Regulatory review bill awaits conference committee

Last year, the House unanimously passed the Small Business Regulatory Freedom Act, or H.3021, with the goal of reducing the burden of overregulation in South Carolina. As the bill stands now, this still is the intent, but some state agencies and business sectors are concerned about unintended consequences. 

By comparing the existing regulatory review structure to the changes proposed in H.3021, it becomes clear how the bill improves the current system and what lawmakers have done to address those concerns. 

The existing regulatory process 

When a state agency wants to create, amend, or repeal a regulation, the agency must go through a formal promulgation, or approval, process. The process starts with publishing a drafting notice in the State Register with an address for citizens to submit written comments regarding the regulation. Any regulation with a “substantial economic impact” must also be submitted to the S.C. Revenue and Fiscal Affairs Office, though there is no definition of that impact in state law. 

Within one calendar year of the drafting notice, agencies must submit the proposed regulatory action to the Legislature, where it is referred to the appropriate standing committees in the House and Senate for review. If no lawmaker files a joint resolution disapproving the proposal within 110 days of the Legislature receiving it, the request is automatically adopted without a vote, even those with a “substantial economic impact.” 

Separate from the promulgation process, state law requires agencies to review their regulations every five years and submit an internal report on their regulatory framework to the appropriate standing committees in the House and Senate. As it stands, there are no consequences for agencies that fail to review their regulations, making review more optional than mandatory. 

Proposed changes under H.3021 

H.3021 as currently written amends existing law so that any new regulation or change to an existing regulation with an estimated economic impact of at least $1 million over five years must be approved by a joint resolution. Otherwise, the promulgation process remains unchanged. 

The bill also requires courts to interpret statutes independently rather than deferring to agency interpretations of ambiguity (referred to as “Chevron deference” at the federal level), ensuring state agencies do not expand their authority through statutory interpretation. 

 The most substantial changes are to the five-year regulatory review process. 

H.3021 would require agencies to submit a report reviewing its regulations to the Legislative Audit Council (LAC), the investigative arm of the General Assembly, instead of directly to lawmakers. The LAC will set the schedule for agencies to submit their reports every five to eight years, with the option of splitting larger agencies into multiple review deadlines based on subject matter. 

After the LAC receives an agency’s report, it will conduct its own review of the agency and its regulations to determine if the agency is acting within its statutory authority. The LAC will then submit its recommendations with the agency’s report to the appropriate standing committees in the House and Senate. 

Agencies that fail to abide by the LAC’s schedule will be notified of their noncompliance within 30 days. Agencies will have an additional 30 days after the late notice to submit a memo to the Senate and House providing a reason for noncompliance and a schedule for completing their internal review. 

After 90 days of noncompliance, lawmakers can trigger a “modernization” review via a joint resolution or by a two-thirds vote in one of the legislative committees assigned to regulatory review. Alternatively, lawmakers can grant a waiver to an agency via a concurrent resolution. 

The scope of a “modernization” review, which would be conducted by both the LAC and the Small Business Regulatory Review Committee, a volunteer group of small business owners from across the state, could range from a single regulation to an agency’s entire regulatory framework. 

Once an existing regulation becomes subject to that review, it will sunset automatically three years after the review is initiated as a function of law, excluding the duration of the LAC review. Lawmakers have the option to extend the automatic sunset timeline via a joint resolution, and agencies can prevent the automatic sunset if they go through the promulgation process prior to the sunset date. 

What H.3021 does not do 

A previous version of H.3021 included an automatic sunset provision for all regulations, which was removed by the Senate Judiciary Committee. This previous version of automatic sunsetting was passive and required legislative action to prevent it. The updated measure includes an active mechanism for automatic sunsetting in targeted instances rather than all cases. 

Despite this, agencies and businesses are still concerned that the bill will cause necessary regulations to unintentionally sunset, like those required for public safety, institutional predictability, and compliance with federal law. 

While a modernization review comes with the potential for these regulations to automatically sunset, lawmakers can only initiate one when an agency exhibits a pattern of noncompliant behavior.  

Noncompliant agencies will receive multiple notices and must maintain their noncompliance for at least 90 days before the process begins. Agencies will then have three years after the initiation of a “modernization” review to reintroduce the regulation in question before it automatically sunsets. If an agency fails to act within that timeframe, then it stands to reason the regulation was not necessary. 

H.3021 in its current form offers a path for removing outdated regulations while including plenty of safeguards to prevent necessary regulations from unintentionally sunsetting. Lawmakers are set to take up the bill in conference committee in the near future.