Will Small Business Regulatory ...
...Costs Bottom Out In 2003
Washington, D.C. - Could new initiatives being pursued at the federal level relieve small businesses of their ever-increasing regulatory burden?
Regulatory costs for small business have dramatically increased over the past decade. In fact, studies show that small firms pay a disproportionately higher share of the federal regulatory burden. The per-employee cost of regulation for small firms is $6,975 - that's 60 percent higher than costs for businesses with more than 500 employees.
"While rules impacting small businesses are down five percent over the past year, they are up 36 percent over the past five years," reports Wayne Crews, author of "10,000 Commandments: A Policymaker's Annual Snapshot of the Federal Regulatory State" and CATO Institute scholar.
High regulatory costs translate into less investment and lower efficiency for all firms. To relieve small businesses of some of these costs burdens, the Bush Administration and state and federal officials are looking at ways to make the regulatory system less time consuming and financially painful.
With thousands of new laws kicking in at the state level in 2003 (over 1,000 additional statutes have taken effect in the state of California alone -- many impacting business), efforts to modernize and reform the regulatory system are certainly welcome by firms already struggling under current rules.
A federal law that has saved small business owners billions in forgone regulatory costs since its adoption in 1996, is being shared with state legislators in the hope that it will be adopted nationwide. This past December, the Small Business Administration (SBA) Office of Advocacy presented legislation modeled after the federal Regulatory Flexibility Act (RFA) to state legislators attending a gathering of the American Legislative Exchange Council (ALEC).
The organization of state legislators meets regularly to share ideas and develop model legislation to encourage entrepreneurship and economic development. Members of ALEC bring model bills back to their individual state legislatures for consideration.
The model RFA legislation would require state regulatory agencies to consider the impact of their proposed regulations on small businesses. Federal agencies are already required to undergo such a process before they issue final regulations. The approach works, according to Chief Counsel for Advocacy Thomas M. Sullivan.
"The Office of Advocacy saved small business owners over $4 billion in foregone regulatory compliance costs last year alone," said Sullivan. "We did that by bringing the voice of small business to federal agencies early in the regulatory process. The same thing can happen in the states if they adopt this model legislation," he added.
In addition to sharing ideas that work with the states, federal officials are weeding through their own regulatory backyards to determine ways to be more flexible and responsive to small businesses. Even with a proven track record of helping to curb regulatory excess, the RFA is sometimes ignored by federal agencies.
"Keep in mind that this rise in rules impacting small business has occurred after Regulatory Flexibility Amendments that are intended to stem the tide," said Crews of the RFA.
The inconsistency in RFA implementation prompted President Bush to issue Executive Order 13272 in March 2002. It directed his administration to fully follow the law. The order also mandated that the Office of Advocacy help agencies fulfill their compliance duties. In response, the office released a "plain English" guidebook detailing what federal agencies must do to follow the RFA.
The Office of Management and Budget (OMB) is also encouraging public input on ideas for reforming specific regulations. The office recently distributed 267 regulations nominated for reform to federal agencies and has asked regulators to prepare ways to address these nominations by February 28, 2003.
"We have an ambitious agenda ahead to address a thoughtful set of comments from the public. This is a great opportunity for smarter regulation," said John D. Graham, Administrator of the Office of Information and Regulatory Affairs (OIRA) at OMB.(To view nominations included within the OMB's "2002 Report to Congress on the Costs and Benefits of Federal Regulations", visit: http://www.whitehouse.gov/omb/inforeg/regpoireports_Congress.html.)
According to OMB, more than half of the nominations would modify existing rules by increasing flexibility. Proposals also included ideas to help small businesses compete for federal contracts, and reduce their overall paperwork burden.
Will all these good intentions by agency officials have a bottom-line impact for small firms?
"With over 4,500 regulations now in the works, 996 of which impact small business, OMB's list of rules is only a start. As OMB recognizes, relief for small businesses requires constant vigilance; thus greater attention to regulatory flexibility is the right step," commented Crews.
Most observers believe Congress needs to get in on the action by writing
laws with greater specificity so that regulatory agencies don't go overboard
in writing rules.
In addition, Congress has the power to review and reject individual rules
written by agencies, but has used this power sparingly as in their repudiation
of OSHA's complex ergonomic rule. The business community wants Congress
to aggressively use their review authority more often, and conduct regular
review of agency operations through oversight hearings.
Senator Olympia Snowe (R-Maine), incoming Chair of the Senate Committee on Small Business and Entrepreneurship, plans to make regulatory and tax relief for small businesses a top priority.
"Unfortunately, I have found that despite the role small businesses play in growing our economy, government too often frustrates their efforts. I intend to focus my attention as chair on relieving this pressure, and opening new opportunities for entrepreneurs," said Senator Snowe in a statement announcing her new chairmanship.
This newfound commitment by Congress and the Administration is welcome by business groups. Small businesses will be closely watching those bottom lines to see if real progress is being made.
