Friday, 12 March 2010

Varshney AB 32 study creates debate

Outside of some popular posts on water, the most frequently read and cited post on this blog was about Sacramento State Dean Sanjay Varshney’s report on the cost of state regulations.

Catching up on my pile of Sacramento Business Journals, I noticed Varshney’s AB 32 report has stirred up a controversy in that paper. The most interesting quote from a February 26 article,


Asked whether he stands by the report’s findings, and to comment on AB 32, Varshney declined. “I haven’t really kept up with the debate,” he said. “It will be difficult for me to comment.”

Are you kidding me? You wrote a report that said AB 32 will cost over 1 million jobs and wreck the state economy. That report is being quoted in critical state legislation, criticized by prominent academics from UCLA, Stanford and other places, and you say you aren’t keeping up with the debate.

The article includes quotes from Stanford professor James Sweeney calling the report “highly biased”, “based on poor logic and unsound analysis”, “demonstrably false and biased and greatly overblown”, and “very, very defective.” Although I agree with Sweeney, I was cringing as I read this. Ouch! And right in your hometown Business Journal. I think Varshney/Tootelian are getting a rough lesson in the difference between doing an economic impact study for a new shopping center and serious economic policy analysis.

But, it gets even more interesting because the Sacramento Business Journal publishes a response on it’s opinon page from the California Small Business Association. The article is titled, “Rather than attack AB 32 study, try solving small businesses’ concerns.”

When the small-business community couldn’t get straight answers about the impacts of AB 32, we commissioned our own report by two researchers from California State University Sacramento. The findings, which the report’s authors firmly stand by, showed that AB 32 would cost small businesses an estimated $50,000 per year and our state would lose over 1.1 million jobs.

The fear of a heightened competitive disadvantage is very real for small-business owners.

Doesn’t sound like they are standing firmly behind it to me, but the article gets a lot stronger a few paragraphs later,

While researchers from UC-Berkeley act as cheerleaders for AB 32, the president of the UC system is simultaneously complaining about the “significant compliance costs” for universities. In its comment letter to CARB, the UC Office of the President asks for special exemptions and states, “The University depends on the state of California for its operating budget and is concerned that without increased funding from the state, there is a strong potential that the university’s only recourse will be to pass along the costs of AB 32 compliance to its students.”

Nice counter punch.

I completely agree with all of the criticism of the Varshney study AND with the CA Small Business Association’s concerns raised in their rebuttal article. I hope the Small Business Association also realizes that they need to sponsor better research if they want to be taken seriously, and look for alternative sources the next time.

I think the current proposal of Assemblyman Logue to delay AB 32 implementation until unemployment drops below 5.5% has a ridiculous threshold that is nearly equivalent to repealing it. However, the general question of whether to delay the implementation for a year or two is very legitimate, and it is unfortunate that poor research has distracted from analyzing a serious question.

Postscript:
The Daily Hornet (Sacramento State student newspaper) has a new article as well. Not a good day for a Dean when your own campus newspaper is running articles calling your work “an embarrassment to the school” and you decline to comment to the student reporter.

About the Author

Ethan Jacob

Author & Editor

I am Ethan Jacob Executive Director of the Center for Business and Policy Research at the University of the Pacific, where I have a joint faculty appointment in the Eberhardt School of Business and the Public Policy Program in the McGeorge School of Law..

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