Several years ago, I asked an associate what kept him up at night as a businessperson. He replied that it was not his competition or securing and retaining good staff, nor even the rising costs of doing business, but rather increasing and complex government regulations, where a simple misunderstanding or lack of awareness could lead to his demise.
He feared that a state agency would someday come in and cite him for violating a new law or regulation that he had not heard of, with penalties and fines that could force him to close his business.
“I am probably violating some rule or law daily and don’t even know it,” he told me.
This small business owner is not unique. Many others fear for the welfare of their businesses and the livelihood of their employees if those businesses close due to failure to comply with a specific rule. The state challenges every small businessperson to be aware of all of the regulatory and legal changes made annually. At the same time, the business owner assumes the risks and possible consequences that could result from an inadvertent failure to comply with a specific rule.
Each new regulation places additional stress on companies. In particular, small businesses do not have the staffing, such as full time regulatory or HR specialists, nor the resources to retain an attorney as large corporations do, to sort through a new regulation and establish the processes and procedures for compliance. This responsibility falls to the owner to determine and forces him or her to assume the roles of attorney, counselor, accountant, personnel specialist, and more while still trying to run their businesses.
In this past legislative session, there was substantial discussion and debate over several bills that included a new fee or an increase on an existing one. Legislators debated the value and impact that those fees may have on businesses and the pocketbooks of individuals.
While a lot of attention was given to these measures, less attention was given to others that did not involve a direct cost, but rather increased business expenses associated with new or changed regulations, procedures, or penalties which constitute what has come to be called, “regulatory drag.” This term applies to how much regulations add to the cost of conducting business, detracting from their productivity.
Unfortunately, over the last few years in Colorado, our General Assembly and state government has substantially added to the body of regulations, laws and rules, which increase the cost to conduct business in Colorado, which in turn leads higher prices for both businesses and consumers.
The real costs of these additional mandates are rarely quantified and if they are, they generally are understated. Proponents tend to downplay the resources and costs associated with them. Rather, they stress the importance of these regulations and that their value outweighs any costs.
Even in cases where the social benefit may be significant, one cannot ignore that these regulations raise costs, and those higher expenses either must be passed along in added costs to customers, or come at the expense of other line items, including jobs.
A recent national study reported that the annual cost to our economy from excessive and costly regulations comes to $4 trillion. This is more than triple the amount proposed in Congress toward
ing our national infrastructure.
Nor does the $4 trillion price tag reflect its true cost. The added mental and emotional stress that government overreach places on business owners is not easily quantified but is likely to be substantial.
A good example of the implications of a new government mandate is Proposition 118, which passed in 2020. This is a one-size-fits-all family leave program, which will put 85% of Colorado employees in the state under a state-run family leave program that allows up to 12 weeks of paid family leave.
Programs such as family leave have been offered by many businesses for a number of years, and some states have mandated programs. Colorado’s new program, though, is viewed as one with richer benefits than most other states or businesses offer. This translates into greater costs for businesses in Colorado versus surrounding states.
In 2020 the Common Sense Institute projected the impact of Proposition 118 on Colorado companies and reported that profit margins could decline by anywhere from 2% to 10%. The direct cost of the premium — a cost divided between employer and employee — would amount to an effective increase in personal income tax of between 8% and 18%.
While new regulations, or changes to existing ones, will continue to be needed, greater attention needs to be devoted by lawmakers and government officials toward assessing the full impact on businesses and our state economy before proceeding with new ones. Further, more attention needs to be given to streamlining and removing outdated rules and regulations.
Greg Fulton, of Denver, is the president of the Colorado Motor Carriers Association, which represents more than 600 companies directly involved in, or affiliated with, trucking in Colorado.