[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
REDUCING FEDERAL AGENCY OVERREACH: MODERNIZING THE REGULATORY
FLEXIBILITY ACT
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
HEARING HELD
MARCH 30, 2011
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 112-007
Available via the GPO Website: www.fdsys.gov
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
ROSCOE BARTLETT, Maryland
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
CHUCK FLEISCHMANN, Tennessee
JEFF LANDRY, Louisiana
JAIME HERRERA BEUTLER, Washington
ALLEN WEST, Florida
RENEE ELLMERS, North Carolina
JOE WALSH, Illinois
LOU BARLETTA, Pennsylvania
RICHARD HANNA, New York
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
MARK CRITZ, Pennsylvania
JASON ALTMIRE, Pennsylvania
YVETTE CLARKE, New York
JUDY CHU, California
DAVID CICILLINE, Rhode Island
CEDRIC RICHMOND, Louisiana
GARY PETERS, Michigan
BILL OWENS, New York
BILL KEATING, Massachusetts
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, General Counsel
Michael Day, Minority Staff Director
C O N T E N T S
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Page
Opening Statements:
Coffman, Hon. Mike........................................... 1
Velazquez, Hon. Nydia M...................................... 2
WITNESSES
Mr. Bill Squires, Senior Vice President and General Counsel,
Blackfoot Telecommunications Group, Missoula, MT............... 3
Mr. David Frulla, Kelley Drye, Washington, DC.................... 5
Mr. Craig Fabian, Vice President of Regulatory Affairs and
Assistant General Counsel, Aeronautical Repair Station
Association, Alexandria, VA.................................... 7
Mr. Rich D. Draper, Chief Executive Officer, The Ice Cream Club,
Inc., Boynton Beach, FL........................................ 9
APPENDIX
Prepared Statements:
Mr. Bill Squires, Senior Vice President and General Counsel,
Blackfoot Telecommunications Group, Missoula, MT........... 17
Mr. David Frulla, Kelley Drye, Washington, DC................ 27
Mr. Craig Fabian, Vice President of Regulatory Affairs and
Assistant General Counsel, Aeronautical Repair Station
Association, Alexandria, VA................................ 44
Mr. Rich D. Draper, Chief Executive Officer, The Ice Cream
Club, Inc., Boynton Beach, FL.............................. 51
Statements for the Record:
Bartlett, Hon. Roscoe........................................ 56
Questions for the Record:
Owens, Hon. Bill............................................. 58
Responses for the Record:
Mr. Bill Squires, Senior Vice President and General Counsel,
Blackfoot Telecommunications Group, Missoula, MT........... 59
Mr. David Frulla, Kelley Drye, Washington, DC................ 61
Mr. Craig Fabian, Vice President of Regulatory Affairs and
Assistant General Counsel, Aeronautical Repair Station
Association, Alexandria, VA................................ 70
Mr. Rich D. Draper, Chief Executive Officer, The Ice Cream
Club, Inc., Boynton Beach, FL.............................. 71
HEARING ON REDUCING FEDERAL AGENCY OVERREACH: MODERNIZING THE
REGULATORY FLEXIBILITY ACT
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WEDNESDAY, MARCH 30, 2011
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 1 p.m., in Room
2360, Rayburn House Office Building. Mr. Coffman presiding.
Present: Representatives Graves, Bartlett, Coffman, Chabot,
King, Tipton, Fleischmann, West, Ellmers, Velazquez, Altmire,
Cicilline, Mulvaney, and Herrera Beutler.
Mr. Coffman. The committee on Small Business is called to
order.
Good afternoon. Studies have shown that small business must
spend more per employee to comply with regulations than their
large competitors. If we are relying on small business to
create jobs that will create economic growth, America's
entrepreneurs cannot be saddled with unnecessary costs. It is
just plain common sense that federal agencies should see how
the rules will affect business, business that need scarce
capital to hire workers rather than comply with costly and
unwieldy dictates of federal bureaucrats. In fact, such a
statute exists, the Regulatory Flexibility Act [RFA]. The act
charges all federal agencies with examining the impact of their
proposed and final rules on small business. If these impacts
are significant, the agency is required to consider less
burdensome alternatives.
Let me give an example. TSA decided that it would be a good
idea to impose on general aviation security plans and
screenings similar to that used by commercial airlines.
Significant costs would have been imposed on the general
aviation community without any showing that safety to the
public would have increased. It is this type of nonsensical
federal overreaching that hinders job creation without
providing any benefit to the public that the RFA was designed
to stop. Had TSA done what was required under the act that
agency would not have put forward such a proposal.
Despite the importance of the RFA to the small business
community, federal agencies, as we will hear from today's
witnesses, regularly ignore the requirements of that act. The
result reduced competitive capability of small business which
in turn prevents them from expanding and creating needed jobs.
Given the state of the American economy, that is not a result
we in Congress or the American public can afford.
I want to thank witnesses for taking the time to provide
their insights into the RFA, its benefits to small businesses,
and the loopholes that agencies may use to avoid a necessary
and sensible examination of the consequences of their actions.
With that I now recognize the ranking member for her
opening statement.
Ms. Velazquez. Thank you, Mr. Chairman. Good afternoon.
Small businesses play a key role in creating new jobs.
Today we are going to examine how the rising regulatory burden
may prevent them from generating these employment gains. As the
latest studies show, the annual cost of regulation grew over
the last decade to $1.75 trillion. This means that if every
U.S. household paid an equal share of the regulatory burden,
each will owe more than $15,000. For many small businesses the
cost of regulatory compliance has become considerable. Firms
with fewer than 20 employees pay more than $10,500 per employee
in compliance costs, a number 36 percent higher than their
larger counterparts. The result is that many entrepreneurs are
spending more on regulatory requirements than they are on
building their businesses.
To address this issue Congress passed the Regulatory
Flexibility Act in 1980 giving small businesses greater
influence in the regulatory process. The act was designed to
ensure that federal agencies consider the impact of its
regulations on small entities. Clearly RFA is working as
regulatory costs were reduced by $15 billion in 2010 alone
according to the SBA's Office of Advocacy. In the last three
years the EPA and OSHA convened seven Small Business Advocacy
review panels providing small firms with greater input
regarding key environmental and occupational safety
regulations.
Despite this success, it is clear that RFA could be working
better. One area that needs improvement is the process in which
agencies can certify that a rule has no significant impact on
small businesses. While agencies are required to provide a
factual basis for such certifications, they often provide only
a simple statement which dismisses the concerns of small firms.
By doing so, small firms are often left out of the process with
little hope of their voice being heard. Agencies also have been
slow to review outdated regulations that remain on the books,
yet which continue costing small businesses money.
While the RFA requires agencies to periodically review
existing rules, these requirements are vague and agencies often
do not apply them consistently. As a result, these reviews have
been much less effective than they could have been. Given the
well documented concerns and the evidence that lies before us,
I think the question is not if we make improvements to the RFA,
but rather how do we go about it.
As we move down this path, the Committee should be cautious
in two areas. While the SBA's Office of Advocacy plays an
important role, simply giving them additional power is not the
answer to all that ails the RFA. With only 46 employees, we
have to be careful about creating a situation where we vest too
much new authority on an entity that lacks the budget and
manpower to execute such an expanded role. In these times of
fiscal restraint, I am wary of heaping more responsibilities on
an agency that is struggling to keep up with its existing
workloads. Let us first see if Advocacy can handle the new
tasks required under Dodd-Frank, which increases by 50 percent
the number of agencies covered by the panel process.
In addition, any expansion of the RFA, and in particular
the panel process, must be scrutinized. I wholeheartedly
support efforts to reign in agencies that are insensitive to
small businesses but we cannot do so by simply grinding the
regulatory process to a halt.
With this in mind I look forward to today's discussion on
how RFA can be best modernized to meet small businesses' needs.
And let me take this opportunity to also thank all the
witnesses for being here today.
Since its enactment over 30 years ago, the Regulatory
Flexibility Act has played a critical role in reducing
regulatory burden. We need to ensure our system functions
properly and correctly as minimizing regulation will enable
small businesses to do what they do best--innovate, grow, and
create the jobs our economy needs to move ahead.
With that I yield back the balance of my time.
Mr. Coffman. I thank the ranking member, Congresswoman
Velazquez.
All the witnesses' written statements will be placed in
their entirety into the record of the hearing.
STATEMENTS OF BILL SQUIRES, SENIOR VP AND GENERAL COUNSEL,
BLACKFOOT TELECOMMUNICATIONS GROUP, ON BEHALF OF THE NATIONAL
TELEPHONE COOPERATIVE ASSOCIATION; DAVID FRULLA, KELLEYDRYE;
CRAIG FABIAN, VP OF REGULATORY AFFAIRS AND ASSISTANT GENERAL
COUNSEL, AERONAUTICAL REPAIR STATION ASSOCIATION; RICH D.
DRAPER, CEO OF THE ICE CREAM CLUB, INC., ON BEHALF OF THE
INTERNATIONAL DAIRY FOODS ASSOCIATION
The first witness will be Mr. Squires.
Mr. Squires, Mr. Bill Squires, is the senior vice president
and general counsel of Blackfoot Telecommunications Group in
Missoula, Montana and is testifying on behalf of the National
Telephone Cooperative Association. Mr. Squires, you will have
five minutes to present your oral testimony.
STATEMENT OF BILL SQUIRES
Mr. Squires. Thank you. And thank you for the invitation to
participate in today's discussion on controlling the reaches of
federal agencies and considering modifications to the RFA.
For the past 10 years I have served as senior vice
president and general counsel of Blackfoot Telecommunications
Group in Missoula, Montana. Blackfoot is organized as a
cooperative, and as such our priority is to provide to our
customers who are also our owners the very best communications
and customer service available. We serve only 21,000 customers
in western Montana over an expanse of about 6,500 square miles,
so only a little over three customers per square mile. We have
approximately 140 employees, and in 2010 had operating revenues
of $34 million. So we are a small, highly regulated company.
The entrepreneurial spirit of Blackfoot is represented by
approximately 1,100 small rural counterparts in the telecom
industry, who together serve 50 percent of this nation's land
mass but only 10 percent of the population. Rural providers are
early adopters of new technologies and services. Blackfoot
currently offers 15 megabit broadband service to 98 percent of
that 6,500 square mile service territory. Thanks to rural
telecom providers, rural Americans are enjoying universal voice
services, access to broadband internet, and enhanced emergency
preparedness.
To counteract the natural inclination to develop a ``one
size fits all'' approach to regulation, the RFA was adopted in
1980. It directs the agencies to balance the societal needs
tied to federal regulations with the needs of small businesses.
Though the RFA has been good for small business, many industry
stakeholders believe that some agencies in our industry,
particularly the FCC, gives little regard to the law and its
mandate to thoroughly review the impact of proposed regulatory
orders on America's small business community.
The RFA is supposed to force agencies to be creative with
regulatory alternatives. Instead of conducting this analysis,
agencies often summarily state that alternative regulation was
considered and rejected. Among the FCC's rules, for example
that have a significant and unnecessarily damaging financial
impact on small carriers are things such as truth in billing,
bill shocks, slamming, and customer proprietary network
information rules. These are all laudable goals and I do not
question those today. However, in the instances where final
rules have been adopted, the Commission did not fully analyze
the impact of its rules on small businesses and did not fully
explain why alternatives were rejected.
In response to the FCC's continued disregard of the RFA,
the National Telecommunications Cooperative Association
actually sued that agency in 2004 over its new number
portability rules which were heavily skewed in favor of very
large companies. The court forced the FCC to perform the
required RFA analysis and NTCA members offered suggestions on
lessening the burdens that the rules would have on small
businesses. The FCC rejected and ignored the suggestions of
NTCA and NTCA sued again, arguing that the analysis was
deficient. Amazingly, the court stated that the RFA's
requirements are purely procedural. It requires the agency to
do no more than state and summarize issues. I simply cannot
believe that it was Congress's intent in passing the RFA.
Because the FCC is an independent agency, it is largely not
subjected to direct oversight by the OMB's Office of
Information and Regulatory Affairs. The OIRA was created by
Congress to review federal regulations and reduce burdens.
Further, the FCC is not required to comply with Executive Order
13272, which specifically deals with cooperation with the Small
Business Administration's Office of Advocacy, nor is it subject
to Executive Order 12866, which requires a cost benefit
analysis for all significant rules.
We believe the following legislative actions could go a
long way toward enhancing small business participation in the
dynamic communication sector.
Codify the appropriate provisions of the executive
orders in a manner to make them applicable to
independent agencies such as the FCC;
Require all agencies to explain whether and how each
rulemaking decision promotes and protects small
businesses;
Amend the RFA to clarify that all agencies must
suggest and analyze creative alternatives that account
for the nature and competitive position of small
businesses when conducting rulemakings;
Certainly consult with the Small Business
Administration's Office of Advocacy well in advance of
rules being adopted and specifically address any
suggested authority;
Provide the FCC with the responsibility to require
agency bureaus to coordinate regulatory activities.
Members of the Committee, we are excited to have your
attention today and I appreciate the opportunity to be here. We
are excited to have your leadership to develop policies that
will give America's small businesses the confidence to invest
and flourish. Thank you for the opportunity to be here today
and I look forward to answering any questions you may have.
Mr. Coffman. Mr. Squires, thank you so much for your
testimony. Mr. David Frulla. Did I pronounce that properly?
Mr. Frulla. Yes, you are. Thank you.
Mr. Coffman. Okay. Is a partner in the Washington, D.C.
office of Kelley Drye. Mr. Frulla, you have five minutes to
present your testimony.
STATEMENT OF DAVID FRULLA
Mr. Frulla. Thank you very much, Mr. Coffman, Ranking
Member Velazquez, and members of the Committee.
I am David Frulla from Kelley Drye in Washington, D.C. I
appear today personally, though I have long helped small
businesses try to cope with federal rulemaking, including in
over about a dozen RFA-related court cases, several times
successfully.
It is important testimony here today regarding the
Regulatory Flexibility Act as Congress seeks to ensure federal
regulations do not impede economic recovery and job creation.
In summary, the RFA, along with its watchdog, the SBA's Office
of Advocacy, have proven valuable in leveling the regulatory
playing field for small businesses, nonprofit organizations,
and governmental entities over the last 30 years. In short, the
office does a great job in its role as a liaison for small
entities to the federal government, and it deserves the
resources it needs to fulfill its mission, especially if that
mission is going to be enhanced. More does need to be done
though, to ensure federal regulations match the scope and scale
of these small entities.
As I will explain, certain RFA weaknesses have emerged
since the Small Business Regulatory Enforcement Fairness Act
[SBREFA] provided for judicial review of agency RFA analyses in
1996. The heart of RFA analyses are agencies' preparation and
publication for notice and comment of an initial regulatory
flexibility analysis [IRFA] and then the preparation of a final
regulatory flexibility analysis [FRFA] at the time a final rule
is published. Most importantly, these analyses should explore
significant alternatives that reduce adverse impacts on small
businesses and the FRFA should explain why it rejects less
flexible alternatives.
In general, an agency can only avoid the RFA if it
certifies the rule is not likely to have a significant impact
on a substantial number of small entities. These Sec. 605[b]
certifications have proved to be controversial.
Importantly, courts have interpreted the RFA to be strictly
procedural and that limits its utility. A very deferential
Administrative Procedure Act standard of review applies. It is
an open question how much deference the expert SBA Office of
Advocacy is entitled to when it disagrees, as it sometimes
does, with agencies' analyses. And agencies have often been
able to create their own ad hoc RFA standards that are contrary
to SBA guidance and informed public input.
Perhaps most significantly, an agency is not required to
adopt any more flexible regulatory alternative, and courts
generally defer. Whatever the cause, that outcome is not
acceptable. Further, there is an ever growing line of cases
that find an agency need not comply with the RFA if the rule
does not directly impact a universe of small entities. The
origins of this construction are both sketchy and nonstatutory.
Also, there have been difficulties with Sec. 610 regulatory
review. An extensive empirical analysis has shown that these
large scale regulatory reviews have not succeeded and may even
have been counterproductive. This is particularly discouraging
given the current legislative focus on retrospective reg
review.
The RFA also included the panel requirement that the
ranking member discussed. These panels have helped avoid
``ready, fire, aim'' regulatory outcomes.
Fortunately, there are good ideas in play to amend the RFA,
and I actually have one or two more of my own that I am going
to bring forward. It is important to give the Chief Counsel of
the Office of Advocacy the authority to draft uniform
implementing regulations for agencies to follow. For instance,
EPA should not be able to, as it illogically does, assess the
impact of a rule based on its impact on small business revenue
without considering the profits needed to fund the change. H.R.
527 would provide for this more formal SBA rule.
Small entity outreach should be expanded during the
proposed rule stage, along with increased use of SBREFA-type
panels. President Obama himself has emphasized such proactive
outreach. Include indirect effects, when for instance, states
merely act as regulatory intermediaries. There is no reason an
agency cannot assess the rule's impact on the small businesses
that will ultimately have to comply. H.R. 527's foreseeable
concept is on target.
Regulatory review. Your proposed bill also enhances the 610
reg review process. And that should be strengthened, consistent
with other legislative efforts to enhance retrospective reg
review being considered in this Congress. The bill also
understands the need for better understanding and minimization
of cumulative regulatory impacts.
You need to add teeth to the regulatory alternatives
development process. Courts and agencies have both lost sight
of the admonition in the RFA's legislative history that the law
should be liberally construed to fulfill its purposes. It is
not an easy legislative issue.
And if you would permit just one more minute so I can
finish up. Thank you.
Here is what Congress can do. It can mandate the use of the
best scientific, economic, and social information available in
these analyses, and let the SBA define what those terms mean.
And it can provide for peer review in appropriate instances.
Congress should consider development a process where small
entities could petition the Office of Advocacy to convene a
peer review of an agency's RFA analyses, especially as they
relate to alternatives. They should not be automatic, but let
the SBA take a look at that and decide where it is appropriate.
And then these peer review results could be accorded judicial
deference equal to the agency's own RFA analysis. Then you get
a better playing field at the courts.
And finally, opportunities for judicial review should be
enhanced so they are effective. On the substantive matter, we
just talked about the issue of deference. But also, small
business should not have to wait, as one of our clients did,
four years for a court to conclude that the agency should have
conducted an RFA analysis in the first place. Congress also
needs to consider the heavy cost of federal litigation on small
business.
Thank you very much. I look forward to answering any
questions you may have.
Mr. Coffman. Thank you, Mr. Frulla. The chair recognizes
ranking member Congresswoman Velazquez.
Ms. Velazquez. Thank you, Mr. Chairman. It is my pleasure
to introduce Craig Fabian. He is the vice president of
regulatory affairs and assistant general counsel to the
Aeronautical Repair Station Association [ARSA]. He is also a
practicing aviation attorney and has over 20 years of
experience in the aviation industry. He began his career as an
aircraft mechanic technician with Northwest Airlines, worked as
a maintenance controller for U.S. Airways and is the former
director of technical operation for the Air Transfer
Association. Welcome.
STATEMENT OF CRAIG FABIAN
Mr. Fabian. Thank you, Ranking Member Velazquez and members
of the Committee. Thank you for the invitation to testify this
afternoon.
For those of you not familiar with the Aeronautical Repair
Association, known as ARSA, it is the premier association for
the international aviation maintenance industry. ARSA's
certificate repair station members facilitate the safe
operation of aircraft worldwide. From an economic perspective,
the aviation maintenance industry generates over $39.1 billion
of economic activity in the United States and employs more than
274,000 workers in all 50 states. A snapshot of our economic
and employment footprint is attached to my written testimony.
On a global scale, North America is a net exporter of
aviation maintenance services, enjoying a $2.4 billion positive
balance of trade. Although ARSA members represent a wide cross
section of the aviation industry, the vast majority of these
companies are small businesses. As a result, the protections
afforded by the Regulatory Flexibility Act, which I will refer
to as the RFA, are particularly meaningful to our members.
Today I will discuss ARSA's experience in challenging an
agency rule under the RFA. That experience began with the
decision by the Federal Aviation Administration [FAA] to
dramatically expand the scope of its drug and alcohol testing
requirements. The changed rule impacted many traditional small
businesses that certificated repair stations rely on for
ancillary services, such as welding shops, metal finishers, and
machine shops. Those small businesses were faced with a
difficult choice, either implement a full blown FAA drug and
alcohol testing program or simply stop serving repair station
customers.
ARSA challenged the rule in court, and in 2007, the U.S.
Court of Appeals for the D.C. Circuit found that the FAA had
violated the RFA when it decided that a full analysis was
unnecessary. The FAA was then instructed to perform an analysis
to comply with the RFA. Despite the court's mandate, over three
years passed and the FAA made no effort to perform the required
analysis. As a result, on February 17th of this year, ARSA
filed a petition for writ of mandamus with the same court to
compel the FAA's compliance. Several weeks later, the FAA was
ordered to show cause and explain why ARSA's petition should
not be granted. As a basis for its response to the court, the
FAA posted what it characterized as a supplemental regulatory
flexibility determination, restating its conclusion that a full
and complete RFA analysis is not required.
To put it briefly, despite the passage of time, over five
years since the final rule became effective and over three
years since the court's mandate the issue is far from over.
ARSA's experience in dealing with federal agencies reveals that
the RFA is treated as an annoying burden to the rulemaking
process. The agency's objective seems to be finding a way to
avoid engaging in the difficult task of compiling the economic
data and considering alternatives to a proposed rule. Indeed,
even when specifically commanded by a court of law to carry out
an analysis, federal agencies are prone to engage in foot
dragging with the apparent hope that the requirement will just
go away.
We believe the following suggestions will help. Congress
should allow small businesses and nonprofit associations that
successfully mount RFA challenges to recover court costs and
legal fees. The RFA could be amended to require that agencies
assess direct and indirect costs for small businesses. The RFA
could be amended to prevent agencies from reversing
determinations made during its threshold analysis as to what
entities are affected by a proposed rule. Congress could ensure
that any legislation it passes contains language, either in the
bill itself or in legislative history, clearly stating that it
does not intend the law to have adverse effects on small
businesses.
Congress could empower the Small Business Administration's
Office of Advocacy to make small business determinations for
agencies. Congress could also refrain from setting strict
timelines that agencies must meet to complete the rulemaking
process.
Small businesses are a critical part of the aviation
industry and the U.S. economy. When it enacted the RFA,
Congress created an important mechanism to protect small
businesses from unnecessarily restrictive and intrusive federal
regulations; however, the small businesses in your districts
will only benefit from the protections of the RFA if federal
agencies obey the law.
Thank you for your time, for holding this hearing, and for
inviting ARSA to be part of it. I would be happy to answer any
questions.
Mr. Coffman. Thank you for your testimony.
And now for the most important part, the dessert portion of
the hearing, I would like to welcome Mr. Rich Draper, CEO of
the Ice Cream Club, Boynton Beach, Florida, testifying on
behalf of the International Dairy Food Association. Mr. Draper,
you will have five minutes to present your oral testimony.
Thank you.
STATEMENT OF RICH DRAPER
Mr. Draper. Thank you, Member Velazquez, members of the
Committee, and specially my congressman, Alan West, from
Florida's 22nd District, who is so committed to small business.
Sorry I did not bring any samples today. If I am invited back,
I will.
I also want to recognize International Dairy Foods
Association, the leading voice of the dairy industry, for their
help with today's hearing. And I would be remiss if I did not
mention my wife and business partner, Heather, who is with me
today. Just briefly, Heather and I have been married recently,
two and a half years ago, first marriage for both of us. She is
a former executive in the banking industry. So I feel I have
done my part to move the economy forward by adding her
tremendous talents to the manufacturing industry and also
removing one from the banking industry.
A brief description of my company, the Ice Cream Club. In
1982, a buddy of mine, Tom Jackson and myself opened up an ice
cream shop in a little town called Manalapan in South Florida
near Palm Beach. Those were the good old days when you could
just come across an opportunity and pack up and go.
We started making ice cream in the back of the store and
shortly thereafter began wholesaling. Today we produce over 120
award winning flavors and are known for our crazy mouthwatering
varieties. But we only produce in three-gallon tubs so we are
not available in grocery stores.
We supply 500 food service accounts throughout the
southeast and Caribbean. About seven percent of our business is
export and that percentage is growing.
We now employ over 50 people and operate from an 18,000
square foot factory and we continue to grow. In fact, this year
we have hired seven new staff members. We still have our
original store, and my partner, Tom, is still with the company.
We deal with regulations with local, state, and federal levels
by multiple agencies, so we are very interested in today's
hearing topic. We fully support the efforts of this Committee
to ensure that federal agencies make regulations as efficient
and as least burdensome as possible for small business.
Let me touch briefly on some items of concern for the Ice
Cream Club. There is nothing more important to the success of
our business than the confidence our customers have in the
safety and quality of our products. We welcome government
regulation and inspection when it is utilized as a partnership
between industry and government to further enhance the safety
of food production. However, we are worried about duplicative
regulatory agencies at various levels of government. For
example, we are inspected regularly by the Florida Department
of Agriculture, part of the USDA. Also, we are inspected by the
FDA. We have four major inspections by the Florida Department
of Agriculture each year, as well as numerous other visits to
collect samples and calibrate equipment.
The new food safety law passed by Congress last year calls
for even more inspections for food manufacturers, so it will be
particularly important that the FDA utilize existing
inspections in the dairy industry as much as possible. We are
concerned that instead of targeting increased inspection in
high risk areas, FDA will take a ``one size fits all'' approach
over the entire food sector. We hope that there is not an
adversarial gotcha approach coming down the pike. Our view is
that the vast majority of food producers adhere to strict food
safety procedures and are working very hard to provide safe,
quality, consistent products to the public.
Recently, the FDA began targeting certain segments of the
dairy industry for extra environmental testing. The FDA's
process can take anywhere from a few days to more than a month
to get test results back. During that time, businesses have to
hold product in inventory and production lines may have to be
slowed down until FDA results confirm the products are safe to
be shipped. These additional inspections are slow in response
and FDA makes the cost of doing business higher for small
business and the FDA should be required to determine if these
extra costs can be avoided.
Another example of ``one size does not fit all'' is when we
try to sell to the government. For example, if we wanted to
sell to a VA Hospital we have several roadblocks potentially in
our way. One is the size of the bid. They may require all
fluid, including ice cream and milk; we only do ice cream. It
could be a geographical boundary, say the entire eastern United
States; we only supply the southeast. That also goes against
the buy local movement, which has benefits. Plus, we would be
subjected to additional USDA inspections. We make over 20
flavors of no-sugar-added ice cream. I am not aware of any
other company that does. I think that would be a great addition
to a VA Hospital. We would just like the opportunity to be able
to go in and say we are meeting all other regulations. Let us
have a shot.
Since milk is the primary--I will go ahead in just a
second.
Finally, I would like to suggest more involvement by small
business at the inception of regulations. This could be
accomplished by a small committee of business people, such as
myself, that could offer input not as a way to get a
competitive advantage or take shortcuts, just smart input from
people on the frontline.
In conclusion, I want to say that I feel very fortunate
that we are operating in a country that allows us to grow our
business. Much of the world's population is under an oppressive
regime of some sort so we cannot complain too much, so we will
take reasonable regulations over the alternative.
Thank you very much.
Mr. Coffman. Thank you, Mr. Draper. I think we are going to
go ahead and vote right now. I appreciate your testimony and
then we will return for questioning.
[Recess.]
Chairman Graves. We will go ahead and call the hearing back
to order. I apologize to everyone for missing the first part of
it. I had a speaking engagement I had to be at and then, of
course, we had votes. But with that we are ready to start
questions. And I appreciate again all of you being here. Some
of you traveled a ways and we always appreciate that here at
the Committee.
But my specific question to you all when it pertains to the
Regulatory Flexibility Act, on January 19th, the President
reaffirmed the need for federal agencies to comply with the
act. And my question to you is have you seen any improvement in
agency assessment when it comes to small businesses and as it
pertains to the Regulatory Flexibility Act? And I would also be
interested in any specific things that have happened in the
last year that frustrate you for the administration when it
comes to the Regulatory Flexibility Act, specific items that
have happened to you.
We will start with Mr. Squires.
Mr. Squires. Thank you, Mr. Chairman.
To answer the first question, the agency, of course, that
we deal primarily with is the Federal Communications Commission
[FCC]. And as an independent agency they are exempt from some
of the executive orders that control federal agency responses.
And so we have not seen, since January, great improvement in at
least the FCC's compliance with the RFA. As an example, and
this addresses, I believe, your second question for frustration
at least on my part is a recent Notice of Proposed Rulemaking
currently pending in the FCC, which is sweeping regulatory
change to our industry, pays very scant attention to the
initial regulatory flexibility analysis that is required under
the RFA. There is just a few paragraphs in, I believe, appendix
H of that Notice of Proposed Rulemaking, that essentially asks
all of us, the small businesses, well, you tell us what maybe
are some ideas to reduce the burden of regulation on you. And
it is my belief that the RFA really places the burden, and
rightfully places the burden on the agency itself to come up
with those creative alternatives, not simply punt in a few
paragraphs of a 300 page order the burden to small businesses
such as ours to come up with those alternatives.
Chairman Graves. Mr. Frulla.
Mr. Frulla. Thank you, Mr. Chairman. I have seen some slow-
down of, agency rules, maybe for a little bit more
deliberation. The EPA has done some of that. It has not seemed
to me to be small business focused. It has been more on the
general policy, rather than on the presidential memorandum
relating to reg flex and small business.
In terms of what has been maddening for everybody on the
panel, is the easy way now for an agency to handle the
Regulatory Flexibility Act. It is to say, okay. And we run into
this fairly constantly. Yeah, we got it. You are going to get
creamed. But we have to. We do not have any alternative. And
that is the sophisticated approach. It has sort of evolved from
there is no impact on you, to you are going to get creamed. We
cannot do anything about it. And, they go to court and the
court defers to the agency's rather superficial analysis.
Chairman Graves. Mr. Fabian.
Mr. Fabian. Thank you, Mr. Chairman.
I would point out a very recent example, this month as a
matter of fact, and I mentioned in my written and oral
testimony the FAA's recent posting of a regulatory flexibility
analysis as a result of a petition for writ of mandamus that
ARSA filed back in 2007 regarding their drug and alcohol rules
and their noncompliance with the RFA. Just recently in response
to the court's order to show cause why the writ should not
issue, the FAA basically once again just stated that the rule
will not have a significant impact on a significant number of
small businesses and therefore, we certify that an analysis
will not be required. So I think that is no change in the
behavior of agencies in our opinion.
Chairman Graves. Mr. Draper.
Mr. Draper. From the food manufacturing standpoint, we are
gearing up for the new FDA regulations that affect businesses
like ours. So no real surprise that it is coming. We just want
to make sure that we have everything ready, so that is
anticipated additional regulation. Not that it is bad
regulation but we are just making sure we are prepared.
Chairman Graves. We have got a little bit of a time crunch
so I am going to turn to Ranking Member Velazquez for her
questions.
Ms. Velazquez. Thank you.
Mr. Fabian, you suggest that agencies should account for
the indirect costs of regulations. And I believe that your
experience with the FAA makes a clear case for this. However,
implementing this change is a different matter. How should
indirect costs or indirect be defined, and how far should
agencies be required to go in determining the indirect cost of
the regulation?
Mr. Fabian. Thank you, Ranking Member Velazquez.
In my opinion, it should be the population of small
businesses that will be affected by the rule. In our case it
was the FAA stated that while the drug and alcohol rules apply
to air carriers, so therefore we only have to consider the
direct cost of that group of businesses, not at any tier down
the line that is more indirect and I think there is no bright
line for determining where the line would be drawn for the
indirect costs. However, anyone that would have to be compliant
with the rule I think should be considered.
Ms. Velazquez. Sure.
Mr. Frulla, in discussion concerning RFA, some observers
have suggested that the SBA's Office of Advocacy be given an
expanded role. For instance, you recommend that Advocacy be
given the authority to write rules implementing RFA. What would
be the result if Advocacy is given new rulemaking authority for
RFA?
Mr. Frulla. What I think could happen that would be
constructive, because the SBA produces guidance anyway on RFA
compliance, is the creation of a standardized set of guidelines
about how reg flex analyses should be conducted because if
there is an expert on how to do an RFA analysis, it is that
agency, and that is where the deference would come from.
I gave one example in my testimony where we had a case for
the National Federation of Independent Business where EPA had
based economic impacts analysis on changes to revenues without
looking at profit. And it is pretty clear you pay for changes
out of your profit, not out of your revenue. And the Federal
District Court here in D.C. deferred to that decision by EPA,
even over SBA's objection. I mean, that is a clear situation, I
think, where centralized----
Ms. Velazquez. And if you were to prioritize, what do you
think is more important--giving Advocacy the right--the
authority to write rules or giving them Chevron deference?
Mr. Frulla. I think they go together because by writing the
rules and being tasked as the expert to write the rules, the
deference should follow.
Ms. Velazquez. But if I asked you which one, prioritize one
or the other, which one would come first?
Mr. Frulla. I think they are of a piece. I think the reg
writing authority would get you to the deference, and the
deference would be the place to look, at least in terms of the
reg writing. I mean, there are other issues relating to
alternatives which I raised. It is trickier.
Ms. Velazquez. Among the witnesses today there have been
many proposals about reforming the RFA, and this includes
expanding the panel process to all federal agencies giving
SBA's Office of Advocacy rulemaking authority, strengthening
outreach to small businesses, and making the analysis required
by RFA more specific. So if we count the different proposals
close to 10 outlined in your testimony, would Advocacy's
proposed fiscal year 2012, budget with a staff level of 46, and
nine million dollars be enough to implement all these
proposals?
Mr. Frulla. What I have said in my testimony is, I mean,
there may be reason to be judicious about expanding the panel
process. You are looking at major rules, not every rule. And I
think the SBA, they need more budget to do this. If Congress is
going to say small business is the engine of job creation and
growth and we have this agency----
Ms. Velazquez. You know we are in the midst of CR
negotiations and so people are asking to cut the budget, not to
increase the budget for any agencies.
Mr. Frulla. I understand.
Ms. Velazquez. If you have to guess how many more employees
and how much more funding Advocacy would need, do you have an
estimate?
Mr. Frulla. I think I would have to defer to them on that.
It would probably depend upon the--you could write the regs
with probably whatever force you have. A lot of that
information is already contained in their guides in terms of--
--
Ms. Velazquez. Remember that Dodd-Frank, regulatory reform,
will cover all the agencies and SBA's Office of Advocacy will
have to be part of that.
Mr. Draper, you mentioned that you are worried about
duplicative regulation, particularly regarding food safety
inspection of which you are already subject to by the state of
Florida. Can you discuss how these inspections impact your
business and your annual costs?
Mr. Draper. Our regular inspector, as I mentioned, is the
Florida Department of Agriculture through the USDA. Additional
inspections require significant time, mainly my time. We are
not of a size--I do have a full-time quality control director
but when we have inspectors come in there are times when they
are not really familiar with dairy but they will command our
time and rightfully so, but we feel that their existing
inspectors are doing almost everything the FDA does. The FDA
tends to focus more on labeling, paperwork, things like that,
recordkeeping, whereas the FDA is more--the Florida Department
of Agriculture is more involved with our actual processes,
pasteurization, things like that. So it struck us that that may
be something that could be more efficient. The FDA certainly
has a role but our experience has been the dairy part of their
inspection is not at the level that the Florida Department of
Agriculture is.
Ms. Velazquez. Mr. Squires, do you have a recommendation as
to how can we close the loophole that would allow for agencies
to certify that they have conducted the required impact
analysis?
Mr. Squires. Yes, I believe my recommendation, Ranking
Member Velazquez, would be to just clarify the RFA to make sure
that the agencies have the directive from Congress to properly
offer alternatives for small business. Again, I fall back on
our recent experience with the FCC. One of the things that
small companies, small rural telecom providers such as mine is
criticized by the FCC for is our corporate operations expense,
the size of those expenses in comparison to our overall
operating expenses. But we only have those expenses because of
the degree of regulation that is impressed on us by the FCC. So
it is a real tough situation for us. So I believe that this
body can clarify for federal agencies that they need to come up
with alternatives.
Ms. Velazquez. Thank you. Thank you, Mr. Chairman.
Chairman Graves. Mr. West.
Mr. West. Thank you, Mr. Chairman. Madam ranking member.
In a previous career, you know, I had a pretty simple life.
When you sit on an airplane and you have a parachute on, the
light is red, you do not jump. When the light is green you do
jump. So what I am sitting here and listening to is that we saw
that there was a problem with burdensome regulation back in the
'70s. We created an agency or this act, the Regulatory
Flexibility Act. Now we come along and we have federal agencies
that are not adhering to the analysis that defines what have
you of this RFA. So my question is in the simple world, what do
you think is driving the federal agencies not to adhere to the
RFA? I mean, is it belligerence? Is it the fact that they think
they are untouchable? I mean, what are the things you believe
is causing this rub, this recalcitrance?
Mr. Draper. I can start out. I will just mention from our
world again, the food processing world, kind of what I
mentioned to Ranking Member Velazquez that certain agencies
have a focus on what they have done well, and then they might
also pick up other industries as part of it. Dairy, our world
is specific and we have specific inspectors now that are in a
lot of cases former dairy people with good knowledge. They come
in and they share the knowledge, which is appreciated.
Sometimes we have other agencies that come in, not just the FDA
but anyone else that might come in to inspect, maybe they have
to, they have us wrapped up because we are food. Maybe it
should be more industry specific. And the people that do
inspect those businesses would have the industry experience.
Chairman Graves. Open to the full panel.
Mr. Fabian. Congressman, I think that the, as I stated in
my oral and also in my written testimony, is the fact that it
is easy for the agencies to circumvent the RFA and just certify
that it is inapplicable and really without repercussion. I
think it is, at least our case proves the RFA does not today
have real teeth and if the RFA is viewed as a burden and
something to avoid it can be accomplished rather easily.
Mr. Frulla. I would agree with that. We had some early
cases, for instance, where a federal court in Florida had
designated a special master to look at the agency's good
faith--an agency's good faith in complying with the RFA. That
kind of thing, if you can get to that point, can get you some
attention. But that is not an everyday occurrence in
litigation.
I think there are two ways this happens. One is agencies
just do not get it. They really do not get and understand the
impacts that their regulations have on small businesses. And so
they just proceed. Others have their mission and they do not
care; they want to proceed. So you have those two as the
animating factors I think we most often see.
Mr. Squires. I do not believe that it is belligerence. At
least I hope that it is not in the cases that we have had but I
do believe that it is complete indifference because the courts
have said that the act itself is procedural only. And so why
would an agency devote a lot of resources and time to an RFA
analysis? I believe congressional mandate to put some teeth
into the act would go a long way.
Mr. West. And one final question if I can. If you look at
the time period when you first started your business, and if
you were to try to go into that endeavor today, do you think
that it has become easier or do you think there are more
obstacles out there for you to try to create the exact same
business that you did 20 or however many years ago?
Mr. Squires. Clearly for us, Mr. West, it would be almost
impossible to start our business today. We began in 1954 as a
rural telephone cooperative with a handful of farmers and
ranchers throwing 50 bucks into the kitty to string wires on
the poles, largely unregulated. And today we have a full
finance department and kind of a mini accounting firm in our
own small company. We have lawyers and economists, a much more
complicated industry now, probably impossible to start.
Mr. Frulla. I think I will demur. But I will note there are
a lot more lawyers now than there were in 1987 when I started.
Mr. Draper. I will mention we would probably look at
opening up a store but taking the leap into the manufacturing,
now there are so many new things over the past 30 years and
when we started allergens weren't really on the radar screen.
Now it is a huge part of our industry and our whole production
process. And the regulations that we are following now, it
would be a daunting task but in our case starting small we took
one step at a time and we will keep doing that. But there are
more challenges now but we hope to, as evidenced by our
membership in International National Dairy Foods and just
trying to be fully educated, having a quality control director
so we can meet all of the current regulations, but it is a
task.
Mr. West. Thank you, Mr. Chairman. I yield back.
Chairman Graves. No more questions?
I want to thank the witnesses for being here. I apologize.
We are going to have to end just a little early. We have a
briefing on Libya that we definitely want to be at, but again,
I appreciate your testimony and for coming in. I apologize for
the votes but the Committee is going to be examining
legislation when it comes to the RFA so that businesses, you
know, obviously can create jobs and do not have to continue to
comply with some of the ridiculous regs that are coming out
that have not taken into account how much it is going to harm
business and how much affect it is going to have on job
creation. But with that, again, I appreciate you being here and
we will say the hearing is closed. Thanks.
[Whereupon, at 2:31 p.m., the Committee was adjourned.]
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