How North Carolina is Putting the REINS on Government Regulation

Thank you for joining us this morning. Today, we’re diving into one of the most substantive new laws enacted this year in North Carolina that hasn’t gotten the attention it deserves: the REINS Act. We’ll get right to it.

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Government imposes rules on private industry. In the light most favorable, the government does so to protect the public from negative externalities: That is, to step in when the behavior of private actors imposes costs on the rest of us. 

For example, it may be in the narrow interest of a manufacturer to burn an energy source that spews toxins out of the smokestack because it’s cheaper. It’s also in the narrow interest of a wholesaler to buy from that manufacturer – again, because the goods are cheaper. 

This obviously imposes a cost on people who live nearby, but both parties to this transaction do not have an economic interest in avoiding that cost. Thus, the need for government regulations on pollution. This view of government regulation on private industry probably enjoys near-universal support. 

But in a less favorable light, government imposes regulations to “solve” market problems that are not nearly as cut-and-dry as the example above. We’ll call this the gray zone, and it’s massive. There are reasonable cost-benefit arguments both for and against gray zone regulations. For example, should the speed of water-borne vessels be capped at 15 knots in certain areas to minimize the risk of whale strikes? Well, that’s a position animal rights and environmental activists would support, but it imposes massive costs on cargo shippers and fishermen. Which side should carry the day?

Gray zone regulations are imposed by one administration, repealed by the next, and re-imposed by the next, depending on the political alliances that sweep chief executives into office. It’s also gray zone regulations that industries complain about the most – they’re immensely complex and imposed by nameless, faceless bureaucracies. It costs a lot of money lobbying or litigating to undo expensive rules with debatable upside.

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So what to do about it?

An increasingly powerful nationwide movement has concluded that this is no way to run a railroad. Nearly a quarter of states have now enacted some version of the REINS Act, including – as of this month – North Carolina. 

North Carolina’s version of the REINS Act disqualifies any new proposed rule with an aggregate financial cost of $20 million over five years unless the General Assembly affirmatively approves the rule by a majority vote of both chambers. Aggregate financial cost means “the amount of costs to all persons affected, as identified in a substantial economic impact analysis,” according to the bill summary.

That is a very high bar. It’s hard to pass laws, and requiring the General Assembly to take affirmative action before a rule can go into effect dims the prospects of proposed rules. And relatedly, voting to enact an expensive rule has potential political costs for lawmakers. After all, no politician likes casting an unpopular vote, much less one that imposes tens of millions of dollars of costs on the economy.

The new law also curtails the executive branch’s authority. After all, executive branch staff and appointees will no longer have sole authority over impactful rules. Gov. Josh Stein said as much in his veto message: the law “would hamstring the decision-making of agencies, boards, and commissions. . .” (The legislature overrode Stein’s veto.)

The impact of the REINS Act on regulations in North Carolina, then, is sweeping.

Aside from the economic benefits of slowing down new high-cost rules, REINS Act backers argue the law adds much-needed accountability to the rulemaking process. No longer will the nameless, faceless bureaucracy churn out industry-changing rules, forcing those impacted to mount a tough and expensive campaign to reverse them. Instead, legislators – who are elected by the people – will have a direct say in the process.

A Forbes column underscored this argument. It quoted testimony from the group Democracy Out Loud at a General Assembly hearing before the vote: “We have regulatory agencies. You appoint people to the regulatory agencies. You have some control over major rules that come. You don’t need this law to take over.”

The column then noted “the irony of a pro-democracy group opposing a reform that would give democratically-elected officials final say on the costliest regulations, rather than unelected bureaucrats who are not accountable to voters.”

The REINS Act will force a more visible, high-stakes debate about regulation in Raleigh. Like most other policies, whether that represents progress or peril is in the eye of the beholder.