Report says regulations hurt state's economy Small business

Regulations on small businesses in California have cost the state's economy $492 billion and 3.8 million jobs, according to a report quietly released by Gov. Arnold Schwarzenegger's office this week.

Republicans in the Legislature have pounced on the findings and on Thursday called the report the "smoking gun" that proves lawmakers are killing the state's economy through burdensome government mandates. But Democrats and at least one capital think tank are highly skeptical of the accuracy of the findings.

The 84-page report does not specify which regulations were studied and relies on data collected largely by Forbes.

Citing the report, Republicans said the state should suspend implementation of Assembly Bill 32, California's greenhouse gas reduction plan championed by the governor, along with all other new regulations.

"We are protecting ourselves literally to death," said Assemblyman Roger Niello, R-Fair Oaks (Sacramento County), at a Capitol news conference held by Republicans to call for action, including legislative hearings and further study to determine costs, or benefits of specific regulations.

The report, authored by Sanjay B. Varshney, the dean of the business school at California State University Sacramento and Dennis H. Tootelian, a marketing professor at Sacramento State, totaled the "direct, indirect and induced" costs of regulation to calculate the $492 billion figure. It found the cost of regulation was $134,122 per small business in 2007 and caused about one job loss per small business.

"This study provides the most comprehensive and complete analysis of the total regulatory burden in California," the authors wrote in their findings.

They relied on data compiled by Forbes and used a complicated formula to calculate the primary and secondary costs of regulations. They concede that "much more work will need to be done to determine the exact nature of potential remedies to the regulatory burden."

But Democrats are skeptical of the findings.

"I look forward to reviewing the study, but Californians understand that there is a difference between unreasonable regulations and laws that protect kids from asthma, the elderly from abuse and workers from dangerous work conditions," said state Senate President Pro Tem Darrell Steinberg, D-Sacramento, in a statement.

Jean Ross, executive director of the nonprofit California Budget Project that analyzes reams of state data, said she would hesitate to call the report research and said she suspected it supported a "predetermined agenda."

"How they even get to the starting point for the calculation they do is a stretch," Ross said.

Marty Keller, Schwarzenegger's small-business advocate who was responsible for commissioning the report that was mandated by the Legislature, said he doesn't question the accuracy of the findings and said policy experts and lawmakers should now take a closer look at "what works and what doesn't work" with regulations.

Regardless of lawmakers' next move, it is extremely unlikely that AB32, which was not factored into the study, will be affected. The Republican governor told a San Francisco audience Thursday, the third anniversary of his signing of the legislation, that calls for suspending the law are political posturing designed to score points on the campaign trail.