[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
MAKING THE OFFICE OF ADVOCACY
INDEPENDENT
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC, MARCH 20, 2002
__________
Serial No. 107-49
__________
Printed for the use of the Committee on Small Business
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COMMITTEE ON SMALL BUSINESS
DONALD MANZULLO, Illinois, Chairman
LARRY COMBEST, Texas NYDIA M. VELAZQUEZ, New York
JOEL HEFLEY, Colorado JUANITA MILLENDER-McDONALD,
ROSCOE G. BARTLETT, Maryland California
FRANK A. LoBIONDO, New Jersey DANNY K. DAVIS, Illinois
SUE W. KELLY, New York BILL PASCRELL, Jr., New Jersey
STEVE. CHABOT, Ohio DONNA M. CHRISTENSEN, Virgin
PATRICK J. TOOMEY, Pennsylvania Islands
JIM DeMINT, South Carolina ROBERT A. BRADY, Pennsylvania
JOHN R. THUNE, South Dakota TOM UDALL, New Mexico
MICHAEL PENCE, Indiana STEPHANIE TUBBS JONES, Ohio
MIKE FERGUSON, New Jersey CHARLES A. GONZALEZ, Texas
DARRELL E. ISSA, California DAVID D. PHELPS, Illinois
SAM GRAVES, Missouri GRACE F. NAPOLITANO, California
EDWARD L. SCHROCK, Virginia BRIAN BAIRD, Washington
FELIX J. GRUCCI, Jr., New York MARK UDALL, Colorado
TODD W. AKIN, Missouri JAMES R. LANGEVIN, Rhode Island
SHELLEY MOORE CAPITO, West Virginia MIKE ROSS, Arkansas
BILL SHUSTER, Pennsylvania BRAD CARSON, Oklahoma
ANIBAL ACEVEDO-VILA, Puerto Rico
Doug Thomas, Staff Director
Phil Eskeland, Deputy Staff Director
Michael Day, Minority Staff Director
C O N T E N T S
----------
Page
Hearing held on March 20, 2002................................... 1
Witnesses
Sullivan, Hon. Thomas, Chief Counsel for Advocacy, U.S. Small
Business Administration........................................ 3
Barrera, Michael, Small Business & Agriculture Regulatory
Enforcement Ombudsman, U.S. Small Business Administration...... 4
Glover, Jere, Brand & Frulla..................................... 6
Appendix
Opening statements:
Manzullo, Hon. Donald........................................ 20
Velazquez, Hon. Nydia........................................ 23
Prepared statements:
Sullivan, Hon. Thomas........................................ 27
Barrera, Michael............................................. 43
Glover, Jere................................................. 50
MAKING THE OFFICE OF ADVOCACY INDEPENDENT
----------
WEDNESDAY, MARCH 20, 2002
House of Representatives,
Committee on Small Business,
Washington, DC.
The committee met, pursuant to call, at 10:40 a.m. in room
2360, Rayburn House Office Building, Hon. Donald Manzullo
presiding.
Chairman Manzullo. The committee will come to order.
Welcome to this hearing of the Committee on Small Business.
Since its inception in 1976, the Office of Advocacy has had
the difficult and important task of being an effective voice
for small business within the Executive Branch of the Federal
Government. There have been a number of distinguished
individuals who, as Chief Counsel, have directed the Office of
Advocacy and have left an admirable record of accomplishments
despite the lack of resources and limited authority. One of
those Chief Counsels, Jere Glover, is with us here today as one
of our witnesses.
Over time, there have been various constructive suggestions
to strengthen the office and to make it more effective and
independent. We heard a number of those suggestions at the
hearing the committee held a year ago on March 22.
Since that time, the Senate has passed and referred to the
House, S. 395, the Independent Office of Advocacy Act of 2001.
In light of this legislative activity and the subject, the
previous legislation that was before the committee last March
has been redrafted.
The draft bill for discussion today is less ambitious than
the previous version. It makes the office more independent and
provides the office with greater resources and more authority
to represent the interests of small businesses.
I was encouraged yesterday by the President's small
business agenda, particularly heartened with regard to specific
points on the Office of Advocacy and how to make that office a
stronger voice within the Federal Government.
I believe this draft legislation, along with other
provisions I intend to introduce to strengthen the Regulatory
Flexibility Act mirror the President's thinking on this issue.
We must ensure that regulators take into account the interests
of small businesses prior to the issuance of a new rule. The
law has been ignored far too often by too many agencies. We
must give more tooth to the chief counsel of Advocacy to
enforce the President's vision.
I want to work with my colleagues on both sides of the Hill
to pass the bill that produces real results for mainstream
America.
I now yield for an opening statement from my good friend
and colleague, the Ranking Democratic member, Ms. Velazquez.
[Chairman Manzullo's statement may be found in the
appendix.]
Ms. Velazquez. Thank you, Mr. Chairman, and good morning.
This hearing comes at a very opportune time. Yesterday we
heard the President speak about ways to help small businesses
in this country. I am very pleased to see he has read the
legislative report the Democrats wrote in January. In fact, he
mentioned five of our 11 concerns: taxes, regulatory issues,
contracting bundling, worker health care, and expanding the
Office of Advocacy.
The President has signaled he plans to issue an Executive
Order to give the Office of Advocacy more powers and
independence. He could not have picked a better moment since
the scope of that power and independence is what brings us here
today.
We support a truly independent Office of Advocacy. Small
businesses agree, which is why we listed it in our report on
the small business agenda this January. We want a smart
watchdog that compels the agency to respond to regulatory
problems that small businesses face.
There are two real questions before us on this issue.
First, why do we need an independent Office of Advocacy?
Everybody says we do. We all want one. But, before we rush
headlong into this, we need to know exactly what the problem is
we are trying to solve.
The problem is the Office of Management and Budget. An
independent Office of Advocacy must worry about undue influence
from the executive branch, which means shielding it from OMB.
We have seen too many times how OMB interferes with changes at
SBA, such as changing the size standards and subsidy rates.
So the second real question in evaluating the legislation
before this committee is, how do we ensure an independent
office and shield it from OMB? This clearly cannot be done with
simple window dressing like giving Advocacy a budgetary line
item or adding so many new responsibilities that it becomes
bogged down in its own mission.
Advocacy has been successful because its mission has been
laser-focused, and we have given it the flexibility to work
with agencies to find creative solutions to the problems facing
this country's small businesses. Any future changes must follow
this trend for Advocacy to continue serving as the voice of
small business.
Clearly, there is much more work to be done. We are here to
find solutions to that end. I hope we can hear from Advocacy's
chief counsel, Tom Sullivan, about his own ideas about how to
make the office more independent. I look forward to hearing
from the witnesses and to learn what ideas they have to achieve
this goal.
Thank you, Mr. Chairman.
[Ms. Velazquez's statement may be found in the appendix.]
Chairman Manzullo. I noted in the President's initiative
handed down yesterday it talks about--``for a tighter
cooperation between the Office of Advocacy and OMB.'' I--maybe
somebody from the White House was sitting in the audience here
when we showed the problems with OMB.
Our first witness is the Honorable Tom Sullivan, Chief
Counsel for Advocacy.
STATEMENT OF THE HONORABLE THOMAS M. SULLIVAN, CHIEF COUNSEL,
OFFICE OF ADVOCACY, U.S. SMALL BUSINESS ADMINISTRATION
Mr. Sullivan. Chairman Manzullo----
Chairman Manzullo. Could you pull the mike up closer?
Mr. Sullivan. Certainly.
Chairman Manzullo. Thank you.
Mr. Sullivan. Chairman Manzullo, Congresswoman Velazquez,
Congressman Pascrell, good morning and thank you for the
opportunity to appear before you today to discuss ways to
strengthen and improve the Office of Advocacy, a concept I have
been supportive of even before coming on board as chief
counsel.
I was also encouraged by President Bush's announcement
yesterday and the small business agenda he formalized during
the Women's Entrepreneurship conference.
Thank you also for accepting my written statement into the
record. I will summarize some of the key points.
First, let me say that I am committed to working with this
committee, Congress, and the President both to ensure the
Office of Advocacy's independence well past my tenure and to
make sure that the government is accountable to small
businesses through compliance with the provisions of the
Regulatory Flexibility Act (the RFA), and the Small Business
Regulatory Enforcement Fairness Act (SBREFA).
I believe these two goals, strengthening the independence
of the office and enhancing the effectiveness of the RFA and
SBREFA, are best addressed separately because each by itself
deserves the full attention of both Congress and the
administration.
Later this week, our office will be releasing the annual
report on agency compliance with the RFA for Fiscal Year 2001.
I can assure you that this committee will be the first to see
that report. This report will detail successes and failures and
will help frame the debate on how we can all work together to
ensure greater attention to the unique needs of small
businesses early in the regulatory process, the tenet of the
RFA.
With respect to the issue of strengthening the Office of
Advocacy, the focus of our discussion this morning, I want to
express my appreciation to the committee and staff for their
willingness to look carefully at various options in crafting
legislation to strengthen Advocacy's role as the voice for
small business within the Federal Government. It will be
important to keep in mind preserving both the chief counsel's
independence and the flexibility to respond to new concerns as
they arise.
I believe that if legislation is needed to improve the
Office of Advocacy's independence and ability to carry out its
mandate, it should be done as cleanly and simply as possible.
I should also note for the record that the administration
and, in particular, Administrator Barreto's team have been
fully supportive of my office. Discussion of legislative
options that seek greater independence for Advocacy should not
in any way imply an immediate need to exercise that budgetary
independence. Legislation, if needed at all, should be framed
in the context of an Office of Advocacy that does not
necessarily have the luxury of having such an accommodating
landlord as I have in Hector Barreto.
In a few minutes we'll hear from Michael Barrera, the SBA's
current National Ombudsman. I know that Michael shares my
vision of our complementary roles in support of small business.
Michael and I met to discuss our respective offices even
before I came on board, and we continue to meet regularly. I am
proud to announce that, just this morning, we signed a
memorandum of understanding that will help both our offices
work together to benefit small business while at the same time
recognizing the independence of the Office of Advocacy.
With the Chair's permission, I would ask that that
Memorandum of Understanding be inserted into the record.
Chairman Manzullo. The statements of the witnesses and of
the members, along with the memorandum, will be admitted
without objection.
Mr. Sullivan. Thank you, Mr. Chairman.
There have been some legislative proposals to require
Advocacy to report on specific subjects. While these provisions
may be well-intentioned, such a legislative mandate sets a
precedent that contradicts the flexibility inherent in
Advocacy's role.
Advocacy has a strong history of listening to small
business owners and working with this committee to develop the
research and action agenda that makes the best use of
Advocacy's resources. I fully intend to build on that tradition
and capacity. For that reason, I am reluctant to endorse
legislative provisions that constrain our research flexibility.
I am encouraged by this committee's dedication to the
Office of Advocacy's success and the benefits that obviously
are realized by small business owners themselves. I pledge my
full cooperation and the resources of Advocacy to work toward
solutions that will help our country's economic engine, small
business.
[Mr. Sullivan's statement may be found in the appendix.]
Chairman Manzullo. Thank you. Our next witness will be
Michael Barrera, the National Ombudsman. Mr. Barrera
accompanied Administrator Barreto to northern Illinois, I
think, the first week after your boss was confirmed and had a
great time there.
STATEMENT OF MICHAEL BARRERA, SMALL BUSINESS AND AGRICULTURE
REGULATORY, ENFORCEMENT OMBUDSMAN, U.S. SMALL BUSINESS
ADMINISTRATION
Mr. Barrera. Mm-hmm.
Chairman Manzullo. I really appreciated the fact that you
came along and had a lot of input and met a lot of fine people
in northern Illinois, including my brother at the restaurant.
So that was a lot of fun, Michael.
Mr. Barrera. Unfortunately, I didn't get a chance to eat,
but I look forward to going back.
Chairman Manzullo. Yes. That's good. We'll be looking
forward to your testimony.
Mr. Barrera. Thank you, Mr. Chairman.
Chairman Manzullo. Could you put the mike a little bit
closer. Thank you.
Mr. Barrera. Is that better? Okay.
Thank you, Mr. Chairman Manzullo, Ranking Member Velazquez,
Congressman Pascrell, and Congressman Langevin, for providing
me my first opportunity to comment on how the Office of the
National Ombudsman can help improve the regulatory environment
for small businesses.
First of all, I would like to state that I look forward to
working with the committee, Congress, small entrepreneurs, and
the new chief counsel for Advocacy, Tom Sullivan, to improve
the regulatory enforcement environment for our nation's 25\1/2\
million small businesses. In fact, I have already met with
staff from both the Senate and House Small Business Committees
and with Mr. Sullivan on several occasions to discuss how the
Office of Advocacy and the Office of the National Ombudsman can
work together to ensure a fair small business regulatory
environment.
As Mr. Sullivan mentioned earlier, we both agree that a
strong working relationship with frequent communication between
the two offices is critical to the SBA's mission of aiding and
counseling America's small businesses and protecting small
businesses against unnecessary regulatory burdens.
The President also recognizes the importance of regulatory
fairness for small businesses and, just yesterday, unveiled his
plan to help create an environment where small businesses can
flourish.
Some components of his plan include issuing an executive
order to provide greater enforcement powers to the Office of
Advocacy, instruction to the director of OMB to seek the views
and comments of small businesses on existing Federal
regulations, paperwork requirements, and guidance documents,
instruction to the OMB and Advocacy to work together to
strengthen the enforcement of the Regulatory Flexibility Act
and for increasing the coordination between OIRA and Advocacy.
Along those lines, Mr. Sullivan and I have taken the
initiative to strengthen the complementary roles we each play
in working to benefit small businesses. Like Tom, I am also
pleased to announce that, as of today, we have signed a
memorandum of understanding that, while maintaining our
independence, enhances our relationship that will enable us to
put forth our best efforts to assist the small business
community.
As part of SBA, the SBA National Ombudsman can communicate
small business issues directly to the SBA administrator and
appropriate program managers. Administrator Barreto has
recognized the importance of the SBA National Ombudsman and
sources to the SBA's field offices to use my office as another
tool to assist and protect small businesses.
The mission of the SBA National Ombudsman is now more
relevant and more effective than ever before because it is now
a core function of the SBA, and its services are available at
the grassroots level through local SBA offices.
I believe that Administrator Barreto underscored his
commitment to regulatory fairness by making the appointment of
the National Ombudsman one of his first after his confirmation.
Since that time, the Office of the National Ombudsman has held
six regulatory enforcement fairness hearings and six regulatory
enforcement fairness roundtables.
We plan to have at least one hearing and one roundtable in
each federal region. This increase in hearings and roundtables
is directly attributed to Administrator Barreto's commitment to
make the mission of this office a core function of the SBA.
In addition to the increase in the number of hearings,
attendance at the hearings and roundtables has also increased
dramatically. For example, attendance at our hearings in
Orlando and Albuquerque drew crowds of approximately 70 and 80
small business owners and other interested parties,
respectively.
Additionally, through contacts and efforts of our district
field offices, we have received excellent news coverage for our
hearings. This support greatly assists our office in marketing
the resources of the SBA National Ombudsman.
As demonstrated by this committee's March 6, 2002, hearing
on the Regulatory Flexibility Act, there was continued need to
eliminate unnecessary regulatory burdens on America's small
businesses.
On behalf of President Bush, Administrator Barreto, and the
Office of the SBA National Ombudsman, I look forward to working
with the chief counsel, our legislative partners, and America's
small businesses to eliminate the unnecessary regulatory
burdens and excessive regulatory enforcement burdens on our
nation's entrepreneurs.
Thank you for the opportunity to appear today. I will be
happy to answer any of your questions. Thank you.
[Mr. Barrera's statement may be found in the appendix.]
Chairman Manzullo. Thank you.
Our next witness will be Jere Glover with Brand & Frulla.
I thought you retired. I know you got that sailboat.
STATEMENT OF JERE W. GLOVER, COUNSEL, BRAND & FRULLA
Mr. Glover. I did retire from the Federal Government, Mr.
Chairman, but I am still back in the practice of law.
Chairman Manzullo. You didn't retire from life.
Mr. Glover. I did not retire from life.
Chairman Manzullo. Okay.
Mr. Glover. Nor small business advocacy.
Chairman Manzullo. We look forward to your testimony.
Mr. Glover. Thank you, Mr. Chairman, Members of the
Committee. It's great to be here with you discussing an issue
that's very near and dear to my heart.
You know, yesterday was a great day. Any time a President
mentions small business, it's a great day. When the President
mentioned strengthening the Office of Advocacy, it's a really
great day. And when he talks about stopping contract bundling,
it just makes it phenomenal. So I will tell you that we have to
be very pleased about hearing that happen.
I've had this fantasy that's gone on for years, this,
perhaps, dream, and that is that at one presidential debate,
the two candidates will discuss what is best for small
business. We haven't reached that yet, but, certainly,
yesterday was a good day.
Well, let me try to put the discussion about the Office of
Advocacy into context. First of all, you have to recognize that
the role within the Small Business Administration has declined
over time. When you look at the number of resources that SBA
has dedicated to advocacy, it's less than two percent. When you
look at SBA's budget, again, less than two percent.
But let's put it in a little broader context. We had
roughly 50 employees when I was there. I understand the number
is down a little bit, and I'm not sure where that's going to
end up right--overall.
But the Department of Commerce, which is tasked with
primarily helping large firms--and I'm not questioning their
justification for their existence of their number of employees,
but they have 32,981 employees. The U.S. Department of
Agriculture has 110,000 employees. The Department of Labor has
15,374 employees. All told, the Federal Government has
1,660,313, according to the last count I saw, full-time Federal
employees.
Having less than 50 do the research, fight the regulatory
battles and provide important information to policymakers for
decisions seems like things are a little askew.
When I was first in the Office of Advocacy in the late
1970s, we had five percent of SBA's budget and about five
percent of the employees. The Congress put a floor in the
legislation, which I mentioned in my testimony, that said,
``Not less than 69 employees and less than $3 million in
research would be spent on the Office of Advocacy.'' That kind
of clear congressional direction held the office in good stead
for many, many years, but over the last few years we've seen
some things begin to--the numbers and things erode.
If we look at this from a cost benefit analysis, there have
been roughly $16 billion in regulatory savings by actions by
the Office of Advocacy and the Regulatory Flexibility Act, $16
billion. If you do a cost benefit analysis on SBA's Office of
Advocacy's budget, you find out that it's $800 returned for
every dollar spent. That kind of cost benefit analysis is the
kind that you would like to see in everything the government
does.
Now we have to remember that this office is, by its very
nature, controversial. There will be people who don't like what
it does. We can remember back in 1995 when a vote on the floor
of the House of Representatives came within 30 votes of
eliminating that office forever. I think we have to recognize
that, left to their own devices, this office will not receive
the focus, the attention, and the priority that it deserves.
Let me go back to the President's statement on advocacy.
It's a great statement. I dare say that the administrator did
not call the chief counsel up last night and said, ``I just had
a great meeting with the President. I'm going to increase your
slots by 25 percent, and you've got another half-million
dollars in research.''
I know, when SBREFA was passed and the panel process was
put in place, which tremendously increased the responsibilities
for the Office of Advocacy, we didn't get a single slot or a
single dollar to implement that. In fact, the--the report that
we filed before the election on the background paper on the
Office of Advocacy 1994-2000 has a chart which shows the Office
of Advocacy's staffing overtime. And when SBREFA passed, we
actually lost six slots because SBA was in a government-wide
freeze--an agency-wide freeze. We never got those slots back.
So I think that we have to recognize that something specific
really does need to be done.
Now I will tell you that--that I was very proud of all of
the accomplishments that the Office of Advocacy had while I was
there. I was certainly appreciative of the congressional
support that the office had. Could I have done more if I had
had more resources? Absolutely. I have total confidence in Tom
Sullivan, the current chief counsel. He will do the very best
job that he can do with the resources and personnel he has. Can
he do more with more? Absolutely.
I think the historical precedent when this committee, back
in the early 1980s, when the first chief counsel who I had the
privilege of working under and mentoring under and learning
from left, and a new chief counsel came in, they wanted to make
sure that the office didn't lose the status. And that's why it
said, ``Not less than 69 employees, not less than $3 million in
research.''
That kind of provision did make a difference, and it stayed
there for a long time. Let me just ask the question. Between
those periods in the late 1970s, early 1980s, is the Office of
Advocacy less important today than it was then? Does it have
less responsibilities? Is small business less important? Does
Congress care less about small business? I think not. I think
it's time to restore the office to its prior status and provide
it with the resources.
Thank you very much for the opportunity to be here.
[Mr. Glover's statement may be found in the appendix.]
Chairman Manzullo. Well, thank you very much. The--Ms.
Velazquez, did you want to go first?
Ms. Velazquez. I don't mind.
Chairman Manzullo. Okay. Go ahead.
Ms. Velazquez. Thank you, Mr. Chairman.
Chairman Manzullo. Get my thoughts together here. Thank
you.
Ms. Velazquez. Mr. Sullivan, the President announced a new
small business initiative yesterday, and you mentioned that too
in your testimony. With this new executive order in the works,
should we be considering legislation now too, or should we wait
until we can see the effects of this executive order?
Mr. Sullivan. Well, let me--let me actually touch on a few
things specific to the Office of Advocacy in the announcement
yesterday. First, one accomplishment that is done already, as
far as a memorandum, is our written agreement to work very
early and often with Dr. John Graham in the Office of
Information and Regulatory Affairs. And, with the
Congresswoman's permission, I would like to insert that
Memorandum of Understanding (MOU) also into the hearing record
because it is a monumental document.
Chairman Manzullo. That will be accepted into the record
without hesitation or objection.
Mr. Sullivan. Thank you, Mr. Chairman.
Chairman Manzullo. Do you have a copy of that memorandum?
Mr. Sullivan. Yes, I do, Mr. Chairman.
Chairman Manzullo. Could you hand it to us up here so we
could look at it?
Mr. Sullivan. Yes. And your counsel also has a copy that
was provided previous to this. I want to make sure that you
know that we get everything to the committee before the
hearing, not in the middle.
I do want to also answer the Congresswoman's other part of
the question, and that is whether or not we need legislation
now when there is an executive order that, in fact, does a lot
in the same direction and with the same purpose of what some of
the legislation before us attempts to do.
My answer is, any time you have legislation, presidential
announcements, executive orders, or roundtable discussions that
focus on strengthening the Office of Advocacy, I'm all for it.
Whether or not we're jumping the gun by formalizing
legislation that could be overcome by executive order, I think
that those things have to be considered. The timing of those
two documents is important.
I think that it is tremendously helpful that the President
has committed to formalizing an executive order, and I'm sure
that the President wants to make sure that any legislation that
seeks to do the same thing is complementary, not contradictory,
to the executive order.
Ms. Velazquez. But if you mention that, in the Executive
Order--it contains a lot of elements that are in the
legislation. Shouldn't we wait to see those--if that Executive
Order really works or not?
Mr. Sullivan. I want to be as responsive as possible
without getting into specifics of a document that has not been
written yet. But I think it is wise that this discussion happen
now because the purpose of both the executive order and the
legislation is absolutely similar. So, to the extent that they
complement and do not contradict each other, I do think that
it's a good idea that those considerations be brought back to
the President, and I'll certainly convey that.
Ms. Velazquez. Okay. Mr. Sullivan, I understand you signed
a memorandum of understanding with OIRA as part of the
President's new Small Business Initiative. How does this
memorandum actually change any of the current processes in
place for inter-agency review?
Mr. Sullivan. Well, like so many things that we do at the
Office of Advocacy, we build on the successes of the past. I am
honored to share the panel not only with Michael Barrera, but
with the past chief counsel, Jere Glover.
The Office of Advocacy has historically had an exchange of
letters with Dr. Graham's office, the Office of Information and
Regulatory Affairs. That exchange of letters simply formalizes
a working relationship of examining agency proposals and how
they impact business, quite frankly, how they benefit
businesses, more along the lines of what Dr. Graham's shop
does.
What the MOU does is to go even further. It specifically
calls upon Dr. Graham's executive order authority to send back
regulations and uses that authority to examine whether or not
agencies have complied with the Reg Flex Act according to the
Office of Advocacy.
Ms. Velazquez. Mr. Sullivan, giving Advocacy its own line
item is being characterized as giving Advocacy independence.
However, Advocacy will still need to submit budget requests to
the administration, just to OMB instead of SBA.
This question is meant--no. I'm sorry. I just want for you
to tell me, if this office is given this line item, does this
mean that your budget request will be submitted to OMB instead
of SBA?
Mr. Sullivan. The Congresswoman is referring to two
separate draftings of how an independent budget would work.
There is the draft that is the discussion of this hearing that
is worded as concurrent submission. And I believe that the way
that would work would be that the Office of Advocacy would
separately submit its budget to Congress.
The preferable approach, in my opinion, if legislation is
needed to separate our budget, is what is contained in S. 395
that the Chairman mentioned in his opening statement. And that
isn't a concurrent budget submission, but rather required
within the President's budget that the Office of Advocacy be a
line item similar to the way our research budget is line-itemed
currently.
Ms. Velazquez. And let me ask you, given the fact that as--
as the Office of Advocacy, you may be, at times, critical of
the office of OMB. And, given that time of relationship, we can
expect that relationship to be confrontational at times. So,
after spending a year holding OMB's feet to the fire, how
likely is it that OMB will approve your budget?
Mr. Sullivan. Well, I think one of the advantages of having
the Office of Advocacy's budget clear, whether it be submitted
concurrently or whether it be part of the President's budget,
is that it is out in the open. This is an item, a dollar amount
that then gets the full attention of this committee, the full
attention of OMB and the President and the various entities
that do have budget approval authority.
I think the more folks that know the benefits of the Office
of Advocacy and the resources that we need to do a good job,
the better off we are.
Ms. Velazquez. During our hearing on Reg Flex compliance,
you testified that legislation to strengthen the Reg Flex Act
should be an avenue of last resort. It's two weeks later, and
this bill contains new authority for the Office of Advocacy.
Are we now already at the point of last resort?
Mr. Sullivan. Well, actually, we're starting a whole new
chapter and an exciting chapter that was formalized yesterday
in the President's announcement and small business agenda.
One of the things that would happen ideally, before
reaching the last resort, would be to have the President's
emphasis of agencies complying with the Regulatory Flexibility
Act. That has happened. That has happened in the proclamation
and commitment to formalize that agenda through an executive
order.
So when I came here a month ago and talked about things
that I would prefer rather than changing the law, those have,
in fact, happened, and I'm very excited about it. So, to the
extent that we discuss legislative options now, I think we're
dealing with a whole new framework and an exciting framework,
but certainly something that should be taken into account prior
to changing existing laws.
Ms. Velazquez. We will have a second round, right?
Chairman Manzullo. Well, I--yes, of course, of course. It's
just the two of us here.
Ms. Velazquez. Thank you.
Chairman Manzullo. Thank you.
I have a couple of questions. And I can understand the
President's proposal yesterday, and it's a lot of things that
we've been talking about here, but I would suggest--and I
appreciate everything that they--that both of you gentlemen are
doing.
Our committee never got any heads-up that the President was
even considering any small business agenda. And then we found
out on the grapevine, placed a call, and then the extent of our
briefing was a phone call that came to our staff on Friday
afternoon, that somebody came from the SBA on Friday afternoon.
I mean, this is not acceptable.
The--we sit up here and pull the hair out of our heads. We
had to throw together a rather ugly meeting, a very ugly
meeting, with the head of OIRA and the Administrator. As a
result of that, we get a Memorandum of Understanding.
I just want to know when is the SBA going to come to this
Committee, the Committee of Jurisdiction and say, ``We're
working on legislation. We'd like you to have some input into
it.'' I mean, do you think that would be a good idea?
Mr. Sullivan. Mr. Chairman, let me actually address this on
behalf of the Office of Advocacy but not address the questions
that you put, more appropriately to the administration.
But with regards to legislative drafting and the vetting,
the full vetting of views so that we both can benefit from our
experiences, I have met, as you know, regularly with your
staff. And, in particular, I am absolutely pleased that my
concerns in the drafting of legislation were not only listened
to, but then formalized in a re-draft that we have before us
today. And so the working relationship with the Office of
Advocacy, in my view, is not constrained at all.
Chairman Manzullo. I'm not talking about our relationship.
I'm just--I guess I'm just expressing to you the frustration--
perhaps it's of the Republican Congress that the Members just
can't get the ear of the President. We have no input. Phone
calls are not returned. The--I know how hard you work there,
but it's as if--you know, the President comes out with a small
business agenda, and Members of Congress--I mean, we're
supposed to carry the water, at least on a portion of this
legislation, and, you know, we're glad to do that.
But I think at the minimum perhaps, you know, both of you
are the ultimate middlemen. If you stop to think about it, you
really are, and you're placed there for a reason. And you're
both doing an excellent job on it, but there has to be a better
relationship between the Administration and the Committees of
Jurisdiction because, at this point, there is none. And I'm not
criticizing Mr. Barreto because he's been--he gets a hundred
percent in my book. But there's a huge disconnect going on
here.
Mr. Sullivan. I appreciate the comments of the chairman.
Although I do have the luxury of independence from the
administration, I will absolutely view yesterday's announcement
and the two-day announcement of the small business agenda,
first in Missouri and then yesterday at the Reagan center, as
an opportunity to engage both with the White House and with
this committee to flush out exactly how the agenda can work
cooperatively.
Chairman Manzullo. Let me give you a suggestion.
Mr. Sullivan [continuing]. Whatever legislative options may
exist.
Chairman Manzullo. One suggestion would be for the
President to sit down with the Administrator and the Chairman
of the Committee on some common goals for the--I mean, this is
so simple, but it's not done. And I'm convinced that, unless we
raise hell at this Committee level, we don't have any voice
going into the White House.
I mean, we're going to have another hearing, very
contentious hearing, coming up in two weeks dealing with the
Administrator of HCFA because of the continuous pounding by
that organization of small businesses.
Ms. Velazquez. Mister----
Chairman Manzullo. Yes, I would yield.
Ms. Velazquez. I'm sorry. Yeah. Thank you, Mr. Chairman.
I just would like to share with you the fact that Mitch
Daniel now will have more to say in terms of contract bundling.
And I think that it's appropriate that we bring him into this
Committee so that he could explain and share with this
Committee what his views are regarding contract bundling.
Chairman Manzullo. That's a good idea.
I'm looking at this Memorandum of Understanding with you
and OIRA, and I know it's a good start. The words in it,
however, are precatory. Every word is a ``may''. For example,
on page two--and I know, Tom, you fought to put ``shall'' in
there.
For example, in IV, Responsibility to Advocacy, ``During
OIRA's review of an agency rule under Executive Order 12866,
OIRA may consult with Advocacy whether--regarding whether an
agency should have prepared a regulatory flexibility
analysis.''
Now, under the bill that Ms. Velazquez introduced and on
which I'm a co-sponsor, that's the bill that lodges the power
within the SBA Administrator to say that these do apply. Would
you be in favor of that particular--what's the number of it,
Ms. Velazquez?
[A discussion was held off the record.]
Chairman Manzullo. 1324.
Mr. Sullivan. Mr. Chairman, actually, the language that
you're reading in the MOU is deliberate, and it's deliberate
for two reasons. One is that it maintains the independence of
the Office of Advocacy.
Dr. Graham was extremely sensitive to the misperception,
once we sign an MOU, that the Office of Advocacy and the
President's regulatory advisor be somehow portrayed as being in
cahoots on regulatory issues. And so the ``may'' wording is
deliberate.
Second, it was in the full anticipation--because we just
signed this yesterday--that the executive order would put more
teeth into some of the flexibility that is otherwise contained
in the MOU, while, at the same time, maintaining the
independence. So you see that we have a challenging but
fantastic opportunity in front of us to formalize that.
And I do need to talk about our communication with the
committee and the White House because I view the announcement
as tremendously beneficial to small business, obviously, to our
office and the powers that our office have to help small
business, but not as a communication breakdown, but as an
opportunity to fully engage with the White House.
Chairman Manzullo. Let me explain communication breakdown.
The Executive Order was issued, and we found out about it in
the press, and no one ever gave us a copy of that order. Or it
hasn't been issued.
Mr. Sullivan. It has not been issued.
Chairman Manzullo. Okay. All right.
Mr. Sullivan. And, in fact, therein lies, I think, a great
opportunity for this committee----
Chairman Manzullo. It is. I mean, now what----
Mr. Sullivan [continuing]. To work with the White House and
also Mitch Daniels on contract bundling.
Chairman Manzullo. But let me ask you this question. When
we request a meeting with the White House to go over these
things, it falls on deaf ears. I mean, there is a very serious
breach between the majority in this House and the White House
with regard to these issues. And that is that members of
Congress are not given the opportunity to speak with the
President directly on small business issues.
And, somehow, on all the vetting and everything that's
going on, I would just urge you to go back to the Administrator
and say, ``These are the committees that are involved.'' We are
the ones that are elected. We're the ones that have to face the
people. We're the ones that have to pass the legislation.
I mean, this frankly has taken a ball, and you pitch it
from one hand to the other hand to the other hand. There would
be nothing unconstitutional with the President consulting this
Committee or this Chairman with regard to wording of the
Executive Order. In fact, that's the very same problem we got
into when the SBA Administrator and the Chief of Staff issued
the rules for--the emergency rules that made the entire nation
a disaster area, refusing to allow this Committee to have any
input. And, evidently, the message never got through. I mean,
why are Members of Congress refused to have any input in any
decisions that are being made by the SBA?
Mr. Sullivan. I am not in a position, Mr. Chairman, to
respond----
Chairman Manzullo. I can appreciate----
Mr. Sullivan [continuing]. Or speculate on this line of
comment or question. I apologize.
Chairman Manzullo. Well, you don't have to apologize.
That's not your area.
Ms. Velazquez. Would the Chairman yield?
Chairman Manzullo. Of course, I would yield.
Ms. Velazquez. I think, Mr. Chairman, and I don't just want
to come here and excuse Mr. Barreto, but I was impressed when I
was reading the President's speech. And the first question that
I asked my staff is, ``Was Hector Barreto there?'' And the
President didn't even mention Hector Barreto in his speech. I
think that the two people that we need to work with and talk to
is Mitch Daniel and Larry Lindsay, the----
Chairman Manzullo. Let me reclaim my time.
The Office of the President is working with our staff on
drafting that Executive Order, so I stand corrected on that.
But there is a lot of frustration that's going on here. It's
obvious that a lot of work is being done to tighten the avenue
of communication on it.
The--with regard to the ombudsman and the regulatory
fairness hearing and roundtable schedule for Fiscal Year 2002,
I don't see Illinois in here.
Mr. Barrera. We can definitely put it in there if you would
like that.
Chairman Manzullo. But we did have a hearing, I think. Was
it two years ago?
Mr. Barrera. I think we did.
Chairman Manzullo. We did. That's correct.
Mr. Barrera. What we tried to do, Mr. Chairman is one of
the comments I heard when I started is that we weren't getting
out to enough states in the country, and we're trying to spread
that out. And, as you know, we went to Indianapolis for the
first time, and we're going to Milwaukee for the first time,
which are in that Federal region. But, if the Chairman would
like a hearing, we would do everything we can to have one
there.
Chairman Manzullo. We would be delighted to work with you
on that. I do not forget the fact that the Administrator came
out, spent an entire day there. To me, that was an informal
hearing when 30 small business people gave them their ear at my
brother's restaurant. So we don't forget about that.
Mr. Barrera. Well, I think it also shows, Mr. Chairman, how
committed he is.
Chairman Manzullo. Absolutely.
Mr. Barrera. To the regulatory fairness. He knows your
commitment, and he wanted to bring me along. And I enjoyed
Rockford. I really enjoyed the small towns.
Chairman Manzullo. That's great. You enjoyed the pizza at
my brother's restaurant too, I think.
I don't have any further questions. Do you have anymore,
Ms. Velazquez.
Ms. Velazquez. Out of New York City, Mr. Sullivan, I just
would like to know if SBA provided comments to OMB on the
recent CMS prescription drug card regulation.
Mr. Sullivan. It's my understanding that we did provide
comments.
Ms. Velazquez. And were your comments made part of the
public record?
Mr. Sullivan. It is also my understanding that those
comments from Advocacy, as part of the inter-agency review,
were not made part of the public comment docket.
Ms. Velazquez. Is it your understanding that OMB is able to
pick and choose which comments are made part of the public
record?
Mr. Sullivan. That is not my understanding.
Ms. Velazquez. That is not your understanding.
Mr. Sullivan. No. I apologize, again, for what appears to
be a lack of responsiveness. I do not know how OMB or the
issuing agency decides which comments they put in the record
and which they do not.
Ms. Velazquez. So why do you think they didn't do it? Why
they don't follow the law?
Mr. Sullivan. Again, I don't know if I'm in a position to
be able to speculate on how an issuing agency decides whether
or not to include interagency review comments into the record.
I should say that it is an absolute compliment to the
Office of Advocacy that not only do we monitor closely
compliance with the Regulatory Flexibility Act during
preproposal and proposed regs, but when the Administration does
circulate proposals outside of that context, then we do comment
also through that process. So it's almost a dual commenting
procedure. The internal OMB clearance process does not lend
itself to the public letter writing that is such a key part of
the Office of Advocacy.
Ms. Velazquez. Mr. Sullivan, within the last 15 months, do
you know how many regulations you have commented on as far as
OMB inter-agency review, and how many of those comments were
not made part of the public record?
Mr. Sullivan. I do not know, Congresswoman Velazquez.
Ms. Velazquez. Have you received any feedback from OMB or
CMS regarding changes that were made to regulations based on
Advocacy's input? Do you know if the outcome of the regulation
is the same?
Mr. Sullivan. We have received comment back, in particular,
from CMS, which used to be HCFA----
Ms. Velazquez. You have----
Mr. Sullivan [continuing]. On our comments on their lack of
attention to the Regulatory Flexibility Act. I do not know
whether or not those communications are in written form to
date.
Chairman Manzullo. Could you yield for a second?
Ms. Velazquez. Sure.
Chairman Manzullo. The--I would state that one of the
reasons we're having this hearing with HCFA on April 10th is
because HCFA blew off the Office of Advocacy, I think, no less
than four or five times with such arrogance that the only way
we can have accountability is to bring HCFA here. But Office of
Advocacy did its job. And we want to work with you, Tom, to
make sure that you have a lot more teeth to compel that
organization to listen to small businesspeople.
Mr. Sullivan. I thank the Chairman, and I also thank the
President for also----
Chairman Manzullo. Yes.
Mr. Sullivan [continuing]. Following along those lines to
make sure that agencies do pay very serious attention to their
obligations under the Regulatory Flexibility Act.
Ms. Velazquez. Mr. Sullivan, I just would like to ask you
that--please submit to the Committee copies of the regulation
that you have commented on in the last 15 months.
Mr. Sullivan. We would be happy to do so, Congresswoman
Velazquez.
Ms. Velazquez. Mr. Chairman, I have other questions, but I
just would like to submit it so that they could respond to us
in writing.
Chairman Manzullo. The----
Ms. Velazquez. I have--I do have one last question.
Chairman Manzullo. Oh, go ahead. But, first of all, you
want to submit written questions?
Ms. Velazquez. Yes.
Chairman Manzullo. And then how----
Ms. Velazquez. Both to the----
Chairman Manzullo. How long would it take you to submit the
written questions and what----
Ms. Velazquez. Tomorrow.
Chairman Manzullo. Tomorrow.
And then how much time would you need to respond?
Mr. Sullivan. We will respond as soon as we're able. We're
happy, certainly, to receive any of the questions from the
Committee and respond appropriately.
Chairman Manzullo. Okay.
Ms. Velazquez. Thank you.
Chairman Manzullo. Okay.
Ms. Velazquez. Mr. Sullivan, you mentioned having Advocacy
funding out there in one of the questions that I asked you
before. So I want to ask your input on a provision in the draft
bill that we are considering. What is the budget now?
Mr. Sullivan. I don't have an exact amount, but it is
around $8 million.
Chairman Manzullo. I need to do a couple of housekeeping
things. Is it my understanding that you're going to be giving
this Committee copies of comments that you made to OMB on the
prescription card, your comment on that?
Mr. Sullivan. Again, we'll be responding to written
questions that, I think, would clarify what the Committee wants
to know. And we are happy to provide detailed responses to any
of the questions that the committee provides.
Chairman Manzullo. Okay. Well, I have a functional
question. When we are approached by constituents or the broader
small business community, sometimes they don't know whether to
send them to Michael, who is also an attorney, or to the
Ombudsman or to the Office of Advocacy. Sometimes we do both.
Could you give us some guidelines on how we should do that? Can
you even give us some examples?
Mr. Barrera. I don't think you can go wrong to send them to
either one of us, Mr. Chairman. And I think the Memorandum of
Understanding that we just signed addresses that. Both of our
offices know what our jurisdictions are, and, under our
Memorandum, if this is an issue that our office should handle,
and it gets to Advocacy they'll send it to us. An issue that we
believe Advocacy can handle, we'll send it to them. And we
don't really want to have small business decide which side is
good. They have enough to worry about.
Chairman Manzullo. Yeah.
Mr. Barrera. So they send them to us, or we would welcome
submissions from the Congress and from you, and we'll figure it
out for you.
Mr. Sullivan. The Chairman did ask for a specific example,
and there's a great one. During one of Mike's travels--and he's
on the road a good deal; that's part of his job--one of the
small business owners approached Mike with a regulatory comment
on an EPA rule having to do with small oil refineries. And
Mike, just as is memorialized in the MOU, passed that on
directly to our office so that we were able to incorporate that
into an Advocacy comment in the regulatory process.
So it is working well, and it's going to work even better
now that we've formalized our relationship in an MOU.
Chairman Manzullo. We have been receiving numerous
inquiries from across the country from small businessmen and
women who are being cut off by major banks for financing even
when they're not in default.
I got involved in a case involving one of my constituents,
and the bank got creative and went to the SBA and got a $1.3
million 7(a) loan, which would save the day. But, had I not
gotten involved--it was just a very general letter. I mean,
they sent the letter of the bank saying, you know, ``These
people are going to default.''
They provided an avenue of payment, and ``I realize there
are regulations, et cetera, but can you help them out?'' And,
all of a sudden, the bank stopped what could have been a
foreclosure proceeding destroying a small business, and they
got creative with a 7(a) loan.
And one of the things that you might just want to think
about--and we're not asking for a comment--is that this has
become an epidemic in the small business community, as you
know. And that would be--I don't know if the word is
``advertise,'' but let these banks know that are really coming
down on small businesses the availability of the 504 and the
7(a) programs. It could ultimately or already be considered the
loan of last resort. At least the banks should be more than
willing to turn to the SBA and say, ``Hey, we've got this
situation.''
Have you received many complaints like this, the Ombudsman
or the Office of Advocacy, from small businesspeople?
Mr. Barrera. I have not heard complaints like that.
Chairman Manzullo. Okay.
Mr. Barrera. But I will say this, the Administrator has
been very helpful in this when I have my hearings and
roundtables, I am also now starting to have small business
roundtables just in general. And we have heard small businesses
tell banks--we invite banks to these hearings--``We need more
help with this.'' And it's generally launched like that, but
nothing about the specifics----
Chairman Manzullo. Did this Administrator bring on board,
about two or four months ago, somebody from the private sector
with a background in creative financing?
Mr. Barrera. It's Ron Bew, I believe.
Chairman Manzullo. What is his name?
Mr. Barrera. I think Ron Bew is now the head of Capital
Access.
Chairman Manzullo. That's correct. But I'm just raising
this because we're getting more and more of these calls.
Ms. Velazquez, have you been receiving calls like that also
on the small businesspeople who have limited access to capital
or banks that are----
Ms. Velazquez. Every day. But one of the areas where we've
been getting a lot of calls is on contract bundling.
Chairman Manzullo. Okay.
Ms. Velazquez. Mr. Sullivan, I just would like to take this
opportunity to ask you if the Office of Advocacy currently
keeps a contract bundling database.
Mr. Sullivan. We do not currently maintain the contract
bundling databases, no.
Ms. Velazquez. Are you planning to do that? The President,
in his speech, made reference to contract bundling as a very
important issue. So----
Mr. Sullivan. The Congresswoman is correct. In addition to
a number of tremendously exciting proposals that all help small
business, contract bundling is one of them.
The Office of Advocacy already has a significant role, as
this committee knows, in contract bundling. And that role is
pretty darn effective. And I would point most recently----
Ms. Velazquez. I'm sorry. That role is pretty what?
Mr. Sullivan. Pretty darn effective.
Ms. Velazquez. Effective?
Mr. Sullivan. Effective, yes. Now does that mean that
contract bundling is no longer a problem? Absolutely not. Does
it mean that the Office of Advocacy, using its current
authority, effectively weighs in, for instance, against the
Missile Defense Agency effort to lessen its SBIR commitment.
Writing letters that we not only get to the heads of
departments, but make sure that your staff and this committee
knows well, is a way to convince folks about the necessity of
looking closely at how small businesses are affected in
contract bundling.
Ms. Velazquez. Under the draft house proposal, certain
parts of contract bundling functions will be transferred to the
Office of Advocacy.
Mr. Sullivan. It is my understanding that the draft before
us doesn't. And, in my written statement, I do share some
reluctance on taking over SBA programmatic functions.
One solution legislatively is to put them in the Office of
Advocacy. That is a compliment, in that it does show that we're
doing a good job. In programs that may be struggling, some
folks view that putting them into our offices will make sure
that they, in turn, will be done well.
But in each of those areas, whether it be the State of
Small Business Report, in which we do have a role, or contract
bundling or others--we actually do have a current role, a good
role--maybe I overstated it by saying ``a pretty darn effective
role''--but a good, important role. I'm not sure whether taking
on a programmatic function, a core responsibility of each of
these programs enhances our office's role or, quite frankly,
take it back further.
Ms. Velazquez. Mr. Barrera, I do have some questions for
you, but I will submit them so that you can answer to me.
Mr. Barrera. Okay.
Ms. Velazquez. And I just want to say that, since you have
been in this office, you have been doing a great job, and I
look forward to talking and working with you.
Mr. Barrera. In fact, we are coming to New York, I believe,
in May, Congresswoman, and we're coming to Illinois.
Chairman Manzullo. You've already been there. We welcome
you again.
Again, on that note, you're all doing a great job. I don't
know how many times Tom has stopped by, and Michael has stopped
by. And, Jere, we've known each other for what, nine, 10 years
now?
Mr. Glover. Yes, sir.
Chairman Manzullo. I have a tremendous sense of working
with this. In fact, back in 1993 I was a freshman. And I had
the horrible task of leading the legislation to change the
Clean Air Act with respect to something called the Employee
Commute Option. This was forced carpooling on small businesses.
And that was a--but you want to get your own party on
that--and started fighting big time on the Employee Commute
Option. And, at that point, I realized--I said, ``Hey, you
know, this guy is really independent. I wonder if he's
Republican or a Democrat.'' And it made no difference to you,
Jere. You were in there just fighting for the small
businessperson. And party label meant nothing to you, nor to
you, Michael, or to you, Tom.
And I've come to admire that Office of Advocacy. In fact, I
am the one that wants you to be able to start a class action
lawsuit on behalf of small businesspeople. But I don't think
anybody's going to let me go that far on it. But that's how
much strength I want to give to make that Advocacy Office a
world class law firm with lots of resources and the ability to
start actions and intervene, as opposed to the limited
jurisdiction now. But I will take that bill up another day.
And, again, we thank you for coming here. We look forward
to working with you.
This committee meeting is adjourned.
[Whereupon, at 11:45 a.m., the Committee was adjourned.]
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