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THE RFA AT 25: NEEDED IMPROVEMENTS FOR

SMALL BUSINESS REGULATORY RELIEF

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

WASHINGTON, DC, MARCH 16, 2005

Serial No. 109–5

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house

COMMITTEE ON SMALL BUSINESS 

DONALD A. MANZULLO, Illinois, Chairman 

ROSCOE BARTLETT, Maryland, Vice 

Chairman 

SUE KELLY, New York 

STEVE CHABOT, Ohio 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

JEB BRADLEY, New Hampshire 

STEVE KING, Iowa 

THADDEUS MCCOTTER, Michigan 

RIC KELLER, Florida 

TED POE, Texas 

MICHAEL SODREL, Indiana 

JEFF FORTENBERRY, Nebraska 

MICHAEL FITZPATRICK, Pennsylvania 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

NYDIA VELA ́ ZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

TOM UDALL, New Mexico 

DANIEL LIPINSKI, Illinois 

ENI FALEOMAVAEGA, American Samoa 

DONNA CHRISTENSEN, Virgin Islands 

DANNY DAVIS, Illinois 

ED CASE, Hawaii 

MADELEINE BORDALLO, Guam 

RAU ́ L GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

LINDA SA ́ NCHEZ, California 

JOHN BARROW, Georgia 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

J. MATTHEW SZYMANSKI, Chief of Staff 

PHIL ESKELAND, Deputy Chief of Staff/Policy Director 

MICHAEL DAY, Minority Staff Director

(II) 

C O N T E N T S 

WITNESSES

Page 

Sullivan, Hon. Thomas, Chief Counsel for Advocacy, U.S. Small Business 

Administration ..................................................................................................... 2

McCloy, Ms. Cecelia, President, Integrated Science Solutions, Inc. .................... 4

Haas, Mr. Blair, President, Bud Industries .......................................................... 6

Lancaster, Mr. Jay, President, B.E.S.T. Inc. ......................................................... 8

Freedman, Mr. Mark, Esq., Director, Labor Law Policy, U.S. Chamber of 

Commerce ............................................................................................................. 10

Glover, Mr. Jere, Esq., Of Counsel, Brand Law Group ........................................ 13

APPENDIX

Opening statements: 

Manzullo, Hon. Donald A. ................................................................................ 27

Kelly, Hon. Sue ................................................................................................. 31

Prepared statements: 

Sullivan, Hon. Thomas, Chief Counsel for Advocacy, U.S. Small Business 

Administration .............................................................................................. 32

McCloy, Ms. Cecelia, President, Integrated Science Solutions, Inc. ............. 40

Haas, Mr. Blair, President, Bud Industries ................................................... 48

Lancaster, Mr. Jay, President, B.E.S.T. Inc. .................................................. 52

Freedman, Mr. Mark, Esq., Director, Labor Law Policy, U.S. Chamber 

of Commerce .................................................................................................. 58

Glover, Mr. Jere, Esq., Of Counsel, Brand Law Group ................................. 66

(III) 

(1)

THE RFA AT 25: NEEDED IMPROVEMENTS 

FOR SMALL BUSINESS REGULATORY RELIEF 

WEDNESDAY, MARCH 16, 2005

HOUSE OF REPRESENTATIVES

COMMITTEE ON SMALL BUSINESS

Washington, D.C. 

The Committee met, pursuant to call, at 2:07 p.m. in Room 311, 

Cannon House Office Building, Hon. Donald A. Manzullo [Chairman of the Committee] presiding. 

Present: Manzullo, Velazquez, Bartlett, Lipinski, Akin, and 

Moore.

Chairman MANZULLO. The Committee will come to order. 

During the explosive growth of the 1970s, word grew among the 

business community that the rational decisions made by federal 

agencies under the Administrative Procedure Act were actually irrational because they could not afford to comply. 

Congress reacted by enacting legislation designed to change the 

way federal agencies made decisions. Two laws were passed in 

1980, The Paperwork Reduction Act, and the focus of this hearing, 

The Regulatory Flexibility Act, or the RFA. 

The RFA was enacted to assist agencies in making rational decisions through the application of a standard set of analyses focused 

on small entities, particularly small businesses. The act requires 

federal agencies to examine the impact of their proposed and final 

rules on small entities, and if they are significant on a substantial 

number of such entities, examine less burdensome alternatives. 

Federal agencies continued to ignore the law despite the best efforts of the President, Dr. John Graham of the Office of Information and Regulation Affairs at OMB, and Chief Counsel for Advocacy, Tom Sullivan. 

In part, loopholes existed in the RFA that allow them to avoid 

compliance. In other circumstances, agencies simply cannot be 

bothered and need not worry because most small businesses do not 

have the resources to fight the federal government. 

Noncompliance with a statute that has been in existence for a 

quarter of a century is not acceptable. Time has come to say 

enough is enough, and that is why we decided to introduce H.R. 

682, along with co-sponsors Messrs. Chabot, King, Westmoreland, 

Pence, Akin and Keller. 

Since then, we have acquired additional co-sponsors, including 

the Chairman of the Subcommittee on Judiciary that has jurisdiction over the bill, Chris Cannon from Utah. 

2

I would also like to thank Mr. Case of Hawaii for recognizing the 

importance of the legislation and becoming a co-sponsor. 

The bill significantly strengthens the RFA by making many technical improvements that close existing loopholes so that agencies, 

as President Bush stated, ‘‘will care that the law is on the book.’’ 

These changes include more detailed analyses, assessment of indirect effects, other regulations, and mandatory government-wide 

regulations drafted by the Office of Advocacy. 

[Chairman Manzullo’s statement may be found in the appendix.] 

Ms. Velazquez is not here for her opening remarks. We are supposed to have a series of four votes, it always happens, starting at 

2:15. Is that not fun? So we are going to start the testimony, see 

how far we get before we have to go and vote. 

Our first witness is the Honorable Tom Sullivan, Chief Counsel 

for Advocacy of the U.S. Small Business Administration, and we 

have got the five-minute clock going. The written testimonies of all 

the witnesses will be made part of the record without objection, 

and we look forward to your testimony. Mr. Sullivan. 

STATEMENT OF THOMAS SULLIVAN, OFFICE OF ADVOCACY, 

U.S. SMALL BUSINESS ADMINISTRATION

Mr. SULLIVAN. Thank you, Mr. Chairman, Mr. Lipinski. It is a 

pleasure to come before the Committee. I am going to not read my 

written statement, but rather summarize just from some notes that 

are before me. 

The Regulatory Flexibility Act is actually working. It is working 

pretty well. In fact, in my written statement you will see that 

under President Bush’s administration we estimate cost savings 

achieved through enforcement of the RegFlex Act totaling over $64 

billion, and I will say that again. Savings for small business totaling over $64 billion. 

So there is a question of why is it working. One of the reasons 

is because of the activism of small business, and actually that is 

why it is a pleasure for me to be on a panel with not only small 

business owners, but organizations who represent large amounts of 

small business owners. And those organizations and the small business owners themselves, in their vigilance over the Regulatory 

Flexibility Act and making sure that agencies consider their impact 

on small business, allows for the RegFlex Act to work. 

Another reason why we have achieved such great cost savings 

over the past four and a half years is because of this Committee. 

Without the type of vigilant oversight that this Committee exercises, we would not have achieved the $64 billion cost savings for 

small business, and I think it bears notice that while so many 

Committees and members of Congress gauge their success over the 

amount of legislation that comes out of Committee and individuals, 

there is more to it than that, and the oversight part of it deserves 

recognition, and this Committee in particular, with regards to the 

RegFlex Act and its ability to save small business deserves compliments. 

And last but certainly not least, one of the reasons the RegFlex 

Act is working is because of the courts. Last Friday the Court of 

3

Appeals in the District of Columbia issued an incredible victory for 

small business, and in particular, the Regulatory Flexibility Act. 

When the court struck down an FCC rule because they did not 

follow the RegFlex Act, it should serve as a wake-up call for all regulators that they cannot ignore the Regulatory Flexibility Act. 

When a court makes a decision like this, the question is, is the 

law working perfectly, and the answer is no. Small businesses do 

not have a quarter to a half million dollars sitting around that will 

allow for them to pursue regulatory actions all the way through the 

courts, and ultimately to the Supreme Court, we are talking about 

millions of dollars. 

So how can we improve the act? Obviously, H.R. 682 fills in 

every loophole of the act. But what is the intention of it? How do 

we get this victory, the cost savings for small business, before a 

court has to make a decision? 

And the answer is early involvement by small business in agency 

decision making. My office has example after example after example where if an agency listens, which is very important, to small 

business, and acts on their advice before the ink is dry on draft 

regulations, then they can save small business money without compromising the underlying purpose of rules: protection of the environment, workplace safety and the safety of roads and airways, and 

the protection of our borders. 

So the Office of Advocacy is supportive of the goals of H.R. 682. 

I believe there are suggestions in my written statement, and the 

questions that I will respond to on how a narrow approach, a targeted approach to improving the act can meet that goal, which is 

to involve small businesses as early on in the process, and to absolutely make sure that agencies act on that advice on small business, and reduce the regulatory burden on small business. 

So with that I will close. I want to thank again the Chair, and 

now the Ranking Member, for having this hearing. We have 

achieved remarkable success, and we can achieve more by improving the RegFlex Act through legislation. Thanks. 

[Mr. Sullivan’s statement may be found in the appendix.]

Chairman MANZULLO. The Chair will recognize the Ranking 

Member.

Ms. VELAZQUEZ. Mr. Chairman, in light of time I will ask that 

my opening remarks, we will insert that into the record.

Chairman MANZULLO. Without objection.

Ms. VELAZQUEZ. Thank you.

Chairman MANZULLO. Thank you.

Chairman MANZULLO. Our next witness is Cecelia McCloy, President and CEO of Integrated Science Solutions. I look forward to 

your testimony. You may be the first geologist and zoologist who 

has ever appeared before our Committee. My wife is a biologist. I 

wish she were here, and we look forward to your testimony. Thank 

you.

4

Ms. MCCLOY. Hopefully, I will not be the last.

Chairman MANZULLO. That is correct. Thank you. 

STATEMENT OF CECELIA MCCLOY, INTEGRATED SCIENCE 

SOLUTIONS, INC.

Ms. MCCLOY. Mr. Chairman and Ranking Member Velazquez, I 

am Cecelia McCloy, President of Integrated Science Solutions, a 

woman-owned science and engineering company. We specialize in 

engineering studies, geotechnical evaluations, health and safety 

services, environmental studies, and training, and provide solutions 

for our customers’ complex problems. The ISSI has offices in California, Nevada, Colorado, Washington, D.C., and the State of 

Washington. 

I am testifying today on behalf of Women Impacting Public Policy, WIPP, of which I am a national founding partner, And the 

Women’s President Organization, WPO. 

Women Impacting Public Policy is a bipartisan organization representing 505,000 women in business nationwide. Thank you for inviting me to testify, to share WIPP’s and WPO’s views on H.R. 682, 

improvements to the Regulatory Flexibility Act. 

As a business owner, I see firsthand the effect regulations promulgated by federal agencies have on small business. We help our 

clients understand and comply with federal regulations, especially 

in the environmental area. While we support efforts to provide a 

safe and clean environment, the cost of compliance for small businesses often outweighs the benefit to the environment. 

Just last week this Committee held a hearing on House Resolution 22, which identified reducing paperwork burdens on small 

business as a congressional priority for the 109th Congress. WIPP 

wholeheartedly agrees that reduction of paperwork is an important 

goal. A U.S. Chamber of Commerce paperwork survey estimated 

that small business owners spend 3.5 hours on non-IRS-related paperwork per week, which translates into 4.2 billion hours of time 

small business could be using to generate income. 

Although the stated goal of H.R. 682 is not paperwork reduction, 

the practical implications of this legislation is a reduction in paperwork, which is good news for small businesses. 

The WIPP believes requirements such as making sure compliance guides published by agencies are written in plain English are 

important to small businesses. After all, we are not trying to invent 

creative ways to skirt the law. We just need to know how to comply. 

A key provision of H.R. 682 is the requirement that agencies 

complete a more detailed economic impact analysis of the impact 

on small business when formulating and finalizing their regulations. Indirect costs should be taken into account as well as direct 

costs. 

A recent interim proposed rule by GSA on access to the Federal 

Procurement Data System, FPDS, is just one example of the requirements of H.R. 682 which would have been helpful. We have 

attached WIPP’s comments to the GSA at the end of our testimony, 

but let me just summarize the issue. 

5

The GSA has proposed a $2,500 charge for a direct hook-up for 

direct web service access to FPDS. The FPDS site has a non-feebased data site which the GSA says is open to all businesses. 

Companies participating in federal contracting use this data on 

a continual basis for market research. We asked our members to 

test the non-fee site. Not one of our member companies was successful in retrieving the data they needed. In fact, analysts in IT 

companies were unsuccessful in accessing the data requested. 

Our conclusion is that the non-fee site does not work for small 

business. If our companies want to access the federal procurement 

data, they will have to pay the $2,500 fee. Yet the GSA, in its interim rule, stated that this interim rule has no effect on small business. 

If the GSA was required to take into account the indirect cost to 

small businesses, the hours and manpower required to access the 

data on a non-fee-based site, they likely would have come to a different conclusion about the effect of this rule on small business. 

Equally important, H.R. 682 requires the federal agencies to contain a detailed description of alternatives which would either minimize adverse impact, economic impact, or maximize economic benefits to small businesses. 

The WIPP also supports the additional enforcement activity 

given to the Office of Advocacy at the U.S. Small Business Administration in this bill. Last year alone the efforts of the advocacy’s 

chief counsel saved small businesses in America more than $17 billion in potential regulatory costs. One of the reasons for this success was the implementation of Executive Order 13272. 

H.R. 682 would place into law some of the critical authority contained in the executive order. The requirement that agencies must 

respond to concerns raised by the Office of Advocacy is critical to 

small businesses. The Office of Advocacy speaks for all of small 

business , so we must make sure its views are taken into account. 

Other powers, such as the advocacy’s right to intervene in any 

adjudication before any federal agency if it believes small business 

concerns were not addressed, is a powerful tool. In addition, the 

provision that grants the chief counsel of advocacy the ability to 

issue rules for agency compliance with the Regulatory Flexibility 

Act means that small business concerns will be heard. 

In conclusion, Mr. Chairman, we thank you for your leadership 

in making sure that small businesses do not get lost in the throes 

of government regulations. It is almost impossible for a small business owner to follow every proposed regulation which may have an 

impact on her business. By giving the agencies a mandate to consider the total cost of regulations on small business ultimately 

means small business owners will be able to spend less on compliance with government regulations, and more on business growth. 

Thank you for giving me the opportunity to testify and I am 

happy to answer any questions. 

[Ms. McCloy’s statement may be found in the appendix.]

Chairman MANZULLO. We are going to be taking a break here to 

go vote. Is anybody here in the audience from GSA? 

6

Okay, Ms. Velazquez and I are going to have the head of GSA come into our office, and explain why this $2,500 charge has been 

imposed. Thank you for bringing that to our attention. 

We are going to recess for probably about a half an hour or so 

until we finish with these votes, and then we will come back. 

Thank you. 

[Recess.]

Mr. AKIN. [Presiding] I believe we are picking the hearing up 

part of the way along, and our next witness I believe is Blair Haas, 

if I am not mistaken, and if you could try to keep thing within five 

minutes, we would appreciate it. Thank you very much. Proceed. 

STATEMENT OF BLAIR HAAS, BUD INDUSTRIES

Mr. HAAS. Thank you. I would like to thank the Chairman and 

Ms. Velazquez and the members of the Committee for the opportunity to appear before you today in support of H.R. 682, the Regulatory Flexibility Improvements Act. 

My name is Blair Haas, and I am the President of Bud Industries, the nation’s best known provider of electronic enclosures for 

industry. I also serve on the board of governors of the Electronic 

Industries Alliance, a partnership of electronics and high-tech 

trade associations. In the interest of full disclosure, I would like to 

also let you know that my son is a member of the minority staff 

of this Committee. However, my invitation to testify today came 

through a completely unrelated channel, and does not represent a 

conflict of interest. 

[Laughter.]

Mr. HAAS. Founded in 1928 by my grandfather, Bud Industries 

has evolved to meet the high-tech industry’s requirements for electronic enclosures which are these outsides or skins of industrial 

electronic equipment. Today with sales of about $15 million, we 

have 165,000 square foot factory just outside Cleveland, and a sales 

office in Arizona. We employ about 100 people with an average tenure of almost 20 years, and we have resisted the competitive pressure to outsource our metal products offshore, producing them completely in our Ohio factory. 

An internal survey by the Electronic Industries Alliance last year 

found that nearly 60 percent of executives describe the U.S. labor 

relations as costly, while only 20 percent consider them fair. Regulations such as those from OSHA, Sarbanes-Oxley Act and superfund clean-up spending all add to the cost of doing business in the 

U.S. and work to make our companies less competitive in their 

global markets. 

There are strong arguments in favor of many of the U.S. regulations. However, the volume of these regulations, their layers, and 

the compliance costs also have created a landscape that is increasingly expensive and burdensome for business, particularly for small 

business. 

The Regulatory Flexibility Act, which requires agencies to take 

the interests of small businesses into account before implementing 

new regulations, is an important safeguard. Therefore, I support 

7

H.R. 682, believing even more can be done to close the loopholes 

in this act and compel agencies to comply with the spirit of RFA 

and ensure that small businesses remain competitive. 

The RegFlex Improvement Act’s requirements of more detailed 

economic impact analysis of proposed regulations on small business, including an examination of the indirect costs, with input 

from small business, is an important improvement. Hidden costs 

can prove even more burdensome in financial outlays and it is critical that the agencies complete a thorough assessment of their potential cost before imposing them on small business. 

I would like to just cite a few examples of regulatory burdens 

that Bud Industries faces as a small Business. 

The alternative minimum tax: As a small business, we find ourselves paying extra taxes under a program that was designed to 

prevent large businesses from avoiding tax payments. We, unfortunately, have significant net operating loss carry-forwards, but still 

have to pay taxes under the AMT system, which is a burden at a 

time when our company is working to rebuild our net worth. 

Pension plans: Post-Enron we now have to create a companysponsored IRA for each employee who does not cash out of our plan 

when they leave our company. We have to be responsible for any 

investment losses, track the employees’ whereabouts long after 

they leave us. We also have to pay legal counsel to create these accounts and keep us up to date with constantly changing regulations. 

O.S.H.A. determines a formula for inspection based on lost days 

as a percent of total employment. When you have a smaller workforce, such as that at Bud, the impact of one employee who develops a long-term injury can be significant. As our percentage is 

skewed, we have to go through the expense of preparing for, managing, and responding to OSHA inspections. 

The Fair Labor Standards Act: We have an employee who is categorized as exempt but can no longer be because she now supervises only one person instead of the two mandated by the act. I recognize that there is a push for her to be able to receive overtime, 

but the flexibility of being exempt was extremely meaningful to 

this single mother. 

Bud has been involved with two EPA superfund sites cased by 

our waste being disposed of improperly by the professional companies we hired. In both cases our waste was quite minimal. However, we had to pay for legal and other costs to set standards for 

de minimis standing, fighting against larger companies with significant internal legal counsel that sought to reduce their own liabilities. 

While I recognize that there were good intentions and perceived 

improvements in the development of each of these regulations, they 

have the unintended consequences of costing us huge amounts of 

both money and time. 

Further improvements to the process, such as those outlined in 

the RegFlex Improvement Act, would be helpful to companies like 

ours as we struggle to thrive in a global economy. 

Once again I would like thank the Chairman and the Committee 

for the opportunity to comment on this legislation on behalf of Bud 

Industries and the Electronic Industries Alliance. I hope you will 

8

move toward swift approval of the Regulatory Flexibility Improvement Act. 

[Mr. Haas’ statement may be found in the appendix.]

Chairman MANZULLO. [Presiding] When I saw Bud Industries, 

you think of something else liquid. 

[Laughter.]

Mr. HAAS. I only wish.

Mr. AKIN. You only wish. That is great. Thank you very much 

for your testimony.

Chairman MANZULLO. Our next witness is Jay Lancaster, owner 

of B.E.S.T. Incorporated; a graduate of Washington State University, a degree in economics; a practical economist speaking on behalf of the NFIB. 

Mr. Lancaster, we look forward to your testimony. 

STATEMENT OF JAY LANCASTER, B.E.S.T. INC.

Mr. LANCASTER. Good afternoon, Chairman Manzullo, and members of the Committee. 

Thank you for the invitation to be here today. I am here to talk 

about H.R. 682, the Regulatory Flexibility Improvement Act sponsored by Chairman Manzullo. Also, I am also pleased to be representing the 60,000 small business members of the NFIB in expressing our support for H.R. 682. 

My name is Jay Lancaster, and I own and operate B.E.S.T., Incorporated, specializing in commercial roof installations and waterproofing. We are truly a family-run operation as all five full-time 

employees are related to the two founders. 

Small businesses today are being barraged by government regulations. H.R. 682 will help relieve the regulatory burden on small 

businesses like mine by amending Regulatory Flexibility Act to 

hold federal agencies accountable for rules they create. 

My goal today is to first discuss how regulation impacts a small 

business like mine; and second, how this bill will help reduce that 

burden. 

I want to take a minute to discuss what I see as the most pressing issues for small businesses. I will note here that I am not an 

expert in regulation. I am an expert in running my business, but 

I want to share with you my perspective as a small business owner. 

According to an NFIB poll, the greatest problem with regulation 

experienced by small businesses was the amount of paperwork required by regulation. The second was the complexity of compliance, 

and the third, but not far behind, was the cost. 

My personal experience reflects the findings of the poll. It is almost impossible to keep track of how many regulations affect me. 

My small eight-person business is regulated by over eight agencies 

that is just at the federal level. Of course, those—

Chairman MANZULLO. Mr. Lancaster, can I interrupt you a second?

9

Mr. LANCASTER. Yes, sir.

Chairman MANZULLO. We have your written testimony and it is 

good. What I would like to hear is some anecdotal stories of how 

regulations have impacted you directly on some problems that you 

had and the relief that you need. Can you help us on that?

Mr. LANCASTER. Yes, sir.

Chairman MANZULLO. That is what this is about. It is how it impacts you, and if you could sort of steer your testimony towards 

that, that helps out members more than anything.

Mr. LANCASTER. I will—

Chairman MANZULLO. If that is okay with you.

Mr. LANCASTER. Yes, it is. I would note that—then I am just 

going to set this aside. 

In the speech it talks about my wife who has been my partner 

for 40 years, and she and I went through a list of the things, the 

times that she spends. She spends at least eight hours a week trying to deal with the federal paperwork. My daughter, who is here 

with me today, is in charge of compliance with OSHA, and she 

spends at least an hour a day. 

It is the fear as much as trying to deal with these regulations. 

At first we tried to deal with them, sir, and it became impossible 

because running a business like ours, which is a seven-day-a-week 

business, a construction business, it was necessary for us to be out 

in the field. 

We found it necessary to hire an expert who is also an accountant to deal with the intricacies, and as the paperwork grew increasingly complicated, it was necessary for us to hire both him, 

and we have hired a private consultant that helps us with the 

OSHA, and sends us paperwork and helps us with understanding 

the compliance nature. It is the paperwork aspect that is oftentimes totally unrelated to with practical aspects of safety or efficiency in your business. 

The latest example that has been a disaster, not only to my business but to the industry, is the Environmental Protection Agency 

and the other subsequent agencies, the Montreal Protocol has established and have completely changed the chemistry and the polyurethane industry, which is I am a member of the Society of Plastics in our work. 

With the United States signing on to the Montreal Protocol in 

the manner in which they did, the chemicals that we now purchase 

in the last 11 months went from a price of $1.06 to $1.60, and 

those same old chemicals that were fine a year ago are being manufactured in the United States and sent all over the world, primarily to Mexico and Canada, but also to China, which is one of 

the major reasons why our prices have gone up. 

They are able to use what the Montreal Protocol considered an 

inappropriate chemical. They are allowed to continue using that for 

the next 30 years when our businesses now have to comply with 

10

this extremely sensitive and far more expensive chemical, we have 

had to change all of our equipment. Our office is now having to 

comply with some of the regulations that are connected with some 

of the new chemical laws, the placarding of our trucks, having all 

of the people having to now be—have to be HAZMATed where as 

before they did not, and all the drivers will have to have that. The 

paperwork that is subsequently necessary for all of that is a real 

burden. 

Those are some anecdotal experience. 

[Mr. Lancaster’s statement may be found in the appendix.]

Chairman MANZULLO. I appreciate that. If you would give me a 

letter about how you are impacted by the Montreal Protocol, I am 

the Chairman of the American-Chinese and the American-Canadian Interparlimentary Exchanges, and meet with members of the 

respective bodies from time to time, and I will be with the Canadians in May, and I would like to bring that to their attention.

Mr. LANCASTER. I would be happy to. It will also probably be 

written by the vice president of the chemical company that is a 

friend. He will share this with me.

Chairman MANZULLO. But if you could get that to our Committee, I would appreciate that.

Mr. LANCASTER. I would also like to mention that my wife did 

say on a positive not that IFTA in the last couple of years has 

made her life much easier, and she is very grateful because they 

no longer require documents and paperwork from every state that 

our trucks pass into that are diesel-operated trucks.

Chairman MANZULLO. Okay.

Mr. LANCASTER. It is now a central and only one form allows you 

to go through all the states.

Chairman MANZULLO. Good. Then we did something right.

Mr. LANCASTER. Yes, sir.

Chairman MANZULLO. Thank you for your testimony. 

The next witness is Marc Freedman, Director of Labor Policy for 

U.S. Chamber of Commerce, and Mr. Freedman, we look forward 

to your testimony. 

STATEMENT OF MARC FREEDMAN, U.S. CHAMBER OF 

COMMERCE

Mr. FREEDMAN. Thank you, Mr. Chairman. 

Good afternoon, Chairman Manzullo and Ranking Member 

Velazquez. 

Before coming to the Chamber in October, I was the regulatory 

counsel for the Senate Small Business Committee, and among othVerDate 0ct 09 2002 16:49 Aug 23, 2005 Jkt 000000 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 G:\HEARINGS\21282.TXT MIKE
11

ers, use covered compliance with the Regulatory Flexibility Act, as 

amended by SBREFA. 

I am here today to convey the Chamber’s strong support for improving the Regulatory Flexibility Act; in particular, our support 

for H.R. 682, the Regulatory Flexibility Improvements Act. 

During my more than five years as regulatory counsel for the 

Senate Small Business Committee, agency compliance with the 

various aspects of the RFA was a constant area of concern. I was 

involved with hearings to examine agency compliance, GAO reports 

examining agency compliance, letters to agencies commenting on 

their compliance, letters to improve agency compliance, and heard 

many accounts from small businesses about the lack of agency compliance. 

It is clear to me that the agencies have taken advantage of every 

ounce of flexibility when it comes to complying with the Regulatory 

Flexibility Act. The Regulatory Flexibility Improvements Act would 

help resolve many of these issues. 

The Bush Administration has taken compliance with the RFA 

more seriously than previous administrations. Unfortunately, this 

enhanced the attention to compliance with the RFA is only as 

strong as the administration in power wants it to be. This requires 

legislation, such as the Regulatory Flexibility Improvements Act. 

The RFA has always enjoyed strong bipartisan support and we 

hope this pattern will continue as reforms and improvements to it 

are considered. 

The provisions of the Regulatory Flexibility Improvements Act 

build on this momentum of concern for the impacts of regulations 

on small businesses. I would like to highlight just a few of the ones 

that we endorse. 

Perhaps the most significant is requiring agencies to consider the 

indirect impact of regulations when calculating the impact of regulations on small businesses. This is particularly helpful with respect to EPA regulations where the agency has claimed that those 

regulations that are in force by the states only have an indirect impact and therefore do not trigger the range of requirements under 

the RFA and SBREFA. 

Similarly, the requirement the agencies assess the cumulative 

impact of their regulations addresses another loophole used by 

agencies to diminish the real impact of their regulations. Just as 

any given straw might not break a camel’s back, so any specific 

regulation considered in isolation might not impose a crushing burden. 

However, and as we have just heard from some of the other witnesses, many such regulations added together impose on the small 

business where the same person is responsible for sales, bookkeeping, inventory, safety and environmental compliance, and 

probably getting the kids to soccer practice, can indeed become an 

overwhelming burden. 

We are also pleased to see that the Regulatory Flexibility Improvements Act attempts to put more teeth into judicial review of 

agency compliance with the RFA. Notwithstanding the victory that 

we heard about last week, we believe it would be more helpful to 

allow such an action to be brought closer to the point at which an 

agency makes a determination about whether a proposed regulaVerDate 0ct 09 2002 16:49 Aug 23, 2005 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 G:\HEARINGS\21282.TXT MIKE
12

tion will have the significant economic impact on a substantial 

number of small entities. 

That certification could be deemed a final action by the agency 

for the purposes of determining whether to proceed with the requirements of the RFA. Once an agency certifies a regulation, they 

are not going to revisit that question. 

Closing loopholes used by the IRS to distinguish their 

rulemakings from all others is another long sought-after goal. IRS 

regulations affect every business, and the notion that they are not 

subject to the RFA means that small businesses are forced to absorb these regulations without the IRS having to take their impact 

on small businesses into account. 

Finally, mandating the chief counsel for advocacy promulgate 

regulations that will determine how agencies must comply with the 

RFA is a step that is long overdue. Just as employers must rely 

on agencies to interpret laws and describe how they are to comply, 

so agencies should have one office in the government that directs 

their compliance with this law that covers them. 

Agencies have consistently argued that the terms of the RFA are 

vague, and that the act gives them flexibility to define terms as 

they think suitable. Chief among the terms that need clarification 

are, of course, significant economic impact, and substantial number 

of small entities. Allowing agencies to define these terms differently for each and every rulemaking gives a wide array of definitions and results. We would hope that the chief counsel would use 

this authority to issue regulations defining these terms. Not only 

would agency compliance with the RFA improve, but everyone 

would finally have a standard against which to evaluate whether 

an agency has met its obligations. 

The Regulatory Flexibility Improvements Act comes at a propitious time. Attention to the needs of small business has never 

been greater. With so many sectors such as manufacturing coming 

under increasing international pressure, it is incumbent on Congress to make sure that our laws and regulations are as narrowly 

tailored as possible to achieve their goals. 

The improvements continue to go a long ways towards getting us 

to that promised land of small business regulatory relief envisioned 

by the original authors of the Regulatory Flexibility Act almost 25 

years ago. 

Thank you for your time and attention on this. I would be happy 

to answer any questions you might have. 

[Mr. Freedman’s statement may be found in the appendix.]

Chairman MANZULLO. Thank you very much. The promised land 

of small business regulatory relief. That is—

Mr. FREEDMAN. Well, we may see it but some of us may never 

actually get there.

Chairman MANZULLO. There you are. I do not want to go into 

that.

Mr. FREEDMAN. It is that time of year, right? 

[Laughter.]

13

Chairman MANZULLO. That is what America is all about, is it 

not? 

Our next witness is Jere Glover. I have known Jere for a long 

time. He held a position now that Tom Sullivan has from 1994 

until 2001, and look forward to your testimony. 

STATEMENT OF JERE GLOVER, BRAND LAW GROUP

Mr. GLOVER. Thank you, Mr. Chairman, Ranking Member Velazquez. It is delightful to be here, especially on the twenty-fifth anniversary of the Regulatory Flexibility Act. 

I am Jere Glover, and I have some great memories during the 

last 25 years fighting to reduce the regulatory burdens on small 

business. We have won many battles, but we are losing the war. 

In 25 years, many things have changed, but the regulatory burden on small business has not. It is like the energizer bunnies, the 

regulatory burdens on small business just keeps growing and growing. Literally hundreds and hundreds of new regulations are enacted each year. Now is the time to do something about the problem. 

I remember when the Office of Advocacy was first started. The 

idea that small business needs an advocate within the government 

was a new concept. Workers at the Department of Labor, Environmental Protection Agency had—the environmentals at the EPA, 

but small business was without an effective voice inside the government. 

How could anyone be against giving small business an advocate 

within the government? After all, it creates over half of the GDP, 

hires over half the employees, and produces over half the innovations. 

I remember when I first heard about the concept of regulatory 

flexibility. What a wonderful concept, making regulations fit the 

problem. How could anyone be against the concept that regulations 

should be flexible and should treat small businesses different than 

big businesses? 

And I remember when the Regulatory Flexibility Act was passed, 

and the excitement about the new law. I remember meeting with 

the agencies, explaining the new law to the agency employees, and 

getting President Carter to sign a memorandum directing the agencies to comply. 

Then I remember the 10-year fight to get judicial review for the 

Regulatory Flexibility Act, and when SBREFA was passed. I remember reading decision after decision where courts found reasons 

not to enforce the Regulatory Flexibility Act and SBREFA and 

grant small business relief. We won a few cases, but we lost the 

vast majority. 

I remember reading the very first Court of Appeals decision that 

found a violation of the Regulatory Flexibility Act and stayed enforcement of the regulation until the agency complied with the Regulatory Flexibility Act. Actually, it was just last week when the 

court issued that ruling, some eight years after judicial review was 

provided and some 60 cases not having come down with a clear decision. 

14

I remember reading and writing annual reports on the Regulatory Flexibility Act about agencies such as the Federal Communications Commission, the IRS, and CMA, who were habitually—

CMS—who were habitually violating the Regulatory Flexibility Act, 

and I remember the first time the Office of Advocacy compiled the 

regulatory savings for small business. Today those savings have 

grown to over $84 billion. 

It is time for some new good memories. The RFA and the Office 

of Advocacy need to be strengthened. They go hand in hand. Laws 

are not self-enforcing. As Tom has pointed out in his testimony, the 

Office of Advocacy has done a lot of really great things. His work 

on implementation of the Regulatory Flexibility Act is superb. But 

can anyone say that we have solved the problem and won the war? 

I do not think so. 

Eliminating the line item for advocacy research in the President’s budget is a huge mistake. In the last decade we have seen 

the Office of Advocacy drop from 78 to 44 employees. If we allow 

this to stand, it sends the message that we do not care about small 

business advocacy. 

The first line of defense in the regulatory fight is the Office of 

Advocacy. Its annual reports remind Congress and the agencies 

that the burden on small businesses keep growing. We need to request that the Appropriations Committee give the Office of Advocacy a line item in SBA’s budget, and it be for both staff and for 

research functions. 

Unfortunately, just preserving the Office of Advocacy alone is not 

enough. We also need to improve and strengthen the Regulatory 

Flexibility Act. Certainly the regulatory flexibility analysis and the 

agency determinations that small business is not impacted need to 

be far more detailed and substantive. 

The panel process needs to be expanded to more agencies such 

as the FCC, CMA and the IRS. The Executive Order needs to be 

codified to make sure that it covers independent agencies and that 

it is there after the current president leaves. 

Now is the time to create some more good memories. Small business deserves better. Thank you. 

[Mr. Glover’s statement may be found in the appendix.]

Chairman MANZULLO. Thank you very much. We appreciate the 

testimony of the witnesses. 

Ms. Velazquez, did you want to go first in the questions?

Ms. VELAZQUEZ. Sure.

Chairman MANZULLO. Because I was a little bit late here and I 

want to organize my thoughts.

Ms. VELAZQUEZ. Sure. Thank you, Mr. Chairman. Thank you all 

for your presentation here today. 

Mr. Glover, your testimony last year indicated that the panel 

process is quite expensive. In fact, you said that it will be around 

three to seven million dollars to do 10 to 20 panels for just the 

three agencies we had under consideration then. 

15

H.R. 682 will require a panel for every rule that has a significant 

impact on a substantial number of small businesses, and that could 

well be over 100 panels per year. Is that achievable with advocacy 

current structure? Is it desirable?

Mr. GLOVER. It is not achievable. There is no way that the Office 

of Advocacy could do that with anywhere near the resources it currently has. 

We spent between four and five hundred hours, staff hours per 

panel. Now perhaps if you are expanding it, there may be some efficiencies, but I cannot imagine how you could understand any regulation sufficiently to sit down with small business people and talk 

about it in less than 100 to 200 hours, and that is the minimum 

you are going to spend.

Ms. VELAZQUEZ. Can you give me a ballpark figure if we have—

if advocacy has like 100 panels?

Mr. GLOVER. I have not done the math, but I will simply tell you 

you would probably more than double advocacy’s current budget.

Ms. VELAZQUEZ. Thank you. 

Mr. Freedman, you have studied the panel process when you 

were in the Senate. I now that the Chamber supports this expansion of the panel process. Do you believe that panels for every—for 

over 100 rules per year are necessary or achievable?

Mr. FREEDMAN. Ranking Member, I think achievable has probably been addressed better by Jere, and perhaps Tom would speak 

to that point since they are the ones who are actually running that 

process. 

I think we have seen some very strong examples of where the 

panel process has opened up the process to small businesses and 

has had a significant impact on the outcome of the regulation. I 

probably would tell you that every rule does not need that, or every 

agency probably does not need that, but I think at this point the 

bill is a good starting point, and we would support the bill. And 

then if there is an opportunity to look at it more closely, then that 

may be something that can happen down the road.

Ms. VELAZQUEZ. Thank you, Mr. Freedman. 

Well, here we are again, Mr. Sullivan. Welcome. I know that this 

year you raise some concerns in your testimony about the scope of 

the panels that will have to be held as well as your usual questions 

about changing advocacy’s role in the panel process. 

So I ask you again, do you have the resources to implement H.R. 

682 as currently written? Also, do you even recommend as a matter 

of strategy and policy that advocacy do all those panels? And do 

you have a ballpark figure or estimate as to how much it will cost?

Mr. SULLIVAN. Congresswoman Velazquez, the answer is no, no, 

and yes. 

The first one, can my office under current structure do all of the 

panels that are called for in 682, and the answer is no. Last year 

16

when I testified on 2345 you were kind enough to allow for me to 

supplement my response with a detailed breakdown of number of 

hours per panel. With the Chair and the Ranking Member’s permission, I would like to submit that letter of May 18th for the 

record.

Ms. VELAZQUEZ. Well, I was about—I am prepared to ask unanimous consent that that letter be made part of the record.

Chairman MANZULLO. Without objection.

Mr. SULLIVAN. Thank you, Congresswoman. 

What we found was that each panel, and this is consistent with 

what Jere Glover said, equates to about 400 hours. We measured 

roughly 200 initial regulatory flexibility analysis last year, so that 

brings it to what would roughly be the need to add 40 additional 

staff on the legal team, so we could not handle that under the current structure. 

So that gives you no we cannot do it under the current structure. 

Yes, with a detailed breakdown of roughly 400 hours. 

And you asked about whether or not there are policy recommendations to achieve the same benefits of the panel without 

necessarily requiring separate panels for each rule, and the answer 

is yes. I would recommend that the codification of the executive 

order get very close to achieving the same type of policy goals that 

all the panels do.

Ms. VELAZQUEZ. Mr. Sullivan, after all the savings that your of- fice has helped to produce, and I believe you talked about $64 billion—million dollars.

Mr. SULLIVAN. Yes, Congresswoman.

Ms. VELAZQUEZ. Billion dollars?

Mr. SULLIVAN. Billion.

Ms. VELAZQUEZ. The President’s budget submission for your office, and Mr. Glover made reference to that, eliminated the line 

item for advocacy’s research. 

Do you think it is important for your independent research efforts and for the research efforts of future chief counsels under future administrations that advocacy retain complete control over its 

budget?

Mr. SULLIVAN. Let me answer the first part about the Fiscal 

Year 2006 budget. I believe that under Hector Barreto’s stewardship of the agency, my office has been treated very well from a 

budget perspective. 

In answer to your second question about future administrations, 

I believe that future administrations should have a separate line 

item budget for the entire Office of Advocacy budget, and I am 

most anxious that in the 110 Congress to have bipartisan support 

for this approach as well as support from the White House who 

17

know the type of value that an independent office can bring to the 

process.

Ms. VELAZQUEZ. Mr. Glover, you made reference to the importance of a line item. Do you care to comment?

Mr. GLOVER. Yes, I would be happy to. The fact is the Office of 

Advocacy when it was first created had a not less than 70 employees in its authorization and appropriations. That maintained it for 

a long time. When that provision slipped out of the law, the Office 

of Advocacy gradually dropped from 70 just before I came on board, 

to 58 at the end of my tenure, to 44 now. 

Without that line item you are going to continue to see administrators who have other priorities besides advocacy, and they are 

going to allow that to continue to slip. Our research budget was cut 

badly during that period of time as well. So I feel strongly that we 

need to have, to protect the Office of Advocacy’s role and functions 

for future administration, a very clear statement that there needs 

to be a line item for the entire Office of Advocacy.

Ms. VELAZQUEZ. Thank you. Mr. Chairman, I have unanimous 

consent request that Mr. Sullivan submit for the record over his 

signature a detailed estimate of how many panels per year advocacy does now, what advocacy spends on those panels in terms of 

resources, how many panels they expect if H.R. 682 is adopted, and 

an analysis of the costs to advocacy in resources. 

I would also like an analysis as to the other amendments short 

of a panel process that advocacy believes will help achieve full disclosure and compliance, and I will be sending this in writing to 

your office.

Mr. BARTLETT. [Presiding] Without objection to the extent that 

that information is available to you.

Mr. SULLIVAN. Mr. Chair, not only do you have my commitment 

to provide that, it is a welcome opportunity to flush out the detailed costs.

Ms. VELAZQUEZ. Thank you. Thank you, Mr. Chairman.

Mr. BARTLETT. I am sorry I could not have been here for the 

whole hearing. As most of you know in a former life I was a small 

business person. I was one of maybe 35 people in the Congress that 

was a member of NFIB when I came here. 

I carry a copy of the constitution, and I would just like to get in 

the record how prophetic the founding fathers were when they 

wrote the Declaration of Independence. I cannot imagine how they 

would have known about our regulatory agencies, but this is what 

it says: 

‘‘He has erected a multitude of new offices and sent hithers forms 

of officers harass our people and eat out their substance.’’ 

[Laughter.]

18

Mr. BARTLETT. I wonder, is there any more succinct description 

of the effect of our regulatory agencies, particularly on small business? 

And that is in the—that is really there. It is in the Declaration 

of Independence. I have no idea what the king did. I thought 

maybe they were just being prophetic because it certainly, I think, 

is a good description of our regulatory agencies. 

You know, I often ask myself the question, how come we are so 

lucky. We are one person out of 22 in the world, and we have a 

fourth of all the good things in the world. How did we get here? 

And if we figure out how we got here, maybe we can figure out 

what we need to do to stay here. And I think one of the reasons 

is the enormous respect for the rights of the individual. Those 

rights are implicit in the constitution itself and made very explicit 

in the first 10 amendments, and I think that establishing a milieu, 

an environment in which creativity and entrepreneurship could 

flourish is important. I think several things put that at risk, and 

one of those things are over zealously implemented regulations 

which just dampen the enthusiasm and hamper people in their 

quest to continue along this really marvelous march where this one 

little country, one person out of 22 in the world has a fourth of all 

the good things in the world. 

This is a fragile commodity. We are no longer the hardest working people in the world. We are no longer the people that have the 

most respect for education in the world. We no longer have the 

most intense commitment to nuclear families in the world, and you 

need to ask yourself what do we need to do to stay in this very 

privileged position? 

I think paying attention, we need some regulations, there is no 

question about that. But we do not need such over zealous implementation of these regulations that they are killing the goose that 

laid the golden egg, and that is very much where we are sometimes 

with these regulations. 

Sorry I could not have been here for your testimony. You know 

where I am on these issues. When you need help, I am there. 

Ms. Velazquez, you have additional questions?

Ms. VELAZQUEZ. She is next.

Mr. BARTLETT. Okay.

Ms. MOORE. Thank you, and thank you for all the time that you 

have spent. We had votes and we were not able to start the meeting on time, and I really appreciate your diligence. 

If I am asking a question that you have already asked, please 

forgive me because I was not there, or here earlier. 

I guess I am curious about the provisions in the Regulatory 

Flexibility Act that called for alternative regulations, because as 

the Chairman has indicated, we do realize that there has to be an 

appropriate balance between necessary regulations. This will make 

sure that there is basic safety features in the workplace and basic 

compliance with Internal Revenue Service, but we do not want to 

impose too many regulations on small business. 

19

So what—can you give me just give me a few examples of the 

regulatory flexibility that you have accorded small businesses that 

you regard as innovative?

Mr. SULLIVAN. Ms. Moore, I would be happy to address that if 

you would like. I can give you two examples. The first is an OSHA 

example, and the idea of focusing on alternatives is definitely a 

good place to start because any time a regulatory agency looks to 

small business for alternatives they will come out ahead at the end 

of the day. 

So from an OSHA perspective, I will use a rulemaking that is ongoing. There is a Hex-chrome regulation that is going on at OSHA, 

and very early on in the process under SBREFA they are required 

to convene panels of small business owners, and float ideas and 

regulatory proposals by small businesses so small businesses can 

advise them to better alternatives. 

Well, in this progress, Congresswoman, it became clear that one 

of the proposals was to vent above a chrome-plating assembly line 

the fumes, so that the fumes would go across or underneath the 

workers to prevent them from inhaling chrome fumes, which are 

dangerous. 

Well, thank goodness they checked with small business because 

a small chrome player in fact told OSHA if you require that, you 

will put us in violation of the EPA Clean Air Act. It is a very good 

example of alternatives that come to the table from small business. 

Now, luckily under the process OSHA listened because they are 

required by law to listen, and they have been re-jiggering their proposal so whatever they do will ultimately be less harmful for small 

business. 

Another example that is not part of the SBREFA process but a 

good one has to do with the regulatory approach to protecting our 

nation after the terrorist attacks of September 11th. Obviously, we 

are very concerned about protecting our borders, and also very concerned about protecting our ports. 

So the Department of Homeland Security, when wrestling with 

those very important issues, under the Regulatory Flexibility Act 

consulted with my office, the Office of Advocacy, to say, all right, 

when we are issuing regulations for port security, are we getting 

it right, and we connected them with small businesses who run 

small shops in ports. It turns out that their initial thoughts of regulating would have affected all these mom and pop businesses who 

thrive in the port areas, whether it is Mailboxes, Etc., franchises 

or small delis, and other business that really thrive on the port 

business. They were all going to be covered by rules that really 

should be narrowly tailored to the entry and exit of foreign and 

other vessels. 

So by focusing Department of Homeland Security about not overreaching they actually exempted out many businesses that really 

are not a threat, but then focused primarily on things that were 

a security risk, and therefore had rules that were finalized that 

were protecting our borders, but at the same time doing it in a way 

that did not devastate a community in which small businesses 

thrived.

20

Mr. FREEDMAN. Congresswoman.

Ms. MOORE. Thank you. I also just wanted you all to comment 

on the regulatory impact study done in 2000 where the cost on a 

small business was estimated to be almost $7,000 per employee for 

the regulatory burden. 

Share with us, because those are—you know, you could interpret 

that in two different ways. You could interpret that as being certainly an awesome burden on a small business, but you could also 

say that perhaps they are not ready for prime time if they are not 

ready to make sure that basic workplace protections are in place. 

Could you please just weigh in on those data?

Mr. FREEDMAN. Congresswoman, I would like to start, and I am 

sure other people will have other thoughts on that. Let me sort of 

try and tie both of your questions together because I think there 

is some links there. 

First of all, the study talking about the increased cost for small 

business compliance, it is not that small businesses as you would 

say are not ready for prime time, it is that in order for them to 

get to that threshold, it is more expensive for them to do that, and 

this is not—I think we should all understand this has nothing to 

do with small businesses’ desire to comply. 

The problem that these regulations are—the reason these problems—forgive me. The reason these regulations are such a problem 

is that they do want to comply, and they understand the obligation 

to their employees, to the environment, to the public around them, 

to everyone that they come in contact with to be in compliance with 

these regulations. But they have so few resources. They do not 

have the personnel. They do not have the revenue. In some places, 

their whole income structure is different than a larger business 

that would be able to do these things more efficiently. 

So that is where you get that $7,000 number, and I think that 

number is important because it really goes to the heart of the matter, and why we are here, and why there is a Regulatory Flexibility 

Act in the first place. 

Let me just comment briefly on your discussion about regulatory 

alternatives. The problem is in the Regulatory Flexibility Act, there 

is a requirement that an agency must examine regulatory alternatives in their analysis that they are expected to do under the 

RFA. 

However, if they find that the regulation does not meet this 

threshold of the significant economic impact on a substantial number of small entities, they do not have to do that analysis. So it is 

the question of how they get to that threshold that drives everything else, and that is where I think our concern is in terms of how 

the RFA is operating right now, and some of the changes that we 

think should be made to it. 

Let me yield to the other people here who I am sure have other 

things to day.

Ms. MCCLOY. If I may—

Mr. BARTLETT. You may.

21

Ms. MCCLOY. — Cecelia McCloy, with Integrated Science Solution. 

As a small business owner, one of the things that we do every 

year is to look at the regulatory requirements that we must comply 

with that year, including new regulations that sort of pop up both 

on the state and the federal level. Then we have to make some 

choices. I mean, maybe we have to reduce our tuition reimbursement program in order to pay for that, or maybe we can only offer 

a different kind of health care policy for our workers because we 

only have X amount of dollars. And really, if we have to pay more 

for regulatory burden, that means we have to play—there is less 

dollars available for investment in our employees and their education and their families.

Mr. SULLIVAN. Congresswoman, the Crane-Hopkins study that 

you referenced I think is also intended to be placed in a broader 

context, and that broader context is the United States’ competitive 

position in the world. Because if you look at three-quarters of the 

net new jobs coming from small business, you see small business 

innovating, and the Chairman knows something about innovations, 

holding so many patents himself. But when you look at innovations, you are looking at small business innovating at a rate of 13 

or 14 times their larger business counterparts. 

So if you realize that small business is in fact the economic engine that is driving this country, then you have got to then look 

at this study to say, well, this is the engine. How are regulations 

impacting that engine? And that study shows that there is a disproportionate impact, a 60 percent greater impact on small business than their larger counterparts. 

When it comes to tax compliance, it is twice as burdensome for 

small business than it is for larger business to comply with the tax 

code. 

So there is considerable effort to try to remove those barriers 

that stifle the economic power of small business, and that, if unchecked, can damage the competitive position of the United States.

Mr. GLOVER. Let me just add to this one additional way to look 

at this. When you assume certain reporting responsibilities, such 

as filing a tax return for your business, there is a set cost to do 

that. If you have one employee or 500, it does not go up proportionally. So a lot of these costs are much heavier when you have very 

few employees, so the average cost per employee is much higher 

than it would be otherwise. 

Each agency has a little different thing that they want you to report. If you have one employee, that employees carries the whole 

100 percent of that cost. If you have 100 employees, then it is one 

percent of that cost. So as a general rule you will also see that the 

numbers in that Hopkins study talk about per employee, and as a 

result of that you are going to see much higher numbers for very 

small businesses than you do for others.

Ms. MOORE. Thank you.

22

Mr. BARTLETT. Thank you. Do you have additional question or 

comments?

Ms. VELAZQUEZ. Yes, please, Mr. Chairman. 

Mr. Sullivan, you know that the General Accounting Office recently—we made reference to that—they recently reviewed the 

OMB data on regulatory burden and reported that it has increased 

by 700 million hours in the last three years. They concluded that 

the number would have been higher still had the OMB not changed 

the 2003 data to reflect adjustments that lowered the total, but 

have nothing to do with actually reducing the burden. 

Then here you testified that you have achieved regulatory cost saving of $64 billion over the past four years. Those savings do not 

even include items where savings are impossible to estimate. 

I know that you are proud of this record, but does not this level 

of proposed burden indicate that the agencies still have not gotten 

the message?

Mr. SULLIVAN. Congresswoman, I think Dr. John Graham has 

been pretty good in looking at some of the numbers, and he recently estimated that the number of new rules from this administration is 75 percent less than in the last one. And I think your 

comment is accurate in that that is just not enough. 

I mean, slowing the stem—excuse me. Slowing the growth of 

overburdensome or unnecessary regulations is a good start, but 

when you look at the 843 plus billion dollars of cumulative impact 

that small businesses still face, there is a heck of a lot more to do. 

So I agree with your comment, and actually know that regardless 

of how proud of our record we are, we have more work to do, and 

some of the improvements to the Regulatory Flexibility Act that 

are contained in H.R. 682 should help us do that.

Ms. VELAZQUEZ. Which of the tools in H.R. 682, or if not in the 

bill, what tool can you recommend to persuade agencies to follow 

the law?

Mr. SULLIVAN. I believe, actually, that there are more narrowly 

tailored approaches also contained within 682 that could do a great 

deal in helping small business. I think the first, and this was mentioned by the Chamber of Commerce’s testimony, is fix indirect impact, and this actually has to do with Congresswoman Moore from 

Wisconsin. 

Wisconsin is one of the states that has passed a state Regulatory 

Flexibility Act, but their hands are tied if the federal government 

is simply passing on the responsibility to the states to do impact 

analysis or to consider less burdensome alternatives. 

I think there is a fairness issue here or a unfunded mandate 

issue here where the federal regulators have a responsibility to do 

that type of analysis to help the states do a better job in how they 

impact small business. 

So indirect impact, I think, is a priority. Bolstering the regulatory look-back provision, which is Section 610, also is something 

that is important. Something that is not in the legislation but deserves to be looked at is once a regulation is final, that agencies 

23

actually do what they are supposed to do under SBREFA and that 

is product compliance guides and regularly report to Congress on 

those compliance guides. And I think the most valuable thing that 

could be done is to codify the executive order that President Bush 

signed three years ago, because that does two things: 

First of all, it brings in independent agencies, which is very important. The second is that it requires agencies to share drafts with 

the Office of Advocacy pre-proposal, so it gets at that early process. 

It also requires agencies to respond to advocacy’s comments in conjunction with the final rule.

Ms. VELAZQUEZ. Mr. Sullivan, three years later after the executive order we have this data, and so something is not working. 

Mr. Freedman, you and the Chamber have some good ideas 

about requiring regulatory analysis and compliance guides to be 

performed by the agency, to be posted on the internet so that it is 

more easily located. 

Will you and the Chamber flesh out some of these ideas and submit suggested legislation language that could be included into the 

bill?

Mr. FREEDMAN. Yes, Ranking Member. We would be happy to do 

that, and I can mention from my previous experience that Senator 

Snowe introduced a bill on that subject in the last Congress, so 

there is legislative language available that talks about that problem. 

Let me just address one other point that you asked Mr. Sullivan 

about, in terms of what I think would make the most difference. 

I have thought for a long time that the whole question of the significant economic impact and substantial number of small entities 

terms are really the heart and sole of the Regulatory Flexibility 

Act. I mean, that is the threshold go-no go question. 

The more stability and certainty we can bring to those terms the 

more likely it is we will be able to hold an agency to a standard 

that says you did not do it, or this is what we expect of you. 

To that end, I believe that the provision in the bill that directs 

the chief counsel to issue regulations describing how agencies are 

to comply would probably have the greatest overall impact on agency compliance, because absent of them getting past that threshold, 

or let me put it this way, forcing them to get to that threshold easier will then trigger all the other compliance, all the other requirements like the compliance guides, like the Section 610 review, and 

the IRFAs and FRFAs. So it is a critical matter in terms of how 

the Regulatory Flexibility Act is actually implemented.

Ms. VELAZQUEZ. Thank you. Thank you, Mr. Chairman.

Mr. BARTLETT. Thank you very much. 

One of you mentioned the cost of these regulations and then the 

unfunded mandates were mentioned. Two or three years ago I remember that Tax Freedom Day was May 10. Now, we cut taxes 

and we have done pretty well. We have moved that back to late 

April now. But Government Freedom Day has moved the wrong direction. When we have Tax Freedom Day, that is the day you pay 

24

all your federal, state and local tax. It was May 10, now near the 

end of April. 

But Government Freedom Day, the day you finish paying for government, was July 4. That has a very special double significance, 

did it not? That is now moved to about July 8. You know, this is 

the cruelest tax of all. It is the tax that the poorest of the poor 

have to pay because it increases the cost of everything they touch, 

and the mandates, a lot of them federal, and a lot of these regulations that you are talking about, the average working American 

now spends 52 percent of their time working to support government. I think that is too much. 

When you are talking about taxes and maximum revenues, and 

we need more revenues, we are spending a whole bunch of money, 

but you know, if you have a zero tax rate, obviously you will collect 

no taxes. If you have 100 percent tax rate, you are not going to collect any taxes, are you, because nobody will work? 

So somewhere between the zero percent tax rate and the 100 percent tax rate is that magic number where you have not meaningfully suppressed, stifled the economy, and you are going to get the 

maximum revenues. I think 52 percent of your time working for 

government is too much. And we have reduced taxes. We have gone 

backwards in regulations. You know, we really need to change that. 

If you think about these regulations, and I just sat back and I 

thought why do we have them, and there are two fundamental 

premises for why we have regulations. 

The first one is that every manufacturer, every provider, every 

employer is greedy and evil, and they are going to take advantage 

of their customers and their employees, so we have to make sure 

they do not do that. 

The other premise for regulations is that every consumer is incredibly stupid. Unless we protect them, they are going to hurt 

themselves. 

Now, I think that if you think about regulations, most of them 

are here because of an application of one or the other or both of 

those premises. I reject both of those premises. I was a small business owner. There was nobody more concerned about my employees 

than me. If I lost one of my people, you know, the team was not 

going to work well. You know, they were, in effect, family members 

to me. 

I think the American people are very bright. I have no problem 

with government educating. You know, I really just take a double 

take when I read that they have gone and the government people 

have put a red sticker on your house and told you it is dangerous, 

and you cannot go in it. What business is that of theirs to tell you 

that you cannot go in your house? 

I do not mind them telling you that they think your house is 

dangerous, and that you are probably better off if you did not go 

in your house. But you know, what business have they—you know, 

the reason is that they concluded that you are just so dumb you 

would not know whether your house was dangerous or not, and so 

they have got to protect you. 

I really believe that if we give it a chance, self-regulation will 

work. The hard liquor industry does not advertise on television. 

Nobody told them not to advertise on television. They just decided 

25

that was not in their best interest to advertise on television, and 

it would not have been. 

When high school kids are given the responsibility of disciplining 

their peers, they are a lot tougher than the school administration 

would be. You have seen those little experiments. 

But there is little incentive for self-regulation because you have 

to push back so hard in order to limit the damaging effects of regulation on your business. And I know we do not have time here but 

I would really like to ask each of you if you would please for the 

record tell us how we can get from here, where we are with everincreasing regulations and these mandates that run cost up, because there is no business that is not concerned about happy customers and happy employees and so forth. Our people are not incredibly stupid, and we do not need all these regulations. 

How can we get from here, and I really believe in self-regulation. 

You know, I think in industry, the industry most hurt when they 

get—when a drug comes out on the market that hurts people. What 

industry is most hurt by that? It is the drug industry, is it not? 

It is not Food and Drug. It is the drug industry that is hurt like 

that. I really believe in self-regulation. 

How can we get from where we are, where we are moving from 

more and more egregious regulation to where we can encourage 

people to self-regulation? And then stand back and watch, and if 

they are not doing right, then maybe we can move in. I do not 

think we would have to move in very often. But now we have created a culture where we are moving in this direction. How can we 

move back? 

If each of you would prepare a little statement for the record, I 

would be very appreciative of that. 

This has been a long hearing. Is it okay if we submit other questions for the record? I am sure Ms. Velazquez has additional questions she would like to ask. And you are tired, and we may get a 

more deliberate answer if you prepare it for the record rather than 

holding you here for all these hours. 

I want to thank you very much. I am sorry I could not have been 

here for the whole hearing. Small business, as you mention, is the 

engine which drives our economy. 

Just one little word. Out of the 1992 recession, I was stunned by 

these statistics. If you group businesses by size from the biggest, 

5,000 or more, to the smallest, zero to four employees, a few new 

jobs came from the 5,000 plus, 90 odd percent of all the other new 

jobs came from zero to four employees. That is small business. And 

it is not just the engine that drives our economy, it is the engine 

that brings us out of a recession. 

You mentioned the enormous productivity in terms of discoveries 

and entrepreneurship and innovations that come from small business. You know, I have worked for big business. I have worked for 

IBM. I have worked for big government. I worked for Johns Hopkins University. I worked for myself in a little company. And I will 

tell you the smaller it is the more freedom you have. I was lucky, 

the employers I worked for who were big kind of pretended they 

were little, and I had a very good experience with them. 

Well, thank you so much for your testimony, and please prepare 

for the record your little suggestion of how do we get to there from 

26

here, where we have more self-regulation. What the government 

does is stand back and step in when industry is not doing it right. 

Thank you very much, and we are adjourned. 

[Whereupon, at 4:10 p.m., the Committee was adjourned.]

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