Policy Study

Regulatory Reform at the Local Level

Regulating for Competition, Opportunity, and Prosperity

Executive Summary

There is a growing realization in the United States that regulation, for all its apparent benefits, comes with significant costs as well. Long concerned with the rising costs of federal regulations, public officials are now starting to realize that the costs of state and municipal regulation are also quite substantial, and they are beginning to develop state and local regulatory reform programs.

Notable regulatory reform programs exist in San Diego, New York City, Colorado, Pennsylvania, Minnesota, New Jersey, and Virginia. But these programs have all focused on newly proposed regulations, with little attention paid to regulations already on the books. The regulatory reform program in Indianapolis stands out from these other programs because it focuses on existing regulations.

By systematically going through the city code and methodically analyzing the merits of its regulations, Indianapolis has brought sense to its regulatory structure, eliminating or modifying regulations found to be outdated or more costly than their benefits merit.

Examining what Indianapolis is doing, why they do it, and what they have learned along the way offers lessons for other cities. Our review of the Indianapolis experience offers a “how to”-and “how not to”- guide to the economics and politics of urban deregulation. The key principles of reform garnered from the Indianapolis experience are:

Create an Independent Reform Commission. Someone must have ownership of the reform process. Individual agencies are too often wedded to the status quo.

Recognize the Merits of Competition. More competitive markets are more disciplined, creating incentives for innovation, customer service, and efficiency.

Acknowledge the Existence and Influence of Interest Groups. Even if a policy change produces net gains for the community, the losers have an incentive to oppose change. Reformers can encourage groups of those burdened by existing regulations to help push for reform.

Focus on Outcomes Rather Than Process. Indirect regulations, aimed at process rather than results, increase the chances of unintended outcomes. If the concern is the safety of taxicabs, policymakers should enforce laws against negligence or publicize safe operators to help the market information process. They should not limit the number of taxi’s on the theory that by controlling licenses they can induce safety. Focusing on outcomes makes the impact of a regulation more transparent and allows officials and the public to see direct effects of a regulation.

Weigh Both the Costs and the Benefits of a Regulation in Deciding its Worth. The success of a regulation should be tied to its intended effect, not to the behavior of regulators. It’s not how many fines are levied, but how many harmful actions are prevented, and what costs to society are avoided that measures the success of a regulation.

Regulations Should Be Simple and Narrowly Focused. The broader or more complex a regulation, the more likely are unintended consequences. Also, the less likely it is that ordinary citizens can understand the rule and its impact. An opaque regulation plays into the hands of the special interests that benefit from it.

Adopt a Transparent Analytic Framework. A decision process like the one Indianapolis used (see p. 8) assures a consistent analysis on each regulation, and that no steps are overlooked. It also improves citizen and interest group visibility of the reform process, and encourages their input.