Regulations only matter when people make them matter. A given jurisdiction could have piles of regulations on the books, but no one bothering to enforce them—and perhaps no one bothering to follow them, if they’re not enforced. Another jurisdiction could have a relatively small set of regulations in place, but an army of zealous enforcers using whatever means at their disposal to ensure that everyone follows the strictest possible interpretation of those regulations. Of course, the full spectrum of combinations is possible: medium stockpile of regulations–high enforcement, small stockpile–low enforcement, and so on.
While I’ve often written in this space about how the size of the regulatory stockpile is an important determinant of economic growth, I haven’t discussed the human element all that much. But every business owner knows that it’s not just the regulations on the books; it’s also the inspector who shows up at your place of business, whether he’s having a good day or not; which regulations he views as important that week; and whether he views the business as a customer or as an adversary. And a whole host of other factors in human psychology could come into play, naturally.
The interesting thing here is not simply the fact that humans play a huge role in determining how regulations affect the economy. Instead, it strikes me that the mindset of the humans who work at regulatory agencies is at least in part determined by the culture of those agencies, and workplace culture can to some degree be changed by proactive intervention from the top ranks.
Two fairly recent stories about regulatory compliance illustrate my point. The first story takes place in California, where a resident of San Francisco recently had a costly experience with local regulators. The other occurred in Ohio—not coincidentally a state that has implemented a regulatory budget in recent years.
On the one hand: San Francisco, California
A San Francisco man, Josh Riskin, recently made the news because he managed to get the local planning code changed, but only after going through a permitting nightmare that cost him $33,000. Riskin wanted to erect two 80-square-foot sheds in his backyard. He seemingly did things by the books. Step one, he went down to his local Department of Building Inspection (DBI) to see if he needed a permit. After consulting a booklet called Getting a City Permit, which he got from the DBI, he learned that “one-story detached accessory buildings used as storage sheds, tool sheds, workshops, playhouses and the like” do not require a permit, as long as they are less than 100 square feet in roof area. So it seemed that he was fine to build his two 80-square-foot sheds without applying for a permit.
However, a neighbor apparently complained, which led to a visit from the DBI inspector. The inspector informed Riskin that although he could have one shed without a permit, he would likely need a permit for the second shed.
Should Riskin have known this? It turned out there is no rule that clearly states that multiple structures in a backyard require a permit, whereas a single structure would not—at least not in the rules printed in the building code or planning code. Instead, this requirement was buried at the end of the city’s thousands of pages of regulatory codes, in a section called “Planning Code Interpretations.” There, a sentence could be found that seemed to directly contradict the booklet Riskin got from the DBI, saying that “despite the plural construction of the language in [the planning code], only one such shed or structure allowed by [the code] shall be allowed per lot.”
His saga went on for months as he tried to figure out if he really needed a permit for the second shed (even though other structure types, such as a gazebo or playground, would have apparently been acceptable without a permit). Eventually, he acquiesced and tried to get a permit—which, as I’m sure you are guessing, was denied. Riskin paid $726 to have the zoning administrator review the problem, still to no avail.
At this point, I would characterize the regulators interacting with Riskin as adversarial. Or, at the very least, I think we can call them reactive, rather than proactive. Riskin was repeatedly sent from one department to another or told to ask someone else for help. No one stepped up and coached Riskin on what he could do. Instead, the focus was always on what he could not do.
Finally, with the help of a very expensive land use attorney, Riskin appealed another time—this time landing before the Board of Appeals (where it cost him another $600 just for the right to present his case for five minutes). And he finally got some traction:
[A] couple of the board members could not shake the idea that the interpretation banning more than one shed was “arbitrary,” when the planning code does allow multiple different types of structures that, together, could take up more space than two sheds—like a shed, a jungle gym, a hot tub and a gazebo.
“I am actually troubled by this,” said board member Eduardo Santacana. “I think the planning department gave you the wrong answer.”
Finally, after nearly two hours of discussion, the board settled on amending the planning code interpretation that Riskin ran afoul of, but with one caveat: More than one shed should be allowed, but they must be “contiguous,” and, in total, less than 100 square feet.
-Danielle Echeverria, “He Got S.F.’s Code Changed, but Permit Nightmare over Two Sheds Was ‘Final Straw’ for Ex-resident,” San Francisco Chronicle, February 4, 2024, https://www.sfchronicle.com/sf/article/permit-nightmare-backyard-shed-city-code-changed-18624057.php
In the end, Riskin managed to get the interpretation of the planning code changed, although it took more than two years and about $33,000: $22,000 in legal fees and $3,000 in lost wages from the time he diverted from his job, plus various other fees and expenses, such as another $1,500 to the planning department for the “cost of investigating and enforcing the planning code on his property.” And since his sheds totaled more than 100 square feet, he had to tear one down anyway. So there’s really not a happy ending for Riskin, although he performed a public service by forcing the DBI to update their planning code to be slightly more sensible. I doubt he thinks it was a good use of $33,000.
On the Other Hand: Ohio
It is probably the case that many people working for regulatory agencies view things as “us versus them,” where the regulator’s job is to make sure that people and businesses aren’t breaking the rules. And no doubt there’s value in not only creating rules but also enforcing them. But the adversarial approach shouldn’t be the default approach. Instead of “us versus them,” regulators could just as easily take on an “us and them” mentality, where their first goal is to proactively manage their portfolio of regulations (and interpretations) so that they are user friendly, and their second goal is to provide customer service that makes it easy to follow the right rules.
That’s what is going on in Ohio right now. In June 2022, new legislation went into effect that required Ohio’s regulatory agencies to reduce regulatory restrictions by at least 10 percent per year over a three-year period.[iv] If you’re curious how it’s going, a December 2023 memorandum summarizes the first year’s results.[v] Here’s a key sentence from that memo: “Of the twenty-seven agencies required to reduce regulatory restrictions, twenty-three reached or exceeded a 10% reduction as of June 30, 2023 or detailed in their progress report specific plans to achieve an at least 10% reduction.” So that aspect of proactively managing regulations in Ohio seems to be going pretty well. I’ve previously written about some missteps in the Ohio approach to cutting red tape, but I want to make sure to give credit where credit is due. Without a doubt, Ohio is cutting some red tape, and on top of it, it seems like the state might be changing the culture of its regulatory agencies.
And by changing culture, I mean changing mindsets from “us versus them” to “us and them,” from adversarial to cooperative, from reactive to proactive. Ohio seems to be doing well there as well. The state set up a website, Cut Red Tape (cutredtape.ohio.gov), that allows Ohioans to submit issues related to Ohio regulations. Given the speed that most governments or large organizations typically work with, you might expect that if an Ohioan submitted a question or issue related to a regulation, that citizen might not hear back for weeks or months, or ever. But apparently that’s not the case.
On the podcast American Potential, an Ohioan entrepreneur tells the story of submitting an issue to the website. Specifically, his son and colleague had applied to a government agency to take a test to receive a specific sort of engineering license, but for reasons unexplained, his son was denied the opportunity to take the test. So the entrepreneur submitted the issue to the Cut Red Tape website. To his (and my) surprise, he heard back from someone the very next day. He explained his issue, and then the board that had previously denied the son changed its position and allowed him to take the test.
Comparing the Two Approaches
Ohio is clearly taking an proactive approach to regulatory management. The state is not only pushing agencies to look back at old rules to see what is no longer necessary, but also helping its citizens when they run into problems with those regulations that remain on the books. It’s a shift in the mentality of regulators: instead of viewing themselves as rule makers and rule enforcers, they have become focused on managing and optimizing a portfolio of regulations and trying to ensure customer success.
San Francisco, on the other hand, only updated a hard-to-find regulatory interpretation from the 1980s after poor Josh Riskin sunk more than $30,000 into the effort. Imagine if San Francisco’s DBI had instead proactively reviewed its regulations and regulatory interpretations. Might the board have noticed that the old interpretation from the 1980s seemed arbitrary? Or at least noticed that the regulation itself seemed to contradict the interpretation? Or, when it came down to interpretation and enforcement, might San Francisco’s regulators have tried to help Riskin understand the rules and interpretations better?
The stock of regulations on the books is one thing, but let’s not forget that regulations require people to write them, to update them, to enforce them, and to follow them. The way that regulatory agencies approach interactions with their customers can mean the difference between a business or resident staying or leaving the jurisdiction.
(This piece was adapted from my Perspectives on Regulation column in the latest Economic Situation Report.)
It was satisfying to get the code changed and the article gave me some closure, but the money could have been better spent. It's important to note that the SF Planning Code is also discriminatory in what it allows in backyards--there is no limitation to the amount of space one can use for say, recreational equipment, but if a person wants to feed his/her family and grow vegetables in a greenhouse or grow medicinal marijuana for a diagnosed medical condition--the limitation is still 100 square feet.
That's simply not sufficient space for either task. I consulted a civil rights attorney about this and was told that while I may have a good case, it would cost me 150k to take it through the courts. I quit!
JR