Modest reform to KY regulation could mean big business gains

Anyone who cares about Kentucky’s economy needs to confront one massive number: 127,000.

That’s how many state-level regulatory restrictions currently bind the private sector. Words like “shall,” “must” and “may not” create legal obligations on individuals and businesses alike. And nearly 9% of those were added in just the last five years.

Thankfully, a massive stack of accumulated rules also presents a powerful opportunity. New research from the Bluegrass Institute shows how Kentucky policymakers can give this economy a serious boost that leaves virtually everyone better off.

A growing weight

The issue is not any single regulation, many of which are important. It’s the weight of the whole system. Over time, regulations accumulate. New rules are added more readily than old ones are revisited. The result is a steadily expanding stock of requirements — including thousands that are outdated, duplicative or unnecessarily complex.

Since 2020, Kentucky’s regulatory restrictions have grown by 8.8% — about double the rate in the median state. In 2024, Kentucky surpassed that median state in total restrictions. Last year, it was the fourth-most regulated in its region (second-most on a per-capita basis).

The code contains roughly 6.4 million words — nearly eight times as many as the King James Bible. Reading briskly, it would take almost an entire legislative session just to get through it.

Decades of research show that regulatory accumulation suppresses investment, slows productivity growth and reduces business startups. It raises costs for businesses, especially smaller ones which lack legal and administrative departments.

These costs reach consumers. A 10% increase in regulation has been linked to nearly a 1% increase in consumer prices, with the largest burden falling on lower-income households.

Over time, all of this quietly drains states of capital, talent and entrepreneurial activity.

But because so much regulatory accumulation has occurred in Kentucky, even modest reforms targeting the least-effective regulations could yield meaningful gains. Realistic reform scenarios from other states could boost Kentucky’s annual GDP growth by between 0.16 and 1.56 percentage points.

That may sound small.

It’s not.

Reducing regulations over time

Growth compounds. Let’s assume Kentucky’s real GDP is set up to grow by 1.64% each year and reach roughly $285 billion by 2037. With a 20% reduction in regulatory restrictions, the economy would be about $14 billion larger by that year.

Under a more ambitious 40% reduction, the gain could approach $42 billion. That’s like creating four or five new bourbon industries from scratch.

This does not require dismantling core protections for health, safety or the environment. Other jurisdictions have demonstrated what’s possible.

In the early 2000s, British Columbia reduced regulatory requirements by roughly 40% over three years and experienced a sustained increase in economic growth. Idaho implemented “zero-based regulation,” requiring state agencies to periodically justify their rules. Virginia recently eliminated roughly one-quarter of its regulatory requirements and estimates more than $1.2 billion in annual savings for its citizens.

These were not symbolic steps. They relied on measurement, transparency and explicit reduction targets. Agencies inventoried existing rules. They explained why some remain necessary and cost-effective. They cut rules that persisted simply because no one had yet been tasked with reviewing them.

Too much regulation stunts investment

The tools exist to establish a multi-year reduction target — 10%, 20%, or more — and require agencies to review and streamline accordingly. Artificial intelligence (under human supervision) makes this process far less administratively burdensome than in the past.

Kentucky competes daily with Tennessee, Indiana, Ohio and Virginia for business investment and job creation. When regulatory accumulation outpaces peer states, it tilts that competition. Investors notice. Entrepreneurs notice. Workers notice when better jobs are available next door.

Doing nothing — that is, allowing regulations to quietly accumulate without looking at the whole picture — will make the economic drag more pronounced. Taking action would substantially improve Kentucky’s growth and competitiveness. A modest 10% reduction would make a difference. Twenty or 30 percent could materially alter the state’s long-term economic trajectory. Forty percent would be transformative.

It’s a choice: Look the other way or treat the regulatory code as something to be measured, managed and modernized. At stake are stronger businesses, higher wages, lower prices and greater opportunity for families across the state.

That’s an opportunity worth taking.

This piece originally appeared in the Louisville Courier Journal.