Borrowing from CPR Playbook, Small Business Administration Brings New 'Win-Win' Approach to Regulations

James Goodwin

July 5, 2018

When it comes to regulatory protections for health, safety, and the environment, the Small Business Administration (SBA) and its Office of Advocacy don't always put the public interest first. Falling in line with industry and small-government conservatives, it often opposes public protections, particularly where small businesses are concerned. So I was delighted to see a faint ray of sensibility peek through the SBA's usual anti-safeguard cloud last week when it issued a press release announcing its collaboration with a professional organization of accountants to help promote regulatory compliance assistance for small businesses. 

The SBA is a government agency that helps support the formation and growth of small businesses in the United States, relying on various programs such as subsidized loans and government contracting preferences. The Office of Advocacy is a semi-autonomous bureau located within SBA that is charged with advocating for the interests of small businesses in the regulatory process. As CPR Member Scholars and staff have meticulously documented over the last several years, though, the approach that the SBA and its Office of Advocacy take on regulatory issues is flawed in theory and woeful in practice. 

To be sure, small businesses are disproportionately impacted by regulations, given their inability to spread compliance costs across their business activities, relative to the larger firms they compete against. To deal with this issue, there is a right way, a wrong way, and the "wrongest way." Unfortunately, the SBA and its Office of Advocacy have consistently chosen the "wrongest way." 

In particular, their focus has been to weaken all safeguards across the board, shifting the costs of pollution, dangerous products, and unsafe workplaces away from the enterprises that create those problems and onto the public. Worse still, because the SBA has so frequently taken its cues from big industry instead of small business, the agency's efforts haven't generally helped small businesses all that much, and they haven't improved small businesses' competitive position relative to the big firms in their industry. After all, if these large businesses are also let off the hook from pollution-prevention or safe-workplace requirements, they too are spared whatever compliance costs may exist. Furthermore, many small businesses will choose to take the high road, perhaps because they deal with their customers and employees directly rather than from the far reaches of the C suite and don't wish to cause them harm. So they often go beyond compliance, incurring additional costs. This places them at a greater relative disadvantage than if the regulations hadn't been weakened at all. 

The slightly better, but still wrong, way would be to provide tailored regulatory relief that applies to just the small businesses in a given industry. But, again this involves shifting the costs of pollution and other hazards from businesses to the public, an idea that most small businesses would find repugnant. In fact, most are likely to respond by going beyond compliance, as noted above. As a result, even tailored relief might not have the desired effect of improving small businesses competitiveness. 

The right way is the kind of win-win approach animating the SBA's current partnership with the American Institute of Certified Public Accountants (AICPA). The idea behind the collaboration is that SBA sort of deputizes a group that is already interfacing with small businesses – namely, accountants – to help connect them to the SBA's regulatory compliance resources, including its Office of the National Ombudsman (ONO).  ONO was created by the 1996 Small Business Regulatory Enforcement Fairness Act (SBREFA) for the purpose of helping small businesses understand their regulatory obligations and come into compliance with those obligations as cost-effectively as possible. 

Congress has never come close to adequately funding ONO, and it could certainly be more effective if its authorities were expanded. As a result, ONO is among the greatest under-utilized resources in the entire federal government. To begin redressing this problem, Sens. Jeanne Shaheen and Jon Tester introduced a bill last year, the Small Business Regulatory Relief Act (S. 1146), which would give ONO more resources to promote awareness of its services among small businesses and to strengthen its connections to the agencies that issue regulations impacting small businesses. 

The SBA's collaboration with AICPA is a low-cost, no-brainer approach, as well. As noted, CPAs are already meeting with small businesses regularly and often on matters that relate to complying with regulations. What's more, as the press release notes, CPAs are highly trusted by small business owners. All of these attributes make them an ideal messenger for connecting small business owners with ONO. 

The upshot of strengthening ONO is that it's all about helping small businesses, and small businesses alone, comply with protective regulations. This avoids the cost-shifting problem, because no protective standards need to compromised or watered down. And it addresses the competitiveness problem: With the assistance that ONO can provide, small businesses are given a compliance boost that improves their competitive position relative to the larger firms in their industry. 

In a 2013 report published by CPR, Distorting the Interests of Small Business: How the Small Business Administration Office of Advocacy's Politicization of Small Business Concerns Undermines Public Health and Safety, my coauthor, Sidney Shapiro, and I strongly criticized the SBA and the Office of Advocacy for using "wrongest way" approaches and outlined several win-win solutions they could pursue instead. For example, we recommended that the Office of Advocacy "help establish a cooperative of small businesses within a given location, which could share the cost of compliance assistance services, such as those provided by accountants or engineering consultants." 

This recommendation closely tracks with the SBA's new collaboration in important ways. While the SBA currently lacks the legal authority to fully implement something like our recommendation, you can imagine how it would strengthen the SBA's new collaboration with AICPA if Congress were to strengthen and empower ONO. Small business accountants associated with AICPA would receive federally funded contracts to deliver small business compliance assistance and work with ONO to fulfill its compliance assistance mission. That's the kind of public-private partnership conservatives profess to love. And what's more, it helps two categories of small businesses for the price of one. 

It's unfortunate that that the press release for this win-win solution is still dressed in the "wrongest way" vocabulary. For example, note how it talks about "regulatory burdens" and describes them as "undue." And even ONO characterizes its role as addressing "excessive or unfair federal regulatory enforcement actions." 

Going forward, I hope to see the SBA and its Office of Advocacy pursue more solutions like this one – and clean up their pejorative language against commonsense safeguards along the way.

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