On behalf of the New Jersey Business & Industry Association, thank you for the opportunity to testify here today on Assembly Bill No. 1505 and the overall need to reform the Administrative Procedure Act relating to the rulemaking process.
Before I begin the substantive part of my testimony, I want to briefly mention my experience with the rulemaking process, which has informed my testimony today. I spent 14 years as an OLS Committee aide in the environment section writing laws and reviewing regulations. I worked for the Department of Environmental Protection for 12 years, both as an Assistant Commissioner and as the Chief Advisor to the Commissioner. As Assistant Commissioner I proposed and adopted several major rules. As Chief Advisor I oversaw the entire rulemaking process. Every rule came through me and I was responsible for ensuring that we adhered to legislative intent and that the Commissioner’s policies were reflected in the proposals. As a governmental affairs professional, I helped develop, commented on, and brought suits challenging numerous rules. In fact, we just filed suit last week challenging the DEP’s PACT REAL rules, a challenge that could have been avoided had the APA process been different. In short, I bring decades of direct experience in the rulemaking process.
The APA rulemaking process is vital to the state. While the Legislature sets the overall policy framework of a program, often the substantive details and implementation are left for departments and agencies to determine. As they say, the devil is in the details, and those details are developed under the APA rulemaking process. If the regulations are overly proscriptive, contrary to legislative intent, go beyond the statute, are contradictory, or too costly, the regulated community, meaning the business community, local governments, nonprofit organizations, and ordinary citizens, are left having to comply. The remedies to change those regulations, once adopted, are burdensome, costly, and most often, ineffectual. That is why it is so important to get the regulations right, even after the Legislature has set the overall parameters in law.
I also want to emphasize that reforming the APA rulemaking process is not solely a pro-business initiative. It is a good government initiative. Environmental groups, consumer advocates, and others will all benefit from a rulemaking process that is more inclusive, transparent, and informed. The goal is to avoid regulatory missteps and to ensure that the intent of the Legislature is reflected in an agency’s rules and regulations. We look forward to working with all parties to ensure that outcome.
This hearing on the APA rulemaking process is also consistent with and in furtherance of Governor Sherrill’s stated policy to reform the permitting process. It is not enough to change the permitting process from a managerial perspective, the rules themselves need change if the reform agenda is to be successful. You can have the best intentions to expedite permitting, but if a regulation mandates onerous requirements or impractical standards be met, nothing will change. And the first step in changing a rule is changing the rulemaking process.
As currently constructed, on paper at least, the APA rulemaking process is an open public process. In practice, it is anything but. Too often, regulatory proposals are drafted by department regulators who have little experience in how their rules will function in the real world. Often, little if any public input is obtained and when stakeholder meetings are held, they are not productive. They are often held to check a box, not for meaningful dialogue. Documents relied upon to establish regulatory proposals are often not the latest scientific or up to date information. Sometimes no one in the department even has the study that served as the basis of a regulation and more often than not, these documents are not shared with the public when the rule is proposed.
Let me give you an example. Under the coastal rules, development density is set by percentages of impervious cover. The numeric limits set were initially based on a study that looked at impacts to stream quality based on the amount of impervious cover in a watershed. There are many questions to be asked. Is this study relevant given modern stormwater management requirements? How large a watershed was used? What was the level of impairment? Is it outdated or does it need to be updated based on more information? While many rules have been proposed and adopted based on this study, I have never seen it, I don’t know if it was ever updated, and no one at the Department could find it for me to review. Yet, the impervious cover standards based on this study are still in place.
What makes matters even worse, is that once a regulation is proposed, it is very difficult to make changes to it based on the public comments received. Unlike the federal government and most other states, an agency cannot make substantial changes to a rule upon adoption even if warranted based on public comments. An agency only has the options of not adopting the regulation, proposing a new regulation at some point, or going through a process called “substantive change upon adoption” which is essentially proposing a new regulation with an expedited timeframe. Other jurisdictions allow the agency that has prepared the proposal to make changes based on comments if those changes are a “logical outgrowth” of the proposal. In other words, if the DEP proposes that the discharge limits of a pollutant should be 10 ppm and the comments demonstrate it should be 5 ppm or 20 ppm, currently the DEP cannot make that change on adoption even if it agrees.
The inability to make changes on adoption highlights the importance of getting the regulatory proposal correct before it is proposed. Once a regulation is proposed, it can only be adopted or rejected, not improved. This makes the public comment period, as robust as it may seem on paper, relatively worthless. It is the rare instance where a rule is not adopted based on public comment. In most cases, the agency is unwilling to not adopt a rule and to repropose. They are more likely to dig in and resist making changes. That is how the process works in reality.
While only Assembly Bill No.1505 is on today’s agenda, I also want to discuss Senate President Scutari’s proposed legislation, Senate Bill No. 3172, as well as some additional changes we believe would be helpful. I am also going to limit my remarks to just a few key points that should be considered. We support both the Freiman and Scutari bills and would add to them. I have submitted a chart that goes through each potential change. As this committee continues the process of reviewing the APA requirements, we will be more than happy to dig into the weeds.
As I emphasized before, the rule development process is key to improving the end result. The more a department or agency communicates with its stakeholders and the regulated community in advance, the more likely the end product will be workable and reflect legislative intent. Toward this end, I recommend two key changes to the APA.
One, stakeholder processes should be mandatory. It is essential that impacted parties and experts in the area be brought into the process early, before pen is put to paper. Too often, no stakeholder process is provided at all or if one is provided, it is perfunctory and not really intended to foster dialogue and understanding. This was the case with the PACT REAL rules I mentioned earlier, where the DEP already had the rule largely drafted before they met with the regulatory community to essentially tell us what they were going to do. The end result was an overly proscriptive rule that has fostered anxiety, deep concerns, and lawsuits. Had the DEP engaged in meaningful stakeholder meetings in advance, we believe we could have had a land use/climate rule that worked for everyone.
We also believe that sharing drafts of a rule proposal before it is officially proposed would substantially improve the outcomes. Even with the best of intent, a rule writer may miss something, may not have thought of all impacts, may not have fully understood how a process works in the real world, or may have just written a proposal in a confusing manner. Sharing a pre-proposal would alleviate these mistakes. While the APA does allow a pre-proposal process, it is rarely used in practice. One department that has made very good use of pre-proposals is Treasury when it proposes changes to tax codes. In those circumstances, drafts of a rule are distributed to us and others and we then share them with our tax experts. The resulting comments back often lead to changes and a better rule. They value getting it right the first time. While the two bills we are discussing seek to address this issue by a longer notice period, the mandatory requirement to submit a draft, at least for major rules, should be part of any reform legislation.
The APA already contains a number of provisions for impact statements. These are important parts of the rulemaking process as they require that the agency consider and detail the expected impacts to areas such as jobs, housing affordability, how the rules impact federal requirements, among others. These impact statements also ensure the public, as well as the Legislature, is aware of these impacts and considers them in their comments on the proposal. However, the reality is that these impact statements are often perfunctory, do not seriously attempt to understand the impacts of the proposal, and are often worthless. I have yet to see a rule from the DEP that has not stated that their rule will have a positive economic impact no matter how onerous the rule may be.
We have actually sued the DEP because their impact statements did not consider many significant impacts or merely glossed over the impacts. We have failed in those challenges because the courts defer to the rulemaking agency and generally do not want to interfere with the process. In a challenge we brought on C-1 stream regulations, the court essentially decided that while an impact statement was deficient, it was good enough to meet the APA requirements. In fairness, the courts are not very well equipped to delve into these issues, especially at the Appellate level. What is needed is an agency like the federal Office of Information and Regulatory Affairs within the Office of Management and Budget, as established by former President Clinton, to review the rules and impact statements prior to their publication so as to ensure the proposal is within the scope of the law, is consistent with legislative intent, and that the impact statements are accurate and meaningful.
We would also support additions to the impact statements to codify the cost benefit analysis as well as impacts to the state economy and how it would impact affordability.
Once a rule has gone through this enhanced process and is proposed in the New Jersey Register, we have two additional recommendations. As discussed above, we would favor an agency’s ability to make substantive changes upon adoption so long as the changes are a “logical outgrowth” of the proposal. This not only will allow the agency to be responsive to comments, but it will also force them to consider possible changes before the rule is proposed and it will force commentors to take a broader look at what the rule would require. It will make everyone take the proposal more serious because changes can be made.
We also would suggest it should be the courts, not the departments and agencies, who should have the final say on what the law requires. Currently, courts give wide deference to a department’s interpretation of the law. This has resulted in regulations that clearly go beyond what the Legislature intended when it enacted the underlying statute. We understand that courts do and should defer to departments when it comes to factual or scientific decisions within their purview. However, when it comes to interpreting the law, this should be the domain of the courts, not the Executive Branch.
In summary, the adequacy of the rulemaking process will determine how effective the final rule will be. The better the process upfront, the better the result will be on the back end. And the process matters. It matters when companies must comply with a complicated tax code. It matters when we seek to build affordable housing. It matters when we want to attract investment and grow our economy. It matters to municipalities that need to grow to meet demands. It matters when we want effective regulations to safeguard our air, water, and ecological resources.
Specifically, we recommend that:
- Stakeholder meetings be mandatory
- Pre-drafts for major rules be required
- There be an external body to review rules and impact statements
- Changes be allowed to be made upon adoption
- The courts, not the agencies, be the decider on matters of law
We thank this committee for allowing us to testify here today. We look forward to working with the Chairman and the bill sponsors in crafting a better rulemaking process. I am happy to answer any questions you may have.
