[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
FIELD HEARING IN NORTH LAS VEGAS, NEVADA:
REGULATORY OVERLOAD: THE EFFECTS OF FEDERAL
REGULATIONS ON SMALL FIRMS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT AND REGULATIONS
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
NOVEMBER 6, 2015
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 114-028
Available via the GPO Website: www.fdsys.gov
____________
U.S. GOVERNMENT PUBLISHING OFFICE
97-450 WASHINGTON : 2016
________________________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Publishing Office,
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center,
U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free).
E-mail, [email protected].
HOUSE COMMITTEE ON SMALL BUSINESS
STEVE CHABOT, Ohio, Chairman
STEVE KING, Iowa
BLAINE LUETKEMEYER, Missouri
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
CHRIS GIBSON, New York
DAVE BRAT, Virginia
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
STEVE KNIGHT, California
CARLOS CURBELO, Florida
MIKE BOST, Illinois
CRESENT HARDY, Nevada
NYDIA VELAZQUEZ, New York, Ranking Member
YVETTE CLARK, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRENDA LAWRENCE, Michigan
ALMA ADAMS, North Carolina
SETH MOULTON, Massachusetts
MARK TAKAI, Hawaii
Kevin Fitzpatrick, Staff Director
Stephen Denis, Deputy Staff Director for Policy
Jan Oliver, Deputy Staff Director for Operation
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Cresent Hardy............................................... 1
WITNESSES
Mr. Spencer Hafen, President & CEO, Nevada Bank and Trust
Company, Caliente, NV, testifying on behalf of the Nevada
Bankers Association............................................ 3
Ms. Robin E. Simmers, CEO, Pahranagat Valley Federal Credit
Union, Alamo, NV, testifying on behalf of the Nevada Credit
Union League................................................... 4
Mr. David Jennings, Board Member, Southern Nevada Home Builders
Association, Las Vegas, NV..................................... 6
Mr. Mendis Cooper, General Manager, Overton Power District Number
5, Overton, NV, testifying on behalf of the Nevada Rural
Electric Association........................................... 8
APPENDIX
Prepared Statements:
Mr. Spencer Hafen, President & CEO, Nevada Bank and Trust
Company, Caliente, NV, testifying on behalf of the Nevada
Bankers Association........................................ 20
Ms. Robin E. Simmers, CEO, Pahranagat Valley Federal Credit
Union, Alamo, NV, testifying on behalf of the Nevada Credit
Union League............................................... 26
Mr. David Jennings, Board Member, Southern Nevada Home
Builders Association, Las Vegas, NV........................ 34
Mr. Mendis Cooper, General Manager, Overton Power District
Number 5, Overton, NV, testifying on behalf of the Nevada
Rural Electric Association................................. 90
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
REGULATORY OVERLOAD: THE EFFECTS OF FEDERAL REGULATIONS ON SMALL FIRMS
----------
FRIDAY, NOVEMBER 6, 2015
House of Representatives,
Committee on Small Business,
Subcommittee on Investigations, Oversight and
Regulations,
Washington, DC.
The Subcommittee met, pursuant to call, at 2:00 p.m., at
the North Las Vegas City Hall, Council Chambers, 2250 N. Las
Vegas Blvd., North Las Vegas, Nevada, Hon. Cresent Hardy
[Chairman of the Subcommittee] presiding.
Present: Representative Hardy.
Chairman HARDY. Good afternoon.
I'd like to thank you all for being here today. I'd like to
call this meeting to order.
Since this is a Congressional hearing, we are going to
begin, as we do with everything in every session in the House
of Representatives, with a prayer and posting of the colors and
the Pledge of Allegiance.
I now recognize Pastor Matt Teis, of the Liberty Baptist
Church in Las Vegas, to lead us in the prayer.
Pastor TEIS. Please join me in prayer.
Lord Jesus, today we come before you. We're thankful for
all you have given us. The freedoms that we enjoy in this
country are a gift from you. As our founders recognize, we
recognize the same today.
Father, we pray that you would be with Congressman Hardy.
Give him wisdom. Thank you for putting him in the position that
he's in today. Father, as he hears testimonies and insight from
the men and women present here, I pray that you give him wisdom
and insight on courses to take and directions that we should
follow as a nation.
Lord, we are so thankful for all you have given us and I
pray that you would bless this room, bless this time, and keep
us safe. Thank you for the veterans who serve us and give us
the freedoms that we enjoy.
Thank you most of all for Jesus, who died, was buried, and
lives again to pay for our sins. We ask all this in His name.
Amen.
Chairman HARDY. Thank you. I'd like to recognize the Nellis
Air Force color guard to post the colors, and I would like you
to remain standing.
[Colors posted.]
You may be seated.
I'd like to give a special thanks to all our military men
and women who participated today, and as you know, Veterans Day
is upcoming this Wednesday, and I'd like to personally thank
each and every one of you for your service to your country
personally. Thank you very much.
OPENING STATEMENT OF REP. CRESENT HARDY, (R-NV) CHAIRMAN, HOUSE
SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT AND REGULATIONS,
COMMITTEE ON SMALL BUSINESS
Chairman HARDY. Today's hearing will focus on the topic
that I am passionate about: Reducing the burden of regulation
on small businesses.
One of the most--one of the biggest concerns I hear from
small businesses and their owners, both in Nevada's Fourth
District and around the country, is that Federal regulations
have gotten out of control. So it is to no surprise that in a
September 2015 survey Federal regulations were tied with taxes
as the number one issue affecting small business owners.
Agencies publish thousands of final regulations every year
on diverse subjects including, but not limited to, workplace
safety, finance, environmental protection, health care, energy
conservation and endangered species.
In 2014 alone, Federal regulators issued over 2,400 new
rules, of which 77 were classified as major. To me, this seems
like a little bit of an over onslaught of new red tape.
While I understand the need for some level of regulation,
I'm concerned that small businesses are not being heard, or
even considered, when these rules come down through the
pipeline. Small businesses, as we hear today, are unique and
disproportionately affected by the cost of regulation. A
company with under 50 employees annually spends 17 percent more
than the average company to comply with federal regulations.
While this may not seem like much, just imagine if that 17
percent could be used differently, for hiring additional
employees, and other issues.
As Chairman of a Subcommittee over Investigation, Oversight
and Regulation, I am working hard to help ensure the regulatory
burdens on small firms are reduced so that these businesses can
focus on creating jobs and spurring on economic growth.
I would like to thank each of the witnesses for taking time
to be here and provide their testimony today on the ways we can
work together to reduce regulatory burdens on small businesses.
I look forward to hearing your testimony.
We'll now explain the timing of the clock. If a Committee
member has, first, if any Committee member has an opening
statement prepared, I ask that they might be submitted for the
record.
I'd like to take a moment to explain the timing lights for
you. You will have five minutes for your testimony, to deliver
that testimony. The light will start out green. When you have
one minute remaining it will turn yellow. Finally at the end of
your five minutes it will turn red. I ask that you try to
adhere to that. We will have a little extra flexibility.
With that being said, we would like to start with the
introductions. Mr. Hafen is our first witness. Mr. Hafen is the
president and CEO of Nevada Bank and Trust, headquartered in
Caliente, Nevada. Mr. Hafen is testifying on behalf of Nevada
Bankers Association. Welcome, and you have five minutes, and
you may begin.
STATEMENT OF SPENCER HAFEN, PRESIDENT & CEO OF NEVADA BANK AND
TRUST COMPANY ON BEHALF OF NEVADA BANKERS ASSOCIATION
Mr. HAFEN. Thank you, Mr. Hardy. I guess I should push my
button so everybody can hear.
Thank you, Mr. Hardy, Representative Hardy, for the
opportunity in which I can spend just a few minutes and to
share some of my thoughts on the regulatory environment in
which we do business.
I'd like to tell the Committee just a little bit about
myself and about the bank in which I work. I grew up in Nevada.
I'm a native Nevadan, and I've lived in Nevada for over 40
years. I'm grateful for the opportunity to represent the Nevada
Bankers Association today. I'm the President, as you mentioned,
the President & CEO of Nevada Bank and Trust, a small community
bank located in Caliente, Nevada, with assets right around $112
million.
This bank was created by a group of small businessmen in
1978. This group of small businessmen had to travel over 30
miles to do their banking at that time, and sometimes I think
30 miles isn't much, but in '78 it was quite the chore to go up
the hill to Pioche.
So this group of gentlemen, they got together and they
formed this little bank, and from the time of its inception to
the peak of its existence it had nine branches. Their dream was
to have a small bank in every small town along US 93, which as
many of you know, travels from southern Nevada clear to the
northern tip of Nevada and on, and they accomplished that.
As regulations mounted and pressure came from regulators,
the idea of having a profitable branch was questioned
constantly, and so now we have four branches. Because many of
the branches were not profitable, although they provided a
service, they were closed. So now we have branches in Caliente,
Mesquite, Ely, and Elko.
Some of the regulation, the over-burdening regulation that
I would like to address in the remainder of my time have to
deal with primarily results of the Dodd-Frank Act. As you may
know, that act is they have instilled 398 new rules resulting
in at least 22,534 pages of information, and I note that that's
only about two-thirds of the entire act. So we have plenty to
look forward to.
A few items that come out of Dodd-Frank that at first were
to make our lives easier as bankers, one being the recent TRID
rule, or the combining of TILA and the RESPA disclosures when
someone wants to get a home mortgage. That rule came into
effect on October 3rd and I'll just tell you how it has
affected us.
For over 30 years we have been able to do home mortgages,
providing mortgages that I refer to ``out of the box'' in rural
Nevada. ``Out of the box'' meaning that these are people who
have come to get a mortgage and just don't fit the box that
many of the large institutions offer.
But we would offer those mortgages. We would write those
loans, and we would keep them on our books for the life of
those loans.
But with this new regulation, although it was intended to
make things easier, the compliance, and making sure that we are
compliant to the rule had become over-burdening, to the point
where our Board, my Board has voted to stop mortgages.
Now the problem with this is at the end of the day it
doesn't really hurt us as a bank, because it was never really a
money-maker for us. We barely did maybe 12 to 18 mortgages a
year.
But now there's 12 or 18 people across the State of Nevada
won't be able to get a mortgage because we can't offer it, so
they are going to go somewhere else. That's one of the
regulations that's really put a burden on us.
Now there are other regulations that have caused issues,
that have caused us to either stop offering services and look
at other ways to provide services. One thing that I think we
would remember is the unintended acts and the results of some
of this regulation that's really come down on us. Thank you,
Representative Hardy.
Chairman HARDY. Thank you, Mr. Hafen.
I'm now pleased to introduce our next witness, Robin
Simmers, the CEO of Pahranagat Valley Federal Credit Union,
which is headquartered in Alamo, Nevada.
Ms. Simmers is testifying on behalf of the Nevada Credit
Union League. I thank you for making the journey. We'll turn
the five minutes over to you now.
STATEMENT OF ROBIN E. SIMMERS, CEO PAHRANAGAT VALLEY FEDERAL
CREDIT UNION ON BEHALF OF NEVADA CREDIT UNION LEAGUE
Ms. SIMMERS. Thank you. I want to thank you, Chairman
Hardy, and the Committee for inviting me here to testify today.
As you stated, my name is Robin Simmers. I am the Chief
Executive Officer of Pahranagat Valley Credit Union, located in
Alamo, Nevada, roughly 100 miles northeast of Las Vegas.
I'm happy to be here today to share the story of the
Pahranagat Valley, a $20 million credit union, and credit
unions nationally. I'm also pleased to come before the
committee on behalf of the Nevada Credit Union League and the
Credit Union National Association who represents roughly 6,300
credit unions nationwide and 104 million credit union members.
Currently there are 18 Nevada-based and operated credit
unions. Credit unions are not-for-profit financial
organizations owned by our members who democratically elect our
voluntary board of directors.
We do not have stock. We are not publicly traded, and
return all of our profits to our members in various forms.
The credit union model of operation is different from other
financial services as our incentives are to serve the members
of our valleys or our districts. Whether serving in a small
community or a large metropolitan area, there is consistency in
the compliance burdens that credit unions are experiencing.
A little bit about Pahranagat Valley Credit Union.
Including myself, the credit union employs six full-time
employees, that we serve roughly around 2,000 members. Running
a small credit union, which is also a small business, presents
a variety of challenges. With the team of six, I'm not only the
CEO and manager, I am a teller, I'm the chief financial
officer, I'm the chief operating officer, I am the HR
department, I am the only business lender, I'm the only
mortgage lender in the credit union. I'm also the IT person and
a variety of other jobs.
Since 2011, unfortunately, Nevada Bank & Trust had issues.
They are no longer in our valley. We are the sole person that
our members can come to. We are the only financial institution,
100 miles from Vegas, almost 60 miles from Caliente, so we are
it.
Credit unions nationally are facing a crisis of creeping
complexities with respect to regulation burdens. Since the
beginning of the financial crisis in 2008, credit unions have
been subject to more than 202 regulatory changes, from nearly
two dozen federal agencies, totaling more than 6,000 pages in
the federal register.
Every time a rule is changed, the credit unions and their
members incur costs. This must take--they must take time to
understand the new regulations, we have to modify our systems,
we have to update our internal controls, train our staff,
produce the new materials and explain the products or
regulations to our members.
Even simple changes in regulation cost the credit union
thousands of dollars and many hours of time and resources that
could be appropriately spent on serving the needs of our
members.
If there's one take-away from the Committee members today
is that Washington primarily are regulators and to some extent
Congress has challenges understanding how the laws, rules, and
regulations apply to small credit unions. I don't believe they
get the gist of how it comes down at the very end, how things
are run.
As I stated earlier, I am only one employee wearing
multiple hats. Overall rules and regulations are written and
prescribed with the largest players in mind. Imagine the ease
of a trillion dollar bank to add a new compliance manager. At
my credit union, I am it. Because of our size and scope we do
not have the ability to simply add another person to our staff.
At my credit union I know my members intimately. We know
exactly who walks through our door. I know when they have
trouble making their mortgage payments or when they need the
flexibility in their car loan.
For a $20 million credit union to adapt to the one-size-
fits-all approach from Washington simply does not work. At a
small credit union because of that closeness with our members,
a major regulation designated for implementation at a large
financial institution simply does not make sense for us.
Some examples of these, but are not limited to, include the
complex factors with the Bank Secrecy Act, the limiting
transfers between accounts under Reg D, and the natures of the
fees associated that accompany courtesy pay and prescribed by
the Consumer Financial Protection Bureau.
If the Committee were to poll larger financial
institutions, their reasons for disagreeing with these
regulations would be very different from those of a smaller
institution. We basically see the whole ramifications of
everything because we're hands-on.
The only recourse we have in the environment is to advise
our regulators who recommend we comment on every proposed rule
and regulation. This is simply not feasible when you are
wearing everything. We don't have time to do that. We
understand the need of it, but the time to be able to do it is
not there.
I look forward to your questions and hope to provide
valuable insight about how we service our community by working
to follow the onslaught of new rules, existing regulations and
hope for relief in the form of legislation.
My written testimony prescribes a number of recommendations
on how to improve the credit union charter and address the
regulatory operating environment that impacts both the credit
unions and how we serve our members.
Thank you again for having me here today.
Chairman HARDY. Thank you, Ms. Simmers.
Our third witness here today is David Jennings, who serves
on the Board of the Southern Nevada Home Builders Association,
headquartered in Las Vegas, Nevada. He is testifying here today
on behalf of the Association and all their small home builders.
We look forward to your testimony.
STATEMENT OF DAVID JENNINGS, ON BEHALF OF SOUTHERN NEVADA HOME
BUILDERS ASSOCIATION
Mr. JENNINGS. Thank you, Chairman Hardy. I appreciate the
opportunity to testify today.
At the home builders, the Southern Nevada Home Builders
Association has over 1,000 active members, and that represents
more than 15,000 employees, just in the area of southern
Nevada.
I'm here to talk about a new enforcement policy that
affects what is at the core of the home building business, and
that's land. This new enforcement policy is still new, but its
impact is growing. There's still time to reverse course and
bring some common sense back to this process.
Just a little background. When Federal land is conveyed to
private owners, the BLM usually reserves to the United States
rights to certain minerals. Those mineral reservations run with
the land. Most land in Nevada is subject to some kind of
mineral reservation.
It is the recent regulation of those reserve mineral rights
that is a problem.
In response to an audit by the Inspector General of the
Department of the Interior, the local BLM field offices were
directed to more vigorously pursue mineral material trespass
claims. Those claims seek fines or fees for the unauthorized
use of mineral materials. There are now 84 pending trespass
claims in southern Nevada, which is a dramatic increase from
just a few years ago.
Under the regulation, owners of land subject to a Federal
mineral reservation are allowed to use ``a minimal amount of
mineral materials for their own personal use, but only within
the boundaries of their property. Anything beyond that is
considered unauthorized unless the landowner pays the BLM.''
That is from Title 43 of the Code of Federal Regulations.
The problem is what constitutes ``a minimal amount.'' What
does ``personal use'' really mean. The regulations are not
clear, and therefore the enforcement is not predictable.
Some examples of recent enforcement action include a
builder removes and relocates several thousand cubic yards of
common soil material at its own cost, simply to match the
elevation of surrounding developments. The BLM pursued a
trespass action against the builder, and the builder paid tens
of thousands of dollars to resolve the enforcement action.
Another builder purchased a large parcel from a BLM auction
some years ago. The land was later subdivided into more
manageable-sized parcels for residential development. The
builder moved common soil and sand and gravel from one parcel
to another, but within the original boundaries of the land.
The BLM issued a trespass notice to the builder. The
builder has spent already tens of thousands of dollars
defending the action and faces the possibility of hundreds of
thousands of dollars in fines and fees and the possible
interruption of his development.
It's difficult for home builders and developers to
comprehend that when they purchase land for development, they
may be at risk that either the BLM or some third party may have
rights to come onto the land to extract sand and gravel, or
even common soil.
It is similarly difficult to understand that they may be
subject to fines or fees for normal development activity. This
is especially troubling when the use of the land by the builder
is entirely consistent with the purpose for which the land was
originally sold.
For example, land sold under the Small Tract Act of 1938
was done so to provide land for residential, recreational, and
even business use. When builders are being fined for using this
land for residential use, it just doesn't seem right.
One problem is that the new enforcement policy is being
retroactively applied to parcels already purchased by home
builders and developers. The builder faces possible fines and
fees that were never considered when the initial investment in
the land was made. This also makes future investment in land
more costly and less predictable.
If you get the land right, everything else takes care of
itself. That's kind of a common term in home building. The new
enforcement policy with these uncertain standards makes it
increasingly difficult to get the land right. With uncertainty
comes risk. The greater the risk, the less likely investment in
land will be made.
This is a problem for both large and small builders, but it
is especially burdensome on small homebuilders. They must put
their eggs in far fewer baskets so there's more at stake with
each investment in land. When some of these eggs break, the
impact to the small builder is magnified.
So what can we do? First, develop more predictable and
defensible standards. There needs to be clear and more fair
distinctions between commercial and personal use. For instance,
personal use should include use of common soil material within
the boundaries of a development without fear of additional fees
or fines, at a minimum.
There should be public notice and an ample opportunity for
comment before interpretations are made and enforcement
standards are set to result in common sense rule-making.
The BLM should also follow the guidelines of the Regulatory
Flexibility Act, bring small business into the discussion, find
out how the regulations and their enforcement hamper small
business, then tailor the regulations so they are predictable
and not harmful, and promote a true public interest.
Now, I don't wish to cast stones at all. The people at the
local BLM office have been nothing but cooperative and
professional. They are being directed by management in
Washington to press this issue, even though the regulatory
standards are not clear and in many ways not fair. I welcome
any questions.
Chairman HARDY. Thank you, Mr. Jennings.
I'd like to now turn to my final witness, Mr. Mendis
Cooper, who serves as the general manager of Overton Power
District in Overton, Nevada.
He is testifying today on behalf of the Nevada Rural
Electric Association, and I'd like to thank you for being here
and I look forward to your testimony.
STATEMENT OF MENDIS COOPER, GENERAL MANAGER OVERTON POWER
DISTRICT NUMBER 5, ON BEHALF OF NEVADA RURAL ELECTRIC
ASSOCIATION
Mr. COOPER. Mr. Chairman, I appreciate the invitation to be
here to testify today. Thank you.
As you mentioned, my name is Mendis Cooper. I'm the general
manager of Overton Power District Number 5. Overton Power
District is a public power district that was created in 1935 to
deliver hydropower from Hoover Dam to the rural customers of
Clark County, Nevada.
Currently we serve over 2,000 square miles of Nevada land.
We have over 100 miles of transmission line, over 600 miles of
distribution lines, and over 15,000 metered customers in our
area.
We've seen a number of changes as we've gone through the
years, not only because of growth, but because of the
regulations that have been put in place.
I also represent today, as I discuss some of the issues
that concern us, the Nevada Rural Electric Association, of
which I am a board member. So I also represent Nevada Rural
Electric today.
Nevada Rural Electric is a group of nine rural cooperatives
and power districts located here in Nevada. We serve over
50,000 square miles of Nevada land, and we also serve over
60,000 customers in Nevada. We also serve small areas in
California, Idaho, Oregon, and Utah. And so the things that
happen to us affect a wide range of area and a great number of
people.
The electric cooperatives and public power districts were
created to serve areas that were not prime locations to be
served by large investor utilities. You find that the rural
utilities serve about, per mile line, about seven customers per
mile of line on average. Whereas an investor-run utility will
serve 35 customers per mile, on average.
So the costs that we have to put in place are spread
amongst fewer customers and so the impacts are greater because
of the things that happen.
We are governed, all of us, by boards that are elected, and
we are all nonprofit entities, and even though we are
nonprofit, a number of our entities pay property taxes and are
thus small businesses.
The Rural Electric Association was created in the 1930s,
and it was created to help entities like us provide power to
the businesses and the people who needed it. And the
interesting thing about the REA is that it gave us the
opportunity to form as individuals in our communities, to do
what was best for us, and then the government got out of the
way and let us do those things. And we have seen a change in
that over time and because of the regulations that have been
put in place.
For example, as I mentioned, we serve a wide area in
Nevada, and much of that land is BLM land, and we've seen some
significant changes as we try to obtain rights-of-way to serve
new businesses and new customers in our areas.
It used to be that to obtain a right-of-way it cost about
$500 per mile, and the average time was about 12 months.
Recently we've seen the cost increase to about $25,000 per
mile, and we see right-of-ways average about eight years. And
there have been some utilities in our state that have spent
over ten years trying to obtain a BLM right-of-way. The process
is way too cumbersome and the requirements, as was mentioned,
we have great staff, but the requirements are sometimes more
than they can handle.
The decisions that are made have great effect on not only
the right-of-ways that we try to obtain, but the existing
right-of-ways as we are sometimes prevented from using our
right-of-ways during different times of the year, and that
would be fine, if we could say when there were power outages
and when there are not power outages. But we need access all of
the time, and so access to those places is very important to
us.
We've also seen a great deal of government over-reach in
regard to the clean power plan. This has been proposed by the
Environmental Protection Agency and under their Rule 111(d).
They threatened to remove all fossil fuel generation. And under
this rule it will raise the cost of generation for our local
businesses and our local people.
Right now all of the rural utilities in Nevada have very
little generation. They rely on resources outside the state to
bring in power and electricity to their customers. And so this
rule will not only raise the cost of electricity, but it will
also encourage neighboring states to not let their resources be
shared with other states because they are going to be limited
in what they can do.
It also limits what we can do as Nevada entities as even
newer technology in regards to natural gas will be difficult to
permit under these new rules that are put in place.
There's a number of additional things that we have concern
of, but I would just like to mention that this over-reaching
government regulation has cost impacts on all of the Nevada
Rural Electric Associations. And the cost impacts are born
primarily by our customers and the small businesses, much like
these represented here today. And so when we see these costs
passed on to us, we see the effect locally because those are
our friends and neighbors.
Again, thank you for this opportunity. I look forward to
answering any questions.
Chairman HARDY. Thank you, Mr. Mendis, and thank you for
all your testimonies.
I'd like to begin with just one comment. You know, I left
D.C. last night. I got here in the late hours. But it has no
effect on the regulations that are still coming out of
Washington, D.C. When I left there was well over 67,000 pages
and that's been handed down since January of this year.
I have been here, I have been in office for less than 11
months and that's almost 600 pages a day. And I'm not sure how
many major rules that is going to come up with, but I would
just like to ask, start with the first question, and not all of
them have to do with any of your effect on your particular
business that you are in, but it has an effect on multiple
businesses.
Do you believe you're capable of being able to keep up with
that regulatory process, just keeping up to date on these
67,000 thousand pages, almost 600 pages a day, financially? I'd
like to hear a comment from each one of you. Yes? No.
Mr. COOPER. Mr. Chairman, some reliability regulations were
passed on to the power utilities several years ago and we had
to hire one person just to manage the reliability regulations
that came from the Federal Energy Regulatory Commission.
So yes, it does have an effect on us, and it is more than
we can handle. When we have to go out and hire people just to
satisfy the regulations, it raises the costs for everyone.
Chairman HARDY. Mr. Jennings.
Mr. JENNINGS. I certainly hope I don't have to, you know,
comply with 67,000 pages, but I'm from a little bit of a unique
perspective because I don't actually work for a small business,
I'm here on behalf of the Southern Nevada Home Builders
Association. But I work for a larger home builder and, you
know, when we kind of canvas the membership of the Southern
Nevada Home Builders Association, there were no small
businesses, no small home builders that knew enough about the
topic that I addressed today to even come today, feel
comfortable to testify. And I think that's indicative of what,
how difficult it is for a small business owner to handle.
This is a fairly simple issue. It has potentially far-
reaching effects. But the fact that they can't even keep up
with this, there's that no way they're going to be able to keep
up with 67,000 pages of additional regulations.
Chairman HARDY. Ms. Simmers.
Ms. SIMMERS. We're basically like the rest of them. It is
so hard to keep up with the regulations. We do what we can, and
we know what's important. But I don't think that the
regulators, they do these things for the good, but they don't
see the bottom line on how it affects the people that are
actually under them.
But there is so many that we're having to learn all the
time that it does make it hard to run your business.
Chairman HARDY. Thank you. Mr. Hafen.
Mr. HAFEN. Well, I would say no, that we can't keep up. And
the example of we will review a regulation as it comes down and
see the cost, what it does to us, evaluate the risk of taking
on the new regulation, or just saying you know what, we can get
by without this, it pertains to a particular service and we
stopped providing that service because of the additional
regulation that we just cannot comply with.
Chairman HARDY. Thank you. I think all of your testimony
today highlights the need for a different way to look at
analysis of how we do things in the rule-making process. This
one-size-fits-all ultimately ends up back costing the end
consumer because you have to pass it on, I believe. Maybe you
are a bit different than the businesses I have been around.
What are the suggestions you might have for Congress and
how we might deal with this better? Any ideas on that? Just a
quick suggestion of how Congress might handle the regulatory
process? I have my own opinion, but I am looking for yours.
Mr. HAFEN. If I may, Mr. Chairman, as I drove down this
morning in my three-hour drive, I had a thought about that, and
you know, I think it would be good to hear the voices, just
like you are hearing today, but I don't know if it would be
possible, but one idea that I did have is, having a small
business, I don't know, some form of a Committee that could be
a sounding board when some of these new regulations are
proposed, that before they even make it out, how are they going
to affect, other than those that sit in Washington and don't
have an idea where Caliente, Nevada is, and what the effect of
that regulation is going to take on it.
Chairman HARDY. Thank you. I'll just change that to
another. Is--let's start with the banking industry. We'll talk
about Caliente and Alamo, small rural communities and the
effect that Dodd-Frank is having, this one-size-fits-all.
Do you believe that it's necessary for rural communities to
have the same banking privileges that they do in the large
urban cities, the necessity? What does it do to those
committees? Ms. Simmers, let's start with you.
Ms. SIMMERS. Well, if you even look at us, I started in the
credit union at 2000, the year 2000. We were only $3.5 million.
We have grown to $20 million, and it's because of adding
services that our members need. But the regulatory does make it
hard to comply with everything, and to make sure that we stay
safe.
In our community, like we mentioned, we are the only
financial institution anymore because of Nevada Bank and Trust
having to close one of their doors.
So the regulatory does make a big impact on us and we know
everybody. We know what they need. We try to provide the
services that they need, but the regulations do make it hard to
keep track, keep doing things.
Chairman HARDY. Mr. Hafen, how many small businesses rely
on your bank to stay open, to function, as an ability to do
their work in your communities.
Mr. HAFEN. Well, I know off the top of my head I wouldn't
be able to guess, but I can look at Caliente, at almost every
small business in Caliente, Panaca, and Pioche come to our bank
because there's only one other option on that end of the
County, and that's the American First Credit Union.
But where that's the businesses comes to us, and so I can
say everything on the northern end of Lincoln County would come
to us, and then continues up the state, into Ely and Elko and
Mesquite as well.
Chairman HARDY. What effect does that have on employees
that work for those counties and can't cash their check in
their local community, that can't pay their home bill in their
local community, that can't do the grocery shopping without the
financial ability to have flexibility? Anybody dare touch on
that?
Mr. HAFEN. You know, one example, if I may, Mr. Chairman,
in Pioche there's been a bank in Pioche forever. Bank of
America had a small branch there and they closed their doors
after--well, the Washington Federal purchased Bank of America,
the branches in Nevada, and Washington Federal quickly closed
that branch.
So here you have the people in that community that has no--
they have no bank. And so they have to travel down to Caliente,
either to the credit union there, the American First Credit
Union, or to us. And we hear it every day, why can't you open a
branch here? Why can't you do this? Because they have to travel
down and the burden that is placed upon them is very difficult.
We hear it constantly.
Chairman HARDY. Any comments, Ms. Simmers?
Ms. SIMMERS. Along those lines, you have to remember, in
the small community, if we weren't there, there's a lot of
people that wouldn't survive.
You have senior citizens that are on a fixed income. They
cannot even afford to drive to wherever to get their money. So
if the financial institutions in these small towns do not
survive, you are going to have a lot of people that don't
survive.
We do a lot for our members that are low income, that are
elderly, and for the businesses that start up there, they need
to have the small financial institutions around for them to be
able to survive.
Chairman HARDY. Thank you. I'd like to change gears a
little bit.
Mr. Jennings, you speak about the mineral rights. Can you
give me any idea why the BLM would like to keep holding mineral
rights on housing, real estate, and for what purpose do they
want to hang on to that right.
Mr. JENNINGS. I don't want to speculate, but in the
published report it talks about revenue, talks about trying to
raise revenue for the Federal government. And I think they are
leaving money on the table by not pressing their, you know,
unfortunately, the mineral rights. And I, you know, it doesn't
seem--I can't think of a public interest that it serves beyond
that.
Chairman HARDY. You know, the mineral, I don't think many
people understand. But I want to be very clear and just tell me
a yes or no if I'm wrong on that.
But basically some sites may have collapsible soils that
have to be removed from the site. Some sites may have
expandable soils. Some sites might have millions of yards,
based on the size of the site that may even have millions of
yards that are basically unproductive and can't build on them
without removing the material.
Do you think that's fair that they want to charge you for
the process you are working to just remove or bring in, is that
a process and where does that cost get handed down to.
Mr. JENNINGS. You are exactly right. There are lots of
reasons why common soils or sand and gravel needs to be removed
from a site, particularly here in North Las Vegas where there's
lots of hydro-collapsible and expansive soils that they need to
be pulled off and taken somewhere and deposited somewhere and,
you know, to be--right now there's no accommodation for, that
I'm aware of, for the circumstances under which you are
exporting material from a site. It's just how many yards did
you take off, and here's what we are going to charge you. And
so I don't think it's fair because, you know, I think anyone,
when they buy a piece of land has an expectation that they can
sort of do with it what they bought it for.
When you have a home builder who buys land to build homes
on and you can't do that without paying extra money to the BLM,
it's kind of hard to swallow.
Chairman HARDY. While I've got you, would it still be
willing to say that basically after you sell that home site,
that that homeowner, if they decide to put a pool in their
backyard, they could be charged for the excavation of that
pool.
Mr. JENNINGS. That's actually one of the exceptions. So if
they do a small--if they do a pool, that's considered a minimal
use, under the statutes, actually it's one of the examples. So
a pool excavation would not be considered an unauthorized use
for a homeowner.
But almost everything beyond that can be considered an
unauthorized use and that, the cost of that ultimately get
passed on to the consumer and oftentimes that, the
unpredictability in the enforcement of the regulation, and the
extra costs involved, will discourage investment in the land.
Because if you don't know what you are going to be charged for
it, then a lot of times you are going to have to pass, and
according to a home builders' research, every $1,000 in
increase, in price increase for a home kind of prices out 1,800
people from the market. So it makes it difficult.
Chairman HARDY. Would it be fair to say that because the
BLM holds well over 80 percent of this state's lands, that our
real estate values are well above anyplace else in the country
because we have to wait for the Federal government to decide
whether they would like to dispose of certain lands, and when
those go to auction they are some of the highest prices? And
would it be fair to say that if you have unusable soils, should
that not be charged maybe back to the BLM, if they are going to
play this game? They are selling you invaluable----
Mr. JENNINGS. I would hope so, but that's not how it works
now.
Chairman HARDY. I understand that. I just wanted to make
the comment for you.
Mr. JENNINGS. And then one other thing on that, it's not
just the land owned the BLM, it's land that was previously
owned by the BLM that is still subject to these mineral
reservations. So it's nearly all the land in Nevada that's
subject to this in one way or another.
Chairman HARDY. And aren't most of those lands, as they're
purchased and as they're improved, aren't they governed by the
county, the city, or the states that they are in, for the
zoning rules, and they can't be changed for mining purposes.
Mr. JENNINGS. That's correct. That's correct.
Chairman HARDY. So would you say that we need to look at
maybe changing this to where these mineral rights are disposed
of when it comes to residential and commercial type of
developments.
Mr. JENNINGS. Yes.
Chairman HARDY. Thank you.
Mr. Cooper, some of the issues that I think you are talking
about with these right-of-ways, having to deal with the waters
of the U.S., any challenges with that rule that was recently
handed down by the BLM.
Mr. COOPER. You bet. I would like to give you just a couple
of examples. There was an area just north of Mesquite where
there was a wash, probably at least two miles away from the
Virgin River, that was designated as waters of the United
States. And although we personally did not have to mitigate the
problems associated with that, the home developer had to meet
with BLM and resolve those issues.
Just recently we've had a similar situation. We're working
on a right-of-way to build a transmission line to Mesquite, and
about two miles north of Logandale, and we're talking probably
at least ten miles away from Lake Mead, we cross a wash. The
wash is about 12 inches deep and about three feet wide. And as
part of our right-of-way process, the BLM flagged that because
it was part of the waters of the United States, and we had to
bring in some specialist from the Army Corps of Engineers, and
some BLM people, and we had to bring in our own specialist to
help mitigate the problem. And the solution that they came up
with and, you know, we were a little worried. We didn't know if
we were going to have to build a suspension bridge, or what we
were going to have to do there, but the remedy was it's okay to
put a culvert in the wash.
Now I think that there was a much simpler way to figure
that out. That's probably what we would have done to begin
with. And so these waters of the United States issues, even
though we live in the desert, they have a great effect on us
because there are a number of washes that are dry 99 percent of
the time that are considered waters of the United States.
Chairman HARDY. The OPD Number 5 has some of the cheapest
power rates, I think probably in the state, due to the compact
with the Hoover Dam. They are not fluctuating a lot, I don't
believe, over the years. But how much have your rates changed,
due to having to live up to some of the regulations and the
costs handed down to the end user, the energy user? Has that
increased over the past 10 to 20 years.
Mr. COOPER. Well, it's interesting. I saw--and you're
right, the hydropower is a very cheap resource and we
appreciate that.
But I would also make mention that the power customers, not
just Overton Power, but NV Energy and all of the other
utilities that get power from there have paid the costs of the
dam and the visitors center and all the other improvements that
have been done there. Those have been paid for on the backs of
the power customers.
Now it's interesting. I saw a number, and I tried to look
this up before I came today, just in case you asked me this,
but part of the price that we pay for our federal hydropower
includes multi-species conservation, and I believe the number
was over $400 billion had been paid by the power customers
since Hoover Dam was created to mitigate endangered species
problems. And those are all dollars that are paid for by
businesses and the customers that we have.
Chairman HARDY. Another fact I'd like y'all to know that as
we left this week these costs of the recent regulations that
have been handed down is already up around $88.9 billion, and
with the Dodd-Frank rule, what are we, one-third of the way
there? Two-thirds of the way there.
So $88.9 billion. So before the end of the year we're
looking at probably close to $89-plus billion.
Another question I would ask Mr. Jennings. Is--BLM issues,
we'll take the Clark County area alone, the fastest growing
place in its heyday there ten years ago, in the nation.
The real estate prices soared. Would you say that's due to
the fact that we have not only regulations, but we're
encumbered by the lack of land, and where are we today, based
on build-out for this community, with actual private lands that
have been put into place, and we continue now to even encumber
that more with these type of regulations.
Mr. JENNINGS. Well, there is--most of the developable land
in Clark County and southern Nevada is owned by the BLM. And as
we expand, it becomes even more so because there's only so many
in-filled pieces that you can buy from private parties. So
you're really relying on the BLM. And the BLM, you know, they
can charge whatever they want.
They go through an appraisal procedure that they need to
follow, but it certainly does put a, I believe, raise values in
land and makes it very difficult to continue a home building
business because real estate values aren't keeping pace.
So once land becomes too expensive, none of the deals
pencil. They just can't be made to work.
Chairman HARDY. Ms. Simmers, as the only institution in
Alamo, what do you see the future, if you could just kind of
give me a guess, if you had to close your doors as a financial
institution in Caliente, Mr. Hafen, you can give me the same
answer in your area.
Ms. SIMMERS. It would be bleak in our communities. Because
as I said, you have a lot of people that are medium in their
income and they can't afford maybe to go somewhere else.
But you do have a lot of people that are either low income
or elderly. They cannot go anywhere else. So in shutting our
doors, you are hurting those people. Because, say, Nevada Bank
& Trust was still open and we weren't, they are the closest
thing.
So how are these elderly, or these low income, going to
travel 60 miles to get their banking done? You know, it's the
same thing with them, they've got added costs on their banks to
come down to service even the ATMs in our area, or the local
businesses in our area.
So it's kind of a give-and-take between both of us. If
something happened to either one of us, it does put a major
strain on the people that live there.
Chairman HARDY. I'd like to ask in a different direction.
Anything that major happens out in the rural communities,
basically the 93 improvements, or any major road projects, they
are usually not able to be completed by a local contractor, in
most cases.
When people come into town and they are there for weeks,
maybe months on end, do you see any impact to those folks also
when they go out and they do these construction jobs and all
this other rural electric power jobs to build expansion, do you
see a challenge there at all?
Ms. SIMMERS. We see it. I mean they come into our local RV
parks. That's where they are staying while they are doing these
jobs, and if we weren't there for them, a lot of them, I mean
to get their get cash for them, sometimes the ATMs don't work
for their card, or something, it puts a strain on the workers
that are coming in if our financial institution was not there.
Chairman HARDY. Mr. Hafen.
Mr. HAFEN. I agree. One thing I have noticed, we have a few
customers that own small motels in Caliente and they depend on
the railroad, for example, coming in and doing service jobs up
and down that railroad that runs through there. They depend on
the BLM to come in and fight fires in the summer. They depend
on road projects for people to stay in their motels.
If they don't have it, they dry up and blow away. And that
impacts them, it impacts us because they are customers.
Now if we were to disappear, I couldn't even imagine the
devastation. You would see these small rural communities become
ghost towns like many other towns in this state that are just,
they dry up.
Chairman HARDY. Last question to both of you, I guess, do
you believe that volume dictates the cost of fees and others,
or is it just a one-size-fits-all again? Should things be
looked at differently in these regulations, and do you believe
there's other ways we can look at this differently for rural
America versus urban America? And do you think it's fair that
you guys get a different consideration than urban America.
Mr. HAFEN. I believe yes, we have to be looked at
differently. An example of that is a uniform overdraft program
that the CFPB is working on right now.
The one program that if pushed out to everybody, we know
our customers, as Ms. Simmers said. She knows everybody that
comes into their branch, her branch. We do the same thing. We
know our people. And if the regulation is the same for us as it
is for the large institutions that are too big to fail, then we
can't keep up. We would have to close doors. We would have to
lay people off and I mean it's a triple effect, all the way
down.
Chairman HARDY. Thank you. Ms. Jennings or Ms. Simmers.
Ms. SIMMERS. I agree. I mean the big regulations that they
see, a lot of, if you think about it, the big financial
institutions, they take on these and they don't see the
trickle-down effect.
Since we do, you know, we basically post all of the stuff
ourselves, we see how these little, how the rules affect the
end consumer, which I don't think is taken into effect.
So yeah, any big regulation that comes down, I think they
should have a different thing for the smaller ones versus the
bigger ones.
We don't deal with all the stuff that they do. We deal with
a lot, but we know our members, as we've said. We know who
comes in.
Chairman HARDY. One last question for you folks, where do
folks go now for a home loan in your area, if they can't get
that with you folks.
Ms. SIMMERS. We still do some. We're open-ended loans on
our home loans, so we're able to. But on the negative side of
that, because we're so small, we do have to do a variable rate
interest. That hurts the people at the end, but they get their
mortgages.
We don't do a whole lot because we can't have over 50
percent of our loans in that, because we want to protect the
credit union. So it is a give and take, where you help, but yet
you can't help everybody.
Mr. HAFEN. We simply have to refer them to someone down the
street. In Caliente, it's American First Credit Union, and so
we have to refer them down there, or refer them to a non-
depository institution, such as, you know, your on-line brokers
and things of that nature that offer mortgages, and that's the
only avenue, if somebody comes in the door and wants a
mortgage.
Chairman HARDY. I'd like to just kind of go across the
panel. Mr. Cooper, being as how you got to be last on the first
go-around, we'll have you go first.
Could you wrap up with any comments that I haven't asked or
any things that you think that we need to be dealing with or
looking at that I haven't asked the right questions.
Mr. COOPER. Well, I appreciate the opportunity. I would
like to say that yeah, things are difficult. But there are
instances where we've learned to work together with government
agencies and when common sense prevails and they are allowed to
get beyond some of these regulations, that there are success
stories out there.
I'll give you an example of the rangeland fires that affect
the utilities in northern Nevada. When a rangeland fire
occurred, the companies would pull up to the fire area and try
to prevent the fire from burning down their power poles and
destroying more land and property.
The utilities were barred from going into those areas when
fires occurred. So basically they had to pull up and watch
their poles burn down, and then go in and replace the poles
after the fire went by.
They were able to work with the BLM fire department and
they came to an arrangement where now they share resources,
they use the utilities as a resource when a fire comes through.
They, the utilities, make their equipment, their water trucks,
their people available to prevent the fires, prevent poles from
being destroyed, to prevent habitat for the greater sage grouse
from being destroyed, and it prevents farm from being
destroyed.
When a little bit of common sense is injected and everybody
is able to work together, rather than work within these rules
that are made for everybody, we find that there can be some
success stories in there, and we just would encourage more of
those opportunities to work together with these agencies to
find things that fit and that work for everybody.
Chairman HARDY. Thank you, sir. Mr. Jennings?
Mr. JENNINGS. Yes. You know, I was in the home building
industry beginning at the high times and then all the way
through the recession, all the way to the deepest part of the
recession, and then now as we've sort of come out of it, and
there were a lot of builders back in 2005 and 2006 and after
the recession it wiped out pretty much all of the little guys,
all the small business, all the small home builders. The larger
ones just sort of managed to get by.
But as we've seen kind of the wobbly recovery, the
additional regulations, the additional kind of choking on the
industry has made it very difficult, more difficult for small
home builders to come back in, to reform and to start up
operations again, because it's just too expensive, too
burdensome, and too difficult, too risky. And so if they, if
you can do anything to lighten the load and bring some common
sense back to some of these regulations and the enforcement of
those regulations, I think you'll see more of the small type of
home builder re-enter the market and I think that ends up
benefiting everyone.
Chairman HARDY. Thank you. Ms. Simmers?
Ms. SIMMERS. I think, you know, if we had a little bit
longer maybe for the small ones to comment on some of the
regulations. I mean a lot of the regulations are, start out to
be needed, but it's the little trickle-down that they don't get
some, how things are done.
To even have, you know, a committee that goes through and
no matter what kind of business it is, see how this actually,
what the regulation, how it affects.
One that I always have a pet peeve on is the Bank Secrecy
Act. To me it's kind of stupid if we have to do a fact check on
a bank that's in the United States, when they are covered under
the government.
It is the little things that happen in these regulations
that they don't realize unless you really saw it to the end.
You know, we would like to be able to see somebody check up on
things and see actually how the regulation is working. Is it
doing what it was meant to be.
I'm not as eloquent as a lot of these in talking, you know,
I'm from a small community. But we see a lot of things, because
we're hands-on, that I don't think the regulators really meant
for the regulation to happen. But it just happened to be a
trickle-down effect of it. And so it would be interesting to
see if, even with, you know, the construction and everything
else, if they took the time or had the resources to be able to,
once a regulation is passed, to see actually is it doing what
it was meant to do for the mass of the population.
Chairman HARDY. Thank you. Mr. Hafen?
Mr. HAFEN. Well, thank you once again for allowing us to
come and to share a few of our thoughts and some of the things
that trouble us.
But to echo much of what has been said, we--I think if we
just don't forget the little guy, because this country is built
on little guys, and everybody started as a little company. And
to forget us, we will just cease to exist. And so as Robin
mentions, Ms. Simmers, that in a sense, test the regulation
before it hits us. Because those unintended consequences are
the ones that get us, the small institutions. So thank you very
much.
Chairman HARDY. I'd like to thank you all for being here.
This is a final comment, you know, from my standpoint, you
know, I went to Congress and in some cases I have to look at it
as self-serving. I have children and grandchildren and I care
about the direction and the opportunities my children and
grandchildren have for the future. And I think that in Congress
where somewhere along the line we forget that we're here to
help people. We're here to serve people.
We are here to help, but we are never supposed to forget
when we help one, we are not supposed to hinder another. That
is our obligation, and I thank you for being here today.
I really appreciate you taking the time out of your day to
come and talk and we look forward to trying to have some more
of these. And if there's anybody here in the audience that has
ideas for the future that you think we're not getting your
questions answered, I have a staff here. I want to make sure
that they get an opportunity to hear those questions because we
are working on them and the Small Business Committee is about
protecting small businesses, which is the lifeblood of this
nation.
64 percent of people employed in this country were employed
by small businesses. We're losing small businesses at a rapider
rate than we've ever lost them before, and I believe it's
because of the continuing over-reach of regulations.
We do need regulations, but we cannot hurt people. We are
here to help people.
With that being said, if there's no further questions, I
want to thank the City of North Las Vegas, the Hall for hosting
us, and I thank you all for participating here today.
I appreciate your insight into the regulatory challenges
facing small businesses today. The hearing will only reaffirm
my belief that one-size-fits-all regulation does not work.
Differences of geographic areas and business size must be more
carefully reviewed.
I will take this message back to my colleagues in
Washington and continue to fight for common sense reforms and
reduce the regulatory burdens on small firms. I ask unanimous
consent that members have five legislative days to submit their
statements and supporting materials for the record. Without
objection, so ordered.
This hearing is now adjourned. Thank you for being here.
[Whereupon, at 3:03 p.m., the subcommittee was adjourned.]
A P P E N D I X
Testimony of
Spencer Hafen
President & CEO
Nevada Bank & Trust Co.
Caliente, Nevada
before the
U.S. House of Representatives
Committee on Small Business Subcommittee on
Investigations, Oversight, and Regulations
Hearing on
Regulatory Overload:
The Effects of Federal Regulations on Small Firms
November 6, 2015
2:00 P.M.
North Las Vegas, NV
Testimony of Spencer Hafen
before the
U.S. House of Representatives Committee on Small Business
Subcommittee on Investigations, Oversight, and Regulations
November 6, 2015
Chairman Steve Chabot, Ranking Member Nydia Velazquez, and
members of the committee, my name is Spencer Hafen. I am the
President and Chief Executive Officer of Nevada Bank & Trust
Co., located in the rural Nevada City of Caliente. I would to
thank you for affording me the opportunity to appear before you
to share some information about the effects of federal
regulations on small businesses, particular the regulatory
effect on small community banks. I may be the voice of one
small community bank, but my words can be echoed by hundreds of
small institutions across this great country. My hope is to
aide in finding regulatory relief that will help all small
banks and businesses, regardless of geographic location.
I would like to take a moment and tell you a little about
my bank. Nevada Bank and Trust Co. was formed in 1978 by a
group of small business owners in Caliente, Nevada. Caliente is
located about 150 north and east of Las Vegas along U.S.
Highway No. 93. The closest financial institution at that time
was located in Pioche, Nevada, about 30 miles north. In order
to help solve their own banking problems and to provide
financial services in Caliente, this group of individuals
formed Nevada Bank and Trust Co. The vision of this group of
business owners was not limited to providing banking services
locally, but to expand and provide banking services to each
small community on U.S. Highway No. 93 throughout Nevada. As
the Bank began to grow, it soon expanded to have branches in
Alamo, Caliente, Carlin, Ely, Elko, Mesquite, Pioche, Spring
Creek, and Wendover. The vision or dream of the founding
business men had come to fruition. However, as time went by,
the Bank began to feel the effects of regulatory burden and
began closing branches that were not profitable. Today Nevada
Bank & Trust Co. has four (4) branches located in Caliente,
Ely, Elko and Mesquite. We also have a Loan Center located in
Elko. As of October 31, the Bank's assets are $112 million, we
employ 37 employees, 26 full time and 10 part-time. Nevada Bank
& Trust Co. is a privately owned institution, and we have
successfully served the needs of our citizens for almost 40
years. Our focus is on our customers living in the rural
communities of the State of Nevada. We strive to provide the
best financial services available to the rural areas in which
we live. I have come to see that the services we provide are
often hindered by the excessive regulations placed on small
financial institutions. I do realize that many of the
regulations placed on the financial industry as a whole are
targeted for larger institutions, and may even come with a
caveat that small banks are exempt for such regulations.
However, I have also come to the realization that there are
many unintended consequences to many of the regulations that
have restricted our ability to provide certain financial
services.
The financial strength of individuals, communities, states,
and this nation are only as strong as the financial
institutions. Each has a direct impact on job creation,
economic growth and prosperity. The credit cycle that financial
institutions facilitate is simply put: customer's deposits
provide funding to make loans. The loans allow customers of all
kinds, consumers and commercial, to invest in their communities
and beyond. The profits generated by these investments flow
back into banks as deposits, and the cycle repeats. As this
cycle continues the consumer and commercial customers grow,
they expand their purchasing power, they hire additional
employees, and they improve their quality of life.
I understand that a credit cycle cannot exist in a vacuum.
Regulation shapes the way financial institutions do business.
Regulation is needed to some degree; however, the changes in
regulation by the passing of laws, court cases and legal
settlements, directly affect the cost of providing banking
products and services to our customers. The ability to provide
certain services has not been easy with the increase in
regulatory burden. I have had to stop providing services
because of the overreaching hand of regulation and policy. I
feel it is in the best interest of citizens and business' for
Congress to take necessary steps to provide some form of
regulatory relief on small banks and small business'. When I
stop providing services because of the burdens of regulation,
my bank is not the only entity impacted, the customer,
consumers and business owners are impacted.
I continue to urge the Committee and Congress to work
together to pass legislation to provide regulatory relief to
small business', including small financial institutions.
I would now like to address specific items we are dealing
with as a small bank, namely:
Unnecessary Regulatory Burdens
Mortgage Regulation
Uniform Overdraft Requirements
Non-Depository Money Service Industry
The Cost of Compliance
Recommendations
Unnecessary Regulatory Burdens
Regulation when done correctly ensures the safety and
soundness of the overall banking system. When not done
incorrectly, it may constrict a financial institution's ability
to provide credit, and facilitate in job growth and economic
expansion. The argument may be made that many of the
regulations currently being imposed on the financial industry
do not apply to smaller institutions. However, the constant
looming threat of law suits and civil money penalties keep many
at bay, translating into services be dropped to avoid any type
of scrutiny from regulators. The role of community banks
serving the communities in which they do business is
diminishing with the addition of new regulations. The Dodd-
Frank Act alone has changed federal financial regulators with
writing and enforcing 398 new rules, resulting in at least 22,
534 pages of proposed and final regulations, please keep in
mind the act is only two-thirds implemented. Larger
institutions have the financial means to spread the expense for
regulation implementation across diverse channels. Small
institutions do not have that luxury. We are doing all we can
to keep the doors open and provide a service to the community.
As mentioned previously, I am not alone; every small financial
institution feels the same pain.
Mortgage Regulation
Nevada Bank & Trust Co. in the past has had a home mortgage
loan service. With the recent release of additional
regulations, particularly the TILA-RESPA Integrated Disclosure
(TRID) Rule, we have made the decision to stop providing this
service. This decision did not come easy; my Board of Directors
are concerned with the impact on the community and our
customers. The new rule is intended to make the disclosure
process easier, which it may, combining multiple disclosures
into one, the burden comes with compliance. In order to comply
with this new regulation I would have to hire additional staff
to monitor the rule. In our small bank, we never made enough
money off of what little fees we could charge, to justify the
program we had. Simply put, it never paid for itself. Now, with
the additional rule, and the need to hire additional staff, we
simply chose to stop offering home mortgage loans.
An interesting point I would like to make pertains to what
I will refer to as an ``out of the box mortgage''. In rural
Nevada as a bank we would make mortgage loans to customers that
had been rejected by other institutions because their loan just
didn't fit into ``the box''. If a customer's credit score just
wasn't perfect, or the appraisal had comparisons that were too
far away are a couple of examples. A large institution would
not understand the local, rural, situation, and reject the loan
application. We understand our customers; we have dealings with
them beyond the brick and mortar of the bank, and could work
with them in getting a mortgage. Now these customers will have
to turn to unregulated sources to obtain a mortgage. And as I
have mentioned previously, regulation is needed, just not to
the point it becomes a burden. At the end of the day the people
that the rule was created to protect are potentially being
damaged because banks just like us can no longer offer home
mortgage loans.
Uniform Overdraft Requirements
The Consumer Financial Protection Bureau (``CFPB'') is
actively inquiring into overdraft procedures to determine how
those practices are impacting consumers. Nevada Bank & Trust
Co. does not have an Automated Overdraft Payment Program. We
have an ``Ad Hoc'' overdraft program, which is defined as a
program where return items are paid on a case-by-case basis. We
have taken a proactive stance and have chosen to apply the
February 2012 guidance where feasible. If a customer overdraws
his/her account on six (6) or more occasions where a fee is
charged in a rolling twelve month period, we will undertake
meaningful and effective follow-up action using the ``enhanced
periodic statement approach''. We have also chosen to have a
$100.00 maximum daily overdraft charge in place and will not
charge an overdraft fee for transactions that overdraw an
account by $10.00 or less. We feel this is an adequate program,
one that helps our customers if and when they have an overdraft
occur.
Recently while meeting with the CFPB in Washington the
discussion turned to the overdraft program. The conversation
was somewhat disturbing on multiple levels, but one concern I
have, is the idea that banks are responsible for any and all
mistakes made by a consumer. I have no problem with our
overdraft program, it works. Consumers are treated fairly and
with equality. If a Uniform Overdraft Program were required, we
would have no chose but to close customer's accounts after the
proper procedures have been followed to assist the consumer in
maintaining his/her accounts. Should this occur, once again the
harm would only come to the consumer. If a consumer cannot bank
with a financial institution because of poor performance in
maintaining his/her account they are forced into the
nonregulated cash service industry. This is a perfect example
of the unintended consequences of a uniform overdraft law.
Non-Depository Money Services Industry
In the State of Nevada the number of financial institutions
has decreased from 28 banks in 2004 to 13 in 2015. These are
state chartered institutions. In the same time period, non-
depository establishments have increased from 582 to 1037.
These non-depositories, money service companies offer products
such as ``payday loans'' and ``title loans'' without the burden
of regulation. The ads can be seen where I can ``get money in
minutes''. As a small banker in Nevada I have to deal with the
impact of these types of companies on both the federal and
state level. The CFPB is currently reviewing the practices of
non-depository money service companies, which may provide a
solution to the problem these companies create. Currently they
can take advantage of the underbanked, leaving many in a
desolate situation. On a state level, financial institutions
are regulated and are required to pay an annual assessment,
non-depository money service companies are not. In this case
fair and equitable regulation must be enforced. Our goal of
financial institutions is to provide sound and equitable
financial services to our customers, and as a small financial
institution we do all we can with the regulatory burden placed
upon us.
The Cost of Compliance
In the wake of increased regulation comes an increase in
compliance cost. Currently Nevada Bank & Trust Co. spends over
$150,000 annually on compliance related expenses, which does
not include salary expenses for personnel. This expense is for
compliance education, audits, and assessments. We have two (2)
full time employees where 75 percent of their time is spent on
compliance related matters.
Ultimately our customers are the ones who feel the true
cost of this burden. They feel it in more expensive financial
services and fewer options. For example, 58 percent of banks
have held off or canceled the launch of new products--designed
to meet consumer demand--due to expected increases in
regulatory costs or risks. Additionally, 44 percent of banks
have been forced to reduce existing consumer products or
services due to compliance or regulatory burden. At the end of
the day, this translates into fewer services for the consumer.
Recommendations
A number of bills have been introduced in the House and
Senate that would provide significant relief from many of the
concerns noted above. I would strongly recommend considering
those bills that have regulatory relief to the small business
and particularly the small community bank.
Conclusion
As a small community banker, I understand the need for
regulation. There is a place for it to maintain a safe and
sound financial industry. However, the overburden of regulation
only hinders the progress of small banks and small business.
The effects are felt by the consumer when financial
institutions have to cut back on the services offered. At the
end of the day the unintended consequences place a burden on
the very people the regulation is intended to protect.
Thank you for your time, I look forward to your questions.
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Thank you for the opportunity to testify at today's
hearing. The Committee's continued focus on the effects of
Federal regulations on small businesses is critical. Thank you
Chairman Hardy, and to the committee for inviting me to testify
today.
My name is Robin Simmers and I am the Chief Executive
Officer of Pahranagat Valley Federal Credit Union located in
Alamo, Nevada roughly 100 miles northeast of Las Vegas. I am
happy to be here today to share the story of Pahranagat Valley
a $20 million credit union, and credit unions nationally.
Originally chartered in 1958, Pahranagat Valley FCU services
the community in Pahranagat Valley including the towns of
Alamo, Hiko, and Ash Springs. We are the communities only full
service financial institution for a population of roughly
3,000.
I am also pleased to come before the committee on behalf of
the Nevada Credit Union League, and the Credit Union National
Association which represents roughly 6,300 credit unions
nationwide and 104 million credit union members. Currently,
there are 18 Nevada based and operated credit unions. Credit
unions are not-for-profit financial cooperatives, owned by our
members who democratically elect our volunteer board of
directors. We do not have stock, are not publically traded, and
return all profits to our members in various forms. The credit
union model of operation is different from others in financial
services as our incentives are to serve the needs of our
members. Whether serving a small community or a large
metropolitan area, there is consistency in the compliance
burdens that credit unions are experiencing.
A little bit about Pahranagat Valley Federal Credit Union:
Including myself, the credit union employees 6 full employees
serving the financial needs of roughly 2,000 members. Running a
small credit union, which is also a small business, presents a
variety challenges. With a team of 6, I am not only the CEO and
Manager, but I serve as the teller, CFO, COO, HR department,
Business Lending Officer, Mortgage Loan Officer and everything
in between. Since 2011, our credit union is the only financial
services providers for our small town.
Credit unions face a crisis of creeping complexity with
respect to regulatory burden and American consumers need
Congress to address this crisis. Since the beginning of the
financial crisis, credit unions have been subject to more than
202 regulatory changes from nearly two dozen Federal agencies
totaling more than 6,000 Federal Register pages. Every time a
rule is changed credit unions and their members incur costs.
They must take time to understand the new requirement, modify
their computer systems, update their internal processes and
controls, train their staff, design and print new forms and
produce material to help their members understand each new
requirement. Even simple changes in regulation cost credit
unions thousands of dollars and many hours: time and resources
that could be more appropriately spent on serving the needs of
credit union members.
Regulatory burden is one of the primary reasons that Main
Street financial institutions are disappearing at an alarming
rate. The number of credit unions has been halved in the last
20 years--from more than 12,500 in 1995 to a little less than
6,300 today.
The good news is that Congress can help relieve the
regulatory burdens on credit unions so they can better serve
their members. Changes to the Federal Credit Union Act, the
Dodd-Frank Act, and other burdensome laws and regulations will
ensure that America's 100 million plus credit union members
will continue to benefit from credit union services.
With respect to the Federal Credit Union Act, we believe
that changes should be made to allow credit unions to fully
serve their small business owning members. In addition to
credit union member business lending, we suggest other changes
to make sure that credit unions are able to focus on their
members.
Restore Credit Unions' Business Lending Authority
Congress should restore credit unions' authority to lend to
their small business members. No economic or safety and
soundness rationale has ever been established for why credit
unions should be subjected to a cap on small business lending,
and we believe Congress should fully restore credit unions'
ability to lend to their small business members, as they did
without statutory restriction until 1998.
As we have testified many times before, while the small
banks were asking for taxpayer money to lend to small
businesses, credit unions were pleading with Congress to permit
well-capitalized credit unions with a strong history of
business lending to lend beyond the arbitrary cap on business
lending that is in statute.
NCUA has testified in support of expanding the business
lending cap several times, most recently in February 2015.\1\
The administration has supported expanding the business lending
cap.\2\ There are more than 500 credit unions for which the cap
is a significant operational restriction. These credit unions
deserve the opportunity to continue to serve their business
members and their communities, and Congress should address this
issue.
---------------------------------------------------------------------------
\1\ Testimony of Larry Fazio, Director, Office of Examination and
Insurance, National Credit Union Administration, before the Senate
Banking Committee Hearing on ``Regulatory Relief for Community Banks
and Credit Unions.'' February 10, 2015.
\2\ Letter from U.S. Secretary of Treasury Timothy Geithner to
House Financial Services Committee Chairman Barney Frank. May 25, 2010.
---------------------------------------------------------------------------
Increase the Member Business Lending Cap
If Congress is unable to eliminate the cap entirely, we
strongly urge enactment of legislation that has been introduced
in the last several Congresses to permit Federally insured
credit unions to make member business loans (MBLs) in an
aggregate of 27.5% of its total assets as long as the credit
union: (a) is well-capitalized; (b) can demonstrate at least 5
years' experience managing a sound MBL program; (c) has had
MBLs outstanding equal to at least 80% of 12.25% of its assets;
and (d) complies with applicable regulations. We believe this
is a reasonable approach that ensures that business lending in
excess of the current statutory cap is conducted by healthy
credit unions with a demonstrated history of sound business
lending practices. While it does not get credit unions back to
the place they were prior to 1998 when they were not subject to
a statutory cap on business lending, it will provide several
hundred credit unions with relief to continue to serve their
small business members and their communities.
Importantly, raising the cap in the manner outlined above
would increase small business lending by as much as $4.3
billion, helping to create nearly 50,000 new jobs, in the first
year after enactment. This level of growth would have been very
helpful in the throes of the financial crisis, but even in the
recovering economy, this type of growth is important. And,
contrary to the banker argument, this lending would not produce
a dollar for dollar reduction in bank lending. In fact, the
Small Business Administration (SBA) commissioned a study that
suggested 80% of additional credit union lending would be new
small business lending.\3\ This would be a benefit for small
business owners and it would not jeopardize the banking
industry's share of the small business lending market, which
for the last two decades has been approximately 93% of the
market.
---------------------------------------------------------------------------
\3\ Wilcox, James A. ``The increasing Importance of Credit Unions
in Small Business Lending.'' Small Business Administration Office of
Advocacy. September 2011. 20.
Treat 1-4 Family Non-Owner Occupied Residential Loans as
---------------------------------------------------------------------------
Residential Loans, Not Credit Union Business Loans
In addition to legislation to modernize credit union
business lending, we encourage Congress to address a disparity
in the treatment of certain residential loans made by banks and
credit unions. When a bank makes a loan for the purchase of a
1-4 unit non-owner occupied residential dwelling, the loan is
classified as a residential real estate loan; however, if a
credit union were to make the same loan, it would be classified
as a business loan and therefore subject to the cap on member
business lending under the Federal Credit Union Act.
We support legislation to amend the Federal Credit Union
Act to provide an exclusion from the cap for these loans. Doing
so would not only correct this disparity, but it would enable
credit unions to provide additional credit to borrowers seeking
to purchase residential units, including low-income rental
units. Credit unions would be better able to meet the needs of
their members if this bill was enacted, and it would contribute
to the availability of affordable rental housing.
NCUA's Proposed Member Business Lending Rule
On June 18, 2015, the NCUA Board issued a proposed member
business lending rule designed to give credit unions greater
flexibility and autonomy in offering commercial loans. The rule
changes the current prescriptive approach to a more principle-
based methodology. While the rule provides more flexibility and
autonomy to credit unions. the rule emphasizes sound risk
management for commercial lending. The rule does not allow
credit unions to evade the member business lending cap nor lend
to non-members. We support the overall of NCUA's current MBL
regulation.
Improve Credit Unions' Ability to Engage in Small Business
Administration and Other Guaranteed Lending Programs
We encourage Congress to improve credit unions' ability to
offer SBA and other government guaranteed loans. Specifically,
Congress should exempt government guaranteed loans in their
entirety from the member business lending cap: currently, only
the guaranteed portion of the loan is exempt. Further, Congress
should clarify that credit unions participating in Federal and
state loan guarantee programs may include terms for such loans
as permitted by the loan guarantee programs in both statute and
regulations; this would allow credit unions to more fully
participate in the SBA's 504 Loan Program.
Other Potential Changes to the Federal Credit Union Act
Improve Credit Union Capital Requirements
One lesson of the financial crisis is ``capital is king''
and the measures used to assess the capital condition of
financial institutions were imperfect, to put it mildly.
Financial regulators, including NCUA, have worked in recent
years to impose ``better'' schemes to assess the health of
financial institutions; NCUA's new risk based capital rule is
its latest attempt in this area. While we appreciate some of
the changes that were made to the rule, questions persist with
respect to whether all aspects of the proposal are consistent
with the agency's legal authority, and whether the costs of
implementing the proposal outweigh the benefit to the National
Credit Union Share Insurance Fund.
We encourage Congress to consider comprehensive reforms to
the credit union capital structure, including authorizing NCUA
to define what the different net worth levels must be in order
to be ``well-capitalized,'' ``adequately capitalized,''
``undercapitalized,'' and ``significantly undercapitalized,''
based on credit unions' financial performance, current economic
trends and other factors.
We also believe that NCUA should have the authority to
allow all credit unions to accept supplemental forms of
capital. Under current law, approximately 2,000 credit unions,
those designated as low-income credit unions, have this
authority. Permitting all credit unions to acquire supplemental
capital in a manner consistent with their cooperative ownership
structure would enhance the safety and soundness of the credit
union system. Representatives King (R-NY) and Sherman's (D-CA)
legislation to permit credit unions to accept supplemental
forms of capital would be a good place to start regarding
credit union capital reform.
Budget Transparency for the NCUA
We support legislation that requires NCUA to hold an annual
hearing on the agency's budget, most of which is funded by
credit union member resources. This would increase transparency
and accountability at the agency, and engender public trust,
thereby strengthening and supporting the agency's mission.
Suggested improvements to the Dodd-Frank Act
The Dodd-Frank Act is not and should not be considered
sacrosanct. There are several improvements that should be made
to the law that, in the long run, would enhance consumer
protection by ensuring that credit unions are around to serve
their members.
Expand and Specify the CFPB's Exemption Authority
The CFPB should go much further than it has to exempt
credit unions from its rule making, because credit unions,
unlike other financial institutions, have not caused the abuse
the Bureau is meant to address. The imposition of regulations
designed to curb abuse elsewhere in the system reduces access
to affordable products and services offered by credit unions.
If the Bureau is unwilling to expand its perspective on the
exemption authority Congress should state it more explicitly.
Install a Five-Person Board to Run the CFPB
We encourage Congress to enact legislation to change the
leadership structure at the Bureau from a single director to a
five-person board. Expanding the Bureau's executive leadership
to a five-person board will ensure that more voices contribute
to the Bureau's rulemaking and it could help produce
regulations that better balance the important mission of the
Bureau and the impact the regulations have on the way products
and services are provided to consumers.
Require Cost-Benefit Analysis of all CFPB Proposals
We urge Congress to enact legislation to require the CFPB
to complete an extensive cost-benefit analysis before the
agency proposes a rule and to provide this analysis to the
public with any proposal issued. The burden should be on the
Bureau to detail the costs and benefits of its proposals, not
on the regulated parties to prove that there is a burden.
Codify the Credit Union Advisory Council
Shortly after the CFPB was established, the Bureau's
leadership announced the creation of a credit union advisory
council (CUAC). This group advises the agency on the impact of
the Bureau's proposals on credit unions. However, since CUAC is
not required by law, it could be abolished at any time. We
believe CUAC is an important resource for the agency and also
provides a forum for credit union officials to provide direct
feedback to the agency on how proposals and final rules will
affect credit unions' operations.
Additional Regulatory Relief Measures
Exception to Annual Written Privacy Notice
We support legislation that would eliminate the requirement
that credit unions send annual privacy notices to their members
unless they have changed their privacy policy. This legislation
would not only relieve credit unions of an unnecessary
regulatory burden, but it would also enhance consumer
protection by making privacy notifications more meaningful to
consumers.
Credit Unions and the Federal Home Loan Bank
When the Federal Home Loan Bank (FHLB) system opened to
commercial banks and credit unions in 1989, the bill contained
a drafting error which excluded privately insured credit
unions. We support current legislation that would fix this
discrepancy. Permitting privately insured credit unions to join
the FHLB system would pose no risk to the FHLB because all
advances from the FHLB system must be fully collateralized and
are subject to strict uniformly applied standards.
Another piece of legislation that we support would ensure
that the FHLB membership requirements for credit unions under
$1 billion in assets will have parity with similarly sized
banks. Currently, banks under $1 billion in assets only have to
retain 1% of their assets in mortgages or mortgage related
products vs. credit unions of similar size, which have to
retain a much higher threshold of 10% of their assets in
mortgages or mortgage related products before they can join the
FHLB system.
Independent Examination Ombudsman
Current legislation would create an independent examination
ombudsman that would facilitate transparency and improve
consistency in the examination process. We support this
legislation because the current process for lodging examination
complaints and appeals simply has not worked for credit unions.
Portfolio Lending and Qualified Mortgages
We support current legislation that would treat mortgages
held in portfolio at credit unions and other mortgage lenders
as qualified mortgages for purposes of the CFPB's mortgage
lending rules. Treating loans that financial institutions hold
on their balance sheets in this manner is appropriate because
the lender retains all of the risk involved with these
mortgages and is subject to significant safety and soundness
supervision from its prudential regulator.
CFPB's TILA-RESPA Integrated Disclosure Rule
Congress is currently considering legislation that would
provide a reasonable hold-harmless period for enforcement of
the CFPB's TILA-RESPA Integrated Disclosure regulation for
those that make good-faith efforts to comply. We appreciate
that the Bureau indicated that it will be sensitive to the
progress made by those entities that make good-faith efforts to
comply. However, credit unions need to know that their good
faith efforts to comply while still serving their members'
needs does not expose them to litigation.
Conclusion
Thank you for the opportunity to discuss regulatory burdens
facing credit unions. Unfortunately as a result of
overregulation, the credit union system is losing a credit
union a day. With the help of your committee we look forward to
stemming this tide and continuing to provide the very best
service to our members.
Testimony of David S. Jennings
Executive Board, Southern Nevada Home Builders Association
Division Counsel-Las Vegas, D.R. Horton, Inc.
Before the
United States House of Representatives
Small Business Committee, Subcommittee on Investigations,
Oversight, and Regulations
Hearing on ``Regulatory Overload: The Effects of Federal
Regulations on Small Firms''
November 6, 2015
On behalf of nearly 1,000 active members of the Southern
Nevada Home Builders Association (``SNHBA''), I appreciate the
opportunity to testify today. My name is David Jennings, and I
am a member of the Executive Board of the SNHBA. I am also
Division Counsel for D.R. Horton, Inc. in its Las Vegas office.
The membership of the SNHBA is diverse and includes
homebuilders, trade contractors, mortgage companies, banks,
real estate agencies and management companies. Most of our
members are local, small businesses that employ local Nevada
residents. These members are invested in the Las Vegas
community and the State of Nevada as a whole. The SNHBA is
devoted to the helping the housing industry, and all of its
ancillary industries, to provide safe and affordable housing
for Southern Nevada residents, and to contribute to the overall
quality of life in Southern Nevada.
The homebuilding industry is one of the primary drivers of
Nevada's economy. Factoring in all of the various elements of
the homebuilding industry--homebuilders, subcontractors,
professional consultants, real estate agents and financial
services--it employs more than 15,000 people in Clark County.
The majority of these people are employed by small businesses
within the industry.
SNHBA members understand the need for local and federal
regulation in the housing industry and beyond. These
regulations must be sensible, however, and tied to legitimate
public interests. They should be designed and enforced to
protect the public. They should be clear and unambiguous in
their application and enforcement not regulation simply for the
sake of regulation.
The regulatory scheme on which I would like to offer
testimony today is the federal government's mineral materials
program. It directly affects the most important element of
homebuilding--land. Land makes, and breaks, our business.
Federal land comprises the majority of the undeveloped land in
Nevada and Clark County. It is a major component of any future
growth in the State. The majority of privately-owned land in
Clark County was once federally-owned land. Much of that land
is encumbered by federal mineral reservations of one form or
another.
Smart and fair regulation of federal lands in Nevada is
critical to the future success of the homebuilding industry
here. It can help keep the industry vibrant and a major
contributor to economic growth. On the other hand, costly and
cumbersome regulation raises the cost of land acquisition and
development which, over time, discourages future investment. As
investment in land wanes, the homebuilding industry withers,
and consequently, auxiliary businesses also decline.
Certainty and sensibility in the regulation of this
important asset is critical for members in the industry. The
current regulatory structure for federal land in Nevada lacks
certainty and is negatively impacting this important industry.
Background Information
In the Western United States, various acts of Congress
(primarily adopted to encourage settlement) have resulted in
split-estate ownership (Small Tract Act, Taylor Grazing Act,
Stockraising Homestead Act) where the federal government
retains ownership of mineral rights on privately-owned land.
This is particularly prevalent in Nevada due to the enactment
of the Southern Nevada Public Land Management Act of 1998
(``SNPLMA''), Pub. L. No. 105-263, 112 Stat. 2343. Current
federal regulation states that surface owners of these split-
estate lands may only use a ``minimal amount'' of mineral
materials, which the BLM has concluded includes ordinary soils,
for ``personal use'' (43 C.F.R. 3601.71) and any use beyond
that ``minimal amount'' is considered a trespass in the absence
of obtaining a material sale contract or permit from the BLM.
Until recently, homebuilders and developers developed land
largely undisturbed by any mineral rights enforcement actions
by the BLM. In April, 2014, the Inspector General of the
Department of the Interior conducted an audit of the BLM's
Mineral Materials Program and issued a report regarding the
BLM's opportunity to make mineral claims (the ``Report''). The
Report was highly critical of the BLM for not obtaining market
value for mineral materials and made fifteen recommendations
for enhancing BLM's management of its mineral material program.
One of those recommendations addressed the loss of revenue from
``unauthorized'' uses. In response to the Report, BLM has since
vigorously pursued mineral material trespass claims. There are
now eighty four pending mineral trespass matters in Southern
Nevada. The agency has also issued policy guidance to clarify
the distinction between personal use with commercial use in
existing regulation (BLM IM-2014-085) (the ``BLM Policy'').
In response to the directives in the Report, the BLM in
Nevada has for the first time in recent memory begun to pursue
developers and homebuilders for use of mineral materials on
their own land. Investigations have been made, and a number of
mineral trespass notices have been issued, against current
members of the SNHBA for common uses of ordinary soil, which
may include sand and gravel materials. Below are a few examples
of recent mineral rights enforcement activity against SNHBA
members in the Las Vegas Valley by the BLM:
1. In a homebuilder's development of a small
residential tract in northwest Las Vegas, it was
determined that the elevation of the land was too high
relative to the surrounding parcels. To allow for
development of the property that was compatible with
the surrounding parcels, the homebuilder removed
several thousand cubic yards of soils from the property
to lower the overall grade and match elevations with
surrounding property. The property was encumbered by a
federal mineral rights reservation under the Small
Tract Act. The homebuilder relocated the material to a
nearby property that was also encumbered by an
identical federal mineral rights reservation. There,
the material was used to raise the grade of the second
parcel for a similar small residential development. The
homebuilder received a mineral trespass notice from BLM
for ``unauthorized use'' and ultimately had to pay tens
of thousands of dollars to resolve it.
2. Another homebuilder purchased a large parcel from
of land in Henderson from the BLM. The homebuilder
later subdivided the parcel into smaller parcels as
part of a master-planned combined residential and
commercial development. The homebuilder relocated
earthen material from one of the smaller parcels to
another, but all within the boundaries of the original
large parcel purchased from the BLM. The homebuilder
received a mineral trespass notice from the BLM for
``unauthorized use,'' and has now spent tens of
thousands of dollars contesting the matter.
3. A third builder purchased a parcel of land
encumbered by a federal mineral reservation years after
the BLM's original conveyance of the property to
another party. After the BLM conveyed the property, and
before the builder bought it, someone stockpiled
earthen material on the property. The builder moved the
stockpiled material to another location, because it
interfered with the builder's planned development. The
builder received a mineral trespass notice from BLM for
``unauthorized use'' and spent thousands of dollars on
legal and other consultant fees trying to resolve the
issue.
Current Enforcement of the Mineral Materials Regulation
The BLM's current enforcement policy represents a
significant change from the past. That change resulted from the
Inspector General's audit and resulting 2014 Report. The Report
directs local BLM offices to aggressively enforce the mineral
regulations, and provides guidance on what would constitute an
``unauthorized use'' of mineral materials. The new BLM Policy
states, in part: ``A surface owner may extract, server, or
remove only minimal amounts of mineral materials from split
estate land for personal use under 43 CFR 3601.71(b)(1) for
purposes of improving the surface, even if materials are not
removed off of the tract.'' The Policy further states that
``Minimal use . . . would not include large-scale use of
mineral materials, even within the boundaries of the surface
estate.'' Then, in a misguided attempt to clarify, the Policy
then states ``mineral materials that must be excavated in
connection with surface use of the property may be spread on
other parts of the surface of that same property regardless of
the amount, so long as the material is unaltered and is not
used for or in connection with any construction purpose.''
These restrictions on use of the material on land conveyed
or purchased from the federal government are at best,
confusing, and at worst, arbitrary and unfair. Moreover, the
BLM Policy punishes developers who purchased land prior to its
adoption or without knowledge of it. Unfortunately for many
property owners--including homebuilders and developers--
significant acreage was purchased, and is now owned, in
reliance on the previous enforcement policies for federal
mineral reservations. The fees and fines now threatened with
this aggressive enforcement policy were surely not part of
these landowners' financial development projections.
Furthermore, there are still many unanswered questions about
what ``minerals'' are and are not included within a federal
mineral reservation and, more importantly, what use of the
surface minerals is allowed and what constitutes an
``unauthorized use.'' The new enforcement policy and these
unanswered questions combine to create uncertainty in the
industry.
As currently enforced, the regulations also often ignore
the very purposes for which the land was originally sold. A
determination of whether a particular substance is included in
the mineral estate depends on the use of the surface estate
contemplated by Congress when adopted.\1\ For example, the
declared purpose of the Small Tract Act was to ``provide for
the purchases of public lands for home, cabin, camp, health,
convalescent, recreational and business sites.'' \2\ In the
first example cited above, the use of the surface material was
entirely consistent with the purposes of the Small Tract Act
under which the land was originally sold. It is difficult to
see how Congress could have intended to sell the surface for
such purposes and contemplate the co-existence of such an
incompatible use as mining on the same small five-acre tract.
It strains reason to believe that the federal government would
be able to enter upon and remove sand and gravel from a parcel
sold to a private party under the Small Tract Act without
compensation or otherwise authorize a third party to do the
same (assuming, of course, that the sand and gravel is
commercially valuable). Homeowners would be equally disturbed
at this revelation.
---------------------------------------------------------------------------
\1\ Watt v. Western Nuclear, Inc., 462 U.S. 36, 52 (1983).
\2\ 43 U.S.C. Sec. 682(a) (1970), repealed by Pub. L. 94-579, Title
VII, Sec. 702, 90 Stat. 2798 (1976) (FLMPA).
---------------------------------------------------------------------------
Effects on Small Business
The new BLM Policy is adversely impacting the entire
homebuilding industry. First and foremost, it results in extra
cost to all developers. It is being retroactively applied to
parcels that a small business may have purchased in a private
transaction several steps removed from any BLM transaction.
That extra cost is especially burdensome on small homebuilders
because they cannot spread costs and risks across many
projects, and these costs consequently serve as a barrier to
small business investment.
In addition, the new BLM Policy has injected uncertainty
into the process. Land is the lifeblood of the homebuilding
industry. It is the most valuable, and most risky, asset. Like
anything else, investment in land depends on favorable projects
on costs, revenues and risk. The new enforcement policy inserts
additional uncertainty into land investment making it
impossible to project costs. This applies to large and small
homebuilding businesses, but the impact of unforeseen fines and
fees, and possible protracted enforcement actions, can be
especially crippling for small businesses. It is rarely certain
at the time of initial investment in land whether mineral
material will need to be imported or exported from a project,
or even relocated within the boundaries of that project. Under
the new BLM Policy it is now unclear:
(1) what use of sand and gravel (or ordinary soils)
will constitute an ``unauthorized use'';
(2) whether the use will result in fines or fees; and
(3) if so, what the amount of fines and fees might
be?
Can a builder cut down high areas and fill lower areas of
his property without being fined? Or is that more than
``minimal use'' even if all material remains on the property?
Is relocating earthen material to create lots and building pads
allowed under the regulation or will it generate a trespass
notice? These questions are not adequately answered under the
BLM Policy. Further uncertainty is created as a result of the
fines and fees being based on the BLM's market rate for sand
and gravel. With the length of time required for entitlement
and engineering work, the time between land purchase and
development can exceed 12 to 18 months. The BLM's rates can
adjust upward over time. While market conditions change over
time in many aspects of homebuilding industry, these additional
uncertainties make it even more difficult to accurately
evaluate future performance on a land investment. For any
business, but especially small business, uncertainty means
risk. The greater the risks, the less likely the investment
will be made.
Regulatory Flexibility Act
In 1980, Congress enacted the Regulatory Flexibility Act to
allow small businesses that are heavily impacted by federal
regulations to have some input into the development of those
regulations. The RFA requires federal agencies to analyze the
impact of federal regulations on small businesses and, where
the impact would be significant, to adjust the impacts of such
regulations to avoid overly burdensome outcomes. The BLM's
Policy avoids the requirements of the RFA, as amended by the
Small Business Regulatory Enforcement Fairness Act
(``SBREFA''). Small businesses may be significantly impacts by
the new enforcement policy because (1) they are less likely to
have the resources necessary to gain full understanding of the
new policy, or to challenge an enforcement action, and (2) the
financial impact of the unforeseen fines and fees is magnified
in a small business setting. The BLM should be required to
reconsider the distinction between personal and commercial use
of mineral material and to define what constitutes ``minimal''
in a common-sense rulemaking where there is adequate public
notice and comment as opposed to relying on policy to fill the
interpretive gaps in existing regulation. This has been a
disturbing trend occurring in many federal agencies (i.e.,
adopting policies that are inconsistent with existing
regulation in lieu of notice and comment rulemaking).
Reform of the Federal Land Policy and Management Act
(``FLMPA'')
Currently, BLM has discretion as to whether to convey
reserved minerals to a surface estate owner. FLMPA provides a
process for the conveyance to occur, but it is cumbersome and
expensive. Applicants must pay all costs for the preparation of
a mineral potential report, and reimburse the agency for any
incurred administrative costs, and the process can take up to
three years to complete. An expedited process should be
developed for surface estates conveyed under certain types of
patents (i.e., Small Tract Act patents where Congress could not
have intended to provide for the simultaneous development of
homes and the mining of mineral materials) to expedite much
needed certainty for surface estate owners.
Regulation is Costly to Challenge
It is extremely difficult for small business owners to
challenge regulations they deem to be erroneous and/or
resulting in unfair enforcement. They often lack the resources
to mount a legal challenge against the BLM and their
enforcement policies or actions. Small businesses typically do
not have internal counsel or engineers on staff to help contest
trespass matters. The resolution of BLM enforcement actions
includes multiple steps of administrative process and appeal.
Only after all administrative remedies are exhausted may the
BLM be challenged in federal court. The cost of any challenge
often will exceed the fine, even where the challenge has merit.
As a result, the only options for small business owners are to
either pay the fine or, if they know of the risk, elect not to
purchase the property in the first instance.
Insufficient Publicity
Until this week, there has been little or no publications
or education on this new BLM Policy. Most small business owners
are unaware of it. They may be subject to future fees or fines
without any knowledge of that potential liability. Lack of
education within the industry and, more generally, in the
landowning populace creates a myriad of challenges that are
difficult to overcome. When fined, developers are surprised at
the extra costs associated with the current mineral regulation.
Sometimes those costs can be the difference between a
development project being viable or not. Additionally,
landowners do not appreciate the extra costs associated with
the current mineral regulation. Because those costs are not
known, they are not yet reflected in the market. The cost of
the private land, coupled with the potential costs associated
with the current mineral regulation, are artificially high and
often make investment in that land cost prohibitive.
Are Landowners Getting the Benefit of Their Bargain?
Because there has been little or no publication about BLM's
new Policy, land owners may not be able to obtain all the
benefits of their purchase. They believe they own a piece of
land free and clear to develop. It turns out they do not. The
very materials that make up the useable land are somehow still
the property of the government, and everything short of
``minimal use'' is prohibited unless that landowner goes
through a cumbersome approval process and pays the government
additional money. This does not seem right.
Conclusion
Homebuilding is a complex and highly regulated industry. As
costs and regulatory burdens increase, the small businesses
that make up a majority of the industry must adapt. This can
include paying higher prices for land, purchasing smaller
parcels, redrawing development or house plans, and/or
completing mitigation. All of these adaptations are financed by
the builder, and ultimately result in higher prices for
consumers and lower production for the industry. As production
declines and jobs are lost, other sectors that buy from or sell
to the construction industry also contract and lose jobs.
Builders and developers, still struggling to emerge from the
economic downturn, cannot depend upon the future home buying
public to absorb the multitude of costs associated with
overregulation.
Compliance costs for regulations are often incurred prior
to home sales, so builders and developers have to finance these
additional carrying costs until the property is sold. Because
of the increased price, it may take longer for the home to be
sold. Carrying these additional costs only adds more risk to an
already risky business. This new enforcement policy increases
costs and decreases certainty for large and small builders
alike. It adds to the headwinds that our industry faces.
Homebuyers are extremely price sensitive, and even moderate
cost increases can have significant negative market impacts.
This is of particular concern in the context of affordable
housing where relatively small price increases can have an
immediate impact on low to moderate income homebuyers. As the
price of the home increases, those who are on the verge of
qualifying for a new home will no longer be able to afford this
purchase. The National Association of Home Builders has
estimated the number of households priced out of the market for
a median priced new home from a $1,000 price increase--
nationwide, if the cost of a median priced new home were to
increase from $225,000 to $226,000, a total of 232,447
households would no longer be able to afford that home. Here in
Clark County, 1,806 households are ``priced out'' of the market
for every $1,000 increase in home price according to Home
Builders Research. Simply put, something must be done to curb
the tide of federal overregulation and overzealous enforcement.
These actions ultimately damage the American public.
Thank you again for the opportunity to testify today.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
[all]