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Reducing Regulatory Burdens

on April 1, 2011 Source: Policy Dialogue on Entrepreneurship

One of the hot topics in Washington – at least among business interest groups – is the issue of regulation, or as many of them would suggest “regulatory overreach.”  The U.S. Chamber of Commerce, for instance, has made this one of their top concerns this year, stating:

Most regulations are necessary to ensuring that are clear rules for operating a complex society.  Economists, entrepreneurs and ordinary citizens all understand that balancing regulation with the need for economic growth is essential to ensuring the quality of life for Americans.  But excessive costly regulations are harming the economy and inhibiting job creation.

Research has found that the annual regulatory burden from federal actions was more than $1.75 trillion in FY 2008, and the rate of significant regulatory actions being finalized in the past two years has increased substantially.  Regulatory uncertainty is often cited as a reason for small business owners’ reluctance to hire or expand their operations.  There is also a prevailing view among many Republicans that the Administration has resorted to promulgating regulations actions that it could not obtain legislatively, and this is the inspiration for the Regulations from the Executive in Need of Scrutiny (REINS) Act (H.R. 10), which this blog has discussed beforeBusiness Week recently identified the REINS Act as an attempt to “hogtie” the Administration on new rules.  

While most Democrats and President Obama oppose the REINS Act, there is a bipartisan push to eliminate barriers for entrepreneurs and small businesses.  At a March 31st Senate hearing on the U.S. Small Business Administration’s budget, Sen. Mary Landrieu (D-LA) said that it would be informative to compare the number of attorneys promulgating new rules at the agencies versus the thirteen attorneys reviewing these proposed regulations within the SBA’s Office of Advocacy, suggesting that it needed more resources to do its job.  (From 2002 to 2010, I served as the Chief Economist in the Office of Advocacy.)  The Chief Counsel for Advocacy Winslow Sargeant, in questioning from Sen. Olympia Snowe (R-ME), noted that his office might need to hire more attorneys and a regulatory economist to cover new regulatory duties resulting from the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203).  He also noted in his testimony that the office’s regulatory flexibility activities saved nearly $15 billion in small business compliance costs in FY 2010. 

Despite such progress in reducing regulatory burdens, there are bills in the Congress to improve the Regulatory Flexibility Act and strengthen the Office of Advocacy.  Sen. Snowe and Sen. Tom Coburn (R-OK) have introduced the “Small Business Regulatory Freedom Act of 2011” (S. 474).  According to the press release, the highlights of this bill are:

  • Federal agencies should examine both direct and indirect economic impacts in their small business regulatory analysis (and not just direct).
  • Strengthening of the judicial review provisions to allow small entities to challenge proposed regulations
  • Allowing existing rules to be sunset if they are not reviewed periodically
  • Requiring small business review panels for all federal agencies, and not limiting their usage to EPA, OSHA, and the CFPB.
  • Expanding the RFA to include federal agency guidance documents.

Democrats are not supportive of the attempt to expand small business panels beyond the three covered agencies, but there is bipartisan support for re-examining regulations that have been on the books for a while.  The Office of Advocacy, for instance, “believes there should be additional triggers” to compel agencies to periodically review their regulations and help to reduce the cumulative burden on small businesses, according to its list of legislative priorities for the 112th Congress.   At the budget hearing, Sen. Snowe said that her bill would sunset rules after ten years if agencies did not review them.  “This puts the burden on the agency to justify their rules,” she said.  She added that agencies need to be more proactive in doing periodic review, and without some way of compelling them to do so, there is little incentive. 

The U.S. House is also looking at changes to the RFA.  At a Judiciary Committee hearing on February 10, former Chief Counsel for Advocacy Thomas Sullivan said, “There are gaps in the law that need to be fixed and now is the time to do it.  Small businesses continue to struggle as our economy tries to recover and they need to have their voices heard when government is considering piling new federal mandates on them.”  Rep. Lamar Smith (R-TX) has introduced the “Regulatory Flexibility Improvements Act of 2011” (H.R. 527).   This bill includes the following highlights:

  • Federal agencies should examine both direct and indirect economic impacts in their small business regulatory analysis (and not just direct).
  • Federal agencies would be required to examine alternatives that might minimize adverse significant benefits or maximize beneficial significant impacts on small entities.
  • Federal agencies would be required to show how this bill would impact the cumulative regulatory burden on small entities.
  • It would increase the role of the Chief Counsel for Advocacy, including having the Office of Advocacy issue rules for federal compliance with the RFA.
  • It would strengthen both the periodic review and judicial review elements of the RFA.

David Frulla, a Partner at Kelley-Drye, provided a number of recommendations for changes to the RFA to the House Small Business Committee at a March 30th hearing, but in doing so, he also noted the RFA’s importance in the rulemaking process.  He testified, “While the RFA can be improved…, this should not detract from the value and positive influence the law has had on the regulatory process for the past thirty-plus years.  The RFA has been a valuable tool, one which can be better refined to meet its broadly accepted and important goals.”  

With that said, look for some action on curtailing regulatory burdens for small businesses this year.  Differences exist between the Senate and House versions of the RFA bills, but there also appears to be a bipartisan consensus that the Act needs strengthening.  The REINS Act, meanwhile, is expected to pass the U.S. House sometime soon, but the Senate is unlikely to do the same.  Even if it did, President Obama would veto it. 

Category:  Digesting DC  Tags:  regulatory, budget

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