A Break in the Clouds: The New Red Tape Reduction Act

Despite all the talk about gridlock in Washington, Congress quietly passed in 1996 a bill that is likely to be a landmark in the history of regulatory reform. Shepherded by Kit Bond, chairman of the Senate Small Business Committee, the Small Business Regulatory Enforcement Fairness Act (SBREFA to those who speak federalese) has the potential to generate benefits for all businesses, large and small, and thus ultimately for the American consumer.

According to Senator Bond, the centerpiece of the new law is a provision allowing the courts to review federal agency compliance with a statute already on the books that requires federal agencies to analyze the impact of proposed regulations on small business and to consider ways of reducing that impact. Without that enforcement provision, this well-meaning mandate has been a dead letter. The regulators have been ignoring Congress' wishes in this regard because there was no follow-up. Now small businesses can take their regulators to court. The very threat of such action should generate greater concern in the agencies about the impact of their actions on American business.

Because SBREFA is a mouthful, its supporters often refer to it as the Red Tape Reduction Act. For example, one section of the new law requires federal agencies to publish easily understood guides to assist small business in complying with regulations and to provide them with informed, nonbinding advice on how to comply with government regulations.

Another section of the Red Tape Reduction Act establishes a Small Business and Agriculture Regulatory Enforcement Ombudsman at the U.S. Small Business Administration. Also, ten Regional Small Business Regulatory Fairness Boards, made up of small business owners, are created to gather information on a regional basis to assess the enforcement activities of federal regulatory agencies. The idea, of course, is to bridge the bureaucratic moat that now protects the regulators from invasions of reality.

In the long run, one of the most important parts of SBREFA may be the new power given to Congress to review--and reject--the more burdensome regulations promulgated by the regulatory agencies and departments. For rules designated as "major" (those with an annual economic impact of $100 million or more), a new 60-day window of opportunity is given to Congress to consider whether or not that regulation should be allowed to take effect. Any congressional veto of a final regulation is, in turn, subject to being vetoed by the president. However, in such event, Congress gets another bite out of the apple: It can vote to override the president's veto and thus prevent the regulation from taking effect.

So far, some regulatory agencies have been reluctant to comply with all provisions of the Red Tape Reduction Act. For example, the Environmental Protection Agency is contending that its multi-billion dollar rule to tighten ozone and particulate standards ("smog" and "soot," in plain English) does not need to comply with SBREFA. Senator Bond and his colleagues on both sides of the political aisle are trying valiantly to get EPA to respond to the spirit as well as the letter of the law. In the long run, how seriously all the regulatory agencies take the congressional review and other provisions of the Red Tape Reduction Act will depend on the extent of public support.

A direct way of generating that support is for Congress to hold public hearings on each of the "major" pending regulations. In a legislative version of "man bites dog," the congressional committee should use as the centerpiece of those hearings, not the customary obfuscation by the agencies defending their new regulations, but the General Accounting Office (GAO), to which the agencies are required by SBREFA to provide their supporting analyses. Let each hearing begin with a hard-nosed representative of GAO analyzing objectively the pros and cons of the pending extension of regulatory power. Then the agency could respond. The resultant fireworks would enlighten the public . . . and encourage the agencies to stop, look, and listen before they quickly promulgate yet another regulation.

Murray Weidenbaum is chairman of the Center for the Study of American Business.