By Steve Doyle, President of Brookfield Homes San Diego/Riverside

Sometimes government does the right thing, and sometimes government does not. Which will it be this time?

The State of California funded a study to find out what the cost of regulation meant to small business in the state. This was the right thing to do. The Office of Planning and Research (OPR), through direction from the Governor’s office, contracted with Varshney and Associates of El Dorado Hills, for the study called “Cost of State Regulations on California Small Business Study”. The highly respected authors of the report are Dr. Sanjay B. Varshney, the Dean of the College of Business Administration at California State Universtiy, Sacramento and Dr. Dennis H. Tootelian, Professor of Marketing for the College of Business Administration at California State University, Sacramento. The study was published in September 2009.

“This study finds that the total cost of regulation to the State of California — direct, indirect, and induced — is $492.994 billion, which is almost five times the State’s general fund budget, and almost a third of the State’s gross product. This cost of regulation results in an employment loss of 3.8 million jobs which is a tenth of the State’s population.” (page 5)

“The total cost of regulation was $134,122.48 per small business in California in 2007, labor income not created or lost was $4,359.55 per small business, indirect business taxes not generated or lost were $57,260.15 per small business, and finally roughly one job lost per small business.” (page 5)

“This study provides the most comprehensive and complete analysis of the total regulatory burden in California. The study and findings have implications for policy makers and those in charge of the regulatory environment. The results also suggest that future research should attempt to understand how to minimize the intended and unintended costs of regulation. Since small businesses are the lifeblood of California’s economy constituting 99.2% of all employer businesses, effort to make the regulatory environment more attractive will make California a more attractive state for doing business. This in turn will improve the state’s output, employment, labor income, indirect business taxes, economic climate, quality of life, living standards, and growth prospects.” (page 7)

It is hard not to be amazed by the Findings and Conclusions offered in the report. But, they are easier to accept when you review some of the backup information the report provides, such as:

1. CA has the worst ranking for personal income tax rate in the U.S.

2. CA has the worst ranking for capital gains tax rate in the U.S.

3. CA has the 42nd worst corporate income tax rate in the U.S.

4. CA has the 43rd worst corporate capital gains tax rate in the U.S.

5. CA has the 45th worst ranking for electric utility costs in the U.S.

6. CA has the 47th worst ranking for workers’ comp benefits per $100 of covered wages in the U.S.

7. CA has the worst ranking for state gas taxes in the U.S.

The question now is will government do the right thing? Will the California Legislature and Governor take this report seriously when the new legislative session rolls around in January of 2010? Will our State Senate and Assembly again propose over 3,000 new laws and the States Administrative Offices propose over a 1,000 new regulations, without considering the cost impacts of their new directives? And, will the state of California slip farther behind the rest of the country on its competitiveness to hold and attract new businesses to the state? Will the government do the right thing? What’s your guess?

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