May 13, 2005--Last week, Indiana became the third state this year to sign into law a bill that would require state agencies to gauge the economic impact to small business of proposed rules and regulations. New Mexico and Virginia also enacted similar legislation this year.

Indiana's Small Business Regulatory Flexibility Bill requires state government agencies to prepare economic impact statements for proposed rules when said rules could have a financial impact on small businesses, and provides small businesses the opportunity to bring action against a state agency to determine whether it complied with the requirements during the rulemaking process. The state's agencies also are required to conduct flexibility analyses that evaluate alternative regulatory methods that could minimize the impact on small businesses,

In total, eighteen states have introduced legislation during 2005 that would give small businesses a voice in states' regulatory processes, mandating that state agencies consider the impact of their policies on small businesses before they issue final regulations.

While big businesses generally have a full-time employee responsible for handling regulatory matters, small businesses have to acquire the expertise. Bills now being considered by the states are expected to save hundreds of dollars for small businesses that otherwise would have to incur legal, accounting, and/or consulting costs to help them comply with regulations.

"States are beginning to realize that the regulatory process can become overly burdensome for small businesses. Having that flexibility in the regulatory process is essential for small businesses and a tool to improve the state's economy," said Viktoria Ziebarth, director of regional affairs at the Small Business Adminstration's Office of Advocacy.

According to a 2001 study by the SBA's Office of Advocacy, small-business owners nationwide spend nearly $7,000 each year per employee to comply with federal regulations. The study did not include the cost to comply with state regulations. Part of the problem is that regulations are often drafted with a "one-size-fits-all" approach, said the National Federation of Independent Business (NFIB).

Since 2003, 37 states have put into place legislation or executive orders that implement some or most of regulatory flexibility provisions drawn up by the SBA's Office of Advocacy in December 2002.

The SBA's model legislation is based on the Federal Regulatory Flexibility Act of 1980. In 2002, the Office of Advocacy presented the draft model regulatory flexibility legislation to the American Legislative Exchange Council for consideration by state legislators. Since then, many states have taken steps to strengthen regulatory flexibility for small business. North Dakota and Colorado were the earliest to enact the new legislation.

The SBA's model regulatory flexibility bill requires state agencies to consider, among other factors, the ability of small businesses to comply with the proposed rules. It will also allow for flexibility in determining the size and reporting requirements for small businesses that have to comply with the regulations.

By listening to small businesses early on in the regulatory process, state agencies can ensure that small business resources spent on burdensome new regulations are instead available for hiring new employees and making new investments, said the SBA.