<DOC> [106 Senate Hearings] [From the U.S. Government Printing Office via GPO Access] [DOCID: f:61664.wais] S. Hrg. 106-347 H.R. 391 AND S. 1378--THE SMALL BUSINESS PAPERWORK REDUCTION ACT AMENDMENTS OF 1999 ======================================================================= HEARING BEFORE THE COMMITTEE ON GOVERNMENTAL AFFAIRS UNITED STATES SENATE ONE HUNDRED SIXTH CONGRESS FIRST SESSION __________ OCTOBER 19, 1999 __________ H.R. 391 and S. 1378 TO AMEND CHAPTER 35 OF TITLE 44, UNITED STATES CODE, FOR THE PURPOSE OF FACILITATING COMPLIANCE BY SMALL BUSINESSES WITH CERTAIN FEDERAL PAPERWORK REQUIREMENTS, TO ESTABLISH A TASK FORCE TO EXAMINE THE FEASIBILITY OF STREAMLINING PAPERWORK REQUIREMENTS APPLICABLE TO SMALL BUSINESSES, AND FOR OTHER PURPOSES Printed for the use of the Committee on Governmental Affairs <snowflake> U.S. GOVERNMENT PRINTING OFFICE 61-664 cc WASHINGTON : 2000 ------------------------------------------------------------------------------ For sale by the Superintendent of Documents, Congressional Sales Office, U.S. Government Printing Office, Washington, DC 20402 COMMITTEE ON GOVERNMENTAL AFFAIRS FRED THOMPSON, Tennessee, Chairman WILLIAM V. ROTH, Jr., Delaware JOSEPH I. LIEBERMAN, Connecticut TED STEVENS, Alaska CARL LEVIN, Michigan SUSAN M. COLLINS, Maine DANIEL K. AKAKA, Hawaii GEORGE V. VOINOVICH, Ohio RICHARD J. DURBIN, Illinois PETE V. DOMENICI, New Mexico ROBERT G. TORRICELLI, New Jersey THAD COCHRAN, Mississippi MAX CLELAND, Georgia ARLEN SPECTER, Pennsylvania JOHN EDWARDS, North Carolina JUDD GREGG, New Hampshire Hannah S. Sistare, Staff Director and Counsel Paul R. Noe, Senior Counsel David E. Gray, Counsel Kathleen G. Braun, Professional Staff Member, Subcommittee on Oversight of Government Management, Restructuring, and the District of Columbia Joyce A. Rechtschaffen, Minority Staff Director and Counsel Lawrence B. Novey, Minority Counsel Darla M. Silva, Minority Counsel, Subcommittee on Oversight of Government Management, Restructuring, and the District of Columbia Darla D. Cassell, Administrative Clerk C O N T E N T S ------ Opening statement: Page Senator Voinovich............................................ 1 WITNESSES Tuesday, October 19, 1999 Hon. Blanche Lincoln, a U.S. Senator from the State of Arkansas.. 4 Jere W. Glover, Chief Counsel for Advocacy, U.S. Small Business Administration................................................. 8 John T. Spotila, Administrator, Office of Information and Regulatory Affairs, Office of Management and Budget............ 10 Eleanor D. Acheson, Assistant Attorney General, Office of Policy Development, Department of Justice............................. 13 Robert Smith, President, Spero-Smith Investment Advisers, Inc., on behalf of National Small Business United.................... 19 Jack Gold, President, Center Industrial, on behalf of the National Federation of Independent Business.................... 22 Gary E. Warren, Deputy Chief, Baltimore County Fire Department, on behalf of the International Association of Fire Chiefs...... 24 Alphabetical List of Witnesses Acheson, Eleanor D.: Testimony.................................................... 13 Prepared statement........................................... 68 Glover, Jere W.: Testimony.................................................... 8 Prepared statement with an attachment........................ 49 Gold, Jack: Testimony.................................................... 22 Prepared statement........................................... 94 Lincoln, Hon. Blanche: Testimony.................................................... 4 Smith, Robert: Testimony.................................................... 19 Prepared statement........................................... 86 Spotila, John T.: Testimony.................................................... 10 Prepared statement........................................... 61 Warren, Gary E.: Testimony.................................................... 24 Prepared statement........................................... 99 Appendix Copies of H.R. 391 and S. 1378................................... 31 Responses to Questions from Senator Voinovich for Jere W. Glover. 102 Responses to Questions from Senator Voinovich for John T. Spotila 104 Responses to Questions from Senator Voinovich for Eleanor D. Acheson with attachments....................................... 109 American Farm Bureau Federation, prepared statement.............. 150 Associated Builders and Constractors, prepared statement......... 152 U.S. Department of Labor, prepared statement..................... 153 U.S. Environmental Protection Agency, prepared statement......... 157 American Federation of State, County and Municipal Employees, AFL-CIO, prepared statement.................................... 160 OMB Watch, prepared statement.................................... 162 Citizens for Sensible Safeguards, prepared statement............. 164 U.S. Department of Transportation, prepared statement............ 165 State of New York, Office of the Attorney General, prepared statement...................................................... 167 H.R. 391 AND S. 1378--THE SMALL BUSINESS PAPERWORK REDUCTION ACT AMENDMENTS OF 1999 ---------- TUESDAY, OCTOBER 19, 1999 U.S. Senate, Committee on Governmental Affairs, Washington, DC. The Committee met, pursuant to notice, at 10:38 a.m., in room SD-628, Dirksen Senate Office Building, Hon. George V. Voinovich presiding. Present: Senator Voinovich. OPENING STATEMENT OF SENATOR VOINOVICH Senator Voinovich. The Committee will please come to order. First of all, I would like to welcome today's witnesses, including my friend and colleague, Senator Blanche Lincoln, and my fellow Ohioan, Robert Smith of Beachwood, Ohio, who is President of Spero-Smith Investment Advisers in Beachwood and who is also associated with National Small Business United. Today, we will be hearing from witnesses regarding H.R. 391 and S. 1378, which are companion bills to one another and are both entitled the Small Business Paperwork Reduction Act Amendments, importantly, amendments. S. 1378 is a bill that Senator Lincoln and I introduced this past July, while H.R. 391 is legislation that has passed the House already by a vote of 274 to 151. The main thrust of these bills is to give small business the ability to correct first-time paperwork violations that do not cause physical harm, affect internal revenue laws, and I want to underscore, or threaten public health or safety if the violation is corrected in a reasonable time. In addition, the legislation would establish a multi-agency task force appointed by OMB to study how to streamline reporting requirements for small business, establish a point of contact at each Federal agency that small business could contact regarding paperwork requirements, require an annual comprehensive list of all paperwork requirements for small business to be placed in the Federal Register and on the Internet, and last, require additional paperwork reductions for small businesses with fewer than 25 employees. Today, there are 23 million small businesses in the United States employing 53 percent of our Nation's private workforce. Small businesses are the mainstay of American society, and their payroll contributions and their tax base constitute the economic heart and the backbone of our competitiveness in the global marketplace. People forget that it is the little businesses that grow into the big businesses and we need to continue to have more of them and to see them succeed. Despite the contributions small businesses make, the Federal Government too often unfairly burdens them by burying them in paper, and I would like to say that it may not necessarily be just the ``Federal Government,'' including Congress. Small business owners spend $229 billion per year on compliance costs and some 6.7 billion hours are used annually to fill out all Federal paperwork requirements in order to comply with numerous government programs, guidelines, and policies. They just keep stacking up. I will never forget when I started practicing law and I had some people and they wanted to go into business, and I started explaining all of the things they would need to do, and this was back a long time ago, 35, 40 years, and they said, well, I am going to have to hire you, and I said, yes, you are. You are also going to have to hire an accountant and you are also going to have to have a bookkeeper, and a lot of them just shook their heads, got up, and walked out. That was enough of that. According to the National Federation of Independent Business, small business owners are subjected to 63 percent of the Nation's regulatory burden, and the paperwork regulations they are subjected to cost more than $2,000 per employee, which I think is just incredible. I am convinced that relieving the paperwork burden on the small business owners in our Nation is going to help increase productivity, save money, create more jobs, and make them more competitive in that global marketplace. That is another thing we forget about, all these rules, regulations, and so forth, and a lot of them are absolutely necessary and some of them are questionable, but all of that adds to the cost of doing business. In the old days when we were just doing business in this country, that is one thing. But today, we are now in that international marketplace and I think every time we do anything, we ought to evaluate what impact will this decision have on the competitiveness of America's businesses in that global marketplace. In 1996, the Paperwork Reduction Act was supposed to reduce the amount of paper by 10 percent. Instead, it was only a 2.6 percent reduction. In 1997, the act was supposed to provide another 10 percent reduction in the amount of paper. Instead, there was a 2.3 percent increase in paperwork. In 1998, the act was supposed to provide another 5 percent reduction in the amount of paper. Instead, there was another 1 percent increase. I know that is not easy. I know when I was governor, I said we were going to reduce unnecessary regulations, and it is easy to say, but it is a lot more difficult to implement. In most instances, it is the business owner himself who, along with running the day-to-day operation of the business, is also responsible for filling out the paperwork and keeping track of the government's constantly changing requirements. Small business owners want to comply. It was very interesting. We had a hearing last week with the Internal Revenue Service where we were talking about quality management. Congress passes changes in the IRS code and we make them effective immediately. What we forget about is that it takes a while for the agency to even understand what they are and then train people to respond to customers' questions that are coming in. Somehow, we just forget about the fact that the people in those agencies are the ones that have to do the work, become familiar with things, and are able to handle it. It is the same thing in business today. If you are a small business owner and these things come in and you are trying to keep track of everything that is going on, it takes a while for you to get a handle on what it is that you are being required to do. To show how onerous first-time paperwork violations can be, the National Federation of Independent Businesses reports that an agriculture supply store owner from Oklahoma had decided to switch over the storage of chemicals for the fertilize he sold from 2.5-gallon containers to bulk containers. In other words, before that, he had them in 2.5-gallon containers. No, I am going to go to bulk. His bulk storage approach also brought additional regulations, which he acknowledged and complied with. But in his second year of using the bulk containers, he did not know he had to submit the Pesticide Production Report required by the EPA. He was fined the maximum of $5,500, which the EPA insisted on even after he submitted the paperwork. A settlement agreement was eventually reached that called for a fine of $3,300 and legal fees of $1,600, nearly the entire original amount. That is the other thing that people forget about. It is easy enough to say, well, I have got to deal with the agency, but most of the time, when you start dealing with a Federal agency, you end up hiring a lawyer, and quite frankly, sometimes the lawyers' fees are as expensive as the fine that you might ultimately have to pay with the Federal agency. William Saas, President of Taskem, Inc., in Brooklyn Heights, Ohio, mentioned in a House hearing last year that the metal finishing industry studied a particular finishing operation--now, this is not the whole industry, this is a particular finishing operation--and discovered that there were over 160 environmental reports alone that had to be filed on one particular operation. Mr. Saas made a good point, saying, ``Honestly, with 160 potential regulations, no one can really be sure that they have touched every base.'' To sum it up, a friend of mine who owns a nursery recently said to me when I was out there, ``George, every morning when I open that door, I am afraid that I am violating some Federal regulation or paperwork requirement.'' That is a heck of a thing. Every day, he is going in there thinking, somebody is going to maybe do something wrong and I am going to be in the soup. The Small Business Paperwork Reduction Act, I think, will help a bit. It will give small business owners a 6-month grace period to correct first-time paperwork violations, again, that do not cause harm, affect internal revenue laws, or involve criminal activity. If a violation threatens public health or safety, each affected agency or jurisdiction would have the discretion to levy a fine as usual or provide a 24-hour window to correct the infraction. But I will say this so that everybody understands this. There are certain things that are going to be exempt, period, from this law, and that involves the IRS and those things that would cause harm or involve criminal activity. This legislation is also about giving decent, hard-working entrepreneurs as much assistance as possible in gaining access to information about what is required of them, decrease the amount of paper they are required to submit to the government, and more importantly, keep from having to pay penalties for simple, honest paperwork mistakes. In addition, I want to stress that this does not limit the ability of Federal agencies from going after business owners who are bad apples, owners whose negligence or recklessness are a threat to their employees, their customers, or the public. I will never forget, my first year as Governor of Ohio, we had a business in Lancaster, Ohio, that did not label--and Chief, you would be interested in this--the chemicals in that place, and he had just one violation after another. As a result of their failure to do their labeling, a fire fighter was killed and it was just a terrible situation. We nailed him. We went after him. I just want you to know that that kind of thing, that is not exempt under this legislation. It is not exempt under this legislation. If it is not specific enough for some of you, then we will work on it with you to make sure that we calm any fears that you may have. I look forward to the testimony of today's witnesses, but before I do that, we have a custom in this Committee of asking all the witnesses to stand, raise their hand, and to swear to the truthfulness of their testimony. So if you will do that, I will swear you in. Do you swear that the testimony that you are about to give is the truth, the whole truth, and nothing but the truth? Senator Lincoln. I do. Mr. Glover. I do. Mr. Spotila. I do. Ms. Acheson. I do. Mr. Smith. I do. Mr. Gold. I do. Mr. Warren. I do. Senator Voinovich. Let the record show that everyone answered in the affirmative. Our first witness this morning is Senator Blanche Lincoln. The two of us are freshmen. However, Senator Lincoln served with distinction in the House of Representatives before being elected to the Senate, although I think you took a couple years off to start a family. She has been just a breath of fresh air in the Senate and I have really enjoyed working with her and with her staff. Senator, we are so glad that you are here this morning and I appreciate the fact that you are cosponsoring this legislation, which I think is important to businesses in my State and your State and in this country. Senator Lincoln. TESTIMONY OF THE HON. BLANCHE LINCOLN, A U.S. SENATOR FROM THE STATE OF ARKANSAS Senator Lincoln. Thank you, Mr. Chairman. I appreciate all of your leadership on this issue and have certainly enjoyed working with you and your staff on the Small Business Paperwork Reduction Act of 1999. I would like to compliment your staff. They have worked wonderfully with us and we appreciate that. Without a doubt, your experience as Governor of Ohio and certainly in the other levels of government that you have served previous to this, working with small businesses that are the lifeblood of most communities, has been enormously helpful in moving forward on the Paperwork Reduction Act. I think it is so essential for legislators and public servants here in Washington to have some of that first-hand experience, and I think you bring a really good perspective that is much needed. So I am delighted to be here with you as a cosponsor and to be working with you. Regulatory reform has been a priority of mine since I began my public service in the U.S. House of Representatives in 1993. When I served in the House, we figured out that it was important for the Federal Government to comply with the same regulations that we were applying to all of American businesses. A great example is here in the Dirksen building, where we are undergoing renovations to comply with safety standards. If you walk around, you realize that now in trying to comply with the regulations that we placed on businesses out in the countryside, we are having much difficulty within the Federal walls of government being able to comply. So we are beginning to, hopefully, recognize that when we impose rules and regulations on industry, it is important to walk in their shoes a time or two to realize exactly what we are doing. As many know, I come from a seventh generation farming family in Phillips County, Arkansas. My brother grows rice, cotton, soybeans, and wheat on the same land that our family has farmed for more than 60 years. So my interest in regulatory reform originated with the personal experience of me and my family with too much government intrusion. My father was always proud to both study and take the test for his compliance with pesticide application, but it was not usually the studying that troubled him. After having used pesticide application for almost 40 years, he knew the issues backwards and forwards. It was really the application with government, going through the paperwork to comply with being able to take those tests that annoyed him. Another example of intrusive government regulation is wetlands regulation, when you have only a quarter of an acre that needs to be leveled and yet you have four different agencies to work through who all go by different laws. It does not make a lot of sense. The farmers in my State are frustrated by having to file too many forms for too many government agencies. They cannot imagine why they need to provide the same information to several different offices within the Department of Agriculture. Since all of the agencies are part of the Federal Government, it seems they should share information rather than taking up folks' time filling out forms. So when I came to Congress 6 years ago, I joined other like-minded members who tried to relieve the regulatory burden on small businesses and local government by passing Reg Flex Act and the unfunded mandates legislation. The bill that we are discussing today is an important extension to the Paperwork Reduction Act that I supported in 1995, and I know that you can well understand what the unfunded mandates legislation meant to State and county and local governments. It was an important issue that we brought up when I was in the House and something we need to continue to focus on. I would like to highlight a few components of the Small Business Paperwork Reduction Act of 1999 that are particularly appealing to my constituents. First, it just makes sense to permit agencies to waive fines for the first time violations of paperwork requirements. You have mentioned that in your remarks. One small business owner who employs 85 people in Paragould, Arkansas, has complained that many Federal laws are difficult to understand. His quote was, ``You do not know that you are doing it wrong until they come after you.'' Especially in rural areas, small business owners are the engines that fuel the local economy. The Federal Government should not dispassionately levy fines on people who are making a good-faith effort to obey the law. Rather than harassing small business owners, we should be eliminating burdensome regulations and making sure the laws that are necessary are easy to understand. That is why I support another provision in this bill that requires all Federal departments to have a single point of contact for small businesses. Until we can streamline our laws to make them crystal clear, we ought to at least provide a person at the other end of the telephone line to answer questions, and you have mentioned some of that, as well, making sure that there is someone there to converse with, communicate with, and at least give our constituents the common courtesy of giving them an idea of what they can expect. The gentleman I mentioned earlier also said, ``With all the regulations, I am not even sure why I am in business.'' He said, ``Small business owners have been fined for violating information gathering requirements that they did not even know existed.'' That is why another provision in the bill, to require the OMB to publish annually all information gathering requirements for small business, makes sense. Think of how difficult it would be to start a new business. In addition to trying to lease space, hire new employees, purchase equipment, and secure financing, a potential small business owner must attempt to follow local, State, and Federal laws. That would be a lot easier if all the Federal paperwork requirements were listed in one place, would it not? We do not want to tie the hands of enterprising young business men and women in government red tape. Mr. Chairman, I could go on and on, sharing stories from constituents who complain about the information gathering requirements associated with well-meaning laws that I have supported. The owner of a small business that employs 75 people in Little Rock said that she has had to pay an outside firm $75 per employee covered by COBRA just to comply with paperwork requirements. As she said, ``the best part is we just have a mere 14 days to facilitate all of this or face penalties, regardless of how busy we might be in trying to make a living. My business is highly seasonal and we get really busy in the spring trying to fulfill our State contract obligations, and you know, it really does become a hassle at trying to get all of this done within the 14-day requirement.'' The bill we are discussing today will not solve all the frustrations of small business men and women, but it is an important first step. I thank you for your leadership on this issue and I encourage you to continue to look for ways that we might alleviate the paperwork requirements for small business owners. On a final note, I understand that the International Association of Fire Chiefs will testify today regarding some of the concerns about this legislation, and I noticed you mentioned that to the Chief. Senator Voinovich, you and I thought we had addressed the fire fighters' concerns which were raised when the House considered similar legislation and I would refer my colleagues to page S8640 of the July 15, 1999, Congressional Record, where Senator Voinovich and I engaged in a colloquy to clarify the legislative intent of this bill. As the Chairman has stated first-time violations of paperwork reduction would not qualify for a civil penalty waiver if human health and safety were endangered. We in no way want to make that an issue in this bill. I look forward to working with the fire fighters and any other groups that may have concerns about parts of this bill. I view all legislation, until it is signed into law, as a work in progress rather than a work of art. Collaborating with the fire fighters, nursing home groups, and the small business men and women from across the country, I am confident that we can forge this legislation into good law. Thank you, Mr. Chairman, for your leadership and for allowing me the time to be a part of this hearing. Senator Voinovich. Thank you, Senator Lincoln. I would underscore what you have to say in terms of working with the various organizations that are concerned about this legislation to make sure that it is something that everybody feels comfortable with. I have learned here in the Senate, very quickly, that the more you are able to do that, the better off you are. So I am hoping that we are going to be able to respond to some of the concerns that individuals have about this legislation, at the same time making sure that we move forward with it. I do really think, as you do, how important it is, and I am glad that you brought up some personal experiences in your family and also other examples, because so often when we talk about some of this, it is just paperwork and we do not think of human beings that have to go through the process of complying with it. I think that most people want to do the right thing and are conscientious. What we are trying to do is to work with those individuals so that they comply with the law and at the same time not put them in a position where they are jeopardizing their business because of some innocent first-time failure to file a piece of paper. So thanks very much for being here today. Senator Lincoln. Thank you, Mr. Chairman, and I think if there is anything we want to accomplish, it is to interject common sense into government. I think you and I have really worked hard at doing that in this bill and we look forward to working with others that will be testifying here today. Senator Voinovich. Thank you. Senator Lincoln. Thank you. Senator Voinovich. On our second panel this morning, we have Jere Glover, who is the Chief Counsel for Advocacy at the Small Business Administration; the Hon. John Spotila, Administrator of the Office of Information and Regulatory Affairs at OMB, who came on, in July, was it? Mr. Spotila. Yes. Senator Voinovich. And we have Eleanor Acheson, who is the Assistant Attorney General for the Office of Policy Development at the Department of Justice. We thank you very much for being here today and we look forward to your testimony. I will first call on Mr. Glover for his testimony this morning. I would like to remind the witnesses that we would appreciate your keeping your remarks as close to 5 minutes as possible, that the written testimony that you submitted will become a part of the record, that we in this Committee leave open the record for at least a week, so if there is some other information that you would like to add, we would welcome it, and also give you an opportunity to respond to questions that may arise during this hearing so that you can let us know your point of view. Mr. Glover. TESTIMONY OF JERE W. GLOVER,\1\ CHIEF COUNSEL FOR ADVOCACY, U.S. SMALL BUSINESS ADMINISTRATION Mr. Glover. Mr. Chairman, it is a privilege to be here. Paperwork reduction is sort of like the old saying about the weather. Everybody talks about it, but nobody ever really does anything about it. I am very pleased that the Committee has focused on this and I think that the legislation you have introduced goes in the right direction to making sure that we do, in fact, actually do something about it. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Glover with an attachment appears in the Appendix on page 49. --------------------------------------------------------------------------- You mentioned one of your constituents who said that every morning he goes to work with fear that some government official is going to point out some rule or regulation. That is an all too common occurrence in the small business community. The amount of government regulations and paperwork is so much that most small businesses recognize that there is probably something they are not in compliance with. This bill goes a long way to addressing that fear, and it really does draw heavily on small business people because they are worried that their businesses and their life savings may be lost because of something they have done that they did not know that was even a violation. The White House Conference on Small Business recommendation on paperwork, I think, was very interesting when the delegates came together in 1995, and I will just summarize that quickly. It is to simplify langauge and forms, sunset and reevaluate all reporting every 5 years, with a goal of reducing paperwork by at least 5 percent in each of the next 5 years, and eliminate duplicative regulations and reporting, and assemble information through a single source. It is kind of like you had their recommendation in mind when you drafted your legislation. The Office of Advocacy did a study in 1994 and 1995 which pointed out that there were $700 billion. It has been widely reported, and you mentioned it in your opening statement. Over $2 billion of this, almost $2.4 billion, actually, comes from the process regulations or paperwork regulations. That is a tremendous amount of information. Small business is very heavily impacted, because numerous studies that we have conducted indicate that the burden on small business is 50 percent more than it is on larger firms in filling out the same kind of regulatory compliance. So small business is often much more heavily burdened by the regulations than others. Let me give you an example of a regulation that we have dealt with within the government process. The Office of Advocacy is charged with representing the views of small business before Congress and before the Federal agencies, so we often appear, and often when small businesses tell us about a concern. We got a call from a small business person who I had met during the White House Conference process and he said, ``Jere, I have to fill out paperwork on every one of my locations every year and it drives me up the wall because it is the worst possible kind of regulation, that has no purpose and no function.'' He was a service station dealer, and every year he has to file with the Environmental Protection Agency forms that indicate he has gasoline on his premises. Now, he assured me that everybody in his community knew that and that on those rare days when he did not have gasoline, he put a sign out front that said, ``no gas today.'' I said, boy, the Paperwork Reduction Act has just passed. This is a great opportunity. I am going to contact EPA and say, hey, this is a slam-dunk. There is no reason you need to have these forms filed. Well, we met with the folks at EPA in charge of this and they said, ``Well, Jere, the fire departments, the fire chiefs rely on this information. This is critical information that they have to know.'' And I said, ``I will tell you what. You call five and I will call five, because I do not believe that is how they find out that service stations have gasoline on their premises.'' Well, I called five fire chiefs and they did not even know that EPA had that information, but they assured me that under no circumstances, if they got a call to go to a service station, would they go look at EPA's information. They fully were aware that there was gasoline there. EPA then agreed to remove that regulation, and they went a step further. They said, ``You know, not only that, Jere, there are some other regulations that we are requiring people to report. There is rock salt. There is sand. There is gravel. These are things that are sort of fungible commodities. They are not real problems. We are going to eliminate those at the same time.'' Well, after 2\1/2\ years, the gasoline reports are no longer required, but it took 2\1/2\ years of personal involvement of us to get those eliminated. Unfortunately, the rock salt, sand, and gravel regulations are still hung up, and one of the reasons is that the State Governments get revenues for every form that is filed and they have objected to removing that because it will reduce the amount of paperwork. I use this example to show how hard it is to change the regulatory and paperwork burdens on businesses, and without some serious legislation directly focused, as yours is. There are a number of things in this particular legislation that I think make a lot of sense--the compilation of small business paperwork burden, a single point of contact, a single filing. In this day and age with the Internet technology that is out there, there is no reason small businesses cannot file one form and all the rest of the government look at that and you would not ask any of the same information a second time. I have had conversations with John Spotila and we are working on a project to make that sort of thing happen. So there is promise. There is hope. But that does not mean we do not need legislation to make sure we do not backslide and that we move forward as quickly as possible. The paperwork burden on small business has not gone down, despite the Paperwork Reduction Act. There are lots of explanations. In my mind, there is no justification for it. So I commend you for the legislation and, hopefully, we can move forward on this. Thank you, sir. Senator Voinovich. Thank you. Mr. Spotila. TESTIMONY OF JOHN T. SPOTILA,\1\ ADMINISTRATOR, OFFICE OF INFORMATION AND REGULATORY AFFAIRS, OFFICE OF MANAGEMENT AND BUDGET Mr. Spotila. Thank you, Mr. Chairman, for inviting me here today. While the administration strongly supports easing the paperwork burden on small businesses, we are concerned that, as now drafted, S. 1378 could produce unintended negative consequences. We acknowledge the need to increase our efforts to reduce the paperwork burden and would welcome the opportunity to work with you to achieve real progress in this area, but we feel strongly that S. 1378 has flaws and needs to be modified. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Spotila appears in the Appendix on page 61. --------------------------------------------------------------------------- Reducing the paperwork burden on small business has been a continuing theme for the President. As he said to the White House Conference on Small Business, ``We know that small business is the engine that will drive us into the 21st Century. You employ most of the people, create more than half of what we produce and sell, and create more of the new jobs and we need to respond to that.'' We have some examples of burden reduction. The Federal Highway Adminstration reduced the burden of its controlled substances and alcohol use and testing program by allowing motor carriers to conduct 15 percent less alcohol testing, reducing burden by 300,000 hours. The Patent and Trademark Office has introduced electronic filing of trademark forms. The Department of Defense is reducing the burden of its acquisition management system and data requirements control list by over 20 million hours by eliminating duplicative data requirements on DoD contractors. But there is still much more to be done. Since my confirmation in July, I have made this a priority at OIRA. Last month, we issued new guidance to agencies on preparing their fiscal year 2000 information collection submissions to OMB. Agencies are to describe in detail their initiatives to reduce the information collection burden on small business. This will give us a better picture and enable us to help agencies learn from each other and adopt strategies that have worked elsewhere. But reducing burden will require a comprehensive effort with full participation by the agency. OIRA plans to work closely with the Small Business Administration to develop new approaches that will reduce paperwork burden. To help spearhead our joint efforts with the agencies, SBA Administrator Aida Alvarez has detailed to us Ronald Matzner, who is here today, to my left, one of SBA's leaders in streamlining and regulatory reform. My good friend, Jere Glover, and I have talked at length on what needs to be done and how to do it. We envision setting up an interagency working group to examine what must be done and to develop recommendations, and we are going to do that now, even before the statute is resolved. We very much look forward to working closely with you and other members of Congress in this endeavor. These initiatives provide background for the discussion today. We know we need to take a fresh look at this problem and work together to address it. Our concern is that a number of the provisions of the bill may create unintended new problems that complicate our task and cause other harm. We need to be careful, despite good intentions, not to adopt legislation that would create adverse consequences. We are most concerned that the one-time waiver provision in Section 2(b) would shield small entities that do not act in good faith, such as those that do not make a good faith effort to comply or who intentionally or knowingly violate regulations at the expense of the public good. We note that a number of agencies argue that the waiver provision would seriously hamper their ability to ensure safety, protect the environment, detect criminal activity, and carry out their statutory responsibilities. We certainly believe that the supporters of S. 1378 do not intend for it to have these consequences, but we fear that it will have this effect. Here are some examples: Transportation operators must now report certain accidents to the Department of Transportation. This serves important purposes. If a company fails to notify DOT promptly after an accident, information important to the investigation may be lost or destroyed. This would make it harder to protect public safety. Companies who delay the reports until being notified of a violation may compromise public safety, even though it may not be possible to show that they cause serious harm to the public interest or a danger to the public health or safety, the standards proposed in S. 1378. We must be careful not to create a situation in which negligent operators can delay their notification just to cover up their mistakes. DOT's effort to implement legislation requiring passenger manifests for virtually all airline flights into and out of the United States could be undermined here. These manifests make it possible to notify the families of victims if an accident occurs. If a small carrier decided to save money by deliberately ignoring the information collection and record keeping requirements, it could use the waiver to undermine the intent of legislation designed to help those families. Under the Clean Water Act, regulated entities must monitor and report pollution discharges. This can be important in assessing environmental threats. In a recent case in California, EPA and a regional water quality control board were concerned that a company withheld and misrepresented data relating to the amount of sealife killed by a cooling water intake system. This made it hard to assess the extent of any damage to water quality and sealife. Nor is Section 2(b) needed. We already have protection for small business owners who act in good faith under the Small Business Regulatory Enforcement Fairness Act, SBREFA, which directed agencies to provide civil penalty waivers to small entities for violations of statutory and regulatory requirements when the small entity corrects the violation within a reasonable time, is not subject to multiple enforcement actions, and has not acted willfully or in a way posing serious health, safety, and environmental threats. This is a sensible approach that we support fully. It applies directly to the concern about first-time paperwork violators, since reporting and record keeping requirements are almost always based on regulations. Most small business owners make a good faith effort to comply with governmental requirements for record keeping and reporting. They believe that if they act in good faith, they should not be punished, but they do not believe that those who act in bad faith or who try to abuse the system should get away with it. Indeed, they do not want some competitor to get a cost advantage over them by enjoying immunity for deliberately ignoring known requirements. If the protection in SBREFA is not sufficient to reach small business owners who act in good faith without harming the public, it is reasonable to talk about adjusting it. There is no good reason, however, to extend this protection to entities that do not act in good faith. As it is now drafted, the administration strongly opposed Section 2(b). We are also concerned about the provision in Section 2(a) requiring OMB to publish annually a list of all Federal collection requirements applicable to small business concerns, organized by North American Industrial Classification System Code. We are very interested in communicating information on this better, but we are concerned that this may not be the right solution. It would be hard to implement, resource intensive, and difficult to keep current and complete, and if not kept current and complete, it will not be of much use to small business owners. It also will be difficult for agencies to predict what collections they might require in the future since they cannot anticipate all the problems and situations that may arise. We want to help small business owners, but we are not sure this is the right way to use our resources. Finally, you have asked us for our views specifically on Section 2(c) dealing with efforts to further reduce the burden for small business concerns with fewer than 25 employees. As we understand it, this is designed to ensure that agency efforts to reduce burden aim specifically at businesses with relatively few employees. We appreciate the unique circumstances these businesses face and do not object to this provision. In summarizing, we sympathize with the goal of easing the paperwork burden on small business and would be willing to work with you to improve the language of S. 1378 to the point where we could support its passage. More generally, we would welcome the opportunity to work with the Committee to develop new approaches for alleviating paperwork burdens. We understand and share your concerns and those of small business owners all across the land. This is a difficult problem to solve and we need to work together if we are going to make any real progress. Thank you. Senator Voinovich. Thank you. Ms. Acheson. TESTIMONY OF ELEANOR D. ACHESON,\1\ ASSISTANT ATTORNEY GENERAL, OFFICE OF POLICY DEVELOPMENT, DEPARTMENT OF JUSTICE Ms. Acheson. Thank you, Mr. Chairman. I am pleased to provide the views of the Department of Justice on S. 1378. The Department strongly supports common sense efforts to streamline information collection requirements and help small businesses comply with reporting and record keeping obligations. However, we have serious concerns with the provision of S. 1378 that would waive civil penalties for certain first-time violations of those obligations because such a waiver would undermine basic principles of accountability, enforcement, and deterrence that are the underpinnings of important regulatory programs that protect Americans' well-being. --------------------------------------------------------------------------- \1\ The prepared statement of Ms. Acheson appears in the Appendix on page 68. --------------------------------------------------------------------------- Earlier this session, the Department recommended that the President veto a bill, H.R. 391, with a similar provision. By allowing one free pass for violations of information collection requirements, the bill appears to suggest that these violations are not significant. We disagree. Reporting and record keeping requirements form the backbone of most Federal regulatory programs designed to protect human health, safety, environment, welfare, and other public interests, allowing agencies to monitor compliance with applicable standards and to detect and deter illegal conduct. The public also relies on such information to make educated choices. We ask businesses to provide information because they are the best sources of that information. Encouraging self- reporting by businesses is a sound means to ensure that the government receives the necessary information important to law enforcement and public health and safety without having to make much more frequent and intrusive inspections. The penalty waiver provision undermines these safeguards by removing consequences for failure to comply with the law. This makes it easier for small businesses to be casual about or even to decide not to comply with information collection or reporting requirements. The results of such noncompliance can be that real risks and harms to the public occur because agencies or the public do not have the information when it is needed. For example, if a company that stores hazardous waste on its property fails to notify local fire fighters about these wastes, in the case of an emergency, those fire fighters will not know how to respond in the safest way. As my prepared statement explains in detail, this provision could undermine law enforcement and regulatory safeguards that protect the public from a whole range of safety, health, or environmental hazards and implement other important public policies. Failure to report information may mean serious harms go undetected and unremedied. We recognize that the vast majority of small businesses are law abiding and both the Federal statutes, as Mr. Spotila has alluded, and administration policies already understand and respond to the special challenges that small businesses face and accommodate the needs of small business in assessing penalties, among other ways. For example, under both SBREFA and other Federal statutes, agencies have adopted policies in assessing civil penalties to consider good faith efforts to comply with the law, the impact of civil penalties on small businesses and other appropriate factors. The policies compliment ongoing agency efforts specifically designed to help small businesses understand and comply with the law. By contrast, the penalty waiver provision in S. 1378 goes far beyond helping companies that have made a good faith effort to comply with the law. It does not streamline record keeping or reporting requirements. Instead, it would reduce those burdens only for those who violated the law, even for unscrupulous businesses who have made a calculated decision to save on the cost of complying with reporting or record keeping requirements. This result would put law abiding businesses at a competitive disadvantage and could endanger the public. We appreciate the changes that have been made to the bill to allow agencies to impose penalties under certain circumstances. My written statement explains why those limited exceptions do not address our fundamental concern that the bill undermines the reporting and record keeping system as a whole, eroding the primary purpose for it, impairing the underlying goal of obtaining information to prevent and avert harm. By creating a broad presumption in general against the imposition of civil penalties for violations of information collection requirements, even though we fully understand this is for a first-time waiver, the bill undermines the deterrent effect of penalties in general and makes it easier for small businesses not to comply with the law. This is the exact opposite of existing law and policy, which keeps intact the integrity of regulatory programs but allows agencies to focus on whether there are mitigating circumstances, that is, equities in the businesses' favor with regard to a violation. The practical result of this bill is that agencies will be able to impose penalties and enforce the law, but only when it is too late and after the harms have already occurred. The bill also includes many ambiguous terms that will lead to litigation and may be a trap for the unwary small business. There is a real danger that small businesses will be lulled into believing they are immune from civil penalties for certain conduct when, in fact, they are not. Finally, we also have questions about the provision prohibiting States from imposing civil penalties for certain first-time violations, particularly if that were interpreted to impact upon the States' abilities to enforce their own laws. In conclusion, the Department remains committed to promoting small businesses and working effectively with OIRA and other agencies of the Federal Government and with Congress to reduce any unnecessary burdens on small businesses without jeopardizing essential reporting functions designed to protect the American public. However, we cannot support this bill because of the first-time waiver provision. Thank you very much. Senator Voinovich. Thank you very much. One of the things that has come out today is that there is a lot of effort by the government to really try to create a better environment for businesses to be successful in terms of government regulation and paperwork. In your testimony, Mr. Spotila, you talked about the June 12, 1995, White House Conference on Small Business. But then you go on to say that since your confirmation, you have made it a priority at OIRA to move forward with some things, but this is 1999. Last month, you issued a bulletin giving new guidance to agencies on preparing their fiscal year 2000 information collection submissions to OMB. The bulletin calls on agencies to describe in detail their initiatives to reduce the information collection burden on small businesses through changes in regulation. We hope that the agencies will take a hard look at existing burdens and try to identify steps to relieve the burden on small businesses. OMB will then publish a description of these agencies and fiscal year 2000 information collection. Jere Glover--he talked about one issue that it took him 2\1/2\ years to get something done. In spite of all of the rhetoric, the fact of the matter is that there is some real resistance, I think, in some agencies to do what it is that Congress has wanted. One of the things that has hit me since becoming a member of the U.S. Senate is the fact that the Administrative Branch of government, in many instances, frankly just ignores the Legislative Branch and goes on and does their own thing. As a result of that, the frustration continues to build up, and Mr. Spotila, I congratulate you on the fact that you are moving forward with this. The other observation I have is that I can understand, Ms. Acheson, the Justice Department's attitude towards this. There are some specific things that you think need to be corrected in this legislation and we would be glad to hear from you, in the same way with you, John, but from what I hear, it is like everybody is out to try--and I can understand from the Justice Department that is the kind of people you are dealing with--but this legislation is aimed at trying to relieve some first-time errors that individuals make that do not involve criminal activity, violate the Internal Revenue Code, or involve the health and safety of individuals. If we can make it more specific so it is clear that that is the case, we will be more than happy to do that. At the same time, I think that it is a worthy endeavor to try to create an environment where, as I say, simple mistakes that are made by businesses can be taken care of. The fact that that exists, I do not think, and I would be interested in hearing some of the other witnesses on it, is going to increase the number of people that are out trying to take advantage of their customers or the Federal Government. Mr. Spotila, you said that you have SBREFA. You have been around. Do you think SBREFA is working? Mr. Spotila. I think that SBREFA has actually done a considerable amount of good. It is working imperfectly. Actually, I would defer to Mr. Glover, who tracks it much more closely than I do. I think it is working in several areas. It is working in the development of regulations, particularly the use of the panels that OIRA, SBA, EPA, and OSHA all participate on. I think that has helped the process, by getting small business owners involved at an earlier stage in the development of regulations. I think that the creation of the ombudsman was constructive, to look at enforcement issues all around the country with representation from the 10 regions and the holding of public hearings. I think that has been constructive. Peter Barca was the first enforcement ombudsman and has done a good job. I think that the waiver provision that I referred to in my testimony is, in fact, good policy. I did notice there were some--I think a reference that you may have made, Senator, that you feel that agencies have not done as much as they should to implement that provision. We are not directly involved at OMB in enforcing that, but I would be more than happy to work with you and your staff and the Committee to try to be of assistance there, because the President supports this and we certainly want the agencies to proceed in good faith here. So it has been constructive. It has done a number of positive things, and in that regard, even in the area of the Reg Flex Act, that it has been a step in the right direction. So there are a lot of positive things about it. Senator Voinovich. Mr. Glover, would you like to comment on that? Mr. Glover. I believe that SBREFA is one of the best pieces of legislation Congress has passed in recent history. It has done a whole bunch of things to help the government change the way it views small business people. As to the specific provision on enforcement and penalties, I would say that there, it is certainly not proven that it has been effective yet. I think that it goes part of the way, but it certainly--your legislation goes further. The problem we are not talking about in many instances where small businesses are being fined under current situations, but we are talking about a perception of every small business. The reason that I support the legislation is it goes directly to that perception. There are certainly some fine points and examples, but I will tell you, when we passed Equal Access to Justice in 1980, which provided that the government sued a small business person and was not substantially justified, the small business could recover those attorneys' fees. When that legislation was passed, I heard the same kind of cries that, oh, the sky is falling. This will cost us $50 million in attorneys' fees to small businesses. During that whole process, the average has been less than $1 million, and they expanded it beyond small businesses to include individuals, consumers, and nonprofit organizations. So in their total, it has been less than $1 million. I do not think that the sky will fall. I think that perhaps we can tune and tweak the language a little bit, but I think that the overall need is to change the perception in the businessman's mind that there is somebody out to play ``gotcha'' with them. I know that a lot has been done to change that within the government, and certainly more should be done, but the perception out there is just as real today as it was 3 years ago when SBREFA was passed. Senator Voinovich. You have had an opportunity to hear from Mr. Spotila and Ms. Acheson, and if I listen to their testimony carefully, the impression is that, somehow, if this passes, that there is going to be an increase in individuals who are going to deliberately take advantage of this waiver provision because they know that they will not be nailed on that first- time offense. I just would like your comment on that. Mr. Glover. First of all, I do not believe any small business is going to be that careful planning their paperwork. If I were advising small businesses, as I did in the private sector as an attorney, you would never want them to waste that one waiver, because once they have lost it, they have lost it forever and you want to save it for something you really did not know about that was going to cause you great harm, first. Second, the law that you are supposed to comply with, the underlying regulation that says you must do something, you are still obligated to do it, and if you do not do that, this waiver provision would not kick in. So most of the complaints that I have heard or the examples that I have heard, the small businesses involved who did not do the paperwork also violated the law, and especially where there are examples involving health and safety, and I think those, clearly, we all agree were situations where we would not want to waive the paperwork requirements and the fines and pay health and safety issues. So I think that you do not see the examples that are there. So I think for those two different reasons, I am not concerned about it as they are. Senator Voinovich. I would like Ms. Acheson or Mr. Spotila to comment on the issue of giving an unfair competitive advantage over a competitor in terms of filing these papers. Do either one of you want to give me an example of what you are talking about? Mr. Spotila. Senator, the examples that I used in my testimony show areas of concern. In fairness here, we are all very much in agreement conceptually on the idea that small business owners who proceed in good faith should not be inadvertently fined. I think where we may have some difference of opinion, and maybe a common understanding of the need to work together to look at this language with some care and precision, is in the implementation of how we proceed from that conceptual agreement. Our sense is that if you do have a situation where, for example, a small airline carrier does not need to keep manifests because they figure they will not be caught, we not only undermine a statute but they are not bearing a cost that everyone else has to bear, so their competitors---- Senator Voinovich. But the point is that the assumption in your testimony and what you are saying now is that the one-time waiver is going to be something that allows them continually to do that. We are talking about a first-time failure of an individual to report something that is required by the Federal Government. Mr. Spotila. I understand that, Senator. Let me explain and clarify further. In the case of the air carrier, we do not have very many accidents a year. It is at least possible that a small carrier would conclude that it is unlikely there would ever be an airplane accident, and therefore unlikely that anyone would ever catch them. No one actually comes by and looks at this in the absence of an accident. So you would find out the first time a plane crashed and you did not have a manifest of the passengers who were aboard. At that point, the carrier would not be fined, very possibly, because it was a first-time violation. But we would lose our ability to carry out a different statute that the Congress just recently passed, for very good reason, to protect the families of victims, because someone made a calculation that they could get away with it and that it was unlikely there would be a crash. That is the kind of thing we are talking about. In different areas, there could be similar, unintended consequences. Senator Voinovich. In other words, you think because they would not get fined the first time that they might do that because they knew they would not get nailed? Mr. Spotila. It is hard to predict what anyone specifically would do. I think that the concern that has been expressed to us, in this case by the Department of Transportation, is that that could be a result. It is certainly not what anyone intends, but we need to be careful that in starting with good intentions, we do not impose something that would lead to unintended consequences, and that is the point we are trying to make. Senator Voinovich. OK. Any other comments? Ms. Acheson. Senator, I would just say that in the written testimony we submitted, there are several examples of failure to come forward with required information. There is an example of a crib manufacturer, another of a painting business where complaints had been submitted to the crib manufacturer and they never turned them over to the Consumer Product Safety Commission, although they were well aware they needed to do that. The spray painting business was putting VOCs out into the environment and they knew full well that if they reported that, as they were required to do, they probably would be shut down until their operation was changed. Both of those situations had pretty grim results. Now, whether a motivation was competitive advantage, I do not know, but I think there are--and they are certainly on the margins. None of us is suggesting that this would be a common occurrence. But it is always the bad actor that ruins the day for everybody. I would just underscore, I have had the pleasure of working with OIRA before John was the head of it, but when he was over being the counsel for the Small Business Administration, he and I together worked with the people who were then in charge of OIRA. When SBREFA was coming into being, and even before that under the administration's initiatives, and I would agree that perhaps imperfectly is the adverb to be used, but on the other hand, the amount of effort, and I can see it in the very few areas that the Department of Justice is responsible for operational sort of proactive regulatory activity, the DEA and pharmaceutical and other kind of drug activity, the Civil Rights Division and the Americans with Disabilities Act, we were headed in the right direction. But SBREFA and the administration policies, I think it is fair to say, kicked us forward in the appropriate part of the anatomy and we have been aggressively working with the constituencies in small business, many of them, to have them understand what the requirements of these acts are, to work with them proactively. We have architects in the Civil Rights Division to help people figure out what this means, not just conceptually, but with respect to their particular problem, their particular structure, their particular operation. The same in the DEA. We get together with the industry regularly. We have been very proactive to try and get them to comply and understand, work toward a situation where we eliminate this issue of violations. I think that is the direction all of us here, at least John and I, would support coming at this from, not so much in the waiver. We can do more on the other end of this to eliminate situations of violations, first-time or otherwise. We will work as hard as we can on that front. Thank you. Senator Voinovich. Thank you very much. Our next panel is Robert Smith, President of Spero-Smith Investment Advisers, Inc., who represents Small Business United; Jack Gold, the President of Center Industrial, on behalf of the National Federation of Independent Business; and Deputy Chief Gary Warren, who is with the Baltimore County Fire Department, International Association of Fire Chiefs, representing them this morning. I would like to welcome our third panel. Mr. Smith, we would like to hear from you first. TESTIMONY OF ROBERT SMITH,\1\ PRESIDENT, SPERO-SMITH INVESTMENT ADVISERS, INC., ON BEHALF OF NATIONAL SMALL BUSINESS UNITED Mr. Smith. Mr. Chairman, thank you for allowing me to appear before you. I am the President of Spero-Smith Investment Advisers in Beachwood and a small business owner. I am a member of the Board of Trustees and currently Vice Chair of Advocacy for National Small Business United, the Nation's oldest small business advocacy organization. Additionally, I am a board member and incoming Chairman of COSE, the Council of Smaller Enterprises. COSE, as you know, is a division of the Greater Cleveland Growth Association, of which I am also a trustee and a member of its Government Affairs Council. I reside in the 10th District of the great State of Ohio and am one of your constituents, the chief sponsor of this legislation. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Smith appears in the Appendix on page 86. --------------------------------------------------------------------------- I want to thank you and Senator Lincoln for your leadership and understanding of the serious dilemma that paperwork presents for America's 24 million-plus small businesses. On behalf of NSBU's 65,000 members in all 50 States, I applaud you and support this legislative effort to bring sanity to the paperwork requirements that we face. NSBU has been a long supporter of a strong and viable Paperwork Reduction Act, which was passed originally in 1980. Despite the best intentions of the Paperwork Reduction Act, however, small business has been fighting for years to fill the holes that Federal regulatory agencies have punched into the law. If you ask any small business owner their opinion of the required paperwork, their responses overwhelmingly will indicate there is redundancy and excessiveness in the filing process. Let us take, for example, the pool and spa industry. If a dealer services a pool, they must comply with OSHA's hazard communications standard. If they have more than 100 pounds of chlorine on site, which all pool and spa dealers do, they must also comply with SARA Title III. Added to this, there is the Department of Transportation shipping papers and the Department of Agriculture specialized documentation requirements. In sum, the government requires similar and duplicate information from the same company in a different format to several regulatory agencies, which results in wasted time and money for small business owners. Nevertheless, the fine for noncompliance with any of the above could exceed the company's income for the year. Plus, the IRS, the EEOC, and various State and local governing bodies add to above requirements and create a paperwork nightmare. Agencies must seek ways to eliminate duplication of paperwork. The paperwork requirements for filing mandatory emergency plans are an excellent example. As you know, many agencies require emergency plans, such as a plan for hazardous waste, a fire report, a leak report, or a stormwater plan. As one small business owner recently informed me, he must maintain nine separate notebooks, each containing a different emergency plan. From these notebooks, he has to scramble to find the booklet that covers the particular area when agencies regulating that area come to inspect the paperwork that is due. Inevitably, the paperwork due dates are all different and require him to keep a separate calendar simply dedicated to these dates. This is not uncommon, and it would be useful if the various agencies came together with small businesses and agreed to file less paperwork and work hard to eliminate duplication or contradictory requirements. Another serious problem with these complicated and duplicative layers of paperwork is that it is easy for a well- meaning small business to overlook a requirement or a deadline because they did not have dedicated compliance staff to research the vast Federal and State regulatory paperwork quagmire. Dealing with pensions and health care plans, as you might expect, presents a very significant paperwork burden for the average small business owner. Atop any list of unnecessary and burdensome paperwork is an aspect from the group health insurance requirements. We know that many employer group plans are contributory to some degree. In small business, the vast majority of plans require some degree of employee contributions toward premiums. The current tax law allows employers to establish so-called flexible benefit plans, or Section 125 plans, so employees can make their contributions on a pre-tax basis. This tax savings feature reduces the net cost to the employee and enables the employer to increase employee enrollment as a result, an obvious plus for both sides. The IRS requires that employees have a plan document and summary plan description and that they file Form 5500 at year's end in order for such premium payments to qualify for the tax- preferred status. Failure to file a 5500 Form can result in a penalty of up to $1,000 a day, without limit. The Form 5500 was designed for pension tax reporting. It is over 6 pages long, 10 with schedules, and according to the IRS, it takes over 11 hours to complete. Yet, the form is not intended for this purpose and the IRS does virtually nothing with the form when they receive it. As a result of this, this may be the single greatest abuse by business-paying taxpayers in America. Very few of the employers who are required to actually file this actually do file it, leaving them with a significant exposure. A final example is the very complicated IRS Notice 9852. This requires 401(k) plans and other plans with employee contributions to provide employees with an annual notice of their rights under the plan. This notice duplicates virtually every point in the summary plan description that the DOL requires that plan trustees provide to eligible plan participants. Employers who fail to provide this annual notification stand the risk of being fined and possibly having their plan disqualified. If the summary plan description is a vital summary of employee rights, then why is another notice required to repeat that which they have already been given? Every year, National Small Business United conducts a survey with Arthur Andersen's Enterprise Group, a survey of the small business community to assess attitudes, concerns, and needs. Repeatedly, small business owners have been asked to identify the most significant challenges to their business growth and survival. Some issues come and go from the top ranks, but regulatory burdens and paperwork requirements are consistently in the top three challenges. There is a serious message here which we must continue to address. These issues go hand in hand and small business owners and the groups that represent them need to continue to work with Congress to ensure that small businesses do not see an unfair number of regulations and paperwork requirements come out of this town and bury them in our hometown. To have a once-yearly list of all paperwork requirements for small business is invaluable. The bill calls for the paperwork requirements to be published on the Internet. It would be my suggestion, on top of this requirement, if Federal agencies provided a plain English explanation and listing of their paperwork requirements to small business owners, many through associations like NSBU and COSE and the others before you, simply because if the information does not get to the small business owner, it is not valuable. The establishment of an agency point of contact for small business is another excellent idea. Finally, there are certain times when all businesses, even small businesses, are not in compliance with every law, regulation, and form that this town and their State and local governments provide. On the first occasion of a Federal paperwork mistake, the Voinovich-Lincoln bill calls for suspension of the fine. This is the critical aspect of this bill and something that NSBU has been lobbying in favor for for many years. On behalf of NSBU and our 65,000 members, I believe the Small Business Paperwork Reduction Act Amendments of 1999 lead us in the proper direction and it is legislation that should pass this Congress. Mr. Chairman, I commend you for addressing this longstanding problem. Thank you for allowing me to be a witness here before you today. Senator Voinovich. Thank you. Our next witness is Jack Gold. TESTIMONY OF JACK GOLD,\1\ PRESIDENT, CENTER INDUSTRIAL, ON BEHALF OF THE NATIONAL FEDERATION OF INDEPENDENT BUSINESS Mr. Gold. Mr. Chairman and Members of the Committee, I wish to thank you for allowing me to testify in support of S. 1378, the Small Business Paperwork Reduction Act. My name is Jack Gold. I am the founder, owner, and operator of Center Industrial, located in Edison, New Jersey. I am proud to be a member of the National Federation of Independent Business and I am honored to be presenting this statement on behalf of NFIB's 600,000 small business members nationwide. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Gold appears in the Appendix on page 94. --------------------------------------------------------------------------- Center Industrial is a family-owned and operated business. Four of my eight employees are family members, and after 36 years, I am in the process of passing it on to the next generation. We supply major industry contractors and other small businesses like ourselves with products that keep their businesses operating on a day-to-day basis. Some examples of our products are hand tools, power tools, safety products, and general hardware. I am here to testify on the need for the legislative waivers for first-time paperwork violations, as contained in the SBPRA of 1999. I believe small business owners deserve a break when they make an honest mistake, no one was hurt, and the mistake is corrected. My support for this legislation is based on my experience with a Department of Transportation inspection. I sincerely believe that my experience mirrors the stories of many small business owners. We feel that regardless of how hard we try to comply with all the rules and regulations, a government inspector can fine us regardless of our spotless record or whether we immediately correct any unintentional mistakes. On August 13, 1998, we were inspected by the DOT. This was our first contact with the DOT. We were originally told that it was a routine inspection, but later discovered the inspection was prompted by an anonymous complaint given by two disgruntled employees that were dismissed for company theft. The inspectors were given full access to our facility and files because, as far as we were concerned, we had nothing to hide. They were provided with any and all information that they asked for. After the inspection, we were told that certain products were hazardous and that we lacked shipping documents and training for the sale and handling of these products. They were muriatic acid, which is a pool cleaner, fire extinguishers, and pine power, which is a cleaner. It never occurred to us that any of these items required special papers or triggered training requirements because anyone can walk into a Home Depot, Lowe's, or Wal-Mart and purchase these same or comparable items, throw them in his or her trunk, and drive away without giving it a second thought. We did not think these products posed any danger. I would never intentionally place anyone, especially my family, in harm's way. Once the inspectors explained that some of our products were deemed hazardous and that other products required shipping papers, we took the necessary steps to comply. We purchased the DOT's training CD-ROM and went from there. Training manuals were created and reference guides were purchased. We are currently training all of our employees, even though we are only required to train the two or three employees involved with shipping. We identified which products required special shipping papers and drafted a fill-in-the-blank shipping paper and shipping checklist. Copies of the master product list, shipping paper, and checklist are now posted in our shipping and receiving area. My daughter, Mary Ritchie, helps me run Center Industrial. When we went through the process of researching what steps we needed to take to come into compliance, she spoke with Colleen Abbenhaus of the DOT on a regular basis. We were thankful for Ms. Abbenhaus' assistance, but we were under the impression that if we did everything by the book, the original citation would be considered a warning. This assumption was based on Ms. Abbenhaus' repeated use of the expression, ``if there is a fine,'' when explaining our situation. Well, there was a fine. In January 1999, we were presented with a penalty of $1,575. We were particularly offended by the wording of the ticket that read, ``If within 45 days' receipt of this ticket you pay the penalty, the matter will be closed. If you submit an informal response or request a formal hearing, you may be subject to the full guideline penalty of $4,500.'' This, to us, was perceived as a Federal agency's attempt to intimidate a small business so that they would not question the agency's actions. We are not asking to be excused from any obligations of the regulations, but what does this experience tell me and other small business owners? It says no matter how hard you try to make your business safe for your employees, customers, neighbors, and family members, in the end, if a government inspector wants you, they can get you. The government cannot tell me that they care more about my family's safety and my company's reputation than I do. It seems to me that DOT inspectors have more of an incentive to simply issue tickets that say, pay us or we will run you out of business, than they do to help us understand how to comply with all these rules and regulations. It only makes sense in cases where there is paperwork violation and no one is put in harm's way, business owners may be given a reasonable amount of time to comply before fines are issued. We have been left with the feeling that DOT misled us. We feel that DOT wanted to impose a fine from the moment they entered our building, no matter what we did. I thank you for this opportunity to tell you my story in hopes it will make a positive difference in the way agencies treat small business owners in the future. I am now happy to answer any questions. Thank you. Senator Voinovich. Thank you. Deputy Chief. TESTIMONY OF GARY E. WARREN,\1\ DEPUTY CHIEF, BALTIMORE COUNTY FIRE DEPARTMENT, ON BEHALF OF THE INTERNATIONAL ASSOCIATION OF FIRE CHIEFS Mr. Warren. Good morning. I am Deputy Chief Gary Warren of the Baltimore County Fire Department. I am responsible for the hazardous material and special operations in Baltimore County, Maryland, and serve on the Hazardous Material Committee of the International Association of Fire Chiefs, the IAFC. It is on behalf of the IAFC that I appear here today. I would like to thank the Committee for allowing me to address the concerns shared by my fire service colleagues to the Small Business Paperwork Reduction Act. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Warren appears in the Appendix on page 99. --------------------------------------------------------------------------- Local fire departments are the primary providers of fire suppression and local hazardous material response service throughout the United States. I need not remind the Committee that, like politics, all instances involving dangerous chemicals are local. The Small Business Paperwork Reduction Act seeks to provide relief to small business from Federal paperwork requirements. America's fire departments have no quarrel with the intent of the bill. However, we are concerned that relaxing the threat of fines against the businesses that will not comply with existing safety regulations will have the effect of relaxing compliance. Relaxing compliance leads to delayed compliance and even non-compliance, which is at the heart of our concern. There are approximately 60,000 incidents in the United States each year that involve dangerous chemicals. Many of these involve transportation accidents, as well as chemical inventories by businesses both large and small. The issue of concern is chemical inventory reporting required under Title III of the Superfund Amendments and Reauthorization Act, SARA, of 1986. In an emergency, fire fighters are expected to enter structures to protect life, property, health, and the environment. Advance knowledge of the presence of dangerous chemicals is crucial to our ability to protect ourselves. We must be aware of their presence to avoid serious injury or worse. An injured fire fighter cannot render aid to civilians or protect property and the environment. He also diverts attention from these priorities as his fellow fire fighters come to his aid. The SARA Title III reporting requirements apply to several hundred chemicals that are considered extremely dangerous. Exceptions are already in place for many of these for up to quantities of 10,000 pounds. There are small reporting thresholds for chemicals that are particularly lethal, such as sodium cyanide, used in limited industrial production. It is also better known for use in our State penitentiaries in the gas chamber. If that chemical is present in a facility to which we must respond in an emergency, we need to know before we respond to the alarm. We understand that legislation provides exemptions that authorize fines where the ``agency head determines that the violation had the potential to cause serious harm to the public interest, or that the head of the agency determines it is a violation presenting danger to the public health or safety.'' This is closing the door after the fact. In our view, this language is broad. Who is the agency head, how does he determine danger, and by what definition? We understand that the exemptions are well intentioned. However, they will not strengthen and will probably weaken the fire department's ability to collect information necessary to ensure public safety. The existing requirements under SARA Title III is not onerous. In fact, I have personally assisted small business owners in completing the required paperwork for submission. It takes about an hour the first time for its completion. The original document can be resubmitted each year with minor changes, such as quantities on hand and the date on the form. When my grandfather started out in the fire service in 1921, my dad in 1937 at the age of 14, and myself in 1968 at age 16, we had very little knowledge of what we were going to be subjected to as it relates to chemicals. Years later, I feel confident that America's fire service can handle any event that may confront our responders. Our elected officials receive credit for that by passing legislation that protects the citizens and the responders. My daughter, a fire fighter EMT since age 18, who is now 21, and my son, now 14, look forward to carrying on the tradition of being a fire fighter. I am concerned that their health, like so many fire fighters before them, will be in jeopardy by not knowing what chemicals are present prior to the emergency. We need to protect the future fire fighters, like my daughter and son, by ensuring compliance. Mr. Chairman, I would like at this time to comment on Mr. Glover's comment regarding gasoline, if permissible. Senator Voinovich. Why not? Mr. Warren. Thank you, sir. As Mr. Glover stated in his testimony, all the fire chiefs he contacted knew about gas stations and they knew that they had flammable liquids. I would certainly hope that everyone in the fire service would know that, so I am very proud of that fact. However, I would assure you that every fire chief--every fire chief--would want to know where and what chemicals are stored in their jurisdiction. Their fire fighters' health and safety depend on that information. To restate, existing dangerous chemical reporting requirements authorized under SARA Title III are a crucial life safety tool available to local fire departments. Any unintended relaxation of the requirement is unacceptable. The requirement itself is not onerous. I urge you not to fix a system that is not broken. Mr. Chairman, I would again thank you for allowing me, a fire chief, to testify before your Committee. This is the highest honor that I could be afforded as a citizen of this country, and I thank you, sir. Senator Voinovich. Thank you for being here, Deputy Chief. It is kind of an interesting thing. We have the Chief and we have you, Mr. Gold, and I could not help but think, I do not know whether any of the products that they came in and said that were not labeled were the kind of products that were hazardous, that if you had a fire, that the Chief would come in and take care of it. The issue that hits me is, is the situation any better or worse if, in your case, after you were made knowledgeable of the fact, that you were penalized as a result of it. It seems to me the problem you had is, you did not know about the requirements, is that right, Mr. Gold? Mr. Gold. Absolutely. Senator Voinovich. Were any of these hazardous chemicals that, in effect, would be a threat to a fire fighter if you had had a fire at your place? Mr. Gold. In my opinion, no. I have been in business for a long time and never had an accident, always looked out for-- when there were not these rules, going back in the 1960's and the 1970's, you always had to watch out for yourself and your people. In small business, the people that work for you are as much family as your family and you certainly are not going to be responsible in any way to harm them, so you are not going to do anything silly. It is just a matter of daily routine. Senator Voinovich. I guess the point I am making is that you said you were not aware of them. So whether you were fined or not fined really made no difference whatsoever because you were not aware of it. The issue is that if this legislation had passed, would it have made any difference in terms of your initial situation? Mr. Gold. No, absolutely not. We are watching out for ourselves without any kind of legislation. The fine in no way would change the situation. We were made aware by the DOT. We took the steps for the proper corrections on items that we did not know about. We complied with whatever they told us. We did not know what the rules and regulations were up to that point. We just ran a business as safely and as honestly as possible. Senator Voinovich. One of the things that is of concern to me is that it would be the--for instance, Chief, in your city, what do you do to inform businesses about the labeling requirements? How do they find out about it? Mr. Warren. Mr. Chairman, in Baltimore County, the fire service is responsible for the LEPC, the Local Emergency Planning Committee. Under the Local Emergency Planning Committee, we host an annual seminar. For example, our recent one was on terrorism. Ones prior to that were on SARA reporting. Senator Voinovich. What is SARA reporting? I am sorry. Mr. Warren. The SARA reporting is under the Superfund Amendments and Reauthorization Act. What you are required is, depending on quantities of chemicals, which is where substantial fines usually occur against business, what happens is the individual company, depending on quantities, they have to determine what product they have on their premise up to the 10,000 pounds or if it is on the extremely hazardous substance list, that ranges anywhere from 1 to 500 pounds. So 1 pound, a company would have to report under the extremely hazardous---- Senator Voinovich. So that is a Federal law that they are required---- Mr. Warren. That is a Federal law that we at the local level, and I think throughout the country, what you will find, utilizes to ask industry or have industry proceed with keeping us informed as to what they have. On an annual basis, they provide that information to us. The fire service in our jurisdiction is the depository for that. When an incident occurs at a SARA reporting facility in our jurisdiction, when the alarm goes out, the last thing that the dispatcher says, whether it be an issue for an alarm bell sounding or an actual fire, the last thing the dispatcher advises the company is that it is a SARA reporting facility, which automatically notifies those companies---- Senator Voinovich. It tips you off. Mr. Warren [continuing]. That says they have chemicals at that property, whether it be extremely hazardous or whether it just be in bulk quantity. Senator Voinovich. How do the businesses in your area know about those regulations? Mr. Warren. The businesses, through different mailings that the fire department goes ahead and sends out---- Senator Voinovich. So, in effect, you are the local enforcer of the Federal regulations---- Mr. Warren. Yes, sir. Senator Voinovich [continuing]. And you have a provision in your community where you send out notices about these various items and indicate that reports need to be filed if they are present. Mr. Warren. Every jurisdiction in the country, under the LEPCs, are required, as far as under the EPA, should be seeing that information gets out to each jurisdiction or each entity as far as business to see that they comply. We, as a fire service, are proactive in seeing that we get into all of our mercantile buildings to do inspections. When we do the inspections, if we come across larger quantities of hazardous materials, then the fire department sends our hazardous material team to those events. The one thing, if I can, sir, when you talk about fines and them being levied, and hearing some of the fines that were levied as far as with $1,500, for a small business, that is substantial. However, I can tell you of two different instances in my county, one involving a brewery which resulted in 33,000 pounds of ammonia being released, which was actually the largest ammonia leak in the country's history. Only after we got into the issue of levying the fine of $25,000, of threatening to use that, did they go ahead and follow through with the proper reporting of the release, not of what the product was but of the release, which is another part of the Federal mandate. We also entered into problems with this particular event where we usually recoup the cost of the protective gear, which is pretty substantial to the fire service. Only through additional fines did the company decide that they were going to go ahead and settle the case. Another incident involved a plating company that had 10 pretty substantial-sized tanks of chemicals that they dipped the plating in. We had no knowledge of it. Our fire fighters responded for a structure fire. They were in plastic tanks because of being acid. The tanks had melted away, and before we realized what had occurred, our fire fighters were in jeopardy in 6 inches of chemical goop. As we went back---- Senator Voinovich. In that instance, were you notified? Was that a case where you did not have that notice of---- Mr. Warren. We had no information, and one of the things that you sometimes find is that the company comes in, they set up, there is no information, and as we are going through our inspection throughout the year, the following year is when we find them--not fine, as far as monetary-wise, but find them in the area. Senator Voinovich. In that instance, do you think they deliberately did not do what they were supposed to have done? Mr. Warren. No, I do not think they deliberately did it. But I think that one of the things that we have to be concerned about is you have the companies that started out as Ace Plumbing and the following year, because they did have a problem, they are now Ace Plumbing, Inc., which changes them. They have now gotten their one chance and they are now back again---- Senator Voinovich. Trying to do another. Well, I am interested in your testimony and perhaps what we need to do is just--I mean, the legislation, quite frankly, is not meant to deal with the problem that you have been referencing today, that that would be excluded from the legislation. It would not be included, period. You would be out of this. I mean, the same law that is in effect now would be in effect tomorrow if this passed. We do not intend to include anything of the sort that you have described here today in this legislation, and if you think that it still does that, we will be glad to sit down and talk to you about it. How is that? Mr. Warren. Fair, sir. Thank you very much. Senator Voinovich. OK. I would just like to again ask the question, do you think that because this legislation would pass, that there would be, Mr. Gold, in your case, or Bob Smith, in your case, or among your membership, a tendency on the part of your members to be less conscientious about doing what it is that they are supposed to be doing, that some would deliberately, as alluded to by Mr. Spotila and Ms. Acheson, would deliberately kind of try to ease out of something because they knew they would not get nailed on the first occasion? I would like your comment about that. Mr. Gold. I do not believe so. I believe that a small businessmen just takes the proper precaution, and once he is informed that he might be not in compliance or whatever it might be, the education, the awareness at that point, he is going to take the proper steps. He is not going to look to get out of anything or he is not going to look to escape anything. He is going to do what is right, and I believe that. I believe he is going to do what is right. Senator Voinovich. Do you still have a lot of anxiety every day that you may be violating some rule or regulation? Mr. Gold. Well, we went through the whole thing. I have a daughter who is an extremely intelligent girl, if I say so myself. I buy her very cheaply these days because she is raising my three grandchildren and she works for small pay, as many small businesses in this country do. She belongs here because she took this thing to the ultimate. She went out and bought manuals, she bought the CD- ROM, she sat people down, and, in fact, she annoyed me because she sat in my office and proceeded to tell me, you have to know what is going on. This is your company. We took it quite seriously, and that is why we were offended by the fact that we were led differently and all of a sudden we were hit with this fine. If they had come back and if they had seen what we had done, in my opinion, there would be no reason for a fine. We had taken all the proper precautions, again, thanks to Mary. I think we reacted in the proper manner and we are offended by it. To be honest with you, we are offended by it because we feel like if we had done nothing, we would have been treated the same way, and that is just not a fair thing to happen. Senator Voinovich. So the issue is that you did conscientiously try to do what you were supposed to have done and you would have liked to have had the person who was in charge to be in a position where they could have waived that first penalty in the event that they felt that you had complied and done your best about complying with the rules and regulations. Mr. Gold. Sure, Senator. There are checks and balances, hopefully, in every system. If they had taken the time to come back, I am sure there are businesses that would try to circumvent the law, but this was not in this case, and if she had come back or they had come back and they had seen what we had done, my opinion is that the only answer was to give us the proper warning and I would say they would say that we had done--maybe even use us as the example, that we had done it the right way, and that is what is offensive about it. Thank you. Mr. Smith. Senator, I would add that the idea that the waiver would encourage business owners to develop an attitude of noncompliance just is not reasonable. The safety issues are too important to us and our employees and our families, and to get away from complying with Federal laws, it would just be overwhelming if we ever developed that kind of attitude. So I do not think that is going to be a major incentive to be non- compliant. Senator Voinovich. I think that we need to sit down with some of the folks that have got problems and see if we can work out some of the differences. I just wonder if some of the same testimony, and your representatives from your organizations could probably share that with me, were in attendance over in the House, they seemed to have some major problems with this legislation and it got to the floor and was passed. I guess the question I have is, where were they then? We have obviously got some more work to do and I apologize that there are not more members here. It is my first year in the Senate. One of my frustrations is we bring in some wonderful people who travel in many instances long distances at great inconvenience to come here to testify before the U.S. Senate and everybody is so busy that they do not get an opportunity to hear first-hand from the witnesses themselves. I wish I could tell all of you that we all read all of the testimony. We do not. We rely on staff to do it, and I guess the only comfort that I would have is if we look around this room we have staff here. Obviously, Chief, if we had had a fire last night or something and the media had been interested, maybe we would have had a packed house because you were here to testify. But the work of government goes on. We try to deal with things that are significant. We are concerned about the health and safety of our citizens and we are also concerned, as I said earlier in my remarks, that I think we need to understand that particularly your small businesses are very important to our country and to our well-being and to our competitiveness, and so we have got to try and balance these things and make sure that we protect the public and at the same time do the best we can so that you folks can hire people and pay taxes and contribute to society. So thank you very, very much for coming here today. The meeting is adjourned. 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