[Senate Hearing 114-637]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 114-637

                  DROWNING IN REGULATIONS: THE WATERS
                     OF THE U.S. RULE AND THE CASE
                         FOR REFORMING THE RFA

=======================================================================

                                HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                          AND ENTREPRENEURSHIP
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 27, 2016

                               __________

    Printed for the Committee on Small Business and Entrepreneurship
    
    
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           COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                    ONE HUNDRED FOURTEENTH CONGRESS

                              ----------                              
                   DAVID VITTER, Louisiana, Chairman
             JEANNE SHAHEEN, New Hampshire, Ranking Member
JAMES E. RISCH, Idaho                MARIA CANTWELL, Washington
MARCO RUBIO, Florida                 BENJAMIN L. CARDIN, Maryland
RAND PAUL, Kentucky                  HEIDI HEITKAMP, North Dakota
TIM SCOTT, South Carolina            EDWARD J. MARKEY, Massachusetts
DEB FISCHER, Nebraska                CORY A. BOOKER, New Jersey
CORY GARDNER, Colorado               CHRISTOPHER A. COONS, Delaware
JONI ERNST, Iowa                     MAZIE K. HIRONO, Hawaii
KELLY AYOTTE, New Hampshire          GARY C. PETERS, Michigan
MICHAEL B. ENZI, Wyoming
                Meredith West, Republican Staff Director
               Robert Diznoff, Democratic Staff Director
                            
                            
                            C O N T E N T S

                              ----------                              

                           Opening Statements

                                                                   Page

Vitter, Hon. David, Chairman, and a U.S. Senator from Louisiana..     1
Shaheen, Hon. Jeanne, a U.S. Senator from New Hampshire..........     3

                               Witnesses
                                Panel 1

DePriest, Darryl L., Chief Counsel for the Office of Advocacy, 
  U.S. Small Business Administration, Washington, DC.............     6

                                Panel 2

Milito, Elizabeth, Senior Executive Counsel, National Federation 
  of Independent Business, Washington, DC........................    19
Knapp Jr., Frank, President & CEO, South Carolina Small Business 
  Chamber of Commerce, Columbia, SC..............................    30
Palmieri, Rosario, Vice President, Labor, Legal & Regulatory 
  Policy, National Association of Manufacturers, Washington, DC..    38

          Alphabetical Listing and Appendix Material Submitted

American Fly Fishing Trade Association
    Statement Dated April 27, 2016...............................    67
DePriest, Darryl L.
    Testimony....................................................     6
    Prepared statement...........................................     8
    Responses to Questions Submitted by Chairman Vitter, Senators 
      Scott and Fischer..........................................    90
Environment New Hampshire
    Letter to Ranking Member Shaheen.............................    68
Knapp Jr., Frank
    Testimony....................................................    30
    Prepared statement...........................................    32
    Supplemental testimony.......................................    64
Milito, Elizabeth
    Testimony....................................................    19
    Prepared statement...........................................    22
    Response to a Question Submitted by Senator Fischer..........    96
National Wildlife Federation
    Statement Dated April 27, 2016...............................    70
    Clean Water Rule Timeline 2001-2016..........................    81
Natural Resources Defense Council
    Letter to Chairman Vitter and Ranking Member Shaheen Dated 
      April 26, 2016.............................................    85
Oregon Small Businesses
    Letter to President Barack Obama Dated February 3, 2015......    88
Palmieri, Rosario
    Testimony....................................................    38
    Prepared statement...........................................    40
    Response to a Question Submitted by Senator Fischer..........    98
Shaheen, Hon. Jeanne
    Testimony....................................................     3
    Prepared statement...........................................     4
Vitter, Hon. David
    Opening statement............................................     1

 
                  DROWNING IN REGULATIONS: THE WATERS
                     OF THE U.S. RULE AND THE CASE
                         FOR REFORMING THE RFA

                              ----------                              


                       WEDNESDAY, APRIL 27, 2016

                      United States Senate,
                        Committee on Small Business
                                      and Entrepreneurship,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:00 a.m., in 
Room 428A, Russell Senate Office Building, Hon. David Vitter, 
Chairman of the Committee, presiding.
    Present: Senators Vitter, Risch, Rubio, Fischer, Gardner, 
Ernst, Ayotte, Shaheen, and Heitkamp.

 OPENING STATEMENT OF HON. DAVID VITTER, CHAIRMAN, AND A U.S. 
                     SENATOR FROM LOUISIANA

    Chairman Vitter. Good morning, everyone. We are going to 
call the meeting to order and proceed with this hearing right 
on time, particularly in light of our 11:00 a.m. vote on the 
Senate floor.
    Thank you all for joining us here today. This Senate Small 
Business and Entrepreneurship Committee hearing will examine 
the implementation of the Regulatory Flexibility Act. We are 
going to be hearing from the Chief Counsel for the Office of 
Advocacy at the SBA and a panel of industry representatives, 
and I want to thank all of our witnesses for being here today.
    Our conversation will focus on the need for regulatory 
reform in light of how federal agencies oftentimes issue new 
rules and regulations that cause undue burdens on small 
businesses. While there are laws in place like the Regulatory 
Flexibility Act to protect small businesses, federal agencies 
have been taking advantage of loopholes and misinterpretations 
to circumvent these laws.
    This is a major problem for our nation's small businesses 
that struggle to comply with overly burdensome regulations. A 
large corporation has far more resources--some even have entire 
departments devoted to regulatory compliance--and the economies 
of scale result in heavier compliance costs for small 
businesses.
    It has become much more challenging for the owner of a 
small firm to shift his or her time and energy and money away 
from growing a business in order to comply with over-demanding 
regulations, particularly those that have increased under this 
Obama administration.
    I hope that today's hearing will explore possible solutions 
to level the playing field for small businesses, specifically 
through the RFA. Many small businesses count on the RFA to 
protect their interests from economic burdens due to federal 
regulations.
    One of the most important tools to protect these firms is 
called an Initial Regulatory Flexibility Analysis, which 
requires agencies to conduct an economic analysis when a new 
rule will have a significant economic impact on a substantial 
number of small entities. Under President Obama's 
administration, many agencies have avoided conducting this IRFA 
by simply claiming their proposed rules have no significant 
economic impact on those small entities.
    What is perhaps the biggest, most obvious example of this 
abuse occurred just last year, when the EPA and the Army Corps, 
their 2015 Waters of the United States rule, which 
significantly expanded the scope of federal jurisdiction across 
the country under the Clean Water Act, was deemed to have no 
significant impact on small entities. When EPA and the Corps 
drafted WOTUS, they failed to include small businesses during 
the process, violating the Small Business Regulatory 
Enforcement Fairness Act of 1996. The EPA claimed that the rule 
would not have a substantial direct impact on small businesses 
and thereby avoided having to conduct that panel.
    Before WOTUS was finalized, this committee held a hearing 
in May 2015 examining the way the EPA and the Corps shut out 
small businesses during that rulemaking process. During that 
hearing, a representative from the SBA Office of Advocacy said, 
quote, ``Advocacy believes, first, the rule will impose direct 
costs on small businesses. Second, these costs will have a 
significant economic impact on those small businesses. And, 
third, the agencies incorrectly certified the rule and should 
have conducted a SBREFA panel.''
    Despite Advocacy's testimony highlighting the negative 
effects of WOTUS, the rule was finalized and is now one of the 
most well-known cases in which the Obama administration, in my 
opinion, blatantly circumvented the process in an attempt to 
rush through a rule without considering the harm and burden it 
would cause to small businesses.
    It is imperative that Congress create greater 
accountability for agencies' economic certification process and 
close loopholes in the RFA that allow the EPA, OSHA, and CFPB 
to avoid conducting these panels. That is why earlier this 
Congress, I introduced the Small Business Regulatory 
Flexibility Improvements Act, which provided comprehensive 
reform of the RFA and made vital adjustments to protect small 
businesses. I want our industry representatives here today to 
know that I am working to develop a new reform bill in an 
effort to make bipartisan common sense reforms.
    Now, let us get today's conversation started. Again, I 
would like to thank everyone for being here today and look 
forward to our discussion.
    And with that, I will turn it over to our Ranking Member, 
Senator Shaheen.

OPENING STATEMENT OF HON. JEANNE SHAHEEN, RANKING MEMBER, AND A 
                U.S. SENATOR FROM NEW HAMPSHIRE

    Senator Shaheen. Well, thank you, Mr. Chairman, and I have 
a full statement that I will submit for the record and I will 
apologize in advance for having to leave early for another 
commitment.
    But, I certainly agree that there is no question that 
poorly crafted regulations can result in an excessive burden 
for small businesses, because unlike big companies, small firms 
often do not have the time and resources to devote to 
understanding new rules or to figure out how to comply. And for 
that reason, I think we need a regulatory process that works, 
not just for the public, but also for America's small 
businesses.
    To improve the regulatory process for small business, we 
must ensure that federal agencies comply with the Regulatory 
Flexibility Act by consulting with small businesses and by 
working diligently to minimize the regulatory burden of new 
rules.
    I have also heard from small businesses that one of the 
most meaningful ways to help them with regulation is to ensure 
that our federal agencies, including the SBA, have the 
resources they need to provide compliance assistance, because 
compliance assistance helps level the playing field for small 
businesses by giving them the support they need.
    As we consider reforms to the rulemaking process, we need 
to be careful to do it in a way that does not stop important 
rules that protect the public.
    So, Mr. Chairman, I am pleased that we have Darryl DePriest 
here from SBA to start out the first panel and I look forward 
to at least hearing some of his remarks. Thank you very much.
    [The prepared statement of Senator Shaheen follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Vitter. Great. Thank you, Senator.
    As we always do, we will invite other committee members to 
offer any opening comments for the record, but we want to go to 
our witnesses, and Senator Shaheen is right.
    Our first panel is the Honorable Darryl DePriest, who 
serves as the Chief Counsel for the Office of Advocacy at the 
SBA. Darryl has been leading the Office of Advocacy in 
advancing the views and interests of small business in the 
Federal Government since January of this year.
    Darryl, we all look forward to hearing from you. Your full 
written statement will be part of the hearing record, but you 
have five minutes to make a presentation here and then we will 
move on to a conversation.

 STATEMENT OF DARRYL L. DePRIEST, CHIEF COUNSEL FOR ADVOCACY, 
       U.S. SMALL BUSINESS ADMINISTRATION, WASHINGTON, DC

    Mr. DePriest. Thank you, Chairman Vitter, Ranking Member 
Shaheen, and members of the committee. Good morning. As Chief 
Counsel for Advocacy, I would like to thank you for the 
opportunity to appear before the committee today to discuss the 
Office of Advocacy and its recently released legislative 
priorities for Congress in areas that we think strengthening 
the RFA will help in our obligation to represent the interests 
of small business in the regulatory process.
    As Chief Counsel, I will guarantee that the Office 
continues to work with federal agencies to alleviate the 
potential costs of regulation on small entities. To further 
describe our commitment and how we believe Congress can improve 
this process, I would like to update you on our priorities.
    The topic list of our legislative priorities are indirect 
effects, the scope of the Regulatory Flexibility Act, the 
quality of analysis of the agencies, the quality of 
certification, as the Chair recognized, SBREFA panels, and 
retrospective review. Let me go through them briefly.
    Insofar as indirect effects are concerned, under the RFA, 
agencies are not currently required to consider the impact of a 
proposed rule on small businesses that are not directly 
regulated by the rule, even though the impacts are foreseeable 
and often significant. Advocacy believes that indirect effects 
should be part of the RFA analysis, but that the definition of 
indirect effects should be specific and limited so that the 
analytical requirements of the RFA remain reasonable.
    In addition, Advocacy believes that the scope of the RFA 
should be expanded. In some cases, federal agencies use 
different rulemakings than the more familiar notice and 
comment. We believe that requiring an RFA analysis on interim 
final rules and clarifying that the RFA applies to certain 
interpretative rules issued by the Internal Revenue Service 
would allow for greater small business consideration in federal 
rulemakings.
    Another concern Advocacy has is the quality of analysis 
that is done in promulgating the rules. Advocacy is concerned 
that some agencies are not providing the information in a 
transparent and easy to access manner that is required by the 
Initial Regulatory Flexibility Analysis, the IRFA, or IRFA, and 
the Final Regulatory Flexibility Analysis, the FRFA, or FRFA. 
This hinders the ability of small entities in the public to 
comment meaningfully on the impacts on small entities and 
possible regulatory alternatives.
    Agencies should have a single section in the preamble of 
the Notice of Proposed Rulemaking and Notice of Final 
Rulemaking that lays out clearly the substantive contents of 
the IRFA or the FRFA, including a specific narrative for each 
of the required elements. In addition, agencies should be 
required to include an estimate of the cost savings to small 
entities in the FRFA.
    Insofar as quality of certification is concerned, some 
agencies' improper certifications under the RFA have been based 
on a lack of information in the record about small entities 
rather than data showing that there would not be a significant 
impact on a substantial number of small entities. A clear 
requirement for threshold analysis would be a stronger 
guarantee of the quality of certifications. Advocacy believes 
that the RFA should be amended to require agencies to publish a 
threshold analysis supported by data in the record as part of 
the factual basis for the certification.
    SBREFA, or the Small Business Regulatory Enforcement 
Fairness Act, requires that panels, known as SBREFA panels, and 
they have proven to be extremely beneficial to the small 
business community during rulemakings at the EPA, OSHA, and the 
CFPB. I do not believe that panels are necessary in most cases, 
since many agencies have developed internal procedures for the 
consideration of small entity impacts that are appropriate for 
their organizations and their particular rulemakings. We do 
recommend, however, adding the Fish and Wildlife Service to the 
list of covered agencies, as we believe that would improve that 
agency's rulemakings. Furthermore, requiring covered agencies 
to provide better information to panel participants in advance 
of the panel would give rise to better discussion and better 
rules.
    And, finally, as retrospective review is concerned, 
Advocacy believes Congress should strengthen Section 610 
through legislation. This could be accomplished by prioritizing 
petitions for review that seek to reduce the regulatory burden 
on small business and provide for more thorough consideration 
of alternatives. We believe this would be valuable in addition 
to the existing required periodic review. Moreover, agencies 
should be required to provide a timely and effective response 
in which they demonstrate that they have considered alternative 
means of achieving the regulatory objective while reducing the 
regulatory impact on small business. This demonstration could 
take the form of an analysis similar to an FRFA.
    In closing, I would like to thank the committee and the 
staff for its continued support of the Office. As Chief 
Counsel, I look forward to working closely with you on ways to 
improve the RFA and issues affecting small entities across the 
country. Thank you.
    [The prepared statement of Mr. DePriest follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Vitter. Thank you very much, Mr. DePriest.
    I will start the conversation with some questions. As I 
said a few minutes ago, on May 19 of 2015, the Office of 
Advocacy testified before this committee and said it believed 
EPA incorrectly certified the Waters of the United States rule. 
Specifically, the Office said, quote, ``Advocacy believes, 
first, the rule will impose direct costs on small businesses. 
Second, these costs will have a significant economic impact on 
those small businesses. And, third, the agencies incorrectly 
certified the rule and should have conducted a SBREFA panel.'' 
Has the Office of Advocacy changed that position in any way 
since then?
    Mr. DePriest. No, sir. That is still our position.
    Chairman Vitter. Okay. When the Office faced that 
frustration of an improper certification, did it have any 
options to demand that EPA and the Corps certify properly that 
the rule would have had a significant impact? Did it have any 
tools at its disposal to make the agencies revisit that issue?
    Mr. DePriest. No, it did not. It is not within the statute 
to have that authority to force an agency to do that.
    Chairman Vitter. So, do you believe the Office of Advocacy 
would be better able to perform its mission and serve as a 
source of accountability for federal agencies if it were given 
certain tools or options in that situation?
    Mr. DePriest. Senator, I think it would depend upon what 
the tools would be. I think, in general, our position is that, 
as currently structured, the RFA works in that respect. I am 
not sure what additional tools would be necessary.
    Chairman Vitter. Well, as you know, some folks on this 
committee have ideas in that regard. We sent you my broad-based 
regulatory reform bill draft April 12, over two weeks ago, and 
it includes a provision allowing for a third party 
certification to judge whether an agency needs to conduct an 
IRFA or a SBREFA panel. Do you have a reaction to that sort of 
provision?
    Mr. DePriest. Yes, I do. Thank you for reminding me of that 
specific provision. The provision in the proposed--in your 
proposal would have a certification by the GAO if there is a 
dispute between the Office of Advocacy and an agency as to 
whether a panel should be done or whether there is--the 
certification is improper. I think, in general, we do not--my 
opinion is that that would not particularly work for a few 
reasons.
    One is, as we looked at this particular instance of a 
difference between the EPA and the Office of Advocacy, then you 
have two executive groups with a conflict, and I wonder whether 
philosophically or policy-wise it is good to or wise to put a 
Congressional agency, like the GAO, in the middle between those 
two executive agencies. So, I have some concerns about that.
    Chairman Vitter. So, that concern is based on GAO being 
Congressionally based?
    Mr. DePriest. And also the--yes, that is one of the 
concerns.
    Chairman Vitter. I do not want to cut you off----
    Mr. DePriest. Go ahead.
    Chairman Vitter [continuing]. Because I can follow up on 
that.
    Mr. DePriest. Go ahead.
    Chairman Vitter. What if we moved the proposal to an entity 
that is not Congressionally based, that is executive based, 
like OIRA at OMB?
    Mr. DePriest. I examined that, and I have some concerns 
about that, as well. My sense is that, you know, you might have 
a situation where the dispute between the agencies is basically 
a question of law, and the question is whether you would want 
OIRA to be deciding that question of law.
    Insofar as the particular instance that has been proposed, 
that I have seen proposals concerning, I am concerned that 
having a third party arbiter perhaps would shift the burden. 
Currently, the agencies have the burden of proving that the 
certification, or that the proposed rule will not have 
significant impact on a substantial number, and I am concerned 
that if we go to the process whereas the Office of Advocacy has 
to apply to some other agency to review our decision, that that 
shifts the burden to the Office to show that the proposal will 
have an effect, and I would prefer that the burden be on the 
agency.
    Chairman Vitter. Well, I guess my reaction to that is the 
agencies do not have any burden at all. I mean, they are the 
judge and the jury of themselves. They can say, it does not 
have a substantial impact, done, move on. So, it seems to me 
there is no burden in present law if they just want to 
improperly certify lack of those impacts.
    Mr. DePriest. That is true, but there is legal recourse----
    Chairman Vitter. What----
    Mr. DePriest [continuing]. And as you know, in the----
    Chairman Vitter. What is that?
    Mr. DePriest. In the WOTUS case, the affected entities 
filed suit against the EPA and the Corps, and as you know, that 
rule has currently been enjoined by the Sixth Circuit.
    So, my--it is a roundabout way, but it is the way that our 
system is designed, that there be another arbiter, but it will 
be a court of law as opposed to perhaps a Congressional arm or 
another executive agency.
    Chairman Vitter. Okay. I am past my time. We may come back 
to a second round if we have time.
    Let me turn to Senator Ernst--or, excuse me, Senator 
Shaheen.
    Senator Shaheen. Close.
    [Laughter.]
    There have been a number of regulatory reform proposals 
that would give the Office of Advocacy additional 
responsibilities, as Senator Vitter was describing. Can you 
talk about the capacity that you currently have to, should your 
responsibilities be expanded, to address those. What kind of 
staff support do you have, and what kind of challenges do you 
have as you look at the requirements under the Regulatory 
Flexibility Act and the role of your Office----
    Mr. DePriest. Well----
    Senator Shaheen [continuing]. In trying to address that?
    Mr. DePriest. Sorry. As Senator Vitter said, I have been in 
this role now for 16 weeks, not that I am counting.
    [Laughter.]
    But, I will say that the staff that I have encountered at 
the Office is very dedicated, very hard working, and they take 
their job very seriously representing the interest of small 
business.
    The only proposal that I have--and I think we have the 
capacity to do a number of--to do what we do now. The only--I 
would say that the proposal that I think would probably most 
stretch the Office and would require an expansion of the Office 
would be a proposal such as the ones I have seen where every 
agency would have to have a SBREFA panel. I think that would 
stretch the agency. It would stretch our Office and would 
require us to develop and have more people.
    Senator Shaheen. So, can you describe in a little more 
detail--you talked about how the process works and some of the 
changes that might--that you think would be helpful, but can 
you talk in more detail about how your office reviews proposed 
rules and then follows up with federal agencies?
    Mr. DePriest. Sure. When a rule is promulgated or proposed 
and put in the Federal Register, every agency, with the 
exception of one, sends us a copy of the proposal for us to 
review and we try to make a determination whether the agency is 
correct or incorrect insofar as a substantial impact is 
concerned. We have economists on staff who review the economic 
underpinnings of the particular rule and the determination as 
to what the impacts will be. We then meet and discuss the issue 
with small entity representatives. We try to bring small entity 
representatives together with the agencies, all during this 
process of dealing with a proposed rule.
    There is also the interagency review that is done by OIRA 
that we participate in, and we hope that through the whole 
process of getting from the proposed rule where we analyze it 
and help the agency look at alternatives that may minimize the 
impact through the final rule that we can help the agency 
achieve their regulatory goal, at the same time minimize the 
impact that the regulation may have on small business.
    Senator Shaheen. And, so, is there an opportunity for small 
businesses to engage with the Office of Advocacy on the 
proposed rule?
    Mr. DePriest. Yes. Even though--even in the absence of 
panels, there is a way to do that. We have pioneered a method 
called roundtables where we bring together the agency and small 
business to talk about an issue, and a lot of the times, that 
works. I give you just one specific example.
    The IRS recently proposed some changes to small retirement 
plans. A number of the individuals who work in that area, who 
administer those plans, or companies that have those plans were 
concerned about the unintended effects of that regulation. We 
put together a roundtable between the IRS and the small 
representatives and they voiced their concerns. And a few weeks 
ago, the IRS said, we have heard your concerns. We are going to 
withdraw the regulation.
    Senator Shaheen. Ahh.
    Mr. DePriest. So, we have instances where those sort of 
informal opportunities work to the best interest of small 
business.
    Senator Shaheen. And, finally, can you comment on how 
expanding the role of Advocacy would affect the timing of when 
federal rules would be released.
    Mr. DePriest. Well, the--I think--it is really difficult to 
say. There is--a covered agency like EPA, OSHA, CFPB, where 
they are required to do the panels, that puts a little extra 
time into the process. But that is about the only way I can see 
that there would be more time in putting out the regulations.
    Senator Shaheen. Thank you. Thank you, Mr. Chairman.
    Chairman Vitter. Okay. Thank you.
    Now we go to Senator Ernst.
    Senator Ernst. Thank you, Mr. Chairman, and thank you, sir, 
for being in front of our panel today.
    Before I get to my questions, I just wanted to say that I 
look forward to working with you on my legislation, the Prove 
It Act. I know you have not had a lot of time to review it yet, 
but you did mention in your testimony that you do have concerns 
with agency analysis and agencies that are not maybe paying 
attention to the voice of small business or your analysis, and 
what my bill does, it seeks to incentivize better analysis and 
certifications. So, I would love to work with you on this 
effort, find a great way forward, which I think we have got a 
great start to here with this bill.
    You have mentioned a couple of different interesting 
points. You mentioned the roundtables that Senator Shaheen had 
asked about. Did EPA meet with small business at all, do a 
roundtable, when they were going through the WOTUS effort?
    Mr. DePriest. Yes, they were, if I remember correctly, at 
least four.
    Senator Ernst. And they discounted the feedback that came 
from those small businesses during that discussion?
    Mr. DePriest. The small businesses did not persuade them 
that there would be the significant impact, yes.
    Senator Ernst. Okay. Do we see that there is significant 
impact for small----
    Mr. DePriest. Well, the rule has been stayed, although as I 
said----
    Senator Ernst. Correct.
    Mr. DePriest [continuing]. In response to Senator Vitter's 
questions, our position on this remains the same, that this 
particular rule will have a significant impact on a substantial 
number of small entities.
    Senator Ernst. And I feel exactly the same way. So, we do 
understand that the rule has been stayed, but the important 
thing to remember is that it will take years for this process 
to happen through the judicial branch. And, so, rather than 
working with the agencies on the front end and bringing a 
little more transparency, the stakeholders together, and 
working to improve the legislation, now we are caught up in the 
judiciary.
    And as--and this was a different issue, but I know that 
Administrator Gina McCarthy had mentioned with a different rule 
that was being promulgated and had gone through the court 
system that--and she made light of it--that it did not really 
matter how the court decided, because by the time it all came 
out in the end, after years of going through the judicial 
branch, those businesses will have already made their changes 
to comply with the federal standards.
    That is an unfortunate situation, and I see that our small 
businesses may be caught in that, as well, where they do not 
know how it is going to turn out, so they are going to make 
those unnecessary investments to meet the obligation should it 
not go in their favor. That is very unfortunate when I think we 
should be working these issues out on the front end.
    How often would you say that agencies improperly certify?
    Mr. DePriest. I honestly do not know the answer to that 
question. I do know that it is significant, that it does occur, 
which is why we suggested in our legislative priorities that we 
look at the certification issue.
    Senator Ernst. Yes. I think we need to. This is a problem.
    Mr. DePriest. Yes.
    Senator Ernst. And, how often do you find that agencies 
have not provided the best analysis, in a transparent manner, 
and easy to access, as well, because I can tell you, a lot of 
stakeholders do not know where to go to find information, do 
not know how to access that.
    Mr. DePriest. I cannot give you, again, the exact numbers, 
but as I said in our--that is another of the areas where we 
think the RFA could be strengthened, given the strength of the 
certifications that we encounter.
    Senator Ernst. Okay. Well, I appreciate it today. I am 
running a little short of time, but I do want to thank you for 
your efforts. I think it is really important and I would love 
to work with you in these areas. I think a number of us are 
very passionate about this, and so, Mr. Chair, I do want to 
thank you for holding this hearing today, so I appreciate it.
    Chairman Vitter. Thank you very much.
    Now, Senator Heitkamp.
    Senator Heitkamp. Thank you, Mr. Chairman.
    You know, one of the things that I am troubled by, a lot of 
discussion about Waters of the United States, because we have 
been in and out of court for over 25 years. We know that EPA 
has not satisfied at least the Supreme Court's idea of what are 
Waters of the United States, but yet this body fails to act. We 
all have a pretty good time beating up on regulatory agencies, 
and I will not defend the process. I think that, clearly, 
Waters of the United States is going to have a very dramatic 
and significant impact on small entities.
    But, just to lay down a marker, it is up to this body to 
step in after this kind of up and down litigation, and we do 
have an access for small business. They are called committee 
hearings and we like to hear from small entities.
    I want to get to your discussion about retrospective review 
and why it is so significant. Under current existing mandates, 
after ten years, if there had been a finding that there was a 
significant impact on--substantial impact on a significant 
number of entities, that they would be required to 
automatically do a ten-year review. You suggested in your 
comments that we should look at how that retrospective review 
is being performed.
    I am wondering if you have had a chance to review a bill 
that I have introduced that has come through unanimously the 
HSGAC Committee, which is S. 1817. Have you had a chance to 
take a look at that bill?
    Mr. DePriest. I have not, Senator.
    Senator Heitkamp. What that bill would do is it would 
automatically require for any major rule, regardless of any 
process that was gone through to begin with, once we have 
designated a major rule, there would have to be a process put 
in place when that rule is being promulgated to basically 
notify everyone, all the stakeholders, that this is the 
retrospective analysis that needs to be done into the future. 
And, so, I call it the prospective retrospective, because it 
would not deal with the body of legislation that we have--or 
regulation that we have outstanding, but it would, in fact, set 
down a marker for a process for substantial, or for significant 
review of any major regulation.
    My question to you, and I guess if you can answer it today, 
is would that bill satisfy the concern that you have as a small 
business advocate that we would be, in fact, engaged in 
requiring retrospective review.
    Mr. DePriest. Senator, I would really like to take a look 
at it and see whether that addresses the issue. I am open to 
looking at it and working with you and your staff to see 
whether there are ways in which we can strengthen the 
retrospective review. As I said, it is one of our priorities, 
as well.
    Senator Heitkamp. We have another bill that has been 
knocking around that would basically put into place a 
commission that would, in fact, do retrospective review, or at 
least review rules, because one of the things that we see when 
we asked agencies, you know, how many of your rules are aging 
out of the system, no longer applicable, are make work 
paperwork but they still are doing it because no one takes a 
look at the rule, we find that they do not find a lot of their 
rules are aged out. And, so, I think we need a second look and 
an independent look, which I think the Chairman was getting at.
    One of the other kind of challenges that we have in all of 
this is making sure that for many of our entities, they have 
the ability to help small business come into compliance. Most 
of the agencies, I think, believe--they want to help small 
business come into compliance, but yet we see this frustration 
when it is ``gotcha'' moments as opposed to cooperation. What 
could we do to strengthen the agencies' mandate to help small 
business come into compliance with new regulation?
    Mr. DePriest. Actually, there is currently a requirement--
--
    Senator Heitkamp. Right.
    Mr. DePriest [continuing]. That the agencies actually put 
together a compliance document.
    Senator Heitkamp. If they were doing that, we would not get 
complaints.
    Mr. DePriest. Understood.
    Senator Heitkamp. So, we think there is a failure to 
actually perform that function.
    Mr. DePriest. Understood. Well, we work with the agencies, 
and we have put that in our comment letters, as well, that the 
agency has not come up with a compliance document. So, that is 
another area that we could study, certainly, and try to come up 
with something that might force that a little bit more.
    Senator Heitkamp. Mr. Chairman, if I could just have a few 
more minutes, the subcommittee that I am ranking on with 
Senator Lankford, and Senator Ernst sits on, as well, has been 
doing a lot of work on various proposals, and I think some of 
the suggestions that you provided today should help inform our 
work on that subcommittee and so we would like to engage your 
Office and the work that you do in reviewing some of these 
attempts at bringing more people into the process, helping 
small business, in particular, have a voice in what that 
regulation does, but then on the backside, making sure that the 
compliance requirements are being met.
    And, so, I would love to have a visit with you, review the 
packages that we have been working on, and see if we can 
enhance those based on your experience at the Small Business 
Advocacy.
    Mr. DePriest. Certainly. Thank you. Certainly.
    Chairman Vitter. Great. Thank you.
    The vote, just so everyone knows, has been pushed from 
11:00 to 12:00, so we have a little more flexibility. I want to 
just follow up with one question, and then I will invite the 
other members, if they have any wrap-up for Mr. DePriest.
    I commend you and thank you for recognizing the need for 
some additional SBREFA panels, specifically Fish and Wildlife, 
which I agree with. Do you believe the Department of Labor 
could benefit from conducting panels? Specifically, their Wage 
and Hour Division has issued significant rules with big, big 
impact on small business in a number of areas, so that is why I 
specifically bring that up.
    Mr. DePriest. Well, as you know, the purpose of the SBREFA 
panels is to bring small business to the table and so the 
regulators can hear the interest. Better information, better 
rules is our mantra.
    Insofar as the other agencies, OSHA is covered, as you 
know. We have found that the Department of Labor really does 
hear from small businesses as they put forward these 
regulations. For example, the overtime rule which is currently 
working through the process, we have conducted five roundtables 
around the country to bring small businesses together with the 
Department of Labor. They have heard the interests that have 
been expressed.
    So, it is not--so, I am not sure that having the panel 
process is going to be even more information. If you had an 
agency that really was not soliciting the views of small 
business, then yes. But, I have found that in my experience, 
what I have seen thus far and what my staff has explained to 
me, that has not been a problem.
    Chairman Vitter. Well, I know Labor is hearing from small 
business. I would disagree with any suggestion that they are 
listening to small business. It is two very different things.
    Mr. DePriest. Understood.
    Chairman Vitter. I personally think the SBREFA process 
would force more of that, and certainly those rules I alluded 
to are very significant on small business.
    Any wrap-up questions for Mr. DePriest?
    Okay. Thank you very much. I appreciate it.
    Mr. DePriest. No, thank you. I appreciate it.
    Chairman Vitter. We will now move on to our second panel, 
and as they get situated at the table, I will go ahead and 
introduce them. If I can just have everybody's attention, I 
want to go ahead and introduce our second panel.
    Ms. Beth Milito serves as the Senior Executive Counsel with 
the National Federation of Independent Small Business Legal 
Center, a position she has held since March 2004. She has 
experience testifying before Congress, administrative agencies, 
and state legislatures on the impact of legislative and 
regulatory issues.
    Mr. Frank Knapp is the President and CEO of the South 
Carolina Small Business Chamber of Commerce and the Board Chair 
of the American Sustainable Business Council.
    And, finally, Mr. Rosario Palmieri is the Vice President 
for Labor, Legal and Regulatory Policy at the National 
Association of Manufacturers. In that capacity, he works with 
NAM members to develop and articulate the Association's 
position on regulatory, civil justice, antitrust, food, 
beverage, consumer product, and labor issues.
    You will each have five minutes to present testimony. Of 
course, all of your written testimony will be made part of the 
record.
    Ms. Milito, welcome.

STATEMENT OF ELIZABETH MILITO, SENIOR EXECUTIVE COUNSEL, SMALL 
   BUSINESS LEGAL CENTER, NATIONAL FEDERATION OF INDEPENDENT 
                    BUSINESS, WASHINGTON, DC

    Ms. Milito. Thank you very much, Chairman Vitter, Senator 
Ernst, and staff. Thank you all for your work on this hearing 
for today.
    On behalf of the National Federation of Independent 
Business, I appreciate the opportunity to testify on the 
devastating impact that overregulation has on small business 
and highlight the critical need for Regulatory Flexibility Act 
reforms.
    The costs of regulation are higher than ever, with the 
smallest firms bearing a disproportionate burden of the per 
employee costs. In short, small businesses are drowning and 
there does not appear to be a lifeguard on duty.
    In his first Inaugural Address, Thomas Jefferson said that 
the sum of good government was one which shall restrain men 
from injuring one another and shall leave them otherwise free 
to regulate their own pursuits of industry. Unfortunately, the 
Federal Government has ignored this axiom.
    The current regulatory system is broken. Onerous permitting 
requirements have made it extremely difficult, expensive, and 
time consuming to build much of anything today. According to 
the NFIB's Small Business Economic Trend Survey, last month, 21 
percent of small business owners cited government regulations 
and red tape as their single most important problem. Despite 
the devastating impact of regulation on small business, federal 
agencies continue to churn out approximately ten new 
regulations each day.
    With that as a backdrop, I would like to briefly discuss 
two regulations that are of particular concern to NFIB.
    On June 29, 2015, the Environmental Protection Agency 
issued the Waters of the U.S. rule, which changes the Clean 
Water Act's definition for Waters of the United States to 
govern not just navigable waterways, as stated in the statute, 
but every place where water could possibly flow or pool. Under 
the rule, EPA and the Army Corps may now require homebuilders, 
farmers, and other property owners to spend tens of thousands 
of dollars on a permit before they can build or even do simple 
landscaping around seasonal streams, ponds, ditches, and 
depressions. Amazingly, EPA failed to analyze the small 
business impact of the rule as required by the RFA. In early 
2015, SBA's Office of Advocacy formally urged EPA to withdraw 
the Waters rule because of its potentially huge impact on small 
businesses.
    In addition to the Waters of the U.S. rule, I want to 
discuss a proposed labor regulation that could impact a 
substantial number of small businesses and further demonstrates 
the need for RFA reform. For the small businesses, labor 
regulations are particularly challenging. The small metal 
fabricator, for example, goes into business knowing how to 
finish metal products. He has a good sense of where he can get 
the supplies he needs and what kind of skills he is looking for 
in a workforce. What he likely does not know are the best 
business practices regarding wage and overtime calculation, 
compliance with anti-discrimination laws, and best hiring 
practices.
    On July 6, 2015, the Department of Labor published a 
proposed rule that would more than double the minimum salary 
that a worker must receive to be exempt from overtime, from the 
current $23,660 to over $54,000 annually. This rule is the 
epitome of an RFA analysis gone wrong. The nearly $750 million 
DOL's initial Regulatory Flexibility Act analysis estimates 
small businesses would face in new costs during the rule's 
first year grossly underestimates the true compliance costs for 
small businesses.
    For example, DOL estimates it will take only one hour for 
businesses to become familiar with a new overtime rule, but 
this assumption disregards a basic reality of regulatory 
compliance. It is the small business owner who will be wading 
through the rule's text, not compliance specialists or outside 
counsel, like in large companies.
    NFIB believes that DOL's proposed overtime rule and the 
EPA's Waters of the U.S. rule clearly demonstrate why Congress 
must enact regulatory reforms to level the playing field for 
small businesses.
    Congress should expand Small Business Advocacy Review 
Panels to all agencies, including independent agencies. In so 
doing, all agencies, like DOL's Wage and Hour Division, would 
be in a better position to understand how small businesses 
operate and how the regulatory disproportionately impacts small 
businesses.
    And agencies should be held accountable when they fail to 
give proper consideration to the comments of the Office of 
Advocacy, and a formal mechanism should be put in place for 
resolving economic cost disputes between the agency and 
Advocacy.
    Small businesses are the forefront of our economy, 
employing nearly half of all private sector employees in this 
country. This is why NFIB will continue to push for 
transparency in the rulemaking process and fight back against 
regulations that create unnecessary burdens with unintended 
consequences. Agencies must recognize that flexibility, as 
mandated by the Regulatory Flexibility Act, affords small 
employers the opportunity to treat their employees and their 
workers fairly and allow small businesses to become community 
leaders and the engines of our economy.
    Thank you for holding this important hearing to shine light 
on the fact that regulatory reform needs to be a priority for 
Congress. I look forward to answering any questions you might 
have. Thank you.
    [The prepared statement of Ms. Milito follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Vitter. Thank you very, very much, Ms. Milito.
    Now, we will hear from Mr. Knapp.

 STATEMENT OF FRANK KNAPP, JR., PRESIDENT AND CHIEF EXECUTIVE 
  OFFICER, SOUTH CAROLINA SMALL BUSINESS CHAMBER OF COMMERCE, 
                          COLUMBIA, SC

    Mr. Knapp. Thank you, Chairman Vitter and members of the 
committee. My name is Frank Knapp. I am the President and CEO 
of the South Carolina Small Business Chamber of Commerce and 
Board Co-Chair of the American Sustainable Business Council, 
which through its network represents 200,000 businesses.
    Clean water--everyone in this room wants it, small business 
owners want it, and they understand that the way we protect it 
is through regulations. National scientific polling 
commissioned by the American Sustainable Business Council found 
plenty of support by small businesses with fewer than 100 
employees to protect our waters. The survey showed that 80 
percent supported the WOTUS rule, 62 percent agreed that 
government regulations are needed to prevent water pollution, 
and 61 percent believe that government safeguards for water are 
good for businesses and local communities.
    Now, there is no denying that any regulation will be a 
burden on small businesses directly impacted by the regulation. 
While we all want clean water, we want to achieve the goal of 
the Clean Water Act with as little burden as possible on small 
businesses.
    In 1980, Congress passed the bipartisan Regulatory 
Flexibility Act, which was supposed to solve the problem of 
excessive burden on small businesses while allowing for needed 
regulations. The RFA worked.
    Which brings us to the issue of the RFA and the WOTUS rule, 
which was intended to answer the loud call for clarification on 
what waters are and are not covered under the Clean Water Act. 
The EPA believed that it complied with the RFA, even though it 
did not conduct a Small Business Regulatory Enforcement 
Fairness Act panel. The Office of Advocacy disagrees. There are 
no bad federal agency actors here, only a significant 
disagreement that will be settled by the court. Should the EPA 
have conducted a SBREFA panel? The court will decide that.
    However, the reality is that the Clean Water Act is a very 
complex law making the regulations to implement it very 
complicated and controversial. While the promulgation of almost 
all other regulations is managed with little problem, WOTUS is 
an anomaly. Therefore, it certainly does not justify 
significant changes to the RFA and certainly not to the changes 
of which I have seen proposed by the House or Senate. The 
regulatory reforms being offered either add more federal 
agencies to be subject to the RFA or add more administrative 
duties and requirements to those agencies already covered by 
the RFA without any additional resources.
    The result is not going to benefit small businesses, which 
need fair, well crafted regulations produced in a timely 
fashion. Instead, the results will be better described as de-
regulatory chaos. Federal agencies will take even longer than 
current years or even decades to promulgate regulations. There 
will be even more avenues for opponents of regulations to delay 
regulations through litigation. Businesses will face even more 
uncertainty due to longer time needed to promulgate regulations 
and increased litigation. The reality is that there is nothing 
wrong with the RFA, but here is what needs to be done to allow 
it to work in today's more complex and fast moving nation and 
government.
    First, we have created the public impression that all 
regulations are evil, and if we would just get rid of them, the 
economy will thrive. Cost is all the public hears, never the 
benefits of regulations. For example, the EPA and the Corps of 
Engineers estimate that permitting and mitigation costs under 
the WOTUS rule will increase by tens of millions annually. 
These are direct costs and some believe that indirect costs 
should also be reported.
    But there is no analysis showing how these direct costs are 
also direct benefits to the local economy because most of this 
money will go to local small businesses for goods and services. 
The money just does not disappear. It flows through the local 
economy directly and indirectly.
    The economic health and social benefits of rules put in 
terms of dollars is not considered by the Office of Advocacy 
and the regulatory agencies. Whether this is by statute or 
custom, this must change if we are to get truly accurate data 
to make rulemaking decisions and give the public complete 
information about the value of regulations.
    Second, everyone wants more outreach and better analysis of 
regulatory impact in promulgating a rule. So, let us invest in 
that. We have essentially starved the regulatory agencies and 
Advocacy while at the same time wanting both to do more. And 
then when the machine gets clogged up and controversial, we 
want to fix the wrong problem and make more problems. The RFA 
process we have today simply needs more resources so it can run 
more effectively and efficiently.
    Third, once a rule has been promulgated, and hopefully the 
burden on small businesses has been reduced as much as 
possible, the job of the Federal Government is not done. Small 
businesses need to be educated about the new rule, and when 
necessary, provided regulatory compliance assistance. Congress 
has also set up a process for this, not only within the 
regulatory agency, but also through the SBA Office of the 
National Ombudsman.
    Where the Office of Advocacy works on the front end of the 
development of significant regulations, the Office of the 
National Ombudsman is charged with helping small businesses on 
all regulation compliance on the back end. It serves as the 
conduit for small businesses to have their grievances about 
compliance problems or other issues with federal agencies heard 
directly by the agencies in question in an effort for 
successful resolution. In this way, the Office of the National 
Ombudsman and the agencies can detect patterns of compliance 
problems so that the agency can revisit the rule.
    This is an important part of the rulemaking process that is 
woefully underfunded and, thus, underutilized. If Congress 
really wants to help small businesses deal with the new federal 
regulations, invest more in the small businesses outreach, 
support, and feedback loop.
    Thank you for the opportunity to speak and I will be glad 
to answer any questions from the committee.
    [The prepared statement of Mr. Knapp follows:]

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Vitter. Thank you.
    And now, Mr. Palmieri.

 STATEMENT OF ROSARIO PALMIERI, VICE PRESIDENT, LABOR, LEGAL, 
 AND REGULATORY POLICY, NATIONAL ASSOCIATION OF MANUFACTURERS, 
                         WASHINGTON, DC

    Mr. Palmieri. Chairman Vitter, Senator Ernst, it is an 
honor to testify before you today about the implementation of 
the Regulatory Flexibility Act.
    The U.S. is the world's largest manufacturing economy, 
producing more than $2 trillion in value each year and directly 
employing nearly 12 million Americans and supporting 18 million 
jobs in the economy. Unfortunately, manufacturing jobs have not 
fully recovered since the last recession. We are still at a net 
loss of 1.5 million jobs. And to regain manufacturing momentum 
and return to net manufacturing job gains, we need improved 
economic conditions and improved government policies.
    Excessive regulatory changes and uncertainty impose high 
costs, especially on small businesses, and small businesses 
bear a disproportionate burden of regulation because of the 
often high fixed costs of compliance not subject to economies 
of scale. That is why the work of this committee and the 
implementation of the Regulatory Flexibility Act are so 
important. And unfortunately, agencies are not anxious to 
analyze these impacts.
    A recent study showed that between 1996 and 2012, fewer 
than eight percent of rules were subject to the RFA's analysis 
requirements. And although we hope that is because agencies 
were making excellent decisions, let me share a quick list of 
the most expensive EPA rules: EPA's greenhouse gas limits on 
power plants; National Ambient Air Quality Standards for Ozone; 
Boiler MACT; NESHAP 6X; and certainly the one we have talked 
about the most today, the Waters of the U.S. rule. EPA has 
certified that each of them would not have a significant impact 
on a substantial number of small entities, and I think we--most 
of us would agree that that just is not the case. And I list 
several other examples from other agencies, and EPA is not 
alone in its avoidance of the requirements of the RFA.
    SBA's Office of Advocacy has shared that it has saved small 
businesses $1.6 billion in first year regulatory cost savings 
and since 1998 has saved $130 billion. Imagine what could have 
been accomplished if fewer rules could evade these 
requirements.
    Lawmakers have universally supported the RFA's provisions, 
but Congress needs to strengthen the law and close the 
loopholes that agencies use to avoid its requirements. Among 
the reasons for the small number of regulations requiring this 
analysis for the exclusion of indirect effects, if an agency 
can claim it is not directly regulating small entities because 
it is regulating further up the supply chain or just regulating 
governments, it will not conduct an RFA.
    But this was not the original intent of the RFA. One of the 
original authors of the Act, Senator John Culver, a Democratic 
Senator from Iowa, clearly stated that the scope of the RFA 
included direct and indirect effects. Unfortunately, the courts 
disagreed and subsequent courts have found indirect effects to 
be outside the scope. But, this one change would bring many of 
the rules most costly to small businesses under the Act's 
framework and result in significant cost savings for small 
businesses.
    An example of an entire class of regulations exempted from 
the RFA because of this are Clean Air Act rules establishing 
National Ambient Air Quality Standards. Despite the fact that 
even the EPA acknowledges these rules often cost hundreds of 
billions of dollars to implement, no small entities are 
directly affected by these rules simply because the Clean Air 
Act only directly regulates states, which in turn regulate 
small businesses.
    The simple clarification of law will have significant 
benefits to our small business economy, all the while ensuring 
the continued strong protection of air quality. After all, the 
RFA only requires the analysis of small entity impacts. It does 
not dictate how an agency will design its regulation.
    Since the RFA was modeled on the National Environmental 
Policy Act, its consideration of effects is also helpful to 
understanding the original intent of the authors of the 
legislation and what Congress passed it. NEPA's implementing 
regulations define the term effect to mean direct effects and 
indirect effects which are caused by the action and are later 
in time or further removed in distance but are still reasonably 
foreseeable.
    The House has already passed legislation which would close 
many of the loopholes that agencies exploit to avoid the RFA's 
requirements, including the addition of indirect effects within 
the scope of the law. The NAM encourages the Senate to take 
action on similar provisions to ensure these vital 
improvements.
    Senate and House proposals importantly also address 
regulatory look-backs through an improved Section 610 of the 
RFA. While we have appreciated the administration's efforts on 
retrospective review of regulations, they have not resulted in 
significant cost savings or a change in culture in federal 
agencies. To truly build a culture of continuous improvement 
and thoughtful retrospective review of regulations, different 
incentives are needed. To incentivize these high-quality 
reviews, Section 610 must be reformed to clean up outdated or 
unnecessary regulatory accumulation.
    I appreciate the opportunity to testify today on behalf of 
manufacturers around the country and I applaud you for holding 
today's hearing. I would be happy to respond to questions.
    [The prepared statement of Mr. Palmieri follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Vitter. Thank you very much, Mr. Palmieri.
    I want to pick up on a theme you mentioned and ask Milito 
to talk about the implications for small businesses from the 
fact that indirect impacts are not taken into account in any 
way, because certainly those can be very, very significant. Do 
you agree with Mr. Palmieri that they should be taken into 
account?
    Ms. Milito. I absolutely do. Thank you very much for that 
question. And as Mr. Palmieri mentioned, one of the rules that 
NFIB is concerned about, and I believe this is in my written 
statement, too, was the Clean Power Plan rule, too, and that is 
because of the indirect impact that that rule is going to have 
on energy costs for small businesses.
    So, we--NFIB has for a long time advocated that agencies 
consider the indirect impact that the rules will have. And I 
know this is something that the Office of Advocacy has also 
raised, too, and it came up in the Department of Labor, the 
overtime rule, too, and it is something that I think is often 
brushed off by agencies. So, we would be very supportive of a 
reform that would require agencies to consider indirect impact.
    Chairman Vitter. Okay. Ms. Milito, my second question is 
about small businesses having adequate time to hear about a 
rule and offer feedback through the public comment period. Do 
you think they, in general, have adequate time, and are 
agencies responsive or not, in general, to requests for 
extension of that comment period?
    Ms. Milito. In my opinion, agencies are--have not been 
particularly receptive to requests for additional time, and 
that has been very true, I would say, in the last 18 months, I 
think where the administration is on the clock and racing to 
get some rules out. Certainly, that was the case, 
unfortunately, with the overtime rule. Some economic studies 
could not be completed. I mean, NFIB's own economic study came 
in after the proposal closed, and at that point, we found out 
that the overtime rule will impact probably at least 40 percent 
of NFIB members. But we could not get that in the formal record 
because we just did not have time.
    So, again, that is a problem that we just do not have 
enough time, and, you know, to get the word out to small 
businesses, too, that this rule is coming down and we want your 
input.
    Chairman Vitter. Okay. Mr. Palmieri, you have been closely 
involved in this regulatory reform discussion for more than a 
decade. Over the period you have watched it, do you believe 
agencies have begun following the RFA less and less over time? 
Is that the trend line? I certainly think it is, unfortunately, 
and what do you think that is the result of?
    Mr. Palmieri. I think that every government agency wants to 
do its job extraordinarily well, but because of time factors or 
others finds work-arounds. And, so, work-arounds to the 
Regulatory Flexibility Act or others are simply avoiding them 
whenever possible. And, so, even if they feel like they are 
doing an excellent job of analyzing the impacts of a rule, they 
would rather not go through these procedural requirements if 
they do not have to, and the law review article I mentioned in 
my testimony by Connor Raso suggests that agencies have been 
excellent at avoiding procedural requirements, especially the 
RFA, even more so than the Administrative Procedures Act.
    So, it is very clear that agencies, whenever possible, will 
not conduct this analysis unless they are required to by 
Congress, and these loopholes, for lack of a better word, have 
allowed them to do so, and, I think, unfortunately, every few 
years, the RFA and other provisions which attempt to restrain 
agencies or correct their thinking in certain ways absolutely 
have to be reformed to improve the system.
    Chairman Vitter. Okay. And, Mr. Palmieri, you mention a 
number of possible improvements. What would you list as the top 
three or so reforms needed to the RFA?
    Mr. Palmieri. I would say indirect effects is absolutely a 
number one. Some improvement to the process, whether it is rule 
writing authority for the chief counsel or some other third 
party certification process to assist agencies in correctly 
certifying these rules, the 610 process, and expansion of 
SBREFA panels.
    Chairman Vitter. Okay. All right. Thank you very much.
    Senator Ernst.
    Senator Ernst. Yes, thank you, Mr. Chairman, and thank you 
to all three of you for appearing in front of our committee 
today.
    Mr. Palmieri, I should not have to ask this, but I will. I 
think you have made your position clear on this. But, is it 
safe to say that you think WOTUS would have a direct 
significant economic impact on your manufacturers?
    Mr. Palmieri. Absolutely. I mean, so, even when it is not 
directly impacting a facility, the ability to transport their 
goods to market for export is another critical factor here and 
we know very clearly how significant an impact this will have 
on our infrastructure in many ways.
    Senator Ernst. Can you list out for the record other 
impacts, other areas that might have an economic impact on 
those manufacturers or small businesses?
    Mr. Palmieri. Sure. I mean, energy prices, because of the 
transmission location and others, public infrastructure, roads, 
others on the transportation side, and then, certainly, 
depending on the type of manufacturing facility, its ability to 
expand its facility may be extraordinarily limited. Its ability 
to get permits, you know, we use a significant amount of water 
in manufacturing and send it back out cleaner than it came in, 
all of those industries would be heavily impacted.
    Senator Ernst. Have you had the opportunity to discuss with 
some of your manufacturers--I just got this as a comment when I 
was in Iowa on part of my 99 county tour, but there was a 
manufacturer there that had questions about expanding and 
adding on to their facility. Have you had any indications of 
what a permitting process would be like for those that just 
simply wanted to add on a few thousand additional square feet 
onto a facility?
    Mr. Palmieri. I guess what I would say is that the 
permitting process is already so challenging on the air quality 
side as well as all of the other local challenges, that adding 
the length of time often associated with the Section 404 
permitting process could add 18 months to two years plus to any 
type of facility expansion, and that is on top of the years 
that it already takes. And, so, for many manufacturers, even 
the possibility that they might need a 404 permit is enough to 
say, I am not going to expand this facility. I am going to find 
other ways. I am going to think about a new facility in a 
different area that would not be affected. And, so, this harms 
many communities where these permits might be necessary.
    Senator Ernst. Yes. And you mentioned the exact answer that 
I got from this manufacturer after they had looked into the 
permitting requirements, the impact of many of these rules and 
regulations, and they simply decided, as a small business, it 
is not worth our time or effort to attempt to expand our 
business and industry, and that is very unfortunate. That is 
not the answer that I want to hear from our economic engines 
out there. So, it has been very frustrating.
    And, in Iowa--and I keep going back to WOTUS because I am 
familiar--very familiar--with WOTUS--in Iowa, the WOTUS rule as 
it is mapped out would impact 97 percent of our land in Iowa--
97 percent. I know in Missouri it is 99.8 percent of the land 
in Missouri. So, God bless those three percent of the folks in 
Iowa that will not have to go through the permitting process, 
but this is the challenge that we have. And most of our small 
homeowners, small business owners, they simply cannot go 
through the regulatory burdens that so many of the large 
manufacturers can.
    Again for you, Mr. Palmieri, in your testimony, you 
mentioned the need to enhance the abilities of Advocacy to 
improve the quality of regulation. Do you think that giving 
Advocacy an additional review flag in the form of requesting 
OIRA to prove an agency's analysis will promote more thoughtful 
consideration of small entities?
    Mr. Palmieri. Absolutely. I mean, we think that this 
decision is too important to be left purely to an agency that 
is, unfortunately, in its self interest to certify that it does 
not have to comply with the RFA.
    Senator Ernst. Okay. Well, I thank you for your input. 
Thank you for being here today.
    Thank you, Mr. Chair.
    Chairman Vitter. Okay. I am going to go to a short second 
round, because I did not get to Mr. Knapp.
    Mr. Knapp, for an entity that is self-proclaimed as a small 
business organization, you all take positions that are 
outliers, in my experience, in terms of small business 
organizations. You all supported Dodd-Frank. You supported 
increasing the EPA's budget, a big small business agenda item--
I am saying that facetiously, in my experience--opposed tort 
reform, supported Waters of the United States rule. What do you 
think explains the fact that you take positions which I have 
never heard any other small business entity taking?
    Mr. Knapp. Thank you, Mr. Chairman. Thank you for the 
opportunity to actually have a question asked.
    First of all, I do want to point out that we do not self-
describe. We are no more self-descriptive than the National 
Association of Manufacturers represent the manufacturers and 
NFIB represents their members.
    Look, we----
    Chairman Vitter. Just to be clear, I was just referring to 
the name of the organization----
    Mr. Knapp. Yes.
    Chairman Vitter [continuing]. Which is the South Carolina 
Small Business Chamber of Commerce.
    Mr. Knapp. That is correct, and we are, in fact, that. And, 
also, the American Sustainable Business Council, also 
representing about 2,000 businesses--200,000 across the 
country.
    So, the question, then, is why are we outliers, and I do 
not disagree with that assessment of traditional business 
organizations. We in South Carolina are only concerned about 
small businesses. We do not have to worry about big businesses. 
They will take care of themselves. And it has been our 
experience in South Carolina that when organizations that 
represent businesses in general typically will come down on the 
side for whatever is in the best interest of big business, and 
I think it is very clear that whatever is in the--if things are 
in the interest of big business, that does not mean they are 
always in the best interest of small businesses.
    So, yes, we do take positions that are often in 
disagreement with other business organizations, but we do back 
that up with research and we do back that up with logic and our 
experience. So, I appreciate your question, though.
    Chairman Vitter. Okay. Well, just to be clear in terms of 
where I am coming from, I was not talking about U.S. Chamber of 
Commerce. I was talking about specific small business 
organizations that I am familiar with, still very, very 
different on all the issues I mentioned.
    Mr. Knapp. Yes, sir.
    Chairman Vitter. To that point, how are you all funded?
    Mr. Knapp. How are we all funded? Well, if you are talking 
about the South Carolina Small Business Chamber of Commerce, we 
are funded with dues. We are not a very well resourced 
organization, and we do have dues. We do have other sources of 
income, working on special projects.
    The American Sustainable Business Council is, again, a dues 
structured organization, both from the organizations that 
belong as well as the individual businesses and individuals 
that contribute to it. They often also are working on direct 
projects along with other organizations. So--which is not 
uncommon for most small business organizations to really have 
different sources of revenue stream, and we offer benefits and 
we derive some cash flow from those benefits we offer.
    Chairman Vitter. And for the South Carolina entity, of all 
the dues and contributions of any kind for projects or anything 
else, what percentage do you think come from trial lawyers or 
people associated with trial lawyers?
    Mr. Knapp. Uh, no more so than anybody else. The 
Association for Justice is a trade association member.
    Chairman Vitter. Well, you say no more so than anyone 
else----
    Mr. Knapp. No more so than any other trade----
    Chairman Vitter. If anyone else means other small business 
associations, their answer would be zero, I guarantee you.
    Mr. Knapp. Yeah. Well----
    Chairman Vitter. So, if your answer is anything above zero, 
that is very different, but go ahead. I did not mean to 
interrupt.
    Mr. Knapp. Well, let us put it this way. I disagree with 
this line of questioning, of questioning our organization and 
our authenticity and who we represent in the decisions we make 
and that business. We have a board of directors and they make 
the decisions. They are made up of small business people. So, 
however we cobble together our resources to operate, and we do 
not operate with a very large budget. We probably operate with 
less than three days' budget of the National Manufacturers 
Association. So, we do it because I can provide some resources 
to the organization that I have other sources of revenue 
through my small businesses, and so that is the way of life 
with small businesses. They are often under-resourced and 
overworked, but we do the best we can because we operate like a 
small business.
    Chairman Vitter. Okay. So, again, what would that 
percentage be for----
    Mr. Knapp. I honestly cannot answer that question. I mean, 
I can if I go back, but I do not think it is relevant to this 
point of view.
    Chairman Vitter. Okay. Well, this disagreement, I think, is 
very relevant.
    But, thank you all very much for your testimony. This is a 
very important topic which we are certainly going to follow up 
on, and I am going to continue working with all the committee 
members on a bipartisan bill to find additional ways to protect 
small businesses and ensure their voice is heard in the 
rulemaking process.
    So, with that, the hearing is adjourned.
    [Whereupon, at 11:09 a.m., the committee was adjourned.]

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