Regulatory Flexibility Improvements Act
House Small Business Committee
Wednesday, March 16, 2005
Prepared Remarks of Jay Lancaster
Owner B.E.S.T. Inc.
Good afternoon Chairman Manzullo, Ranking Member Velazquez and Members of the committee. Thank you for the invitation to be here today. It is an honor to testify before you. I am here to talk about H.R. 682, the “Regulatory Flexibility Improvements Act” sponsored by Chairman Manzullo. Also, I am also pleased to be representing the 600,000 small-business members of the National Federation of Independent Business (NFIB) in expressing our support for H.R. 682.
My name is Jay Lancaster, and I own and operate Best Inc., specializing in commercial roof installation and waterproofing. We are truly a family-run operation; we have eight full-time employees, and all are related to the two founders.
Small businesses today are being barraged by government regulation. H.R. 682 will help relieve the regulatory burden on small businesses like mine by amending the Regulatory Flexibility Act (RFA) to hold federal agencies accountable for rules they create. My goal today is to first, discuss how regulation impacts a small business like mine and second, how this bill will help reduce that burden.
Over-Regulation
There are many problems with the way the federal government regulates business, some obvious and some not. I want to take a minute to discuss what I see as the most pressing issues for small business. I will note here that I am not an expert in regulation. I am an expert in running my business. But I want to share with you a perspective from someone that is on the ground dealing with over-regulation on a day-to-day basis.
The NFIB Research Foundation released a poll listing the largest problems for small businesses when dealing with regulation. The greatest problem experienced was the amount of paperwork required by regulation, the second was the complexity of compliance and the third, but not far behind, was the cost.
Volume of Paperwork
My personal experience reflects the findings of the poll. It’s almost impossible to keep track of how much regulation affects me, but I did a short inventory for this hearing. My small, eight-person business is regulated by over eight agencies, and that is just at the federal level. Of course, those eight regulatory agencies are just the tip of the iceberg. If I were to count the different bureaucracies I deal with inside each agency plus the different departments that regulate me at the state and local level, the number would be very high.
The amount of paperwork associated with these regulations is staggering and is certainly not something that one person alone can handle. A small businessperson like me does not have time to follow every change that happens here in Washington, and when a change occurs, businesses are often the last to know. NFIB polling indicates that 82 percent of small-business owners typically discover new regulatory requirements in the normal course of business activity. Only twelve percent periodically do research to find out about new requirements; the rest are too busy running their businesses.
Complexity
Once a regulation is issued, I’m sure not many small-business owners would know how to comply without some kind of help. The complexity of regulation today is daunting and sometimes reading regulatory language is like reading a foreign language. How can small businesses be expected to comply if they don’t understand what they are being mandated to do? This forces us to either hire more employees or worse, hire outside consultants and contractors to do the work for us.
Small businesses don’t have compliance officers, accountants and lawyers on staff. In fact, my wife acts as our “compliance officer” and my daughter, much to her dismay, is forced to spend countless hours a month just on OSHA compliance. Neither have special training in these areas, but they do the best they can.
Cost
This brings me to my next problem: cost. Smaller businesses pay 60 percent more on regulatory costs per employee than larger businesses according to the Small Business Administration. As a businessman I do not measure the cost of regulation solely in money spent on outside contractors but I also calculate it in the time my employees and I have to spend on the regulation itself. Sometimes I think this is the worst cost of all because every minute I spend on regulation takes me away from growing my business or better yet, playing with my grandchildren. Every dollar I spend on an accountant is a dollar I cannot reinvest in my business, and as ours is a family-run business, my family’s future.
When I first started out, we had a simple operation, but now I am forced to employ various people to do the things I can’t. Nowadays I have an accountant, I pay a person in California for regular updates on industry specific regulatory activities and I’ve joined groups like NFIB and other trade associations just so that I can stay on top of things. Even with all of these resources, I still can’t keep track of everything. This adds to the cost of doing business and that cost has to be either passed on to the consumer or absorbed by me.
That’s why your work, Chairman Manzullo, on H.R. 682 is so important to small business. From where I’m standing, it doesn’t seem like there is much holding agencies back from introducing more burdens on small business. It is clear that RFA and the Small Business Regulatory Enforcement Fairness Act (SBREFA) are not doing an adequate job protecting small business.
H.R. 682 seeks to change this by holding the agencies feet to the fire when it comes to burden reductions. By closing the loopholes used to skip compliance with the RFA, this bill will ensure that all agencies determine the impact of their rulemaking on small businesses. It will also force agencies to research alternative ways of reducing burden. H.R. 682 will give small business a larger voice in the formulation of federal regulation, which in turn, helps the government produce better laws. I can’t think of many people that wouldn’t be for that. Better laws lead to more compliance and help to reduce the cost of doing business.
I only have a short time left so I want to highlight several provisions in this bill that I see as being extremely helpful to small business specifically: requiring the agencies to understand the indirect impacts of rules, requiring the IRS to try harder to reduce its paperwork burden and for agencies to review older regulations to find out what is and what is not working.
Indirect Impact
Under current law, agencies are required to do a regulatory flexibility analysis on rules that have a direct impact on small business. They are not required, however, to do an analysis on rules that do not directly regulate small businesses. Plenty of actions taken by agencies, such as the Environmental Protection Agency (EPA), have a significant economic impact on my business while not directly regulating it. These types of rules can include things such as environmental standards, land-use and water rights. And while not directly regulating small businesses, they can alter how businesses operate and force changes that cost money and jobs. By having agencies gauge indirect impact, small businesses are assured that their voice will be heard on every rulemaking that can affect small businesses economically.
There seems to be a disagreement over who should be doing the analysis, the states or the federal government. As a businessperson, I don’t care who does it as long as it gets done. It seems to me that the federal government is in a much better position, with more money and more staff, to conduct the research than cash-strapped states.
Applying RFA to IRS Interpretative Rules
The federal paperwork burden is nearly 8.1 billion hours per year. The IRS is responsible for 80 percent of that burden. The NFIB Research Foundation estimates that it costs small businesses over $74.00 an hour to do IRS paperwork and record-keeping. That is a lot of money when you add it all up. With these kinds of numbers, you would think the IRS would be working harder than anyone to reduce this burden. It doesn’t appear that they are. IRS compliance with RFA is mediocre at best. Chairman Manzullo’s bill would make the IRS more responsive to small business by requiring impact analysis on rules even if they are deemed to be interpretative in nature.
Currently, the IRS only does an analysis if it creates a new form. This provision would require the IRS to do an analysis on all interpretative rulemaking that impose a recordkeeping requirement on small business. This is important because the IRS doesn’t create new tax forms often, but they do make changes to existing forms. The IRS avoids RFA requirements by making these types of incremental changes.
It may not seem significant to the IRS when they add a question here or change a question there, but it is for me. Every time a change is made, I have to call my accountant and ask him what it means for me and how will it change my bottom line. This isn’t my experience alone. An NFIB poll found that three of four small businesses have another firm handle their tax paperwork.
It is astonishing that these types of changes are not being backed by analysis to see whether this will hurt small businesses. Forcing the IRS to do an analysis on interpretative rules will force the agency to consider less costly alternatives.
Periodic Review
As I’ve mentioned, there are tons of regulations on the books. Section 7 of the bill would require agencies to review older regulations periodically to see if there is a new impact on small business. I can’t think of a better concept. It is hard for me to believe that while I’m expected to comply with all of these rules, the agencies are not required to review rules issued in the past. These regulations have a direct impact on my bottom line and on the economy. I would expect that there is someone in the agency looking to see what needs to be updated, what needs to be changed and what needs to be taken off the books.
This provision will make agencies more responsive to small business by forcing a review of the impact a particular regulation has had on small business. Its just like when you are laying down a roof, you shouldn’t move on to the next section until you look back to make sure the job you just did is done right. If I didn’t review my work, the quality of the work done would suffer and sooner or later I would go out of business. Unfortunately for me, these agencies can’t go out of business. This type of review is common sense and would give agencies a better understanding of how their actions affect businesses and therefore will help them make better rules in the future.
This concludes my testimony. Thank you Chairman Manzullo for your work to reduce the regulatory burden on small business and for holding this hearing on H.R. 682. I applaud you and your committee’s efforts to reduce regulation on small business. Thank you also for allowing me to testify today, I would be happy to answer any questions that the committee may have at the appropriate time.
