By J.L. Laws

In spite of a 5-year-old law meant to protect them, small businesses are still being hurt by overburdensome agency regulations, including environmental rules, small business representatives told members of the Senate Small Business Committee Tuesday.

A Small Business Administration official, however, said that while some agencies have ignored the Regulatory Flexibility Act of 1980, others -- especially the Environmental Protection Agency -- have shown "marked improvement" since enactment of the Small Business Regulatory Enforcement Fairness Act in 1996.

SBREFA amended the RFA, introducing judicial review, or the right for small businesses to sue the federal government for failing to comply with the law, and requiring stakeholder panel reviews of significant EPA and the Occupational Safety and Health Administration rules.

Committee Chairman Kit Bond (R-Mo.) said he called the hearing because "evidence continues to mount" that some federal agencies are ignoring requirements of the laws. He said he wanted to hear whether small businesses and small business advocates believe the law is working, and if not, how it might be fixed.

Committee ranking Democrat John Kerry (Mass.) noted he voted for SBREFA and said he would favor strengthening it to keep regulations aimed at big industries, such as utilities, from impacting small businesses. "But I don't want it to be used to be able to get out from under legitimate environmental protections or other issues," he said. "There are those who are always going to drive a truck through a loophole."

Tim Kalinowski, vice president for operations of Foam Supplies Inc., testified EPA failed to comply with SBREFA by overlooking entire industry sectors that use HCFC-22, which is used in foam his company developed as flotation material for small boats and insulation used in manufacturing.

Not only did EPA fail to identify how many small business would be impacted by the rule, but the alternatives the agency claims are available for HCFC-22 are more expensive, not currently available, are less effective or present other pollution or flammability hazards, Kalinowski said.

Not all rulemaking accounts amounted to attacks on agencies, however. Paul Corey, owner of a painting and decorating business in Dedham, Mass., testified on behalf of the Painting and Decorating Contractors of America that EPA gave him and other contractors several opportunities to comment -- in person and in writing -- on a proposed lead paint rule during a panel review process.

"I firmly believe that PDCA and, by extension, professional paint contractors throughout the country have benefitted from the SBREFA process," Corey said. The only improvement Corey suggested was a requirement that agencies make public comments received during panel reviews.

Victor Rezendes, managing director of the General Accounting Office's strategic issues team, reiterated GAO's position that Congress should amend RFA, which includes SBREFA, to clarify the thresholds that require EPA and OSHA to perform small business advocacy panel reviews. Right now, the thresholds are defined as "significant economic impact" and substantial number of small entities".

Questions about how agencies measure economic impact and what business entities they choose to include in their analyses are "not simply matters of administrative conjecture", but rather "lie at the heart of the RFA and SBREFA," he said. "If Congress does not like the answers that the agencies have developed, it needs to either amend the underlying statutes and provide what it believes are the correct answers or give some other entity the authority to issue guidance on these issues."

EPA's lead reporting rule, introduced by the Clinton administration and upheld by the Bush administration earlier this month, serves as an example of an agency using its own guidance, Rezendes said. EPA certified that the rule would not have a significant impact and therefore did not employ a panel review under SBREFA. Now several business groups, including the National Federation of Independent Businesses, are planning to sue the federal government, alleging EPA violated SBREFA.

According to a GAO analysis of the rule using EPA's own guidance, EPA could have concluded that the rule would have a significant impact, triggering a panel review and a regulatory flexibility analysis, Rezendes said. "However, we ultimately concluded that the agency's initial and revised analyses and the conclusions that it based on those studies were within the broad discretion that the RFA and the EPA guidance provided in determining what constituted a 'significant economic impact' on a 'substantial number of small entities'," he said.

On the other hand, SBREFA also made it possible for small businesses to sue the federal government for failing to comply with SBREFA, noted Shawne Carter McGibbon, acting director of interagency affairs for the Small Business Administration Office of Advocacy, which measures the costs and impacts of regulations on small businesses and serves as an independent advocacy group within the federal government for small businesses. "The mere threat of judicial review seems to be the big stick that allows us to walk softly," McGibbon said.

Margaret Hayes, the National Oceanic and Atmospheric Administration's assistant general counsel for fisheries, and Tom Gibson, EPA's assistant administrator for policy, each said their agencies have learned to give regulations more time for review because of SBREFA's judicial review component.

Gibson said that under a SBREFA procedure review he is conducting for EPA, all proposed regulations will undergo an initial SBREFA screening and even final rules will be eligible for a panel review if necessary. "Even if a panel review is not needed, we are still going to do outreach," Gibson said.