Over the last decade, California’s government has been very clever in camouflaging major cost increases as regulations deemed necessary to implement laws. Political leaders promise their constituents that they are against new “taxes,” yet state agencies continue to raise fees or create mandates with high compliance costs for businesses.
A prime example of this is the California Privacy Protection Agency’s (CPPA) latest set of proposed regulations, estimated to impose a $3.5 billion direct cost to businesses – which would result in increased costs of goods and services for consumers.
The public showed its frustration with hidden taxes during the November election and sent a strong message that the cost of living matters and that business as usual is not acceptable.
The CPPA may have heard the public’s message, but was not willing to follow it. On November 8, the agency voted to commence formal rulemaking on proposed regulations to establish a state policy for automated decision-making technologies (ADMT), cybersecurity audits, and risk assessments.
The proposed regulations could be the largest cost increase currently being considered by state government. The regulations will impact large and small businesses and will have the most substantial impact in the next five years – a period in which the state will have multibillion-dollar deficits, according to the California Department of Finance and Legislative Analyst’s Office.
Don’t take CalTax’s word on the costs – the CPPA’s own Standardized Regulatory Impact Analysis (SRIA) determined that the regulations will impose a $3.5 billion direct cost to businesses in the first full year, followed by average annual costs to businesses of $1.08 billion over 10 years, leading to much greater harm to California’s economy, including layoffs and job losses as businesses struggle to absorb these costs.
There will be a negative effect on investment (-$31 billion) due to increased costs and reduced profit margins, which will decrease current output (-$50 billion), employment (-98,000 full-time jobs), and gross state product (GSP) (-$27 billion).
The regulations also will have consequences for education and other state programs that rely on general fund revenue. According to the SRIA, the regulations will cause annual state revenue losses reaching $2.8 billion in 2028.
As noted, the impact will not be limited to financial losses. The SRIA reported that there will be a decline of up to 126,000 jobs by 2030, reducing household income and consumer spending, ultimately placing additional stress on state resources.
A review of the SRIA by the California Chamber of Commerce found that the CPPA’s financial analysis followed a familiar pattern: the costs associated with the regulations were significantly underestimated while the savings were wildly overstated. This explains why so many people whose jobs or businesses are regulated by the government are frustrated with the lack of transparency and are demanding to know the real costs associated with government programs.
The CPPA regulations hit the trifecta. They impose a high cost on taxpayers and workers, harm the economy and state revenue at the worst time, and disregard the clear message from California residents that the high cost of living is their main concern.
There is an answer. The governor and Legislature can intervene and direct the agency to pause any new regulations while establishing a policy that protects jobs and prevents economic harm.
Robert Gutierrez is president of the California Taxpayers Association.