Table Of Contentti
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
ForsalebytheU.S.GovernmentPrintingOffice
SuperintendentofDocuments,CongressionalSalesOffice,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
88-321CC WASHINGTON : 1995
ForsalebytheU.S.GovernmentPrintingOffice
SuperintendentofDocuments,CongressionalSalesOffice.Washington.DC 20402
ISBN 0-16-047212-1
COMMITTEE ON SMALL BUSINESS
JAN MEYERS. Kansas. Chair
JOEL HEFLEY, Colorado JOHNJ. LaFALCE, New York
WILLIAM H. ZELIFF, JR., New Hampshire RON WYDEN, Oregon
JAMES M. TALENT, Missouri NORMANSISISKY, Virginia
DONALD A. MANZULLO, Illinois KWEISI MFUME, Maryland
PETERG. TORKILDSEN, Massachusetts FLOYD H. FLAKE, New York
ROSCOE G. BARTLETT, Maryland GLENN POSHARD, Illinois
LINDA SMITH, Washington EVA M. CLAYTON, North Carolina
FRANKA. LOBIONDO, New Jersey MARTIN T. MEEHAN, Massachusetts
ZACH WAMP, Tennessee NYDIAM. VELAZQUEZ, New York
SUE W. KELLY, New York CLEO FIELDS, Louisiana
DICK CHRYSLER, Michigan WALTER R. TUCKER III, California
JAMES B. LONGLEY, JR., Maine EARL F. HILLIARD, Alabama
WALTER B. JONES, Jr., North Carolina DOUGLAS "PETE" PETERSON, Florida
MATT SALMON, Arizona BENNIE G. THOMPSON, Mississippi
VAN HILLEARY, Tennessee CHAKA FATTAH, Pennsylvania
MARK E. SOUDER, Indiana KEN BENTSEN, Texas
SAM BROWNBACK, Kansas KAREN MCCARTHY, Missouri
STEVENJ. CHABOT, Ohio WILLIAM P. LUTHER, Minnesota
SUE MYRICK, North Carolina PATRICKJ. KENNEDY, Rhode Island
DAVID FUNDERBURK, North Carolina
JACKMETCALF, Washington
Jenifer Loon, StaffDirector
JEANNE M. ROSLANOWICK, MinorityStaff"Director
(ID
CONTENTS
Page
HearingheldonFebruary 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 ofConsumerProtection, Federal Trade
Commission,Washington, DC 26
APPENDDC
Openingstatements:
Bentsen,Hon.Ken 34
LaFalce, Hon.JohnJ 36
Meyers, Hon.Jan 37
Prepared statements:
Deer, JosephWA 39
Glover,Jere 50
Hatamiya, Lon 73
Kaplan, StephenH 77
Roberts, RichardY 101
Spotila, John T 110
Swain, FrankS 127
White, ChristianS 134
Additional material:
Letterfrom GaryF. 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 ofthe 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 ofBaker & 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 ofChiefCounsel. I myselfbring a history ofrunning 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 ofAdvocacy 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 supportjudicial 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 ofUnderstanding 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 ifyou look at the history ofcompliance, 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 ofthe 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 ofus 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
strongjudicial 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 1980s, 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 ofgoing 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 ofthe 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 ofthe environment or any ofthe other proper reasons for regu-
lation, but because you have to take into account the fact that
