[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]




   THE RFA AT 25: NEEDED IMPROVEMENTS FOR SMALL BUSINESS REGULATORY 
                                RELIEF

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON SMALL BUSINESS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                     WASHINGTON, DC, MARCH 16, 2005

                               __________

                            Serial No. 109-5

                               __________

         Printed for the use of the Committee on Small Business


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                                 house


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                      COMMITTEE ON SMALL BUSINESS

                 DONALD A. MANZULLO, Illinois, Chairman

ROSCOE BARTLETT, Maryland, Vice      NYDIA VELAZQUEZ, New York
Chairman                             JUANITA MILLENDER-McDONALD,
SUE KELLY, New York                    California
STEVE CHABOT, Ohio                   TOM UDALL, New Mexico
SAM GRAVES, Missouri                 DANIEL LIPINSKI, Illinois
TODD AKIN, Missouri                  ENI FALEOMAVAEGA, American Samoa
BILL SHUSTER, Pennsylvania           DONNA CHRISTENSEN, Virgin Islands
MARILYN MUSGRAVE, Colorado           DANNY DAVIS, Illinois
JEB BRADLEY, New Hampshire           ED CASE, Hawaii
STEVE KING, Iowa                     MADELEINE BORDALLO, Guam
THADDEUS McCOTTER, Michigan          RAUL GRIJALVA, Arizona
RIC KELLER, Florida                  MICHAEL MICHAUD, Maine
TED POE, Texas                       LINDA SANCHEZ, California
MICHAEL SODREL, Indiana              JOHN BARROW, Georgia
JEFF FORTENBERRY, Nebraska           MELISSA BEAN, Illinois
MICHAEL FITZPATRICK, Pennsylvania    GWEN MOORE, Wisconsin
LYNN WESTMORELAND, Georgia
LOUIE GOHMERT, Texas

                  J. Matthew Szymanski, Chief of Staff

          Phil Eskeland, Deputy Chief of Staff/Policy Director

                  Michael Day, Minority Staff Director

                                  (ii)


                            C O N T E N T S

                              ----------                              

                               Witnesses

                                                                   Page
Sullivan, Hon. Thomas, Chief Counsel for Advocacy, U.S. Small 
  Business Administration........................................     2
McCloy, Ms. Cecelia, President, Integrated Science Solutions, 
  Inc............................................................     4
Haas, Mr. Blair, President, Bud Industries.......................     6
Lancaster, Mr. Jay, President, B.E.S.T. Inc......................     8
Freedman, Mr. Mark, Esq., Director, Labor Law Policy, U.S. 
  Chamber of Commerce............................................    10
Glover, Mr. Jere, Esq., Of Counsel, Brand Law Group..............    13

                                Appendix

Opening statements:
    Manzullo, Hon. Donald A......................................    27
    Kelly, Hon. Sue..............................................    31
Prepared statements:
    Sullivan, Hon. Thomas, Chief Counsel for Advocacy, U.S. Small 
      Business Administration....................................    32
    McCloy, Ms. Cecelia, President, Integrated Science Solutions, 
      Inc........................................................    40
    Haas, Mr. Blair, President, Bud Industries...................    48
    Lancaster, Mr. Jay, President, B.E.S.T. Inc..................    52
    Freedman, Mr. Mark, Esq., Director, Labor Law Policy, U.S. 
      Chamber of Commerce........................................    58
    Glover, Mr. Jere, Esq., Of Counsel, Brand Law Group..........    66

                                 (iii)

 
THE RFA AT 25: NEEDED IMPROVEMENTS FOR SMALL BUSINESS REGULATORY RELIEF

                              ----------                              


                       WEDNESDAY, MARCH 16, 2005

                   House of Representatives
                                Committee on Small Business
                                                   Washington, D.C.
    The Committee met, pursuant to call, at 2:07 p.m. in Room 
311, Cannon House Office Building, Hon. Donald A. Manzullo 
[Chairman of the Committee] presiding.
    Present: Manzullo, Velazquez, Bartlett, Lipinski, Akin, and 
Moore. 

    Chairman Manzullo. The Committee will come to order.
    During the explosive growth of the 1970s, word grew among 
the business community that the rational decisions made by 
federal agencies under the Administrative Procedure Act were 
actually irrational because they could not afford to comply.
    Congress reacted by enacting legislation designed to change 
the way federal agencies made decisions. Two laws were passed 
in 1980, The Paperwork Reduction Act, and the focus of this 
hearing, The Regulatory Flexibility Act, or the RFA.
    The RFA was enacted to assist agencies in making rational 
decisions through the application of a standard set of analyses 
focused on small entities, particularly small businesses. The 
act requires federal agencies to examine the impact of their 
proposed and final rules on small entities, and if they are 
significant on a substantial number of such entities, examine 
less burdensome alternatives.
    Federal agencies continued to ignore the law despite the 
best efforts of the President, Dr. John Graham of the Office of 
Information and Regulation Affairs at OMB, and Chief Counsel 
for Advocacy, Tom Sullivan.
    In part, loopholes existed in the RFA that allow them to 
avoid compliance. In other circumstances, agencies simply 
cannot be bothered and need not worry because most small 
businesses do not have the resources to fight the federal 
government.
    Noncompliance with a statute that has been in existence for 
a quarter of a century is not acceptable. Time has come to say 
enough is enough, and that is why we decided to introduce H.R. 
682, along with co-sponsors Messrs. Chabot, King, Westmoreland, 
Pence, Akin and Keller.
    Since then, we have acquired additional co-sponsors, 
including the Chairman of the Subcommittee on Judiciary that 
has jurisdiction over the bill, Chris Cannon from Utah.
    I would also like to thank Mr. Case of Hawaii for 
recognizing the importance of the legislation and becoming a 
co-sponsor.
    The bill significantly strengthens the RFA by making many 
technical improvements that close existing loopholes so that 
agencies, as President Bush stated, ``will care that the law is 
on the book.''
    These changes include more detailed analyses, assessment of 
indirect effects, other regulations, and mandatory government-
wide regulations drafted by the Office of Advocacy.
    [Chairman Manzullo's statement may be found in the 
appendix.]
    Ms. Velazquez is not here for her opening remarks. We are 
supposed to have a series of four votes, it always happens, 
starting at 2:15. Is that not fun? So we are going to start the 
testimony, see how far we get before we have to go and vote.
    Our first witness is the Honorable Tom Sullivan, Chief 
Counsel for Advocacy of the U.S. Small Business Administration, 
and we have got the five-minute clock going. The written 
testimonies of all the witnesses will be made part of the 
record without objection, and we look forward to your 
testimony. Mr. Sullivan.

 STATEMENT OF THOMAS SULLIVAN, OFFICE OF ADVOCACY, U.S. SMALL 
                    BUSINESS ADMINISTRATION


    Mr. Sullivan. Thank you, Mr. Chairman, Mr. Lipinski. It is 
a pleasure to come before the Committee. I am going to not read 
my written statement, but rather summarize just from some notes 
that are before me.
    The Regulatory Flexibility Act is actually working. It is 
working pretty well. In fact, in my written statement you will 
see that under President Bush's administration we estimate cost 
savings achieved through enforcement of the RegFlex Act 
totaling over $64 billion, and I will say that again. Savings 
for small business totaling over $64 billion.
    So there is a question of why is it working. One of the 
reasons is because of the activism of small business, and 
actually that is why it is a pleasure for me to be on a panel 
with not only small business owners, but organizations who 
represent large amounts of small business owners. And those 
organizations and the small business owners themselves, in 
their vigilance over the Regulatory Flexibility Act and making 
sure that agencies consider their impact on small business, 
allows for the RegFlex Act to work.
    Another reason why we have achieved such great cost savings 
over the past four and a half years is because of this 
Committee. Without the type of vigilant oversight that this 
Committee exercises, we would not have achieved the $64 billion 
cost savings for small business, and I think it bears notice 
that while so many Committees and members of Congress gauge 
their success over the amount of legislation that comes out of 
Committee and individuals, there is more to it than that, and 
the oversight part of it deserves recognition, and this 
Committee in particular, with regards to the RegFlex Act and 
its ability to save small business deserves compliments.
    And last but certainly not least, one of the reasons the 
RegFlex Act is working is because of the courts. Last Friday 
the Court of Appeals in the District of Columbia issued an 
incredible victory for small business, and in particular, the 
Regulatory Flexibility Act.
    When the court struck down an FCC rule because they did not 
follow the RegFlex Act, it should serve as a wake-up call for 
all regulators that they cannot ignore the Regulatory 
Flexibility Act.
    When a court makes a decision like this, the question is, 
is the law working perfectly, and the answer is no. Small 
businesses do not have a quarter to a half million dollars 
sitting around that will allow for them to pursue regulatory 
actions all the way through the courts, and ultimately to the 
Supreme Court, we are talking about millions of dollars.
    So how can we improve the act? Obviously, H.R. 682 fills in 
every loophole of the act. But what is the intention of it? How 
do we get this victory, the cost savings for small business, 
before a court has to make a decision?
    And the answer is early involvement by small business in 
agency decision making. My office has example after example 
after example where if an agency listens, which is very 
important, to small business, and acts on their advice before 
the ink is dry on draft regulations, then they can save small 
business money without compromising the underlying purpose of 
rules: protection of the environment, workplace safety and the 
safety of roads and airways, and the protection of our borders.
    So the Office of Advocacy is supportive of the goals of 
H.R. 682. I believe there are suggestions in my written 
statement, and the questions that I will respond to on how a 
narrow approach, a targeted approach to improving the act can 
meet that goal, which is to involve small businesses as early 
on in the process, and to absolutely make sure that agencies 
act on that advice on small business, and reduce the regulatory 
burden on small business.
    So with that I will close. I want to thank again the Chair, 
and now the Ranking Member, for having this hearing. We have 
achieved remarkable success, and we can achieve more by 
improving the RegFlex Act through legislation. Thanks.
    [Mr. Sullivan's statement may be found in the appendix.]

    Chairman Manzullo. The Chair will recognize the Ranking 
Member.

    Ms. Velazquez. Mr. Chairman, in light of time I will ask 
that my opening remarks, we will insert that into the record.

    Chairman Manzullo. Without objection.

    Ms. Velazquez. Thank you.

    Chairman Manzullo. Thank you.

    Chairman Manzullo. Our next witness is Cecelia McCloy, 
President and CEO of Integrated Science Solutions. I look 
forward to your testimony. You may be the first geologist and 
zoologist who has ever appeared before our Committee. My wife 
is a biologist. I wish she were here, and we look forward to 
your testimony. Thank you.

    Ms. McCloy. Hopefully, I will not be the last.

    Chairman Manzullo. That is correct. Thank you.

STATEMENT OF CECELIA MCCLOY, INTEGRATED SCIENCE SOLUTIONS, INC.


    Ms. McCloy. Mr. Chairman and Ranking Member Velazquez, I am 
Cecelia McCloy, President of Integrated Science Solutions, a 
woman-owned science and engineering company. We specialize in 
engineering studies, geotechnical evaluations, health and 
safety services, environmental studies, and training, and 
provide solutions for our customers' complex problems. The ISSI 
has offices in California, Nevada, Colorado, Washington, D.C., 
and the State of Washington.
    I am testifying today on behalf of Women Impacting Public 
Policy, WIPP, of which I am a national founding partner, And 
the Women's President Organization, WPO.
    Women Impacting Public Policy is a bipartisan organization 
representing 505,000 women in business nationwide. Thank you 
for inviting me to testify, to share WIPP's and WPO's views on 
H.R. 682, improvements to the Regulatory Flexibility Act.
    As a business owner, I see firsthand the effect regulations 
promulgated by federal agencies have on small business. We help 
our clients understand and comply with federal regulations, 
especially in the environmental area. While we support efforts 
to provide a safe and clean environment, the cost of compliance 
for small businesses often outweighs the benefit to the 
environment.
    Just last week this Committee held a hearing on House 
Resolution 22, which identified reducing paperwork burdens on 
small business as a congressional priority for the 109th 
Congress. WIPP wholeheartedly agrees that reduction of 
paperwork is an important goal. A U.S. Chamber of Commerce 
paperwork survey estimated that small business owners spend 3.5 
hours on non-IRS-related paperwork per week, which translates 
into 4.2 billion hours of time small business could be using to 
generate income.
    Although the stated goal of H.R. 682 is not paperwork 
reduction, the practical implications of this legislation is a 
reduction in paperwork, which is good news for small 
businesses.
    The WIPP believes requirements such as making sure 
compliance guides published by agencies are written in plain 
English are important to small businesses. After all, we are 
not trying to invent creative ways to skirt the law. We just 
need to know how to comply.
    A key provision of H.R. 682 is the requirement that 
agencies complete a more detailed economic impact analysis of 
the impact on small business when formulating and finalizing 
their regulations. Indirect costs should be taken into account 
as well as direct costs.
    A recent interim proposed rule by GSA on access to the 
Federal Procurement Data System, FPDS, is just one example of 
the requirements of H.R. 682 which would have been helpful. We 
have attached WIPP's comments to the GSA at the end of our 
testimony, but let me just summarize the issue.
    The GSA has proposed a $2,500 charge for a direct hook-up 
for direct web service access to FPDS. The FPDS site has a non-
fee-based data site which the GSA says is open to all 
businesses.
    Companies participating in federal contracting use this 
data on a continual basis for market research. We asked our 
members to test the non-fee site. Not one of our member 
companies was successful in retrieving the data they needed. In 
fact, analysts in IT companies were unsuccessful in accessing 
the data requested.
    Our conclusion is that the non-fee site does not work for 
small business. If our companies want to access the federal 
procurement data, they will have to pay the $2,500 fee. Yet the 
GSA, in its interim rule, stated that this interim rule has no 
effect on small business.
    If the GSA was required to take into account the indirect 
cost to small businesses, the hours and manpower required to 
access the data on a non-fee-based site, they likely would have 
come to a different conclusion about the effect of this rule on 
small business.
    Equally important, H.R. 682 requires the federal agencies 
to contain a detailed description of alternatives which would 
either minimize adverse impact, economic impact, or maximize 
economic benefits to small businesses.
    The WIPP also supports the additional enforcement activity 
given to the Office of Advocacy at the U.S. Small Business 
Administration in this bill. Last year alone the efforts of the 
advocacy's chief counsel saved small businesses in America more 
than $17 billion in potential regulatory costs. One of the 
reasons for this success was the implementation of Executive 
Order 13272.
    H.R. 682 would place into law some of the critical 
authority contained in the executive order. The requirement 
that agencies must respond to concerns raised by the Office of 
Advocacy is critical to small businesses. The Office of 
Advocacy speaks for all of small business , so we must make 
sure its views are taken into account.
    Other powers, such as the advocacy's right to intervene in 
any adjudication before any federal agency if it believes small 
business concerns were not addressed, is a powerful tool. In 
addition, the provision that grants the chief counsel of 
advocacy the ability to issue rules for agency compliance with 
the Regulatory Flexibility Act means that small business 
concerns will be heard.
    In conclusion, Mr. Chairman, we thank you for your 
leadership in making sure that small businesses do not get lost 
in the throes of government regulations. It is almost 
impossible for a small business owner to follow every proposed 
regulation which may have an impact on her business. By giving 
the agencies a mandate to consider the total cost of 
regulations on small business ultimately means small business 
owners will be able to spend less on compliance with government 
regulations, and more on business growth.
    Thank you for giving me the opportunity to testify and I am 
happy to answer any questions.
    [Ms. McCloy's statement may be found in the appendix.]

    Chairman Manzullo. We are going to be taking a break here 
to go vote. Is anybody here in the audience from GSA?
    Okay, Ms. Velazquez and I are going to have the head of GSA 
come into our office, and explain why this $2,500 charge has 
been imposed. Thank you for bringing that to our attention.
    We are going to recess for probably about a half an hour or 
so until we finish with these votes, and then we will come 
back. Thank you.
    [Recess.]

    Mr. Akin. [Presiding] I believe we are picking the hearing 
up part of the way along, and our next witness I believe is 
Blair Haas, if I am not mistaken, and if you could try to keep 
thing within five minutes, we would appreciate it. Thank you 
very much. Proceed.

            STATEMENT OF BLAIR HAAS, BUD INDUSTRIES


    Mr. Haas. Thank you. I would like to thank the Chairman and 
Ms. Velazquez and the members of the Committee for the 
opportunity to appear before you today in support of H.R. 682, 
the Regulatory Flexibility Improvements Act.
    My name is Blair Haas, and I am the President of Bud 
Industries, the nation's best known provider of electronic 
enclosures for industry. I also serve on the board of governors 
of the Electronic Industries Alliance, a partnership of 
electronics and high-tech trade associations. In the interest 
of full disclosure, I would like to also let you know that my 
son is a member of the minority staff of this Committee. 
However, my invitation to testify today came through a 
completely unrelated channel, and does not represent a conflict 
of interest.
    [Laughter.]

    Mr. Haas. Founded in 1928 by my grandfather, Bud Industries 
has evolved to meet the high-tech industry's requirements for 
electronic enclosures which are these outsides or skins of 
industrial electronic equipment. Today with sales of about $15 
million, we have 165,000 square foot factory just outside 
Cleveland, and a sales office in Arizona. We employ about 100 
people with an average tenure of almost 20 years, and we have 
resisted the competitive pressure to outsource our metal 
products offshore, producing them completely in our Ohio 
factory.
    An internal survey by the Electronic Industries Alliance 
last year found that nearly 60 percent of executives describe 
the U.S. labor relations as costly, while only 20 percent 
consider them fair. Regulations such as those from OSHA, 
Sarbanes-Oxley Act and superfund clean-up spending all add to 
the cost of doing business in the U.S. and work to make our 
companies less competitive in their global markets.
    There are strong arguments in favor of many of the U.S. 
regulations. However, the volume of these regulations, their 
layers, and the compliance costs also have created a landscape 
that is increasingly expensive and burdensome for business, 
particularly for small business.
    The Regulatory Flexibility Act, which requires agencies to 
take the interests of small businesses into account before 
implementing new regulations, is an important safeguard. 
Therefore, I support H.R. 682, believing even more can be done 
to close the loopholes in this act and compel agencies to 
comply with the spirit of RFA and ensure that small businesses 
remain competitive.
    The RegFlex Improvement Act's requirements of more detailed 
economic impact analysis of proposed regulations on small 
business, including an examination of the indirect costs, with 
input from small business, is an important improvement. Hidden 
costs can prove even more burdensome in financial outlays and 
it is critical that the agencies complete a thorough assessment 
of their potential cost before imposing them on small business.
    I would like to just cite a few examples of regulatory 
burdens that Bud Industries faces as a small Business.
    The alternative minimum tax: As a small business, we find 
ourselves paying extra taxes under a program that was designed 
to prevent large businesses from avoiding tax payments. We, 
unfortunately, have significant net operating loss carry-
forwards, but still have to pay taxes under the AMT system, 
which is a burden at a time when our company is working to 
rebuild our net worth.
    Pension plans: Post-Enron we now have to create a company-
sponsored IRA for each employee who does not cash out of our 
plan when they leave our company. We have to be responsible for 
any investment losses, track the employees' whereabouts long 
after they leave us. We also have to pay legal counsel to 
create these accounts and keep us up to date with constantly 
changing regulations.
    O.S.H.A. determines a formula for inspection based on lost 
days as a percent of total employment. When you have a smaller 
workforce, such as that at Bud, the impact of one employee who 
develops a long-term injury can be significant. As our 
percentage is skewed, we have to go through the expense of 
preparing for, managing, and responding to OSHA inspections.
    The Fair Labor Standards Act: We have an employee who is 
categorized as exempt but can no longer be because she now 
supervises only one person instead of the two mandated by the 
act. I recognize that there is a push for her to be able to 
receive overtime, but the flexibility of being exempt was 
extremely meaningful to this single mother.
    Bud has been involved with two EPA superfund sites cased by 
our waste being disposed of improperly by the professional 
companies we hired. In both cases our waste was quite minimal. 
However, we had to pay for legal and other costs to set 
standards for de minimis standing, fighting against larger 
companies with significant internal legal counsel that sought 
to reduce their own liabilities.
    While I recognize that there were good intentions and 
perceived improvements in the development of each of these 
regulations, they have the unintended consequences of costing 
us huge amounts of both money and time.
    Further improvements to the process, such as those outlined 
in the RegFlex Improvement Act, would be helpful to companies 
like ours as we struggle to thrive in a global economy.
    Once again I would like thank the Chairman and the 
Committee for the opportunity to comment on this legislation on 
behalf of Bud Industries and the Electronic Industries 
Alliance. I hope you will move toward swift approval of the 
Regulatory Flexibility Improvement Act.
    [Mr. Haas' statement may be found in the appendix.]

    Chairman Manzullo. [Presiding] When I saw Bud Industries, 
you think of something else liquid.
    [Laughter.]

    Mr. Haas. I only wish.

    Mr. Akin. You only wish. That is great. Thank you very much 
for your testimony.

    Chairman Manzullo. Our next witness is Jay Lancaster, owner 
of B.E.S.T. Incorporated; a graduate of Washington State 
University, a degree in economics; a practical economist 
speaking on behalf of the NFIB.
    Mr. Lancaster, we look forward to your testimony.

           STATEMENT OF JAY LANCASTER, B.E.S.T. INC.


    Mr. Lancaster. Good afternoon, Chairman Manzullo, and 
members of the Committee.
    Thank you for the invitation to be here today. I am here to 
talk about H.R. 682, the Regulatory Flexibility Improvement Act 
sponsored by Chairman Manzullo. Also, I am also pleased to be 
representing the 60,000 small business members of the NFIB in 
expressing our support for H.R. 682.
    My name is Jay Lancaster, and I own and operate B.E.S.T., 
Incorporated, specializing in commercial roof installations and 
waterproofing. We are truly a family-run operation as all five 
full-time employees are related to the two founders.
    Small businesses today are being barraged by government 
regulations. H.R. 682 will help relieve the regulatory burden 
on small businesses like mine by amending Regulatory 
Flexibility Act to hold federal agencies accountable for rules 
they create.
    My goal today is to first discuss how regulation impacts a 
small business like mine; and second, how this bill will help 
reduce that burden.
    I want to take a minute to discuss what I see as the most 
pressing issues for small businesses. I will note here that I 
am not an expert in regulation. I am an expert in running my 
business, but I want to share with you my perspective as a 
small business owner.
    According to an NFIB poll, the greatest problem with 
regulation experienced by small businesses was the amount of 
paperwork required by regulation. The second was the complexity 
of compliance, and the third, but not far behind, was the cost.
    My personal experience reflects the findings of the poll. 
It is almost impossible to keep track of how many regulations 
affect me. My small eight-person business is regulated by over 
eight agencies that is just at the federal level. Of course, 
those--

    Chairman Manzullo. Mr. Lancaster, can I interrupt you a 
second?

    Mr. Lancaster. Yes, sir.

    Chairman Manzullo. We have your written testimony and it is 
good. What I would like to hear is some anecdotal stories of 
how regulations have impacted you directly on some problems 
that you had and the relief that you need. Can you help us on 
that?

    Mr. Lancaster. Yes, sir.

    Chairman Manzullo. That is what this is about. It is how it 
impacts you, and if you could sort of steer your testimony 
towards that, that helps out members more than anything.

    Mr. Lancaster. I will--

    Chairman Manzullo. If that is okay with you.

    Mr. Lancaster. Yes, it is. I would note that--then I am 
just going to set this aside.
    In the speech it talks about my wife who has been my 
partner for 40 years, and she and I went through a list of the 
things, the times that she spends. She spends at least eight 
hours a week trying to deal with the federal paperwork. My 
daughter, who is here with me today, is in charge of compliance 
with OSHA, and she spends at least an hour a day.
    It is the fear as much as trying to deal with these 
regulations. At first we tried to deal with them, sir, and it 
became impossible because running a business like ours, which 
is a seven-day-a-week business, a construction business, it was 
necessary for us to be out in the field.
    We found it necessary to hire an expert who is also an 
accountant to deal with the intricacies, and as the paperwork 
grew increasingly complicated, it was necessary for us to hire 
both him, and we have hired a private consultant that helps us 
with the OSHA, and sends us paperwork and helps us with 
understanding the compliance nature. It is the paperwork aspect 
that is oftentimes totally unrelated to with practical aspects 
of safety or efficiency in your business.
    The latest example that has been a disaster, not only to my 
business but to the industry, is the Environmental Protection 
Agency and the other subsequent agencies, the Montreal Protocol 
has established and have completely changed the chemistry and 
the polyurethane industry, which is I am a member of the 
Society of Plastics in our work.
    With the United States signing on to the Montreal Protocol 
in the manner in which they did, the chemicals that we now 
purchase in the last 11 months went from a price of $1.06 to 
$1.60, and those same old chemicals that were fine a year ago 
are being manufactured in the United States and sent all over 
the world, primarily to Mexico and Canada, but also to China, 
which is one of the major reasons why our prices have gone up.
    They are able to use what the Montreal Protocol considered 
an inappropriate chemical. They are allowed to continue using 
that for the next 30 years when our businesses now have to 
comply with this extremely sensitive and far more expensive 
chemical, we have had to change all of our equipment. Our 
office is now having to comply with some of the regulations 
that are connected with some of the new chemical laws, the 
placarding of our trucks, having all of the people having to 
now be--have to be HAZMATed where as before they did not, and 
all the drivers will have to have that. The paperwork that is 
subsequently necessary for all of that is a real burden.
    Those are some anecdotal experience.
    [Mr. Lancaster's statement may be found in the appendix.]

    Chairman Manzullo. I appreciate that. If you would give me 
a letter about how you are impacted by the Montreal Protocol, I 
am the Chairman of the American-Chinese and the American-
Canadian Interparlimentary Exchanges, and meet with members of 
the respective bodies from time to time, and I will be with the 
Canadians in May, and I would like to bring that to their 
attention.

    Mr. Lancaster. I would be happy to. It will also probably 
be written by the vice president of the chemical company that 
is a friend. He will share this with me.

    Chairman Manzullo. But if you could get that to our 
Committee, I would appreciate that.

    Mr. Lancaster. I would also like to mention that my wife 
did say on a positive not that IFTA in the last couple of years 
has made her life much easier, and she is very grateful because 
they no longer require documents and paperwork from every state 
that our trucks pass into that are diesel-operated trucks.

    Chairman Manzullo. Okay.

    Mr. Lancaster. It is now a central and only one form allows 
you to go through all the states.

    Chairman Manzullo. Good. Then we did something right.

    Mr. Lancaster. Yes, sir.

    Chairman Manzullo. Thank you for your testimony.
    The next witness is Marc Freedman, Director of Labor Policy 
for U.S. Chamber of Commerce, and Mr. Freedman, we look forward 
to your testimony.

      STATEMENT OF MARC FREEDMAN, U.S. CHAMBER OF COMMERCE


    Mr. Freedman. Thank you, Mr. Chairman.
    Good afternoon, Chairman Manzullo and Ranking Member 
Velazquez.
    Before coming to the Chamber in October, I was the 
regulatory counsel for the Senate Small Business Committee, and 
among others, use covered compliance with the Regulatory 
Flexibility Act, as amended by SBREFA.
    I am here today to convey the Chamber's strong support for 
improving the Regulatory Flexibility Act; in particular, our 
support for H.R. 682, the Regulatory Flexibility Improvements 
Act.
    During my more than five years as regulatory counsel for 
the Senate Small Business Committee, agency compliance with the 
various aspects of the RFA was a constant area of concern. I 
was involved with hearings to examine agency compliance, GAO 
reports examining agency compliance, letters to agencies 
commenting on their compliance, letters to improve agency 
compliance, and heard many accounts from small businesses about 
the lack of agency compliance.
    It is clear to me that the agencies have taken advantage of 
every ounce of flexibility when it comes to complying with the 
Regulatory Flexibility Act. The Regulatory Flexibility 
Improvements Act would help resolve many of these issues.
    The Bush Administration has taken compliance with the RFA 
more seriously than previous administrations. Unfortunately, 
this enhanced the attention to compliance with the RFA is only 
as strong as the administration in power wants it to be. This 
requires legislation, such as the Regulatory Flexibility 
Improvements Act.
    The RFA has always enjoyed strong bipartisan support and we 
hope this pattern will continue as reforms and improvements to 
it are considered.
    The provisions of the Regulatory Flexibility Improvements 
Act build on this momentum of concern for the impacts of 
regulations on small businesses. I would like to highlight just 
a few of the ones that we endorse.
    Perhaps the most significant is requiring agencies to 
consider the indirect impact of regulations when calculating 
the impact of regulations on small businesses. This is 
particularly helpful with respect to EPA regulations where the 
agency has claimed that those regulations that are in force by 
the states only have an indirect impact and therefore do not 
trigger the range of requirements under the RFA and SBREFA.
    Similarly, the requirement the agencies assess the 
cumulative impact of their regulations addresses another 
loophole used by agencies to diminish the real impact of their 
regulations. Just as any given straw might not break a camel's 
back, so any specific regulation considered in isolation might 
not impose a crushing burden.
    However, and as we have just heard from some of the other 
witnesses, many such regulations added together impose on the 
small business where the same person is responsible for sales, 
bookkeeping, inventory, safety and environmental compliance, 
and probably getting the kids to soccer practice, can indeed 
become an overwhelming burden.
    We are also pleased to see that the Regulatory Flexibility 
Improvements Act attempts to put more teeth into judicial 
review of agency compliance with the RFA. Notwithstanding the 
victory that we heard about last week, we believe it would be 
more helpful to allow such an action to be brought closer to 
the point at which an agency makes a determination about 
whether a proposed regulation will have the significant 
economic impact on a substantial number of small entities.
    That certification could be deemed a final action by the 
agency for the purposes of determining whether to proceed with 
the requirements of the RFA. Once an agency certifies a 
regulation, they are not going to revisit that question.
    Closing loopholes used by the IRS to distinguish their 
rulemakings from all others is another long sought-after goal. 
IRS regulations affect every business, and the notion that they 
are not subject to the RFA means that small businesses are 
forced to absorb these regulations without the IRS having to 
take their impact on small businesses into account.
    Finally, mandating the chief counsel for advocacy 
promulgate regulations that will determine how agencies must 
comply with the RFA is a step that is long overdue. Just as 
employers must rely on agencies to interpret laws and describe 
how they are to comply, so agencies should have one office in 
the government that directs their compliance with this law that 
covers them.
    Agencies have consistently argued that the terms of the RFA 
are vague, and that the act gives them flexibility to define 
terms as they think suitable. Chief among the terms that need 
clarification are, of course, significant economic impact, and 
substantial number of small entities. Allowing agencies to 
define these terms differently for each and every rulemaking 
gives a wide array of definitions and results. We would hope 
that the chief counsel would use this authority to issue 
regulations defining these terms. Not only would agency 
compliance with the RFA improve, but everyone would finally 
have a standard against which to evaluate whether an agency has 
met its obligations.
    The Regulatory Flexibility Improvements Act comes at a 
propitious time. Attention to the needs of small business has 
never been greater. With so many sectors such as manufacturing 
coming under increasing international pressure, it is incumbent 
on Congress to make sure that our laws and regulations are as 
narrowly tailored as possible to achieve their goals.
    The improvements continue to go a long ways towards getting 
us to that promised land of small business regulatory relief 
envisioned by the original authors of the Regulatory 
Flexibility Act almost 25 years ago.
    Thank you for your time and attention on this. I would be 
happy to answer any questions you might have.
    [Mr. Freedman's statement may be found in the appendix.]

    Chairman Manzullo. Thank you very much. The promised land 
of small business regulatory relief. That is--

    Mr. Freedman. Well, we may see it but some of us may never 
actually get there.

    Chairman Manzullo. There you are. I do not want to go into 
that.

    Mr. Freedman. It is that time of year, right?
    [Laughter.]

    Chairman Manzullo. That is what America is all about, is it 
not?
    Our next witness is Jere Glover. I have known Jere for a 
long time. He held a position now that Tom Sullivan has from 
1994 until 2001, and look forward to your testimony.

           STATEMENT OF JERE GLOVER, BRAND LAW GROUP


    Mr. Glover. Thank you, Mr. Chairman, Ranking Member 
Velazquez. It is delightful to be here, especially on the 
twenty-fifth anniversary of the Regulatory Flexibility Act.
    I am Jere Glover, and I have some great memories during the 
last 25 years fighting to reduce the regulatory burdens on 
small business. We have won many battles, but we are losing the 
war.
    In 25 years, many things have changed, but the regulatory 
burden on small business has not. It is like the energizer 
bunnies, the regulatory burdens on small business just keeps 
growing and growing. Literally hundreds and hundreds of new 
regulations are enacted each year. Now is the time to do 
something about the problem.
    I remember when the Office of Advocacy was first started. 
The idea that small business needs an advocate within the 
government was a new concept. Workers at the Department of 
Labor, Environmental Protection Agency had--the environmentals 
at the EPA, but small business was without an effective voice 
inside the government.
    How could anyone be against giving small business an 
advocate within the government? After all, it creates over half 
of the GDP, hires over half the employees, and produces over 
half the innovations.
    I remember when I first heard about the concept of 
regulatory flexibility. What a wonderful concept, making 
regulations fit the problem. How could anyone be against the 
concept that regulations should be flexible and should treat 
small businesses different than big businesses?
    And I remember when the Regulatory Flexibility Act was 
passed, and the excitement about the new law. I remember 
meeting with the agencies, explaining the new law to the agency 
employees, and getting President Carter to sign a memorandum 
directing the agencies to comply.
    Then I remember the 10-year fight to get judicial review 
for the Regulatory Flexibility Act, and when SBREFA was passed. 
I remember reading decision after decision where courts found 
reasons not to enforce the Regulatory Flexibility Act and 
SBREFA and grant small business relief. We won a few cases, but 
we lost the vast majority.
    I remember reading the very first Court of Appeals decision 
that found a violation of the Regulatory Flexibility Act and 
stayed enforcement of the regulation until the agency complied 
with the Regulatory Flexibility Act. Actually, it was just last 
week when the court issued that ruling, some eight years after 
judicial review was provided and some 60 cases not having come 
down with a clear decision.
    I remember reading and writing annual reports on the 
Regulatory Flexibility Act about agencies such as the Federal 
Communications Commission, the IRS, and CMA, who were 
habitually--CMS--who were habitually violating the Regulatory 
Flexibility Act, and I remember the first time the Office of 
Advocacy compiled the regulatory savings for small business. 
Today those savings have grown to over $84 billion.
    It is time for some new good memories. The RFA and the 
Office of Advocacy need to be strengthened. They go hand in 
hand. Laws are not self-enforcing. As Tom has pointed out in 
his testimony, the Office of Advocacy has done a lot of really 
great things. His work on implementation of the Regulatory 
Flexibility Act is superb. But can anyone say that we have 
solved the problem and won the war? I do not think so.
    Eliminating the line item for advocacy research in the 
President's budget is a huge mistake. In the last decade we 
have seen the Office of Advocacy drop from 78 to 44 employees. 
If we allow this to stand, it sends the message that we do not 
care about small business advocacy.
    The first line of defense in the regulatory fight is the 
Office of Advocacy. Its annual reports remind Congress and the 
agencies that the burden on small businesses keep growing. We 
need to request that the Appropriations Committee give the 
Office of Advocacy a line item in SBA's budget, and it be for 
both staff and for research functions.
    Unfortunately, just preserving the Office of Advocacy alone 
is not enough. We also need to improve and strengthen the 
Regulatory Flexibility Act. Certainly the regulatory 
flexibility analysis and the agency determinations that small 
business is not impacted need to be far more detailed and 
substantive.
    The panel process needs to be expanded to more agencies 
such as the FCC, CMA and the IRS. The Executive Order needs to 
be codified to make sure that it covers independent agencies 
and that it is there after the current president leaves.
    Now is the time to create some more good memories. Small 
business deserves better. Thank you.
    [Mr. Glover's statement may be found in the appendix.]

    Chairman Manzullo. Thank you very much. We appreciate the 
testimony of the witnesses.
    Ms. Velazquez, did you want to go first in the questions?

    Ms. Velazquez. Sure.

    Chairman Manzullo. Because I was a little bit late here and 
I want to organize my thoughts.

    Ms. Velazquez. Sure. Thank you, Mr. Chairman. Thank you all 
for your presentation here today.
    Mr. Glover, your testimony last year indicated that the 
panel process is quite expensive. In fact, you said that it 
will be around three to seven million dollars to do 10 to 20 
panels for just the three agencies we had under consideration 
then.
    H.R. 682 will require a panel for every rule that has a 
significant impact on a substantial number of small businesses, 
and that could well be over 100 panels per year. Is that 
achievable with advocacy current structure? Is it desirable?

    Mr. Glover. It is not achievable. There is no way that the 
Office of Advocacy could do that with anywhere near the 
resources it currently has.
    We spent between four and five hundred hours, staff hours 
per panel. Now perhaps if you are expanding it, there may be 
some efficiencies, but I cannot imagine how you could 
understand any regulation sufficiently to sit down with small 
business people and talk about it in less than 100 to 200 
hours, and that is the minimum you are going to spend.

    Ms. Velazquez. Can you give me a ballpark figure if we 
have--if advocacy has like 100 panels?

    Mr. Glover. I have not done the math, but I will simply 
tell you you would probably more than double advocacy's current 
budget.

    Ms. Velazquez. Thank you.
    Mr. Freedman, you have studied the panel process when you 
were in the Senate. I now that the Chamber supports this 
expansion of the panel process. Do you believe that panels for 
every--for over 100 rules per year are necessary or achievable?

    Mr. Freedman. Ranking Member, I think achievable has 
probably been addressed better by Jere, and perhaps Tom would 
speak to that point since they are the ones who are actually 
running that process.
    I think we have seen some very strong examples of where the 
panel process has opened up the process to small businesses and 
has had a significant impact on the outcome of the regulation. 
I probably would tell you that every rule does not need that, 
or every agency probably does not need that, but I think at 
this point the bill is a good starting point, and we would 
support the bill. And then if there is an opportunity to look 
at it more closely, then that may be something that can happen 
down the road.

    Ms. Velazquez. Thank you, Mr. Freedman.
    Well, here we are again, Mr. Sullivan. Welcome. I know that 
this year you raise some concerns in your testimony about the 
scope of the panels that will have to be held as well as your 
usual questions about changing advocacy's role in the panel 
process.
    So I ask you again, do you have the resources to implement 
H.R. 682 as currently written? Also, do you even recommend as a 
matter of strategy and policy that advocacy do all those 
panels? And do you have a ballpark figure or estimate as to how 
much it will cost?

    Mr. Sullivan. Congresswoman Velazquez, the answer is no, 
no, and yes.
    The first one, can my office under current structure do all 
of the panels that are called for in 682, and the answer is no. 
Last year when I testified on 2345 you were kind enough to 
allow for me to supplement my response with a detailed 
breakdown of number of hours per panel. With the Chair and the 
Ranking Member's permission, I would like to submit that letter 
of May 18th for the record.

    Ms. Velazquez. Well, I was about--I am prepared to ask 
unanimous consent that that letter be made part of the record.

    Chairman Manzullo. Without objection.

    Mr. Sullivan. Thank you, Congresswoman.
    What we found was that each panel, and this is consistent 
with what Jere Glover said, equates to about 400 hours. We 
measured roughly 200 initial regulatory flexibility analysis 
last year, so that brings it to what would roughly be the need 
to add 40 additional staff on the legal team, so we could not 
handle that under the current structure.
    So that gives you no we cannot do it under the current 
structure. Yes, with a detailed breakdown of roughly 400 hours.
    And you asked about whether or not there are policy 
recommendations to achieve the same benefits of the panel 
without necessarily requiring separate panels for each rule, 
and the answer is yes. I would recommend that the codification 
of the executive order get very close to achieving the same 
type of policy goals that all the panels do.

    Ms. Velazquez. Mr. Sullivan, after all the savings that 
your office has helped to produce, and I believe you talked 
about $64 billion--million dollars.

    Mr. Sullivan. Yes, Congresswoman.

    Ms. Velazquez. Billion dollars?

    Mr. Sullivan. Billion.

    Ms. Velazquez. The President's budget submission for your 
office, and Mr. Glover made reference to that, eliminated the 
line item for advocacy's research.
    Do you think it is important for your independent research 
efforts and for the research efforts of future chief counsels 
under future administrations that advocacy retain complete 
control over its budget?

    Mr. Sullivan. Let me answer the first part about the Fiscal 
Year 2006 budget. I believe that under Hector Barreto's 
stewardship of the agency, my office has been treated very well 
from a budget perspective.
    In answer to your second question about future 
administrations, I believe that future administrations should 
have a separate line item budget for the entire Office of 
Advocacy budget, and I am most anxious that in the 110 Congress 
to have bipartisan support for this approach as well as support 
from the White House who know the type of value that an 
independent office can bring to the process.

    Ms. Velazquez. Mr. Glover, you made reference to the 
importance of a line item. Do you care to comment?

    Mr. Glover. Yes, I would be happy to. The fact is the 
Office of Advocacy when it was first created had a not less 
than 70 employees in its authorization and appropriations. That 
maintained it for a long time. When that provision slipped out 
of the law, the Office of Advocacy gradually dropped from 70 
just before I came on board, to 58 at the end of my tenure, to 
44 now.
    Without that line item you are going to continue to see 
administrators who have other priorities besides advocacy, and 
they are going to allow that to continue to slip. Our research 
budget was cut badly during that period of time as well. So I 
feel strongly that we need to have, to protect the Office of 
Advocacy's role and functions for future administration, a very 
clear statement that there needs to be a line item for the 
entire Office of Advocacy.

    Ms. Velazquez. Thank you. Mr. Chairman, I have unanimous 
consent request that Mr. Sullivan submit for the record over 
his signature a detailed estimate of how many panels per year 
advocacy does now, what advocacy spends on those panels in 
terms of resources, how many panels they expect if H.R. 682 is 
adopted, and an analysis of the costs to advocacy in resources.
    I would also like an analysis as to the other amendments 
short of a panel process that advocacy believes will help 
achieve full disclosure and compliance, and I will be sending 
this in writing to your office.

    Mr. Bartlett. [Presiding] Without objection to the extent 
that that information is available to you.

    Mr. Sullivan. Mr. Chair, not only do you have my commitment 
to provide that, it is a welcome opportunity to flush out the 
detailed costs.

    Ms. Velazquez. Thank you. Thank you, Mr. Chairman.

    Mr. Bartlett. I am sorry I could not have been here for the 
whole hearing. As most of you know in a former life I was a 
small business person. I was one of maybe 35 people in the 
Congress that was a member of NFIB when I came here.
    I carry a copy of the constitution, and I would just like 
to get in the record how prophetic the founding fathers were 
when they wrote the Declaration of Independence. I cannot 
imagine how they would have known about our regulatory 
agencies, but this is what it says:
    ``He has erected a multitude of new offices and sent 
hithers forms of officers harass our people and eat out their 
substance.''
    [Laughter.]

    Mr. Bartlett. I wonder, is there any more succinct 
description of the effect of our regulatory agencies, 
particularly on small business?
    And that is in the--that is really there. It is in the 
Declaration of Independence. I have no idea what the king did. 
I thought maybe they were just being prophetic because it 
certainly, I think, is a good description of our regulatory 
agencies.
    You know, I often ask myself the question, how come we are 
so lucky. We are one person out of 22 in the world, and we have 
a fourth of all the good things in the world. How did we get 
here?
    And if we figure out how we got here, maybe we can figure 
out what we need to do to stay here. And I think one of the 
reasons is the enormous respect for the rights of the 
individual. Those rights are implicit in the constitution 
itself and made very explicit in the first 10 amendments, and I 
think that establishing a milieu, an environment in which 
creativity and entrepreneurship could flourish is important. I 
think several things put that at risk, and one of those things 
are over zealously implemented regulations which just dampen 
the enthusiasm and hamper people in their quest to continue 
along this really marvelous march where this one little 
country, one person out of 22 in the world has a fourth of all 
the good things in the world.
    This is a fragile commodity. We are no longer the hardest 
working people in the world. We are no longer the people that 
have the most respect for education in the world. We no longer 
have the most intense commitment to nuclear families in the 
world, and you need to ask yourself what do we need to do to 
stay in this very privileged position?
    I think paying attention, we need some regulations, there 
is no question about that. But we do not need such over zealous 
implementation of these regulations that they are killing the 
goose that laid the golden egg, and that is very much where we 
are sometimes with these regulations.
    Sorry I could not have been here for your testimony. You 
know where I am on these issues. When you need help, I am 
there.
    Ms. Velazquez, you have additional questions?

    Ms. Velazquez. She is next.

    Mr. Bartlett. Okay.

    Ms. Moore. Thank you, and thank you for all the time that 
you have spent. We had votes and we were not able to start the 
meeting on time, and I really appreciate your diligence.
    If I am asking a question that you have already asked, 
please forgive me because I was not there, or here earlier.
    I guess I am curious about the provisions in the Regulatory 
Flexibility Act that called for alternative regulations, 
because as the Chairman has indicated, we do realize that there 
has to be an appropriate balance between necessary regulations. 
This will make sure that there is basic safety features in the 
workplace and basic compliance with Internal Revenue Service, 
but we do not want to impose too many regulations on small 
business.
    So what--can you give me just give me a few examples of the 
regulatory flexibility that you have accorded small businesses 
that you regard as innovative?

    Mr. Sullivan. Ms. Moore, I would be happy to address that 
if you would like. I can give you two examples. The first is an 
OSHA example, and the idea of focusing on alternatives is 
definitely a good place to start because any time a regulatory 
agency looks to small business for alternatives they will come 
out ahead at the end of the day.
    So from an OSHA perspective, I will use a rulemaking that 
is ongoing. There is a Hex-chrome regulation that is going on 
at OSHA, and very early on in the process under SBREFA they are 
required to convene panels of small business owners, and float 
ideas and regulatory proposals by small businesses so small 
businesses can advise them to better alternatives.
    Well, in this progress, Congresswoman, it became clear that 
one of the proposals was to vent above a chrome-plating 
assembly line the fumes, so that the fumes would go across or 
underneath the workers to prevent them from inhaling chrome 
fumes, which are dangerous.
    Well, thank goodness they checked with small business 
because a small chrome player in fact told OSHA if you require 
that, you will put us in violation of the EPA Clean Air Act. It 
is a very good example of alternatives that come to the table 
from small business.
    Now, luckily under the process OSHA listened because they 
are required by law to listen, and they have been re-jiggering 
their proposal so whatever they do will ultimately be less 
harmful for small business.
    Another example that is not part of the SBREFA process but 
a good one has to do with the regulatory approach to protecting 
our nation after the terrorist attacks of September 11th. 
Obviously, we are very concerned about protecting our borders, 
and also very concerned about protecting our ports.
    So the Department of Homeland Security, when wrestling with 
those very important issues, under the Regulatory Flexibility 
Act consulted with my office, the Office of Advocacy, to say, 
all right, when we are issuing regulations for port security, 
are we getting it right, and we connected them with small 
businesses who run small shops in ports. It turns out that 
their initial thoughts of regulating would have affected all 
these mom and pop businesses who thrive in the port areas, 
whether it is Mailboxes, Etc., franchises or small delis, and 
other business that really thrive on the port business. They 
were all going to be covered by rules that really should be 
narrowly tailored to the entry and exit of foreign and other 
vessels.
    So by focusing Department of Homeland Security about not 
overreaching they actually exempted out many businesses that 
really are not a threat, but then focused primarily on things 
that were a security risk, and therefore had rules that were 
finalized that were protecting our borders, but at the same 
time doing it in a way that did not devastate a community in 
which small businesses thrived.

    Mr. Freedman. Congresswoman.

    Ms. Moore. Thank you. I also just wanted you all to comment 
on the regulatory impact study done in 2000 where the cost on a 
small business was estimated to be almost $7,000 per employee 
for the regulatory burden.
    Share with us, because those are--you know, you could 
interpret that in two different ways. You could interpret that 
as being certainly an awesome burden on a small business, but 
you could also say that perhaps they are not ready for prime 
time if they are not ready to make sure that basic workplace 
protections are in place.
    Could you please just weigh in on those data?

    Mr. Freedman. Congresswoman, I would like to start, and I 
am sure other people will have other thoughts on that. Let me 
sort of try and tie both of your questions together because I 
think there is some links there.
    First of all, the study talking about the increased cost 
for small business compliance, it is not that small businesses 
as you would say are not ready for prime time, it is that in 
order for them to get to that threshold, it is more expensive 
for them to do that, and this is not--I think we should all 
understand this has nothing to do with small businesses' desire 
to comply.
    The problem that these regulations are--the reason these 
problems--forgive me. The reason these regulations are such a 
problem is that they do want to comply, and they understand the 
obligation to their employees, to the environment, to the 
public around them, to everyone that they come in contact with 
to be in compliance with these regulations. But they have so 
few resources. They do not have the personnel. They do not have 
the revenue. In some places, their whole income structure is 
different than a larger business that would be able to do these 
things more efficiently.
    So that is where you get that $7,000 number, and I think 
that number is important because it really goes to the heart of 
the matter, and why we are here, and why there is a Regulatory 
Flexibility Act in the first place.
    Let me just comment briefly on your discussion about 
regulatory alternatives. The problem is in the Regulatory 
Flexibility Act, there is a requirement that an agency must 
examine regulatory alternatives in their analysis that they are 
expected to do under the RFA.
    However, if they find that the regulation does not meet 
this threshold of the significant economic impact on a 
substantial number of small entities, they do not have to do 
that analysis. So it is the question of how they get to that 
threshold that drives everything else, and that is where I 
think our concern is in terms of how the RFA is operating right 
now, and some of the changes that we think should be made to 
it.
    Let me yield to the other people here who I am sure have 
other things to day.

    Ms. McCloy. If I may--

    Mr. Bartlett. You may.

    Ms. McCloy. -- Cecelia McCloy, with Integrated Science 
Solution.
    As a small business owner, one of the things that we do 
every year is to look at the regulatory requirements that we 
must comply with that year, including new regulations that sort 
of pop up both on the state and the federal level. Then we have 
to make some choices. I mean, maybe we have to reduce our 
tuition reimbursement program in order to pay for that, or 
maybe we can only offer a different kind of health care policy 
for our workers because we only have X amount of dollars. And 
really, if we have to pay more for regulatory burden, that 
means we have to play--there is less dollars available for 
investment in our employees and their education and their 
families.

    Mr. Sullivan. Congresswoman, the Crane-Hopkins study that 
you referenced I think is also intended to be placed in a 
broader context, and that broader context is the United States' 
competitive position in the world. Because if you look at 
three-quarters of the net new jobs coming from small business, 
you see small business innovating, and the Chairman knows 
something about innovations, holding so many patents himself. 
But when you look at innovations, you are looking at small 
business innovating at a rate of 13 or 14 times their larger 
business counterparts.
    So if you realize that small business is in fact the 
economic engine that is driving this country, then you have got 
to then look at this study to say, well, this is the engine. 
How are regulations impacting that engine? And that study shows 
that there is a disproportionate impact, a 60 percent greater 
impact on small business than their larger counterparts.
    When it comes to tax compliance, it is twice as burdensome 
for small business than it is for larger business to comply 
with the tax code.
    So there is considerable effort to try to remove those 
barriers that stifle the economic power of small business, and 
that, if unchecked, can damage the competitive position of the 
United States.

    Mr. Glover. Let me just add to this one additional way to 
look at this. When you assume certain reporting 
responsibilities, such as filing a tax return for your 
business, there is a set cost to do that. If you have one 
employee or 500, it does not go up proportionally. So a lot of 
these costs are much heavier when you have very few employees, 
so the average cost per employee is much higher than it would 
be otherwise.
    Each agency has a little different thing that they want you 
to report. If you have one employee, that employees carries the 
whole 100 percent of that cost. If you have 100 employees, then 
it is one percent of that cost. So as a general rule you will 
also see that the numbers in that Hopkins study talk about per 
employee, and as a result of that you are going to see much 
higher numbers for very small businesses than you do for 
others.

    Ms. Moore. Thank you.

    Mr. Bartlett. Thank you. Do you have additional question or 
comments?

    Ms. Velazquez. Yes, please, Mr. Chairman.
    Mr. Sullivan, you know that the General Accounting Office 
recently--we made reference to that--they recently reviewed the 
OMB data on regulatory burden and reported that it has 
increased by 700 million hours in the last three years. They 
concluded that the number would have been higher still had the 
OMB not changed the 2003 data to reflect adjustments that 
lowered the total, but have nothing to do with actually 
reducing the burden.
    Then here you testified that you have achieved regulatory 
cost saving of $64 billion over the past four years. Those 
savings do not even include items where savings are impossible 
to estimate.
    I know that you are proud of this record, but does not this 
level of proposed burden indicate that the agencies still have 
not gotten the message?

    Mr. Sullivan. Congresswoman, I think Dr. John Graham has 
been pretty good in looking at some of the numbers, and he 
recently estimated that the number of new rules from this 
administration is 75 percent less than in the last one. And I 
think your comment is accurate in that that is just not enough.
    I mean, slowing the stem--excuse me. Slowing the growth of 
overburdensome or unnecessary regulations is a good start, but 
when you look at the 843 plus billion dollars of cumulative 
impact that small businesses still face, there is a heck of a 
lot more to do.
    So I agree with your comment, and actually know that 
regardless of how proud of our record we are, we have more work 
to do, and some of the improvements to the Regulatory 
Flexibility Act that are contained in H.R. 682 should help us 
do that.

    Ms. Velazquez. Which of the tools in H.R. 682, or if not in 
the bill, what tool can you recommend to persuade agencies to 
follow the law?

    Mr. Sullivan. I believe, actually, that there are more 
narrowly tailored approaches also contained within 682 that 
could do a great deal in helping small business. I think the 
first, and this was mentioned by the Chamber of Commerce's 
testimony, is fix indirect impact, and this actually has to do 
with Congresswoman Moore from Wisconsin.
    Wisconsin is one of the states that has passed a state 
Regulatory Flexibility Act, but their hands are tied if the 
federal government is simply passing on the responsibility to 
the states to do impact analysis or to consider less burdensome 
alternatives.
    I think there is a fairness issue here or a unfunded 
mandate issue here where the federal regulators have a 
responsibility to do that type of analysis to help the states 
do a better job in how they impact small business.
    So indirect impact, I think, is a priority. Bolstering the 
regulatory look-back provision, which is Section 610, also is 
something that is important. Something that is not in the 
legislation but deserves to be looked at is once a regulation 
is final, that agencies actually do what they are supposed to 
do under SBREFA and that is product compliance guides and 
regularly report to Congress on those compliance guides. And I 
think the most valuable thing that could be done is to codify 
the executive order that President Bush signed three years ago, 
because that does two things:
    First of all, it brings in independent agencies, which is 
very important. The second is that it requires agencies to 
share drafts with the Office of Advocacy pre-proposal, so it 
gets at that early process. It also requires agencies to 
respond to advocacy's comments in conjunction with the final 
rule.

    Ms. Velazquez. Mr. Sullivan, three years later after the 
executive order we have this data, and so something is not 
working.
    Mr. Freedman, you and the Chamber have some good ideas 
about requiring regulatory analysis and compliance guides to be 
performed by the agency, to be posted on the internet so that 
it is more easily located.
    Will you and the Chamber flesh out some of these ideas and 
submit suggested legislation language that could be included 
into the bill?

    Mr. Freedman. Yes, Ranking Member. We would be happy to do 
that, and I can mention from my previous experience that 
Senator Snowe introduced a bill on that subject in the last 
Congress, so there is legislative language available that talks 
about that problem.
    Let me just address one other point that you asked Mr. 
Sullivan about, in terms of what I think would make the most 
difference. I have thought for a long time that the whole 
question of the significant economic impact and substantial 
number of small entities terms are really the heart and sole of 
the Regulatory Flexibility Act. I mean, that is the threshold 
go-no go question.
    The more stability and certainty we can bring to those 
terms the more likely it is we will be able to hold an agency 
to a standard that says you did not do it, or this is what we 
expect of you.
    To that end, I believe that the provision in the bill that 
directs the chief counsel to issue regulations describing how 
agencies are to comply would probably have the greatest overall 
impact on agency compliance, because absent of them getting 
past that threshold, or let me put it this way, forcing them to 
get to that threshold easier will then trigger all the other 
compliance, all the other requirements like the compliance 
guides, like the Section 610 review, and the IRFAs and FRFAs. 
So it is a critical matter in terms of how the Regulatory 
Flexibility Act is actually implemented.

    Ms. Velazquez. Thank you. Thank you, Mr. Chairman.

    Mr. Bartlett. Thank you very much.
    One of you mentioned the cost of these regulations and then 
the unfunded mandates were mentioned. Two or three years ago I 
remember that Tax Freedom Day was May 10. Now, we cut taxes and 
we have done pretty well. We have moved that back to late April 
now. But Government Freedom Day has moved the wrong direction. 
When we have Tax Freedom Day, that is the day you pay all your 
federal, state and local tax. It was May 10, now near the end 
of April.
    But Government Freedom Day, the day you finish paying for 
government, was July 4. That has a very special double 
significance, did it not? That is now moved to about July 8. 
You know, this is the cruelest tax of all. It is the tax that 
the poorest of the poor have to pay because it increases the 
cost of everything they touch, and the mandates, a lot of them 
federal, and a lot of these regulations that you are talking 
about, the average working American now spends 52 percent of 
their time working to support government. I think that is too 
much.
    When you are talking about taxes and maximum revenues, and 
we need more revenues, we are spending a whole bunch of money, 
but you know, if you have a zero tax rate, obviously you will 
collect no taxes. If you have 100 percent tax rate, you are not 
going to collect any taxes, are you, because nobody will work?
    So somewhere between the zero percent tax rate and the 100 
percent tax rate is that magic number where you have not 
meaningfully suppressed, stifled the economy, and you are going 
to get the maximum revenues. I think 52 percent of your time 
working for government is too much. And we have reduced taxes. 
We have gone backwards in regulations. You know, we really need 
to change that.
    If you think about these regulations, and I just sat back 
and I thought why do we have them, and there are two 
fundamental premises for why we have regulations.
    The first one is that every manufacturer, every provider, 
every employer is greedy and evil, and they are going to take 
advantage of their customers and their employees, so we have to 
make sure they do not do that.
    The other premise for regulations is that every consumer is 
incredibly stupid. Unless we protect them, they are going to 
hurt themselves.
    Now, I think that if you think about regulations, most of 
them are here because of an application of one or the other or 
both of those premises. I reject both of those premises. I was 
a small business owner. There was nobody more concerned about 
my employees than me. If I lost one of my people, you know, the 
team was not going to work well. You know, they were, in 
effect, family members to me.
    I think the American people are very bright. I have no 
problem with government educating. You know, I really just take 
a double take when I read that they have gone and the 
government people have put a red sticker on your house and told 
you it is dangerous, and you cannot go in it. What business is 
that of theirs to tell you that you cannot go in your house?
    I do not mind them telling you that they think your house 
is dangerous, and that you are probably better off if you did 
not go in your house. But you know, what business have they--
you know, the reason is that they concluded that you are just 
so dumb you would not know whether your house was dangerous or 
not, and so they have got to protect you.
    I really believe that if we give it a chance, self-
regulation will work. The hard liquor industry does not 
advertise on television. Nobody told them not to advertise on 
television. They just decided that was not in their best 
interest to advertise on television, and it would not have 
been.
    When high school kids are given the responsibility of 
disciplining their peers, they are a lot tougher than the 
school administration would be. You have seen those little 
experiments.
    But there is little incentive for self-regulation because 
you have to push back so hard in order to limit the damaging 
effects of regulation on your business. And I know we do not 
have time here but I would really like to ask each of you if 
you would please for the record tell us how we can get from 
here, where we are with ever-increasing regulations and these 
mandates that run cost up, because there is no business that is 
not concerned about happy customers and happy employees and so 
forth. Our people are not incredibly stupid, and we do not need 
all these regulations.
    How can we get from here, and I really believe in self-
regulation. You know, I think in industry, the industry most 
hurt when they get--when a drug comes out on the market that 
hurts people. What industry is most hurt by that? It is the 
drug industry, is it not? It is not Food and Drug. It is the 
drug industry that is hurt like that. I really believe in self-
regulation.
    How can we get from where we are, where we are moving from 
more and more egregious regulation to where we can encourage 
people to self-regulation? And then stand back and watch, and 
if they are not doing right, then maybe we can move in. I do 
not think we would have to move in very often. But now we have 
created a culture where we are moving in this direction. How 
can we move back?
    If each of you would prepare a little statement for the 
record, I would be very appreciative of that.
    This has been a long hearing. Is it okay if we submit other 
questions for the record? I am sure Ms. Velazquez has 
additional questions she would like to ask. And you are tired, 
and we may get a more deliberate answer if you prepare it for 
the record rather than holding you here for all these hours.
    I want to thank you very much. I am sorry I could not have 
been here for the whole hearing. Small business, as you 
mention, is the engine which drives our economy.
    Just one little word. Out of the 1992 recession, I was 
stunned by these statistics. If you group businesses by size 
from the biggest, 5,000 or more, to the smallest, zero to four 
employees, a few new jobs came from the 5,000 plus, 90 odd 
percent of all the other new jobs came from zero to four 
employees. That is small business. And it is not just the 
engine that drives our economy, it is the engine that brings us 
out of a recession.
    You mentioned the enormous productivity in terms of 
discoveries and entrepreneurship and innovations that come from 
small business. You know, I have worked for big business. I 
have worked for IBM. I have worked for big government. I worked 
for Johns Hopkins University. I worked for myself in a little 
company. And I will tell you the smaller it is the more freedom 
you have. I was lucky, the employers I worked for who were big 
kind of pretended they were little, and I had a very good 
experience with them.
    Well, thank you so much for your testimony, and please 
prepare for the record your little suggestion of how do we get 
to there from here, where we have more self-regulation. What 
the government does is stand back and step in when industry is 
not doing it right. Thank you very much, and we are adjourned.

    [Whereupon, at 4:10 p.m., the Committee was adjourned.]

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