                             STATE OF MINNESOTA
                             IN COURT OF APPEALS
                                   A15-0116

                        Builders Association of the Twin Cities,
                                      Petitioner,

                                          vs.

                     Minnesota Department of Labor and Industry,
                                   Respondent.

                              Filed October 13, 2015
                            Declaratory judgment issued
                                  Connolly, Judge

                         OAH 8-1900-30855; Revisor R-4144


Rob A. Stefonowicz, Bryan J. Huntington, Larkin Hoffman Daly & Lindgren Ltd.,
Minneapolis, Minnesota (for petitioner)

Lori Swanson, Attorney General, Scott Grosskreutz, Eric J. Beecher, Assistant Attorneys
General, St. Paul, Minnesota (for respondent)

Brendan D. Cummins, Jonathan F. Reiner, Cummins & Cummins, LLP, Minneapolis,
Minnesota (for amicus curiae Minnesota Pipe Trades Association)

James A. Yarosh, Mark Thieroff, Siegel Brill, P.A., Minneapolis, Minnesota (for amicus
curiae Franklin P. Kottschade and National Association of Home Builders)

Dean B. Thomson, Kristine Kroenke, Fabyanske, Westra, Hart & Thomson, PA,
Minneapolis, Minnesota (for amicus curiae The Minnesota Association of Realtors)

Joseph G. Springer, Haley L. Waller Pitts, Fredrikson & Byron, P.A., Minneapolis,
Minnesota (for amicus curiae Builders Association of Minnesota)



      Considered and decided by Connolly, Presiding Judge; Rodenberg, Judge; and

Reyes, Judge.
                                    SYLLABUS

       When the Minnesota Department of Labor and Industry promulgates a rule that is

not supported by substantial evidence in the record, such a rule is not based on the

application of scientific principles, approved tests, and professional judgment as required

by Minn. Stat. § 326B.106, subd. 1 (2014).

                                      OPINION

CONNOLLY, Judge

       In this pre-enforcement declaratory-judgment action brought under Minn. Stat.

§§ 14.44, .45 (2014), petitioner Builders Association of the Twin Cities asks us to declare

two rules promulgated by respondent Minnesota Department of Labor and Industry

invalid. We declare the Energy Code valid and the Sprinkler Rule invalid.

                                         FACTS

       The Minnesota State Building Code (Building Code) “governs the construction,

reconstruction, alteration, repair, and use of buildings.” Minn. Stat. § 326B.101 (2014).

Respondent may, under the established rulemaking procedures, adopt, amend, suspend,

and repeal rules relating to respondent’s responsibilities under chapter 326B, which

includes establishing the Building Code. Minn. Stat. §§ 326B.02, subd. 5, .106, subd. 1

(2014). The Building Code “must be based on the application of scientific principles,

approved tests, and professional judgment.” Minn. Stat. § 326B.106, subd. 1. The

Building Code incorporates various national model codes by reference, and is

periodically updated to include current editions of model codes in general use. Minn. R.

1300.0080 (2013). The Minnesota Residential Code (MRC), Minn. R. ch. 1309 (2013),


                                             2
and Minnesota Residential Energy Code (MREC), Minn. R. ch. 1322, are part of the

Building Code. Minn. R. 1300.0050 (2013). Petitioner’s challenge concerns recent

amendments to the MRC and MREC.

      On November 5, 2012, respondent published a request for comments regarding

possible amendments to the MRC. The MRC is based on the International Residential

Code (IRC), a national model code, and had most recently been amended in 2007 to

adopt the 2006 IRC with amendments.          In November 2012, respondent requested

comments regarding the possible adoption of the 2012 IRC with amendments. Unlike the

2006 IRC, the 2012 IRC contained a requirement that automatic fire sprinkler systems be

installed in all newly constructed one- and two-family dwellings.1 Prior to publishing the

request for comments respondent convened a formal advisory committee to advise

respondent on the 2012 IRC and potential amendments. The advisory committee voted in

favor of a proposal to remove the sprinkler mandate.

      In October 2013, respondent released a Statement of Need and Reasonableness

(SONAR) outlining the proposed changes to the MRC. Respondent proposed adopting

the 2012 IRC with amendments.          This included an amendment to the sprinkler

requirement. Rather than require sprinkler systems in all newly constructed one- and

two-family dwellings, the proposed rule required sprinkler systems in all newly

constructed townhouses and one- and two-family dwellings, with an exception for one-

family dwellings with a floor area under 4,500 square feet (Sprinkler Rule).


1
  The parties use the terms “dwellings” and “homes” interchangeably. We will use the
term “dwellings” throughout this opinion because the challenged rule uses that term.

                                            3
      On December 12, 2013, an administrative-law judge (ALJ) held a public hearing

on the proposed rule. At the public hearing, and through public comments, members of

the building industry challenged respondent’s authority to promulgate the Sprinkler Rule.

On February 7, 2014, the ALJ issued a report that determined that respondent had the

authority to promulgate the Sprinkler Rule and approved the proposed rule. On July 28,

2014, respondent published notice of adoption of the amendments to the MRC, including

the Sprinkler Rule, in the State Register. 39 Minn. Reg. 91, 91-92 (July 28, 2014) (to be

codified at Minn. R. 1309.0313 (2015)).        The Sprinkler Rule became effective on

January 24, 2015.

      On November 5, 2012, respondent also published a request for comments

regarding possible amendment to the MREC. Respondent sought to amend the MREC by

adopting and incorporating by reference the 2012 International Energy Conservation

Code (IECC) with amendments (Energy Code). Respondent published a SONAR and

Dual Notice that invited comments and requests for a public hearing. The hearing was

ultimately cancelled because respondent received fewer than 25 requests for a hearing.

Respondent submitted the proposed rule and rulemaking record to the ALJ. On June 11,

2014, the ALJ approved the Energy Code. On August 18, 2014, respondent published

notice of adoption of the Energy Code in the State Register. 39 Minn. Reg. 232, 232-33

(Aug. 18, 2014) (to be codified at Minn. R. 1322.0010-0500 (2015)). On February 14,

2015, the Energy Code became effective.




                                           4
       Petitioner now brings this pre-enforcement declaratory-judgment action under

Minn. Stat. §§ 14.44, .45 and asks us to declare the Sprinkler Rule2 and Energy Code

invalid.

                                          ISSUES

I.     Is the Energy Code invalid?

II.    Is the Sprinkler Rule invalid?


                                        ANALYSIS

       This is a pre-enforcement action brought under Minn. Stat. § 14.44, which permits

an interested party to challenge the validity of an agency rule “when it appears that the

rule, or its threatened application, interferes with or impairs, or threatens to interfere with

or impair the legal rights or privileges of the petitioner.” In such an action, we shall

declare a rule invalid if it violates the constitution, is in excess of statutory authority of

the adopting agency, or was adopted without compliance with rulemaking procedures.

Minn. Stat. § 14.45. In a pre-enforcement action, we are limited to considering those

three bases for a challenge. Save Mille Lacs Sportsfishing, Inc. v. Minn. Dep’t of Nat.

Res., 859 N.W.2d 845, 850 (Minn. App. 2015).

                                              I.

       Petitioner argues that the Energy Code is invalid because it was promulgated in

excess of respondent’s statutory authority. Unlike the Sprinkler Rule, which was only

one part of the amendments to the MRC, petitioner appears to challenge the adoption of

2
  Petitioner does not challenge the section of the rule that requires sprinkler systems in
townhouses.

                                              5
the entire Energy Code. Petitioner argues that “the Energy Code implements various new

requirements that are unnecessary, provide no appreciable benefit, and go beyond

recognized standards of energy efficiency.” However, petitioner does not specify to

which new requirements it objects. As a result, we are left with a general challenge to

respondent’s authority to promulgate the Energy Code.

       Petitioner does not articulate substantive reasons why the Energy Code is invalid.

Rather, petitioner contends that “[t]here is a dearth of evidence” that the Energy Code

complies with the statutory limitations on respondent’s rulemaking authority, and

therefore respondent “has failed to meet its burden of proof that the Energy Code is

within its statutory rulemaking authority.” This argument is unpersuasive. Respondent

has the statutory authority to “establish a code of standards for the construction,

reconstruction, alteration, and repair of buildings, governing matters . . . including design

and construction standards regarding heat loss control, illumination, and climate control.”

Minn. Stat. § 326B.106, subd. 1. This is the stated purpose of the MREC. Minn. R.

1322.0015, subp. 2.     Respondent also has the authority to adopt model codes with

necessary amendments by reference. Minn. Stat. § 326B.106, subd. 1.

       Petitioner also argues that the SONAR for the Energy Code does not comply with

Minn. Stat. § 14.131 (2014). Petitioner specifically argues that respondent failed to

consider alternatives that would satisfy respondent’s energy-conservation objectives.

Petitioner argues that the 2015 IECC is one such alternative.            This argument is

unavailing. The 2015 IECC is not part of the record, and in a pre-enforcement action our

review is expressly limited to the record made by the agency during the rulemaking


                                             6
process. Manufactured Housing Inst. v. Pettersen, 347 N.W.2d 238, 241 (Minn. 1984).

Moreover, respondent began the rulemaking process for the Energy Code in November

2012, at which time the 2015 IECC did not exist. Thus, even if we were to take judicial

notice of the 2015 IECC, as petitioner argues we should, respondent’s failure to consider

it would not render the SONAR for the Energy Code invalid.

       In conclusion, the Energy Code was not promulgated in excess of respondent’s

statutory authority. Therefore, we determine that the Energy Code is valid.

                                            II.

       Petitioner also argues that the Sprinkler Rule must be declared invalid because the

rule violates substantive due process, was adopted in excess of respondent’s statutory

authority, and was adopted without compliance with rulemaking procedures.            Thus,

petitioner makes arguments based on all three bases that this court may consider during a

pre-enforcement action. Save Mille Lacs Sportsfishing, Inc., 859 N.W.2d at 850. We

shall address each argument in turn.

                                Substantive Due Process

       Petitioner argues that the Sprinkler Rule must be declared invalid because it

violates substantive due process. Specifically, petitioner argues that the Sprinkler Rule’s

exception for one-family dwellings under 4,500 square feet is arbitrary. We apply the

arbitrary-and-capricious test when considering whether an administrative rule violates

substantive due process. Pettersen, 347 N.W.2d at 244. Under this standard, appellate

courts “make a searching and careful inquiry of the record to ensure that the agency

action has a rational basis.” Id. (quotation omitted). A rule is invalid when it is “not


                                            7
rationally related to the objective sought to be achieved.” Jacka v. Coca-Cola Bottling

Co., 580 N.W.2d 27, 35 (Minn. 1998). We defer to the agency’s expertise, but the

agency must explain what evidence it relied on and how that evidence is rationally related

to the rule involved. Minn. Chamber of Commerce v. Minn. Pollution Control Agency,

469 N.W.2d 100, 103 (Minn. App. 1991), review denied (Minn. July 24, 1991).

         Respondent argues that the exception for one-family dwellings under 4,500 square

feet was the result of balancing the life-safety benefits of sprinkler systems with the

installation costs.    Respondent may weigh conflicting evidence and make policy

judgments, but the record must demonstrate that there has been a reasoned determination.

Pettersen, 347 N.W.2d at 246. Further, the Building Code, including the MRC, “must be

based on the application of scientific principles, approved tests, and professional

judgment.”     Minn. Stat. § 326B.106, subd. 1.      The October 2013 SONAR for the

Sprinkler Rule indicates that the 4,500-square-foot threshold was chosen in response to

an argument made by the fire service that “homes between 4,000 and 5,000 square feet

and larger provide the greatest initial life-safety risk to the public.” The record does not

support this assertion. At the public hearing on December 12, 2013, Angie Wiese, a

representative of the Fire Marshals Association of Minnesota, urged the adoption of a

sprinkler requirement for all newly constructed dwellings. She testified that “Home size

is not the issue. Men, women and children cause fires, not the age of a home. No new

home should be built today without fire sprinklers.” She also testified that the 4,500-

square-foot exception weakened the model IRC provision and rendered it “a substandard

code.”


                                             8
       Respondent also cites other aspects of the fire service’s proposal to support the

4,500-square-foot threshold. Again, we do not find support for this contention in the

record. It is true that in response to cost concerns, the fire service submitted a proposal to

the advisory committee that recommended replacing the IRC’s mandate that all one- and

two-family dwellings have sprinkler systems with a phase-in approach. The approach

cited in the SONAR would require sprinkler systems in all newly constructed one- and

two-family dwellings over 5,000 square feet upon the adoption of the rule. On or after

January 1, 2014, new one- and two- family dwellings over 4,000 square feet would be

required to have sprinklers. Thereafter, the proposal suggested that the threshold would

be lowered by 1,000 square feet every January 1 until January 1, 2017, when all newly

constructed one- and two-family dwellings would be required to have sprinklers. But

simply because the fire service supported a phase-in approach to sprinkler systems does

not mean it supported an exception for all new dwellings under 4,500-square feet. It did

not. Moreover, respondent did not adopt a phase-in approach. Rather, it adopted a rule

that specifically exempted sprinklers in one-family dwellings under 4,500 square feet.

       After making a careful and searching inquiry of the record, we conclude that the

4,500-square-foot threshold for one-family dwellings is arbitrary and not supported by

substantial evidence in the record. Based upon precedent from our supreme court, there

must be a “reasoned determination” as to why particular standards were chosen in an

administrative rule. Pettersen, 347 N.W.2d at 246. Because the record does not include

evidence of any reasoned determination to indefinitely exempt new one-family dwellings

under 4,500 square feet, the Sprinkler Rule must be declared invalid.


                                              9
       In Pettersen, a challenge was raised to a rule promulgated by the Minnesota

Department of Health, which set the maximum indoor air level of formaldehyde in newly

constructed housing units. Id. at 239. The supreme court reversed in part the decision of

the district court upholding the rule, because the “the rationality of the rule appear[ed] to

be lacking.” Id. at 243. The commissioner in Pettersen initially proposed a rule setting

the maximum level of formaldehyde at 0.4 parts per million (ppm). Id. The hearing

examiner rejected the proposed maximum level and replaced it with 0.8 ppm, after which

the chief hearing examiner recommended the maximum level be set at 0.5 ppm. Id. The

commissioner ultimately set the maximum level at 0.5 ppm. Id. The supreme court

determined the level was arbitrary, and stated “we find that there is no explanation of

how the conflicts and ambiguities in the evidence are resolved, no explanation of any

assumptions made or suppositions underlying such assumptions, and no articulation of

the policy judgments.” Id. at 246. The court determined that “[i]n short, there has been

no reasoned determination of why a level of 0.5 ppm was selected.” Id. Similarly, the

record here reflects no reasoned determination of how respondent arrived at the indefinite

4,500-square-foot exception.

       While we can appreciate respondent’s concern with balancing the life-safety

benefits of sprinkler systems with increased installation costs, the record simply does not

contain a reasoned explanation as to how respondent determined that an indefinite

exception for all one-family dwellings under 4,500 square feet strikes that balance.

Although the phase-in proposal started at 5,000 square feet, the ultimate goal of the

proposal was to require sprinkler systems in new dwellings of all sizes, not just larger


                                             10
dwellings. Testimony at the public hearing from representatives of the Fire Chiefs

Association also called for sprinkler systems in all dwellings. A proposal aimed at

requiring sprinkler systems in all dwellings does not provide support for respondent’s

subsequent-implicit determination the life-safety benefits of sprinkler systems justify the

increased costs only in new dwellings exceeding 4,500 square feet.

        At oral argument, we specifically asked respondent’s counsel where in the record

there exists any explanation for the 4,500-square-foot threshold. Respondent’s counsel

answered that the 4,500-square-foot threshold finds support in the testimony of Chief

Deputy State Fire Marshal Robert Dahm. Fire Marshal Dahm testified as a representative

of the Minnesota Department of Public Safety State Fire Marshal Division, and stated

that:

              The State Fire Marshal Division supports the model [IRC]
              Fire Code language requiring the sprinklering of all homes.

              That said, the State Fire Marshal recognizes that the
              Department of Labor and Industry’s Construction Codes and
              Licensing Division proposed rule takes into account
              economic and other conditions as required by their statutory
              obligation. As such, the State Fire Marshal Division supports
              the rule as published.

(Emphasis added.)

        Thus, respondent is only partially correct, because the testimony does not explain

how the 4,500-square-foot threshold was arrived at by respondent. Like the phase-in

proposal and testimony from representatives of the Fire Chiefs Association and Fire

Marshals’ Association of Minnesota, Fire Marshal Dahm testified that his organization

supported requiring sprinkler systems in all dwellings.        The acknowledgment that


                                            11
respondent had to take other factors into account does not provide an explanation as to

precisely how those factors were taken into account. Nor does it provide support for the

implicit determination that a one-family dwelling over 4,500 square feet is the tipping

point at which the life-safety benefits of sprinkler systems outweigh the costs. Why is it

not 4,000 square feet or 3,000 or 5,000? Respondent has not provided us with an answer

to that question.

       Moreover, we are at a loss to understand why the exception was not applied to

two-family dwellings as well as one-family dwellings. According to the SONAR, in

arriving at its decision, “[respondent] determined that larger homes have the same

challenges for occupants and first responders as other two-family and townhouse

structures, but that the relative cost of installing sprinkler systems in smaller homes may

be too expensive.” But, as amici Franklin P. Kottschade and National Association of

Home Builders point out, the relative cost of installing sprinklers is just as onerous in

two-family dwellings, if not more so.

       First, the building-cost data relied on by respondent indicates that the average cost

of constructing one-family and two-family dwellings is the same: $95.73 per square foot.

This means if the “relative cost of installing sprinkler systems in smaller [one-family

dwellings] may be too expensive,” the same would be true of two-family dwellings, since

the cost of construction is comparable. In fact, on a relative basis, sprinkler systems

would be more expensive in smaller two-family dwellings than in larger two-family

dwellings. Yet, respondent has imposed the sprinkler mandate on every two-family

dwelling, regardless of size.


                                            12
       Second, while the average per-foot cost of constructing one-family and two-family

dwellings may be the same, the cost of installing sprinkler systems in two-family

dwellings may be higher when each unit requires its own, separate sprinkler system. This

will often be the case in owner-occupied, two-family dwellings, such as condominiums.

In those circumstances, installation costs are actually more expensive in a two-family

dwelling than in a similarly sized one-family dwelling, on a per-square-foot basis.

       Finally, we emphasize that we are not saying that respondent is not permitted to

balance the life-safety benefits of sprinkler systems with the costs, but rather we are

saying that this record does not contain a reasoned explanation as to how the department

determined that an indefinite exception for new one-family dwellings under 4,500 square

feet provided that appropriate balance. Provisions of the Building Code must be based on

the application of scientific principles, approved tests, and professional judgment, Minn.

Stat. § 326B.106, subd. 1, and there is simply no evidence or explanation to support the

determination that new two-family dwellings and new one-family dwellings over 4,500

square feet present a fire-safety risk that justifies the increased costs of sprinkler

installations, while new one-family dwellings under 4,500 square feet do not.

       Accordingly, we hold that the Sprinkler Rule violates substantive due process

because it is arbitrary and not the result of a reasoned determination.

                                   Statutory Authority

       Petitioner also argues that respondent exceeded its statutory authority by adopting

the Sprinkler Rule. Whether an agency had the statutory authority to adopt a rule is a

legal question that is reviewed de novo.          GH Holdings, LLC. v. Minn. Dep’t of


                                             13
Commerce, 840 N.W.2d 838, 841 (Minn. App. 2013). Petitioner argues that respondent

exceeded its statutory authority for four reasons: the rule does not conform to model

building codes generally accepted and in use, the rule does not tend to lower construction

costs, the rule goes above and beyond the recognized standards of health and safety, and

the 4,500- square-foot threshold is not the product of objective research, testing, and

professional judgment.     As we have already concluded that the 4,500-square-foot

threshold is arbitrary, we will now focus on the first three arguments.

       Respondent is permitted to adopt model codes with necessary modifications by

reference. Minn. Stat. § 326B.106, subd. 1. However, the Building Code as a whole

“must conform insofar as practicable to model building codes generally accepted and in

use throughout the United States.” Id. Petitioner argues that respondent has exceeded its

statutory authority because the overwhelming majority of states have rejected the

Sprinkler Rule, and therefore the rule is not generally accepted and in use. Petitioner

argues that respondent has a “statutory obligation” to assure that a proposed rule change

is based on a model provision being used throughout the United States. We are not

convinced that respondent has a statutory obligation to adopt the majority rule being used

throughout the United States. Because the statute states that respondent should conform

to model codes “insofar as practicable,” it is not a strict requirement.        Petitioner’s

argument that the statute requires that the construction be permitted “at the least possible

cost consistent with recognized standards of health and safety” is similarly based on

permissive language.      Minn. Stat. § 326B.101.        As noted by the ALJ, Minn.

Stat. § 326B.101 directs that construction “should be permitted,” and the word “should”


                                            14
is permissive, not mandatory.       In re Jacobs, 802 N.W.2d 748, 754 (Minn. 2011).

However, we do note that only two other states, California and Maryland, have adopted a

residential sprinkler requirement. Cal. Code. Regs. tit. 24, § 2.5 (2013), Md. Code. Regs.

05.02.07.04 (2015). Moreover, both California and Maryland adopted the IRC sprinkler

mandate without any exceptions based on size, making Minnesota’s proposed rule the

outlier of the outliers.

       Petitioner also argues that respondent exceeded its statutory authority because the

Sprinkler Rule does not in part tend to lower construction costs. Respondent argues that

the statute does not require the rules to lower construction costs, but rather observes that

the adoption of a uniform code will tend to lower construction costs. The ALJ noted that

evidence submitted during the rulemaking process indicated that the establishment of

new standards tends to lower the costs associated with the standards. Caselaw also

supports this conclusion. See City of Morris v. Sax Investments, Inc., 749 N.W.2d 1, 7

(Minn. 2008) (noting that the legislature enacted a uniform code because “a single,

uniform set of building standards was necessary to lower costs and make housing more

affordable”); Builders Ass’n of Minn. v. City of St. Paul, 819 N.W.2d 172, 181 (Minn.

App. 2012) (noting that prior to the adoption of the statewide code, the fragmented nature

of municipal building codes resulted in confusion and increased costs). The adoption of

the Building Code was aimed at lowering overall costs associated with construction

standards; it does not require that each individual section of the Building Code tend in

part to lower construction costs.




                                            15
                                 Rulemaking Procedures

       Finally, petitioner argues that the Sprinkler Rule must be declared invalid because

respondent did not comply with statutory rulemaking procedures. For the most part, we

disagree with this argument, except for the part dealing with Minn. Stat. § 14.127 (2014).

“Rules must be adopted in accordance with specific notice and comment procedures

established by statute, and the failure to comply with necessary procedures results in

invalidity of the rule.” White Bear Lake Care Ctr., Inc. v. Minn. Dep’t of Pub. Welfare,

319 N.W.2d 7, 9 (Minn. 1982) (citation omitted). The agency must provide notice that

includes a description of the subject matter, the groups and individuals likely to be

affected, and give notice of and hold a public hearing. Coalition of Greater Minn. Cities

v. Minn. Pollution Control Agency, 765 N.W.2d 159, 168 (Minn. App. 2009), review

denied (Minn. Aug. 11, 2009). The purpose of the hearing is to ensure that the agency

“does not deprive the public of fair notice of the agency’s intentions.” Id.

       Petitioner argues that respondent did not comply with rulemaking procedures

because the SONAR was insufficient. When an agency proposes a rule it is required to

prepare a SONAR that addresses eight statutory considerations. Minn. Stat. § 14.131.

The SONAR must provide responses to the statutory considerations “to the extent the

agency, through reasonable effort, can ascertain” the information.         Id.   Respondent

submitted a SONAR that addressed the eight considerations, but petitioner argues the

responses were deficient.    Specifically, petitioner contends that respondent failed to

consider alternatives to the Sprinkler Rule, relied on inapposite data when assessing the




                                             16
probable costs of complying with the rule, and failed to analyze the cumulative effect of

the Sprinkler Rule with other fire-safety regulations.

       Respondent argues that petitioner is conflating the Sprinkler Rule with the

proposed rule as a whole. The proposed rule was meant to update the MRC by adopting

the 2012 IRC with amendments; the Sprinkler Rule was just one provision of the

proposed rule. Thus, when respondent prepared the SONAR and addressed alternatives

to the proposed rule, it addressed alternatives to adopting the 2012 IRC with

amendments, not alternatives to specific provisions of the proposed rule. Petitioner does

not provide any authority to suggest that respondent was required to consider alternatives

to every provision of the proposed rule.

       Moreover, a SONAR “need not contain evidence and argument in rebuttal of

evidence and argument presented by the public.” Minn. R. 1400.2070 (2013). Petitioner

argues that the SONAR is insufficient because respondent disregarded “highly-persuasive

evidence” concerning the costs of complying with the Sprinkler Rule that was presented

during the rulemaking process without providing a sufficient explanation. However,

respondent was not required to provide an explanation.          Id.   The SONAR clearly

indicates what evidence respondent relied on when assessing the probable costs of

complying with the rule, and the evidence is part of the record. Therefore, the fact that

the SONAR does not include or address rebuttal evidence does not render it invalid.

       Finally, petitioner argues that respondent failed to adequately consider the impact

the proposed rule would have on small businesses and cities. When an agency proposes a

rule, it is statutorily required to determine if the costs of complying with a proposed rule


                                             17
in the first year after the rule takes effect will exceed $25,000 for a small business or

small city. Minn. Stat. § 14.127 (2014). Respondent determined that the cost would not

exceed $25,000 because “the proposed rules do not require any construction to occur

within the first year after the rules take effect.” The ALJ determined that respondent’s

position was unreasonable and that allowing such an analysis “would render the

assessments performed under the statute a nullity.” However, the ALJ further determined

that the record did not provide a basis to conclude that the cost of complying with the

proposed rule would exceed $25,000 for any small business or city, and therefore

concluded that respondent satisfied the statutory requirement.

      We are troubled by this analysis. Respondent was required to determine if the

costs of complying with the rule would exceed $25,000 for any small business or city,

and did not perform a satisfactory assessment. The statute clearly requires that the

agency, not the ALJ, must make the determination. Id. Respondent did not make such an

analysis. Therefore, we conclude that, because respondent failed to do this, it did indeed

violate rulemaking procedures.

      We are mindful today that we are declaring a rule adopted by an administrative

agency of the state invalid.     We do not do so lightly, but rather thoughtfully and

unanimously. Nevertheless, we are bound to apply the law.

                                    DECISION

      For the reasons outlined above, we declare the Energy Code to be valid. However,

the Sprinkler Rule’s exception for new one-family dwellings under 4,500 square feet is

arbitrary and not supported by the record. Therefore, we conclude that petitioner has


                                            18
demonstrated that it was not the result of the application of scientific principles, approved

tests, and professional judgment. Further, we conclude that respondent violated statutory

rulemaking procedures by failing to adequately address the costs of complying with the

Sprinkler Rule for small businesses and cities. Consequently, we declare the Sprinkler

Rule invalid.

       Declaratory judgment issued.




                                             19
