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S. HRG. 104-396

THE COST OF FEDERAL REGULATIONS ON SMALL

BUSINESS



Y 4.SM 1/2: S. HRG. 104-396

The Cost of Federal Regulations on...



JOINT HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS
UNITED STATES SENATE



AND THE



COMMITTEE ON SMALL BUSINESS
HOUSE OP REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS

FIRST SESSION



OCTOBER 31, 1995
H. HRG. 104-57




Boston Public Library

JUN 4 1996

Government Documents Dept.



Printed for the use of the Committees on Small Business of the U.S. Senate
and the House of Representatives

U.S. GOVERNMENT PRINTING OFFICE
22-298 cc WASHINGTON : 1996



For sale by the U.S. Government Printing Office

Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

ISBN 0-16-052503-9



^"\ S. HRG. 104-396

THE COST OF FEDERAL REGULATIONS ON SMALL

BUSINESS

Y 4. SM 1/2: S. HRG. 104-396 ^ =— = ^ ==

The Cost of Federal Regulations on...

JOINT HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS
UNITED STATES SENATE

AND THE

COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES

ONE HUNDRED FOURTH CONGRESS

FIRST SESSION



OCTOBER 31, 1995
H. HRG. 104-57




Boston Public Library

JUN 4 1996

Government Documents Dept.



Printed for the use of the Committees on Small Business of the U.S. Senate
and the House of Representatives

U.S. GOVERNMENT PRINTING OFFICE
22-298 cc WASHINGTON : 1996



For sale by the U.S. Government Printing Office

Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

ISBN 0-16-052503-9



COMMITTEE ON SMALL BUSINESS
UNITED STATES SENATE

CHRISTOPHER S. BOND, Missouri, Chairman
LARRY PRESSLER, South Dakota DALE BUMPERS, Arkansas

CONRAD BURNS, Montana SAM NUNN, Georgia

PAUL COVERDELL, Georgia CARL LEVIN, Michigan

DIRK KEMPTHORNE, Idaho TOM HARKIN, Iowa

ROBERT F. BENNETT, Utah JOHN F. KERRY, Massachusetts

KAY BAILEY HUTCHISON, Texas JOSEPH I. LIEBERMAN, Connecticut

JOHN WARNER, Virginia PAUL D. WELLSTONE, Minnesota

WILLIAM H. FRIST, Tennessee HOWELL HEFLIN, Alabama

OLYMPIA J. SNOWE, Maine FRANK R. LAUTENBERG, New Jersey

Louis Taylor, Staff Director and Chief Counsel
John W. Ball III, Democratic Staff Director



COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES



JAN MEYERS, Kansas, Chair



JOEL HEFLEY, Colorado



JOHN J. LaFALCE, New York



WILLIAM H. ZELIFF, Jr., New Hampshire IKE SKELTON, Missouri



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
STEVEN C. LaTOURETTE, Ohio



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
WILLIAM P. LUTHER, Minnesota
PATRICK J. KENNEDY, Rhode Island
JOHN ELIAS BALDACCI, Maine



Jenifer Loon, Staff Director
Jeanne M. Roslanowick, Minority Staff Director



(ID



CONTENTS



Opening Statement

Page

Bond, The Honorable Christopher S., Chairman, Committee on Small Busi-
ness, and a United States Senator from Missouri 1

Meyers, The Honorable Jan, Chair, House Committee on Small Business,

and a Representative in Congress from Kansas 2

Bumpers, The Honorable Dale, Ranking Minority Member, Senate Committee

on Small Business, and a United States Senator from Arkansas 6

Skelton, The Honorable Ike, a Representative in Congress from Missouri 9

Burns, The Honorable Conrad, a United States Senator from Montana 11

Frist, The Honorable Bill, a United States Senator from Tennessee 91

Flake, The Honorable Floyd H., a Representative in Congress from New

York 95

Hutchison, The Honorable Kay Bailey, a United States Senator from Texas .... 104

Witness Testimony

Glover, The Honorable Jere W., chief counsel, Office of Advocacy, U.S. Small
Business Administration 12

Alphabetical Listing and Appendix Material Submitted

Bond, The Honorable Christopher S.

Opening statement 1

Bumpers, The Honorable Dale

Opening statement 6

Prepared statement 8

Burns, The Honorable Conrad

Prepared statement 11

Flake, The Honorable Floyd

Prepared statement 95

Frist, The Honorable Bill

Prepared statement 91

Glover, The Honorable Jere W.

Testimony 12

Prepared statement and attachments 17

Hutchison, The Honorable Kay Bailey

Prepared statement 104

Manzullo, The Honorable Donald A.

Prepared statement 109

Meyers, The Honorable Jan Meyers

Opening statement 2

Prepared statement 4

Mfume, The Honorable Kweisi

Prepared statement 110

Pressler, The Honorable Larry

Prepared statement Ill

Skelton, The Honorable Ike

Opening statement 9

(III)



THE COST OF FEDERAL REGULATIONS ON
SMALL BUSINESS



TUESDAY, OCTOBER 31, 1995

United States Senate,
Committee on Small Business,
and House of Representatives,
Committee on Small Business,

Washington, D.C.

The Committees met jointly, pursuant to notice, at 10:04 a.m., in
room G-50, Dirksen Senate Office Building, the Honorable Chris-
topher S. Bond, Chairman of the Senate Committee, and the Hon-
orable Jan Meyers, Chairman of the House Committee, presiding.

Present: Senators Bond, Burns, Coverdell, Hutchison, Frist,
Snowe, and Bumpers; Representatives Meyers, Torkildsen, Bart-
lett, Kelly, Skelton, Flake, Poshard, Meehan, Velazquez, Luther,
and Baldacci.

OPENING STATEMENT OF THE HONORABLE CHRISTOPHER S.
BOND, CHAIRMAN, SENATE COMMITTEE ON SMALL BUSI-
NESS, AND A UNITED STATES SENATOR FROM MISSOURI

Chairman Bond. The joint hearing of the House and Senate
Committees on Small Business will come to order. Good morning,
and thanks to all of you for attending this morning's hearing on the
cost of Federal regulations on small business. I extend a very spe-
cial and warm welcome to our colleagues from the House side. We
are delighted that you could join us here today.

Todays special joint hearing of the House and Senate Small
Business Committees is being held to receive a report to Congress
from the chief counsel for advocacy at the Small Business Adminis-
tration. The chief counsel, Mr. Jere Glover, is with us today and
will testify on the findings of the report: The Changing Burden of
Regulation, Paperwork, and Tax Compliance on Small Business. I
welcome Mr. Glover back to the Committee and I look forward to
his testimony.

The Senate Committee on Small Business has held several hear-
ings on "Entrepreneurship in America" that have shown us the
very real barriers to small business expansion caused by excessive
Federal regulation. These hearings, some held here in Washington
and others held at several places around the country, have per-
mitted individual small business owners to tell their personal sto-
ries about how their businesses have been severely affected by Gov-
ernment regulations. While these individual small business stories
have been very helpful to the Committee, they have been only an-
ecdotal evidence of the regulatory problems faced by small busi-

(l)



ness. In addition to the hearings that we have held around the
country, we have the reports of the White House Conference on
Small Business which also pointed to the same problems with Gov-
ernment regulation.

But the report being released today by the chief counsel takes a
new, comprehensive look at whether small businesses bear a dis-
proportionate burden of regulatory costs. While I do not want to
steal your thunder, Mr. Glover, I think it is fair to say that this
report breaks new ground in assessing the burden placed on small
business by Government regulation particularly as it relates to
manufacturing businesses. It confirms what many of us have long
suspected, and what our series of field hearings has suggested, and
that is that small business bears more than its fair share of the
cost of regulations.

One of the most important conclusions of the report is this: Be-
cause small business occupies a central role in achieving our na-
tional goals of generating new employment and innovation, improv-
ing our global competitiveness, and encouraging economic growth,
Government actions should not impose disproportionate cost bur-
dens on the small business sector of our economy. I could not agree
more. Our field hearings have clearly shown that this dispropor-
tionate burden creates serious obstacles for small businessmen and
women across the country. The need to reform regulations and the
laws that produce them could not be more clear.

If there is one message I hope the members and the press will
take away from today's hearing it is that when small business
loses, we all lose. The particularly high cost of regulation on small
business poses a significant barrier to small business growth and
handicaps the new, innovative entrepreneur in competing success-
fully in the marketplace — that kills jobs, stifles innovation, and
hurts our international competitiveness.

With those remarks, I look forward to hearing Mr. Glover's testi-
mony on the specific findings of the report. We have indicated to
our members that the chair and ranking members will make com-
ments, and we will ask the other members of the Committees ei-
ther to submit their opening comments for the record or to include
them in the question and answer session. We will go according to
the first-come, first-served basis, alternating back and forth.

With that, I call on my good friend and colleague, and the co-
chair of this joint hearing, Chairwoman Jan Meyers of Kansas, to
make an opening statement. Welcome.

OPENING STATEMENT OF THE HONORABLE JAN MEYERS,
CHAIR, HOUSE COMMITTEE ON SMALL BUSINESS, AND A
REPRESENTATIVE IN CONGRESS FROM KANSAS

Chairwoman Meyers. Thank you, Senator Bond. We are glad to
be here, and thank you for inviting us over for this joint hearing.

I want to welcome all of our House and Senate colleagues to this
morning's hearing. This is the first joint hearing of the two Small
Business Committees in nearly two decades. Where it makes sense,
I hope that we can have other hearings together so that they can
operate as a forum for the small business community. I also want
to welcome Jere Glover, our sole presenter for this hearing's appro-
priate and timely subject matter.



The chief counsel's quintessential message will be the aggregate
costs of Federal regulation, paperwork, and tax compliance are
huge, and that they impact small businesses more than big busi-
nesses. Given the vital and compelling role small businesses play
in new job creation and in our Nation's capacity for economic
growth, the details of this message are very important.

For example, one conclusion is that the regulatory cost of regula-
tions for small firms is some 50 percent more than the cost to large
firms. This key finding establishes an appropriate perspective for
prompt action on eliminating unnecessary regulatory compliance
costs. The entrepreneurial spirit engendered by new small busi-
nesses needs to be encouraged and not disproportionately discour-
aged.

The details of this message are timely as well. Many of us on
both sides of the aisle, in both bodies, voted to strengthen the Reg-
ulatory Flexibility Act of 1980. We also sensed the need to bring
some sound research, and more concrete numbers, to further bol-
ster the bedrock proposition that small businesses merit different
consideration than larger firms.

When the study suggests that a firm with fewer than 500 em-
ployees pays about $5,000 per employee in regulatory and tax com-
pliance costs, we should keep in mind that we are talking about
dollars spent because of Government demands. They are off-budget
consequences. They are like hidden taxes, if you will, that flow
from Federal programs. Disciplining these costs can be as, or even
more important for the competitiveness of small business, than is
balancing the budget.

Earlier in this Congress, the House passed Regulatory Flexibility
Act amendments as part of its "Contract With America." Like the
Paperwork Reduction Act of 1995 which passed unanimously, the
Regulatory Flexibility amendments were passed with overwhelm-
ing bipartisan support. The Senate is now considering "Reg Flex"
amendments in the context of Senator Dole's Comprehensive Regu-
latory Reform Act of 1995, S. 343.

The details of the chief counsel's message are timely because
they highlight for our Senate colleagues the need to pass regulatory
reform legislation. We need to be sure that we take this step for
small business.

Mr. Glover, I look forward to hearing you describe your findings.

[The prepared statement of Representative Meyers follows:]



PREPARED STATEMENT OF THE HONORABLE JAN MEYERS

BEFORE THE JOINT HEARING OF THE SENATE AND HOUSE

COMMITTEES ON SMALL BUSINESS

OCTOBER 31, 1995



I want to welcome all our House and Senate colleagues to this morning's hearing.
This is, I understand, the first joint hearing of the two Small Business Committees in nearly
two decades. Where it makes sense, I believe there will be other occasions where our two
Committees can operate as a forum for the small business community.

I also want to welcome Jere Glover, our sole presenter for this hearing's appropriate
and timely subject matter. The Chief Counsel for Advocacy is a creature of the Congress
whose job is to be an independent voice and represent the small business perspective on major
issues. He is appointed by the President, confirmed by the Senate, and reflects the principle
purposes of the two Committees.

The Chief Counsel's quintessential message will be the aggregate costs of federal
regulation, paperwork, and tax compliance are huge — and they impact small businesses more
than big businesses. Given the vital and compelling role small businesses play in new job
creation and in our Nation's capacity for economic growth, the details of this message are
important.

For example, one conclusion is that the regulatory cost of regulations for small firms is
some 50 percent more than the cost to large firms. This key finding establishes an
appropriate perspective for prompt action on eliminating unnecessary regulatory compliance
costs. The entrepreneurial spirit engendered by new small businesses needs to be encouraged,
not disproportionately discouraged.

The details of this message are timely as well. A year ago, in the previous Congress, I
sponsored the amendment to the Small Business Administration Reauthorization Act which
called for this study. Many of us on both sides of the aisle, in both bodies, voted to
strengthen the Regulatory Flexibility Act of 1980. We also sensed the need to bring some
sound research, and more concrete numbers, to further bolster the bedrock proposition that
small businesses merit different considerations than larger firms. My hope is that this study
meets that objective.



When the study suggests that a firm with fewer than 500 employees pays about $5,000
per employee in regulatory and tax compliance, we should keep in mind that we are talking
about dollars spent because of Government demands which are not reflected in the spending
budget. They are "off-budget" consequences, "hidden taxes" if you will, that flow from
federal programs.

Disciplining these costs can be as, or even more important for the competitiveness of
small business, than is balancing the budget.

Earlier in this Congress, the House passed Regulatory Flexibility Act amendments as
part of its "Contract with America". Like the Paperwork Reduction Act of 1995, which
passed unanimously, the "Reg Flex" amendments were passed overwhelming bipartisan
support. The Senate is now considering "Reg Flex" amendments in the context of Senator
Dole's Comprehensive Regulatory Reform Act of 1995, S.343.

The details of the Chief Counsel's message are timely because they highlight for our
Senate colleagues the need to pass regulatory reform legislation. I join those who want to see
Senator Dole's over-all regulatory reform bill pass the Senate.

I also believe that today's message complements the idea that if progress on overall
regulatory reform remains stalled, the Congress should take special action to enact
amendments to the "Regulatory Flexibility Act."

We need to be sure to take this step for small business.

Mr. Glover, I look forward to hearing you describe your findings.



Chairman BOND. Thank you very much, Madam Chair. Now I
will turn to Senator Bumpers.

OPENING STATEMENT OF THE HONORABLE DALE BUMPERS,
RANKING MINORITY MEMBER, SENATE COMMITTEE ON
SMALL BUSINESS, AND A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF ARKANSAS

Senator Bumpers. Thank you, Mr. Chairman. First of all, wel-
come, Mr. Glover, and congratulations on what I think is one of the
most interesting and really powerful reports I have read in my 21
years here. I must confess I have not had the chance to read every
word of it, but what I have read, reads like a novel. Everybody who
is interested in this issue in this country ought to read it, and they
will find it not only enlightening but also fairly easy going.

We are here today, incidentally, because of a bill I had intro-
duced last year, S. 2060, to reauthorize SBA programs. It became
Public Law 103-403. When it came out of the House, the House
had attached a provision that required this study be done. We
agreed to the House provision in the conference report. I want to
congratulate my colleagues in the House for having the foresight
to request this study which we are here to discuss today.

But from a personal standpoint, I knew as a small businessman
who operated a hardware, furniture, and appliance store for 15
years after I got out of law school — because I knew I could not
make a living practicing law. I knew then, in the 1950's and 1960's
that there was a very serious imbalance between the burdens on
small business and the burdens on big business, simply if for no
other reason, because you are having to comply with the same laws
but the cost of administering for an employee when you have 10
employees as compared to 1,000, there is a vast chasm between the
two.

When you consider the fact that 53 percent of all the people in
this country work for what we describe and define as small busi-
ness, you can see that the problem is really staggering. The dis-
advantage to small business is also staggering.

Senator Bond has introduced a bill which is now S. 530. I think
Senator Bond's bill goes a long way toward addressing the problem
we are talking about here today where he would reform the Reg
Flex Act by permitting judicial review. I think one of the first
things that the Congress ought to do is to pass Senator Bond's bill
in addressing this problem.

We know that regulations are necessary. Nobody is suggesting
they are not. If we are going to have safe pharmaceuticals, if we
are going to have safe food, clean water to drink, and clean air to
breathe, there has to be a fairly substantial regulatory process.
And we will never get it right, we will never satisfy the small busi-
ness community of this country. But we — as elected officials and
public servants — have a really strong duty to do everything we can
to not only lighten the burden on small business but do ourselves
a favor by making the entire Nation thereby more competitive.

Finally, Mr. Glover, let me say that your conclusion that the time
is not right for the abolition of the Office of Advocacy is one with
which I totally agree. There may come a time, but I do not think
it is yet. While I applauded the House in my opening statement,



I will say I disagreed strongly with them when they tried to abolish
that office in the appropriations process.

I am on the Interior Conference Appropriations Committee, Mr.
Chairman, which is going to meet at 10 o'clock this morning. I hope
I will not be gone long and that I can get back for most of this
hearing. But I want to congratulate you, both chairpersons for call-
ing this joint session, which is unique. We should have been doing
this perhaps more often. And congratulate you, Mr. Glover, for a
really fine report.

Mr. Glover. Thank you, sir.

Chairman Bond. Thank you very much, Senator Bumpers.

Senator Bumpers. Mr. Chairman, I ask unanimous consent that
my formal remarks be inserted in the record.

Chairman Bond. I thought the informal ones were pretty good,
but we will be happy to accept the formal ones.

Senator Bumpers. Strike the unanimous consent. Everybody
agrees I may be a little better extemporaneously. I will just let it
stand.

Chairman Bond. We will take the written statement, too.

[The prepared statement of Senator Bumpers follows:]



OPENING STATEMENT OF SENATOR DALE BUMPERS

BEFORE THE JOINT HEARING OF THE SENATE AND HOUSE

COMMITTEES ON SMALL BUSINESS

OCTOBER 31, 1995



I want to commend the two Chairs for calling us together today to receive a truly
significant report from the Clinton Administration's Office of Advocacy. This report, as
members probably know, was required by the conference report to accompany S. 2060, a bill
which I introduced last year that became P.L. 103-403. That Act reauthorized and made
changes in SBA programs for the years 1995-98. Frankly, when this report was urged by
House members, I did not expect that it would have nearly the merit which today's report
does. We have all read too many agency reports over the years which said too little.

That is not the case today. Jere Glover and his staff, along with Professor Thomas
Hopkins of the Rochester Institute of Technology, have produced the most specific, concrete
and detailed information I have ever seen on a subject which both politicians and the public
love to complain about — the cost of federal regulations for business owners. This subject is
much like Will Rogers statement about the weather. Perhaps now we will do more than talk
about it.

I do not want to steal Mr. Glover's thunder by telling the punch line, but I believe that
his conclusions will make everyone sit up and take notice. Small business, as we have long
believed, does bear a huge competitive disadvantage when compared to larger firms on the
issue of regulatory cost compliance. "Huge" in this case means bigger than most any of us
would have guessed.

There are many possible outcomes of today's hearing. Some might use it to criticize
the Clinton Administration, but that would hardly be justified since it is the Administration
which has proved this case. Others might want to revive S. 343, the Dole Regulatory Reform
bill which was mired in problems earlier this year. Perhaps regulators will even read this
report and finally start taking this issue seriously.

One thing, however, seems inescapable to me: We should take up and pass reform of
the Regulatory Flexibility Act as soon as humanly possible. Senator Bond has a bill on that
subject, and the Administration supports reforming Reg Flex. Phil Lader personally played a
key role in getting the Administration's endorsement of that step during the National
Performance Review. Senator Bond's bill— or similar bills on the House side—could have
passed last spring. There is no excuse for not acting. That action would do more than any
other legislative step I can imagine to address the serious problem which today's hearing
underscores — Federal agencies simply do not pay enough attention to the needs and problems
of small business owners. There absolutely must be a way to enforce their legislative
mandates, without at the same time imperiling public health and safety by tilting the
regulatory process too far toward business. I look forward to working with the Chairman
toward that end.



Chairman Bond. I understand that Mr. LaFalce has other com-
mitments and cannot be with us today, so it gives me very great
pleasure to turn to my fellow Missourian and colleague, Congress-
man Skelton, to present a statement.

OPENING STATEMENT OF THE HONORABLE IKE SKELTON, A
REPRESENTATIVE IN CONGRESS FROM MISSOURI

Mr. Skelton. Thank you very much, Mr. Chairman, and Madam
Chair. I compliment both of you for calling this hearing, and I com-
pliment Mr. Glover on his report which, although I have not read


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Online LibraryUnited States. Congress. Senate. Committee on SmalThe cost of federal regulations on small business : joint hearing before the Committee on Small Business, United States Senate and the Committee on Small Business, House of Representatives, One Hundred Fourth Congress, first session, October 31, 1995, H. hrg. 104-57 → online text (page 1 of 9)