Rules Published with this Register and Final Regulatory Flexibility Analyses
The following administrative rule orders have been adopted and published in the December 31, 2008, Wisconsin Administrative Register. Copies of these rules are sent to subscribers of the complete Wisconsin Administrative Code and also to the subscribers of the specific affected Code.
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Agriculture, Trade and Consumer Protection
Creates Chapter
ATCP 106, relating to price gouging during an emergency. Effective 1-1-09.
Summary of Final Regulatory Flexibility Analysis
Depending on the scope of a declared emergency, this rule could conceivably affect nearly every business that sells consumer goods and services in the state (whether at wholesale or retail). A declared emergency may be statewide or localized in scope, and may be broad-based or confined to certain economic sectors. The impact of this rule will vary accordingly. This rule could have a substantial impact on a wide array of businesses. However, it is not possible to predict the impact on individual businesses or on business generally.
Whenever it applies in an emergency, this rule will limit the prices that may be charged by affected businesses. This rule prohibits prices that are more than 15% higher than the highest pre-emergency price during the previous 60 days, unless sellers can document that their higher prices do not exceed their cost plus normal markup. Sellers are thus free to pass on relevant cost increases if they can document those increases.
This rule applies only when the Governor, by executive order, issues an emergency declaration. The emergency declaration determines the scope of coverage, and may exempt certain business sectors from coverage. This rule applies only for the period of time that the emergency declaration remains in effect.
This rule provides some latitude for price adjustments in response to supply and demand, and allows sellers to pass on bona fide cost increases. However, this rule ultimately limits the prices that manufacturers, wholesaler distributors, and retailers may charge in emergency situations. Some sellers may withhold goods or services from the market rather than sell at those limited prices. Retailers may benefit from wholesale price limitations, but may suffer from wholesaler decisions to withhold goods or services from distribution.
Under
2003 Wis. Act 145, DATCP and other agencies must adopt rules spelling out their rule enforcement policy for small businesses. DATCP has adopted a separate rule outlining its small business enforcement policy (see ATCP 1, subch. VII). DATCP will follow that rule in the administration of this price gouging rule. DATCP will, to the maximum extent feasible, seek voluntary compliance with this price gouging rule.
This rule first applies to small businesses 2 months after it first applies to other businesses, as required by s.
227.22 (2) (e), Stats. This rule will not apply to small businesses during declared emergencies that fall within that 2-month period, but will apply to small businesses during subsequent declared emergencies. If a declared emergency period starts before the small business initial applicability date, but extends beyond the small business initial applicability date, this rule will apply to small businesses for that portion of the emergency period that occurs after the small business initial applicability date.
Summary of Comments by Legislative Review Committees
On October 3, 2007, DATCP transmitted the above rule for legislative review. The rule was assigned to the Senate Committee on Small Business, Emergency Preparedness, Workforce Development, Technical Colleges and Consumer Protection and to the Assembly Committee on Judiciary and Ethics.
On October 8, 2007, the Senate Committee on Small Business, Emergency Preparedness, Workforce Development, Technical Colleges and Consumer Protection requested a meeting with DATCP regarding the rule, thereby triggering a 30 day extension (to December 3, 2007) on the legislature's review period. The meeting was held on October 16, 2007.
On October 24, 2007, the Senate Committee on Small Business, Emergency Preparedness, Workforce Development, Technical Colleges and Consumer Protection held a hearing regarding the rule, but took no formal action. However, the committee held an Executive Session on November 29, 2007 and passed a motion (5 to 0) to request that DATCP consider modifications to the rule. The motion specified that if DATCP did not agree to consider modifications, the committee would object to the rule pursuant to s.
227.19(4)(d)6., Stats. DATCP agreed to consider the modifications.
On January 18, 2008, DATCP Secretary Nilsestuen issued a letter to Senator Wirch (Chair of the Senate Committee on Small Business, Emergency Preparedness, Workforce Development, Technical Colleges and Consumer Protection) stating that DATCP had considered the four modifications suggested by committee, and had agreed to two of them. Specifically:
• The committee asked that DATCP consider increasing the prima facie price increase cap from 10% to 15%. DATCP agreed and revised the rule to include a 15% increase.
• The committee asked that DATCP consider changing the standard of proof required to justify a higher price. DATCP agreed that the “clear and convincing" language in the original DATCP draft was unnecessary, and therefore removed that language.
• The committee asked that DATCP consider changing the type of evidence required to justify a higher price. The original DATCP draft of the rule required that a seller who wishes to claim an exemption to price increases greater than the allowed 10% must be able to show that at the time of sale, the seller possessed and relied upon accurate information showing that the sale qualified for the exemption. The committee asked that sellers not be required to have documents in their hands at the time of sale. DATCP responded to this request by saying that the rule requires information, not necessary specific written documents. DATCP did not make this requested change.
• The committee asked that DATCP consider allowing businesses to charge higher prices, based on their own subjective assessment of “business risk". DATCP refused this change because it left no objective standard for compliance.
The revised proposed rule was re-submitted to the appropriate Senate and Assembly committees on January 18, 2008.
The Assembly Committee on Judiciary and Ethics held a hearing on the rule on January 31, 2008, and then voted (10-0) to request that DATCP make additional modifications to the rule. On February 4, 2008, Senator Wirch sent a letter to DATCP stating that he agreed with the request of the Assembly committee even though the Senate Committee on Small Business Preparedness, Workforce Development, Technical Colleges and Consumer Protection did not take a vote to request modifications. DATCP responded to both Representative Suder and Senator Wirch by letter dated February 5, 2008 agreeing to consider changes.
On August 28, 2008, DATCP received a letter from Representative Staskunas, member of the Assembly Committee on Judiciary and Ethics, clarifying the provisions of the rule that he believed needed modification.
After considering changes, DATCP notified the committee by letter dated August 29, 2008 that it would further modify the standard of proof required to justify a higher price by eliminating the word “possess". However, DATCP did not make additional requested revisions to the rule. On September 25, 2008, the Assembly Committee on Judiciary and Ethics objected to the final proposed rule and referred the proposed rule to the Joint Committee for the Review of Administrative Rules.
Sen. Jauch requested a meeting with DATCP to discuss the rule. DATCP met with Sen. Jauch and interested industry representatives on October 23, 2008.
The Joint Committee for Review of Administrative Rules took no action and as a result, did not concur with the objection.
Agriculture, Trade and Consumer Protection
Revises Chapters
ATCP 99,
100 and
101, relating to agricultural producer security. Effective 1-1-09, except for small businesses, 3-1-09.
Summary of Final Regulatory Flexibility Analysis
Agricultural Producers
This rule will benefit Wisconsin producers of grain, milk and vegetables, by preventing the erosion of the producer security program that helps protect them against catastrophic financial defaults by grain dealers, grain warehouse keepers, milk contractors and vegetable contractors (collectively “contractors").
This rule will generate enough license fee revenue to continue critical financial security monitoring activities such as inspections, compliance evaluations, and review of contractor financial statements. Without this rule, DATCP would have to curtail key monitoring activities that help control potentially catastrophic financial risks to producers and the producer security fund.
This rule will also reverse the current diversion of fund assessment revenues from the agricultural producer security trust fund (to subsidize operating deficits in the grain and vegetable sectors). That will yield a slightly increased rate of fund growth which will, in turn, provide greater protection for producers in the event of a catastrophic contractor default.
This rule will not increase costs for agricultural producers, or have any significant impact on commodity prices paid to producers.
Contractors
This rule affects license fees and fund assessments paid by grain dealers, grain warehouse keepers, milk contractors and vegetable contractors. It does not materially change other contractor regulations.
Current Cost to Contractors
Current license fees and fund assessments represent a very small share of overall contractor costs. For example:
• Current grain dealer license fees and fund assessments represent only about 11 hundredths of one percent of the grain dealers' annual Wisconsin grain procurement costs ($672,000 in fees and fund assessments, compared to $599 million in grain purchased from Wisconsin producers in FY 2005-06).
• Current grain warehouse keeper license fees and fund assessments represent less than 2 hundredths of one percent of the grain warehouse keepers' annual Wisconsin “cost of sales" ($210,000 in fees and fund assessments, compared to about $1.7 billion in “cost of sales" for FY 2005-06).
• Current milk contractor license fees and fund assessments represent only about 3 hundredths of one percent of the contractors' annual Wisconsin milk procurement costs ($1.2 million in producer security license fees and fund assessments, compared to about $3.5 billion paid for milk produced by Wisconsin farmers in FY 2005-06).
• Current vegetable contractor license fees and fund assessments represent only about 8 hundredths of one percent of the contractors' annual vegetable procurement costs ($138,000 in producer security license fees and fund assessments, compared to $170 million in procurement contract obligations to Wisconsin producers in FY 2005-06).
Current contractor license fees and fund assessments represent an even smaller share of overall contractor costs (including costs for labor, buildings, equipment, debt service, overhead, etc., in addition to commodity procurement costs).
Declining Cost Burden
If commodity prices, procurement volumes and contractor financial ratios held constant over the next few years, total contractor license fees and fund assessments would actually decline because of fee credits and declining formula rates built into the producer security law itself. This rule will reduce that potential decline, at least for the grain and vegetable contractor sectors. Higher commodity prices and procurement volumes, or deteriorating contractor financial ratios, could also offset the decline.
This rule will reduce license fees and fund assessment rates in the milk contractor sector, but increase license fees and fund assessment rates in the other 3 sectors so that those sectors pay a more proportionate share. The following table shows
combined total license fees and fund assessments by business sector for FY 2005-06 and FY 2006-07. It also compares projected totals for FY 2009-10
with and
without this rule (these projections may be affected by changing commodity prices, procurement volumes, contractor financial ratios and other factors):
-
See PDF for table 
* Projection assumes constant procurement volumes, commodity price levels and contractor financial strength.
Other things equal, there would be a decline in total license fees and fund assessments results from the following features built into the current producer security law (this rule will not change those features):
• License fee credits. If the fund balance attributable to an industry sector reaches a specified statutory threshold, a portion of the balance is returned to contributing contractors in that sector (as a credit on their license fees). Contributing milk and vegetable contractors are already enjoying credits that significantly reduce their license fees. Those credits will dramatically reduce fees for contributing contractors, even when this rule is in effect.
• Falling assessment rates. Under the producer security law, fund assessment rates decline after a contractor has contributed to the fund for a specified number of years (4 to 6 years depending on contractor type and financial condition). Because the producer security fund is now 6 years old, most contributing contractors are now paying significantly lower fund assessments than they were a short time ago (other things equal). That trend will continue, regardless of this rule.
Effects Vary Between Contractors
The impact of this rule may vary considerably between individual contractors within a business sector. License fees and assessments may be affected by a number of variables, including contractor size, contractor financial strength, contractor risk practices and commodity prices.
For many contractors, this rule will slow the rate at which the contractor's fees and fund assessments would otherwise decline. Some contractors (especially grain warehouse keepers) may have increased fees and fund assessments. For a few contractors, this rule will actually speed the reduction of fees and fund assessments. Many individual contractors (especially milk contractors) will be unaffected by this rule.
This rule incorporates an “assessment holiday" that will automatically go into affect when industry sector balances and overall fund balances grow to specified levels.
Steps to Assist Small Business
Many of the businesses affected by this rule, including contractors and agricultural producers, are “small businesses." This rule benefits small agricultural producers, by preventing the erosion of the agricultural producer security program that helps protect them against catastrophic financial defaults by contractors.
This rule increases aggregate license fees collected from grain dealers and warehouse keepers. However, the size of the fee increase is not significant in relation to overall business costs (see above). This rule also restructures the license fee formula, to make it more fair for small businesses (who arguably pay disproportionately high fees compared to large businesses).
For example, under current rules, a grain dealer who procures $550,000 worth of grain pays the same basic license fee as one who procures 3 times that amount. Under this rule, larger grain businesses would pay a more representative share of overall license fees. The smallest grain dealers and warehouse keepers will likely see license fee decreases under this rule.
This rule also provides a similar benefit for small processed potato buyers who are noncontributing vegetable contractors. Under current law, the basic license fee for all contractors in this group is a flat $500 with some other add-ons. Under this rule, the base license fee would be the lower of a flat $2,000 or $25 plus 8.75¢ for each $100 in purchases. That change would reduce fees for smaller businesses.
Conclusion
This rule will benefit agricultural producers, by preventing erosion of the producer security program that helps protect them against catastrophic financial defaults by contractors.
