SULLIVAN: Peril for small businesses

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By Thomas M. Sullivan

With seven months left in the Bush Administration, attention naturally turns to the upcoming presidential race and speculation about what will happen after the election in November.

Unfortunately, for small business, this period is also when federal agencies issue "midnight regulations" in a rush to finalize regulations by officials who will leave when the president's term ends.

A recent paper from the Mercatus Center at George Mason University, "Midnight Regulations: An Update," makes it clear that in the "midnight period" - the three months between Election Day and inauguration day - regulatory output substantially increases.

The authors document that, going back to 1948, when the White House switches parties, the number of pages in the Federal Register (where rules are published) increases on average by 17 percent in the three months following the election compared to non-election years.

Since federal regulations have a disproportionate impact on small businesses - the smallest of which annually pay 45 percent more per employee to comply with regulations than their biggest counterparts - this is obviously bad news for them and their employees.

More importantly, as Office of Advocacy research shows, American small business creates 60 to 80 percent of our net new jobs. Clearly, this is not the time to ramp up the growth in federal regulations that impose a greater burden on small business.

That is why I am pleased that the White House has sent a strong and proactive message that this administration will avoid the last-minute proliferation of regulations that can happen when the presidency changes.

On May 9, White House Chief of Staff Joshua Bolten issued a memorandum to the heads of federal executive departments and agencies, noting: "Over the last seven years, our Administration has worked to achieve through regulation important public benefits while minimizing regulatory costs on the American people." The memo continues: "We must recognize that the burden imposed by new regulations is cumulative and has a significant effect on all Americans." The memo charges agencies to continue an open and transparent process of maximizing regulatory benefits while minimizing costs. It requires that all regulations that are meant to be finalized during the current administration be proposed no later than June 1, 2008; final regulations are to be issued no later than November 1, 2008.

The memo requires agencies to examine any rules they intend to finalize before the end of the administration to make sure they are in compliance, and gives the Office of Information and Regulatory Affairs inside the Office of Management and Budget responsibility for overseeing that compliance.

Nothing in the memorandum is intended to impede an agency's ability to carry out existing law. Moreover, in extraordinary circumstances, agencies could propose and finalize rules outside of the deadlines.

In its recognition of the cumulative burden of regulation, the directive is in tune with the Regulatory Flexibility Act's (RFA) Section 610 "lookback" provision. It requires agencies to review regulations already in effect to see whether they are obsolete or duplicative - with an eye to reducing the cumulative burden on small entities.

Congress has charged the Office of Advocacy with the responsibility of monitoring agency compliance with the RFA, and independently bringing the voice of small business into the regulatory process.

As part of our effort to fulfill that charge, at the end of February, we announced our 2008 Top 10 Rules Ready for Review and Reform. Drawn from more than 80 regulations nominated by the small business community, the Top 10 is the annual culmination of our Regulatory Review and Reform (r3) Initiative. This initiative gives small businesses one tool to address the growing regulatory burden, while encouraging agencies to achieve their regulatory goals.

In several months, this administration will close another chapter in American history. What will not end is the Office of Advocacy's strong commitment to ensuring that small businesses have an opportunity, through the RFA and the r3 initiative, to be a part of the conversation about newly proposed regulations as well as significant regulatory mandates already on the books.

Thomas M. Sullivan is the Chief Counsel for Advocacy, Office of Advocacy, U.S. Small Business Administration.