[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





                  U.S. GOVERNMENT PRINTING OFFICE
 65-907                   WASHINGTON : 2011
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001









                   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

                              ----------                              
                                                                   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

                              ----------                              


                       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.]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

