[House Hearing, 110 Congress] [From the U.S. Government Publishing Office] FULL COMMITTEE HEARING ON LEGISLATION TO IMPROVE THE REGULATORY FLEXIBILITY ACT ======================================================================= COMMITTEE ON SMALL BUSINESS UNITED STATES HOUSE OF REPRESENTATIVES ONE HUNDRED TENTH CONGRESS FIRST SESSION __________ DECEMBER 6, 2007 __________ Serial Number 110-62 __________ Printed for the use of the Committee on Small Business Available via the World Wide Web: http://www.access.gpo.gov/congress/ house ______ U.S. GOVERNMENT PRINTING OFFICE 39-383 WASHINGTON : 2007 _____________________________________________________________________________ For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512�091800 Fax: (202) 512�092104 Mail: Stop IDCC, Washington, DC 20402�090001 HOUSE COMMITTEE ON SMALL BUSINESS NYDIA M. VELAZQUEZ, New York, Chairwoman HEATH SHULER, North Carolina STEVE CHABOT, Ohio, Ranking Member CHARLIE GONZALEZ, Texas ROSCOE BARTLETT, Maryland RICK LARSEN, Washington SAM GRAVES, Missouri RAUL GRIJALVA, Arizona TODD AKIN, Missouri MICHAEL MICHAUD, Maine BILL SHUSTER, Pennsylvania MELISSA BEAN, Illinois MARILYN MUSGRAVE, Colorado HENRY CUELLAR, Texas STEVE KING, Iowa DAN LIPINSKI, Illinois JEFF FORTENBERRY, Nebraska GWEN MOORE, Wisconsin LYNN WESTMORELAND, Georgia JASON ALTMIRE, Pennsylvania LOUIE GOHMERT, Texas BRUCE BRALEY, Iowa DEAN HELLER, Nevada YVETTE CLARKE, New York DAVID DAVIS, Tennessee BRAD ELLSWORTH, Indiana MARY FALLIN, Oklahoma HANK JOHNSON, Georgia VERN BUCHANAN, Florida JOE SESTAK, Pennsylvania JIM JORDAN, Ohio BRIAN HIGGINS, New York MAZIE HIRONO, Hawaii Michael Day, Majority Staff Director Adam Minehardt, Deputy Staff Director Tim Slattery, Chief Counsel Kevin Fitzpatrick, Minority Staff Director ______ STANDING SUBCOMMITTEES Subcommittee on Finance and Tax MELISSA BEAN, Illinois, Chairwoman RAUL GRIJALVA, Arizona DEAN HELLER, Nevada, Ranking MICHAEL MICHAUD, Maine BILL SHUSTER, Pennsylvania BRAD ELLSWORTH, Indiana STEVE KING, Iowa HANK JOHNSON, Georgia VERN BUCHANAN, Florida JOE SESTAK, Pennsylvania JIM JORDAN, Ohio ______ Subcommittee on Contracting and Technology BRUCE BRALEY, IOWA, Chairman HENRY CUELLAR, Texas DAVID DAVIS, Tennessee, Ranking GWEN MOORE, Wisconsin ROSCOE BARTLETT, Maryland YVETTE CLARKE, New York SAM GRAVES, Missouri JOE SESTAK, Pennsylvania TODD AKIN, Missouri MARY FALLIN, Oklahoma ......................................................... (ii) ? Subcommittee on Regulations, Health Care and Trade CHARLES GONZALEZ, Texas, Chairman RICK LARSEN, Washington LYNN WESTMORELAND, Georgia, DAN LIPINSKI, Illinois Ranking MELISSA BEAN, Illinois BILL SHUSTER, Pennsylvania GWEN MOORE, Wisconsin STEVE KING, Iowa JASON ALTMIRE, Pennsylvania MARILYN MUSGRAVE, Colorado JOE SESTAK, Pennsylvania MARY FALLIN, Oklahoma VERN BUCHANAN, Florida JIM JORDAN, Ohio ______ Subcommittee on Urban and Rural Entrepreneurship HEATH SHULER, North Carolina, Chairman RICK LARSEN, Washington JEFF FORTENBERRY, Nebraska, MICHAEL MICHAUD, Maine Ranking GWEN MOORE, Wisconsin ROSCOE BARTLETT, Maryland YVETTE CLARKE, New York MARILYN MUSGRAVE, Colorado BRAD ELLSWORTH, Indiana DEAN HELLER, Nevada HANK JOHNSON, Georgia DAVID DAVIS, Tennessee ______ Subcommittee on Investigations and Oversight JASON ALTMIRE, PENNSYLVANIA, Chairman CHARLIE GONZALEZ, Texas LOUIE GOHMERT, Texas, Ranking RAUL GRIJALVA, Arizona LYNN WESTMORELAND, Georgia (iii) ? C O N T E N T S ---------- OPENING STATEMENTS Page Velazquez, Hon. Nydia M.......................................... 1 Chabot, Hon. Steve............................................... 2 Ellsworth, Hon. Brad............................................. 3 Clarke, Hon. Yvette.............................................. 4 WITNESSES PANEL I Sullivan, Hon. Thomas M., Chief Counsel, Office of Advocacy, U.S. Small Business Administration.................................. 5 PANEL II Freedman, Mark, U.S. Chamber of Commerce......................... 14 Messinger, Dyke, Power Curbers, Inc. on behalf of the National Association of Manufacturers................................... 17 Langer, Andrew, National Federation of Independent Businesses.... 18 Sewell, Charlie, National Community Pharmacists Association...... 20 APPENDIX Prepared Statements: Velazquez, Hon. Nydia M.......................................... 29 Chabot, Hon. Steve............................................... 31 Ellsworth, Hon. Brad............................................. 33 Clarke, Hon. Yvette.............................................. 34 Sullivan, Hon. Thomas M., Chief Counsel, Office of Advocacy, U.S. Small Business Administration.................................. 35 Freedman, Mark, U.S. Chamber of Commerce......................... 44 Messinger, Dyke, Power Curbers, Inc. on behalf of the National Association of Manufacturers................................... 53 Langer, Andrew, National Federation of Independent Businesses.... 60 Sewell, Charlie, National Community Pharmacists Association...... 75 Statements for the Record: Associated Builders and Contractors, Inc......................... 82 (v) FULL COMMITTEE HEARING ON LEGISLATION TO IMPROVE THE REGULATORY FLEXIBILITY ACT ---------- Thursday, December 6, 2007 U.S. House of Representatives, Committee on Small Business, Washington, DC. The Committee met, pursuant to call, at 10:06 a.m., in Room 2360, Rayburn House Office Building, Hon. Nydia M. Velazquez [chair of the Committee] Presiding. Present: Representatives Velazquez, Gonzalez, Cuellar, Altmire, Clarke, Ellsworth, Chabot, and Akin. OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ Chairwoman Velazquez. I call this hearing to order to address legislation to improve the Regulatory Flexibility Act. Today the committee is reviewing legislation to strengthen the Regulatory Flexibility Act, or Reg Flex. Passed into law in 1980, Reg Flex has played a critical role in ensuring that American small businesses are not overly burdened by Federal regulations. While the act has improved this process in many ways, small firms are still more affected by regulations than are their larger counterparts. The reality is that more must be done to address this problem that can hurt our overall economy. Last month, this committee took the first step in identifying ways to improve Reg Flex. We heard from small businesses representing a diverse group of industries on ways to craft legislation to strengthen the act. There was one clear thing present in the testimony. Agencies are not doing enough to consider the impacts of the rules and regulations of small businesses. And more effective statute can help reduce unnecessarily burdensome regulations. Working with the minority, the small business community and with input from the SBA Office of Advocacy, the committee has drafted legislation which addresses a number of the deficiencies of Reg Flex. One of the goals of the legislation is to address the problem of outdated regulations. The committee print will clarify when agencies need to review specific rules. It also gives small businesses a greater voice in the process and enhances transparency, helping to eliminate unnecessary burdens. The committee also wants to ensure that agencies are not ignoring the underlying requirements of Reg Flex. The act was never intended to completely eliminate or slow down regulations, but for agencies to consider if there are more effective alternatives to meet policy goals. Too often agencies avoid fully analyzing the impact of the rules on small businesses by certifying that a rule will have no significant consequences. This bill will strengthen the analysis requirements by compelling agencies to consider reasonably foreseeable, indirect economic impacts on small businesses when writing rules. One key recommendation from the Office of Advocacy was to codify Executive Order 13272, which is included in the legislation. This chain puts in the statute that there must be greater coordination between agencies and the SBA's Office of Advocacy, ensuring that regulators fully consider the economic impacts on small firms. Earlier notification will provide Advocacy with a greater opportunity to assist agencies in Reg Flex compliance. This print we are reviewing today is by no means a final version. Today's panelists will discuss how this language can help small businesses and identify ways it can be improved. I would like to thank all the witnesses today for coming to the committee and sharing their views. I look forward to continuing our work with Ranking Member Chabot to pass meaningful reform to the Regulatory Flexibility Act which will lessen burdens on small businesses and allow our Nation's entrepreneurs to continue to move our economy forward. I would now like to yield to Ranking Member Chabot for his opening statement. OPENING STATEMENT OF MR. CHABOT Mr. Chabot. Thank you, Madam Chairwoman, for holding this hearing on legislation to strengthen the Regulatory Flexibility Act. New small businesses open every year. Buffeted by a variety of economic and financial hardships, these businesses struggle mightily to achieve a profitable bottom line. Small businesses are particularly affected by unnecessary and burdensome regulations that require more money as a percentage of the money that the small businesses have to work with and time than their larger competitors to adequately comply. Small businesses, according to a study by the Office of Advocacy of the United States Small Business Administration, paid $2,000 more per employee per year than large businesses to comply with the tornado of Federal regulation. In some sectors, such as manufacturing, the per employee cost is even higher than that average. The unfortunate but unexpected result is hundreds of thousands of small business are forced to shut their doors. More than 25 years ago Congress recognized there was a regulatory storm brewing and smartly reacted with legislation to force Federal regulators to examine the impact that their rules will have on small businesses before inadvertently putting them out of business. Congress' answer to the regulatory problem was called the Regulatory Flexibility Act, or RFA. Enactment of the RFA forced a small but perceptible shift in the tact of Federal regulation. While some agencies were prompted to refocus their thinking and develop less burdensome regulation, many others treated the RFA as merely suggestion and were undeterred on their course for more and more burdensome and overlapping regulation. Congress attempted to strengthen the RFA in 1996 by enacting the Small Business Regulatory Enforcement Fairness Act. The act made agency compliance with the procedural requirements of the RFA judiciously reviewable, independent of any challenge to the underlying agency rule. With the threat of litigation hanging over them, Federal agencies began paying more attention to the RFA, but the added attention did little to increase cooperation for many agencies. The valiant efforts of Dr. John Graham and Mr. Tom Sullivan, one of our witnesses today, attempted to tame the tidal wave of Federal bureaucracy. And while they admirably eliminated many problems in the system, we have not seen the dramatic change small businesses require, as evidenced by many small firm owners that have come before this committee requesting help and by the many businesses forced to shut down each year. The efforts of Chief Counsel Sullivan have been hampered by the inadequacy of the RFA. Plagued by undefined terms and vague parameters, the RFA is far from an ideal statute. Existing loopholes permit agencies to circumvent the rules with negligible penalties. Last year I cosponsored H.R. 682, a bill designed to significantly strengthen the RFA so that agencies, as President Bush stated, quote, will care that the law is on the books, unquote. The bill under consideration today adopts some of the changes that were in H.R. 682 by requiring agencies to consider indirect effects, to provide a more detailed assessment of the impacts and to make the periodic review of rules more transparent. These changes will help to ensure that small businesses need only endure necessary regulations and that agencies will not be able to create new ones to harm or destroy these businesses. Whenever Congress considers altering the RFA, opponents argue that changes would destroy the regulatory process or overwhelm Federal courthouses. Examination of the Federal Register and courthouses show they remain strong, despite the supposed strength of the RFA hurricane. Ultimately, what is at stake is the ability of small businesses to stay in business based not on the whims and dictates of Federal bureaucrats but on their capacities in the marketplace. Better, sounder rules will be beneficial to the regulatory objectives of the agencies through increased compliance and lower costs to small businesses. No good reason exists to oppose the goals and objectives of this bill other than the fear of the unknown. I stand ready to work with the Chairwoman to see that we get a much stronger version of the RFA. I thank her for holding this hearing, and I will yield back the balance of my time. Chairwoman Velazquez. Thank you. Are there any other members who seek recognition for the purpose of making an opening statement? Mr. Ellsworth. OPENING STATEMENT OF MR. ELLSWORTH Mr. Ellsworth. Thank you, Madam Chair. I would like to take a moment to thank you for holding this important hearing. Ranking Member Chabot, thank you for your work on this also and then your statement that you just gave. I think this is a very important issue for this committee to undertake, and I look forward to what the member, Mr. Sullivan, what you have to say and the members who come in the next panel. A few weeks ago we had our first hearing on the Regulatory Flexibility Act. It became clear to me that the problems are serious the way the Federal Government is treating small businesses and that is--I have said this about every meeting I have spoke at. That is why I asked to join this committee, to make things easier for small businesses. We also heard from the operator of a small trucking firm who was here and I asked him what kind of impact the Uniform Federal Regulations had on his business. He told me it hurt his business and others like him. It was clear that big corporate trucking firms and their teams of lawyers and compliance officers had a leg up on the small business. I am all for big trucking companies, but we also have to look after the small trucking companies. As we all know, the small companies in our districts are facing the same burden. The Federal Government has ignored effects of our regulations on small businesses and refused to adjust to the needs of the vital employers. This is not a small business problem, and it is not a small problem at all. 1,250,000 workers are employed by small business in my home State of Indiana and they deserve to have their voices heard. To the bureaucrats in Washington, sometimes this doesn't seem like a small problem. We lose sight of that. But to Hoosier small businesses it is. That is why I am glad we are addressing this issue, the draft of the bill before us today, and I look forward to hearing from today's witnesses and working with everyone in the future to solve this problem. Thank you. With that, I yield back. Chairwoman Velazquez. Any other member who seeks recognition? Ms. Clarke. OPENING STATEMENT OF MS. CLARKE Ms. Clarke. Thank you very much, Madam Chair and to Ranking Member Chabot, for holding this hear today to review legislation to improve the Regulatory Flexibility Act. There is no question that Reg Flex needs to be strengthened. Agency compliance with many parts of the act is of great concern to me and must be addressed immediately since most agencies currently view compliance as voluntary. I believe that we will develop solid provisions that will consider the indirect impact of regulations when calculating the impact of regulations on small businesses. I look forward to hearing from the Honorable Sullivan today so that we can work together for a solution that will enable our small businesses to prosper and not be inundated and snuffed out by undue harm that this act was put in place to prevent. Thank you very much, Madam Chair. Chairwoman Velazquez. Any other members? If not, now we will proceed with our first panel. And I want to welcome Mr. Thomas Sullivan, the Chief Counsel for the Office of Advocacy of the U.S. Small Business Administration. Prior to joining the SBA, he worked as the Executive Director of the National Federation of Independent Businesses Legal Foundation. Mr. Sullivan and the Office of Advocacy is charged with independently advancing the views, concerns and interests of small businesses before Congress, the White House, Federal regulatory bodies and State policymakers. Welcome, Mr. Sullivan. STATEMENT OF THE HON. THOMAS M. SULLIVAN, CHIEF COUNSEL, OFFICE OF ADVOCACY, U.S. SMALL BUSINESS ADMINISTRATION Mr. Sullivan. Thank you, Chairwoman Velazquez, Ranking Member Chabot, and members of the committee. Thank you for allowing me the opportunity to appear this morning to address legislative improvements to the Regulatory Flexibility Act. With the chairwoman's permission, I would like to briefly summarize my statement but ask that the entire statement be entered into the record. Chairwoman Velazquez. Without objection. Mr. Sullivan. Thank you. As the chairwoman said, in my position I am charged with monitoring Federal agencies' compliance with the Regulatory Flexibility Act. And because my office is an independent one within SBA, the views that I express here this morning don't necessarily reflect the views of the administration or of SBA. My statement was not circulated to the Office of Management and Budget for comment. Although the Reg Flex Act is doing a fairly good job, and I do want to emphasize the fact that the Reg Flex act is working pretty well, but despite it doing a fairly good job and achieving cost savings for small entities, more does need to be done to protect small entities from excessive regulatory burden. Two years ago, my office commissioned a study that was prepared by Mark Crain entitled the impact of regulatory costs on small firms. This is the third iteration of such a study and it determined that the overall cost of Federal regulation now totals $1.1 trillion. I will say that again. $1.1 trillion with a T, a trillion dollars. The cost per employee for firms with fewer than 20 employees is $7,640 per employee per year. That is 45 percent higher than their larger counterparts with 500 or more employees. After 11 years of working with SBREFA, eight congressional hearings on the Regulatory Flexibility Act, my office has conferenced this past year on the Regulatory Flexibility Act, and several GAO reports and testimonies, now is a good opportunity to consider legislative improvements to the Regulatory Flexibility Act. At your hearing several weeks ago, many of the witnesses testified that the largest loophole is the Reg Flex Act failure to include the requirement that agencies consider indirect impacts. We agree with those witnesses before the committee and we do believe it is the biggest loophole. Agencies now are required to consider the direct economic impact, but that analysis may deprive policymakers here in Washington, D.C. Of the full understanding of the rule's likely impact on small entities. In addition, many times, especially with environmental regulation, the duty of regulating is passed on to the States and it is passed on without any corresponding analysis or requirements for States to consider less burdensome alternatives for small business. Legislation being considered by this committee would cure that defect. Section 610 of the Regulatory Flexibility Act requires agencies to periodically review rules that are on the books. Small businesses often complain about the difficulties in dealing with layers of regulations that agencies issue over time. Although there are legal avenues that can be pursued to have burdensome rules reviewed, legal recourse is costly and time consuming. The automatic review of rules afforded through section 610 can save small entities and Federal agencies the hassle of having to resort to the legal system to obtain relief. However, as is currently written, this review is limited to only those rules that an agency deems to have a significant economic impact at the time the rule is finalized. Since new rules are promulgated every year, the cumulative impact of rules on small entities can be staggering, even if individually the rules may not have a significant economic impact. My office and other witnesses before this committee have recommended that the Reg Flex Act be amended so that look back provision, section 610, will require agencies to review all rules periodically. This change would encourage agencies to revise their rules to ensure that regulations currently reflect current conditions and needs. Lastly and most importantly, the codification of an Executive order that was signed in this administration. My office believes that the Executive order has increased agency knowledge of and compliance with the Regulatory Flexibility Act. Annual reports that are published by my office and presented to this committee, to the White House and others in Congress document that this Executive order is working. Small entities would benefit from an amendment to the RFA that would codify the requirements of that Executive order ensuring that independent agencies are subject to the Reg Flex Act and, since it is just an Executive order, codification would create long- term certainty for small entities. My office has reviewed the committee print distributed last week, and the bill entitled the Small Business Regulatory Improvement Act of 2008 addresses the issues outlined in my testimony. I commend this committee for examining these issues, and I believe your legislation will go far to improve the RFA and, most importantly, help small entities. Thank you for allowing me to present these views, and I would be happy to answer any questions. [The prepared statement of Mr. Sullivan may be found in the Appendix on page 35.] Chairwoman Velazquez. Thank you, Mr. Sullivan. You discussed section 610 of Reg Flex that requires agencies to periodically review existing rules. We all know that is not working. It has been reported that this is because the law gives agencies a large amount of discretion to decide which rules are covered by the review requirement. How should Reg Flex be amended to ensure agencies do a better job of periodically reviewing existing rules? Mr. Sullivan. Madam Chairwoman, I believe that the committee print addresses this perfectly, and what the committee print does is simply instruct agencies that they must look at a broader swath of rules, not just a narrow swath of those that at the time of promulgation were deemed significant. Chairwoman Velazquez. Mr. Sullivan, although on this committee we hear much about the burden Federal regulations impose on small businesses, it is important to keep in mind the Federal regulations also confer enormous benefits to our society. Clean air and water and safe working conditions are all examples of this. Opponents of Reg Flex have contended that it frustrates the rulemaking process. How many rules, Mr. Sullivan, have actually been halted by the courts because of Reg Flex? Mr. Sullivan. I believe that less than six rules have been struck down by agencies since 1996 in the courts and, if the Chairwoman would allow me, I would like to address this myth about the Reg Flex being a barrier to valuable regulatory protections. If you look at the number of rules that were promulgated by the Environmental Protection Agency before the Small Business Reg Enforcement Fairness Act and after, remember, SBREFA conferred a number of obligations upon EPA and this committee was faced with folks saying that this is terrible, this will stop EPA from promulgating valuable environmental protections. The average number of rules issued by EPA was 412 per year before SBREFA. The average number of EPA rules after SBREFA were 449. The average number of rules that would impact small businesses before SBREFA was 125 per year; after SBREFA, 181 rules per year that would impact small business. So the data does not support that myth that law, the Reg Flex Act, SBREFA, is a barrier to valuable protections, environmental, workplace safety and otherwise. Chairwoman Velazquez. Even if a rulemaking is adjudged to have violated Reg Flex, courts will permit the regulatory process to go forward if it is in the public interest. So can you discuss this and whether or not it creates substantial delays or obstacles to rulemaking? Mr. Sullivan. The chairwoman again brings up somewhat of a myth in that the Reg Flex Act stops valuable rules, and I think it is valuable for the committee and others to know that the Reg Flex Act foresaw this argument and wrote directly in that the alternatives that must be considered, and I quote, must be consistent with the stated objectives of the applicable statutes. So built into the Reg Flex Act, there is the requirement that any considerations of being sensitive to the unique needs of small entities not compromise the underlying statute. And it is because of that language that the chairwoman is correct, courts have not been activists in striking down rules. And, in fact, the majority of times, when the Reg Flex Act is brought into a court and the small entities prevail upon the court to mandate that an agency do a better job, many times the rule continues to be in effect but the agency then must go back and in public and in a transparent manner document the impact on small entities so that policymakers have a better understanding of the rule's impact. Chairwoman Velazquez. Mr. Sullivan, some of the proponents of Reg Flex reform have called for legislation to direct the Chief Counsel for Advocacy to promulgate regulations governing agency compliance with Reg Flex. They state that currently the courts grant little or no difference to the Chief Counsel's interpretation of Reg Flex and because of this Federal agencies do not defer to Advocacy's view either. So let me ask you, what are the benefits and drawbacks to legislation that directs Advocacy to promulgate regulations governing agency compliance with Reg Flex? Mr. Sullivan. The benefits, as the chairwoman notes, in her question is that the courts are more likely to give the Office of Advocacy deference. The negative part of that is that it is a resource drain on our office that I am not sure we are prepared to meet. But if asked by the committee, I am supportive of regulatory authority, but there is a question mark on whether or not the resources of my office could support that type of effort. Chairwoman Velazquez. Mr. Sullivan, I am aware of concerns that requiring agencies to consider indirect economic impacts in rulemaking will bog down the regulatory process. Similar concerns were expressed during the consideration of SBREFA as the act provided for judicial review of agencies' compliance with Reg Flex. However, these fears were not born out as courts have applied a reasonableness test to agency action. The legislation we are reviewing today requires only reasonably foreseeable indirect impacts to be considered. Is "reasonable foreseeable" the proper standard to ensure the regulatory process does not grind to a halt? Mr. Sullivan. In my opinion, Chairwoman, the term "reasonably foreseeable" does hit upon the appropriate standard to drive an analysis of indirect impact. I caution the committee of being more prescriptive because this is really a case of you have got to call them when you see them. There are rules that are so obviously deficient and indirect impacts. I think one of the most obvious is if the Federal Aviation Administration issues a rule that prohibits airplanes from landing at a specific airport. I think it is reasonably foreseeable that a number of small businesses operating at this airport would be impacted. And there are many other rules that meet that reasonably foreseeable standard. So I commend the committee for using that term and I think it is the appropriate standard. Chairwoman Velazquez. I have other questions, but at this point I will recognize the ranking member. Mr. Chabot. Thank you, Madam Chair. Thank you for being here, Mr. Sullivan. My first question is if agencies are able to assess the indirect socioeconomic effects of their major rules and environmental impact statements, how hard would it be for those agencies to prepare an initial or final regulatory flexibility analysis for indirect effects? Mr. Sullivan. Well, Congressman Chabot, I cannot speak on behalf of the agencies. One, because I am not in their seat promulgating rules, but two, because of my office's independence. We don't exchange drafts of testimony prior to hearings like this. What I can inform the committee, though, is several years ago when the then called Immigration and Naturalization Service issued rules that would prohibit foreign visitors from extending their stays here in the United States and this committee, to its credit, brought in Commissioner Ziegler and myself and put him to task, to say, you know, this is so obvious that even though you are regulating travelers that you are going to impact the tourist community that is virtually all small businesses. How can you not have that type of transparent analysis? And I was sitting in the same place that I am today and to my right was the Commissioner and in front of the Commissioner was a piece of paper with every documentation of data of indirect impacts on specific parts of the tourist industry. So the reason I raise that is because to the agency's credit, they are doing the indirect impact and I believe that the public and the stakeholders on these rules deserve to see it. It is a matter of transparency and I do believe much of that analysis is being done, but I can't speak on behalf of the agencies on how much additional work it would be to bring transparency to the data and analysis that exists on indirect impact. Mr. Chabot. My next question is if the Executive order is codified, how would the Chief Counsel get proposed or final rules from independent agencies such as the Federal Communications Commission, for example. Mr. Sullivan. There is really no guarantee once a law is on the books that it works. And so I believe as the committee does that codifying the Executive order would go far in helping guarantee that we get rules in a timely manner prior to promulgation. But if it doesn't work I can assure the committee I will come up and testify and work with you from an oversight capacity to make sure that it does work and that the FCC abides by its obligations under the law. Mr. Chabot. Thank you. Are there other agencies that you might recommend be included in the panel process in addition to the two agencies already included, the EPA and OSHA? Mr. Sullivan. Congressman Chabot, this has come up before. Specifically Chairwoman Velazquez had asked shouldn't all agencies do panels. I should say in my initial first years I responded in saying that yes and we can handle the workload. The chairwoman was very patient with me at the time and asked me a again a few years later could my office handle that type of workload and, with a few years more under my belt in the job I answered no, we could not. We average, I think, there are hundred--averages between 1 and 400 hours per panel. And so for the sense of resource constraints, I can't recommend that any other agencies be brought under the panel process. I would, though, make sure the committee understands that the same benefits that are derived from the panels at EPA and OSHA can be derived from compliance with the Regulatory Flexibility Act, and I would posit that when you amend the Reg Flex Act the way you are proposing to, you get the benefits of the panel process, the guaranteed small business involvement without the resources of the panels. So you are actually achieving the benefits of the panels without necessarily the resource constraints that I now know are part and parcel of the panel process. Mr. Chabot. My final question is, even if the Chief Counsel never filed an amicus brief, how would the so-called Chevron deference help the Office of Advocacy in their disputes with other Federal agencies? Mr. Sullivan. Right now, every lawsuit that includes a valid Regulatory Flexibility Act claim does serve as a wake up call to Federal agencies to awaken them to their responsibilities under the Regulatory Flexibility Act. And in the next panel specifically, you have Marc Freedman, who was part of the effort to file a lawsuit challenging a recent Homeland Security immigration enforcement bill. So I think he may be able to give an even greater firsthand account of how including a Reg Flex Act claim brings an agency's attention to their responsibilities under the Reg Flex Act. In response to your question about Chevron deference, yes, I think agencies would certainly take their obligations more seriously if the Office of Advocacy or when the Office of Advocacy is afforded that type of deference by the courts. Mr. Chabot. Thank you. I would yield back, Madam Chair. Chairwoman Velazquez. Ms. Clarke? Ms. Clarke. Thank you, Madam Chair. And good morning to you, Honorable Tom Sullivan. On November 30th, the Food and Drug Administration issued a final rule for over-the-counter antitussive drug products. The FDA determined the final rule will not have a significant economic impact on a substantial number of entities and certify without any further analysis under Reg Flex. Do you believe that agencies can and/or are abusing Reg Flex when it comes to compliance requirements for issuing a final rule? Mr. Sullivan. I don't think all agencies have it exactly right, Congresswoman. Ms. Clarke. Very good answer. Mr. Sullivan. Thank you. Ms. Clarke. What would you say is the solution under what we are trying to achieve here? Mr. Sullivan. I think there are a number of avenues to try to get to the solution, none of which are a silver bullet. The first part of the solution is certainly keeping my office to task in its oversight responsibilities to the Reg Flex Act. We try our best, we try to keep our ears to the rail to make sure we are attentive to small entities concerns. But we benefit from being informed of where our resources should be spent and where our priorities should be. So I think the first part of the solution is keeping my office on task. The second part of the solution is taking steps like this to amend the Reg Flex Act now that we have a greater long-term working knowledge of it to hopefully bring more agencies into the fold in getting their analysis correctly. The third is oversight. And I cannot overstate the importance of this committee's role in the effectiveness of the Regulatory Flexibility Act. This isn't just me. This is me and my four predecessors as the Chief Counsel of Advocacy and a number of predecessors of all of yours regardless of the party in charge who have sat on the Small Business Committee. It is through your oversight that has driven much of the success of the Regulatory Flexibility Act. So to the extent that there are flaws in an agency's analysis, part of reaching a solution is bringing them before this committee and it is part of my job also to appear before this committee to perhaps instruct agencies on how they could do a better analysis when it comes to considering their burden on small entities. Ms. Clarke. And when an agency certifies that a rule does not have a significant impact on a substantial number of small firms, they only provide the simplest reason for certification. Do you believe that parties are adversely aggrieved by this current process. Mr. Sullivan. I don't like saying that going to court is a solution for many things when it comes to small business. In my previous job I headed a legal foundation that in fact did go to court. The cost of a district court challenge can be half a million dollars. You go up to the appellate, the appellate level is 1-1/2 million dollars. I have not encountered any small businesses in my tenure as Chief Counsel that have 1-1/2 million dollars in reserve to challenge an agency action. So I have got to downplay the courts as being the solution. However, from a certification process, the courts have been very clear that have said the requirement that a factual basis underlie the certification is something that the courts take very seriously and the agencies should take very seriously, and I think that precedent has helped drive agencies to better comply with how they document their certification. It must--according to the courts, it must be accompanied by a factual basis. Ms. Clarke. I yield back. Thank you very much, Madam Chair. Chairwoman Velazquez. Mr. Ellsworth. Mr. Ellsworth. Thank you, Madam Chair. Mr. Sullivan, could you tell me in my allotted time about the R-3 program, how it works, who participates, how you forward that information on to the agencies, how you reach your findings in that program? Mr. Sullivan. Congressman, thank you for asking about the R-3 program. R-3 stands for Regulatory, Review and Reform, and the initiative which calls for nominations for--by small entity groups to nominate rules that they believe should be reviewed to be updated, streamlined or removed. The birth of this program recently is mostly because of what we are talking about today, and that is the failure of part of the Regulatory Flexibility Act to really have agencies do a spring cleaning. So with that type of gap, I want to both work with this committee to fix that gap legislatively, but I also want to work through an initiative to make sure that we can do everything we can even without additional legislation to bring agencies into compliance with section 610 of the Regulatory Flexibility Act. So the R-3 initiative calls for nominations for rules that can be reviewed and reformed. We are picking the top 10 nominations for reform and we will forward those to the agencies for action in early spring in conjunction with our annual report to Congress on implementation of the Regulatory Flexibility Act. This initiative has been underway for about 2 months. We have received over 30 nominations for reform. We have narrowed that down and are very close to having a top 10. And I want to make sure that the committee knows and other stakeholders know that even though some ideas for our office's involvement in rules may not fit neatly into a top 10 list, that doesn't mean that they go into the trash can or the shredder. We will continue to work on the issues that are important. Health care, taxes are the two issues important to small businesses. We will continue working on those, but we have heard from small businesses that we should prioritize a spring cleaning by Federal agencies to look at rules that can be updated or streamlined. The classic case on this is in the 1990s a small business owner, Bill Farren, out in Arkansas owned a number of gas stations, and he had to fill out a form that told his local fire chief that he had gas on the premise. Well, Mr. Farren thought this was absurd and he contacted Members of Congress. He contacted this committee. He contacted my predecessor and collectively you all contacted Administrator Carol Browner and she agreed with Mr. Farren. And because of his initiative, you removed that requirement, you removed that paperwork. There have got to be other Bill Farrens out there and that is why we are undergoing this R-3 program. So I am very optimistic of its success and I ask the committee to keep my office on task for its successful implementation and that when we do issue our top 10 rules in need of review and reform, I welcome the opportunity to come to this committee with the agencies who we identify to work together so that we can ease the burden on small business. Mr. Ellsworth. How do you come up with the top 10--if the 11th one was pretty good, would you then put that in next year's or how do you discern the 10 from No. 11? Mr. Sullivan. Well, Congressman, I am hoping that we have to discern 10 from the top 18. And, yes, those next 8 will go right into the next year's batch. Mr. Ellsworth. Thank you very much. And I yield back. Chairwoman Velazquez. Thank you. Mr. Gonzalez. Mr. Gonzalez. Thank you very much, Madam Chair. And welcome, Mr. Sullivan. And for everyone's edification, we met yesterday and had a very good discussion regarding what you are doing in being proactive and making sure that you gather the information that may address the shortcomings that an agency or department may have regarding identifying those regulations, rules or anything else that need some updating or actually just do away with them totally. This is two areas. If you really think in terms of an agency or department prior to the promulgation and adoption of a rule you would think that, yes, they have an obligation to go out there and see what the consequences might be. I don't think they do. I don't think that really happens. You have comment periods, but how many people really comment unless you are part of an association or organization. And the other, of course, is the periodic review, as you have already said, to go through there and do away with that which is no longer applicable or serves its purpose or you could actually improve on it. I don't think that goes on either. I don't think there is the real incentive, and that is what we are trying to develop here. Statutorily how do we create a greater degree of accountability and the incentive? I would like to think first as you take away the excuses to the departments and the agencies that they are not aware of the impact of their regulatory scheme. Now, I also believe that this usually happens after the adoption, not prior to or during the discussion or comment period and only when we have those consequences that negatively impact small businesses. My point is what you are doing now with your own effort, I would like to see on a grander scale and charging somehow the individual agencies and departments of also being proactive on their own. You are an advocate for small business. I understand that. But for you to actually be going out to a huge universe and try to gather that information which I think you need to be doing, I just would just like to see that being replicated at every department and agency level and--whether that is possible or not. The last hearing we had and the meeting we had yesterday was the result of course of my suggestion of having Nydia's hotline or her Web site. I don't think she volunteered to do that. But I am really quite serious. I want the small businessman and woman in America to somehow know there is a way to plug into some sort of a system where they are able to lodge their complaint, that how it is impacting them. And I always use the simple experiences that I have had with constituents about why does the form have to be 12 pages when you can reduce this thing to 2 pages. But try to find someone that will listen to you and even a Member of Congress doesn't get really listened to by the bureaucracy. They will wait us out and they will wear us out, and it is Senator Nelson from Nebraska said when you are talking to these guys they will say we were before you and we will be here after you. I really think that is the attitude out there. The question is accountability. Is there something we can do first of all to assist you in your effort in the program that Congressman Ellsworth was discussing with you, and beyond that is there something that this committee can do to spread that responsibility to the individual agencies and departments? Mr. Sullivan. Congressman Gonzalez, thank you for your question. Thank you for meeting with me yesterday to talk about many of these things. I think first of all there is an acknowledgement that agencies are doing hundreds of reviews of their rules. So it would be untruthful for me to say that they are not doing anything. They are. I think the question is, from my perspective, do they need especially in prioritizing what they are looking at to see that they can focus specifically on those measures that would help small business, and that is really what R-3 is about. I pledge to you that I will work with you and this committee to take whatever types of steps we can not only to make R-3 an initiative but I like your suggestion of seeing if there are ways to broaden that, and I think that will become clear after our first year of running with this R-3 to see how it works. But I do agree with you, the accountability is a huge issue. And in small businesses not feeling lost in the bureaucracy is a big issue that we--that it is good that we are trying to take on. Chairwoman Velazquez. Will the gentleman yield? Mr. Gonzalez. Yeah, as a matter of fact, I yield back. Thank you, ma'am. Chairwoman Velazquez. Mr. Sullivan, when he asked you how can we assist you and your office, I think codifying section 3 of Executive Order 13272 would allow for you to come to the rulemaking process at an early stage and I believe that will be a tool important to your office. Mr. Sullivan. I agree with the chairwoman. The codification of 13272 would not only help us get small businesses' views into the process earlier, it would also empower this committee because it then becomes law not exclusively the purview of the executive branch. So I agree with the chairwoman. Chairwoman Velazquez. Mr. Chabot? With that we end this panel. But, Mr. Sullivan, I have all the questions that I will be submitting to you in writing for the record. Mr. Sullivan. Thank you. It will be a pleasure to respond. Thank you. Chairwoman Velazquez. And the committee is in recess until we complete votes on the floor. [Recess.] Chairwoman Velazquez. The committee is called to order and we are going to proceed with our second panel. We have Mr. Marc Freedman. He is the Director of Labor Law Policy of the U.S. Chamber of Commerce. Prior to joining the U.S. Chamber of Commerce, he was the Regulatory Counsel for the Senate Small Business Committee. At the U.S. Chamber of Commerce, Mr. Freedman is responsible for developing and advocating the Chamber's response to a variety of labor and workplace issues. The U.S. Chamber of Commerce represents over 3 million businesses. Welcome, sir. STATEMENT OF MR. MARC FREEDMAN, DIRECTOR OF LABOR LAW POLICY, U.S. CHAMBER OF COMMERCE Mr. Freedman. Thank you, Madam Chairwoman. Now that you have read my introduction, let me just point out that during my time at the Senate Small Business Committee, my role was to oversee agency compliance with the Regulatory Flexibility Act and make suggestions about ways that it could be improved. So I have been around this discussion for quite some years. The Chamber unequivocally supports improvements of Regulatory Flexibility Act to expose loopholes and clarify various terms that have led to agencies avoiding the requirements of the act. We therefore are pleased to support your bill, the Small Business Regulatory Improvement Act of 2008, and I commend you for pursuing this issue and holding this hearing today. If we needed a reminder--and let me just start off. The DHS "no match" reg has already been mentioned, and I would like to cite to it for a moment to give the committee an example of the length to which agencies will go to avoid the Reg Flex compliance. In that reg, as you may remember, the DHS did not address any of the complications and subtleties of trying to determine whether their regulation would have a significant economic impact on a substantial number of small entities. They basically blew right through that and went right to a legal conclusion that it did not disturb the underlying obligation of an employer to determine the work authorization of the employees and therefore there was no new burden. As you have heard, the Chamber intervened in a case brought by an array of unions specifically to raise the Reg Flex issue. Unfortunately, the U.S. District in the Northern District of California saw through DHS's neglect of its rulemaking obligations and found that the agency had not supported certification with the adequate factual basis as required in the act. I want to make a point about this, too. DHS's reasoning if left unchallenged would have set a very dangerous precedent. Consider how that same logic, that the underlying obligation of the employer is not changed by obligation, could be applied by other agencies such as OSHA. The Occupational Safety and Health Act mandates that employers provide a workplace, quote, free from recognized hazards that are causing or are likely to cause death or serious physical harm. All of OSHA's regulations are merely detailed examples of these hazards and how employers must protect their employees from them. If OSHA was to adapt DHS' logic that any regulation did not change the underlying obligation of the employer, the agency would never have to determine the impact of a proposed regulation on small businesses and therefore would never conduct a SBREFA panel review taking input from actual small businesses and never have to produce small entity compliance guides, the requirements for which were recently enhanced in the minimum wage package passed earlier in the session. Against this backdrop, the Chamber believes making the RFA as effective as possible is imperative. While we are often associated with our large members, the truth is that 96 percent of U.S. Chamber members are actually small businesses with 100 employees or less. As we have already heard this morning, everyone acknowledges that regulations impact small businesses more harshly than large businesses. If we are serious about keeping our small businesses competitive with global competition, we must make sure this act has the impact Congress intended when it passed it more than 25 years ago and then amended it with SBREFA in 1996. Your bill would make several important improvements to the Regulatory Flexibility Act. Perhaps the most significant is requiring agencies to consider the indirect impact of regulations when calculating the impact of regulations on small businesses. We have heard about this a lot already this morning. Let me just point out that that is particularly helpful with respect to the EPA regulations where the agency claims that because their regulations are actually enforced by the States, these regulations only have an indirect impact and therefore do not trigger the full range of RFA activities. Another important problem your bill addresses is improving agency compliance with section 610, the provision that requires agencies to review the regulations after 10 years. Your bill makes clear that the agency is to determine whether the regulation has a significant economic impact on a substantial number of small entities at the time of the review. The Government Accountability Office concluded that the original text of the legislation was not clear whether this impact applied to the time the regulation was issued or when it was being reviewed. This confusion has allowed agencies to legitimately claim that they were unsure how to proceed. Indeed, the Government Accountability Office has done quite a few studies on the Regulatory Flexibility Act, showing how agencies have failed to comply with it and repeatedly citing lack of clarity in the law's terms as a key reason. One quote that I was able to uncover from the testimony says that GAO's reports indicate that the full promise of RFA may never be realized until Congress revisits and clarifies elements of the act, especially its key terms, or provides an agency or office with clear authority and responsibility to do so. They go on to point out that there is a domino effect that if an agency's initial determination of whether RFA is applicable to rulemaking has on the other statutory requirements such as the compliance guide and the periodic reviewing of regulations. Madam Chair, I agree with the GAO that if we are serious about improving the Regulatory Flexibility Act, the most important thing would be for Congress to make clear what it means by the key term "significant economic impact" and "substantial number of small entities." These two phrases drive the overall question of whether an agency must apply the RFA to any given regulation. The agencies have taken maximum advantage of the flexibility in the Regulatory Flexibility Act to define these terms differently as they choose for any given regulation, with the goal being that the regulation is regarded as not having the subtle impact and thus avoid having to complete the requirements of the RFA. While these two terms cannot be defined the same for all regulations or even for all regulations within a specific agency, it is possible to establish the parameters and the elements that must be considered. Doing so would not only help agencies apply the RFA more consistently, it would also set benchmarks so that those of us who monitor agencies' compliance with the RFA would have some way to tell if they had done what they were supposed to do. As we have heard already, one way to accomplish the goal would be to authorize the Chief Counsel of Advocacy to promulgate a rulemaking defining these terms along with other requirements of agency compliance with the RFA. And as we have also heard, this idea has been included in legislation previously, most recently H.R. 682 through the Regulatory Flexibility Act, and I might add also by Senator Bond back in the 107th Congress in a bill he introduced call the Agency Accountability Act. In the alternative, Congress could specify what it meant by these key terms and instruct agencies that they are to incorporate these elements as they apply these terms to the regulations. One other suggestion I would like to offer the committee is that for those regulations when an agency's certification is still not adequately supported, I think it would be most helpful to permit the judicial review of an agency's certification decision at a time closer to when that decision is made rather than the current law, which says you have to wait until the regulation goes final to bring your judicial review. This would preserve the ability of small businesses to get their input into the rulemaking at a time when it can still have an impact. An excellent example of where this would have been particularly helpful is the recent case brought by the Aeronautical Repair Station Association, ARSA, for purposes of conversation, against the Federal Aviation Administration's regulation requiring contractors and subcontractors at any tier to establish mandatory drug and alcohol testing programs for employees performing maintenance functions in the aviation industry. Chairwoman Velazquez. Mr. Freedman-- Mr. Freedman. I am sorry. Chairwoman Velazquez. Your time is up. So maybe during the question and answer period you will be able to make any other-- Mr. Freedman. By all means. Forgive me, Madam Chairwoman. Just let me say we look forward to helping you move this bill. [The prepared statement of Mr. Freedman may be found in the Appendix on page 44.] Chairwoman Velazquez. Thank you. Thank you very much. Our next witness, Mr. Dyke Messinger, is the President and CEO of Power Curbers, Inc. He is testifying on behalf of the National Association of Manufacturers. Founded in Salisbury, North Carolina, Power Curbers sells products across the globe in more than 70 countries. The National Association of Manufacturers represents multinational firms, small and medium manufacturers, and 350 allied associations throughout the country. Welcome, sir. STATEMENT OF DYKE MESSINGER, PRESIDENT AND CEO, POWER CURBERS, INC. ON BEHALF OF THE NATIONAL ASSOCIATION OF MANUFACTURERS Mr. Messinger. Thank you, Chairwoman Velazquez. It is a pleasure to be here. Ranking Member Chabot and Congressman Akin, it is a pleasure to see you, sir. I want to thank you for giving me the opportunity to talk about the Regulatory Flexibility Act. As you know, NAM is the largest trade association representing large and immediate--small and medium manufacturers in all 50 States. Just another note about my business. We make mechanized construction equipment for paving concrete roads and curbs and sidewalks. We employ 104 people in North Carolina, Iowa, and Tennessee, and we sell our equipment in over 80 countries, and I am also a board member of a National Association of Manufacturers. I won't repeat the statistics that have been shared with the committee before about the report by Mark Crain for the SBA on the cost of regulation, but I will share some data on manufacturing. In manufacturing, the disparity between large and small firms was the widest. The cost per employee for the smallest firms was over $21,000, or over 150 percent higher than the over $8,700 cost per employee for the largest firms. In 2006, the NAM released an update to its report on how U.S. structural costs hurt our competitiveness in this country. It examined structural costs borne by manufacturers in the United States compared to our nine largest trading partners. The principal finding was that structural costs were almost 32 percent higher in the U.S. than for our foreign competitors. The structural costs included a regulatory compliance, corporate taxation, health and pension benefits, litigation and rising energy costs. As a result, we welcome the leadership, Chairwoman Velazquez, and of this Congress in making improvements to the RFA. Our review of your proposed legislation leads us to conclude that your improvements to the RFA are sound and the NAM and its members are supportive of your efforts. First, let me do emphasize you need to include the indirect economic effects in a regulatory flexibility analysis. A timely example of agencies not being able to consider the impact that they are truly having on small businesses is the EPA's national ambient air quality standards for ozone. Because the implementation of NAAQ standards is done through the regulation and approval of State implementation plans, there are said to be no direct effects on small entities because States are not small entities. Well, this is clearly contrary to what Congress intended when it passed the RFA. Periodic review of legislation, section 610, has always been an underperforming provision of the RFA. There is great hope that it would rationally reduce or eliminate some of the burdens on small businesses that had outlived their usefulness. Let me give you an example. Many of our members and businesses across this country use aerial work platforms or cherry pickers. They also use scissor lifts in their facilities to perform maintenance or to do a specific task. Well, there are fall protection standards that are very important that are attached to these devices. After all, putting somebody up in the air so many feet from the ground is important. The regulation--some of the regulations for these are 30 years old and they don't apply separately to each machine. So that you don't--depending on which machine arrives in your facility, you have different regulations. You don't know what to comply with and of course when OSHA comes in and takes a look, they are going to tick off what you did or didn't do. So that is something that I have noted in my business and the people that bring this equipment in don't really understand the OSHA regulations. They are there to execute a piece of work. So we believe that enhanced reporting requirements will create the necessary environment for better retrospective review. There are also circumstances where an individual rule is not particularly burdensome or a challenge to many small business, but the cumulative effect of that rule and many others affecting a particular sector or type of business can be crushing. Cumulative effects are not always easy to quantify, but the current loophole of providing this analysis, quote, to the extent practicable, gives agencies too large of an opportunity to walk away from this responsibility and the use of, quote, where feasible, unquote, is a limitation to the review of the number of small entities affected seriously weakens the requirement. Changes to this limiting language in several parts of the RFA will go a long way to improving agency compliance and analysis. The NAM was also supportive of former Chairman Manzullo's H.R. 682 in the previous Congress. We believe there are a few provisions of that bill that would strengthen your legislation, and I have included those suggestions in my prepared testimony. Thank you again, Madam Chairwoman, for this opportunity to testify. Chairwoman Velazquez. Thank you, Mr. Messinger. [The prepared statement of Mr. Messinger may be found in the Appendix on page 53.] Chairwoman Velazquez. Our next witness is Mr. Andrew Langer, he's the senior manager of the regulatory affairs at the National Federation of Independent Businesses. Prior to joining NFIB, he was associate director of the development for the Competitive Enterprise Institute. The National Federation of Independent Business represents over 600,000 small businesses before Congress and all 50 States. Thank you and welcome. STATEMENT OF MR. ANDREW LANGER, SENIOR MANAGER, REGULATORY AFFAIRS, NATIONAL FEDERATION OF INDEPENDENT BUSINESSES Mr. Langer. Thank you very much, Chairwoman Velazquez, Ranking Member Chabot and Congressman Akin. Thank you very much for allowing me the opportunity to testify here today on behalf of the hundreds of thousands of small businesses owners represented by NFIB. I am happy to be here to discuss with you the burden of regulatory paperwork and to offer our insights on how to find a way to reduce the amount of paperwork filled out by America's small businesses each year. I attended your hearing on regulatory burden several weeks ago and I really appreciate the invitation to come here and discuss these burdens in greater detail. NFIB is the Nation's largest small business association, and it is fairly unique amongst trade associations in Washington D.C. NFIB represents truly small businesses. Ninety percent of our members have fewer in that 20 employees and our average member size is 10 employees. I know we have discussed at great detail the difference between small and large businesses here, and I won't restate those issues here today. But if there is any message I hope to convey today, it is that agencies cannot create regulations in a vacuum. Agencies have to take into account how each and every little rule adds up to literally weeks worth of a small businesses time. We must consider what I have taken to calling the context of regulation. We spent a tremendous amount of time focusing on the big picture, and the big picture of regulatory burdens is important, it sets out the most general context in which to consider the problem of regulatory burdens. As Tom Sullivan said, our regulatory State costs over a trillion dollars annually. Americans spent 8 billion hours, billion with a B, filling out paperwork last year at a cost of over $400 billion. These are vast figures, they are almost too large for any person to really comprehend. Let me put it to you this way: For an adult population of 210 million people, that is 210 million people over the age of 18 in America, that is 38 hours for every adult. Almost the equivalent of a workweek's worth of time spent filling out paperwork for the Federal Government. This is what I mean by context, the assessment of each rule's individual impact and how that impact adds to the Agency's current regulatory burden, taken by itself a rule might create very little burden. For example, in a hearing last year on a proposed EPA regulation on home renovation, a lot of talk focused on a mandate requiring agency training of 1 day, per quarter, per employee. Many people dismissed this as a simple request, what is 1 day every 3 or 4 months after all. But that is 3 or 4 days per employee, per year, and this is on top of all the other training, paperwork and other regulatory burdens that a small business and those employees might be required to jump through. We believe at NFIB that the agencies ought to keep track of each of those mandates, quantifying them and adding them up each and every year. And then when new regulations are proposed, calculate the burdens being added and then restate the overall burden being opposed by the agency. It is really only in this way that we can really assess what is being added and consider whether or not such additions are necessary and in that framework. And in context cuts both ways as well, understanding that it isn't a single regulation that creates this burden, but thousands of them underscores the necessity for not only making incremental changes to the regulatory state, but supporting the agencies when they do so as well. When EPA comes out with a regulatory change that reduces the burden on small business of 15 hours, we can't dismiss that. Fifteen hours is 2 days, 2 days here and 2 days there over the thousands of regulations that are on the books, and pretty soon you are talking about real time. Time, after all, is a small business's most precious and most finite resource. We also believe that accountability and transparency are important, and we believe that these two concepts can be effectively joined with the efforts to reduce regulatory burdens that gets to what Congressman Gonzalez was talking about before. In addition to our recommendations on regulatory compliance guides, we believe that all regulations and their associated documents should have a name and direct dial phone number of the regulation's principal author attached. Some might balk at this, but we believe that it gets to the heart of government responsiveness. One of the most problematic parts of figuring out how to be in compliance with regulations is getting answers to basic questions about them. Rarely do single agency points of contact have the detailed knowledge about a particular regulation to actually provide the meaningful information necessary. And small business owners spend countless hours working their way through agency offices in order to find the right person to answer their question. But who better really to answer a question about a regulation than the person in the agency who is responsible for bringing that regulation through the promulgation process? Moreover, if an agency employee is required to attach his or her name to a regulation, we believe that more care might be taken to ensure that a regulation is as clear as possible and doesn't burden small business any more than it has to. Thank you, again, for the opportunity to testify. In our written remarks we have offered a series of 10 separate recommendations, several of which have been adopted and included in your legislation. We look forward to working with you and answering any questions that you might have. Chairwoman Velazquez. Thank you, Mr. Langer. [The prepared statement of Mr. Langer may be found in the Appendix on page 60.] Chairwoman Velazquez. Welcome again, Mr. Charlie Sewell. He is the senior vice president of government affairs at the National Community Pharmacists Association. Prior to joining, NCPA, he was the president of ACG Enterprises. National Community Pharmacist Association represents 24,000 independent pharmacists and 50,000 community pharmacists and their patients across the country, welcome. STATEMENT OF MR. CHARLIE SEWELL, SENIOR VICE PRESIDENT, GOVERNMENT AFFAIRS, NATIONAL COMMUNITY PHARMACISTS ASSOCIATION Mr. Sewell. Thank you, Madam Chair, and thank you Ranking Member Chabot and the other members of the committee for having us here today. I would like to say that we still represent 24,000 pharmacies, but actually we only represent 23,000 pharmacies now because we lost 1,152 pharmacies in the last year because we got a new business partner, with the advent of Part D we now have Uncle Sam as a business partner and we found out he's not a very good business partner as said before. That is why we are happy to be here today. Most importantly, we represent not only the 23,000 pharmacies, and their over 300,000 employees, but millions of patients that we serve day in and day out. We help them in terms of improving their adherence to their drug regimens. We help them avoid adverse drug interactions, we even provide home delivery for free in most of our pharmacies, which is almost unheard of in this day and time. It is really because of our face-to-face relationship with a local independent pharmacy that patients are more likely to take medicines on time and more likely to take them properly and more likely to refill their meds when they need to. And frankly, more likely to get the care that they need because we spend more time with most of our patients than their doctors do, especially in rural America and the urban centers. We are happy to be here today to say that we strongly support the small business Regulatory Improvement Act. It is much needed, long overdue, and the sooner the better from our perspective. We would ask, though, that actually you consider strengthening it even more. Specifically we would recommend that no agency can issue a final regulation unless it specifically analyzes the significant impact that implementation of the rule will have on small business. Agencies shouldn't be allowed to hide behind lack of evidence which is what they always cite. In order to proceed, agencies must affirmatively demonstrate that there is no significant adverse impact on small businesses. Secondly, once there is a finding of significant impact upon small business, an agency should not be allowed to implement a rule for the small business sector that it affects. And lastly, a private person or any entity or any government entity for that matter once a rule is released, that person or entity should be able to bring up a regulatory challenge when they believe there has been a violation of the RFA, and frankly, what we would like to see is an SBA process created where that action could be adjudicated in a fairly efficient manner and fairly expedited manner by the SBA. I want to cite one specific example that we have talked about before that really is really our major concern, that is a recent rule that was promulgated by CMS. The GAO did a study and said that under the new Medicaid reimbursement proposal we would be reimbursed 36 percent below our cost. The OIG did a study and said that from 19 of the 25 drugs that they examined we would be reimbursed below our cost. If you take into account that you actually have to pay the pharmacists who work in our pharmacies, you actually have to pay a rent or a mortgage, you actually have to pay for the utilities, 24 of the 25 drugs they examined we would be losing money on, it really is a horrendous situation. When it came time to perform the regulatory flexibility analysis in their final rule, frankly they said, we are going to ignore the GAO findings, we are going to ignore the OIG findings and then they told us that we need to provide more documented evidence. We actually used SBA standards and we showed them directly that we would lose, our net margins would sink to the tune of about 80 percent, when you are only make 2.6 percent net margin to begin with, almost 80 percent reduction in that margin doesn't work, it just don't keep us in business. We can't believe that CMS totally neglected the RFA in the fashion that they did. Something needs to be done. The more teeth that we can put to the RFA the better. Agencies need to be required to actually do real economic analysis, and when there is significant impact, they have to actually stop what they are doing before they promulgate the rule. They certainly need to take into account the small business sectors that will be impacted. Thank you very much, Madam Chair. [The prepared statement of Mr. Sewell may be found in the Appendix on page 75.] Chairwoman Velazquez. Thank you. I would like to address my first question to Mr. Freedman. And you spoke about the fact that the Regulatory Flexibility Act does not define significant economic impact and, in fact, the Government Accountability Office concluded that the lack of clarity regarding this term has reduced the effectiveness of the law. And also courts have ruled that agencies did not have to consider the indirect impact of a rule on small businesses. The legislation we are examining today requires agencies to contemplate reasonably foreseeable indirect economic impacts. How will this improve the regulatory process for small businesses and will it result in a more accurate assessment of the two economic impacts on small businesses? Mr. Freedman. Thank you, Madam Chairwoman, for the question. I think you actually hit one of the several nails on the head, the indirect impact, as I have mentioned, and as others have discussed, is one of the ways that agencies avoid taking into account certain impacts on small businesses. The aeronautical repair station case I was about to mention, I think, brings that out very clearly. The FAA said that the impacts were merely on contractors, and therefore, not direct impacts. The court found differently and said that these impacts, in fact, should be included. I think the indirect impact question has been one of those holy grails in the pursuit of better reg flex compliance. Your legislation, I think, does a very good job of trying to capture the levels of indirect impact. I think that is where the debate lies. You talk about reasonably foreseeable. That is about, I think, as good a line as one can draw around this. Let us be honest, I think that will trigger litigation, but you do have to draw a line and I think that is a good way to draw that line. So basically, the answer to your question is yes, it would help greatly and it would definitely make a difference in a lot of regulations in terms of the impacts that have been discussed this morning and in other iterations that we all have dealt with. Chairwoman Velazquez. Mr. Langer, would you like to comment? Mr. Langer. Well, no. I have no disagreement with Marc on this. I like to think of the regulatory State as almost an organic creature, and that you make a change somewhere it will have a ripple effects down the road and effect other things. Industries in our economy are not independent entities, they are all interconnected in many ways. And so when government makes a change somewhere it is going to have an impact down the road and sometimes very serious and very problematic ones. I think Chief Counsel Sullivan underscored a great one when he was talking about the hemispheric travel restrictions issue and the impacts that is going to have industry wide in multiple industries and how that wasn't taken into account. I think that is one of the great problems we will run into. The greatest growth in regulation is happening in Homeland Security and we are seeing all sorts of impacts down the road for things that DHS simply isn't contemplating. Chairwoman Velazquez. Thank you. Mr. Messinger, I understand that the disparity on regulatory costs between large and small businesses is widest in the manufacturing sector, can you talk to us about how certain regulations or agencies do more to address the unique concern? They could do more to address the unique concerns of a small business manufacturer and do you hire legal consultants to assist in compliance? Mr. Messinger. Yes, we hire legal consultants to help us when needed. It is not on retainer or anything, we just use them when we need them, but quite frequently we do. I don't know if I can comment on specific agency regulations. I have to check with my staff. What I do know is what we have all said is just the cumulative burden of the variety of things we are asked to do makes it where you sit down and look at this stuff and you say, of what real need and use does this have? We can all appreciate the need for a clean environment, for safe working conditions and those sorts of things, but when it appears to be paperwork, appears, then people begin to distrust the system and that is what we don't want to have happen. Mr. Langer. Congresswoman, if I could just add to that, because there are some good examples that are out there, OSHA in the last few years has taken a particularly different approach--the Department of Labor itself has taken a different approach in many ways in dealing with small business and working closely with a number of entities out there. OSHA has developed what they call their OSHA consultation process, which we have been invested in for some time where they will go out and they will provide expertise to come into businesses, to not inspect but assess and then offer recommendations as to how they might improve their workplace safety and health programs. A number of entities out there a number of insurance companies are offering incentives to the small businesses that partake in that program and get certified and small businesses are saving money while protecting their employees. So that is one I would recommend. Chairwoman Velazquez. Mr. Sewell, let us talk about the AMP rule, CMS did not consider any alternatives to minimize the impact of the rule on small businesses, instead they concluded that out of State did not require it to examine any other alternatives. Can you talk to us, do you have any alternatives or ways to implement the rule that will be less burdensome to community pharmacists? Mr. Sewell. We have made recommendations and there is legislation being considered both here in the House and Senate at the moment to address this. We are afraid given the congressional calendar, it will be difficult to make anything happen this year. So the latest discussion with Senator Baucus and now Mr. Stark here in the House is in regards to a delay, the hope is that they would at least delay until people would see the AMP data. When we submitted our comments to CMS, they never give us the AMP data, so it was impossible for us to comment on the specific harm. The only two entities that actually received the data were OIG and GAO and they are the ones who came up with the number showing that we will be reimbursed below cost. CMS criticized us for not offering specific comments, but yet wouldn't provide us the data. They have still not provided the data to Congress. We don't see how they can go forward with this rule when no one has the data, including the Congress. Chairwoman Velazquez. Another issue related to CMS is the Medicaid generic prescription drug reimbursement rule and its impact again on small pharmacists. Why do small pharmacists face a particular severe economic impact from this rule compared to larger counterparts and what are the consequences from community pharmacists if this new formula is implemented? Mr. Sewell. The average Medicaid business that an independent pharmacy does is 14 percent of their total business, for chain pharmacies it is about 7 percent, so twice as much business. We have over 10 percent of our pharmacies, or about 2,300 pharmacies, over 50 percent of their business is Medicaid. If this goes through, those 23 pharmacies will close almost overnight. We have been in constant contact with our members, and that is what they have told us, there is just no way they can stay in business. Any pharmacy with a disproportionate share of Medicaid business is going to be in trouble, and most Medicare business tends to be concentrated in rural and the urban centers, and that is where most independent pharmacies are located. Chairwoman Velazquez. Mr. Chabot. Mr. Chabot. Thank you very much, Madam Chair. I first want to commend the panel for something, all four of you have done your homework, you pronounced my name correctly, all four of you. That is the first time that has happened all year. When I first ran for office back in 1979 so it has been 28 years ago, I ran for Cincinnati city council as an independent, didn't have much money so we had a 10 second ad and that is all we could afford. And so we had my yard sign on there, it just said Chabot, and we had a woman's voice and a man's voice and it kind of went back and forth. And one said, Chabot, one said Chabot, Chabot, Cabot. And then the voice over said, although nobody agrees on how to pronounce his name, everybody agrees he will make a fine city council. That was our ad and we lost. We finally did win, but it was a few years later, but in any event, thank you for that, not that I really care how you pronounce my name, but in any event we do pronounce it Chabot. It is a French name, most French men pronounce it Chabot. We will begin with you Mr. Freedman, if I can. Agency determinations of no significant impact at the proposed rule stage are not currently reviewable. If such decisions were reviewable, would this not undermine the ability of the agency to learn from the rule-making process and correct its mistakes, the overarching premise of notice and comment rule making? Mr. Freedman. Thank you, Mr. Ranking Member. I guess my feeling there is that I would rather see an agency get it right the first time and get an analysis out that makes sense and covers all the various factors that need to be included, rather than rely on a rule-making process, which my experience is while there are changes that are possible in a rule-making process, when you see the proposed rule, you are seeing what the agency wants to put out. As I like to say, it may not be carved in stone, but the concrete is wet. And so I would rather them get it right the first time than to have to rely on a comment process to correct them. Mr. Chabot. Mr. Messinger, given the fact that your company already has sunk significant capital costs into complying with existing regulations, is it more important to focus on preventing new burdensome regulations or eliminate existing burdensome regulations? Mr. Messinger. Can we work on both? Mr. Chabot. Good suggestion, yeah. Mr. Messinger. I guess it would depend on what the issue is, but surely you have to stop or slow down the unnecessary new regulations, but we just got a field of issues to deal with today. I don't know, that would be tough, but I would leave it up to those that are involved in the details of those issues a little more. I guess if I had to pick, it would be the existing regulations. Mr. Chabot. Thank you. Mr. Langer, even if an agency does not enumerate cumulative impacts, should the cumulative impact of regulations be taken into account when an agency makes the threshold decision of whether to perform an initial regulatory flexibility analysis. Mr. Langer. I think it has to. I mean, the problem is right now we have a situation where when we assess regulatory burdens in the case of garbage in, garbage out, the executive branch understate regulatory costs consistently, they understate cumulative regulatory costs vastly. If we were to go only on the basis of what the Office of Information & Regulatory Affairs and don't get me wrong, I have nothing but respect for Director Dudley and the work that she is doing over at OIRA, but annually, we, get this reporting of the costs and benefits of regulations and the State that cost and regulations are up $44 billion. We know that is not the case. They are looking at a dozen rules. And so the agencies have to do a better job if they are not going to assess the incremental costs, they have to do a better job at assessing their overall costs. We need to get a better handle on this because there is a fundamental misunderstanding of just what the burdens are. We are looking at a regulatory burden which roughly equals the entire Federal budget, and that just is an unsustainable situation for American business. Mr. Chabot. Thank you. Mr. Sewell, in your opinion, does FDA accurately assess the economic consequences of its regulatory issuances of small pharmacies and suppliers? Mr. Sewell. In a word, no. I will give you a specific example, right now they are considering imposing track and trace technology, something that we support to protect the drug supply from manufacturer all the way down to the pharmacy level. However, the cost of this technology could be anywhere between 10 and $40,000, that is a lot of money for a small business. That would be an unfunded mandate that would be basically placed on the back of pharmacies. And that is not taking into account the time to actually do track and trace technology, that is to track and trace the individual drugs. In fact, some of the discussions as we understand it would be looking at a situation where it would be almost as cumbersome as tax compliance, it could take an extraordinary amount of time. So the answer in a word is no. Mr. Chabot. Thank you, very much. Madam Chair, I yield back the balance of my time. Chairwoman Velazquez. Mr. Ellsworth. Mr. Ellsworth. Thank you, Madam Chairwoman. I just have to tell you, I have been practicing the ranking member's name and for a year now, and now that he has given me those others options, I have forgotten how to pronounce it. So if I say Chabot, I apologize. I had Chabot down, there it is again. Gentlemen, thank you very much. I appreciate you being here, I could ask you questions all day. I appreciate you being here. First, if you don't mind, in what we are talking about today, if the chairwoman had the magic wand and was giving away Christmas presents today and you had one thing you could say, I walked out of there and I won this for my constituents, could you go down the line and tell me what that would be if you walked out today and got it done? Mr. Freedman. That is a hard question, I guess I would probably point to the indirect impact in language in the bill. If you are talking about one specific provision, other than just saying I walked out of here and got the bill done, I would focus on indirect impact language in the bill. I think that was the one that would probably make the greatest impact on the regulatory process. Mr. Ellsworth. Mr. Messinger. Mr. Messinger. I am not schooled in the legislation, I am a businessman. Mr. Ellsworth. One thing that would make your life easier as a businessman that this committee could do. Mr. Messinger. Well, Mr. Langer talked about how OSHA has really done some good things and become more responsive. I think if we could apply that to EPA, I think this country has become more green, certainly this last year we have seen that. I think people in government don't realize that all Americans, most Americans are very supportive of what we need to do to have a sustainable future, but the EPA's regulations on smaller businesses are terribly burdensome, I don't want to get into that, but I would move in that area. Mr. Langer. If the chairwoman has already given Marc his present of indirect impacts, I get a different one. I will keep hammering on the issue of phone numbers of the agency personnel, the principal office of regulations. I know it may sound gimmicky, but I think, frankly, down the road it could have a sea change effect. I mean, every time I talk to my members, I talk to our field personnel, I talk to folks who deal with the regulated entities, they look at me like, boy, that is an interesting idea. The idea that you can actually pick up and call the person who wrote the regulation. So if Marc is already getting direct impacts, I will go with the phone number issue. Mr. Sewell. Certainly indirect impact is important to us as well, but we would like to add that we would like to be able to make regulatory challenges to go through an abbreviated process and be adjudicated by the SBA, we think that would really make a big difference. Mr. Ellsworth. Thank you very much. Mr. Freedman, I notice that the SBA releases a report grading the agencies on their responsiveness on regulatory fairness, compliance, and I love the word that some identified as suboptimal, I am guessing there are other words for that. Mr. Freedman. One wonders what Chairman Greenspan would have to say about the regulatory world. Mr. Ellsworth. Right. But suboptimal, I will use that word, I can think of others, Department of Ag, Defense, Justice, Education, Treasury. In your work with small business, are any of our other departments doing well above optimal, or let us just say optimal. Mr. Freedman. Actually, that is a fair question, I think in constant refrains about what needs to be done to improve the regulatory flexibility, we do tend to overlook where agencies have made, I guess, at least a conscientious effort, in some cases, hit the mark. I would cite too, it is ironic because we keep sort of discussing it in negative terms, but EPA, I think, does a very conscientious effort at trying to assess the impacts. Now, in a number of cases, I don't think they get all the impacts in there that they should have. But I do know they have a matrix that they work from in terms of what level of impact is considered significant and how to assess the number of small entities. So I am not going to give them the pat, but I will cite them as an agency that does more on this than other agencies. Similarly, I think OSHA has, over the years, done a much better job at making sure that they capture those impacts and do what they are supposed to do. Now again, I am not going to say that they always get it right, but they do recognize the burden and go through the process more contentiously than others. Mr. Ellsworth. Mr. Langer, I think if I remember correctly in your testimony, you talked about the burden of paperwork, how it continues to grow. Which one has caused you the most angst to you and your members, are there ones that just are most costly and cause the most angst. Mr. Langer. Well, it is well documented that tax paperwork is the biggest burden out there. It is 80 percent of the paperwork burden that anybody faces. Part of the problem is complexity of the code. We can get into the difference between beneficial paperwork and non beneficial paperwork and the benefits that accrue from it. Really, with paperwork overall, it gets back to my earlier point, which is it is all incremental, it is never one big regulation that is out there; we are always looking for magic bullets, and there is no magic bullet here. It is 15 minutes here, the 2 hours here, 3 hours there, it all adds up to literally a week's worth of time for every adult American. Mr. Freedman. If I could just add. These regulations don't happen in a vacuum as we have heard. The thing I think about is the people who have to deal with these, small business owners, yes, their businesses are affected, but it is also a matter of their private lives and the time that they would be spending time outside of their business. The people I think about have multiple roles within that business and adding more regulatory complexities to those roles means that is less time they have to do other things that we all think about in terms of family life and work outside of business. Mr. Langer. See, that is why I think these incremental costs are so important to assess and get a handle on. Because if the agent is already requiring a small business owner to spend a week of paperwork, adding more days, it is very serious stuff here. So annually, at the end of the year, the EPA could come back and say, we have added an hour of paperwork for everybody, or we have subtracted a few hours. Across the board, you start whittling away at it and you are really getting somewhere. Mr. Ellsworth. Thank you very much. I yield back, Madam Chair. Chairwoman Velazquez. Mr. Chabot. Mr. Chabot. No. Chairwoman Velazquez. With that we conclude this hearing. And again, I want to thank all of you for your time here and for your contribution to this important issue for small businesses. I ask unanimous consent that members will have 5 days to submit a statement and supporting materials for the record. Without objection so ordered, this hearing is now adjourned. 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