Rolling Back Regulations Easier Said Than Done

by James A. Bacon

Virginia has lagged the nation in economic growth and job creation for a decade or more, and Governor Glenn Youngkin has made it a priority, as every governor does, to boost economic development. One of his strategies for rebooting the economy is to prune needless regulation.

“The growing regulatory burden on businesses and individuals requires time, money and energy for compliance. This represents an opportunity loss that inhibits job creation and economic growth,” Youngkin says in Executive Directive Number One, “Laying a Strong Foundation for Job Creation and Economic Growth Through Targeted Regulatory Reductions.”

Accordingly, Youngkin has directed all state agencies under his authority to reduce the number of regulations not mandated by federal or state statute by 25%. He also directs the Secretary of Finance to explore the feasibility of implementing a 2-for-1 “regulatory budget.” (The meaning of the 2-for-1 budget is not defined in the directive, but I interpret it as a call for deleting two regulations for every new regulation promulgated.)

This is all fine and good — I share the aspiration of rolling back the regulatory state — but we have to be realistic. The number of regulations not mandated by federal or state law is miniscule. With the exception of the regulatory diktats issued by former Governor Ralph Northam in response to the COVID emergency (which Youngkin is nullifying by separate executive orders), Virginia governors and state officials can’t impose new regulations by fiat.

Governors do have some leeway in interpreting regulations, and that’s something Team Youngkin undoubtedly will be called upon to do. But if Virginia’s new governor wants fewer regulations, he will have to change the laws that authorize them. That will entail working with the General Assembly and taking on the special interests and advocacy groups that benefit from the rules.

While conducting periodic regulatory reviews is a healthy exercise, past results have been meager. Youngkin cannot content himself with this directive if he expects to make Virginia a more inviting place to invest and do business. He needs to target the laws that have the most debilitating impact on the economy.

A classic case is the Certificate of Public Need (COPN), which establishes high regulatory hurdles for anyone seeking to expand medical facilities in Virginia. That law (and its associated cluster of regulations) gives established healthcare providers a means to block expansion and new investment by potential competitors, be they out-of-state providers, physician groups, venture-backed entrepreneurs, even competitors from across town. The result has been a consolidation of the healthcare sector, monopoly price-setting power for health systems, and a dearth of innovation in the delivery of healthcare services.

No one law does more to cripple Virginia’s economy and quality of life than COPN. As a free-market conservative, Youngkin needs to target this law as part of a broader healthcare reform. But it will take a huge investment of political capital to pull it off.

An even denser thicket of regulations is associated with Virginia’s land use laws. Regulation has restricted the supply of new housing, added new costs to development, and driven up the cost of housing. The resulting affordability crisis is harmful to the poor, and it makes it harder for businesses to recruit employees to Virginia and keep them. The high cost of housing is a major contributor to the state’s net out-migration. But there are reasons for the laws and regulations — from controlling rainwater runoff to protecting homeowners from undesirable land uses — so rolling back the regs entails making difficult tradeoffs.

Clearing housing’s regulatory briar patch, which has grown up over 60 years, is the work of a generation, not a one-term governor. Perhaps Youngkin could identify some narrow-bore housing initiatives that offer high payoffs with modest downsides. Allow homeowners to build granny flats in basements and garages. End local bans on boarding houses and single-room-occupancy facilities. Strike down regs blocking “tiny homes” and container homes. And somehow make these changes palatable to local governments that will resist any abrogation of local powers and threats to their tax base.

Governors can’t enact changes like these by waving a regulatory wand. Virginia’s chief executive must work with allies in the General Assembly to pass laws and run the legislative gauntlet of special interests, which, in the case of housing, ranges from developers and home builders to environmentalists and poverty advocates. But if we want to reduce the regulatory burden on the economy, that’s exactly what we have to do.