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20 Hartford Business Journal • February 2, 2015 www.HartfordBusiness.com OpiniOn & Commentary rule of law Is the rule of law at risk in CT? By John Horak T he rule of law is a principle taught in high school civics because it is impor- tant for many reasons, not the least of which is that commerce is impossible in its absence. Anyone who invests in a business will want to understand the applicable law, and be confident it will be enforced fairly. The nexus between the rule of law and busi- ness was brought home to me years ago when, fresh out of law school, I overheard a remark about parts of the world where obtaining legal approvals was as simple as losing all 18 holes of a high-stakes golf game with "the general." Investors sleep better when the general is subject to the law, and not the other way around. Connecticut, of course, has a General Assembly and not a general. Neverthe- less, in light of the state's anxiety with its "unfriendly to busi- ness" stigma, it is rea- sonable to ask if inade- quate adherence to the rule of law may be the root of the problem. Readers may scoff at the temerity of rais- ing this question in, of all places, the Constitution State. However, I prefer the wisdom in the adage about listening to whispers before they become roars, and the murmurs I hear suggest a problem: Regulatory agencies are acting outside of the law and getting away with it. In other words, complaints about "excessive business regulation" are not rhetori- cal and are based on an underlying reality that is deleterious to commerce. While complaints about excessive regulation are common, the possibility that this phenom- enon could inflate sufficiently to weaken the bonds of the law didn't occur to me until reading "Is Administrative Law Unlawful," by Columbia University Law School professor Philip Ham- burger. While the book addresses federal regu- lation, its reasoning fits comfortably within our borders — so let me summarize the reasoning and then provide as an example a duel between a small junk yard and the Department of Energy and Environmental Protection (DEEP). Government is divided into three branches to establish a system of "checks and balances " on power: the legislative power (to make the law) resides in the legislative branch (the Gen- eral Assembly); the executive power (to enforce the law) in the executive branch (the governor and the regulatory agencies of which we speak); and the judicial power (to interpret law) in the judicial branch (the courts). It is unlawful for one branch to infringe upon the powers of another. The General Assembly does not decide lawsuits and the courts do not set tax rates. The field of administrative law evolved to accommodate the emergent practice of assign- ing to executive branch agencies responsibility for filling in the details of complex legislation (writing policy and regulations), and decid- ing contested cases arising from enforcement actions (convening administrative hearings). While there are safeguards designed to prevent an agency's policies from infringing on the statute drafting power of the General Assembly, and its administrative hearings from trumping the powers of the judiciary, the safe- guards have not worked. This is a bold claim. Professor Hamburger suggests that the legislative and judicial branches are too def- erential to the executive, while I would add that agencies get away with things because most businesses cannot afford to fight. Nev- ertheless, the point is that legislative and judi- cial powers have trickled to these agencies, which brings me to my example. The junk yard is owned by an elderly couple making a modest living recycling automobile parts, and oil and other fluids occasionally and inevitably leak into the ground. For years, the owners and DEEP went back and forth about permits, discharges and the like, but in 2009 DEEP brought an enforcement action directly to the courts. DEEP wanted a minimum fine of $400,000, and a "maxi- mum level" remedia- tion of the site with a six figure price tag of its own. After a lengthy trial DEEP won — having proved technical violations of the law. However, the court found that the owners had not acted intentionally and that there was no proof of a condition requiring the "maximum" level remediation desired by DEEP. Using "equi- table" powers that have resided in the judicial branch for centuries, the court imposed a $10,000 fine and ordered compliance with an alternative less costly state environmental program. The court described DEEP's damages and remedia- tion request as "over kill" and "unrealistic." Lawyers often celebrate victories with a steak dinner; but because its victory did not include the pound of flesh it wanted, DEEP appealed its own victory to the Supreme Court (now pending), arguing (and here is the point) that the judicial branch (which coinci- dentally includes the Supreme Court) must subordinate its traditional "equitable" pow- ers to DEEP's demand to remediate the site to the "maximum level" even though DEEP knows there is no money to do this. So, by not drawing clear lines between the powers of the three branches we have ended up with an emboldened executive branch agency appealing a "victory" and telling the judicial branch what to do; a small business caught in the crossfire between the branches spending on appellate litigation in which it is essentially defending the judicial branch's powers to order compliance with the alternative environmental program; and political anxiety about an anti- business stigma that seems well deserved. n John M. Horak has practiced law at Reid and Riege P.C. in Hartford since 1980. The views expressed are his own. John Horak editorial Onus on legislature to maintain CT's economic momentum C onnecticut's economy had its best year in over a decade in 2014, as the state added 26,700 net new jobs. We haven't seen that type of job growth since 1998, a good sign particularly with the private sector leading the way. Now, the onus is on the state legislature not to screw up Connecticut's momentum. But there are plenty of speed bumps ahead. The 800-pound gorilla roaming the halls of the State Capitol remains a budget that faces $1.3 billion in red ink over the next two fiscal years. How the legislature and Gov. Dannel P. Malloy balance the budget will have a significant impact on the state's business climate. While Malloy and many legislative leaders have opposed the idea of raising taxes, we remain skeptical in their ability to cut spending enough to make ends meet. Make no mistake, trimming a billion dollars from a $20 billion or so budget is no easy task, particularly for a legislature known for its spending habits. Don't be surprised to see some stealth tax increases like higher permit fees or caps on certain business tax credits. Beyond the budget, lawmakers must also be cautious about legislative proposals that could handcuff hiring. Adding tolls to state highways has the business community on edge. Meantime, some lawmakers on the Labor and Public Employees Committee have expressed interest in expanding the state's paid sick leave mandate to include small busi- nesses and establishing a new paid-family leave policy for all Connecticut companies. The Connecticut Business & Industry Association referred to such proposals as a "mandate war being waged on small businesses." We won't go that far, but such mea- sures won't inspire business confidence. To be fair, the General Assembly doesn't have full control over the economy. In fact, according to a 2012 analysis by UConn economist Steven Lanza, Connecticut influ- ences only about 15 percent of its economy. The rest of the state's economic fortunes are driven by regional and national economic forces, Lanza's analysis found, which means the U.S.'s strengthening dollar will likely have a more detrimental impact on Connecticut, than anything the state legislature does or proposes. Still, perception is reality and if the legislature prescribes a bad dose of tax increases or new mandates, it will send a bad message to the business community, both here in Connecticut and abroad. So as we celebrate 2014's job gains, lawmakers must be conscious about carrying that momentum forward. How they act and vote over the next few months does matter, even if the state doesn't have full control over its own destiny. n CT's snow response deserves praise While all of Connecticut didn't feel the full force of last week's blizzard, the snow storm still packed a powerful punch delivering more than two feet of snow in Eastern Connecticut and significant wind speeds across the state. But Connecticut made it through the storm OK, with only a few thousand power outages (that were quickly rectified), few accidents and injuries, and adequate snow removal in most cities and towns. Many people deserve credit for the quality response, ranging from Gov. Malloy to city and town leaders and public work employees, and even utility companies. It appears the 2011 storms that knocked out power to some Connecticut residents for more than a week has taught state and local governments as well as Connecticut Light & Power and United Illuminating how to better prepare and deal with major snow events. Government is often an easy target for criticism, but when state and local lead- ers get things right they deserve our praise. Let's hope they keep up the good work when the next snow storm hits. n HartfordBusiness.Com Poll How did your company respond to the Blizzard of 2015? ● One-day shutdown ● Employees worked from home ● Open; business as usual To vote, go online to HartfordBusiness.com. Last week's poll results: Should CT taxpayers prop up financially ailing hospitals? 26.5% Yes 73.5% No ▶ ▶ Complaints about excessive business regulation are not rhetorical and are based on an underlying reality that is deleterious to commerce.