Regulatory Reform Could Yield MORE Red Tape!

Charles Dickens once described government as "bound hand and foot with red tape." Of course, he was describing Victorian England's tedious bureaucracy, but most small business owners would likely agree that his observation applies equally well to modern local, state, and federal regulations.

While federal agencies have always been popular political punching bags on Capitol Hill, there's a new urgency to the debate. With the recovery mired in the doldrums and employment growth at a virtual standstill, lawmakers are seizing the moment to mount their most aggressive effort yet to curb government red tape for new and small firms, which traditionally produce the lion's share of new jobs.

But the issue is far from a slam dunk. Democrats are suspicious of the largely Republican-led effort to pass new legislation, not to mention a broader concern that Charles Dickens surely would have appreciated. Will the effort to cut bureaucracy lead to even more bureaucracy?

Not a New Fight

Lawmakers in Washington, regardless of party affiliation, have made numerous attempts over the past three decades to address the problem. They even passed two landmark laws, the Regulatory Flexibility Act in 1980 and the Small Business Regulatory Enforcement Fairness Act in 1986. The former was supposed to ensure small business impacts were considered in the federal regulatory process, and the latter was an effort to add teeth to the first law.

Neither, of course, has done much to ease the problem. The regulatory burden today is just as bad as ever. Indeed, excessive government red tape has been among the top 10 concerns of small businesses for the past two decades, according to the conservative National Federation of Independent Business. Today, the average small business spends more than $10,000 per employee to comply with regulations, according to a 2010 Small Business Administration study. That's about a third more than larger corporations spend.

In the current Congress, the Regulatory Flexibility Improvements Act, H.R. 527, introduced by House Judiciary Committee Chair Lamar Smith (R-TX), is the latest effort at reform. Smith contends it would make much-needed revisions to the Regulatory Flexibility Act and the Small Business Regulatory Enforcement Fairness Act. Among other things, it would give the Small Business Administration's Office of Advocacy more power to determine which agencies must conduct reviews of small business impacts.

The bill would also expand the requirement for small business reviews to all government agencies when there is a significant economic impact or a substantial number of small entities are affected. For the first time, it also requires the assessment of indirect effects. And it makes mandatory the periodic review of rules to examine overlaps, conflicts, and cumulative effects.

Procedural Infighting

In an unusual move, though, the bill was referred both to Smith's committee and to the House Small Business Committee. Judiciary Committee Democrats wouldn't touch the measure. It was approved on a party-line vote, 18 to 8, with opponents charging that the bill is part of a GOP campaign to undermine government rule-making.

At a Small Business Committee hearing earlier this month, Rep. Nydia Velázquez (D-NY), the ranking Democrat, expressed her reservations. "I remain concerned that the legislation before us does not reflect the best work of the committee," she said. "If we are to truly support America's small businesses, we must develop legislation that makes not just for good sound bites, but also for effective policy." She noted that the bill piles on new responsibilities for the SBA's Office of Advocacy but does not add funding to cover the costs associated with those duties.

Experts Against . . .

Adam M. Finkel, executive director of the Penn Program on Regulation and senior fellow at the University of Pennsylvania Law School, zeroed in on the problem. "Pardon my bluntness, but a bill like H.R. 527, which requires agencies to conduct intricate and highly speculative analyses of specific indirect effects of regulation, while providing no resources to do so, is a setup," he told the Small Business Committee during a hearing last month.

Finkel, who led the health rule-making divisions at the Occupational Safety and Health Administration from 1995 to 2000, believes the current legislation will add even more bureaucracy and complexity to the rule-making process. "Through statutes and executive orders, the agencies are now supposed to think in each rule-making about nearly 30 different ways in which overregulation or underregulation can disproportionately affect individuals' economic productivity or their health and safety." The real issue, he said, is how to help small businesses shoulder the costs to comply with beneficial standards.

Experts For . . .

But other experts support the measure. "H.R. 527 is the closest thing I've ever seen to addressing the gaps in true regulatory oversight that were left after the passage of the original Regulatory Flexibility Act and the efforts to improve the RFA with the passage of SBREFA," said Harry Katrichis, who served for 10 years as Republican Chief Counsel to the Small Business Committee.

There's no question that federal agencies have at times run roughshod over small businesses, and have all too often conducted cursory reviews of impacts or issued boilerplate reports claiming there are no impacts, all of which has been documented by government oversight reports and court decisions.

But the lack of bipartisan support for the new legislation remains troubling. House Republicans need to do more to ensure that the latest effort doesn't simply add more layers to regulatory decisions and ultimately frustrate entrepreneurship, delay innovative new technologies, or risk the health and safety of workers and citizens.

It's a difficult balancing act, but if they don't get it right, the end result could be even more red tape -- just what small businesses don't need.