Illustration of people running away from a red tape avalanche.
Feb 17, 2017 - 9:00am

In Their Own Words: How D.C.'s Regulatory Machine Steamrolled 36 Small Businesses


Senior Director, Strategic Communications

In recent years, Washington has unleashed a relentless torrent of burdensome and costly regulations, which have put an unprecedented drain on economic growth, mired our nation’s private sector in uncertainty, and slowed job creation at companies of all shapes and sizes across the country.

None have been hit harder by this onslaught than America’s small businesses.

“Small companies account for much of the innovation and more than 60 percent of the new job creation in our country,” U.S. Chamber of Commerce President and CEO Tom Donohue said during his State of American Business address last month. However, he added, “an unelected fourth branch of government—the regulatory branch—is holding our small business sector back.”

How exactly are these rules plaguing Main Street companies? Here, in their own words, are three dozen small business owners from around the country who say their companies have been negatively affected in one way or another by the most burdensome federal regulations.

Environmental Regulations

Over the past decade, no agency has more routinely abused its rulemaking authority than the Environmental Protection Agency (EPA), which has repeatedly asserted unprecedented power over America’s private sector while turning a blind eye to the federal rulemaking process and its directives from Congress. This includes the Waters of the United States (WOTUS) rule, finalized two years ago, which allows the agency to claim jurisdiction over waters deemed to be adjacent to streams, creeks and wetlands. The rule stripped broad regulatory power from state and local governments and—as several business owners have testified—created regulatory nightmares for small companies.

“It may very well end up that landlords decide that my cattle grazing activity now has too high a risk profile under this new rule, and they may no longer want to rent the land to me,” Jack Field (1), who owns a small cattle ranching business in Yakima, Washington, said in an interview about WOTUS. “If that’s the case, and I can’t find somewhere to run my cattle, I’ll have to get rid of them—that’s just the way it works. I’m not sure what we would do then.”

He later added: ““They need to take the rule, wad it up and throw it in the garbage, then let’s go back and do this correctly. Let’s have local discussions and listening sessions, identify the problems, have an educated discussion and come up with solutions in each state.”

Added Tom Woods (2), who owns a small building company in Blue Springs, Missouri, during a House hearing on rule’s small business impact: “As a small business owner, this unpredictability will make it difficult for my business to comply and grow. The agencies suggest that the rule provides clarity; however all it does is produce more questions.

We're here trying to create jobs and strengthen our communities, and Washington keeps making it harder and harder."
Drew Greenblatt, President, Marlin Steel

Alan Parks (3), vice president of Memphis Stone and Gravel in Memphis, Tennessee, expressed similar concerns at the same hearing: “The proposed rule … will make it very difficult for our industry and other businesses to plan new projects and make hiring decisions,” he said.

It’s not just WOTUS that’s inflicting lasting harm on small businesses. The EPA’s proposal to vastly tighten ozone standards and its severe regulatory crackdown on coal emissions (the latter of which the agency finalized without even taking into account input from the small business community) have dealt additional blows to small companies in numerous industries, especially the energy sector.

“My clients are going to clamp down, and my phone is going to stop ringing” Drew Greenblatt (4), president of Marlin Steel in Baltimore, Maryland, said in an interview about EPA’s ozone rule. “When they hit pause, we have to hit pause, too, and as a result, we’re simply not going to be able to expand and hire as much as we had planned… We’re here trying to create jobs and strengthen our communities, and Washington keeps making it harder and harder.”

Speaking about the EPA’s so-called Clean Power Plan, Janis Herschkowitz (5), a second-generation foundry and metalcasting business owner in Cornwall, Pennsylvania, said: “This regulation threatens to shut down many of the plants that produce this low-cost, reliable electricity. For consumers, foundries and other manufacturers that could mean sharply higher electricity prices.”

John Cooper (6), an employee at a small coal plant in St. Louis, Missouri, weighed in on the implications of EPA’s power plant emissions rule in a letter to the agency: “I wholeheartedly accept that it is our generation’s responsibility to turn the corner on our lasting effects on the environment. However, you also need to understand that not only is our environment at stake but also the livelihoods of thousands of utility workers and the tax revenues these facilities provide.”

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Janet Kaboth, president of Whitacre Greer in Alliance, Ohio.
Janet Kaboth, president of Whitacre Greer in Alliance, Ohio.


In addition, environmental regulators have placed one unique industry—American brickmakers—in their crosshairs with onerous new rules that threaten to snuff out an already struggling sector of our economy. The proposed rules would require brick manufacturers to install expensive new equipment that Washington bureaucrats hope will reduce their plants’ emissions by an undetectable amount.

“Our industry has been hit hard in recent years, and we don’t have the funding for something like this,” Janet Kaboth (7), president of a small, 100-year-old brickmaking factory in Alliance, Ohio, said in an interview last year. “I’m not sure what we’re going to do yet.”

“It’s not just that it’s a high cost,” she later added. “It’s that it comes with so little benefit.”

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Henry Brick


David Henry (8), who today runs the Selma, Alabama brick factory his father started in 1945, finds himself in the same boat: “This is going to hit us hard he said of the proposed rules,” Henry said. “The worst case scenario is that we can’t find a way to avoid these new requirements, a bank won’t give us a loan, and in three years’ time, if we haven’t sold the company, we would have to cease operations.”

Labor Regulations

Not to outdone by the EPA, the Department of Labor has been flooding Main Street with its own onerous regulations in recent years. One of the most troubling rules currently weighing on the minds of small businesses is the agency’s proposed overtime rule, which was temporarily blocked by a late last year by a federal court but still threatens to—if ever it takes effect—raise costs for employers by more than doubling the salary limit under which employees qualify for overtime pay.

“These overtime regulatory proposals add to the tremendous amount of uncertainty created by new and expanding federal regulations over the last five years,” Kevin Settles (9), owner of three distilleries and restaurants in Idaho, told a House panel. “This uncertainty has been a key factor in extending the longest time period without expansion in my years as an independent businessman.”

If the injunction blocking the rule were lifted, his employees “could lose flexibility as well as benefits, including substantive bonuses, paid vacation, flex time, paid holidays, and health insurance,” he said.

Maxine Turner (10), who owns a small, family-run catering and event planning business in Salt Lake City, Utah, expressed similar concerns: “The new overtime rule will make it harder for us to schedule workers appropriately to offer the high-level of service our customers deserve,” she said, later adding, that “imposing higher labor costs keeps us from growing and creating jobs.”

As Adam Robinson (11), CEO and co-founder of a human-resources technology startup in Chicago, told lawmakers during a hearing last year on the overtime rule: “Looking back on when I started my company in 2010, I can tell you with 100 percent certainty that I would have not been able to hire my first employee had this rule been in place,” said Robinson, who now employs about 100 people. “At a time when the middle class in this country is already being squeezed, the tech sector, sales jobs, and middle-management positions are a few areas that still provide relief. The overtime rule threatens to close those career pathways that have been paved by hard work.”

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Ciara Stockeland, COO/Founder, MODE.
Ciara Stockeland, COO/Founder, MODE.


Meanwhile, the National Labor Relations Board has handicapped entrepreneurs with its so-called joint employer ruling, in which the agency determined that indirect control or even potential control over employment terms could be enough for a firm to be considered a “joint employer” for certain purposes, which creates untold confusion and regulatory headache for small business owners, including Ciara Stockeland (12) who owns a North Dakota-based franchise of outlet stores.

“As an emerging franchise brand, I want certainty that the franchisee-franchisor relationship will not be redefined by the NLRB,” she wrote in a digital postcard to the president. “I want to protect the freedom I need to support my franchisees, and our franchisees need the peace of mind to know they can run their small businesses in a way that energizes growth.”

Settles, Turner, Macre and Robinson are still in business—but the same can’t be said for Mark Robertson and Mike Sullivan (13), who opened an innovative Mexican restaurant in Chicago in 2015 after two years of planning, recruiting and extensive construction. One year later, the business had already closed, driven into the ground by regulatory one-two punch: a local minimum wage hike paired with the uncertainty surrounding the looming federal overtime rule.

“As we look down the road, we are facing a… change in federal labor regulations that will nearly double required salaries for managers to qualify as exempt,” they wrote after closing the restaurant. “Coupled with increasing [local] taxes and fees that disproportionately impact commercial properties and businesses, we are operating in an environment in which we do not see a path forward.”

Obamacare Regulations

No law has spawned more damaging regulations in recent years than the so-called Affordable Care Act, or Obamacare, and no one has been hit harder by those regulations than small businesses. The most crippling rules stemming from the 2010 statute include the ACA employer mandate (and all the reporting requirements that go with it) as well as the Health Insurance Tax (HIT Tax), medical device tax, and the Cadillac tax—all which will further drive up health costs for employers and employees.

Ryan Thorn (14), who owns a small insurance firm in Salt Lake City, says the HIT Tax, which started to take effect this month, will sock small businesses particularly hard: “The tax will be passed down to consumers, and the direct impact will be staggering,” he said. “It disproportionately hits individuals and small-business owners, the people who have been hurt most by these challenging times.”

Some small businesses are already starting to prepare for the blow. “Our premiums increased more than six percent last year, and I’ve been advised that they could go up between 22 to 25 percent next year,” said Gerald Faulk (15), who previously owned a small safety technology company in Lafayette, Louisiana. “This increase is largely due to the Health Insurance Tax.”

Added Van Tilbury (16), who owns a small construction company in Little Rock, Arkansas, “If the HIT is not repealed, I fear that small business like mine – which are the backbone of our economy and our tax base – will suffer and some will not survive. This is not good economic policy.”

Meanwhile, Obamacare’s looming Cadillac tax, which levies a tax against health plans above a given price threshold, is worrying small employers like Ellen Warner (17) and her husband Mark, who own an online retailer of products for patients with dementia and their caregivers. Ellen explained that the steadily climbing cost of insurance due in part to rules like the Cadillac Tax “means that instead of making a profit last year, we lost money. It means the difference between success and failure.”

Speaking about another ACA tax, the Medical Device Tax, Sean Conley (18), president of a 43-person, family-owned manufacturing company in Salem, New Hampshire, said: “This obviously has an impact on where our funds go and makes it a bit more challenging to continue to create new jobs.”

Kevin Tindall (19), who with his wife owns a plumbing company in Princeton, New Jersey, says his company simply can’t sustain the surge in health care costs due to these new rules. Speaking to lawmakers about the effects of Obamacare, he said: “The continued rise in the cost of providing health insurance absolutely stifles my ability to create, provide and sustain jobs.”

Same goes for Brad Mete (20), whose small staffing firm in Miami, Florida spent $100,000 in one year filing government documents and complying with Obamacare’s record-keeping requirements. His take on the health care law, which was supposed to help small businesses: “It’s a horrible hassle.”

One of the best ways to jumpstart the economy is by supporting small businesses. And one of the best ways to support those small businesses is by enacting real, meaningful regulatory reform."
Maxine Turner, Founder, Cuisine Unlimited

Just outside the nation’s capital in Alexandria, Virginia, David Glazier (21), who owns a luxury transportation service firm, echoed a similar sentiment when asked about Obamacare’s complexity and impact on costs: “I was so fed up and frustrated, I considered just giving up entirely and dropping our coverage,” Glazier said. “But I said, ‘You know what, I just can’t do that to my employees.’”

Tom Secor (22), president of a small manufacturing company in Norwalk, Ohio, has had a similarly maddening experience: “Small businesses often are at a loss to keep up with, implement, afford, or even understand the overwhelming regulatory and paperwork demands of the federal government -- and in this case, the ACA,” Secor said last month. “Given the estimated substantial increase in cost to provide an ACA-approved product and the regulatory uncertainty, I made the hard decision that we had no other choice but to discontinue our health care benefits.”

He added: “This continuous lack of knowing and never-ending cost increases is not sustainable. Our employees, who get up and go to work every day, deserve better.”

Ellis Winstanley (23), who owns eight restaurants and several other small businesses in Austin, Texas, added: “I’m concerned about the administrative burden that compliance with the law will impose on my businesses. I fear that the administrative cost will be almost as expensive as the coverage itself, which includes having to educate our staff on the law and our health insurance offerings.”

Chris Lee’s (24) Charlottesville, Virginia-based construction company has had trouble wading through Obamacare’s maze of complex requirements and regulations, too. “It has taken an enormous amount of time and effort just to sort out the rules and requirements under the health care law,” he said. “It’s taking up more and more of our management’s time, and that’s burdensome for any business.”

Some entrepreneurs have already been crushed under the weight of soaring health care costs in the wake of the ACA. Scott Womack (25), for instance, owned a dozen IHOP locations in Ohio and Indiana when the law was enacted. Today, he has sold or closed all 12, driven out of business, he says, by labor cost spikes driven largely by Obamacare and its corresponding health care regulations.

“We had to keep evaluating the nature of the business and the impact of Obamacare along with all the other pressures on labor,” Womack told the Daily Signal about the decision to get out of the business. “We felt that environment was not the place to be for the next 10 to 20 years.”

Financial Regulations

The 2010 Dodd-Frank financial reform law was supposed to improve our financial system and shield small financial institutions from overly burdensome rules. Instead, the law has strangled those very Main Street businesses with costly, onerous new regulations that threaten their ability to grow.

“The exponential growth of regulations in recent years is suffocating community banks’ ability to serve small business customers,” Doyle Mitchell (26), president and chief executive of Industrial Bank in Washington, D.C., told lawmakers during a hearing. “Compliance has become a major distraction for community bank managers. Any community banker will tell you that their job has fundamentally shifted from lending and serving customers to struggling to stay on top of ever-changing rules.”

Mark Sekula (27), executive vice president of a small credit union in Live Oak, Texas, has expressed the same frustrations: “These additional requirements in the Dodd-Frank Act have created an overwhelming number of new compliance burdens.”

Thomas Boyle (28), vice chairman of a regional bank based in Countryside, California, spoke up at a congressional hearing following Dodd-Frank’s passage, saying: “Each new regulation, or change in an existing one, adds another layer of complexity and cost of doing business. The Dodd-Frank Act will add an additional, enormous burden, has stimulated an environment of uncertainty, and has added new risks that will inevitably translate into fewer loans to small businesses.”

Greg Ohlendorf (29), president and CEO of a community bank in Beecher, Illinois, chimed in at that same hearing: “Every provider of financial services – including every single community bank – will feel the effects of this new law to some extent,” Ohlendorf said. “Undeniably, it will result in additional compliance burden for community banks and will be challenging for them.”

Added Scott Eagerton (30), president of a small credit union in South Carolina, speaking about the Consumer Financial Protection Bureau that was born out of the Dodd-Frank legislation: “As expected, the breadth and pace of CFPB rulemaking is troublesome, and the unprecedented new compliance burden placed on credit unions has been immense.”

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Scott Eagerton, president of Dixies Federal Credit Union in South Carolina.
Scott Eagerton, president of Dixies Federal Credit Union in South Carolina.


So, what’s the end result for one of the most common sources of capital for Main Street companies? “Unfortunately, small credit unions like mine are disappearing post Dodd-Frank at an alarming rate as they cannot keep up with the new regulatory burdens,” he said.

Wayne Gatewood (31), a marine veteran and owner of a small management and logistics consulting business in Landover, Maryland, says that his company has been fortunate to secure financing from credit card companies to help it expand its sales and operations overseas. However, most recently, Gatewood says, “financial regulations get in the way of us obtaining the capital we need.”

Regulatory Reform: An Urgent Need

Of course, for most small business owners, it’s not merely one rule or another, but rather the accumulation of myriad regulations that over time start to strangle their companies with red tape. Many entrepreneurs have spoken up about this overwhelming, growth-choking regulatory onslaught in recent years and the stifling impact it has had on their investment and hiring decisions.

Cynthia Reichard (32), executive vice president of a small fragrance and flavor company her uncle started 40 years ago in Marietta, Georgia, has had a similar experience. “Small businesses like ours continue to struggle despite a more positive economic outlook, and this is largely due to the cost of increasing regulations,” she said. “Manufacturers simply need an environment conducive to growing and creating jobs. We need economic stability, certainty and predictability and common-sense regulations that don’t unfairly disadvantage small firms.”

It’s the same story at Structural Concepts Corporation, a small refrigerator manufacturing company based in Muskegon, Michigan. “Small businesses like ours are burdened by multiple regulations that either contradict each other, have a high level of difficulty or are simply impossible to comply with in the given amount of time,” SCC Director Victor Anderson (33) said. “We simply do not have resources to mount legal challenges and are therefore largely left to shoulder the resulting economic burden.”

Anderson added that the “never-ending wave of new rules and ever-more-stringent standards” have started to “threaten our ability to do business and provide critical products to American consumers.”

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Kim Gilliam, co-owner of Frolick Dogs in Alexandria, Va.
Kim Gilliam (left), co-owner of Frolick Dogs in Alexandria, Va.


Kim Gilliam (34), one of the owners of a small pet care business (with a canine fitness center) in Alexandria, Virginia, noted that “small businesses do not have the dedicated resources to monitor and plan for unclear and changing regulations” and that regulatory reform would allow her to “focus on growing my by business and employing more people.”

Scott Anderson (35) feels the same way. “More regulations mean higher costs,” said Anderson, who owns a small media company in Jackson, Wyoming. “What our economy needs… is clear regulatory reform, so that small businesses can spend less time worrying about regulations and more time thinking about creating jobs.”

Maxine Turner, who owns the catering and events company in Salt Lake City, echoed that sentiment, saying, “one of the best ways to jumpstart our economy is by supporting small businesses. And one of the best ways to support those small businesses is by enacting real, meaningful regulatory reform.” In a recent column, Turner identified an immediate legislative solution.

“One way to address the problems associated with unnecessary, duplicative or excessive federal red tape is to guarantee that small business stakeholders like me have a place at the table when regulatory decisions are made,” Turner said. “That is the concept embodied in the Regulatory Accountability Act and the Small Business Regulatory Flexibility Improvements Act included in a package approved by the House.”

Indeed, RAA and the Small Business Regulatory Flexibility Improvements Act (packaged together as H.R. 5 in Congress) would modernize the rulemaking process for the first time in almost six decades and alleviate much of the regulatory strain on America’s small businesses. The House has approved both measures, which now await action in the Senate. Earlier this month, more than 600 business groups, led by the Chamber, sent a letter to Senate leaders urging them to approve the package.

For Main Street’s sake, it’s imperative that the upper chamber take action without delay.

As Herschkowitz, the foundry and metalcasting small business owner from Pennsylvania, recently told lawmakers at a forum about regulatory reform: “More than ever, it is critically important that we regulate only that which requires regulation, and only after a thorough vetting of potential benefits, impacts and costs on businesses, particularly small businesses.” If we don’t fix the system, he continued, “for some foundries, it will be the final stake in their coffin.”

 

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Entrepreneur, Susan Wilson Solovic
Entrepreneur Susan Wilson Solovic (center left)

Susan Solovic (36), a renowned Internet entrepreneur and oft-cited small business expert, told House lawmakers the same thing at a hearing last year. “Politicians praise the importance of small business in producing jobs and innovation on one hand,” she said, “yet continue to impose regulations and laws that create an environment that makes it nearly impossible for them to thrive.”

Solovic concluded with an ominous warning: “Could small businesses in the U.S. eventually become extinct?,” she posed to the room. “In my opinion, if we continue down this path of hyper-regulation, they will certainly become an endangered species.”

Rolling back some of the most costly existing regulations—while also fundamentally reforming the federal rulemaking process—would help ensure that never happens. 

About the Author

About the Author

J.D. Harrison
Senior Director, Strategic Communications

J.D. Harrison is the senior director for strategic communications at the U.S. Chamber of Commerce.