Eilene Zimmerman

San Diego Business

State Regulations Hurt Small Business

Legislators look into reasons for business flight from California
By Eilene Zimmerman
Posted on Mon, Nov 2nd, 2009
Last updated Mon, Nov 2nd, 2009

Assemblyman Dan Logue (R-3^rd District), vice chairman of the Committee on Jobs, Economic Development and the Economy and other members of the local state delegation recently spoke to small business owners at the San Diego Chamber of Commerce. The subject was overregulation and how it is hitting small businesses particularly hard.

Rep. Dan Logue

_{Courtesy photo}

Rep. Logue worries the state’s economy is being crippled by it, and cites a recent study, the Cost of State Regulations on California’s Small Businesses, which found that overregulation costs small businesses in California more than $134,000 a year. According to the study, the total cost of regulation to the state is $493 billion, almost five times the state’s general fund budget and almost a third of the state’s gross product.

Regulation cost the state 3.8 million jobs in 2007, a tenth of California’s population. The report’s authors concluded that since small business constitutes 99.2% of all employer businesses in California (and 100 percent of all of non-employer business): “the regulatory cost is borne almost completely by small business.”

Last April, Rep. Logue and 13 other legislators conducted interviews with 100 business owners that had recently left California to set up shop in other states. The meeting was held in Reno, Nevada. That state, says Logue, has become “an enterprise zone for California business. Nevada has taken an aggressive strategy—to cannibalize the business from California and that’s what is keeping their economy afloat.”

The flight from California, says the assemblyman, is due to irresponsible regulation in California. He likens the regulatory authorities that levy fines against small businesses to bounty hunters. “They basically decide what fines to levy, how much the fine should be, and then they keep the money,” he says. Because these agencies are relying on fine money to fund them, the process has become unfair.

“Government officials have basically become free enterprise entrepreneurs by creating profits from levying fines against businesses,” says Logue. “These agencies are competing to see who can find the most violations.”

He says one small construction company he spoke to during that meeting in Reno complained they had been inspected 150 times within a 12-month period and paid $9 million in permits and fees.

But Logue doesn’t blame regulatory agencies. He says regulation is important but legislators need to make sure that the agencies stop benefiting from the fines, so the regulatory process becomes equitable.

“We’re not against regulation, we’re against overregulation,” he says. Logue and other Republican assembly members will propose legislation in December—part of their economic recovery package—that would have the fines go into the state’s general fund, rather than back to the regulatory agencies.

The most important thing San Diego’s small businesses can do now to lessen the impact of regulation is to talk to their legislators, says Logue. “Call them, go to their offices, explain to them that their business is having a difficult time competing on a global scale because of all this regulation,” he says.

San Diego Chamber of Commerce president and CEO Ruben Barrales says California’s small businesses face a regulatory burden costing the state income and jobs. “In San Diego, we are actively communicating ourconcerns to state legislators and expressing the need to make California a more attractive place for doing business,” says Barrales.

About the author: Eilene Zimmerman is a journalist based in San Diego who writes about a variety of topics, including business, social and political issues and family life. Her work has been published in national magazines and newspapers including The New York Times, The San Francisco Chronicle, The Christian Science Monitor, FORTUNE Small Business, CNNMoney.com, CBS MoneyWatch.com, Wired, Harper’s, Salon.com, Slate.com, Psychology Today and others. She blogs at www.trueslant.com.
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