The regulatory cliff awaits
As President Barack Obama’s first term ends and second begins, it is an opportune time to reflect on the cost and sheer volume of new red tape his administration has created; analyze its impact on small businesses, and prepare for what’s next.
The Obama administration has pursued an active regulatory agenda. The overall regulatory burden is now $1.8 trillion annually, according to the Competitive Enterprise Institute, and this year alone new rules have added $215.4 billion in compliance costs. Small businesses are understandably concerned that the second Obama term will only add to this already heavy regulatory burden.
There has already been a wave of “economically significant” regulations ‑ those with an annual impact of $100 million or more ‑ that outpaced both the Clinton and Bush administrations. That pace slowed leading into the 2012 elections, but a second wave has been building.
We don’t know its exact size because the Obama administration has not published the required unified regulatory agenda in 2012, which identifies new rules that agencies plan to issue in the short- or long-term.
As Washington debates a fiscal cliff on spending and taxes, we should not forget the regulatory avalanche that awaits businesses in the New Year. Roughly 4,100 new regulations are in the pipeline, according to the government’s website. Not all these regulations will affect small businesses. Many will, however ‑ and the compliance costs for small firms will exceed that of their large competitors by some 36 percent.
There are now more than 400 regulations in various stages of development and implementation that will affect small businesses. For example, the Occupational Safety and Health Administration’s top priority is an Injury and Illness Prevention Program (I2P2) regulation that will require employers to develop and implement plans that “find and fix” all recognized workplace hazards, including ergonomics hazards, and meet criteria established by OSHA.
Workplace safety is important. But small employers fear that, under this regulation, OSHA could cite them twice for the same hazard — once for the hazard itself and once for having an I2P2 plan that failed to identify and eliminate it. Compliance promises to be extremely costly and a paperwork nightmare.
The Obama administration is also proposing to significantly expand the reach of the Clean Water Act, allowing the Environmental Protection Agency authority over almost any body of water: a farm pond, stream or even storm water runoff. This could have a serious impact on family farmers and small businesses. Since the EPA used guidance to revise its regulations instead of engaging in the rulemaking process, it is not required to analyze the impact and cost to small businesses. So it hasn’t.
Agencies are also proposing a number of regulations to implement the Dodd-Frank financial reform bill. The Consumer Financial Protection Bureau is finalizing a complex new regulation to integrate the mortgage disclosure forms provided to borrowers purchasing a home. Its goal is to protect consumers. But small businesses in the mortgage lending industry worry that some provisions may have unintended consequences that increase the costs and complexity of transactions ‑ and leave consumers no better off.
Because the compliance costs associated with regulations effectively function as another tax that weighs on our fragile economy, regulators must conduct robust analysis of regulations, as required under the Administrative Procedure Act and the Regulatory Flexibility Act (RFA). This act requires federal agencies to assess the impact of their regulatory proposals on small business.
If there is a significant impact on a substantial number of small businesses, agencies must consider alternatives to reduce the effect on them.
This has been on the books since 1980. It does not seek preferential treatment for small businesses. Rather, the law requires agencies to know before they regulate – to understand, access and analyze the effect of proposed and final regulations on small businesses and consider less burdensome alternatives. Unfortunately, agencies regularly give the law short shrift and don’t engage in the analysis required that could lessen the regulatory burden and also meet regulatory goals.
The administration should take some of these regulations back to the drawing board. We need thorough congressional oversight of many of these aggressive rules to protect small businesses and the jobs they create.
During a lethargic economic recovery, Washington must come together to create an environment for strong private-sector growth. In addition to keeping taxes low, we must ensure that small businesses aren’t pushed off the regulatory cliff.
PHOTO: Environmental Protection Agency Director Lisa Jackson announces a new Obama administration position on greenhouse gasses at the EPA in Washington, December 7, 2009. REUTERS/Jonathan Ernst