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June 6, 2002

Mr. Chairman, and Members of these Subcommittees, thank you for inviting me to this hearing. I am John D. Graham, Ph.D., Administrator, Office of Information and Regulatory Affairs (OIRA), Office of Management and Budget (OMB). This hearing is to address the OMB Draft Report to Congress on the Costs and Benefits of Federal Regulations and the Crain/Hopkins report on "The Impact of Regulatory Costs to Small Firms." You also asked me to testify regarding OIRA's work on agency compliance with the SBREFA amendments to the Regulatory Flexibility Act, and our assessment of current mechanisms to help reduce the disproportionate burden of regulations on small businesses.

The Crain-Hopkins Report

We too were struck by the basic conclusion in the Crain-Hopkins report that "Firms employing fewer than 20 employees face an annual regulatory burden of $6,975 per employee, a burden nearly 60 percent above that facing a firm employing over 500 employees." The managerial resources of small businesses are often limited and focused primarily on the needs of the business, not on the legal, administrative, and reporting requirements that come from Federal (or for that matter, State and local) regulations. The cumulative requirements of many different regulatory programs may be difficult to sort out and reconcile with the limited resources available. Federal agencies, in developing and implementing their regulatory programs - either directly or working through State and local governments - need to be sensitive and, to the extent practicable, responsive to the concerns of small business.

The Crain-Hopkins report is a good first attempt (using existing State-level and national data) to estimate the competitive disadvantage that small firms face relative to large firms in complying with Federal regulations. However, firm-specific data rather than State-wide averages are really needed to estimate accurately the magnitude and significance of these effects.

The Crain-Hopkins report estimates, even if accurate, tell only half of the story. We need to know the benefits of compliance expenditures by firm size. For example, according to BLS, mid-sized establishments (50 to 249 employees) reported generally more injury and illnesses per employee than larger (and smaller) establishments. Before we implement the Crain-Hopkins finding that there are economies of scale in complying with regulations, we need to look carefully at the micro-data on the benefits and costs of specific regulations in general and by firm size in particular.

Regardless, the need for agencies to be sensitive to the concerns of small business about regulatory burden is highlighted by data that appears in the recently released "Unified Agenda of Federal Regulatory and Deregulatory Actions, Spring 2002." This Agenda projects the regulatory and deregulatory activities of Federal agencies in the period April 2002 to March 2003. There is much regulatory activity that will have an impact on small business. During that period, the Agenda points out that Federal agencies have under development a number of economically significant or major rules. The top five agencies are EPA (24), HHS (24), USDA (12), DOT (11), and FCC (11). The Agenda also identifies those regulations under development which may have a significant economic impact on a substantial number of small entities: FCC (102), HHS (41), Commerce (35), DOT (23), SEC (20), USDA (18), EPA (15), Labor (14), Interior (11), SBA (10), Justice (8), FRS (7), FAR (6), DOD (5), NRC (5), Treasury (4), DOE (1), FEMA (1), GSA (1), NEA (1), Institute of Museum and Library Services (1), and Architectural and Transportation Barriers Compliance Board (1).

President's Small Business Initiative

President George W. Bush recognizes these concerns, and, in March, announced a number of steps to help small business, some of which directly involve OIRA. One of these initiatives was designed to increase coordination between OIRA and the Office of Advocacy in the Small Business Administration. The Office of Advocacy was created by an act of Congress in 1976 to be a key voice for small business within the Federal government. The Office is headed by a Chief Counsel who is appointed by the President and confirmed by the U.S. Senate. One of the primary responsibilities of the Office is to monitor agency compliance with the Regulatory Flexibility Act to ensure that Federal agencies do not impose unnecessary burden on small entities when crafting regulations and analyzing less burdensome alternatives. OIRA is pleased to be able to partner with the Office of Advocacy as we work toward our mutual goal of reducing unnecessary regulatory burden.

Specifically, the President announced that OIRA and Advocacy were entering into a Memorandum of Understanding (MOU) to reduce the Federal regulatory burden on small entities, and generate improved agency compliance with the Regulatory Flexibility Act. In the MOU, the two offices commit themselves to work together to ensure that Federal agencies properly comply with the Regulatory Flexibility Act. The offices will share information to ensure that agencies adequately consider the impact of their proposed regulations on small businesses in their regulatory flexibility analyses and certifications of economic impact. This agreement between Advocacy and OIRA will help implement the President's agenda of tearing down regulatory barriers to job creation by giving small business owners a voice in the complex and confusing Federal regulatory process.

In this context, President Bush specifically asked OMB to work with Advocacy to strengthen the enforcement of the Regulatory Flexibility Act. This Act requires agencies to prepare an analysis of the impact of new regulations on small businesses before they are put into place. It is established practice for OIRA to share draft agency regulations that have a small business impact with Advocacy while these drafts are under review at OIRA under E.O. 12866, and OIRA has been careful to hear from Advocacy and take its views into consideration in the course of this review. OIRA is prepared to return any draft rules for agency reconsideration if they have not taken into consideration the impact of the draft rule on small businesses, as required by the Regulatory Flexibility Act.

In another Presidential initiative, President Bush asked OMB to seek the views and comments of small businesses on existing Federal government regulations, paperwork requirements, and guidance documents. On March 28, OIRA published its Draft 2002 Report to Congress on the Costs and Benefits of Federal Regulations for 60 days of public comment (67 FR 15014). In that draft report, OIRA called for public nominations of regulatory reforms in three areas:

  • Reforms to specific existing regulations that, if adopted, would increase overall net benefits to the public, considering both qualitative and quantitative factors;
  • Identification of specific regulations, guidance documents, and paperwork requirements that impose especially large burdens on small businesses and other small entities without an adequate benefit justification; and
  • Reviews of problematic agency "guidance" documents of national or international significance that should be reformed through notice and comment rulemaking, peer review, interagency review, or rescission.

In Chapter IV of the draft report, "Recommendations for Reform," OIRA specifically cited the core conclusion of the Crain/Hopkins report, repeated its request for comments "on needed reforms of regulations unnecessarily impacting small businesses" and stated that we will coordinate with Advocacy on this initiative. This March, we increased our outreach efforts to ensure that academics, business groups, State and local groups, and public interest groups were aware of this Federal Register notice to encourage them to make comments and recommendations for regulatory reform.

OMB's Draft 2002 Regulatory Accounting Report

As directed by the Regulatory-Right-to-Know Act, the OMB 2002 Draft Report contains estimates of the total annual costs and benefits of Federal Rules and paperwork (a) in the aggregate; (b) by agency and agency program; and (c) by major rule. Our estimates from previous years have been updated to take into account regulations issued between April 1, 1999 and September 30, 2001. We also provide, as called for by the Act, analyses of impacts of Federal regulations on State, local, and tribal government, small business, wages, and economic growth as well as recommendations for reform. Moreover, the OMB 2002 Draft Report also includes additional information in the spirit of the Regulatory Right-to-Know Act about the Administrations's efforts to make its centralized approach to Federal regulatory policy more open, transparent, and accountable to the public.

I would like to highlight some of the major features and findings in the OMB 2002 Draft Report:

  1. In the last six months, OMB has reviewed 41 significant Federal regulations aimed at responding to the terrorist attacks of September 11th. These rules address urgent matters such as homeland security, immigration control, airline safety, and assistance to businesses harmed by the resulting economic disaster experienced in several regions of the country.

  2. The Bush Administration's approach to regulatory review, through OIRA, is characterized by openness, transparency, analytic rigor, and promptness. OIRA's website puts that perspective on display, with daily updates and an unprecedented amount of information about OIRA's activities. The 20 significant rules that OMB returned to agencies for reconsideration from July 1, 2001 to March 1, 2002 are more than the total number of rules returned to agencies during the Clinton Administration. Inadequate analysis has been the most common reason for returns.

  3. Under the Bush Administration, OIRA is taking a proactive role in suggesting regulatory priorities for agency consideration. In order to play this role constructively, we have devised the "prompt" letter as a modest device to bring a regulatory matter to the attention of agencies. OIRA's initial five prompt letters have addressed a range of issues including the use of lifesaving defibrilators in the workplace, food labeling requirements for trans fatty acids, and better information regarding the environmental performance of industrial facilities.

  4. Pursuant to statutory mandate, OMB has issued government-wide guidelines to enhance the quality of information that Federal agencies disseminate to the public. OMB is now working with agencies to finalize their guidelines by October 1, 2002. These guidelines will offer a new opportunity for affected members of the public to challenge agencies when poor quality information is disseminated. OMB has required each agency to develop an administrative mechanism to resolve these challenges, including an independent appeals mechanism.

  5. The OMB 2002 Draft Report summarized regulatory reform activities now underway in developed countries throughout the world, with special focus on the European Union.

  6. We examined major U.S. Federal regulations cleared by OMB from April 1, 1995 to September 30, 2001 to determine their quantifiable benefits and costs. The estimated annual benefits ranged from $49 billion to $68 billion while the estimated costs ranged from $51 billion to $54 billion.

The period for public comment on the OMB 2002 Draft Report closed on May 28. We are now reviewing the roughly 2,000 comments we received. We plan to issue the final report later this summer.

Thank you very much for the opportunity to appear today. I am willing to answer any questions you may have.

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