you today. I apologize for not being able to attend this hearing in person. My name is James Broughel, and I am a Senior Fellow at the Competitive Enterprise Institute. This year, I am also a Visiting Fellow at the Hoover Institution, where I continue my research on regulatory policy.

Today, I will discuss a series of regulatory reform options that this committee should carefully consider as part of its interim study on administrative rules. Oklahoma, like many states, faces challenges associated with regulatory accumulation and an increasingly complex rulemaking process. The reforms I will present draw upon best practices from other states. These reforms can help reduce burdens on Oklahoma businesses and citizens and improve overall governance.

In my testimony today, I will focus on four key reforms that could significantly improve Oklahoma’s regulatory environment. First, I propose the creation of an economic analysis office within the state legislature, which would provide lawmakers with critical information on the economic impacts of regulations. Second, I recommend the adoption of a regulatory cap, a proven strategy to control the growth of regulations by requiring the removal or modification of old rules when new ones are introduced. Third, I suggest implementing a regulatory audit to systematically review existing regulations, including identifying those that regulatory agencies have discretion to modify or eliminate without statutory changes. Finally, I propose removing the governor’s signature requirement from the legislative override process for regulations, which would amplify legislative oversight and prevent never-needed regulations from going into effect.

Legislative economic analysis office

To enhance Oklahoma’s reliance on evidence in the regulatory process, I propose the creation of an economic analysis office within the legislature. Such an office would provide lawmakers with critical data on the economic impact of proposed and existing regulations, helping ensure that policies are based on sound evidence. This office could prevent costly regulatory errors and provide much-needed transparency for lawmakers.

Several principles should guide the creation of this office. First and foremost, it must be independent. A key lesson drawn from the federal experience is that executive branch regulatory agencies cannot be relied upon to objectively evaluate their own rules and programs. Agencies have a vested interest in highlighting the positive aspects of their work, while downplaying any shortcomings. Executive branch political officials enter office with clear policy agendas, and they typically won’t let economic analysis stand in the way of their goals. Hence, executive branch regulatory agencies craft analyses to promote pre-determined policies, rather than to objectively assess those policies’ anticipated impacts.

It is a best practice to situate an economic analysis office within the legislative branch and separate analysis functions from program execution. This way, analysis is better shielded from the influence of politics and the office can provide lawmakers with more honest, unbiased evaluations. This model has been effectively implemented at the federal level within agencies such as the Congressional Budget Office, the Congressional Research Service and the Government Accountability Office, which provide trusted analysis on economic matters to Congress​. Another model is the Office of Regulatory and Fiscal Affairs recently established in West Virginia. This office provides economic impact assessments for proposed legislation as well as regulations​.

In setting up an economic analysis office, legislators will need to carefully consider several tradeoffs. First, beyond just evaluating the effects of new regulatory proposals, the office might also be empowered to conduct retrospective analysis of existing regulations. However, the more regulations lawmakers want to evaluate, the more analysts the office will require. Likewise, the higher the level of rigor and detail demanded from each analysis, the more time and resources will be needed to produce thorough assessments.

To balance these factors, legislators might consider starting small. They can do this by hiring one or two analysts in a trusted existing office, such as a legislative audit office. These analysts could then focus on studying a handful of high-profile or high-impact rules each year, based on requests from legislators. This approach would allow the office to deliver meaningful results without overwhelming it with responsibilities in its early stages. Those results would then provide a solid foundation for future expansion if the need for regulatory analysis grows.

A regulatory cap

Regulatory caps have become an increasingly popular tool for states aiming to control regulatory growth. These caps typically limit the number of new regulations that can be introduced, often requiring that for each new rule added, one or more existing rules must be eliminated. This approach ensures that the total regulatory volume on businesses and citizens does not grow unchecked. It can also lead to a net reduction in regulations over time.

Several states have adopted such strategies. For instance, in 2019 Ohio implemented a “one-in, two-out” rule, which requires state agencies to remove two existing regulatory restrictions for every new one added until 2025. A series of executive orders in Arizona included a one-in, two-out and one-in, three-out rule. This was eventually codified into state law, such that state agencies are now required to recommend the elimination of at least three existing rules for every new one they propose​.

Texas adopted a one-in, one-out regulatory policy in 2017. This law requires that when state agencies propose new regulations that impose costs, they must repeal or amend an existing regulation to offset those costs. Notably, Texas’s policy focuses on cost offsets rather than simply the number of rules (sometimes called “regulatory paygo”), meaning that the financial impact of new regulations must be neutralized by reducing costs elsewhere in the regulatory system.

While this approach introduces a focus on the economic burden of regulations, which is desirable, the Texas policy also includes broad exemptions. For instance, rules “necessary to protect the health, safety, and welfare of the residents” of Texas are exempted, which substantially limits the number of regulations subject to the offset requirement. Such exemptions should be kept to a minimum, in general. Moreover, to offset costs, states need credible estimates of costs, highlighting the importance of reliable economic analysis.

At the federal level, Executive Order 13771, issued by former President Trump in 2017, introduced a one-in, two-out policy for federal agencies, requiring that for every new regulation added, two regulations be repealed​. States should draw from this model and improve upon it by codifying such caps into law, as Ohio, Texas, and Arizona have done. Codifying these policies in statute ensures that regulatory caps remain in place and are not subject to the changing priorities of different administrations.

A regulatory audit

Regulatory audits are tools that states can use to track and reduce the volume of rules and regulations. By conducting a systematic review of all existing regulations, states can identify outdated or overly burdensome rules and set reduction targets to reduce regulatory burdens. Several states, including Virginia, Ohio, and Arizona, have implemented regulatory audits, providing valuable lessons for other states considering similar initiatives.

In Virginia, a 2018 law required state agencies to develop a baseline catalog of all their regulatory requirements, including specifying the statutory authority behind each rule​. Furthermore, a pilot program was created that focused on two state agencies—the Department of Professional and Occupational Regulation and the Department of Criminal Justice Services—mandating a 25 percent reduction in requirements based on the baseline catalogs. Eventually, the pilot program and the corresponding 25 percent reduction goal were expanded to all executive branch state agencies under the governor’s authority.

Similarly, Ohio implemented a regulatory audit through a law passed in 2019, which required that all regulatory restrictions present in an agency’s administrative rules be catalogued in a base inventory. This comprehensive listing helped establish a clear baseline from which the legislature could set targets on the overall volume of rules. In 2022, Senate Bill 9 required a 30 percent reduction in regulatory restrictions across state agencies. Ohio’s Joint Committee on Agency Rule Review oversees the SB9 process and issues periodic reports on progress. The committee also developed a public-facing website, “Cut Red Tape Ohio,” to allow citizens and businesses to suggest rules for elimination.

As of June 2023, Ohio had reduced regulatory restrictions by over 10 percent across most agencies subject to the SB9 requirements. However, some Ohio state agencies appear to face challenges in meeting their regulatory reduction targets. Four of 27 agencies did not meet the target. Some are relying on technical compliance that is not consistent with the spirit of true regulatory reform, such by as removing restrictive language but maintaining the regulatory burden through “incorporation by reference”— leaving requirements in place, but moving requirement language out of the code. This example highlights why clear instructions from the legislature as to what counts and what doesn’t count as a regulatory reduction is critical. Additionally, penalties should be imposed on agencies for failing to meet their goals.

Arizona has also embraced regulatory audits. An audit that took place during the administration of Gov. Doug Ducey required state agencies to compile a detailed list of every regulation under their purview, capturing important information such the authorization for the rule, the objective of the rule, if the rule is achieving intended objectives, whether the rule is consistent with other rules and statutes, the extent to which the rule is enforced, and whether the rule is clear and understandable.

Figure 1: Original authority for Arizona state regulations

Source: James Broughel and Dustin Chambers, “Learning from State Regulatory Streamlining Efforts.”

A primary benefit of regulatory audits is the ability to identify those regulations agencies have discretion to change on their own, as compared to those that would require statutory changes to modify (see figure 1). Additionally, audits provide a clear picture of the state’s regulatory landscape and offer a basis for setting regulation goals. Virginia’s audit process allowed the state to set and track a 25 percent reduction target, while Ohio’s supported the state’s 30 percent reduction goal.

Strengthening Oklahoma’s legislative veto of regulations

Oklahoma has a process whereby the legislature can override regulations, but with a significant limitation: the governor’s signature is required for the legislative veto to take effect. This means that even if the legislature disapproves of a regulation, it typically cannot be nullified unless the governor also agrees.

In practice, this creates a significant challenge, as governors are unlikely to veto rules issued by their own administration. If a governor’s administration issues a rule, it is likely to align with the governor’s policy preferences, making it exceedingly difficult for the legislature to override a rule. Therefore, removing the requirement for the governor’s signature could empower the legislature to more effectively check the executive branch’s regulatory decisions.

However, removing the governor’s signature requirement raises constitutional concerns regarding the separation of powers. At the federal level, the US Supreme Court’s 1983 decision in Immigration and Naturalization Service v. Chadha ruled that legislative vetoes that bypass the executive branch violate the Constitution’s separation of powers doctrine. Thus, any effort by Oklahoma to remove the governor’s role in the resolution approval process must be carefully crafted to avoid running afoul of these kinds of constitutional limits.

If simply removing the signature requirement is deemed unconstitutional, there are alternative structures for legislative vetoes that could achieve the same goal while adhering to constitutional requirements. For example, in both Wisconsin and Florida, the legislature has taken steps to limit the implementation of costly regulations through provisions similar to the REINS Act (Regulations from the Executive in Need of Scrutiny). In Wisconsin, if the cost of implementing or complying with a proposed regulation exceeds $10 million over a two-year period, the regulation cannot proceed unless the legislature passes a bill (and the governor signs it) specifically authorizing it​.

Similarly, Florida has a REINS-like provision that requires any regulation projected to exceed $1 million in compliance costs over five years to be halted unless it receives legislative approval. Both states’ provisions ensure that the legislature has the final say over expensive regulatory initiatives, reinforcing legislative oversight and preventing agencies from imposing substantial economic burdens unilaterally.

Another option is for Oklahoma to implement a sunset provision for new regulations. Some states, such as Colorado and Utah, require new regulations to expire after one year unless the legislature reauthorizes them​ by passing a bill. While the authorization bill would require sign-off from the governor, in terms of practical effect, this kind of sunset provision acts as a legislative veto without the need for governor approval, because if the legislature fails to act affirmatively to approve the bill, the regulation automatically expires.

Several states, including Michigan, South Dakota, and Nevada, among others, have constitutional provisions that specifically allow their legislatures, or committees within the legislature, to override regulations without requiring the governor’s consent​. Oklahoma could explore adding a similar constitutional provision. A constitutional amendment would allow for more flexibility in the design of how a legislative veto could be structured.

Conclusion

I have recommended several reforms to improve Oklahoma’s regulatory process. First, create an independent economic analysis office within the legislature to give lawmakers unbiased data about the impact of regulations. Second, adopt a regulatory cap, such as a one-in, one-out policy, to keep the number of regulations from growing out of control. Third, undergo a regulatory audit to get a sense of the overall volume of existing rules and to establish a baseline from which future goals for reducing red tape can be set. Fifth, strengthen the legislative veto in Oklahoma by removing the governor’s signature requirement. A REINS Act, a one-year sunset provision on regulations, or constitutional amendments, could have a similar practical effect.

The proposed changes would not only streamline the regulatory process and enhance legislative oversight, but would also unlock new opportunities for innovation and economic growth. These moves would position Oklahoma as a leader in smart governance.

I would be happy to answer any questions.

James Broughel, PhD