[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
THE RFA AT 25: NEEDED IMPROVEMENTS FOR SMALL BUSINESS REGULATORY
RELIEF
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
WASHINGTON, DC, MARCH 16, 2005
__________
Serial No. 109-5
__________
Printed for the use of the Committee on Small Business
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
______
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COMMITTEE ON SMALL BUSINESS
DONALD A. MANZULLO, Illinois, Chairman
ROSCOE BARTLETT, Maryland, Vice NYDIA VELAZQUEZ, New York
Chairman JUANITA MILLENDER-McDONALD,
SUE KELLY, New York California
STEVE CHABOT, Ohio TOM UDALL, New Mexico
SAM GRAVES, Missouri DANIEL LIPINSKI, Illinois
TODD AKIN, Missouri ENI FALEOMAVAEGA, American Samoa
BILL SHUSTER, Pennsylvania DONNA CHRISTENSEN, Virgin Islands
MARILYN MUSGRAVE, Colorado DANNY DAVIS, Illinois
JEB BRADLEY, New Hampshire ED CASE, Hawaii
STEVE KING, Iowa MADELEINE BORDALLO, Guam
THADDEUS McCOTTER, Michigan RAUL GRIJALVA, Arizona
RIC KELLER, Florida MICHAEL MICHAUD, Maine
TED POE, Texas LINDA SANCHEZ, California
MICHAEL SODREL, Indiana JOHN BARROW, Georgia
JEFF FORTENBERRY, Nebraska MELISSA BEAN, Illinois
MICHAEL FITZPATRICK, Pennsylvania GWEN MOORE, Wisconsin
LYNN WESTMORELAND, Georgia
LOUIE GOHMERT, Texas
J. Matthew Szymanski, Chief of Staff
Phil Eskeland, Deputy Chief of Staff/Policy Director
Michael Day, Minority Staff Director
(ii)
C O N T E N T S
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Witnesses
Page
Sullivan, Hon. Thomas, Chief Counsel for Advocacy, U.S. Small
Business Administration........................................ 2
McCloy, Ms. Cecelia, President, Integrated Science Solutions,
Inc............................................................ 4
Haas, Mr. Blair, President, Bud Industries....................... 6
Lancaster, Mr. Jay, President, B.E.S.T. Inc...................... 8
Freedman, Mr. Mark, Esq., Director, Labor Law Policy, U.S.
Chamber of Commerce............................................ 10
Glover, Mr. Jere, Esq., Of Counsel, Brand Law Group.............. 13
Appendix
Opening statements:
Manzullo, Hon. Donald A...................................... 27
Kelly, Hon. Sue.............................................. 31
Prepared statements:
Sullivan, Hon. Thomas, Chief Counsel for Advocacy, U.S. Small
Business Administration.................................... 32
McCloy, Ms. Cecelia, President, Integrated Science Solutions,
Inc........................................................ 40
Haas, Mr. Blair, President, Bud Industries................... 48
Lancaster, Mr. Jay, President, B.E.S.T. Inc.................. 52
Freedman, Mr. Mark, Esq., Director, Labor Law Policy, U.S.
Chamber of Commerce........................................ 58
Glover, Mr. Jere, Esq., Of Counsel, Brand Law Group.......... 66
(iii)
THE RFA AT 25: NEEDED IMPROVEMENTS FOR SMALL BUSINESS REGULATORY RELIEF
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WEDNESDAY, MARCH 16, 2005
House of Representatives
Committee on Small Business
Washington, D.C.
The Committee met, pursuant to call, at 2:07 p.m. in Room
311, Cannon House Office Building, Hon. Donald A. Manzullo
[Chairman of the Committee] presiding.
Present: Manzullo, Velazquez, Bartlett, Lipinski, Akin, and
Moore.
Chairman Manzullo. The Committee will come to order.
During the explosive growth of the 1970s, word grew among
the business community that the rational decisions made by
federal agencies under the Administrative Procedure Act were
actually irrational because they could not afford to comply.
Congress reacted by enacting legislation designed to change
the way federal agencies made decisions. Two laws were passed
in 1980, The Paperwork Reduction Act, and the focus of this
hearing, The Regulatory Flexibility Act, or the RFA.
The RFA was enacted to assist agencies in making rational
decisions through the application of a standard set of analyses
focused on small entities, particularly small businesses. The
act requires federal agencies to examine the impact of their
proposed and final rules on small entities, and if they are
significant on a substantial number of such entities, examine
less burdensome alternatives.
Federal agencies continued to ignore the law despite the
best efforts of the President, Dr. John Graham of the Office of
Information and Regulation Affairs at OMB, and Chief Counsel
for Advocacy, Tom Sullivan.
In part, loopholes existed in the RFA that allow them to
avoid compliance. In other circumstances, agencies simply
cannot be bothered and need not worry because most small
businesses do not have the resources to fight the federal
government.
Noncompliance with a statute that has been in existence for
a quarter of a century is not acceptable. Time has come to say
enough is enough, and that is why we decided to introduce H.R.
682, along with co-sponsors Messrs. Chabot, King, Westmoreland,
Pence, Akin and Keller.
Since then, we have acquired additional co-sponsors,
including the Chairman of the Subcommittee on Judiciary that
has jurisdiction over the bill, Chris Cannon from Utah.
I would also like to thank Mr. Case of Hawaii for
recognizing the importance of the legislation and becoming a
co-sponsor.
The bill significantly strengthens the RFA by making many
technical improvements that close existing loopholes so that
agencies, as President Bush stated, ``will care that the law is
on the book.''
These changes include more detailed analyses, assessment of
indirect effects, other regulations, and mandatory government-
wide regulations drafted by the Office of Advocacy.
[Chairman Manzullo's statement may be found in the
appendix.]
Ms. Velazquez is not here for her opening remarks. We are
supposed to have a series of four votes, it always happens,
starting at 2:15. Is that not fun? So we are going to start the
testimony, see how far we get before we have to go and vote.
Our first witness is the Honorable Tom Sullivan, Chief
Counsel for Advocacy of the U.S. Small Business Administration,
and we have got the five-minute clock going. The written
testimonies of all the witnesses will be made part of the
record without objection, and we look forward to your
testimony. Mr. Sullivan.
STATEMENT OF THOMAS SULLIVAN, OFFICE OF ADVOCACY, U.S. SMALL
BUSINESS ADMINISTRATION
Mr. Sullivan. Thank you, Mr. Chairman, Mr. Lipinski. It is
a pleasure to come before the Committee. I am going to not read
my written statement, but rather summarize just from some notes
that are before me.
The Regulatory Flexibility Act is actually working. It is
working pretty well. In fact, in my written statement you will
see that under President Bush's administration we estimate cost
savings achieved through enforcement of the RegFlex Act
totaling over $64 billion, and I will say that again. Savings
for small business totaling over $64 billion.
So there is a question of why is it working. One of the
reasons is because of the activism of small business, and
actually that is why it is a pleasure for me to be on a panel
with not only small business owners, but organizations who
represent large amounts of small business owners. And those
organizations and the small business owners themselves, in
their vigilance over the Regulatory Flexibility Act and making
sure that agencies consider their impact on small business,
allows for the RegFlex Act to work.
Another reason why we have achieved such great cost savings
over the past four and a half years is because of this
Committee. Without the type of vigilant oversight that this
Committee exercises, we would not have achieved the $64 billion
cost savings for small business, and I think it bears notice
that while so many Committees and members of Congress gauge
their success over the amount of legislation that comes out of
Committee and individuals, there is more to it than that, and
the oversight part of it deserves recognition, and this
Committee in particular, with regards to the RegFlex Act and
its ability to save small business deserves compliments.
And last but certainly not least, one of the reasons the
RegFlex Act is working is because of the courts. Last Friday
the Court of Appeals in the District of Columbia issued an
incredible victory for small business, and in particular, the
Regulatory Flexibility Act.
When the court struck down an FCC rule because they did not
follow the RegFlex Act, it should serve as a wake-up call for
all regulators that they cannot ignore the Regulatory
Flexibility Act.
When a court makes a decision like this, the question is,
is the law working perfectly, and the answer is no. Small
businesses do not have a quarter to a half million dollars
sitting around that will allow for them to pursue regulatory
actions all the way through the courts, and ultimately to the
Supreme Court, we are talking about millions of dollars.
So how can we improve the act? Obviously, H.R. 682 fills in
every loophole of the act. But what is the intention of it? How
do we get this victory, the cost savings for small business,
before a court has to make a decision?
And the answer is early involvement by small business in
agency decision making. My office has example after example
after example where if an agency listens, which is very
important, to small business, and acts on their advice before
the ink is dry on draft regulations, then they can save small
business money without compromising the underlying purpose of
rules: protection of the environment, workplace safety and the
safety of roads and airways, and the protection of our borders.
So the Office of Advocacy is supportive of the goals of
H.R. 682. I believe there are suggestions in my written
statement, and the questions that I will respond to on how a
narrow approach, a targeted approach to improving the act can
meet that goal, which is to involve small businesses as early
on in the process, and to absolutely make sure that agencies
act on that advice on small business, and reduce the regulatory
burden on small business.
So with that I will close. I want to thank again the Chair,
and now the Ranking Member, for having this hearing. We have
achieved remarkable success, and we can achieve more by
improving the RegFlex Act through legislation. Thanks.
[Mr. Sullivan's statement may be found in the appendix.]
Chairman Manzullo. The Chair will recognize the Ranking
Member.
Ms. Velazquez. Mr. Chairman, in light of time I will ask
that my opening remarks, we will insert that into the record.
Chairman Manzullo. Without objection.
Ms. Velazquez. Thank you.
Chairman Manzullo. Thank you.
Chairman Manzullo. Our next witness is Cecelia McCloy,
President and CEO of Integrated Science Solutions. I look
forward to your testimony. You may be the first geologist and
zoologist who has ever appeared before our Committee. My wife
is a biologist. I wish she were here, and we look forward to
your testimony. Thank you.
Ms. McCloy. Hopefully, I will not be the last.
Chairman Manzullo. That is correct. Thank you.
STATEMENT OF CECELIA MCCLOY, INTEGRATED SCIENCE SOLUTIONS, INC.
Ms. McCloy. Mr. Chairman and Ranking Member Velazquez, I am
Cecelia McCloy, President of Integrated Science Solutions, a
woman-owned science and engineering company. We specialize in
engineering studies, geotechnical evaluations, health and
safety services, environmental studies, and training, and
provide solutions for our customers' complex problems. The ISSI
has offices in California, Nevada, Colorado, Washington, D.C.,
and the State of Washington.
I am testifying today on behalf of Women Impacting Public
Policy, WIPP, of which I am a national founding partner, And
the Women's President Organization, WPO.
Women Impacting Public Policy is a bipartisan organization
representing 505,000 women in business nationwide. Thank you
for inviting me to testify, to share WIPP's and WPO's views on
H.R. 682, improvements to the Regulatory Flexibility Act.
As a business owner, I see firsthand the effect regulations
promulgated by federal agencies have on small business. We help
our clients understand and comply with federal regulations,
especially in the environmental area. While we support efforts
to provide a safe and clean environment, the cost of compliance
for small businesses often outweighs the benefit to the
environment.
Just last week this Committee held a hearing on House
Resolution 22, which identified reducing paperwork burdens on
small business as a congressional priority for the 109th
Congress. WIPP wholeheartedly agrees that reduction of
paperwork is an important goal. A U.S. Chamber of Commerce
paperwork survey estimated that small business owners spend 3.5
hours on non-IRS-related paperwork per week, which translates
into 4.2 billion hours of time small business could be using to
generate income.
Although the stated goal of H.R. 682 is not paperwork
reduction, the practical implications of this legislation is a
reduction in paperwork, which is good news for small
businesses.
The WIPP believes requirements such as making sure
compliance guides published by agencies are written in plain
English are important to small businesses. After all, we are
not trying to invent creative ways to skirt the law. We just
need to know how to comply.
A key provision of H.R. 682 is the requirement that
agencies complete a more detailed economic impact analysis of
the impact on small business when formulating and finalizing
their regulations. Indirect costs should be taken into account
as well as direct costs.
A recent interim proposed rule by GSA on access to the
Federal Procurement Data System, FPDS, is just one example of
the requirements of H.R. 682 which would have been helpful. We
have attached WIPP's comments to the GSA at the end of our
testimony, but let me just summarize the issue.
The GSA has proposed a $2,500 charge for a direct hook-up
for direct web service access to FPDS. The FPDS site has a non-
fee-based data site which the GSA says is open to all
businesses.
Companies participating in federal contracting use this
data on a continual basis for market research. We asked our
members to test the non-fee site. Not one of our member
companies was successful in retrieving the data they needed. In
fact, analysts in IT companies were unsuccessful in accessing
the data requested.
Our conclusion is that the non-fee site does not work for
small business. If our companies want to access the federal
procurement data, they will have to pay the $2,500 fee. Yet the
GSA, in its interim rule, stated that this interim rule has no
effect on small business.
If the GSA was required to take into account the indirect
cost to small businesses, the hours and manpower required to
access the data on a non-fee-based site, they likely would have
come to a different conclusion about the effect of this rule on
small business.
Equally important, H.R. 682 requires the federal agencies
to contain a detailed description of alternatives which would
either minimize adverse impact, economic impact, or maximize
economic benefits to small businesses.
The WIPP also supports the additional enforcement activity
given to the Office of Advocacy at the U.S. Small Business
Administration in this bill. Last year alone the efforts of the
advocacy's chief counsel saved small businesses in America more
than $17 billion in potential regulatory costs. One of the
reasons for this success was the implementation of Executive
Order 13272.
H.R. 682 would place into law some of the critical
authority contained in the executive order. The requirement
that agencies must respond to concerns raised by the Office of
Advocacy is critical to small businesses. The Office of
Advocacy speaks for all of small business , so we must make
sure its views are taken into account.
Other powers, such as the advocacy's right to intervene in
any adjudication before any federal agency if it believes small
business concerns were not addressed, is a powerful tool. In
addition, the provision that grants the chief counsel of
advocacy the ability to issue rules for agency compliance with
the Regulatory Flexibility Act means that small business
concerns will be heard.
In conclusion, Mr. Chairman, we thank you for your
leadership in making sure that small businesses do not get lost
in the throes of government regulations. It is almost
impossible for a small business owner to follow every proposed
regulation which may have an impact on her business. By giving
the agencies a mandate to consider the total cost of
regulations on small business ultimately means small business
owners will be able to spend less on compliance with government
regulations, and more on business growth.
Thank you for giving me the opportunity to testify and I am
happy to answer any questions.
[Ms. McCloy's statement may be found in the appendix.]
Chairman Manzullo. We are going to be taking a break here
to go vote. Is anybody here in the audience from GSA?
Okay, Ms. Velazquez and I are going to have the head of GSA
come into our office, and explain why this $2,500 charge has
been imposed. Thank you for bringing that to our attention.
We are going to recess for probably about a half an hour or
so until we finish with these votes, and then we will come
back. Thank you.
[Recess.]
Mr. Akin. [Presiding] I believe we are picking the hearing
up part of the way along, and our next witness I believe is
Blair Haas, if I am not mistaken, and if you could try to keep
thing within five minutes, we would appreciate it. Thank you
very much. Proceed.
STATEMENT OF BLAIR HAAS, BUD INDUSTRIES
Mr. Haas. Thank you. I would like to thank the Chairman and
Ms. Velazquez and the members of the Committee for the
opportunity to appear before you today in support of H.R. 682,
the Regulatory Flexibility Improvements Act.
My name is Blair Haas, and I am the President of Bud
Industries, the nation's best known provider of electronic
enclosures for industry. I also serve on the board of governors
of the Electronic Industries Alliance, a partnership of
electronics and high-tech trade associations. In the interest
of full disclosure, I would like to also let you know that my
son is a member of the minority staff of this Committee.
However, my invitation to testify today came through a
completely unrelated channel, and does not represent a conflict
of interest.
[Laughter.]
Mr. Haas. Founded in 1928 by my grandfather, Bud Industries
has evolved to meet the high-tech industry's requirements for
electronic enclosures which are these outsides or skins of
industrial electronic equipment. Today with sales of about $15
million, we have 165,000 square foot factory just outside
Cleveland, and a sales office in Arizona. We employ about 100
people with an average tenure of almost 20 years, and we have
resisted the competitive pressure to outsource our metal
products offshore, producing them completely in our Ohio
factory.
An internal survey by the Electronic Industries Alliance
last year found that nearly 60 percent of executives describe
the U.S. labor relations as costly, while only 20 percent
consider them fair. Regulations such as those from OSHA,
Sarbanes-Oxley Act and superfund clean-up spending all add to
the cost of doing business in the U.S. and work to make our
companies less competitive in their global markets.
There are strong arguments in favor of many of the U.S.
regulations. However, the volume of these regulations, their
layers, and the compliance costs also have created a landscape
that is increasingly expensive and burdensome for business,
particularly for small business.
The Regulatory Flexibility Act, which requires agencies to
take the interests of small businesses into account before
implementing new regulations, is an important safeguard.
Therefore, I support H.R. 682, believing even more can be done
to close the loopholes in this act and compel agencies to
comply with the spirit of RFA and ensure that small businesses
remain competitive.
The RegFlex Improvement Act's requirements of more detailed
economic impact analysis of proposed regulations on small
business, including an examination of the indirect costs, with
input from small business, is an important improvement. Hidden
costs can prove even more burdensome in financial outlays and
it is critical that the agencies complete a thorough assessment
of their potential cost before imposing them on small business.
I would like to just cite a few examples of regulatory
burdens that Bud Industries faces as a small Business.
The alternative minimum tax: As a small business, we find
ourselves paying extra taxes under a program that was designed
to prevent large businesses from avoiding tax payments. We,
unfortunately, have significant net operating loss carry-
forwards, but still have to pay taxes under the AMT system,
which is a burden at a time when our company is working to
rebuild our net worth.
Pension plans: Post-Enron we now have to create a company-
sponsored IRA for each employee who does not cash out of our
plan when they leave our company. We have to be responsible for
any investment losses, track the employees' whereabouts long
after they leave us. We also have to pay legal counsel to
create these accounts and keep us up to date with constantly
changing regulations.
O.S.H.A. determines a formula for inspection based on lost
days as a percent of total employment. When you have a smaller
workforce, such as that at Bud, the impact of one employee who
develops a long-term injury can be significant. As our
percentage is skewed, we have to go through the expense of
preparing for, managing, and responding to OSHA inspections.
The Fair Labor Standards Act: We have an employee who is
categorized as exempt but can no longer be because she now
supervises only one person instead of the two mandated by the
act. I recognize that there is a push for her to be able to
receive overtime, but the flexibility of being exempt was
extremely meaningful to this single mother.
Bud has been involved with two EPA superfund sites cased by
our waste being disposed of improperly by the professional
companies we hired. In both cases our waste was quite minimal.
However, we had to pay for legal and other costs to set
standards for de minimis standing, fighting against larger
companies with significant internal legal counsel that sought
to reduce their own liabilities.
While I recognize that there were good intentions and
perceived improvements in the development of each of these
regulations, they have the unintended consequences of costing
us huge amounts of both money and time.
Further improvements to the process, such as those outlined
in the RegFlex Improvement Act, would be helpful to companies
like ours as we struggle to thrive in a global economy.
Once again I would like thank the Chairman and the
Committee for the opportunity to comment on this legislation on
behalf of Bud Industries and the Electronic Industries
Alliance. I hope you will move toward swift approval of the
Regulatory Flexibility Improvement Act.
[Mr. Haas' statement may be found in the appendix.]
Chairman Manzullo. [Presiding] When I saw Bud Industries,
you think of something else liquid.
[Laughter.]
Mr. Haas. I only wish.
Mr. Akin. You only wish. That is great. Thank you very much
for your testimony.
Chairman Manzullo. Our next witness is Jay Lancaster, owner
of B.E.S.T. Incorporated; a graduate of Washington State
University, a degree in economics; a practical economist
speaking on behalf of the NFIB.
Mr. Lancaster, we look forward to your testimony.
STATEMENT OF JAY LANCASTER, B.E.S.T. INC.
Mr. Lancaster. Good afternoon, Chairman Manzullo, and
members of the Committee.
Thank you for the invitation to be here today. I am here to
talk about H.R. 682, the Regulatory Flexibility Improvement Act
sponsored by Chairman Manzullo. Also, I am also pleased to be
representing the 60,000 small business members of the NFIB in
expressing our support for H.R. 682.
My name is Jay Lancaster, and I own and operate B.E.S.T.,
Incorporated, specializing in commercial roof installations and
waterproofing. We are truly a family-run operation as all five
full-time employees are related to the two founders.
Small businesses today are being barraged by government
regulations. H.R. 682 will help relieve the regulatory burden
on small businesses like mine by amending Regulatory
Flexibility Act to hold federal agencies accountable for rules
they create.
My goal today is to first discuss how regulation impacts a
small business like mine; and second, how this bill will help
reduce that burden.
I want to take a minute to discuss what I see as the most
pressing issues for small businesses. I will note here that I
am not an expert in regulation. I am an expert in running my
business, but I want to share with you my perspective as a
small business owner.
According to an NFIB poll, the greatest problem with
regulation experienced by small businesses was the amount of
paperwork required by regulation. The second was the complexity
of compliance, and the third, but not far behind, was the cost.
My personal experience reflects the findings of the poll.
It is almost impossible to keep track of how many regulations
affect me. My small eight-person business is regulated by over
eight agencies that is just at the federal level. Of course,
those--
Chairman Manzullo. Mr. Lancaster, can I interrupt you a
second?
Mr. Lancaster. Yes, sir.
Chairman Manzullo. We have your written testimony and it is
good. What I would like to hear is some anecdotal stories of
how regulations have impacted you directly on some problems
that you had and the relief that you need. Can you help us on
that?
Mr. Lancaster. Yes, sir.
Chairman Manzullo. That is what this is about. It is how it
impacts you, and if you could sort of steer your testimony
towards that, that helps out members more than anything.
Mr. Lancaster. I will--
Chairman Manzullo. If that is okay with you.
Mr. Lancaster. Yes, it is. I would note that--then I am
just going to set this aside.
In the speech it talks about my wife who has been my
partner for 40 years, and she and I went through a list of the
things, the times that she spends. She spends at least eight
hours a week trying to deal with the federal paperwork. My
daughter, who is here with me today, is in charge of compliance
with OSHA, and she spends at least an hour a day.
It is the fear as much as trying to deal with these
regulations. At first we tried to deal with them, sir, and it
became impossible because running a business like ours, which
is a seven-day-a-week business, a construction business, it was
necessary for us to be out in the field.
We found it necessary to hire an expert who is also an
accountant to deal with the intricacies, and as the paperwork
grew increasingly complicated, it was necessary for us to hire
both him, and we have hired a private consultant that helps us
with the OSHA, and sends us paperwork and helps us with
understanding the compliance nature. It is the paperwork aspect
that is oftentimes totally unrelated to with practical aspects
of safety or efficiency in your business.
The latest example that has been a disaster, not only to my
business but to the industry, is the Environmental Protection
Agency and the other subsequent agencies, the Montreal Protocol
has established and have completely changed the chemistry and
the polyurethane industry, which is I am a member of the
Society of Plastics in our work.
With the United States signing on to the Montreal Protocol
in the manner in which they did, the chemicals that we now
purchase in the last 11 months went from a price of $1.06 to
$1.60, and those same old chemicals that were fine a year ago
are being manufactured in the United States and sent all over
the world, primarily to Mexico and Canada, but also to China,
which is one of the major reasons why our prices have gone up.
They are able to use what the Montreal Protocol considered
an inappropriate chemical. They are allowed to continue using
that for the next 30 years when our businesses now have to
comply with this extremely sensitive and far more expensive
chemical, we have had to change all of our equipment. Our
office is now having to comply with some of the regulations
that are connected with some of the new chemical laws, the
placarding of our trucks, having all of the people having to
now be--have to be HAZMATed where as before they did not, and
all the drivers will have to have that. The paperwork that is
subsequently necessary for all of that is a real burden.
Those are some anecdotal experience.
[Mr. Lancaster's statement may be found in the appendix.]
Chairman Manzullo. I appreciate that. If you would give me
a letter about how you are impacted by the Montreal Protocol, I
am the Chairman of the American-Chinese and the American-
Canadian Interparlimentary Exchanges, and meet with members of
the respective bodies from time to time, and I will be with the
Canadians in May, and I would like to bring that to their
attention.
Mr. Lancaster. I would be happy to. It will also probably
be written by the vice president of the chemical company that
is a friend. He will share this with me.
Chairman Manzullo. But if you could get that to our
Committee, I would appreciate that.
Mr. Lancaster. I would also like to mention that my wife
did say on a positive not that IFTA in the last couple of years
has made her life much easier, and she is very grateful because
they no longer require documents and paperwork from every state
that our trucks pass into that are diesel-operated trucks.
Chairman Manzullo. Okay.
Mr. Lancaster. It is now a central and only one form allows
you to go through all the states.
Chairman Manzullo. Good. Then we did something right.
Mr. Lancaster. Yes, sir.
Chairman Manzullo. Thank you for your testimony.
The next witness is Marc Freedman, Director of Labor Policy
for U.S. Chamber of Commerce, and Mr. Freedman, we look forward
to your testimony.
STATEMENT OF MARC FREEDMAN, U.S. CHAMBER OF COMMERCE
Mr. Freedman. Thank you, Mr. Chairman.
Good afternoon, Chairman Manzullo and Ranking Member
Velazquez.
Before coming to the Chamber in October, I was the
regulatory counsel for the Senate Small Business Committee, and
among others, use covered compliance with the Regulatory
Flexibility Act, as amended by SBREFA.
I am here today to convey the Chamber's strong support for
improving the Regulatory Flexibility Act; in particular, our
support for H.R. 682, the Regulatory Flexibility Improvements
Act.
During my more than five years as regulatory counsel for
the Senate Small Business Committee, agency compliance with the
various aspects of the RFA was a constant area of concern. I
was involved with hearings to examine agency compliance, GAO
reports examining agency compliance, letters to agencies
commenting on their compliance, letters to improve agency
compliance, and heard many accounts from small businesses about
the lack of agency compliance.
It is clear to me that the agencies have taken advantage of
every ounce of flexibility when it comes to complying with the
Regulatory Flexibility Act. The Regulatory Flexibility
Improvements Act would help resolve many of these issues.
The Bush Administration has taken compliance with the RFA
more seriously than previous administrations. Unfortunately,
this enhanced the attention to compliance with the RFA is only
as strong as the administration in power wants it to be. This
requires legislation, such as the Regulatory Flexibility
Improvements Act.
The RFA has always enjoyed strong bipartisan support and we
hope this pattern will continue as reforms and improvements to
it are considered.
The provisions of the Regulatory Flexibility Improvements
Act build on this momentum of concern for the impacts of
regulations on small businesses. I would like to highlight just
a few of the ones that we endorse.
Perhaps the most significant is requiring agencies to
consider the indirect impact of regulations when calculating
the impact of regulations on small businesses. This is
particularly helpful with respect to EPA regulations where the
agency has claimed that those regulations that are in force by
the states only have an indirect impact and therefore do not
trigger the range of requirements under the RFA and SBREFA.
Similarly, the requirement the agencies assess the
cumulative impact of their regulations addresses another
loophole used by agencies to diminish the real impact of their
regulations. Just as any given straw might not break a camel's
back, so any specific regulation considered in isolation might
not impose a crushing burden.
However, and as we have just heard from some of the other
witnesses, many such regulations added together impose on the
small business where the same person is responsible for sales,
bookkeeping, inventory, safety and environmental compliance,
and probably getting the kids to soccer practice, can indeed
become an overwhelming burden.
We are also pleased to see that the Regulatory Flexibility
Improvements Act attempts to put more teeth into judicial
review of agency compliance with the RFA. Notwithstanding the
victory that we heard about last week, we believe it would be
more helpful to allow such an action to be brought closer to
the point at which an agency makes a determination about
whether a proposed regulation will have the significant
economic impact on a substantial number of small entities.
That certification could be deemed a final action by the
agency for the purposes of determining whether to proceed with
the requirements of the RFA. Once an agency certifies a
regulation, they are not going to revisit that question.
Closing loopholes used by the IRS to distinguish their
rulemakings from all others is another long sought-after goal.
IRS regulations affect every business, and the notion that they
are not subject to the RFA means that small businesses are
forced to absorb these regulations without the IRS having to
take their impact on small businesses into account.
Finally, mandating the chief counsel for advocacy
promulgate regulations that will determine how agencies must
comply with the RFA is a step that is long overdue. Just as
employers must rely on agencies to interpret laws and describe
how they are to comply, so agencies should have one office in
the government that directs their compliance with this law that
covers them.
Agencies have consistently argued that the terms of the RFA
are vague, and that the act gives them flexibility to define
terms as they think suitable. Chief among the terms that need
clarification are, of course, significant economic impact, and
substantial number of small entities. Allowing agencies to
define these terms differently for each and every rulemaking
gives a wide array of definitions and results. We would hope
that the chief counsel would use this authority to issue
regulations defining these terms. Not only would agency
compliance with the RFA improve, but everyone would finally
have a standard against which to evaluate whether an agency has
met its obligations.
The Regulatory Flexibility Improvements Act comes at a
propitious time. Attention to the needs of small business has
never been greater. With so many sectors such as manufacturing
coming under increasing international pressure, it is incumbent
on Congress to make sure that our laws and regulations are as
narrowly tailored as possible to achieve their goals.
The improvements continue to go a long ways towards getting
us to that promised land of small business regulatory relief
envisioned by the original authors of the Regulatory
Flexibility Act almost 25 years ago.
Thank you for your time and attention on this. I would be
happy to answer any questions you might have.
[Mr. Freedman's statement may be found in the appendix.]
Chairman Manzullo. Thank you very much. The promised land
of small business regulatory relief. That is--
Mr. Freedman. Well, we may see it but some of us may never
actually get there.
Chairman Manzullo. There you are. I do not want to go into
that.
Mr. Freedman. It is that time of year, right?
[Laughter.]
Chairman Manzullo. That is what America is all about, is it
not?
Our next witness is Jere Glover. I have known Jere for a
long time. He held a position now that Tom Sullivan has from
1994 until 2001, and look forward to your testimony.
STATEMENT OF JERE GLOVER, BRAND LAW GROUP
Mr. Glover. Thank you, Mr. Chairman, Ranking Member
Velazquez. It is delightful to be here, especially on the
twenty-fifth anniversary of the Regulatory Flexibility Act.
I am Jere Glover, and I have some great memories during the
last 25 years fighting to reduce the regulatory burdens on
small business. We have won many battles, but we are losing the
war.
In 25 years, many things have changed, but the regulatory
burden on small business has not. It is like the energizer
bunnies, the regulatory burdens on small business just keeps
growing and growing. Literally hundreds and hundreds of new
regulations are enacted each year. Now is the time to do
something about the problem.
I remember when the Office of Advocacy was first started.
The idea that small business needs an advocate within the
government was a new concept. Workers at the Department of
Labor, Environmental Protection Agency had--the environmentals
at the EPA, but small business was without an effective voice
inside the government.
How could anyone be against giving small business an
advocate within the government? After all, it creates over half
of the GDP, hires over half the employees, and produces over
half the innovations.
I remember when I first heard about the concept of
regulatory flexibility. What a wonderful concept, making
regulations fit the problem. How could anyone be against the
concept that regulations should be flexible and should treat
small businesses different than big businesses?
And I remember when the Regulatory Flexibility Act was
passed, and the excitement about the new law. I remember
meeting with the agencies, explaining the new law to the agency
employees, and getting President Carter to sign a memorandum
directing the agencies to comply.
Then I remember the 10-year fight to get judicial review
for the Regulatory Flexibility Act, and when SBREFA was passed.
I remember reading decision after decision where courts found
reasons not to enforce the Regulatory Flexibility Act and
SBREFA and grant small business relief. We won a few cases, but
we lost the vast majority.
I remember reading the very first Court of Appeals decision
that found a violation of the Regulatory Flexibility Act and
stayed enforcement of the regulation until the agency complied
with the Regulatory Flexibility Act. Actually, it was just last
week when the court issued that ruling, some eight years after
judicial review was provided and some 60 cases not having come
down with a clear decision.
I remember reading and writing annual reports on the
Regulatory Flexibility Act about agencies such as the Federal
Communications Commission, the IRS, and CMA, who were
habitually--CMS--who were habitually violating the Regulatory
Flexibility Act, and I remember the first time the Office of
Advocacy compiled the regulatory savings for small business.
Today those savings have grown to over $84 billion.
It is time for some new good memories. The RFA and the
Office of Advocacy need to be strengthened. They go hand in
hand. Laws are not self-enforcing. As Tom has pointed out in
his testimony, the Office of Advocacy has done a lot of really
great things. His work on implementation of the Regulatory
Flexibility Act is superb. But can anyone say that we have
solved the problem and won the war? I do not think so.
Eliminating the line item for advocacy research in the
President's budget is a huge mistake. In the last decade we
have seen the Office of Advocacy drop from 78 to 44 employees.
If we allow this to stand, it sends the message that we do not
care about small business advocacy.
The first line of defense in the regulatory fight is the
Office of Advocacy. Its annual reports remind Congress and the
agencies that the burden on small businesses keep growing. We
need to request that the Appropriations Committee give the
Office of Advocacy a line item in SBA's budget, and it be for
both staff and for research functions.
Unfortunately, just preserving the Office of Advocacy alone
is not enough. We also need to improve and strengthen the
Regulatory Flexibility Act. Certainly the regulatory
flexibility analysis and the agency determinations that small
business is not impacted need to be far more detailed and
substantive.
The panel process needs to be expanded to more agencies
such as the FCC, CMA and the IRS. The Executive Order needs to
be codified to make sure that it covers independent agencies
and that it is there after the current president leaves.
Now is the time to create some more good memories. Small
business deserves better. Thank you.
[Mr. Glover's statement may be found in the appendix.]
Chairman Manzullo. Thank you very much. We appreciate the
testimony of the witnesses.
Ms. Velazquez, did you want to go first in the questions?
Ms. Velazquez. Sure.
Chairman Manzullo. Because I was a little bit late here and
I want to organize my thoughts.
Ms. Velazquez. Sure. Thank you, Mr. Chairman. Thank you all
for your presentation here today.
Mr. Glover, your testimony last year indicated that the
panel process is quite expensive. In fact, you said that it
will be around three to seven million dollars to do 10 to 20
panels for just the three agencies we had under consideration
then.
H.R. 682 will require a panel for every rule that has a
significant impact on a substantial number of small businesses,
and that could well be over 100 panels per year. Is that
achievable with advocacy current structure? Is it desirable?
Mr. Glover. It is not achievable. There is no way that the
Office of Advocacy could do that with anywhere near the
resources it currently has.
We spent between four and five hundred hours, staff hours
per panel. Now perhaps if you are expanding it, there may be
some efficiencies, but I cannot imagine how you could
understand any regulation sufficiently to sit down with small
business people and talk about it in less than 100 to 200
hours, and that is the minimum you are going to spend.
Ms. Velazquez. Can you give me a ballpark figure if we
have--if advocacy has like 100 panels?
Mr. Glover. I have not done the math, but I will simply
tell you you would probably more than double advocacy's current
budget.
Ms. Velazquez. Thank you.
Mr. Freedman, you have studied the panel process when you
were in the Senate. I now that the Chamber supports this
expansion of the panel process. Do you believe that panels for
every--for over 100 rules per year are necessary or achievable?
Mr. Freedman. Ranking Member, I think achievable has
probably been addressed better by Jere, and perhaps Tom would
speak to that point since they are the ones who are actually
running that process.
I think we have seen some very strong examples of where the
panel process has opened up the process to small businesses and
has had a significant impact on the outcome of the regulation.
I probably would tell you that every rule does not need that,
or every agency probably does not need that, but I think at
this point the bill is a good starting point, and we would
support the bill. And then if there is an opportunity to look
at it more closely, then that may be something that can happen
down the road.
Ms. Velazquez. Thank you, Mr. Freedman.
Well, here we are again, Mr. Sullivan. Welcome. I know that
this year you raise some concerns in your testimony about the
scope of the panels that will have to be held as well as your
usual questions about changing advocacy's role in the panel
process.
So I ask you again, do you have the resources to implement
H.R. 682 as currently written? Also, do you even recommend as a
matter of strategy and policy that advocacy do all those
panels? And do you have a ballpark figure or estimate as to how
much it will cost?
Mr. Sullivan. Congresswoman Velazquez, the answer is no,
no, and yes.
The first one, can my office under current structure do all
of the panels that are called for in 682, and the answer is no.
Last year when I testified on 2345 you were kind enough to
allow for me to supplement my response with a detailed
breakdown of number of hours per panel. With the Chair and the
Ranking Member's permission, I would like to submit that letter
of May 18th for the record.
Ms. Velazquez. Well, I was about--I am prepared to ask
unanimous consent that that letter be made part of the record.
Chairman Manzullo. Without objection.
Mr. Sullivan. Thank you, Congresswoman.
What we found was that each panel, and this is consistent
with what Jere Glover said, equates to about 400 hours. We
measured roughly 200 initial regulatory flexibility analysis
last year, so that brings it to what would roughly be the need
to add 40 additional staff on the legal team, so we could not
handle that under the current structure.
So that gives you no we cannot do it under the current
structure. Yes, with a detailed breakdown of roughly 400 hours.
And you asked about whether or not there are policy
recommendations to achieve the same benefits of the panel
without necessarily requiring separate panels for each rule,
and the answer is yes. I would recommend that the codification
of the executive order get very close to achieving the same
type of policy goals that all the panels do.
Ms. Velazquez. Mr. Sullivan, after all the savings that
your office has helped to produce, and I believe you talked
about $64 billion--million dollars.
Mr. Sullivan. Yes, Congresswoman.
Ms. Velazquez. Billion dollars?
Mr. Sullivan. Billion.
Ms. Velazquez. The President's budget submission for your
office, and Mr. Glover made reference to that, eliminated the
line item for advocacy's research.
Do you think it is important for your independent research
efforts and for the research efforts of future chief counsels
under future administrations that advocacy retain complete
control over its budget?
Mr. Sullivan. Let me answer the first part about the Fiscal
Year 2006 budget. I believe that under Hector Barreto's
stewardship of the agency, my office has been treated very well
from a budget perspective.
In answer to your second question about future
administrations, I believe that future administrations should
have a separate line item budget for the entire Office of
Advocacy budget, and I am most anxious that in the 110 Congress
to have bipartisan support for this approach as well as support
from the White House who know the type of value that an
independent office can bring to the process.
Ms. Velazquez. Mr. Glover, you made reference to the
importance of a line item. Do you care to comment?
Mr. Glover. Yes, I would be happy to. The fact is the
Office of Advocacy when it was first created had a not less
than 70 employees in its authorization and appropriations. That
maintained it for a long time. When that provision slipped out
of the law, the Office of Advocacy gradually dropped from 70
just before I came on board, to 58 at the end of my tenure, to
44 now.
Without that line item you are going to continue to see
administrators who have other priorities besides advocacy, and
they are going to allow that to continue to slip. Our research
budget was cut badly during that period of time as well. So I
feel strongly that we need to have, to protect the Office of
Advocacy's role and functions for future administration, a very
clear statement that there needs to be a line item for the
entire Office of Advocacy.
Ms. Velazquez. Thank you. Mr. Chairman, I have unanimous
consent request that Mr. Sullivan submit for the record over
his signature a detailed estimate of how many panels per year
advocacy does now, what advocacy spends on those panels in
terms of resources, how many panels they expect if H.R. 682 is
adopted, and an analysis of the costs to advocacy in resources.
I would also like an analysis as to the other amendments
short of a panel process that advocacy believes will help
achieve full disclosure and compliance, and I will be sending
this in writing to your office.
Mr. Bartlett. [Presiding] Without objection to the extent
that that information is available to you.
Mr. Sullivan. Mr. Chair, not only do you have my commitment
to provide that, it is a welcome opportunity to flush out the
detailed costs.
Ms. Velazquez. Thank you. Thank you, Mr. Chairman.
Mr. Bartlett. I am sorry I could not have been here for the
whole hearing. As most of you know in a former life I was a
small business person. I was one of maybe 35 people in the
Congress that was a member of NFIB when I came here.
I carry a copy of the constitution, and I would just like
to get in the record how prophetic the founding fathers were
when they wrote the Declaration of Independence. I cannot
imagine how they would have known about our regulatory
agencies, but this is what it says:
``He has erected a multitude of new offices and sent
hithers forms of officers harass our people and eat out their
substance.''
[Laughter.]
Mr. Bartlett. I wonder, is there any more succinct
description of the effect of our regulatory agencies,
particularly on small business?
And that is in the--that is really there. It is in the
Declaration of Independence. I have no idea what the king did.
I thought maybe they were just being prophetic because it
certainly, I think, is a good description of our regulatory
agencies.
You know, I often ask myself the question, how come we are
so lucky. We are one person out of 22 in the world, and we have
a fourth of all the good things in the world. How did we get
here?
And if we figure out how we got here, maybe we can figure
out what we need to do to stay here. And I think one of the
reasons is the enormous respect for the rights of the
individual. Those rights are implicit in the constitution
itself and made very explicit in the first 10 amendments, and I
think that establishing a milieu, an environment in which
creativity and entrepreneurship could flourish is important. I
think several things put that at risk, and one of those things
are over zealously implemented regulations which just dampen
the enthusiasm and hamper people in their quest to continue
along this really marvelous march where this one little
country, one person out of 22 in the world has a fourth of all
the good things in the world.
This is a fragile commodity. We are no longer the hardest
working people in the world. We are no longer the people that
have the most respect for education in the world. We no longer
have the most intense commitment to nuclear families in the
world, and you need to ask yourself what do we need to do to
stay in this very privileged position?
I think paying attention, we need some regulations, there
is no question about that. But we do not need such over zealous
implementation of these regulations that they are killing the
goose that laid the golden egg, and that is very much where we
are sometimes with these regulations.
Sorry I could not have been here for your testimony. You
know where I am on these issues. When you need help, I am
there.
Ms. Velazquez, you have additional questions?
Ms. Velazquez. She is next.
Mr. Bartlett. Okay.
Ms. Moore. Thank you, and thank you for all the time that
you have spent. We had votes and we were not able to start the
meeting on time, and I really appreciate your diligence.
If I am asking a question that you have already asked,
please forgive me because I was not there, or here earlier.
I guess I am curious about the provisions in the Regulatory
Flexibility Act that called for alternative regulations,
because as the Chairman has indicated, we do realize that there
has to be an appropriate balance between necessary regulations.
This will make sure that there is basic safety features in the
workplace and basic compliance with Internal Revenue Service,
but we do not want to impose too many regulations on small
business.
So what--can you give me just give me a few examples of the
regulatory flexibility that you have accorded small businesses
that you regard as innovative?
Mr. Sullivan. Ms. Moore, I would be happy to address that
if you would like. I can give you two examples. The first is an
OSHA example, and the idea of focusing on alternatives is
definitely a good place to start because any time a regulatory
agency looks to small business for alternatives they will come
out ahead at the end of the day.
So from an OSHA perspective, I will use a rulemaking that
is ongoing. There is a Hex-chrome regulation that is going on
at OSHA, and very early on in the process under SBREFA they are
required to convene panels of small business owners, and float
ideas and regulatory proposals by small businesses so small
businesses can advise them to better alternatives.
Well, in this progress, Congresswoman, it became clear that
one of the proposals was to vent above a chrome-plating
assembly line the fumes, so that the fumes would go across or
underneath the workers to prevent them from inhaling chrome
fumes, which are dangerous.
Well, thank goodness they checked with small business
because a small chrome player in fact told OSHA if you require
that, you will put us in violation of the EPA Clean Air Act. It
is a very good example of alternatives that come to the table
from small business.
Now, luckily under the process OSHA listened because they
are required by law to listen, and they have been re-jiggering
their proposal so whatever they do will ultimately be less
harmful for small business.
Another example that is not part of the SBREFA process but
a good one has to do with the regulatory approach to protecting
our nation after the terrorist attacks of September 11th.
Obviously, we are very concerned about protecting our borders,
and also very concerned about protecting our ports.
So the Department of Homeland Security, when wrestling with
those very important issues, under the Regulatory Flexibility
Act consulted with my office, the Office of Advocacy, to say,
all right, when we are issuing regulations for port security,
are we getting it right, and we connected them with small
businesses who run small shops in ports. It turns out that
their initial thoughts of regulating would have affected all
these mom and pop businesses who thrive in the port areas,
whether it is Mailboxes, Etc., franchises or small delis, and
other business that really thrive on the port business. They
were all going to be covered by rules that really should be
narrowly tailored to the entry and exit of foreign and other
vessels.
So by focusing Department of Homeland Security about not
overreaching they actually exempted out many businesses that
really are not a threat, but then focused primarily on things
that were a security risk, and therefore had rules that were
finalized that were protecting our borders, but at the same
time doing it in a way that did not devastate a community in
which small businesses thrived.
Mr. Freedman. Congresswoman.
Ms. Moore. Thank you. I also just wanted you all to comment
on the regulatory impact study done in 2000 where the cost on a
small business was estimated to be almost $7,000 per employee
for the regulatory burden.
Share with us, because those are--you know, you could
interpret that in two different ways. You could interpret that
as being certainly an awesome burden on a small business, but
you could also say that perhaps they are not ready for prime
time if they are not ready to make sure that basic workplace
protections are in place.
Could you please just weigh in on those data?
Mr. Freedman. Congresswoman, I would like to start, and I
am sure other people will have other thoughts on that. Let me
sort of try and tie both of your questions together because I
think there is some links there.
First of all, the study talking about the increased cost
for small business compliance, it is not that small businesses
as you would say are not ready for prime time, it is that in
order for them to get to that threshold, it is more expensive
for them to do that, and this is not--I think we should all
understand this has nothing to do with small businesses' desire
to comply.
The problem that these regulations are--the reason these
problems--forgive me. The reason these regulations are such a
problem is that they do want to comply, and they understand the
obligation to their employees, to the environment, to the
public around them, to everyone that they come in contact with
to be in compliance with these regulations. But they have so
few resources. They do not have the personnel. They do not have
the revenue. In some places, their whole income structure is
different than a larger business that would be able to do these
things more efficiently.
So that is where you get that $7,000 number, and I think
that number is important because it really goes to the heart of
the matter, and why we are here, and why there is a Regulatory
Flexibility Act in the first place.
Let me just comment briefly on your discussion about
regulatory alternatives. The problem is in the Regulatory
Flexibility Act, there is a requirement that an agency must
examine regulatory alternatives in their analysis that they are
expected to do under the RFA.
However, if they find that the regulation does not meet
this threshold of the significant economic impact on a
substantial number of small entities, they do not have to do
that analysis. So it is the question of how they get to that
threshold that drives everything else, and that is where I
think our concern is in terms of how the RFA is operating right
now, and some of the changes that we think should be made to
it.
Let me yield to the other people here who I am sure have
other things to day.
Ms. McCloy. If I may--
Mr. Bartlett. You may.
Ms. McCloy. -- Cecelia McCloy, with Integrated Science
Solution.
As a small business owner, one of the things that we do
every year is to look at the regulatory requirements that we
must comply with that year, including new regulations that sort
of pop up both on the state and the federal level. Then we have
to make some choices. I mean, maybe we have to reduce our
tuition reimbursement program in order to pay for that, or
maybe we can only offer a different kind of health care policy
for our workers because we only have X amount of dollars. And
really, if we have to pay more for regulatory burden, that
means we have to play--there is less dollars available for
investment in our employees and their education and their
families.
Mr. Sullivan. Congresswoman, the Crane-Hopkins study that
you referenced I think is also intended to be placed in a
broader context, and that broader context is the United States'
competitive position in the world. Because if you look at
three-quarters of the net new jobs coming from small business,
you see small business innovating, and the Chairman knows
something about innovations, holding so many patents himself.
But when you look at innovations, you are looking at small
business innovating at a rate of 13 or 14 times their larger
business counterparts.
So if you realize that small business is in fact the
economic engine that is driving this country, then you have got
to then look at this study to say, well, this is the engine.
How are regulations impacting that engine? And that study shows
that there is a disproportionate impact, a 60 percent greater
impact on small business than their larger counterparts.
When it comes to tax compliance, it is twice as burdensome
for small business than it is for larger business to comply
with the tax code.
So there is considerable effort to try to remove those
barriers that stifle the economic power of small business, and
that, if unchecked, can damage the competitive position of the
United States.
Mr. Glover. Let me just add to this one additional way to
look at this. When you assume certain reporting
responsibilities, such as filing a tax return for your
business, there is a set cost to do that. If you have one
employee or 500, it does not go up proportionally. So a lot of
these costs are much heavier when you have very few employees,
so the average cost per employee is much higher than it would
be otherwise.
Each agency has a little different thing that they want you
to report. If you have one employee, that employees carries the
whole 100 percent of that cost. If you have 100 employees, then
it is one percent of that cost. So as a general rule you will
also see that the numbers in that Hopkins study talk about per
employee, and as a result of that you are going to see much
higher numbers for very small businesses than you do for
others.
Ms. Moore. Thank you.
Mr. Bartlett. Thank you. Do you have additional question or
comments?
Ms. Velazquez. Yes, please, Mr. Chairman.
Mr. Sullivan, you know that the General Accounting Office
recently--we made reference to that--they recently reviewed the
OMB data on regulatory burden and reported that it has
increased by 700 million hours in the last three years. They
concluded that the number would have been higher still had the
OMB not changed the 2003 data to reflect adjustments that
lowered the total, but have nothing to do with actually
reducing the burden.
Then here you testified that you have achieved regulatory
cost saving of $64 billion over the past four years. Those
savings do not even include items where savings are impossible
to estimate.
I know that you are proud of this record, but does not this
level of proposed burden indicate that the agencies still have
not gotten the message?
Mr. Sullivan. Congresswoman, I think Dr. John Graham has
been pretty good in looking at some of the numbers, and he
recently estimated that the number of new rules from this
administration is 75 percent less than in the last one. And I
think your comment is accurate in that that is just not enough.
I mean, slowing the stem--excuse me. Slowing the growth of
overburdensome or unnecessary regulations is a good start, but
when you look at the 843 plus billion dollars of cumulative
impact that small businesses still face, there is a heck of a
lot more to do.
So I agree with your comment, and actually know that
regardless of how proud of our record we are, we have more work
to do, and some of the improvements to the Regulatory
Flexibility Act that are contained in H.R. 682 should help us
do that.
Ms. Velazquez. Which of the tools in H.R. 682, or if not in
the bill, what tool can you recommend to persuade agencies to
follow the law?
Mr. Sullivan. I believe, actually, that there are more
narrowly tailored approaches also contained within 682 that
could do a great deal in helping small business. I think the
first, and this was mentioned by the Chamber of Commerce's
testimony, is fix indirect impact, and this actually has to do
with Congresswoman Moore from Wisconsin.
Wisconsin is one of the states that has passed a state
Regulatory Flexibility Act, but their hands are tied if the
federal government is simply passing on the responsibility to
the states to do impact analysis or to consider less burdensome
alternatives.
I think there is a fairness issue here or a unfunded
mandate issue here where the federal regulators have a
responsibility to do that type of analysis to help the states
do a better job in how they impact small business.
So indirect impact, I think, is a priority. Bolstering the
regulatory look-back provision, which is Section 610, also is
something that is important. Something that is not in the
legislation but deserves to be looked at is once a regulation
is final, that agencies actually do what they are supposed to
do under SBREFA and that is product compliance guides and
regularly report to Congress on those compliance guides. And I
think the most valuable thing that could be done is to codify
the executive order that President Bush signed three years ago,
because that does two things:
First of all, it brings in independent agencies, which is
very important. The second is that it requires agencies to
share drafts with the Office of Advocacy pre-proposal, so it
gets at that early process. It also requires agencies to
respond to advocacy's comments in conjunction with the final
rule.
Ms. Velazquez. Mr. Sullivan, three years later after the
executive order we have this data, and so something is not
working.
Mr. Freedman, you and the Chamber have some good ideas
about requiring regulatory analysis and compliance guides to be
performed by the agency, to be posted on the internet so that
it is more easily located.
Will you and the Chamber flesh out some of these ideas and
submit suggested legislation language that could be included
into the bill?
Mr. Freedman. Yes, Ranking Member. We would be happy to do
that, and I can mention from my previous experience that
Senator Snowe introduced a bill on that subject in the last
Congress, so there is legislative language available that talks
about that problem.
Let me just address one other point that you asked Mr.
Sullivan about, in terms of what I think would make the most
difference. I have thought for a long time that the whole
question of the significant economic impact and substantial
number of small entities terms are really the heart and sole of
the Regulatory Flexibility Act. I mean, that is the threshold
go-no go question.
The more stability and certainty we can bring to those
terms the more likely it is we will be able to hold an agency
to a standard that says you did not do it, or this is what we
expect of you.
To that end, I believe that the provision in the bill that
directs the chief counsel to issue regulations describing how
agencies are to comply would probably have the greatest overall
impact on agency compliance, because absent of them getting
past that threshold, or let me put it this way, forcing them to
get to that threshold easier will then trigger all the other
compliance, all the other requirements like the compliance
guides, like the Section 610 review, and the IRFAs and FRFAs.
So it is a critical matter in terms of how the Regulatory
Flexibility Act is actually implemented.
Ms. Velazquez. Thank you. Thank you, Mr. Chairman.
Mr. Bartlett. Thank you very much.
One of you mentioned the cost of these regulations and then
the unfunded mandates were mentioned. Two or three years ago I
remember that Tax Freedom Day was May 10. Now, we cut taxes and
we have done pretty well. We have moved that back to late April
now. But Government Freedom Day has moved the wrong direction.
When we have Tax Freedom Day, that is the day you pay all your
federal, state and local tax. It was May 10, now near the end
of April.
But Government Freedom Day, the day you finish paying for
government, was July 4. That has a very special double
significance, did it not? That is now moved to about July 8.
You know, this is the cruelest tax of all. It is the tax that
the poorest of the poor have to pay because it increases the
cost of everything they touch, and the mandates, a lot of them
federal, and a lot of these regulations that you are talking
about, the average working American now spends 52 percent of
their time working to support government. I think that is too
much.
When you are talking about taxes and maximum revenues, and
we need more revenues, we are spending a whole bunch of money,
but you know, if you have a zero tax rate, obviously you will
collect no taxes. If you have 100 percent tax rate, you are not
going to collect any taxes, are you, because nobody will work?
So somewhere between the zero percent tax rate and the 100
percent tax rate is that magic number where you have not
meaningfully suppressed, stifled the economy, and you are going
to get the maximum revenues. I think 52 percent of your time
working for government is too much. And we have reduced taxes.
We have gone backwards in regulations. You know, we really need
to change that.
If you think about these regulations, and I just sat back
and I thought why do we have them, and there are two
fundamental premises for why we have regulations.
The first one is that every manufacturer, every provider,
every employer is greedy and evil, and they are going to take
advantage of their customers and their employees, so we have to
make sure they do not do that.
The other premise for regulations is that every consumer is
incredibly stupid. Unless we protect them, they are going to
hurt themselves.
Now, I think that if you think about regulations, most of
them are here because of an application of one or the other or
both of those premises. I reject both of those premises. I was
a small business owner. There was nobody more concerned about
my employees than me. If I lost one of my people, you know, the
team was not going to work well. You know, they were, in
effect, family members to me.
I think the American people are very bright. I have no
problem with government educating. You know, I really just take
a double take when I read that they have gone and the
government people have put a red sticker on your house and told
you it is dangerous, and you cannot go in it. What business is
that of theirs to tell you that you cannot go in your house?
I do not mind them telling you that they think your house
is dangerous, and that you are probably better off if you did
not go in your house. But you know, what business have they--
you know, the reason is that they concluded that you are just
so dumb you would not know whether your house was dangerous or
not, and so they have got to protect you.
I really believe that if we give it a chance, self-
regulation will work. The hard liquor industry does not
advertise on television. Nobody told them not to advertise on
television. They just decided that was not in their best
interest to advertise on television, and it would not have
been.
When high school kids are given the responsibility of
disciplining their peers, they are a lot tougher than the
school administration would be. You have seen those little
experiments.
But there is little incentive for self-regulation because
you have to push back so hard in order to limit the damaging
effects of regulation on your business. And I know we do not
have time here but I would really like to ask each of you if
you would please for the record tell us how we can get from
here, where we are with ever-increasing regulations and these
mandates that run cost up, because there is no business that is
not concerned about happy customers and happy employees and so
forth. Our people are not incredibly stupid, and we do not need
all these regulations.
How can we get from here, and I really believe in self-
regulation. You know, I think in industry, the industry most
hurt when they get--when a drug comes out on the market that
hurts people. What industry is most hurt by that? It is the
drug industry, is it not? It is not Food and Drug. It is the
drug industry that is hurt like that. I really believe in self-
regulation.
How can we get from where we are, where we are moving from
more and more egregious regulation to where we can encourage
people to self-regulation? And then stand back and watch, and
if they are not doing right, then maybe we can move in. I do
not think we would have to move in very often. But now we have
created a culture where we are moving in this direction. How
can we move back?
If each of you would prepare a little statement for the
record, I would be very appreciative of that.
This has been a long hearing. Is it okay if we submit other
questions for the record? I am sure Ms. Velazquez has
additional questions she would like to ask. And you are tired,
and we may get a more deliberate answer if you prepare it for
the record rather than holding you here for all these hours.
I want to thank you very much. I am sorry I could not have
been here for the whole hearing. Small business, as you
mention, is the engine which drives our economy.
Just one little word. Out of the 1992 recession, I was
stunned by these statistics. If you group businesses by size
from the biggest, 5,000 or more, to the smallest, zero to four
employees, a few new jobs came from the 5,000 plus, 90 odd
percent of all the other new jobs came from zero to four
employees. That is small business. And it is not just the
engine that drives our economy, it is the engine that brings us
out of a recession.
You mentioned the enormous productivity in terms of
discoveries and entrepreneurship and innovations that come from
small business. You know, I have worked for big business. I
have worked for IBM. I have worked for big government. I worked
for Johns Hopkins University. I worked for myself in a little
company. And I will tell you the smaller it is the more freedom
you have. I was lucky, the employers I worked for who were big
kind of pretended they were little, and I had a very good
experience with them.
Well, thank you so much for your testimony, and please
prepare for the record your little suggestion of how do we get
to there from here, where we have more self-regulation. What
the government does is stand back and step in when industry is
not doing it right. Thank you very much, and we are adjourned.
[Whereupon, at 4:10 p.m., the Committee was adjourned.]
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