[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
REGULATORY REFORM INITIATIVES AND THEIR IMPACT ON SMALL BUSINESS
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC, JUNE 7, 2000
__________
Serial No. 106-60
__________
Printed for the use of the Committee on Small Business
__________
U.S. GOVERNMENT PRINTING OFFICE
67-560 WASHINGTON : 2000
COMMITTEE ON SMALL BUSINESS
JAMES M. TALENT, Missouri, Chairman
LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD,
DONALD A. MANZULLO, Illinois California
ROSCOE G. BARTLETT, Maryland DANNY K. DAVIS, Illinois
FRANK A. LoBIONDO, New Jersey CAROLYN McCARTHY, New York
SUE W. KELLY, New York BILL PASCRELL, New Jersey
STEVEN J. CHABOT, Ohio RUBEN HINOJOSA, Texas
PHIL ENGLISH, Pennsylvania DONNA M.C. CHRISTENSEN, Virgin
DAVID M. McINTOSH, Indiana Islands
RICK HILL, Montana ROBERT A. BRADY, Pennsylvania
JOSEPH R. PITTS, Pennsylvania TOM UDALL, New Mexico
JOHN E. SWEENEY, New York DENNIS MOORE, Kansas
PATRICK J. TOOMEY, Pennsylvania STEPHANIE TUBBS JONES, Ohio
JIM DeMINT, South Carolina CHARLES A. GONZALEZ, Texas
EDWARD PEASE, Indiana DAVID D. PHELPS, Illinois
JOHN THUNE, South Dakota GRACE F. NAPOLITANO, California
MARY BONO, California BRIAN BAIRD, Washington
MARK UDALL, Colorado
SHELLEY BERKLEY, Nevada
Harry Katrichis, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
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Page
Hearing held on June 7, 2000..................................... 1
WITNESSES
Spotila, John D., Administrator, Office of Management and Budget. 4
Coyne, James, President, National Air Transportat Association.... 33
Thomas, Duncan, President & CEO, Q-Markets, Inc.................. 37
Selzer, Kenneth, National Association of Home Builders........... 41
APPENDIX
Spotila, John D.................................................. 51
Coyne, James..................................................... 65
Thomas, Duncan................................................... 71
Selzer, Kenneth.................................................. 80
REGULATORY REFORM INITIATIVES AND THEIR IMPACT ON SMALL BUSINESS
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WEDNESDAY, JUNE 7, 2000
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 10:05 a.m., in room
2360, Rayburn House Office Building, Hon. Jim Talent (chair of
the committee) presiding.
Chairman Talent. The committee will come to order. The
ranking member and I would like to welcome Mrs. McCarthy. Thank
you for attending. I am sure other members will come in as we
proceed.
Our hearing today is the first in a series of hearings that
will be held by the full committee and Subcommittee on
Regulatory Reform in preparation for this committee's
reauthorization of the Paperwork Reduction Act in the year
2001. This hearing will focus on a topic of interest to all
members of the committee: The regulatory burdens imposed on
small business; whether the administration's regulatory relief
efforts have effectively reduced not just the number of
government regulations, but the cumulative regulatory burdens,
including reporting and recordkeeping requirements in small
business.
I have called today's hearing to review these efforts, hear
from small businesses that are in the trenches when it comes to
regulatory compliance, and explore what changes are needed in
the Paperwork Reduction Act, the Reg Flex Act or other statutes
in order to ensure that Federal regulators only impose those
burdens necessary on small business in order to satisfy the
mandates given them by the Congress.
On September 30, 1993, President Clinton stated, ``The
American people deserve a regulatory system that works for
them, not against them, a regulatory system that improves the
performance of the economy without imposing unacceptable or
unreasonable costs on society, the regulations that are
effective, consistent, sensible and understandable.''
During my tenure as chairman of this committee, I have not
seen a regulatory system that works for small business nor have
I seen a regulatory system that has eliminated regulations to
spur economic growth for small business. Instead, I have seen a
system that continues to impose burdens on small businesses
whether by regulation codified in the code of Federal
regulations, through guidance masking as regulation or in the
instructions to various forms that must be submitted to the
government.
During the past 3 years, this committee and its various
subcommittees have examined the significant adverse impact on
small businesses of the following proposed rules: the proposed
changes to the competition standard and the Federal acquisition
regulation; the proposed comprehensive health and safety
program; proposed modifications to OSHA's injury and illness
reporting and recordkeeping requirements; EPA's proposed
changes to the national ambient air quality standards for
ozone; and numerous other regulations as well.
And these only begin to skim the surface. The April 24th,
2000, issue of the Federal Register alone contains
approximately 1,300 pages of proposed and final regulatory
actions. I do not believe a small business owner given the
scope of this semiannual agenda would say that their regulatory
burdens are ebbing. Nor does the data from OMB indicate as
much. In its latest draft report to Congress, OMB noted that
the total annualized cost of regulation on the economy is
anywhere between $174 and $234 billion.
Many regulatory actions in the name of interpretive
guidance, instructions for completing various reporting
requirements and executive orders impose substantial costs on
small business. For example, the IRS published in that
periodical to which all small business owners subscribe, the
Internal Revenue Bulletin, a revenue procedure modifying the
use of cash accounting. This committee examined the substantial
adverse impact of that revenue procedure. Nevertheless, these
costs would not be included in OMB's report to Congress on the
costs and benefits of Federal regulation; because it wasn't put
in the context of a rule.
Even more problematic is that these regulatory actions
issued under the rubric of guidance are issued without going
through the analytical requirements mandated by the APA, the
Reg Flex Act or Executive Order 12866. Agencies may then miss
cheaper and more efficient mechanisms to accomplish compliance
with their regulations.
The guidance is not the problem. Rather, it is how the
agency uses the guidance that can have a severe impact on small
business. If the agency uses compliance with guidance as the
measure of compliance with the underlying regulation, then the
guidance becomes a de facto regulation itself, imposing
substantial costs on small businesses. We need to recognize
this problem, determine its scope and ensure that guidance
remains just that.
Today's hearing will examine these issues. We will be
hearing testimony from John Spotila, Administrator of the
Office of Information and Regulatory Affairs in the Office of
Management and Budget. He will be addressing the efforts of the
administration to reduce regulatory burdens on small business,
and I expect to examine ways to ensure that the regulatory
process does not impose unnecessary costs on small business.
We will also hear from representatives of the small
business community, who will tell their story about the
administration's efforts to reduce unnecessary regulatory
burdens on small business. I also will be interested in hearing
from the small business representatives whether they feel the
current regulatory process, including those associated with the
Paperwork Reduction Act, adequately measure the cumulative
regulatory burdens on their business.
I will now recognize the ranking member, the distinguished
gentlelady from New York, for whatever statement she may wish
to make.
Ms. Velazquez. Thank you, Mr. Chairman.
We are here today on a very important matter, one that goes
to the heart of small business concerns. The burden of
regulations for small business can sometimes be overwhelming.
The time spent sorting through all the requirements takes away
from productivity, and complying with regulations can add
significant costs. What is more, regulations can be confusing
and even contradictory, and yet we know that in a growing and
sophisticated economy a certain number of regulations are
necessary. While they may be burdensome, many regulations offer
needed protections to workers, consumers and even small
business owners themselves. And it is not that small business
is opposed outright to regulations; sometimes it even requests
a regulation to address a need or to save money.
But the bottom line for small business owners is that they
want regulations to be clear and well thought out. They want to
be included in the process, and we in government bear the
responsibility for making that happen. As with many things in
life, the key is finding the right balance, and I think this
administration has done a good job of trying to find that
middle groundbetween onerous, confusing, conflicting and
unnecessary regulations and sound, reasonable protections for all
parties involved. It has systematically examined regulations and opened
up the process to small business, and certainly Congress has also tried
to do its part.
So I think we can agree that a lot has been done to reduce
the regulatory burden on small business, but I think we can
also agree that a lot more needs to be done. While complaints
from small business are down, the number of regulations are up
by 3 percent last year alone, and it is important to keep in
mind that the Internal Revenue Service fuels this bill here,
being as it is responsible for 90 percent of the paperwork
associated with regulations. That is why Congress needs to pass
H.R. 1882, which will bring the IRS under the panel review
process and give small business a seat at the regulatory table.
Regulatory analysis is nothing new to Federal agencies.
Because of the costs imposed by Federal agencies, every
President from Carter to the current administration has
established a formal system to review new regulations before
they are issued.
Today, we will examine the process this administration has
used to further this reduction and reform. First, we will look
at how we can continue to make the Office of Information and
Regulatory Affairs, or OIRA, more effective. OIRA is the
division of the Office of Management and Budget that is charged
with helping agencies simplify and reduce excessive
regulations.
Second, we will consider how to keep the pressure on
agencies to listen and respond to small business concerns.
And third, we will be looking for ways to ensure the
regulations are clear and understandable.
Reform efforts during the last 8 years have done a lot to
move us toward a balanced process. This is another opportunity
for us to fine-tune the system. It is also an opportunity to
enhance the openness and communication fostered by this
administration. I think we can agree that this has resulted in
a more thoughtful analysis of the impact of regulations on
small businesses.
Thank you, Mr. Chairman, and I look forward to hearing from
our panelists.
Chairman Talent. I thank the gentlelady, and we will go
right to our first panel, which consists of one witness, the
Honorable John D. Spotila, who is administrator of the Office
of Information and Regulatory Affairs of the Office of
Management and Budget.
Thank you for being here, Mr. Spotila. You can give us your
statement.
STATEMENT OF THE HONORABLE JOHN D. SPOTILA, ADMINISTRATOR,
OFFICE OF INFORMATION AND REGULATORY AFFAIRS, OFFICE OF
MANAGEMENT AND BUDGET
Mr. Spotila. Good morning, Mr. Chairman and members of the
committee. Thank you for inviting me to appear before you today
to discuss regulatory reform and paperwork reduction.
I would ask that my entire statement be submitted to the
record, and I have a shorter version here. We appreciate your
interest and welcome the opportunity to work closely with the
committee on additional constructive efforts at reform.
The President has often emphasized his belief that small
business is vital to our economy. Small business owners have
generated millions of new jobs, leading the way with their
energy, creativity and hard work. We share the goal of reducing
the burden imposed on them by Federal reporting, recordkeeping
and regulatory requirements. We need to adopt common-sense
measures, promoting the public good while reducing the costs of
compliance wherever possible.
This is a subject of particular interest to me. Prior to my
service in Washington, I was a small business owner myself for
many years in New Jersey. As general counsel of the SBA for 5
years, I led its efforts to reduce the regulatory and paperwork
burden on small businesses. I know the importance and the
difficulty of achieving meaningful reform.
In cooperation with the Congress and with the help of small
business owners, the administration has made real progress.
Much more needs to be done, however, and we can only be
successful if we work together in a constructive way.
The administration has made a significant effort to listen
to small business and consider its needs. The President has
been aware from the beginning that Federal regulations and
paperwork can seem daunting to small business owners. At his
request, agencies have reached out to small business owners and
asked them what changes were needed most. The message came back
that small business wants an early voice in regulatory
development, clarity and consistency in regulations, compliance
assistance, and less red tape and paperwork.
We have listened to this message and have followed up on
each point, working within the administration to implement new
policies that respond to small business needs. While the job is
not finished, these approaches have proven successful and have
made significant contributions to the American people.
The President addressed the regulatory process in 1993 when
he issued Executive Order 12866 on regulatory planning and
review. As the Chairman noted, there he directed Federal
agencies to create a regulatory system that works for, not
against, the American people. Pointing out that good
regulations are essential to protecting the public's health,
safety environment and well-being, he emphasized that agencies
must follow sound regulatory principles, issuing rules only
when necessary and assessing the costs and benefits of
available regulatory alternatives in order to maximize net
benefits.
He gave my office at OMB specific responsibility to review
all significant Federal rules before publication and to oversee
compliance with the order. We currently review more than 500
significant rules each year to ensure their compliance with the
order. We also work closely with the agencies to help them
improve their development efforts.
In March 1994, OIRA and SBA launched an interagency Small
Business Forum on regulatory reform, engaging EPA, OSHA, IRS,
the FDA, DOT and other agencies in examining the aggregate
impact of Federal regulation on five small business industry
groups: chemicals and metals; restaurants; food processing;
trucking and environmental disposal; and recycling services. A
second working group focused on tax-related issues that
affected all of the designated industry sectors. More than 230
small business representatives and agency employees
participated, discussing new ways to reduce the regulatory and
paperwork burden on small businesses.
After a series of roundtables and work sessions with the
small business representative, the forum released a report in
July 1994 with some 140 recommendations. Many were specific to
the industries studied, while others had a broader focus. They
supported early involvement by small business owners in the
development of rules, greater use of electronic docket, broader
use of information technology to disseminate information, and
an emphasis on compliance assistance efforts rather than harsh
enforcement. The participating agencies took these
recommendations seriously and began work on implementing them.
In late 1994, the Vice President led an agency effort to
consider new approaches in the regulatory area. SBA
participated throughout this process, drawing on the insight
gained in the forum process to draw attention to the needs of
small business owners. On February 21st, 1995, the President
lent public support to this effort, directing regulatory
agencies to do four key thingsin the regulatory area: cut
obsolete regulations; reward results not red tape; create grass-roots
partnerships; and negotiate, rather than dictate.
On March 4th, 1995, he called on the agencies to conduct a
page-by-page, line-by-line review of all of their existing
regulations to determine which might be revised or eliminated.
The agencies responded with an enormous effort, revising or
eliminating thousands of pages of regulations in the ensuing
months.
On May 22nd, 1995, the President signed into law the
Paperwork Reduction Act of 1995, a statute he strongly
supported.
In June of that year, the President and the Vice President
welcomed some 1,600 delegates to Washington for the White House
Conference on Small Business. Acknowledging the tremendous
contributions of America's small business owners, the President
emphasized again the importance of reducing paperwork and
regulatory burdens on small business. The delegates later
approved 60 policy recommendations and sent them to the
President and to congressional leaders. Several of these
recommendations dealt with regulatory reform.
The President asked SBA to coordinate implementation of the
recommendations. And as SBA's chief counsel for advocacy has
reported, the administration and Congress have taken meaningful
action on more than 85 percent of those recommendations.
In the regulatory area, we have responded to the key needs
identified by the small business community.
In the past, small businesses have often felt that they
were left out of the regulatory process until it was too late.
The Small Business Regulatory and Enforcement Fairness Act of
1996, SBREFA, which the President strongly supported, codified
one of the important recommendations made by small business
participants in both the 1994 Small Business Forum and the 1995
White House conference.
SBREFA created special panels, consisting of SBA's chief
counsel for advocacy and officials from OIRA and either EPA or
OSHA, that now discuss regulations under development by EPA and
OSHA with small business representatives from the industries
affected. The panels meet at an early stage. OIRA, the chief
counsel, and both agencies have worked hard to make the panels
a success. To date, the results have been enormously helpful in
improving EPA and OSHA regulations. Nearly every panel has
identified potential changes that have improved the proposed
regulation and benefited small businesses.
Another concern voiced by small businesses at both the 1994
forum and the 1995 White House conference was the need for
judicial review of the Regulatory Flexibility Act. Early in the
administration, President Clinton and Vice President Gore
endorsed the concept of allowing a right of judicial review for
any failures to comply with the act. With their support,
Congress included a right of reg flex judicial review in SBREFA
and affirmed the chief counsel for advocacy's authority to file
briefs in any small business appeals regarding agency actions.
There is now much more sensitivity to the importance of
regulatory flexibility analysis, and we are seeing much better
results.
The President and Vice President have also set out to
change the culture of regulatory enforcement from an
adversarial approach to one that emphasizes working closely
with the regulated community. They have emphasized the benefits
of partnership, encouraging agencies to reward good-faith
efforts to reach outcome-based goals such as safer workplaces
or clean air, while reserving the traditional enforcement for
the worst actors.
On April 21st, 1995, President Clinton directed Federal
agencies, where appropriate, to waive fines for first
violations of regulations by small businesses, if the violation
was inadvertent and the violation could be corrected within a
reasonable period of time. SBREFA later codified the
President's directive.
SBREFA also established a new small business ombudsman at
SBA, with regulatory fairness boards in 10 regions across the
country. Small business owners now have a new place to turn if
they feel an agency has acted unfairly during an enforcement
action.
Each year, the ombudsman and the boards hold hearings
around the country so small business owners may present their
stories in person. The ombudsman then files an annual report
with Congress. A review of these ombudsman reports suggests
that a fundamental change has taken place in the way most
agencies relate to small businesses. According to the latest
report, the ombudsman in fiscal year 1999 received only five
complaints each against OSHA and EPA.
OSHA has seen the value of increasing compliance assistance
to fulfill its mission, rather than relying exclusively on
enforcement. By partnering with management and labor, OSHA has
since improved workplace safety for the vast majority of
employers who want to do the right thing. This has freed the
agency to target enforcement resources where they are most
needed.
OSHA's consultation program, which operates totally
separate from enforcement is available to small businesses in
most parts of the country. An OSHA consultant will inspect a
business site at an owner's request and provide a confidential
safety and health assessment. The President's budget for 2001
includes funding to place one of these specialists in every
OSHA area office, to give every business a local OSHA official
to call for help.
EPA also is using voluntary partnership approaches as part
of its efforts to encourage compliance and prevention to
address environmental problems. Working together with business
and industry, EPA is finding that strong economic performance
and strong environmental performance often go hand in hand.
The use of plain English, particularly in guidance
materials to help small businesses understand their regulatory
obligations, was a strong recommendation of both the 1994 forum
and the 1995 White House Conference on Small Business. At the
direction of the President and with strong support from the
Vice President, agencies increasingly have been using plain
language in their drafting of new regulations and supporting
guidance.
We have found that plain language writing leads to
substantively better rules. To write clearly, one must think
clearly, identifying and answering all relevant questions. When
proposed rules are clear, the public can more readily
understand them and suggest ways in which they might be
improved further.
Some agencies report that when they carefully draft
regulations and required regulatory guidance, using plain
language, regulated businesses understand what they have to do
and there is less need for any additional guidance.
These efforts at regulatory reform form a backdrop to our
work on paperwork reduction. My office works with the agencies
to improve performance in this area. We review some 3,000
information collections a year to ensure better compliance with
the Paperwork Reduction Act.
The Federal Government collects and uses information so
that it can better serve the public. Agencies can only deliver
services to individuals and businesses if they know who they
are, what they need and what they want. Better information can
help agencies make better decisions about how well the
government is working, whether new services are needed, and
whether existing programs are still necessary. Indeed, the
government's provision of information to its citizens can be an
important service in its own right.
In the Information Age, the public needs timely, accurate
information. Investors need quick and easy access to public
filings at the SEC. Residents want to know if they have
exposure topollutants in their community. Taxpayers expect
quick responses from the IRS and fast income tax refunds.
Although agencies are working hard to minimize collection
burdens, success in burden reduction is often overcome by new
information collections that are required by new statutory and
program responsibilities. Most of the information needs of the
Federal Government arise from statutes passed by Congress. Some
requirements reflect agency decisions on what information they
need to implement programs. The Taxpayer Relief Act of 1997 and
the Tax and Trade Relief Extension Act of 1998, for example,
made numerous changes to the Internal Revenue Code. These and
other legislation required the IRS to add and revise reporting
requirements that increased paperwork burden for taxpayers by
approximately 150 million hours in fiscal year 1999.
While we have achieved a number of successes in this area,
we understand that more must be done to alleviate small
business burden. As part of our continuing efforts, OIRA has
joined with other agencies this spring in launching a new
initiative to look at how we might improve the quality and
usefulness of the information the Federal Government collects
while reducing the burden involved in supplying that
information.
Together, we are working with small business
representatives and other interested parties to identify
problems and develop workable and constructive solutions. We
are genuinely hopeful that this information initiative will
lead to tangible improvements. We are examining best practices
and listening carefully to the ideas and suggestions of our
private sector participants.
We know that agencies must change business processes,
streamline legacy systems, develop technical standards, protect
privacy and security, and adopt new ways of interacting with
customers. We welcome constructive ideas from others outside
government on how we might best accomplish these goals.
In closing, we strongly support the goal of easing
regulatory compliance costs and the paperwork burden on small
business owners. The key to doing so is to find a way to reduce
burden while still meeting the needs of the American people. We
are open to considering new approaches for addressing the
concerns of small business owners. We look forward to working
with the committee and others in the Congress in a cooperative
effort to achieve meaningful progress in this area.
Thank you.
[Mr. Spotila's statement may be found in appendix.]
Chairman Talent. Thank you for your statement, Mr. Spotila.
I am going to get to the heart of one of my big concerns and
then defer to the members who are arriving, so they can ask you
some questions.
Let me preface by saying, what I try to do when I focus on
regulatory burdens with the committee is to advance what I
think is a consensus on the committee, that we don't want
regulations that hurt or oppress small business people and that
accomplish little or nothing. It is one thing if you have a
legitimate conflict between an OSHA rule and, you have to pay
more to comply, but you really do get worker safety. I mean,
that is one thing.
It is another thing when you have got a burden that is
imposed and the person on the ground who has credibility comes
to you and says, look, it is nothing, it is like crossing the
Ts or dotting the Is. On that at least, we have a consensus.
And it seems to me that for all of your efforts, there is
some sense in which this system is still broken; and I think
everybody here on the committee has had the experience of
having people from their district or from associations come to
them complaining about regulatory conduct that is not only
unreasonable, but often just arbitrary, and there seems to be
no form of relief. It is the kind of stuff that you would
expect that when a normal person found out about it and was in
authority to do something about it, it would stop because it is
just stupid.
And then you tell me what we can do to sort of fix this
thing because I would like to know. We have passed all these
laws and you all are doing all this stuff, and I have some
specific questions I am going to ask you later, but you tell me
how we are going to fix this thing.
We had a hearing a few weeks ago on the IRS's current
policy of going back and making small contractors who have
typically used the cash method of accounting use the accrual
method of accounting.
Are you familiar with this controversy?
Mr. Spotila. I haven't been involved with it, but I am
generally aware there is this controversy.
Chairman Talent. I think you were a lawyer, weren't you, in
private life?
Mr. Spotila. Yes.
Chairman Talent. So you will be able to pick this up. So
they go to somebody who does paving or painting or something
and say your paint is merchandise, as if you were a paint
store, so you have to use the accrual method; and not only do
you have to use the accrual method, but we are going to go back
3 years and we are going to audit you, and if we find any time
when you mistimed the payment of the taxes, we are going to
say, you owe interest and penalties for the last 3 years.
And so these contractors, who may have been audited 5 or 6
years in the past and then the Service signed off on their
using the cash method, now they are confronted with $1- or
$200,000 in liability, and there is simply no way a reasonable
person could have known that they were supposed to use the
accrual method and, in fact, probably they were. If this ever
gets litigated, the courts will probably sustain the taxpayer.
So we have this big hearing here and the guy from Treasury
comes over, and on both sides of the aisle we are sitting there
saying, why are you doing this to these people, and it goes on.
Now, what can we do in the system? And I really mean this,
this goes on administration after administration. I think the
last President who viewed himself as the administrator of the
government the way you viewed yourself as the head of your law
firm or the way my brother runs his tavern; he cares about what
goes on--was maybe Harry Truman. I think if Harry Truman got up
and read about this in the paper, he would have called up the
Commissioner of the IRS and said, okay, stop doing this.
Now, Presidents since then haven't done it. Is it just as
simple as that, that maybe we all ought to encourage Presidents
to run the government again and not worry about all the rules
and red tape? Tell me how we can do something about that kind
of situation. What would you do?
Mr. Spotila. I guess I should say, first of all, that every
now and then this President--I think all Presidents do--read
things in the newspaper and call people up and say, what is
this?
Chairman Talent. I am really not being critical. There is a
generation of Presidents that have not viewed themselves in
that kind of a role.
Mr. Spotila. This is a serious question. Treasury sets tax
policy at the Department of Treasury. The IRS often gets the
blame when set policy is unpopular. I think they try to balance
a number of considerations. We are not typically involved in
the setting of that policy.
We do have some capability, the White House certainly has
some capability to try to facilitate broader discussions; and I
think, in part, the issue that you have raised, which has not
been brought to my attention formally before--I have heard
about this from small business peoplewho have told me about
it--is one that, it sounds to me, bears some further discussion. I am
not familiar with the merits, but as I understand it, this is something
that perhaps bears further discussion; and I would certainly be willing
to work with the committee and try to help encourage further
discussions with Treasury about it.
In the broader sense, how do we prevent stupid things from
happening? I think that--the starting point, I believe and
based on my experience, is communication. One of the reasons
stupid things happen from time to time is that people actually
in decision-making roles are unaware that they are happening,
and bringing it to the attention of more senior people is the
first step in trying to take a fresh look.
Sometimes, also, the problem is that in order to resolve
it, you need a creative solution, and that means you need to
bring the, if you will, ``best minds'' to bear on how to best
solve the problem. That is part of the function of information
and a willingness to reform or look at new ways. It is partly a
matter of an exchange of views and sometimes compromise as to
how it might be done.
As you can imagine, that is hard to do for the entire
government. This is like moving a supertanker. So we look for
our areas of success, and we try to prioritize: What is most
important? What do we do?
Several years ago there was a substantial controversy in
the small business community about HCFA rules, for example,
which affected many small business providers.
Chairman Talent. Another classic example.
Let me just interrupt because we are having a serious
discussion here. I am not talking about something that an
agency does either because it has a very strong, and the top-
level political leaders of the administration have a very
strong policy orientation they are carrying out; or even, dare
I say it, politics. Okay, I am not talking about something
where I can look and say, I understand why they are doing that,
because this particular interest group really wants it. Those
are fairly rare.
Most of the time this is just--it is happening and nobody
really can explain it in terms that political authorities can
understand; and it is hurting people.
I wouldn't care if it was just sort of something for a law
review article. But these contractors come before us, and some
are going out of business. And some of these are family
businesses that I have had--I am expressing indignation about
the problem, but not at you; I am really not.
There has got to be some way of getting a handle on these
kinds of problems.
Mr. Spotila. I would agree. In the case of HCFA, we had a
situation where--again, I wasn't directly involved in it, but
learned something about it afterwards--a statute was passed,
the agency was very busy, had a deadline facing it, pushed out
rules, I think, without understanding the full implications. It
caused a lot of concern in the small business community that
was expressed through the SBREFA panels and in other ways.
Ultimately, the agency engaged in discussions I know with
the Chief Counsel for Advocacy at SBA and has now been doing
some things that are much more sensitive to small business than
before. The communication--the realization that a problem had
been created and that there was a need to fix it, and the
insight that that reflected a broader need for better
communication and closer cooperation, I think led to some
improvements.
Part of what we need is for small business owners to
express themselves as early as possible and get word to SBA,
get word to the committee, get word to the White House when
there are areas that really matter, so that we can distinguish
between purely anecdotal and sort of individual circumstances
and broader problems that do warrant review and perhaps change.
Chairman Talent. I am coming from the perspective where--
you mentioned HCFA; there is a classic example. I am sure
everybody on this committee has talked to providers in the
health care business, and it is beyond anecdotal. That is an
agency that is just hurting people.
And I am not saying anybody who is running it is bad. If it
were, I would be relieved if it was a person who was just a
jerk, and then you get rid that of that person and it changes.
But one other thing then, because it seems to me that in
order to try and change this you have got to get a handle on
it, and there is a trend which we need to stop and that is a
trend towards circumventing the rules that you have put in
place in Executive Order 12866, and that we have put in place
in the APA and SBREFA by calling regulations guidance--by
taking actions that should be taken in a formal process that
would be subject to these executive-mandated rules or
restraints and congressionally mandated restraints; and doing
it in the form of guidance instead, so that in fact you don't
have to go through the APA, you don't have to be answerable to
anybody. So if you are OSHA, you just say, we are not going to
promulgate the rule, we are just going to give guidance to our
inspectors in terms of what they call a fine.
Now, you mentioned small businesses have got to get out and
communicate to us. Well, they don't even know this is coming,
because this isn't in some manual back in somebody's office.
You see, the IRS item I mentioned is a classic example.
That was never promulgated as a rule; somebody just told the
auditors out there to start making people use the accrual
rather than the cash method.
How can we make certain that they do promulgate rules as
rules, that we have law instead of just some sort of
interpretive guidance or guidelines in the background that are
not subject to 12866 or our rules?
Mr. Spotila. I think this is again a very important
question.
Let me start by saying, I think that clear guidance is
something that is very important to everyone in the regulated
community, and it is particularly important to small business
owners.
We have done a lot to encourage agencies to put out
guidance, and I think it is very important to keep that in mind
so that concerns such as those you have expressed don't become
an attack on the idea of guidance.
The solution is not for agencies to stop giving guidance.
The solution is for agencies to make good decisions about what
belongs in a rule, to go through a notice-and-comment process
and what legitimately does form guidance.
You know, though there may be recent concern about this,
this is actually not a new issue. The APA has been in existence
for 60 years, and for 60 years people have been arguing about
what is a rule and what isn't. We turn to the courts, litigants
turn to the courts to get good decisions about that. They often
turn on fact-based circumstances.
I haven't seen, in a broad sense, a lot of instances that
have come to me of situations in which agencies have used
guidance where they should have used rules. If they do come to
me, or if I become aware of them, I have some ability at OIRA
to intervene. So we tend not to be involved on the IRS side,
but for the other agencies that is the case.
And so when I say, I haven't seen a lot of these, they have
certainly not been brought to my attention that we have a broad
and growing problem. That is not to say we don't.
I would be interested in learning more about specific areas
of concern in that regard, again to be able to work with the
committee and my staff to work with the committee staff to try
to look for ways to improve this.
We do engage in discussions with agencies about what should
be in a rule and what need not be in a rule. We try to apply, I
think in good faith, the standards the courts have laid down;
and as I say, I think that there is much to be said for
encouraging agencies to put out guidance so that people know
what it is that is expected of them.
Chairman Talent. The thing, though, I think you have to
keep in mind is that there are institutional tendencies within
agencies to attempt to avoid restraints that are put upon them
by their political masters either in the executive branch or
the Congress. This is documented as a matter of bureaucratic
science, and they will tend to do this.
Now, it is fine to say small businesspeople need to come
forward and communicate, et cetera, that they can go to the
courts. But you see, you are dealing with a situation where, as
a practical matter, a court remedy 99 times out of 100 is not a
remedy for a small businessperson. It is too cumbersome. It
takes too long. It costs too much. And in the meantime, they
have gone out of business while they are waiting for some
answer.
And I know you know this. To some extent, you being here is
sort of like the choir we are preaching to. But if I can come
away with a message to you--and I am trying to make this as
impartial and as nonpartisan as I can, because ultimately, if
we are going to resolve this, it is going to have be done on a
bipartisan basis or we will never get it done. They will defeat
in the agencies any partisan-type measure.
The Republicans and Democrats have different attitudes
toward government, but I think we have the same sense of the
dangers of concentrated power, whether in public life or
private life; and I am concerned, I will just tell you--and I
am leaving this body--I am concerned about the tendency in the
agencies to slip their leash, and go off on the basis of what
really isn't even law anymore. It is guidance, or in the guise
of flexibility, it is arbitrariness; or decisions are being
made out there in the field by somebody who is not really
subject to anybody. And real people who are trying to make a
living and support their families are getting hurt by it. And I
just--from our perspective, or my perspective anyway, I see a
lot more of it maybe than even you see; and I hope we find some
way to work together to restrain it because I am concerned
about the impact on the economy and the society if we don't.
And I will be happy to--I want to recognize the ranking
member.
Mr. Spotila. If I may respond just for a moment?
Chairman Talent. Sure.
Mr. Spotila. I share that desire that you have expressed to
work in a nonpartisan or bipartisan way to look at and assess
the nature of the problem and see what, if anything, more can
be done about it. As with you, I view this also in
institutional concerns. As with you, I am working hard now, but
I won't be here past this administration in this position in
all likelihood.
So I think it is important to think in institutional terms,
how do we institutionalize what I think has been a very, very
positive change in attitude and in approach over the last 7
years? How is it that we build on the progress that has been
made to go forward? And I think that is very important.
I would also mention, though, I think that one of the
reasons we are seeing, that you may be seeing some of these
concerns is that there has been progress, there has been more
transparency and there are better lines of communication; and
that to some degree, we are hearing complaints that may not
only have existed, but been more of a problem in the past. But
we are hearing more of it now. That is not to say we shouldn't
be sensitive, quite the contrary; but it is important to keep
in mind that progress has been made, and we should build on
that progress, and we should encourage those in the agencies
who are acting in good faith and trying to do the right thing.
Chairman Talent. My friend will, of course, have as much
time as she wants. I think she knows and the committee knows,
this is a subject of interest to me. I don't go on with
questions unless it is.
Let me suggest that you consider also, as much as we try to
institutionalize things, some kind of a sincere executive-
legislative partnership where notwithstanding whatever
restraints we put in place, something gets through where all of
us look at it and after 15 minutes we say, this is a problem.
Like this cash versus accrual thing, you haven't had a chance
to study it, but you seem like a reasonable person; I
guarantee, when you study it, you are going to say, this is a
problem.
There has got to be some means of also putting out the
fires that get started, notwithstanding our restraint, and we
tried here a little bit in SBREFA when we set up this, what do
they call it--the Corrections Day; we have some expedited
process for fixing or overruling regulations that on a
bipartisan basis we didn't like. It hasn't worked well here
institutionally; people are too sensitive about maybe we will
overrule too many regulations or something.
But, see, if we can get an agreement on that, it would be
helpful.
I am just concerned about these people who are trying to
build America and their communities and often find the
government to be a problem. It undermines the credibility of
the good work that the government is doing when people get
alienated in this fashion.
I guess I wasn't willing to let you have the last word. I
will recognize the gentlelady from New York.
Ms. Velazquez. Thank you, Mr. Chairman. I have to say that
it has been really a pleasure working with the chairman for the
last 18 months, and again today you demonstrate your sense of
responsibility in addressing the fact that it is not a
Republican or Democratic approach when we deal with the issue
of regulatory reform and how this impacts the community, the
small business community.
The fact of the matter is that we need to see the different
factors that are affecting this, are preventing Federal
agencies for doing their work in a constructive way, either
because there is a human factor to it or because there is a
congressional mandate that has driven more regulations.
But--we need to strike a balance that will benefit the
small business community, but at the same time that we have the
responsibility to make sure that regulations are there, in
place, that will protect consumers, small businesses and the
many people that are involved.
Mr. Spotila, I am going to be here next year. The chairman,
I wish him well, but I want to continue to work on this issue,
because it is an issue that I really consider to be very
important to small businesses.
And so I want you to help me understand the whole process
of your office. We understand that the Federal agenda that each
agency publishes every year, that they still appear to be very
lengthy. How do they compare to past administrations?
Mr. Spotila. Well, actually, the Unified Agenda is a
publication, as you mentioned, that comes out twice a year, and
it consists not only of rules that are about to come out, but
actually anything in a regulatory arena that agencies are
working on. We emphasize to the agencies that in the interest
of disclosure they should tell everyone everything that they
might even be working on or that--some of these may be over a
10-year period, so we inform the public.
When one looks at the--and this includes many--a vast
majority of them are actually routine, very routine things,
everything from the schedule for hunting season to various
kinds of other smaller permanent requirements.
Within there, perhaps 3 percent of those are really more
important, big rules that will be coming out that will affect
everyone. If one looks at those agenda, I think what one would
find is that the number of entries was going up and up. It
probably peaked in the late-Bush/early-Clinton years. It has
come down, I think, since '94, perhaps by 15 percent. I don't
think that is as extraordinary a statistic or as important a
statistic as some others in that there are so many routine
matters that are mixed in with it, but I think it is clear that
we do a lot of regulating.
The American people benefit because important regulations
are put out in the areas of health and safety and the
environment and consumer protection, but we have to be very
sensitive to the aggregate impact of those regulations. We need
to make certain that they are done properly and the burden is
minimized.
Ms. Velazquez. After you reviewed the agenda, did you offer
to sit down with the agency and give them your insight
regarding the new regulations?
Mr. Spotila. We sit down with agencies on an ongoing basis.
You asked how my office is set up. We have actually at my
office about 50 people that do accommodation of regulatory
policy, information policy--we have substantial
responsibilities there--and statistical policy. So there are a
couple of dozen that do regulatory work. They each have
agencies that they work with, and they do engage with the
agencies proactively to discuss what things are coming, how the
agency may be going about it.
We also work certainly at my level at trying to work with
senior policy officials and to look for opportunities on a
broader basis to pursue review form.
So there are discussions of this sort that will vary based
on the agency, and we try to prioritize based on the areas
where we think it matters the most.
Ms. Velazquez. Do you think it is helpful?
Mr. Spotila. I think it is helpful. I think it is very
important that we not view this strictly on a case-by-case
individual basis, but that we work with the agencies in a
constructive, cooperative way. We find we get much better
results that way than if we are adversarial, and I think
ultimately the American people benefit much more.
Ms. Velazquez. Let us talk a little bit about the IRS, and,
you know, every time that we mention the IRS, people open their
eyes. It seems that the IRS accounts for the majority of the
new regulations coming from the Federal Government.
Mr. Spotila. Well, in terms of the IRS, the IRS puts out a
lot of interpretive regulations. Those actually are not
typically reviewed by my office.
We do get information collection. The IRS is a huge
collector of information, as you know.
Ms. Velazquez. Can you tell me how much of this regulation
coming out from the IRS is driven as a result of congressional
legislative action?
Mr. Spotila. Well, we track--let me talk about paperwork
burden for a moment because of information collection.
The IRS generates about 80 percent of the burden hours that
we track in the information collection area and generates--it
is the greatest, the big gorilla, if you will; and we do work
with them on trying to reduce that and streamline that, and
they have made significant progress there, but nearly all of
that is driven by the complexity of the Tax Code. And as I
mentioned in my testimony, we have had a lot of efforts to try
to streamline paperwork, and then two statutes were passed for
good and important reasons that generated 150 million new
hours.
So this is not strictly a matter of what the agency does or
doesn't do. It is a matter of they have to enforce the law and
implement it.
On the regulatory side, their regulations again are
designed to implement statutes. So we might look at whether, or
someone might look at whether those regulations are wise or
properly done or whether there has been enough consultation or
discussion, but they are certainly all driven by efforts to
implement the Code.
Ms. Velazquez. Thank you, Mr. Spotila.
Chairman Talent. Mr. Bartlett.
Mr. Bartlett. Thank you very much.
I would like to return for a moment to the IRS problem that
Mr. Talent brought up. The witness was asked, at the end of the
day when the business is liquidated, will any more or less
taxes have been collected, depending on whether the owner used
the cash method or the accrual method; and he agreed that there
would be no difference in the amount of taxes collected. It is
not whether they will pay the tax; it is only when they pay the
tax.
Now, you have been an observer of the thought processes of
these agency people, and as Mr. Talent said, this new procedure
is very, very hurtful to a lot of our small businesses. Since
not another dime comes into the Federal coffers by forcing them
to go to the accrual method, at the end of the day the tax
revenues will be exactly the same. As a matter of fact, because
there are more people working, harassing our poor small
businesses, the cost to the taxpayer is actually greater. The
taxpayer loses by this.
Why would they do this when no more taxes are collected?
Can you understand why they would want to do this at all?
Mr. Spotila. As I mentioned, I am really not familiar with
the reasons behind the decision. I have made a note of it, and
I will look into it.
I start by being very sympathetic to the plight of small
business. I was a small business owner. I was on the cash
method, I must tell you, and I don't want to prejudge what
Treasury may or may not have done here, but I am happy to look
into it.
Mr. Bartlett. I appreciate that, but this is a really
excellent example of the kind of regulation the chairman was
talking about, which didn't accomplish anything, that was just
hurtful with no basis. Because no additional taxes are
collected; exactly the same amount of money is collected.
It is not whether you collect the tax, whether you will pay
it as a small business, only when you will pay the tax; and
this is an enormous burden that they are placing on our small
businesses, and they are putting them out of business.
How can this possibly be to the benefit of the taxpayer?
This appears to be a totally arbitrary and capricious and
mindless implementation.
The chairman also mentioned a lot of regulations out there
that don't appear to accomplish much. I remember several years
ago the EPA would rather not have the administrator sit at a
Cabinet-level position than be required to do a cost-benefit
analysis for their regulations. In other words, they didn't
care that the implementation of a regulation cost us more than
we benefited by it.
As the old farmer said, ``I don't think I would do that;
the juice ain't worth the squeezing.'' well, there are many,
many of our regulations where the juice ain't worth the
squeezing.
Is there an incentive on the part of the administration to
look at our regulations to see which of those are worth the
effort and which of them are simply a burden on our people that
accomplish less than the cost imposed on them?
Mr. Spotila. I believe there is, and let me address that in
two ways. We have, I think, been doing an increasingly good
job, speaking now from my viewpoint at OIRA, at working with
the agencies, including EPA, on assessing the benefits and
costs of prospective regulations and alternative approaches.
Mr. Bartlett. How about the ones in existence already?
Mr. Spotila. I will get to that in just a moment. I want to
put this in the context.
Our sense is that it is very important, as any new
regulations come down, that we work with the agencies, in part
so that decisions are better and in part to increase the
capability within agencies to do this type of analysis and to
change the culture so that their approach takes these factors
into account.
When it comes to looking back at past regulations that are
already in effect, actually the Regulatory Flexibility Act
calls on the agencies to do this on a periodic basis, and we
have instituted some measures to track agencies that are doing
it, to try to put that information in the regulatory agenda. We
have a separate page now that lists that. We try to encourage
the agencies to do so.
Candidly, there are resource constraints, and the agencies
tell us that it can be very time-consuming and resource-
intensive to try to go back to existing regulations. And
although many of them have good intentions, my experience has
been that some of them just simply indicate they lack the
effective capacity to do as much of this as perhaps you and I
might like them to do.
That could well be an area of opportunity going forward
because I share with you the sense that it is productive to
look back at important regulations to try to assess how they
are doing and to make certain that the approaches that were
adopted in the past reflect the best ways of accomplishing
goals that perhaps we would all share.
So, again, I would welcome the opportunity to work with the
committee to identify areas that may perhaps need more
attention. I think we would need to prioritize our efforts, but
we are certainly not averse to discussing that further.
Mr. Bartlett. Thank you, Mr. Chairman. My time is up.
I would just like to note that in reading the Declaration
of Independence, I came upon something that would appear to be
a pretty good definition of our current regulatory agencies:
``he has erected a multitude of new offices and sent hither
swarms of officers to harass our people and eat out their
substance,'' was one of the reasons for our Revolution, and I
suggest that it might be a reason for a revolution at the
ballot box now.
Thank you very much.
Chairman Talent. Well, I thank the gentleman for his
comments. Let me pick up on one thing he said.
I mentioned before one trend that I am concerned about is a
gradual elimination of law in the sense that you and I, as
lawyers and as we have always understood it either in the form
of statutes or regulations that tell people what their legal
responsibilities are--I mean, law is restrictive, but also it
has a liberating side because what isn't illegal under a law is
then allowed. But the more that you make the actual legislative
process in the form of guidance or regulations that appear to
be flexible, but require things that are basically arbitrary
standards, the more possibility for arbitrariness or, really,
kind of tyrannical activity; and I have sensed this out there,
and I wanted to flag on that.
The other point you mention in terms of cost-benefit, and
this is what is really perverse about some of this, and I want
your comment on it, if you would. If you don't do this process
right, you can end up spending scarce enforcement resources,
basically harassing people who aren't doing anything wrong, and
then the corner-cutters out there love it.
I get a feeling that HCFA spends all their time, for
example, going after basically honest providers, and the ones
who are defrauding Medicare, they love that because they know
HCFA is never going to have an opportunity to go after them
because they are spending all their--so you get neither, you
get neither more freedom for people nor more accomplishment of
the regulatory agenda. And I can give you so many examples.
Maybe we should have been working with you for the last 4 years
more than we have been, because I can give you so many
examples. Will you comment on that? Are you seeing that at all?
Mr. Spotila. Actually, let me start by saying, to kind of
echo a theme I had mentioned earlier, that I think there has
been a sea change in many of the regulatory agencies in their
approach to enforcement, in their emphasis on compliance
assistance, rather than harsh, sort of ``gotcha'' enforcement.
They are not perfect, but they have come a very long way, I
think. When we look at agencies like OSHA and EPA, which had
very bad records in the small business community, I think they
are doing a far better job today, and we need to encourage
that, and we need to urge them to do more of that.
It is important that we give guidance, because by giving
clear guidance, people understand what it is that is expected
of them. They don't have to hire lawyers to explain very
complicated or dense rules; they can see what is needed and
they can try to comply. And the strong message we have gotten
consistently from small business owners is that they want to
know what it is they are supposed to do. They want the rules to
be sensible, and then they want to understand them easily so
that they can do the right thing and get on with their
business. Having said all of that, they don't want their
competitors to have an unfair advantage.
So they do want enforcement for the people that, as you
say, are cutting corners or whatever, because otherwise those
people get a cost advantage and they suffer. So we have tried
to shift the agency's approach, and the President has
emphasized this over and over again to one which helps people
who act in good faith to understand what is required of them,
gives them help in complying and targets enforcement resources
on the people who know what the rules are and just deliberately
choose to avoid them to gain an economic advantage.
We are not doing it perfectly yet, but there has been
progress.
Chairman Talent. Let me understand. That is not--it is
important to me that you see this, even if we don't necessarily
agree on how big a problem it is, but you recognize that this
is a problem. There is a difference between being flexible and
saying, okay, we want to work with you so that we achieve
voluntary compliance, which is a good principle but sometimes--
here's how that manifests itself. It manifests itself in vague
regulations or guidance that say we want you to do everything
that you reasonably can do, let us say, to have a good safety
and health program at the workplace. Now on the surface this
appears, oh, yeah, we want you to do everything that you
reasonably can do. But you see the guideline or the regulation
is so arbitrary that in effect almost anything is potentially
illegal and then it is simply a question of the discretion of
the inspector. You can see how something that was designed--
started off to be flexible can end up being even more
tyrannical because now there is no law to protect you. You can
never be certain that your safety and health program complies
with the law because the standard is so vague. It is almost
Orwellian. In the beginning of 1994 they say, well, there
aren't any more laws anymore because if there are laws people
know what they can and can't do. I am not accusing this of
being necessarily vast. I am saying this is a tendency I see
growing up in these agencies and I am really wanting you to
agree with me that at least this is out there.
Mr. Spotila. There are occasions when that happens clearly.
We work pretty hard in reviewing the significant rules to
identify areas like that and try to add clarity. We rely a
great deal on public comments that we get from people who
understand sometimes the implications of language more than we
might, and when I said earlier that it is important that people
comment, it is because that is how we find out.
Chairman Talent. I agree with you. Otherwise we don't know.
There is no other means of knowing.
Mr. Spotila. I would completely agree with you that we
ought not to have those situations where we have very unclear,
ambiguous regulations that then will vary with enforcement.
Chairman Talent. This has an impact far beyond--even if it
is more limited than I think it is, because what it does is it
destabilizes and frightens people. They never know when the
next one may be coming so it has this--it is worse really than
even a tax burden because that at least they know but the
regulatory burden they don't know when it will come down and
they are afraid that somebody can walk and do something
terrible to them and they didn't know about it and couldn't
know about it.
Others are waiting. I thank the committee for its
indulgence. I have Mr. Barrett next. He is not here. Mr.
Pascrell.
Mr. Pascrell. I always looked at the FEMA-SBA team when
they go into an area after a natural storm or catastrophe of
some sort and the response team is sent all over the place. I
think we have some great people leading SBA and FEMA. I notice
how many times we have been able to cut through red tape and I
often wonder why don't we do that all the time. Why don't we
begin by thinking in our minds that there is always a natural
catastrophe of some sort. The red tape wasn't necessary in the
first place and there is never enough being done.
Let's face it. Let's be honest. Regardless of what
administration, regardless who the governor is of a state,
which party they belong to or who the President is, it is the
second level management that makes these regulations and makes
our life miserable, whether it is EPA, whether it is the Small
Business Administration or whether it is FEMA. I often wonder
if we go and cut to the chase and think of this thing as always
an emergency because people need help all the time. I don't
need a flood to need help.
Chairman Talent. Weren't you a mayor, Bill?
Mr. Pascrell. Yes, I was.
Chairman Talent. Will the gentleman yield for a minute.
Mr. Pascrell. Sure.
Chairman Talent. You ran the city. I am sure if somebody
came to you with something that somebody was doing in the city
administration or bureaucracy that you thought was senseless,
you took care of it, didn't you?
Mr. Pascrell. We tried to. Many times you dealt with
agencies that you yourself appointed the people to, whether it
is a planning board or a board of adjustment. You could put one
of your parents there and once they get into that position and
they read those regulations, this is how it has to be done, and
this is the other thing, we are not asking--and we are not
assuming nor are we recommending anybody breaking the law. That
is not what we are saying. What we are saying is much of this
is not needed. You talk about 80 percent of the regulation of
the IRS being promulgated through our actions here in the
Congress is probably true, but what about the other agencies.
How do you suggest that we implement laws--that is not our
job--but how do we implement those laws that we make in this
Congress? Who stands between the Congress and your job and many
other jobs in implementing the very laws that lead to the
regulations, that lead to the requirements that many Federal
bureaucrats--I don't mean that in a negative sense--need to
apply? Shouldn't we have oversight as to how these laws are
going to be implemented? Shouldn't there be a review to the
Congress at every new Congress; this is what was passed in the
106th and this is what happened for the Federal agencies in
implementing this. Don't we have a right to know whether or not
the intent of the law exists or whether or not we simply added
on the frills in order to keep a lot of other people working?
I am not assuming any answer. I am just saying through the
Chair we are never doing as good as we should do. I have had to
deal with it. When you are a mayor, you have to deal with a
hands-on situation every day, Saturdays and Sundays are not
excluded. The Federal bureaucracy they are for the most part.
But every day. So what you try and do is cut through red tape.
You know, we set up enough red tape to cut the red tape and we
never get to the objective. We never get to the end result. We
really don't. I know there has been a lot of effort. There have
been many pages written about what this present administration
has done in cutting red tape. Jobs have been cut. Red tape has
been cut and yet I still get the same complaints. I still--
maybe I am different than any folks that are here--about
whether we are EPA.
I mean, that is a nightmare and a half. I fret when I
vote--I have got a pretty good environmental record, but I fret
when I vote about environmental bills because I know how they
are going to grow and mushroom by the time the first person
comes through the door and says I have got a nightmare to talk
to you about, Congressman, and I am really concerned about
that. What is our oversight? What are our duties and
responsibilities to basically say, hey, we didn't intend this.
Why did you set up all these regulations? We passed this rule--
or we passed this law. You established this rule. How did we
get to all of these rules in terms of the intent of this
legislation?
I think every Congress we should have a review of what was
done the Congress before, before we start to even put in bills.
Maybe this would prevent us from putting in this plethora of
legislation that everybody knows on both sides of the aisle is
never going to get passed. Maybe we should have a review in
January of each new Congress. This is the laws. This is what we
have done since. Nothing has been done.
Now, I am looking back at what the Clinton administration,
quote-unquote, did since it came into business in 1993 to now,
certain things that OMB did, certain things--executive orders,
right down the list, 1993, 1995, 1996, the presidential
memorandums, the Small Business Regulatory Enforcement Fairness
Act. What is our box score on these? Who keeps the report card?
Are these being implemented? Who do I go to? Through the Chair,
who do I go to?
Mr. Spotila. You made a wide range of points there, but let
me address some of them. I will try to be as helpful as I can.
Let me first of all start by agreeing there are two key aspects
that you have touched on, one that agencies have a
responsibility individually to implement in a proper way with
common sense measures the laws that are passed that affect them
and that Congress has a responsibility and a right to oversee
how agencies operate in that respect. Those are givens that I
agree with completely.
What may be a--because this is a Small Business Committee I
think it would be worth touching upon an effort that SBA
engaged in when I was there as general counsel not only because
it is of interest to you because of small business but because
there may be a lesson there that has a broader application
also.
I have outlined a number of the measures that were taken to
try to increase contact with small business owners. At SBA we
identified from the very beginning that access to capital was
one of the most important needs to small business then as it is
now. And what we try to doin speaking to small business owners
and to resource partners, lenders, and others is to identify the
obstacles that were preventing SBA from helping improve access to
capital to the extent necessary, even within the context of limited
resources. And from the general counsel's role that you had at the
time, we were very much aware that just as lawyers can be facilitators
of change, they can also be great obstacles to change. We made a
commitment to try to do all that we could to remove obstacles and to
help the agency perform its mission better here. So we identified
things in our own regulations that we thought interfered with the
delivery of capital to small business. Sometimes they interfered
because they added cost and they made programs ineffective. You all
heard about the LODOC program where we reduced a very cumbersome loan
package for small loans of under $100,000 to one page; the SBIC program
where we completely revamped both the operating regulations and the
substantive regulations so that that program could be basically kick
started, and it has blossomed into a terrific program for small
business now. We completely reinvented the 504 program from the
standpoint of streamlining processes, changing the regulations, making
things clearer.
The real answer as to how we did that was to engage career
employees at the agency in an effort--they wanted these
programs to be successful. They needed leadership and they
needed it to be given priority but these jobs were done by
career people here and all across the country. We set up teams
of people who really started from scratch, looked at each of
these programs, took the comments we had gotten from small
business and rethought the way SBA was approaching this. And by
getting them energized and by getting them to not only
understand the importance of it but to free them up, to
actually provide solutions, I think we were able to achieve
extraordinary results. We took 100 percent of the agencies'
regulations and in less than a year, in 10 months we were able
to transform them.
We then moved into the standard operating procedures. We
eliminated thousands--we had operating procedures, books and
books of it on the wall that no one used, no one read because
we all knew they were obsolete. The only people that had to pay
attention to them were the small business owners and the people
the agency dealt with who had to try to master these things
that the agency didn't pay any attention to. We had regulations
when we sat down to write more clearly. We had regulations that
our own people disagreed, and in Washington our own people
disagreed about what they meant. We were the people giving
advice. Depending on who you talked to, you got different
advice. We fixed all that. We changed it all because we
identified the questions, we supplied clear answers, we tried
to look at it from the standpoint of users and resource
partners and we tried to get out of the way so that the agency
could get capital to small business more effectively and more
efficiently. This could not have been done without energizing
career employees and empowering them to make these changes.
I think, as I say, there is a broader lesson here and I
think from the standpoint of the committee when an agency like
SBA takes steps along those ways it is very important, I think,
that the committee on a bipartisan basis acknowledge that
progress and encourage it because it sends a very important
message to the career employees that this was worth doing, that
we are not politicizing and similarly when we are dealing with
other agencies in other areas, I think it is perfectly
reasonable to ask other agencies why don't you try something
like this. If it worked here why can't it work with you. That
is something we will do from my standpoint, but it doesn't hurt
if the Congress asked those questions also.
Mr. Pascrell. Mr. Chairman, I am sorry I am extending my
time but I just wanted to get into one other point if I may.
Chairman Talent. Yes.
Mr. Pascrell. I am glad you said what you did because I
think it is important that we hear it and now we have got to
see it. We are looking for tangible evidence. I want to leave
the committee and the witness with one example. It has nothing
to do with small business, but I think it leaves a sour taste
in my mind about what we do down here and many times we place
obstacles unbeknownst. We pass laws that are going to encourage
obstacles, as you just displayed. It is like immigration
policy. We have placed so many obstacles, so much bureaucracy.
We debate flat tax on the floor. We ought to debate flat
immigration policy to encourage people to be documented coming
into the country. We established all of these. We pass these
laws and then the INS has all these rules and regulations. Just
one aspect of it, fingerprinting, if you had the history of
fingerprinting in the INS in the past 4 years since the
Immigration Act of 1996, you would rather take the chance of
being undocumented than go through the hassles that we caused,
that this Congress caused and that the bureaucrats and INS put
together. Who is going to determine the fingerprints? The FBI,
the Vermont offices of the INS, which led to 6 months, 12
months delays, even in the very elementary reviews of
immigration applications. And I use that as an example.
We need to get flat on our rules and our regulations, Mr.
Chairman, if I can use that term ``flat'' here. We need to get
flat and we ought to do it together and we ought to insist upon
it and every administration never does enough to do it. There
is never going to be enough. And I am glad you have been very
frank and I appreciate the opportunity. Thank you.
Chairman Talent. I recognize the gentlelady from New York,
Ms. Kelly.
Mrs. Kelly. Thank you. Mr. Chairman, because we have
another panel, I am going to ask if you will be holding this
open for a period of days following the----
Chairman Talent. Sure.
Mrs. Kelly. Thank you very much because I have several
questions and too many questions to get in. I just want to
start by asking you how many total regulations have you
eliminated? Because we have very little time, if you can just
give me a number, that would be sufficient. If you don't know,
please say so and you can answer that later.
Mr. Spotila. I think--I am happy to answer it in more
length later but what I would suggest respectfully is that it
is not the number of regulations that we should be counting in
terms of past regulations because it is too easy to lead to
misleading results.
Mrs. Kelly. I am interested just in that number.
Mr. Spotila. I understand that. Let me explain what I mean
by this. When we look at a particular title in the Code of
Federal Regulations, it isn't broken down by the number of
regulations. If one eliminates a provision, the chapter is
still there, the title is still there, the program is still
delivered. The issue is not whether the regulation is
eliminated, but whether the regulations that implement a
program or that affect a program have been improved or
clarified or streamlined.
Mrs. Kelly. No, I ask about elimination.
Mr. Spotila. I understand that. I am saying it is not a
number that is tracked because it is not a number that is
meaningful.
Mrs. Kelly. Maybe we could work with you to try to find
some----
Mr. Spotila. I would be happy to explore that further.
Mrs. Kelly. I find it very interesting that you use the
Federal Motor Carrier Safety Administration as an example of an
agency that successfully streamlined their regulations when
this agency has received a lot of public criticism for the
impact of the proposed hours of servicerule and the impact it
will have on the small motor coach operators. I believe there was an
article in the business section of the Washington Post yesterday about
this. The bus industry says that DOT hasn't done any research and has
done no studies to better understand the industry. Is the DOT devoting
resources to streamline while they are ignoring the duty to properly
analyze new regulatory revisions and what effect are you going to have
on this?
Mr. Spotila. First of all, DOT is devoting effort, it is
streamlining and I think that has been a good thing. The hours
of service rule, which we have had some involvement in, we
reviewed it before the rule was proposed. We met with parents
of children who had been injured or in some cases killed by
tired truckers causing accidents. There is a lot of concern out
in the community about this. We ultimately put out a proposal
for comment and there were areas, and motor coaches is a good
example of one, where we did not feel, we or the agency, knew
enough about the impact of a change in hours of service rules
on that industry. We heard a lot about truckers, particularly
long distance carriers. We had frankly concerns about the
impact on local truck deliveries from people who do local
trucks. We were concerned about motor coaches. We have a public
comment period and we decided to try to take advantage of that
comment period to learn more about this area.
Mrs. Kelly. How did you publicize the public comment
period, how many responses did you get, and what was the length
of time of that comment period?
Mr. Spotila. First of all, the comment period is still
open. It is the agency that published the proposal in the
Federal Register.
Mrs. Kelly. Only the Federal Register?
Mr. Spotila. I would be happy--I don't have that
information off the top of my head because we don't do that
specifically. We will find out.
Mrs. Kelly. It seems to me that this is really an--this is
an example of a real sort of an agency blatant failure to
comply with the Reg Flex act.
Mr. Spotila. I think that what it actually reflects,
respectfully, is an agency that is interesting in hearing more
about what the impact might be so that it can make better
decisions, and there hasn't been a final decision as to what
this rule should contain. I actually was very encouraged by the
publicity that these provisions got and I would hope that we
would hear more from people so that ultimately if there is a
final rule that it would be crafted as well as possible.
Mrs. Kelly. Is there any other way that you see yourself
advertising what is happening so that the small motor coach
operators are going to be able to know that this is actually
happening? Not everybody reads the Washington Post or the
Federal Register.
Mr. Spotila. I understand that. I think that we can always
do a better job at communication. The agency in fairness has
done some things, uses its Web site and tries to get out
information to trade associations and others it understands it
will be impacting, but it has been a classic problem for small
business owners to find out about rules and prospective rules.
That problem hasn't gone away. There have been some
improvements, but there is still need for more opportunities
there.
Mrs. Kelly. You earlier stated that the small business
owners need to express themselves earlier in the process. I am
quoting you, words that I wrote down here. In fact, it is
almost impossible for many small business owners because they
are one or two person shops and they don't read the Federal
Register. Do you consider that part of what your job is at
OIRA?
Mr. Spotila. Let me start by saying individually,
personally, I am very sympathetic to the concerns that you are
raising. I have been a small business owner and I know how
difficult it is.
Mrs. Kelly. You know how we are drowning in red tape.
Mr. Spotila. I know what it is like to be on both sides of
the fence, if you will. But having said that, the agencies have
the primary responsibility--the Department of Transportation
has gone out in the field. They have held listening sessions.
They have tried to have public meetings and the like. They are
not going to reach everyone when they do that. I would hope
that they reach enough people so that at least the views are
expressed. It is not necessary that every small business owner
comment on this. It is necessary that every view is expressed
by someone so that we know what the alternatives are and we
know what the impact would be. And we would be happy to work
with you further and with the committee on how additional steps
might be taken to improve these lines of communication. I agree
completely they are very important.
Mrs. Kelly. My time is up and, Mr. Chairman, I have quite a
number of questions here but we actually are going to have
another followup hearing tomorrow so perhaps some of these
questions will be able to get through tomorrow. Thank you.
Chairman Talent. I know I have taken up time airing my
concerns. Mr. Phelps, any questions?
Mr. Phelps. Real brief, Mr. Chairman. Thank you. Thank you
for coming and sharing with us. I hadn't caught all of your
remarks, but very enlightening. Let me just express--I may have
a couple of questions here--some frustrations that not only as
a new member but someone who served in the Illinois legislature
and have our own state bureaucracies to deal with, as a former
teacher and a former small business owner, one of the most
frustrating things is for someone who has been given, quote,
the authority to pass down judgments and requirements and
regulations that really haven't walked in the shoes. Let me
just pass that along. If there would be bureaucracies,
agencies, departments that had more staff--and I know many
times we read about how they were recruited from the field of
small business owners and so forth in this case what we are
talking about, but other regulatory agencies that have been
mayors, that have been those people in the grass roots level
that bring the mentality to the agencies and say, look, before
you do this, let me just tell you what happens from the
standpoint of this size of city or this size of community. It
is like--as a former teacher you have--some of the professors I
had at Southern Illinois University teaching me how to teach
have never been in the classroom and the administrators that we
were doing the evaluations of who is a good teacher never
taught a day in their life.
So it seemed to me like that mentality is somewhat
perpetuated from the standpoint of who decides on the intent of
the law, how it is implemented, and sets up the rules because
if we had--for example, if you were, I guess, able to prepare a
chart simply for me or other members that would help justify
some of the positive changes rather than answering questions
from a negative standpoint of the differences between then and
now, so to speak, that you address some, a chart that just
skims some of it like this was a few years ago, this is now,
this is how we have streamlined, and I know we are still going
to as members harbor and emphasize on those that still seem
like common senseless regulations that still exist no matter
how good a job you've done, but it just seems like that would
be a simple way to hand out sheets saying before you get on
these other things that we haven't--that still needs to be
improved, here's a list of good stuff that we have changed from
a positive standpoint. But I guess I just want to--because what
happened, as Members of Congress already see, is that when we
can't answer a question from the common sense standpoint when
we are in a town meeting or a constituent contacts us in our
office about can you tell me why this is, and I am thinking
most laws, I want to rather think, were actually made from
responses or inquiries or suggestions from groups, interest
groups, from individual citizens. They just didn't appear on
the books because someone dreamed up an ideaand wanted to be
great. I am sure there are a few of those but for the most part they
are here because people brought them to our attention. So how did they
get from this intent to where you don't even recognize what it was
designed for.
I don't want to be in the shift blaming type mode of
service where I am as a government official saying, oh, it is
not us; this was a rule making process because people are
essentially--they are not dumb. They are saying, well, who has
the ultimate authority and if we can't answer common sensical
why certain things are being in a regulatory mode that doesn't
go back and reflect to a specific law or recognize what the
specific intent was, that puts us in a real bad light, and you
understand that. So I don't know, do you have a then and now
chart?
Mr. Spotila. Let me actually respond to two things you have
said. The first point is I would agree with you about the
importance of recruiting into public service people who have
some understanding of the impact of government on private
citizens and small businesses. I think that when I look back, I
had known the President a long time personally and he asked me
to come to the SBA because he wanted to upgrade its
performance, and I joined it in 1993. I think we did a pretty
good job at SBA and in a lot of others and he asked me to come
to the White House to do this job because he understood that I
would bring with me this perspective and it is what he wanted
in this job and I think that is to his credit.
Mr. Phelps. By the way, I want to commend you, but do you
recognize people that work within the agency share some of the
backgrounds?
Mr. Spotila. Many of them and as I mentioned earlier I
think there has been a much more cultural change and much more
sensitivity to this area, but this is not a process that is
done. This is a dynamic process and the need will remain to
continue to bring in people like this and to sensitize people
who are career employees that mean well and just need to learn
more about what the impact of what they are doing might be.
On the issue of charts I don't have charts for you but I am
happy to go back and work with you and others on the committee
if there are things that we can provide. As we are going to be
answering questions, we can see what we can provide.
Mr. Phelps. I will follow up on the same thing. It just
seemed like someone--for example, in the transportation
regulation that Congresswoman Kelly mentioned to you, if
someone that was an over-the-road truck driver in past years
and had somehow evolved in the agency that is looking at what
we are talking about from the standpoint of road safety for
over-the-road trucks common sense would tell you someone has
got to relieve drivers after a certain matter of time before
they become such a threat, especially as our vehicles get
bigger and our railroads get smaller and our roadways and
interstates carry more responsibility. Somebody ought to be
able to say, look, this is pushing it before----
Mr. Spotila. There is and I can tell you I have heard this
from people who have their lives transformed negatively because
of tired truckers. There is a problem. There is a safety
problem here. How we go about fixing that problem or addressing
that problem is a fair question but there clearly is a risk
here to the public safety and I think everyone who has looked
at it acknowledges that.
Mr. Phelps. Thank you. Thank you, Mr. Chairman.
Chairman Talent. Let me just ask a couple of questions for
the purpose of the committee's deliberations on paperwork
reduction and some other things to get your opinion on a couple
of things for the record.
When an agency submits a proposed reporting requirement to
you for review, does your review check for consistency between
the instructions and the underlying regulation to make certain
that they are not putting things in the instructions that go
beyond what they are supposed to be doing from a regulatory
standpoint? If you don't do that, do you think that that is a
sensible idea and something we ought to consider in
reauthorizing the Paperwork Reduction Act?
Mr. Spotila. Let me start by saying I think it is a good
thing to do and we do attempt to do that. I think we do it
reasonably well. As I mentioned earlier, we review 3,000
information collection proposals a year and so it is an
imperfect process but our people work very conscientiously to
try and make certain this is done correctly. It helps--this is
a process that actually has two public comment periods for each
information collection proposal. So we are very dependent on
people coming back to us if they spot a problem that we didn't
see. Then we can react to it. So I think that is also a very
important aspect of this.
Chairman Talent. That is something you think should be--
that we may want to consider when we reauthorize.
Mr. Spotila. We are happy to discuss with you how this
might be done. I think actually it is being done now. We review
these things done now but we can certainly work with you
further and would like to if any language improvements are
needed, how that might be done.
Chairman Talent. The panel process----
Ms. Velazquez. Mr. Chairman, I would just like for you to
yield for a second because it is related to the previous
question you just asked.
Chairman Talent. I will yield to the gentlelady.
Ms. Velazquez. Can you state for the record what is OIRA's
annual budget and staff size because you mentioned that you
review over 300?
Mr. Spotila. We have, as I mentioned, about 50 people on
our entire staff and they do--they have responsibilities in a
number of areas. We do the review of all significant
regulations. We do the review of all--the 3,000 information
collections. We do information technology policy, including the
IT acquisition process in the government tied to the budget. We
do statistical policy coordinating it for the government. So we
have a very wide range of aspects here. We have a relatively--
we are part of the Office of Management and Budget, which of
course has a budget, so there is an allocation within the OMB
budget for us which is probably something in the area of maybe
3 or $4 million.
Ms. Velazquez. Do you have the manpower necessary to do
your job?
Mr. Spotila. I think that everyone would always like more
resources if they could. We work with what we have and we
prioritize well, I think. OMB is very sensitive to using its
resources very effectively. We are, I think, deliberately lean
if you will and we get very good people and they work very
well. I think resources for OIRA have to be reviewed in the
context of resources for OMB.
Ms. Velazquez. Thank you.
Chairman Talent. One thing we might need to do, staff tells
me they don't always submit the instructions with proposed
reporting requirement. Maybe we need to make certain that they
do that.
The SBREFA panel process has proven useful in finding
alternatives that lower regulatory burdens to small businesses.
Do you think that we should extend that process for any agency
that proposes significant rulemaking either as that term is
described in the executive order, the Congressional Review Act
and let me before you answer so you know everything that is out
there on this, we have been trying to include the IRS in this.
As you noted, they do an enormous amount of regulations that
affect small business. They have been fighting us on it and it
is hung up in the Ways and Means Committee, and a whole other
problem is these little cabals that existbetween some of the
agency people and staff and certain committees here. But do you think
we should extend that panel process more to other agencies?
Mr. Spotila. Let me start by reaffirming that I think that
the SBREFA panel process has worked very well for EPA and OSHA.
It is a resource intensive process. That is something that
certainly affects the Office of Advocacy at SBA, it affects
OIRA, to some degree the agencies, although they probably have
greater resources available to it. This is something that bears
further discussion. I think the agencies, we would have to
identify where it was needed and what the circumstances were,
and IRS perhaps is a good example. They have raised--I am aware
they have raised concerns about confidentiality, about people
taking advantage and the like and without trying to address the
merits, what it suggests to me is that if we were in good faith
having further discussions, one should look to see whether the
panel process should be adjusted or refined, whether there is
some modified approach that would add value and still address
those kinds of concerns.
Chairman Talent. One of the things I have emphasized to
these agencies and I agree with you, I think OSHA in particular
has benefited from doing this and we have had some pretty good
response from OSHA over the years, it is idle to assume that
you can do something that hurts small businesses and nothing
happens. I mean, they come here and they complain. They come to
you and they complain and you end up spending a lot more time
and effort having to defend a rule after the fact than you
would if you did this panel process in the first place. To me
that is something I have been trying to drum in their heads. I
think it would make a lot more sense if you talk about it
beforehand with people, at least give them the opportunity,
tell them about it and if they don't want it, fine, but I would
like to extend the panel process. You think it is possibly a
valid idea that warrants further discussion?
Mr. Spotila. I think it warrants further discussion. I
think there are concerns that have been raised, they are
serious concerns and I think they need to be addressed. If
there is a way to address them, then let's see what that might
be.
Chairman Talent. Is there a practical way of measuring the
cumulative burden of regulations at least per industry? You
take them on a one-by-one basis now. Is there a practical way
of sort of adding it up and--I remember, for example, there was
a period of a couple of years and we just seemed to be, every
time the restaurant owners turned around they were getting
nailed with something new and whether by coincidence or
whatever, is there some way of measuring that on a cumulative
basis?
Mr. Spotila. I would say yes or no. Let me explain that.
When we do individual rules, when a new rule comes in, the EPA
just put out a rule that affects diesel, the level of sulfur in
diesel and the like. It will have a huge impact. We looked
actually at doing a cost-benefit analysis, working with EPA on
assessing benefits and cost. We look at the baseline. What is
the impact on the refinery industry, which includes small
refineries, because there are a lot of things affecting that
industry now because of other important measures. We actually I
think do a reasonable job of assessing what the world would be
like with or without a particular regulation.
Having said that, if one were to look at the refinery
industry and say what is the sum total aggregate cost of all
regulation, Federal, state and local presumably, on the
refinery industry, I don't think we have that information. I
don't know that it actually can be done no matter how well
intentioned we might be. It may not be necessary to do that. By
that I mean one doesn't have to have a precise number, I think,
to try to improve decision making, and when one looks at where
the key priorities would be, what are the big things that are
affecting that industry, my experience has been if you talk to
the refinery industry, they will tell you. They will tell you
what they think has the biggest cost impact and often they will
tell you what they think makes the least sense, and that is a
starting point.
Chairman Talent. Here's another point. I feel strongly
about this and would be interested in knowing what you think.
We have mandated the preparation of regulatory impact analyses
in a number of cases and the executive order does similar types
of things. But we haven't told the agencies how they are to
prepare those in any consistent fashion. They each sort of do
it their own way. Now, there is a precedent for this. In the
late 70's President Carter had the Council for Environmental
Quality issue guidance governmentwide on how you prepare
environmental impact statements. I more and more think as we
work through rules on a rule-by-rule basis that it would be
good to have some kind of governmentwide guidance for those reg
flex analyses or regulatory impact analyses for the things that
the executive order requires. Do you think it would be
appropriate for either OMB or maybe Office of Advocacy, and you
are in a good position because you have served in both the SBA
and this, to prepare some kind of governmentwide guidelines
either just as required by the executive branch or for us to
put it in a statute?
Mr. Spotila. Actually, there are some guidelines out there.
That should be the starting point. We have put out guidance for
benefit-costs analyses, which is the key part of regulatory
impact analyses. I would be happy to supply that to the
committee. We actually just amended that guidance recently. The
Office of Advocacy has put out guidance since it has special
responsibility for oversight of the Regulatory Flexibility Act.
It has a set of guidelines that it has put out for the agencies
that is 80 pages long that tries to help agencies in doing the
reg flex analyses. I mentioned that that should be the starting
point because if there is further guidance that is needed, if
there is clarification that is needed, then we certainly would
be open to discussing with you----
Chairman Talent. Staff wrote a note saying it is not
binding on them. I guess what I am saying, should we do
something either from an executive standpoint or legislative
standpoint saying these are the guidelines, you need to follow
them as you prepare this so we get some uniformity and people
know what to expect?
Mr. Spotila. What we are finding from the standpoint of the
benefit-cost guidelines we put out, we in our centralized
review of the regulations do ask the agency to follow those.
Sometimes there are differences of opinion about the
applications of the guidelines. There are some areas where
economists differ about how one should treat things. What we
do, actually do in that regard is ask the agencies to follow
these guidelines. If there are areas that we recognize where we
think there is a problem, then we try to do more. I would leave
that open. That is to say if there are areas that you or other
members of the committee feel need to be enforced, I think that
is a starting point. That is even before one would look to
codify it in law.
Chairman Talent. I am going to wrap it up. I appreciate
your testimony. I just----
Ms. Velazquez. I just have----
Chairman Talent. I would be happy to recognize the
gentlelady.
Ms. Velazquez. We are here to see what is working and what
is not working. Previously you mentioned that there has been a
cultural change, OSHA, EPA, and again the chairman asked a
question about the panel review process regarding IRS, if we
should extend it to include the IRS, and you raised the issue
of confidentiality, that that is a major concern. But isn't it
true also that SEC has an issue of confidentiality and yet they
participate on the SBREFA panel review process?
Mr. Spotila. The Securities and Exchange Commission?
Ms. Velazquez. Yes.
Mr. Spotila. I don't know that we are involved in exactly
these types of review panels.
They may have instituted one on their own that is similar
to it. I am not that familiar with it.
Ms. Velazquez. My staff is telling me that they have.
Mr. Spotila. I would reaffirm what I said earlier that I
think this is a subject that certainly bears further
discussion.
Ms. Velazquez. Thank you.
Chairman Talent. I was really enlightened by your comments
about engaging the high level career people, and I think we
have to from our perspective not think of this as necessarily
an adversarial type thing where the mid level and high level
career people aren't going to want to do this and we have to go
out and get them all the time and we have an adversarial
system. They will probably frustrate any attempts to do it if
we accomplish that.
I would ask you in a closing comment what you think of
this. It is important that they see that, look, this is the
direction on a unified basis that political authorities want
them to go because in SBA, whose job after all is to advance
small business, it is probably much easier to get career people
to say this would be good for small business because it is part
of what they view as their core mission. The IRS views their
core mission as get as much money as they can out of people.
EPA is regulating for the environment. OSHA is regulating for
worker safety. We want them to be zealous in pursuit of those
missions. Unless we really in a unified way say to them we want
this to be part of your mission to do this in a way that
engages most small business people, does it--once we do that
then it seems to me it would be easier to recruit them. If they
believe by postponing and delaying action, Spotila will go and
the next guy will come in and we will be able to work around
him, then we are never going to get their cooperation. You see
what I am saying?
Mr. Spotila. Absolutely. Perhaps I can respond with an
anecdote, a true anecdote, because I think it is an example of
why I believe so strongly that career employees actually are--
they can be the solution and need to be.
When we were doing that regulatory reform effort I
mentioned at SBA where we were trying to streamline all of our
regulations in 10 months, we had a deadline. We either could
get the regulations to the Federal Register by a date certain
or we would miss for a whole year having it published in the
Code of Federal Regulations. We knew that was very important
for small business. One of our key senior career employees
working on the project in kind of an overview fashion was Dave
Kohler, who is now the Deputy General Counsel, had been there
for 20 something years and would probably be your classic, if
you will, career lawyer bureaucrat. You may remember these dark
days that we had two government shutdowns and then we had a
huge snowstorm that shut the city down the end of January of
1996. And Dave was in charge of the final reviews in getting it
to the Federal Register and the morning of the huge snowfall
when government was shut down, the guard at SBA's building,
noticed--he looked out the window and he saw footprints in the
snow, and it was deep snow, a foot and a half or whatever we
had gotten and he followed it into the building. He saw wet
footprints. He was worried from a security standpoint and he
followed the footprints into the building and found Dave
Kohler. He lived in Maryland and he rented a hotel room that
night on his own with his personal expense, rented a hotel room
so he could walk through the snow the next morning, go to his
office, finish the job because it had to be at the Federal
Register the next day and he didn't want to miss it.
That kind of dedication to me is an example of what we need
all our people to do and they will respond to leadership when
they get it.
Chairman Talent. I will tell you also that the Small
Business Committee staff during that similar time showed a
similar amount of dedication in making sure they made it to the
Irish Times every night.
We have some good witnesses coming up in the next package.
You probably need to go but I hope somebody from your office--
--
Mr. Spotila. I am going to leave someone from my office
here.
Chairman Talent. Because you'll hear exactly the kind of
thing we hear all the time and all these trends that I have
mentioned to you, you are going to hear coming--and this is
not--the eerie thing about it to me is none of them are going
to be talking about areas where there is some political
imperative that is moving the political actors to do something
that may be difficult for small business. In each case it is
like--well, it is HUD, it is FAA, it is late night safety at
convenience stores with OSHA. It is not stuff that is hot
political topics. It is just cases where small business people
really feel very insecure, and I am glad you are leaving
somebody from your office and if we do a memo I hope you will
take a look at it. I appreciate your coming back. I thank you
for your patience.
As Mr. Spotila leaves we will have the next panel come up.
I thank the second panel members for their patience and we
will begin with the testimony and begin with our former
colleague, Congressman James Coyne, who is the President of the
National Air Transportation Association here in Alexandria.
Jim, thank you for coming.
STATEMENT OF CONGRESSMAN JAMES COYNE (RET.), PRESIDENT,
NATIONAL AIR TRANSPORTATION ASSOCIATION, ALEXANDRIA, VA
Mr. Coyne. Thank you, Mr. Chairman. It is a real honor to
be with you today. I have prepared a written testimony which I
would, with your permission I would like to have submitted for
the record and perhaps be allowed to summarize any comments a
little more personally.
By way of background, the National Air Transportation
Association might very well be considered the most heavily
regulated industry in the country and I say that somewhat
cautiously because before coming to Congress, I was a member of
the chemical industry and many of the other industries that are
referred to by the previous witness as being the focus of much
Federal regulation, but when you think about the burden of
regulation on small businesses, I submit that the air
transportation service industry is the most heavily regulated
industry in the history of the government.
Every single one of our products have to have a Federal
certificate to operate. Each of our individual companies
operate with a Federal license. The vast majority of our
employees have to have a Federal license to work for us. Each
of our companies has a full-time Federal inspector who presents
to us a directory, a manual of how we should operate our
businesses. In fact, we cannot begin to work until we have
completed this federally blessed manual, and then finally all
of these Federal products, Federal employees and federally
certificated companies operate in a federally controlled
airspace system where literally each and every one of our
actions has to be taken only after a Federal employee approves
it. So I truly submit that we are the most heavily regulated
set of businesses in the country.
And you asked me very pointedly some specific questions
that I would like to address as simply as I can. Besides being
the most heavily regulated industry by the Federal Government,
I think we are also the one where those regulations produce the
greatest negative benefit because when you think about what
aviation is, we are in the business of saving time for our
customers. That is what we sell. We sell time because our
transportation, speedy transportation is designed to save time
and when our regulatory burden creates delays, creates
inefficiencies, it not only adds to our costs but it degrades
the ability of us to meet the needs of our customers.
Last week many of you saw here in Washington a story about
an 8-hour delay from a United Airlines flight that came from
Chicago, supposed to go to Dulles, and people were sitting on
the ground for 8 hours. Much of that delay in the press was
alluded to because of weather, but the reality is most of that
delay was because of a regulatory burden imposed by flight and
down time limits on that crew. They could not find the crew
quickly enough and many of those--even though the crew was
capable of flying, two pilots and so forth, the Federal
regulations made all those passengers sit on the ground for
hours and hours and hours. And we are seeing this more and more
today across the spectrum of aviation.
I am here to tell you quite bluntly that we are facing
regulatory gridlock in aviation in the next 10 years if we do
not relieve the tremendous paperwork and regulatory burden that
exists on aviation today.
You have asked me specifically 5 years after President
Clinton's review of the Code of Federal Regulations has there
been a reduction or an increase in regulatory burden on the
member companies in our industry. NATA represents over 2,000 of
the 10,000 small businesses across America, 99 percent of which
are classified as small businesses. We are the backbone of
aviation in America. There is a few dozen large airlines but
these thousands and thousands of small businesses are really
what make aviation work in this country, and I would submit
that if I went to each and every one of those 2,000 member
companies, I could not find a single one who could honestly say
that the paperwork burden or the regulatory burden has
decreased, not one. Every single one of them would say that
over the past 5 years despite the well meaning intentions of
the administration, the empathy that we hear from
representatives from the White House and others about the
concerns that they have, the sympathy that they give to us, the
simple fact of the matter is that regulations are increasing
faster now than ever before.
If I had to put it in a very simple way, I would say I have
called many of our members and tried to have them explain it in
terms of--in ratios that you all might understand. The result
ranged of course because every company was a little bit
different, but generally speaking these businesses felt that
for every hour their planes are in the air, for private charter
operators, flight schools, small scheduled airlines and others,
for every hour that they are in the air, the paperwork burden
alone represents between 2 and 17\1/2\ hours per hour of flight
time, and this is growing dramatically today.
You have also asked me very specifically whether NATA has
noticed that informal regulatory burdens have increased. You
have really put your finger on perhaps the greatest burden that
our industry is facing, the informal regulations that come
under the guise of what the FAA calls handbook guidance. There
is a lot of oxymorons in Washington these days, but I submit
that one of them we have to put at the top of the list is the
concept of a handbook. Handbook should be something that you
can carry in your hand. Well, there aren't too many people that
can carry this load of thousands of pages that make up the
Federal guidance handbook. This handbook today is five times as
big as it was 10 years ago.
More and more guidance is coming out of the regulatory
workforce without giving the industry the opportunity to have
public hearings or discussions or debates about this guidance
and, worst of all, this guidance produces not only more
paperwork but it produces tremendous new delays because at the
same time that the level of mandatory guidance and regulations
and paperwork have gone up, the ability of the administration,
the FAA to turn around that paperwork has declined. We have
stories of where it has sometimes taken as long as 2 years, 2
years for the FAA to get back providing answers or returning
the forms that we have submitted before we can get a
certificate or a license. This is especially hazardous to the
aviation community.
Right now aviation is going through one of the most
exciting technological revolutions in its history as the
computer industry has started to produce dramatic new products
and equipment to go into our airplanes, and yet routinely,
routinely it is taking between 1 and 2 years for a simple
operator of an airplane to get this new equipment certificated
so he can put it in his plane. The FAA has not only the
paperwork burden but they control the entire timeline of the
implementation. As that happens, we are flying with less safe,
less modern equipment and the new equipment is being delayed
week after week.
Chairman Talent. So a charter service might want to buy
some new safety or guidance mechanism for its plane and it has
to ask the FAA for permission to install that in the planes?
Mr. Coyne. It has to get a special type certificate
amendment or supplemental type certificate so that the original
airplane can be, quote, modified with this new box. The
modification may be simply taking out an old 30-year-old what
they call an NDB, for example, an old fashion kind of
navigational device and replacing it with a new state of the
art GPS equipment using our satellites, and yet it will take
literally months and months and months for these new pieces of
equipment to get the approval to be installed because frankly
the FAA's inspector workforce is not familiar with this new
equipment and so their lack of familiarity delays them from
trying to come up with a procedure to install it, and when they
do become familiar with it, they don't have the manpower to
deal with all these locations across the country. We really are
facing regulatory gridlock.
You also asked me whether these informal burdens, these
handbook guidance has increased. As I mentioned before
dramatically but even more importantly it has led to confusion.
There is no other word for it out in the real world. We have a
concept in aviation of course of being able to move our planes
from one location to another and typically many of our company
members will have locations in different parts of the country,
but they are dealing with different FAA regions or FAA
inspectors in their different regions and in one region the
inspector will say that it is--the answer is black. In the
other region the answer will be white. They will have
completely different interpretations of the rules, and what we
have ended up doing is something called forum shopping, which
you have heard of in the legal world, where companies will try
to find an area that will either give them a favorable ruling
but most especially give them an answer quickly because more
and more we are finding these tremendous delays.
You asked for some specific examples of the abuse we think
of in our industry. There was some brief discussion of the
question of fatigue in the highway operators community. This
has led to a similar regulatory proposal from the FAA this past
year, something that is called flight and duty time
regulations, which are proposals to regulate when a pilot can
work, how many hours of rest he must have before he has gone to
work, how long his duty day may be and so forth. These
regulations are being proposed in a ``one size fits all''
proposal from the FAA essentially designed to meet the
objectives of the airline pilots union, who have perhaps
aseparate economic agenda with regard to these work rules, but
nevertheless the rules are being promulgated to affect every other
operator in the country equally.
For example, a charter, a medical charter pilot who has to
be there much like an ambulance driver ready to take a sick
person or an organ transplant literally on a minute's notice,
these rules are being proposed for those same types of pilots.
If ever there was an example of apples and oranges, this is it.
It is as though the Federal Government is saying we are going
to put the same rules for bus drivers as we are for ambulance
drivers and that is effectively what has happened. When the
proposal was submitted for comment, the FAA in their own wisdom
said we have no idea what the economic impact of this will be
on the industry. They simply said the impact is unknown,
whereas we have calculated the impact could be as much as $6
billion. So we are very strongly concerned that the regulatory
authority of the FAA is being advanced without giving even lip
service, even lip service to the responsibility that they have
to come up with economic justification for the rules that they
propose.
In addition, you also asked me to describe any changes that
are needed in the regulatory process. Frankly, I only have a
few seconds left but we could go on for hours on this topic.
One of the obvious changes is to move toward some measure of
uniformity and public information awareness about
interpretations of rules both within the promulgated rule body
and within the guidance. We seem to be ignoring the benefits
that can come from the computer age in the rulemaking world.
You and I know that we can go onto most computer sites and get
frequently asked questions or facts and get answers to the
things that most ordinary people have about a new software
program or a new company or whatever, but can you go to the
Federal Government and ask is there a Web site where we can get
frequently asked questions answered about a regulatory
environment? No.
What could be simpler than to mandate that these Federal
agencies are required to produce standard answers that apply
nationwide to the frequently asked questions about the rules
that all of us have and make it available on the Internet so
that we don't have to hire a lawyer, that small businesses have
an easy way to find out what is expected of them so they can
meet the responsibility. In addition, of course, I think we
have a tremendous obligation, especially in technologically
complex rulemaking areas like aviation, to insist--I think one
of you made the point earlier--that we have people in the
regulatory workforce who know what they are doing.
Aviation is a very diverse area, and unfortunately right
now there is a tremendous shortage of technical people in all
areas of aviation. Sadly, one of the areas that is losing the
best people the fastest is the Federal Government inspector
workforce. Twenty years ago people would be proud to call
themselves a Federal safety inspector in aviation because that
would have a certain level of prestige and status and people
would know that you knew what you were talking about. Today we
have daily horror stories of people who don't virtually know
one end of an airplane from another merely coming out to our
offices to go through reams and reams of paperwork to make sure
that each box has been checked but not understanding the
fundamental technical issues that underpin all of this.
I could go on at great length about my other concerns that
we have, but I want to commend the committee for undertaking
this hearing. We have a long ways to go and I hope that we can
continue this dialogue in the weeks and months ahead. Thanks
very much.
[Mr. Coyne's statement may be found in appendix.]
Chairman Talent. Thank you. That is compelling testimony.
Our next witness is Mr. Duncan Thomas, who is the President
and Chief Executive Officer of Q-Markets, Inc., from Richmond,
Virginia, on behalf of the National Association of Convenience
Stores. Mr. Thomas.
STATEMENT OF DUNCAN THOMAS, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, Q-MARKETS, INC., RICHMOND, VA, ON BEHALF OF THE
NATIONAL ASSOCIATION OF CONVENIENCE STORES
Mr. Thomas. Thank you, Mr. Chairman. I will try to give you
a summary of my testimony which has been submitted.
As representatives of small business, both the association
and myself appreciate this opportunity to present our views on
the regulatory burdens imposed on our industry by the Federal
Government and on attempts by the Clinton administration to
reduce some of these burdens. While not directly on point with
the committee's reauthorization of the Paperwork Reduction Act,
the National Association of Convenience Stores would like to
offer related comments on the Small Business Regulatory
Enhancement and Fairness Act.
At the onset, let me just offer my general conclusion that
my cumulative regulatory burdens, as well as those on the
convenience store operators, have increased since President
Clinton ordered Federal agencies to reduce the paperwork
burdens by 25 percent over 5 years ago. Neither the National
Association of Convenience Stores nor I see the situation
improving in the near future. Simply put, while some of the
paperwork requirements may have eased, there is more and more
that convenience store marketers such as myself need to know in
order to remain in compliance with the complex array of
Federal, as well as State and local, regulations.
EPA and OSHA are just two of the Federal agencies which
affect convenience store operators on a daily basis. While I am
sure that others at this hearing will have testified about the
burdens imposed by the Internal Revenue Service, NACS and I
echo these views. Convenience store operators also have had to
deal with new rules over the past few years from the Food and
Drug Administration, such as restrictions on the sale of
certain goods, such as No-Doz, that could be used in the
manufacture of drugs, as well as the Department of
Transportation's hazardous materials registration program.
These are just a handful of examples of how regulatory
burdens affecting Q-Markets and other similar, small
convenience store operators have increased over the past 5
years. It is important for the committee to remember that these
additional mandates do not occur in a vacuum. Our NACS Members
and others are dealing with a range of other regulatory
programs, such as compliance with EPA's underground storage
tanks regulations. All of these regulatory requirements have
costs that often place me, as well as other small business
marketers, at a competitive disadvantage when trying to assure
and maintain compliance.
As members of the committee know, most compliance is
demonstrated through keeping and producing records. There have
been earnest attempts by the Federal agencies to reduce some of
the paperwork burdens associated with the compliance. For
example, the EPA recognized that there was little value in
requiring gasoline retailers to keep the product transfer
documents for 5 years to demonstrate compliance with the
agency's new fuels regulations. The agency correctly did
eliminate this requirement. The DOT is allowing small
businesses required to register under the hazardous materials
program to pay the annual fee for several years at a time,
reducing the time needed to comply and giving a small discount.
However, such efforts at paperwork reductions have not had
any significant effect on reducing my company's regulatory
compliance costs. For example, when I began my company in 1994,
I filled out all the necessary paperwork myself or in-house.
Since that time, my managers spendan additional two hours per
week filling out paperwork. I also have been forced to hire an outside
agency to assist my company with recordkeeping at an annual cost of
$3,000 per store. For my 10 stores that is at least 1,000 additional
hours and $33,000 that I did not have to incur 6 years ago. These
totals do not include my personal time in reviewing and sitting with
the various outside organizations and signing these forms. My personal
per store average is typical for other NACS members like me.
To assist its petroleum marketer members, NACS compiled its
petroleum marketers' book of Federal compliance forms, which I
have right here. This book includes all forms which petroleum
marketers need to fill out in order to assure compliance with
Federal regulations. This book has nearly 300 pages and it
includes 46 forms. And that is a fact, we counted. When you
look at the index page, it includes 46 forms. However, to fully
understand and properly fill out these 46 forms, one must read
hundreds and hundreds of pages of supporting materials,
including the rules themselves.
Informal regulatory burdens have also increased for
convenience store operators like myself. This really is a
double-edged sword. On one side, the EPA and OSHA and other
Federal agencies are making good faith efforts to assist small
businesses in understanding and complying with regulations.
These agencies publish plain English guidance and other
documents to simplify what I need to know about compliance. EPA
often asks NACS to review and comment on the drafts.
Chairman Talent. Excuse me a second. Would you just mind if
I could take a look at your handbook there.
Mr. Thomas. Yes.
Chairman Talent. Thank you. I want to take a look at one of
these. Go ahead.
Mr. Thomas. EPA often asks NACS to review and comment on
the drafts. The Internet has made access to these materials
faster and cheaper. NACS would give most Federal agencies high
marks for these easier to read materials. However, despite such
compliance assistance, it still remains necessary to read the
rules in their entirety.
On the other side, there are concerns that guidance
documents and similar materials are being substituted for
traditional notice and comment rulemaking or are establishing
standards of care that can be used against the small business
in lawsuits. For example, OSHA's guideline on late night
retailing is not a regulation. However, OSHA can use the
guideline for an enforcement action under the agency's general
duty clause. Moreover, the guideline can be used as evidence of
industry practice if I were to be sued in a tort or wrongful
death action, even though the document has been widely
criticized by the convenience store industry.
It is difficult to answer the committee's question on
whether facility inspections have increased. Many of the
Federal regulations affecting convenience stores are enforced
by State and local governmental officials. The levels of
enforcement vary widely among the States. Small businesses like
mine, who have spent considerable sums to comply with the law,
support even-handed and consistent enforcement. Unfortunately,
this is not the case in some regulatory programs.
EPA's underground storage tank program is a case in point.
The agency relies primarily on State enforcement laws. It was
recently reported that just the State of New Jersey had some
170 tanks that were not in compliance with the December 22,
1998, requirement to upgrade. Yet at the same time the State
itself imposed huge penalties on small petroleum marketers who
missed the deadline. When questioned, the State said that it
did not need to penalize itself because there was no deterrence
value. What happened to the protection of the environment?
There is no difference when the State's tank leaks compared to
one from a convenience store operator's tanks.
In terms of improving the regulatory process NACS has two
suggestions to make. First, the association has been a long-
standing advocate of the Small Business Regulatory Enhancement
and Fairness Act. NACS has been involved with numerous panels
convened by EPA. While this act has led to the greater
sensitivity to small business regulatory impacts, the process
is far from perfect. These panels and reviews should be
required at the outset of any rulemaking.
It is NACS' opinion that by the time most of these panels
are convened EPA staff working on rulemaking are already well
entrenched with their opinions on the regulatory options.
Sadly, much of this process simply becomes throwing a bone to
small business.
Many of the panels only address what I would call the Tier
I impacts. For example, under EPA's diesel fuel desulfurization
rule, the agency focused on regulatory impacts on small
refineries, who would be required to make substantial equipment
upgrades. There should also have been a substantive review for
the Tier II, such as supply storage issues for small businesses
like mine that retail the gasoline and fuel.
Second, as part of the Paperwork Reduction Act Federal
agencies should be required to identify complementary or
conflicting reporting forms and justify why these forms cannot
be consolidated when seeking renewal of control numbers from
the Office of Management and Budget. A similar process should
be imposed on permit applications. Given the increasing and
widespread use of the Internet, there is no reason why many of
these forms and applications cannot be combined and streamlined
and then the data can be used in the relevant agency's program.
From Q-Markets' paperwork experience, as I mentioned
earlier, the annual burden on the convenience store industry is
significant and expensive. While the computer software and the
Internet have made many routine tasks simpler and easier to
track, the convenience store industry has not seen an
improvement since 1995. If anything, some of the efforts by the
Federal agencies may have merely slowed the rate of increase in
overall regulatory burdens.
In conclusion, Mr. Chairman, NACS and I believe a mixed bag
exists on the questions posed by the committee for this
hearing. While there have been good faith and actual efforts to
reduce paperwork burdens generated by federally mandated
regulations, they have not made a dent. The larger problem
remains that the flow of new regulations has not let up for the
convenience store industry. There simply is more to know about
and this leads often to confusion, inadvertent noncompliance
and considerable expense. The association recommends changes to
the Small Business Regulatory Enhancement and Fairness Act and
the Paperwork Reduction Act to keep the process of burden
reduction moving in the right direction.
It has been a privilege to share NACS' and my views with
the committee, and I will be happy to answer as many questions
as you might have. Thank you. [Mr. Thomas' statement may be
found in appendix.]
Chairman Talent. It looks like you would have to actually
fill out most of those forms except the tax forms, which I can
see that maybe you wouldn't have to fill out all those. It
looks like you have to fill out most of these forms.
Mr. Thomas. That is correct, Mr. Chairman.
Chairman Talent. The next witness, Mr. Kenneth O. Selzer of
the Kenneth O. Selzer Construction Company, Cedar Rapids, Iowa,
and he is testifying on behalf of the National Association of
Home Builders. Thank you, Mr. Selzer.
STATEMENT OF KENNETH O. SELZER, KENNETH O. SELZER CONSTRUCTION
CO., CEDAR RAPIDS, IA, ON BEHALF OF THE NATIONAL ASSOCIATION OF
HOME BUILDERS
Mr. Selzer. Good morning, Mr. Chairman and members of the
subcommittee. My name, as you mentioned, is Kenneth O. Selzer.
I am owner of Kenneth O. Selzer Construction and four related
real estate companies and have been in the home building
business since 1954. I have served as President of the Greater
Cedar Rapids Area Home Builders Association and the Home
Builders Association of Iowa. I have also served as an Area 10
national vice president of the National Association of Home
Builders, of which I have been a member since 1976, and am
currently an NAHB Life Director and member of the Federal
Governmental Affairs Committee. Thank you for giving me the
opportunity to testify on an issue of great importance to the
home building industry, regulatory barriers and their impact on
housing affordability.
NAHB and its 200,000 members believe that homeownership is
the cornerstone of family security, stability and prosperity.
It strengthens the Nation by encouraging civic participation
and involvement in schools and communities. It provides a solid
foundation from which Americans can work to provide for their
families, enhance their communities and achieve their personal
goals, and yet it continues to be besieged by a torrent of
government regulation.
The common notion of a home builder tends to be that of a
high volume constructor, someone who can spread production and
regulatory costs across many projects. This is simply not true.
Over half of NAHB's members build fewer than 10 homes per year
and close to 75 percent build 25 or fewer homes or less.
Myself, I never had more than four employees and the most homes
I ever built in 1 year was five. A typical NAHB member firm is
truly a small business employing less than 10 workers.
So while low interest rates and a booming economy have
contributed to the recent growth in homeownership, many
families are still denied the opportunity to buy a home
because, despite reform efforts, no growth policies and regular
costs of home building are expanding and pushing housing
further out of the reach of thousands of Americans. Right
today, about 25 percent of the people who bought a home 10
years ago would get in their car and drive around the block and
come home. With today's income, today's cost of that home, they
could not afford the home that they are living in today.
Most Americans do not fully realize the extent to which
overregulation drives up new home prices. The issue is complex
and difficult to quantify, and the impact of regulation can
vary significantly even within the same State or region. Yet,
government at all levels continues to blanket every aspect of
the housing industry with layers of regulation. This is not to
say of course that housing or any other industry should be left
completely unregulated. What we need are sensible, appropriate,
balanced guidelines at all levels of government. At home right
now, the town I live in, our building inspector for the last 10
years mowed grass and cleaned sewers. Now he is inspecting
construction, plumbing, heating and electrical, and he is the
authority. We need to identify unnecessary and repetitive
regulation, eliminate them and make sure the new regulations
are absolutely necessary before they are proposed. It is clear
that without a serious effort to make sweeping changes in the
way that construction of new homes is regulated costs will
continue to rise, stifling the ability of builders to provide
affordable housing and expand homeownership opportunities for
families throughout the country.
NAHB appreciates your interest in addressing this issue,
Mr. Chairman, and we are pleased to present testimony before
you and your committee today.
Efforts to reform the regulatory process in the U.S. are
not new. Unfortunately, in many instances, past attempts have
only led to increased layers of regulation and more
bureaucracy. While the building industry recognizes the need
for certain regulations, we believe that even the most
necessary regulations should be administered in a fair and
efficient manner. Over the last several years, as increased
Federal regulations have been layered upon existing State and
local requirements, the cost of regulation has been
increasingly felt by the new home buyer.
An NAHB survey, conducted in the summer of 1998, found that
about 10 percent of the cost of building a typical new home can
be attributed to unnecessary regulation and regulatory delays,
fees associated with building, plumbing, electrical, and tree
removal permits, disposal of construction wastes. This one has
just gone off the chart for the cost of disposing of material
from the site. We are no longer allowed to burn it on site as
we had for many years. In fact there are some 60 categories of
fees and regulations altogether. In some highly regulated
markets the costs can total 20 percent or more of the sales
price of a typical home.
In addition to increasing fees, builders also face
obstacles such as increasingly stringent design codes, the
latest being the change in the rise in the run in stairways. It
has eliminated every plan that we know for the last 100 years.
Chairman Talent. Let me just ask you to suspend for a
minute. Here is what I am going to suggest because I want to be
certain we have time for questions. I read your testimony last
night, and I commend it to all the members of the committee. I
really want the committee to focus on what you have to say
about wetlands regulation. Would you do me a favor and skip to
the wetlands part of your testimony? It is a page or so ahead
of where you are now, and it isn't that the rest isn't
important. That is mostly local stuff. It is important the
committee understand that what we do federally is on top of all
this stuff locally, which for home builders particularly is
very significant, but I want the committee to hear what is
going on with wetlands regulation and the history of that. So
you have about three or four pages on that. I want to be
certain we hear that. Would you skip to that, please?
Mr. Selzer. I would be happy to do that. Wetland
regulation. A striking example of burdensome regulation is the
wetlands permitting process, which has become increasingly
onerous over the years. In fact, NAHB feels so strongly that
the Corps', referring to the Army Corps of Engineers, new
restrictions are unfounded and will result in a bloated
bureaucracy rather than a streamlined permitting process that
we have had to resort to legal action against the Corps. This
action comes as a last resort after many attempts to find a
reasonable solution to the conflict between a workable
permitting process and the reach of Federal regulators.
Here is some background on the issue. Section 404 of the
Clean Water Act requires permits for the discharge of dredged
or fill material into waters of the United States, a definition
regulators have steadily expanded to include wetlands. Wetlands
are defined broadly to include countless isolated pockets of
land that oftentimes are too dry to meet the common sense
definition of the word ``wetlands.'' .
The U.S. Army Corps of Engineers and the Environmental
Protection Agency jointly administer the program. The Corps
issues the permit, while EPA maintains an oversight with power
to veto any permit.
There are two kinds of permits available under the section
404 program: Individual and general. Individual permits are
issued for a specific activity in a specific location.
Individual permits require extensive scrutiny, the preparation
of reports and the completion of an alternatives analysis.
Individual permits typically take over a year to obtain. That
would be very fast to get one in a year. General permits on the
other hand are meant to provide an expeditedpermitting process.
These permits allow developers around the country to perform similar
activities without the delay that usually accompanies the issuance of
individual section 404 permits.
In 1977, the Nationwide Permitting Program, NWP, became
part of the Clean Water Act under the 1977 Clean Water Act
amendments, showing that Congress endorsed the program as a way
to provide administrative efficiency in activities that have
minimal environmental impact. The most common nationwide
permits used by the development industry are 12, this covers
utility lines; 14, minor road crossings; 26, filling of
isolated or headwater wetlands which are unconnected to rivers,
streams and waterways. The earliest version of 26 allowed
discharge in up to 10 acres of wetlands.
In 1978, the Corps removed the acreage limitation on NWP 26
as a result of President Carter's executive order to make
regulations less burdensome. Almost immediately, the National
Wildlife Federation filed suit against the Corps, arguing that
removing the acreage limitation would harm the environment.
In 1982, as a result of that lawsuit, the Corps issued new
regulations: The maximum acreage limitation of 10 acres was
reinstated; agencies such as the U.S. Fish and Wildlife
Service, the Environmental Protection Agency and the National
Marine Fisheries were required to be part of the decision
making process; the builders and developers using NWP 26 were
told to file a predischarge notification with the Corps 20 days
prior to filing for fills between one and 10 acres.
In 1996 the use of NWP 26 was modified again: Acreage
limits were reduced to between one-third of an acre and three
acres; predischarge notification was increased to 45 days;
wetland mitigation was made mandatory--if you have a question I
will explain that--26 could not be used in tandem with any
other NWPs. The Corps also announced that NWPs would be phased
out and would be replaced with a set of so-called successor
permits in 1998.
In 1998 the Corps announced a series of activity-based
wetland development permits or successor permits to 26. One of
the more notable permits allowed some limited flexibility on
wetlands fills in master-planned communities which utilize
considerable environmental and land use planning. Soon after
its introduction, however, the Corps revoked the master-planned
permit. The Corps also placed restrictions on the use of NWPs
in flood plains and certain waters of the U.S.
On July 21, 1999, the Corps published in the Federal
Register a notice of intent to issue five new and six modified
NWPs to replace the existing 26 when it expires.
In the fiscal Year 2000 Energy and Water Development
Appropriations bill, Congress required the Corps to complete a
study of the change in permitting workload and regulatory costs
that would result if the replacement package, as proposed, were
implemented.
They estimated that the cost would be about $48 million
annually, which NAHB believes is a gross underestimate. These
direct costs reflect out of pocket expenses incurred by the
regulated community to complete permit applications and comply
with permit conditions. The replacement package would also
impose indirect or opportunity costs on the regulated community
that are not reflected in the out-of-pocket expenses.
In addition, the Corps analysis indicates the average time
it takes the Corps to process an SP--SP is a standard permit--
application and the number of the end-of-year pending, that is
the backlog they haven't gotten to, applications awaiting Corps
processing would rise steadily each year under the replacement
package.
Nevertheless, on March 2000, the Corps announced new and
modified NWPs to replace NWP 26 as well as some notable new
restrictions, including one-half acre limit on the use of most
new and modified nationwide permits and a preconstruction
notification requirement on any activity affecting more than
one-tenth of an acre, all of this despite a lack of evidence to
substantiate the need for the new acreage limits to protect
wetlands.
That pretty well summarizes up the wetlands problem.
[Mr. Selzer's statement may be found in appendix.]
Chairman Talent. What I would like to do, Mr. Selzer, is in
the interest of time just to commend to the members of the
committee the housing impact analysis in your testimony, an
idea which agencies would have to consider the impact of new
regulations on homeownership, which was incorporated in the
bill the House passed almost unanimously earlier this year, and
thank you for your testimony.
I would like to make certain we have plenty of time for
questions, and if I could start I would like to start with the
wetlands. Now you are a developer?
Mr. Selzer. I have done some developing. Only in one
instance was I involved in this. I backed off and used an
engineering firm named Hall and Hall. The two people in the
agency that I worked with was Monica Wannamuk and Ubo Agena.
They worked very little with me but they worked directly with
my engineers, and what we were doing is taking the top of the
hill out of a wetland when the bottom of the hill was not in a
wetland.
Chairman Talent. Give me an idea of how this works. Let us
take a typical home builder. Let us say that he gets six or
seven acres of land, he wants to put in some houses, okay. Now
the problem occurs, does it not, when some part of that parcel
he finds is a wetlands? So how much of it has to be a wetland
before it triggers these permit applications?
Mr. Selzer. One-tenth of one acre.
Chairman Talent. And what is the working definition of a
wetlands that you use in the home building business? How do you
know something is a wetland?
Mr. Selzer. If it has nonpoint water.
Chairman Talent. So it has water standing on it, if it is
wet part of the year; is that right?
Mr. Selzer. Part of the year.
Chairman Talent. How many days does it have to be wet?
Mr. Selzer. In 1993 our area normally gets 36 inches of
rain. In nine months we got 85 inches of rain. The entire State
was a wetland by this definition. You couldn't build a house
any place.
Chairman Talent. I have heard that said, that my backyard,
for example, would be a wetland. I have a third acre lot and
the backyard's kind of wet a lot of times. Is that really true?
It is funny as a joke. Is it true? I mean the average
development that a developer tries to undertake with a
property, is it likely that he or she is going to have a
wetlands on that property?
Mr. Selzer. No. The prudent builder before they purchase
the land would investigate to see if there's a wetland on it.
Chairman Talent. And of course would not develop it if
there is a wetland on it?
Mr. Selzer. No. Just due to the time and efficiency and
cost of money they would stay away from it. They would go to
more expensive land to buy, which I suppose tit for tat runs
the cost up just as much.
Chairman Talent. So as a practical matter, there is not a
whole lot of people out there even bothering to go through
this?
Mr. Selzer. Not anymore. They are struggling with it, but
when we get down to Louisiana, Mississippi, Florida, it is a
huge problem there compared to Iowa. Under the wetland
regulations, Washington, D.C., would not be sitting here.
Chairman Talent. It would be a wetland, wouldn't it?
Suppose you had eight or 10 acres you were trying to develop
and let us say a tenth of an acre was a wetland. Could you in
developing that property leave that area undeveloped and then
not have to go through the permit process, I mean build houses
around it but that is the retaining pond or something like
that?
Mr. Selzer. You could do that or you could do what I
alluded to, the mitigating problem. I could go over to Joe over
here, I could buy a tenth of an acre of wetland that is going
to forever and ever and ever be a wetland, then get permission
to fill mine in because I have replaced it with another.
Chairman Talent. But you would have to go through the whole
permitting process then to do that?
Mr. Selzer. Oh, absolutely, sir, yes.
Chairman Talent. I am trying to figure out how you get
around that permitting process. I guess you just don't develop
that. If you have got a little piece of wetland in the middle
of a development property and you leave it alone, you don't
develop that, are you safe then? Or do you have to get a
permit? Does anybody know?
Mr. Selzer. As long as you have the Army Corps of Engineers
they will designate the wetland and you can stake around that
so you stay out of it.
Chairman Talent. But you have got to go to the court to get
them to do that?
Mr. Selzer. Oh, yes.
Chairman Talent. If you are just developing dry land, you
don't have to go to the court, do you? You just develop it
then, right?
Mr. Selzer. Well, dry land sometimes is called wetland.
That is the bugger.
Chairman Talent. All right. That has got to be different
than what the Congress intended, doesn't it? I suppose--I
wasn't here when they passed that originally. I suppose
probably people were thinking of like the Everglades. Were you
here when the thing passed?
Mr. Coyne. No. That was shortly after mine, but I was at
the White House at the time and followed it pretty closely. I
think you are right. I think the intention was much more
restricted. George Bush's view of the wetlands were really
places that were wet all year around and had duck life and
things like that.
Chairman Talent. Part of the ecosystem of some body of
water is really what was thought of.
Mr. Coyne. And has been expanded by the Army Corps.
Chairman Talent. Let me move to you, Congressman Coyne,
because with the first panel I went into great length about my
concern over the elimination of laws. In other words, you have
regulations but you don't have laws. That is really what you
are talking about with this handbook thing, isn't it?
Mr. Coyne. Absolutely. I could give you hundreds and
hundreds of examples where the FAA has really created a new
regulation, you know, without going through the mandated
regulatory process, giving those of us in the industry an
opportunity to say that is wrong for at least my part of the
industry.
A good example might be a handbook regulation that is
developed for an airline operator or an airline manufacturer, a
huge company, and yet that handbook regulation is then applied
on the field to companies that have two or three or four
employees, and if it had gone through the normal regulatory
process, we would have had the right to question the
justification of the rule that broadly, and more than likely
the FAA would have exempted certain categories of companies
from the application, but when it is done in the handbook, it
is not only done in sort of the stealth of night but it is also
done in a way that the handbook, the inspectors out in the
field feel a kind of authority that really doesn't belong to
them. It gives them a kind of almost Gestapo right to go in and
say this is my handbook and I will do whatever I want with it.
It is a very frustrating environment.
Chairman Talent. Have you ever sued on behalf of your
members to challenge this overall process? If not, why not?
Mr. Coyne. Well, in my own case, it is largely because I
really don't believe that the litigation route is the right
way. It really fundamentally gives to the courts a
responsibility that belongs with our legislatures and I would
believe and hope to continue to believe that our legislatures
will look at this and exercise the appropriate legislative
authority that they have to expedite--now, we have made appeals
within the FAA from time to time on the most egregious
examples, but lots of times we just don't know about them
because as you can see this is so mammoth that it is really
hard to know.
Chairman Talent. And of course, your individual members,
first of all, it is very costly to sue, it is time consuming to
sue, and secondly, you mentioned something in your testimony
that I want to bring up for the record and did not bring up
during the first panel and probably should have. There is also
a fear about suing, isn't there, because if you sue the FAA,
that same inspector is back the next month and he is not
appreciating being sued over his decision, is he?
Mr. Coyne. Not even a question of being sued, if you just
try to go to the level up, I mean I was interested by your sort
of philosophical discussion with the earlier panel, as though
this was all being debated in a college seminar, but in the
real world, no matter how intelligent the people here in
Washington might be and how open minded and speaking all the
right empathetic, we want to work, out in the field there are
some petty bureaucrats, there is just no doubt about it, who as
soon as they find out you have gone over their head to
Washington to try to overturn something, then you have a bull's
eye in the back of your wallet for the rest of your life.
Mr. Selzer. That is what I was referring to as the local
building inspector at home. I forgot more than that man will
ever know, and when he came on a job and picked up a nail and
asked me is this a 16 penny spike, I told him if he didn't know
what the hell a 16 penny spike was he didn't have any business
inspecting my work, which was probably a very ignorant thing to
do but----
Chairman Talent. Maybe a little impolitic to say that, Mr.
Selzer. All right. I will recognize the gentlelady from New
York.
Ms. Velazquez. Thank you. Congressman Coyne, I don't need
for you to answer this question because you answered it before.
I would like to ask the other two gentlemen. You have all
mentioned regulations that you felt were burdensome or
obsolete, and I am sure that you are aware but I know that if
you are not the association that you represent or belong to
are, that under the Administrative Procedures Act you are
allowed to request review of any regulation that has an impact
on your business. To your knowledge, have you or your
association or any member of your association requested such a
review on any regulation of any of the agencies?
Mr. Selzer. Well, on the Paperwork Reduction Act I used to
do a lot of FHA and VA building, and one day I was a little bit
tired of the paperwork and I called in and asked where do I
send this to. Nobody could tell me where to send it. They said
you have to fill it out. I said, well, what do I do with it
then. Well, then you turn it in. Who do I turn it in to? To
this day they have notanswered where I send it. The only thing
they know is you do the paperwork and if we want it we will get ahold
of you.
Ms. Velazquez. Are you aware of any formal requests from
your association to a specific agency regarding a regulation?
Mr. Selzer. On wetlands, yes. On wetlands we have asked
them.
Ms. Velazquez. What was the outcome?
Mr. Selzer. It is still up in the air. We haven't got a
finalization on it.
Ms. Velazquez. Mr. Thomas.
Mr. Thomas. I am not aware of any particular one but I will
look into that, and we do have opportunities I am aware of that
we have. Several times we have raised and asked questions and
there are several instances that we have been able to present
our concerns and our views and as an association have done
that.
Ms. Velazquez. Mr. Selzer, representing New York City, I am
very concerned about the lack of affordable housing. So when
you spoke about the fact that regulations account for 20
percent of the cost to new homes, really I got concerned. Could
you provide this committee with where the estimate came from,
the 20 percent? How can you come up to that number?
Mr. Selzer. It goes all the way back to the start of the
timber industry being regulated, the Canadian import duty,
which I think is wrong. We pay more for the lumber because
after you get 14 billion feet in from Canada you pay a higher
import duty so you pay more for that right there. It takes
tremendous energy to burn cement in its process. They are being
regulated because they are dirty, they are raising the cost of
cement. Insulation, it takes tremendous heat to burn
fiberglass. They are being regulated tremendously. Fiberglass
is going up. Sheetrock has better than tripled in price due to
regulations. So every component part coming into the house from
its inception is being regulated and the ultimate consumer pays
the bill.
Ms. Velazquez. Sir, out of the 20 percent what percentage
is related to State regulations?
Mr. Selzer. To safety regulations?
Ms. Velazquez. No, to State regulations.
Mr. Selzer. To State regulations. There would be more. On
local government, it is time delay. You buy this piece of
ground, you go in to get it rezoned, it takes six, eight, 10
months, then it takes three readings. You have to start in July
so you are ready by spring. If you start in spring, you are
ready in December. We have to protect the 46 inches of frost in
Iowa. You lose the whole winter then.
Ms. Velazquez. So 20 percent is a big number, but I would
just like for you to help me to understand how much of that
percentage, because this has a big impact on the cost of
housing, how much is related. Half of that 20 percent is
related to State or local regulations or what?
Mr. Selzer. It is probably half and half, half related to
State and local regulations, impact fees for hooking on to
sewers. You have to pay to hook on to a sewer but in the last
10, 20 years the cost of hooking on to a sewer has gone up
maybe 20 times what it was before and yet the line is still
there.
Ms. Velazquez. The 20 percent was as a result of a study
that was conducted?
Mr. Selzer. Yes. It was a survey and 52 percent of the
people that received the survey responded, and we felt that 52
percent was a big enough representative that we could use it.
Ms. Velazquez. Thank you. Congressman Coyne, I share your
pain with the three handbooks that you have there. I just would
like to ask you, to the best of your knowledge, does the FAA
have a small business office or some kind of ombudsman that
helps some of the 10,000 small businesses in this field?
Mr. Coyne. Not to my knowledge, no.
Ms. Velazquez. And I think the chairman and I would agree
that these type of offices have been successful in helping
small businesses like the small business office, business
affairs at the IRS. Would you think that this type of office
could be of any benefit?
Mr. Coyne. Well, you know, it sounds like it might help but
there is a tendency within bureaucracies for offices like that
to really not have much power, and the question is how much
authority it would have. I have seen agencies create special
offices at the direction of Congress, and then I have seen the
entrenched bureaucracy, which we were talking about before,
essentially give those people only lip service, and I would be
concerned, but if the top management--I mean, this is the issue
you were raising before--if the top management really felt that
these concerns of small business were a priority of theirs and
were directed in that way, either from the White House or
Congress, then I think that agency would be improved if it had
that kind of small business ombudsman.
Ms. Velazquez. But in the process don't you think that if
you have someone there that would help alert top management
that a regulation is having an impact?
Mr. Coyne. It is a positive step. We feel there has got to
be an appeals process within the FAA to go to when you feel
that the concerns of small business have been ignored. It
doesn't exist now, and we have recommended that in my written
testimony, but I don't want to say that this is a panacea
because the instincts of a bureaucracy is to grow and to
basically have the view that every problem can be solved with
more regulation. This is endemic in our society today, and I
worked in the Reagan White House 15 years ago directing
something called the Office of Private Sector Initiative, and
President Reagan had the view that a lot of the problems that
are presented to the Federal Government as needing new rules
maybe don't need a new rule after all, that the private sector
on its own could in fact develop solutions, and I think that is
in fact as true today as it was then.
Ms. Velazquez. Thank you, Mr. Chairman. I don't have any
other questions.
Chairman Talent. Well, that is all I have, too, and I
appreciate your patience and your explanations and thank the
committee for its patience as well and I will adjourn the
hearing.
[Whereupon, at 1:55 p.m., the committee was adjourned.]
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