[House Hearing, 107 Congress] [From the U.S. Government Publishing Office] MAKING THE OFFICE OF ADVOCACY INDEPENDENT ======================================================================= HEARING before the COMMITTEE ON SMALL BUSINESS HOUSE OF REPRESENTATIVES ONE HUNDRED SEVENTH CONGRESS SECOND SESSION __________ WASHINGTON, DC, MARCH 20, 2002 __________ Serial No. 107-49 __________ Printed for the use of the Committee on Small Business U.S. GOVERNMENT PRINTING OFFICE 79-993 WASHINGTON : 2002 ________________________________________________________________________ For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800 Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001 COMMITTEE ON SMALL BUSINESS DONALD MANZULLO, Illinois, Chairman LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD, ROSCOE G. BARTLETT, Maryland California FRANK A. LoBIONDO, New Jersey DANNY K. DAVIS, Illinois SUE W. KELLY, New York BILL PASCRELL, Jr., New Jersey STEVE. CHABOT, Ohio DONNA M. CHRISTENSEN, Virgin PATRICK J. TOOMEY, Pennsylvania Islands JIM DeMINT, South Carolina ROBERT A. BRADY, Pennsylvania JOHN R. THUNE, South Dakota TOM UDALL, New Mexico MICHAEL PENCE, Indiana STEPHANIE TUBBS JONES, Ohio MIKE FERGUSON, New Jersey CHARLES A. GONZALEZ, Texas DARRELL E. ISSA, California DAVID D. PHELPS, Illinois SAM GRAVES, Missouri GRACE F. NAPOLITANO, California EDWARD L. SCHROCK, Virginia BRIAN BAIRD, Washington FELIX J. GRUCCI, Jr., New York MARK UDALL, Colorado TODD W. AKIN, Missouri JAMES R. LANGEVIN, Rhode Island SHELLEY MOORE CAPITO, West Virginia MIKE ROSS, Arkansas BILL SHUSTER, Pennsylvania BRAD CARSON, Oklahoma ANIBAL ACEVEDO-VILA, Puerto Rico Doug Thomas, Staff Director Phil Eskeland, Deputy Staff Director Michael Day, Minority Staff Director C O N T E N T S ---------- Page Hearing held on March 20, 2002................................... 1 Witnesses Sullivan, Hon. Thomas, Chief Counsel for Advocacy, U.S. Small Business Administration........................................ 3 Barrera, Michael, Small Business & Agriculture Regulatory Enforcement Ombudsman, U.S. Small Business Administration...... 4 Glover, Jere, Brand & Frulla..................................... 6 Appendix Opening statements: Manzullo, Hon. Donald........................................ 20 Velazquez, Hon. Nydia........................................ 23 Prepared statements: Sullivan, Hon. Thomas........................................ 27 Barrera, Michael............................................. 43 Glover, Jere................................................. 50 MAKING THE OFFICE OF ADVOCACY INDEPENDENT ---------- WEDNESDAY, MARCH 20, 2002 House of Representatives, Committee on Small Business, Washington, DC. The committee met, pursuant to call, at 10:40 a.m. in room 2360, Rayburn House Office Building, Hon. Donald Manzullo presiding. Chairman Manzullo. The committee will come to order. Welcome to this hearing of the Committee on Small Business. Since its inception in 1976, the Office of Advocacy has had the difficult and important task of being an effective voice for small business within the Executive Branch of the Federal Government. There have been a number of distinguished individuals who, as Chief Counsel, have directed the Office of Advocacy and have left an admirable record of accomplishments despite the lack of resources and limited authority. One of those Chief Counsels, Jere Glover, is with us here today as one of our witnesses. Over time, there have been various constructive suggestions to strengthen the office and to make it more effective and independent. We heard a number of those suggestions at the hearing the committee held a year ago on March 22. Since that time, the Senate has passed and referred to the House, S. 395, the Independent Office of Advocacy Act of 2001. In light of this legislative activity and the subject, the previous legislation that was before the committee last March has been redrafted. The draft bill for discussion today is less ambitious than the previous version. It makes the office more independent and provides the office with greater resources and more authority to represent the interests of small businesses. I was encouraged yesterday by the President's small business agenda, particularly heartened with regard to specific points on the Office of Advocacy and how to make that office a stronger voice within the Federal Government. I believe this draft legislation, along with other provisions I intend to introduce to strengthen the Regulatory Flexibility Act mirror the President's thinking on this issue. We must ensure that regulators take into account the interests of small businesses prior to the issuance of a new rule. The law has been ignored far too often by too many agencies. We must give more tooth to the chief counsel of Advocacy to enforce the President's vision. I want to work with my colleagues on both sides of the Hill to pass the bill that produces real results for mainstream America. I now yield for an opening statement from my good friend and colleague, the Ranking Democratic member, Ms. Velazquez. [Chairman Manzullo's statement may be found in the appendix.] Ms. Velazquez. Thank you, Mr. Chairman, and good morning. This hearing comes at a very opportune time. Yesterday we heard the President speak about ways to help small businesses in this country. I am very pleased to see he has read the legislative report the Democrats wrote in January. In fact, he mentioned five of our 11 concerns: taxes, regulatory issues, contracting bundling, worker health care, and expanding the Office of Advocacy. The President has signaled he plans to issue an Executive Order to give the Office of Advocacy more powers and independence. He could not have picked a better moment since the scope of that power and independence is what brings us here today. We support a truly independent Office of Advocacy. Small businesses agree, which is why we listed it in our report on the small business agenda this January. We want a smart watchdog that compels the agency to respond to regulatory problems that small businesses face. There are two real questions before us on this issue. First, why do we need an independent Office of Advocacy? Everybody says we do. We all want one. But, before we rush headlong into this, we need to know exactly what the problem is we are trying to solve. The problem is the Office of Management and Budget. An independent Office of Advocacy must worry about undue influence from the executive branch, which means shielding it from OMB. We have seen too many times how OMB interferes with changes at SBA, such as changing the size standards and subsidy rates. So the second real question in evaluating the legislation before this committee is, how do we ensure an independent office and shield it from OMB? This clearly cannot be done with simple window dressing like giving Advocacy a budgetary line item or adding so many new responsibilities that it becomes bogged down in its own mission. Advocacy has been successful because its mission has been laser-focused, and we have given it the flexibility to work with agencies to find creative solutions to the problems facing this country's small businesses. Any future changes must follow this trend for Advocacy to continue serving as the voice of small business. Clearly, there is much more work to be done. We are here to find solutions to that end. I hope we can hear from Advocacy's chief counsel, Tom Sullivan, about his own ideas about how to make the office more independent. I look forward to hearing from the witnesses and to learn what ideas they have to achieve this goal. Thank you, Mr. Chairman. [Ms. Velazquez's statement may be found in the appendix.] Chairman Manzullo. I noted in the President's initiative handed down yesterday it talks about--``for a tighter cooperation between the Office of Advocacy and OMB.'' I--maybe somebody from the White House was sitting in the audience here when we showed the problems with OMB. Our first witness is the Honorable Tom Sullivan, Chief Counsel for Advocacy. STATEMENT OF THE HONORABLE THOMAS M. SULLIVAN, CHIEF COUNSEL, OFFICE OF ADVOCACY, U.S. SMALL BUSINESS ADMINISTRATION Mr. Sullivan. Chairman Manzullo---- Chairman Manzullo. Could you pull the mike up closer? Mr. Sullivan. Certainly. Chairman Manzullo. Thank you. Mr. Sullivan. Chairman Manzullo, Congresswoman Velazquez, Congressman Pascrell, good morning and thank you for the opportunity to appear before you today to discuss ways to strengthen and improve the Office of Advocacy, a concept I have been supportive of even before coming on board as chief counsel. I was also encouraged by President Bush's announcement yesterday and the small business agenda he formalized during the Women's Entrepreneurship conference. Thank you also for accepting my written statement into the record. I will summarize some of the key points. First, let me say that I am committed to working with this committee, Congress, and the President both to ensure the Office of Advocacy's independence well past my tenure and to make sure that the government is accountable to small businesses through compliance with the provisions of the Regulatory Flexibility Act (the RFA), and the Small Business Regulatory Enforcement Fairness Act (SBREFA). I believe these two goals, strengthening the independence of the office and enhancing the effectiveness of the RFA and SBREFA, are best addressed separately because each by itself deserves the full attention of both Congress and the administration. Later this week, our office will be releasing the annual report on agency compliance with the RFA for Fiscal Year 2001. I can assure you that this committee will be the first to see that report. This report will detail successes and failures and will help frame the debate on how we can all work together to ensure greater attention to the unique needs of small businesses early in the regulatory process, the tenet of the RFA. With respect to the issue of strengthening the Office of Advocacy, the focus of our discussion this morning, I want to express my appreciation to the committee and staff for their willingness to look carefully at various options in crafting legislation to strengthen Advocacy's role as the voice for small business within the Federal Government. It will be important to keep in mind preserving both the chief counsel's independence and the flexibility to respond to new concerns as they arise. I believe that if legislation is needed to improve the Office of Advocacy's independence and ability to carry out its mandate, it should be done as cleanly and simply as possible. I should also note for the record that the administration and, in particular, Administrator Barreto's team have been fully supportive of my office. Discussion of legislative options that seek greater independence for Advocacy should not in any way imply an immediate need to exercise that budgetary independence. Legislation, if needed at all, should be framed in the context of an Office of Advocacy that does not necessarily have the luxury of having such an accommodating landlord as I have in Hector Barreto. In a few minutes we'll hear from Michael Barrera, the SBA's current National Ombudsman. I know that Michael shares my vision of our complementary roles in support of small business. Michael and I met to discuss our respective offices even before I came on board, and we continue to meet regularly. I am proud to announce that, just this morning, we signed a memorandum of understanding that will help both our offices work together to benefit small business while at the same time recognizing the independence of the Office of Advocacy. With the Chair's permission, I would ask that that Memorandum of Understanding be inserted into the record. Chairman Manzullo. The statements of the witnesses and of the members, along with the memorandum, will be admitted without objection. Mr. Sullivan. Thank you, Mr. Chairman. There have been some legislative proposals to require Advocacy to report on specific subjects. While these provisions may be well-intentioned, such a legislative mandate sets a precedent that contradicts the flexibility inherent in Advocacy's role. Advocacy has a strong history of listening to small business owners and working with this committee to develop the research and action agenda that makes the best use of Advocacy's resources. I fully intend to build on that tradition and capacity. For that reason, I am reluctant to endorse legislative provisions that constrain our research flexibility. I am encouraged by this committee's dedication to the Office of Advocacy's success and the benefits that obviously are realized by small business owners themselves. I pledge my full cooperation and the resources of Advocacy to work toward solutions that will help our country's economic engine, small business. [Mr. Sullivan's statement may be found in the appendix.] Chairman Manzullo. Thank you. Our next witness will be Michael Barrera, the National Ombudsman. Mr. Barrera accompanied Administrator Barreto to northern Illinois, I think, the first week after your boss was confirmed and had a great time there. STATEMENT OF MICHAEL BARRERA, SMALL BUSINESS AND AGRICULTURE REGULATORY, ENFORCEMENT OMBUDSMAN, U.S. SMALL BUSINESS ADMINISTRATION Mr. Barrera. Mm-hmm. Chairman Manzullo. I really appreciated the fact that you came along and had a lot of input and met a lot of fine people in northern Illinois, including my brother at the restaurant. So that was a lot of fun, Michael. Mr. Barrera. Unfortunately, I didn't get a chance to eat, but I look forward to going back. Chairman Manzullo. Yes. That's good. We'll be looking forward to your testimony. Mr. Barrera. Thank you, Mr. Chairman. Chairman Manzullo. Could you put the mike a little bit closer. Thank you. Mr. Barrera. Is that better? Okay. Thank you, Mr. Chairman Manzullo, Ranking Member Velazquez, Congressman Pascrell, and Congressman Langevin, for providing me my first opportunity to comment on how the Office of the National Ombudsman can help improve the regulatory environment for small businesses. First of all, I would like to state that I look forward to working with the committee, Congress, small entrepreneurs, and the new chief counsel for Advocacy, Tom Sullivan, to improve the regulatory enforcement environment for our nation's 25\1/2\ million small businesses. In fact, I have already met with staff from both the Senate and House Small Business Committees and with Mr. Sullivan on several occasions to discuss how the Office of Advocacy and the Office of the National Ombudsman can work together to ensure a fair small business regulatory environment. As Mr. Sullivan mentioned earlier, we both agree that a strong working relationship with frequent communication between the two offices is critical to the SBA's mission of aiding and counseling America's small businesses and protecting small businesses against unnecessary regulatory burdens. The President also recognizes the importance of regulatory fairness for small businesses and, just yesterday, unveiled his plan to help create an environment where small businesses can flourish. Some components of his plan include issuing an executive order to provide greater enforcement powers to the Office of Advocacy, instruction to the director of OMB to seek the views and comments of small businesses on existing Federal regulations, paperwork requirements, and guidance documents, instruction to the OMB and Advocacy to work together to strengthen the enforcement of the Regulatory Flexibility Act and for increasing the coordination between OIRA and Advocacy. Along those lines, Mr. Sullivan and I have taken the initiative to strengthen the complementary roles we each play in working to benefit small businesses. Like Tom, I am also pleased to announce that, as of today, we have signed a memorandum of understanding that, while maintaining our independence, enhances our relationship that will enable us to put forth our best efforts to assist the small business community. As part of SBA, the SBA National Ombudsman can communicate small business issues directly to the SBA administrator and appropriate program managers. Administrator Barreto has recognized the importance of the SBA National Ombudsman and sources to the SBA's field offices to use my office as another tool to assist and protect small businesses. The mission of the SBA National Ombudsman is now more relevant and more effective than ever before because it is now a core function of the SBA, and its services are available at the grassroots level through local SBA offices. I believe that Administrator Barreto underscored his commitment to regulatory fairness by making the appointment of the National Ombudsman one of his first after his confirmation. Since that time, the Office of the National Ombudsman has held six regulatory enforcement fairness hearings and six regulatory enforcement fairness roundtables. We plan to have at least one hearing and one roundtable in each federal region. This increase in hearings and roundtables is directly attributed to Administrator Barreto's commitment to make the mission of this office a core function of the SBA. In addition to the increase in the number of hearings, attendance at the hearings and roundtables has also increased dramatically. For example, attendance at our hearings in Orlando and Albuquerque drew crowds of approximately 70 and 80 small business owners and other interested parties, respectively. Additionally, through contacts and efforts of our district field offices, we have received excellent news coverage for our hearings. This support greatly assists our office in marketing the resources of the SBA National Ombudsman. As demonstrated by this committee's March 6, 2002, hearing on the Regulatory Flexibility Act, there was continued need to eliminate unnecessary regulatory burdens on America's small businesses. On behalf of President Bush, Administrator Barreto, and the Office of the SBA National Ombudsman, I look forward to working with the chief counsel, our legislative partners, and America's small businesses to eliminate the unnecessary regulatory burdens and excessive regulatory enforcement burdens on our nation's entrepreneurs. Thank you for the opportunity to appear today. I will be happy to answer any of your questions. Thank you. [Mr. Barrera's statement may be found in the appendix.] Chairman Manzullo. Thank you. Our next witness will be Jere Glover with Brand & Frulla. I thought you retired. I know you got that sailboat. STATEMENT OF JERE W. GLOVER, COUNSEL, BRAND & FRULLA Mr. Glover. I did retire from the Federal Government, Mr. Chairman, but I am still back in the practice of law. Chairman Manzullo. You didn't retire from life. Mr. Glover. I did not retire from life. Chairman Manzullo. Okay. Mr. Glover. Nor small business advocacy. Chairman Manzullo. We look forward to your testimony. Mr. Glover. Thank you, Mr. Chairman, Members of the Committee. It's great to be here with you discussing an issue that's very near and dear to my heart. You know, yesterday was a great day. Any time a President mentions small business, it's a great day. When the President mentioned strengthening the Office of Advocacy, it's a really great day. And when he talks about stopping contract bundling, it just makes it phenomenal. So I will tell you that we have to be very pleased about hearing that happen. I've had this fantasy that's gone on for years, this, perhaps, dream, and that is that at one presidential debate, the two candidates will discuss what is best for small business. We haven't reached that yet, but, certainly, yesterday was a good day. Well, let me try to put the discussion about the Office of Advocacy into context. First of all, you have to recognize that the role within the Small Business Administration has declined over time. When you look at the number of resources that SBA has dedicated to advocacy, it's less than two percent. When you look at SBA's budget, again, less than two percent. But let's put it in a little broader context. We had roughly 50 employees when I was there. I understand the number is down a little bit, and I'm not sure where that's going to end up right--overall. But the Department of Commerce, which is tasked with primarily helping large firms--and I'm not questioning their justification for their existence of their number of employees, but they have 32,981 employees. The U.S. Department of Agriculture has 110,000 employees. The Department of Labor has 15,374 employees. All told, the Federal Government has 1,660,313, according to the last count I saw, full-time Federal employees. Having less than 50 do the research, fight the regulatory battles and provide important information to policymakers for decisions seems like things are a little askew. When I was first in the Office of Advocacy in the late 1970s, we had five percent of SBA's budget and about five percent of the employees. The Congress put a floor in the legislation, which I mentioned in my testimony, that said, ``Not less than 69 employees and less than $3 million in research would be spent on the Office of Advocacy.'' That kind of clear congressional direction held the office in good stead for many, many years, but over the last few years we've seen some things begin to--the numbers and things erode. If we look at this from a cost benefit analysis, there have been roughly $16 billion in regulatory savings by actions by the Office of Advocacy and the Regulatory Flexibility Act, $16 billion. If you do a cost benefit analysis on SBA's Office of Advocacy's budget, you find out that it's $800 returned for every dollar spent. That kind of cost benefit analysis is the kind that you would like to see in everything the government does. Now we have to remember that this office is, by its very nature, controversial. There will be people who don't like what it does. We can remember back in 1995 when a vote on the floor of the House of Representatives came within 30 votes of eliminating that office forever. I think we have to recognize that, left to their own devices, this office will not receive the focus, the attention, and the priority that it deserves. Let me go back to the President's statement on advocacy. It's a great statement. I dare say that the administrator did not call the chief counsel up last night and said, ``I just had a great meeting with the President. I'm going to increase your slots by 25 percent, and you've got another half-million dollars in research.'' I know, when SBREFA was passed and the panel process was put in place, which tremendously increased the responsibilities for the Office of Advocacy, we didn't get a single slot or a single dollar to implement that. In fact, the--the report that we filed before the election on the background paper on the Office of Advocacy 1994-2000 has a chart which shows the Office of Advocacy's staffing overtime. And when SBREFA passed, we actually lost six slots because SBA was in a government-wide freeze--an agency-wide freeze. We never got those slots back. So I think that we have to recognize that something specific really does need to be done. Now I will tell you that--that I was very proud of all of the accomplishments that the Office of Advocacy had while I was there. I was certainly appreciative of the congressional support that the office had. Could I have done more if I had had more resources? Absolutely. I have total confidence in Tom Sullivan, the current chief counsel. He will do the very best job that he can do with the resources and personnel he has. Can he do more with more? Absolutely. I think the historical precedent when this committee, back in the early 1980s, when the first chief counsel who I had the privilege of working under and mentoring under and learning from left, and a new chief counsel came in, they wanted to make sure that the office didn't lose the status. And that's why it said, ``Not less than 69 employees, not less than $3 million in research.'' That kind of provision did make a difference, and it stayed there for a long time. Let me just ask the question. Between those periods in the late 1970s, early 1980s, is the Office of Advocacy less important today than it was then? Does it have less responsibilities? Is small business less important? Does Congress care less about small business? I think not. I think it's time to restore the office to its prior status and provide it with the resources. Thank you very much for the opportunity to be here. [Mr. Glover's statement may be found in the appendix.] Chairman Manzullo. Well, thank you very much. The--Ms. Velazquez, did you want to go first? Ms. Velazquez. I don't mind. Chairman Manzullo. Okay. Go ahead. Ms. Velazquez. Thank you, Mr. Chairman. Chairman Manzullo. Get my thoughts together here. Thank you. Ms. Velazquez. Mr. Sullivan, the President announced a new small business initiative yesterday, and you mentioned that too in your testimony. With this new executive order in the works, should we be considering legislation now too, or should we wait until we can see the effects of this executive order? Mr. Sullivan. Well, let me--let me actually touch on a few things specific to the Office of Advocacy in the announcement yesterday. First, one accomplishment that is done already, as far as a memorandum, is our written agreement to work very early and often with Dr. John Graham in the Office of Information and Regulatory Affairs. And, with the Congresswoman's permission, I would like to insert that Memorandum of Understanding (MOU) also into the hearing record because it is a monumental document. Chairman Manzullo. That will be accepted into the record without hesitation or objection. Mr. Sullivan. Thank you, Mr. Chairman. Chairman Manzullo. Do you have a copy of that memorandum? Mr. Sullivan. Yes, I do, Mr. Chairman. Chairman Manzullo. Could you hand it to us up here so we could look at it? Mr. Sullivan. Yes. And your counsel also has a copy that was provided previous to this. I want to make sure that you know that we get everything to the committee before the hearing, not in the middle. I do want to also answer the Congresswoman's other part of the question, and that is whether or not we need legislation now when there is an executive order that, in fact, does a lot in the same direction and with the same purpose of what some of the legislation before us attempts to do. My answer is, any time you have legislation, presidential announcements, executive orders, or roundtable discussions that focus on strengthening the Office of Advocacy, I'm all for it. Whether or not we're jumping the gun by formalizing legislation that could be overcome by executive order, I think that those things have to be considered. The timing of those two documents is important. I think that it is tremendously helpful that the President has committed to formalizing an executive order, and I'm sure that the President wants to make sure that any legislation that seeks to do the same thing is complementary, not contradictory, to the executive order. Ms. Velazquez. But if you mention that, in the Executive Order--it contains a lot of elements that are in the legislation. Shouldn't we wait to see those--if that Executive Order really works or not? Mr. Sullivan. I want to be as responsive as possible without getting into specifics of a document that has not been written yet. But I think it is wise that this discussion happen now because the purpose of both the executive order and the legislation is absolutely similar. So, to the extent that they complement and do not contradict each other, I do think that it's a good idea that those considerations be brought back to the President, and I'll certainly convey that. Ms. Velazquez. Okay. Mr. Sullivan, I understand you signed a memorandum of understanding with OIRA as part of the President's new Small Business Initiative. How does this memorandum actually change any of the current processes in place for inter-agency review? Mr. Sullivan. Well, like so many things that we do at the Office of Advocacy, we build on the successes of the past. I am honored to share the panel not only with Michael Barrera, but with the past chief counsel, Jere Glover. The Office of Advocacy has historically had an exchange of letters with Dr. Graham's office, the Office of Information and Regulatory Affairs. That exchange of letters simply formalizes a working relationship of examining agency proposals and how they impact business, quite frankly, how they benefit businesses, more along the lines of what Dr. Graham's shop does. What the MOU does is to go even further. It specifically calls upon Dr. Graham's executive order authority to send back regulations and uses that authority to examine whether or not agencies have complied with the Reg Flex Act according to the Office of Advocacy. Ms. Velazquez. Mr. Sullivan, giving Advocacy its own line item is being characterized as giving Advocacy independence. However, Advocacy will still need to submit budget requests to the administration, just to OMB instead of SBA. This question is meant--no. I'm sorry. I just want for you to tell me, if this office is given this line item, does this mean that your budget request will be submitted to OMB instead of SBA? Mr. Sullivan. The Congresswoman is referring to two separate draftings of how an independent budget would work. There is the draft that is the discussion of this hearing that is worded as concurrent submission. And I believe that the way that would work would be that the Office of Advocacy would separately submit its budget to Congress. The preferable approach, in my opinion, if legislation is needed to separate our budget, is what is contained in S. 395 that the Chairman mentioned in his opening statement. And that isn't a concurrent budget submission, but rather required within the President's budget that the Office of Advocacy be a line item similar to the way our research budget is line-itemed currently. Ms. Velazquez. And let me ask you, given the fact that as-- as the Office of Advocacy, you may be, at times, critical of the office of OMB. And, given that time of relationship, we can expect that relationship to be confrontational at times. So, after spending a year holding OMB's feet to the fire, how likely is it that OMB will approve your budget? Mr. Sullivan. Well, I think one of the advantages of having the Office of Advocacy's budget clear, whether it be submitted concurrently or whether it be part of the President's budget, is that it is out in the open. This is an item, a dollar amount that then gets the full attention of this committee, the full attention of OMB and the President and the various entities that do have budget approval authority. I think the more folks that know the benefits of the Office of Advocacy and the resources that we need to do a good job, the better off we are. Ms. Velazquez. During our hearing on Reg Flex compliance, you testified that legislation to strengthen the Reg Flex Act should be an avenue of last resort. It's two weeks later, and this bill contains new authority for the Office of Advocacy. Are we now already at the point of last resort? Mr. Sullivan. Well, actually, we're starting a whole new chapter and an exciting chapter that was formalized yesterday in the President's announcement and small business agenda. One of the things that would happen ideally, before reaching the last resort, would be to have the President's emphasis of agencies complying with the Regulatory Flexibility Act. That has happened. That has happened in the proclamation and commitment to formalize that agenda through an executive order. So when I came here a month ago and talked about things that I would prefer rather than changing the law, those have, in fact, happened, and I'm very excited about it. So, to the extent that we discuss legislative options now, I think we're dealing with a whole new framework and an exciting framework, but certainly something that should be taken into account prior to changing existing laws. Ms. Velazquez. We will have a second round, right? Chairman Manzullo. Well, I--yes, of course, of course. It's just the two of us here. Ms. Velazquez. Thank you. Chairman Manzullo. Thank you. I have a couple of questions. And I can understand the President's proposal yesterday, and it's a lot of things that we've been talking about here, but I would suggest--and I appreciate everything that they--that both of you gentlemen are doing. Our committee never got any heads-up that the President was even considering any small business agenda. And then we found out on the grapevine, placed a call, and then the extent of our briefing was a phone call that came to our staff on Friday afternoon, that somebody came from the SBA on Friday afternoon. I mean, this is not acceptable. The--we sit up here and pull the hair out of our heads. We had to throw together a rather ugly meeting, a very ugly meeting, with the head of OIRA and the Administrator. As a result of that, we get a Memorandum of Understanding. I just want to know when is the SBA going to come to this Committee, the Committee of Jurisdiction and say, ``We're working on legislation. We'd like you to have some input into it.'' I mean, do you think that would be a good idea? Mr. Sullivan. Mr. Chairman, let me actually address this on behalf of the Office of Advocacy but not address the questions that you put, more appropriately to the administration. But with regards to legislative drafting and the vetting, the full vetting of views so that we both can benefit from our experiences, I have met, as you know, regularly with your staff. And, in particular, I am absolutely pleased that my concerns in the drafting of legislation were not only listened to, but then formalized in a re-draft that we have before us today. And so the working relationship with the Office of Advocacy, in my view, is not constrained at all. Chairman Manzullo. I'm not talking about our relationship. I'm just--I guess I'm just expressing to you the frustration-- perhaps it's of the Republican Congress that the Members just can't get the ear of the President. We have no input. Phone calls are not returned. The--I know how hard you work there, but it's as if--you know, the President comes out with a small business agenda, and Members of Congress--I mean, we're supposed to carry the water, at least on a portion of this legislation, and, you know, we're glad to do that. But I think at the minimum perhaps, you know, both of you are the ultimate middlemen. If you stop to think about it, you really are, and you're placed there for a reason. And you're both doing an excellent job on it, but there has to be a better relationship between the Administration and the Committees of Jurisdiction because, at this point, there is none. And I'm not criticizing Mr. Barreto because he's been--he gets a hundred percent in my book. But there's a huge disconnect going on here. Mr. Sullivan. I appreciate the comments of the chairman. Although I do have the luxury of independence from the administration, I will absolutely view yesterday's announcement and the two-day announcement of the small business agenda, first in Missouri and then yesterday at the Reagan center, as an opportunity to engage both with the White House and with this committee to flush out exactly how the agenda can work cooperatively. Chairman Manzullo. Let me give you a suggestion. Mr. Sullivan [continuing]. Whatever legislative options may exist. Chairman Manzullo. One suggestion would be for the President to sit down with the Administrator and the Chairman of the Committee on some common goals for the--I mean, this is so simple, but it's not done. And I'm convinced that, unless we raise hell at this Committee level, we don't have any voice going into the White House. I mean, we're going to have another hearing, very contentious hearing, coming up in two weeks dealing with the Administrator of HCFA because of the continuous pounding by that organization of small businesses. Ms. Velazquez. Mister---- Chairman Manzullo. Yes, I would yield. Ms. Velazquez. I'm sorry. Yeah. Thank you, Mr. Chairman. I just would like to share with you the fact that Mitch Daniel now will have more to say in terms of contract bundling. And I think that it's appropriate that we bring him into this Committee so that he could explain and share with this Committee what his views are regarding contract bundling. Chairman Manzullo. That's a good idea. I'm looking at this Memorandum of Understanding with you and OIRA, and I know it's a good start. The words in it, however, are precatory. Every word is a ``may''. For example, on page two--and I know, Tom, you fought to put ``shall'' in there. For example, in IV, Responsibility to Advocacy, ``During OIRA's review of an agency rule under Executive Order 12866, OIRA may consult with Advocacy whether--regarding whether an agency should have prepared a regulatory flexibility analysis.'' Now, under the bill that Ms. Velazquez introduced and on which I'm a co-sponsor, that's the bill that lodges the power within the SBA Administrator to say that these do apply. Would you be in favor of that particular--what's the number of it, Ms. Velazquez? [A discussion was held off the record.] Chairman Manzullo. 1324. Mr. Sullivan. Mr. Chairman, actually, the language that you're reading in the MOU is deliberate, and it's deliberate for two reasons. One is that it maintains the independence of the Office of Advocacy. Dr. Graham was extremely sensitive to the misperception, once we sign an MOU, that the Office of Advocacy and the President's regulatory advisor be somehow portrayed as being in cahoots on regulatory issues. And so the ``may'' wording is deliberate. Second, it was in the full anticipation--because we just signed this yesterday--that the executive order would put more teeth into some of the flexibility that is otherwise contained in the MOU, while, at the same time, maintaining the independence. So you see that we have a challenging but fantastic opportunity in front of us to formalize that. And I do need to talk about our communication with the committee and the White House because I view the announcement as tremendously beneficial to small business, obviously, to our office and the powers that our office have to help small business, but not as a communication breakdown, but as an opportunity to fully engage with the White House. Chairman Manzullo. Let me explain communication breakdown. The Executive Order was issued, and we found out about it in the press, and no one ever gave us a copy of that order. Or it hasn't been issued. Mr. Sullivan. It has not been issued. Chairman Manzullo. Okay. All right. Mr. Sullivan. And, in fact, therein lies, I think, a great opportunity for this committee---- Chairman Manzullo. It is. I mean, now what---- Mr. Sullivan [continuing]. To work with the White House and also Mitch Daniels on contract bundling. Chairman Manzullo. But let me ask you this question. When we request a meeting with the White House to go over these things, it falls on deaf ears. I mean, there is a very serious breach between the majority in this House and the White House with regard to these issues. And that is that members of Congress are not given the opportunity to speak with the President directly on small business issues. And, somehow, on all the vetting and everything that's going on, I would just urge you to go back to the Administrator and say, ``These are the committees that are involved.'' We are the ones that are elected. We're the ones that have to face the people. We're the ones that have to pass the legislation. I mean, this frankly has taken a ball, and you pitch it from one hand to the other hand to the other hand. There would be nothing unconstitutional with the President consulting this Committee or this Chairman with regard to wording of the Executive Order. In fact, that's the very same problem we got into when the SBA Administrator and the Chief of Staff issued the rules for--the emergency rules that made the entire nation a disaster area, refusing to allow this Committee to have any input. And, evidently, the message never got through. I mean, why are Members of Congress refused to have any input in any decisions that are being made by the SBA? Mr. Sullivan. I am not in a position, Mr. Chairman, to respond---- Chairman Manzullo. I can appreciate---- Mr. Sullivan [continuing]. Or speculate on this line of comment or question. I apologize. Chairman Manzullo. Well, you don't have to apologize. That's not your area. Ms. Velazquez. Would the Chairman yield? Chairman Manzullo. Of course, I would yield. Ms. Velazquez. I think, Mr. Chairman, and I don't just want to come here and excuse Mr. Barreto, but I was impressed when I was reading the President's speech. And the first question that I asked my staff is, ``Was Hector Barreto there?'' And the President didn't even mention Hector Barreto in his speech. I think that the two people that we need to work with and talk to is Mitch Daniel and Larry Lindsay, the---- Chairman Manzullo. Let me reclaim my time. The Office of the President is working with our staff on drafting that Executive Order, so I stand corrected on that. But there is a lot of frustration that's going on here. It's obvious that a lot of work is being done to tighten the avenue of communication on it. The--with regard to the ombudsman and the regulatory fairness hearing and roundtable schedule for Fiscal Year 2002, I don't see Illinois in here. Mr. Barrera. We can definitely put it in there if you would like that. Chairman Manzullo. But we did have a hearing, I think. Was it two years ago? Mr. Barrera. I think we did. Chairman Manzullo. We did. That's correct. Mr. Barrera. What we tried to do, Mr. Chairman is one of the comments I heard when I started is that we weren't getting out to enough states in the country, and we're trying to spread that out. And, as you know, we went to Indianapolis for the first time, and we're going to Milwaukee for the first time, which are in that Federal region. But, if the Chairman would like a hearing, we would do everything we can to have one there. Chairman Manzullo. We would be delighted to work with you on that. I do not forget the fact that the Administrator came out, spent an entire day there. To me, that was an informal hearing when 30 small business people gave them their ear at my brother's restaurant. So we don't forget about that. Mr. Barrera. Well, I think it also shows, Mr. Chairman, how committed he is. Chairman Manzullo. Absolutely. Mr. Barrera. To the regulatory fairness. He knows your commitment, and he wanted to bring me along. And I enjoyed Rockford. I really enjoyed the small towns. Chairman Manzullo. That's great. You enjoyed the pizza at my brother's restaurant too, I think. I don't have any further questions. Do you have anymore, Ms. Velazquez. Ms. Velazquez. Out of New York City, Mr. Sullivan, I just would like to know if SBA provided comments to OMB on the recent CMS prescription drug card regulation. Mr. Sullivan. It's my understanding that we did provide comments. Ms. Velazquez. And were your comments made part of the public record? Mr. Sullivan. It is also my understanding that those comments from Advocacy, as part of the inter-agency review, were not made part of the public comment docket. Ms. Velazquez. Is it your understanding that OMB is able to pick and choose which comments are made part of the public record? Mr. Sullivan. That is not my understanding. Ms. Velazquez. That is not your understanding. Mr. Sullivan. No. I apologize, again, for what appears to be a lack of responsiveness. I do not know how OMB or the issuing agency decides which comments they put in the record and which they do not. Ms. Velazquez. So why do you think they didn't do it? Why they don't follow the law? Mr. Sullivan. Again, I don't know if I'm in a position to be able to speculate on how an issuing agency decides whether or not to include interagency review comments into the record. I should say that it is an absolute compliment to the Office of Advocacy that not only do we monitor closely compliance with the Regulatory Flexibility Act during preproposal and proposed regs, but when the Administration does circulate proposals outside of that context, then we do comment also through that process. So it's almost a dual commenting procedure. The internal OMB clearance process does not lend itself to the public letter writing that is such a key part of the Office of Advocacy. Ms. Velazquez. Mr. Sullivan, within the last 15 months, do you know how many regulations you have commented on as far as OMB inter-agency review, and how many of those comments were not made part of the public record? Mr. Sullivan. I do not know, Congresswoman Velazquez. Ms. Velazquez. Have you received any feedback from OMB or CMS regarding changes that were made to regulations based on Advocacy's input? Do you know if the outcome of the regulation is the same? Mr. Sullivan. We have received comment back, in particular, from CMS, which used to be HCFA---- Ms. Velazquez. You have---- Mr. Sullivan [continuing]. On our comments on their lack of attention to the Regulatory Flexibility Act. I do not know whether or not those communications are in written form to date. Chairman Manzullo. Could you yield for a second? Ms. Velazquez. Sure. Chairman Manzullo. The--I would state that one of the reasons we're having this hearing with HCFA on April 10th is because HCFA blew off the Office of Advocacy, I think, no less than four or five times with such arrogance that the only way we can have accountability is to bring HCFA here. But Office of Advocacy did its job. And we want to work with you, Tom, to make sure that you have a lot more teeth to compel that organization to listen to small businesspeople. Mr. Sullivan. I thank the Chairman, and I also thank the President for also---- Chairman Manzullo. Yes. Mr. Sullivan [continuing]. Following along those lines to make sure that agencies do pay very serious attention to their obligations under the Regulatory Flexibility Act. Ms. Velazquez. Mr. Sullivan, I just would like to ask you that--please submit to the Committee copies of the regulation that you have commented on in the last 15 months. Mr. Sullivan. We would be happy to do so, Congresswoman Velazquez. Ms. Velazquez. Mr. Chairman, I have other questions, but I just would like to submit it so that they could respond to us in writing. Chairman Manzullo. The---- Ms. Velazquez. I have--I do have one last question. Chairman Manzullo. Oh, go ahead. But, first of all, you want to submit written questions? Ms. Velazquez. Yes. Chairman Manzullo. And then how---- Ms. Velazquez. Both to the---- Chairman Manzullo. How long would it take you to submit the written questions and what---- Ms. Velazquez. Tomorrow. Chairman Manzullo. Tomorrow. And then how much time would you need to respond? Mr. Sullivan. We will respond as soon as we're able. We're happy, certainly, to receive any of the questions from the Committee and respond appropriately. Chairman Manzullo. Okay. Ms. Velazquez. Thank you. Chairman Manzullo. Okay. Ms. Velazquez. Mr. Sullivan, you mentioned having Advocacy funding out there in one of the questions that I asked you before. So I want to ask your input on a provision in the draft bill that we are considering. What is the budget now? Mr. Sullivan. I don't have an exact amount, but it is around $8 million. Chairman Manzullo. I need to do a couple of housekeeping things. Is it my understanding that you're going to be giving this Committee copies of comments that you made to OMB on the prescription card, your comment on that? Mr. Sullivan. Again, we'll be responding to written questions that, I think, would clarify what the Committee wants to know. And we are happy to provide detailed responses to any of the questions that the committee provides. Chairman Manzullo. Okay. Well, I have a functional question. When we are approached by constituents or the broader small business community, sometimes they don't know whether to send them to Michael, who is also an attorney, or to the Ombudsman or to the Office of Advocacy. Sometimes we do both. Could you give us some guidelines on how we should do that? Can you even give us some examples? Mr. Barrera. I don't think you can go wrong to send them to either one of us, Mr. Chairman. And I think the Memorandum of Understanding that we just signed addresses that. Both of our offices know what our jurisdictions are, and, under our Memorandum, if this is an issue that our office should handle, and it gets to Advocacy they'll send it to us. An issue that we believe Advocacy can handle, we'll send it to them. And we don't really want to have small business decide which side is good. They have enough to worry about. Chairman Manzullo. Yeah. Mr. Barrera. So they send them to us, or we would welcome submissions from the Congress and from you, and we'll figure it out for you. Mr. Sullivan. The Chairman did ask for a specific example, and there's a great one. During one of Mike's travels--and he's on the road a good deal; that's part of his job--one of the small business owners approached Mike with a regulatory comment on an EPA rule having to do with small oil refineries. And Mike, just as is memorialized in the MOU, passed that on directly to our office so that we were able to incorporate that into an Advocacy comment in the regulatory process. So it is working well, and it's going to work even better now that we've formalized our relationship in an MOU. Chairman Manzullo. We have been receiving numerous inquiries from across the country from small businessmen and women who are being cut off by major banks for financing even when they're not in default. I got involved in a case involving one of my constituents, and the bank got creative and went to the SBA and got a $1.3 million 7(a) loan, which would save the day. But, had I not gotten involved--it was just a very general letter. I mean, they sent the letter of the bank saying, you know, ``These people are going to default.'' They provided an avenue of payment, and ``I realize there are regulations, et cetera, but can you help them out?'' And, all of a sudden, the bank stopped what could have been a foreclosure proceeding destroying a small business, and they got creative with a 7(a) loan. And one of the things that you might just want to think about--and we're not asking for a comment--is that this has become an epidemic in the small business community, as you know. And that would be--I don't know if the word is ``advertise,'' but let these banks know that are really coming down on small businesses the availability of the 504 and the 7(a) programs. It could ultimately or already be considered the loan of last resort. At least the banks should be more than willing to turn to the SBA and say, ``Hey, we've got this situation.'' Have you received many complaints like this, the Ombudsman or the Office of Advocacy, from small businesspeople? Mr. Barrera. I have not heard complaints like that. Chairman Manzullo. Okay. Mr. Barrera. But I will say this, the Administrator has been very helpful in this when I have my hearings and roundtables, I am also now starting to have small business roundtables just in general. And we have heard small businesses tell banks--we invite banks to these hearings--``We need more help with this.'' And it's generally launched like that, but nothing about the specifics---- Chairman Manzullo. Did this Administrator bring on board, about two or four months ago, somebody from the private sector with a background in creative financing? Mr. Barrera. It's Ron Bew, I believe. Chairman Manzullo. What is his name? Mr. Barrera. I think Ron Bew is now the head of Capital Access. Chairman Manzullo. That's correct. But I'm just raising this because we're getting more and more of these calls. Ms. Velazquez, have you been receiving calls like that also on the small businesspeople who have limited access to capital or banks that are---- Ms. Velazquez. Every day. But one of the areas where we've been getting a lot of calls is on contract bundling. Chairman Manzullo. Okay. Ms. Velazquez. Mr. Sullivan, I just would like to take this opportunity to ask you if the Office of Advocacy currently keeps a contract bundling database. Mr. Sullivan. We do not currently maintain the contract bundling databases, no. Ms. Velazquez. Are you planning to do that? The President, in his speech, made reference to contract bundling as a very important issue. So---- Mr. Sullivan. The Congresswoman is correct. In addition to a number of tremendously exciting proposals that all help small business, contract bundling is one of them. The Office of Advocacy already has a significant role, as this committee knows, in contract bundling. And that role is pretty darn effective. And I would point most recently---- Ms. Velazquez. I'm sorry. That role is pretty what? Mr. Sullivan. Pretty darn effective. Ms. Velazquez. Effective? Mr. Sullivan. Effective, yes. Now does that mean that contract bundling is no longer a problem? Absolutely not. Does it mean that the Office of Advocacy, using its current authority, effectively weighs in, for instance, against the Missile Defense Agency effort to lessen its SBIR commitment. Writing letters that we not only get to the heads of departments, but make sure that your staff and this committee knows well, is a way to convince folks about the necessity of looking closely at how small businesses are affected in contract bundling. Ms. Velazquez. Under the draft house proposal, certain parts of contract bundling functions will be transferred to the Office of Advocacy. Mr. Sullivan. It is my understanding that the draft before us doesn't. And, in my written statement, I do share some reluctance on taking over SBA programmatic functions. One solution legislatively is to put them in the Office of Advocacy. That is a compliment, in that it does show that we're doing a good job. In programs that may be struggling, some folks view that putting them into our offices will make sure that they, in turn, will be done well. But in each of those areas, whether it be the State of Small Business Report, in which we do have a role, or contract bundling or others--we actually do have a current role, a good role--maybe I overstated it by saying ``a pretty darn effective role''--but a good, important role. I'm not sure whether taking on a programmatic function, a core responsibility of each of these programs enhances our office's role or, quite frankly, take it back further. Ms. Velazquez. Mr. Barrera, I do have some questions for you, but I will submit them so that you can answer to me. Mr. Barrera. Okay. Ms. Velazquez. And I just want to say that, since you have been in this office, you have been doing a great job, and I look forward to talking and working with you. Mr. Barrera. In fact, we are coming to New York, I believe, in May, Congresswoman, and we're coming to Illinois. Chairman Manzullo. You've already been there. We welcome you again. Again, on that note, you're all doing a great job. I don't know how many times Tom has stopped by, and Michael has stopped by. And, Jere, we've known each other for what, nine, 10 years now? Mr. Glover. Yes, sir. Chairman Manzullo. I have a tremendous sense of working with this. In fact, back in 1993 I was a freshman. And I had the horrible task of leading the legislation to change the Clean Air Act with respect to something called the Employee Commute Option. This was forced carpooling on small businesses. And that was a--but you want to get your own party on that--and started fighting big time on the Employee Commute Option. And, at that point, I realized--I said, ``Hey, you know, this guy is really independent. I wonder if he's Republican or a Democrat.'' And it made no difference to you, Jere. You were in there just fighting for the small businessperson. And party label meant nothing to you, nor to you, Michael, or to you, Tom. And I've come to admire that Office of Advocacy. In fact, I am the one that wants you to be able to start a class action lawsuit on behalf of small businesspeople. But I don't think anybody's going to let me go that far on it. But that's how much strength I want to give to make that Advocacy Office a world class law firm with lots of resources and the ability to start actions and intervene, as opposed to the limited jurisdiction now. But I will take that bill up another day. And, again, we thank you for coming here. We look forward to working with you. This committee meeting is adjourned. 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