[Senate Hearing 116-86]
[From the U.S. Government Publishing Office]
S. Hrg. 116-86
REAUTHORIZATION OF THE SBA OFFICE
OF ADVOCACY
=======================================================================
JOINT HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP
UNITED STATES SENATE
AND THE
SUBCOMMITTE ON REGULATORY AFFAIRS
AND FEDERAL MANAGEMENT
OF THE
COMMITTEE ON HOMELAND SECURITY
AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
__________
MAY 22, 2019
__________
Printed for the use of the Committee on Small Business and
Entrepreneurship and the Committee on Homeland Security and
Governmental Affairs
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web: http://www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
37-798 PDF WASHINGTON : 2019
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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED SIXTEENTH CONGRESS
----------
MARCO RUBIO, Florida, Chairman
BENJAMIN L. CARDIN, Maryland, Ranking Member
JAMES E. RISCH, Idaho MARIA CANTWELL, Washington
RAND PAUL, Kentucky JEANNE SHAHEEN, New Hampshire
TIM SCOTT, South Carolina EDWARD J. MARKEY, Massachusetts
JONI ERNST, Iowa CORY A. BOOKER, New Jersey
JAMES M. INHOFE, Oklahoma CHRISTOPHER A. COONS, Delaware
TODD YOUNG, Indiana MAZIE K. HIRONO, Hawaii
JOHN KENNEDY, Louisiana TAMMY DUCKWORTH, Illinois
MITT ROMNEY, Utah JACKY ROSEN, Nevada
JOSH HAWLEY, Missouri
Michael A. Needham, Republican Staff Director
Sean Moore, Democratic Staff Director
COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
RON JOHNSON, Wisconsin, Chairman
ROB PORTMAN, Ohio GARY C. PETERS, Michigan
RAND PAUL, Kentucky THOMAS R. CARPER, Delaware
JAMES LANKFORD, Oklahoma MAGGIE HASSAN, New Hampshire
MITT ROMNEY, Utah KAMALA D. HARRIS, California
RICK SCOTT, Florida KYRSTEN SINEMA, Arizona
MICHAEL B. ENZI, Wyoming JACKY ROSEN, Nevada
JOSH HAWLEY, Missouri
Gabrielle D'Adamo Singer, Staff Director
David M. Weinberg, Minority Staff Director
Zachary I. Schram, Minority Chief Counsel
Laura W. Kilbride, Chief Clerk
Thomas J. Spino, Hearing Clerk
----------
SUBCOMMITTEE ON REGULATORY AFFAIRS AND FEDERAL MANAGEMENT
JAMES LANKFORD, Oklahoma, Chairman
ROB PORTMAN, Ohio KYRSTEN SINEMA, Arizona
MITT ROMNEY, Utah THOMAS R. CARPER, Delaware
RICK SCOTT, Florida JACKY ROSEN, Nevada
MICHAEL B. ENZI, Wyoming
Chris White, Staff Director
James Mann, Senior Counsel
Eric A. Bursch, Minority Staff Director
Anthony J. Papian, Minority Senior Professional Staff Member
Mallory B. Nersesian, Subcommittee and Document Clerk
C O N T E N T S
----------
Opening Statements
Page
Lankford, Hon. James, a U.S. Senator from Oklahoma, and Chairman,
Subcommittee on Regulatory Affairs and Federal Management,
Committee on Homeland Security and Governmental Affairs........ 1
Sinema, Hon. Kyrsten, a U.S. Senator from Arizona................ 2
Rubio, Hon. Marco, a U.S. Senator from Florida, and Chairman,
Committee on Small Business and Entrepreneurship............... 67
Cardin, Hon. Benjamin L., a U.S. Senator from Maryland, and
Ranking Member, Committee on Small Business and
Entrepreneurship............................................... 68
Witnesses
Panel 1
Clark III, Mr. Major, Acting Chief Counsel, Office of Advocacy,
U.S. Small Business Administration, Washington, DC............. 3
Panel 2
Sargeant, Dr. Winslow, Senior Vice President for Partnerships,
International Council for Small Business, Great Falls, VA...... 40
Arensmeyer, Mr. John, CEO and Founder, Small Business Majority,
Washington, DC................................................. 46
Hernandez Prenger, Ms. Jeanette, Founder, President, and CEO,
ECCO Select, Kansas City, MO................................... 53
Baumann, Mr. Rick, Owner, Murrells Inlet Seafood, Murrells Inlet,
SC............................................................. 63
Alphabetical Listing
Arensmeyer, Mr. John
Testimony.................................................... 46
Prepared statement........................................... 48
Responses to questions submitted by Chairman Rubio and
Senator Hirono............................................. 109
Baumann, Mr. Rick
Testimony.................................................... 63
Prepared statement........................................... 65
Responses to questions submitted by Senator Hirono........... 112
Cardin, Hon. Benjamin L.
Opening statement............................................ 68
Prepared statement........................................... 70
Clark III, Mr. Major
Testimony.................................................... 3
Prepared statement........................................... 6
Responses to questions submitted by Chairman Rubio, Ranking
Member Cardin, and Senator Hirono.......................... 86
Hernandez Prenger, Ms. Jeanette
Testimony.................................................... 53
Prepared statement........................................... 55
Lankford, Hon. James
Opening statement............................................ 1
Rubio, Hon. Marco
Opening statement............................................ 67
Sargeant, Dr. Winslow
Testimony.................................................... 40
Prepared statement........................................... 42
Responses to questions submitted by Chairman Rubio........... 105
SBA Office of Advocacy Progress Report on the Office of
Advocacy's Regional
Regulatory Reform Roundtables
June 2017-September 2018..................................... 115
SBA Office of Advocacy Report on the Regulatory Flexibility Act,
FY 2018
April 2019................................................... 190
Sinema, Hon. Kyrsten
Opening statement............................................ 2
Small Business Council
Letter dated June 5, 2019.................................... 271
REAUTHORIZATION OF THE SBA OFFICE
OF ADVOCACY
----------
WEDNESDAY, MAY 22, 2019
United States Senate,
Committee on Small Business
and Entrepreneurship,
United States Senate,
Committee on Homeland Security
and Governmental Affairs,
Subcommittee on Regulatory Affairs
and Federal Management,
Washington, DC.
The Committees met, pursuant to notice, at 2:31 p.m., in
Room 106, Dirksen Senate Office Building, Hon. Marco Rubio,
Chairman of the Committee, and Hon. James Lankford, Chairman of
the Subcommittee, presiding.
Present: Senators Rubio, Ernst, Hawley, Lankford, Cardin,
Cantwell, Rosen, and Sinema.
OPENING STATEMENT OF HON. JAMES LANKFORD, A U.S. SENATOR FROM
OKLAHOMA, AND CHAIRMAN, SUBCOMMITTEE ON REGULATORY AFFAIRS AND
FEDERAL MANAGEMENT, COMMITTEE ON HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
Chairman Lankford [presiding]. Good afternoon, everyone. I
am pleased the Homeland Security and Governmental Affairs
Subcommittee on Regulatory Affairs and Federal Management can
partner with the Senate Small Business and Entrepreneurship
Committee and dig into the disproportionate impact of Federal
regulations on small businesses and what we in Congress can do
about this to be able to help our small businesses in our
communities.
We have quite a few members that have multiple hearings
that are going on this afternoon. So we will have different
folks that are coming in and out pretty frequently. I wish we
could have had a larger room to be able to meet in, to be able
to fit everyone in, but we will try to squeeze in. Sorry for
the folks that have to stand.
I want to remind everyone. Do not draft rules to limit the
growth of small businesses. I have never met anyone in any
agency that is intentionally trying to hurt small businesses,
but unfortunately, that is an ancillary result. That does
happen.
Research by the American Action Forum found that every 10
percent increase in cumulative regulatory cost results in the
loss of 400 small businesses. As regulatory cost and
complexities rise, small businesses disappear. Unnecessary
burdens can be avoided if agencies have meaningful consultation
with stakeholders before they decide how they will regulate,
how they will take on a more complete measurement of the
economic impact to their regulations, and understand that the
rule has both direct and indirect effects.
When entrepreneurs open their own businesses, their goal is
to provide for their family and serve their community by
offering a product or a service. Each moment a small business
spins trying to understand and comply with the new burdensome
Federal regulation, that is time they are not spending on
actually growing their business and providing resources to
their community. Regulations should be created when it is
essential, not when it is just preferred. Running a business is
hard and stressful. Government should not make it worse.
When a regulatory environment is stable and businesses can
plan for the future, they can hire more people, and the pay for
existing employees rises.
Last month's survey on Small Business Optimism, conducted
by the National Federation of Independent Business, found that
20 percent of businesses planned to hire new employees in the
next 3 months, and 34 percent of businesses reported higher
worker compensation. The monthly survey showed as concerns over
regulations fall, hiring and wages rise.
Small businesses cannot weather dramatic swings in policy
the same way large businesses do. So I look forward to
discussing the ways Congress can help stabilize the regulatory
environment for small businesses so they can thrive.
With that, I would recognize the Ranking Member of our
Subcommittee, Senator Sinema.
OPENING STATEMENT OF HON. KYRSTEN SINEMA, A U.S. SENATOR FROM
ARIZONA
Senator Sinema. Well, thank you, Chairman Lankford, and
thank you to all of our witnesses who have joined us today.
I am glad we have this opportunity to join the Small
Business Committee to discuss the reauthorization of the Small
Business Administration Office of Advocacy.
Small businesses are the backbone of Arizona's economy.
There are approximately 550,000 small businesses in Arizona,
which is over 99 percent of all businesses in my State. These
businesses employ 1 million people, which, of course, is 44
percent of Arizona's workforce.
The Office of Advocacy can play a critical role by giving
these small businesses a voice and making sure that their
concerns are heard by other Federal agencies when rules are
being developed.
Unfortunately, the Office of Advocacy is not immune to
controversy. In 2010, the Office of Advocacy published a report
on small business regulatory costs. GAO, CRS, and OIRA,
Administrator Cass Sunstein, all quickly highlighted the
report's flaws, and consequently, the Office of Advocacy added
a disclaimer to the report stating, quote, ``The findings of
the report have been taken out of context, and certain
theoretical estimates of cost have been presented publicly as
verifiable facts,'' end quote.
In 2013, the Center for Effective Government published a
report finding that the Office of Advocacy commented on
government studies examining chemical toxicity that did not
relate to an ongoing rulemaking and did not raise specific
small business concerns.
In 2017, the Office of Advocacy again partnered with the
authors of a discredited 2010 report earlier for a similar
report. Advocacy abandoned this new study, but the focus and
credibility took another hit.
So all of these missteps point to an office that needs to
find another way. So it is our responsibility to help advocacy
do a better job because its mission is so important to economic
growth in Arizona and to our country. By recognizing past
mistakes and preventing future missteps, we can help Advocacy
regain the trust it needs to be an effective voice for small
businesses.
I hope that as we examine the reauthorization of the Office
of Advocacy, we can work together to enhance its standing and
ensure that it is a trusted voice for small businesses that the
community needs and deserves.
Thank you, Mr. Chairman. I yield back.
Chairman Lankford. Thank you.
At this time, we will proceed with testimony from our
witnesses. Major Clark is the Acting Chief Counsel for the
Office of Advocacy at the United States Small Business
Administration, a position that he has held since January of
2017. He has worked at the Office of Advocacy since 1998,
previously serving as Assistant Chief Counsel for Procurement
Policy.
Mr. Clark, we are very grateful that you are here today,
and, from an Oklahoma perspective, I have friends at home that
own an auto repair shop, restaurants, dry cleaners, small
energy companies, construction companies, design and engineer
companies, a friend of mine that owns a physical therapy. They
are great at what they do, but they do not wake up every day to
read the Federal Register. They just do not. They know their
stuff, and they do it really well. And they are counting on the
Office of Small Business Advocacy to be able to help them, and
we are grateful that you take on that responsibility and that
you are here to be able to share your story today with us.
So we are pleased to be able to receive your testimony now.
STATEMENT OF MAJOR CLARK III, ACTING CHIEF COUNSEL, OFFICE OF
ADVOCACY, U.S. SMALL BUSINESS ADMINISTRATION, WASHINGTON, DC
Mr. Clark. Thank you, Mr. Chairman. I am looking at this
box here just for a moment. When I was on the Hill, we did not
have this type of sophistication. So, hopefully, I will be able
to work it correctly.
But good afternoon, Chairman Lankford and Ranking Member
Sinema and members of the Committee. I am honored to be here
today on behalf of the Office of Advocacy. We are an
independent office that speaks on behalf of the small business
community before Federal agencies, Congress, and the White
House.
This testimony does not reflect the views of the
Administration, and this statement has not been circulated to
the Office of Management and Budget for clearance.
As Acting Chief Counsel of the Office of Advocacy and on
behalf of the entire Advocacy family, I would like to thank
both Committees for the tremendous support you have shown us
over the years.
The importance of small businesses as generators of
innovation, employment, economic growth, and competition in the
U.S. economy has been recognized for decades. The need for
policies that support the development, growth, and health of
small businesses led to the creation in 1976 of the Office of
Advocacy. Our core mission to represent small business
interests before government agencies was amplified by the 1980
Regulatory Flexibility Act and subsequent amendments and
executive orders.
The 2010 Small Business Job Act provided advocacy with
additional independence. However, advocacy still encounters
challenges with maintaining its independence. The fact that the
words ``Small Business Administration'' remain a part of
Advocacy's name continues to confuse the public and even some
Federal agencies, but, despite this, Advocacy still works very
closely with SBA, including working with the SBA National
Ombudsman's Office.
Independently, Advocacy represents small interests in many
ways. Our regional advocates provide direct contact with small
business stakeholders. Advocacy's economic research team
conducts important research on the needs of small businesses
and their role in the economy and works with our legal team to
assist the agency's Regulatory Flexibility Analysis.
The RFA requires Federal agencies to consider the impact of
their regulatory proposals on small entities, analyze effective
alternatives, and minimize small entity impacts and make their
analysis available for public comments. The specific
requirements of the RFA are discussed in my written testimony.
Advocacy reports to Congress every year on agency
compliance with the RFA. The report for Fiscal Year 2018 was
published and sent to these Committees last month.
In recent years, the most frequent concerns Advocacy has
cited in public comment letters to agencies were deficiencies
in the RFA analysis. These include, but are not limited to,
inadequate analysis of small entity impacts and lack of
consideration of significant alternatives.
Advocacy has been concerned with agencies' inconsistent
compliance with 610 of the RFA. We welcome executive order
13771 and executive order 13777, which align with the
objectives of Section 610's retrospective reviews and
requirements.
Advocacy is working to ensure that small businesses are
included in the regulatory reform effort by conducting small
business regional regulatory reform roundtables, and since June
of 2017, Advocacy has conducted 36 of these roundtables in 25
States, and over 1,500 small businesses have participated.
In December 2018, Advocacy published a progress report
which covers the first 16 months of these roundtables and
follow-up efforts with Federal agencies.
Finally, Mr. Chairman, allow me to turn briefly to our
legislative priorities because, as you know, Advocacy currently
does not have a Senate-confirmed Chief Counsel. Advocacy has
not updated its legislative priority since 2016, but allow me
to explain some of those priorities which are in our annual
report. Advocacy believes some of these priorities are still
very much important today.
First, indirect effects should be part of the RFA analysis.
Second, the definition of a rule under the RFA needs to be
expanded to include interim final rulemaking, and finally, a
clear definition of a factual basis for a certification should
be established.
Mr. Chairman, this concludes my oral testimony, and I
request that Advocacy Regional Annual Report and the Regulatory
Reform Roundtable Project Report be included in the hearing
record.
Chairman Lankford. Without objection.
Mr. Clark. Thank you very much for this opportunity to
testify today, and I am happy to answer any questions you may
have.
[The prepared statement of Mr. Clark follows:]
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Chairman Lankford. Mr. Clark, thank you very much. I am
going to defer my questions to the end of this panel and
recognize the Ranking Member of the Subcommittee, Senator
Sinema.
Senator Sinema. Thank you so much, Chairman.
Major Clark, thank you so much for being here.
Small businesses, of course, as I mentioned in my opening
remarks, are the backbone of the Arizona economy, with over 99
percent of all businesses in Arizona being small businesses.
What sort of outreach and interaction has the Office of
Advocacy had with Arizona small businesses over the last year?
Mr. Clark. Thank you very much, Senator, for your question.
The Small Business Office of Advocacy actually was in your
great State on May 1. We had a regional regulatory roundtable.
We had a tremendous amount of participation from businesses
from a cross-sector of the Arizona economy, and we were able to
walk away with some very good insight into some of the issues
that are impacting those businesses.
In addition to that, we have a regional advocate who is a
full-time Advocacy employee, who was assigned to your great
State, and she is housed in Phoenix. And she is, on a daily
basis, reaching out to small businesses across the State.
Senator Sinema. Thank you so much.
As we have noted earlier, in the last decade, Advocacy has
had a few stumbles and invited some controversy. I am not
interested at all in going back to the past to assign blame,
but those situations do have an impact on the bearing of the
Office of Advocacy.
I believe that your mission is incredibly important, and
what you say should be respected and not disregarded. So what
kinds of activities do you think the Senate could do to restore
faith in the work that Advocacy does?
Mr. Clark. Thank you very much for your question.
The Senate, as we move through this process, we interact
very closely with staff, and we are available to hold
roundtables. We are available to talk on an individual basis
with small businesses that may have various problems.
So part of what we suggest that could happen is to increase
that process so that we are more available to the small
business community and to your constituents with problems that
they may have.
Senator Sinema. Thank you.
Outdoor tourism is an important piece of the Arizona
economy. It is actually my favorite, and as we will hear later
from Mr. Baumann during the next panel, regulations are
important for businesses that depend on a diverse ecosystem and
a healthy environment.
So I have heard criticisms, as I am sure you have, that the
Office of Advocacy tends to favor traditional businesses when
interacting with Federal agencies.
So how does the Office of Advocacy determine a position
when small business interests are perhaps at odds with each
other within one community?
Mr. Clark. Thank you, Senator.
One of the things we do in that process is not to make a
judgment as to which industry is more important than the other
industry. We gather the information, and we submit that
information to the agencies. That information is either
submitted in the form of a formal comment letter, or that
information is submitted to the agency as part of an
interagency communication. But we place responsibility on the
agency to ultimately make the decision regarding those
competing interests.
Senator Sinema. Thank you.
Those are the only questions I have at the given moment. So
thank you so much, Mr. Chairman, I yield back.
Chairman Lankford. Senator Rosen.
Senator Rosen. Thank you. Thank you so much for being here.
We really appreciate your time and your work.
In Nevada, we have over 250,000 small businesses. Our State
is barely 3 million people, so it is quite a lot, and we have
over 70,000 minority-owned businesses and 80,000 women-owned
businesses in Nevada.
So when you are going and doing your outreach, are you
including minority- and women-owned businesses? What are you
finding are some of the obstacles that maybe they are subject
to from your office?
Mr. Clark. Thank you very much, Senator.
Yes, we do--we include anyone who wants to come to our
roundtables and to provide information to us. We send out
information through the various small business trade
organizations. We publicize the roundtables. We used SBA to
send information out to their stakeholders.
So the roundtables are open to the public. We make a
special effort to reach out to small business, the minority
business groups, trying to get them----
Senator Rosen. Do you have a list of action items after and
then follow up with the folks on the roundtable?
Mr. Clark. Yes.
Senator Rosen. So are we able to see some of those for
Nevada?
Mr. Clark. Sure. You are able to see those.
After each roundtable, we come back to the office, and we
provide the action items for each individual advocate in terms
of the area of concern.
My specialty is in procurement and acquisition. I can
honestly share with you that I have a tremendous number of
questions from small business and minority businesses regarding
the Federal Government's procurement process. What I attempt to
do with each of those is to go back to the small business, talk
with them more specifically about what their concerns are and,
where appropriate, refer that information to the appropriate
agency.
Senator Rosen. Do you see any trends as you have gone
around the country having these? Are you seeing common threads
of obstacles or opportunities for small businesses, especially
minority- and women-owned?
Mr. Clark. Well, the trends that we see as we have gone so
far clearly are trends related to some of the burdensome parts
of the regulation.
As I said, we were in Arizona on May 1st, and one of the
things that came out of that was some small businesses very
much concerned with the duplicity of requirements. That they
are actually bidding on work with the Federal Government, and
they have to provide the same information to each Federal
agency as opposed to having a centralized one-stop shop where
that information can actually be downloaded.
Senator Rosen. So we might benefit from doing something
like the common application, like they do for college, maybe?
Mr. Clark. Well, at one point in time, the Office of
Advocacy did propose what we called a one-stop-shop type of
form, type of process, where this information would be
catalogued and collected and then disseminated to the
appropriate agencies as needed.
But with resources and changes in time and everything, that
issue kind of died on the vine. But that is one of the things
that small businesses are telling us. They just have to
continue to fill out these same forms, provide the same----
Senator Rosen. It seems like it would be more economical to
spend the time to put it together.
Mr. Clark. Yes.
Senator Rosen. But I have another quick question before my
time runs out. In Nevada, we have legalized marijuana, so we
have so many small businesses and entrepreneurs coming to our
State who are selling about $50 million worth of medical
marijuana each month, and so our marijuana businesses have lack
of access to capital.
So I know that you have to research and advocate for small
businesses against regulations that undercut growth
opportunities. Do you believe that the growth of legally
operating cannabis businesses is stifled because of existing
laws, regulations, and appropriations riders?
Mr. Clark. Senator, that is a difficult question.
We have not actually studied the issue of marijuana in that
regard, and we have not because the Federal Government has not
yet legalized it. So we do, in conversations with a lot of
businesses, get inquiries as to what they can do and how they
can do it, but to actually do an analysis of it, we have not
yet done that.
I am sure that as soon as the Federal Government decides to
legalize this substance, we will begin to study its impact and
the ability to use it in a more economical context within the
State.
Senator Rosen. Do you believe that cannabis entrepreneurs
would benefit from just small business, some of the templates
and frameworks and those things that you provide? They are
operating legally within many of our States. Just an opinion.
Mr. Clark. These types of businesses can benefit from some
of these types of things, but, again, because this issue is an
issue that has not reached the surface of being legalized, we
have actually stayed away from trying to advise these
businesses on these particular aspects.
Senator Rosen. Thank you.
I went over my time. Sorry.
Chairman Lankford. You are fine. It is a unique challenge
dealing with a Schedule I drug on the Federal side and then
also know that some States have said, including my own--that
have said they will not allow it, and the Federal Government
and the FDA continues to study it and say there is no medicinal
gain from this product. It is a Schedule I drug. So I get it.
The science and whether it is SBA or whoever it is
continues to be able to deal with that.
Senator Rosen. It is a juggling act.
Chairman Lankford. It is. Thank you.
Recognize Senator Ernst.
Senator Ernst. Thank you, Mr. Chairman, and thank you also
for our witnesses for being here today.
The SBA Office of Advocacy plays a critical role as an
independent voice for small businesses within the Federal
Government, and I look forward to our discussion on a number of
the issues that are really important to Iowans and all
Americans engaged in small business.
Mr. Clark, a few years ago, while the EPA's Waters of the
U.S., or WOTUS rule, was being developed, Advocacy found that
the EPA and the Army Corps improperly certified the rule,
meaning the agencies claimed it would not have a significant
economic impact on a substantial number of small entities,
while Advocacy believed it would.
Along with Senator Sinema, I have introduced legislation
that would give small businesses a stronger voice in the
regulatory process. It is called the Prove It Act, and in the
event that there is a difference of opinion between an agency
and the Office of Advocacy on the economic impact of a rule on
small businesses, like we saw with the WOTUS rule and several
others, the Prove It Act would give Advocacy the opportunity to
request that an agency take a second look at its analysis.
As Acting Chief Counsel for Advocacy, would this be helpful
to have at your disposal?
Mr. Clark. Thank you, Senator.
Any assistance that we can get to improve the process, as
we have been doing over the years, would be very helpful.
We have worked over the years very closely with OIRA to
actually get more involvement, more direct involvement with
agencies in part of their rulemaking, and so the Prove It Act
becomes just another piece of that, which strengthens that
whole process.
In addition to having the agency look at this, as you may
know, if the rule goes final, as a final rule, small businesses
and small business trade organizations do have an opportunity
to challenge the rulemaking in court in terms of the
certification being improper.
So there are some tools out there, and the Prove It Act
adds to that tool base.
Senator Ernst. Thank you.
And I do believe it is a very important tool for Advocacy
to have in their toolbox because, certainly, it is much harder
to undo something, especially through the court system, than to
have an agency go back and relook its analysis with certainly
some important information from our stakeholders and those
small businesses. Once it is put into place, it is just so hard
to go back and undo.
So we would like to make changes, as necessary, before our
rule becomes finalized. So I appreciate that perspective.
And then, Mr. Clark, as well, unlike large companies with
legal teams, most of our small businesses do not have the
resources available to ensure that they are actually in
compliance with a number of our Federal regulations. So what
steps can we take to ensure that small businesses are aware of
new guidance and regulations that are coming from the Federal
Government, and how do they know what is required of them? So
how can we help them along?
Mr. Clark. Yes, Senator. One of the things that agencies in
rulemaking as it relates to small business, they are supposed
to publish a small business guide, which further explains what
that rule is about and how compliance should occur within that
rule.
So, in addition to that, one of the things that we do in
the Office of Advocacy is to publish and put out and send out
to our stakeholders, new rules that have come out and request
and ask for any questions that may come from small businesses
regarding compliance.
Part of our responsibility is to continue to make
information available to our stakeholders and make sure that
they understand what the terms and conditions of those rules
are, and we have that through roundtables. And we send out
various other communication to stakeholders.
Senator Ernst. Very good.
Do they sign up for maybe an email, newsletter, or what are
some of those other means of reaching that?
Mr. Clark. Yes. We have a very extensive listserv where it
does not cost anyone to sign up. It is free, and we
periodically, usually on a weekly basis, send out information
to those who are on that listserv.
Senator Ernst. Very good.
My time has expired, but again, I want to thank you very
much for the great work you do on behalf of our small
businesses. Thank you.
Mr. Clark. Thank you.
Senator Ernst. Thank you, Mr. Chair.
Chairman Lankford. Mr. Clark, thank you again for having a
roundtable in Oklahoma and getting a chance to hear from
businesses in my State as well as all over the country. Thanks
for continuing to do that.
Let me drill down on a couple of things. The Small Business
Regulatory Enforcement Fairness Act, commonly only internally
known as SBREFA--no one else in the world would know SBREFA,
but the SBREFA panels that are out there probably could use
some scrubbing and some improvement. Give us some ideas. What
would improve the process for SBREFA panels getting more input
from small businesses in a more efficient way?
Mr. Clark. Thank you, Mr. Chairman.
I think one of the things that can improve that whole
process is to be more selective in terms of the small
businesses that are actually participating, but also keeping in
mind that the SBREFA panel is time consuming for businesses
that have to come in and take time from their work schedule,
from their business of trying to keep their economy going and
so forth. So we have to be aware of that and try to make sure
that this panel is very adaptive to the needs of the small
businesses, but making sure also that the panels reach out to
those businesses that can provide the best information in terms
of the proposed rule.
Chairman Lankford. So we have tens of thousands of small
businesses across the country. Do you find that these same
businesses or types of businesses get tapped to be able to come
back over and over again, or is that being spread out so more
voices are coming to the table?
Mr. Clark. I do not have a direct answer for you at this
time. I will be happy to provide that answer to you in written
form.
But in talking with the attorneys in our office that handle
the SBREFA panels, it would appear--and this is anecdotal, but
it would appear that there are different small businesses being
tapped for different issues for the panels.
Chairman Lankford. So EPA, OSHA, and CFPB are the only
agencies required to do SBREFA panels; is that correct?
Mr. Clark. That is correct.
Chairman Lankford. Does that need to be broadened? Would it
help more agencies to be able to actually have more intentional
focus on the effect in small business?
Senator Ernst. Well, Chairman Lankford, in one of our
legislative priorities, we had actually recommended that IRS be
included in that panel process, and subsequent to that
recommendation, we have worked with OIRA and with IRS to have a
memorandum of understanding where IRS now has been much more
aggressive in doing the analysis that is necessary for
regulatory compliance, and we think at this particular point in
time, we need to see how that new involvement with IRS and with
OIRA somewhat watching that process evolve.
Our attorney for IRS basically has told me that he is very
pleased with the information and the data he is now receiving
from IRS.
We did mention Fish and Wildlife as another component or
another agency that needed to perhaps be subjected to the panel
process, but it would just be those two and again would kind of
recommend that IRS be removed from that consideration until we
get a better feel for how they are complying with this
memorandum of understanding.
Chairman Lankford. You probably know that this Committee is
the Committee that met with IRS frequently and had a lot of
mail back and forth and phone calls and meetings back and forth
to be able to move IRS and OIRA to form that memorandum of
understanding. There is no reason they should have been
excluded from that process decades ago. I am pleased that they
are actually engaged with it now.
I visited with the Secretary of Treasury multiple times to
find out how that is going, and at this point, he said, ``We
are working through the process, but it seems to be going
well.'' So it is good to be able to hear on your side of it as
well that you are getting the information.
I would suggest----
Mr. Clark. Chairman Lankford, I did not mean to cut you
off. I just want to thank you and the Committee for that effort
because we have labored for a long time trying to get IRS into
the regulatory fold, so we appreciate all the effort that was
led by you and your staff and the Committee.
Chairman Lankford. Well, we have a ways to go to be able to
handle multiple other things.
You also have a recommendation about indirect costs. Help
me understand a little bit more what you are saying on the
direct is already taken into account but the indirect cost as
well.
Mr. Clark. Yes. The indirect costs--the direct costs are
taken into account. What we are saying with indirect costs is
that there is an impact on businesses beyond the basic level,
the direct level. We are not sure how far down there should be
an accounting of that impact, but clearly, at the second level
or the next level down, there should be some consideration by
the agency of the impact of their rule on those levels of
businesses.
Chairman Lankford. I would assume small businesses do not
spend all their time charting out what is a direct cost and
what is an indirect cost. They just know the impact on their
business. So I do think that is a wise thing to do.
There has also been some conversation about defining
significant rule for agencies to be able to look at their
impact on small businesses. Do you think there is a need to
update the definition or to clarify the definition for
significant rule?
Mr. Clark. One of the things that we have talked about at
the staff level is to try to keep that definition as flexible
as possible.
One of the things that we would like to do is to give
agencies as much flexibility in its rulemaking to actually put
the parameters around what is significant within their mission
and within what they are actually doing.
So, at this time, we would, again, at the staff level,
suggest that we not try to put a more definitive context into
what constitutes a significant rule.
Chairman Lankford. Well, let us have some dialogue on that
because it is not always the clearest of definitions when you
allow each agency to kind of define it on their own, and for
someone to say I do not really think this is all that
significant to small businesses when small businesses start
calling you from all over the country and call our offices from
all over our States saying, ``We are about to have a rule come
down to us that is significant to us that the agency says is
not,'' and so trying to be able to provide some assistance to
agencies to be able to know if you have an effect on small
businesses, you need to at least engage with small businesses
early on to know how to mitigate this, or if there is an easier
way to handle this without having to impose it.
Mr. Clark. Yeah. One of the ways we have handled that--and
it is true that we get those calls as well, and one of the
things that we try to do with that agency regardless of how
they define that rule as significant is to provide them with
data and ask that they also do outreach to these businesses so
they can better understand the impact of what they are
proposing.
So better data, more outreach, I think bring the agency
closer in to understanding the impact of their proposed
regulation on small business.
Chairman Lankford. How do you measure your success when you
reach out to agencies when a small business or group of
businesses contacts you and says this is a problem? You start
contacting agencies. You do not have the ability to reach in
the agency and say thou shall or thou shalt not. You are
bringing advice to them. How do you measure your success for
the sake of those small businesses that you are advocating for?
Mr. Clark. Well, Chairman Lankford, you mentioned earlier
in your statement, I believe, that most agencies do not
necessarily want to harm small business, and over the years, I
found that to be true as well, that there is a genuine desire
to try to be as positive as they can with small businesses.
I found, again, in the areas that I work in that these
agencies welcome the opportunity to ensure that they have
minimized the impact as much as they can on small businesses.
So the measure of success is a measure, to some extent, how
those agencies do in fact change their regulations based on our
recommendations, how those agencies use the data that we
suggest or we urge them to use to measure alternatives for that
particular rule.
Chairman Lankford. Would there be a benefit to a greater
use of advanced notice of proposed rulemaking to get more small
businesses involved in the process earlier and to have the
option for them to be able to just contribute ideas without it
having to be a combative process of trying to be able to work
through final text?
Mr. Clark. Yes, Chairman. I think the advanced notice of
proposed rulemaking continues to be a useful tool and should be
expanded so that agencies can, at an early stage, get input
from small businesses.
Chairman Lankford. Since most small businesses do not have
a counsel on staff sitting next to them each day and they are
not reading the Federal Register every day, is there a benefit
to getting a plain language text to explain a regulation? So
when a regulation comes out and they do see it come out, that
there is a simple, clear way to be able to say this is what
this regulation is all about? If they want to get more detail
on it, they can see it, but at least there is a simple way,
whether it is posted on social media or whether it is emailed
out. But it is a simple, plain English way to be able to see
what a regulation is.
Mr. Clark. I think the agency in its advanced notice of
proposed rulemaking should be able to do that.
But in addition to that, we in the Office of Advocacy, as
we publish what we call--we have something called a ``reg
alert,'' and in that reg alert, we basically attempt to put
plain language in as to what this rule is about and give them
information as to who to contact and actually contact us as
well if they have additional concerns or additional inputs into
that process.
Chairman Lankford. Is that something the agency should just
do on their own, though, as well?
Mr. Clark. I think----
Chairman Lankford. I mean, I am talking not the advanced
notice, but at the end. Here is the new regulation. Here is
simply what it is. It would be helpful with the advanced notice
as well, but----
Mr. Clark. Well, the agencies are required on a final rule,
if the final rule is impacting small business, they are
supposed to develop a small business guide, which is published
separate from that.
But, as you said earlier, many times small businesses are
just not waiting in their living room for this guy to come
forward.
So what we try to do in our regulatory alert is to actually
send this out, a much shorter form, but in words that these
businesses can read as they are at the stoplight or wherever
they may be moving about.
Chairman Lankford. One last question for me, and I will ask
Senator Sinema if she has any other final wrap-up questions for
you as well.
Does the Office of Advocacy get requests from businesses on
issues of First Amendment, speech, religious liberty, any of
those things? Do you get small businesses contacting you saying
I have an issue on a regulatory side or an issue dealing with,
for instance, religious liberty?
Mr. Clark. I have not seen that type of inquiry from small
businesses, and I would be happy to poll and to talk with our
other advocates. But that issue or those issues have not
actually come to my attention, and I have been there since
1998. I cannot remember how long, but I have been there for a
while.
Chairman Lankford. Long enough to say that you have been
there a while.
Mr. Clark. Yeah.
Chairman Lankford. Twenty-one years is a pretty good run.
Mr. Clark. Thank you, Senator.
Chairman Lankford. Senator Sinema, any final questions?
Mr. Clark, thank you for being here, and thanks for your
continuing work for 21 years to continue to be able to help us
as we go through this journey and help small businesses.
Mr. Clark. Thank you very much.
Chairman Lankford. And we will call up our second panel and
give a short break to be able to transition the table.
[Pause.]
At this time, we will proceed to the testimony from our
witnesses on the second panel. Thank all of you for being here.
You have all given up time to be able to come away to be able
to be a part of this dialogue, and we appreciate very much you
being here.
Dr. Winslow Sargeant is the Senior Vice President for
Partnerships at the International Council for Small Business.
He is also a managing director with S&T, an early stage
investment firm for small and innovative companies; 2010 to
2015, Dr. Sargeant served as Chief Counsel at the SBA Office of
Advocacy, so you may know a little bit about this topic today.
Thanks for coming back and helping us.
John Arensmeyer is the founder and CEO of Small Business
Majority, an organization that addresses policy concerns facing
its entrepreneurial members. Thank you as well for being here.
And Jeanette Hernandez Prenger is the founder, CEO, and
President of ECCO Select, a talent acquisition and advisory
consulting company. She is also a member of the Latino
Coalition Women Impacting Public Policy, the Greater Kansas
City Chamber of Commerce, and several other community groups.
Thank you as well for being here.
Rick Baumann is the founder and owner of Murrells Inlet
Seafood in Murrells Inlet, South Carolina.
We do not have a lot of those companies in Oklahoma, just
by the way, just to let you know.
He is also a board member of the South Carolina Small
Business Chamber of Commerce, a partner in the American
Sustainable Business Council.
All of you, we very much appreciate for you taking the time
to be able to be here today.
We are using a timing system that you will see in front of
you. You will also see a wonderful talk button that is probably
not lit up, but if you will push that button, it will light up,
and that will turn your microphone on. I would suggest you only
have it on when you are speaking because they are exceptionally
sensitive and will pick up everything in our conversation.
Dr. Sargeant, you are up first. We are pleased to be able
to receive your testimony.
STATEMENT OF WINSLOW SARGENT, Ph.D., SENIOR VICE PRESIDENT FOR
PARTNERSHIPS, INTERNATIONAL COUNCIL FOR SMALL BUSINESS, GREAT
FALLS, VA
Dr. Sargeant. Chairman Lankford, Ranking Member Sinema, and
members of the Homeland Security and Governmental Affairs
Subcommittee on Regulatory Affairs and Federal Management, I am
honored to be here today to present testimony to you as a
former Chief Counsel for the Office of Advocacy of the U.S.
Small Business Administration.
As I look back upon my time at the Office of Advocacy, I
reflect on the importance of this institution. To truly be the
advocate for small business, it takes all three pillars:
outreach, regulatory oversight, and research. By monitoring
Federal regulations, advocating on behalf of small business,
conducting research to help facilitate small business growth,
and reaching out to small businesses across the country to hear
concerns and learn about the best practices, the office proves
it is not only a necessity, but also invaluable.
By supporting the SBA Office of Advocacy, you are standing
behind government's most important office for the American
small business owner.
Congress created Advocacy in 1976 to give a voice to small
businesses that were not being considered during the rulemaking
process. As small businesses advance into the Fourth Industrial
Revolution, so too must the laws that come from Congress.
While I know that there are numerous pieces of legislation
from many of the members sitting here today, Congress must not
only craft legislation that provides flexibility for small
business and consider the impacts, but also, it must pass these
important building blocks for the Office of Advocacy.
There are a number of legislative changes that would
strengthen the support that small businesses receive in the
regulatory process as well as Advocacy's ability to represent
them.
I would encourage lawmakers to modify Section 609 of the
RFA to require more detailed notification in advance of a
SBREFA panel and also to allow for judicial review when a panel
is not convened.
In addition, I support adding a section to the RFA analysis
to include indirect effects by broadening the definition of
impact in Section 601.
And, finally, I would recommend that agencies do a
mandatory follow-up on Section 610 to ensure that post-review
necessary changes are made in a timely manner.
Hindsight is 20/20 and waiting 10 years to look at a rule
could be 5 years too late.
During my time at Advocacy, we began to look at the role of
small businesses in the international economy, representing the
views and interests of small businesses before foreign
governments and international entities. I believe Advocacy's
representation of small business in trade initiatives should be
codified.
Rule-writing authority for the Office of Advocacy has been
a topic that has been often discussed, and, on the surface of
it, the proposal has merit. The authority would offer the
ability for qualified Advocacy staff to use their expertise to
help facilitate better rules.
Rule writing does require additional resources, extra
personnel--attorneys, economists, and other staff--and a re-
tweaking of the relationship Advocacy would have with OMB.
As a rule writer, Advocacy would be subject to the annual
publishing of the regulatory agenda.
Let me be clear. Advocacy would have to follow the same
rules that it currently oversees. The watchdog would no longer
be an honest broker but the initiator of rules with no
independent party, besides Congress, to oversee it.
This monumental change must be vetted by experts and
explored if this powerful new tool is to be properly
implemented.
As I continue to follow the regulatory landscape of our
country, it is imperative that we continue to promulgate rules
that are clear, transparent, and predictable, and so should the
Office of Advocacy be a clear voice for small business,
transparent in receiving and delivering the small business
point of view, and predictable, knowing precisely the action
the office should take on behalf of small business.
So while I sit here before you today supporting ways to
strengthen the Office of Advocacy, I would caution you to not
take this opportunity lightly. To put it bluntly, I and many
other experts have been talking about these same concerns:
changes to the RFA, expansion into international matters, and
rule-writing authority for close to a decade.
On behalf of small business, we must take action.
Thank you, and I look forward to your questions.
[The prepared statement of Dr. Sargeant follows:]
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Chairman Lankford. And we look forward to getting a chance
to drill down on that more. Thank you for that.
Mr. Arensmeyer.
STATEMENT OF JOHN ARENSMEYER, CEO AND FOUNDER, SMALL BUSINESS
MAJORITY, WASHINGTON, DC
Mr. Arensmeyer. Thank you. Chairmen Rubio and Lankford,
Ranking Members Cardin and Sinema, and members of the
Committee, thank you for inviting me here to speak today to you
about the reauthorization of the U.S. Small Business
Administration's Office of Advocacy and its role examining the
impact of regulations in our small business community.
At Small Business Majority, we empower America's small
business owners and independent entrepreneurs to ensure they
are a key part of a thriving and inclusive economy.
We have a network of 58,000 small business owners across
the country, with six regional offices. We also work closely
with more than 1,000 local business groups to create a strong
small business voice in Washington and in State capitals and to
deliver critical education and resources to America's job-
creating entrepreneurs.
Before I founded Small Business Majority 13 years ago, I
was a small business owner myself. So I know firsthand how
entrepreneurship can create lasting impact for both an
individual and his or her community. This is why we strongly
urge you to reauthorize the SBA's Office of Advocacy. The
office plays a necessary role for our Nation's entrepreneurs,
independently representing the concerns of small businesses
across the Federal Government. It ensures that Federal
regulations support robust entrepreneurial activity without
placing undue burdens on America's small businesses. The office
also plays a key role in guaranteeing policymakers have access
to updated data on the small business community and to inform
and support the legislative process.
Additionally, we are glad the Senate Small Business
Committee unanimously approved the nomination of David Tryon as
Chief Counsel for the Office of Advocacy. With all due respect
to interim Chief Counsel Clark and the great work he has done,
we urge the full Senate to move forward with his nomination, as
strong leadership is fundamental to ensuring the office
operates effectively. We have had the pleasure of working with
Winslow Sargeant and other Chief Counsels when they held this
position, and we look forward to working closely with Mr.
Tryon.
However, while we fully support the reauthorization of the
Office of Advocacy, it is important to remember that
regulations per se are not the enemy of small businesses.
Business regulations are neither all good nor all bad but are
essential elements of a robust economy and, therefore, must be
evaluated on a case-by-case basis.
As such, the Office of Advocacy must exercise its authority
in a fact-based non-ideological manner, evaluating each
regulation on a cost-benefit basis, and the Office of Advocacy
must ensure that a broad range of small business voices is
solicited.
Federal regulations are too often claimed to be one of the
biggest issues hindering small business growth. However,
according to our scientific polling, four in five small
business owners agree that regulation of business is needed in
a modern economy, and 82 percent agree that business can live
with regulation if it is fair, manageable, and reasonable.
It should be noted that our extensive polling shows that
many issues are viewed by small business owners as more
important than regulation: a healthy economy, the ability to
compete on a level playing field, access to credit and capital,
access to affordable health care, a quality trained workforce,
and a fair tax system.
Moreover, small businesses are often used as pawns by big
businesses to argue for reduced regulation when the regulations
in question either have a minimal impact on small businesses or
in fact would actually benefit small businesses.
In short, to blindly subscribe to the idea that all
regulations are inherently harmful has no basis in fact and
does not serve the needs of a truly entrepreneurial innovative
economy.
Moreover, to have an actual policy that any new regulation
must be offset by the removal of two other regulations is
arbitrary and merely elevates form over substance.
My written testimony contains two examples that illustrate
how regulations are a necessary component of entrepreneurial
innovation--the area of predatory lending and the area of a
clean energy economy.
In the former case, regulation of the burgeoning online
lending industry is essential to ensure small businesses are
not taken advantage of, and in the latter case, regulations
designed to drive us toward a modern clean energy-based economy
actually benefit small business innovation and competitiveness.
In both cases, our polling shows that small business owners
support a robust regulatory structure. My written testimony has
much more detail on both of these examples.
In summary, we support a robust Office of Advocacy, one
that looks at regulations as an essential function of
government and examines regulations on a cost-benefit basis,
not through a one-size-fits-all ideological lens.
Thank you for the opportunity to comment on these important
issues. I look forward to answering your questions.
[The prepared statement of Mr. Arensmeyer follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Lankford. Thank you.
Ms. Hernandez Prenger.
STATEMENT OF JEANETTE HERNANDEZ PRENGER, CEO AND PRESIDENT,
ECCO SELECT, KANSAS CITY, MO
Ms. Hernandez Prenger. Chairman Rubio, Chairman Lankford,
Ranking Members Cardin and Sinema, and members of the
Committee, I would like to thank you for the opportunity to
testify before you today.
My name is Jeanette Hernandez Prenger, and I am the
president and CEO of ECCO Select, a technology talent and
acquisition consulting firm that I founded 24 years ago. We do
both public sector and commercial work nationwide, and we are
based in Kansas City, Missouri.
I also sit on the board of directors of Women Impacting
Public Policy also known as WIPP. WIPP is a national
nonpartisan policy organization that advocates on behalf of
women-owned businesses nationwide. There are nearly 10 million
women-owned businesses in the United States, generating $1.4
trillion in receipts and employing nearly 9 million Americans.
Complying with regulations is a never-ending concern for
small business owners like myself. I am testifying today
because I saw firsthand issues small business owners experience
with Federal regulations when I served on the Office of the
National Ombudsman Regulatory Fairness Board and SBA's Region
7.
Small businesses are the backbone of our Nation's economy,
making up over 99 percent of U.S. employer firms; however, they
bear a disproportionate amount of the regulatory burden, with
costs at nearly $12,000 per employee per year, 30 percent
higher than the costs for larger businesses.
At ECCO Select, I have less than 300 employees, and yet we
have three full-time employees dedicated to regulatory
compliance at the Federal, State, and local levels. At least 50
percent of all my human resource department labor costs are
associated with compliance and reporting requirements.
Beyond the burden of employee time and money, excessive
regulation creates substantial frustration and impacts the
ability to expand, reinvest back into the business, and hire
additional associates.
A pain point for my company is compliance with employment
laws and regulations. For example, if we terminate an employee,
every State has a different rule on when to pay the last
paycheck to that employee. We must seek legal advice to
document the company's interpretation of the law. The cost
burden associated with navigating rules and reporting
requirements is substantial. Approximately 75 percent of our
legal bills are spent on employment law. That does not include
the cost of employee time spent on compliance issues, which are
also extensive. These same types of issues apply with labor
categories. When determining exempt versus not exempt, hourly
versus salaries, and other classifications, we must spend hours
reviewing and analyzing Federal, State, and local wage
determinations, and then we have to have it reviewed by legal
counsel so that if we are challenged, we have proof of our due
diligence. It is difficult enough to stay on top of all this if
you are in one city and one State, but multiple States present
even greater challenges.
Early engagement in the regulatory process is not easily
accessible to small business owners. Therefore, small
businesses do rely on the SBA Office of Advocacy to ensure
Federal agencies do not impose expensive new mandates on small
businesses when viable and less expensive alternatives to
achieve regulatory objectives exist.
Although the Office of Advocacy is working to advance the
views of small business in the regulatory process, we offer the
following recommendations to strengthen its voice, and we have
six: the first, expansion of Advocacy's rulemaking authority;
two, inclusion of indirect impacts on small businesses and
regulatory proposals; three, expansion of SBREFA panels to
include all agencies as proposed in S. 1120, introduced by
Senator Lankford; four, passage of the Prove It Act and SMART
Act, both introduced by members of this Committee;
retrospective review of existing regulations; and the sixth,
continuity in the Office of Advocacy's leadership during times
of political transition.
In closing, although small businesses contribute mightily
to our Nation's economy, we are often saddled with the long-
lasting effect of overburdensome regulations. Given additional
authority and an expanded role, the Office of Advocacy could
accomplish even more for the small business community.
Information is power. Additional input from small
businesses will result in shaping better regulations or
prevention of moving harmful regulations forward.
We support the Administration's effort to limit new
regulations and believe an additional layer of scrutiny
provided by the Office of Advocacy is needed.
Thank you for inviting me to testify at this important
hearing, and I look forward to answering any questions.
[The prepared statement of Ms. Hernandez Prenger follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Lankford. Thank you.
Mr. Baumann.
STATEMENT OF RICK BAUMANN, OWNER, MURRELLS INLET SEAFOOD,
MURRELLS INLET, SC
Mr. Baumann. Good afternoon. Thank you very much for
inviting me. Distinguished members of the Committee, my name is
Rick Baumann, founder of Murrells Inlet Seafood, a 52-year-old
small business located in the fishing village and Seafood
Capital of South Carolina, Murrells Inlet.
Over these many years, my company has been involved in
catching, processing, and distributing fresh seafood to the
public, regional restaurants, and seafood companies in Boston,
Montreal, New York, and Toronto.
I am here today to testify to the importance of Federal
regulations for my industry and want to focus specifically on
the failure of the Small Business Administration's Office of
Advocacy to ensure that Federal regulations do not encourage
irresponsible behavior by big polluting corporations whose
activities are detrimental to companies like mine.
I am not alone. I am testifying today on behalf of the
American Sustainable Business Council, representing over
250,000 small businesses in all industries across the country,
and for the South Carolina Small Business Chamber on whose
board that I serve.
Today I will focus on water and water-based businesses like
mine. I have worked on the water or relied on the water all my
adult life. As a teenager, I dove for shellfish in the bays of
Long Island and a few years later began working the water of
Murrells Inlet, South Carolina, while stationed at nearby
Myrtle Beach Air Force Base. I also worked for 14 years on
Maryland's Eastern Shore as a waterfowl guide and waterman. In
each of these endeavors, I learned specifically that water
quality is a requirement of sustainability.
My experience as a veteran reinforced my belief that our
government must be fair and honorable in the rules that it sets
and how they are enforced. Unfortunately, regarding the Office
of Advocacy, our government is falling far short of fair and
honorable.
I believe that regulations for small business can be good
and even necessary in order to achieve goals and
sustainability. These rules should create fair competition and
respect for the resources that all businesses, small and large,
should abide by.
For example, in the seafood industry, we have an ever-
growing list of regulations to keep our harvests sustainable
while also protecting threatened and endangered species. These
rules are quite burdensome for small businesses, but they do
have a long-term vision of a sustainable ocean fishery.
Today too often needed regulations like these are slowed,
watered down, terminated, or not even considered by Advocacy
due to the lobbying of big-business interests who seek to
maximize profits with no regard to sustainability or the
natural resources.
For example, the Administration has an ongoing campaign to
weaken or throw out most necessary regulations of the accident-
prone offshore oil business. These moves again favor more
profits for Big Oil but threaten the sustainable ocean
fisheries that businesses like mine try to maintain by
following regulations.
Another example are the mercury standards for coal-burning
power plants. They are already so woefully inadequate that
several species of fish have government warnings about mercury
levels, which encourages the public not to eat them, harming my
industry while cutting costs and bolstering profits for the big
power companies. This is not fair and honorable. It is a
blatant example of how big polluting businesses are influencing
the regulatory process at our expense and that of the general
public health.
A third example is Advocacy's letter to the Department of
Interior strongly supporting expanding offshore drilling for
oil drilling in the Atlantic, despite tens of thousands of
coastal small businesses on record in unanimous opposition.
The Office of Advocacy is supposed to be making our voices
heard on these issues, but they are not. This problem does not
apply only to this Administration. During the Obama
administration, the Office of Advocacy took a negative stance
on the efforts to strengthen the Clean Water Act and even
denied the American Sustainable Business Council and small
business leaders the opportunity to provide input. Thus, the
voices for maintaining and expanding the Clean Water Act to
protect businesses like mine were not heard.
In closing, I would like to say it is the Office of
Advocacy's mission to represent all small businesses impacted
by regulations. However, the Office has demonstrated a litany
of allegiance to big business, through policies and
recommendations, which are contradictory to the mission,
ignoring the needs of many of the small businesses they are
supposed to represent.
In summary, the voices of all small businesses in helping
shape good and timely regulations and government actions are
not being adequately heard.
For us to survive and thrive, we need our voices heard and
advocated for.
Thank you very much for your kind attention.
[The prepared statement of Mr. Baumann follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Lankford. Mr. Baumann, thank you. Thanks for your
testimony as well.
I want to recognize the Chairman of the full Committee for
Small Business and Entrepreneurship, Chairman Rubio, for an
opening statement.
OPENING STATEMENT OF HON. MARCO RUBIO, A U.S. SENATOR FROM
FLORIDA, AND CHAIRMAN, COMMITTEE ON SMALL BUSINESS AND
ENTREPRENEURSHIP
Chairman Rubio [presiding]. Thank you.
And I apologize. Both the Ranking Member and myself are
also members of the Foreign Relations Committee. We just had a
business meeting and probably the longest business meeting we
have had in 3 years.
Senator Cardin. A couple of Congresses.
Chairman Rubio. But we are here. We thank you.
I am going to be very brief. I want to thank all of you for
being here. I apologize to the first panel.
I cannot think of an area of the SBA that has more impact
on small businesses, whether they are aware of it or not, than
the independent regulatory watchdog, the Office of Advocacy.
Regardless if a business has one employee or 500, that business
is going to be subject to regulations, both Federal and at the
local level, particularly Federal is the ones we are focused
on.
The small businesses that I hear from across Florida that
come up here to testify and those that are represented here
today, they want clean water, and they want a clean environment
and safe workplaces. They want to achieve this through smart,
reasonable regulations, which are necessary to achieve these
goals.
Mr. Baumann was talking a moment ago about the water. One
of the things I like to do with my family is go fishing, and so
I can just tell you on a personal level, I have a personal
commitment in addition to a policy one to protecting the
waterways of Florida. And I think this is true across the
country. We want to continue to enjoy those resources.
Part of that has to be the equation of how do we protect
small businesses by crafting regulations that will protect the
water and protect the air and yet allow small businesses to
survive.
One of the best ways we can ensure that is to have
certainty by enacting meaningful regulatory reform that
advocates for small business within Federal agencies, and one
of the best things we can do for that is strengthen the Office
of Advocacy. And so I am glad we were able to have this hearing
today to discuss that.
We know that if we do not give Advocacy the authority to
enforce the Regulatory Flexibility Act, then the agencies are
going to continue to intentionally or unintentionally--I think
in many cases, unintentionally obviously, but harm small
businesses that are struggling, who share all the same goals we
do, but obviously have the added impediment of compliance
costs.
So the Ranking Member.
OPENING STATEMENT OF HON. BENJAMIN L. CARDIN, A U.S. SENATOR
FROM MARYLAND, AND RANKING MEMBER, COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP
Senator Cardin. Well, let me thank our witnesses, and
again, our apologies. It is not true that we did not want to
hear Mr. Clark. We did not want to avoid his panel, but it is
good that we got to hear from the public panel. So we are glad
that all four of you are here.
Mr. Chairman, I am going to ask to put my entire statement
in the record, and let me just summarize, if I might, very
quickly, because I want to get into the question period here.
It is very true that Federal regulations are a challenge
for small business. Small businesses do not have the resources.
They do not have the staff of large companies. We recognize
that. That is one of the reasons why we developed rules for
small businesses. As we pass legislation, we try to be mindful
of small businesses. That is why we have the RFA. That is why
we have the Small Business Office of Advocacy to deal with the
challenges of small businesses.
But, as has been pointed out, well-thought-out regulations
are critically important to all businesses and small business.
Mr. Arensmeyer's comments, I thought were very appropriate in
that regard from the Small Business Majority. It keeps bad
actors out, which is critically important to small businesses.
It provides stability, which is very important to small
businesses. It provides parameters of health care, clean water,
clean air, all that which is critically important. Small
businesses depend upon, in many cases, a clean environment,
and, Mr. Baumann, you made that point very clearly.
I assume you got your training on the Eastern Shore of
Maryland. I am glad that you are helping out other States
today.
But the point that you raise is very much a valid point.
So here is the challenge, as you point out. How do we deal
with the big businesses who have an anti-regulatory agenda,
hiding behind small businesses in order to achieve their
objectives of anti-regulation? I say that, Mr. Chairman,
because small businesses do not hire high-paid lobbyists. It is
the big businesses that hire the high-paid lobbyists that come
in here and use a small business example to try to kill
regulation, when in many cases the small businesses can benefit
from that.
I will give you just two examples, if I might, on areas
that are of particular interest to me. One is offshore
drilling. There are a lot of issues in regards to energy, et
cetera. We need to talk about offshore drilling, but as I look
at the shoreline of Maryland--and I am sure the shorelines of
the Carolinas are very similar--that there are small business
operators who are going to be the ones put out of business if
there is an environmental disaster, and the large oil companies
do not really care that much about that particular aspect. Who
is there fighting for the interest of small business as we
regulate what we do on offshore drilling?
We have a debate going on right now on net neutrality. Who
is looking after small business in the debate on the regulatory
issues concerning net neutrality? There is a big difference
between big companies and small companies when it comes to net
neutrality.
So the Small Business Office of Advocacy is there to help
small businesses to address the specific challenges that are
unique to small companies.
Senator Rubio and I have worked out within the Small
Business Committee that we are using the first part of this
Congress to review the existing law for the Small Business
Administration.
I thank the Chairman for devoting so much of the
Committee's resources to this. This has been our fourth or
fifth hearing on reauthorization.
So, as we look at the Office of Advocacy, how can we
improve it? You gave some specific suggestions, and I
appreciate that very much.
We welcome your specific suggestions as to how we can
improve the Office of Advocacy. We also look at whether we can
do a better job on the Ombudsman and the role that the
Ombudsman plays.
So I hope that, as a result of this hearing, we will have
suggestions in order to strengthen the tools that are currently
available to help small businesses deal with regulatory
challenges. Yes, we should take a look at RFA and see whether
it is properly targeted. There is a lot of soft language in
RFA, significant economic impacts, substantial number of small
businesses. Then you have a review process after 10 years. All
that can be mischievous or it could be helpful, and I think it
is important for us to try to zero in what can work to really
help small businesses deal with the challenges of regulation.
[The prepared statement of Senator Cardin follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Rubio. Thank you, Ranking Member.
With the Ranking Member's indulgence, I am going to
recognize Senator Lankford because he has carried the weight
here today in case he has any questions.
Chairman Lankford. Thank you.
I would say to Senator Cardin as well, I completely agree
on what you were just saying about the real small businesses.
It has been interesting. A lot of big businesses at times will
fight off regulations to be able to prevent regulations, and
then they will flip it on a different regulation and try to get
as much regulation as possible, knowing that small businesses
cannot keep up. They do not have the army of attorneys to be
able to manage it, and they drive people out with that as well,
so it goes both ways.
Dr. Sargeant, let me try to drill down on several things
that you had said. You brought some very specific
recommendations. Your insight is much needed on this because
you have been in that chair and then left that chair, and what
I found most effective with most folks that have served in a
Federal agency is that they smile and nod when they come in
front of us when they are in the chair, and then once they have
left that position, they have got a lot of good insight.
So we need your insight on this. You have been in that
Chief Counsel position with the Office of Advocacy. You brought
several specific ideas. One is more advanced notification. Tell
me what you mean by that.
Dr. Sargeant. Well, with the SBREFA panel, for example,
typically when an agency wants to convene a panel, they may
only get 30 to 40 days in advanced notice, and it is very
difficult to reach out to small businesses, what we call SERs,
the small entity reps, to have them come to Washington----
Chairman Lankford. Right.
Dr. Sargeant [continuing]. For them to be available.
So it would be helpful to give some more time so that the
Office of Advocacy could use their regional advocates and
really to reach out to make sure----
Chairman Lankford. Does the office tend to find people who
are connected to organizations? Are they reaching down to
individuals who may or may not be connected?
The reason I say that is there are some folks who would
say, ``I have never been asked, never have insight,'' and
obviously, there are tens of thousands of small businesses. Not
everyone is going to get tapped.
But how are they getting new voices into those SBREFA
panels?
Dr. Sargeant. Well, during my tenure, what we did is that
we tapped into the regional--the advocates who were out in the
region, and so what that did is that that was able to bring new
voices to the table because many times, unless you are in the
Beltway, inside the Beltway, you do not know what is going on--
--
Chairman Lankford. You do not even know what is happening.
Dr. Sargeant [continuing]. But once you can tap into some
of the regional advocates, then that is a way to bring more
people to the table.
Chairman Lankford. I asked Mr. Clark about advanced notice
or proposed rulemaking. I said, ``Is that helpful to be able to
get that to a lot more small businesses to be able to engage in
a more informal setting, so formal informal setting?'' You are
not fighting against language. It is an idea. Is that helpful
to have a greater use of advanced notice of proposed
rulemaking?
Dr. Sargeant. Yes.
Chairman Lankford. Let me ask you about your statement on
indirect costs. This has been an ongoing dialogue to say
whether you track direct or indirect cost. My belief is that
small business does not have a chart to say, ``These are
indirect costs so they do not apply to me.'' They just know
them as costs. How would you recommend we manage that?
Dr. Sargeant. Well, once again, during my tenure--this has
been a problem for a long time.
Chairman Lankford. Right.
Dr. Sargeant. So what we said is that let us tweak the
language so it would be near foreseeable indirect cost. So it
is not indirect because that is too broad.
Chairman Lankford. It is broad.
Dr. Sargeant. That is broad. But if it is close enough, if
there is a nexus, then that is where we say that there is a
significant impact on the substantial number of small entities.
Chairman Lankford. If we had a definition like ``near
foreseeable,'' would we end up in the same conversation we are
going to have today with you about significant economic impact
on a substantial number of small entities?
Dr. Sargeant. Well, we try to tackle one thing at a time,
but yes.
Chairman Lankford. Does that need greater clarification?
Dr. Sargeant. Oh, yes, yes. Or share some examples because
I think that when you give an example, I think that that helps
in terms of to say what is significant, because what is
significant to someone like me might be different than to
someone else.
Chairman Lankford. You have an ongoing dialogue with
agencies. When small businesses start contacting and say this
is significant, you go back to agencies, and they say, ``No, it
is not significant. We thought about it. We talked about it,
and we said this does not have a significant impact.'' What
happens at that point in the Advocacy?
Again, as I mentioned to Mr. Clark, you do not have a thou
shall or thou shalt not ability to any agency to go to them and
control it. It is a relational dialogue to be able to work
through this process. Tell us the mechanics of how you get this
resolved.
Dr. Sargeant. Well, it helps to come with data. That is
where you go with outreach and you use your regional advocates
to find out if this rule is going to be a problem. So you do
not stay within the Beltway. You go----
Chairman Lankford. Challenge it with data.
Dr. Sargeant [continuing]. To the country to say, ``This is
a problem. Tell us in your region. Is this a problem?'' Then
you bring that back to the agency and share that.
Chairman Lankford. One last question that I had for you,
and that is on retrospective review. You would encourage
greater use of retrospective review. Does that also include
setting a date?
There has been some dialogue among us to say when a rule is
put out, we should have a date certain to say we are going to
review this point, and here are the metrics that will evaluate
its effectiveness of this regulation. Is it working, not
working? Basically, you create a reg to be able to accomplish
something. You should know if that is going to actually be
accomplished, whether it needs to be reviewed. Would that be
helpful?
Dr. Sargeant. That would be very, very helpful. Once again,
in my testimony, I say that hindsight is 20/20. So if a rule
has promulgated and all these assumptions went into the rule in
terms of what would be the impact, now one can look back 3 or 4
or 5 years to see whether or not those impacts were there, and
so I think that the agency should be able to get the data to
say whether or not this rule was effective.
Chairman Lankford. Great. Thank you.
Thank you, Mr. Chairman.
Chairman Rubio. Senator Cardin.
Senator Cardin. Well, let me thank all four of our
witnesses. I think the testimony has been extremely helpful.
Mr. Arensmeyer, let me start with you, if I might. Clearly,
when we pass statutes, it is good if we give clear direction,
and that can help small businesses. And we have done that. We
did that in the Affordable Care Act. We did it in other acts.
Absent that, we have the RFA and the review process of
regulations on the impacts that it has on small businesses, and
we have the Office of Advocacy. My question to you is: Is the
RFA Act adequate as currently drafted, or should we be looking
at strengthening it? When we look at the Office of Advocacy, do
you have any suggestions for specific changes, statutory
changes as it relates to that agency?
Mr. Arensmeyer. Well, as to the RFA, Senator, certainly, as
it was already mentioned, that there is maybe some loose
language in there. So we have no problem with tightening the
language. The more clear the direction is to the Office of
Advocacy, the better.
I think that that should be accompanied by a requirement
that real data be used. Data is critical to this research.
So I would agree with Dr. Sargeant that perhaps more
advanced notice. That would be fine.
So we are all for making sure that the office can do its
job, but do its job based upon real data, a real analysis.
And the other thing I would recommend is some language that
would require the Office of Advocacy to have a wide range of
businesses. Sometimes it is just a bandwidth issue. There are
all sorts of businesses, different sizes, different shapes. We
represent primarily businesses that are smaller or even a lot
of independent entrepreneurs, and we want to make sure their
voice is in the process.
Eighty percent of all businesses have fewer than 10
employees. So we would recommend that we would be a little
nervous about this indirect issue, and I get it conceptually.
But trying to apply data, any kind of rigorous analysis when
you are talking about indirect, I think is a challenge.
So I think the goal would be to make sure the office is
adequately funded, the office is using as much real data as
possible, perhaps giving more notice. Perhaps some of the
language can be tightened up, but kind of leave it at that.
Senator Cardin. I share your concern about the indirect
because that could be used as an agenda item to deal with anti-
regulation. I also am concerned about the 10-year review, that
that could also be used for nefarious reasons rather than
dealing with the challenges of small business.
Let me get to the other arm, which is the Ombudsman. I know
that is not the subject of today's hearing, but is there a way
of strengthening the Ombudsman in order to help in regards to
these issues?
Mr. Arensmeyer. Yes. The Office of Ombudsman has a very
important role, but I want to distinguish. The Office of
Advocacy really plays a role at the front end, working with the
agencies, doing the analysis, helping them understand, helping
them really understand the small business impact.
The Office of Ombudsman, I believe, as the statute is
written--and we see its role as helping small business owners
comply with regulations, helping them cut through the thicket,
and in that sense, we think that they should be well funded.
Again, the roles are very different. I mean, I am not
saying they cannot obviously communicate, but we would not want
to see the Office of Ombudsman become kind of a second Office
of Advocacy on the front end.
I know Senator Shaheen has put forth legislation that would
increase the outreach, the funding for outreach, expand the
capability to render assistance, and then actually help smaller
businesses with the procurement process sort of cut through all
of that.
So, yes, the Office of--I mean, we do this ourselves when
we are out across the country, providing education and
resources to small businesses. So the fact that there is an
office, a Federal office, that does that, we fully support
that, but we do not think they should sort of merge into the
actual up-front review process. We should--better to make sure
the Office of Advocacy is adequately supported to do that.
Senator Cardin. That is helpful.
Mr. Baumann, I want to ask you a question as to your input.
In the last decade, there have been numerous major
environmental regulations that have gone through lengthy
procedures and controversial procedures. I have been engaged in
some of those regulations as far as communicating views and
listening. I am just wondering how effective do you think your
voice is being heard in the hearing process on these
regulations?
You are very much affected, as you pointed out in your
testimony, as to the importance of a sustainable environment. I
thought your quote about sustainable environment is critical to
your stability, but how effective do you think the agencies are
in getting the input of a company like yours on these major
environmental regulatory issues?
Mr. Baumann. That is a pretty broad-based question, and I
have been involved in quite a few issues like that, whether you
are talking about the Clean Water Act or any number of things.
But I think in respect to the Clean Water Act, I was on a
committee. We tried to advise the county on how to comply to
NPDES II back in 2004. A lot of these environmental regulations
are like the Clean Water Act in that they are well intended. My
fishing buddy promulgated that and negotiated it into law, Ian
Marceau. He is no longer with us, but he promulgated and
negotiated the Clean Water Act into law. And we went fishing in
early 2000s, and he lamented to me about the stuff that was
written in the 1970s was still not being done because of so
much friction, resistance from big business, big industry, and
things of that nature. And I see it happening again today.
The voice of the small businessman up against these big
lobbying corporations with deep wallets and campaign donations
and so forth like that, it is hard to get the attention of the
folks who can make a difference from the small business
perspective. It really is.
Senator Cardin. And I am really not getting to the merits
of the regulation itself. We can debate the importance of it to
its intended mission, and we can have that debate in the agency
or in Congress.
What I want to make sure is that small business interests
are being heard, and it seems to me that the current line-up,
because it is such a difficult process, that it is the
sophisticated companies that have the ear of the Congress and
the ear of the Administration and agency.
I will just give you one example that is currently pending
is net neutrality. Now, we can argue whether the net neutrality
rule is right or wrong on a policy point of view, but there is
definitely a small business interest in net neutrality. And I
do not think that has been well presented during this
discussion.
It is our responsibility to make sure the small business
community is heard. So that is why I think we are looking. We
are not looking to take an edge on the policy issues that may
divide us, but I think this Committee is not divided to make
sure small businesses get their message and get their input
into what is being done.
So that is why I think we are looking at how we can modify
the tools that are currently available so that your voices can
be heard.
Mr. Baumann. In that regard, I would just like to encourage
everybody on the panel to look into and support Senator
Shaheen's recent endeavors with the Small Business
Administration Office of National Ombudsman where they can help
out in respect to regulations of small business. As other
people have alluded to, it is overwhelming for small businesses
with small staffs to try and comply or understand or even get
into the meat of the matter of what these regulations are
about.
Sometimes people come around from wildlife or people come
around from national marine fisheries, and they want to do an
inspection. And we find out about something new that has been
passed a few months after it has already happened because
nobody has told us about it, and it is kind of hard for us to
react to that.
Senator Cardin. Ms. Prenger, I want to give you a chance to
respond, but I thought the point that was made by Mr.
Arensmeyer is a good point.
The Review Act is to get the regulation done right from the
beginning to help small businesses. The Ombudsman is to help
comply with the regulatory results.
Our laws that we pass should get things right even before
the regulatory process starts. It starts with Congress. We make
the laws and policy, so it starts with us. The regulatory
review process should have the appropriate input from small
business.
So you gave us some specific suggestions, but as you see
the process of developing laws, the review of statutes, and
then assisting small business and dealing with it, where do you
think we should place our priorities?
Ms. Hernandez Prenger. Well, that is pretty complicated.
They are very separate but also overlapping.
As a small business owner, I know that if I were not in
associations that help notify small businesses of what is going
on and I was content to run a restaurant or do something that
is pretty isolated, I may be very unaware of things that are
passed into legislation that are new rules and regulations,
just as the other panelists have discussed.
Because of involvement with woman-owned organizations, with
small business organizations, the Chamber of Commerce, there
are places small businesses could go, but there is not a one-
stop place. So there are so many different agencies that put
out information to us and then trying to figure out what is
happening now, what do we have to comply with now, how has that
changed how we have been doing business? Are there impacts that
we need to mitigate or pivot? So it is a constant exercise of
making sure that you are in compliance.
And then having a regulatory fairness board is an
opportunity to go ahead and vet situations that are either
unfair or should be reviewed, but unless you are familiar that
there is even that availability through the Small Business
Administration--and I do not think very small businesses know
that that even exists--then you feel that you are just
basically talking to a wall when you call up an agency or you
have to try to figure out how do you try to make something
fair.
Senator Cardin. Thank you.
Thank you, Mr. Chairman.
Chairman Rubio. Thank you.
Just to follow up on that, Ms. Prenger, the National Small
Business Association in their 2017 regulatory survey said the
average small business owner spends at least $12,000 in
compliance on regulations, and obviously, every dollar that is
spent on one thing is not spent on something like the
opportunity for growth and investment.
How has regulation and regulatory compliance cost impacted
your ability to compete with a larger business?
Ms. Hernandez Prenger. Well, larger businesses have an
economy of scale, right? So they have already been through a
lot of these things. They also have specialists in-house. They
have in-house legal counsel.
Earlier in my testimony, I mentioned when we go through and
we have to make sure we are in compliance, in order to keep our
costs down, instead of going about growing revenue or doing
other activities that would enhance our business, we are
spending time to keep our legal costs down, making sure that we
understand what we need to be in compliance with before we even
bring it to legal counsel, so that our bills are not
astronomical.
It is very interesting. Something as simple as an
affirmative action plan can--we had a kind of ``Hey, we need to
do this. We want to make sure it is in compliance.'' That was a
$20,000 bill that we did not budget because we did not give a
budget to a legal firm to do that.
So, as a small business, we want to do the right thing. We
want to do what is right and fair, but in making sure that we
do our due diligence and doing it in those manners, we also
spend a lot of time trying to do it in a way that is cost-
effective for the business that impedes our ability to grow.
Chairman Rubio. Mr. Baumann, in addition to running the
seafood company, I believe you served on a commission that was
helping educate others in your area on how to comply with the
National Pollutant Discharge Elimination System requirements
under the Clean Water Act.
Were there ways that the EPA could have written the
regulation that was clearer and easier to comply with, while
still achieving the same goal of clean water?
Mr. Baumann. Well, my involvement in that, sir, was back in
2004 and 2005. I had two Ph.D.'s advising me on all the
intricacies of it. I was just an appointed official to put the
information together. So I am not all that up on the
technicalities.
But I can tell you that I learned a lot about how big
business interests typically are more vocal and more adamant
about fighting regulation of any type, just because the
regulation. The fact that we were still trying to comply with
the Clean Water Act in 2004, when Mr. Marceau and his crew had
it written in the early 1970s, speaks volumes about how stuff
gets delayed, especially in environmental terms.
Water quality, in my view, is going to be the biggest issue
for the coming generations all over this country. The access to
clean, usable, fresh water is going to be a real challenge, and
we are not addressing it. It is still the old saying: Pay me
now or pay me a lot more later. And continually, when it comes
to environmental issues like the Clean Water Act, we always
kick the can down the road, sweep the stuff under the rug, and
we end up paying a lot more for it. And the intent of the
regulation, the good intentions of the regulation get watered
down.
I really believe that when it comes to climate change, when
it comes to offshore drilling, there is so much that we know,
but instead of taking formative action, we debate and debate
and kick the can down the road. At some point, we got to
realize Mother Earth is our home, and we need to take care of
her.
Chairman Rubio. Mr. Arensmeyer, the Small Business
Majority, which you are a part of, supports regulations that do
not place an undue burden, not that you opposed regulations.
You oppose regulations if it can avoid placing an undue burden
on a small business.
Could you talk to us about regulations that you as an
entrepreneur or as a member of the Small Business Majority have
run across that have been unduly burdensome?
Mr. Arensmeyer. Yes, sir. I will give a couple.
Let me just say that there is clearly a cost to most
regulations, and we do not deny that. You know, it is a cost-
benefit analysis, and anything that the government can do, that
we all can do to relieve that burden, whether that is with
services from the Ombudsman or maybe changing the rules a
little bit for people that are smaller, that is fine.
I think an example would be when the ACA was passed, and we
supported the ACA, but there was a provision that a vast number
of transactions had to be reported on 1099, not just payment to
contractors. And we immediately realized this was going to be a
terrible burden on small business, and we raised it. And we
actually led the charge to get that provision changed.
So I think when the overtime rules were presented by the
Labor Department during the Obama administration, clearly there
needed to be a change in the threshold for white collar work.
It had not been changed in a long time, but it was a doubling.
It was a huge jump, and our members weighed in very heavily
that they supported the concept of raising the threshold, but
not overnight, not quickly. Government contractors had issues.
They had bids out there where they were going to pay people
just time, and all of a sudden, they are going to have to pay
time-and-a-half. And that was not in their control. We weighed
in on that as well.
So there are definitely times where sometimes an initial
version of something misses the mark or impacts small
businesses in a way that people have not thought about, and we
are happy to--again, it is not an ideological thing. It is a
cost benefit. Let us look at the situation. Our only concern is
to approach regulation in general as being something negative,
I think is not the way we should look at it. We should be doing
it on an individual case-by-case basis.
Chairman Rubio. Dr. Sargeant, when the waters of the U.S.
regulation came out, the EPA and Army Corps of Engineers
determined that the cost would not have a significant impact on
small entities, and that has allowed them to sort of circumvent
the requirements of the RFA.
At the time, I believe you had been nominated to be the
Chief Counsel of the Office of Advocacy for President Obama.
Yet in 2014, you signed a letter to Administrator McCarthy that
called out these agencies, specifically, the Army Corps and EPA
for not abiding by the RFA and incorrectly certifying that the
rule would not have a significant impact. You did not opine on
the wisdom, obviously, of the regulation, but rather that they
were able to get around the RFA by saying this would not have
any impact on small business.
I am just curious, not as a political matter, but sort of
in the balancing act that is involved in all of this. Is it
hard to maintain the Advocacy's independence the way it is
currently structured, and at the same time, speak out on the
Administration, any Administration, with regard to legal
compliance?
Dr. Sargeant. Well, Senator, I think that it helps that the
Small Business Act of 2010 gave the line item in the Treasury
that the Office of Advocacy had its own budget. So that was one
step that really showed that the office was independent.
But I also think, too, that the way that the office is
structured in terms of outreach, it focuses on data, and so
what we were saying is that not that the rule that the EPA and
the Army Corps could not go forward with the rule, but they did
not follow the RFA. So, as the watchdog, during my time, we
wanted them to follow the RFA, and they certified that this
would not have a significant economic impact on a substantial
number of small entities.
We believe that when the RFA is followed that the agencies
had better rules, that the outcome is better rule writing, and
those who are impacted, once you include those small entities,
they know how to comply, because it is one thing to have a rule
and not know how to comply, or then you have to go out and
spend a lot of money just to know how to comply. And you still
may get it wrong.
So what this letter said is that you did not follow the
RFA. You should not certify the rule. Form a panel. That is
what the SBREFA panel process was about, and let us go through
the process.
Chairman Rubio. Yeah. It is curious. We keep coming back to
the same point here a number of times, and that is the respect
that is given to the RFA. The current Administration is
considering a new definition of waters of the U.S. Yet,
Advocacy has had to write to the agencies again, asking that it
reconsider its certification, that the rule would not have a
significant impact on small entities.
What is it going to take to get these other agencies to
care more or respect more what the Advocacy Office is pointing
out?
Dr. Sargeant. Well, I have seen some legislation where--I
guess that it is called the Prove It Act. I think that is one
piece of the puzzle that will help. That if an agency moves to
certify, then that empowers the Chief Counsel to notify the
head of the agency why the Office of Advocacy is in opposition
to the certification and then mandate that the agency would
reach out to the small business community, to what we call the
SERs, to have a comment period, to really go through the
process again.
Like you said, just because it is on the books, just
because it is the law does not mean that the agency has to
follow. So sometimes you have to make the law much clearer,
more clear in terms of the steps that must be taken before a
rule goes final.
Chairman Rubio. I have one final question on all this. I
know that if a new regulation is put in place, the job is to
find examples of where it would unduly burden----
Dr. Sargeant. Yeah.
Chairman Rubio. I am curious. There are scenarios in which
a rule would place a burden on all businesses, but it could
potentially place a catastrophic burden on a small business. A
rule would not just cost them money. It would put them at a
direct competitive disadvantage with a business of larger
scale.
I imagine that is true of all these regulations, but that
is not a part of the analysis, or is it?
Dr. Sargeant. The analysis should be what is the unduly
burdensome rule. It is not that the rule will cost, will be
costly, but is this rule, is it unduly burdensome, and did the
agency take steps to minimize the impact of this rule on small
entities? So that is where the Office of Advocacy and the team
is always working with agencies to see what type of alternative
did they consider because there are some rules--like, for
example, some of the banking rules, small banks and small
financial institutions did not bring this country to its knees
back during the Recession. It was the big banks, but yet, when
they passed these far-reaching laws of Dodd-Frank and what have
you, some of the small banks got caught up.
So what we are saying is that through the SBREFA panel
process and through the process, look for ways to minimize the
impact on those who are bad actors and so that small businesses
are not caught up in the rule.
Chairman Rubio. I guess what I am driving at in some way--
and perhaps it is something we need to talk about further at a
different time. But you and I know--and we can foresee examples
of where a large business that is politically organized can
actually use regulations to wipe out competitors.
Dr. Sargeant. Yes.
Chairman Rubio. I am not sure that that would register as
unduly burdensome in an analysis, or maybe it would, but I
could see it being used as a strategic advantage. Again, this
may be a terrible analogy, but imagine if Blockbuster Video 20
years ago had figured out that someone was going to try to
start streaming video and went out and got a regulation written
prohibiting the streaming of video because you could not ID
people before they watch these movies. And they would argue it
is in the safety of the public. I would argue it is a way to
prevent a competitor from entering the marketplace. Blockbuster
would still be in business, and Netflix and others would not. A
terrible analogy, probably, but nonetheless it is an example of
how you could see a regulation, if properly crafted to prevent
an innovative competitor from entering the industry space or
continuing to be in the space, and I do not know how that is
accounted for in this process of analyzing all this.
Dr. Sargeant. Well, I think that it helps to have more time
in the rulemaking process. Part of the regulatory agenda, each
agency is supposed to publish the rules that they plan to work
on. We have got to make sure that small businesses are aware of
what are the rules that are coming down the pike.
Two, I think it is important that the Office of Advocacy
contain its outreach. It has these roundtables that go around
the country. So it is not just the Beltway. It is making sure
that those outside know that these rules are coming and get
there, get the feedback in terms of how this rule will impact
their business.
Senator Cardin. Let me again thank the witnesses.
I was impressed that you knew what Blockbusters was. I
thought at your age----
[Laughter.]
So I learned something today.
Chairman Rubio. I remember fax machines and beepers.
[Laughter.]
Senator Cardin. Okay. Well, let us see how far. Do you know
about the----
Chairman Rubio. Eight-tracks?
Senator Cardin. Eight-tracks. Okay.
You know what a typewriter is also?
Chairman Rubio. A what?
[Laughter]
Senator Cardin. So I think you raised a good point. I would
just urge us to get a better understanding from how the act
works on the impact on small businesses versus larger
companies, because you could have a same unit cost of
compliance between big businesses and small businesses, but the
burden on the small business could be substantially higher.
So I think we really do have to have a better understanding
as to how that is being interpreted and whether we need to deal
with that and understand that.
So I think this exchange has been extremely helpful, and I
thank all of our witnesses.
Chairman Rubio. I do too.
By the way, just now that the statute of limitation has
passed, not only do I remember Blockbuster Video, I still have
a couple of their cassettes.
[Laughter.]
Chairman Rubio. But I think it is too late. They cannot do
anything about it. Anyway, that is also a joke in case someone
is watching C-SPAN at 4:15 or whatever.
But I want to thank all of you for being a part of this.
This work we are doing is important. I think it is educational
for members as we try to do the reauthorization. It also allows
us to learn about the different complexities, and today was
unique because you saw two committees, meeting because it
overlaps in jurisdiction. So I thank you all.
The hearing record will stay open for 2 weeks, and any
statements or questions for the record should be submitted by
Wednesday, June 5th, at 5:00 p.m. There is the possibility that
some member who had to leave or could not be here might send a
question that they will want you to answer if you can do it. We
do not want to be unduly burdensome, but if you can, that would
be helpful. It is in the record, and we can refer back to it
when we pursue legislation.
Again, I want to thank all of you for being here for your
patience. Again, we ask for your forgiveness. We had the other
hearing today that kept us from here, but, by all accounts, it
went very well for the first panel, and, luckily, we are here
in time for all of you. So thank you so much.
With that, the meeting is adjourned.
[Whereupon, at 4:18 p.m., the Committee was adjourned.]
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