SBA Office Catches Fire From Businesses and Academics Alike

By Charles S. Clark

March 14, 2013

The business community’s ombudsman within the Small Business Administration defended his office’s record against attacks from both the right and the left on Thursday.

Chief Counsel for Advocacy Winslow Sargeant was accused by business groups of allowing agencies to write regulations with little input from affected companies while an academic charged that his office is a tool of corporate anti-regulatory lobbying.

Rep. David Schweikert, R-Ariz., chairman of the House Small Business Subcommittee on Investigations, Oversight and Regulations, called the hearing out of concern that agencies may not be complying with the 1980 Regulatory Flexibility Act.

“Each year, federal agencies publish between 3,000 to 4,000 new regulations and many of those rules impose burdens on small businesses,” he said.

“The RFA was crafted to ensure that small businesses have the opportunity to participate in the regulatory process and that new federal regulations will not put them at a competitive disadvantage,” he said. “Unfortunately agencies find loopholes in the law, regularly flout its analytical requirements, and generally give short shrift to the RFA.”

Schweikert sought to pin down the “methodology” of cost-benefit analyses used by the SBA Office of Advocacy in monitoring regulations from such agencies as the Environmental Protection Agency, the Occupational Safety and Health Administration and the relatively new Consumer Financial Protection Bureau.

He asked the SBA official how he handles situations when “outside advocacy groups” come up with cost impact estimates for proposed rules that differ dramatically from what agencies forecast. “People may not agree, but at least we should know how you got there,” he said.

Sargeant, whose office has no power to alter regulations but is charged with monitoring agency compliance in the process, said his office conducts “a continuous outreach to hear from small business” after rules are planned initially at a “confidential, pre-decisional stage.” He stressed the importance of “firsthand contact with those being regulated.”

His office has a “good working relationship” with agencies, and most “do a good job at responding to us,” Sargeant said, citing savings of $2.4 billion in reduced costs for businesses in fiscal 2012 and $1.2 billion in recurring costs savings. His team has held 84 roundtables with agencies and businesses since he became general counsel in 2010, he said, and he has written 90 comment letters to address disagreements.

His team trains more than 100 agency employees in rulemaking every year, he told the chairman, and made special effort to orient new staffers at the CFPB, which is required under the Dodd-Frank Financial Reform law to meet regularly with businesses affected by its rules.

Sequestration, Sargeant said, has trimmed his budget by 5.2 percent, or $450,000; while he won’t have to furlough employees, six or seven research reports must be canceled, he said. “Good research leads to sound regulations,” he said. “Often businesses want to comply with regulations, but they don’t know how,” which is why his office prepares instruction documents and staffs regional offices to help further.

Sargeant took credit for two policy adjustments to regulations to help small businesses, both involving the Internal Revenue Service. After contractors complained about a 2005 law requiring them to withhold 3 percent of profits for future taxes, Congress in 2012 repealed the requirement because the IRS couldn’t establish how long it would take to calculate the taxes owed. Secondly, Sargeant said, the tax service recently simplified the home office deduction, which is used by 52 percent of small business owners, he said.

As for improving the RFA, Sargeant said he hoped Congress might “tweak it,” to give his office at least 60 days to assemble agency data on a proposed rule; to set more-systematic requirements that agencies automatically review rules more than 10 years old; and require agencies to make more effort to foresee a regulation’s indirect impact “one circle out” from direct impact.

Before leaving, Sargeant stated that a coming second panel of witnesses would make “numerous misrepresentations” about his office and that he would submit a response.

Carl Harris, a Kansas small business manager testifying on behalf of the National Association of Home Builders, said, “I’ve seen firsthand that the RFA process for agencies is nothing more than a procedural check-the-box exercise. By the time a panel convenes, the rule has already taken shape,” he said.

Marc Freedman, executive director of labor law policy at the U.S. Chamber of Commerce, said agencies, particularly within the Labor Department, understate the economic impact of proposed rules in order to get around RFA requirements. He called for agency regulators to “change their attitude. An agency wants to do a regulation, but they don’t want other people telling them how to do it,” he said. “Proposed rules are not like proposed legislation for which many changes will be made along the way. A rule is more like what’s actually coming.

On workplace safety issues, such as worker exposure to combustible dust, Freedman said, all businesses want is clarity on how to comply, but too often regulators are “setting an open-ended enforcement trap for businesses to fall into.”

Rep. Yvette Clarke, D-N.Y., the panel’s ranking member, asked whether Freedman was calling OSHA “a rogue agency.”

No, he replied, but if businesses can better understand the requirements, worker safety will also be better protected.

Rena Steinzor, a law professor at the University of Maryland at Baltimore, accused the SBA’s Office of Advocacy’s of “allowing Fortune 500 companies to set its agenda.” She cited violations of sunshine laws through closed meetings for lobbying by corporate interests that tell “only half the story,” leaving out benefits of regulations.

The office has “consciously diverted its limited, taxpayer-funded resources away from helping truly small business understand and comply with regulatory requirement toward pursuing the complaint du jour of the very large companies that call the shots at the American Chemistry Council, the National Association of Manufacturers, and the U.S. Chamber of Commerce,” she testified. She called for a Government Accountability Office investigation into whether the office has broken the law.

In response to the testimony, Sargeant issued a statement alleging Steinzor misunderstood his office's mission. "Advocacy uses broad and aggressive outreach to small businesses, sound economic research and expert policy analyses to help identify small business concerns, so that small businesses can focus on running their own business, creating jobs and strengthening their communities," he said. "We believe rules and regulations are stronger and more effective when small businesses are part of the rule-making process."

This story has been updated with additional comment.

By Charles S. Clark

March 14, 2013