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94–113 PDF 2004

IMPROVING THE REGULATORY FLEXIBILITY ACT

- H.R. 2345

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

WASHINGTON, DC, MAY 5, 2004

Serial No. 108–62

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 

PATRICK J. TOOMEY, Pennsylvania 

JIM DEMINT, South Carolina 

SAM GRAVES, Missouri 

EDWARD SCHROCK, Virginia 

TODD AKIN, Missouri 

SHELLEY MOORE CAPITO, West Virginia 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

TRENT FRANKS, Arizona 

JIM GERLACH, Pennsylvania 

JEB BRADLEY, New Hampshire 

BOB BEAUPREZ, Colorado 

CHRIS CHOCOLA, Indiana 

STEVE KING, Iowa 

THADDEUS MCCOTTER, Michigan 

NYDIA VELA ́ ZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

TOM UDALL, New Mexico 

FRANK BALLANCE, North Carolina 

ENI FALEOMAVAEGA, American Samoa 

DONNA CHRISTENSEN, Virgin Islands 

DANNY DAVIS, Illinois 

GRACE NAPOLITANO, California 

ANI ́BAL ACEVEDO-VILA ́ , Puerto Rico 

ED CASE, Hawaii 

MADELEINE BORDALLO, Guam 

DENISE MAJETTE, Georgia 

JIM MARSHALL, Georgia 

MICHAEL MICHAUD, Maine 

LINDA SA ́ NCHEZ, California 

BRAD MILLER, North Carolina 

[VACANCY] 

J. MATTHEW SZYMANSKI, Chief of Staff 

PHIL ESKELAND, Policy Director 

MICHAEL DAY, Minority Staff Director

(II) 

C O N T E N T S 

WITNESSES

Page 

Terry, Hon. Lee, U.S. Representative (NE-2), U.S. House of Representatives ... 3

Pence, Hon. Mike, U.S. Representative (IN-6), U.S. House of Representatives . 5

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

Administration ..................................................................................................... 7

Glover, Mr. Jere W., Of Counsel, Brand & Frulla ................................................ 10

Swain, Mr. Frank, Partner, Baker & Daniels ....................................................... 12

Morrison, Mr. Jim, Ph.D., President, Small Business Exporters Association .... 13

APPENDIX

Opening statements: 

Manzullo, Hon. Donald A. ................................................................................ 26

Velazquez, Hon. Nydia ..................................................................................... 30

Prepared statements: 

Terry, Hon. Lee, U.S. Representative (NE-2), U.S. House of Representatives ................................................................................................................ 32

Pence, Hon. Mike, U.S. Representative (IN-6), U.S. House of Representatives ................................................................................................................ 36

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

Administration .............................................................................................. 40

Glover, Mr. Jere W., Of Counsel, Brand & Frulla ......................................... 56

Swain, Mr. Frank, Partner, Baker & Daniels ................................................ 70

Morrison, Mr. Jim, Ph.D., President, Small Business Exporters Association ................................................................................................................. 76

(III) 

(1)

IMPROVING THE REGULATORY FLEXIBILITY 

ACT - H.R. 2345

WEDNESDAY, MAY 5, 2004

HOUSE OF REPRESENTATIVES

COMMITTEE ON SMALL BUSINESS

Washington, D.C. 

The Committee met, pursuant to call, at 2:32 p.m. in Room 2360, 

Rayburn House Office Building, Hon. Donald Manzullo presiding. Present: Representatives Manzullo, Velazquez, Beauprez, Case, 

Akin, Udall, Bordallo 

Chairman MANZULLO. This Committee has held a number of 

hearings during my tenure as chairman in which we examined 

agency compliance with the Regulatory Flexibility Act, or RFA. 

These hearings all reached the same conclusion: The RFA is an important law that, if fully complied with in both letter and spirit, 

has the potential to significantly reduce the regulatory burdens on 

small businesses. 

The efforts of the president, Dr. Graham, the head of OIRA, and 

Chief Counsel for Advocacy Tom Sullivan have done admirable jobs 

in improving agency compliance with the RFA. However, their efforts continue to be hindered by bureaucrats that seek to perform 

the minimum amount of analysis possible and courts that seek to 

abet them in the process. In short, the efforts to obtain compliance 

are, in part, hampered by the flaws in the RFA itself. 

Given the inadequacies of the RFA, I, along with Mr. Pence, Mr. 

Terry, and Mr. Ose, introduced H.R. 2345, the Regulatory Flexibility Improvements Act. The bill is designed to significantly 

strengthen the RFA so that agencies, as President Bush stated, 

‘‘will care that the law is on the books.’’

H.R. 2345 represents a comprehensive fix to current weaknesses 

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

promulgation of rules. Any examination of the size of the Federal 

Register in 1980 with that today will see the RFA has done no such 

thing. During the debate over the amendments to the RFA made 

by the Small Business Regulatory Enforcement Fairness Act, or 

SBREFA, opponents argued that judicial review would create a 

stampede to the courthouse. This Committee is not aware of any 

such rush by small businesses to file lawsuits challenging RFA 

compliance, and any arguments about the horrors of H.R. 2345 that 

will be raised by opponents are also unlikely to come true. 

Ultimately, what is at stake is the ability of small businesses to 

stay in business based not on the whims and dictates of federal bureaucrats but on their capacities in the marketplace. Better, sounder rules will be beneficial to the regulatory objectives of the agenVerDate 0ct 09 2002 19:53 Oct 01, 2004 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 G:\HEARINGS\94113.TXT MIKEA
2

cies through increased compliance and lower costs to small businesses. No good reason exists to oppose those goals and objectives 

other than obstinacy of the status quo. It the status quo needs fixing, so be it. I promise to work with the individuals testifying, 

Chairman Sensenbrenner and House leadership, and my colleagues 

on the Small Business Committee to see that necessary changes in 

the RFA are made, to paraphrase the president, so the law is on 

the books, and federal agencies will care that the law is on the 

books. 

I now recognize the Ranking Member, the gentlelady from New 

York, for her opening remarks. 

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

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Small businesses today face an array of challenges that weigh on 

them more heavily than their corporate counterparts. One of those 

challenges is federal regulations and the disproportionate burden 

they place on our nation’s small firms. A recent study showed that 

for firms with fewer than 20 employees, the annual regulatory burden is nearly $7,000 per employee, almost 60 percent higher than 

that of firms with 500 employees or more. This is unfair, and something needs to be done about it. 

The Bush administration has acknowledged this unfairness and 

has promised to help, but the truth if President Bush actually 

holds the all-time record for the number of federal regulations submitted and issued under any president. A law is on the books that 

does offer some protection to small business, the Regulatory Flexibility Act. 

Enacted more than two decades ago, the Reg Flex requires federal agencies to consider the impact their regulatory proposals have 

on small entities. But if agencies were actually doing their homework, then the SBA Office of Advocacy would not have to intervene 

with them in 50 to 100 cases each year. These demonstrate just 

how reluctant agencies are to fully comply with the requirements 

of the Regulatory Flexibility Act. There are loopholes and problems 

with the Reg Flex that are exploited by these agencies. 

The bill before us today, the Regulatory Flexibility Improvements 

Act, seeks to close some of these loopholes and hold agencies accountable for their overly burdensome rules. At this hearing, we 

will evaluate H.R. 2345, the changes it proposes to the Reg Flex, 

and what effect this will have on small businesses. 

The bill does several things. First, it clearly defines the specific 

economic effects to be examined by agencies and sets out requirements for greater precision in performing these analyses. It also 

provides the leverage advocacy will need to take on these executive 

agencies in court. In addition, H.R. 2345 would apply the panel 

process to a handful of agencies that routinely ignore the Reg 

Flex—the IRS, CMS, and the FCC—and compels them to use a 

more rigorous system of rule evaluation. 

As shown by EPA and OSHA, the panel process has gone a long 

way in helping identify and reduce the impact of rules on small 

businesses while still achieving overall health and safety goals. As 

you can see, H.R. 2345 is an ambitious piece of legislation. Given 

this and the limited time we have left in the congressional schedule 

to actually get things done, the likelihood of H.R. 2345 reaching the 

3

president’s desk is slim, but I do believe that today is a good start, 

and I look forward to working with the chairman to reduce the regulatory burden on our nation’s small firms. I would also like to 

thank the chairman for addressing this issue. This is the first hearing we have held in quite some time that directly affects legislation 

under our Committee’s jurisdiction. 

The burden of federal regulations is a real problem for small 

businesses across the country. Unfortunately, agencies tend to use 

a one-size-fits-all approach that mainly hurts our small business 

owners. Through H.R. 2345, we have the opportunity to make the 

Reg Flex a stronger and better enforcement tool, ensuring that federal agencies are held to more stringent regulation standards. If 

small businesses are less burdened by government rules, they are 

in a better position to grow our local economies and create jobs, 

and this will give a boost to our economy and provide employment 

opportunities for the millions of Americans still searching for work. 

Thank you, Mr. Chairman. 

[Ranking Member Velazquez’s statement may be found in the appendix.] 

Chairman MANZULLO. Thank you. Our first witness will be Congressman Lee Terry, our colleague from the great State of Nebraska. Lee, we look forward to your testimony. 

STATEMENT OF THE HONORABLE LEE TERRY (NE-2) 

Mr. TERRY. Thank you, Mr. Chairman. I appreciate the invitation 

to speak here today and the invitation to join you on this bill. 

Good afternoon, Ranking Member Velazquez, Mr. Beauprez. 

As the chairman mentioned, I represent the Omaha, Nebraska, 

area, which is home to four Fortune 500 companies and their corporate headquarters, yet almost 90 percent of the employees, my 

constituents, work for small businesses. Clearly, the American economic engine is powered by small businesses, and I share your passion in helping to protect these businesses. 

As I meet with our small business owners almost every day when 

I am back home, one of the most frequent complaints from small 

business owners is that federal regulations are onerous, make no 

sense, confusing, costly, and difficult to implement. Now, Congress 

first showed its willingness to address these regulatory burdens 

when it passed the Regulatory Flexibility Act in 1980. Under the 

Regulatory Flexibility Act, many agencies proposing rules that 

would have a ‘‘significant’’ economic impact on small businesses, 

small, not-for-profit organizations, or small government entities 

must prepare a regulatory flexibility analysis and try to find simpler, less-burdensome ways for such small organizations to comply. 

Now, certainly, this is extremely helpful if applied to small businesses. This act, however, did not require an agency to abandon a 

proposed regulation because it might have a ‘‘significant’’ impact on 

small entities, only to consider a less-burdensome alternative and 

to explain why it rejected those alternatives. If a proposed regulation comes under the act, the agency must prepare an initial regulatory flexibility analysis, which is published, along with the proposed rule, and sent to SBA, who oversees the act’s enforcement. 

After the comment period, the agency must prepare a final regulatory flexibility analysis, which should respond to any issues 

4

raised in the public comments and which is published with a final 

rule and made available to the public. 

While the RFA was an important first step in eliminating onerous burdens on small businesses, it was not without its shortcomings. One of the most important aspects of reform is to clarify 

and expand the rules covered by the RFA. One reform contained 

in Section 3 of H.R. 2345, amends the coverage of RFA to regulations from agencies that are not currently covered, an important 

step. 

For example, under the Regulatory Flexibility Act, the Federal 

Communications Commission is not required to make the same 

small business considerations as the EPA or OSHA. When the FCC 

is modifying regulations that affect the operation of the telephone 

network, the agency is not required to examine the impact of the 

proposed change on small business because it has been determined 

that small business users are not directly within the regulatory jurisdiction of the FCC, yet almost all small businesses have telephone networks or use telephone services. Further, small businesses often do not have the time or resources to wade through an 

FCC proposal and relate that impact that it would have on its cost 

of using the telephone network. I especially hear this from our 

small local telephone exchanges and rural telephone exchanges 

that the FCC drafts rules and regulations for the big entities that 

then include everybody without taking into consideration the impact on the smaller companies. 

In fact, last session, Chairman, I introduced a bill that would 

just simply ask the FCC to take into account this type of impact 

on small telephone companies and exchanges, which you, through 

this philosophy, have adopted in your bill, and I thank you. 

Now, Mr. Chairman, another important reform that you have included in your bill is a new Section 613 of the RFA which mandates that the chief counsel of the Small Business Administration 

issue advisories to agencies that must be adhered to during the 

regulatory writing process. These advisories can be used by small 

businesses in suits to enjoin agencies from these onerous, illegal, 

regulations and greatly assist the chief counsel in fighting burdensome regulations on behalf of small businesses. 

Mr. Chairman, H.R. 2345 is an important bill for these and other 

reasons. Your leadership on this issue and the effort to reduce regulatory red tape by championing this legislation is extremely important. At a time when the threat of outsourcing and the need to 

create new jobs is a priority of Congress, the Regulatory Flexibility 

Improvements Act provides a big assistance to small business owners. 

Mr. Chairman, thank you for this opportunity to testify, and I 

look forward to working with you in getting H.R. 2345 enacted into 

law. 

[Representative Terry’s statement may be found in the appendix.] 

Chairman MANZULLO. Thank you, Congressman Terry. 

Our next witness is Congressman Mike Pence from the great 

State of Indiana, Hoosier Country. 

5

STATEMENT OF THE HONORABLE MIKE PENCE (IN-6) 

Mr. PENCE. That is right. Thank you, Chairman, and thank you for the privilege of permitting me to testify and to return to the 

Small Business Committee that I had the privilege of serving on 

during the 107th Congress, and apropos to my testimony today, I 

had the privilege of serving as the chairman of the Subcommittee 

on Regulatory Reform and Oversight. It is really with that background and sitting on the other side of the table, Mr. Chairman, in many hearings just like this on 

these issues that I was very anxious to support H.R. 2345, the Regulatory Flexibility Improvements Act. As you know, Mr. Chairman, during my tenure as subcommittee chairman, I held a number of hearings and one very comprehensive 

roundtable on regulatory burdens facing small businesses. Every 

trade association and group had different concerns because of the 

agencies that regulated their members’ businesses, yet almost 

every single witness that came before the subcommittee expressed 

two consistent themes, and I think they bear amplification today. First, all of the small businesses that I heard from said they face problems complying with complex, often arcane, federal regulations 

that they are unaware of until a federal inspector comes walking 

through the door and informs them that they are in violation. Secondly, the analysis done in support of regulations often was inadequate and did not focus on the challenges facing those same 

small businesses. In a word, there was very little relationship to 

what was happening on the shop room floor in small businesses 

that I heard from and what was happening in the regulatory state. Certainly, much has changed since I served as chairman of the Subcommittee on Regulatory Reform. President Bush declared it 

was the policy of his administration that federal agencies were no 

longer to ignore compliance with the Regulatory Flexibility Act, 

and that was progress. 

Dr. John Graham, the head of the Office of Information and Regulatory Affairs at OMB, I believe, has done a remarkable job with 

a small staff in revamping review of regulations and demanding 

sound scientific and economic support of regulations. Tom Sullivan 

has been an admirable advocate on behalf of small businesses, and 

even from my rather distant standpoint, I think he has worked 

very closely with Dr. Graham in ensuring that federal agencies 

comply with the RFA. 

So there has been progress, and even during my tenure on this 

Committee, I saw that process work to the benefit, in particular, 

of one area of small business that saw the rules applied to them 

change and be conformed to a greater degree of rationale, and it 

had to do with the reporting of essentially minuscule amounts of 

lead that were left as a residue in the printing process. 

Given the success of this administration in imposing a significant 

degree of rationality in the issuance of regulations, one might ask, 

why is it even necessary for us to consider H.R. 2345? 

Well, first, Congress continues to enact legislation that will require regulations, such as the prescription drug benefit for Medicare-eligible individuals. 

Second, administrations come and go, and so do the people that 

staff them. Replacements may not always be as qualified or as 

6

dedicated as those that I have previously mentioned, or they may 

actually bring different agendas based on a different president’s 

policies. 

Third, political appointees obviously, we all know, come and go, 

but most agency personnel remain, and they may not be as committed to compliance with the RFA. 

Fourth, court interpretations of the RFA are unchanged by the 

actions of the Executive Branch, and agency personnel will use 

those interpretations to avoid performing the analysis that Congress has mandated. 

At the bottom, the United States distinguishes itself, I believe, 

from other nations in that we operate under a rule of law in which 

the actions even of federal agencies are subject to significant public 

scrutiny and challenge in the courts. Leaving compliance with the 

RFA to the whims of federal agency personnel and ever-changing 

administrations undermines the basic principle that this country is 

governed by the rule of law and not the rule of man. 

Even if Dr. Graham and Mr. Sullivan do their jobs flawlessly, the 

RFA itself has flaws, the courts have identified those flaws, and 

agencies will exploit those loopholes to avoid performing analyses 

that might undercut the rationale for their unprecedented regulatory outcomes, and this is not acceptable. 

In evaluating actions that adversely affect the environment, federal agencies first study the scope of any adverse actions, the consequences of taking an action, and alternatives to the proposed actions. Agencies should take the same rational approach when promulgating regulations. But even putting pen to paper, the agency 

should determine whether a problem exists, the scope of the problem, and potential regulatory alternatives. The RFA can, if all of 

the loopholes are closed, play a key role in this rational rule-making process, which must be the order of the day in this city. 

The president has said that compliance with the RFA is important, and the only way to ensure that compliance really occurs 

under this president and future administrations is to make the law 

tougher. For these reasons, I determined that co-sponsorship of 

H.R. 2345 is critical, and I strongly support your efforts, Mr. Chairman, to move the bill, enact it into law, and protect America’s 

small businesses. 

Again, let me thank you, Mr. Chairman, for the opportunity to 

return to this Subcommittee, and let me also say, inasmuch as the 

Judiciary Committee also shares some jurisdiction of this legislation, I look forward to working very closely with you and other 

members of the Small Business Committee to see to its completion 

in regular order and its passage on the House floor. 

[Representative Pence’s statement may be found in the appendix.] 

Chairman MANZULLO. Thank you. Do any of our colleagues here 

have any questions to ask of our colleagues? 

[No response.] 

Chairman MANZULLO. Okay. Well, that was pretty easy. Thank 

you for your testimony. 

If we could have the next panel come up and keep on moving. 

[Pause.] 

7

Chairman MANZULLO. Okay. I am waiting for Mr. Sullivan to be 

the lead-off batter here. 

Gentlemen, thank you for coming. Our first witness will be Tom 

Sullivan, who has done nothing less than a stellar job at the Office 

of Advocacy and involved in a lot of fights. Tom, I look forward to 

your testimony. 

STATEMENT OF THE HONORABLE THOMAS SULLIVAN, SMALL 

BUSINESS ADMINISTRATION 

Mr. SULLIVAN. Thank you, Mr. Chairman, Congresswoman 

Velazquez, Congressman Case. It is always nice to appear before 

a Committee that is considering legislation to strengthen the core 

mission of the office. It is also nice to be here before a panel of 

other members of Congress who speak so favorably about the hard 

work that goes on in the office. So it is an honor to appear before 

you this afternoon. It is also an honor to address how to make the 

Reg Flex Act work better. Because my office is independent, these 

views are my own and do not necessarily reflect the views of the 

administration or the United States Small Business Administration. 

I have prepared a comprehensive, lengthy statement to aid the 

Committee’s work in improving the Regulatory Flexibility Act. I 

suspect the Committee would appreciate my summarizing instead 

of reading the document in its entirety. 

The Regulatory Flexibility Act, as amended by the Small Business Regulatory Enforcement Fairness Act, has been successful. In 

the past three years, my office estimates cost savings of over $31 

billion, and I will say that again. We estimate cost savings of over 

$31 billion. Even with the additional requirements under SBREFA 

and the threat of judicial review, some agencies were not complying 

with the requirements of the RFA. 

A formalized and closer working relationship with John Graham’s office at the White House and Executive Order 13272, entitled ‘‘Proper Consideration of Small Entities in Agency Rulemaking,’’ were part of the president’s small business agenda, and 

they are making a tremendous difference. The executive order enhances my office’s RFA mandate by directing federal agencies to 

implement procedures and policies for measuring the economic impact of regulatory proposals on small entities. It also requires agencies to notify my office of draft rules that are expected to have a 

significant economic impact on small entities and to give every appropriate consideration to any comments provided by the Office of 

Advocacy, including publishing a response to our comments in the 

Federal Register. 

A recent success for small business highlights how the Office of 

Advocacy and John Graham’s Office of Information and Regulatory 

Affairs relationship and the executive order are working. The construction and development rule, recently announced by the EPA, 

was something that Small Business and my office and John Graham’s office worked on for over two years. 

Basically, EPA, recognizing that storm water runoff can lead to 

pollution in rivers and streams, wanted to create a whole new federal permitting system that takes permit information already required at a state, local, and regional level and superimpose that inVerDate 0ct 09 2002 19:53 Oct 01, 2004 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 G:\HEARINGS\94113.TXT MIKEA
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formation on a new federal permit sent to an office in Washington. 

Small businesses that are required to work and comment through 

our office and through the SBREFA panel told EPA, then under 

the leadership of Governor Whitman, that this was a bad idea. 

Adding a new paperwork requirement would not result in cleaner 

water. 

So for two years, we have worked to bring that common-sense 

point of view into EPA, and as of one month ago, EPA finally 

agreed and decided not to regulate a whole new system of federal 

permitting requirements on storm water construction and development runoff. That is the most recent victory under the president’s 

direction and the increased attention of agencies to the Reg Flex 

Act. 

The bill that is before us this afternoon, H.R. 2345, is important 

because even though the last few years have yielded a number of 

successes, there are certain loopholes in the RFA that were not addressed through the executive order or SBREFA. H.R. 2345 would 

amend the RFA to address those loopholes. 

Since my office is independent, we have to take our direction directly from small business. The way we do that is we hold 

roundtables, we solicit comments, and information from our regional advocates, and when we did that on this particular bill, the 

small business representatives, many of whom are behind me in 

the room listening to this hearing this afternoon, cited five specific 

issues of importance. The first is closing the loophole of agencies 

not measuring indirect economic impacts; second, inclusion of IRS 

interpretative rules; third, the importance of analyzing cumulative 

impacts; fourth, the importance of analyzing beneficial impacts; 

and, fifth, the expansion of the panel process to more agencies. And 

with the chairman’s permission, I am prepared to go fairly close to 

the full 10 minutes. 

The direct versus indirect economic impact. Of all of the issues, 

the most prevalent concern of the small business community is the 

lack of inclusion of indirect impacts in the current version of the 

RFA. Pursuant to Sections 603, 604, and 605[b] of the RFA, agencies are required to consider the impact of an action on small business entities, but they do not measure the indirect impact. 

You may recall, Mr. Chairman and Congresswoman Velazquez, 

that there was a hearing we had in this Committee where the INS 

had proposed to cut off stay, legal extensions of stay, from foreign 

visitors in this country in the wake of September 11th. We know 

that that rule, proposed by INS, said that we regulate the activity 

of individuals, not small businesses. 

I think the Committee deserves a lot of credit for recognizing the 

flawed logic in that, in that small businesses would be affected. 

The travel industry, the tourist industry, specifically, in the State 

of Florida, who came to testify also before this Committee, identified that, yes, maybe INS does not directly affect these small businesses, but their actions have a definite impact on the small businesses that are affected by their proposals. That is an indirect impact, and that is a loophole that INS used not to do the analysis. 

That loophole should be closed, and it is with the passage of H.R. 

2345. 

9

Advocacy also supports the expansion of the SBREFA panel process that is in H.R. 2345 to better sensitize CMS, IRS, and the Federal Communications Commission to small business concerns. We 

do have a concern about the changes in H.R. 2345 with regard to 

the panel process. The panel process described in Section 6 of H.R. 

2345 provides the Office of Advocacy with the responsibility of 

drafting the panel report. 

The current process that exists between OSHA and EPA represents a consensus report negotiated between the offices—the Office of Advocacy, OMB—and the promulgating agency. This process 

encourages stewardship or a custodian relationship of the rule from 

the agency. It is my office’s view that that is what actually gets the 

agencies to do the right thing and sensitize their actions to small 

business. 

If this bill gets signed into law simply telling the Office of Advocacy, you write all the reports, it distances the agencies from understanding or being involved or having a stake in their own regulatory process, to believe that if it is a consensus position of how 

small businesses feel, they are much more likely to endorse and 

adopt the recommendations coming from those panels. So our suggestion to amend H.R. 2345 to improve an already good bill would 

be simply to make the panel process consistent with the existing 

panel process that exists with EPA and OSHA. 

Section 9 of H.R. 2345 amends the Small Business Act to allow 

the Chief Counsel for Advocacy to specify small business size definitions or standards for purposes of any act other than the Small 

Business Act or the Small Business Investment Act of 1958. My office is concerned that vesting the authority to determine size standards to the chief counsel for advocacy may cause confusion over 

which SBA office determines size standards. The SBA’s Office of 

Size Standards has the necessary expertise and resources to make 

appropriate decisions regarding industry size determinations, so I 

do not believe that that proposed Section 9 of H.R. 2345 will benefit small entities. 

To conclude, Mr. Chairman, Advocacy believes that H.R. 2345 

makes several needed improvements to the RFA. My office supports this legislation. The amendments will further federal agency 

understanding of their obligations under the Regulatory Flexibility 

Act. H.R. 2345 will improve the RFA to allow for a more thorough 

analysis, foster the consideration of alternatives that will reduce 

the regulatory burden on small entities, and improve the transparency in the rulemaking process. 

Thank you for allowing me to present these views, and I would 

be happy to answer any questions after the panel has concluded. 

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

Chairman MANZULLO. Thank you. 

Our next witness is Jere Glover. Jere has been involved in small 

businesses. In fact, when I first met Jere, you were in the Office 

of Advocacy, weren’t you? 

Mr. GLOVER. Indeed, I was, sir. 

Chairman MANZULLO. And then you retired and wanted to sail 

off on your sailboat, but you never ventured far from Washington. 

Mr. GLOVER. I got down to Miami. That was close enough. 

10

Chairman MANZULLO. We are thankful that you stuck around be- cause you have got so much wisdom and look forward to your imparting that to us this afternoon. 

Mr. GLOVER. Well, thank you. 

Chairman MANZULLO. How do you like that introduction? 

Mr. GLOVER. Very nice. 

Chairman MANZULLO. Sullivan says, ‘Why don’t you introduce 

me that way?‘ I said, ‘When you retire, we will say all kinds of 

things about you, you know.‘

STATEMENT OF JERE W. GLOVER, BRAND & FRULLA 

Mr. GLOVER. Mr. Chairman, Ranking Member, it is, indeed, an 

honor to be here and testify before you. I am Jere Glover with 

Brand & Frulla, a law firm specializing in litigation and regulatory 

and administrative law. 

Overall, I think it is fair to say that the Regulatory Flexibility 

Act has improved government regulations on how they treat small 

businesses. The regulatory climate for small business is clearly 

much better. Most agencies recognize the critical role that small 

businesses play in the economy, and most have recognized that 

they need to make their regulations accommodate small business. 

However, there are a few, as we will talk about later, whose compliance has lagged, and, quite frankly, the courts have been reluctant to fully enforce the law. This experience indicates that it is 

time for additional modifications to the Regulatory Flexibility Act. 

A brief history of how the Regulatory Flexibility Act has come 

about is important. Prior to 1980, all of the regulations in the government were basically one size fits all. Despite a presidential 

order, pending legislation, and efforts by the Office of Advocacy to 

get voluntary compliance with the concept of regulatory flexibility, 

I think we have to admit that that effort was a failure. The Reg 

Flex Act was then passed, and agencies immediately began to comply with the law. Unfortunately, over time, several critical flaws in 

the Regulatory Flexibility Act became apparent, for example, no judicial review, no mandatory small business input, an imprecise role 

for the Office of Advocacy, and the ease with which agencies could 

certify that the regulations did not affect a significant number of 

small businesses. It is unable to escape the conclusion that agencies could ignore the Regulatory Flexibility Act with impunity. 

In 1996, the Small Business Regulatory Enforcement Fairness 

Act was passed to correct some of these shortcomings. As the Committee knows, SBREFA added judicial review provisions to the Reg 

Flex Act to ensure that agencies would do more than simply provide lip service to the Regulatory Flexibility Act when developing 

and implementing regulations. While most agencies have markedly 

improved their compliance with the Regulatory Flexibility Act after 

SBREFA, some agencies still only give lip service to the Regulatory 

Flexibility Act and appear to believe that compliance with the Regulatory Flexibility Act is still voluntary. 

The Federal Communications Commission appears to have the 

worst record of compliance. In my written testimony, I gave a number of examples and quotes from letters from various chief counsels’ 

reports on compliance with the Regulatory Flexibility Act and a 

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sonable view of FCC’s compliance is they simply choose to comply 

when they want to and choose to ignore it most of the time. 

Other agencies, such as the Internal Revenue Service and the 

Center for Medicare and Medicaid Services, have had a similar but 

somewhat better record but clearly have had problems in recognizing it. 

The problem with these recalcitrant agencies is compounded by 

the fact that some court decisions. Unfortunately, some courts have 

begun to narrow the scope of the Regulatory Flexibility Act and appear reluctant to enforce the law. True judicial review has been 

rare. Unless Congress strengthens the RFA, I fear gains that have 

been achieved will be lost, and agency compliance will deteriorate. 

What needs to be done? First, the Congress needs to give the Office of Advocacy independent budget authority. Today, the office 

has, I think, 43 employees. That is a far cry from the 70-plus employees when the Regulatory Flexibility Act was first passed. Unquestionably, no other agency has produced the returns on government dollars spent Advocacy has generated: $50 billion of regulatory savings for small business compared to an annual budget of 

the Office of Advocacy of well under $10 million a year. Advocacy 

can take a great deal of pride under various chief counsels for the 

work that it has done and the things that it has accomplished. 

Second, the judicial review provisions of the Regulatory Flexibility Act need to be strengthened. The RFA should state specifically that courts should defer to any review or determination by 

the chief counsel for advocacy. The American Trucking case, in this 

regard, should clearly be reversed. 

Third, amendments to the law requiring more detailed analysis 

to substantiate initial regulatory flexibility analysis and final reg 

flex analysis, as well as ‘‘no impact’’ certifications, should be required. 

The committee proposes several other provisions for strengthening the law. Amendments to the Administrative Procedure Act 

have been rare. Enactment of the Regulatory Flexibility Act and 

SBREFA occurred over fierce opposition. Thus, any proposed 

amendments to strengthen the Reg Flex Act will face significant 

challenges from various Executive Branch agencies, independent 

agencies, and perhaps members of Congress, some of whom will 

raise objections. This should not discourage enactment of those provisions deemed most important. I think the fight is worth taking. 

In closing, I think it is important to keep in mind that those who 

seek to reform bear the burden of persuading agencies and policymakers that it is a national policy to preserve competition, and, 

more importantly, small business is the force that ensures competition in the American marketplace. Considering whether regulations 

have an adverse or unnecessary impact on small business is not 

special treatment. Rather, it is a commitment to a national policy. 

Avoiding unnecessary regulatory burdens to small businesses is 

good, sound, public policy. 

Thank you for having the opportunity to testify. 

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

Chairman MANZULLO. Thank you. 

The next witness, Frank Swain is an attorney with Baker & 

Daniels. He was chief counsel for advocacy from 1981 to 1989. He 

12

has a little bit of experience in that office, and, Frank, I appreciate 

your input and look forward to your testimony. 

STATEMENT OF FRANK SWAIN, BAKER & DANIELS 

Mr. SWAIN. Thank you, Mr. Chairman and Ms. Velazquez. I will 

try to resist the temptation to walk down memory lane too much 

here. I will say that, not counting Tom, the other members of the 

panel, I think you have a very unique panel that all are working 

on the regulatory flexibility bill of 1980. 

I, of course, was a teenager at the time, and I am probably in 

the unusual position of endorsing absolutely every word that both 

Tom and Jere Glover have mentioned so far about the history of 

the act and the impact of the act and the deficiencies of a law that 

was passed under great duress by the Congress in 1980, and the 

duress was not partisan duress. The duress was really principally 

from those people that considered themselves the keepers of the 

Administrative Procedure Act covenant and were resenting the fact 

that anybody would want to amend the Administrative Procedure 

Act that were coming out of anything other than a pure, administrative, jurisprudential background. 

But as I mention in my statement, 1980 was an era of great ferment of regulatory issues, and in 1980, of course, with the election 

of President Reagan there was a sort of renewed interest in controlling regulatory agencies, and lots of organizations and agencies 

in the Reagan administration were proposing very significant, statutory and regulatory reforms and, really, the Regulatory Flexibility 

Act, in my view, is the only time that Congress has passed a law 

that imposes regulatory reform procedures on a whole host of regulations. 

What we have learned over the intervening 20-some years is that 

[a], as was mentioned, enforcement powers were somewhat lacking 

at the outset. The Congress has gone a long way to correcting that 

through SBREFA, and now what we realize, and possibly because 

there are better enforcement powers now, the agencies seem to be 

more interested than ever in avoiding those conditions that trigger 

the regulatory flexibility analyses in the first place. 

So, to the extent that this bill is largely, not exclusively, but 

largely focused on what I will call the ‘‘front end,’’ that is, the decision by agencies whether to do the required analyses and the ability of the Office of Advocacy and others to monitor and correct 

those decisions when they are wrong; that is really an important 

step, and I hope that, although, as was mentioned, it will not be 

noncontroversial with the particular agencies, it is real important 

to try to go forward with that. 

I will briefly mention just a couple of other points which I think 

are very good in the bill. As this Committee and you know, Mr. 

Chairman, I have been working with an issue involving the IRS for 

two years, involving mobile machinery. You were kind enough to 

have a hearing last year at which that issue, among others, was 

discussed as an example, and it continues to be an example of a 

regulatory change that has a very significant impact on a very substantial number of small businesses, and no analysis was done, and 

the IRS said, we do not have to do an analysis. 

13

And I mention in my testimony, I actually sort of failed the theology course as to why they cannot do the analysis or they are not 

required to do the analysis. It is, in my view, a very abstruse set 

of arguments that they are making involving the Paperwork Reduction Act and Reg Flex and so on and so forth. But suffice it to say 

that Congress has got to go back and make perfectly clear that the 

IRS needs to do an analysis on most of the decisions that they 

make that have a regulatory impact, whether they designate them 

as interpretive or otherwise. 

Three other quick points. The positive impact. a number of agencies say, we are changing things for the good; therefore, we do not 

have to do a small business impact. My response when I was chief 

counsel and now continues to be, well, if you are changing it for 

the good, how do you know you could not change it even more if 

you do not do an analysis? I think that that is a necessary change. 

I like the provision that requires agencies to quantify what they 

are doing. You would think that is a no-brainer. How can you 

measure the impacts unless you quantify? We are well ahead of 

where we were 20 years ago when I was chief counsel. The ability 

to do that and what we know about economics and what we know 

about data bases, every agency should be able to do that. 

Finally, I will mention this. It has been mentioned before. The 

indirect-impact situation is very important. The direct costs of a 

rule are often minor compared to the indirect costs, and agencies 

need to be required to step up to the plate and analyze those costs, 

too. 

Mr. Chairman and Ms. Velazquez, thank you for the opportunity 

to make this statement. It is a pleasure to continue to be able to 

work on small business regulatory issues as I have for some time. 

In some ways, I am not worried about working myself out of a job 

if this legislation is passed because it continues to be an intense 

set of issues for small business, but I do think that enactment of 

this bill or something close to it would be a major step forward, and 

we appreciate very much in the small business community your 

support. 

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

Chairman MANZULLO. Thank you. 

Our next witness is Dr. Jim Morrison, who is president of the 

Small Business Exporters Association, and, Jim, we look forward 

to your testimony. 

STATEMENT OF JIM MORRISON, SMALL BUSINESS 

EXPORTERS ASSOCIATION 

Mr. MORRISON. Thank you very much. Thank you also for allowing me to appear on a panel with these public servants, all of 

whom I have a great admiration for. 

Chairman Manzullo, Representative Velazquez, members of the 

Committee, thanks for having me appear here today. I am Jim 

Morrison. I serve as the president of a small business organization, 

the Small Business Exporters Association, but I am here today primarily as a private citizen. I have been asked to comment on H.R. 

2345 in the light of my background in helping develop the Small 

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14

bility Act, so I will try to do so. I hope this information will be 

helpful as you go forward. 

By way of historical context, the idea for the Reg Flex Act was 

suggested to me in April of 1977 by Mr. Milt Stewart, who later 

became the first chief counsel for advocacy. At the time, I was on 

the staff of Senator Gaylord Nelson of Wisconsin, the chairman of 

the Senate Small Business Committee. Senator Nelson also liked 

the idea, and we drew in Senator John Culver of Iowa and others 

to help us move forward on the bill. 

In my written testimony, I describe in some detail my daily work 

on the RFA from then through the final passage in 1980. In the 

interest of time, I will not repeat all of that here, but I do think 

it is fair to say that I worked with every major player on the bill, 

and I sweated every line and, I think, pretty much every word of 

that bill for three years. 

Although I was not a congressional staffer on SBREFA, I again 

worked very closely on it on a daily basis with those who were 

drafting and negotiating the bill, since I was the head of an association coalition at that time in favor of the legislation. 

From that historical perspective, let me say a few words about 

your bill. First of all, I think it gets two very important points 

right: the extent to which the Reg Flex Act was modeled on the National Environmental Policy Act [NEPA] and the key congressional 

mandate of both RFA and SBREFA, which is the need for process 

change and culture change at the agencies. 

On the first point, both Senators Nelson and Culver were noted 

environmentalists. Each was a principal sponsor of a number of important environmental statutes. Several of their staff attorneys 

were deeply steeped in environmental law. We had many, many 

conversations in the late seventies about using NEPA as a model 

for the RFA. 

The consensus view was that NEPA offered a proven approach 

to sensitizing agencies to a set of external considerations and that 

it was an understood quantity by the courts and the administrative 

law bar. We believed that, by paralleling NEPA, we could successfully integrate the RFA into established administrative law with 

minimal disruptions. 

Our concern, however, was that litigants might seek to halt 

agency actions before they were finalized. This is called ‘‘interlocutory review.’’ This was allowed under NEPA, and it led to enormous abuse. We wanted to avoid that, but there were many disagreements about how to do so. This is what led to the tortured 

language about judicial review in the original RFA. It did not work. 

It confused the courts, and it created a pressing need for later revisions. That was the key reason we needed SBREFA some years 

later. 

In many other respects, however, the RFA and NEPA are strikingly similar. An agency certification of no small business impact 

under Section 605[b] of the RFA is meant to mirror the finding of 

no environmental impact under NEPA. The final regulatory flexibility analysis under Section 604 of the RFA parallels the environmental impact statement under NEPA, and so on. 

Both the RFA and NEPA were designed to alter agency culture 

and agency process without overturning the agencies’ statutory 

15

frameworks. While there has been progress in getting the agencies 

to internalize the small-entity considerations under the RFA, to 

this day, they do not seem to grasp that the RFA is every bit as 

much the law of the land as NEPA and that RFA analyses should 

be just as thorough and careful. 

The courts need some guidance, too, in my opinion. Judicial scrutiny of RFA analyses is typically far below that given to environmental impact statements. H.R. 2345 commendably tackles these 

concerns. 

In addition to these broad culture and process issues, the bill 

also addresses several specific problems very well. It clarifies the 

lead role of the chief counsel for advocacy in administering the 

RFA. Despite extensive responsibilities that Congress gave the 

chief counsel on both statutes, some court decisions have suggested 

that the views of the chief counsel do not need to be treated with 

deference by the agencies or the courts. This completely misreads 

congressional intent, in my opinion, and fundamentally endangers 

the RFA. The statute depends upon the chief counsel being able to 

stand up for small entities that are unaware of agency actions and 

unable to defend themselves from needless harm by the agencies. 

Congress needs to reassert the importance of the chief counsel to 

the RFA. Your bill could simply state that the agencies and the 

courts should give deference to Advocacy’s views, or it could have 

the Office of Advocacy write some basic rules for agency compliance 

with the RFA. 

Another good element of H.R. 2345 is its treatment of indirect 

economic impacts of the rules. We tried to solve the indirect-effects 

problem in both the RFA and SBREFA, but we could not find the 

right statutory wording. I wish we had thought of the approach 

that H.R. 2345 uses, paralleling the way the Council on Environmental Quality [CEQ] writes rules for agencies—a brilliant stroke. 

I also like the bill’s approach of defining indirect effects as ‘‘indirect economic effects of a rule that an agency reasonably could 

have foreseen.’’ Since both of these proposed language changes for 

RFA are based on settled principles of environmental law, expanding them into small-entity law should not create undue difficulties 

for the agencies or the administrative law bar. I urge the Committee to report the bill with both provisions. 

H.R. 2345 also works to bring Treasury IRS rules fully within 

the ambit of RFA, a very worthy cause which I hope will come to 

fruition. 

In my written testimony, I cite several other features of the bill 

which I think are good improvements to the RFA. While I would 

be careful about assigning more responsibilities to Advocacy than 

the office has the staff or budget to handle, overall, I think H.R. 

2345 is an excellent bill. That completes my prepared remarks. 

Thank you. 

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

Chairman MANZULLO. Thank you very much. 

I want to go back to a statement that Tom Sullivan made with 

regard to, I believe, the size standards. Tom, do you want to repeat 

that statement? I think you were analyzing 2345 and made a comment on that. 

16

Mr. SULLIVAN. The comment that I had made in my oral statement was that Section 9 of 2345 amends the Small Business Act 

to allow the Chief Counsel for Advocacy to specify small business 

size definitions or standards for purposes of any act other than the 

Small Business Act or the Small Business Investment Act of 1958. 

I had voiced my concern that vesting the authority to determine 

size standards to the Chief Counsel for Advocacy may cause confusion over which SBA office determines those size standards. The 

current SBA Office of Size Standards has the necessary expertise 

and resources to make appropriate decisions regarding industry 

size determinations. 

Chairman MANZULLO. One of the reasons it is in there is the 

hope that the Office of Advocacy could redo a size standard a lot 

faster than SBA. We had a terrible situation with several of Ms. 

Velazquez—the travel industry—remember that hearing, Ms. 

Velazquez?——

Ms. VELAZQUEZ. Uh-huh. 

Chairman MANZULLO [CONTINUING] And we had to have both Mr. 

Barreto here and Dr. Graham, and that was the afternoon that I 

said I was going to lock the door here until you guys come up with 

a solution. Mr. Pineles, our Regulatory Counsel whispered, I guess 

that might be a regulation by coercion. The courts might be prone 

to knock it down. It just reached the point after months and 

months and months and months. Nothing was happening. Now the 

SBA is in the process of getting all kinds of information. They put 

up a kite for the purpose of drawing information, and obviously 

that is the appropriate way to deal with the different groups that 

are interested in seeing it going. That is one of the reasons it was 

put in there. Did that have any impact on———. 

Mr. SULLIVAN. Yes, Mr. Chairman. It has a tremendously impact 

on my comment. First of all, you made the comment that the committee hearing that you had might have produced a beneficial regulation by coercion. Even though I recognize the sense of why you 

characterize it that way, my thoughts are a little bit different, and 

they are extremely complimentary of the oversight role of this 

body. My office would not be able to claim the successes of $31 billion cost savings without the aggressive oversight of this Committee. It works very well. It does not always work perfectly, but 

it works very well. 

Chairman MANZULLO. We make a lot of noise. That is for sure. 

Mr. SULLIVAN. And sometimes we get results. I think there are 

very recent activities that demonstrate those results, one being the 

travel industry and the CRS rules that the Department of Transportation was promulgating. I know that their representatives are 

here listening to this testimony today. 

The reason I have concerns with shifting some of the responsibilities and authorities from SBA’s Size Standards Office to my office 

is consistent with the approach government-wide. SBA really is no 

different than any of the other agencies that we seek to sensitize 

to small business with the RFA. In order for the Reg Flex Act to 

work, the agencies must do their homework themselves, knowing 

full well that the Office of Advocacy is looking over their shoulder, 

knowing full well that this Committee is looking over their shoulder. 

17

Chairman MANZULLO. With that new memorandum of agreement 

with OIRA, you now have additional powers. 

Mr. SULLIVAN. We do, and when we are looking over an agency’s 

shoulders and seeing things going the wrong direction, that MOU 

does allow for us to get those issues directly before John Graham, 

and he directs his attention immediately to them. The reason that 

I have concerns with that provision in 2345 is it almost gives the 

program office, whether it is at SBA, Department of Transportation, or anywhere else, the excuse not to do their homework and 

to simply pawn it off on the Office of Advocacy to do their homework for them. I think that that is a dangerous movement towards 

the way that the Reg Flex can actually work. 

Chairman MANZULLO. We can take a look at that. We had a series of hearings, two hearings, when HUD was in the process of 

trying to change that. But the RESPA, finally somebody woke up 

over there and withdrew it because of the angst that was caused. 

That was an $8 billion impact on small business, and the scholarship was just horrible. Why is it? Do we have a bunch of lazy bureaucrats in the agencies? Doesn’t anybody take us seriously? Do 

we have to haul these agencies here one by one and say, follow the 

Regulatory Flexibility Act, threaten lawsuits? What is it? 

To the four of you, if you could make any change in the RFA to 

wake these agencies up to the fact that small businesses are extremely important, what would you change in it? Jim, let us start 

with you. 

Mr. GLOVER. I think that some agencies need to lose some very 

important and high-profile lawsuits, and I think that would be the 

most important thing. It is not so much a change in the RFA, although strengthening judicial review provisions would facilitate 

that, but it is a change in the environment in which people regulate. 

Chairman MANZULLO. That is, some good defeats. 

Mr. GLOVER. Correct. 

Chairman MANZULLO. Judicially, we need some good impeachments to get these judges to follow the law as opposed to being creative. You do not have to comment on that. 

Frank? 

Mr. SWAIN. Well, Mr. Chairman, I agree with Tom that the biggest weapon on Reg Flex is to try the public embarrassment of the 

agency and the agency director, you and the other members of this 

Committee. 

Chairman MANZULLO. I can do that. 

Mr. SWAIN. That really works. It cannot be done on every regulation. Ultimately, to use the 50 cent word, the Advocacy Office’s 

powers are hortatory. They can stand up and exhort people to do 

different things or do them better, but ultimately the decision still 

has to be made by the agency, and that is a tension that there will 

always be any time you set up a regulatory agency to regulate, and 

somebody else, whether it is OMB or Advocacy, to review. 

I agree with Jim that the most significant changes could be made 

if we had some better court decisions that would bring us more into 

the mainstream of giving deference to SBA’s positions, and that 

part of the law, I think, is useful, that gives Tom some—I am not 

a smart enough administrative lawyer to articulate it, but gives 

18

Tom’s or the chief counsel’s opinions a greater level of deference in 

front of the courts such as similar to that that they are supposed 

to pay to the regulating agency. Now, how that would work out, I 

would be happy to talk informally about, but I think that would be 

very important. 

Chairman MANZULLO. He does not want to feel like Rodney 

Dangerfield, you know. 

Mr. SWAIN. That is the dilemma that I think every chief counsel 

for 25 years has tried to deal with. 

Chairman MANZULLO. Tom? 

Mr. SULLIVAN. Mr. Chairman, I think that we do get respect, and 

so in that way we certainly are distinct from Mr. Dangerfield. 

The one change, I think, that small businesses consistently come 

to my office and say has to be done with the Reg Flex Act and a 

loophole that needs to be closed is the indirect impacts. Small businesses repeatedly come in and say, look, I know that I am not 

being directly regulated, but it is so obvious that my business will 

be devastated if this rule is allowed to go forward, and at that 

point, our office is largely helpless. 

All of these other activities that we talk about; our office can 

raise significant issues on the RFA. Now, we may lose those issues, 

but it will not be for want of trying. When it comes to indirect impacts, we cannot even raise those issues because the courts say the 

agencies do not have to do the analysis. So for that reason, I believe closing the indirect-impact loophole is the most important 

change for H.R. 2345. 

Chairman MANZULLO. That is similar to the IRS with its interpretive. In fact, several years ago, the IRS decided to take a dentist 

in rural Illinois and put him on the accrual system as a pilot program, and once the commissioner found out about that, he took 

care of that. 

Mr. SULLIVAN. Well, Mr. Chairman, you gave me only one choice 

for a change. If you had given me two, that would have been the 

second. 

Chairman MANZULLO. That would be the second one there. But 

the IRS goes, just say it is interpretive, and, therefore, we do not 

have to do any obeisance to the statute. It does not make sense. 

Jere, you looked at this for a long time. 

Mr. GLOVER. I have, and, unfortunately, the cases that have been 

coming down in the last few years have weakened the law, and I 

think unless you get some clear reversals and some agency regs 

thrown out, the agencies, no matter what other change you make, 

will not take the law seriously. And I think that the judicial review 

provisions are critical, and I think deference to the chief counsel’s 

opinion is secondary to that but is very high ranked because I 

think that the courts should have considered this to be just like 

NEPA and have not. 

I think all of us involved in passing the law in 1980 and in 

SBREFA when judicial review was provided felt that we really put 

serious teeth into it, and a fair review of the court decisions that 

are coming down indicates the courts will go to great lengths to 

find reasons not to find a violation of the Reg Flex Act. In many 

cases, they simply ignore the law and do not discuss it at all while 

19

it is briefed. In other cases, they find some other excuse not to do 

it. 

We have had very few clean successes in the courts, and unless 

you change that, the agencies will always do something for Reg 

Flex, but when it comes to something they really want to do for 

some other reason, they are going to ignore it, or they are going 

to give it lip service and move on. Only the fear of having all of 

their work thrown out and having to start all over will make them 

respect the Reg Flex Act. 

Chairman MANZULLO. Thank you. 

Ms. Velazquez? 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Mr. Sullivan, the remarkable savings that your office has 

achieved is something of a double-edged sword. On the one hand, 

you testified that you have achieved a regulatory cost savings of 

$47 billion over the last three years. Those savings do not even include scores of items where savings are impossible to estimate. 

I know you are proud of this record, but doesn’t this level of proposed burden indicate that the agencies still have not gotten the 

message? I mean, part of the president’s small business plan was 

to order agencies to reduce the burden on small businesses, yet the 

agencies continue to propose more and more burdens unless you intervene to stop them. So is the president’s plan failing? 

Mr. SULLIVAN. Ms. Velazquez, I do not believe that the president’s plan is failing. You actually point out a very interesting dynamic related to the cost savings. We do articulate $31 billion of 

cost savings over the last three years. The irony in that statement, 

Congresswoman, is that the better job we do, the less cost savings 

will occur. The reason that that statement is true is because the 

whole sense of the Reg Flex Act is for agencies to consider small 

business impact before they propose rules, very early on in the 

process. 

So this may not slow down the level or number of rules that appear in the Federal Register, but what it should do is make sure 

that if an agency is adequately considering small business impact, 

preproposal, then what you read in the Federal Register would be 

the least-burdensome set of alternatives left to articulating the regulatory direction of laws that are passed by Congress. So in that 

scenario, Congresswoman, we would end up documenting less cost 

savings. We would also end up not necessarily articulating fewer 

rules, but we would have some indication that those rules are better sensitized to small business impact, better analytically and publicly fleshing out the analysis of how they will affect small business 

than they are currently. 

You also stated, isn’t there still a tremendous problem? And the 

answer to that is yes, and that is why it is so important that legislation like this to amend the RFA gets serious consideration. We 

have a lot of work to do. 

Ms. VELAZQUEZ. Sure. It is being shown by the amount of cost 

saving in terms of regulation and the fact that you mentioned the 

$31 billion. When we added the other numbers that you included, 

it totals $37 billion over the last three years. So, on the one hand, 

you have orders coming from the warehouse saying to the federal 

agencies that they have to do cost analyses in terms of the impact 

20

of those regulations on small businesses, but the fact that you have 

been able to stop them from doing so shows that they are not getting the message and complying with the president’s orders. 

Mr. SULLIVAN. The Congresswoman points out exactly why the 

RFA needs to be improved or strengthened, because even though 

we do document more and more savings, we are still not there yet. 

Ms. VELAZQUEZ. I have five minutes. Let me make the other 

question. 

Mr. Sullivan, I was surprised that the new Section 613, which directs Advocacy to write government-wide regulations to support implementation of the RFA, was not listed among your top priorities. 

In fact, I was more surprised that you do not mention it at all in 

your testimony. Do you support this proposed new section, and why 

didn’t you mention it? 

Mr. SULLIVAN. Congresswoman, there are a number of priorities 

that the small business groups have come in to tell us were important in improving the Reg Flex Act, and the ability to write rules 

was not in that laundry list of improvements. For the record, and 

you do, just by asking the question, give me the opportunity to bolster the record, my office is fully supportive of that provision to 

give our office the authority. 

Ms. VELAZQUEZ. Thank you. Do you think it would be difficult to 

write these regulations? 

Mr. SULLIVAN. Yes. It will be difficult, but certainly we will improve the overall framework of regulatory development for small 

business. 

Ms. VELAZQUEZ. Do you think it is possible to receive deference 

from the courts for your opinion on compliance with the RFA without regulations, as Mr. Glover and Mr. Morrison suggest? 

Mr. SULLIVAN. I believe that the legislative fix to give our office 

deference will likely make the difference. The specific legislative 

authority for our office to write the rules will obviously bolster our 

chances, but I do not know, with absolute certainty, how the courts 

will view that. 

Ms. VELAZQUEZ. Thank you. 

Mr. Glover, your testimony includes a cost analysis of the panel 

process using the RFA. The bill we are considering will add the 

IRS, CMS, and the FCC to this costly process. Assuming that these 

will add at least 20 panels per year to Advocacy’s workload,—IRS, 

for example, assumes that they will have to do 10 panels per 

year—can you walk us through the costs associated with that level 

of effort? How many lawyers, support staff, supervisors? Would 

they need a support contract? Can you give us a ball park figure? 

Mr. GLOVER. I viewed the panel process as one of my most important roles once the briefs have passed, and I try to attend every 

panel meeting. We had, generally speaking, two staff work on the 

panel process, one of the professional staff and one of the economists. We averaged five to 600 hours per panel in terms of workload. The most successful panel that we were involved with, we had 

outside economists, consultants, do the analysis. Probably the best 

money I ever spent in my life was the one for the ergonomics rule 

where we had an outside consultant go over OSHA’s economics 

panel. 

21

You figure about every three panels equals one more person, 

seven people, minimum, to get 20 panels. You are talking about 

two and a half to $3 million. 

Ms. VELAZQUEZ. Two and a half to $3 million. 

Mr. GLOVER. You need the economic background and support certainly at the beginning of the process. Once you get down, you may 

not need as much economist time as you do when you start, but 

those first few times, and you are learning a lot more about the 

agencies. I always felt the panel process was the highest return on 

investment that we made in terms of resources because we were 

getting there before the agency had publicly locked into a position. 

Ms. VELAZQUEZ. Mr. Swain, I know that you have been through 

this process before. Do you agree with those estimates? 

Mr. SWAIN. Ms. Velazquez, we had something similar to panels, 

but that provision was not available to me when I served. I do not 

have a view as to the numbers, although the number of people that 

Jere suggested strikes me as about right. If you have a panel, you 

cannot do it halfway; you really have to have somebody pretty 

much dedicated to it. So I would not be surprised if it were well 

north of a million and maybe, depending on how many times they 

did it, two or three. 

And the problem that every chief counsel has is that you have 

to make choices as to which rules you get engaged with because 

there are many more rules that arguably impact small business 

than you could possibly deal with, so every time you choose to look 

at an FCC rule, there is somebody over at the EPA that you probably should be looking at that you just do not have the human 

power to do it. 

So if this provision of the bill is passed, I think it would be necessary to significantly increase the budget of the office because I 

do not think anybody can borrow enough people to do the panels 

and continue to do the regular job. 

Ms. VELAZQUEZ. Thank you. 

That brings me to you, Mr. Sullivan. You strongly support the 

expansion of the panel process, and I am sure that you have 

thought long and hard about how much the panel process will cost. 

If we pass this legislation, do you have the resources to implement 

it? 

Mr. SULLIVAN. I believe that our office does have the resources 

at full staff to abide by the legislation if it is signed into law. 

Ms. VELAZQUEZ. I am stunned to hear that, sir. Mr. Glover and 

Mr. Swain here; they sat on that chair that you are sitting today, 

and they are saying two and a half million dollars. We are bringing 

them as witnesses here because of their expertise and their experience. 

I just cannot accept you sitting there with a straight face and 

telling me that you have the resources. You know you do not, the 

same way the administrator does not have the resources, and 

knowing that the budget that was submitted to us was not adequate, and you saw what happened back in January when we had 

to shut down, or they shut down, the 7[a] loan program because the 

administration did not submit an adequate budget. 

You know you do not have the resources, and I would ask for you 

to submit to this Committee in writing your informed estimate of 

22

how much and how many panels per year you have, how much was 

spent on those panels in terms of resources, how many panels you 

will expect if H.R. 2345 is adopted, and your analysis of the cost 

to Advocacy in terms of resources. 

Mr. SULLIVAN. You certainly will have that analysis, Congresswoman. Thank you. 

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

Chairman MANZULLO. Thank you. 

Congresswoman Bordello? 

Ms. BORDALLO. Thank you, Mr. Chairman. 

Good afternoon, gentlemen. I think my question would be directed to Mr. Sullivan. I see that Section 3 of H.R. 2345 would require land management plans issued by the United States Forest 

Service and the Bureau of Land Management, that they be subject 

now—this is something new—to the requirements of the RFA. 

What are the implications of this change for all parties involved, 

including private landowners, private small businesses, and the respective agencies, as they attempt to comply with their new statutory mandates? 

Mr. SULLIVAN. Congresswoman, the practical effect of the language would be to close a loophole from a Supreme Court case that 

dealt the RFA a little bit of a blow, and that was to not recognize 

the land management regulatory system as final actions for purposes of the Reg Flex Act, and the listing of the Land Management 

Act provisions just simply closes that loophole. 

Ms. BORDALLO. I see. 

Mr. SULLIVAN. The chairman’s counsel actually is someone that 

my office relies on when we are stretched for staff because we do 

have very few staff, and we have to rely on outside folks, including 

congressional staff and stakeholders and small business groups. 

Barry Pineles was very astute in identifying that the Supreme 

Court case that dealt with land management plans had shut small 

business out of the process from commenting substantively on 

them, and this provision in 2345 fixes that problem. 

Ms. BORDALLO. Fixes that up. So it was an oversight and something we had to correct. Is that correct? 

Mr. SULLIVAN. That is correct, Congresswoman. 

Ms. BORDALLO. Does the RFA currently apply to the Fish and 

Wildlife Service and National Park Service, and if so, what sort of 

impact has it had on small businesses, the agencies themselves, or 

any other interested parties, in your experience? 

Mr. SULLIVAN. In my experience, with regard to the Fish and 

Wildlife Service in the Department of Interior, we have definitely 

gotten their attention. The fisheries management plans that are 

going on, most intensely in my home town of Boston, will severely 

impact small fishermen or small businesses that have devoted their 

lifetime to fishing, and for some time the policies in those plans 

really kind of shut small business out of the process. And with the 

work of my office in every part of that system, from the regional 

management systems all the way here to Washington out of the 

Department of Commerce, we have inserted ourselves into that 

process to the point that now they are coming to us for advice on 

the economic impact analysis prior to writing management plans 

rather than afterwards. 

23

We have got a long way to go with the Fish and Wildlife Service, 

but we are better off now than we were about five years ago. 

Ms. BORDALLO. Naturally, I am interested in this because I represent a territory in the Pacific. Thank you. Thank you, Mr. Chairman. 

Chairman MANZULLO. Well, thank you very much. 

Something has to be done. There is a law on the books that people just do not seem to take seriously, and a major agency has put 

out a proposed regulation, taking just a very shallow view of the 

RFA, should know better, but I think it is just a pattern that is 

out there. 

As I recall, Tom, when the president put out the executive order, 

wasn’t there something in there that instructed your office to teach 

these agencies how to comply with the RFA? 

Mr. SULLIVAN. Yes, Mr. Chairman. Getting the respect of agencies is more than simply writing the letters criticizing their approach or criticizing their lack of compliance with the RFA. That 

goes to some distance but really not enough. So in the president’s 

executive order, he required not only for us to remain vigilant in 

publicly criticizing the agencies’ approach or lack of compliance 

with the RFA but also to train the agencies with how they are supposed to take into account their impact on small business. 

Chairman MANZULLO. Tell us your experience there because I 

know you had quite a program. You invested a lot of time and energy on that. 

Mr. SULLIVAN. We actually have a senior counsel, Claudia 

Rayford, who has run that program with tremendous success. I will 

get the specific numbers to the Committee after the hearing. We 

have trained over a dozen agencies where we go in for close to a 

full day with the rule writers and walk them through, step by step, 

this is what it takes to do the legitimate outreach, the legitimate 

economic analysis, the legitimate consideration of less-burdensome 

alternatives in order to comply with the Reg Flex Act. Every one 

of these trainings has received compliments from the folks that we 

are ordinarily critical of. It has been a sea change of attitude from 

an adversarial attitude towards a partnership attitude, and we 

have actually taken it a little bit further. 

Knowing that we are not going to be able to shoulder this entire 

burden ourselves, we have opened up this training to all stakeholder groups like NFIB, Chambers of Commerce, builders and contractors, home builders, and also congressional staff. They came in 

for a training as though they were regulators to simply be informed 

how we are training agencies. We believe that that better arms the 

small business community with the knowledge to know what are 

agencies supposed to be doing. 

And Congresswoman Velazquez points out a significant issue of 

resources. If more agencies have to do the analysis, and, hopefully, 

more agencies do the analysis and come to my office first, that 

means more work, and one of the ways that we are hopeful to 

spread out that work is to better inform and arm all of the stakeholder community with what to expect from the agencies so that 

not only is the Office of Advocacy acting as an oversight mechanism as the enforcer of the RFA, but the Associated Builders and 

Contractors are, the Chamber of Commerce is, NFIB is, the NaVerDate 0ct 09 2002 19:53 Oct 01, 2004 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 G:\HEARINGS\94113.TXT MIKEA
24

tional Small Business Association is, similarly to the way Congress 

and this Committee, in particular, also was looking over the shoulders of agencies to make sure that they were doing the Reg Flex 

Act. 

Chairman MANZULLO. Have you noticed any positive results? Are 

they listening to you? is my question. 

Mr. SULLIVAN. Some are, and some are not, and if they all were 

listening and acting, then I would have different testimony submitted to this Committee saying, you know, the system is not broken; let us not fix it. Some are listening. The ones that we get in 

and train are giving positive response and then actually following 

up with our office to say, look, we are working on a few regulatory 

proposals. Can we work with you to make sure that our impact 

analysis meets the straight-face test? 

The classic example is after September 11th when FDA was trying to look at rules to protect the nation’s food supply. When the 

President signed the executive order, and folks at FDA learned 

about this, they came to our office and said, oh, we should probably 

check with you before we start writing rules that are going to affect 

mom and pop supermarkets and local farm stands, and they did, 

and it is that type of early interaction———. 

Chairman MANZULLO. Did you notice that the RFA report was of 

quality as a result of the meeting with you? Maybe that is not a 

fair question. Let me ask the question again. Do you feel that the 

fact that they came to you ended up in a report that was more responsive than if they had not come to you? 

Mr. SULLIVAN. It is a better starting point than we have had in 

the past, but we are still not at the point where we can simply step 

back and say, you know, this agency really gets it, and we look forward to their final reports and rules because we are confident that 

that is going to reflect an adequate analysis of small business impact and alternatives. We are not at that point yet; otherwise, we 

would not need a strengthening of the RFA. 

Chairman MANZULLO. Well, again, I want to thank you all for 

coming this afternoon. We continue to work on it. We continue to 

work on the bill. I always appreciate your input. 

Ms. BORDALLO. Mr. Chairman, can I put in a point? 

Chairman MANZULLO. Sure. Absolutely. Go ahead. 

Ms. BORDALLO. Mr. Chairman, I am, you know, rather new here, 

a freshman member of Congress, but you mentioned something 

that kind of caught my attention, and that was, is there any mechanism in place for agencies that do not pay any attention? 

Mr. SULLIVAN. Congresswoman, right now, the mechanism is for 

my office to file an Amicus action in support of a challenge to an 

agency, so that is a litigation alternative that exists. It is the hammer. 

Ms. BORDALLO. Is it effective? 

Mr. SULLIVAN. It is not as effective as it could be, and that is one 

of the things that H.R. 2345 seeks to close as a loophole. If the 

Congresswoman would allow for me to amend a response to the 

Ranking Member as well, I think that, Congresswoman, I answered 

you, I think, a little bit too shortly when I said we can handle the 

resources of the panels. I think that in fairness to the Committee 

and the attention that you bring to the Reg Flex Act, yes, I think 

25

that we can handle it with our resources, but that is not fair to you 

to say that if we cannot, then it is incumbent on me to come to this 

Committee and say, these are the additional resources that we 

need. 

So not only will I get the chairwoman the breakdown of the panels, but I also will give this Committee my commitment that when 

we are past the breaking point or close to it, we will absolutely 

come to this Committee first and ask for the additional resources 

we need to make this amendment, this law, work. Thank you, Congresswoman Bordallo. 

Chairman MANZULLO. Thank you very much. The Committee is 

adjourned. 

[Whereupon, at 3:57 p.m., the Committee was adjourned.]

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