[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
SBREFA COMPLIANCE:
IS IT THE SAME OLD STORY?
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC, MARCH 6, 2002
__________
Serial No. 107-46
__________
Printed for the use of the Committee on Small Business
U.S. GOVERNMENT OFFICE
78-734 WASHINGTON : 2002
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800
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COMMITTEE ON SMALL BUSINESS
DONALD MANZULLO, Illinois, Chairman
LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD,
ROSCOE G. BARTLETT, Maryland California
FRANK A. LoBIONDO, New Jersey DANNY K. DAVIS, Illinois
SUE W. KELLY, New York BILL PASCRELL, Jr., New Jersey
STEVE CHABOT, Ohio DONNA M. CHRISTENSEN, Virgin
PATRICK J. TOOMEY, Pennsylvania Islands
JIM DeMINT, South Carolina ROBERT A. BRADY, Pennsylvania
JOHN R. THUNE, South Dakota TOM UDALL, New Mexico
MICHAEL PENCE, Indiana STEPHANIE TUBBS JONES, Ohio
MIKE FERGUSON, New Jersey CHARLES A. GONZALEZ, Texas
DARRELL E. ISSA, California DAVID D. PHELPS, Illinois
SAM GRAVES, Missouri GRACE F. NAPOLITANO, California
EDWARD L. SCHROCK, Virginia BRIAN BAIRD, Washington
FELIX J. GRUCCI, Jr., New York MARK UDALL, Colorado
W. TODD AKIN, Missouri JAMES R. LANGEVIN, Rhode Island
SHELLEY MOORE CAPITO, West Virginia MIKE ROSS, Arkansas
BILL SHUSTER, Pennsylvania BRAD CARSON, Oklahoma
ANIBAL ACEVEDO-VILA, Puerto Rico
Doug Thomas, Staff Director
Phil Eskeland, Deputy Staff Director
Michael Day, Minority Staff Director
C O N T E N T S
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Page
Hearing held on March 6, 2002.................................... 1
Witnesses
Sullivan, Hon. Thomas, Chief Counsel for Advocacy, U.S. Small
Business Administration........................................ 4
Rezendes, Victor, Managing Director, General Accounting Office... 6
Frulla, David, Brand & Frulla.................................... 8
Goldhecht, Norman, Regulatory Chairman, National Association
Portable X-Ray Providers....................................... 10
Dozier, Damon, Director, Government Affairs, National Small
Business United................................................ 12
Gibson, Jeffrey, American Pacific Corp........................... 14
Appendix
Opening statements:
Manzullo, Hon. Donald........................................ 29
Grucci, Hon. Felix........................................... 31
Prepared statements:
Sullivan, Hon. Thomas........................................ 33
Rezendes, Victor............................................. 49
Frulla, David................................................ 58
Goldhecht, Norman............................................ 67
Dozier, Damon................................................ 71
Gibson, Jeffrey.............................................. 80
Additional Information: Statement submitted by Small Business
Legislative Council............................................ 92
SBREFA COMPLIANCE: IS IT THE SAME OLD STORY?
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WEDNESDAY, MARCH 6, 2002
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. Donald A. Manzullo
(chairman of the committee) presiding.
Chairman Manzullo. I would like to call this hearing to
order.
Let me give you some good news. It is always good to have
some good news. We held a hearing at the Los Alamos in Santa Fe
in Congressman Tom Udall's district because of the extremely
poor procurement policies, miserable procurement policies, on
the part of the DOE. We had brought in there--here is this
national ad that is getting $1 billion in procurement a year or
in federal tax dollars each year. We had one witness who
testified that six of the local Pueblos--those are the Indian
tribes--only got a total of $5,000 in contracts.
I spoke this morning at the National Hispanic Chamber of
Commerce, which was founded by Mr. Barreto's father. I ran into
a lady there who was one of the witnesses in Los Alamos. She
said you will not believe what happened. The Small Business
Committee raised so much cain down there that the people at the
Department of Energy decided to have some energy, and they set
up a committee to oversee contracts going to small businesses.
One of the aggrieved parties, a small business lady--did
you meet her there, Anna, at the breakfast this morning--got
put in charge of this committee to make sure that the small
businesses got their fair share of contracts. She said I would
like the same type of subpoena powers that Mr. Manzullo has.
They said you have them.
The first shot out of the gate is $40 million in
construction contracts set aside for the small business people
out in Santa Fe. That is why we have lots of oversight with
this committee. The purpose is to shake up the bureaucrats and
shake out those contracts so the small business people get
their fair share. Is that right? You bet.
Today's hearing is the first in a series that the Committee
will hold addressing compliance with the Small Business
Regulatory Enforcement Fairness Act or SBREFA. SBREFA modified
and strengthened the Regulatory Flexibility Act. The hearings
will identify problems with the Regulatory Flexibility Act and
SBREFA. Our goal is to draft legislation that will remove the
loopholes agencies have discovered for not complying with the
Regulatory Flexibility Act and SBREFA.
In 1980, Congress responded to the cries from the small
business community for help with the constantly growing
regulatory burdens imposed by the federal government. Congress
intended the Regulatory Flexibility Act to alleviate the
disproportionate federal regulatory burden imposed on small
businesses and other small entities. The authors intended the
RFA to have the same effect on agency decision making that the
National Environmental Policy Act had on agency decisions that
would affect the environment. The concept was to force the
agencies to think through the problem before using the knee
jerk response of imposing regulations.
For 15 years, agencies largely ignored the RFA. This is not
my supposition, but rather the conclusion of the annual reports
issued by the Chief Counsel for Advocacy during that time.
Congress also held hearings highlighting agency failure to
comply with the RFA.
SBREFA was enacted in 1996 as a response to federal
agencies ignoring the mandates of Congress. SBREFA strengthened
the RFA. The authors expected that the changes would induce
agency compliance. However, as we will hear today, agencies
have found new loopholes they can use to avoid compliance with
the Regulatory Flexibility Act.
The premise underlying the RFA is simple. If an agency has
two methods of achieving its statutory objective, the rational
choice would be to select the one that imposes less burdens on
small businesses and other small entities. However, the
agencies have used interpretive gymnastics, even after Congress
thought it closed them with the enactment of SBREFA, to avoid
conducting the required analyses and identifying less
burdensome alternatives that would achieve their statutory
objectives.
I look forward to working with the witnesses and others on
legislation to close those loopholes, and I will now recognize
the Ranking Member, the gentlelady from New York, for her
opening statement.
[Chairman Manzullo's statement may be found in the
appendix.]
Ms. Velazquez. Thank you, Mr. Chairman, and good morning.
Regulatory and paperwork burdens are one of the greatest
challenges that confront this nation's small businesses. Firms
that employ fewer than 20 workers face an annual regulatory
burden of almost $7,000 per employee, a burden nearly 60
percent greater than that of corporate America.
Today, many times small business owners do not have a legal
department or a regulatory expert to help them understand and
comply with federal rules. The hurdles created by regulations
can mean the difference between a business sinking or
surviving.
In an effort to level the playing field for small
businesses, Congress enacted the Regulatory Flexibility Act in
1980. This groundbreaking legislation mandated that federal
agencies consider the impact their regulatory proposals would
have on small businesses. This law was created to insure that
such proposals did not have unintentional and detrimental
effects on small firms.
While the Reg Flex Act was the first step in providing some
fairness in the regulatory process, much more still needs to be
done. Reg Flex was able to put small business concerns on the
radar screen of federal agencies, but compliance has proven
both uneven and elusive.
In 1996, President Clinton signed the Small Business
Regulatory Enforcement Fairness Act, also known as SBREFA. This
raised the regulatory stakes for agencies by putting legal
teeth into the regulatory fairness process by allowing small
businesses adversely affected by a proposed rule to challenge
it in the courts. SBREFA has gone a long way to improving the
regulatory process and has helped to protect the interests of
small business.
I believe that today it is an appropriate time to go back
and re-examine where we are in terms of the state of small
business regulations. What we are now seeing is very much a
mixed bag. Some agencies actively engage small business in the
regulatory process, while others like the FCC, which is
probably responsible for the most regulations affecting small
businesses, have one of the worst track records for leaving
small business out.
Another agency that has an inconsistent track record is the
Center for Medicare and Medicaid Services. Today, CMS came out
with its prescription drug card proposal. This rule is a
perfect example of an agency's failure to comply with the law.
It also demonstrates a lack of understanding of the Reg Flex
Act and why it exists--to protect small businesses and
incorporate their views into the rule making process.
CMS heard from Democrats on the House Small Business
Committee who encouraged agency officials to speak to small
businesses before they proceeded with the proposal process.
Associations that represent small business such as the National
Community Pharmacists Association and the National Association
of Chain Drug Stores also voiced their concerns to CMS. Still,
the agency ignored this request for small business inclusion
and pushed forward.
CMS, like other agencies, must realize that Reg Flex and
SBREFA were created for a reason. They serve an important
purpose--to protect the interests of small businesses and to
insure that they are not negatively affected or overly burdened
by an agency rule that is in the pipeline.
The regulatory process is a complex and sometimes
burdensome undertaking, but regulations can also be fair,
balanced and provide necessary protections for our health,
welfare and our environment. Federal agencies must work to
determine the impact their regulations have on small
businesses, explore the regulatory options for reducing that
impact and be held accountable for the final choice of a
regulatory approach.
Thank you, Mr. Chairman.
Chairman Manzullo. Thank you.
Our first witness is the Honorable Tom Sullivan, Chief
Counsel for Advocacy. Tom was with NFIB for years and has a
great background. He has been on the job officially for about
three weeks now. Is that correct, Tom? We look forward to your
testimony. I think you know how the lights work. At five
minutes we would like to have you have your testimony
concluded.
All of the statements of the witnesses will be made part of
the record, along with any statements of Members of Congress.
Any in the audience that wish to put a statement in the record,
if you want to do so you have ten days to do so, but try to
keep it under two pages.
Mr. Sullivan.
STATEMENT OF THE HONORABLE THOMAS SULLIVAN, CHIEF COUNSEL FOR
ADVOCACY, UNITED STATES SMALL BUSINESS ADMINISTRATION
Mr. Sullivan. Good morning, Mr. Chairman. Chairman
Manzullo, Ranking Member Velazquez, Members of the Committee,
thank you for the opportunity to appear before you today to
discuss the Small Business Regulatory Enforcement Fairness Act,
SBREFA. I am pleased that my complete written statement is
already accepted into the record, and I will briefly summarize
the key points.
First, let me tell you what an honor and privilege it is
for me to have been appointed Chief Counsel by President Bush.
This is my first statement before a congressional Committee
since my confirmation, and I am grateful for the tremendous
support I have already had from this Committee, from other
Members of Congress, from Administrator Barreto, from the staff
in the Office of Advocacy, from government leaders and from our
many small business organization and trade association friends.
SBREFA has made a difference, a big difference, both in
opening the rule making process to greater scrutiny and in
reducing unduly burdensome mandates on small businesses. We
estimate that during fiscal years 1998 through 2001,
modifications to federal regulatory proposals in response in
part to Advocacy's recommendations resulted in cost savings
totaling more than $16.4 billion or more than $4.1 billion per
year on average.
I mention in my written statement that SBREFA is helping
change the regulatory culture in at least some government
agencies. It is important to note this morning, however, that
this cultural change is by no means uniform among all
regulatory agencies. One of the largest hurdles to be overcome
remains resistance in some agencies to the concept that less
burdensome regulatory alternatives may be equally effective in
achieving their public policy objectives. Other agencies simply
have not internalized their Reg Flex responsibilities and do
not seem to view its requirements as germane to their mission.
I would like to offer a few remarks on Section 212 of
SBREFA, which requires agencies to publish compliance guides to
assist small entities in understanding their regulations.
Frankly, I find it embarrassing that government agencies must
be forced to publish guides to help small businesses comply
with their rules, but recognizing that Section 212 is not
working as intended, Advocacy wants to work with this Committee
and Congress and regulatory agencies to make sure this problem
is resolved. If additional legislation is needed to clarify
Congress' intent, an annual report to this Committee from each
agency with respect to its compliance guide efforts might be
productive.
In conclusion, I would like to refocus our discussion on
why we have SBREFA, the Reg Flex Act or why, for that matter,
we have an Office of Advocacy. Why do we go to all this
trouble? Perhaps the best answer is the simplest. The bedrock
importance of small business to our economy, both at the
national and community levels.
Small business is and has historically been our nation's
primary source of innovation, job creation and productivity. It
has led us out of recessions and economic downturns. Small
firms have provided tremendous economic empowerment
opportunities for women and minority entrepreneurs. Small
employers, as this Committee well knows, spend more than $1.5
trillion on their payroll.
All these are good reasons for us to work to insure a
healthy and competitive small business sector. Small business
wants a level playing field. The cost of regulation is a good
case in point. Our recent study on this subject disclosed that
the cost of federal regulation to firms with fewer than 20
employees was almost $7,000 per employee. Congresswoman
Velazquez mentioned in her opening statement that that is more
than 60 percent higher than their larger business counterparts.
This disproportionate burden is a huge impediment to small
business realizing its full potential.
Although small business has done a remarkable job in coping
with this problem, it is tantalizing to think of what
productive and innovative energies would be unleashed if we
could reduce this burden even further. That is why we do what
we do at Advocacy, and that is why Congress wrote the
Regulatory Flexibility Act and the Small Business Regulatory
Enforcement Fairness Act--to help small business realize their
full potential.
I pledge the full cooperation and assistance of the Office
of Advocacy in your deliberations of how best to accomplish
this worthy goal.
[Mr. Sullivan's statement may be found in the appendix.]
Chairman Manzullo. I want to give you one more minute, Tom.
Could you read into the record your statement talking about CMS
starting on page 10?
We are going to have CMS accountability round three coming
up. I want everybody to realize that it is still HCFA as far as
I am concerned. You do not change an old horse by giving it a
new name. Read in there the continuous abuses that are carried
on by CMS.
Mr. Sullivan. I would be happy to.
Chairman Manzullo. I hope someone from CMS can hear this
and take this back and let them know it is HCFA as far as I am
concerned.
Mr. Sullivan. I would be happy to, Mr. Chairman. In my
written statement, as the Chairman mentioned, I did mention
some agencies that have been less accommodating in
theircompliance with the Reg Flex Act.
CMS is one of those agencies. An advisory committee on
regulatory reform has been formed at the Department of Health
and Human Services to identify overly burdensome Medicare
regulations promulgated by that agency. This is a positive
development, but, frankly, a number of these overly burdensome
regulations would not be on the books today if CMS had complied
with the Reg Flex Act.
For example, in the case of the Medicare reimbursement
methodology for portable x-ray providers, CMS has ignored
Advocacy's comments and recommendations since 1998. Advocacy
commented on the proposed rule, indicating that the overall
reduction in Medicare reimbursement for portable x-ray services
amounted to as much as 54 percent in some cases and that the
agency had not prepared an adequate analysis of the impact on
small entities.
GAO also published a report in 1998 acknowledging, with
some uncertainty, that portable x-ray providers may not be able
to continue supplying services as a result of the reduced
payments.
CMS, formerly known as HCFA, published a final rule in this
case which essentially ignored the comments of Advocacy and
industry, so Advocacy submitted additional comments indicating
that, under the Regulatory Flexibility Act, CMS was required to
address comments received in response to the initial regulatory
flexibility analysis.
Eventually, a transition period for implementation was
allowed after a post final rule discovery that a transition
payment provision had been left out. This ``fix'' still did not
address the overall issue of the need for an impact analysis.
In December, 2001, Advocacy was again forced to comment on
a new payment regulation, this time a direct final rule where
the agency waived the Administrative Procedure Act requirement
for a notice of proposed rule making. Once again, CMS failed to
assess adequately the impact of the rule on small portable x-
ray providers.
Chairman Manzullo. Thank you, Tom. I appreciate that.
The next witness is Victor is it Rezendes?
Mr. Rezendes. Yes. That is correct.
Chairman Manzullo. He is the managing director of the U.S.
GAO, Strategic Issues Team. I look forward to your testimony.
STATEMENT OF VICTOR REZENDES, MANAGING DIRECTOR, STRATEGIC
ISSUES TEAM, GENERAL ACCOUNTING OFFICE
Mr. Rezendes. Thank you, Mr. Chairman. It is a pleasure to
be here today to discuss both the----
Chairman Manzullo. Could you put the mike a little bit
closer? You might have to bring it up.
Mr. Rezendes. Sure. How is that? Is that better?
Chairman Manzullo. Push it up like this. Let us try that.
Mr. Rezendes. Okay. Great.
Although the Regulatory Flexibility Act and SBREFA have
clearly affected how agencies regulate, their full promise has
yet to be realized. Over the last decade, we have called for
greater clarity to help agencies implement these laws.
The questions that remain unanswered are numerous. For
example, should the economic impact of a rule be measured in
terms of compliance costs as a percentage of annual revenues or
work hours? If so, is three percent of revenues or one percent
of revenues or work hours the appropriate measure?
These questions are not simply a matter of administrative
conjecture. They go to the heart of determining the regulatory
relief for small businesses. This lack of clarity is clearly
illustrated in EPA's current guidance that provides the
substantial discretion, but also provides numerical guidelines
for making these decisions.
These numerical guidelines establish what appears to be to
us a high threshold for what constitutes a significant impact.
The rule could theoretically impose $10,000 in compliance costs
on 10,000 small businesses, but still be presumed not to have a
significant impact as long as those costs do not represent one
percent of the revenues of those firms.
We have issued several other reports over the decade that
reached similar conclusions. In 1991, we examined the
implementation of the Regulatory Flexibility Act as it related
to small government jurisdictions and concluded that each of
the agencies that we reviewed at that time had a different
interpretation of the Act.
In 1994, we examined 12 years of annual reports prepared by
SBA's Office of Counsel for Advocacy and said the reports
indicated variable compliance. In 1998, we said that the lack
of clarity regarding whether EPA should have convened panels on
two proposed rules was traceable to the lack of agreed upon
government wide criteria as to when a rule had a significant
impact. In 1999, we noted a similar lack of clarity on the
requirement that agencies review their existing rules that have
significant impact imposed over the last ten years of their
promulgation.
Last year, we issued two additional reports. One examined
the requirement that agencies establish a policy for the
reduction of civil penalties on small entities. All of the
agencies' penalty relief policies that we reviewed were within
the discretion that Congress provided, but the policies varied
considerably. Some covered only a portion of the agency's
enforcement actions, and some provided small entities with no
greater relief than they did to larger firms.
The last report we just issued examined the requirement
that the agencies' publish a small entity compliance guide for
any rule that requires a final regulatory flexibility analysis.
We concluded that the requirement did not have much of an
impact, and implementation also varied across the agencies.
Some of the requirement's ineffectiveness and inconsistency is
traceable to a definitional problem. Other problems were
traceable to the discretion provided under the Act. Under the
statute, agencies can designate a previously published document
as its small entity compliance guide or develop and publish a
guide with no input from the small entities years after the
rule takes effect.
The bottom line, Mr. Chairman, is that these statutes
provide agencies with a great degree of discretion. While
flexibility allows agencies to address unique situations, it
also results in wide variation between agencies and in some
cases within agencies.
If Congress is unhappy with how these Acts are being
implemented, it needs to either amend the underlying statute to
provide greater clarity or give some other entity the authority
to issue guidance on these issues.
Thank you, Mr. Chairman.
[Mr. Rezendes' statement may be found in the appendix.]
Chairman Manzullo. We have a general vote, so I think we
are going to break now. We will be back here in a couple
minutes, probably about ten or 15 minutes.
[Recess.]
Chairman Manzullo. Our next witness is David Frulla from
Brand & Frulla. We look forward to your testimony.
You might want to put the mike a little bit closer to you.
STATEMENT OF DAVID FRULLA, ESQUIRE, BRAND & FRULLA
Mr. Frulla. Thank you, Chairman Manzullo. The Ranking
Member is not yet back, but I do appreciate the opportunity to
address the Members of the Committee today.
I am with a ten person law firm in Washington, D.C. We have
handled I think nine pieces of RFA litigation since the law was
changed against the Commerce Department, EPA, HCFA and the Army
Corps of Engineers. We have won some, lost some, settled some,
which I would like to talk about briefly, and had some stayed,
some pieces of litigation stayed while efforts to work out more
flexible solutions have been undertaken with some success. We
also have some litigation still in play, including for the
National Federation of Independent Business Legal Foundation
where Mr. Sullivan just left.
What I would like to do today is three things. First, give
you a little bit of a history on a success story under SBREFA;
second, to address briefly some problems that we still discern;
and, third, to offer some concrete solutions from a litigator's
perspective. They may not be broad reaching policy suggestions
necessarily, but they are things that we think are discrete and
achievable and could help those that have to litigate in the
Regulatory Flexibility Act forum.
First on the success story briefly. We represented in one
of the Reg Flex cases that we undertook a coalition of
commercial shark fishermen from the Atlantic Ocean and the Gulf
of Mexico. Smaller businesses you could not imagine. We brought
a broad ranging challenge to the scientific bases for quota
reductions they faced. The National Marine Fisheries Service
had also stubbornly insisted that a 50 percent quota reduction
would not have a significant impact on a substantial number of
small businesses. They were all small businesses, and they were
all subject to a 50 percent cut.
The Judge did not necessarily understand fully the science.
He did understand the Reg Flex part. There were a series of
Orders issued. Finally, three years later, the case was
settled. Part of the settlement included a stay of the most
draconian levels of quota cuts, coupled with an independent
review of the science that was used to justify some of the
further quota reductions.
The good news I can report is that the independent review
of the science showed that the underpinnings for these further
quota reductions was not sufficient to support them. That is
good news because it hopefully means that we can start on a
more constructive regulatory track for these clients. We also
received in settlement a measure of our attorneys' fees, which
was also much appreciated.
I would like to turn now quickly to some of the ways that
agencies still attempt to get around the Reg Flex Act. Some
claim that binding actions do not represent regulations. We
still see from time to time inadequate certifications of no
significant impact. Agencies do still claim that their statutes
do not provide them any flexibility to consider constructive
alternatives. Sometimes agencies will state that the
regulations do not directly impact small businesses. Sometimes
they structure their regulations that way so they can avoid Reg
Flex.
Interestingly, we are seeing that one of the defenses now
is that agencies will dump a whole lot of economic information
into the record and not analyze it, which makes it pretty much
impenetrable for the judge. The judge says well, if there is
that much information there must be a kernel of analysis in
there somewhere, so we do face that. Sometimes, finally,
agencies do not have sufficient information or resources and
fail to collect it. For that reason as well, the Reg Flex
analysis of impact and, more importantly, of alternatives can
fall short.
I would like to offer some suggestions in my final time.
Jere Glover, who was the former Chief Counsel of Advocacy who
has joined our firm, warned me that I should not tell you how
to fix it perfectly because neither he nor I are ready to
retire yet. Here are some suggestions.
We should extend the successful SBREFA panel process to
other agencies. One that I am familiar with is the National
Marine Fisheries Service. It is a small segment of the Commerce
Department, but the people that it regulates are almost all
small entities, and the profusion of regulations is pretty
intense.
We think it would be important, and again these are quite
technical, sort of litigator perspectives, to clarify the
applicable standards of review for SBREFA litigation. On
questions of whether the Reg Flex Act applies, that should be
considered by the Court as a matter of law, for instance.
Agency analyses on economic impacts and alternatives could then
be considered under the arbitrary and capricious standard.
The Regulatory Flexibility Act should be clarified either
through an amendment or direct Committee language to impose an
affirmative obligation on an agency to base its Reg Flex
analyses on reasonably adequate economic and social
information. We can discern that obligation from NEPA under the
case law. We believe that there is even a stronger reason for
it under Reg Flex, which is set forth in my testimony. The Reg
Flex Act should state that courts should defer to Mr. Sullivan
and his staff in terms of legal questions relating to the Reg
Flex Act and its application to a rule or an agency. We would
like to see the attorneys' fees provisions addressed under the
Equal Access to Justice Act, and, finally, you should continue
to fund the Office of Advocacy for the great work that it does.
Thank you, sir.
[Mr. Frulla's statement may be found in the appendix.]
Chairman Manzullo. Thank you.
We are going to be working on some amendments to RFA and
SBREFA. Mr. Frulla, I would like you to be in contact with
Barry Pineles here. The SBA Ombudsman is in the room back there
somewhere, but work with him. There he is. Thank you for
coming.
Work with the ombudsman and obviously with Tom Sullivan and
with staff on both sides of the aisle here. Let us start
working on some remedial legislation and go get them.
Mr. Frulla. Thank you, sir.
Chairman Manzullo. Thank you for your testimony.
The next witness will be Norman Goldhecht. He is the vice-
president of Diagnostic Health Systems located in Lakewood, New
Jersey. We look forward to your testimony.
STATEMENT OF NORMAN GOLDHECHT, REGULATORY CHAIRMAN, NATIONAL
ASSOCIATION OF PORTABLE X-RAY PROVIDERS
Mr. Goldhecht. Thank you, Chairman Manzullo, Congresswoman
Velazquez and Committee Members, for the opportunity to testify
before you again today. My name is Norman Goldhecht, and I
appear before you today as the regulatory chairman of the
NAPXP. I am also a former owner of a portable x-ray company in
New Jersey who recently sold his company after 16 years largely
because I felt that the federal rule making was dooming our
industry, and I could no longer afford to remain in business.
Selling my family owned business was particularly difficult
for me and my partner, who is my brother-in-law, because we had
both hoped to pass our company along to our children. Sadly, we
realized that if we remained in this business we would not pass
along the legacy of a proud company, but the burden of an
impossible situation in which quality patient care and service
wasnot feasible under increasingly onerous federal rule making.
I have been asked to provide the perspective of our small
business dominated industry regarding CMS compliance with RFA.
We agree with the SBA Office of Advocacy in finding that CMS
has failed to comply for over three years relative to the rule
making process for our industry. When asked by the press to
comment on the most recent plea by Advocacy to obey this law,
CMS graciously offered to consider complying next year.
The question before us is does the RFA work? One federal
agency, the SBA, informs another, CMS, that they are in
violation of federal statute. This is not a situation where our
industry or our attorneys offered this analysis. This is the
SBA Office of Advocacy. CMS refuses to even respond to the SBA.
When we ask this Committee or the SBA what we can do to
force CMS to obey the law, we are told we can sue. Sue the
federal government because as small businesses we are being
driven into extinction through illegal rule making and are
unable to survive financially. Sue the federal government
because they refuse to respond to a federal agency of
jurisdiction.
If we sue under RFA, we cannot receive any damages if we
win. All we can do is force CMS to obey the law. We might
consider this because we are small businesses who are facing
bankruptcy over illegal rule making. Rather than pay our
employees, our creditors or ourselves, we might pay lawyers to
sue the federal government to force them to obey the law. We
are informed that we might receive funds to reimburse our legal
costs of up to $125 an hour.
Let me see if I have this straight. One federal agency has
confirmed that another federal agency is breaking the law. The
offending agency refuses to comply with the law in spite of
clear counsel from the agency charged with oversight opinion
that the offending agency is in violation. SBA cannot bring
suit. It is the job of small businesses who are, because of law
breaking, going bankrupt to bring this to the court and hope
that they can compel the offending agency to obey the law at
their own expense, minus what one pays a plumber to come fix a
leak on a Saturday and no compensation for the harm done to
small businesses.
The question before us is does RFA work? Mr. Chairman, I do
not mean to be disrespectful, but my industry has cried foul
for years and received steadily worse treatment for our
trouble. We now have what to a normal citizen, a taxpayer, a
Medicare patient or a constituent, would appear to be an open
and shut case. The SBA says we are right, and CMS is wrong.
That and a few hundred thousand dollars over a few years to
sue the government might force CMS to agree to what they should
have done in the first place. No more. The reality is we will
not be around to see the case through because the rule making
in question is bankrupting us.
The issue before us today is agency compliance with the
RFA. I believe that our experience provides a textbook example
of why this admirable law deserves the teeth required to allow
it to achieve the intent this Committee and the Congress
intended.
If our situation does not frustrate and anger this
Committee as it frustrates and angers us, then your work on
this matter is done. If this Committee feels that the small
businesses served by that law at best allows them to take a
federal agency to court to force compliance with no hope of
compensation for damage, let alone the true cost of acting as a
government watchdog, then your work is done. However, if this
Committee is outraged by the callous refusal of CMS to obey the
law and respond appropriately to Congress, the Executive Branch
and the public in this instance, then I am afraid that your
work is not complete.
If this Committee does not believe that small businesses
should have to sue to force agency compliance, particularly
when Congress and the SBA are in accord regarding the lack of
agency compliance, then we are here to work with you to
strengthen the law and protect American small businesses from
federal agency abuse.
Our case against CMS does provide an illustration as to how
the current RFA might be strengthened. We begin with the
premise that by definition small businesses are those least
able to pursue legal remedies against federal agencies and the
courts. This is all the more true when the law does not allow
for any damages, which might offer incentive for private small
businesses to hold agencies accountable through suit.
As we are discussing a suit that is aimed solely at
compelling the agency to comply with the law, the time and
money spent pursuing such a suit should not be a further
deterrent against wronged parties seeking justice. At the most
obvious level, if the SBA Office of Advocacy finds a violation
there should be some level of compliance required or penalty
assessed short of legal action in the court of law.
The Office of Inspector General for each agency serves as a
watchdog for that agency. Could the IG be employed to force
compliance from an agency? At the very least, we must find a
way to enforce the existing law, if not improve upon it, by
expanding the Office of Advocacy's jurisdiction or otherwise
placing agencies----
Chairman Manzullo. How are you doing on time, Norm? Your
red light is on.
Mr. Goldhecht. Summing up.
Chairman Manzullo. Okay.
Mr. Goldhecht [continuing]. On notice that compliance will
not be tolerated.
In summation, I must stress that you represent our last and
best hope for fairness. Without your assistance, our services
will continue to vanish, and the elderly nursing home patients
will be denied our care. The most damaging effect, however, may
not be to small businesses and patients alone, but to all of
our nation's small businesses that count on regulatory fairness
and believe that laws like the RFA protect them.
The NAPXP stands ready to assist the Committee in any way
in devising a workable solution to this serious problem.
Chairman Manzullo. I am going to have to cut you off.
Mr. Goldhecht. That is fine.
[Mr. Goldhecht's statement may be found in the appendix.]
Chairman Manzullo. Thank you.
Our next witness is Damon Dozier, who is the director of
Government and Public Affairs of the National Small Business
United.
You know what the red light means?
Mr. Dozier. Yes, I do, Mr. Chairman.
Chairman Manzullo. You bet. Thank you, Damon.
STATEMENT OF DAMON DOZIER, DIRECTOR, GOVERNMENT AND PUBLIC
AFFAIRS, NATIONAL SMALL BUSINESS UNITED
Mr. Dozier. My name is Damon Dozier, and I serve as the
director of Government and Public Affairs for National Small
Business United, which is the nation's oldest bipartisan
advocate for small business. NSBU represents 65,000 small
businesses in all 50 states.
The goal of our organization is to protect and promote our
members and all of our nation's small businesses before
Congress and the Administration. We at NSBU work towards this
goal by working with Congress, the media, our direct members,
affiliates and a national audience as a small business advocacy
organization.
I am pleased to appear before the Committee to share my
views concerning the Reg Flex Act of 1980, as amended by
SBREFA. I would like to add that my views expressed today are
based on my direct experience in working with the RFA as a
former Assistant Advocate for Environmental Policy in the
Office of Advocacy in the Small Business Administration and as
staff with regulatory affairs responsibilities for the Senate
Committee on Small Business and Entrepreneurship. These views
do not necessarily reflect those of NSBU.
The bulk of my experience with the RFA has centered on
monitoring Environmental Protection Agency compliance with the
law, which, during my tenure at the Office of Advocacy,
included insuring that proposed rules were properly certified
as not having a significant economic impact on a substantial
number of small entities. My duties also included, among other
things, reviewing federal agency initial and final Regulatory
Flexibility Act analyses, filing comment letters on proposed
and final rules and, of course, providing assistance to the
Chief Counsel in his role as one of the three members of the
SBREFA panel.
It has been my experience that, comparatively speaking, the
EPA has been particularly active in its small entity outreach
efforts in relation to the SBREFA panel process and has made
some tremendous steps over the past six years in insuring that
the small entity representatives participating in such process
have enough quality data and information to make educated
comments regarding rules and development.
As of March 20, 2002, the agency will have completed 25
SBREFA panels. While completion of SBREFA panels is not and
should not be the only standard by which RFA compliance is
measured, the record bears mentioning nonetheless.
For most of its major rule makings that affect small
business concerns, the agency has done adequate outreach.
Through the exceptional efforts of the Small Business
ombudsman, Karen Brown, and the Small Business advocacy chair,
Thomas Kelly, the agency has put in place the right mechanisms
to hear from small business. A level of involvement, as we have
heard here today, is desperately needed at other federal
agencies.
However, when I started at Advocacy in 1996, the SBREFA law
was very new, and it seemed that no federal agency was exactly
sure how to comply with the non-panel related provisions of
SBREFA and were not, quite frankly, very motivated to learn.
Six years later, this still seems to be the case. In my
opinion, the RFA, and later SBREFA, were desperately needed
because federal agencies were refusing to do adequate outreach,
in most cases any outreach at all, to small firms.
While one of the issues to be addressed at this hearing
includes perhaps adding additional agencies to the SBREFA panel
process, an option that I enthusiastically support, the problem
of the lack of outreach will still remain no matter how many
are added unless agencies are forced to change the belief that
they can get away with simply refusing to comply with the law.
There is more to SBREFA than the panel process. Just a few
short months ago, the General Accounting Office, in a report
entitled Regulatory Reform: Compliance Guide Requirement has
had Little Effect on Agency Practices, found that six federal
agencies, including Commerce, EPA, FCC and SEC failed to
produce small business guidance documents as required by
SBREFA, as required by law.
GAO found that Section 212 of SBREFA has had little impact,
and its implementation has varied across and sometimes within
the agencies. Most alarmingly, not only did the six agencies
fail to provide compliance guides; some of the documents
provided by the agencies appeared to have been identified as
small entity compliance guides only in response to our inquiry.
As Mr. Sullivan said, that is truly an embarrassment.
The findings of the GAO seem to be a microcosm for a larger
problem. Most federal agencies are simply not committed to
agency outreach and thus fail to comply with most of the RFA's
provisions. If the agencies cited in the GAO report had been
committed to doing outreach to small firms and small business
associations, even if the agency found that a particular rule
failed the significant and substantial test, the small business
community could have provided pressure on these agencies to
comply with 212 or at least make them aware that the provision
existed.
I see that my time is going. I do note that in my testimony
I suggest specific fixes to the RFA law, and I would be happy
to answer any questions that you may have.
[Mr. Dozier's statement may be found in the appendix.]
Chairman Manzullo. We obviously want you to be part of the
input on the amendments, et cetera, Damon, when we start
working on that.
Our next witness is Jeff Gibson, director of Support
Operations for the Halotron Division of American Pacific
Corporation. We look forward to your testimony.
STATEMENT OF JEFFREY GIBSON, DIRECTOR OF SUPPORT OPERATIONS,
HALOTRON DIVISION, AMERICAN PACIFIC CORPORATION, NATIONAL
ASSOCIATION OF MANUFACTURERS
Mr. Gibson. Thank you, Mr. Chairman and the Committee, for
the opportunity to testify.
My name is Jeff Gibson. I am the director of Support
Operations for the Halotron Division of American Pacific
Corporation. I am here today representing the National
Association of Manufacturers and its 10,000 small and medium
sized companies. I welcome the opportunity to testify before
you today on the necessity for SBREFA compliance by federal
agencies.
As a small business, we are reminded daily of the onerous
and unintended effects regulations can have on our and other
small businesses. While my testimony will focus on one
particular regulation that has a direct impact on our company,
I am submitting for the record a list of regulations, both
proposed and final, that affect small manufacturers.
American Pacific Corporation employs 220 people in Utah and
Nevada. We manufacture specialty chemicals, and our sole
manufacturing facility is located in Cedar City, Utah. Since
1958, we have manufactured chemicals that are used in the space
shuttle and DOD solid rocket motor programs, and in the past
decade we have diversified into the air bag and fire protection
market.
During the past three years, we have spent an inordinate
amount of time and an extraordinary amount of money to oppose a
proposed rule to establish an allocation system for controlling
hydro chlorofluorocarbons or HCFC production import and export
in the U.S. This proposed EPA rule would negatively impact our
company and many other NAM small businesses.
This rule proposes an allocation system for a key
ingredient in our fire protection chemical, which is also
widely used in other products from foam insulation to
commercial chillers. We believe that the EPA has not done due
diligence in weighing the negative impact to small businesses
against the potential minimal environmental gain.
In 1992, realizing the need for alternatives to ozone
depleting fire suppression chemicals, we entered the fire
extinguisher business. Our company developed Halotron I, an EPA
approved replacement for halon 1211. Halon 1211 is a potent
ozone depleter that is no longer produced in the United States.
Alternatives to this substance are in great demand.
Our product is the most widely approved and used clean
agent for portable fire extinguishers in the U.S. However, our
survivability is in jeopardy. The promulgation of this rule
would benefitthe 27 producers and importers of HCFCs by
establishing an EPA created commodity market and would hurt many small
businesses through increased costs due to contrived shortages. These
small businesses should not be punished for following EPA rules and
bringing these innovative and more environmentally friendly products to
market.
It took millions of dollars to research, develop and test
our product and many years to meet all the criteria mandated by
government agencies. We were finally able to bring this product
to market in 1996, and we are starting to see a return on our
investment.
At the time the EPA prepared to initiate this rule four
years ago, the consumption of HCFCs was 92 percent of the
Montreal Protocol regulated cap. The EPA was concerned that the
U.S. would exceed its agreed upon maximum level. Subsequently,
the EPA conducted stakeholder meetings on a potential new rule
to allocate HCFC rights. Initially it was represented by EPA to
be a placeholder that would not go into effect unless U.S.
consumption did near the cap. Should that happen, a trigger
mechanism would be invoked, and the rule would go into effect.
If the threshold was not reached, there would be no rule.
In 1999, the EPA released an advance noticed of proposed
rule making to establish the allocation system to control the
production, import and export HCFCs in the United States. This
rule was reproposed and released for public comment on July 20,
2001. As this rule has evolved over the years, the HCFC
consumption trend has actually gone down instead of up as EPA
has anticipated. The threat of exceeding the cap is gone.
Nonetheless, the trigger mechanism has been removed, and the
EPA continues to push for this rule to be enacted immediately.
HCFC consumption is down to 83.75 percent and will decrease
once HCFC 141b is no longer produced and imported at the end of
2003 as mandated by the Protocol. While we support compliance
with the Montreal Protocol, this rule as written is patently
anti-competitive, ill conceived, unnecessary and disastrous to
our and many other small businesses.
The regulation, which will have little environmental gain,
will raise the price of HCFCs, creating a new bureaucracy of
EPA reporting requirements and establishing a new commodity
market limited to only 27 companies that are slated to receive
allocations. Small businesses are bound to suffer price
increases due to contrived shortages and lack of competition at
the hands of a government created oligopoly.
In the preamble of the rule, EPA stated that there are no
economic effects to a significant number of small businesses,
yet they do not know this because they have not conducted a
regulatory flexibility analysis to determine if small
businesses are affected.
Chairman Manzullo. How are you doing on time there, Jeff?
Mr. Gibson. I will wrap up.
The Small Business Administration has worked with us on the
issue for several months. They have acted as a liaison between
us and EPA to find a solution. They have done an admirable job
for our and other businesses' concerns. Unfortunately, the EPA
persists in its quest to see the rule come to fruition no
matter what the cost, no matter what the ancillary effects, no
matter that the rule is no longer necessary.
Small businesses are important to this country's economy,
job creation and innovation. These regulations have a
disproportionate impact on small businesses. The intent of
SBREFA was to mandate the federal agencies and thoroughly
analyze----
Chairman Manzullo. That is a good point to end on that
sentence.
Mr. Gibson. Okay.
[Mr. Gibson's statement may be found in the appendix.]
Chairman Manzullo. Thank you very much. I appreciate your
testimony. I do not want the bell to go off here.
You know, there is another outreach that we should add to
the tools, and that is the outreach of this Committee. We
reached out to the Veterans Administration when they went into
the commercial laundry business and threatened to destroy 100
jobs in my district. We like to do pairs here. We like to sit
the aggrieved party next to the government bureaucrat that is
responsible for that nonsense. VA went out of business that day
in commercial laundry.
Right next to them we had an aggrieved owner of a
campground at Denali National Park when the National Park
Service decided to go into the hotel business. We matched the
person in charge from the National Park Service, and all of a
sudden they decided not to go into the hotel business.
What we are going to do is this, especially with CMS and
the portable x-ray people. We have Mr. Scully here, and we will
have accountability time, round three, with HCFA. The other
agencies that are beating up on the small businesses, it is
accountability time, folks.
I have the gavel. I have the power to subpoena. We may have
a hearing that will start at 8:00 on a Monday morning and run
all night until we get every single small business that is
being screwed in this nation up to this table with the
bureaucrats in Washington sitting on it.
Tom, if you could start working on that list of potential
people, we will load this place up. I will get the biggest room
here, and we will go all night and all weekend until these
agencies come into compliance. We had to bring the SBA here
along with OIRA. They sat around for six months on the standard
for travel agents. It took 24 hours to get the new regulation
in. OIRA is coming out with its ruling tomorrow that will open
that up.
I am prepared to do that, and I want that message to go
deep. If there are any bureaucrats in here representing any
agencies, watch out. My patience is at a total end, and I am
not going to tolerate businesses such as what happened to you,
Norm.
My mother was a victim of what HCFA did. She had a leg
amputated. From time to time, when she was at the assisted
living center the portable x-ray guy would stop by, take her x-
ray and one time found out that she had pneumonia and had to be
treated for that. Well, he went out of business. Do you know
what happened next time? They had to call an ambulance. They
put her in an ambulance and took her to the hospital to perform
an x-ray. That is shameful that HCFA would waste money like
that. Somebody needs to be at this table, perhaps sworn under
oath, as to why HCFA is wasting money like that. It is
accountability time.
Barry, would you work with Tom Sullivan?
Mr. Pineles. I always do.
Chairman Manzullo. And also with the ombudsman and anybody
else out there. You want to have a pair. The pair will be the
aggrieved small business person and the key person in
government. We will set it up, and we will go at it big time.
Big time. No one will get away from the room until that issue
is resolved.
Well, Nydia, why do you not lead off the questions?
Ms. Velazquez. You do not want to ask questions?
Chairman Manzullo. No. I made a statement here.
Ms. Velazquez. Okay. Mr. Rezendes, does SBA have the
authority to issue regulations to federal agencies for the
implementation of the procedural provisions of the RFA?
Mr. Rezendes. We think that they have the authority to
issue clarifying guidance to them. I do not think there is a
prohibition from them doing that, although we have advocated
since they have not been too enthusiastic to do that that
Congress may want to direct them or some other agency to do
that.
Ms. Velazquez. Okay. Let me ask you. Could the
Administration somehow direct SBA to institute these
regulations?
Mr. Rezendes. Yes. There is really no question about that.
I think, you know, having the Office of Advocacy having to file
a friend of the court brief on federal agency compliance with
the federal rule in a federal court does not seem the easiest
way to solve this problem since this is all at the federal
level. We are talking about federal agencies implementing the
federal law on themselves.
Basically, you know, greater clarity from SBA and having
OMB back that up and having some kind of oversight of the
agencies in terms of reporting and insuring compliance would
seem a much easier way to go about doing this.
Ms. Velazquez. Mr. Sullivan, do you agree or disagree?
Mr. Sullivan. I agree that we have an opportunity to work
with government agencies to actually make sure that they are
doing what they are supposed to do under the Regulatory
Flexibility Act.
Elaborating on Mr. Rezendes' comment on guidance to
agencies, we would welcome this Committee's help to impress
upon government agencies that that guidance already exists. Not
only does that guidance exist, but the Office of Advocacy has a
training module to actually help government agency rule writers
comply with their requirements under the Reg Flex Act. We want
to help agencies learn their requirements and do it correctly.
Any help which this Committee can provide to impress upon
government agencies the need to take Reg Flex training
seriously would be greatly appreciated.
Ms. Velazquez. I guess that we will spend the whole year
here meeting with federal agencies.
Mr. Rezendes, you have testified that defining a
significant small business impact lies at the heart of the RFA.
What I assert here is this. The heart of the Regulatory
Flexibility Act lies in its flexibility.
Agencies also have to tailor their regulatory alternatives
and regulatory relief to their own regulations. Can you comment
on what we might be losing in regards to flexibility during the
process of attempting to further define the terms of the Reg
Flex Act?
Mr. Rezendes. Yes. What I want to clarify is we are not
looking for a dogmatic, simple, clear definition that everybody
has to comply with. We like flexibility. It provides the
agencies with the authority to deal with the situation at hand,
which is good. I think, you know, for example, at SBA they
define what is a small business based on almost the industry.
It is not necessarily one definition fits all, so that is
really good.
What we have seen is wide variation and wide discretion on
the part of the agencies in how they have interpreted this Act.
Obviously the fact that the Advocacy Office had to file friend
of court briefs on this is clear evidence that there is
probably an exaggerated use of this discretion. What is needed
is some kind of enforcement mechanism, although I want to
emphasize that this is all within the Executive Branch. I mean,
OMB working with the SBA could easily insure that this happens.
Ms. Velazquez. Mr. Sullivan, do you believe that SBA should
be given the authority to regulate agency activity regarding
certain aspects of the RFA and SBREFA?
Mr. Sullivan. I believe that the Office of Advocacy should
be used as a resource to provide consistency in agency
compliance with the Regulatory Flexibility Act. If that means
it has to be done through regulation, then I am willing to work
with the Committee, and, as Mr. Rezendes mentioned, Dr. John
Graham's office and others, to go that route.
I should point out to the Committee, because some of our
federal partners are represented in the room today, that there
is some movement on consistency and compliance with the Reg
Flex Act. For instance, the Department of Labor now has written
guidance on how to comply with the Reg Flex Act, and how to
comply with the SBREFA panel process. This has been done with
the full engagement of our office, as it should be for all the
federal agencies.
Ms. Velazquez. Mr. Sullivan, if the SBA or Congress begins
to fill in the spaces around the RFA terms, we will presumably
gain some clarity, but we will also lose some flexibility.
Specifically, the SBA Office of Advocacy could lose the power
of negotiation. From what I understand, this is why previous
Chief Counsels have been reluctant to provide strict guidance.
What will agencies have to engage SBA on if all the
provisions of the RFA are specifically defined?
Mr. Sullivan. Congresswoman, we have been very concerned in
the past, and I continue to be concerned, about imposing a
specific set of mandates on how to comply with the Reg Flex
Act.
I am encouraged this morning by Mr. Rezendes' comments that
we can provide consistency without eliminating the flexibility
to comply with the Regulatory Flexibility Act. We are getting
there. To the extent that guidance can be consistent to all
federal agencies, that will help. For instance, there should be
a checklist on what an agency should look at to comply with the
Reg Flex Act.
With such tools in place and with the commitment that we
see here this morning by this Committee, I think this will be
persuasive among the regulatory agencies. If further persuasion
is still needed, then we would like to work with the Committee
to address this problem.
Ms. Velazquez. Mr. Sullivan, if you could change one thing
about RFA or SBREFA, what would it be?
Mr. Sullivan. If the Congresswoman is asking whether the
Office of Advocacy needs additional legislative changes, there
are discussions about this all the time. Legislation or
legislative fixes should be a last option because we prefer to
try first to convince the agencies to comply with the Reg Flex
Act, using fully the gavel, the subpoena and other resources.
If we do need to change the law, I think that we should
explore whether agencies be required to respond to Advocacy's
concerns, specifically addressing questions on small business
economic analysis early in the regulatory process.
Ms. Velazquez. Thank you, Mr. Sullivan.
Mr. Damon Dozier, Section 610 of the Reg Flex Act requires
each agency to review all existing rules within ten years of
promulgation. Does the lack of 610 entries in recent regulatory
agendas seem suspicious to you?
Mr. Dozier. Absolutely. I cannot think of any 610 review or
actually any regulation being changed as a result of 610
review; that is, a ten year old rule now being changed to
accurately reflect a substantial economic impact on a
substantial number of small entities.
I think that 610 is one of the particular sections of
SBREFA that--well, it seems today that all of it has been
ignored to some degree, but especially 610. I think agencies
have a tough time going back to the coffers, if you will,
pulling up the old regulations and actually doing new analyses
to find out if they are complying with that provision of the
law.
Ms. Velazquez. Would you like to see SBREFA amended to make
the 610 review process more transparent?
Mr. Dozier. I would. I think that one of the great things
about the law that I think could have helped a lot of these
small business people is looking back at things that had been
on thebooks and had been hindering them for some time and then
looking again to see if there is any possibility, as Mr. Sullivan said,
for flexibility or for review.
A lot of the rules that come out now that are harming small
firms are rules that have been on the books for a number of
years. It is not just a new rule or a proposed rule. It is
rules that have been there for some time.
Ms. Velazquez. Thank you.
Mr. Frulla, when you draw a parallel between NEPA and the
RFA, your testimony seems to indicate that it would be
unreasonable for an agency to promulgate a rule that could be
made more flexible for small businesses, yet the foundation of
the Regulatory Flexibility Act is that it does not require an
agency to adopt the least burdensome regulatory alternative,
but simply to examine them.
Could you please explain that further?
Mr. Frulla. Yes. The distinction that I was attempting to
draw is that under NEPA an agency is required to consider a
sufficient array of alternatives. The agency can pick whatever
alternative, provided the analysis is complete under NEPA.
We think that the standard is different and probably--not
probably, but is stronger under the Regulatory Flexibility Act.
We look to some congressional materials and some court
decisions where if you go through a regulatory flexibility
analysis and you see that there is a better way to build the
mousetrap, then it ought to be really hard to say well, we do
not want to do that.
By contrast with NEPA, there may be a reason why you would
not pick the most environmentally beneficent alternative, but I
think you would be awfully hard pressed to explain how or why
you would do that under Reg Flex. Does that help?
Ms. Velazquez. Thank you.
Chairman Manzullo. Dr. Christian-Christensen.
Ms. Velazquez. Thank you, Mr. Chairman.
Mrs. Christensen. I just have a couple of questions. Mr.
Chairman, I think before I ask my questions I think on the CMS
issues we could use another year.
Chairman Manzullo. You are a physician. You know well.
Mrs. Christensen. Yes. Thanks.
Chairman Manzullo. We will have another hearing. We shall
have another hearing.
Mrs. Christensen. Thanks. Attorney Frulla, in the ten cases
that you mentioned I think that you filed, I think you said----
Mr. Frulla. Nine.
Mrs. Christensen. Nine or ten. In how many of those cases
was an amicus brief filed by the Office of Advocacy?
Mr. Frulla. They filed in one of our cases on the standard
of review. There were two litigations regarding the commercial
shark fisheries. They filed an amicus brief on the standard of
review because originally the agency was trying to get away
even from the arbitrary and capricious standard. The agency or
the Justice Department, their lawyers, came back and said we
will live with the arbitrary and capricious standard. At that
point, the SBA I guess backed off is the right word. That is
one case.
We are cognizant of the resource constraints that the
agency faces and in many instances has not sort of broken its
arm to get in. We could always use help, though.
Mrs. Christensen. I was going to ask Attorney Sullivan the
next question on the number and types of briefs that the office
has filed.
Mr. Sullivan. Actually, we used the amicus authority, the
full-blown amicus authority, only once, but that does not tell
the whole story. The whole story on how Reg Flex litigation is
successful includes the exchange of letters and information
between government agencies and the Office of Advocacy.
The comment letters that the Office of Advocacy sends to
regulatory agencies--let us take CMS, for instance--do set out
a record, a public record, that says if an agency is or is not
complying with the Reg Flex Act. The open and deliberate
exchange of letters and information does help a court decide
ultimately on a case's merits, so even though we may not be
filing amicus briefs in each and every case, the record that is
created and reviewed benefits from the letters and the comment
letters coming from the Office of Advocacy.
In fiscal year 2001, there were 47 of those letters that
built a critical record of agency decision making coming out of
the Office of Advocacy.
Mrs. Christensen. Thanks for that. I am still a bit
concerned because even when the letters are filed they do not
seem to respond. I mean, it does not force any response. I am
going to ask another question, but if you want to respond?
Mr. Sullivan. I would like to respond because I share
your----
Chairman Manzullo. Could you yield for a second? When you
send in your letters, if you do not get a response in 15 days
would you contact my staff? We will send a letter to the agency
telling them to respond to your letter.
Mr. Sullivan. Actually, I would like to respond.
Mrs. Christensen. Do you copy us? Do you copy us on the
letters?
Mr. Sullivan. We are absolutely in contact with this
Committee and with the Senate Committee when we do not get
responses to our letters.
You know, we talk about the resources that are available to
get a point across and whether an agency is complying with the
law. This Committee, in its commitment to making sure agencies
comply with the law, is a valuable resource. There are also
resources represented on this panel with both the attorneys and
trade and membership small business organizations.
The collective strength of all those voices pointed in the
same direction should accomplish our goals without necessarily
going to an extremely expensive and time consuming legal
process.
Mrs. Christensen. Did you want to say something?
Mr. Goldhecht. Yes.
Mrs. Christensen. Let me ask this question first, and then
you might want to incorporate it in your response.
One of the suggestions is that every agency has an
ombudsman and that that would help. In responding to the
previous comment, would you also include, and maybe Mr. Gibson
would also like to include. Do you think that that is going to
be as effective as it needs to be to help move these cases
along?
Mr. Goldhecht. I cannot particularly comment to that point,
but I just wanted to further Mr. Sullivan's point. The letters
did go out. In the case of portable x-ray, a letter went out.
Mrs. Christensen. I understand.
Mr. Goldhecht. I am sitting here four years later waiting
for some kind of response. Although we appreciate the efforts
that they did, CMS, HCFA, whatever you want to call them,
basically ignored it and has no desire, from what I can tell,
to listen to what Advocacy has said.
Mrs. Christensen. Personally, I know how difficult it is to
even think about suing the federal government, so what do you
do? It just sits there unless someone has the resources, which
most small businesses do not. They are trying to still provide
services.
I want to ask probably just one more question, unless
someone wants to comment. Mr. Gibson,did you want to comment?
Mr. Gibson. With regard to the ombudsman, I think it would
be helpful in our case because I think in our particular issue
it is a matter of communicating with EPA the real issue. I
think the result was an unintended result. There was no intent
to have the effect that the proposed rule would have. It is a
matter of explaining to them in more detail the market as it
is, the situation as it is and the various sectors that would
be affected by the proposed rule.
Chairman Manzullo. Could I go on to Mr. Grucci and then
come back to you for a short question?
Mrs. Christensen. It is a short one.
Chairman Manzullo. Go ahead. Go ahead. I do not know when
the bell is going to go off.
Mrs. Christensen. It follows up on what Mr. Gibson said.
Mr. Dozier, on page 8 you were talking about one of the
panels that you worked on. There was a whole lot of data and
economic information. It was very cumbersome, but there were
some representative groups that provided input.
I think what you were trying to say is that that was more
effective in trying to reach a determination of impact than
economic data, and I think that is what Mr. Gibson was saying.
Do you want to comment on that?
Mr. Dozier. One of the concerns that I personally have with
Advocacy coming up with a significant and substantial
definition is that agencies typically, if they are responsive,
have more resources to serve a particular industry. In that
particular case, EPA could go out and do site visits, get data
from the industry and cull it together in a manner in which we
wanted to see it, quite frankly, and then we could come up with
the result.
I have a fear, and it is just a fear, that if Advocacy has
to come up with the significant and substantial test that they
would have some responsibility to try to either get that data
or cut it in ways that they do not necessarily have the
resources to do.
Chairman Manzullo. Thank you.
Mr. Grucci.
Mr. Grucci. Thank you, Mr. Chairman. Mr. Chairman, I will
ask for unanimous consent to have my opening remarks made part
of the record.
Chairman Manzullo. All the remarks will be made a part of
the record without objection.
Mr. Grucci. Thank you, sir.
Mr. Sullivan, the GAO report entitled Compliance Guide
Requirement, has had little effect on agency practices. I am
concerned about the way that our government applies its
regulations and conducts its enforcement on small businesses.
I was asked to address the SBREFA workshop. I believe you
were there as well. One of the things that I tried to impart
upon those who were at the meeting was that when you go into a
small business, you are going into a business where the owners
are the chief executive officer, they are the accountants, they
are the stock clerks, they are the manufacturers, they are the
sales people, they are the bookkeepers. In short, they are
everything to a small business.
When an agency comes to visit them, it is a frightening
experience. If they have EPA oversight. I can assure you from
being in a business where EPA has a role to play it is a
frightening experience when they come in because they are not
coming in to give you any kind of an award. They are there to
find something and to give you as much grief as they possibly
can. I am not just picking on EPA. It seems to be the attitude
of most who come in to regulate.
We all know, and the statistics will certainly verify this,
that small businesses, the mom and pop operations, are the
backbone of our economic system. They are the engine that
drives the job growth, et cetera.
If SBREFA is not working to the fullest extent, how do we
fix it to make it better, and how do we continue to enforce the
laws, because I am not suggesting that we weaken the laws for
small businesses or for any business, for that matter. How do
we continue to assure the American public that the businesses
that they either work in or shop at or are in their communities
are abiding by the law, and yet we are not impacting small
businesses to such an extent that they must close their doors
because the regulatory requirements are so onerous and so
strenuous that they simply just cannot afford to keep up with
them?
I know in my own business, when I was there, we had to hire
several people in administrative positions just to keep up with
what regulations may or may not be coming down the pipe line
that would have an effect on us. There is no way to incorporate
that in the cost of your goods, so it costs you to your bottom
line. Eventually the more and more that impacts your business,
the quicker you close your doors.
I do not think our goal here collectively is to make that
happen. Should counsel, and I guess it is you as Chief Counsel
of the Office of Advocacy, promulgate rule making to further
define the terms substantial number of small businesses and
significant economic impact? I think those have been stumbling
blocks for your agency, and I would like to hear your comments.
Mr. Sullivan. Congressman Grucci, first of all, let me
thank you for coming over to the Small Business Administration
and helping Michael Bererra host the regulatory fairness kind
of instructional session amongst other federal agencies a few
weeks ago. Your sharing your experience as the owner of an
impressive small fireworks company was certainly well timed and
I think impressed upon the federal agencies how difficult it is
for a small business owner to keep up with a morass of federal
regulations.
You asked, I think in a broad question, how do we improve
SBREFA? Well, we are doing it right now. We get regulatory
agencies to pay attention. That does not mean getting them to
send more enforcement folks out to small businesses, but it
does get them to understand what you articulated, and that is
that when a federal regulatory officer, whether they are
writing a regulation or enforcing a regulation, knows that
money saved from a small business owner goes to hiring new
employees. Money saved goes to providing health care or buying
new equipment. It does not go into breaking a law or polluting
the environment or creating an unsafe workplace. If federal
agencies get it, then they get the basis of SBREFA.
How do we improve it? We get federal regulatory agencies to
pay attention. We do it through accountability time through
this Committee. We get it through the Office of Advocacy
providing guidance and instruction to regulatory agencies on
how to comply, and we do it working in partnership with Michael
Bererra's shop, the small business ombudsman at the Small
Business Administration. He is out there.
Once a regulation is written and the enforcement officers
are visiting small businesses across the country. Mr. Bererra
makes sure that those regulatory officers treat small business
fairly. The collective group, this Committee or other small
business stakeholders, the Office of Advocacy, simply have to
go in again and again and again and tell them how important
SBREFA is and that lack of compliance with the Regulatory
Flexibility Act will not be tolerated.
If we have to do that through additional legislation, then
we will work with this Committee to make sure that that happens
and that it is written in a way to accomplish our goals. If it
has to do with our office writing guidelines or rules, then we
will do that with the help of this Committee to make sure there
is a consistent application and a fair application government
wide.
Mr. Grucci. Thank you, Mr. Chairman.
Chairman Manzullo. I have a question for Mr. Rezendes. It
is at the request of Mrs. Kelly. She had written the Truth in
Regulating Act. Has GAO made a request for appropriations to
establish the office to examine the regulations established by
the Truth in Regulating Act?
Mr. Rezendes. Yes, we have, Mr. Chairman.
Chairman Manzullo. You have?
Mr. Rezendes. Yes.
Chairman Manzullo. Do you recall the amount?
Mr. Rezendes. We have never received funding for it.
Chairman Manzullo. Okay. Is that in your request this year?
Mr. Rezendes. I am not sure if it is in this year.
Chairman Manzullo. It is? It is? Do you have an idea what
the amount is?
Mr. Rezendes. $5.2 million.
Chairman Manzullo. Okay. We will work on that with the
Cardinals.
Did you have a question? We have a little bit of time. Go
ahead.
Ms. Velazquez. Yes. Can any of you talk about what kind of
incentives you believe could be built into the Reg Flexibility
Act?
Mr. Sullivan. Congresswoman Velazquez, we talk about
incentives that can be built in. I think one incentive, and I
am entirely serious, is for regulatory agencies not to be
called before this Committee for accountability time.
The idea that agencies are lax in complying with the Reg
Flex Act and one letter or two letters in 1998 just does not
convince them. An incentive to convince them to respond to our
letters from the Office of Advocacy and to the greater concerns
expressed I think here this morning is for them not to be
subpoenaed, not to be called before this Committee and not to
be embarrassed by not complying with the law.
Ms. Velazquez. Mr. Rezendes.
Mr. Rezendes. One issue on which we have had recommended
legislative change is civil penalty relief. We took a look at
how the agencies were applying civil penalty relief to small
businesses, and our basic bottom line was that they were not
collecting the information to even know how much relief was
provided. So we were advocating that they maintain data so they
would know.
Some could not even differentiate in their enforcement
actions, whether it was a small business, or if they did get a
penalty how much relief was provided, so that is one area we
would like to see changed.
Ms. Velazquez. Thank you.
Mr. Frulla.
Mr. Frulla. Thank you. This may be a little more stick than
carrot, but let me try. It also goes to another question of Ms.
Christian-Christensen and Mr. Sullivan's testimony.
We would suggest, and we have, that the Equal Access to
Justice Act attorneys' fees go to a small business that
prevails or settles favorable SBREFA litigation. There is
another threshold in the law that you must not only prevail;
the agency's position must be shown to be not substantially
justified.
If the small businesses knew and agencies knew that if they
lost one of these they would have to cover at least some of the
small businesses' or the small business association's
attorneys' fees, that is a stick and not a carrot, but it is a
carrot if you do not have to pay it.
There is another point that I think is important there, and
I will be brief because I know you all do not have that much
time, and that is that you should write into the law something
so that when Mr. Sullivan and his shop comment on a matter
particularly within their expertise that courts are required to
treat that agency as the expert and that the agencies and the
courts are to defer to their expertise. As it is now, that is
an open question under the law.
I think that would help substantially, and it would make
the comment letters stronger because there would be force
because somebody could go and sue on them.
Mr. Dozier. Madam Congresswoman, if I may?
Ms. Velazquez. Yes.
Mr. Dozier. I think that one thing that can be changed in
the law, and I write this in my testimony, deals with Section
609 of the Act. Specifically, Section 609 requires outreach to
be done if the significant and substantial trigger is actually
hit.
What I propose is that you change that requirement so that
it is just not the significant and substantial trigger, but
that if you are doing any regulation that could affect small
entities, understanding that there are some procedural
regulations that we do not want to fall into, you know, that
gap. We do not want every time someone changes a flood plain
designation or the Coast Guard rules on bridge openings. They
do a lot of procedural things.
We do not want that to happen, but if you get it into the
agencies' minds that small entity outreach is just common
sense, if you are going to regulate a small business or you are
going to regulate an industry rather that includes small
businesses, you should be talking to them. I mean, that is
simple common sense. You should not be regulating a community
if you do not know anything about that community; not just
certain sectors of the community, but the community as a whole.
Ms. Velazquez. Thank you.
Thank you, Mr. Chairman.
Chairman Manzullo. Mr. Grucci, you had another follow up
question?
Mr. Grucci. Yes, Mr. Chairman. Thank you. I have a question
for Mr. Gibson and then a follow up for Mr. Sullivan if my time
permits.
Mr. Gibson, the intent of SBREFA was to provide relief to
small businesses that face unfair financial burden as a result
of the federal regulations. You suggest benefit analysis. What
do you see as the benefit of this cost analysis that you are
suggesting, and how much weight do you think it should have in
the final issuing of the rule?
Mr. Gibson. Well, we think that the cost benefit analysis
is very important because obviously the number of businesses
that are affected in our case and in the rule is very large.
The overall objective of the rule that has to be taken into
account clearly is to protect the environment and to make sure
that the usage of those chemicals is in compliance with the
Clean Air Act.
I think that our position is that they can do both. They
can achieve the goal of being in compliance with the Clean Air
Act and also be fair to the smaller businesses that are
affected by the rule.
Mr. Grucci. Thank you.
Mr. Sullivan, in following my line of questioning just a
moment ago one of the things that I found, and I sat on several
of our association boards as either a board member or vice-
president. We always tried to have a voice in the rule making
process. That often fell on deaf ears.
I will point to a specific agency because they were very
unkind to the suggestions being made to improve the safety of
the industry that I used to be in, and that is Consumer
Products Safety Commission, CPSC. In their eyes, we, and I am
sure other industries felt the same way, were guilty before we
even had an opportunity to have a voice in the process. That
made it very difficult.
The consumer industry was being singled out, members of
that industry, some of them deservedly, but most of the time
others not deservedly, receiving the wrath of CPSC in the sense
that small businesses were being fined as much as several
hundred thousand dollars, and taking their right to do business
away. It was not in the end of the business that I was in. I
was in the display side of the business, in the consumer sales
side of the business.
The question that I have is why we can not in the rule
making process that is going to unfold, make SBREFA a better
place, why can't the voice of industry have a louder voice than
it currently does, and how would you suggest that we craft
legislation to do that?
Again, I am not suggesting that business should dictate
unto itself how it should be regulated. That is what government
is there for, but government is also there to understand, as
was pointed out a moment ago, the industry that it is
regulating and overseeing. What are your thoughts on that?
Mr. Sullivan. Congressman Grucci, your explanation of
having a voice, a small business voice, in the regulatory
process is the foundation of the Office of Advocacy, so I could
not agree with you more in that statement and the need for the
voice.
One thing that we have been trying to impress upon
regulatory agencies is not necessarily how loud the voice,
although once in a while a big, loud voice helps, but it is how
early that voice is inserted in the process and how effective
that voice is.
When I talk about early and effective, I mean because the
Regulatory Flexibility Act currently suggests that agencies
seek out input from small entities in the regulatory process.
That is an open communication, and that communication is used
by other businesses, whether they be across the country or
through trade associations and others so that at the end of the
day the regulation that comes out of a department if they do
choose to go the regulatory route does reflect the common sense
brought to the table by the voice of small business.
In answer to the question of how do we make it better, we
actually look at the law that is written, the Regulatory
Flexibility Act, and we look at those provisions that say small
entities should have a voice early in the regulatory process,
and we make sure that the agencies understand that that is in
fact one of the considerations in the Regulatory Flexibility
Act.
If the agencies repeatedly ignore those responsibilities,
then we consider legislative strengthening opportunities or
regulatory opportunities, but those suggestions, the
legislative suggestions of having a voice, a small business
voice in the regulatory process, are on the books. We are there
to try and convince agencies to follow it, and we want to work
with this Committee and all of our partners to make sure that
they get----
Mr. Grucci. I agree that they are on the books, but I think
you would agree with me that they are not often enforced
stringently enough for the small business community to have a
true voice in the industry that they choose to be in.
What I am suggesting that you all do is to turn up the
volume a little bit so you can hear the voices of those people
who dot the main streets from one side of this country to the
other who do not come to Washington, who do not have the
lobbyists, who do not have the resources to spend to come in
and talk to your offices.
When your field inspectors go out, they should be going out
armed not only with bringing the bad guys to justice, but
helping to make the good guys even better by listening to what
they have to say because the best way to understand that
industry, whatever that industry may be, how to make it a
better industry, how to make it a safer industry, how to make
it a cleaner industry, is to listen to the good guys because
they know what they are doing.
I would just encourage you to put that into the thought
process as you send out your folks across the country to take a
look and see what is going on out there.
Mr. Sullivan. Congressman, I actually would like the record
to reflect a frequent nodding to everything that Congressman
Grucci was talking about.
Chairman Manzullo. The record will reflect your frequent
nods.
Mr. Sullivan. Sometimes the written record does not do
justice to my agreement with what the Congressman said.
Chairman Manzullo. Those are nods of affirmation. Okay.
Listen, I want to thank you all for coming. You know, the
standard has to begin at home. The reason I got so upset last
week with the SBA is that the SBA has to set the standard on
how to treat small businesses. The hearing last week showed
that the small businesses had been shut out of the process of
revising the size standards, even though Mr. Barreto had been
out on the streets himself gathering that information. I know
that as a fact.
Somehow, even the material that he was feeding into the
agency itself never found its way to the people that wrote the
rules. That is why Hector is doing a great job because I know
where his heart is.
The SBA has to set the standard. Tom, I know that Reg Flex
applies to the SBA. If the SBA does not follow Reg Flex, I do
not know who is going to do it because it is for the small
businesses to do that. We have here one business that has
already gone under.
Ms. Velazquez. Mr. Chairman, if I may?
Chairman Manzullo. Yes, Nydia.
Ms. Velazquez. Mr. Sullivan, I guess you have some work to
do because SBA is in violation of the Reg Flex Act when it
issued its new regulations on 8(a). I hope to see a letter sent
to the SBA and Mr. Barreto.
Chairman Manzullo. Have you sent the letter on that, Ms.
Velazquez?
Ms. Velazquez. We are submitting comments on the
regulations.
Chairman Manzullo. I know the folks from SBA are here. We
surely do not want to have another hearing as we did yesterday
or last week, but I would expect that letter to be answered.
Thank you all for coming. Stay in contact with Mr. Pineles
and our staff for two things. Number one is drafting these
amendments to whatever statutory remedy is necessary. Number
two, for agency accountability days starting off with an
appearance not by CMS, but by HCFA.
As I said six months ago, I will not recognize your new
name unless I see a change in what is going on, and I see no
change whatsoever at this point. We will start off with round
three of HCFA accountability days.
Thank you for coming. This meeting is adjourned.
[Whereupon, at 11:55 a.m. the Committee was adjourned.]
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