<DOC>
[109th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:28782.wais]
REGULATORY FLEXIBILITY IMPROVEMENTS ACT
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
COMMERCIAL AND ADMINISTRATIVE LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
ON
H.R. 682
__________
JULY 20, 2006
__________
Serial No. 109-134
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
______
U.S. GOVERNMENT PRINTING OFFICE
28-782 WASHINGTON : 2006
_____________________________________________________________________________
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COMMITTEE ON THE JUDICIARY
F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina HOWARD L. BERMAN, California
LAMAR SMITH, Texas RICK BOUCHER, Virginia
ELTON GALLEGLY, California JERROLD NADLER, New York
BOB GOODLATTE, Virginia ROBERT C. SCOTT, Virginia
STEVE CHABOT, Ohio MELVIN L. WATT, North Carolina
DANIEL E. LUNGREN, California ZOE LOFGREN, California
WILLIAM L. JENKINS, Tennessee SHEILA JACKSON LEE, Texas
CHRIS CANNON, Utah MAXINE WATERS, California
SPENCER BACHUS, Alabama MARTIN T. MEEHAN, Massachusetts
BOB INGLIS, South Carolina WILLIAM D. DELAHUNT, Massachusetts
JOHN N. HOSTETTLER, Indiana ROBERT WEXLER, Florida
MARK GREEN, Wisconsin ANTHONY D. WEINER, New York
RIC KELLER, Florida ADAM B. SCHIFF, California
DARRELL ISSA, California LINDA T. SANCHEZ, California
JEFF FLAKE, Arizona CHRIS VAN HOLLEN, Maryland
MIKE PENCE, Indiana DEBBIE WASSERMAN SCHULTZ, Florida
J. RANDY FORBES, Virginia
STEVE KING, Iowa
TOM FEENEY, Florida
TRENT FRANKS, Arizona
LOUIE GOHMERT, Texas
Philip G. Kiko, Chief of Staff-General Counsel
Perry H. Apelbaum, Minority Chief Counsel
------
Subcommittee on Commercial and Administrative Law
CHRIS CANNON, Utah Chairman
HOWARD COBLE, North Carolina MELVIN L. WATT, North Carolina
TRENT FRANKS, Arizona WILLIAM D. DELAHUNT, Massachusetts
STEVE CHABOT, Ohio CHRIS VAN HOLLEN, Maryland
MARK GREEN, Wisconsin JERROLD NADLER, New York
J. RANDY FORBES, Virginia DEBBIE WASSERMAN SCHULTZ, Florida
LOUIE GOHMERT, Texas
Raymond V. Smietanka, Chief Counsel
Susan A. Jensen, Counsel
Brenda Hankins, Counsel
Mike Lenn, Full Committee Counsel
Stephanie Moore, Minority Counsel
C O N T E N T S
----------
JULY 20, 2006
OPENING STATEMENT
Page
The Honorable Chris Cannon, a Representative in Congress from the
State of Utah, and Chairman, Subcommittee on Commercial and
Administrative Law............................................. 1
WITNESSES
The Honorable Thomas M. Sullivan, Chief Counsel for Advocacy,
United States Small Business Administration, Washington, DC
Oral Testimony................................................. 5
Prepared Statement............................................. 8
Mr. J. Christopher Mihm, Managing Director for Strategic Issues,
United States Government Accountability Office, Washington, DC
Oral Testimony................................................. 19
Prepared Statement............................................. 21
Mr. J. Robert Shull, Director of Regulatory Policy, OMB Watch,
Washington, DC
Oral Testimony................................................. 38
Prepared Statement............................................. 40
David Frulla, Esquire, Kelley Drye Collier Shannon, Washington,
DC
Oral Testimony................................................. 48
Prepared Statement............................................. 50
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Prepared Statement of the Honorable Chris Cannon, a
Representative in Congress from the State of Utah, and
Chairman, Subcommittee on Commercial and Administrative Law.... 3
APPENDIX
Material Submitted for the Hearing Record
Revised Prepared Statement of J. Robert Shull, Director of
Regulatory Policy, OMB Watch, Washington, DC................... 69
Prepared Statement of the Honorable Donald A. Manzullo, a
Representative in Congress from the State of Illinois, and
Chairman, Committee on Small Business.......................... 78
Letter from Robert D. Evans, Director, Governmental Affairs
Office, American Bar Association (ABA)......................... 82
Response to Post-Hearing Questions from the Honorable Thomas M.
Sullivan, Chief Counsel for Advocacy, United States Small
Business Administration, Washington, DC........................ 86
Response to Post-Hearing Questions from J. Christopher Mihm,
Managing Director for Strategic Issues, United States
Government Accountability Office, Washington, DC............... 91
Response to Post-Hearing Questions from J. Robert Shull, Director
of Regulatory Policy, OMB Watch, Washington, DC................ 94
Response to Post-Hearing Questions from David Frulla, Esquire,
Kelley Drye Collier Shannon, Washington, DC.................... 133
REGULATORY FLEXIBILITY
IMPROVEMENTS ACT
----------
THURSDAY, JULY 20, 2006
House of Representatives,
Subcommittee on Commercial
and Administrative Law,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 12:19 p.m., in
Room 2141, Rayburn House Office Building, the Honorable Chris
Cannon (Chairman of the Subcommittee) presiding.
Mr. Cannon. Now, the Subcommittee will please come to
order.
Thank you, all. We apologize for being long on that vote.
And my understanding is Mr. Watt is on his way and will join us
momentarily, but we do have Mr. Coble, though, so we will get
started.
Mostly, we will avoid boring Mr. Watt by not having to
listen to my opening statement, which, actually, I think is
sort of interesting.
I want to begin with some fairly astounding facts. First,
according to OMB, no one has ever tabulated the sheer number of
Federal regulations that have been adopted since the passage of
the Administrative Procedure Act of 1946.
Second, and perhaps even more astounding, is the fact that
OMB states that most of these existing Federal rules have never
been evaluated to determine whether they have worked as
intended and what their actual benefits and costs have been. We
do know their costs have been high.
Last year, the Office of Advocacy for the Small Business
Administration issued a report estimating that the annual cost
to comply with Federal regulations in the United States in 2004
exceeded $1.1 trillion. It reported if every household received
a bill for an equal share, each household would have owed
$10,172, an amount that exceeds what the average American
household spent on health care in 2004, which was slightly
under $9,000.
I think these facts underscore several critical needs. Most
importantly, we need to get the Administrative Conference of
the United States up and running. As many of you know, I
drafted bipartisan legislation that was signed into law in the
last Congress that reauthorized ACUS. For 25 years, the
Conference played an invaluable role as the Federal
Government's in-house adviser on and coordinator of
administrative procedural reforms.
I am in fact paraphrasing from a letter that the American
Bar Association sent earlier this week to the Senate
Appropriations Committee seeking funding for ACUS. With
unanimous consent, I would like to submit this letter for
inclusion to the record, and hearing no objections, so ordered.
Second, these facts underscore the urgent need for
continuing and aggressive congressional oversight over the
regulatory process. To that end, the Subcommittee on Commercial
and Administrative Law, at the request of the House Judiciary
Committee Chairman Jim Sensenbrenner, with support of Ranking
Member John Conyers, is conducting a comprehensive review of
administrative law, process and procedure.
This project, which is being guided by the Congressional
Research Service, will culminate with the issuance of a final
report and the publication of the results of various studies
focusing on succinct issues presented by the rule-making
process. Third, these problems underscore the need for
legislative redress. H.R. 682, I believe, is a very good start.
Essentially, this legislation addresses several significant
shortcomings of the Regulatory Flexibility Act. Enacted in
1980, the act requires Federal agencies to assess the impact of
proposed regulations on small entities, which the act defines
as either a small business, small organization or small
governmental jurisdiction.
One of the principal purposes of the act was to reduce
unnecessary and disproportionately burdensome demands that
Federal regulatory and reporting requirements placed on small
entities. For example, the act requires agencies to prepare a
regulatory flexibility analysis at the time certain proposed
and final rules are promulgated. Among other things, the
analysis must describe the reasons why action by the agency is
necessary and identify any significant alternatives to the
rule.
This analysis is not required, however, if the agency
certifies that the rule will not have a significant economic
impact on a substantial number of small entities. Since its
enactment in 1980, however, certain recurring deficiencies with
the act have been identified. The GAO on numerous occasions has
cited the act's uneven implementation and lack of clarity. I
expect Mr. Mihm, who appears today on behalf of the GAO, will
be able to elaborate on these concerns.
In response to these problems, Representative Don Manzullo,
who Chairs the House Committee on Small Business, introduced
H.R. 682, the Regulatory Flexibility Improvement Act. On
unanimous consent, I ask that the record include a statement
from the bill's author, Representative Manzullo.
Hearing none, so ordered.
[The prepared statement of Mr. Manzullo is published in the
Appendix.]
Mr. Cannon. H.R. 682 consists of a comprehensive set of
reforms intended to encourage Federal agencies to analyze and
uncover less costly alternative regulatory approaches and to
ensure that all effects, including foreseeable indirect
effects, of proposed and final rules are considered by agencies
during the rulemaking process.
The legislation currently has 18 cosponsors, including me,
and is supported by the United States Chamber of Commerce and
the National Federation of Independent Business. It is against
this exceedingly interesting backdrop that we are holding this
legislative hearing today.
When Mr. Watt arrives, we will turn to him for any comments
that he would like to make. Without objection, his entire
statement and any other Members who wish to submit a statement
will be placed in the record.
Hearing no objection, so ordered.
Without objection, all Members may place--we just did that.
Without objection, the Chair will be authorized to declare
recesses at any point of the hearing.
Hearing no objection, so ordered.
I ask unanimous consent that Members have 5 legislative
days to submit written statements for inclusion in today's
hearing record.
Hearing no objection, so ordered.
[The prepared statement of Mr. Cannon follows:]
Prepared Statement of the Honorable Chris Cannon, a Representative in
Congress from the State of Utah, and Chairman, Subcommittee on
Commercial and Administrative Law
The Subcommittee will please come to order.
I want to begin this hearing by noting some fairly astounding
facts. First, according to OMB, no one has ever tabulated the sheer
number of federal regulations that have been adopted since passage of
the Administrative Procedure Act in 1946. Second, and perhaps even more
astounding, is the fact that OMB states that ``most of these existing
federal rules have never been evaluated to determine whether they have
worked as intended and what their actual benefits and costs have
been.''
Last year, the Office of Advocacy for the Small Business
Administration issued a report estimating that the annual cost to
comply with federal regulations in the United States in 2004 exceeded
$1.1 trillion. It reported, ``Had every household received a bill for
an equal share, each would have owed $10,172, an amount that exceeds
what the average American household spent on health care in 2004
(slightly under $9,000).''
I think these facts underscore several critical needs. Most
importantly, we need to get the Administrative Conference of the United
States up and running. As many of you know, I drafted bipartisan
legislation that was signed into law in the last Congress that
reauthorized ACUS. For 25 years, the Conference played an invaluable
role as the federal government's in-house advisor on--and coordinator
of--administrative procedural reform. I'm in fact paraphrasing from a
letter that the American Bar Association sent earlier this week to the
Senate Appropriations Committee seeking funding for ACUS. With
unanimous consent, I would like to submit this letter for inclusion in
the record. Hearing no objection, so ordered.
Second, these facts underscore the urgent need for continuing and
aggressive Congressional oversight of the regulatory process. To that
end, the Subcommittee on Commercial and Administrative Law--at the
request of House Judiciary Committee Chairman Jim Sensenbrenner and
support of Ranking Member John Conyers--is conducting a comprehensive
review of administrative law, process and procedure. This project,
which is being guided by the Congressional Research Service, will
culminate with the issuance of a final report and the publication of
the results of various studies focusing on succinct issues presented by
the rulemaking process.
Third, these problems underscore the need for legislative redress.
H.R. 682, I believe, is a very good start. Essentially, this
legislation addresses several significant shortcomings of the
Regulatory Flexibility Act. Enacted in 1980, the Act requires federal
agencies to assess the impact of proposed regulations on ``small
entities,'' which the Act defines as either a small business, small
organization, or small governmental jurisdiction. One of the principal
purposes of the Act was to reduce unnecessary and disproportionately
burdensome demands that federal regulatory and reporting requirements
place on small entities.
For example, the Act requires agencies to prepare a regulatory
flexibility analysis at the time certain proposed and final rules are
promulgated. Among other things, the analysis must describe the reasons
why action by the agency is necessary and identify any significant
alternatives to the rule. This analysis is not required, however, if
the agency certifies that the rule will not have a ``significant
economic impact on a substantial number of small entities.''
Since its enactment in 1980, however, certain recurring
deficiencies with the Act have been identified. The GAO on numerous
occasions has cited the Act's uneven implementation and lack of
clarity. I expect Mr. Mihm, who appears today on behalf of the GAO,
will be able to elaborate on these concerns.
In response to these problems, Representative Don Manzullo, who
chairs the House Committee on Small Business, introduced H.R. 682, the
Regulatory Flexibility Improvements Act.
H.R. 682 consists of a comprehensive set of reforms intended to
encourage federal agencies to analyze and uncover less costly
alternative regulatory approaches and to ensure that all effects--
including foreseeable indirect effects--of proposed and final rules are
considered by agencies during the rulemaking process.
The legislation currently has 18 cosponsors, including myself, and
is supported by the United States Chamber of Commerce and the National
Federation of Independent Businesses.
It is against this exceedingly interesting backdrop that we are
holding this legislative hearing today.
I am now pleased to introduce the witnesses for today's
hearing. Our first witness is Tom Sullivan, who is the Chief
Counsel for Advocacy at the Small Business Administration. The
Office for Advocacy was created in 1976 to serve as the
watchdog for small businesses as they interact with the Federal
Government.
Last year, the office helped save America's small
businesses more than $6.6 billion they would have otherwise had
to spend in order to comply with Federal regulations, a truly
commendable accomplishment.
Prior to assuming his current responsibilities at the
Office of Advocacy, Mr. Sullivan was the Executive Director of
the National Federation of Independent Business's Legal
Foundation, which provides guidance on legal issues to small
businesses and promotes a pro-small business agenda in the
Nation's courts. We are now a big Nation of small businesses,
overwhelmingly.
Mr. Sullivan received his undergraduate degree in English
from Boston College and his law degree from Suffolk University
in Boston.
Our next witness is Chris Mihm, who is the Managing
Director of GAO's strategic issues team, which focuses on
Government-wide issues with the goal of promoting a more
results-oriented and accountable Federal Government. The
strategic issues team has examined such matters as Federal
agency transformations, budgetary aspects of the Nation's long-
term fiscal outlook, and civil service reform.
As many of you know, Mr. Mihm testified last year before
our Subcommittee regarding the administrative law, process and
procedure project that I previously described, and, welcome
back, Mr. Mihm.
Mr. Mihm is a fellow of the National Academy of Public
Administration and he received his undergraduate degree from
Georgetown University.
Our next witness is J. Robert Shull, who serves as the
director of regulatory policy at OMB Watch. OMB Watch is a
nonprofit research and advocacy organization that seeks to
promote Government accountability, citizen participation in
public policy decisions and the use of fiscal and regulatory
policy to serve the public interest.
Before joining OMB Watch in 2004, Mr. Shull was a training
specialist and child advocate. In that capacity, he worked at
Children's Rights, a nonprofit advocacy organization based in
New York that represents the interests of abused and neglected
children. Mr. Shull obtained his undergraduate degree from the
University of Virginia and his law degree from Stanford Law
School.
David Frulla is our final witness. Mr. Frulla is a partner
with the law firm of Kelley, Drye, Collier, Shannon, where he
is a member of the firm's litigation, environmental law and
Government relations and public policy practice groups. Prior
to joining Kelley Drye, Mr. Frulla was a founding partner and
principal of Brand and Frulla PC, which specialized in civil,
criminal and administrative advocacy before Federal and State
courts and administrative agencies.
Mr. Frulla also serves as Chair of the Criminal Process
Committee of the American Bar Association's Administrative Law
and Regulatory Practice Section. Mr. Frulla received his
undergraduate degree summa cum laude from Dartmouth College and
his law degree from University of Virginia Law School.
I extend to each of you my warm regards and appreciation
for your willingness to participate in today's hearing. In
light of the fact that your written statements will be included
in the record, I request that you limit your oral remarks to 5
minutes. Accordingly, feel free to summarize and highlight the
salient points of your testimony.
You will note that we have a lighting system that starts
with the green. After 4 minutes, it turns to yellow and then at
5 minutes turns red. It is my habit to tap the gavel at 5
minutes. We would appreciate if you would finish up your
thoughts about that time. We don't want to cut anybody off, and
I find that it works much better--we are actually not
overflowing with Members who have questions to ask today--so it
is not as serious as sometimes it is.
So, if we could do that, we will have a significant amount
of time, I think, to discuss your issues during questioning.
After you present your remarks, the Subcommittee Members, in
the order that they arrived, will be permitted to ask questions
of the witnesses, subject to the 5-minute rule, which I will,
depending upon how many people come, enforce more or less
strictly.
Pursuant to the directive of the Chairman of the Judiciary
Committee, I ask the witnesses to please stand and raise your
right hand to take the oath.
Do you swear or affirm under penalty of perjury that the
testimony you are about to give is true and correct to the best
of your knowledge, information and belief?
The record should reflect that all of the witnesses
answered in the affirmative.
You may be seated.
Mr. Watt, would you like to make an opening statement?
Mr. Watt. No, just welcome the witnesses. Thank you for
being here.
Mr. Cannon. Mr. Sullivan, would you proceed with your
testimony?
TESTIMONY OF THE HONORABLE THOMAS M. SULLIVAN, CHIEF COUNSEL
FOR ADVOCACY, UNITED STATES SMALL BUSINESS ADMINISTRATION,
WASHINGTON, DC
Mr. Sullivan. Thank you, Mr. Chairman, Ranking Member Mr.
Watt. I will try to be brief and actually try to go under the 5
minutes. Thank you for already including my written statement
in the record.
The first part of my statement really goes through the
history of the Regulatory Flexibility Act, and it is, I think,
an important starting point. Why do we have an act that
requires agencies to especially consider their impact on small
business?
Well, I think that it is no surprise that we are a Nation,
a big Nation, of small businesses, and those businesses are
well known for being the job creators, the innovators and the
community leaders. And there was a realization in 1980 that not
only is small business the economic engine of the United
States, but they bear a disproportionate impact when it comes
to Federal rules and regulations. So shouldn't there be a law
that tries to level that playing field for small businesses?
And that law is, in fact, the Regulatory Flexibility Act.
It was amended in 1996 by the Small Business Regulatory
Enforcement Fairness Act. In 1996, Congress realized that the
requirement, or the encouragement, for agencies to do a small
business impact analysis maybe just isn't enough incentive for
agencies to do that. And so in 1996, Congress actually amended
the RFA to include judicial review, so that if agencies do not
conduct small business impact analysis and consider less
burdensome alternatives, then they can be taken to court and a
court will tell them to do so.
The most recent update to the Regulatory Flexibility Act
actually came in 2002, when President Bush signed an executive
order--and, again, that was an affirmation of small businesses'
importance to this country, and an affirmation or realization
that small businesses continue to bear a disproportionate
regulatory impact, and even more work needs to be done to level
the playing field.
This executive order really encourages agencies even more
to do the type of small business impact analysis and work with
my office than ever before, and it is working. The Regulatory
Flexibility Act is working, and I certainly don't want anyone
to proceed in this hearing to think that we are fixing an
absolutely broken law. That is just not the case.
My testimony bears out that we are saving billions of
dollars by filtering out parts of rules and regulations that
don't make sense for small business, and by filtering them out,
you are leveling the playing field without compromising
regulatory protections, while still protecting the environment,
protecting workplace safety, protecting our Nation's borders.
While the Reg Flex Act is working, it is not working
perfectly, and now is the time where you look at the law, much
like this Committee looks at the Administrative Procedure Act
and has amended it close to 60 times over the past several
years. It is time to look at the Regulatory Flexibility Act and
ask, ``How can it work better?'' And H.R. 682 plugs many, if
not all, of the loopholes that are contained in the Regulatory
Flexibility Act.
My office believes that the biggest loophole that needs to
be closed is indirect impact. Agencies right now are required
to examine how their rules will impact those who are directly
regulated. But that doesn't extend to the logically foreseeable
secondary impacts, tertiary impacts, and I believe it is the
Government's responsibility to inform the public before
finalizing rules and regulations how will this rule work? How
will it impact consumers? How will it impact the tourist
industry? How will this rule impact homeowners and community
leaders?
Those are the types of secondary and tertiary impacts that
are sometimes ignored because the Reg Flex Act doesn't require
it. H.R. 682 plugs that loophole.
There are other loopholes that exist in the Regulatory
Flexibility Act. My statement goes in some detail into how H.R.
682 cures that and I am happy to answer any questions about the
particulars of 682 or the Committee's curiosity on how my
office works to enforce the Regulatory Flexibility Act.
[The prepared statement of Mr. Sullivan follows:]
Prepared Statement of the Honorable Thomas M. Sullivan
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
Mr. Cannon. Thank you, Mr. Sullivan.
Mr. Mihm?
TESTIMONY OF J. CHRISTOPHER MIHM, MANAGING DIRECTOR FOR
STRATEGIC ISSUES, UNITED STATES GOVERNMENT ACCOUNTABILITY
OFFICE, WASHINGTON, DC
Mr. Mihm. Thank you, Mr. Chairman, Mr. Watt. It is, again,
a great honor to appear before you again today and to
contribute to your review of the Regulatory Flexibility Act and
your continuing broad examination of administrative law
processes and procedures.
My written statement provides an overview of the basic
purpose and requirements of the RFA, the main impediments to
the act's implementation and the elements of RFA that Congress
might consider amending to improve the effectiveness of the
act. In the interest of brevity, this afternoon I will just hit
the highlights of those issues.
As Mr. Sullivan mentioned in his opening statement, RFA was
enacted in response to concerns about the effect Federal
regulations can have on small entities. Among other things, RFA
prompts regulatory agencies to analyze the potential effects of
the rules on those entities, consider alternatives to reduce
the burden of those rules and ensure that small entities have
an opportunity to participate in the rule-making process.
As you mentioned in your opening statement, Mr. Chairman,
in response to congressional requests, we have reviewed RFA's
implementation on many occasions over many years, going back to
the early 1990's. My bottom line today is that our prior
reports have illustrated both the promise and the problems
associated with RFA, with the recurring theme being the varying
interpretations of RFA's requirements by Federal agencies.
Although some progress has undoubtedly been made to address
issues we identified, the full promise of the Regulatory
Flexibility Act may never be realized until Congress either
clarifies terms and definitions in the act or provides an
agency with the clear authority and the responsibility to do
so.
It is also important to keep in mind the domino effect that
an agency's initial determination of whether the Regulatory
Flexibility Act is applicable to rule-making has on other
statutory requirements. These other requirements can include,
for example, preparing compliance guides for small entities and
periodically reviewing existing regulations.
More specifically, unclear terms and definitions can affect
the applicability and effectiveness of regulatory reform
requirements. We have frequently cited the need to clarify key
terms in RFA, particularly--and this is the 800-pound gorilla,
as it were--"the significant economic impact on a substantial
number of small entities.'' RFA's requirements do not apply, as
Mr. Sullivan mentioned, if an agency head certifies that a rule
will not have that significant economic impact on a substantial
number of small entities.
However, RFA neither defines this key phrase, nor places
responsibility on any party to determine it consistently across
the Government. It is therefore not surprising that compliance
with RFA has varied from one agency to another and that
agencies have had different interpretations of the act's
requirements.
We have examined 12 years of annual reports from the Office
of Advocacy, basically Tom's shop, and that these reports
showed that compliance with RFA varied across agencies, within
agencies and over time, a conclusion obviously shared by the
Office of Advocacy in its own reports.
We noted that some agencies have been repeatedly
characterized as satisfying the requirements, but other
agencies have been viewed as less compliant over time.
One of the reasons for the agencies' lack of compliance
with the Regulatory Flexibility Act requirements is that the
act did not expressly authorize the SBA to interpret key
provisions and did not require SBA to develop criteria for
agencies to follow in reviewing their rules.
It is important to note at this point that the Office of
Advocacy's 2003 RFA compliance guide, while reiterating that
the RFA does not define certain terms, nevertheless provides
some suggestions for agencies on the subject.
While the guidance and the associated training for agencies
appear to have been very helpful, the key will be the degree to
which agencies effectively and consistently apply that guidance
and that training. In that regard, none of us know whether or
not yet the extent or if the guidance and training has really
made a substantive improvement in agencies' efforts to clarify
some of the longstanding confusion about RFA requirements. We
believe additional scrutiny and congressional monitoring of the
RFA compliance may help to answer that question.
Well, let me just conclude there and say once again that I
appreciate the opportunity to testify on these important issues
and obviously would be pleased to take any questions you or Mr.
Watt might have.
[The prepared statement of Mr. Mihm follows:]
Prepared Statement of J. Christopher Mihm
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
Mr. Cannon. Thank you, Mr. Mihm. We are actually sort of on
a roll here. We had two people finish before the yellow light.
Mr. Mihm. We take your guidance, sir.
Mr. Cannon. I think you did this before, Mr. Mihm. Welcome
back.
Mr. Shull, you are recognized for 5 minutes.
TESTIMONY OF J. ROBERT SHULL, DIRECTOR OF REGULATORY POLICY,
OMB WATCH, WASHINGTON, DC
Mr. Shull. Thank you very much, and thank you, Mr. Chairman
and Mr. Watt, for having me before you to talk about this
really important issue.
I want to start from the simple proposition that no agency
is in the business of producing regulations for the sake of
producing regulations. We ask our agencies to produce
regulations to protect the public, to protect all of us who are
breathing the air, drinking the water, all of the men and women
of America who have to work for a living and go to a job where
they want to be safe and healthy.
And small businesses, like all businesses, contribute to
the hazards that we face, when we are breathing the air,
drinking the water, going on the job, driving on the highways.
And it really doesn't matter to all of us, to someone who is
breathing dirty air or drinking poisoned water, whether the
hazards that we are suddenly experiencing have been put there
into our environment by small businesses or large businesses.
But I also want to start from the proposition that small
businesses want to be good corporate citizens, and that the
best intention for helping small businesses and recognizing the
fact that small businesses do face a different kind of hurdle
than their larger counterparts when trying to comply with
regulations, might need some assistance. But that the answer
isn't to give them a free pass in any way, that the answer
isn't to burden the agencies whose job it is to protect the
public, but rather to help small businesses comply.
We did hear that regulations have produced some costs for
the economy and for the businesses who have to comply with
them, but I think we also have to recognize that the benefits
of regulation have been extraordinary. I mean, you can even
look and measure in terms of I.Q. points when we took out lead
from gasoline and now that kids aren't breathing that lead in
from the air. You can see the measurable benefits, and that is
one of many, many examples.
I also want to recognize that, although the Reg Flex
Improvements Act that we are looking at today has a lot of
concerns about regulation and whether or not they are hindering
the competitiveness of American business in the global
marketplace, that the economics literature out there just
doesn't support the case that in America our regulations are
somehow hindering our businesses from competing.
You can look at evidence of, say, plant location decisions.
When we have environmental regulations, do plants that
manufacture goods suddenly move to areas where there are less
stringent environmental regulations? Or you can look at the
trade flows: when environmental regulations become more
stringent, do pollution-intensive goods start coming in from
developing nations to developed nations? And that link just
hasn't been shown.
And because of that concern, we really think that there is
no basis for the Reg Flex Improvements Act that we are looking
at today. And I am concerned that it will really hinder the
agencies from doing the good job that they are doing of
protecting the people. I am concerned that the analysis itself
that agencies have to perform under the Reg Flex Act will
become more burdensome.
I mean, already, there is a signal in the bill that a
succinct statement is not enough, that we have to have a very
detailed explanation. The burden will increase through the
scope of it. It would no longer apply just to rule makings that
go through the APA notice and comment process, but now it would
also apply to guidance documents, general policy statements,
interpretive rules, and land management plans, that the
periodic re-reviews of rules under the Reg Flex Act, which were
for 10-year reviews of rules found to have a SEISNOSE, a
significant economic impact on a substantial number of small
entities. Since the Regulatory Flexibility Act went into
effect, that those now go back to all the rules on the books,
even the rules that we know, like the ban on lead in gasoline,
just are incredibly important, proven protections.
We are also concerned about SBREFA panels now applying not
just to EPA and OSHA rules, which we think were bad enough--it
is giving business interests a first bite at the apple for
those rules, but also applying to a significant number of other
rules. We are also concerned about the SBA Office of Advocacy
being put in a compromised position: if it is given regulatory
authority over implementing the new requirements of the Reg
Flex Improvements Act, that will compromise their role as an
independent voice of small business.
And we think that there is a better way. We have outlined
some in our prepared statement, and I would like to offer a
more complete version of that statement for the record after
this hearing.
[The prepared statement of Mr. Shull follows:]
Prepared Statement of J. Robert Shull
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Mr. Cannon. Thank you. Let us just ask unanimous consent
that you have 5 additional days to submit that. Would that be
sufficient?
Mr. Shull. Thank you very much.
Mr. Cannon. Without objection, so ordered. And, frankly, we
understand that you were drawn into this late. That was a
compelling statement given what apparently was a short time to
prepare, and we thank you for being here.
Mr. Frulla, you are recognized for 5 minutes. Thank you.
TESTIMONY OF DAVID FRULLA, ESQUIRE, KELLEY DRYE COLLIER
SHANNON, WASHINGTON, DC
Mr. Frulla. Thank you, Mr. Chairman, Mr. Ranking Member.
My perspective on the Regulatory Flexibility Act is as a
10-year litigant. I have had over a dozen cases regarding six
different agencies, rule-making proceedings, and we have
prevailed about half the time. And we have gotten some
substantive results. These aren't always things that are high
profile, above-the-radar issues. In one case, we ended up with
a settlement that involved a scientific re-review of a 67
percent reduction in a quota for sharks that were caught in the
Gulf and Atlantic.
That review showed there was no scientific basis for that
quota cut. Again, not every regulation is lead in gasoline.
There is a lot that the Government does. Sometimes it goes
awry. There needs to be checks and balances there. The
Regulatory Flexibility Act is an important tool.
And I would also note that a Regulatory Flexibility Act
victory is only a first step. It is often a long haul to get an
agency to change course. And I also have to tell you, and it is
probably not a news flash to anybody here, that Federal
agencies don't always listen to Federal judges.
So SBREFA was a step in the right direction and this new
legislation, H.R. 682, and equally importantly, the
congressional attention that is being paid to the RFA, are
right on point. Litigation does impose discipline. We get to
see after 10 years weaknesses in the law that litigation shows
in the same way as cross examination, but on the legal side.
I would like to applaud especially H.R. 682's efforts to
clarify jurisdictional issues and timing issues. We lay this
out extensively in my written testimony. To address the
foreseeable indirect effects, let me give you one example. A
couple of years ago, I think it was, Congress wanted to impose
cost-containment standards on what they call WIC-only vendors
in the Women, Infant and Children Food and Nutrition Program.
And it was clear that there were to be stores that are WIC-
only vendors, that essentially service that community, that
were to be regulated and were to have their costs contained.
However, the States regulated that level and the directive was
for the States to make these changes.
That is outside the Regulatory Flexibility Act as it
currently stands, even though these small businesses were
clearly the target, and the intended target. We also think it
is going to be important to crystallize the Office of
Advocacy's role in establishing how other agencies do reg-flex
analyses. We had a case with the EPA at one point, and the
EPA's reg flex guidance asks the question in terms of
determining economic impact as what the impact of the
regulation is on a business's gross revenues.
They say, we don't need to look at profitability, and they
said, well, you know, a 1 percent hit on gross revenues, that
is not much. Well, it is a lot if you only have a 4 percent
profit margin. But the court said the EPA had the discretion to
use its own standards. That is something else that needs to be
looked at, and that is something that the SBA has issued
guidance on.
Other issues we note, the standard of review. Normally,
there is essentially what they call a good-faith standard. It
is kind of backing up from an arbitrary and capricious
standard. That is starting to get pretty toothless in many
cases.
I have addressed that in the testimony, some good results
and some bad results. We submit that the arbitrary and
capricious standard ought to apply to the no significant impact
determinations. Clearly in the law, it is in the legislative
history, and the same when the final regulatory flexibility
analyses are reviewed.
It also should be stated that application of the Reg Flex
Act to a particular rule ought to be handled under the de novo
standard, as should the question of whether an agency has
flexibility under a given law. Another case we had, one page of
law ended up with 47 pages of regulations and the agency said
that they had no flexibility, and it was all required. That
doesn't seem to make sense.
Three other points I would like to mention quickly,
expedition. Questions of whether the Regulatory Flexibility Act
applies should be expedited. We are waiting 6 years for a final
decision, when we know the answer from the D.C. circuit that
the Reg Flex Act applies to nationwide permitting under the
Clean Water Act. Attorneys' fees, got to put a plug in for
that. If a small business prevails, they should be able to be
awarded attorneys' fees. A victory on reg flex is only the
start, and it shouldn't be a war of attrition. And, finally,
make sure the Office of Advocacy has the resources they need.
Thank you very much.
[The prepared statement of Mr. Frulla follows:]
Prepared Statement of David E. Frulla
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Mr. Cannon. Thank you, Mr. Frulla.
I appreciate all your testimony, and I recognize myself for
5 minutes to ask some questions.
It sounds like there is consensus that there are some
improvements we can make and we need to try and achieve that in
addressing this bill.
Mr. Shull, recognizing you didn't have time to prepare, and
you have heard what the other witnesses have said, I don't want
to put you on the spot in this regard, but do you either have
things that you would like to propose that we do better in the
Regulatory Flexibility Act, or things that you have heard
today--do things come to mind that you would oppose as you
consider what has been said today?
Mr. Shull. Yes, sir. I actually think that if the goal is
to serve small businesses, that there are better ways other
than the Reg Flex to go about serving that need. And, actually,
something that would be in the jurisdiction of this Committee--
and that would serve not just small businesses but really all
of us--might be to look at the petitions for rule-making under
the APA.
Because it can take a really long time for either public
interest groups who have identified a need for new protections
or more increased protections, or for business groups that have
identified a standard that is out of date and they have a new
way, a better way, of going about it.
With the petition for rule-making process, what we can do
is bring to the agencies a specific rule that needs to be
improved and call for specific improvements. But the agencies
can take a really long time to respond to the petitions or to
do anything about it once they have recognized the need for
improvement. I mean, it took over 10 years, and I don't know
how many court battles, to get OSHA, after it recognized the
need for improving the standard on hexavalent chromium, to
actually get about the work of doing it, of protecting workers.
So I think that that would be a better approach, something
that is evenhanded that applies to business groups and public
interest groups as well, and anybody else out there who sees a
need for improvement, and it is more targeted. It doesn't drain
the agencies' resources into going back and reopening the case
for rules that we already know need to stay on the books and
for just really sort of this meat ax approach, a clumsy
approach, as opposed to a focused, targeted approach, where
small businesses can bring up the rules they think need to be
fixed, other groups can pull up needs that need to be met.
I mean, there are other approaches as well, and there I
think things outside of this Committee's jurisdiction that
might also be very helpful for small businesses, that would
help businesses comply without burdening agencies or without
giving them a free pass from regulatory compliance. And one of
them would be compliance assistance and making sure that there
are compliance assistance offices in every congressional
district, that can go about the work of helping small
businesses understand what regulations they need to comply with
and to help them figure out how to go about doing it.
Plain language in regulation--if it is easier for
businesses or anybody else to read the regulations and
understand them. There was a bipartisan bill that Mrs. Miller
and Mr. Lynch over on the Government Reform Committee proposed
that would not do a thing about weakening regulatory standards,
but just change the language in which they are written so that
they are easier to comply with.
I think that is another way for reducing cost without
reducing the level of protection. And there are other ideas--
for example, the small business gateway I have heard proposed--
basically, informational resources, helping small businesses
get the information they need in order to go about the work of
being a good corporate citizen, which I think that we all agree
they want to be.
Mr. Cannon. Thank you. Have you been involved at all with
our APA review process?
Mr. Shull. Actually, I haven't, but I have followed it from
afar and I look forward to getting more involved.
Mr. Cannon. It has been a little bit arcane in the sense of
hidden away, boxed up in an ark with some very, very smart
people working on it. I am hoping that we can move that at some
phase into a Wikipedia format so that it is online and people
can contribute. I think that might be an easy way for you to
get engaged and see what academics and others are looking at
and bring it down to the real world of advocacy that you are
thinking of.
And we would invite you and you may want to talk to staff
about how you can be engaged prior to that if you are
interested. We appreciate your ideas.
Mr. Shull. I appreciate that.
Mr. Cannon. I don't know if you know, we have a hearing
next week on the 60th anniversary of the APA.
Mr. Shull. I will be here.
Mr. Cannon. An arcane area of the law, but really actually,
in the end, the most important. Thank you. My time has expired.
Mr. Watt, you are recognized for 5 minutes.
Mr. Watt. Thank you, Mr. Chairman, and I thank the
witnesses for being here, apologize for being a little late.
At the end of the day, I guess this is about a bill that is
before us and whether it is supportable as written. I think I
heard Mr. Shull's opinion on that. I am not sure I heard
anybody else's.
Mr. Sullivan, do you support H.R. 682 as written, or, if
not, is there another, better bill? I understand there is a
bill pending on the Senate side, S. 1388. Which one of those is
better?
Mr. Sullivan. Both bills improve the Regulatory Flexibility
Act. A little bit of a dilemma in H.R. 682, if it were passed
into law tomorrow or next week, my office does not have the
resources to implement it effectively.
The Senate bill that you refer to is a more targeted
approach and contains many of the needed reforms of 682.
Mr. Watt. Mr. Mihm, does the Administration support this
682? Can you speak for the Administration?
Mr. Mihm. GAO, the Government Accountability Office. I was
actually hoping Mr. Sullivan would take the whole 5 minutes,
but since he didn't, I will have to answer your question.
As a congressional support agency, we don't typically
support legislation----
Mr. Watt. I am sorry, and I am not trying to put you on the
spot.
Mr. Mihm. But I will say, sir, that many of the types of
concerns that our work has identified in the past about the
lack of standardization and clarity in the RFA are, is what the
bill is designed to address. In that sense, those types of
legislative actions would be a step forward.
Mr. Watt. Mr. Sullivan, you have mentioned secondary and
tertiary indirect impacts on small business. I was kind of
shuddering to think if the current law requires an assessment
of direct impact, I can't even think of anything that wouldn't
have some secondary, tertiary, indirect impact on small
business and whether we are setting Government agencies up to
spend all their time evaluating secondary, tertiary, indirect
impacts. It seems to me burdensome enough to require them,
expect them to do an assessment of what is foreseeable, not an
academic exercise of what may be some possible impact.
Talk to me about the cost of secondary, tertiary, indirect
impact analysis, if you would.
Mr. Sullivan. Thank you, Congressman Watt. H.R. 682
actually balances that very question that you asked, and it
does so by, I believe, expecting or mandating agencies to do
impact analysis on those impacts that are reasonably
foreseeable.
Let me use an actual case example of how this works,
because the words secondary and tertiary I think do----
Mr. Watt. And that compares with what is the current
standard?
Mr. Sullivan. Currently, when an agency regulates, they
look at who must comply directly with a regulation. After
September 11th, when the then-referenced agency, INS, decided
to limit visitor visas, they were limiting foreign visitors who
come to the United States the time allowed to stay in the
United States. Those were the direct impact of an INS-proposed
rule.
Now, how it should work, and what H.R. 682 would require
INS to do, is to say, all right, is border security important?
Yes. Let us look at how long we know visitors in the United
States, foreign visitors, are legally in the United States, do
the analysis.
Now, who is impacted by limiting that length of stay?
Tourism, high-end vacation homes, pouring millions of dollars
into many destination spots, millions of dollars for Canadians
crossing the border and going to destination spots in the
United States. That type of analysis, the analysis of looking,
well, if we limit their stay to 15 days, this is the economic
impact, if we limit their stay to 30 days, here is the economic
impact--that type of analysis, which actually is not very
difficult, is all secondary impact analysis.
And my office----
Mr. Watt. So you are talking about foreseeable under this--
--
Mr. Sullivan. Reasonably.
Mr. Watt. Reasonably foreseeable under this bill. What is
the language in the current----
Mr. Sullivan. The language is silent on that, and, in fact,
the courts have interpreted it only to require direct impact.
So INS did not violate the letter of the law as it has been
interpreted in courts, and David Frulla's testimony mentions
those court decisions, as well as my testimony.
But, when you step back, you have got to think, shouldn't
INS have informed the public through the notice and comment
process that you are more familiar with your understanding of
the Administrative Procedure Act to say, we are thinking of
limiting visitor stay. And we are thinking of limiting those
foreign visitors for about 15 days, as opposed to the current
30-day period. This is how we believe it will impact travel
agencies, tourist destinations, white water rafting and
outfitting companies, and we want you, the public, to comment
on that type of analysis.
That does not happen now under the Reg Flex Act, but it
should happen, because it informs the regulatory process, and
it informs agencies like INS on how to have a better, more
well-informed regulation that is finalized. That is the need
for the secondary impact analysis.
Mr. Watt. There is nothing in the bill that really requires
a tertiary impact? You are just talking about reasonably
foreseeable?
Mr. Sullivan. Reasonably foreseeable. And, again, it gets
at what should agencies be doing that is responsible to inform
the rule-making process? All over the country, we have States
who are left in the position through delegated laws, whether
that be environmental laws, safety and health laws, that passed
these enormous mandates by the Federal Government that says
protect the environment and you figure it out. Comply with the
Clean Air Act standards, but you figure out how you regulate
your own State.
And these folks don't have chief counsels for advocacy.
They don't have reams of chief economists. They need help in
the Federal Government to actually lay out, here is how it may
impact when you choose these different decisions. So there is a
responsibility, I think, to help the State regulators figure
out what should they be doing that is both cost effective and
protective through the regulatory regimen that they are faced
with.
Mr. Watt. I am way out of time, but if the Chairman will
indulge me, and I would like to get----
Mr. Cannon. I can't see the red light.
Mr. Watt. Mr. Mihm said he doesn't want to comment on which
one of these bills is better. I did want to get Mr. Frulla on
the record about whether he prefers the Senate bill or this
bill, and even in light of Mr. Shull's disposition not to be
doing any of this, I guess, even in that context, whether just
kind of a straightforward one or two sentences on which one of
these bills you would prefer. Just for the record.
Mr. Frulla. I will be intensely practical. I think that the
Senate bill is a little more targeted. This is obviously a
little more thoroughgoing a bill. The most important thing is
for folks to start to get to the business of reconciling these
bills so that we can get the law fixed in a constructive way
that everybody can agree on and work together on.
I think the bills ought to come together, same place as Mr.
Sullivan, essentially, and I think it is an important thing to
do. And I don't want a little bit of disagreement on the
margins to be something that holds this up because this is
important to a lot of small businesses.
Mr. Watt. Mr. Shull?
Mr. Shull. I think maybe the way I can say it is by saying
that although we object to the core elements that are there in
both bills, it is worth noting that the Senate version of this
bill does not have the sections that would give new regulatory
authorities to the SBA Office of Advocacy, which we find a
particularly additional problematic element of the bill.
Because the voice of small business, we think, shouldn't be in
the business of telling agencies how to comply with the law.
Mr. Watt. Rather than telling them what is too burdensome.
Mr. Shull. Right.
Mr. Watt. Okay, thank you, Mr. Chairman.
I thank the witnesses. That was very informative.
Mr. Cannon. The gentleman yields back.
Let me also thank the witnesses.
I ask unanimous consent that the record be left open for 10
days for follow-up questions by Members of the panel. Without
objection, so ordered.
Thank you for coming. This has been actually quite
insightful, very interesting.
And I know, Mr. Shull in particular, the idea of speedy
decisions, we are plagued today with a number of cases where
agencies are just not deciding, and that is in some cases bad
for business. Often, it is bad for consumers, and so we look
forward to your suggestions if we ever get to a public forum
with our APA review, which I think would be helpful.
Because I that, I think, is really the key to business.
Industry moves so quickly, things happen so quickly in America
today, a danger that didn't exist yesterday is here today and
devastating.
Perhaps tomorrow, the opportunity for business to
significantly improve the quality of their products by having
standards like the FDA's good manufacturing practices for
nutritional supplements, we are just waiting for them. It
doesn't really matter much what they are. They just need to be
there and then consumers will have an idea of what they are
getting, what the quality is of what they are getting.
So the opportunity to improve how we regulate ourselves I
think is significant. So we thank you for being here today.
And, with that, we will adjourn.
[Whereupon, at 1:06 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing Record
Revised Prepared Statement of J. Robert Shull, Director of Regulatory
Policy, OMB Watch, Washington, DC
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Prepared Statement of the Honorable Donald A. Manzullo, a
Representative in Congress from the State of Illinois, and Chairman,
Committee on Small Business
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Letter from Robert D. Evans, Director, Governmental Affairs Office,
American Bar Association (ABA)
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Response to Post-Hearing Questions from the Honorable Thomas M.
Sullivan, Chief Counsel for Advocacy, United States Small Business
Administration, Washington, DC
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>
Response to Post-Hearing Questions from J. Christopher Mihm, Managing
Director for Strategic Issues, United States Government Accountability
Office, Washington, DC
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Response to Post-Hearing Questions from J. Robert Shull, Director of
Regulatory Policy, OMB Watch, Washington, DC
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Response to Post-Hearing Questions from David Frulla, Esquire, Kelley
Drye Collier Shannon, Washington, DC
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<all>