U.S. GOVERNMENT PRINTING OFFICE

57–905 WASHINGTON : 1999

SMALL BUSINESS ADVOCACY

REVIEW PANELS

HEARING

BEFORE THE

SUBCOMMITTEE ON REGULATORY

REFORM AND PAPERWORK REDUCTION

AND

SUBCOMMITTEE ON GOVERNMENT

PROGRAMS AND OVERSIGHT

OF THE

COMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

HEARING HELD IN WASHINGTON, DC, MARCH 11, 1999

Serial No. 106–4

Printed for the use of the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS

JAMES M. TALENT, Missouri, Chairman

LARRY COMBEST, Texas

JOEL HEFLEY, Colorado

DONALD A. MANZULLO, Illinois

ROSCOE G. BARTLETT, Maryland

FRANK A. LOBIONDO, New Jersey

SUE W. KELLY, New York

STEVEN J. CHABOT, Ohio

PHIL ENGLISH, Pennsylvania

DAVID M. MCINTOSH, Indiana

RICK HILL, Montana

JOSEPH R. PITTS, Pennsylvania

MICHAEL P. FORBES, New York

JOHN E. SWEENEY, New York

PATRICK J. TOOMEY, Pennsylvania

JIM DEMINT, South Carolina

EDWARD PEASE, Indiana

JOHN THUNE, South Dakota

MARY BONO, California

NYDIA M. VELA ́ZQUEZ, New York

NORMAN SISISKY, Virginia

JUANITIA MILLENDER-MCDONALD,

California

DANNY K. DAVIS, Illinois

CAROLYN MCCARTHY, New York

BILL PASCRELL, New Jersey

RUBEN HINOJOSA, Texas

DONNA M. CHRISTIAN-CHRISTENSEN,

Virgin Islands

ROBERT A. BRADY, Pennsylvania

TOM UDALL, New Mexico

DENNIS MOORE, Kansas

STEPHANIE TUBBS JONES, Ohio

CHARLES A. GONZALEZ, Texas

DAVID D. PHELPS, Illinois

GRACE F. NAPOLITANO, California

BRIAN BAIRD, Washington

JANICE SCHAKOWSKY, Illinois

HARRY KATRICHIS, Chief Counsel

MICHAEL DAY, Minority Staff Director

SUBCOMMITTEE ON GOVERNMENT PROGRAMS AND OVERSIGHT

ROSCOE G. BARTLETT, Maryland, Chairman

MARY BONO, California

MICHAEL P. FORBES, New York

PATRICK J. TOOMEY, Pennsylvania

DANNY K. DAVIS, Illinois

RUBEN HINOJOSA, Texas

CHARLES A. GONZALEZ, Texas

JANICE SCHAKOWSKY, Illinois

NELSON CROWTHER, Counsel

SUBCOMMITTEE ON REGULATORY REFORM AND PAPERWORK REDUCTION

SUE W. KELLY, New York, Chairwoman

LARRY COMBEST, Texas

DAVID M. MCINTOSH, Indiana

JOHN E. SWEENEY, New York

RICK HILL, Montana

BILL PASCRELL, New Jersey

ROBERT A. BRADY, Pennsylvania

DENNIS MOORE, Kansas

LARRY MCCREDY, Senior Professional Staff Member

(III)

C O N T E N T S

Page

Hearing held on March 11, 1999 ............................................................................ 1

WITNESSES

THURSDAY, MARCH 11, 1999

Keith Cole, Swidler Berlin Shereff Friedman, LLP .............................................. 3

Katherine Gekker, Huffman Press ......................................................................... 7

Jack Waggener, Resource Consultants/Dames and Moore ................................... 9

James Morrison, National Association for the Self Employed ............................. 12

Opening statements:

Hon. Sue W. Kelly ............................................................................................ 27

Hon. Roscoe Bartlett ........................................................................................ 27

Hon. Danny K. Davis ....................................................................................... 28

Hon. Bill Pascrell, Jr. ....................................................................................... 28

Prepared statements:

Keith Cole ......................................................................................................... 29

Katherine Gekker ............................................................................................. 35

Jack Waggener .................................................................................................. 42

James Morrison ................................................................................................ 46

Additional Materials:

Article by Keith Cole, ‘‘The Small Business Regulatory Enforcement Fairness Act and the Regulatory Flexibility Act: Could a Single Word Doom

the New NAAQS?’’ Tulane Environmental Law Journal, Volume II, Summer 1998, Issue 2 ............................................................................................. 55

Letter from Douglas Greenhaus, Director, Environment, Health and Safety,

National Automobile Dealers Association, to Subcommittee Chairwoman

Sue Kelly ........................................................................................................... 73

(1)

SMALL BUSINESS ADVOCACY REVIEW PANELS

THURSDAY, MARCH 11, 1999

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON REGULATORY REFORM AND PAPERWORK REDUCTION, JOINT

WITH THE SUBCOMMITTEE ON GOVERNMENT PROGRAMS

AND OVERSIGHT, COMMITTEE ON SMALL BUSINESS,

Washington, DC.

The Subcommittee met, pursuant to call, at 10:00 a.m., in room

311, Cannon House Office Building, Sue Kelly [chairwoman of the

Subcommittee on Regulatory Reform and Paperwork Reduction]

presiding.

Chairwoman KELLY. Good morning ladies and gentlemen.

I would like to welcome everybody to today’s Joint Regulatory

Reform on Paperwork Reduction Subcommittee and Government

Programs and Oversight Subcommittee Hearing on Improving the

Small Business Advocacy Review Panel Process.

I would like to thank my good friend, Chairman Roscoe Bartlett,

for agreeing to hold the hearing with me. As many of you know,

this is an issue that Chairman Bartlett and I have been involved

with for some time.

We held two hearings in the last Congress on the Issue. I am

grateful that he has continued providing oversight over the Advocacy Review Panel Process with me. Small Business Advocacy Review Panels are a good model for what we should be doing in Government.

Originally created by the Small Business Regulatory Enforcement Fairness Act, the panel process has been successful because

it allows the small business community the opportunity to have a

real impact on agency rulemakings.

The key to the success is getting small businesses involved in

agency rulemaking early in the process. By doing so, agencies will

have a much better understanding of the unique needs of small

businesses before the parameters of a potential regulation get too

firmly defined.

The Advocacy Review Panels are viewed as a positive process by

those who actually participate in them as well. From most accounts, small businesses indicate that they appreciate having the

opportunity to provide their thoughts to agencies in this type of

forum.

Likewise, the agencies have indicated that they feel they benefit

from this early input, which in turn can be used to produce better

regulations. The goal of this hearing today is to revisit how the

panel process is working generally, as well as consider ways in

which the process can be strengthened and improved.

2

The most notable change that we are considering is adding the

Internal Revenue Service as one of the agencies that is covered by

the panel process. Small businesses have repeatedly described how

the IRS simply does not understand the impact that many of their

rules have on the operation of small business.

By requiring the IRS to convene Advocacy Review Panels, we

may be able to begin to change this problem. We have an excellent

panel of witnesses this morning who will be testifying.

All of them have significant experience with the Regulatory

Flexibility Act and the panel process. I appreciate the time that

each of them has sacrificed out of their very busy schedules for

being with us here today.

In conclusion, the Subcommittee is a very strong supporter of the

Advocacy Review Panel Process. We are committed to taking whatever steps necessary to see that it remains a strong part of the regulatory process.

Now, I would like to turn to my friend, Chairman Bartlett, to ask

him if he would like to make a statement.

[Mrs. Kelly’s statement may be found in the appendix.]

Mr. BARTLETT. Thank you. Good morning.

It is a pleasure to welcome you to this joint hearing held by the

Subcommittee on Government Programs and Oversight, and the

Subcommittee on Regulatory Reform and Paperwork Reduction,

Chaired by my colleague, Congresswoman Sue Kelly.

This hearing is, in many respects, a continuation of joint hearings that our two Subcommittees held in April of 1997 and March

of 1998, in which we addressed the need for common sense in rulemaking and the unfair financial burden born by small businesses

all over this Nation, as a result of unscientific, impractical, and unnecessary regulations.

These same hearings also examined the implementation and performance by the Environmental Protection Agency, the EPA, and

the Occupational Safety and Health Administration, OSHA, of the

panel process added by the Small Business Regulatory Enforcement Fairness Act of 1996, better known as SBREFA.

The panel process requires these two agencies, EPA and OSHA,

to consider and to respond fairly to the advice and recommendations of small businesses concerning the impact upon small businesses of proposed regulations.

We believe, as we have stated at the previous hearings, that the

panel process is important. In a study done for Committees of both

the House and the Senate, the General Accounting Office concluded

that:

‘‘Agency Officials and Small Entity Representatives generally

agree that the panel process is worthwhile, providing valuable insight and opportunities for participation in a rulemaking process.’’

For some reason, when the panel process was initiated, only two

agencies were included; EPA and OSHA. The legislation which we

will be discussing today adds a third agency, the IRS.

This addition is long overdue. The difficulty and cost of complying with mind-numbing IRS regulations are a major concern for

small businesses in my District, Western Maryland. I am sure they

are for all small businesses throughout this Nation.

3

Small businesses need the common sense relief that advance consultation will provide. There is an old farmer’s test for measuring

costs and benefits. Those of you familiar with me will recall, you

do not do something if the juice ain’t worth the squeezing.

The IRS should be required to make sure the juice is worth the

squeezing when they design new regulations. Again, thank you for

coming to this important hearing. We look forward to a lively and

productive discussion.

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

Chairwoman KELLY. Thank you Mr. Bartlett.

I want to explain that one of the reasons why we have gone

ahead and begun this hearing is that I know that our witnesses

have busy schedules, as do I am sure everyone else in this room.

The Ranking Members have phoned me and told me that they

have been held up, but they will be here. They are on their way

and they will be here as soon as they possibly can. So, they are

comfortable with our going ahead with this.

I now would like to introduce our witnesses. We have Mr. Keith

Cole. Mr. Cole is a Partner at the Law Firm of Swidler, Berlin,

Shereff, and Friedman in Washington, D.C.

He is a former Senate Small Business Committee Staffer, one

that we relied on extensively. He has extensive knowledge of the

Regulatory Flexibility Act and the Advocacy Review Panel Process.

Our next witness is Katherine Gekker. Ms. Gekker is the owner

of the Huffman Press located in Alexandria, Virginia. She was also

a small entity representative on the Safety and Health Program

Advocacy Review Panel that OSHA convened.

Jack Waggener is our next witness. He is a registered professional engineer employed by the environmental consulting firm of

Resource Consultants/Dames and Moore located in Brentwood,

Tennessee. He has participated on a number of advocacy review

panels that the EPA has convened.

The final witness is Jim Morrison. Mr. Morrison is the Senior

Policy Advisor for the National Association For the Self-Employed

located here in Washington, D.C.

He also has an extensive knowledge of the Regulatory Flexibility

Act. We welcome all of you here today and look forward to your testimony.

With that, Mr. Cole, would you be willing to begin?

Mr. COLE. Certainly.

Chairwoman KELLY. Thank you.

STATEMENT OF KEITH COLE, PARTNER, LAW FIRM OF

SWIDLER BERLIN SHEREFF FRIEDMAN, WASHINGTON, DC

Mr. COLE. Madam Chairwoman and Mr. Chairman, members of

the Subcommittee, my name is Keith Cole. As you mentioned, I am

a Partner at Swidler Berlin Shereff Friedman here in Washington.

I very much appreciate the opportunity to testify, once again, before the Subcommittee. First, I would like to state for the record

that I am not testifying today on behalf of my firm or any particular client, but solely on my own behalf, based on my experiences as Regulatory Affairs Counsel to the Senate Small Business

Committee when SBREFA was drafted, and my experience in dealing with rulemakings where SBREFA panels have been convened.

4

I believe the SBREFA Panel Process is off to a good start. The

Office of Advocacy, OMB, and EPA appear be cooperating to make

the panel process a productive one. I am less sure of the experience

at OSHA and I will defer to other witnesses on that.

Overall, we do not need a wholesale revision of SBREFA. However, there are a number of ways that Congress could improve the

panel process, both through oversight, such as today’s hearing, and

through targeted legislative change such as contained in the discussion draft. In my view, the key to a successful panel is giving

the right information, at the right time, to the right people. While

that is relatively easy to say, it is difficult to implement in practice

and very difficult to legislate.

I urge the Subcommittee to tread lightly here because too much

specificity may be counter-productive to the interest of small business. As Congress recognized when it passed SBREFA, there is a

tension between conducting the panel early in the rulemaking process, when the data may not be available, and conducting the panel

when all of the data is available, when decisions may have become

set in stone.

In my view, there is some minimum amount of information that

Small Entity Representatives, or SERs as they have come to be

called, must have to provide meaningful comments to the panel.

I believe the panel should take place as soon as these basic informational needs are met. However, the Subcommittee must be careful to ensure that any statutory language on minimum informational requirements does not have the unintended affect of delaying

the panel until just before publication of the proposed rule when

it becomes only a pro-forma review of the agency’s decision; a posthoc review.

If agencies should convene a panel as soon as the necessary information is available, the next question is what is the right information?

The type of data that really empowers the Small Entity Representatives, and by extension the panels, is a discussion of the

pros and cons of the regulatory alternatives that the agency is considering. This should include some basic comparison data estimating the benefits and costs of the regulatory alternatives. This

will allow Small Entity Representatives and the panel to put the

alternatives into perspective. The original act does not require this

type of information, but it may be one of the most productive

changes this panel could make. However, this does not mean that

Small Entity Representatives need to see the full economic analysis

for the proposed rule or even the draft regulatory text. The key is

looking at information on proposed regulatory alternatives and the

cost and benefits of moving from one alternative to another.

The next issue is how do we get the right group of people to

serve as Small Entity Representatives? In my view, we need a mix

of people who know the SBREFA Panel Process and people who

know the industry.

I do not know if the Office of Advocacy should choose Small Entity Representatives on its own, but certainly Small Entity Representatives should not be chosen over the objection of the Office

of Advocacy.

5

A related issue is whether agencies should be able to pick a particular person to serve as a Small Entity Representative, or simply

pick the organization. In my opinion, the organization should be

free to select whomever it chooses to speak to the panel on its behalf.

There is also the question of standing. I believe the test should

be whether the small business will bear the impacts that give rise

to the benefits of the rule. This extends beyond entities who are

subject to the rule. This is a critical issue we will need to discuss

further regarding the scope of Reg Flex. I want to come back to

that at the end of my statement.

The next issue I would like to address is when should panel reports be released? This has been a contentious issue. My experience

is that EPA and OSHA have developed different practices on this.

Frankly, I cannot say which approach is better. Early release can

provide assurances to small businesses about the panel process. On

the other hand, I am concerned that early disclosure of the panel

report can open up the agency to additional pressure from outside

groups, other than small business, to unwind the process made by

the panel. Perhaps more experience is needed on this issue, but I

am sure others will have perhaps stronger opinions on this.

Next I want to turn to the content of the initial Reg Flex Analysis. It may seem obvious that the comments of the Small Entity

Representatives about the impacts of the rules should be incorporated into the initial Regulatory Flexibility Analysis. My experience with the Industrial Laundries Rule convinces me otherwise.

Any legislative revision to the panel process should clarify that

agencies must modify their initial Reg Flex analysis to incorporate

relevant facts brought to their attention during the panel process.

On the issue of compliance by the IRS, all I can say is one word,

yes.

Finally, let me return to one of the biggest problems presented

by EPA’s early implementations of SBREFA. The issue is the type

of impacts that are to be considered by agencies in deciding whether Reg Flex applies and whether to convene panels.

The EPA has taken the position that it only look at impacts on

entities that are subject to the rule. When EPA issues a new rule

that directs States to take an action under one of the many delegated programs, the EPA has taken the position that it can ignore

the impacts of that rule, on the theory that the small entities are

not directly subject to the rule.

This issue is currently the subject of litigation in the D.C. Court

of Appeals in a pair of cases entitled The American Trucking Association v. U.S. EPA. Oral arguments on this were heard December

17th of last year. A decision is expected later this spring.

I urge the Subcommittee to keep a close eye on the decision of

the Court. Reg Flex and SBREFA Panels should look at the impacts on all entities that give rise to the benefits of the rule, not

just those that are subject to the rule.

If the Court defers to the EPA on this issue and upholds the

agency’s interpretation, legislation would be urgently needed to reaffirm the intent of Congress and prevent the Reg Flex from effectively being gutted by one of the primary agencies SBREFA was

designed to address.

6

Thank you very much.

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

Chairwoman KELLY. Thank you very much, Mr. Cole.

We have been joined by Mr. Pascrell. Mr. Pascrell, if you have

an opening statement, would you be willing to give it now?

Mr. PASCRELL. Thank you.

First, I would like to give my remarks by thanking Chairwoman

Kelly and Chairman Bartlett for bringing this important issue to

the attention of both Subcommittees.

Small businesses are the engines of growth for our Nation’s economy and are indeed the backbone of our economic system. By examining ways to make the regulatory process more efficient, we

will ensure that this important sector remains vibrant and robust.

I am committed to that goal.

As the new Ranking Member of the Regulatory Reform and Paperwork Reduction Subcommittee, I believe today’s hearing which

will examine the Small Business Advocacy Review Panel Process is

of critical importance.

It is critically important because the relationship between our

regulatory agencies and our Nation’s small businesses must be one

of mutual understanding, as opposed to mutual disdain.

Regulations that are promulgated by OSHA and EPA are very

important with regard to establishing and ensuring a safe work

place and a clean environment. At the same time, those who formulate regulations must be aware of the actual implications of those

regulations. Very frequently they are not. When we are dealing

with small businesses, we must keep in mind the fact that the cost

of regulatory burdens are disproportionate on small businesses because of their very size.

This fact has been confirmed by 27 studies and recognized by

both the Regulatory Flexibility Act and the Small Business Advocacy Review Panel Process. Today, we are going to hear testimony.

We have already started to hear testimony on the effectiveness

of the process. We have a vote. A process which is designed to provide the small businesses community with an opportunity to participate in the rulemaking.

I think that is a tremendous breakthrough, by the way. I congratulate the Chairwoman. It is very important that we are at the

same table, rather than imposing regulations and not knowing

what those consequences would be because we are not familiar

with the acumen of the particular business.

It is my hope that today’s hearing will contribute greatly to our

understanding. I might add, Madam Chairwoman, that I totally

support your efforts in bringing some other agencies under the

scrutiny of this process.

I do not know if you have spoken about that yet. I totally support, not only putting IRS into the mix, but I have spoken with the

Chairwoman and she agrees with me also on INS, which I think

is the most convoluted agency in the Federal Government. I think

they need to go under the microscope.

These are folks that are talking out of both sides of their mouths,

in terms of regulation, and are affecting people at the work place

and businesses, and small businesses indeed.

So, thank you, Madam Chairwoman. You have my total support.

7

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

Chairwoman KELLY. We do have a vote. We have just had the

first call. Ms. Gekker, if you are willing to hold within the 5 minute

rule, we might be able to fit you in.

STATEMENT OF KATHERINE GEKKER, HUFFMAN PRESS,

ALEXANDRIA, VA

Ms. GEKKER. I think I can keep it to 5 minutes.

Good morning, I want to thank the Subcommittee for giving me

the opportunity to speak to you about my participation on the

Small Business Advocacy Review Panel convened for OSHA’s Draft

Proposed Rule on Safety and Health Programs.

I was glad to hear some of you stumble over this too. I also appreciate the opportunity to comment on the proposed bill to amend

the Small Business Regulatory Enforcement Fairness Act.

My name is Katherine Gekker. I am the owner of the Huffman

Press in Alexandria, Virginia. I am also representing the Printing

Industries of America. I would like to ask that PIA’s written testimony be included in the record.

I have been in business since 1974. The Huffman Press specializes in high quality printing for graphic artists and corporations.

Currently, we have nine full-time employees, including myself; and

one to two part-time employees, depending on the work load.

Our gross sales should be roughly $1 million to $1.1 million this

year. I found my experience on the Safety and Health Program

Standard Panel both rewarding and confusing.

The process forced me to reconsider what my company was doing

in our own work place and my own need for continued vigilance regarding safety and health, and training and education of our workers and myself.

I also found the panel process a remarkable accomplishment.

Small businesses are important to this Country, both for the economic activity they generate in their communities and for the income they provide to employees and owners.

The fact that for the first time small businesses has a voice in

expressing concerns or commendations about regulations they may

face is an achievement for which Congress and these Subcommittees should be proud.

My greatest difficulty with the process was the lack of any documentation as to why the proposed rule on Safety and Health Programs is needed, and why OSHA believes it will improve safety

and health.

I believe that the following questions should have been answered

before any proposed rule was developed, and certainly before the

panel was convened.

Is a specific industry’s injury and illness experience rating low or

high?

Is it increasing or decreasing?

If rates are getting lower, should safer industries be exempted?

Does the size of the company affect the rates of accidents and illnesses?

Is there actual data to support issuing a new rule?

Why do we need this rule?

Will the rule truly improve safety and health?

8

Has it been tested at individual states?

What have been the long-term results?

How current is any statistical data provided?

If such statistics do exist, they should have been included in the

documentation which those of us on the panel received. They

should have been addressed to the specific industries the panelists

represented.

The economic analysis section also seemed incomplete to me:

When were the numbers developed?

Based on what?

What relevance do they have to my industry?

I found OSHA’s lack of a specific outline or format for participants’ submitted comments confusing. How was the panel to compare and assess our responses, if we were not all answering the

same questions?

I wish that OSHA would have shared the comments of others

with us afterwards. A final report was never sent to us. I found the

tele-conference helpful, although the format made participation

somewhat difficult; perhaps too many people; perhaps tele-conferencing itself is difficult. I was particularly shocked to learn that

work on the proposed rule began many years ago.

I was also alarmed to realize how many people and how many

hours had already gone into the review process. I looked back in

my records and learned that I spent 22 hours participating in the

review process.

I do not begrudge those hours at all, but I am a bit chagrined

to note that I could perhaps have implemented the proposed rule

in that amount of time.

It made me wonder if a cooperative consultation program, one

that would actually improve safety in the work place, could not

have been implemented and carried out by OSHA during the time

involved in developing this rule.

My reaction to Representative Kelly’s proposed bill is generally

favorable. The suggested time limits in getting information to the

small businesses advocate and to panel participants seem reasonable to me.

While I found the schedule for the review panel adequate, in my

case, it was not generous. Perhaps a bit more time for me would

have improved the SBREFA Process.

I am not sure that oral presentations are necessary, unless it

would give regulators an opportunity to ask questions to clarify

comments provided by panel members. Section 6, I believe is particularly important.

Since it is impossible for most small businesses to come to Washington, D.C. to inspect an agency’s rulemaking record, I think it is

important that those companies have access and the right to know

what is happening and what other business owners think about a

regulation.

If you require that the comments be printed in a public forum,

like the Federal Register, it gives any company with Internet access the ability to read the comments.

For purposes of openness in Government and the responsibility

of regulators to inform the public, I believe this is an important

step. Yes, I believe IRS should be included.

9

Thank you for the opportunity to participate today. I will be

happy to answer any questions.

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

Chairwoman KELLY. Thank you very much, Ms. Gekker.

In light of the fact that we have a vote, I am going to adjourn

for 15 minutes.

I assume we will be back at the end of 15 minutes, barring the

fact that we may have another vote on the floor. Nobody seems to

be quite sure about that. Otherwise, we are adjourned for 15 minutes.

Thank you.

[Recess]

Chairwoman KELLY. Thank you very much for waiting for us. It

turned out that we had quite a few votes. That is why this was

longer than a 15-minute break.

I appreciate having heard the prior testimony. Now we would

like to hear from Jack Waggener.

STATEMENT OF JACK WAGGENER, RESOURCE CONSULTANTS/

DAMES AND MOORE, BRENTWOOD, TN

Mr. WAGGENER. Thank you. I would like to thank the Subcommittee for having me here. It is my pleasure to be here.

Over the last 25 years, I have been involved in EPA

rulemakings. I have witnessed SBREFA having a very significant

and positive impact on the process. I would like to thank the Congress really for bringing a breath of fresh air to the process, which

had gotten pretty stale over the last 20 years.

My background, again, as indicated earlier, I am a Registered

Professional Engineer in some 14 States. I work with Resource

Consultants/Dames and Moore out of the Nashville, Tennessee

area, where I have resided for some 54 years.

My company has been involved for many years as an environmental engineering consulting firm working for industries in helping solve environmental problems. In 1998, we had been a small

business for all of that time for some 30 years.

So, I do understand the problems of small businesses, in addition

to actually providing services to small businesses. In my duties, I

have designed many EPA type facilities, waste water treatment

systems, storm water systems, negotiated permits, work with industry to assure compliance, and worked on many EPA industrial

affluent limitation guidelines.

Through that grass rooted experience, about 20 years ago I started working for many of the Trade Association here in Washington,

D.C. and scattered around the Country to assist them with our

technical knowledge of analyzing regulatory regulations coming out

of the agency; EPA in particular.

In doing that, I have personally worked on some 20 effluent limitation guidelines that have come out of the agency in the last 20

years. So, I understand the process very well.

In 1997 and 1998, I was fortunate enough to be involved in several SBREFA Processes as a SER where I represented and worked

on the Transportation Equipment Cleaning Effluent Guidelines,

the Centralized Waste Treatment Effluent Guidelines, and Storm

Water Regulations directly.

10

Indirectly, I have provided services on the Industrial Laundry Effluent Guidelines and was involved in some of that. As a result of

the panel process, I have certainly observed that the rules that

were eventually proposed with regard to this process that I have

been involved in has resulted in very positive things.

It has given many more regulatory alternatives that would never

have appeared in the Federal Register if it had not been for

SBREFA.

It has been much better economic analysis and much better environmental assessments; not perfect, but much better than what it

was before. I really believe, and I want to make sure that I make

this point.

I think the teamwork between the EPA, the Small Business Administration, OMB, and the SERs is really what has taken place

and has made this very successful.

There has certainly been plenty of disagreements along the way,

but those disagreements have been worked out in this process and

has resulted in good things happening from the processes that I

have personally been involved in.

So, I do applaud these staffs for their work. I sincerely do. Over

the last 25 years in working with the regulatory process, I have

noted it has improved considerably; particularly in the last 3 years.

That, by and large in my opinion, has been due to SBREFA and

what that has resulted in causing. In my early days in the 1970s

and 1980s representing industry and dealing with the EPA, the

EPA dealt in a very closed door atmosphere.

They did everything pretty much in a secretive fashion. As a result of that, the industry mistrusted what the EPA was doing and

the EPA had a definite attitude of not trusting what industry did.

What I have seen happen in the SBREFA Process is that has not

entirely disappeared, but the negative attitudes, a lot of the negative attitudes between the EPA and the regulated community have

dissipated. Again, not entirely gone away, but there has been significant improvement there and much more cooperative effort.

Each SBREFA Process of the four that I have had involvement

in, what I have witnessed is that each one improves as it goes

along. The agency understands more of what the SERs need, what

the SBA needs, and what OMB needs.

So, there has been a continual improvement. The learning effect

is what one would hope and expect would happen. Again, SBREFA

has been working very effectively with small businesses.

What I would like to see, again, making my comments with regard to the bill, there are some modifications being considered. I

think they should be carefully measured. Sometimes even minor

changes that seem to be minor could have negative impacts on the

process which, in general, seems to be working very well.

So, we do not want to impede that process because we have made

large steps here. The problems that I have personally seen and

have encountered in dealing with the process is not timely receiving all of the critical information.

Also, it is tied to that, by not timely receiving it, also not having

enough time to adequately review all of the information and come

up with alternatives that could be put on the table during a discussion. As I said earlier, in the very beginning of the SBREFA ProcVerDate 13-MAR-2000 10:49 Mar 13, 2000 Jkt 010199 PO 00000 Frm 00013 Fmt 6633 Sfmt 6602 E:\HEARINGS\57905P1.XXX txed02 PsN: txed02
11

ess, as I think I was involved in maybe the first or second one, the

agency did not really know what we wanted and visa-versa.

So, it was a learning process. So, what has happened is I have

seen that they are much better at doing this. Sometimes that is

still not the case. So, there really needs to be some definition.

I do not want to over-define it to impede the process as to what

information is required and make sure we get it to everybody on

time.

One thing that I would like to see in the bill, and I think would

be helpful to us that have served as SERs, is at least 45 days receiving the critical information, at least 45 days prior to the

SBREFA Panel convening.

That would allow enough time. Obviously, we always want more

time. It would allow, in my opinion, adequate time to really review

the information and to formulate some ideas before convening the

panel.

I would like to see that occur. It also would allow time, if you

did not receive all of the information you thought was necessary,

you could identify it and move forward to get that. Typically, the

information that we have eventually gotten from the agency, and

I believe what is important is initial information that identifies the

regulatory alternatives that are being considered, the initial economic impact data.

I am saying data, not some formal report, but the data which we

can look at. It has enough formality to really look at it and analyze

it. Information on the cost effectiveness and the benefits, information as to what toxics are going to be removed by this regulation.

In other words, what is the benefit of the regulation? That must

be supplied with adequate detail for us to do our jobs as SERs. On

the other hand, if we put too much specifics in this bill, I believe

it could impede the process.

If we ask for things in a very formal form, that is going to take

the agency more time to put together, which moves the process further along towards the end of the regulatory process. It would impede the process.

One thing in particular I noticed in the bill where it says ‘‘Drafted Proposed Rules.’’ Well, my experience is that rarely would anyone ever see a drafted proposed rule or one would be prepared by

the time the SBREFA Process needed to take place.

Certainly, the elements of that proposed rule are needed to be

looked at. But to say in any way or imply in any way that it should

be a proposed rule, even drafted, I think may be going too far. It

has been my experience in the other SBREFA Processes that we

have had at least two meetings in the 60-day span; one of an introductory kind of meeting and then one following giving ideas.

I believe that is a very good idea. I think perhaps maybe even

in the bill that there should be an indication that at least two

meetings should occur. Even though it has occurred, the individuals at the EPA have been very congenial and made those things

happen.

People like Tom Kelly, who has been really at the heart of this

at EPA. He has done a great job of doing that. I would like to see

something in the bill that says that there must be at least a couple

of meetings to get our points across.

12

Another thing in the bill that I am a little concerned about is it

indicates that the Chief Counsel will select the SERs. I think really

the process, in my opinion, should say that both SBA and EPA

should have somewhat of an equal say so in selecting the SERs.

There should be some agreement there.

That generally is what has been occurring. In my opinion, it has

worked fairly well. Again, not perfect, but it has worked fairly well.

I do not think it is broken, so why fix it, as the old saying goes.

I believe that in terms of the panel members, it is important to

say that—obviously all of the panel members represent small businesses and their interests. I think it is important to have small

business owners on the panel and their representatives or other

representatives which are very knowledgeable of the process of

small businesses.

Most small business operators and owners know very little about

how regulations are developed, the basis of them, and frankly how

to critique those in this process. They certainly know how things

impact their business.

What I have found, again, as a consultant and being on these

panels, since I have worked for some 25 years in the regulatory

community, I understand how the regs are put together.

I understand the technical aspects of it. I think the combination

of that experience has been invaluable in coming to a successful

SBREFA conclusion.

So, again, the people who are on these panels, there needs to be

really a diverse group as to what is there where they can really get

to the meat of the issue and come up with real, workable, regulatory alternatives that really help small businesses.

The ones I have been involved with, I believe actually have. So,

I am very pleased about that. In conclusion, again, I think

SBREFA, honestly, has been a success story for this Congress, for

EPA, for OMB, and all of the parties involved, at least in the three

or four that I have been involved in. So, again, this makes a minor

adjustment to tweak the process, but let us do not do anything that

may impede it.

Thank you very much.

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

Chairwoman KELLY. Thank you very much, Mr. Waggener.

Mr. Morrison, our last, but not our least witness.

STATEMENT OF JAMES MORRISON, SENIOR POLICY ADVISOR,

NATIONAL ASSOCIATION FOR THE SELF-EMPLOYED, WASHINGTON, DC

Mr. MORRISON. Representatives Bartlett and Kelly, good morning. I am James Morrison the Senior Policy Advisor to the National

Association for the Self-Employed.

On behalf of the NASE’s 330,000 members, we thank you for taking up this important subject. NASE strongly supports the Review

Panel Process. We believe it is one of the most successful innovations in SBREFA.

It has helped to build a more fair and rational regulatory process. Certainly, there is work to be done at both EPA and OSHA.

Other witnesses this morning have discussed that.

13

I would like to focus, if I may, on another aspect of the draft legislation that the Subcommittees are considering: adding the Internal Revenue Service to the Review Panel process.

The NASE strongly favors this. But adding IRS could be even

more effective with further changes in the Regulatory Flexibility

Act.

IRS’ regulations reflect its daunting task: to deal with a big, complex country that has a very big and complex tax code, and bring

in the money necessary to keep the Government running.

Many of us believed that explicitly putting most IRS rules under

the Reg Flex Act, which SBREFA did in 1996, was the kind of

change that might eventually be welcomed by the IRS. That has

not happened.

Few IRS rules formally opt out of the Act.

Fewer still contain Reg Flex Analyses. Even those that do are extremely limited in scope. Why is this happening? Well, when the

original Reg Flex Act was passed in 1980, quite a few agencies

asked Congress to let them out from under it. IRS was one of

those.

No such exemptions were ever contemplated, let alone enacted.

Still, when the law was passed, several agencies, including the IRS,

looked for legal technicalities they could use to avoid it.

When Congress took up SBREFA in 1996, a top priority was

bringing all rules significantly affecting small entities under the

Act, including all IRS rules. IRS also opposed this.

One of the main points that IRS made then was that the diversity of its rulemaking, which includes revenue procedures, private

letter rulings, and so on, would prevent the agency’s rules from

being brought under the Act.

So, SBREFA set-up a trigger for IRS compliance, which is whenever an IRS rule requires a ‘‘collection of information.’’ That occurs

when IRS requires 10 or more people to gather information, including any records they must keep.

Unfortunately, three major problems have emerged with this

trigger. To make any IRS Review Panels work better, I believe they

should be addressed.

First, IRS frequently overlooks the record keeping part of the

trigger.

The Service seems to assume that if it is not requiring taxpayers

to fill out some new form, then it is not collecting any information.

For example, when IRS proposed to change the tax treatment of

limited partnerships, it set the tax base at 500 hours of annual

participation in the partnership. Of course, calculating that would

require record keeping. Yet, the Service insisted it was not collecting any information. So, it refused to do a Reg Flex Analysis,

despite the major small business impact. In that case, unfortunately, Congress had to step in.

Second, IRS interprets the trigger to mean that very little analysis is required. Here we have a dispute over words. I believe that

Section 603(a) of the Reg Flex Act says, in effect: ‘‘IRS, if your rule

requires any record keeping or reporting, do a Reg Flex Analysis.’’

That is not how the IRS sees it. They seem to believe that the

same section says: ‘‘if there is a paperwork requirement, analyze

14

only that paperwork impact.’’ If one takes the IRS’ view, then the

RFA becomes, in effect, a second Paperwork Reduction Act.

This raises questions: Why would Congress impose two Paperwork Reduction Acts on the IRS? Why just the IRS and not any

other agency? For that matter, why would Congress ask every

other agency to analyze the economic impact of their actions, but

not ask the IRS to do so?

A few weeks ago, IRS published proposed and final rules on

COBRA continuation health insurance coverage. The IRS said

there was no major small entity impact because the cost of filling

out the forms would only be $5 or $6 per employer annually.

But surely, this is not the only economic impact of changing

COBRA rules. What about implementation costs for employers?

What about impacts on small insurance companies, small hospitals,

small non-profits, small governments? IRS’ narrow focus on paperwork costs inevitably leads to such absurd outcomes.

All this means is there will not be as many Advocacy Review

Panels at IRS as necessary, unless the analysis requirements are

made clearer.

Third, even if the analysis requirements are fixed, the trigger

still needs to cover more rules. Sometimes rules have a major impact on small entities, but have no collection of information requirement.

One recent IRS rule, for example, dealt with the auditing guidelines for partnerships that have been modified. Some other recent

rules dealt with the hearings that IRS convenes before imposing

liens and levies. A lot of small entities have potentially big stakes

in these rules.

Since there is no collection of information requirement in any of

these rules, there is no Reg Flex Analysis for any of them. In these

cases, too, having Advocacy Review Panels would be hampered by

the language of the existing law.

Finally, there are also rules with indirect, but significant small

business impact. Consider IRS’ proposed rule on deductions for interest paid on education loans. True enough, this deductibility directly affects only student borrowers, who would not fall under the

RFA.

But what about indirect affects on the lending institutions that

make the loans? On the small colleges that use them to attract students?

I would make two suggestions to the Subcommittees.

First, make a technical correction in the Regulatory Flexibility

Act. Make it clear that while information collection triggers the

analysis, paperwork costs are not the sole point of the analysis. In

my written testimony, I offer some possible wording for doing this.

Then, add IRS to the covered agencies for the review panels.

If the technical fix still ends up omitting too many rules, Congress may need to change the trigger altogether, making it: ‘‘any

regulatory action by IRS that significantly impacts small entities.’’

Secondly, give both the SBA Office For Advocacy and the IRS the

resources they need to make the resulting analysis and panels

work. Advocacy has been stretched very thin, even as it has been

assigned ever greater responsibilities. This has to end and now is

the time to end it.

15

The IRS also needs adequate resources to comply. No doubt, resource concerns have been a factor in the Service’s past reluctance

to deal fully with the RFA. I hope the IRS will eventually come to

see this change as an enhancement to their commendable new customer service orientation, as a way to better involve small entity

customers in IRS rulemaking.

Such involvement would lead to better IRS rules which are easier to implement and enforce, and which draw a far more positive

reaction from small entities and from Congress.

That concludes my testimony. I would be happy to take any questions at this time.

Thank you for asking me to appear here.

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

Chairwoman KELLY. Thank you very much, Mr. Morrison.

I have just a few questions. With Congressman Bartlett’s indulgence, I am in a mark-up in two other committees. So, I am going

to ask my questions first and let him take over and finish up here.

I would like to start with you, Mr. Cole. In my opinion, Section

609 is currently unclear as to which agency is responsible for identifying Small Entity Representatives.

Our draft bill clarifies that it is the SBA’s responsibility to name

them, although it would not preclude SBA from getting input from

the covered agency. What are your thoughts about this change?

Mr. COLE. The Act, as originally drafted, is a bit unclear on this.

The best way that I can describe how I think the Act currently

works is something like this: Chief Counsel For Advocacy kind of

nominates individuals to serve on the panels, then the agency selects and notifies those individuals. I see value in placing responsibility in one agency. It will assist your oversight function in the future if you do not have divided responsibility and the agencies

pointing fingers at one another.

I think it is an important issue. The question is how much of a

fight is this going to provoke down at the agencies? There is a lot

of good in this bill, but I fear this is going to trigger a bit of a turf

fight between EPA and SBA, between OSHA and SBA. I would

hate to see that stand in way of the rest of the bill. So, in my mind,

it is not the most important change to put this in SBA. I think

there are some alternatives in the middle such as EPA has to select the Small Entity Representatives with the concurrence of Advocacy. That way, EPA could not select Small Entity Representatives over the objections of Advocacy.

In the end, this is something that is going to be up to the Subcommittee. I would not want to see this stand in the way of the

rest of this bill passing.

Chairwoman KELLY. All right. Let me just go to another question. Your broader comments about Reg Flex were very helpful. Do

you think the agency should use the panel process to help them determine whether rules should be certified as not having a significant effect on small businesses?

Mr. COLE. Certainly, that is one function of the panels. If during

the panel process you can identify regulatory alternatives which

really resolve the problems for small businesses, then the outcome

could be that by the time the proposed rule comes out, there is no

16

need to have a Reg Flex Analysis because you have taken care of

the problem prior to the proposed rule.

That is a factual determination. In that scenario, it is a question

of analyzing how do the regulatory alternatives affect small entities, and the SBREFA Panel Process can be very helpful.

The problem that we have at EPA is the disagreement over

whether entities that are not subject to the rule still suffer the impacts of the rule. That issue is not really addressed by the panel

process. In other words, we have to resolve the threshold jurisdictional issue before we can decide whether a panel is necessary. Actually, this is the basis of a lot of the arguments between SBA and

EPA over what types of small entity representatives should be invited.

EPA is taking this very restrictive view that only the small entities that are directly subject to the rule should be invited to be

members of the panel. The Office of Advocacy recognizes what I

think was Congress’ original intent in this. In the Reg Flex Analysis, you are to look at those entities which are reasonably impacted by the rule; whether they are subject to the rule or the impacts flow through, for instance a state is often the mediating entity. SBA wants to include this larger group of small businesses as

Small Entity Representatives. If we resolve this threshold issue,

there are going to be less arguments over which entities should be

invited and less arguments over who should be on the panel between EPA and SBA.

Chairwoman KELLY. Has EPA ever conducted a panel only to

certify the rule under Reg Flex upon its completion, that you know

of?

Mr. COLE. I do not believe so. EPA and OSHA have conducted

15 panels to date; 13 at EPA. Seven of those have had proposed

rules. Of those 7, each had an initial Regulatory Flexibility Analysis prepared. So, I do not believe that they have certified after

having done a panel.

Chairwoman KELLY. Thank you very much.

Ms. Gekker, you posed a number of questions in your testimony

relating to your concerns about OSHA’s Safety and Health Program

rule. Did you ever get a response that was adequate?

Ms. GEKKER. No. In fact, when I asked the question during the

tele-conference, I had the feeling that there were no answers from

the responses I got.

Chairwoman KELLY. Were any of your questions addressed in the

panel’s final report?

Ms. GEKKER. I believe not. It has been awhile. We did not get

the final report for quite awhile. It was only because I was appearing here that I did get it. So, I do not believe so.

Chairwoman KELLY. That is interesting.

Do you feel that you got it as a consequence of your willingness

to appear here?

Ms. GEKKER. It was the only time I received it.

Chairwoman KELLY. Okay. Thank you very much.

I think that is a shame.

Ms. GEKKER. I did too.

Chairwoman KELLY. That was not the intent of this law. Was a

copy of the panel’s final report provided to you? It obviously was

17

not from what I understand, and I just want to clarify this. You

feel that it was not timely when it was provided to you.

Ms. GEKKER. No. I should clarify. It was provided to me by the

Printing Industries of America who asked me to appear before you.

Chairwoman KELLY. Do you think it should have been made public in a more timely manner?

Ms. GEKKER. I would have liked to have seen it within 4 or 5

weeks while it was still fresh in my mind.

Chairwoman KELLY. I appreciate that. I think that is something

we will have to take a look at because there is no point in having

this if we cannot have some kind of a timely response from the

agencies.

I want to go to Mr. Waggener next. Mr. Waggener, you indicate

that the current process for Small Entity Representatives works

fairly well for the EPA, and I agree.

However, I also think that there is significant ambiguity in the

statute over whose responsibility it ultimately is, EPA or SBA. Let

us assume that other agencies are added to the process.

Let us assume that there is not as good a working relationship

between this new agency and the SBA. In this case, who do you

think should have the ultimate responsibility of naming the Small

Entity Representatives, the new agency or the SBA?

Mr. WAGGENER. I can only speak from my experiences. What I

have seen happen, EPA, first of all, has been dealing with the industries that are impacted by the regulation, more so than SBA,

during the regulatory process.

So, the initial names that they bring to the table is normally

from their experience of dealing with those individual entities.

Then SBA adds names to the list that they believe should be on

there.

There is usually a debate about who that should be. Then they

come to a conclusion. As I have stated here, I do believe that before

the process goes on, there should be an agreement between both

SBA and EPA or the other agency, whoever that may be. My experience is with EPA.

That these are the Small Entity Representatives that we are

going to use. They do represent small businesses. So, there should

be some agreement as to that is what I want the result to be because I think that works.

Chairwoman KELLY. What if there is not an agreement? What if

these agencies do not get along; the agency and the SBA? Then

what? Who do you think should have that ultimate responsibility?

Mr. WAGGENER. I think that SBA should have the final word on

it.

Chairwoman KELLY. Do you have any thoughts on when the EPA

should make a panel report available to the public? What are your

thoughts on what timeliness is, in terms of making it available?

Mr. WAGGENER. My experience has been, first of all, the panel

report was always published right at about the time of the proposed rule. It came out within a month or so earlier than the proposed rule.

It may not have shown up until the proposed rule. It is always

discussed in the preamble. What has occurred is that it has not

been made available until then. However, the results have been

18

discussed with the Small Entity Representatives by EPA and the

SBREFA individuals, such as Tom Kelly.

So, we have been made aware of what was in the document as

it was going forward to be completed. That has seemed to work

fairly well. I do not really see a strong need, actually, if that takes

place and the process takes place; making it available to the public

in a reasonable amount of time, which may be, I do not know 4

months, 5 months or something down the line, or when the rule is

proposed, I think is adequate.

Chairwoman KELLY. Well, obviously, we have just heard from

Ms. Gekker that it did not work that way with the OSHA. So,

there may be some area there for concern.

Mr. WAGGENER. I think I did hear that it was perhaps provided

to the people that served as the Small Entity Representatives. Is

that incorrect?

Ms. GEKKER. No. I was a Small Entity Representative. It was not

provided to me, except in this round about way.

Mr. WAGGENER. That is bad. That needs to be corrected.

Chairwoman KELLY. One would think that if you take your

time—all of you are busy. If you take your time to serve as Small

Entity Representatives, you ought to be entitled to have a timely

response with that report.

It seems to me that Ms. Gekker did not get that from OSHA.

Well, you did because you were a part of the working process on

the final report from the EPA. So, it is obvious that the interaction

between the SBA and the agencies is different with each agency.

We may need to have a look at that.

I thank you very much. I just want to ask Mr. Morrison a couple

of questions. Mr. Morrison, it seems as if you feel that without the

underlying changes to make the IRS better comply with the Reg

Flex Act, adding them to the panel process will not make any difference.

However, you also indicate that this is a problem that has never

been able to be fixed. If we have the opportunity to add the IRS

to this panel process, should we not take it and continue to work

on the underlying problems that you have outlined?

Mr. MORRISON. Yes. Let me clarify what I am saying on that. I

am glad you asked. First of all, I think it is useful to add IRS to

the review process, per se.

It is useful for two reasons. Number one, it will spotlight some

of the problems that I have been talking about here. It will make

those problems much more visible.

Number two, in those instances in which the IRS does concede

that its rules fall within the Reg Flex Act, having the panel process

in place will get them used to convening panels.

I think doing so will eventually reduce their opposition to having

more of the panels and probably, in time, reduce their opposition

to broadening the scope of the Act to more activities they undertake.

So, yes, I think putting IRS under the panel process now makes

sense. I guess what I was trying to say with the testimony: is if

you want to capture more of their rules, and therefore have more

review panels, there probably needs to be some additional technical

changes in the Act.

19

Chairwoman KELLY. Good. Maybe we can work with you on

thinking that through. I think having the IRS at least attempt to

convene Advocacy Review Panels will help with the whole culture

of the agency.

I think it has worked, definitely with the EPA. I think it is beginning to work with OSHA. It seems to me, as you have said, it

might work with that culture. I hate to see us impose mandates in

ways on agencies because I think they need to do their job.

On the other side of the coin, we have a problem here with the

IRS that you have pointed out with the culture of the agency. What

do you think about at least our trying to convene them?

Mr. MORRISON. I think it is useful to do. I suspect that if you sat

down and talked to Mr. Rossotti about it, the IRS Commissioner,

he might even agree with you. He represents the effort by a lot of

people in Congress and the Administration to change that culture.

I think he is very sincere about trying to do it. And I think culture change certainly was the thrust of the IRS Restructuring Act

Congress passed last year. So I think there is a lot of movement

in that direction.

Maybe in the case of agency’s General Counsels and a few people

a little farther down the ladder, it may not have sunk in. But I

think that we are at a point right now where there is much more

receptivity to these kinds of changes at IRS.

Chairwoman KELLY. I thank you very much.

Now, I am going to have to turn the panel over. I have a vote

in another committee. I apologize. I really do thank the four of you

for coming in today. Your testimony has been very, very helpful on

this.

Chairman BARTLETT [presiding]. Thank you. Least I forget at the

end, let me state now that we will hold the record open for a number of days so that those members whose duties prevented them

from being here can ask questions for the record.

So you may expect some questions from some of the other members who were not here. Mr. Cole, you spoke about the timing of

the draft proposed rule and the problems that, that might impose.

If they already had drafted a rule that they would then have a

mind set that the hearings would not matter much because they

have already kind of committed themselves.

Yet, it is not being productive to have hearings when you do not

know what you are talking about. Is there not some middle ground

here where they could simply indicate the nature of the proposed

rule or the problem they are trying to solve?

I understand your concern about actually drafting a rule. They

now have pretty much committed themselves. It is going to be a

tough call to get them to change it.

Mr. COLE. I think there is a middle ground. The key to finding

that middle ground is having the panel occur at the point at which

regulatory alternatives have been identified, and where there is at

least some data about the benefits and costs, and the pros and cons

of those regulatory alternatives.

You do not need the lawyerly text about what is going to be in

the Federal Register. That can occur later on in the process. The

panel should occur before we get down to the lawyers drafting the

fine points of the rule.

20

The most productive discussions that I have seen in the panels

occur at the phase where you have economic data. You may not

have the economic analysis— that is a term of art for the document

that is required by Executive Orders to be in the Federal Register

Notice.

You may not have the draft proposed rule. I think Jack said it

very well. He talked about initial economic data, cost effectiveness

data, and data on the benefits; in EPA’s case, toxics removed, or

in OSHA’s case, worker injuries avoided. That, to me, is the key

informational requirement. Jack, you have had more experience

with this.

Mr. WAGGENER. I would agree with that. Again, that is it. It is

a middle ground. That is a middle ground what has been being provided. It is this initial, what are the regulatory alternatives, 1, 2,

3, 4, and 5, which typically is laid out in the SBREFA Process.

This is what the economics would be. Then here is another batch

of data that says what the toxics are being removed. It is a piecemeal thing to get all of the data that you need. It is not a formal

written document. I think that is what you were saying there.

We just need to know what the intent of the rule would be so

that you can make a fair assessment of the impact on small business.

Mr. COLE. Writing this into the statute would be an advance.

When SBREFA was originally drafted, it references answering the

specific questions in the initial Reg Flex Analysis. That direction

kind of misses the point because SBREFA does not mention regulatory alternatives in the data to be provided. So, writing this in

would be a big advance.

I just want to mention one additional point. EPA has published

interim guidance on implementing SBREFA in 1997. In that interim guidance, it directs the agency to give the panel members,

not the Small Entity Representatives, not the small business folks,

but the members of the panel, the EPA, Advocacy, and OMB an

outline describing the important components of the rule and any

significant regulatory alternatives.

The guidance goes on to talk about what is going to be provided

to the Small Entity Representatives. They only get enough information about the rule for them to be able to judge the likely impacts of the rulemaking.

I think in this guidance we have the kernel of what is really important here. It is what the EPA’s guidance was originally going

to provide only to the panel members and what they are now providing to the Small Entity Representatives as well. That is an outline describing the important components of the rule, any significant regulatory alternatives, and data on the pros and cons, data

on the costs and benefits of those different alternatives so that you

can compare them. The best thing that happens is a panel where

you can lay out a couple of regulatory alternatives and people can

see that getting the extra molecule increases the cost dramatically

to small businesses.

What are you getting for that marginal increase in cost? When

you have data that can answer that question, you will have a successful panel.

21

Chairman BARTLETT. Why should not the Small Entity Representatives get as much information as the panel members?

Mr. COLE. I believe they should. I have just quoted you the language from EPA’s interim guidance in 1997. My understanding in

talking to the folks at EPA is that they now provide the same information to both the Governmental Officials on the panel and the

Small Entity Representatives.

I believe that we have to have everyone having the same information so we can have a cooperative conversation about the impacts of the rule.

Chairman BARTLETT. There has been some discussion of the selection of the panelists and whether the affected industries have an

adequate voice there. Do you think that we need some legislative

language?

Apparently, with EPA it has been working okay, but that is just

because there has been a good cooperative relationship that would

not necessarily obtain with all agencies.

Do you think that we need some definitive legislation that would

indicate a meaningful role for the affected entities in choosing the

panelists? Let the record show that their heads are nodding.

Mr. COLE. On the issue of selecting representatives, there is this

threshold jurisdictional issue as to what the word ‘‘impacts’’ means

in the context of the whole Reg Flex Act. Does it just mean impacts

on entities that are subject to the rule, or does it mean something

more?

I used the example of there are some Clean Water Act rules and

some Clean Air Act rules where the person who actually has to

comply with the rule is the state. EPA tells the state write these

numbers into your permits or EPA tells the state you have to

achieve this quality air. Then it is up to you to go after the small

businesses to get it. EPA hides behind that structure to avoid

bringing in the small entities that are going to bear the brunt of

that regulation, and whose actions are going to lead to the benefits

EPA claims will be achieved by that regulation.

As I mentioned in my testimony, this issue is under litigation

right now. The ruling of the Court could come down any time this

spring. I think the Subcommittee should look very closely at this.

If the Court comes down the wrong way, by deferring to EPA’s interpretation, legislation is urgently needed to ensure that all small

entities who are going to be affected by the rule, that have some

reasonable nexus between the rulemaking and the impact on the

small entity, should have the opportunity to participate as small

entity representatives.

Chairman BARTLETT. Does this not remind you a little of the defense of the Mafia Don who says it was really the hit man who

committed the crime?

Mr. COLE. That is exactly the defense that EPA has raised here.

Chairman BARTLETT. I agree. We probably need to address this

in specific legislation. Ms. Gekker, you mentioned that OSHA appeared to be about making rules for problems that, as far as you

were concerned, were essentially non-existent.

That reminded me of the testimony of my dentist who said that

OSHA came into his office, required procedures that increased his

cost of doing business 21 percent, which he then, of course, dutiVerDate 13-MAR-2000 10:49 Mar 13, 2000 Jkt 010199 PO 00000 Frm 00024 Fmt 6633 Sfmt 6602 E:\HEARINGS\57905P1.XXX txed02 PsN: txed02
22

fully passed onto me, because that is what happens with all of

these regulations.

They get passed onto the ultimate consumer. His testimony was

that there had never been in his office, nor in any dental office he

knew, a single instance that would justify any of these onerous regulations that were piled onto them.

There is an old saying, if it ain’t broke, don’t fix it. When an

agency comes in imposing regulations to fix problems that are not

there—do you think that what OSHA is really trying to do is justify its existence?

Ms. GEKKER. I feel very hesitant to answer that. I have no idea.

Perhaps the comments by somebody else who was on the Small Entity Representatives tele-conference with me will suffice.

He would be covered by this rule; his office would. He is a head

hunter firm, I believe he was. He said, the only dangers in his company are if one of them happens to climb on a ladder to change a

light bulb. So, he would be required to come up with pages and

pages of documentation of all of the hazards that exist in his office.

The only one that he could think of was if one person pulled that

ladder out of the closet to change the light bulb that is on the ceiling. I work in a dangerous industry. So, there are some needs for

safety concerns and for some regulations.

I try to abide by everything I am aware of. I do not want anyone

to be hurt when they are on my premises. These are people I care

about. We work side-by-side. If one of them is out, it means that

I have to work longer, as does everybody else there.

We cannot replace them quickly. We care about them. We know

their families. So, there is no benefit in my ignoring the need for

their safety and their health, none at all, to my business or to me.

Chairman BARTLETT. I appreciate those comments. I, in another

life, was a small business person. I ran a land development, home

construction company.

When one of my employees, most of whom were my friends, by

the way, when one of my employees got hurt and could not be on

the job, that left a big hole in our team. I could not fill that hole

by just going down and hiring a temporary.

It really impacted the productivity of our company. So, I, more

than any person in OSHA, was concerned about the safety of my

employees. Now, I would have welcomed a Government agency

coming in and reviewing with me my safety procedures, because

there might have been things that I could be doing that I was not

aware of.

But to come in to me in an adversarial kind of a position; you

know, I have talked with a lot of our contracting people across our

District. They are more terrorized by a visit from OSHA than they

are an audit by the IRS.

Now, when you are more terrorized by some Government agency

than you are an audit from the IRS, clearly I think we need to take

a look at what is happening there.

Mr. Waggener, you were talking about this SBREFA influence on

openness and we are observing this, because of this legislation,

there is now more openness. Has the adversarial relationship diminished?

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I know when these regulations first started that all of them were

implemented because of agreement with one or both of two assumptions. The one assumption is that every manufacturer, every

employer is inherently evil, and greedy, and are going to hurt the

public, or hurt their employees.

Therefore, you have to make sure they do not do that. The other

assumption is that every consumer and every employee is incredibly stupid and they are going to hurt themselves unless Big Brother protects them. I fundamentally reject both of these hypothesis,

which means I see very little need for most of our regulations.

But because this was the mind set of, I believe, the Congress and

certainly the early agencies here, there was clearly an adversarial

relationship between the agencies and those that they were regulating. Has that diminished?

Mr. WAGGENER. Yes, it has. It is still there. Again, in the 1970s

when I started this in the 1970s and 1980s, it was a very adversarial process. I mean, it was like go away. Leave me alone. I am

doing my job. I am here to protect you and everybody else.

I have really witnessed, truly and sincerely witnessed, that particularly in some parts of the agency that I deal mostly in, that

there is still certainly a realm of that type of thing occurring.

There are still some old timers around that still possess that. As

things go along, we have got a younger group of people. They certainly possess some of that. But they are much more cooperative.

In dealing with people like myself and the other industries, we

have many more meetings, sit down meetings, talking about where

the regs are going. They come and give presentations to groups to

talk about where the regs are going and what they are doing. That

was totally unheard of back in the 1970s and 1980s. I particularly,

as I have said earlier, I have seen this really occur.

I have said this to a number of people before this in the last 2

or 3 years. I think the fact that SBREFA has now forced the industry, EPA, OMB, SBA, to come together and sit down at a table, and

that is also another point.

I said I wanted at least two meetings because that is a minimum

that allows you to have that eye contact; talk about your problems.

I think that has gone a long way to reduce that adversarial situation. It is still there, but just not as much as it used to be.

Chairman BARTLETT. I know from the perspective of the head of

these agencies that they recognize that they need to change. I

think the problem is filtering down change from Washington to the

field where there are some people there who have been there for

a long time who still have the older mind set. I am glad that it is

changing.

Mr. Morrison, do you think that there is any legislation that we

can write that can require a non-cooperating IRS to comply?

Mr. MORRISON. Well, you could actually. Certainly, there are

ways to compel agencies to do things they do not want to do.

Chairman BARTLETT. Are they now using rather obtuse reasoning to justify their non-compliance with regulations that they

ought to be complying with, relative to this small business world?

Mr. MORRISON. I think a lot of people would say that. It is possible that we have an honest disagreement about the meaning of

some terms in the Regulatory Flexibility Act. But they have a long

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history of not wanting to comply. So, you have to take it in that

context.

Chairman BARTLETT. Mr. Archer, the Chairman of Ways and

Means, has a solution to that problem that I concur with. He would

like to have a flat tax on consumption. He says that the IRS is an

evil weed that you need to pull out by its roots.

So, he would like to repeal the 16th Amendment. One of you in

your testimony talked about the enormous complexity of the IRS

code. It is so complex that even IRS, itself, does not know what

that code is.

I understand now if you get the name of the person who gives

you advice that IRS will at least absolve you from penalty, if you

comply with that advice and it turns out to not be the right advice.

Let me just ask all of you one final question. I notice that the

present legislation uses the terminology ‘‘has a significant economic

impact on a substantial number of small entities.’’

What does that mean? The IRS could rationalize that if only 50

percent of the small businesses went belly-up, or OSHA, or EPA,

could rationalize that if only 50 percent of small businesses went

belly-up because of this regulation that, that was not a significant

economic impact on a substantial number of small entities.

Do you not think that we need some terminology that is a little

more restricting? This could be interpreted any way one wished,

and apparently is, by some of the agencies.

Mr. COLE. One of the issues at the IRS is a threshold issue of

what regulations fall under Reg Flex. Jim Morrison mentioned this.

IRS has regulations, interpretive regulations, revenue rulings; a

whole series of ways in which it imposes requirements on the small

business community. Only some of those are captured under the

Act. SBREFA tried to expand that to include interpretive rules.

The IRS is still finding ways to circumvent that.

I think another area where additional Congressional action to

clarify the Act would be appropriate is to say that rules that pose

significant economic impacts on small entities should be covered,

regardless of whether that impact is positive or negative. If you go

back to the 1980 debates, there is legislative history to the point

that agencies should look at both regulatory and deregulatory actions that have a significant impact on small entities. Unfortunately, agencies have largely taken the position that it is only regulatory actions that should go through Reg Flex. So, if there is a

rule that they claim is deregulatory, they say Reg Flex does not

apply at all. If you are doing a deregulatory action, the opportunity

for additional regulatory relief is still present in that rulemaking.

That rulemaking should go through Reg Flex analysis.

I cannot define what ‘‘significant impact’’ means; substantial

number of entities. I think there is guidance at EPA. They have a

methodology on how to do this. My belief is that we should direct

the agencies to work together to come up with guidance. Perhaps

we should direct OMB to come up with some agency-wide guidance

on what constitutes ‘‘significant impact’’ and what constitutes a

‘‘substantial number of small entities.’’

It is very, very difficult. That is a different question in the EPA

world than it is in HICFA. It is very different there than it is in

the telecommunications world. That is why SBA has pages and

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pages of regulations defining what small business means. It is very

difficult to have one across the board set of numbers, for example,

to apply to all agencies. The closest I can think of is a suggestion

to direct OMB to come up with some guidance. Then from that

guidance, agencies to come up with specific tests that they would

apply.

Ms. GEKKER. I work in a industry that is an increasingly mature

industry; the printing industry. We have collected figures on profit

in our industry for many years. The average printing company in

America earns 3.6 percent profit on its sales.

That means a company my size, a million on average, and thank

Heavens we are not average, on average earns $36,000 in a year

of profit. I like to think of profit as the ability to continue. It is the

thing that buys you the ability to continue the next year, and the

next year, and the next year.

If a rule requires $10,000, even only a one-time expense, that is

a major amount. That is 30 percent of that profit that that printing

company has earned. I have a dentist like yours. He is able to pass

along cost increases to me.

I have not had a price increase in my business since 1989. I cannot pass along the cost of raises. I cannot pass along the cost of

increased material costs. I cannot do it. The marketplace is mature.

They are not willing to pay more at this point.

Chairman BARTLETT. Because of competition?

Ms. GEKKER. Partly, yes; I guess for the most part.

Mr. COLE. If I could just amend my comments. You brought up

a very important point and that is that there is a problem with

some of the tests that EPA has used where it looks at impacts on

revenue, as opposed to the impacts on net profitability. In some of

the discussions in rulemakings about what are the impacts, the

EPA seems to discount impacts on industries that work on a very

narrow profit margin. Congress could clarify that you are to analyze impacts on the profitability of small businesses, not just the

impact on net revenues.

Chairman BARTLETT. Thank you for your comments.

It just appeared to me that the wording ‘‘significant economic impact on a substantial number of small entities’’ could be interpreted

a great many different ways. That there might be a lot of inconsistency within one agency from time-to-time and certainly between

agencies.

I do not know whether this can be tied down with legislative language or if we would require the agencies to submit their definitions of this terminology to the Congress for approval before implementation.

It just seems to me that this is open to very divergent interpretation. Rules like this or legislation like this, which is so non-specific

just creates opportunities for mischief that we do not need to create.

We need to tighten it up, I think.

Mr. MORRISON. Mr. Bartlett, I think you have raised some important points there. But I would note with respect to one piece of that

problem, which is the definition of ‘‘small entities,’’ there is some

additional language in the Reg Flex Act which helps narrow the

definition down.

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The Act also says that the agencies have to take SBA’s definition

of what a small business is, unless they define it themselves

through a regular notice and comment rulemaking process. So, I

think with respect to that particular term, ‘‘small business,’’ the

Act still has a bit more precision. I take your point about the imprecision of other parts of the Act.

Chairman BARTLETT. But the ‘‘significant’’ and the ‘‘substantial’’

are very qualitative adjectives that could be defined in very different ways.

Mr. WAGGENER. If I may, I would like to comment to what Keith

Cole said. A lot in the passing on of the impact of the regulations,

a lot of the regulations that I have talked about this morning that

I was involved in, the agency has taken the philosophy that you

can pass all of those costs on to the people you are working for.

These are service industries. They are also extremely competitive; commodity type service industries, where the fact is they cannot pass on all of those costs. I do not know how you legislate this.

There are truly flaws in the economic analysis that are still there

that we are having to deal with on a day-to-day basis, where those

types of assumptions are made.

Chairman BARTLETT. Unless we are regulating the factory in Sri

Lanka, you cannot be assured that all of those costs are going to

be passed on. Well, thank you all very much for your testimony.

It has been very useful.

The Subcommittee now stands adjourned.

[Whereupon, at 12:45 p.m., the committee was adjourned.]

27

A P P E N D I X

PREPARED STATEMENT OF REPRESENTATIVE SUE W. KELLY

Good morning, ladies and gentlemen. I would like to welcome everyone to today’s joint Regulatory Reform and Paperwork Reduction Subcommittee and Government

Programs and Oversight Subcommittee hearing on improving the small business advocacy review panel process. I would like to thank my good friend, Chairman Roscoe Bartlett, for agreeing to hold this hearing with me. Many of you know that this is an issue that Chairman

Bartlett and I have been involved with for some time. We held two hearings in the

last Congress on this issue, and I am grateful that he has continued providing oversight over the advocacy review panel process with me. The Small Business Advocacy Review Panels are a good model for what we should be doing in government. Originally created by the Small Business Regulatory Enforcement Fairness Act, the panel process has been successful because it allows

small business community the opportunity to have a real impact on agency

rulemakings. The key to this success is getting small businesses involved in agency

rulemakings early in the process. By doing so, agencies will have a much better understanding of the unique needs of small businesses before the parameters of a potential regulation get too firmly defined. The advocacy review panels are viewed as a positive process by those who actually participate in them, as well. From most accounts, small businesses indicate that

they appreciate having the opportunity to provide their thoughts to the agencies in

this type of forum. Likewise, the agencies have indicated that they benefit from this

early input, which in turn can be used to produce better regulations. The goal of this hearing today is to revisit how the panel process is working gen- erally, as well as consider ways in which the process can be strengthened and improved. The most notable change that we are considering is adding the Internal

Revenue Service as one of the agencies that is covered by the panel process. Small

businesses have repeatedly described how the IRS simply does not understand the

impact that many of their rules have on the operation of small businesses. By requiring IRS to convene advocacy review panels, we may be able to begin to change

this problem.

We have an excellent panel of witnesses that will be testifying. All of hem have significant experience with the Regulatory Flexibility Act and the panel process. I

appreciate the time that each of them has sacrificed out of their schedules by being

here today. In conclusion, this Committee is a very strong supporter of the advocacy review panel process. We are committed to taking whatever steps necessary to see that it

remains a strong part of the regulatory process.

PREPARED STATEMENT OF REPRESENTATIVE ROSCOE G. BARTLETT

Good morning. It is a pleasure to welcome you to this joint hearing held by the Subcommittee on Government Programs and Oversight and the Subcommittee on

Regulatory Reform and Paperwork Reduction, chaired by my colleague Congresswoman Sue Kelly. This hearing in many respects is a continuation of joint hearings the two sub- committees held in April 1997 and March 1998 in which we addressed the need for

common sense in rulemaking and the unfair financial burdens borne by small businesses all over this Nation as a result of unscientific, impractical and unnecessary

regulations. These same hearings also examined the implementation and performance by the Environmental Protection Agency (EPA) and the Occupational Safety and Health

Administration (OSHA) of the panel process added by the Small Business Regulatory Enforcement Fairness Act of 1996—better known as SBREFA. The panel

process requires these to agencies—EPA and OSHA—to consider and to respond

fairly to the advice and recommendations of small businesses concerning the impact

upon small businesses of proposed regulations.

We believe—as we stated at the previous hearings—that the panel process is important. In a study done for Committees of both the House and the Senate, the General Accounting Office concluded that: ‘‘Agency officials and small entity representatives generally agreed that the panel process is worthwhile, providing valuable insight and opportunities for participation in the rulemaking process.’’

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For some reason when the panel process was initiated only two agencies were includes—EPA and OSHA. The legislation which we will be discussing today adds a

third agency—the IRS. This addition is long over due.

The difficulty and cost of complying with mind-numbing IRS regulations are a

major concern for small businesses in my district—Western Maryland—as I am sure

they are for all small businesses through out this nation. Small businesses need the

common sense relief that advance consultation will provide.

There’s an old farmer’s test for measuring costs and benefits. Those of you familiar with me will recall—you don’t do something if the juice ain’t worth the squeezing. The IRS should be required to make sure the juice is worth the squeezing when

they design regulations.

Again thank you for coming to this important hearing. We look forward to a lively

and productive discussion.

PREPARED STATEMENT OF REPRESENTATIVE DANNY K. DAVIS

Thank you Chairwoman Kelly, Chairman Bartlett, Ranking member Pascrell.

For years small businesses have complained about unfair regulations and burdens

imposed by Government agencies. As a result, the 104th Congress passed legislation

named the Small Business Regulatory Enforcement Fairness Act to make federal

government regulators more accountable to small businesses. The Small Business

Regulatory Enforcement Act expanded the jurisdiction of the courts by including in

the review process the regulatory appeals brought by small entities and requiring

OSHA and EPA to consult with small businesses before publishing the proposed

rules.

Later, the Office of Advocacy testified before our committee on the accomplishments of SBRFA and found that because of the early involvement of small entities

in the development of rules there was better data collection and efficient, fair regulatory provisions. Many agree that progress has been made but significant work remains to be done.

As a result today we have called a form to discuss a bill to improve the conditions

of small businesses. I believe what you do, poorly or well, can never be erased.

Therefore I want to do the best job here on this committee for our nation and or

nation’s small businesses.

I am delighted to see our witnesses and welcome their testimonies.

PREPARED STATEMENT OF REPRESENTATIVE BILL PASCRELL, JR.

Good morning. I would like to begin my remarks today by thanking Chairwoman

Kelly and Chairman Bartlett for bringing this important issue to the attention of

both subcommittees. Small businesses are the engines of growth for our nation’s

economy and are indeed the backbone of our economic system. By examining ways

to make the regulatory process more efficient, we will ensure that this important

sector remains vibrant and robust. I am committed to that goal.

As the new ranking Member of the Regulatory Reform and Paperwork Reduction

subcommittee, I believe today’s hearing, which will examine the Small Business Advocacy Review Panel Process, is of critical importance. It is critically important because the relationship between our regulatory agencies and our nation’s small businesses must be one of mutual understanding as opposed to mutual disdain.

Regulations that are promulgated by OSHA and EPA are very important in regard to establishing and ensuring a safe workplace and a clean environment. But

at the same time, those who formulate regulations must be aware of the actual implications of regulations. And when we are dealing with small businesses we must

keep in mind the fact that the costs of regulatory burdens are disproportionate on

small businesses because of their very size. This fact has been confirmed by 27 studies and was recognized by both the Regulatory Flexibility Act and SBREFA, which

created the panel process.

Today we are going to hear testimony on the current effectiveness of the Review

Panel Process—a process which was designed to provide the small business community with an opportunity to participate in the rulemaking process, which allows

small businesses to express their opinions on the effectiveness and practicality of

proposed regulations before they are finalized.

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It is my hope that today’s hearing will contribute greatly to our understanding of the Review Panel Process—and how to improve it. We need to reduce unnecessary

regulations, improve those elements that work, and use common sense as our guide. Thank you.

TESTIMONY OF KEITH N. COLE

Mr. Chairman, Members of the Committee: My name is Keith Cole, and I am a Partner at the law firm of Swidler Berlin Shereff Friedman LLP. I appreciate the

opportunity to testify at today’s hearing on the Small Business Advocacy Review

Panels (Panels) established under the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA).

I would like to state for the record that I am not testifying today on behalf of my law firm, or any particular client, but solely on my own behalf. My testimony is

based on my expertise as former Regulatory Affairs Counsel to the Senate Committee on Small Business, and my experience in the private sector since leaving

Capitol Hill. While in the private sector, I have followed closely the implementation

of the SBREFA Panel process out of both personal and professional interest. In

1998, I prepared written comments on the Panel process in the EPA’s Proposed Industrial Laundries rule on behalf of the Textile Rental Service Association.

At earlier hearings before this Committee, I have testified about the need for SBREFA; some of the expectations Congress had for the Act; and the early implementation of the Act. Today, I want to testify as to my experience with rulemakings

where SBREFA panels were used, and my assessment of how the Panel process has

worked in other rulemakings based on discussions with numerous participants. I

also want to provide the Committee with comments on the discussion draft and the

proposed changes to the Panel process.

BACKGROUND ON SBREFA PANELS

Small business advocacy review panels

SBREFA amended the existing requirements of section 609 of the Regulatory Flexibility Act (5 USC § 601 et seq) (Reg Flex) for small business participation in

the rulemaking process at the Environmental Protection Agency and the Occupational Safety and Health Administration. For proposed rules with a significant impact on a substantial number of small entities, EPA and OSHA must now collect

advice and recommendations from small business to better inform the agencies’ initial Reg Flex analyses. The findings of the Panel and the comments of small business representatives are, at a minimum, made public as part of the rulemaking

record when the proposed rule is published.

SBREFA established Small Business Advocacy Panels to provide small businesses with an early opportunity to better inform EPA and OSHA about the impacts of

soon-to-be proposed rules in an arena especially dedicated to address small business

impacts. As federal agencies themselves recognize, small businesses have an inadequate voice in the development of regulations, particularly at the early stages of

regulatory development. By the time regulations are published in the Federal Register, the ability of small businesses to have their concerns meaningfully addressed

appears to be compromised in some way. The goal of this process is not special access, but to provide a remedy for the disproportionate regulatory burdens born by

small businesses.

Just as the Members of the Committee are taking testimony from today’s wit- nesses, the federal employees on the Panels are expected to receive testimony and

comments from small business representatives. While SBREFA does not mandate

that this process occur with the formality of a congressional hearing, the legislative

history of SBREFA suggests that the usual procedure would involve at least the opportunity for a face-to-face meeting of the Panel and small businesses. The remedial

and right-to-know purposes of the Reg Flex Act and SBREFA require, in my opinion, that the usual procedure for the Panels at EPA and OSHA should be to meet

with small business representatives before issuing their reports. The Committee should note, however that the requirement to convene a Panel is

not absolute. SBREFA provides a mechanism to waive the Panel requirement where

convening a Panel ‘‘would not advance the effective participation of small entities

in the rulemaking process.’’ While the elements of this test are not spelled out in

the statute, one scenario that the Committee might wish to consider as suitable for

a waiver is when EPA or OSHA have successfully completed a regulatory negotiation prior to proposing a regulation. I recommend that the Committee work with

SBA, EPA, and OSHA to develop suitable guidelines for when the Panel requirement should be waived.

30

IMPLEMENTATION OF SBREFA PANELS

EPA and OSHA have completed a total of 15 SBREFA Panels; 13 at EPA and

2 at OSHA. These totals continue to grow. EPA has seven Panels scheduled in the

next six months including the Panel for the Arsenic in Drinking Water rule which

is just about to start. OSHA began the SBREFA Panel on the Ergonomics rule just

last week, and has scheduled an additional Panel on Permissible Exposure Limits

for later this year. Based upon my review of the Panels completed to date, the verdict on SBREFA Panels is that the law appears to be working to allow greater participation by small

businesses in the rulemaking process. It also appears that the Panel process can

succeed in reducing the regulatory burden on small businesses, although the verdict

is less clear on this.

My first observation is that the Small Business Office of Advocacy, OMB and EPA appear to be cooperating to make the Panel process a productive one. And for this,

each of these agencies deserve credit for making an honest effort to make the Panels

work. They are reaching out to the small business community and identifying companies who can act as small entity representatives or SERs. They are providing information to the SERs, and while it is clear that there has been a learning curve

for all of the agencies concerned, that information has helped the SERs to provide

meaningful input to the agencies at a critical juncture in the rulemaking process.

From the Panel reports completed to date, it also appears that the agencies have

been listening. Each of the reports contains meaningful suggestions on how the proposed rules might be changed to minimize the burdens on small businesses. I am

less sure of the experience at OSHA and will defer to other speakers on that issue.

At this point, we have less data on whether EPA and OSHA will actually put all

the good work of the Panels to use by changing their proposed rules. Only seven

of the EPA rules that have gone through the SBREFA Panel process have been published as proposed rules. At OSHA, only one rule has been published in proposed

form, although the Safety and Health Programs rule is scheduled to go shortly to

OMB in draft form. While some of the EPA rules clearly have benefitted from the

Panel process, my personal experience with the Industrial Laundries rule, suggests

to me that more could be done to incorporate the comments of the SERs and the

recommendations of the Panel into the proposed rule and the Initial Regulatory

Flexibility Analysis.

Overall, I believe SBREFA is off to a good start. We don’t need wholesale revision

of the Act. However, there are a number of ways that Congress could improve the

SBREFA Panel process both through oversight, and through targeted legislative

change. I am very encouraged that the Committee is continuing to take seriously

its oversight responsibilities by holding today’s hearing, and that the Committee is

beginning to address the need for legislative change through the discussion draft

now being circulated. I believe the draft contains positive proposals, but there are

a number of specific issues that the Committee should consider as it moves towards

introducing legislation to revise the Panel process.

SBREFA PANELS: LEGISLATIVE ISSUES

In a nutshell, the record to date demonstrates that the key to a successful

SBREFA Panel is giving the right information at the right time to the right people.

The data must be available, it must be provided early and it must be meaningful.

The people who advise the Panel must be knowledgeable enough about the specific

industry affected by the rule to be able to identify opportunities to meet regulatory

goals more efficiently, and knowledgeable about how the Panel process can be most

efficiently used to change agency decision making. While that is relatively simple

to say, it is difficult to implement in practice, and difficult to legislate. I urge the

Committee to tread lightly here, because too much specificity may be counterproductive to the interests of small businesses.

Getting information at the right time

As Congress recognized when it passed SBREFA, there is a tension between conducting the Panel early in the rulemaking process, when key decision have yet to

be made, and conducting the Panel when all of the data is available, when decisions

may be set in stone. Congress chose not to set any firm deadlines for when a Panel

should occur, leaving that decision to be worked out between the various agencies.

In earlier testimony to this Committee, I said that we simply did not know enough

to fix a time for the panels. I also said that the Committee should monitor the situation as it develops in upcoming rulemakings. Now that we have more experience

with SBREFA Panels, I think we can take the next step and reach some conclusions

about the best timing of panels.

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In my view, it is becoming clear that there is some minimum amount of information on the proposed regulatory alternatives that is necessary before the SERs can

provide meaningful comments to the Panels. I believe the record shows that the

right time for the Panel to occur is best described as being as soon as this minimum

amount of information is available. This means that the Panel should take place

whenever the informational needs are met in the process of rule development. If the

SERs have the data to make a strong case for changes in the rule, the Panel can

effect changes in the rule, even if it is relatively later in the process. However, the

Committee needs to ensure that any statutory language on minimum information

requirements does not have the unintended effect of delaying the Panel until just

before publication of the proposed rule.

Getting the right information

If the answer to the timing issue is ‘‘whenever the necessary information is available,’’ the next question is, what is the right data? EPA’s Interim Guidance for implementing SBREFA distinguishes between the information provide to the Panel

members and the information provided to the SERs. It directs the agency to give

the Panel members an ‘‘outline describing the important components of the rule and

any significant regulatory alternatives.’’ However, the SERs are only to get ‘‘enough

information about the rule for them to be able to judge the likely impacts of the

rulemaking.’’ It is my view that the SERs should be informed about regulatory alternatives under consideration by the agency so they can put the anticipated impacts

into context and gauge their reasonableness.

The type of data that really empowers the SERs, and by extension the SBREFA

Panels, is a discussion on the pros and cons of regulatory alternatives the agency

is considering, and how the alternatives stack up against one another. This should

include some basic comparison data estimating the benefits and costs of the regulatory alternatives that will allow SERs and the Panel to look at what additional

benefits will be provided by more costly regulatory alternatives. This does not mean

that the SERs need to see the final economic analysis for the proposed rule, or even

a completed draft, but it means that there is some initial estimates of the tradeoffs

being considered by the agency. If the SERs have this basic information, I do not

believe the SERs needs actual draft regulatory language, or the final economic analysis of the proposed rule. However, the members of the Panel should have access

to what ever draft economic analyses and draft regulatory language are available

at the time the Panel convenes.

The data provided to the SERs should be developed by the agency proposing the

rulemaking in consultation with OMB and the Office of Advocacy. Discussions between the agencies on the adequacy of data should be completed with adequate time

for the SERs to have digested the data when the Panel convenes. This suggests that

there should be some informal scoping communications between the agencies involved in Panel. However, I do not believe that this informal process to create the

informational packet should be written into statute. Rather, the agency proposing

the rule should start the process by determining that the necessary data is available

after consultation with OMB and the Office of Advocacy.

SERs should be provided the data with some minimum time for review, but it is

not necessary to create a statutory window of 15 to 45 days. A 30 day minimum

period should suffice, unless court ordered deadlines require a shorter period.

Getting the right people

The first issue is getting the right group of people to serve as SERs is to get a

good mix of people who know what to expect from the SBREFA process and people

who know the industry. Thus, SERs could be owners of small businesses, employees

whose job it is to make sure the business complies with agency regulations, employees of industry trade organizations who might provide compliance assistance to

small businesses throughout the country, or even technical experts familiar with the

affected small businesses. Ideally, the Panel would hear from different SERs with

each of these backgrounds.

The second issue in choosing SERs is who gets to decide. I think for the Panel

to have legitimacy, the SERs must be seen by the affected elements of the small

business community as truly representing their interests, and the Office of

Advocacy’s approval of the SERs is very helpful to obtaining that legitimacy. I do

not know if the Office of Advocacy should choose SERs on its own, but SERs should

not be chosen over the objection of the Chief Counsel for Advocacy. Thus, SERs

could be chosen by the agency proposing the rule, as provided under current law,

but with the concurrence of the Office of Advocacy.

A third issue in choosing SERs is whether the government entity, be it the agency

or the Office of Advocacy should be allowed to pick a particular person in a given

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company or organization. I think the better approach is for small businesses, or

their trade organizations, or companies with expertise in a particular industry to

be selected as SERs. The selected business or organization should then be free to

select whomever it chooses to speak to the Panel.

A final issue in choosing SERs is which businesses or organizations have standing

to before the Panel. The best answer is that Panels should hear from small businesses and organizations with a direct nexus to the rule. I believe the test should

be whether the small business will bear the impacts of the rule. This extends beyond the entities who will be ‘‘subject to’’ the rule and includes those entities who

will bear the burdens giving rise to the benefits of the rule. Other types of small

businesses and other types of small entities should not be allowed to use the Panels

simply to file objections to the rule. Trade associations may have members whose

size exceeds the limits of a ‘‘small business concern,’’ but this fact alone should not

prohibit the organization from commenting, provided that they focus their comments

on the impacts of the rule on small business.

Timing of public release of panel reports

As with many issues today, there are conflicting tension surrounding the timing

of public release of Panel reports. This is not an issue of whether the report will

be made public. The report will always be included in the public rulemaking record

when the rule is proposed. However, the questions arises when many months pass

between the completion of a SBREFA Panel and the publication of the proposed

rule.

My experience is that EPA and OSHA have developed different practices on this,

with OSHA releasing its reports at the completion of the Panel and EPA releasing

its reports only when the rule is published. Based on the data to date, I cannot say

which approach is better. Early release can assure small businesses that their concerns have been heard by the Panel and included in the Panel recommendations.

On the other hand, early disclosure of the Panel report can open the agency up to

additional pressures form outside groups to unwind the progress made by the Panel.

On this issue, I believe more data is needed.

Incorporating SER comments into the IRFA

It may seem obvious that the comments of the SERs about the impacts of the rule

should be incorporated into the Initial Regulatory Flexibility Analysis description of

impacts, but my experience with the Industrial Laundries rule convinces me otherwise. In that rulemaking, the Initial Reg Flex Analysis omitted key information

about the nature and extend of the small business impacts of the rule, even though

the EPA had ready access to that information in the Panel Report. It was as if the

Reg Flex analysis was written before the Panel ever met, and never looked at again.

When Congress passed SBREFA, one of its original goals was to improve the quality of Reg Flex analyses. Part of the solution was to make Reg Flex subject to judicial review. Another part of the solution was to provide the agency personnel direct

access to the people who could best understand the impacts of a proposed regulatory

alternative on small businesses, and communicate those impacts to the agency personnel responsible for preparing the Reg Flex analysis. Section 609(b)(6) directs the

agency to modify the Initial Reg Flex Analyses where appropriate, but it doesn’t

state the obvious that the Reg Felx analysis should always incorporate relevant

facts brought to the agencies attention during the Panel process by the SERs.

IRS compliance with SBREFA panels

Yes.

OTHER KEY ISSUES

While the focus of today’s hearing is on the SBREFA Panel process, there are

some important related issues that apply more broadly to the Reg Flex Act. The key

issue here is what rules are subject to the Reg Flex Act and hence subject to the

SBREFA Panel requirement. If federal agencies interpret the statute in a way that

exempts from Reg Flex whole classes of important regulatory actions, we will never

have a chance to see the benefits of the Panel process, or any other benefits of Reg

Flex.

What types of impacts are covered by the Reg Flex Act?

The biggest problem presented by EPA’s early implementation of SBREFA goes

to the threshold issue of determining when a Reg Flex analysis is required. At issue

is the type of impacts that must be considered by agencies in deciding whether Reg

Flex applies and conducting a Reg Flex analysis. For example, when EPA is issuing

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a new rule that directs states to take action under its many delegated programs,

it takes the position that it can ignore the impacts of that rule on small businesses.

EPA’s approach to revising the National Ambient Air Quality Standards (NAAQS)

for ozone and particulate matter (PM) illustrates the problem. EPA has taken the

position that these proposed rulemakings do not require either a Reg Flex analysis

or a Small Business Advocacy Review Panel. Instead of conducting a Reg Flex analysis and convening a Review Panel, EPA has chosen to make a certification under

section 605 of the Reg Flex Act. The 605 certification states that these rules ‘‘will

not have a significant economic impact on a substantial number of small entities.’’

SBA’s Chief Counsel for Advocacy, Mr. Jere Glover, wrote to EPA on November

18, 1996, stating that, ‘‘considering the large economic impacts [of the ozone rule]

suggested by EPA’s own analysis that will unquestionably fall on tens of thousands,

if not hundreds of thousands of small businesses, this would be a startling proposition to the small business community.’’ In fact, EPA’s own regulatory impact analysis (RIA) indicates that ‘‘at least one or more small establishments in up to 30 or

40 percent of affected industries . . . may experience potentially significant impacts’’ from the PM rule. For the ozone rule, the RIA indicates that ‘‘small establishments in up to 18 percent of affected industries . . . may experience potentially significant impacts.’’

How does EPA reach the conclusion that these rules ‘‘will not have a significant

economic impact on a substantial number of small entities,’’ in spite of the findings

of its own RIA? In the rulemakings to revise the ozone and PM NAAQS, EPA has

taken the position that the scope of a Reg Flex analysis is limited only to an assessment of the impacts on small entities that are ‘‘subject to’’ the rulemaking, and that

other impacts are to be ignored, even if those impacts would not exist, but for the

rule. In the case of the Clean Air Act, the ambient levels of the NAAQS are designed to be achieved through State Implementation Plans (SIPs). Small entities are

subject to legal requirements in the SIPs which will be modified as a direct result

of the ozone and PM rules, but no one will ever be ‘‘subject to’’ the NAAQS. In other

words, the impacts of the rule flow directly from EPA through the states to small

businesses whose actions give rise in part to the benefits of the rule.

According to EPA’s reading of the statute, States are the only ones subject to the

NAAQS, and no small entity will feel any impact of the ozone and PM rules, much

less the ‘‘significant impact on a substantial number of small entities’’ required by

the Reg Flex Act. Since SBREFA requires that EPA convene a Small Business Advocacy Review Panel only when an initial Reg Flex analysis is required, EPA’s narrow

reading of the application of Reg Flex has the effect of (1) denying small businesses

the special opportunity for input that the Panels were designed to create, (2) denying small businesses the special opportunity for input that the Panels were designed

to create, (2) denying small businesses their right to know about how they are likely

to be impacted by the new regulations, and (3) hiding those impacts from the sunshine of full public disclosure.

EPA’s argument is that it need only concern itself with the impacts on small entities that are ‘‘subject to’’ a proposed regulation has no support in the statute. Nowhere in Reg Flex is the key phrase, ‘‘a significant impact on a substantial number

of small entities,’’ limited by a requirement that the entities be ‘‘subject to’’ the rule.

Clearly, Congress could have written such a limitation into the Reg Flex Act, but

it did not.

Of course, any change in regulations could have potentially infinite impacts

throughout the economy and the analysis must be cut off at some point. In deciding

whether to certify out of the Reg Flex Act and in conducting a Reg Flex Analysis,

the agency must apply a rule of reason to distinguish between the foreseeable impacts that are directly attributable to the rulemaking and those highly speculative

impacts that are only indirectly attributable to the rulemaking. However, nothing

in the Reg Flex Act or SBREFA suggests that Congress intended to limit the analysis so narrowly as to cover only the impacts on small entities that are subject to

the rule. While lawyers can always disagree with one another over how exactly to

interpret a statutory requirement, EPA’s interpretation appears at odds both with

the plain language of the statute and the underlying purposes of both the Reg Flex

Act and SBREFA.

This issue is currently the subject of litigation in the DC Court of Appeals in the

cases entitled American Trucking Association v. US EPA. Oral arguments were

heard on December 17, 1998, and a decision is expected later this Spring. I urge

the Committee to keep a close eye on the decision of the court. If the court affirms

the original intent of Congress and overturns EPA’s interpretation, no further action

on your part will be necessary. However, if the court gives EPA deference and upholds the agency’s interpretation, legislation would be urgently needed to reaffirm

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the intent of Congress and prevent the Reg Flex from effectively being gutted by

one of the primary agencies SBREFA was designed to address.

When does an IRS rulemaking involve a collection of information requirement?

The committee should carefully assess how the Internal Revenue Service is implementing the new provisions of SBREFA clarifying that Reg Flex applies to IRS interpretative rulemakings to the extent they involve a collection of information requirement. I believe that the clear intent of Congress was to bring most IRS interpretative rulemakings within the ambit of Reg Flex. However, in recognizing that

some IRS interpretative rulemakings may have no relationship to the forms that

must be filed with the IRS or the paperwork that small businesses must maintain

to document their compliance with IRS rules, Congress included a limited exemption

to the general proposition that Reg Flex applies.

The Committee should carefully examine the IRS’s interpretation of when a rule

‘‘involves a collection of information requirement.’’ The Committee should ensure

that the IRS does not limit the application of Reg Flex simply to the text of its

forms. The term ‘‘collection of information requirement’’ is defined in SBREFA, as

in the Paperwork Reduction Act, to include ‘‘recordkeeping requirements.’’ Thus,

Reg Flex applies to all IRS interpretative rulemakings that in any way involve or

relate to any change in the records or other paperwork that a small business must

prepare or maintain to demonstrate compliance with the tax laws. Any interpretation by the IRS that seeks to narrow this definition would, in my view, violate the

text and intent of SBREFA.

Are agencies complying with the regulatory review plans they adopted under section

610?

Section 610 of the Reg Flex Act requires that federal agencies adopt a plan to review all of their regulations within 10 years of adoption and to publish an annual

list of the regulations the agency intends to review during the following year. However, this section has not received much attention in well over a decade. Shortly

after the Act was enacted, over 15 years ago, nearly all federal agencies adopted

plans for the periodic review of existing regulations and for a few years, some agencies complied with their plans and annually reviewed and modified existing regulations. But for over a decade, most federal agencies have ignored their own plans and

forgotten their obligation under section 610 to review existing regulations. SBREFA

sought to change this by allowing for the judicial review of agency compliance with

section 610.

Several recent GAO reports indicate that there is still significant non-compliance

with section 610. The current Unified Agenda identifies only a relative handful of

periodic reviews under section 610, and many of these reviews have been ongoing

for over a year. The Committee should look into agency compliance with the requirement to have a plan, to comply with that plan, and to annually notify small entities

about the rules to be reviewed in the coming year. If the Committee reports legislation to revise the Panel process, it should consider including amendments to close

the loopholes allowing agency to continue to ignore the requirements of section 610.

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