Regulatory Reform in Chicago: A Discussion on Innovation

By Sean Thornton • April 8, 2014

This post is part of the Regulatory Reform for the 21st Century City project.

If Paras Desai had to summarize his past two years with the City of Chicago in one word, choosing “busy” might be an understatement. Since November 2011, Desai has helmed the city’s Innovation Delivery Team (IDT), a Bloomberg Philanthropies-funded initiative based out of the Mayor’s Office. The IDT is tasked with creating and enacting new solutions to improve city government. A top first priority: reforming licensing and permitting processes to reduce wait times for small businesses.

As is the case with many larger, older American cities, Chicago’s regulatory system is exceedingly complex, which makes things difficult for small businesses opening shop or continuing compliance. Prior to recent reforms, Chicago had 117 separate types of business license types—nearly as many as New York and Philadelphia combined.

For Desai and his team, navigating this tangled landscape was a welcome challenge. Using a strategy of “ideation,” defined as a systematic analysis of problems coupled with amassing and testing a diverse set of solutions, the IDT collaborated with city departments, businesses and residents to cut business licenses in Chicago by 60 percent. Following the passage of the Business License Reform Initiative ordinance in 2012, the city now has 49 business license types, now fewer than either New York or Philadelphia.

Since the IDT’s major regulatory reform victory in 2012, Desai and his team have been at work on more than 20 initiatives, including the recent launch of a revamped Small Business Center Portal and a commitment to make all city licensing and permitting paperless by 2016.

I had the opportunity to sit down with Desai and discuss what’s been going on in Chicago—covering the who, what, why, and especially how around IDT’s methods to reform the business license landscape. Our discussion provided not only a look into how Chicago’s IDT works, but how such work can be of value to cities that wish to enact similar reforms in their regulatory environment.

How did regulatory reform become IDT’s first priority out of the gate? How did you get started?

DESAI: Before the (IDT) program even came to Chicago, one of the Mayor’s priorities was to reduce the time residents spent in line to access city services. Our team really found this to be important, though, through talking with the public. The most common complaint we heard from small businesses was dealing with red tape. We wanted to start our work in Chicago with a big project—and one that would deliver results. Given the Mayor’s priorities and feedback from the public, business license reform was that opportunity.

To start, we made sure that everyone involved in the city’s business license process was literally at the table. We set up twelve roundtable discussions with more than 200 small businesses, and all of Chicago’s various chambers of commerce. During those sessions, we heard variations around a common theme: that there were too many—even redundant—licenses required, in both the short and long terms, hampering their operations.

Prior to reform, for example, auto shops needed to apply for separate licenses or permits to work on cars, on car engines, and on car tires. To address efficiency problems around that, we combined those separate items into one motor vehicle services license. And that was only one of many consolidations we eventually identified and executed.

So external collaboration was a key starting point. How did collaboration go internally, among applicable city departments? Was there any pushback? And what other resources were used during IDT’s regulatory reform process?

DESAI: To start with that last question, our team conducted a lot of research into best practices for business license reform. Philadelphia, for example, set a great example in this area: in 2009, they streamlined licensing by eliminating several license types, reducing their total number of business licenses by more than two-thirds. Atlanta and Los Angeles had innovative models as well.

We also historically looked back to see what Chicago had done in the past when managing business license categories. The last major push to do so was back in 1992, when the city curtailed a large number of business licenses.

However, in the 20 years since then, business license categories had ballooned again. We called up and interviewed city personnel from that era to see what worked and what didn’t at the time. We sought to learn from their process in order to prevent future “balloonings” of business license categories in Chicago from happening.

Then, as we did with the business community, our team held roundtable meetings over the course of several months with various city departments—Business Affairs and Consumer Protection, Buildings, Public Health, Fire, Planning and Development, and so forth. We discussed IDT reform goals as well as our best practices research.

In particular, though, we made sure that talks went beyond just what needs cutting. Our team instead went deeper and openly discussed why Chicago has various permits types in the first place. The goal here was help establish a framework for which regulatory areas need more attention and which need less.

That was the hardest conversation we had—and we did get pushback from most departments, who were hesitant to embrace operational changes. But with the big picture in mind, our overall experience with city departments was a positive and productive one.

Based on these findings and discussions, in what ways did IDT reform efforts go beyond cutting business license types?

DESAI: What emerged from our work was a real need for structural reform in our regulatory processes—Chicago needed not only to downsize license types, but to find a better way to anticipate market changes as they came down the pipeline. We needed structural ways to prevent balloonings of regulations like what we saw between 1992 and today.

What the IDT developed to meet this need was an emerging business permit (EBP), a new and original concept done to allow room for new, previously unregulated businesses to expand and thrive while still ensuring regulatory compliance.

The EBP serves as a temporary permit, lasting for two years, to get new and innovative businesses up and running. New enterprises—food trucks or hydroponic farms, for example—that don’t have any precedent for regulation are increasingly popping up. Instead of serving as a barrier to that innovation, the EBP helps Chicago become more of a partner for small businesses, making sure that regulations won’t stifle their progress.

As I had mentioned, our deep-dive talks and research also helped define which regulatory areas needed more attention, and which needed less. For example, we found that Chicago still had active regulations and enforcement activity for tobacco vending machine licenses, of which very few were still in operation in the city. This is exactly the type of license we don’t need anymore.

By dismantling it—and others like it—we’re helping city inspectors spend less time on outdated licenses and more time focusing on potential problem businesses. Moreover, we can sometimes clear the way for positive policy outcomes as well, as is the case here with cigarettes.

Based on what your team has done in Chicago, what would you recommend for other cities preparing to approach similar regulatory reforms?

DESAI: First and foremost, everyone needs to be involved in the process. This is critical: government, businesses, and residents all offer different perspectives and thus bring different sets of needs and ideas to the table. In order for reform to be truly beneficial, it needs buy-in from all parties involved. This is a key component to all the projects the IDT takes on.

Second, it’s important to keep an open mind throughout the process. It may sound simple, but being open-minded is vital to not repeating mistakes from the past, or continuing down the same line of thinking that led to regulatory problems in the first place.

In Chicago, we really saw a shift in people’s mindsets during the many meetings we hosted. It’s not the norm for governments to host cross-departmental and cross-sector meetings that encourage open discussions and creative solutions. By emphasizing inclusiveness and open-minded thinking, we were able to make real progress.

Lastly, having strong leadership at the top helps get the job done. Chicago is a strong-mayor city, and here, the ability the Mayor’s Office has to convene groups over an issue, as well as ensure expediency, was critical to our success. It’s why it makes the most sense for the IDT to be based out of the Mayor’s Office.

Not every city can have an IDT. Is there a preferred place within—or even outside of—local governments for reform efforts to develop in other cities?

DESAI: The answer, depending on where you are, can be both or neither. What the IDT model provides is a different way of thinking. Our team’s methodology, and our central location in the Mayor’s Office, has been critical to our success. These give us a platform to work from that, without it, would be more difficult to get things done.

This isn’t to say that a similar effort couldn’t be housed in a Business Affairs-related department or elsewhere, either—New York’s Business Acceleration Team, for instance, is more removed from their Mayor’s office. And Memphis created a separate non-profit to house their IDT. Different cities have different structures, so reform efforts should operate from wherever may be best. What’s more important is how cities go about accomplishing it.

About the Author

Sean Thornton

Sean Thornton is a Program Advisor for the Ash Center's Civic Analytics Network and writer for Data-Smart City Solutions.  Based in Chicago and working in partnership with the city's Department of Innovation and Technology, Sean holds joint Masters’ degrees from the University of Chicago, in Public Policy and Social Service Administration. His work has spanned the city's public, philanthropic, and nonprofit sectors.