THE REGUUTORY FL EXIBILITY ACT
flWl: 103-38 ~^=~
Ike Regulrtor, FUxifcilit, dot, Ser. â– â–
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPEESENTATIVES
ONE HUNDRED THIRD CONGRESS
FIRST SESSION
WASHINGTON, DC, JULY 28, 1993
Printed for the use of the Committee on Small Business
Serial No. 103-38
JA^ 2^
fSS^!
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1993
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington. DC 20402
ISBN 0-16-043228-6
y THE REGULATORY FL EXIBILITY ACT
^ yTSMI: 103-38 ~~^
1 TH Regulators Flexikiliti ftct, Ser...
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
FIRST SESSION
WASHINGTON, DC, JULY 28, 1993
Printed for the use of the Committee on Small Business
Serial No. 103-38
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1993
For sale by the U.S. Government Printing OlTice
Superintendent of Documents. Congressional Sales Office. Washington. DC 20402
ISBN 0-16-043228-6
COMMITTEE ON SMALL BUSINESS
JOHN J. LaFALCE, New York, Chairman
NEAL SMITH, Iowa
IKE SKELTON, Missouri
ROMANO L. MAZZOLI, Kentucky
RON WYDEN, Oregon
NORMAN SISISKY, Virginia
JOHN CONYERS, Jr., Michigan
JAMES H. BILBRAY, Nevada
KWEISI MFUME, Maryland
FLOYD H. FLAKE, New York
BILL SARPALIUS, Texas
GLENN POSHARD, Illinois
EVA M. CLAYTON, North Carolina
MARTIN T. MEEHAN, Massachusetts
PAT BANNER, Missouri
TED STRICKLAND, Ohio
NYDIA M. VELAZQUEZ, New York
CLEO FIELDS, Louisiana
MARJORIE MARGOLIES-MEZVINSKY,
Pennsylvania
WALTER R. TUCKER III, California
RON KLINK, Pennsylvania
LUCILLE ROYBAL-ALLARD, California
EARL F. HILLIARD, Alabama
H. MARTIN LANCASTER, North Carolina
THOMAS H. ANDREWS, Maine
MAXINE WATERS, California
BENNIE G. THOMPSON, Mississippi
Jeanne M. Roslanowick, Staff Director
Stephen P. Lynch, Minority Staff Director
JAN MEYERS, Kansas
LARRY COMBEST, Texas
RICHARD H. BAKER, Louisiana
JOEL HEFLEY, Colorado
RONALD K. MACHTLEY, Rhode Island
JIM RAMSTAD, Minnesota
SAM JOHNSON, Texas
WILLIAM H. ZELIFF, Jr., New Hampshire
MICHAEL A. "MAC" COLLINS, Georgia
SCOTT McINNIS, Colorado
MICHAEL HUFFINGTON, California
JAMES M. TALENT, Missouri
JOE KNOLLENBERG, Michigan
JAY DICKEY, Arkansas
JAY KIM, California
DONALD A. MANZULLO, Illinois
PETER G, TORKILDSEN, Massachusetts
ROB PORTMAN, Ohio
(II)
CONTENTS
Page
Hearing held on July 28, 1993 1
WITNESSES
Wednesday, July 28, 1993
Busker, William S., senior vice president for Law and Finance, and general
counsel and chief financial officer, the American Trucking Associations,
Inc 21
Ewing, Hon. Thomas W., a Representative in Congress from the State of
Illinois 4
Freedman, Doris S., Acting Chief Counsel for Advocacy, U.S. Small Business
Administration • 9
Isakowitz, Mark W., legislative representative, National Federation of Inde-
pendent Business 15
Lawson, Frank E., Jr., president, the National Roofing Contractors Associa-
tion 18
McDonough, Leo, president, TEC/Pennsylvania Small Business United, on
behalf of National Small Business United ••.•• 23
Morrison, James, director of Government Relations, National Association of
the Self-employed, and representing the Regulatory Flexibility Act Coali-
tion 12
APPENDIX
Freedman, Doris S., information supplied for the record:
Additional information requested by Chairman LaFalce 264
Annual Report of the Chief Counsel for Advocacy on Implementation of
the Regulatory Flexibility Act 211
Selected comment letters 241
Opening statements:
Huffington, Hon. Michael 45
LaFalce, Hon. John J 33
Meyers, Hon. Jan 35
Portman, Hon. Rob 46
Poshard, Hon. Glenn 41
Ramstad, Hon. Jim 40
Sisisky, Hon. Norman 38
Skelton, Hon. Ike 42
Prepared statements:
Busker, William S., with attachment 187
Proposed amendment 196
Ewing, Hon. Thomas W., with attachments 47
Correspondence between Rep. Ewing and President Clinton 63
Dear Colleague letter with section-by-section analysis and additional
information on Regulatory Flexibility Act 52
H.R. 830 59
Miscellaneous letters to Rep. Ewing re regulatory flexibility 65
Freedman, Doris S 99
Isakowitz, Mark W 122
Lawson, Frank E., Jr., with attachments 134
Miscellaneous material safety data sheets 145
Miscellaneous survey sheets 159
McDonough, Leo 197
(III)
IV
Page
Prepared statements — Continued
Morrison, James 117
Statements submitted for the record:
Associated Builders and Contractors, Inc 206
International Dairy Foods Association 209
Roberts, Hon. Pat 95
THE REGULATORY FLEXIBILITY ACT
WEDNESDAY, JULY 28, 1993
House of Representatives,
Committee on Small Business,
Washington, DC.
The committee met, pursuant to notice, at 8:45 a.m., in room
2359-A, Rayburn House Office Building, Hon. John J. LaFalce
(chairman of the committee) presiding.
Chairman LaFalce. Good morning. The Small Business Commit-
tee will come to order.
In 1980, Congress passed, and President Carter signed, the Regu-
latory Flexibility Act [RFA]. This act has become a legislative mile-
stone in the effort to reduce the regulatory burden on small busi-
nesses. Essentially, the act requires Federal agencies to consider
the costs that their regulations impose on small businesses and to
minimize those costs. Today, our committee will review the effec-
tiveness of the act and explore ways that it might be strengthened
and its implementation made more effective.
Our hearing is very timely. The Clinton administration has put
this issue at the top of its small business agenda. The new SBA Ad-
ministrator, Erskine Bowles, recently testified before this commit-
tee, that it is a priority of the administration to, quote:
Get rid of the unnecessary paperwork and bureaucratic regulations that inhibit
the growth and productivity of small business. Government regulations have a dis-
proportionately adverse effect on small companies. The President wants to attack
this issue head-on, and I am absolutely committed to doing that.
Chairman LaFalce. Furthermore, President Clinton himself
stated that, quote:
The Regulatory Flexibility Act has played an important role in many rulemak-
ings by ensuring that the effects on small businesses are considered during the rule-
making process. However, experience with the act suggests that improvements may
be needed in its implementation.
Chairman LaFalce. Vice President Gore is now heading up a
National Performance Review, which is designed to improve the
operation of Government, including the responsiveness and flexibil-
ity of Federal regulatory policy.
The administration's attention to this issue reflects its impor-
tance to the small business community. When a Government
agency promulgates a regulation, the burden of that regulation fre-
quently falls hardest on small businesses. This occurs not through
any malice or carelessness on the part of the Federal agency, but
rather because of the economies of scale involved in complying
with Federal regulations. For example, the costs of complying with
a particular regulation for a large company, including staff time,
recordkeeping, and so on, are often roughly the same as for a small
company. However, since the large company can spread the compli-
ance costs over a larger output, it gains a competitive advantage
over the small company.
This competitive advantage is rooted not in the large company's
ability to produce a better product than the small company or to
produce it more efficiently or to sell it more effectively. It is merely
a function of the relative burden of complying with Federal regula-
tions.
The Regulatory Flexibility Act was designed to address this prob-
lem by requiring Federal agencies to consider the impact of their
regulations on small businesses. The act's purpose is to enable
small companies to compete on the merits with large companies, on
the basis of price, quality, efficiency, and innovation. The goal is to
correct the potential bias against small businesses that is inherent
in the regulatory process.
When small businesses have the chance to compete on the
merits, there is no question that they can perform well and in
many cases outperform large businesses. Over the past 15 years,
small business has, in fact, been the engine of job growth and inno-
vation in an otherwise lethargic economy.
We are pressed for time and, rather than continue, I am going to
ask if any other members have any opening statements they wish
to make and first call upon the distinguished ranking minority
member, Mrs. Meyers.
[Chairman LaFalce's statement may be found in the appendix.]
Mrs. Meyers. Thank you.
Mr. Chairman, at the outset I want to express my thanks to you
for your leadership in holding this important hearing.
The Regulatory Flexibility Act, which was enacted in late 1980,
was the result of the efforts of many small businesses throughout
this country. The issues of regulatory relief and regulatory flexibil-
ity were a dominant theme at the 1980 White House Conference on
Small Business, and the participants at that conference pushed for
legislative action. Some of the present and former members of this
committee were at the forefront of advocating for more flexible reg-
ulations for small business. Particularly Ike Skelton, who probably
knows more about the background of the RFA than any of us sit-
ting here today, and Andy Ireland, my predecessor as ranking
member, who probably became so frustrated with the legislative
process that he left us to join the circus.
The rationale behind the RFA is really quite simple. Federal
agencies often do not recognize the impact that their rules will
have on small businesses, and small businesses are more likely to
be disproportionately disadvantaged by Federal regulation com-
pared to larger businesses. The RFA was enacted to secure Federal
agency recognition of these effects and require agencies to attempt
to reduce the regulatory burden on small business by writing
better rules.
While the RFA and its implementation have met with some suc-
cess, I believe that the act needs to be strengthened. I believe that
H.R. 830, of which I am an original cosponsor, and most of the
members of this committee are cosponsors, is an excellent vehicle
for strengthening the RFA. I am, therefore, very pleased that Con-
gressman Ewing, the sponsor of H.R. 830, is here with us today.
On a final note, Mr. Chairman, I would like to have the record of
this hearing kept open for a reasonable period, if we might, not to
exceed 2 or 3 weeks, so that additional small businesses or their
trade associations can submit formal statements for the record on
the issue of the Regulatory Flexibility Act and suggestions for im-
proving it.
[Mrs. Meyers' statement may be found in the appendix.]
Chairman LaFalce. Thank you very much.
Do any other Members have any opening statements that they
wish to make?
Mr. SisiSKY. Thank you, Mr. Chairman. I want to commend you
for calling this oversight hearing on the Regulatory Flexibility Act.
I can think of few issues of greater concern to small businesses
than the frustration of dealing with Government regulation, and
there are few issues more deserving of the Small Business Commit-
tee's continuing oversight.
Before I came to Congress, I was a small businessman. I may be
preaching to the choir here on the Small Business Committee, but I
know from personal experience about the time, effort, and expense
involved in complying with Federal regulations. These require-
ments, and the paperwork they produce, not only hurt small busi-
nesses, they also discourage the creation of new jobs. This is why I
have always been a strong supporter of the Regulatory Flexibility
Act and the Paperwork Reduction Act. In fact, I would welcome my
colleagues, and particularly you, Mr. Chairman, to join me as origi-
nal cosponsors of a bill to reauthorize the Paperwork Reduction
Act. I will be introducing this legislation before the August recess.
Since the Regulatory Flexibility Act was first passed in 1980, I
believe it has been an important tool in fighting the harmful ef-
fects of Federal regulations. However, most of us realize that more
needs to be done to ease the regulatory burden on small business.
I am especially concerned that Federal regulators do not appear
to be fully complying with the act. I am very much looking forward
to hearing the views of the SBA's Chief Counsel for Advocacy on
this issue, as well as the views of our small business panelists.
Together with many of my colleagues on this committee, I have
joined in cosponsoring H.R. 830. This bill would make a number of
much needed improvements to the RFA. In particular, H.R. 830
would allow judicial review of agency compliance. I am convinced
this will put some teeth in the law and will force the agencies to
take the impact of their regulations on small business seriously.
Once again, Mr. Chairman, I thank you for calling attention to
this extremely important issue, and I am eager to hear the testimo-
ny of today's impressive panel of witnesses.
[Mr. Sisisky's statement may be found in the appendix.]
Chairman LaFalce. Any other opening statements? Mr. Ram-
stad.
Mr. Ramstad. Mr. Chairman, very briefly, I would ask unani-
mous consent to submit my entire statement for the record.
Chairman LaFalce. Without objection.
Mr. Ramstad. Mr. Chairman, I, too, commend you for holding
this hearing today, and I want to welcome our colleague, Tom
Ewing.
Tom, you have been absolutely tireless in your efforts to reduce
the regulatory burden on small business, and we appreciate all
your hard work. All of us know that Reg-Flex has no teeth, and
that is why I, too, am a cosponsor, along with many of our col-
leagues on this committee, of H.R. 830, Mr. Ewing's bill to add judi-
cial review to the Reg-Flex Act.
I believe, as a former small businessperson, that burdensome
Government regulations are clearly the most important problem
facing the small businesses in our country. We can cannot continue
to see the Federal Government piling regulation upon regulation
on to our small businesses and expect them to survive.
So, as a member of this committee, as well as a member of the
administrative law subcommittee, to which your bill has been re-
ferred, I look forward to working with you on the bill.
I might just add, Mr. Chairman, I hope that we can get some
help from the distinguished majority members of this committee
and use your influence with the distinguished majority members of
the administrative law subcommittee, because we need their help
to get that bill out of the subcommittee.
Thank you, Mr. Chairman.
[Mr. Ramstad's statement may be found in the appendix.]
Chairman LaFalce. Mr. Poshard.
Mr. Poshard. Mr. Chairman, just to ask unanimous consent to
submit an opening statement for the record.
Chairman LaFalce. So ordered.
[Mr. Poshard's statement may be found in the appendix.]
Chairman LaFalce. Mr. Hilliard.
Mr. Hilliard. No.
Chairman LaFalce. All right. Thanks. All right. Well, let's pro-
ceed to our first witness. Congressman Tom Ewing, who has spon-
sored legislation to amend the Reg-Flex bill.
Tom, we are delighted to have you before us today. We ask you
to submit your testimony for the record and summarize, if you will.
TESTIMONY OF HON. THOMAS W. EWING, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Mr. Ewing. Fine. Thank you, Mr. Chairman, and I will attempt
to summarize my testimony and bring out the points that I think
are very important.
I want to begin by thanking the Chairman for holding this com-
mittee meeting on the Regulatory Flexibility Act. Your hearing
could go a long way toward bringing the issues of overregulation
and regulatory flexibility to the attention of the Congress.
I would like to ask consent to also include extraneous material in
the committee record.
One of the most important or consistent complaints which I re-
ceive from my constituents is about the burden of overregulation
from the Federal bureaucracy, and I think most of my colleagues
are probably getting the same message. We have all read estimates
of the tremendous cost to the economy of regulation running as
high as $500 billion. This is money .and time that is not put forth
for jobs, job creation, and growth.
The Regulatory Flexibility Act was designed by Congress to ad-
dress these problems by encouraging regulatory agencies to find
the least costly way to achieve our legislative goals which require
regulations. This act requires the regulators, for proposed rules
which are subject to publication in the Federal Register and public
comment under the Administrative Procedure Act [APA], the rule-
writing agency must also prepare an initial regulatory flexibility
analysis describing the impact the rule may have on small busi-
nesses. The analysis must also outline alternatives to the proposed
rule which would accomplish the same objective at a lower econom-
ic impact on small businesses.
At the time of the publication of the final rule, the Regulatory
Flexibility Act requires agencies to publish a final regulatory flexi-
bility analysis, which summarizes the public comment on the ini-
tial analysis, the agency response, and changes made to the rule as
a result. If the agency did not adopt these less costly alternatives,
an explanation must be published.
Now, that sounds great. But, the Regulatory Flexibility Act
allows agencies to certify that their rules do not have significant
effects on small business and, therefore, avoid conducting regula-
tory flexibility analyses. The prohibition of judicial review allows
no legal challenge to such a determination. The result is that com-
pliance is voluntary, and the Federal regulators do not face court
action for failure to comply.
In fact, section 611 of the Regulatory Flexibility Act states in
part: "Any determination by an agency concerning the applicabil-
ity of any of the provisions of this chapter to any action of the
agency shall not be subject to judicial review."
Now, some agencies have taken steps to comply with the RFA
and have incorporated the regulatory flexibility procedures into
their regular rulemaking processes. However, 12 years of experi-
ence with the Regulatory Flexibility Act has shown that many
agencies have not fully complied. There is a clear need to improve
the act so that all regulatory agencies will comply.
I owe a special thanks to Chairman LaFalce, Congresswoman
Meyers, and to Congressman Skelton for their strong support of
H.R. 830. That is the bill, as you have indicated, that I have intro-
duced. It has, to date, over 140 bipartisan cosponsors. In addition,
this legislation has been endorsed by nearly 50 business and trade
organizations, some of whose testimony will be submitted to this
committee as part of this hearing.
I believe that the single most important step that must be taken
to put some teeth into the Regulatory Flexibility Act is to repeal
section 611, that I just mentioned, and allow judicial review of
agency compliance. Federal bureaucrats have not taken the Regu-
latory Flexibility Act seriously, because they know there is no way
that the regulated can threaten them for their failure to comply.
Many agencies are using boilerplate statements that certify their
rules do not pose a significant cost to small business, so they can
avoid doing the regulatory flexibility analyses. Most regulators, if
they are even aware of the Regulatory Flexibility Act, view it more
as an obstacle in their way than as an important tool which can
help them write the best regulations.
Nothing short of full judicial review will guarantee that the
agencies will ever take the Regulatory Flexibility Act seriously.
Under current practices, agency compliance with the Regulatory
Flexibility Act is voluntary, but, as we all know, small business
compliance with the regulations these agencies write certainly isn't
voluntary.
I would like to address any concerns we may have about new liti-
gation which could result from repealing section 611. There aren't
many people who are more concerned about overlitigation than I
am. I have been a longtime advocate of putting controls on frivo-
lous lawsuits. However, the answer to the problem is not to shut
down certain groups and keep them out of the judicial process. The
answer to the problem of excessive litigation is to eliminate the in-
centives as we now have, which encourages frivolous lawsuits.
It is important to point out that many of the usual incentives for
legal abuse will not be present under the proposals I have for
amending the Regulatory Flexibility Act. First, there will be little
chance of recovering attorneys' fees of any significance for individ-
ual businesses involved in this type of litigation. Second, because
such suits will usually seek injunctive relief, compensatory or puni-
tive damage awards are not likely to be involved.
Additionally, small businesses have not the time nor the money
to file unnecessary lawsuits. Business people are more concerned
about trying to make a living than doing battle with the bureau-
crats.
Finally, after judicial review is opened, we can expect that there
may be some early suits which will set precedents by which further
grievances will be adjudicated. As precedence is set for the appro-
priate compliance with the Regulatory Flexibility Act, the likeli-
hood of continued litigation will be greatly reduced.
I have sought to include provisions in H.R. 830 which would en-
courage the regulators to write the fairest and most reasonable
rules in the first place and to avoid the need for litigation.
I am seeking to strengthen the role of the SBA Office of Advoca-
cy in the rulemaking process, and to involve that office in the proc-
ess in an early stage. Advocacy should be working hand in hand
with the regulators to write rules which meet the requirements of
the Regulatory Flexibility Act.
Section 4 of the proposed bill, H.R. 830, would require that when
an agency is drafting a new rule, it must provide the Chief Counsel
with an advance copy of the rule 30 days before publishing a gener-
al notice of the rulemaking in the Federal Register. The agency
also provides a draft of the initial regulation and the regulatory
flexibility analysis or their reasons for not preparing one. The
Chief Counsel would then have 15 days to comment on the pro-
posed rule, and these comments, along with the agency's response,
would be published in the Federal Register.
This advance notification provision is designed to address the
concerns that small business have before a rule is proposed, and
prevent disputes later in the process. The Chief Counsel will not
have veto power over the rule, but he or she will simply have an
opportunity to present the concerns of small business early in the
regulatory process. Regulatory agencies, in seeking to avoid law-
suits, will regularly seek the advice of the Chief Counsel and work
more closely with the Office of Advocacy to craft proposed rules
which comply with the RFA.
Section 5 of H.R. 830 is a "Sense of the Congress" resolution
which restates the position taken by Congress when this legislation
was originally passed. The Chief Counsel has the authority to file
amicus briefs in litigation involving Federal rules. This is a very
simple "friend of the court" brief which expresses the views of
small business. In a 1986 case, though, the Justice Department
argued against this authority on what I believe are tenuous consti-
tutional grounds. It is important for Congress to reiterate our
belief that the Chief Counsel should have amicus authority. With
judicial review, the importance of amicus authority will be magni-
fied.
Section 3 of my bill would require agencies to consider the indi-
rect effects as well as the direct effects their rules have on small
business. This is a persistent problem. For example, the EPA is
currently promulgating expensive new regulations on emissions
from off-road farm equipment. When I wrote to the EPA to inquire
about whether a Reg-Flex analysis had been done, I was told that
the Reg-Flex didn't apply because there are no small businesses
which manufacture this equipment. If the EPA had reviewed the
indirect effect of this regulation, they would have looked at the
cost which will be passed on to small farm businesses. The large
manufacturers may be the ones directly regulated, but small busi-