The Administrative State vs. the Lemonade Stand: Reforming State Administrative Procedures Acts

When a seven year-old boy decided to open a lemonade stand in New York he was merely attempting to engage in private enterprise to raise funds for a trip to Disneyworld. Instead, he found his entrepreneurial impulses suppressed by a dizzying array of state regulations causing him to temporarily close his burgeoning business. Regulations can and do serve many useful and necessary functions in providing for a safe and healthy society. Unchecked rulemaking by non-legislative bodies, however, only serves to burden businesses and punish citizens unable to keep up with an ever-increasing number of regulatory standards. To this end, ALEC has developed a state model of the Administrative Procedures Act to govern the processes by which state administrative agencies propose and establish regulations. It aims to curtail the regulatory burden on private enterprise and rebuff the administrative state’s encroachment on individual liberties.

The restrictions mandated by the federal government are imposing enough: in 2017, the federal register contained over 112 million words. A report by the Heritage Foundation found that 98 percent of all federal criminal offenses derive from regulations enacted and enforced by government bureaucrats rather than elected officials. In addition to federal regulations, Americans are subject to a labyrinth of state, county, and city regulations. According to the Mercatus Center, the state regulatory code of New York contains 307,636 regulatory restrictions.[1]  Elected officials chosen by the people must be able to check the powers of unaccountable administrative agencies.

The ALEC model Administrative Procedures Act creates a Joint Committee of Administrative Rules (JCAR) in the state legislature to review all rules before they are enacted. If the JCAR votes to void a rule, the rule is immediately barred from enactment. Absent action by the JCAR, the rule goes into effect upon conclusion of the JCAR review period.

Additionally, this model checks the law enforcement powers of administrative agencies and includes multiple methods of defense for regulated persons facing administrative enforcement actions. Among the defenses against administrative actions is a strong mens rea requirement for civil and criminal offenses. Criminal sanctions should be reserved for cases in which there is serious and intentional conduct and for which civil remedies are insufficient to create a just result. These sanctions must be proportionate to balance public safety with liberty.

To ensure a fair and impartial trial, the model overturns Chevron and Auer deference by requiring trial courts to review administrative actions without giving deference to prior rulings by administrative agencies. While this may sound like a technical shift, allowing courts to review decisions with a fresh eye can make the difference between undue intrusion and meaningful liberty. This model also provides a rule of lenity defense that requires any statutory or regulatory ambiguity to be decided in favor of the defense. Additionally, the model restricts agency action by curbing the use of guidance documents.

Finally, the model creates a State Office of Administrative Hearings (SOAH). Based on the Texas approach to administrative hearings, the SOAH is an executive agency that houses administrative law judges to provide an independent forum for adjudications. Agency adjudications are conducted by ALJs in the SOAH, separate from the supervision of the state agency so that state agencies cannot influence the ALJ’s application of the law. A person can seek judicial review in any adjudication, guidance document, rule or civil investigative demand or claim of probable cause.

There is clearly a need for effective regulations to properly ensure safety and fairness in business practices. Without a robust system for developing and reviewing them, however, American citizens will be increasingly restricted by rules that are complicated, redundant, overly burdensome and at times contradictory with one another. The ALEC model APA will allow states to enjoy the benefits of smart rulemaking while avoiding the pitfalls of overregulation. Importantly, it also provides protection to citizens against a system of unaccountable lawmaking by administrative agencies. States would be wise to take this first step towards freeing small business owners to focus on what matters, even when that focus is on lemonade sales.

[1] McLaughlin, Patrick A., Oliver Sherouse, Daniel Francis, and Jonathan Nelson. State RegData (dataset). QuantGov, Mercatus Center at George Mason University, Arlington, VA, 2018.