Federal agencies are circumventing the intent and the letter of a law to make the regulatory process more cost effective and less burdensome for small businesses, the National Association of Home Builders (NAHB) told Congress recently. As a result, the regulatory process continues to unnecessarily increase compliance costs and is acting as a drag on the housing and economic recovery.

Testifying on behalf of NAHB before the House Small Business Committee's Subcommittee on Investigations, Oversight and Regulations, Kansas home builder Carl Harris said compliance with the Regulatory Flexibility Act, which requires federal agencies to review regulations for their impact on small businesses and consider less burdensome alternatives, continues to fall far short of the act's objective.

"Federal agencies often view compliance as largely a procedural function during the federal rulemaking process and not - as Congress intended - an opportunity to reduce the burden of regulations on small businesses," said Harris, who has participated in the regulatory process. "When federal agencies are unprepared to provide small business review panelists with the information and data necessary to evaluate the costs and compliance obligations, the process breaks down."

Harris then cited several examples where a smarter and more sensible regulatory process would benefit the housing industry, home builders and small businesses:

· The 2008 Occupational Safety and Health Administration Cranes and Derricks Construction Rule:

The rule is intended to protect workers from hazards associated with hoisting equipment in construction. The Regulatory Flexibility Act required OSHA to convene a Small Business Advocacy Review Panel to evaluate the rule's potential impact on small businesses. However, OSHA did not establish a panel until after the rulemaking process was completed.

Harris, who participated on the review panel, explained to OSHA officials that the rule does not take into account the differences between crane applications on residential construction sites and large commercial construction sites. "I personally put forward an effective, feasible alternative that would save lives and reduce injuries in a more cost-effective way by developing regulations for crane operator certification which are appropriate to the equipment that is being used and the risks presented by that equipment," he said. However, since small businesses were not brought into the process until after the rule was finalized, Harris said his participation "seemed little more than a procedural hurdle with little interest from OSHA to make changes based on the feedback received."

· Stormwater discharges:

In 2010, the Environmental Protection Agency issued changes to its policies covering stormwater discharges from developed sites that had major ramifications for home builders. Once again, EPA failed to provide sufficient information about the proposed changes to a small business review panel on which Harris also served. "Unfortunately, the pattern is often the same: Agencies either fail to comply with the Regulatory Flexibility Act by ignoring the statutory obligation to convene a small entity review panel or convene a panel but fail to provide the panelists sufficient information concerning the proposed rule to allow them to evaluate regulatory options or provide alternatives," he said.

· The Environmental Protection Agency's Lead: Renovation, Repair and Painting (RRP) rule:

EPA failed to convene a small business review panel when it first moved to amend the rule in 2008. The final rule, which went into effect in 2010, constrained small businesses in the home building and remodeling industry. It requires renovation work that disturbs more than six square feet in a home built before 1978 to follow new lead-safe work practices supervised by an EPA-certified renovator and performed by an EPA-certified renovation firm.

This has resulted in excessive compliance costs that ultimately get passed on to consumers. An unintended consequence of this rule is that it encourages home owners to hire uncertified contractors to do the work, or worse, do the work themselves and actually increase the likelihood of disturbing lead-based paint. Poor development and implementation by EPA has jeopardized safety, needlessly raised costs for remodelers and consumers, and hindered both job growth and energy efficiency upgrades.

Many of the deficiencies in EPA's RRP rule could have been addressed if the agency had complied with both the letter and the spirit of the Regulatory Flexibility Act, said Harris.

When establishing the Regulatory Flexibility Act in 1980, Congress said the purpose of the law was to "fit regulatory and informational requirements to the scale of the businesses, organizations, and governmental jurisdictions subject to regulations. To achieve this, principal agencies are required to solicit and consider flexible regulatory proposals and to explain the rationale for their actions to assure that such proposals are given serious consideration."

"Unfortunately, all too often federal agencies view compliance with the Regulatory Flexibility Act as either a technicality of the federal rulemaking process or, worse yet, as unnecessary," Harris said. "I urge Congress to seek out ways to improve agency compliance with this law."