STATEMENT
OF
JOHN D. GRAHAM, PhD.
ADMINISTRATOR
OFFICE OF INFORMATION AND REGULATORY AFFAIRS
BEFORE THE
SUBCOMMITTEE ON REGULATORY REFORM AND OVERSIGHT
AND THE
SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT, AND GOVERNMENT
PROGRAMS
COMMITTEE ON SMALL BUSINESS
UNITED STATES HOUSE OF REPRESENTATIVES
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:
- 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.
- 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.
- 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.
- 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.
- The OMB 2002 Draft
Report summarized regulatory reform activities now underway in developed
countries throughout the world, with special focus on the European Union.
- 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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