Many agree that there is a place for – and a need for – effective regulations that help protect the environment, ensure workplace and consumer safety, and enhance our security. But when not crafted carefully, regulations can impose significant burdens, and significant costs, on the regulated community. The cumulative effect of multiple regulations can stifle economic growth and kill jobs.
Regulations have an impact on companies of all sizes, but well-established data show that regulation imposes a disproportionate impact on small- and medium-sized businesses. According to research unveiled in 2005 by the Small Business Administration:
- Small companies face an annual regulatory cost of $7,647 per employee, 45 percent higher than the regulatory cost facing large firms;
- Compliance with environmental regulations like TSCA costs 364 percent more for small companies;
- Out of all the categories of regulatory costs studied – economic, workplace, environmental and tax – compliance with environmental regulations is the main driver of the disproportionate cost impact on small versus large companies.
Furthermore, SBA found that while federal government receipts as a share of the economy declined between 2000 and 2004, the federal regulatory burden grew. In 2004, the annual cost of federal regulation in the U.S. increased to more than $1.1 trillion. According to SBA, “[h]ad every household received a bill for an equal share, each would have owed $10,172, an amount that exceeds what the average American household spent on health care in 2004.” 1
II. Mixed Messages from the Administration
A. Executive Orders
On one hand, the Obama Administration seems to recognize this. A series of executive orders, beginning in January 2011, reflect an awareness of the daunting burdens that regulations can impose:
- Executive Order 13563 (“Improving Regulation and Regulatory Review”),
January 18, 2011
- Executive Order 13610 (“Identifying and Reducing Regulatory Burdens”)
May 10, 2012
- Executive Order (“Promoting International Regulatory Cooperation”),
May 1, 2012
- Executive Order 13563 noted that our regulatory system “must measure, and seek to improve, the actual results of regulatory requirements.” That order required federal agencies to engage in “periodic review of existing significant regulations.” Through the development of retrospective review plans, agencies are required “to determine whether any such regulations should be modified, streamlined, expanded, or repealed.” The purpose of the requirement, the order concluded, is to “make the agency’s regulatory program more effective or less burdensome in achieving the regulatory objectives.” 2
Subsequently, the agencies developed those plans and submitted them for public comment; the plans identified more than 500 initiatives.
- The President also acknowledged the stifling effect of the cumulative impact of regulations. Executive Order 13610, “Identifying and Reducing Regulatory Burdens” says that “During challenging economic times, we should be especially careful not to impose unjustified regulatory requirements…it is particularly important for agencies to conduct retrospective analyses of existing rules to examine whether they remain justified and whether they should be modified or streamlined in light of changed circumstances, including the rise of new technologies.” The order adds that “further steps should be taken, consistent with law, agency resources and regulatory priorities, to promote public participation in retrospective review, to modernize our regulatory system, and to institutionalize regular assessment of significant regulations.” Specifically, the Executive Order:
- Requires agencies “to invite, on a regular basis….public suggestions about regulations in need of retrospective review and about appropriate modifications to such regulations;”
- [Regarding the retrospective review plans and suggestions] requires the agencies “to give priority, consistent with law, to those initiatives that will produce significant quantifiable monetary savings or significant quantifiable reductions in paperwork burdens while protecting public health, welfare, safety, and our environment. “
- Require agencies to “give special consideration to initiatives that would reduce unjustified regulatory burdens or simplify or harmonize regulatory requirements imposed on small businesses” [to the extent practicable and permitted by law]
- Requires agencies to “give consideration to the cumulative effects of their own regulations, including cumulative burdens, and shall to the extent practicable and consistent with law give priority to reforms that would make significant progress in reducing those burdens…”
- Requires agencies to regularly report on the status of their review efforts to the Office of Information and Regulatory Affairs (OIRA).
- A third executive order – issued on May 1, 2012 – seeks to reduce “unnecessary differences” in regulatory requirements in such areas as health, safety, labor, security, and the environment while maintaining current levels of protection. This order – “Promoting International Regulatory Cooperation” – outlines the responsibilities and mission of The Regulatory Working Group, which was first established by Executive Order 12866 in 1993. It is run by OIRA and is tasked with examining “strategies for engaging in the development of regulatory approaches through international regulatory cooperation, particularly in emerging-technology areas.” For any previously required regulatory plans, agencies are required to summarize their “international regulatory cooperation activities that are reasonably anticipated to lead to significant regulations,” and “to consider reforms to existing significant regulations that address unnecessary differences in regulatory requirements between the United States and its major trading partners.” 4
EPA finalized its Retrospective Review Plan in August 2011. The plan and progress reports can be found here.
B. “Major” New Rules
Thus, the administration has rhetorically recognized the burdens that many regulations can have on the regulated community, particularly small businesses, and has taken useful steps to advance formalize a process for reviewing existing rules and the cumulative effect of rules in general. However, simultaneously, this administration issued an unusually high amount of “major” new rules, those estimated by the government to cost $100 million or more annually.
III. Case Study – The Chemical Manufacturing Industry
A closer look at one industry sector – the chemical manufacturing industry – demonstrates how the administration’s actions on regulatory reform don’t necessarily match its rhetoric. The chemical industry is one of the most regulated industries in the United States. Numerous federal and state regulations govern nearly every facet of chemical manufacturing, including voluminous environmental and workplace rules. Over the past decade the industry has witnessed the gradual movement of jobs overseas to regions of the world that offer a significantly less regulated environment and lower paid workers. Consequently, American consumers have paid a price through sub-standard products that are made in these countries, exported to the United States, and placed into U.S. markets due to their competitive price advantage.
In recent years EPA has issued a wide variety of rules that directly impact the chemical manufacturing industry, including:
- A reconsidered Chemical Manufacturing Area Sources Rule
- New rules for industrial and commercial boilers
- The Definition of Solid Waste (DSW) Rule
There are additional EPA air proposals that may not directly affect members of our industry directly, which may set unfortunate, burdensome precedents for future rulemakings. Furthermore, there are still other rulemakings from EPA addressing a range of topics, including confidential business information and disclosure requirements, and TSCA, which add to the regulatory burden industry members face. These proposals derive from EPA; numerous proposals from other agencies, including the Occupational Health and Safety Administration and the Department of Homeland Security, further add to the regulatory mix. In particular, it is increasingly difficult for EHS&S professionals at small businesses, many of whom wear the “environmental, safety and security “hats” for their respective companies, to comply with this onslaught of regulations and recordkeeping requirements.
In addition to the difficulty of simple compliance, there is the issue of the regulatory uncertainty that is created by the flood of regulations. In a letter to the Chairman of a Committee in the House of Representatives, SOCMA captured the impact of this uncertainty on its industry, writing that
“…it is worth nothing that when new regulations are proposed or implemented, they create much uncertainty among chemical manufacturers, especially small companies. The more that they spend complying with regulations, the less they have available to spend on conducting critical research and development activities to develop innovative products that help companies expand their businesses.” 5
That uncertainty can be particularly significant for the specialty batch industry. This industry typically produces a diversity of products in batches, using multiple-step processes. These products and processes often change from month to month, or every two to three months. In this manufacturing context, the concepts of regulatory certainty and the cumulative effect of regulations are especially important. For the stability and future growth of this specialized component of the broader manufacturing sector, it is imperative that the regulatory process take the fundamental characteristics and structure of our industry into account. Unfortunately, that does not always occur.
SOCMA concluded “it is especially crucial that rules be crafted to address recognized problems and do so in the least costly fashion possible. Otherwise, chemical manufacturers could be forced to discontinue supplying a particular market or producing a specific product, either of which could negatively impact jobs in the industry or elsewhere in the value chain.” 6
SOCMA highlighted a few examples of burdensome rules in two letters (January 2011 and June 2012) to Representative Darrell Issa (R-CA), Chairman of the House Government Reform and Oversight Committee, in response to solicitations from the Chairman for examples of burdensome regulations affecting the chemical manufacturing industry. The letters can be found here:
IV. Reports and Studies
In December 2011 SOCMA’s Board of Governors approved a policy statement on regulatory reform. The statement explains why the issue is so important to SOCMA members and highlights some provisions SOCMA would like to see adopted in any related legislation that passes Congress. Many of those recommendations follow below, and the statement can be found here.
In order to improve the regulatory process, and reduce regulatory burdens, we urge policymakers to adopt the following recommendations (this will be a continually updated list):
- Any review of a significant rule should be required to assess the rule’s actual impact on small business.
- Furthermore, that impact should then be contrasted with the projected impact when the rule was first promulgated.
- Significant discrepancies between the two impacts should then trigger further agency action to mitigate those unforeseen costs.
Improved cost/benefit analysis:
- Increase congressional oversight of regulatory costs and benefits, for example by creating a Congressional Office of Regulatory Analysis, or by funding the GAO pilot established by the Truth in Regulating Act.
- Enhance the Regulatory Flexibility Act (RFA)’s requirements for reviews of rules that are projected to have a significant economic impact on a substantial number of small businesses; for example, by taking into account indirect effects
- Mandate that the Office of Information and Regulatory Affairs also review the cost-benefit analyses prepared for rules triggering the RFA
- Establish a Committee for the Cumulative Analysis of Regulations that Impact Manufacturing in the United States to analyze and report on the cumulative and incremental impacts of covered rules.
Greater regulatory flexibility
- Require regulatory flexibility analyses to include alternatives to the proposed rule that would maximize net economic benefits or minimize net economic costs on small businesses
- Enact measures that provide administrative regulatory relief for small businesses
1 The Impact of Regulatory Costs on Small Firms, Nicole and Mark Crain, Lafayette College for the SBA Office of Advocacy, September 2010
2 Improving Regulation and Regulatory Review, Executive Order 13563, President Barack Obama, January 18, 2011
3 Identifying and Reducing Regulatory Burdens, Executive Order 13610, President Barack Obama, May 10, 2012
4 Promoting International Regulatory Cooperation, Executive Order, President Barack Obama, May 1, 2012
5 SOCMA Letter to Representative Darrell Issa, January 10, 2011