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REGULATORY FLEXIBILITY IMPROVEMENTS 

ACT OF 2013 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

REGULATORY REFORM, 

COMMERCIAL AND ANTITRUST LAW 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

ON

H.R. 2542 

JUNE 28, 2013 

Serial No. 113–29 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 
(II) 

COMMITTEE ON THE JUDICIARY 

BOB GOODLATTE, Virginia, Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

LAMAR SMITH, Texas 

STEVE CHABOT, Ohio 

SPENCER BACHUS, Alabama 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

MARK AMODEI, Nevada 

RAU ́ L LABRADOR, Idaho 

BLAKE FARENTHOLD, Texas 

GEORGE HOLDING, North Carolina 

DOUG COLLINS, Georgia 

RON DeSANTIS, FLORIDA 

JASON T. SMITH, Missouri 

JOHN CONYERS, JR., Michigan 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO R. PIERLUISI, Puerto Rico 

JUDY CHU, California 

TED DEUTCH, Florida 

LUIS V. GUTIERREZ, Illinois 

KAREN BASS, California 

CEDRIC RICHMOND, Louisiana 

SUZAN DelBENE, Washington 

JOE GARCIA, Florida 

HAKEEM JEFFRIES, New York 

SHELLEY HUSBAND, Chief of Staff & General Counsel 

PERRY APELBAUM, Minority Staff Director & Chief Counsel 

SUBCOMMITTEE ON REGULATORY REFORM, COMMERCIAL AND ANTITRUST LAW

SPENCER BACHUS, Alabama, Chairman 

BLAKE FARENTHOLD, Texas, Vice-Chairman 

DARRELL E. ISSA, California 

TOM MARINO, Pennsylvania 

GEORGE HOLDING, North Carolina 

DOUG COLLINS, Georgia 

JASON T. SMITH, Missouri 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

SUZAN DelBENE, Washington 

JOE GARCIA, Florida 

HAKEEM JEFFRIES, New York 

DANIEL FLORES, Chief Counsel 

JAMES PARK, Minority Counsel 
(III) 

C O N T E N T S 

JUNE 28, 2013 

Page 

THE BILL 

H.R. 2542, the ‘‘Regulatory Flexibility Improvements Act of 2013’’ .................... 3 

OPENING STATEMENTS 

The Honorable Spencer Bachus, a Representative in Congress from the State 

of Alabama, and Chairman, Subcommittee on Regulatory Reform, Commercial and Antitrust Law ........................................................................................ 1 

The Honorable Steve Cohen, a Representative in Congress from the State 

of Tennessee, and Ranking Member, Subcommittee on Regulatory Reform, 

Commercial and Antitrust Law .......................................................................... 33 

WITNESSES 

Karen R. Harned, Esq., Executive Director, National Federation of Independent Business 

Oral Testimony ..................................................................................................... 36 

Prepared Statement ............................................................................................. 39 

Carl Harris, Vice President and General Manager, Carl Harris Co., Inc., 

on behalf of the National Association of Home Builders 

Oral Testimony ..................................................................................................... 47 

Prepared Statement ............................................................................................. 49 

Amit Narang, Regulatory Policy Advocate, Public Citizen 

Oral Testimony ..................................................................................................... 59 

Prepared Statement ............................................................................................. 61 

Rosario Palmieri, Vice President, Infrastructure, Legal and Regulatory Policy, 

National Association of Manufacturers 

Oral Testimony ..................................................................................................... 71 

Prepared Statement ............................................................................................. 73 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Material submitted by the Honorable Spencer Bachus, a Representative in 

Congress from the State of Alabama, and Chairman, Subcommittee on 

Regulatory Reform, Commercial and Antitrust Law ........................................ 92 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable Spencer Bachus, a Representative in 

Congress from the State of Alabama, and Chairman, Subcommittee on 

Regulatory Reform, Commercial and Antitrust Law ........................................ 102 

Prepared Statement of the Honorable Steve Cohen, a Representative in Congress from the State of Tennessee, and Ranking Member, Subcommittee 

on Regulatory Reform, Commercial and Antitrust Law ................................... 104 

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, Ranking Member, Committee 

on the Judiciary, and Member, Subcommittee on Regulatory Reform, Commercial and Antitrust Law .................................................................................. 105 

Material submitted by Public Citizen .................................................................... 107 
Page

IV 

Statement of Administration Policy ....................................................................... 135 

Response to Questions for the Record from Karen R. Harned, Esq., Executive 

Director, National Federation of Independent Business ................................... 137 

Response to Questions for the Record from Amit Narang, Regulatory Policy 

Advocate, Public Citizen ...................................................................................... 138 
(1) 

REGULATORY FLEXIBILITY IMPROVEMENTS 

ACT OF 2013 

FRIDAY, JUNE 28, 2013 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON REGULATORY REFORM, 

COMMERCIAL AND ANTITRUST LAW

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 9:10 a.m., in room 

2141, Rayburn House Office Building, the Honorable Spencer Bachus (Chairman of the Subcommittee) presiding. 

Present: Representatives Bachus, Holding, Collins, Smith, Cohen, 

DelBene, and Jeffries. 

Staff Present: (Majority) Daniel Flores, Chief Counsel; Jennifer 

Lackey, Legislative Director, Office of Rep. Collins; Justin Gibbs, 

Office of Rep. Smith of Missouri; Ashley Lewis, Clerk; Matthew Alexander, Intern; (Minority) James Park, Minority Counsel; 

Veronica Eligan, Professional Staff Member. 

Mr. BACHUS. The Subcommittee on Regulatory Reform, Commercial and Antitrust Law hearing will come to order. 

Without objection, the Chair is authorized to declare recesses of 

the Committee at any time. 

We welcome all our witnesses today. Now we will have opening 

statements, and I will recognize myself for such time as I may consider. 

Most economic experts will agree that small businesses and 

small business trade drive and shape our economy and our ability 

to provide employment for American workers. In my view, the 

health of small businesses is one of the most important issues confronting our country. Small businesses are the source for almost 

half of our workforce, and while I am concerned about many economic factors, it is also my view that government regulations have 

a disproportionate impact on small businesses. 

While all businesses have to comply with State and local regulations, Federal regulations can impose an even greater burden because most small businesses simply do not have the resources or 

the time to monitor and participate in the Federal regulatory process or dispute new rules. 

According to the Small Business Administration, businesses with 

fewer than 20 employees spend on average 30 percent more per 

employee than large firms to comply with Federal regulations. The 
2 

SBA also reports that these small employers represent 99.7 percent 

of all businesses and have created well over 60 percent of all new 

jobs for over the past 15 years. 

Although our economy may be showing signs of improvement, we 

are still suffering from job loss, lack of job creation and long-term 

employment or underemployment. It only makes sense that we look 

to small businesses and work to create an environment that will 

help them prosper. 

We all know the importance of small businesses in our district, 

so certainly this should be an area for bipartisan cooperation. It is 

my belief that the Regulatory Flexibility Improvements Act of 2013 

offers one such opportunity, and I am pleased to be able to introduce legislation with my colleagues, Congressman John Barrow; 

Congressman Jim Matheson; the chairman of the Small Business 

Committee, Chairman Sam Graves; and Former Judiciary Committee Chairman Lamar Smith. 

It is my belief that improving the Regulatory Flexibility Act and 

the Small Business Regulatory Enforcement and Fairness Act will 

have a lasting impact on small businesses and help support longterm small business growth. We have a responsibility as legislators 

to ensure that regulations are appropriately tailored and that our 

regulatory process is effective. 

We have an excellent panel today that will offer diverse range of 

viewpoints on this legislation, and I want all of you to know that 

your input will serve a very important role as this legislation comes 

up for further consideration. 

I now recognize Mr. Cohen from Tennessee and Ranking Member 

of the Subcommittee for his opening statement. 

[The bill, H.R. 2542, follows]: 
3 

lUTE CO~GRESS 

1ST SESSION H. R. 2542 

To amend dmpter 6 of title 5, United StaLes Code (commonly known as 

the Hegulatory Flexibility Act), to ensure eomplete analysis of potential 

impacts on 8mall emities of rules, and for other purposes. 

IK THE HOl~SE OF HEPHESENTATIVES 

JUNE 27, 2013 

Mr. BACHUS (for himself, Mr. GRAVES of Missouri, Mr. BARROW of Georgia, 

Mr. ::IIATHESON, Mr. SMITH of Texas, Mr. COBLE, and MI'. R01ITTA) introduced the following bill; whieh was referred to the Committee on the 

Judi(;iary, and in addition to the Committee on Small Business, for a period to be subsequently determined by the Speaker, in each ease for eonsideration of such provision,; as fall within the jurisrlietion of the committee concerlled 

A BILL 

To amend chapter 6 of title !'), United States Code (commonly known as the Hegulatory Flexibility Act), to ensure cOlllplete analysis of potential impacts 011 small entities of rules, and for other pUl1)oses. 

Be it enacted the Senate and House of Rep'resenta2 titles ()f the United States 1.n 

3 SECTION 1. SHORT TITLE; TABLE OF CONTENTS. 

4 (a) SHORT TITLE.-This Act may be cited as the 

5 "Hegulatory Flexibility Improvements Act of 2013". 
4 

2 

TABLE OF CONTENTS.-The table of contents of 

2 this Act is as follows: 

Sec 1. 

Sec 2. 

Sec. 3. 

Sec. 4. 

88<'. f>. 

88<'. fl. 

88(1. 7. 

Sec. 8 . 

Sec. ~ . 

Sec. 10. 

Sec. 11. 

Sec. 12. 

Short title; table of contents. 

Clarification and expansion of rules covered by the R,p.g'ulatory Flexibility Aet. 

Expansion of report of regulatory ag·enda. 

Hequirements providing for more detailed a.nalyses. 

H.ep8al of waivpr and dplay authority; additional powers of the Chief 

Counsel for Advocary. 

Proeednres for gathering comment.s. 

Periorlic review of rules. 

.Jwlicial re,iew of compliance ",,;th t.l1e requirement.s of the R.egulatory 

Flexibilit.y Act. available aft.er publicat.ion of t.he final nIle. 

.JUl~sdiet.ion of court. of appeals over rules implement.ing t.he R.eg'llatory 

Flexihilit.y Art. 

Est.ablishment and approval of small business concern siT-e st.andards 

by chief counsel for advocacy. 

Clerical amendments. 

Agency preparat.ion of guides. 

3 SEC. 2. CLARIFICATION AND EXPANSION OF RULES COV4 ERED BY THE REGULATORY FLEXIBILITY 

5 ACT. 

6 (a) 11'\ GENERAL.-Paragraph (2) of seetion 601 of 

7 title 5, United States Cude. is amended to read as folluws: 

8 "(2) HULE.-The term 'rule' has the meaning 

9 given sueh term in seetion 551 (4) of this title, ex10 cept that sueh term clues not include a rule of par11 ticular (and not general) applicability relating to 

12 rates, wages, corporate or financial structures or re13 organizations thereof, prices, facilities, appliances, 

14 sel'viees, or allowanees therefor or to valuations, 

15 custs or aecounting, or pradices relating to SUdl 

16 rates, wages, structures, priees, appliances, serVIces, 

17 or allowances." . 

• HR 2542 IH 
5 

3 

(b) INCLUSION OF RCLES \VITH INDIRECT EF2 FECTS.-Section 601 of title 5, United States Corle, is 

3 amended by adding at tlle end the following new para4 graph: 

5 

6 

7 

8 

9 

10 

II 

12 

13 

14 

"(9) ECO~OlVIIC IMPACT.-The term 'economic 

impact' means, \vith 

rllleto a proposed or final 

"(A) an,v direct eCOIlOllllC effect on small 

entities of such rule; and 

"(B) any indirect economic effect on small 

entities which is reasonably foreseeable am! results from such rule (without regard to whether 

small entities \,-ill be directly regulated by the 

nue)." . 

15 (c) INCLUSION 01:<' RULl:<JS \Vl'l'H BBNl:<J"'ICL~ EF16 FECTS.-

17 

18 

19 

20 

21 

22 

23 

24 

25 

(1) b-rTIAL REGULi'lcTORY FLEXIBILITY AN~tir 

YSIs.-Subsection of section 603 of title 6, 

United States Code, is amended by striking the first 

sentence and inserting "Each initial regulatory flex-ibility analysis shall aLso eontain a detailed deseription of alternatives to the proposed nue which minimize any adverse sigluficant eronomic impart or 

maximize allY belleficial significant economic impact 

on small entities." . 

• HR 2542 IH 
6 

4 

(2) FIKAL REGULAcTORY FLEXIBILITY A-l'l"AL2 YSIs.-The first paragraph (6) of section 604( a) of 

3 title 5, United States Code, is amended by striking 

4 "minimize the signific.ant economic. impact" and in5 serting "minimize the adverse sigIiificant economic 

6 impact or maxmuze the beneficial sig'llificant eco7 nomic impact". 

8 (eL) IKCLUSION OF RULES AFFECTING TRIBAL ORGA9 NIZATIONs.-Paragraph (5) of section 601 of title 5, 

10 L"nited States Code, is amended by inserting "and tribal 

11 organizations (as defined in section 4(1) of the Indian Self12 Determination alld Education Assistance }.ct (25 U.S.C. 

13 450b(1l»," after "special districts,". 

14 (e) INCLUSION OF I~Al'JD }L~XAGElVIENT PL~NS AAv 

15 FORIVIA1~ RULl:<JIVL~KING.-

16 (1) b"ITIAL REGULATORY FLEXIBILITY ANAL17 YSIs.-Subsectiun (a) uf section 603 of title 5, 

18 United States Code, is amended in the first sen19 tence20 (A) by striking "or" after "prupused 

21 rule,"; and 

22 (B) by inserting "or publishes a revision or 

23 amendment to a land management plan," after 

24 "L" nited States," . 

• HR 2542 IH 
7 

5 

(2) FIKAL REGULAcTORY FLEXIBILITY ANAL2 Y8I8.-Suhsection of section 604 of title 5, 

3 United States Code, is amended in the first 8en4 tence5 (A) by striking "or" after "proposed rule6 making,"; and 

7 (B) by inserting "or adopts a reV1SlO11 or 

8 amendment to a laud management plan," after 

9 "section 603(a),". 

10 (3) h~~D lVLWAGEMENT PL~~~ DEFI~""ED.-SecII tion 601 of title 5, United States Code, is amended 

12 by adding at the end the following Hew paragraph: 

13 "(10) hL\D MANAGElVIENT PLllli.-

14 "(A) IN GENERAL.-The term 'land man15 agement plan' means16 "( i) any plan developed by the Sec17 retary of AgTieulture umler 8ection 6 of 

18 the Forest and Rangeland Renewable Re19 sonrces Planning Act of 1974 (16 U.S.C. 

20 1(04); and 

21 "(ii) any plan developed by the Sec22 retary of the Interior under section 202 of 

23 the Federal Land Poliry and Management 

24 Act of 1976 U.S.C. 1712) . 

• HR 2542 IH 
8 

2 

3 

4 

5 

6 

7 

8 

9 

10 

II 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

6 

"(B) REVISION.-The term 'revision' 

mean::> any change to a land numagement 1) Ian 

~whiell-

"( i) ill the case of a plan described in 

subparagraph (A)(i) , is made under section 

6(f)(5) of the Forest and Rangeland Renewable Resources Planning Act of 1974 

(16 U.S.C. 1604(f)(5)); or 

"(ii) in the case of a plan described in 

subparagraph (A)(ii), is made under section 1610.;:'i-6 of title 43, Code of Federal 

Regulations (or any successor regulation). 

"(C) MIEND1\IENT.-The term 'amendment' means any change to a land management 

plan which-

.HR 2542 IH 

"(i) in the case of a plan described in 

tmbparagraph (A)(i) , is made under section 

6(f)(4:) of the Forest and Rangeland Renewable Resources Planning Act of 1974 

(16 U.S.C. 1604(f)(4» and vvith respect to 

whieh the Secretary of Awiculture prepares a statement described in section 

102(2)(C) of the National Environmental 

Policy Act of 1969 (42 U.S.C. 

4332(2)(C»; or 
9 

7 

"(ii) in the case of a plan described in 

2 suhparagraph (A)(ii), is made under sec3 tion 1 Gl 0.5-5 of title 48, Code of Federal 

4 Regulations (or any successOl· regulation) 

5 and with respect to which the Secretary of 

6 the Interior prepares a statement described 

7 in section 102(2)(C) of the National Em~-

8 rOllmelltal Policy Act of 1%9 (42 U.S.C. 

9 4332(2)(C)).". 

10 (f) INCLUSION OF CERTAIN IXTERPRETIV'E RLLES 

II INVOLVING 'I'Hl~ IN'I'lm.NAI, R}JVENUl~ LAWS.-

12 (1) IN GENERAL.-Subseetion (a) of seetion 

13 (103 of title 5, United States Code, is amended by 

14 striking the period at the end and inserting "or a 

15 recordkeeping requirement, and ,vithout regard to 

16 ,vhether such requirement is imposed statute or 

17 regulation.". 

18 (2) COLLECTION OF INFORlVLb,.TION.-Paragraph 

19 (7) of section GOl of title 5, United States Code, is 

20 amended to read as follows: 

21 "(7) COLLECTION OF INFOR]\L~TIOX.-'l'he term 

22 'collection of information' has the meaning given 

23 such term in section 3502(3) of title 44." . 

• HR 2542 IH 
10 

8 

(3) RECOBDKEEPING REQUIREMENT . -Para2 graph (R) of section 601 of title :), United States 

3 Code, is amended to read as follows: 

4 "(8) RECORDICEEPING REQUIREMENT.-The 

5 term 'recordkeeping requirement' has the meaning 

6 given such term in section 3502(13) of title 4,1.". 

7 (g) DI~"'INITIOl\" (W SMA],L OHGANI!,;A'I'ION.-Para8 graph (4) of section 601 of title 5, United States Code, 

9 is amended to read as follows: 

10 Sl\IALL ORGANIZATION.-

II 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

TN G1~N!·JH.AI,.-The term 'small organization' means any not-fol'-profit enterprise 

which. as of the Issuance of the notice of proposed rulemaking-

.HR 2542 IH 

"(i) in the ease of an enterprise which 

IS described by a classification code of the 

N urth American Industrial Classification 

System, does not exceed the size standard 

established by the Administrator of the 

Small Business Administratiun pursuant tu 

section 3 of the Small Business Act (15 

L.S.C. (32) for small business concerns 

descrihed hy such classification code; and 

"( ii) ill tlle case of any otller enterprise, has a net worth that dues not exceed 
11 

2 

3 

4 

5 

6 

7 

8 

9 

10 

II 

12 

13 

14 

15 

9 

$7,000,000 and has not more than 500 

employees. 

"(B) TJOCAL LABOR ORGANT7,ATTONS.-Tll 

the ease of allY local labor organization, subparagraph (A) shall be applied vvithout regard 

to any national or international organization of 

which such local labor orgalli:;mtioll is a part. 

ACmNGY DEFIl\lTIONS.-SubparagTaphs (A) and (B) shall not apply to the extent that an agency, after eonsultation 'with the 

Offiee of Advoeaey of the Small Business Administration and after opportunity for public 

cumment, establishes une ur mure definitions 

for sueh term whieh are appropriate to the activities of the ageney and puhlishes such defini16 tions in the Federal Reg'ister.". 

17 SEC. 3. EXPANSION OF REPORT OF REGULATORY AGENDA 

18 Section 602 of title 5, United States Code, is amend19 ecl20 (1) in subsection (a)-

21 

22 

23 

24 

(A) in paragraph (2), by striking" and" 

at the end and inserting 

(13) hy redesig11f1ting paragraph (3) as 

paragraph (4); and 

.HR 2542 IH 
12 

10 

by inserting after paragraph (2) the 

2 following: 

3 "(8) a brief cleseription of the seetor of the 

4 N or111 Ameriean Industrial Classifieation System 

5 that is primarily affected by any rule whieh the 

6 ageney expects to propose or promulgate whieh IS 

7 likely to have a signifieant eeonomie impaet on a 

8 substantial number of small entities; and"; and 

9 (2) in subseetion to read as follows: 

10 Each ageney shall prominently display a plain 

11 language summary of the information eontained in the 

12 regulatory t1exibility agenda published under subseetion 

13 on its website vv'ithin :3 days of its publieation in the 

14 Federal Register. The Office of Advocacy of the Small 

15 Business Administration shall compile and prominently 

16 display a plain language summary of the regulatory agen17 das refereneed in subseetion (a) for eaeh ageney on its 

18 website I'.'ithin 3 days of their publication in the Federal 

19 Register.". 

20 SEC. 4. REQUIREMENTS PROVIDING FOR MORE DETAILED 

21 

22 

ANALYSES. 

INITBL REGULATORY FLEXIBILITY ANALYSIS.-

23 Suhsection (h) of section 608 of title 5, United States 

24 Code, is amellded to read as follows: 

.HR 2542 IH 
13 

11 

"(b) Each initial regulatory flexibility analysis re2 quired under this section shall contain a detailed state3 ment4 "(1) describing the reasons why actiou by the 

5 agency is being considered; 

6 "(2) describing the objectives of, and legal basis 

7 for, the proposed rule: 

8 estimating the number aud type of small 

9 entities to ,vhich the proposed rule will apply; 

10 describing the projected reporting, recordII keeping, and otller compliance requirements of the 

12 proposed rule, including an estimate of the dasses of 

13 small entities which will be suqiect tu the require14 ment and the type of professional skills necessary 

15 for preparation of the report and record; 

16 "(;») describing aU relevant Federal rules which 

17 may duplieate, uverlap, ur conflict with the prupused 

18 rule, or the reasons vvhy such a description could not 

19 he provided; 

20 "( 6) estimating the additiunal cumulative eco21 numie impart uf the prupused rule on small entities 

22 beyond that already imposed on the class of small 

23 entities hy the agency or why snch an estimate is 

24 llot available; and 

.HR 2542 IH 
14 

12 

"( 7) describing any disproportionate economIC 

2 impact on small entities or a specific class of small 

3 entities.". 

4 (b) FINAL REGULATORY FLEXIBILITY ANALYSIS.-

5 (1) IN GENERAL.-Section 604(a) of title 5, 

6 United States Code, is amended7 (A) ill paragraph (4), by striking "an ex8 planation" and inserting' "a detailed expla9 nation"; 

10 (B) in each of paragraphs (4), (5), and the 

II first paragrapll (6), by inserting "detailed" be12 fore "descriptiou"; and 

l3 by adding at the end the follmving: 

14 "(7) describing any disproportionate economic 

15 impact on small entities or a sperific class of small 

16 entities.". 

17 (2) lKCLUSION OF RESPONSE TO CO::VIMENTS OX 

18 CER.TIFICATION OF PROPOSED R.UI,E.-Pa1'agraph 

19 (2) of section 604(a) of title ;J, United States Code, 

20 is amended by inserting" (or certification of the pro21 posed rule under seetion 605 (b))" after "initial reg22 ulato1'Y flexibility analysis". 

23 (3) PUBLICATION OF ANALYSIS ON vv'EBSITE.-

24 Subsection (b) of seetion 604 of title 5, United 

25 States Code, is amended to read as follows: 

.HR 2542 IH 
15 

13 

"(b) The agency shall make copies of the final regu2 latory flexihility analysis availahle to the puhlic, including 

:) placement of tl1e entire analysis on tl1e ageneis website, 

4 and shall publish in the Federal Register the final regu5 latory flexibility analysis, or a summary thereof which in6 cludes the telephone number, mailing address, and link to 

7 the website where the complete analysis may be ob8 tained.". 

9 (c) CRoss-REFERE:'-JCES TO OTHER AL'JALYSES.-

10 Subsection of section 605 of title 5, United States 

II Code, is amellded to read as follows: 

12 "(a) A Federal agency shall be treated as satisfying 

13 any requirement regarding' the content of an agenda or 

14 reg'ulatory flexibility analysis under section 602, 603, or 

15 604, if such agency prnvides in such agenda or analysis 

16 a cross-reference to the specific portion of another agenda 

17 or analysis which is required by any other law and which 

18 satisfies such requirement.". 

19 (el) Clm.'I'Il"ICA'l'IONS.-Subsectioll (b) of section 60;) 

20 of title 5, United States Code, is amended21 (1) by inserting "detailed" before "statement" 

22 the first place it appears; and 

23 (2) hy inserting "and legal" after "factual" . 

• HR 2542 IH 
16 

14 

(e) QU~iIu"TTIFICATION HEQuREMENTs.-Section 607 

2 of title fI, United States Code, is amended to read as fol3 lows: 

4 "§ 607. Quantification requirements 

5 "In complying \vith sections 603 and 604, an agency 

6 shall provide7 ) a quantifiable or numerical deseription of 

8 the effects of the proposed 01' final rule and alter9 natives to the proposed or final rule; or 

10 "(2) a more general descriptive statement and 

II a detailed statement explaining why quantifieation is 

12 not IJractieable 01' reliable.". 

13 SEC. 5. REPEAL OF WAIVER AND DELAY AUTHORITY; ADDI14 TIONAL POWERS OF THE CHIEF COUNSEL 

15 FOR ADVOCACY. 

16 (a) IK GENERAL.-Seetioll 608 IS amended to read 

17 as fullmvs: 

18 "§ 608. Additional powers of Chief Counsel for Advo19 cacy 

20 "(a)(1) Nut later than 270 days after the date uf the 

21 enactment uf the Reg'ulatury j1'lexibility Impruvements Art 

22 of 2013, the Chief Counsel for Advocacy of the Small 

23 I3m:;iness Administration shall, after opportunity for notice 

24 and comment under section 558, issue rules governing 

25 agency compliance \vith this chapter. The Chief Counsel 

.HR 2542 IH 
17 

15 

may modify or amend such rules after notice and comment 

2 under section 558. This chapter (other than this suh3 seetion) s11a11 not apply vvitl1 respeet to the issuance, modi4 Qeation, and amendment of rules under this paragraph. 

5 ) An agency shall not issue rules ,'vhich supple6 ment the rules issued under subseetion unless sueh 

7 agelley has first consulted with the Chief Counsel for Ad8 vocacy to ensure that such supplemental rules comply "vith 

9 this chapter and the rules issued under paragTaph (1). 

10 "(b) Notwithstanding any other law, the Chief CounII sel for Advoeaey of the Small Business Administration 

12 may intel'vene in any agency adjudication (unless such 

13 agency i8 authorized to imp08e a fine or penalty under 

14 such adjudication), and may inform the agency of the im15 pnct that any decision on the 1'econl may have on small 

16 entities. The Chief Counsel shall not initiate an appeal 

17 ,vith re8pect to any adjudication in which the Chief Coun18 sel intervenes under this subsection. 

19 "( e) The Chief Counsel for Adyocacy may file com20 ments in response to any agency notice requesting eom21 ment, regardless of whether the agency is required to file 

22 a general notice of proposed rulemaking under section 

23 558.". 

24 (b) CONFORIVfTNG A~m~DMRN1'S.-

.HR 2542 IH 
18 

2 

:1 

4 

5 

16 

(1) Section 611(a)(1) 

hy striking "60R(h ),". 

(2) Section 611 (a)(2) 

by striking "608(b),". 

(3) Section 611(a)(3) 

6 edof such title IS amended 

of SUdl title 1S amended 

of such title IS amend7 (A) by striking subparagraph (B); and 

8 (B) by striking "(8)(A) A small entity" 

9 and inserting the following: 

10 "(3) A small entity". 

1 1 SEC. 6. PROCEDURES FOR GATHERING COMMENTS. 

12 Seetion 609 of title 5, United States Code, is amend13 ed by striking subsection (b) and all that follows through 

14 the end of the section and inserting the following: 

15 "(h)(1) Prior to puhlication of any proposed rule de16 scribed in subsection (e), an agency making such rule shall 

17 notifY the Chief Counsel for Advocaey of the Small Busi18 ness Administration and provide the Chief Counsel vvith19 "(A) all materials prepared or utilized by the 

20 agency in making the proposed TIlle, including the 

21 draft of the proposed rule; and 

22 "(B) information on the potential adverse and 

23 heneficial economic impacts of the proposed rule on 

24 small entities and the tY1)e of small entities tllat 

25 might be affeded . 

• HR 2542 IH 
19 

17 

"(2) L\n agency shall not be required under para2 gTaph (1) to provick the exact langll8.ge of any draft if 

3 tlle rule4 

5 

6 

7 

8 

"(A) ['elates to the internal revenue laws of the 

United States; or 

"(TI) is proposed by an independent regulatory 

agency defined in section 3;")02(5) of title 44). 

Not later than 15 after the reeeipt of sueh 

9 materials and information under subsection (b), the Chief 

10 Counsel for Advocacy of the Small Business Administra11 tion s11al1-

12 "(1) identify small entities or representatives of 

13 small entities or a combination of both for the pur14 pose of obtaining advice, input, and recommenda15 tiom: from those persons ahout the potential eco16 nomie impaets of the proposed l'ule and the eompli17 ance of the agency with section 603: and 

18 "(2) convene a review panel eonsisting of an 

19 employee from the Office of Ac1vocacy of the Small 

20 Business Administration, an employee from the 

21 agency making the rule, and in the case of an agen22 cy other than an independent regulatory agency 

23 definec1 in section 3502(fi) of title 44), an employee 

24 from the Office of Information and Regulatory Af25 fairs of the Office of Management and Budget to reeHR 2542 IH 
20 

18 

VIew the materials and information provided to the 

2 Chief Counsel under subsection (h). 

3 "(d)(l) Not later tlUlll 60 days after t11e rev~ew panel 

4 described in subsection (c)(2) is convened, the Chief Coun5 sel for Advocacy of the Small Business Administration 

6 shalL after consultation with the members of such paneL 

7 suhmit a report to the agency and, in t11e case of an agen8 c.y other than an independent l'egulator',Y agency (as de9 fined in section 3502(5) of title 44), the Office of InformalOtion and Regulatory Affairs of the Office of Management 

I I and Budget. 

12 "(2) Such report shaH iudude all assessment of the 

13 ecunUHnc impact uf the propused rule on small entities, 

14 including an assessment of the proposed rule's impact on 

15 the cost that small entities pay for energy, and a mscus16 sion of any alternatives that ,vill minimize adverse signifi17 cant economic impacts or maximize beneficial significant 

18 economic impacts on small entities. 

19 Such report shall hecome part of the rulemaking 

20 record. In the publication of the proposed rule, the agency 

21 shall e}qJlain what actiuns, if any, the agency took in re22 sponse to such report. 

23 "( e) A proposed rule is described by this subsection 

24 if the Administrator of t11e Office of Information and Reg25 ulatory Affairs of the Office of Management and Budget, 

.HR 2542 IH 
21 

19 

the head of the agency (or the del egatee of the head of 

2 the agency), or an independent regl11atory agency deter3 mines tllat tlle proposed rule is likely to result in4 "(1) an annual effect on the economy of 

5 $100,000,000 or more; 

6 a major increase in costs or prices for con7 Sl1mers, individual industries, Federal, State, or local 

8 governments, tribal organizations, or geographic re9 gions; 

10 significant adverse effects on competition, 

II ernployrnent, investment, productiv~ty, innovation, or 

12 011 the ability of United States-based enterprises to 

13 compete ,vith foreign-based enterprit:;e8 in dome8tic 

14 and export markets; or 

15 "( 4) a significant eeonon11C impact on a suh16 stantial number of small entities, 

17 "(f) Upon application by the ag'ency, the Chief Coun18 sel for Advocacy of the Small Business Administration 

19 may waive the requirements of suhseetions (h) through (e) 

20 if the Chief Counsel determines that compliance ,vith the 

21 requirement8 of 8ueh 8uu8eetion8 are irnpraetieable, un22 necessary, or contrary to the public interest,", 

23 SEC. 7. PERIODIC REVIEW OF RULES. 

24 Section 610 of title 5, United States Code, is amend25 ed to read m; fo11o\lv8: 

.HR 2542 IH 
22 

20 

"§ 610. Periodic review of rules 

2 Not later than 180 days after the enactment of 

3 the RegTuatory Flexibility Improvements Act of 2018, 

4 each agency shall publish in the Federal R,egister and 

5 place on its website a plan for the periodic review of rules 

6 issued by the agency which the head of the agency deter7 mines have a signifieant economie impaet on a substantial 

8 number of small entities. Such determination shall be 

9 made ,vithuut regard tu ,vhether the agency perfurmed an 

10 analysis under section 604. The purpose of the review 

11 shall be to determine whether such rules should be contin12 ued ,,~tllout cllange, or SllOll]Cl be amended or rescinded, 

13 consistent with the stated objeetives of applicable statutes, 

14 tu minimize any adven';e significant ecunumic impacts ur 

15 maximize any beneficial significant eeonomic impacts on 

16 a substantial number of small entities. SllCh plan may be 

17 amended by the agency at any time by publishing the revi18 sion in the Federal Register and subsequently placing the 

19 amended plan on the agenc}"s website. 

20 "(b) The plan sllall prov~de for the rev~ew of all SllCh 

21 agency rules existing on the date of the enactment of the 

22 Regulatury j111exibility Impruvements Act uf 2013 ,vithin 

23 10 years of the date of publication of the plan in the Fed24 eral Register and for review of rules adopted after the date 

25 of enactment uf the Regulatory Flexibility Impruvements 

26 Act uf 2013 vvithin 10 years after the publication of the 

.HR 2542 IH 
23 

21 

final rule in the Federal Register. If the head of the agen2 cy determines that completion of the review of existing 

3 rules is not feasible by the estahlislled date, the head of 

4 the agency shall so cer-tify in a statement published in the 

5 Federal Register and may extend the revie,v for not longer 

6 than 2 years after publieation of notiee of eAiension in 

7 the Federal Register. Sneh eertification and notice shall 

8 be sent to the Chief Counsel for Advocacy of the Small 

9 Business Administration and the Congress. 

10 The plan shall inelude a section that details how 

II an agency will conduet out1'eae11 to and rneaningfnlly in12 dude small businesses f01" the purposes of eaI'I'ying out 

13 this sectiun. The agency shall include in this sectiun a plan 

14 for how the ageney will eontaet small businesses and gath15 er their input on existing agency rules. 

16 "(d) Each ageney shall annually submit a report re17 garding the results of its review pursuant to such plan 

18 to the Congress, the Chief Counsel for Advocaey of the 

19 Small Business Arlministration, and, in the case of agen20 eies other than independent regulatory ageneies de21 fined in section 3502(5) of title 44) tu the Administratur 

22 of the Offiee of Information and Regulatory ~Affairs of the 

23 Office of Management and Budget. Such report shall in24 elude the identification of any rule 'Iith respect to Wllicll 

25 the head of the agency made a determinatiun described 

.HR 2542 IH 
24 

22 

in paragraph (5) or (6) of subsection (e) and a detailed 

2 e).11lanation of the reasons for such determination. 

3 "(e) In re\~ev,~ng a TIlle pursuant to subsections (a) 

4 through (el), the agency shall amend or rescind the rule 

5 to minimize any adverse significant economic impact on 

6 a substantial number of small entities or disproportionate 

7 economic impact on a specific class of srnall entities, or 

8 maximize any beneficial significant economic impact of the 

9 rule on a substantial number of small entities to the great10 est extent possible, consistent \vith the stated objectives 

11 of applicable statutes. In amending or rescinding the rule, 

12 the agency shall consider the following factors: 

l3 "(1) The cuntinued need fur the rule. 

14 "(2) The nature of complaints received by the 

15 agency from small entities concerning the rule. 

16 "(3) Comments by the R.egulatory Enforcement 

17 Ombudsman and the Chief Cuunsel fur Advocacy uf 

18 the Small Business Administration. 

19 "( 4) The complexity of the rule. 

20 "(5) The extent to which the rule overlaps, du21 plieates, or conflicts \vith uther J11

ederal rules and, 

22 unless the head of the agency determines it to be in23 feasihle, State, territorial, and local rules. 

24 The eontribution of the rule to tlle eunm25 lative economic impact uf all Pederal rules on the 

.HR 2542 IH 
25 

23 

class of small entities affected by the rule, unless the 

2 head of the agency determines that such calrulations 

3 cannot be made and reports that determination III 

4 the anIluall'eport required under subsection (d). 

5 "(7) The length of time since the rule has been 

6 evaluated or the degree to which technology, eco7 llomic conditions, or other factors have changed in 

8 the area affected by the rule. 

9 "(f) The agency shall publish in the Federal Register 

10 and on its website a list of rules to be reviewed pursuant 

11 to such plan. Such publication shall include a brief de12 scription of the rule, the reason why the agency deter13 mined that it has a sig1uficant eeonomic impact on a sub14 stantial number of small entities (\vithout regard to wheth15 e1' it had prepared a final regulatory flexihility analysis 

16 for the rule), and request comments from the public, the 

17 Chief Counsel for Advocaey of the Small Business Admin18 istration, and the Regulatory Enforcement Ombudsman 

19 roncerning the enforcement of the rule." . 

• HR 2542 IH 
26 

24 

SEC. 8. JUDICIAL REVIEW OF COMPLIANCE WITH THE RE2 QUIREMENTS OF THE REGULATORY FLEXI3 BILITY ACT AVAILABLE AFTER PUBLICATION 

4 OF THE FINAL RULE. 

5 (a) 1K GENEIku.-ParagTaph (1) of section 611(al 

6 of title 5, Cnited State8 Code, i8 amended by 8triking 

7 "final agency action" and inserting "such rule". 

8 ,TURl8DlC'l'lON.-Paragraph (2) of such section is 

9 amended by illserting "(or whiell \\~ould have SUell jurisdic10 tion if publication of the final rule con8tituted final agency 

11 action)" after "provision oflayv,". 

12 TIME FOR BRINGING ACTION.-Paragraph (3) of 

13 such section is amendecl14 (1) by 8triking "final agency action" and in8ert15 ing "publi cation of the final rule"; and 

16 (2) by inserting " , in the case of a rule for 

17 which tlle date of final agency action is the same 

18 date a8 the publication of the final rule," after "ex19 cept that". 

20 ( cl) 1KTERVENTION BY CHIEF COUNSEL FOR ADVO21 CAcY.-Subsection (b) of seetion G12 of title 5, United 

22 States Code, is amended illsetiiug" before the first pe23 riod "or agency compliance with section 601, 603, 604, 

24 605(b), 609, or 610" . 

• HR 2542 IH 
27 

25 

SEC. 9. JURISDICTION OF COURT OF APPEALS OVER RULES 

IMPLEMENTING THE REGULATORY FLEXIBILITY ACT. 2 

3 

4 l\J GENI~I{AI,.-Section 2342 of title 28, United 

5 States Code, is amended6 (1) in paragraph (6), by striking "and" at the 

7 end; 

8 (2) in paragraph (7), hy 8triking the period at 

9 the end and inserting "; and"; and 

10 (3) by inserting after paragraph (7) the fol11 lowing new paragraph: 

12 "(8) all final mles under section 608(a) of title 

13 5.". 

14 (b) CONFORMIKG A-,'VIENDMENTS.-Paragraph (3) of 

15 section 2341 of title 28, United States Code, is amended16 (1) in 8uhparagraph (D), hy 8triking "and" at 

17 the end: 

18 (2) in subparagraph (J1J), by striking the period 

19 at the end and inserting " ; and": and 

20 (3) by adding at the end the follovving new sub21 paragrapll: 

22 "(F) the Office of Advocaey of the Small 

23 Business Administration, when the final rule is 

24 under section 608(a) of title 5.". 

25 AU'I'HOR.IZA'I'ION To IN'l'I'JI{VI~NE AND C01\1lVlENT 

26 ON AGENCY COMPLIANCE ~WITII ADMINISTIL~TIVE PROCE-

.HR 2542 IH 
28 

26 

DURE.-Subsection (b) of section 612 of title 5, United 

2 States Code, is amended inserting "chapter 5, and 

3 chapter 7," after "tllis cllapter,". 

4 SEC. 10. ESTABLISHMENT AND APPROVAL OF SMALL BUSI5 

6 

NESS CONCERN SIZE STANDARDS BY CHIEF 

COUNSEL FOR ADVOCACY. 

7 (a) IN GI~"JI~R.AI,.-SubparagTaph (A) of section 

8 :3(a)(2) of the Small Business Act (15 U.S.C. 

9 632(a)(2)(A)) is amended to read as follows: 

10 "(A) IN GENERAL.-In addition to the cri11 

12 

13 

14 

15 

16 

17 

18 

teria specified in paragraph (1)-

the AcLministratol' Illay specify detailed definitions or standards by which a 

business concern may be determined to be 

a small business concern for pUl1)oses of 

this Ad or the Small Business Investment 

Ad of 1958; and 

,( (ii) the Chief Counsel for Advocacy 

19 may specify such definitions or standards 

20 for purposes of any other Ad.". 

21 (b) -L~PROVAL BY CHIEF COUNSEL.-Clause (iii) of 

22 section 3(a)(2)(C) of the Small Business Act (15 U.S.C. 

23 682(a)(2)(C)(iii)) is amended to read as follows: 

24 "(iii) except in tIle case of a Slze 

25 stamlard prescribed by the Administrator, 

.HR 2542 IH 
29 

27 

is approved by the Chief Counsel for Advo2 eacy.". 

:3 INDTTSTRY VAR.TATTON.-Paragrapll (8) of seetion 

4 :3(a) of the Small Business Aet (15 U.S.C. 6:32(a)(:3)) is 

5 amended6 (1) by inserting "or Chief Counsel for Advo7 cacy, as appropriate" before "shfll1 ensure"; find 

8 (2) by inserting "or Chief Counsel for Advo9 before the period at the end. 

10 (d) JTTDICBL REVIEW OF SIZE STANDARDS ~U>-

II I'HOVlm liY CHnJI" COUNSI~lj.-Seetion 3(a) of tlw Small 

12 Business Act (15 U.S.C. 682(a)) is amended by adding 

13 at the end the following new paragTaph: 

14 "(6) JUDICIAL REv'IEW OF SL~'\TDABDS ",\.PIS PROVED BY CHll£}' couNSBL.-In the case of an ac16 tion for judicial review of a rule which includes a 

17 definition or :standard approved by the Chief Coun:sel 

18 for Advocacy under this subsection, the party seek19 ing snch review shflll be entitled to join the Chief 

20 Counsel as a party in snch action.". 

21 SEC. 11. CLERICAL AMENDMENTS. 

22 Section 601 of title 6, United States Code, IS 

23 amended24 (1) in paragTflph (1)-

.HR 2542 IH 
30 

2 

3 

4 

5 

6 

7 

8 

9 

28 

(A) by striking the semicolon at the end 

and inserting a period; and 

(B) by striking "(1) the term" and inserting the following: 

"(1) AGENCY.-The term"; 

(2) in paragTaph (3)-

(A) by striking the semicolon at the end 

and inserting a period; and 

(B) by striking ) the term" and insert10 ing the follovv:ing: 

II "(3) SMA\,!, P,USINI~SS.-'1'lle term"; 

12 (8) in paragraph (5)-

13 (A) by striking the semieulon at the end 

14 and inserting a period; and 

15 (B) hy striking "( 5) the term" and insert16 ing the follovving: 

17 "(5) S~L~LL GOv'ER="TlVIENTAL JURISDICTION.-

18 The term"; and 

19 (4) in paragTaph (6)-

20 by striking "; and" and inserting a pe21 riod; and 

22 (B) by striking "( 6) the term" and insert23 ing the follovving: 

24 SMALL T<JNTT'fy.-'1'lle term" . 

• HR 2542 IH 
31 

29 

(b) The heading of section 605 of title 5, United 

2 States Code, is amended to read as follmys: 

3 "§ 605. Incorporations by reference and certifi4 cations". 

5 (c) The table of sections for chapter 6 of title 5, 

6 L"nited States Code, is amended7 (1) by striking tlle item relating to section 605 

8 and inser"ting the following ne"" item: 

"605. Incorporations by rteference and cert.ificat.ions."; 

9 (2) by :striking the item relating' to :section 607 

10 and inserting the folluwing new item: 

"607. Quantification requirements. 

11 and 

12 (3) by striking the item relating to section 60R 

13 and inserting the following: 

"60B. Additional powers of Chief Counsel for Advocacy.". 

14 (d) Chapter 6 of title 5. United State:s Code, 1:S 

15 amended as follmys: 

16 

17 

(1) In section 603, hy striking subsection (d). 

(2) In section 604(a) by striking the second 

18 paragraph (6). 

19 SEC. 12. AGENCY PREPARATION OF GUIDES. 

20 Section 212(a)(5) the Small Business Hegulatory En21 foreement Fairness Act of 199G (5 U.S.C. GOl note) IS 

22 amended to read as follmvs: 

.HR 2542 IH 
32 

30 

"(5) AGEKCY PREPARATION OF GUIDES.-The 

2 agcnry shall, in its sole disrrction, taking into ac3 eount the subjeet matter of tlle rule and tlle 1an4 guage of relevant statutes, ensure that the guide is 

5 vvritten using suffic.iently plain language likely to be 

6 understood by affected small entities. Agencies may 

7 prepare separate guides eovering gTOUpS or classes of 

8 similarly affected sIllall entities and may cooperate 

9 with associations of sIllall entities to distribute such 

10 guides. In developing guides, agenc.ies shall solicit 

II input from affected small entities or associations of 

12 affected small entities. Au agenc~y may prepare 

13 guides and apply this seetion with respect tu a rule 

14 or a group of related rules.". 

(J 

.HR 2542 IH 
33 

Mr. COHEN. Thank you, Mr. Bachus, and I want you to know, in 

your absence, we went ahead and passed quite a few new regulations. The Regulatory Flexibility Improvements Act proposes some 

needlessly drastic measures that threaten to undermine public 

health and safety and waste public resources. 

I am open to ideas on tweaking the regulatory process in modest 

ways to make regulatory compliance easier for small businesses 

and perhaps even finding better ways for small businesses to provide input to specific rules. As drafted, though, this bill simply goes 

too far. 

Wait a minute. I am having a flashback. I said the same thing 

2 years ago on this bill that was real similar to this in the same 

Subcommittee. It is indeed Groundhog’s Day, and I am playing the 

part of Bill Murray. That is the role I have been cast in by being 

made the Ranking Member here. 

It is not necessarily Mr. Bachus’ fault. He is doing what he 

thinks is right, but the fact is we are repeating and rehashing the 

same stuff over and over here. And the fact is regulations do have 

a function and an important function in our society, and regulations protect the American public from a vast array of harms. 

The reason we have regulations is because we have got to clean 

up our air, our water, protect children from dangerous toys, make 

sure our food is not going to cause us disease or even death, that 

we don’t have financial markets go haywire and crazy and almost 

wreck the economy and have unsafe workplaces. 

Not all this will be stopped with regulations, but most regulations are for the purpose of protecting society, and that is what 

they do. And for those who say all we need are libertarian laissezfaire, no-regulation society, well, we will have a whole bunch of 

deaths in the marketplace and deaths from consumer products. The 

Bureau of Labor Statistics report in 2011 census of fatal occupational injuries said there were 4,693 workplace deaths in 2011. 

According to researchers in the National Institute for Occupational Safety and Health, American Cancer Society and Emory University School of Public Health, 50,000 to 70,000 deaths from occupation-related diseases occurred in the United States. 

And while we are talking about regulatory cost, we should consider the cost of insufficient regulation. According to a joint study 

by Liberty Mutual Insurance Company and health economists at 

UC Davis, the estimated cost of workplace-related injuries is $250 

billion, only 25 percent of which is covered by Workers’ Comp. 

As I said, I know Chairman Bachus and other proponents of this 

bill sincerely share also my appreciation for the importance of regulation in protecting us from a myriad of harms, some of which I 

have mentioned. But I will emphasize the importance of regulation 

to point out that this bill, if enacted, could jeopardize these protections in the future. This bill was only used for regulatory review 

panels by requiring they apply the rules proposed by all agencies 

and by applying to them all major rules, not just those that are the 

subject to the Regulatory Flexibility Act. 

Currently, such review panels are required for rules that are 

subject to the Regulatory Flexibility Act and are proposed by the 

Environmental Protection Agency, OSHA, or the Consumer Financial Protection Bureau. These review panels, which consist of the 
34 

chief counsel for advocacy of small business administration, a representative of the issuing agency and a representative from the Office of OIRA, review the covered rules and can send them back to 

the issuing agency. Clearly, the process is intended to slow down 

rulemaking. By dramatically expanding the use, this bill will effectively stop most rules from going into effect. 

The bill also burdens agencies with numerous additional analytical requirements, including the requirement that agencies assess 

the indirect economic effects of a proposed rule. The requirement 

to assess indirect effects has almost no limitation other than that 

such indirect effect should be reasonably foreseeable, sounds like 

Palsgraf, which is not much of a limitation. Under this fairly openended requirement, agencies would be at a loss to determine how 

much is enough when it comes to the regulatory analysis obligations. 

For example, what is the reasonably foreseeable and direct economic effect of a regulation requiring heightened security measures 

at airports? Would the issuing agency have to take into account the 

potential loss of business for the hotdog stand that is located far 

past the security checkpoint or better, the barbecue rib place, more 

appropriate for my jurisdiction. 

These are just two of the many concerns of the RFIA. We will 

hear more in detail from Mr. Narang of Public Citizen about the 

remaining concerns with the bill. There are things we could do to 

help small entities, including measures to assist small business 

with regulatory compliance. We ought to be able to support such 

measures in a bipartisan basis. 

I understand Mr. Narang may have a proposal to that effect. I 

hope his fellow witnesses and the other Members of the Subcommittee will give it true consideration for legislation that we can 

pass in a bipartisan fashion in anticipation of the Fourth of July. 

God bless America. I yield back the balance of my time. 

Mr. BACHUS. Thank you. I thank the Ranking Member. One 

thing I may tell the panel and—not the panel here, but I think 

most of you probably know this, but I am not sure our Members 

do. The Regulatory Flexibility Act was 1980. In 1996, President 

Clinton said it wasn’t being enforced and that it should be extended to small businesses, which he did, and that was kind of 

Groundhog Day, because a lot of what he said in 1996 is what is 

in this act because it just didn’t happen. 

And you mentioned the EPA environmental standards. They are 

actually required by the law to do a lot of what we are asking them 

to do here, but they just simply hadn’t done it, and I know Public 

Citizen has in their written testimony, which I read, said how this 

would slow things up. But I think the argument may be with the 

1996 act. But the EPA, it said they were going to voluntarily comply with this and it just hadn’t done it except I think on 56 occasions, 40-something occasions. Many times they just ignored the 

law, so I am not sure your argument may be with what President 

Clinton—— 

Mr. COHEN. No. May I have a moment? 

Mr. BACHUS. Oh, absolutely. 

Mr. COHEN. Yeah. I appreciate your bringing up who I consider 

was a tremendous President and a dear friend, but 1996 wasn’t 
35 

necessarily his best year. That is also the year, you know, it was 

election year, and he signed the Defense of Marriage Act, and there 

were some of the things he did that year he didn’t really believe. 

He has admitted that. 

Mr. BACHUS. Well, you know, it is the law. 

Mr. COHEN. Well, so was that. 

Mr. BACHUS. Until yesterday, right? 

Mr. COHEN. Right. 

Mr. BACHUS. Day before yesterday. All right. 

Thank you. ‘‘It wasn’t a good year;’’ that is a great argument. 

We have got an esteemed panel today. Ms. Karen Harned serves 

as executive director of the NFIB, National Federation of Independent Business, Small Business Legal Center. As executive director, she comments regularly on small business cases before Federal and State courts as well as the U.S. Supreme Court. Prior to 

joining the Legal Center, Ms. Harned was an attorney at the 

Washington, D.C., law firm specializing in food and drug law where 

she represented several small and large businesses and their respective trade associations before Congress and Federal agencies. 

She also served as the Assistant Press Secretary of the U.S. Senator Don Nickles of Oklahoma, which was a fine senator, fine person. Ms. Harned received her BA from the University of Oklahoma 

in 1989 and her JD from the George Washington University National Law Center in 1995. We welcome you. 

Mr. Carl Harris is co-founder of Carl Harris Company, a construction company founded in Wichita, Kansas in 1985. Mr. Harris’ 

business engages in numerous residential and light commercial 

construction applications. He serves as national area chairman for 

the National Association of Homebuilders, a trade association that 

helps promote policies that make housing a national priority. 

NAHB strives to improve housing affordability, availability, and 

choice. Mr. Harris serves as the 2013 president of the Kansas 

Building Industry Association and affiliate of NAHB. KBIA, and 

that is Kansas Building Industry Association, serves as an advocate for Kansas Housing Industry and has more than 2,000 members. It has been a rough few years for the house—home building 

industry. 

Mr. HARRIS. It has, Mr. Bachus. 

Mr. BACHUS. And hopefully, we are seeing some recovery, but I 

know many of your colleagues have actually gone out of business. 

I remember my father was a general contractor during the Carter 

administration and many of his colleagues didn’t survive those high 

interest rates. But anyway. 

Mr. Amit Narang; is that right? 

Mr. NARANG. Correct. 

Mr. BACHUS. Okay. Is a regulatory policy advocate for Public Citizen, a nonprofit organization lobbying for citizen interest in the 

government. Founded in 1971, Public Citizen works on numerous 

issues, including the economic crisis, healthcare reform and climate 

change. Mr. Narang is the article’s editor of the Administrative 

Law Review, a widely circulated legal journal focused on regulatory 

law and policy. He has been quoted in the New York Times and 

the Bureau of National Affairs, and I guess that is BNA, is what 

most of us call that. Mr. Narang received his bachelor’s degree 
36 

from the University of Pennsylvania and his JD from American 

University, Washington College of Law. We welcome you to our 

panel. 

Mr. Rosario Palmieri? Okay. Good. Is vice president of Infrastructure, Legal and Regulatory Policy for the National Association 

of Manufacturers. In that capacity, he works with manufacturers 

to develop and articulate the Association’s position on regulatory 

civil justice, antitrust, transportation, and infrastructure issues. 

Mr. Rosario—actually, it is Mr. Palmieri. It says ‘‘Rosario’’ on 

there. I should probably read these things. 

Also leads NAM’s efforts—— 

Mr. COHEN. Take out all the excitement. 

Mr. BACHUS [continuing]. In product safety and chairs the now 

CPSC coalition made up of manufacturers and retailers. Previously 

he served as NAM’s director of Energy and Resources Policy. 

Boy, that was a challenge, wasn’t it. 

Prior to joining the Association, Mr. Palmieri worked in the U.S. 

House of Representatives as the deputy staff director out of the 

Regulatory Affairs Subcommittee and the Committee on Government Reform. He also served on the House Committee on Small 

Business. He received his BA in political science from American 

university. We have two American University graduates, right? Did 

you all know each other? 

Mr. PALMIERI. No, sir. 

Mr. NARANG. Until today. 

Mr. BACHUS. It is time you all got acquainted, right? 

Alright. We will now proceed with the—let’s see. Actually, we 

need to have the opening—the panelists have their opening statements. 

Mr. BACHUS. So, Ms. Harned, we will start with you. And you 

are recognized for 5 or more minutes. If you need 6 or 7 minutes, 

that is fine, too, right? We don’t—we would rather—we would rather you not rush and get it out. 

TESTIMONY OF KAREN R. HARNED, ESQ., EXECUTIVE DIRECTOR, NATIONAL FEDERATION OF INDEPENDENT BUSINESS 

Ms. HARNED. Thank you so much. 

Good morning, Mr. Chairman Bachus and Ranking Member 

Cohen. 

NFIB, the Nation’s largest small business advocacy organization, 

appreciates the opportunity to testify on the burdensome effects of 

regulation on small business and how H.R. 2542, the ‘‘Regulatory 

Flexibility Improvement Act of 2013,’’ would address many of those 

concerns. 

Two and a half years ago, I had the opportunity to testify before 

the Committee on a need for regulatory reform. As I stated at that 

time, overzealous regulation is a perennial concern for small business owners, but that fact has not changed. According to the June 

2013 report of the NFIB Research Foundation’s ‘‘Small Business 

Economic Trends,’’ 23 percent of small businesses say that government red tape is the most important problem they face, second only 

to taxes. 

To address the negative impact of regulations on small business, 

NFIB launched Small Businesses For Sensible Regulations in Au-
37 

gust 2011. Former Arkansas Senator Blanche Lincoln shares that 

campaign, which is a national effort to protect small businesses 

and American jobs from the impacts of regulation. 

NFIB believes that Congress must take action to level the regulatory playing field for small business. Congress should expand the 

Small Business Regulatory Enforcement and Fairness Act and its 

small business advocacy review panels to all agencies, including 

independent agencies. In so doing, all agencies would be in a better 

position to understand how small businesses fundamentally operate, how the regulatory burden disproportionately impacts them, 

and how each agency can develop simple and concise guidance materials. 

Moreover, Congress and the office of advocacy should ensure that 

agencies are following the spirit of SBREFA. There are instances 

where agencies have declined to adopt the recommendation of a 

SBAR panel or conduct a SBAR panel for either a significant rule 

or a rule that would greatly benefit from small business input. 

Congress should ensure that agencies perform regulatory flexibility 

analyses and require them to list all of the less burdensome alternatives that were considered. 

Each agency should provide an evidence-based explanation for 

why it is more—why it shows a more burdensome versus a less 

burdensome option and explain how their rule may act as a barrier 

to entry for a new business. Section 610 reviews should be 

strengthened. Agencies should be required to amend or rescind 

rules where the 610 review shows that the agency could achieve its 

regulatory goal at a lower cost to the economy. 

NFIB also believes that Congress should explore requiring agencies to provide updated information on how each agency mitigates 

penalties and fines on small businesses as required by SBREFA 

and require that such a report be conducted on an annual basis. 

Regulatory agencies will often proclaim the indirect benefits for 

regulatory proposals, but they decline to analyze and make publicly 

available the indirect costs to consumers, such as higher energy 

costs, jobs lost and higher prices. Agencies should be required to 

make public a reasonable estimate of a rule’s indirect impact. 

Agencies should be held accountable when they fail to give proper consideration to the comments of the office of advocacy, and a 

formal mechanism should be put in place for resolving disputes regarding the economic cost of a rule between the agency and advocacy. Because of the improvements that are inherent in H.R. 2542, 

NFIB is hopeful that, if enacted, that review of agency actions will 

be strengthened and the small business voice will be more substantively considered throughout the regulatory process or the rulemaking process. 

NFIB is concerned that agencies are shifting from an emphasis 

on small business compliance to an emphasis on enforcement. Congress can help by stressing to agencies that they devote adequate 

resources to help small businesses comply with the complicated and 

vast regulatory burdens that they face. Congress also should pass 

legislation waiving fines and penalties for small businesses the 

first time they commit a nonharmful error on regulatory paperwork. 
38 

Mistakes in paperwork are going to happen, but if no harm is 

committed as a result of the error, agencies should waive penalties 

for first-time offenses and help owners understand the mistakes 

that they have made. 

With main street still struggling to regain its footing, Congress 

needs to take steps to address the growing regulatory burden on 

small businesses. The proposed reforms in this legislation are a 

good first step. Thank you for the opportunity. 

Mr. BACHUS. Thank you. I appreciate that opening statement. 

[The prepared statement of Ms. Harned follows:] 
39 

Prepared Statement of Karen R. Harned, Esq., Executive Director, 

National Federation of Independent Business (NFIB) 
40 

Dear Chairman Bachus and Ranking Member Cohen: 

On behalf of the National Federation of Independent Business (NFIB), I appreciate 

the opportunity to submit for the record this testimony for the Subcommittee on 

Regulatory Reform, Commercial and Antitrust Law's hearing entitled the "Regulatory 

Flexibility Improvements Act of 2013." 

My name is Karen Harned and I serve as the executive director of the NFIB Small 

Business Legal Center. NFIB is the nation's leading small business advocacy 

association, representing members in Washington, D.C., and aliSO state capitals. 

Founded in 1943 as a nonprofit, nonpartisan organization, NFIB's mission is to 

promote and protect the right of its members to own, operate, and grow their 

businesses. NFIB represents about 350,000 independent business owners who are 

located throughout the United States. 

The NFIB Small Business Legal Center is a nonprofit, public interest law firm 

established to provide legal resources and be the voice for small businesses in 

the nation's courts through representation on issues of public interest affecting 

small businesses. 

Two and a half years ago I had the opportunity to testify before this committee on the 

need for regulatory reform. As I stated at that time, overzealous regulation is a 

perennial cause of concern for small business owners. That fact has not changed. 

According to the June report of the NFIB Research Foundation's Small Business 

Economic Trends, 23 percent of small businesses say that red tape is the most 

important problem they face, second only to taxes. 1 

To address the negative impact of regulations on small business, NFIB launched Small 

Businesses for Sensible Regulations in August 2011. Former Arkansas Senator 

Blanche Lincoln chairs the campaign, which is a national effort to protect small 

businesses and American jobs from the impacts of regulations. 

When it comes to regulations, small businesses bear a disproportionate amount of the 

regulatory burden. According to a study by Nicole and Mark Crain for the U.S. Small 

Business Administration Office of Advocacy (Office of Advocacy), for 2008, small 

businesses spent 36 percent more per employee, per year on regulation than their 

larger counterparts. 2 

Unfortunately, this administration is increasing the regulatory burden on small 

business. Analyzing an April 19, 2013 draft report from the Office of Management 

1 NFIB Research Foundation, Small Business Economic Trends, at p. 18, June 2013. http:lhvww.nfibcomlresearchft 

:fmJndatio.nLsurvf'::.Y§!sma!l:p..!:i.§l.!JgSs-~Q!l9_mic-trends 

2 Crain, Nicole V. and Crain, W. Mark, The Impact of Regulatory Costs on Small Firms. 

2010. http://www.sba.qO\lfadvolresearc..hfrs371tot.pdf 

z 
41 

and Budget, the George Washington University's Regulatory Studies Center found 

that, "[b]y the administration's own estimates, the rules it issued in FY2012 alone 

imposed more costs on the economy than all the rules issued during the entire first 

terms of Presidents Bush and Clinton, combined.,,3 

Job growth in America remains stagnant. Small businesses create two -thirds of the 

net new jobs in this country Yet the June Small Business Economic Trends survey of 

small business owners showed a drop in small business' willingness to hire for the first 

time since November 20124 Reducing the regulatory burden would go a long way 

toward giving entrepreneurs the confidence they need to expand their workforce. 

NFIB believes that Congress must take actions - like those proposed in the 

Regulatory Flexibility Improvements Act of 2013 - to level the regulatory playing field 

for small business. 

Expansion and oversight of SBREFA 

The Small Business Regulatory Enforcement and Fairness Act (SBREFA) - when 

followed correctly - can be a valuable tool for agencies to identify and address 

potential problems that new rules will have for small businesses. During my eleven 

years at NFIB I have heard countless stories from small business owners struggling with 

a new regulatory requirement. To them, the requirement came out of nowhere and they 

are frustrated that they had "no say" in its development. That is why early engagement 

in the regulatory process is key for the small business community. 

Small business owners are not roaming the halls of administrative agencies, reading the 

Federal Register or even Inside EPA. And, in those instances when they hear about a 

proposed rule that will impact their business, the regulatory deal is almost done as a 

practical matter. Comments can, and do, result in improvements to a proposed rule, but 

the real work of examining alternatives and developing the framework for any new 

mandate is accomplished long before a proposed rule is printed in the Federal Register. 

SBREFA gives small business owners a valuable seat at the regulatory table at the 

most critical time of a rulemaking - the pre-rule stage. NFIB believes Congress should 

expand SBREFA's reach into other agencies and laws affecting small businesses. 

SBREFA and its associated processes, such as the Small Business Advocacy Review 

(SBAR) panels, are important ways for agencies to understand how small businesses 

fundamentally operate, how the regulatory burden disproportionately impacts small 

businesses, and how the agency can develop simple and concise guidance materials. 

3 http://research.columbian.q'#u edufrequiatorystudiesisitesJdefaultifiles/u41 120130422 OMS Report.pdf 

4 NFIB Research Foundation, Small Business Econom;c Trends. June 2013, at p.1. http://www.ntih.com/researchfoundation/surveys/srnall-business-economic-trends 

3 
42 

SBREFA should apply to independent agencies 

Furthermore, Congress should take steps to require independent agencies to follow 

SBREFA. For example, Congress did just that when it required the Consumer 

Financial Protection Bureau to conduct SBAR panels on rules that will affect small 

businesses. Now more than ever, the rules promulgated by independent agencies 

have a considerable impact on small businesses. Congress should hold these 

independent agencies accountable for their effect on the small business economy. 

Agencies should abide by the letter and spirit of SBREFA 

While SBREFA itself is a good first step, in order for it to provide the regulatory relief 

that Congress intended agencies must make good-faith efforts to comply. An example 

concerns the Environmental Protection Agency's (EPA) Lead: Renovation, Repair and 

Painting (LRRP) rule. The LRRP rule prescribes certification, training, and work 

practices to address the threat of lead dust in homes built before 1978. When the rule 

went into effect in April 2010, homeowners with no children less than six years old or 

pregnant women could choose to skip these expensive requirements because EPA 

had determined that only young children faced substantial risk of poisoning from lead 

dust. This provision, known as the opt-out, was a cost-effective - and safety conscious 

- alternative supported by the SBAR panel convened for the rule. 5 Yet just weeks 

later, EPA withdrew this provision because of a lawsuit from environmental groups. 

The move increased the cost of the rule from about $800 million to $1.3 billion - with 

the costs passed along from contractors to homeowners. 

In another instance, the EPA's proposed Boiler MACT rule failed to heed the 

recommendation of its SBAR panel to adopt a health-based standard and instead 

proposed a much higher standard that is virtually impossible to attain at any 

reasonable cost. 6 This higher standard provided little, if any, additional benefit to 

the public over the health-based standard. 

Committees with oversight authority should hold agencies accountable to the 

spirit of the law, and the Office of Advocacy should uphold its obligation to 

ensure that agencies consider the impacts of their rules on small businesses. 

There are plenty of instances where both EPA and the Occupational Safety 

and Health Administration (OSHA) have declined to conduct an SBAR panel 

despite developing significant rules, or a rule that would greatly benefit from 

small business input. 

5 Final Report of the Small Business AdvQcacy Review Panel on EPA's Planned Proposed Rule: Lead-Based Paint; Certification and 

Training; Renovation and Remodeling Requirements, March 3, 2000. http://mvw2epa.gov/le8.dlflnal-report-small-businessadvocacy-review-panel-epas-planned-proposed-rule-Iead-based-paint 

s Comments of the Office of Advocacy to EPA on the proposed Boiler MACT Standards (August 23, 2010), available at 

http://www.sba.govJadvocacvf816!12752. 

4 
43 

For example, in 2010 OSHA published a proposed rule that would have 

required a new column for musculoskeletal disorders (MSDs) on its Form 300 

OSHA log for reporting workplace injuries. NFIB pressed the agency to 

conduct an SBAR panel for this rule that would have, in essence, required 

small business owners to "play doctor" when trying to determine whether or 

not an MSD was caused by an employee's duties at work or from off-work 

activities. After the rule was proposed, OSHA agreed to hold informal 

teleconferences. Despite OSHA's intent, this process did not follow SBREFA 

procedures. 

Congress should require agencies to perform regulatory flexibility analyses. Agencies 

should also be required to list all of the less-burdensome alternatives that it 

considered, and in the final rule, provide an evidence-based explanation for why it 

chose a more-burdensome alternative versus a less-burdensome option- or why no 

other means were available to address a rule's significant impact. Agencies should 

also address how their rule may act as a barrier to entry for a new business. 

Expand 61 0 review 

Within SBREFA is a requirement known as Section 610 review, which requires 

agencies to periodically review existing rules and determine if they should be 

modified or rescinded. NFIB supports this requirement, but believes it could be 

improved - since all too often this requirement is disregarded by agencies. The 

proposed legislation would require agencies to amend or rescind rules where the 

610 review shows that the agency could achieve its regulatory goal at a lower cost 

to the economy. 

Agencies should annually report penalty reductions 

Finally, when SBREFA was enacted it required all agencies to perform a one-time 

report on how it had reduced penalties for violations from small businesses. NFIB 

believes that Congress should explore making such reports an annual 

requirement. Many of the original reports occurred at least a decade ago. 

Congress should investigate ways to make agencies provide updated information 

and require that information on an annual or biannual basis. 

Indirect costs in economic impact analyses 

Regulatory agencies often proclaim indirect benefits for regulatory proposals, but 

decline to analyze and make publicly available the indirect costs to consumers, such 

as higher energy costs, jobs lost, and higher prices. Agencies should be required to 

make public a reasonable estimate of a rule's indirect impact. This requirement exists 

if agencies follow the Regulatory Impact Analysis (RIA) mandate contained in 

Executive Order 12866 signed during the Clinton Administration. Congress should 

hold agencies accountable and clarify the agencies' responsibility for providing a 

balanced statement of costs and benefits in public regulatory proposals. 

5 
44 

Strengthen the role of the Office of Advocacy 

The Office of Advocacy plays an important role within the government to ensure that 

federal agencies consider the impact of regulations on small businesses. This role 

was further strengthened by executive order 13272. This order required agencies to 

notify the Office of Advocacy of any draft rules that may have a significant impact on 

small businesses, and "[g]ive every appropriate consideration to any comments 

provided by Advocacy regarding a draft rule." 

Despite this executive order, agencies frequently fail to give proper consideration to 

the comments of the Office of Advocacy. In addition, there is no mechanism for 

resolving disputes regarding the economic cost of a rule between the agency and the 

Office of Advocacy. 

NFIB believes that the Office of Advocacy needs to be strengthened. The Chief 

Counsel for Advocacy should have the ability to issue rules governing how agencies 

should comply with regulatory flexibility requirements. This will help ensure that 

agencies fully consider the views of the Office of Advocacy. 

Increase judicially reviewable agency requirements within SBREFA 

As this committee well knows, SBREFA provided important reforms to the Regulatory 

Flexibility Act (RFA), including providing that agency decisions are judicially 

reviewable once a rule is finalized and published in the Federa/ Register. However, 

waiting until the end of the regulatory process to challenge a rule creates uncertainty 

for the regulated community - which directly stifles employment growth. Under the 

current system, an agency could make a determination of no significant impact on a 

substantial number of small entities on its initial regulatory flexibility analysis that may 

be years before the rule is finalized. 

In addition, we have had the experience of filing a lawsuit when a rule is finalized, 

won the case, yet received a resolution that was of no benefit to small business. Over 

a decade ago, the U.S. Army Corps of Engineers (USACE) issued a rule on what it 

considers a wetland pertaining to its Nationwide Permits (NWP) program. The 

USACE performed no regulatory flexibility analysis and instead pushed through the 

rule using a "streamlined process." After four years of legal battles, we emerged 

victorious - a federal court ruled that the agency had violated the RFA. Yet, instead 

of sending the rule back to be fixed, the court only required that the USACE not use 

its streamlined process in the future. Small business owners affected by the NWP 

rule realized no relief. 

Because of the regulatory flexibility process improvements inherent within this 

proposed bill, NFIB is hopeful that review of agency actions will be strengthened. As a 

result, small business will have its voice more substantively considered throughout the 

entire rulemaking process. 

6 
45 

Agency focus on compliance 

NFIB is concerned that many agencies have shifted from an emphasis on small 

business compliance assistance to an emphasis on enforcement. Over the last 

several years we generally have seen a reduction in resources agencies devote to 

helping small businesses comply with the rules on the books. Small businesses rely 

on compliance assistance from agencies because they lack the resources to employ 

specialized staff devoted to regulatory compliance. Congress can help by stressing 

to the agencies that they need to devote adequate resources to help small 

businesses comply with the complicated and vast regulatory burdens they face. 

Rulemaking through adjudication 

More troubling are stories we are beginning to hear from members of agencies using 

adjudication, rather than formal rulemaking, to impose new requirements on small 

businesses. 

For example, the Federal Trade Commission has been attempting to establish 

nationwide general data-security public policy through ad hoc enforcements. Over the 

last several years, the FTC has routinely punished businesses who are themselves 

hacking victims for allegedly failing to have "reasonable" data security measures in 

place. Because FTC has never formally promulgated any data security standards, a 

business has no way of knowing whether it's compliant until after its system has been 

breached, it's data stolen, it has undergone a costly FTC investigation, and an 

enforcement action has been filed against it. 

The FTC asks the business to enter a so-called "settlement" agreement (or "consent 

order"). In many instances, these agreements give FTC authority to perform biannual 

audits of the business for the next 20 years and possible fines. Michael Daugherty, 

NFIB member and President and CEO of LabMD, a cancer diagnostics center in 

Atlanta, Georgia, is currently under FTC investigation after having their data hacked? 

In addition, the NFIB Small Business Legal Center recently filed an amicus brief in 

another FTC data security case against Wyndham World Wide Hotels. NFIB believes 

Congress should conduct oversight of agency use of adjudication to impose new 

regulatory requirements on business. 

Waivers of fines and penalties for non-harmful paperwork errors 

Finally, Congress should pass legislation waiving fines and penalties for small 

businesses the first time they commit a non-harmful error on regulatory paperwork. 

Because of a lack of specialized staff, mistakes in paperwork will happen. If no harm 

is committed as a result of the error, the agencies should waive penalties for firsttime offenses and instead help owners to understand the mistake they made. 

7 Dave Williams, Atlanta Business Chronicle, September 7-13,2012, at 3A; See also, Frechette, Peter S., "FTC v. LabMD: FTC 

Jurisdiction Over Information Privacy Is 'Plausible," But How Far Can It Go?", American University Law Review, vol. 62, No.5, 2013, 

http://ssrn.com/abstract=2262801. 

7 
46 

With Main Street still struggling to regain its footing, Congress needs to take steps to 

address the growing regulatory burden on small businesses. The proposed reforms 

in the Regulatory Flexibility Improvements Act are a good first step. 

Thank you for holding this important hearing on reducing the regulatory burden on 

small businesses. I look forward to working with you on this and other issues 

important to small business. 

Sincerely, 

Karen R. Harned, Esq. 

Executive Director 

NFIB Small Business Legal Center 

8 
47 

Mr. BACHUS. Mr. Harris. 

TESTIMONY OF CARL HARRIS, VICE PRESIDENT AND GENERAL MANAGER, CARL HARRIS CO., INC., ON BEHALF OF 

THE NATIONAL ASSOCIATION OF HOME BUILDERS 

Mr. HARRIS. Chairman Bachus, Ranking Member Cohen and distinguished Members of the Subcommittee, my name is Carl Harris. 

I am cofounder of the Carl Harris Company, a construction firm 

based in Wichita, Kansas with about 20 employees. I am also a 

member of the National Association of Homebuilders and president 

of the Kansas Building Industry Association. Thank you for the opportunity to be here today to talk about ways to reform and improve the Regulatory Flexibility Act. 

I applaud this Subcommittee for considering H.R. 2542, the ‘‘Regulatory Flexibility Improvement Act of 2013,’’ and I believe this legislation will go a long way in addressing the issues I have observed 

in the rulemaking process. As a small businessman operating in a 

heavily regulated industry, I understand how difficult it can be for 

a small builder to operate a successful thriving business that provides the highest levels of health, safety and welfare for its employees. 

The sheer volume of regulations isn’t the only problem. Often 

regulations are crafted without respect to the size of the regulated 

entities or don’t appropriately take into account the true cost of 

compliance. Congress appropriately acknowledged this dilemma 

when, in 1980, it passed the Regulatory Flexibility Act, the RFA, 

and subsequently amended that to include the Small Business Regulatory Enforcement Fairness Act, SBREFA. With the RFA, Congress intended for regulations to be crafted to the scale of businesses while achieving the goals of the rule. This was an admirable 

aim. However, in practice, it does not appear to be working as intended. 

I have had the fortune of representing the residential construction industry on a number of small business review panels over the 

years. I have seen firsthand how agencies treat the RFA process as 

little more than a procedural check-the-box exercise, or worse still, 

artfully avoid complying with certain parts of it altogether. 

For example, in 2008, OSHA proposed the Cranes and Derricks 

Rule, which was intended to protect workers from hazards associated with hoisting equipment in construction. I participated as a 

small entity representative on a review panel that followed. Several 

SERs, myself included, raised concerns about the feasibility of various aspects of the rule that were clearly designed for large commercial construction applications. I personally put forward an effective commonsense alternative that would save lives while keeping 

low the cost of compliance for small entities. Unfortunately, it 

seems that my feedback fell on deaf ears. 

I believe the requirements in section 4 of H.R. 2542 for agencies 

to state the disproportionate impact a rule may have on small entities would lend additional focus to agency action in accordance with 

Congress’ original intent. At times, it seems that agencies are not 

performing a rigorous analysis of the impacts of proposed rules on 

small entities. The result is often regulations that don’t acknowledge the true cost to small businesses. 
48 

This is the case, in 2010, when OSHA proposed revising its occupational injury and illness recordkeeping requirements. OSHA 

maintained that the additional recording requirements did not 

amount to a significant burden on small business. They certified it, 

and to that effect, and in doing so, avoided analysis requirements 

contained in the RFA. 

On teleconferences, I raised the point that OSHA hadn’t considered the true additional cost that small employers must face. I believe that more stringent regulatory flexibility analysis requirements contained in H.R. 2542 would have addressed this issue. 

Finally, the Small Entity Review Panel requirements in the RFA 

offer a valuable opportunity for small businesses to provide much 

needed input to ensure rules are appropriately scaled to the size 

of the businesses that they will impact. 

Unfortunately, there exists many ways for agencies to avoid this 

critical step in the rulemaking process. In 2008, the Environmental 

Protection Agency neglected to convene a review panel when the 

agency sought to amend its lead renovation and repair—repair and 

painting rule. This failure to convene a review panel resulted in an 

amended rule that grossly underestimated the impact on small 

businesses. 

I support the extended review panel requirements included in 

section 6 of H.R. 2542. I also suggest, for further consideration and 

future consideration, that Congress look toward a stronger enforcement mechanism for agency compliance with section 609(b) of the 

RFA, the review panel requirements. 

If the RFA allowed judicial review of section 609(b), agencies 

would feel more pressure to comply with convening a meaningful 

panel of SERs that could thoughtfully advise the agency as Congress intended. 

I appreciate this Subcommittee’s effort to improve the RFA, and 

I urge passage of the Regulatory Flexibility Improvements Act of 

2013. Thank you for the opportunity to testify today. 

Mr. BACHUS. Thank you very much, Mr. Harris. 

[The prepared statement of Mr. Harris follows:] 
49 

.. 

... ... 

NAHB. 

Testimony of 

Carl Harris 

On Behalf Of the 

National Association of Home Builders 

Before the 

United States House of Representatives 

Judiciary Committee 

Subcommittee on Regulatory Reform, Commercial and Antitrust law 

Hearing on 

"Regulatory Flexibility Improvements Act of 2013" 

June 28, 2013 
50 

On behalf of the more than 140,000 members of the National Association of Home Builders 

(NAHB), I appreciate the opportunity to submit this testimony. My name is Carl Harris. I am a 

builder from Wichita, Kansas, and co-founder of Carl Harris Co., Inc. We employ approximately 

twenty individuals and have been engaged in a variety of residential and light-commercial 

construction applications since our founding in 1985. I also serve as a national area chairman 

for the National Association of Home Builders and am the 2013 President of the Kansas Building 

Industry Association. 

As a small businessman operating in a heavily regulated industry, I understand how difficult 

(and often costly) it can be to comply with the myriad of government regulations that apply to 

my day-to-day work. In fact, in my industry, the sum total of regulations imposed by 

government at all levels account for 25 percent of the final price of a new single-family home. 1 

This is particularly noteworthy in an industry where margins are so thin and consumers' 

sensitivity to price fluctuation is so acute. 

As a frequent industry representative in the statutorily-mandated small business feedback 

portion ofthe regulatory rulemaking process, I am well aware of the role small businesses play 

in informing regulators of the potential burdens borne by small business with new regulations. I 

am also aware of the strengths and weaknesses inherent to the process. 

While the original Congressional intent and subsequent additions/enhancements to the 

Regulatory Flexibility Act (RFA) are to be lauded, the reality is that far too often agencies either 

view compliance with the Act as little more than a procedural "check-the-box" exercise or they 

artfully avoid compliance by other means. 

I am pleased that the subcommittee is focusing today on the impacts of regulation on small 

businesses and ways to improve the RFA. NAHB supports The Regulatory Flexibility 

Improvements Act of 2013 and I believe that many, if not most, of the issues set forth in this 

testimony could have been avoided if the changes offered in The Regulatory Flexibility 

Improvements Act of 2013 had been law. In particular, I applaud the bill's proposed provisions 

to expand coverage to all rules within the APA's definition, extend review panels requirements, 

include indirect effects of regulations on small entities, and require better and more 

comprehensive flexibility analyses. One way in which we believe the legislation could be made 

stronger is by extending the judicial review provisions found in the RFA to include section 

609(b) for reasons discussed below. 

2 
51 

The Regulatory Flexibility Act 

The Regulatory Flexibility Act 2 requires federal agencies to consider the effect of their actions 

on small entities, including small businesses, small non-profit enterprises, and small local 

governments. When an agency issues a rulemaking proposal, the RFA requires the agency to 

"prepare and make available for public comment an initial regulatory flexibility analysis. Such 

analysis shall describe the impact of the proposed rule on small entities.,,3 

The RFA states that an initial regulatory flexibility analysis (IRFA) shall address the reasons that 

an agency is considering the action; the objectives and legal basis of the rule; the type and 

number of small entities to which the rule will apply; the projected reporting, recordkeeping, 

and other compliance requirements of the proposed rule; and all federal rules that may 

duplicate, overlap, or conflict with the proposed rule. The agency must also provide a 

description of any significant alternatives to the proposed rule which accomplish the stated 

objectives of applicable statutes which minimize any significant economic impact of the 

proposed rule on small entities." 

Section 605 of the RFA allows an agency, in lieu of preparing an IRFA, to certify that a rule is not 

expected to have a significant economic impact on a substantial number of small entities. If the 

head of the agency makes such a certification, the agency must publish the certification in the 

Federal Register along with a statement providing the factual basis for the certification. 5 The 

agency must then prepare a final regulatory flexibility analysis (FRFA) for publication with the 

final rule 6 The FRFA must include a succinct statement of the need for, and the objectives of, 

the rule, a description of and the estimate of the number of small entities to which the rule will 

apply, a description of the projected reporting, recordkeeping, and other compliance 

requirements of the rule, and a description the steps the agency has taken to minimize the 

significant economic impacts on small entities consistent with the stated objectives and the 

factual, policy, and legal reasons why the selected option was chosen and the alternatives 

rejected. 7 

In addition, under the 1996 amendments to the RFA, known as the Small Businesses Regulatory 

Enforcement Fairness Act (SBREFA)8, when the Occupational Safety and Health Administration 

(OSHA) or Environmental Protection Agency (EPA) is required to prepare an IRFA9

, they must 

'5 u.s.c. 601-612 

3 5 u.s.c. 603(a). 

45 u.s.c. 603(c). 

55 U.S.c. 60S. 

, 5 U.S.C 604. 

75 U.S.c. 604(a). 

8 5 U.s.c. 609. 

o Section 1l00G of Dodd-Frank amended § 609(b) to add CFPS to the list of agencies. 

3 
52 

first notify the Chief Counsel for Advocacy of the Small Business Administration ("Advocacy") 

and provide Advocacy with information on the potential impacts of the proposed regulation on 

small entities and the type of small entities that may be affected. Advocacy must then identify 

individual representatives of affected small entities for the purpose of obtaining advice and 

recommendations about the potential impacts of the proposed rule, and the agency must 

convene a review panel made up of the agency, Advocacy, and the Office of Management and 

Budget to review the materials the agency has prepared (including any draft proposed rule), 

collect advice and recommendations of the small entity representatives (SERs), and issue a 

report on the comments from the SERs and the findings ofthe panel. Following this process, 

the agency shall modify the proposed rule, the IRFA, or the decision on whether an IRFA is 

required.'o While there are exceptions to the requirement to conduct a SBREFA panel, these 

are limited to situations where the agency certifies that the rule will have a minimal impact." 

Addressing the Disproportionate Impacts on Small Entities 

Enhanced flexibility analysis requirements included in The Regulatory Flexibility Improvements 

Act oj 2013, including a requirement that agencies detail the disproportionate economic 

impacts on small entities expected from a new rule, would help agencies produce better, more 

workable rules for small businesses. I witnessed this need first-hand when I participated as a 

SER on a feedback panel for OSHA's proposed Safety Standard for Cranes and Derricks in 

Construction. 

In 2008, OSHA proposed the Cranes and Derricks Rule, which was intended to protect workers 

from the hazards associated with hoisting equipment in construction. For the development of 

this rule, OSHA relied on the negotiated rulemaking process, wherein the rule is developed by a 

committee comprised of individuals who represent the interests of those who will be 

significantly affected by the rule. 

Unfortunately it wasn't until after the negotiated rulemaking process was completed that OSHA 

convened a Small Business Advocacy Review Panel to evaluate the potential impact of the rule 

on small entities. Several SERs, myself included, raised concerns at the time that the Cranes and 

Derricks proposal did not differentiate between crane applications on residential construction 

sites and large commercial construction sites. As a result, any rule issued with this fundamental 

oversight would disproportionately impact small entities. 

10 5 U.s.c. 609(b) (1) through (6). 

11 5 U.s.c. 609(c). 

4 
53 

I use cranes almost every day for our residential and light commercial work. We use cranes to 

set large trusses, steel framing for greater clear heights and greater open spaces, and precast 

concrete pieces including floors over basements and safe rooms. 

I personally put forward an effective, feasible alternative that would save lives and reduce 

injuries in a more cost-effective way by developing regulations for crane operator certification 

which are appropriate to the equipment that is being used and the risks presented by that 

equipment. This included principles of what should be required for crane operators: employer 

training for the specific equipment in use, employer assessment of the conditions of the job 

site, and the equipment and certification by the employer that the training has been 

completed. 

Again, it is unfortunate that small businesses were not brought in until after the rule had 

already been developed through the negotiated rulemaking process. As it was, the process 

seemed little more than a procedural hurdle with little interest from OSHA to make changes 

based on the feedback received. A more thorough analysis ofthe proposed requirements here 

may have revealed the disproportionate burden small residential home builders would face 

with this rule. 

Acknowledging the True Costs to Small Entities 

Too often agencies will avoid an honest and rigorous analysis of the impacts of a proposed rule 

on small entities by simply certifying, in accordance with section 605 of the RFA, that the rule 

will not have a significant economic impact on a substantial number of small entities. This 

releases the agency from section 603 and 604 regulatory flexibility analysis requirements 

contained in the RFA and is often claimed in spite of compelling evidence that a proposed rule 

will in fact significantly impact small businesses. More stringent requirements for initial and 

final regulatory flexibility analyses, coupled with greater transparency surrounding the 

certification process are necessary to ensure that the true cost of regulations on small entities 

are acknowledged. We believe provisions in The Regulatory Flexibility Improvements Act of 

2013 address this need. 

In 2010, OSHA proposed revising its Occupational Injury and Illness Recordkeeping regulation to 

include additional reporting requirements on work-related musculoskeletal disorders (MSDs). 

While OSHA certified, in accordance with the Regulatory Flexibility Act (RFA), that the proposed 

recordkeeping rule would "not have a significant impact on a substantial number of small 

entities," industry groups urged OSHA to solicit further input on the impact of the proposed 

rule on small businesses by convening a Small Business Advocacy Review Panel, as mandated by 

the RFA. However, in lieu of a proper small business panel, OSHA convened a series of 

5 
54 

teleconferences in 2011 (which I participated in) to reach out to the small business community 

for input on the proposal. 

During the teleconferences, I raised the concern that the proposed rule would result in 

additional costs to small employers which OSHA had not yet considered. Recording MSDs 

entails far more than simply placing a check mark in the MSD column. It requires a thorough 

investigation to correctly classify MSDs. Most employers in the home building industry are 

generally not qualified to assess such work-related illnesses. Only qualified medical personnel 

can analyze MSD injuries-I certainly do not have this medical expertise and very few home 

builders have medical degrees. Therefore, evaluating each MSD case would be very time 

consuming for employers, particularly small ones. This evaluation would likely take several 

hours to several days-not minutes as OSHA suggests-to consult with qualified medical 

personnel, review medical records and reports, and determine whether the MSD is new, workrelated, or otherwise recordable. This would result in significantly increased costs to small 

busi nesses. 

OSHA failed to account for the true impact this proposed rule would have on small entities and 

their employees. They have since temporarily withdrawn the proposed Recordkeeping rule 

citing the need for "greater input from small businesses on the impact ofthe proposal.,,12 I 

welcome the prospect of partnering with OSHA on the proposed rule in the hopes of 

developing a better, more workable rule for small entities that takes into account the true costs 

associated with compliance. I believe provisions included in Section 4 of The Regulatory 

Flexibility Improvements Act of 2013 would ensure that agencies consider the full impact of 

regulations on small businesses. 

Ensuring Compliance with Small Entity Feedback Requirements 

While section 611 of the RFA provides for judicial review of some of the act's provisions, it does 

not permit judicial review of section 609(b), which contains the panel requirement. 13 NAHB 

believes that The Regulatory Flexibility Improvements Act of 2013 should be amended to 

include judicial review of the panel requirement to ensure agencies adhere to the law. If the 

RFA allowed judicial review of section 609(b), agencies would feel more pressure to comply by 

convening a meaningful panel of SERs that can thoughtfully and substantively advise the 

agency, as Congress intended. Knowing that its decision whether to convene a panel could 

12 http://www.osha.gov/pls/oshaweb/owadisp.show_document7p_table=NEWS_RELEASES&p_id=19158 

13 Section 611(a)(1)states: "For any rule subject to this chapter, a small entity that is adversely affected or 

aggrieved by final agency action is entitled to judicial review of agency compliance with the requirements of 

sections 601,604, 605(b), 608(b), and 610 in accordance with chapter 7. Agency compliance with sections 607 and 

609(a) shall be judicially reviewable in connection with judicial review of section 604." 

6 
55 

result in a judicial remand of a regulation presents a strong incentive to agencies to conduct a 

panel at the early stages in rule development. Without a judicial backstop or other enforcement 

mechanism, there is no way to compel the agency to implement a clear congressional directive. 

When agencies evade their responsibility to convene review panels, they remove small business 

input entirely from the equation. This was the case when EPA failed to convene a review panel 

in 2008 as the agency sought to amend its Lead Renovation, Repair, and Painting (RRP) Rule. 

The RRP Rule requires for-hire contractors that conduct renovation activities in residences built 

before 1978 to obtain certification from EPA; use "lead-safe work practices" designed to 

contain and minimize dust created during the renovation activity; and maintain records on 

these activities. Shortly after finalizing the RRP Rule in 2008, as a result of a settlement 

agreement EPA reached with public interest advocates, EPA proposed and went final with their 

decision to amend the regulation to remove the opt-out provision. The opt-out provision 

allowed homeowners to authorize their contractor to use traditional work practices under 

certain circumstances, resulting in significant cost savings. 

Removing the opt-out provision more than doubled the number of homes subject to the RRP 

Rule to 78 million and EPA estimated the cost of this action to be $500 million annually.14 

However, the costs are far greater because of EPA's flawed economic analysis, which 

significantly underestimated the true compliance costs. The agency initially estimated that 

compliance costs would add $35 to a typical remodeling job; yet for a typical window 

replacement project the cost ranges from $90 to $160 per window opening, easily adding more 

than $1,000 to each project. Moreover, an EPA I nspector General's (lG) report, published on 

July 25, 2012, found that the EPA failed to use accurate or even reliable information on the 

likely costs of changes to the RRP Rule on small entities. More specifically, the report called on 

EPA to review both the original RRP Rule and the removal of the opt-out provision using RFA 

Section 610 authorities: 

"We have identified only a few aspects of EPA's complex benefits-costs analysis 

that are limited. However, we believe these aspects limit the reliability of EPA's 

estimates of the rule's costs and benefits to society. The Administration's 2011 

Executive Order [E.O. 13563J and Section 610 of the Regulatory Flexibility Act 

provide EPA an opportunity to review the Lead Rule to determine whether it 

14 75 Fed. Reg. 24802, 24812 (May 6,2010). The agency estimated that the removal of the opt-out provision would 

result in $500 million in costs in the first year, but projected this amount would decrease to $200 million each year 

once the agency certified a test kit that satisfied the RRP Rule's criteria for accurately measuring the presence of 

lead in paint at regulated levels. However, no such test kit has been identified and therefore these cost savings 

have not been realized. 

7 
56 

should be modified, streamlined, expanded, or repealed in light of the known 

limitations in the rule's underlying cost and benefit estimates." 

EPA acknowledged during the initial rulemaking that the opt-out provision substantially 

impacted a significant number of small entities and complied with the RFA's regulatory 

flexibility analysis reporting requirements. However, when EPA later proposed to eliminate the 

opt-out provision, they refused to convene a new panel. Instead, EPA relied on a panel 

convened more than a decade earlier for the original RRP Rule. EPA stated "that reconvening 

the Panel would be procedurally duplicative and is unnecessary given that the issues here were 

within the scope of those considered by the PaneL,,15 

In the 17 years since the RFA was amended by SBREFA to include the panel requirement, EPA 

has convened approximately 43 panels. According to a recent report issued by the 

Congressional Research Service (CRS), EPA issued nearly the same number of significant 

regulations during the first Obama Administration. 16 It defies belief that so few EPA regulations 

have met the threshold under SBREFA and these numbers illustrate how reluctant agencies are 

to comply with the law. 

Many of the deficiencies found in EPA's RRP Rule could have been addressed if EPA complied 

with both the letter and spirit of the RFA. Ultimately, because they didn't convene a panel, EPA 

was unable to produce a workable rule and has unnecessarily burdened small entities. I believe 

including judicial review of section 609(b) of the RFA in The Regulatory Flexibility Improvements 

Act of 2013 would address this issue. 

Acknowledging Significant Indirect Impacts 

Indirect impacts on small entities can be just as costly and damaging as those deemed to be 

direct. Agencies must consider the burden of indirect effects ifthey are to appropriately tailor 

regulations to the size of businesses as Congress intended. 

Under the Endangered Species Act (ESA), the U.S. Fish and Wildlife Service and National 

Oceanic and Atmospheric Administration (collectively referred to as "the Service") can prohibit 

the issuance of any federal permit ifthe Service determines the proposed activity may result in 

15 Id. at 24815. 

10 The Congressional Research Service examined 45 regulations it characterized as satisfying OMB!s {{significance!! 

thre5hold 01 $100 million annual effect on the u.s. economy in a report addressing the rate 01 issuing regulations 

during the lirst abama Administration. Regulations: Too MUch, Too Little, or On Track?, 

http://www.la5.org/5gp/cr5/mi5c/R41561.pdl(la5t vi5ited Mar. 5, 2013). 

8 
57 

the "adverse modification" of critical habitat. 17 Congress, recognizing the potential economic 

impact of critical habitat designations, requires the Service to perform an economic analysis 

whenever the Service proposes to designate critical habitat. Congress also gave the Service the 

authority to exclude any area from a final critical habitat designation, provided the Service 

determines the economic costs resulting from critical habitat designation outweighs the 

biological benefits to the species. 1s 

While the Service is required to comply with the RFA, they frequently will adopt the stance that 

small entities are not significantly or directly impacted by a proposed critical habitat 

designation, and certify as such. The designation of critical habitat directly impacts land 

developers, builders, states, and local governments by restricting their ability to undertake 

otherwise lawful land use activities. The designation of critical habitat by the Service is unlike 

other ESA regulatory restrictions in that the Service can designate private property as critical 

habitat regardless of whether a federally protected species will ever occupy the property in 

question. For NAHB members, the designation of critical habitat by the Service has a significant 

economic impact on their land development projects and their businesses. As explained further 

below, the designation of critical habitat triggers a complex federal permitting process known 

as the ESA Section 7 consultation process that can result in the Service prohibiting otherwise 

lawful land use activities if the Service determines proposed activities may result in adverse 

modification of critical habitat. 

The ESA's Section 7 consultation process often significantly impacts small businesses and is 

fraught with permitting delays, increased costs and land use exactions. While the Service's 

regulations say the ESA Section 7 formal consultation process should take no longer than four 

and half months (135 days) to complete, the Service routinely fails to complete the consultation 

process within its own prescribed permitting deadlines. 19 For example, the u.S. General 

Accounting Office (GAO) conducted an audit of ESA Section 7 consultations permits performed 

in the Pacific Northwest in 2003 following the Service's decision in the late 1990's to list as 

"endangered" over 20 sub populations of salmon species. GAO's audit found the Service 

routinely exceeded the Section 7 permitting timeframes for formal consultation by many 

months and, in some cases, years. 20 Homeowners living near Seattle, Washington waited over 

two years for the Service and the Army Corps of Engineers (Corps) to complete ESA Section 7 

formal consultations for CWA Section 404 wetland permits (needed to install private boat docks 

17 16 u.s.c. §1636(2) 

18 16 u.s.c. § 1533(b)(2) 

19 50 CFR §402.14 (2012) 

20 GAO Report (2003) Endangered Species: Despite Consultation Improvement Efforts in the Pacific Northwest, 

Concerns Persist about the Process, GAO-03-949T, Executive Summary. 

9 
58 

on Lake Washington)21 In the case of these homeowners, GAO estimated economic impacts 

from Section 7 permitting delays for federal wetlands permits to be approximately $10,000 per 

homeowner. 22 While understandably outrageous, these types of permitting delays are common 

for NAHB members whose projects occur in areas designated by critical habitat and require a 

Section 404 permit. 

Despite these examples of significant economic impacts on small entities, the Service routinely 

claims that the RFA does not apply when designating critical habitat. 

Congress needs to act to require agencies to consider indirect effects of proposed regulations 

on small entities. Section 2 in The Regulatory Flexibility Improvements Act of 2013 appropriately 

addresses this urgent need. 

Conclusion 

Congress, in crafting the RFA, clearly intended for federal agencies to carefully consider the 

proportional impacts of federal regulations on small businesses. 

It is the purpose of this Act to establish as a principle of regulatory issuance that 

agencies shall endeavor, consistent with the objectives of the rule and applicable 

statutes, to fit regulatory and informational requirements to the scale ofthe businesses, 

organizations, and governmental jurisdictions subject to regulations. To achieve this 

principal, agencies are required to solicit and consider flexible regulatory proposals and 

to explain the rationale for their actions to assure that such proposals are given serious 

consideration. 23 

Unfortunately, all too often federal agencies view RFA compliance as either a technicality of the 

federal rulemaking process or, worse yet, as unnecessary. In an effort to ensure that 

regulations are crafted in accordance with the Congressional intent of the RFA, I urge the 

subcommittee to work to pass the Regulatory Flexibility Improvements Act of 2013. 

Thank you again for the opportunity to testify today. 

21 GAO Report (2003) Endangered Species: Despite Consultation Improvement Efforts in the Pacific Northwest, 

Concerns Persist about the Process, GAO-03-949T, page 12 

22 GAO Report (2003) Endangered Species: Despite Consultation Improvement Efforts in the Pacific Northwest, 

Concerns Persist about the Process, GAO-03-949T, page 12 

'3 Regulatory Flexibility Act of 1980 (P.L. 96-354) 

10 
59 

Mr. BACHUS. Mr. Narang. 

TESTIMONY OF AMIT NARANG, REGULATORY POLICY 

ADVOCATE, PUBLIC CITIZEN 

Mr. NARANG. Thank you. Chairman Bachus, Ranking Member 

Cohen and Members of this Committee. Thank you for the opportunity to testify today on H.R. 2542, the ‘‘Regulatory Flexibility Improvements Act of 2013.’’ I am Amit Narang, regulatory policy advocate at Public Citizen’s Congress Watch. Public Citizen is a national public interest organization with more 300,000 members and 

supporters. 

For more than 40 years, we have successfully advocated for 

stronger health, safety, consumer protection and other rules, as 

well for a robust regulatory system that curtails corporate wrongdoing and advanced the public interest. 

I am here today to express significant concerns about the Regulatory Flexibility Improvements Act of 2013. My concerns can be 

broken down into two parts. First, like so many other regulatory 

reform proposals, the RFIA adds more procedures, more analyses 

and more requirements to a regulatory process that badly needs 

less of each, without funding any of this additional work for agencies. 

Second, the RFIA forces agencies to find small business impacts 

where there are none, giving big business a free pass by slowing 

or blocking rules that in reality only affect large corporations. 

Turning to the first part. Important questions at the outset are, 

one, what does the current regulatory process look like; and two, 

is it a good idea to add more to it? 

As Public Citizen’s visual depiction of the regulatory process 

shows, the current process is a model of inefficiency with a dizzying 

array of duplicative and redundant requirements that amounts to 

a virtual maze for agencies to navigate. 

This has led to a state of paralysis by analysis at Federal agencies. These agencies must contend with a broken regulatory process 

that is too slow, too calcified and too inflexible to respond to emerging health and safety threats. For example, OSHA has finalized 

just one significant worker safety standard since the beginning of 

2010. As another example, it has been 2 and a half years since the 

Food Safety Modernization Act passed on a bipartisan basis and 

still no food safety rules have been finalized. In practical terms, it 

is as if the food safety law doesn’t exist. The list goes on. 

The RFIA makes this situation worse in many respects, but let 

me just focus on two in the short time I have. 

First, the RFIA establishes a vague, indirect effects test. If agencies find their rules result in indirect effects on small businesses 

that are ‘‘reasonably foreseeable,’’ they must treat those rules in 

the same exact way as rules that have a direct effect on small businesses. Since this ill-defined test gives agencies no guidance as to 

what constitutes, or more importantly, does not constitute an indirect effect, agencies will feel strong pressure to send their rules 

through the much longer process reserved for rules that actually do 

impact small businesses. 

Second, the RFIA makes all agencies conduct SBREFA Small 

Business Advisory panels on all of their major rules, even if the 
60 

rule will have no effect on real small businesses. This new mandate, without any commensurate funding, represents a massive expansion over the current system and is in no way targeted at rules 

that have small business impacts. These panels are time and resource intensive, and yet the RFIA simply asks agencies to ignore 

small business impacts and go through the SBREFA review panel 

process every time they issue a major rule. That would have meant 

83 SBREFA panels for rules issued last year alone at a time when 

agencies are cutting back and furloughing staff. 

Since small businesses don’t benefit from delay or blocking of 

rules that do not apply to them anyway, who does benefit? The obvious answer is big businesses, who are let off the hook when it 

comes to commonsense new health and safety standards. An example here is helpful. 

Late last year, Public Citizen issues a report looking into whether the Volcker Rule would affect small banks, and if so, how. The 

yet to be finalized Volcker Rules is a critical Dodd-Frank financial 

reform that would prohibit federally insured banks from engaging 

in the kind of risky proprietary trading which led to the financial 

collapse. Our report showed that of 7,181 banks in the U.S., 7,175 

would be unaffected by the Volcker Rule. In other words, the 

Volcker Rule would only apply to the six largest banks in the U.S. 

that engage in proprietary trading. 

Even though the Volcker Rule is only directed at the big banks, 

the RFIA would have forced financial agencies to treat the rule as 

if it does affect small businesses. Do we want our financial agencies 

to be spending taxpayer money studying the Volcker Rule’s supposed indirect effects on small businesses? The RFIA would have 

required financial agencies to put the Volcker Rule through small 

business advisory panels. Who would those panels have included to 

represent small businesses for a rule that only applies to big 

banks? 

If Congress wants to clarify how agencies should identify rules 

that may apply to small businesses, then it should do so in a clear, 

direct, and unambiguous manner. Instead, the RFIA creates more 

uncertainty for agencies when it comes to small business impacts. 

Over the years, Congress has repeatedly tried to address small 

business regulatory relief by adding more procedures, analyses, and 

requirements. If this hearing is any indication, it hasn’t worked. It 

is time for a new approach. 

We all agree that we need to help real small businesses. One 

consensus approach would be to enhance small business regulatory 

compliance assistance. This provides direct compliance assistance 

targeted only to legitimate small businesses while preserving critical health and safe protections for the public’s benefit. 

Congress has taken first steps in this direction, but more can and 

should be done. I look forward to working with Members of Congress on this consensus path forward. Thank you. 

Mr. BACHUS. I appreciate that, Mr. Narang, and I do hope we 

will all work together on this. 

[The prepared statement of Mr. Narang follows:] 
61 

Written Testimony of 

Amil Nara ng 

Regulalol)' I'otk)' Advocate, Public Citizen 

before the 

The Subcommittee on Regulatory Rerorm, Commercial and Antitrust Law 

U.S. [louse or RepreSCnhltiH!$ 

"" 

'"The Regulatory Flexibi lity Improvements Act of2013" 

JUlle 28.201J 

PUIJLlCCITIZEN 
62 

Mr. Chairman and Members of the Committee, 

Thank you for the opportunity to testifY today on the Regulatory Flexibility Improvements Act of 

2013, I am Amit Narang, Regulatory Policy Advocate at Public Citizen's Congress Watch, Public 

Citizen is a national public interest organization with more than 300,000 members and supporters, 

For more than 40 years, we have successfully advocated for stronger health, safety, consumer 

protection and other rules, as well as for a robust regulatory system that curtails corporate 

wrongdoing and advances the public interest. 

Public Citizen co-chairs the Coalition for Sensible Safeguards (CSS). CSS is an alliance of more than 

75 consumer, small business, labor, scientific, research, good government, faith, community, health 

and environmental organizations joined in the belief that our country's system of regulatory 

safeguards provides a stable framework that secures our quality of life and paves the way for a 

sound economy that benefits us all. Time constraints prevented the Coalition from reviewing my 

testimony in advance, and today I speak only on behalf of Public Citizen. 

The Regulatory Flexibility Improvements Act (RFIA) seeks to help a segment of our economy that 

all would agree is essential to keeping our economy tbriving. Unfortunately, tbis legislation will do 

little to help genuine small businesses, and will come at an enormous cost in terms of undermining 

our federal agencies' ability to provide crucial public health and safety protections, civil rights, 

workers' rights, consumer safety standards, and environmental standards. 

As discussed more fully below, the RFIA takes a "sledgehammer" to the regulatory process where 

only a "scalpel" at most is needed. The legislation makes drastic and unnecessary reforms to the 

Regulatory Flexibility Act (RFA) which, in turn, will place great pressure on federal agencies to 

consider almost all of their rules as significantly impacting small business, even in cases where the 

rule is only setting public health and safety standards for large companies. As a result, agencies will 

be bogged down in senseless busywork in a search for impacts on small businesses that simply do 

not exist. Since the RFIA does not provide any funding for the significant added mandates it 

imposes on federal agencies, the end result will be, at a minimum, further delayed public 

protections, with many crucial new safeguards never seeing the light of day. Congress should 

instead explore ways to provide direct assistance to real small businesses while preserving our 

country's system of existing safeguards and our government's ability to respond to emerging 

threats. A promising consensus path forward is highlighted at the end of this testimony. 

I. Regulations Do Not Kill Jobs, They Save Lives 

First, there is little empirical evidence supporting the claim that there is a trade-off between 

economic growth and strong, effective regulatory standards. Experts from across the political 

spectrum have acknowledged that arguments linking regulations to job losses are nothing more 

than mere fiction. For example, Bruce Bartlett, a prominent conservative economist wbo worked in 
63 

both the Reagan and George H.W. Bush administrations, referred to the argument that cutting 

regulations will lead to significant economic growth as "just nonsense" and "made Up."1 

Mr. Bartlett's claims are backed up by a recent World Bank study that surveyed economic 

conditions across the world and ranked countries according to the "ease of doing business" in those 

countries. The study ranked the U.S. number four overall and number one among the 2S largest 

economies.2 In the words of the World Bank, "A high ranking on the ease of doing business index 

means the regulatory environment is more conducive to the starting and operation of a local firm." 

The World Bank recognized that the regulatory environment includes many rules that enhance and 

protect business activity, and the U.S. ranks especially high in protecting investors, enforcing 

contracts, and getting credit. 

In fact, the available evidence shows that there is simply no clear link between regulations and job 

losses. Rather, recent data from the Bureau of Labor Statistics demonstrate that insufficient 

demand for products and services is what's driving layoffs and job losses. As the figure below 

depicts, employers cite business demand roughly 100 times more often government regulations as 

the reason for mass layoffs: 

Reason for layoff: 2008-2011 3 

2008 2009 2010 2011 

Business Demand 516,919 824,834 384,564 366,629 

Governmental 5,505 4,854 2,971 2,736 

regulations/intervention 

To the extent that there is a link between regulations and job losses, it points in the opposite 

direction with a lack of regulation being tbe culprit for the financial collapse of 2008 and the 

ensuing Great Recession. As the Financial Crisis Inquiry Commission noted, ""Widespread failures 

in financial regulation and supervision proved devastating to the stability of the nation's financial 

markets."4 A recent GAO report quantified the tragic costs of the financial crisis, finding that lost 

economic output could exceed $13 trillion and that American households collectively lost $9.1 

1 Charles Babington, Bruce Bartlett, Ex-Reagan Economist: Idea That Deregulation Leads to Jobs 'Just Made 

Up: Huffington Post, October 30, 2011, http://www.huffingtonpost.com/2011/10/31/gop-candidates-planson-economy-housing_n_1066949.html"!view=print&commJef=false. 

2 World Bank, Doing Business: Measuring Business Regulations available at: 

http://www.doingbusiness.org/rankings 

1 U.S. Department of Labor, Bureau of Labor Statistics. (2012, November). Extended Mass Layoffs in 2011. 

Table 5. Reason for layoff: extended mass layoff events, separations, and initial claimants for u.nemployment 

insurance, private nonfarm sector, 2009-2011. Available from: <http://www.bls.gov!mls!mlsreport1039.pdf>; 

u.s. Department of Labor, Bureau of Labor Statistics. [2011, November). Extended Mass Layoffs in 2010. Table 

6. Reason for layoff: extended mass layoff events, separations, and initial claimants for unemployment insurance, 

private nonfarm sector, 2008-2010. Available from: <http://www.bls.gov/mls/mlsreportl038.pdf>. 

4 Financial Crisis Inquiry Commission. [2011). The Financial Crisis Inquiry Report: Final Report of the 

National Commission on the Causes at the Financial and Economic Crisis in the United States. Washington, 

D.C.: Government Printing Office. p. 30. 
64 

trillion.' The lack of demand that has been driving the mass layoffs can be directly attributed to the 

economic slowdown following this financial crisis. It's no surprise then to see a prominent small 

business poll from earlier this year show overwhelming support for holding Wall Street 

accountable.6 The RFIA, if enacted, would work to further stall, and potentially block, key parts of 

the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) and thus lay the 

foundation for future economic and job losses. 

Second, the benefits that federal regulations provide to our country consistently dwarf the costs of 

those regulations according to official government figures. Every year, the Office of Management 

and Budget (OMB) analyzes the costs and benefits of rules with a major economic impact in a report 

to Congress. The most recent OMB report found that: 

The estimated annual benefits of major Federal regulations reviewed by OMB from October 

1,2002, to September 30, 2012, for which agencies estimated and monetized both benefits 

and costs, are in the aggregate between $193 billion and $800 billion, while the estimated 

annual costs are in the aggregate between $57 billion and $84 billion. These ranges are 

reported in 2001 dollars and reflect uncertainty in the benefits and costs of each rule at the 

time that it was evaluated.' 

This means that even by the most conservative OMB estimates, the benefits of major federal 

regulations over the last decade have exceeded their costs by a factor of more than two-to-one, and 

benefits may have exceeded costs by a factor of up to 14. 

Yet, the raw numbers do not fully portray the critical role that regulations play in our lives every 

day. Regulations bave made our food supply safer; saved hundreds of thousands of lives by making 

our air and water supply safer; saved countless lives by taking unsafe products off the shelves and 

ensuring that product manufacturers adhere to strict safety standards; protected consumers from 

unfair and deceptive financial products; empowered disabled persons by allowing them means to 

access public facilities; made our workplaces safer environments for workers; and much more. 

While many of us take these regulatory protections as granted, the true value of regulatory 

standards become tragically apparent following avoidable crises and catastrophes stemming from a 

lack of regulation. Deregulatory failures such as the aforementioned 2008 financial collapse and 

Great Recession, the 2010 British Petroleum oil spill disaster in the Gulf of Mexico, the Upper Big 

Branch mine explosion in West Virginia, the numerous tainted food recalls and food safety crises 

that still occur on a regular basis, the massive recalls of unsafe children's toys and defective 

, u.s. Government Accountability Ottice. (2013, Jan. 13). Financial Crisis Losses and Potential Impacts of the 

Dodd-Frank Act. p. 12. available at: <http://www.gao.gov Iproducts/GAO-13-180>. 

f, Small Business Majority, Opinion Poll: Small Businesses Support Strong Accountability for Financial 

Industry, (Jan. 29, 2013), http://www.smallbusinessmajority.org/small-business-research/financialreformjsmall-husiness-opinion-on-financial-reform.php. 

7 Office of Management and Budget, Office of Information and Regulatory Affairs. (2013). Draft 2013 Report to 

Congress on the Benefits and Costs of Federal Regulations an Unfunded Mandates on State, Local, and Tribal 

Entities. p.3. available at: 

http://www. whitehouse.gov I sites I defaul t/fi les lomb linfore g/2 0 13 _c b I draf\.2 0 13 _cos \.benefi\Jeport. pdf 
65 

consumer products, and most recently the explosion at a West Texas fertilizer plant, all point to the 

need to strengthen, not weaken, our system of regulatory protections. 

No wonder, then, that opponents of strong regulatory protections seek to obscure the clear and 

tangible benefits of regulation by focusing myopically on the costs of regulation, even to the point of 

exaggerating such cost estimates to an implausible degree. The most famous, or notorious, of these 

inflated regulatory cost estimates is the so-called "Crain and Crain" study,S commissioned by the 

Small Business Administration's (SBA) Office of Advocacy, which found the annual costs of 

significant regulations amount to 1.75 trillion dollars a year. Touted by many, this deeply flawed 

study has been universally discredited by experts and peer reviewers from across the political 

spectrum. Former OIRA administrator Cass Sunstein has previously stated that the study "should be 

considered nothing more than an urban legend'" while former OJRA Administrator under President 

George W. Bush, John Graham, has stated that a prior iteration of the study "might not pass OMB 

information quality guidelines."1o The CRS report analyzing the study contained a striking 

admission by the study's authors that they did not intend for the study to be used for policy making 

purposes because it only included discussion of potential costs of regulation with no discussion of 

potential benefit. I I None of this has stopped lawmakers from repeatedly citing the study as 

justification for their claims of "over regulation " and the public is regularly misled by new reports 

that infiate estimates of the costs of regulation with nary a mention of the benefits they bring. 

Finally, it is true that the regulatory system is broken, but not because there is too much regulation. 

Rather the system is broken because the current regulatory process is too slow, too calcified, and 

too inflexible to respond to public health and safety threats as they emerge. As Public Citizen's 

striking visual depiction of the regulatory process shows,12 the current process is a model of 

inefficiency, with a dizzying array of duplicative and redundant requirements interspersed 

throughout a byzantine network that is a virtual maze for agencies to navigate. This is the result of 

an accumulation of analyses and procedures that Congress and the Executive have imposed on 

agencies over the years leaving agencies in a state of "paralysis by analysis." Far from the popular 

conception of "regulators run amok," the reality is that agency delays are rampant, deadlines are 

routinely missed or pushed back, and ample evidence exists that the situation is getting worse. 

Last July, Public Citizen conducted an analysis of public health and safety rulemakings that 

Congress required agencies to implement with strict deadlines. I:; Our analysis showed that most 

8 Nicole V. Crain and W. Mark Crain, The Impact of Regulatory Costs on Small Firms (2010) available 

at http:,I !W\Vw.sh;)..go~lladvocacv 1754·(}(Vny1 

9 Mark Drajem, Rules Study I3acked by Republicans 'Deeply Flawed,' Sunstein Says (Bloomberg, June 3, 2011) 

available at http://wvyw.bloomberg.com/ne.mllO : 1-06-03 Irules-study-backed-by- republicans-deepJyflawed-sunstein-says.html 

111 Hearing on H.R. 2432, Paperwork and Regulatory Improvements Act of 2003 Before the H. Comm. On Govt 

Reform, 108th Congo Tr. 21 (2003) (statement of John Graham). 

11 Curtis W. Copeland,Ana(ysis of an Estimate afthe Total Cast of Federal Regulations 2 (Cong. Research Serv., 

R41763, Apr. 6 2011). 

12public Citizen, The Federal Rulemaking Process, http://www.citizen.org/documents/RegulationsFlowchart.pdf. 

II Negah Mouzoon, Public Sajeguards Past Due: Missed Deadlines Leave Public Unprotected, Public Citizen, June 

2012, http://www.citizen.org/documents/public·safeguards·past·due-report.pdf. 
66 

rules are issued long after their deadlines have passed, putting American consumers at risk. Of the 

159 rules analyzed, 78 percent missed their deadline and more than half remained incomplete at 

the time. Federal agencies miss these deadlines for a variety of reasons, including having to conduct 

onerous analyses, inadequate resources or agency commitment, and fear of judicial review. A 

report just released by CSS also confirms these delays continue unabated. 14 The CSS report profiled 

eight rules critical to public health and safety that bave been stuck at various stages ofthe 

rulemaking process for years. Many of these rules are required by Congress, with clear deadlines 

that agencies have been unable to meet because the regulatory process is so slow. 

None of this should come as a surprise to this committee. In late 2011, an expert testified before 

this committee that it takes agencies on average four to eight years to finalize and enforce 

significant regulations.l5 Tbis comports with a recent Government Accountability Office (GAO) 

report finding that it takes the Occupational Safety and Health Administration (OSHA) on average 

seven years to develop and finalize health and safety standardsY' Clearly, no one can point to the 

federal agency rulemaking process as a paragon of government efficiency. 

Perhaps the most vivid example of excessive and unreasonable regulatory delays is the ongoing 

process of putting basic financial reforms in place after the financial crisis of 2008 by implementing 

the Dodd-Frank Wall Street Reform and Consumer Protection Act. According to the most recent 

report by the law firm DavisPolk, a total of 279 Dodd-Frank rulemaking requirement deadlines 

have passed.l7 Of these 279 passed deadlines, only 104, or approximately 37% have been met with 

finalized rules.'" Overall, only 153 of the 398 total reqUired rulemakings have been finalized, while 

128 required rulemakings have yet to even be proposed.'" 

These delays and missed deadlines are the sign of a broken regulatory system that is crumbling 

under the cumulative weight of ever increasing analytical and procedural requirements. The RFIA 

would make the situation worse in several key respects. 

II. RFIA: Small Business Bill In Name Only 

The RFIA is another in a long string of so-called "regulatory reform" measures that are designed to 

slow down or prevent agencies from carrying out their congressionally required responsibilities to 

protect the health and safety of the American public. Although this legislation is supposedly 

intended to provide small businesses with regulatory relief, the legislation will actually give big 

14 Coalition for Sensible Safeguards, Down the Regulatory Rabbit Hole: How Corporate influence, Judicial 

Review, and Lack of Transparency Delay Crucial Rules and Harm the Public available at: 

http:// sensi blesafeguards.org/ assets/ docum ents / down -the-regulatory-ra b bit-hole. pdf 

15 Testimony of Sidney Shapiro, Hearing on H.R 3010, The Regulatory Accountability Act of 2011, House 

Judiciary Committee, 112" Congress (Oct 25, 2011J available at 

http://judiciary.house.gov/hearings/pdf/Shapiro%2010252011.pdf 

" Workplace Safety and Health: Multiple Challenges Lengthen OSHA's Standard Setting: Hearing Before the S. 

Comm. on Health, Education, Labor, and Pensions, 113th Congo (2012) [statement of Revae Moran, Director, 

Education, Workforce, and Income Security). 

17 DavisPolk [2013, June) Dodd-Frank Progress Report. Available at: <http://www.davispolkcom/DoddFrank-Rulemaking-Progress-Report>. 

IBId. 

19/d. 
67 

business interests an even more effective tool to avoid common-sense regulatory standards and 

safeguards. 

A. RFIA renders ""small business impacts" meaningless 

The RFIA stipulates that rules which have an ""indirect economic effect on small entities which is 

reasonably foreseeable"" be required to go through the same analysis regarding small business 

impacts as those rules which have a direct impact on small businesses. In other words, the RFIA 

would force agencies to assess not just the particular impacts of a proposed on regulated small 

businesses but also the indirect and ancillary impacts on any small entities not covered, or intended 

to be covered, by the regulation. The RFIA does little to clarify what constitutes, and more 

importantly, what does not constitute an indirect economic effect, giving agencies only the vague 

and perfunctory guidance that it be ""reasonably foreseeable." This ill-defined and indeterminate 

new mandate will exert strong pressure on agencies to engage in a guessing game of sorts as they 

attempt to identify all possible indirect effects of a rule, an enterprise akin to ordering a 

meteorologist to discern the effects on Washington, D.C. weather of a butterfly flapping its wings in 

Japan. 

Making matters worse, the RFIA ensures that if agencies guess wrong on indirect effects, regulated 

entities will have the ability to drag the agency into court and overturn a rule because the agency 

wasn't able to satisfy this new and highly speculative mandate of determining all indirect effects. 

Thus, the RFIA opens the floodgates oflitigation and transforms a statute that is supposed to target 

rules that apply to small businesses into one that forces agencies, by default, to assume that their 

rules will in some indirect and attenuated fashion apply to small businesses. 

B. The RFIA creates a new regulatory ""czar" in the SBA Office of Advocacy 

The RFIA gives a small office within the SBA, the Office of Advocacy (SBA Advocacy), 

unprecedented powers to intervene in agency rulemakings and shape and influence the substance 

of rules before allowing the broader public to see and comment on the rules once they are 

published in the Federal Register. This is troubling given that recent reports have revealed 

Advocacy to be operating very differently in practice than its innocuous sounding mission to 

""advance the views and concerns of small businesses.""" 

Early this year, The Center for Effective Government (CEG) released a report suggesting that the 

SBA Office of Advocacy played an improper role by intervening and commenting on agency 

scientific risk assessments on the cancer risk of certain chemicals at the behest of trade industry 

lobbyists for large chemical companies, not small businesses." Through Freedom oflnformation 

Act requests that disclosed e-mail correspondence, CEG found that lobbyists for the American 

Chemistry Council (ACC) contacted SBA Advocacy in November 2011 and requested that SBA 

Advocacy intervene on ACC"s behalf to rebut the scientific evidence prepared by Department of 

20 Small Business Association, http://www.sba.gov/advocacy/809/480811 (last visited June 26, 2013). 

21 See Randy Rabinowitz, Katie Greenhaw, & Katie Weatherford, Small13usinesses, Public Health, and Scientific 

Integrity: Whose Interests Does the OJJice oj Advocacy at the Small I3usiness Administration Serve?, Center tor 

Effective Government, January 2013. 
68 

Health and Human Services (HHS) showing formaldehyde to be a "known carcinogen."" SBA 

Advocacy complied with the request and asked lobbyists for the ACC to provide a "detailed 

industry" rebuttal to the HHS scientific finding." Further, Advocacy made no effort on its end to 

verify the industry science that it was being asked to support." Importantly, the CEG report shows 

that no small businesses requested that Advocacy intervene in this fashion on behalf of large 

chemical companies, nor did any small husinesses file comments criticizing the scientific findings 

on formaldehyde by HHS.2' 

The CEG report also found that Advocacy again played a similar improper role regarding scientific 

risk assessments for a chemical called Hexavalent Chromium, listed as a "known human 

carcinogen" since 1980." In response to EPA's interest in establishing new drinking water 

standards for chromium levels nationwide, the American Chemistry Council's Hexavalent 

Chromium Panel mobilized to push back and enlisted SBA Advocacy as a key ally." In June 2011, 

ACC lobbyists asked SBA Advocacy to send a letter to EPA requesting that an industry scientific 

assessment of chromium, conducted by the ACC, he completed before EPA proceed on chromium 

standards.2s Again, SBA Advocacy performed no independent verification of the scientific claims 

being made by the ACC, and were not contacted by any small businesses to engage in this matter." 

Not surprisingly, when SBA Advocacy agreed to the request and sent a letter to EPA, the letter was 

remarkably similar to the ACe's comments to EPA and parroted exact language forwarded to SBA 

Advocacy by the ACC;() 

Tbese disturbing revelations give the strong impression that the SBA Office of Advocacy is a taxpayer funded voice for large business interests, rather than the small business interests that it was 

created to represent When Advocacy takes positions on agency scientific findings and regulations, 

the public should have faith that those positions are soundly supported by SBAAdvocacy's own 

analysis and reflect the interests oflegitimate small businesses. SBA Advocacy should not be using 

their authority as a front for large companies and their trade associations under the guise of helping 

small husinesses. Rather than giving new and unprecedented powers to SBA Advocacy, Congress 

should seek to bring basic accountability and transparency to SBA Advocacy to ensure it is fulfilling 

its mission on behalf of small business. 

C. SBREFA panels for all agencies irrespective of small business impacts 

The RFIA would entail a dramatic expansion of the Small Business Regulatory Flexibility Act 

(SBREFA) review panel process. Under current law, three agencies, the Environmental Protection 

Agency (EPA), the Occupational Safety and Health Administration (OSHA), and the Consumer 

Financial Protection Bureau (CFPB), are required to convene SBREFA review panels for every 

22 Id. at 18. 

L:lld. 

:141d. 

"Id. at 17. 

26Id. at 23. 

27 Id. at 25. 

2cld. 

2" Id. 

'" Id. at 26. 
69 

proposed rule that will have a "significant economic impact on a substantial number of small 

entities."31 Under the RFIA. all agencies would be required to conduct SBREFA review panels if their 

regulation would result "in an annual effect on the economy of $100.000,000 or more," "major 

increase in costs or prices," "significant adverse effects" on a variety of economic factors, "or a 

significant economic impact on a substantial number of small entities." Note here that under the 

RFIA. SBREFA panels are required even when an agency has demonstrated that a regulation will 

resultin no small business impacts whatsoever. This is a significant transformation of the SBREFA 

review panel process which currently is designed to provide input into rules that actually affect 

small husinesses. As illustrated helow, the new expanded scope of SBREFRA panels will result in 

these panels giving feedhack on rules that have no application and place no requirements on small 

businesses. Once again, the RFIA stretches the boundaries of what is considered a regulation that 

impacts small businesses to such a degree that the distinction between what does and what does 

not impact small businesses is rendered meaningless. 

Moreover, this expansion of the SBREFA review panel process will entail significant resources for 

both the SBA and federal agencies that is simply unaccounted for in this legislation. In 2012, federal 

agencies issued 83 "economically significant" rules,12 meaning those with an impact of over 

$100,000,000. If the RFIA had heen in effect, the SBA would have conducted 83 SBREFA review 

panels for the rules finalized last year alone. The enormity of this undertaking. in terms of staffing 

and resources, cannot be understated. Agencies frequently spend months diligently preparing for 

the panels. A recent GAO report detailing the glacially slow pace of rulemaking at OHSA identified 

the SBREFA panel process as one of the factors delaying OSHA, finding that it takes about 8 months 

of work for OSHA to prepare for the panel. n The increased workload for the SBA Office of Advocacy 

will also likely cause delays in their ability to conduct these review panels expeditiously and 

efficiently. The only way for Congress to impose this significant new mandate for an expanded 

SBREFA review panel process without creating lengthy delays is to provide commensurate funding. 

Unfortunately, the RFIA does not do this. 

III. A Consensus Path Forward 

As previously discussed, the RFIA's inclusion of indirect costs, empowerment of the SBA Office of 

Advocacy, and wide-ranging expansion of the SBREFA review panel process all lead to one 

inevitable result: regulations that have no impact on small businesses are nonetheless subject to 

extensive analyses and procedures currently reserved only for those rules that do actually affect 

small husinesses. Ultimately, the RFIA will work to delay or completely block rules designed to 

curtail big business wrongdoing and irresponsibility that result in enormous costs to our society's 

health and safety, all the while invoking the goal of "small husiness regulatory relief." Congress 

11 Small Business Regulatory Enforcement [<aimessAct of 1996, Pub. L. No. 104-121, ll() Stat. 857 (1996) (cowfied in 

scattered sections of 5 U.s.C., 15 U.S.C., and 28 U.S.C."J 

32 Maeve P. Carey, Counting Regulations: An Overview of Rulemaking, Types of Federal Regulations, and Pages 

In the Federal Register 11 (Cong. Research Serv., R43056, May 1, 2013). 

11 Workplace Safety and Health: Multiple Challenges Lengthen OSHA's Standard Setting: Hearing lJefore the S. 

Comm. on Health, Education, Labor, and Pensions, 113th Congo [2012J [statement 01 Revae Moran, Director, 

Education, Workforce, and Income Security). 
70 

should not be passing legislation like the RFIA that lets Big Business off the hook by giving them a 

free pass in the name of small businesses. 

Fortunately, there is a path forward that does not undercut our government's ability to establish 

clear rules of the road and strong regulatory standards while providing small businesses with 

targeted regulatory relief: small business regulatory compliance assistance. Right now, federal 

agencies are not required to provide meaningful compliance assistance to small businesses. 

Instead, they are only required to answer inquiries and provide compliance guides. It is clear that 

agencies can do more to help small husinesses understand and meet their regulatory obligations. 

Congress should consider legislation to amend the Small Business Regulatory Enforcement Fairness 

Act by requiring agencies to conduct more outreach, education and compliance assistance to small 

businesses on their regulatory obligations. Many agencies already have existing Small Business 

Om buds man offices that were specifically created to help small businesses with compliance issues 

once regulations are issued." Legislation is needed to ensure tbat those offices are conducting 

effective regulatory outreacb and education to small businesses by, for example, establishing "best 

practices" guidelines for federal agencies, particularly those with Small Business Ombudsman 

offices, to follow when working to ease regulatory compliance for small businesses. The virtues of 

compliance assistance are clear: real small businesses receive direct and tangible assistance in 

complying with regulations and the enormous benefits that public health and safety regulations 

provide to our country are preserved. 

There are clearly better ways to help small business without sacrificing vital public health and 

safety protections. Supporters of this legislation are mistaken if they believe the RFIA will improve 

or streamline the rulemaking process. Far from it, the RFIA will cater to large corporate special 

interests by depriving tbe American people of critical safeguards to ensure clean air and water, safe 

food, consumer products and workplaces, and a stable, prosperous economy, all under the guise of 

helping small business. 

14 A list of small business ombudsman offices can be found at http://www.sba.gov /category /navigationstructure/starting-managing-business/starting-business/business-law-regulations/contact-governmentagency/fe 
71 

Mr. BACHUS. Mr. Palmieri. 

TESTIMONY OF ROSARIO PALMIERI, VICE PRESIDENT, INFRASTRUCTURE, LEGAL AND REGULATORY POLICY, NATIONAL 

ASSOCIATION OF MANUFACTURERS 

Mr. PALMIERI. Thank you, Mr. Chairman, Members of the Subcommittee, thank you for the opportunity to testify today about reform of the Regulatory Flexibility Act. 

The United States is the world’s largest manufacturing economy. 

It produces more than $1.8 trillion of value each year and employs 

nearly 12 million Americans working directly in manufacturing. On 

behalf of the NAM and the millions of men and women working in 

manufacturing in the United States, I want you to know that we 

support your efforts to reform the RFA to unleash the small manufacturers in this country to do what they do best, makes things and 

create jobs. 

Manufacturers have been deeply affected by the most recent recession. This sector lost 2.2 million jobs during the period, and the 

numbers show that American manufacturing is growing more slowly than in competitive countries. We have seen policies from Washington that will not help our economic recovery and can actually 

discourage job creation. To regain manufacturing momentum and 

to return to net job gains, we need improved economic conditions 

and improved government policies. 

Many of the proposals being offered by the Subcommittee, including more detailed statements in the RFA process and requirements 

to describe redundant overlapping or conflicting regulations, will 

help us do just that. My written statement details our support for 

amendments to the periodic review requirements of the RFA. Those 

reforms address the challenges of the cumulative burden of regulations that are no longer serving our modern needs. 

But I would also like to spend some time on some of the critiques 

of the reforms in your legislation, including one that Mr. Narang 

just mentioned, the analysis of indirect effects in the RFA. So 

courts have found that agencies must only consider the direct effects of the regulations on small entities under this law. That is 

one of the reasons we are taking a look at this, and that is, despite 

the fact that Senator John Culver, a Democrat from Iowa and one 

of the lead authors of the RFA in 1980, declared otherwise in the 

legislative history, and there was a lot of confusion about this at 

the very beginning. 

The RFA was basically a good government, bipartisan law signed 

by President Carter and modeled after the National Environmental 

Policy Act, or NEPA. And under NEPA, the Council For Environmental Quality developed the implementing guidelines and regulation that all agencies must follow. They declared NEPA reviews to 

include both direct and indirect effects. Agencies have had to comply with these requirements for more than 30 years. 

Additionally, President Clinton’s executive order on regulatory 

review requires the consideration of all costs and benefits, not just 

direct costs and benefits but all, and the implementing regulation 

OMB Circular A-4, which explains to agencies how they must comply with those analytical requirements of the executive order, 
72 

states that agencies must identify the undesirable side effects and 

ancillary benefits of the rule. 

A review of indirect effects is already included in all the surrounding analysis of a regulation. It only makes sense to extend 

this review of indirect effects to the RFA as well. A simple example 

of why this is so important is EPA’s forthcoming ‘‘National Ambient Air Quality Standards, or NAAQS, for Ozone,’’ a study we published with MAPI, estimates the most stringent ozone standard 

under consideration could result in the loss of 7.3 million jobs by 

2020 and add a trillion dollars in new regulatory costs per year between 2020 and 2030, and yet this rule will never undergo a regulatory flexibility analysis. 

Why you might ask? Because EPA’s NAAQS regulations don’t 

have a direct impact on small entities. They regulate States, and 

the States in turn regulate small businesses and small communities, and since a State is not a small entity, it exempts the rule 

from coverage. This provision should not be controversial. No matter where you want to see the next ozone standard, you should 

want a fair accounting of its impact on small businesses, small 

nonprofits, small churches, and small local governments. Manufacturers hope this proposed legislation is just the beginning of a more 

thoughtful regulatory system built on common sense with an understanding of modern manufacturing. 

Mr. Chairman, thank you for the opportunity to testify today, 

and I will be happy to respond to questions. 

Mr. BACHUS. Thank you very much. 

[The prepared statement of Mr. Palmieri follows:] 
73 

N , ...... , ""... • ';'~I' ''1 

Manufacturers 

, 

Testimony 

of Rosario Palmieri 

Vice Prl:Isid{lf1t, Infraslrvclure, Legal and Regulatory Policy 

NallOnal As$0Ci3tion of Manufacturers 

before I/)e SuDCommrttee on Regulatory Reform, Commercial and Antrtrust Law 

of the Committee on the Judiciary 

U.S House of Representa1i.es 

on ' H.R. _ the Regu~tory F~~ibili ty Improvements AC1 of2013' 

June2S. 2013 
74 

COMMENTS OF THE NATIONAL ASSOCIATION OF MANUFACTURERS 

BEFORE THE 

SUBCOMMITTEE ON REGULATORY REFORM, COMMERCIAL AND ANTITRUST LAW 

COMMITTEE ON THE JUDICIARY 

U.S. HOUSE OF REPRESENTATIVES 

JUNE 28, 2013 

Chairman Bachus, Ranking Member Cohen and members of the Subcommittee 

on Regulatory Reform, Commercial and Antitrust Law, thank you for the opportunity to 

testify before you about the Regulatory Flexibility Improvements Act of 2013. 

My name is Rosario Palmieri, and I am the vice president of infrastructure, legal 

and regulatory policy for the National Association of Manufacturers (NAM). The nation's 

largest manufacturing trade association, the NAM represents 12,000 member 

companies consisting of small and large manufacturers in every industrial sector and 

state. As the voice of the 12 million men and women who work in manufacturing in 

America, the NAM is committed to achieving a policy agenda that helps manufacturers 

grow and create jobs. 

The United States is the world's largest manufacturing economy, producing 

18.2 percent of global manufactured products. Manufacturing in the United States alone 

makes up 12.2 percent of our nation's GDP. More importantly, manufacturing supports 

an estimated 17.2 million jobs in the United States-about one in six private-sector 

jobs-and offers high-paying jobs. In 2011, the average manufacturing worker in the 

United States earned $77,060 annually, including pay and benefits-22 percent more 

than the rest of the workforce. 

2 
75 

For many manufacturers in the United States, the economy is showing definite 

signs of improvement. Manufacturing has added about 500,000 jobs since the end of 

2009, but it still has a long way to go. Manufacturing lost more than 2 million jobs during 

the past recession, and output remains well below the 2007 peak. 

Nearly 95 percent of all manufacturers in the United States have fewer than 100 

employees, and the Small Business Administration (SBA) defines manufacturers with 

fewer than 500 employees as small. To compete on a global stage, manufacturing in the 

United States needs policies that enable companies to thrive and create jobs. Growing 

manufacturing jobs will strengthen the U.S. middle class and continue to fuel America's 

economic recovery. Manufacturers appreciate the Subcommittee's focus on ways to 

reduce the regulatory burden imposed on small businesses. Unnecessarily burdensome 

regulations place manufacturers of all sizes at a competitive disadvantage with our 

global counterparts. 

Because of the significant challenges affecting manufacturing, the NAM 

developed a strategy to enhance our growth. Earlier this year, the NAM released A 

Growth Agenda: Four Goals for a Manufacturing Resurgence in America, a pol icy 

blueprint for the Administration and new Congress that sets four goals with bipartisan 

appeal for enhanced competitiveness and economic growth: (1) The United States will 

be the best place in the world to manufacture and attract foreign direct investment; (2) 

Manufacturers in the United States will be the world's leading innovators; (3) The United 

States will expand access to global markets to enable manufacturers to reach the 95 

percent of consumers who live outside our borders; and (4) Manufacturers in the United 

States will have access to the workforce that the 21 st-century economy demands. To 

achieve these goals, we need sound policies in taxation, energy, labor, trade, health 

care, education, litigation and, certainly, regulation. 

3 
76 

Regulatory Burdens: The Cost of Regulations 

In recent years, the manufacturing economy has seen improvements despite the 

many government policies and regulations that impede manufacturers' ability to grow, 

export and create jobs. A 2011 study conducted by the Manufacturing Institute and the 

Manufacturers Alliance for Productivity and Innovation (MAPI), found that, excluding the 

cost of labor, manufacturers in the United States face a 20 percent structural cost 

burden compared to nine major trading partners because of government-imposed 

policies, including regulations. This is an increase from the 2008 study, which 

demonstrated domestic policies added 17.6 percent to the cost of manufacturing in the 

United States. 

Excessive regulatory burdens weigh heavily on the minds of manufacturers. In a 

NAMllndustryWeek Survey of Manufacturers released earlier this month, 67 percent of 

respondents cited an unfavorable business climate caused by regulations and taxes as a 

primary challenge facing businesses, up from 62.2 percent in March 2012. In the 

December 2012 survey, 76.4 percent of respondents indicated that a pressing priority for 

the Obama Administration and the 113th Congress should be reducing the regulatory 

burden on manufacturers. 

The Administration recognizes the important role the Regulatory Flexibility Act 

(RFA) plays in reducing the regulatory burden on small business. In a January 2011 

memorandum on regulatory flexibility, small business and job creation, President Obama 

stated, "The Regulatory Flexibility Act ... establishes a deep national commitment to 

achieving statutory goals without imposing unnecessary burdens on the public." He 

directed executive departments and agencies and requested independent agencies to 

give "serious consideration" to using increased flexibility to reduce regulatory burdens on 

small businesses. The NAM has welcomed other efforts by the Administration to 

encourage agencies to reduce their regulatory burdens. The President has signed 

4 
77 

executive orders, and the Office of Management and Budget has issued memoranda on 

the principles of sound rulemaking, considering the cumulative effects of regulations, 

strengthening the retrospective review process and promoting international regulatory 

cooperation. Though well-intentioned, all of these initiatives have yet to realize 

significant cost reductions for manufacturers. 

Instead, manufacturers-and particularly small manufacturers-continue to be 

inundated by the unnecessarily burdensome regulations that federal agencies have 

promulgated. Based on data from the Government Accountability Office, over the past 

four years, the Obama Administration has issued 331 major new regulations-defined as 

having an annual effect on the economy of at least $100 million. On average, the current 

Administration has issued 20 more major regulations per year than the previous 

Administration. These regulations include significant burdens imposed on manufacturers 

in the United States and represent real compliance costs that affect our ability to expand 

and hire workers. 

Because manufacturing is such a dynamic process, involving the transformation 

of raw materials into finished products, it encompasses more environmental and safety 

issues than other businesses. A 2010 study commissioned by the SBA's Office of 

Advocacy found that manufacturers in 2008 spent on average $14,070 per employee to 

comply with regulations, 75 percent more than all U.S. businesses spend per employee. 

The study estimated that manufacturers spend $7,200 per employee to comply with 

environmental regulations alone. For all regulations, small firms (fewer than 20 

employees) spent $28,316 per employee, or more than twice the amount for larger firms. 

The burden of regulation falls disproportionately on manufacturers, and it is 

heaviest on small manufacturers because their compliance costs often are not affected 

by economies of scale. We find that when agencies thoughtfully comply with the 

requirements of the Regulatory Flexibility Act (as the President directed in his January 

5 
78 

2011 memorandum), regulatory burdens are reduced. The SBA's Office of Advocacy 

estimates that it saved small businesses $3.6 billion in regulatory costs during FY 2012 

as a result of helping agencies comply with RFA requirements. 

Agency Failures to Conduct a Regulatory Flexibility Analysis 

Under the RFA, agencies are required to prepare a regulatory flexibility analysis 

to detennine the impact of a forthcoming proposed or final rule on small entities and to 

consider any regulatory alternatives that would accomplish the rule's objective while 

minimizing the burden imposed on those small entities. Unfortunately, agencies can 

avoid this expanded analysis and other important RFA requirements by simply asserting 

that the rule will not significantly impact small entities. 

An examination of the Fall 2012 Unified Agenda indicates the extent of which 

agencies are failing to conduct regulatory flexibility analyses to determine the impact of 

their rules and how to best reduce the small business burden. As a whole, agencies 

currently have 437 significant rules 1 in the final rule stage. Agencies determined that only 

16 percent of these rules require regulatory flexibility analysis. Of the 401 completed 

rules, agencies determined that only 14 percent required the additional analysis. The 

Environmental Protection Agency (EPA) conducted a regulatory flexibility analysis for 

only 3 percent of its 61 proposed or final rules listed in the most recent Agenda. 

Under the RFA, only a small number of regulations require expanded analysis 

because "indirect effects" cannot be considered. The purpose of the law is to ensure that 

agencies thoughtfully consider the impact of regulations on small entities, but they 

routinely avoid the requirements that Congress placed upon agencies and that President 

1 As defined by Executive Order 12866 or determined to be a priority by an agency head; Executive Order 

12866 defines a "significant regulatory action" as an action that would result in a rule that may have "an 

annual effect on the economy of $1 00 million or more or adversely affect in a material way the economy, a 

sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, 

local, or tribal governments or communities." 

6 
79 

Obama confirmed in January 2011. The Regulatory Flexibility Improvements Act of 2013 

would implement needed reforms to the law, greatly improving the quality of regulations 

and saving small businesses billions of dollars in regulatory costs. 

A timely example of this shortcoming is the EPA's National Ambient Air Quality 

Standards (NAAQS) for Ozone. Because implementation is done through the regulation 

and approval of state implementation plans, there are said to be no direct effects on 

small entities. This is clearly contrary to what Congress intended when it passed the 

RFA. Further, the Obama Administration's consideration of a new ozone standard this 

year will significantly impact local communities and their small business economies. The 

most stringent standard under consideration could result in the loss of 7.3 million jobs by 

2020 and add $1 trillion in new regulatory costs per year between 2020 and 2030. Those 

costs should fit any agency's definition of a significant impact on small entities, but they 

are currently excluded from analysis. 

Another important reform is enhanced periodic review of regulations that impact 

small businesses, often referred to as "Section 610 reviews." There was great hope that 

this original provision would rationally reduce or eliminate unnecessary burdens that had 

outlived their usefulness or had not appropriately considered the concerns of small 

business when they were first promulgated. The Obama Administration has continually 

highlighted its effort to conduct retrospective reviews of existing regulation to remove 

conflicting, outdated and often ineffective regulations that have accumulated over time. 

Those efforts follow similar efforts of the Reagan, Clinton and George W. Bush 

Administrations to eliminate unnecessary or poorly designed rules. If government is to 

embrace this cultural shift, it must be made permanent in statute. One way to ensure the 

continuation of this activity is to make these reforms into law. Manufacturers have long 

found on the factory floor that the elimination of unnecessary steps leads to productivity 

7 
80 

gains and more capital to invest in our plants, equipment and people. Government 

efforts to remove unnecessary burdens on a continuing basis can have similar effects. 

We believe it is very im portant for the SBA's chief counsel for advocacy to have 

regulatory authority. Court cases involving the chief counsel's interpretations have failed 

to provide the proper weight to that office's interpretations of the RFA. Rulemaking 

authority would provide that certainty. And since more than 80 percent of the 

government's billions of hours of paperwork burden imposed on the American people 

comes from the I nternal Revenue Service (I RS), efforts to fix the loopholes by which the 

IRS avoids compliance with the RFA are certainly welcome. 

Conclusion 

Chairman Bachus, Ranking Member Cohen and members of the Subcommittee, 

thank you again for the opportunity to testify today on the regulatory burdens borne by 

domestic manufacturers. The President stated in his Memorandum on Regulatory 

Flexibility, Small Business and Job Creation that the Administration is "firmly committed 

to eliminating excessive and unjustified burdens on small businesses and to ensuring 

that regulations are designed with careful consideration of their effects, including their 

cumulative effects, on small businesses" Manufacturers believe that reforms to the 

Regulatory Flexibility Act are necessary to achieve the President's goal. Too many 

regulations that have significant effects on small businesses escape the current process 

because of loopholes in the Act and unchallenged traditions. The NAM urges the 

Subcommittee to move forward with this legislation expeditiously. Jobs and growth for 

small manufacturers depend upon your efforts. 

8 
81 

Mr. BACHUS. Let me say this. And this isn’t one of my questions. 

But I think all four opening statements were excellent, and they 

really had a lot of substance in them. And so I appreciate it. 

At this time, Mr. Collins. 

Mr. COLLINS. Thank you, Mr. Chairman. 

Again, I come back to this because this is one of the issues that 

I believe is dominant in the issue, and I appreciate the testimony 

that is being given. I do, however, you know, believe that this is 

an issue that we continue to need to look at. 

Mr. Harris, I want to go to you first because I believe so many 

times, and no disrespect to the other witnesses, their views, you 

are a business owner who comes on behalf of. And I think we lose 

that face sometimes. We are here up here a good bit and we talk 

to each other, but when you bring that face to it, I think it is important. 

You know, in the issue, and I read your testimony and I also listened to you, probably would not surprise you to learn that a recent study found that every American family pays about $15,000 

in hidden regulatory tax annually when you calculate it out. It is 

amazing what you could buy with that. 

What else other than passing this legislation can Congress do to 

help you do what you do best, create jobs and grow the economy? 

I would just love to hear your opinion on that. 

Mr. HARRIS. Well, thank you, Mr. Collins. I really appreciate the 

question. 

This is a first step. Again, we are not talking about specific regulation, only the process in which we should come up with regulations. As a small business owner, the uncertainty of the market is 

plenty, without having to deal with the uncertainty in the regulatory framework or governmental. Gone are the times when governmental agencies used to be consultive and now they are more 

punitive. Let’s work together to find out what is better for all our 

employees and better for our community. That is what we need. 

Mr. COLLINS. From what I am hearing and you saying and I 

have heard the other witnesses as well, you are just looking for 

some certainty. So tell me what I have got to do, you know, is sort 

of the bottom line whether you like it or not, and this is the part 

of the issue, that certainty issue that we lack sometimes. 

Mr. HARRIS. Before I make investments in additional employees, 

before I make investment in additional capital for manufacturers, 

before I give some certainty to other small business subcontractors, 

I really have to feel better about the market in which I am dealing 

with and some certainty in regard to the regulations that affect 

that market and the things that go into the cost of our product. 

I mean, our studies have shown that in the cost of any house 25 

percent of it can be directly linked to the cost of regulations, 25 

percent of the house. I am here today to make sure that doesn’t get 

any higher. I am not talking about doing less than that. Let’s just 

see what we can do about stemming the tide of increased unnecessary regulation. 

Mr. COLLINS. And you actually, it is amazing, I think you are 

reading my notes up here, because I actually flagged that in your 

testimony here, this 25 percent issue. And look, I could talk to each 

one of you witnesses for hours on this issue because it is some-
82 

thing, but I want to go back to that. Flesh that out a little bit for 

me. Because one of the things was mentioned, I think, in, Mr. 

Narang, your testimony about Dodd-Frank, which, frankly, in my 

area, has been a disaster for community banks. It is just absolutely 

a disaster because a lot of what it is, is it has tied up the money 

flowing, it has tied up people like you not being able to get to it 

to actually create jobs. Talk about that 25 percent just a little bit 

more. 

Mr. HARRIS. Well, 25 percent comes in a number of ways. One, 

the regulations on subcontractors that I employ in the production 

of anything that we are building, whether it is a residential property, whether it is a home for a small business. I mean, all of those 

are in there. 

And then you take into account the cost to manufacture the products we are going to put in the house, the cost of transportation, 

and all the regulation that goes into that. As you go back the link, 

it seems like government regulation has their hand in the pocket 

of everything we do, and I am not sure that those things, if given 

the right process, would have been flushed out. 

Mr. COLLINS. I am going to actually, because we are on a tight 

timeframe today, so I am just going to sort of end with this and 

just say, you believe that some regulations are necessary in what 

we do. 

Mr. HARRIS. Absolutely. 

Mr. COLLINS. And you and most—you know, and the vast, vast 

majority of business owners and all have no desire to hurt employees, to see them injured, to see them endangered or anything else. 

Would that be an honest statement from you as a business owner? 

Mr. HARRIS. Absolutely. And if I could tell you about my employee mix, we could start with my office, which is my wife, my sister, my father. I go to the field, it is my brother-in-law, my nephew, 

my sister’s nephew. 

Mr. COLLINS. Sounds like Thanksgiving table. 

Mr. HARRIS. I am just telling you, we know our employees, we 

know their birthdays, we know their wives’ and children’s names, 

why on earth would you think that I would want to hurt those employees, because they are members of my family? 

Mr. COLLINS. I understand. Thank you for your testimony. 

And to the other witnesses, thank you. I could go on. 

Mr. Chairman, I yield back. 

Mr. BACHUS. All right. Thank you. 

Mr. Cohen. 

Mr. COHEN. Thank you, Mr. Bachus. 

Mr. Narang, you said that the compliance assistance to small 

business hasn’t been as extensively made available by the Federal 

Government, that that hadn’t been an emphasis. I think Ms. 

Harned said the same thing. Do you all kind of in agreement on 

that area, do you think? Did you listen to her testimony? 

Mr. NARANG. I did, and I do agree that what Ms. Harned said 

is critical. Compliance assistance is part of the conversation that, 

frankly, you know, has not really attracted much attention and it 

deserves much more attention. 

Mr. COHEN. What else in her testimony or in Mr. Harris’ or Mr. 

Palmieri’s did you find that you could agree on? 
83 

Mr. NARANG. Well, I mean, I agree that small businesses share 

a higher proportion of compliance cost with respect to their expenses than of course large businesses. And so I think that this is, 

you know, a critical reason to provide direct compliance assistance 

to small businesses. 

Large corporations, they don’t need the compliance assistance. 

They have big compliance departments. Small businesses need the 

compliance assistance. 

Mr. COHEN. So that would involve, I guess, Ms. Harned, would 

that involve having more appropriations for Small Business Administration to have people that could help with compliance. Is that 

what you need? 

Ms. HARNED. Right, within the agencies. And what we have actually seen over the last few years is agency budgets have diverted 

resources from their compliance assistance programs to in, like, the 

case of OSHA, for example, to enforcement. And that is where we 

are hoping that those funds can be protected and not diverted so 

that small business owners can really get, you know, the help they 

need from regulators to know what they are supposed to be doing. 

Mr. COHEN. Would you support additional appropriations to the 

different agencies to help in compliance and specify that it would 

be for compliance for small business, to help them? 

Ms. HARNED. Well, we definitely think that there should be significant resources for compliance assistance. You know, whether 

that is additional money or, you know, a rebudgeting of an agency 

is left to the legislators. But that is an important—— 

Mr. COHEN. But you have got to have both compliance, which 

is—and I agree with you that there is a whole bunch of mazes, and 

small business could use the help and we could supply it—but you 

have got to enforce it, too. If you don’t enforce things, then why, 

you know, comply, if you don’t have to. So you have got to have 

that, and I don’t know if they just don’t have enough money where 

they could do both. And if they need more money to do the compliance assistance, would you, would the NFIB support that? 

Ms. HARNED. I mean, we want more resources for compliance assistance, like I said. That is what I would say. 

Mr. COHEN. Okay. Thank you. 

The analysis of indirect effects, how could that be dealt with, Mr. 

Narang? 

Mr. NARANG. Well, I think it is crucial first to make sure that 

indirect effects, if they are going to be a part of agency analyses, 

and I don’t agree that it is necessary, but if they are going to be 

a part, that they be well defined. We need to know exactly—— 

Mr. COHEN. Like a number, a threshold? 

Mr. NARANG. That is right. We need to know exactly what agencies must consider an indirect effect, what agencies should not consider an indirect effect. And, frankly, I think the most important 

thing is to not make it judicially reviewable. Once you drag an 

agency into court over a standard that is this ambiguous, it is 

going to be very hard for them to say, you know, we considered all 

the indirect effects. You know, litigants can very easily point to indirect effects that exist that, frankly, the agencies couldn’t consider 

because indirect effects are nebulous, you know, they have no 
84 

boundaries. And so I think it is very dangerous to have courts essentially overseeing this very ambiguous issue. 

Mr. COHEN. Your response is like some of the folks that are 

called here as witnesses by the majority, and they don’t like that 

either, so it is interesting kind of coming together. And I think 

maybe you and Ms. Harned and Mr. Palmieri and you all could get 

together. You all could probably come up with a bill we could pass. 

I mean, there are some things we ought to do, but we just need 

to narrow in on what we can accomplish. And I think one of them 

is the compliance area and how we get them to do more compliance 

and not necessarily take away from enforcement. 

Do you believe that they are over-enforcing or do you believe they 

just don’t have enough funds. 

Mr. NARANG. First of all, I think it is extremely important that 

agencies be funded, fully funded, when they are conducting compliance assistance, that they don’t shift around shrinking budgets to 

try to create compliance systems that reaps great benefits to smaller businesses. 

I do agree with Ms. Harned that in certain instances we don’t 

want compliance assistance to be a front for gotcha enforcement, 

for example. We don’t want companies thinking that they are seeking compliance assistance and then having agencies bring enforcement actions. But that is a very narrow issue, maybe only relevant 

to a few agencies, and I think that compliance assistance, as it has 

been fashioned in the first steps Congress has taken, is not going 

to result in the kind of enforcement issues. 

Enforcement is critical. You know, we can’t have responsible 

companies following regulations, you know, and irresponsible companies not following regulations, cheating, and not enforcing, you 

know, the wrongdoers and not placing enforcement mechanisms on 

them. That harms, you know, the small businesses that are following the rules. 

Mr. COHEN. If I can have 30 seconds additional. 

Mr. BACHUS. Sure. 

Mr. COHEN. Thank you. 

Ms. Harned, you said that first-time paperwork errors, that there 

is no way to kind of get a second chance. That is not provided for, 

that they can waive the fine in the law? 

Ms. HARNED. Right. There is really no flexibility there. And that 

is something that again, for the small business owners, I mean, 

regulatory paperwork is a real—— 

Mr. COHEN. That seems like a very simple thing we could agree 

on and get some kind of—maybe we could pass something just to 

say that on a first-time offense for paperwork, you can, you know, 

waive the penalty. 

Mr. PALMIERI. Ranking Member Cohen, could I just mention that 

Congresswoman Tammy Duckworth, a Democrat from Illinois, has 

actually introduced legislation, the Small Business Paperwork Relief Act, to waive penalties for just paperwork violations, not something that is imminent for health or safety, and we are very supportive of that legislation and would encourage you to support it 

as well. 

Mr. COHEN. Thank you. We will look at it and probably do it. 

Are you related to Rafael. 
85 

Mr. PALMIERI. No, sir. 

Mr. COHEN. Okay. Just checking. Thank you. 

Mr. BACHUS. Thank you. 

Mr. Jason Smith, our newest Member from Missouri, is now recognized. 

Is this your first investigative hearing? 

Mr. SMITH OF MISSOURI. It is, Mr. Chairman. 

Mr. BACHUS. It is. So all eyes are on Mr. Smith from Missouri. 

Mr. SMITH OF MISSOURI. Don’t have high expectations. 

You know, as I sat here, I have been here 23 days, and I think 

of the phrase that I have heard numerous times, that if it is moving the government will tax it, and if it continues to move they will 

regulate it, and if it stops moving they will subsidize it. And that 

is what we clearly see with the regulation that is here. 

Ms. Harned, I would maybe like to ask you if you know offhand 

an estimate of how many different Federal regulations there are 

that is affecting small businesses. 

Ms. HARNED. Yeah, it is thousands, and that is really again the 

issue, because small business owners like, you know, Mr. Harris, 

they do not have an in-house person that can keep up with all that. 

The person that is doing it is Mr. Harris, and that is what we see 

with our small business owners, and that is why the regulatory 

state really is a problem for them. 

Mr. SMITH OF MISSOURI. You know, in the State of Missouri, we 

reformed all rules and regulations. It was actually my bill that put 

a systematic review process. Originally we tried to sunset every 

rule every 5 years. And we were upset that we had over 6,281 

rules. 

From the last I have monitored at the Federal level, there is over 

170,000 pages of rules and regulations. These are rules and regulations that directly affect small businesses and family farmers and 

individuals. 

And, Mr. Narang, I have a question from you. In your written 

testimony, you made this statement. It says, ‘‘Experts from across 

the political spectrum have acknowledged that arguments linking 

regulations to job losses are nothing more than mere fiction.’’ Could 

you state where you get that information? 

Mr. NARANG. So, I believe I was referring to a particular study 

called the ‘‘Crain and Crain’’ study, commissioned by the SBA Office of Advocacy. It has been criticized both by former OIRA Administrator Cass Sunstein as deeply flawed and nothing more than an 

urban legend; and interestingly, also by John Graham—now, that 

is the former OIRA Administrator under George W. Bush—who indicated that a previous version of the study would not meet OMB 

information quality guidelines. I believe I also cited Bruce Bartlett, 

an ex-economist—well, an economist from the Reagan administration who did not agree that regulations lead to job losses. 

Mr. SMITH OF MISSOURI. So maybe it is just because I have been 

out in the district for the last 6 months, but we have a company 

that cited losing 475 jobs moving to Mexico because of government 

regulation in Butler County, Missouri, Poplar Bluff. Those are real 

jobs, real people that are being affected, and the reason they are 

moving to Mexico is because the regulations we have here—it is a 

manufacturing business—are more burdensome than what they are 
86 

in Mexico. Those are real families that no longer will have income 

and that are going to be relying on government, and that is the last 

thing, in my opinion, that we need. 

We have another business. Because of new EPA regulations they 

are closing the last lead smelter in the United States in our area. 

That is 300 jobs. That is serious problems. And whenever you see 

these burdensome regulations that the executive branch just continues to promulgate, there are no checks and balances. 

And I think we need a true systematic approach that reforms all 

rules and regulations and to make sure that they don’t cause an 

undue burden on businesses or individuals or family farmers, to 

make sure that these rules are narrowly tailored to actually carry 

out the true purpose and to make sure that rules are absolute. 

We had rules on the books in Missouri that said that every small 

business had to have a land line phone. It is not necessary. Times 

are changing. And that is what we need to see at the Federal Government. We need to get with the times and reduce these burdensome regulations. And I gladly support this legislation. 

Mr. BACHUS. Thank you. 

I thought that was excellent for his first hearing. And I think 

what Mr. Smith says, you know, he has been in the district. He has 

been living in the district full-time and he has been hearing it even 

more than we who travel back and forth, so bring it down to jobs. 

Ms. DelBene from Washington State, recognized for 5 minutes, 

very capable Member of our Subcommittee. 

Ms. DELBENE. Thank you, Mr. Chair. 

And thanks to all of you for taking the time to be here today. 

I just want to start with you, Mr. Palmieri. You talk in your testimony about agencies continually engaging in a retrospective review of rules, and we are talking a little bit about funding and how 

that will happen. So would you also support that we fund agencies 

so they can conduct those retrospective reviews? 

Mr. PALMIERI. So currently President Obama asked all agencies 

to undergo retrospective review after his executive order in 2011, 

and they have been implementing with current resources and even 

fewer resources to accomplish the task. 

All I think we would say is that if they are able to do it with 

current resources today and if we all think this is a good thing— 

and we do—that agencies should continuously look back, we should 

be continuously improving our regulatory system, and as Congressman Smith noted, getting rid of regulations that don’t make sense, 

that on a going-forward basis we should make sure this is institutionalized and Congress should put its imprint on retrospective review and use the mechanism that is typically used, and many others, including in the RFA, section 610, look back and sunsetting 

where regulations actually have a point at which they must undergo an additional review before they move forward. 

And so we think whatever way that is done, it should continue 

to be done and that there should not be kind of a one-time exercise 

or activity that this Administration has undergone. 

Ms. DELBENE. And one of the things that I hear, have definitely 

heard in my State, just differing definitions and terms, sometimes 

within individual bills, et cetera. So how much of it is also just having some commonality so that there is a little more awareness on 
87 

what a certain term might mean and knowing that that is consistent even sometimes across agencies so that it helps businesses 

understand the playing field? How important is that, do you believe? 

Mr. PALMIERI. And I think one of the tenets of this legislative 

proposal is kind of a review of requirements across agencies. And 

I agree with you, I don’t think that is done enough, because there 

are conflicting, duplicative, all sorts of challenges among different 

requirements that businesses face. 

And if you are in an individual regulatory agency, at EPA say, 

you don’t have a really good sense of what OSHA is doing today 

or what the Federal Trade Commission might be thinking about in 

the next 6months or others in a variety of areas. And so better coordination, better interagency review. And part of this process requires that you actually talk to a small business, to sit down with 

them, representatives of small business, in advance of your rulemaking and ask how would this affect you and how does it interact 

with all the other requirements that you are currently facing and 

makes a specific note to look at the cumulative burden of regulation. 

So just like President Obama’s executive order that identified the 

emerging threat of kind of the cumulative burden of regulation, 

this legislation would make sure that that is a part of the analysis 

that agencies have to do for small entities. 

Ms. DELBENE. And Ms. Harned, you said that the NFIB’s research foundation reports that 23 percent of small businesses said 

that red tape is the most important problem that they face. How 

much of that do you think is Federal versus State and local? Because I know, you know, from a business you are looking at a combination of rules, and they are not all Federal rules. A lot of them 

sometimes are State and local rules. What do you think the challenges are on the entire landscape, if you can take a look at that 

and separate those out a little bit? 

Ms. HARNED. Right. I mean, your point is a good one, because it 

isn’t just Federal rules, it is State rules, too. But that being said, 

our research for the past, you know, decades has shown that specifically Federal regulations have been in the top 10 list of concerns 

that small business owners have. So we have a survey called ‘‘Problems and Priorities’’ that we release every 4 years. And I apologize, 

because I can’t remember the exact ranking right now, but I know 

in that survey we do separate out the State and local versus the 

Federal. But again, our research continues to show that Federal is 

a real problem. 

Ms. DELBENE. Well, I also assume that you have got a businesses who are in more than one State, and so that compounds the 

problem a little bit, or in multiple localities within a State. And so 

the different points of presence sometimes it might increase that 

challenge, too, for businesses. 

Ms. HARNED. Right. Except I would say with NFIB’s membership 

most of our members are intrastate, so that is not as much of an 

issue for our members as it might be for other business associations. 

Ms. DELBENE. I know with more folks having kind of an online 

presence, it has kind of created a slightly different playing field 
88 

than there has been in the past. I was just curious. Thank you very 

much. My time has expired. 

I yield back, Mr. Chair. 

Mr. BACHUS. Thank you. 

The Chair now recognizes myself for questions. One thing I will 

tell you, that we had a hearing just 2 or 3 months ago, and I think 

Members on both sides of the aisle were shocked at Marathon 

Steel, which was a small company in Baltimore that had been 

praised highly by the Congress on Racial Equality, and several civil 

rights groups, and by the City of Baltimore for establishing businesses in inner city Baltimore, and they started a profit sharing 

plan. And they were exporting to like 31 countries and had hired, 

you know, I think over a hundred employees. And jobs right where 

we needed them the most. And they were fined by the Treasury 

Department for missing a signature line on their profit sharing 

plan, although when they came in and fined them, they had totally 

complied with that. And they were actually sharing their profits 

with their employees. 

And I noticed one of you said Tammy Duckworth has proposed 

legislation—I don’t know if that was you—to be able to waive that. 

And the Treasury Department adjusted it down to $20,000. But 

still, you know, it was just Members on both sides said, you know, 

that shouldn’t happen. We have seen examples of that. 

Let me, Mr. Narang, and I am going to ask the others, but, you 

know, one of the things that does strike me is the agencies compute 

indirect benefits, which also can be harder to assess. And I know 

Ms. Harned in her testimony, and I think Mr. Harris and Mr. 

Palmieri, they all mentioned that they are—they compute those. 

And it seems like if they are going to compute benefits, indirect 

benefits, they ought to compute indirect costs just in a balance. 

And I think her testimony, and it is the last paragraph of page five 

on her testimony, says that actually that President Clinton issued 

an executive order mandating consideration of a rule’s indirect impact. Are you aware of that executive order? 

Mr. NARANG. I am. 

Mr. BACHUS. And but you disagree with it, I guess, right? 

Mr. NARANG. I don’t disagree with the executive order. And I 

would like to take a closer look at the examples that were cited in 

terms of indirect benefits against the actual specific rules mentioned. What I would say is I think that is an excellent example 

of a kind of basic methodological fundamental flaw with the whole 

notion of cost-benefit analysis. One person’s benefits is another person’s costs. This is something that—— 

Mr. BACHUS. And I agree. I agree. But, you know, if you are 

going to consider one person’s benefit, indirect benefit, you ought 

to consider one person’s indirect costs, I would think just in fairness. 

Mr. NARANG. You know, I believe if that is happening, I will take 

a closer look at those instances. You know, again, I think that the 

problem here is an overreliance on cost-benefit analysis. Congress 

mandates that agencies carry out certain responsibilities, fashion 

certain rules. When it comes to cost-benefit analysis, we shouldn’t 

be making this something that is second-guessing congressional 

mandates. 
89 

Mr. BACHUS. Okay. Mr. Palmieri? 

Mr. PALMIERI. Yeah, love to comment. I think something that 

Mr. Narang and I would probably agree on is, say, if we were looking at government fuel efficiency rules, if you only looked at kind 

of the direct impacts you would look at the impact of the fuel efficiency rules on automobile manufacturers and kind of the costs 

they impose and where the benefits they impose for automobile 

manufacturers. 

It would require a review of the indirect impacts to see what the 

benefits to consumers would be of higher fuel efficiency in their vehicles and cost savings over time. 

So we are already doing this type of analysis in a range of other 

rules. For whatever reason, the courts just looked at this law after 

it was passed in 1980 and decided that it wasn’t clear enough and 

the legislative history wasn’t clear enough. So this is just a correction. The RFA is a transparency law. It just says we are looking 

at impacts. It doesn’t tell the agency what they have to do after 

they have considered that impact. But they have to consider it. So, 

to us, a review of indirect effects makes complete sense and is consistent with how Congress has operated for a long time. 

And Ranking Member Cohen mentioned foreseeability as an 

issue. And I think there are some ways to look at that are perhaps 

less complicated than Palsgraf. And products, you know consumer 

products manufacturers already comply with the Consumer Products Safety Act, which requires us to kind of anticipate foreseeable 

use and misuse of the products for consideration of product safety 

standards and making sure that they are right. So foreseeability I 

think is a completely reasonable definition for us to use. 

Mr. BACHUS. Thank you. And let me just close by stating—and 

then Mr. Jeffries, we are going to go to you—Mr. Smith mentioned 

a lead smelter which will close in his district. I don’t know, but I 

would imagine that it may result in lead being smelted right across 

the border in Mexico. And I know the EPA, when they proposed 

new regulations on our cement plant, they actually said that this 

cement, it will eliminate a certain capacity in the United States, 

but we can get that cement from Mexico and China. Well, I asked, 

well, in Mexico, the environmental standards are much more lax, 

and like that lead smelter, what if it moves right across the border? 

We know that a lot of our lead and arsenic in the air actually 

comes from Mexico, particularly in our Gulf Coast States. I mean, 

that is the source of them. If you look at a map, the West Coast 

has the largest—a lot of particulate matters—they have the largest 

concentration, even though the plants may be in the east, and that 

is because it comes from China in the jet stream. So we shut something down here, it results in more pollution here. And I asked the 

EPA, and they said, they could not consider—they didn’t have any 

control over Mexico. Well, they certainly ought to compute that if 

it is going to result in more cement or more lead smelting across 

the border in Mexico, which then comes over in the air, they 

ought—to me, they ought to consider that. It is only fair. At this 

time, I recognize Mr. Jeffries from New York is free to ask any 

questions. 

Mr. JEFFRIES. Thank you very much, Chairman Bachus. And let 

me also thank the witnesses. Certainly the issue of small business 
90 

success and vitality in America should be a nonpartisan issue. And 

I think everyone on this panel and within this Congress wants to 

ensure that small businesses can be successful, given the importance of your success to our economy, to the constituents that I represent, to those that all of us represent throughout this great country. 

But I did have some questions that I wanted to ask, you know, 

related to this concept of regulation as well as what is really hurting the pace of the recovery. And I will start with Mr. Harris. It 

appears that, based on some studies that I have taken a look at, 

homeownership in the United States and homeowners since the 

first quarter of 2006 have suffered approximately $7 trillion in 

home equity loss. Is that correct? 

Mr. HARRIS. That is—I don’t know exact numbers, but we have 

seen significant decrease in equity positions on residential homes, 

yes. 

Mr. JEFFRIES. Right. So certainly there has been a staggering 

loss of home equity that has greatly impacted working families in 

middle class America throughout this country connected to the 

events surrounding—connected to the events related to the great 

recession of 2008. Is that fair to say? 

Mr. HARRIS. Yes, that is fair. 

Mr. JEFFRIES. And there are many explanations as it relates to 

the collapse of the economy in 2008, but a lot had to do with activity that was taking place in the housing market. Is that fair to say? 

Mr. HARRIS. I am not sure what you mean by activity in the 

housing market in regard to the downturn. 

Mr. JEFFRIES. Okay. To be specific, you are familiar with the 

term mortgage-backed securities, correct? 

Mr. HARRIS. Oh, absolutely. 

Mr. JEFFRIES. And mortgage-backed securities were being bundled in ways that were ultimately difficult to untangle, sold and resold, and directly related to the collapse of the economy in 2008. 

Is that fair to say? 

Mr. HARRIS. Yes. Agreed. 

Mr. JEFFRIES. And is it also fair to say that predatory lending 

activity related to the circumstances leading up to the collapse of 

the economy in 2008? Is that fair to say? 

Mr. HARRIS. I would think that the way in which loans were 

made in areas that they were made to people who obviously could 

not repay had a great deal to do with the downswing in that market, yes. 

Mr. JEFFRIES. Absolutely. And that would essentially capture 

what you just described sort of subprime lending to individuals 

who clearly did not have a capacity to sustain the ability to pay 

loans on a moving forward basis. 

Mr. HARRIS. That is correct. 

Mr. JEFFRIES. And would it be fair to say that your business, or 

other similarly situated businesses suffered tremendously as a result of the collapse of the economy and the downturn of the housing 

market given the events of 2008? 

Mr. HARRIS. Absolutely. 

Mr. JEFFRIES. And would it also be fair to say that some of the 

activity that we just discussed related to predatory loan activity, 
91 

mortgage-backed securities, credit default swaps that were connected to those mortgage-backed securities all operated in a context 

where they were not as regulated pre-2008 as they clearly should 

have been with the hindsight of 20/20 vision? Is that a fair statement? 

Mr. HARRIS. Well, I think it is fair, but again, we are talking 

about regulating other than small businesses, when you start talking about regulating the large banks that had the no doc lending, 

the negative amortization lending, those did not come from small 

community banks in small communities that would be affected in 

this ruling. 

Mr. JEFFRIES. I agree with that point. 

Mr. HARRIS. Okay. 

Mr. JEFFRIES. One of the concerns that we have here, however, 

and Mr. Narang has articulated it, is that in our desire, which is 

a legitimately held one, to support small businesses and their ability to move forward, we may actually create opportunities for some 

of the larger corporations and/or businesses, and Mr. Narang gave 

an exact example, to escape the reach of regulation in a manner 

that in the past has proven to be harmful not just to American 

homeowners, but to your businesses and others that are similarly 

situated. Is that a fair observation? 

Mr. HARRIS. I think that is a fair observation. But again, if I 

could add, some of us who are in areas that weren’t affected did 

not have the opportunity to have, nor did we want, no doc, negative 

amortization, pie-in-the-sky lending that occurred in various areas. 

We were penalized because of that activity, not because our members either benefited from that or not. It was just that was part 

of the outflow of that situation. 

Mr. JEFFRIES. I agree. And I know my time has expired. But I 

think we share a similar concern that you didn’t necessarily benefit 

from the lack of regulation and you were hurt by the subsequent 

behavior that took place. 

And with that, I yield back. Thank you. 

Mr. BACHUS. All right. Thank you. I appreciate those questions 

and the responses of our panel. 

At this time, I would like unanimous consent to submit the statement of Chairman Bob Goodlatte, our Chairman of our Committee 

in support of this bipartisan bill, and also a letter from the Associated Builders and Contractors in support of this comprehensive legislation, bipartisan. 

[The information referred to follows:] 
92 

Statement of Judiciary Committee Chairman Bob Goodlatte 

Subcommittee on Regulatory Reform, Commercial and Antitrust Law 

Hearing on H.R. 2542, the 

"Regulatory Flexibility Improvements Act of 2013" 

Friday, June 28,2013, at 9:00 a.m. 

2141 RHOB 

(Draft 1 - Daniel Flores) 

I thank Subcommittee Chairman Bachus for his 

introduction of this important, bipartisan bill, and this 

Subcommittee for their prompt and careful 

consideration of it. 

Every day, America's small business owners and 

their workers live out three of the most important facts 

of current American life. First, small businesses 

create the largest share of new American jobs. 

Second, small businesses face historic obstacles, as 

reflected by today's historically low levels of small 
93 

business start-ups. Third, at the top of the list of 

those obstacles - as poll after poll demonstrates - is 

the level of federal regulation coming from 

Washington. 

Until these facts are corrected, they should not 

only be at the forefront of America's small 

businesses' concerns. They should be at the 

forefront of Congress' concerns. We cannot escape 

from America's virtual jobs depression until we help 

America's small businesses escape from unnecessary 

hurdles to the creation of new jobs. 

That is why the legislation we consider today is 

so important. The Regulatory Flexibility 

Improvements Act will, for the first time in over fifteen 

years, overhaul the laws that govern how federal 

regulators should consider - and minimize - the 

2 
94 

adverse impacts of new regulations on small 

businesses. 

The bill primarily reinforces the Regulatory 

Flexibility Act of 1980 and the Small Business 

Regulatory Enforcement Fairness Act of 1996. And it 

only requires agencies to do what current law tries to 

achieve and what common sense dictates should be 

done. 

Current law requires agencies to prepare 

"regulatory flexibility analyses" so agencies will know 

how proposed regulations will affect small businesses 

before they are adopted. But the Government 

Accountability Office has found in numerous studies 

that agencies do not sufficiently adhere to these laws. 

3 
95 

For example, current law allows an agency to 

avoid preparing a regulatory flexibility analysis if the 

agency head certifies that the new rule will not have a 

"significant economic impact on a substantial 

number" of small businesses. But these terms are not 

defined in the law, and agencies routinely take 

advantage of this to decline to prepare analyses. 

The bill fixes this problem by requiring the Small 

Business Administration to define these terms 

uniformly for all agencies. It also requires agencies to 

justify their certifications in detail and to give the legal 

and factual grounds for the certifications. Further, it 

restricts agencies' abilities to waive the Regulatory 

Flexibility Act's requirements. 

This legislation also requires agencies to 

document all economic impacts - direct and indirect4 
96 

that new regulations could have on small businesses. 

Agencies already must account for indirect impacts 

under the National Environmental Policy Act. Indirect 

impacts on small businesses - the backbone of our 

economy - deserve the same level of scrutiny. 

Just as important, the bill assures that small 

businesses will finally have a real voice throughout 

the regulatory system. Currently, only three agencies 

- the Occupational Safety and Health Administration, 

the Environmental Protection Agency and the 

Consumer Financial Protection Bureau - must consult 

with small business advocacy review panels before 

issuing new major regulations. This bill requires all 

agencies to use advocacy review panels, which exist 

specifically to help identify and avoid unnecessary 

impacts on small businesses. 

5 
97 

Equally important, this bill strengthens 

requirements that agencies review and improve 

existing regulations whenever possible to lower 

burdens on small businesses. 

Some critics of regulatory reform may claim that 

this bill undermines agencies' abilities to issue new 

regulations. On the contrary, the bill only strengthens 

existing law with carefully tailored, common sense 

reforms. 

Especially in light of current economic conditions, 

this bill is a timely and logical step to protect small 

businesses from over-regulation. Like the Regulatory 

Flexibility Act of 1980 and the Small Business 

Regulatory Enforcement Fairness Act of 1996, the 

Regulatory Flexibility Improvements Act of 2013 

recognizes that economic growth ultimately depends 

6 
98 

on job creators - not regulators. This bill represents a 

critical step towards converting that recognition into 

reality. 

### 

7 
99 

Mr. BACHUS. And I am going to leave the record open if other 

Members, Mr. Conyers or others, wishes to submit a statement or 

documents in support or opposition to the legislation. And also I 

would ask the witnesses, Members may want a follow-up question, 

to send you a follow-up question. 

I do want to commend the Members, I think this is the very type 

of hearing that we can try to build some consensus. Because I 
100 

think we all realize that with the House and the Senate we have 

to try to work together or we are not going to accomplish anything. 

And we have to do that by listening to all stakeholders. 

We are not going to bring the Members back. We have got a series of votes. But this concludes today’s hearing. Thanks to all our 

witnesses for attending, for their excellent statements. 

Without objection, all Members will have 5 legislative days to 

submit additional written questions for the witnesses or additional 

materials for the record. This hearing is adjourned. 

[Whereupon, at 10:24 a.m., the Subcommittee was adjourned.] 
(101) 

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD
102 

Statement of Subcommittee Chairman Spencer Bachus, 

Subcommittee on Regulatory Refonn, Commercial and Antitrust Law, Hearing on H.R. 

the 

"Regulatory Flexibility Improvements Act of20\3" 

Friday, June 28, 2013 

9:00 a.m, 2141 RHOB 

Most economic experts would agree that small busiuesses aud small business trends 

drive and shape our economy and our ability to provide employment for American 

workers. In my view, the health of small businesses is one of the most important issues 

confronting our country. 

Small businesses are the source for almost half of our workforce, and while I'm 

concerned about many economic factors, it's also my view that government regulations 

have a disproportionate impact on small businesses. While all businesses have to comply 

with state and local regulations, federal regulations can impose an even greater burden, 

because most small businesses simply do not have the resources or the time to monitor and 

participate in the federal regulatory process or dispute new rules. 

According to the Small Business Administration, businesses with fewer than 20 

employees spend on average 36 percent more per employee than larger firms to comply 

with federal regulations. The SBA also (reports) that these small employers represent 99.7 

percent of all businesses and have created well over 60 percent of all new jobs for over the 

past 15 years. 

Although our economy may be showing signs of improvement, we are still suffering 

from job loss, lack of job creation and long term unemployment or underemployment. It 

only makes sense that we look to small businesses and work to create an environment that 

will help them prosper. 
103 

f 

We all know the importance of small bnsinesses in onr districts, so certainly this 

shonld be an area for bipartisan cooperation. It is my belief that the Regnlatory Flexibility 

Improvements Act of 2013 offers one snch opportnnity and I am pleased to have been able 

to introdnce the legislation with my colleagnes, Congressman John Barrow, Congressman 

Jim Matheson, the Chairman of the Small Bnsiness Committee, Chairman Sam Graves, 

and Former Jndiciary Committee Chairman Lamar Smith. It is my belief that improving 

the Regulatory Flexibility Act and the Small Business Regulatory Enforcement Fairness 

Act will have a lasting impact on small business and help support long-term small business 

growth. 

We have a responsibility as legislators to ensnre that regnlations are appropriately 

tailored and that our regulatory process is effective. We have an excellent panel today that 

will offer a diverse range of viewpoints on this legislation, and T want all of you to know 

that yonr input will serve a very important role as this legislation comes up for fnrther 

consideration. 
104 

Prepared Statement of the Honorable Steve Cohen, a Representative in 

Congress from the State of Tennessee, and Ranking Member, Subcommittee on Regulatory Reform, Commercial and Antitrust Law 

The Regulatory Flexibility Improvements Act ‘‘proposes some needlessly drastic 

measures that threaten to undermine public health and safety and waste public resources.’’ 

‘‘I am open to ideas on tweaking the regulatory process in modest ways to make 

regulatory compliance easier for small businesses and perhaps finding better ways 

for small business to provide input to specific rules. As drafted, though, [the bill] 

. . . simply goes too far.’’ 

If these statements sound familiar, it is because I am quoting myself from two 

and half years ago when we considered what appears to be an almost identical bill 

in this Subcommittee. 

Yet notwithstanding the concerns that I expressed and my hope that we instead 

consider more modest and meaningful assistance for small businesses, this latest 

measure simply rehashes the shortcomings of the bill from last Congress. 

Once again, this is the movie Groundhog Day, and I am Bill Murray’s character. 

Although I say this at every regulatory hearing, it is worth repeating as we consider the merits of the bill before us today. Regulations are critical to protecting the 

American people from a vast array of harms, including dirty air and water, dangerous toys, reckless financial behavior, and unsafe workplaces. 

This is not an abstract notion. On the question of workplace safety, for instance, 

the Bureau of Labor Statistics reports in its 2011 Census of Fatal Occupational Injuries that there were 4,693 workplace deaths in 2011. 

According to researchers from the National Institute for Occupational Safety and 

Health, the American Cancer Society, and Emory University’s School of Public 

Health, there are an estimated 50,000 to 70,000 deaths from occupation-related diseases in the United States annually. 

And, while we are talking about regulatory costs, we should also consider the 

costs of insufficient regulation. According to a joint study by Liberty Mutual Insurance Company and health economists at the University of California at Davis, the 

estimated costs of workplace-related injuries is $250 billion, only 25% of which is 

covered by workers’ compensation. 

I do not doubt that Chairman Bachus and the other proponents of the RFIA sincerely share my appreciation for the importance of regulation in protecting all of us 

from a myriad of harms. I emphasize the importance of regulation only to point out 

that this bill, if enacted, could jeopardize these types of protections in the future. 

For example, this bill will expand the use of regulatory review panels by requiring 

that they apply to rules proposed by all agencies and by applying them to all major 

rules, not just those that are subject to the Regulatory Flexibility Act. 

Currently, such review panels are required only for rules that: (1) are subject to 

the Regulatory Flexibility Act; and (2) are proposed by the Environmental Protection Agency, the Occupational Safety and Health Administration, or the Consumer 

Financial Protection Bureau. 

These review panels, which consist of the Chief Counsel for Advocacy of the Small 

Business Administration, a representative of the issuing agency, and a representative from the Office of Information and Regulatory Affairs, review the covered rules 

and can send them back to the issuing agency. 

Clearly, the process is intended to slow down rulemaking. By dramatically expanding their use, this bill will effectively stop most rules from going into effect. 

The bill also burdens agencies with numerous additional and amorphous analytical requirements, including the requirement that agencies assess the indirect economic effects of a proposed rule. 

The requirement to assess indirect effects has almost no limitation, other than 

that such indirect effects should be ‘‘reasonably foreseeable,’’ which is not much of 

a limitation. 

Under this fairly open-ended requirement, agencies would be at a loss to determine how much is enough when it comes to their regulatory analysis obligations. 

For example, what is the ‘‘reasonably foreseeable indirect economic effect’’ of a regulation requiring heightened security measures at airports? Would the issuing agency 

have to take into account the potential loss of business for the hot dog stand that 

is located far past the security checkpoint? 

These are just two of the many concerns with the RFIA. We will hear in more 

detail from Amit Narang of Public Citizen about the remaining concerns with the 

bill. 

There are things we can do to help small entities, including measures to assist 

small businesses with regulatory compliance. We ought to be able to support such 
105 

measures on a bipartisan basis. I understand that Mr. Narang may have a proposal 

to that effect and I hope his fellow witnesses and the other members of this Subcommittee will give it real consideration. 

f 

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, Ranking Member, Committee on 

the Judiciary, and Member, Subcommittee on Regulatory Reform, Commercial and Antitrust Law 

Under the guise of protecting small businesses from burdensome regulatory requirements, the ‘‘Regulatory Flexibility Improvements Act’’ is actually yet another 

attempt to— 

• prevent regulatory agencies from promulgating regulations that protect the 

health and safety of Americans; 

• overwhelm regulatory agencies with unnecessary and costly analyses; and 

• give well-financed businesses and anti-regulatory organizations greater opportunities to thwart the rulemaking process. 

Not surprisingly, similar legislation considered in the last Congress was opposed 

by the Obama Administration, which issued a veto threat, stating that the bill 

‘‘would seriously undermine the ability of agencies to execute their statutory mandates’’ and ’’ impede the ability of agencies to provide the public with basic protections.’’ 

And, many of the Nation’s leading consumer, labor, and environmental organizations have expressed similar concerns about this ‘‘dangerous’’ measure, including— 

—the AFL–CIO, 

—the American Lung Association, 

—the Consumer Federation of America, 

—Consumers Union, 

—the Natural Resources Defense Council, 

—Public Citizen, 

—the United Auto Workers, and 

—the National Women’s Law Center, just to name a few. 

One of my principal concerns about this bill is that it could jeopardize 

Americans’ health and safety. 

Our federal agencies are charged with promulgating regulations that impact virtually every aspect of our lives, including the air we breathe, the water we drink, 

the food we eat, the cars we drive, and the play toys we give our children. 

Small businesses, like all businesses, provide services and goods that also affect 

our lives. So, it makes no difference to a victim who breathes contaminated air or 

drinks poisoned water, whether the hazards were caused by a small or large business. The far-reaching legislation before us today would undermine the ability of federal 

agencies to quickly respond to emergent health and safety concerns. 

Section 5 of the bill, for example, repeals the authority under current law that 

allows an agency to waive or delay the initial analyses required under the Regulatory Flexibility Act ‘‘in response to an emergency that makes compliance or timely 

compliance . . . impracticable.’’ 

Instead, the bill empowers the Chief Counsel for Advocacy to issue regulations 

about how agencies in general should comply with the Act. 

So, imagine if there is an epidemic E. coli or listeria infection caused by some item 

in our Nation’s food distribution network, or an imminent environmental disaster 

that could be addressed systemically through regulation, this bill says ‘‘Don’t worry. 

Don’t rush. Let’s have the Chief Counsel for Advocacy decide.’’ 

This override of an agency’s authority to respond to emergencies without having 

first go through the arduous and time-consuming task of review and analysis is simply wrong. 

Another problem with this bill is that it will result in the wasteful expenditure of taxpayer dollars by forcing agencies to redirect their scarce 

resources to meet the bill’s needlessly burdensome compliance requirements. 
106 

Section 6 of the bill, for example, would require agencies to review not only all 

rules, but, in addition, all guidance documents currently in effect as of the bill’s date 

of enactment. 

We are talking about thousands of pages of regulations in the Code of Federal 

Regulations and several hundred thousands of guidance documents. 

This requirement even applies to regulations that have provided long-proven 

health safeguards, such as regulations banning lead in gasoline. 

It’s no wonder that the Congressional Budget Office estimates that it will cost $80 

million over a five-year period to implement these new requirements. 

We understand that some small businesses often have limited resources and that 

they can be more vulnerable to unnecessary, redundant, or conflicting regulations 

than their larger counterparts. 

But, we are not talking about your typical Mom and Pop small businesses under 

this bill. No, this bill applies to businesses that employ up to 500 workers. 

And, the answer is not to burden the agencies that are responsible for protecting 

public health and safety. Rather, our goal should be to help small businesses comply 

with these regulations. 

By overburdening the very agencies charged with protecting us, this bill clearly 

prioritizes corporate special interests. 

What a waste of scarce taxpayer dollars. 

A further concern I have about this bill is that it will result in paralysis 

by analysis and give corporate interests too much control over the rulemaking process. 

Section 2 of the bill, for example, would task agencies with the duty to examine 

the indirect economic effects of proposed regulations on small businesses, which 

would be in addition to their current obligation to assess the direct effects of these 

regulations. 

Now I ask you: what is an ‘‘indirect economic effect’’ of a regulation? Just think 

of the litigation that well-funded businesses and anti-regulatory organizations could 

fund to stop a rulemaking. 

This bill, if ever enacted, would force agencies to conduct highly speculative and 

labor-intensive assessments, all of which could be subject to litigation by well-financed business interests. 

Agencies would be required to engage in a virtual guessing game to divine the 

indirect effects of a proposed regulation, which, of course, would be subject to judicial review. 

Other ways in which the bill will result in regulatory paralysis are the following: 

• It greatly expands the types of rules subject to analysis under the Regulatory 

Flexibility Act; 

• It mandates that agencies prepare excessively detailed analyses for proposed 

rules; and 

• It requires review panels to ensure that certain rules issued by all agencies— 

not just the three agencies under current law, namely, Environmental Protection Agency, OSHA, and the CFPB—consider the interests of small businesses. 

Glaringly missing from the bill is any provision requiring consideration of public 

interest concerns and of the benefits of regulations. 

This is a harmful bill that could potentially put the health and safety of all Americans at risk while adding nothing to the efficiency or cost-effectiveness of agency 

rulemaking. I strongly oppose this bill. 

f 
107 

WWw.cilizen.org 

Cranes & Derricks 

The Prolonged Creation of a 

Key Public Safety Rule 

I 

\.i 

April 2011 
108 

Acknowle dgm ents 

This report was written by Taylor Lincoln and Negall MOU1.o01l of Public Citizen's Congress 

Watch division. C;>leste Monfortnn, Professorial L.ecturerat the G;>orge Washington University Environmental and OC1:upatiollal Health Dl'partment, provided v,lluahle com,ncntl;. 

About Public Citizen 

Public Cltlzen is a national non-profir organization with more than 225,000 members and 

supporters. We represent CO!1SUlIl<er interestl; through lobbying. litigation, administrative 

advocacy, research, and public education on a brood range uf issuos including consumer 

rights In the marketplace, product safety, fi1l3nt1al regulation, safe and affordable health 

car;>, campaign nnanc;> reform and government ethics, fair Ifade, climate change, and corporate and government accounl<lbility. 

PUBLICCITIZEN 

PUhlic CiUzen·sCong' .... Walch 

,! 15 Pennsylvania Ava. 5.E. 

Wuhi"lllon. DoC. 20003 

P; 202-546·4996 

F: 202·547·1392 

h!lp'/IWWW rill:zenpu 

Cl 2011 Public Cltizl'n. All rights rI.'sl'rved. 
109 

Selected Events In the Cranes and Derricks Rulemaklng Process, 

1998-2010 

.Mllestone .. . Public • Meetings . An~IYSes . Other :::::: Time 

Conlnle nts Event.. Breaks 
110 

Public Citizen Cranes and Derricks 

Introduction 

Federal agencies have long been the object of scorn and criticism by political actors who 

claim that the employees of public health agencies like the Occupational Safety and 

Health Administration (OSHA) act as unelected, unaccountable autocrats who hand down 

burdensome safety rules with little concern about their effects on businesses. But the process of writing these rules-which serve to put the laws that Congress passes into practice-is usually long, complicated, and involves significant input from affected industries 

and other stakeholders. Additionally, agencies need to be meticulous in fulfilling myriad 

arcane steps or risk having their final rules overturned by court challenges. In fact, the federal agencies that are charged with protecting public health and safety may be some of the 

most tightly "regulated" entities in the United States. 

This report recounts the creation of an important rule that was badly needed to protect 

workers-and, sometimes, passersby-from the dangers posed by cranes at construction 

sites. The final rule, published in August 2010, enhances worker training and certification 

requirements and adds protocols for job-site analyses before putting cranes into use. But 

the rule was a long time in the making. 

By 1998, federal construction safety standards for the operation of cranes and derricks 

were badly out of date. Most of the standards were from 1971, when hydraulic cranes (now 

prevalent) were still rare. Meanwhile, many industry associations' protocols were out of 

sync with federal rules.1 

Construction accidents have historically been the leading cause of workplace injuries and 

fatalities, and cranes have been implicated in a quarter to a third ofthose accidents.2 In the 

late 1990s, construction accidents involving cranes were killing 80 to 100 workers a year. 

OSHA later estimated that a modernized rule would prevent about 20 to 40 ofthose annual 

tragedies. 

Not just worker safety advocates, but even industry wanted an updated cranes and derricks rule. Industry officials, OSHA later recounted, "were concerned that accidents involving cranes and derricks continued to be a significant cause of fatal and other serious injuries on construction sites and believed that an updated standard was needed to address the 

causes ofthese accidents and to reduce the number of accidents."3 

If ever there were a rule that seemingly should have breezed to adoption, this was it. The 

urgency of preventing avoidable deaths and injuries was clear, the regulated industries 

were asking for a new standard, and a large committee of business and labor representatives would reach near unanimous consensus on a draft rule very early in the process. 

1 Final Rule, Cranes and Derricks in Construction, 29 CFR Part 1926, Federal Register, Aug. 9, 2010. 

2 Anthony Suruda, et 01., "Crane-Related Deaths in the u.s. Construction Industry, 1984-94," Rocky Mountain 

Center for Occupational and Environmental Health, Department of Family and Preventive Medicine, University of Utah School of Medicine, October 1997. 

1 Final Rule, Cranes and Derricks in Construction, 29 CFR Part 1926, Federal Register, Aug. 9, 2010. 

April 2011 
111 

!Jut a revised cranes and derric~ rule did not breeze through, A doz.en years, spanning 

three presidential administrations, would pass between OSHA's initial ;Ictlon on industry's 

request for a new rule and comple\ion of the revised standard. More than 750 construction 

workers died from crane rela ted incidents during this time. [See Figore 1) By OSHA'~ mOSI 

consefV3tive estimate, the new ruh~ would have saved about 220 oruwse lives If it took ef· 

fC L't in 2000 instead of 20 I O,~ 

Figure 1: Numbe r 01 Otc:u"atJonal Crane·related htalltJes, 1997·2009 

"" ,~. ,,~ "'" "H ,." "m ,~ ,~ ,~ '00' ,~ ,~ 

" 9l 80 .. " .. SouIwU.s 0.1000'1_ of LObo<. Bu' uc! L>b<>. 5tit ~kl " " " " " " " 

Durlng the do:r.en years it took to finalize the cranes rule, OSHA and other federal agencies 

held 3t least 18 meetings about it. At leasl40 notices were published in the Federol Regis· 

ter. OSHA was required by a hodgepodge of federal laws, regulallons and executive orders 

to produce several comprehensive reports, and revisions 10 such reports, un matters such 

as the makeup of Industries "rrecte.d by the rule, the {lumber of businesses affected, a/ld the 

costs and henefits ofthe rule. OSHA also was repe~ledly required to prove that the rille was 

needed, that no alternative could work, and that it had done everything It could to mini · 

mize the effects on small businesses. The regulatory process arrorded businesses at least 

~ix opportunities to weigh in with concerns thallhe agency was required to address. 

1998 to 2004: The Negotrated Rulemaklng CommIttee Is Formed and Reaches Consensus 

The process of updatIng the cranes 3nd derricks standard began in 199B, when OSHA's Ad· 

visory Commlttee for Construction Safety and Health (ACCSHJ-a 15 member panel made 

up equally of represent:llives from government, labor and business-established a 

workgroup to recommend changes to the rule. The workgroup sent Its recommendallons to 

the full ACCSH, which recomml'nd.~d to OSHA In late 1999 that the agency update the rule 

through "negotiated rulem3king: Under thls rarely used process, OSHA would form a 

committee- made up primarily of manuf3cturer.;, employers, olher business Interi'Sl.S, and 

lahor representatives-that would seek to develop a draft rule by consensus.! 

The dangers of under·regulated cra/les became the subject of national attention In luly 

1999, when a 567·foot crane bein~: used in the constntction ofa new basehall stadium for 

the Milwilukee Brewers tipped over 3S it was lifting ~ sertiun of II ret.ractable. roof. The 

crane's collapse sent more than ,I million pounds concrete and debrls crashing to the 

ground and kHled three wurkers,6 

'Cal~ulal;on b;LSC!(l OSIIA'sesUm3le lh.l U'e r.n~ 1 r~l~ woutd ,"Yen lives a year, 

• Final Rwle,Ct"neund Oerrlcks In ClMsltu<lkIn,2'1 CFI! p"" t9!6, Ftdfrl>l Rtgl,ur, /'tlli. 9, 2010. 

• Sheit~ HO\Lh~ln, "Ilui~ Crnu Topples Ovet New Sl<ldlu," Ul\der Construction: Assoc:i~led Press, luly ~. 

1999. 

Al>flt l011 
112 

Public Citizen Cranes and Derricks 

In July 2002, two-and-a-halfyears after ACCSH recommended to OSHA that it use a negotiated process to create a new standard, OSHA announced it would follow the advisory committee's advice 7 In a conversation with Public Citizen, an OSHA official who was involved in 

the creation of the revised crane standard explained the delay by saying that the agency 

decides to create a new or revised rule only after extensive deliberations,S 

That month, OSHA published a notice in the Federal Register, listing about 15 "interests"-

such as crane manufacturers, construction companies, labor groups, insurance companies, 

public interest groups, and government entities-that it proposed to be represented on the 

rule negotiation committee to create a revised cranes standard. The agency sought public 

comment on this proposed universe of interests and asked for nominees to serve on the 

committee. In July 2003, OSHA announced a final committee of 18 representatives of affected businesses, four labor representatives, and an OSHA employee.9 

The negotiation committee convened for the first time at the end of July of 2003. It established ground rules that no decision could be reached without the agreement of at least 21 

of the 23 members, including OSHA's lone representative. The committee deemed that 

OSHA could not subsequently alter its decisions without seeking the committee's input. 

Additionally, committee members agreed not to criticize the rule during the public comment period.io 

The negotiation committee met 11 times between July 2003 and July 2004. On July 30, 

2004, the committee reached consensus (meaning that at least 21 members agreed) and 

sent a draft standard to OSHA for review. 11 

2004-2008: Regulatory Red Tape 

The negotiation committee had crafted a draft rule that was satisfactory to at least 21 of its 

23 members but work on the rule had just begun. For the next five years, OSHA would toil 

to satisfy a potpourri of prerequisites for formally proposing a rule. 

For example, the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) 

required OSHA to evaluate and address the concerns of "small entities," defined as small 

businesses, small governmental units, and small nonprofit organizations. This general 

mandate involves several component parts. 

First, SBREFA required OSHA to engage in extensive fact-finding merely to determine 

which special requirements it needed fulfill. For instance, OSHA was required to produce 

an Initial Regulatory Flexibility Analysis, including a Preliminary Economic Analysis, to de7 Final Rule, Cranes and Derricks in Construction, 29 CFR Part 1926, Federal Register, Aug. 9, 2010. 

B Public Citizen spoke with two OSHA employees to clarify facts for this report on April 7, 2011. The officials 

asked not to be identified. 

Y Final Rule. Cranes and Derricks in Construction, 29 CFR Part 1926. Federal Register, Aug. 9, 2010. 

10 Celeste Monforton, "Gearing up for OSHA's Crane Hearing," The Pump Handle, March 10,2009. Available at 

http://thepumphandle.wordpress.com /2009/03/10/ gearing -up-fa r- as has-crane-hea ring/. 

II Final Rule, Cranes and Derricks in Construction, 29 CFR Part 1926, Federal Register, Aug. 9, 2010. 

April 2011 
113 

Public Citizen Cranes and Derricks 

termine whether the proposed rule could potentially pose a "significant economic impact" 

on a substantial number of small entities. If it did, OSHA would have to convene a panel to 

advocate for small entities. 

The requirements of an Initial Regulatory Flexibility Analysis are extensive. They required 

OSHA to document that it had considered all reasonable regulatory options to minimize the 

rule's economic effects on small entities and explain why it chose the approach in its proposal over the alternatives. Additionally, OSHA was required to enumerate the types and 

number of small entities that would be affected by the rule; the projected reporting and 

recordkeeping requirements of the proposed rule; and to list all federal rules that may duplicate, overlap or conflict with the proposed rule.12 

OSHA also was required to produce several other reports and determinations to move forward: 

OSHA needed to demonstrate, pursuant to its authorizing legislation, that the proposed rule was addressing a significant risk, and that the proposed standard would 

substantially reduce the risk. OSHA initially determined that the rule would prevent 

53 fatalities annually, confirming both that a risk existed and that the rule would 

help fix it. Additionally, OSHA was required to evaluate whether the market was capable of fixing the safety hazards in the operations of cranes. The agency determined that crane operations involved inequities, such as employers typically knowing more about the risks than employees, and that such inequities were beyond the 

curative powers of the market. As such, the agency determined that a rule was required.13 

To meet the requirements of executive order 12866, OSHA was required to estimate 

costs, benefits, and net benefits of the proposed standard. 

Under Regulatory Flexibility Act, OSHA was required to determine the number of 

small entities (such as general contractors with revenue of less than $31 million) 

that would be affected. The agency found 204,000.14 

OSHA was required by executive order 13132 to ensure that the rule did not restrict 

state or local policy any more than necessary, that it only took actions for which it 

had clear constitutional authority, and that the rule addressed a national problem. 

The agency made each determination.15 

" "A Guide to the Regulatory Flexibility Act:' U.S. Small Business Administration. May 1996. 

13 Final Rule. Cranes and Derricks in Construction. 29 CFR Part 1926. Federal Register. Aug. 9, 2010. 

14 Ibid. 

1.\ Ibid. 

April 2011 
114 

Public Citizen Cranes and Derricks 

Fulfilling these tasks took the agency a significant amount of time. In December 2005, an 

agency official apologized to members of ACCSH for its failure to make the SBREFA "significant impact" decision, which the agency had expected to complete much earlier that year. 16 

"We have limited resources, and competing priorities were the reasons for [the delay], particularly the hexavalent chromium rule," said Keith Goddard, the director of OSHA's Evaluation and Analysis Directorate. "We have also diverted a considerable amount of resources 

to meet our commitments on the preliminary regulatory analysis on [the] beryllium 

[standard], as well."17 

In roughly June 2006, OSHA determined that the cranes and derricks rule would potentially 

have a significant impact on a substantial number of small entities. That determination required OSHA to convene a SBREFA panel. Such panels, typically drawn largely from recommendations of trade associations, consist of small businesses, small governments, and 

small nonprofits that are provided with the draft rule and regulatory flexibility analysis. 

Invited parties are offered an opportunity to comment. 

In October 2006, the SBREFA panel sent OSHA about 40 recommendations. These included 

requests that OSHA reexamine several costs estimates, study the potential effects of the 

proposed rule's certification requirements (and the potential loss of jobs that the requirement might cause), and ensure that OSHA's estimates of the benefits of the rule could be 

independently verified. The panel also requested that OSHA seek public comment on many 

its suggestions. SBA's Office of Advocacy provided a separate set of recommendations, including a request that OSHA "consider and document any 'significant alternatives' to the 

proposed rule."18 

At a January 2008 ACCSH meeting, some members expressed frustration at delay in issuing 

a proposed rule. The director of OSHA's Office of Construction Standards and Guidance said 

that the negotiated committee's proposal was extremely detailed, rendering the process of 

writing an explanation and justification for the rule very time-consuming. The director also 

said that other standards moving through the agency's rulemaking process were consuming limited resources.19 Notably, however, OSHA completed only one major rule during the 

time from 2001 to 2009, and that rule was completed in response to a court order. 

While OSHA struggled to fulfill its obligations, several tragedies focused attention on the 

dangers of crane operations, and on the agency's lagging effort to produce a new rule. Six 

construction workers and a bystander died and 24 people suffered injuries when a crane 

collapsed in New York City on March 15, 2008. Ten days later, a 20-foot crane section in 

16 "Crane Rule Awaits SBREFA Panel Decision; Other Construction Standards Move Forward," Occupational 

Safety & Health Reporter, Dec. 14,2005. 

17 Ibid. 

18 SBA Office of Advocacy. SBA Office of Advocacy, Acting Assistant Secretary of Labor for Occupational Safety 

and Health Thomas M. Stohler, Jan. 16,2009. 

19 Linda Levine, "Worker Safety in the Construction Industry: The Crane and Derrick Standard," CRS Report 

for Congress, Nov. 21, 2008. 

April 2011 
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Public Citizen Cranes and Derricks 

Miami fell 30 stories, killing two construction workers and injuring five. On May 30, another crane fell in New York City, killing two construction workers and injuring a worker and a 

bystander20 

In May 2008, Sen. Hillary Clinton CD-N.Y.) sent a letter to OSHA Administrator Edwin G. 

Foulke demanding an explanation for why the new rule was not finished. Clinton noted that 

the industry-union advisory committee had reached consensus on a proposed rule almost 

four years earlier.21 

"This delay is inexplicable and inexcusable," Clinton wrote. "Casualties due to crane accidents are occurring at an alarming rate."n 

About then, progress on the rule appeared to quicken: 

In May 2008, the director of OSHA's Office of Construction Standards and Guidance 

informed members of ACCSH that it had completed its Final Economic Analysis. The 

report estimated that the standard would prevent 22 fatalities and 175 non-fatal injuries per year.23 This estimate represented a significant reduction from the initial 

estimate that the rule would prevent 53 fatalities. The discrepancy was due to a shift 

in methodology from using records maintained by the Bureau of Labor Statistics to 

data maintained by OSHA. The agency determined that the costs of compliance 

would be $154.1 million, and the annual benefits would be $209.3 million, resulting 

in net benefits of $55.2 million. The agency also was required to provide a comprehensive breakdown of the compliance costs. It determined the additional costs 

would average about 0.2 percent of affected businesses' annual revenue, which it 

deemed "effectively negligible."24 

Also at that time, pursuant to the Paperwork Reduction Act, the agency submitted to 

the Office of Management and Budget COMB) an analysis of the rule's paperwork req uirements for affected businesses. 

During the summer, OMB held four meetings on the proposed standard. Attendees 

included representatives of businesses that operate cranes, the builders' insurance 

industry, the crane operator certification organization, and labor.25 

In late August, 2008, OMS completed its review ofthe draft proposed standard.26 

20 Linda Levine, "Worker Safety in the Construction Industry: The Crane and Derrick Standard," CRS Report 

for Congress, Nov. 21, 2008. 

n Sen. Hillary Rodham Clinton CD-N.Y.) letter to OSHA administrator Edwin G. Foulke, May 30, 2008, 

22 Ibid. 

23 Final Rule, Cranes and Derricks in Construction, 29 CFR Part 1926, Federal Register, Aug. 9, 2010. 

,. Ibid. 

2S Ibid. 

26 Linda Levine, "Worker Safety in the Construction Industry: The Crane and Derrick Standard," CRS Report 

for Congress, Nov. 21, 2008. 

April 2011 
116 

Public Citizen Cranes and Derricks 

2008-2010: The Rule Is Completed 

The proposed rule was published in the Federal Register on October 8, 2008. It largely reflected the language approved in 2004 by the negotiation committee and responses to the 

comments sent to OSHA by the SBREFA panel,27 

Publication of the proposed rule initiated a public comment period that was initially slated 

to run through early December but which OSHA extended to Jan 22, 2009, in response to 

stakeholders' requests. 

Among the comments OSHA received were those from several industries seeking to be exempted from the rule. These included railroads, shipbuilders, electric utilities, the propane 

gas industry, and companies that install Signs. OSHA eventually rejected most of these requests. 

The National Association of Homebuilders, which had participated on the negotiation 

committee, also submitted comments. Although the committee's members had agreed not 

to submit "negative comments," NAHB sent in 45 pages that criticized the rule for being 

"too complex," "unduly onerous," and imposing "disproportionate burdens."28 

The SBA's Office of Competitiveness requested that the agency consider and document any 

"significant alternatives" to the proposed rule. An agency official familiar with the proceedings disputes the Competiveness office's contention that OSHA had failed to document such 

alternatives.29 

In March 2009, four days of hearings were held to discuss the rule, after which the agency 

accepted post-hearing comments and briefs. In June 2009, the record was closed. OSHA 

was then left with the task of addressing the contents of over 200 prehearing comments, 

more than 1,500 pages of transcribed text from the four days of hearings, as well as posthearing submissions. 

The summary of the final rule published in the Federal Register runs 159 pages, many of 

which are consumed by OSHA's summaries of public comments on particular sections and 

the agency's responses to those comments. An OSHA official estimated to Public Citizen 

that 30 to 40 percent of the final rule's sections include substantial alterations that were 

prompted by the comments the agency received. But a review of OSHA's summary of its responses to the comments indicates that most concerns were subtle, such as improving the 

clarity of some of the rule's language and addressing relatively rare hypothetical scenarios. 

27 Linda Levine, "Worker Safety in the Construction Industry: The Crane and Derrick Standard," CRS Report 

for Congress. Nov. 21. 2008. 

28 Celeste Monforton. "Gearing up for OSHA's Crane Hearing." The Pump Handle. March 10. 2009. Available at 

httn: IlthemJJ1l.l!n3nd]e.vv-ordpress.com 12009 /03 11 0 Igeanng:JJJl:for-oshas-crane-hearing I, 

29 Public Citizen telephone conversation with OSHA officials. April 7, 2011. 

April 2011 
117 

Public Citizen Cranes and Derricks 

On Aug. 9, 2010, the final rule was published. In October 2010, the Edison Electric Institute 

(EEl), which represents publicly traded electric utilities, and the Association of American 

Railroads filed federal lawsuits challenging the rules. These cases are ongoing. 

Discussion 

A dozen years passed between the first meeting of the ACCSH on the cranes rule to the 

completion ofthe standard. By the government's measure, in which the clock starts ticking 

only after the agency publishes a notice of its intent to pursue a new or revised rule, the 

cranes rule took eight years to complete. While slightly longer than average, this timespan 

was fairly typical. The average length of time for OSHA to complete a major rule since 1990 

has been 6.5 years.30 For a health or safety standard, this means 6.5 years of preventable 

injuries and deaths. 

Although the length of time to make the cranes rules was relatively typical over the past 20 

years, OSHA's rulemaking in the past decade stands in stark contrast to its earlier work because the number of rules it has issued has slowed dramatically. The agency produced 14 

major rules between 1990 and the end of the Clinton administration in January 2001. Between January 2001 and 2010, OSHA finalized only one major rule aside from the cranes 

and derricks standard. Its creation of that rule, on hexavalent chromium, was court ordered. Both the slow pace of individual rules and the sparcity of total final rules suggest 

that the anti-regulatory philosophy of President George W. Bush's administration may have 

hindered progress. 

The use of the negotiated rulemaking process was intended to accelerate the creation of the 

cranes rule, but there is little evidence that it did. Susan Podziba, who moderated the negotiation committee's work, complained in a 2008 New York Times op-ed that she had expected the rule to be finalized within three years after the negotiation committee finished 

its work. Instead, seven years passed.31 

The creation of the cranes and derricks standard clearly illustrates that tremendous redundancy exists in the rulemaking process. Setting aside the rare decision to employ a negotiated rulemaking process, stakeholders in the cranes rule had at least five opportunities 

to have their voices heard: at the SBREFA stage; to the Office of Management and Budget 

before it signed off on the proposed rule; during the conventional comment period after the 

proposed rule was published; during hearings on the proposed rule; and in post-hearing 

comments and briefs. [See Figure 2] Then, if still unsatisfied, stakeholders retained the 

right to seek redress in court-which two trade associations are now doing. 

30 Public Citizen analysis of data at reginfo.gov. 

11 Susan Podziba, "Safety Starts at the Top," The New York Times, June 12, 2008. 

April 2011 10 
118 

Figure 2: Businesses Oppon:unilies 10 Influence Ihe Cranes and Derricks Rule Sr.,.. ;-'_~~ Oesal~I "'" 

Negoumed Rulemalilnll IS 0113 membe" ". p,e.ented b."!"",,,lnte ,e' I', I~ comm!lt"" al! ,~ d tl\ot 

SSREfA 

Revie ... by IN> Ollict or Monall ...,t on<l Budgel 

Commentson Pr"p"""d Ru le 

l1uri"" o n Prap", ed RIlle 

p<><, He.,,", [Qmm .... II . "d 

8rie" 

tM ""Ie .:ould N>t go fOM,'d wi!houI !M eo'llen! of 21 (I1ernbe", lndoxllng 

the kme ~A f<!P't!oenlaHve , 

SfTIolll er>'II!Io:s I.mall b~ n ... ' .. , ,,,,,,g Ko "'nmenlal unlll, and 1 nonproto1 

ot ~n atkln.) Wert ,iVI!<> a ch ",e [0 ,e¥iew u.e d,.1t ,ule and olter- commer>fJ. The panel mode [40rK<>mm nd.tlon, [o05I1A, 

Bu,ines, .. ond other ",g'nilatlono ....... alforded t .... cMMe la tJ(llrtu I .... ir 

concerIK, 100MB belo', II oigned off on the ",,,pooed rule. 

An mem!>." of Ihl!. ~c, .I r.dud n& blliln .. "eo, ... ere . 11" .... d ' 0 oul>rnil formal 

(o" ",.en U on the P!"",,,e d ,ule. 

Members or thl I>Ubllc, indudi ... busi .. eues, !\ad an 0WOfl"nlty tot .... 'ifydu' . 

In, fOil' ,joy, or h ... ,III,II' on the p"""""d rule , 

Pao1Ie. """ e . llo ..... d to enler commenl! and brlels in,o tl\e i>\>bllc 'tco,d ofter 

the MarinI'. 

In the currenl Congress, several bills have been Introduced In force agencres to fight 

Ihruugh even more red t"ilpe 10 cre;ltc new rules, no maIler how sensible and unoonllVver· 

sial the proposals mlghl be, 

These proposals would only waSh! governmcl1t resources and add additional delays <lnd 

(OSl~ 10 an already ~Iow and costly prncess, An OSHA nmclaJ whll spoke with Public Cilizen 

on baCkground estimated that aboLit 50 percent oflhe work involved irJ L"Teating a new rule 

goe~ to satisfy bureaucratic requirements that have nothing 10 do with makJng a good 

rule- in other words, waste.3l 

Moreover, because all new safety rules prevent inJurie~ or deaths, aud virtually all provide 

benefits thaI oUlweigh their cosLs, very unnecessary delay uf a new sarety rule C3uses rna· 

jor harm. OSHA eSllmates Ihal tile final cranes and derrIcks rule wIll save $55.2 million a 

year, a benefit largely stemming fro,m value Ihe agency plates on lhe lives the rule wil! save, 

8y that standard, if the agency were able to complete the ruJe In half the lime, six years in· 

stead IIf 12, it would have s.wed 100 Ilvc~ and Ihl! equlvalent.of more Ihan 5330 millIon, 

I'olicymakers who wIsh to ellmln ll~ waste and streamline government functions should 

seek to improve the speed and efficiency wIth which agencies l"lltl write worthy rules ra· 

ther than saddJlngagencies with additional burdons. 

" Public 'til~n ph<!ne conv~ .. atfon wRh OSHA offict3!s, April 7, 20 II. 

AlIfill011 u 
119 

\ ~~If •• 1 

I +. 

-- ~ 

Business as Usual 

99.9 Percent of Banks Would Be Unaffected by Volcker Rule 
120 

Acknowledgments 

Thi~ report was written by Bartlett Naylor. Financial Services Advocate for Public Citi1.en's 

Congress Watch division. and edited by Taylor Linculn, Resear~h Director for Congress 

Watch. 

About Public Citizen 

Public Citizen is a national non-profit organization with more than 300.000 members and 

supporters. We represent consumer interest'i through lobbying. litigation. administrative 

advocacy, research, Jnd public education on J broad range of issues Including consumer 

lights In the marketplace, pl'oduct safety. fina lldaJ regul~tlon. worker !Oafety. safe and 

afTordahle health c.I1'I.', campaign finan ce reform and government cthjc~. faiT trade. climate 

change. and corpor~ te aod government accollntahillty. 

PU8UCCITIZEN P~bll<: Cifizen', Congre" W~tch 

215 Penns~Jvanj~ Ave. 5,f 

Wa5hington, D.C. 20003 

P: 202-545-4996 

F: 202-547-1392 

ht1p'lJwww c~i1en.Q!J! 

(1 2012 Public uHlen 
121 

Public Citizen Business As Usual 

Contents 

I. INTRODUCTION: THE RIDE OF THE VOLCKER RULE, CAN BANKS LIVE WITH IT? .••.••••••••••••••..• 4 

II. THE RISE OF CASINO BANKING ........................................................................................... 5 

III. THREE CASE STUDIES: SAFE AT ANY SIZE ........................................................................... 7 

IT'S A WONDERFUL LIFE: GENERATIONS BANI( ....................................................................................... 7 

SWEET SPOT OF EFFICIENCY: M & T BANI( .......................................................................................... 10 

WEeLS FARGO: OLD SCHOOL BAN'(ING ............................................................................................... 11 

IV. CONCLUSION: CLOSING THE CASiNO ............................................................................... 15 

June 2012 
122 

Public Citizen Business As Usual 

I. Introduction: The Ride of the Vokker Rule 

Can Banks Live with It? 

There are 7,181 federally insured banks in the United States,l After a new rule is implemented to prohibit banks from making risky trades, the business activities of 

7,175 of these banks will remain essentially unchanged, 

The Volcker Rule, among the most controversial aspects of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, will prohibit federally insured banks from engaging 

in proprietary trading, which involves speculation through short-term trades in stocks, 

derivatives and other securities,2 

The financial crash, borne of reckless banking practices, cost the economy about $12 

trillion, give or take,' But Wall Street lobbyists have succeeded in elevating concerns over 

the relatively minuscule costs of the Volcker Rule to a paramount position in the debate 

over how regulations should be crafted to implement it In reality, the Volcker Rule will 

mean no change, no closure of business divisions, no costs from foregone financial activity, 

for more than 99,9 percent of banks, 

What follows is an examination of how American banks will adapt to the Volcker Rule, We 

review three banks-one small, one medium-sized, and one giant-as case studies, This 

report examines tbe details of these banks' revenue and earnings, how the Volcker rule 

might alter them, and how the managers of some of the banks evaluate the effect that the 

rule will have on them, 

The nation's banking regulators are entering the last stages of finalizing the Volcker Rule 

this month, long after the july 21, 2012, deadline for completion imposed by Congress in 

Dodd-Frank In all, 21 individuals nominated by the president and confirmed by the U,S, 

Senate (serving at the Federal Reserve, Federal Deposit Insurance Corp" Office of the 

Comptroller of the Currency, Commodity Futures Trading Commission, or Securities and 

Exchange Commission) must agree to the precise language of this rule, While the regulators 

undoubtedly understand the impact of the financial crisis, they will inevitably consider the 

effects on the industry they regulate, These regulators have conducted 4,000 meetings with 

1 FDIC, Statistics at a Glance (Sept,] 12,2012), available at: 

1.1.11P-JbNv\T:;y.J~djc~Q:dbiLJ.k/st4JJ.5!.irilLbt1illU20 12 stJ1Lin!itlstr~LPQ£ These institutions inclu de commercial 

banks as well as federally insured savings and loan institutions. It does not include the 6,888 federally 

insured credit unions; none of these institutions engage in Volcker Rule-prohibited activity. 

2 The Volcker Rule is the :nformal name for Section 619 of the Dodd-Frank Wall Slreet Reform and Consumer 

Protectiu:l Act. Federa.l officials at present are finalizing the rules, or ~"egulations, to implement Section 619. 

:1 See, Crisis, BETTER MARKETS (Fall 2012), available at: hllpJ-LYiY'l.1&:.hctLenlmrl~t5.JJ21D.i-Lilli~ 

June 2012 4 
123 

Public Citizen Business As Usual 

outsiders, the overwhelming majority of which have been Wall Street representatives4 But 

these regulators must understand that the banking industry will thrive with a robust 

Volcker Rule. 

II. The Rise of Casino Banking 

The lure of astronomical profits from proprietary trading prompted a select group of large 

banks to deviate from sensible risk management practices. This sober account from the 

Group of 30, a non-profit international group consisting of private sector and academic 

leaders on financial issues,s recalls how the industry succumbed to a gambling ethos: 

Recent experience in the United States and elsewhere has demonstrated instances in which 

unanticipated and unsustainably large losses in proprietary trading, heavy exposure to 

structured credit products and credit default swaps, and spo!1sorship of hedge funds have 

placed at risk the viability of the entire enterprise ... These activities, and the "originate-todistrihute" model. which facilitated s{~lling and reselling highly engineered packages of 

consolidated loans, are for the most part of relatively recent origin. In essence, these 

activities all step away from the general concept of relationship banking, resting on 

individual customer service, toward a more impersonal capital markets transaction-oriented 

financial system. What is at issue is the extent to which these approaches can sC!1sibly be 

combined in a single institution, and particularly in those highly protected banking 

institutions at the core of the financial system. 6 

Concerns over the activities outlined above prompted Congress to institute the Volcker 

Rule-informally named after Group of 30 member and former Federal Reserve Chairman 

Paul Volcker-to prohibit federally insured banks from engaging in proprietary trading or 

owning hedge funds of more than de minimis size. Opponents and proponents alike 

commonly observe that this provision promises the greatest change in American banking 

since the enactment in 1933 of the Glass-Steagall Act, which separated of commercial and 

investment banking. 

In principle, the Volcker Rule aims to protect banking's core function of aggregating savings 

so that savings can be deployed in loans to consumers, homebuyers, and businesses. 

Federal deposit insurance protects the savers, which encourages them to accept lower 

returns (in this case, in the form of interest rates) than they would expect for higher-risk 

investments. Banks, in turn, are expected to pass on savings from their reduced cost of 

4 Davis-Polk, Dodd-Frank Progress Report [November 2012]. available at: 

http:/h.vw\v.davispoJkcom/files/Public;;tion/9a990de)· 911 b-4e6h-b183-

QBJ)JlZtdJibOJ)Jli.PI~JllatlQ).l/JJ,tbJiglli9..JJJ.t!il,£llID~!.t1iJi_~J~;L4Si2a -S 2 'lri:!±.d 65 :~.fJJ£ 

096127 dah2a3/N ov 20 12 Dodd.Frank. P:'o~i'e,..:;s.ReDoj't.pdf. 

S See Group of 30 Web site, availahle at: http://wv/I,\,.I.:P DUk)30.org/ahouU;html. 

I) Financial Reform, a Frameworkfor Financial Stability, Group of Thirty (jan. 15, 2009), availahle 

at: httU: i !vv"ww.!(tnup30.or~ /images IPDF If-Hl,Hlclal Reform-A Framework for Fiu:mdai Stc-lb:litv.£H.if. 

June 2012 
124 

Public Citizen Business As Usual 

capital to their borrowers. The benefits that accrue from reduced costs of capital justify 

expectations that the banks abstain from high-risk activities. 

The Independent Community Bankers of America (ICBA), consisting of more than 5,000 

member banks,7 articulated this view in a comment letter it submitted to federal regulators 

on the proposed regulations to implement the Volcker Rule: "Banks are accorded access to 

federal deposit insurance and liquidity facilities because they serve a public purpose: 

facilitating economic growth by intermediating between savers and borrowers, i.e., taking 

deposits and making loans, and by maintaining liquidity in the economy throughout the 

economic cycle. These activities constitute the fundamental business ofbanking."8 

By its nature, a proprietary trade is a bet-a gamble. For every winner, there is a loser. A 

bank's gain from a proprietary trade results in a corresponding loss for the countcrparty. 

No factories are financed, homes mortgaged, or cars purchased as a result of gambles won 

or lost by banks engaged in proprietary trading. 

Gambling can generate profits for institutions. Last decade, traders and bank managers 

pocketed mind-boggling sums in exchange for presiding over successful betting strategies. 

But when the traders' bets turned sour, wiping out the earlier gains and forcing their 

institutions to accept massive taxpayer-financed bailouts, the bankers retained the 

fortunes they had reaped in the previous years. Protecting the ability of bank executives 

and traders to command such bounties is a key reason that certain Wall Street leaders have 

intensely contested the Volcker Rule. The debate over the Voleker Rule has arguably been 

the subject of more lobbying expenditures. regulatory meetings, congressional meetings, 

formally commissioned studies, and media coverage than any other regulation called for in 

Dodd-Frank. 

Public Citizen documented the scope of industry's obsession of the Vokker Rule earlier this 

year." Wall Street interests contributed $67 million to the campaigns of members of 

Congress who asked regulators to weaken the proposed regulations to implement the 

Volcker Rule. By contrast, members of Congress who pressed for a stronger regulations 

received a collective $1.9 million from Wall Street donors. However, a crucial fact is: More 

than 99.9 percent of banks' circumstances won't change because of the Volcker Rule. This 

rule is important to prevent a fraction of 1 percent of banks from putting our financial 

system-and, ultimately, our economy-at risk. 

7 leBA Vveb site, About Us, available at: httn:/ (\lill·'£)~llibQ..;.-u~hQliliC.118LlflQ.L'S:cfm?He!}JliJ..twber,:,52'l.. 

8 leBA comment letter on the Valeker Rule 13. available at: 

2012), available at: 

June 2012 
125 

Public Citizen Business As Usual 

There are 7,181 banks in the United States. or these, six account for 88 percent of all 

proprietary trading atlected by the Volcker Rule.: o Four banks account for 93 percent of 

total derivatives holdings, a major venue in proprietary tradingll "Proprietary trading in 

any real volume is confined to a very few large, sophisticated U,S, banks," Volcker wrote in 

a letter to federal regulatorsY The nation's 6,888 credit unions are legally barred from 

using derivatives'!' In other words, of the 14,069 institutions that the average consumer 

would consider a "bank," the Volcker Rule means business as usual for 14,063 of them. 

It should be noted that banks do maintain investment accounts consisting of easily sellable 

securities, and will be able to continue doing so after the Volcker Rule takes effect. "Trading 

accounts," which may include U,S, Treasuries, corporate stocks and other securities, help 

banks meet unexpected cash demands, such as an unusual surge in withdrawals, Managers 

of trading accounts typical invest in conservative securities and retain their investments 

for a longer time than do proprietary traders, Under the Volcker Rule, trading accounts 

may not be a playground for short-term speculation, 

III. Three Case Studies: Safe at any Size 

The banking industry is composed of firms of various sizes, ranging from banks with only a 

single store front, to mid-sized regional firms, to a handful of mega-banks. How will the 

Volcker Rule apply, based on bank size? Examined here are three case studies: A smaller 

bank, Generations Bank of Seneca Falls, N.Y.; a mid-size bank, M&T Bancorp, of Buffalo, 

N.Y.; and a mega-bank, Wells Fargo Bancorp, headquartered in San Francisco, 

It's a Wonderful Life: Generations Bank 

In the heartland of America, largely served by community bankers, the type of activity 

targeted by the Volcker Rule is unknown, 

One of the 7,181 American banks that will not be unaffected by the Volcker Rule is 

Generations Bank, of Seneca Falls, N.Y, 

10 GOVERNMENT ACCOUNTABILlTYOHICE, Proprietary Trading (july 2011), available at: 

liliILJJwww<~a~pv!ass_t1.,'i.Lillml(J06.pdf. 

11 U.S. ComptrolleY' of the Currency, DCC's Quarteriy Report on Bank Trading and Derivatives Activities Second 

Quarter 2012, available at: httn:ilww_\~{l((:.gn:"!}lQI2jpJ£;JP-it:::J-r:ndlj-<ct.511ir:wn~Ei~ 

JllJtkflti!r.gllliJ.g/.!:k;-iv '11iy"~<;jrm.~ 1 L. jlDL 

12 Paul Volcker, letter to regulators (Feb. 13, 2012), available at: http://vvvvw"scc~ov (comments/57 -4 1-

_ll.Jl?Z:1-111::J82,llilf. 

13 GOVERt-.MENT ACCOUNT1\HILITY OFFICE, Trading, at 64 (July 2011], availahle at: 

June 2012 

credit union industry is lobhying to remove restrictions on 

the Credit Union National Association from April 3, 2012: 
126 

Public Citizen Business As Usual 

"It's a Wonderful Life," Frank Capra's iconic Hollywood film about the travails of a small 

town banker, is set in mythical "Bedford Falls." Seneca Falls claims to be Frank Capra's 

inspiration. This real "Bedford Falls" features a museum dedicated to the film, and an 

annual "It's a Wonderful Life" festival. The Clarence Hotel was named in honor of the angel 

Clarence who talks banker George Bailey off the bridge of despair by reviewing the virtues 

of traditional banking. This year, the actress who played the daughter of the beleaguered 

banker joined the December festival.:4 

Generations Bank, headquartered in Seneca Falls, founded in 1870, fits the description of 

George Bailey's bank to a tee: Folks in the community deposit their savings ($193 million) 

in one of the bank's nine branches, and then the bank loans out this money in mortgages to 

home buyers, in loans to car buyers, and credit to small business ($190 million ).i5 

The bank has reported rising net income: $476,000 in 2009, $1.1 million in 2010, and $1.3 

million in2011. Through nine months of2012, the bank reported $1.2 million in income. 11i 

Generations Bank has transformed, at least in name, over the 14 decades since its founding 

in 1870 as Seneca Falls Savings Bank.!? Before the financial crash of 2008, the institution 

was called Seneca-Cayuga Bancorp. With the acquisition of other banks, the firm adopted 

Generations Bank as its umbrella name. CEO Menzo Case is the bank's largest single 

shareholder. is 

The Voleker Rule will result in no substantial change of operations for Generations Bank. 

none of the bank's 85 employees are derivatives traders. None engage in market making or 

risky gambles. Generations Bank does hold some securities, in addition to its loans. In 

2009, for example, the bank held $1. 7 million worth of securities, and earned a total of 

$1,000 from trades involving them. l~ Because of the minimal nature of its trading, 

Generations will not be subject to reporting requirements of the Volcker rule will require of 

larger banks. 

Annual Report, 2010, 

https:II;,\'\vw<rny~enbank.cnm 'files hlnJ.!1cial filln~~; !;;i:lnu81 reporL<j 12010 ,-ll!lHWI repol'LpJL 

j') This was the last year the company reported its trading activity; it deregistered as a public company after 

that. 

June 2012 
127 

What Is th ~ Ideal Siz~ for a Bank? 

1-10w do banks perform based on size? While iconic, community banks lack the economies of 

~cJ e enjoyed by largerbank~ . 9ullhe largest bank>, others conlend, may be unwieldy or 

difficult to manage. Is there a swt>eI spot In sIze? The field of industrfal organization appllt>s 

sophisticated metrics to examine Ihe lss..,e ollheideal Silt> 0' a bank, Thls field of study figures 

inlo CkJHe.nt issues abo»t ideal bank size, e>lidenced by a December 4, 201 2, speech bv Federal 

Reserve Go~ . Daniel Tal1.Jl ?~ 

The simplt>sl measure of efficiency is the ratio of expen.es io re~en»e. How m<lch does each 

dollar of reven»e cost a bank to generate? A bank thatgenerale. $1 in revenue with 45 cents in 

expenses is more efncJenl l han the bank that generales $2 hI re~en»e with $1 in eKpe.nse. The 

former call generate a greater profit jar its Shareholders. The more efficient bank may be 

better for consumers, as it Is better positioned to provide greater wstomer 'Ialue In 

competition with its less efficient (Ompetitor. 

As it happens, small banks dominate the li5\ of "most effkient~ banks. While ranking. change 

with eac.h quarterly report, Americo,! Bonkerroutinely shows that banks with less tha~ $5 

biltion in a sset.s command the tion's share of "top 200· fTlo.t efficient banks. In its most receT)t 

report, American Banker found that the top 10 Illost efficient banks all managed assets ofles~ 

Ihan .$3ca billio('l, and most fTla naged less than $2 billion. U.S. Sancorp made Ihis "top 200' lisl 

with an efficiency rating of 52 percent, placing il 89th on the list. U.s. Bancorp lists assets of 

$340 billion. Two othet banks with mote than $100 billion also made thl$ efficiency list: SS& T 

Corp., witt! 5174 billion, ranked I73rd; and Fifth Third Sancorp, wllh $IU; billion, ra nked 177th 

o one can flnd such efficiency enhallcemenls for banks With more titan $100 billion in total 

assets,· according to MIT economisl.Slmon Johnson.21 

'ltS!>"...,h by Guv. o..nid ~rul l!, al Br .. "kmg. ln.tituti n ... /nd""ry S(rucl""" ,, d SJ"(~m c m .• k Rql',/ulion 

(Dec. i. 2012), gvall. b!e at bIIR'/f\'ffl'rj fc!ltr..Jr •• efY< 1Il>V/new::;ey.n l,l$pe.dJf!.l,r" IIu1!1121104a,btm. 

" 5im"" )!>h .. ><m. WhyAr. th. Big /l<wk>SuJ,lcn/yAfr'",}, II~ IWyl)i\ lO ~ (Aug. 30. 20IZ) ...... II.ble . t: 

hIlt> licrubl!!ulx hl".,.ny tIlIlC!i.<pml? lI I ? ro8130 Iwby.grc.!bc. hlg·biID h.,,,ddl'uly·gfr;!!d I Id. nli!ylng the 

$W"'" nt fur efficiency ~nd "'nnomleSDf :l<:a te h.S _n mp,nml~ed by vblthgngesln banking low. Fir>~ 

ban4 w.'" lI ow.il to braoch a.TO.'5 .t.:u ~ line. only In ~ i3§t th",'" d...:ad .... SoronJ. lh~r powers were 

expand".). ll im to1y allOwing lh ~ kind. of ~IM y lhat tbe Vokk"r Rule wfll problbit. ' i" ally. majnr Ilnand aJ 

C31i1 .trophes cloud ron.cl"'ion$. RI. ky trading m~y h .. "e Iigu,.J in th" 2008 crash. bu t tl"t led to probll'lllS at 

tus cul l"'ble banks In ~ form of QsC<ldlng h(I!>.ill8 prices ~nd monS"ge "" tues.. 

June 1011 • 
128 

Public Citizen Business As Usual 

"We have an [asset liability management] committee that reviews our position monthly, 

which includes consideration of whether we should purchase additional securities," Case 

explained. "If securities are to be purchased, either myself or the CFO will make the 

purchase."22 Generations devotes one employee to compliance. 

"Our Company has a history of conservative risk management-we don't 'reach' for yield 

by entering into areas that we do not understand or for which the risk is not understood," 

Case wrote to shareholders.23 "] have yet to find an NY community bank that is actively 

trading securities. It's just not the way we operate," he wrote in e-mail to Public Citizen.24 

Sweet Spot of Efficiency: M & T Bank 

Will larger banks find their business undermined by the Volcker Rule? An examination of 

M&T Bank, the nation's 31st largest with $77 billion in assets,25 shows that the Volcker 

Rule will cause no change to the bank's operations. M&T Bank believes it will continue to 

thrive. Its efficiency ratio in the first quarter of 2011 ranked 83rd of the nation 6,900 bank 

holding companies on the American Banker IiSt.26 

"Based on the proposed rules, M&T does not currently anticipate that the Volcker Rule will 

have a material effect on the operations of M&T and its subsidiaries," the bank informed 

shareholders.?? 

Founded in 1856 in western New York, the Buffalo-headquartered bank maintains 750 

branches in eight states and the District of Columbia. 

M&T employs 15,666 people, up from 13,869 in 2007 before the financial crash. M&T has 

grown by making acquisitions, Its largest acquisition, coincidentally, followed a proprietary 

trading fiasco at Allied Irish Bank's Baltimore-based division,28 Since the financial crash of 

2008, M&T has purchased Provident Bank of Baltimore, the failed Bradford Bank [seized by 

22 Menzo Case, CEO, Generations Bank, e-mail response to Public Citizen questions CNov. 16, 2012). On file 

with author. 

23 Generations Bank, A:mual Report, 2010, available at: 

JJlli!;i;ilw:£w.rnygt;!lba.J"Jg~(unLmc.s /f:n'1Ll~L£1 fil il}.Il5/ a!111ual ceporL<; 120 10 <1(wuaLUlllQr1.u.Jl. 24 Menzo Case, CEO, Generations Bank, e-mail response to Public Citizen questions (Nov. 16, 2012). On file 

with author 

25 Banks and Thrifts with the MostAssets, AMERICA.N DANKER (Second quarter 2012). 

26 Most Efficient Banks. AMERICAN BANKER (First quarter 2011). 

27 M&T Bank, Annua.l Report, 2011, available at: 

June 2012 10 
129 

Public Citizen Business As Usual 

the FDIC), Wilmington Trust, and Hudson City Bancorp. Berkshire Hathaway is its largest 

shareholder, owning 5.6 percent of its stock 2Y 

M&T has reported a profit in every quarter since 1970. Net income increased from $380 

million in 2009 to $736 million in 2010, and $859 million in 20113" 

M&T reported $27 million in trading account gains in 2011. in line with gains of$17 million 

to $30 million from 2007 to 2010.'1 Its trading profits represented 3 percent of its net 

income in201l.'2 

M&T did report a "gain on bank investment securities" of $150 million in 2011 that was not 

pursuant to its trading account. The bank explained that this stemmed from an agreement 

to boost its capital following its acquisition of Wilmington Trust. It booked the gain by 

selling slightly riskier securities, and then purchasing less risky securities. Capital, or the 

amount of investor funds in the bank, is measured against the relative risk of its assets. 

These assets include loans and securities. By holding less risky securities, its capital 

measure is considered stronger. ,.1 

The fact that M&T derives only 0.6 percent of its total income from trading reflects a 

conscious decision by the bank's leadership. CEO Robert WHmers reported to shareholders: 

"Banks have traditionally played a dear, if limited, role in the economy: to gather savings 

and to finance industry and commerce. Trading and speculation were nowhere includednor should they be. ":14 

Of his larger peers that engage in proprietary trading, Wilmers expresses little sympathy. 

"The Wall Street banks continue to fight against regulation that would limit their capacity 

to trade for their own accounts-while enjoying the backing of deposit insurance-and 

thus seek to keep in place a system which puts taxpayers at high risk"]' 

Wells Fargo: Old School Banking 

While the Volcker Rule essentially applies to only the largest hanks with dedicated staff 

handling its trading account, mega-banks can remain large and profitable under the 

forthcoming restrictions on proprietary trading and hedge fund ownership. Wells Fargo 

proves this. 

29 M&T Ba.nk, Annual Report, 2011, available at: 

30Id. 

3lId. 

32Id. 

Id. 

" Id. 3sId. 

June 2012 11 
130 

Pubfic Olf.en B~.in ."'. U"""I 

Of the na tion's 7,394 commercial banks. fo ur institutions stand out in 5i?e: JI' org~ n 

Chase. Bank of Ame ricc., Citicorp, and Wells Fargo. Each oHhese baoks holds roughly S I 

trillion in deposits. r,mging from $906 bilhon at Wells Fargo to $Ll trillion at JP Morgan. 3~ 

Together, they account for nearly half orlhe natlon's S9 trillion in tOlal deposits.ll (The fifth 

largesr deposilory is U.S. Bancorp, which holds $233 billion in deposits. aoout a fifth of the 

next largest.J~ ) In the bask intermediation of savers and borrowers, these la rge four !mnks 

control about half of a ll deposits. How they deploy these dollars shapes the economy, Even 

a small dive rsion into proprietary trading of depositor savings is the equivalent to a 

wholesa le decision by Generations, M&T. and hundreds of other like·sized banks to allocate 

all of their deposits to proprietary trading. 

Government Report Says Proprietary Trading Is Not a Wi nner for BiC Banks 

Congress req uired the Government Aocounlabllity Office 10 sludy 'he role of proprietary 

trading 3tthe largest banks. In July 2011, the GAO ,ondude d that even at ihe six major bar.ks. 

proprIe tary trading did not generate consistent profits. The researcher~ e,xamlned the 13 

q~arters from 2006 to 2010, before, during. and after the financial (fash. Whne the firms 

collectllle ly posted occasional winnings, they also SUffered substa ntj~1 losses. Proprietary 

trading res<olted ~In an overall 105s from sl.Ich activnies Oller the 4.5 year period of aboul S221 

million, • the government researchers condl.lded.l'l 

Citicorp and Bank of America received considerable taxpayer bailouts. Meanwhile. 

government leaders such as former FDIC chair Sheila Bair and even President Obama have 

call ed for the closure of one or both of thl'se institutions. 

CHigroup dol'S not obie, t to the Volcke r Rille. For ex~ mpl . in Cltigroup'$ relatively brief 

to· page comment letter on the proposed rule to federal regulators. the firm stat(!ll: "We 

stand firolly behind the Voleker Rule's core principles of re-focusing trnding businesses on 

the needs of customers and markets, while reducing potenti al risk to financial institutions 

a nd our financial system:"'; No represent<ltives of Citigroup or Bank of Amerlcc. have 

testified in any of the congressiona l hearings on the Voleker Rule in tile] ]2th Congress, In 

• R .. .rch by SN!. ... tlvi" ....... v"i l.bl ~ at http' Ilww)\' ,u).<omIfD!crat1!\'!;XI!tr1jclf.!!j !l <Jhd '''.1 5( aI73!! . 

illll> 

" Fed ..... 1 " 

It Ii "I 

Uuly20 11 1,~ vail bl • • ~ 

" 

June l OU " 
131 

Public Citizen Business As Usual 

[act, former Citi Chairman John Reed counts as one of the Voleker Rule's earliest and most 

outspoken supporters. 41 

JP Morgan's opposition to the Volcker Rule is well known. The firm's proprietary trading 

became infamous in the spring of 2012 when it revealed a $5 hillion to $7 hillion loss from 

self-described "egregious" trades in London. 

And Wells Fargo? 

The name Wells Fargo derives from the 1850s entrepreneurs who profited from the traffic 

generated by the California gold rush. The bank itself served as a side business to the 

freight enterprise. Today's Wells Fargo is more accurately understood as Norwest Bank, a 

Minnesota branch-bank netvvork, which bought the more familiar San Francisco-based 

Wells Fargo in 199842 Norwest senior management has served in the top positions of Wells 

Fargo since the merger. 

Of the largest four American banks, Wells Fargo's business is decidedly old school. 

Summarized a New York Times columnist, "It focuses on plain-vanilla lending like 

mortgages, credit cards and corporate loans, and ... emerged relatively unscathed from the 

financial crisis."43 Wells Fargo boasts a high rating [or its own debt. 44 

Wi!! the Volcker Rule undermine this San Francisco-based giant's prospects? Proprietary 

trading generated the firm $2 million in profits in the third quarter of 2012, and $16 

million over the first nine months of the year45 The $2 million in income represented 0.04 

percent of the Wells' $4.94 billion in net income. 46 Proprietary trading accounted for a $9 

million loss in the third quarter of 2011, and an $18 million loss for the first nine months of 

2011. Proprietary trading, concluded Wells Fargo CEO John Stumpf, is "almost zero [or 

US."47 

13,2012), available at: 

http://video.cnbc.cof11/£al iel"v/?vtdco=3080073921. 

June 2012 13 
132 

Public Citizen Business As Usual 

The firm does engage in market-making, which the proposed Volcker Rule will allow. 

(Market making involves trading activities in which the bank aims to profit through 

commissions rather than through changing values of the underlying investments.) "We 

make active markets in more than 400 issues and are recognized as a top 10 trader in 

convertible bonds," Wells Fargo says on its Web site.48 

Berkshire Hathaway-run by Warren Buffett, the nation's second wealthiest person,49 and 

Charles Munger-holds nearly 10 percent of Wells Fargo's stock,50 accounting for nearly 20 

percent of the value of Berkshire Hathaway's investment portfolio. 51 On why Berkshire 

Hathaway and others might find Wells Fargo "so attractive," Forbes observed: "Well, Wells 

Fargo is distinctive for what it doesn't do: rely on proprietary trading."S2 

The one way the Volcker Rule could impact Wells Fargo is through the law's ban on hedge 

fund ownership. Wells Fargo fears federal regulators might bar its venture capital and 

merchant banking subsidiaries under the Volcker Rule. The funds largely fall under the 

name of Norwest, such as Norwest Equity Partners, Norwest Venture Partners, etc. 53 \Vells 

Fargo lists 1,207 separate subsidiaries. 54 

Wells Fargo does not explicitly report the results of its venture and merchant capital 

subsidiaries. It does report various investment gains. In the latest quarter, Wells Fargo 

reported a gain of $167 million from the sale of debt and equity securities. That 

represented 1.5 percent of its total $10.5 billion in non-interest income, and 0.6 percent of 

its total interest and non-interest income of $21.5 billion for the quarter. Income from 

these sales represented 3.3 percent of its net income. 55 

Despite the apparent lack of significance ofVolcker Rule-prohibited activity for Wells Fargo 

and CEO Stumpf's dismissal of the importance of proprietary trading, Wells Fargo has 

joined the vigorous industry effort to contest robust implementation. The firm penned tv'1o 

fORBES (Sept. 19, 

'" Wells Fargo, proxy statement 2012, 

h1J.uJh"grn.LAITlllY.~;Jj;aigg;:/.da tajLl't1.1Llli!.Qj~'ijJ.;; 51211J.LmQ.;;li2]_02dIlgf 14a.h tJll. 

S! Buffett How Has 19.4% aJPortfolio in Wells Fargo: W~y it's the Better Bank Stock, FORBES (Nov. 25, 2012J, 

ht1H.Jfu~\1:. f{)rQ~.~,-ut.rnb.:lt;.~ill:.t:V.l..O 12 / lll1"~.ft::tt-jlillY:hiJ.s- t 9-4 -of-portfi}lio-41:.Y-~llii.:fuI!lll.:.:,~jl,Y..: 

it~~~Th~:~h~!jt'_r-:b0)1]-; ~~t_qd~/, 

52Id. Buffett discusses the Volcker Rule in this video: Buffett on Volcker rule: 

so Wells Fargo quarterly report, third quarter 2012, available at 

https:! iil'!1Nw.',!vellsf:lr~o.L()m!downloads Ipdf/in':ez,t rcLltiOll~(JQ12 lOQ.pdf. 

June 2012 14 
133 

Public Citizen Business As Usual 

letters to the federal agencies, and joined in endorsement of two others:s6 Instead of a rule, 

Wells Fargo asks for special treatment: "We believe that a better approach would be to 

allow each covered banking entity to work with its primary federal regulator to tailor more 

general rules applicable to each covered banking entity and its unique trading attributes."S? 

The Volcker Rule should portend minimal change for the company's business. Further, 

Wells Fargo's largest shareholder may be impatient with any attempts by management to 

violate the Volcker Rule. Berkshire Hathaway's Munger commented, "Take the rapid 

trading by the computer geniuses [responsible for proprietary trading at banks]. Those 

people have all the social utility of a bunch of rats admitted to a grainery. I never would 

have allowed the rats to get in the grainery. I don't want the brilliant young men of America 

being rats in somebody else's grainery."38 

IV. Conclusion: Closing the Casino 

While large bank lobbyists and others who profit from bank proprietary trading vocally 

oppose the Volcker Rule, Washington representatives of the vast majority of American 

banks endorse this reform. The Independent Community Bankers of America boasts 5,000 

members among the nation's 7,181 banks..s 9 While Wall Street lobbyists forecast grave 

harms from the Volcker Rule, here's what the trade association for the lion's share of the 

banking industry concludes: "[CBA generally supports the Volcker Rule, which is an 

important step toward protecting the business of banking from the speculation inherent in 

proprietary trading and sponsoring or investing in hedge funds.""D The trade association 

explains: "The recent financial crisis and the ensuing government bailout show what 

happens when banks depart from the fundamental business of banking."Gl 

If the Volcker Rule affects relatively few players on Wall Street, why the storm and fury? 

M&T Bank CEO Wilmers speculates that personal compensation figures at the center of this 

public controversy, and that compensation undermines public perception of the social 

utility of banking. "Public cynicism about the major banks has been further reinforced by 

the salaries of their top executives, in large part fueled not by lending but by trading. At a 

of all letters to Federal Reserve on Volcker Rule. Available at: 

58 Video interview of Charles Munger, at: .htt.u;..i.l.'tB"\,""T,x\iebcilln-l-1Jct.D£.1LilLd..~1L.[111~."l.~1L~91 LL'2:: 

ch<Elie-m u n~TE'r- and -h u ffett- eli "':;,1 ;(:rce -0 n··vo] deer-rule-vi cleD. 

59 leBA Web site, available at: htt.R.:}l}ywwJdlg"QIgjabQutlCt;tA!md!::x£Lllj}J.tgmi':l1llli.bfx.=.,i;':~. 

60 reSA comment letter on the Volcker Rule [Feb. 13, 2012J, available at: 

June 2012 15 
134 

f 

Public Citizen Business As Usual 

time when the American economy is stuck in the doldrums and so many are unemployed or 

under-employed, the average compensation for the chief executives of four of the six 

largest banks in 2010 was $17.3 millioll-more than 262 times that of the average 

American worker. Thus, it is hardly surprising that the public would judge the banking 

industry harshly-and view Wall Street's executives and their intentions with skepticism ... 

The Wall Street banks continue to fight against regulation that would limit their capacity to 

trade for their own accounts-while enjoying the backing of deposit insurance-and thus 

seek to keep in place a system which puts taxpayers at high risk."62 

The thousands of bankers unaffected by the Volcker Rule may not travel frequently to 

Washington to defend it. Who petitions City Hall about a stop light on a street where one 

doesn't drive? But as Washington's rulemakers finalize this import2nt regulation, they 

should he especially attuned to the silence of 7,000 banks. 

62 M& T Bank, A:mual Report. 2011, avaibhle at: 

June 2012 16 
135 

EXECUTIVE OFFIC E OF THE PRESIDENT 

OFfICE OF "./Io N/IoGE".ENT /IoND 9UDGET 

WU"'N'HO_ , D.C .••••• 

Nm·crnbet 19. 20 II 

II1OUSl' Rula ) 

STATEMENT OF ADMINISTRATION POLICY 

Th: AdmioI5"11l;OO;' romm;lIed 10en~rinSlhal '(Sl.dal;oo5 are sman .... d effective. Ihat Ihl'Y . ,e lailcnd 

,oadvance swalOf)' goa!s in '"~ mOOl rosH,IT""I;"c and dlicicm monner, and '""Iney minimize 

uncertainlY Accordinsl~. Ihe Aclministra'ion $lroogly opposes Houl<' paSS<l!!~ orl! R. 527. Ihe 

ResulalOf)' le.~;biliLy ImprovClnents ACt. The Regula!ory R~ibility lmp<ovemems Act would impo>e 

un",>(Oded ~nd NSLlf lOalylical and pl\"IC.-c!ural ~uifC"'enl500 8&CMies Ihal .. ouJd pr.,'e.ll.b<:m from 

peri""",,iniliheir "."''''''r}, "'"roosibilili.. It wwld ~l ikJ tTeate m,edless re!lUlalOf)' and It"!'al unc,.".imy 

.nd inor,"""coslS for b",;~ .IId funher i",pro" tho implement"ti "" ofCl)ln,n<)llS"ru;o, pr<:M~ion. f<lf 

Ihe A",...-itan INblic 

The Rc""I.,Of}' Flexibilily lrnproveml'fltS AOI would im~ unnece.sa/)' new pmc«iurl.'S oo !!.enol~ and 

invile frivolou~ ~(i(lO . Wben a Federal "sellcy promuI9'es " regul"i(lO. tJoe "l!""ey 0"'" .dhue \() 

Ihe rob"" and wtll underSlood proot'dural ""1u;remet1t ~ of tile ResulatOl)' Fl xib;l;t ~ ~C~ lIS amendtd b~ 

the Small BUSiness Regul.,ory Enforremcnl Palm<=» Act . .. well "I~e Administrative Procedure Ac! 

and other f!l<lcral statLltes !ueh a! Ih. Unfunded Mandalos Re1enn AC1 and the P~P\'I"WOtk R~uctiotl 

ACl In addlll(lO. for d"".des.. ".IIency rulemaking b •• been govemtd by E>.ecull\"e OnJe ... issued .lId 

follOwed by adm;n\ traliOl1s ofbulh j!olilic,l panie' These rC'I./Urre resulalOl)' all""des to pt'Omul!l4le 

regulltj(lOS onl), upon a ,euoo<'d drlmn,nari(lO Iha, the benefils j uOl; fy Ihe COSIS, II) coo,'de.. re!1lllltOl}' 

altemali,'c.. lllld 10 promote regulat(\()' 'l ibilil~ , With respect 10 Ihe Rel!l'latory FI('>:illilil)" A~t in 

p&!llcular, agencies aiready have in place pl"Ocedures and polici.", liS ,,",<[ui ,ed by E~ec",;, c Ordl"r 13112. 

\(}ensur~ lila, asc~lciOl; lake inroacoounl th. ""''''"'I"m,,", orrulemakiJ\l!,on .mall bu';n .... ,,. 

Funhermore. this Adm,n;.!,..t'''''·' deep eoo,mrtmcnl \(} promoting small busine!6 and enwnng Ih~t 

",!!"I.Ii(lOS do not undu ly burden tho Nat;on'. small bm'n~ i. rcfiecled in Eltecuri,'e Order 13561. 

,,·hich requires ag"nCl<"S to ",,"mine e.<,sli"l! rell"l~ ioM iU'ld It> elim;nale, n~amHn , .... alt"'th.:m " 'he,,, 

'ney .,e ex,,",,;v.I)' b,uden,or"" .• nd IheJ.nlJ3l)' 18 P,c.idenl Me",,,,,,"dum OJ) R~"lalory FI""ibility, 

SmaJi f1 usiness, a~d Job C~lion Fu"~~ntlore. I"i$ t\dmin;strat;mt's d~p c"",,,i1Jtlent '" pmtnOling 

.mall t>usineOl; a"d en.uriog Ihal "'Sulations do nOl undu\)' burd .. " the N>lI(lO's .maH busin .. 'e! IS 

rel1'1(:l..:I in beculive Older 1)563 . ... hich requil'fl ag""cieslo "",mine ""isl;nl! .egulatioo ' and to 

cl;m;nale. 51reaml;n .. Of ali.rlllem \\·h. r. Illey arc excessively burdensome 

Pa$SaSe of Ii.R. 527 would replace Ibe ~;Sllng fram .... /lfk with layers ohddillonal pr<>ce<lural 

'equirem""t. thai " 'ould seriously ~od"""'in" Ihe .bili ~ Qf a&cncil'S 10 ."ecuI",,,.ir statutO<)' 

",."d .. ", It WOl,ld "nju.nfiably expand theu"" ofod\'ococy r .... ;ew p •. nels, .equire CJ<c",".i,·e and 

unnee ...... /)' .r1f01lpt'Cu,·e ,""view uf rul.,., .nd cn:At~ n<U!les. grounds of judicial ",view Md judicial 

remedies [I ",oold alro,mr><-unreaii5lit nalyTi~ requirements on agencies far beyond tl!ul,eady 

rigorous ""isling rcquirom""ts lhat pmmQle rommOl1",""" ",gul.,;on, 1n '"". wa)'. and othn •. the 

11.. 11"1.101}' Flexibilily Impmvern.nl> Act would improelh. abilily ora!>""cie. \0 ~d.l~publi< wilit 
136 

f 

basic protections, and create needless confusion and delay that would prove disruptive for businesses, as 

well as for state, tribal and local governments. 

If the President were presented with the Regulatory Flexibility Improvements Act his senior advisors 

would recommend that he veto the bill. 

******* 

2 
137 

f 

Questions for the Record of the Hearing on H.R. 2542, the Regulatory 

Flexibility Improvements Act of 2013 

from Ranking Member Steve Cohen 

June 28, 2013 

Questions for Karen Harned 

You and Mr. Narang seemed to agree, at least in principle, that Congress should provide 

for more re!,'lliatory compliance assistance for small entities. 

Would you support Mr. Narang' s suggestion that Congress establish certain "best 

practices" guidelines for agencies with small business ombudsmen, which would include 

things like proactive contacts with industry trade groups, local and regional chambers of 

commerce, and regional SBA otlices infonning as many small businesses as possible 

about the availability of this assistance and clear public identification of a single point of 

contact for small business regulatory compliance matters? 

Answer: mill would support any government educational efforts, like those noted 

above, that make it easier for small business owners to understand the federal laws that 

apply to them and provide them with a single point of contact at each agency that can 

answer their questions. NFIB believes these etforts can be accomplished without 

additional federal funding. For more than 15-years, the Small Business Re!,'lliatory 

Enforcement Fairness Act of 1996, which amended the Regulatory Flexibility Act, has 

required agencies to help small businesses with compliance assistance. In addition, 

SBREFA provides for a small business ombudsman, housed at the U.S. Small Business 

Administration (SBA), to help small businesses in their dealings with regulatory 

agencies. NFIB believes that existing agency resources should be channeled to ensure 

that small business compliance assistance is a priority in all federal agencies. 

2. Although the manner in which such an initiative might be a source of disagreement, 

would you support a requirement that all federal agencies establish small business 

regulatory compliance assistance or small business ombudsmen otlices? 

Answer: SBREFA already requires that each federal agency provide compliance 

assistance to small businesses. NFIB believes that Congress should hold each agency 

accountable for ensuring that they are doing all they can to educate small businesses 

about their legal obligations. 
138 

Questions for the Record of the Hearing on H.R. 2542, the Regulatory 

Flexibility Improvements Act of 2013 

from Ranking Member Steve Cohen 

June 28, 2013 

Questions for Amit Narang 

Your fellow witnesses suggest that regulations undercut economic efficiency and job 

growth. What is your response to that assertion? 

The existing empirical evidence on the relationship between regulations and economic 

etliciency or job growth strongly suggests that this assertion is false. Data from the 

Bureau of Labor Statistics has consistently shown that government regulations account 

for a negligible percentage of mass layoffs according to employers. Other studies that 

survey and compare business conditions in countries across the world also show that the 

US. has one of the most robust environments for conducting business, including the 

benefits that come with baseline regulatory standards. 

2. What, if anything, can the country's recent experience with under-regulation in the 

tlnancial sector teach us about the benefits and costs ofregulatory activity? 

The financial crash of 2008 and the ensuing Great Recession was a dramatic and tragic 

example of the enormous costs imposed on our society, much of which was borne by 

taxpayers, when under-reh'lliation is the norm. The estimates of the total cost ofthe 

tlnancial crash range from 14 to 22 trillion dollars oflost wealth and economic output. 

Clearly, the benefits of putting in place common-sense financial regulations to avoid the 

next financial crisis are overwhelming 

3. Critics of reh'lliation often cite the "Crain and Crain study" commissioned by the Small 

Business Administration. This study reports that federal rulemaking imposed a 

cumulative burden of$1.75 trillion on our economy, which amounts to fourteen percent 

of national income. How reliable are this study's findings? 

This study has been thoroughly discredited for flaws relating both to the flawed 

methodology that the study employs as well as the limited scope of the study that makes 

it inappropriate for use in policy making decisions. Experts on both sides of the aisle have 

criticized the study, with former QIRA Administrator Cass Sunstein calling it "deeply 

tlawed" and nothing more than an urban legend and OIRA Administrator under George 

W. Bush, John Graham, asserting that a previous iteration of the study would not pass 

OMB information quality standards. Even the authors of the study have conceded that 

since the study only looks at the costs of benefits, while entirely ignoring the benefits, it 

should not be used for assessing government policy. 

4. What do you believe is the single most signitlcant problem with the rulemaking process 

today? 
139 

The most important problem with the CUTTent regulatory process is that it does not allow 

federal agencies to address emerging public health and safety threats in a timely and 

etlicient manner. Under the guise of so-called regulatory refoml, Congress has placed an 

extensive number of requirements that agencies must satisfy before putting new 

regulatory standards in place. Many of these analytical and procedural requirements are 

duplicative and redundant, and the rulemaking process as a whole would greatly benefit 

from streamlining and haflllonization. Unfortunately, H. R. 2542 would make the current 

situation worse 

5. The RFA requires agencies to prepare a reb'lliatory flexibility analysis if the agency 

detemlines that the rule will have a "significant economic impact on a substantial number 

of small entities." Today's bill would broaden "economic impact" from only direct 

impacts on small entities to indirect impacts as well. How much guidance does the 

proposed bill give regulatory agencies on the meaning of the teflll "indirect"? What are 

the repercussions under this bill for agencies that b'lless wrong on indirect effects? Will 

this provision render the regulatory process more efficient or create an extra obstacle to 

an already slow regulatory process? 

H.R. 2542 gives no guidance or criteria to agencies as to what they should legitimately 

consider to be indirect effects of their regulations. This, in tum, places agencies in the 

difficult position of making ad hoc determinations as to a particular regulation's indirect 

effects, a burdensome new requirement that is not funded to any degree in H.R. 2542. 

Making matters worse, the ambi6'llity of this new indirect effects analytical requirement 

will likely result in increased and unnecessary litigation because litigants challenging a 

regulation will be able to argue that an agency didn't consider all the indirect etIects of its 

regulation, an open-ended mandate that by definition is impossible to satisfy. H.R. 2542 

makes the regulatory process far more inetlicient by imposing an undefined indirect 

etfects requirement on agencies. 

6. The RFTA gives the Otlice of Advocacy unprecedented powers to intervene in agency 

rulemakings and shape and influence the substance of rules. Why might this be 

problematic? 

As referenced in my testimony, The Office of Advocacy has come under scrutiny for 

funneling large industry opposition to new regulatory standards, most notably with 

respect to toxic chemicals. The Office of Advocacy's mission is to represent small 

business interests, not the interests of large industries under the b'llise of helping small 

businesses. Until more is known about how the Ot11ce of Advocacy operates in practice, 

legislation to give more powers to the Otlice of Advocacy is unwise. TfCongress is 

seeking to further empower the Otlice of Advocacy with additional authority and 

responsibilities, it should at the very least include minimal transparency requirements so 

the public is assured that the Office of Advocacy is remaining faithful to mission. 

Unfortunately, H.R. 2542 does not provide any increased transparency to ensure that the 

Otlice of Advocacy would be using its new authority appropriately. 
140 

7. The RFIA would entail a dramatic expansion of the Small Business Regulatory 

Flexibility Act (SBREFA) review panel process, even when no small business impacts 

are present. How costly do you anticipate this expansion in review panels to be? What 

resources does RFIA set aside to support these panels? What practical effect will this 

expansion have on the regulatory process? 

H.R. 2542 would require SBREFA panels for all agencies and all major rules, in addition 

to those rules determined to have a small business impact. Given that, on average, federal 

agencies produce about 50 to 100 major rules every year, this would represent an 

enormous increase in the use of SBREFA panels. Since H.R. 2542 provides no additional 

funding for the increase in SBREFA panels, agencies will be forced to divert resources to 

complying with this new mandate. The end result will be even more delays in a 

regulatory process that is the paragon of inefficiency. 

8. Mr. Harris cites OSHA's Safety Standard for Cranes and Derricks in Construction as an 

example of the need for the RFIA and the limits of SBREFA panels What is your 

response? 

Public Citizen issued a report in 2011 documenting the evolution of the OSHA Safety 

Standard for Cranes and Derricks, a rule that took OSHA over 10 years to put in place 

despite the numerous crane-related fatalities that had occurred at construction sites and 

the broad-based support of both industry and public interest groups in favor of a new 

standard. The report catalOb'lleS the various reasons for the extensive delays that forced 

OSHA to push back issuance of the rule repeatedly. For example, OSHA spent many 

months empaneling and conducting a SBREFA review panel for the rule. Further, the 

rule was the result of a "negotiated" rulemaking process which is a different process that 

OSHA employs which allows regulated industries to be heavily involved with the 

development of the rule. The NAHB was an integral player in the development of the 

rule, and appears to have violated the terms of the negotiated rulemaking process by 

submitting negative comments on the rule after OSHA proposed it (page 9 of the report). 

Whether or not the NAHB was in favor or opposed to the final cranes and derricks safety 

standard, what is clear is they had extensive opportunities to have their opinions and 

comments on the rule thoroughly considered. Indeed, the rule is an excellent example of 

how serious OSHA takes the SBREFA panel process, to the detriment of an efficient and 

timely rulemaking process. 

9. You and Ms. Harned seemed to agree, at least in principle, that Congress should provide 

for more regulatory compliance assistance for small entities. 

Although the manner in which such an initiative might be a source of disagreement, 

would you also support a requirement that all federal agencies establish small business 

regulatory compliance assistance or small business ombudsmen offices? 

I would support a requirement that all federal agencies provide meaningful small business 

compliance assistance for regulations that can be demonstrated to apply to genuine small 
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