[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
     REGULATING THE REGULATORS--REDUCING BURDENS ON SMALL BUSINESS
=======================================================================

                                HEARING

                               BEFORE THE

       SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT AND REGULATIONS

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                             MARCH 14, 2013
                               __________

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            Small Business Committee Document Number 113-005
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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                       BLAINE LUETKEMER, Missour
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                   JAIME HERRERA BEUTLER, Washington
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                       DAVID SCHWEIKERT, Arizona
                       KERRY BENTIVOLIO, Michigan
                        CHRIS COLLINS, New York
                        TOM RICE, South Carolina
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                        BRAD SCHNEIDER, Illinois
                          RON BARBER, Arizona
                    ANN McLANE KUSTER, New Hampshire
                        PATRICK MURPHY, Florida

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director
                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. David Schweikert............................................     1
Hon. Yvette Clarke...............................................     1

                               WITNESSES

Winslow Sargeant, Ph.D., Chief Counsel for Advocacy, United 
  States Small Business Administration, Washington, DC...........     2
Marc D. Freedman, Executive Director, Labor Law Policy, United 
  States Chamber of Commerce, Washington, DC.....................    14
Carl Harris, Vice President and General Manager, Carl Harris Co., 
  Inc., Wichita, KS, on behalf of the National Association of 
  Home Builders..................................................    16
Rena Steinzor, Professor, University of Maryland Carey Law 
  School, Baltimore, MD..........................................    17

                                APPENDIX

Prepared Statements:
    Winslow Sargeant, Ph.D., Chief Counsel for Advocacy, United 
      States Small Business Administration, Washington, DC; 
      Report on the Regulatory Flexibility Act FY 2012; and 
      Letter to Hon. Schweikert and Hon. Clarke..................    27
    Marc D. Freedman, Executive Director, Labor Law Policy, 
      United States Chamber of Commerce, Washington, DC..........   106
    Carl Harris, Vice President and General Manager, Carl Harris 
      Co., Inc., Wichita, KS, on behalf of the National 
      Association of Home Builders...............................   115
    Rena Steinzor, Professor, University of Maryland Carey Law 
      School, Baltimore, MD......................................   125
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    Letter from Associated Builders and Contractors, Inc. (ABC), 
      Kristen Swearingen, Senior Director, Legislative Affairs...   199
    Letter from Thomas Sullivan, Former Chief Counsel for 
      Advocacy and Jere Glover, Former Chief Counsel for Advocacy   200
    Letter from the National Automatic Merchandising Association 
      (NAMA), Carla Balakgie, FASAE, CAE, President and CEO, NAMA   202
    Letter from National Federation of Independent Business 
      (NFIB), Susan Eckerly, Senior Vice President, Public Policy   204
    Letter from National Roofing Contractors Association (NRCA), 
      Bruce McCrory, Kiker Corp., Mobile, AL, President, NRCA....   206
    Letter from NTCA-The Rural Broadband Association, Tom Wacker, 
      Vice President of Government Affairs.......................   208
    Letter from American Trucking Associations (ATA), David J. 
      Osiecki, Senior Vice President.............................   210
    Letter from Trade Groups.....................................   212
    Letter from the National Association of the Remodeling 
      Industry (NARI), Mary Busey Harris, CAE, Executive Vice 
      President..................................................   215
    Letter from the National Restaurant Association, Angelo I. 
      Amador, Esq., Vice President, Labor & Workforce Policy and 
      Ryan P. Kearney, Manager, Labor & Workforce Policy.........   217
    Letter from the National Retail Federation (NRF), David 
      French, Senior Vice President, Government Relations........   218
    Letter from the Small Business & Entrepreneurship Council 
      (SBE Council), Karen Kerrigan, President & CEO.............   220


     REGULATING THE REGULATORS--REDUCING BURDENS ON SMALL BUSINESS

                        Thursday, March 14, 2013

                   House of Representatives
               Committee on Small Business,
     Subcommittee on Investigations, Oversight and 
                                        Regulations
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 2360, Rayburn House Office Building. Hon. David Schweikert 
[chairman of the subcommittee] presiding.
    Present: Representatives Schweikert, Bentivolio, Chabot, 
Clarke, and McLane Kuster.
    Chairman SCHWEIKERT. Good morning. I want to welcome 
everyone to our Subcommittee. And Ranking Member Clarke, I look 
forward to this. I am learning lots of things. I had the 
opportunity to read everyone's testimony last night, and at 
today's hearing we are going to focus on the Regulatory 
Flexibility Act (RFA), analyze the impacts of these regulations 
and the mechanics and the advocacy you do for small business.
    Once again, in much of the reading last night, there was 
the constant theme of the danger of a regulation that is maybe 
``one size fits all'' and yet how radically different the sizes 
of our business organizations are across our country. There is 
one thing I am going to personally sort of keep as a theme and 
look for, is I found in much of this binder a lack of sort of 
data. Here is the flow. Here is how we actually make the 
decision.
    Dr. Sargeant, as you give us your testimony and then we 
engage in some of the conversation, my understanding is you may 
have a few thousand rule sets that are ultimately floating 
across your desk. How do you triage that? How do you make a 
decision that these are the 40 or 50 that are most impactful? 
And in reality, you are not going to catch everything, but I am 
sort of curious of your methodology. And also suggestions from 
you and the rest of the witnesses on how we can make the 
process work even better. Remember, this is a law that has been 
around since the late Carter Administration. In that time set, 
the world has changed a lot. What do we do to continue to make 
this work for our small businesses out there?
    Ranking Member?
    Ms. CLARKE. Thank you, Mr. Chairman. And thank you for your 
indulgence this morning. When you are in the minority you wear 
multiple caps. I happen to also be a ranking member on Homeland 
Security, and we had a briefing this morning.
    It is wonderful to be here and to have you here, Dr. 
Sargeant, to give us your perspective. (To the Chairman) I 
would like to thank you for holding today's important hearing. 
Our nation's regulatory structure is absolutely vital in 
protecting the public. The fact is, without regulations our air 
would be less pure, our water unsafe to drink, and employee 
would potentially be subject to unsafe and hazardous working 
conditions. That said, most evidence points to a 
disproportional impact on small businesses with regards to 
regulatory compliance. Our small businesses and entrepreneurs 
simply do not have the economies of scale to mitigate the costs 
that large corporations do in this regard.
    With that in mind, Congress passed the Regulatory 
Flexibility Act to ensure that the concerns of small firms were 
taken into account during the regulatory process. Past concerns 
regarding agency failure to initiate a regulatory flexibility 
analysis of a pending rule makes monitoring performance in this 
area critical. Agencies have certified that a proposed rule 
would not have a significant impact on small businesses when 
the exact opposite becomes evident after the fact. In some 
cases, analysis by the agencies have been lacking altogether; 
thus, limiting the effectiveness of the law and shortchanging 
America's entrepreneurs. For this act to maintain its 
legitimacy, it is vital that its processes and requirements be 
used appropriately to make regulations more targeted, 
efficient, and effective.
    For small businesses, regulation can be a two-sided coin. 
While no entrepreneur wants to pay more or comply with 
unnecessary rules, effective regulation can prevent unfair 
practices that will benefit large companies at the expense of 
our small business community causing harm to the public 
interest. In that regard, our goal should not be the short-
sighted removal of all regulations but rather make the process 
smarter, fairer, and one that protects the public good while 
minimizing the impact on our nation's small businesses.
    Again, I thank you, Mr. Chairman. And I yield back.
    Chairman SCHWEIKERT. Thank you. Doctor, I know you have 
testified before, but also for our future witnesses, mechanics 
are fairly simple. You know, five minutes, green light start, 
yellow light go faster, red light, an idiosyncrasy, and this 
will be for everyone, I am going to let you finish at least 
your thought. And with that, Dr. Sargeant, let me do a quick 
introduction for you.
    Dr. Winslow Sargeant was appointed by President Obama and 
confirmed by the United States Senate as the sixth chief 
counsel advocate for the United States Small Business 
Administration. The Chief Counsel for Advocacy is charged with 
monitoring agency compliance with the Regulatory Flexibility 
Act and is required to annually report to Congress on his 
findings. Welcome. Your five minutes begins.

    STATEMENT OF WINSLOW SARGEANT, PH.D., CHIEF COUNSEL FOR 
    ADVOCACY, UNITED STATES SMALL BUSINESS ADMINISTRATION, 
                        WASHINGTON, D.C.

    Mr. SARGEANT. Chairman Schweikert, Ranking Member Clarke, 
and Members of the Subcommittee, I am Dr. Winslow Sargeant, 
chief counsel for advocacy. Thank you for the invitation to 
appear before you today to discuss the important issue of 
agency compliance with the Regulatory Flexibility Act or RFA.
    Congress created the Office of Advocacy in 1976 to be a 
voice for small business within the federal government. 
Advocacy's mission is to advance the views, concerns, and 
interests of small business before Congress, the White House, 
federal agencies, federal courts, and policymakers. We work 
with federal agencies in the rule-making process to implement 
the requirements of the RFA. Under the RFA, agencies must 
consider the effects of their proposed rules on small 
businesses. When an agency finds that a proposed rule may have 
a significant economic impact on a substantial number of small 
entities, the agency must consider significant alternatives 
that would minimize the burden on small entities while still 
achieving the original goal of the regulation.
    Advocacy works with federal agencies in a number of ways to 
improve their RFA compliance and to ensure the concerns of 
small businesses are considered during the rulemaking process. 
Much of Advocacy's work with agencies is at the confidential 
preproposal stage when agencies are working through the 
regulatory development process. Advocacy continues to expand 
its stakeholder outreach by hearing directly from small firms 
and their representatives. This also gives agency rule writers 
a chance to hear particular small business concerns. In total, 
we have convened 84 roundtables since I became chief counsel.
    Advocacy sends public comment letters that explain small 
business concerns about certain regulations and other proposals 
to agencies when warranted. As chief counsel, I have signed 
more than 90 public comment letters on a variety of topics. 
Three agencies are required to conduct a panel to gather 
comments from small entity representatives on a proposed 
regulation when it may have a significant economic impact on 
small businesses. They are EPA, OSHA, and now the CFPB. These 
panels include representatives from the rulemaking agency, OIRA 
and Advocacy. In the last two years, we have participated in a 
dozen Small Business Regulatory Enforcement Fairness Act 
(SBREFA) panels, including the first three panels ever by the 
CFPB.
    Having generally explained how the Office of Advocacy works 
with agencies, I am pleased to report that agencies continued 
to improve their compliance with the RFA in fiscal year 2012. A 
detailed analysis of this compliance can be found in Advocacy's 
report on the Regulatory Flexibility Act fiscal year 2012 which 
I delivered to Congress last month. I ask that a copy of this 
report be submitted in its entirety into the record. Agency 
compliance with the RFA pays real dividends to America's small 
businesses. In fiscal year 2012, Advocacy's RFA work saved 
small businesses $2.4 billion in first year regulatory costs 
and another $1.2 billion in annually recurring costs.
    The RFA and bipartisan efforts to enhance it have made this 
critical small business law more effective in reducing the 
regulatory burdens on small entities when regulations are still 
in the development stage. The willingness of agencies to attend 
the roundtables at Advocacy and hear directly from small 
businesses has been a welcome development resulting in improved 
agency compliance with the RFA. We have learned through our 
more than 30 years of experience with the RFA that regulations 
are more effective when small firms are part of the rulemaking 
process. The result of enhanced agency cooperation with 
Advocacy and improved agency compliance with the RFA benefits 
small business, their regulatory environment, and the overall 
economy.
    Finally, I was invited here to testify on agency compliance 
with the RFA. I understand testimony in the second panel 
contains numerous misrepresentations of my office. I would like 
to reserve the right to respond in detail in the record to 
these inaccurate allegations.
    Thank you again for the opportunity to testify on the 
important work the Office of Advocacy does on behalf of small 
businesses. I would be happy to take any questions you might 
have.
    Chairman SCHWEIKERT. Thank you, Doctor.
    And do understand, when we finish up the hearing I believe 
these Committees have, what, five days for any additional 
written testimony. So if you hear something that you think 
needs more detailed explanation, please give it to us.
    Doctor, you and I started a conversation as we were passing 
in, and first was the methodology of how you do your job. It is 
2013. There is literally a few thousand rule sets out there in 
some type of promulgation. How do you decide what you are going 
to focus on?
    Mr. SARGEANT. Well, Chairman Schweikert, there are a number 
of ways that the Office of Advocacy is engaged in making sure 
that the rules that are at the preproposal stage and also those 
that are being proposed that we are in touch to make sure that 
we are on top of all the right issues. We have a number of 
regional advocates who are out in the field who are in touch 
with small businesses. We hear their concerns. Under the RFA, 
when a rule will have a significant economic impact on a 
substantial number of small entities--now that is the 
determination by an agency themselves, not the Office of 
Advocacy--the agency must contact us to let us know that this 
rule is coming and they believe it is going to have a 
significant economic impact. So that is one way. They have to 
notify us that this rule is coming.
    We also have a number of attorneys in the office that work 
directly with their counterparts at the agency, so they tell us 
what rules are coming. There is a regulatory agenda that is 
published, so we kind of see that is one input that we have as 
a roadmap of what is coming down the pike. So there are many 
ways that we are in touch.
    Chairman SCHWEIKERT. In our time of doing this, and so you 
have a methodology where the agencies are telling you this is 
going to cost a certain amount and you are trying to track, 
have you had the experience where the feedback you are getting 
from outside advocacy groups are telling you dramatically 
different dollars, burden compared to what you are actually 
being told from the agency? And how do you split that sort of 
arbitrage? How do you make that decision? How do you triage 
that?
    Mr. SARGEANT. Well, what we do, it is important for us to 
have firsthand contact with those who are going to be impacted 
by these rules. When a rule is proposed we will reach out. 
There are many ways that we will reach out to trade 
associations, to actual small businesses themselves to gauge 
from them how this rule will impact their business. And from 
that we may have a roundtable where we will invite the agencies 
themselves to come and to share with us and with small business 
owners why this rule is necessary and how it will impact them.
    Chairman SCHWEIKERT. Do you often run into the experience 
where the vision between sort of the small businesses or small 
business advocacy groups and what the agency is a chasm?
    Mr. SARGEANT. Well, that is why I have signed more than 90 
comment letters in terms of that there are times where what we 
are hearing from small business owners in terms of what the 
impact of those rules will be, and what we are hearing from 
those who are actually writing the rules, there is a 
disconnect. In our report, one of the main reasons we may write 
a comment letter is that we believe that there may be a 
certification that this rule will not have a significant 
economic impact, but what we are hearing is that it will. And 
so that is where the disconnect will be. So that is the 
feedback that we will give to the rule writers.
    Chairman SCHWEIKERT. Doctor, do you believe your feedback 
is being respected by many of those regulatory agencies?
    Mr. SARGEANT. Well, we generally have a good working 
relationship with agencies. They tend to do a good job. Under 
Executive Order 13272, that was signed by George W. Bush, 
agencies are required to respond to what we write. And so when 
we say in writing that we believe this rule will have this 
effect, they have to come back and just give some feedback.
    Chairman SCHWEIKERT. Only two others. One may not be as 
quick as the other.
    You have been working with the CFPB?
    Mr. SARGEANT. Yes.
    Chairman SCHWEIKERT. Wide swath regulatory authority from 
the community lender to the community bank. First, how has that 
relationship been for you, your organization? Do you feel you 
are getting input? But also seeing how they are a new 
regulatory organization, do you see the discipline being built 
for them to actually take your feedback and understand and 
listen?
    Mr. SARGEANT. We have a good relationship with CFPB. And I 
guess one of the benefits of a new agency is that we can help 
to train them. And so what we did when the agency was formed 
under Dodd-Frank, and as you know under Dodd-Frank they are now 
one of the three covered agencies that must conduct panels. And 
so what we did, even before they started to write rules, we 
would invite folks from CFPB to come over to the Office of 
Advocacy so we can walk them through what the RFA is, how to 
conduct a panel, what are some of the best practices. And so 
far there have been three panels. And we work with them on who 
they should invite. Of course, it is up to the agencies 
themselves in terms of who will be invited to the panel, but we 
do have a say as one of three heads that will be part of the 
panel. And so out of the three panels, the feedback that I have 
gotten from small businesses, they are pleased that their input 
has been taken seriously.
    Chairman SCHWEIKERT. Okay, Doctor. And the last one, and 
this is sort of, and for the panel as we go through this year, 
it sort of becomes a universal question I would like to ask, 
and it may be from the statute you operate under or the rule 
sets you have built for yourselves, what works? What does not 
work? If you could walk in right now and say ``I wish this was 
changed in my statute that would make us more effective,'' what 
would you change?
    Mr. SARGEANT. Well, the RFA has been around for more than 
30 years, and we feel that it has worked well. But of course, 
there are always ways that one could tweak it to actually make 
it more effective. And so under my legislative priorities I 
have submitted three recommendations to strengthen the RFA. One 
is dealing with the SBREFA panel process. What we see under 
609(b) is that when I am notified that a panel will take place 
there is a 15-day gap that a panel can actually start. What we 
are saying is that for the SERs or for those who are going to 
be part of the panel, they need to have the data so they can 
contribute. It does not make sense to have a panel and then 
those who are at the table are not able to see the data and see 
why this rule is being crafted. So we believe that by having a 
gap of say, maybe, 60 days, then the agency will have more time 
to make sure that the data gets out to those that will be on 
the panel. So that is one.
    Two, under the RFA Section 610, every year agencies are 
required to look at rules that are 10 years old to see whether 
or not those rules are needed. There is not a systematic 
process in terms of how each agency goes through that. One 
agency can say, well, we looked at the rule. It looks good. And 
then, and so believe----
    Chairman SCHWEIKERT. And you wrote about this in the past?
    Mr. SARGEANT. Yes.
    Chairman SCHWEIKERT. Were you not sort of writing also that 
you were concerned how many agencies may or may not really be 
doing it?
    Mr. SARGEANT. Yes. And so there should be a systematic 
process. So under 610, we believe that one should have a 
systematic process to look at the rules that are more than 10 
years old and to see whether or not those rules are needed. But 
also look at the cost benefit is because a rule goes into 
effect because we are trying to achieve some regulatory action. 
Let us see what has taken place and see whether or not that 
rule is needed. So that is two.
    Third, the RFA deals with direct impacts on small business, 
but we also know that there is what we call the near, 
foreseeable indirect effects. There are those that might be 
affected by new products and services, and so one may say, 
well, it is not a direct effect but we can see that what we 
call the circle, that one circle out, that there is an effect. 
And so we want agencies, and so when we train agencies in terms 
of how to comply with the RFA, we also tell them, yes, the 
language says you have to consider the direct effect on small 
entities. But also, we also want you to look at what is the 
near foreseeable indirect effect as well.
    Chairman SCHWEIKERT. All right. Thank you, Doctor. Ranking 
Member.
    Ms. CLARKE. Thank you, Mr. Chairman. And let me welcome Dr. 
Sargeant to the Subcommittee today once again. I would like to 
take a moment just to express my appreciation to you and your 
staff and your New York regional advocate, Terry Coaxum to 
inquiries from my office in the past, and I look forward to 
continuing that work in relationship over the course of the 
113th Congress.
    Just as a follow-up to your last response to our chairman, 
some say the biggest loophole in the RFA is the fact that it 
does not require agencies to analyze indirect impacts. 
Legislation has been approved by this Committee in the last two 
congresses that would have required agencies to consider 
foreseeable indirect impact of regulations or small firms. 
Would you be supportive of such a change to the RFA? And why?
    Mr. SARGEANT. Yes, I would be supportive. And we actually 
train agencies under Executive 13272, we are charged to train 
agencies on how to comply with the RFA. And in our training we 
tell them, yes, the RFA states you have to consider the direct 
effects, but we also have asked them to consider also what you 
call the foreseeable. Because we recognize that there is an 
impact. And when we talk with small business owners themselves, 
they see that their products, their services have been impacted 
by a particular regulation. And so I would be supportive of 
making sure that agencies take into account what we call the 
foreseeable.
    I also know that agencies, when you say--because we can 
measure what the direct impact is--once you say indirect 
effects, that is what I call this broad loop. So that is why we 
focus on what is called the near foreseeable. It is close. At 
some point everything could be tied in. And so I would be 
supportive and I would welcome the opportunity to work with you 
on how we can define what are the near foreseeable indirect 
effects.
    Ms. CLARKE. Wonderful. And I think our chairman is 
interested in looking at how we can get that done.
    My second question is twofold. Could you first give us a 
broader picture of your progress in ensuring the agencies are 
fully complying with the RFA? And then secondly, in requesting 
further compliance can you explain to us the effect of 
sequester that the sequester will have on the Office of 
Advocacy's ability to carry out its mission with regards to the 
regulatory burden on small businesses?
    Mr. SARGEANT. Each year we put out a report on agency 
compliance with the RFA, and I have submitted for the record 
which agencies. Most agencies do a good job but some, we 
continue to work with them and we are pleased that the 
president, under Executive Order 13563, has mandated that 
agencies work with Advocacy to make sure that rules that are 
coming down the pike that they, yes, they can promote health 
and safety, but also take into account the impact of those 
rules on small business. And so we have support from the 
administration, and so we work with agencies to make sure that 
they understand the RFA and we train them. And so we also have 
roundtables. Roundtables that are open to the public. We invite 
officials from the agencies so they can hear directly from 
small businesses. And so that is one way that we work with 
agencies on how they can comply.
    With regard to the sequester, yes, we have been 
significantly impacted by the sequester. We have been hit 
roughly about 5.2 percent in terms of our budget, and so we are 
going to lose about $460,000. And although we are not going to 
lose people or I do not have to furlough people, we are going 
to take a big hit to our research budget.
    This office is founded on two goals. It is our research and 
the regulatory mandate. We believe that good research leads to 
sound regulation, but you have to have the research. So by not 
having that funding, we are going to lose roughly six to seven 
research reports that we would normally put out and so that is 
the concern I have because we believe that good data leads to 
sound regulation.
    Ms. CLARKE. Then finally, one of the ongoing concerns with 
the RFA has been the ability of agencies to continually forgo 
the requirement in section 610 that requires periodic review of 
the rules. How is President Obama's Executive Order 13563, 
which requires retrospective agency review of regulations 
meshing with the requirement of this section?
    Mr. SARGEANT. Well, we were pleased that Executive Order 
13563 came out because what it did is that it reminded agencies 
that this is a requirement and it dovetailed very nicely with 
610. And so we have been working with OIRA. We have been 
working with agencies. We have shared with agencies rules that 
are on the books right now that we have heard from small 
businesses that are problematic or they have concerns with. And 
so we continue to work with agencies. We were pleased that 
Executive Order 13579 not only dealt with those that are part 
of the Executive branch, but also the independent agencies 
because the independent agencies sometimes feel that they do 
not have to comply with the RFA. And so that was a 
recommendation. We were pleased that E.O. 13563 and E.O. 135610 
reminded agencies you must comply with retrospective review. 
And also, there has been great outreach by us to work with 
agencies on how to comply. And so we are seeing more progress. 
We are seeing more agencies asking us to help them, to train 
them, and so we have been very busy these past couple of years. 
We have trained more than 100 staffers per year now on how to 
comply with the RFA. So I do believe that there is a desire to 
look at rules that are on the books. So that has been working 
well.
    Ms. CLARKE. Very well. Thank you so much, Dr. Sargeant. And 
I yield back, Mr. Chairman.
    Chairman SCHWEIKERT. Thank you, Ranking Member. And my 
friend from Michigan. Five minutes.
    Mr. BENTIVOLIO. Thank you, Mr. Chairman.
    As I traveled throughout my district in Michigan, business 
leaders tell me the same thing over and over again--it is too 
hard to start or expand my small business because I can barely 
understand how to comply with the latest regulations that have 
come out of Washington. And they are right.
    Over the last four years the number of business regulations 
has skyrocketed and the result has been the worst economic 
recovery in nearly a century. We have had such a weak economic 
growth that I am not even sure we can call it a recovery. The 
millions of people still out of work sure have not recovered. I 
once believed that this was a nation of laws; instead, I find 
this is not a nation of laws, rather a nation of regulations. A 
``regunation'' if you will.
    My question, Dr. Sargeant, is, well, I had a few 
businessmen tell me that once they are complying or working 
with a regulatory agency after they have worked six months or a 
year the executive changes--there are changes and that kind of 
thing--and then the new person that comes in to replace the old 
executive has a whole set or new set of regulations they want 
these businesses to adhere to. Do you see this as a problem? 
And if so, how would we correct that?
    Mr. SARGEANT. Well, what we try to do is to work with 
agencies to make sure that they understand how a particular 
rule will impact small businesses. But we also work with 
agencies because we do not block rules or make rules less 
effective, but we work with agencies so that they achieve their 
regulatory goal. But also work with agencies in terms of 
compliance. Because what we hear many times is that small 
businesses, they want to comply but sometimes they do not know 
how. And so there is a provision within the RFA that when you 
put forth a rule, that you should also put forth a document on 
how to comply with the rule. And so with our regional advocates 
who are out in the field, we work directly with small 
businesses. We also recognize that rules, yes, we focus at the 
federal level, but there are also rules at the local and state 
level. And as a small business owner, as someone who has run a 
small business, I did not look at a rule, okay, this is a 
federal rule, this is state, this is a local rule, I looked at 
it as a rule and how am I going to comply? And so that is why 
we work with states on how to enact a state version of the RFA.
    My predecessor worked hard on how to make sure that there 
is a process that when rules are put forth, even at the state 
level, that there is feedback from small entities, but also 
there is a way to comply. And once that is a process, we hope 
that as people change that that process is clear, transparent, 
and predictable.
    Mr. BENTIVOLIO. So what does a business do if, for 
instance, and I do not really think you answered my question. A 
business is working with a branch of regulatory agency and the 
executive comes in and says I want to focus on these 
regulations and then six months or a year later another person 
replaces that person at the regulatory agency and comes up with 
a whole new agenda. And so sometimes, according to my small 
businesses that I have talked to at my small business 
roundtables in my community and my district, say that, well, 
they have a whole set of different rules and it is kind of like 
they have to drop what they are doing trying to comply with one 
set to go in with a different set. Do you understand?
    Mr. SARGEANT. Yes. Well, that is part of the regulatory 
agenda because each year, twice a year, agencies are required 
under the RFA to put forth what rules they are going to work 
on. And if the rule will have a significant economic impact on 
a substantial number of small entities, that is the language, 
they have to contact us. They are required to put what is 
called an IRFA. That is part of the RFA. They need to do the 
analysis to say how this rule will impact small entities. And 
so there is a process that must be followed and it is through 
the RFA. And that is where we get to comment. We work with 
agencies to make sure that small entities will have a say 
within the process. So the RFA works when agencies work with us 
and we reach out to agencies to bring in small entities so they 
can have a say.
    Mr. BENTIVOLIO. Thank you very much, Doctor. I yield back 
my time.
    Chairman SCHWEIKERT. Thank you. And to my good friend from 
New Hampshire, Ms. Kuster.
    Ms. McLANE KUSTER. Thank you very much. Thank you, Mr. 
Chairman and Ranking Member Clarke. And Chairman Schweikert, I 
did enjoy participating with you in the panel on small business 
leaders operating online. I am proud of the folks from New 
Hampshire that were doing that good work.
    I am new to this Subcommittee, and I am excited to join 
with my colleagues from both parties to conduct oversight over 
the Executive branch and work with you to provide relief to 
overregulated small businesses. I think we all recognize that 
the government alone does not create jobs but that it is the 
responsibility of government to foster the conditions for small 
businesses to grow to higher and to succeed. In my state of New 
Hampshire, 90 percent of new jobs come from small businesses. 
But unfortunately, as we all know, poorly thought out 
regulations can all too often have the opposite impact, 
creating uncertainty and stifling economic growth. So in 
today's hyperpartisan political climate I am hopeful, and it 
sounds as though the Committee does have measures that we can 
all agree on to alleviate the burden and protect the public 
with important regulations.
    So I am just going to ask some very basic questions. In 
your experience, Dr. Sargeant, what are examples of some of the 
successes and accomplishments in your office that you are most 
proud of that might give us an example of how your office 
provides assistance in the process in a successful example?
    Mr. SARGEANT. Well, thank you for your support of the 
office. There are a number of ways that we engage small 
business, and if I was to look back at some of the successes we 
have had, with regard to regulation, it may take a little while 
for the process to be complete. But we can say that through the 
RFA and the work we have done, we have had a fair amount of 
success.
    One that I can point to is something called the 3 percent 
withholding that was actually passed in 2005. This was a rule 
that said that on all federal contracts, 3 percent would be 
withheld until the IRS checked to make sure that taxes were 
paid by small businesses. Now, we believe that you have to pay 
your taxes, but when you work with the federal government, when 
you think of 3 percent, because these contracts, there is not a 
huge amount of margin. And so the 3 percent was taken off the 
top and there was no process of how long this would take for 
the IRS to do their job. This would put a lot of small 
businesses actually in debt or they would have to turn down the 
contract. And so we were pleased by working with small entities 
that this was repealed by Congress in 2012.
    We also can cite what we call the IRS Home Office 
deduction. We were pleased, not to pick on the IRS, but we were 
pleased that the home office deduction, 52 percent of all small 
businesses are home-based businesses. And it was not a clear 
process of how you took into account that home office 
deduction. We are pleased that the IRS just recently made it 
clear, made it transparent such that you can, up to $1,500, you 
can deduct. And we have heard from home-based businesses, we 
have heard from small businesses this is a huge win because we 
know that more and more people are starting companies from home 
and they are not just staying at home but they will grow. And 
so those are just two of many examples that we have had so far, 
and we are pleased that our process, that the way that we work 
with federal agencies, that there has been a successful 
outcome.
    Ms. McLANE KUSTER. Right. Good. Well, thank you.
    Now, part of my district is very rural. So rural, in fact, 
that we are still on dial-up in this day and age. So you can 
imagine the burden on small businesses. I say, you know, you 
have a customer on the line and then you have to say, ``Let me 
put you on hold while I go look on the Internet on another 
phone line.'' So I am just curious if you have experience with 
your committee, I mean, with your agency about the unique 
burdens on small businesses in rural communities, and 
particularly with regard to compliance over the Internet or 
paperwork production where compliance involves Internet access.
    Mr. SARGEANT. Yes, we have heard of concerns. And we know 
firsthand, and I know firsthand because I have lived in rural 
communities that it is important to have access to the web. And 
so we put out a study. We were charged by Congress to do what 
is called a broadband study a couple years ago. And in the 
study it showed that those in rural areas paid more money for 
less service for broadband. And this really complicates it 
because we all do not choose to live in cities but this also 
adds to what we call brain drain where people who would like to 
live in rural communities, if you want to live next to a lake 
or live where you want to live and also run a business, you 
must be able to tap into broadband. And so we are concerned. 
And so we have shared this report with the FTC and those who 
oversee broadband to let them know that our nation, those who 
want to live in rural communities, must be able to get access 
to affordable and accessible broadband because it helps our 
economic environment, but it also will cut down on all this 
congestion. There are a number of benefits and so, yes, we are 
concerned that those who live in rural communities have to pay 
more for less.
    Ms. McLANE KUSTER. Great. Thank you very much.
    Chairman SCHWEIKERT. Thank you, Ms. Kuster.
    I just have a couple others. We were sort of sharing 
before. I have sort of a personal fixation in my couple years 
around here of how much sort of decision-making we do in this 
body on sort of folklore and not data and facts. And so first, 
walk me through a little bit of your process just so I am sort 
of understanding the disciplines and the mechanics within the 
office.
    A few thousand rule sets in promulgation of some sort and 
somehow, as you shared with me earlier the agency said they 
believe this costs this, this costs this, you have trade 
associations that may have a very different view, but you 
choose 50 of them. Now those are within your process. Do you 
mechanically start to do a cost benefit? I mean, what is the 
next step you do internally to analyze those and decide is this 
something you need to be fairly bold about and write about? 
What do you do?
    Mr. SARGEANT. Yes. What we do, Mr. Chairman, we will reach 
out to small businesses to ask them. This is a rule that is 
being proposed. How will this impact you? So we are pleased 
that we have regional advocates around the country because the 
majority of businesses are outside of Washington, D.C., so we 
must hear what is going on, and we also know that it is not a 
one-size-fits-all but it is not a ``one region fits all.'' What 
may happen in the Northeast may be different than what happens 
in the Southwest.
    And so once we hear from small entities how this rule will 
impact them, we will actually have a roundtable. We will bring 
officials from the agencies. We will bring those who have 
different points of view to share in terms of how this rule 
will impact. And also, we ask the agencies to share the data, 
if they have it, on why they came up with this number, and then 
we will ask those who are at the table to share what they have. 
Share with the agency officials your number.
    Chairman SCHWEIKERT. Dr. Sargeant, that is almost to the 
point.
    So you are getting sort of a presentation of how they did 
their cost benefit?
    Mr. SARGEANT. Yes. Yes.
    Chairman SCHWEIKERT. Do you have an internal mechanism to 
vet that? Do you have a statistician sitting in the back who 
has built a brilliant spreadsheet and is dicing things up? I am 
just sort of curious how you get there.
    Mr. SARGEANT. What we do is we work with small entities 
themselves to try to get some numbers from them. We do have our 
own research and sometimes there is a nice fit but sometimes it 
is just more of a global fit how this will impact small 
business. So we ask the agencies themselves. It is up to the 
agency to share what they have in terms of data, but also we 
will reach out to trade associations for them to share what 
they have. So that is how we hope to come together.
    Chairman SCHWEIKERT. So in some ways you become sort of an 
aggregator of information from the agency, trade associations, 
individuals who believe they are going to be affected?
    Mr. SARGEANT. Yes, because we have a research budget, but 
for us to do that research in such a short manner with the 
rules, it would be very, very difficult for us to do it within 
a timely manner. So it is important for us. We take our 
direction from the small business. So we want to hear from 
them.
    Chairman SCHWEIKERT. You said something before about your 
15-day window and wishing you had 60.
    Mr. SARGEANT. Well, that is for the SBREFA panel process.
    Chairman SCHWEIKERT. Okay, so that is the next tier.
    Mr. SARGEANT. Yeah. Once I have been notified then they can 
start a panel within 15 days. And we believe, and I believe 
that you should give more time to the agencies but also to the 
representative who will serve on those panels so they can 
digest the data so they can come prepared to talk.
    Chairman SCHWEIKERT. So in your internal flow, okay, so the 
next step after you have done your aggregation of sort of cost 
benefit, you have a couple of economists on staff?
    Mr. SARGEANT. Yes.
    Chairman SCHWEIKERT. That are doing some dicing, what they 
believe the economic impact is, not necessarily the cost 
benefit?
    Mr. SARGEANT. Yes. Well, that is part of it. Yes.
    Chairman SCHWEIKERT. And do they use a particular mechanics 
or methodology or approach?
    Mr. SARGEANT. Well, you typically use cost benefit 
analysis. You work with the agency themselves to say, well, who 
did you talk to? How were you able to quantify this number? We 
can understand costs; sometimes benefits are hard to quantify. 
And so we are charged under the RFA to only look at costs. So 
that is what we focus on and how this rule will impact cost-
wise. And so that is where we share with the agency and say, 
well, we believe that you have certified this rule or you have 
underestimated the cost because we have spoken to these 
businesses around the country.
    Chairman SCHWEIKERT. Okay. So you do that as part of your 
sort of economic model?
    Mr. SARGEANT. Yes.
    Chairman SCHWEIKERT. Last, Dr. Sargeant, before you 
actually sort of spoke of the concentric rings, you know, the 
one step out where it may not only affect the small business 
but may actually affect the small business's supplier I guess 
is how you were ultimately trying to understand that sort of 
outward effect? Share with me where would you find that? How do 
you grab that and pull that into your analysis?
    Mr. SARGEANT. Well, what we try to do when we train agency 
officials under the RFA, we talk about what we call the 
foreseeable economic impact or the indirect impact. And so if 
this rule is going to impact say, like you said, the suppliers, 
a product, or a service, what we want them to do is to try to 
capture that because that is not, as you mentioned with regard 
to the ring, that is a tightly coupled ring. That is close. 
That is not a huge loop. And so what we do is we give them some 
recommendations on products or services or work environment, 
how this rule will impact. And so that is the type of feedback, 
that is the type of training that we give to agency officials.
    Chairman SCHWEIKERT. Doctor, I appreciate your time with 
us. If you ever find yourself on the Hill and (a) you want 
actually good coffee, come to my office. And this for everyone, 
we have a froufrou cappuccino machine. Pay for it personally. 
And second of all, if you ever happen to be on the Hill I would 
love to sort of flowchart your mechanics. Part of this is 
trying to understand. In my vision of the world there is a 
difference between doing a cost benefit analysis and an 
economic analysis because over here you sometimes find the law 
of unintended consequences. This is sort of the cost 
implementation compared to alternatives. Because I know you do 
not get to override a rule but sometimes you and I have seen 
occasions where if the agency was writing the rule in this 
direction it would have been more impactful in society than the 
approach they are taking. And I do not know if you get listened 
to in that fashion.
    Mr. SARGEANT. Well, I would welcome the opportunity to have 
my team come over and go through the process because we train 
more than 100 officials each year. Many staff members from the 
Hill will come to our training sessions, so we could walk you 
through and would welcome such a dialogue.
    Chairman SCHWEIKERT. I genuinely would like to learn more 
about what you do and how we can, you know, the impact on small 
business, that is where we need to find much of our job 
creation. So thank you, sir.
    Mr. SARGEANT. Okay, thank you.
    Chairman SCHWEIKERT. Doctor, I want to thank you for your 
testimony. You are excused. And now we are going to move on to 
our second panel.
    Chairman SCHWEIKERT. We are about to begin the second 
panel. I am sure you all heard the discussion. I think actually 
almost everyone here has testified before. Green, start; 
yellow, go faster; red, we will let you sort of finish your 
thought.
    The first witness in our second panel will be Marc 
Freedman, the executive director of Labor Law Policy at the 
U.S. Chamber of Commerce. He primarily focuses on workplace and 
employment regulatory issues. Before coming to the Chamber more 
than eight years ago, Mr. Freedman was the regulatory counsel 
for the Senate Small Business Committee and examined agency 
compliance with the Regulatory Flexibility Act. Welcome.
    Is it tradition to just do one at a time? All right, your 
five minutes begins.

  STATEMENTS OF MARC FREEDMAN, EXECUTIVE DIRECTOR, LABOR LAW 
 POLICY, UNITED STATES CHAMBER OF COMMERCE; CARL HARRIS, VICE 
PRESIDENT AND GENERAL MANAGER, CARL HARRIS COMPANY, TESTIFYING 
 ON BEHALF OF THE NATIONAL ASSOCIATION OF HOME BUILDERS; RENA 
  STEINZOR, PROFESSOR, UNIVERSITY OF MARYLAND CARE LAW SCHOOL

                   STATEMENT OF MARC FREEDMAN

    Mr. FREEDMAN. Thank you, Mr. Chairman. Good morning, 
Chairman Schweikert and Ranking Member Clarke.
    Thank you for inviting me to testify this morning on the 
value of the Regulatory Flexibility Act and the regulatory 
process.
    This morning I would like to focus my remarks on examples 
where OSHA and other Department of Labor agencies under the 
current administration did not take advantage of the RFA and 
SBREFA in their rulemaking. Note that I said ``did not take 
advantage.''
    Compliance with the Regulatory Flexibility Act enhances the 
rulemaking process, assuming that the goal is to produce 
regulations that will have the maximum beneficial impact with a 
minimal burdensome impact. The key is that the RFA and SBREA 
create channels for input from small entities that will be 
affected by the proposed regulations. When agencies seek this 
input and respect those small entities that will be subject to 
the regulation, all parties come out ahead.
    As we have heard from Dr. Sargeant, the RFA requires 
agencies to assess impacts on regulations on small entities and 
investigate less burdensome alternatives, and in the case of 
OSHA, EPA, and now the CFPB, conduct small business review 
panels unless the agency can certify that the regulation will 
not have a significant economic impact on a substantial number 
of small entities.
    For those agencies not required to conduct small business 
panels, the RFA's affirmative outreach requirement applies. 
Specifically Section 609(a) directs agencies to ``assure that 
small entities have been given an opportunity to participate in 
the rulemaking.''
    Te timing of the small business input is an important 
feature of this process. Proposed regulations are not like 
proposed legislation which can be very fluid and undergo many 
changes before being enacted. When an agency proposes a 
regulation, they are not saying let us have a conversation 
about this issue; they are saying this is what we intend to put 
in effect unless there is some very good reason we have 
overlooked why we cannot. By getting direct feedback about how 
a regulation will affect those covered by it, the agency can 
make changes before the proposal is issued.
    There is one more important point I want to make about the 
impact of the RFA. It does not force an agency to change their 
rulemaking, nor does it authorize the SBA Office of Advocacy to 
change or block an agency's rulemaking, even if the agency is 
ignoring Advocacy's advice. The RFA merely sets out a process; 
it does not specify the outcome.
    Unfortunately, OSHA under this Administration has displayed 
a certain resistance to taking advantage of the SBREFA process. 
In several rulemakings, OSHA could have clearly benefitted if 
they had been willing to use the Small Business Panel Review 
Process that the Act lays out. One of OSHA's first rulemakings 
under this administration sought to reinforce their intention 
to pursue enforcement, even for those employers who are truly 
doing the right thing by asking for help from OSHA in 
identifying hazards in the workplace. As this rulemaking 
explicitly and exclusively deals with small businesses, OSHA 
would have benefitted from hearing directly about their views 
on it. Had they done so, they would have heard that small 
businesses would be less comfortable entering into the 
consultation program if this rulemaking is completed. Getting 
that message with that clarity at that time might have steered 
OSHA away from proposing this regulation.
    Another rulemaking where OSHA suffered for not conducting a 
small business panel is the high profile rulemaking to add a 
column to the OSHA 300 recordkeeping log to track 
musculoskeletal disorders (MSDs)--the injuries associated with 
ergonomics. In January 2011, OSHA withdrew the final regulation 
from the Office of Information and Regulatory Affairs to get 
input directly from small businesses. The agency conducted 
three teleconferences with small businesses to hear directly 
from them about their concerns with this rulemaking, exactly 
what would have happened if the agency had conducted the Small 
Business Panel at the outset. If OSHA had taken advantage of 
the SBREFA procedures, this regulation might very well be in 
place by now.
    Similarly, other DOL agencies besides OSHA have avoided the 
RFA by tremendously underestimating costs. Most notably, the 
Office of Labor and Management standards in their persuaded 
rulemaking and the Employment Training Administration in its 
H2B program rulemaking. Time does not permit me to discuss 
these in detail but they are covered in full in my statement.
    Thank you very much for the opportunity to participate in 
this hearing this morning. I will be glad to answer any 
questions.
    Chairman SCHWEIKERT. Thank you, Mr. Freedman.
    Our next witness is Carl Harris. Mr. Harris is the co-
founder of Carl Harris Company, a small specialty contracting 
firm in Wichita, Kansas, I have family in Derby, that erects 
structural steel and precast concrete for residential and 
commercial buildings. He is testifying on behalf of the 
National Association of Home Builders.
    Welcome. You have five minutes.

                    STATEMENT OF CARL HARRIS

    Mr. HARRIS. Good morning. Chairman Schweikert, Ranking 
Member Clarke, and Distinguished Members of the Committee, my 
name is Carl Harris. I am co-founder of the Carl Harris 
Company. We are based out of Wichita. We have about 20 
employees. I am also a member of the National Association of 
Home Builders (NAHB) and president of the Kansas Building 
Industry Association. Thank you for the opportunity to be here 
today to talk about the impact of regulations on small 
homebuilders.
    As a small businessman operating in a heavily-regulated 
industry, I understand how difficult it can be for a small 
builder to operate a successful, thriving business that 
provides the highest level of health, safety, and welfare for 
its employees. The sheer volume of regulations is not the only 
problem. Often, regulations are crafted without respect to the 
size of the regulated entities. Congress appropriately 
acknowledged this unique burden when in 1980 it passed the 
Regulatory Flexibility Act, the RFA, and subsequently amended 
it to include the Small Business Regulatory Enforcement 
Fairness Act. With the RFA, Congress intended for regulations 
to be crafted to the scale of the businesses while achieving 
the goals of the rule. This was an admirable aim. However, in 
practice it does not appear to be working as intended.
    I have had the fortune of representing the residential 
construction industry in a number of small business review 
panels over the years. I have seen firsthand how agencies great 
the RFA process as nothing more than a procedural, check-the-
box exercise, and worse still, artfully avoid complying with 
certain parts altogether.
    For example, in 2008, OSHA proposed the Cranes and Derricks 
Rule, which was intended to protect workers from the hazards 
associated with hoisting equipment in construction. For the 
development of this rule, OSHA relied on the negotiated 
rulemaking program. I participated as a small entity 
representative (SER) on the review panel that followed. Several 
SERs, myself included, raised concerns about the feasibility of 
various aspects of the rule, which was clearly designed for 
large, commercial construction applications. I personally put 
forward an effective, common sense alternative that would save 
lives and keep low the cost of compliance for small entities.
    Unfortunately, it seems my feedback fell on deaf ears. The 
problem was that it was not until after the negotiated 
rulemaking process was complete that OSHA convened the Small 
Business Advocacy Review Panel. So by the time we were brought 
in, the rule had already been determined, and not surprisingly, 
OSHA was not inclined to modify it based on the panel. Had 
small business been consulted earlier in the process, perhaps 
OSHA could have developed a more workable rule for small 
entities, thereby reducing the cost and the burdens associated 
with compliance. And as it was, the process seemed little more 
than a procedural hurdle with little interest from OSHA to make 
changes based on the feedback received.
    Other times small business representatives are left in the 
dark, brought in with insufficient information to allow us to 
evaluate regulatory options and provide alternatives. This was 
the case in 2010 when I participated in a Small Entity Review 
Panel that looked at a proposed federal regulation covering 
stormwater discharges from developed sites. EPA, in preparation 
for the panel, failed to provide sufficient detailed 
information about the upcoming rule. As a result, we had no way 
to estimate the compliance costs or provide meaningful feedback 
to reduce the regulatory burden on small businesses. Several 
SERs provided written comment to the effect and suggested that 
the agency's failure to provide sufficient information was a 
violation of SBREFA.
    When agencies are unprepared to provide small entity review 
panelists with the information and data necessary to evaluate 
the cost and compliance obligations, the process breaks down. 
Not only do participants like myself question the value of 
their participation, but the entire regulatory program loses 
its legitimacy and clearly undermines Congress's intent.
    These are just a couple of examples that illustrate the 
need for improving the way agencies conduct the required 
reviews of proposed regulations under RFA. Doing so would 
result in far more efficient regulation and reduce compliance 
costs for our small businesses. As Congress looks for ways to 
improve agency compliance with RFA, we look forward to working 
with legislators on the most effective ways to help America's 
small businesses.
    Thank you for the opportunity to testify today.
    Chairman SCHWEIKERT. Thank you, Mr. Harris.
    Ms. Clarke.
    Ms. CLARKE. Thank you, Mr. Chairman. I have the honor and 
privilege of introducing Ms. Steinzor. She is a professor of 
law at the University of Maryland's Francis Key Carey School of 
Law. She has taught courses in administrative law and written 
extensively in the area of federal regulatory policy, 
particularly in regard to health, safety, and the environmental 
regulation. She is also the president of the Center for 
Progressive Reform, which is a nationwide network of scholars 
that focuses on federal regulatory matters. Prior to her 
academic career she was a partner in the Washington, D.C. law 
firm of Spiegel & McDiarmid which counseled federal, state, and 
municipal clients on regulatory compliance. We would like to 
welcome you this morning and hear from you at this time. Thank 
you.

                   STATEMENT OF RENA STEINZOR

    Ms. STEINZOR. Thank you very much for giving me an 
opportunity to testify today.
    I could not agree more with the Subcommittee's overhang 
mission: strengthening the role of small business in repairing 
an economy ruined by deregulated, too-big-to-fail financial 
institutions. Big business uses small business as a kind of 
human shield, conflating the two sectors distinctly different 
needs and pushing for deregulation that could further endanger 
the economy and public health.
    A case in point is the SBA Office of Advocacy, which has 
consciously diverted its limited, taxpayer-funded resources 
from helping small business toward pursuing the complaint du 
jour of the very large companies that call the shots at the 
American Chemistry Council, the National Association of 
Manufacturers, and the U.S. Chamber of Commerce. These 
activities raise the disturbing prospect that the Office of 
Advocacy has broken the law. In fact, I hope that the evidence 
I put before you today will motivate you to ask the GAO to 
investigate whether the Office of Advocacy has complied with 
laws that bar federally funded agencies from lobbying and 
require it to conduct its affairs in the sunshine. From what we 
can tell, the office routinely intervenes in rulemakings with 
only tangential effects on its constituency, allowing Fortune 
500 companies to set its agenda, do its research, and provide 
the substance of its comments.
    Consider for example a series of e-mails exchanged between 
Kevin Bromberg of the Office of Advocacy and David Fisher of 
the American Chemistry Council. The two were discussing an 
aggressive lobbying campaign that large chemical manufacturers 
had mounted against the National Toxicology Program's proposal 
to declare formaldehyde as a known carcinogen. This is a 
scientific finding, not a regulation, but formaldehyde's 
manufacturers were adamant. Fisher wrote, ``I suspect the delay 
in the assessment will not get to the press because it has been 
delayed already for months, so any further delay would be a 
nonissue.'' Bromberg responded, ``It is probably better for now 
that I keep the National Toxicology Program contact in the 
dark.''
    Such skullduggery not only provides assistance to Fisher's 
multi-billion dollar clients at the taxpayers' expense; it 
violates the fundamental principle that the Office of Advocacy 
should work within the government to find better ways for small 
businesses, its only legitimate constituency, to comply with 
the regulations the same government is writing. Between 2005 
and 2012, the American Chemistry Council and its members spent 
over $333 million lobbying Congress and federal agencies. The 
last thing these giants need is a taxpayer subsidy.
    As for violations of Sunshine Laws, the Office of Advocacy 
hosts regular environmental roundtables that feature 
presentations by lobbyists and lawyers for Fortune 500 
companies. They occur behind closed doors and their agendas, 
attendance lists, and minutes are not published. Nevertheless, 
the roundtables result in positions that are adopted as policy 
by the office. Two weeks ago a senior scientist from the 
Environmental Defense Fund attempted to participate in a 
roundtable but he was told that he could listen to the 
discussion but not speak. The roundtable consisted of 
presentations by Nancy Beck, a former White House Office of 
Information and Regulatory Affairs staffer who now works for 
the American Chemistry Council, and Robert Fensterheim, a 
former American Petroleum Institute staffer who now works at 
the RegNet/IRIS Forum, an industry group dedicated to 
undermining EPA's integrated risk information system.
    Self-righteous crusaders against regulation have become 
accustomed to telling only half the story to the American 
people. They pretend that exaggerated regulatory costs are the 
only result of the system and ignore its considerable benefits. 
Conversely, they suggest that if we dismantle the regulatory 
system we would suffer no negative consequences and instead 
reap a windfall and save money.
    My testimony furnishes additional detailed information 
about the benefits of regulation. Thank you.
    Chairman SCHWEIKERT. Thank you.
    Now, a handful of questions. Mr. Freedman, you were with 
the Senate Small Business for how many years?
    Mr. FREEDMAN. Just over five years.
    Chairman SCHWEIKERT. In that time, because you probably sat 
through a number of these hearings, if you right now were 
looking for bottlenecks in the law that would actually help 
both advocacy for small business but also a mechanism for 
dealing with rule sets that are coming and trying to find what 
is rational both from a cost and benefits standpoint but also 
from an economic modeling standpoint, where do you see the 
bottleneck?
    Mr. FREEDMAN. Thank you, Mr. Chairman.
    I think I look at it this way. The critical part of the 
Regulatory Flexibility Act process is the go/no-go decision 
that focuses on the significant economic impact on a 
substantial number of small entities. And agencies have the 
flexibility to define those key terms as they wish--significant 
impact and substantial number of small entities. And agencies 
will go all over the map, even within their own agencies 
between rulemakings they will define things differently. And I 
think what might be helpful here is some type of consistency or 
at least some type of guidance to the agencies to say this is 
how we think you should define things or these are the factors 
you should take into effect.
    And if I could just finish that point, Dr. Sargeant raised 
some of the things I think could be helpful. For instance, the 
inclusion of indirect impacts. There has been some legislation 
offered previously on this point. My thought is it would be 
helpful to be specific about what kind of indirect impacts 
should be included.
    So, for instance, in the EPA world, states implement a lot 
of the requirements that the EPA lays out. The fact that the 
states implement those requirements is lost in the context of 
an indirect impact. So if that is the case, that should be 
brought into the discussion and those impacts should be 
captured going towards the question of a significant economic 
impact.
    Chairman SCHWEIKERT. Mr. Freedman, would you go as far as 
trying to create a better box and how you define cost benefit, 
how you define, I mean, economic impact? Because in our office 
over the last couple months, we have tried to collect some 
mechanisms from different agencies. And I find sometimes they 
have, some it is almost anecdotal. Tell me a story. And others 
it is, we want to do math.
    Mr. FREEDMAN. And cost benefit is a term that many people 
use. It frequently comes up in the context of the regulatory 
process and regulations. It is a very hard concept to nail 
down. I am not going to try and sit here and tell you that 
Congress in its wisdom can tell you exactly what a cost benefit 
analysis----
    Chairman SCHWEIKERT. I never used the words wisdom and 
Congress in the same sentence.
    Mr. FREEDMAN. Fair enough. It is a tough subject. And I 
think what might be helpful is to try and steer the agencies 
either through legislation or as Dr. Sargeant was describing, 
the training process embedded in the Executive Order 13272 to 
help agencies get to this point of appreciating the impact and 
recognizing the goal of trying to capture it and be honest 
about it.
    I think part of the discussion here is attitudinal. 
Agencies take a position. They want to do a reg. We have seen 
it time and again, and they do not want somebody else telling 
them how to do it. And somehow, and I do not know if it is the 
silver bullet here, that attitude needs to change. And I think 
the 13272 process is very helpful with that and a good start, 
but it really has to keep reinforcing it. Particularly now that 
we are coming into the second term of administration, people 
change, new people are in place. You have to keep reinforcing 
that type of approach.
    Chairman SCHWEIKERT. But in some ways, for some of us it is 
just sort of the standard of practice. So we sort of, whether I 
agree with you or disagree with you, at least I understand how 
you got there and I know what I am objecting to. Or agreeing 
to.
    Mr. FREEDMAN. Let me make one more quick point. And this is 
in my full statement. The problems with the agency compliance 
with the Regulatory Flexibility Act and SBREFA stretch back 
over several administrations. And this really is not a 
specifically Republican or Democrat example. We have seen it--
--
    Chairman SCHWEIKERT. Well, the framework comes from the 
late Carter Administration?
    Mr. FREEDMAN. That is correct.
    Chairman SCHWEIKERT. So.
    Mr. FREEDMAN. Right. But I mean, we have seen examples of 
agencies that did not take these issues seriously in several 
different administrations and different parties.
    Chairman SCHWEIKERT. Okay. Mr. Harris, welcome from 
beautiful Wichita. Do you have a lot of snow?
    Mr. HARRIS. Not anymore. We had 60 degrees there yesterday.
    Chairman SCHWEIKERT. Okay, good.
    Mr. HARRIS. And I came to this.
    Chairman SCHWEIKERT. Because my wife is going to make me 
visit the relatives and when you are from Scottsdale--
    Mr. HARRIS. There you go.
    Chairman SCHWEIKERT. We do not go when there is snow.
    This is sort of a one-off but I have been trying to get my 
head around a briefing I had yesterday. Do you do much concrete 
cutting?
    Mr. HARRIS. Yes, I do.
    Chairman SCHWEIKERT. Are you familiar there may be an EPA 
rule set out there where even the dust you create from the 
concrete cutting?
    Mr. FREEDMAN. Silica.
    Chairman SCHWEIKERT. Maybe.
    Mr. FREEDMAN. Both OSHA and EPA in regard to silica.
    Chairman SCHWEIKERT. Okay. I am walking through a group in 
a construction family. So sanding down drywall, cutting 
concrete, sanding, I mean, how many different elements? I mean, 
even down to the sandpaper you use. Would----
    Mr. FREEDMAN. Those are, as I understand, the drywall in 
regard to silica, there is not silica in drywall cement, but in 
the areas that we do precast concrete, when footings and 
foundations are not done correctly and remediation has to be 
done, we understand. We train for that at our local builders 
association how we would protect our workers in regard to that. 
We have tried to work closely with OSHA and the silica standard 
and how would be the best practices to deal with that and what 
might trigger those things. But we just got to get in--we have 
got to get small business involved in the regulatory process as 
early as possible because we truly are the experts in the 
field. I mean, you see a cloud of dust. You may see danger. We 
see that all the time. We just need to tell you what we do and 
how we can do it better and safer as opposed to have that come 
from outside.
    Chairman SCHWEIKERT. Okay. All right. With that, Ms. 
Clarke.
    Ms. CLARKE. Thank you very much, Mr. Chairman.
    My first question is to Professor Steinzor. Mr. Harris, in 
his testimony, stated that his organization believes that ``the 
RFA should be amended to include judicial review of the panel 
requirements to ensure agencies here to the law.'' What are 
your thoughts on that proposal?
    Ms. STEINZOR. There is a longstanding doctrine in 
administrative law that does not bring you to court until an 
agency has issued a final agency action. And as I understand, 
the way this would work you would be allowed to take the agency 
into court mid-rulemaking. And this would cause a lot of extra 
delay, which also has costs. I mean, we forget that so often 
that the longer it takes to promulgate a rule, the more people 
are exposed to whatever the harm the rule is trying to address. 
So there are costs on both sides, and I would urge you to be 
cautious about that kind of approach.
    Ms. CLARKE. So we are trying to weigh costs and costs 
essentially. For the small business, the idea that a particular 
rule could mean them being able to really be effective in 
whatever work it is that the rule is going to be applying to is 
a challenge for that company. On the other hand, the rule is 
being promulgated because there is a particular harm that an 
agency may be trying to address that can cost as well. And so 
the time factor there becomes the challenge on both sides.
    Ms. STEINZOR. I could not agree more. You have put it 
beautifully. I would only say that I completely favor finding 
ways to make regulations more tolerable for small businesses. 
But if workers get sick they cannot come to work and that is 
also a very costly problem. And some of the regulations, 
especially ones that the Office of Advocacy has been focusing 
on, are so large that they are really not aimed at small 
business at all. Some of EPA's air pollution rules, as I say in 
my testimony, would save millions of lost days at work which 
can only help small businesses because people will not have 
cardiac problems, they will not have asthma attacks, et cetera.
    Ms. CLARKE. Very well.
    Ms. STEINZOR. Help the economy.
    Ms. CLARKE. Very well. Very well.
    The second question is to you again, Professor Steinzor. 
The Crane and Crane study has been widely cited for its 
estimates of the regulatory burden facing small businesses. 
What is your opinion of the study, and do you believe that it 
is credible enough to be relied on by this Committee?
    Ms. STEINZOR. No, I do not believe that it has any 
credibility. It has been dismantled by our organization, the 
Economic Policy Institute, the Congressional Research Service, 
the White House Office of Information and Regulatory Affairs, 
anybody who has looked at it cannot replicate the results. And 
the Economic Policy Institute, in particular, got the data and 
tried to reverse engineer the calculations and was unable to 
even come close.
    One of the aspects in that study is a poll that was taken, 
a survey of business leaders around the world, and the World 
Bank which conducted the survey said it should not be used in 
that way. So I would urge you not to--there are better 
analyses.
    Ms. CLARKE. Very well. And let me just, Mr. Chairman, if 
you will indulge me, I have one final question for Mr. 
Freedman.
    In your discussion of OSHA's GHS rule, you state that ``the 
agency loaded it up''--that is your quote--''with other 
provisions that did not make sense for small businesses but 
that do increase safeguards for the workers which is actually 
OSHA's mission.'' Would you care to clarify or is it your view 
that OSHA should give small businesses' views priorities over 
workers when it develops its regulations?
    Mr. FREEDMAN. Thank you, Congressman Clarke.
    It is my view that OSHA should follow the regulatory 
process and make sure that anything that is in a final rule was 
proposed first and that terms in the regulations are clear and 
understandable by small businesses and are not open traps for 
small businesses so that OSHA has an opportunity to just come 
in and enforce without the small businesses knowing what they 
have to comply with. It is also my view that if OSHA is going 
to insert a hazard into a regulation, that everyone understands 
the definition of that hazard and that it is not an open-ended, 
as I said, trap for small businesses. These things can be done 
in the name of protecting employees and in the name of giving 
small businesses a fair chance to understand the regulation.
    Ms. CLARKE. So just as a follow-up, and I am going to close 
here, I am just trying--if I am a regulatory agency and my main 
function is to make sure that workers are protected, you are 
saying that there needs to be an overlay or a view that looks 
at small business in the context of protecting workers? I am 
trying to figure out if I were an agency person and I am 
concerned about the health and welfare of the employees, how 
you balance out those concerns in terms of how you view it 
because their goal is not to necessarily be concerned about the 
business as much as it is the employees of the business. So how 
would you sort of reconcile that?
    Mr. FREEDMAN. Well, if I may, Congresswoman, I would ask 
you think about this in terms of the businessperson trying to 
figure this out. If OSHA puts in a requirement that is an open-
ended requirement that they will not know whether they 
satisfied and it is just a trap for enforcement, how does that 
serve anybody's good? Or how does that serve anybody's goals?
    What we are looking here for in the context of OSHA 
regulations is clarity and well-supported regulations. The more 
OSHA focuses on those models, the better the outcome will be, 
the more employers and small businesses will know what they are 
required to do, the more they can protect their employees. If 
you just throw out a hazard that is not defined, and the one in 
the discussion here is combustible dust, then what is an 
employer to do? They do not know what that means. There is no 
definition of that. You cannot expect an employer to protect 
against something they do not know how to understand. This is 
just not fair. It does not get to the end goal. So I understand 
your concern from the agency's perspective, but the agency 
needs to operate within certain parameters. And that is the 
focal point of the regulatory process.
    Ms. CLARKE. Okay. We want to just drill in a little bit 
more on this. How do you define ``open traps''? Do you believe 
that OSHA is a rogue agency just looking to entrap and punish 
small business?
    Mr. FREEDMAN. No. I would never describe OSHA as a rogue 
agency.
    Ms. CLARKE. Okay.
    Mr. FREEDMAN. I think in the current administration they 
have placed a very explicit emphasis on enforcement. I think 
some of their regulatory approaches have gone towards the idea 
of increasing their opportunity for enforcement. As I mentioned 
in the discussion about the cooperative agreements rulemaking, 
that was about telling small businesses that they were going to 
be subject to enforcement even though they are bringing OSHA 
in, asking for help in identifying hazards.
    In the context of the GHS regulation that we are discussing 
here, they included a provision called Hazards Not Otherwise 
Classified. That is an open-ended concept. It means that an 
employer will not be able to tell when they have satisfied all 
the hazards that OSHA may have in mind. That is what I mean 
when I talk about traps. That is what I mean when I talk about 
OSHA putting in provisions that are geared towards enforcement 
more than they are towards safety.
    Ms. CLARKE. So the whole idea of clarity and definition is 
what ultimately makes it a hospitable business environment?
    Mr. FREEDMAN. It will certainly aid in increasing 
compliance and therefore adding to workplace safety.
    Ms. CLARKE. Very well. Thank you, Mr. Freedman.
    Thank you, Mr. Chairman.
    Chairman SCHWEIKERT. Thank you, Ms. Clarke.
    Mr. Bentivolio. Am I getting close in pronouncing it right?
    Mr. BENTIVOLIO. You did it perfect.
    Chairman SCHWEIKERT. Wow.
    Mr. BENTIVOLIO. Bentivolio. You have got to sing it when 
you say it. Thank you very much, Mr. Chairman.
    Mr. Harris, I am sitting here formulating what it is like 
to be a contractor. Single family homes, multi, like 
apartments?
    Mr. HARRIS. Single family, multi-family, small commercial 
shopping, small shopping centers, school additions, whatever I 
can do to make a living.
    Mr. BENTIVOLIO. I understand. Nothing like the smell of 
fresh excavated dirt.
    Mr. HARRIS. Agreed.
    Mr. BENTIVOLIO. The sound of concrete coming down a chute. 
Right? And then you have the carpenters' fresh cut lumber, 
circular saws, a symphony in construction. It smells like an 
economy growing. And each one of those different facets of 
construction is a contractor, a subcontractor working for you. 
Now, are you responsible for that subcontractor following 
regulations? And what is the procedure you go through, if so, 
to ensure that they comply with these regulations so you will 
not be shut down?
    Mr. HARRIS. First of all, I must let you know that I am an 
OSHA outreach trainer for a satellite training facility which 
is located in our local homebuilders association. As we reach 
out to other small businesses to make sure that they have the 
information and training. Each subcontractor is responsible for 
their own health and safety. I am responsible for the culture 
of safety and health on that project. OSHA kind of recognizes 
that in what they call their multi-employer worksite rules. We 
have not seen a lot of enforcement that go up the chain but we 
tried to put forth the culture of safety, health, and welfare 
on every jobsite and filter down to our subcontractors. We 
realize, through the help of the National Association of 
Homebuilders and our local builders association that training 
is what the needs are.
    And if I could kind of answer Congressman Clarke's 
question. If we have reasonable regulations, we have higher 
participation and compliance. So actually, we could save more 
lives with more reasonable regulation than if we have a hard 
and fast regulation that everybody is going to ignore because 
it does not make any sense. So that is where we think with 
enough early information, a chance to work in the process, 
which is what this does, we have a better chance of getting 
wound regulation that works on the jobsite.
    Mr. BENTIVOLIO. That is terrific.
    As a small business owner trying to do your best to comply 
with EPA and OSHA rules, what is your greatest fear in dealing 
with those agencies?
    Mr. HARRIS. Surprises. A businessman cannot have surprises. 
I do not have the time to constantly monitor the Federal 
Register to see what is going down. We rely on our trade 
associations to help us find out what information is out there. 
No business likes surprises. We are planning for the future. We 
are estimating projects out there. We really want to work to 
that betterment and work within all the regulations that are 
out there. Surprises are what we cannot handle. If we have an 
opportunity to work with clarity on the development of these 
regulations then we can let our members know, I can let my 
friends know, and we can all work within the rules.
    Mr. BENTIVOLIO. Thank you very much, Mr. Harris. I yield 
back my time.
    Chairman SCHWEIKERT. Thank you. With that, thank you.
    I did have just a couple odds and ends. And Mr. Freedman, 
one more time. If I have the good Doctor come and sit down in 
my office and we start to flowchart sort of how his process 
works, and some of this is as much making sure that the law is 
up-to-date for how we are passing information today. What would 
you inject into that conversation?
    Mr. FREEDMAN. Do you mean with respect to how Advocacy 
functions and the process?
    Chairman SCHWEIKERT. And how we are doing today, because I 
am still trying to get my head around this thing. I have a few 
thousand rule sets that affect small business. Are they 
capturing and are they focusing on what is rational to focus on 
for small business?
    Mr. HARRIS. Thank you, Mr. Chairman. And I am going to take 
the opportunity of your question to respond to something that 
Professor Steinzor mentioned. And that is her criticism of the 
idea of bringing in a provision that would allow small 
businesses to challenge an agency certification mid-rule. And 
she is certainly correct that agency actions have to be final 
before they can go to court. The value of, first of all, what 
you could do is describe that agency certification as a final 
action; therefore, making it subject to judicial review. And 
the point here is to preserve the timing of the small business 
input in the process so that you do not have to wait several 
years until the rule goes final and everything is baked in the 
cake at that point, to then say, well, way back then the agency 
did a bad certification and therefore, they should be 
challenged. The point is to be able to challenge the agency 
action at the time when it is still relevant to the process. 
And so the idea of creating an opportunity, and it could be 
written in a way that would be very narrow, very time 
sensitive, and would not disrupt the process in any tremendous 
way, but it is important that that decision gets attention at 
the time that it is made so that the input from small 
businesses can be brought into the process at the time it is 
most important.
    Chairman SCHWEIKERT. Okay. Thank you, Mr. Freedman. But 
that is partially where I was trying to go is a true 
understanding of sort of the flow chart, the mechanics, and 
when triggers are hit because we had the good Doctor before 
saying there are certain things he wished he had 60 days within 
the SBREFA process concept.
    Mr. FREEDMAN. And I think his point was well taken. Part of 
the discussion in the SBREFA panel process is that you are 
talking with people who are out there making a living, like Mr. 
Harris, who are not regulatory specialists. And you are asking 
them to look at a proposed regulation with supporting analyses 
and understand it in the context of this discussion, and that 
is just not what they do for a living. That is not even easy 
for me. And so giving them some more time to come up to speed 
on that discussion I think would help their participation in 
the process. And Mr. Harris has been in those panels himself, 
so he can probably tell you more about what would be helpful in 
that regard.
    Chairman SCHWEIKERT. Ms. Steinzor, is my little fixation on 
just understanding the linearity, if that is a word, of the 
process appropriate?
    Ms. STEINZOR. I think it is very appropriate and I would 
suggest to you that what you may want to pursue with Dr. 
Sargeant is exactly the question that you keep asking--how are 
these rulemakings selected? We only know what we could get from 
a Freedom of Information Act request to the Office of Advocacy, 
and what the information that we got back from that shows is 
that the office is in touch with a lot of large company 
lobbyists and that is how it makes it choices. And that when it 
takes a position it does not ask anybody in small business.
    Chairman SCHWEIKERT. Because I actually even read the 
advocacy piece.
    Ms. STEINZOR. Right.
    Chairman SCHWEIKERT. To say that that is how they make 
their decisions, I do not think there is any actuarial data 
that says that, but they get the information. We will give you 
that. But to actually say one is one, I think there is not data 
that says that.
    Ms. STEINZOR. I would love to know if they do any surveys 
of small businesses to identify what rules are the most 
problem, if they make those a priority, if they are even in 
touch with small businesses that have problems.
    Chairman SCHWEIKERT. Okay. And the question part is fine. 
It is rational to say one is the cause of the effect. I would 
always be very careful of sort of anecdotal leaps.
    So Mr. Harris, you get the last word and then we are all 
running off to our next panels that we are all supposed to be 
on.
    Mr. HARRIS. What would be wrong, and again, just a country 
boy asking, what would be wrong with assuming that small 
business is affected with every regulation and then go from 
there and make them prove that they are not as opposed to you 
have to prove that they are affected significantly and with 
enough numbers. So I mean, almost it works out being like the 
Miranda regulation. You cannot do anything until you do this.
    Chairman SCHWEIKERT. Why is it always the country boy gets 
the best line at the end of the get-together? It often works 
that way.
    I want to thank the witnesses today. For much of this, this 
is also the education of a new member like myself on the 
committee. And I have been trying to read everything I can get 
my hands on. And this is actually for my brothers and sisters 
on the panel and anyone else in the room. I will read anything. 
I am fairly voracious. Send it our way. And when agencies fail 
to actually comply with the Regulatory Flexibility Act, let us 
face it. Our economy suffers, our economic growth suffers, and 
our job creation suffers.
    The Committee will continue to exercise our oversight 
responsibilities to ensure that federal agencies comply with 
the RFA, and we will consider ways to strengthen this important 
statute and make sure it is also relative to today and not 
basically 30-plus years ago when it was originally drafted.
    And I ask unanimous consent that members have five 
legislative days to submit written statements and supporting 
materials for the record. Hearing no objection. One day someone 
is going to object and I am going to have no idea what to do. 
And with that so ordered, the panel is adjourned.
    [Whereupon, at 11:44 a.m., the Subcommittee was adjourned.]
                            A P P E N D I X

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

    Chairman Schweikert, Ranking Member Clark, and Members of 
the Subcommittee, I am Dr. Winslow Sargeant, Chief Counsel for 
the Office of Advocacy at the U.S. Small Business 
Administration.

    Thank you for the invitation to appear before you today to 
discuss the critical issue of agency compliance with the 
Regulatory Flexibility Act (RFA).

    The Office of Advocacy was created in 1976 to be a voice 
for small business within the federal government. Advocacy 
advances the views, concerns, and interests of small business 
before Congress, the White House, federal agencies, federal 
courts, and policymakers. We work with federal agencies in the 
rulemaking process to implement the requirements of the RFA.

    The RFA requires federal agencies to consider the effects 
of their proposed rules on small businesses and other small 
entities, including small governments and small nonprofits. 
When an agency finds that a proposed rule may have a 
significant economic impact on a substantial number of small 
entities, it must undertake an analytical process to consider 
significant alternatives that would minimize the burden on 
small entities while still achieving the original goal of the 
regulation.

    How Advocacy Helps Agencies Comply

    The Office of Advocacy works with federal agencies in a 
number of ways to improve their RFA compliance and to ensure 
that the particular concerns of small businesses are considered 
during the federal rulemaking process.

    RFA Training

    As required in Executive Order 13272, Advocacy must train 
agencies on how to comply with the RFA. In addition to the 
officials previously trained at more than 60 agencies and 
subagencies, we have trained nearly 350 additional key agency 
officials in RFA compliance during my tenure. In FY 2012, we 
published an expanded and updated edition of A Guide for 
Government Agencies: How to Comply with the Regulatory 
Flexibility Act. Increased and improved RFA training leads to 
better agency rulemakings, which results in increased 
regulatory compliance.

    Interagency Communications

    Much of Advocacy's work with agencies is at the 
confidential, pre-proposal stage, when agencies are working 
through the regulatory development process. When warranted, 
Advocacy sends agencies public comment letters that take into 
account small business concerns about specific regulations and 
other proposals. I have signed more than 90 such letters on 
topics including proposed revisions to the definition of solid 
waste, small business perspectives on the Paperwork Reduction 
Act, Small Business Innovation Research size regulations, and 
comments on regulations related to the Real Estate Settlement 
Procedures and Truth in Lending Acts (RESPA-TILA).

    SBREFA Panels

    The RFA as amended by SBREFA and the Dodd-Frank Wall Street 
Reform and Consumer Protection Act also specifies that three 
agencies must conduct a SBREFA panel for gathering comments on 
a proposed regulation when it may have a significant economic 
impact on small businesses. The three agencies are the 
Environmental Protection Agency, the Occupational Safety and 
Health Administration (OSHA), and the Consumer Financial 
Protection Bureau (CFPB). The panels are required to include 
representation from the rulemaking agency, the Office of 
Management and Budget's Office of Information and Regulatory 
Affairs, and the Office of Advocacy. The panels solicit 
information from small entity representatives (SERs), who 
represent the small businesses likely to be affected by the 
proposed rule. The law requires a SBREFA panel to be convened 
and complete its report with recommendations within a 60-day 
period.

    Since SBREFA was passed in 1995, the three agencies have 
conducted SBREFA panels on 55 regulations. In the last two 
years, we have participated in a dozen panels, including the 
first three panels ever by the CFPB. We provided support to the 
CFPB for the panels on RESPA-TILA, mortgage servicing, and 
mortgage loan origination rules and were able to work with the 
agency to provide small business flexibilities.

    Roundtables

    In an effort both to hear directly from small businesses 
and their representatives and to give federal agency rule 
writers a change to hear specific small business concerns, 
2012, which I delivered to Congress last month. I ask that a 
copy of this report be submitted, in its entirety, into the 
record.

    Executive Order 13272

    I also am pleased to report that in FY 2012 agencies 
continued to improve their compliance with E.O. 13272, which 
was signed in August 2002 by President George W. Bush. Some of 
the provisions of the executive order became law under the 
Small Business Jobs Act of 2010.

    E.O. 13272 requires Advocacy to notify agencies of the 
requirements of the act, provide compliance training, and 
submit comments to agencies and the Office of Information and 
Regulatory Affairs (OIRA) on agency regulations. Agencies in 
turn must establish written policies and procedures for RFA 
compliance and notify Advocacy of any draft rules with a 
significant economic impact on a substantial number of small 
entities. Where Advocacy has provided written comments, 
agencies must give appropriate consideration to these comments 
and publish their response in the Federal Register with the 
final rule.

    Executive Order 13563 and RFA Section 610

    In 2011, President Obama provided Advocacy with additional 
tools to improve the regulatory development process. Executive 
Order (E.O.) 13563 and E.O. 13579 instructed agencies to 
develop a plan for periodic retrospective review of all 
existing regulations with the intention of reducing the 
cumulative regulatory burden. In response, Advocacy continues 
to expand its stakeholder outreach. We have convened 84 
roundtables on a variety of topics since I became chief 
counsel, including 32 in FY 2012. Many of the roundtables 
featured significant involvement from agency officials.

    For example, we held several roundtables with OSHA, where 
senior OSHA officials were present, on small business 
perspectives related to labor safety issues.

    We also held a series of roundtables in several regions 
around the country to solicit input from small business 
research and technology stakeholders about the SBA's proposed 
regulations implementing the revised Small Business Innovation 
Research program.

    These small business roundtables help ensure that the 
voices of small businesses and other small entities are heard 
by officials whose actions will make a difference in the 
regulatory environment in which they operate.

    Compliance

    Having generally explained how the Office of Advocacy works 
with agencies, I would like to address agency compliance with 
their RFA responsibilities. I am pleased to report that 
agencies continued to improve their compliance with the RFA in 
FY 2012, bolstered by President Obama's focus on the need for 
regulatory review and emphasis on the special concerns of small 
businesses in the rulemaking process. A detailed analysis of 
this compliance can be found in Advocacy's Report on the 
Regulatory Flexibility Act FY agencies developed plans, some 
with significant public input, and published these plans 
online. The White House also posted the plans and agency 
updates online.\1\
---------------------------------------------------------------------------
    \1\ See http://www.whitehouse.gov/21stcenturygov/actions/21st-
century-regulatory-system.

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    Cost Savings

    Agency compliance with Advocacy's RFA efforts pays real 
dividends to America's small businesses. In FY 2012, Advocacy's 
RFA activities resulted in small businesses saving $2.4 billion 
in first-year regulatory costs and another $1.2 billion in 
annually recurring costs.

    It is important to note that these estimated annual cost 
savings are derived primarily from regulatory cost estimates 
from the agencies themselves. Cost savings are captured in the 
year in which the agency's rulemaking is affected by Advocacy's 
intervention; and the total varies from year to year. Over the 
two and half years of my tenure, Advocacy's work with federal 
agencies has saved small businesses $17 billion in new first-
year regulatory costs.

    Concluding Remarks

    The passage of laws amending the RFA and the Executive 
Orders reinforcing it have made this critical small business 
law more effective in reducing the regulatory burdens of small 
entities early--when the regulations are still in the 
development stage. Agencies' willingness to attend Advocacy 
roundtables and hear the concerns of small businesses has been 
a welcome development that has resulted in improved agency 
compliance with the RFA.

    We have learned through our experience with the RFA that 
regulations are more effective when small firms are part of the 
rulemaking process. The result of enhanced agency cooperation 
with the Office of Advocacy and improved agency compliance with 
the RFA benefits small businesses, the regulatory environment, 
and the overall economy.

    Thank you again for the opportunity to testify on the 
important work the Office of Advocacy does on behalf of small 
businesses. I would be happy to take any questions.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    The U.S. Chamber of Commerce is the world's largest 
business federation representing the interests of more than 3 
million businesses of all sizes, sectors, and regions, as well 
as state and local chambers and industry associations.

    More than 96% of Chamber member companies have fewer than 
100 employees, and many of the nation's largest companies are 
also active members. We are therefore cognizant not only of the 
challenges facing small businesses, but also those facing the 
business community at large.

    Besides representing a cross-section of the American 
business community with respect to the number of employees, 
major classifications of American business--e.g., 
manufacturing, retailing, services, construction, wholesalers, 
and finance--are represented. The Chamber has membership in all 
50 states.

    The Chamber's international reach is substantial as well. 
We believe that global interdependence provides opportunities, 
not threats. In addition to the American Chambers of Commerce 
abroad, an increasing number of our members engage in the 
export and import of both goods and services and have ongoing 
investment activities. The Chamber favors strengthened 
international competitiveness and opposes artificial U.S. and 
foreign barriers to international business.

    Positions on issues are developed by Chamber members 
serving on committees, subcommittees, councils, and task 
forces. Nearly 1,900 businesspeople participate in this 
process.
    Mr. Chairman, Madam Ranking Member, thank you for inviting 
to testify this morning on the value of the Regulatory 
Flexibility Act in the regulatory process. I am Marc Freedman, 
and I serve as the Executive Director for Labor Law Policy at 
the U.S. Chamber. In that role I work on several important 
workplace and employment regulatory areas, most notably OSHA, 
the FMLA, and the FLSA. Before coming to the Chamber more than 
eight years ago, I was the Regulatory Counsel for the Senate 
Small Business Committee with the primary responsibility of 
overseeing agency compliance with the Regulatory Flexibility 
Act as modified by the Small Business Regulatory Enforcement 
Fairness Act (SBREFA).

    This morning I would like to focus my remarks on examples 
where OSHA and other Department of Labor agencies under the 
current administration did not take advantage of the RFA and 
SBREFA in their rulemakings. Note that I said ``did not take 
advantage.'' The Reg Flex Act and SBREFA can be potent tools 
for agencies to help them develop better, more tailored 
regulations. Instead of seeing these laws as opportunities to 
get insightful input, too often agencies see these laws as 
obstacles in the rulemaking process to be overcome.

    The Regulatory Flexibility Act and SBREFA Enhance 
Rulemakings

    The RFA and SBREFA are common sense additions to the 
rulemaking process which, at their core, just ask agencies to 
respect the small businesses that will be subject to their 
regulations. The RFA requires that agencies conduct analyses on 
the impact regulations will have on small entities, or in the 
case of OSHA, EPA, and now the CFPB, small business review 
panels, unless the agency can ``certify'' that the regulation 
will not have a ``significant economic impact on a substantial 
number of small entities.'' Compliance with the Regulatory 
Flexibility Act enhances the rulemaking process--assuming that 
the goal is to produce regulations that will have the maximum 
beneficial impact with a minimal burdensome impact.

    As I have reviewed agency rulemakings over the years, I 
have seen many agencies go to some lengths to avoid conducting 
these analyses. The dispute often arises in the context of the 
``factual basis'' agencies are required to provide to support 
their certification. In some rulemakings I have reviewed, this 
factual basis is either absent, or the agency uses a 
declarative tautological statement that the proposed regulation 
will not have a significant economic impact on a substantial 
number of small entities to support the certification that the 
regulation will not have a significant economic impact on a 
substantial number of small entities. Often agencies seriously 
underestimate the cost impacts of a regulation. In some cases 
this can also mean ignoring industries affected. I should point 
out that these problems of agency adherence to the requirements 
of the RFA are not unique to any specific administration or 
party--they span several administrations of both political 
parties.

    The key is that the RFA and SBREFA create channels for 
input from small entities that will be affected by the proposed 
regulations. When agencies seek this input, and respect those 
small entities that will be subject to the regulation, all 
parties come out ahead. Beyond the requirements for small 
business review panels that apply to OSHA, EPA, and the CFPB, 
the RFA's affirmative outreach requirement applies to all other 
agencies subject to the Administrative Procedure Act's 
requirement for notice and comment rulemaking. Section 609(a) 
directs agencies to ``assure that small entities have been 
given an opportunity to participate in the rulemaking...through 
the reasonable use of techniques such as--(3) the direct 
notification of interested small entities.'' As the Regulatory 
Flexibility Act and even SBREFA were enacted before the advent 
of the internet, this requirement is considerably easier now 
than when these laws were passed, and accordingly there is even 
less reason why agencies should avoid doing this. Too many 
times agencies think that publishing a proposed regulation in 
the Federal Register constitutes some form of affirmative 
outreach.
    In addition to requiring certain steps if an agency cannot 
certify a regulation, the RFA always allows an agency to 
voluntarily engage in the outreach and analysis steps specified 
by the RFA and SBREFA even if an agency is able to certify that 
the trigger threshold has not been met.

    There is one more important point I would like to make 
about the impact of the RFA: it does not force an agency to 
change their rulemaking, nor does it authorize the SBA Office 
of Advocacy to change or block an agency's rulemaking, even if 
that agency is ignoring Advocacy's advice. The RFA merely sets 
out a process but it does not specify the outcome.

    Examples of OSHA Rulemakings Where A SBREFA Panel Would 
Have Made A Difference

    Unfortunately, OSHA under this administration has displayed 
a certain resistance to taking advantage of the SBREFA process. 
In various examples, OSHA could have clearly benefited if they 
had been willing to use the small business panel review process 
that the act lays out. And in each of these cases, there would 
have been no delay in moving the rulemakings forward.

    Early in this administration, OSHA initiated several 
rulemakings without availing themselves of the benefits from 
the small business panel reviews. In each case they certified 
that these rulemakings did not trigger SBREFA but in each case 
the agency would have benefited from using the small business 
panel review even if the certification was valid.

    One of the first rulemakings from this OSHA was one to 
``clarify'' when small businesses who voluntarily enter into 
the on-site consultation program--that is they ask for help 
from OSHA in identifying hazards in their workplace--would be 
subject to enforcement. Traditionally, there is a fire wall 
between the consultation and enforcement programs. This 
cooperative agreements rulemaking sought to reinforce that OSHA 
was going to look for opportunities to pursue enforcement even 
for those employers who are truly doing the right thing.

    OSHA certified that this proposed regulation would not 
trigger SBREFA, but as it explicitly and exclusively deals with 
small businesses, OSHA would have benefited from hearing 
directly from small businesses about their views on this 
rulemaking. Indeed, not conducting a small business review 
panel for this rulemaking reveals the lack of concern this OSHA 
has for the impact of their actions on small businesses. Had 
they done so, they would have heard that small businesses would 
be less comfortable entering into the consultation program if 
this rulemaking is completed. Getting that message with that 
clarity at that time, might have steered OSHA from proposing 
this regulation. The Chamber filed comments making this point, 
as did the SBA Office of Advocacy.

    Reducing participation in this program may be one of OSHA's 
goals as Secretary Solis and then Acting Assistant Secretary 
Jordan Barab made explicitly clear in speeches during that 
period that they wanted to emphasize enforcement and 
deemphasize cooperative agreements and other approaches that 
did not rely on enforcement.

    The only regulatory agenda for 2012, issued in late 
December, indicates that this rulemaking is scheduled to be 
finalized in April.

    Another rulemaking where OSHA suffered for not conducting a 
small business panel review is the high profile rulemaking to 
add a column to the OSHA 300 recordkeeping log to track 
musculoskeletal disorders (MSDs)--the injuries associated with 
ergonomics. OSHA certified this regulation as not having a 
significant economic impact on a substantial number of small 
entities, based on their claim that compliance with this would 
only take five minutes. OSHA severely underestimated the impact 
of this rulemaking by ignoring the fact that small businesses 
would now be held accountable for determining whether an MSD is 
work related--a potentially complicated and uncertain analysis. 
The Chamber urged OSHA to conduct the small business review 
plan, but OSHA declined to do so.

    In July 2010, OSHA submitted a final regulatory package to 
OIRA for review but in January 2011, OSHA was forced to 
withdraw the regulation from OIRA and instructed to get more 
input from small businesses. This resulted in the agency 
conducting three teleconferences with small businesses to hear 
directly from them about their concerns with this rulemaking--
exactly what would have happened if the agency had conducted 
the small business panel review at the early stages of the 
rulemaking. If OSHA had taken advantage of the SBREFA 
procedures, this regulation might very well be in place by now. 
Instead, it is languishing on the long term action list and is 
blocked from moving forward because of an appropriations rider.

    The last OSHA rulemaking I want to bring up is the Globally 
Harmonized System for Classification and Labeling--GHS for 
short. This is a sweeping regulation that modifies how 
producers of hazardous chemicals and downstream users of those 
products must label them for hazards and train employees on 
those hazards. The rulemaking was actually started in the Bush 
administration. Again, OSHA declined to conduct a SBREFA panel 
claiming that any costs related specifically to complying with 
the new regulation would be onetime adjustments from compliance 
with the precursor Hazard Communication Standard and therefore, 
the impact was minimal and did not warrant the small business 
panel review. OSHA did claim to voluntarily comply with the 
other requirements of SBREFA by responding to the issues 
covered under an Initial Regulatory Flexibility Analysis or 
IRFA, but they stopped short of conducting the small business 
review panel.

    In fact, OSHA claimed this regulation would result in 
substantial net savings to employers because it would eliminate 
the need to produce two sets of labels and safety data sheets 
when selling products into international markets. OSHA claims 
that this regulation will save just over $550 million net of 
costs annually.\1\ Even if this calculation is accurate, and we 
think there are several reasons why it is not, this amount when 
spread over OSHA's estimate of the number of affected 
establishments of 5.4 million produces an annual net benefit of 
about $100.
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    \1\ This rulemaking has also been cited by the Obama administration 
as part of the regulatory ``look back'' effort intended to review old 
regulations and modify or eliminate them. OSHA' claim that this 
regulation will save $2.5 billion over five years is a significant part 
of the overall savings claimed by this effort.

    The sad point is that this was a regulation that everyone 
agreed should happen. The Bush administration initiated it, 
Republicans in Congress had called for it, and this was 
supposed to be the low hanging fruit. Unfortunately, when this 
administration decided to take on this rulemaking, they loaded 
up the regulation with various provisions that do not make 
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sense or were not even in the proposal:

           OSHA created a new hazard category for 
        Hazards Not Otherwise Classified--a catch all that 
        means employers will never know if they have labeled 
        and trained for all the hazards that OSHA expects.

           OSHA inserted coverage for combustible dust 
        into the final regulatory text without putting it in 
        the proposed test despite the fact that OSHA does not 
        have a regulatory definition for this hazard and is 
        actually conducting a separate rulemaking to develop a 
        standard on combustible dust.

           OSHA specified that the deadline for 
        employers to have their training program in place would 
        be a year before the deadline for producers to update 
        their labels and safety data sheets--the very material 
        that will be the focus of the training programs.

    These and other problems would have been made known to OSHA 
during a small business panel review if OSHA had not certified 
this regulation as not triggering SBREFA, or had decided to 
voluntarily conduct the panel. As several of these issues are 
now being litigated, learning about these problems before the 
regulation was proposed might have saved OSHA and the 
Department considerable resources and insured a smoother 
implementation.

    The timing of the input that comes from a small business 
panel is an important feature of this process. Once a 
regulation is proposed, an agency is restricted in how much 
they can change it before it becomes final. Proposed 
regulations are not like proposed legislation which can be very 
fluid and go through several iterations and changes before 
being enacted. When an agency proposes a regulation, they are 
not saying ``let's have a conversation about this issue,'' they 
are saying, ``this is what we intend to put into effect unless 
there is some very good reason we have overlooked why we 
cannot.'' By giving an agency direct feedback about how a 
regulation will affect those covered by it, the agency can 
learn about problems before they get locked into the 
regulation.

    Examples Where OSHA SBREFA Panels Are Helpful

    As an example of the positive benefits from OSHA conducting 
a small business review panel, consider the rulemaking to 
revise the crystalline silica standard. In 2003, OSHA conducted 
a panel to take input on how this revision would affect small 
businesses. Silica is present in a very wide array of 
workplaces, in particular in construction which is dominated by 
small businesses. One point made by the small businesses in 
that review was that reducing the exposure limit would create 
tremendous burdens and is likely not even technologically 
feasible. Significantly, they told OSHA that the problem was 
not an exposure limit that was too high, but that the current 
exposure limit is too frequently ignored. Because of the 
review, interested parties were able to see what OSHA was 
considering and what is likely at OIRA under review as a 
proposed regulation which has triggered widespread alarm and 
concern. This administration claims to want to be the most 
transparent ever; conducting these panels is one of the best 
ways to achieve that goal.

    Another example of where an OSHA SBREFA panel will be 
beneficial is the anticipated panel for OSHA's Injury and 
Illness Prevention Program, or I2P2, rulemaking. This will be 
OSHA's most sweeping rulemaking ever; it will require all 
employers to implement safety and health programs according to 
criteria OSHA will establish. To OSHA's credit, the agency has 
committed to conducting the SBREFA small business panel review. 
Several times last year OSHA indicated this process would be 
getting under way, but it has not yet. When it does, interested 
parties beyond just those participating in the panel review 
will be able to learn what OSHA has in mind and see their draft 
economic analysis. Former SBA Advocacy Chief Counsel Jere 
Glover has told me that this process of OSHA showing their 
cards is perhaps the most significant benefit of this process.

    Examples Where OSHA Should Have Done Rulemakings Complete 
with SBREFA Panels

    Not only has this OSHA given short shrift to the RFA/SBREFA 
process when it has conducted rulemakings, but there are also 
examples where the agency should have gone through rulemaking 
but did not. Had they done rulemakings in these examples, they 
would have been well served to conduct small business review 
panels.

    In October 2010, OSHA proposed to change the interpretation 
for the term ``feasible'' as it applies under the Noise 
Reduction Standard. Before this proposal, employers had broad 
leeway to use personal protective equipment such as noise 
canceling headphones or ear plugs, as long as they provided 
adequate protection. Under the interpretation, ``feasibility'' 
would be reinterpreted to mean anything that did not cause a 
business to go out of business. The result would be to force 
many employers to redesign their workplaces to install costly 
engineering controls or implement costly and inefficient 
administrative controls so that employees would only work short 
periods and be rotated in and out of the hazard.

    As this was merely an interpretation, and not a rulemaking, 
it was not subject to the requirements of SBREFA. OSHA 
published the new interpretation for comment, but did not 
conduct any of the analyses associated with a rulemaking such 
as costs or impact on small businesses. Thankfully, in January 
2011, OSHA was forced to withdraw this interpretation due to an 
uproar as more and more businesses learned about it and 
determined what the impact would be. An independent economic 
analysis, because OSHA had not done one, suggested the impact 
on the economy would be more than $1 billion.

    The most recent example of a policy change where OSHA 
should have done a rulemaking but did not was the memo to 
regional administrators from Deputy Assistant Secretary Richard 
Fairfax on March 12, 2012. This memo laid out various scenarios 
that could constitute violations of the whistleblower 
protections. Included in these scenarios was the use of safety 
incentive program that focus on rates of injuries reported. 
This memo thus created a consequence to employers using these 
types of plans where neither the statute nor any regulation 
establish a prohibition on these plans or discuss when they are 
appropriate. Because this creates a new legal consequence for 
employers, this would have been better handled through a 
rulemaking where OSHA would reveal the data and evidence that 
supports this measure, rather than just stating blithely that 
``OSHA has observed that the potential for unlawful 
discrimination under all of these policies may increase when 
management or supervisory bonuses are linked to lower reported 
injury rates.''

    Examples of Other Agencies that Erroneously Avoided RFA 
Compliance

    In addition to OSHA not taking advantage of the RFA/SBREFA 
procedures to enhance their rulemakings, other DOL agencies 
have similarly avoided the RFA. Most notable have been the 
Office of Labor Management Standards in its ``Persuader'' 
rulemaking and the Employment and Training Administration in 
its rulemaking changing how the H-2B visa program would work.

    In the ``Persuader'' rulemaking, that would severely 
restrict the availability of the ``advice'' exemption for 
reporting under the Labor Management Reporting and Disclosure 
Act, OLMS certified that the proposed regulation would not have 
``a significant economic impact on a substantial number of 
small entities'' based solely on the number of NLRB 
representation and decertification elections held. The proposed 
regulations would, however, greatly expand the requirement for 
employers and their consultants to file and thus the Department 
grossly under estimated the cost to employers. The Department 
estimated that the total cost before filing would be merely 
$825,866. The Chamber's more detailed economic analysis however 
showed that the proposed rule will impose a first year cost 
burden on the economy of between $910.1 million to $2.2 billion 
and subsequent annual costs of between $285.9 million to $793.1 
million.

    Similarly, the Employment and Training Administration 
dramatically under estimated the cost of the major changes they 
proposed to the H-2B visa program which is heavily used by 
small businesses. The Chamber's economic analysis shows that 
the Department's estimated first year cost of the proposed rule 
increases from the published amount of $2.1 million to a 
revised total of $53.1 million, and the subsequent years' 
annual costs increase from the published amount of $810,000 per 
year to a revised total cost of $50.81 million per year. The 
undiscounted total cost over ten years increases from the 
published total of $9.35 million to a revised ten-year total of 
$509.39 million. The ETA claimed that it did not have adequate 
data to provide a more accurate estimate of the costs. The only 
reason the ETA did not have this data is that it did not try to 
develop it. This was a case where the agency should have 
followed the instructions from Section 609(a) to assure 
participation from small entities.

    Conclusion

    The Regulatory Flexibility Act and the Small Business 
Regulatory Enforcement Fairness Act exist to help agencies 
improve their rulemakings, not to impede them. If agencies 
welcomes the input of small businesses as a source of real 
world understanding these regulations would likely be more 
narrowly tailored without sacrificing the agency mission or 
regulatory objective. In the interest of transparency, OSHA 
should conduct more small business panel review and other 
agencies should look for more direct ways to develop the input 
of small businesses consistent with Section 609(a).
[GRAPHIC] [TIFF OMITTED] T0166.077

    On behalf of the more than 140,000 members of the National 
Association of Home Builders (HAHB), I appreciate the 
opportunity to submit this testimony. My name is Carl Harris. I 
am a builder from Wichita, Kansas, and co-founder of Carl 
Harris Co., Inc. As a specialty contracting firm founded in 
1985 we employ approximately twenty individuals and are engaged 
in a variety of residential and light-commercial construction 
applications. I also serve as a national area chairman for the 
National Association of Home Builders and am the 2013 President 
of the Kansas Building Industry Association.

    As a small businessman operating in a heavily regulated 
industry, I understand how difficult (and often costly) it can 
be to comply with the myriad of government regulations that 
apply to my day-to-day work. As a frequent industry 
representative in the statutorily-mandated small business 
feedback portion of the regulatory rulemaking process, I am 
well aware of the role small businesses play in informing 
regulators of the potential burdens borne by small business 
with new regulations. I am also aware of the strengths and 
weaknesses inherent to the process.

    While the original Congressional intent and subsequent 
additions/enhancements to the Regulatory Flexibility Act are to 
be lauded, the reality is that far too often agencies either 
view compliance with the Act as little more than a procedural 
``check-the-box'' exercise or they artfully avoid compliance by 
other means. Agencies should seek to partner with small 
entities to help create more efficient, more effective 
regulations and, in so doing, reduce the compliance costs for 
small businesses. I am pleased that the Subcommittee is 
focusing today on the impacts of regulation on small 
businesses.

    The Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA)\1\ requires federal 
agencies to consider the effect of their actions on small 
entities, including small businesses, small non-profit 
enterprises, and small local governments. When an agency issues 
a rulemaking proposal, the RFA requires the agency to ``prepare 
and make available for public comment an initial regulatory 
flexibility analysis. Such analysis shall describe the impact 
of the proposed rule on small entities.''\2\
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    \1\ 5 U.S.C. 601-612
    \2\ 5 U.S.C. 603(a).

    The RFA states that an initial regulatory flexibility 
analysis (IRFA) shall address the reasons that an agency is 
considering the action; the objectives and legal basis of the 
rule; the type and number of small entities to which the rule 
will apply; the projected reporting, record keeping, and other 
compliance requirements of the proposed rule; and all federal 
rules that may duplicate, overlap, or conflict with the 
proposed rule. The agency must also provide a description of 
any significant alternatives to the proposed rule which 
accomplish the stated objectives of applicable statutes which 
minimize any significant economic impact of the proposed rule 
on small entities.\3\
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    \3\ 5 U.S.C. 603(c).

    Section 605 of the RFA allows an agency, in lieu of 
preparing an IRFA, to certify that a rule is not expected to 
have a significant economic impact on a substantial number of 
small entities. If the head of the agency makes such a 
certification, the agency must publish the certification in the 
Federal Register along with a statement providing the factual 
basis for the certification.\4\ The agency must then prepare a 
final regulatory flexibility analysis (FRFA) for publication 
with the final rule.\5\ The FRFA must include a succinct 
statement of the need for, and the objectives of, the rule, a 
description of and the estimate of the number of small entities 
to which the rule will apply, a description of the projected 
reporting, recordkeeping, and other compliance requirements of 
the rule, and a description the steps the agency has taken to 
minimize the significant economic impacts on small entities 
consistent with the stated objectives and the factual, policy, 
and legal reasons why the selected option was chosen and the 
alternatives rejected.\6\
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    \4\ 5 U.S.C. 605.
    \5\ 5 U.S.C. 604.
    \6\ 5 U.S.C. 604(a).

    In addition, under the 1996 amendments to the RFA, known as 
the Small Businesses Regulatory Enforcement Fairness Act 
(SBREFA)\7\, when the Occupational Safety and Health 
Administration (OSHA) or Environmental Protection Agency (EPA) 
is required to prepare an IRFA \8\, they must first notify the 
Chief Counsel for Advocacy of the Small Business Administration 
(``Advocacy'') and provide Advocacy with information on the 
potential impacts of the proposed regulation on small entities 
and the type of small entities that may be affected. Advocacy 
must then identify individual representatives of affected small 
entities for the purpose of obtaining advice and 
recommendations about the potential impacts of the proposed 
rule, and the agency must convene a review panel made up of the 
agency, Advocacy, and the Office of Management and Budget to 
review the materials the agency has prepared (including any 
draft proposed rule), collect advice and recommendations of the 
small entity representatives and issue a report on the comments 
of the small entity representatives and the findings of the 
panel. Following this process, the agency shall modify the 
proposed rule, the IRFA, or the decision on whether an IRFA is 
required.\9\ While there are exceptions to the requirement to 
conduct a SBREFA panel, these are limited to situations where 
the agency certifies that the rule will have a minimal 
impact.\10\
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    \7\ 5 U.S.C. 609.
    \8\ Section 1100G of Dodd-Frank amendment Sec. 609(b) to add CFPB 
to the list of agencies.
    \9\ 5 U.S.C. 609(b)(1) through (6).
    \10\ 5 U.S.C. 609(c).

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    Small Entity Input Considered After the Negotiated Rule

    In 2008, OSHA proposed the Cranes and Derricks Rule, which 
was intended to protect workers from the hazards associated 
with hoisting equipment in construction. For the development of 
this rule, OSHA relied on the negotiated rulemaking process, 
wherein the rule is developed by a committee comprised of 
individuals who represent the interests of those who will be 
significantly affected by the rule.

    Unfortunately it wasn't until after the negotiated 
rulemaking process was complete that OSHA convened a Small 
Business Advocacy Review Panel to evaluate the potential impact 
of the rule on small entities. I was fortunate to have 
participated as a small entity representative in the review of 
the proposed Safety Standard for Cranes and Derricks in 
Construction. Several Small Entity Representatives (SERs), 
myself included, raised concerns at the time that the Cranes 
and Derricks proposal did not differentiate between crane 
applications on residential construction sites and large 
commercial construction sites. As a result, any rule issued 
with this fundamental oversight would disproportionately impact 
small entities.

    I use cranes almost every day for our residential and light 
commercial work. We use cranes to set large trusses, steel 
framing for greater clear heights and greater open spaces, and 
precast concrete pieces including floors over basements and 
safe rooms.

    I personally put forward an effective, feasible alternative 
that would save lives and reduce injuries in a more cost-
effective way by developing regulations for crane operator 
certification which are appropriate to the equipment that is 
being used and the risks presented by that equipment. This 
included principles of what should be required for crane 
operators: employer training for the specific equipment in use, 
employer assessment of the conditions of the job site, and the 
equipment and certification by the employer that the training 
has been completed.

    Again, it is unfortunate that small businesses were not 
brought in until after the rule had already been developed 
through the negotiated rulemaking process. As it was, the 
process seemed little more than a procedural hurdle with little 
interest from OSHA to make changes based on the feedback 
received.

    Poor Economic Analysis and the True Costs to Small Entities

    In 2010, OSHA proposed revising its Occupational Injury and 
Illness Recordkeeping regulation to include additional 
reporting requirements on work-related musculoskeletal 
disorders (MSDs).

    While OSHA certified, in accordance with the Regulatory 
Flexibility Act (RFA), that the proposed recordkeeping rule 
would ``not have a significant impact on a substantial number 
of small entities,'' industry groups urged OSHA to solicit 
further input on the impact of the proposed rule on small 
businesses by convening Small Business Advocacy Review Panel, 
as mandated by the RFA. However, in lieu of a proper small 
business panel, OSHA convened a series of teleconferences in 
2011, which I participated in, to reach out to the small 
business community for input on the proposal.

    During the teleconferences, I raised the concern that the 
proposed rule would result in additional costs to small 
employers which OSHA had not yet considered. Recording MSDs 
entails far more than simply placing a check mark in the MSD 
column. It requires a thorough investigation to correctly 
classify MSDs. Most employers in the home building industry are 
generally not qualified to assess such work-related illnesses. 
Only qualified medical personnel can analyze MSD injuries--I 
certainly do not have this medical expertise and very few home 
builders have medical degrees. Therefore, evaluating each MSD 
case would be very time consuming for employers, particularly 
small ones. This evaluation would likely take several hours to 
several days--not minutes as OSHA suggests--to consult with 
qualified medical personnel, review medical records and 
reports, and determine whether the MSD is new, work-related, or 
otherwise recordable. This would result in significantly 
increased costs to small businesses.

    As a result of not engaging small businesses earlier and in 
a more comprehensive manner, OSHA failed to account for the 
true impact this proposed rule would have on small entities and 
their employees. OSHA has since temporarily withdrawn the 
proposed Recordkeeping rule citing the need for ``greater input 
from small businesses on the impact of the proposal.'' \11\ I, 
along with NAHB, welcome the prospect of partnering with OSHA 
on the proposed rule in the hopes of developing a better, more 
workable rule for small entities that takes into account the 
true costs associated with compliance.
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    \11\ http://www.osha.gov/pls/oshaweb/owadisp.show--document?p--
table=NEWS--RELEASE&p--id=19158

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    Failure to Engage Small Entities in a Meaningful Way

    Improving the way the agencies conduct the required reviews 
of proposed regulations under RFA would result in far more 
efficient regulations and reduced compliance costs for small 
businesses.

    Unfortunately, agencies often either fall to comply with 
the RFA by ignoring the statutory obligation to convene a small 
entity review panel or convene a panel but fail to provide SERs 
sufficient information concerning the proposed rule to allow 
them to evaluate regulatory options or provide alternatives.

    This was the case for a small entity review panel on which 
I recently served that reviewed a proposed federal regulation 
covering stormwater discharges from developed sites. EPA, in 
preparation for the panel, failed to provide sufficient 
detailed information about the upcoming rule.\12\ As a result, 
NAHB members serving as SERs were unable to estimate compliance 
costs or identify ways to reduce the regulatory burden upon 
small businesses. Several SERs provided written comment that 
the lack of information made providing meaningful input 
difficult and noted that the agency's failure to provide 
sufficient information was a violation of SBREFA. Despite these 
concerns, EPA concluded the small entity review panel in 
December 2010.
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    \12\ EPA's stormwater rule was identified in the December 2010 
Unified Agenda notice as ``Stormwater Regulations Revisions To Address 
Discharges From Developed Sites.'' See 75 Fed. Reg. 79851, December 20, 
2010.

    This experience highlights a reoccurring limitation of the 
current RFA/SBREFA process--namely that the federal agencies 
often view compliance as largely a procedural function during 
the federal rulemaking process and not--as Congress intended--
an opportunity to reduce the burden of regulations on small 
businesses. When agencies are unprepared to provide small 
entity review panelists with the information and data necessary 
to evaluate the costs and compliance obligations, the process 
breaks down. Not only do the participants question the value of 
their participation, but the entire regulatory program loses 
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its legitimacy and clearly undermines Congress's intent.

    Failure to Comply with the SBREFA Panel Requirements

    While going through the procedural motions and failing to 
provide the small business community with the necessary tools 
to provide meaningful, constructive feedback is a significant 
problem, far more problematic are the occasions when agencies 
obviate their responsibility to convene review panels, thus 
removing a small business entirely from the equation. This was 
the case when EPA failed to convene a review panel as the 
agency sought to amend its Lead Renovation, Repair, and 
Painting (RRP) rule.

    The RRP Rule requires for-hire contractors that conduct 
renovation activities in residences built before 1978 to obtain 
certification from EPA; use ``lead-safe work practices'' 
designed to contain and minimize dust created during the 
renovation activity; and maintain records on these activities. 
Shortly after finalizing the RRP Rule in 2008, as a result of a 
settlement agreement EPA reached with public interest 
advocates, EPA proposed amending the regulation to remove the 
``Opt-Out Provision.'' The opt-out provision allowed homeowners 
to authorize their contractor to use traditional work practices 
under certain circumstances, resulting in significant cost 
savings.

    Removing the opt-out provision more than doubled the number 
of homes subject to the RRP Rule to 78 million and EPA 
estimated the cost of this action to be $500 Million 
annually.\13\ However, the costs are far greater because of 
EPA's flawed economic analysis, which significantly 
underestimated the true compliance costs. The agency initially 
estimated that compliance costs would add $35 to a typical 
remodeling job; yet for a typical window replacement project 
the cost ranges from $90 to $160 per window opening, easily 
adding more than $1,000 to each project. Moreover, an EPA 
Inspector General's (IG) report, published on July 25, 2012, 
found that the EPA failed to use accurate or even reliable 
information on the likely costs of changes to the RRP rule on 
small entities. More specifically, the report called on EPA to 
review both the original RRP rule and the removal of the Opt-
Out provisions using RFA Section 610 authorities:
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    \13\ 75 Fed. Reg. 24802, 24812 (May 6, 2010). The agency estimated 
that the removal of the Opt-Out provision would result in $500 million 
in costs in the first year, but projected this amount would decrease to 
$200 million each year once the agency certified a test kit that 
satisfied the RRP Rule's criteria for accurately measuring the presence 
of lead in paint at regulated levels. However, no such test kit has 
been identified and therefore these cost savings have not been 
realized.

          ``We have identified only a few aspects of EPA's 
        complex benefits-costs analysis that are limited. 
        However, we believe these aspects limit the reliability 
        of EPA's estimates of the rule's costs and benefits to 
        society. The Administration's 2011 Executive Order 
        [E.O. 13563] and Section 610 of the Regulatory 
        Flexibility Act provide EPA an opportunity to review 
        the Lead Rule to determine whether it should be 
        modified, streamlined, expanded, or repealed in light 
        of the known limitations in the rule's underlying cost 
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        and benefit estimates.''

    EPA acknowledged during the initial rulemaking that the 
Opt-Out Rule substantially impacted a significant number of 
small entities and complied with the RFA's regulatory 
flexibility analysis reporting requirements. However, EPA 
refused to convene a new panel. Instead, EPA relied on a panel 
convened more than a decade earlier for the original RRP Rule. 
EPA stated ``that reconvening the Panel would procedurally 
duplicative and is unnecessary given that the issues here were 
within the scope of those considered by the Panel.'' \14\
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    \14\ Id. at 24815.

    In the 17 years since the RFA was amended by SBREFA to 
include the panel requirement, EPA has convened approximately 
43 panels. According to a recent report issued by the 
Congressional Research Service (CRS), EPA issued nearly the 
same number of significant regulations during the first Obama 
Administration.\15\ It defies belief that so few EPA 
regulations have met the threshold under SBREFA and these 
numbers illustrate how reluctant agencies are to comply with 
the law.
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    \15\ The Congressional Research examined 45 regulations it 
characterized as satisfying OMB's ``significance'' threshold of $100 
million annual effect on the U.S. economy in a report addressing the 
rate of issuing regulations during the first Obama Administration. 
Regulations: Too Much, Too Little, or On Track?, http://www.fas.org/
sgp/crs/misc/R41561.pdf (last visited Mar. 5, 2013).

    Contributing to the lack of EPA's compliance with the RFA 
is the absence of an enforcement mechanism. While section 611 
of the RFA provides for judicial review of some of the act's 
provisions, it does not permit judicial review of section 
609(b), which contains the panel requirement.\16\ NAHB believes 
that the RFA should be amended to include judicial review of 
the panel requirement to ensure agencies adhere to the law.
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    \16\ Section 611(a)(1) states: ``For any rule subject to this 
chapter, a small entity that is adversely affected or aggrieved by 
final agency action is entitled to judicial review of agency compliance 
with the requirements of sections 601, 604, 605(b), 608(b), and 610 in 
accordance with chapter 7. Agency compliance with sections 607 and 
609(a) shall be judicially reviewable in connection with judicial 
review of section 604.''

    Many of the deficiencies found in EPA's RRP rule could have 
been addressed if EPA complied with both the letter and spirit 
of the RFA. Ultimately, because they didn't convene a panel, 
EPA was unable to produce a workable rule and has unnecessarily 
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burdened small entities.

    Underestimating Impacts to Avoid Statutory Requirements

    Under the Endangered Species Act (ESA), the U.S. Fish and 
Wildlife Service and National Oceanic and Atmospheric 
Administration (collectively referred to as ``the Service'') 
can prohibit the issuance of any federal permit if the Service 
determines the proposed activity may result in the ``adverse 
modification'' of critical habitat.\17\ Congress, recognizing 
the potential economic impact of critical habitat designations, 
requires the Service to perform an economic analysis whenever 
the Service proposes to designate critical habitat. Congress 
also gave the Service the authority to exclude any area from a 
``final'' critical habitat designation, provided the Service 
determines the economic costs resulting from critical habitat 
designation outweighs the biological benefits to the 
species.\18\
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    \17\ 16 U.S.C. Sec. 1636(2)
    \18\ 16 U.S.C. Sec. 1633(b)(2)

    While the Service is required to comply with the RFA, they 
frequently will adopt the stance that small entities are not 
significantly impacted by a proposed critical habitat 
designation, and certify as such. The designation of critical 
habitat directly impacts land developers, builders, states, and 
local governments by restricting their ability to undertake 
otherwise lawful land use activities. The designation of 
critical habitat by the Service is unlike other ESA regulatory 
restrictions in that the Service can designate private property 
as critical habitat regardless of whether a federally protected 
species will ever occupy the property in question. For NAHB 
members, the designation of critical habitat by the Service has 
a significant economic impact on their land development 
projects and their businesses. As explained further below, the 
designation of critical habitat triggers a complex federal 
permitting process known as the ESA Section 7 consultation 
process that can result in the Service prohibiting otherwise 
lawful land use activities if the Service determines proposed 
activities may result in adverse modification of critical 
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habitat.

    The ESA's Section 7 consultation process often 
significantly impacts small businesses and is fraught with 
permitting delays, increased costs and land use extractions. 
While the Service's regulations say the ESA Section 7 formal 
consultation process should take no longer than four and half 
months (135 days) to complete, the Service routinely fails to 
complete the consultation process within its own prescribed 
permitting deadlines.\19\ For example, the U.S. General 
Accounting Office (GAO) conducted an audit of ESA Section 7 
consultations permits performed in the Pacific Northwest in 
2003 following the Service's decision in the late 1990's to 
list as ``endangered'' over 20 subpopulations of salmon 
species. GAO's audit found the Service routinely exceeded the 
Section 7 permitting timeframes for formal consultation by many 
months and in some cases years.\20\ Homeowners living near 
Seattle, Washington waited over two years for the Service and 
the Army Corps of Engineers (Corps) to complete ESA Section 7 
formal consultations for a CWA Section 404 wetland permits 
(needed to install private boat docks on Lake Washington.\21\ 
In the case of the homeowners, GAO estimated the economic 
impact from the Section 7 permitting delay for the federal 
wetlands permits to be approximately $10,000 per homeowner.\22\ 
While understandably outrageous, these types of permitting 
delays are common for NAHB members whose projects occur in 
areas designated by critical habitat and require a Section 404 
permit.
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    \19\ 50 CFR Sec. 402.14 (2012)
    \20\ GAO Report (2003) Endangered Species: Despite Consultation 
Improvement Efforts in the Pacific Northwest, Concerns Persist about 
the Process, GAO-03-949T, Executive Summary.
    \21\ GAO Report (2003) Endangered Species: Despite Consultation 
Improvement Efforts in the Pacific Northwest, Concerns Persist about 
the Process, GAO-03-949T, page 12
    \22\ GAO Report (2003) Endangered Species: Despite Consultation 
Improvement Efforts in the Pacific Northwest, Concerns Persist about 
the Process, GAO-03-949T, page 12

    Despite these examples of significant economic impacts on 
small entities, the Service routinely claims that the RFA does 
not apply when designating critical habitat. Three examples of 
past critical habitat designations where the Service has 
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certified the RFA does not apply are:

     Vernal Pools (crustaceans and plants)--FWS 
finalized the designation of over 800,000 acres of land across 
San Diego and Riverside counties in California.\23\ According 
to FWS's ESA Sec. 4(b)(2) economic analysis the potential 
economic impact on residential construction activities could be 
upward of $800 million dollars. However, the FWS ``certified'' 
the RFA does not apply because ``not a substantial number of 
small entities'' will be impacted by the proposed rule.\24\
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    \23\ 70 Fed. Reg. Sec. 46934 (August 11, 2005)
    \24\ 70 Fed. Reg. Sec. 46954 (August 11, 2005)

     California Coastal Gnatcatcher (bird)--FWS 
proposed to designate as critical habitat about 200,000 acres 
located across Los Angeles, Orange, San Bernardino, Riverside, 
and Ventura counties.\25\ Again under economic analysis 
required under the ESA Sec. 4(b)(2) FWS found an economic 
impact of greater than $880 million dollars--a majority of the 
economic impact occurring due to future residential 
development. However again FWS ``certified'' the RFA does not 
apply since ``not a substantial number of small entities will 
be impacted.''\26\
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    \25\ 72 Fed. Reg. Sec. 72010 (December 19, 2007)
    \26\ 72 Fed. Reg. Sec. 72067 (December 19, 2007)

     Cactus Ferruginous Pygmy-Owl (bird)--FWS proposed 
to designate as critical habitat over 1.2 million acres 
encompassing the entire Tucson, Arizona metropolitan area.\27\ 
The Service's sweeping critical habitat designation for the 
pygmy-owl was outrageous considering only 18 known owls existed 
in the entire area. That mean each of the 18 known owls would 
have greater than 66,000 acres of critical habitat much of it 
located on private lands. Biologists have since shown that 
these owls typically require anywhere between 50-290 acres 
each.\28\ Once again the Service's own ESA economic analysis 
found staggering economic impacts upon NAHB members and local 
governments including $545 million dollars decline in housing 
production, a loss of $68 million dollars in local taxes and 
fees from reduced residential construction, and most 
importantly the loss of 2,748 of construction jobs all over a 
ten year period. Shockingly the Service again certified the RFA 
did not apply since not a substantial number of small entities 
would be impacted.
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    \27\ 67 Fed. Reg. Sec. 71032 (November 27, 2002)
    \28\ FWS. 2000. Chapter 1: The Cactus Ferruginous Pygmy-Owl: 
Taxonomy, Distribution, and Natural History. Retrieved on March 11, 
2013. Available at http://www.fs.fed.us/rm/pubs/rmrs--gtr043/rmrs--
gtr043--005--015.

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    Conclusion

    Congress, in crafting the RFA, clearly intended for all 
covered federal agencies to carefully consider the proportional 
impacts of federal regulations on small businesses.

          ``It is the purpose of this Act to establish as a 
        principle of regulatory issuance that agencies shall 
        endeavor, consistent with the objectives of the rule 
        and applicable statutes, to fit regulatory and 
        informational requirements to the scale of the 
        businesses, organizations, and governmental 
        jurisdictions subject to regulations. To achieve this 
        principal, agencies are required to solicit and 
        consider flexible regulatory proposals and to explain 
        the rationale for their actions to assure that such 
        proposals are given serious consideration.''\29\
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    \29\ Regulatory Flexibility Act of 1980 (P.L. 96-354)

    Unfortunately, all too often federal agencies view RFA 
compliance as either a technicality of the federal rulemaking 
process or, worse yet, as unnecessary. In an effort to ensure 
that regulations are crafted in accordance with the 
Congressional intent of the RFA, I urge Congress to seek out 
ways to improve agency compliance with the Regulatory 
Flexibility Act.
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