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39–382 PDF 2007

FULL COMMITTEE HEARING REDUCING

THE REGULATORY BURDEN ON SMALL

BUSINESS: IMPROVING THE REGULATORY

FLEXIBILITY ACT

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

NOVEMBER 15, 2007

Serial Number 110-61

Printed for the use of the Committee on Small Business

(

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

HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

HEATH SHULER, North Carolina 

CHARLIE GONZA ́ LEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

BRIAN HIGGINS, New York 

MAZIE HIRONO, Hawaii 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director

STANDING SUBCOMMITTEES 

Subcommittee on Finance and Tax

MELISSA BEAN, Illinois, Chairwoman 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

DEAN HELLER, Nevada, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Contracting and Technology

BRUCE BRALEY, IOWA, Chairman 

HENRY CUELLAR, Texas 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

JOE SESTAK, Pennsylvania 

DAVID DAVIS, Tennessee, Ranking 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma

(II) 

Subcommittee on Regulations, Health Care and Trade

CHARLES GONZA ́ LEZ, Texas, Chairman 

RICK LARSEN, Washington 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

LYNN WESTMORELAND, Georgia, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

MARILYN MUSGRAVE, Colorado 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Urban and Rural Entrepreneurship

HEATH SHULER, North Carolina, Chairman 

RICK LARSEN, Washington 

MICHAEL MICHAUD, Maine 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JEFF FORTENBERRY, Nebraska, Ranking 

ROSCOE BARTLETT, Maryland 

MARILYN MUSGRAVE, Colorado 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee

Subcommittee on Investigations and Oversight

JASON ALTMIRE, PENNSYLVANIA, Chairman 

CHARLIE GONZA ́ LEZ, Texas 

RAUL GRIJALVA, Arizona 

LOUIE GOHMERT, Texas, Ranking 

LYNN WESTMORELAND, Georgia

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1

Chabot, Hon. Steve .................................................................................................. 2

WITNESSES

Rajkovacz, Joe, Owner-Operator Independent Drivers Association .................... 4

Klein, Christian A., Aeronautical Repair Station Association ............................. 5

Dombi, William A., National Association for Home Care and Hospice ............... 8

Lubbers, Professor Jeffrey, Washington College of Law, American University . 10

Morrissey, Maureen M., Tupperware Brands Corporation .................................. 12

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 26

Chabot, Hon. Steve .................................................................................................. 28

Rajkovacz, Joe, Owner-Operator Independent Drivers Association .................... 30

Klein, Christian A., Aeronautical Repair Station Association ............................. 38

Dombi, William A., National Association for Home Care and Hospice ............... 49

Lubbers, Professor Jeffrey, Washington College of Law, American University . 65

Morrissey, Maureen M., Tupperware Brands Corporation .................................. 81

(V) 

(1)

FULL COMMITTEE HEARING ON 

REDUCING THE REGULATORY BURDEN ON 

SMALL BUSINESS: IMPROVING THE 

REGULATORY FLEXIBILITY ACT 

Thursday, November 15, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 10:09 a.m., inRoom 

2360, Rayburn House Office Building, Hon. Nydia M. Vela ́zquez 

[Chairwoman of the Committee] Presiding. 

Present: Representatives Vela ́zquez, Gonza ́lez, Cuellar, Altmire, 

Clarke, Ellsworth, Hirono, Chabot, Graves, Akin, and Buchanan. 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

ChairwomanVELA ́ ZQUEZ. I call this hearing to order to address 

Reducing the Regulatory Burden on Small Business: Improving the 

Regulatory Flexibility Act. 

We all know that small businesses are the drivers of the American economy. However, small businesses are challenged in their 

efforts to grow by an ever-increasing Federal regulatory burden. 

Federal agencies continue to release tens of thousands of pages of 

regulations each year. 

Last year the Federal Register contained nearly 80,000 pages. In 

its first year of print, it contained only 2,400. The growth in regulations not only increases compliance costs for small businesses, but 

it also makes it harder for them to compete with larger firms. This 

is why Congress had the foresight to give small businesses a voice 

in the regulatory process by passing the Regulatory Flexibility Act 

or RegFlex in 1980. 

This hearing today will look at how RegFlex has worked and how 

it can be strengthened to help small businesses. The act was originally designed to ensure that the Federal Government considers 

the impact of its regulations on small entities. On the RegFlex, 

anytime a regulation has a significant economic impact on a substantial number of small businesses, an agency must consider if 

there are less burdensome alternatives. 

While this Committee is working to ensure the law is being followed, regulators have exploited weaknesses in the law to avoid 

complying with key requirements. As an example, they have avoided critical requirements by certifying that a rule will not have a 

significant impact on small businesses. While agencies are required 

to provide a factual basis for such certification, they often provide 

2

only a simple statement which dismisses the concerns of small 

firms. This behavior must stop and we will be seeking legislative 

means to prevent it. 

RegFlex can be improved in other areas as well. For example, the 

act apparently does not define what constitutes an economic impact 

on small businesses. Courts have said agencies do not have to consider impacts to small businesses that are not directly regulated by 

the rule. I think regulators should. Agencies need to contemplate 

the true economic effect of regulations on small firms regardless of 

whether the firms are directly or indirectly impacted. 

There are also many regulations on the books that are outdated, 

yet continue to create costs for small businesses. While RegFlex requires agencies to periodically review existing rules and consider 

eliminating all necessary requirements, this section of the law is 

vague and agencies do not apply these laws with consistency. As 

a consequence, this part of RegFlex has been much less effective 

than it could be. 

Congress must clarify to agencies when these reviews are to take 

place, what rules must be reviewed, and how the reviews should 

be conducted. RegFlex can play a critical role in reducing the regulatory burden on small businesses when agencies properly follow it. 

However, agencies do not always comply. The litigation over the 

DHS no-match letter rule illustrates this fact. Fortunately Judge 

Breyer recognized that the agency may have violated RegFlex in 

this rulemaking and prevented DHS from enforcing the rule. 

That was not an isolated case, and more must be done to 

strengthen RegFlex compliance. 

I look forward to today’s discussion and the panelists’ experience 

with RegFlex and how it could be improved. I also want to thank 

all the witnesses that are here this morning for your participation. 

It is critical because small businesses bear a disproportionate share 

of the Federal regulatory burden. A recent study conducted for SBA 

found that regulatory costs for small businesses are 45 percent 

greater than that for larger firms. Small businesses must have 

input in this process to help agencies identify existing rules that 

are problematic. We need to ensure that there is a meaningful way 

to enforce this part of the act too. I look forward to working with 

Ranking Member Chabot in crafting a bill that will make RegFlex 

even better. 

ChairwomanVELA ́ ZQUEZ. I yield to the Ranking Member for his 

opening statement. 

OPENING STATEMENT OF MR. CHABOT 

Mr.CHABOT. Thank you very much. And I want to thank you, 

Madam Chair, for holding this hearing on the implementation of 

the Regulatory Flexibility Act. This hearing continues the Committee’s tradition of annually examining agency compliance with the 

RFA in asking whether the statute needs amendment. The RFA is 

an important law that, if fully complied with both in letter and 

spirit, has the potential to significantly reduce the regulatory burdens on small businesses without undermining protections inherent 

in various Federal statutes. 

Efforts led by the President, the Office of Information and Regulatory Affairs, and the Chief Counsel for Advocacy have resulted in 

3

improving agency compliance with the RFA. However, these efforts 

continue to be hindered by bureaucrats who seek to perform the 

minimum amount of analysis possible and courts that seek to abet 

them in these efforts. Federal agencies that fail to comply with the 

mandates of the Regulatory Flexibility Act undermine a basic 

premise of the act, that being to create an economic impact statement that was akin to an environmental impact statement that 

agencies must prepare pursuant to the National Environmental 

Policy Act. 

The parallels between the two statutes, recognized by the courts, 

take that parallel only so far since the detail required by the RFA 

is far less than that required by the NEPA. The Small Business 

Committee regularly sees the impact that regulations have on 

small businesses struggling to survive and grow. Detailed analysis 

of the impact of regulations on small businesses is necessary to ensure that regulators are not making irreversible decisions that will 

reduce the competitive ability of small businesses, prevent them 

from expanding, allow them to raise capital or harm the growth of 

the American economy. 

When the RFA was enacted, opponents said it would slow the 

promulgation of rules. Any examination of the Federal Register 

today as opposed to the way it was back in 1980, I think, puts to 

rest that concern. Ultimately what is at stake is the ability of small 

businesses to stay in business based not on the whims and dictates 

of Federal bureaucrats, but on their capacities in the marketplace. 

Better, sounder rules will lead to improved compliance and lower 

costs. 

I hope that this hearing spurs Congress to improve the Regulatory Flexibility Act to ensure that Federal bureaucrats care that 

the law is on the books. 

I want to thank the witnesses for taking the time to provide their 

insights into agency rulemaking and how the RFA fits or does not 

fit into that process. And I again want to thank you, Madam Chair, 

for holding this hearing, and I will yield back the balance of my 

time. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

ChairwomanVELA ́ ZQUEZ. And now I recognize Mr. Graves for the 

purpose of introducing our first witness. 

Mr.GRAVES. Thank you, Madam Chair. Thank you very much for 

having this hearing on regulatory relief, and it is a pleasure of 

mine to introduce a constituent of mine, Joe Rajkovacz from northwest Missouri, actually from the Blue Springs area. Joe has made 

a successful career out of truck driving over the last 30 years, and 

he is currently employed by the Owner-Operator Independent Drivers Association, which is also headquartered in my district. 

He is the regulatory affairs specialist, and today he is speaking 

on their behalf this morning. I do look forward to his insight into 

the business and how the Federal Government impacts the trucking industry. And I want to thank you for making the trip to Washington. I know very well how long a trip that is. And I appreciate 

you being here. 

ChairwomanVELA ́ ZQUEZ. Mr. Rajkovacz, welcome. You have 5 

minutes. Look at the clock there, the green light means that you 

4

have 5 minutes, and then the red light means your time is expired. 

Thank you. 

STATEMENT OF JOE RAJKOVACZ, REGULATORY AFFAIRS SPECIALIST, OWNER-OPERATOR INDEPENDENT DRIVERS ASSOCIATION 

Mr.RAJKOVACZ. Good morning Madam Chairwoman, Ranking 

Member Chabot, and distinguished members of the Committee. My 

name is Joe Rajkovacz and I have been involved in the trucking industry for more than 30 years and currently serve as regulatory affairs specialist for OOIDA. Prior to joining the staff, I was a small 

business trucker for more than two decades. I owned both my truck 

and trailer and leased them, along with my services, to a motor 

carrier. 

Small businesses dominate the trucking industry in the U.S. 

One-truck motor carriers represent roughly half the total number 

of motor carriers operating in our country, while approximately 90 

percent of U.S. motor carriers operate six or fewer trucks in their 

fleets. 

Considering that roughly 69 percent of rate tonnage in the U.S. 

is moved by truck, it is certainly not a stretch to say that small 

business truckers are truly the backbone of our Nation’s economy. 

Small business truckers support a safe and efficient industry as 

well as rules that safeguard our national security interests. However, they expect the Federal Government to implement regulations with some level of commonsense and fairness and take into 

consideration the tremendous economic impact and operational 

burdens that regulations promulgate on the small businesses that 

drive our economy. 

OOIDA’s experience has shown us that small business issues and 

regulatory flexibility analysis are all too often an afterthought with 

Federal agencies. Some improvement needs to be made to strengthen and expand the Regulatory Flexibility Act so that it better 

serves its purpose, to require agencies to choose regulatory schemes 

and rules that achieve their goal in the least burdensome manner 

on small businesses. 

My first suggestion is expanding the RFA to require Federal 

agencies to make a greater effort to coordinate the regulatory efforts. The jurisdictional separation of Federal agencies, and even 

constraints within single agencies, can oftentimes be an obstacle to 

the creation of clear, consistent regulations that would be less burdensome to small businesses. 

An obvious example is the identical threat assessment required 

by the TSA for both the trucking Hazmat endorsement and the 

TWIC card. The cost for a Hazmat endorsement background check 

ranges from $94 to $129. Truckers are also required to go through 

an identical background check for the TWIC program at an added 

cost of $105 to $132. The TSA also did not take into consideration 

the additional cost to small business truckers from lost operational 

time while they are securing these credentials. 

OOIDA believes that clarification from Congress will break down 

the jurisdictional walls that prevent agencies from working together or working within themselves to reduce the burden of its 

rules on small businesses. 

5

My next suggestion is that the RFA be expanded to apply to 

agency actions beyond rulemaking, such as informal adjudications 

and pilot programs. As you know, the USDOT is conducting a pilot 

program permitting Mexico domicile trucking companies and truck 

drivers to operate throughout the U.S. In creating this program the 

DOT has completely disregarded the impact it will have on small 

businesses. This program will most certainly mean a loss of economic opportunity for thousands of small business truckers in the 

U.S., while jeopardizing the safety and security in their operating 

environments. 

DOT has undertaken no estimate of how many U.S. jobs will be 

lost to their pilot program or how freight rates paid to small business truckers will be affected. Only large U.S. motor carriers appear to have the resources and infrastructure necessary to have a 

realistic opportunity to do business and expand their operations in 

Mexico. As an informal adjudication, the pilot program is not a 

rulemaking subject to the RFA. If DOT had been required to review the impact of this program on small businesses, the public 

and Congress would have had much more information on which to 

evaluate the wisdom of this undertaking. Again, agencies should be 

required to consider the impact of all their actions on small businesses, not just rulemakings. 

Next, I would suggest requiring agencies to make more concrete 

findings of fact and cost analysis on the economic impact of their 

actions on small businesses. An example is the FMCSA’s electronic 

onboard recorder proposal. This is a potential expensive and burdensome mandate requiring truck drivers to install new equipment 

on their vehicles to monitor their compliance with the Federal 

hours of service regulations. This mandate will not achieve its intended safety goals. So far the agency has provided no analysis to 

support conclusions that EOBRs will improve safety and justify 

their cost. OOIDA feels that the agency paid no attention to the 

impact of the rulemakings as a whole on small business. The only 

impact of the rule on small businesses noted by the agency is the 

potential cost of equipping the truck with an EOBR. There are numerous other costs associated with this rulemaking that were not 

even considered by the agency. 

I see my time is up. I thank the Committee very much. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

[The prepared statement of Mr. Rajkovacz may be found in the 

Appendix on page 30.]

ChairwomanVELA ́ ZQUEZ. Our next witness is Mr. Christian A. 

Klein. He is the executive vice president to the Aeronautical Repair 

Station Association and a managing member in the law firm of 

Obadal, Filler, MacLeod & Klein, P.L.C. He represents the interests of ARSA members on Capitol Hill. ARSA represents over 700 

and was founded in 1994. 

Welcome, sir. 

STATEMENT OF CHRISTIAN A KLEIN, EXECUTIVE VICE 

PRESIDENT, AERONAUTICAL REPAIR STATION ASSOCIATION 

Mr.KLEIN. Thank you very much, Chairwoman Vela ́zquez, Ranking Member Chabot, other distinguished members of this ComVerDate 0ct 09 2002 11:57 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\39382.TXT LEANN
6

mittee. Its my pleasure to be with you today in my capacity as executive vice president of ARSA. For those of you who aren’t familiar with us, ARSA is a 670-member strong trade association that 

represents aviation maintenance, design and manufacturing companies. Our members fit squarely into the small business demographic. 

By way of example, we did a member survey a couple months ago 

that found that close to two-thirds of our members have 50 or 

fewer employees and that close to half of our members are owned 

by a single individual or a single family. Nationwide there are 

about 4,200 FAA-certificated repair stations, and just to give you 

a sense of the economic footprint of our industry, we have included 

as appendix A of our testimony a State-by-State breakdown, showing the number of repair stations in each State and the number of 

people they employ. 

I have been asked to comment today on the lessons that ARSA 

has learned over the last 2 years in the course of challenging the 

new FAA rule under the RegFlex Act and suggest some modifications to the RegFlex Act. 

The background in our case is as follows. In early 2006, January 

of 2006, the FAA issued a new rule that dramatically expanded the 

scope of the agency’s drug and alcohol testing program. And under 

the new rule, machine shops, dry cleaners, local electronic repair 

stores that occasionally and incidentally did business with us, with 

certificated repair stations, would be forced—was basically given a 

difficult choice, either implement a Department of Transportationapproved drug and alcohol testing program or stop doing business 

with the aviation industry. 

Now during the rulemaking process, the FAA estimated the impact—that the rule would impact fewer than 300 entities and that 

a RegFlex analysis wasn’t necessary. We conducted a survey of our 

members and the results were analyzed by a well-known aviation 

industry economist and our survey suggested that, in fact, the rule 

would impact between 12,000 and 22,000 companies. Based on this 

information, the Small Business Administration’s Office of Advocacy got involved in the process and urged FAA to conduct a full 

RegFlex analysis, consider policy alternatives et cetera. 

Unfortunately, when the FAA issued its regulation in January of 

2006, the agency completely ignored ARSA’s data, they ignored the 

SBA Office of Advocacy, they even ignored Members of Congress 

who, during the rulemaking process, had weighed in and expressed 

concerns about the way the FAA was handling the regulatory flexibility issues. So last March ARSA filed a lawsuit challenging the 

new FAA rule on, among other theories, a RegFlex theory. In a decision that was issued this past summer, the court agreed with 

ARSA on the RegFlex issue; that it found the FAA had violated the 

RegFlex Act and remanded the rule to the FAA for a complete 

RegFlex analysis. 

So what does this case teach us? And what lessons can be 

learned, and what does it suggest about ways to improve the 

RegFlex Act? 

The first thing we learned is that courts are willing to forgive 

violations of the Regulatory Flexibility Act when agencies use safety arguments as justification, regardless of the real merit of those 

7

safety arguments. In our case, the court refused to stay the enforcement of this new rule despite the fact that the FAA had blatantly violated the law and despite the fact that tens of thousands 

of businesses were potentially going to be affected. 

So we think this is a substantial hole in the RegFlex Act and it 

suggests to us that Congress should consider amending the 

RegFlex Act to prohibit the enforcement of rules that have been 

successfully challenged in court of the RegFlex Act unless some extraordinarily high standard of public interest is met. 

The second suggestion we have, or the second lesson we learned 

is that the costs of bringing RegFlex lawsuits are prohibitive, and 

that the prohibitive costs of the lawsuits probably means that 

many agency actions are never challenged. 

To put it in perspective for you, in the course of our case, we ac- crued about $300,000 in legal bills, and that is a lot of money for 

a small association with an annual budget of less than $1 million. 

So it creates a situation in which a statute that was crafted to protect small businesses may in fact cripple small businesses that try 

to enforce their rights under the law. 

So it suggests to us that Congress should consider creating some 

sort of loser-pay standard in which, if an agency action is successfully challenged under a RegFlex Act, that a court be able to order 

agencies to pay attorney’s fees and legal fees and court costs for 

agencies and small businesses that successfully challenge agency 

actions under the RFA. 

And finally, you know, just to comment on the small business Office of Advocacy, throughout the process the Office of Advocacy 

played the role of the honest broker between business and industry. And, unfortunately, the FAA ignored everything the Office of 

Advocacy said. So it suggests to us that something should be done 

to improve the authority of Office of Advocacy. 

Madam Chair, I see that my time is about to expire, and I wonder if I might be granted one more minute to make a final point. 

ChairwomanVELA ́ ZQUEZ. Without objection. 

Mr.KLEIN. In concluding, I just would like to point out that, unfortunately, Congress bears some of the burden or some of the culpability for the fact that agencies are flouting the RFA. Unfortunately, we see with increasing frequency that the House and the 

Senate are passing bills that artificially limit the amount of time 

that agencies are given to conduct rulemakings. And this in turn 

limits the amount of time that agencies have to conduct RegFlex 

analyses and the amount of time they have to consider other real 

policy options. 

An example that was near and dear to our heart was a recent 

inclusion in the 9/11 Commission bill provision that artificially 

shortened the amount of time available for repair station security 

rulemaking. I know that there are organizations out there concerned about similar provisions in the S-MINER bill that are going 

to limit the amount of time available for rulemakings. 

So I would just suggest that Congress consider the mixed messages it is sending to agencies. On the one hand, it tells agencies 

to do it fast rather than doing it right, and on the other hand turns 

around and takes agencies to task for failing to abide by the 

RegFlex Act. 

8

So thank you very much again, Madam Chair, for holding this 

hearing. We appreciate this opportunity and we look forward to 

working with you and Ranking Member Chabot to craft meaningful 

RegFlex reform. 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Klein. 

[The prepared statement of Mr. Klein may be found in the Appendix on page 38.]

ChairwomanVELA ́ ZQUEZ. Our next witness is Mr. William A. 

Dombi. He is the vice president for law with the National Association for Home Care and Hospice. Mr. Dombi is an attorney with 

more than 27 years of experience in administrative law and has 

acted as the director for the Center For Health Care Law with a 

membership base of 6,000 members. NAHC represents home care 

agencies, hospices, home care aid associations, and medical equipment suppliers. Welcome, Mr. Dombi. 

STATEMENT OF WILLIAM A. DOMBI, VICE PRESIDENT FOR 

LAW, NATIONAL ASSOCIATION FOR HOME CARE AND HOSPICE

Mr.DOMBI. Good morning. Thank you, Madam Chair and Ranking Member Chabot, to be here today to testify on what we consider one of the more important areas of law: regulating the administrative agency action. 

Home care and hospice is small business. By the nature of the 

service, it is local and it will probably always be a small business 

because it has to be so localized. There are over 8,800 Medicare 

home health agencies that provide service and the vast majority, 

over 80 percent, fit the definition of small business. Hospices, there 

are about 3,000 now in the country, and about 2,700 of those meet 

the definition of small business. So we are well within the realm 

of the Regulatory Flexibility Act. 

Over the years when we uncovered the Regulatory Flexibility Act 

as a potential protection for our constituency, we saw great 

strengths and some weaknesses as well. And today I am here to 

offer a few recommendations on how we can strengthen it further. 

To start with, we just would like the Committee to recognize that 

we are not only regulated as an industry delivering care, but we 

are the customer of the Federal Government, in most instances. 

They purchase services from our membership, primarily Medicare 

and Medicaid services. And in our experiences with the regulatory 

actions of the Centers for Medicare & Medicaid Services, we come 

to these three recommendations. 

First—and this mirrors what we have seen from testimony from 

other witnesses as well—there needs to be some strengthening of 

the design and criteria for undertaking an impact analysis. As an 

illustration, my testimony focuses in on a recent rule of the Medicare program which sets payment rate structures for the Medicare 

home health benefit. It encompasses a $6 billion cut in spending 

for home health services over the next 5 years in a program where 

spending is well within control. In fact, it has been for the last 10 

years lower than anticipated expenditures that CBO and OMB 

have projected for that benefit. 

9

But when looking at it from the Regulatory Flexibility Act perspective, what we see is that it offers no transparency. To this date, 

3 months after the final rule has been issued, we still do not know 

why that cut is in that regulation. The technical report which is 

supposed to be the foundation for the analysis on that cut has yet 

to be released publicly. But most importantly, when we look at the 

impact analysis that the Medicare program issued on this, they 

simply looked at a 1-year impact on a regulatory action that has 

4 consecutive years of cuts. And beyond that, when looking at it, 

they looked at it simply from the perspective of what percentage 

change in revenue would exist. 

In my testimony in addendum A, I included a map of the United 

States, which uses the colors that you normally have when there 

is alarm struck—yellow, orange, and red—indicating the percentage of Medicare home health agencies where Medicare margins will 

be less than zero after this regulation takes effect. 

Madam Chair, in your State between 70 and 90 percent of all 

home health agencies will be losing money delivering services to 

Medicare patients. And Medicare is the best payer home care has. 

So this is a serious issue, RegFlex, in terms of the impact analysis 

requirements. 

Second recommendation. The breadth of coverage of the Regulatory Flexibility Act should be expanded to include guidelines and 

policies of general applicability. Rarely does the Medicare program 

engage in formal rulemaking in what would be constituted as a legislative rule subject to RegFlex. 

An example of a disastrous policy that just was recently released 

by the Medicare program affects hospices. As of July 1, all hospices 

will be required to bill on a discipline-specific, per-visit basis with 

charges based on those disciplines of service. And that may not 

sound too concerning to people at first blush, but when you understand that hospice, since its inception, has been a per diem service 

with bundled disciplines of care, the hospices that deliver the services do not even record the number of visits by discipline. Medicare 

is suggesting that they also include the number of visits by discipline for when the person is an inpatient in a hospital, counting 

the number of times a nurse walks in the room for that individual, 

and then to create a charge for that service, which doesn’t exist at 

this point too. Entirely new billing systems, entirely new business 

practices would be required. 

And finally, the recommendation goes through a progeny of the 

RegFlex Act—that is the Congressional Review Act—where Congress has the power to invalidate a regulation. 

We recently had an experience with this where Congress was interested in invalidating a regulation affecting home health services, 

but was told by a legislative counsel in the House that we could 

only invalidate the entire regulation, not just the offending portion. 

Medicare has been issuing regulations that are apples and oranges. Recently a regulation of physician fees was combined with 

the regulation on therapy services criteria, completely unrelated. 

But I thank you for the opportunity to be here today and I look 

forward to working with the Committee. 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Dombi. 

10

[The prepared statement of Mr. Dombi may be found in the Appendix on page 49.]

ChairwomanVELA ́ ZQUEZ. Our next witness is Mr. Jeffrey S. Lubbers. Professor Lubbers is a fellow in law and government at American University’s Washington College of Law. Prior to joining 

American University he served in various positions with the Administrative Conference of the United States. From 1982 through 

1995 he was the ACUS research director and coauthor of the 1992 

study, ′′The Federal Administrative Judiciary.′′ Welcome. 

STATEMENT OF PROFESSOR JEFFREY LUBBERS, 

WASHINGTON COLLEGE OF LAW, AMERICAN UNIVERSITY

Mr.LUBBERS. Thank you very much and good morning, Madam 

Chair and members of the Committee. I am pleased to be here this 

morning to discuss the Regulatory Flexibility Act. 

My impression is that the act has had a beneficial act under the 

stewardship of the SBA’s Office of Advocacy, but I welcome this 

Committee’s review of the need for improvements. My written testimony describes the requirements of the act. 

Today I would like to focus on several issues raised by its implementation. First, the RFA’s triggering language. The RFA’s central 

provision allows agencies to omit a RegFlex analysis if the agency 

head certifies that the rule would not have a significant economic 

impact on a substantial number of small entities. The meaning of 

this unwieldy phrase, which has been given the unfortunate acronym of SEISNOSE, has become the pivotal threshold issue for 

agencies when they determine whether or not to undertake the 

drafting of an initial RegFlex analysis. 

The GAO has concluded that the lack of clarity in the 

SEISNOSE phrase is hampering the success of the entire act. The 

phrase raises at least three questions. First, what is a significant 

economic impact? Second, what is a substantial number? And third, 

what are small entities? Despite the chief counsel’s useful compliance guide that describes the legislative history and court decisions 

on the meaning of SEISNOSE, there still seems to be uncertainty 

as to this key issue. The GAO suggested that perhaps the chief 

counsel should be delegated the responsibility to make such interpretations. I would defer to the chief counsel’s view on this, but I 

note that in the analogous area of environmental impact statements, the President has authorized the CEQ to issue binding regulations concerning the implementation of NEPA by Federal agencies. And you may wish to consider this for the chief counsel. 

Another apparent problem is that many independent agencies assert they are not subject to President Bush’s Executive Order 

13272 that enhances the chief counsel’s role. It has been recommended that Congress codify the executive accord, and that is 

certainly worth considering. 

Another triggering issue is that the act does not apply to the vast 

amount of administrative activity that is not rulemaking, such as 

adjudication, consent decrees, and other types of informal actions. 

It also does not reach most rulemaking that is not subject to notice 

11

in common, such as policy statements and other subject matter 

rules exempted from notice in common under the APA. I think it 

would be difficult to draft a provision that would apply the act to 

the wide variety of nonbinding guidance that agencies issue to the 

public. And OMB is attempting to rein that in right now. So I don’t 

advocate expanding the act’s coverage in this regard at this time. 

I do think that Congress should amend the APA to eliminate the 

exemption from notice and comment for rules relating to public 

property loans, grants, benefits or contracts, however. 

Second issue concerns the role of judicial review. The courts have 

by and large used a reasonableness test to review agency compliance with the statute. But they have been willing to invalidate 

agency certifications in enough cases, including the ARSA case and 

one involving the Homeland Security Department, that agencies 

should now know that they have to take their RFA responsibility 

seriously. 

But I do agree with Madam Chair that perhaps you should consider making indirect impacts covered under the act as well. I 

think that would be reasonable. Even though agencies can’t consider every possible ripple effect, they should be able to consider 

substantial indirect impacts on small entities. 

In terms of the role of the chief counsel, I think they have been 

doing an excellent job. I guess the main issues are whether the office should be given even more authority, as mentioned before, and 

perhaps whether the office should be established as an independent 

agency with its own budget, more along the lines of the Office of 

Special Counsel that was set up to protect whistle-blowers. In 

terms of the tenure review required by section 610, the recent commentaries on that have suggested that it is not working very well. 

My own view is that some of the cures that have been mentioned, such as automatic sunsets and so forth, might be worse 

than the disease. I would prefer to see the mandatory tenure review scrapped in favor of a more targeted approach. 

A recent GAO report concluded that agencies feel that their discretionary review of existing rules is much more effective than 

mandatory reviews. So I believe that the approach that OMB has 

been using since 1997 of seeking nominations from the affected 

public about which existing rules to review should be used. 

In terms of the advocacy review panel requirements in section 

609, according to the chief counsel’s Web site, there have only been 

31 EPA panels and 8 OSHA panels since 1996, which is a low number. And I believe that is because EPA has started to not certify—

or started to certify rules as not affecting small business to avoid 

these panels. And I think this might be a good issue for a study 

by a revived administrative conference. 

If I could take one more minute? 

ChairwomanVELA ́ ZQUEZ. Sure. 

Mr.LUBBERS. Thank you very much. I also want to mention that 

RFA, of course, is one of many statutes and executive orders that 

requires agencies to take over a dozen separate analyses whenever 

they do a rulemaking. And I just heard that the administration is 

considering a new one with respect to impact analysis on international trade. Each one of these, of course, is defensible and has 

its own constituency. But at some point, the agency’s rulemaking 

12

role becomes hampered if the task of doing these analyses is not 

made more straightforward and coordinated. 

I think we have to keep in mind that even though rules have 

costs, they also can have great benefits. And OMB recently reported that estimated quantified and monetized annual benefits of 

the major Federal regulations it reviewed far exceeded the estimated costs. 

I would also note in conjunction with Mr. Chabot’s comment that 

the Federal Register is increasing, but actually the number of rules 

issued by Federal agencies has dropped significantly since the 

1980s period. The government is now publishing 48 percent fewer 

final rules and 61 percent fewer proposed rules as compared to 

1979. 

Agencies’ budgets, of course, are flat lined these days, so I would 

also suggest that in addition to perhaps considering new requirements for the agencies to do things under the act, perhaps the 

Committee could pursue ways to provide additional funding for 

agencies based on the number of analyses they have to do, the 

number of panels they set up, the number of reviews that they do; 

and also to respond to ARSA to perhaps provide for attorney’s fees 

in situations like where ARSA won their case, where they in effect 

acted as a private enforcer of the law. 

So I would hope the Committee might consider that. Thank you 

very much. 

ChairwomanVELA ́ ZQUEZ. Thank you, Professor Lubbers. 

[The prepared statement of Mr. Lubbers may be found in the Appendix on page 65.]

ChairwomanVELA ́ ZQUEZ. Our next witness is Ms. Maureen 

Morrissey, the assistant general counsel for the Americas 

Tupperware Brands Corporation. Prior to joining Tupperware in 

1993, Ms. Morrissey worked in a private practice as a tax attorney 

with two boutique law firms as its tax specialist. Her current responsibility as assistant general counsel of the Americas include responsibility for Tupperware sales organizations in the United 

States. Tupperware has a sales force of over 1.9 million people. 

Welcome. 

STATEMENT OF MAUREEN M. MORRISSEY, ASSISTANT GENERAL COUNSEL, THE AMERICAS TUPPERWARE BRANDS 

CORPORATION

Ms.MORRISSEY. Thank you, Madam Chairwoman and esteemed 

members of the Committee. Good morning. My name is Maureen 

Morrissey and I am assistant general counsel for the Americas 

Tupperware Brands Corporation. My testimony focuses on the Federal Trade Commission’s business opportunity rule, a proposed regulation published in April 2006 that generated over 17,000 comment letters. 

Specifically, I want to address how the FTC has analyzed the 

regulation pursuant to the Regulatory Flexibility Act. Tupperware 

Brands Corporation is a publicly traded direct seller of premium innovative products, headquartered in Orlando. For over 60 years 

13

Tupperware has been one of the best known brands in America and 

a leader in the direct selling industry. The term ′′Tupperware 

parties′′ has now entered the American lexicon due to their widespread popularity. 

Tupperware products are sold primarily through the party plan. 

Our business model is based on direct sales to customers by our individual sales consultants, each of whom is a self-employed business owner. Today Tupperware has more than 180,000 independent 

contractor sales consultants in the United States. They are working 

in every district served by the members of this Committee. 

Through Tupperware, these individuals are able to operate their 

own small businesses and earn significant incomes. For many, selling our company’s products is a full-time job. 

Tupperware is very concerned about the impact of the FTC’s 

business opportunity rule on these small businesses. In a nutshell, 

the regulation proposes burdensome new requirements that must 

be met before individuals can enter into a new business opportunity that requires any level of up-front investment. The stated 

objective of the regulation is to target fraudulent schemes. And I 

want to stress that Tupperware fully supports the FTC’s efforts to 

crack down on arrangements that involve misrepresentations and 

fraud. However, the true scope of the regulation is far broader. The 

new requirements also would apply to legitimate direct selling opportunities, such as those offered by Tupperware. 

The proposed requirements of the business opportunity rule are 

indeed onerous. Of greatest concern, the regulation would impose 

a waiting period requirement under which business opportunity 

purchasers would have to wait for 7 days from the time they first 

receive information from the seller before they begin setting up 

their business. In practice, however, the rule would mean new 

Tupperware sales consultants would have to wait for weeks before 

they could begin making sales. This would fundamentally alter the 

direct selling business which today is marked by ease of entry. 

The waiting period requirement would mean fewer recruits. And 

for those recruits who do eventually become consultants, the waiting period would significantly dampen their enthusiasm at the time 

of their first recruiting contact. As a result, recruits would end up 

being less successful. The individual sales consultants who recruit 

them also would suffer through lost commissions on downstream 

sales. 

Now I would like to turn to the Regulatory Flexibility Act. As 

you know, the RFA requires agencies to prepare an initial regulatory flexibility analysis, or IRFA, when proposing a new rule with 

potentially significant impact on small entities. The FTC stated in 

a preamble to the regulation that it did not expect that the business opportunity rule would have a significant economic impact on 

substantial numbers of small entities. The FTC nevertheless prepared an IRFA for the regulation, and, in doing so, concluded that 

the regulation would only affect 3,200 small businesses, including 

2,500 vending machine and related opportunity sellers and 550 

work-at-home companies. Nowhere is there any mention of the impact on individual sales consultants whose very real income earning opportunities would be restricted by the rule. Yet the impact 

14

on these independent small businesses should have been readily 

apparent. 

It is telling that the FTC received more than 17,000 comments 

on the proposed rule, far more than the 3,200 potentially affected 

entities identified by the FTC. Most of the comments were submitted by individual sales consultants harshly critical of the impact 

on their ability to earn income. These are the small business owners whom the RFA is supposed to protect and whose livelihoods are 

the subject of this Committee’s jurisdiction. 

Simply put, the objectives of the RFA are not being met when an 

agency overlooks the impact of a rule on the types of small businesses operated by Tupperware sales consultants. 

And it is not just Tupperware consultants who are at issue here. 

There are more than 10 million direct sales consultants in this 

country selling products offered by Mary Kay, Avon, Longaberger 

and others. The impact is real. My phone is still ringing with the 

complaints from our sales force consultants who are worried about 

their futures. The Regulatory Flexibility Act needs to protect their 

interests. 

Either the FTC did not comply with the act in issuing the business opportunity rule or the act itself needs to be strengthened to 

ensure that these types of small businesses are not overlooked in 

the future. 

Thank you for permitting me the opportunity to testify today and 

to represent the interests of our 180,000 consultants whose small 

businesses are at risk. 

ChairwomanVELA ́ ZQUEZ. Thank you, Ms. Morrissey. 

[The prepared statement of Ms. Morrissey may be found in the 

Appendix on page 81.]

ChairwomanVELA ́ ZQUEZ. Mr. Rajkovacz, I would like to address 

my first question to you. 

The Regulatory Flexibility Act requires agencies to prepare a regulatory flexibility analysis when proposing a rule that may impact 

small businesses. The current law allows agency heads to avoid 

conducting an analysis if they certify that there will be no impact 

on small businesses. Agencies often exploit this loophole by providing a short dismissive statement. 

Should the law be changed to close this loophole? And do you believe it would be beneficial to require agencies to provide greater 

detail why there would be no impact on small businesses? 

Mr.RAJKOVACZ. Yes, I do. What you described is an agency, in essence, waving a magic wand and saying there is no impact when, 

in fact, there can be a very severe impact to small businesses. You 

are absolutely correct in how you raised that. 

ChairwomanVELA ́ ZQUEZ. Mr. Klein, RegFlex requires the Federal 

Government, when conducting an analysis, to describe significant 

alternatives to a rule that could minimize the economic impact on 

small businesses. I know that regulators don’t always make a great 

effort to examine those alternatives. 

What has been your experience as to rulemaking on this front? 

And are agencies taking a serious enough look at alternatives to 

the rules that minimize burden to small businesses? 

15

Mr.KLEIN. Well, again, I certainly don’t want to speak for every 

agency in every situation. I can certainly say in our case the FAA 

didn’t meet the responsibility. And the good news is that from what 

we are hearing from inside the FAA, that they have felt the sting 

of our lawsuit and they are taking their responsibilities somewhat 

more seriously internally and they are giving RegFlex issues some 

more scrutiny. 

But, again, I think that to go back to my statement, I think that 

there are things that Congress should consider doing to tighten up 

the RegFlex Act. Again, I think some sort of concept of—sorry. 

ChairwomanVELA ́ ZQUEZ. Do you think if it requires loser-pay 

standards that also will be an incentive for agencies to be more 

cautious? 

Mr.KLEIN. Exactly right. I think that holding a Sword of Damocles would make a big difference. 

ChairwomanVELA ́ ZQUEZ. Could you talk to us about any other 

ways that we could strengthen RegFlex to ensure that agencies do 

a better job of considering alternatives to the rule? 

Mr.KLEIN. Well, again, I think number one would be to—again, 

the loser pays thing would be one great way to do it. I think that 

giving the Office of Advocacy a greater role in the process to—you 

know, again I think right now you have a watchman who is supposed to be watching the watchman. But unfortunately the watchman has a .357 Magnum, and the watchman watching the watchman has a little butter knife. And I think if there was a way to 

beef up the authority of the Office of Advocacy and we give them 

more authority to prod the agencies—because again, in our case, 

the FAA just ignored the Office of Advocacy—I think that would 

make a big difference. 

ChairwomanVELA ́ ZQUEZ. Professor Lubbers, in September I sent 

a letter to Secretary Chertoff regarding the agency’s failure to comply with RegFlex in promulgating the no-match letter rule. In litigation over the rule, Judge Breyer enjoined it largely due to 

RegFlex issues. 

Can you discuss the importance of judicial review of RegFlex in 

the context of this case and how critical is judicial scrutiny in ensuring RegFlex compliance. 

Mr.LUBBERS. Well, I think the judicial review is the backstop for 

complying with all of our Federal procedural laws. And we have 

seen that the courts have been very vigilant in enforcing the Administrative Procedure Act’s requirements on agencies. And here 

with the ARSA case and the case in California that you mentioned, 

I think the agencies are probably getting the message now that 

they really have to take the RegFlex Act seriously as well. But also 

point out that the Chief Counsel’s Office has the power to go into 

court and support small businesses as an amicus curiae, as a friend 

of the court, and I don’t know how often the Chief Counsel’s Office 

has been doing that or is able to do that. I suspect the Department 

of Justice might not particularly like that when they come in and 

sort of argue against the government’s position. But I think that 

is another thing the Committee might want to look at. 

ChairwomanVELA ́ ZQUEZ. Thank you. Mr. Dombi, not all agencies’ 

actions are subject to the requirements of RegFlex. And even 

though some of those actions will have an impact on small busiVerDate 0ct 09 2002 11:57 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\39382.TXT LEANN
16

nesses. The act only applies to rulemakings that are required to be 

published pursuant to notice and common rulemaking under the 

APA. In your testimony, you touch upon this issue. 

Can you further discuss some of the agency’s actions that your 

industry has monitored that were not covered by RegFlex but have 

had a significant impact on small businesses? 

Mr.DOMBI. Certainly. Actually, Medicare’s habitual approach is 

to use policy guidelines that change seemingly at their whim. In 

addition to the hospice rule that I mentioned to you on billing practices, they have made major changes in what we call the oasis patient assessment instrument, which is a uniform data collection device which is all driven by both time and technology to have it be 

accomplished. They do not do a RegFlex analysis at all relative to 

this oasis instrument. That is one of the more time-consuming elements of the delivery of services for home health service. 

The Medicare coverage standards themselves for home health 

and hospice services are built into regulations. But the real meat 

of the coverage standards are in what is known as the health insurance manuals, which are these Internet-based manuals where 

transmittals are issued without any opportunity for public notice or 

comment and certainly no RegFlex analysis. 

When you look at the Medicare regulations on home health and 

hospice, they may compromise 20 or 30 pages of a CFR, but the 

guidelines themselves compose somewhere in the neighborhood of 

4,000 to 5,000 pages. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Ms. Morrissey, I would like to talk to you about—the FTC certified that there will not be significant economic impact on small 

entities from the business opportunity rule. Even though the agencies certify no impact, it still conducted an initial regulatory flexibility analysis. Was the FTC’s regulatory flexibility analysis deficient in any way? 

Ms.MORRISSEY. We certainly believe that it was. It appears that 

it was very, very cryptic on its face. And even considering just one 

of the industries, such as direct sales that clearly was impacted by 

the rule, they seem to have assumed that it would only apply at 

the entity level, such as a Tupperware Brands Corporation level, 

rather than taking into account the persons within a sales organization who are themselves self-employed business entities who 

would actually be directly impacted by the rule. And in that instance we certainly think that there was a wide miss when they 

took aim. 

ChairwomanVELA ́ ZQUEZ. Thank you. And now I recognize Mr. 

Chabot. 

Mr.CHABOT. Thank you very much, Madam Chair. Ms. 

Morrissey, I will begin with you if I can. First of all, I just might 

note, I wasn’t even aware you could still get Tupperware out there, 

because I thought my wife had already bought it all. She has been 

to a lot of those parties over the years. It is pretty popular. 

Ms.MORRISSEY. We like to hear that. 

Mr.CHABOT. Okay. But in all seriousness, you mentioned, I 

think, that you were aware of about 17,000 comments I think at 

one point. And I am just curious. How much weight do you believe—or how much confidence do you have that the government 

17

agency involved either in this case, or really in any of them, fully 

take into consideration that input when they issue a rule or make 

a decision or whatever? Just as a person that is out there in the 

private sector, what do you feel about it and what do you think 

generally people think about that? 

Ms.MORRISSEY. Well, I think that everyone would like to believe 

that when people are given the opportunity to speak out on a rulemaking process, that the officials who are charged with enacting 

rules and regulations in good faith take heed of the comments that 

are being submitted. 

I think in this case perhaps the volume of them in and of itself 

was so overwhelming that I think it has caused the FTC, certainly 

in this instance, to pause and reflect. At least that is our expectation and that is our belief currently. Whether or not that will actually translate into anything meaningful for small business remains 

to be seen. But we are certainly optimistic that the FTC will reach 

out to those who did submit substantive comments and ask for 

their opinions, and hopefully hold public hearings and really delve 

into some of the crucial issues that were raised during the comment period. 

Mr.CHABOT. Right. And I would agree. That is what should happen. I certainly hope it does happen in most if not all cases because 

we—us being, I guess, the faces to some degree of the Federal Government and the agencies, when people take the time to comment 

to the government, we certainly ought to factor that into our decisions. 

Let’s see. Professor, I will move to you next if I can. You had 

mentioned that you were—you know that there is an awful lot of 

analyses oftentimes that are done now whenever there is a rule 

that is being considered by a specific agency. And it can be pretty 

overwhelming, and that maybe that slows down the process or 

whatever. 

I was just wondering if you could expound upon that just a little 

bit. I know that you have got environmental impact statements. I 

was a cosponsor of a bill that would—we were concerned that the 

government was issuing rules. Oftentimes it wasn’t necessarily factoring into consideration the impact on privacy of people when we 

do things, and that had to be a thing which was well-intended, but 

we knew that was another level of kind of bureaucracy, or it slows 

things down. And I am just kind of interested to hear you talk a 

little bit more about that. 

Mr.LUBBERS. Sure. In addition to the statutes you have mentioned, there is also the Paperwork Reduction Act, the Unfunded 

Mandates Reform Act, and many executive orders issued by various—various Presidents that are still in effect that mandates specific impact analyses. There is analyses that are required on federalism issues, impact on State, local and tribal governments, on 

energy distribution and usage, on the health of—environmental 

health of children, environmental justice issues in terms of citing 

things in minority communities. I know I am forgetting some. 

Mr.CHABOT. Do I hear what your point is, is that maybe each one 

of those individually seems like a well-intentioned concern? 

Mr.LUBBERS. Exactly. 

18

Mr.CHABOT. But maybe cumulatively we maybe need to step 

back and—

Mr.LUBBERS. That is my point. And I think that, you know, you 

mentioned the pages of the Federal Register. And one of the reasons the Federal Register has expanded so much is that when you 

look at the preambles of these rules now, they are very long. And 

one of the reasons that they are long is the agency has to go 

through sort of a boilerplate litany; this rule does not affect x, does 

not affect y, does not affect z. And sometimes, of course, they have 

to actually sometimes do these analyses and that is not cost-free 

for the agencies. 

I am sure this Committee is not a great venue to talk about the 

needs of Federal agencies to do more regulation. But you know, I 

think we have to recognize that Congress does delegate a lot of responsibility to the agencies to issue regulations. 

Mr.CHABOT. Thank you very much. 

Mr. Dombi, you had mentioned—I know being in the hospice and 

the health care industry that you are—you had talked about, I 

think, the $6 billion or so in the Medicare—the cuts that you were 

concerned about. And the thing I was thinking about as you were 

talking about that was, it seems that Congress over the years—this 

was whether it was under Republican control or under Democrat 

control, it happened I think under both sides. Oftentimes there will 

be the cuts that are in either the budget at the early part of the 

year or in some authorization bill—and you all get all that information out there that there are going to be these cuts—and you have 

to be very concerned about them. And ultimately Congress doesn’t 

pass all its spending bills—we call them appropriations bills—on 

time. And a lot of them will get thrown together in one huge omnibus at the end of the year, and either gets passed very late, and 

you all are looking at this stuff all along, trying to plan things out 

for the next year and it leaves you kind of hanging. Whereas if you 

knew where you really were going to be, and if there were going 

to be cuts, what they really would be—and maybe there won’t be 

any cuts at all— but we kind of scare you all to death all year until 

the last minute. 

Is that problem—I think I probably answered my own question 

by asking it. 

Mr.DOMBI. It is a very serious problem that we are facing once 

again this year. In fact, there have been times when this Congress 

has retroactively cut payment rates. A few years back, in 2003, 

they retroactively cut home health services 3 months earlier, and 

there was a payback obligation that occurred from that. 

The regulatory process, we have the same issues on. When the 

proposed rule came out on home health payment rates this year, 

it had 3 years of cuts. When the final rule came out after we were 

able to convince Medicare that it was wrong in their analysis, they 

gave us a fourth year of cuts. It is kind of tough to budget your 

business in that respect. 

Mr.CHABOT. Thank you. 

Mr. Klein, you mentioned perhaps going to—you know, if you 

bring a regulatory flexibility violation-type case, you had talked 

about the concept of loser pays, for example. And I was advised 

that we have the—currently you can essentially get that under the 

19

Equal Access to Justice Act. However, the attorney’s fees are 

capped at $125 an hour. And you indicated that your cost in the 

one case that you referred to was $300,000. So even though perhaps there is some remedy on the books, it sounds like that is woefully inadequate. 

Mr.KLEIN. I think two points, Congressman. The first would be 

that the remedy is woefully inadequate. And the second is that one 

of—the other holes that exist in the RegFlex Act is the fact that 

agencies can go ahead and enforce rules found to violate the 

RegFlex Act, as our case showed. 

Again, we think there should be some addition. It is not just 

about the money. It is also about the principle. And it is also about 

the reason we undertook this litigation was we were genuinely concerned about the impact this was going to have on as many as 

22,000 companies that our members are working with or our industry is working with. 

So some sort of bar to enforcement of rules found to violate the 

law we also think would also be appropriate. 

Mr.CHABOT. Thank you. And then finally, I am just going to call 

you Joe if that is okay. 

Mr.RAJKOVACZ. That is okay. 

Mr.CHABOT. You had suggested that the RFA needs more concrete requirements concerning the mandate to study the costs on 

small businesses. What specific statutory changes would you recommend? 

Mr.RAJKOVACZ. Well, one of the examples—with reference to the 

TWIC card and Hazmat endorsement, and it is simply not just 

those two. There is an additional fast card under CBP, there is the 

coming pass card, passport requirements for drivers across border 

operations, DOD clearances, DOE clearances, individual States, 

Port Everglades in the State of Florida, they have individual requirements for each port in order to access those ports. So it seems 

somehow this all needs to be unified, at least under one national 

credential. 

There is tremendous cost involved in this, not to mention the 

more cards—you have got truck drivers running around with a 

stack of cards that they have to hand out to everybody, it seems 

counterintuitive to the very sought-for security that the more cards 

an individual has, the more likely for things like fraud, lost cards, 

et cetera, et cetera. So it does seem that somehow these agencies 

need to be forced to speak with one another and streamline these 

processes where they each are making an identical requirement. 

Mr.CHABOT. Thank you. And I think you were dead-on when you 

said that the trucking folks, independent truckers and the rest, 

really are the backbone of the economy of this country. And so I 

think we always need to be careful about what we do. We want the 

public to be safe, and you all to be safe too. But I think you all 

need to be careful because you all do such a great service to the 

country. 

Thank you, Madam Chair. I yield back. 

ChairwomanVELA ́ ZQUEZ. Mr. Gonza ́lez. 

Mr.GONZA ́LEZ. Thank you very much, Madam Chairwoman 

Vela ́zquez. 

20

My first question goes to Mr. Dombi. And that is, it appears in 

your testimony, what you are pointing out, that we have statutes 

in place that would insist that agencies and departments of the 

Federal Government as they promulgate rules and especially what 

would be reimbursement rates and such, that there would be transparency, that you would be able to participate and such. But that 

has not been the case. 

In the latest rulemaking that you point out in your testimony, 

my observation—and with CMS especially, you know, they kind of 

work backwards. And I don’t know how much protection we can actually give. But I do believe the regulatory scheme or the legislation that we have in place that would make it not only transparent, 

but again to justify and substantiate the basis for the amounts that 

they are finally settling on, which you have been frustrated in 

doing. 

The problem as I see it, and I think other Members may agree 

with me, is they start off with a budgetary figure and then work 

backwards and figure out, all right, we are going to allow you to 

charge no more than this in order that we don’t bust this particular 

cap that has been artificially set for us at the very beginning by 

our budgetary process. 

But do you still believe if that is the case, that you still would 

be given greater input and we would be able to at least establish 

that there is a disconnect with what is being determined as a reimbursement rate as to what is really happening for delivering, let’s 

say, the home care service that your members deliver? 

Mr.DOMBI. I strongly believe that if CMS were to be more transparent in its regulatory undertakings and disclose what is the basis 

for their action and to do a complete impact analysis, it would put 

everybody in a much better position, including this Congress. Because right now, when we have come to this Congress—and there 

is a bill pending in the House here, H.R. 3865, that some members 

of this Committee are cosponsoring already, that would stop this 

regulatory action and send CMS back to the drawing board and say 

be transparent, make a process that everybody can understand and 

have it open so that there is an opportunity for public comment 

and input on that process, then I think we would end up with a 

much better result. 

Maybe I am that eternal optimist in that respect. But I still believe, you know, that if CMS were to be hold the criteria that they 

have to follow, there would be fewer gains that they could play in 

using the RegFlex Act and providing an impact analysis. 

In this regulation I mentioned, the impact analysis looked at the 

percentage change in revenue for 1 year for groups of agencies that 

are in New England, the mid-Atlantic States, the far West, when 

home care is a local service. 

And as I pointed out earlier in my testimony, 52 percent of all 

home health agencies will be bankrupt with this system. They 

never looked locally. Those kinds of changes and an impact analysis would be very helpful for them to advise this Committee and 

other Committees of Congress as to what the effect of the regulatory action would be, because we are not only blind on this until 

we do our own analysis, but you are as well. 

21

Mr.GONZA ́LEZ. Exactly, because I don’t have good answers for my 

home care providers back in San Antonio. Thank you for your testimony today. 

This is in a way an observation, Professor Lubbers. I always 

think in terms that we are going to try to have some sort of legislative fix that may incorporate some of your suggestions or recommendations, and we still may be frustrated at the end of the day 

in identifying that which really causes the greatest heartburn and 

such for the small businessman or -woman. 

For years now we have been trying to get HUD just to reduce 

our contract or a lease agreement from, let’s say, 8 to 12 pages or 

something that is reasonable, and we still can’t do it. But I am 

thinking in terms of how do we make it—is there a practical tool 

out there? 

And I am going to recommend something out here, Chairwoman 

Vela ́zquez. I have got it here. It is called tellnydia.com. And what 

it is—we are going to inform every small businessman and -woman 

in the United States, if they come across a regulation, paperwork, 

whatever, that is totally wasteful, they don’t understand its relevance or whatever, doesn’t serve any useful purpose, that they 

would simply advise Chairwoman Vela ́zquez. And then we would 

take the top 10 every year and figure that we have got a problem 

out there. 

That is just a suggestion, and I hope it wouldn’t be 

tellgonzalez.com. We are going to leave it with the Chairwoman. 

Mr. Klein, if you think you have run into problems with the FAA, 

I am just going to tell you one of my stories so everybody understands. It is also Members of Congress. 

ChairwomanVELA ́ ZQUEZ. I have been reminded that you are the 

Subcommittee chair on Regulatory Affairs. I may delegate that to 

you. 

Mr.GONZA ́LEZ. But I think people quake in their boots when they 

hear the name Nydia Vela ́zquez. It will get a lot more attention. 

Mr. Klein, FAA—I get a letter and I am trying to assist the aircraft mechanic in San Antonio to get certification. The regional 

Dallas office simply ignores it and can’t even tell him when they 

are going to come and inspect him and certify him. 

It is a simple thing. A Member of Congress writes a letter to the 

Dallas regional FAA. I get some sort of form letter that tells me, 

hey, you guys just don’t provide us enough money to do what we 

need to do, Congressman; but doesn’t tell me anything about 

timeline, when the poor mechanic can await the inspection and certification process. And then the administrator tells me, and if you 

have any further questions, please get ahold of Dan Smith. 

So I am upset with this thing. So I go to the chair of the Subcommittee on Aviation, Mr. Costello from Illinois. And he writes a 

letter directly to the FAA Administrator Peters. And in it he says, 

and by the way, will you please advise your Dallas regional head 

that Dan is no longer working for FAA and hasn’t worked for you 

guys for 6 months? 

I mean that is the kind of pushback we get. Now, I did get a follow-up letter that gave us a timeline of, you know, between now 

and 20 months, so it wasn’t really that helpful to my poor constituent. We understand your problems. The whole thing is how 

22

would you get to communicate those things in a useful way that 

we can act. Again, thank you very much for your participation 

today. 

ChairwomanVELA ́ ZQUEZ. The time has expired. And Mr. Ellsworth. 

Mr.ELLSWORTH. Thank you, Madam Chair. Why do you think 

that we leave these seats in between? Everybody sits this way. Mr. 

Chabot is brave to be there. Maybe we don’t quake in our boots 

that much. 

Mr. Klein, I would like to start with you. First, let me thank you 

for asking for that extra minute in your testimony. That helps for 

us to hear what we need to improve upon. So I appreciate that. I 

also appreciate your analogy of the butter knife 357; things we can 

understand and relate to. 

Talk to me a little bit about the agendas required that could 

have a significant impact on small entities. And I think I have your 

opinion on the FAA doing a good job at crafting these. But talk 

about the small business, the accessibility of these reports to small 

businesses. Are they accessible? And are they written in such a 

way—you made a good analogy. People would know what a butter 

knife and a 357 is. Can’t a small business owner-operator understand the way they are written? 

I think it was the professor that talked about the preamble and 

how lengthy that is and how tough that is on a small business to 

understand that, if that is in your bailiwick? 

Mr.KLEIN. Well, I certainly don’t consider myself an expert on 

that subject. I do know that we do receive a document from the 

various regulatory agencies each year describing their plan and it 

is published. But I also know that the Reg Flex Act does give them 

the authority. I would defer to Professor Lubbers on this question. 

I may be incorrect, but it is my understanding it basically does not 

limit agencies to doing what they put in that regulatory plan, that 

they can basically undertake other rulemakings that aren’t in that 

agenda. So that basically has limited value. 

I will also say that the regulatory compliance aspect for the person at the ground level, I think that agencies do a very bad job of 

estimating the impact and sort of the opportunity cost impact of 

regulatory compliance. They don’t understand that 15 minutes that 

a small business owner spends trying to fill out a form is 15 minutes that she is not spending running her business, making money, 

doing what she is best at. And so I think that aspect of the regulatory compliance and the review of the regulatory documents like 

that is lost on rulemakers unfortunately. 

Mr.ELLSWORTH. Thank you very much. Joe, I am going to use the 

first name, too, since the ranking member did. It appears from the 

testimony that the small firm pays substantially more than the 

large firm to comply with the larger counterparts. And it appears 

that it is more difficult for independent truckers to comply, or is 

it more difficult for the independent trucker to apply to the large 

agencies just because they don’t have the manpower, the people 

that go through those documents. Tell me how it affects the competition, how you stay in and how you compete with the larger 

trucking firms. And obviously we are looking for a level playing 

field so you can stay in business, too. 

23

Mr.RAJKOVACZ. Well, one of the examples, I was an appointee by 

the Secretary of Transportation to the Commercial Driver’s License 

Advisory Committee, and it was charged with writing a report to 

Congress about ways to improve commercial driver’s licensing. I 

was the only small business representative on that. When you look 

at an industry that is so predominantly represented by small business truckers, this is something you see continually. Through the 

regulatory process of agencies, when they have advisory committees, there will not be a single small business representative on 

that. In fact, I would characterize it sometimes as putting the fox 

in the hen house when you have large businesses sitting on committees that are going to decide the regulations that they are going 

to play by. Small businesses are tremendously handicapped by 

that. They are not included in a proportional number on these advisory committees. 

Mr.ELLSWORTH. Let me ask you something. I have still got a 

green light, and that was my question. But I want to ask you something a little off subject. And I have got a good friend that owns 

a trucking company back in southern Indiana, and one of the concerns he had—and since you are here I am going to go ahead and 

ask you. Talk about making life easier for you all and these regulations that don’t seem to make any sense. He was telling me about 

a situation where a trucker is involved in an accident, totally not 

his fault, and yet the regulation says that if that person operating 

a truck is involved in an accident, he is subject to the automatic 

audit that then costs these trucking firms an inordinate amount of 

money. Normally it is just a random they get pulled out when they 

can. They get a come-up on a normal traffic accident and they are 

then put into a more frequent audit. 

Do you find that to be true, and is that something—and I apologize, Ms. Chairwoman, but I have got a trucking representative 

here—is that true and is that something that we should be working 

on? Because if it is not the trucker’s fault, they shouldn’t be unduly 

penalized for being in an accident that they had no cause in. 

Mr.RAJKOVACZ. There is a formulary that is used by the Federal 

Motor Carrier Safety Administration in determining when to conduct a compliance review. And that is what they would call safe 

stat. And there is a mathematical formula. I mean, these are all 

PhDs that come up with this formula. 

Mr.ELLSWORTH. So it is messed up. 

Mr.RAJKOVACZ. And they are in the process, and it has been a 

process going on now for at least a couple of years, of reviewing 

and trying to come up with a more effective formula. Right now one 

truck operator ends up being judged by the same formula that a 

17,000-truck motor carrier does. And so I am aware that they are 

looking at peer review and all this. It is an ongoing process. 

But, yes, what your constituent told you is exactly correct, is that 

he faces the same exposure that a large motor carrier would. 

ChairwomanVELA ́ ZQUEZ. Your time has expired. I would like to 

ask the three members, Cuellar, Ms. Clarke and Ms. Hirono, if you 

prefer to make your questions now or come back after the votes? 

We have three votes—four. 

Ms.HIRONO. I don’t know what my schedule is. Could I just ask 

all of the panelists just one question? 

24

ChairwomanVELA ́ ZQUEZ. Okay. 

Ms.HIRONO. Thank you, Madam Chair. All of you have made various suggestions on how we can improve the regulatory process for 

small businesses. And I would just like to ask each of the panel 

members what is the most important change that this committee 

could make that would assist the small business communities, in 

your view? Start with you, Joe. 

Mr.RAJKOVACZ. In my view, one of the very significant things 

would be the requirement that the agencies must actually do a real 

cost benefit analysis and how they affect small businesses and have 

to publish this. Not, as I mentioned before, wave a magic wand and 

just move on. It totally leaves small businesses in the dust. 

Ms.HIRONO. Thank you. Mr. Klein. 

Mr.KLEIN. I think the best case scenario again is this concept of 

a loser pays for agencies that violate the regulation or I think that 

strengthen the Office of Advocacy. We have a very pragmatic approach as well. 

Mr.DOMBI. Actually, I am going to combine the two gentlemen’s 

first comments. Strengthening the Office of Advocacy to engage in 

some of their own rulemaking to establish criteria for that costbenefit impact analysis would go a long way. 

Ms.HIRONO. Do they currently have the authority to engage in 

their own rulemaking? 

Mr.DOMBI. I do not believe they have any such authority at all. 

Ms.HIRONO. Then we probably need to give it to them. Go ahead. 

Mr.LUBBERS. I would agree with those suggestions. And I would 

also just say that if there is a way to give some incentive to the 

agencies to do more of these things through some kind of a carrot 

approach, like providing some more funding for doing specific 

things under the act, that would be good, too. 

Ms.HIRONO. Thank you. 

Ms.MORRISSEY. I concur with all of the recommendations that 

have been made thus far. But I would also suggest that I think 

that in order to make the agencies truly accountable to small businesses and the impacts that they create on them, that there needs 

to be either some sort of verification process that is undertaken by 

the SBA or the Office of Advocacy once an IRFA or other analysis 

is done. But then if there is a flaw in that analysis, that the agency 

be made to go back and redo it before moving forward with the 

rulemaking process. Because I think it is imperative that the impact on small business not be a fix-it situation, but something that 

is included in the analysis of any proposed rulemaking from the 

outset so that there is a requisite parity that will protect small 

business interests. 

Ms.HIRONO. And who would make the agencies be accountable? 

Would it be the Office of Advocacy? 

Ms.MORRISSEY. That seems to me to be an appropriate place to 

put that sort of watchdog characteristic, provided that they have 

the requisite authority to be effective in that role. 

Ms.HIRONO. Thank you. I yield back. 

ChairwomanVELA ́ ZQUEZ. Ms. Clarke. 

Ms.CLARKE. Thank you very much, Madam Chair and ranking 

member. My first question is to Mr. Dombi. I have a very large 

home care industry in Brooklyn, New York, and I would like to sort 

25

of get your take on this. As you state in your written testimony, 

Federal regulations are part of everyday life for home care and hospice. And as you know, Federal regulations have the greatest impact on the Centers of Medicare and Medicaid Services. 

What will be the significant economic impact on small businesses 

if Congress does not step in to address regulatory Medicare home 

health cuts? 

Mr.DOMBI. I can only look back at a similar action that the Medicare program took in 1998. At that point there were over 10,000 

providers of home health services nationwide. Three years later 

there were 6,600, and there were multiple parts of the country that 

had no access to home health services at all. That is what I fear 

will come from this. 

Ms.CLARKE. And have expenditures for Medicare home health 

services exceeded projections from 2000 to 2005, as estimated when 

PPS was instituted in 2000, and how do actual expenditures compare to estimated expenditures? 

Mr.DOMBI. Actual expenditures are significantly below projected 

expenditures. To put it into some context, in 1997 dollars there 

were over $17 billion Medicare spent on home health services. In 

2007, the estimate is going to be under $15 billion. So this is a program that is not out of control spending wise, yet on the table are 

additional cuts. 

Ms.CLARKE. To Mr. Klein, section 223 of Reg Flex requires Federal agencies to establish a policy for the reduction and waiver of 

civil penalties on small entities. Some agencies, however, provide 

small entities with no greater penalty relief than large entities. 

Should Congress amend Reg Flex to compel agencies to comply 

with section 223, as well as other provisions, and if they fail to 

comply, craft consequences for these agencies? 

Mr.KLEIN. Well, if I understand your question, and to be honest 

with you, I may be out of my water a little bit on that particular 

question, but I think that anything Congress can do to encourage 

the agencies to comply with laws already on the books, absolutely. 

Ms.CLARKE. Just as a follow-up, should Congress include a judicial review provision which would allow small entities to recover 

court costs and legal fees from successful Reg Flex challenges? 

Mr.KLEIN. We would very much like to see that. Thank you. 

Ms.CLARKE. I yield back, Madam Chair. 

ChairwomanVELA ́ ZQUEZ. As you know, we have votes going on 

the House floor. I want to thank all of you for coming here. And 

we understand these important issues for small businesses. We are 

going to continue to look at the concerns that you raised here to 

decide if we can come up with some legislative fixes. 

With no further questions, I would like to thank the panel for 

their testimony today. Members have 5 legislative days to submit 

additional materials or statement for the record. 

Thank you again, and this hearing is adjourned. 

[Whereupon, at 11:30 a.m., the committee was adjourned.]

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