Are Utah lawmakers pulling just the right levers to ensure the state is the preferred birthplace for the Next Big Thing from the innovation world?
A proposal making its way through the current legislative session is earning national attention thanks to a core idea that could help lure the best innovators from around the country, and the world, to the Beehive State to launch their latest products and services.
The so-called regulatory sandbox bill would create a pathway for innovators to get a temporary reprieve from standing state rules that could impede or prevent a new idea from getting a real-world tryout.
Baked into the proposal are mechanisms to ensure public safety and well-being are protected — so don’t expect experimental gyrocopters to suddenly fill the skies — but the idea is poised to elevate Utah’s already widely recognized innovation-friendly environment.
Rep. Cory Maloy, R-Lehi, sponsor of HB217, said the idea is to allow agencies to draw a circle around outdated rules, or ones that simply could not have anticipated new business ideas, to open new business pathways. And he believes it’s a concept that could generate its own wave of fresh economic development activity for the state.
“The bill is geared to allow companies — from small businesses to entrepreneurs to established businesses, from just about any industry — to take a new innovation into the sandbox and be free of state regulations that could hinder their ability to launch a new product or service,” Maloy told members of the Silicon Slopes Commons policy forum last week.
“The main goal is to really foster innovations ... a sort of modern-day tool for our business community and economic development.”
Unnecessary and burdensome regulations always raise red flags for Connor Boyack, president of Utah-based libertarian think tank Libertas Institute.
Boyack pointed out that Utah has plenty of past examples of new business models running into regulatory buzzsaws with negative, and in some cases, very costly outcomes. He noted the rocky Utah launch effort for ride-hailing innovators Uber and Lyft, whose drivers accumulated thousands of dollars in tickets before state lawmakers could make regulatory adjustments; Tesla motors not being able to sell cars at their own Utah facilities; food truck operators running afoul of rules that didn’t anticipate a surge in mobile vending; and many more.
“The most unfortunate thing about these problems we’ve had in Utah is the companies and their employees or contractors are first punished and then sometime later the laws are updated,” Boyack said.
“The regulatory sandbox creates a path for businesses to skip the unnecessary punishment phase. They can be shielded from archaic rules and the punitive measures that go with them and allowed a limited period, still overseen by the appropriate regulatory body, to show they can operate ... under fewer laws and regulations.”
Forbes public policy analyst Adam Millsap penned a recent report in which he breaks down why he sees the Utah idea as a potential, and powerful, economic booster and lauds an approach that opens the sandbox opportunity to all businesses, regardless of what they do.
“Making sure every industry has access to a sandbox for experimentation and working out kinks is a smart move,” Millsap wrote. “It is hard to predict where the next big innovation is going to come from.
“Industry-specific sandboxes that limit access may stifle the next big innovation simply because the firm with the great idea was not in the ‘right’ industry.”
Utah has already made forays into a few custom-tailored sandbox efforts, previously targeting the financial technology and legal arenas, and gaining plaudits for positive outcomes.
But Utah’s all-inclusive approach to the sandbox concept could, Millsap believes, also prove to be an effective hedge against what could be the beginning of a new era of federal regulatory expansion.
“President (Joe) Biden’s recent executive orders strongly hint that he intends to increase regulation at the federal level, which will reduce economic growth nationwide,” Millsap wrote. “Fortunately, states can offset some of the increase in federal regulation by reforming their own regulatory environments, and Utah’s plan to expand its regulatory sandboxes is one example.”
This is the place
Ben Hart, deputy director of the Utah Governor’s Office of Economic Development, said his agency is in strong support of the idea and is the likely new home for the effort. That will include hiring a full-time sandbox coordinator that will help businesses connect with appropriate regulatory bodies to establish sandbox stipulations. Under current bill language, those carve-outs would extend for a year and perhaps be eligible for a one-year extension.
Hart said the sandbox mechanism, if adopted, would amplify a signal that is already emitting outside Utah borders that, when it comes to trying out new business concepts, this is the place to launch.
“It’s putting out a new shingle to the country and international community that Utah is going to have a great addition to an already very, very entrepreneur-friendly business environment,” Hart said.
Hart also likes a subcomponent of Maloy’s bill that calls for the creation of a new website that would allow any business owner or entrepreneur who is running into, or anticipating, issues with standing regulations to call for an updated review. Hart said his office tried a beta test of a similar effort a few years ago and had contributors, in just a single year, highlight over 300 code items that appeared irrelevant, misfocused or simply unnecessary under a continually evolving business environment.
Boyack said he sees the sandbox process as a way for government to maintain appropriate regulatory authority and oversight while also allowing a lot more flexibility to open up opportunities to new business to prosper and wonders how many great ideas may have already come and gone due to regulatory frameworks that never allowed the first step of a new idea to take place.
“Our society, I think it’s reasonable to say, has likely been deprived of countless innovations thanks to government regulatory environments,” Boyack said. “Right now, the government is a big fat weight on top of entrepreneurs. This allows government to be more flexible and more supportive and create new venues for business ideas to thrive.”
Change could ‘inspire more innovation’
The sandbox concept could also open new doors for students at the state’s numerous university-level entrepreneurial institutes whose programs are already some of the most vital incubators of new business ideas in the state.
Joseph Woodbury and the other two co-founders of Utah-based peer-to-peer storage solution platform Neighbor launched their company while the ink on their BYU diplomas was still drying.
While the effort did not run into specific regulatory barricades in Utah, Woodbury said he spent hours sifting through hundreds of lines of seemingly antiquated state code trying to make sure what they wanted to do was not going to be hamstrung by regulation.
He said the sandbox program could have saved him some time but more importantly believes the regulatory relief option could turbocharge Utah’s university-driven innovators.
“There aren’t many states that look like us with a U., BYU, Utah Valley, USU and other schools all developing entrepreneurs,” Woodbury said. “We’re a university state and this is a change that will just inspire more innovation.”
Like Boyack, Woodbury also expects that ideas that wouldn’t have been attempted without sandbox protections could now see the light of day.
“All sorts of founders who might be on the edge of launching, who may have been unsure about taking the risk in the current regulatory environment, are just going to do it,” Woodbury said.
To be sure, the proposal could also run head-on into issues with their own unintended consequences, and Rep. Brian King, D-Salt Lake City, raised just that issue during the first committee hearing for the proposal. While he voted to support the effort, and it easily passed its committee hearing, he noted that additional modifications may need to be made to ensure regulations, for example aiming to keep Utahns safe from fraudulent business practices, remain in full effect.
On Friday, the bill earned unanimous support from Utah House members and is now headed to the Senate for further consideration.
Forbes’ Millsap also points to the economic timeliness of the sandbox proposal, should it be adopted in the current legislative session.
“Compared to other states, Utah is in a great position to thrive once the pandemic subsides,” Millsap wrote. “Since innovation is the primary driver of economic growth, more sandboxes should lead to a stronger, more dynamic economy that helps Utah’s workers and families.”