I would like to thank the Chairman for giving me the opportunity to testify on behalf of the National Federation of Independent Business and its 600,000 members regarding one of the most frustrating and aggravating problems facing small businesses today -- government mandates -- and the paperwork, red tape and regulations associated with them.

While I certainly enjoy being an independent business owner, a negative to my business life is having to put up with governmental demands on our time and energies. When I started, I thought I was well aware of the many hurdles of owning my own business. However, I quickly learned that the biggest hurdle of all was shouldering the burden of government regulation. That’s why I appear before you today.

As the owner of a small business, I am the first one to arrive in the morning and the last one to leave late in the evening. I am responsible for hiring my employees and I work side by side with them each day. I order and maintain a full supply of goods for my customers, stick to a tight budget and sign paychecks at the end of every week. In addition to the many daily tasks I perform, I’m also responsible for ensuring my company’s compliance with numerous government mandates and regulations.

For example, as I just stated I sign paychecks at the end of every week. I wish it were as easy as just signing your name but, unfortunately it is not. We have Department of Labor reports, unemployment insurance reports, W2, W3, W4, 1099, I-9, 940 and 941 reports, and section 125 deductions. The 401K plan alone has record keeping, discrimination testing, top heavy rules, outside administrative costs and several other forms. I think you are getting the picture. All this and more just to make sure my employees receive their paychecks on time.

The government requirements that a small business must comply with range from retirement plans and OSHA requirements to ever changing environmental regulations. While these regulations may have originated with good intentions, the costs of implementation for a small business is truly overwhelming. Federal mandates and regulations are a constant hurdle for my business.

One such example is our country’s environmental policy. While I believe in a clean environment, I must say that environmental regulations are constantly changing and are often extremely costly. I buy environmental handbooks that I use like I did my high school Chemistry book, looking for substitute chemicals and the correct way to change my chemical processing. For example, pursuant to the Montreal Protocol, the use of hydrochloroflorocarbons (HCFC) was phased out of use. My company, therefore, had to change a soldering process from oil and HCFC to an aqueous process which can be disposed into a sewer system. We eliminated the waste disposal problems, but now we have to have water quality testing done to ensure compatibility. Quite often, consultants or local government assistance is needed to keep abreast to these changing regulations.

Tristate spends endless hours complying with governmental mandates at the federal, state and local level. Whether it is on excessive paperwork or simply understanding the ambiguous regulations, I spend on average four to five hours a week on government compliance. Although this may not seem excessive to you, think about 4 hours a week fifty-two times a year -- that’s an entire month every year spent on government compliance alone. To a small business owner time is a very precious commodity. Resources and time taken away from production equal less money and less jobs.

Furthermore, I devote much time (under the threat of government penalties) to interpreting the seemingly antiquated tax rules. Lucky for me, I maintain a very efficient, but very costly computer system to comply with all the different tax processing. While we benefit from governmental activities such as road-building and fire protection and the like, I believe a disproportionate share of the burden of “mandates” falls upon small business owners like myself.

Government mandates not only take away valuable time and resources from my small business, but ironically some government regulations go so far as to provide disincentives for my company to grow. I find it hard to understand how the lawmakers in a country who pride itself on being the land of opportunity and free enterprise pass laws that are anti-growth and anti-business. These government mandates seem to defy common sense. For example, if the Family and Medical Leave Act were to apply to my business, we would be weighed down by an unworkable administrative and financial burden. Legislative proposals in the past have proposed to lower the small business exemption to 25 employees. With the threat of legislation that would expand the FMLA, I feel as a protective measure I should probably hold off hiring any new employees.

My business already provides widespread family and medical leave benefits to my employees voluntarily. What we object to is another one-size-fits all government mandate that doesn’t take into account the unique benefit needs of my individual employees. Many small businesses currently covered by the law have been forced to set up separate accounting systems just to account for the FMLA time taken by each employee. FMLA permits leave-takers to take leave in very small increments, even as small as 6 minutes. Although most of the leave taken under FMLA is legitimate, the burden to keep track of it can be enormous for a small business. Of course, the possibility of hiring outside legal counsel for personnel matters related to the FMLA adds to this burden as well. The costs associated with complying with laws like the FMLA would stifle the ability of my small business to grow and diminish my ability to create more jobs in the future.

Recognizing the burden of excessive regulation, Congress has taken steps in the last few years to address concerns raised by the American people. Notable achievements include the Small Business Regulatory Enforcement Fairness Act (SBREFA) and the Paperwork Reduction Act. Both laws have the explicit purpose of easing the regressive impact of “one-size-fits-all” regulations on small business.

Another important reform was passage of the Unfunded Mandates Reform Act of 1995, which forces Congress to take into account the cost of programs and other requirements it imposes on state and local governments. I want to take a moment to thank the members of this Committee who worked so hard on passing this landmark legislation. The Unfunded Mandates Reform Act is an important first step. More, however, must be done. Congress should be required to consider the impact of mandates on those least able to shoulder the burden, the private sector. Like state and local governments, businesses must balance their books and consider the impact of their actions on their own bottom lines.

Consumers, employees and small businesses bear most of the costs of unfunded mandates. These mandates represent a hidden tax on everyone. For the consumer, unfunded mandates result in higher prices for services and goods by driving up the cost of labor. For employees, unfunded mandates often depress wages. Studies indicated that 88 percent of the cost of private-sector mandates are passed on to the employee in the form of lower wages. Worse, in many cases, unfunded mandates make it impossible for employers to maintain their full work force.

The burden created by federal mandates falls predominantly on the very people we rely upon to create jobs -- small business owners. In the past, Congress has responded to the disproportionate burden on small business by exempting different size companies from different regulatory statutes. Mandates typically apply only to businesses with at least a certain number of employees. As a result, small businesses have a powerful incentive not to hire enough employees to reach the mandate threshold. I believe that unfunded mandates not only result in job loss, but also have a profound effect on job creation.

To obtain federal laws that do not lose their intent by hurting rather than helping the American people, Congress should ensure that no new requirements are put on the books unless the benefits clearly outweigh the costs. In my experience, Congress, with good intentions in mind, has failed to deliberate carefully before deciding on whether to impose unfunded mandates on the private sector. Congress sometimes has difficulty looking beyond the benefits of legislated mandates to consider the burden that these mandates place on the very groups they are trying to help.

The bill sponsored by Representative Condit and Representative Portman, the Mandates Information Act, works to address the problem of federal mandates on small businesses by applying the reforms put in place by the Unfunded Mandates Reform Act to the private sector. This legislation will provide Congress with more complete information about the effect of proposed legislation on consumers, employees and small businesses. It will ensure that Congress fully considers this information before reaching a judgement about whether or not to impose a new mandate. The result will be better laws that impose fewer costs on the American people.

Conclusion