ments.



23

One of the amendments proposed in H.R. 830 currently being
considered by this committee would repeal the act's ban on judicial
review. ATA fully supports this amendment. Judicial review would
encourage agencies to conform with the act's requirements, and it
will give the businesses the ability to challenge erroneous or mis-
guided agency conclusions about regulatory consequences.

Another amendment proposed in H.R. 830 would require agen-
cies to consider the indirect effects, as well as the direct effects of
regulations. Often, the indirect costs of regulation are substantial.
For example, about 40 percent of the costs associated with drug
testing are indirect costs, such as labor and recordkeeping. The
impact on small businesses of indirect costs should be considered
by an agency in evaluating a rule's impact.

We suggest you also consider an amendment to strengthen the
provisions of section 609, which is entitled, Procedures for Gather-
ing Comments. That section requires notifying small businesses
and seeking comments on a rule only when an agency determines
that the rule will have a significant economic impact on small busi-
nesses. However, it is important for small businesses to be notified
and have the opportunity to comment when the agency asserts that
there is no economic impact. If that assertion is incorrect, the con-
sequences for small businesses can be severe, as in the example of
storm water permits that I mentioned earlier. Thus, small business
should be made aware of such regulations according to the provi-
sions of section 609 in all cases, so that they may have the opportu-
nity to present contrary views for the agency's consideration in a
timely way.

I am submitting for the record proposed language that would ac-
complish this change.

Thank you again for giving the trucking industry the opportuni-
ty to present the concerns of its many small trucking companies
that will be aided by changes to the Regulatory Flexibility Act.
Thank you.

[Mr. Busker's statement, with attachment, may be found in the
appendix.]

Chairman LaFalce. Thank you, Mr. Busker. We will very seri-
ously consider your recommended changes to section 609.

Mr. Busker. Thank you.

Chairman LaFalce. Our final witness, Mr. Leo McDonough,
president of the Pennsylvania Small Business United, but he is tes-
tifying today on behalf of the National Small Business United.

TESTIMONY OF LEO MCDONOUGH, PRESIDENT, TEC/PENNSYL-
VANIA SMALL BUSINESS UNITED, ON BEHALF OF NATIONAL
SMALL BUSINESS UNITED

Mr. McDonough. TEC Small Business United is a member of the
organization National Small Business United where I serve on the
board of trustees. I am proud to be representing National Small
Business United at today's hearing.

I would first like to take this opportunity to thank the committee
for holding the hearing and for being so helpful in continuing the
search for solutions to the wide range problems of small business.



24

I would also like to submit my report into the record, and I
would like to sort of ad-lib a little bit, if I may.

I would like to go back into the history of this a little bit, having
been old enough to have been here when it happened.

In 1976, the Washington presentation group, which was com-
posed of S. Bane from New England, my organization, smaller
manufacturers in Pittsburgh, a group from Wisconsin, and a group
from Cleveland, Ohio, introduced into our May presentation that
year, the idea that the SBA should have an Office of Advocacy, and
the reason for this was to have somebody representing small busi-
ness and all the different departments of the Government to pro-
tect small business from some of the things that were happening to
us at that time.

The bill was such a good idea that it was first talked about in
May, it was passed, and there was a Chief Counsel for Advocacy
named by September, which has to be some sort of a record in
Washington for getting something done.

The problem with it was that SBA then took one of their, I will
use the word "bureaucrats," and named him Chief Counsel of Ad-
vocacy. What we had wanted was an independent voice who was
going to speak up for small business and all the different depart-
ments and represent us. What we got was somebody from the de-
partment of the SBA who was immediately sent on the road to
help get the President reelected, which wasn't anything near what
we wanted in the Office of Advocacy. So, we went back to the
Senate Small Business Committee, that had oversight, and we
screamed and complained, and they put some teeth into the bill,
and the result was that the next Chief Counsel for Advocacy was
Milt Stewart, who has to be a household name for anybody who
knows anything about small business. After that, Frank Swain,
and after that, Tom Kerester.

The reason I am going into this is because once the Office of Ad-
vocacy was established, then we needed Reg-Flex. We needed some-
thing with teeth in it that the Office of Advocacy could enforce,
and they could enforce through their different people who were to
be put in these different departments to see that things were done,
and done to protect small business.

But the teeth aren't there. As a result, the bill isn't working as
well as it should. There is no question it is a great idea. There is no
question that some good has been done, but there is also no ques-
tion whatsoever that it needs more teeth than it has today.

That is what I am asking for. Rather than go through and repeat
all of the paragraphs and everything else that my predecessors
have said here, I can tell you that as the person who sat as the
Chair for the regulation and paperwork at the 1980 White House
Conference, this was a very top issue, and again, it was passed very
quickly. It was one of the top issues of the White House Confer-
ence, and it was passed in 1980. So, there again, two good ideas
that needed to be passed and were passed immediately.

But they have to be reviewed once in a while, just like the Office
of Advocacy had to be reinvestigated and looked into. That is, I
think, where we are with the Reg-Flex, and I think that this com-
mittee bringing it up, putting a spot light on it, and bringing the
President into it will do an awful lot to correct the ills.



25

Rather than beat your ears any more about that, I only repeat
that NSBU and Arthur Andersen did a survey in June 1993. Reg-
Flex came in third, only after the recession and health care as far
as problems for small business today. Thank you very much.

[Mr. McDonough's statement may be found in the appendix.]

Chairman LaFalce. Thank you very much.

Mr. Skelton. Mr. Chairman, may I ask unanimous consent that
my statement be included in the record.

Chairman LaFalce. Without objection, so ordered.

[Mr. Skelton's statement may be found in the appendix.]

Chairman LaFalce. Ms. Freedman, first of all, how long have
you been within the Office of Advocacy?

Ms. FitEEDMAN. I started there under Milt Stewart in 1979,
served consecutively for 12 years, left for about a year-and-a-half,
and have been back since February.

Chairman LaFalce. Welcome back.

Ms. Freedman. Thank you. It is good to be back.

Chairman LaFalce. You discussed the response of two agencies,
EPA and IRS, plus and minus. What about the other agencies? Do
you handle from the Office of the Chief Counsel right now a score
card, some type of report of evaluating the responsiveness or lack
of responsiveness of the different agencies, to your knowledge? I
know you have only been back since February.

Ms. Freedman. Well, we do have a record of the number of times
that we contact agencies and what they do. One of the reasons why
that is limited, as was raised today, is because there is both sub-
stantive compliance with the Regulatory Flexibility Act and a sort
of procedural compliance with the act. I would say that we have
been really good at getting procedural compliance. In some cases it
is agencies going through the motions of complying, but they do,
and in a lot of agencies, it is a sincere compliance.

On the issue

Chairman LaFalce. If we wanted a human rights report from
the State Department, we would have to say name names and tell
us which are the good countries and which are the bad countries.

Ms. Freedman. We do report on the act annually, and we do
point out some agencies which are not good and ones that are
doing a better job.

Chairman LaFalce. When was the most recent report?

Ms. Freedman. In time for this hearing, I have to admit. It was
just released.

Chairman LaFalce. Pardon?

Ms. Freedman. Knowing that the hearing was coming up, it was
just released.

Chairman LaFalce. Today?

Ms. Freedman. It was 2 days ago, I think, to be honest. I will be
happy to provide copies to each Member.

Chairman LaFalce. I think that would be a good idea.

[The information may be found in the appendix.]

Chairman LaFalce. Now, give me some of the good agencies,
some of the bad agencies. What are they doing that is good, what
are they doing that is bad?

Ms. Freedman. Well, I will start with EPA as an example of a
good agency. One, because they have done yeoman's work in draft-



26

ing guidelines for all the rule writers in EPA about what they
should do to comply with the act, and they worked a long time on
this. They consulted with us and really have a very sound docu-
ment on what they should do to do the proper kind of analysis, and
they have put it in place with the people who can implement it.

EPA has done a good job in doing these guidelines. If you talk to
small business people, obviously EPA is one of those agencies that
imposes the most onerous regulations. So, the fact that they are
making a sincere attempt to comply is very important.

Another agency which does a real good job is the SEC. They have
regularly targeted small businesses as beneficiaries of SEC rule-
makings.

Among the agencies that do the worst job, one is the IRS, and
they do the worst job because they don't do anything with the Reg-
ulatory Flexibility Act.

Chairman LaFalce. All right. I am looking at page 15 of your
report. Agencies Recalcitrant in Complying With the RFA, Treas-
ury, IRS, let's see. Agriculture, Marketing Service, — that is all you
tick off.

Ms. Freedman. There is a supplement that does talk about the
individual rulemakings at all agencies that we file.

Chairman LaFalce. Have you given us the supplement?

Ms. Freedman. It was attached to the report that was sent up.

Chairman LaFalce. What page is that?

Ms. Freedman. It is stapled together separately, but it was at-
tached and sent up.

Chairman LaFalce. Give me an opportunity to get it.

Ms. Freedman. Do I have a copy of it here, if you don't have it?

Chairman LaFalce. The regulatory flexibility report selected
comment letters, appendix 19

Ms. Freedman. Yes, sir.

Chairman LaFalce. That is it?

Ms. Freedman. Yes, sir.

Chairman LaFalce. What does this purport to be? Letters that
have been sent from the Office of Advocacy, the date of the letter?

Ms. Freedman. Right. Discussing compliance, raising issues of
compliance with the agencies.

Chairman LaFalce. When you say, raising issues of compliance,
does that mean complaining that they have not complied?

Ms. Freedman. Yes.

Chairman LaFalce. I would like you to provide for me every
letter sent to every agency in the year 1992, OK?

Ms. Freedman. Certainly.

[The letters are in committee files.]

Chairman LaFalce. Have you received responses from some,
most, or very few of these agencies with respect to all of these let-
ters?

Ms. Freedman. I cannot give you an accurate answer. I will say
that we have received

Chairman LaFalce. Well, I would appreciate your giving me

Ms. Freedman. The responses also?

Chairman LaFalce. Number one, a list of the letters that you
sent with a chart showing those agencies that responded, copies of
the response, and those agencies that have not responded.



27

Ms. Freedman. ok.

[The information may be found in the appendix.]

Mrs. Meyers. I would Hke to see that also.

Chairman LaFalce. We will share everything. Then we will
decide upon appropriate follow-up after that.

Ms. Freedman. Yes, sir.

Chairman LaFalce. How many people in the Office of the Chief
Counsel, the Office of Advocacy spend their time on Reg-Flex?

,Ms. Freedman. Approximately 10.

Chairman LaFalce. Ten out of how many?

Ms. Freedman. Ten out of 54.

Chairman LaFalce. So, about 20 percent of your resources?

Ms. Freedman. Yes, sir.

Chairman LaFalce. Is that full time?

Ms. Freedman. Yes; full time. We also have support from our
Economic Research Office, who gives us information to use in com-
menting to the agencies, although they do not do the actual regula-
tory flexibility work with the agencies.

Chairman LaFalce. There has been no designation by the Presi-
dent yet of the new Chief Counsel, has there?

Ms. Freedman. No, sir; there has not.

Chairman LaFalce. Well, we will wait for that to happen, and I
expect it to happen shortly. Then we might want to get together
not only with that new person and yourself, but maybe informally
and at a public hearing for the members of the Small Business
Committee who are interested, with all 10 members, plus yourself.
I mean, this is a big issue now. This is a big, big issue, and I am
going to light the fire of the Clinton administration on this issue, I
assure you. I am going to look to you to help me.

Ms. Freedman. I look forward to that meeting.

Chairman LaFalce. I assure you, we will do it. We will do it.

Mrs. Meyers.

Mrs. Meyers. In Mr. Morrison's testimony, Ms. Freedman, he
suggests ways in which 0MB 's Office of Information and Regula-
tory Affairs might be utilized to assist advocacy in enforcing the
RFA. Can you share your views on some cooperative work with
0MB?

Ms. Freedman. Yes; it would be very useful. I think with the role
of 0MB as reviewing all rules for their economic impact on the
economy as a whole and the other things that they use to review,
plus our looking at rules for the impact on small business, that we
can work well together. I would think that the office of OIRA could
be very helpful in enforcing the Regulatory Flexibility Act.

Mrs. Meyers. Do you see a role for Vice President Gore's nation-
al performance review program in assisting us with getting the ad-
ministration's support for improving the Regulatory Flexibility
Act?

Ms. Freedman. This is a topic that they are interested in. They
have talked to us about what the Government needs to do in gener-
al to improve its rulemaking. I think this is something that the
task force is interested in, and I think they can be very useful in
garnering support.



28

Mrs. Meyers. I would like to address a question to Mr. Lawson.
Have any of your employees ever requested to see one of those
MSDS sheets that you are required to keep at every job site?

Mr. Lawson. No, ma'am.

Mrs. Meyers. They have never requested to see one. Do you have
them there available, just in case someone needs one, but you have
never had a single request?

Mr. Lawson. That is correct. We must train our employees, and
we have a file cabinet in the workshop for all the MSDS sheets. A
book of MSDS sheets like the one I have here is also placed in
every vehicle we own, and we place these MSDS sheets in every job
site box on the roof. OSHA considers our work site not just to be
the roof we are working on, but also where our equipment is
placed. So, we must keep two of these books, minimum, at each job
site, plus the ones we keep in our office.

Mrs. Meyers. When you do your training for people, do you do it
when they first come to you, and you hire them, and then you set
up a training session, or do you do it just before they go on the job,
or is it done on the job site?

Mr. Lawson. Actually, it is done on all three occasions. We have
a training period for all new employees before they enter into the
workplace where they are instructed in the basic safety training of
the roofing industry. They are instructed on the MSDS sheets and
what they are.

We have weekly tool box talks on the jobs with all of the employ-
ees. We have quarterly safety meetings with all employees in our
office. Frankly, the task of just keeping our skilled employees is
difficult enough without being further complicated by these very
onerous training requirements.

Mrs. Meyers. Thank you. I have one final question I would like
to ask Mr. Morrison.

The Kansas bankers were in town yesterday for their annual
meeting here on the Hill, and we had two of the directors of the
association at the meeting this morning. Have you made any con-
tact with banking groups to try to get any of them involved in your
coalition? Because the number one issue that they were all talking
about is the tremendous cost and the discouraging atmosphere to
the consumer of banking services. With all of the regulations set
up, no matter what banking service they require, they have to give
them many, many pieces of paper, ask the consumer to read them
and sign them.

Some of this is probably very good and important, but I would
like to have somebody evaluate all of it. One of the bankers from a
very small community in Kansas said that the average home loan
in his little community of 500 to 1,000 was probably $10,000 to
$20,000, and yet we had to go through all of the same steps and
paperwork as someone who was borrowing a quarter of a million
dollars. He said it is burdensome and discouraging to the con-
sumer. Have you made any attempt to involve bankers?

Mr. Morrison. I think you are making a very good suggestion,
Mrs. Meyers. I have discussed this with the Independent Bankers
Association, which tends to represent the smaller bankers. From
what you are saying, it seems as though perhaps the American



29

Banking Association, which represents a much larger group of
banks, might be worth talking to as well.

Bankers actually were one of the groups that were very involved
in the original passage of this in 1979 and 1980 because of just
what you are talking about.

Mrs. Meyers. Thank you. Thank you, Mr. Chairman.

Chairman LaFalce. Any questions? Mr. Skelton.

Mr. Skelton. Mr. Chairman, I direct my questions to Ms. Freed-
man.

In your statement you have a section, lack of judicial review, and
my recollection is that, though it has been a few years ago, that
was one of the prices we had to pay to get this legislation passed.
Does that ring a bell with you?

Ms. Freedman. Yes; it does.

Mr. Skelton. How about you, Mr. Morrison?

Mr. Morrison. Yes.

Mr. Skelton. You were there. How has that hindered your work,
Ms. Freedman?

Ms. Freedman. There is just no recourse when agencies don't
comply. The biggest tool the Office of Advocacy has under the Reg-
ulatory Flexibility Act is one that gives us a reason to go to agen-
cies and ask them to change the regulations. It gives us a foot in
the door, if you will. Then we have to rely, basically, on our powers
of persuasion to convince agencies that this is something that they
should look at; that compliance with the Regulatory Flexibility Act
is something the law requires, and it also leads them to better rule-
making.

I think where we have had the most success is where we can tie
those two issues together, that not only is it helpful to small busi-
ness, but the agency benefits by issuing a good rule and one that is
easier to comply with, and one that, because it has been issued in a
way that consults with other people, that businesses are more will-
ing to comply with the regulation. So, the way it has been handled
is by our power of persuasion. But there is no enforcement mecha-
nism to make sure that agencies do what the law requires.

Mr. Skelton. Well, my recollection is that there was a fear of a
flood of litigation on this issue. But would it be of help to you and
to the whole process if there were a provision enacted into law for
judicial review?

Ms. Freedman. One of the things that I don't hear being asked
for in terms of judicial review is interim review. For example, envi-
ronmental impact statements have that kind of review. Under in-
terim review, if somebody complains about the Regulatory Flexibil-
ity Act not working, he or she could hold up the rulemaking while
litigating the adequacy of agency compliance with the RFA. That is
not the kind of review that I think is anticipated by changing the
Regulatory Flexibility Act to provide for judicial review. So, I think
the problem of litigation tying up rulemaking is not as great as
was feared.

The judicial review that is anticipated is review of a final rule,
and, as you heard testimony today, I think from Congressman
Ewing, lawsuits are expensive, and I don't think frivolous claims
will be brought.

Mr. Skelton. Thank you.



70-914 - 93 - 2



30

Mr. Morrison. There is another element, too, if I may note it,
which was in Mr. Ewing's statement, which was that while there
may be a flurry of lawsuits at the point that judicial review is per-
mitted, the administrative law bar would very quickly understand
what the new limits are, and I think those cases would die down
very rapidly, because the agencies would understand exactly how
far the courts would let them go and so would the plaintiffs, and I
think that you would then see the lawsuits diminish very substan-
tially, very quickly.

Chairman LaFalce. It is one thing just to call for a repeal of
that provision of the Reg-Flex law which specifically prohibits judi-
cial review; it is another thing to have some guidance so that you
wouldn't have the fear of a shotgun approach to the judiciary.

Is there anything that we might be able to do to give guidance?
For example, say that lack of procedural compliance is presump-
tive evidence of unreasonableness under the Administrative Proce-
dure Act, which is inherently unreasonable. There were four points
that somebody made — I forgot them; was it Mr. Morrison or Mr.
Isakowitz — where there is blatant disregard. Who made that? You,
Mr. Morrison?

Mr. Morrison. Yes.

Chairman LaFalce. What were those instances? Can we spell
out the instances?

Mr. Morrison. First was that the agency completely omitted any
reference to the Reg-Flex Act in its rule; the second one was an as-
sertion that there was a lack of impact, but no reasoning provided
for that assertion; the third was when the agency claimed that the
entire agency was exempt from the RFA; and the fourth was when
an agency issued a rule which they acknowledged had an impact
on small businesses, but they didn't accompany that with any ef-
forts to lessen the impact or any explanation for why the impact
could not be lessened.

Chairman LaFalce. Well, we will have to explore that. I have
some time constraints.

Mr. Torkildsen, do you have any questions?

Mr. Torkildsen. Thank you, Mr. Chairman. Thank you for hold-
ing this hearing. This is the essence of what I think the Small
Business Committee should be looking into, and I thank the wit-
nesses for their testimony.

One of the examples, Mr. Busker, that you raised about the spill
reporting requirements, let's say that a trucker didn't report that
one pint spill to the EPA. Would that trucker be subject to a fine
or some penalty?

Mr. Busker. Yes; there are fines for noncompliance.

Mr. Torkildsen. Do you know what the range would be for that
sort of thing?

Mr. Busker. It would not be particularly large, at least in the
first instance. I don't know the exact amount, but I can find it out
if it is important.

Mr. Torkildsen. I would appreciate that, because I would just
like to have a relative idea of what the penalty is there.

[The information was not received.]

Mr. Torkildsen. Just a general comment; prior to being elected
to Congress I served as commissioner of labor and industries for



31

the Commonwealth of Massachusetts, and I learned firsthand there
that regulators can benefit greatly by bringing members of the
business community in early on. It doesn't mean you are always
going to agree with something, but my experience was that you can
answer a lot of questions early on. Sometimes you can take out reg-
ulation that really doesn't have any benefit to it if you bring in the
people who will have to comply with those regulations early in the
process to understand their perspective. You can save a lot of
money, which the private sector certainly can better use elsewhere,
but it really is to the benefit of the people making the regulations
to bring in the business community and anyone who is going to be
affected by those regulations early on.