TESTIMONY OF

                        JIM HENDERSON

                    REGION VIII ADVOCATE

                     OFFICE OF ADVOCACY

             U.S. SMALL BUSINESS ADMINISTRATION

                              

                         BEFORE THE

                              

        HOUSE INDUSTRY, BUSINESS AND LABOR COMMITTEE

               NORTH DAKOTA STATE LEGISLATURE

                      JANUARY 14, 2003



     Chairman Keiser, members of the House Industry,

Business and Labor Committee, I am pleased to be here today

to testify on behalf of proposed legislation to create a

regulatory flexibility act for North Dakota.  I will briefly

summarize my thoughts on this legislation and ask that my

full statement be made a part of the hearing record.

     My name is Jim Henderson and I am the Region VIII

Advocate for the Office of Advocacy in the U.S. Small

Business Administration.  Region VIII includes North Dakota,

South Dakota, Montana, Wyoming, Utah, and Colorado.  I am

based in Denver.  The Office of Advocacy was established by

federal statute in 1976 (15 USCS 634).  While much of the

focal point of that legislation relates to the authority of

the Office of Advocacy to assist small businesses by

improving the regulatory practices of the Federal

government, the legislated primary functions of the Office

are broad.  In fact, from its very beginning Advocacy

recognized that to carry out its role of assisting small

businesses throughout the U.S., some examination of state

policies that could help or harm small businesses had to be

done.

     In 1978, barely after the Office of Advocacy was up and

running, it sponsored the first of many national conferences

bringing together state small business leaders and state

policy makers to share successful examples of good policy

for small business that already existed within the states.

In fact, in the two most recent conferences in 1998 and

1999, North Dakota received recognition for Fargo-Cass

County Economic Development

Corporation and for the Center for Innovation in Grand

Forks.

     The central mission of the Office of Advocacy remains

reducing the excessive regulatory burden that falls on small

business.  An Advocacy research study, The Impact of

Regulatory Costs on Small Business, establishes that small

businesses with less than 20 employees spend nearly $7,000

each year per employee just to comply with federal

regulations and mandates.  That's 60 percent more than large

firms.  State and local regulatory burdens simply add to

that cost.

     The key to Advocacy's effectiveness in fighting federal

regulations has been the Regulatory Flexibility Act (RFA)

passed by Congress in 1980 and strengthened in 1996.  The

premise behind RFA is not that there should be no

regulations at all but rather that regulatory agencies

should be acutely aware of the fact that burdens

disproportionately fall on small entities.  Under this law

federal agencies are required to consider the impact of

proposed regulations on small entities and to discuss

alternative ways to achieve their regulatory objective

without imposing undue burdens.

     Under RFA, Advocacy has shown time and again that

regulations can be reduced and the economy improved without

sacrificing such important goals as environmental quality,

travel safety, workplace safety, and family financial

security.  By working with federal agencies to implement the

RFA, the Office of Advocacy in 2002 saved small businesses

over $21 billion in foregone regulatory costs that can now

be used to create jobs, buy equipment and expand access to

health care for millions of Americans.

     Advocacy has always recognized that states can and do

impose significant regulatory burdens for small business as

well.  To help address this, Advocacy has drafted model

legislation for consideration by states.  The model bill

mirrors the RFA.



 Its intent is to foster a climate for entrepreneurial

success in the states, so that small businesses will

continue to create jobs, produce innovative new products and

services, bring more Americans into the economic mainstream,

and broaden the tax base.

     This is not a new idea.  Many states already have

similar legislation and it has been one of the topics

discussed at many of the Advocacy state and local government

conferences over the years.  Unfortunately, North Dakota is

not one of those states.  We applaud this effort to offer

this important new tool to help small businesses deal with

the problems of burdensome state regulation.

     We believe that there are five critical elements that

are contained in the model bill.  Successful state-level

regulatory flexibility laws should address: (1) a small

business definition that includes most small businesses, (2)

a requirement that state agencies perform an economic impact

analysis before they regulate, (3) a requirement that state

agencies consider less burdensome alternatives that still

meet regulatory goals, (4) judicial review so that the law

has teeth, and (5) a provision that forces state government

to periodically review all its regulations.  Likewise, there

should be few, if any exemptions from the law.  Even the

best regulatory flexibility initiative has little value if

the majority of state agencies are exempted from it.

     We are pleased that many states around the country are

recognizing the need for state regulatory flexibility laws

if they do not have them or strengthening them if they do.

Oklahoma and Hawaii have just recently enacted this kind of

legislation and the Commonwealth of Puerto Rico has had

remarkable success with a small business



ombudsman's office that has regulatory flexibility

authority.  These examples do show that successful

legislation is the important first step in bringing needed

regulatory relief to small entities.

     The process doesn't end there, however.  There remains

a need for committed executive leadership, for trained and

educated state agencies so that they will know what their

responsibilities are and how to accomplish them, and for

continued involvement of the small business community to

provide feedback on what still needs to be done.

     There is no question that small business is the

backbone of the economy here in North Dakota just as it is

throughout the country.  Sometimes, because small business

is small, it is easy to overlook their aggregate importance

to the economy-and it is very easy to overlook the negative

impact of regulatory activities on them.  The intent of this

legislation is to compel regulatory agencies to consider

small businesses in the process by which regulations are

developed and particularly consider the disproportionate

impact that those regulations might have.

     This legislation is needed.  The Office of Advocacy

commends you for bringing this forward and we urge its

support.

     Thank you for this opportunity to appear and I would be

happy to attempt to answer any questions that you might

have.









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