    [House Hearing, 112 Congress]
    [From the U.S. Government Publishing Office]

     ``REGULATORY FLEXIBILITY IMPROVEMENTS ACT OF 2011''--UNLEASHING SMALL
                           BUSINESSES TO CREATE JOBS

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

                                    HEARING

                                   BEFORE THE

                       SUBCOMMITTEE ON COURTS, COMMERCIAL
                             AND ADMINISTRATIVE LAW

                                     OF THE

                           COMMITTEE ON THE JUDICIARY
                            HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                       ON

                                    H.R. 527

                                   __________

                               FEBRUARY 10, 2011

                                   __________

                               Serial No. 112-16

                                   __________

             Printed for the use of the Committee on the Judiciary

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

          Available via the World Wide Web: http://judiciary.house.gov

                                  ______

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                           COMMITTEE ON THE JUDICIARY

                          LAMAR SMITH, Texas, Chairman
    F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
        Wisconsin                        HOWARD L. BERMAN, California
    HOWARD COBLE, North Carolina         JERROLD NADLER, New York
    ELTON GALLEGLY, California           ROBERT C. ``BOBBY'' SCOTT,
    BOB GOODLATTE, Virginia                  Virginia
    DANIEL E. LUNGREN, California        MELVIN L. WATT, North Carolina
    STEVE CHABOT, Ohio                   ZOE LOFGREN, California
    DARRELL E. ISSA, California          SHEILA JACKSON LEE, Texas
    MIKE PENCE, Indiana                  MAXINE WATERS, California
    J. RANDY FORBES, Virginia            STEVE COHEN, Tennessee
    STEVE KING, Iowa                     HENRY C. ``HANK'' JOHNSON, Jr.,
    TRENT FRANKS, Arizona                  Georgia
    LOUIE GOHMERT, Texas                 PEDRO PIERLUISI, Puerto Rico
    JIM JORDAN, Ohio                     MIKE QUIGLEY, Illinois
    TED POE, Texas                       JUDY CHU, California
    JASON CHAFFETZ, Utah                 TED DEUTCH, Florida
    TOM REED, New York                   LINDA T. SANCHEZ, California
    TIM GRIFFIN, Arkansas                DEBBIE WASSERMAN SCHULTZ, Florida
    TOM MARINO, Pennsylvania
    TREY GOWDY, South Carolina
    DENNIS ROSS, Florida
    SANDY ADAMS, Florida
    BEN QUAYLE, Arizona

          Sean McLaughlin, Majority Chief of Staff and General Counsel
           Perry Apelbaum, Minority Staff Director and Chief Counsel
                                     ------

           Subcommittee on Courts, Commercial and Administrative Law

                     HOWARD COBLE, North Carolina, Chairman

                   TREY GOWDY, South Carolina, Vice-Chairman

    ELTON GALLEGLY, California           STEVE COHEN, Tennessee
    TRENT FRANKS, Arizona                HENRY C. ``HANK'' JOHNSON, Jr.,
    TOM REED, New York                     Georgia
    DENNIS ROSS, Florida                 MELVIN L. WATT, North Carolina
                                         MIKE QUIGLEY, Illinois

                          Daniel Flores, Chief Counsel

                          James Park, Minority Counsel

                                C O N T E N T S

                                  ----------

                               FEBRUARY 10, 2011

                                                                       Page

                                    THE BILL

    H.R. 327, the ``Regulatory Flexibility Improvements Act of 2011''     8

                               OPENING STATEMENTS

    The Honorable Howard Coble, a Representative in Congress from the
      State of North Carolina, and Chairman, Subcommittee on Courts,
      Commercial and Administrative Law..............................     1
    The Honorable Steve Cohen, a Representative in Congress from the
      State of Tennessee, and Ranking Member, Subcommittee on Courts,
      Commercial and Administrative Law..............................    34
    The Honorable John Conyers, Jr., a Representative in Congress
      from the State of Michigan, and Ranking Member, Committee on
      the Judiciary..................................................    51

                                   WITNESSES

    Rich Gimmell, President, Atlas Machine & Supply, Inc.
      Oral Testimony.................................................    55
      Prepared Statement.............................................    58
    Thomas M. Sullivan, Of Counsel, Nelson Mullins Riley Scarborough,
      LLP
      Oral Testimony.................................................    65
      Prepared Statement.............................................    67
    J. Robert Shull, Program Officer, Worker's Rights, Public Welfare
      Foundation
      Oral Testimony.................................................    76
      Prepared Statement.............................................    78
    Karen R. Harned, Esq., Executive Director, National Federation of
      Independent Business, Small Business Legal Center
      Oral Testimony.................................................    84
      Prepared Statement.............................................    87

              LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

    Prepared Statement of the Honorable Howard Coble, a
      Representative in Congress from the State of North Carolina,
      and Chairman, Subcommittee on Courts, Commercial and
      Administrative Law.............................................     3
    Report submitted by the Honorable Steve Cohen, a Representative
      in Congress from the State of Tennessee, and Ranking Member,
      Subcommittee on Courts, Commercial and Administrative Law......    35
    Prepared Statement of the Honorable John Conyers, Jr., a
      Representative in Congress from the State of Michigan, and
      Ranking Member, Committee on the Judiciary.....................    53

                                    APPENDIX
                   Material Submitted for the Hearing Record

    Response to Post-Hearing Questions from Karen R. Harned, Esq.,
      Executive Director, National Federation of Independent
      Business, Small Business Legal Center..........................   105

     ``REGULATORY FLEXIBILITY IMPROVEMENTS ACT OF 2011''--UNLEASHING SMALL
                           BUSINESSES TO CREATE JOBS

                                  ----------

                          THURSDAY, FEBRUARY 10, 2011

                  House of Representatives,
                        Subcommittee on Courts,
                     Commercial and Administrative Law,
                                    Committee on the Judiciary,
                                                        Washington, DC.

        The Subcommittee met, pursuant to call, at 1:33 p.m., in
    room 2141, Rayburn House Office Building, the Honorable Howard
    Coble (Chairman of the Subcommittee) presiding.
        Present: Representatives Coble, Cohen, Conyers, Gowdy,
    Quigley, Reed, and Ross.
        Staff present: (Majority) Daniel Flores, Subcommittee Chief
    Counsel; Allison Rose, Professional Staff Member; Ashley Lewis,
    Clerk; and James Park, Minority Counsel.
        Mr. Coble. Good afternoon. The Subcommittee on Courts,
    Commercial and Administrative Law will come to order. Good to
    have the panel with us. I'll give my opening statement and
    recognize Mr. Cohen and also Mr. Conyers, I think he's with us,
    as well.
        Most economic experts who argue that small businesses have
    small business trends drive and shape our economy which, in my
    view, is probably the most important issue confronting our
    country today. Small businesses are the source of almost half
    of our workforce and while I'm concerned about many economic
    factors, it's also my view that the government regulations have
    an inordinate impact on small businesses particularly.
        While all businesses have to comply with municipal codes
    and permitting, county codes and permitting, state codes and
    permitting, Federal regulations can impose an even greater
    burden because most small businesses simply don't have the
    resources or the time to dispute or participate in the Federal
    regulatory process.
        According to the Small Business Administration, businesses
    with fewer than 20 employees spent on average 36 percent more
    per employee than do larger firms to comply with Federal
    regulations. The SBA also claimed that these small employers
    represent 99.7 percent of all businesses that have created 65
    percent of all new jobs over the past 50 years.
        Although it's clear that our economy may be showing signs
    of improvement, we're still suffering from job losses. Lack of
    job creation or however you like to describe it, it makes sense
    that we look to small businesses and work to create an
    environment that will help them prosper or should I say try to
    improve the environment in which they're currently struggling
    to survive?
        I know that everyone here today supports small businesses
    and that everyone in this hearing room also wants to enact
    something that will help create jobs and economic growth. I
    sponsored H.R. 527 because I believe that improving the Small
    Business Regulatory Enforcement Fairness Act and the Regulatory
    Flexibility Act will have a lasting impact on small businesses
    that help support long-term small business growth.
        Small businesses want and need our help and it's our
    responsibility, it seems to me, to ensure that our regulations
    are appropriate and in order and that our regulatory process is
    effective. Admittedly, I don't claim to be an expert on
    regulatory law and am anxiously awaiting the testimony of
    today's witnesses.
        Of the many questions I have for the witnesses, I want to
    know most whether this legislation will help or empower small
    businesses enough in the regulatory process. If it does not,
    I'd be interested to know what needs to be done to change the
    bill to make it more effective.
        I'm also very interested to hear about any concerns that
    the witnesses have about this legislation. Look forward to
    hearing from our panel and reserve the balance of my time.
        [The prepared statement of Mr. Coble follows:]

                                   __________

        Mr. Coble. I'm pleased to recognize the distinguished
    gentleman from Tennessee, the Ranking Member, Mr. Cohen.
        [The bill, H.R. 527, follows:]

                                   __________
        Mr. Cohen. Thank you, sir. I appreciate the recognition.
    Small businesses have a significant part of our Nation's
    economy and everybody knows they're so important for our
    Nation's health.
        According to a March 2010 Small Business Administration
    report, firms employing fewer than 500 employees employed over
    half of the private sector workers in 2006. Additionally, small
    businesses can be drivers of innovation and economic growth, as
    well.
        It's interesting to note, though, that both of these facts,
    the 500 employees, over half the growth, et cetera, have been
    true under the existing regulatory system that has been in
    place since 1980 when the Regulatory Flexibility Act was
    enacted.
        Despite the testimony that we will hear today about how the
    RFA has been ineffective at stemming overbearing regulations
    that stifle small businesses, the fact is that small businesses
    have done well in the almost 36 years since the RFA, as amended
    in '96 by the Small Business Regulatory Enforcement Fairness
    Act, has been in place.
        I'm concerned that the bill that's the subject of today's
    hearing, H.R. 527, the ``Regulatory Flexibility Improvements
    Act of 2011,'' may be a solution in search of a problem. In
    fact, it's very similar to a bill introduced in 2003,
    apparently to get at the oppressiveness of the Bush
    Administration's regulations on small business.
        In the written testimony, the three majority witnesses all
    cite the same study by Nicole and Mark Crain that claims the
    Federal rulemaking imposes a cumulative cost of $1.75 trillion
    on the Nation's economy. Mr. Shull, one of our witnesses, will
    rebut the particulars of that study, I'm sure, but I will note
    that the Center for Progressive Reform, among others, has
    debunked the Crain study thoroughly, noting the study does not
    account for any benefits of regulation and it's relied on
    suspect methodology in reaching its conclusions.
        I would like to ask unanimous consent, Mr. Chairman, that
    the CPR Report entitled Setting the Record Straight: The Crain
    and Crain Report on Regulatory Costs be entered into the
    record.
        Mr. Coble. Without objection.
        [The information referred to follows:]

                                  ----------

        Mr. Cohen. Thank you, Mr. Chairman. Unfortunately for the
    proponents of H.R. 527, the Crain study appears to be the only
    statistical evidence that they can cite or can be cited in
    support of this notion that regulations impose undue cost on
    small business.
        While I don't dispute that regulations can impose costs and
    that can cost-benefit analysis is a valuable tool for ensuring
    that agencies promulgate good regulations, I remain skeptical
    as to the degree of the purported problem as the proponents of
    H.R. 527 suggest.
        I also take notion with the--take issue with the notion
    that the Federal regulations are to blame for what remains an
    unacceptably-high unemployment rate. If anything, current
    employment problems can be traced to a lack of adequate
    regulation of the financial services and housing industries
    which allowed for reckless private sector behavior that just
    about everybody recognizes as the cause of the Great Recession,
    the 2008 financial crisis, the most severe economic recession
    since the Great Depression. It was the lack of regulation that
    hurt us, not regulation.
        Almost anything that can stand--anything can stand to be
    improved and I'm open to suggestions on how we can improve our
    regulatory process, particularly how it relates to small
    business, but H.R. 527 proposes some needlessly drastic
    measures that threaten to undermine public health and safety
    and waste public resources.
        I point to three particular examples. First, I'm concerned
    about the requirement that as part of the Regulatory
    Flexibility Analysis, agencies must consider the indirect
    effect of a proposed or final rule. Although the bill attempts
    to put some sort of logical limit on this requirement by
    specifying that the required analysis be restricted to those
    indirect effects that are reasonably foreseeable, that
    qualification is insufficient.
        Asking what is indirect and what is reasonably foreseeable
    still requires highly-speculative analysis. Forcing agencies to
    devote limited staff and resources to engage in such type of
    unwieldy, indeterminate and speculative analysis which would
    constitute nothing more than a guessing game is a waste of
    taxpayer money, putting government workers more and more to
    work on issues that are not going to result in an aid to our
    economy or small business.
        Second, I'm troubled by the repeal of agencies' authority
    to waive or delay their Regulatory Flexibility Analysis in the
    event of an emergency. If we're truly concerned about
    flexibility in the rulemaking process, then at a minimum
    agencies ought to retain the ability to respond to an
    emergency. The rationale for appealing this emergency authority
    is not clear, at least not to me, other than as a general
    attack on rulemaking.
        Third, I'm concerned that H.R. 527's look-back provision is
    simply a backdoor way for special interests to undermine
    existing health and safety regulations. You know, the Clean Air
    Act was passed in the EPA created by a Republican president,
    Richard Nixon, one of his crowning achievements, other than
    making the trip to China.
        As Mr. Shull notes in his written testimony, agencies will
    be forced to rejustify longstanding rules ensuring the safety
    of the air we breathe, the water we drink, the food we eat, the
    products we buy, and the places we work, rules that most
    Americans support and rules that need to be maintained for the
    health and safety and welfare of the American public which is
    part of the government police powers that need to be
    maintained, enforced, and strengthened for the benefit of all.
        I'm open to ideas on tweaking the regulatory process in
    modest ways to make regulatory compliance easier for small
    businesses and perhaps finding better ways for small business
    to provide input to specific rules. As drafted, though, H.R.
    527, a redraft of the 2003 law that's dusted off in the 2006
    law, now introduced as the 2011 law, simply goes too far and
    hasn't changed much in 8 years.
        Thank you, Mr. Chairman. I yield back the remainder of my
    time.
        Mr. Coble. I thank the gentleman. The Chair recognizes the
    distinguished gentleman from Michigan, the Chairman Emeritus of
    the House Judiciary Committee, for an opening statement.
        Mr. Conyers. Thank you, Chairman Coble. I'm happy to be
    serving on this Committee and I repeat my congratulations to
    you for assuming the Chairmanship of this Committee. You're a
    senior Member of Judiciary and we respect that so very much.
        Now on January 24, our Subcommittee had hearings on the
    REINS Act. Now this was our colleague from Kentucky Jeff
    Davis's notion that all regulations ought to be approved or
    disapproved by the Congress and apparently the notion of the
    Separation of Powers Doctrine could be set aside in this
    instance.
        I don't know how in the world after we pass a law, obligate
    the appropriate Federal agency to deal with it, we then say
    that any regulation has to be approved by us. So we come back
    and we legislate on what they're doing to implement the law
    that we passed in the first place and your speed, Chairman
    Coble, is remarkable because you introduced this bill and here
    we are 2 days later holding hearings on it. I envy that. I
    tried to do that when I was Chair of this Committee and I was a
    miserable failure. We never could move with that kind of speed.
        Of course. I yield.
        Mr. Coble. I did not introduce it. I think the Chairman of
    the full Committee introduced it.
        Mr. Conyers. Oh, Smith. Oh, well, then that explains the
    speed then.
        Mr. Coble. I'm not as good as you think.
        Mr. Conyers. No. This Chairman is swifter than the previous
    Chairman and I will discuss this a little bit more, but here's
    what I'm looking at.
        In addition to what Steve Cohen just talked about, a
    credible cost that is alleged to be occurring, the whole notion
    that this will cost almost $2 trillion is--well, I'll just read
    the one quote from here.
        ``It's easy to see why the anti-regulatory critics have
    seized on the Crain and Crain Report and its findings.'' That's
    the one that Mr. Cohen just put in the record. ``The 1.75
    trillion figure is a gaudy number that was sure to catch the
    ear of the media and the general public. Upon examination,
    however, it turns out that the 1.75 trillion estimate is the
    result of transparently unreliable methodology and is presented
    in a fashion calculated to mislead.''
        I'd like to ask all of the four witnesses to be prepared to
    respond to this at any time during this hearing.
        The other matter is the OMB Watch Statement on the
    Regulatory Flexibility Improvements Act and there are five
    problems that deeply concern them about this proposed
    legislation. One, it adds yet another analytical layer to the
    rulemaking process, further complicating agencies' ability to
    implement statutes for full admissions and serve the public
    interests.
        This measure before us gives more power to the Small
    Business Administration, Office of Advocacy, which is in fact
    an office of taxpayer-subsidized industry lobbyists who funnel
    the objections of businesses into agency decision-making.
        Three, it politicizes important decisions about public
    protections, potentially allowing economists and political
    offices to overrule agency scientists and other experts.
        Four, it would actually make it more difficult for agencies
    to review and revise existing regulations by forcing agencies
    to use a formula to decide which rules to review rather than
    reviewing the rules at their discretion.
        And finally, it's an unfunded mandate, asking much of
    agencies but authorizing no additional resources.
        Get the picture? I do, and that's why this is so important.
    I'm concerned that in this time of fiscal restraint, this bill
    will result in wasting public resources and there are several
    other reasons that I'd like to bring to your attention, but I
    think I can bring it up safely in the course of our
    discussions, and I thank Chairman Coble for his generosity in
    terms of time.
        Mr. Coble. I thank the gentleman and all other opening
    statements will be made a part of the record without objection.
        [The prepared statement of Mr. Conyers follows:]

                                   __________

        Mr. Coble. We're pleased to have an outstanding panel
    today. I will introduce them from my left to right.
        Mr. Richard Gimmel is the President and third-generation
    owner of Atlas Machine and Supply, Inc., based in Louisville,
    Kentucky. The company is a 104 years old and has branches in
    Ohio and Indiana. Mr. Gimmel says of his position, ``It's my
    responsibility to do all I can to grow, strengthen, and improve
    the company and then to pass it on,'' and his son Richard
    Gimmel III heads the company's Engineering Division.
        In addition to presiding at Atlas Machine and Supply, Inc.,
    Mr. Gimmel sits on the Board of Directors at the National
    Association of Manufacturers and he received his MBA from
    Bellarmine University. Did I pronounce that correctly, Mr.
    Gimmel? Bellarmine in Kentucky. Good to have you with us.
        Mr. Thomas Sullivan is Of Counsel of Nelson Mullins Riley
    and Scarborough, LLP, in Washington. Mr. Sullivan also heads
    the Small Business Coalition for Regulatory Relief. In the
    past, Mr. Sullivan served as Chief Counsel for Advocacy at the
    Small Business Administration, worked with the National
    Federation of Independent Business, served on Congressional
    Affairs staff of the U.S. Environmental Protection Agency, and
    was an official of the University Department of Justice,
    Environment, and Natural Resources Division.
        Mr. Sullivan earned his Juris Doctorate Degree from Suffolk
    University School of Law.
        Mr. Robert Shull is our third witness and is a Program
    Officer for Worker's Rights at the Public Welfare Foundation in
    Washington, D.C. Prior to coming to the Public Welfare
    Foundation, Mr. Shull was the Deputy Director for Auto Safety
    and Regulatory Policy at Public Citizen and Director of
    Regulatory Policy at OMB Watch.
        Our fourth witness, Mr. Karen Harned, is the Executive
    Director of the National Federation of Independent Business,
    Small Business Legal Center. Prior to coming to NFIB, Ms.
    Harned worked as an associate at Olsson, Frank, and Weeda, PC,
    and on the staff of Senator Dodd Nichols of Oklahoma.
        She earned her BA Degree from the University of Oklahoma
    and her JD Degree from the George Washington University School
    of Law.
        Now I am told that there is a Floor Vote imminent. So we'll
    have to just wait until the bell rings.
        Ladies and gentlemen, we try to comply with the 5-minute
    rule and we try to apply that to us as well as to you all. So
    when you see the amber light appear in your face, you will know
    the ice on which you're skating is getting thinner but nobody
    will be keelhauled for violating but we would appreciate your
    staying within the 5-minute rule, if you could. When the red
    light appears, that is your warning that the 5 minutes have in
    fact expired.
        Good to have each of you with us. Mr. Gimmel, why don't you
    kick it off?

                  TESTIMONY OF RIC GIMMEL, PRESIDENT,
                      ATLAS MACHINE & SUPPLY, INC.

        Mr. Gimmel. Well, Mr. Chairman, I appreciate the
    opportunity to be here and I kind of feel a little out of
    place. I'm probably the only person up here that doesn't do
    this for a living. I mean, I run a machine shop, so I hope
    you'll bear with me----
        Mr. Coble. We will, indeed.
        Mr. Gimmel [continuing]. In that regard. My company, Atlas
    Machine, is based in----
        Mr. Coble. Mr. Gimmel, pull that mike a little closer to
    you, if you will.
        Mr. Gimmel. Yes. My company is Atlas Machine & Supply.
    We're based in Louisville. I have 200 employees, a 104-year-old
    company, third, actually fourth generation now with my son
    taking over in Engineering.
        I also serve on the Board of the National Association of
    Manufacturers and am pleased to testify on their behalf today.
        The United States is the world's largest manufacturing
    economy. It produces 1.6 trillion of value each year and
    employs 12 million Americans working directly in manufacturing.
        On behalf of the NAM and the millions of men and women
    working in manufacturing in the United States, I want you folks
    to know that we support your efforts to reform the RFA and to
    unleash the small manufacturers of this country to do what they
    do best which is to make things and create jobs and, I might
    also add, to pay taxes.
        Manufacturers have been deeply affected by the most recent
    recession. This sector lost 2.2 million jobs during this
    period. Our own company suffered the worst downturn since the
    Great Depression. So far, only 6.2 percent of these jobs have
    come back and the numbers show that American manufacturing is
    growing more slowly than in the countries we have to compete
    with.
        We have seen policies from Washington that will not help
    our economic recovery and can actually discourage job creation.
    Some have proposed policies that fortunately have not yet been
    enacted, such as huge increases in the individual income tax
    rate, the Employee Free Choice Act, the so-called cap and trade
    legislation.
        We still face threats from an EPA that we believe is out of
    control and a healthcare mandate that appears to make the
    business healthcare burden even worse. All of these will worsen
    our ability to compete as a Nation. To regain manufacturing
    momentum and to return to net job gains, we need improved
    economic conditions and we need improved government policies.
        In recent years, many of us in manufacturing have
    transformed our operations. We've adopted a Japanese principle
    some of you may have heard of. It's called ``lean thinking.''
    The concept is very simple. You just identify everything in the
    organization that consumes resources, that adds no value to the
    customer. That's called ``muda'' or waste. Then you look for a
    way to eliminate the muda.
        Our modest proposal is that the government learns from
    manufacturing and incorporates lean thinking into the
    regulatory process. Many of the proposals that are being
    offered by this Subcommittee, including more detailed
    statements in the RFA process and requirements to identify
    redundant, overlapping, or conflicting regulations, will do
    just that.
        My written statement details our support for amendments to
    the periodic review requirements of the RFA, thus applying lean
    thinking and continuous improvement, another manufacturing
    principle, to the regulatory process.
        It's crucial that agency action be made mandatory when
    these inefficiencies are identified. The gains could be
    tremendous, as we found on the factory floor.
        My written remarks also detail examples of the damage to be
    done by runaway regulation at the agency level, including the
    EPA's ozone proposals. One estimate is that the most stringent
    standard under consideration would result in the loss of 7.3
    million jobs by 2020 and one trillion per year in new
    regulatory costs, beginning 2020.
        Manufacturers hope that this legislation is just the
    beginning of a more thoughtful regulatory system built on
    common sense with an understanding of modern manufacturing.
        A few days ago, the President appeared before business
    leaders here in Washington. He urged us to ``get in the game,''
    those were his words, and to invest in growth and job creation
    and I'm here to tell you we would love to do just that, but we
    don't invest our personal assets just because somebody, even
    the President, tells us we should. We do so because we believe
    the environment is right and that good opportunities exist for
    return on the investment and job creation.
        Many of the NAM's members are family businesses, like our
    own. We want to invest to grow. That's why we exist. But when
    our government creates policies, laws, and regulations that
    increase the cost of doing business, the natural reaction by
    small businesses, in particular, is to simply hunker down and
    wait things out.
        Manufacturers in the United States created the middle
    class. We can regain our momentum with the right policies in
    place. I'm confident that our Nation's leaders will take action
    to promote and not increase the risks of investment and job
    creation and the NAM stands ready to assist you in this effort.
        Thank you, and I'll look forward to any questions.
        [The prepared statement of Mr. Gimmel follows:]

                                   __________

        Mr. Coble. Mr. Sullivan?

             TESTIMONY OF THOMAS M. SULLIVAN, OF COUNSEL,
                 NELSON MULLINS RILEY SCARBOROUGH, LLP

        Mr. Sullivan. Thank you, Mr. Chairman, Members of the
    Subcommittee.
        I'm pleased to present testimony in strong support of H.R.
    527, the ``Regulatory Flexibility Improvements Act of 2011.''
        I'd like to briefly summarize, so I ask that my full
    written statement be made part of the record.
        Mr. Coble. Without objection.
        Mr. Sullivan. There are three basic reasons for the
    Regulatory Flexibility Act. One size fits all Federal mandates
    do not work when applied to small business; second, small
    business face higher costs per employee to comply with Federal
    regulation than their larger competitors, and, third, small
    business is critically important to the American economy.
        The Regulatory Flexibility Act has not worked as well as it
    can to address regulatory challenges faced by small business.
    That's why I support H.R. 527 and how it will improve the law's
    effectiveness.
        Before I get into detail about the provisions in the bill
    that are particularly important, I want to point out why
    there's an immediate need for these reforms. In the last 2
    years, the Federal Government issued 132 economically-
    significant regulations. Rulemakings are not slowing down
    either. There are a 181 more new regulations underway now than
    there were last year, representing a 5-percent increase in
    activity.
        According to plans issued recently by regulatory agencies,
    there is a 20 percent increase in significant regulations
    currently under development.
        As far as H.R. 527 and its benefits on how it will improve
    the Regulatory Flexibility Act, currently, the law requires
    agencies to analyze the direct impact a rule will have on small
    entities. Unfortunately, limiting the analysis to direct
    impacts does not accurately portray how small entities are
    affected by a new Federal rule.
        For instance, when EPA's greenhouse gas regulations impose
    a direct cost on electric utility, EPA should make public how
    its proposal will likely affect the cost of electricity for
    small businesses. I believe the rulemaking process is
    shortchanged by not including discussion about the obvious
    ripple effects of regulations on small business and H.R. 527
    tries to correct this.
        All agencies should utilize small business advocacy review
    panels. When I was Chief Counsel for Advocacy, I did not think
    that the Regulatory Flexibility Act needed to be amended to
    force every agency to convene small business panels the way
    that EPA and OSHA do under the Small Business Regulatory
    Enforcement Fairness Act. I thought that agencies could do a
    good enough job soliciting input from small businesses on their
    own. Now, I realize some agencies will resist formally
    soliciting help from small entities prior to issuing proposed
    rules.
        Requiring the Consumer Financial Protection Bureau that was
    created out of the Dodd-Frank Financial Reform Law to have to
    use the small business panel process made sense. That's why it
    was passed into law. The same logic applies across the board to
    all Federal agencies and that's why the small business panel
    process, under the Small Business Regulatory Enforcement
    Fairness Act, should become the norm, not the exception.
        The Small Business Administration's Office of Advocacy
    should clarify definitions in the Regulatory Flexibility Act.
    The disputes over whether an agency's proposal will ``impose a
    significant economic impact on a substantial number of small
    entities'' have limited the effectiveness of the Regulatory
    Flexibility Act.
        H.R. 527 addresses this problem by giving the Office of
    Advocacy rulemaking authority. The rules promulgated by the
    Office of Advocacy will better define how agencies are to
    properly consider small business impacts and that will benefit
    the process in two ways.
        First, it will minimize confusion over whether agencies are
    properly considering small business impact, and, second,
    rulemaking authority by the Office of Advocacy will confirm the
    primacy by the Chief Counsel for Advocacy when courts
    ultimately render opinions on the Regulatory Flexibility Act.
        The periodic review of regulations under the Reg Flex Act
    should be improved. H.R. 527 will bolster the effectiveness of
    the look-back provision by broadening the number of rules
    agencies will review, requiring transparency of those reviews,
    and by better defining the process through the Office of
    Advocacy's rulemaking.
        There are additional reforms that Congress can consider to
    benefit small business. I'm happy to work with this Committee
    to explore additional legislative efforts beyond amending the
    Reg Flex Act that will help create an economic climate so small
    businesses have an easier time growing and creating jobs.
        Thank you.
        [The prepared statement of Mr. Sullivan follows:]

                                   __________

        Mr. Coble. Thank you, Mr. Sullivan.
        Mr. Shull, I was in law school long, long ago with a chap
    whose surname was Shull. Do you have Carolina kin?
        Mr. Shull. That's not--you know, I don't know. There's a
    large network of Shulls out there whose connection with our
    Shulls we don't know yet.
        Mr. Coble. Well, he was a good fellow. He had high honors
    in law school.
        You're recognized, Mr. Shull.

    TESTIMONY OF J. ROBERT SHULL, PROGRAM OFFICER, WORKER'S RIGHTS,
                       PUBLIC WELFARE FOUNDATION

        Mr. Shull. Well, then I have quite an act to live up to.
        I want to thank you for the opportunity to testify. These
    are very important issues for small business owners, for their
    families, for their communities, for their customers, for their
    workers, for really all of us.
        I want to start with the proposition that agencies don't
    regulate for the sake of regulating. They regulate because they
    have been charged by Congress with the task of getting things
    done to protect the public and to protect the public's health,
    its safety, the environment, the air we breathe, the water we
    drink, the food we eat, the products we buy, the traffic
    conditions in which we all drive, the jobs that we go to. These
    are important tasks, and there are new regulations in the
    works. There will always be new regulations in the works
    because the world is changing--and as the world changes, we
    discover that there are unmet needs for public protection.
        I'll give you an example. In the world of auto safety,
    thanks to important regulations, like the mandates for
    seatbelts, mandates for airbags, mandates for side impact
    protection, even as simple a rule as the fact that the steering
    column collapses now whereas it used to be a solid piece of
    metal that would impale the driver in some crashes: Now, all of
    that means that people are coming away surviving crashes that
    just years ago they wouldn't have been able to survive. But
    we're increasingly discovering because people's lives are being
    saved, that there are still new needs to protect vehicle
    occupants in crashes. For example, because they are now
    surviving a larger number of crashes, we're increasingly
    discovering that they're coming away with injuries to their
    lower extremities, to their legs and their feet, which opens
    the door to the fact that there may not be sufficient
    protection at the bottom of the car, the tire wheel well, and
    intrusion into that part of the survival zone of the vehicle,
    and so the National Highway Traffic Safety Administration
    should be looking at that and should be developing new
    regulations in that regard.
        Automakers have increasingly computerized motor vehicles.
    They're becoming more and more like the computers on wheels. A
    new research report found that some of these computer systems
    which control, in some cases, really critical functions of an
    automobile, like the brakes, can be hacked by folks outside of
    the car and so it really behooves NHTSA to start looking into
    whether or not the performance of these computerized components
    is adequately protecting vehicle occupants.
        So the fact that there are new regulations on the book
    doesn't necessarily mean that we have runaway agencies. It just
    means that we have agencies that are doing what they're
    supposed to do, assessing the public's unmet needs and
    assessing what needs to be done to protect the public.
        I also want to start with the proposition that small
    businesses, I think we all agree, are vital. Small businesses
    also are owned by small business owners who have families, who
    live in communities, who have employees, who have coworkers and
    neighbors, who themselves are breathing this air, drinking the
    water, eating the food, buying products, getting out on the
    road and going to work every day. They receive the benefits of
    regulation, not just shoulder the burden of its costs.
        And we hear a lot about costs today, but one of the
    assumptions that seems to be here in the RFIA is that analysis
    and review and all the new layers of process that would be
    mandated by this bill are somehow costless. But the fact is all
    of this is going to require money or agency time and diversion
    of agency resources away from the task of assessing the
    public's unmet needs and toward the task of reviewing in many
    cases protections that we know beyond a shadow of a doubt are
    incredibly important, like the removal of lead in gasoline. You
    can measure the value of that in our children's IQ points.
        I am concerned that this bill would paralyze the regulatory
    agencies we need to protect the public and keep them from
    getting things done to protect the public.
        I'll wrap up with the suggestion that we do want our
    businesses to compete with China but we don't want this Nation
    to become China with the dirty air and the unsafe workplaces
    they have.
        [The prepared statement of Mr. Shull follows:]

                                   __________

        Mr. Coble. Thank you, Mr. Shull.
        Ms. Harned, we'll be glad to hear from you.

        TESTIMONY OF KAREN R. HARNED, ESQ., EXECUTIVE DIRECTOR,
      NATIONAL FEDERATION OF INDEPENDENT BUSINESS, SMALL BUSINESS
                              LEGAL CENTER

        Ms. Harned. Thank you. Good afternoon, Chairman Coble and
    Ranking Member Cohen.
        NFIB, the Nation's largest small business advocacy
    organization, appreciates the opportunity to testify on the
    burdens and effects of regulation on small business and how
    H.R. 527 would address many of those concerns.
        Overzealous regulation is a perennial cause of concern for
    small business owners and is particularly burdensome in times
    like these when the Nation's economy remains sluggish.
    According to a recent study, regulation costs the American
    economy 1.75 trillion every year and, more concerning, small
    businesses face an annual regulatory cost of $10,585 per
    employee which is 36 percent more than the regulatory cost
    facing businesses with more than 500 employees.
        Recently, the Administration did acknowledge that excessive
    and duplicative regulation has damaging effects on the American
    economy. NFIB believes that it has been a long time coming for
    small business owners to hear the Administration emphasize the
    harmful effects of over-regulation on small business and job
    creation. We will be watching closely to see if last month's
    directive leads to real regulatory reform.
        In the meantime, NFIB believes that Congress must take
    actions to level the playing field. Congress should expand the
    Small Business Regulatory Enforcement and Fairness Act and its
    Small Business Advocacy Review Panels to all agencies,
    including independent agencies. In so doing, all agencies would
    be in a better position to understand how small businesses
    fundamentally operate, how the regulatory burden
    disproportionately impacts them, and how each agency can
    develop simple and concise guidance materials.
        Moreover, Congress's advocacy should ensure that agencies
    are following the spirit of SBREFA. There are instances where
    EPA and OSHA have declined to conduct a SBAR panel for
    significant rule and/or rule that would greatly benefit from
    small business input. Congress should ensure agencies perform
    regulatory flexibility analyses and require them to list all of
    the less burdensome alternatives that were considered. Each
    agency should provide an evidence-based explanation for why it
    chose the more burdensome versus less burdensome option and
    explain how their rule may act as a barrier to entry for a new
    business.
        Section 610 reviews should be strengthened. H.R. 527 would
    require agencies to amend or rescind the rules where the 610
    reviews show that the agency could achieve its regulatory goal
    at a lower cost to the economy.
        NFIB also believes that Congress should explore requiring
    agencies to provide updated information on how each agency
    mitigates penalties and fines on small businesses as currently
    required by SBREFA but also require that such a report be
    completed on an annual basis.
        Regulatory agencies often proclaim indirect benefits for
    regulatory proposals but decline to analyze the make publicly
    available the indirect costs to consumers, such as higher
    energy costs, jobs lost, and higher prices. Agencies should be
    required to make public a reasonable estimate of a rule's
    indirect impact.
        Agencies should be held accountable when they fail to give
    proper consideration to the comments of the Office of Advocacy
    and affordable mechanisms should be considered for resolving
    disputes regarding economic costs of a rule between the agency
    and advocacy.
        NFIB believes that the Office of Advocacy needs to be
    strengthened. The office should have the ability to issue rules
    governing how agencies should comply with Regulatory
    Flexibility requirements. Because of improvements inherent
    within H.R. 527, NFIB is hopeful that review of agency actions
    will be strengthened and the small business voice will be more
    substantively considered throughout the regulatory process.
        NFIB is concerned that many agencies are shifting from an
    emphasis on small business compliance assistance to an emphasis
    on enforcement. Congress can help by stressing to agencies that
    they devote adequate resources to help small businesses who do
    not have the benefit of inside counsel and HR people to comply
    with the complicated and vast regulatory burdens that they
    face.
        Congress also should pass legislation waiving fines and
    penalties for small businesses the first time they commit a
    non-harmful error on regulatory paperwork. Mistakes in
    paperwork will happen. If no harm is committed as a result of
    the error, agencies should waive penalties for first-time
    offenses and help owners to understand the mistakes they make.
    With high rates of unemployment continuing, Congress needs to
    take steps to address the growing regulatory burdens on small
    business. The proposed reg reforms in H.R. 527 are a good first
    step.
        Thank you.
        [The prepared statement of Ms. Harned follows:]
                     Prepared Statement of Karen R. Harned

                                   __________

        Mr. Coble. Thank you, Ms. Harned. Thanks to all of you.
        As I said at the outset, we try to apply the 5-minute rule
    to us, as well. So if you all could keep your responses terse,
    we would appreciate that.
        And at the outset, I want to apologize for my raspy voice.
    I am coming down with my annual midwinter cold, so I know this
    doesn't sound good. So you all bear with me.
        Mr. Sullivan, Elizabeth Warren, the Consumer Advocate and
    head of the new Consumer Financial Protection Bureau, has
    embraced and, I've been told, has warmly embraced the new
    obligations to comply with Regulatory Flexibility requirements.
        Now most oftentimes regulatory discussions involve to the
    right of center or to the left of center, depending upon the
    position of the advocate, and I would assume that it is not
    believed that Ms. Warren would probably to the left of center.
        If she can embrace these proposals, it seems to me all
    agencies should be comfortable doing likewise. What do you say
    to that, Mr. Sullivan?
        Mr. Sullivan. Mr. Chairman, I agree with you. Elizabeth
    Warren, who traveled up to Maine a few weeks ago with Senator
    Snowe, actually embraced the amendment that was part of the
    Dodd-Frank Financial Regulatory Reform Bill, saying that she
    would have done the type of analysis that we're talking about
    here today, even if it weren't required by law.
        So if you had Federal regulators with that attitude at
    every agency, they would be embracing the idea of having small
    business advocacy review panels because it is through those
    panels you get constructive input on how agencies can regulate
    better, meet their objectives while minimizing costs on small
    firms.
        So perhaps after Professor Warren sets up the Consumer
    Financial Protection Bureau, we can all work to get her in
    front of other regulatory agencies to preach that type of
    gospel.
        Mr. Coble. I applaud you, sir. And, folks, I don't want to
    in any way imply that I'm advocating compromising safety. I
    don't want that to come out of this hearing because I don't
    want to do that.
        Mr. Gimmel, what challenges do Federal regulations present
    to your company today as it attempts to create additional jobs
    in this economy?
        Mr. Gimmel. Well, the first one is simply understanding
    what they are. We're a small company. We're a machine shop, and
    there are literally tens and tens and tens of thousands of
    pages of regulations that we have to not just comply with but
    understand and I just have to tell you that the burden of that
    is really overwhelming for any single business to effectively
    do.
        We have had--in our case, we have people, two people full
    time that are dedicated to compliance. Much of this is dealing
    with compliance that is fruitful. Regulations are not something
    that we are speaking against here, Mr. Chairman. We believe
    regulation is necessary. We believe protection of the worker,
    protection of the environment, fair taxation, et cetera, are
    certainly necessary.
        What we're talking about here is a process that we feel has
    resulted in redundant and inefficient network of sometimes
    overlapping regulations and there seems to be a lot of support
    for that regardless of what your political orientation is. We
    have the same objective.
        Mr. Coble. Thank you, sir. Mr. Shull, you suggest that H.R.
    527 would wrap Federal programs up in costly, time-consuming,
    and unnecessary red tape, putting consumers, and working
    families at risk of harm.
        If the regulation, for example, discourages small business,
    would not the working family that lost his job be in a box?
        Mr. Shull. Well, you know, I think that that would be a
    concern if that were the case, but there's not really any proof
    that regulation harms competitiveness of industry, harms jobs,
    harms trade flows. There's a document I'd be happy to submit
    for the record that OMB Watch produced in the mid 2000's called
    Regulation and Competitiveness as well as an article by an
    economist, Frank Ackerman, called The Unbearable Lightness of
    Regulatory Costs.
        Both of these are documents that exhaustively go through
    the studies that have been conducted and found that there
    really is no evidence that regulations have harmed the U.S.
    competitiveness or have harmed jobs.
        Now, I mean, when it comes to, say, jobs, OSHA, for
    example, is not in the business of destroying jobs. It's in the
    business of making sure that jobs don't destroy workers, and
    those are really critical concerns.
        Mr. Coble. The red light has illuminated, so I will yield
    to the gentleman from Tennessee, Mr. Cohen.
        Mr. Cohen. Thank you, Mr. Coble.
        First of all, Mr. Gimmel, I know you come here with a heavy
    heart for I saw the overtime and it wasn't pretty. You are a
    Louisville fan, as well, I presume.
        Mr. Gimmel. Well, I'd prefer to think that we are not
    adversaries, Congressman Cohen, except when it comes to maybe
    basketball and football.
        Mr. Cohen. We're not. I like Louisville and I was cheering
    for them last night and they had a terrible overtime.
        Mr. Gimmel. I am a Louisville fan, so don't put me in that
    category with those guys down the road there.
        Mr. Cohen. Okay. You mentioned in your----
        Mr. Coble. If Mr. Cohen would yield? I missed it. What was
    the game in question?
        Mr. Cohen. Louisville and Notre Dame.
        Mr. Coble. Well, Carolina and Duke were playing yesterday,
    so I missed Louisville.
        Mr. Cohen. Should I ask who won?
        Mr. Coble. I don't want you to do that.
        Mr. Cohen. I won't ask who won.
        Mr. Gimmel. Memphis won, though, I know that.
        Mr. Cohen. Let me ask you this, Mr. Gimmel. The EPA, you
    mentioned in your opening remarks, what parts of the EPA would
    you keep and what parts of the EPA would you not want to keep?
        Mr. Gimmel. As it relates to manufacturing, what we see is
    an overlapping series of, for instance, air quality rules,
    Federal versus local in our case. In Jefferson County in
    Louisville, we have two different sets of qualifications that
    we have to comply with, both of which are very, very complex.
    Part of that, of course, is a local problem.
        In the case of EPA, I think what we would like to see is a
    system that addresses the efficiency of each of the regulations
    in place, much like President Clinton started in 1993. I
    believe he called it the National Performance Review, and it
    wound up eliminating, as it sought out redundancy, as it sought
    out duplicative and no longer necessary regulation or
    inefficient application of regulation, we were able to
    eliminate some 16,000 pages of regulations that they
    determined, the Clinton Administration determined was
    unnecessary at the time.
        We would like to see that same approach. We are certainly
    in favor of clean water and clean air, but we think that a lean
    approach to the process could yield tremendous savings because
    our competition is not just with how our economy used to be
    here any more. Our competition is global right now and we're
    competing against people that operate on a different set of
    rules and in some cases more efficient regulatory processes
    than we have.
        Mr. Cohen. I noted in your remarks, you did comment that we
    need to have clean air and clean water, et cetera, and I
    appreciate that understanding.
        Mr. Gimmel. And as you point out, we're beneficiaries of
    that, sir.
        Mr. Cohen. Right. All of us are. The Chinese, of course, as
    Mr. Shull pointed out, don't have this government regulation in
    this area. They have it in other areas and so they have the
    worst water and air quality possible but the highest
    productivity and I don't know about the Japanese. You mentioned
    them. I think they're--Mr. Shull, you might know and somebody
    else here might know, but I don't think the Japanese have got
    the best air quality. I think they've got some problems there
    with that.
        Mr. Shull, let me ask you this. You talked about the--we
    talked about the indirect effects that are in the proposed
    rule. Would you elaborate on your concerns and tell us if you
    think that anything dealing with indirect effects could result
    in industry going to court to challenge decisions there?
        Mr. Shull. Sure. So the bill would amend the Regulatory
    Flexibility Act requirements of these analyses for the effects
    on small entities by requiring agencies not just to look at the
    impacts on the regulated small entities that would be covered
    by a regulation but also any small entity outside of the world
    of regulated small entities for whom there would be reasonably
    foreseeable economic consequences, adverse or beneficial.
        It's hard to know where that stops. So, for example, if
    NHTSA really gets on the ball and starts regulating to improve,
    say, protection of vehicle occupants' lower extremities, NHTSA
    would probably have to, under this legislation, look at the
    consequences not just for the automakers, not just for the
    suppliers who make the parts that go into motor vehicles but
    also the car dealers.
        Now under recent revisions to the SBA size standards, most
    new car dealers in this country, somewhere between 83 to 93
    percent of them, would be counted as small businesses and that
    includes even a car dealer who makes up to, say, a $120 million
    in receipts. So these are actually not terribly small, not
    terribly inexpensive--these are not economically-struggling
    entities.
        Then when you think about--if you're thinking about the
    impacts on, say, those auto dealers, they conceivably hire
    payroll services to handle their payroll. They conceivably hire
    janitorial services to clean their facilities. They
    conceivably--they do buy ads from local TV and radio and
    newspapers.
        Now, all of those small entities----
        Mr. Coble. Mr. Shull, if you could wrap up pretty----
        Mr. Shull. Oh, of course. It's turtles all the way down.
    There's really no conceivable limit to what agencies would be
    forced to assess and the point at which wealthy corporate
    special interests could sue them for having failed to consider.
        Mr. Cohen. Thank you, sir, and I will--even though the
    first minute of my time was dedicated to Sports Center, I will
    yield back the remainder of my time.
        Mr. Coble. The Chair recognizes the distinguished gentleman
    from South Carolina, Mr. Gowdy, for 5 minutes.
        Mr. Gowdy. Thank you, Mr. Chairman, and thank you for
    conducting these hearings.
        Mr. Sullivan, I'm going to put your legal acumen on
    display. Rules and regulations, the violations thereof, can
    they be evidence of negligence in a civil suit?
        Mr. Sullivan. Could you ask the question one more time?
        Mr. Gowdy. Violations of rules and regulations, can they be
    used as evidence of negligence if Mr. Gimmel is sued in a civil
    suit?
        Mr. Sullivan. I don't know.
        Mr. Gowdy. Do you know whether or not any of the rules and
    regulations have criminal provisions where Mr. Gimmel could in
    theory suffer criminal consequences because of a rule or
    regulation that is not promulgated by Congress but is by
    someone who's unelected, yet he stands to face criminal
    sanctions if he violates it?
        Mr. Sullivan. There are some strict liability provisions
    within statute that are then implemented through rulemakings
    that do convey strict liability and criminal sanctions, yes.
        Mr. Gowdy. Mr. Shull made a comment, and I tried to write
    it down, that there is no evidence, which is a phrase that does
    strike the attention of a former prosecutor, no evidence that
    the regulatory schemes have impacted productivity or trade in
    this country, and judging by your body language, you may have
    had a different view of that. Do you agree or disagree with his
    comment?
        Mr. Sullivan. Congressman Gowdy, I disagree with the
    comment. We're living in a global competitive environment right
    now and we're seeing different countries trying to both protect
    the air and the land and the safety of their workers while
    minimizing further burden on manufacturers and small
    businesses, and those countries that really do try to strike
    that balance correctly end up with more employment and more
    growth and I fear that the overwhelming amount of regulations
    that do not take into account how they impact small business
    will drive businesses away from the United States.
        So I believe it's a competitive question and the answer is
    we can't afford to simply look for evidence on a piece of paper
    that says, oh, we went too far and we're losing businesses. We
    have to act now to make sure that that doesn't happen.
        Mr. Gowdy. Mr. Gimmel, you made the comment that the EPA
    was out of control. That was one agency that you cited with
    specificity that is out of control. Can you give me a specific
    example of that? And also, if you were to get a call from a
    regulator, the perception, because you embody small business,
    the perception that you have as a small businessman, is it one
    of we are to help you or we are here to get you?
        Mr. Gimmel. Well, first of all, Congressman, with regard to
    the EPA, the ozone regulatory functions the EPA seems to be
    taking on, we believe, are overstepping. There's no question
    about that.
        The second--what was the second part of your question?
        Mr. Gowdy. Whether or not there's a perception among small
    business owners that the regulatory entities in this country
    are there to provide help or there to lay in wait to catch you
    doing something wrong?
        Mr. Gimmel. That's more than a perception, sir. I think
    that's a reality, particularly when it comes to the new
    attitude at OSHA. Workplace injuries have been at record lows,
    historic lows for the last several years in this country
    because of, I think largely, a cooperative relationship between
    businesses and the regulatory agencies.
        We could call them in, ask them for advice, ask them to
    take a look at part of our plant that we're reconfiguring or
    that we may have questions about and get their input without
    fear of consequences. Now, the attitude at OSHA is we're going
    to get you and you invite us in and we find something, you're
    going to get a big fine. So it's more of an adversarial
    relationship now as opposed to a cooperative relationship.
        Mr. Gowdy. Last question. Mr. Shull, the President himself
    has acknowledged that there are regulations that have an
    unintentionally deleterious impact on job creation in industry.
    Got about 45 seconds left.
        Can you list me four or five regulations that you would
    concede have had unintended pernicious deleterious consequences
    on industry?
        Mr. Shull. You know, I've been waiting for the President to
    offer some specifics.
        Mr. Gowdy. In lieu of his presence, would you give me some?
    Would you give me just a handful of regulations that you
    concede, out of the myriad of ones out there, you concede have
    had an unintendedly-pernicious impact on job creation?
        Mr. Shull. Actually, yes. The fuel economy standards are
    set too low and have stayed too low for too long, until just
    recently, and that meant that the U.S. automakers were not
    prepared to compete when gas prices spiked and they had these
    heavy gas-guzzling SUVs----
        Mr. Coble. Mr. Shull, I'm not buggy-whipping you but wrap
    it up, if you will, because the red light's on.
        Mr. Shull. All right. Well, then that's one that I would
    list, in addition to the failure of the automakers to make SUVs
    that perform well in crashes. They really suffered
    significantly when the Ford Firestone debacle came to light.
        Mr. Gowdy. Thank you, Mr. Chairman.
        Mr. Coble. The gentleman's time has expired. The
    distinguished gentleman from Illinois, Mr. Quigley.
        Mr. Quigley. Thank you, Mr. Chairman, and again
    congratulations on your new position.
        Mr. Coble. Thank you.
        Mr. Quigley. We appreciate your cordiality and
    accommodations.
        Mr. Conyers has talked about how quickly this bill has come
    to a hearing. What's interesting, this is, I think, my fifth
    meeting already between my two Committees on the issue of
    regulations. If we could squeeze one more in this week, they
    tell me I get a set of steak knives.
        But here's what's interesting, folks. We're basically
    saying the same things, as the Chairman said, just on either
    side of this middle ground line. We all recognize the need for
    regulation, we just want it to do a better job. I think that's
    what the President talked about and like I've said before, I
    dare anyone in this room not to think of regulation the next
    time you get on a commuter airline or if you come to my
    hometown and you drink tap water, right?
        Chicago, not the lake water, the water from the tap which
    has levels of chromium, not healthy for you, three times what's
    been judged to be a healthy standard. So we get we're not
    perfect and it has to improve.
        I recognize that for some, this is even more offensive
    because non-elected officials are actually part of the
    enforcement mechanisms, but we recognize that under Democratic
    and Republican Administrations, our laws and our regulations
    have always had criminal penalties to them out of absolute
    necessity, enforced by non-elected officials.
        If you take it to its extreme, Assistant State's Attorneys
    aren't elected. Their bosses are. Well, the same is true with
    the Executive Branch, FBI agents, police officers.
        So I think we need to recognize it's important to let the
    public know there's a balance here. If we come off that the
    only message here is that regulation is what's killing people--
    killing jobs, we forget that a lack of regulation can kill
    people. So I sense in these now five meetings that we're all
    getting sort of the same point and we have to do better. We
    have to avoid duplication and redundancy and to make the--if we
    want to get to the same goal, there might be more efficient
    ways to do that. So to the extent that we can do all that,
    that's fine.
        I just ask that we try to use the same numbers. So when we
    talk about this, what I'm trying to get from both sides is why
    one set of figures are better than the other and why we only
    have a few minutes today, let me just ask the first because
    it's such a prominent number that's being thrown out there.
        Mr. Shull, the Crain study threw out the biggest number so
    far, so it wins, but can you tell me, beyond what you said in
    your written documents, what you see the concerns are with that
    report?
        Mr. Shull. So the concerns, and these are concerns, by the
    way, which have been identified by a range of folks, the Center
    for Progressive Reform on the one hand and President Bush's
    former Administrator of the Office of Information and
    Regulatory Affairs on the other hand, folks from a variety of
    viewpoints have recognized that this study and its previous
    iterations are deeply flawed. And it comes out with this number
    that is so easy to cite and memorize and use and repeat and
    understandably because it's so large, folks are going to quote
    it and be alarmed, but it seems to be the result of a garbage-
    in/garbage-out process.
        I mean, the Crain and Crain or Crain and Hopkins or Hopkins
    studies have repeatedly used really shaky methodologies. For
    example, the key formula using the Regulatory Quality Index
    from the World Bank is based on public opinion surveys. The
    costs of environmental regulations depend in large part on a
    20-year-old study by Hahn and Hird which itself used 30-year-
    old studies produced by conservative economists to produce its
    numbers.
        There's a really strange study by Joseph Johnson on the
    costs of occupational safety and health regulations which
    nobody can figure out quite why he did what he did and how he
    got to the numbers he got. It's a very opaque document that
    actually takes some old numbers and then multiplies them by
    5.5.
        You know, at the core of this is a presumption that
    regulatory costs are always the same year after year after
    year, even after businesses learn how to adapt to the new
    climate and innovate and discover new ways of doing business
    that are actually far cheaper than they realize going in.
        Mr. Quigley. Because we're running out of time, we do
    recognize there's a cost and we try to keep those to a minimum.
    What I'm trying to get both sides to do is to work with the
    same numbers. The hyperbole exists on both sides of the world
    here. So if anyone on these panels, Mr. Chairman, have the
    opportunity to submit further evidence arguing, footnoting the
    best research as possible toward their ends of what numbers we
    really should be dealing with, it's useless if we're not
    dealing with real numbers in the real world. Whatever they are,
    they're important.
        So I'd just respect that we could work in the same ballpark
    and same universe of reality.
        Mr. Coble. Thank the gentleman from Illinois. Thank you. I
    didn't have to cut you off that time, Mr. Shull.
        The distinguished gentleman from New York, Mr. Reed, is
    recognized for 5 minutes.
        Mr. Reed. Well, thank you very much, Mr. Chairman.
        Mr. Shull, I'm trying to understand your testimony, but
    what strikes me is, you know, I listened to my colleagues on
    the other side. I listened to and reading the testimony from
    our side. I listened to the President acknowledging. Everyone
    seems to agree regulations are causing a negative impact on
    small business America, yet when I read your testimony, what
    I'm coming away with is you talk about there being a better way
    than H.R. 527 to deal with this issue, and my interpretation of
    your testimony is that it's essentially--it's a way--we should
    be increasing regulation, subsidizing small businesses to allow
    them to comply with that regulation, and then tax the people to
    pay for that subsidy for small businesses.
        Isn't that the classic Ronald Reagan situation, you know,
    where it's essentially if it moves, tax it, if it keeps moving,
    regulate it, and then if it stops, subsidize it? I mean, do you
    agree that the regulation problem is causing the negative
    impact on small business?
        Mr. Shull. Well, I suppose I'm afraid of the other Ronald
    Reagan problem, which is delaying regulations to the point that
    children are dying or people are at risk. I mean, for example,
    the Reagan White House delayed a simple warning label on
    aspirin products to notify parents not to give this to young
    children when they have flu or flu-like symptoms because of the
    risk of Reyes Syndrome.
        The Reagan White House delayed that standard and in the
    course of that thousands of children were afflicted by Reyes
    Syndrome and suffered irreversible brain damage, liver damage,
    and some of them died.
        You know, I suppose I'm also afraid of the other Reagan
    problem which is, you know, the cutting things to the bone and
    running major deficits and, you know, leaving the public at
    risk----
        Mr. Reed. Mr. Shull, I'm not talking about Reagan's
    problem. I'm talking about your concept that what we need to do
    to cure this problem is create more regulation and then the
    people that can't comply with the regulation, let's give them a
    tax subsidy in order to allow them to comply. I guess I just
    don't see how more regulation is going to correct this
    situation.
        Mr. Shull. Well, first of all, the subsidize concept was
    one that was jointly authored by Senator Snowe and Senator
    Kerry for legislation that would actually not subsidy small
    businesses but the small business development centers, I
    believe that's what they're called, to provide technical
    assistance to small businesses so that they can actually comply
    with the law.
        I mean, if the challenge is that they don't know what the
    laws are and they need help learning what they are so that they
    comply, it seems to me that the solution's not to get rid of
    the law that there's to protect people, including the small
    business owners and their families, but the solution is to help
    them learn more about it.
        Mr. Reed. That's what we hear from the government. We're
    going to take care of you.
        Mr. Shull. Or, I mean, if they would rather hire, you know,
    private industrial hygienists or, you know, other folks to help
    them comply, I suppose that's fine. It's probably cheaper if
    they----
        Mr. Reed. The taxpayers have to foot that bill. I mean, I
    guess I'm a small business guy. I come from a small business
    and I've just dealt with these regulations and I can just tell
    you firsthand that, you know, there's a real cost and that
    destroys businesses that otherwise could use that money to
    invest, to capitalize their markets, to move on to the next
    innovation of tomorrow, and I guess, Mr. Gimmel, I mean, you're
    a small businessman.
        What's your response to his proposal to--where do you see
    that going?
        Mr. Gimmel. I would ask him if he's ever run a business
    that had to comply with any of the array of regulations. I'd be
    surprised if he would make a statement like that in having a
    background of actually running a business.
        Mr. Reed. Mr. Shull, have you ever ran a business?
        Mr. Shull. My time has been spent in advocacy, working with
    families who've suffered incredible losses because of the lack
    of regulation.
        Mr. Reed. And I understand that. I mean, we live in a real
    world and I understand that many people come to this table,
    come to this hall for good intentions. We don't want to hurt
    people. As the Chairman said, nobody wants--you know, we want
    clean air, we want clean water, and I think I echo my colleague
    over on the other side that said, you know, we want the
    regulations to have a good effect, but what the problem is is
    by creating more and more regulations, we're losing sight, in
    my opinion, as to what we're trying to do and all it becomes
    is, you know, guaranteeing a way to--more regulations so that
    if it's good for one situation, it must be good for all and
    that's my concern because, you know, as a small business guy
    myself, this gentleman here, people are suffering. Those are
    real jobs and those are real Americans.
        I see that my time has expired. I'll yield back.
        Mr. Coble. I thank the gentleman from New York.
        I just confirmed with Mr. Cohen, Mr. Ross will be the final
    witness, final examiner, and if no one else shows, in the
    interest of your schedule, we will adjourn after we hear from
    Mr. Ross.
        Mr. Ross, the distinguished gentleman from Florida.
        Mr. Ross. Thank you, Mr. Chairman.
        Mr. Sullivan, the question for you. When we talk about
    regulation for small business, I'm reminded of the Americans
    With Disabilities Act, the ADA, which has had some unintended
    consequences, but nevertheless which put a requirement on
    business for accessibility for those with disabilities, but in
    that ADA Act, it had what was known as a reasonable
    accommodation standard.
        For example, if I was CEO of a Fortune 500 company, a
    reasonable accommodation for an employee with one type of
    disability may be something that I can afford to do with a
    modification of the workplace or access to the workplace, but
    if that same employee with that same disability came to me and
    I was an employer of four or five employees, that reasonable
    accommodation probably could not be made.
        And so my question to you is, under the RFA, is there any
    such standard of a reasonable accommodation that would fit the
    regulatory environment to allow small businesses to meet the
    regulatory burden without having to have a broad brush approach
    for the larger ones?
        Mr. Sullivan. Congressman, the situation that you laid out
    is exactly what H.R. 527 is trying to address because what we
    found is if agencies alone look at what constitutes reasonable
    accommodation, they may not get it right. But if they are
    forced through this law to sit down with small business owners,
    disclose what the direct impact of the proposal will be,
    disclose what the ripple effect of that proposal will be, and
    then actually listen to the input from small businesses and
    constructive ideas on how to get the regulation right, then
    that final rule that they come out with is much more likely to
    be a balance.
        Mr. Ross. Right. And it is about a balance, isn't it?
        Mr. Sullivan. Yes, it is about that process and that's
    really what this bill does, is it forces that process.
        Mr. Ross. Thank you. Mr. Shull, when you talked about, in
    your opening statement, about how, if it were not for the
    regulatory environment, the auto industry thought it would not
    have had seatbelts or collapsible steering wheels, and you seem
    to indicate to me that if there not had been a regulatory
    environment, that some of the safeguards that consumers now
    enjoy would not be in place, but yet I have to look back to
    even the founding of our country when there was no regulatory
    environment and when Benjamin Franklin was one of the investors
    of the first fire insurance company.
        In order to manage that risk, they created the first fire
    department and as we've seen throughout history that our market
    forces have allowed us to find that balance and in fact in the
    auto industry we've seen a balance because of insurance
    companies insuring a product requiring certain manufacturer
    specifications, otherwise they wouldn't insure it, otherwise
    they wouldn't give you the appropriate coverage to manage that
    risk, and so my question to you is, is that, as a businessman,
    if I were going out there and wanting to start a business and I
    wanted to make sure that I could meet the needs and have a
    profit, I would want to look at such factors, such as the
    demand, and if there was no demand out there for my product,
    then I probably shouldn't go into business, is that correct?
        Mr. Shull. Sure.
        Mr. Ross. And if there were no natural resources or
    whatever it was I wanted to sell, if I could not produce the
    product, even though there was a demand, it would probably be
    indicative of the fact that I shouldn't be in business, would
    that be correct?
        Mr. Shull. Or it might be indicative of the fact that you
    haven't found the right buyers.
        Mr. Ross. Okay. But would you go into business if you
    didn't have--I mean, if you could not make a profit at it?
        Mr. Shull. Well, I've spent all of my time in the nonprofit
    sector, so it's not a fair question to ask me. I'm sorry.
        Mr. Ross. Well, then, the question to ask you would be if I
    were a business that----
        Mr. Shull. Sure.
        Mr. Ross [continuing]. That was burdened by regulation to
    the extent that I could no longer turn a profit, is that
    indicative of the fact that maybe I shouldn't be in business at
    all?
        Mr. Shull. Well, it might be a sign that you were under-
    capitalized to begin with or that----
        Mr. Ross. If I was under-capitalized, would that be because
    I could not afford to comply with the regulatory environment,
    despite the demands of the consumers for my product?
        Mr. Shull. Well, you know, this is a hypothetical, but, I
    mean, if you put this in the concrete terms, if a small
    automaker is trying to get in the business of producing
    vehicles but doesn't have the wherewithal to produce a vehicle
    that's actually safe and crashworthy on the Nation's highways,
    that's not necessarily an automaker we necessarily want in the
    business.
        Mr. Ross. So, in other words, irrespective of the market
    forces, the regulatory forces would be a good judge of why we
    should even be in business in the first place?
        Mr. Shull. You know, I guess I have to take issue with the
    concept that markets are conceptually and historically prior to
    government. I mean, they exist----
        Mr. Ross. Not a bad thing.
        Mr. Shull. Governments create markets and create the
    vehicles, the infrastructure that allow markets to flourish,
    from our roads to the fact of the legal status of corporations.
        Mr. Ross. One--I see my time's up. I must yield back.
        Mr. Coble. Thank the gentleman.
        Mr. Ross. Everything's fine, and I thank you, Mr. Chairman.
    I want to just thank the panel. It was excellent and while it
    wasn't reality TV, it was good.
        Mr. Coble. I want to thank the panel, as well. Mr. Ross,
    I'll say to you, if you had another question, we will keep this
    open. Members will have 5 legislative days to submit to the
    Chair additional written questions for the witnesses which we
    will forward and ask the witnesses to respond as promptly as
    they can so that their answers may be part of the record.
        Without objection, all Members will have 5 legislative days
    to submit any additional materials for inclusion in the record.
        With that again, we thank you all. As Mr. Cohen said, it's
    been a good hearing. Thank you for your contributions, and
    we're letting you all leave early, as well.
        The Subcommittee stands adjourned.
        [Whereupon, at 2:50 p.m., the Subcommittee was adjourned.]
                                A P P E N D I X

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                   Material Submitted for the Hearing Record

        Response to Post-Hearing Questions from Karen R. Harned, Esq.,
    Executive Director, National Federation of Independent Business, Small
                             Business Legal Center