🔒Overregulation hurts CT businesses

If nothing else, the agony of this year's legislative session brought into sharp focus the issue of Connecticut's business climate — which is affected not only by tax rates but also by the extent to which the state's regulatory agencies impose and enforce a wide variety of licensure, reporting, permitting and other obligations on business and nonprofit organizations.

Of course, members of the business community frequently complain about “excessive” regulation and the chilling effect it has on the business climate. Similarly, there is a well-worn contrary opinion. State Sen. President Martin Looney was quoted in the June 27 edition of the Hartford Courant to the effect that complaints about the state's business climate are “overblown.”

I realize that public sound-bites like “excessive” and “overblown” are part of the rhetorical currency used to sway public opinion, but maintain that if we undertake a reasoned analysis of the facts and the law, it becomes clear that complaints about excessive regulation are well founded.

First, reasonable people should agree about two things: Regulatory oversight is necessary for many self-obvious reasons (to prevent law breaking, protect the interests of the public and the like), and a robust business sector is a necessary condition to the state's livelihood. Business regulation is not a zero-sum game, and everyone wins if, as Goldilocks would say if she were a regulator, the degree of regulation is not too hot, not too cold, but just right.

Second, I suspect that most people would agree in principle that regulations and legal actions to enforce them should be tested against a common sense and simple cost-benefit principle. The practical utility or benefit of a regulatory matter should be greater than the cost of regulatory compliance to both the state and the regulated entity. I am not saying that we can reduce this question to a mathematical expression, but regulatory action should be based on a reasoned case statement that the cost is justified by the benefit.

Let me provide an example.

In the 1960s, the Connecticut River and its tributaries were terribly polluted. I grew up near one of the tributaries and in hot summer months its stench permeated the neighborhood. The massive changes in environmental law and accompanying regulations in the interim paid great dividends when you look at the recreational uses we make of these rivers today.

In contrast, there are the Department of Energy & Environmental Protection's charitable car wash guidelines. They provide that there “are no licensed or approved products that may be used to wash vehicles outside” … [and] that for “fund-raising car washes, the first consideration should be to find an alternative activity to earn money.” As a practical matter I have to believe that the personal benefit youngsters obtain from working together to wash a few cars with some dish soap far outweighs the risk to the environment and whatever costs DEEP incurs pursuing environmental scofflaws in little league uniforms.

Third, any regulatory agency action that exceeds the legal authority of the agency is excessive per se. Unfortunately, this self-obvious point needs to be made because the evidence suggests that agency personnel have either not been properly schooled in the law, or have simply pushed the legal envelope incrementally beyond the breaking point without being called on the carpet for doing so.

Here is an example: Last year a state social services agency issued directives telling nonprofits it funded how to constitute their governing boards and requiring that certain professional staff positions not be filled until candidates were interviewed by the agency. I urged clients to resist these directives because the agency did not have the legal authority to intervene in these internal matters.

In subsequent conversations I was told that senior agency officials believed they could do whatever they wanted unless the General Assembly by statute had specifically denied them the power. Any first year law student will tell you that the law is the exact opposite. Regulatory agencies have only those powers delegated to them by the General Assembly.

Fourth, the balance of power favors the agencies because they have no financial “skin in the game.” They have salaried state staff attorneys to bring their cases, and pay no penalties if they lose. On the other hand, regulated businesses must pay out-of-pocket legal fees regardless of the outcome. The imbalance encourages businesses to settle even when they are right because they cannot afford the cost of the fight.

An example: In my February 2 column I discussed DEEP's appeal (still pending) of a lower court decision in its favor (people usually appeal losses, not wins) against a family-owned junk yard because, in DEEP's opinion, the lower court did not impose a large enough penalty on the junk yard. The owners of the business are paying legal fees for appellate litigation because of DEEP's desire to create judicial precedent more to its liking (and which costs DEEP nothing).

Let me close by repeating my first point — state regulation is necessary for self-obvious reasons. However, regulation is an activity ancillary to the preservation of a fair business climate, and not an end unto itself. The degree of business regulation is excessive and the concerns of the business community are not overblown.

John M. Horak has practiced law at Reid and Riege P.C. in Hartford since 1980. The views expressed are his own.

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