[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
IMPROVING THE REGULATORY FLEXIBILITY ACT - H.R. 2345
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC, MAY 5, 2004
__________
Serial No. 108-62
__________
Printed for the use of the Committee on Small Business
Available via the World Wide Web: http://www.access.gpo.gov/congress/
house
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COMMITTEE ON SMALL BUSINESS
DONALD A. MANZULLO, Illinois, Chairman
ROSCOE BARTLETT, Maryland, Vice NYDIA VELAZQUEZ, New York
Chairman JUANITA MILLENDER-McDONALD,
SUE KELLY, New York California
STEVE CHABOT, Ohio TOM UDALL, New Mexico
PATRICK J. TOOMEY, Pennsylvania FRANK BALLANCE, North Carolina
JIM DeMINT, South Carolina ENI FALEOMAVAEGA, American Samoa
SAM GRAVES, Missouri DONNA CHRISTENSEN, Virgin Islands
EDWARD SCHROCK, Virginia DANNY DAVIS, Illinois
TODD AKIN, Missouri GRACE NAPOLITANO, California
SHELLEY MOORE CAPITO, West Virginia ANIBAL ACEVEDO-VILA, Puerto Rico
BILL SHUSTER, Pennsylvania ED CASE, Hawaii
MARILYN MUSGRAVE, Colorado MADELEINE BORDALLO, Guam
TRENT FRANKS, Arizona DENISE MAJETTE, Georgia
JIM GERLACH, Pennsylvania JIM MARSHALL, Georgia
JEB BRADLEY, New Hampshire MICHAEL MICHAUD, Maine
BOB BEAUPREZ, Colorado LINDA SANCHEZ, California
CHRIS CHOCOLA, Indiana BRAD MILLER, North Carolina
STEVE KING, Iowa [VACANCY]
THADDEUS McCOTTER, Michigan
J. Matthew Szymanski, Chief of Staff
Phil Eskeland, Policy Director
Michael Day, Minority Staff Director
(ii)
C O N T E N T S
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Witnesses
Page
Terry, Hon. Lee, U.S. Representative (NE-2), U.S. House of
Representatives................................................ 3
Pence, Hon. Mike, U.S. Representative (IN-6), U.S. House of
Representatives................................................ 5
Sullivan, Hon. Thomas, Chief Counsel for Advocacy, U.S. Small
Business Administration........................................ 7
Glover, Mr. Jere W., Of Counsel, Brand & Frulla.................. 10
Swain, Mr. Frank, Partner, Baker & Daniels....................... 12
Morrison, Mr. Jim, Ph.D., President, Small Business Exporters
Association.................................................... 13
Appendix
Opening statements:
Manzullo, Hon. Donald A...................................... 26
Velazquez, Hon. Nydia........................................ 30
Prepared statements:
Terry, Hon. Lee, U.S. Representative (NE-2), U.S. House of
Representatives............................................ 32
Pence, Hon. Mike, U.S. Representative (IN-6), U.S. House of
Representatives............................................ 36
Sullivan, Hon. Thomas, Chief Counsel for Advocacy, U.S. Small
Business Administration.................................... 40
Glover, Mr. Jere W., Of Counsel, Brand & Frulla.............. 56
Swain, Mr. Frank, Partner, Baker & Daniels................... 70
Morrison, Mr. Jim, Ph.D., President, Small Business Exporters
Association................................................ 76
(iii)
IMPROVING THE REGULATORY FLEXIBILITY ACT - H.R. 2345
----------
WEDNESDAY, MAY 5, 2004
House of Representatives
Committee on Small Business
Washington, D.C.
The Committee met, pursuant to call, at 2:32 p.m. in Room
2360, Rayburn House Office Building, Hon. Donald Manzullo
presiding.
Present: Representatives Manzullo, Velazquez, Beauprez,
Case, Akin, Udall, Bordallo
Chairman Manzullo. This Committee has held a number of
hearings during my tenure as chairman in which we examined
agency compliance with the Regulatory Flexibility Act, or RFA.
These hearings all reached the same conclusion: The RFA is an
important law that, if fully complied with in both letter and
spirit, has the potential to significantly reduce the
regulatory burdens on small businesses.
The efforts of the president, Dr. Graham, the head of OIRA,
and Chief Counsel for Advocacy Tom Sullivan have done admirable
jobs in improving agency compliance with the RFA. However,
their efforts continue to be hindered by bureaucrats that seek
to perform the minimum amount of analysis possible and courts
that seek to abet them in the process. In short, the efforts to
obtain compliance are, in part, hampered by the flaws in the
RFA itself.
Given the inadequacies of the RFA, I, along with Mr. Pence,
Mr. Terry, and Mr. Ose, introduced H.R. 2345, the Regulatory
Flexibility Improvements Act. The bill is designed to
significantly strengthen the RFA so that agencies, as President
Bush stated, ``will care that the law is on the books.''
H.R. 2345 represents a comprehensive fix to current
weaknesses in the RFA. When it was enacted, opponents said it
would slow the promulgation of rules. Any examination of the
size of the Federal Register in 1980 with that today will see
the RFA has done no such thing. During the debate over the
amendments to the RFA made by the Small Business Regulatory
Enforcement Fairness Act, or SBREFA, opponents argued that
judicial review would create a stampede to the courthouse. This
Committee is not aware of any such rush by small businesses to
file lawsuits challenging RFA compliance, and any arguments
about the horrors of H.R. 2345 that will be raised by opponents
are also unlikely to come true.
Ultimately, what is at stake is the ability of small
businesses to stay in business based not on the whims and
dictates of federal bureaucrats but on their capacities in the
marketplace. Better, sounder rules will be beneficial to the
regulatory objectives of the agencies through increased
compliance and lower costs to small businesses. No good reason
exists to oppose those goals and objectives other than
obstinacy of the status quo. It the status quo needs fixing, so
be it. I promise to work with the individuals testifying,
Chairman Sensenbrenner and House leadership, and my colleagues
on the Small Business Committee to see that necessary changes
in the RFA are made, to paraphrase the president, so the law is
on the books, and federal agencies will care that the law is on
the books.
I now recognize the Ranking Member, the gentlelady from New
York, for her opening remarks.
[Chairman Manzullo's statement may be found in the
appendix.]
Ms. Velazquez. Thank you, Mr. Chairman.
Small businesses today face an array of challenges that
weigh on them more heavily than their corporate counterparts.
One of those challenges is federal regulations and the
disproportionate burden they place on our nation's small firms.
A recent study showed that for firms with fewer than 20
employees, the annual regulatory burden is nearly $7,000 per
employee, almost 60 percent higher than that of firms with 500
employees or more. This is unfair, and something needs to be
done about it.
The Bush administration has acknowledged this unfairness
and has promised to help, but the truth if President Bush
actually holds the all-time record for the number of federal
regulations submitted and issued under any president. A law is
on the books that does offer some protection to small business,
the Regulatory Flexibility Act.
Enacted more than two decades ago, the Reg Flex requires
federal agencies to consider the impact their regulatory
proposals have on small entities. But if agencies were actually
doing their homework, then the SBA Office of Advocacy would not
have to intervene with them in 50 to 100 cases each year. These
demonstrate just how reluctant agencies are to fully comply
with the requirements of the Regulatory Flexibility Act. There
are loopholes and problems with the Reg Flex that are exploited
by these agencies.
The bill before us today, the Regulatory Flexibility
Improvements Act, seeks to close some of these loopholes and
hold agencies accountable for their overly burdensome rules. At
this hearing, we will evaluate H.R. 2345, the changes it
proposes to the Reg Flex, and what effect this will have on
small businesses.
The bill does several things. First, it clearly defines the
specific economic effects to be examined by agencies and sets
out requirements for greater precision in performing these
analyses. It also provides the leverage advocacy will need to
take on these executive agencies in court. In addition, H.R.
2345 would apply the panel process to a handful of agencies
that routinely ignore the Reg Flex--the IRS, CMS, and the FCC--
and compels them to use a more rigorous system of rule
evaluation.
As shown by EPA and OSHA, the panel process has gone a long
way in helping identify and reduce the impact of rules on small
businesses while still achieving overall health and safety
goals. As you can see, H.R. 2345 is an ambitious piece of
legislation. Given this and the limited time we have left in
the congressional schedule to actually get things done, the
likelihood of H.R. 2345 reaching the president's desk is slim,
but I do believe that today is a good start, and I look forward
to working with the chairman to reduce the regulatory burden on
our nation's small firms. I would also like to thank the
chairman for addressing this issue. This is the first hearing
we have held in quite some time that directly affects
legislation under our Committee's jurisdiction.
The burden of federal regulations is a real problem for
small businesses across the country. Unfortunately, agencies
tend to use a one-size-fits-all approach that mainly hurts our
small business owners. Through H.R. 2345, we have the
opportunity to make the Reg Flex a stronger and better
enforcement tool, ensuring that federal agencies are held to
more stringent regulation standards. If small businesses are
less burdened by government rules, they are in a better
position to grow our local economies and create jobs, and this
will give a boost to our economy and provide employment
opportunities for the millions of Americans still searching for
work. Thank you, Mr. Chairman.
[Ranking Member Velazquez's statement may be found in the
appendix.]
Chairman Manzullo. Thank you. Our first witness will be
Congressman Lee Terry, our colleague from the great State of
Nebraska. Lee, we look forward to your testimony.
STATEMENT OF THE HONORABLE LEE TERRY (NE-2)
Mr. Terry. Thank you, Mr. Chairman. I appreciate the
invitation to speak here today and the invitation to join you
on this bill.
Good afternoon, Ranking Member Velazquez, Mr. Beauprez.
As the chairman mentioned, I represent the Omaha, Nebraska,
area, which is home to four Fortune 500 companies and their
corporate headquarters, yet almost 90 percent of the employees,
my constituents, work for small businesses. Clearly, the
American economic engine is powered by small businesses, and I
share your passion in helping to protect these businesses.
As I meet with our small business owners almost every day
when I am back home, one of the most frequent complaints from
small business owners is that federal regulations are onerous,
make no sense, confusing, costly, and difficult to implement.
Now, Congress first showed its willingness to address these
regulatory burdens when it passed the Regulatory Flexibility
Act in 1980. Under the Regulatory Flexibility Act, many
agencies proposing rules that would have a ``significant''
economic impact on small businesses, small, not-for-profit
organizations, or small government entities must prepare a
regulatory flexibility analysis and try to find simpler, less-
burdensome ways for such small organizations to comply.
Now, certainly, this is extremely helpful if applied to
small businesses. This act, however, did not require an agency
to abandon a proposed regulation because it might have a
``significant'' impact on small entities, only to consider a
less-burdensome alternative and to explain why it rejected
those alternatives. If a proposed regulation comes under the
act, the agency must prepare an initial regulatory flexibility
analysis, which is published, along with the proposed rule, and
sent to SBA, who oversees the act's enforcement. After the
comment period, the agency must prepare a final regulatory
flexibility analysis, which should respond to any issues raised
in the public comments and which is published with a final rule
and made available to the public.
While the RFA was an important first step in eliminating
onerous burdens on small businesses, it was not without its
shortcomings. One of the most important aspects of reform is to
clarify and expand the rules covered by the RFA. One reform
contained in Section 3 of H.R. 2345, amends the coverage of RFA
to regulations from agencies that are not currently covered, an
important step.
For example, under the Regulatory Flexibility Act, the
Federal Communications Commission is not required to make the
same small business considerations as the EPA or OSHA. When the
FCC is modifying regulations that affect the operation of the
telephone network, the agency is not required to examine the
impact of the proposed change on small business because it has
been determined that small business users are not directly
within the regulatory jurisdiction of the FCC, yet almost all
small businesses have telephone networks or use telephone
services. Further, small businesses often do not have the time
or resources to wade through an FCC proposal and relate that
impact that it would have on its cost of using the telephone
network. I especially hear this from our small local telephone
exchanges and rural telephone exchanges that the FCC drafts
rules and regulations for the big entities that then include
everybody without taking into consideration the impact on the
smaller companies.
In fact, last session, Chairman, I introduced a bill that
would just simply ask the FCC to take into account this type of
impact on small telephone companies and exchanges, which you,
through this philosophy, have adopted in your bill, and I thank
you.
Now, Mr. Chairman, another important reform that you have
included in your bill is a new Section 613 of the RFA which
mandates that the chief counsel of the Small Business
Administration issue advisories to agencies that must be
adhered to during the regulatory writing process. These
advisories can be used by small businesses in suits to enjoin
agencies from these onerous, illegal, regulations and greatly
assist the chief counsel in fighting burdensome regulations on
behalf of small businesses.
Mr. Chairman, H.R. 2345 is an important bill for these and
other reasons. Your leadership on this issue and the effort to
reduce regulatory red tape by championing this legislation is
extremely important. At a time when the threat of outsourcing
and the need to create new jobs is a priority of Congress, the
Regulatory Flexibility Improvements Act provides a big
assistance to small business owners.
Mr. Chairman, thank you for this opportunity to testify,
and I look forward to working with you in getting H.R. 2345
enacted into law.
[Representative Terry's statement may be found in the
appendix.]
Chairman Manzullo. Thank you, Congressman Terry.
Our next witness is Congressman Mike Pence from the great
State of Indiana, Hoosier Country.
STATEMENT OF THE HONORABLE MIKE PENCE (IN-6)
Mr. Pence. That is right. Thank you, Chairman, and thank
you for the privilege of permitting me to testify and to return
to the Small Business Committee that I had the privilege of
serving on during the 107th Congress, and apropos to my
testimony today, I had the privilege of serving as the chairman
of the Subcommittee on Regulatory Reform and Oversight.
It is really with that background and sitting on the other
side of the table, Mr. Chairman, in many hearings just like
this on these issues that I was very anxious to support H.R.
2345, the Regulatory Flexibility Improvements Act.
As you know, Mr. Chairman, during my tenure as subcommittee
chairman, I held a number of hearings and one very
comprehensive roundtable on regulatory burdens facing small
businesses. Every trade association and group had different
concerns because of the agencies that regulated their members'
businesses, yet almost every single witness that came before
the subcommittee expressed two consistent themes, and I think
they bear amplification today.
First, all of the small businesses that I heard from said
they face problems complying with complex, often arcane,
federal regulations that they are unaware of until a federal
inspector comes walking through the door and informs them that
they are in violation.
Secondly, the analysis done in support of regulations often
was inadequate and did not focus on the challenges facing those
same small businesses. In a word, there was very little
relationship to what was happening on the shop room floor in
small businesses that I heard from and what was happening in
the regulatory state.
Certainly, much has changed since I served as chairman of
the Subcommittee on Regulatory Reform. President Bush declared
it was the policy of his administration that federal agencies
were no longer to ignore compliance with the Regulatory
Flexibility Act, and that was progress.
Dr. John Graham, the head of the Office of Information and
Regulatory Affairs at OMB, I believe, has done a remarkable job
with a small staff in revamping review of regulations and
demanding sound scientific and economic support of regulations.
Tom Sullivan has been an admirable advocate on behalf of small
businesses, and even from my rather distant standpoint, I think
he has worked very closely with Dr. Graham in ensuring that
federal agencies comply with the RFA.
So there has been progress, and even during my tenure on
this Committee, I saw that process work to the benefit, in
particular, of one area of small business that saw the rules
applied to them change and be conformed to a greater degree of
rationale, and it had to do with the reporting of essentially
minuscule amounts of lead that were left as a residue in the
printing process.
Given the success of this administration in imposing a
significant degree of rationality in the issuance of
regulations, one might ask, why is it even necessary for us to
consider H.R. 2345?
Well, first, Congress continues to enact legislation that
will require regulations, such as the prescription drug benefit
for Medicare-eligible individuals.
Second, administrations come and go, and so do the people
that staff them. Replacements may not always be as qualified or
as dedicated as those that I have previously mentioned, or they
may actually bring different agendas based on a different
president's policies.
Third, political appointees obviously, we all know, come
and go, but most agency personnel remain, and they may not be
as committed to compliance with the RFA.
Fourth, court interpretations of the RFA are unchanged by
the actions of the Executive Branch, and agency personnel will
use those interpretations to avoid performing the analysis that
Congress has mandated.
At the bottom, the United States distinguishes itself, I
believe, from other nations in that we operate under a rule of
law in which the actions even of federal agencies are subject
to significant public scrutiny and challenge in the courts.
Leaving compliance with the RFA to the whims of federal agency
personnel and ever-changing administrations undermines the
basic principle that this country is governed by the rule of
law and not the rule of man.
Even if Dr. Graham and Mr. Sullivan do their jobs
flawlessly, the RFA itself has flaws, the courts have
identified those flaws, and agencies will exploit those
loopholes to avoid performing analyses that might undercut the
rationale for their unprecedented regulatory outcomes, and this
is not acceptable.
In evaluating actions that adversely affect the
environment, federal agencies first study the scope of any
adverse actions, the consequences of taking an action, and
alternatives to the proposed actions. Agencies should take the
same rational approach when promulgating regulations. But even
putting pen to paper, the agency should determine whether a
problem exists, the scope of the problem, and potential
regulatory alternatives. The RFA can, if all of the loopholes
are closed, play a key role in this rational rule-making
process, which must be the order of the day in this city.
The president has said that compliance with the RFA is
important, and the only way to ensure that compliance really
occurs under this president and future administrations is to
make the law tougher. For these reasons, I determined that co-
sponsorship of H.R. 2345 is critical, and I strongly support
your efforts, Mr. Chairman, to move the bill, enact it into
law, and protect America's small businesses.
Again, let me thank you, Mr. Chairman, for the opportunity
to return to this Subcommittee, and let me also say, inasmuch
as the Judiciary Committee also shares some jurisdiction of
this legislation, I look forward to working very closely with
you and other members of the Small Business Committee to see to
its completion in regular order and its passage on the House
floor.
[Representative Pence's statement may be found in the
appendix.]
Chairman Manzullo. Thank you. Do any of our colleagues here
have any questions to ask of our colleagues?
[No response.]
Chairman Manzullo. Okay. Well, that was pretty easy. Thank
you for your testimony.
If we could have the next panel come up and keep on moving.
[Pause.]
Chairman Manzullo. Okay. I am waiting for Mr. Sullivan to
be the lead-off batter here.
Gentlemen, thank you for coming. Our first witness will be
Tom Sullivan, who has done nothing less than a stellar job at
the Office of Advocacy and involved in a lot of fights. Tom, I
look forward to your testimony.
STATEMENT OF THE HONORABLE THOMAS SULLIVAN, SMALL BUSINESS
ADMINISTRATION
Mr. Sullivan. Thank you, Mr. Chairman, Congresswoman
Velazquez, Congressman Case. It is always nice to appear before
a Committee that is considering legislation to strengthen the
core mission of the office. It is also nice to be here before a
panel of other members of Congress who speak so favorably about
the hard work that goes on in the office. So it is an honor to
appear before you this afternoon. It is also an honor to
address how to make the Reg Flex Act work better. Because my
office is independent, these views are my own and do not
necessarily reflect the views of the administration or the
United States Small Business Administration.
I have prepared a comprehensive, lengthy statement to aid
the Committee's work in improving the Regulatory Flexibility
Act. I suspect the Committee would appreciate my summarizing
instead of reading the document in its entirety.
The Regulatory Flexibility Act, as amended by the Small
Business Regulatory Enforcement Fairness Act, has been
successful. In the past three years, my office estimates cost
savings of over $31 billion, and I will say that again. We
estimate cost savings of over $31 billion. Even with the
additional requirements under SBREFA and the threat of judicial
review, some agencies were not complying with the requirements
of the RFA.
A formalized and closer working relationship with John
Graham's office at the White House and Executive Order 13272,
entitled ``Proper Consideration of Small Entities in Agency
Rulemaking,'' were part of the president's small business
agenda, and they are making a tremendous difference. The
executive order enhances my office's RFA mandate by directing
federal agencies to implement procedures and policies for
measuring the economic impact of regulatory proposals on small
entities. It also requires agencies to notify my office of
draft rules that are expected to have a significant economic
impact on small entities and to give every appropriate
consideration to any comments provided by the Office of
Advocacy, including publishing a response to our comments in
the Federal Register.
A recent success for small business highlights how the
Office of Advocacy and John Graham's Office of Information and
Regulatory Affairs relationship and the executive order are
working. The construction and development rule, recently
announced by the EPA, was something that Small Business and my
office and John Graham's office worked on for over two years.
Basically, EPA, recognizing that storm water runoff can
lead to pollution in rivers and streams, wanted to create a
whole new federal permitting system that takes permit
information already required at a state, local, and regional
level and superimpose that information on a new federal permit
sent to an office in Washington. Small businesses that are
required to work and comment through our office and through the
SBREFA panel told EPA, then under the leadership of Governor
Whitman, that this was a bad idea. Adding a new paperwork
requirement would not result in cleaner water.
So for two years, we have worked to bring that common-sense
point of view into EPA, and as of one month ago, EPA finally
agreed and decided not to regulate a whole new system of
federal permitting requirements on storm water construction and
development runoff. That is the most recent victory under the
president's direction and the increased attention of agencies
to the Reg Flex Act.
The bill that is before us this afternoon, H.R. 2345, is
important because even though the last few years have yielded a
number of successes, there are certain loopholes in the RFA
that were not addressed through the executive order or SBREFA.
H.R. 2345 would amend the RFA to address those loopholes.
Since my office is independent, we have to take our
direction directly from small business. The way we do that is
we hold roundtables, we solicit comments, and information from
our regional advocates, and when we did that on this particular
bill, the small business representatives, many of whom are
behind me in the room listening to this hearing this afternoon,
cited five specific issues of importance. The first is closing
the loophole of agencies not measuring indirect economic
impacts; second, inclusion of IRS interpretative rules; third,
the importance of analyzing cumulative impacts; fourth, the
importance of analyzing beneficial impacts; and, fifth, the
expansion of the panel process to more agencies. And with the
chairman's permission, I am prepared to go fairly close to the
full 10 minutes.
The direct versus indirect economic impact. Of all of the
issues, the most prevalent concern of the small business
community is the lack of inclusion of indirect impacts in the
current version of the RFA. Pursuant to Sections 603, 604, and
605[b] of the RFA, agencies are required to consider the impact
of an action on small business entities, but they do not
measure the indirect impact.
You may recall, Mr. Chairman and Congresswoman Velazquez,
that there was a hearing we had in this Committee where the INS
had proposed to cut off stay, legal extensions of stay, from
foreign visitors in this country in the wake of September 11th.
We know that that rule, proposed by INS, said that we regulate
the activity of individuals, not small businesses.
I think the Committee deserves a lot of credit for
recognizing the flawed logic in that, in that small businesses
would be affected. The travel industry, the tourist industry,
specifically, in the State of Florida, who came to testify also
before this Committee, identified that, yes, maybe INS does not
directly affect these small businesses, but their actions have
a definite impact on the small businesses that are affected by
their proposals. That is an indirect impact, and that is a
loophole that INS used not to do the analysis. That loophole
should be closed, and it is with the passage of H.R. 2345.
Advocacy also supports the expansion of the SBREFA panel
process that is in H.R. 2345 to better sensitize CMS, IRS, and
the Federal Communications Commission to small business
concerns. We do have a concern about the changes in H.R. 2345
with regard to the panel process. The panel process described
in Section 6 of H.R. 2345 provides the Office of Advocacy with
the responsibility of drafting the panel report.
The current process that exists between OSHA and EPA
represents a consensus report negotiated between the offices--
the Office of Advocacy, OMB--and the promulgating agency. This
process encourages stewardship or a custodian relationship of
the rule from the agency. It is my office's view that that is
what actually gets the agencies to do the right thing and
sensitize their actions to small business.
If this bill gets signed into law simply telling the Office
of Advocacy, you write all the reports, it distances the
agencies from understanding or being involved or having a stake
in their own regulatory process, to believe that if it is a
consensus position of how small businesses feel, they are much
more likely to endorse and adopt the recommendations coming
from those panels. So our suggestion to amend H.R. 2345 to
improve an already good bill would be simply to make the panel
process consistent with the existing panel process that exists
with EPA and OSHA.
Section 9 of H.R. 2345 amends the Small Business Act to
allow the Chief Counsel for Advocacy to specify small business
size definitions or standards for purposes of any act other
than the Small Business Act or the Small Business Investment
Act of 1958. My office is concerned that vesting the authority
to determine size standards to the chief counsel for advocacy
may cause confusion over which SBA office determines size
standards. The SBA's Office of Size Standards has the necessary
expertise and resources to make appropriate decisions regarding
industry size determinations, so I do not believe that that
proposed Section 9 of H.R. 2345 will benefit small entities.
To conclude, Mr. Chairman, Advocacy believes that H.R. 2345
makes several needed improvements to the RFA. My office
supports this legislation. The amendments will further federal
agency understanding of their obligations under the Regulatory
Flexibility Act. H.R. 2345 will improve the RFA to allow for a
more thorough analysis, foster the consideration of
alternatives that will reduce the regulatory burden on small
entities, and improve the transparency in the rulemaking
process.
Thank you for allowing me to present these views, and I
would be happy to answer any questions after the panel has
concluded.
[Mr. Sullivan's statement may be found in the appendix.]
Chairman Manzullo. Thank you.
Our next witness is Jere Glover. Jere has been involved in
small businesses. In fact, when I first met Jere, you were in
the Office of Advocacy, weren't you?
Mr. Glover. Indeed, I was, sir.
Chairman Manzullo. And then you retired and wanted to sail
off on your sailboat, but you never ventured far from
Washington.
Mr. Glover. I got down to Miami. That was close enough.
Chairman Manzullo. We are thankful that you stuck around
because you have got so much wisdom and look forward to your
imparting that to us this afternoon.
Mr. Glover. Well, thank you.
Chairman Manzullo. How do you like that introduction?
Mr. Glover. Very nice.
Chairman Manzullo. Sullivan says, `Why don't you introduce
me that way?` I said, `When you retire, we will say all kinds
of things about you, you know.`
STATEMENT OF JERE W. GLOVER, BRAND & FRULLA
Mr. Glover. Mr. Chairman, Ranking Member, it is, indeed, an
honor to be here and testify before you. I am Jere Glover with
Brand & Frulla, a law firm specializing in litigation and
regulatory and administrative law.
Overall, I think it is fair to say that the Regulatory
Flexibility Act has improved government regulations on how they
treat small businesses. The regulatory climate for small
business is clearly much better. Most agencies recognize the
critical role that small businesses play in the economy, and
most have recognized that they need to make their regulations
accommodate small business. However, there are a few, as we
will talk about later, whose compliance has lagged, and, quite
frankly, the courts have been reluctant to fully enforce the
law. This experience indicates that it is time for additional
modifications to the Regulatory Flexibility Act.
A brief history of how the Regulatory Flexibility Act has
come about is important. Prior to 1980, all of the regulations
in the government were basically one size fits all. Despite a
presidential order, pending legislation, and efforts by the
Office of Advocacy to get voluntary compliance with the concept
of regulatory flexibility, I think we have to admit that that
effort was a failure. The Reg Flex Act was then passed, and
agencies immediately began to comply with the law.
Unfortunately, over time, several critical flaws in the
Regulatory Flexibility Act became apparent, for example, no
judicial review, no mandatory small business input, an
imprecise role for the Office of Advocacy, and the ease with
which agencies could certify that the regulations did not
affect a significant number of small businesses. It is unable
to escape the conclusion that agencies could ignore the
Regulatory Flexibility Act with impunity.
In 1996, the Small Business Regulatory Enforcement Fairness
Act was passed to correct some of these shortcomings. As the
Committee knows, SBREFA added judicial review provisions to the
Reg Flex Act to ensure that agencies would do more than simply
provide lip service to the Regulatory Flexibility Act when
developing and implementing regulations. While most agencies
have markedly improved their compliance with the Regulatory
Flexibility Act after SBREFA, some agencies still only give lip
service to the Regulatory Flexibility Act and appear to believe
that compliance with the Regulatory Flexibility Act is still
voluntary.
The Federal Communications Commission appears to have the
worst record of compliance. In my written testimony, I gave a
number of examples and quotes from letters from various chief
counsels' reports on compliance with the Regulatory Flexibility
Act and a number of recent letters in the last three years to
the FCC. A reasonable view of FCC's compliance is they simply
choose to comply when they want to and choose to ignore it most
of the time.
Other agencies, such as the Internal Revenue Service and
the Center for Medicare and Medicaid Services, have had a
similar but somewhat better record but clearly have had
problems in recognizing it.
The problem with these recalcitrant agencies is compounded
by the fact that some court decisions. Unfortunately, some
courts have begun to narrow the scope of the Regulatory
Flexibility Act and appear reluctant to enforce the law. True
judicial review has been rare. Unless Congress strengthens the
RFA, I fear gains that have been achieved will be lost, and
agency compliance will deteriorate.
What needs to be done? First, the Congress needs to give
the Office of Advocacy independent budget authority. Today, the
office has, I think, 43 employees. That is a far cry from the
70-plus employees when the Regulatory Flexibility Act was first
passed. Unquestionably, no other agency has produced the
returns on government dollars spent Advocacy has generated: $50
billion of regulatory savings for small business compared to an
annual budget of the Office of Advocacy of well under $10
million a year. Advocacy can take a great deal of pride under
various chief counsels for the work that it has done and the
things that it has accomplished.
Second, the judicial review provisions of the Regulatory
Flexibility Act need to be strengthened. The RFA should state
specifically that courts should defer to any review or
determination by the chief counsel for advocacy. The American
Trucking case, in this regard, should clearly be reversed.
Third, amendments to the law requiring more detailed
analysis to substantiate initial regulatory flexibility
analysis and final reg flex analysis, as well as ``no impact''
certifications, should be required.
The committee proposes several other provisions for
strengthening the law. Amendments to the Administrative
Procedure Act have been rare. Enactment of the Regulatory
Flexibility Act and SBREFA occurred over fierce opposition.
Thus, any proposed amendments to strengthen the Reg Flex Act
will face significant challenges from various Executive Branch
agencies, independent agencies, and perhaps members of
Congress, some of whom will raise objections. This should not
discourage enactment of those provisions deemed most important.
I think the fight is worth taking.
In closing, I think it is important to keep in mind that
those who seek to reform bear the burden of persuading agencies
and policymakers that it is a national policy to preserve
competition, and, more importantly, small business is the force
that ensures competition in the American marketplace.
Considering whether regulations have an adverse or unnecessary
impact on small business is not special treatment. Rather, it
is a commitment to a national policy. Avoiding unnecessary
regulatory burdens to small businesses is good, sound, public
policy.
Thank you for having the opportunity to testify.
[Mr. Glover's statement may be found in the appendix.]
Chairman Manzullo. Thank you.
The next witness, Frank Swain is an attorney with Baker &
Daniels. He was chief counsel for advocacy from 1981 to 1989.
He has a little bit of experience in that office, and, Frank, I
appreciate your input and look forward to your testimony.
STATEMENT OF FRANK SWAIN, BAKER & DANIELS
Mr. Swain. Thank you, Mr. Chairman and Ms. Velazquez. I
will try to resist the temptation to walk down memory lane too
much here. I will say that, not counting Tom, the other members
of the panel, I think you have a very unique panel that all are
working on the regulatory flexibility bill of 1980.
I, of course, was a teenager at the time, and I am probably
in the unusual position of endorsing absolutely every word that
both Tom and Jere Glover have mentioned so far about the
history of the act and the impact of the act and the
deficiencies of a law that was passed under great duress by the
Congress in 1980, and the duress was not partisan duress. The
duress was really principally from those people that considered
themselves the keepers of the Administrative Procedure Act
covenant and were resenting the fact that anybody would want to
amend the Administrative Procedure Act that were coming out of
anything other than a pure, administrative, jurisprudential
background.
But as I mention in my statement, 1980 was an era of great
ferment of regulatory issues, and in 1980, of course, with the
election of President Reagan there was a sort of renewed
interest in controlling regulatory agencies, and lots of
organizations and agencies in the Reagan administration were
proposing very significant, statutory and regulatory reforms
and, really, the Regulatory Flexibility Act, in my view, is the
only time that Congress has passed a law that imposes
regulatory reform procedures on a whole host of regulations.
What we have learned over the intervening 20-some years is
that [a], as was mentioned, enforcement powers were somewhat
lacking at the outset. The Congress has gone a long way to
correcting that through SBREFA, and now what we realize, and
possibly because there are better enforcement powers now, the
agencies seem to be more interested than ever in avoiding those
conditions that trigger the regulatory flexibility analyses in
the first place.
So, to the extent that this bill is largely, not
exclusively, but largely focused on what I will call the
``front end,'' that is, the decision by agencies whether to do
the required analyses and the ability of the Office of Advocacy
and others to monitor and correct those decisions when they are
wrong; that is really an important step, and I hope that,
although, as was mentioned, it will not be noncontroversial
with the particular agencies, it is real important to try to go
forward with that.
I will briefly mention just a couple of other points which
I think are very good in the bill. As this Committee and you
know, Mr. Chairman, I have been working with an issue involving
the IRS for two years, involving mobile machinery. You were
kind enough to have a hearing last year at which that issue,
among others, was discussed as an example, and it continues to
be an example of a regulatory change that has a very
significant impact on a very substantial number of small
businesses, and no analysis was done, and the IRS said, we do
not have to do an analysis.
And I mention in my testimony, I actually sort of failed
the theology course as to why they cannot do the analysis or
they are not required to do the analysis. It is, in my view, a
very abstruse set of arguments that they are making involving
the Paperwork Reduction Act and Reg Flex and so on and so
forth. But suffice it to say that Congress has got to go back
and make perfectly clear that the IRS needs to do an analysis
on most of the decisions that they make that have a regulatory
impact, whether they designate them as interpretive or
otherwise.
Three other quick points. The positive impact. a number of
agencies say, we are changing things for the good; therefore,
we do not have to do a small business impact. My response when
I was chief counsel and now continues to be, well, if you are
changing it for the good, how do you know you could not change
it even more if you do not do an analysis? I think that that is
a necessary change.
I like the provision that requires agencies to quantify
what they are doing. You would think that is a no-brainer. How
can you measure the impacts unless you quantify? We are well
ahead of where we were 20 years ago when I was chief counsel.
The ability to do that and what we know about economics and
what we know about data bases, every agency should be able to
do that.
Finally, I will mention this. It has been mentioned before.
The indirect-impact situation is very important. The direct
costs of a rule are often minor compared to the indirect costs,
and agencies need to be required to step up to the plate and
analyze those costs, too.
Mr. Chairman and Ms. Velazquez, thank you for the
opportunity to make this statement. It is a pleasure to
continue to be able to work on small business regulatory issues
as I have for some time. In some ways, I am not worried about
working myself out of a job if this legislation is passed
because it continues to be an intense set of issues for small
business, but I do think that enactment of this bill or
something close to it would be a major step forward, and we
appreciate very much in the small business community your
support.
[Mr. Swain's statement may be found in the appendix.]
Chairman Manzullo. Thank you.
Our next witness is Dr. Jim Morrison, who is president of
the Small Business Exporters Association, and, Jim, we look
forward to your testimony.
STATEMENT OF JIM MORRISON, SMALL BUSINESS EXPORTERS ASSOCIATION
Mr. Morrison. Thank you very much. Thank you also for
allowing me to appear on a panel with these public servants,
all of whom I have a great admiration for.
Chairman Manzullo, Representative Velazquez, members of the
Committee, thanks for having me appear here today. I am Jim
Morrison. I serve as the president of a small business
organization, the Small Business Exporters Association, but I
am here today primarily as a private citizen. I have been asked
to comment on H.R. 2345 in the light of my background in
helping develop the Small Business Regulatory Enforcement Act
and the Regulatory Flexibility Act, so I will try to do so. I
hope this information will be helpful as you go forward.
By way of historical context, the idea for the Reg Flex Act
was suggested to me in April of 1977 by Mr. Milt Stewart, who
later became the first chief counsel for advocacy. At the time,
I was on the staff of Senator Gaylord Nelson of Wisconsin, the
chairman of the Senate Small Business Committee. Senator Nelson
also liked the idea, and we drew in Senator John Culver of Iowa
and others to help us move forward on the bill.
In my written testimony, I describe in some detail my daily
work on the RFA from then through the final passage in 1980. In
the interest of time, I will not repeat all of that here, but I
do think it is fair to say that I worked with every major
player on the bill, and I sweated every line and, I think,
pretty much every word of that bill for three years.
Although I was not a congressional staffer on SBREFA, I
again worked very closely on it on a daily basis with those who
were drafting and negotiating the bill, since I was the head of
an association coalition at that time in favor of the
legislation.
From that historical perspective, let me say a few words
about your bill. First of all, I think it gets two very
important points right: the extent to which the Reg Flex Act
was modeled on the National Environmental Policy Act [NEPA] and
the key congressional mandate of both RFA and SBREFA, which is
the need for process change and culture change at the agencies.
On the first point, both Senators Nelson and Culver were
noted environmentalists. Each was a principal sponsor of a
number of important environmental statutes. Several of their
staff attorneys were deeply steeped in environmental law. We
had many, many conversations in the late seventies about using
NEPA as a model for the RFA.
The consensus view was that NEPA offered a proven approach
to sensitizing agencies to a set of external considerations and
that it was an understood quantity by the courts and the
administrative law bar. We believed that, by paralleling NEPA,
we could successfully integrate the RFA into established
administrative law with minimal disruptions.
Our concern, however, was that litigants might seek to halt
agency actions before they were finalized. This is called
``interlocutory review.'' This was allowed under NEPA, and it
led to enormous abuse. We wanted to avoid that, but there were
many disagreements about how to do so. This is what led to the
tortured language about judicial review in the original RFA. It
did not work. It confused the courts, and it created a pressing
need for later revisions. That was the key reason we needed
SBREFA some years later.
In many other respects, however, the RFA and NEPA are
strikingly similar. An agency certification of no small
business impact under Section 605[b] of the RFA is meant to
mirror the finding of no environmental impact under NEPA. The
final regulatory flexibility analysis under Section 604 of the
RFA parallels the environmental impact statement under NEPA,
and so on.
Both the RFA and NEPA were designed to alter agency culture
and agency process without overturning the agencies' statutory
frameworks. While there has been progress in getting the
agencies to internalize the small-entity considerations under
the RFA, to this day, they do not seem to grasp that the RFA is
every bit as much the law of the land as NEPA and that RFA
analyses should be just as thorough and careful.
The courts need some guidance, too, in my opinion. Judicial
scrutiny of RFA analyses is typically far below that given to
environmental impact statements. H.R. 2345 commendably tackles
these concerns.
In addition to these broad culture and process issues, the
bill also addresses several specific problems very well. It
clarifies the lead role of the chief counsel for advocacy in
administering the RFA. Despite extensive responsibilities that
Congress gave the chief counsel on both statutes, some court
decisions have suggested that the views of the chief counsel do
not need to be treated with deference by the agencies or the
courts. This completely misreads congressional intent, in my
opinion, and fundamentally endangers the RFA. The statute
depends upon the chief counsel being able to stand up for small
entities that are unaware of agency actions and unable to
defend themselves from needless harm by the agencies.
Congress needs to reassert the importance of the chief
counsel to the RFA. Your bill could simply state that the
agencies and the courts should give deference to Advocacy's
views, or it could have the Office of Advocacy write some basic
rules for agency compliance with the RFA.
Another good element of H.R. 2345 is its treatment of
indirect economic impacts of the rules. We tried to solve the
indirect-effects problem in both the RFA and SBREFA, but we
could not find the right statutory wording. I wish we had
thought of the approach that H.R. 2345 uses, paralleling the
way the Council on Environmental Quality [CEQ] writes rules for
agencies--a brilliant stroke.
I also like the bill's approach of defining indirect
effects as ``indirect economic effects of a rule that an agency
reasonably could have foreseen.'' Since both of these proposed
language changes for RFA are based on settled principles of
environmental law, expanding them into small-entity law should
not create undue difficulties for the agencies or the
administrative law bar. I urge the Committee to report the bill
with both provisions.
H.R. 2345 also works to bring Treasury IRS rules fully
within the ambit of RFA, a very worthy cause which I hope will
come to fruition.
In my written testimony, I cite several other features of
the bill which I think are good improvements to the RFA. While
I would be careful about assigning more responsibilities to
Advocacy than the office has the staff or budget to handle,
overall, I think H.R. 2345 is an excellent bill. That completes
my prepared remarks. Thank you.
[Mr. Morrison's statement may be found in the appendix.]
Chairman Manzullo. Thank you very much.
I want to go back to a statement that Tom Sullivan made
with regard to, I believe, the size standards. Tom, do you want
to repeat that statement? I think you were analyzing 2345 and
made a comment on that.
Mr. Sullivan. The comment that I had made in my oral
statement was that Section 9 of 2345 amends the Small Business
Act to allow the Chief Counsel for Advocacy to specify small
business size definitions or standards for purposes of any act
other than the Small Business Act or the Small Business
Investment Act of 1958. I had voiced my concern that vesting
the authority to determine size standards to the Chief Counsel
for Advocacy may cause confusion over which SBA office
determines those size standards. The current SBA Office of Size
Standards has the necessary expertise and resources to make
appropriate decisions regarding industry size determinations.
Chairman Manzullo. One of the reasons it is in there is the
hope that the Office of Advocacy could redo a size standard a
lot faster than SBA. We had a terrible situation with several
of Ms. Velazquez--the travel industry--remember that hearing,
Ms. Velazquez?----
Ms. Velazquez. Uh-huh.
Chairman Manzullo [continuing] And we had to have both Mr.
Barreto here and Dr. Graham, and that was the afternoon that I
said I was going to lock the door here until you guys come up
with a solution. Mr. Pineles, our Regulatory Counsel whispered,
I guess that might be a regulation by coercion. The courts
might be prone to knock it down. It just reached the point
after months and months and months and months. Nothing was
happening. Now the SBA is in the process of getting all kinds
of information. They put up a kite for the purpose of drawing
information, and obviously that is the appropriate way to deal
with the different groups that are interested in seeing it
going. That is one of the reasons it was put in there. Did that
have any impact on------.
Mr. Sullivan. Yes, Mr. Chairman. It has a tremendously
impact on my comment. First of all, you made the comment that
the committee hearing that you had might have produced a
beneficial regulation by coercion. Even though I recognize the
sense of why you characterize it that way, my thoughts are a
little bit different, and they are extremely complimentary of
the oversight role of this body. My office would not be able to
claim the successes of $31 billion cost savings without the
aggressive oversight of this Committee. It works very well. It
does not always work perfectly, but it works very well.
Chairman Manzullo. We make a lot of noise. That is for
sure.
Mr. Sullivan. And sometimes we get results. I think there
are very recent activities that demonstrate those results, one
being the travel industry and the CRS rules that the Department
of Transportation was promulgating. I know that their
representatives are here listening to this testimony today.
The reason I have concerns with shifting some of the
responsibilities and authorities from SBA's Size Standards
Office to my office is consistent with the approach government-
wide. SBA really is no different than any of the other agencies
that we seek to sensitize to small business with the RFA. In
order for the Reg Flex Act to work, the agencies must do their
homework themselves, knowing full well that the Office of
Advocacy is looking over their shoulder, knowing full well that
this Committee is looking over their shoulder.
Chairman Manzullo. With that new memorandum of agreement
with OIRA, you now have additional powers.
Mr. Sullivan. We do, and when we are looking over an
agency's shoulders and seeing things going the wrong direction,
that MOU does allow for us to get those issues directly before
John Graham, and he directs his attention immediately to them.
The reason that I have concerns with that provision in 2345 is
it almost gives the program office, whether it is at SBA,
Department of Transportation, or anywhere else, the excuse not
to do their homework and to simply pawn it off on the Office of
Advocacy to do their homework for them. I think that that is a
dangerous movement towards the way that the Reg Flex can
actually work.
Chairman Manzullo. We can take a look at that. We had a
series of hearings, two hearings, when HUD was in the process
of trying to change that. But the RESPA, finally somebody woke
up over there and withdrew it because of the angst that was
caused. That was an $8 billion impact on small business, and
the scholarship was just horrible. Why is it? Do we have a
bunch of lazy bureaucrats in the agencies? Doesn't anybody take
us seriously? Do we have to haul these agencies here one by one
and say, follow the Regulatory Flexibility Act, threaten
lawsuits? What is it?
To the four of you, if you could make any change in the RFA
to wake these agencies up to the fact that small businesses are
extremely important, what would you change in it? Jim, let us
start with you.
Mr. Glover. I think that some agencies need to lose some
very important and high-profile lawsuits, and I think that
would be the most important thing. It is not so much a change
in the RFA, although strengthening judicial review provisions
would facilitate that, but it is a change in the environment in
which people regulate.
Chairman Manzullo. That is, some good defeats.
Mr. Glover. Correct.
Chairman Manzullo. Judicially, we need some good
impeachments to get these judges to follow the law as opposed
to being creative. You do not have to comment on that.
Frank?
Mr. Swain. Well, Mr. Chairman, I agree with Tom that the
biggest weapon on Reg Flex is to try the public embarrassment
of the agency and the agency director, you and the other
members of this Committee.
Chairman Manzullo. I can do that.
Mr. Swain. That really works. It cannot be done on every
regulation. Ultimately, to use the 50 cent word, the Advocacy
Office's powers are hortatory. They can stand up and exhort
people to do different things or do them better, but ultimately
the decision still has to be made by the agency, and that is a
tension that there will always be any time you set up a
regulatory agency to regulate, and somebody else, whether it is
OMB or Advocacy, to review.
I agree with Jim that the most significant changes could be
made if we had some better court decisions that would bring us
more into the mainstream of giving deference to SBA's
positions, and that part of the law, I think, is useful, that
gives Tom some--I am not a smart enough administrative lawyer
to articulate it, but gives Tom's or the chief counsel's
opinions a greater level of deference in front of the courts
such as similar to that that they are supposed to pay to the
regulating agency. Now, how that would work out, I would be
happy to talk informally about, but I think that would be very
important.
Chairman Manzullo. He does not want to feel like Rodney
Dangerfield, you know.
Mr. Swain. That is the dilemma that I think every chief
counsel for 25 years has tried to deal with.
Chairman Manzullo. Tom?
Mr. Sullivan. Mr. Chairman, I think that we do get respect,
and so in that way we certainly are distinct from Mr.
Dangerfield.
The one change, I think, that small businesses consistently
come to my office and say has to be done with the Reg Flex Act
and a loophole that needs to be closed is the indirect impacts.
Small businesses repeatedly come in and say, look, I know that
I am not being directly regulated, but it is so obvious that my
business will be devastated if this rule is allowed to go
forward, and at that point, our office is largely helpless.
All of these other activities that we talk about; our
office can raise significant issues on the RFA. Now, we may
lose those issues, but it will not be for want of trying. When
it comes to indirect impacts, we cannot even raise those issues
because the courts say the agencies do not have to do the
analysis. So for that reason, I believe closing the indirect-
impact loophole is the most important change for H.R. 2345.
Chairman Manzullo. That is similar to the IRS with its
interpretive. In fact, several years ago, the IRS decided to
take a dentist in rural Illinois and put him on the accrual
system as a pilot program, and once the commissioner found out
about that, he took care of that.
Mr. Sullivan. Well, Mr. Chairman, you gave me only one
choice for a change. If you had given me two, that would have
been the second.
Chairman Manzullo. That would be the second one there. But
the IRS goes, just say it is interpretive, and, therefore, we
do not have to do any obeisance to the statute. It does not
make sense.
Jere, you looked at this for a long time.
Mr. Glover. I have, and, unfortunately, the cases that have
been coming down in the last few years have weakened the law,
and I think unless you get some clear reversals and some agency
regs thrown out, the agencies, no matter what other change you
make, will not take the law seriously. And I think that the
judicial review provisions are critical, and I think deference
to the chief counsel's opinion is secondary to that but is very
high ranked because I think that the courts should have
considered this to be just like NEPA and have not.
I think all of us involved in passing the law in 1980 and
in SBREFA when judicial review was provided felt that we really
put serious teeth into it, and a fair review of the court
decisions that are coming down indicates the courts will go to
great lengths to find reasons not to find a violation of the
Reg Flex Act. In many cases, they simply ignore the law and do
not discuss it at all while it is briefed. In other cases, they
find some other excuse not to do it.
We have had very few clean successes in the courts, and
unless you change that, the agencies will always do something
for Reg Flex, but when it comes to something they really want
to do for some other reason, they are going to ignore it, or
they are going to give it lip service and move on. Only the
fear of having all of their work thrown out and having to start
all over will make them respect the Reg Flex Act.
Chairman Manzullo. Thank you.
Ms. Velazquez?
Ms. Velazquez. Thank you, Mr. Chairman.
Mr. Sullivan, the remarkable savings that your office has
achieved is something of a double-edged sword. On the one hand,
you testified that you have achieved a regulatory cost savings
of $47 billion over the last three years. Those savings do not
even include scores of items where savings are impossible to
estimate.
I know you are proud of this record, but doesn't this level
of proposed burden indicate that the agencies still have not
gotten the message? I mean, part of the president's small
business plan was to order agencies to reduce the burden on
small businesses, yet the agencies continue to propose more and
more burdens unless you intervene to stop them. So is the
president's plan failing?
Mr. Sullivan. Ms. Velazquez, I do not believe that the
president's plan is failing. You actually point out a very
interesting dynamic related to the cost savings. We do
articulate $31 billion of cost savings over the last three
years. The irony in that statement, Congresswoman, is that the
better job we do, the less cost savings will occur. The reason
that that statement is true is because the whole sense of the
Reg Flex Act is for agencies to consider small business impact
before they propose rules, very early on in the process.
So this may not slow down the level or number of rules that
appear in the Federal Register, but what it should do is make
sure that if an agency is adequately considering small business
impact, preproposal, then what you read in the Federal Register
would be the least-burdensome set of alternatives left to
articulating the regulatory direction of laws that are passed
by Congress. So in that scenario, Congresswoman, we would end
up documenting less cost savings. We would also end up not
necessarily articulating fewer rules, but we would have some
indication that those rules are better sensitized to small
business impact, better analytically and publicly fleshing out
the analysis of how they will affect small business than they
are currently.
You also stated, isn't there still a tremendous problem?
And the answer to that is yes, and that is why it is so
important that legislation like this to amend the RFA gets
serious consideration. We have a lot of work to do.
Ms. Velazquez. Sure. It is being shown by the amount of
cost saving in terms of regulation and the fact that you
mentioned the $31 billion. When we added the other numbers that
you included, it totals $37 billion over the last three years.
So, on the one hand, you have orders coming from the warehouse
saying to the federal agencies that they have to do cost
analyses in terms of the impact of those regulations on small
businesses, but the fact that you have been able to stop them
from doing so shows that they are not getting the message and
complying with the president's orders.
Mr. Sullivan. The Congresswoman points out exactly why the
RFA needs to be improved or strengthened, because even though
we do document more and more savings, we are still not there
yet.
Ms. Velazquez. I have five minutes. Let me make the other
question.
Mr. Sullivan, I was surprised that the new Section 613,
which directs Advocacy to write government-wide regulations to
support implementation of the RFA, was not listed among your
top priorities. In fact, I was more surprised that you do not
mention it at all in your testimony. Do you support this
proposed new section, and why didn't you mention it?
Mr. Sullivan. Congresswoman, there are a number of
priorities that the small business groups have come in to tell
us were important in improving the Reg Flex Act, and the
ability to write rules was not in that laundry list of
improvements. For the record, and you do, just by asking the
question, give me the opportunity to bolster the record, my
office is fully supportive of that provision to give our office
the authority.
Ms. Velazquez. Thank you. Do you think it would be
difficult to write these regulations?
Mr. Sullivan. Yes. It will be difficult, but certainly we
will improve the overall framework of regulatory development
for small business.
Ms. Velazquez. Do you think it is possible to receive
deference from the courts for your opinion on compliance with
the RFA without regulations, as Mr. Glover and Mr. Morrison
suggest?
Mr. Sullivan. I believe that the legislative fix to give
our office deference will likely make the difference. The
specific legislative authority for our office to write the
rules will obviously bolster our chances, but I do not know,
with absolute certainty, how the courts will view that.
Ms. Velazquez. Thank you.
Mr. Glover, your testimony includes a cost analysis of the
panel process using the RFA. The bill we are considering will
add the IRS, CMS, and the FCC to this costly process. Assuming
that these will add at least 20 panels per year to Advocacy's
workload,--IRS, for example, assumes that they will have to do
10 panels per year--can you walk us through the costs
associated with that level of effort? How many lawyers, support
staff, supervisors? Would they need a support contract? Can you
give us a ball park figure?
Mr. Glover. I viewed the panel process as one of my most
important roles once the briefs have passed, and I try to
attend every panel meeting. We had, generally speaking, two
staff work on the panel process, one of the professional staff
and one of the economists. We averaged five to 600 hours per
panel in terms of workload. The most successful panel that we
were involved with, we had outside economists, consultants, do
the analysis. Probably the best money I ever spent in my life
was the one for the ergonomics rule where we had an outside
consultant go over OSHA's economics panel.
You figure about every three panels equals one more person,
seven people, minimum, to get 20 panels. You are talking about
two and a half to $3 million.
Ms. Velazquez. Two and a half to $3 million.
Mr. Glover. You need the economic background and support
certainly at the beginning of the process. Once you get down,
you may not need as much economist time as you do when you
start, but those first few times, and you are learning a lot
more about the agencies. I always felt the panel process was
the highest return on investment that we made in terms of
resources because we were getting there before the agency had
publicly locked into a position.
Ms. Velazquez. Mr. Swain, I know that you have been through
this process before. Do you agree with those estimates?
Mr. Swain. Ms. Velazquez, we had something similar to
panels, but that provision was not available to me when I
served. I do not have a view as to the numbers, although the
number of people that Jere suggested strikes me as about right.
If you have a panel, you cannot do it halfway; you really have
to have somebody pretty much dedicated to it. So I would not be
surprised if it were well north of a million and maybe,
depending on how many times they did it, two or three.
And the problem that every chief counsel has is that you
have to make choices as to which rules you get engaged with
because there are many more rules that arguably impact small
business than you could possibly deal with, so every time you
choose to look at an FCC rule, there is somebody over at the
EPA that you probably should be looking at that you just do not
have the human power to do it.
So if this provision of the bill is passed, I think it
would be necessary to significantly increase the budget of the
office because I do not think anybody can borrow enough people
to do the panels and continue to do the regular job.
Ms. Velazquez. Thank you.
That brings me to you, Mr. Sullivan. You strongly support
the expansion of the panel process, and I am sure that you have
thought long and hard about how much the panel process will
cost. If we pass this legislation, do you have the resources to
implement it?
Mr. Sullivan. I believe that our office does have the
resources at full staff to abide by the legislation if it is
signed into law.
Ms. Velazquez. I am stunned to hear that, sir. Mr. Glover
and Mr. Swain here; they sat on that chair that you are sitting
today, and they are saying two and a half million dollars. We
are bringing them as witnesses here because of their expertise
and their experience.
I just cannot accept you sitting there with a straight face
and telling me that you have the resources. You know you do
not, the same way the administrator does not have the
resources, and knowing that the budget that was submitted to us
was not adequate, and you saw what happened back in January
when we had to shut down, or they shut down, the 7[a] loan
program because the administration did not submit an adequate
budget.
You know you do not have the resources, and I would ask for
you to submit to this Committee in writing your informed
estimate of how much and how many panels per year you have, how
much was spent on those panels in terms of resources, how many
panels you will expect if H.R. 2345 is adopted, and your
analysis of the cost to Advocacy in terms of resources.
Mr. Sullivan. You certainly will have that analysis,
Congresswoman. Thank you.
Ms. Velazquez. Thank you. Thank you, Mr. Chairman.
Chairman Manzullo. Thank you.
Congresswoman Bordello?
Ms. Bordallo. Thank you, Mr. Chairman.
Good afternoon, gentlemen. I think my question would be
directed to Mr. Sullivan. I see that Section 3 of H.R. 2345
would require land management plans issued by the United States
Forest Service and the Bureau of Land Management, that they be
subject now--this is something new--to the requirements of the
RFA. What are the implications of this change for all parties
involved, including private landowners, private small
businesses, and the respective agencies, as they attempt to
comply with their new statutory mandates?
Mr. Sullivan. Congresswoman, the practical effect of the
language would be to close a loophole from a Supreme Court case
that dealt the RFA a little bit of a blow, and that was to not
recognize the land management regulatory system as final
actions for purposes of the Reg Flex Act, and the listing of
the Land Management Act provisions just simply closes that
loophole.
Ms. Bordallo. I see.
Mr. Sullivan. The chairman's counsel actually is someone
that my office relies on when we are stretched for staff
because we do have very few staff, and we have to rely on
outside folks, including congressional staff and stakeholders
and small business groups. Barry Pineles was very astute in
identifying that the Supreme Court case that dealt with land
management plans had shut small business out of the process
from commenting substantively on them, and this provision in
2345 fixes that problem.
Ms. Bordallo. Fixes that up. So it was an oversight and
something we had to correct. Is that correct?
Mr. Sullivan. That is correct, Congresswoman.
Ms. Bordallo. Does the RFA currently apply to the Fish and
Wildlife Service and National Park Service, and if so, what
sort of impact has it had on small businesses, the agencies
themselves, or any other interested parties, in your
experience?
Mr. Sullivan. In my experience, with regard to the Fish and
Wildlife Service in the Department of Interior, we have
definitely gotten their attention. The fisheries management
plans that are going on, most intensely in my home town of
Boston, will severely impact small fishermen or small
businesses that have devoted their lifetime to fishing, and for
some time the policies in those plans really kind of shut small
business out of the process. And with the work of my office in
every part of that system, from the regional management systems
all the way here to Washington out of the Department of
Commerce, we have inserted ourselves into that process to the
point that now they are coming to us for advice on the economic
impact analysis prior to writing management plans rather than
afterwards.
We have got a long way to go with the Fish and Wildlife
Service, but we are better off now than we were about five
years ago.
Ms. Bordallo. Naturally, I am interested in this because I
represent a territory in the Pacific. Thank you. Thank you, Mr.
Chairman.
Chairman Manzullo. Well, thank you very much.
Something has to be done. There is a law on the books that
people just do not seem to take seriously, and a major agency
has put out a proposed regulation, taking just a very shallow
view of the RFA, should know better, but I think it is just a
pattern that is out there.
As I recall, Tom, when the president put out the executive
order, wasn't there something in there that instructed your
office to teach these agencies how to comply with the RFA?
Mr. Sullivan. Yes, Mr. Chairman. Getting the respect of
agencies is more than simply writing the letters criticizing
their approach or criticizing their lack of compliance with the
RFA. That goes to some distance but really not enough. So in
the president's executive order, he required not only for us to
remain vigilant in publicly criticizing the agencies' approach
or lack of compliance with the RFA but also to train the
agencies with how they are supposed to take into account their
impact on small business.
Chairman Manzullo. Tell us your experience there because I
know you had quite a program. You invested a lot of time and
energy on that.
Mr. Sullivan. We actually have a senior counsel, Claudia
Rayford, who has run that program with tremendous success. I
will get the specific numbers to the Committee after the
hearing. We have trained over a dozen agencies where we go in
for close to a full day with the rule writers and walk them
through, step by step, this is what it takes to do the
legitimate outreach, the legitimate economic analysis, the
legitimate consideration of less-burdensome alternatives in
order to comply with the Reg Flex Act. Every one of these
trainings has received compliments from the folks that we are
ordinarily critical of. It has been a sea change of attitude
from an adversarial attitude towards a partnership attitude,
and we have actually taken it a little bit further.
Knowing that we are not going to be able to shoulder this
entire burden ourselves, we have opened up this training to all
stakeholder groups like NFIB, Chambers of Commerce, builders
and contractors, home builders, and also congressional staff.
They came in for a training as though they were regulators to
simply be informed how we are training agencies. We believe
that that better arms the small business community with the
knowledge to know what are agencies supposed to be doing.
And Congresswoman Velazquez points out a significant issue
of resources. If more agencies have to do the analysis, and,
hopefully, more agencies do the analysis and come to my office
first, that means more work, and one of the ways that we are
hopeful to spread out that work is to better inform and arm all
of the stakeholder community with what to expect from the
agencies so that not only is the Office of Advocacy acting as
an oversight mechanism as the enforcer of the RFA, but the
Associated Builders and Contractors are, the Chamber of
Commerce is, NFIB is, the National Small Business Association
is, similarly to the way Congress and this Committee, in
particular, also was looking over the shoulders of agencies to
make sure that they were doing the Reg Flex Act.
Chairman Manzullo. Have you noticed any positive results?
Are they listening to you? is my question.
Mr. Sullivan. Some are, and some are not, and if they all
were listening and acting, then I would have different
testimony submitted to this Committee saying, you know, the
system is not broken; let us not fix it. Some are listening.
The ones that we get in and train are giving positive response
and then actually following up with our office to say, look, we
are working on a few regulatory proposals. Can we work with you
to make sure that our impact analysis meets the straight-face
test?
The classic example is after September 11th when FDA was
trying to look at rules to protect the nation's food supply.
When the President signed the executive order, and folks at FDA
learned about this, they came to our office and said, oh, we
should probably check with you before we start writing rules
that are going to affect mom and pop supermarkets and local
farm stands, and they did, and it is that type of early
interaction------.
Chairman Manzullo. Did you notice that the RFA report was
of quality as a result of the meeting with you? Maybe that is
not a fair question. Let me ask the question again. Do you feel
that the fact that they came to you ended up in a report that
was more responsive than if they had not come to you?
Mr. Sullivan. It is a better starting point than we have
had in the past, but we are still not at the point where we can
simply step back and say, you know, this agency really gets it,
and we look forward to their final reports and rules because we
are confident that that is going to reflect an adequate
analysis of small business impact and alternatives. We are not
at that point yet; otherwise, we would not need a strengthening
of the RFA.
Chairman Manzullo. Well, again, I want to thank you all for
coming this afternoon. We continue to work on it. We continue
to work on the bill. I always appreciate your input.
Ms. Bordallo. Mr. Chairman, can I put in a point?
Chairman Manzullo. Sure. Absolutely. Go ahead.
Ms. Bordallo. Mr. Chairman, I am, you know, rather new
here, a freshman member of Congress, but you mentioned
something that kind of caught my attention, and that was, is
there any mechanism in place for agencies that do not pay any
attention?
Mr. Sullivan. Congresswoman, right now, the mechanism is
for my office to file an Amicus action in support of a
challenge to an agency, so that is a litigation alternative
that exists. It is the hammer.
Ms. Bordallo. Is it effective?
Mr. Sullivan. It is not as effective as it could be, and
that is one of the things that H.R. 2345 seeks to close as a
loophole. If the Congresswoman would allow for me to amend a
response to the Ranking Member as well, I think that,
Congresswoman, I answered you, I think, a little bit too
shortly when I said we can handle the resources of the panels.
I think that in fairness to the Committee and the attention
that you bring to the Reg Flex Act, yes, I think that we can
handle it with our resources, but that is not fair to you to
say that if we cannot, then it is incumbent on me to come to
this Committee and say, these are the additional resources that
we need.
So not only will I get the chairwoman the breakdown of the
panels, but I also will give this Committee my commitment that
when we are past the breaking point or close to it, we will
absolutely come to this Committee first and ask for the
additional resources we need to make this amendment, this law,
work. Thank you, Congresswoman Bordallo.
Chairman Manzullo. Thank you very much. The Committee is
adjourned.
[Whereupon, at 3:57 p.m., the Committee was adjourned.]
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