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78–734 2002

SBREFA COMPLIANCE:

IS IT THE SAME OLD STORY?

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SEVENTH CONGRESS

SECOND SESSION

WASHINGTON, DC, MARCH 6, 2002

Serial No. 107–46

Printed for the use of the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS

DONALD MANZULLO, Illinois, Chairman

LARRY COMBEST, Texas

JOEL HEFLEY, Colorado

ROSCOE G. BARTLETT, Maryland

FRANK A. LOBIONDO, New Jersey

SUE W. KELLY, New York

STEVE CHABOT, Ohio

PATRICK J. TOOMEY, Pennsylvania

JIM DEMINT, South Carolina

JOHN R. THUNE, South Dakota

MICHAEL PENCE, Indiana

MIKE FERGUSON, New Jersey

DARRELL E. ISSA, California

SAM GRAVES, Missouri

EDWARD L. SCHROCK, Virginia

FELIX J. GRUCCI, JR., New York

W. TODD AKIN, Missouri

SHELLEY MOORE CAPITO, West Virginia

BILL SHUSTER, Pennsylvania

NYDIA M. VELAZQUEZ, New York

JUANITA MILLENDER-MCDONALD,

California

DANNY K. DAVIS, Illinois

BILL PASCRELL, JR., New Jersey

DONNA M. CHRISTENSEN, Virgin Islands

ROBERT A. BRADY, Pennsylvania

TOM UDALL, New Mexico

STEPHANIE TUBBS JONES, Ohio

CHARLES A. GONZALEZ, Texas

DAVID D. PHELPS, Illinois

GRACE F. NAPOLITANO, California

BRIAN BAIRD, Washington

MARK UDALL, Colorado

JAMES R. LANGEVIN, Rhode Island

MIKE ROSS, Arkansas

BRAD CARSON, Oklahoma

ANIBAL ACEVEDO-VILA ́ , Puerto Rico

DOUG THOMAS, Staff Director

PHIL ESKELAND, Deputy Staff Director

MICHAEL DAY, Minority Staff Director

(III)

C O N T E N T S

Page

Hearing held on March 6, 2002 .............................................................................. 1

WITNESSES

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

Administration ..................................................................................................... 4

Rezendes, Victor, Managing Director, General Accounting Office ...................... 6

Frulla, David, Brand & Frulla ................................................................................ 8

Goldhecht, Norman, Regulatory Chairman, National Association Portable XRay Providers ....................................................................................................... 10

Dozier, Damon, Director, Government Affairs, National Small Business

United ................................................................................................................... 12

Gibson, Jeffrey, American Pacific Corp ................................................................. 14

APPENDIX

Opening statements:

Manzullo, Hon. Donald .................................................................................... 29

Grucci, Hon. Felix ............................................................................................. 31

Prepared statements:

Sullivan, Hon. Thomas ..................................................................................... 33

Rezendes, Victor ............................................................................................... 49

Frulla, David ..................................................................................................... 58

Goldhecht, Norman .......................................................................................... 67

Dozier, Damon .................................................................................................. 71

Gibson, Jeffrey .................................................................................................. 80

Additional Information: Statement submitted by Small Business Legislative

Council .................................................................................................................. 92

(1)

SBREFA COMPLIANCE: IS IT THE SAME OLD

STORY?

WEDNESDAY, MARCH 6, 2002

HOUSE OF REPRESENTATIVES,

COMMITTEE ON SMALL BUSINESS,

Washington, DC.

The Committee met, pursuant to call, at 10:05 a.m. in room

2360, Rayburn House Office Building, Hon. Donald A. Manzullo

(chairman of the committee) presiding.

Chairman MANZULLO. I would like to call this hearing to order.

Let me give you some good news. It is always good to have some

good news. We held a hearing at the Los Alamos in Santa Fe in

Congressman Tom Udall’s district because of the extremely poor

procurement policies, miserable procurement policies, on the part

of the DOE. We had brought in there—here is this national ad that

is getting $1 billion in procurement a year or in federal tax dollars

each year. We had one witness who testified that six of the local

Pueblos—those are the Indian tribes—only got a total of $5,000 in

contracts.

I spoke this morning at the National Hispanic Chamber of Commerce, which was founded by Mr. Barreto’s father. I ran into a lady

there who was one of the witnesses in Los Alamos. She said you

will not believe what happened. The Small Business Committee

raised so much cain down there that the people at the Department

of Energy decided to have some energy, and they set up a committee to oversee contracts going to small businesses.

One of the aggrieved parties, a small business lady—did you

meet her there, Anna, at the breakfast this morning—got put in

charge of this committee to make sure that the small businesses

got their fair share of contracts. She said I would like the same

type of subpoena powers that Mr. Manzullo has. They said you

have them.

The first shot out of the gate is $40 million in construction contracts set aside for the small business people out in Santa Fe. That

is why we have lots of oversight with this committee. The purpose

is to shake up the bureaucrats and shake out those contracts so the

small business people get their fair share. Is that right? You bet.

Today’s hearing is the first in a series that the Committee will

hold addressing compliance with the Small Business Regulatory

Enforcement Fairness Act or SBREFA. SBREFA modified and

strengthened the Regulatory Flexibility Act. The hearings will

identify problems with the Regulatory Flexibility Act and SBREFA.

Our goal is to draft legislation that will remove the loopholes agenVerDate 11-MAY-2000 18:40 Apr 27, 2002 Jkt 078734 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 E:\HR\OC\A734.XXX pfrm04 PsN: A734
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cies have discovered for not complying with the Regulatory Flexibility Act and SBREFA.

In 1980, Congress responded to the cries from the small business

community for help with the constantly growing regulatory burdens imposed by the federal government. Congress intended the

Regulatory Flexibility Act to alleviate the disproportionate federal

regulatory burden imposed on small businesses and other small entities. The authors intended the RFA to have the same effect on

agency decision making that the National Environmental Policy

Act had on agency decisions that would affect the environment.

The concept was to force the agencies to think through the problem

before using the knee jerk response of imposing regulations.

For 15 years, agencies largely ignored the RFA. This is not my

supposition, but rather the conclusion of the annual reports issued

by the Chief Counsel for Advocacy during that time. Congress also

held hearings highlighting agency failure to comply with the RFA.

SBREFA was enacted in 1996 as a response to federal agencies

ignoring the mandates of Congress. SBREFA strengthened the

RFA. The authors expected that the changes would induce agency

compliance. However, as we will hear today, agencies have found

new loopholes they can use to avoid compliance with the Regulatory Flexibility Act.

The premise underlying the RFA is simple. If an agency has two

methods of achieving its statutory objective, the rational choice

would be to select the one that imposes less burdens on small businesses and other small entities. However, the agencies have used

interpretive gymnastics, even after Congress thought it closed them

with the enactment of SBREFA, to avoid conducting the required

analyses and identifying less burdensome alternatives that would

achieve their statutory objectives.

I look forward to working with the witnesses and others on legislation to close those loopholes, and I will now recognize the Ranking Member, the gentlelady from New York, for her opening statement.

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

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman, and good morning.

Regulatory and paperwork burdens are one of the greatest challenges that confront this nation’s small businesses. Firms that employ fewer than 20 workers face an annual regulatory burden of almost $7,000 per employee, a burden nearly 60 percent greater than

that of corporate America.

Today, many times small business owners do not have a legal department or a regulatory expert to help them understand and comply with federal rules. The hurdles created by regulations can

mean the difference between a business sinking or surviving.

In an effort to level the playing field for small businesses, Congress enacted the Regulatory Flexibility Act in 1980. This

groundbreaking legislation mandated that federal agencies consider

the impact their regulatory proposals would have on small businesses. This law was created to insure that such proposals did not

have unintentional and detrimental effects on small firms.

While the Reg Flex Act was the first step in providing some fairness in the regulatory process, much more still needs to be done.

Reg Flex was able to put small business concerns on the radar

3

screen of federal agencies, but compliance has proven both uneven

and elusive.

In 1996, President Clinton signed the Small Business Regulatory

Enforcement Fairness Act, also known as SBREFA. This raised the

regulatory stakes for agencies by putting legal teeth into the regulatory fairness process by allowing small businesses adversely affected by a proposed rule to challenge it in the courts. SBREFA has

gone a long way to improving the regulatory process and has

helped to protect the interests of small business.

I believe that today it is an appropriate time to go back and reexamine where we are in terms of the state of small business regulations. What we are now seeing is very much a mixed bag. Some

agencies actively engage small business in the regulatory process,

while others like the FCC, which is probably responsible for the

most regulations affecting small businesses, have one of the worst

track records for leaving small business out.

Another agency that has an inconsistent track record is the Center for Medicare and Medicaid Services. Today, CMS came out with

its prescription drug card proposal. This rule is a perfect example

of an agency’s failure to comply with the law. It also demonstrates

a lack of understanding of the Reg Flex Act and why it exists—to

protect small businesses and incorporate their views into the rule

making process.

CMS heard from Democrats on the House Small Business Committee who encouraged agency officials to speak to small businesses before they proceeded with the proposal process. Associations that represent small business such as the National Community Pharmacists Association and the National Association of Chain

Drug Stores also voiced their concerns to CMS. Still, the agency ignored this request for small business inclusion and pushed forward.

CMS, like other agencies, must realize that Reg Flex and

SBREFA were created for a reason. They serve an important purpose—to protect the interests of small businesses and to insure

that they are not negatively affected or overly burdened by an

agency rule that is in the pipeline.

The regulatory process is a complex and sometimes burdensome

undertaking, but regulations can also be fair, balanced and provide

necessary protections for our health, welfare and our environment.

Federal agencies must work to determine the impact their regulations have on small businesses, explore the regulatory options for

reducing that impact and be held accountable for the final choice

of a regulatory approach.

Thank you, Mr. Chairman.

Chairman MANZULLO. Thank you.

Our first witness is the Honorable Tom Sullivan, Chief Counsel

for Advocacy. Tom was with NFIB for years and has a great background. He has been on the job officially for about three weeks

now. Is that correct, Tom? We look forward to your testimony. I

think you know how the lights work. At five minutes we would like

to have you have your testimony concluded.

All of the statements of the witnesses will be made part of the

record, along with any statements of Members of Congress. Any in

the audience that wish to put a statement in the record, if you

4

want to do so you have ten days to do so, but try to keep it under

two pages.

Mr. Sullivan.

STATEMENT OF THE HONORABLE THOMAS SULLIVAN, CHIEF

COUNSEL FOR ADVOCACY, UNITED STATES SMALL BUSINESS ADMINISTRATION

Mr. SULLIVAN. Good morning, Mr. Chairman. Chairman Manzullo, Ranking Member Vela ́zquez, Members of the Committee,

thank you for the opportunity to appear before you today to discuss

the Small Business Regulatory Enforcement Fairness Act,

SBREFA. I am pleased that my complete written statement is already accepted into the record, and I will briefly summarize the

key points.

First, let me tell you what an honor and privilege it is for me

to have been appointed Chief Counsel by President Bush. This is

my first statement before a congressional Committee since my confirmation, and I am grateful for the tremendous support I have already had from this Committee, from other Members of Congress,

from Administrator Barreto, from the staff in the Office of Advocacy, from government leaders and from our many small business

organization and trade association friends.

SBREFA has made a difference, a big difference, both in opening

the rule making process to greater scrutiny and in reducing unduly

burdensome mandates on small businesses. We estimate that during fiscal years 1998 through 2001, modifications to federal regulatory proposals in response in part to Advocacy’s recommendations

resulted in cost savings totaling more than $16.4 billion or more

than $4.1 billion per year on average.

I mention in my written statement that SBREFA is helping

change the regulatory culture in at least some government agencies. It is important to note this morning, however, that this cultural change is by no means uniform among all regulatory agencies. One of the largest hurdles to be overcome remains resistance

in some agencies to the concept that less burdensome regulatory alternatives may be equally effective in achieving their public policy

objectives. Other agencies simply have not internalized their Reg

Flex responsibilities and do not seem to view its requirements as

germane to their mission.

I would like to offer a few remarks on Section 212 of SBREFA,

which requires agencies to publish compliance guides to assist

small entities in understanding their regulations. Frankly, I find it

embarrassing that government agencies must be forced to publish

guides to help small businesses comply with their rules, but recognizing that Section 212 is not working as intended, Advocacy wants

to work with this Committee and Congress and regulatory agencies

to make sure this problem is resolved. If additional legislation is

needed to clarify Congress’ intent, an annual report to this Committee from each agency with respect to its compliance guide efforts might be productive.

In conclusion, I would like to refocus our discussion on why we

have SBREFA, the Reg Flex Act or why, for that matter, we have

an Office of Advocacy. Why do we go to all this trouble? Perhaps

the best answer is the simplest. The bedrock importance of small

5

business to our economy, both at the national and community levels.

Small business is and has historically been our nation’s primary

source of innovation, job creation and productivity. It has led us out

of recessions and economic downturns. Small firms have provided

tremendous economic empowerment opportunities for women and

minority entrepreneurs. Small employers, as this Committee well

knows, spend more than $1.5 trillion on their payroll.

All these are good reasons for us to work to insure a healthy and

competitive small business sector. Small business wants a level

playing field. The cost of regulation is a good case in point. Our recent study on this subject disclosed that the cost of federal regulation to firms with fewer than 20 employees was almost $7,000 per

employee. Congresswoman Vela ́zquez mentioned in her opening

statement that that is more than 60 percent higher than their larger business counterparts. This disproportionate burden is a huge

impediment to small business realizing its full potential.

Although small business has done a remarkable job in coping

with this problem, it is tantalizing to think of what productive and

innovative energies would be unleashed if we could reduce this burden even further. That is why we do what we do at Advocacy, and

that is why Congress wrote the Regulatory Flexibility Act and the

Small Business Regulatory Enforcement Fairness Act—to help

small business realize their full potential.

I pledge the full cooperation and assistance of the Office of Advocacy in your deliberations of how best to accomplish this worthy

goal.

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

Chairman MANZULLO. I want to give you one more minute, Tom.

Could you read into the record your statement talking about CMS

starting on page 10?

We are going to have CMS accountability round three coming up.

I want everybody to realize that it is still HCFA as far as I am concerned. You do not change an old horse by giving it a new name.

Read in there the continuous abuses that are carried on by CMS.

Mr. SULLIVAN. I would be happy to.

Chairman MANZULLO. I hope someone from CMS can hear this

and take this back and let them know it is HCFA as far as I am

concerned.

Mr. SULLIVAN. I would be happy to, Mr. Chairman. In my written statement, as the Chairman mentioned, I did mention some

agencies that have been less accommodating in their compliance

with the Reg Flex Act.

CMS is one of those agencies. An advisory committee on regulatory reform has been formed at the Department of Health and

Human Services to identify overly burdensome Medicare regulations promulgated by that agency. This is a positive development,

but, frankly, a number of these overly burdensome regulations

would not be on the books today if CMS had complied with the Reg

Flex Act.

For example, in the case of the Medicare reimbursement methodology for portable x-ray providers, CMS has ignored Advocacy’s

comments and recommendations since 1998. Advocacy commented

on the proposed rule, indicating that the overall reduction in MediVerDate 11-MAY-2000 18:40 Apr 27, 2002 Jkt 078734 PO 00000 Frm 00009 Fmt 6633 Sfmt 6602 E:\HR\OC\A734.XXX pfrm04 PsN: A734
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care reimbursement for portable x-ray services amounted to as

much as 54 percent in some cases and that the agency had not prepared an adequate analysis of the impact on small entities.

GAO also published a report in 1998 acknowledging, with some

uncertainty, that portable x-ray providers may not be able to continue supplying services as a result of the reduced payments.

CMS, formerly known as HCFA, published a final rule in this

case which essentially ignored the comments of Advocacy and industry, so Advocacy submitted additional comments indicating

that, under the Regulatory Flexibility Act, CMS was required to

address comments received in response to the initial regulatory

flexibility analysis.

Eventually, a transition period for implementation was allowed

after a post final rule discovery that a transition payment provision

had been left out. This ‘‘fix’’ still did not address the overall issue

of the need for an impact analysis.

In December, 2001, Advocacy was again forced to comment on a

new payment regulation, this time a direct final rule where the

agency waived the Administrative Procedure Act requirement for a

notice of proposed rule making. Once again, CMS failed to assess

adequately the impact of the rule on small portable x-ray providers.

Chairman MANZULLO. Thank you, Tom. I appreciate that.

The next witness is Victor is it Rezendes?

Mr. REZENDES. Yes. That is correct.

Chairman MANZULLO. He is the managing director of the U.S.

GAO, Strategic Issues Team. I look forward to your testimony.

STATEMENT OF VICTOR REZENDES, MANAGING DIRECTOR,

STRATEGIC ISSUES TEAM, GENERAL ACCOUNTING OFFICE

Mr. REZENDES. Thank you, Mr. Chairman. It is a pleasure to be

here today to discuss both the—— Chairman MANZULLO. Could you put the mike a little bit closer?

You might have to bring it up.

Mr. REZENDES. Sure. How is that? Is that better?

Chairman MANZULLO. Push it up like this. Let us try that.

Mr. REZENDES. Okay. Great.

Although the Regulatory Flexibility Act and SBREFA have clearly affected how agencies regulate, their full promise has yet to be

realized. Over the last decade, we have called for greater clarity to

help agencies implement these laws.

The questions that remain unanswered are numerous. For example, should the economic impact of a rule be measured in terms of

compliance costs as a percentage of annual revenues or work

hours? If so, is three percent of revenues or one percent of revenues

or work hours the appropriate measure?

These questions are not simply a matter of administrative conjecture. They go to the heart of determining the regulatory relief for

small businesses. This lack of clarity is clearly illustrated in EPA’s

current guidance that provides the substantial discretion, but also

provides numerical guidelines for making these decisions.

These numerical guidelines establish what appears to be to us a

high threshold for what constitutes a significant impact. The rule

could theoretically impose $10,000 in compliance costs on 10,000

small businesses, but still be presumed not to have a significant

7

impact as long as those costs do not represent one percent of the

revenues of those firms.

We have issued several other reports over the decade that

reached similar conclusions. In 1991, we examined the implementation of the Regulatory Flexibility Act as it related to small government jurisdictions and concluded that each of the agencies that we

reviewed at that time had a different interpretation of the Act.

In 1994, we examined 12 years of annual reports prepared by

SBA’s Office of Counsel for Advocacy and said the reports indicated

variable compliance. In 1998, we said that the lack of clarity regarding whether EPA should have convened panels on two proposed rules was traceable to the lack of agreed upon government

wide criteria as to when a rule had a significant impact. In 1999,

we noted a similar lack of clarity on the requirement that agencies

review their existing rules that have significant impact imposed

over the last ten years of their promulgation.

Last year, we issued two additional reports. One examined the

requirement that agencies establish a policy for the reduction of

civil penalties on small entities. All of the agencies’ penalty relief

policies that we reviewed were within the discretion that Congress

provided, but the policies varied considerably. Some covered only a

portion of the agency’s enforcement actions, and some provided

small entities with no greater relief than they did to larger firms.

The last report we just issued examined the requirement that the

agencies’ publish a small entity compliance guide for any rule that

requires a final regulatory flexibility analysis. We concluded that

the requirement did not have much of an impact, and implementation also varied across the agencies. Some of the requirement’s ineffectiveness and inconsistency is traceable to a definitional problem. Other problems were traceable to the discretion provided

under the Act. Under the statute, agencies can designate a previously published document as its small entity compliance guide or

develop and publish a guide with no input from the small entities

years after the rule takes effect.

The bottom line, Mr. Chairman, is that these statutes provide

agencies with a great degree of discretion. While flexibility allows

agencies to address unique situations, it also results in wide variation between agencies and in some cases within agencies.

If Congress is unhappy with how these Acts are being implemented, it needs to either amend the underlying statute to provide

greater clarity or give some other entity the authority to issue

guidance on these issues.

Thank you, Mr. Chairman.

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

Chairman MANZULLO. We have a general vote, so I think we are

going to break now. We will be back here in a couple minutes,

probably about ten or 15 minutes.

[Recess.]

Chairman MANZULLO. Our next witness is David Frulla from

Brand & Frulla. We look forward to your testimony.

You might want to put the mike a little bit closer to you.

8

STATEMENT OF DAVID FRULLA, ESQUIRE, BRAND & FRULLA

Mr. FRULLA. Thank you, Chairman Manzullo. The Ranking Member is not yet back, but I do appreciate the opportunity to address

the Members of the Committee today.

I am with a ten person law firm in Washington, D.C. We have

handled I think nine pieces of RFA litigation since the law was

changed against the Commerce Department, EPA, HCFA and the

Army Corps of Engineers. We have won some, lost some, settled

some, which I would like to talk about briefly, and had some

stayed, some pieces of litigation stayed while efforts to work out

more flexible solutions have been undertaken with some success.

We also have some litigation still in play, including for the National Federation of Independent Business Legal Foundation where

Mr. Sullivan just left.

What I would like to do today is three things. First, give you a

little bit of a history on a success story under SBREFA; second, to

address briefly some problems that we still discern; and, third, to

offer some concrete solutions from a litigator’s perspective. They

may not be broad reaching policy suggestions necessarily, but they

are things that we think are discrete and achievable and could help

those that have to litigate in the Regulatory Flexibility Act forum.

First on the success story briefly. We represented in one of the

Reg Flex cases that we undertook a coalition of commercial shark

fishermen from the Atlantic Ocean and the Gulf of Mexico. Smaller

businesses you could not imagine. We brought a broad ranging

challenge to the scientific bases for quota reductions they faced.

The National Marine Fisheries Service had also stubbornly insisted

that a 50 percent quota reduction would not have a significant impact on a substantial number of small businesses. They were all

small businesses, and they were all subject to a 50 percent cut.

The Judge did not necessarily understand fully the science. He

did understand the Reg Flex part. There were a series of Orders

issued. Finally, three years later, the case was settled. Part of the

settlement included a stay of the most draconian levels of quota

cuts, coupled with an independent review of the science that was

used to justify some of the further quota reductions.

The good news I can report is that the independent review of the

science showed that the underpinnings for these further quota reductions was not sufficient to support them. That is good news because it hopefully means that we can start on a more constructive

regulatory track for these clients. We also received in settlement a

measure of our attorneys’ fees, which was also much appreciated.

I would like to turn now quickly to some of the ways that agencies still attempt to get around the Reg Flex Act. Some claim that

binding actions do not represent regulations. We still see from time

to time inadequate certifications of no significant impact. Agencies

do still claim that their statutes do not provide them any flexibility

to consider constructive alternatives. Sometimes agencies will state

that the regulations do not directly impact small businesses. Sometimes they structure their regulations that way so they can avoid

Reg Flex.

Interestingly, we are seeing that one of the defenses now is that

agencies will dump a whole lot of economic information into the

record and not analyze it, which makes it pretty much impenVerDate 11-MAY-2000 18:40 Apr 27, 2002 Jkt 078734 PO 00000 Frm 00012 Fmt 6633 Sfmt 6602 E:\HR\OC\A734.XXX pfrm04 PsN: A734
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etrable for the judge. The judge says well, if there is that much information there must be a kernel of analysis in there somewhere,

so we do face that. Sometimes, finally, agencies do not have sufficient information or resources and fail to collect it. For that reason

as well, the Reg Flex analysis of impact and, more importantly, of

alternatives can fall short.

I would like to offer some suggestions in my final time. Jere

Glover, who was the former Chief Counsel of Advocacy who has

joined our firm, warned me that I should not tell you how to fix

it perfectly because neither he nor I are ready to retire yet. Here

are some suggestions.

We should extend the successful SBREFA panel process to other

agencies. One that I am familiar with is the National Marine Fisheries Service. It is a small segment of the Commerce Department,

but the people that it regulates are almost all small entities, and

the profusion of regulations is pretty intense.

We think it would be important, and again these are quite technical, sort of litigator perspectives, to clarify the applicable standards of review for SBREFA litigation. On questions of whether the

Reg Flex Act applies, that should be considered by the Court as a

matter of law, for instance. Agency analyses on economic impacts

and alternatives could then be considered under the arbitrary and

capricious standard.

The Regulatory Flexibility Act should be clarified either through

an amendment or direct Committee language to impose an affirmative obligation on an agency to base its Reg Flex analyses on reasonably adequate economic and social information. We can discern

that obligation from NEPA under the case law. We believe that

there is even a stronger reason for it under Reg Flex, which is set

forth in my testimony. The Reg Flex Act should state that courts

should defer to Mr. Sullivan and his staff in terms of legal questions relating to the Reg Flex Act and its application to a rule or

an agency. We would like to see the attorneys’ fees provisions addressed under the Equal Access to Justice Act, and, finally, you

should continue to fund the Office of Advocacy for the great work

that it does.

Thank you, sir.

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

Chairman MANZULLO. Thank you.

We are going to be working on some amendments to RFA and

SBREFA. Mr. Frulla, I would like you to be in contact with Barry

Pineles here. The SBA Ombudsman is in the room back there

somewhere, but work with him. There he is. Thank you for coming.

Work with the ombudsman and obviously with Tom Sullivan and

with staff on both sides of the aisle here. Let us start working on

some remedial legislation and go get them.

Mr. FRULLA. Thank you, sir.

Chairman MANZULLO. Thank you for your testimony.

The next witness will be Norman Goldhecht. He is the vice-president of Diagnostic Health Systems located in Lakewood, New Jersey. We look forward to your testimony.

10

STATEMENT OF NORMAN GOLDHECHT, REGULATORY CHAIRMAN, NATIONAL ASSOCIATION OF PORTABLE X–RAY PROVIDERS

Mr. GOLDHECHT. Thank you, Chairman Manzullo, Congresswoman Vela ́zquez and Committee Members, for the opportunity to

testify before you again today. My name is Norman Goldhecht, and

I appear before you today as the regulatory chairman of the

NAPXP. I am also a former owner of a portable x-ray company in

New Jersey who recently sold his company after 16 years largely

because I felt that the federal rule making was dooming our industry, and I could no longer afford to remain in business.

Selling my family owned business was particularly difficult for

me and my partner, who is my brother-in-law, because we had both

hoped to pass our company along to our children. Sadly, we realized that if we remained in this business we would not pass along

the legacy of a proud company, but the burden of an impossible situation in which quality patient care and service was not feasible

under increasingly onerous federal rule making.

I have been asked to provide the perspective of our small business dominated industry regarding CMS compliance with RFA. We

agree with the SBA Office of Advocacy in finding that CMS has

failed to comply for over three years relative to the rule making

process for our industry. When asked by the press to comment on

the most recent plea by Advocacy to obey this law, CMS graciously

offered to consider complying next year.

The question before us is does the RFA work? One federal agency, the SBA, informs another, CMS, that they are in violation of

federal statute. This is not a situation where our industry or our

attorneys offered this analysis. This is the SBA Office of Advocacy.

CMS refuses to even respond to the SBA.

When we ask this Committee or the SBA what we can do to force

CMS to obey the law, we are told we can sue. Sue the federal government because as small businesses we are being driven into extinction through illegal rule making and are unable to survive financially. Sue the federal government because they refuse to respond to a federal agency of jurisdiction.

If we sue under RFA, we cannot receive any damages if we win.

All we can do is force CMS to obey the law. We might consider this

because we are small businesses who are facing bankruptcy over

illegal rule making. Rather than pay our employees, our creditors

or ourselves, we might pay lawyers to sue the federal government

to force them to obey the law. We are informed that we might receive funds to reimburse our legal costs of up to $125 an hour.

Let me see if I have this straight. One federal agency has confirmed that another federal agency is breaking the law. The offending agency refuses to comply with the law in spite of clear counsel

from the agency charged with oversight opinion that the offending

agency is in violation. SBA cannot bring suit. It is the job of small

businesses who are, because of law breaking, going bankrupt to

bring this to the court and hope that they can compel the offending

agency to obey the law at their own expense, minus what one pays

a plumber to come fix a leak on a Saturday and no compensation

for the harm done to small businesses.

11

The question before us is does RFA work? Mr. Chairman, I do

not mean to be disrespectful, but my industry has cried foul for

years and received steadily worse treatment for our trouble. We

now have what to a normal citizen, a taxpayer, a Medicare patient

or a constituent, would appear to be an open and shut case. The

SBA says we are right, and CMS is wrong.

That and a few hundred thousand dollars over a few years to sue

the government might force CMS to agree to what they should

have done in the first place. No more. The reality is we will not

be around to see the case through because the rule making in question is bankrupting us.

The issue before us today is agency compliance with the RFA. I

believe that our experience provides a textbook example of why this

admirable law deserves the teeth required to allow it to achieve the

intent this Committee and the Congress intended.

If our situation does not frustrate and anger this Committee as

it frustrates and angers us, then your work on this matter is done.

If this Committee feels that the small businesses served by that

law at best allows them to take a federal agency to court to force

compliance with no hope of compensation for damage, let alone the

true cost of acting as a government watchdog, then your work is

done. However, if this Committee is outraged by the callous refusal

of CMS to obey the law and respond appropriately to Congress, the

Executive Branch and the public in this instance, then I am afraid

that your work is not complete.

If this Committee does not believe that small businesses should

have to sue to force agency compliance, particularly when Congress

and the SBA are in accord regarding the lack of agency compliance,

then we are here to work with you to strengthen the law and protect American small businesses from federal agency abuse.

Our case against CMS does provide an illustration as to how the

current RFA might be strengthened. We begin with the premise

that by definition small businesses are those least able to pursue

legal remedies against federal agencies and the courts. This is all

the more true when the law does not allow for any damages, which

might offer incentive for private small businesses to hold agencies

accountable through suit.

As we are discussing a suit that is aimed solely at compelling the

agency to comply with the law, the time and money spent pursuing

such a suit should not be a further deterrent against wronged parties seeking justice. At the most obvious level, if the SBA Office of

Advocacy finds a violation there should be some level of compliance

required or penalty assessed short of legal action in the court of

law.

The Office of Inspector General for each agency serves as a

watchdog for that agency. Could the IG be employed to force compliance from an agency? At the very least, we must find a way to

enforce the existing law, if not improve upon it, by expanding the

Office of Advocacy’s jurisdiction or otherwise placing agencies——

Chairman MANZULLO. How are you doing on time, Norm? Your

red light is on.

Mr. GOLDHECHT. Summing up.

Chairman MANZULLO. Okay.

12

Mr. GOLDHECHT [continuing]. On notice that compliance will not

be tolerated.

In summation, I must stress that you represent our last and best

hope for fairness. Without your assistance, our services will continue to vanish, and the elderly nursing home patients will be denied our care. The most damaging effect, however, may not be to

small businesses and patients alone, but to all of our nation’s small

businesses that count on regulatory fairness and believe that laws

like the RFA protect them.

The NAPXP stands ready to assist the Committee in any way in

devising a workable solution to this serious problem.

Chairman MANZULLO. I am going to have to cut you off.

Mr. GOLDHECHT. That is fine.

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

Chairman MANZULLO. Thank you.

Our next witness is Damon Dozier, who is the director of Government and Public Affairs of the National Small Business United.

You know what the red light means?

Mr. DOZIER. Yes, I do, Mr. Chairman.

Chairman MANZULLO. You bet. Thank you, Damon.

STATEMENT OF DAMON DOZIER, DIRECTOR, GOVERNMENT

AND PUBLIC AFFAIRS, NATIONAL SMALL BUSINESS UNITED

Mr. DOZIER. My name is Damon Dozier, and I serve as the director of Government and Public Affairs for National Small Business

United, which is the nation’s oldest bipartisan advocate for small

business. NSBU represents 65,000 small businesses in all 50

states.

The goal of our organization is to protect and promote our members and all of our nation’s small businesses before Congress and

the Administration. We at NSBU work towards this goal by working with Congress, the media, our direct members, affiliates and a

national audience as a small business advocacy organization.

I am pleased to appear before the Committee to share my views

concerning the Reg Flex Act of 1980, as amended by SBREFA. I

would like to add that my views expressed today are based on my

direct experience in working with the RFA as a former Assistant

Advocate for Environmental Policy in the Office of Advocacy in the

Small Business Administration and as staff with regulatory affairs

responsibilities for the Senate Committee on Small Business and

Entrepreneurship. These views do not necessarily reflect those of

NSBU.

The bulk of my experience with the RFA has centered on monitoring Environmental Protection Agency compliance with the law,

which, during my tenure at the Office of Advocacy, included insuring that proposed rules were properly certified as not having a significant economic impact on a substantial number of small entities.

My duties also included, among other things, reviewing federal

agency initial and final Regulatory Flexibility Act analyses, filing

comment letters on proposed and final rules and, of course, providing assistance to the Chief Counsel in his role as one of the

three members of the SBREFA panel.

It has been my experience that, comparatively speaking, the EPA

has been particularly active in its small entity outreach efforts in

13

relation to the SBREFA panel process and has made some tremendous steps over the past six years in insuring that the small entity

representatives participating in such process have enough quality

data and information to make educated comments regarding rules

and development.

As of March 20, 2002, the agency will have completed 25

SBREFA panels. While completion of SBREFA panels is not and

should not be the only standard by which RFA compliance is measured, the record bears mentioning nonetheless.

For most of its major rule makings that affect small business

concerns, the agency has done adequate outreach. Through the exceptional efforts of the Small Business ombudsman, Karen Brown,

and the Small Business advocacy chair, Thomas Kelly, the agency

has put in place the right mechanisms to hear from small business.

A level of involvement, as we have heard here today, is desperately

needed at other federal agencies.

However, when I started at Advocacy in 1996, the SBREFA law

was very new, and it seemed that no federal agency was exactly

sure how to comply with the non-panel related provisions of

SBREFA and were not, quite frankly, very motivated to learn. Six

years later, this still seems to be the case. In my opinion, the RFA,

and later SBREFA, were desperately needed because federal agencies were refusing to do adequate outreach, in most cases any outreach at all, to small firms.

While one of the issues to be addressed at this hearing includes

perhaps adding additional agencies to the SBREFA panel process,

an option that I enthusiastically support, the problem of the lack

of outreach will still remain no matter how many are added unless

agencies are forced to change the belief that they can get away

with simply refusing to comply with the law.

There is more to SBREFA than the panel process. Just a few

short months ago, the General Accounting Office, in a report entitled Regulatory Reform: Compliance Guide Requirement has had

Little Effect on Agency Practices, found that six federal agencies,

including Commerce, EPA, FCC and SEC failed to produce small

business guidance documents as required by SBREFA, as required

by law.

GAO found that Section 212 of SBREFA has had little impact,

and its implementation has varied across and sometimes within

the agencies. Most alarmingly, not only did the six agencies fail to

provide compliance guides; some of the documents provided by the

agencies appeared to have been identified as small entity compliance guides only in response to our inquiry. As Mr. Sullivan said,

that is truly an embarrassment.

The findings of the GAO seem to be a microcosm for a larger

problem. Most federal agencies are simply not committed to agency

outreach and thus fail to comply with most of the RFA’s provisions.

If the agencies cited in the GAO report had been committed to

doing outreach to small firms and small business associations, even

if the agency found that a particular rule failed the significant and

substantial test, the small business community could have provided

pressure on these agencies to comply with 212 or at least make

them aware that the provision existed.

14

I see that my time is going. I do note that in my testimony I suggest specific fixes to the RFA law, and I would be happy to answer

any questions that you may have.

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

Chairman MANZULLO. We obviously want you to be part of the

input on the amendments, et cetera, Damon, when we start working on that.

Our next witness is Jeff Gibson, director of Support Operations

for the Halotron Division of American Pacific Corporation. We look

forward to your testimony.

STATEMENT OF JEFFREY GIBSON, DIRECTOR OF SUPPORT

OPERATIONS, HALOTRON DIVISION, AMERICAN PACIFIC

CORPORATION, NATIONAL ASSOCIATION OF MANUFACTURERS

Mr. GIBSON. Thank you, Mr. Chairman and the Committee, for

the opportunity to testify.

My name is Jeff Gibson. I am the director of Support Operations

for the Halotron Division of American Pacific Corporation. I am

here today representing the National Association of Manufacturers

and its 10,000 small and medium sized companies. I welcome the

opportunity to testify before you today on the necessity for

SBREFA compliance by federal agencies.

As a small business, we are reminded daily of the onerous and

unintended effects regulations can have on our and other small

businesses. While my testimony will focus on one particular regulation that has a direct impact on our company, I am submitting for

the record a list of regulations, both proposed and final, that affect

small manufacturers.

American Pacific Corporation employs 220 people in Utah and

Nevada. We manufacture specialty chemicals, and our sole manufacturing facility is located in Cedar City, Utah. Since 1958, we

have manufactured chemicals that are used in the space shuttle

and DOD solid rocket motor programs, and in the past decade we

have diversified into the air bag and fire protection market.

During the past three years, we have spent an inordinate

amount of time and an extraordinary amount of money to oppose

a proposed rule to establish an allocation system for controlling

hydro chlorofluorocarbons or HCFC production import and export

in the U.S. This proposed EPA rule would negatively impact our

company and many other NAM small businesses.

This rule proposes an allocation system for a key ingredient in

our fire protection chemical, which is also widely used in other

products from foam insulation to commercial chillers. We believe

that the EPA has not done due diligence in weighing the negative

impact to small businesses against the potential minimal environmental gain.

In 1992, realizing the need for alternatives to ozone depleting

fire suppression chemicals, we entered the fire extinguisher business. Our company developed Halotron I, an EPA approved replacement for halon 1211. Halon 1211 is a potent ozone depleter

that is no longer produced in the United States. Alternatives to

this substance are in great demand.

15

Our product is the most widely approved and used clean agent

for portable fire extinguishers in the U.S. However, our survivability is in jeopardy. The promulgation of this rule would benefit

the 27 producers and importers of HCFCs by establishing an EPA

created commodity market and would hurt many small businesses

through increased costs due to contrived shortages. These small

businesses should not be punished for following EPA rules and

bringing these innovative and more environmentally friendly products to market.

It took millions of dollars to research, develop and test our product and many years to meet all the criteria mandated by government agencies. We were finally able to bring this product to market

in 1996, and we are starting to see a return on our investment.

At the time the EPA prepared to initiate this rule four years ago,

the consumption of HCFCs was 92 percent of the Montreal Protocol

regulated cap. The EPA was concerned that the U.S. would exceed

its agreed upon maximum level. Subsequently, the EPA conducted

stakeholder meetings on a potential new rule to allocate HCFC

rights. Initially it was represented by EPA to be a placeholder that

would not go into effect unless U.S. consumption did near the cap.

Should that happen, a trigger mechanism would be invoked, and

the rule would go into effect. If the threshold was not reached,

there would be no rule.

In 1999, the EPA released an advance noticed of proposed rule

making to establish the allocation system to control the production,

import and export HCFCs in the United States. This rule was reproposed and released for public comment on July 20, 2001. As this

rule has evolved over the years, the HCFC consumption trend has

actually gone down instead of up as EPA has anticipated. The

threat of exceeding the cap is gone. Nonetheless, the trigger mechanism has been removed, and the EPA continues to push for this

rule to be enacted immediately.

HCFC consumption is down to 83.75 percent and will decrease

once HCFC 141b is no longer produced and imported at the end of

2003 as mandated by the Protocol. While we support compliance

with the Montreal Protocol, this rule as written is patently anticompetitive, ill conceived, unnecessary and disastrous to our and

many other small businesses.

The regulation, which will have little environmental gain, will

raise the price of HCFCs, creating a new bureaucracy of EPA reporting requirements and establishing a new commodity market

limited to only 27 companies that are slated to receive allocations.

Small businesses are bound to suffer price increases due to contrived shortages and lack of competition at the hands of a government created oligopoly.

In the preamble of the rule, EPA stated that there are no economic effects to a significant number of small businesses, yet they

do not know this because they have not conducted a regulatory

flexibility analysis to determine if small businesses are affected.

Chairman MANZULLO. How are you doing on time there, Jeff?

Mr. GIBSON. I will wrap up.

The Small Business Administration has worked with us on the

issue for several months. They have acted as a liaison between us

and EPA to find a solution. They have done an admirable job for

16

our and other businesses’ concerns. Unfortunately, the EPA persists in its quest to see the rule come to fruition no matter what

the cost, no matter what the ancillary effects, no matter that the

rule is no longer necessary.

Small businesses are important to this country’s economy, job

creation and innovation. These regulations have a disproportionate

impact on small businesses. The intent of SBREFA was to mandate

the federal agencies and thoroughly analyze—— Chairman MANZULLO. That is a good point to end on that sentence.

Mr. GIBSON. Okay.

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

Chairman MANZULLO. Thank you very much. I appreciate your

testimony. I do not want the bell to go off here.

You know, there is another outreach that we should add to the

tools, and that is the outreach of this Committee. We reached out

to the Veterans Administration when they went into the commercial laundry business and threatened to destroy 100 jobs in my district. We like to do pairs here. We like to sit the aggrieved party

next to the government bureaucrat that is responsible for that nonsense. VA went out of business that day in commercial laundry.

Right next to them we had an aggrieved owner of a campground

at Denali National Park when the National Park Service decided

to go into the hotel business. We matched the person in charge

from the National Park Service, and all of a sudden they decided

not to go into the hotel business.

What we are going to do is this, especially with CMS and the

portable x-ray people. We have Mr. Scully here, and we will have

accountability time, round three, with HCFA. The other agencies

that are beating up on the small businesses, it is accountability

time, folks.

I have the gavel. I have the power to subpoena. We may have

a hearing that will start at 8:00 on a Monday morning and run all

night until we get every single small business that is being screwed

in this nation up to this table with the bureaucrats in Washington

sitting on it.

Tom, if you could start working on that list of potential people,

we will load this place up. I will get the biggest room here, and we

will go all night and all weekend until these agencies come into

compliance. We had to bring the SBA here along with OIRA. They

sat around for six months on the standard for travel agents. It took

24 hours to get the new regulation in. OIRA is coming out with its

ruling tomorrow that will open that up.

I am prepared to do that, and I want that message to go deep.

If there are any bureaucrats in here representing any agencies,

watch out. My patience is at a total end, and I am not going to tolerate businesses such as what happened to you, Norm.

My mother was a victim of what HCFA did. She had a leg amputated. From time to time, when she was at the assisted living center the portable x-ray guy would stop by, take her x-ray and one

time found out that she had pneumonia and had to be treated for

that. Well, he went out of business. Do you know what happened

next time? They had to call an ambulance. They put her in an ambulance and took her to the hospital to perform an x-ray. That is

17

shameful that HCFA would waste money like that. Somebody

needs to be at this table, perhaps sworn under oath, as to why

HCFA is wasting money like that. It is accountability time.

Barry, would you work with Tom Sullivan?

Mr. PINELES. I always do.

Chairman MANZULLO. And also with the ombudsman and anybody else out there. You want to have a pair. The pair will be the

aggrieved small business person and the key person in government.

We will set it up, and we will go at it big time. Big time. No one

will get away from the room until that issue is resolved.

Well, Nydia, why do you not lead off the questions?

Ms. VELA ́ ZQUEZ. You do not want to ask questions?

Chairman MANZULLO. No. I made a statement here.

Ms. VELA ́ ZQUEZ. Okay. Mr. Rezendes, does SBA have the authority to issue regulations to federal agencies for the implementation

of the procedural provisions of the RFA?

Mr. REZENDES. We think that they have the authority to issue

clarifying guidance to them. I do not think there is a prohibition

from them doing that, although we have advocated since they have

not been too enthusiastic to do that that Congress may want to direct them or some other agency to do that.

Ms. VELA ́ ZQUEZ. Okay. Let me ask you. Could the Administration

somehow direct SBA to institute these regulations?

Mr. REZENDES. Yes. There is really no question about that. I

think, you know, having the Office of Advocacy having to file a

friend of the court brief on federal agency compliance with the federal rule in a federal court does not seem the easiest way to solve

this problem since this is all at the federal level. We are talking

about federal agencies implementing the federal law on themselves.

Basically, you know, greater clarity from SBA and having OMB

back that up and having some kind of oversight of the agencies in

terms of reporting and insuring compliance would seem a much

easier way to go about doing this.

Ms. VELA ́ ZQUEZ. Mr. Sullivan, do you agree or disagree?

Mr. SULLIVAN. I agree that we have an opportunity to work with

government agencies to actually make sure that they are doing

what they are supposed to do under the Regulatory Flexibility Act.

Elaborating on Mr. Rezendes’ comment on guidance to agencies,

we would welcome this Committee’s help to impress upon government agencies that that guidance already exists. Not only does that

guidance exist, but the Office of Advocacy has a training module

to actually help government agency rule writers comply with their

requirements under the Reg Flex Act. We want to help agencies

learn their requirements and do it correctly.

Any help which this Committee can provide to impress upon government agencies the need to take Reg Flex training seriously

would be greatly appreciated.

Ms. VELA ́ ZQUEZ. I guess that we will spend the whole year here

meeting with federal agencies.

Mr. Rezendes, you have testified that defining a significant small

business impact lies at the heart of the RFA. What I assert here

is this. The heart of the Regulatory Flexibility Act lies in its flexibility.

18

Agencies also have to tailor their regulatory alternatives and regulatory relief to their own regulations. Can you comment on what

we might be losing in regards to flexibility during the process of

attempting to further define the terms of the Reg Flex Act?

Mr. REZENDES. Yes. What I want to clarify is we are not looking

for a dogmatic, simple, clear definition that everybody has to comply with. We like flexibility. It provides the agencies with the authority to deal with the situation at hand, which is good. I think,

you know, for example, at SBA they define what is a small business based on almost the industry. It is not necessarily one definition fits all, so that is really good.

What we have seen is wide variation and wide discretion on the

part of the agencies in how they have interpreted this Act. Obviously the fact that the Advocacy Office had to file friend of court

briefs on this is clear evidence that there is probably an exaggerated use of this discretion. What is needed is some kind of enforcement mechanism, although I want to emphasize that this is all

within the Executive Branch. I mean, OMB working with the SBA

could easily insure that this happens.

Ms. VELA ́ ZQUEZ. Mr. Sullivan, do you believe that SBA should be

given the authority to regulate agency activity regarding certain

aspects of the RFA and SBREFA?

Mr. SULLIVAN. I believe that the Office of Advocacy should be

used as a resource to provide consistency in agency compliance

with the Regulatory Flexibility Act. If that means it has to be done

through regulation, then I am willing to work with the Committee,

and, as Mr. Rezendes mentioned, Dr. John Graham’s office and others, to go that route.

I should point out to the Committee, because some of our federal

partners are represented in the room today, that there is some

movement on consistency and compliance with the Reg Flex Act.

For instance, the Department of Labor now has written guidance

on how to comply with the Reg Flex Act, and how to comply with

the SBREFA panel process. This has been done with the full engagement of our office, as it should be for all the federal agencies.

Ms. VELA ́ ZQUEZ. Mr. Sullivan, if the SBA or Congress begins to

fill in the spaces around the RFA terms, we will presumably gain

some clarity, but we will also lose some flexibility. Specifically, the

SBA Office of Advocacy could lose the power of negotiation. From

what I understand, this is why previous Chief Counsels have been

reluctant to provide strict guidance.

What will agencies have to engage SBA on if all the provisions

of the RFA are specifically defined?

Mr. SULLIVAN. Congresswoman, we have been very concerned in

the past, and I continue to be concerned, about imposing a specific

set of mandates on how to comply with the Reg Flex Act.

I am encouraged this morning by Mr. Rezendes’ comments that

we can provide consistency without eliminating the flexibility to

comply with the Regulatory Flexibility Act. We are getting there.

To the extent that guidance can be consistent to all federal agencies, that will help. For instance, there should be a checklist on

what an agency should look at to comply with the Reg Flex Act.

With such tools in place and with the commitment that we see

here this morning by this Committee, I think this will be persuaVerDate 11-MAY-2000 18:40 Apr 27, 2002 Jkt 078734 PO 00000 Frm 00022 Fmt 6633 Sfmt 6602 E:\HR\OC\A734.XXX pfrm04 PsN: A734
19

sive among the regulatory agencies. If further persuasion is still

needed, then we would like to work with the Committee to address

this problem.

Ms. VELA ́ ZQUEZ. Mr. Sullivan, if you could change one thing

about RFA or SBREFA, what would it be?

Mr. SULLIVAN. If the Congresswoman is asking whether the Office of Advocacy needs additional legislative changes, there are discussions about this all the time. Legislation or legislative fixes

should be a last option because we prefer to try first to convince

the agencies to comply with the Reg Flex Act, using fully the gavel,

the subpoena and other resources.

If we do need to change the law, I think that we should explore

whether agencies be required to respond to Advocacy’s concerns,

specifically addressing questions on small business economic analysis early in the regulatory process.

Ms. VELA ́ ZQUEZ. Thank you, Mr. Sullivan.

Mr. Damon Dozier, Section 610 of the Reg Flex Act requires each

agency to review all existing rules within ten years of promulgation. Does the lack of 610 entries in recent regulatory agendas

seem suspicious to you?

Mr. DOZIER. Absolutely. I cannot think of any 610 review or actually any regulation being changed as a result of 610 review; that

is, a ten year old rule now being changed to accurately reflect a

substantial economic impact on a substantial number of small entities.

I think that 610 is one of the particular sections of SBREFA

that—well, it seems today that all of it has been ignored to some

degree, but especially 610. I think agencies have a tough time

going back to the coffers, if you will, pulling up the old regulations

and actually doing new analyses to find out if they are complying

with that provision of the law.

Ms. VELA ́ ZQUEZ. Would you like to see SBREFA amended to

make the 610 review process more transparent?

Mr. DOZIER. I would. I think that one of the great things about

the law that I think could have helped a lot of these small business

people is looking back at things that had been on the books and

had been hindering them for some time and then looking again to

see if there is any possibility, as Mr. Sullivan said, for flexibility

or for review.

A lot of the rules that come out now that are harming small

firms are rules that have been on the books for a number of years.

It is not just a new rule or a proposed rule. It is rules that have

been there for some time.

Ms. VELA ́ ZQUEZ. Thank you.

Mr. Frulla, when you draw a parallel between NEPA and the

RFA, your testimony seems to indicate that it would be unreasonable for an agency to promulgate a rule that could be made more

flexible for small businesses, yet the foundation of the Regulatory

Flexibility Act is that it does not require an agency to adopt the

least burdensome regulatory alternative, but simply to examine

them.

Could you please explain that further?

Mr. FRULLA. Yes. The distinction that I was attempting to draw

is that under NEPA an agency is required to consider a sufficient

20

array of alternatives. The agency can pick whatever alternative,

provided the analysis is complete under NEPA.

We think that the standard is different and probably—not probably, but is stronger under the Regulatory Flexibility Act. We look

to some congressional materials and some court decisions where if

you go through a regulatory flexibility analysis and you see that

there is a better way to build the mousetrap, then it ought to be

really hard to say well, we do not want to do that.

By contrast with NEPA, there may be a reason why you would

not pick the most environmentally beneficent alternative, but I

think you would be awfully hard pressed to explain how or why

you would do that under Reg Flex. Does that help?

Ms. VELA ́ ZQUEZ. Thank you.

Chairman MANZULLO. Dr. Christian-Christensen.

Ms. VELA ́ ZQUEZ. Thank you, Mr. Chairman.

Mrs. CHRISTENSEN. I just have a couple of questions. Mr. Chairman, I think before I ask my questions I think on the CMS issues

we could use another year.

Chairman MANZULLO. You are a physician. You know well.

Mrs. CHRISTENSEN. Yes. Thanks.

Chairman MANZULLO. We will have another hearing. We shall

have another hearing.

Mrs. CHRISTENSEN. Thanks. Attorney Frulla, in the ten cases

that you mentioned I think that you filed, I think you said—— Mr. FRULLA. Nine.

Mrs. CHRISTENSEN. Nine or ten. In how many of those cases was

an amicus brief filed by the Office of Advocacy?

Mr. FRULLA. They filed in one of our cases on the standard of review. There were two litigations regarding the commercial shark

fisheries. They filed an amicus brief on the standard of review because originally the agency was trying to get away even from the

arbitrary and capricious standard. The agency or the Justice Department, their lawyers, came back and said we will live with the

arbitrary and capricious standard. At that point, the SBA I guess

backed off is the right word. That is one case.

We are cognizant of the resource constraints that the agency

faces and in many instances has not sort of broken its arm to get

in. We could always use help, though.

Mrs. CHRISTENSEN. I was going to ask Attorney Sullivan the next

question on the number and types of briefs that the office has filed.

Mr. SULLIVAN. Actually, we used the amicus authority, the fullblown amicus authority, only once, but that does not tell the whole

story. The whole story on how Reg Flex litigation is successful includes the exchange of letters and information between government

agencies and the Office of Advocacy.

The comment letters that the Office of Advocacy sends to regulatory agencies—let us take CMS, for instance—do set out a record,

a public record, that says if an agency is or is not complying with

the Reg Flex Act. The open and deliberate exchange of letters and

information does help a court decide ultimately on a case’s merits,

so even though we may not be filing amicus briefs in each and

every case, the record that is created and reviewed benefits from

the letters and the comment letters coming from the Office of Advocacy.

21

In fiscal year 2001, there were 47 of those letters that built a

critical record of agency decision making coming out of the Office

of Advocacy.

Mrs. CHRISTENSEN. Thanks for that. I am still a bit concerned

because even when the letters are filed they do not seem to respond. I mean, it does not force any response. I am going to ask

another question, but if you want to respond?

Mr. SULLIVAN. I would like to respond because I share your—— Chairman MANZULLO. Could you yield for a second? When you

send in your letters, if you do not get a response in 15 days would

you contact my staff? We will send a letter to the agency telling

them to respond to your letter.

Mr. SULLIVAN. Actually, I would like to respond.

Mrs. CHRISTENSEN. Do you copy us? Do you copy us on the letters?

Mr. SULLIVAN. We are absolutely in contact with this Committee

and with the Senate Committee when we do not get responses to

our letters.

You know, we talk about the resources that are available to get

a point across and whether an agency is complying with the law.

This Committee, in its commitment to making sure agencies comply with the law, is a valuable resource. There are also resources

represented on this panel with both the attorneys and trade and

membership small business organizations.

The collective strength of all those voices pointed in the same direction should accomplish our goals without necessarily going to an

extremely expensive and time consuming legal process.

Mrs. CHRISTENSEN. Did you want to say something?

Mr. GOLDHECHT. Yes.

Mrs. CHRISTENSEN. Let me ask this question first, and then you

might want to incorporate it in your response.

One of the suggestions is that every agency has an ombudsman

and that that would help. In responding to the previous comment,

would you also include, and maybe Mr. Gibson would also like to

include. Do you think that that is going to be as effective as it

needs to be to help move these cases along?

Mr. GOLDHECHT. I cannot particularly comment to that point, but

I just wanted to further Mr. Sullivan’s point. The letters did go out.

In the case of portable x-ray, a letter went out.

Mrs. CHRISTENSEN. I understand.

Mr. GOLDHECHT. I am sitting here four years later waiting for

some kind of response. Although we appreciate the efforts that they

did, CMS, HCFA, whatever you want to call them, basically ignored it and has no desire, from what I can tell, to listen to what

Advocacy has said.

Mrs. CHRISTENSEN. Personally, I know how difficult it is to even

think about suing the federal government, so what do you do? It

just sits there unless someone has the resources, which most small

businesses do not. They are trying to still provide services.

I want to ask probably just one more question, unless someone

wants to comment. Mr. Gibson, did you want to comment?

Mr. GIBSON. With regard to the ombudsman, I think it would be

helpful in our case because I think in our particular issue it is a

matter of communicating with EPA the real issue. I think the reVerDate 11-MAY-2000 18:40 Apr 27, 2002 Jkt 078734 PO 00000 Frm 00025 Fmt 6633 Sfmt 6602 E:\HR\OC\A734.XXX pfrm04 PsN: A734
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sult was an unintended result. There was no intent to have the effect that the proposed rule would have. It is a matter of explaining

to them in more detail the market as it is, the situation as it is

and the various sectors that would be affected by the proposed rule.

Chairman MANZULLO. Could I go on to Mr. Grucci and then come

back to you for a short question?

Mrs. CHRISTENSEN. It is a short one.

Chairman MANZULLO. Go ahead. Go ahead. I do not know when

the bell is going to go off.

Mrs. CHRISTENSEN. It follows up on what Mr. Gibson said.

Mr. Dozier, on page 8 you were talking about one of the panels

that you worked on. There was a whole lot of data and economic

information. It was very cumbersome, but there were some representative groups that provided input.

I think what you were trying to say is that that was more effective in trying to reach a determination of impact than economic

data, and I think that is what Mr. Gibson was saying. Do you want

to comment on that?

Mr. DOZIER. One of the concerns that I personally have with Advocacy coming up with a significant and substantial definition is

that agencies typically, if they are responsive, have more resources

to serve a particular industry. In that particular case, EPA could

go out and do site visits, get data from the industry and cull it together in a manner in which we wanted to see it, quite frankly,

and then we could come up with the result.

I have a fear, and it is just a fear, that if Advocacy has to come

up with the significant and substantial test that they would have

some responsibility to try to either get that data or cut it in ways

that they do not necessarily have the resources to do.

Chairman MANZULLO. Thank you.

Mr. Grucci.

Mr. GRUCCI. Thank you, Mr. Chairman. Mr. Chairman, I will ask

for unanimous consent to have my opening remarks made part of

the record.

Chairman MANZULLO. All the remarks will be made a part of the

record without objection.

Mr. GRUCCI. Thank you, sir.

Mr. Sullivan, the GAO report entitled Compliance Guide Requirement, has had little effect on agency practices. I am concerned

about the way that our government applies its regulations and conducts its enforcement on small businesses.

I was asked to address the SBREFA workshop. I believe you

were there as well. One of the things that I tried to impart upon

those who were at the meeting was that when you go into a small

business, you are going into a business where the owners are the

chief executive officer, they are the accountants, they are the stock

clerks, they are the manufacturers, they are the sales people, they

are the bookkeepers. In short, they are everything to a small business.

When an agency comes to visit them, it is a frightening experience. If they have EPA oversight. I can assure you from being in

a business where EPA has a role to play it is a frightening experience when they come in because they are not coming in to give you

any kind of an award. They are there to find something and to give

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you as much grief as they possibly can. I am not just picking on

EPA. It seems to be the attitude of most who come in to regulate.

We all know, and the statistics will certainly verify this, that

small businesses, the mom and pop operations, are the backbone

of our economic system. They are the engine that drives the job

growth, et cetera.

If SBREFA is not working to the fullest extent, how do we fix

it to make it better, and how do we continue to enforce the laws,

because I am not suggesting that we weaken the laws for small

businesses or for any business, for that matter. How do we continue to assure the American public that the businesses that they

either work in or shop at or are in their communities are abiding

by the law, and yet we are not impacting small businesses to such

an extent that they must close their doors because the regulatory

requirements are so onerous and so strenuous that they simply just

cannot afford to keep up with them?

I know in my own business, when I was there, we had to hire

several people in administrative positions just to keep up with

what regulations may or may not be coming down the pipe line

that would have an effect on us. There is no way to incorporate

that in the cost of your goods, so it costs you to your bottom line.

Eventually the more and more that impacts your business, the

quicker you close your doors.

I do not think our goal here collectively is to make that happen.

Should counsel, and I guess it is you as Chief Counsel of the Office

of Advocacy, promulgate rule making to further define the terms

substantial number of small businesses and significant economic

impact? I think those have been stumbling blocks for your agency,

and I would like to hear your comments.

Mr. SULLIVAN. Congressman Grucci, first of all, let me thank you

for coming over to the Small Business Administration and helping

Michael Bererra host the regulatory fairness kind of instructional

session amongst other federal agencies a few weeks ago. Your sharing your experience as the owner of an impressive small fireworks

company was certainly well timed and I think impressed upon the

federal agencies how difficult it is for a small business owner to

keep up with a morass of federal regulations.

You asked, I think in a broad question, how do we improve

SBREFA? Well, we are doing it right now. We get regulatory agencies to pay attention. That does not mean getting them to send

more enforcement folks out to small businesses, but it does get

them to understand what you articulated, and that is that when

a federal regulatory officer, whether they are writing a regulation

or enforcing a regulation, knows that money saved from a small

business owner goes to hiring new employees. Money saved goes to

providing health care or buying new equipment. It does not go into

breaking a law or polluting the environment or creating an unsafe

workplace. If federal agencies get it, then they get the basis of

SBREFA.

How do we improve it? We get federal regulatory agencies to pay

attention. We do it through accountability time through this Committee. We get it through the Office of Advocacy providing guidance

and instruction to regulatory agencies on how to comply, and we

do it working in partnership with Michael Bererra’s shop, the small

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business ombudsman at the Small Business Administration. He is

out there.

Once a regulation is written and the enforcement officers are visiting small businesses across the country. Mr. Bererra makes sure

that those regulatory officers treat small business fairly. The collective group, this Committee or other small business stakeholders,

the Office of Advocacy, simply have to go in again and again and

again and tell them how important SBREFA is and that lack of

compliance with the Regulatory Flexibility Act will not be tolerated.

If we have to do that through additional legislation, then we will

work with this Committee to make sure that that happens and

that it is written in a way to accomplish our goals. If it has to do

with our office writing guidelines or rules, then we will do that

with the help of this Committee to make sure there is a consistent

application and a fair application government wide.

Mr. GRUCCI. Thank you, Mr. Chairman.

Chairman MANZULLO. I have a question for Mr. Rezendes. It is

at the request of Mrs. Kelly. She had written the Truth in Regulating Act. Has GAO made a request for appropriations to establish

the office to examine the regulations established by the Truth in

Regulating Act?

Mr. REZENDES. Yes, we have, Mr. Chairman.

Chairman MANZULLO. You have?

Mr. REZENDES. Yes.

Chairman MANZULLO. Do you recall the amount?

Mr. REZENDES. We have never received funding for it.

Chairman MANZULLO. Okay. Is that in your request this year?

Mr. REZENDES. I am not sure if it is in this year.

Chairman MANZULLO. It is? It is? Do you have an idea what the

amount is?

Mr. REZENDES. $5.2 million.

Chairman MANZULLO. Okay. We will work on that with the Cardinals.

Did you have a question? We have a little bit of time. Go ahead.

Ms. VELA ́ ZQUEZ. Yes. Can any of you talk about what kind of incentives you believe could be built into the Reg Flexibility Act?

Mr. SULLIVAN. Congresswoman Vela ́zquez, we talk about incentives that can be built in. I think one incentive, and I am entirely

serious, is for regulatory agencies not to be called before this Committee for accountability time.

The idea that agencies are lax in complying with the Reg Flex

Act and one letter or two letters in 1998 just does not convince

them. An incentive to convince them to respond to our letters from

the Office of Advocacy and to the greater concerns expressed I

think here this morning is for them not to be subpoenaed, not to

be called before this Committee and not to be embarrassed by not

complying with the law.

Ms. VELA ́ ZQUEZ. Mr. Rezendes.

Mr. REZENDES. One issue on which we have had recommended

legislative change is civil penalty relief. We took a look at how the

agencies were applying civil penalty relief to small businesses, and

our basic bottom line was that they were not collecting the inforVerDate 11-MAY-2000 18:40 Apr 27, 2002 Jkt 078734 PO 00000 Frm 00028 Fmt 6633 Sfmt 6602 E:\HR\OC\A734.XXX pfrm04 PsN: A734
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mation to even know how much relief was provided. So we were advocating that they maintain data so they would know.

Some could not even differentiate in their enforcement actions,

whether it was a small business, or if they did get a penalty how

much relief was provided, so that is one area we would like to see

changed.

Ms. VELA ́ ZQUEZ. Thank you.

Mr. Frulla.

Mr. FRULLA. Thank you. This may be a little more stick than carrot, but let me try. It also goes to another question of Ms. Christian-Christensen and Mr. Sullivan’s testimony.

We would suggest, and we have, that the Equal Access to Justice

Act attorneys’ fees go to a small business that prevails or settles

favorable SBREFA litigation. There is another threshold in the law

that you must not only prevail; the agency’s position must be

shown to be not substantially justified.

If the small businesses knew and agencies knew that if they lost

one of these they would have to cover at least some of the small

businesses’ or the small business association’s attorneys’ fees, that

is a stick and not a carrot, but it is a carrot if you do not have to

pay it.

There is another point that I think is important there, and I will

be brief because I know you all do not have that much time, and

that is that you should write into the law something so that when

Mr. Sullivan and his shop comment on a matter particularly within

their expertise that courts are required to treat that agency as the

expert and that the agencies and the courts are to defer to their

expertise. As it is now, that is an open question under the law.

I think that would help substantially, and it would make the

comment letters stronger because there would be force because

somebody could go and sue on them.

Mr. DOZIER. Madam Congresswoman, if I may?

Ms. VELA ́ ZQUEZ. Yes.

Mr. DOZIER. I think that one thing that can be changed in the

law, and I write this in my testimony, deals with Section 609 of

the Act. Specifically, Section 609 requires outreach to be done if the

significant and substantial trigger is actually hit.

What I propose is that you change that requirement so that it

is just not the significant and substantial trigger, but that if you

are doing any regulation that could affect small entities, understanding that there are some procedural regulations that we do not

want to fall into, you know, that gap. We do not want every time

someone changes a flood plain designation or the Coast Guard

rules on bridge openings. They do a lot of procedural things.

We do not want that to happen, but if you get it into the agencies’ minds that small entity outreach is just common sense, if you

are going to regulate a small business or you are going to regulate

an industry rather that includes small businesses, you should be

talking to them. I mean, that is simple common sense. You should

not be regulating a community if you do not know anything about

that community; not just certain sectors of the community, but the

community as a whole.

Ms. VELA ́ ZQUEZ. Thank you.

Thank you, Mr. Chairman.

26

Chairman MANZULLO. Mr. Grucci, you had another follow up

question?

Mr. GRUCCI. Yes, Mr. Chairman. Thank you. I have a question

for Mr. Gibson and then a follow up for Mr. Sullivan if my time

permits.

Mr. Gibson, the intent of SBREFA was to provide relief to small

businesses that face unfair financial burden as a result of the federal regulations. You suggest benefit analysis. What do you see as

the benefit of this cost analysis that you are suggesting, and how

much weight do you think it should have in the final issuing of the

rule?

Mr. GIBSON. Well, we think that the cost benefit analysis is very

important because obviously the number of businesses that are affected in our case and in the rule is very large. The overall objective of the rule that has to be taken into account clearly is to protect the environment and to make sure that the usage of those

chemicals is in compliance with the Clean Air Act.

I think that our position is that they can do both. They can

achieve the goal of being in compliance with the Clean Air Act and

also be fair to the smaller businesses that are affected by the rule.

Mr. GRUCCI. Thank you.

Mr. Sullivan, in following my line of questioning just a moment

ago one of the things that I found, and I sat on several of our association boards as either a board member or vice-president. We always tried to have a voice in the rule making process. That often

fell on deaf ears.

I will point to a specific agency because they were very unkind

to the suggestions being made to improve the safety of the industry

that I used to be in, and that is Consumer Products Safety Commission, CPSC. In their eyes, we, and I am sure other industries

felt the same way, were guilty before we even had an opportunity

to have a voice in the process. That made it very difficult.

The consumer industry was being singled out, members of that

industry, some of them deservedly, but most of the time others not

deservedly, receiving the wrath of CPSC in the sense that small

businesses were being fined as much as several hundred thousand

dollars, and taking their right to do business away. It was not in

the end of the business that I was in. I was in the display side of

the business, in the consumer sales side of the business.

The question that I have is why we can not in the rule making

process that is going to unfold, make SBREFA a better place, why

can’t the voice of industry have a louder voice than it currently

does, and how would you suggest that we craft legislation to do

that?

Again, I am not suggesting that business should dictate unto

itself how it should be regulated. That is what government is there

for, but government is also there to understand, as was pointed out

a moment ago, the industry that it is regulating and overseeing.

What are your thoughts on that?

Mr. SULLIVAN. Congressman Grucci, your explanation of having

a voice, a small business voice, in the regulatory process is the

foundation of the Office of Advocacy, so I could not agree with you

more in that statement and the need for the voice.

27

One thing that we have been trying to impress upon regulatory

agencies is not necessarily how loud the voice, although once in a

while a big, loud voice helps, but it is how early that voice is inserted in the process and how effective that voice is.

When I talk about early and effective, I mean because the Regulatory Flexibility Act currently suggests that agencies seek out

input from small entities in the regulatory process. That is an open

communication, and that communication is used by other businesses, whether they be across the country or through trade associations and others so that at the end of the day the regulation that

comes out of a department if they do choose to go the regulatory

route does reflect the common sense brought to the table by the

voice of small business.

In answer to the question of how do we make it better, we actually look at the law that is written, the Regulatory Flexibility Act,

and we look at those provisions that say small entities should have

a voice early in the regulatory process, and we make sure that the

agencies understand that that is in fact one of the considerations

in the Regulatory Flexibility Act.

If the agencies repeatedly ignore those responsibilities, then we

consider legislative strengthening opportunities or regulatory opportunities, but those suggestions, the legislative suggestions of

having a voice, a small business voice in the regulatory process, are

on the books. We are there to try and convince agencies to follow

it, and we want to work with this Committee and all of our partners to make sure that they get—— Mr. GRUCCI. I agree that they are on the books, but I think you

would agree with me that they are not often enforced stringently

enough for the small business community to have a true voice in

the industry that they choose to be in.

What I am suggesting that you all do is to turn up the volume

a little bit so you can hear the voices of those people who dot the

main streets from one side of this country to the other who do not

come to Washington, who do not have the lobbyists, who do not

have the resources to spend to come in and talk to your offices.

When your field inspectors go out, they should be going out

armed not only with bringing the bad guys to justice, but helping

to make the good guys even better by listening to what they have

to say because the best way to understand that industry, whatever

that industry may be, how to make it a better industry, how to

make it a safer industry, how to make it a cleaner industry, is to

listen to the good guys because they know what they are doing.

I would just encourage you to put that into the thought process

as you send out your folks across the country to take a look and

see what is going on out there.

Mr. SULLIVAN. Congressman, I actually would like the record to

reflect a frequent nodding to everything that Congressman Grucci

was talking about.

Chairman MANZULLO. The record will reflect your frequent nods.

Mr. SULLIVAN. Sometimes the written record does not do justice

to my agreement with what the Congressman said.

Chairman MANZULLO. Those are nods of affirmation. Okay.

Listen, I want to thank you all for coming. You know, the standard has to begin at home. The reason I got so upset last week with

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the SBA is that the SBA has to set the standard on how to treat

small businesses. The hearing last week showed that the small

businesses had been shut out of the process of revising the size

standards, even though Mr. Barreto had been out on the streets

himself gathering that information. I know that as a fact.

Somehow, even the material that he was feeding into the agency

itself never found its way to the people that wrote the rules. That

is why Hector is doing a great job because I know where his heart

is.

The SBA has to set the standard. Tom, I know that Reg Flex applies to the SBA. If the SBA does not follow Reg Flex, I do not

know who is going to do it because it is for the small businesses

to do that. We have here one business that has already gone under.

Ms. VELA ́ ZQUEZ. Mr. Chairman, if I may?

Chairman MANZULLO. Yes, Nydia.

Ms. VELA ́ ZQUEZ. Mr. Sullivan, I guess you have some work to do

because SBA is in violation of the Reg Flex Act when it issued its

new regulations on 8(a). I hope to see a letter sent to the SBA and

Mr. Barreto.

Chairman MANZULLO. Have you sent the letter on that, Ms.

Vela ́zquez?

Ms. VELA ́ ZQUEZ. We are submitting comments on the regulations.

Chairman MANZULLO. I know the folks from SBA are here. We

surely do not want to have another hearing as we did yesterday or

last week, but I would expect that letter to be answered.

Thank you all for coming. Stay in contact with Mr. Pineles and

our staff for two things. Number one is drafting these amendments

to whatever statutory remedy is necessary. Number two, for agency

accountability days starting off with an appearance not by CMS,

but by HCFA.

As I said six months ago, I will not recognize your new name unless I see a change in what is going on, and I see no change whatsoever at this point. We will start off with round three of HCFA

accountability days.

Thank you for coming. This meeting is adjourned.

[Whereupon, at 11:55 a.m. the Committee was adjourned.]

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