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Battling rising permit costs tops business group’s regulatory reform agenda

The state’s commitment to regulatory reform is clashing with its need to balance the budget, and the result is a rising cost of doing business for Arizona companies.

In an ironic twist, the regulatory reform-minded governor and Legislature jacked up the costs of environmental, water and other kinds of permits as they sought to sharply reduce the amount of general fund money regulatory agencies receive. The move eased the state’s budget crunch, but forced agencies like the Arizona Department of Environmental Quality and Department of Water Resources to the hike the cost of the permits they now depend on for the bulk of their funding.

Now, businesses are feeling the pinch, and the Arizona Chamber of Commerce and Industry is looking for ways to lighten the burden.

“What’s really raised the hackles of the business community in the last two years is this kind of explosion in fees — and especially since a lot of these fee funds were healthy before the recession,” said lobbyist Marc Osborn, of the firm R&R Partners, which represents the chamber.

“Now, they were all swept for general fund purposes and the agencies have to raise fees to cover their own costs. So it’s kind of a salt-in-the-wound kind of thing.”

Osborn said the chamber hopes to alleviate the regulatory burden on businesses through a three-pronged approach — shifting to a greater reliance on general permitting, more privatization of regulatory functions and the elimination or streamlining of individual regulations.

One of the biggest problems businesses are facing from state-level regulatory mandates is the rising cost of permits, Osborn said.

ADEQ doubled the cost of reviewing companies’ applications for aquifer protection permits that protect against water pollution to $122 from $61 per hour. Surface water discharge permits, which had no cost to the applicants, will now also cost $122 per hour. The cost of ADEQ reviews of solid waste plans went from about $59 an hour in 2010 to $127 for 2011 and 2012.

Similarly, fees have gone up at the Arizona Department of Water Resources. In 2008, the department received $22.3 million from the general fund, but for the fiscal year 2012, that funding dipped to $5.6 million.

Other agencies have jacked up the fees they charge as well. The Arizona Department of Health Services in 2009 increased the licensing fees for child care centers from a $150 flat fee for a three-year license to a new scale with a maximum fee of more than $13,000.

ADEQ Director Henry Darwin said the fee increases simply reflect a new reality — wwthat without more general fund money, businesses are simply going to have to cover the costs of time-consuming, labor-intensive permits. In many cases, past fee structures unfairly passed the costs of those permits and reviews to other businesses whose applications took up few ADEQ resources, he said.

“We’re only trying to make sure that we’re funding our existing programs, and we’re spreading the responsibility as widely as possible and as fairly as possible among those that we regulate and those that we permit,” Darwin said.

The only way to offset that without more general fund money is if the agency gets more federal funding from the Environmental Protection Service, Darwin said, and that seems unlikely given that agency’s budget cuts and propensity for passing costs of federally mandated permits down to the states.

Gov. Jan Brewer has been a strong advocate of regulatory reform since taking office in January 2009, and one of her first actions as governor was a moratorium on agency rulemaking. But gubernatorial spokesman Matthew Benson defended the permit fee increases as necessary at a time when the state has cut billions from its budget.

“We always want to keep the fees as manageable as possible, but in light of the budget constraints the state’s been under, the Legislature has had to take some actions in that regard,” Benson said.

Fiscally conservative Republicans in the Legislature who are adamant about maintaining a low regulatory burden on businesses took similar positions. Rep.

John Kavanagh, R-Fountain Hills, said he believes all agencies should have a base level of general fund money. But taxpayers shouldn’t have to foot the bill for the significant costs that agencies like ADEQ incur for complicated permitting.

“It’s a judgment call. We don’t want to overburden applicants on the one hand.

But if somebody has a really complicated application, then certainly it’s not unreasonable to have them bear part of the cost,” said Kavanagh, who chairs the House Appropriations Committee.

Kavanagh said he’d like to hold hearings next legislative session to determine the proper balance between general fund money and regulatory fees at state agencies.

House Speaker Andy Tobin said the state’s fiscal fortunes aren’t likely to improve enough to lessen the cost of permitting any time soon either.

“Restoring dollars when you have a $300 million-plus annual debt service makes it very, very difficult,” said Tobin, R-Paulden.

General permitting The chamber, however, is kicking around some ideas that it believes could lighten the cost of permitting for businesses without dipping back into the general fund, and the top item on that list is general permitting.

General permits are essentially templates used for similar types of facilities.

For example, a gas station in Glendale would have the same environmental requirements as one in Tucson, so ADEQ could allow anyone who wants to build a gas station to simply get a general permit, which requires far less analysis and research by the agency.

“It’s like a check-box, versus what we call an individual permit, where it gives you a series of requirements and then you go back and forth with the agency and they specifically sign off on the details of the permit,” Osborn said. “It’s more than a promise. You’re certifying that you’ve done this. Then they can inspect and enforce the permit.”

A Tobin-sponsored bill in 2010 actually requires agencies to look first at general permits for new regulations, unless it would be barred from doing so by federal law. The speaker said he’d be open to exploring a greater role for general permitting next session.

But environmental groups oppose general permits, which they say also provide less oversight and a greater risk of environmental damage, and don’t require public hearings, as individual permits do.

Sandy Bahr, director of the Sierra Club’s Grand Canyon Chapter, said general permitting shifts the government’s emphasis away from protecting water and air and creates a system that turns regulatory agencies into “permit mills.”

“In the end, we will all pay more for that. Ultimately, taxpayers pay for many, many cleanups,” Bahr said. “So there is a huge price to pay for not being careful up front with protecting these resources. And general permits just don’t allow for that careful scrutiny.”

Darwin said the initial cost of general permitting would be high, because ADEQ or other agencies will have to devote a lot of time and resources toward developing the actual permits. But in the long run, he said, the cost will be lower.

Another option the chamber may push for is a review of permitting requirements and regulations to determine which can be scrapped, Osborn said. That option will likely find many supporters in the Legislature and on the Ninth Floor, where the prevailing sentiment is to reduce the regulatory burden on the private sector, especially at a time when the economy is struggling and many Arizonans are out of work.

“I think the focus is not necessarily on eliminating whole blocks of regulation.

It’s taking the regulations that we have and streamlining them to the maximum extent possible,” Osborn said. “To me, the difference is do you get rid of the day care rules? Probably no one would be supportive of that. But if you can find a more streamlined, simple way to get at those rules, that makes a lot more sense.”

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