[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
REGULATING THE REGULATORS--REDUCING BURDENS ON SMALL BUSINESS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON INVESTIGATIONS, OVERSIGHT AND REGULATIONS
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
MARCH 14, 2013
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 113-005
Available via the GPO Website: www.fdsys.gov
__________
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
BLAINE LUETKEMER, Missour
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JAIME HERRERA BEUTLER, Washington
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
DAVID SCHWEIKERT, Arizona
KERRY BENTIVOLIO, Michigan
CHRIS COLLINS, New York
TOM RICE, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
YVETTE CLARKE, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRAD SCHNEIDER, Illinois
RON BARBER, Arizona
ANN McLANE KUSTER, New Hampshire
PATRICK MURPHY, Florida
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. David Schweikert............................................ 1
Hon. Yvette Clarke............................................... 1
WITNESSES
Winslow Sargeant, Ph.D., Chief Counsel for Advocacy, United
States Small Business Administration, Washington, DC........... 2
Marc D. Freedman, Executive Director, Labor Law Policy, United
States Chamber of Commerce, Washington, DC..................... 14
Carl Harris, Vice President and General Manager, Carl Harris Co.,
Inc., Wichita, KS, on behalf of the National Association of
Home Builders.................................................. 16
Rena Steinzor, Professor, University of Maryland Carey Law
School, Baltimore, MD.......................................... 17
APPENDIX
Prepared Statements:
Winslow Sargeant, Ph.D., Chief Counsel for Advocacy, United
States Small Business Administration, Washington, DC;
Report on the Regulatory Flexibility Act FY 2012; and
Letter to Hon. Schweikert and Hon. Clarke.................. 27
Marc D. Freedman, Executive Director, Labor Law Policy,
United States Chamber of Commerce, Washington, DC.......... 106
Carl Harris, Vice President and General Manager, Carl Harris
Co., Inc., Wichita, KS, on behalf of the National
Association of Home Builders............................... 115
Rena Steinzor, Professor, University of Maryland Carey Law
School, Baltimore, MD...................................... 125
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
Letter from Associated Builders and Contractors, Inc. (ABC),
Kristen Swearingen, Senior Director, Legislative Affairs... 199
Letter from Thomas Sullivan, Former Chief Counsel for
Advocacy and Jere Glover, Former Chief Counsel for Advocacy 200
Letter from the National Automatic Merchandising Association
(NAMA), Carla Balakgie, FASAE, CAE, President and CEO, NAMA 202
Letter from National Federation of Independent Business
(NFIB), Susan Eckerly, Senior Vice President, Public Policy 204
Letter from National Roofing Contractors Association (NRCA),
Bruce McCrory, Kiker Corp., Mobile, AL, President, NRCA.... 206
Letter from NTCA-The Rural Broadband Association, Tom Wacker,
Vice President of Government Affairs....................... 208
Letter from American Trucking Associations (ATA), David J.
Osiecki, Senior Vice President............................. 210
Letter from Trade Groups..................................... 212
Letter from the National Association of the Remodeling
Industry (NARI), Mary Busey Harris, CAE, Executive Vice
President.................................................. 215
Letter from the National Restaurant Association, Angelo I.
Amador, Esq., Vice President, Labor & Workforce Policy and
Ryan P. Kearney, Manager, Labor & Workforce Policy......... 217
Letter from the National Retail Federation (NRF), David
French, Senior Vice President, Government Relations........ 218
Letter from the Small Business & Entrepreneurship Council
(SBE Council), Karen Kerrigan, President & CEO............. 220
REGULATING THE REGULATORS--REDUCING BURDENS ON SMALL BUSINESS
Thursday, March 14, 2013
House of Representatives
Committee on Small Business,
Subcommittee on Investigations, Oversight and
Regulations
Washington, DC.
The Subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2360, Rayburn House Office Building. Hon. David Schweikert
[chairman of the subcommittee] presiding.
Present: Representatives Schweikert, Bentivolio, Chabot,
Clarke, and McLane Kuster.
Chairman SCHWEIKERT. Good morning. I want to welcome
everyone to our Subcommittee. And Ranking Member Clarke, I look
forward to this. I am learning lots of things. I had the
opportunity to read everyone's testimony last night, and at
today's hearing we are going to focus on the Regulatory
Flexibility Act (RFA), analyze the impacts of these regulations
and the mechanics and the advocacy you do for small business.
Once again, in much of the reading last night, there was
the constant theme of the danger of a regulation that is maybe
``one size fits all'' and yet how radically different the sizes
of our business organizations are across our country. There is
one thing I am going to personally sort of keep as a theme and
look for, is I found in much of this binder a lack of sort of
data. Here is the flow. Here is how we actually make the
decision.
Dr. Sargeant, as you give us your testimony and then we
engage in some of the conversation, my understanding is you may
have a few thousand rule sets that are ultimately floating
across your desk. How do you triage that? How do you make a
decision that these are the 40 or 50 that are most impactful?
And in reality, you are not going to catch everything, but I am
sort of curious of your methodology. And also suggestions from
you and the rest of the witnesses on how we can make the
process work even better. Remember, this is a law that has been
around since the late Carter Administration. In that time set,
the world has changed a lot. What do we do to continue to make
this work for our small businesses out there?
Ranking Member?
Ms. CLARKE. Thank you, Mr. Chairman. And thank you for your
indulgence this morning. When you are in the minority you wear
multiple caps. I happen to also be a ranking member on Homeland
Security, and we had a briefing this morning.
It is wonderful to be here and to have you here, Dr.
Sargeant, to give us your perspective. (To the Chairman) I
would like to thank you for holding today's important hearing.
Our nation's regulatory structure is absolutely vital in
protecting the public. The fact is, without regulations our air
would be less pure, our water unsafe to drink, and employee
would potentially be subject to unsafe and hazardous working
conditions. That said, most evidence points to a
disproportional impact on small businesses with regards to
regulatory compliance. Our small businesses and entrepreneurs
simply do not have the economies of scale to mitigate the costs
that large corporations do in this regard.
With that in mind, Congress passed the Regulatory
Flexibility Act to ensure that the concerns of small firms were
taken into account during the regulatory process. Past concerns
regarding agency failure to initiate a regulatory flexibility
analysis of a pending rule makes monitoring performance in this
area critical. Agencies have certified that a proposed rule
would not have a significant impact on small businesses when
the exact opposite becomes evident after the fact. In some
cases, analysis by the agencies have been lacking altogether;
thus, limiting the effectiveness of the law and shortchanging
America's entrepreneurs. For this act to maintain its
legitimacy, it is vital that its processes and requirements be
used appropriately to make regulations more targeted,
efficient, and effective.
For small businesses, regulation can be a two-sided coin.
While no entrepreneur wants to pay more or comply with
unnecessary rules, effective regulation can prevent unfair
practices that will benefit large companies at the expense of
our small business community causing harm to the public
interest. In that regard, our goal should not be the short-
sighted removal of all regulations but rather make the process
smarter, fairer, and one that protects the public good while
minimizing the impact on our nation's small businesses.
Again, I thank you, Mr. Chairman. And I yield back.
Chairman SCHWEIKERT. Thank you. Doctor, I know you have
testified before, but also for our future witnesses, mechanics
are fairly simple. You know, five minutes, green light start,
yellow light go faster, red light, an idiosyncrasy, and this
will be for everyone, I am going to let you finish at least
your thought. And with that, Dr. Sargeant, let me do a quick
introduction for you.
Dr. Winslow Sargeant was appointed by President Obama and
confirmed by the United States Senate as the sixth chief
counsel advocate for the United States Small Business
Administration. The Chief Counsel for Advocacy is charged with
monitoring agency compliance with the Regulatory Flexibility
Act and is required to annually report to Congress on his
findings. Welcome. Your five minutes begins.
STATEMENT OF WINSLOW SARGEANT, PH.D., CHIEF COUNSEL FOR
ADVOCACY, UNITED STATES SMALL BUSINESS ADMINISTRATION,
WASHINGTON, D.C.
Mr. SARGEANT. Chairman Schweikert, Ranking Member Clarke,
and Members of the Subcommittee, I am Dr. Winslow Sargeant,
chief counsel for advocacy. Thank you for the invitation to
appear before you today to discuss the important issue of
agency compliance with the Regulatory Flexibility Act or RFA.
Congress created the Office of Advocacy in 1976 to be a
voice for small business within the federal government.
Advocacy's mission is to advance the views, concerns, and
interests of small business before Congress, the White House,
federal agencies, federal courts, and policymakers. We work
with federal agencies in the rule-making process to implement
the requirements of the RFA. Under the RFA, agencies must
consider the effects of their proposed rules on small
businesses. When an agency finds that a proposed rule may have
a significant economic impact on a substantial number of small
entities, the agency must consider significant alternatives
that would minimize the burden on small entities while still
achieving the original goal of the regulation.
Advocacy works with federal agencies in a number of ways to
improve their RFA compliance and to ensure the concerns of
small businesses are considered during the rulemaking process.
Much of Advocacy's work with agencies is at the confidential
preproposal stage when agencies are working through the
regulatory development process. Advocacy continues to expand
its stakeholder outreach by hearing directly from small firms
and their representatives. This also gives agency rule writers
a chance to hear particular small business concerns. In total,
we have convened 84 roundtables since I became chief counsel.
Advocacy sends public comment letters that explain small
business concerns about certain regulations and other proposals
to agencies when warranted. As chief counsel, I have signed
more than 90 public comment letters on a variety of topics.
Three agencies are required to conduct a panel to gather
comments from small entity representatives on a proposed
regulation when it may have a significant economic impact on
small businesses. They are EPA, OSHA, and now the CFPB. These
panels include representatives from the rulemaking agency, OIRA
and Advocacy. In the last two years, we have participated in a
dozen Small Business Regulatory Enforcement Fairness Act
(SBREFA) panels, including the first three panels ever by the
CFPB.
Having generally explained how the Office of Advocacy works
with agencies, I am pleased to report that agencies continued
to improve their compliance with the RFA in fiscal year 2012. A
detailed analysis of this compliance can be found in Advocacy's
report on the Regulatory Flexibility Act fiscal year 2012 which
I delivered to Congress last month. I ask that a copy of this
report be submitted in its entirety into the record. Agency
compliance with the RFA pays real dividends to America's small
businesses. In fiscal year 2012, Advocacy's RFA work saved
small businesses $2.4 billion in first year regulatory costs
and another $1.2 billion in annually recurring costs.
The RFA and bipartisan efforts to enhance it have made this
critical small business law more effective in reducing the
regulatory burdens on small entities when regulations are still
in the development stage. The willingness of agencies to attend
the roundtables at Advocacy and hear directly from small
businesses has been a welcome development resulting in improved
agency compliance with the RFA. We have learned through our
more than 30 years of experience with the RFA that regulations
are more effective when small firms are part of the rulemaking
process. The result of enhanced agency cooperation with
Advocacy and improved agency compliance with the RFA benefits
small business, their regulatory environment, and the overall
economy.
Finally, I was invited here to testify on agency compliance
with the RFA. I understand testimony in the second panel
contains numerous misrepresentations of my office. I would like
to reserve the right to respond in detail in the record to
these inaccurate allegations.
Thank you again for the opportunity to testify on the
important work the Office of Advocacy does on behalf of small
businesses. I would be happy to take any questions you might
have.
Chairman SCHWEIKERT. Thank you, Doctor.
And do understand, when we finish up the hearing I believe
these Committees have, what, five days for any additional
written testimony. So if you hear something that you think
needs more detailed explanation, please give it to us.
Doctor, you and I started a conversation as we were passing
in, and first was the methodology of how you do your job. It is
2013. There is literally a few thousand rule sets out there in
some type of promulgation. How do you decide what you are going
to focus on?
Mr. SARGEANT. Well, Chairman Schweikert, there are a number
of ways that the Office of Advocacy is engaged in making sure
that the rules that are at the preproposal stage and also those
that are being proposed that we are in touch to make sure that
we are on top of all the right issues. We have a number of
regional advocates who are out in the field who are in touch
with small businesses. We hear their concerns. Under the RFA,
when a rule will have a significant economic impact on a
substantial number of small entities--now that is the
determination by an agency themselves, not the Office of
Advocacy--the agency must contact us to let us know that this
rule is coming and they believe it is going to have a
significant economic impact. So that is one way. They have to
notify us that this rule is coming.
We also have a number of attorneys in the office that work
directly with their counterparts at the agency, so they tell us
what rules are coming. There is a regulatory agenda that is
published, so we kind of see that is one input that we have as
a roadmap of what is coming down the pike. So there are many
ways that we are in touch.
Chairman SCHWEIKERT. In our time of doing this, and so you
have a methodology where the agencies are telling you this is
going to cost a certain amount and you are trying to track,
have you had the experience where the feedback you are getting
from outside advocacy groups are telling you dramatically
different dollars, burden compared to what you are actually
being told from the agency? And how do you split that sort of
arbitrage? How do you make that decision? How do you triage
that?
Mr. SARGEANT. Well, what we do, it is important for us to
have firsthand contact with those who are going to be impacted
by these rules. When a rule is proposed we will reach out.
There are many ways that we will reach out to trade
associations, to actual small businesses themselves to gauge
from them how this rule will impact their business. And from
that we may have a roundtable where we will invite the agencies
themselves to come and to share with us and with small business
owners why this rule is necessary and how it will impact them.
Chairman SCHWEIKERT. Do you often run into the experience
where the vision between sort of the small businesses or small
business advocacy groups and what the agency is a chasm?
Mr. SARGEANT. Well, that is why I have signed more than 90
comment letters in terms of that there are times where what we
are hearing from small business owners in terms of what the
impact of those rules will be, and what we are hearing from
those who are actually writing the rules, there is a
disconnect. In our report, one of the main reasons we may write
a comment letter is that we believe that there may be a
certification that this rule will not have a significant
economic impact, but what we are hearing is that it will. And
so that is where the disconnect will be. So that is the
feedback that we will give to the rule writers.
Chairman SCHWEIKERT. Doctor, do you believe your feedback
is being respected by many of those regulatory agencies?
Mr. SARGEANT. Well, we generally have a good working
relationship with agencies. They tend to do a good job. Under
Executive Order 13272, that was signed by George W. Bush,
agencies are required to respond to what we write. And so when
we say in writing that we believe this rule will have this
effect, they have to come back and just give some feedback.
Chairman SCHWEIKERT. Only two others. One may not be as
quick as the other.
You have been working with the CFPB?
Mr. SARGEANT. Yes.
Chairman SCHWEIKERT. Wide swath regulatory authority from
the community lender to the community bank. First, how has that
relationship been for you, your organization? Do you feel you
are getting input? But also seeing how they are a new
regulatory organization, do you see the discipline being built
for them to actually take your feedback and understand and
listen?
Mr. SARGEANT. We have a good relationship with CFPB. And I
guess one of the benefits of a new agency is that we can help
to train them. And so what we did when the agency was formed
under Dodd-Frank, and as you know under Dodd-Frank they are now
one of the three covered agencies that must conduct panels. And
so what we did, even before they started to write rules, we
would invite folks from CFPB to come over to the Office of
Advocacy so we can walk them through what the RFA is, how to
conduct a panel, what are some of the best practices. And so
far there have been three panels. And we work with them on who
they should invite. Of course, it is up to the agencies
themselves in terms of who will be invited to the panel, but we
do have a say as one of three heads that will be part of the
panel. And so out of the three panels, the feedback that I have
gotten from small businesses, they are pleased that their input
has been taken seriously.
Chairman SCHWEIKERT. Okay, Doctor. And the last one, and
this is sort of, and for the panel as we go through this year,
it sort of becomes a universal question I would like to ask,
and it may be from the statute you operate under or the rule
sets you have built for yourselves, what works? What does not
work? If you could walk in right now and say ``I wish this was
changed in my statute that would make us more effective,'' what
would you change?
Mr. SARGEANT. Well, the RFA has been around for more than
30 years, and we feel that it has worked well. But of course,
there are always ways that one could tweak it to actually make
it more effective. And so under my legislative priorities I
have submitted three recommendations to strengthen the RFA. One
is dealing with the SBREFA panel process. What we see under
609(b) is that when I am notified that a panel will take place
there is a 15-day gap that a panel can actually start. What we
are saying is that for the SERs or for those who are going to
be part of the panel, they need to have the data so they can
contribute. It does not make sense to have a panel and then
those who are at the table are not able to see the data and see
why this rule is being crafted. So we believe that by having a
gap of say, maybe, 60 days, then the agency will have more time
to make sure that the data gets out to those that will be on
the panel. So that is one.
Two, under the RFA Section 610, every year agencies are
required to look at rules that are 10 years old to see whether
or not those rules are needed. There is not a systematic
process in terms of how each agency goes through that. One
agency can say, well, we looked at the rule. It looks good. And
then, and so believe----
Chairman SCHWEIKERT. And you wrote about this in the past?
Mr. SARGEANT. Yes.
Chairman SCHWEIKERT. Were you not sort of writing also that
you were concerned how many agencies may or may not really be
doing it?
Mr. SARGEANT. Yes. And so there should be a systematic
process. So under 610, we believe that one should have a
systematic process to look at the rules that are more than 10
years old and to see whether or not those rules are needed. But
also look at the cost benefit is because a rule goes into
effect because we are trying to achieve some regulatory action.
Let us see what has taken place and see whether or not that
rule is needed. So that is two.
Third, the RFA deals with direct impacts on small business,
but we also know that there is what we call the near,
foreseeable indirect effects. There are those that might be
affected by new products and services, and so one may say,
well, it is not a direct effect but we can see that what we
call the circle, that one circle out, that there is an effect.
And so we want agencies, and so when we train agencies in terms
of how to comply with the RFA, we also tell them, yes, the
language says you have to consider the direct effect on small
entities. But also, we also want you to look at what is the
near foreseeable indirect effect as well.
Chairman SCHWEIKERT. All right. Thank you, Doctor. Ranking
Member.
Ms. CLARKE. Thank you, Mr. Chairman. And let me welcome Dr.
Sargeant to the Subcommittee today once again. I would like to
take a moment just to express my appreciation to you and your
staff and your New York regional advocate, Terry Coaxum to
inquiries from my office in the past, and I look forward to
continuing that work in relationship over the course of the
113th Congress.
Just as a follow-up to your last response to our chairman,
some say the biggest loophole in the RFA is the fact that it
does not require agencies to analyze indirect impacts.
Legislation has been approved by this Committee in the last two
congresses that would have required agencies to consider
foreseeable indirect impact of regulations or small firms.
Would you be supportive of such a change to the RFA? And why?
Mr. SARGEANT. Yes, I would be supportive. And we actually
train agencies under Executive 13272, we are charged to train
agencies on how to comply with the RFA. And in our training we
tell them, yes, the RFA states you have to consider the direct
effects, but we also have asked them to consider also what you
call the foreseeable. Because we recognize that there is an
impact. And when we talk with small business owners themselves,
they see that their products, their services have been impacted
by a particular regulation. And so I would be supportive of
making sure that agencies take into account what we call the
foreseeable.
I also know that agencies, when you say--because we can
measure what the direct impact is--once you say indirect
effects, that is what I call this broad loop. So that is why we
focus on what is called the near foreseeable. It is close. At
some point everything could be tied in. And so I would be
supportive and I would welcome the opportunity to work with you
on how we can define what are the near foreseeable indirect
effects.
Ms. CLARKE. Wonderful. And I think our chairman is
interested in looking at how we can get that done.
My second question is twofold. Could you first give us a
broader picture of your progress in ensuring the agencies are
fully complying with the RFA? And then secondly, in requesting
further compliance can you explain to us the effect of
sequester that the sequester will have on the Office of
Advocacy's ability to carry out its mission with regards to the
regulatory burden on small businesses?
Mr. SARGEANT. Each year we put out a report on agency
compliance with the RFA, and I have submitted for the record
which agencies. Most agencies do a good job but some, we
continue to work with them and we are pleased that the
president, under Executive Order 13563, has mandated that
agencies work with Advocacy to make sure that rules that are
coming down the pike that they, yes, they can promote health
and safety, but also take into account the impact of those
rules on small business. And so we have support from the
administration, and so we work with agencies to make sure that
they understand the RFA and we train them. And so we also have
roundtables. Roundtables that are open to the public. We invite
officials from the agencies so they can hear directly from
small businesses. And so that is one way that we work with
agencies on how they can comply.
With regard to the sequester, yes, we have been
significantly impacted by the sequester. We have been hit
roughly about 5.2 percent in terms of our budget, and so we are
going to lose about $460,000. And although we are not going to
lose people or I do not have to furlough people, we are going
to take a big hit to our research budget.
This office is founded on two goals. It is our research and
the regulatory mandate. We believe that good research leads to
sound regulation, but you have to have the research. So by not
having that funding, we are going to lose roughly six to seven
research reports that we would normally put out and so that is
the concern I have because we believe that good data leads to
sound regulation.
Ms. CLARKE. Then finally, one of the ongoing concerns with
the RFA has been the ability of agencies to continually forgo
the requirement in section 610 that requires periodic review of
the rules. How is President Obama's Executive Order 13563,
which requires retrospective agency review of regulations
meshing with the requirement of this section?
Mr. SARGEANT. Well, we were pleased that Executive Order
13563 came out because what it did is that it reminded agencies
that this is a requirement and it dovetailed very nicely with
610. And so we have been working with OIRA. We have been
working with agencies. We have shared with agencies rules that
are on the books right now that we have heard from small
businesses that are problematic or they have concerns with. And
so we continue to work with agencies. We were pleased that
Executive Order 13579 not only dealt with those that are part
of the Executive branch, but also the independent agencies
because the independent agencies sometimes feel that they do
not have to comply with the RFA. And so that was a
recommendation. We were pleased that E.O. 13563 and E.O. 135610
reminded agencies you must comply with retrospective review.
And also, there has been great outreach by us to work with
agencies on how to comply. And so we are seeing more progress.
We are seeing more agencies asking us to help them, to train
them, and so we have been very busy these past couple of years.
We have trained more than 100 staffers per year now on how to
comply with the RFA. So I do believe that there is a desire to
look at rules that are on the books. So that has been working
well.
Ms. CLARKE. Very well. Thank you so much, Dr. Sargeant. And
I yield back, Mr. Chairman.
Chairman SCHWEIKERT. Thank you, Ranking Member. And my
friend from Michigan. Five minutes.
Mr. BENTIVOLIO. Thank you, Mr. Chairman.
As I traveled throughout my district in Michigan, business
leaders tell me the same thing over and over again--it is too
hard to start or expand my small business because I can barely
understand how to comply with the latest regulations that have
come out of Washington. And they are right.
Over the last four years the number of business regulations
has skyrocketed and the result has been the worst economic
recovery in nearly a century. We have had such a weak economic
growth that I am not even sure we can call it a recovery. The
millions of people still out of work sure have not recovered. I
once believed that this was a nation of laws; instead, I find
this is not a nation of laws, rather a nation of regulations. A
``regunation'' if you will.
My question, Dr. Sargeant, is, well, I had a few
businessmen tell me that once they are complying or working
with a regulatory agency after they have worked six months or a
year the executive changes--there are changes and that kind of
thing--and then the new person that comes in to replace the old
executive has a whole set or new set of regulations they want
these businesses to adhere to. Do you see this as a problem?
And if so, how would we correct that?
Mr. SARGEANT. Well, what we try to do is to work with
agencies to make sure that they understand how a particular
rule will impact small businesses. But we also work with
agencies because we do not block rules or make rules less
effective, but we work with agencies so that they achieve their
regulatory goal. But also work with agencies in terms of
compliance. Because what we hear many times is that small
businesses, they want to comply but sometimes they do not know
how. And so there is a provision within the RFA that when you
put forth a rule, that you should also put forth a document on
how to comply with the rule. And so with our regional advocates
who are out in the field, we work directly with small
businesses. We also recognize that rules, yes, we focus at the
federal level, but there are also rules at the local and state
level. And as a small business owner, as someone who has run a
small business, I did not look at a rule, okay, this is a
federal rule, this is state, this is a local rule, I looked at
it as a rule and how am I going to comply? And so that is why
we work with states on how to enact a state version of the RFA.
My predecessor worked hard on how to make sure that there
is a process that when rules are put forth, even at the state
level, that there is feedback from small entities, but also
there is a way to comply. And once that is a process, we hope
that as people change that that process is clear, transparent,
and predictable.
Mr. BENTIVOLIO. So what does a business do if, for
instance, and I do not really think you answered my question. A
business is working with a branch of regulatory agency and the
executive comes in and says I want to focus on these
regulations and then six months or a year later another person
replaces that person at the regulatory agency and comes up with
a whole new agenda. And so sometimes, according to my small
businesses that I have talked to at my small business
roundtables in my community and my district, say that, well,
they have a whole set of different rules and it is kind of like
they have to drop what they are doing trying to comply with one
set to go in with a different set. Do you understand?
Mr. SARGEANT. Yes. Well, that is part of the regulatory
agenda because each year, twice a year, agencies are required
under the RFA to put forth what rules they are going to work
on. And if the rule will have a significant economic impact on
a substantial number of small entities, that is the language,
they have to contact us. They are required to put what is
called an IRFA. That is part of the RFA. They need to do the
analysis to say how this rule will impact small entities. And
so there is a process that must be followed and it is through
the RFA. And that is where we get to comment. We work with
agencies to make sure that small entities will have a say
within the process. So the RFA works when agencies work with us
and we reach out to agencies to bring in small entities so they
can have a say.
Mr. BENTIVOLIO. Thank you very much, Doctor. I yield back
my time.
Chairman SCHWEIKERT. Thank you. And to my good friend from
New Hampshire, Ms. Kuster.
Ms. McLANE KUSTER. Thank you very much. Thank you, Mr.
Chairman and Ranking Member Clarke. And Chairman Schweikert, I
did enjoy participating with you in the panel on small business
leaders operating online. I am proud of the folks from New
Hampshire that were doing that good work.
I am new to this Subcommittee, and I am excited to join
with my colleagues from both parties to conduct oversight over
the Executive branch and work with you to provide relief to
overregulated small businesses. I think we all recognize that
the government alone does not create jobs but that it is the
responsibility of government to foster the conditions for small
businesses to grow to higher and to succeed. In my state of New
Hampshire, 90 percent of new jobs come from small businesses.
But unfortunately, as we all know, poorly thought out
regulations can all too often have the opposite impact,
creating uncertainty and stifling economic growth. So in
today's hyperpartisan political climate I am hopeful, and it
sounds as though the Committee does have measures that we can
all agree on to alleviate the burden and protect the public
with important regulations.
So I am just going to ask some very basic questions. In
your experience, Dr. Sargeant, what are examples of some of the
successes and accomplishments in your office that you are most
proud of that might give us an example of how your office
provides assistance in the process in a successful example?
Mr. SARGEANT. Well, thank you for your support of the
office. There are a number of ways that we engage small
business, and if I was to look back at some of the successes we
have had, with regard to regulation, it may take a little while
for the process to be complete. But we can say that through the
RFA and the work we have done, we have had a fair amount of
success.
One that I can point to is something called the 3 percent
withholding that was actually passed in 2005. This was a rule
that said that on all federal contracts, 3 percent would be
withheld until the IRS checked to make sure that taxes were
paid by small businesses. Now, we believe that you have to pay
your taxes, but when you work with the federal government, when
you think of 3 percent, because these contracts, there is not a
huge amount of margin. And so the 3 percent was taken off the
top and there was no process of how long this would take for
the IRS to do their job. This would put a lot of small
businesses actually in debt or they would have to turn down the
contract. And so we were pleased by working with small entities
that this was repealed by Congress in 2012.
We also can cite what we call the IRS Home Office
deduction. We were pleased, not to pick on the IRS, but we were
pleased that the home office deduction, 52 percent of all small
businesses are home-based businesses. And it was not a clear
process of how you took into account that home office
deduction. We are pleased that the IRS just recently made it
clear, made it transparent such that you can, up to $1,500, you
can deduct. And we have heard from home-based businesses, we
have heard from small businesses this is a huge win because we
know that more and more people are starting companies from home
and they are not just staying at home but they will grow. And
so those are just two of many examples that we have had so far,
and we are pleased that our process, that the way that we work
with federal agencies, that there has been a successful
outcome.
Ms. McLANE KUSTER. Right. Good. Well, thank you.
Now, part of my district is very rural. So rural, in fact,
that we are still on dial-up in this day and age. So you can
imagine the burden on small businesses. I say, you know, you
have a customer on the line and then you have to say, ``Let me
put you on hold while I go look on the Internet on another
phone line.'' So I am just curious if you have experience with
your committee, I mean, with your agency about the unique
burdens on small businesses in rural communities, and
particularly with regard to compliance over the Internet or
paperwork production where compliance involves Internet access.
Mr. SARGEANT. Yes, we have heard of concerns. And we know
firsthand, and I know firsthand because I have lived in rural
communities that it is important to have access to the web. And
so we put out a study. We were charged by Congress to do what
is called a broadband study a couple years ago. And in the
study it showed that those in rural areas paid more money for
less service for broadband. And this really complicates it
because we all do not choose to live in cities but this also
adds to what we call brain drain where people who would like to
live in rural communities, if you want to live next to a lake
or live where you want to live and also run a business, you
must be able to tap into broadband. And so we are concerned.
And so we have shared this report with the FTC and those who
oversee broadband to let them know that our nation, those who
want to live in rural communities, must be able to get access
to affordable and accessible broadband because it helps our
economic environment, but it also will cut down on all this
congestion. There are a number of benefits and so, yes, we are
concerned that those who live in rural communities have to pay
more for less.
Ms. McLANE KUSTER. Great. Thank you very much.
Chairman SCHWEIKERT. Thank you, Ms. Kuster.
I just have a couple others. We were sort of sharing
before. I have sort of a personal fixation in my couple years
around here of how much sort of decision-making we do in this
body on sort of folklore and not data and facts. And so first,
walk me through a little bit of your process just so I am sort
of understanding the disciplines and the mechanics within the
office.
A few thousand rule sets in promulgation of some sort and
somehow, as you shared with me earlier the agency said they
believe this costs this, this costs this, you have trade
associations that may have a very different view, but you
choose 50 of them. Now those are within your process. Do you
mechanically start to do a cost benefit? I mean, what is the
next step you do internally to analyze those and decide is this
something you need to be fairly bold about and write about?
What do you do?
Mr. SARGEANT. Yes. What we do, Mr. Chairman, we will reach
out to small businesses to ask them. This is a rule that is
being proposed. How will this impact you? So we are pleased
that we have regional advocates around the country because the
majority of businesses are outside of Washington, D.C., so we
must hear what is going on, and we also know that it is not a
one-size-fits-all but it is not a ``one region fits all.'' What
may happen in the Northeast may be different than what happens
in the Southwest.
And so once we hear from small entities how this rule will
impact them, we will actually have a roundtable. We will bring
officials from the agencies. We will bring those who have
different points of view to share in terms of how this rule
will impact. And also, we ask the agencies to share the data,
if they have it, on why they came up with this number, and then
we will ask those who are at the table to share what they have.
Share with the agency officials your number.
Chairman SCHWEIKERT. Dr. Sargeant, that is almost to the
point.
So you are getting sort of a presentation of how they did
their cost benefit?
Mr. SARGEANT. Yes. Yes.
Chairman SCHWEIKERT. Do you have an internal mechanism to
vet that? Do you have a statistician sitting in the back who
has built a brilliant spreadsheet and is dicing things up? I am
just sort of curious how you get there.
Mr. SARGEANT. What we do is we work with small entities
themselves to try to get some numbers from them. We do have our
own research and sometimes there is a nice fit but sometimes it
is just more of a global fit how this will impact small
business. So we ask the agencies themselves. It is up to the
agency to share what they have in terms of data, but also we
will reach out to trade associations for them to share what
they have. So that is how we hope to come together.
Chairman SCHWEIKERT. So in some ways you become sort of an
aggregator of information from the agency, trade associations,
individuals who believe they are going to be affected?
Mr. SARGEANT. Yes, because we have a research budget, but
for us to do that research in such a short manner with the
rules, it would be very, very difficult for us to do it within
a timely manner. So it is important for us. We take our
direction from the small business. So we want to hear from
them.
Chairman SCHWEIKERT. You said something before about your
15-day window and wishing you had 60.
Mr. SARGEANT. Well, that is for the SBREFA panel process.
Chairman SCHWEIKERT. Okay, so that is the next tier.
Mr. SARGEANT. Yeah. Once I have been notified then they can
start a panel within 15 days. And we believe, and I believe
that you should give more time to the agencies but also to the
representative who will serve on those panels so they can
digest the data so they can come prepared to talk.
Chairman SCHWEIKERT. So in your internal flow, okay, so the
next step after you have done your aggregation of sort of cost
benefit, you have a couple of economists on staff?
Mr. SARGEANT. Yes.
Chairman SCHWEIKERT. That are doing some dicing, what they
believe the economic impact is, not necessarily the cost
benefit?
Mr. SARGEANT. Yes. Well, that is part of it. Yes.
Chairman SCHWEIKERT. And do they use a particular mechanics
or methodology or approach?
Mr. SARGEANT. Well, you typically use cost benefit
analysis. You work with the agency themselves to say, well, who
did you talk to? How were you able to quantify this number? We
can understand costs; sometimes benefits are hard to quantify.
And so we are charged under the RFA to only look at costs. So
that is what we focus on and how this rule will impact cost-
wise. And so that is where we share with the agency and say,
well, we believe that you have certified this rule or you have
underestimated the cost because we have spoken to these
businesses around the country.
Chairman SCHWEIKERT. Okay. So you do that as part of your
sort of economic model?
Mr. SARGEANT. Yes.
Chairman SCHWEIKERT. Last, Dr. Sargeant, before you
actually sort of spoke of the concentric rings, you know, the
one step out where it may not only affect the small business
but may actually affect the small business's supplier I guess
is how you were ultimately trying to understand that sort of
outward effect? Share with me where would you find that? How do
you grab that and pull that into your analysis?
Mr. SARGEANT. Well, what we try to do when we train agency
officials under the RFA, we talk about what we call the
foreseeable economic impact or the indirect impact. And so if
this rule is going to impact say, like you said, the suppliers,
a product, or a service, what we want them to do is to try to
capture that because that is not, as you mentioned with regard
to the ring, that is a tightly coupled ring. That is close.
That is not a huge loop. And so what we do is we give them some
recommendations on products or services or work environment,
how this rule will impact. And so that is the type of feedback,
that is the type of training that we give to agency officials.
Chairman SCHWEIKERT. Doctor, I appreciate your time with
us. If you ever find yourself on the Hill and (a) you want
actually good coffee, come to my office. And this for everyone,
we have a froufrou cappuccino machine. Pay for it personally.
And second of all, if you ever happen to be on the Hill I would
love to sort of flowchart your mechanics. Part of this is
trying to understand. In my vision of the world there is a
difference between doing a cost benefit analysis and an
economic analysis because over here you sometimes find the law
of unintended consequences. This is sort of the cost
implementation compared to alternatives. Because I know you do
not get to override a rule but sometimes you and I have seen
occasions where if the agency was writing the rule in this
direction it would have been more impactful in society than the
approach they are taking. And I do not know if you get listened
to in that fashion.
Mr. SARGEANT. Well, I would welcome the opportunity to have
my team come over and go through the process because we train
more than 100 officials each year. Many staff members from the
Hill will come to our training sessions, so we could walk you
through and would welcome such a dialogue.
Chairman SCHWEIKERT. I genuinely would like to learn more
about what you do and how we can, you know, the impact on small
business, that is where we need to find much of our job
creation. So thank you, sir.
Mr. SARGEANT. Okay, thank you.
Chairman SCHWEIKERT. Doctor, I want to thank you for your
testimony. You are excused. And now we are going to move on to
our second panel.
Chairman SCHWEIKERT. We are about to begin the second
panel. I am sure you all heard the discussion. I think actually
almost everyone here has testified before. Green, start;
yellow, go faster; red, we will let you sort of finish your
thought.
The first witness in our second panel will be Marc
Freedman, the executive director of Labor Law Policy at the
U.S. Chamber of Commerce. He primarily focuses on workplace and
employment regulatory issues. Before coming to the Chamber more
than eight years ago, Mr. Freedman was the regulatory counsel
for the Senate Small Business Committee and examined agency
compliance with the Regulatory Flexibility Act. Welcome.
Is it tradition to just do one at a time? All right, your
five minutes begins.
STATEMENTS OF MARC FREEDMAN, EXECUTIVE DIRECTOR, LABOR LAW
POLICY, UNITED STATES CHAMBER OF COMMERCE; CARL HARRIS, VICE
PRESIDENT AND GENERAL MANAGER, CARL HARRIS COMPANY, TESTIFYING
ON BEHALF OF THE NATIONAL ASSOCIATION OF HOME BUILDERS; RENA
STEINZOR, PROFESSOR, UNIVERSITY OF MARYLAND CARE LAW SCHOOL
STATEMENT OF MARC FREEDMAN
Mr. FREEDMAN. Thank you, Mr. Chairman. Good morning,
Chairman Schweikert and Ranking Member Clarke.
Thank you for inviting me to testify this morning on the
value of the Regulatory Flexibility Act and the regulatory
process.
This morning I would like to focus my remarks on examples
where OSHA and other Department of Labor agencies under the
current administration did not take advantage of the RFA and
SBREFA in their rulemaking. Note that I said ``did not take
advantage.''
Compliance with the Regulatory Flexibility Act enhances the
rulemaking process, assuming that the goal is to produce
regulations that will have the maximum beneficial impact with a
minimal burdensome impact. The key is that the RFA and SBREA
create channels for input from small entities that will be
affected by the proposed regulations. When agencies seek this
input and respect those small entities that will be subject to
the regulation, all parties come out ahead.
As we have heard from Dr. Sargeant, the RFA requires
agencies to assess impacts on regulations on small entities and
investigate less burdensome alternatives, and in the case of
OSHA, EPA, and now the CFPB, conduct small business review
panels unless the agency can certify that the regulation will
not have a significant economic impact on a substantial number
of small entities.
For those agencies not required to conduct small business
panels, the RFA's affirmative outreach requirement applies.
Specifically Section 609(a) directs agencies to ``assure that
small entities have been given an opportunity to participate in
the rulemaking.''
Te timing of the small business input is an important
feature of this process. Proposed regulations are not like
proposed legislation which can be very fluid and undergo many
changes before being enacted. When an agency proposes a
regulation, they are not saying let us have a conversation
about this issue; they are saying this is what we intend to put
in effect unless there is some very good reason we have
overlooked why we cannot. By getting direct feedback about how
a regulation will affect those covered by it, the agency can
make changes before the proposal is issued.
There is one more important point I want to make about the
impact of the RFA. It does not force an agency to change their
rulemaking, nor does it authorize the SBA Office of Advocacy to
change or block an agency's rulemaking, even if the agency is
ignoring Advocacy's advice. The RFA merely sets out a process;
it does not specify the outcome.
Unfortunately, OSHA under this Administration has displayed
a certain resistance to taking advantage of the SBREFA process.
In several rulemakings, OSHA could have clearly benefitted if
they had been willing to use the Small Business Panel Review
Process that the Act lays out. One of OSHA's first rulemakings
under this administration sought to reinforce their intention
to pursue enforcement, even for those employers who are truly
doing the right thing by asking for help from OSHA in
identifying hazards in the workplace. As this rulemaking
explicitly and exclusively deals with small businesses, OSHA
would have benefitted from hearing directly about their views
on it. Had they done so, they would have heard that small
businesses would be less comfortable entering into the
consultation program if this rulemaking is completed. Getting
that message with that clarity at that time might have steered
OSHA away from proposing this regulation.
Another rulemaking where OSHA suffered for not conducting a
small business panel is the high profile rulemaking to add a
column to the OSHA 300 recordkeeping log to track
musculoskeletal disorders (MSDs)--the injuries associated with
ergonomics. In January 2011, OSHA withdrew the final regulation
from the Office of Information and Regulatory Affairs to get
input directly from small businesses. The agency conducted
three teleconferences with small businesses to hear directly
from them about their concerns with this rulemaking, exactly
what would have happened if the agency had conducted the Small
Business Panel at the outset. If OSHA had taken advantage of
the SBREFA procedures, this regulation might very well be in
place by now.
Similarly, other DOL agencies besides OSHA have avoided the
RFA by tremendously underestimating costs. Most notably, the
Office of Labor and Management standards in their persuaded
rulemaking and the Employment Training Administration in its
H2B program rulemaking. Time does not permit me to discuss
these in detail but they are covered in full in my statement.
Thank you very much for the opportunity to participate in
this hearing this morning. I will be glad to answer any
questions.
Chairman SCHWEIKERT. Thank you, Mr. Freedman.
Our next witness is Carl Harris. Mr. Harris is the co-
founder of Carl Harris Company, a small specialty contracting
firm in Wichita, Kansas, I have family in Derby, that erects
structural steel and precast concrete for residential and
commercial buildings. He is testifying on behalf of the
National Association of Home Builders.
Welcome. You have five minutes.
STATEMENT OF CARL HARRIS
Mr. HARRIS. Good morning. Chairman Schweikert, Ranking
Member Clarke, and Distinguished Members of the Committee, my
name is Carl Harris. I am co-founder of the Carl Harris
Company. We are based out of Wichita. We have about 20
employees. I am also a member of the National Association of
Home Builders (NAHB) and president of the Kansas Building
Industry Association. Thank you for the opportunity to be here
today to talk about the impact of regulations on small
homebuilders.
As a small businessman operating in a heavily-regulated
industry, I understand how difficult it can be for a small
builder to operate a successful, thriving business that
provides the highest level of health, safety, and welfare for
its employees. The sheer volume of regulations is not the only
problem. Often, regulations are crafted without respect to the
size of the regulated entities. Congress appropriately
acknowledged this unique burden when in 1980 it passed the
Regulatory Flexibility Act, the RFA, and subsequently amended
it to include the Small Business Regulatory Enforcement
Fairness Act. With the RFA, Congress intended for regulations
to be crafted to the scale of the businesses while achieving
the goals of the rule. This was an admirable aim. However, in
practice it does not appear to be working as intended.
I have had the fortune of representing the residential
construction industry in a number of small business review
panels over the years. I have seen firsthand how agencies great
the RFA process as nothing more than a procedural, check-the-
box exercise, and worse still, artfully avoid complying with
certain parts altogether.
For example, in 2008, OSHA proposed the Cranes and Derricks
Rule, which was intended to protect workers from the hazards
associated with hoisting equipment in construction. For the
development of this rule, OSHA relied on the negotiated
rulemaking program. I participated as a small entity
representative (SER) on the review panel that followed. Several
SERs, myself included, raised concerns about the feasibility of
various aspects of the rule, which was clearly designed for
large, commercial construction applications. I personally put
forward an effective, common sense alternative that would save
lives and keep low the cost of compliance for small entities.
Unfortunately, it seems my feedback fell on deaf ears. The
problem was that it was not until after the negotiated
rulemaking process was complete that OSHA convened the Small
Business Advocacy Review Panel. So by the time we were brought
in, the rule had already been determined, and not surprisingly,
OSHA was not inclined to modify it based on the panel. Had
small business been consulted earlier in the process, perhaps
OSHA could have developed a more workable rule for small
entities, thereby reducing the cost and the burdens associated
with compliance. And as it was, the process seemed little more
than a procedural hurdle with little interest from OSHA to make
changes based on the feedback received.
Other times small business representatives are left in the
dark, brought in with insufficient information to allow us to
evaluate regulatory options and provide alternatives. This was
the case in 2010 when I participated in a Small Entity Review
Panel that looked at a proposed federal regulation covering
stormwater discharges from developed sites. EPA, in preparation
for the panel, failed to provide sufficient detailed
information about the upcoming rule. As a result, we had no way
to estimate the compliance costs or provide meaningful feedback
to reduce the regulatory burden on small businesses. Several
SERs provided written comment to the effect and suggested that
the agency's failure to provide sufficient information was a
violation of SBREFA.
When agencies are unprepared to provide small entity review
panelists with the information and data necessary to evaluate
the cost and compliance obligations, the process breaks down.
Not only do participants like myself question the value of
their participation, but the entire regulatory program loses
its legitimacy and clearly undermines Congress's intent.
These are just a couple of examples that illustrate the
need for improving the way agencies conduct the required
reviews of proposed regulations under RFA. Doing so would
result in far more efficient regulation and reduce compliance
costs for our small businesses. As Congress looks for ways to
improve agency compliance with RFA, we look forward to working
with legislators on the most effective ways to help America's
small businesses.
Thank you for the opportunity to testify today.
Chairman SCHWEIKERT. Thank you, Mr. Harris.
Ms. Clarke.
Ms. CLARKE. Thank you, Mr. Chairman. I have the honor and
privilege of introducing Ms. Steinzor. She is a professor of
law at the University of Maryland's Francis Key Carey School of
Law. She has taught courses in administrative law and written
extensively in the area of federal regulatory policy,
particularly in regard to health, safety, and the environmental
regulation. She is also the president of the Center for
Progressive Reform, which is a nationwide network of scholars
that focuses on federal regulatory matters. Prior to her
academic career she was a partner in the Washington, D.C. law
firm of Spiegel & McDiarmid which counseled federal, state, and
municipal clients on regulatory compliance. We would like to
welcome you this morning and hear from you at this time. Thank
you.
STATEMENT OF RENA STEINZOR
Ms. STEINZOR. Thank you very much for giving me an
opportunity to testify today.
I could not agree more with the Subcommittee's overhang
mission: strengthening the role of small business in repairing
an economy ruined by deregulated, too-big-to-fail financial
institutions. Big business uses small business as a kind of
human shield, conflating the two sectors distinctly different
needs and pushing for deregulation that could further endanger
the economy and public health.
A case in point is the SBA Office of Advocacy, which has
consciously diverted its limited, taxpayer-funded resources
from helping small business toward pursuing the complaint du
jour of the very large companies that call the shots at the
American Chemistry Council, the National Association of
Manufacturers, and the U.S. Chamber of Commerce. These
activities raise the disturbing prospect that the Office of
Advocacy has broken the law. In fact, I hope that the evidence
I put before you today will motivate you to ask the GAO to
investigate whether the Office of Advocacy has complied with
laws that bar federally funded agencies from lobbying and
require it to conduct its affairs in the sunshine. From what we
can tell, the office routinely intervenes in rulemakings with
only tangential effects on its constituency, allowing Fortune
500 companies to set its agenda, do its research, and provide
the substance of its comments.
Consider for example a series of e-mails exchanged between
Kevin Bromberg of the Office of Advocacy and David Fisher of
the American Chemistry Council. The two were discussing an
aggressive lobbying campaign that large chemical manufacturers
had mounted against the National Toxicology Program's proposal
to declare formaldehyde as a known carcinogen. This is a
scientific finding, not a regulation, but formaldehyde's
manufacturers were adamant. Fisher wrote, ``I suspect the delay
in the assessment will not get to the press because it has been
delayed already for months, so any further delay would be a
nonissue.'' Bromberg responded, ``It is probably better for now
that I keep the National Toxicology Program contact in the
dark.''
Such skullduggery not only provides assistance to Fisher's
multi-billion dollar clients at the taxpayers' expense; it
violates the fundamental principle that the Office of Advocacy
should work within the government to find better ways for small
businesses, its only legitimate constituency, to comply with
the regulations the same government is writing. Between 2005
and 2012, the American Chemistry Council and its members spent
over $333 million lobbying Congress and federal agencies. The
last thing these giants need is a taxpayer subsidy.
As for violations of Sunshine Laws, the Office of Advocacy
hosts regular environmental roundtables that feature
presentations by lobbyists and lawyers for Fortune 500
companies. They occur behind closed doors and their agendas,
attendance lists, and minutes are not published. Nevertheless,
the roundtables result in positions that are adopted as policy
by the office. Two weeks ago a senior scientist from the
Environmental Defense Fund attempted to participate in a
roundtable but he was told that he could listen to the
discussion but not speak. The roundtable consisted of
presentations by Nancy Beck, a former White House Office of
Information and Regulatory Affairs staffer who now works for
the American Chemistry Council, and Robert Fensterheim, a
former American Petroleum Institute staffer who now works at
the RegNet/IRIS Forum, an industry group dedicated to
undermining EPA's integrated risk information system.
Self-righteous crusaders against regulation have become
accustomed to telling only half the story to the American
people. They pretend that exaggerated regulatory costs are the
only result of the system and ignore its considerable benefits.
Conversely, they suggest that if we dismantle the regulatory
system we would suffer no negative consequences and instead
reap a windfall and save money.
My testimony furnishes additional detailed information
about the benefits of regulation. Thank you.
Chairman SCHWEIKERT. Thank you.
Now, a handful of questions. Mr. Freedman, you were with
the Senate Small Business for how many years?
Mr. FREEDMAN. Just over five years.
Chairman SCHWEIKERT. In that time, because you probably sat
through a number of these hearings, if you right now were
looking for bottlenecks in the law that would actually help
both advocacy for small business but also a mechanism for
dealing with rule sets that are coming and trying to find what
is rational both from a cost and benefits standpoint but also
from an economic modeling standpoint, where do you see the
bottleneck?
Mr. FREEDMAN. Thank you, Mr. Chairman.
I think I look at it this way. The critical part of the
Regulatory Flexibility Act process is the go/no-go decision
that focuses on the significant economic impact on a
substantial number of small entities. And agencies have the
flexibility to define those key terms as they wish--significant
impact and substantial number of small entities. And agencies
will go all over the map, even within their own agencies
between rulemakings they will define things differently. And I
think what might be helpful here is some type of consistency or
at least some type of guidance to the agencies to say this is
how we think you should define things or these are the factors
you should take into effect.
And if I could just finish that point, Dr. Sargeant raised
some of the things I think could be helpful. For instance, the
inclusion of indirect impacts. There has been some legislation
offered previously on this point. My thought is it would be
helpful to be specific about what kind of indirect impacts
should be included.
So, for instance, in the EPA world, states implement a lot
of the requirements that the EPA lays out. The fact that the
states implement those requirements is lost in the context of
an indirect impact. So if that is the case, that should be
brought into the discussion and those impacts should be
captured going towards the question of a significant economic
impact.
Chairman SCHWEIKERT. Mr. Freedman, would you go as far as
trying to create a better box and how you define cost benefit,
how you define, I mean, economic impact? Because in our office
over the last couple months, we have tried to collect some
mechanisms from different agencies. And I find sometimes they
have, some it is almost anecdotal. Tell me a story. And others
it is, we want to do math.
Mr. FREEDMAN. And cost benefit is a term that many people
use. It frequently comes up in the context of the regulatory
process and regulations. It is a very hard concept to nail
down. I am not going to try and sit here and tell you that
Congress in its wisdom can tell you exactly what a cost benefit
analysis----
Chairman SCHWEIKERT. I never used the words wisdom and
Congress in the same sentence.
Mr. FREEDMAN. Fair enough. It is a tough subject. And I
think what might be helpful is to try and steer the agencies
either through legislation or as Dr. Sargeant was describing,
the training process embedded in the Executive Order 13272 to
help agencies get to this point of appreciating the impact and
recognizing the goal of trying to capture it and be honest
about it.
I think part of the discussion here is attitudinal.
Agencies take a position. They want to do a reg. We have seen
it time and again, and they do not want somebody else telling
them how to do it. And somehow, and I do not know if it is the
silver bullet here, that attitude needs to change. And I think
the 13272 process is very helpful with that and a good start,
but it really has to keep reinforcing it. Particularly now that
we are coming into the second term of administration, people
change, new people are in place. You have to keep reinforcing
that type of approach.
Chairman SCHWEIKERT. But in some ways, for some of us it is
just sort of the standard of practice. So we sort of, whether I
agree with you or disagree with you, at least I understand how
you got there and I know what I am objecting to. Or agreeing
to.
Mr. FREEDMAN. Let me make one more quick point. And this is
in my full statement. The problems with the agency compliance
with the Regulatory Flexibility Act and SBREFA stretch back
over several administrations. And this really is not a
specifically Republican or Democrat example. We have seen it--
--
Chairman SCHWEIKERT. Well, the framework comes from the
late Carter Administration?
Mr. FREEDMAN. That is correct.
Chairman SCHWEIKERT. So.
Mr. FREEDMAN. Right. But I mean, we have seen examples of
agencies that did not take these issues seriously in several
different administrations and different parties.
Chairman SCHWEIKERT. Okay. Mr. Harris, welcome from
beautiful Wichita. Do you have a lot of snow?
Mr. HARRIS. Not anymore. We had 60 degrees there yesterday.
Chairman SCHWEIKERT. Okay, good.
Mr. HARRIS. And I came to this.
Chairman SCHWEIKERT. Because my wife is going to make me
visit the relatives and when you are from Scottsdale--
Mr. HARRIS. There you go.
Chairman SCHWEIKERT. We do not go when there is snow.
This is sort of a one-off but I have been trying to get my
head around a briefing I had yesterday. Do you do much concrete
cutting?
Mr. HARRIS. Yes, I do.
Chairman SCHWEIKERT. Are you familiar there may be an EPA
rule set out there where even the dust you create from the
concrete cutting?
Mr. FREEDMAN. Silica.
Chairman SCHWEIKERT. Maybe.
Mr. FREEDMAN. Both OSHA and EPA in regard to silica.
Chairman SCHWEIKERT. Okay. I am walking through a group in
a construction family. So sanding down drywall, cutting
concrete, sanding, I mean, how many different elements? I mean,
even down to the sandpaper you use. Would----
Mr. FREEDMAN. Those are, as I understand, the drywall in
regard to silica, there is not silica in drywall cement, but in
the areas that we do precast concrete, when footings and
foundations are not done correctly and remediation has to be
done, we understand. We train for that at our local builders
association how we would protect our workers in regard to that.
We have tried to work closely with OSHA and the silica standard
and how would be the best practices to deal with that and what
might trigger those things. But we just got to get in--we have
got to get small business involved in the regulatory process as
early as possible because we truly are the experts in the
field. I mean, you see a cloud of dust. You may see danger. We
see that all the time. We just need to tell you what we do and
how we can do it better and safer as opposed to have that come
from outside.
Chairman SCHWEIKERT. Okay. All right. With that, Ms.
Clarke.
Ms. CLARKE. Thank you very much, Mr. Chairman.
My first question is to Professor Steinzor. Mr. Harris, in
his testimony, stated that his organization believes that ``the
RFA should be amended to include judicial review of the panel
requirements to ensure agencies here to the law.'' What are
your thoughts on that proposal?
Ms. STEINZOR. There is a longstanding doctrine in
administrative law that does not bring you to court until an
agency has issued a final agency action. And as I understand,
the way this would work you would be allowed to take the agency
into court mid-rulemaking. And this would cause a lot of extra
delay, which also has costs. I mean, we forget that so often
that the longer it takes to promulgate a rule, the more people
are exposed to whatever the harm the rule is trying to address.
So there are costs on both sides, and I would urge you to be
cautious about that kind of approach.
Ms. CLARKE. So we are trying to weigh costs and costs
essentially. For the small business, the idea that a particular
rule could mean them being able to really be effective in
whatever work it is that the rule is going to be applying to is
a challenge for that company. On the other hand, the rule is
being promulgated because there is a particular harm that an
agency may be trying to address that can cost as well. And so
the time factor there becomes the challenge on both sides.
Ms. STEINZOR. I could not agree more. You have put it
beautifully. I would only say that I completely favor finding
ways to make regulations more tolerable for small businesses.
But if workers get sick they cannot come to work and that is
also a very costly problem. And some of the regulations,
especially ones that the Office of Advocacy has been focusing
on, are so large that they are really not aimed at small
business at all. Some of EPA's air pollution rules, as I say in
my testimony, would save millions of lost days at work which
can only help small businesses because people will not have
cardiac problems, they will not have asthma attacks, et cetera.
Ms. CLARKE. Very well.
Ms. STEINZOR. Help the economy.
Ms. CLARKE. Very well. Very well.
The second question is to you again, Professor Steinzor.
The Crane and Crane study has been widely cited for its
estimates of the regulatory burden facing small businesses.
What is your opinion of the study, and do you believe that it
is credible enough to be relied on by this Committee?
Ms. STEINZOR. No, I do not believe that it has any
credibility. It has been dismantled by our organization, the
Economic Policy Institute, the Congressional Research Service,
the White House Office of Information and Regulatory Affairs,
anybody who has looked at it cannot replicate the results. And
the Economic Policy Institute, in particular, got the data and
tried to reverse engineer the calculations and was unable to
even come close.
One of the aspects in that study is a poll that was taken,
a survey of business leaders around the world, and the World
Bank which conducted the survey said it should not be used in
that way. So I would urge you not to--there are better
analyses.
Ms. CLARKE. Very well. And let me just, Mr. Chairman, if
you will indulge me, I have one final question for Mr.
Freedman.
In your discussion of OSHA's GHS rule, you state that ``the
agency loaded it up''--that is your quote--''with other
provisions that did not make sense for small businesses but
that do increase safeguards for the workers which is actually
OSHA's mission.'' Would you care to clarify or is it your view
that OSHA should give small businesses' views priorities over
workers when it develops its regulations?
Mr. FREEDMAN. Thank you, Congressman Clarke.
It is my view that OSHA should follow the regulatory
process and make sure that anything that is in a final rule was
proposed first and that terms in the regulations are clear and
understandable by small businesses and are not open traps for
small businesses so that OSHA has an opportunity to just come
in and enforce without the small businesses knowing what they
have to comply with. It is also my view that if OSHA is going
to insert a hazard into a regulation, that everyone understands
the definition of that hazard and that it is not an open-ended,
as I said, trap for small businesses. These things can be done
in the name of protecting employees and in the name of giving
small businesses a fair chance to understand the regulation.
Ms. CLARKE. So just as a follow-up, and I am going to close
here, I am just trying--if I am a regulatory agency and my main
function is to make sure that workers are protected, you are
saying that there needs to be an overlay or a view that looks
at small business in the context of protecting workers? I am
trying to figure out if I were an agency person and I am
concerned about the health and welfare of the employees, how
you balance out those concerns in terms of how you view it
because their goal is not to necessarily be concerned about the
business as much as it is the employees of the business. So how
would you sort of reconcile that?
Mr. FREEDMAN. Well, if I may, Congresswoman, I would ask
you think about this in terms of the businessperson trying to
figure this out. If OSHA puts in a requirement that is an open-
ended requirement that they will not know whether they
satisfied and it is just a trap for enforcement, how does that
serve anybody's good? Or how does that serve anybody's goals?
What we are looking here for in the context of OSHA
regulations is clarity and well-supported regulations. The more
OSHA focuses on those models, the better the outcome will be,
the more employers and small businesses will know what they are
required to do, the more they can protect their employees. If
you just throw out a hazard that is not defined, and the one in
the discussion here is combustible dust, then what is an
employer to do? They do not know what that means. There is no
definition of that. You cannot expect an employer to protect
against something they do not know how to understand. This is
just not fair. It does not get to the end goal. So I understand
your concern from the agency's perspective, but the agency
needs to operate within certain parameters. And that is the
focal point of the regulatory process.
Ms. CLARKE. Okay. We want to just drill in a little bit
more on this. How do you define ``open traps''? Do you believe
that OSHA is a rogue agency just looking to entrap and punish
small business?
Mr. FREEDMAN. No. I would never describe OSHA as a rogue
agency.
Ms. CLARKE. Okay.
Mr. FREEDMAN. I think in the current administration they
have placed a very explicit emphasis on enforcement. I think
some of their regulatory approaches have gone towards the idea
of increasing their opportunity for enforcement. As I mentioned
in the discussion about the cooperative agreements rulemaking,
that was about telling small businesses that they were going to
be subject to enforcement even though they are bringing OSHA
in, asking for help in identifying hazards.
In the context of the GHS regulation that we are discussing
here, they included a provision called Hazards Not Otherwise
Classified. That is an open-ended concept. It means that an
employer will not be able to tell when they have satisfied all
the hazards that OSHA may have in mind. That is what I mean
when I talk about traps. That is what I mean when I talk about
OSHA putting in provisions that are geared towards enforcement
more than they are towards safety.
Ms. CLARKE. So the whole idea of clarity and definition is
what ultimately makes it a hospitable business environment?
Mr. FREEDMAN. It will certainly aid in increasing
compliance and therefore adding to workplace safety.
Ms. CLARKE. Very well. Thank you, Mr. Freedman.
Thank you, Mr. Chairman.
Chairman SCHWEIKERT. Thank you, Ms. Clarke.
Mr. Bentivolio. Am I getting close in pronouncing it right?
Mr. BENTIVOLIO. You did it perfect.
Chairman SCHWEIKERT. Wow.
Mr. BENTIVOLIO. Bentivolio. You have got to sing it when
you say it. Thank you very much, Mr. Chairman.
Mr. Harris, I am sitting here formulating what it is like
to be a contractor. Single family homes, multi, like
apartments?
Mr. HARRIS. Single family, multi-family, small commercial
shopping, small shopping centers, school additions, whatever I
can do to make a living.
Mr. BENTIVOLIO. I understand. Nothing like the smell of
fresh excavated dirt.
Mr. HARRIS. Agreed.
Mr. BENTIVOLIO. The sound of concrete coming down a chute.
Right? And then you have the carpenters' fresh cut lumber,
circular saws, a symphony in construction. It smells like an
economy growing. And each one of those different facets of
construction is a contractor, a subcontractor working for you.
Now, are you responsible for that subcontractor following
regulations? And what is the procedure you go through, if so,
to ensure that they comply with these regulations so you will
not be shut down?
Mr. HARRIS. First of all, I must let you know that I am an
OSHA outreach trainer for a satellite training facility which
is located in our local homebuilders association. As we reach
out to other small businesses to make sure that they have the
information and training. Each subcontractor is responsible for
their own health and safety. I am responsible for the culture
of safety and health on that project. OSHA kind of recognizes
that in what they call their multi-employer worksite rules. We
have not seen a lot of enforcement that go up the chain but we
tried to put forth the culture of safety, health, and welfare
on every jobsite and filter down to our subcontractors. We
realize, through the help of the National Association of
Homebuilders and our local builders association that training
is what the needs are.
And if I could kind of answer Congressman Clarke's
question. If we have reasonable regulations, we have higher
participation and compliance. So actually, we could save more
lives with more reasonable regulation than if we have a hard
and fast regulation that everybody is going to ignore because
it does not make any sense. So that is where we think with
enough early information, a chance to work in the process,
which is what this does, we have a better chance of getting
wound regulation that works on the jobsite.
Mr. BENTIVOLIO. That is terrific.
As a small business owner trying to do your best to comply
with EPA and OSHA rules, what is your greatest fear in dealing
with those agencies?
Mr. HARRIS. Surprises. A businessman cannot have surprises.
I do not have the time to constantly monitor the Federal
Register to see what is going down. We rely on our trade
associations to help us find out what information is out there.
No business likes surprises. We are planning for the future. We
are estimating projects out there. We really want to work to
that betterment and work within all the regulations that are
out there. Surprises are what we cannot handle. If we have an
opportunity to work with clarity on the development of these
regulations then we can let our members know, I can let my
friends know, and we can all work within the rules.
Mr. BENTIVOLIO. Thank you very much, Mr. Harris. I yield
back my time.
Chairman SCHWEIKERT. Thank you. With that, thank you.
I did have just a couple odds and ends. And Mr. Freedman,
one more time. If I have the good Doctor come and sit down in
my office and we start to flowchart sort of how his process
works, and some of this is as much making sure that the law is
up-to-date for how we are passing information today. What would
you inject into that conversation?
Mr. FREEDMAN. Do you mean with respect to how Advocacy
functions and the process?
Chairman SCHWEIKERT. And how we are doing today, because I
am still trying to get my head around this thing. I have a few
thousand rule sets that affect small business. Are they
capturing and are they focusing on what is rational to focus on
for small business?
Mr. HARRIS. Thank you, Mr. Chairman. And I am going to take
the opportunity of your question to respond to something that
Professor Steinzor mentioned. And that is her criticism of the
idea of bringing in a provision that would allow small
businesses to challenge an agency certification mid-rule. And
she is certainly correct that agency actions have to be final
before they can go to court. The value of, first of all, what
you could do is describe that agency certification as a final
action; therefore, making it subject to judicial review. And
the point here is to preserve the timing of the small business
input in the process so that you do not have to wait several
years until the rule goes final and everything is baked in the
cake at that point, to then say, well, way back then the agency
did a bad certification and therefore, they should be
challenged. The point is to be able to challenge the agency
action at the time when it is still relevant to the process.
And so the idea of creating an opportunity, and it could be
written in a way that would be very narrow, very time
sensitive, and would not disrupt the process in any tremendous
way, but it is important that that decision gets attention at
the time that it is made so that the input from small
businesses can be brought into the process at the time it is
most important.
Chairman SCHWEIKERT. Okay. Thank you, Mr. Freedman. But
that is partially where I was trying to go is a true
understanding of sort of the flow chart, the mechanics, and
when triggers are hit because we had the good Doctor before
saying there are certain things he wished he had 60 days within
the SBREFA process concept.
Mr. FREEDMAN. And I think his point was well taken. Part of
the discussion in the SBREFA panel process is that you are
talking with people who are out there making a living, like Mr.
Harris, who are not regulatory specialists. And you are asking
them to look at a proposed regulation with supporting analyses
and understand it in the context of this discussion, and that
is just not what they do for a living. That is not even easy
for me. And so giving them some more time to come up to speed
on that discussion I think would help their participation in
the process. And Mr. Harris has been in those panels himself,
so he can probably tell you more about what would be helpful in
that regard.
Chairman SCHWEIKERT. Ms. Steinzor, is my little fixation on
just understanding the linearity, if that is a word, of the
process appropriate?
Ms. STEINZOR. I think it is very appropriate and I would
suggest to you that what you may want to pursue with Dr.
Sargeant is exactly the question that you keep asking--how are
these rulemakings selected? We only know what we could get from
a Freedom of Information Act request to the Office of Advocacy,
and what the information that we got back from that shows is
that the office is in touch with a lot of large company
lobbyists and that is how it makes it choices. And that when it
takes a position it does not ask anybody in small business.
Chairman SCHWEIKERT. Because I actually even read the
advocacy piece.
Ms. STEINZOR. Right.
Chairman SCHWEIKERT. To say that that is how they make
their decisions, I do not think there is any actuarial data
that says that, but they get the information. We will give you
that. But to actually say one is one, I think there is not data
that says that.
Ms. STEINZOR. I would love to know if they do any surveys
of small businesses to identify what rules are the most
problem, if they make those a priority, if they are even in
touch with small businesses that have problems.
Chairman SCHWEIKERT. Okay. And the question part is fine.
It is rational to say one is the cause of the effect. I would
always be very careful of sort of anecdotal leaps.
So Mr. Harris, you get the last word and then we are all
running off to our next panels that we are all supposed to be
on.
Mr. HARRIS. What would be wrong, and again, just a country
boy asking, what would be wrong with assuming that small
business is affected with every regulation and then go from
there and make them prove that they are not as opposed to you
have to prove that they are affected significantly and with
enough numbers. So I mean, almost it works out being like the
Miranda regulation. You cannot do anything until you do this.
Chairman SCHWEIKERT. Why is it always the country boy gets
the best line at the end of the get-together? It often works
that way.
I want to thank the witnesses today. For much of this, this
is also the education of a new member like myself on the
committee. And I have been trying to read everything I can get
my hands on. And this is actually for my brothers and sisters
on the panel and anyone else in the room. I will read anything.
I am fairly voracious. Send it our way. And when agencies fail
to actually comply with the Regulatory Flexibility Act, let us
face it. Our economy suffers, our economic growth suffers, and
our job creation suffers.
The Committee will continue to exercise our oversight
responsibilities to ensure that federal agencies comply with
the RFA, and we will consider ways to strengthen this important
statute and make sure it is also relative to today and not
basically 30-plus years ago when it was originally drafted.
And I ask unanimous consent that members have five
legislative days to submit written statements and supporting
materials for the record. Hearing no objection. One day someone
is going to object and I am going to have no idea what to do.
And with that so ordered, the panel is adjourned.
[Whereupon, at 11:44 a.m., the Subcommittee was adjourned.]
A P P E N D I X
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Chairman Schweikert, Ranking Member Clark, and Members of
the Subcommittee, I am Dr. Winslow Sargeant, Chief Counsel for
the Office of Advocacy at the U.S. Small Business
Administration.
Thank you for the invitation to appear before you today to
discuss the critical issue of agency compliance with the
Regulatory Flexibility Act (RFA).
The Office of Advocacy was created in 1976 to be a voice
for small business within the federal government. Advocacy
advances the views, concerns, and interests of small business
before Congress, the White House, federal agencies, federal
courts, and policymakers. We work with federal agencies in the
rulemaking process to implement the requirements of the RFA.
The RFA requires federal agencies to consider the effects
of their proposed rules on small businesses and other small
entities, including small governments and small nonprofits.
When an agency finds that a proposed rule may have a
significant economic impact on a substantial number of small
entities, it must undertake an analytical process to consider
significant alternatives that would minimize the burden on
small entities while still achieving the original goal of the
regulation.
How Advocacy Helps Agencies Comply
The Office of Advocacy works with federal agencies in a
number of ways to improve their RFA compliance and to ensure
that the particular concerns of small businesses are considered
during the federal rulemaking process.
RFA Training
As required in Executive Order 13272, Advocacy must train
agencies on how to comply with the RFA. In addition to the
officials previously trained at more than 60 agencies and
subagencies, we have trained nearly 350 additional key agency
officials in RFA compliance during my tenure. In FY 2012, we
published an expanded and updated edition of A Guide for
Government Agencies: How to Comply with the Regulatory
Flexibility Act. Increased and improved RFA training leads to
better agency rulemakings, which results in increased
regulatory compliance.
Interagency Communications
Much of Advocacy's work with agencies is at the
confidential, pre-proposal stage, when agencies are working
through the regulatory development process. When warranted,
Advocacy sends agencies public comment letters that take into
account small business concerns about specific regulations and
other proposals. I have signed more than 90 such letters on
topics including proposed revisions to the definition of solid
waste, small business perspectives on the Paperwork Reduction
Act, Small Business Innovation Research size regulations, and
comments on regulations related to the Real Estate Settlement
Procedures and Truth in Lending Acts (RESPA-TILA).
SBREFA Panels
The RFA as amended by SBREFA and the Dodd-Frank Wall Street
Reform and Consumer Protection Act also specifies that three
agencies must conduct a SBREFA panel for gathering comments on
a proposed regulation when it may have a significant economic
impact on small businesses. The three agencies are the
Environmental Protection Agency, the Occupational Safety and
Health Administration (OSHA), and the Consumer Financial
Protection Bureau (CFPB). The panels are required to include
representation from the rulemaking agency, the Office of
Management and Budget's Office of Information and Regulatory
Affairs, and the Office of Advocacy. The panels solicit
information from small entity representatives (SERs), who
represent the small businesses likely to be affected by the
proposed rule. The law requires a SBREFA panel to be convened
and complete its report with recommendations within a 60-day
period.
Since SBREFA was passed in 1995, the three agencies have
conducted SBREFA panels on 55 regulations. In the last two
years, we have participated in a dozen panels, including the
first three panels ever by the CFPB. We provided support to the
CFPB for the panels on RESPA-TILA, mortgage servicing, and
mortgage loan origination rules and were able to work with the
agency to provide small business flexibilities.
Roundtables
In an effort both to hear directly from small businesses
and their representatives and to give federal agency rule
writers a change to hear specific small business concerns,
2012, which I delivered to Congress last month. I ask that a
copy of this report be submitted, in its entirety, into the
record.
Executive Order 13272
I also am pleased to report that in FY 2012 agencies
continued to improve their compliance with E.O. 13272, which
was signed in August 2002 by President George W. Bush. Some of
the provisions of the executive order became law under the
Small Business Jobs Act of 2010.
E.O. 13272 requires Advocacy to notify agencies of the
requirements of the act, provide compliance training, and
submit comments to agencies and the Office of Information and
Regulatory Affairs (OIRA) on agency regulations. Agencies in
turn must establish written policies and procedures for RFA
compliance and notify Advocacy of any draft rules with a
significant economic impact on a substantial number of small
entities. Where Advocacy has provided written comments,
agencies must give appropriate consideration to these comments
and publish their response in the Federal Register with the
final rule.
Executive Order 13563 and RFA Section 610
In 2011, President Obama provided Advocacy with additional
tools to improve the regulatory development process. Executive
Order (E.O.) 13563 and E.O. 13579 instructed agencies to
develop a plan for periodic retrospective review of all
existing regulations with the intention of reducing the
cumulative regulatory burden. In response, Advocacy continues
to expand its stakeholder outreach. We have convened 84
roundtables on a variety of topics since I became chief
counsel, including 32 in FY 2012. Many of the roundtables
featured significant involvement from agency officials.
For example, we held several roundtables with OSHA, where
senior OSHA officials were present, on small business
perspectives related to labor safety issues.
We also held a series of roundtables in several regions
around the country to solicit input from small business
research and technology stakeholders about the SBA's proposed
regulations implementing the revised Small Business Innovation
Research program.
These small business roundtables help ensure that the
voices of small businesses and other small entities are heard
by officials whose actions will make a difference in the
regulatory environment in which they operate.
Compliance
Having generally explained how the Office of Advocacy works
with agencies, I would like to address agency compliance with
their RFA responsibilities. I am pleased to report that
agencies continued to improve their compliance with the RFA in
FY 2012, bolstered by President Obama's focus on the need for
regulatory review and emphasis on the special concerns of small
businesses in the rulemaking process. A detailed analysis of
this compliance can be found in Advocacy's Report on the
Regulatory Flexibility Act FY agencies developed plans, some
with significant public input, and published these plans
online. The White House also posted the plans and agency
updates online.\1\
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\1\ See http://www.whitehouse.gov/21stcenturygov/actions/21st-
century-regulatory-system.
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Cost Savings
Agency compliance with Advocacy's RFA efforts pays real
dividends to America's small businesses. In FY 2012, Advocacy's
RFA activities resulted in small businesses saving $2.4 billion
in first-year regulatory costs and another $1.2 billion in
annually recurring costs.
It is important to note that these estimated annual cost
savings are derived primarily from regulatory cost estimates
from the agencies themselves. Cost savings are captured in the
year in which the agency's rulemaking is affected by Advocacy's
intervention; and the total varies from year to year. Over the
two and half years of my tenure, Advocacy's work with federal
agencies has saved small businesses $17 billion in new first-
year regulatory costs.
Concluding Remarks
The passage of laws amending the RFA and the Executive
Orders reinforcing it have made this critical small business
law more effective in reducing the regulatory burdens of small
entities early--when the regulations are still in the
development stage. Agencies' willingness to attend Advocacy
roundtables and hear the concerns of small businesses has been
a welcome development that has resulted in improved agency
compliance with the RFA.
We have learned through our experience with the RFA that
regulations are more effective when small firms are part of the
rulemaking process. The result of enhanced agency cooperation
with the Office of Advocacy and improved agency compliance with
the RFA benefits small businesses, the regulatory environment,
and the overall economy.
Thank you again for the opportunity to testify on the
important work the Office of Advocacy does on behalf of small
businesses. I would be happy to take any questions.
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
The U.S. Chamber of Commerce is the world's largest
business federation representing the interests of more than 3
million businesses of all sizes, sectors, and regions, as well
as state and local chambers and industry associations.
More than 96% of Chamber member companies have fewer than
100 employees, and many of the nation's largest companies are
also active members. We are therefore cognizant not only of the
challenges facing small businesses, but also those facing the
business community at large.
Besides representing a cross-section of the American
business community with respect to the number of employees,
major classifications of American business--e.g.,
manufacturing, retailing, services, construction, wholesalers,
and finance--are represented. The Chamber has membership in all
50 states.
The Chamber's international reach is substantial as well.
We believe that global interdependence provides opportunities,
not threats. In addition to the American Chambers of Commerce
abroad, an increasing number of our members engage in the
export and import of both goods and services and have ongoing
investment activities. The Chamber favors strengthened
international competitiveness and opposes artificial U.S. and
foreign barriers to international business.
Positions on issues are developed by Chamber members
serving on committees, subcommittees, councils, and task
forces. Nearly 1,900 businesspeople participate in this
process.
Mr. Chairman, Madam Ranking Member, thank you for inviting
to testify this morning on the value of the Regulatory
Flexibility Act in the regulatory process. I am Marc Freedman,
and I serve as the Executive Director for Labor Law Policy at
the U.S. Chamber. In that role I work on several important
workplace and employment regulatory areas, most notably OSHA,
the FMLA, and the FLSA. Before coming to the Chamber more than
eight years ago, I was the Regulatory Counsel for the Senate
Small Business Committee with the primary responsibility of
overseeing agency compliance with the Regulatory Flexibility
Act as modified by the Small Business Regulatory Enforcement
Fairness Act (SBREFA).
This morning I would like to focus my remarks on examples
where OSHA and other Department of Labor agencies under the
current administration did not take advantage of the RFA and
SBREFA in their rulemakings. Note that I said ``did not take
advantage.'' The Reg Flex Act and SBREFA can be potent tools
for agencies to help them develop better, more tailored
regulations. Instead of seeing these laws as opportunities to
get insightful input, too often agencies see these laws as
obstacles in the rulemaking process to be overcome.
The Regulatory Flexibility Act and SBREFA Enhance
Rulemakings
The RFA and SBREFA are common sense additions to the
rulemaking process which, at their core, just ask agencies to
respect the small businesses that will be subject to their
regulations. The RFA requires that agencies conduct analyses on
the impact regulations will have on small entities, or in the
case of OSHA, EPA, and now the CFPB, small business review
panels, unless the agency can ``certify'' that the regulation
will not have a ``significant economic impact on a substantial
number of small entities.'' Compliance with the Regulatory
Flexibility Act enhances the rulemaking process--assuming that
the goal is to produce regulations that will have the maximum
beneficial impact with a minimal burdensome impact.
As I have reviewed agency rulemakings over the years, I
have seen many agencies go to some lengths to avoid conducting
these analyses. The dispute often arises in the context of the
``factual basis'' agencies are required to provide to support
their certification. In some rulemakings I have reviewed, this
factual basis is either absent, or the agency uses a
declarative tautological statement that the proposed regulation
will not have a significant economic impact on a substantial
number of small entities to support the certification that the
regulation will not have a significant economic impact on a
substantial number of small entities. Often agencies seriously
underestimate the cost impacts of a regulation. In some cases
this can also mean ignoring industries affected. I should point
out that these problems of agency adherence to the requirements
of the RFA are not unique to any specific administration or
party--they span several administrations of both political
parties.
The key is that the RFA and SBREFA create channels for
input from small entities that will be affected by the proposed
regulations. When agencies seek this input, and respect those
small entities that will be subject to the regulation, all
parties come out ahead. Beyond the requirements for small
business review panels that apply to OSHA, EPA, and the CFPB,
the RFA's affirmative outreach requirement applies to all other
agencies subject to the Administrative Procedure Act's
requirement for notice and comment rulemaking. Section 609(a)
directs agencies to ``assure that small entities have been
given an opportunity to participate in the rulemaking...through
the reasonable use of techniques such as--(3) the direct
notification of interested small entities.'' As the Regulatory
Flexibility Act and even SBREFA were enacted before the advent
of the internet, this requirement is considerably easier now
than when these laws were passed, and accordingly there is even
less reason why agencies should avoid doing this. Too many
times agencies think that publishing a proposed regulation in
the Federal Register constitutes some form of affirmative
outreach.
In addition to requiring certain steps if an agency cannot
certify a regulation, the RFA always allows an agency to
voluntarily engage in the outreach and analysis steps specified
by the RFA and SBREFA even if an agency is able to certify that
the trigger threshold has not been met.
There is one more important point I would like to make
about the impact of the RFA: it does not force an agency to
change their rulemaking, nor does it authorize the SBA Office
of Advocacy to change or block an agency's rulemaking, even if
that agency is ignoring Advocacy's advice. The RFA merely sets
out a process but it does not specify the outcome.
Examples of OSHA Rulemakings Where A SBREFA Panel Would
Have Made A Difference
Unfortunately, OSHA under this administration has displayed
a certain resistance to taking advantage of the SBREFA process.
In various examples, OSHA could have clearly benefited if they
had been willing to use the small business panel review process
that the act lays out. And in each of these cases, there would
have been no delay in moving the rulemakings forward.
Early in this administration, OSHA initiated several
rulemakings without availing themselves of the benefits from
the small business panel reviews. In each case they certified
that these rulemakings did not trigger SBREFA but in each case
the agency would have benefited from using the small business
panel review even if the certification was valid.
One of the first rulemakings from this OSHA was one to
``clarify'' when small businesses who voluntarily enter into
the on-site consultation program--that is they ask for help
from OSHA in identifying hazards in their workplace--would be
subject to enforcement. Traditionally, there is a fire wall
between the consultation and enforcement programs. This
cooperative agreements rulemaking sought to reinforce that OSHA
was going to look for opportunities to pursue enforcement even
for those employers who are truly doing the right thing.
OSHA certified that this proposed regulation would not
trigger SBREFA, but as it explicitly and exclusively deals with
small businesses, OSHA would have benefited from hearing
directly from small businesses about their views on this
rulemaking. Indeed, not conducting a small business review
panel for this rulemaking reveals the lack of concern this OSHA
has for the impact of their actions on small businesses. Had
they done so, they would have heard that small businesses would
be less comfortable entering into the consultation program if
this rulemaking is completed. Getting that message with that
clarity at that time, might have steered OSHA from proposing
this regulation. The Chamber filed comments making this point,
as did the SBA Office of Advocacy.
Reducing participation in this program may be one of OSHA's
goals as Secretary Solis and then Acting Assistant Secretary
Jordan Barab made explicitly clear in speeches during that
period that they wanted to emphasize enforcement and
deemphasize cooperative agreements and other approaches that
did not rely on enforcement.
The only regulatory agenda for 2012, issued in late
December, indicates that this rulemaking is scheduled to be
finalized in April.
Another rulemaking where OSHA suffered for not conducting a
small business panel review is the high profile rulemaking to
add a column to the OSHA 300 recordkeeping log to track
musculoskeletal disorders (MSDs)--the injuries associated with
ergonomics. OSHA certified this regulation as not having a
significant economic impact on a substantial number of small
entities, based on their claim that compliance with this would
only take five minutes. OSHA severely underestimated the impact
of this rulemaking by ignoring the fact that small businesses
would now be held accountable for determining whether an MSD is
work related--a potentially complicated and uncertain analysis.
The Chamber urged OSHA to conduct the small business review
plan, but OSHA declined to do so.
In July 2010, OSHA submitted a final regulatory package to
OIRA for review but in January 2011, OSHA was forced to
withdraw the regulation from OIRA and instructed to get more
input from small businesses. This resulted in the agency
conducting three teleconferences with small businesses to hear
directly from them about their concerns with this rulemaking--
exactly what would have happened if the agency had conducted
the small business panel review at the early stages of the
rulemaking. If OSHA had taken advantage of the SBREFA
procedures, this regulation might very well be in place by now.
Instead, it is languishing on the long term action list and is
blocked from moving forward because of an appropriations rider.
The last OSHA rulemaking I want to bring up is the Globally
Harmonized System for Classification and Labeling--GHS for
short. This is a sweeping regulation that modifies how
producers of hazardous chemicals and downstream users of those
products must label them for hazards and train employees on
those hazards. The rulemaking was actually started in the Bush
administration. Again, OSHA declined to conduct a SBREFA panel
claiming that any costs related specifically to complying with
the new regulation would be onetime adjustments from compliance
with the precursor Hazard Communication Standard and therefore,
the impact was minimal and did not warrant the small business
panel review. OSHA did claim to voluntarily comply with the
other requirements of SBREFA by responding to the issues
covered under an Initial Regulatory Flexibility Analysis or
IRFA, but they stopped short of conducting the small business
review panel.
In fact, OSHA claimed this regulation would result in
substantial net savings to employers because it would eliminate
the need to produce two sets of labels and safety data sheets
when selling products into international markets. OSHA claims
that this regulation will save just over $550 million net of
costs annually.\1\ Even if this calculation is accurate, and we
think there are several reasons why it is not, this amount when
spread over OSHA's estimate of the number of affected
establishments of 5.4 million produces an annual net benefit of
about $100.
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\1\ This rulemaking has also been cited by the Obama administration
as part of the regulatory ``look back'' effort intended to review old
regulations and modify or eliminate them. OSHA' claim that this
regulation will save $2.5 billion over five years is a significant part
of the overall savings claimed by this effort.
The sad point is that this was a regulation that everyone
agreed should happen. The Bush administration initiated it,
Republicans in Congress had called for it, and this was
supposed to be the low hanging fruit. Unfortunately, when this
administration decided to take on this rulemaking, they loaded
up the regulation with various provisions that do not make
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sense or were not even in the proposal:
OSHA created a new hazard category for
Hazards Not Otherwise Classified--a catch all that
means employers will never know if they have labeled
and trained for all the hazards that OSHA expects.
OSHA inserted coverage for combustible dust
into the final regulatory text without putting it in
the proposed test despite the fact that OSHA does not
have a regulatory definition for this hazard and is
actually conducting a separate rulemaking to develop a
standard on combustible dust.
OSHA specified that the deadline for
employers to have their training program in place would
be a year before the deadline for producers to update
their labels and safety data sheets--the very material
that will be the focus of the training programs.
These and other problems would have been made known to OSHA
during a small business panel review if OSHA had not certified
this regulation as not triggering SBREFA, or had decided to
voluntarily conduct the panel. As several of these issues are
now being litigated, learning about these problems before the
regulation was proposed might have saved OSHA and the
Department considerable resources and insured a smoother
implementation.
The timing of the input that comes from a small business
panel is an important feature of this process. Once a
regulation is proposed, an agency is restricted in how much
they can change it before it becomes final. Proposed
regulations are not like proposed legislation which can be very
fluid and go through several iterations and changes before
being enacted. When an agency proposes a regulation, they are
not saying ``let's have a conversation about this issue,'' they
are saying, ``this is what we intend to put into effect unless
there is some very good reason we have overlooked why we
cannot.'' By giving an agency direct feedback about how a
regulation will affect those covered by it, the agency can
learn about problems before they get locked into the
regulation.
Examples Where OSHA SBREFA Panels Are Helpful
As an example of the positive benefits from OSHA conducting
a small business review panel, consider the rulemaking to
revise the crystalline silica standard. In 2003, OSHA conducted
a panel to take input on how this revision would affect small
businesses. Silica is present in a very wide array of
workplaces, in particular in construction which is dominated by
small businesses. One point made by the small businesses in
that review was that reducing the exposure limit would create
tremendous burdens and is likely not even technologically
feasible. Significantly, they told OSHA that the problem was
not an exposure limit that was too high, but that the current
exposure limit is too frequently ignored. Because of the
review, interested parties were able to see what OSHA was
considering and what is likely at OIRA under review as a
proposed regulation which has triggered widespread alarm and
concern. This administration claims to want to be the most
transparent ever; conducting these panels is one of the best
ways to achieve that goal.
Another example of where an OSHA SBREFA panel will be
beneficial is the anticipated panel for OSHA's Injury and
Illness Prevention Program, or I2P2, rulemaking. This will be
OSHA's most sweeping rulemaking ever; it will require all
employers to implement safety and health programs according to
criteria OSHA will establish. To OSHA's credit, the agency has
committed to conducting the SBREFA small business panel review.
Several times last year OSHA indicated this process would be
getting under way, but it has not yet. When it does, interested
parties beyond just those participating in the panel review
will be able to learn what OSHA has in mind and see their draft
economic analysis. Former SBA Advocacy Chief Counsel Jere
Glover has told me that this process of OSHA showing their
cards is perhaps the most significant benefit of this process.
Examples Where OSHA Should Have Done Rulemakings Complete
with SBREFA Panels
Not only has this OSHA given short shrift to the RFA/SBREFA
process when it has conducted rulemakings, but there are also
examples where the agency should have gone through rulemaking
but did not. Had they done rulemakings in these examples, they
would have been well served to conduct small business review
panels.
In October 2010, OSHA proposed to change the interpretation
for the term ``feasible'' as it applies under the Noise
Reduction Standard. Before this proposal, employers had broad
leeway to use personal protective equipment such as noise
canceling headphones or ear plugs, as long as they provided
adequate protection. Under the interpretation, ``feasibility''
would be reinterpreted to mean anything that did not cause a
business to go out of business. The result would be to force
many employers to redesign their workplaces to install costly
engineering controls or implement costly and inefficient
administrative controls so that employees would only work short
periods and be rotated in and out of the hazard.
As this was merely an interpretation, and not a rulemaking,
it was not subject to the requirements of SBREFA. OSHA
published the new interpretation for comment, but did not
conduct any of the analyses associated with a rulemaking such
as costs or impact on small businesses. Thankfully, in January
2011, OSHA was forced to withdraw this interpretation due to an
uproar as more and more businesses learned about it and
determined what the impact would be. An independent economic
analysis, because OSHA had not done one, suggested the impact
on the economy would be more than $1 billion.
The most recent example of a policy change where OSHA
should have done a rulemaking but did not was the memo to
regional administrators from Deputy Assistant Secretary Richard
Fairfax on March 12, 2012. This memo laid out various scenarios
that could constitute violations of the whistleblower
protections. Included in these scenarios was the use of safety
incentive program that focus on rates of injuries reported.
This memo thus created a consequence to employers using these
types of plans where neither the statute nor any regulation
establish a prohibition on these plans or discuss when they are
appropriate. Because this creates a new legal consequence for
employers, this would have been better handled through a
rulemaking where OSHA would reveal the data and evidence that
supports this measure, rather than just stating blithely that
``OSHA has observed that the potential for unlawful
discrimination under all of these policies may increase when
management or supervisory bonuses are linked to lower reported
injury rates.''
Examples of Other Agencies that Erroneously Avoided RFA
Compliance
In addition to OSHA not taking advantage of the RFA/SBREFA
procedures to enhance their rulemakings, other DOL agencies
have similarly avoided the RFA. Most notable have been the
Office of Labor Management Standards in its ``Persuader''
rulemaking and the Employment and Training Administration in
its rulemaking changing how the H-2B visa program would work.
In the ``Persuader'' rulemaking, that would severely
restrict the availability of the ``advice'' exemption for
reporting under the Labor Management Reporting and Disclosure
Act, OLMS certified that the proposed regulation would not have
``a significant economic impact on a substantial number of
small entities'' based solely on the number of NLRB
representation and decertification elections held. The proposed
regulations would, however, greatly expand the requirement for
employers and their consultants to file and thus the Department
grossly under estimated the cost to employers. The Department
estimated that the total cost before filing would be merely
$825,866. The Chamber's more detailed economic analysis however
showed that the proposed rule will impose a first year cost
burden on the economy of between $910.1 million to $2.2 billion
and subsequent annual costs of between $285.9 million to $793.1
million.
Similarly, the Employment and Training Administration
dramatically under estimated the cost of the major changes they
proposed to the H-2B visa program which is heavily used by
small businesses. The Chamber's economic analysis shows that
the Department's estimated first year cost of the proposed rule
increases from the published amount of $2.1 million to a
revised total of $53.1 million, and the subsequent years'
annual costs increase from the published amount of $810,000 per
year to a revised total cost of $50.81 million per year. The
undiscounted total cost over ten years increases from the
published total of $9.35 million to a revised ten-year total of
$509.39 million. The ETA claimed that it did not have adequate
data to provide a more accurate estimate of the costs. The only
reason the ETA did not have this data is that it did not try to
develop it. This was a case where the agency should have
followed the instructions from Section 609(a) to assure
participation from small entities.
Conclusion
The Regulatory Flexibility Act and the Small Business
Regulatory Enforcement Fairness Act exist to help agencies
improve their rulemakings, not to impede them. If agencies
welcomes the input of small businesses as a source of real
world understanding these regulations would likely be more
narrowly tailored without sacrificing the agency mission or
regulatory objective. In the interest of transparency, OSHA
should conduct more small business panel review and other
agencies should look for more direct ways to develop the input
of small businesses consistent with Section 609(a).
[GRAPHIC] [TIFF OMITTED] T0166.077
On behalf of the more than 140,000 members of the National
Association of Home Builders (HAHB), I appreciate the
opportunity to submit this testimony. My name is Carl Harris. I
am a builder from Wichita, Kansas, and co-founder of Carl
Harris Co., Inc. As a specialty contracting firm founded in
1985 we employ approximately twenty individuals and are engaged
in a variety of residential and light-commercial construction
applications. I also serve as a national area chairman for the
National Association of Home Builders and am the 2013 President
of the Kansas Building Industry Association.
As a small businessman operating in a heavily regulated
industry, I understand how difficult (and often costly) it can
be to comply with the myriad of government regulations that
apply to my day-to-day work. As a frequent industry
representative in the statutorily-mandated small business
feedback portion of the regulatory rulemaking process, I am
well aware of the role small businesses play in informing
regulators of the potential burdens borne by small business
with new regulations. I am also aware of the strengths and
weaknesses inherent to the process.
While the original Congressional intent and subsequent
additions/enhancements to the Regulatory Flexibility Act are to
be lauded, the reality is that far too often agencies either
view compliance with the Act as little more than a procedural
``check-the-box'' exercise or they artfully avoid compliance by
other means. Agencies should seek to partner with small
entities to help create more efficient, more effective
regulations and, in so doing, reduce the compliance costs for
small businesses. I am pleased that the Subcommittee is
focusing today on the impacts of regulation on small
businesses.
The Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA)\1\ requires federal
agencies to consider the effect of their actions on small
entities, including small businesses, small non-profit
enterprises, and small local governments. When an agency issues
a rulemaking proposal, the RFA requires the agency to ``prepare
and make available for public comment an initial regulatory
flexibility analysis. Such analysis shall describe the impact
of the proposed rule on small entities.''\2\
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\1\ 5 U.S.C. 601-612
\2\ 5 U.S.C. 603(a).
The RFA states that an initial regulatory flexibility
analysis (IRFA) shall address the reasons that an agency is
considering the action; the objectives and legal basis of the
rule; the type and number of small entities to which the rule
will apply; the projected reporting, record keeping, and other
compliance requirements of the proposed rule; and all federal
rules that may duplicate, overlap, or conflict with the
proposed rule. The agency must also provide a description of
any significant alternatives to the proposed rule which
accomplish the stated objectives of applicable statutes which
minimize any significant economic impact of the proposed rule
on small entities.\3\
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\3\ 5 U.S.C. 603(c).
Section 605 of the RFA allows an agency, in lieu of
preparing an IRFA, to certify that a rule is not expected to
have a significant economic impact on a substantial number of
small entities. If the head of the agency makes such a
certification, the agency must publish the certification in the
Federal Register along with a statement providing the factual
basis for the certification.\4\ The agency must then prepare a
final regulatory flexibility analysis (FRFA) for publication
with the final rule.\5\ The FRFA must include a succinct
statement of the need for, and the objectives of, the rule, a
description of and the estimate of the number of small entities
to which the rule will apply, a description of the projected
reporting, recordkeeping, and other compliance requirements of
the rule, and a description the steps the agency has taken to
minimize the significant economic impacts on small entities
consistent with the stated objectives and the factual, policy,
and legal reasons why the selected option was chosen and the
alternatives rejected.\6\
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\4\ 5 U.S.C. 605.
\5\ 5 U.S.C. 604.
\6\ 5 U.S.C. 604(a).
In addition, under the 1996 amendments to the RFA, known as
the Small Businesses Regulatory Enforcement Fairness Act
(SBREFA)\7\, when the Occupational Safety and Health
Administration (OSHA) or Environmental Protection Agency (EPA)
is required to prepare an IRFA \8\, they must first notify the
Chief Counsel for Advocacy of the Small Business Administration
(``Advocacy'') and provide Advocacy with information on the
potential impacts of the proposed regulation on small entities
and the type of small entities that may be affected. Advocacy
must then identify individual representatives of affected small
entities for the purpose of obtaining advice and
recommendations about the potential impacts of the proposed
rule, and the agency must convene a review panel made up of the
agency, Advocacy, and the Office of Management and Budget to
review the materials the agency has prepared (including any
draft proposed rule), collect advice and recommendations of the
small entity representatives and issue a report on the comments
of the small entity representatives and the findings of the
panel. Following this process, the agency shall modify the
proposed rule, the IRFA, or the decision on whether an IRFA is
required.\9\ While there are exceptions to the requirement to
conduct a SBREFA panel, these are limited to situations where
the agency certifies that the rule will have a minimal
impact.\10\
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\7\ 5 U.S.C. 609.
\8\ Section 1100G of Dodd-Frank amendment Sec. 609(b) to add CFPB
to the list of agencies.
\9\ 5 U.S.C. 609(b)(1) through (6).
\10\ 5 U.S.C. 609(c).
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Small Entity Input Considered After the Negotiated Rule
In 2008, OSHA proposed the Cranes and Derricks Rule, which
was intended to protect workers from the hazards associated
with hoisting equipment in construction. For the development of
this rule, OSHA relied on the negotiated rulemaking process,
wherein the rule is developed by a committee comprised of
individuals who represent the interests of those who will be
significantly affected by the rule.
Unfortunately it wasn't until after the negotiated
rulemaking process was complete that OSHA convened a Small
Business Advocacy Review Panel to evaluate the potential impact
of the rule on small entities. I was fortunate to have
participated as a small entity representative in the review of
the proposed Safety Standard for Cranes and Derricks in
Construction. Several Small Entity Representatives (SERs),
myself included, raised concerns at the time that the Cranes
and Derricks proposal did not differentiate between crane
applications on residential construction sites and large
commercial construction sites. As a result, any rule issued
with this fundamental oversight would disproportionately impact
small entities.
I use cranes almost every day for our residential and light
commercial work. We use cranes to set large trusses, steel
framing for greater clear heights and greater open spaces, and
precast concrete pieces including floors over basements and
safe rooms.
I personally put forward an effective, feasible alternative
that would save lives and reduce injuries in a more cost-
effective way by developing regulations for crane operator
certification which are appropriate to the equipment that is
being used and the risks presented by that equipment. This
included principles of what should be required for crane
operators: employer training for the specific equipment in use,
employer assessment of the conditions of the job site, and the
equipment and certification by the employer that the training
has been completed.
Again, it is unfortunate that small businesses were not
brought in until after the rule had already been developed
through the negotiated rulemaking process. As it was, the
process seemed little more than a procedural hurdle with little
interest from OSHA to make changes based on the feedback
received.
Poor Economic Analysis and the True Costs to Small Entities
In 2010, OSHA proposed revising its Occupational Injury and
Illness Recordkeeping regulation to include additional
reporting requirements on work-related musculoskeletal
disorders (MSDs).
While OSHA certified, in accordance with the Regulatory
Flexibility Act (RFA), that the proposed recordkeeping rule
would ``not have a significant impact on a substantial number
of small entities,'' industry groups urged OSHA to solicit
further input on the impact of the proposed rule on small
businesses by convening Small Business Advocacy Review Panel,
as mandated by the RFA. However, in lieu of a proper small
business panel, OSHA convened a series of teleconferences in
2011, which I participated in, to reach out to the small
business community for input on the proposal.
During the teleconferences, I raised the concern that the
proposed rule would result in additional costs to small
employers which OSHA had not yet considered. Recording MSDs
entails far more than simply placing a check mark in the MSD
column. It requires a thorough investigation to correctly
classify MSDs. Most employers in the home building industry are
generally not qualified to assess such work-related illnesses.
Only qualified medical personnel can analyze MSD injuries--I
certainly do not have this medical expertise and very few home
builders have medical degrees. Therefore, evaluating each MSD
case would be very time consuming for employers, particularly
small ones. This evaluation would likely take several hours to
several days--not minutes as OSHA suggests--to consult with
qualified medical personnel, review medical records and
reports, and determine whether the MSD is new, work-related, or
otherwise recordable. This would result in significantly
increased costs to small businesses.
As a result of not engaging small businesses earlier and in
a more comprehensive manner, OSHA failed to account for the
true impact this proposed rule would have on small entities and
their employees. OSHA has since temporarily withdrawn the
proposed Recordkeeping rule citing the need for ``greater input
from small businesses on the impact of the proposal.'' \11\ I,
along with NAHB, welcome the prospect of partnering with OSHA
on the proposed rule in the hopes of developing a better, more
workable rule for small entities that takes into account the
true costs associated with compliance.
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\11\ http://www.osha.gov/pls/oshaweb/owadisp.show--document?p--
table=NEWS--RELEASE&p--id=19158
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Failure to Engage Small Entities in a Meaningful Way
Improving the way the agencies conduct the required reviews
of proposed regulations under RFA would result in far more
efficient regulations and reduced compliance costs for small
businesses.
Unfortunately, agencies often either fall to comply with
the RFA by ignoring the statutory obligation to convene a small
entity review panel or convene a panel but fail to provide SERs
sufficient information concerning the proposed rule to allow
them to evaluate regulatory options or provide alternatives.
This was the case for a small entity review panel on which
I recently served that reviewed a proposed federal regulation
covering stormwater discharges from developed sites. EPA, in
preparation for the panel, failed to provide sufficient
detailed information about the upcoming rule.\12\ As a result,
NAHB members serving as SERs were unable to estimate compliance
costs or identify ways to reduce the regulatory burden upon
small businesses. Several SERs provided written comment that
the lack of information made providing meaningful input
difficult and noted that the agency's failure to provide
sufficient information was a violation of SBREFA. Despite these
concerns, EPA concluded the small entity review panel in
December 2010.
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\12\ EPA's stormwater rule was identified in the December 2010
Unified Agenda notice as ``Stormwater Regulations Revisions To Address
Discharges From Developed Sites.'' See 75 Fed. Reg. 79851, December 20,
2010.
This experience highlights a reoccurring limitation of the
current RFA/SBREFA process--namely that the federal agencies
often view compliance as largely a procedural function during
the federal rulemaking process and not--as Congress intended--
an opportunity to reduce the burden of regulations on small
businesses. When agencies are unprepared to provide small
entity review panelists with the information and data necessary
to evaluate the costs and compliance obligations, the process
breaks down. Not only do the participants question the value of
their participation, but the entire regulatory program loses
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its legitimacy and clearly undermines Congress's intent.
Failure to Comply with the SBREFA Panel Requirements
While going through the procedural motions and failing to
provide the small business community with the necessary tools
to provide meaningful, constructive feedback is a significant
problem, far more problematic are the occasions when agencies
obviate their responsibility to convene review panels, thus
removing a small business entirely from the equation. This was
the case when EPA failed to convene a review panel as the
agency sought to amend its Lead Renovation, Repair, and
Painting (RRP) rule.
The RRP Rule requires for-hire contractors that conduct
renovation activities in residences built before 1978 to obtain
certification from EPA; use ``lead-safe work practices''
designed to contain and minimize dust created during the
renovation activity; and maintain records on these activities.
Shortly after finalizing the RRP Rule in 2008, as a result of a
settlement agreement EPA reached with public interest
advocates, EPA proposed amending the regulation to remove the
``Opt-Out Provision.'' The opt-out provision allowed homeowners
to authorize their contractor to use traditional work practices
under certain circumstances, resulting in significant cost
savings.
Removing the opt-out provision more than doubled the number
of homes subject to the RRP Rule to 78 million and EPA
estimated the cost of this action to be $500 Million
annually.\13\ However, the costs are far greater because of
EPA's flawed economic analysis, which significantly
underestimated the true compliance costs. The agency initially
estimated that compliance costs would add $35 to a typical
remodeling job; yet for a typical window replacement project
the cost ranges from $90 to $160 per window opening, easily
adding more than $1,000 to each project. Moreover, an EPA
Inspector General's (IG) report, published on July 25, 2012,
found that the EPA failed to use accurate or even reliable
information on the likely costs of changes to the RRP rule on
small entities. More specifically, the report called on EPA to
review both the original RRP rule and the removal of the Opt-
Out provisions using RFA Section 610 authorities:
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\13\ 75 Fed. Reg. 24802, 24812 (May 6, 2010). The agency estimated
that the removal of the Opt-Out provision would result in $500 million
in costs in the first year, but projected this amount would decrease to
$200 million each year once the agency certified a test kit that
satisfied the RRP Rule's criteria for accurately measuring the presence
of lead in paint at regulated levels. However, no such test kit has
been identified and therefore these cost savings have not been
realized.
``We have identified only a few aspects of EPA's
complex benefits-costs analysis that are limited.
However, we believe these aspects limit the reliability
of EPA's estimates of the rule's costs and benefits to
society. The Administration's 2011 Executive Order
[E.O. 13563] and Section 610 of the Regulatory
Flexibility Act provide EPA an opportunity to review
the Lead Rule to determine whether it should be
modified, streamlined, expanded, or repealed in light
of the known limitations in the rule's underlying cost
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and benefit estimates.''
EPA acknowledged during the initial rulemaking that the
Opt-Out Rule substantially impacted a significant number of
small entities and complied with the RFA's regulatory
flexibility analysis reporting requirements. However, EPA
refused to convene a new panel. Instead, EPA relied on a panel
convened more than a decade earlier for the original RRP Rule.
EPA stated ``that reconvening the Panel would procedurally
duplicative and is unnecessary given that the issues here were
within the scope of those considered by the Panel.'' \14\
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\14\ Id. at 24815.
In the 17 years since the RFA was amended by SBREFA to
include the panel requirement, EPA has convened approximately
43 panels. According to a recent report issued by the
Congressional Research Service (CRS), EPA issued nearly the
same number of significant regulations during the first Obama
Administration.\15\ It defies belief that so few EPA
regulations have met the threshold under SBREFA and these
numbers illustrate how reluctant agencies are to comply with
the law.
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\15\ The Congressional Research examined 45 regulations it
characterized as satisfying OMB's ``significance'' threshold of $100
million annual effect on the U.S. economy in a report addressing the
rate of issuing regulations during the first Obama Administration.
Regulations: Too Much, Too Little, or On Track?, http://www.fas.org/
sgp/crs/misc/R41561.pdf (last visited Mar. 5, 2013).
Contributing to the lack of EPA's compliance with the RFA
is the absence of an enforcement mechanism. While section 611
of the RFA provides for judicial review of some of the act's
provisions, it does not permit judicial review of section
609(b), which contains the panel requirement.\16\ NAHB believes
that the RFA should be amended to include judicial review of
the panel requirement to ensure agencies adhere to the law.
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\16\ Section 611(a)(1) states: ``For any rule subject to this
chapter, a small entity that is adversely affected or aggrieved by
final agency action is entitled to judicial review of agency compliance
with the requirements of sections 601, 604, 605(b), 608(b), and 610 in
accordance with chapter 7. Agency compliance with sections 607 and
609(a) shall be judicially reviewable in connection with judicial
review of section 604.''
Many of the deficiencies found in EPA's RRP rule could have
been addressed if EPA complied with both the letter and spirit
of the RFA. Ultimately, because they didn't convene a panel,
EPA was unable to produce a workable rule and has unnecessarily
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burdened small entities.
Underestimating Impacts to Avoid Statutory Requirements
Under the Endangered Species Act (ESA), the U.S. Fish and
Wildlife Service and National Oceanic and Atmospheric
Administration (collectively referred to as ``the Service'')
can prohibit the issuance of any federal permit if the Service
determines the proposed activity may result in the ``adverse
modification'' of critical habitat.\17\ Congress, recognizing
the potential economic impact of critical habitat designations,
requires the Service to perform an economic analysis whenever
the Service proposes to designate critical habitat. Congress
also gave the Service the authority to exclude any area from a
``final'' critical habitat designation, provided the Service
determines the economic costs resulting from critical habitat
designation outweighs the biological benefits to the
species.\18\
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\17\ 16 U.S.C. Sec. 1636(2)
\18\ 16 U.S.C. Sec. 1633(b)(2)
While the Service is required to comply with the RFA, they
frequently will adopt the stance that small entities are not
significantly impacted by a proposed critical habitat
designation, and certify as such. The designation of critical
habitat directly impacts land developers, builders, states, and
local governments by restricting their ability to undertake
otherwise lawful land use activities. The designation of
critical habitat by the Service is unlike other ESA regulatory
restrictions in that the Service can designate private property
as critical habitat regardless of whether a federally protected
species will ever occupy the property in question. For NAHB
members, the designation of critical habitat by the Service has
a significant economic impact on their land development
projects and their businesses. As explained further below, the
designation of critical habitat triggers a complex federal
permitting process known as the ESA Section 7 consultation
process that can result in the Service prohibiting otherwise
lawful land use activities if the Service determines proposed
activities may result in adverse modification of critical
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habitat.
The ESA's Section 7 consultation process often
significantly impacts small businesses and is fraught with
permitting delays, increased costs and land use extractions.
While the Service's regulations say the ESA Section 7 formal
consultation process should take no longer than four and half
months (135 days) to complete, the Service routinely fails to
complete the consultation process within its own prescribed
permitting deadlines.\19\ For example, the U.S. General
Accounting Office (GAO) conducted an audit of ESA Section 7
consultations permits performed in the Pacific Northwest in
2003 following the Service's decision in the late 1990's to
list as ``endangered'' over 20 subpopulations of salmon
species. GAO's audit found the Service routinely exceeded the
Section 7 permitting timeframes for formal consultation by many
months and in some cases years.\20\ Homeowners living near
Seattle, Washington waited over two years for the Service and
the Army Corps of Engineers (Corps) to complete ESA Section 7
formal consultations for a CWA Section 404 wetland permits
(needed to install private boat docks on Lake Washington.\21\
In the case of the homeowners, GAO estimated the economic
impact from the Section 7 permitting delay for the federal
wetlands permits to be approximately $10,000 per homeowner.\22\
While understandably outrageous, these types of permitting
delays are common for NAHB members whose projects occur in
areas designated by critical habitat and require a Section 404
permit.
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\19\ 50 CFR Sec. 402.14 (2012)
\20\ GAO Report (2003) Endangered Species: Despite Consultation
Improvement Efforts in the Pacific Northwest, Concerns Persist about
the Process, GAO-03-949T, Executive Summary.
\21\ GAO Report (2003) Endangered Species: Despite Consultation
Improvement Efforts in the Pacific Northwest, Concerns Persist about
the Process, GAO-03-949T, page 12
\22\ GAO Report (2003) Endangered Species: Despite Consultation
Improvement Efforts in the Pacific Northwest, Concerns Persist about
the Process, GAO-03-949T, page 12
Despite these examples of significant economic impacts on
small entities, the Service routinely claims that the RFA does
not apply when designating critical habitat. Three examples of
past critical habitat designations where the Service has
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certified the RFA does not apply are:
Vernal Pools (crustaceans and plants)--FWS
finalized the designation of over 800,000 acres of land across
San Diego and Riverside counties in California.\23\ According
to FWS's ESA Sec. 4(b)(2) economic analysis the potential
economic impact on residential construction activities could be
upward of $800 million dollars. However, the FWS ``certified''
the RFA does not apply because ``not a substantial number of
small entities'' will be impacted by the proposed rule.\24\
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\23\ 70 Fed. Reg. Sec. 46934 (August 11, 2005)
\24\ 70 Fed. Reg. Sec. 46954 (August 11, 2005)
California Coastal Gnatcatcher (bird)--FWS
proposed to designate as critical habitat about 200,000 acres
located across Los Angeles, Orange, San Bernardino, Riverside,
and Ventura counties.\25\ Again under economic analysis
required under the ESA Sec. 4(b)(2) FWS found an economic
impact of greater than $880 million dollars--a majority of the
economic impact occurring due to future residential
development. However again FWS ``certified'' the RFA does not
apply since ``not a substantial number of small entities will
be impacted.''\26\
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\25\ 72 Fed. Reg. Sec. 72010 (December 19, 2007)
\26\ 72 Fed. Reg. Sec. 72067 (December 19, 2007)
Cactus Ferruginous Pygmy-Owl (bird)--FWS proposed
to designate as critical habitat over 1.2 million acres
encompassing the entire Tucson, Arizona metropolitan area.\27\
The Service's sweeping critical habitat designation for the
pygmy-owl was outrageous considering only 18 known owls existed
in the entire area. That mean each of the 18 known owls would
have greater than 66,000 acres of critical habitat much of it
located on private lands. Biologists have since shown that
these owls typically require anywhere between 50-290 acres
each.\28\ Once again the Service's own ESA economic analysis
found staggering economic impacts upon NAHB members and local
governments including $545 million dollars decline in housing
production, a loss of $68 million dollars in local taxes and
fees from reduced residential construction, and most
importantly the loss of 2,748 of construction jobs all over a
ten year period. Shockingly the Service again certified the RFA
did not apply since not a substantial number of small entities
would be impacted.
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\27\ 67 Fed. Reg. Sec. 71032 (November 27, 2002)
\28\ FWS. 2000. Chapter 1: The Cactus Ferruginous Pygmy-Owl:
Taxonomy, Distribution, and Natural History. Retrieved on March 11,
2013. Available at http://www.fs.fed.us/rm/pubs/rmrs--gtr043/rmrs--
gtr043--005--015.
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Conclusion
Congress, in crafting the RFA, clearly intended for all
covered federal agencies to carefully consider the proportional
impacts of federal regulations on small businesses.
``It is the purpose of this Act to establish as a
principle of regulatory issuance that agencies shall
endeavor, consistent with the objectives of the rule
and applicable statutes, to fit regulatory and
informational requirements to the scale of the
businesses, organizations, and governmental
jurisdictions subject to regulations. To achieve this
principal, agencies are required to solicit and
consider flexible regulatory proposals and to explain
the rationale for their actions to assure that such
proposals are given serious consideration.''\29\
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\29\ Regulatory Flexibility Act of 1980 (P.L. 96-354)
Unfortunately, all too often federal agencies view RFA
compliance as either a technicality of the federal rulemaking
process or, worse yet, as unnecessary. In an effort to ensure
that regulations are crafted in accordance with the
Congressional intent of the RFA, I urge Congress to seek out
ways to improve agency compliance with the Regulatory
Flexibility Act.
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