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Fixing the Nation’s Broken Regulatory System

05/08/2015

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Small Business Week Highlights Need for Regulatory Relief and Reform

By Karen Kerrigan

Reforming the nation’s broken regulatory system is a top priority for small businesses.  National Small Business Week is the ideal time to consider the most promising reform ideas – many of which have been introduced as legislation and voted on by Congress – to improve how regulations are drafted and implemented.

Excessive red tape and compliance costs are a competitive drag and costly burden for small businesses. Overregulation is hurting entrepreneurship, innovation, and new job creation. Policies need to focus on fixing the broken system and clearing out old rules and practices that are weighing down private sector growth and productivity.

We are in full agreement with President Obama’s Executive Order 13563, “Improving Regulation and Regulatory Review,” which states:

Our regulatory system must protect public health, welfare, safety, and our environment while promoting economic growth, innovation, competitiveness, and job creation. It must be based on the best available science. It must allow for public participation and an open exchange of ideas. It must promote predictability and reduce uncertainty.

Indeed, rulemakings should be guided and informed by three core values: Transparency, Accountability, and Scientific Integrity.

TRANSPARENCY:  President Obama boasted that his administration would be “the most transparent in history.” But history has proven otherwise.  The Obama Administration—whether it’s the Environmental Protection Agency or the Federal Communications Commission, to name just two—flout transparency rules, work on their own timetables, and often dismiss inquiries or directives from Congress. Regulatory agencies must be required to publicly disclose all scientific studies (and the data that support them), cost-benefit analyses, legal rationales, and other important information, including communications with outside groups and parties, in the regulatory process.  Bureaucrats should be prohibited from concocting rulemakings behind closed doors with special interests, absent broad public input and consideration.

ACCOUNTABILITY: Even when Congress overwhelmingly opposes particular regulatory approaches, or the market does not warrant government rulemaking, regulators often decide to take matters into their own hands.  Backdoor regulations and secret settlement agreements have become a hallmark of the current administration, shielding bureaucrats from voters at the ballot box.  It’s time to return decision-making back to Congress, where members are held directly accountable to the millions of small businesses and entrepreneurs who painfully comply with and pay for regulations on a daily basis.  Small business owners need a more prominent voice in the regulatory process to ensure regulators fully understand the consequences of their actions.  The public must be made aware of federal regulatory impact, and there needs to be a real accounting of all regulations.

SCIENTIFIC INTEGRITY: The federal bureaucracy often uses shoddy or secret science as the basis for major rulemakings—some of which impose billions of dollars in compliance costs on small businesses.  Flawed science can distort the true benefits that result from regulations, or influence regulators to push forward with an invasive action that is outsized in proportion to the “harm.”  In some cases, agencies frequently skirt peer-review requirements, devise peer-review processes that best suit their political agendas, and even flagrantly ignore conflicts that arise when government-appointed scientists receive taxpayer funds to conduct research.  Scientific integrity requires full disclosure of scientific data and studies that inform regulatory decision-making.  It ensures that scientists reviewing agency work are unbiased, objective, and untainted by government influence.  These basic principles will prevent special interests from manipulating and distorting rulemakings, and allowing for full, open scientific debate to inform sound policy decisions.

With these three principles in mind, what follows are some simple, straightforward ways to fix the nation’s broken regulatory system:

I. TRANSPARENCY

All Economic Regulations are Transparent Act (H.R. 1759): Out-of-control and accumulating regulation is a heavy load around the neck of small businesses and the economy.  H.R. 1759 brings order, transparency and an accounting of the federal regulatory state by requiring regulators to report the number of regulations each agency develops, the economic impact of those regulations, and the number of regulations removed from the system.   The House Judiciary Committee advanced H.R. 1759 on April 15, 2015.

Sunshine for Regulatory Decrees and Settlements Act of 2015 (H.R. 712/S. 378): Under so-called “sue- and-settle arrangements,” activist groups conspire with federal agencies behind closed doors to issue new regulations—regulations that are burdening small businesses with more red tape, mandates, and higher energy costs.  According to the House Judiciary Committee, the bill will, among other things, require agencies to “publish sue-and-settle notices of intent to sue, complaints, decrees, settlements, and attorneys’ fee awards and report on them to Congress.”  Moreover, agencies “cannot propose sue-and-settle decrees and settlements to the courts until parties affected by the proposed regulations can intervene and participate in settlement negotiations and the proposed decrees and settlements are published for public notice and comment.”  The House Judiciary Committee approved H.R. 712 on April 30, 2015.

The Bureau Advisory Commission Transparency Act (HR 1265).  The work of the Consumer Financial Protection Bureau (CFPB) is not fully transparent, yet it has the power to regulate practically all financial products and services. SBE Council is very concerned about potential regulatory actions by CFPB that would impact the cost and availability of capital for entrepreneurs, as well as regulatory intrusions that will deter innovation and stifle innovative firms in the financial services industry.  H.R. 1265 is a reasonable and needed measure that applies the Federal Advisory Committee Act (FACA) to each advisory committee of the Consumer Financial Protection Bureau (CFPB) to ensure meetings are subject to public disclosure and attendance. These meetings are closed, and even members of Congress (who have requested to attend) have been turned away.  The bill passed the House on April 13, 2015 by 401-2.

Federal Communications Commission (FCC) Transparency Reform: Three draft bills introduced by members of the House Energy and Commerce Committee will help increase transparency at the FCC.  A bill offered by Communications and Technology Subcommittee Vice Chairman Bob Latta (R-OH) would require the FCC to publish a list of items that are placed on “delegated authority,” which are decided at the bureau level in lieu of a commission vote.  A bill offered by Rep. Adam Kinzinger (R-IL) would require the FCC to publish the draft of a rulemaking, order, report or any other action when it is circulated to the commissioners for a vote. The bill allows the public to see what the FCC Chair is proposing to the rest of the commission.  Finally, a bill offered by Rep. Renee Ellmers (R-NC) would require the FCC to publish new rules on the same day that they are adopted.  These long-overdue bills are needed, especially given the secretive process by which the FCC developed and approved their Internet regulation order (“net neutrality” rules).  These regulations will vastly harm small businesses and ISPs that compete in the telecommunications industry, and hurt broadband deployment while driving prices higher for small businesses.

II. ACCOUNTABILITY

Small Business Regulatory Flexibility Improvements Act of 2015 (H.R. 527/S. 426): This bill, which passed the House on February 5, 2015 by an overwhelming vote of 260 to 163, provides needed reforms to the Regulatory Flexibility Act of 1980 (RFA) and the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA).  It will update and strengthen the RFA and SBREFA to help reduce the disproportionate burden that over-regulation places on small businesses, thereby enhancing job creation, competitiveness, and innovation.

Regulatory Accountability Act (H.R. 185):  H.R. 185, which passed the House on January 13, 2015 by a vote of 250 to 175, requires federal agencies to adopt the least costly method to implement new regulations.  As the House Judiciary Committee explained, the bill “directs those agencies to fulfill statutory goals set by Congress and requires simply that they reach those goals in the least costly way with better public input to find the most efficient regulatory solutions.”

Searching for and Cutting Regulations that are Unnecessarily Burdensome (SCRUB) Act (H.R. 1155).  The SCRUB Act would help to weed out, modify and eliminate obsolete or duplicative regulations.  H.R. 1155 establishes a blue ribbon, BRAC-style commission that would identify these regulations and bring the recommendations to the full Congress for an up-or-down vote. The SCRUB Act brings a methodical and focused approach to amend or eliminate outdated or superfluous rules, which will help streamline and modernize our federal regulatory system. It will also restore accountability to the federal regulatory system.  The SCRUB Act was advanced by the House Judiciary Committee on March 24, 2015.

Regulations from the Executive in Need of Scrutiny (REINS) Act, H.R. 427. S. 226.  Unfortunately, the current regulatory process allows for substantial and costly regulations to be imposed on small businesses, consumers, and the economy without direct input from those impacted, or from elected lawmakers.  There needs to be a powerful check on regulators when it comes to final rules, and the REINS Act would do that.  This legislation requires that Congress take an up-or-down vote on every new major rule – defined as having an economic effect of $100 million or more – before such a rule could be enforced. This important regulatory reform would serve as an important check on the regulatory system, and have a positive effect in terms of how regulation affects small businesses, and therefore, consumers and the economy.  The REINS Act is a needed check that will bring accountability to our nation’s regulatory system.

Clean Air, Strong Economies (CASE) Act (H.R. 1388/S. 751): The CASE Act addresses the most expensive rulemaking in history—EPA’s forthcoming rule to establish more stringent standards for ground-level ozone.  The bill would, among other things, prevent EPA from establishing a new standard until 85 percent of counties now in non-attainment with the 2008 ozone standard come into compliance.  This common sense and bipartisan legislation is a needed and balanced response to EPA’s aggressive and overzealous rulemaking.

The Ratepayer Protection Act (H.R. 2042): EPA’s Clean Power Plan, which will regulate carbon dioxide emissions from existing fossil-fueled power plants, is an egregious EPA assertion of authority over the nation’s electric power grid.  H.R. 185, which was approved on April 29, 2015 by a bipartisan majority of the House Energy and Commerce Committee, will delay the implementation of the rule until all legal challenges are exhausted.  It also allows a state to opt- out of the rule’s mandates if the governor determines that they would economically harm the state’s residents and jeopardize the reliability of the electric grid.

Federal Water Quality Protection Act (S. 1140): This bipartisan bill will protect small businesses by directing the Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers to issue a revised “Waters of the United States” (WOTUS) rule that does not include, among other things: isolated ponds, ditches, agriculture water, storm water, groundwater, floodwater, municipal water supply systems, wastewater management systems, and streams without enough flow to carry pollutants to navigable waters.  The rule is a clear federal overreach, which extends EPA’s regulatory powers and authority to ditches and similar “bodies” of water, requiring expensive and time-consuming permits and costs. A similar bill in the House, the Regulatory Integrity Protection Act, requires EPA to withdraw the WOTUS rule and issue a new rule according to specific criteria, including consultation with state and local governments.

III. SCIENTIFIC INTEGRITY

Secret Science Reform Act (H.R. 1030/S. 544): In congressional testimony in support of the Secret Science Reform Act, SBE Council Chief Economist Ray Keating called the bill a  “common-sense reform.”  And he is right. As Ray explained in his testimony, the bill’s main requirement is straightforward and easy to understand: EPA “shall not propose, finalize, or disseminate a covered action [e.g., rulemakings, guidance, regulatory impact analyses] unless all scientific and technical information relied on to support such covered action” is “the best available science,” “specifically identified,” and “publically available in a manner that is sufficient for independent analysis and substantial reproduction of research results.”  The bill passed the House on March 18, 2015 and the Senate Committee on the Environment and Public Works advanced it on April 28, 2015.

EPA Science Advisory Board Reform Act (H.R. 1029/S. 543): This bill, which passed the House on March 17, 2015, reforms the Environmental Protection Agency’s Science Advisory Board (SAB) and its subpanels by strengthening public participation, improving the process for selecting expert advisors, expanding transparency requirements, and limiting non-scientific policy advice. The bill also reduces conflicts of interest by placing limitations on SAB members who receive environmental research grants.  An inclusive, open and independent advisory board is a good government measure that will strengthen the integrity of scientific advice provided to the EPA.

Of course there are other reforms that are needed in specific areas and to make needed changes to big legislative initiatives like Dodd-Frank and Obamacare (which will be addressed in a forthcoming piece.)  The breadth and depth of regulation both on the books and in the pipeline is taking a toll on the health of our small businesses and entrepreneurship in America.  It’s nice that politicians and policymakers in Washington are celebrating National Small Business Week.  But action to reform the federal regulatory system is the type of action that will prove to America’s entrepreneurs that they are truly appreciated.

Karen Kerrigan is president & CEO of the Small Business & Entrepreneurship Council (SBE Council). The Center for Regulatory Solutions is a project of SBE Council.

Learn More in our CRS Research Papers: