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State regulation of food retailers should be streamlined to reduce government costs and administrative burdens on industry without decreasing consumer protection.

Background

Texas' regulation of retail business practices is an increasingly complex process. State regulations designed to protect consumers and resources and aid tax collection cover most retail transactions, but today these regulations have collided with growing efforts to cut government spending and red tape. Grocery stores provide a particularly compelling example of the proliferation of state regulation.

While Texas has regulated some aspects of grocery store operations for more than half a century, the 1991 Legislature established the state's general licensing program for food retailers. This program is administered by the Texas Department of Health (TDH) in conjunction with its network of local health departments. All food retailers must be licensed by either TDH or a local health department and meet state food-safety inspection standards.

This license, however, represents only a small part of the total regulatory burden on many grocery stores. Modern food retailers offer a dizzying array of products and services, from pharmaceuticals and alcoholic beverages to lottery tickets and video arcades, and consequently are regulated by an equally bewildering maze of state programs. Food retailers are subject to as many as nine state regulatory agencies, 17 different types of state licenses, and various statewide inspection processes, both scheduled and unannounced. (Exhibit 1). Permits expire on different dates, require different forms, and involve different fees. Inspections are not coordinated, and standards and enforcement procedures vary from agency to agency.

Streamlining attempts

The Legislature has attempted to streamline state business regulation. For instance, some license renewal dates that inadvertently hampered efficient agency administration have been eliminated. Statutory renewal dates are particularly troublesome to streamlining efforts, since new legislation is needed to harmonize them for any integration of license processes. Yet such streamlining is eminently practical, since the present system often requires a food retailer to fill out more than a dozen different license renewal forms with essentially the same information.

The 1995 Legislature eliminated statutory requirements for two common grocery permits, the Texas Department of Agriculture's (TDA's) egg retailer license, and its pharmacy scale weights and measures inspection certificate. The Legislature determined that general food retailer licensing eliminated the need for a separate egg license, and made evaluation of pharmacy scales a part of the standard State Board of Pharmacy inspection.[1] This legislation streamlined the inspection process for both the state and the industry without reducing consumer protection.

Interagency contracts

Interagency coordination and contracting also can be used to streamline state regulation by consolidating renewal processing and inspection functions. State inspectors can be cross-trained to integrate multiple inspections, thereby lowering the state's costs while reducing disruption to retail operations.

The 1995 Legislature required TDA and TDH to develop an interagency agreement to coordinate their egg regulation programs.[2] The agencies finalized an agreement clarifying each agency's role in egg regulation in the fall of 1996. At the retail level, TDA will focus on egg quality while TDH will handle egg safety issues.[3] This clarification should be an improvement, but retail inspections for one product should be limited to one agency. TDH believes it can integrate egg quality inspections into its process without a significant increase in its inspection costs. If TDH handled all aspects of retail egg regulation, TDA could concentrate its egg inspection staff on producers, wholesalers, and distributors.

Exhibit 1
Texas Regulatory Requirements for Grocery Stores

Licenses and Permits

Food Retailer License (Department of Health)

Glue & Paint Retailer Permit (Department of Health)

Sales Tax Permit (Comptroller)

Tobacco Tax Permit (Comptroller)

Amusement Machine License & Permit (Comptroller)

Off-Premise Beer/Wine License (Alcoholic Beverage Commission)

Organic Food Retailer License (Department of Agriculture)

Nursery/Floral Retailer License (Department of Agriculture)

Commercial Scale Registrations (Department of Agriculture)

Gas Pump Registrations (Department of Agriculture)

Lottery Ticket Dealer License (Lottery Commission)

Private Pesticide Applicator License (Pest Control Board)

Retail Pharmacy License (Pharmacy Board)

Controlled Substance Registration (Department of Public Safety)

Retail Fish-Dealer License (Parks & Wildlife)

Retail Fish-Dealer Truck License (Parks & Wildlife)

Hunting & Fishing License Dealers License (Parks & Wildlife)

Unannounced Inspection Programs

Universal Price Code Scanner Inspection (Department of Agriculture)

Package Weights & Measures Inspection (Department of Agriculture)

Retail Pesticide Inspection (Department of Agriculture)

Source: Texas Sunset Advisory Commission and Texas Administrative Code.

State regulation of retail fish markets offers similar opportunities for interagency contracting. Texas law requires retail fish dealers to maintain licenses with the Texas Parks and Wildlife Department (TPWD).[4] TPWD game wardens inspect dealers' shipping records annually to verify that their fish come from licensed commercial fishermen or other approved sources.[5] Health inspectors check the same type of records to verify the source of meat and shellfish during a food retailer inspection.[6] The integration of these application, renewal, and inspection processes could streamline paperwork and reduce inspection costs without hampering state regulatory efforts.

Privatization

State weights and measures inspections offer promising opportunities for streamlining regulation through privatization.

Ample precedent exists for such action. For more than 20 years, Texas has used state-licensed private inspectors to inspect cars and issue motor vehicle safety inspection stickers for the Texas Department of Public Safety. Moreover, the 1993 Legislature authorized TDA to establish a private inspector licensing program for liquid petroleum (LP) gas meter gauges and ranch scales.[7] The LP gas industry pushed for this change as a way to increase the availability of inspections; pumps with expired certification stickers often could not be recertified quickly enough to avoid disrupting retailer operations.

In 1995, TDA's authority was expanded to allow licensed individuals to perform inspections under any of the agency's weights and measures programs.[8] Thus far, the agency has taken no action beyond the LP gas and ranch scale initiatives. Retailers have expressed support for privatized weights and measures inspections as a way to improve the availability and timeliness of inspections.[9]

Since 1987, the Comptroller's office has had the authority to test gasoline pumps for labeling accuracy. This creates the possibility of yet another state inspection if the Comptroller receives complaints about fuel content. Testing the content of gasoline is a responsibility that belongs more appropriately with other weights and measures functions. A single inspector could then check all regulated aspects of gasoline pumps.

Regulating pricing accuracy

The pricing accuracy of checkout UPC scanners has been a national issue since their initial use. Some media reports have estimated that consumers lose billions of dollars each year to scanners charging inaccurate prices.[10] It should be noted, however, that pricing accuracy is a problem that long predates the use of scanners. Overcharges are due much less often to equipment failure than to human error in updating prices; each supermarket carries an average of 30,000 different items and makes hundreds of price changes every week.[11]

Eleven states have some laws specifically regulating scanners, but Texas is not among them.[12] Texas, like most other states, inspects scanner-system price accuracy under the general state weights and measures law. TDA inspectors compare advertised prices with prices charged by checkout scanners and have found a high incidence of scanners charging more than the advertised price. TDA uses administrative penalties to sanction retailers for overpricing, but its regulatory efforts are limited due to a lack of adequate fees to support the program. In 1994, TDA inspected 1,400 scanner systems at a cost of about $500,000; the agency estimates this represents less than 3 percent of all systems in use.[13]

TDA asked the 1995 Legislature for authority to establish a special UPC scanner registration program, which would generate fees to finance the inspection program.[14] Retailers, however, have recommended basing such regulation on price accuracy instead on the type of equipment involved, and some have warned that an additional registration program would be burdensome.[15]

Recommendations

A. The Texas Parks and Wildlife Department (TPWD) should be directed to enter into an interagency agreement with the Texas Department of Health (TDH) to consolidate the application and inspection process for retail fish dealers and food retailers.

While these two agencies have different regulatory goals, the applications and inspections involved are similar. Consolidating these processes would reduce the regulatory burden on business, improve compliance, and save tax dollars.

The compatible nature of these application and inspection processes would ease their integration. The information required on the retail fish dealers' license process is already collected on the TDH food retailer application. Asking food retailers to identify in-store fish markets would eliminate the need for a separate application process. Removing the September 1 statutory renewal and allowing the date to be set by TPWD rule would provide the flexibility needed to fully integrate the renewal process.

Inspections are also compatible. Both agencies inspect store paperwork to determine whether food is from an approved source. Health inspectors check sources for meat and shellfish in routine inspections, while TPWD game wardens check sources for raw fish; all three products could be checked in a single routine inspection. TPWD still could perform special inspections as needed, but standard inspections would be integrated. TDH would refer potential violations of state wildlife protection programs to TPWD for enforcement action.

B. State law should be modified, and appropriations to the Texas Department of Agriculture (TDA) adjusted, to integrate retail inspection programs.

By transferring TDA's responsibilities for inspections of egg retailers and pharmacy scales to other agencies, TDA's appropriations can be adjusted to save tax dollars. Applicable statutes should be changed to ensure these efforts continue. Modifying agency responsibilities in law appropriately should clarify new procedures, while adjusting TDA's appropriations would return about $237,000 annually to the General Revenue Fund and reduce state employment by 7 full-time equivalent employees (FTEs).

These legal amendments should eliminate TDA's responsibility for routine egg-quality inspections in retail stores and specifically exempt pharmacy scales from TDA's weights and measures responsibility. TDH should be authorized to consider egg quality in its food retailer license inspection.

C. TDA should be required to shift the testing and certification of gas pumps and small commercial scales from a state-administered program to state-licensed private inspectors. State law also should be modified to transfer responsibility for pump labeling accuracy testing from the Comptroller to TDA and these inspectors.

TDA already is authorized to license individuals for inspections; this action should be required. Private industry has advocated such a program to increase the availability of inspectors.

By retaining a significant TDA inspection force until the shift is complete, the agency can guard against any potential lapse in consumer protection and oversee the practices of private inspectors.

TDA spends about $1.3 million a year to certify the accuracy of gas pumps and small commercial scales.[16] Annual permit fees cover the cost. Private inspections could eliminate more than $900,000 in state inspection costs even if Texas retains 25 percent of these costs to ensure compliance. State employment could be reduced by 28 FTEs. To give TDA time to make this transition, this recommendation should take effect in fiscal 1999.

D. State law should establish an interagency task force to develop interagency agreements to streamline retailer regulation.

The task force would ensure that state agencies work together on a continuing basis to streamline government regulation and coordinate state permitting and inspection activities. The task force would have broad authority to study streamlining opportunities in all areas of retailer regulation.

At a minimum, the task force should include the executive directors or designees of those agencies directly regulating the grocery industry--Texas Department of Commerce (TDOC), TDH, TDA, TPWD, the Comptroller's office, Texas Alcoholic Beverage Commission, State Board of Pharmacy, and the Texas Lottery Commission. The task force should be authorized to invite other agencies, consumer groups, or business representatives to participate as needed. The task force should report its findings and recommendations to the 1999 Legislature.

The task force should study state regulatory programs that affect retailers. This study should involve evaluation of agency procedures for application processing and renewal and fee collection, to determine opportunities to integrate or consolidate these functions; consider requiring all state inspectors to perform a brief screening of all applicable state licenses during their inspections; examine the potential to reduce inspection costs through vendor quality certification programs; consider integrating UPC scanner inspection into the on-site sales tax audit process; and consider establishing a consolidated retail food licensing program to administer all licenses and conduct all state inspection activities in retail food stores.

Such initiatives should offer retailers reduced paperwork and convenient inspections and cut the time that scales and other equipment spend out of service. In addition, consumers and taxpayers should benefit from continuing consumer protection, reduced government spending, and a new source of private-sector jobs.

Fiscal Impact

These recommendations would provide annual savings to the state of $1.2 million in salaries and benefits.

Savings of $136,000 could be achieved by transferring responsibility for retail egg inspections to TDH and reducing TDA's appropriations by that amount. In addition, the Pharmacy Board has taken over pharmacy scale inspections at no additional cost, so TDA's appropriations for weights and measures inspectors should be reduced another $101,000. Staffing could be reduced by four and three FTEs, respectively. These changes can be made in fiscal 1998.

The time game wardens spend inspecting all Texas licensed fish dealers equals one FTE position. By eliminating this position, $30,000 in savings would accrue to special Parks and Wildlife funds. To allow for a transition to TDH responsibility, this reduction should take place in fiscal 1999.

The bulk of the savings and reductions in FTEs come from privatizing TDA's small scale and gas pump inspections. Savings could reach $949,000, and FTEs can be reduced by 28 positions, starting in fiscal 1999. TDA would retain 25 percent of annual permit fees for inspections to ensure compliance and provide program administration; the savings shown below are net of these administrative fees.

Fiscal Year	Savings to the General Revenue Fund	Savings to Parks and Wildlife Fund	Change in FTEs
1998	$237,000	$0	-7.0
1999	1,186,000	30,000	-36.0
2000	1,186,000	30,000	-36.0
2001	1,186,000	30,000	-36.0
2002	1,186,000	30,000	-36.0

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Footnotes

[1] Texas H.B. 1505, 74th Leg., Reg. Sess. (1995); and interview with Gay Dodson, Texas State Board of Pharmacy, Austin, Texas, January 23, 1996.

[2] Texas S.B. 372, 74th Leg., Reg. Sess. (1995).

[3] Interviews with Steve McAndrew, director, Food Retailer Licensing, Texas Department of Health, Austin, Texas, January 1996 and August 1996.

[4] V.T.C.A., Parks & Wildlife Code SS47.011.

[5] Interviews with Lynne Lange and Bill Robinson, Texas Department of Parks and Wildlife, Austin, Texas, January 1996.

[6] Texas Department of Health, "Standard Food Retailer Inspection Form" (RFD-FSC-Form B), Items C.4 and C.6, Austin, Texas, March 1995.

[7] V.T.C.A., Agriculture Code SS13.301 et seq. and SS13.351 et seq.

[8] V.T.C.A., Agriculture Code SS13.401 et seq.

[9] Interview with Chuck Courtney, Texas Retailers Association, Austin, Texas, February 1996.

[10] Vanessa O'Connell, "Don't Get Cheated by Supermarket Scanners," Money (April 1993), p. 137.

[11] National Food Marketing Institute, "Backgrounder: Shelf Price Accuracy in Supermarkets that Scan," Washington, D.C., January 1995.

[12] Interviews with Carole Throssell, National Food Marketing Institute, Washington, D.C., February 1996.

[13] Texas Sunset Advisory Commission, Texas Department of Agriculture: Staff Report (Austin, Texas, December 1994), p. 50.

[14] Texas Department of Agriculture, Comments on the Staff Report to the Sunset Advisory Commission (Austin, Texas, December 1994), p. 10.

[15] National Food Marketing Institute, "Backgrounder: Shelf Price Accuracy in Supermarkets that Scan"; and Texas Department of Agriculture, Comments on the Staff Report to the Sunset Advisory Commission, p. 10.

[16] Fiscal 1994 TDA inspector time sheet summaries indicate that 56 percent of weights and measures inspection hours were for gas pumps and small commercial scales. Applying that percent to the General Revenue budgeted in 1997 for Certifying Weighing and Measuring Devices (Strategy 3.1.1.) of $2.3 million produces an estimate of nearly $1.3 million devoted to this activity.