[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



                                 
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