Statement for the Record: Traci Tapani for the hearing, “Burdensome Regulations: Examining the Biden Administration’s Failure to Consider Small Businesses.”

Dear Chairman Williams and Ranking Member Velazquez:

Thank you for holding today’s hearing, “Burdensome Regulations: Examining the Biden Administration’s Failure to Consider Small Businesses.” I am Traci Tapani, Co-President of Wyoming Machine in Stacy, Minnesota. My family-owned company specializes in sheet metal fabrication, and we offer a variety of services to clients from laser cutting to welding.

I serve on the Board of Directors for the U.S. Chamber of Commerce and recently became the Vice-Chair of the Chamber’s Small Business Council. 96% of Chamber member companies have fewer than 100 employees and 75% have fewer than 10. The Small Business Council works to ensure the views of small businesses are integrated into the Chamber’s policy-making process.

With the recent surge in costly and restrictive federal regulations1, this hearing will help ensure that small businesses have a legitimate voice in federal rulemakings and builds on previous hearings that demonstrate how federal regulation can disproportionately harm small businesses like mine. I am hopeful that my statement, along with the testimony of other witnesses, can focus Congress’s spotlight on ways to improve the effectiveness of small business in federal rulemakings, which was the foundational concept behind the Regulatory Flexibility Act.

Small Business and the Regulatory Flexibility Act

Small businesses are recognized as America’s economic engine. The roughly 33.1 million small businesses make up over 99% of all U.S. businesses, represent 43.5% of America’s GDP, and account for 62% of net job creation since 1995.2 Despite the strength of small businesses’ economic contributions, they are at a disadvantage when it comes to dealing with regulations. The Chamber’s work with the Bradley Foundation showed that U.S. businesses shoulder $1.9 trillion in annual regulatory compliance costs.3 For small businesses with 50 or fewer employees, the costs are nearly 20% higher than the average for all businesses. Small manufacturers incur costs of $34,671 per employee per year. This is more than three times the cost shouldered by average U.S. companies.4

A more recent study shows that regulatory costs on American businesses in 2022 totaled more than $3 trillion, which equals 12% of GDP and is larger than the entire economic output of U.S. Manufacturers. 5

While we might be categorized as small, manufacturers like Wyoming Machine play a big role in supplying custom parts and components to some of the largest U.S. manufacturing companies. The pandemic's supply chain issues were a frightening and painful reminder of how important it is for our economy, safety, and security to have a strong domestic manufacturing supply chain. Manufacturing is a capital-intensive business, and ongoing investments in equipment, facilities, and people are the ways that we can increase productivity and remain competitive. Having worked in the manufacturing sector for 30 years, I know exactly how it feels to balance the cost burden of increasing regulations with a need to invest in my business while offering people in my community good jobs, competitive pay, and a stable place to work.

The Regulatory Flexibility Act (RFA), amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA), was intended to rectify the disproportionate regulatory compliance costs and paperwork burdens faced by small business by incorporating their concerns into the regulatory process and by insisting that federal agencies find ways to meet their regulatory objectives while at the same time minimizing costs on small businesses.6 The Small Business Administration’s (SBA) Office of Advocacy is responsible for overseeing agency compliance with the RFA and acts as an independent voice within the Administration to ensure that agencies are sensitive to how their regulations impact small businesses.

Agency Failures to Abide by the RFA

Federal agencies have on numerous occasions failed to comply with requirements under the RFA. A recent example was when SBA’s Office of Advocacy found the Department of Labor’s analysis of the impact of its independent contractor rule “deficient” because it "severely underestimate[d]” the economic impacts of the rule on small business; and “failed to estimate any costs” for small businesses to reclassify independent contractors as employees.7 When the Department of Labor ignored the Office of Advocacy’s advice and finalized its rule earlier this year, the U.S. Chamber of Commerce joined with the National Federation of Independent Business (NFIB), Associated Builders and Contractors, American Trucking Associations, and other associations representing millions of small business owners to challenge the rule in court on this and other grounds. 8

Inviting legal challenges after a rule is finalized does not seem to be an efficient or effective way for federal officials to resolve policy disagreements, especially when the RFA was created to bring small businesses and regulatory officials together for the purpose of finding ways to meet regulatory objectives while minimizing negative economic impacts on small businesses.

Loopholes in the RFA

Loopholes in the RFA have been used by federal regulators as an excuse to bypass the law’s requirements and purpose and to misrepresent the costs of new mandates on small businesses because (a) regulators take the position that transparency requirements only apply to direct regulatory impacts on businesses and (b) gaps in the RFA’s remedy provisions often deprive businesses of timely relief when agencies ignore small business concerns in violation of the RFA.

Lack of Transparency

Agency exploitation of interpretations of the RFA that limit it to requiring consideration of small business impacts only for directly regulated businesses is apparent in the ongoing Basel III Endgame rulemaking. Bank regulators published their perceived impact on large banks but did not disclose how new mandates will make small business loans more expensive.

Abuse of “Certification” under the RFA

Unfortunately, federal agencies often choose to circumvent small business input by incorrectly certifying that a rulemaking will not have a significant economic impact on a substantial number of small entities. Last year’s RFA report, as well as RFA reports over the past 41-years, cites numerous examples of how agencies do not properly “certify” whether their proposals will impact small businesses.

One of the most egregious failures of federal agencies to consider small businesses is the series of Waters of the United States (WOTUS) rulemakings promulgated by the U.S. Environmental Protection Agency (EPA) and the U.S. Army Corps of Engineers. Rather than seek appropriate input from small businesses on how to manage wetlands permitting in a way that would be both environmentally protective and sensitive to impacts on small businesses, EPA and the Corps repeatedly insisted - in 2014, 2018, and in 2021 – that their proposed WOTUS rules did not impose additional costs on small businesses.

When each of these proposals was issued, SBA’s Office of Advocacy correctly faulted EPA and the Corps for improperly “certifying” that their rulemaking would not harm small businesses. On each occasion, the Office of Advocacy faulted the agencies for not convening a panel of small businesses that is required under SBREFA to ensure that EPA, the Consumer Financial Protection Bureau, and the Occupational Safety and Health Administration specially consider small business recommendations for less burdensome alternatives in their rulemakings. 9 In this regard, it is worth noting that the Chamber’s lawsuit challenging the 2023 WOTUS rule, which is now pending in the U.S. Court of Appeals for the Sixth Circuit, specifically challenges EPA’s and the Corp’s “certification” that the rule “will not have a significant economic impact on a substantial number of small entities under the RFA.” As the Chamber’s complaint in that case notes, this certification “is based on a description of the Final Rule that does not reflect reality,” as “the Final Rule will impose significant costs on small businesses.” The Sixth Circuit has issued a temporary injunction against enforcement of the 2023 rule, as have two other courts.

Even more recently, the Supreme Court’s decision in Sackett v. EPA rejected the broad theory of regulatory jurisdiction that was central to the 2023 WOTUS rule. In its decision, the Supreme Court observed that “because the [Clean Water Act] can sweep broadly enough to criminalize mundane activities like moving dirt,” “a staggering array of landowners” were “at risk of criminal prosecution or onerous civil penalties” under that broad theory of jurisdiction.

It is unfortunate that EPA and the Corps went to such great lengths to avoid ensuring appropriate small business input. The purpose of the RFA and SBREFA is to ensure that agencies receive constructive small business input that can help regulators meet their regulatory objectives while at the same time minimizing the burden on small businesses like mine.

Support for the PROVE It Act and Legislative Recommendations

H.R. 7198, the Prove It Act, was introduced in February by Representative Brad Finstad, Representative Nathanial Moran, and Representative Yadira Caraveo and helps close loopholes in the RFA and to shore up its effectiveness by:

I. Amending the “certification” requirements under Regulatory Flexibility Act to ensure that agencies take small business input seriously; and
II. Requiring agencies to be transparent about costs on small businesses by including all reasonably foreseeable impacts.

This bipartisan legislation passed the Judiciary Committee on March 21st and is now co-sponsored by Representative David Valadao, Representative Carol Miller, and Small Business Committee member, Representative Maria Salazar. More than 250 state and local chambers of commerce signed on to a letter to Congress this week requesting that the House pass H.R. 7198 and the U.S. Chamber of Commerce Small Business Council will wants to work with you to advance forward the Prove It Act through your committee and to the House floor for a vote."

Please do not hesitate to contact Tom Sullivan, the Chamber’s Vice President for Small Business Policy, if you have questions or comments regarding the content of this statement for the record.

Sincerely,

Traci Tapani
Co-President, Wyoming Machine
Vice-Chair Small Business Council
U.S. Chamber of Commerce

Enclosure (1) Letter supporting H.R. 7198 from local and state chambers of commerce

cc: Members of the House Committee on Small Business