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United States. Congress. House. Committee on Small.

Amending the Regulatory Flexibility Act : past performance and the need for meaningful reform : hearing before the Committee on Small Business, House of Representatives, One Hundred Fourth Congress, first session, Washington, DC, February 10, 1995 online

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AMENDING THE REGULATORY FLEXIBILITY ACT-
PAST PERFORMANCE AND THE NEED FOR
MEANINGFUL REFORM

Y 4. Sil 1 : 104-10 == ======

Anending the Regulatory Flexiabilit.

riEjfsjiING

BEFORE THE

COMMITTEE ON SMALL BUSINESS
HOUSE OF REPEESENTATIVES

ONE HUNDRED FOURTH CONGRESS

FIRST SESSION



WASHINGTON, DC, FEBRUARY 10, 1995



Printed for the use of the Committee on Small Business

Serial No. 104-10







M 2 7 Mb



U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1995



For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-047212-1



o \ AMENDING THE REGULATORY FLEXIBILITY ACT-
PAST PERFORMANCE AND THE NEED FOR
MEANINGFUL REFORM



Y4.SH 1:104-10

Anending the Regulatory Flexiabilit. . .

BEFORE THE

COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS

FIRST SESSION



WASHINGTON, DC, FEBRUARY 10, 1995



Printed for the use of the Committee on Small Business



Serial No. 104-10




M2?



U.S. GOVERNMENT PRINTING OFFICE
88-321 CC WASHINGTON : 1995

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office. Washington. DC 20402
ISBN 0-16-047212-1



COMMITTEE ON SMALL BUSINESS



JAN MEYERS. Kansas. Chair



JOEL HEFLEY, Colorado

WILLIAM H. ZELIFF, JR., New Hampshire

JAMES M. TALENT, Missouri

DONALD A. MANZULLO, Illinois

PETER G. TORKILDSEN, Massachusetts

ROSCOE G. BARTLETT, Maryland

LINDA SMITH, Washington

FRANK A. LOBIONDO, New Jersey

ZACH WAMP, Tennessee

SUE W. KELLY, New York

DICK CHRYSLER, Michigan

JAMES B. LONGLEY, JR., Maine

WALTER B. JONES, Jr., North Carolina

MATT SALMON, Arizona

VAN HILLEARY, Tennessee

MARK E. SOUDER, Indiana

SAM BROWNBACK, Kansas

STEVEN J. CHABOT, Ohio

SUE MYRICK, North Carolina

DAVID FUNDERBURK, North Carolina

JACK METCALF, Washington

Jenifer Loon, Staff Director
JEANNE M. ROSLANOWICK, Minority Staff" Director



JOHN J. LaFALCE, New York
RON WYDEN, Oregon
NORMAN SISISKY, Virginia
KWEISI MFUME, Maryland
FLOYD H. FLAKE, New York
GLENN POSHARD, Illinois
EVA M. CLAYTON, North Carolina
MARTIN T. MEEHAN, Massachusetts
NYDIA M. VELAZQUEZ, New York
CLEO FIELDS, Louisiana
WALTER R. TUCKER III, California
EARL F. HILLIARD, Alabama
DOUGLAS "PETE" PETERSON, Florida
BENNIE G. THOMPSON, Mississippi
CHAKA FATTAH, Pennsylvania
KEN BENTSEN, Texas
KAREN MCCARTHY, Missouri
WILLIAM P. LUTHER, Minnesota
PATRICK J. KENNEDY, Rhode Island



(ID



CONTENTS



Page

Hearing held on February 10, 1995 1

WITNESSES
Friday, February 10, 1995

Glover, Jere, Chief Counsel for Advocacy, U.S. Small Business Administra-
tion, Washington, DC 2

Roberts, Richard Y., Commissioner, Securities and Exchange Commission,
Washington, DC 29

Spotila, John T., General Counsel, U.S. Small Business Administration,

Washington, DC 18

Swain, Frank S., Baker & Daniels, Washington, DC 4

White, Christian S., Director, Bureau of Consumer Protection, Federal Trade

Commission, Washington, DC 26

APPENDDC

Opening statements:

Bentsen, Hon. Ken 34

LaFalce, Hon. John J 36

Meyers, Hon. Jan 37

Prepared statements:

Deer, Joseph A 39

Glover, Jere W 50

Hatamiya, Lon 73

Kaplan, Stephen H 77

Roberts, Richard Y 101

Spotila, John T 110

Swain, Frank S 127

White, Christian S 134

Additional material:

Letter from Gary F. Petty 150



(III)



AMENDING THE REGULATORY FLEXIBILITY
ACT— PAST PERFORMANCE AND THE NEED
FOR MEANINGFUL REFORM



FRIDAY, FEBRUARY 10, 1995

House of Representatives,
Committee on Small Business,

Washington, DC.

The committee met, pursuant to notice, at 10:10 a.m., in room
2359-A, Rayburn House Office Building, Hon. Jan Meyers (chair-
woman of the committee) presiding.

Chairwoman Meyers. Good morning. Today's hearing is the sec-
ond hearing we are having concerning the Regulatory Flexibility
Act. While our hearing last month focused primarily on current leg-
islation designed to strengthen the act, and we heard from a num-
ber of small business groups who strongly favor regulatory flexibil-
ity, this morning's hearing is designed more to provide the commit-
tee with some needed historical perspective on how the RFA has
worked or not worked in practice.

From our review of the annual reports of the Office of Advocacy
concerning implementation of the act, it is all too apparent that
some agencies have consistently observed the letter and spirit of
the RFA, while others have completely ignored it. There are also
agencies which have shown improvement in their understanding of
and compliance with the Regulatory Flexibility Act, and for that
they should be commended.

We are here today to hear from representatives of agencies with
varying degrees of compliance so that we can get a better idea of
how we should approach current proposals to amend the RFA.

I think with that, I will proceed to hear from our witnesses
today. Our first panel is Mr. Jere Glover, who is the Chief Counsel
for Advocacy of the U.S. Small Business Administration, and Mr.
Frank Swain of Baker & Daniels, Washington, DC.

Mr. Swain, I think you were also Chief Counsel for Advocacy in
the Reagan Administration; is that not right?

Mr. Swain. That is correct.

Chairwoman Meyers. All right. So, we have two Chief Counsels
for Advocacy, a former and a current, and we look forward to hear-
ing from you.

[Chairwoman Meyers' statement may be found in the appendix.]



(l)



TESTIMONY OF JERE GLOVER, CHIEF COUNSEL FOR ADVO-
CACY, U.S. SMALL BUSINESS ADMINISTRATION, WASHING-
TON, DC

Mr. Glover. Good morning. Madam Chairman, members of the
committee. I am privileged to be here today to talk about the Regu-
latory Flexibility Act. The first thing I would like to do is com-
pliment Congressman Skelton and Congressman Ewing for their
foresight in recognizing the need to improve the compliance of the
Regulatory Flexibility Act in introducing their legislation last year.

I also have with me today Barry Pineles who has been in charge
of regulatory affairs for the Office of Advocacy during the past
eight Chief Counsels. That happens to have been 8 years, but
served under Frank Swain as well as several other people in-be-
tween myself.

The interesting thing about the Office of Advocacy, which many
people don't necessarily recognize, is Congress in its wisdom de-
cided that the Office of Advocacy must be filled by someone from
the private sector, bringing that private sector experience to the of-
fice of Chief Counsel. I myself bring a history of running successful
businesses and a wealth of experience in filling out Government
forms and complying with Government regulations. It is in that
context that I bring that background to the testimony.

Clearly, the Office of Advocacy has a variety of functions, not
only to represent the views of small business before Congress and
the Government agencies, but to also do the — file annual reports,
and through the years that has been something that has been an
historical record, and one can look at that record and find that un-
fortunately, the same agencies appear to — appear in those annual
reports year after year as not choosing to comply.

What we do see is a pattern of agencies who over time do evolve
and do realize that they need to comply. The Office of Advocacy has
primarily been given the authority to interact with agencies who
don't comply to try to bring them into compliance.

Now, there have been a number of things that have happened
since I became Chief Counsel 7 or 8 months ago that I think point
to a better relationship with the agencies. Clearly, having the Ad-
ministrator of SBA at NEC made sure that when the decision of
whether the administration was going to support judicial review for
Reg Flex was made, that small business had that voice with the
President and that decision was made by the President to support
judicial review.

Perhaps had we not had Erskine Bowles on the NEC and had he
not been working with the Office of Advocacy to understand the
problems, we might not have won that battle with the administra-
tion, but that is a step forward. Since Phil Lader has become the
Administrator, on several instances I pointed out to him where we
have had trouble in compliance with agencies, and he has gone to
the head of the agencies and discussed that with them, facilitated
some meetings that would not have happened, and as a result of
that, we have had assurances of future compliance from agencies
that really had not focused on that before.

So, I think clearly those two things are important. The other
thing that we have done is we have prepared amicus briefs, we did
file a notice of intention to file with the court. That authority was



important to us; it allowed us to make our views heard and, quite
frankly, it allowed us to have the agency change what it was doing
so that small business in effect, did prevail, because the agencies
modified what they were going to be doing in their regulations to
come into compliance with the Regulatory Flexibility Act and to re-
duce the burden on small business.

So, clearly, things are better, and I will tell you that we have
also entered into a Memorandum of Understanding with the Office
of Information and Regulatory Affairs at the White House. OIRA
has been very cooperative, and since we have entered into that
agreement, they have sent back regulations to be redone because
when agencies contacted us and certified the regulations as not af-
fecting small business; when in fact, they do affect small business,
we go back to them at a preliminary stage before publication and
we tell them that it would affect a small business.

OIRA then sends it back as part of the OMB clearance process
to the agencies and direct the agencies to do an initial Reg Flex
analysis, and so they have been able to use that new agreement
authority very successfully. We expect to continue using that agree-
ment.

While I am here to sav that there have been dramatic and sig-
nificant improvements, I am also here to tell you that as Chief
Counsel, the judicial review is very important to the ongoing rela-
tionships. I think if you look at the history of compliance, what you
see is where the agency makes an early decision as to what it
wants to do with the regulation, we then run into problems.

When they go into the process, like EPA often does, looking at
the impacts early on, doing the initial research to do trie analysis,
so when they do the first proposal, they have already looked at the
impacts on small business. Those regulations seem to come out
well. It is when the agency goes in, and sometimes the agencies
going in because Congress told them to do a specific thing in the
regulations, and what we hear from the agencies is we don't have
any flexibility; We are forced by Congress to do this specific thing
this way.

Clearly, Congress has been part of the problem. But again, the
agencies often on their own, and most times on their own, look at
a specific problem, make up their mind what they want to do and
then go back and do a post hoc determination.

If tney do a Reg Flex analysis at all, they are usually certified
under those circumstances, but if they do one, they do a very cur-
sory, perfunctory one. So, judicial review is the only way I know
that we can address this problem.

Clearly, this administration is committed to small business and
committed to the Regulatory Flexibility Act and strong enforcement
of it, but — and I can tell you as Chief Counsel, I am certainly
strongly committed to that. But from time to time people change,
and given the pattern of the last 8 years when we have had a num-
ber of different Chief Counsels, I won't always be here, the Presi-
dent always won't be there with his commitment; we won't have
strong administrators who fight for small business and we won't
have a head like Sally Katzen who will help us take up the battle,
and quite frankly, no matter what any of us say, there are agencies
who simply choose to ignore the Regulatory Flexibility Act.



So, I am basically here to say that I think the Regulatory Flexi-
bility Act will cure the problem. If we have judicial review, it will
cure the problem. We can go forward and what I would encourage
you to do is pass an independent Regulatory Flexibility Act with
strong judicial review quickly so that we can bring the recalcitrant
agencies into compliance.

Thank you very much.

Chairwoman Meyers. Thank you very much, Mr. Glover.

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

Chairwoman Meyers. Mr. Swain.

TESTIMONY OF FRANK S. SWAIN, BAKER & DANIELS,
WASHINGTON, DC

Mr. Swain. Madam Chair, thank you very much. It is a real
pleasure to be here. I think I might have appeared in front of this
committee maybe 25 times during the 1980 s, although I must say
it is refreshing to see the alignment on the dais when I was the
Republican counsel on a democratically controlled House. Never-
theless, I hope that I was able to enjoy a positive relationship with
the committee for the most part, because the cause of small busi-
ness is probably the most nonpartisan or bipartisan cause that we
pursue in Government.

I congratulate the committee also for taking time on this issue.
This is dry, dusty, inside-the-beltway stuff. How rules are made
and who talks to who when and when analyses are issued is not
anything that business people in the real world get terribly excited
about until, of course, at the end of the line, a wrong decision is
made and some inspector shows up at the door enforcing some ab-
solutely stupid or unnecessary rule.

It was in order to attempt to get a grip on that that the Congress
considered in 1979 and eventually passed in 1980 the Regulatory
Flexibility Act. The interesting thing as I was thinking back on it
at the time, I was a lobbyist for the NFIB and we had a fight with
OSHA or maybe fight to a draw or maybe not, and we would go
fuss with EPA, and there was a series of going to various agencies
and the issues were always the same: We have got to keep the air
clean, we have to keep the air clean and regulate both big business
and small business.

We said well, but small business isn't causing as much of the
problem; why do you have to be as tough on them? Well, the law
says we do. But the fact of the matter is that the law usually didn't
say that they did. Many agencies didn't believe that they had the
legal authority to write a rule that was different for smaller busi-
ness than big business. Even though it made absolute common
sense, and even though there was nothing in many of these laws
that stopped them from doing that.

So, what most people paid attention to I believe in thinking back
on it in 1979 and 1980 was to write a law that said that every Fed-
eral agency, you have the authority to write different rules for
smaller business and for smaller entities, small cities and nonprofit
entities and so on, for smaller entities than you do for big business.

Not because we want to compromise safety or health or protec-
tion of the environment or any of the other proper reasons for regu-
lation, but because you have to take into account the fact that



these smaller players don't cause as much of the problem, and you
also have to take into account the fact that these smaller players
can't respond as quickly and can't raise a lot of money to put to-
gether the solutions that are maybe necessitated by your regula-
tion.

At the time the question came up sort of at the end of the debate,
well, what about enforcement? What if they don't do it? And at that
point, the people who were working on the legislation really didn't
want to set up another situation like NEPA. You will recall that
the Environmental Policy Act at the time, especially in the late
1970's, was being used to stop proposals right and left, to take so-
called interlocutory appeals. Before a rule ever became final, you
would be able to challenge it on environmental grounds.

So, there was a concern that the agency be able to work through
problems without being challenged right and left. But I think the
Congress and history tells us that Congress really flinched too
early, and in fact, they really didn't provide any enforcement
scheme at all. As I said in mv statement, what they did was they
told the Office of Advocacy to be a monitor of regulations.

As Jere Glover pointed out, what that means is that the Office
of Advocacy can take a look at what the agencies are doing, they
can go and they can meet with the agencies; they can yell at them,
they can comment on the record, and even in some limited ways,
they may be able to go and reflect their comments in court.

But necessity cannot order an agency to do anything different,
nor more importantly can anybody else, except the President obvi-
ously. So, the points that Mr. Glover made about working closely
with the OIRA office are very important, because in the end, the
President is the person that backs up the Chief Counsel for Advo-
cacy.

Nobody in small business can back them up because they don't
have the legal ability to do so. The most they can do is issue a
press release and try to embarrass people into doing something dif-
ferently.

Well, the fact of the matter is there are hundreds of different
regulations each year. So, it is iust not possible to enforce them all
the time. So, therefore I do believe that history tells us that it is
time to change the RFA to make an explicit and enforcement
rights, that if an agency fails to meet the standards, fails to do
those analyses of how a rule affects small business, that it may be
hauled into court and made to justify that its regulation is not arbi-
trary and not capricious.

I don't think this will be a tremendous burden on agencies. Many
of them are doing a good job already. Some of them aren't. I think
the threat of judicial review might be the motivator that requires
them to do a better job.

I think that there have some other provisions in H.R. 9 that are
also worthy of enactment. I would again congratulate the commit-
tee and urge that you recommend to the Judiciary Committee and
to the Government Operations Committees and any other commit-
tees that are considering regulatory reform that there be no time
wasted in the strengthening; go ahead.

I would be happy to respond to any questions.

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



Chairwoman Meyers. Thank you very much, Mr. Swain.

We will now take questions from the committee. We try to take
questions in the order of their appearance at the committee, so I
will call first on Mr. Salmon.

Mr. Bartlett.

Mr. Bartlett. Thank you very much. There is a story of yester-
year told about a small church in their midweek prayer meetings
that reminds me of where we are in this problem today. Each
week, apparently Sam would come and his prayer would be that
the Lord would remove the cobwebs of sin, and this went on for
week after week. Finally at one prayer meeting, Sally praised that
the Lord will kill the spider in Sam's life.

I think that we are dealing with the cobwebs of the problem
here, that is trying to ameliorate the problems of too much regula-
tion and overzealous regulators. When I think that maybe what we
ought to be doing is attacking the spider here.

There is an old country saying that you shouldn't do something
when the juice ain't worth tne squeezing. I suspect that in many
of these regulations, particularly for small business and perhaps
also for large businesses, that that is where we are. We are very
good at enacting laws that require regulations, not good at all in
going back later to see if the regulation makes any sense.

Is one of the responsibilities of the Chief Counsel to recommend
those regulations that just don't make any sense for small busi-
ness, or maybe don't make any sense for anybody?

Mr. Glover. Well, the Regulatory Flexibility Act requires the
agencies to go back and do a periodic review of their regulations
and look at the impacts on small business. When it was originally
enacted, agencies were given 10 years, which was a fairly generous
period to do that. I am sad to report to you that virtually no agen-
cies have done that. The law puts the burden on the agencies
themselves. There have been a few that have done that, but by and
large, it has not been complied with.

We have noted that in many of our reports, that the agencies
have not complied with that requirement of the law, but we report
that there has not been — that it has not happened. We do go back
with regulations, and we are working right now on that, when we
see a regulation that we think is a particular problem, given our
limited resources, we don't do the exhaustive review that we per-
haps should do. But we do go back and when small businesses com-
plain to us about a regulation, we do go back to agencies and peti-
tion that they modify their rules, and we have been somewhat suc-
cessful in that effort.

We have had some very good success with the Environmental
Protection Agency in going Dack to them with their regulations.
Just this past December they agreed to modify one of their major
regulations, that reduced 20,000 reports that small businesses were
having to file. We thanked them very much for that.

Then we had a meeting with them 2 weeks ago and said boy,
that was really great, but if you will just give us %o more of 1 per-
cent which will bring it down to 95 percent, 95.5 percent of all tox-
ins released in the environment, if you will just give us another Vio
of 1 percent, you will still have total reports on 99.5 percent, you
will eliminate another 40,000 forms that small businesses have to



file. We are working with them. I think hopefully we are going to
see that as well.

So, there are examples where we do that, and we would like to
do more of it, and we are going to continue doing that. Quite frank-
ly, in our discussions with OIRA, they have committed to work
with us on those regulations, and we have sent them a list of some
regulations that we think could be eliminated, and we are going to
work with them on that. We have done that as part of the Vice
President's Reinventing Government Program and we have had a
good bit of interest from the office in helping that happen.

So, I think we are going to have some allies, it will not be just
the Office of Advocacy, but other people in the Government who
recognize that what you have said is true and we need to do more
of that, and that is one of the things that we have devoted an awful
lot of time to.

Chairwoman Meyers. Mr. Glover, I am going to ask everybody
if they can be fairly concise in their questions and answers, be-
cause we have two panels this morning.

Mr. Glover. Sure.

Chairwoman Meyers. Ms. Velazquez.

Ms. Velazquez. Thank you, Madam Chair.

Mr. Glover, I want to thank you for testifying before us today.
You stated in your testimony on pages 20 and 21 that you do not
believe that the RFA should be used as a tool by large businesses
to increase their competitive advantage over small businesses or
shift their costs to small businesses through litigation.

Would you please expand on that?

Mr. Glover. Yes. There was a provision that is not in this sec-
tion that is 4003 of the Contract for America, or H.R. 9. That ex-
pands it beyond small business. What I am concerned about is, we
hear from agencies quite often that gee, there is no problem with
our regulations, in fact, we worked with all of the large firms and
they thought these were just fine. The cost to small business is infi-
nitely greater than it is to a large firm.

If you are selling 10,000 units, it would cost maybe 1 cent per
unit. If you are selling 100 units, then obviously the cost is going
to be $100 per unit. So, if you spread that compliance cost over a
broader base, it may not be a problem. To allow large firms into
this, I think is not appropriate.

Ms. Velazquez. Thank you, Madam Chair.

Chairwoman Meyers. Thank you. Let me ask a question, if I
may, and then we will go back to our regular order. I would like
to ask Mr. Glover, the advanced notice provision contained in sec-
tion 6003 of H.R. 9 would seem to give your office some needed
input on upcoming rulemakings.

Can you tell us how this feature of Reg Flex reform could be han-
dled given the resources of your office?

Mr. Glover. Well, it would not be, in terms of priorities. Judicial
review is the absolute number one priority. I think the ability to —
the clear, clean ability, the direction of the sense of the Congress


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Online LibraryUnited States. Congress. House. Committee on SmallAmending the Regulatory Flexibility Act : past performance and the need for meaningful reform : hearing before the Committee on Small Business, House of Representatives, One Hundred Fourth Congress, first session, Washington, DC, February 10, 1995 → online text (page 1 of 12)