Overview

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Download a pdf of California’s state brief by clicking here.

Federal regulations affect every aspect of our economy. These are rules issued by federal agencies that govern the implementation of legislation and thus have the full force of law. By 2016, we estimate that the US Code of Federal Regulations (CFR) contained no less than 1.08 million individual regulatory restrictions. Regulatory restrictions are instances of terms such as shall, must, may not, prohibited, and required, that usually create prescriptive or postscriptive obligations. This buildup of regulations is not benign. A study published in 2012 estimated that the U.S. economy would be 25 percent larger that year had the number of regulatory restrictions remained at 1980 levels. Other recent research suggests that the costs of regulations fall disproportionately on low-income households.

Each state’s economy includes a unique mix of industries, and different industries are affected by different federal regulations. This means that even though federal regulations apply in every state, the impact of any specific regulation on any individual state’s economy is likely to be proportional to the size of the regulated sector in that state; which is to say that the incidence of regulations varies across every state. The FRASE index is an indicator of the relative force of federal regulations on each state’s private sector; it is a ratio, specific to each state, between the adjusted number of regulations and the unadjusted total number of regulations where the adjustment inflates or deflates the number of regulations based on the industrial make up of that state. This ratio or score can then be used to rank-order all 50 states and the District of Columbia.

In 2015, California experienced the 33rd highest impact of federal regulations. With a current-basis score of 0.93, the impact of federal regulations on California’s private sector was 7 percent less than the impact of federal regulations on the nation overall. A FRASE score of 1 means that federal regulations affect a state to precisely the same degree that they affect the nation as a whole. This information, as well as California’s constant-basis scores over time, can be found in table 1. (The constant-basis FRASE score measures the impact of federal regulations on a state in a specific year relative to the United States as a whole in the year 1997. The current-basis FRASE score measures the impact of federal regulations on a state in a specific year relative to the United States as a whole in that same year.)

Historial FRASE Scores and Rankings for California
Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Rank 35 26 28 23 23 28 33 34 35 34 33
FRASE Score 0.96 0.99 0.98 1.02 1.01 0.97 0.93 0.93 0.91 0.94 0.93
FRASE Score (Constant Basis) 1.11 1.18 1.19 1.28 1.31 1.29 1.27 1.34 1.36 1.43 1.44

The figure below expands on the table and shows California’s constant-basis score since 1997 relative to every other state and the District of Columbia.

Certain industries contribute to California’s FRASE score because of their relative size and Federal regulatory attention. The next figure shows the top five industries that contribute to California’s FRASE score. The industry that contributes the most to California’s FRASE score is Professional, Scientific, and Technical Services. This industry makes up 9.9 percent of California’s private-sector economy. With 99,177 estimated relevant restrictions in 2015, regulations on Professional, Scientific, and Technical Services account for 11.1 percent of California’s FRASE score.

The figure below shows the top five federal agencies that are regulating the Professional, Scientific, and Technical Services in California.

Regulatory agencies, however, can affect more than one industry and can therefore impact California’s private sector in multiple ways. The next figure shows the five agencies that contribute the most to California’s FRASE score through the regulations they produced. The single agency with the largest impact on California’s economy is the Environmental Protection Agency, which accounts for 24.4 percent of the total federal regulatory impact on California.

A defining feature of federal regulation is regulatory accumulation: it is readily observable that federal regulations tend to build up over time. The consistent buildup of rules for several decades means that federal agencies regulate virtually every private sector-industry in California. The figure below shows the agencies that have the broadest regulatory reach in California’s private sector. An agency’s regulatory reach is defined as the portion of the industries in a state economy that is regulated by 1,000 or more restrictions by that specific agency. The Environmental Protection Agency has the most significant regulatory reach in California, impacting 44.4 percent of California’s private-sector GDP.

Even though each state has a unique mixture of private-sector industries, some state economies are fairly similar to others. Those states with similar economies also tend to be most affected by similar federal regulations. One way of measuring this similarity is by using a standard distance formula to compare the rankings of industries by contribution to each state’s FRASE score. The five states listed below were found to be most similar, by this metric, to California’s economy:

  1. New York
  2. Maryland
  3. New Jersey
  4. Illinois
  5. Florida

The FRASE index can help California’s citizens and policymakers consider the impact of federal regulations in their state and determine whether that impact is adequately represented in the current debate about regulation. See the Mercatus Center at George Mason University’s primer on comprehensive regulatory reform for possible improvements to our current regulatory system. Download this state brief or any other at QuantGov.org/50states/.