Regulations typically arise to deal with problems where markets have failed, or from political pressure to benefit certain parties by reducing competition or attempt to alter people’s behavior. Regulation is also popular for imposing an order and certainty onto free markets that many find desirable.
Like all policy instruments, regulations embody tradeoffs. They may effectively resolve a problem, but give rise to new problems or to unintended consequences. To decide if regulation is the right answer, you must look at the tradeoffs between the solution and all of its consequences.
During recovery from Hurricane Katrina, state and local government should look particularly hard at those tradeoffs. Regulations that may have been viewed as desirable or even a necessary evil during normal times may be an undue or unbearable burden during recovery and rebuilding.
Regulatory changes for officials to consider include:
Develop a Performance-Based Fast Tract Contracting System. This will help state and local government get key infrastructure rebuilt much more quickly. When the 1994 Northridge earthquake resulted in the collapse of two bridges on the Santa Monica Freeway, the world’s busiest, it was estimated that it would take from nine months to two years to open the damaged sections of the roadway if the bridge repairs were to go through the normal bidding process. The estimated cost to the local economy: $1 million to $3 million a day. To speed up the process the state transportation agency streamlined procurement requirements and offered substantial performance incentives and penalties to the contractor: a $200,000-per-day bonus for completing the project ahead of schedule and a $200,000-per-day penalty for each day the project was behind schedule. The financial incentives resulted in the overpasses being replaced in a little over two months—74 days ahead of the deadline. The $13.8 million the contractor received in performance bonuses was more than offset by the estimated $74 million in savings to the local economy and $12 million in contract administration savings thanks to the shortened schedule.
|A Story to Avoid in the Wake of Katrina
Many suffered damages and were forced to pick up the pieces when Hurricane Charley hit Florida in 2004, but even a hurricane was no match for occupational licensing laws:
Anthony Howell flew to Florida last week to help out a friend whose home was badly damaged by Hurricane Charley. Now, he may face a $5,000 fine and a felony charge.
Howell, a Rockland County licensed contractor who runs Triad Builders in the hamlet, said his friend, Alex Arzoomanian, had called him on Aug. 14, because Arzoomanian’s home in Kissimmee had been damaged by the hurricane and subsequent thunderstorms.
His 4,000-square-foot shingled roof had taken a beating, and after the numerous Florida contractors he had called said they couldn’t help him immediately, Howell offered to take a week off work to help.
They began repairing the roof the next day. Three days into the job, Howell was approached by two deputies from the Osceola County Sheriff’s Office and two investigators from the state’s Department of Business and Professional Regulation, who gave him a cease-and-desist order.
Under Florida law, only contractors licensed by the state may engage in roof repair. It carries up to a $5,000 fine. Not to mention that the practice of unlicensed contracting becomes a third-degree felony when the governor has declared a state of emergency.
– Sulaiman Beg, “Contractor’s bid to help friend turns nightmarish,” Journal News, August 28, 2004.
Suspend Licensing Requirements for Construction Trades. Usually after a disaster there is increased pressure to allow only local licensed construction workers to help the rebuilding. But this only provides great benefits to local licensed construction workers and great harm to local residents who want to rebuild. Certainly, enforcing rules against fraud and criminal behavior, and helping residents know what to look for in picking someone to work on their house or business becomes much more important when customers are desperate to rebuild. But restricting the supply of workers is even worse and dooms many to wait. For businesses such delays are often fatal. Residents have to be trusted to look out for their own welfare and make what deals are sensible to them, with reasonable help, not a heavy regulatory hand, from government.
Streamline the Building Permit Process. Building review and permitting processes are notoriously slow and cumbersome. Contractors deal with it all the time and learn to live with it, but after a disaster thousands of residents find themselves having to deal with the permitting system and its frustrations.
There is little evidence that building fees and permits have a significant impact on the quality of work and compliance with local codes. Direct inspections for code compliance, with direct punishment for infractions, regulate outcomes rather than inputs and are far more effective. Permit requirements should be limited to ensuring compliance with zoning laws and other such broad community concerns.
To help speed up rebuilding, local officials should modify the permitting system to:
- Eliminate the requirement for building permits for construction activity that creates no significant health or safety risk.
- Simplify issuance of building permits for major construction projects by allowing general contractors to obtain a “master building permit” for structural, electrical, heating and cooling, plumbing, and wrecking work.
- Allow employees and agents to apply for building permits.
- Allow owners of residential and commercial buildings to secure building permits for construction work to be done by their employees or by subcontractors that the owners hire.
- Enhance consumer protection by increasing the city’s ability to police illegal contractors and contractors who violate building code provisions.
- Consolidate development review guidelines and develop performance goals and measures with a citywide project-tracking database.
- Create a portal for electronic plan submission and review.
Adrian Moore, Ph. D., is vice president of research at Reason Foundation. Adam B. Summers is a policy analyst at the Reason Foundation