[Senate Hearing 115-21] [From the U.S. Government Publishing Office] S. Hrg. 115-21 EXAMINING HOW SMALL BUSINESSES CONFRONT AND SHAPE REGULATIONS ======================================================================= HEARING BEFORE THE COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP UNITED STATES SENATE ONE HUNDRED FIFTEENTH CONGRESS FIRST SESSION __________ MARCH 29, 2017 __________ Printed for the Committee on Small Business and Entrepreneurship [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Available via the World Wide Web: http://www.fdsys.gov ______ U.S. GOVERNMENT PUBLISHING OFFICE 25-346 PDF WASHINGTON : 2017 ----------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Publishing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001 COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP ONE HUNDRED FIFTEENTH CONGRESS ---------- JAMES E. RISCH, Idaho, Chairman JEANNE SHAHEEN, New Hampshire, Ranking Member MARCO RUBIO, Florida MARIA CANTWELL, Washington RAND PAUL, Kentucky BENJAMIN L. CARDIN, Maryland TIM SCOTT, South Carolina HEIDI HEITKAMP, North Dakota JONI ERNST, Iowa EDWARD J. MARKEY, Massachusetts JAMES M. INHOFE, Oklahoma CORY A. BOOKER, New Jersey TODD YOUNG, Indiana CHRISTOPHER A. COONS, Delaware MICHAEL B. ENZI, Wyoming MAZIE K. HIRONO, Hawaii MIKE ROUNDS, South Dakota TAMMY DUCKWORTH, Illinois JOHN KENNEDY, Louisiana Skiffington E. Holderness, Republican Staff Director Sean Moore, Democratic Staff Director C O N T E N T S ---------- Opening Statements Page Risch, Hon. James E., Chairman, and a U.S. Senator from Idaho.... 1 Shaheen, Hon. Jeanne, a U.S. Senator from New Hampshire.......... 2 Kennedy, Hon. John, a U.S. Senator from Louisiana................ 3 Witnesses Noel, Randy, President, Reve Inc., First Vice Chairman, National Association of Home Builders (NAHB), Laplace, LA............... 4 Knapp Jr., Frank, Co-Chairman, American Sustainable Business Council (ASBC), President & CEO, South Carolina Small Business Chamber of Commerce, Columbia, SC.............................. 12 Alphabetical Listing George Washington University Regulatory Studies Center, Commission on Evidence-Based Policymaking Comments dated November 8, 2016.............................. 38 George Washington University Regulatory Studies Center, Examining How Small Businesses Confront and Shape Regulations Statement dated March 29, 2017............................... 63 Kennedy, Hon. John Opening statement............................................ 3 Knapp Jr., Frank Testimony.................................................... 12 Prepared statement........................................... 15 Lankford, Hon. James Prepared statement........................................... 74 National Association of Convenience Stores Statement dated March 29, 2017............................... 76 National Federation of Independent Business Statement dated March 29, 2017............................... 82 NEMO Equipment, Inc. Statement.................................................... 91 Noel, Randy Testimony.................................................... 4 Prepared statement........................................... 6 Responses to questions submitted by Senator Inhofe........... 36 Northland Forest Products March 8, 2017................................................ 93 Pete and Gerry's Organics, LLC Statement.................................................... 94 Risch, Hon. James E. Opening statement............................................ 1 Shaheen, Hon. Jeanne Opening statement............................................ 2 Prepared statement........................................... 34 U.S. Chamber of Commerce Statement dated March 29, 2017............................... 95 EXAMINING HOW SMALL BUSINESSES CONFRONT AND SHAPE REGULATIONS ---------- WEDNESDAY, MARCH 29, 2017 United States Senate, Committee on Small Business and Entrepreneurship, Washington, DC. The Committee met, pursuant to notice, at 3:00 p.m., in Room SR-428A, Russell Senate Office Building, Hon. James E. Risch, Chairman of the Committee, presiding. Present: Senators Risch, Ernst, Inhofe, Young, Rounds, Kennedy, Shaheen, and Heitkamp. OPENING STATEMENT OF HON. JAMES E. RISCH, CHAIRMAN, AND A U.S. SENATOR FROM IDAHO Chairman Risch. Welcome, everyone. We will call the meeting to order. I want to welcome everyone to this issue-focused hearing, and the issue, of course, today, we are talking about is the federal regulatory structure. From my perspective, the best thing that Congress can do to help small businesses is to get out of the way. The first way you do that is to get a handle on the regulatory structure. Often, when I talk to small business people they feel, and I think correctly so, that their complaints, when there is a regulation proposed, fall on deaf ears. We all know that it is much easier for a large business to comply when the Federal Government decides it is going to enact some type of regulation. If you are a large corporation, you have a fleet of lawyers and compliance officers and accountants that can handle it. If you are fixing lawn mowers in your garage, in a one- or two-person operation, that becomes a much, much more challenging prospect. I think that small businesses need a break from the regulations that they have been suffering under for the last eight years. Under the Regulatory Flexibility Improvement Act that we have proposed, agencies will be required to evaluate the impact of regulations and do it in a realistic fashion. As we all know, that is already required, but our poster child for avoiding review is the Waters of the United States Rule. When the rule was proposed, incredibly, the agency said that that rule would not significantly impact small businesses, and we all know--particularly those of us from the West--how untrue that is. I am extremely confident in America's entrepreneurs, who provide robust economic growth when we give them the chance to advance business and innovation. We need to ensure that federal agencies listen to small businesses when making rules. I look forward to working on this committee to pass much needed reforms that empower the Office of Advocacy and give businesses-- particularly small businesses--a stronger voice, while also limiting the ability of the federal agencies to impose new regulatory costs on small businesses. It is small businesses that were responsible for building this country. They built this country not because of the Federal Government, but in spite of the Federal Government. We want to go back to that, as far as I am concerned. With that, I want to yield to my good friend and distinguished colleague, Senator Shaheen. OPENING STATEMENT OF HON. JEANNE SHAHEEN, RANKING MEMBER, AND A U.S. SENATOR FROM NEW HAMPSHIRE Senator Shaheen. Well, thank you very much, Chairman Risch, and thank you to our two witnesses who are here today. We appreciate your taking time to be here and share with us your views. And I apologize for being late. I have two other hearings going on at the same time, as is often the case in the Senate. Mr. Chairman, I also thank you for holding this hearing today, because, as you point out, we can do better with how the regulatory process addresses small businesses. I started out life, my husband and I did, as small business owners, and I understand the challenges that small businesses face. They need to balance their budgets, meet payroll, find new customers, attract talented workers, and keep pace with the changing economy. Small businesses have a lot to worry about and our job, on this committee, is to try and help them grow their businesses and make their lives easier, and there is no question that poorly crafted regulations can result in an excessive burden for small businesses. That is why we need to ensure that federal agencies have a regulatory process that produces smart, common-sense, and easy-to-understand rules, why we need to help them comply, and why we need to harmonize and streamline and repeal regulations that no longer make sense. At the same time, I think it is important that we are mindful that well-crafted regulations have the potential to both encourage innovation and provide critical protections that small businesses need, and in anticipation of this hearing I reached out to small businesses in New Hampshire and heard from a few owners about what they would like to see with respect to regulations, and I want to just share two of those stories. I heard from Jesse Laflamme, who is a CEO of Pete and Gerry's Organics, which is a small business located in Monroe, New Hampshire, which is northern New Hampshire. They produce USDA certified organic eggs. Senator Risch thinks we do not have farming in New Hampshire, but we do. [Laughter.] Chairman Risch. No, I know you do. Senator Shaheen. Jesse's business has thrived for over the last decade, with sales growing by more than 30 percent each year. That is a pretty good growth rate. He now sells his organic eggs at more than 9,600 locations across the country, and he writes--and I am quoting him now--``The regulations on organic food and the labeling associated with adhering to these regulations give us an important competitive advantage in our market.'' He further adds that ``the organic label must have real meaning or our products will lose their value-added advantage.'' I also heard from Jamey French, who is the CEO of Northland Forest Products, which is a family-run business in Kingston, New Hampshire, that produces lumber for markets throughout the United States. In his letter, Jamey writes that ``as a small family- and employee-owned business, we rely on a stable, consistent, and fair regulatory environment to protect us from unfair market competition and to level the competitive playing field.'' And he adds that ``clean air, clean water, and regulations that discourage mismanagement of the working landscape are key to our future.'' So I believe we can accomplish the goals that all of us would like to see, in terms of fair, effective regulations, and that is hopefully the mission of this committee and the goal of the hearing today is to hear from you all as representatives of small businesses what you would like to see us do to address these regulations. So thank you very much, Mr. Chairman, and I look forward to hearing from our witnesses. Chairman Risch. Thank you so much. I appreciate it. I am now going to recognize Senator Kennedy, who will introduce one of our witnesses. OPENING STATEMENT OF HON. JOHN KENNEDY, A U.S. SENATOR FROM LOUISIANA Senator Kennedy. Thank you, Mr. Chairman. It is my pleasure today to introduce Mr. Randy Noel, who is one of our witnesses today. Mr. Noel is from Laplace, Louisiana, which is near my place of residence in Madisonville. He is a second-generation home builder. He has more than 30 years of experience in the residential construction industry. Since founding his company, Reve Inc., in 1985, he and his company have built more than 1,000 custom homes in the greater New Orleans area. Throughout his career, he has been active with the National Association of Home Builders at the state, local, and national levels. That includes serving on the Board of Directors for more than 20 years, and is the President of the Louisiana Home Builders Association, which is a very important trade association in my State. In 2018, Mr. Noel will become Chairman of the National Association of Home Builders Board of Directors, and I hope you will join me in welcoming Mr. Noel today. I know small businesses are important to America. They are especially important to Louisiana. We have over 400,000 in my state. Each is very important and Mr. Noel here is going to talk to us a little bit about some of the problems they have today. Thank you for coming, Mr. Noel. Mr. Noel. Thank you, Senator Kennedy, my Senator from Louisiana. Chairman Risch. Mr. Noel, we will hear from you, and then we will hear from Mr. Knapp. We would ask you to please keep your comments to about five to six minutes. Anything you have in writing will be submitted for the record, and we will have it published in the record. So thank you very much and welcome. STATEMENT OF RANDY NOEL, PRESIDENT, REVE INC.; FIRST VICE CHAIRMAN, NATIONAL ASSOCIATION OF HOME BUILDERS (NAHB) Mr. Noel. Yes, sir. Chairman Risch, Ranking Member Shaheen, and members of the Committee, Senator Kennedy, I am pleased to be here on behalf of the National Association of Home Builders on how small businesses confront and shape regulations. You already know, my name is Randy Noel, and I am from Laplace, a second-generation home builder, and I have been doing it for 30 years, and as Senator Kennedy said, we have built over 1,000 homes in that area. But I understand how difficult and costly it can be to comply with government regulations. But it is not just costly for me and my business. These costs also deny too many Americans the opportunity to own a home. According to NAHB's research, government regulations account for nearly 25 percent of the cost of a new single- family home. Worse, 14 million American households are priced out of the market for a new home. In order to reduce the regulatory burden on small businesses, NAHB believes you must restore congressional oversight authority to the process. Fix what is broken and focus on the disproportionate burden small businesses bear in complying with regulations. Today I will focus on the small business component. While the Regulatory Flexibility Act requires federal agencies to consider the effect of their actions on small entities, agencies regularly neglect input from the regulated community and, as a result, produce very poor impact analysis. Even with these flaws, the rules go into place and businesses are forced to divert precious resources to lengthy and uncertain legal challenges. Unfortunately, there is no other way to hold agencies accountable when they ignore the effects of regulation on small businesses, and agencies are not required to confirm their economic analysis with a respected, neutral third party. As an example of how agencies often go off the rails, I would draw your attention OSHA's 2013 silica rulemaking. OSHA stated the cost to industry would be only--only--$511 million. A coalition of construction groups, including the NAHB, commissioned an independent study that found the true cost to the industry at approximately $5 billion--with a B--$5 billion to the industry. If I provided my clients with quotes that were 9 or 10 times below the actual cost, I would not be getting very much business. We would not have built 1,000 homes. Part of the reason OSHA got this so wrong is they relied on a SBREFA panel that was conducted more than a decade previously. The independent study showed that OSHA just does not understand the construction industry. For example, OSHA ignored some 1.5 million workers in the construction industry who would be indirectly impacted. Congress can help here. It is critical to include indirect costs as part of any true economic impact analysis. Additionally, that economic analysis should be reviewed by a trusted third party to ensure the integrity of the process. Had OSHA worked more closely and actually listened to the construction industry during the formation of the silica rule, perhaps the results would have been more effective, less burdensome rule for the industry. But at least they faked it. The same cannot be said for the EPA Waters of the U.S. In 2014, the EPA proposed a rule challenging the definition of waters of the United States under the Clean Water Act. The agency certified the rule and, in so doing, avoided the initial economic analysis and small business panel requirements which are so critical to the rulemaking process. I told EPA that a more thorough analysis would have revealed the burdens that this rule places on small entities, including small home builders. This rule should have triggered the requirements to convene a SBREFA panel. But the EPA claimed otherwise and there is no means to overrule. Clearly, EPA was not interested in a hearing for the regulated community. Their only objective was to move the rule past the finish line. For a rule of this magnitude, small businesses should have had a voice in the rulemaking process. Congress set up a process for small businesses to be considered in the rulemaking process but it did not include the mechanism to hold the agencies accountable for the failure to comply. There is no judicial review provision for the failure to convene a small business advocacy review panel. The RFA should be amended to fix this critical oversight and hold agencies accountable. In addition to the common-sense changes to the RFA I have listened here today, there are other key components of regulatory reform being considered by Congress. Specifically, the REINS Act, which would restore congressional oversight authority, and the Regulatory Accountability Act, which would fix our decades-old, badly broken regulatory system. These two pieces of legislation, along with the changes to the RFA and SBREFA discussed today, will add fuel to the engine of economic growth that American small businesses represent. Thank you again for the opportunity to testify, and I will be ready for questions when they come. [The prepared statement of Mr. Noel follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chairman Risch. Thank you very much. Our second witness is Mr. Knapp. Mr. Knapp co-founded the South Carolina Small Business Chamber of Commerce in February of 2000, and serves as its President and CEO. He also serves as co-chair of the American Sustainable Business Council action fund and is the President of the Knapp Agency, an advertising and public relations firm. Mr. Knapp, welcome, and the floor is yours. STATEMENT OF FRANK KNAPP, JR., CO-CHAIRMAN, AMERICAN SUSTAINABLE BUSINESS COUNCIL (ASBC); PRESIDENT AND CEO, SOUTH CAROLINA SMALL BUSINESS CHAMBER OF COMMERCE Mr. Knapp. Thank you very much, Chairman Risch. Thank you, Chairman Risch, Ranking Member Shaheen, and members of the Committee. Thank you for the opportunity to testify today. I would like to start with some facts. Most regulations affecting small businesses come from local and state governments. According to polling by the American Sustainable Business Council, 86 percent of small businesses believe that regulations are necessary, and 93 percent believe their business can live with fair and manageable regulations. Regulations are not killing the economy. Tens of thousands of new jobs are being created every month. In February, South Carolina had the largest one-month increase in the number of people working. Regulations level the playing field with big business, and protect small businesses from unfair competition. Regulations create opportunity for entrepreneurs and small businesses to innovate and grow, by creating new products and services, requiring new jobs. And small business owners care about their families, neighbors, workings, communities and environment, which they want to keep safe and healthy--the goal of regulations. So how are small businesses involved in the regulatory development process? Both the Regulatory Flexibility Act and the Small Business Regulatory Enforcement Fairness Act give small businesses impacted by proposed regulations the opportunity to weigh in on the regulation development process to let Federal agencies know how their businesses would be impacted, and encourage modifications to make the regulations less burdensome. This process is not serving our small businesses very well. It takes years and years to promulgate a rule. Small businesses across this nation really are not having input into the regulatory decision-making process. The process has been taken over by power, often big business special interest groups with their own agenda, and have given us regulatory paralysis. Now, how do small businesses confront Federal regulations that are of concern to them? They can personally contact the Federal agency to ask for clarification or help in compliance. The more effective approach would be to contact the Office of the National Ombudsman and ask for assistance in trying to resolve their regulatory issue with a Federal agency. Unfortunately, just as the regulatory decision-making process is not serving small businesses well, compliance assistance is also inadequate. Here are my recommendations for a regulatory forum that will actually benefit our small businesses. Balance the balance sheet. Why do we never see the benefits of regulations in any agency analysis? The positive side of the ledger is always blank when the potential impacts of regulations are analyzed. The economic, health, and social benefits of rules, put in terms of dollars, is not considered by the Office of Advocacy and the regulatory agencies. We often hear critics say that government should run more like a business. Well, businesses weigh the benefits versus costs when making a business decision. No business would invest in new equipment if they only considered cost. Whether the absence of analyzing the benefits of a regulation in the formal process is by statute or custom, this must change if we are to get truly accurate data for rulemaking decisions, and give the public complete information about the value of regulations. Invest in better outreach and analysis. We have essentially starved the regulatory agencies and advocacy, while, at the same time, wanting them to do more. But that cannot happen. Small business outreach is primarily to Washington insiders who want to clog up the regulatory process through heavy lobbying, litigation, creating public anxiety by quoting huge, bogus costs. Then the reform proposals that get the most attention fix the wrong problems, and would just make more problems. The RFA process we have today simply needs more resources so it can run more effectively and efficiently, giving the agencies the resources to conduct a quality rulemaking analysis and outreach we all want. Final point. Help small businesses understand the rules and provide compliance assistance. Once a rule has been finalized, the job of the Federal Government is not done. Small businesses need to be educated about the new rule and, when necessary, provided regulatory compliance assistance. Congress has also set up a process for this, not only within every regulatory agency but also through the SBA Office of the National Ombudsman. Where the Office of Advocacy works on the front end of a development of a significant regulation, the Office of the National Ombudsman is charged with helping small businesses on the back end, with all regulation compliance. It serves as the conduit for small businesses to have their grievances about compliance problems, or other issues, with Federal agencies, heard directly by the agencies, in an effort for successful resolution. In this way, the Office of the National Ombudsman, and the agencies, can detect patterns of compliance problems so that the agencies can revisit rules for modification. This important component of the rulemaking process is woefully underfunded. The Office of the National Ombudsman actually relies on volunteers to help get the message out about its vital small business services. It is, for the most part, unknown and underutilized. If Congress really wants to help small businesses with Federal regulations, invest more in the small business outreach, support, and feedback loop. In conclusion, the current regulatory process can produce good rules while protecting small business from unnecessary burdens if we provide the adequate resources for agencies to expeditiously carry out the requirements Congress has already put in place, on the front end and the back end of the process. Most regulatory reform proposals, while achieving the agenda of some seeking to delay and stop regulations, will inevitably fail to help the vast majority of small businesses. Thank you for the opportunity to speak to you today and I welcome any questions the Committee might have. [The prepared statement of Mr. Knapp follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chairman Risch. Thank you very much, Mr. Knapp. What we are going to do now is do a five-minute round of questions, using the early bird rule, and I would ask everybody to keep it to five minutes and then we will do a second round if it is appropriate. People can make statements, comments, or render questions. I am going to start very briefly and say, Mr. Knapp, thank you for coming here and providing your view of this. I have to say that your using the statistics you did at the beginning is impressive. It is the best face I have ever seen put on this disaster. [Laughter.] I have met morticians who could not do nearly as well as you did, so thank you very much. Mr. Knapp. Thank you, Mr. Chairman. Chairman Risch. With that I am going to yield to the Ranking Member. Thank you. Senator Shaheen. Well, thank you, Mr. Chairman, and again, thank you both for being here. Mr. Knapp, I want to follow up because you talked about the outreach by Federal agencies--it is not focused on small businesses but it is really focused on Washington insiders. How would you like to see us address that concern? Mr. Knapp. Well, the law does say that the agencies can get representation from whole organizations, trade associations, and they are in Washington. It would be great if we could get them out into the outlying areas in each of your districts and to hold these types of meetings. I think often what will happen is small businesses, in a trade association or other organization, at the ground level, you know, may do things differently or have a different opinion, or even help solve the problem. But that is not necessarily the goal at the national level and in D.C. You know, often trade associations, especially big ones, have their own agenda, and that is not necessarily to help the people at the local level. So I would like to see them out more, having more meetings, and actually engage in others, like Mr. Noel, at the local level. Senator Shaheen. Thank you. Mr. Noel, do you have anything you would like to add to that? Mr. Noel. Yeah. Let me--the Department of Labor introduced an overtime rule and had a--I suppose it was a SBREFA panel in New Orleans, which I attended, and the room was filled with small business people discussing the impact of the--raising the limits on overtime pay. And there really was not anyone in the room, and it was all kinds of businesses--big banks, retail, you name it--and there really was not anyone in the room that thought it was a particularly good idea to go as high as they were going at the time. And it just was a little disconcerting to me that after going through that end of the--half of a day with them, that very little came, or was seen in the reports of what we said. That is probably the most frustrating thing with rules and regulations, and small businesses' input. They get it, but it gets ignored, and there is not any way to make them account for that, and that, to me, seems to be the most frustrating thing. So even while when we get out of Washington, D.C., and we take the message and the instructions back to our local areas where the small businesses are, it is still not working. Senator Shaheen. Do you all think there is enough--are small businesses aware when there are changes being made, that they can weigh in on? Is there--are people getting that kind of information, do you think? Mr. Noel. I can tell you the National Association of Home Builders sends out, to its 140,000 members, an e-mail, letting them know what is coming, and we are pretty successful with getting responses and comments on the rules and regs in front of them. But again, over the years that I have been involved with them, some 25 years, even though we have had the comments and the concerns, a lot of the rules go into place without any--addressing any of those issues. Senator Shaheen. But people are actually getting that information because they are part of that association? Mr. Noel. Association. Right. Mr. Knapp. Yeah, so, and they--home builders do a great job. I mean, do not get me wrong. I have known the home builders in South Carolina and they do a--they are very active and they do a good job of communicating with their members. Not all business organizations are like that, and certainly not every business--small business belongs to a trade association as powerful as the Home Builders Association. I certainly would share Mr. Noel's concern that if information is not--is being conveyed at the local level and it is sort of not filtering or getting into the final--but again, I am not going to attribute motive to the people for doing that. I would also attribute it to the fact that they are short-staffed and there is not enough money to do it. So I can appreciate what you are saying but there might be a different reason. Senator Shaheen. I want to point out that according to Thumbtack's 2015 Small Business Friendliness Survey, New Hampshire ranked second, as the second-friendliest state in the country. Idaho was not far behind, at number six, for Senator Risch. But you talked, Mr. Knapp, about the percentage of regulations that are done at the state and local level, and the challenges that they present. Are there ways in which we, at the Federal level, can try and work with our local and state partners to try and address regulations so that we are not overlapping on regulations, and so that we are maybe working together in a way that is more business friendly? And this is like Startup in a Day, that the National League of Cities has launched, as one of the things that may try and work through some of those regulations. But do you have other ideas? Mr. Knapp. Well, I do not know. Again, that is something that would have to be considered. But I will tell you that from having started small businesses, that the most regulations you run into are at the local level--local and state level. And that does not mean that there is not going to be a Federal regulation along the line---- Senator Shaheen. Sure. Mr. Knapp [continuing]. But the first obstacles are always at the local level. Working with the states and their regulatory processes, I honestly do not know how that would work out. Everybody has got their own proprietary concerns, and that would really take a lot more effort to do that, and I do not know that the states would be interested. Senator Shaheen. Thank you. Thank you, Mr. Chairman. Chairman Risch. Thank you, Jeanne. Senator Kennedy, you are up. Senator Kennedy. Thank you, Mr. Chairman. I want to thank both of you for coming. I enjoyed your presentations. Mr. Knapp, could you--I am not quite sure I understood your point. This is probably my shortcoming, not yours. But in 30 seconds or less, could you tell me what you are advocating? Mr. Knapp. I am sorry. What am I advocating? Senator Kennedy. Yes. Mr. Knapp. I am advocating that our present regulatory process could work if it was properly funded. I really do not think that we are putting--giving enough resources to the agencies and to advocacy to do the job that they should--they are trying to do. And also on the back end. We need to set aside--if we had never had another regulation ever passed in this country, we have got a ton of them on the books, do we not? Senator Kennedy. I get it. I understand. Mr. Knapp. And that we need to be helping those who are experiencing the present regulations. If they have compliance assistance issues, we ought to be helping them. Senator Kennedy. So you think an ombudsman can cure all this? Mr. Knapp. Well, again, the national ombudsman in the SBA's office, that is what they are already charged with doing, is being that conduit if somebody contacts their office, saying, ``I have an issue with this compliance--on this regulation.'' The ombudsman---- Senator Kennedy. Mr. Knapp, excuse me for interrupting. I know what an ombudsman does. I did not mean to cut you off but I have only got five minutes. Mr. Knapp. Okay, sir. I apologize. But it is a different office. It is not the same as the agency's. Senator Kennedy. I want to be sure I understand what you are saying, that the answer to what I believe is the over- regulation of America, which is extraordinarily burdensome, the answer to too much government is more government. Mr. Knapp. Mm-hmm. In this case, if you want to help resolve the problem, let us make sure the system that you have in place is properly funded. Senator Kennedy. Okay. All right. Mr. Noel, do you agree with that? Mr. Noel. Actually, not exactly. I will, to a comment that Ranking Member Shaheen said, that the closer--and Mr. Knapp is correct. Senator Kennedy. Mm-hmm. Mr. Noel. A lot of the regulations that we fool with in our industry is local. Senator Kennedy. Mm-hmm. Mr. Noel. Setbacks, building codes, et cetera, and some very good ones. I will tell you, from a personal experience, I find regulation coming from local government and from state government is a lot easier to comply with and have your voice heard, et cetera. Government closer to the people is a better government theory. Senator Kennedy. Is that because you have an ombudsman there, or---- Mr. Noel. No. We do our own advocating there, and because we have the connection with the elected officials and they listen. The thing--and there is some accountability in our State-- -- Senator Kennedy. Mm-hmm. Mr. Noel [continuing]. For whether that rule or reg fits what the legislation meant it to. We have--you know how the process works there. It goes back to an oversight committee and the oversight committee approves the rule or not. That, to me, sounds like the perfect world, in doing rules and regs, and making sure they comply with the laws that were written by the elected officials. We do not have that at the Federal Government level. The rule goes in place and then someone has to sue them to make them comply with the law. Senator Kennedy. Mm-hmm. Mr. Noel. I just--it is part of the reason, I think, we have more congressional oversight on these rules and regulations. We will get better rules and regulations and we will not put something in place that will cause a small businessman to have to spend hundreds of thousands of dollars to sue to stop. Senator Kennedy. Well, it has also been my experience, it is not just--and I would like both of you to comment on it--it is not just the number of rules and regulations, and it is not just the complexity. I think that you will find this to be accurate, that the Federal rules generally are much more complex than state and local. It is also an attitude. I mean, we need government workers who answer the telephone, and when they do answer the telephone, try to be helpful, which means making a decision. Now I know the safest way not to get in trouble is not to make a decision, but it kind of frustrates business. Businesswomen and businessmen are used to making a decision. It is government websites that a normal person can navigate. I guess what I am talking about is not just the number of rules, which is breathtaking, particularly the amount added in the last eight years. It is not just their complexity. It is not just the extraordinary expense. It is the attitude of the agencies. I mean, not every time but too often you just encounter condescension and smugness and this unspoken understanding that if you complain too much, well, what goes around comes around. Would you comment on that? Mr. Knapp. I will say that you have just simply made the perfect argument for having some entity like the National Ombudsman Office to be that conduit, to be the entity that goes to those Federal agencies and says, ``You will talk with these people. You will try to resolve this problem.'' That is what they are empowered to do, sir. Senator Kennedy. I am out of time. Thank you, Mr. Chairman. Chairman Risch. Thank you very much, Senator. You know, your argument is well taken. I think it even goes beyond that, that they should be much more results-oriented than what they are. This is the anecdote I tell. When I practiced law, a client called me and he said, ``EPA guys are here and they want to inspect the business. What should I do?'' And I said, ``You tell them to get off the property, and never set foot on the property again unless they have a warrant from a judge, based on probable cause that there is something occurring, and if you do not, you are going to be really sorry. Because I went through a lot of those enforcement proceedings and all the agencies were interested in was money. Now let me give you the other side of that. The fire marshal would come to my law office and say, ``Jim, I am here to inspect and see if you guys are in compliance. And I would say, ``Come on in and look it over and tell me where we are.'' And you know why I did that? Because I knew that guy was interested in seeing that my place would not catch on fire, and if it did, that they could put it out. He was not interested in raising money in fines. He would go through, he would look at it. If he got to the basement, there was always a problem; he would come up with a list and say, ``Here. You need to take care of these half a dozen things and I will be back in a month to have a look at it.'' That is the way it should work, not walking in and saying, ``Okay, this is going to cost you this much, and this is going to cost you this much.'' You are absolutely convinced after you go through some of those hearings that all agencies are interested in is dollars and cents, and for some reason, trying to slow down the business from what it is trying to do. So if the regulatory agencies were there to help to accomplish things, like clean up the water, clean up the air, and actually be helpful to the businesses, there would be a whole different attitude about regulations. So with that, Senator Ernst. Senator Ernst. Thank you, Mr. Chair. Mr. Noel, thank you for being here today and testifying. Your testimony was spot-on when you spoke about Waters of the U.S. I appreciated that very much, and really had some interesting interactions through their rulemaking process, when EPA came up with that version of WOTUS, so thank you. That rule gave the EPA the power to regulate 97 percent of Iowa. Not 97 percent of Iowa's waters--97 percent of Iowa. So that really hit home with me. So you better believe that when that happened, when that rule was implemented, our small businesses were impacted at home, and it was EPA's failed rulemaking process, and its lack of consideration for those small businesses, that led me to work on legislation that I introduced last year called the Prove It Act. And we are currently working on what we consider a 2.0 version of the Prove It Act and we are requesting lots of feedback from different groups. But at its core, the bill seeks to strengthen the voice of small business owners and improve the quality of agency certifications and analysis, which we felt was lacking as we went through WOTUS. Last year we had the support of NFIB, the Chamber, and Women Impacting Public Policy. It is a good government bill that says if there is a difference in opinion between the Office of Advocacy and a Federal agency on the economic impact of the rule, such as a certification, then Advocacy should have the ability to request that the agency take a second look at its analysis, which we feel is reasonable. It would serve as a check on whether the agency certification of no impact on small businesses is correct, which is a need that you mentioned in your testimony, so thank you for highlighting that. So my question to, Mr. Noel is this: do you think providing greater accountability for agency certification would improve the rulemaking process and outcomes for small businesses? Mr. Noel. Well, absolutely. I mean, if you have no accountability you can do anything you want to do, knowing there is no repercussion. To tag on to the story about--we have builders on the north shore, in St. Tammany, that were making sure that the dirt did not go into the street, but had not had the right paperwork in their file to prove that they inspected it weekly, and 24 hours after the rain. Got fined $1,500. They were accomplishing the goal of the runoff but because the paperwork was not--the same thing happened on lead paint on a remodeling. Because he did not have a document saying he had given a pamphlet to a homeowner, he got fined. Now come on. Senator Ernst. Mm-hmm. Mm-hmm. Mr. Noel. And there is nothing you can do about it, because the fine is not enough to justify hiring a lawyer and suing them, although Volks Construction did that in Baton Route and won. But this is not fair to the small American business. Senator Ernst. Right. So we do think there should be a check and a balance---- Mr. Noel. Absolutely. Senator Ernst [continuing]. Available there, so that if there is question, go back and have them take a second look at it, and we are hoping to gain a little traction on that piece of legislation this year, or in this Congress. So thank you for that. And then, second, in your experience and in your role with the National Association of Home Builders, how many proposed regulations would you say were either improperly certified by agencies or made it through the process without thoughtfully considering the comments of the small business community? Just an estimation on your part. Mr. Noel. How many rules came out in the last eight years? [Laughter.] Or the last 12 months. Hundreds? Senator Ernst. Thousands. Yeah. Thousands. Mr. Noel. I know that we are dealing with, right now, at least five that we are spending court money on to stop. Senator Ernst. Wow. Mr. Noel. That is not a very good use of our members' money, especially if we can stop the rule from going into place before it harms the small business. Senator Ernst. Absolutely, and that is why I think the Prove It Act is necessary. If there is a discrepancy that can be shown, it can be re-evaluated before it is promulgated. Mr. Noel. That is wonderful. Senator Ernst. Yeah, so, anyway, thank you very much, gentlemen, for being here today. I appreciate it. Mr. Noel. Thank you. Chairman Risch. Thank you. The last time I looked at statistics on the number of regulations, there were 80,000 pages of regulations passed in that year. Congress, on average, passes 800 pages of law. Now that is on average. That does not include a year when they pass ObamaCare, an extra 3,000 pages, or something. But on average it is 800 pages of law compared to 80,000 pages of regulatory work. Senator Ernst, we are looking forward to your bills and looking forward to debating them. Senator Rounds. Senator Rounds. Thank you, Mr. Chairman. Mr. Noel and Mr. Knapp, first of all, thank you both for being here today. In South Dakota, like in 41 other states, we have a rules review process. The Federal Government does not have one, at least not one that works. At the Federal level, the Congress will create a law, allow the Executive branch the administrative authority to write the rules, but there is no requirement, as Mr. Noel has indicated earlier, that that ever be reconciled with the actual law itself unless, at the cost of a small business person or a business person in some place, that agency is sued. It seems to me that the best way to approach this is to have a rules review process in place at the Federal level, just like we have in 41 other states. Can I ask each of you if you would agree that that would be an appropriate way to handle the rules processes in the future, and would that actually help us solve this problem? Mr. Noel. Well, I will answer it. Absolutely. It works well in my home state, and good rules and regulations and the people that participate in them, participate in the conversation, so it is not hard to enforce. Mr. Knapp. Yes, sir. In fact, in 2002, I was part of the group that promoted the South Carolina--passing the--their flexibility--Small Business Flexibility Act. But that is on the front end, though. So it is a volunteer group that looks at every rule promulgated by a state agency, and if they have got problems with it, they take it back to the state agency and say, you know, ``Fix this.'' So that has worked exceptionally well in South Carolina. Your proposal regarding having an independent entity look at a rule to make sure it complies with what the legislation said, I have not looked into that. Senator Rounds. Actually, my legislation required that an agency, like in 41 states, would bring their proposed rule back to the appropriate committee at the congressional level for approval, before it becomes enacted, and while the agency could not--or while the Congress would not be able to necessarily permanently stop the rule, they could delay it for a period of time. Most bureaucrats want their rules to go into effect, and what you find is an interest in actually working through the issues to get an appropriate and fair rule in place, and that is after you have input from the public. The WOTUS is a great example of one which never, ever would have been allowed to move forward if it would have had a congressional oversight prior to the implementation. I have another question as well. Do you think--would either one of you think that it is appropriate for the agency responsible for enforcement and action, do you think they should fund their agency using the fines that they collect? Mr. Noel. Absolutely not. I think it is a moral hazard. Education and--other things the money could be used for, other than funding the agency. Mr. Knapp. Certainly it creates a perverse incentive to finding problems when you do it that way, but I imagine those agencies have been told by Congress maybe they have to be self- funded. Senator Rounds. The unfortunate part, CFPB is a good example, which is supposedly for consumers and yet it basically has the ability to go into a business that works for or markets to businesses, and basically they can fine a business, and they keep the money, and they actually operate the CFPB with those resources today. I find that very inappropriate. I do believe there is a moral hazard involved in that, and I disagree with the fact that it was ever done that way by Congress in the first place and should be one of the first things that we stop. We have legislation available now. Let me ask another question very quickly. Right now we have--at the Federal level we have, as you have indicated and as the Chairman has indicated, probably 80,000 rules on the books today. We have 1 million--there is 80,000 a year--we have a million rules on the books today. The total cost to the American public today is about $1.9 trillion annually, just to comply with the rules, and if you compare that, put it in numbers that people could actually understand, personal income taxes actually cost the American public, on April 15th, about $1.4 trillion. So the actual cost to the American economy, on an annual basis, is a half a trillion dollars more than what personal income taxes are to the individuals who actually own those businesses. It seems to me that if those rules were reviewed on a regular basis that we would have fewer of those, there would be more dollars to the bottom line, there would be more revenue generated on actual profits delivered, and you would actually have some happier businesspeople and you would have happier consumers as well. Your thoughts, gentlemen? Mr. Noel. I would say I would agree with that. Certainly our economy has been dragged by these regulations that we have, and the industry that is leaving our shores is clearly an indication of that. Mr. Knapp. My first comment about that $1.9 trillion figure, I think that was produced by a study for Advocacy, which later was disavowed by SBA, so I am not sure about the number. Senator Rounds. It is probably higher. Mr. Knapp. But the look-back thing, there is nothing wrong with that. You know, in South Carolina that regulatory flexibility access, yes, they should go back and look at the rules to see if they are still appropriate or need to be modified. The problem with that is it takes money to do that, and again, I just do not think we are funding the process well enough to do that, which we may all agree with. Senator Rounds. Thank you. Thank you, Mr. Chairman. Chairman Risch. Thank you, Senator Rounds. I think one of the problems on this whole regulatory thing is that we have all forgotten, or were never taught in our basic civics classes in grammar school that with the regulatory structure, the regulatory enactment is not an inherent power of the second branch of government--that belongs to the first branch of government--yet somehow that has slipped away. The first branch of government, of course, from time to time, allows the second branch to enact those regulations, and has to because it cannot enact them all. For instance, a classic example is Fish and Game type things, shooting hours, bag limits and that sort of thing. Those are the rules and regs that should be sent out. But we need to get back to an understanding that the second branch of government is merely the second branch of government. Their job is to execute the laws that the Congress--or in the states, the legislature--enacts. The legislative authority is not inherent in the second branch of government. It only exists because of what the first branch gave it. Sometimes when you listen to courts and you listen to other people, they talk like rulemaking is an inherent part of the second branch of government, but it is not. When a rule or regulation is enacted, it has substantive effect of force of law, and it was never intended by the Founding Fathers to be part of the second branch of government. It was supposed to be such that the second branch would execute. One of the strengths of this country is the fact that it gave us three branches of government that would be separate and equal, and each would have its own lane that it stayed in. We have really drifted away from that. What we do in Idaho, I think is unique. When I came to the state legislature in 1975, rulemaking and rule review, et cetera, was the same as it is here right now. If the agencies enacted a rule pursuant to the rulemaking authority by the legislature, then that had the full force and effect of law. If the legislature wanted to change agency rules, it took a bill in each house and signature by the governor. What we did, when I headed the State Senate, I negotiated and we changed that. What we have now is a situation where the bureaucracy can pass whatever rule and reg it wants, pursuant to authority from the legislature. But that rule only lasts until the last day of the next regular legislative session. When the session starts, all the rules and regs that have been enacted during the year are handed out to the appropriate committees. They review them and the only way that the rules last is if, on the last day of the session, when they pass an omnibus regulatory bill, that the rule or reg is in there. Some 90 percent of them do pass and they are in that bill, but they always leave about a dozen of them on the table. This is done not by a statute, but by a resolution, so it does not go across the governor's desk. It is the first branch of government doing what the first branch of government should do, and that is dealing with legislation. It is a good way to do it. I often thought that would work substantially better here, because the substance that is passed here is just breathtaking when you see the kinds of things that the bureaucracy does here. I mean, you look at that and you wonder why there is a first branch of government when the bureaucracy is doing what it does. Senator Rounds. Would you yield for just a---- Chairman Risch. Certainly. Senator Rounds. I absolutely agree with your analysis on it, and I think if there was one thing that we, as a committee, could do, if there was a way to begin the process of an open dialog, and a rules review process that was more adept than the one which is currently here, which, you know, we are working through right now where it literally takes an act of Congress, signed by the President, on a rule, and you have still got limits on that in terms of what you can do, and it still runs through a time frame in which we have to be proactive in getting the thing done. It seems to me that any rule at the Federal level should still be subject to some sort of a congressional oversight, and when you look back at the committees that are there, it seems to me that they are reasonable and it would not be an unreasonable approach to have those committees, with jurisdiction, to review those particular proposed rules, prior to the fact that they go into effect, if nothing else, just because, like in 40 states, or 41 of the states, you actually get better rulemaking process and you get a more open intake, because the bureaucrats learn real quick that if they want it to happen they are going to have to accept some input from the people that they are regulating. And I think we have really fallen down on that, at the Federal level, and I think we could do marvelous things for our country, and for the businesses that are generating jobs, if we could get a hold of this regulatory morass that we have got today. Thank you, Mr. Chairman. Chairman Risch. Well, there is no question about that, Senator. We appreciate that. I would like to introduce Marty and Cindy France from Idaho. Could you stand up? They just came in. Mr. Knapp, they will be happy to sit down and tell you that their business was a casualty of government regulation. They came to see me today and it was fortuitous that we were having this hearing. Thank you for coming, we appreciate your issue, and we are going to try to see if we cannot do something about that. With that, Senator Heitkamp is supposedly on the way. Is that right? [Pause.] Gentlemen, do either of you have anything else for the good of the order? Mr. Noel. Just other than thank you for giving me the opportunity to represent the 140,000 members of the association. Chairman Risch. We appreciate that, and Mr. Knapp, we also appreciate you. This is not a partisan issue. Admittedly, we have a little different issue as to the mass of the regulations. But on the other hand, I think we all agree that there are some regulations that are necessary, there are a whole lot more that are not, and we all need to be vigilant on that. Senator Heitkamp, I have been stalling here. I have been filibustering. You know what a filibuster is? Senator Heitkamp. I do. You do too. Unfortunately, we do. [Laughter.] Chairman Risch. Thank you so much for joining us. Senator Heitkamp. Mr. Chairman, thank you so much for giving me an opportunity to ask a few questions. I was just over at another committee, and so I think it is always important. Small business, obviously, is the cornerstone of American business, but it is particularly important in North Dakota. And so I take the role on this committee quite seriously and always appreciate the work that the chairman does in a very nonpartisan way---- Chairman Risch. Thank you, Senator. Senator Heitkamp [continuing]. To---- Chairman Risch. We have had a really good, robust discussion. Senator Heitkamp. Good. Well, I will have to watch it on YouTube. I am sure it was so interesting it will probably make the nightly news. Chairman Risch. It might have three views. [Laughter.] Senator Heitkamp. When I talk to North Dakota small business I think they continue to be really concerned about regulatory burdens and how do we kind of overcome those. But I know that a lot of this ground has been covered, and so I want to say where I believe it is always important to consider actual consequences of proposed legislation. So I want to ask both of you if you worry that legislation which adds analytical requirements, which cause regulatory delay, whether that is going to be a problem for small business, because a lot of what we hear is not just the regulation itself but the uncertainty and the delay in finding out what the rules are going to be. So I ask that question of both of you. Randy, maybe you could start. Mr. Knapp. Well, thank you, Senator, and welcome. Uncertainty is really, really an issue for any business, small or large. How can they make a decision on what they are going to do if they do not know what the rules are going to be two years from now, four years from now, five years from now? So anything that does not improve the system and simply adds more time, more delay, is not a way of addressing the problem that we all agree that there are problems. So, yes, that would be my response. If you are going to do something that is going to actually help fix the problem, and it delays it a little bit, okay. But if it is simply going to delay, to stall, to wait for a new administration to do something, then we are not helping anybody. Senator Heitkamp. Randy. Mr. Noel. Okay. Regulations to keep water from flowing into the waters of the U.S. and polluting the water is a good regulation. When I build a home, I have to do a storm water prevention pollution plan. I have to figure out a way to keep the pollution from coming off my site, into the drainage system, into the waters of the U.S. The Environmental Protection Agency oversees that with the state. They tell you not how to do that. They refuse to tell you how to do that. You have to figure that out on your own, with best practices, and research, et cetera, et cetera. But they do fine you if you do not have the paperwork, where you were supposed to make the inspection every week, or after a rain, or you happen to have a little bit of river sand in your street. They do fine you and fine you for that. So when we do rules and regulations, you know, I think the American people get we want clean water and clean air and safety when it comes to building homes, et cetera, but, you know, let us get there with something that makes sense. The paperwork does not help us get there. Why are we fining them for that, you know. So when we do a rule or reg, if they will listen to the people that are involved in the rule or reg, on how to accomplish the goal, and actually put it in the rule or reg, we have a fighting chance. But if the agency just completely ignores what we tell them, there is no repercussion to the agency. Senator Heitkamp. Yeah. I think one of the challenges that we have is this seemingly adversarial relationship that should not exist, because we all have the same goal. And, you know, one of the things that we have been working on is doing something in a broader way with advanced notice of proposed rulemaking. I like to put it this way, that, you know, if you gave me a task and I sat down and thought about it hard, and, you know, I got some input from some people that work around me and I write the regulation, and then someone comes in and tells me I am full of it, I am going to be a little more defensive and protective of that regulation. But if I open up the door, on the front end, and say, ``Okay, we want to prevent runoff. What is the best way to do it, and how can we--what concerns would you have on this? Do we need to have paperwork every week? Do we need to have compliance checks every week? Can we do this in a way that we can trust each other a little bit, as long as we have common goals?'' and I think that continues to be the challenge, this adversarial relationship that presupposes people do not have the same goals for clean air and clean water. So we need a little common sense in all of this and we are working to try and make it happen, but I am particularly concerned with the impacts that all of this has on small business, because, you know, if you can hire an army of lobbyists here, you know, you are going to be well represented. They are going to knock on our door. But if you are just the contractor that is out there struggling, trying to make it work, and you just get it heaped on and heaped on and heaped on, eventually you are going to give up. Mr. Noel. Right. Senator Heitkamp. And so we are going to continue to examine this area. We have got a number of pieces of legislation I think we need to work through, but I wanted to be here because regulatory reform is a big part of what I am trying to do, not just on this committee but also on the subcommittee that I serve on, on Homeland Security and Government Affairs. So stay tuned. We are hearing you and hopefully we will get you some relief. Mr. Noel. Thank you. Chairman Risch. Encouraging words. Thank you very much, Senator. Gentlemen, thank you. I appreciate it. It has been a good hearing and I thank all of you who attended. This meeting will be adjourned. [Whereupon, at 4:02 p.m., the Committee was adjourned.] APPENDIX MATERIAL SUBMITTED [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] [all]