[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]




 
                    FULL COMMITTEE HEARING REDUCING
                     THE REGULATORY BURDEN ON SMALL
                   BUSINESS: IMPROVING THE REGULATORY
                            FLEXIBILITY ACT

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

                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                           NOVEMBER 15, 2007

                               __________

                          Serial Number 110-61

                               __________

         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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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


HEATH SHULER, North Carolina         STEVE CHABOT, Ohio, Ranking Member
CHARLIE GONZALEZ, Texas              ROSCOE BARTLETT, Maryland
RICK LARSEN, Washington              SAM GRAVES, Missouri
RAUL GRIJALVA, Arizona               TODD AKIN, Missouri
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
MELISSA BEAN, Illinois               MARILYN MUSGRAVE, Colorado
HENRY CUELLAR, Texas                 STEVE KING, Iowa
DAN LIPINSKI, Illinois               JEFF FORTENBERRY, Nebraska
GWEN MOORE, Wisconsin                LYNN WESTMORELAND, Georgia
JASON ALTMIRE, Pennsylvania          LOUIE GOHMERT, Texas
BRUCE BRALEY, Iowa                   DEAN HELLER, Nevada
YVETTE CLARKE, New York              DAVID DAVIS, Tennessee
BRAD ELLSWORTH, Indiana              MARY FALLIN, Oklahoma
HANK JOHNSON, Georgia                VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania             JIM JORDAN, Ohio
BRIAN HIGGINS, New York
MAZIE HIRONO, Hawaii

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

               Kevin Fitzpatrick, Minority Staff Director

                                 ______

                         STANDING SUBCOMMITTEES

                    Subcommittee on Finance and Tax

                   MELISSA BEAN, Illinois, Chairwoman


RAUL GRIJALVA, Arizona               DEAN HELLER, Nevada, Ranking
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
BRAD ELLSWORTH, Indiana              STEVE KING, Iowa
HANK JOHNSON, Georgia                VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania             JIM JORDAN, Ohio

                                 ______

               Subcommittee on Contracting and Technology

                      BRUCE BRALEY, IOWA, Chairman


HENRY CUELLAR, Texas                 DAVID DAVIS, Tennessee, Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              SAM GRAVES, Missouri
JOE SESTAK, Pennsylvania             TODD AKIN, Missouri
                                     MARY FALLIN, Oklahoma

        .........................................................

                                  (ii)

  
?

           Subcommittee on Regulations, Health Care and Trade

                   CHARLES GONZALEZ, Texas, Chairman


RICK LARSEN, Washington              LYNN WESTMORELAND, Georgia, 
DAN LIPINSKI, Illinois               Ranking
MELISSA BEAN, Illinois               BILL SHUSTER, Pennsylvania
GWEN MOORE, Wisconsin                STEVE KING, Iowa
JASON ALTMIRE, Pennsylvania          MARILYN MUSGRAVE, Colorado
JOE SESTAK, Pennsylvania             MARY FALLIN, Oklahoma
                                     VERN BUCHANAN, Florida
                                     JIM JORDAN, Ohio

                                 ______

            Subcommittee on Urban and Rural Entrepreneurship

                 HEATH SHULER, North Carolina, Chairman


RICK LARSEN, Washington              JEFF FORTENBERRY, Nebraska, 
MICHAEL MICHAUD, Maine               Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              MARILYN MUSGRAVE, Colorado
BRAD ELLSWORTH, Indiana              DEAN HELLER, Nevada
HANK JOHNSON, Georgia                DAVID DAVIS, Tennessee

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, PENNSYLVANIA, Chairman


CHARLIE GONZALEZ, Texas              LOUIE GOHMERT, Texas, Ranking
RAUL GRIJALVA, Arizona               LYNN WESTMORELAND, Georgia

                                 (iii)

  
?

                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     1
Chabot, Hon. Steve...............................................     2

                               WITNESSES

Rajkovacz, Joe, Owner-Operator Independent Drivers Association...     4
Klein, Christian A., Aeronautical Repair Station Association.....     5
Dombi, William A., National Association for Home Care and Hospice     8
Lubbers, Professor Jeffrey, Washington College of Law, American 
  University.....................................................    10
Morrissey, Maureen M., Tupperware Brands Corporation.............    12

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    26
Chabot, Hon. Steve...............................................    28
Rajkovacz, Joe, Owner-Operator Independent Drivers Association...    30
Klein, Christian A., Aeronautical Repair Station Association.....    38
Dombi, William A., National Association for Home Care and Hospice    49
Lubbers, Professor Jeffrey, Washington College of Law, American 
  University.....................................................    65
Morrissey, Maureen M., Tupperware Brands Corporation.............    81

                                  (v)

  


                       FULL COMMITTEE HEARING ON
                   REDUCING THE REGULATORY BURDEN ON
                     SMALL BUSINESS: IMPROVING THE
                       REGULATORY FLEXIBILITY ACT

                              ----------                              


                      Thursday, November 15, 2007

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:09 a.m., inRoom 
2360, Rayburn House Office Building, Hon. Nydia M. Velazquez 
[Chairwoman of the Committee] Presiding.
    Present: Representatives Velazquez, Gonzalez, Cuellar, 
Altmire, Clarke, Ellsworth, Hirono, Chabot, Graves, Akin, and 
Buchanan.

           OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ

    ChairwomanVelazquez. I call this hearing to order to 
address Reducing the Regulatory Burden on Small Business: 
Improving the Regulatory Flexibility Act.
    We all know that small businesses are the drivers of the 
American economy. However, small businesses are challenged in 
their efforts to grow by an ever-increasing Federal regulatory 
burden. Federal agencies continue to release tens of thousands 
of pages of regulations each year.
    Last year the Federal Register contained nearly 80,000 
pages. In its first year of print, it contained only 2,400. The 
growth in regulations not only increases compliance costs for 
small businesses, but it also makes it harder for them to 
compete with larger firms. This is why Congress had the 
foresight to give small businesses a voice in the regulatory 
process by passing the Regulatory Flexibility Act or RegFlex in 
1980.
    This hearing today will look at how RegFlex has worked and 
how it can be strengthened to help small businesses. The act 
was originally designed to ensure that the Federal Government 
considers the impact of its regulations on small entities. On 
the RegFlex, anytime a regulation has a significant economic 
impact on a substantial number of small businesses, an agency 
must consider if there are less burdensome alternatives.
    While this Committee is working to ensure the law is being 
followed, regulators have exploited weaknesses in the law to 
avoid complying with key requirements. As an example, they have 
avoided critical requirements by certifying that a rule will 
not have a significant impact on small businesses. While 
agencies are required to provide a factual basis for such 
certification, they often provide only a simple statement which 
dismisses the concerns of small firms. This behavior must stop 
and we will be seeking legislative means to prevent it.
    RegFlex can be improved in other areas as well. For 
example, the act apparently does not define what constitutes an 
economic impact on small businesses. Courts have said agencies 
do not have to consider impacts to small businesses that are 
not directly regulated by the rule. I think regulators should. 
Agencies need to contemplate the true economic effect of 
regulations on small firms regardless of whether the firms are 
directly or indirectly impacted.
    There are also many regulations on the books that are 
outdated, yet continue to create costs for small businesses. 
While RegFlex requires agencies to periodically review existing 
rules and consider eliminating all necessary requirements, this 
section of the law is vague and agencies do not apply these 
laws with consistency. As a consequence, this part of RegFlex 
has been much less effective than it could be.
    Congress must clarify to agencies when these reviews are to 
take place, what rules must be reviewed, and how the reviews 
should be conducted. RegFlex can play a critical role in 
reducing the regulatory burden on small businesses when 
agencies properly follow it. However, agencies do not always 
comply. The litigation over the DHS no-match letter rule 
illustrates this fact. Fortunately Judge Breyer recognized that 
the agency may have violated RegFlex in this rulemaking and 
prevented DHS from enforcing the rule.
    That was not an isolated case, and more must be done to 
strengthen RegFlex compliance.
    I look forward to today's discussion and the panelists' 
experience with RegFlex and how it could be improved. I also 
want to thank all the witnesses that are here this morning for 
your participation. It is critical because small businesses 
bear a disproportionate share of the Federal regulatory burden. 
A recent study conducted for SBA found that regulatory costs 
for small businesses are 45 percent greater than that for 
larger firms. Small businesses must have input in this process 
to help agencies identify existing rules that are problematic. 
We need to ensure that there is a meaningful way to enforce 
this part of the act too. I look forward to working with 
Ranking Member Chabot in crafting a bill that will make RegFlex 
even better.
    ChairwomanVelazquez. I yield to the Ranking Member for his 
opening statement.

                OPENING STATEMENT OF MR. CHABOT

    Mr.Chabot. Thank you very much. And I want to thank you, 
Madam Chair, for holding this hearing on the implementation of 
the Regulatory Flexibility Act. This hearing continues the 
Committee's tradition of annually examining agency compliance 
with the RFA in asking whether the statute needs amendment. The 
RFA is an important law that, if fully complied with both in 
letter and spirit, has the potential to significantly reduce 
the regulatory burdens on small businesses without undermining 
protections inherent in various Federal statutes.
    Efforts led by the President, the Office of Information and 
Regulatory Affairs, and the Chief Counsel for Advocacy have 
resulted in improving agency compliance with the RFA. However, 
these efforts continue to be hindered by bureaucrats who seek 
to perform the minimum amount of analysis possible and courts 
that seek to abet them in these efforts. Federal agencies that 
fail to comply with the mandates of the Regulatory Flexibility 
Act undermine a basic premise of the act, that being to create 
an economic impact statement that was akin to an environmental 
impact statement that agencies must prepare pursuant to the 
National Environmental Policy Act.
    The parallels between the two statutes, recognized by the 
courts, take that parallel only so far since the detail 
required by the RFA is far less than that required by the NEPA. 
The Small Business Committee regularly sees the impact that 
regulations have on small businesses struggling to survive and 
grow. Detailed analysis of the impact of regulations on small 
businesses is necessary to ensure that regulators are not 
making irreversible decisions that will reduce the competitive 
ability of small businesses, prevent them from expanding, allow 
them to raise capital or harm the growth of the American 
economy.
    When the RFA was enacted, opponents said it would slow the 
promulgation of rules. Any examination of the Federal Register 
today as opposed to the way it was back in 1980, I think, puts 
to rest that concern. 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 lead 
to improved compliance and lower costs.
    I hope that this hearing spurs Congress to improve the 
Regulatory Flexibility Act to ensure that Federal bureaucrats 
care that the law is on the books.
    I want to thank the witnesses for taking the time to 
provide their insights into agency rulemaking and how the RFA 
fits or does not fit into that process. And I again want to 
thank you, Madam Chair, for holding this hearing, and I will 
yield back the balance of my time.
    ChairwomanVelazquez. Thank you.
    ChairwomanVelazquez. And now I recognize Mr. Graves for the 
purpose of introducing our first witness.
    Mr.Graves. Thank you, Madam Chair. Thank you very much for 
having this hearing on regulatory relief, and it is a pleasure 
of mine to introduce a constituent of mine, Joe Rajkovacz from 
northwest Missouri, actually from the Blue Springs area. Joe 
has made a successful career out of truck driving over the last 
30 years, and he is currently employed by the Owner-Operator 
Independent Drivers Association, which is also headquartered in 
my district.
    He is the regulatory affairs specialist, and today he is 
speaking on their behalf this morning. I do look forward to his 
insight into the business and how the Federal Government 
impacts the trucking industry. And I want to thank you for 
making the trip to Washington. I know very well how long a trip 
that is. And I appreciate you being here.
    ChairwomanVelazquez. Mr. Rajkovacz, welcome. You have 5 
minutes. Look at the clock there, the green light means that 
you have 5 minutes, and then the red light means your time is 
expired. Thank you.

  STATEMENT OF JOE RAJKOVACZ, REGULATORY AFFAIRS SPECIALIST, 
         OWNER-OPERATOR INDEPENDENT DRIVERS ASSOCIATION

    Mr.Rajkovacz. Good morning Madam Chairwoman, Ranking Member 
Chabot, and distinguished members of the Committee. My name is 
Joe Rajkovacz and I have been involved in the trucking industry 
for more than 30 years and currently serve as regulatory 
affairs specialist for OOIDA. Prior to joining the staff, I was 
a small business trucker for more than two decades. I owned 
both my truck and trailer and leased them, along with my 
services, to a motor carrier.
    Small businesses dominate the trucking industry in the U.S. 
One-truck motor carriers represent roughly half the total 
number of motor carriers operating in our country, while 
approximately 90 percent of U.S. motor carriers operate six or 
fewer trucks in their fleets.
    Considering that roughly 69 percent of rate tonnage in the 
U.S. is moved by truck, it is certainly not a stretch to say 
that small business truckers are truly the backbone of our 
Nation's economy.
    Small business truckers support a safe and efficient 
industry as well as rules that safeguard our national security 
interests. However, they expect the Federal Government to 
implement regulations with some level of commonsense and 
fairness and take into consideration the tremendous economic 
impact and operational burdens that regulations promulgate on 
the small businesses that drive our economy.
    OOIDA's experience has shown us that small business issues 
and regulatory flexibility analysis are all too often an 
afterthought with Federal agencies. Some improvement needs to 
be made to strengthen and expand the Regulatory Flexibility Act 
so that it better serves its purpose, to require agencies to 
choose regulatory schemes and rules that achieve their goal in 
the least burdensome manner on small businesses.
    My first suggestion is expanding the RFA to require Federal 
agencies to make a greater effort to coordinate the regulatory 
efforts. The jurisdictional separation of Federal agencies, and 
even constraints within single agencies, can oftentimes be an 
obstacle to the creation of clear, consistent regulations that 
would be less burdensome to small businesses.
    An obvious example is the identical threat assessment 
required by the TSA for both the trucking Hazmat endorsement 
and the TWIC card. The cost for a Hazmat endorsement background 
check ranges from $94 to $129. Truckers are also required to go 
through an identical background check for the TWIC program at 
an added cost of $105 to $132. The TSA also did not take into 
consideration the additional cost to small business truckers 
from lost operational time while they are securing these 
credentials.
    OOIDA believes that clarification from Congress will break 
down the jurisdictional walls that prevent agencies from 
working together or working within themselves to reduce the 
burden of its rules on small businesses.
    My next suggestion is that the RFA be expanded to apply to 
agency actions beyond rulemaking, such as informal 
adjudications and pilot programs. As you know, the USDOT is 
conducting a pilot program permitting Mexico domicile trucking 
companies and truck drivers to operate throughout the U.S. In 
creating this program the DOT has completely disregarded the 
impact it will have on small businesses. This program will most 
certainly mean a loss of economic opportunity for thousands of 
small business truckers in the U.S., while jeopardizing the 
safety and security in their operating environments.
    DOT has undertaken no estimate of how many U.S. jobs will 
be lost to their pilot program or how freight rates paid to 
small business truckers will be affected. Only large U.S. motor 
carriers appear to have the resources and infrastructure 
necessary to have a realistic opportunity to do business and 
expand their operations in Mexico. As an informal adjudication, 
the pilot program is not a rulemaking subject to the RFA. If 
DOT had been required to review the impact of this program on 
small businesses, the public and Congress would have had much 
more information on which to evaluate the wisdom of this 
undertaking. Again, agencies should be required to consider the 
impact of all their actions on small businesses, not just 
rulemakings.
    Next, I would suggest requiring agencies to make more 
concrete findings of fact and cost analysis on the economic 
impact of their actions on small businesses. An example is the 
FMCSA's electronic onboard recorder proposal. This is a 
potential expensive and burdensome mandate requiring truck 
drivers to install new equipment on their vehicles to monitor 
their compliance with the Federal hours of service regulations. 
This mandate will not achieve its intended safety goals. So far 
the agency has provided no analysis to support conclusions that 
EOBRs will improve safety and justify their cost. OOIDA feels 
that the agency paid no attention to the impact of the 
rulemakings as a whole on small business. The only impact of 
the rule on small businesses noted by the agency is the 
potential cost of equipping the truck with an EOBR. There are 
numerous other costs associated with this rulemaking that were 
not even considered by the agency.
    I see my time is up. I thank the Committee very much.
    ChairwomanVelazquez. Thank you.
    [The prepared statement of Mr. Rajkovacz may be found in 
the Appendix on page 30.]

    ChairwomanVelazquez. Our next witness is Mr. Christian A. 
Klein. He is the executive vice president to the Aeronautical 
Repair Station Association and a managing member in the law 
firm of Obadal, Filler, MacLeod & Klein, P.L.C. He represents 
the interests of ARSA members on Capitol Hill. ARSA represents 
over 700 and was founded in 1994.
    Welcome, sir.

   STATEMENT OF CHRISTIAN A KLEIN, EXECUTIVE VICE PRESIDENT, 
            AERONAUTICAL REPAIR STATION ASSOCIATION

    Mr.Klein. Thank you very much, Chairwoman Velazquez, 
Ranking Member Chabot, other distinguished members of this 
Committee. Its my pleasure to be with you today in my capacity 
as executive vice president of ARSA. For those of you who 
aren't familiar with us, ARSA is a 670-member strong trade 
association that represents aviation maintenance, design and 
manufacturing companies. Our members fit squarely into the 
small business demographic.
    By way of example, we did a member survey a couple months 
ago that found that close to two-thirds of our members have 50 
or fewer employees and that close to half of our members are 
owned by a single individual or a single family. Nationwide 
there are about 4,200 FAA-certificated repair stations, and 
just to give you a sense of the economic footprint of our 
industry, we have included as appendix A of our testimony a 
State-by-State breakdown, showing the number of repair stations 
in each State and the number of people they employ.
    I have been asked to comment today on the lessons that ARSA 
has learned over the last 2 years in the course of challenging 
the new FAA rule under the RegFlex Act and suggest some 
modifications to the RegFlex Act.
    The background in our case is as follows. In early 2006, 
January of 2006, the FAA issued a new rule that dramatically 
expanded the scope of the agency's drug and alcohol testing 
program. And under the new rule, machine shops, dry cleaners, 
local electronic repair stores that occasionally and 
incidentally did business with us, with certificated repair 
stations, would be forced--was basically given a difficult 
choice, either implement a Department of Transportation-
approved drug and alcohol testing program or stop doing 
business with the aviation industry.
    Now during the rulemaking process, the FAA estimated the 
impact--that the rule would impact fewer than 300 entities and 
that a RegFlex analysis wasn't necessary. We conducted a survey 
of our members and the results were analyzed by a well-known 
aviation industry economist and our survey suggested that, in 
fact, the rule would impact between 12,000 and 22,000 
companies. Based on this information, the Small Business 
Administration's Office of Advocacy got involved in the process 
and urged FAA to conduct a full RegFlex analysis, consider 
policy alternatives et cetera.
    Unfortunately, when the FAA issued its regulation in 
January of 2006, the agency completely ignored ARSA's data, 
they ignored the SBA Office of Advocacy, they even ignored 
Members of Congress who, during the rulemaking process, had 
weighed in and expressed concerns about the way the FAA was 
handling the regulatory flexibility issues. So last March ARSA 
filed a lawsuit challenging the new FAA rule on, among other 
theories, a RegFlex theory. In a decision that was issued this 
past summer, the court agreed with ARSA on the RegFlex issue; 
that it found the FAA had violated the RegFlex Act and remanded 
the rule to the FAA for a complete RegFlex analysis.
    So what does this case teach us? And what lessons can be 
learned, and what does it suggest about ways to improve the 
RegFlex Act?
    The first thing we learned is that courts are willing to 
forgive violations of the Regulatory Flexibility Act when 
agencies use safety arguments as justification, regardless of 
the real merit of those safety arguments. In our case, the 
court refused to stay the enforcement of this new rule despite 
the fact that the FAA had blatantly violated the law and 
despite the fact that tens of thousands of businesses were 
potentially going to be affected.
    So we think this is a substantial hole in the RegFlex Act 
and it suggests to us that Congress should consider amending 
the RegFlex Act to prohibit the enforcement of rules that have 
been successfully challenged in court of the RegFlex Act unless 
some extraordinarily high standard of public interest is met.
    The second suggestion we have, or the second lesson we 
learned is that the costs of bringing RegFlex lawsuits are 
prohibitive, and that the prohibitive costs of the lawsuits 
probably means that many agency actions are never challenged.
    To put it in perspective for you, in the course of our 
case, we accrued about $300,000 in legal bills, and that is a 
lot of money for a small association with an annual budget of 
less than $1 million. So it creates a situation in which a 
statute that was crafted to protect small businesses may in 
fact cripple small businesses that try to enforce their rights 
under the law.
    So it suggests to us that Congress should consider creating 
some sort of loser-pay standard in which, if an agency action 
is successfully challenged under a RegFlex Act, that a court be 
able to order agencies to pay attorney's fees and legal fees 
and court costs for agencies and small businesses that 
successfully challenge agency actions under the RFA.
    And finally, you know, just to comment on the small 
business Office of Advocacy, throughout the process the Office 
of Advocacy played the role of the honest broker between 
business and industry. And, unfortunately, the FAA ignored 
everything the Office of Advocacy said. So it suggests to us 
that something should be done to improve the authority of 
Office of Advocacy.
    Madam Chair, I see that my time is about to expire, and I 
wonder if I might be granted one more minute to make a final 
point.
    ChairwomanVelazquez. Without objection.
    Mr.Klein. In concluding, I just would like to point out 
that, unfortunately, Congress bears some of the burden or some 
of the culpability for the fact that agencies are flouting the 
RFA. Unfortunately, we see with increasing frequency that the 
House and the Senate are passing bills that artificially limit 
the amount of time that agencies are given to conduct 
rulemakings. And this in turn limits the amount of time that 
agencies have to conduct RegFlex analyses and the amount of 
time they have to consider other real policy options.
    An example that was near and dear to our heart was a recent 
inclusion in the 9/11 Commission bill provision that 
artificially shortened the amount of time available for repair 
station security rulemaking. I know that there are 
organizations out there concerned about similar provisions in 
the S-MINER bill that are going to limit the amount of time 
available for rulemakings.
    So I would just suggest that Congress consider the mixed 
messages it is sending to agencies. On the one hand, it tells 
agencies to do it fast rather than doing it right, and on the 
other hand turns around and takes agencies to task for failing 
to abide by the RegFlex Act.
    So thank you very much again, Madam Chair, for holding this 
hearing. We appreciate this opportunity and we look forward to 
working with you and Ranking Member Chabot to craft meaningful 
RegFlex reform.
    ChairwomanVelazquez. Thank you, Mr. Klein.
    [The prepared statement of Mr. Klein may be found in the 
Appendix on page 38.]

    ChairwomanVelazquez. Our next witness is Mr. William A. 
Dombi. He is the vice president for law with the National 
Association for Home Care and Hospice. Mr. Dombi is an attorney 
with more than 27 years of experience in administrative law and 
has acted as the director for the Center For Health Care Law 
with a membership base of 6,000 members. NAHC represents home 
care agencies, hospices, home care aid associations, and 
medical equipment suppliers. Welcome, Mr. Dombi.

STATEMENT OF WILLIAM A. DOMBI, VICE PRESIDENT FOR LAW, NATIONAL 
             ASSOCIATION FOR HOME CARE AND HOSPICE



    Mr.Dombi. Good morning. Thank you, Madam Chair and Ranking 
Member Chabot, to be here today to testify on what we consider 
one of the more important areas of law: regulating the 
administrative agency action.
    Home care and hospice is small business. By the nature of 
the service, it is local and it will probably always be a small 
business because it has to be so localized. There are over 
8,800 Medicare home health agencies that provide service and 
the vast majority, over 80 percent, fit the definition of small 
business. Hospices, there are about 3,000 now in the country, 
and about 2,700 of those meet the definition of small business. 
So we are well within the realm of the Regulatory Flexibility 
Act.
    Over the years when we uncovered the Regulatory Flexibility 
Act as a potential protection for our constituency, we saw 
great strengths and some weaknesses as well. And today I am 
here to offer a few recommendations on how we can strengthen it 
further.
    To start with, we just would like the Committee to 
recognize that we are not only regulated as an industry 
delivering care, but we are the customer of the Federal 
Government, in most instances. They purchase services from our 
membership, primarily Medicare and Medicaid services. And in 
our experiences with the regulatory actions of the Centers for 
Medicare & Medicaid Services, we come to these three 
recommendations.
    First--and this mirrors what we have seen from testimony 
from other witnesses as well--there needs to be some 
strengthening of the design and criteria for undertaking an 
impact analysis. As an illustration, my testimony focuses in on 
a recent rule of the Medicare program which sets payment rate 
structures for the Medicare home health benefit. It encompasses 
a $6 billion cut in spending for home health services over the 
next 5 years in a program where spending is well within 
control. In fact, it has been for the last 10 years lower than 
anticipated expenditures that CBO and OMB have projected for 
that benefit.
    But when looking at it from the Regulatory Flexibility Act 
perspective, what we see is that it offers no transparency. To 
this date, 3 months after the final rule has been issued, we 
still do not know why that cut is in that regulation. The 
technical report which is supposed to be the foundation for the 
analysis on that cut has yet to be released publicly. But most 
importantly, when we look at the impact analysis that the 
Medicare program issued on this, they simply looked at a 1-year 
impact on a regulatory action that has 4 consecutive years of 
cuts. And beyond that, when looking at it, they looked at it 
simply from the perspective of what percentage change in 
revenue would exist.
    In my testimony in addendum A, I included a map of the 
United States, which uses the colors that you normally have 
when there is alarm struck--yellow, orange, and red--indicating 
the percentage of Medicare home health agencies where Medicare 
margins will be less than zero after this regulation takes 
effect.
    Madam Chair, in your State between 70 and 90 percent of all 
home health agencies will be losing money delivering services 
to Medicare patients. And Medicare is the best payer home care 
has. So this is a serious issue, RegFlex, in terms of the 
impact analysis requirements.
    Second recommendation. The breadth of coverage of the 
Regulatory Flexibility Act should be expanded to include 
guidelines and policies of general applicability. Rarely does 
the Medicare program engage in formal rulemaking in what would 
be constituted as a legislative rule subject to RegFlex.
    An example of a disastrous policy that just was recently 
released by the Medicare program affects hospices. As of July 
1, all hospices will be required to bill on a discipline-
specific, per-visit basis with charges based on those 
disciplines of service. And that may not sound too concerning 
to people at first blush, but when you understand that hospice, 
since its inception, has been a per diem service with bundled 
disciplines of care, the hospices that deliver the services do 
not even record the number of visits by discipline. Medicare is 
suggesting that they also include the number of visits by 
discipline for when the person is an inpatient in a hospital, 
counting the number of times a nurse walks in the room for that 
individual, and then to create a charge for that service, which 
doesn't exist at this point too. Entirely new billing systems, 
entirely new business practices would be required.
    And finally, the recommendation goes through a progeny of 
the RegFlex Act--that is the Congressional Review Act--where 
Congress has the power to invalidate a regulation.
    We recently had an experience with this where Congress was 
interested in invalidating a regulation affecting home health 
services, but was told by a legislative counsel in the House 
that we could only invalidate the entire regulation, not just 
the offending portion.
    Medicare has been issuing regulations that are apples and 
oranges. Recently a regulation of physician fees was combined 
with the regulation on therapy services criteria, completely 
unrelated.
    But I thank you for the opportunity to be here today and I 
look forward to working with the Committee.
    ChairwomanVelazquez. Thank you, Mr. Dombi.
    [The prepared statement of Mr. Dombi may be found in the 
Appendix on page 49.]

    ChairwomanVelazquez. Our next witness is Mr. Jeffrey S. 
Lubbers. Professor Lubbers is a fellow in law and government at 
American University's Washington College of Law. Prior to 
joining American University he served in various positions with 
the Administrative Conference of the United States. From 1982 
through 1995 he was the ACUS research director and coauthor of 
the 1992 study, "The Federal Administrative Judiciary." 
Welcome.

 STATEMENT OF PROFESSOR JEFFREY LUBBERS, WASHINGTON COLLEGE OF 
                    LAW, AMERICAN UNIVERSITY



    Mr.Lubbers. Thank you very much and good morning, Madam 
Chair and members of the Committee. I am pleased to be here 
this morning to discuss the Regulatory Flexibility Act.
    My impression is that the act has had a beneficial act 
under the stewardship of the SBA's Office of Advocacy, but I 
welcome this Committee's review of the need for improvements. 
My written testimony describes the requirements of the act.
    Today I would like to focus on several issues raised by its 
implementation. First, the RFA's triggering language. The RFA's 
central provision allows agencies to omit a RegFlex analysis if 
the agency head certifies that the rule would not have a 
significant economic impact on a substantial number of small 
entities. The meaning of this unwieldy phrase, which has been 
given the unfortunate acronym of SEISNOSE, has become the 
pivotal threshold issue for agencies when they determine 
whether or not to undertake the drafting of an initial RegFlex 
analysis.
    The GAO has concluded that the lack of clarity in the 
SEISNOSE phrase is hampering the success of the entire act. The 
phrase raises at least three questions. First, what is a 
significant economic impact? Second, what is a substantial 
number? And third, what are small entities? Despite the chief 
counsel's useful compliance guide that describes the 
legislative history and court decisions on the meaning of 
SEISNOSE, there still seems to be uncertainty as to this key 
issue. The GAO suggested that perhaps the chief counsel should 
be delegated the responsibility to make such interpretations. I 
would defer to the chief counsel's view on this, but I note 
that in the analogous area of environmental impact statements, 
the President has authorized the CEQ to issue binding 
regulations concerning the implementation of NEPA by Federal 
agencies. And you may wish to consider this for the chief 
counsel.
    Another apparent problem is that many independent agencies 
assert they are not subject to President Bush's Executive Order 
13272 that enhances the chief counsel's role. It has been 
recommended that Congress codify the executive accord, and that 
is certainly worth considering.
    Another triggering issue is that the act does not apply to 
the vast amount of administrative activity that is not 
rulemaking, such as adjudication, consent decrees, and other 
types of informal actions. It also does not reach most 
rulemaking that is not subject to notice in common, such as 
policy statements and other subject matter rules exempted from 
notice in common under the APA. I think it would be difficult 
to draft a provision that would apply the act to the wide 
variety of nonbinding guidance that agencies issue to the 
public. And OMB is attempting to rein that in right now. So I 
don't advocate expanding the act's coverage in this regard at 
this time.
    I do think that Congress should amend the APA to eliminate 
the exemption from notice and comment for rules relating to 
public property loans, grants, benefits or contracts, however.
    Second issue concerns the role of judicial review. The 
courts have by and large used a reasonableness test to review 
agency compliance with the statute. But they have been willing 
to invalidate agency certifications in enough cases, including 
the ARSA case and one involving the Homeland Security 
Department, that agencies should now know that they have to 
take their RFA responsibility seriously.
    But I do agree with Madam Chair that perhaps you should 
consider making indirect impacts covered under the act as well. 
I think that would be reasonable. Even though agencies can't 
consider every possible ripple effect, they should be able to 
consider substantial indirect impacts on small entities.
    In terms of the role of the chief counsel, I think they 
have been doing an excellent job. I guess the main issues are 
whether the office should be given even more authority, as 
mentioned before, and perhaps whether the office should be 
established as an independent agency with its own budget, more 
along the lines of the Office of Special Counsel that was set 
up to protect whistle-blowers. In terms of the tenure review 
required by section 610, the recent commentaries on that have 
suggested that it is not working very well.
    My own view is that some of the cures that have been 
mentioned, such as automatic sunsets and so forth, might be 
worse than the disease. I would prefer to see the mandatory 
tenure review scrapped in favor of a more targeted approach.
    A recent GAO report concluded that agencies feel that their 
discretionary review of existing rules is much more effective 
than mandatory reviews. So I believe that the approach that OMB 
has been using since 1997 of seeking nominations from the 
affected public about which existing rules to review should be 
used.
    In terms of the advocacy review panel requirements in 
section 609, according to the chief counsel's Web site, there 
have only been 31 EPA panels and 8 OSHA panels since 1996, 
which is a low number. And I believe that is because EPA has 
started to not certify--or started to certify rules as not 
affecting small business to avoid these panels. And I think 
this might be a good issue for a study by a revived 
administrative conference.
    If I could take one more minute?
    ChairwomanVelazquez. Sure.
    Mr.Lubbers. Thank you very much. I also want to mention 
that RFA, of course, is one of many statutes and executive 
orders that requires agencies to take over a dozen separate 
analyses whenever they do a rulemaking. And I just heard that 
the administration is considering a new one with respect to 
impact analysis on international trade. Each one of these, of 
course, is defensible and has its own constituency. But at some 
point, the agency's rulemaking role becomes hampered if the 
task of doing these analyses is not made more straightforward 
and coordinated.
    I think we have to keep in mind that even though rules have 
costs, they also can have great benefits. And OMB recently 
reported that estimated quantified and monetized annual 
benefits of the major Federal regulations it reviewed far 
exceeded the estimated costs.
    I would also note in conjunction with Mr. Chabot's comment 
that the Federal Register is increasing, but actually the 
number of rules issued by Federal agencies has dropped 
significantly since the 1980s period. The government is now 
publishing 48 percent fewer final rules and 61 percent fewer 
proposed rules as compared to 1979.
    Agencies' budgets, of course, are flat lined these days, so 
I would also suggest that in addition to perhaps considering 
new requirements for the agencies to do things under the act, 
perhaps the Committee could pursue ways to provide additional 
funding for agencies based on the number of analyses they have 
to do, the number of panels they set up, the number of reviews 
that they do; and also to respond to ARSA to perhaps provide 
for attorney's fees in situations like where ARSA won their 
case, where they in effect acted as a private enforcer of the 
law.
    So I would hope the Committee might consider that. Thank 
you very much.
    ChairwomanVelazquez. Thank you, Professor Lubbers.
    [The prepared statement of Mr. Lubbers may be found in the 
Appendix on page 65.]

    ChairwomanVelazquez. Our next witness is Ms. Maureen 
Morrissey, the assistant general counsel for the Americas 
Tupperware Brands Corporation. Prior to joining Tupperware in 
1993, Ms. Morrissey worked in a private practice as a tax 
attorney with two boutique law firms as its tax specialist. Her 
current responsibility as assistant general counsel of the 
Americas include responsibility for Tupperware sales 
organizations in the United States. Tupperware has a sales 
force of over 1.9 million people.
    Welcome.

 STATEMENT OF MAUREEN M. MORRISSEY, ASSISTANT GENERAL COUNSEL, 
           THE AMERICAS TUPPERWARE BRANDS CORPORATION



    Ms.Morrissey. Thank you, Madam Chairwoman and esteemed 
members of the Committee. Good morning. My name is Maureen 
Morrissey and I am assistant general counsel for the Americas 
Tupperware Brands Corporation. My testimony focuses on the 
Federal Trade Commission's business opportunity rule, a 
proposed regulation published in April 2006 that generated over 
17,000 comment letters.
    Specifically, I want to address how the FTC has analyzed 
the regulation pursuant to the Regulatory Flexibility Act. 
Tupperware Brands Corporation is a publicly traded direct 
seller of premium innovative products, headquartered in 
Orlando. For over 60 years Tupperware has been one of the best 
known brands in America and a leader in the direct selling 
industry. The term "Tupperware parties" has now entered the 
American lexicon due to their widespread popularity.
    Tupperware products are sold primarily through the party 
plan. Our business model is based on direct sales to customers 
by our individual sales consultants, each of whom is a self-
employed business owner. Today Tupperware has more than 180,000 
independent contractor sales consultants in the United States. 
They are working in every district served by the members of 
this Committee. Through Tupperware, these individuals are able 
to operate their own small businesses and earn significant 
incomes. For many, selling our company's products is a full-
time job.
    Tupperware is very concerned about the impact of the FTC's 
business opportunity rule on these small businesses. In a 
nutshell, the regulation proposes burdensome new requirements 
that must be met before individuals can enter into a new 
business opportunity that requires any level of up-front 
investment. The stated objective of the regulation is to target 
fraudulent schemes. And I want to stress that Tupperware fully 
supports the FTC's efforts to crack down on arrangements that 
involve misrepresentations and fraud. However, the true scope 
of the regulation is far broader. The new requirements also 
would apply to legitimate direct selling opportunities, such as 
those offered by Tupperware.
    The proposed requirements of the business opportunity rule 
are indeed onerous. Of greatest concern, the regulation would 
impose a waiting period requirement under which business 
opportunity purchasers would have to wait for 7 days from the 
time they first receive information from the seller before they 
begin setting up their business. In practice, however, the rule 
would mean new Tupperware sales consultants would have to wait 
for weeks before they could begin making sales. This would 
fundamentally alter the direct selling business which today is 
marked by ease of entry.
    The waiting period requirement would mean fewer recruits. 
And for those recruits who do eventually become consultants, 
the waiting period would significantly dampen their enthusiasm 
at the time of their first recruiting contact. As a result, 
recruits would end up being less successful. The individual 
sales consultants who recruit them also would suffer through 
lost commissions on downstream sales.
    Now I would like to turn to the Regulatory Flexibility Act. 
As you know, the RFA requires agencies to prepare an initial 
regulatory flexibility analysis, or IRFA, when proposing a new 
rule with potentially significant impact on small entities. The 
FTC stated in a preamble to the regulation that it did not 
expect that the business opportunity rule would have a 
significant economic impact on substantial numbers of small 
entities. The FTC nevertheless prepared an IRFA for the 
regulation, and, in doing so, concluded that the regulation 
would only affect 3,200 small businesses, including 2,500 
vending machine and related opportunity sellers and 550 work-
at-home companies. Nowhere is there any mention of the impact 
on individual sales consultants whose very real income earning 
opportunities would be restricted by the rule. Yet the impact 
on these independent small businesses should have been readily 
apparent.
    It is telling that the FTC received more than 17,000 
comments on the proposed rule, far more than the 3,200 
potentially affected entities identified by the FTC. Most of 
the comments were submitted by individual sales consultants 
harshly critical of the impact on their ability to earn income. 
These are the small business owners whom the RFA is supposed to 
protect and whose livelihoods are the subject of this 
Committee's jurisdiction.
    Simply put, the objectives of the RFA are not being met 
when an agency overlooks the impact of a rule on the types of 
small businesses operated by Tupperware sales consultants.
    And it is not just Tupperware consultants who are at issue 
here. There are more than 10 million direct sales consultants 
in this country selling products offered by Mary Kay, Avon, 
Longaberger and others. The impact is real. My phone is still 
ringing with the complaints from our sales force consultants 
who are worried about their futures. The Regulatory Flexibility 
Act needs to protect their interests.
    Either the FTC did not comply with the act in issuing the 
business opportunity rule or the act itself needs to be 
strengthened to ensure that these types of small businesses are 
not overlooked in the future.
    Thank you for permitting me the opportunity to testify 
today and to represent the interests of our 180,000 consultants 
whose small businesses are at risk.
    ChairwomanVelazquez. Thank you, Ms. Morrissey.
    [The prepared statement of Ms. Morrissey may be found in 
the Appendix on page 81.]

    ChairwomanVelazquez. Mr. Rajkovacz, I would like to address 
my first question to you.
    The Regulatory Flexibility Act requires agencies to prepare 
a regulatory flexibility analysis when proposing a rule that 
may impact small businesses. The current law allows agency 
heads to avoid conducting an analysis if they certify that 
there will be no impact on small businesses. Agencies often 
exploit this loophole by providing a short dismissive 
statement.
    Should the law be changed to close this loophole? And do 
you believe it would be beneficial to require agencies to 
provide greater detail why there would be no impact on small 
businesses?
    Mr.Rajkovacz. Yes, I do. What you described is an agency, 
in essence, waving a magic wand and saying there is no impact 
when, in fact, there can be a very severe impact to small 
businesses. You are absolutely correct in how you raised that.
    ChairwomanVelazquez. Mr. Klein, RegFlex requires the 
Federal Government, when conducting an analysis, to describe 
significant alternatives to a rule that could minimize the 
economic impact on small businesses. I know that regulators 
don't always make a great effort to examine those alternatives.
    What has been your experience as to rulemaking on this 
front? And are agencies taking a serious enough look at 
alternatives to the rules that minimize burden to small 
businesses?
    Mr.Klein. Well, again, I certainly don't want to speak for 
every agency in every situation. I can certainly say in our 
case the FAA didn't meet the responsibility. And the good news 
is that from what we are hearing from inside the FAA, that they 
have felt the sting of our lawsuit and they are taking their 
responsibilities somewhat more seriously internally and they 
are giving RegFlex issues some more scrutiny.
    But, again, I think that to go back to my statement, I 
think that there are things that Congress should consider doing 
to tighten up the RegFlex Act. Again, I think some sort of 
concept of--sorry.
    ChairwomanVelazquez. Do you think if it requires loser-pay 
standards that also will be an incentive for agencies to be 
more cautious?
    Mr.Klein. Exactly right. I think that holding a Sword of 
Damocles would make a big difference.
    ChairwomanVelazquez. Could you talk to us about any other 
ways that we could strengthen RegFlex to ensure that agencies 
do a better job of considering alternatives to the rule?
    Mr.Klein. Well, again, I think number one would be to--
again, the loser pays thing would be one great way to do it. I 
think that giving the Office of Advocacy a greater role in the 
process to--you know, again I think right now you have a 
watchman who is supposed to be watching the watchman. But 
unfortunately the watchman has a .357 Magnum, and the watchman 
watching the watchman has a little butter knife. And I think if 
there was a way to beef up the authority of the Office of 
Advocacy and we give them more authority to prod the agencies--
because again, in our case, the FAA just ignored the Office of 
Advocacy--I think that would make a big difference.
    ChairwomanVelazquez. Professor Lubbers, in September I sent 
a letter to Secretary Chertoff regarding the agency's failure 
to comply with RegFlex in promulgating the no-match letter 
rule. In litigation over the rule, Judge Breyer enjoined it 
largely due to RegFlex issues.
    Can you discuss the importance of judicial review of 
RegFlex in the context of this case and how critical is 
judicial scrutiny in ensuring RegFlex compliance.
    Mr.Lubbers. Well, I think the judicial review is the 
backstop for complying with all of our Federal procedural laws. 
And we have seen that the courts have been very vigilant in 
enforcing the Administrative Procedure Act's requirements on 
agencies. And here with the ARSA case and the case in 
California that you mentioned, I think the agencies are 
probably getting the message now that they really have to take 
the RegFlex Act seriously as well. But also point out that the 
Chief Counsel's Office has the power to go into court and 
support small businesses as an amicus curiae, as a friend of 
the court, and I don't know how often the Chief Counsel's 
Office has been doing that or is able to do that. I suspect the 
Department of Justice might not particularly like that when 
they come in and sort of argue against the government's 
position. But I think that is another thing the Committee might 
want to look at.
    ChairwomanVelazquez. Thank you. Mr. Dombi, not all 
agencies' actions are subject to the requirements of RegFlex. 
And even though some of those actions will have an impact on 
small businesses. The act only applies to rulemakings that are 
required to be published pursuant to notice and common 
rulemaking under the APA. In your testimony, you touch upon 
this issue.
    Can you further discuss some of the agency's actions that 
your industry has monitored that were not covered by RegFlex 
but have had a significant impact on small businesses?
    Mr.Dombi. Certainly. Actually, Medicare's habitual approach 
is to use policy guidelines that change seemingly at their 
whim. In addition to the hospice rule that I mentioned to you 
on billing practices, they have made major changes in what we 
call the oasis patient assessment instrument, which is a 
uniform data collection device which is all driven by both time 
and technology to have it be accomplished. They do not do a 
RegFlex analysis at all relative to this oasis instrument. That 
is one of the more time-consuming elements of the delivery of 
services for home health service.
    The Medicare coverage standards themselves for home health 
and hospice services are built into regulations. But the real 
meat of the coverage standards are in what is known as the 
health insurance manuals, which are these Internet-based 
manuals where transmittals are issued without any opportunity 
for public notice or comment and certainly no RegFlex analysis.
    When you look at the Medicare regulations on home health 
and hospice, they may compromise 20 or 30 pages of a CFR, but 
the guidelines themselves compose somewhere in the neighborhood 
of 4,000 to 5,000 pages.
    ChairwomanVelazquez. Thank you.
    Ms. Morrissey, I would like to talk to you about--the FTC 
certified that there will not be significant economic impact on 
small entities from the business opportunity rule. Even though 
the agencies certify no impact, it still conducted an initial 
regulatory flexibility analysis. Was the FTC's regulatory 
flexibility analysis deficient in any way?
    Ms.Morrissey. We certainly believe that it was. It appears 
that it was very, very cryptic on its face. And even 
considering just one of the industries, such as direct sales 
that clearly was impacted by the rule, they seem to have 
assumed that it would only apply at the entity level, such as a 
Tupperware Brands Corporation level, rather than taking into 
account the persons within a sales organization who are 
themselves self-employed business entities who would actually 
be directly impacted by the rule. And in that instance we 
certainly think that there was a wide miss when they took aim.
    ChairwomanVelazquez. Thank you. And now I recognize Mr. 
Chabot.
    Mr.Chabot. Thank you very much, Madam Chair. Ms. Morrissey, 
I will begin with you if I can. First of all, I just might 
note, I wasn't even aware you could still get Tupperware out 
there, because I thought my wife had already bought it all. She 
has been to a lot of those parties over the years. It is pretty 
popular.
    Ms.Morrissey. We like to hear that.
    Mr.Chabot. Okay. But in all seriousness, you mentioned, I 
think, that you were aware of about 17,000 comments I think at 
one point. And I am just curious. How much weight do you 
believe--or how much confidence do you have that the government 
agency involved either in this case, or really in any of them, 
fully take into consideration that input when they issue a rule 
or make a decision or whatever? Just as a person that is out 
there in the private sector, what do you feel about it and what 
do you think generally people think about that?
    Ms.Morrissey. Well, I think that everyone would like to 
believe that when people are given the opportunity to speak out 
on a rulemaking process, that the officials who are charged 
with enacting rules and regulations in good faith take heed of 
the comments that are being submitted.
    I think in this case perhaps the volume of them in and of 
itself was so overwhelming that I think it has caused the FTC, 
certainly in this instance, to pause and reflect. At least that 
is our expectation and that is our belief currently. Whether or 
not that will actually translate into anything meaningful for 
small business remains to be seen. But we are certainly 
optimistic that the FTC will reach out to those who did submit 
substantive comments and ask for their opinions, and hopefully 
hold public hearings and really delve into some of the crucial 
issues that were raised during the comment period.
    Mr.Chabot. Right. And I would agree. That is what should 
happen. I certainly hope it does happen in most if not all 
cases because we--us being, I guess, the faces to some degree 
of the Federal Government and the agencies, when people take 
the time to comment to the government, we certainly ought to 
factor that into our decisions.
    Let's see. Professor, I will move to you next if I can. You 
had mentioned that you were--you know that there is an awful 
lot of analyses oftentimes that are done now whenever there is 
a rule that is being considered by a specific agency. And it 
can be pretty overwhelming, and that maybe that slows down the 
process or whatever.
    I was just wondering if you could expound upon that just a 
little bit. I know that you have got environmental impact 
statements. I was a cosponsor of a bill that would--we were 
concerned that the government was issuing rules. Oftentimes it 
wasn't necessarily factoring into consideration the impact on 
privacy of people when we do things, and that had to be a thing 
which was well-intended, but we knew that was another level of 
kind of bureaucracy, or it slows things down. And I am just 
kind of interested to hear you talk a little bit more about 
that.
    Mr.Lubbers. Sure. In addition to the statutes you have 
mentioned, there is also the Paperwork Reduction Act, the 
Unfunded Mandates Reform Act, and many executive orders issued 
by various--various Presidents that are still in effect that 
mandates specific impact analyses. There is analyses that are 
required on federalism issues, impact on State, local and 
tribal governments, on energy distribution and usage, on the 
health of--environmental health of children, environmental 
justice issues in terms of citing things in minority 
communities. I know I am forgetting some.
    Mr.Chabot. Do I hear what your point is, is that maybe each 
one of those individually seems like a well-intentioned 
concern?
    Mr.Lubbers. Exactly.
    Mr.Chabot. But maybe cumulatively we maybe need to step 
back and--
    Mr.Lubbers. That is my point. And I think that, you know, 
you mentioned the pages of the Federal Register. And one of the 
reasons the Federal Register has expanded so much is that when 
you look at the preambles of these rules now, they are very 
long. And one of the reasons that they are long is the agency 
has to go through sort of a boilerplate litany; this rule does 
not affect x, does not affect y, does not affect z. And 
sometimes, of course, they have to actually sometimes do these 
analyses and that is not cost-free for the agencies.
    I am sure this Committee is not a great venue to talk about 
the needs of Federal agencies to do more regulation. But you 
know, I think we have to recognize that Congress does delegate 
a lot of responsibility to the agencies to issue regulations.
    Mr.Chabot. Thank you very much.
    Mr. Dombi, you had mentioned--I know being in the hospice 
and the health care industry that you are--you had talked 
about, I think, the $6 billion or so in the Medicare--the cuts 
that you were concerned about. And the thing I was thinking 
about as you were talking about that was, it seems that 
Congress over the years--this was whether it was under 
Republican control or under Democrat control, it happened I 
think under both sides. Oftentimes there will be the cuts that 
are in either the budget at the early part of the year or in 
some authorization bill--and you all get all that information 
out there that there are going to be these cuts--and you have 
to be very concerned about them. And ultimately Congress 
doesn't pass all its spending bills--we call them 
appropriations bills--on time. And a lot of them will get 
thrown together in one huge omnibus at the end of the year, and 
either gets passed very late, and you all are looking at this 
stuff all along, trying to plan things out for the next year 
and it leaves you kind of hanging. Whereas if you knew where 
you really were going to be, and if there were going to be 
cuts, what they really would be--and maybe there won't be any 
cuts at all-- but we kind of scare you all to death all year 
until the last minute.
    Is that problem--I think I probably answered my own 
question by asking it.
    Mr.Dombi. It is a very serious problem that we are facing 
once again this year. In fact, there have been times when this 
Congress has retroactively cut payment rates. A few years back, 
in 2003, they retroactively cut home health services 3 months 
earlier, and there was a payback obligation that occurred from 
that.
    The regulatory process, we have the same issues on. When 
the proposed rule came out on home health payment rates this 
year, it had 3 years of cuts. When the final rule came out 
after we were able to convince Medicare that it was wrong in 
their analysis, they gave us a fourth year of cuts. It is kind 
of tough to budget your business in that respect.
    Mr.Chabot. Thank you.
    Mr. Klein, you mentioned perhaps going to--you know, if you 
bring a regulatory flexibility violation-type case, you had 
talked about the concept of loser pays, for example. And I was 
advised that we have the--currently you can essentially get 
that under the Equal Access to Justice Act. However, the 
attorney's fees are capped at $125 an hour. And you indicated 
that your cost in the one case that you referred to was 
$300,000. So even though perhaps there is some remedy on the 
books, it sounds like that is woefully inadequate.
    Mr.Klein. I think two points, Congressman. The first would 
be that the remedy is woefully inadequate. And the second is 
that one of--the other holes that exist in the RegFlex Act is 
the fact that agencies can go ahead and enforce rules found to 
violate the RegFlex Act, as our case showed.
    Again, we think there should be some addition. It is not 
just about the money. It is also about the principle. And it is 
also about the reason we undertook this litigation was we were 
genuinely concerned about the impact this was going to have on 
as many as 22,000 companies that our members are working with 
or our industry is working with.
    So some sort of bar to enforcement of rules found to 
violate the law we also think would also be appropriate.
    Mr.Chabot. Thank you. And then finally, I am just going to 
call you Joe if that is okay.
    Mr.Rajkovacz. That is okay.
    Mr.Chabot. You had suggested that the RFA needs more 
concrete requirements concerning the mandate to study the costs 
on small businesses. What specific statutory changes would you 
recommend?
    Mr.Rajkovacz. Well, one of the examples--with reference to 
the TWIC card and Hazmat endorsement, and it is simply not just 
those two. There is an additional fast card under CBP, there is 
the coming pass card, passport requirements for drivers across 
border operations, DOD clearances, DOE clearances, individual 
States, Port Everglades in the State of Florida, they have 
individual requirements for each port in order to access those 
ports. So it seems somehow this all needs to be unified, at 
least under one national credential.
    There is tremendous cost involved in this, not to mention 
the more cards--you have got truck drivers running around with 
a stack of cards that they have to hand out to everybody, it 
seems counterintuitive to the very sought-for security that the 
more cards an individual has, the more likely for things like 
fraud, lost cards, et cetera, et cetera. So it does seem that 
somehow these agencies need to be forced to speak with one 
another and streamline these processes where they each are 
making an identical requirement.
    Mr.Chabot. Thank you. And I think you were dead-on when you 
said that the trucking folks, independent truckers and the 
rest, really are the backbone of the economy of this country. 
And so I think we always need to be careful about what we do. 
We want the public to be safe, and you all to be safe too. But 
I think you all need to be careful because you all do such a 
great service to the country.
    Thank you, Madam Chair. I yield back.
    ChairwomanVelazquez. Mr. Gonzalez.
    Mr.Gonzalez. Thank you very much, Madam Chairwoman 
Velazquez.
    My first question goes to Mr. Dombi. And that is, it 
appears in your testimony, what you are pointing out, that we 
have statutes in place that would insist that agencies and 
departments of the Federal Government as they promulgate rules 
and especially what would be reimbursement rates and such, that 
there would be transparency, that you would be able to 
participate and such. But that has not been the case.
    In the latest rulemaking that you point out in your 
testimony, my observation--and with CMS especially, you know, 
they kind of work backwards. And I don't know how much 
protection we can actually give. But I do believe the 
regulatory scheme or the legislation that we have in place that 
would make it not only transparent, but again to justify and 
substantiate the basis for the amounts that they are finally 
settling on, which you have been frustrated in doing.
    The problem as I see it, and I think other Members may 
agree with me, is they start off with a budgetary figure and 
then work backwards and figure out, all right, we are going to 
allow you to charge no more than this in order that we don't 
bust this particular cap that has been artificially set for us 
at the very beginning by our budgetary process.
    But do you still believe if that is the case, that you 
still would be given greater input and we would be able to at 
least establish that there is a disconnect with what is being 
determined as a reimbursement rate as to what is really 
happening for delivering, let's say, the home care service that 
your members deliver?
    Mr.Dombi. I strongly believe that if CMS were to be more 
transparent in its regulatory undertakings and disclose what is 
the basis for their action and to do a complete impact 
analysis, it would put everybody in a much better position, 
including this Congress. Because right now, when we have come 
to this Congress--and there is a bill pending in the House 
here, H.R. 3865, that some members of this Committee are 
cosponsoring already, that would stop this regulatory action 
and send CMS back to the drawing board and say be transparent, 
make a process that everybody can understand and have it open 
so that there is an opportunity for public comment and input on 
that process, then I think we would end up with a much better 
result.
    Maybe I am that eternal optimist in that respect. But I 
still believe, you know, that if CMS were to be hold the 
criteria that they have to follow, there would be fewer gains 
that they could play in using the RegFlex Act and providing an 
impact analysis.
    In this regulation I mentioned, the impact analysis looked 
at the percentage change in revenue for 1 year for groups of 
agencies that are in New England, the mid-Atlantic States, the 
far West, when home care is a local service.
    And as I pointed out earlier in my testimony, 52 percent of 
all home health agencies will be bankrupt with this system. 
They never looked locally. Those kinds of changes and an impact 
analysis would be very helpful for them to advise this 
Committee and other Committees of Congress as to what the 
effect of the regulatory action would be, because we are not 
only blind on this until we do our own analysis, but you are as 
well.
    Mr.Gonzalez. Exactly, because I don't have good answers for 
my home care providers back in San Antonio. Thank you for your 
testimony today.
    This is in a way an observation, Professor Lubbers. I 
always think in terms that we are going to try to have some 
sort of legislative fix that may incorporate some of your 
suggestions or recommendations, and we still may be frustrated 
at the end of the day in identifying that which really causes 
the greatest heartburn and such for the small businessman or -
woman.
    For years now we have been trying to get HUD just to reduce 
our contract or a lease agreement from, let's say, 8 to 12 
pages or something that is reasonable, and we still can't do 
it. But I am thinking in terms of how do we make it--is there a 
practical tool out there?
    And I am going to recommend something out here, Chairwoman 
Velazquez. I have got it here. It is called tellnydia.com. And 
what it is--we are going to inform every small businessman and 
-woman in the United States, if they come across a regulation, 
paperwork, whatever, that is totally wasteful, they don't 
understand its relevance or whatever, doesn't serve any useful 
purpose, that they would simply advise Chairwoman Velazquez. 
And then we would take the top 10 every year and figure that we 
have got a problem out there.
    That is just a suggestion, and I hope it wouldn't be 
tellgonzalez.com. We are going to leave it with the Chairwoman.
    Mr. Klein, if you think you have run into problems with the 
FAA, I am just going to tell you one of my stories so everybody 
understands. It is also Members of Congress.
    ChairwomanVelazquez. I have been reminded that you are the 
Subcommittee chair on Regulatory Affairs. I may delegate that 
to you.
    Mr.Gonzalez. But I think people quake in their boots when 
they hear the name Nydia Velazquez. It will get a lot more 
attention.
    Mr. Klein, FAA--I get a letter and I am trying to assist 
the aircraft mechanic in San Antonio to get certification. The 
regional Dallas office simply ignores it and can't even tell 
him when they are going to come and inspect him and certify 
him.
    It is a simple thing. A Member of Congress writes a letter 
to the Dallas regional FAA. I get some sort of form letter that 
tells me, hey, you guys just don't provide us enough money to 
do what we need to do, Congressman; but doesn't tell me 
anything about timeline, when the poor mechanic can await the 
inspection and certification process. And then the 
administrator tells me, and if you have any further questions, 
please get ahold of Dan Smith.
    So I am upset with this thing. So I go to the chair of the 
Subcommittee on Aviation, Mr. Costello from Illinois. And he 
writes a letter directly to the FAA Administrator Peters. And 
in it he says, and by the way, will you please advise your 
Dallas regional head that Dan is no longer working for FAA and 
hasn't worked for you guys for 6 months?
    I mean that is the kind of pushback we get. Now, I did get 
a follow-up letter that gave us a timeline of, you know, 
between now and 20 months, so it wasn't really that helpful to 
my poor constituent. We understand your problems. The whole 
thing is how would you get to communicate those things in a 
useful way that we can act. Again, thank you very much for your 
participation today.
    ChairwomanVelazquez. The time has expired. And Mr. 
Ellsworth.
    Mr.Ellsworth. Thank you, Madam Chair. Why do you think that 
we leave these seats in between? Everybody sits this way. Mr. 
Chabot is brave to be there. Maybe we don't quake in our boots 
that much.
    Mr. Klein, I would like to start with you. First, let me 
thank you for asking for that extra minute in your testimony. 
That helps for us to hear what we need to improve upon. So I 
appreciate that. I also appreciate your analogy of the butter 
knife 357; things we can understand and relate to.
    Talk to me a little bit about the agendas required that 
could have a significant impact on small entities. And I think 
I have your opinion on the FAA doing a good job at crafting 
these. But talk about the small business, the accessibility of 
these reports to small businesses. Are they accessible? And are 
they written in such a way--you made a good analogy. People 
would know what a butter knife and a 357 is. Can't a small 
business owner-operator understand the way they are written?
    I think it was the professor that talked about the preamble 
and how lengthy that is and how tough that is on a small 
business to understand that, if that is in your bailiwick?
    Mr.Klein. Well, I certainly don't consider myself an expert 
on that subject. I do know that we do receive a document from 
the various regulatory agencies each year describing their plan 
and it is published. But I also know that the Reg Flex Act does 
give them the authority. I would defer to Professor Lubbers on 
this question. I may be incorrect, but it is my understanding 
it basically does not limit agencies to doing what they put in 
that regulatory plan, that they can basically undertake other 
rulemakings that aren't in that agenda. So that basically has 
limited value.
    I will also say that the regulatory compliance aspect for 
the person at the ground level, I think that agencies do a very 
bad job of estimating the impact and sort of the opportunity 
cost impact of regulatory compliance. They don't understand 
that 15 minutes that a small business owner spends trying to 
fill out a form is 15 minutes that she is not spending running 
her business, making money, doing what she is best at. And so I 
think that aspect of the regulatory compliance and the review 
of the regulatory documents like that is lost on rulemakers 
unfortunately.
    Mr.Ellsworth. Thank you very much. Joe, I am going to use 
the first name, too, since the ranking member did. It appears 
from the testimony that the small firm pays substantially more 
than the large firm to comply with the larger counterparts. And 
it appears that it is more difficult for independent truckers 
to comply, or is it more difficult for the independent trucker 
to apply to the large agencies just because they don't have the 
manpower, the people that go through those documents. Tell me 
how it affects the competition, how you stay in and how you 
compete with the larger trucking firms. And obviously we are 
looking for a level playing field so you can stay in business, 
too.
    Mr.Rajkovacz. Well, one of the examples, I was an appointee 
by the Secretary of Transportation to the Commercial Driver's 
License Advisory Committee, and it was charged with writing a 
report to Congress about ways to improve commercial driver's 
licensing. I was the only small business representative on 
that. When you look at an industry that is so predominantly 
represented by small business truckers, this is something you 
see continually. Through the regulatory process of agencies, 
when they have advisory committees, there will not be a single 
small business representative on that. In fact, I would 
characterize it sometimes as putting the fox in the hen house 
when you have large businesses sitting on committees that are 
going to decide the regulations that they are going to play by. 
Small businesses are tremendously handicapped by that. They are 
not included in a proportional number on these advisory 
committees.
    Mr.Ellsworth. Let me ask you something. I have still got a 
green light, and that was my question. But I want to ask you 
something a little off subject. And I have got a good friend 
that owns a trucking company back in southern Indiana, and one 
of the concerns he had--and since you are here I am going to go 
ahead and ask you. Talk about making life easier for you all 
and these regulations that don't seem to make any sense. He was 
telling me about a situation where a trucker is involved in an 
accident, totally not his fault, and yet the regulation says 
that if that person operating a truck is involved in an 
accident, he is subject to the automatic audit that then costs 
these trucking firms an inordinate amount of money. Normally it 
is just a random they get pulled out when they can. They get a 
come-up on a normal traffic accident and they are then put into 
a more frequent audit.
    Do you find that to be true, and is that something--and I 
apologize, Ms. Chairwoman, but I have got a trucking 
representative here--is that true and is that something that we 
should be working on? Because if it is not the trucker's fault, 
they shouldn't be unduly penalized for being in an accident 
that they had no cause in.
    Mr.Rajkovacz. There is a formulary that is used by the 
Federal Motor Carrier Safety Administration in determining when 
to conduct a compliance review. And that is what they would 
call safe stat. And there is a mathematical formula. I mean, 
these are all PhDs that come up with this formula.
    Mr.Ellsworth. So it is messed up.
    Mr.Rajkovacz. And they are in the process, and it has been 
a process going on now for at least a couple of years, of 
reviewing and trying to come up with a more effective formula. 
Right now one truck operator ends up being judged by the same 
formula that a 17,000-truck motor carrier does. And so I am 
aware that they are looking at peer review and all this. It is 
an ongoing process.
    But, yes, what your constituent told you is exactly 
correct, is that he faces the same exposure that a large motor 
carrier would.
    ChairwomanVelazquez. Your time has expired. I would like to 
ask the three members, Cuellar, Ms. Clarke and Ms. Hirono, if 
you prefer to make your questions now or come back after the 
votes? We have three votes--four.
    Ms.Hirono. I don't know what my schedule is. Could I just 
ask all of the panelists just one question?
    ChairwomanVelazquez. Okay.
    Ms.Hirono. Thank you, Madam Chair. All of you have made 
various suggestions on how we can improve the regulatory 
process for small businesses. And I would just like to ask each 
of the panel members what is the most important change that 
this committee could make that would assist the small business 
communities, in your view? Start with you, Joe.
    Mr.Rajkovacz. In my view, one of the very significant 
things would be the requirement that the agencies must actually 
do a real cost benefit analysis and how they affect small 
businesses and have to publish this. Not, as I mentioned 
before, wave a magic wand and just move on. It totally leaves 
small businesses in the dust.
    Ms.Hirono. Thank you. Mr. Klein.
    Mr.Klein. I think the best case scenario again is this 
concept of a loser pays for agencies that violate the 
regulation or I think that strengthen the Office of Advocacy. 
We have a very pragmatic approach as well.
    Mr.Dombi. Actually, I am going to combine the two 
gentlemen's first comments. Strengthening the Office of 
Advocacy to engage in some of their own rulemaking to establish 
criteria for that cost-benefit impact analysis would go a long 
way.
    Ms.Hirono. Do they currently have the authority to engage 
in their own rulemaking?
    Mr.Dombi. I do not believe they have any such authority at 
all.
    Ms.Hirono. Then we probably need to give it to them. Go 
ahead.
    Mr.Lubbers. I would agree with those suggestions. And I 
would also just say that if there is a way to give some 
incentive to the agencies to do more of these things through 
some kind of a carrot approach, like providing some more 
funding for doing specific things under the act, that would be 
good, too.
    Ms.Hirono. Thank you.
    Ms.Morrissey. I concur with all of the recommendations that 
have been made thus far. But I would also suggest that I think 
that in order to make the agencies truly accountable to small 
businesses and the impacts that they create on them, that there 
needs to be either some sort of verification process that is 
undertaken by the SBA or the Office of Advocacy once an IRFA or 
other analysis is done. But then if there is a flaw in that 
analysis, that the agency be made to go back and redo it before 
moving forward with the rulemaking process. Because I think it 
is imperative that the impact on small business not be a fix-it 
situation, but something that is included in the analysis of 
any proposed rulemaking from the outset so that there is a 
requisite parity that will protect small business interests.
    Ms.Hirono. And who would make the agencies be accountable? 
Would it be the Office of Advocacy?
    Ms.Morrissey. That seems to me to be an appropriate place 
to put that sort of watchdog characteristic, provided that they 
have the requisite authority to be effective in that role.
    Ms.Hirono. Thank you. I yield back.
    ChairwomanVelazquez. Ms. Clarke.
    Ms.Clarke. Thank you very much, Madam Chair and ranking 
member. My first question is to Mr. Dombi. I have a very large 
home care industry in Brooklyn, New York, and I would like to 
sort of get your take on this. As you state in your written 
testimony, Federal regulations are part of everyday life for 
home care and hospice. And as you know, Federal regulations 
have the greatest impact on the Centers of Medicare and 
Medicaid Services.
    What will be the significant economic impact on small 
businesses if Congress does not step in to address regulatory 
Medicare home health cuts?
    Mr.Dombi. I can only look back at a similar action that the 
Medicare program took in 1998. At that point there were over 
10,000 providers of home health services nationwide. Three 
years later there were 6,600, and there were multiple parts of 
the country that had no access to home health services at all. 
That is what I fear will come from this.
    Ms.Clarke. And have expenditures for Medicare home health 
services exceeded projections from 2000 to 2005, as estimated 
when PPS was instituted in 2000, and how do actual expenditures 
compare to estimated expenditures?
    Mr.Dombi. Actual expenditures are significantly below 
projected expenditures. To put it into some context, in 1997 
dollars there were over $17 billion Medicare spent on home 
health services. In 2007, the estimate is going to be under $15 
billion. So this is a program that is not out of control 
spending wise, yet on the table are additional cuts.
    Ms.Clarke. To Mr. Klein, section 223 of Reg Flex requires 
Federal agencies to establish a policy for the reduction and 
waiver of civil penalties on small entities. Some agencies, 
however, provide small entities with no greater penalty relief 
than large entities.
    Should Congress amend Reg Flex to compel agencies to comply 
with section 223, as well as other provisions, and if they fail 
to comply, craft consequences for these agencies?
    Mr.Klein. Well, if I understand your question, and to be 
honest with you, I may be out of my water a little bit on that 
particular question, but I think that anything Congress can do 
to encourage the agencies to comply with laws already on the 
books, absolutely.
    Ms.Clarke. Just as a follow-up, should Congress include a 
judicial review provision which would allow small entities to 
recover court costs and legal fees from successful Reg Flex 
challenges?
    Mr.Klein. We would very much like to see that. Thank you.
    Ms.Clarke. I yield back, Madam Chair.
    ChairwomanVelazquez. As you know, we have votes going on 
the House floor. I want to thank all of you for coming here. 
And we understand these important issues for small businesses. 
We are going to continue to look at the concerns that you 
raised here to decide if we can come up with some legislative 
fixes.
    With no further questions, I would like to thank the panel 
for their testimony today. Members have 5 legislative days to 
submit additional materials or statement for the record.
    Thank you again, and this hearing is adjourned.
    [Whereupon, at 11:30 a.m., the committee was adjourned.]

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