Compliance rollbacks and state actions on regulations: Navigating the ever-shifting regulatory tide

Key insights:

• • • Federal deregulation triggers state-level activism — When federal standards are rolled back or enforcement wanes, many states are compelled to step in to fill gaps with their own regulations, heightened enforcement, and multistate collaborative efforts.

    • Divergent state responses create a regulatory patchwork — Some states tighten rules and enforcement while others align with federal-level deregulation, producing uneven protections for citizens and complex compliance landscapes for businesses.

    • Tension between uniformity and resilience defines US governance — Federal oversight best ensures consistency across markets, but the federal system’s resilience allows states to act as backstops when national leadership retreats, leading to increased fragmentation.

Power shifts in Washington often bring a fresh wave of rules and priorities. Each new presidential administration or Congress sets its own course, shaping how regulations are written and enforced. While that can drive momentum for new ideas, it can also disrupt ongoing efforts at compliance, risk management, and fraud prevention.

In response, some individual states have stepped in to provide a measure of continuity, aiming to keep standards more consistent even as federal policies evolve.

Under this new administration, we are seeing regulations being rolled back, watered down, or simply not enforced as strictly as they once were. Proponents of this shift argue that it’s a necessary step to cut red tape, making government more accountable, efficient, and innovative. The idea is that by streamlining processes and reducing bureaucratic hurdles, we can unlock new possibilities and opportunities for businesses.

However, not everyone is convinced that this is a positive development. Some worry that in the name of simplicity and flexibility, essential safeguards and standards might be compromised. When regulations are relaxed, corporations may choose to opt for the bare minimum, rather than striving for excellence. This approach can have unintended consequences, potentially undermining the very goals that proponents of deregulation aim to achieve.

As this trend develops at the federal level, there is uncertainty regarding the long-term implications and which entities will establish greater consistency nationally and internationally. At this pivotal moment, certain states have determined it is their responsibility to take proactive measures.

States step in

States, when confronted with a decrease in federal regulation, typically employ three main strategies: direct regulatory action, adjustments to enforcement, and legal or collaborative initiatives.

In the first approach, states may directly fill the void left by federal deregulation. This often involves enacting their own laws and regulations that mirror or even strengthen the withdrawn federal standards. State agencies then assume the regulatory authority previously held by the federal government, and state attorneys general can use existing state laws to continue enforcement in areas no longer federally prioritized.

Second, federal rollbacks can lead to shifts in state enforcement efforts. Some states may respond by increasing their inspections and prosecutions to address potential gaps, with state attorneys general initiating investigations into areas like consumer finance fraud or environmental violations. Conversely, states leaning towards deregulation might ease their own enforcement, aligning with the federal shift. This creates a wide spectrum of state responses, from bolstering efforts to scaling back.

Finally, states often can engage through legal challenges and collaborative alliances. They might challenge federal rollbacks in court, arguing a lack of proper justification. Concurrently, states may form coalitions to collectively uphold higher standards. These legal and cooperative strategies indirectly aim to reinstate or substitute federal standards through judicial processes or collective action, rather than through individual state policy changes.

States, when confronted with a decrease in federal regulation, typically employ three main strategies: direct regulatory action, adjustments to enforcement, and legal or collaborative initiatives.

The impact of each of these moves is significant: businesses must adapt to diverse regulatory regimes, citizens face different levels of protection, and the courts become arbiters in federal/state disputes. While this patchwork can be challenging, it also highlights the important role that states play in safeguarding (or not safeguarding) public interests when federal oversight ebbs.

California’s case for clean air

To look at one example, the State of California’s response to federal deregulation has been unmatched in scope and impact. California has passed state-level laws to replace rolled-back federal rules (from clean air and climate standards to net neutrality), tightened enforcement, and led legal challenges to uphold stricter standards — no other states have deployed this combination as effectively.

Over the past decade, California has cemented its role as a counterweight to federal rollbacks, especially on the environment. When federal policy wavered, the state swiftly strengthened its own rules. Notably in 2018, the legislature passed SB 100, committing the state to 100% carbon-free electricity by 2045, which then-Governor Jerry Brown hailed as reaffirming California’s global climate leadership.

Indeed, California has responded with a comprehensive strategy, including the enactment of stringent state regulations, enhanced enforcement measures, and leadership in coalitions and legal actions. These efforts have maintained important protections for citizens — such as environmental quality, climate policy, and consumer internet rights — even as federal standards have been relaxed.

Through a combination of proactive and defensive measures, California has preserved high standards for its residents while encouraging industry compliance and influencing other states to adopt similar policies. Over the past decade, this approach exemplifies continuity, the upholding of regulatory benchmarks, a response to federal/state dynamics, and an adaptive governance position in response to deregulation.

What tomorrow may bring

The evolving relationship between federal and state regulatory authority reveals a fundamental tension in American governance. While the need for regulatory consistency across markets and jurisdictions strongly suggest that federal oversight represents the optimal approach to regulation, the resilience of our federal system demonstrates that state and local governments can serve as a safety net if need be.

Federal regulation offers clear advantages: uniform standards that prevent a patchwork of conflicting requirements, economies of scale in enforcement, and the ability to address issues that transcend state boundaries. However, when federal authorities retreat from enforcement or begin to dismantle existing regulations, state governments have consistently stepped forward as crucial backstops, implementing their own protective measures and intensifying oversight to safeguard their citizens. This dynamic ensures regulatory continuity, although it inevitably creates the very fragmentation that federal consistency seeks to avoid.

Further, this pattern of state activism in response to federal rollbacks will likely persist, particularly during periods of divided government or shifting national priorities. The resulting complexity requires careful navigation by all stakeholders. While advocates for robust regulation can leverage state venues when federal action stalls, businesses and regulators face the ongoing challenge of balancing national uniformity with state-level innovation and active responsiveness.

Ultimately, this interplay between federal leadership and state resilience highlights both the strength and adaptability of the American regulatory system. Although consistency argues for federal primacy, the system’s ability to redistribute authority across alternative governmental levels in response to political and social changes ensures that regulatory protections endure — even when delivered through the more complex mechanism of state-by-state implementation.