06/17/2002
by Bruce D. Phillips, Senior Fellow in Regulatory Studies, NFIB Research Foundation, Washington, D.C.
I. Introduction
On August 11, 2000, President Bill Clinton signed Executive Order 13166, commonly known as the "Limited English Proficiency" (LEP) Act. EO 13166 requires federal agencies and any other entities that receive federal funds via grants, contracts or sub-contracts to make their activities accessible to non-English speaking persons.1 This includes any small business-especially medical professionals who receive federal funds--to have translators available or to have access to a translation service should one be needed. But the LEP act would also require any recipient of a federal dollar-including a homeless shelter, a grocery store or a farm stand-to have translation services available if and when they are needed. The LEP Act requires that the Justice Department assist federal agencies in administering the Act to ensure "meaningful access" to services for which federal funds are provided.2 After EO 13166 was issued, a comment period followed, which closed on April 8, 2002."3 On March 14, 2002, with very limited information, OMB-now under the Bush Administration--sent a report to Congress on the costs and benefits of EO 13166.4 EO 13166 stands today, and will have negative impacts on many segments of the small business community.
This paper examines the significant actual and potential costs of EO 13166 on small business. It incorporates NFIB's new Regulatory Impact Model (RIM) to show how the new EO will distort spending and adversely affect the economy. Part II below describes what is actually required under EO 13166, and how diverse federal agencies will attempt to comply with it that distribute funds. Part III provides some of the actual costs and obligations on small business owners in different sectors of the economy, which are subject to this new regulation. The last section of the paper describes why it is virtually impossible to quantify benefits under this Act. The paper concludes with a summary.
II. What is Required Under EO 13166?
The Department of Justice (DOJ) uses a four- factor test to determine if business customers with limited English abilities have reasonable access to goods and services: the number and proportion of LEP individuals, the frequency of contact with a program or business, the nature and importance of the program, and the available resources and costs to the firm or government agency. It may be observed that someone with limited English ability may have difficulty speaking, writing, or reading the language. The importance of any or all of these factors clearly depends upon circumstances. For example, in a medical emergency, the ability to speak English may be the most important, but while driving, the ability to understand a traffic sign may be the most important. Title VI of the Civil Rights Act of 1964 requires that all government services be available to all citizens, regardless of country of birth. About 10.4 percent of the U.S. population was foreign born in 2000, and EO 13166 is primarily designed to assist them.
EO 13166 makes for interesting public policy, because it is fundamentally a government program, with an unfunded mandate against the business community.
Case law indicates that most of the lawsuits filed on behalf of the Civil Rights Act of 1964-certainly a predecessor of EO 13166-came from parents who filed suits against school districts so their children could receive a better education. Many of the ESOL programs in existence today (English for Speakers of Other Languages) came out of this legislation.
The desire to extend ESOL type programs to all recipients of federal dollars is an unfunded mandate against the business community. In the March 14, 2002 report to Congress, OMB reports that 10 federal agencies have issued guidance documents on how to comply with EO 13166. While recognizing that the separate agency guidelines were "not entirely uniform," OMB has issued further guidelines and performed 4 case studies in an attempt to quantify the costs of this program, and also provided a qualitative assessment of the benefits of the executive order. The four areas studied by OIRA/OMB were: healthcare, welfare, transportation and immigration. 5
The healthcare section of the OMB document provides very detailed information on the cost of implementing EO 13166 in hospitals, as well as in small medical and dental offices. Because most hospitals represent large firms and small medical offices represent small business owners, we were able to obtain baseline data to quantify the costs of LEP requirements on the health sector.
Because virtually the entire medical sector is dependent upon federal assistance, we know that this sector of the economy-now almost 15 percent of our gross domestic product-will be affected. But since OMB's other examples concern the issuance of driver's licenses, food stamps, and welfare/immigration rules, estimating the effect of EO 13166 on other business sectors proved more challenging.
A number of assumptions were required to use the RIM model. Generally, these had to do with the small business dominated retail and service sectors. For example, there is no available data providing the proportion of businesses that receive federal assistance-such as food stamps-in the retail food sector. Similarly, it is not known what proportion of non-English speaking individuals use welfare payments in particular service businesses, be they beauty establishments or auto repair shops. Therefore, to be conservative, we made the assumption that only 10 percent of business firms-whether large or small-- would be affected in the retail and service sectors.
Casual observation in the banking, transportation and communications sectors makes it obvious that many large phone companies, airlines, and banks with national markets already provide internet and printed information in several languages. Similarly, many global manufacturers provide written instructions for manufactured goods in several languages, since their products are manufactured and sold throughout the world. This makes sense, and has been done based upon demand, rather than government mandate.
Since most small firms operate in local markets, the twenty or so languages required by EO 13166 will have little or no relevance to small business owners. In states such as Texas and California, many small business owners are already bilingual or trilingual where necessary, or already have employees who speak other languages to match their customer base. Anecdotal observation illustrates that this is even true for small local car dealers, especially when customers are born outside the United States. They comply with the intent of EO 13166 simply by hiring outside and inside sales persons who are already fluent in several languages.
III. Applying the RIM and Calculating the Costs of EO 13166
To apply the RIM model, eight sectors were defined (see Table 1). The first two-for which we had the best data-were in the health care sector. In that sector, small firms were assumed to comprise the entire sector, excluding hospitals.
Table 1 -- Defined Sectors Using the RIM Model
| (Employees Per Firm) | |
|---|---|
| Small | Large |
| (<100) | (>100) |
| Health Care excl. Hospitals | Hospitals |
| Retail Food Stores, Farms | Retail Food Stores. Farms |
| Small Service Firms | Large Service Firms |
| Small Retail Firms excl Food | Large Retail Firms excl Food |
Staff interpreters @ $26/hour;
Language banks@ $20/hour;
Language (telephone) lines@ $132/hour.
The mix of these services varied with the type of health visit. For hospitals, the combination of emergency room visits and inpatient visits came to $86.8 million, with ER visits costing $8.6 million and inpatient visits costing $78.2 million. For small business owners in the health field, total costs came to $168.4 million, with $4.5 million in costs to community health clinics and $156.9 million in costs based upon visits to private providers.7
On a per firm basis, annual costs were as follows: $1,971 per hospital for ER visits, $2,842 for inpatient visits, $376 per firm for private medical offices, and $1,314 for visits to community health clinics.8 For the first two sectors listed above, these costs were entered into the RIM model.
Costs for the additional sectors were assumed and were more difficult to estimate, but the small number of comments received by OMB allowed some reasonable assumptions to be made. For each of the remaining 6 sectors, both large and small firms were assessed a first year cost of $500 to understand the new regulations. This is basically a management or time cost. In addition, assuming a compliance rate of 50 percent for large firms and 20-25 percent for small firms, recurring costs would be $1,500 for small firms and $5,000 for large firms. These would be provided by translation firms and "on demand" language consultants. We assumed that grocery stores and the farm sector would have slightly higher compliance rates than the rest of the retail and service sectors.
One cost was not possible to model with the RIM. This was the cost of delays caused by language barriers, and the possibility of foregone sales (sales never made) due to language problems. Based upon average receipts of $750K-$1MM for a 5 person firm (or about 1.3 percent of total sales), this would be equivalent to about $10,000 per firm. However, software limitations prevented the modeling of this cost.
Additional Costs to the Economy From RIM
The RIM model indicates that the total compliance cost of this regulation can be as high as $2.7 billion dollars lost in disposable personal income, depending upon the exact assumption made. Some jobs will be lost in basic sectors like manufacturing and, as expected, jobs will be created in legal and professional services, primarily from translators and the need for "help" lines, somewhat akin to the technical assistance lines in the computer industry.
This means that small business owners will cross subsidize other small owners, as well as large firms, who do not need translation services, or who do not receive federal dollars from recipients of federal assistance. Indeed, every federal dollar of assistance will come with a price.
IV. Implications and Benefits From the Regulations
According to OMB estimates, about 11.3 million persons or 4.1 percent of the total population will be positively impacted by this regulation. But what OMB has not taken into account is the fact that some high proportion of LEP recipients are already receiving these translation services without any government intervention, simply because it is a good business practice.
In the case of the federal sector, it may be perfectly reasonable to have translators and translation lines available to help recent immigrants receive driver's licenses or apply for food stamps. These are national programs, and there is an imperative to serve diverse population groups quickly to speed their societal assimilation.
However, small local firms frequently do not serve many diverse customers who speak many different languages. Many small firms are already providing these services-even on their Web-sites-simply by hiring bilingual employees. It does not appear that OMB has made its case that the LEP regulation should be extended to the private sector-especially to every small government contractor, subcontractor, or owner of a small store. These firms generally have very limited market areas and frequently already accommodate speakers of other languages in some form. It would have been better to have shown the need for EO 13166 with a survey before its implementation.
EO 13166 also forgets that many individuals with limited English abilities have relatives, friends, etc who routinely help them become assimilated into society. This has always been the case. While there may be a pressing reason to speed this process where legal documents are required (e.g. driver's licenses or the payment of taxes), this same argument should not apply to commerce. Perhaps some groups may go too far in asserting that government should not discourage individuals from assimilating and learning English.9
The RIM simulations discussed above also indicated that some jobs will be lost in sectors other than professional services, and the net result will be to reduce disposable income by several billion dollars which will instead be spent in complying with the mandate.
The Office of Management and Budget should suggest a modification of EO 13166 to apply only to monies distributed directly by federal agencies. Contractors and sub-contractors in the private commercial sector should be exempt from this regulation.
1 Federal Register, March 7, 2002, Volume 67, Number 45, pages 10477-10484.
2 Office of Management and Budget Report to Congress, "Assessment of the Total Benefits and Costs of Implementing Executive Order No. 13166, "Improving Access for Persons with Limited English Proficiency" March 14, 2002, pg. 6.
3 http:/www.englishfirst.org/13166/13166/treasury/030702.htm
4 Office of Management and Budget, "Assessment," Ibid.
5 Ibid, page 7.
6 In the case of hospitals, about 30 percent of total visits resulted in language related costs, while in private medical offices, it was assumed that about 45 percent of office visits resulted in the use of one of the language bank or translation services.
7 Ibid, pgs 48-51.
8 These data were derived using 1998 SBA data. The number of hospitals was 4,363-all assumed to be large firms-in 1998 using SBA data, while the number of small medical practices 422, 000.
9 See, for example, The Eagle Forum Letter.
