59

that I could attend. It is important because hopefully this hearing
is going to allow us to understand whether or not there might be
some unintended negative consequences of the bill as proposed, and
if there are how we could possibly fix them.

For example, Mr. Chairman, I have some concern with the im-
pact of the legislation on pensions and health plan participants and
beneficiaries under the Employee Retirement Income Security Act,
otherwise known as ERISA covered plans. By creating a statutory
grace period and requiring a waiver of penalties, the existing vol-
untary compliance incentives which have worked very well to en-
courage plan administrators to comply with ERISA without impos-
ing large penalties would be eliminated. This could provide an in-
centive for plan administrators to ignore ERISA’s reporting re-
quirements that might put workers’ benefits in serious jeopardy.

It is my understanding that you have worked closely with Rep-
resentative Kucinich in drafting H.R. 3310. This cooperative effort
has led to significant improvements in the bill. A number of serious
concerns have still arisen about the provisions that limit agencies
from assessing civil penalties for paperwork violations under cer-
tain circumstances such as consumer fraud, illegal immigration,
and food safety protection. Mr. Chairman, efforts to streamline re-
porting must not undermine existing safeguards that protect the
American people from safety, health, and environmental hazards.
Hopefully these hearings here today will help us determine wheth-
er or not that is truly a danger.

As you are aware, paperwork violations include a variety of ac-
tions, such as providing information to third parties and the public.
When a manufacturer does not provide warnings on how to use its
product, this is a paperwork violation. When an employer fails to
provide warnings to its employees about the proper way to handle

zardous materials, this is a paperwork violation. When a broker-
age firm provides false information about the market, this is also
a paperwork violation. When a landlord fails to tell his tenants
that there is dangerous lead-based paint in the apartment, that is
a paperwork violation. With all that said, the importance of accu-
rately reported information from small businesses is evident.

Since the introduction of H.R. 3310, 2 weeks ago, some of the
concerns about the bill have been brought to our attention. We
hope that they will be addressed before we move forward. For ex-
ample, we have learned that the bill may create a disincentive to
comply by removing agency discretion from the process. You indi-
cated in your opening remarks that that is not the case. I am hop-
ing we can explore that today with these witnesses.

e bill may require the agency to provide actual serious harm
or an imminent and substantial threat before it can assess pen-
alties and violations that are corrected within 6 months of the date
they are reported. Hopefully today we will explore the wisdom of
that particular action and its impact.

The bill prohibits agencies from assessing penalties for violations
that are corrected within 6 months, even if they pose a threat to
the environment, the integrity of financial markets or pension
plans. The bill could increase the burdens on small businesses be-
cause it would likely force agencies to conduct more onsite inspec-


123

the opportunity to comment on H.R. 3310. We do not believe that it is necessary and in
some regards could be harmful. We believe that we are making a conscientious effort to
address the concerns of small businesses. If the Subcommittee decides to continue to
pursue additional legislation to address these important concerns, we would be pleased
‘to work with you to help you develop an effective bill.

Thank you for the opportunity to express the Department's views on this important
subject. I would be pleased to answer any questions that you may have.

n


25

_ Jernel Iron & Forge
‘March 4,1998
‘Congressman David M. Mcintosh. Chai
‘Subcommintes in Nedonal Economic Growth, Natural
‘Resources, and Regulstory Affaire:

Plas be advised i ars cuca i omic, escent, wih with K-LoCoastraction, tng,
P.O. Box 1480, Upper Mafboro, Maryland 2077). K-L6 Construction, ‘ne. is in coctrect with the
_ Smithsonian Iasitution, Washington, D.C. for the project for American asd Art Portrats Gallery Sidiwalke

(Our contract is in the amount of $47,300,00,

221 ROWLAND AVENUE, HAGERSTOWN, MO 21740» ORNAMENTAL IRON BRONZE. SRASS © (Ot) 7ABO4A1 « FAX (20; 73-0019


COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York
J. DENNIS HASTERT, Illinois
CONSTANCE A. MORELLA, Maryland
CHRISTOPHER SHAYS, Connecticut
STEVEN SCHIFF, New Mexico
CHRISTOPHER COX, California
ILEANA ROS-LEHTINEN, Florida
JOHN M. McHUGH, New York
STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia
DAVID M. McINTOSH, Indiana
MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida
JOHN B. SHADEGG, Arizona
STEVEN C. LaTOURETTE, Ohio

MARSHALL “MARK” SANFORD, South

Carolina
JOHN E. SUNUNU, New Hampshire
PETE SESSIONS, Texas
MICHAEL PAPPAS, New Jersey
VINCE SNOWBARGER, Kansas
BOB BARR, Georgia
DAN MILLER, Florida

HENRY A. WAXMAN, California
TOM LANTOS, California

ROBERT E. WISE, Jr., West Virginia
MAJOR R. OWENS, New York
EDOLPHUS TOWNS, New York
PAUL E. KANJORSKI, Pennsylvania
GARY A. CONDIT, California
CAROLYN B. MALONEY, New York
THOMAS M. BARRETT, Wisconsin

ELEANOR HOLMES NORTON, Washington,
DC

CHAKA FATTAH, Pennsylvania
ELIJAH E. CUMMINGS, Maryland
DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois
DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts
JIM TURNER, Texas

THOMAS H. ALLEN, Maine
HAROLD E. FORD, Jr., Tennessee

BERNARD SANDERS, Vermont
(Independent)

KEVIN BINGER, Staff Director
DanIEL R, Mout, Deputy Staff Director
WILLIAM MoscHELta, Deputy Counsel and Parliamentarian
Jupira McCoy, Chief Clerk
Putt ScHILIRO, Minority Staff Director

SUBCOMMITTEE ON NATIONAL ECONOMIC GROWTH, NATURAL RESOURCES, AND
REGULATORY AFFAIRS

DAVID M. MCINTOSH, Indiana, Chairman

JOHN E. SUNUNU, New Hampshire
J. DENNIS HASTERT, Illinois

JOE SCARBOROUGH, Florida
JOHN B. SHADEGG, Arizona
STEVEN C. LATOURETTE, Ohio
VINCE SNOWBARGER, Kansas
BOB BARR, Georgia

PETE SESSIONS, Texas

DAN BURTON, Indiana

JOHN F. TIERNEY, Massachusetts
BERNARD SANDERS, Vermont
HAROLD E. FORD, Jr., Tennessee
PAUL E. KANJORSKI, Pennsylvania
GARY A. CONDIT, California
CHAKA FATTAH, Pennsylvania
DENNIS J. KUCINICH, Ohio

Ex OFFICIO

HENRY A. WAXMAN, California

MipRED WEBBER, Staff Director
KAREN BARNES, Professional Staff Member
ANDREW WILDER, Clerk
ELIZABETH MUNDINGER, Minority Counsel

aD


119

+ Transportation operators in the various modes of transportation are required
to report certain accidents to us. This reporting requirement may serve various
purposes. For example, if the company fails to immediately notify us, data important to
any accident investigation may be lost or destroyed. Since the failure to report would
not appear to have caused "actual serious harm to the public health or safety," we could
not fine a company if it subsequently notifies us after we advise them of their violation.
There may be significant incentives to delay notification if it may help cover up
company negligence.

* The Federal Highway Administration (FHWA) regulates over 400,000
companies. If first-time violations are waived, some may find little incentive to keep
any records because their chances of being audited are rare. If they do get audited,
some may only then correct the violation; but it may be worth it to others to simply go
‘out of business and open up under a new name. Then, the next violation, by the new
corporation, would arguably be yet another first-time violation.

+ Shipping papers are required to accompany all transportation of hazardous
materials. They alert the carrier and any emergency responder (e.g.,a fire department)
about what the materials are so that they know how to handle the shipment and any

_ emergency, If the papers are missing or deficient, and since the shipper would have 24
hours to correct the problem and goods are generally shipped within that time frame,
emergency personnel may have to be called unnecessarily or may waste tine and
resources figuring out what to do if there is some problem or concern raised with the
materials. Yet, if there is no actual harm, no fine can be imposed on the shipper for the
violation, even if intentional or careless and reckless.


68

‘Small Business Paperwork Reduction Act Amendments

SBPRA dmends the Paperwork Reduction Act of 1995 (PRA) to require that federal
agencies: (1) publish annually a list of Federal paperwork requirements applicable to small
businesses; (2) waive any civil penalties for first time violations of paperwork requirements by
small businesses; (3) establish one point of contact for small business; and (4) establish an inter-
agency task force to study and identify actions to streamline reporting requirements for small
business. While OSHA applauds the intent of this proposal, we are extremely concerned that
waiving penalties for some so-called “paperwork” violations could cost some workers their
health or their lives.

SBPRA uses the “collection of information” definition from the PRA. Consequently, it
affects standards that most people would not view as mere paperwork. I will use my testimony to

illustrate these issues to the subcommittee.

‘Suspension of Penalties

SBPRA prohibits agencies from imposing fines for first-time violations by a small
business for information collection requirements, where the violations have not caused actual
serious harm to the ptblic health or safety. as long as the small business corrects the deficiency
within six months. The bill provides an exception where the violation could imminently and
substantially endanger public health or safety,

OSHA understands the desire to treat businesses that make good faith efforts at
compliance differently from those that do not. In fact, OSHA's current policies already make

such a distinction. OSHA already provides significant penalty reductions based on employer


79

Reporting violations may make serious harms go undetected and unremedied. Let me give you a

few examples:

Under federal statutes and implementing, Togulations financial institutions must report
cash transactions exceeding $10,000 to the Secretary of Treasury. See 31 U.S.C. 5311 et
seg. A significant purpose of this requirement is to aid the federal government in
criminal investigations. Among other things, this requirement was intended to prevent
individuals who obtained cash through illegal activities, such as cocaine trafficking, from
“laundering” the cash by purchasing cashier's checks or other negotiable instruments.

ith immigrati ws. In order to reduce
the uation is employment ‘opportunities in nthe United States ‘as an incentive to
unauthorized immigration, the Immigration Reform and Control Act of 1986 (“IRCA”),
100 Stat. 3360-62 (codified at 8 U.S.C. 1324a), requires all United States employers to
verify, through examining appropriate documents and completing the INS Form I-9, that
their newly hired employees are eligible to work in the United States. Air carriers are
required to provide INS officials with properly completed arrival and departure manifests,
which are important not only to allow the INS to comply with Congressional immigration
control requirements, but also to provide a nonimmigrant with evidence of his or her legal
status in the United States.

. Information protects our food supply. The Department of Agriculture’s Hazard Analysis
and Critical Control Point (HACCP) Rule, 61 Fed. Reg. 38806 (July 25, 1996), requires
food processors to retain records documenting their efforts to eliminate food safety
hazards and prevent salmonella and fecal contamination. These recordkeeping
requirements are essential to evaluating whether food processors are sufficiently
safeguarding the food supply from dangerous bacteria.

. Information protects children from lead hazards. The Residential Lead-Based Paint
Hazard Reduction Act of 1992, 42 U.S.C. 4851, requires persons who sell or lease
housing to let buyers or renters know about lead-based paint hazards. That information is
especially important to pregnant mothers and to families with young children. At even
low levels, lead poisoning can reduce a child’s IQ, and can cause permanent
developmental problems. Acute lead paint poisoning can send children to the hospital or
even kill. By providing lead paint hazard information to families who lease or buy
housing, we are helping American families decide where to live and raise their children in
a safe environment.

Enforcement Admi stration implements recordkeeping and reporting requirements to
verify the legitimacy of controlled substance sales and to ensure that drug inventories are


15

around 11 to 14 percent of company sales - during which time our profit
margins will remain in the single digits.

Reinventing Reporting under the Common Sense Initiative

When the metal finishing industry first began working with EPA a
few years ago under the agency’s Common Sense Initiative, we Jumped at
the chance to try some new experiments that might hold the potential to
fundamentally change the way the regulatory system works, From the
outset, we raised paperwork problems as one of our top priority issues.

Our view was that if the EPA and metal finishers aimed to reinvent
environmental regulation, it was necessary to try and accurately define
the true dimensions of the paperwork challenge. We had always
complained about paperwork, but what did the landscape really look like
from an objective point of view?

To its credit, EPA agreed to focus on our concerns and initiated an
ambitious project called the RIITE program, It’s a terrible acronym that
stands for “Regulatory Information Inventory Team Evaluation.” It may
be a strange name, but the project itself was an extremely worthwhile
endeavor, and after working with EPA as well state regulators to come up
with some recommendations, it is now being piloted in Texas and
Arizona.

The RIITE program is highly relevant to the topic of our hearing
today. What the RIITE program essentially did was employ Business
Process Reengineering (BPR) techniques - some simple analytical tools
consultants use to help change large organizations - and we analyzed the
paperwork system as it impacted metal finishers as one single industry
sector.

First, we inventoried and mapped all the environmental reporting
burdens at the federal, state and local level that apply to metal finishers.
And the project revealed some pretty astounding things. We found out
that when you look ONLY at environmental paperwork, and exclude
paperwork burdens from all other agencies - there were an estimated
160 different reporting requirements that applied solely to metal
finishers. Bear in mind that some of these reporting mandates are
annual, and some come more frequently.”

We found that similar information on different reports was going to
all sorts of different places, and we concluded that we could just as
effectively protect the environment and human health under a system
that had maybe 30 or 40 reporting requirements.


128

if the company had reported the minor accident, we might have
fixed it. Nobody might have been killed. That is the key point. Sure
after somebody dies, we can do criminal penalties, we can do civil
penalties. But that is not the goal of Federal agencies.

Mr. TIERNEY. I am going to reclaim my time here if I might.
John, I’ll go back and forth with you.

Mr. SUNUNU. I have plenty of time.

Mr. TIERNEY. One of the things that I want to make sure in that
what we're doing here, is we don’t create a disincentive to report
or reward those people that don’t report at the expense of those
that diligently do that.

There were several of you that testified that you thought that
there were incidents where violation of a paperwork requirement
doesn’t necessarily cause an accident or oppose a threat of harm,
but that it could save lives, that the actual filing of the paperwork
is something we should encourage and not give people an incentive
to avoid by virtue of the fact that when they get the first violation
that’s the only time they are going to get fined.

Mr. Onek, you had examples of that. I think Mr. Lane, you
talked about fraud and the market, the impacts there. Maybe start-
ing with Mr. Lane, could you tell me a little bit more, expand a
little bit more on the types of incidents you envision where the ac-
tual non-filing could create a problem that wouldn’t fit the thresh-
old that’s set forth in the bill?

Mr. LANE. Well, of course the SEC’s regulatory system is one
built on disclosure as opposed to merit regulation typically. You
can sell securities as long as you provide adequate disclosure. If
you mis-state something or you omit something that is material,
that could be fraud depending on whether you did it intentionally
and that sort of thing.

So you could omit to disclose, oh yes by the way the CEO is em-
bezzling money or oh by the way, we're in violation of our loan cov-
enants and the creditors are going to come and seize our factories,
so we are going to have to stop producing widgets, that sort of
thing, which is all disclosure based. It could be intentionally done
to defraud investors. Same with investment advisors or broker
dealers, they have to keep customer accounts. You know, they may
intentionally destroy records or not maintain records that might
show commingling of funds or something that would facilitate in-
vestors getting their money.

Mr. TIERNEY. Thank you. Mr. Onek, if I could just address you
again on the burden of proof issue here. Your read of the bill as
it is currently proposed, does that give you any concern that there’s
been a shifting of the burden of proof with respect to this type of
filing requirement?

Mr. ONEK. Well I think it does. As I think we have set forth in
our testimony, one of our concerns is that there is going to be end-
less litigation about what these provisions mean. What is a first-
time violation, the point I just raised. What does it mean to correct
a violation, a point I already made. What does it mean to cause ac-
tual harm? it is the imminent and substantial danger to the
public health? So I think that another way in which this is not
really going to benefit businessmen and women is that it’s going to
lead to litigation, uncertainty, additional litigation costs. It will be


184

annually hazardous chemical inventories to local fire departments
and emergency planning officials, gga 42 U.S.C. 11022(a),(d), all

statutes
recognize that the information is valuable for its ovn sake and
they do not impose any obligations beyond providing the
information. Injunctive relief in these situations may mean only
that the violator is ordered to comply with the disclosure
requirements, which the law already mandates.

In other situations, agencies may have available civil
but those remedies may be

qu: Pood and Drug Administration
(*FDA*) can request court authorization to seize an adulterated
or misbranded + $8@ 21 U.S.C. 334. If a company failed to

keep records that allowed the FDA to determine whether a drug was
adulterated, the PDA might be justified in seizing all of that
company’s Bupply of the drug, a draconian result. The ability to
impose an administrative or civil penalty allows an agency to
tailor ite response to the nature and severity of the violation.

The Department of Justice reiterates ite strong support for
streamlining information collection requirenents and helping
small businesses comply vith reporting and record kee}
obligations. The Department also supporte discretionary waivers
of civil penalties in appropriate circunstences. Hovever, we do
not support a blanket waiver of civil penalties. Civil penalties
help prevent violations of the law and therefore, the harm that
may result.

Please do not hesitate to contact us if you have further
questions. The Office of Management and Budget has advised that
thera is no cbjection from the standpoint of the Aduinistration’s
program to ion of this letter.

Sincerely,

Ann M. Harkins
Acting Assistant Attorney General

cc: The Honorable John F. Tierney
Ranking Minority Member


74

goal of Federal agencies is not to impose fines. Their goal is to pro-
tect the public. If a small business is encouraged not to file a report
because of this legislation and harm then occurs, the fact that the

ency can then impose a fine is largely irrelevant. The harm will
already have been done. One of our concerns is that this provision
will lull agencies into not filing reports in circumstances where
they may think no harm can ensue, but then something will go
wrong. The food or drug product that they were manufacturing a
component of will turn out to be adulterated. The truck carrying
the ardous waste will be overturned. All of a sudden, what they
may have thought was a harmless failure to file a report will have
grave consequences. Sure, maybe, depending on how this law is in-
terpreted, we will then be able to fine them. But that is not the
point. It will be too late, far too late to protect the public.

This provision will not accomplish our shared goals of streamlin-
ing and simplifying information collection requirements. It’s called
paperwork reduction, but it doesn’t reduce paperwork. The penalty
waiver provision does not reduce reporting and recordkeeping bur-
dens at all, except for those who violate the law, including those
companies who willfully and deliberately violate the law. Further-
more, this result would put law-abiding Susinesses, the vast major-
ity of course of our businesses, at an unfair competitive disadvan-
tage as well as endangering the public.

These are results that I know none of us want to see happen. So
we look forward to working with you to address these concerns as
we work together to reduce unnecessary government reporting re-
quirements. Thank you.

[The prepared statement of Mr. Onek follows:]


32

JOHN SHADEGS: comers

oem ann ‘buoaeT
REPUBLICAN POUCY COMMITTEE ——
‘Tomouone cas ee aeNTATM resources

Assistant wa ote
—Dansiaton 06 ofr

‘oceania rete Congress of the Wnited States conemaennsurorn no

‘ante ‘House of Represencatives on eer em
ostncr ores —
201 Ear ar en at Washington, BC 20515-0504
nae ongmen hn gr Congressman John Shadegg
Statement
“Small Business Paperwork Reduction Act Amendments of 1998"
March 5, 1998

‘Thank you Mr. Chairman. I want to thank the witnesses for coming today to discuss with
us the burdens placed on small business by the federal government and how we can lighten some
of those burdens. 1 believe that we in Congress have an obligation and duty to make sure
‘government regulation doesn’t cause undue harm.

There is no doubt that the federal government requires an unbelievable amount of
paperwork for even the simplest of business endeavors. Add to this the cost of non-paperwork
regulations and mandates and some businesses struggle to even make a profit.

4 Today we are discussing a long overdue remedy for some of the hurdles small businesses
face. The Small Business Paperwork Reduction Act Amendments of 1998 is designed to help
small businesses deal with the burden of federal requirements. This is a common sense bill which
merely gives small businesses the ability to comply with paperwork requirements. Let me share
with you an experience which demonstrates the need for this legislation .

In 1992, a small company in Phoenix that produces marble products, under advisement
from a environmental consultant, filed forms under Section 312 of Emergency Planning and
‘Community Right to Know Act, (42, U.S.C. 11023).

EPCRA requires businesses who have inventory of 10,000 Ibs. or more of certain
chemicals to file documentation with the EPA. This is the same type of form required by state
Jaw to be filed to Arizona Department of Environmental Quality. It's purpose isto help
emergency workers know what kinds of chemicals they may encounter in the event of an
emergency. This company had already filed this information with state, county and city agencies.

In the fall of 1994, LUM received a letter from a local citizens environmental group, Don't
te Arizona, Inc. (DWA) ~ who's membership includes a total of 3 people — informing them

of intent to sue within 60 days for violation of EPCRA sec. 312. DWA claimed that L&eM was in
violation from the date of the passage of the law (1987) and 1992 and was responsible for fines
cn those years not in compliance (1988-92) at a cost of $25,000 per day. In effect more than $40
million.



103

certain insuers and market participants to disclose material deficiencies in
their ystems’ Year 2000 readiness. Any six-month grace period would
‘not seem appropriate for failure to make such disclosures.

‘The Commission believes that fines are an important enforcement tool. The
threat of civil fines deters unlawful conduct by removing economic incentives to cut,
comers in recordkeeping or compliance. Congress recognized the importance of civil
fines to upholding the federal securities laws whea, in 1990, it gave the Commission new
authority to assess penalties in administrative proceedings against regulated brokers,
investment advisers and other regulated persons."* Congress also gave the Commission
authority to seek civil penalties In court actions against any violator, whether or not
registered with the Commission.

Notably, Congress created three tiers of possible Commission fines, which link the
amount of fines that can be imposed to the type of violations found and the degree of
hharm caused or the wrongful gain obtained. Thus, the securities regulatory scheme
already provides for a penalty scheme that distinguishes more serious violations from
those that are less important. A case by case approach bas many benefits over a flat
prohibition against civil penaltics for first-time violators.

2) The six-month provision may Become an excuse for delay in correcting
mistakes, The securities markets rely on immediate, accurate information that moves at
the speed of light. As described above, the Commission has an active inspections
program, Whea violations are discovered, the staff works with registrants to resolve

12


39

And even if there had to be a fine, as long as there is not a sig-
nificant noncompliance attached to it, I think that it is a step in
the right direction.

Mr. McINTOSH. Ms. Gearhart.

Ms. GEARHART. Speaking for our own company, I think that
would be very beneficial and very helpful for us. However, in our
own industry, I know that there are some companies that it may
not be a good idea for them. That they may need to have a little
more stricter compliance for them. So I can see where it would be
good for some. But hopefully, others would be guided and watched
over too, that they would not be able to get away with that.

Mr. Kucinicu. Thank you very much.

Mr. Chairman, I appreciate you indulging the answers for this
question. Because this is a question that is almost central to what
we are trying to do. Because we know that there are people out
there trying to beat any system that is set up. We understand that.
But we also understand, and I understand this hearing from lit-
erally hundreds of small business people in my district, that they
would really appreciate an effort made in the Congress to recognize
the problems, notwithstanding the efforts that SBREFA made, that
they would like to see if we could go a little bit further on some
of these issues. So thank you very much.

Mr. McIntosu. I very much appreciate that question. I think it
is good to get that into the record. It occurred to me that Mr. Rob-
erts’ analysis is right, that in effect people will be careful. And Mr.
Saas said do not use your get out of jail card too early. Because
if you do, you will get triple the fine and more intensive inspection
in the future.

And that is the way it should be. If somebody is not cooperating
and not trying to comply to the fullest, those are businesses where
the enforcement agency should spend their time.

T have one other question, if I might. Let’s go back to the paper-
work burden.

In your business or in your industries, do you see a relationship
between the level of paperwork and the ability to expand and cre-
ate more jobs or to maintain your work force, depending on how
you want to frame it; in other words, if we reduce paperwork,
would that let you have resources available to be able to create
more productive jobs in your businesses?

I would have each of you address that—what effect you see in
your individual business or in your industry.

Ms. GEARHART. That for us is one of biggest concerns. We are at
a level and we are keeping our employees at a level, because of the
requirements needed. If we increase, we will have more paperwork
to be filing. So if they could combine some of the paperwork, if
some of the agencies could combine some of their efforts together,
that would be really helpful for us.

And we have some openings that we want to do. We have the
business to grow. But we cannot do it at this time. So that would
be very helpful for it.

Mr. McINnTOsH. Thank you.

About how many jobs would you like to grow in your business?


64

Why don’t we start with Ms. Sheketoff. Welcome, and thank you.

STATEMENTS OF EMILY SHEKETOFF, DEPUTY ASSISTANT SEC-
RETARY, OCCUPATIONAL SAFETY AND HEALTH ADMINIS-
TRATION; JOSEPH ONEK, PRINCIPAL DEPUTY ASSOCIATE
ATTORNEY GENERAL, DEPARTMENT OF JUSTICE; BRIAN J.
LANE, DIRECTOR OF THE DIVISION OF CORPORATE FI-
NANCE, SECURITIES AND EXCHANGE COMMISSION; AND
NEIL EISNER, ASSISTANT GENERAL COUNSEL FOR REGULA-
TION AND ENFORCEMENT, DEPARTMENT OF TRANSPOR-
TATION

Ms. SHEKETOFF. Thank you. Mr. Chairman, members of the sub-
committee, thank you very much for this opportunity to testify be-
fore you today. OSHA joins in the subcommittee’s desire to reduce
unnecessary paperwork. Today, the new OSHA concentrates more
on preventing illnesses and injuries, and less on simply enforcing
rules. As part of that effort, OSHA has significantly reduced its
focus on mechanical Paperwork violations. For example, in the
past, OSHA cited employers who failed to display a required safety
poster in their workplaces. Today, if employers fail to have the
poster, our compliance officers give them one.

OSHA reduced its paperwork citations by 75 percent from 1992
through 1997. As a percentage of all OSHA violations, paperwork
citations have fallen from 29 percent to 10 percent. OSHA is con-
tinuing to focus on real improvements in the health and safety of
working people, rather than on the number of inspections, citations
or penalties. However, it is critically important for any legislation
Congress enacts on this subject to distinguish between traditional
paperwork requirements and the information collection require-
ments and standards that directly impact worker safety and

ealth.

SBPRA uses the collection of information definition from the
PRA. Consequently, it affects standards that most people would not
view as mere paperwork. I will try to use this testimony to illus-
trate these issues for the subcommittee.

SBPRA prohibits agencies from imposing fines for first time vio-
lations by a small business for information collection requirements,
where the violations have not caused actual serious harm to the
public health or safety, as long as the small business corrects the
deficiency within 6 months. The bill provides an exception where
the violation could imminently and substantially endanger public
health or safety.

OSHA understands the desire to treat businesses that make good
faith efforts at compliance differently from those that do not. In
fact, OSHA’s current policies already make such a distinction.
OSHA already provides significant penalty reductions based on em-
ployer size, good faith, and history of violation. With the smallest
employers eligible for the largest reductions. Our penalty reduction
system is required both by the Occupational Safety and Health Act
and the Small Business latory Enforcement Act, and follows
the President’s directive of April 1995. As part of that system,
where paperwork violations do not materially affect workplace
health or safety, OSHA has directed its field compliance officers not
to issue citations. Consequently, the proposal in SBPRA is duplica-


35

Honestly, with 160 potential regulations, no one can really be
sure that they have touched every base. The model that we try to
use with the RIITE Riegram basically puts the responsibility on
EPA to determine by SIC code number which regulations apply for
a given industry. And I think that is the model that has applica-
tions for other industries as well.

Mr. McINTOSH. So it would be helpful to have a central clearing-
house as this bill would provide?

Mr. Saas. Absolutely.

Mr. McInTosu. OK, great.

Are there any other comments?

Ms. NELSON. Mr. Chairman, I am Victoria Nelson.

In my work, I do work as a subcontractor here in Washington,
DC. So I am very close to where the paperwork regulations come
from. There is no way in my particular business, being ornamental
metal, that I am not ready, willing, and able to comply with the
rules and regulations. Because where I get my people to work for
me, there is not a vast employment waiting line. So I definitely
want to be able to continue to comply and keep them safe.

And it would be great to know when I do see my subcontract
come through and the specifications that come with the job, that
there would be a compartmentalized page or something that says
this is the agency that you need to go to by virtue of the division
you are working with. Thank you.

Mr. McINTosH. Thank you, Ms. Nelson.

Yes, Mr. Smith.

Mr. SMITH. Regarding a centralized location for all of these regu-
lations, that is a good first step. I guess that it would be not critical
that it be in the Federal Register. Because I do not know many
small business owners who really go to that on a regular occasion.

So I think that the Internet is something that small business
owners are using a lot thanks in the reduction in price of PCs and
the development of the Internet network. So I would encourage an
addition to the bill for that.

Mr. MCINTOSH. Great. Publishing it on the Internet, a web site
that could be visited, by different industry codes maybe. I like that.

Mr. Roberts, did you want to add anything?

Mr. Roperts. Yes, Mr. Chairman. I would just like to say that
it would be nice to have a relief for first time penalties. People are
not trying to be violators. Also, if you have someone come out and
inspect you on your job, and he picks out a certain page that you
have missed, and here is a $750 penalty in our case, not that we
did not have it but just that we did not have it on the job site, it
would be nice to have somebody work with us instead of against
us, and give us a chance to show that yes, we are trying to work
safe and take care of our people. Thank you.

Mr. McINTosH. Thank you. I appreciate that.

Ms. GEARHART. Mr. Chairman.

Mr. McINTOosH. Yes.

Ms. GEARHART. Our concern was, especially when we were new
and did not know even where to go to get the answers. And when
we would try to get the answers, and jcoking for the specific de-
partment to find the answers was a problem for us. You need to
go to this one, you need to go to this one, and we would take a lot


67

TESTIMONY OF EMILY SHEKETOFF
DEPUTY ASSISTANT SECRETARY FOR OCCUPATIONAL SAFETY AND HEALTH
US DEPARTMENT OF LABOR
Before the SUBCOMMITTEE ON NATIONAL ECONOMIC GROWTH, NATURAL
RESOURCES AND REGULATORY AFFAIRS
on H.R. 3310, the Small Business Paperwork Reduction Act Amendments of 1998

Mr. Chairman, members of the subcommittee, thank you for this opportunity to testify
before you today about H.R.3310, the Small Business Paperwork Reduction Act Amendments of
1998 (SBPRA).

OSHA joins in the subcommittee’s desire to reduce unnecessary paperwork. Today, the
‘New OSHA concentrates more on preventing illnesses and injuries, and less on simply enforcing
rules, As part of that effort, OSHA has significantly reduced its focus on mechanical paperwork
violations. For example, in the past, OSHA cited many employers who failed to display a
required safety poster in their workplaces. Today, if employers fail to display the poster, our
compliance officers give them one.

OSHA reduced its paperwork citations by 75 percent from 1992 through 1997. Asa
percentage of all OSHA violations, paperwork citations have fallen from 29 to 10 percent.
OSHA is continuing to focus on real improvements in the health and safety of working people,
rather than on the number of inspections, citations or penalties. However, it is critically
important for any legislation Congress enacts on this subject to distinguish between traditional
“paperwork” requirements and the information collection requirements in standards that directly

impact worker safety and health.


104

recordkeeping violations with informal action. In most cases, however, violations should
‘and can be remedied in 30 days or less.

‘The proposed ainendmeats may inadvertently be subject to the interpretation that
Congress created a presumption that wroogdoers have a six-month safe harbor to correct
even the most serious mistakes, An individual investor may choose not to balance their
checkbook each month, It is unacceptable, however, to think that a broker could ignore
customer conflrmation and other recordkeeping requirements, tose customer fonds, and
bbo allowed up to six months to correct its records and provide customers with relief,

3) An exception for all first-time violators may be unintentionally broad. The
grace period for first-time violators allows an unscrupulous operator to regain protection
from civil fines each time he establishes a new entity. In our experience, whea the SBC
moves to shat down a broker-dealer engaged in manipulating penny stocks, the rogue
brokers and scam artists from the firm named in our enforcement action will quickly
form a new firm and start up operations again, Under H.R. 3310, the new firm would
have another “free pass” for a first-time violation.

A related difficulty under the proposed amendments will be determining when
there bas been notice of a *firm-time* violation that triggers the grace period. As
described, the Commission has a vigorous inspections program and a longstanding policy
of leaving to the staff to informally resolve minor, technical or inadvertent deficiencies.
‘The success of this program lic in large measure with the uoderstanding that contiaved
{inattention to the requirements of the securities laws could result in formal action. Ia the
event that informal resolution does not cure a problem, violators should not automatically

Bb


126

greater number of inspections. It sounds to me that the net effect
of the provision would actually then increase the burden on small
businesses. Is that your reading?

Mr. ONEK. Well, it could well. A lot depends on the definitions
that are in this bill as to what is a first-time violation. Is a first-
time—I'll give an example. Suppose that a small business has an
accident, a minor accident this month in March, and doesn’t report
it. Then it has another accident in April and doesn’t report it. Is
that a first-time violation because it’s a report about an accident
or is that a second violation? If that is regarded as a first-time vio-
lation, the second accident, and then the third accident and the
fourth accident, several things follow. First, the dangers of the bill
are obviously greatly increased because you are giving a waiver
from large-scale reporting of accidents or drug adverse incidents or
food safety adverse incidents.

But second, under those circumstances, you are giving the Gov-
ernment agency an incentive to go back and check whether the so-
called first-time violation, if it’s not that, then of course you are
giving the incentive of the agency to go back and say now what
really was the first violation here, March, April, May and June. So
yes, it could lead to more inspections. It could also have the per-
verse effect in some instances of urging an agency to use criminal
penalties instead of civil penalties, which wouldn’t benefit small
business.

I really do think that this bill not only has unintended con-
sequences negative for the public, it has unintended consequences
for small business. For one thing, the definition of first-time viola-
tion, as I have said, is not clear. The definition of how you correct
the violation is not clear. I really do not understand that at all. I
gave some examples in my testimony.

Suppose, for example, I know a lot about drugs and biotech com-
panies, suppose I had a drug company that’s supposed to test each

atch of drugs before they send them out. Now they don’t test it,
the drug goes out. They can’t correct that. It’s gone.

Mr. McINTOSH. Mr. Tierney, could I—Mr. Onek, I tried to de-
velop with Mr. Eisner this difference that I think is important
here. If they failed to test, that is a different violation than failing
to keep the paperwork demonstrating that they have done the test.

Mr. OneEX. If they fail to test-——

Mr. McINTOSH. That would be a violation of the regulations that
would not be covered by this bill.

Mr. ONEK. Well, if they don’t have the records, you don’t know
if they test. It is the record that is the evidence of the test. That
is how I have spent a lot of my time, helping small companies get
what is called GMP, good manufacturing practices approval from
the FDA. Of course in order to do it, you have to have these paper-
work requirements because if there’s no paper to show that the test
took place, how do you know even a day later that the test took
place.

Mr. McINTOSH. And it’s my understanding that they have an af-
firmative obligation to conduct the tests and that they can’t market
their products and that FDA can shut them down using injunctive
relief.


45

Why do I endorse these concepts? Paperwork and reporting requirements remain
a major cost problem for small businesses. Small companies do not have specially hired
staff ‘to complete the myriad of reports required by government. Very often itis the
owner of the CEO who must take on this task, making it a very high-cost activity for ,
small business, diverting a valuable resource from running the business to an activity that
does Not generate revenue or contribute to the firm's output. And despite the reduction
goals established for federal agencies by the Paperwork Reduction Act, the problem.
persists.

There is also a “perception” problem, as well as a real one. I think it is fair to say
thet small businesses live in fear that an inspector or auditor will walk through their doors
and find them in violation of some law, imposing penalties that will bankrupt them and
wipe out life savings invested in their businesses. Reality? Ido not know. The fear,
however, is real. This gives added importance to the penalty waiver provision in the
proposal, which, if enacted, should go a long way toward mitigating that fear.

___ As for the balance of the proposal, let me review recent history which I believe
will be helpful to the Subcommittee’s deliberations.

Let me start with the 1995 White House Conference on Small Business. About
1600 small business people attended that conference and voted on 60 policy
recommendations the delegates believed warranted administrative and/or legislative
action. One of those recommendations, edited here in the interest of brevity, urged that
Congress enact legislation that would require agencies to:

* simplify language and forms;


87

public health or safety, unless the violation is corrected within 24 hours of the violator receiving
written notice. Even this provision would make the public bear the burden of unacceptable risk
to their lives, because in many circumstances, the dangers caused by reporting violations cannot
be “corrected” by filing a tardy report. Having the information available promptly may be

* critical. For example, information reported under the Emergency Planning and Community
Right-to-Know Act (“EPCRA”) gave local governments detailed knowledge about hazardous
chemicals stored in their communities that proved vital in responding to the 1993 floods in the
Midwest. In Iowa, for example, officials were able to identify within minutes which of the
state's 4000 hazardous materials facilities might be washed out, leak, or spill in rapidly rising
flood waters. See “EPCRA Data Plays Major Role in Midwest Flood Response,” 6
Right-to-Know Planning Guide (BNA) No. 24 (Aug. 12, 1993). Twenty-four hours later might
have been twenty-four hours too late. Similarly, if a real estate agent does not provide notice of
lead-based paint hazards before a family buys or rents a home, subsequent notice may do little to
protect small children and pregnant women who have already been exposed to lead. Providing
the information months or years later simply does not substitute for timely reporting.

The “imminent and substantial danger” standard in this bill also would be a much
higher, and more difficult standard to prove, than the analogous standards that Congress has
determined are appropriate to protect the public under many other statutes. For example, under
the Resource Conservation Recovery Act (“RCRA”) — which is the principal public protection
against mismanagement of hazardous wastes — Congress authorized EPA to take action where
handling, storage, treatment, transportation or disposal of solid or hazardous wastes “may present

an imminent and substantial endangerment to health or the environment.” See RCRA § 7003, 42

13


8

Mr. SEssIons. Mr. Kucinich, do you have any opening statement?
Mr. Kucinicu. Yes, I do, Mr. irman. I know that Chairman
McIntosh will be joining us, and I want to thank you for your pres-

ence,

And I also recognize the presence of Mr. Tierney, our new rank-
ing member. I look forward to working with you on this subcommit-
tee. And I congratulate you. This is an extremely important sub-
committee, whose work has tremendous implications for the Amer-
ican people. And I know that you are going to be an outstanding
member of the subcommittee in the role of ranking member.

Mr. Chairman, I would like to thank you, and I would like to
thank Chairman McIntosh for calling this hearing today on an im-
portant topic, the continued reduction of paperwork requirements
on small businesses.

Over the past month, we have had the opportunity to work to-

ether to prepare truly bipartisan legislation that would help small
Businesses and Government agencies to continue to streamline
their paperwork requirements. This will be a constructive give and
take process that will show what Congress can do when they sit
down and cooperate on issues important to the jobs and income of
the American people.

This hearin, takes the process on step, forward. And I commend
Chairman McIntosh for his foresight. Today, we will be talking
about H.R. 3310, the Small Business Paperwork Reduction Act
Amendments of 1998. This bill has a dual purpose. First, to help
small businesses more easily comply with Federal paperwork re-
quirements. And second, to buildupon the progress it Federal
agencies have already made in streamlining and consolidating the
paperwork.

‘ince the passage of the Paperwork Reduction Act of 1995, Fed-
eral agencies have launched a number of programs to reduce the
paperwork burden of small businesses. In accordance with the Vice
President’s reinvention of government initiative, agencies have
made sincere efforts to streamline their operations and improve
their services to the public, while saving tax dollars in the process.
We appreciate these efforts, and ask all Federal agencies to move
full speed ahead.

Some aspects of the legislation are relatively simple. By mandat-
ing a single point of contact in agencies, small businesses will know
exactly who to call with paperwork questions. By requiring OMB
to publish a list of all paperwork requirements, small business
owners will have a central source of information to rely upon.

And having read the written testimonies of Mr. Saas and Mr.
Smith, I believe that the bill should be modified to require the
OMB to publish paperwork information on the Internet with de-
scriptions in plain English, and the material broken down by in-
dustry sector or SIC code.

Other aspects of the legislation are more challenging. This bill
would give the heads of Federal agencies the ability to waive the
imposition of a fine on small businesses that have first time viola-
tions in their paperwork filings.

I would like to stress, and this is a very important point for
every member of the committee and the public to be aware of, that
this penalty relates only to civil fines, not of a criminal nature. We


H.R. 3310, SMALL BUSINESS PAPERWORK
REDUCTION ACT AMENDMENTS OF 1998

THURSDAY, MARCH 5, 1998

HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON NATIONAL ECONOMIC GROWTH,
NATURAL RESOURCES, AND REGULATORY AFFAIRS,
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT,
Washington, DC.

The subcommittee met, pursuant to notice, at 2 p.m., in room
311, Cannon House Office Building, Hon. David McIntosh (chair-
man of the subcommittee) presiding.

Present: Representatives McIntosh, Sessions, Tierney, and
Kucinich.

Staff present: Mildred Webber, staff director; Karen Barnes, pro-
fessional staff member; J. Keith Ausbrook, counsel; Andrew Wilder,
clerk; William Moschella, deputy counsel and parliamentarian, full
committee; Judy McCoy, chief clerk, full committee; Elizabeth
Mundinger, minority counsel; and Ellen Rayner, minority chief
clerk.

Mr. SESSIONS [presiding]. A quorum being present, I call to order
the Subcommittee on National Economic Growth, Natural Re-
sources, and Regulatory Affairs. The purpose of today’s hearing is
to examine the Government paperwork burden on small busi-
nesses, and to consider proposed legislation to help reduce it.

This hearing will provide an opportunity for the subcommittee to
hear from members of the small business community and others
about their efforts to manage Government paperwork from the
Small Business Administration Office of Advocacy, and to have
their input about the value of the proposed legislation.

I am pleased to be joined today by one of my colleagues, the new
ranking member of this subcommittee, Mr. ‘Tierney of Massachu-
setts, and would ask him if he has an opening statement at this

time.
[The text of H.R. 3310 follows:]

(D


42

gate the March 1995 memorandum that said, much like your bill
loes, that where it is reasonable, where it is a first time violation,
do not go in and play gotcha with the business. I think that makes
a lot of sense. And I think that your legislation also makes a lot
of sense.

As to the balance of the regulation, what I thought I would do
is share some of the history, recent history, which I think is impor-
tant. First of all, the White House Conference on Small Business,
in 1995, came out with a very strong recommendation on regu-
latory and especially paperwork burdens. And that suggested that
this burden be reduced and be reduced significantly. it is not
unlike the 1980 and 1986 White House conferences which has simi-
lar recommendations.

I would like to share with you a couple of examples of things that
I have done as Chief Counsel for Advocacy in specific attempts to
reduce the regulatory burdens. I shared this with your staff, be-
cause I knew that you could not see it from here, but there is a
chart that the GAO did. And what this chart does is indicate all
of the things necessary to hire your first employee, all of the deci-
sions that have to be made, and all of the paperwork that has to

lone.

Not only do you have to start filing Bureau of Labor Statistics,
Social Security forms and information, and other things, but what
you see is you have State rules and regulations. Looking at that,
I thought this is a problem that we can do something about today.

So I got together with the Internal Revenue Service, and said
let’s look at this problem. Certainly, we can eliminate the duplica-
tive filings at the State level and the Federal level. So we got to-
gether, and I convened several meetings. And we sat down and we
worked with the IRS, and we worked with the State revenue offi-
cers, who were very excited about this, because they wanted to be
able to reduce the paperwork burden.

Let me just tell you that in spite of our noble intents that the
general counsel said you cannot exchange that information, and
therefore the whole idea is now dead.

Mr. McINTOSH. Could you repeat that?

Mr. GLOVER. The general counsel of the Internal Revenue Service
said that there is a provision in the Internal Revenue Code that
does not allow them to share information with the States. That is
an example of when we try to do something that we have not yet
succeeded.

And I think that one of the things that your task force could eas-
ily do that is being created in this legislation is look at those
issues. I think that we have to take a whole new approach to pa-
perwork reduction. Not form by form, but what we need to do is
look at the overall issue. And your inventory of forms is going to
allow us to look and see how many common elements there are be-
tween all of the agencies.

We can develop a Form 1, which is a standard form that all
small businesses fill out at one time. And if the agency wants any
information on that form, they should not have to fill out that in-
formation again. It is not sending the paperwork in. It is a small
business thinking about and thinking about what the form is and
what it means that eats up all of the hours.


73

Mr. McINTOSH. Thank you for your testimony. I will have several
questions for you when we get down to the question period.

Our next witness that we would like to hear from would be Mr.
Joseph Onek from the Department of Justice.

Mr. Onek.

Mr. ONEK. Thank you, Mr. Chairman, members of the sub-
committee. My name is Joseph Onek. I am the principal deputy as-
sociate attorney general of the Department of Justice. I am very
pleased to provide the Department’s views on H.R. 3310.

The Department of Justice strongly supports streamlining infor-
mation collection requirements and helping small businesses to
comply with reporting and recordkeeping obligations. This adminis-
tration has made it a priority to help small businesses thrive in our
growing economy. The Department would welcome an opportunity
to work with you to reach your objectives in a common sense, effec-
tive manner that complements existing administration efforts.

I should also add that up until just 4 months ago, I was a lawyer
in private practice representing many small businesses. I am fully
aware of the enormous contribution that small businesses make to
the American economy and to the regulatory enforcement problems
they sometimes face.

ile the Department supports this bill’s goals, we have serious
concerns with the provision that would waive civil penalties for
first-time violations of reporting and recordkeeping obligations.
Both the law and administration policy already recognized the s:
cial challenges that small businesses face, and believe in consi
ing those challenges where appropriate in setting penalties. But
the penalty waiver provision in this bill goes far beyond what Con-
gress has previously thought wise without in fact reducing report-
ing requirements on small businesses.
would like to emphasize that just 2 years ago, almost to the
day, Congress enacted SBREFA. SBREFA requires agencies not
only to provide compliance assistance to small businesses, but also
to develop policies to provide for the reduction or waiver of civil

nalties by small businesses under appropriate circumstances. I
fave here in my hand a report to the Congress entitled Regulatory
Fairness by the National Ombudsman of the Small Business Ad-
ministration. This position, the national ombudsman, was created
by SBREFA. This report gives man; examples of the efforts of Fed-
eral agencies from OS! to EPA to NOAA to comply with
SBREFA by developing policies to waive or reduce civil penalties
in appropriate circumstances.

Mr. Chairman, the civil penalty waiver would have adverse con-
sequences that I am confident neither you nor any of the bill’s
other sponsors intend. As set forth in greater detail in our written
testimony, the provision could interfere with the war on drugs b
making it easier for money laundering, hinder efforts to control il-
legal immigration, undermine food and safety protections, hamper
programs to protect children and pregnant mothers from lead poi-
soning, and undercut controls on fraud against consumers, Medi-
gare beneficiaries, employees, and the taxpayers of the United

tates.

Now it is true that there is an exception for actual harm to
health and safety, but I think this exception misses the point. The



over their law abiding competitors.

Civil penalties deter unlawful behavior and stop people who break the law from
gaining an unfair competitive advantage over the majority of businesses that work hard to do the
right thing and comply with the law. But under this bill, unscrupulous businesses would know
that they could not be penalized until caught once, and then caught again. Such automatic
probation for first time offenders would give bad actors little reason to comply until caught. And
that would work to the economic detriment of those hardworking small business owners who
‘work hard to comply with the law.

Providing a waiver of civil penalties for first-time violations also will reduce
incentives for small businesses to become familiar with their legal obligations. After all, the
worst consequence they would suffer would be an extra six months to comply. But ignorance of
the law is not a valid excuse in our legal system — not where the health and safety of our
families and communities is at stake.

The term “first-time violation” arguably could be interpreted as the first violation
of any requirement regarding collection of information. Under that interpretation, a business that
subsequently violates any such requirement would not be entitled to prior notice and a grace
period before a fine could be imposed. However, if the term were interpreted to mean the first.
violation of any one particular information collection requirement, then subsequent violations of
‘other, related requirements would continue to trigger the notification and grace period provisions
of this bill. In such event, the statute would result in the unintended consequence of granting
notification rights and lengthy grace periods to businesses that are in fact repeat offenders

undeserving of leniency. A six-month grace period would simply be an invitation further to


H.R. 3310, SMALL BUSINESS PAPERWORK
REDUCTION ACT AMENDMENTS OF 1998

HEARINGS

BEFORE THE
SUBCOMMITTEE ON NATIONAL ECONOMIC GROWTH,
NATURAL RESOURCES, AND REGULATORY AFFAIRS

OF THE

COMMITTEE ON GOVERNMENT
REFORM AND OVERSIGHT
HOUSE OF REPRESENTATIVES

ONE HUNDRED FIFTH CONGRESS
SECOND SESSION
ON

HLR. 3310

TO AMEND CHAPTER 35 OF TITLE 44, UNITED STATES CODE, FOR THE
PURPOSE OF FACILITATING COMPLIANCE BY SMALL BUSINESSES
WITH CERTAIN FEDERAL PAPERWORK REQUIREMENTS, AND TO ES-
TABLISH A TASK FORCE TO EXAMINE THE FEASIBILITY OF STREAM-
LINING PAPERWORK REQUIREMENTS APPLICABLE TO SMALL BUSI-
NESS

MARCH 5 AND 17, 1998

Serial No. 105-144

Printed for the use of the Committee on Government Reform and Oversight

ae

U.S. GOVERNMENT PRINTING OFFICE,
50-059 CC WASHINGTON : 1998

For sale by the U.S. Government Printing Office
‘Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

ISBN 0-16-057312-2
3



108

the Committee regarding aternatives thet will protect investors and the securities
markets.


131

ness. At the discretion of our penalty reduction policy, could go
down to zero.

Mr. SNOWBARGER. How many have gone down to zero?

Ms. SHEKETOFF. In the matter of posters, almost all. Every post-
er for a first-time violation has gone down to zero.

Mr. SNOWBARGER. Are you still having those reported back as
violations?

Ms. SHEKETOFF. Yes they are because if the employer on a sec-
ond visit still does not display the poster, then there is a civil
money penalty. But for a first time violation, an OSHA compliance
officer gives him a copy of the poster and educates him as to the
law which requires that he display it.

Mr. SNOWBARGER. Mr. Chairman, my time has expired. I think
our time is up.

Mr. McInTosu. Yes. Let’s stand in recess for 10 minutes. I be-
lieve there is only one vote, or 15 minutes to get there and back.
We'll come back and finish up questions. If I could ask the panel-
ists to remain for us while we go vote, we'll be back. Thank you.

{Recess.]

Mr. McINTOSH. The subcommittee will come to order. My apolo-
gies to the panel. We had more than one vote and a swearing in
of the newest Member of Congress, Mrs. Capps, from California.

Let’s continue now with the questions from the Members. I be-
lieve it would be Mr. Kucinich’s round at this point.

Mr. KucInicu. In the interest of time, I think that most of the
questions that I have had have been answered. But in the interest
of time, I am willing to waive my questions.

Mr. McINTOSH. Great. Let me ask the rest of the members of the
subcommittee. Does anybody else have questions that they would
like to ask of this panel? Again, I do apologize.

Mr. Onek, if you would please followup with us on the examples
you have given to tell us whether there are other remedies that
would be available.

Mr. ONEK. I would like to just if I could ask one question about
that. We have discussed the issue of an injunction. But what ex-
actly are you going to enjoin? Are you going to enjoin the business
from doing their next violation? The law already says they were
supposed to file the paperwork. So what are you going to do, go in
and ask for an injunction saying file your paperwork?

Mr. MCINTOSH. I would look at the analysis of the underlying ac-
tivity. For example, FDA has various injunctive type remedies
where they can issue a cease and desist order. They can close down
an entire business. So the question would be in each of the sce-
narios, are they completely without remedy to prevent them from
moving forward with their business or continuing with the activity
that they are doing?

Mr. ONEK. But surely you don’t want an agency to use a bazooka
instead of a rifle shot. Sure, I have represented small businesses.
But if you want me to say this is wonderful, a new bill has just
been enacted which will cause the FDA to shut you down, that’s
not helpful.

Mr. McInrosn. If you present a serious danger. So if you could
get back to us with that answer, that would be helpful.




109

ENDNOTES

2.

10.

12.
13.
14.
15.

‘SBC, 1 Annual Report 9-10 (1935).

Pub. L. No. 104-122, title II, 110 Stat. 857 to 874 (Mar. 29, 1996), codified at 15
U.S.C. § 657, 5 U.S.C. $§ 801-808.

“Small Business Regulatory Enforcement Act — Joint Managers’ Statement of
pices BMD nt Comemecinal tnt,” 142 Cong. Rn. $2254, 63243 (ty

National Ombudsman, Report to Congress: Regulatory Fsimess at 24 (December 31,
1997). See also id. at 5, 26, 34.

of broker-dealer examinations were concluded by issuing a deficiency letter.

In 1997, approximately 5% of investment adviser, 7% of investment company, and
28% of broker-dealer examinations resulted in a referral to Baforcement.

“Respondent” is used geoerically in this testimony to refer either to respondents in
an administrative proceeding or defendants in a civil court action.

Seg 17 CER § 205.1) (Wells sebetissons), Notice is not given, for example,
when

Sec. 2(b) £G1)(A)}-

Sec. 3.

Codified at 44 U.S.C. §§ 3501-3520.
44.U.S.C. § 35020).

‘Seo Dean Starkman and Patrick McGeehan, “Floor Brokers on Big Board Charged
in Scheme," Wall Street Journal, Feb. 26, 1998, at Cl.

18


30

a
Peel (owe HNORED AFT CONAAESS
eal Congress of the United States
= Pouse of Representatives
Sa COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
a 2187 Raveurw House Ornice Bua
cine ‘Wassnnaron, DC 20515-6143,
Subcommittee on National Economic Growth,
Natural Resources, and Regulatory Affairs
‘Chairman David McIntosh

Opening Statement
‘Hearing: Smail Business Paperwork Reduction Act Amendments of 1998

Today we are going to examine a very important issue -- giving sual! business owners
reli from goverameat paperwork. Ipaculaly want to thank Mr. Koeaic, who bas worked
with me from the start to develop the legislation we are considering today ~ the Small Business
Paperwork Reduction Act Amendments of 1998.

| want to welcome the small business owners who have traveled from around the country
10 tell us about the problems they face in coping with voluminous, and often unnecessary,
‘paperwork from the government. also want to welcome Jere Glover, Chief Counsel of the
‘Small Business Administration's Office of Advocacy. The SBA has given us valuable input in
crafting this legislation so that it will give the maximum relief to small businesses.

We are proposing to add some new provisions to the Paperwork Reduction Act to help
‘small businesses. The federal agencies have not met the goals for reducing paperwork set by the
Paperwork Reduction Act in 1995. The Office of Management and Budget (OMB) reported to
‘Congress that instead of a 10 percent reduction in 1996, paperwork was only reduced 2.6 percent.
And it is estimated to have been reduced 1.8 percent in 1997. Some agencies are worse than
‘others: the Department of Housing and Urban Development increased its paperwork by 10.3,
Percent; the EPA increased its paperwork by 4.5 percent.

‘The problem we are addressing today stems from the growing cost and number of
regulations on the American people. Total regulatory costs in 1997 were $688 billion. When
these costs are passed on to the consumer, the typical family of four pays approximately $6,875
per year. Families spend more on regulation than on medical expenses, food, transportation,
recreation, clothing, and savings. Paperwork counts for one third of total regulatory costs or
{$225 billion. It took 6.7 billion man hours to complete paperwork in 1996.

‘Small businesses are particularly hurt by regulations and paperwork. The SBA reports
that the smallest firms carry the heaviest regulatory burdens small businesses bear 63 percent of
the total regulatory burden. And small businesses cannot afford to comply with regulations in the
‘same way that large businesses can. The high cost of regulations often makes it impossible for
‘small businesses to expand, threatens their ability to stay afloat, or prevents them from opening


89

company fails to write up or retain a record concerning it. That is a violation. Now suppose
there is another minor accident a month later and the company again fails to create or retain a
record. Is this a first-time violation or a second violation? A company which guesses wrong
may face significant civil penalties.

‘The proposed legislation generally gives the small business concern six months to
correct a violation. But, again, what precisely does it mean to correct a violation? It would
appear that certain violations can never be corrected. If, for example, a company has failed to
perform a required test on a food or drug sample that has left the premises, it can never do so. If
it has failed to create a contemporaneous record concerning an accident, it may be unable to
provide an accurate record several months later. There is a real danger that small businesses will
be lulled into believing they are immune from civil penalties for certain conduct when in fact
they are not.

A similar problem is posed by the provision in the bill that allows ci

penalties
to be imposed when the violation has caused actual serious harm to the public health or safety. A
‘small business may believe that its failure to collect or retain certain records will cause no harm.
But then an accident will occur, or a food or drug will be adulterated, and the business may
suddenly find itself subject to significant civil penalties.

It would probably take years of litigation to resolve all the issues concerning the

definition of first-time vi

ion, correcting a violation and actual serious harm. Neither the

uncertainty nor the costs of litigation will benefit America’s smal] businesses.


84

Indeed, when a business fails to keep records or make reports required by law, we
may have trouble detecting violations and addressing the dangers these information collection
requirements are designed to prevent. The bill essentially shifts the burden of disclosing health,
safety, or environmental risks from those in the best position to learn of actual or potential
defects or risks to already overburdened regulatory agencies. This would rewrite consumer
protection statutes such as the Consumer Product Safety Act, 15 U.S.C. 2051 et seq. (“CPSA”)
which recognize that companies endanger public safety when they do not report actual or
potential defects. This approach would also rewrite environmental statutes that depend on
accurate and timely reporting to prevent serious environmental and health risks, such as the
‘Clean Water Act, 33 U.S.C. 1251 et seq., and the Safe Drinking Water Act, 42 U.S.C. 300f-300j-
26,.

Let me offer you two examples. A couple of years ago, the Department brought a
civil penalty action under the CPSA against a manufacturer of juvenile products such as cribs,
strollers, and car seats. The product involved was a toddler bed with widely spaced rails in its
headboards, footboards, and siderails. Within two months of marketing the bed, scores of
consumers notified the company that children were getting their heads and limbs caught between
the headboard and footboard metal railings. Contrary to law, the company did not notify the
Consumer Product Safety Commission (“CPSC”) of any of these incidents. One year later, the
company marketed side rails for the bed. Parents again quickly told the company that their
children often got trapped in the side rails. The company once again sat on these complaints,
‘Tragically, a child strangled and died in a footboard. It was only at this point that the company

reluctantly informed the CPSC of the death and the serious complaints that foreshadowed the

10


12

As I indicated, our employees are also often our families, They are
also our neighbors and friends.

Our company has many long time loyal employees. We want
them to be safe on the job site, because quite simply that means
they are also productive.

As larger companies leave our communities, as they have in
neighboring Muncie, IN, small businesses need to be able to step
in and fill the void with new jobs. We cannot do this when we need
to worry more about the definition of documents than we do with
the concept of running a small business that benefits not only its
owners, but also its employees and its community.

In closing, I would ask for your help in reducing the paperwork
burden that is flooding small businesses.

Roberts Construction has not received any Federal contracts or
Federal grants this fiscal year.

Thank you.

Mr. SESSIONS. Thank you, Mr. Roberts.

The next witness will be Mr. Saas.

Mr. Saas. Thank you, Mr. Chairman, and members of the sub-
committee. I appreciate this opportunity to come and testify on be-
half of H.R. 3310.

My name is Bill Saas, and I am the president and owner of
Taskem, Inc., a company located in Cleveland, OH. It manufac-
tures chemicals used in the metal finishing industry.

The surface finishing industry is an industry of about 8,000 dif-
ferent operations that apply various coatings to part to either en-
hance the appearance of se parts, to provide better corrosion
protection for those parts, or to provide them with physical charac-
teristics that they would not otherwise have.

Our industry is characterized by small owner-operated firms.
Typically, they employ about 20 people. They do about $1 million
in sales. They have invested anywhere from a half a million to
three-quarters of a million dollars of pollution prevention equip-
ment. And it costs them about anywhere from $110,000 to $140,000
@ year on average to operate this equipment.

It is a substantial employer. It represents about $50 billion a
year in the U.S. economy. And if you look at the supplier as well
as the finisher side, it includes about 520,000 jobs. In my own city
of Cleveland and northeastern Ohio, we employ about 3,000 people
in the metal finishing industry.

About 3¥2 years ago, the common sense initiative was part of
EPA’s reinvention of government program. And although they have
accomplished a great deal of positive things, I would like to focus
just on one issue, and that is a program called RIITE, the Regu-
latory Information Inventory Team Evaluation.

Simply what happened is, the EPA inventoried all of the environ-
mental regulations that applied for a typical metal finishing oper-
ation. Believe it or not, some astounding things came out of this.
For example, they discovered that there are over 160 regulations
that apply just for a typical metal finishing operation, each of them
requiring some degree of reporting.

other thing that they discovered is that there is duplicative re-
porting of information. It may be in a slightly different format, but


54

full committee markup. And I do appreciate you coming today, and
look forward to working with you on this effort.

With that, the subcommittee will stand in adjournment. Thank
you.

(Whereupon, at 3:30 p.m., the subcommittee was adjourned.)


96

© ‘Small Business Initiatives: Beginning in 1992, the SBC launched a major
regulatory initiative to make raising capital easier for small businesses.
Rule changes arising out of this initative simplified the process for
registering securities of small business issuers for public sale; increased the
dollar threshold for exemptions permitting unregistered public and peivate
sales of securities; and simplified ongoing petlodic reporting requirements
of registered small issuers.

In 1996 Congress eoacted SBREFA, which required agencies to publish small
business compliance guides, to establish programs of informal guidance for small
businesses, and to establish policies or programs to reduce or waive penalties for small
entitles. The Commission bas undertaken theso steps, and will sooa report to Congress
about its experieace with these initiatives,

‘At tho end of 1997, the National Ombudsman appointed under SBREPA singled
‘out the SEC a8 one of a group of agencies which "deserve special commendation, as they
are clearly moving toward a more cooperative regulatory eaviroument for their amall
business customers." Ho stated in his 1997 Report to Congress on Regulatory Faimess
that the Commission "deservefe] high marks.“

‘LIMITING ENFORCEMENT ACTIONS TO THE MOST SERIOUS VIOLATIONS.

‘The Commission's examination and inspection staff attempts to exescise its
discretion to resolve compliance problems informally, without enforcement action, whea


x)

INTRODUCTION

Mr. Chairman and members of the Subcommittee. My name is Joseph N. Onek,
and I am the Principal Deputy Associate Attorney General of the Department of Justice. 1 am
pleased to provide the Department’s views on H.R. 3310, the “Small Business Paperwork
Reduction Act Amendments of 1998.”

The Department of Justice strongly supports streamlining information collection
requirements and helping small businesses to comply with reporting and recordkeeping
obligations. This Administration has made it a priority to help small businesses thrive. The
Department of Justice would welcome an opportunity to work with you to reach these goals ina
common sense, effective manner that complements existing Administration efforts.

While we support this bill's goals, we have serious concerns with a provision that
would waive civil penalties for certain first-time violations of reporting and recordkeeping
obligations. Both the law and Administration policy already recognize the special challenges that
small businesses face, and consider those challenges, where appropriate, in setting penalties. But
the penalty waiver provision in this bill goes far beyond what Congress has previously thought
wise -- without reducing reporting requirements on small businesses.

Mr. Chairman, the civil penalty waiver would have adverse effects that I am
confident neither you nor any of the bill’s other sponsors intend. As I will describe, this
provision could interfere with the war on drugs, hinder efforts to control illegal immigration,
undermine food safety protections, hamper programs to protect children and pregnant mothers
from lead poisoning, and undercut controls on fraud against consumers and the United States.
And those are just a few of the unintended consequences.

This provision will not accomplish our shared goal of streamlining and


36

of time on the phone just to try to get the answers that we needed.
Not that we would not go ahead and comply, but trying to find the
correct department to give us anything.

Mr. McIntosH. How about within a department, did you some-
times, get shuffled from one person to the next within a depart-
ment?

Ms. GEARHART. Certain agencies, yes.

Mr. McINTOsH. That is another feature that we have got in the
bill, to have some paperwork czar in each of the departments try-
ing to help direct people and reduce the paperwork, and also tell
the public what it is that they need to comply with. Thank you.

Let me turn now to the co-author of this legislation, Mr.
Kucinich.

Mr. Kucinicu. Thank you very much, Mr. Chairman. And again,
I want to thank you for the leadership that you have shown on this
issue, and for the assistance that your staff has given in working
on this bill. It is a bipartisan effort, and it is important that we
proceed in this way. I think that the input of staff and the input
of committee staff has been useful in perfecting this bill.

The thing that I am hearing from all of the witnesses, and you
can feel free to respond to these comments, what you are saying
is you not only want to comply with the laws but you want to know
what the laws are, (a); and (b), you want to comply with the laws,
but there is just so much paperwork that you are tied down by pa-
perwork, even though you are making an effort to comply.

Mr. Saas, is that correct?

Mr. Saas. Yes. Co. sssman Kucinich, that is in fact the case.
I think that Mr. Smith made an excellent point. I think that the
mentality of all small business owners is that they want to be in
compliance with whatever the appropriate regulations are.

e are all people who have families, and we want to live in a
clean environment. And we do not want to do anything that is ille-
gal, unsafe, inappropriate, et cetera.

Mr. KucinicH. Do you find, for example, in your business that
compliance can in some ways be cost effective?

Mr. Saas. Of course. The so-called P2 programs are an excellent
example. The EPA has put a lot of responsibility on us to establish
numerical goals by which we are going to reduce the amount of ma-
terial that goes into the atmosphere or down the sewer. And those
things turn out to be cost effective. Because we are forced to imple-
ment Plans and to be creative in creating new plans that accom-
plish this. So yes, there are definitely opportunities to be cost effec-
tive.

Mr. Kucinicu. The thing, Mr. Chairman, that I think is exciting
about this endeavor is that while we are trying to streamline the
paperwork requirements and reduce paperwork, at the time we are
relying on an evolutionary path in terms of the consciousness of
this country on issues like the environment. As Mr. Saas says, they
are looking at prevention of pollution, which actually makes busi-
nesses more profitable, and has the socially beneficial effect of re-
duci lution.

And I see that in many ways, which confirms that there are busi-
nesses which want to do the right thing. And I also believe that
we have developed at times an adversarial relationship with the


48

reduction goals set by the Paperwork Reduction Act. The Administrator of OIRA has
testified, as has the General Accounting Office, that a factor contributing to the failure of
agdacies to reach goals has been added congressional requirements. Regardless, the
conppilation will be valuable fodder for the work of the proposed task force and help
focis discussion on ways to simplify and reduce reporting requirements.

Another benefit likely to emerge from such a compilation is identifying where
duplication occurs, and, given the right kind of analysis, where there is overlap with other
epee. As you know, Advocacy reviews regulatory proposals to assess their impact on.
sm business and to evaluate agency compliance with the Regulatory Flexibility Act.
ont of its tasks is to comment on the value and usefulness of proposed recordkeeping and
reper, We have raised questions about how records will be used either by firms or by

thelagencies, the frequency of agency review of the data reported, what decisions will be
based on be information collected, etc. On this point, I would like to share with you a
omy specific example of how regulatory reporting can be off the mark in achieving a
Sie policy objective. I believe the following example will underscore the value of the
efter you are considering.

: ‘Under the Emergency Planning and Community Right-to-Know Act,

cbmmunities are entitled to information about the storage of hazardous materials in their
communities. This is useful in the event of accidents, for example, so that local officials
wa kenow how to deal with such incidents, the nature of the hazards with which they may
have to deal, what precautions to take, et, The reports mandated by regulation under this
sist require ges stations with 10,000 pounds of gasoline in underground storage tanks to
‘lg reports that they, infact, have gasoline on ther premises. Ithas never been clear to

an


1g

We believe that weiare in full compliance withthe President’ directive and SBREFA.
Moreover, to the extent you may believe that there are some agencies that may not take
their responsibilities seriously, I would note that SBREFA also creates an ombudsman,
who has responsibilities for encouraging appropriate agency responses and for
reporting to Congréss on agency responses. Thus, Congress has mechanisms that

would allow it to take action directly aimed at problems. We also have mechanisms
within DOT to facitate our response to these directives. For example, a small entity
just contacted our Office of Small and Disadvantaged Business Utilization about what it
apparently perceived to be an unfair enforcement action against them; we immediately
began an investigation into the matter.

One example that I believe illustrates how, in practice, we implement both our policy
and the Clinton and SBREFA directives involves a routine compliance inspection
conducted by our Research and Special Programs Administration (RSPA). During the
Inspection, RSPA discovered violations of its hazardous materials regulations,
“including violations of recordkeeping requirements concerning training. During
consultations, the company provided evidence of corrective action for some ofthe
violations; convirdied the agency that there was legitimate confusion over another
violation and that, fherefore, the violation was not committed "knowingly*; and
produced records that were not provided to RSPA at the initial inspection. Based on
this, RSPA decided! to waive any civil penalties for these violations and for the training
violation for which‘the agency believed it had sufficient evidence.

Paperwork Requirements Are Important Tools
We recognize tat paperwork requirements can impose a significant burden, especially
on small entities. But paperwork requirements are also a valuable and effective tool for


53

marvelous when you think about how much information can be
stored and how quickly it can be sorted, compared to the old days
when you had manual files and manual information. A lot of this
information does not need to be reproduced in 8 or 10 different
places.

So I think that there is an opportunity to do it. But we have got
to start almost from a blank piece of paper. And I think that the
task force should do that. They should say OK, let’s design a whole
new system.

We have got information collected by the Bureau of Labor Statis-
tics. We have got information collected by the Census Department.
We have got information collected by the Internal Revenue Service.
Three different systems that overlap, but do not exchange basic in-
formation.

There are a lot of reasons historically for it. But I will tell you
that we have got to start with a whole new piece of paper and do
it all over, if we expect to really reduce it.

Mr. McINTOSH. Two other questions.

Is this proposed legislation consistent with President Clinton's
and Vice President Gore’s reinventing government initiative?

Mr. GLoveR. I think it certainly is. I am very comfortable with
it as a good approach to those kinds of problems.

Mr. McINTOosH. I guess I would ask you to put aside any inter-
agency rivalry that may be there, but do you think that we housed
the clearinghouse correctly in OMB’s OIRA?

Mr. GLOVER. I think so. OIRA has done a good job. They work
with those agencies every day, and I think that they have the clout
necessary to make it happen. And certainly any place else would
be duplicative. And I am comfortable. You need it in the White
House. You need it in an inter-agency operation. I am very com-
fortable with OIRA. OIRA has been very successful.

And the panel process that we have with EPA, and OSHA, and
OIRA, we have been able to get the agencies to pay attention and
listen. I am comfortable that that is the right place.

Mr. McINTOSH. Thank you very much.

Mr. Kucinich, do you have any questions for Mr. Glover?

Mr. KucinicH. I would like to thank Mr. Glover for his testi-
mony, and let you know that we look forward to working with you
as we draft this bill. Thank you.

Mr. GLOVER. Thank you.

Mr. McINTOosH. Thank you, Mr. Kucinich.

And thank you again for your leadership in making this a bipar-
tisan effort.

I am going to take under consideration under the rules the re-
quest for an additional day of hearing. I think that we should be
able to accommodate that in some fashion.

I would like to say that my goal is to gather information. You
made a couple of suggestions today, Mr. Glover, such as making
sure that it is a senior official in the agency, who is appointed to
be the head of the paperwork effort. We will continue to work to
improve this bill as we move it through the subcommittee and the


188

(ATTACHMENT ATTACHMENT

Q. zn 1995, ween, Congress originally was debating the
congressional review ‘ow Provisions thet ended up in SUREFA, why was
GAO tasked with conducting = psocedural review of agencies majox
xnles and not a more substantive analysis, including a separate
RIA?

A. Because of concerns that requiring us to do more than just a
procedural analysis within the specified reporting period would be
extremely difficult and resource intensive. On March 28, 1995,
Senator Glenn and Senator Domenici made it very clear that GAO was
to perform ‘an assessment of the agency's compliance with
procedural steps For le, in response to Senator
Domenici's suggestion that GAO be used to provide information to
Congress about significant rules, Senator Glenn said

"I certainly do not object to the GAO proposal so long as

we understand, when the Senator proposes it, that it will
be on the basis of making sure that the processes have
all been gone through that are requested. That would be
what GAO would be certifying. GAO would not be required
to do their own, independent, cost analysis, cost-benefit
ratio and riek assessment, as a completely independent
action, which would tie up several times the number of
people we have in GAO.*

Senator Domenici agreed that the provision was limited to a
procedural annlyeis ‘because T do not think in 12 or 15 days the
Gao can do a thorough substantive review, but they can do
procedural review as prescribed." However, what was being
discussed in 1995 was that the reviews would be done of
‘significant* final rules, which could be several hundred each
year. Also, both Senators Glenn and Domenici noted that GAO could
do a more substantive analysis of an agency's rule upon request.

1e)


49

me'how these reports enhance the community’s knowledge. Particularly ironic is the fact
thei the estimated 200,000 gas stations - almost all small businesses - have to submit
similar reports to three other state and local entities - 800,000 pieces of paper annually, at
a minimum, advising public officials that the gas stations have gasoline on their
Premises! And when they don’t, they put out signs: “No gas today.” It is clear that this
regulation did not save any trees or tell the public anything it did not already know.
Advocacy first sought repeal of this requirement in 1987, After 2.5 years of my
personal involvement, I am pleased to be able to report that last week EPA sent 2
regulation to OMB repealing this reporting and paperwork requirement. Small
businesses will save over 500,000 hours annually - that is significant paperwork reduction
and cost savings - not counting the agency paperwork storage costs that will be saved!

The repeal applies to reports required from other industries. EPA is also
proposing to climinate reporting by smal! sand, gravel and rock salt operations and the
remaining reporting requirements applicable to storage of chemicals in excess of 10,000
pounds will be in plain English.

“) Thisisa major step forward. EPA’s action eliminates duplicative reporting, helps
‘small businesses and does not hurt the environment. It is one of the best proposals I have
seen. It has almost been worth the 2.5 year wait.

This brings me to my final issue. It is a topic that I think the proposed task force
will be able to address, particularly when itis armed with the informetion on the number
and kind of reports smail businesses must file. As the task force looks to the question of
simplification and consolidation of reports, the compilation will demonstrate that some of
the same information is repeatedly requested by federal agencies - whether it is IRS,

7


78

the public from safety, health, or environmental hazards. The rest of my testimony will focus on
why information collection requirements are essential to a wide variety of protections on which
we all rely, and on why a civil penalty waiver for first-time violators may put the health and
safety of our families and communities at risk.

IMPORTANCE OF INFORMATION COLLECTION REQUIREMENTS

Congress has established information collection requirements for a very good
reason. Good information is the backbone of sound decisionmaking. The government and the
public need information to decide how to stop or remedy dangers ranging frorn contaminated
food to illegal immigration. It is through information collected on a regular and timely basis that
‘we can determine where dangers are, what protections are needed, and when action is necessary
to remedy harms, deter future violations, and ensure a level economic playing field.

‘We rely on businesses to provide this information, because they often are the only
source of that information, They know what they are doing, and how they are doing it. If
businesses did not keep and report information important to law enforcement and public health
and safety, the government would have to either make decisions without critical information or
make much more frequent and intrusive inspections. Both alternatives are undesirable. So
instead, we tell businesses to keep records on certain important activities and to report that
information to the government, to the public, or both.

When considering legislation such as the bill before the Subcommittee today, it is
‘important that we do not forget the fact that information collection violations can have serious
on-the-ground effects. A company’s failure to submit required information, or submission of

inaccurate information, can mislead the public, regulators and law enforcement officials,


88

U.S.C. 6973. “May present” is the appropriate standard. Reporting requirements provide
information for current and later decisions. In an action to enforce those necessary requirements,
the government would find it difficult to prove that the failure to provide information itself
actually endangered public health or safety.

‘These provisions respecting actual harm or imminent and substantial danger to
public health and safety also do not recognize other harms, including harms to the environment,
that may not currently affect public health or safety, but may do so in the future.

Nor are our concerns solved by the provision that requires a company to correct
the violation within six months to avoid a civil penalty. Allowing an additional six months to
comply after a company might do nothing to address the risk originally posed by the violation.
For example, a simple failure to document cargo properly on a manifest can lead to grave
consequences. Ifa truck carrying toxic materials crashes, and is not carrying a manifest that
identifies the materials, emergency workers and others on the road may be unknowingly
endangered. The fact that actual harm has not occurred before discovery of the information
collection violation, does not mean that we should tolerate such risks. The bill’s allowance of a
six-month period or even a twenty-four-hour period to correct those violations would expose the
public further to risks of harm and may allow a disaster to occur.

The proposed legislation may be a trap for the unwary because of confusion as to
what it means. For example, the bill provides that, except in special circumstances, no civil
penalty shall be imposed with respect to first-time violations. But, as discussed above, what

precisely is a first-time violation? Suppose that there is a minor accident in a factory and the

14


43

So, if we could take all of the common elements and put it on
one form. And whenever any agency needs the information, you
pull it out of your drawer, and xerox a copy and send it in.

Look to what our paperwork burdens are, duplicative and redun-
dant forms that do not need to be done. We could simplify that tre-
mendously. And in your inventory of all of the Paperwork require-
ments and all of the forms would be a big help in that regard.

Let me give you one other example of a regulatory activity that
we undertook. A small businessman called us up or sent us a letter
and said I am a service station operator, I have filed three separate
forms in three separate places to tell people that I have gasoline
in my station, this is really ridiculous.

I tell you, I agreed with him. So I said this is easy. I am going
to call EPA. The Paperwork Reduction Act had just passed. This
will give EPA a great opportunity to prove that they are going to
really take this seriously and reduce the paperwork burden. Be-
cause they can certainly eliminate one of those forms.

EPA objected, and they said the fire departments really need
these forms. I said I will tell you what, you call a fire department
and I will call a fire department, and I will guarantee you that not
one of them looks at the EPA form to determine whether a gas sta-
tion has gasoline. And we all agreed very quickly that there was
a not a problem.

It has taken us 2% years, but I am pleased to report that EPA
sent to OMB a regulation to eliminate that form. That form alone
is over 500,000 hours of regulatory burdens, eliminating that for
200,000 small business service stations. It has taken longer than
it should, but EPA came up with a real good regulation, common
sense.

There can be significant improvements made in the regulatory
burdens on small business. And clearly, it is a wonderful idea that
you are coming forward with. I compliment you and Mr. Kucinich
going forward on this. It needs to be a bipartisan approach, and it
needs to be reasoned and fair. And I think you are doing that, and
I think it is really worthwhile. Thank you.

[The prepared statement of Mr. Glover follows:]


129

good for my former colleagues in the private bar. I’m not sure that
it’s going to do much benefit for businesses.

Mr. TIERNEY. Are the folks at the table going to receive a copy
of the proposed amendment?

Ms. SHEKETOFF. Yes.

Mr. TIERNEY. Quickly then, before my time expires, can each of
you tell me whether or not you think that that clearly addresses
what you perceive to be the goal of the original legislation, but still
provides some of the safeguards to the concerns that you have
raised?

Ms. SHEKETOFF. OSHA took a look at this. We feel that it does
answer many of the problems that we saw in the original language.

Mr. TIERNEY. Thank you. Mr. Onek.

Mr. ONEK. We haven't had the full time to review it with all our
components, but I would say the same. Yes, that it does appear to
address many or most of our concerns.

Mr. TIERNEY. Mr. Lane.

Mr. Lane. I have not had an opportunity to have the actual five
commissioners vote on this as such, but it does seem to respond to
our testimony. The only one of the four suggestions I just gave you
in my testimony was whether we use the definition in the Regu-
latory Flexibility Act. But otherwise, it seems to be addressing
many of the concerns.

Mr. TIERNEY. Mr. Eisner.

Mr. EISNER. Same thing. It addresses our concerns. We have not
had a chance obviously to have some of our enforcement personnel
look at it, but it would appear to address the concerns they have

expressed in the past.
ir. TIERNEY. ‘Thank rou. Thank you, Mr. Chairman.

Mr. McINTOsH. Thank you, Mr. Tierney. Let me now turn to Mr.
Snowbarger. What I would like to do—actually, Henry, if I can ask
your advice. How long should I leave for us to go and vote? Five
minutes before the vote from this building? Let’s try to take one
more round of questioning then, and we can head off.

Mr. Snowbarger.

Mr. SNOWBARGER. Let me first followup on Mr. Tierney’s ques-
tion about the amendment. I just had a chance to glance through
it quickly. How does this amendment differ from current law and
policy other than spelling out in black and white what you I think
told us you already do?

Mr. EISNER. From our perspective at the Department of Trans-

tation, it is quite similar to what we are required to do under

BREFA and under the President's directive. There is a lot more
in here and I would have to look at it more carefully. For example,
the language on consumer, investor, workers, that sort of thing.
But it would be very, very similar.

Ms. SHEKETOFF. It does seem to spell out exactly the items that
should be taken into account when establishing this policy of elimi-
nating, delaying, or reducing civil fines.

Mr. ONEK. I do think it does add elements, particularly the con-
sumer, investor, worker pension protection and the environment,
which I believe are not in SBREFA. Otherwise, I think it largely
checks, tracks SBREFA. But then I think SBREFA was an excel-
lent effort by the Congress which should be given a chance to work.


113

‘Statement of Neil R. Bisner
Assistant General Counsel for Regulation and Enforcement
of the Department of Transportation
: Before the
Subcommittee én National Economic Growth, Natural Resources and Regulatory
ASfairs of the Committee on Government Reform and Oversight of the
United States House of Representatives
Friday, March 13, 1998

" My name is Neil RBisner, and Iam the Assistant General Counsel for Regulation and
Enforcement of the:Department of Transportation (DOT). I am pleased to have the
opportunity to testify today about H.R. 3310, the "Small Business Paperwork Reduction
‘Act Amendments of 1998." With respect to small-business concerns, the bill would
require that civil firjes not be imposed on them for first-time violations of agency
information collection requirements under certain circumstances; it would establish a
task force to study streamlining information collection requirements for them; it would
require an annwal publication of a list of paperwork requirements applicable to them;
and it would establish one point of contact to act as liaison between them and the
agency concerning the collection of information and the control of paperwork. While
‘we support the general objectives ofthe bill, we have serious concerns about its effect.

Background i
Before 1 get into thé substance of the bill, I believe that it would be valuable to provide

some brief background about the Department of Transportation. DOT has, by some
measures, the largest rulemaking responsibility in the federal government. Our nine


122

aware of these requirements. To the extent that the executive branch is required to do
this, it would be helpful if the Subcommittee made it clear what problem this provision
is addressing, so that we specifically could address the publication to those problems.

‘We would also not have a problem identifying one point of contact for each agency.
However, the bill would require one point of contact for the entire Department. We are
not sure that this would prove helpful to small businesses because of the very different
kinds of businesses that are subject to our requirements. For example, the FAA, alone,
regulates such small businesses as air carriers, airports, training Schools, maintenance
facilities, and security firms. It might make more sense to give us the discretion to set
up different contacts for different types of businesses or even in some of our regional
offices.

Finally, with respect to the requirement for a task force to study the feasibility for
streamlining, let me stress that we are constantly striving to cut paperwork. Our Office
of the Chief Information Officer is working with offices throughout DOT to implement
the reductions mandated in the Paperwork Reduction Act and the Deputy Secretary is
personally involved in these efforts. We do not object if you believe that further study
is warranted, but we think that our resources might be better spent on our continuing
efforts, and we welcome any suggestions for reductions.

Conclusion

‘The Department of Transportation is proud of its efforts in the regulatory compliance
area, especially with respect to small businesses. We carefully consider the burdens

that we impose and the methods we use to achieve compliance. We know that there is
always room for improvement, and we strive to keep making progress. We welcome

10


127

Mr. ONEK. But how is FDA going to know any of this if it doesn’t
see the tests?

Mr. McInrosu. If they don’t keep the records, they can say we
are going to shut you down until you do.

Mr. TIERNEY. Assuming that we are having a free for all with the
time here, and I don’t mind——

Mr. SUNUNU. No. I was going to ask you to yield.

Mr. TIERNEY. But assuming that, and we are all going to be a
little loose with the time, I have no problem with yielding.

Mr. SUNUNU. You brought up GMP practices and I think that’s
somewhat irrelevant. ll give you a chance to clarify. In GMP prac-
tices they specify what kind of regulations, paperwork, training
processes, training Procedures, cleaning procedures you need for
the manufacturer of drugs. This doesn’t affect those procedures at
all. If ypu want GMP, you have to abide by those regulations to get
GMP. You are either certified or not certified.

In a similar way on an independent basis, people certify you for
ISO 9001 or ISO 9002. Either you have the Paperwork in place or
you don’t. Either you get certified or you don’t. Those are manufac-
turing procedures that are in place and will remain in place if any-
body wants to be certified by the FDA. That is not what this legis-
lation deals with. Again, I think we need to keep focused on the
issue of paperwork violations in cases where they might cause the
kinds of problems you describe and failure to do certain things like
training or failure to do testing or criminal issues, which I think
are very distinct from what this legislation deals with.

Mr. ONEK. Well let me ask a question which perhaps can clarify
it. Let’s take a very important example of the obligation of drug
and device manufacturers to report adverse incidents. Now are you
suggesting that if they fail to report, that isn’t covered by this bill?
I would have thought that that is an example of something which
would be regarded as a collection of information and the reporting
of information to a third party and that they would get a waiver.
To me that is very very dangerous because as you know, many
drugs and many devices have been pulled off the market because
of adverse incident reports.

Mr. SuNUNU. I would think that situation would clearly fall
under the risk to personal safety or public safety category. I would
hope that you or whoever the responsible agency is would under-
stand that, would take action under that waiver, and would impose
the most severe penalty and a) propriate penalty that you possibly
could in that case. If you would fail to do so, fail to inform Congress
that you were going to do so, or fail to take appropriate action
under the 24-hour notification, you would be irresponsible.

Mr. ONEK. But the problem is a company may be encouraged not
to report a very minor incident because they say well this isn’t im-
minent harm to the public safety, this hasn’t caused any actual
harm, and so we won't report it. Then another little thing, sa:
we're not going to report that either. Then a serious accident wil
occur. Sure, when the serious accident occurs we'll be able to im-
pose a fine, but that wasn’t our goal. The goal of the FDA is not
to impose fines. The goal of the FDA is to prevent people from
being killed. If the company had in my hypothetical, if the company
had reported the very minor accident, just like the crib example,


CONTENTS

Hearing held on:
March 5, 1998
March 17, 1998
Text of H'R. 3310

Statement of:

Glover, Jere W., Chief Counsel for Advocacy, U.S. Small Business Admi
istration ..

Roberts, Gary, president, Roberts Pipeline, Sulphur Springs, IN; William
Saas, president, Taskem, Inc., Brooklyn Heights, OH; Teresa Gearhart,
owner, Mhart Express, inc., Hope, IN; Victoria Nelson, owner, Jarnel
Iron and Forge, Hagerstown, MD; and Robert C. Smith, president,

‘Smith Investment Advisors, Inc., Cleveland, OH .. vet

Sheketoff, Emily, Deputy Assistant Secretary, Occupational Safety and
Health Administration; Joseph Onek, Principal Deputy Associate Attor-
ney General, Department of Justice; Brian J. Lane, Director of the
Division of Corporate Finance, Securities and Exchange Commission;
and Neil Eisner, Assistant General Counsel for Regulation and Enforce:
ment, Department of Transportation ... vee

Letters, statements, etc., submitted for the record bj
Eisner, Neil, Assistant General Counsel for Regulation and Enforcement,

Department of Transportation, prepared statement of ...

Glover, Jere W., Chief Counsel for Advocacy, U.S, Small Business Admi
istration, prepared statement of

Lane, Brian J., Director of the Division of Corporate Finance, Securities
and Exchange Commission, prepared statement of .. se

McIntosh, Hon. David M., a Representative in Congress from the State
of Indiana, prepared statement of .... _

Nelson, Victoria, owner, Jarnel Iron and Forge, Hagerstown, MD, pre-

pared statement of ..... sees
Onek, Joseph, Principal Deputy Associate Attorney General, Department
of Justice, prey statement of .. vests
Saas, William, president, Taskem, Inc., Brooklyn Heights, OH, prepared
statement of ..... sore
Shadegg, Hon. John, a Representative in Congress from the State of

Arizona, prepared statement of ..
Sheketoff, Emily, Deputy Assistant tary,
Health Administration, prepared statement of ..
Tierney, Hon. John F., a Representative in Congress from
of Massachusetts, letter dated March 5, 1998 ....

ail

10


106

TASK FORCE TO STUDY STREAMLINING OF PAPERWORK REQUIREMENTS.

‘The Commission also would like to take this opportunity to comment on the
[Proposed task force to study the PRA. The Commission agrees thet a task force should
be established for the purposes of studying the PRA, but believes that its mandate should
bbe broader, and should include problems with the existing statute, In addition, provisions
should be made for input by agencies such as the SBC.

Although the SEC hes complied with the mandates of the PRA — we have found
it, in some situations, to be a roadblock to informed regulation, or even efforts to reduce
regulatory burdens, For example, the PRA keeps us from informally surveying securities
market participants regarding how our rules are working. To talk to more than nine
firms, we must obtain OMB approval, a bureaucratic process that can constrrin completo
and timely discussion of regulatory issues. Similarly, we cannot even survey firms for
cost-benefit analysis of proposed rules without going through an OMB clearance process.
Even whea a member of Congress asks us to study a proposal — such as disclosure of
charitable giving by public companies — we have been constrained by the PRA in
collecting information necessary to complete the inquiry.

Finally, wo would like to suggest that the PRA be amended to reduce the OMB
paperwork clearance process whea forms are being eliminated or streamlined.

‘We would like issues such as these to be considered in any PRA study.


66

PRA must be put in place to protect workers before a catastrophe
occurs. The bill on the other hand, would send a message that em-
ployers can allow life threatening conditions to persist until and
even after they are discovered by OSHA. To allow any additional
time for a catastrophe to occur, whether it be 1 hour, 24 hours, or
6 months later, would seriously jeopardize employee safety and
health, and undermine OSHA’s statutory mission.

In another instance, two employees died from asphyxiation in a
confined space while cleaning a tank. Failure to follow written pro-
cedures required in OSHA’s confined space standard was a signifi-
cant factor in their death. OSHA’s confined space standard requires
employers to monitor and record the level of contaminants in the
atmosphere before employees enter work areas which may be defi-
cient in oxygen or contain contaminants. Records of such monitor-
ing is considered a collection of information under the PRA. If em-
ployers do not perform such monitoring, employees face the risk of

ing asphyxiated or overcome by radiation or toxic fumes. If this
monitoring is to protect workers effectively, employers must mon-
itor routinely whenever there is a possible danger, not just when
OSHA can prove that a particular employee in a particular con-
fined space is in imminent danger of death or injury.

The new OSHA uses a variety of tools to protect workers, includ-
ing enforcement, partnership, compliance assistance, standards de-
velopment, special emphasis programs at the national, regional,
and local level, and other appropriate tools. This balance of ap-
proaches helped earn OSHA good reviews in the Small Business
Administration ombudsman’s recent report to Congress. According
to that report, OSHA has positively influenced small businesses’
perception of their regulatory enforcement efforts. The importance
that OSHA places on working with businesses to improve safet
and health led us to hire a small business liaison. Consistent wit
the intent of SBPRA, OSHA’s liaison already works directly with
small businesses, assisting them with every aspect of OSHA’s pro-
gram.

In conclusion, although OSHA agrees that legislation like SBPRA
could be beneficial, we have serious concerns about the safety and
health impact of the penalty-related provisions in section 2 of the
bill. We urge the subcommittee to consider these concerns and
modify the bill to guarantee that America’s workers are protected.

[The prepared statement of Ms. Sheketoff follows:]


52

Mr. McINTosH. Thank you very much, Mr. Glover.

It may endanger my reputation, but let me say that I want to
praise EPA for that effort that you have just described. I am glad
to hear that. That is the type of common sense that we need in reg-
ulatory programs.

Let me pick up on the comment you made about a common ele-
ment. Because it occurred to me as we were drafting this bill that
that idea would go a long way toward helping to reduce duplica-
tion, and is a significant part of the problem.

I am glad to hear your testimony that the inventory could lead
to such reduciton. It is one of my fondest dreams to set up a system
exactly like that. And then each agency could submit a copy of your
Form 1 and add to it additional schedules to get the other informa-
tion they need. And then we could work to make sure that there
is no duplication among the schedules. So I very much appreciate
your testimony on that.

Let me ask you, what are some of the biggest problems that your
office hears from small businesses regarding paperwork?

Mr. GLoveR. I think that the biggest problem is the fear of some-
thing they did not know they had to do right off the bat. I think
that the next biggest problem, and I recognize that it is a conflict,
is taxes, and simply the records burden that they have to maintain
in keeping taxes.

We get involved in a lot of issues with the Internal Revenue
Service where they unknowingly were going to do something that
results in a tremendous burden. One of the successes that I think
that we have seen in the last couple of years is the new pension
plan regulations that have been coming out where they dramati-
cally reduce the amount of paperwork and concerns about 401(k)
plans and the new SMPA plan.

That is a real success story. I think that there are a few of those.
There needs to be a whole lot more. But the paperwork around
taxes is the biggest one that I hear about.

Mr. McINTOSH. Let me ask unanimous consent to hold the record
open for a week or so. If you could give us a couple of examples
of successes, maybe we could trumpet those as an example to some
of the other agencies as we move this bill forward.

You mentioned in your written testimony that paperwork reduc-
tion goals have not been met to date.

Do you think that agencies have sufficient incentive to do that,
or do we need to have additional structures in place to help try to
achieve those goals?

Mr. GLOVER. Paperwork is kind of like small business, paper-
work reduction. It is everybody's second priority. And unfortu-
nately, people do not get around to it very often. And I think that
we suffer from that. Everybody says yes, we are 9 foing to reduce pa-
perwork, but it is really hard when you have other things to do to
focus on it.

I think that this legislation will be some incentive. I would sug-
gest that the representatives be somebody who reports directly to
the head of the agency. So you do not get it down so far in the or-
ganization that they cannot jump across lines.

But I think that there is an incentive needed. And I think, quite
frankly, that we need a whole new reporting system. Technology is


101

(2) There are first-time recordkeeping violations which are serious, and should
be subject to fines. As currently drafted, H.R. 3310 does not sufficiently distinguish
inadverteat or trivial violations that should not be sanctioned with fines from more
serious violations,

Under the Paperwork Reduction Act ("PRA"),” the term “collection of
information” is defined to include not only recordkeeping and reporting requirements
imposed on a businest by & government ageacy, but also any disclosures that an agency
requires a business to make to third parties, such a1 clieats or prospective clients."
‘Thus, the reach of the PRA includes information provided to investors to protect them
from fraud, as well as enable them to make informed investment choices. For example,
‘a company’s prospectus, annual reports, and customer confirmations of securities,
transactions are all “collections of information" under the PRA. Similarly, other
‘important "collections of information" include items such as broker stock quotations —
which are required to be transmitted accurately and rapidly to make the markets work
properly and fairly.

‘Under H.R. 3310, violations involving these important docamenta are exempted
from civil fines an well as those more trivial “paperwork” violations that may be imposed
for more bureaucratic purposes. Here are examples of some of the “important” SEC
paperwork requirements that would be subject to penalty exemption under H.R. 3310.

© The Commission's penny stock rules, which were mandated by Congress,
provide investor protections through both recordkeeping and disclosure

requirements, These rules require that certain disclosures be givea, and

10


26

Mr. SEssIONS. Thank you, Ms. Nelson.

Our next witness will be Teresa Gearhart.

Ms. Graruarr. I thank you, Mr. Chairman, and the subcommit-
tee, for allowing me to be here today. I am the vice president of
a_ small trucking company. We employ about 15 people. And we
also have about 25 leased owner operators and other lease trucks.

The proposed legislation to amend the PRA would be a tremen-
dous benefit for small business. As a small business owner, I have
often spent valuable time searching for the correct answers to filing
and meeting the deadlines of the numerous Government agencies.
The requirements in themselves can sometimes overwhelm a small
business owner, especially the owner of a new business. Our com-
pany has gone to great lengths to be on top of these issues, even
to the point of hiring additional staff, just to address the volume
of mandates. Obviously, this cannot be cost productive. I feel that
a combined listing would not only benefit the small business, but
would also be an invaluable step for the startup business trying to
make sense of the never ending task of paperwork, requirements,
set-up, and deadlines. As with most companies, our business is re-

uired to also file a volume of paperwork for each specific trade.
DOT regulations that we are required to do are sometimes ac-
tually staggering, and in itself keeps us very busy.

This, too, can seem staggering to a small business to the point
of asking ourselves: Are we in business to serve our customers or
to file paperwork for Government?

Our company is located in a small town. We take pride in sup-
porting our community, whether it is sponsoring the activities of
the summer playground, helping other businesses and individuals
in need, or promoting local ce! ber business initiatives. I feel this
is the benefit of having businesses in the community working to-
gether to improve the lifestyles of our families, friends, and neigh-

rs. There are times when this goal seems out of reach, because
of the over-abundance of regulations that can bog down a business.
For our company, the varied dates of notifications, election time-
frames, and terminating events of COBRA have led us to restruc-
ture and to seriously weigh the value of growing in the near future.
The business is there for growth, and we have the openings avail-
able for staff increase. However, the demands to keep up with the
agencies’ requirements if we do increase our staff, have led us to
remain at our present employment level. I feel this is the most se-
rious problem of the agencies. It has put a hold on our business
growth. And more importantly, it is letting down our community.
Employment opportunities could be readily available, but instead
there are none.

As most small businesses, we strive for perfection in our compa-
ny’s customer service quality, and in the other day-to-day business
activities. When a customer’s service expectation has not been
achieved, it is great to know that it is Fossible to hear the cus-
tomer’s concern, address it, and ensure it it is corrected, going
forward without a penalty from the customer. This level of commu-
nication between the agencies and small businesses would be just
as beneficial. If a paperwork error has been made, if the fine would
be suspended, the business notified, and corrections could be made.
Even today, but more importantly when our company was starting


22

Mr. Chairman, itis with great pleasure that I appear before you this afternoon on behalf
of the National Federation of Independent Business. I appreciate being able to tell you about a
small business woman’s experiences with goverament “ir-regulation” and “‘non-

reduction” and to tell this committee about some of the ongoing situations that I face with the
kind of work that Ido to make a living. Thank you for holding this important hearing.

‘My small business fabricates and manufactures omamental ironwork. We primarily act
in the capacity as a sub-contractor to a larger general contractor. Most of our work is done with
government contracts, They could be with the GSA, Corps of Engineers, or the Smithsonian
Institute. These government projects are required to apply the Davis-Bacon Act to employee
payrolls. One of the mandates under the Davis-Bacon Act is that I must fill out and complete
certified payrolls for my business and submit them to my general contractor.

‘Now this requirement in itself is not too terribly unreasonable. However, if you will
follow along with me, in my particular kind of work, we will probably only be on the job site to
take field measurements--if there is anything to measure. Often times we do all of our work just
from the architectural drawings. This happens after we have submitted shop drawings in
voluminous numbers, as required by contract. This poses a question: If the government entity
has already secured the professional services of a qualified architect and has secured the
professional services from engineers and consulting firms, why must I be redundant and repeat
this action, and paperwork, and provide additional drawings and have a certified engineer
duplicate exactly what the government has already agreed with and paid for?

‘With regard to Davis-Bacon, when I am on the job site with my employee, I have to
generate a required certified reporting of payroll until the end of the project. In my case, let’s say
that I am there for field measurements with my employee. I must send a certified payroll report
with my employee's information for that week to the general contractor, who in turn sends copies
of that certified payroll to the governmental contracting officer, and I don’t know who else. But
‘that is not my main concern. I am required for henceforth and ever more, until the project is
complete, and whether or not my employee is ever on the job site again, to send in triplicate,
certified payroll reports, and actually mark each one with the week ending date and showing no
hours on the job site. This is a true story.

Just my telling about this is somewhat embarrassing. I sounds foolish, not to mention
wasteful of time, effort, paper, and costs. I'd like to see the big warehouse that the government
uses to house these documents.

‘The second issue I would like to define is the “product data” sheets. Let me go back to
my previous remarks regarding the government entity that hires and pays for the professional
services of architects, engineers, consultants, etc. and relies on these professionals to specify
products that are to be used in any given project. These are called “specifications” which
provide information about the products that the government has decided it wants used in, on and
around this project. In other words, it would appear to me that they know the products and or
materials that they want this project made from, they are articulate in specifying by name brand,
company name, material analysis, etc. My question is, “Why must I provide them with the very


105

have the benefit of a safe harbor. ‘The bill does not address whether a "first-time"
violation is established simply by agency notice, or whether there must be any additional

process,

‘SUGGESTIONS FOR IMPROVEMENT.

Generally, the Commission betieves that the concept of an automatic exemption
from civil fines for first-time violators is not as effective as one tailored to prevent
abuses. Whether such a provision should be included in the PRA may best be made a
subject for study snd consideration by the Task Force also proposed in H.R. 3310. If the
provision is given detailed consideration, we suggest the following:

The exception that permits fines for violations that are found to pose an
imminent and substantial danger to the public health or safety should bo
expanded to include violations that involve investor protection or the
integrity of the securities markets.

‘The penalty exception should be limited to "good faith* violations. This
‘would permit fines for violations (@) whea the conduct involves fraud,
intentional wrongdoing, or destruction of records, and (ii) when the owner
or principal of the small business is a repeat offender.

As a more technical point, we suggest that the bill's definition of “small
business" conform to the definition of “emall business" that is currently in

the Regulatory Flexibility Act and used now by all federal agencies.

“4


34

Mr. McINTosH. Let me briefly say that I am delighted that we
are moving forward with this legislation, and delighted that we can
work with it in a bipartisan fashion to try to shape this effort.

Reducing the paperwork burden on small businesses is a critical,
critical component of what we need to do to get to a reasonable reg-
ulatory system. President Clinton and Vice President Gore have
been working in this area with the reinventing government effort.

And one of the things that President Clinton said that I agreed
with was when he indicated that he wanted to have the agencies
change their enforcement proceedings so they would not play
gotcha with small businesses—coming in to inspect and find minor
violations, paperwork violations, and then hit them with large
fines. But instead, they would work with small businesses, so they
can comply.

What I have found in the field hearings we have held all over
this country, is that virtually all small businesses want to comply
with the rules and regulations with which they are presented. They
are law abiding citizens. They believe they are making a sacrifice
to contribute to our society, to produce a product, to provide a serv-
ice, and to create job opportunities in their community.

And sometimes they are just overwhelmed both by the sheer
number of forms and paperwork that they have to fill out and the
confusion which comes with them.

So it is the hope of Mr. Kucinich and myself that we may reduce
the overall amount of paperwork, and provide some structures
where there is a central clearinghouse for small businesses to find
out what it is that they have to comply with. But we also want to
change the behavior of the agencies, so they view their mission as
primarily to educate and to get law abiding small businesses to
comply with the regulations.

And then if they find somebody who is a bad actor, or is acting
in a way that is unsafe or violates the laws as to health and safety,
then they may use the enforcement mechanisms to go after those
bad actors.

I would like to say again thank you to each of you for coming
today. Your participation and traveling to Washington will help us
enormously to build the record on this issue.

Let me ask each of the panelists about one thing that I have
heard from small businesses over and over again is that it is not
the paperwork requirements that they know about that really both-
er them, and concern them, and keep them up at night, but it is
the ones that they do not know about, that they may suddenly find
that they are in violation of.

Has that been your experience, and how does each of you relate
to the fact that it is difficult to know all of the different require-
ments? Mr. Saas.

Mr. Saas. Thank you, Mr. Chairman. Unfortunately, you were
with Speaker Gingrich at the time that I made a comment. Our
particular industry happened to study a particular metal finishing
operation, and discovered that there are over 160 just environ-
mental reports that have to be filed. Some only have to be filed
once. Both others have to be filed sometimes monthly, sometimes
semi-annually, et cetera.


115

not comply unless forced to, and the paperwork also helps us to identify those
businesses, hopefully before they do harm.

+ Third, the'provisions of H. R. 3310 prohibiting the imposition of fines could
seriously hamper our ability to ensure safety, protect the environment, and carry out
our other statutory responsibilities. Since we already are committed to helping first-

__ time violators who make a good faith effort to comply, the primary beneficiaries of the
bill would be thosewho do not act in good faith, those who intentionally or carelessly
and recklessly violate the regulations. Indeed, it may create an incentive to not comply
until caught, which would be especially troubling in competitive industries where
others may feel that they, too, then have to take advantage of the bill's provisions.
Again, let me stress that we believe the large majority of our regulated entities want to
comply with our rules, but we and they recognize that there are many who do not.
Moreover, other regulated entities, including small businesses, may be hurt by those
‘who fail to comply: Although our main concerns are with the waiver of fines
provisions, the other provisions of the bill raise several questions.

Let me expand on these three points:

‘Good Faith, First-Time Violators

We have long been‘concerned with the effects of our regulations on small entities. We
take very seriously our responsibilities under the Regulatory Flexibility Act and the
Paperwork Reduction Act. We believe that we have done a very good job
implementing requirements. Indeed, we often exceed those requirements. For
example, the Department requires a written economic analysis for all of its proposed
and final rulemakings, even if not required by the Regulatory Flexibility Act or an


136

ATTACHMENT (ATTACHMENT
QUESTIONS YOR THR RECORD

Q. Has GAO, or anyone else to your knowledge, conducted any
studies to determine how costly or time coasuning it is to yerfora
@ regulatory impact analysis (RIA)?

A. Yes, there have been a number of such studies. First, though,
it ie important to point out that there is no such as a
“typical* RIA. The analyses vary substantially depending on the
issues involved, the amount of information already available, and
other factors. Therefore, the cost of conducting RIAs varies just
as dramatically. Also, determining the cost of these studies is
not easy. Agencies may not have systematic data on PIA cones, and
the factors included in cost estimates may vary considerably.

Nevertheless, several studies that both we and others have done
bear noting.

° In March 1997, the Congressional Budget Office (CBO) published
@ report that examined the costs of 85 RIAs from six offices
in four agencies--the Environmental Protection Agency (EPA),
the Coast Guard, the Federal Aviation Administration, and the
National Highway Traffic Safety Administration.’ The average
cost per RIA was about $570,000, with a range of $14,000 to
more than $6 million per analysis. The RIAs also varied
considerably in the amount of time they took,to complete. the
average length of time was, 3 years, ut the individual
analyses ranged from 6 weeks to 12 years.

© ‘The CBO report also summarized five other studies that we and
others had done to determine the costs of preparing RIAs. CBO
said that the average cost of the RIAs in those studies ranged
from 367,000 to $5.6 million in constant 1995 dollars. Again,
the average numbers reprasented a wide range of costs of
conducting the RIAs. For example, one of the studies that CBO
presented was a 1987 EPA study of 15 BIAS aconencted between
1981 and 1986. Of the 12 RIAs with the average
cost was about $675,000 (about $1 million fn i998 dollars) .
However, actual costs ranged from a low of $212,000 to a high
of $2.3 million.

© ‘In December 1996, we reported that the 27 RIAs that EPA had
dasued after enactment of the Clean Air Act Amendments of 1990

y

. Congressional Budget
Office, March 1997.

2


58

states that in the case that the paperwork violations would present
an imminent threat to public health and safety, the agency is given
discretion to impose a fine or give the small business 24 hours to
correct the violation.

Paperwork violations that result in actual harm are indeed ex-
empt from the bill entirely. Yet, the Department of Justice cites the
example of a toddler strangling between the bars of a crib because
the manufacturer didn’t report problems with the crib to the CPSC.
Again, the more things change, the more things stay the same.
Under our bill, the Consumer Products Safety Commission would
have full authority to issue a fine in that instance. It is irrespon-
sible and totally inaccurate to depict any death as a consequence
of this bill. First, our bill has an exemption for violations that
cause actual harm. If our bill were the law, the head of the CPSC
could impose the same fine on the crib manufacturer that it would
today under current law.

Second, this tragedy occurred under current regulations, not
under our bill. Frankly, where was the CPSC in looking at the re-
view of the design of those cribs in the first place? There may be
a problem, but it’s not with our bill.

Finally, the fact that the agencies do not want to lose their abil-
ity to assess fines for first-time paperwork violations reveals that
they are much like the traffic cop who prefers to write a speeding
ticket rather than enforce real protections against criminal activity,
frankly, because it’s easier to cite people for traffic violations than
to fight serious violent crime. The agencies need to redirect their
efforts away from issuing fines on small businesses for harmless
paperwork violations and toward stopping bad actors whose serious
regulatory violations threaten our public health and safety.

am absolutely floored that agency representatives here
today seem to be saying in their testimony that using every other
tool in their arsenal against small business just won't do the job.
We need to hit them in the pocketbook. Sure, they can file an in-
junction against that business, but that does not seem to be
enough. Yes, they can do an inspection and warn the small busi-
ness, but that doesn’t seem to be enough. Right, they can prosecute
criminally, but that doesn’t seem to be enough. No, they have to
on top of everything hit them with a civil monetary ‘penalty. I find
that incredible.

Members of this subcommittee, our bill would bring some sanity
back to the process and go a long way toward helping small busi-
nesses deal with excessive paperwork and excessive fines, and
truly, once and for all, eliminate “gottcha” from the vocabulary of
the Federal agencies. Consistent with and building on President
Clinton and Vice President Gore’s Reinventing Government Initia-
tive, it is the next step in small business relief.

With that, let me now turn to Ranking Member Tierney.

Mr. TIERNEY. Thank you, Mr. Chairman. Thank you br holding
this hearing today. Small and family owned businesses spend a
great deal of their resources learning about and complying with ap-
plicable laws. Most do work very hard to do so. I am pleased that
we are looking at ways to simplify and streamline the resulting pa-
perwork. Mr. Chairman, I also want to thank you for changing the
schedule so that the hearing could be held this afternoon and so


112

tors to report certain accidents to us. If a company fails to notify
us immediately, accident investigation may be lost or destroyed.
There may be significant incentives to delay notification since it
may help cover up company negligence. Shipping papers are re-
quired to accompany all transportation of hazardous materials.
They tell the carrier or any emergency responders, such as a fire
department, what they need to know to handle the shipment for
any emergency. There may not be imminent danger, but we don’t
know sometimes if the papers are not there. If they are missing,
they are deficient, emergency personnel may have to be called un-
necessarily or may waste time and resources trying to figure out
how to handle the situation. Yet if there is no actual harm, no fine
could be imposed for a first-time violation.

DOT requires drug testing of transportation industry employees
in accordance with a statutory mandate. If someone involved in the
drug testing process delays or deficiently reports the results of posi-
tive drug tests, it will delay the removal of employees from safety
sensitive functions. We don’t know whether there is a problem
until we actually see the report.

In response to a statutory mandate, the Department has re-
quired passenger manifests for virtually all airline flights into and
out of the United States to enhance the notification of families of
victims if any accident occurs. The legislation was intended to
shorten the notification time from 2 to 3 days to only a few hours.
Yet H.R. 3310 would appear to waive any penalties and essentially
give the airline at least another 24 hours after we notify it of the
violation, essentially negating the purpose of the legislation. Since
airline accidents are rare, the first-time waiver could cover many
years of recordkeeping requirements for a carrier that wanted to
save money.

Devices such as cockpit voice records and flight data recorders
are subject to the Paperwork Reduction Act. Under H.R. 3310, it
would appear that an aircraft operator could defer maintenance of
these devices until such time as we uncovered the failure to fix
them. If that were after an accident, fixing them within 24 hours
would be useless.

We recognize that even the threat of fines will not stop some who
are determined to violate regulations. We should not, however, cre-
ate additional incentives for non-compliance. Although our main
concerns are with the waiver of fine provisions, the other provisions
of the bill raise several questions. We think they have good purpose
and we would love to work with the committee to address some of
those concerns, but we can even live with them as they are written.
T have covered them in more detail in my written statement.

In conclusion, I want to note that we believe we are making a
conscientious effort to address the concerns of small businesses. We
do not believe that H.R. 3310 is necessary. In some ways, it could
be harmful. But if the subcommittee decides to pursue this legisla-
tion, we would be pleased to work with you to help you make this
into a more effective bill. Thank you for the opportunity to express
our views on this important subject. I would be pleased to answer
any of your questions at this time.

The prepared statement of Mr. Eisner follows:]


76

simplifying information collection requirements. Simply put, the penalty waiver provision does
not reduce reporting and recordkeeping burdens at all — except for those who violate the law.
This result would put law abiding businesses at an unfair competitive disadvantage and could
endanger the public, These are results that I know none of us want to see happen. The
Department of Justice looks forward to working with you to address these concems as we work
together to reduce unnecessary government reporting requirethents.

SMALL BUSINESS CONCERNS ARE RECOGNIZED IN EXISTING LAW

Let me briefly describe how federal statutes and Administration policies already

recognize the unique challenges that small businesses face, and take those challenges into

account, where appropriate, in setting penalties.

2 996 (“SBREFA”), Pub. L.
104-121, Title Il, "55 oo -224, 110 Stat. ae ai 29, 1996) (codified at 5 U.S.C.
601 note), requires agencies to provide compliance assistance to small businesses and to
develop policies to provide for the reduction or waiver of civil penalties by a small entity

under appropriate circumstances. SBREFA provides for these policies to apply where a
‘small entity discovered a violation through a compliance assistance or audit program, has
made a good faith effort to comply with the law, and has corrected the violation within a
reasonable period. SBREFA provides that these policies do not apply where the violation
involves willful or criminal conduct; poses serious health, safety or environmental
threats; or where the small entity has been subject to multiple enforcement actions by the
agency. See Pub. L. 104-121, § 223. SBREFA also provides for the appointment of a
‘Small Business and Agriculture Regulatory Enforcement Ombudsman, who is charged
with hearing small business concerns about agency compliance or enforcement activities,
and who can refer the concems to the agency’s Inspector General in appropriate
circumstances. See Pub. L. 104-121, § 222. Agencies have developed policies consistent
with SBREFA.

+ Other Statutes. In addition to SBREFA, other statutes specifically direct an agency to
consider the size of a small business in obtaining information from them or in assessing
penalties. The Occupational Safety and Health Act, for example, requires the
Departments of Labor and of Health and Human Services to obtain information “with a
minimum burden upon employers, especially those operating small businesses.” 29
U.S.C. 657 (emphasis added). The Clean Air Act expressly requires appropriate


28

NSBU has long been a supporter of a strong and viable Paper-
work Reduction Act, which was passed in 1980. The PRA is de-

igned to centralize the regulatory process, end redundancy in data
collection, simplify and reduce paperwork requirements, and en-
sure that small business is not inadvertently harmed by unreason-
able Federal regulations and paperwork.

Yet despite the best intentions of the Paperwork Reduction Act,
small business has been fighting for years to fill the holes that Fed-
eral regulatory agencies have punched into this law. Before one can
assess the current bill, one must look back at the history of small
businesses fight for paperwork reduction and reform.

By their very nature, unnecessary Federal regulation and paper-
work burdens discriminate against small businesses. Without large
staffs of accountants, benefits coordinators, attorneys, and person-
nel administrators, small businesses are often at a loss to imple-
ment or even keep up with the overwhelming paperwork demands
of the Federal Government. Big corporations have already built
these staffs into their operations, and can absorb a new require-
ment that could be very costly and expensive for a small business
owner.

As investment advisers, Spero-Smith, we are constantly filling
out paperwork for the Securities and Exchange Commission, which
generally is painless. But there are many other paperwork con-
cerns that we encounter.

Let’s say that we grow to the point of having 100 employees.
There are special requirements for the Department of Labor and
the IRS, because of a multi-purpose form, for any health benefit
planned that is fully insured, and they must then file Form 5500,
which is a very troubling and complicated form that kicks in once
a company exceeds 100 employees. This is a very confusing and
complicated task.

I want to tell you that the 5500 form started out as a pension
form. But at some point, this became a form that the Department
of Labor is using for health care plans, cafeteria plans, and other
benefits. Imagine the small business owner having to wade through
a6 inch thick manual to fill out this 20-page form. It is not an easy
task.

A friend of mine has recently gone through this. He has a busi-
ness that has locations in more than one city. To complicate mat-
ters, this company opened one location during the year. Because of
the complexity of all of this, they were honestly uncertain if they
met this 100 level requirement.

But the anxiety over potential fines, people inside and outside of
the company spent 23 hours extra per person and thousands of dol-
lars just to figure this out. They made their best effort to find out.
At one point, they actually did have over 100 employees. Believe
me, the fines for not filling out the paperwork or checking the prop-
er boxes are $25 a day up to $15,000.

If this legislation had been passed, they could have focused on
their business growth and job creation, and not the disruption
caused by the 5500 form and other DOL requirements.

There are other examples as well. Take a typical small business
owner who must file emergency plans, such as a plan for hazardous
waste, a fire report, a leak report, or a storm water plan.


94

In our viow, the bill could be improved by:

©. expanding tho existing exception for "public health and safety’ to include
fines for violations that involve investor protection or the integrity of the
securities markets; and

© narrowing the penalty exception to apply only to “good faith* violations.
‘This would permit fines (i) whea the conduct iavolves fraud, inteational
‘wroogdoing, or destruction of records, and (ji) whea the owner or
Principal of the small business is a repeat offender.

‘THE COMMISSION’S SMALL BUSINESS INITIATIVES

Before commenting more fully oa the specifics of H.R. 3310, I would like to
describo the Commission's longstanding efforts to assist small business. The Commission
understands the importance of small business to the U.S. ecosomy, and is committed to
addressing the special concerns of small business. Over the years, the SBC has worked
to improve communications between the SBC and the small business community.

In its first Annual Report, in 1935, the Commission stated that it would provide
informal guidance to the securities industry, both to foster improved compliance and to
establish a spirit of cooperation with the public.’ This spisit continues to play an
important role in tho Commission's programs. The SEC works in partnership with
industry, self-regulatory organizations and the public to set standards that protect investoe
and market confidence while reflecting seasitivity to the realities of the business world.


9

have made sure to include language that seeks to protect the
health and safety of the public.

If the head of an agency discovers a first time paperwork viola-
tion that presents an imminent danger to the public health and
safety, the business must correct that problem within 24 hours in
order to avoid a fine. Even if this is done, the agency has the dis-
cretion to impose the fine if the violation is serious.

We have been consulting with Federal agencies and the small
business community on these Provisions. And everyone agrees that
the health and safety of the public is paramount. I fully expect that
this provision will go through more revisions in the weeks ahead.
Tam committed to that process.

Finally, Mr. Chairman, it gives me great pleasure to see two of
my fellow Clevelanders in our hearing today. Bill Saas is the presi-
dent of a blue collar manufacturing company called Taskem, Inc.
It provides chemicals to the metal finishing industry. Every day,
Bill sees firsthand how Federal paperwork when it is badly
planned and unnecessary draws time and energy away from small
business operators.

Robert Smith, who is president of Spero-Smith Investment Advi-
sors, Inc., a white collar consulting firm that works with a wide va-
riety of firms.

Both of these small business owners bring a wealth of experience
to our deliberations, and I welcome them at this time, and I look
forward to hearing their insights.

And I thank you very much, Mr. Chairman. I also want to thank
the staff of Congressman McIntosh, and my staff, and the commit-
tee staff for the input that they have had in this process. And as
this is evolving, that we have the input of agencies, so that we can
make a better bill.

Thank you very much.

Mr. SESSIONS. Thank you so much, Mr. Kucinich.

I would like to, if I can, just give a little bit of information that
would provide those of you who are here—and by the way, I have
got a group of some 11 students from Dallas, TX who were here
visiting me in Washington, DC, today. For their background, what
I would like to do is let them know that what we are talking about
is the Small Business Paperwork Reduction Act and its amend-
ments, which was introduced on Tuesday by Chairman McIntosh
and co-joined by co-sponsors Kucinich, myself, and others.

In particular, what we are going to talk about today is the Paper-
work Reduction Act that Congress has been working with OMB,
the Office of Management and Budget, on the Paperwork Reduction
Act, and a goal that was established to reduce that by 25 percent.

We have received information that shows that the goal for 1996
of a 10 percent reduction was not achieved. But rather, it was at
a 2.6 percent reduction. And it is estimated that we reduced that

aperwork 1.8 percent in 1997. So obviously, you can see that we
fave a long way to go, and that is what this hearing is expected
to achieve today, to see how we can continue in this process toward.
reducing paperwork on small businesses by 25 percent.

At this time, I would now like to call up our witnesses. That will
include Mr. Gary Roberts, president of Roberts Pipeline, which is
a small company which installs pipelines in Sulphur Springs, IN.


17

consideration of certain factors in assessing civil penalties, including, among other things,
“the size of the business,” and “the economic impact of the penalty on the business.” See
42 US.C. 7413(@\(1). The Consumer Product Safety Act sets forth criteria to determine
the size of penalties, including the size of the defendant's business. Ses 15

U.S.C. 20696).

President’s Memorandum. On April 21, 1995, President Clinton issued a memorandum
asking all agencies to reduce small business reporting requirements and to develop
policies to modify or waive penalties for small businesses when a violation is corrected
within a time period appropriate to the violation in question. This policy applies where
there has been a good faith effort to comply with applicable regulations and the violation
does not involve criminal wrongdoing or significant threat to health, safety, or the
environment. The memorandum also directs agencies to reduce the frequency of
regularly scheduled reports by one-half in appropriate circumstances. See Memorandum,
“Regulatory Reform — Waiver of Penalties and Reduction of Reports,” 60 Fed. Reg.
20,621 (April 21, 1995).

DOJ Policies. At DOI, our components with regulatory functions provide for the waiver
of civil penalties in appropriate circumstances. For example, the Immigration and
‘Naturalization Service (“INS”), when considering the imposition of penalties for Form I-9
violations (forms employers use to verify employment eligibility), is required by law to
give “due consideration” to mitigating factors such as the size of the business, the good
faith of the employer, the seriousness of the violations, whether the violation involved an
unauthorized alien, and the history of previous violations. See Immigration and
Nationality Act, § 274A(e)(5), 8 U.S.C. 1324a(e)(5). As a matter of policy, INS applies
these same factors when considering penalties in non-reporting cases involving knowing
hires, or continued employment, of unauthorized aliens.

‘These statutes and policies appropriately recognize that good faith efforts to

comply with the law, the impact of civil penalties on small businesses, and other factors may
appropriately be considered in assessing civil penalties. These policies complement ongoing
agency efforts specifically designed to help small businesses understand and comply with the
law.

We must all continue our search for effective ways to streamline and simplify
reporting and recordkeeping requirements that apply to small businesses. But efforts to

streamline reporting need not undermine law enforcement or regulatory safeguards that protect


83

delay complying with lawful reporting obligations.

‘We presume that the mandate that ‘no civil fine shall be imposed by the agency”
during the six-month grace period is intended to apply only to penalties that are imposed directly
by the agency in an administrative enforcement action, not where the penalty is imposed by a
court in a judicial proceeding. However, some defendants will argue that the bill covers both
administrative and civil penalties, including actions the Department of Justice brings on behalf of
agencies such as the Federal Trade Commission (“FTC”), the Consumer Product Safety
Commission (“CPSC”), the Food and Drug Administration (“FDA”), the National Highway
Traffic Safety Administration (“NHTSA”), the Environmental Protection Agency (“EPA”), and
the Health Care Financing Administration (“HCFA”). Broadly interpreted, the proposed civil
penalty waiver arguably would prevent the Department from even instituting a civil penalty
action unless and until the agency has notified the putative defendant of the violation and given
the company six months to correct it. It may also invite unnecessary litigation about whether the
Department can bring an injunctive action necessary to prevent harms to the public.

In our experience, companies that fail to comply with record keeping and
reporting requirements are often found to be violating other legal requirements as well. Any
delay in investigating or taking action against such companies would simply allow the company
more time to reap the benefits of unlawful conduct and a greater opportunity to coverup and
conceal evidence of wrongdoing. The legislation’s written notification requirement and six-
month grace period for civil fines could seriously impede this Department's ability to bring

enforcement actions to address the potential or actual harms to the public.


5

Without objection, this will be entered into the record. And

fhairman McIntosh, who will be here shortly, will consider this,
and J provide you with that response before the ending of today’s

eariny

Mr. TiERNEY. Thank y

[The information referred to follows:]


111

Mr. McINTOSH. Thank you, Mr. Lane. Thank you in particular
for those last two constructive suggestions. We will be contacting
you on those as the bill moves forward in the process because they

th sound intriguing and interesting.

Our final witness is Mr. Eisner.

Mr. EIsNER. Thank you, Mr. Chairman. Mr. Chairman and mem-
bers of the subcommittee, I am the assistant general counsel for
regulation and enforcement at the Department of Transportation.
I appreciate the opportunity to be here today to testify about this
important bill.

‘he Department handles a broad range of matters that includes
safety and the environment. We are quite proud of the excellent
record of the industries that we regulate, but we are also con-
stantly aware of the extraordinary risks faced in transportation in-
dustries that annually move millions of people, many tons of haz-
ardous material, and millions of gallons of oil. At the same time,
we are also always aware of the burdens that our rules can impose.

With this in mind, there are three main points that I want to
make today. First, and this is very important, to the extent per-
mitted by law when no harm has been done, it is the Department’s
existing policy to reduce or waive civil penalties for small business
first-time violators for any violation, not just paperwork when they
have acted in good faith and have quickly moved to correct the
problem.

Second, although we also make a concerted effort to reduce—we
are making a concerted effort to reduce paperwork burdens im-
posed on our regulated entities, recordkeeping and reporting re-
quirements are an extremely effective method of encouraging com-
pliance with our regulations.

Third, the provisions in H.R. 3310 prohibiting fines could seri-
ously hamper our ability to carry out our responsibilities. Since we
are already committed to helping those who make a good faith ef-
fort, the primary beneficiaries of the bill would be those whose vio-
lations are intentional or reckless. Indeed, it may create an incen-
tive to not comply until caught.

Let me expand on these three points. First as I noted, it is our
Policy to waive or reduce civil penalties for first-time good faith vio-

tors. Both the President in his 1995 directive to the agencies and
the Congress through the enactment of the Small Business Regu-
latory Enforcement Fairness Act, have shown support for this ap-
proach. But most importantly, they have both emphasized good
faith efforts and they permit us to exclude from the coverage of the
exception willful or criminal conduct.

Although we believe that intention or careless disregard of our
requirements is rare, we believe that most of our regulated entities
try to comply, when it does occur, it should not be ignored. Such
action may delay the identification of important safety or environ-
mental problems. It may prevent us from gathering information
about a serious violation. It may cause other problems.

Let me give you some examples of our concerns with the man-
date to waive first-time violations by small businesses. Let me
stress that we believe that these are examples where there is no
harm and where there would be no imminent or substantial danger
evident. First, many of our agencies require transportation opera-


81

knowledge.

. Information prevents fraud against the taxpayer. Virtually all procurement contracts with
the federal goverment and participation in federal loan and grant programs depend on
submission of information. This is also true of Medicare, Medicaid, and federal health
care programs, where this dependency is of particular concen. Without this information,
the government could not pay its contractors, health care providers and other program
participants and would be unable to detect fraud and collect damages under statutes such
as the Program Fraud Civil Remedies Act, 31 U.S.C. 3801-3812, Section 1128A of the
Social Security Act, 42 U.S.C. 1320a-7a, and the False Claims Act, 31 U.S.C. 3729 et
seq. In just 210 referrals under the Program Fraud Civil Remedies Act, the Department
has approved requests by agencies to use administrative procedures to recover over $7
million in civil penalties.

‘As these examples show, information collection requirements form the backbone of regulatory
and law enforcement programs on which we all rely to protect ourselves, our families and our
communities, Information collection violations can have real-world, harmful effects.
UNINTENDED CONSEQUENCES OF CIVIL PENALTY WAIVER
While we do not know how the courts would interpret the bill’s language, we
expect that the proposed waiver of civil penalties may cause grave consequences to public health,

safety or the environment that could have been avoided. I am confident that no one in this room

or in Congress would want to see the results that may come to pass.

Most small businesses try hard to comply with the law. But there will always be
some that take illegal shortcuts. This bill would reward those bad actors. It would provide small
businesses that are first-time violators with one “free bite” at the information collection apple. It
would waive any civil penalty as long as the business corrected the violation within six months

afier being notified of the violation. In the process, it would give bad actors an unfair advantage


107

CONCLUSION

‘The SEC supports this Subcommittee's efforts to reduce paperwork burdens on
small business. The securities laws mandate full and fair disclosure to investors and the
public. Efforts to streamline paperwork burdeas must distinguish with care betweea
“collection of information” requirements that exist to verify regulatory compliance, but
do not directly reach the public, and those requirements that involve direct
communication by a business with the public or with other market participants, Great
care must also be shown in distinguishing immaterial, inadvertent or technical mistakes
from the deliberate falsification or destruction of records.

‘The nation’s capital markets are a crown jewel. We must be cautious not to adopt
changes that appear to weaken the integrity of those markets or diminish investor
confidence in the safety of investing with or through any firm, whether large or small.
‘The Commission has concerns that the “broad brush" approach of the proposed
amendments will inadvertently diminish investor protection.

‘If small firms are to flourish, investors need to have confidence in the honesty of
the firms. Small businesses have earned the confidence of investors, lange and small.

‘We must not let this confidence be eroded by appearing to tolerate inteational violations
by small business.

‘The Commission looks forward to an opportunity to work further with the
‘Committee on these important issues. The Commission staff is available to consult with

16


92

In addition, should you be interested in considering further ways
to assist small business under the auspices of the Paperwork Re-
duction Act, I have two suggestions. First, Congress has spoken
clearly that it wants Federal agencies to apply a careful cost-bene-
fit analysis to each of its regulatory initiatives. This benefits small
businesses because costs are sometimes more heavily born by the
very entities that can least afford it. The problem, which is with
the statute rather than with OMB, is that the Paperwork Reduc-
tion Act makes it difficult to gather cost data from more than nine
sources. To do so requires us to file papers and seek the approval
of .

Regardless of how flexible OMB is, we still have to jump another
hurdle. This only encourages Federal agencies to rely on fewer an-
ecdotal sources rather than seek broader feedback through use of
a voluntary questionnaire, for example. I would Suggest an exemp-
tion from the Paperwork Reduction Act to permit Federal agencies
to solicit the views of persons as part of its cost-benefit analysis
whenever it is conducting a proposed regulation.

The second suggestion—and again, that would only be for vol-
untary information about the costs of a proposed regulation. The
second suggestion relates to the ironic situation where the Paper.
work Reduction Act operates to slow down our attempts to reduce

perwork. If an agency wants to create a new form, for example,
it must justify this new burden by preparing documents and projec-
tions to be submitted to the OMB for approval. Curiously, if an
agency wants to eliminate a form that is no longer needed, or
wants to streamline a disclosure requirement, it too must prepare
the same type of documentation and seek OMB approval to comply
with the act.

It would seem to me that you might want to encourage agencies
to reduce burdens by exempti them from the scope of the act
when they do so. Although the OMB approval process can be quick,
it seems odd that an act entitled the Paperwork Reduction Act
would impose a special paperwork requirement to reduce or elimi-
natea paperwork requirement.

The Commission would be happy to work with the subcommittee
to address any concerns or suggestions contained in my testimony
today. I'll conclude now and look forward to any questions you
might have. Thank you.

e prepared statement of Mr. Lane follows:]


60

tions, or at least that’s one prospect that is likely to be raised today
and we should explore that to its completion.

These possible unintentional negative consequences must be ad-
dressed. Therefore, Mr. Kucinich and I are offering an amendment
and hope that that will in fact improve the bill and be considered
by the rest of the committee.

Rather than rescind agency discretion, the amendment that we'll
propose would require agencies to establish policies for reducing
end eliminating civil penalties for first-time violators. It requires
that the agency take into account the nature and seriousness of the
violation, whether the small business made a good faith effort to
comply with the law and rectify the violation, the small business's

rior compliance history, whether the violation allowed the small
Business to obtain an economic advantage over its competitors, and
other relevant factors.

The nature and seriousness of any violation includes whether it
was technical, inadvertent, criminal, or caused serious harm to the
health and safety of the public, consumer, worker, investor or pen-
sion protections or the environment. The amendment would pro-
vide relief to small businesses in appropriate circumstances, but
would not have any of the serious problems which might have been
identified in the current language. Furthermore, it will actually re-
duce the burden on small businesses because it should not encour-
age agencies to increase the number of inspections that are cur-
rently being performed.

Mr. Chairman, I look forward to hearing from the witnesses who
have joined us here today. Hopefully they can shed some light on
what the agency policies currently are in place to address first-time

jperwork violations. As you may know, 2 years ago the Small

usiness Regulatory Enforcement Fairness Act, also known as
SBREFA, was enacted into law. That bill provided some relief for
small business violations and it’s time now to learn how successful
those changes have been. More importantly, the witnesses will be
able to share their concerns about H.R. 3310 and hopefully rec-
ommend changes that would address those concerns so that we
could have a bill that is satisfactory to everyone. I look forward to
their testimony. Thank you.

Mr. McInTosH. Thank you, Mr. Tierney. Let me now ask if any
of abs, other Members have opening statements they would like to
make?

Mr. KucInNIcu. Mr. Chairman.

Mr. McInTosu. Mr. Kucinich.

Mr. Kucinicu. I do. Thank you very much, Mr. Chairman, Mr.
Tierney, members of the subcommittee and citizens. Back home I
take a bipartisan approach toward the work that I do. I try to do
the same thing here in the Congress. I would like to begin by say-
ing that this bill has been a work in progress. I have been very
grateful to have a chance to work with Mr. McIntosh. His staff and
my staff have worked very closely together as we have been devel-
oping this bill. Along the way, we have had input from various
agencies which I am very grateful for. As with any piece of legisla-
tion, as you move along the way, you discern that there are ways
in which you can strengthen legislation. I appreciate the presence
of the agencies today and their suggestions as to how to make that


56

ment only reduced its paperwork by 1 percent in 1996. It’s esti-
mated to have done a little better in 1997. It’s up to 14.5 percent,
but still fails to meet that 20 percent goal over the 2 years.

The Department of Labor didn’t meet the 10 percent goal set in
either year. It reduced paperwork by 9.5 percent in 1996, but only
an estimated 8 percent in 1997.

Now frankly, I don’t think the agencies which have failed to meet
their current goals set in law by the Paperwork Reduction Act have
a lot of credibility in opposing a measure to strengthen that act.
Clearly the paperwork burden, nearly one-third of the regulatoy
burden or $225 billion a year, is still a problem. It needs to be ad-
dressed. Frankly these agencies continue to be part of the problem.

Our subcommittee held a hearing last week at which several
small business owners spoke about their concerns and frustrations
over Government paperwork. Teresa Gearhart, who owns a small
trucking company with her husband, told us that her company has
enough business to grow and create five new jobs in the next year.
But they can’t create those new jobs because of all the paperwork
that would come with them. They simply can’t afford the new, in-
creased level of paperwork requirements set by the Federal Gov-
ernment. One of their greatest fears is that they will be fined for
an innocent mistake or an oversight. This still happens in spite of
the fact that some agencies have instituted policies to waive fines
for unintentional violations.

Gary Roberts, the owner of a small company which installs pipe-
lines in Sulfur Springs, IN, told us that he was fined $750 by
OSHA last May for not having a hazardous communication pro-
gram on a particular job site. The inspector was told that the pro-
gram was in the main office, that it was part of the company’s
records there, and that all the workers had been trained to follow
it. On top of that, one of the workers ran to the office, got the pro-

1m, and brought it back to the job site during the inspection. But

SHA would not waive the fine.

The consensus among the witnesses was that small business
owners genuinely want to comply with regulations but they are
overwhelmed by the accompanying paperwork. As my colleague
Congressman Kucinich said at t! earing, their biggest concern is
not the paperwork requirements they know about, but those of
which they don’t know.

The legislation we are proposing to address these Problems does
so four ways. One, it would create a list of all the Federal paper-
work requirements for small business. One of the amendments that
we will be offering in our markup tonight will require that the list
be computerized and put on the internet. Two, would offer small
businesses compliance assistance instead of fines on first-time pa-
perwork violations that don’t present a threat to public health and
safety. Three, would establish a paperwork czar in each agency
who would be the point of contact for small businesses on paper-
work requirements. Four, it would establish a task force, including
representatives from all of the major regulatory agencies to study
how to streamline reporting requirements for small business.

Now, I read the testimonies which our witnesses will give today.
I want to clear up one thing, perhaps a big myth or apprehension
which I believe they have. In the case of a paperwork violation that


18

Information and Results

I will close my remarks by noting that before I came here today, I
asked some of my colleagues in the industry in Cleveland about their
thoughts on paperwork. They told me what I've heard repeated many
times before.

They as business owners are not diametrically opposed to
submitting paperwork when they clearly understand thet there is an
explicit connection to protecting the environment and public health.
Under these conditions, they recognize the government's legitimate
purpose in collecting it and their legal obligation to provide it.

Frequently, however, they haven't a clue regarding how the
information might be used. This rankles even the most conscientious
smal] business owner. And it should. My colleagues in Cleveland and,
for that matter, throughout the metal finishing industry, believe that if
the process of information collection was linked more closely to results —
to concrete environmental and health outcomes - Paperwork would be
less frustrating to deal with.

‘Thank you, Mr. Chairman.

* Taskem Inc. has not received federal grant monies or funding through
any other mechanism during Fiscal Year 1998.


47

business + actual dollar costs amounting to about $5,000 per employee per year. Keep in
min, however, that this cost is for all regulations, not just paperwork and reporting.

Unlike capital costs, which involve a one-time expenditure, process costs.
(paperwork) do not go away. They never disappear from the books.

: The significance of this annual 50 per cent cost differential is that it produces an
inequitable cost allocation between small and ferge firms. This gives larger firms a
competitive advantage in the marketplace, a result at odds with the national interest in
maintaining a viable, dynamic and progressive role for small business in the economy.
The information in both of these studics should also put to rest the canard that efforts to
lessen the burden on small business are tantamount to “special treatment” and, ergo,
unfair. Not so. Such efforts merely level the playing field and are sound public policy.

"The Paperwork Reduction Act, which in and of itself was a good first start, did
not focus on the disproportionate burdens that mandated reports impose on small
business. The current proposal provides that focus and the additional costs to small
business justify consideration of its provisions. Advocacy’s research furnishes a rationale
for mandating an analysis of how to simplify paperwork and reporting burdens on small
business without sacrificing public policy objectives.

"The first step toward simplification and the elimination of duplication is the
compilation of the reports small businesses must file. I do not believe that this has ever
been done. At least the information has never been published in one place and it is likely
to be an eye-opener. The compilation should also help distinguish between requirements ,
imposed by regulation and those imposed by congressional mandate. As you know, this
has been an issue in determining how well agencies are doing in achieving the paperwork


51

there are often less burdensome altematives to help agencies achieve their public policy

objectives.


80

not lost or improperly diverted. ‘These requirements are critical to drug law enforcement,
because these records entable DEA to identify sources of diversion and subsequently
document criminal activity. For example, the records of a pharmacy were essential to
DEA’s identification and subsequent criminal prosecution of a physician who routinely
wrote multiple prescriptions for the same patient for 120-150 doses of highly abused and
trafficked controlled substances. Where pharmacies do not report, however, illicit
diversions may be harder to detect and require more intrusive investigations. For
example, a targeting effort identified a pharmacy suspected of selling commonly sought
controlled drugs without prescriptions and of submitting fraudulent Medicare claims. An
audit of the pharmacy revealed a shortage of over 85,000 dosage units of controlled drugs
ina six month period. The lack of required records to account for those drugs supported
the suspicion of criminal distribution but failed to provide definite proof. In that case, a
civil complaint for recordkeeping violations was filed and a $35,000 fine resulted.

response to the disaster i in els India, Congress enacted a requirement that companies
‘annually report hazardous chemicals inventories to local fire departments and local and
State emergency planning officials. See Emergency Planning and Community Right-to-
Know Act (“EPCRA”), 42 U.S.C. 11022(a), (d). Chemical inventory information helps
local officials prepare for emergency spills, fires, releases, ot other potential disasters.
That information also helps neighbors make decisions about where to work, live, and
play. Ifa facility fails to report hazardous chemical inventory information, local and State
officials may never learn what chemicals are present and will not be able adequately to
plan for or respond to fires or other disasters.

Information helps ensure drug safety. The Food and Drug Administration requires
manufacturers, packers, and distributors of marketed prescription drug products to report
all serious unexpected adverse drug experiences associated with the use of their drug
products, any significant increase in the frequency of a serious, expected adverse drug
experience, and significant increase in frequency of therapeutic failure (lack of effect).
See 21 C.F.R. § 310.305. These reports are required to enable the Administration to
protect the public health by helping to monitor the safety of marketed drugs and to ensure
that these drug products are not adulterated or misbranded.

Environmental statutes often require collection of information to ensure that the agency
and the public are aware of and can address contaminants in drinking water, wastewater
discharges, or the storage, transportation and disposal hazardous wastes. For example, in
order to protect both workers and the public from the hazards of asbestos, regulations
promulgated under the Clean Air Act require advance notice of demolition or renovation
of facilities that contain asbestos. See 40 C.F.R. §§ 61.145(b)(1)-(5); see also 42 U.S.C.
7412, If an entity does not provide notice before demolition or renovation begins, the
public and demolition workers may be exposed to airborne asbestos fibers without their


135

During today’s hearing on the congressional review provisions in the Small Business
Enforcement Faimess Act, you asked that I provide for the record

If you have any further questions, please call me on (202) 512-5400, or Curtis
Copeland of GAO's General Government Division on (202) 512-8101.

bit lap

Robert P. Murphy
General Counsel


13

largely it is the same information that has to be supplied to mul-
tiple sources.

I think it is better to offer suggestions than simply criticism of
the existing system. What I would like to do is tell you that as we
read H.R. 3310, it seems to match up with our conclusions about
what should be done to improve the system. In particular, we want
to minimize overlap of reporting. We also want to improve the defi-
nition of exactly which regulations apply for our industry.

That can be done in the same manner in which it was done with
the RIITE program for other industries as well as the metal finish-
ing industry. We think that those 160 different reports could be
condensed to 30 to 40 reports, and still provide at least equivalent
if not better protection of the environment and human health expo-
sure.

Finally, there are two other recommendations. We would like to
suggest that as much be done as possible to reduce the number of
different locations to which reporting must be done. We would like
to suggest that modern technology such as electronic reporting be
incorporated to whatever degree possible.

Some of my colleagues in the metal finishing industry in north-
eastern Ohio asked me if I would also make a point that it helps
them considerably if they know more of why a particular piece of
information is needed. No. 1, there may be ideas that we have of
a more efficient way in which some of that data can be collected.

Second, I think that no one in our industry is opposed to supply-
ing information that is really needed. But I think conceptually that
we are all opposed to providing information that simply fills up fil-
ing cabinets in offices someplace in the world.

inally, I would ask one other thing. And that is there is a pro-
posal that EPA is going to be putting forth called Reinventing En-
vironmental Information. It is a wonderful program in concept.
What we want to be sure of is that there is a commitment to truly
reducing the number of reports that have to be submitted that is
followed.

I think that if Congress initiates some followup with the EPA
and requires a little more definition of how it is going to be accom-
plished, that it will be to everyone’s benefit.

Thank you very much. I appreciate the opportunity to offer this
testimony. And I would confirm also that Taskem has not received
any Federal funding or grants, not only this year but any year.

[The prepared statement of Mr. Saas follows:]


187

ATTACHMENT ATTACHMENT

cost an estimated $13 million--or an average of about $480,000
each.? The costs to prepare individual RIAs ranged from
$46,000 to $3.8 million.

Q. about how many "aajor’ rules sre agencies submitting to Gao per
year pursuant to the congressional review provisions in SBREFAT

A. As of today, we have received 115 major rules since the
congressional review provisions were enacted at the end of March
1996. That is about 1.1 major rules per week, or about 60 per
year.

Q. The Congressional Office of Regulatory Analysis ox "CORA"
contemplated in H.R. 1704 would have.to do a completely new RIA for
each such major rule, and any “nonmajor® rules that

xequested. Assuming for a moment that Congress doesn't request
RIAs for any nommajors, how many RIAs would you estimate CORA would
have to do each year?

A. Because H.R. 1704 requires CORA to do an RIA for each major
rule, and because agencies are submitting about 60 major rules each
year, CORA would have to do about 60 RIAs each year. Therefore,
Cora’ would have to complete a new RIA every 4 or 5 days.

Q. If we take the mumber of RIAs that, on average, have to be done
such year snd multiply that tines the sverage cost of conducting an
RIA, would we not get a reasonable idea of how costly the RIA

function in E.R. 2704 would bef

A. You could get a rough idea, yes. Yor example, using the
$480,000 figure in our December 1996 report and multiplying it
times the 60 major rules we have received each year, the anual
cost of conducting the RIAs would be a little less than $29
million. Because the 60 rules are, by definition, *major* in some
respect, the RIAs for those rules could be somewhat complicated.
Therefore, RIAs for those rules would probably be more than
minimums cited in some of the previous studies. However, I would
again like to emphasize that there is no such thing as a "typical*
RIA.

*EPA's Costs of Preparing Requlatory Impact Analyses (GAO/RCED-97-
15R, Dec. 6, 1996).

2


H.R. 3310, SMALL BUSINESS PAPERWORK
REDUCTION ACT AMENDMENTS OF 1998

TUESDAY, MARCH 17, 1998

HOuSE OF REPRESENTATIVES,
SUBCOMMITTEE ON NATIONAL ECONOMIC GROWTH,
NATURAL RESOURCES, AND REGULATORY AFFAIRS,
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT,
Washington, DC.

The subcommittee met, pursuant to notice, at 4:20 p.m., in room
2247, Rayburn House Office Building, Hon. David Mcintosh (chair-
man of the subcommittee) presiding.

Present: Representatives McIntosh, Sununu, Scarborough,
LaTourette, Snowbarger, Sanders, Tierney, and Kucinich.

Ex officio present: resentative Waxman.

Staff present: Mildred Webber, staff director; Karen Barnes, pro-
fessional staff member; Andrew Wilder, clerk; Phil Barnett, minor-
ity chief counsel; Elizabeth Mundinger, minority counsel; and Mark
Stephenson, minority professional staff member.

r. McINTOSH. ie Subcommittee on National Economic
Growth, Natural Resources, and Regulatory Affairs will come to
order.

Today, the subcommittee holds its second hearing on H.R. 3310,
the Small Business Paperwork Reduction Act Amendments of 1998.
The purpose of today’s hearing is to receive comments from several
Federal agencies on the bill. | Particular! want to thank my col-
leagues, Mr. Tierney and Mr. Kucinich, who have worked with me
from the start—Mr. Kucinich in developing the bill and Mr.
Tierney in acquiring the witnesses for this hearing. I want to thank
Mr. Kucinich for helping to Promote this bipartisan bill to give
small business owners relief from the Government paperwork and
gottcha techniques to which the President often refers.

Mr. Kucinich and I are proposing to add some new provisions to
the Paperwork Reduction. Ket to help small businesses. The Federal
agencies have not met their goals for reducing paperwork set by
the Paperwork Reduction Act of 1995. The Office of Management
and Budget reports that instead of a 10 percent reduction in 1996,
paperwork was reduced across the administration by only 2.6 per-
cent. It’s estimated that the reduction for 1997 is only 1.8 percent.

Now with the exception of the Securities and Exchange Commis-
sion, the agencies represented here today have not met the target
set in law. The Department of Transportation was off to a good
start in 1996, with a 27 percent reduction of paperwork, but more
than made up for that in 1997, when it’s estimated to have in-
creased the paperwork burden by 33 percent. The Justice Depart-

(55)


105TH CONGRESS
2D SESSION

HLR. 3310

To amend chapter 35 of title 44, United States Code, for the purpose of facilitating
compliance by, small businesses with certain Federal paperwork requirements,
and to establish a task force to examine the feasibility of streamlining paperwork
requirements applicable to small businesses.

IN THE HOUSE OF REPRESENTATIVES
MaRCH 3, 1998

Mr. McINTOsH (for himself, Mr. KUCINICH, Mr. FROST, Ms. WOOLSEY, Mr. GorDON,
Mr. HAMILTON, Mr. HASTERT, Mr. SCARBOROUGH, Mr. SUNUNU, Mr. SESSIONS, Mr.
Suays, Mr. McHucu, Mr. Davis of Virginia, Mr. MILLER of Florida, Mr. LIvinc-
sTON, Mr. DeLay, Mr. ARMEY, Mr. BOEHNER, Mr. THORNBERRY, Mr. BARR of Geor-
gia, Ms. DUNN, and Mr. SNOWBARGER) introduced the following bill; which was
referred to the Committee on Government Reform and Oversight, and in addition
to the Committee on Small Business, for a period to be subsequently determined
by the Speaker, in each case for consideration of such provisions as fall within
the jurisdiction of the committee concerned

A BILL

To amend chapter 35 of title 44, United States Code, for the purpose of facilitating
compliance by small businesses with certain Federal paperwork requirements,
and to establish a task force to examine the feasibility of streamlining paperwork
requirements applicable to small businesses.

Be it enacted by the Senate and House of Representatives of the United States
of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the “Small Business Paperwork Reduction Act Amend-
ments of 1998”.

SEC. 2. FACILITATION OF COMPLIANCE WITH FEDERAL PAPERWORK REQUIREMENTS.

(a) ANNUAL PUBLICATION OF PAPERWORK REQUIREMENTS.—Section 3504(c) of
chapter 35 of title 44, United States Code (commonly referred to as the “Paperwork
Reduction fer. is amended nd” and 1

in paragraph (4), by striking “; and” and inserting a semicolon;

(2) in paragraph (5), by striking the period and inserting “; and”; and

(3) by adding at the’end the following new paragraph:

“(6) publish in the Federal Register on an annual basis a list of the require-
ments aj plicable to small-business concerns (within the meaning of section 3 of
the Small Business Act (15 U.S.C. 631 et seq.)) with respect to collection of in-
formation by agencies.”.

(b) ESTABLISHMENT OF AGENCY POINT OF CONTACT; SUSPENSION OF FINES FOR
First-TIME PAPERWORK VIOLATIONS.—Section 3506 of such chapter is amended by
adding at the end the following new subsection:

“GD In addition to the requirements described in subsection (c), each agency
shall, with respect to the collection of information and the control of paperwork—

“(A) establish one point of contact in the agency to act as a liaison between
the agency and small-business concerns (within the meaning of section 3 of the
Small Business Act (15 U.S.C. 631 et sea.) and

“(B) in any case of a first-time violation by a small-business concern of a
requirement regarding collection of information by the agency in which the head
of the agency determines that the violation has not caused actual serious harm
to the public health or safety—

“(i) provide that, except as provided in clause (ii), no civil fine shall be
imposed by the agency on the small-business concern if the small-business
concern corrects the violation on or before the date that is six months after
the date of receipt by the small-business concern of notification of the viola-
tion in writing from the agency; and


72

‘Small Business Liaison

‘The New OSHA uses @ variety of tools to protect workers, including enforcement,
partnership, compliance assistance, standards development, special emphasis programs at the
national, regional and local level, and other appropriate tools. This balance of approaches helped
eam OSHA good reviews in the Small Business Administration ombudsman’s recent report to
Congress. According to the report, “OSHA has positively influenced small businesses"
perception of their regulatory enforcement efforts.” The importance that OSHA places on
working with businesses to improve safety and health led us to hire a small business liaison.
Consistent with the intent of SBPRA, OSHA’ liaison already works directly with smell
businesses, assisting them with every aspect of OSHA's program.
In Conclusion

Although OSHA agrees that legislation like the SBPRA could be beneficial, we have
serious concerns about the safety and health impact of the penalty-related provisions in section 2
of the bill. We urge the subcommittee to consider these concems and modify the bill to guarantee

that America’s workers are protected.


27

and our growth was rapid; we struggled to keep up with the re-

juirements. Knowing the heavy burden of documents required by
the long list of agencies, it would be very easy to make errors in
meeting those deadlines and filings. Yet fines for a small business
can be detrimental. The proposed legislation to suspend fines for
first time violations would recognize such an important fact.

I feel Privileged to be given this opportunity to voice what I fee
is a vital organizational step for Government and small business.
The utilization of this legislation for small business can only be a
benefit to its growth and success. Likewise, this would seem to be
a great asset to the agencies involved, and eliminate their costly
time spent reversing such fines and paperwork.

As a small business owner, I cannot monitor all the day-to-day
activities of the governing bodies affecting small business. Yet, I
recognize how the actions proposed today could dramatically im-
prove our business’ bottom line and improve our community.

I thank you for giving me this opportunity to speak to you today.

Mr. McINTOSH [presiding.} Thank you, Ms. Gearhart. I appre-
ciate that.

And thank you to the witnesses who have been here previously.
I had a meeting with the Speaker that detained me. And I appre-
ciate Mr. Sessions for chairing.

And thank you, Mr. Kucinich and Mr. Tierney, for being with us.

Let’s proceed with this panel. The next witness will be Mr. Rob-
ert Smith, who is president of Spero-Smith Investment Advisers,
Ine of Cleveland, HH. ft aa

. Smith, thank you for joining us today.

Mr. SMITH. Thank you. , ¥

Mr. Chairman, and members of the House Subcommittee on Na-
tional Economic Growth, Natural Resources, and Regulatory Af-
fairs, thank you for allowing me to appear before you.

I am president of Spero-Smith Investment Advisers, located in
the Cleveland suburb of Beachwood, OH. I am also a member of
the board of trustees, and currently the vice chair of advocacy, for
National Small Business United, the Nation’s oldest small business
advocacy organization.

Further, I am a member of the board of trustees, first vice chair-
man, and former vice chair of the government action group for
COSE, the Council of Smaller Enterprises, the largest local small
business organization in the country. COSE is a division of the
Greater Cleveland Growth Association, of which I am also a board
member and a member of its government affairs council. Most im-
portantly, I reside in the 10th District of the at State of Ohio,
and am a constituent of Representative Dennis Kucinich.

Foremost, I wanted to thank Representatives McIntosh and
Kucinich for their leadership and understanding of the serious di-
lemma that Paperwork presents for America’s 22 million plus small
businesses. With the introduction of H.R. 3310, the Small Business
Paperwork Reduction Act Amendments of 1998, you are attempting
to help small businesses deal with the perpetual tidal wave of pa-
perwork we are faced with day in and day out. On behalf of
NSBU’s 65,000 members in all 50 States, I applaud you and sup-
port this legislative effort to bring sanity to the paperwork require-
ments that we face.


77

Many important "collection of information” requirements exist that significantly and directly
protect workers from serious injury and illness. However, those requirements might not reach
the bill's imminent and substantial danger threshold. For example, OSHA's worker right-to-
know program in its Hazard Communication Standard requires a certain amount of paperwork to
ensure that the program is effective. If worker is unaware that a hazardous chemical substance
is present in the workplace, he or she may be at serious risk of illness or death. At the same time,
this risk, while serious. may not be so great as to constitute "an imminent and substantial danger
to the public health or safety." Enforcement of OSHA standards concerning written
lockout/tagout programs, analysis of hazard processes at chemical plants, hearing conservation
and toxic exposure monitoring records, all of which have a direct and significant impact on
employee safety and health, would also be rendered ineffectual in most instances by this section
of SBPRA.

‘There are countless examples of workers being killed oF injured when employers failed to
adhere to basic information sharing requirements. In one instance, an explosion ripped through a
Phillips 66 Company complex in Houston, Texas, killing 23 people, in part because a small
subcontractor failed to obtain the necessary permits to ensure that proper safety precautions were
observed during maintenance operations. After this tragic incident, Congress directed OSHA to
require all businesses using large quantities of potentially volatile chemicals to implement
written procedures minimizing the potential for catastrophic explosions, fires or other events
which can seriously harm workers and people living nearby. Under the resulting Process Safety
Management standard, written process hazard analyses and procedures, covered as paperwork

under the PRA, must be put in place to protect workers before a catastrophe occurs. The bill, on


63

quite foreseeable. That is, to keep from important agencies the abil-
ity to deal with such matters as giving consumers warnings about
negative side effects of drugs because we didn’t require the first
time offender to make that information available, or warnings to
emergency personnel on how to handle hazardous materials, dis-
closing to tenants that there’s a lead-based paint in an apartment,
disclosing to investors about the stability of a company. I was im-
pressed, just glancing at the written statement from the Depart-
ment of Justice, that this legislation could hurt law enforcement in
trying to track drug money laundering or making sure that we are
really enforcing our immigration laws by making sure that employ-
ers disclose that information.

There are a number of these items. I think Mr. Kucinich has a
common sense approach to dealing with these concerns in an
amendment that I understand he is going to be offering. If we are
saying that we should reduce or eliminate civil penalties for first-
time violators, we have to take certain things into account: the na-
ture and seriousness of the violation, the good faith effort to comply
with the law and rectify the violation, the small business’s prior
compliance history, whether the violation allowed the small busi-
ness to obtain an economic advantage over its competitors, and
other relevant factors. It just seems to me to make a lot of sense
to try to avoid the problems that we may well find if we have a
one size fits all approach which says that there’s no way in the
world that a civil penalty can be imposed for a first violation.

hope we can work together in a bipartisan fashion to craft
legislation that accomplishes the goals that you and Mr. Kucinich
have set out. I appreciate that we are going to have this hearing
today. I look forward, if it’s possible, for us to be together on a bi-
partisan basis to support legislation which I think could go all the
way and get the President’s signature.

Mr. McINTOSH. Thank you very much, Mr. Waxman. If there are
no other opening statements, let us now turn to our witnesses. I
would call forward our panel. Ms. Emily Sheketoff, I hope I am
pronouncing that correctly, the Deputy Assistant Secretary, Occu-
pational Safety and Health Administration; Mr. Joseph Onek, Prin-
cipal Deputy Associate Attorney General, Department of Justice;

. Brian Lane, Director of the Division of Corporate Finance, the
Securities and Exchange Commission; and Mr. Neil Eisner, Assist-
ant General Counsel for Regulation and Enforcement at the De-
partment of Transportation. I thank you for joining us today.

It is the policy of the full committee to ask us to swear in all of
our witnesses, regardless of who they may be. So I would ask each
of you to please rise.

Witnesses sworn in.]

Mr. McINTOSH. Let the record show that each of the witnesses
answered in the affirmative.

Let’s go through and what I would like to do is ask each of you—
let me ask unanimous consent that the written statements they
have prepared be put into the record—and ask each of you to sum-
marize or pull from that salient points that you have. I am not sure
who is operating the clock here, but we'll ask you to try to keep
it to 5 minutes, but if you need extra time, we're not going to be
too stringent.


20

Payroll to the governmental contracting officer, and I do not know
who else.

But that is not my main concern. I am required for henceforth
and ever more, until the project is complete, and whether or not
my employee is ever on the job site again, to send in triplicate cer-
tified payroll reports, and actually mark each one with the week
ending date and showing no hours on the job site. That is a true
story.

Just my telling about this is somewhat embarrassing. It sounds
foolish, not to mention wasteful of time, effort, paper, and costs. I
would like to see the big warehouse that the government uses to
house these documents.

The second issue that I would like to define is the project data
sheets. Let me go back to my previous remarks regarding the Gov-
ernment entity that hires and pays for the professional services of
architects, engineers, and consultants, et cetera, and relies on these
professionals to specify products that are to be used in any given
project.

These are called specifications which provide information about
the products that the Government has decided it wants used in, on
and around this project.

In other words, it would appear to me that they know the prod-
ucts and/or materials that they want this project made from, and
they are articulate in specifying by name brand, company name,
material analysis, et cetera.

My question is why must I provide them with the very same
product data sheets that they must have already known about in
the first place?

I am required to supply them with all of these product data
sheets in multiple copies. Again, this is a waste of time, effort,
paper, and cost.

I want to commend you for your leadership in trying to reduce
the burden of paperwork on small business. I believe that the Fed-
eral Government should be required to make every effort possible
to reduce the burden of paperwork on small business. Publishing
an annual list so that small businesses know about all of the re-
quirements, and establishing one point of contact will be helpful.
I agree that small businesses, especially given the sheer number of
paperwork requirements, should be allowed to correct what often
are minor paperwork violations without being fined.

I also would like to mention that I was appointed by my Con-
gressman, Roscoe Bartlett, to be a delegate for the 1995 White
House Conference on Small Business. I was the chairman of the
paperwork reduction and regulatory reform committee for the State
of Maryland.

In the ensuing years of that conference, a regional implementa-
tion task force has been put in place. I am pleased to say that we
are getting some results concerning the issues we had coming out
of that committee.

I understand that this committee and the Chair is familiar with


37

Government, where people do not want to comply. But where they
want to comply, that it is not working.

Mr. Saas. Congressman, you have not really asked a question,
but I would like to interject a couple of points. An excellent exam-
ple of precisely what you were describing is the relationship that
needs to exist between the EPA and the metal finishing industry.

Up until let’s say 8 or 10 years ago, the relationship was largely
adversarial. It was characterized by mutual distrust, and it was
the type of relationship that you wanted to avoid. The common
sense initiative has been a major step forward in improving the
communication between the agency charged with protecting the en-
vironment and an industry that has to use some hazardous chemi-
cals in order to function.

The fact that we have been able to work together so closely has
really resulted in some remarkable programs. There is a new pro-
gram that has just kicked off in the past month and a half called
the strategic goals program. It is also part of this common sense
initiative. What it has done is through a multi-stake holder in-
volvement, which includes environmentalists, the water treatment
facility operators, plus members of industry, and people within the
EPA, the ey have established a set of numerical goals in plating
shops and metal finishing operations in general that they will meet
by the year 2002, using 1992 as a base year.

The numerical goals, and I will not cite all of them, but the spe-
cific ones, the more interesting ones, is 98 percent ‘utilization of
metals that are brought into the plant. That means material that
is included in the water affluent that is sent back to the sewer sys-
tems. A 50 percent reduction in water usage, a 50 percent reduc-
tion in energy consumption, a 80 percent reduction in air emis-
sions.

These are numbers by the way that were not given to the indus-
try by EPA. The industry was challenged by virtue of the pollution
prevention techniques to say yes, we can meet those. They are
numbers that we established ourselves, in other words.

Mr. Kucinicu. I appreciate that additional information, because
it is consistent with what I think is a forward looking approach
dealing with the environment and compliance.

Another question, if I may, Mr. Chairman?

Mr. McINTOSH. Certainly. And then I have one last one question.
And then we will move on to the next panel.

Mr. KUCINICH. One aspect of the bill that has not really been
commented on relates to the waivers for first time paperwork viola-
tors when it does not impact on the health and safety of the public.

As you can imagine, some have speculated that this provision
may lead to more willful violations. Because companies would be
able to get amnesty for failing to report the first time around. Just
think about it from the standpoint that people would be a little bit
leery about this.

So my question is how do you think that a provision like this will
affect the behavior of small business when it comes to reporting?
This is a critical tion, and I need your input on it.

Mr. SMITH. I think that most small businesses want to comply
with rules and regulations. I think that they have a great fear that
if they do not comply, even if this new legislation should be passed,



57

presents an imminent threat to public health and safety, our bill
does give the agency full discretion to impose a fine as under cur-
rent law or to give the small businesses 24 hours, rather than 6
months, to fix the violation. Discretion on that point rests with the
agency.

In my 3 years as subcommittee chairman, I have come to realize
that the more things change, the more they stay the same. In 1995,
the subcommittee was engaged in consideration of a bill that would
have made us all pause and consider whether the existing regu-
latory framework and agenda made sense. The bill would have im-
posed a 6-month moratorium on new regulations. Now, like H.R.
3310, the bill expressly protected the health and safety of the pub-
lic. It exempted health and safety rules from the moratorium. At
that time, the agencies and the public interest groups opposed the
bill, claiming that workers would be exposed to dangerous chemi-
cals. They ignored the exception that would protect health and
safety in making those claims.

Today, once again, the agencies oppose H.R. 3310, arguing that
the bill would expose workers to dangerous conditions. Now the
agencies again ignore the exception that would protect health and
safety. By the way, I want to thank Representative Kucinich for
helping us craft that exception as we drafted the original bill.

hat same year in 1995, this subcommittee considered a require-
ment that all regulations must be reviewed periodically. The agen-
cies opposed that bill because they were afraid that they would be
so incompetent that they would allow regulations to terminate by
accident or mistake. They ignored the fact that they were in a posi-
tion to ensure that important programs would not terminate under
the bill by simply completing the review requirements. Today the
agencies are here again to tell horror stories. Again they have ig-
nored the fact that they remain in a position to prevent these oc-
currences under the bill. The discretion lies with the agencies.
They failed to exercise it. They failed to meet their duties under

e la

The more things change, the more things stay the same. The bill
does not do a thing to threaten public health and safety. There are
exceptions expressly to prevent this. It does nothing to strip the
agencies of their enforcement powers other than to limit their au-
thority to impose civil monetary penalties. They still have the other
options available to them, including injunction and pursuit of
criminal remedies, so that they can pursue problem areas.

Finally, the agencies represented here today oppose the very
measure of the bill which mirrors the President’s order to them in
1995, to waive fines for small businesses so that they could correct
their mistakes. Our bill simply builds on the President’s directive
and would make it law. Frankly, I think it’s an outrage that in-
stead of offering constructive criticism on this bipartisan bill to
help small businesses, the agencies have resorted to scare tactics
in their testimony.

The statements they will give today are full of misleading state-
ments and frankly untrue characterizations of this bill, which
would lead people to believe that this paperwork relief was going
to do great harm. None of that is accurate. Either the agencies di
not read the bill or they willfully chose to ignore section 2, which


23

same “product data” sheets tbat they already must have known about in the first place?” Lain
required to supply them with all of these product data sheets in multiple copies. Again, this is a
‘waste of time, effort, paper, and cost.

I want to commend you for your leadership in trying to reduce the burden of paperwork
on small business. I believe that the federal government should be required to make every effort
possible to reduce the burden of paperwork on small business. Publishing an annual list so that
small businesses know about all of the requirements and establishing one point of contact will be.
helpful. I agree that small businesses, especially given the sheer number of paperwork

requirements, should be allowed to correct what are often minor paperwork violations without
being fined.

Talso would like to mention that 1 was appointed by my Congressman, Roscoe Bartlett, to
be a delegate for the 1995 White House Conference on Small Business. I was the Chairman of
the Paperwork Reduction and Regulatory Reform Committee for the State of Maryland.

In the ensuing years of that conference, a regional “Implementation Task Force” has been
put into place. I am pleased to say that we are getting some results concerning the issues we had
coming out of this committee. Let me recite some of the actions and/or laws that have been
successfully addressed from that committee:

1. Recommendation: Regulatory reform, including judicial review of federal regulations,
Executive Activity: The President signed into law the Small Business Regulatory
Enforcement Faimess Act of 1996. It provides for full judicial review of agency
certification and regulatory flexibility analyses. Congressional Activity: Regulatory
reform legislation passed in the 104th Congress.

2. Recommendation: Periodic review of all regulations, simplify and eliminate
regulations, and provide the single source of regulatory information, Executive activity:
Implementation of the Small Business Regulatory Enforcement Fairness Act of 1996 is
taking place throughout federal agencies. Congressional Activity: Regulatory reform
legislation passed in the 104th Congress. H.R. 852, the Paperwork Elimination Act,
passed the House.

3. Recommendation: Change the nature of the federal government's enforcement of
regulations. Executive Activity: SBREFA established a small business ombudsman and
10 regional boards to monitor enforcement of federal rules. The legislation is being
implemented.

4. Recommendation: Tort Reform, Executive Activity: the President vetoed the product
ability legislation submitted by the 104th Congress. Congressional Activity: The 104th
Congress passed a product lisbility reform but failed to override the veto. New
legislation was introduced in the Senate.

‘Again, I am pleased to be able to bring to this committee some of the small business


90

OTHER CONCERNS
In addition to the problems discussed above, we also have concems with the
provision of the bill that requires a task force to study the feasibility of requiring small businesses
to submit all reports on one date. This does not make sense in areas of regulation such as
environmental monitoring and reporting that require timely and periodic submissions. Providing
information on one date (presumably in a year) would be detrimental to both the environment
and an agency's mandate to assure compliance, and would allow serious problems to escape
notice for long periods of time. As drafted, the bill arguably includes forms which are covered
by the Paperwork Reduction Act and which are submitted to the government, including forms to
secure Government contracts, loans, grants or payments under various federal health care
programs; as 1o these forms, the once-a-year approach would be unworkable for small businesses
and the government alike.
CONCLUSION

‘The Department and the Administration remain committed to promoting small business
and effectively implementing the President’s guidance and the SBREFA requirements. We
believe collection of information is vital to effective aw enforcement and the protection of the
public. We therefore do not support penalty amnesty beyond that provided in current law. The
Department looks forward to working with the Subcommittee to find common sense ways to help

small businesses by identifying and reducing unnecessary requirements.


44

Good afternoon, Mr. Chairman and Members of the Subcommittee. My name is Jere W.
Glover. 1am Chief Counsel for Advocacy with the U.S, Saull Business Administration.
“The Office of Advocacy was established by Congress 20 years ago as an independent
ent tobe a spokesperson for small business in the formulation of public policy. The
Chief Counsel is, by law, appointed by the President from the private sector and
conifirmed by the Senate.

Tam pleased to appear before this Subcommittee to discuss an issue of extreme
sighificance to small business, namely, regulatory paperwork and reports, and the burdens
such mandates impose on small business, Before proceeding, however, please note that
my'comments are my own and do not necessarily reflect the views of the Administration
or the ‘Small Business Administration.

: First, let me say that I endorse the concepts incorporated in the legislative
proposal sponsored by Chairman Melntosh and co-sponsored by Representative
Kucinich. That proposal would requir:

© annual publication of paperwork and reporting requirements imposed on small
business;

© waiver of fines for first paperwork/reporting violations if corrected within a
specified time period, except in cases where violations could result in
imminent danger; and

© the formation of task force to study the feasibility of streamlining
information collection from small business.


85

death. The CPSC determined that the company had violated a requirement that such product
hazards be reported immediately. See 15 U.S.C. 2064(b).

The CPSC should not have had to wait until a child died to impose a penalty. If
the CSPC had discovered the problem two weeks before that tragic loss, this bill would have
required the CPSC to prove an imminent and substantial danger to public health or safety to
assess a civil penalty. And even then the company might have avoided the penalty by filing its
product hazard report within 24 hours of receiving the CPSC’s written notice.

‘None of us want to see a repeat of this tragedy. But a repeat would be the likely,
if unintended, result of this bill’s penalty waiver. The bill would reduce incentives to timely
report such hazards. Without timely notice of the danger, the CPSC would be unable to evaluate
the need for a recall or to act in time to wam parent of the risk.

Let me provide another example. One small entity against which the Department
brought a civil enforcement action operated for almost a decade with illegal and uncontrolled
emissions of volatile organic compounds (“VOCs”). VOCs contribute to ground level ozone, or
“smog.” This business, which is one of the largest spray-painting operations for department store
fixtures, was in an area of the country where ozone poses a severe pollution problem. Because
the company had failed to provide information to the government before the building the plant or
to obtain required permits to construct and operate, the government was unaware of its operation
and could not address the resulting degradation of air quality and harm to public health. Indeed,
the severe ozone pollution, to which this company illegally contributed, had already triggered
restrictions on the ability of other companies to build facilities in that area. Although the

company’s failure to seek permits and to provide the government with information were

ll


62

lead to investors being jeopardized, and would inhibit the ability of
local communities to keep track of dangerous chemicals stored i
industrial facilities. So in effect, according to the staff analysis, this
provision could have the effect of rewarding the bad 's. I don’t
think that 99.9 percent of America’s law abiding small businesses
would support these unintended consequences.

So, Mr. Chairman, I believe that it will be necessary to change
these provisions in the bill and that the bill be modified. We need
to encourage agencies to continue to help small businesses comply
with their paperwork requirements. At the same time, we must en-
sure that agencies have the tools they need to enforce many impor-
tant statutes. I remain committed to the bipartisan process of
reaching our mutual goals. I welcome our witnesses here today. I
believe that despite the divergence that we may have right now on
certain provisions of this bill, that after we hear the testimony and
incorporate some of the concerns of the agency, I think that we will
have a way to reach a concurrence that would be of benefit to the
millions of small businesses who are looking for some relief from
this Congress.

So again, I want to let the chairman know how grateful I am for
his dedication to this process, to his reaching out to small business,
his reaching out to the agencies here. Together I believe that in
this process we still have the opportunity to get to a successful con-
clusion. I want to thank the Chair and thank the ranking member,
Mr. Tierney and all the Members here. Thank you.

Mr. McINTosH. Thank you, Mr. Kucinich. Thank you again for
your help on this bill.

Do any other Members have opening statements?

Mr. Waxman.

Mr. WAXMAN. Thank you very much, Mr. Chairman. First of all,
I want to commend you for holding this hearing. I have been in
Congress for 24 years. I believe that the essence of good legislation
is giving everyone a chance to give us their views. It is important
to provide that forum even if witnesses have statements with
which we disagree, because sometimes they can shed light on as-
pects of legislation that are unintended problems and ought to be
corrected. Even if we don’t agree with them after they say what
they have to say, it’s just basically fair to give everybody a chance
to come forward and give their point of view on a subject matter
before us. So I appreciate that we are hearing from witnesses from
the administration, and that we are doing it at a time when Mem-
bers can be here. I am impressed with the number of Members that
are here today. I don’t think it would have been possible if the
meeting was scheduled at 5 on a Friday or even 3 on a Friday,
when the Congress was out of session.

Second, I want to commend you, Mr. Chairman and Mr.
Kucinich, for what you are trying to accomplish, because it seems
to me what you are trying to accomplish is something that will be
helpful to small businessmen. Small business people ought not to
be subjected to penalties if they are acting in good faith, if they
didn’t understand the situation, and they are not in any way really
culpable.

But what we don’t want to do in trying to help small businesses
is to have unintended consequences that we’re now hearing are


86

information collection violations, they had serious, real-world consequences — for the public
and for other businesses. A civil penalty waiver would encourage such unlawful behavior, and
inadequate record keeping and reporting during the period of violation would make it more
difficult to discover and remedy the problem.
“Safety Net” Provisions Are Not Adequate

Our concems are not solved by the bill’s language allowing an agency to impose
civil penalties where the agency head determines that a violation causes “actual, serious harm” to
public health or safety. That provision, although well-intentioned, would not effectively protect
the public from harm and could be hard to implement, Not only is “actual harm” undefined, but
it may be difficult to discover, because agencies often rely on the very information that might not
be reported under this bill to determine the nature, severity, and even existence of ham. Also,
reporting and recordkeeping obligations often provide the information needed to prevent harm,
but violations of these requirements may not appear to cause harm directly. For example, if a
fertilizer facility does not keep required information on hazardous chemical inventories, local
police and fire officials may not know how to respond when a fire starts at the facility and may
unknowingly endanger themselves and the community. Fire fighters could waste valuable time
trying to determine what chemicals are stored at the facility, or if they are not aware of the
dangers, might enter the facility without proper equipment or protection. In such a case, the
agency might find it difficult to prove that the information collection violation -- rather than the
fire — caused the harm.

The bill’s drafters appear to have recognized some of these concerns because the

bill allows for civil penalties where a violation “presents an imminent and substantial danger” to

12


121

+ Devices such as cockpit voice recorders and flight data recorders are subject to
the Paperwork Reduction Act. Under H. R. 3310, it would appear that an aircraft
operator could refuse to install these devices (or to maintain them properly) until such
time as we uncovered their absence. If that were after an accident, putting it in within
24 hours would be useless. Since these are accident investigation tools and their
absence would not directly cause harm to safety, it might be argued that we could not
fine the operator for failure to have the equipment.

+ Coast Guard requires vessels to provide advance notice of arrival in port. This
enables Coast Guard to use its limited resources to identify those vessels most in need.
of inspection. If a business only provides notice 24 hours after Coast Guard notifies if of
its failure, generally this will do no good. Although a company can get away with this
only once, they may save that one time for a vessel carrying goods they do not want to
subject to Coast Guard inspection.

We recognize that, in some instances, even the potential for fines for paperwork
violations may not deter noncompliance. We should not, however, create incentives for
additional noncompliance by statutorily eliminating fines, especially where the
violations may be intentional or careless and reckless.

“Other Provisions of H. R. 3310

We do not object to the provisions in H.R. 3310 for publishing an annual list of

paperwork requirements imposed on smnall businesses. However, itis not clear to us
that it will provide a benefit worthy of the cost involved in doing so, considering the
amount of guidance material we already put out that should make regulated entities


124

Mr. McINTOSH. Thank you, Mr. Eisner. We will now go into a
questioning period. What I would like to do is just alternate back
and forth on questions. I have several. Let me start with you, Mr.
Eisner, just because you finished your testimony last.

You indicated that you thought the beneficiaries of this bill
would be those people under your agency, those entities that are
intentionally trying to avoid the paperwork requirements. Could
you name one of the companies that you regulate who you feel is
intentionally trying to violate these regulations?

Mr. EISNER. I cannot now name companies here. I can tell you
for example, that inspectors have told us that when they have gone
through paperwork and they have found violations of regulations
and they have said to companies, “Why are you doing this?” The
companies have responded they have goods to deliver or whatever.
They know they are in violation.

I am not saying that most of our entities want to violate them.
Indeed, it is just the opposite. We think most of the entities want
to comply.

Mr. McINTOSH. And you can’t name one that you know has a his-
tory of intentionally violating these regulations?

Mr. EISNER. I cannot name one. I would not want to name one
here. But I am saying——

Mr. McINTosH. OK. That’s what I thought. That’s what we are
finding—is that almost no small business wants to violate these
regulations. So you are saying that on all the others that you regu:
late, it won’t hinder your ability to enforce these regulations be-
cause you have a good faith exception already?

Mr. EISNER. We already have a good faith exception. I am con-
cerned about the ones who are——

Mr. McINTOsSH. Let me ask you a question on the international
airlines. You cited an example there. How many international car-
riers would fit the definition of small business?

Mr. EISNER. I don’t know the exact number, but I am told that
there are some that would fit that definition.

Mr. McINTosH. Could you please submit those to the committee?
T'll keep the record open in order to do that.

Let me turn to Ms. Sheketoff?

Ms. SHEKETOFF. Sheketoff.

Mr. McINTOSH. Sheketoff. I do apologize. I am not very good
with—is it a Russian name?

Ms. SHEKETOFF. Yes. It is.

Mr. MCINTosH. You indicated to us that you had a concern about
the workers right to know on hazardous communications. Those
are chiefly affected through the material data safety sheets. Is that
correct?

Ms. SHEKETOFF. Well the standard for hazard communication is
much more broad than that. It requires an employer to make sure
that his employees are trained for the process that they are work-
ing on, to do that process safely, and that for any hazardous chemi-
cal that is in the workplace that a worker could be exposed to,
there is information so that the worker knows what he or she must
do if exposed to that chemical.

Now manufacturers supply material safety data sheets to em-
ployers who use specific chemicals. There are some chemical com-


31

in the first place. The smaller the business, the more expensive itis to comply with paperwork.

‘costs per employee for firms with under 20 employees are $2,017, but for firms with
more than 500 employees costs drop to $1,086. It costs 50 percent more for the small business
than the large business. Paperwork represents approximately one third or 33 percent of total
regulatory costs. That's up from 21 percent in 1977. And the costs are still rising.

‘Our Subcommittee heard from small business owners at the 18 field hearings we beld
over the past three years. One of their biggest complaints was government paperwork. We heard
from Pat Cattin, who is the owner of Cattin’s Restaurant in Tacoma, Washington. As a result of
‘a surprise OSHA inspection, Mr. Cattin was fined $1000 for having one missing Material Safety
‘Data Sheet (MSDS). This particular MSDS was for hand soap, not a hazardous product. During
the inspection, Mr. Cattin's manager called the soap manufacturer and got a copy of the MSDS
form by fax within two minutes. But OSHA would not lift the fine.

‘We heard from Judi Moody, who is a small business owner from Sumner, Washington.
‘When she and her husband tried to open a small bookstore and cafe, they ran into so much
regulation and paperwork that they couldn't go forward. She recalled at least 25 forms they
‘would have to complete, in addition to getting industrial insurance, and those were from the
Department of Labor alone. It seemed that they would need to hire a lawyer before they even
‘opened the door. Mrs. Moody and her husband just wanted to hire a couple of employees to sell
‘books and coffee. But because of government paperwork, they were not be able to realize their
dream or create more jobs.

‘Situations like this one made paperwork compliance one of the top concems reported by
delegates to the 1995 White House Conference on Small Business. The legislation we are
proposing would add some new provisions to the Paperwork Reduction Act to address these
‘concems. It is the next step in regulatory relief, consistent with President Clinton and Vice
President Gore's Reinventing Government Initiative. President Clinton told the American

‘that he wanted to stop the agency inspectors from “playing gotcha.” In 1995, the President sent a
‘memo to the agency heads instructing them waive fines for small businesses so that they could
correct their mistakes. Our bill simply builds on the President's directive and would make it law.

The legislation we are Droposing would accomplish four things: (1) create alist of all the

paperwork for small ; (2) give small businesses a chance to
‘correct first-time paperwork violations before fines are assessed by government agencies; (3)
establish one point of contact at each agency for small businesses on paperwork requirements; (4)
establish a task force including representatives from the major regulatory agencies to study how
to streamline reporting requirements for small businesses.

‘Small businesses are the driving force behind our nation's economy. More than 99
percent of employers are small business owners. This legislation would give these hardworking.
‘Americans a break on government paperwork and make it easier for them to grow and create
more jobs.


a

‘The Honorable David Melntosh
March 5, 1998,
Page 2

Thank you, in advance, for your assistance in this matter.

5 PaO dfs,
oes
Dome dileeinae fone EK, ies

Bd Aa



46

© sunset and reevaluate all regulations every five years with the goal of reducing
the paperwork burden by at least 5 percent each year for the next five years;

© assemble information through a single source on all small business reporting;
and

© eliminate duplicate regulations from multiple government agencies.

If I were permitted editorial license, I would substitute the word “reporting” for the word
“regulations” in the last iter, an issue I will address later in my testimony. Not
surprisingly, paperwork burdens were also an issue addressed by the 1980 and 1986
White House Conferences on Small Business.

Itis clear that the proposed legislation addresses almost all the concerns detailed
in this recommendation of the White House Conference on Smal! Business.

In the fall of 1995, the Office of Advocacy submitted to Congress: The Changing
Burden of Regulation, Paperwork and Tax Compliance on Small Business: A Report to
Congress. A major resource for that study was another report commissioned by
Advocacy: A Survey of Regulatory Burdens, (Research Summary attached), authored by
Thomas D. Hopkins, Rochester Institute of Technology, a leading researcher in
quantifying the impacts of regulations on business, especially smal] business. In brief,
Advocacy reported to Congress that the total regulatory cost projected for 1998 would be.
$700 billion, with one-third of this cost attributed to “process” costs - primarily
paperwork. Advocacy further reported that the average annual cost of regulation,

paperwork and tax compliance to small business is $0 per cent higher than for large


itt
nea

ah =

SS” —— Congress of the United States ed
— Bouse of Representatives ‘ener

Pra COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT Poe

ae 2187 Ravounn House Orrce Buona a
eee Wasrawaron, OC 20515-6143 Ea

March 5, 1998

‘Melntosh

Chairman

‘Subcommittee on National Economic Growth,
Natural Resources, and Regulatory Affairs
‘Committee on Government Reform

B377 Rayburn HOB

Washington, D.C. 20515-6143

Dear Chairman Mcintosh:

Pursuant to House rule XI, clause 2(j)(1), we are writing to request a separate day of
hearings to allow witnesses selected by the minority to testify on the subject of today’s hearing,
“the Small Business Paperwork Reduction Act Amendments of 1998."

‘The minority would like to invite Administration officials from the federal Occupational
‘Safety and Health Administration, Department of Transportation, Food and Drug Administration,
Environmental Protection Agency, Securities and Exchange Commission, and other relevant
federal agencies.

Before providing their testimony, the Administration will need some time to review the
Dill which was introduced only two days ago. However, in order to take advantage of the
Administration's comments, this hearing should be scheduled before the Subcommittee marks up
the legislation.



40

Ms. GEARHART. At this point, in the next year or two, we can see
at least five. And for businesses very small, that would be helpful
for them.

Mr. McINTOSH. But your level of paperwork burden makes you
delay that or reduce that?

Ms. GEARHART. Right. Because we would probably have to hire
someone to take care of more of that paperwork and to be on top
of all of that. So it would not be worth it to us to do that, to hire
one person just to take care of paperwork to hire four more people.

Mr. McINTOSH. Right. Thank you.

Mr. Saas.

Mr. SAas. Mr. Chairman, the two most valuable resources that
a small business has is one its asset base, its financial base; and
second is time. Both things typically in small business are in criti-
cally short supply. Reducing the paperwork burden affects both in
a positive manner. It may reduce the number of personnel that are
actually needed to stay in compliance, and freeing up some capital
to put in other personnel that may be more productive.

ond, again in owner operated firms, it is not unusual for the
president of the company, as has been described here, they are the
rson who actually has to fill out the paperwork. So if they have
lots of paperwork to fill out, we have more time available to go out
and generate more business for their business.

Mr. McINTOSH. Thank you.

Mr. Roberts.

Mr. Roperts. Mr. Chairman, I would like to agree with Mr.
Saas. I am the only one in my company who goes out and bids new
jobs. And if I can hire a person to look over these regulations and
fill paperwork out, and in the end result I have to come in, proof-
read and sign. And if it is taking up my time, then I do not have
time to go out here and get new jobs and hire more employees. We
would expand our operation by 30 to 40 people this summer. Small
business operators work 14 hours a day 7 days a week generally.
Thank you.

Mr. McINTOSH. Thank you.

Ms. NELSON. Mr. Chairman, if you can picture a small ornamen-
tal metal shop. Here is the office, and here is the shop. I am the
office, and my husband and partner is the shop, besides a couple
of employees we have. If you increase my load, it means that I can-
not keep my shop business, because I am just doing paperwork. I
am not bidding jobs, and I am not looking for new work, because
I am buried in paperwork.

In answer to your question, yes, reduction of paperwork would be
an absolute benefit.

Mr. McINTOSH. Thank you.

Mr. SMITH. Mr. Chairman, I would just add that I had a discus-
sion with a client about adding a 401(k) plan. It would be the only
retirement plan they would have. And he just said absolutely not,
I am not going to take on any more paperwork for this business.

That is very sad. Congress passed pension reform legislation last
year in an attempt to simplify pension and retirement plans for
small businesses, because tl ey are such an important part of our
long term future. Not only to deal with the Social Security problem
long term, but also for small business owners to be competitive in


120

+ DOT requires drug testing of safety-sensitive employees in the various modes
of transportation. If some entity involved in the drug testing process delays or
deficiently reports the results of drug tests, it will delay the removal of employees from
performing important safety functions. Again, we could impose no fines for firet-time
violations, even if the violation was intentional or careless and reckless.

* Ifa repair station fails to keep the necessary records showing that a required
repair has been made to an aircraft, the Federal Aviation Administration generally will
have to ground the aircraft for up to five days or longer, until it can be shown that the
aircraft was correctly repaired. Grounding an aircraft could be extremely expensive for

- the airline as well as being disruptive for any passengers who had reservations on the
flight for which that aircraft was to be used. Although the repair station may suffer
contractually, we could not fine it for a first-time violation.

+ Congress has enacted legislation — and DOT has issued implementing
regulations -- requiring passenger manifests for virtually all airline flights into and out
of the U.S. to enhance the notification of families of victims if an accident occurs. The
legislation was intended to shorten the notification time from two or three days to a few
hours. Yet H. R. 3310 would appear to waive any penalties and essentially give the
airline at least another 24 hours after we notify it of the violation, essentially negating
the purpose of the legislation. Since, based on past experience, there are few covered
accidents, the first-time waiver could cover many years of recordkeeping requirements
for a carrier that wanted to save money. Moreover, if the carrier did not properly
collect the passenger manifest information before the accident, it will be difficult if not
impossible to get the information afterwards, defeating the purpose of the legislation.


19

Mr. SEssIONS. Thank you, Mr. Saas.

The next witness will be Victoria Nelson.

Ms. NELSON. Good afternoon, Mr. Chairman, and members of the
subcommittee.

It is with great pleasure that I appear before you this afternoon
on behalf of the National Federation of Independent Business, and
my own company, Jarnel Iron and Forge, of which I am the CEO
and president. And that just lets you know that I do all of the pa-
perwiork, because we have three people in my company. It is very
small.

I appreciate being able to tell you about a small business wom-
an’s experience with the Government “ir-regulation” and “non-pa-
perwork reduction,” and to tell this subcommittee about some of
the ongoing situations that I face with the kind of work that I do
to make a living. Thank you for holding this important hearing.

My small business fabricates and manufactures ornamental
metal. And when I say that, picture in your mind wrought iron. We
primarily act in the capacity as a subcontractor to a larger general
contractor.

Most of our work is done with Government contracts. We are
very fortunate. They could be with the GSA, the Corps of Engi-
neers, or the Smithsonian Institution. These Government projects
are required to apply the Davis-Bacon Act to employee payrolls.
One of the mandates under the Davis-Bacon Act is that I must fill
out and complete certified payrolls for my business, and submit.
them to my general contractor.

I am coming at this from a little different point of view than the
previous witnesses. I am a small business, and this is where the
buck starts, right here. And this is how I have to work with it on
a contractual agreement.

Now this requirement in itself is not too terribly unreasonable.
However, if you will follow along with me, in my particular kind
of work, we will probably only be on the job site to take field meas-
urements, if there is anything to be able to measure. Sometimes
there is nothing there at all to field measure. So we do it from ar-
chitectural drawings.

But let’s say that we are one time visiting, but oftentimes we do
all of our work just from the architectural drawings. This happens
after we have submitted shop drawings in voluminous numbers, as
required by contract.

This poses a question. If the Government entity has already se-
cured the professional services of a qualified architect and has se-
cured the professional services from the engineering and consulting
firms, why must I be redundant and repeat this action and paper-
work, and provide additional drawings, and have a certified engi-
neer duplicate exactly what the Government has already agreed
with and paid for.

With regard to Davis-Bacon, when I am on the job site with my
employee, I have to generate a required certified reporting of pay-
roll until the end of the project. my case, let’s say that I am
there for field measurements with my employee. I must send a cer-
tified payroll report with my employee’s information for that week
to the general contractor, who in turn sends copies of that certified


14

Good morning, Mr. Chairman, and members of the Committee. My
name is Bill Saas. I am owner and President of Taskem, Inc. in
Cleveland, Ohio, and am testifying today on behalf of the nation’s metal
finishing industry. The metal finishers fully support the effort you and
Mr. Kucinich have undertaken through legislation to address the'very
teal problems of paperwork for small business. 1 have 30 employees, and
supply chemical products to primarily family-owned metal finishing firms
that are literally awash in paperwork. The companies I supply are typical
of the more than 3000 surface finishing operations across the nation.

The surface finishing industry as a whole is really an invisible
industry, but adds about $50 billion and nearly $20,000 jobs a year to
the U.S. economy. Its work is critical to virtually every manufacturing
sector and our national defense.

Without the hundreds of complex metal coatings, paints and other
surface treatments we apply, most products -- from automobiles,
satellites and computers to door knobs and Harley-Davidsons (which, to
some, is an absolute necessity of life) -- would cease to function
effectively.

Most of us who are part of the industry are located in urban areas,
and provide good jobs at above minimum wage pay, sometimes.
considerably more, We work hard in our communities, and in fact, in my
home town of Cleveland in Mr. Kucinich’s district, I'm proud to say that
my industry has just developed formal metal finishing training courses
with Cuyahoga County, We've successfully trained nearly 30 welfare
recipients in a first-of-its kind welfare-to-work program. We're excited
about being able to give people good jobs, health benefits and solid work
experience.

Paperwork Burdens

Metal finishers are challenged every day with the cumulative
burden of paperwork that is the result of two and a half decades of fairly
aggressive, command and control-oriented statutes and regulations.
Even though Congress and EPA have sought to reduce paperwork, metal
finishers have not benefited. Based on the regulations we see in the
pipeline now, paperwork and reporting requirements will continue to
proliferate.

In practical terms, this means that the overall regulatory cost for
the average metal finisher will continue to rise from its current level of


3

“(ii if the violation presents an imminent and substantial danger to the
public health or safety, provide that, except as provided in paragraph (2),
no civil fine shall be imposed by the agency on the small-business concern
if the small-business concern corrects the violation during the 24-hour pe-
riod immediately following receipt by the small-business concern of notifica-
tion of the violation in writing from the agency.

“(2) In a case described in paragraph (1)(B)(ii), the head of the agency may
waive the suspension of imposition of a civil fine provided in that paragraph. The
head of the agency shall notify Congress of any such waiver not later than 60 days
after the date that the suspension is waived.

“(3) For purposes of paragraph (1)(B), the term ‘agency’ does not include the In-
ternal Revenue Service.”.

SEC, 3. ESTABLISHMENT OF TASK FORCE TO STUDY STREAMLINING OF PAPERWORK RE-
QUIREMENTS FOR SMALL-BUSINESS CONCERNS.
(a) IN GENERAL.—Chapter 35 of title 44, United States Code, is further amend-
ed by adding at the end the following new section:

“§3521. Establishment of task force on feasibility of streamlining informa-
tion collection requirements

“(a) There is hereby established a task force to study the feasibility of stream-
lining requirements with respect to small-business concerns regarding collection of
information (in this section referred to as the ‘task force’).

“(b) The members of the task force shall be appointed by the Director, and shall
include the following:

“(1) At least two representatives of the Department of Labor, including one
representative of the Bureau of Labor Statistics and one representative of the
Occupational Safety and Health Administration.

‘(2) At least one representative of the Environmental Protection Agency.

“(3) At least one representative of the Department of Transportation.

“(4) At least one representative of the Office of Advocacy of the Small Busi-
ness Administration.

“(5) At least one representative of each of two agencies other than the De-
partment ‘of Labor, the Environmental Protection Agency, the Department of

‘ransportation, and the Small Business Administration.

“(c) The task force shall examine the feasibility of requiring each agency to con-
solidate requirements regarding collections of information with respect to small-
business concerns, in order that each small-business concern may submit all infor-
mation required by the agency—

“(1) to one point of contact in the agency;

“(2) in a single format, or using a single electronic reporting system, with
respect to the agency; and

“(3) on the same date.

“(d) Not later than one year after the date of the enactment of the Small Busi-
ness Paperwork Reduction Act Amendments of 1998, the task force shall submit a
report of its findings under subsection (c) to the chairmen and ranking minority
members of the Committee on Government Reform and Oversight and the Commit-
tee on Small Business of the House of Representatives, and the Committee on Gov-
ernmental Affairs and the Committee on Small Business of the Senate.

“(e) As used in this section, the term ‘small-business concern’ has the meaning
given that term under section 3 of the Small Business Act (15 U.S.C. 631 et seq.

(b) CONFORMING AMENDMENT.—The table of sections at the beginning of si
chapter is amended by adding at the end the following new item:

“3521. Establishment of task force on feasibility of streamlining information collec-
tion requirements.”.

Mr. TIERNEY. Thank you, Mr. Chairman.

Mr. Chairman, I want to thank you for holding this hearing
today. Small and family owned businesses spend a great deal of
their resources learning about and complying with applicable laws.
I am pleased that we are looking at ways to simplify and stream-
line the resulting paperwork.

Mr. Chairman, it is my understanding that Mr. McIntosh has
worked closely with Representative Kucinich in drafting H.R. 3310.
This cooperative effort has led to specific improvements in this bill.


132

In that case, if there are no other questions for this panel, the
panel is dismissed.

Mr. Kucinicn. If I could ask, Mr. Chairman, can we submit fur-
ther questions in writing if we so desire?

Mr. MCINTOSH. Yes. Let’s hold open the record for 5 days.

Mr. Kucinicu. OK, thank you.

Mr. McINTOSH. To be able to do that, more if you need it. Come
see us and we'll work with you on that.

Thank you very much for coming. I do appreciate it. With that.
that was the only | for today’s hearing, the committee will
stand in recess for purpose of taking testimony.

(Whereupon, at 6:50 p.m., the subcommittee was adjourned, sub-
ject to the call of the Chair.]

{Additional information submitted for the hearing record follows:)]


16.

110

‘The Commission's complaint alleges that the floor brokers concealed their personal
trading by creating false order tickets and false monthly invoices, which showed that
the trades were executed for a co-conspirator client broker. The Commission charged
the floor brokers with violating the recordkeeping requirements of the Securities
Exchange Act and its implemeating ropulatons The Commission alleges tht,
thug hon, te on te man lone eg ptt, ‘Soe
Complaint of the Securities and Exchange Commission, SBC v, Oakford Corp,
(S.D.N.Y.) (98 Civ. 1366).

This scheme, if provea, will be « first violation for all of the floor brokers charged.
‘Three of the eight floor brokers involved in the scheme qualify as “small businesses"
under definitions applicable to the SBC under the Regulatory Flexibility Act. If H.R.
3310 had been the law at the time, the Commission could have been forced to seek
lesser penalties against the smaller floor brokers, although they were just as culpable
as the other defendants,

Securities Enforcement and Peany Stock Reform Act of 1990, Pub. L. No. 101-429,
104 Stat. 931 (Oct. 15, 1990), codified at 15 U.S.C. §§ 78u-2, 78u-3, 78q-2.

9


69

size, good faith and history of violations, with the smallest employers eligible forthe largest
reductions, Our penalty reduction system is required both by the Occupational Safety and Health
Act and the Small Business Regulatory Enforcement Faimess Act (SBREFA) and follows the
President's directive of April 1995. As part of that system, where paperwork violations do not
materially affect workplace health or safety, OSHA has directed its field compliance officers not
to issue citations. Consequently, the proposal in SBPRA is duplicative and unnecessary.
Moreover, eliminating the potential for any penalties for first time violations removes the
incentive for employers to voluntarily comply without intervention. This is particularly
important where requirements have a true health and safety impact. The bill attempts to guard
against risks to safety and health by allowing employers 24 hours to correct violations that have
an imminent and substantial danger to public health or safety. In such instances, the bill allows
the agency to impose the fine immediately ifit informs Congress. While we acknowledge the
authors" desire to protect against safety and health risks, the bill fails to protect workers from
very real dangers. Therefore, we strongly oppose this provision of SBPRA.

The bill should not hinder in any way an agency's ability to act immediately to eliminate
an imminent or potential danger to the health or safety of workers and the public. Furthermore,
the definition of “public health or safety” within SBPRA is not clear, asthe bill provides no
context to determine what “public health or safety” means. We suggest that the language of
Section 2(b)(i1)(B) be amended to allow the agency to impose penalties not only when it

believes the viol:

‘ion has “caused actual serious harm to the public health and safety” but also

when the violation appears likely 10 cause serious harm.

As drafted, section 2(b)(i)(1)(B) could place workers at risk of serious accident or injury.


24

issues I must face. I would be happy to respond to any questions you may have for me.


10

Second will be William Saas, president of Taskem, Inc., a small
chemical processing company in Brooklyn Heights, OH. Victoria
Nelson, owner of Jarnel Iron and Forge from Hagerstown, MD. Te-
resa Gearhart, owner of Mhart Express, Inc., a small trucking com-

any in Hope, IN. And Mr. Robert C. Smith, president of Spero-
Smith Investment Advisors, Inc., from Cleveland, OH.

I would now like to ask each of these panelists to be sworn. If
you_would please raise your right hands. And if you would answer
in the affirmative, if you agree.

[Witnesses sworn.]

Mr. Sessions. If you would please note that each of the wit-
nesses answered in the affirmative.

Each of the testimonies, we are asking that they be 5 minutes.
That way, we can get through the panel, and then we will allow
each Member to ask questions of each panel member.

I would ask Mr. Gary Roberts, if you would please lead the testi-
mony today. Mr. Roberts.

STATEMENTS OF GARY ROBERTS, PRESIDENT, ROBERTS PIPE-
LINE, SULPHUR SPRINGS, IN; WILLIAM SAAS, PRESIDENT,
TASKEM, INC., BROOKLYN HEIGHTS, OH; TERESA GEAR-
HART, OWNER, MHART EXPRESS, INC., HOPE, IN; VICTORIA
NELSON, OWNER, JARNEL IRON AND FORGE, HAGERSTOWN,
MD; AND ROBERT C. SMITH, PRESIDENT, SPERO-SMITH IN-
VESTMENT ADVISORS, INC., CLEVELAND, OH

Mr. RoBERTS. Mr. Chairman and members of the subcommittee,
I am here today to address the members of this subcommittee in
my role as an American small business owner. My name is Gary
Roberts. Along with my father, Leland Roberts, I am a co-owner of
Leland Roberts Construction Co. Our business is in Sulphur
Springs, IN, a small community of approximately 300 people, which
is located in east central Indiana.

Roberts Construction was started 34 years ago by my father. At
that time, the number of employees totaled one, my father. Over
the years, Roberts Construction has grown. Today it employs ap-
proximately 75 employees during the peak construction season. Its
main business is water, gas, and sewer line construction.

As a teenager, I worked for my father. Later, I worked with my
father in building the company. There is not a job performed today
that neither my father nor I have not done. On this very day, my
24 year old son, Jason, is doing the same work as other employees.

As you can tell, Roberts is a small family business. My wife, Te-
resa, also works full-time with the company. She could, probably
better than I, tell you how paperwork affects a small business.

I would like to share with you a problem our company is cur-
rently facing. On May 20, 1997, the Indiana Department of Labor,
Occupatio: Safety and Health Administration, inspected our
work site in Matthews, IN. Approximately 2 months later, our com-
pany received a 12-page document entitled Safety Order and Notifi-
cation of Penalty. Until then, our company had only been cited by
IOSHA on one prior occasion. That citation was later dismissed
without payment of any penalty. Roberts Construction has a good
record when it comes to employee health and safety. Our Workers’


29

As one small business owner recently informed me, he must
maintain nine notebooks each containing a different emergency
plan. From these notebooks, he has to scramble to find the booklet
that covers a particular area when the agency regulating that area
comes to inspect or paperwork is due.

Inevitably, the paperwork due dates are all different, and require
him to keep a separate calendar simply dedicated to "these dates.
This is not uncommon. And it would be useful if the various agen-
cies came together with small businesses, and we were allowed to
file paperwork and worked harder to eliminate duplication or con-
tradictory requirements.

As I said, this onslaught of paperwork is too much for small busi-
ness. The NSBU members and all small business owners are on the
front line in a perpetual battle to stay in compliance and up to date
with the myriad of mandates and paperwork that agencies like
OSHA and EPA place upon them.

The McIntosh and Kucinich legislation will be a significant aid
for them in their efforts to stay in compliance. As you know, often-
times the hardest part about staying in compliance is knowing
what you have to comply with and what the paperwork require-
ments are for a particular agency. This bill will help small busi-
nesses be more informed and will help alleviate major fines for in-
nocent paperwork mistakes.

One of the most important aspects of H.R. 3310 is a suspension
of fines for first time offenders. There are certain times when all
businesses are not in compliance with every law, regulation, and
form that this town, and State and local governments throw at

em.

On the first occasion of a Federal paperwork mistake, the
McIntosh and Kucinich bill calls for a suspension of the fine. This
is a critical aspect to this bill, and something that NSBU has been
lobbying in favor of for many years.

Honest men and women make honest mistakes. When our Fed-
eral regulation agencies realize this and accept, the notion that not
every single small business person with a paperwork violation is
trying to pollute the environment, endanger his workers, or gain a
competitive advantage, then we have indeed made progress on re-
forming our Government and returning it to the people.

On behalf of NSBU and our 65,000 members, I believe that H.R.
3310, the Small Business Paperwork Reduction Act Amendments of
1998 lead us in the proper direction, and is legislation that should
pass Congress this year.

Mr. Chairman, and members of the subcommittee, thank you for
allowing me to be a witness before you today.

Mr. McINTOSH. Thank you very much, Bir. Smith. I appreciate
your statement.

Now I will turn to the portion of this hearing when Members can
address questions to the panelists.

Let me begin by asking unanimous consent that my introductory
statement and Mr. Shadegg’s introductory statement be placed in
the record.

[The prepared statements of Hon. David M. McIntosh and Hon.
John Shadegg follow:]


THE SEC’S INVESTOR PROTECTION AND MARKET REGULATION
MANDATE

‘While the Commission has sought to address the needs of small businesses, our
commitment to limiting burdensome regulation or uanecessary paperwork must be viewed
in the context of the overall size and complexity of the securities markets and the goals of
the federal securities laws.

‘The United States” securities markets involve securities and trades worth trllioas
of dollars. Thousands of businesses look to the capital markets for the funds needed to
grow and to compete in a global economy. Millions of Americans invest in these
markets in their own accounts, through mutual funds, or through employee peasion funds
and retirement accounts, .These millions of investors and their families count on their
investments to pay for education, to save for retirement or, for those already retired, to
meet current expenses.

‘The federal securities laws mandate the protection of investors and the
maintesance of fair, efficient and competitive securities martasts. In enacting the federal
securities laws, Congress rejected a acheme of direct federal regulatioa in favor of «
system that provides information to investors and gives them the opportonity to make
informed choices. The SEC implements that mandate and protects investors and masicets
by requiring full, fair and truthful disclosure of material information to investors.
‘Companies that sell stock or other securities to the public are generally required to
disclose information about their businesses as well as ongoing information about their
results, Similarly, market professionals ~ brokers, dealers, mutual funds, other


91

Mr. McINTosH. Thank you for your testimony, Mr. Onek.

Our next witness will be Mr. Brian Lane of the Securities and
Exchange Commission. .

Mr. Lang. Thank you. Mr. Chairman, members of the sub-
committee, my name is Brian Lane. Thank you for inviting me to
testify on behalf of the Securities and Exchange Commission con-
cerning H.R. 3310. As director of the Commission’s Division of Cor-
poration Finance, I take the staff lead in addressing small business
issues. The Commission supports the goal of H.R. 3310 and is al-
ways interested in exploring ways to be more sensitive to small
businesses. My written testimony details some of the Commission’s
small business credentials. These are credentials of which we at
the SEC are especially proud. It is with this background that I
have come to express some concerns and offer what I hope will be
viewed as constructive suggestions.

Our primary concern is that automatic or broad approaches to a
problem are less likely to be successful than tailored approaches.
We have seen this in our own regulations. H.R. 3310 could preclude
automatically a Federal agency from fining a small business if they
fail to make a required filing or disclosure. The Commission’s staff
typically seeks to resolve inadvertent or technical first-time viola-
tions informally. We believe however, that deliberate or severe vio-
lations may warrant penalties without requiring us to prove a
threat to public health and safety. This could be done, for example,
by recognizing harm to innocent investors or market integrity as
being sufficient.

In addition, we are worried that some small entities may abuse
the safe harbor we assume was intended for small businesses that
are acting in good faith, but ignorant of Federal disclosure require-
ments, that they could abuse the provision by using non-disclosure
or incomplete disclosure to further a fraud. As another example,
they could abuse the provision by destroying incriminating records
prior to the arrival of our inspectors and claim that they have a
safe harbor from fines and another 6 months to create some
records.

It is not widely enough appreciated that the Paperwork Reduc-
tion Act covers required disclosures by a business to third parties.
The proposed safe harbor is especially disturbing when we consider
that it would apply to disclosures to customers and even to a bro-
ker’s submission to stock exchanges with familiar stock quotes that
are displayed on ticker tapes and the financial networks on TV.
These are areas where absolute integrity and the fiduciary stand-
ard must govern. My written testimony has other examples.

In the end, we would urge you to consider four suggestions. One,
expand the exception for offenses that threaten public health and
safety to include investor protection or market integrity. Two, limit
the safe harbor only to those small entities that are acting in good
faith. Three, exclude from the safe harbor owners or operators that
are repeat offenders. Just because a person can incorporate a new
small entity overnight should not give the firm or its principal an-
other bite at a one bite safe harbor. And four, the definition of
small business should conform with the agency's definition adopted
for purposes of regulatory flexibility.


1

Compensation rates reflect our good safety record. Our company
has had an active safety program in place for many years.

As a result of the May 20, 1997, inspection, our company was
cited for violation of 29 CFR 1910.1200(e)(1). In plain English, that
meant we did not maintain a Hazardous Communication Program
at the Matthews job site. This charged violation was immediately
corrected by our employees during the inspection process, inasmuch
as we already had such a program in place. We had years before
developed this program. During our regular safety meetings, our
employees had been trained on it. Yet, the charge was not that we
did not maintain the program, but the charge was that we did not
have the written program onsite. We are now faced with a pro-
posed penalty of $750. We have never been cited for a program or
similar matter before. Left unchallenged, this penalty would be
used as a factor in our insurance rates and future contacts with
IOSHA.

To put this whole matter in perspective, the most hazardous
product that we had on this job site was concrete mix.

As you may suspect, the 12-page safety order we received from
IOSHA was a very detailed document. It made references to nu-
merous Indiana Codes and Federal Regulations. Quite simply, it
appears to be a document written by a skilled lawyer.

'e decided to contest this citation. Yet in order to do so, we were
required to hire a lawyer. We filed a Petition for Review. Due to
the short time limits set by IOSHA, it was necessary to file this

etition even before we could have an informal settlement con-

erence with IOSHA.

To further complicate matters, once we filed the petition, we re-
ceived another document called Complainant’s Interrogatories and
Request for Production of Documents. Our attorney tells us this is
standard procedure. The instructions for this document were three
and a halt pages in length. The document contained over two pages
of definitions. I would like to share with you one of the definitions.

As used herein, “document” and “documents” mean all original writing of any na-
ture and all non-identical copies thereof in the possession or custody, or under con-
trol of the respondent regardless of where located, including, but not limited to, con-
tracts, agreements, records, tape recordings, correspondence, communications, re-
ports, studies, summaries, minutes, notes, diaries, appointment calendars, bulletins,
announcements, instructions, charts, manuals, brochures, schedules, memoranda,
computer listings, interoffice and intraoffice memoranda, and other documents as
that term is used under Indiana Rules of Trial Procedure.

In any case in which the original or non-identical copy is not available, “docu-
ment” and “documents” include an identical copy of an original or a copy of a non-
identical copy. Any document bearing notations, markings, or writings or any kind
different from the original shall be treated as an origina) document.

I am sure someone somewhere is quite proud of these definitions.
What may be good for those who write definitions though is not
necessarily good for small business. 1 cannot spend time reviewing
all my documents, creating new documents, and talking with a law-
yer when I have a business that needs my full-time attention.

To further show you what a small business faces today, I have
here with my rules, regulations and laws I need to be familiar with
each day. Many of these are required to be on each job site. Frank-
ly, this is getting to be too much.

I am not here today asking that you create a loophole which
would allow small businesses to ignore their safety responsibilities.


97

Geficiecies are technical, inadvertent or do not threatea significant barm to investors,
markets or the public.

‘When SBC examiners ideatify deficiencies, they generally provide the registrant
with a “deficiency letter” identifying the problems and requicing appropriate remedial
steps. In instances where examiners identify compliance failures that appear numerous,
more serious in nature, or systemic, but do not appear to warrant enforcement action,
they may also hold a conference call or an in-person meeting with the registrant to
discuss the problems and the remedial steps the registrant intends to take. Most SEC
‘examinations are resolved through the deficieacy letter process.

‘When the registrant’s compliance failures appear too setious for informal
resolution, such as whea fraud is discovered ar when investor funds or securities aro at
risk, the examination staff will refer the matter to the Division of Enforcement.*

In addition, when the Division of Enforcement intends to recommend enforcement
action, it is Commission policy generally to provide notice to the proposed respondents,”
‘and to afford them an opportunity to present their side of the matter." This process
‘ensures that respondents bave an opportunity to directly inform the Commission, which
authorizes all enforcement matters, when they believe that a violation was inadvertent and
that formal enforcement action is not warranted.


102

that customers agree to certain types of transactions, before the transactions
are effected. Violations of this type of rule harm investors by deaying
them information necessary to make an informed decision, and in many
cases, lead to the purchase of disastrous investments in speculative issues.

Another example is in the reporting of a public company's earnings.
‘Virtually every accounting fraud by a public company involves a violation
of the requirement to accurately keep the company's books and records.
Protection for companies that make inadvertent or innocent mistakes is
already built into the law by the requirement that violations be material.

Another type of serious recordkeeping violations involves the deliberate
falsification of records and record destruction. These kinds of violations
can matk serious fraud. For example, the Commission receatly sued eight
floor brokers of the New York Stock Exchange for conducting what the
Exchange's chairman bas described as a "massive falsification of books and
records" to conceal illegal trading for their own accounts." The
Commission believes that cases involving this typo of legal conduct
should not be trivialized or treated with leniency. Often we find that
misleading disclosure is used to draw investors into a fraud, and false
recordkeeping conceals it from regulators long enough for wrongdoers to
profit at the expense of innoceat investors,

‘Conceming a more time-sensitive matter, the Commission currently is
engaging in a serious Year 2000 initiative which, in past, would require

ih


118

helping to ensure compliance. When records indicate compliance problems, we con
work with the company to fix the problem. When there is an unwillingness to comply,
we can take necessary action. ‘The government's resources are limited, however, and
when records are deficient or lacking, it takes additional government resources to
identify problems. For example, in the RSPA enforcement action I mentioned earlier,
the agency had to spend considerable additional resources because records were
missing at the time of the initial inspection. Because of the company's overall
compliance disposition, the agency was willing to waive its penalty. If the violation is
intentional or results from an extremely careless disregard for safety, it is not clear to us
why the agency should waive fines; not only must the agency ineur additional expense
reviewing the records after the correction is made, but the evidence of intentional or
careless disregard should not be ignored when we are dealing with such things as the
transportation of passengers or the carringe of hazardous materials. More importantly,
deficient or missing records may delay the identification of an important safety or.
environmental problem or it may prevent us from gathering information about a
serious violation. Or it may delay notification of third parties - some of whom may be
small businesses ~ of such things as defective parts in their aircraft or other mode of
transportation. Spécific examples of these problems can be seen from our description
of our concerns with H. R. 3310.

Concerns With the Waiver of Fines Provisions
We have had a limited time to review the provisions of H. R. 3310 with Departmental
personnel who are responsible for enforcing our regulations, many of whom are in

regional offices, Our quick review has, however, identified a number of potential
concems, For example:


65

tive and unnecessary. Moreover, eliminating the potential for any
penalties for first time violations removes the incentive for employ-
ers to voluntarily comply without intervention. This is particularly
important where requirements have a true health and safety im-

pact.

The bill attempts to guard against risks to safety and health by
allowing employers 24 hours to correct violations that have an im-
minent or substantial danger to public health or safety. In such in-
stances, the bill allows the agency to impose the fine immediately
if it informs Congress. While we acknowledge the author's desire
to protect safety and health risks, the bill fails to protect workers
from very real dangers. Therefore, we strongly oppose this provi-
sion.

The bill should not hinder in any way an agency’s ability to act
immediately to eliminate an imminent or potential danger to
health or safety of workers and the public. Furthermore, the defini-
tion of public health or safety within SBPRA is not clear, as the
bill provides no context to determine what public health or safety
means. We suggest that the language of section 2(b)(i1\B) be
amended to allow the agency to impose penalties not only when it
believes the violation has caused actual serious harm to the public
health and safety, but also when the violation appears likely to
cause serious harm.

As drafted, section 2(b)(i1)(B) could place workers at risk of se-
rious accident or injury. Many important collection of information
requirements exist that significantly and directly protect workers
from serious injury and illness. However, those requirements might
not reach the bill’s imminent and substantial danger threshold. For
example, OSHA’s worker right to know program in its hazard com-
munications standard requires a certain amount of paperwork to
ensure that the program is effective. If a worker is unaware that
a hazardous chemical substance is present in the workplace, he or
she may be at serious risk of illness or death. At the same time,
this risk, while serious, may not be so great as to constitute an im-
minent and substantial danger to the public health or safety. En-
forcement of OSHA standards concerning written lockout/tagout
programs, analysis of hazard processes at chemical plants, hearii
conservation and toxic exposure monitoring records, all of whit
have a direct and significant impact on employee safety and health
would also be rendered ineffectual in most instances in this section
of SBPRA.

There are countless examples of workers being killed or injured
when employers failed to adhere to basic information sharing re-
quirements. In one instance, an explosion ripped through a Phillips
66 company complex in Houston, TX, killing 23 people, in part be-
cause a small contractor failed to obtain the necessary permits to
ensure that proper safety precautions were observed during main-
tenance operations. After this tragic incident, Congress directed
OSHA to require all businesses using large quantities of potentially
volatile chemicals to implement written procedures, minimizing the
potential for catastrophic explosions, fires, or other events which
can seriously harm workers and people living nearby. Under the
resulting process safety management standard, written process
hazard analysis and procedures covered as paperwork under the


xl

the other hand, would send a message that employers can allow life threatening conditions to
persist until, and even after, they are discovered by OSHA. To allow any additional time for a
catastrophe to occur, whether it be one hour, twenty-four hours, or six months later, would
seriously jeopardize employee safety and health and undermine OSHA's statutory mission.

In another instance, two employees died from asphyxiation in a confined space while
cleaning a tank. Failure to follow written procedures required in OSHA’s confined space
standard was a significant factor in their death. OSHA's confined space standard requires
employers to monitor and record the level of contaminants in the atmosphere before employees
enter work areas which may be deficient in oxygen or contain contaminants, Records of such
monitoring is considered a “collection of information” under the PRA. If employers do not
perform such monitoring, employees face the risk of being asphyxiated or overcome by radiation
or toxic fumes. If this monitoring is to protect workers effectively, employers must monitor
routinely whenever there is a possible danger, not just when OSHA can prove that a particular
employee in a particular confined space is in “imminent danger” of death or serious injury.

Tragically, OSHA has many other examples where lack of compliance with the
“paperwork” requirements of the confined space regulation led directly to a worker's death,
including the recent accident at the Yorktown Naval Weapons Station. Four workers were
asphyxiated after being exposed to raw sewage fumes because their employer had not developed
proper rescue procedures or trained its employees in proper confined space entry practices and
procedures. All these corrective measures are part of a confined spaces entry program which

would be considered a “collection of information” under SBPRA.


16

The second thing we did was contrast the paperwork status quo
with what a new, more efficient, more effective system might look like.
When we compared the ‘What Is” with the “What Could Be” we
discovered that a good paperwork system has some fundamental
characteristics. Instead of dozens and dozens of reports, you have
consolidation. Instead of many different agencies and locations to send
information and reports, you have one point of entry or contact into the
reporting system.

Instead of having to repeat filling out the same data on multiple
reports, a facility might only have to submit that information once.
Instead of inconsistent definitions across regulations for similar types of
industrial activity or data, you have consistency. And in the place of
paper-based reporting, you have electronic reporting. These are some of
the building blocks of a new and better system, and they came out of a
process where industry was working with EPA, states, local regulatory
authorities and environmental groups.

Metal Finishing Perspective on the “Small Business Paperwork Reduction
‘Act Amendments of 1998”

‘We sce the approach we took in the RIITE project as entirely
consistent with the approach that you have proposed in your bill in
several key respects. First, both attempt to move us from many points of
contact for interfacing with regulatory agencies to one point of contact.

Second, Section 2 of the bill calls for the Office of Information and
Regulatory Affairs (OIRA) within OMB to publish all regulations that
apply to small business. We fully support this exercise in some form -
partly because it sheds light on what has truly become in some ways a
sort of hidden universe of scattered, duplicative and overlapping
paperwork and reporting requirements. Since they've never really been.
counted, no one really knows how many there are, or how they all fit
together — all we know for sure {s that the universe keeps on expanding.

Perhaps this is where our experience as metal finishers can offer
some guidance as the legislation moves forward. We got a great benefit in
the RIITE program from analyzing a list of reporting burdens that applied
specifically to our industry sector, and not to small business in general.
This gave us the ability to assess and be creative about how to
intelligently consolidate and streamline a set of paperwork requirements.
that is uniquely ours.

It would seem that OIRA could publish without too much trouble


99

investment companies, investment advisers, and transfer agents - are required to make
‘truthful disclosures to clieats or other market participants about their activities. They are
also required to keep records necessary to account for client funds and their own
activities in the market.

‘The Commission carefully weighs the impact of its rules on all entities, including
small businesses. However, the Commission's primary considerations as to the adoption
and enforcement of each rule must be the effects of the rule on investor protection and
market integrity. As a general matter, uniform rules must be applied to firms that are
part of a larger national market system to ensure fair, efficieat markets and the same
level of protection for all investors, regardless of the size of the firm to which they
entrust their funds.

ANALYSIS OF H.R. 3310

As noted above, the Commission supports the goals of H.R. 3310, which are to
reduce paperwork burdens on small business and to provide relief for inadvertent first-
time paperwork violations. To summarize, H.R. 3310 has four ceotral requirements with
respect to coection of information by ageacies. It would limit an agency's ability to
enforce existing information collection requirements through the use of civil fines.” It
would require agencies to publish annually a list of requirements applicable to small
business concerns." It would require each ageacy to establish one point of contact as a
Hiaison to small business concerns." And it would create a task force to study and
report to Congress about ways to lessen paperwork burdeas on small businesses."


21

some of the recommendations that have just been issued again and
the action that was taken.
Having said that, I thank you very much for asking me to be a
witness. If there are any questions, I would we happy to respond.
[The prepared statement of Ms. Nelson follows:]


50

Census, Labor, EPA or other agencies. Intemet technology is making it easy to develop a-
simple form for small business that contairis the basic information requested by each
agency which can be used as a header, if you will, for each and every report that is
required. ‘The header could be on file in a consolidated data base, could be modified by
the company as information about the business changes, could be pulled up, along with
the core of any report mandated by an agency, completed and sent to the requesting
agency electronically. This is an option that should be explored and is within the realm
of feasibility, thanks to Intemet technology and to the fect that more and more small
businesses are converting their business processes to computers containing multi-purpose
software. This is an idea I have had for some time and I am now convinced the time is
tipe for its implementation. The technology is here - we just need the commitment to
make it happened.

In closing I want to emphasize that the proposal you are considering is
conceptually sound and right on the money. J cannot address the difficulty or cost of
compiling the annual list of reports. If it is difficult -- and -- if it is costly ~ and -- if itis
burdensome on agencies, this will be clear evidence of the need for this compilation and
the benefits to be derived from this proposal. It gives you even more justification for
determining exactly what reports small businesses must file with which agencies.
However, this is not my expertise and I am sure others will address that issue. What I do
know is that paperwork reduction is no one’s priority except small business.’ Success
will come when agencies fully realize how disproportionately small business is burdened
by paperwork and reporting requirements, how anti-competitive the costs can be, and that


95

© SBC Web Site: The Commission operates a web site with special pages
‘targeted to small businesses. These pages provide access to proposed new
regulations affecting small busioesses, 23 well as information about specific
issues of current interest.

© Public Inquiries: Bach major office of the Commission has staff who are
available to answer questions from members of the public, including small
businesses, by telephone and o-suail.

Notably, because of programs like these, when the Small Business Regulatory
Baforcement Fairness Act (*‘SBREFA") was passed, Cobgress recognized the
Comission a8 one of several ageacies which “already have established successful
‘programs to provide compliance assistance.“*

REVIEWING EXISTING AND PROPOSED RULES FoR WAYS TO REDUCE BURDENS
ON SMALL BUSINESSES,

© Plain English: ‘Nothing is moro frustrating tha trying to comply with
regulations that are difficult to woderstand because they aro written in
Jargon or legalese. ‘The Commission has made efforts to issue regulations
and releases in “plain Roglish* and has required registrants to uso plain
nglish in certain of their disclosures to investors. At the ead of the day,
plain English disclosure is shorter and less expensive and should be
particularly helpful for small businesses.


33

The only reason DWA was aware of LAM's non-compliance was that once L&M went
into compliance in 1992 they were put into the EPA database which is available under Freedom of
Information Act and DWA saw that L&M was not in compliance for previous years. Essentially
WA was punishing them for doing the right thing. Think about the horrible precedent that
‘would be set for other businesses that realize they are not in compliance, but to comply is to put
themselves at risk of being sued if they do.

Keep in mind that local emergency services were informed through required forms of the
‘chemicals used in the business, so the failure of fling with the EPA did not put anyone at risk. It
‘was merely a case in which a business was not notified of new paperwork requirements and when
they found out through their own efforts and complied, they were pursued by a local
‘environmental organization. (The case was settled out of court with the company agreeing to pay
attomey and research fees of the environmental organization.) Had the suspension of fines for
first-time offenders been in place, the environmental organization would not have had the legal
leverage to threaten a huge lawsuit

This bill would allow small businesses to correct innocent oversights of paperwork filing
requirements. This is quite reasonable and consistent with both Congress and the
‘Administration's intent to make the federal government more user-friendly for small business,

1 look forward to the testimony today and hope that we can pass this legislation in the near


183

© U. S. Department of Justice

Office of Legislative Affairs

(Oe of the Asana Anmeney Cone Washing D.C. 20850

March 26, 1998

‘The Honorable David McIntosh

rman

Subcommittee on National Economic Growth,
Natural Resources, and Regulatory Affairs

Conmittes on Government Reform and Oversight

U.S. House of Representatives

Washington, D.C. 20815

Dear Mr. Chairman:

This letter responds to the question you posed to Deputy
Associate Attorney General Joseph Onek at the hearing on March
17, 1998 before the Subcommittea on National Economic Growth,
Natural Resources and Regulatory Affairs, on H-R. 3310, the
“Small Business Paperwork Reduction Act Amendments of 1998." You
asked why other civil remedies, including injunctive relief, were
not sufficient to address violations of information collection
requirements and, in the alternative, why agencies could not
address the underlying substentive requirements directly.

The Department of Justice agrees that H.R. 3310 would not
bar agencies from obtaining civil remedies, including penalties,
to address underlying substantive violations related to reporting
or record keeping violations. But if companies do not comply
with their reporting or record keeping obligations, it is much
more difficult for agencies to find out about dangerous products
or dllegal activities. The ability to bring an action for
injunctive or other relief does little good if the agency has no
means to learn of the violation.

In some situations, civil penalties will not be available
and injunctive relief will not be effective, because the only
substantive obligation is the information collection requirement .
For example, the requirement that financial institutions report
cash transactions exceeding $10,000 to the Secretary of Treasury,
gee 31 U.S.C. 5311, the requirement to notify buyers and renters
of lead-based paint hazards before selling or renting certain
housing, se¢ 42 U.S.C. 4851, and the requirement to report



7

separate lists of paperwork burdens broken down cither by small
business industry sector or by a 4-digit SIC (Standard Industrial
Classification) Code. This exercise would have twin objectives. It would
spur discussion on tailoring requirements to fit each industry sector's
needs, as well as assist small business sectors in doing an inventory of
what their paperwork obligations are. This is far from fundamentally
changing the system, but it’s an improvement over the status quo.

Third, Section 3 calls for a Task Force to study the feasibility of
streamlining reporting requirements for small business, Based on our
experience in identifying paperwork burdens and assessing options to
streamline with EPA, this would go a long way toward showing where
small companies could get some practical, bottom-line benefits,

Recommendations for Oversight — Reinventing Environmental Information

Beyond suggestions to improve the bill, metal flaishers urge
Congress in the coming months to closely track EPA's activity as the
agency gears up for a major reporting reform effort called “Reinventing
Environmental Information” ~ or REI. RE! plans to transform in a very
significant way our current reporting and data collection infrastructure.

REI is extremely technical and complex, and is truly an ambitious
undertaking that will require considerable effort and resources. REI
intends to achieve a wide range of things. It aims to improve EPA's own
administrative efficiency through better use of reported information and
facility data. It lays a foundation for the shift toward electronic reporting
for companies large and small. And it builds in a framework to maximize
public access to company environmental data.

The problem with REI, in our view, is that it seems to address
everything in the world except aggressively and intelligently tackling the
volume and the logic of current paperwork and reporting requirements
for small business. It would be a shame if at the end of REI, we fail to
make fundamental change, and instead simply pave with shoulders the
worn-out, meandering cow path that is the current paperwork system.

We urge the Congress to invite EPA to outline more fully than I
have what the agency is contemplating under REI and how paperwork
issues fit into the first really major change of our environmental
information system in a generation. Oversight of this kind would add
value to the kind of discussion we're having here today, and would
certainly point up both the strengths and weaknesses of the agency s
approach to information collection in general.


61

possible. I have enjoyed the opportunity to work with Mr. Tierney
and with the staff of the subcommittee. We have had ongoing dis-
cussions as to ways in which the bill can be improved.

Since the beginning of our bipartisan work on this bill, my efforts
have focused on two goals. First, to help small business comply
with paperwork requirements so that small business owners can
devote more time to creating jobs for our people. Second, to make
sure that the health and safety of the public, the integrity of envi-
ronmental laws and consumer protection laws are protected. Those
could actually be in reverse order, but they are both simultaneously
true, that we want to help small business while at the same time
not compromising health and safety.

I commend the chairman for agreeing to hold this hearing with
Federal agencies, and also commend my colleague, Mr. Tierney, for
his work on the issue. From the outset, we knew that the bill
would go through improvements as we gained more and more infor-
mation. I made that clear in every public and private statement
about this bill. In fact, every time that we have consulted with the
agencies about the impact of this bill, we have made changes which
have improved the legislation. In turn, after hearing from some
small business owners last week, we have come up with more im-
provements in the bill that are consistent with our goals. This has

en a bipartisan Process and I appreciate you, Mr. Chairman, for
your flexibility and your commitment.

We now have the benefit of the experience of a wide range of ex-
ecutive agencies, including U.S. Department of Justice. All of these
agencies to one extent or another, have implemented programs to
help small businesses comply with the paperwork requirements. At
the same time, all of them are required to enforce a number of stat-
utes. Often times, the ability of the agencies to protect the public
interest depends on the information they collect through paperwork
documents. Based on the testimony we will hear today, r hav-
ing reviewed the testimony, I can say that it’s clear that one provi-
sion of the current draft of the bill, the compliance assistance pro-
vision, would in fact have the unintended consequence of making
it more difficult to protect the health and safety of the public of
workers, of consumers, and of those who are protected by law en-
forcement officials.

Mr. Chairman, that of course has not been our intent. It was not
my intent in cosponsoring this legislation. I know it was not your
intent. I am sensitive as to how this particular provision might
interfere with crime fighting efforts. It is through information col-
lected that law enforcement officials can detect drug trafficking and
money laundering. In turn the DEA relies on written reports to en-
sure that controlled substances are not diverted illegally. These are
very serious responsibilities. I am sure that Congress will not want
to do anything to interfere with the ability of the Department of
Justice to carry out its responsibilities. The Justice Department
testimony reflects this concern, and I believe we must seek a modi-
fication in the current language in this bill.

In its current drafts, staff analysis of the bill indicates that it
would grant automatic probation of first time offenders when they
fail to comply with the law and create a safe harbor for some busi-
nesses to violate the law. It’s the feeling of some that it might even


130

Mr. LANE. I think my preliminary review was consistent with my
colleagues. It does seem to be consistent with SBREFA and just
good practices, a codification of trying to take into account——

Mr. SNOWBaARGER. And isn’t this what the President has already
indicated in his Executive order that you are supposed to do?

Mr. ONEK. In his memorandum of 1995, that is correct.

Mr. SNOWBARGER. So what does this add? An improvement that
moves the bill from any change in current law to current law,
which makes the bill kind of irrelevant.

Let me ask this question of Mr. Onek. On page 2 of your testi-
mony, you are talking about an interpretation of SBREFA or giving
us an overview of that. You indicated that—first of all, you talk
about the reduction or waiver of civil penalties. Then a little fur-
ther down in the paragraph you talk about that those SBREFA
policies do not apply where the violation involves willful or crimi-
nal conduct, and then goes in to impose a serious health threat?
I want to look at the willful and criminal conduct. Are you trying
to suggest to us that H.R. 3310 is inconsistent with that part of
SBREFA?

Mr. ONEK. Absolutely. H.R. 3310 doesn’t say anything about will-
ful or criminal conduct. It is true we could prosecute that conduct
criminally if it’s criminal. But after all, agencies do not want to
bring and do not want to be forced to bring criminal actions for
fairly minor violations. But at least the way the act is written, even
if it is a willful, let’s start with willful. Even if a small business
deliberately and intentionally doesn’t file a report or has another
violation of the paperwork act, this bill says that it can’t have a
civil fine.

Mr. SUNUNU. But they can also have a civil prosecution, not just
criminal prosecution, but they could also have a civil prosection
under this bill. Correct?

Mr. ONEK. That would probably depend on the individual stat-
ute, whether it provides for injunctive relief.

Mr, SUNUNU. Are fines the only remedies that you have in these
cases?

Mr. ONEK. It would go agency by agency I’m sure. In many
cases—

Mr. SNOWBARGER. Well we've got three agencies here.

Mr. McINTOSH. Actually specifically, are there any in the ones
you jisted in your testimony in which a civil penalty is the only
remedy’

Mr. ONEK. I really couldn’t answer that without doing further re-
search. There may be——

Mr. McIntosu. Let me ask you to do that.

Mr. SNOWBARGER. I was going to say, it seems pretty important
that we know that because you are giving us examples where there
may be other remedies other than the fine and all we are dealing
with here is the fine.

One of the other questions that would help me is what kind of
level of fine are we talking about for Paperwork Reduction viola-
tions or paperwork violations?

Ms. SHEKETOFF. Well, for OSHA, the fine for a first-time offense,
the fine could be a maximum of $7,000 depending on the serious-


114

operating administrations, our Bureau of Transportation Statistics, and the Office of the
Secretary are responsible for a broad range of matters that include safety, security, and
the environment. We are quite proud of the excellent safety record of the industries
that we regulate, bit we are also constantly aware ofthe extraordinary risks faced in
industries that annually transport millions of people, tons of hazardous material, and
millions of gallons of oil. We are also aware of our responsibility for ensuring that the
billions of dollars that we provide in financial assistance is used in accordance with
statutory objectives and mandates. At the same time, we are also aware of the burdens
- our rules can impose, and in all our rulemakings we consider the costs and the benefits
and determine whether those benefits justify the costs.

With this in mind, there are three main points that I want to make concerning H. R.
3310. :

«+. First, to the extent permitted by law, when no harm has been done, the
Department's existing policy is to waive or reduce civil penalties for smnall-business,
first-time violators = for any violation, not just paperwork — who have acted in good

_faith and who move quickly to correct the problem. We are also making a concerted
effort to reduce paperwork burdens imposed on our regulated entities.

+ Second, recordkeeping and reporting requirements are an extremely effective
method of encouraging compliance. with regulations in general, especially safety and
environmental regulations. We prefer to assume that everyone will want to comply,
but the paperwork helps us identify those who are making unintentional mistakes and
work with them to ix the problem; and realistically, we also recognize that some will


116

executive order. We also stress compliance rather than penalties. We would rather
encourage compliance than detect and penalize a violator. For example, when we
issued drug and alcohol testing requirements a number of years ago, we held a series of
conferences around the country to help businesses learn how to comply with our
regulations. At these conferences, we stressed that we were not locking to catch people
in violation of our rules. We said that, if we found violations the first time we checked
ona company but thought that they were making a good faith effort to comply, we
would not fine therh but would help them correct the problem.

" President Clinton has emphasized his support for this approach. In a memorandum.
dated April 21, 1995, the President directed agencies to use their enforcement discretion
to waive all or part of a penalty on a small business when the problem can be corrected
within an appropriate time period or the amount waived is used to bring the small
business into compliance. For the waiver to apply, there has to be a good faith effort to
comply and the violation cannot involve criminal wrongdoing or a significant threat to
health, safety, or the environment. The Department of Transportation continues to
believe that this represents the best approach.

‘As you know, in 1996 Congress enacted the Small Business Regulatory Enforcement
Fairness Act (SBREFA), which required a similar program for the reduction or waiver
of civil penalties for statutory or regulatory violations by small entities. The statute
authorized agencies to establish conditions or exclusions for the program and provided
a list that the agency could include; the list contained valuable guidance on
‘Congressional intent, such as requiring a good faith effort to comply and excluding

_ violations that involve willful or criminal conduct.


4

I also look forward to working with Mr. McIntosh and Mr.
Kucinich to further improve the bill. This hearing is an important
step in the process. The small business owners and advocates that
we will hear from today will help us focus on the most egregious
paperwork problems that need to be addressed.

However, the subcommittee also needs to hear from the agencies
that are affected by H.R. 3310. This bill has provisions that under
some circumstances would prohibit agencies from assessing civil
penalties for first time paperwork violations. These provisions
could have some unintended negative consequences, and we should
take the time to hear what the agencies have to say on the matter.

The agencies can also shed some light on the policies that they
already have in place to address first time Paperwork violations.

As you may know, 2 years ago, the Small Business Regulatory
Enforcement Fairness Act, also known as SBREFA, was enacted
into law. This bill had strong bipartisan support. It passed the
House by a vote of 328 to 91.

SBREFA afforded small businesses regulatory, relief, including
relief from civil penalties. Section 223 of SBREFA requires the
agencies to develop policies and programs that would reduce or
waive civil penalties for small business violations under appro-
priate circumstances.

The law specifically allows the agencies to provide relief for good
faith violations, violations that are corrected within a reasonable
period of time, and violations that do not pose a substantial threat
to public health, safety, or the environment. These policies should
have been implemented by April of last year.

SBREFA also requires the agencies to report to Congress about
their policies. These reports are due at the end of this month.
These. reports are expected to describe the scope of the policies, the
number of enforcement actions that the agency took against small
businesses, and the total number of penalty waivers or reductions
that the agencies have given.

Perhaps these reports will indicate that the relief provided by
SBREFA has been a success, and that there has been no need to
legislate again in this area.

ir. Chairman, I think that it is imperative that we learn about
the agency’s current policies for first time violations, and learn
whether H.R. 3310 could lead to some unintended negative con-
sequences. That is why the minority is requesting that the sub-
committee hold a hearing with administration representatives be-
fore the subcommittee marks up the bill.

Mr. Chairman, I would like to submit to you a written request
signed by a majority of the minority members for the record, and
ask that with unanimous consent it be entered into the record.

And I want to thank you again for holding this hearing, and I
look forward to hearing from the witnesses on this important issue.
Thank you.

Mr. Sessions. Thank you, Mr. Tierney.


93
Mr, Chairman, Members of the Subcommittes:

‘My name is Brian Lane, I am the director of the Division of Corporation Fisance
‘of the Securities and Exchange Commission (“SBC” or “Commission"). The Division of
‘Corporation Finance, through its Small Business Office, is at the forefront of the
‘Commission’s efforts to promote small business capital formation. 1 am very pleased to
‘have the opportunity today to testify on behalf of the Commission conceming H.R. 3310,
‘tho “Small Business Paperwork Reduction Act of 1998."

‘We support the goals of H.R. 3310 — to limit the burdens that federal regulation
imposes on small businesses. It is important that good faith, or inadvestent, first-time
violations not be the basis for routine fines, ‘The Commission is extremely seasitive to
the needs of small business and is engaged in ongoing efforts to respond to small business
concerns. Moreover, our examication program is geared towards seeciving informally
compliance problems thet are technical, inadvertent, or do not threstes significant harm
to investors or the markets. Thus, the theme and goals of H.R. 3310 strike a resonant
chord with the Commission.

‘Bowever, we are coacemed that the broad sweep of H.R. 3310°s penalty

exception, as correatly drafted, could inadvertestty protect intentional or serious
misconduct that would harm investors.


38

that it will snowball if they do not stay on top of compliance issues.
So I think that it is very important. And you will not see a snow-
ball effect the other way where they will just ignore rules and com-
pliance.

Ms. NELSON. I concur with what he says. I do not see it snow-
balling in the other direction.

Mr. Kucinicu. You do not think that people are going to try to
say this is a great chance for us to get out of compliance?

Ms. NELSON. Not in my community or in any other business com-
munity that I have been in, where the careless attitude would take
place, where they would say I do not care, and now that I do not

ve to comply I am not going to comply. No, I do not see that. It
is not a silver bullet to let them get away with it.

If there are those out there who think that they are going to get
away with it, they will get caught. And we honest people, as it
were, are going to have to pay for that. But it is not going to grow,
because there is a knowledge that they are going to get away with
a first time and not a monetary fine.

Mr. Kucinicu. Is it possible then that something that stream-
lines the process could achieve more and even quicker compliance,
is that possible?

Ms. NELSON. Yes, sir.

Mr. Kucinicu. Mr. Roberts, what is your answer to this idea?

Mr. ROBERTS. The first time, it is going to get you aware. The
next time they come back, it may be a fine that is tripled. Because
you did not comply the first time that you got the free pass. For
a regulation that you did not know about in a book this thick.
When my guys are out on a job site, when they are out on a job
site, they are not going to be sitting around reading a book. I can-
not Police them. Yes, we would get a free chance to correct that.
So next time that the inspector comes out, he is complying. He
can say they were written up for this problem 2 months ago, and
here it is again. And I am sure that we would get fined triple in-
stead of a free pass.

Mr. McINTOSH. Mr. Saas.

Mr. Saas. Thank you. I would like to make a couple of comments.
First of all, having essentially one get out of jail free card, I do not
think represents a mentality change for small businessman or any
businessmen either. If you only have one exemption that you can
use, I do not think that there is a danger that you are going to
change your attitude.

But I would point out that frankly that is a nice clause, but it
does not really do anything to reduce the paperwork load. If you
reduce the paperwork load, I think that you will automatically
minimize the instances where there are violations of paperwork.
That is No. 1.

No. 2. In our industry, again the metal finishing industry, there
is a term called a SNC, a significant noncompliance. As far as I am
concerned, it is even more important for a paperwork violation. Be-
cause it has no effect on the environment, and it would have no ef-
fect on human health and so forth. That that not be considered a
significant noncompliance. In other words, that it be considered

at it is, a minor offense, a venial sin, if you will.


125,

panies who ship employers just their whole—all of their MSDSs,
whether that employer is using all of those or not. But it is——

Mr. McINTosH. That’s right. But the requirement for the em-
ployer to train its employees isn’t a paperwork requirement.

Ms. SHEKETOFF. Yes.

Mr. MCINTOSH. So that wouldn't be subject to this bill.

Ms. SHEKETOFF. Yes, sir. It is.

Mr. McINTOosH. It’s a paperwork requirement that you train your
employees? I don’t think so. I think that’s an affirmative mandate
to engage in training.

Ms. SHEKETOFF. The program for training includes paperwork re-
quirements. Yes, sir.

Mr. McINTOSH. What type of paperwork requirements?

Ms. SHEKETOFF. The written program that the training comes
from, the written process that is in place for the processes that——

Mr. McINTosH. So you are saying that someone could conceivably
comply and have a training Program without any written mate-
rials? No. They would be in violation of not having a sufficient
training program, which is not a paperwork violation. See the ab-
surdity of some of this testimony is that when there are serious
problems, there is always an underlying offense that’s not a paper-
work offense that frankly there is no exemption or 6-month time
period for.

Let me mention to you a case that came before our subcommittee
in one of our field hearings. Mr. Pat Cattin, who is the owner of
a restaurant in Tacoma, WA, was fined $1,000 for failing to have
a material safety data sheet for hand soap that he had in the lab-
oratory of his restaurant. Now that’s precisely the t: of paper-
work violation and fine, and this is a real case in which OSHA ex-
tracted a fine out of this man, that this bill is attempting to elimi-
nate. He would have the opportunity to get that MSDS while the
inspector is there—in fact, in this case I think he got a copy of it
faxed to him while the person was there—and avoid having the
fine.

Ms. SHEKETOFF. Congressman, Washington State as Indiana, is
a State-plan State so that Federal OSHA does not have primary ju-
risdiction. In the 21 State-plan States, the State is the Brst line of
responsibility for enforcing safety and health. As long as those
State plans are as protective as the Federal law, the Federal OSHA
does not interfere. So no matter what our policy is to our inspectors
about when they should or should not cite, the State has their own
rules.

Mr. McINTosuH. So to be effective, we need to apply this provision
to the State plans?

Ms. SHEKETOFF. If you can pass regulations that will compel
State law, we don’t have any place in that.

Mr. McIntosH. OK. Thank you. My questioning period is over,
although I may have some in addition.

Mr. Tierney.

Mr. TIERNEY. Thank you.

Mr. Onek, in your testimony you indicated that in some in-
stances you thought that the civil penalty provisions in the bill
could harm the integrity of the current reporting system and re-
quire the Government to conduct more thorough inspections or


100

‘The Commission's main concer with H.R. 3310 is its provision to limit an
ageacy’s ability to impose civil fines, The language of tho bill is s0 broad as to sweep
within its “safe harbor" serious or deliberate violations that could barm investors or the
securities markets, The bill would be strengthened in our view by ameadments that
distinguish between minor violations and those recordkeeping violations of a more serious
nature ~ which could harm investors or the markets more generally. We discuss this
point in greater detail below.

‘LIMITATIONS ON CrviL FINES FOR FIRST-TIME VIOLATORS.

H.R. 3310 would generally probibit civil fines on a amall business “in any case of
a first-time violation regarding collection of information by the ageacy” if the small
business corrects the violation within six months of notice by the agency. A fine could
be imposed only if the bead of the agency determines that the violation bas caused actual
serious harm to the public health or safety.

Although the Commission generally seeks to resolve technical recordkeeping
violationis informally (regardless of the size of the company), we belicve there may be
instances where no disclosure or partial disclosure was intentionally done to advance a
fraud. The Commission would like the flexibility to continue to seek fines in egregious
cases, and we fear that a “public health or safety” standard would be construed 20
narrowly as to exclude economic harm. Also, the six-month "grace period” could be too
long in a marketplace that depeads on immediate, accurate information. Finally, repeat
violators (who relocate to open new firms) may abuse the first-time exception from
penalties. ‘Thus, this provision is troubling for a number of reasons.


41

the marketplace in hiring workers in this very tight labor market
that we are in right now.

There are a lot of instances like that. It is stopping the growth
of jobs because of paperwork.

Mr. McInTosu. It sounds like it is stopping the creation of bene-
fits for the employees that make the jobs even more attractive.

Mr. Situ. Exactly.

Mr. McINTOSH. Let me again say thank you to each of you.

Mr. Kucinich, did you have any followup?

Mr. KuciNIcH. Just again to thank the witnesses for coming to
Washington. We appreciate your input. And I think that it has
been very valuable in assisting us as we continue to craft this bill.
Thank you.

Thank you, Mr. Chairman.

Mr. McINTOSH. Thank you all very much. I appreciate it.

Our second panel today is Mr. Jere Glover, who is the Chief
Counsel for Advocacy at the Small Business Administration. Mr.
Glover, welcome back to our subcommittee. The chairman of the
full committee has asked that we swear in all witnesses in our sub-
committee.

[Witness sworn.]

Mr. McINTosH. Thank you. Let the record show that the witness
answered in the affirmative.

Welcome. Share with us your testimony, or a summary of it, as
you would prefer.

Mr, Gover. I think what I will do is summarize it, and add a
few things to it that I think may be relevant.

STATEMENT OF JERE W. GLOVER, CHIEF COUNSEL FOR
ADVOCACY, U.S. SMALL BUSINESS ADMINISTRATION

Mr. GLOvER. In the 20 years of the Office of Advocacy, we have
actually funded more than 50 studies on the regulatory burdens on
small business. And I notice that you have made good use of some
of those studies, particularly those done by Professor Hopkins. At
the time that study was done, it was extremely controversial. We
see now that there is a lot of information that has come out that
indicates that his study was pretty much right on the money.

What I want to talk about a little bit is a couple of things. And
I was able to delete some of my prepared remarks, because the
panel before me made some good comments and they included a
number of things that I wanted to say.

In addition to the actual regulatory and paperwork burden is the
perception that is very clear in the minds of small business, that
perception that at some point some investigator or some auditor is
going to walk in that door and cite them for some regulation that
they know existed, and the fine will be so great that it will impact
their business and their livelihood.

The perception is real. They actually believe that. Whether it is
true, that is another question. But small businesses wake up, many
of them, every day worrying about some regulation and some pa-
perwork problem that they do not know about, and what it would
do to their business.

Now what I want to say about that is I was one of the officials
who worked with the Vice President and the President to promul-