Guest commentary: Excessive regulations a threat to California’s family businesses
By Ken Monroe
Family businesses are the backbone of California’s economy.
From family farms to shops and restaurants to manufacturing companies, our businesses don’t just provide goods and services; we create jobs, support communities and carry on legacies built over generations.
How important are family businesses to the state’s economy?
Our state’s 1.4 million family businesses employ an estimated 7 million people. Nationally, studies have shown that family businesses generate 57% of the nation’s GDP, employ 63% of the workforce and create 75% of all new jobs.
As chairman of the Family Business Association of California, I hear all the time from our members that our businesses are facing a threat that is difficult to overcome: excessive government regulations that affect virtually every aspect of our operations.
Regulatory mandates are often well-intended.
They were enacted to provide protections to workers, the environment and the public as a whole.
In many cases, regulations make sense.
But too often, they are excessive — and the cumulative costs of complying are a major reason why a steady stream of California companies are moving operations to more business-friendly states.
California has the most regulatory restrictions of any state, nearly 400,000 in a survey conducted in 2020.
That’s 100,000 more than second-place New York and is on top of more than 1 million regulatory restrictions imposed by federal agencies.
The federal government estimates that its regulations alone cost American businesses about $300 billion a year — just $53 billion less than they pay in corporate income taxes.
Family businesses are particularly hard hit as most multigenerational family-owned companies are medium-sized firms.
In fact, researchers at Cal and USC found that regulations’ impact on medium-sized businesses like ours was 40% higher than for both small and large businesses because, unlike large corporations, family businesses typically don’t have teams of lawyers or compliance officers on hand to navigate complex regulatory requirements.
When a large California company faces the same regulations, as mentioned before, it leaves the state or minimizes its operations here.
But many California family-owned businesses are tied to the state and even minor compliance costs can make or break the business.
But instead of working with family businesses to streamline regulations, the state continues to create even more.
Earlier this month, the California Air Resources Board voted to make the Low Carbon Fuel Standard more stringent as part of the state’s effort to end the use of fossil fuels. R
esearchers at the University of Pennsylvania say the new standards could increase prices by 65 cents per gallon in the near term and by nearly $1.50 a gallon by 2035.
That will dramatically increase costs for businesses and consumers.
Then there’s the recently created California Privacy Protection Agency, which is working to adopt a 200-page rulemaking package to impose new compliance obligations on such topics as cybersecurity audits and artificial intelligence that would cost businesses a staggering $4.2 billion in the first year alone.
So what can be done?
At the federal level, some relief may be in sight.
During his first term, President Trump issued executive orders requiring that two existing regulations be repealed for every new one enacted.
In his second term, he has pledged to cut 10 for every new regulation. That will be extremely difficult to achieve, but any review and reduction will be welcome.
At the state level, there is already a mechanism for reviewing the impact proposed regulations would have on the economy.
The Administrative Procedure Act requires state agencies to determine the potential economic impacts of all new regulations and avoid imposing unnecessary or unreasonable regulations or excessive reporting, recordkeeping orcompliance requirements.
Unfortunately, to comply, agencies just have to fill in a five-page, fill-in-the-blanks form.
It’s time to require departments and agencies to fully examine the impacts of proposed regulations before adopting them.
And that could happen if the continued departure of businesses begins to seriously affect tax revenue.
Crises can cause action — that’s what happened at the Department of Insurance this year as officials are pushing for major regulatory reforms to allow insurance companies to continue providing coverage.
But we shouldn’t have to wait for a crisis. California family businesses are committed to California and believe we can protect workers, the environment and the public without these exorbitant costs and red tape.
It’s time for the state to be proactive and treat family businesses as assets to our state.
Ken Monroe is the CEO of Holt of California, a family-owned Caterpillar dealer serving much of the Central Valley.
