Timely Economic Analysis of Major Regs Upheld in Unanimous Appeal Court Ruling

State agencies must take seriously the requirement to conduct a timely, accurate economic analysis of major regulations, according to a just-released opinion by the 5th District Court of Appeal.

In a unanimous opinion upholding the trial court, the appellate justices found that the final economic impact analysis used in rulemaking must be based on evidence, as must the responses to public comments regarding nonspeculative economic impacts which introduce new evidence into the rulemaking file.

The California Chamber of Commerce filed a friend-of-the-court brief in the case.

The court also ruled that a state agency must address both intrastate and interstate economic competitiveness impacts and concerns.

In deciding this case, the appellate court rejected the application of a deferential standard of review to the state agency’s interpretation of its obligations under the Administrative Procedures Act (APA). In effect, the court held that the agency doesn’t get to decide for itself what the Legislature meant by holding the agency accountable.

Core Dispute

The APA ruling in this dispute, John R. Lawson Rock & Oil, Inc. and California Trucking Association v. State Air Resources Board et al., Case No. F074003, centered around the adequacy of the economic analysis conducted by the Air Resources Board (ARB) when it adopted an amendment to a rule regulating diesel truck engines.

The California Trucking Association successfully argued that the analysis was a “rosy scenario without merit,” and that the economic analysis “merely evaluated the Amendments’ ‘benefits,’ and did not include any analysis of the Amendments’ potential ‘adverse economic impact[s]’ on affected businesses.”

The appellate court found that behavior unacceptable.

The court also rejected the agency’s willful ignorance of evidence of additional economic impacts, developed through the APA’s iterative regulatory analysis and review process.

That is, once an agency is made aware of relevant economic information—especially potentially adverse economic impacts—then it must address those impacts in good faith as it completes its final economic analysis.

Legislative Authorization

The requirement that agencies conduct rigorous economic impact analyses was enacted by the Legislature in 2011 (SB 617; R. Calderon; D-Montebello). The CalChamber was a key supporter of the legislation and has worked closely with the Department of Finance to develop the rules by which agencies must comply with these requirements.

Joining the CalChamber in filing the amicus curiae brief in this case were the California Manufacturers and Technology Association, California Business Properties Association, California Retailers Association, Consumer Specialty Products Association, California Independent Oil Marketers Association, Automotive Specialty Products Alliance, National Elevator Industry and Pacific Merchant Shipping Association.

Contact: Loren Kaye

Loren Kaye
Loren Kaye was appointed president of the California Foundation for Commerce and Education in January 2006. He has devoted his career to developing, analyzing and implementing public policy issues in California, with a special emphasis on improving the state's business and economic climate. He also was a gubernatorial appointee to the state's Little Hoover Commission, charged with evaluating the efficiency and effectiveness of state agencies and programs. Kaye served in senior policy positions for Governors Pete Wilson and George Deukmejian, including Cabinet Secretary to the Governor and Undersecretary of the California Trade and Commerce Agency. See full bio.