In tough times, you'd think revenue-starved cities would bend over backward to help new businesses open their doors. Wrong.
In Tucson, would-be entrepreneurs must navigate a 17-step process that the city's own Small Business Commission describes as "seemingly never ending."
If a Phoenix business owner wants to remodel an existing building, the city requires $630 just to meet with its Development Services Department for "site plan review." He must then file the proper application, which costs at least $1,200. Once approved, he must apply for several other permits, navigate a maze of regulation, and pay the applicable fees, including sewer and water fees, a new development impact fee, signage fees, and depending on the business, a licensing fee.
That's just the tip of the regulatory iceberg floating in the way of Arizona entrepreneurs. But in today's economic climate, does it really make sense for government to be an obstacle preventing productive, legal, taxpaying businesses from opening?
Cities across the nation are in such dire shape from plummeting tax revenues that Reuters news service recently reported on a proposal to create a new federal agency to "bail out dozens of floundering U.S. cities."
In fact, during the last months of 2008, Tempe's sales tax revenues plummeted 9 percent. Since then, the tax revenue decline has accelerated. Revenues generated from fees are down, too. Chandler, formerly one of the fastest-growing cities in the country, reportedly issued one building permit in February.
With these dire financial circumstances, cities across the state have been forced to cut back on library hours, close swimming pools, and lay off employees.
Arizona cities obviously need to get their budgets back in balance, and if they want to do that without federal intervention, cutting more programs, or increasing the tax burden, a good place to start is to free new businesses to take root and thrive.
Put government rules on a deadline
One way cities can hang an "open for business" sign is to weed out unnecessary rules, regulations and red tape. But to know which regulations should stay on the books, cities need to better distinguish between those that protect health and safety and those that just create more hurdles that business owners must jump.
A new report from the Goldwater Institute, "A New Charter for American Cities: 10 Rights to Restrain Government and Protect Freedom," shows how it can be done.
Cities should adopt a policy of "sunrise" and "sunset" review of all business regulations. Both kinds of review require cities to prove that a real threat to public health or safety exists and that the desired regulation will address that problem more effectively than any other regulation the city may already have on the books, or that they could choose instead. The goal of sunrise and sunset review is to keep unnecessary rules and red tape off the books.
Sunrise review bars any new regulation from becoming law without proof that the regulation would actually protect public health and safety. Similarly, sunset review requires existing regulations to be removed from the books unless they are proven necessary and effective.
Sunrise and sunset review laws are common at the statewide level. At least 18 states have some form of sunrise review and at least 26 states have sunset review. But the sad truth is it often serves only as window dressing. Most states attach no consequences to lawmakers and agencies when they ignore or fudge sunrise or sunset review.
That's why "A New Charter for American Cities" recommends reforming city charters to bar regulations from being enforced unless they actually undergo meaningful review. To keep lawmakers honest, citizens should also have the legal right to enforce sunrise and sunset review in court.
Bring back business freedom
If taken seriously, sunrise and sunset review could cut red tape and reduce business startup costs. These policies would give lawmakers a moment to think carefully before rubber-stamping "one-size-fits-all" business licensing requirements, especially for those that pose no threat at all to public health or safety. Eliminating layers of needless red tape would create an environment where businesses can thrive, employ more people and contribute to the vibrancy of Arizona communities.
And, while the goal of maximizing individual freedom should be enough to justify freeing local businesses from excessive regulation, the bottom line is that business growth is good for a city's bottom line, too.
Nick Dranias holds the Goldwater Institute's Clarence J. and Katherine P. Duncan chair for constitutional government and is the director of the institute's Dorothy D. and Joseph A. Moller Center for Constitutional Government. He is the lead author of "A New Charter for American Cities."