Congressional

ByOffice of Advocacy

An Examination of Proposed Environmental Regulation’s Impacts on America’s Small Businesses

Testimony of

Charles Maresca

Director of Interagency Affairs

Office of Advocacy

U.S. Small Business Administration

 

United States Senate Committee on Small Business and Entrepreneurship

 

Date: May 19, 2015

Time: 2:00 PM

Location: 428A Russell Senate Office Building

Topic: An Examination of Proposed Environmental Regulation’s Impacts on America’s Small Businesses

 

Chairman Vitter, Ranking Member Shaheen, Members of the Committee, I am honored to be here today to present testimony to you on behalf of the Office of Advocacy (Advocacy) of the U. S. Small Business Administration (SBA) about the Environmental Protection Agency (EPA) and the Army Corps of Engineer’s (the Corps) proposed rule on the definition of “Waters of the United States” under the Clean Water Act1.

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ByOffice of Advocacy

Senate Committee on Small Business and Entrepreneurship

Winslow Sargeant, Ph.D., Chief Counsel for Advocacy, U.S. Small Business Administration, testified before the U.S. Senate Committee on Small Business and Entrepreneurship on the Office of Advocacy Fiscal Year 2015 Budget

Chairwoman Cantwell, Ranking Member Risch, and Members of the committee, good morning. As Chief Counsel for Advocacy, I would like to thank you for the opportunity to appear before the committee today to discuss the Office of Advocacy’s budget request for Fiscal Year 2015.  This submission is part of the President’s request for SBA and the government as a whole, and it accordingly has the full support of the administration.  However, because Advocacy is an independent office within SBA, my testimony is not circulated for comment through the Office of Management and Budget (OMB) or other federal offices, and my views on matters other than the official budget request do not necessarily reflect the position of the administration or of the SBA.

Advocacy activity update

Before outlining Advocacy’s budget request for FY 2015, I would like to update you on the office’s activity during the last completed fiscal year, FY 2013, and so far this year.

Cost savings.  My top priority remains to ensure that the concerns of small business are heard in the regulatory process.  We continue to work with agencies across government to help them mitigate the potential costs of regulation for small entities.  Advocacy achieved more than $1.5 billion in quantifiable first-year cost savings from our work on rules that went final in FY 2013. These savings resulted from actions on seven separate federal regulations originating in five agencies: the Environmental Protection Agency, the National Oceanic and Atmospheric Administration, the Department of Labor, the Department of Agriculture, and the Internal Revenue Service.  Other rules that became final had significant savings, although not precisely quantifiable. One example is the Mortgage Servicing Rule finalized by the Consumer Financial Protection Bureau. The agency estimated that the one-time cost savings for small businesses resulting from RFA compliance ranged from $1 billion to $2.3 billion. Overall, as a result of Advocacy’s efforts, RFA compliance helped save at least $2.5 billion in first-year regulatory costs for small entities, while ensuring that agencies were able to meet their regulatory goals.  However, it is important to note that this metric can vary considerably because we do not control what final cost-saving actions agencies take or when they take them.  Advocacy’s prior five-year average at the end of FY 2013 was $7.51 billion in savings per year, well above our annual goal of $6.5 billion.

Additional information on all of these rules is detailed in Advocacy’s annual report on our Regulatory Flexibility Act activities for FY 2013.  This report and those for past years can be accessed online at http://www.sba.gov/advocacy/823/4798.  In addition to FY 2013 cost savings, I am pleased to report that since the beginning of FY 2014, Advocacy has already achieved another $4.7 billion in cost savings resulting from actions on two rules originating in the Department of Health and Human Services and the Environmental Protection Agency.

Regulatory comment letters.  During FY 2013, I signed 26 public comment letters to 16 different agencies on a variety of issues.  So far in the current fiscal year, through March 1, 2014, another eight public comment letters have gone to six agencies.  In addition to our formal public comments, Advocacy is in daily contact with agencies throughout the government to provide technical assistance in RFA compliance. Such assistance can include estimates of the numbers of businesses likely to be affected by a proposal, legal opinions on RFA issues, the review of draft materials, arranging consultations with affected industry representatives, and other assistance specific to each case.

RFA compliance training.  The working relationship between Advocacy and the federal agencies is critical to Advocacy’s success. Executive Order 13272 requires Advocacy to provide training to federal regulatory development officials on RFA compliance, and agencies have been responsive to Advocacy’s training. In FY 2013, 159 regulatory and policy officials received classroom training, and 26 more officials have been trained so far in FY 2014.  As a result of this training by Advocacy, federal regulatory agencies develop smarter rules that have reduced impacts on small entities.

Roundtables.  Also in furtherance of the RFA and Executive Order 13272, we continue to work closely with our colleagues in OMB’s Office of Information and Regulatory Affairs to ensure that small business concerns are heard early in the regulatory development process.  To help us understand those concerns, Advocacy hosted 21 small business roundtables in FY 2013, and we have had another six so far this fiscal year.  These roundtables have explored issues as diverse as financial regulation, taxes and pensions, OSHA and EPA rules, financial regulation, aviation and transportation rules, communications issues, and the critical habitat designation process.

Research and data publications.  Our economic research team published 22 research or data products in FY 2013.  Advocacy continued our longstanding commitment to monitor and research trends in the small business economy.  Updates were released of popular Advocacy products such as Small Business Profiles for the States and Territories and Small Business Data Resources.  So far this year, Advocacy has released another twelve publications, including three in a new series of Issue Briefs.  Advocacy’s Issue Briefs provide timely and concise information on important small business economic issues.  These briefs are relevant to small business researchers and policymakers as well as stakeholders involved in small business advocacy and program development.  The new briefs include a Profile of Veteran Business OwnersDemographic Characteristics of Business Owners, and Access to Capital for Women-and Minority-Owned Businesses.  Also underway are a variety of contract research projects on specialized issues.  Additional information on all of the research products Advocacy released in FY 2013 can be found in the Annual Report of the Office of Economic Research, FY 2013 and can be accessed online at http://www.sba.gov/sites/default/files/files/13_OER_Ann_Rpt.pdfDownload Adobe Reader to read this link content.

Presentations by Advocacy economists.    Advocacy economists make professional presentations to academic, media, or policy audiences at organized events.  Typical events include academic conferences, trade association meetings, think-tank policy symposia, or government-sponsored events.  This outreach furthers Advocacy’s statutory mission to disseminate information to the small business community and to promote awareness of the office’s work.  During FY 2013, Advocacy economists made seventeen such presentations, exceeding our annual goal of at least twelve each fiscal year.

            Communications outreach.  Our information team keeps in touch with concerned stakeholders through Advocacy’s website, print, email, and social media.  Our monthly newsletter, The Small Business Advocate, reaches 34,000 electronic subscribers.  Specialized email Listservs reach thousands more, including 23,000 research subscribers and 21,000 regulatory subscribers.  We also provide frequent information updates via Facebook, Twitter, and Advocacy’s blog, The Small Business Watchdog.

Regional advocates.  Regional advocates are vital for the two-way communication that Advocacy needs from the vast majority of small entities that operate outside of the Washington, D.C., area.  They interact directly with small business owners, small business trade organizations, and state officials to educate them about the benefits of regulatory flexibility.  Regional advocates conduct outreach to identify areas of concern for small business and assist headquarters staff with specific actions, such as recommending participants for SBREFA panels that require small entity representatives.  In addition, regional advocates work with the ten regional Regulatory Fairness Boards in their respective regions to develop information for SBA’s National Ombudsman.  They also alert businesses in their respective regions about regulatory proposals that could affect them.  During FY 2013, Advocacy’s ten regional advocates participated in 607 outreach events, exceeding their annual goal of at least 360 events.

Staffing.  Now that Advocacy’s appropriations for FY 2014 have been finalized, we are back to our planned personnel level of 47 positions.

Advocacy’s separate account legislation

The Small Business Jobs Act of 2010, Public Law 111-240, included a provision that established in the Treasury a new separate account for Advocacy and required that SBA provide additional operating support for the office.  Fiscal year 2012 was the first year Advocacy received this statutory line-item funding.  Congress sets the amount available for direct Advocacy costs, and these funds are not commingled with other SBA funding.  The enactment of these budgetary provisions underscored our independence and indicated that Congress intended to identify clearly the resources available to Advocacy and to provide a basis for performance measurement.

Advocacy’s FY 2015 congressional budget justification and FY 2013 annual performance report are presented in a separate appendix in the SBA Congressional Budget Justification.  Advocacy believes that this format improves the transparency of Advocacy operations and costs.

I am pleased to report that our separate line-item is working well.  I would like to thank Congress for providing us with $8.75 million in new budget authority for FY 2014, with the enactment on January 17th of our FY 2014 appropriations in Public Law 113-76.  We are especially appreciative that Advocacy’s funds continue to remain available until expended, a provision that originated in this committee.  With this provision, Advocacy is able to continue funding for valuable research despite delays that could prevent their publication.  The timing of these is under the control of SBA’s contracting operations, not Advocacy.  In some cases, delays prevent funding in the current fiscal year, or in other cases, proposals are not viable.  This allows us to conduct this important research in the next fiscal year.

Advocacy’s FY 2015 budget request

In recognition of the need for federal agencies to reduce their budget requests during the current economic recovery, the Office of Advocacy requests $8.455 million in new budget authority for our direct expenses in FY 2015.  Although this is a reduction of $295,000 (or 3.4 percent) from our current FY 2014 enacted level, we are able to prioritize activities to accomplish our mission, even if we are not able to do everything we could do if additional funds were available.

Dollars in Millions

FY 2013 Enacted

Level *

FY 2014

Enacted

Level

FY 2015  Request

New Budget Authority

8.643

8.750

8.455

*   This level was the result of sequestration adjustments to Advocacy’s FY 2012 enacted level of $9.12 million.

Of the $8.455 million in new budget authority, $7.75 million is planned to support 47 staff positions.  Advocacy’s professional staff is our most important asset, and therefore, it is appropriate that the largest share of our budget (almost 92 percent) goes to human resources.

The FY 2015 budget request will also support new economic research program funding of $350,000.  This includes funds for data acquisition, support of custom data tabulations at other agencies, specialized contract research, and related costs.  In recognition of the need for federal agencies to reduce their discretionary spending, Advocacy plans to reduce the awarding of economic research contracts in FY 2015.  However, the request does provide sufficient funding to continue at current levels long-standing data purchases that are vital as part of the office’s economic research and publication program.  Accordingly, we expect a reduction in the number of contract research reports in the future, with our revised annual goal being 15 reports or data products in FY 2015, down from 20 this year.

The balance of our request, $355,000, covers all other direct expenses, including travel, training, office supplies, subscriptions to legal and economic research resources, and other miscellaneous expenses directly attributable to Advocacy.

Additional support for Advocacy in the FY 2015 budget request

In addition to a separate account for Advocacy, a section of the 2010 Jobs Act, §1602(b) of Public Law 111-240, also provided that SBA was to supply Advocacy with operational support such as office space, rent and utilities, telecommunications, equipment and maintenance, and so forth.  Advocacy has negotiated a Memorandum of Understanding (MOU) with SBA’s Office of the Chief Financial Officer and other SBA support offices.  In the MOU, SBA has agreed to provide all of the items contemplated in the new law without charge to Advocacy’s appropriation account, including centralized indirect expenses shared with other SBA offices (such as procurement and payroll services).  The support package for Advocacy that SBA is now providing will not be charged to our appropriation account.  The cost for these services and other indirect overhead appears elsewhere in SBA’s budget.  Advocacy is not directly involved in their calculation.

Conclusion

Each year, I like to close my budget remarks with an important performance metric that all of us on the Advocacy team are very proud of, the annual calculation of the cost per $1 million in regulatory savings attributable to Advocacy interventions.  This number is the total of one-time regulatory cost savings achieved in a given year or years, divided by the total cost of Advocacy for that year or period.  On average during the most recent five years for which we have final data (FY 2009 through FY 2013), each $1,212 spent on Advocacy has yielded $1 million in regulatory cost savings.  Although this metric can vary from year to year because we do not control what final cost-saving actions agencies take, or when they take them, it always makes a pretty good case that your investment in Advocacy yields a good return.

In conclusion, let me again thank the Committee and its staff for the tremendous support you have given the Office of Advocacy for so many years.  It helps us immeasurably, and we look forward to continuing to work with you on issues of importance to small business.  I would be pleased to answer any questions that you might have.

040419-Senate-Committee-on-Small-Business-and-Entrepreneurship

ByOffice of Advocacy

House Joint Subcommittee Hearing

Testimony of

Major L. Clark, III.

Assistant Chief Counsel for Advocacy

U.S. Small Business Administration

United States House of Representatives

Committee on Small Business

Subcommittee on Contracting and Workforce

and

United States House of Representatives

Committee on Veterans’ Affairs

Subcommittee on Oversight and Investigations

Date: December 10, 2013

Time: 10:00 AM

Location: 334 Cannon House Office Building

Topic: Contracting Away Accountability – Reverse Auctions in Federal Agency Acquisitions

 

Chairman Hanna, Ranking Member Meng, Members of the Small Business Contracting and Workforce Subcommittee as well as Chairman Coffman and Ranking Member Kirkpatrick and Members of the Veterans’ Affairs Subcommittee on Oversight and Investigations, I am honored to be here today to present testimony to you on behalf of the Office of Advocacy of the U. S. Small Business Administration and more specifically, on behalf of Chief Counsel Dr. Winslow Sargeant.

Dr. Sargeant would like me to thank you for the support that you have provided this office, and he looks forward to a continued partnership with you as we mutually strive to improve the economic climate for our small business stakeholders.

The Office of Advocacy is not in opposition to reverse auctions in the federal marketplace.  Today, we are advocating for clear reverse auction guidance from the Office of Federal Procurement Policy.

My name is Major L. Clark, III, and I am the Assistant Chief Counsel for Procurement Policy for the Office of Advocacy.  While my professional career includes both public and private sector experience, I previously served as the Staff Director for the House Small Business Committee under the chairmanship of the Honorable Parren J. Mitchell of Maryland so thank you for having me back.

I ask that this written testimony and two attachments be included as part of the official transcript of this hearing.

In 1976, the Office of Advocacy was established pursuant to Public Law 94-305 to represent the views of small entities.  Advocacy advances the interests and concerns of small business before Congress, the White House, federal agencies, federal courts, and policymakers.  The Office of Advocacy is an independent office within the Small Business Administration, so the views expressed by this office do not necessarily reflect the views of SBA or the Administration.  We work with federal agencies in the rulemaking process to implement the requirements of the Regulatory Flexibility Act (RFA).  The RFA requires federal agencies to consider the effects of their proposed rules on small businesses and other small entities, including small governments and small nonprofits.

Pursuant to the above statutory authority, the Office of Advocacy has been involved in the monitoring of reverse auction activities at the federal level since around 2006.

On February 27, 2008, the Office of Advocacy sent a letter to Administrator Paul Denett of the Office of Federal Procurement Policy with a recommendation from small business stakeholders to better define the reverse auction process.  I have submitted this document as Attachment one.

Attachment two is a more recent letter to Acting Administrator Lesley Field of the Office of Federal Procurement Policy dated January 21, 2012 from Dr. Sargeant of the Office of Advocacy. This letter expresses additional concerns regarding the negative impact of reverse auctions on small businesses.

In the fall of 2012, we held a procurement roundtable in Seattle, Washington.  During this roundtable, we heard from a woman-owned small business.  The owner explained her recent experience with the reverse auction process where she lost an important contract.   Moreover, when she tried to understand why she lost the contract, she could not receive a clear explanation for losing her bid.  As a result, the inability of the contracting officer to explain clearly why she lost the auction was as frustrating to her as losing the bid.  After our listening session, Advocacy conveyed this experience to the Office of Federal Procurement Policy.

In response to Advocacy’s concerns, the Office of Federal Procurement Policy convened a small business stakeholder session in Washington, D.C. in which the attendees conveyed their concerns with the reverse auction process. Some of the concerns included a lack of clear guidance to agencies, conflicts with Federal Acquisition Regulation Part 19, the role and responsibilities of the third party providers, and finally, the fees required to participate in the reverse auction process.

More recently, small business associations that represent small architectural, engineering and surveying companies have reached out to the Office of Advocacy about reverse auctions with the same concerns as other small business stakeholders.  It would appear that some agencies are attempting to use reverse auctions for these types of services.

In conclusion, Chief Counsel Sargeant would like to make it perfectly clear that the Office of Advocacy is not in opposition to reverse auctions in the federal marketplace.  The intent of this office is to make sure that our small business stakeholders have a voice.  We are advocating for clear reverse auction guidance from the Office of Federal Procurement Policy.

Thank you and I look forward to your questions.

ByOffice of Advocacy

Office of Advocacy Fiscal Year 2014 Budget

Testimony of

Winslow Sargeant

Chief Counsel for Advocacy

U.S. Small Business Administration

United States Senate

Committee on Small Business and Entrepreneurship

Date:              April 17, 2013

Time:              10:00 a.m.

Location:       Room 428

Russell Senate Office Building

Washington, D.C.

 

Topic:            Office of Advocacy Fiscal Year 2014 Budget

Created by Congress in 1976, the Office of Advocacy of the U.S. Small Business Administration (SBA) is an independent voice for small business within the federal government.  The Chief Counsel for Advocacy, who is appointed by the President and confirmed by the U.S. Senate, directs the office. The Chief Counsel advances the views, concerns, and interests of small business before Congress, the White House, federal agencies, federal courts, and state policy makers.  Issues are identified through economic research, policy analyses, and small business outreach.  The Chief Counsel’s efforts are supported by offices in Washington, D.C., and by Regional Advocates.  For more information about the Office of Advocacy, visit http://www.sba.gov/advocacy, or call (202) 205-6533.

Chair Landrieu, Ranking Member Risch, and Members of the Committee, good morning.  As Chief Counsel for Advocacy, I thank you for the opportunity to appear before the Committee today to discuss the Office of Advocacy’s budget request for Fiscal Year 2014.

Advocacy’s independence and new separate account legislation

First, on behalf of the entire Advocacy team, we would like to again thank the Committee for the tremendous support you have shown for our office over the years.  Underscoring this support was a provision in Public Law 111-240 that established in the Treasury a separate account for Advocacy, in addition to a requirement that SBA provide operating support for our office.  These provisions have enhanced our independence and have increased transparency for our many stakeholders on our costs and operations.

There is a long legislative history supporting the Congressional intent that Advocacy is an independent office housed within SBA, and that its mission and activities, and the discretion exercised by the Chief Counsel in their implementation, are independent of the SBA and its management and normal chain of command.  As you know, Advocacy has its own statutory charter, Public Law 94-305, which is not part of the Small Business Act.  The Regulatory Flexibility Act (RFA) also conveyed additional duties and powers on the Chief Counsel, as did Executive Order 13272.

Advocacy’s independence allows us to take strong positions in our comment letters, publications, testimony and other work, without going through clearance within the executive branch. While such review and coordination is certainly appropriate for most agencies, in our case it is not.  That is because it is the job of each Chief Counsel to transmit directly to policymakers the unfiltered views of our small entity stakeholders.

Advocacy now has statutory line-item funding, segregated in a separate Treasury account similar to that of the SBA Inspector General.  This means that Congress sets the amount available for direct Advocacy costs, and these funds are not commingled with other SBA funding.  The enactment of these Advocacy budgetary provisions underscores our independence and indicates that Congress intended to identify clearly the resources available to Advocacy, provide a basis for performance measurement, and promote certainty in Advocacy budgets.   The statutory line-item for Advocacy became fully operational in FY 2012, and the President’s budget request for FY 2014 is the third that reflects the establishment of the new Treasury account for our office.

Advocacy’s FY 2014 budget request

In recognition of the need for federal agencies to reduce their budget requests during the current economic conditions, the Office of Advocacy requests $8.455 million for its direct expenses in FY 2014, a reduction of $191,000 (or 2.2 percent) from its FY 2013 enacted level.

 

Dollars in Millions

FY 2012 Enacted

Level

FY 2013

Enacted

Level

FY 2014  Request

New Budget Authority

9.120

8.646

8.455

This amount includes $7.36 million to support 46 positions, the same number that Advocacy currently has when fully staffed.  Advocacy’s professional staff is our most important asset, and it is appropriate that the largest share of our budget goes to human resources.

The FY 2014 budget request will also support an economic research program of $700,000.  This includes funding for data acquisition, specialized contract research, support of custom data tabulations at other agencies, and related costs.  In recent years, Advocacy has produced an average of 25 new reports or data products each year.  Because much of the reduction in Advocacy’s budget request has come from this area, we expect a modest reduction in the number of such reports in the future, with our revised annual goal being 20 reports or data products.

The balance of our request, $395,000, covers all other direct expenses, including travel, training, office supplies, subscriptions to legal and economic research resources, and other miscellaneous expenses directly attributable to Advocacy.

Together, staffing and research account for 95 percent of Advocacy’s total request, and any significant reduction from the amounts requested necessarily come from one or both of these areas.

Additional support for Advocacy in the FY 2014 budget request

In addition to a separate account for Advocacy, Public Law 111-240 also included a provision that SBA was to supply Advocacy with operational support such as office space, rent and utilities, telecommunications, equipment and maintenance, etc.  Advocacy negotiated a Memorandum of Understanding (MOU) with SBA’s Office of the Chief Financial Officer and other SBA support offices in which the agency has agreed to provide all of the items contemplated in the new law without charge to Advocacy’s appropriation account, including centralized indirect expenses shared with other SBA offices (such as procurement & payroll services).  Although the support package for Advocacy that SBA is now providing will not be charged to our appropriation account, the costs for these services and other indirect overhead appear elsewhere in SBA’s budget.  Because these overhead costs do not affect our direct costs, and because they for the most part reflect SBA accounting conventions, Advocacy will not be directly involved in their calculation or reporting.

Revisions to strategic goals and performance metrics

The Government Performance and Results Act of 1993 (GPRA), as amended by the GPRA Modernization Act of 2010 (Public Law 111-352), requires federal agencies to establish strategic goals and more detailed performance objectives to meet these goals.  Programs and offices within agencies have performance indicators to measure progress in meeting these goals and objectives, and final performance measurements are reported publicly each year.  In the past, Advocacy’s performance indicators have supported an SBA objective to “foster a small business-friendly environment by reducing burdens on small business and improving collection of relevant small business data.”  However, with the establishment of our own separate appropriations account and budget appendix, Advocacy now has its own strategic goals and metrics.

Advocacy’s two strategic goals closely align with the office’s primary statutory missions, regulatory advocacy and economic research.  These revisions will not change in any way our commitment to providing small businesses with an effective voice in the regulatory process and providing our stakeholders with high-quality research and data products.  The current fiscal year, FY 2013, is the first in which the performance objectives and metrics for Advocacy’s revised strategic goals have been fully in place.  A detailed discussion of the revisions to Advocacy’s goals and performance metrics is included in the Advocacy appendix to SBA’s congressional budget justification document, along with our annual performance report for FY 2012 and goals for FY 2013 and FY 2014.  There are the two strategic goals that we have adopted going forward:

  • Advocacy Strategic Goal 1:   To be an independent voice for small businesses inside the government and to assist federal agencies in the development of regulations and policies that minimize burdens on small entities in order to support their start-up, development and growth.

 

  • Advocacy Strategic Goal 2:   To develop and disseminate research and data on small businesses and the role that they play in the economy, including the availability of credit, the effects of regulations and taxation, the role of firms owned by women, minority and veteran entrepreneurs, innovation, and factors that encourage or inhibit small business start-up, development and growth.

New Innovation Initiative

Last year, Advocacy launched a new effort which we call the Innovation Initiative.  This effort focuses on the specific needs and concerns faced by high-growth companies and entrepreneurs.  These innovative businesses face different challenges in starting, maintaining and growing their operations than do other types of small businesses.  They often pioneer technologies, business models, and practices that are not yet addressed by the federal government’s existing regulations and processes.

Using Advocacy’s ten regional advocates, supported by the office’s attorneys and economists in Washington, Advocacy is conducting outreach to engage innovators, entrepreneurs, investors, research universities, and industry representatives to hear first-hand what impediments exist for innovative small businesses in high-growth sectors.  We have already had two highly successful regional conferences in Seattle and Pittsburgh as part of the Innovation Initiative.  Advocacy will inform policymakers in the Congress, the White House, and federal agencies of specific concerns heard in its outreach efforts, and it will work with the relevant agencies to facilitate the adoption of regulations and administrative practices that take into account the needs of high-growth small businesses.

Conclusion

I would like to conclude by citing a benchmark that demonstrates what a good investment Advocacy is for America’s taxpayers. On average during the most recent five years for which we have final data (FY 2008 through FY 2012), each $981 Congress has spent on Advocacy has yielded $1 million in regulatory cost savings for America’s small businesses.

Let  me again thank the Committee and its staff for the tremendous support you have given the Office of Advocacy for so many years.  It helps us immeasurably in our work to know that we have this support.  We look forward to continuing to work with you on issues of importance to small business. I would be pleased to answer any questions that you might have.

130417-Office-of-Advocacy-Fiscal-Year-2014-Budget

ByOffice of Advocacy

Testimony of The Honorable Winslow Sargeant Chief Counsel for Advocacy U.S. Small Business Administration

Date:              April 17, 2013

Time:              10:00 a.m.

Location:       Room 428

Russell Senate Office Building

Washington, D.C.

 

Topic:            Office of Advocacy Fiscal Year 2014 Budget

Created by Congress in 1976, the Office of Advocacy of the U.S. Small Business Administration (SBA) is an independent voice for small business within the federal government.  The Chief Counsel for Advocacy, who is appointed by the President and confirmed by the U.S. Senate, directs the office. The Chief Counsel advances the views, concerns, and interests of small business before Congress, the White House, federal agencies, federal courts, and state policy makers.  Issues are identified through economic research, policy analyses, and small business outreach.  The Chief Counsel’s efforts are supported by offices in Washington, D.C., and by Regional Advocates.  For more information about the Office of Advocacy, visit http://www.sba.gov/advocacy, or call (202) 205-6533.

Chair Landrieu, Ranking Member Risch, and Members of the Committee, good morning.  As Chief Counsel for Advocacy, I thank you for the opportunity to appear before the Committee today to discuss the Office of Advocacy’s budget request for Fiscal Year 2014.

 

Advocacy’s independence and new separate account legislation

 

First, on behalf of the entire Advocacy team, we would like to again thank the Committee for the tremendous support you have shown for our office over the years.  Underscoring this support was a provision in Public Law 111-240 that established in the Treasury a separate account for Advocacy, in addition to a requirement that SBA provide operating support for our office.  These provisions have enhanced our independence and have increased transparency for our many stakeholders on our costs and operations.

 

There is a long legislative history supporting the Congressional intent that Advocacy is an independent office housed within SBA, and that its mission and activities, and the discretion exercised by the Chief Counsel in their implementation, are independent of the SBA and its management and normal chain of command.  As you know, Advocacy has its own statutory charter, Public Law 94-305, which is not part of the Small Business Act.  The Regulatory Flexibility Act (RFA) also conveyed additional duties and powers on the Chief Counsel, as did Executive Order 13272.

 

Advocacy’s independence allows us to take strong positions in our comment letters, publications, testimony and other work, without going through clearance within the executive branch. While such review and coordination is certainly appropriate for most agencies, in our case it is not.  That is because it is the job of each Chief Counsel to transmit directly to policymakers the unfiltered views of our small entity stakeholders.

 

Advocacy now has statutory line-item funding, segregated in a separate Treasury account similar to that of the SBA Inspector General.  This means that Congress sets the amount available for direct Advocacy costs, and these funds are not commingled with other SBA funding.  The enactment of these Advocacy budgetary provisions underscores our independence and indicates that Congress intended to identify clearly the resources available to Advocacy, provide a basis for performance measurement, and promote certainty in Advocacy budgets.   The statutory line-item for Advocacy became fully operational in FY 2012, and the President’s budget request for FY 2014 is the third that reflects the establishment of the new Treasury account for our office.

 

Advocacy’s FY 2014 budget request

 

In recognition of the need for federal agencies to reduce their budget requests during the current economic conditions, the Office of Advocacy requests $8.455 million for its direct expenses in FY 2014, a reduction of $191,000 (or 2.2 percent) from its FY 2013 enacted level.

 

Dollars in Millions

FY 2012 Enacted

Level

FY 2013

Enacted

Level

FY 2014  Request

New Budget Authority

9.120

8.646

8.455

This amount includes $7.36 million to support 46 positions, the same number that Advocacy currently has when fully staffed.  Advocacy’s professional staff is our most important asset, and it is appropriate that the largest share of our budget goes to human resources.

 

The FY 2014 budget request will also support an economic research program of $700,000.  This includes funding for data acquisition, specialized contract research, support of custom data tabulations at other agencies, and related costs.  In recent years, Advocacy has produced an average of 25 new reports or data products each year.  Because much of the reduction in Advocacy’s budget request has come from this area, we expect a modest reduction in the number of such reports in the future, with our revised annual goal being 20 reports or data products.

 

The balance of our request, $395,000, covers all other direct expenses, including travel, training, office supplies, subscriptions to legal and economic research resources, and other miscellaneous expenses directly attributable to Advocacy.

 

Together, staffing and research account for 95 percent of Advocacy’s total request, and any significant reduction from the amounts requested necessarily come from one or both of these areas.

 

 

 

Additional support for Advocacy in the FY 2014 budget request

 

In addition to a separate account for Advocacy, Public Law 111-240 also included a provision that SBA was to supply Advocacy with operational support such as office space, rent and utilities, telecommunications, equipment and maintenance, etc.  Advocacy negotiated a Memorandum of Understanding (MOU) with SBA’s Office of the Chief Financial Officer and other SBA support offices in which the agency has agreed to provide all of the items contemplated in the new law without charge to Advocacy’s appropriation account, including centralized indirect expenses shared with other SBA offices (such as procurement & payroll services).  Although the support package for Advocacy that SBA is now providing will not be charged to our appropriation account, the costs for these services and other indirect overhead appear elsewhere in SBA’s budget.  Because these overhead costs do not affect our direct costs, and because they for the most part reflect SBA accounting conventions, Advocacy will not be directly involved in their calculation or reporting.

Revisions to strategic goals and performance metrics

 

The Government Performance and Results Act of 1993 (GPRA), as amended by the GPRA Modernization Act of 2010 (Public Law 111-352), requires federal agencies to establish strategic goals and more detailed performance objectives to meet these goals.  Programs and offices within agencies have performance indicators to measure progress in meeting these goals and objectives, and final performance measurements are reported publicly each year.  In the past, Advocacy’s performance indicators have supported an SBA objective to “foster a small business-friendly environment by reducing burdens on small business and improving collection of relevant small business data.”  However, with the establishment of our own separate appropriations account and budget appendix, Advocacy now has its own strategic goals and metrics.

 

Advocacy’s two strategic goals closely align with the office’s primary statutory missions, regulatory advocacy and economic research.  These revisions will not change in any way our commitment to providing small businesses with an effective voice in the regulatory process and providing our stakeholders with high-quality research and data products.  The current fiscal year, FY 2013, is the first in which the performance objectives and metrics for Advocacy’s revised strategic goals have been fully in place.  A detailed discussion of the revisions to Advocacy’s goals and performance metrics is included in the Advocacy appendix to SBA’s congressional budget justification document, along with our annual performance report for FY 2012 and goals for FY 2013 and FY 2014.  There are the two strategic goals that we have adopted going forward:

 

  • Advocacy Strategic Goal 1:   To be an independent voice for small businesses inside the government and to assist federal agencies in the development of regulations and policies that minimize burdens on small entities in order to support their start-up, development and growth.

 

  • Advocacy Strategic Goal 2:   To develop and disseminate research and data on small businesses and the role that they play in the economy, including the availability of credit, the effects of regulations and taxation, the role of firms owned by women, minority and veteran entrepreneurs, innovation, and factors that encourage or inhibit small business start-up, development and growth.

 

New Innovation Initiative

 

Last year, Advocacy launched a new effort which we call the Innovation Initiative.  This effort focuses on the specific needs and concerns faced by high-growth companies and entrepreneurs.  These innovative businesses face different challenges in starting, maintaining and growing their operations than do other types of small businesses.  They often pioneer technologies, business models, and practices that are not yet addressed by the federal government’s existing regulations and processes.

 

Using Advocacy’s ten regional advocates, supported by the office’s attorneys and economists in Washington, Advocacy is conducting outreach to engage innovators, entrepreneurs, investors, research universities, and industry representatives to hear first-hand what impediments exist for innovative small businesses in high-growth sectors.  We have already had two highly successful regional conferences in Seattle and Pittsburgh as part of the Innovation Initiative.  Advocacy will inform policymakers in the Congress, the White House, and federal agencies of specific concerns heard in its outreach efforts, and it will work with the relevant agencies to facilitate the adoption of regulations and administrative practices that take into account the needs of high-growth small businesses.

 

Conclusion

 

I would like to conclude by citing a benchmark that demonstrates what a good investment Advocacy is for America’s taxpayers. On average during the most recent five years for which we have final data (FY 2008 through FY 2012), each $981 Congress has spent on Advocacy has yielded $1 million in regulatory cost savings for America’s small businesses.

 

Let  me again thank the Committee and its staff for the tremendous support you have given the Office of Advocacy for so many years.  It helps us immeasurably in our work to know that we have this support.  We look forward to continuing to work with you on issues of importance to small business. I would be pleased to answer any questions that you might have.

ByOffice of Advocacy

U.S. House of Representatives Committee on Small Business and Committee on Science, Space, and Technology

Testimony of

Charles Maresca

Director of Interagency Affairs

Office of Advocacy

U.S. Small Business Administration

U.S. House of Representatives

Committee on Small Business and

Committee on Science, Space, and Technology

Date: April 25,2012

Time: 10:00 a.m.

Location: Room 2318  Rayburn House Office Building  Washington, D.C.

Topic: How the Report on Carcinogens Uses Sciencew to Meet its Statutory Obligations, and its Impact ob Small Business Jobs

 

 

Created by Congress in 1976, the Office of Advocacy of the U.S. Small Business Administration (SBA) is an independent voice for small business within the federal government.  The Chief Counsel for Advocacy, who is appointed by the President and confirmed by the U.S. Senate, directs the office. The Chief Counsel advances the views, concerns, and interests of small business before Congress, the White House, federal agencies, federal courts, and state policy makers.  Issues are identified through economic research, policy analyses, and small business outreach.  The Chief Counsel’s efforts are supported by offices in Washington, D.C., and by Regional Advocates.  For more information about the Office of Advocacy, visit http://www.sba.gov/advocacy, or call (202) 205-6533

 

 

Chairman Graves, Chairman Hall, Ranking Member Velázquez, Ranking Member Johnson, Members of the Committees: good morning and thank you for the opportunity to appear before you today to discuss small-business concerns relating to the Department of Health and Human Service’s Report on Carcinogens (RoC).

As Director of Interagency Affairs at the Office of Advocacy (Advocacy), I manage a team of attorneys who works with small businesses and federal government agencies during the rulemaking process to reduce regulatory burdens on small businesses.  Advocacy is an independent office within the U.S. Small Business Administration (SBA) that speaks on behalf of the small-business community before federal agencies, Congress, and the White House.  The views in my testimony do not necessarily reflect the views of the Administration or the SBA and this statement has not been circulated to the Office of Management and Budget for clearance.

After reaching out to small businesses, Chief Counsel for Advocacy Winslow Sargeant submitted a letter to the Department of Health and Human Services (HHS) on November 22, 2011, conveying small-business concerns with the Report on Carcinogens, Twelfth Edition  (12th RoC).  These concerns are primarily twofold: that substances have been listed in the RoC based on inaccurate scientific information, and the peer review and public comment processes need improvement.

The Report on Carcinogens serves an important federal purpose.  Small businesses and the public rely on the scientific integrity and rigorous process underlying the chemical risk characterizations the report contains.  To this end, Advocacy continues to strongly support the President’s call for sound science.   The President’s 2009 Memorandum on Scientific Integrity states “Science and the scientific process must inform and guide decisions of my Administration … The public must be able to trust the science and scientific processes informing public policy decisions.”  This memorandum was later followed by Executive Order 13563 which states that “Our regulatory system must protect public health, welfare, safety, and our environment, while promoting economic growth, innovation, competitiveness, and job creation.”

Accurate and credible scientific assessments are vital for small businesses that provide products derived from chemicals in the marketplace.  Listing a substance in the RoC has the potential to substantially curtail its use.  This is also true when a substance is mislabeled as a carcinogen, or even as a potential carcinogen.

In this instance, small businesses may experience economic hardship.  These include the following:

  • Reduced demand for the product in American and international markets by businesses and consumers;
  • an increase in the likelihood of additional regulations;
  • an increase in the cost of insurance and worker’s compensation premiums;
  • increasing sourcing costs; and
  • increased tort litigation.

Technical labels used in the RoC can be misinterpreted and lead to questions about the true nature of risks to health and safety.  For example, although the RoC lists substances as “reasonably anticipated to be a human carcinogen” or “known to be a human carcinogen,” the RoC includes the caveat that “listing of substances in the RoC only indicates a potential hazard and does not establish the exposure conditions that would pose cancer risks to individuals in their daily lives.” 1  In other words, a listing in the RoC flags a potential hazard but does not mean that the substance presents a risk to human health.  However, this distinction is not conveyed to or understood by consumers.  Consumers and businesses are likely to be more aware of whether the substance is listed than the disclaimer.

As this caveat highlights, the RoC listings are based on a hazard assessment, which is an assessment of anything that can cause harm, and not a risk assessment, which can provide an estimate of the number of persons who may be harmed and the degree of that harm.Many chemicals, such as styrene and formaldehyde, occur naturally in the environment in food, our bodies, and water, but in much smaller doses than would cause cancer.  The RoC’s use of the hazard assessment does not indicate the dose or conditions needed to cause cancer in humans.

Advocacy has met and spoken with small businesses who have experienced some of the impacts listed above.  For example, some small businesses have already reported that the 12th RoC’s listing of styrene as “reasonably anticipated to be a human carcinogen” has led to increases in insurance and worker’s compensation costs.

Further, while the RoC is not itself a regulatory document and was not meant to form the basis of regulations, some entities use the RoC to inform their rulemaking.  For example, the RoC has led to additional regulation in California, where under Proposition 65, the Safe Drinking Water and Toxic Enforcement Act, a listing in the RoC may trigger a listing in California.

Small businesses seek to improve the scientific practices supporting the RoC listings.  First, because it is a hazard-based listing, not a risk-based listing, the RoC has little value for estimating actual cancer risk to the general public even though the listings appear to indicate that there is a cancer risk.  Second, the National Toxicology Program’s (NTP) weight-of-evidence analysis does not appear to account for inconsistent or contradictory data.

Regarding the listing of styrene as “reasonably anticipated to be a human carcinogen” one recent European Union review of the styrene health effects database determined that styrene should not be classified or regulated as a carcinogen.2  A second report in 2009 by a blue-ribbon panel of internationally recognized epidemiologists concluded that the “available epidemiologic evidence does not support a causal relationship between styrene exposure and any type of human cancer.” 3

Further, the University of Alabama’s Dr. Elizabeth Delzell, a styrene researcher, argues that there “is not sufficient science to conclude that styrene causes lymphoma, leukemia or other cancers.” 4  Also, the International Agency for Research on Cancer decided to list styrene as a “possible” and not a “probable” carcinogen in a 2002 review. 5

The RoC’s listing of formaldehyde as “known to be a human carcinogen” for leukemia contradicts the National Academy of Sciences’ (NAS) recent independent review of the Draft Integrated Risk Information System’s (IRIS) Review of Formaldehyde.  NAS found that the Environmental Protection Agency’s own IRIS scientific evaluation of formaldehyde did not support EPA’s conclusion that formaldehyde caused blood cancers.  It is not clear if any of these reports or studies were factored into the RoC listing determinations for styrene and formaldehyde.

NTP could strengthen its scientific data and increase credibility by adopting a more robust weight-of-evidence analysis to ensure that the full range of scientific studies are considered so that the RoC decisions are made with the most comprehensive and accurate scientific analysis.  Such an analysis would be more transparent and would ensure greater scientific credibility.

Small businesses are also concerned with the 12th RoC’s preparation process, particularly regarding peer review and public comment.  The 12th RoC process did not provide sufficient opportunity for meaningful peer review.  According to small businesses, there was inadequate dialogue between NTP and the peer reviewers, lack of peer reviewer access to public comments, inadequate time and resources to perform the review, and inadequate NTP response to peer review comments.

Although the 12th RoC preparation process included several opportunities for public comment, small businesses found that NTP disregarded or did not respond meaningfully to their comments.  Because public comment is the primary method by which small businesses can contribute to the RoC’s preparation process, it is important that such opportunities be meaningful and include timely response to public comment.

Small businesses are concerned with NTP’s recent review of the 12th RoC preparation process for three reasons: the review process needs improvement; the review of the 12th RoC preparation process was a process-based review only and did not address any substantive scientific concerns; and the new preparation process for the upcoming 13th RoC should bolster opportunity for peer review or require NTP response to peer review and public comment.

Notably, the 12th RoC review process has resulted in two positive changes: One additional opportunity for public comment and two additional opportunities for interagency comment have been added.

Advocacy commends the improvements NTP has made.  Advocacy looks forward to working with NTP to improve the review process.  Specifically, the review process should address the substantive scientific concerns involving the weight-of-evidence analysis.  The process should also increase the number of peer review opportunities and provide for meaningful dialogue and NTP response to peer review and public comments.

Considering continued scientific advances in both the understanding and control of potentially carcinogenic substances, it also is important for NTP to have a robust process for reviewing substances for delisting.  Small businesses seek to improve the process by which chemicals are listed and delisted.

This need to improve the process is highlighted by the attempt to delist glass wool which was listed as “reasonably anticipated to be a human carcinogen” in the 7th RoC published in 1994.  In 2004, after ten years of research, North American Insulation Manufacturers Association nominated glass wool for delisting.  The matter was not concluded until the publication of the 12th RoC.  However, instead of delisting the substance in the 12th RoC, NTP modified the definition of glass wool to exclude certain types of glass wool that are “not biopersistent” in the lung.  In the 12th RoC, glass wool is still listed as “certain glass wool fibers (inhalable).” This process of “delisting” non-biopersistent glass wool fibers took over 20 years.

Small business relies on accurate, credible, and reliable science.  NTP’s review of the 12th RoC demonstrates that it is aware that there are concerns with the RoC.  However, NTP needs to make further improvements in order to ease concerns.  To the extent that NTP can improve the substantive underlying science, the preparation process, and the clarity of the listings of the RoC, there will be an important and measurable burden reduction on small businesses.

I would like to thank you once again for inviting me to speak to you today.  I commend the Committees’ interest in improving the RoC, as well as reducing uncertainty in the RoC listings and fostering their legitimacy.

 

 

 

FootNotes:

  1. National Toxicology Program, U.S. Department of Health and Human Services, Report on Carcinogens, Twelfth Edition (2011), p 3.
  2. European Chemicals Agency, European Union Risk Assessment Report: Styrene (2008), available at http://echa.europa.eu/doc/trd_substances/styrene/rar/trd_rar_uk_styrene.pdfDownload Adobe Reader to read this link content.
  3. Boffetta et al, Epidemiologic Studies of Styrene and Cancer: A Review of the Literature, 51 J Occup Environ Med. 1275, 1275-87 (2009).
  4. Letter from Elizabeth Delzell, researcher, University of Alabama, to Barbara Shane, executive secretary, Board of Scientific Counselors, National Toxicology Program (Feb. 5, 2009), available at http://www.box.net/shared/static/slm4m8tp7a.pdfDownload Adobe Reader to read this link content.
  5. International Agency for Research on Cancer (IARC), World Health Organization (WHO), IARC Monographs on the Evaluation of Carcinogenic Risks to Humans: Some Traditional Herbal Medicines, Some Mycotoxins, Naphthalene and Styrene, (2002), available at http://monographs.iarc.fr/ENG/Monographs/vol82/mono82-9.pdfDownload Adobe Reader to read this link content.
ByOffice of Advocacy

Black Retired Military Officers: A Class of Business Entrepreneurs

Testimony of
Dr. Winslow Sargeant
Chief Counsel for Advocacy
U.S. Small Business Administration

U.S. House of Representatives
Congressional Black Caucus

September 22, 2011, 3:00 P.M.
Room SVC-201-00
United States Capitol Visitor Center, Washington, D.C.
Black Retired Military Officers: A Class of Business Entrepreneurs

Good afternoon. I am happy to be with you today. Thank you, Representative Clay and the Members of the Congressional Black Caucus for pulling this forum together and for the opportunity to speak.

My name is Winslow Sargeant. I’m the Chief Counsel for Advocacy at the U.S. Small Business Administration. Congress established the independent Office of Advocacy within the SBA in 1976.

My own background is in technology and business. I started off my career as an electrical and computer engineer, working for IBM, AT&T and Lucent Technologies, obviously not small businesses. In 1997, as a result of the new competition created by the 1996 Telecom Act, I saw an opportunity to start my own business. Along with a couple of friends in Allentown, Pennsylvania, a community going through some tough economic times, we quit our jobs and started a company designing computer chips. In a short period of time, we grew from a handful of employees to more than 50. We were successful, and a few years later accepted a great offer to sell the business to a publicly traded company. Still, we were not exempt from the challenges of starting and growing a business. There were legal bills, paperwork, and sometimes regulations that made no sense for a company our size. Since starting my first company I have been involved in starting and growing a number of businesses. I worked in venture capital, where I focused on investments during the early stages of start ups in technology, energy, and health care.

As a former small business owner who has had to make a payroll, I understand the challenges small business owners face. That’s why I’m pleased that it is my job as Chief Counsel to advocate for small business concerns and interests before Congress, the White House, and federal agencies.

Advocacy focuses primarily on two areas: small business research and reducing the regulatory burden.We provide research on issues that are important to small business, such as lending, procurement, and tax policy.

We all know how important small and minority-owned businesses are to our economy. But what are the numbers? Small firms employ half of all private sector employees and represent 99.7 percent of all employer firms. African-American-owned businesses in the United States numbered 1.9 million in 2007, a 60.5 percent increase over 2002. African Americans owned more than 100,000 firms with employees, and these firms employed more than 900,000 people, with a total payroll of nearly $23 billion and almost $136 billion in receipts. A closer look at the data reveals that many of these businesses are small in terms of company size. Of the total, 94 percent had no paid employees. The hard truth is that although businesses owned by African Americans are growing in number, they are not growing in size, capacity, or revenue. So we have our work cut out for us.

In the context of today’s roundtable, we have data from the 2007 Survey of Business Owners on the number and receipts of veteran-owned small businesses by minority group. For example, in 2007, there were 188,820 firms owned by African American veterans. Of these, 12,177 had employees. By industry, the largest shares of these employer firms were in health care and in professional, scientific, and technical services.

We have seen some improvement in government procurement. From 2009 to 2010, there were increases in both prime and subprime contracting for small, women-owned and small disadvantaged businesses. Subcontracting small businesses increased from 31 percent to 35 percent, and women-owned small businesses went from 5.4 percent to 6.2 percent. Overall, the government-wide procurement performance was given a grade of B. While this improvement is certainly good news we have to be diligent to maintain this progress.
Advocacy’s research has an important role to play in providing the data needed to support effective public policy. For example, in 2008, as required by Public Law, Advocacy conducted a study measuring the effectiveness of the HUBZone program. The HUBZone program was authorized in 1997 to target federal contracts to areas with low income, high poverty rates, and high unemployment. The study found that the program grew in terms of contract dollars from $44 million in fiscal year 2000 to $1.76 billion in fiscal year 2007. The study found that at the time, the HUBZone program had not been able to generate enough contract dollars to have a national impact. The eight-year total of $6 billion in setasides and other types of contracts was spread over 2,450 qualified metropolitan areas, rural counties, and Indian reservations. More recently, figures from SBA’s small business procurement scorecard show that in FY 2010 alone, the total procurement from small businesses in HUBZones was nearly $12 billion.

We have also provided needed research on broadband technology for small businesses. Broadband is a transformative technology that allows U.S. businesses to access customers around the world. But access to broadband is not created equal. In 2010 we released a study required by the Broadband Data Improvement Act, which found that for small businesses, the availability, speed, and price of broadband services varied considerably between rural and urban areas. We believe that all small businesses must have fast and affordable access to broadband if they’re going to succeed. The study is a first step toward making that access a reality, especially for small businesses in underserved markets.

Related to the issue of job creation, the Office of Advocacy has looked at the phenomenon of high-growth firms. Over its history, Advocacy has conducted numerous research studies on high-impact, fast-growing firms, first called “gazelles” by one of our early contractors, David Birch. In 2008, Advocacy sponsored a research study titled High-impact Firms: Gazelles Revisited. The study found that high-impact firms represented 2-3 percent of all firms, and accounted for almost all of the private sector employment and revenue growth in the economy.

Shortly after President Obama appointed me to head the Office of Advocacy in August 2010, we held a forum on high-impact firms. The overall view of the participants was that a private-public partnership was needed for small businesses to succeed and create jobs.

And just last week in a forum on small business finance, we looked at another angle in the job creation puzzle—how to help small businesses access the debt and equity capital they need. Among the key points made in that forum was that there is a great need for investments in small businesses with high potential at an early stage. And there is a need for sound public policy that will help us move forward in this area.

At Advocacy we will continue to support research to encourage the successful startup and growth of minority and women-owned businesses—really all innovative businesses.
The high priority for Advocacy is reducing the burden of regulations on small business. Our research finds that small businesses pay more than large businesses to comply with regulations. At Advocacy, we listen to small business about what works and what doesn’t, and then we work with federal agencies to explore possible alternatives to proposed rules. We’ve been able to save small businesses nearly $15 billion in forgone regulatory costs this past fiscal year, while still accomplishing the agencies’ objectives. We’re proud of our success, but there is still more to do.

Under the Regulatory Flexibility Act, the Office of Advocacy has an independent role in looking at the rules proposed by all the federal agencies, including the SBA. We got involved when the SBA proposed improvements to SBA’s Women-Owned Small Business Contracting program. SBA proposed that women-owned businesses be able to self-certify when they were successful in obtaining a contract. Advocacy commended SBA for addressing past discrimination against women-owned businesses in competing for federal contracts. Advocacy recommended that SBA take into account new technologies and industries that may not yet be represented in the NAICS system. The final rule made great progress in trying to reduce the economic cost of compliance for small women-owned businesses within the framework of the law.

In another rule, Advocacy commented on SBA’s proposed rule regulating the 8(a) procurement program. The proposed rule had a residency requirement that meant participants in the program would have to spend a certain amount of time each month at his or her primary office. There was no legal requirement for this, and Advocacy recommended dropping the residency requirement. The final rule was changed to eliminate it.

We also commented to the Office of Federal Procurement Policy about its policy letter on insourcing—a management tool used to address over-reliance on contractors by federal agencies. As a result of our comments, the final policy letter minimizes the potential negative impact on small businesses by requiring federal agencies to take two actions. First, when agencies review which of their contracted work can be accomplished within the agency, they are to put a lower priority on “insourcing” work being performed by small businesses. Second, they are to apply the “rule of two” to work that will continue to be performed by contractors. The rule of two calls for a contract to be set aside for small businesses if at least two small firms are available to do the work for a fair market price.

We’ve also been supportive of the “QuickPay” plan announced last week by President Obama. This plan requires agencies to cut checks to small contractors within 15 days of receiving a valid invoice, instead of 30, as required by the Prompt Payment Act. It should help improve the cash flow for small businesses that do business with the government.
And there has been a recent rule proposed related to the “Rothe” case. As many of you know, in the case of Rothe Development Corporation versus the Department of Defense, the U.S. Court of Appeals for the Federal Circuit struck down the DoD’s small disadvantaged business preference program. Just two weeks ago, on September 9, 2011, the FAR Council—which includes the DoD—issued a proposed regulation related to this case. The rule attempts to deal with the impact of the Rothe case on small disadvantaged business concerns and historically black colleges and universities. The proposed rule notes that the changes may have a significant economic impact on small businesses under the RFA. That statement often brings my office into the discussion, as federal agencies and small firms work together to reduce the small business regulatory burden. Those interested in commenting on that proposed rule should submit comments by November 8, 2011.

Finally, President Obama has recognized the unrealized potential for small businesses in exporting and importing goods and services. He has pointed out that the goal of doubling exports by 2015 can be achieved only if small and medium-sized enterprises get the support they need. I believe strongly that one of the ways to provide this support is to reduce the regulatory cost burdens for small businesses interested in entering the export market. These barriers to exporting include the time it takes for products to be approved for export, the types of products eligible for export, and the sometimes unreasonable penalties and assessments, insurance costs, and licensing requirements involved in exporting. We want to help our innovative small businesses penetrate these international markets by reducing these burdens.

So in a nutshell, the Office of Advocacy gets involved in advocating for small firms through small business research and reducing the regulatory burden on small firms. In conclusion, let me say that I look forward to continuing to work with the Congressional Black Caucus on issues that affect small and minority-owned businesses. Tomorrow, the President’s Task Force on Veteran Business will meet at SBA and I know that your participation is critical to the final report. It is important for you to convey your concerns to SBA. And if there are issues you want to discuss, concerns you may have, please contact us, contact the office, call me. Advocacy stands ready to help.
You know and I know that starting and growing a business is challenging, creating jobs is challenging, growing an economy is challenging, but we have the tools and the commitment to do all of these. We’ve done it before. American innovation and entrepreneurship have created some of the world’s greatest companies. So as we continue to work our way through these challenging times, please remember that small business is our focus in the Office of Advocacy. I am pleased for the opportunity to be here today and I applaud your efforts.

ByOffice of Advocacy

Regulatory Impediments to Job Creation: Assessing the Impact of GHG Regulations on Small Business

To request a copy of the archived documents listed below, please contact the Office of Advocacy via email at advocacy@sba.gov(link sends e-mail).

Testimony of

Claudia R. Rodgers
Deputy Chief Counsel for Advocacy
Office of Advocacy
U.S. Small Business Administration

 

Subcommittee on Regulatory Affairs, Stimulus
Oversight and Government Spending

Committee on Oversight and Government Reform
U.S. House of Representatives

April 6, 2011, 1:30 PM, Room 2154,Rayburn House Office Building,Washington, D.C.

Regulatory Impediments to Job Creation: Assessing the Impact of GHG Regulations on Small Business

Mr. Chairman, Ranking Member, Members of the Subcommittee, my name is Claudia Rodgers and I am Deputy Chief Counsel for the Office of Advocacy at the U. S. Small Business Administration (SBA). I am pleased to have the opportunity to appear before this Committee on behalf of Chief Counsel Dr. Winslow Sargeant on the subject of greenhouse gas (GHG) regulations and their impact on small business.

The Office of Advocacy

Congress established the Office of Advocacy under Pub. L. No. 94-305 to represent the views of small entities before federal agencies and Congress. Because Advocacy is an independent body within the SBA, the views expressed by Advocacy do not necessarily reflect the position of the Administration or the SBA.(1) Accordingly, this testimony has not been circulated through the Office of Management and Budget (OMB). The Office of Advocacy is charged with oversight of agency compliance with the Regulatory Flexibility Act (RFA).(2) The RFA, as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA),(3) gives small entities a voice in the federal rulemaking process. For all rules that are expected to have a “significant economic impact on a substantial number of small entities,”(4) the Environmental Protection Agency (EPA) is required by the RFA to conduct a Small Business Advocacy Review (SBAR) Panel to assess the impact of the proposed rule on small entities,(5)and to consider less burdensome alternatives. Moreover, federal agencies must give every appropriate consideration to any comments on a proposed or final rule submitted by Advocacy and must include, in any explanation or discussion accompanying publication in the Federal Register of a final rule, the agency’s response to any written comments submitted by Advocacy on the proposed rule.(6)

Office of Advocacy’s Work with EPA on Behalf of Small Business

The Office of Advocacy and EPA have a long working relationship as a result of the rulemaking process and the requirements of the Regulatory Flexibility Act (RFA). Since SBREFA was signed into law in 1996, EPA has conducted about 40 SBAR Panels to assess the impact of proposed rules on small entities and to consider less burdensome alternatives. These panels allow small businesses to give direct feedback on the potential costs and burdens of the proposed rules and to suggest and develop less burdensome alternatives. Final panel reports must be signed by the Chief Counsel for Advocacy, the Administrator of the Office of Information and Regulatory Affairs (OIRA), and the Administrator of the EPA. In 15 years of SBAR panels, Advocacy has found that the panel process is a useful way for small businesses to provide valuable input into the rulemaking process. In short, the panel process works.

SBAR panels have saved billions of dollars for small businesses due to changes and improvements that were made to proposed rules while allowing EPA to achieve their statutory objective. In anticipation of such panels and throughout the panel process, the Office of Advocacy works extremely closely with EPA to ensure that the process is working as intended and that appropriate costs are being considered. While Advocacy does occasionally have disagreements with EPA on procedure and policy, we are also very proud of the work we have done with the agency to improve regulations and reduce the burdens on small businesses. We currently have five SBAR panels underway on EPA rules, and we will continue to work with EPA in a constructive way to make sure the RFA is being followed and the impacts of regulations on small businesses are being taken into account.

Advocacy’s Position on GHG SBAR Panel

However, Advocacy disagrees with EPA on whether the impacts on small businesses are being properly considered in its GHG regulations. Advocacy has been clear and consistent in its public comment letters and other communications with EPA about our positions on these issues (see Appendices). Advocacy believes EPA should have held SBAR panels and conducted thorough RFA analyses to explore potential impacts of GHG regulations on small entities. In four years of regulatory activity, EPA has not evaluated the economic effects that its initial endangerment finding and mobile source emissions standards have had on small businesses. Advocacy does not challenge EPA’s authority to implement the Clean Air Act (CAA). However, we do believe a more thorough analysis was needed, including SBAR panels, to fully consider the impacts GHG regulation would have on small businesses.

The Advance Notice of Proposed Rulemaking

In 2008, when EPA issued an Advance Notice of Proposed Rulemaking indicating it might regulate GHG, Advocacy filed public comments in which we identified a number of possible issues with GHG regulation, including the high thresholds for emissions permitting that would be required by the Prevention of Significant Deterioration/New Source Review (PSD/NSR) provisions of the CAA.(7) We also asked EPA to hold SBAR panels on any GHG regulation to ensure that any disproportionate effects on small entities could be considered. Advocacy further suggested that EPA conduct “a separate [SBAR] panel for each primary industry sector likely to be affected (e.g., transportation, agriculture, public institutions, manufacturing, etc.).”(8)

The Proposed Endangerment Finding

When EPA issued its Endangerment Finding in 2009, Advocacy again filed public comments advising EPA to conduct SBAR panels to explore potential impacts of GHG regulation on small entities. We also recommended, should EPA move forward, that it establish regulatory exemptions to small GHG emitters that might mitigate the economic impacts on small entities, an approach similar to what EPA would propose later that year.

The Proposed Motor Vehicle GHG Emission Standards

In September 2009, EPA proposed regulation of motor vehicle GHG emission standards (i.e., fuel economy standards).(9) EPA certified under the RFA that such standards would have no significant impact on a substantial number of small entities because small automobile manufacturers were excluded from the rule.(10) EPA asserted that it was exercising 609(c) authority under the RFA to reach out to small entities. Such outreach by itself is not legally or functionally equivalent to conducting an SBAR panel. In addition, such outreach does not typically result in the identification of significant regulatory alternatives, which is one of the primary objectives of the panel process. Similarly, consultation between EPA, OMB, and Advocacy does not take the place of the deliberative process that occurs between the agencies as panel members. Finally, and perhaps most importantly, informal consultation and public outreach do not result in a written panel report with formal recommendations to the EPA Administrator.

Advocacy disagreed with EPA’s certification and stated that any regulation of GHGs under the CAA would, by operation of law, automatically and immediately trigger the regulation of GHGs from stationary sources under the PSD/NSR program.(11) No additional regulatory action would be needed before permits would be required by law.
EPA’s own estimates indicated that the number of facilities that would have to obtain GHG PSD permits because of construction or modifications could increase from about 280 a year to almost 41,000 per year.(12) For Title V operating permits, EPA estimated that “more than six million facilities . . . would become newly subject to Title V requirements because they exceed the 100 ton per year threshold for GHG but did not for previously regulated pollutants.”(13) A large number of facilities facing these new GHG permitting requirements are small businesses, along with small communities and small nonprofit associations. Thus, it was clear that the GHG emissions standards rule for light-duty vehicles would directly and immediately trigger regulatory impacts on small entities. And, for this reason, Advocacy believes that EPA should have convened SBAR panels in advance of this rulemaking.

The Proposed Tailoring Rule

Acknowledging the economically significant impact that finalizing the motor vehicle standards would impose on the economy, EPA proposed the Tailoring rule to temporarily raise the PSD/NSR and CAA permitting thresholds for GHG emitters so that smaller sources would not have to apply for permits immediately.(14) Advocacy was pleased that EPA acknowledged some of the potential burdens on small businesses and established a phase-in compliance program. This action led to significant cost savings for small businesses, and EPA deserves credit for its implementation. However, EPA again certified that the rule would have no significant impact on a substantial number of small entities.(15)Here, the certification asserted that the Tailoring rule was strictly regulatory relief, and thus could not trigger a significant impact.

Advocacy filed public comments on the proposed Tailoring rule on December 23, 2009.(16) The comments stated that EPA did not comply with the RFA in the GHG rulemakings. First, the Tailoring rule would not have been necessary if the endangerment finding and motor vehicle GHG standards imposed no significant economic harm on a substantial number of small entities. Second, even if taken as a whole, the proposed Tailoring rule would not have mitigated the full economic impact on small entities because the relief in the proposed Tailoring rule was only temporary and because the proposed Tailoring rule did not exempt all small entities. Had EPA thoroughly analyzed the potential reach of the GHG permitting requirements on small entities, it would have learned that a substantial number of small entities (over 1,200) would have remained subject to the GHG permitting requirements.(17)
In our letter, Advocacy again advised EPA that it had not met its obligations under the RFA and that it should revisit its ongoing rulemakings to ensure sufficient time to conduct SBAR panels and adequately consider the impacts of GHG regulations on small entities. Nonetheless, EPA finalized its endangerment finding,(18) and the GHG emission standards for light-duty vehicles,(19) and the Tailoring rule(20) without engaging in SBAR panels or conducting RFA analyses of impacts of GHG regulations on small business.

EPA now has completed a regulatory process which has or will soon subject small businesses to the burden of Clean Air Act permitting, a burden that the Tailoring rule has failed to address for some and has only delayed by a few years for others. Throughout the rulemaking process, our office has informed EPA that it should adequately consider the impacts of this program on small businesses.

Conclusion

While EPA has expressed its desire to comply with the RFA, reach out to small entities and provide temporary relief to some small businesses, Advocacy remains concerned that EPA did not comply with the RFA by holding SBREFA panels on the three GHG regulations, and therefore did not adequately take into account the potential impact of these regulations on small entities. Advocacy does not challenge EPA’s authority to implement the Clean Air Act; to the contrary, we believe EPA has significant authority and discretion in this area. Rather, Advocacy, through the RFA analysis process, has sought a full consideration of the impacts GHG regulation might have on small entities. We look forward to continuing to work with EPA on these and other important regulations.

Thank you for the opportunity to address such an important issue for small business. I appreciate your interest in the work of the Office of Advocacy.

APPENDICIES

A. Letter dated 01/19/11 – Environmental Protection Agency
Proposed Settlement Agreements for Petroleum Refineries and Electric Utility Generating Units

B. Letter dated 12/23/09 – Environmental Protection Agency
Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rules

C. Letter Dated 06/23/09 – Environmental Protection Agency
Proposed Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act
D. Letter dated 11/28/08 – Environmental Protection Agency
Regulating Greenhouse Gas Emissions Under the Clean Air Act

E. Letter dated 07/08/08 Environmental Protection Agency
EPA’s draft Advanced Notice of Proposed Rulemaking “Regulating Greenhouse Gas Emissions under the Clean Air Act”.

ENDNOTES

1. 15 U.S.C. § 634a, et. seq.
2. 5 U.S.C. § 601, et. seq.
3. Pub. L. 104-121, Title II, 110 Stat. 857 (1996) (codified in various sections of 5 U.S.C. § 601, et. seq.).
4. See 5 U.S.C. § 609(a), (b).
5. Under the RFA, small entities are defined as (1) a “small business” under section 3 of the Small Business Act and under size standards issued by the SBA in 13 C.F.R. § 121.201, or (2) a “small organization” that is a not-for-profit enterprise which is independently owned and operated and is not dominant in its field, or (3) a “small governmental jurisdiction” that is the government of a city, county, town, township, village, school district or special district with a population of less than 50,000 persons. 5 U.S.C. § 601.
6. 5 U.S.C. § 604, as amended by the Small Business Jobs Act of 2010, Pub. Law No. 111-240, Sec. 1601.
7. 73 Fed. Reg. 44,354, 44,390 (July 30, 2008).
8. Letter to EPA Administrator Stephen L. Johnson from Acting Chief Counsel for Advocacy Shawne C. McGibbon, November 28, 2008, available
9. 74 Fed. Reg. 49,454 (September 28, 2009).
10. Id. at 49,629.
11. See 74 Fed. Reg. 55, 292, 55,294 (October 27, 2009).
12. Id. at 55,301.
13. Id. at 55,302.
14. 74 Fed. Reg. 55, 292 (October 27, 2009).
15. Id. at 55,349.
16. Letter to EPA Administrator Lisa P. Jackson from Acting Chief Counsel for Advocacy Susan M. Walthall, December 23, 2009, available at http://www.sba.gov/sites/default/files/reg%201223%20EPA.pdfDownload Adobe Reader to read this link content.
17. Id. at 7.
18. 74 Fed. Reg. 66,496 (December 15, 2009).
19. 75 Fed. Reg. 25,324 (May 7, 2010).
20. 75 Fed. Reg. 31,514 (June 3, 2010).

ByOffice of Advocacy

Office of Advocacy Fiscal Year 2012 Budget

Testimony of

The Honorable Winslow Sargeant, Ph.D.
Chief Counsel for Advocacy
U.S. Small Business Administration

 

United States Senate
Committee on Small Business and Entrepreneurship

Date: March 31, 2011
Time: 10:00 a.m.
Location: Room 428
Russell Senate Office Building
Washington, D.C.

Topic: Office of Advocacy Fiscal Year 2012 Budget

Chair Landrieu, Ranking Member Snowe, and Members of the Committee, good morning. As Chief Counsel for Advocacy, I thank you for the opportunity to appear before the Committee today to discuss the Office of Advocacy’s budget request for Fiscal Year 2012. That submission is part of the President’s request for SBA and the government as a whole, and it accordingly has the full support of the administration. However, because Advocacy was established to provide independent counsel to policymakers, and its testimony is not circulated for comment through the Office of Management and Budget (OMB) or other federal offices, my views on matters other than the official budget request do not necessarily reflect the position of the administration or of SBA.

Advocacy activity update

Before I turn to the budget, I would like to bring you up to date on Advocacy activity generally. I am pleased to report that Advocacy has been extremely busy since my last appearance before you in November. As Chief Counsel, my top priority is and will continue to be ensuring that the voice of small business is heard in the regulatory process. We continue to work with agencies across government to help them mitigate the potential costs of regulation for small entities. Since my appointment last August, I have signed 32 public comment letters to 19 different agencies on a wide variety of issues (Appendix A). We are currently participating in seven separate Small Business Advocacy Review Panels now in various stages of progress on EPA rules. Additional panels are expected in the near future on regulations from OSHA and the new Bureau of Consumer Financial Protection.

All of us here know how important it is for agencies to take their Regulatory Flexibility Act (RFA) responsibilities seriously, and Advocacy continues to provide RFA compliance training to regulatory agencies, pursuant to Executive Order 13272. Also in furtherance of that order and the RFA, we continue to work closely with our colleagues in OMB’s Office of Information and Regulatory Affairs to ensure that small business concerns are heard early in the regulatory development process. To help us understand those concerns, we have had more than 20 small business roundtables since my appointment. They have explored issues as diverse as taxes and pensions, government contracting, work visas, telecommunications, OSHA and EPA rules, financial regulations, aviation and transportation rules, and veteran entrepreneurship.

Since the beginning of the current fiscal year, our economic research team has published twelve research or data products, including new editions of three of our most popular annual reports: The Small Business Economy, our state economic profiles, and our annual small business bank lending study. In addition, we have underway a variety of contract research projects on specialized issues, and these will be released as they become available.

When I testified before you in November, I was strongly encouraged by members of this Committee to travel outside of Washington to hear directly from small businesses around the country. Since then, I have had the pleasure to do just that in Rhode Island, Massachusetts, Georgia, Alabama and Louisiana; and I have scheduled trips to Wisconsin, Minnesota and Maine in the weeks to come. Additionally, we have now brought all ten of our regional advocates on board, giving a much stronger voice to businesses in every region in the country. They are out there talking to state and local elected officials about the importance of regulatory flexibility and listening to small business owners about the regulatory burdens they face.

Our information team reports that hard copies of Advocacy’s monthly newsletter now go to more than 8,000, and almost 30,000 more subscribers receive it electronically. Advocacy’s research listserv reaches nearly 16,000 subscribers, and our regulatory news goes to nearly 14,000 subscribers.

To conclude this brief overview, Advocacy recently released its annual report on implementation of the RFA and Executive Order 13272. I am proud to report to you today that in FY 2010 Advocacy’s work with regulatory agencies to help them design smarter rules resulted in one-time regulatory cost savings for small entities of nearly $15 billion. In addition, recurring annual savings of $5.5 billion resulted from these efforts. These cost savings estimates are conservative and based in most cases on data from the rule-writing agencies themselves. (A listing of the rules and savings achieved is attached as Appendix B to this testimony.) Our FY 2010 savings were led by more than $9.1 billion in savings from a single EPA rule which defers greenhouse gas requirements for many small businesses by up to six years. Although our annual regulatory cost savings numbers can vary considerably from year to year, our five-year average for one-time cost savings remains an impressive $8.5 billion.

Executive Order 13563

Since I last appeared before the Committee, President Obama signed on January 18th Executive Order 13563, Improving Regulation and Regulatory Review, and two related memoranda to the heads of executive branch departments and agencies: one titled Regulatory Compliance, and the other Regulatory Flexibility, Small Business, and Job Creation. (These documents are attached as Appendices C, D and E.) These directives supplement existing regulatory review processes, particularly the Executive Order 12866 process that has been in place since 1993. However, the new directives also reiterate key provisions of the RFA, as well as emphasize the administration’s commitment to:

  • public participation in the rulemaking process;
  • the coordination, simplification and harmonization of regulations that are redundant, inconsistent or overlapping across agencies;
  • the identification of means to achieve regulatory goals designed to promote innovation;
  • consideration of regulatory flexibility whenever possible;
  • the review of existing significant regulations and the consideration of how best to promote retrospective analysis of rules that may be outmoded, ineffective, insufficient or excessively burdensome; and
  • the modification, simplification, expansion or repeal of rules based on these analyses.

These objectives and the new directives are very much in keeping with Advocacy’s mission, the RFA and Executive Order 13272. In fact, both Advocacy and the RFA are mentioned by name in the memorandum Regulatory Flexibility, Small Business, and Job Creation. In it, the President emphasized the importance of compliance with the RFA and its purposes. The President also expanded the existing requirement for an agency to document its decision to reject an alternative that may reduce regulatory burdens on small entities. The RFA currently requires agencies to explain in the Final Regulatory Flexibility Analysis accompanying final rules why significant alternatives were not selected. The President has directed that a similar explanation be provided for proposed rules as well.

In FY 2012, Advocacy will be assisting regulatory agencies in meeting the requirements of the President’s regulatory initiative. We are already working with White House officials and OMB’s Office of Information and Regulatory Affairs to implement Executive Order 13563. On February 1st, I sent a memorandum to the heads of executive branch departments and agencies concerning new RFA developments, including provisions in the President’s regulatory initiative. I also reminded them of RFA amendments made by the Small Business Jobs Act of 2010, Public Law 111-240 (September 27, 2010). Through this Committee’s leadership, the Jobs Act also included additional provisions of enormous importance to Advocacy, and it is to those provisions and our Fiscal Year 2012 budget request that I now turn.

Advocacy’s independence and new separate account legislation

First, on behalf of the entire Advocacy team, let me thank the Committee for the tremendous support you have shown for our office over the years, through many changes in leadership in both the legislative and executive branches. This support was again underscored by inclusion in Public Law 111-240, last year’s Small Business Jobs Act, a provision establishing in the Treasury a new separate account for Advocacy and a requirement that SBA provide an operating budget for our office. These provisions will enhance our independence and increase transparency for our many stakeholders on our costs and operations.

There is a long legislative history supporting the Congressional intent that Advocacy is an independent office housed within SBA, and that its mission and activities, and the discretion exercised by the Chief Counsel in their implementation, are independent of the SBA and its management and normal chain of command. As you know, Advocacy has its own statutory charter, Public Law 94-305, which is not part of the Small Business Act. The RFA also conveyed additional duties and powers on the Chief Counsel, as did Executive Order 13272. We also have special personnel authorities and a variety of other tools to help us represent the interests of small business within government.

Advocacy’s independence allows us to take strong positions in our comment letters, publications, testimony and other work, without going through clearance within the executive branch. While such review and coordination is certainly appropriate for most agencies, in our case it is not. That is because it is the job of each Chief Counsel to transmit directly to policymakers the unfiltered views of our small entity stakeholders.

I would like to make clear that, since my appointment by the President, Administrator Mills and her staff have respected Advocacy’s independence, and we have a good working relationship. When I speak of independence, I want to emphasize that Advocacy only makes decisions based on what we believe is best for small business. When I send a comment letter on a proposed regulation, it is not cleared by the Administrator, the White House or any other office or official in the administration. Neither are our research findings, testimony or other work products reviewed for clearance by the administration. We work independently as the Congress intended, and the SBA Administrator has been respectful of this independence.

Administrator Mills and other senior members of the administration understand that Advocacy’s ability to provide the best information possible helps all of us to do our jobs better, whether this information consists of economic research or data products, the articulation of the views and concerns of small entities on policy issues affecting them, assistance to regulatory agencies in RFA compliance issues, or the professional judgment of our highly qualified team of attorneys and economists. I know from my conversations with past Chief Counsels that Advocacy’s independence has been a constant through the years, and it remains the bedrock of Advocacy’s ability to be effective.

Despite Advocacy’s independence, our office has in the past been fully integrated within SBA’s internal budgetary process. We have competed, as it were, with all SBA program offices for our share of resources within SBA’s total budget. There are many stages in this process, including coordination with OMB as SBA’s budget request is integrated into the administration’s government-wide request. Throughout the process, difficult decisions are made about the allocation of scarce resources, many of them by the SBA Administrator and his or her senior staff. I am pleased to report that Administrator Mills has been very supportive of Advocacy, but through the years the office has had its budgetary ups and downs, and we have borne our share of reductions in staffing and other resources.

Because of Advocacy’s complete integration into SBA’s budget in the past, the office has been vulnerable to the changing priorities of new administrations and within the SBA itself. There has not been much transparency at the individual SBA office level where Advocacy has resided in the budget process, and changes in accounting methods have made it even more difficult to compare Advocacy costs and needs from one year to another.

The Small Business Jobs Act of 2010 provides that Advocacy will have for the first time statutory line-item funding, to be segregated in a separate Treasury account similar to that of the SBA Inspector General. This basically means that the Congress will set the amount available for direct Advocacy costs, and these funds will not be commingled with other SBA funding. The enactment of the Advocacy budgetary provisions underscores our independence and indicates that Congress intended to identify clearly the resources available to Advocacy, provide a basis for performance measurement, and promote certainty in Advocacy budgets.

I am pleased to report that the new statutory line-item for Advocacy will be operational in FY 2012, and the President’s recent budget request for that year reflects the establishment of a new Treasury account for our office.

Advocacy’s FY 2012 budget request

The President’s budget request for Advocacy direct costs in FY 2012 is $9.12 million. This amount includes $7.4 million to support 46 positions, the number of staff on board during Fiscal Years 2008 and 2009. We are now at 45, and an additional position will be filled in the next few weeks. Advocacy’s professional staff is our most important asset, and it is appropriate that the largest share of our budget goes to human resources.

The FY 2012 budget request will also support an economic research program of $1.3 million. This includes funding for data acquisition, specialized contract research, support of custom data tabulations at other agencies, and related costs. In recent years, Advocacy has produced an average of 25 new reports or data products each year. However, there remains an increasing need for additional work. A number of older Advocacy studies require updating so that the maximum utility of investments already made can be realized. The recent update of our study on the cost of regulation is a good example of this. The proposed funding level for Advocacy research in FY 2012 will also allow for additional data acquisition from other government agencies and new research projects to meet the changing needs of our stakeholders.

The remaining $420,000 in Advocacy’s budget request for FY 2012 will cover all expenses for travel, training, office supplies, subscriptions, printing of publications, and other incidental expenses attributable directly to Advocacy.

Additional support for Advocacy in the FY 2012 budget request

In addition to a separate account for Advocacy, the Jobs Act also included a provision that SBA was to supply Advocacy with operational support such as office space, rent and utilities, telecommunications, equipment and maintenance, etc. I am pleased to announce that we have negotiated an agreement with SBA’s Office of the Chief Financial Officer and other SBA support offices in which the agency has agreed to provide all of the items contemplated in the new law without charge to our new appropriation. Included in this support package are a variety of centrally managed services such as human resources/payroll services, legal counsel, facilities management, procurement, security and emergency planning, computer technical support, web services and the use of mail room and delivery services. Our agreement has been formalized in a Memorandum of Understanding (MOU) signed by SBA Deputy Administrator Marie Johns and myself.

Although the support package for Advocacy that SBA will be providing beginning in FY 2012 will not be charged to our new appropriation account, the costs for these services and other indirect overhead will appear elsewhere in SBA’s budget. Because these overhead costs do not affect our direct costs, and because they for the most part reflect SBA accounting conventions, Advocacy will not be directly involved in their calculation. As we make the transition to the new appropriations and accounting system, questions in this area will undoubtedly arise, but I am confident that with the MOU between Advocacy and SBA, we will be able to implement the new legislation as intended by Congress.

Next steps

While the Congress considers the President’s FY 2012 budget request, we will soon begin the process of formulating the FY 2013 budget request. When the Jobs Act was enacted, the FY 2012 budget request was already in an advanced state of preparation. I want to thank especially the offices of SBA’s Chief Financial Officer and General Counsel for their extra effort in expediting the establishment of our new Treasury account and making the many conforming revisions in budget documents that had already been prepared for FY 2012. There will be additional changes in the FY 2013 documents as we continue the transition process to our new accounting system. Advocacy has been assured that we will have a separate section in the next budget request, similar to that used for the Office of the Inspector General. I am hopeful that this will improve transparency and allow us to present more detail in future budget requests. In the meantime, the key elements we need are in place for FY 2012.

Conclusion

In closing, I would like to draw your attention to an important performance metric that all of us on the Advocacy team are very proud of, the annual calculation of the cost per $1 million in regulatory savings attributable to Advocacy interventions. This number is basically just the total of one-time regulatory cost savings achieved in a given year, divided by the total cost of Advocacy for that year. This metric is always impressive, but it can vary considerably because we do not control what final cost-saving actions agencies take, or when they take them. On average during the last five years, each $1,618 spent on Advocacy has yielded $1 million in regulatory cost savings. Not bad. But in FY 2010, the taxpayers paid only $625 for Advocacy expenses to realize $1 million in new regulatory cost savings, the lowest amount since this metric has been in use. I think that this makes a pretty good case that your investment in Advocacy yields a good return.

In conclusion, let me again thank the Committee and its staff for the tremendous support you have given the Office of Advocacy for so many years. It helps us immeasurably in our work to know that we have this support. I look forward to continuing to work with you on issues of importance to small business. I would be happy to answer any questions that you might have.

Appendix A Regulatory Comment LettersDownload Adobe Reader to read this link content

Appendix B Summary of Cost Savings, FY 2010Download Adobe Reader to read this link content

Appendix C Executive Order 13563, January 18, 2011Download Adobe Reader to read this link content

Appendix D President’s Memorandum on Regulatory Compliance, January 18, 2011Download Adobe Reader to read this link content

Appendix E President’s Memorandum on Regulatory Flexibility, Small Business and Job Creation, January 18, 2011Download Adobe Reader to read this link content

ByOffice of Advocacy

Testimony of Dr. Winslow Sargeant: Chief Counsel for Advocacy U.S. Small Business Administration

Testimony of

Dr. Winslow Sargeant
Chief Counsel for Advocacy
U.S. Small Business Administration

U.S. Senate
Committee on Small Business and Entrepreneurship

Date: November 18, 2010
Time: 10:00 A.M.
Location: Room 428-A
Russell Senate Office Building
Washington, D.C.

Topic: Next Steps for Main Street: Reducing the Regulatory and Administrative Burdens on America’s Small Businesses

Chair Landrieu, Ranking Member Snowe, Members of the Committee, good morning and thank you for the opportunity to appear before you today to discuss regulatory and administrative burdens on small businesses. As Chief Counsel for Advocacy, it is my top priority to ensure that small businesses are not unfairly burdened by regulations, which my office does in large part through monitoring federal agencies’ compliance with the Regulatory Flexibility Act (RFA). The Office of Advocacy is an independent office within the U.S. Small Business Administration (SBA). The views in my testimony do not necessarily reflect the views of the Administration or the SBA and this statement was not circulated to the Office of Management and Budget (OMB) for clearance.

I have had the honor of serving as Chief Counsel for almost three months and Advocacy has been very busy during that time. The Office of Advocacy held a symposium celebrating the thirtieth anniversary of passage of the RFA. Advocacy also hosted a symposium on Capitol Hill on job creation by high-impact firms. We have held nine small business roundtables, on issues including the environment, transportation, labor, safety and health, and tax. One of those tax roundtables covered the expanded Form 1099 reporting requirement, which I will discuss in greater detail shortly. I have signed thirteen public regulatory comment letters, including ones on environmental, education, medical privacy, and Medicare rules. I am monitoring ongoing EPA Small Business Advocacy Review (SBAR) panels on wood heaters, hazardous air pollutants from small electric utilities, and stormwater discharge. As we do every day, we have been hard at work making certain that small business does not get unnecessarily burdened by federal regulatory requirements. This is possible because Advocacy has a team of dedicated and talented lawyers, economists and other highly trained professionals that I am lucky to work with every day. Soon, that team will grow further as we hire Regional Advocates that will give me the necessary eyes and ears on the ground to help us communicate with and assist small businesses in every part of the country.

It is difficult to overstate the important role that small businesses play in our nation’s economy. There are over 27 million small businesses in the U.S. which is 99.7 percent of all businesses in America. These businesses are the most dynamic, fast-changing part of the economy, employing about half of the American workforce and creating 64 percent of net new jobs. Many people believe that technology and innovation are solely the products of big businesses with massive R&D budgets, but in fact, small businesses in high tech fields tend to be more innovative than their large counterparts, producing 16 times as many patents per employee as larger firms. Not only that, but these firms are on the cutting edge of new technologies, as confirmed by the fact that the patents they produce are twice as likely to be in the top one percent of patent citations.

How do small businesses accomplish this? Well, my personal experience in starting my first business is a prime example: I left a big company to help found a small business in order to innovate and grow a company the way I thought was best. In doing so, we created new technologies and new jobs. Small businesses cannot accomplish these things if they are overburdened by federal government regulations.

As I mentioned, we recently celebrated the thirtieth anniversary of the Regulatory Flexibility Act. As part of the Office of Advocacy symposium, we released a new study authored by Dr. Mark Crain on the costs of the federal regulatory burden to small businesses. The results of the study were eye-opening. Dr. Crain found that the total regulatory burden on small firms is larger than ever, with the smallest businesses, those with fewer than 20 employees, paying $10,585 per employee on average to comply with federal regulations. The regulatory burden is 36 percent greater in these small firms than in their large counterparts, creating a staggering competitive disadvantage (see Appendix).

Even more stark is the contrast between the burden of environmental regulation on large and small firms in the manufacturing industry. Small manufacturers spent over $22,000 per employee to comply with regulations from the U.S. Environmental Protection Agency (EPA), while large manufacturers spent less than $5,000 per employee. It simply is not possible to expect small manufacturers to remain competitive with their larger domestic and international counterparts when their cost of complying with environmental regulations is 464 percent greater.

On my first day in office as Chief Counsel of Advocacy, August 23rd of this year, I sent a public comment letter to the EPA on their proposeoed rule on packaging hazardous air pollutants from industrial, commercial, and institutional boilers. EPA had conducted an SBAR panel on two rules regarding Major Source and Area Source boilers, which affected literally millions of small businesses. Through the panel process, EPA reduced the scope of the Area Source rule on smaller boilers and, almost by definition, smaller businesses, leading to over $20 billion in burden reduction in the rule that was eventually proposed. This is an example of how the SBREFA panel process should work, informing agencies of small business concerns and the agency incorporating this information into the rulemaking process to design better standards.

The Major Source rule that EPA proposed, however, was problematic in that EPA did not adopt the majority of the panel’s recommendations for more flexible compliance options. Advocacy believes that EPA had the authority and should have done more to reduce the burden of the rule on over 150 small manufacturers, municipal power plants, and other facilities that fall into the Major Source category. The rule will cost some small businesses millions of dollars to bring their facilities into compliance. Both the panel report and my letter recommended that EPA (1) adopt less stringent emissions standards that could be met without extremely costly capital investments; (2) reduce monitoring and recordkeeping requirements; and (3) incorporate special subcategories for boilers that are only infrequently used or vary in significant ways from the ones EPA used to determine the emissions standards. The point of my letter was simple: that EPA should craft emissions standards that small businesses can actually meet, rather than ones that, in some instances, will be hard for even the largest firms to achieve without redesigning entire facilities. As with all regulatory matters, we will continue to work with EPA on this issue.

Compliance with Internal Revenue Service (IRS) tax regulations is another area where small business is at a severe cost disadvantage to large firms. The cost to small businesses of tax compliance is over 300 percent greater per employee than the cost to large companies. Fixed costs like this make it that much harder for small firms to hire new employees and help the economy grow. The disproportionate burden of tax compliance costs is precisely why small businesses are so uniformly opposed to expanding the scope of tax reporting through Form 1099. As I will describe in detail, the Form 1099 provision would greatly increase the reporting and recordkeeping burdens on small businesses. Because of this, Advocacy commends Senator Baucus and Senator Landrieu on the introduction of the “Small Business Paperwork Relief Act” that would repeal the expanded Form 1099 reporting requirement. Advocacy fully supports their call for a repeal of this reporting requirement.

Advocacy has been involved with this issue from the beginning. Following an IRS-issued notice requesting public comments for ways to reduce the burden of reporting and record keeping required with Form 1099,(1) Advocacy hosted a roundtable on September 22, 2010. The roundtable gave small businesses an opportunity to comment on how they anticipated that the expanded reporting requirements would impact them and what suggestions they could offer to reduce the burdens of the expanded reporting requirement.

Over 30 small business owners and representatives attended the roundtable or participated by phone. Participants said that the expanded Form 1099 reporting requirement would increase burdens on small businesses in two ways. First, the expanded reporting requirement would result in a significantly greater paperwork burden. As an example, one roundtable participant said that the expanded Form 1099 requirement would result in his business increasing its tax year filings from ten 1099 forms to three hundred and sixty. Second, and more significantly, roundtable participants focused on the all-new internal data controls that would need to be implemented to address the expanded reporting requirements.

The information reported on a Form 1099, such as the Tax Identification Number (TIN) of a vendor, is different from the information usually maintained and tracked by businesses. As a result, all-new internal controls will need to be implemented to determine if the expanded Form 1099 requirement is triggered and this information will need to be saved. Most small businesses do not have specific personnel available to create and manage such a system, and the costs of compliance will be daunting.

Ultimately, at the roundtable, small business owners and representatives called for legislative action to address the burdens caused by the expanded Form 1099 reporting requirement. I agree with this assessment and support the repeal of the expanded Form 1099 reporting requirement.

Economic regulations are another area of significant cost burden for small businesses, as illustrated by Dr. Crain’s report. These include regulations that affect the banking and financial services sectors. It is especially crucial at present that we do everything possible to ensure that small businesses in need of capital are not hampered, including by regulatory barriers that make lending more costly than necessary. My staff and I have been working closely with the newly created Consumer Financial Protection Bureau (CFPB) to help them build compliance with the RFA, and especially the SBAR panel process, into their rulemaking processes from the beginning.

I met earlier this week with the leadership of the CFPB to discuss implementation of the SBREFA panel process into CFPB’s rulemaking plans. I also attended a meeting at the White House on Tuesday where Elizabeth Warren briefed trade associations on her plans to begin implementing the CFPB’s mandate. Finally, this afternoon, the Office of Advocacy will be hosting a small business roundtable that will allow small firms in the banking and finance sector to discuss future regulatory action and the SBREFA process with the CFPB and other federal financial regulatory agencies. We believe that building the SBAR process into these future rulemakings earlier rather than later will best serve the interests of small business and ensure that rules made under this process will be stronger and more effective.

I would like to thank you once again for inviting me to speak to you today. Advocacy stands ready to voice the concerns of small business throughout the process, from legislative actions to rule finalization. It is critical that Advocacy communicate the concerns of small businesses to help foster an atmosphere of certainty and fairness for small businesses. Being able to plan ahead and to compete on a level playing field encourages small businesses to have confidence. When this happens, small business is an engine for the economy and a major source of job creation. I commend the Committee on your commitment to reducing the regulatory burden on small business.

ENDNOTES

1.http://www.irs.gov/pub/irs-drop/n-10-51.pdfDownload Adobe Reader to read this link content. In the notice, the IRS provided one example of reducing the burden of the expanded requirement by observing that the IRS has “already issued a proposed regulation that would allow a broad exemption from [Internal Revenue Code] section 6041 information reporting for payment card transactions that would otherwise be reportable [on Forms 1099].” The IRS Notice sought public comments on similar methods to reduce the burdens associated with the expanded 1099 reporting requirement.