Strengthening the Small Business Office of Advocacy

Statement by U.S. Chamber Small Business Policy Director Giovanni Coratolo before the House Small Business Subcommittees on Regulatory Reform and Oversight and Workforce, Empowerment, and Government Programs on the Small Business Office of Advocacy

April 1, 2003

Chairman Schrock and Chairman Akin, Ranking Members, members of the Committee, I am Giovanni Coratolo, Director of Small Business Policy for the U.S. Chamber of Commerce. The U.S. Chamber of Commerce is the world's largest business federation, representing more than three million businesses and organizations of every size, sector and region. Over ninety-six percent of the Chamber members are small businesses with fewer than 100 employees. The Chamber commends the Subcommittee on Regulatory Reform Oversight and the Subcommittee on Workforce, Empowerment and Government Programs for its dedication and interest in having this joint hearing to explore ways to improve the Office of Advocacy and create a stronger voice for our nation's 24 million small businesses.

Over the past decade the importance of small businesses to the foundation of economic growth and prosperity has been unprecedented. As economic statistics confirm, maintaining a healthy environment for small businesses to proliferate contributes greatly to raising our standard of living. Small enterprises and startups are the seed corn for our future economic prosperity.

Unfortunately, as we have seen the growing importance in the vitality and stability of small business, we have also seen federal agencies continue to propose regulations that impose disproportionate burdens on smaller employers. The cumulative cost of compliance with federal regulations can be formidable for many small businesses and, in some instances, it may be fatal.

According to a recent study on the impact of federal regulation on small firms by W. Mark Crain and Thomas D. Hopkins , the business sector hardest hit by existing government regulations are small businesses employing fewer than 20 employees. They face an annual regulatory burden of $6,975 per employee, a burden nearly 60 percent above that of their larger counterparts. What is particularly disturbing, is that compared to a 1995 study, regulatory burdens continue to climb to the detriment of smaller firms.

In 1980, Congress passed the Regulatory Flexibility Act (RFA) in an attempt to mitigate the impact of federal rulemaking on small entities. This law required federal agencies to be mindful of the burdens their rulemaking imposed on small businesses and encouraged agencies to explore alternatives to alleviate those burdens without compromising their policy objectives. In 1996 the RFA was amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA) to expand the duties of the Office of Advocacy and, among other things, required the Environmental Protection Agency (EPA) and Occupational Safety and Health Administration (OSHA) to conduct outreach small business panels on the impact of proposed rulemaking.

Since the establishment of the Office of Advocacy in 1976, the Chief Counsel for Advocacy has played an integral role in orchestrating effective representation of small entities in the regulatory process. As the proliferation of regulations affecting small businesses have increased over the years, so too has the Chief Counsel's responsibilities under RFA, SBREFA, Executive Order 12866 and the just recently issued Executive Order 13727 . We have seen the growing necessity to have a strong independent small business advocate within the executive branch of government armed with the tools to work effectively on behalf of small business within the administration. With a well defined mission and the proper funding, the Chief Counsel can have a profound impact on the regulatory process.

In many cases, the ability to interact with an agency in the earliest stages of rulemaking can nip a problem in the bud before an agency becomes staunchly committed to a concept that would have dramatically negative consequences for small businesses. Understanding unintended consequences of a regulation before it goes into effect will help protect small business before potentially flawed rules are published. Having a strong independent Office of Advocacy representing small businesses in the rulemaking process ultimately results in less work for the agencies, better rulemaking and a stronger, robust small business community capable of better expanding jobs and economic vitality.

Now let me turn to several legislative proposals that can strengthen the Office.

First, a specified line item for funding for the Office within the President's Budget. In order to have a Chief Counsel that can provide a strong independent voice for small business, separate line item funding is a must. Funding for the Office must be directly related to the checks and balances of the budget process and not subject to the internal political pressures of federal agency initiatives and pet projects. In conjunction with this, the responsibilities and duties of the host agency to provide support such as phones, maintenance, office space, IT support and services, must be spelled out in order to provide a financial firewall between the two budgets.

Second, provisions for continuity of leadership for the Office during changes of administrations. Having the Chief Counsel continue serving for a specified length of time during a transition period reduces the likelihood of gaps in the leadership of the Office. As we have seen recently and in the past, vacancies in the position can have a negative impact in the momentum and morale within the Office. Without a Chief Counsel in charge, the direction and resolve of the Office is compromised. The regulatory process does not take a vacation when the Office is vacant and small businesses run the risk of not being properly represented.

Third, giving the Office the power, authority and tools to make a difference in the regulatory process. With the passage of the RFA and its broadening under the SBREFA, small businesses were given expanded rights in dealing with federal agencies both in the rule making process and the regulatory enforcement environment.

The U.S. Chamber of Commerce endorsed the passage of these small business provisions and applauds Executive Order 12866 and 13727, but agency adherence to these laws has been inconsistent. Congress always intended for the Office of Advocacy to be the "watchdog" for agency compliance.

Unfortunately, in a recent appeals court decision involving the National Ambient Air Quality Standards issued by the Environmental Protection Agency, Advocacy's views expressed in an amicus curiae brief concerning the agency's adherence to requirements of the RFA were not given deference. Also, many federal agencies have not lived up to their responsibilities under Chapter 6, Title 5 of the United States Code.

The Chamber holds that any legislation to improve the Office of Advocacy should have unequivocal language to correct this technicality in SBREFA that questions the role of Advocacy as the agency responsible for determining federal agency compliance under the RFA. There should be no doubt that the Chief Counsel is directly in charge of evaluating agency performance and compliance under Chapter 6, Title 5 of the United States Code.

Fourth, providing the Chief Counsel with adequate funds to commission economic research projects involving areas of concern to small business. We feel that much can be gained by the research that Advocacy performs on behalf of small business. When Congress and policy makers better understand the role that small enterprises play in our economy or the impact that their decisions have on the vitality of smaller employers, they become more sensitive to the concerns of the small business community. The Chamber would encourage the continuation of the existing line item for economic research as a subset of the total funding line item for Advocacy. This way there can be no doubt as to the amount Congress will allocate toward this important function of the Chief Council's office.

In conclusion, the Chamber strongly encourages legislation that will provide improvements to the Office of Advocacy that incorporates the suggestions we have made here today. To assure the best chances of passage this Congress, we would hope for introduction of a narrowly constructed bill. This is a perfect opportunity to incrementally strengthen the Office of Advocacy and Chief Counsel's position.

The Chamber appreciates the opportunity to comment on these important changes for small business. We especially applaud the Committees' interest in having this hearing. Thank you again Chairmen, Ranking Members and members of the Committee.