January 10, 2011

The Honorable Darrellissa
Committee on Oversight and Government Reform
U.S. House of Representatives
Washington, DC 20515
Dear Chairman lssa:
On behalf of the National Lumber and Building Material Dealers Association (NLBMDA), I
would like to thank you for the opportunity to identify existing or proposed regulations
that threaten to negatively Impact job growth in our sector.
NLBMDA is the national association representing lumber and building material dealers
with over 6,000 members operating single or multiple lumber yards and component
parts serving homebuilders, subcontractors, general contractors, and consumers in the
new construction, repair and remodeiing of residential and light commercial structures.
NLBMDA supports programs and regimes that create safe and healthy workplace and
living environments; however, we also beiieve that effective and informed pubiic poiicy
must include an appropriate level of Congressional oversight. We beiieve costs
associated with regulations must be measured against the incremental benefits
expected and that regulatory agencies should be required demonstrate proposals are
based on data and measurable outcomes, consistent with long standing poiicy
articulated in Executive Order 12866, "Regulatory Planning and Review"-
Federal agencies should promulgate only such regulations as are required by
law, are necessary to interpret the law, or are made necessary by compelling
public need, such as material failures of private markets to protect or improve
the health and safety of the pubiic, the environment, or the well-being of the
American people. In deciding whether and how to regulate, agencies should
assess all costs and benefits of available regulatory alternatives, including the
alternative of not regulating. Costs and benefits shall be understood to include
both quantifiable measures (to the fullest extent that these can be usefully
estimated) and qualitative measures of costs and benefits that are difficult to
quantify, but nevertheless essential to consider. Further, in choosing among
alternative regulatory approaches, agencies should select those approaches that
2025 M Street, NW • Ste. 800 • Washington, DC • 20036·3309
202.367.1169 • Fax 202.367.2169 • info@dealer.org
maximize net benefits (including potential economic, environmental, public
health and safety, and other advantages; distributive impacts; and equity),
unless a statute requires another regulatory approach.
In this spirit we recommend the following for your review:
EPA Lead: Renovation, Repair and Painting Rule
NLBMDA has joined other bUilding industry associations to raise our concerns about the
U.S. Environmental Protection Agency's (EPA) Lead: Renovation, Repair and Painting
(LRRP) Rule and its proposed amendments. Our concerns, outiined in a separate joint
industry letter, include implementation without appropriate number of certified
renovators, inadequate test kits and poor consumer awareness programs. We are also
concerned with the agency's elimination of the previously justified "opt-out" provision.
Related to this regime is the additional agency proposal to require clearance testing in
residential and commercial buildings. In part and whole, these regulations immediately
threaten the recovery of our residential construction and renovation markets and the
many jobs associated with construction and renovation. A more narrow and tailored
approach is called for.
We also note several items on the regulatory agenda of the Occupational Safety and
Health Administration (OSHA) that risk being over-broad in scope and mandate. The
costs associated with an overly broad regulatory approach would threaten job growth in
this sector, currently undergoing the worse economic conditions since the Great
OSHA Combustibie Dust Proposal
OSHA has begun a rulemaking to develop a combustible dust standard for general
industry. The Agency issued its Advance Notice of Proposed Rulemaking in October
2009 and held stakeholder meetings in 2009 and 2010. The next step in this rulemaking
will be to initiate SBREFA in April 2011. We note that this ambitious effort may be
better served by a more narrowly targeted, perhaps industry-specific focus, identifying
high risk settings and determining how best to address the hazards therein. At risk will
be a one-size-must-fit-all approach that is difficult and costly for many covered entities
to implement and equally challenging for regulators and inspectors to fairly monitor.
OSHA Injury and Illness Protection Program
OSHA is also developing a new regulation that would mandate a standard for employers'
safety and health programs,referred to as an Injury and·lIlness Prevention Program
(12P2). This risks overlaying specific standards with a vague mandate that employers
"find and fix" all other, unidentified workplace hazards. We are concerned that this new
proposal may not take into account the efforts by employers who already have effective
safety and health programs in place or how this new mandate would disrupt safety
programs that have measurable successes. We are also concerned that it may allow
OSHA investigators to substitute their judgment of the employer's plan on how to
achieve compliance or how to address an injury not regulated under a specific standard.
OSHA Noise Proposal
OSHA recentiy indicated that it plans to enforce noise level standards in a dramatically
different way by redefining what would be deemed "feasible" for employers to reduce
overall noise in the workpiace and requiring implementation of these actions unless ~ n
employer can prove making such changes will put it out of business. OSHA's proposal
would alter current and effective policy that allows employers to provide personal
protective equipment (such as ear plugs and earmuffs) if they are more cost-effective
than engineering controls (such as noise-dampening equipment and muffling systems)
in order to protect their employees from high noise levels.
In addition to the fact that it is inappropriate to push a regulatory regime's reach to the
point of putting a covered entity out of business, we are concerned that the costs of
compliance will outweigh the incremental protections that may be achieved in many
workplace environments where the use of personal protective equipment appropriately
addresses all hazards.
Again, thank you for your oversight role and your interest in aligning important
regulatory regimes with other national policy objectives. We look forward to working
with the Committee in the 112'h Congress.
Scott Lynch
Executive Vice President
NatIonal Marino
eL.!!!!..!" Manufllcturors ASSO,clntlon
January 19, 2011
The Honorable· Darrell Issa
Committee on Oversight and Government Reform
U.S. House of Representatives
Washington, DC 20515
Dear Chairn1an Issa:
On behalf of the National Marine Manufacturers Association (NMMA) thank you for the
oppOltunity to identify existing and proposed regulations that will negatively impact the
economy and jobs.
NMMA is the leading national recreational marine trade association, with nearly 1,500 members
involved in evelY aspect ofthe boating industry. NMMA members manufacture over 80 percent
of recreational boats, engines, trailers, accessories, and gear usedin the United States.
Recreational boating contributes significantly to the U.S. economy, generating $30.8 billion in
sales and services during 2009. In 2008, there were 5,284 recreational marine manufacturers,
employing slightly more than 135,900 people. There were more than 33,000 retail I service
boating businesses, employing 217,718 people in 2008. Over ninety percent of these businesses
qualify as "small businesses" under the Small Business Administration definitions. Importantly,
the export value of boats and engines was greater than imported boats and engines in 2009,
resulting in the third highest trade smplus for recreational boats on record.
A robust boating industry depends on an active and employed boating public. Demographic data
affirms that American boat owners are largely middle-class. Boaters' habits have been impacted
by the economy with the cost of fuel for the boat, reduced income, and unemployment among the
top reasons cited by active boaters as to why they had not taken tiIeir boat out on the water as
much as previous years. NMMA is therefore concemed about the impact of regulations on our
members and consumers as well as the impact of reguilltions generally on the overall health of
the economy.
NMMA encomages you to push for a more thoughtful regulatory enviromuent that provides
incentives to the creation ofjobs in the United States. Importantly, this environment must
recognize that small businesses do not have the ability to hire large staffs just for the purpose of
filling out government paperwork or parsing confusing and often contradictory regulatory
mandates. More immediately, below are a few areas where there are either proposals in their
formative stages or just completed agency actions now being implemented that deserve
heightened scrutiny.
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The Honorable Darrell Issa
Jamuuy 19, 2011
Page 2 of3
Corps Set to Impose Adult Life Jacket Wear on Millions of Adult Boaters Without Any Public
NMMA has long advocated that adults and children should be educated about life jackets and
wear them in appropriate situations. NMMA has suppOited state and federal mandates requiring
children aged 12 and under to wear life jackets on deck. NMMA has also supported mandates
for those riding personal watercraft to wear life jackets due to the unique nature of that boating
experience. However, NMMA and its members have long believed that adult boaters can best
determine if their boating situation walTants the use of a life jacket. Boaters can be on the water
for extended periods of time while participating in activities that may not be life jacket friendly.
Boating is indeed a safe activity with over 66 million adults taking to the water in 2009. The
National Transportation Safety Board on November, 16,2010 dropped recreational boating from
its "most wanted list" because of the substantial progress that has been made in boating safety.
Despite this, the nation's largest provider of recreation on federal public lands has taken it upon
itself to take boaters' choice away.
The U.S. Army Corps of Engineers recently announced that it plans on expanding a pilot test of
mandatory wear oflifejackets while boating and swinuning from its "test lakes" to potentially
all of the waters under USACE jurisdiction. From the Corps statements it appears that this plan
will be done by decree with no proposed rule, public comment or even outreach to the affected
communities prior to the final decision being made. To date, the only outreach to the affected
boating public has been in the form of notices letting boaters know of the new rules once put in
The Corps recently announced that this spring, summer and fall it will continue to "test" the life
jacket mandate on all boaters in the Pittsburg Region (the Youghiogheny River Lake and
Shenago River Lake in Western PA), the Vicksburg Region (Grenada Lake, Enid Lake,
Arkabutla Lalce, Sardis Lake in Mississippi), and will begin in the Sacramento Region (pine Flat
Lalce in Central CA). Meanwhile, other Corps regional divisions are considering moving
forward with tlleir own life jacket mandates. Once this "test" is complete, the Corps announced
it will issue a repOit on its findings and its leadership will consider whether to adopt the policy
system-wide at tlle end of 2011. A system-wide mandate could cover 12 million acres of public"
lands and waters at more than 400 lalce and river projects in 43 states. The Corps has not
announced any plan for offering the opportunity for public comment on its report on the test
lakes or on proposed recOimnendations to tlle COlPS leadership. These waters are paid for by the
public and tlle public deserves to have a say in how they are managed before new mandates are
placed on them. The Corps should be required to follow the Administrative Procedures Act and
conduct public scoping sessions and the oppOliunity for ,public comment before any other "test
lakes" or other sites are allowed to adopt mandatillY wear mandates.
E15 Waiver & Misfueling Controls
The Enviromnental Protection Agency (EPA) has recently approved, via a waiver, tlle use of a
15 percent ethanol motor fuel blend (E15) for 2007 model year and new light-duty motor
vehicles. EPA took tllis action despite its own awareness of tlle shortcomings of ethanol,
The Honorable Darrell Issa
January 19, 2011
Page 3 of3
including its corrosive propel1ies and tendency to clog motors not designed to accommodate
biofhels. Many consumers have already experienced difficulties using gasoline with 10 percent
ethanol (EI 0) finding that it causes problems in older cars, snowmobiles, boats, and
lawnmowers. Given these experiences, it is· incumbent upon EPA to evaluate the impact EI5 can
have before giving a waiver to El5. The introduction of new fuel blends containing higher
amounts of ethanol increases the chances of misfueling and damaging the more than 200 million
engines in use in the United States today that are not approved for the use of E15.
EPA's decision to allow EI5 into the marketplace for the 2007 model year and newer light-duty
motor vehicles, while prohibiting its use for older vehicles and boats, will cause confusion at the
gas pump for consumers. Allowing EI5 into the market without substantial precautionary
measures will also cause significant rates ofmisfueling, especially since El5 will likely cost less
than other available fuels. Misfueling will create undesirable emissions, failing or
malfunctioning engines in boats and power tools. For boaters, the loss of a boat engine will
likely mean the loss of a lifetime of boating as replacing equipment in difficult economic times
will be much more unlikely.
EPA recently proposed extremely weal( misfueling measures of only a tepid warning label to
warn consumers and no engineering controls (such as a different sized nozzle as was done with
unleaded fuel). EPA should reassess its EI5 waiver and misfueling controls by doing the
following: I) reassess how the introduction and impact ofEI5 stands in contrast to other fuel
introduction programs; 2) examine what level of E15 misfueling may occur, considering factors
such as availability and cost; 3) explain how the public infOimation and outreach campaign will
prevent misfueling 4) detelmme steps to be taken if the initial labeling and public efforts are
ineffective. Finally, EPA should ensure that manufactmers will not be held liable for consumer
misfueling caused by the agency's action and the lack of robust misfueling controls.
NMMA appreciates your efforts to conduct oversight on the impact of regulations on the
recreational marine industry and the boating and general public.
~ t r - -
Cindy L. Squires, Esq.
Chief Counsel for Public Affairs and Director of Regulatory Affairs
January 6, 2011
The Honorable Darrell Issa
Chairman, Committee on Oversight and Government Reform
2157 Rayburn House Office Building
Washington, D.C. 20515-6143
Dear Chairman Issa:
Thank you for the opportunity to provide the enclosed examples of proposed
and eXisting. regulations and policies that.impede economic growth and the
creation of jobs. We welcome your early attention to the growing regulatory
burdens on U.S. businesses.
As the national trade association for the U.S. mining industry, the National
Mining Association's (NMA) members produce the coal, minerals, metals and
materials that serveas the foundation of our economy. Virtually every sector
of our economy depends upon mining including agriculture, manufacturing,
transportation, housing, technology and services. Regulatory costs and
inefficient permitting systems directly affect our ability to create jobs and our
global competitiveness.
NMA appreciates the opportunity to work with you as you examine
regulations that harm economic growth, compromise our global
competitiveness and hinder our ability to put more Americans to work in
family-wage jobs. Please do not hesitate to contact me at
kbennett@nma.org or 202-463-3240 should you need additional information
or assistance.
Karen Bennett
Vice President, Environmental Affairs
National Mining Association 101 Constitution Avenue, NW • Suite 500
East. Washington, DC 20001 • (202) 463-2600
Attachment 1
EPA's April 1, 2010 Detailed Guidance on Reviewing Appalachian Surface
Coal Mining Operations under the Clean Water Act, National Environmental
Policy Act and the Environmental Justice Executive Order:
Beginning on its very first days ofthe new administration, the Environmental
Protection Agency (EPA) began targeting the coal mining industry, particularly
eastern Appalachian coal, with new regulatory policies intended to slow or prevent
the issuance of Clean Water Act (CWA) § 404 permits necessary to open or expand
coal mines. These changes to current reguiations and long-standing agency policies
occurred through various "guidance documents" in lieu of following proper
rulemaking procedures under the Administrative Procedures Act. In this way, EPA
has rewritten several sections of the Clean Water Act, the National Environmental
Policy Act (NEPA) and the Surface Mining Reclamation and Control Act (SMCRA)
while avoiding transparency and public involvement. In addition to evading these
important procedural requirements, EPA's actions interfere with the authority of the
states to regulate water quality and coal mining in their states as delegated by
Congress under both the CWA and SMCRA.
On April 1, 2010, Peter S. Silva, assistant administrator for the Office of Water, and
Cynthia Giles, assistant administrator for the Office of Enforcement and Compliance
Assistance, released Summary and Detailed Guidance on "Improving EPA Review of
Appalachian Surface Coal Mining Operations under the Clean Water Act, National
Environmental Policy Act, and the Environmental Justice Executive Order."
In announcing the April 1 GUidance, Administrator Jackson said: "this is a sweeping
regulatory action" and "you're talking about no, or very few, valley fills that are
going to meet this [new] standard."
http://www.washingtonpost.com/wpdyn/content/ articl/2010/04/01/AR2010040102
312.html. Jackson's statements have proven correct as very few permits have .
been issued since. Recently, the U.S. Government Accountability Office published a
report finding that of 79 permits undergoing the "enhanced review" process created
by the April 1 GUidance, only six permits were issued, 36 were withdrawn and 36
are awaiting EPA's newly created enhanced review. EPA AND THE CORPS' REVIEW
OF SECTION 404 PERMITS (2010) GAO-ll-l01R. There are at least as many other
CWA 404 permits backlogged at the U.S. Army Corps of Engineers.
These documents purport to clarify "how EPA is carrying out our responsibilities, in
coordinating with our Federal and State partners" (Summary GUidance) and "to
provide further clarification of EPA's roles and expectations, in coordinating with our
Federal and State partners" (Detailed GUidance). However, these Guidances go far
beyond clarification and coordination and "empower" EPA to commandeer the roles
and authority of other agencies, including the Army Corps of Engineers under the
CWA, the Office of Surface Mining under SMCRA and the states under both laws.
As Randy Huffman, director of West Virginia's Department of Environmental
Protection, observed in a Dec. 2, 2009, letter to Sen. Inhofe, EPA's rec;ent actions
"represent a stark change in regulatory direction," which, "has been undertaken in
the absence of any change in statute, regulation or formal policy which would
necessarily require transparency in the process."
EPA's Guidance amounts to a de-facto moratorium on the issuance of coal mining
permits by rewriting the underlying statutory and regulatory permitting framework.
The Guidance ignores and dramatically alters regulatory timelines, imposes new
substantive requirements and creates legal presumptions in complete disregard of
existing federal law and procedure. In addition, EPA has displaced the U.S. Army
Corps of Engineers (Corps), the Office of Surface Mining Reclamation and,
Enforcement (OSM) and states as permitting authorities for coal mining under
The impact of EPA's actions has been profound. Experts at Marshall University's
Center for Business and Economic Research have concluded that a ban on valley
fills would result in the loss of thousands of jobs and hundreds of millions of dollars
of income in West Virginia alone. Hicks and Burton, The Fiscal Implications of
Judicially Imposed Surface Mining Restrictions in West Virginia (Feb. 2001). The
scope of EPA's actions are much broader, applying to both surface and underground
mining operations within a six-state Appalachian region but potentially spilling over
to states such as Alabama and the Midwestern coal basin states such as Illinois and
Indiana. Another report, issued by the U.S. Senate Committee on Environment and
Public Works found "the Obama Administration is using the CWA Section 404
permitting process to dismantle the coal industry in the Appalachian region." U.S.
Senate Committee on Environment and Public Works, Minority Staff, The Obama
Administration's Obstruction of Coal Mining Permits in Appalachia (May 2010). The
report concludes that after thorough investigation of 235 coal mining permits that
were under review by EPA as of May 11, 2009, roughly one in every four coal
mining jobs in the Appalachian region will be at risk of elimination, 81 small
businesses will lose significant income and will be at risk of bankruptcy and more
than two years of America's coal supply will be in jeopardy.
Oversight Analysis
Through gUidance, EPA has exceeded its authority under the CWA, displaced the
Corps as the § 404 permit authority as well as states' role and auth'ority under the
CWA and SMCRA. According to Mr. Huffman in his Dec. 2, 2009 letter, "EPA has
manipulated the Federal CWA 404 p,ermitting process so as to intrude on
the State's primacy under SMCRA and its delegated authority under the
CWA. I am deeply concerned that the April 1
' Guidances represent further
intrusion into State authority, again without any change in statue or
EPA's Guidance Usurps the U.S. Army Corps of Engineers' Authority to
Make Section 404 Permit Decisions .
The CWA delegates to the Corps the authority for the review and issuance of § 404
permits. The EPA may comment on a permit and it may also restrict or prohibit the
use of an area for placement of fill material. Under the new gUidance, EPA has
placed itself in the position of deciding when, where and how the Corps reviews and
issues a § 404 permit. In doing so, it has also ignored the existing Corps
regulations that establish criteria for evaluating and time frames for deciding
whether to issue a permit.
For example, the Guidance imposes new substantive requirements by presuming
that "[p]rojects projected to increase conductivity levels above 300 uS/cm should
include permit conditions requiring adaptive remedial action to prevent conductiVity
levels from rising to leveis that may contribute to water quality degradation."
Detailed Guidance at 22.
Under the GUidance, EPA imposes a pre-screening requirement that allows it to tell
the Corps whether it can proceed with review of a permit and allows EPA to
suspend that process at any point until it decides disagreements have been
resolved. This is all done in. contravention of duly promulgated regulations that set
forth the content and time frames for the Corps to review and decide on permit
. applications.
The Guidance also imposes several de facto changes to the 404(b)(1) guidelines
and imposes EPA's interpretation of these guidelines on the Corps in lieu of the
organization's longstanding interpretation. EPA's actions are contrary to the
agency's own regulations requiring that any substantive changes to the gUidelines
must be done by notice and comment rulemaking. 40 C.F.R. 230.2(c).
EPA's Guidance Interferes with States Authority under CWASection 401
and 402
Section 401(a)(1) of the CWA gives states the authority to determine if an activity
that is the subject of a federal license or permit will meet water quality
requirements in that state. Notwithstanding the limits of EPA's authority under
section 401(a) of the CWA, the Detailed Guidance states that "EPA retains its
responsibility for ensuring that neither numeric nor narrative water quality
standards are exceeded due to discharges of fill material even if a State has issued
a water quality certification under Section 401 of the CWA." Detailed GUidance, at
18. EPA simply does not have the authority to second guess a state water quality
certification. Courts have held that a § 401 certification is considered conclusive,
and no independent analysis of the certification is required.
Under section 402(b) of the CWA, Congress established the National Pollutant
Discharge Elimination System (NPDES) permitting program. 33 U.S.c. § 1342.
Conforming to the statute's goal of allocating the "primary responsibilities" for
water pollution control to the states, the CWA establishes a system whereby a state
may assume primary administration and enforcement of the NPDES permitting
program. 33 U.S.c. 1342(b). Once EPA approves a proposed state permitting
program, EPA must suspend its own program. 33 U.S.c. 1342(c)(1). Under such
delegated permitting programs, states have exclusive authority to implement the
NPDES program within their boundaries, and EPA has only limited authority to
review state action. Once states are authorized to implement the CWA, they
develop EPA-approved water quality standards and issue permits that implement·
those standards and the state's decisions, particularly the decisions about
compliance with state water quality standards, are given deference. However, in
the GUidance, EPA creates a presumption that "EPA expects that in many, if not
most, cases the available science will demonstrate that there is a reasonable
potential for these discharges to cause or contribute to an excursion above numeric
or narrative water quality standards, thus making water quality-based effluent
limits necessary." Detailed Guidance at 8. Such a blanket statement about the
need for water quality-based limits ignores the role of the delegated states under
Section 402 and the existing protections under the CWA and its implementing
regulations prohibiting states from approving any such discharge. Since all of the
states subject to EPA's Guidance have delegated authority, the states, not EPA,
have the duty to determine whether any proposed discharges will cause, or have
the reasonable potential to cause, or contribute tb an in-stream excursion above a
numeric or narrative criteria within an applicable water quality standard. 40 C.F.R.
Section 122,44(d).
EPA's Guidance Imposes a De-facto Water Quality Standard on Primacy
States in Violation of the CWA
By asserting the authority to interpret the state narrative water quality standards
as requiring conductivity levels between 300 and 500 uS/cm, EPA substitutes an
. authorized state's interpretation of its narrative water quality standards with
numeric standards without following the procedures required under CWA Section
303(c). EPA has not taken the steps necessary to make a determination that
numeric conductivity standards are necessary in the Appalachian region and EPA
has not gone through notice and comment rulemaking to establish numeric federal
standards for conductivity for the Appalachian states.
EPA is Usurping State Authority under SMCRA
Under SMCRA, states have "exclusive jurisdiction over the regulation of surface coal
mining and reclamation operations" on non-federal lands, so long as their
regulatory program has been approved by the Secretary of the Interior as satisfying
the SMCRA's minimum requirements. 30 U.S.c. § 1253. Once a state's SMCRA
program has been approved, anyone wishing to engage in surface, coal mining
operations within the state must first obtain a permit from the state's regulatory
authority. 30 U.S.c. § 1256(a). In almost all coal producing states, SMCRA
regulatory jurisdiction and authority has been assumed by the states.
Regulation of ,the disposal of excess spoil material from surface coal mining
operations is within SMCRA's purview. As part of its environmental protection
performance standards, SMCRA requires that all excess spoil material from surface
mining operations be disposed of "in a controlled manner ... and in such a way to
assure mass stability and to prevent mass movement." 30 U.S.c. §
1265(b)(22)(A). SMCRA clearly contemplates that valley fills will be used in the
disposal process. 30 U.S.c. § 1265(b)(22)(D) (requiring that, where the disposal
area contains "springs, natural water courses, or wet weather seeps ... lateral
drains [must be] constructed from the wet areas to the main underdrains in such a
manner that filtration of the water into the spoil pile will be prevented. ").
Thus, it is clear that SMCRA contemplates that excess spoil material will be placed
into waters of the United States. NotWithstanding. Congressional approval of this
activity, EPA is attempting to ban it. In fact, in announcing the GUidance, EPA has
asserted that the Guidance is "tantamount to banning valley fills."
By disregarding state authority under SMCRA, EPA is attempting to federalize every
aspect of a surface mining project under NEPA and trammeling a state's authority
over land use. Again, courts have rejected such extensive federal interference.
Underlying Science is Seriously Flawed
EPA cites emerging science as a basis for adopting its newly fashioned approach to
reviewing coal mining permits, including immediate implementation of the
conductiVity limits. EPA has issued these significant new policies prior to submitting
its newly emerging science to outside scientific peer review or making it available
for public comment. In the real world, EPA's "emerging science" is having the
effect of a de facto water quality standard and is now forming the basis for third
party permit appeals.
Various experts have repeatedly expressed grave doubts and concerns with EPA's
studies underlying and forming the basis for new policies, presumptions and de
facto water quality standards. See Final Report, Technical Review: A Field-Based
Aquatic Ufe Benchmark for Conductivity in Central Appalachian Streams, GEl
Consultants, Submitted to EPA September 2010 (GEl 2010), attached.
These concerns with EPA's science and field data methodology have been largely
ignored by EPA and its Science Advisory Panel(SAB).
Attachment 2
CERCLA 108(b) - Financial Responsibility Requirements for the Hardrock
Mining Industry
Issue: The U.S. Environmental Protection Agency (EPA) last year targeted the
hardrock mining industry as the agency's first priority in the development of
financial responsibility requirements under Section l08(b) of the Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA). Under this
provision, EPA has discretionary authority to impose financial responsibility
requirements on industrial sectors "consistent with the degree and duration of risk
associated with the production, transportation, treatment, storage, or disposal of
hazardous substances." The statute directs EPA to focus on those industries that
"present the highest level of risk of injury." While the statute does not provide a
methodology for evaluating risk or injury, it is apparent that both terms are tied to
the potential for a future release of hazardous substances and a potential risk that
the government will be called upon to cover future remediation costs at abandoned
or bankrupt facilities. EPA is expected to publish a proposed rule for the hardrock
mining industry in the fall.
Impact: EPA's proposed regulations will duplicate and preempt financial
responsibility requirements already imposed on the hardrock mining by the Bureau
of Land Management and U.S. Forest Service on public lands and by the states on
private lands. Hardrock mining companies already post millions to hundreds of
millions of dollars in financial assurance (i.e., cash, surety bonds, letters of credit,
trusts, corporate guarantees) under federal and state programs to cover a range of
costs associated with the reclamation and closure of their facilities. EPA has
indicated that its program will not be limited to filling any yet-to-be defined "gaps"
in existing financial assurance requirements for the industry. Instead, it is
conceivable that EPA's regulatory program will be a worst-case scenario cost figure
that is applied across the hardrock mining industry without consideration of the
unique aspects of each facility (i.e., types and volumes of hazardous substances
managed on site, size of the facility or types of industrial processes involved). If
hardrock mining facilities are unable to secure financial assurance instruments in
the dollar amounts necessary to comply with the new requirements, they will be
forced to shut down operation. .
Oversight Need: The statute and good public policy demand that EPA more
thoroughly analyze the issue before hastily promulgating regulations. The approach
EPA takes for hardrock mining will become the template for the agency when it
expands its financial assurance requirements to other industries. For example, EPA
should prOVide to the public and Congress for review and comment an analysis of
the specific federal and state programs that impose financial assurance
requirements on the hardrock mining industry for the types of risks associated with
CERCLA liability. This analysis should also identify whether any "gaps" exist in
these programs that would warrant additional financial assurance requirements,
and whether those "gaps" could be filled through existing federal and state
programs. EPA should also prOVide to the public and Congress for review and
comment a thorough analysis of thecapacity of the financiai and credit markets to
provide the necessary instruments (surety bonds, letters of credit, insurance,
trusts) for meeting any new requirements. EPA should not, as a matter of policy
and in this strained economy, impose a new regulatory program if the financial and
credit markets cannot serve the demand for additional financial assurance.
EPA Draft IRIS Assessment of Inorganic Arsenic
Issue:' The U.S. Environmental Protection Agency (EPA) is in the process of
finalizing a highly controversial assessment of the cancer risks of inorganic arsenic
under the Integrated Risk Information System (IRIS) program. EPA's assessment
ignores what experts agree is the best, most current scientific evidence that
demonstrates that a "threshold" exists for inorganic arsenic - a point below which
no increased cancer risks are likely to occur and instead relies on outdated linear
extrapolations from epidemiology studies conducted in south Taiwan to propose a
17-fold increase in the cancer risk "slope" factor-from the current 1.5 mg/kg/day to
25.7 mg/kg/day.
EPA's Science Advisory Board (SAB) was assigned to review the draft assessment
but this review has proven to be woefully inadequate. EPA's charge questions to
the SAB were extremely narrow and did not provide an opportunity for a thorough
or comprehensive review of the cancer slope factor, the modeling used in the
assessment, or other important issues previously posed by the SAB in 2007.
Impact: If finalized, the assessment would have significant implications for
various regulatory programs. For example, the EPA maximum contaminant level
(Mel) for drinking water would have to be reduced from 10 ppb to 0.1 ppb for'
minimal compliance with the upper limit of EPA's target risk range (i.e., 1 in
10,000). This may be technologically unachievable and at an enormous cost to
municipalities. In addition, the assessment would ratchet down soil cleanup levels
under Superfund to below background levels. Soil cleanup levels in Western states
are typically 100 parts per million (ppm). The new slope factor would force this
level to be reduced to 8 ppm or lower, despite the fact that the soil in many
Western states has average background levels above 8 ppm. This would lead to
exorbitant cleanup costs with no associated human health benefits.
Oversight Need: EPA's draft IRIS review of inorganic arsenic deserves a more
rigorous, independent and current review of the best available science on inorganic
arsenic. Given the complex scientific issues involved and the impact the
assessment will have on future regulatory programs, the draft assessment deserves
a full peer review by the National Academy of Sciences. Moreover, the inorganic
arsenic assessment is a primary example of the IRIS process and Scientific
Advisory Board process not liVing up to the scientific integrity principles and
providing a fair opportunity for using credible U.S.-based science.
Mine Safety and Health Administration - Respirable Coal Mine Dust
Issue: The Department of Labor's Mine Safety and Health Administration (MSHA)
has proposed regulations that will lower by 50 percent the permissible respirable
coal mine dust exposure standard for coal mines. The proposal is based on the
agency's belief that the current standard is not sufficiently protective to prevent
coal miners from developing Coal Worker's Pneumoconiosis (CWP) and Chronic
Obstructive Pulmonary Disease (COPD). The proposal will also drastically alter the
current dust sampling program by requiring operators to take action, including the
possibility of reducing production, to achieve compliance with the reduced dust
MSHA's proposal relies upon three data sources, all of which have methodological
and other flaws: (1) a 1995 National Institute for Occupational Safety and Health
(NIOSH) criteria document;(2) a 2010 NIOSH report which was an update of the
1995 criteria document; and (3) the results of enhanced medical surveillance
studies conducted by NIOSH's Division of Respiratory Disease Surveillance Studies
(DRDS) that form the basis for several published articles.
Impact: If finalized, the proposed rule will have a significant impact on the
underground coal industry both in terms of increasing operating costs, lowering
productivity and job loss. Compliance determinations are currently made on the
basis of the average of five samples, whereas the proposed rule will require these
determinations to be made on the basis of a single sample. The absence of new
engineering control technology to further reduce dust levels will potentially
necessitate production reductions and closure of marginal mines that can no longer
remain economically viable at reduced production levels.
Oversight Need: Despite repeated requests, the National Institute for
Occupational Safety and Health refuses to release any documents or data that
serves as the basis for its criteria document, which serves as the predicate for
MSHA's claim that the prevalence rate of black lung is increasing in our nation's
coal miners. Withoutthis data, it is impossible to assess the underlying findings
that serve as MSHA's justification for lowering the exposure limit. Moreover, this
rule serves as an opportunity to evaluate why MSHA does not allow the use of
personal protection and administrative controls to protect miners against harmful
EPA Utility Maximum Achievable Control Technology Emission Standards
for Hazardous Air Pollutants
Issue: The EPA has announced its intention to move forward with a number of
environmental rulemakings that will require electric generators to add expensive
control technologies or shut down: The Clean Air Transport Rule; the air toxics rule
(MACT-maximum achievable control technology); coal combustion residuals (fly
ash); and cooling water intake structures. The second rule, air toxics MACT, will
potentially have the greatest impact on the electricity generating capacity in the
U.S. Under a consent decree,EPA must propose in March and finalized by
November 2011 emission standards for certain hazardous air pollutants (HAPS) at
coale and oil-fired electric generating units (EGU). EPA will evaluate and then
choose the performance level of the best - performing 12 percent of existing power
plants and require illl plants reduce their emissions to that level.
Impact: Various sources have estimated that these suite of EPA rules for EGUs
could force the retirement of anywhere from 40-100 GW of the existing 310 GW of
coal-fueled power plants in a relatively short period of time. Those plants that are
not retired will need to make expensive retrofits to add control technologies. The
capital expenditures have been estimated to exceed $80 billion. Under all scenarios,
electricity prices will increase and greater demand for natural gas will result in
increased natural gas prices for ,industrial, commercial and agricultural customers
using natural gas for heating or feedstock for their production processes. The forced
retirements of coal based units could also pose electricity reliability issues in various
states and regions along with price spikes. Substantial job losses would follow in
the coal mining, railroad and utility sectors as well as displacement in
manufacturing and other sectors confronted with higher electricity and energy
Oversight Need: EPA has chosen not to evaluate the cumulative economic
impact or feasibility of meeting these series of rules although they have been
planned for some time. Instead, they have chosen to evaluate the impacts in
isolation, focusing on each rule individually and not cumulatively. Decisions by
electric generators will not be made on the basis of any single rule but in an
assessment of the full cost of compliance of all the rules that apply to their system.
Moreover, a fuller examination of the impact of these rules on the reliability and
cost of electricity regionally is necessary to fully understand the impact on
businesses and households.
DOl Permitting Delays
Issue: "Permitting delays in the United States are the most significant risk to
mining projects. The United States is ranked next to lowest due to the average 5-
year to 7-year period required before mine development can commence." ~ Behre
Dolbear, "Where Not to Invest, 2009." There are many choke-points in the current
protracted process for reviewing and approving plans of operations and other
authorizations for mining operations an'd facilities on public lands. However, one
example of a purely bureaucratic delay is the inexplicable Department of the
Interior (DOl) policy for processing certain administrative notices under the
National Environmental Policy Act (NEPA) for mining operations and other
commercial enterprises on public lands. This "clearance process" for NEPA Federal
Register notices requires such notices to be sent from Bureau of Land Management
(BLM) state offices to undergo 14 separate levels of review within Dar. (See
attached chart.) Delays have exacerbated further by a December 2009 decision to
eliminate the categories of routine notices that were previously exempt from
DOl has never adequately explained the need for this review process given the
extensive environmental reviews already required for mining operations. In fact, in
the mining industry's experience, the review process has never resulted in a final
product that differed substantively from what was submitted by the state BLM
Impact: The impacts of these delays can be significant - lost federal, state and
local revenues, fewer jobs, and lost opportunities. For example, one mining
company indicated that the delays are preventing the hiring of more than 1000 new
employees, and another stated that for each month of delay the company loses
more than $1 million in net present value. Furthermore, the uncertainties
regarding length of time for approval of mining activities has contributed to an all-
time low amount of mineral exploration dollars being invested in the United States
and to increased reliance on foreign supplies of minerals.
Oversight Need: Over the last year, many senators, congressmen and governors
have brought this problem to the attention of DOl, particularly the economic
impacts of delaying shovel ready, high-paying jobs. Yet no progress has been
made in reforming the process. There is no transparency in the review 'process and
the project applicants have no way to obtain accurate information about the
number of notices in the review backlog or where any specific notice may be
pending. Some agency personnel have indicated that, at any given time, about
150-200 notices are stuck in the review process.
OSM Stream Protection Rule
Issue: The Department of Interior's Office of Surface Mining (OSM) is developing
the most sweeping changes to its regulatory program since 1983 through the
proposed "stream protection rule." The rule is intended to displace a 2008
regulation that was the product of a five-year comprehensive rulemaking that
provided the coal industry and state regulators clarity and certainty. Shortly after
assuming office in 2009, the new administration entered a settlement with
environmental groups agreeing to conduct a new rulemaking even after a federal
court refused to set aside the 2008 rule. While the rule is ostensibly called the
"stream protection rule," Wyoming Gov. Dave Freudenthal noted in a letter last
month to DOl, the label is "misleading" and OSM's action is "a major revision of the
law that has served the country well for over 40 years." The agency has not
identified any basis or need for these significant regulatory changes, most of which
will only add burdens on companies and states through a complex and duplicative
standards that recreate the uncertainty that was corrected by the 2008 rule. Many
of the states that were enlisted to be cooperating agencies in this rulemaking have
now raised serious objections about its necessity, objectives and manner in which
the federal agency has proceeded.
Impact: The rulemaking options under consideration would cost thousands of
mining jobs, sterilize millions of tons of coal reserves and impair the fuel supply
critical to our nation's electricity backbone without any demonstrated environmental
benefit over the current rules they are trying to rewrite. Additional sampling and
monitoring requirements will add enormous information collection burdens.
Prohibitions on mining near streams could sterilize millions of tons of coal reserves
and render many mines uneconomical. Requiring full restoration of stream form
and function before any additional mining can take place could paralyze many
mining operations, and establishing corrective action thresholds could interfere with
legitimate mining operations that have not violated any water quality standards.
Dictating certain post-mining land uses would be contrary to goals of wildlife
managers and/or landowners who desire more flexible uses for reclaimed mine
lands. Finally, the new so-called coordination procedures wiil add months and even
years of delay to critically needed mining permits. Many of OSM's proposals would
also duplicate or contradict authorities under the Clean Water Act that are reserved
to the states.
Oversight Need: This rulemaking is a classic example of politics trumping sound
policy and resource stewardship. Before implementation of the 2008 rule that
restored much needed regulatory certainty, the agency, without any discernable
basis or need, decided to rewrite the rule and expand the scope of rulemaking to
other long-settled regulatory matters under a schedule agreed to in a settlement
with environmental groups. The rush to judgment is reflected in the initial
documents setting forth the agency's plan that Gov. Freudenthal noted were "poorly
written, unclear and internally inconsistent." Moreover, the agency should be
required to explain the purpose and need of this rulemaking as well as why states
that are responsible for implementing the regulatory program were not afforded
meaningful opportunities to discuss and comment on the need or options under
consideration as well as the lack of appropriate scientific and factual information to
support a rule change of this magnitude on a national scale.
Notllm! building Mochs {or quality of life
January 7, 2011
The Honorable Darrell E. Issa
House Committee on Oversight &
Govermnent Reform
DC 20515-6143
Dear Mr. Chairman:
Thank you for the opportunity to identify existing and proposed regulations that are especially
burdensome and have adversely affected job growth in the aggregates, or stone, sand and gravel
industries. The munber one legislative priority ofthe aggregates industry is passage of a multi-
year surface transportation reauthorization. We caunot, however, ignore the potential impacts of
environmental, labor or other federal regulations that have or could impose increased costs and
regulatory burden on the industry which is the foundation of America's built environment.
The National Stone, Sand and Gravel Association (NSSGA) is the largest mining association in
the world by product volume according to the U.S. Geological Survey. During 2009 nearly two
billion metric tons of aggregates valued at roughly $17.2 billion were produced and sold in the
U.S. There are more than 10,000 construction aggregates operations nationwide. Almost every
congressional district is home to a crushed stone, sand, or gravel operation. Proximity to market
is critical due to high transportation costs, so 70 percent of our nation's counties include an
aggregates operation.
Aggregates' markets have changed considerably in the past four years. At a 3 billion metric ton
production peak in 2006, the combined markets for aggregates by residential, commercial and
non-road public construction projects fonned around 60 percent of the aggregates market.
Highways and other surface transportation projects continued as the single largest market for
aggregates at roughly 40 percent.
The ongoing recession has resulted in a dramatic shift in the aggregates market. We believe that
the road, highway and surface transportation segment is now by far the dominant market for
aggregates products nationwide, but it is a higher percentage of much reduced total tonnage
produced - 1.9 billion tons in 2009, a 37 percent decrease fTom 2006. This has put tremendous
pressure on our members and our association to what already has been our top legislative goal: to
secure a well-funded, 10ng-tenl1 surface transportation law.
7035258788 • 8003421415 • FAX 7035257782
The Honorable Darrell E. Issa
January 7,2011
Page 2
To provide further perspective, the 2009 average value of an aggregates operation as calculated
by USGS is $1.6 million, whereas an average coal mine is valued at $25.1 million. That is one
ofmany differences between the aggregates sector and other mining sectors regulated by MSHA.
Further challenging NSSGA members has been the proliferation of federal regulations from EPA
and the Mine Safety & Health Administration which are the primary regulatory agencies of
jurisdiction over the aggregates industry. While the aggregates industry has set safety and health
records in ten consecutive years of reducing national accident incidence rates beyond prior year
(most closely now approximating the incidence rate of the motion picture production industry),
and while there are many environmental benefits to using stone, sand and gravel as well as a
strong industry commitment to sustainability and environment, safety and health guiding
principles, the number and impact ofnew regulatory proposals on top. of existing heavily
regulated operations seem to continue unabated.
In the enclosed document, we have attempted to focus on those rules, regulations and agency
actions that are the most burdensome, unnecessary, and have the greatest potential to further
depress an industry that is the vascular system of the cotmtry and imperative to economic growth
and maintaining our country's global competitiveness as well as the freedom ofmobility which
is valued by every American.
Again, thank you for this opportunity and please calIon me with any questions. We would be
happy to provide a witness at any future hearings on this issue to discuss our concerns about
these regulations and their impacts in more depth.
Jennifer Joy Wilson
President and CEO
NSSGA believes that, at this challenging time for our Nation's economy, government
should consider the clunulative impact of the costs of compliance before more mles are
imposed on industry. This would allow the capital costs and feasibility of compliance
associated with a new rule to be more thoughtflllly understood both by regulators and
stakeholders. Federal regulatory decision-makers must wield their authority with care,
and should base regtJlatory decisions on published, peer -reviewed assessments of risk.
Rules thus based on "sound science" - defining the problem as well as a feasible solution
to mitigate or reduce risk - may be debated from one scientific perspective or
another. .. but the basic rationale of risk may find common ground. We are wary of rules
that create more stringent or even unattainable standards without sufficient statistical or
analytical justification.
Further, agencies' more frequent issuance of "gtlidance" that circumvents formal notice
and comment rulemaldngs allows the govermnent to avoid providing needed notice to the
regulated and interested publics. In these unfortunate instances, industry, and citizens are
bereft of a suitable opportunity to analyze risk, as well as abatement, inanagement and
compliance costs. Also, this Govermnent failure to provide notice and conunent, leaves
no chance for stakeholders to provide input, and/or to assure sufficient time for
NSSGA members long ago committed to Guiding Principles for enviromnental
compliance, and recognize that the Earth's resources, upon which all oflife depends, are
finite and that wise enviromnental stewardship is necessary today to preserve the
potential for a quality life for future generations. NSSGA members are cominitted to full
compliance with all pertinent enviromnentallaw and regulations. Earlier, NSSGA
members committed to Guiding Principles for Safety & Health to assure safe and healthy
workplaces and practices for aggregates stone, sand and gravel workers. In this effort,
NSSGA since 2003 has worked with the Mine Safety & Health Administration (MSHA)
through an Alliance for education and training. Also, NSSGA Member Company CEOs
representing more than 70 percent of all operations signed the NSSGA Safety Pledge,
committing their companies to contribute to the industry's national incidence rate
reduction of injuries by ten percent mlliually. This work has enabled the aggregates
industry to attain nine consecutive years of injury rate reductions from prior-year levels.
The last official level was a record low of2.37 injuries per 200,000 hours worked. The
industry leaders and their workforces are committed to continuous improvement.
The following paragraphs outline mlemakings or other practices that our members have
found to be overly-burdensome, costly, or unnecessary. We have attempted to categorize
them in several general areas, and provide exmnples for each.
EPA - Regulation of Small Stationary Engines at Area Sources
EPA's final mle for engines sets strict emission limits and requires performance tests for
new reciprocating internal combustion engines (RICE) used to power stationary·
equipment, including aggregates production equipment. EPA's success in air quality
improvement has typically come from regulating very large or mobile sources.
Regulating very small sources is oflimited value environmentally, in comparison to the
high cost to comply for affected industries. The impact of emissions from these types of
smallcr cngincs arc usually limited to thc hmncdiatc vicinity ofthc cmission source itself;
therefore, EPA's rational that this rule is needed to protect public health beyond the
propeliy lines of the facility are unfounded.
Previously unregulated small engmes at tens of thousands of facilities, including
aggregate operations, will need to undergo costly testing and upgrades, with very little
positive net impact on overall air quality.
EPA should exempt engines at mmor industrial sources of air emissions from this rule as
the cost-benefit analysis of enviromnental benefit versus economic impact does not
justify the agency's action.
MSHA - Mandated Use of Safety & Health Management Systems
The agency is preparing to propose a mle mandating the use of safety and health
management systems (SHMS), on top ofthe standards mandated by the Mine Act. The
effect could be that ofduplication, given the wide tentacles of the Mine Act. The merits
of SHMSs are well-documented; in fact, almost a half dozen NSSGA members testified
at recent MSHA public meetings about the utility of SHMSs that these companies created
for themselves. However, this rule will likely produce a one-size-fits-all approach to
operators managing their facilities to reduce injuries and illnesses; whereas, operators
need flexibility to tailor their efforts at hazards and risks unique to the size and
complexity of their facilities.
Once a SHMS rule is implemented, aggregates operators will likely be held to comply
not just with the hundreds of standards implemented in support of the 1977 Mine Act, but·
additional standards the company has/will have implemented of its own to ensure health
and safety vis a vis a SHMS. With continually reduced injmies and fatalities, industry
sees no justification for this increased compliance burden.
Recommended Action:
Agencies should not require mandatory adoption of a "one-size-fits-all" rule on SHMSs.
This is particularly burdensome to small businesses that do not have the necessity or
resources to implement all the requirements of such a system. Rather, SHMS adoption,
certainly appropriate to be encouraged, should only be voluntary.
MSHA - Citations Issued Before Industry is Given Notice of Rule Changes
MSHA by law (The Federal Mine Safety & Health Act of 1977) is required to inspect all
mines (surface operations) two times every year; undergrolUld mines are required to be
inspected four times every year. Inspectors in the field may be newly assigned to a
mining sector and they use their old sector's knowledge to judge their new beat. Or,
inspectors may just have been assigned to a new territory, and decide to interpret a
standard differently than previous MSHA inspectors had used. [Note: two exceptions in
the past year ("Rules to Live By" program, and ramped-up enforcement of 56.5002,
standards for compliance with exposure to dust), are examples of the agency having
provided fair notice. This should be the mle, and not the exception.] But, if cited for
behavior or actions that have previously passed government inspection without any prior
notification of the changed interpretation, then operator efforts toward safety, health and
compliance needlessly suffer. When the agency whetller at the field, district or
headquarters level, refuses to provide operators with fair notice of changes in how the
agency interprets what is needed.for stalceho1der compliance, it anlounts to a regrettable
lack of transparency.
Without prior notice, the operator only leanls of a changed interpretation once the citation
is issued. Two stark examples ofthis are on the issues of fall protection/safe access for
mobile equipment, and benns/guardrails for tmck scales. In each case, MSHA wrote
citations prior to providing notice to any operators.
Recommended Action:
It is imperative that tlle regulated sectors be given fair notice of changes in interpretation
of standard with which they must comply before citations are issued against the changed
interpretations. If the interpretation is so far removed from fonner interpretation by the
. .
government, as in, creating essentially a new standard or establishing a new level of risk
management, more than prior notice should be required,
MSHA - Increased Inspections for Accountability
With MSHA's problems in cross-b'aining inspectors in the various mining sectors of its
jurisdiction, the agency recently has decided to increase reliance on accountability teams
to double-check inspector perfonnance.. This has spawned harsher enforcement. For
instance, MSHA is increasingly elevating less serious non-S&S citations to "Significant
and Substantial" designation without valid or sufficient justification.
Undoubtedly, this accountability in enforcement focus has resulted in increasing nUlllbers
of citations written by MSHA for fear that an inspector might be found to have missed
opportunities for alleging violations (e.g., if an inspector is fOlmd to have issued few
citations than expected at the initial inspection). TIlis comes in the form of follow-up
inspections by another group of inspectors, which might include the original inspector,
area supervisor and someone from disb'ict office, or from another district. A review of
data - drawn from a period in which industry injury rates continue to fall - shows there
has been a 50 percent increase in citations labeled 'Significant & Substantial.'
This behavior presumes that all workplaces violate standards. Instead of recognizing safe
operators, MSHA sends more personnel to write a maximum number of citations. This is
a cost not just to the operator (as employees must accompany each person during the
inspection, resulting in lost production), but also a cost to taxpayers for a subsequent,
mmecessary inspection.
The agency should improve its means of training inspectors on both recognition of
hazards, and on the burdens imposed by an undue escalation in evaluations of higher
degrees of gravity, negligence, etc., which drive up penalty assessment costs.
Recommended Action:
There should be increased cross-training of inspectors in the various mining sectors of
agency jurisdiction for more accurate and appropriate evaluation of risk.
MSHA- Industry Improvemcnts in Health and Safety Should be Recognized
MSHA is focused on demonstrating its success strictly in tenns of the mimber of citations
written. But, this metric is flawed. We would submit that a critical criterion in
evaluating MSHA' s perfonnance is improved safety and health of stone, sand and gravel
workers, as demonstrated by commonly used total case incidence rates.
Operations are hmmnered with excessive citations with no agency recognition of the
aggregates industry's decades-worth of improvements in reducing injuries and fatalities.
We would submit that, if injury and illness rates continue to decline, then so should the
number of citations and assessment amounts.
Recommended Action:
The focus should be on improvements in safety and health, not an undue reliance on
issuance of citations.
EPA - Proposed Rule to Reduce National Ambient Air Quality Standard (NAAQS)
for Particulate Matter (PMIO)
EPA and their scientific advisory committee m'e recommending a reduction in tile
NAAQS for PM 10 fj'01n tile present level of 150 to either 65 or 75 microgrmns of dust
per cubic meter of air. This expected change is difficult, ifnot impossible, to meet for
mining, farming, ranching, transportation and other sources of coarse crustal fugitive dust
emissions found in parts of the West, Southwest, Midwest and East. The proposed rule is
expected in March. EPA admits there is very little health effects data to justify this new
Many areas ofthe U.S. would fall into non-attainment, which would require states to
reduce emissions ofPMlO or face losing highway funding. Aggregates facilities already
use best available dust control technologies to control for air emissions from rock
crushing facilities. Most of the PMlO dust is generated from windblown dust from
uncontrollable sources such as arid un-vegetated surfaces in rural areas, unpaved roads,
and dry land fanning mld tilling. Industrial sources ofPMlO are very small compared to
these natural, municipal and agricultural sources. The only option for NSSGA members
to reduce PM10 would be to reduce aggregate production and/or limit sales. One
NSSGA member estimates that in order to meet this reduced air standard, they would
have to reduce production by more than two-thirds, thus eliminating a majority ofjobs at
each facility.
With the anticipated PM 10 NAAQS, NSSGA member companies will have exb'eme
difficulty in expanding existing facilities or opening new ones to meet construction
demands for aggregates. Prevailing background levels' of PM10 due to natural dust
sources, unpaved roads, agricultural operations, and industrial sources are already at
levels at or above the anticipated PMI0 NAAQS.
The dominance of natural dust sources (i.e. windblown dust from arid lands) and
municipal unpaved roads is the main reason that some areas in the West and Southwest
have been in continual non-attaininent with PMI0 standards since the late 1980s. There
is no practical way to control these sources and reduce the PMl 0 ambient air
concentrations. EPA has turned a blind eye to this long-tern1 non-attainment condition,
and claimed that attainment of a NAAQS is strictly a state-problem. This unusual
position gives EPA the license to promulgate tIDworkable standards that hurt job growth
without any health benefits.
Takeri further, this cut in aggregate production would lead to a shortage of stone, concrete
and asphalt for state and federal road building/repair, commercial and residential
construction, which in tum would cause an increase in the price of stone for these
projects ranging from 80 percent to 180 percent and further suppress employment in the
construction industries.
The Clean Air Act requires EPA to set National Ambient Air Quality Standards to protect
public health. However, in evaluating health effects of possible changes in the Standards,
EPA has failed to consider the very significant adverse health effects caused by forced
Recommended action:
Maintain the existing air standard until EPA has enough health effects data to determine
an appropriate revised NAAQS.
EPA- Proposed Rule to Re-designate Coal Combustion Residue/Fly Ash as
Hazardous Waste
EPA proposes to designate coal ash/ fly ash as hazardous solid waste. NSSGA supports
the beneficial reuse of coal ash/fly ash in final manufactured and encapsulated products.
Many aggregates facilities have ready mix concrete or asphalt plants co-located at
aggregate facilities that use these materials in their final manufactured product. Fly ash
can also be used as a component in road base in highway projects. Changing the hazard
designation or restricting use would lead to more of these materials being disposed of
instead ofreused and would require labeling of roadways and brick and mortar
construction projects as containing hazardous materials.
Recommended Action:
Maintain non-hazardous waste designation for beneficial reuse of coal combustion
residue by products.
OSIIA/MSHA - Proposed Rule to Reduce Crystalline Silica Standard
The Department of Labor has on its regulatory agenda an April, 20II deadline for a
proposed rulemaking on worker exposure to silica, the world's second most common
mineral. It is anticipated that the proposal will include a call for a substantial reduction in
the permissible exposure limit (PEL) from the current lOa micrograms of silica per cubic
meter of air down to as little as 50 or 25 micrograms. Unfortunately, the Department has
not been consistently enforcing the ClUTent standard. Further, CDC-NIOSH data show a
precipitous, downward trend in silicosis cases, and we know of no cases of lung cancer in
the aggregates industry from silica exposure.. Enforcement of the current silica limit
within OSHA-regulated facilities is even more problematic. Why reduce the limit if the
higher limit is not being effectively enforced and the resulting health benefits are
questionable or non-existent?
Implementation of a new silica rulemaking with lowered PEL would add millions of
dollars in costs onto operators of stone, sand and gravel facilities, with no known health
. benefit. Unless and until the Labor Department can clearly prove either an association
between contracting of the disease with some level(s) of exposure below the current PEL,
or that a new PEL reduction would improve tlle health of our workers, there should be no
mandatory PEL reduction.
Recommended action:
MSHA should maintain and enforce the current standard.
EPA - Use of Veto Authority to Revoke Previously Issued Operating Permits
In an attempt to stop motmtaintop coal mining, EPA plans to use its questionable veto
authority under the Clean Water Act to revoke previously issued, federally-approved U.S.
Army Corps of Engineers' operating pennits for mining operations.
. If allowed to stand, this action will disallow a previously permitted mountaintop coal .
mine. This, in turn, threatens recipients of all federally-issued Clean Water Act pennits,
including 402 NPDES pennits issued by EPA or delegated states and 404 dredge-and-fill
pennits. This action calls into jeopardy all previously issued legal operating pennits for
any mining operation, including the ability to rely on the integrity of such pennits and the
pennit process. It could also impact state-issued 401 Water Quality Certifications,
Recommended action:
EPA should only use their veto authority within a set time frame and statute of
MSHA - Use of Program Policy Letters Constitutes Rulemaldng
The agency issues Program Policy Letters (PPLs) to operators announcing new mandates
that sometimes constitute new policy. Yet, major, new policy changes require notice and
comment rulemaking the likes ofwhich the agency avoids.
In mid-20lO, MSHA issued a PPL declaring a new policy in regard to standard 56.9300:
that weigh scales traversed by slow-moving mine trucks, which are 16 inches or more off
the ground, had to be retrofitted with the same guarding needed for bridges for high-
speed passenger and freight vehicles. This constitutes a major policy change.
It is important to note that the weigh scales come from the manufacturer equipped with
bumpers to keep the slow-moving trucks from accidentally driving off the edge onto the
ground, one or two feet below the scale's edge. But, the agency failed to provide any
justification or injury data demonstrating why a seemingly arbitrary 16 inch drop-off
posed a safety hazard for slow-moving trucks on a scale.
While we appreciate guidance, we believe it should be developed consistent with the
Administrative Procedures Act (APA). The type of policy change described here should
be vetted through the APA-required notice and comment rulemalcing process.
Stakeholders do not get advanced notice of or ability to comment on, the agency's
proposal for new policy, or to offer comments warranting agency review and analysis.
This malces a mockery of the President's pledge of transparency in government
Recommended Action:
MSHA should issue this change as a proposed mlemaking and allow for public notice
and comment.
EPA - Creation of a New Water Quality Standard for Conductivity
As a further attempt to stop mountaintop coal mining, EPA has issued guidance on a new
water quality standard (conductivity) with limited scientific supporting data and not
allowing for notice and comment by industry. The "guidance" recommends a range of
300 to 500 micro-siemens per centitneter of conductivity, as an indicator of water
pollution to protect aquatic life.
In issuing this guidance, EPA has circumvented the rulemaking process, which allows for
industry and public notice and comment. This level has been arbitrarily and capriciously
• > set and has no basis in sound science, and could be applied to any mining facility with a
water discharge in the U.S., with no indication that this will improve water quality or the
Recommended action:
EPA should issue this change as proposed rulemaking and allow for public notice and
EPA- Clean Water Protection Guidance
On December 20, 2010, EPA sent a new draft guidance document to the White House for
review that will expand the scope ofjurisdiction under the Clean Water Act (CWA).
Although the document has not been publicly released, it is reported that this document
will use a broad test for detennining CWA jurisdiction that will subject waters near
traditionally navigable waters to federal jurisdiction, including those waters suspected of
only tenuous groundwater connections - not just surface waters. This agency action is in
lieu of action by the 111til Congress on the Clean Water Restoration Act, which would
have removed the tenn "navigable" from the CWA and redefined "waters of the United
States" using very broad and inclusive tenus. EPA is attempting to circumvent the
rulemaking process again by issuing "guidance" that is, in fact, a lu1e without allowing
for industry and public notice and comment.
EPA's guidance is expected to expand the CWA beyond original Congressional intent
and eliminate the federal/state pminership inherent in the law. By expanding jurisdiction
under the CWA in such a way, aggregate operators will have to seek additional federal
approvals and pennits in order to complete reclmnation projects at significmlt cost and
delay. The guidance will also delay the permitting process for citing a new operation or
expanding an existing operation.
Recommended Action:
EPA should issue this change as proposed rulemaking and allow for public notice and
EPA - Storm Water Guidance
On November 12,2010, EPA issued a memo to regional water directors with broad
policy changes, including recommending stormwater permits include numeric flow
limits. Additionally, EPA is developing revised constmction and development effluent
limitations guidelines which place a strict muneric discharge limit on turbidity; these
limits may be applied to other types of activities. Previously, stonnwater maJ1agement
has consisted of facilities adopting best management practices to prevent impact to the
environment. As with other recent EPA actions, these have the potential to drastically
chmlge EPA policy without allowing for public notice aJld comment via mlemaking. .
Furthennore, EPA does not specify how facilities should measure flow, or provide any
evidence that these costly changes will improve the enviromnent.
EPA's guidaJ1ce could require aggregates facilities to measure stonn-water runoff by
installing expensive equipment and possibly meet strict numeric limits on turbidity with
no enviromnental improvement. This could cause delays in permitting as well as
decreased production/job loss if limits cannot be met due to weather or other
uncontrollable events.
Recommended Action:
EPA should issue tins chaJ1ge as proposed rulemaking aJld allow for public notice and
Lessening the RegulatOlY Impact on Small Businesses
Expansion ofSBREFA
NFIB's lop regulatory priority is to make regulation less costly and burdensome for small businesses. Many
studies, including a 2010 study for the U.S. Small Business Administration, showed tilat small businesses
spend 36 percent more per employee to comply with regulations tban tileir larger counterparts. NFIB
believes tilat the Small Business Regulatory and Enforcement Faimess Act should be expanded to cover all
agencies wbose rule s affect small businesses, as a means to require tilese agencies to evaluate tbe burdens
tileir rules place on small employers.
Indirect costs of regulation
Regulatory agencies often proclaim indirect benefits for regulatory proposals, but decline to analyze and
make publicly available tbe indirect costs to consumers, such as higher energy costs, jobs lost, and higher
prices. Agencies should be required to make public a reasonable estimate of indirect impact. This
requirement exists if agencies follow the Regulatory Impact Analysis (RIA) mandate contained in Executive
Order 12866 signed during tile Clinton Administration. Congress should hold agencies accountable for
providing a balanced statement of costs and benefits in public regulatory proposals.
Current and Proposed Regulations Negatively Impacting the Economy and Jobs
Lead; Renovation, Repair, and Painting Program - EPA
Two separate rules, one affecting pre-I 978 housing (finalized in 2008) and one affecting public and
commercial buildings (tentatively expected to be proposed in Dec. 2011), are having an impact on small
contractors and construction companies. 111e 2008 rule required small businesses to pay for expensive
certi fication and training, and to condnct costiy testing that drove up the price of projects, even when there
were no potential risks. Even worse, the EPA's inability to adeqnately enforce the rule has decreased the
likelihood that a compliant small business can compete for work since non-certified finns - by doing tile
work illegally - can charge lower prices.
Boiler MACT - EPA
In June, EPA proposed tile most expensive control technology standard it has ever conceived to regulate
boilers. Rather than sellimits based on levels of emissions that hann public health, the EPA soughl to
establish a standard based on technology tbat few if any r e a ~ l i f e boilers can attain. One study places the cost
of the rule at $20 billion. Using a health based standard could cut that price tag in half. Fortunately, tile EPA
has asked for an extension so it can propose a new standard available for public comment.
National Ambient Air Quality Standard for Ozone- EPA
Federal law requires the EPA to establish air standards for ozone every five years. 111e standard was last
finalized in 2008 at a level that results in no expectation of harm to humans. Yet, with no new information at
its disposal, the EPA reconsidered and proposed a lower standard tilat a significant number of counties in
America cannot attain. Increased nonattainment means that new emissions of a poilutant from a project need
to be offset Witil a reduction of an equivalent amount- which could be entirely out of the new projects
control. This lack of attainment results in increased pennitting costs and delays or cancellations of job-
creating projects.
Engineering and Administrative Controls for Noise - OSHA
OSHA requires employers to use engiueering or administrative controls - such as isolating loud equipment
in a separate room or purchasing quieter machinery - to limit employee exposure to loud noises. However,
the law requires OSHA to consider whether such requirements are economically feasible. OSHA is currently
proposing to define econnmically feasible as "when the cost of implementing such controls will not threaten
the employer's ability to stay in business." ShOli of shutting a business's doors - even if it means the layoff
of several employees - OSHA wants small businesses to make these costly improvements that may yield
little marginal improvement in hearing safety. Furthemlore, the definition wou ld give OSHA inspectors
broad discretion to rule that any controls are not sufficient.
Addition of Musculoskeletal Disorders (MSDs) to OSHA 300 Log - OSHA
OSHA wants to add the musculoskeletal disorders column back to the OSHA 300 log to obtain data on how
many injuries of this type take place. MSDs are so difficult to determine that even medical professionals can
have a hard time making a diagnosis. OSHA thinks that not only can small business owners make this
determination - but they can do it in about five minutes and at virtually no cost. More worrisome, this action
is widely considered to be the first step toward some sort of ergonomics rule like the one Congress
overtnrned in 200 I using the Congressional Review Act.
Injury and Illness Prevention Program - OSHA
OSHA is developing a rule requiring employers to implement an Injury and 1I1ness Prevention Program. It
involves planning, implementing, evaluating, and improving processes and activilies affecting employee
safety and health. Developing a fonnal program could be a costly exercise for small businesses and become
a paperwork nightmare. Furthennore, the program would likely require small businesses to address all
"foreseeable" hazards- meaning that any workplace accident, no matter how unlikely, could be interpreted
as foreseeable and expose small firms to fines and penalties.
Cooperative Agreements - OSHA
OSHA is about to finalize a rule that would significantly reduce incentives for small businesses to participate
in a voluntary program that educates small employers on hazards in tbe workplace. Small businesses rely on
compliance assistance from agencies because they lack the resources to employ specialized staff devoted to
regulatory compliance. The reduction of tI,ese key incentives, while at the same time beefing up
enforcement, shows that the agency wants to levy fines and penalties instead of helping small businesses
comply. Ironically, reduced participation by businesses will ultimately lead to more dangerous workplaces,
not safer ones.
Right to Know Under tbe Fair Labor Standards Act- DOL
The DOL wants to require businesses to conduct an analysis and disclose to workers their stalUs as the
employer's employee or an independent contractor and how their pay is computed. Expected to be proposed
in the spring, tllese analyses will require small business owners, the main regulatory compliance person at
almost every small business, to perfonn potentially lengthy paperwork for every new employee UleY hire.
The additional paperwork will require more time away from running the business and open tile door to
paperwork mistakes that could lead to fines and penalties.
August 18,2010
EPA Docket Center (EPAlDC)
Environmental Protection Agency
Mailcode: 2822T
1200 Pennsylvania Avenue, NW
Washington, DC 20460
Re: Docket IDs: EPA-HQ-OAR-2003-0119;
These comments are snbmitted for the record to O,e Environmental Protection Agency (EPA) on behalf of
the National Federation of Independent Business (NFIB) and the NFIB Small Business Legal Center in
response to the Notice of Proposed Rulemakings (NpRMs) concerning standards for boiler emissions and
solid waste incinerator perfonnance published in the June 4, 2010 edition of the Federal Regis/er.
NFIB is the nation's leading small business advocacy association, representing members in
Washington, D.C. and all 50 state capitals. Founded in 1943 as a nonprofit, nonpartisan organization,
NFIB's mission is to promote and protect the right of its members to own, operate, and grow their
bnsinesses. NFIB represents abnnt 350,000 independent business owners who are located thronghont
the United States - inclnding at least 50,000 members O,at could potentially be affected by these
The NFIB Small Business Legal Center is a nonprofit, public interest law firm established to provide
legal resources and be the voice for small bnsinesses in the nation's courts through representation on
issues of public interest affecting small businesses.
NFIB is very concerned about the economic impact these rules will have on small businesses already
struggling in the current economic climate. In general, the rules are expensive, affect too many
facilities, and compliance will be extremely difficnlt - if not impossible - given current teclmology.
Moreover, we believe EPA could achieve O,e desired healOl effects with a much less burdensome rule.
Our concerns are detailed below.
The Impact of Regulation on Small Business
Regulation affects small businesses in a substantially different way than it does large businesses. When
a large business needs to comply with a new regulation, it designates its regulatory compliance officer
- or officers- WiOl the task. These individuals know their way around regulatory teclmicalities that
most lay persons do not easily understand.
For thc small business owner, there is no regulatOly compliance officer. This burden falls squarely on
the owner, who, more times than not, is responsible for everything from ordering inventory and hiring
employees, to taking out O,e trash at the end of the day. And while they may be expert in Oleir craft,
comprehending regulations, fonnalizing plans for their implementation and filling out paperwork is an
extremely burdensome exercise.
Even beyond the significant time regulations take away from a small business owner trying to make a
living, the per-employee cost of regulation is significantly greater for small businesses. A study
perfonned by economist Mark Crain for the U.S. Small Business Administration estimated that
regulations cost Americans $1.1 trillion annually. Importantly, the study also showed that small
businesses face a 45 percent greater regulatory burden than their larger counterparts' TI,e compliance
burdens presented by these rules are great because small husiness owners will need to spend significant
time to understand U,ese rules, make expenditures to expensive consultants to bring U,e facility up to
compliance, and greatly increase the amount of time he or she spends on paperwork compliance.
EPA has aimed for the platinum standard with this rule when the gold standard would be effective. The
result will have serious and hannful consequences for the small businesses forced to comply with this
National Emission Standards for Hazardous Air Pollutants for Area Sources: Industrial,
Commercial, and Institutional Boilers; Proposed Rule [EPA-HQ-DAR-2006-t)790J
NFIB has several concerns regarding the area source rule. Particularly troublesome is how
economically burdensome this rule is despite the EPA having specific auUlOrity in Section 112 of the
Clean Air Act to consider alternatives in situations where there are economic limitations. In particular,
Section 112(d)(4) allows the EPA to set health-based standards for cel1ain emissions. TI,ese health-
based standards set a limit Urat is no more stringent or no less stringent than necessary.
In formulating Section I12(d)(4), Congress recognized that, "For some pollutants a MACT emissions
limitation may be far more stringent than is necessary to protect public health and the environment." 2
TI,e intent of Congress is clear - standards should only be as stringent as Urey need to be. Instead,
EPA has chosen an approach that is similar to using a sledgehammer to drive in a nail.
The four mail burdens presented by this rule are:
• The cost of obtaining, installing, and maintaining the newly required controls: The controls, if
available, will pose a great financial challenge for small businesses - most of which do not
generate a profit. Requiring financially challenged firms to spend scarce reSOllfces on Urese
controls in this economy will force small businesses to cut back hours, eliminate jobs, or
worse, close their doors for good.
• Excessive requirements on new boilers: The excessive requirements on new boilers are a
disincentive for small businesses to purchase one. Boilers are already expensive; the
requirements will make new ones even more so. This runs counter tn limiting air emissions.
New boilers already run cleaner U,an older ones. EPA could achieve its goal of reducing air
emissions by incentivizing the purchase of newer, more efficient boilers. For example, EPA
could exempt new boilers entirely, or allow the purchase of a new boiler to waive the annual
testing requirements for at least five years.
• The lack of a limited-use exemption: EPA could have reduced the burden on small entities by
providing an exemption on boilers that are only used once or twice per week or for a total of a
I Crain, W. Mark, The Impact of Regulatory Costs on Small Finns, 2005.
2 S. Rep. No. 101-228 (1990) at 171.
few hours. Instead, tbe rule now broadly affects ule smallest of small businesses - and is
likely to impact small institutions like schools and churches.
• The continuous testing and monitoring requirements create considerable new paperwork and
recordkeeping burdens: These requirements will require small business owners to spend more
money on outside testing. TIle monitoring requirement will mean less time the business owner
bas to spend rUMing ule business and could become a paperwork nightmare. It is also unclear
wbether area source facilit ies will have to prepare and maintain written, fomlal energy
management programs. Written programs would add to the paperwork burden significantly.
• EPA's proposal requires a one-time energy assessment to be performed by an outside
consultant: Never before has such a requirement been added to a MACT standard. TIlis work
practice requirement is an excessive measure that EPA argues is justified in light of the
emissions reductions and cost savings tllat can be realized by identifying and implementing
energy efficiency prnjects. TIlis proposed requirement is beyond EPA's authority and sbould
not be included in the final rule.
Section I 12(d) of tile Clean Air Act pennits EPA to regulate sources ofbazardous air
pollutants (HAPs). Because tbe proposed energy assessment requirement would apply to
processes that demand energy from affected boilers, but are not necessarily sources of HAPs
tbemselves, EPA's proposal exceeds its limited authority to regulate only HAP sources.
Standards of Performance for New Stationary Sources and Emission Guidelines for Existing
Sources: Commercial and Industrial Solid Waste Incineration Units; Proposed Rule IEPA- HQ-

EPA has also issued an NPRM affecting commercial and industrial solid waste incineration (CISWI)
units. Similar to ule area source boiler rule, this proposal will broaden the regulated community,
impose excessively stringent emissions requirements, and increase tile paperwork burden on small
business owners.
NFIB's five primary concerns with this rule are:
• Reduction of the types of exempt incineration units: EPA has reduced the types of incineration
units exempt from CISWI rules from 15 to nine. This reduction increases the number of small
businesses tllat will be affected. In addition, some of the industries that can least afford
expensive new regulation - sucb as the small fanning industry - may now be covered.
• Inclusion of units tI,at recover energy from the combustion of solid wastes: This proposal
would create a subcategory of CISWI units that recover energy from the materials they bum.
Previously, sucb units were exempt from ClSWT requirements because they essentially turned
waste into a useable source of energy. TIlis new inclusion reduces ule incentive for a facility to
use an incinerator that recovers energy since it is now subject to complex and burdensome
regulatory requirements.
• Requirement to be in compliance with emission limits even during startup. shutdown, and
malfunctions: The proposal requires units to keep emissions below limits even during the brief,
emission-beavy periods ofstamlp and shutdown, and during unforeseen malfunctions. TIlis
proposal may umlecessarily bring more units over the emissions limits and tllereby subject
more facilities to potential violations and additional reporting and recordkeeping requirements.
This proposal could add substantial cost to the regulated community at little, if any, gain to the
• Standards for new nnits are far too stringent: EPA's proposal includes standards on new units
that are so difficult to meet the agency itself does not anticipate any new units being
constructed for tllI"ee years because it will be too expensive to add controls tI,at will allow ti,e
new units to comply with the proposed emission limits. This proposal would seem to run
counterintuitive to reducing emissions. Newer units run cleaner and more efficiently tI,an older
ones. Yet, instead of providing incentives for facilities to purchase cleaner burning units, EPA
has gone out of its way to eosure that no new units will be constructed, let alone used, in the
foreseeable future.
• EPA has based limits on incinerator subcategories on a proposed definition of solid waste that
may change: EPA set its proposed emission limits for ti,e new subcategories using the
maximum achievable control technology (MACT) procedures for new and existing sources. In
order to do this, the agency used ti,e proposed defmition of solid waste. TIlis definition of
course, could change depending on the comments and feedback EPA receives. TI,e result is
that the proposed emission limits could be rendered useless, and could wind up even more
stringent than this proposal EPA should have finalized its definition first so that the regulated
community coukl have a full understanding of the burdens of the CISWI rule.
NFIB is concerned about the impact of these two proposed rules. Both will substantially enlarge the
regulated community, increase standards to near impossible levels, and impose severe paperwork and
compliance burdens on small business owners.
TI,e EPA has the authority under Section 112(d)(4) of the Clean Air Act to reduce ti,e hurden these
proposals will have on small businesses. In particular, the current economic conditions should provide
the EPA all the reasons it needs to take advantage of its ability to create health-based standards for
certain emissions.
TIlank you for your time and consideration. Should you reqnire further infonnation, please contact
Daniel Bosch at 202-314-2052.
Susan Eckerly
Senior Vice President
Puhlic Policy
June 29, 20 LO
u.s. Department of Labor
Occnpational Safety & Health Administration
200 Constitution Avenue
Washington, D.C. 20210
Written Comments for OSHA's Injury and lIluess Prevention Program Stakeholder
Tbese comments are submitted to the Occupational Safety & Health Administration (OSHA) on
bebalf of the National Federation ofIndependent Business (NFffi) and the NHB Small Business
Legal Center as our input on OSHA's Injury and Illness Prevention Program (l2P2) Stakeholder
NFffi is the nation's leading small business advocacy association, representing members in
Washington, D.C. and all 50 state capitals. Founded in 1943 as a nonprofit, nonpartisan
organization, NFffi' s mission is to promote and protect the right of its members to own,
operate, and grow their businesses. NFffi represents about 350,000 independent business
owners wbo are located throughout the United States. The NFffi Small Business Legal Center
is a nonprofit, public interest law firm established to provide legal resources and be the voice
for small businesses in the nation's courts through representation on issues of public interest
affecting small businesses.
NFffi members and small business owners in general are committed to the safety of their
employees. For these businesses, employees are Like members of an extended family. Though
it may not be fOlmalized in a "program," small business owners take great pains at the
business's expense to provide a safe workplace. Because of this fact, NFffi has serious
concerns about the fonnalized nature of OSHA's vision for the 12P2 program.
Tbe Impact of Regulation on Small Business
Regulation affects small businesses in a substantially different way than it does a large
business. When a large business needs to comply with a new regulation, it designates its
regulatory compliance officer - or officers - with the task. These individuals know their
way around regulatOly teclmicalities that 1110St lay persons do not easily understand.
For the small business owner, there is no regulatOly compliance officer. Tbis burden falls
squarely on the owner, who, more times than not, is responsible for everything from ordering
NFIB Comments on OSHA's Injury and Illness Prevention Program (12P2) Stakeholder Meeting
June 29, 2010
inventory and hiring employees, to taking out the trash at the end of the day. And while they
may be expert in their craft, comprehending regulations, formalizing plans for their
implementation and filling out papetwork is an extremely burdensome exercise.
Even beyond the significant time regulations take away from a small business owner trying to
make a living, the per-employee cost of regulation is significantly greater for small businesses.
A study perfot111ed by economist Mark Crain for the U.S. Small Business Administration
estimated that regulations cost Americans $1.1 trillion annually. Importantly, the study also
showed that small businesses face a 45 percent greater regulatory burden than thell: larger
counterpalts. I The compliance burdens presented by requiling formalized or written I2P2
programs places small businesses at a further disadvantage from the large bus inesses that are
already likely to have some sort of plan in place.
Concern About OSHA Using the I2P2 Program to Avoid the Regulatory Process
Preswnably, one reason that an I2P2 rule seems attractive to OSHA is that it could offer
OSHA a way around the roadblocks that the rulemaking process represents. Rather than
continuing issue-by- issue regulatiln, a safety and health program requirement would place the
burden on each employer to assess its workplace, identify the hazards, and protect employees
from them. We assume that OSHA's goal would be that an employer that fails to do so, or
whose program is not sufficient in OSHA's eyes, could be cited for its failures.
At first blush, it is difficult to argue against this type of approach, since small businesses
should know what their employees are exposed to and protect them accordingly. But NFlB is
concemed that an I2P2 requirement as CUITent envisioned by OSHA would allow the agency
to engage in significant "Monday- moming quarterbacking" after an accident. For example,
OSHA may argue that any accident - no matter how freakish - is evidence that the
employer's safety and health program is inadequate because it failed to anticipate the hazard
or combination of hazards that resulted in the accident. It is one thing to undertake self-
evaluation voluntarily; it is quite another to face penalties and adverse publicity if OSHA uses
hindsight to allege that the employer's program fails to protect employees.
NFffi was pleased to see that Administratm David Michaels went on record in an April 21, 20I0,
web chat to say the following:
"The i2p2 standard is not a substitute for other OSHA standards...The i2p2
standard simply provides a mechanism for employers to identify hazards;
however, the control of those hazards will be required by existing OSHA
standards and the general duty clause, as is cUlTently the case."
NFffi believes that an I2P2 rule should explicitly state that OSHA will not issue fines or
penalties for the aspects of workplace safel)' not covered by an applicable OSHA standard.
I Crain. W. Mark, The Impact of Regulatory Costs on Small Firms, 2005,
hLI p;Ilwwwosha. govIadvol researchIrs264.nel r.
NFIB Comments on OSHA's Injury and Illness Prevention Program (12P2) Stakeholder Meeting
June 29,2010
Compliance Concerns
There is also concem that a proposed rule would allow OSHA to dictate not just safety standards,
but also the specific procedures that must be in place to meet those standards. It appears clear
from recent OSHA proposals and conunents made by OSHA officials that a primaty goal of the
agency is to ensme compliance by employers, even in instances where no injury or incident has
taken place. As further evidence, over the past 18 months OSHA has ramped up enforcement at
the expense of compliance assistance.
NFIB is concerned that the eventual proposed rule will focus heavily on process rather than
outcomes. The more complicated the process, the more difficult compliance becomes for small
business owners. Penalizing small businesses for minor technical omissions in their 12P2 plans
will not improve employee safety and damages the viability of small businesses operating at
slim, if any, profit mat·gins.
FUt1hennore, NFIB fears the 12P2 proposal will eliminate the concept of a "voluntary audit."
These valuable audits, conducted by third pat1ies, such as insurers, to assess the safety of a
workplace, aim to help businesses achieve the goal that the I2P2 program purpot1S to - help
employers develop a culture of workplace safety and take steps to continually make
improvements toward that end.
Currently, OSHA will only ask for the results of a voluntary safety audit in an inspection under
extraordinary circumstances. Under the 12P2 progratn, there will be no such thing as a voluntary
safety audit. The I2P2 program will make regular safety audits mandatory, which will make all
self conducted audits subject to inspection. This is yet another area in which OSHA chooses to
enforce its technical rules rather than help a small business comply.
Suggestions fOt' the Proposed Rule
Conduct an SBAR Panel
OSHA should take advantage of its legal requirement under the Small Business Regulatory
Enforcement and Faimess Act to conduct a Small Business Advocacy Review Panel (SBAR
Panel) to assess the rule's impact on small businesses, leam how small businesses actually
deal with regulatory compliance and paperwork, and ideas on how to make the mle less
burdensome. The SBAR Panel will also help give OSHA the necessary background on the
unique challenges that regulations place on small businesses.
Focus on Outcomes Rather than Processes
Throughout this process, OSHA should focus its effot1 on achieving the safety outcomes it
desires, rather than require complicated, technical assessments of evety potential health danger
in the workplace. Small business owners, despite their best efforts, have more difficulty than
larger fimls when it comes to complying with regulations because it is one of many tasks and
problems that they need to complete and solve. Whereas as a larger firm has dedicated
personnel, a small business owner has no such luxuty. NFIB is deeply concemed about the
potential for a mle that opens up small businesses to filles and penalties for minor violations
that have not even led - or could be foreseen to lead to - an injury.
NFIB Comments on OSHA's Injury and Illness Prevention Program (12P2) Stakeholder Meeting
June 29, 2010
Avoid Using the Rule as a Way Around the RegulatOlY Process
As stated earlier, NFIB is concemed that OSHA may use the I2P2 rule as a defaclo regulation
for those issues where the agency feels it would not be able to work through the regulatory
process as quickly as it would like. We hope that Dr. Michaels's comments from his April web
chat - chiefly, that this rule will not be used as a way around the regulatory process - are
accw·ate. However, to ensure that this does not happen, OSHA should not require I2P2 plans
for those aspects of workplace safety that it does not currently regulate, such as
musculoskeletal disorders.
Do Not Require Audits as Patt of the "Program Evaluation and Improvement" Component
As mentioned above, the voluntmy audit process helps achieve the workplace safety culture
changes that this rule is intended to produce. By requiring audits as part of the 12P2 process,
and making such audits available for inspection and penally, OSHA would be removing this
valuable opportunity for employers to make improvements on their facilities even when no
injuries have taken place.
Opening up audits for inspection and penalty could open up any aspect of an employer's
safety program to penalty. Any accident, regardless of how freakish, unforeseeable, and
unlikely the event may be, could now be used by OSHA as grounds to fine a small business
for a faulty audit and 12P2 program.
To reiterate, small business owners care deeply about their employees and work tirelessly to
ensure their safety. Because of this fact, OSHA should be careful when crafting an I2P2
regulatory scheme that bogs down small businesses in technical processes, rather than
achieving successful outcomes.
NFIB and its members are concerned about the potential for OSHA to use tltis proposal as a
means of regulating workplace safety without going tluough required regulatory processes.
Lastly, OSHA should be sure to conduct a legally required SBAR panel to provide the agency
with the proper context regarding the unique challenges that regulations have on small
NFIB appreciates the OPPOltunity to participate in today's panel and submit these comments
for OSHA's consideration.
Susan Eckerly
Senior Vice President
Public Policy
November 2, 2010
OSHA Docket Office
Docket No. OSHA-20lO-0010
U.S. Department of Labor
Room N-2625
200 Constitution Avenue NW
Washington, DC 20210
Re: Consultation Agreements: Proposed Changes to Consultation Procedures - Docket No.
TIJese couunents are submitted for the record to the Occupational Safety and Health Administration
(OSHA) on behalf of the National Federation oflndependent Business (NFlB) and the NFIB Small
Business Legal Center in response to the Notice of Proposed Rulemaking (NPRM) for Consultation
Agreements: Proposed Changes to Consultation Procedures published in the Federal Register on
September 3, 20 IO.
NFffi is the nation's leading small business advocacy association, representing members in
Washington, D.C. and all 50 state capitals. Founded in 1943 as a nonprofit, nonpartisan organization,
NFIB's mission is to promote and protect the right of its members to own, operate, and grow their
businesses. NFIB represents about 350,000 independent business owners who are located throughout
the United States, in varying industries that cover virtually all of tlJe industries potentially affected by
this rule. The NFIB Small Business Legal Center is a nonprofit, public interest law firm established to
provide legal resources and be the voice for small businesses in the nation's courts through
representation on issues of public interest affecting small businesses.
NFffi's national membership spans the spectrum of business operations, ranging from sole proprietor
enterprises to firms with hundreds of employees. While there is no standard definition of a "small
business," the typical NFIB member employs approximately 10 people and reports gross sales of about
$500,000 a year. The NFIB membership is a reflection of American small busiJess.
OSHA's Proposal
OSHA is proposing to revise its regulations for the federally-funded On-site Consultation Program
(OCP). In the NPRM, OSHA says the purpose of the proposal is to clarify tl,e ability of the Assistant
Secretary for Occupational Safety and Health to define sites which would receive inspections
regardless of participation in the Safety and Health Achievement and Recognition Program (SHARP)
TI,e proposal also allows OSHA compliance officers to proceed with enforcement visits resulting from
referrals at sites undergoing consultation visits or have attained SHARP status. Lastly, tl,e proposal
limits the deletion period from OSHA's programmed inspection schedule for those employers
participating in tl,e SHARP program.
NFIB Comments on Docket No.
November 2.2010
NFIB believes that this NPRM proposes greater changes to the ocr than a mere "clarificalion." We
believe that OSHA is making significant changes to the OCP that will result in decreased participation
by small businesses. Our concerns are detailed below.
OSHA's On-site Consultation Program
OStIA's OCP is an example of a program that addresses a continual concem ofNFID and its member
businesses - regulatory compliance. 11,e OCP acknowledges that small businesses have a more
difficult tinle complying with complicated regulations than larger companies that can devote resources
10 employ compliance personnel. For most small businesses, Ihere is no safety or compliance officer on
staff with the expertise to fully identify hazards and implement solutions.
The OCP offers small businesses the opportunity to tap expertise. Small businesses can request a free
consultation with a state-certified consultant. ]be consullant meets with management and employees,
perfonns a walk through of the facility to identify hazards, and provides a wlitten report on its
findings. This report includes identification of potential hazards and how to address them.
Small businesses can derive significant benefits. For starters, the infonnation they are provided by
consultants leads to fewer workplace injuries - the most significant benefit of all. Additionally,
through involvement in the SHARP program SlJlall businesses can receive exemptions from
programmed OStIA inspections for a period not less than one year and usually longer. Many
businesses participating in the program can also save on insurance premiums.
The program is useful to small businesses. Between January I and March 31, 2010, OSHA consultants
visited 14,441 sites. Fifty six percent of those sites were small businesses with fewer Ihan 26
employees' Assuming that this was an average quarter, approximately 30,000 businesses with 25 or
fewer employers usc the service annually.
Members that we spoke to about the program - all of which currently hold SHARP status - lell us
ti,at ti,e program is an invaluable way to help cnsure the safety oftileir employees and reduce
employee tumover. Our members tell us ti,at achieving SHARP status is also a source of pride not only
for employers, but employees as well. One member specifically said ti,at the OCP and SHARP are
"priceless." Another indicated that it would be "disappointing" if the reduced participation that may
stem from ti,e proposed changes ultimately led 10 ti,e elimination of ti,e program.
NFffi's Concerns
NFIB believes ti,at OSHA's proposal goes beyond a simple clarification of existing expectations, as
OSHA suggests, and inslead imposes greater restrictions on the benefits of participating in ti,e
consultation program.
OStIA's proposal specifically adds a new category under which an ongoing consultation can be
tenninated or a business in pre-SHARP or SHARP can receive inspections - referrals. Referrals are
allegations of potential workplace hazards or violations from state or local health departments, media,
and otiler sources. With tilis change, referrals will now be a basis to initiate enforcement activity at
worksites subject to defenals or deletions from programmed inspections as a result of either an in
progress consultation visit, or at a worksite in pre-SHARP or SHARP status- at ti,e discretion of the
regional administrator.
IOu-site Consultation Visits by Number of Employees: FY 2010- 2
htlp:/Iwww.osha.gov/dcsn/smallhusine.... s1collsultchan I.hlml
NFIB Comments on Docket No. OSHA-2010-0010
November 2, 2010
Additionally, OSHA is proposing to change tbe length of time that businesses in tbe SHARP program
are deleted from programmed inspection schcdule lists. Currently, SHARP businesses are exempt for a
period of not less tl,an one year. 11,e NPRM proposes to change tbis exemption to a period of one year.
The distinction may be small, but businesses tI,at currently have (1/ least one year of deletion and up to
Iwo years, will have at most one year if the proposal is finalized
Businesses that are in pre-SHARP status, or working toward achieving SHARP status, currently enjoy
a deferral of up to 18 months of programmed inspections while they work toward SHARP status. 11le
proposal would eliminate tllis defetTal.
Each of the three elements described above will have the effect of reducing participation in the SHARP
program. 11le proposal significantly alters tile incentive structure that the program was founded upon.
Small businesses need tile information and training tI,at ti,e OCP provides. The proposed rule would
greatly reduce incentives to small business and deprive tI,em of needed compliance assistance.
NFIB asks OSHA to demonstrate the need to change the incentive structure. In the NPRM, there are no
specific examples provided to show why these formal changes need to take place. If, as OSHA
suggests, these changes are merely a clarification of existing procedures tllen why are changes
necessary? ill the absence of demonstrated need, small businesses cannot support the proposed changes
to a helpful complia nce assistance program.
As we reached out to members, many were alrumed to hear about the changes. Some said that if they
were not already at SHARP status, the proposed changes would keep them from considering
participating. 111ey emphasized that even tllOugb access to ti,e consultant is free of charge, ti,e
upgrades they have to make as a result of the program often come at considerable cost. Therefore, the
incentives OSHA provides are critical to their participation in the program. As the incentives are
reduced, participation will decrease.
One member pointed out that OSHA has a cost and mission interest in ensuring participation in the
program. OSHA does not have enough enforcement resources to inspect all job sites and facilities.
Through ti,e OCP, it is able to get voluntary compliance from thousands of businesses. Though OSHA
gives up some of its enforcement capability 10 these participants, what it gets in return is much more
valuable. OSHA receives an honest effort to attain full compliance 3I1d a commitment to workplace
safety. The program is tile ideal win-win. However, NFIB 3I1d its members are deeply concemed the
proposed changes will lead to fewer businesses participating, meaning more injuries could be likely.
NFIB Members' Experiences
NFID has long maintained that the OCP is a valuable program for small businesses. In fact, from June
2004 wltil June 2008, NFID was an OSHA Alliance partner working to make healtll and safety
information and compliance assistance resources available to all employers, especially small and
independent businesses. As part of the Alliance, NFIB promoted the OCP within its membership as a
valuable compliance assistance tool.
NFIB continues to believe that one of ti,e great challenges small businesses face complying with
regulations is that small companies lack specialized, expert staff devoted to compliance. Often, ti,e
safety compliance person has additional, unrclated responsibilities. 11,e OCP is a terrific tool to assist
compruJ.ies like this.
Take for example recent SHARP awardee Seed Consultants, Inc. (SCI) in Washington Court House,
Ohio. Marcia Boeck, the safety director for this NFIB member, originally found out abont the program
NFIB Comments 011 Docket No. OSHA-20tG-00tO
November 2, 20 I0
at a meeting near her business held by NFIB to discuss personal protective equipment requirements.
Ms. Boeck recognized Olat SCI needed help because, as she said, the responsihility of handling safety
compliance "just kind of fell into my lap," as an extra priority in addition to her other duties.
With the help of the program's consultants SCI devised a comprehensive safety manual and program
for its company. Boeck told us that without the consultation program she would not have known where
to begin to develop such a safety program.
Another memher - also a SHARP awardee -told us Omt aside from the pride the company gets
knowing they provide the safest possible workplace for Oleir employees, they enjoy the insurance
savings they receive as a result of being involved in the OCP. That member also says that the
inspection they get by participating in the program is more thorough thao a regular programmed OSHA
inspection, which they prefer hecause it allows them to make their workplace safer than if OSHA
relied on an enforcement model alone.
NFIB and its member businesses oppose the proposed changes to the OCP because it reduces mucb-
needed incentives for small businesses to participate. If this proposal were to be finalized as currently
written, we believe that significantly fewer businesses would participate. A logical result of reduced
pmticipation is that injuries would increase. With OSHA's clear mission being to provide a safe
workplace for employees, the proposal runs counter to the agency's purpnse. We believe that the OCP
should be left alone, so that many thousands of small businesses can havc this valuable resource to
make their workplace safer.
Thank you for your time and consideration. Should you require further information, please contact
Daniel Bosch at 202-314-2052.
Susan Eckerly
Senior Vice President
Public Policy
Occupational Injury and Illness Recording and Reporting Requirements:
Proposed Rule
OSHA Docket Number OSHA-2009-0044 (RlN: 12l8-AC45)
Susan Eckerly
Senior Vice President
Federal Public Policy
Stephen C. Yohay
Melissa A. Bailey
Ogletree Deakins Nash Smoak & Stewart, P.c.
2400 N Street, N.W.
Fifth Floor
Washington, D.C. 20037
(202) 887-0855
March 30, 2010
OSHA Docket Office
Docket No. OSHA-2009-0044
U.S. Department of Labor
Room N-2625
200 Constitution Avenue, N.W.
Washington, DC. 20210
Re: Occupational Injury and fIIness Recording and Reporting Reqnirements - OSHA
Docket Number OSHA-2009-0044 (RIN: 1218-AC45)
These comments are submitted for the record to the Occupational Safety and Health
Administration (OSHA) on behalf of the National Federation of Independent Business (NFIB)
and the NFill Small Business Legal Center in response to the Notice of Proposed Rulemaking
(NPRM) for Occupational Injury and Illness Recording and Reporting Requirements published
in the Federal Register on Janumy 29, 20 IO.
NFill is the nation's leading small business advocacy association, representing members in
Washington, D.C., and all 50 state capitals. Founded in 1943 as a nonprofit, nonpmtisan
organization, NFIB's mission is to promote and protect the right of its members to own,
operate, and grow their businesses. NFffi represents about 350,000 ind ependent business
owners who are located throughout the United States, in valying industries that cover viltually
all of the industries potentially affected by tillS IUle. The NFIB Small Business Legal Center, a
nonprofit, public-interest law finn established to be the voice for small business in the nation's
courts and the legal resource for small business owners nationwide, is the legal arm ofNFIB.
NFIB's national membership spans the spectlUill of business operations, ranging from sole
proprietor enterprises to finns with hundreds of employees. While there is no standard
definition of a "small business," the typical NEill member employs 10 people and reports
gross sales of about $500,000 a year. Roughly 15% ofNFIB members employ 10-20 people
and approximately 28% have ten or more employees. I
I http://WWW.11fib.com/abolit-nfib/what -is -11 fib-/who-nfib-represents
NFIB's Primary Concern with the Proposal- Small Business Impact Not Adequately
OSHA's proposal to add a musculoskeletal disorder (MSD) colunm to the OSHA 300 log
raises several red flags for small businesses. As discussed below, we are concemed that
OSHA's proposal fails to follow the letter and spirit of the Small Business RegulatOlY
Enforcement and Fairness Act, which generally requires agencies to assess and account for
small business impact before promulgating a new rule.
We fear that OSHA's cost estimates for compliance are severely understated. ln this proposal,
OSHA estimates that compliance would require five minutes for management to read and
sufficiently comprehend the standard. Then, it estimates that cOiTectly identifying an MSD and
marking tlle log would take one additional minute for each injury thereafter.
This estimate demonstrates OSHA's fundamental misunderstanding of how small businesses
operate, and the likely actual cost for small businesses to comply with tlus rule. In tlle majority
of our members' businesses, tlle task of understanding and complying witll the changed rule
would fall to the small business owner. Being a small business owner often means that you are
responsible for everytlJing from balancing the books, to ordering inventOIy, hiring employees,
and serving as tlle chief safety officer for your business. For a small business owner, good
faith efforts to comply Witll vague, overly technical, and hard-to-fmd regulations can require
significant time away from the business -- time that could be better spent growing tlle
enterprise and employing more people.
Here are just a few of the ways that small business owners may not be able to comply with this
rule in the time OSHA estimates. At the outset, it could take much longer than five minutes to
comprehend the requirements, since small business owners are not specialized in handling
issues like this. Small businesses lack the resources to hire specialized regulatory compliance
staff. Some small businesses, patticularly in office sellings where injuries are not
cOIlUllonplace, would be required to spend more time working with the OSHA 300 log.
Furthelmore, identifying whether or not an MSD was sustained or would be aggravated in the
workplace would be far more difficult. SmaLl business owners are not medical practitioners.
OSHA's asseltion that the responsible person would only take an additional minute fi·OIll the
time they take now to mark the fOim fails to recognize that the time -- and consequent cost --
to make the injury determination would go up as well. The new definition of MSD would add
layers of complexity for smaLl business owners tlying to detennine the type of injury being
assessed. Lastly, because they fear being found out-of-comp liance by OSHA, it is likely that
small businesses would over-report MSDs.
For example, consider the following hypothetical examples:
I. After several days on tlle job, a newly lured, middle-aged employee responsible for
loading the delivery vancomplains to the employer of lower back pain. The employer is aware
that the employee had previously done construction work, is a weekend atWete who plays in a
softball league, and coaches his daughter's soccer team. Under the new regulation, the
employer would have to detennine whether the repOlted pain is a recordable illness or injury,
and whether the cause of the pain is related to his work at the employer's workplace.
Putting aside the difficulty presented by the ambiguous definition ofMSD in tbe proposed
rule, to asselt that a small employer can make this detelmination in one minute is patently
absurd. Simply hearing the employee's stOlY and leaming his medical histOly would take far
more time than one minute, not to mention the potential need to send the employee for a
medical evaluation, which is the employer's right under the existing recordkeeping
regulations. Tltis does not account for the time away from actually running the business that
would be required for a small-business owner, or one of a hardful of managers.
2. An employee who perfonns a lot of work on a computer complains of tingling and
pain in her wlists, suggesting carpal tunnel syndrome. The employee also suffers from, and is
being medically treated for mtlu·itis. Her long-time avocation is playing the piano, including in
a rock and roll band. Once again, the employer would be faced with detennining if the
condition is work-related. Plainly, this would be more than a one- minute exercise.
3. An older employee who has a sedentalY desk job has degenerative disc disease in
his back, and complains of what he calls "minor" but definite lower back pain. He also has had
a full knee replacement, wltich has changed the way he walks. He asselts that the back pain is
caused, or made worse, by what he perceives as a desk chair. Consider how
much time would be required for the employer to decide if tltis condition is recordable.
These are examples of the kinds considerations that are likely to have been
brought to OSHA's attention if the draft IUle had been reviewed by a Small Business
Advocacy Review (SBAR) panel. What OSHA apparently does not appreciate is that while
the same questions may be presented to large employers, dealing with them would have a
disproportionately greater impact on a small employer whose scarce management resources
would be diverted 11-OIn the employer's business to address tllese potentially complex and
time-consuming issues. That kind of pre-rule review is required for a rule that would have a
significant economic impact on a substantial number of small entities.
We understand that, using its percentage-of.revenue and profit cost inlpact triggers, OSHA
celtified to the Small Business Admiltistration's Office of Advocacy that tile rule would rot
have a significant economic inlpact on a substantial number of small entities, and thereby
avoided having a SBAR panel convened. It is clear, however, that contrary to applicable legal
requirements under 5 U.S.C. Section 605(b), that certification did not have a "factual basis."
To say that compliance would require five minutes initially, and one minute for each case
thereafter, is patently inaccurate, to say the least.
Before this proposal goes forward, NFlB calls upon OSHA to go back and calculate a realistic
estimate of the time likely to be required for compliance with the rule, and then submit another
celtification to SBA's Office of Advocacy based on a genuinely accurate factual basis for tile
estinlate of cost to small businesses. We are hopeful that the process of doing this would
reveal the real effect of the proposal on our members, and perhaps persuade OSHA to modilY
its approach to this IUle for small business.
NFIB understands that OSHA is interested in quickly moving this proposal to conclusion. As
matter of fairness, not to mention the requirements of law, however, this is a misguided
approach. NFIB believes that the law requires OSHA to take the time to leam and understand,
as a practical matter, how these changes to the OSHA 300 log would impact a small business.
A SBAR panel would bring people to the agency who could answer these questions, however,
and it ought to be convened before this rule proceeds.
Moreover, OSHA should convene a SBAR panel as a malleI' of good policy and open
govemment. Doing so demonstrates a good faith effOit to fully understand the effect this
change to the OSHA 300 log would have on small entities. In fact, OSHA has conducted
panels for less-far-reaching rules, such as the rulemakings on diacetyl, confined spaces in
construction, cranes and derricks in conshuction, and electric power generation, transmission
and distribution. The precedent has been established. We strongly urge OSHA to take
advantage of the benefits derived from such a panel.
Concern about Returning to 2001 Definition ofMSD
NFlB is also concemed with the proposal to reinstate the 200I defmition of an MSD and with
OSHA's declared intent to eliminate the "preventive transfer" provision in the OSHA
Compliance Directive, which allows employers to conduct "work hardening" to prevent injw-y
without experiencing an OSHA recordable case. The proposal states as follows in peltinent pal1:
OSHA also intends to remove language from the Recordkeeping Compliance
Directive that says that "minor musculoskeletal discomfort" is not recordable
under Sec. 1904.7(b)(4) as a restricted work case "if a health care professional
detennines that the employee is fully able to perform all of his or her routine job
functions, and the employer assigns a work restriction for the pWllose of
preventing a more serious injury" (CPL 02-00-135, Chapter 2, Section I(F)).
CWTentIy, employers may temporarily transfer 31" employee with minor musculoskeletal pain or
discomf0l1 to another job to prevent fut1her (recordable) injw)' without having a recordable case,
if: (I) at the tinle of the transfer there is a medical assessment that the employee is fully able to
perfOim all of their routine job functions for a full work shift; and (2) none of the other recording
criteria are meL
OSHA now plans to change its position because it fears W1der-repOiting of MSDs in that:
I. There might be confusion between "minor musculoskeletal discomfort" and
MSD pain that is recordable;
2. There might be confusion between a preventive transfer and restricted work
activity or job tmnsfer situations that have already become recordable; and
3. The provision might not be necessaJ)' if the employee has not experienced
a u
NFIB objects to this proposal on several grounds. First, it would remove what has proven for
many employers to be a useful and effective method of preventing minor conditions from
becoming major injuries for employees. Second, it would further complicate and make more
costly the already daunting prospective task of detelIDining whether an injury or illness is
recordable and work-related. We also are eoncemed that this change 'Mluld invite excessive
claims, and expose employers to citation for failure to record nearly evelY ache and pain an
employee may repOlt.
OSHA asselts in the proposal that it concluded in 2001 "that pain and other subjective
symptoms, of and by themselves, may indicate an injury or illness." (This is the point of the third
"hypothetical" above, which is hardly hypothetical in an aging workforce.) Even if OSHA's
200 I conclusion about minor pain is hue when the condition is observed by a health
professional, to expect a small business owner or manager to make such a diagnosis in one
minute, without the time and expense of medical advice, nnkes no sense. This is but another
reason why OSHA's celtification that the proposed rule is not a major one under the Regulatory
Flexibility Act is not a factually-based finding that justified avoiding the SBREFA process.
OSHA has suggested that under the existing recordkeeping regulation, employers should already
be making decisions on whether employees' medical conditions are repOltable, implying that the
new rule would be a mere incremental increase in the cost to small business and not trigger a
SBREFA review. OSHA is assuming it knows the impact of this rule on small entities. NFIB
challenges that asswnption and requests OSHA convene a SBAR panel to assess the proposal's
hue impact on small business.
The proposed change to require "minor" MSD discomfort to become a recordable condition
would add a new, complicated cost of compliance that is more than an incremental increased
burden for small employers. One cannot know how many such claims employees would
tender to employers that they previously did not mention, especially once employees leam that
employers may lisk being cited if they make what OSHA perceives as the incorrect decision.
Fwther, where lahor relations or other workplace issues spill over into safety and health -- not
an unknown pheno menon -- this additional recordkeeping burden could be used to inundate an
employer with new questions about recordability.
Moreover, each time an employee presents issues like these, the business owner or manager
would be required to refresh his or her knowledge on what the requirements provide, and then
dig into the particular facts presented. Given this, even a slight change in the rule could have a
significant cost effect on a small business.
In any event, this should not be left to speculation. ASBAR panel should be convened. To
IUn roughshod over that process would be arbitrary and capricious in the most classic sense.
Concern over Where the Rule is Heading
As OSHA is aware, the MSD component of the OSHA 300 log was a palt of the agency's
larger effort a decade ago to promulgate a nearly $5 billion-per-year rule on ergonomics.
Therefore, the small business community is deeply concemed that OSHA is planning future
action to replicate this higWy-contentious rule. Also, after hearing the discussion at the recent
"OSHA Listens" session, we are concemed that OSHA would use the data collected as a result
of the proposed change in MSD recordkeeping to somehow inject ergonomics regulation into
a safety and health programs standard that OSHA seems clearly to be contemplating.
OSHA has indicated that adding the MSD column to the log in no way means it is looking at
reviving an ergonomics proposal. We hope tllis is true. If, however, OSHA pursues
ergonomics regulations in some fonn, we hope that the agency would make a decidedly
sh'onger effOlt to engage small businesses in the process of discussing any proposal before it is
developed and issued. Let us work in conjunction to assure that workers are safe and
businesses are not heavily burdened -- particularly in this economy.
Recommendations for the Current Proposal
As OSHA moves forward with the MSD proposal, it should make a conceited effOlt to help
small business owners.
The definition of an MSD must be easily understandable by lay persons. The more
complicated the defulition, the more likely it is that MSDs would be misrepOlted hy small
We believe that OSHA should claritY the term "work-related" in its definition ofMSDs. It
should indicate that the ternl means only MSDs that occur because of a situation at the
workplace, not because the injury occulTed elsewhere, which is aggravated at the workplace.
This is especially impOltant if the rule is going to define an MSD to include common
symptoms such as tingling or lower back pain.
OSHA also should devise a detailed compliance assistance program for the rule that goes well
beyond merely listing the definition of MSDs on its Web site. Ideas for compliance assistance
materials include a training video explaining MSDs available on the Web site, assigning staff
to field questions from small businesses trying to detennine what type of injury they are
confronted with, and a Web page with frequently asked questions from small businesses with
easy-to-understand answers. Training assistance programs should vary by industry or
workplace type (office, conshuction site, vellicle, etc.) since these workplace types would be
impacted differently by tllis rule.
Lastly, OSHA should conduct a SBAR panel to fully understand the impact of this rule on
small entities.
On behalf ofNFIB and our members, I appreciate the OPPOltunity to express our concerns
with tlus proposal. We believe that OSHA needs to put itself in the shoes of small business
owners as it moves forward with not only this, but all of its proposals. Small business owners
greatly value the safety of their employees. To a small business, an employee is like a member
of the family. Please take evelY step possible to ensure that tlus tule is not overly burdensome
for small business owners.
Thank you for your time and consideration. Should you require further information, please
contact Daniel Bosch at 202-314-2052.
Susan Eckerly
Senior Vice President
Public Policy
- -';-::"--', -' -- ~ - , ~ " . . : : : -:' - -
• Volume 3, Issue 5
SInal1 Business
Paperwork and Record-keeping
NFIB National
Small Business
The National Small Business Poll is a series of
regularly published survey reports b a s l ~ d on data
collected from national samples of small-business
employers. Eight reports are produced annually
with the initial volume published in 200 I. The Poll
is designed to address small-business-oriented top-
ics about which little is known but interest is high.
Each survey report treats different subject matter:
The survey reports in this series generally
contain three sections. The first section is a brief
Executive Summary outlining a small number of
themes or salient points from the survey. The sec·
and is a longer, generally descriptive. exposition of
results. This section is not intended to be a thor-
ough analysis of the data collected nor to explore
a group of formal hypotheses. Rather, it is intended
to textually describe that which appears subse·
quently in tabular form. The third section consists
of a single series of tables. The tables display each
question posed in the survey broken-out by
employee size of firm.
Current individual reports are publicly accessible
on the NFtB Web site (www.nfib.comJresearch)
without charge. Published (printed) reports can
be obtained at $15 per copy or by subscription ($100
annually) by writing the National Small Business Poll,
NFIB Research Foundation, 120 I "p' Street, NW. Suite
200, Washington, DC 20004. The micro-data and sup-
porting documentation are also available for those
wishing to conduct further analysis. Academic
researchers using these data for public infonnational
purposes, e.g., published articles or public presenta-
tions, and NFIB members can obtain them for $20
per set. The charge for others is $1,000 per set. It
must be emphasized that these data sets do NOT
contain information that reveals the identity of any
respondent. Custom cross-tabulations wHl be con-
ducted at COSt only for NFIB members on a time
available basis. Individuals wishing to obtain a data
set(s) should write the Poll at the above address iden·
tifying the prospective use of the set and the specific
set desired.
NFIB National
Small Business
Paperwork and
Special acknowledgment:
Many of the concepts used in this document were
derived directly from the work of Francis Chittenden at the
University of Manchester Business School in the U. K.
Volume 3, Issue 5
ISSN - 1534-8326
William J. Dennis, Jr.
NFIB Research Foundation
Series Editor
1201 "F" Street NW
Suite 200
Washington, DC 20004
Paperwork and
Table of Contents
Executive Sun1mary 1
Paperwork and Record-keeping ....•...•..................•...•...•........ 2
Tables ...........................................•.................... 9
Data Collection Methods 31
Executive Sumtnary
• The individual(s) completing and maintaining papenvork and records in a small business
is dependent on the subject matter of the paperwork and the size of the firm. Owners
most frequently handle papenvork and record-keeping related to licenses and permits
(55% of firms), purchases (46%), and clients/customers (46%). They least frequently
deal with financial (27%) and tax (12%) records. Three of four have someone (another
firm) outside handle their tax paperwork. Paid employees customarily do most of the
paperwork and record-keeping in about 25 - 30 percent of firms. Employees are much
more likely to do so in larger, small businesses than in the smallest ones regardless of sub-
ject matter (except tax). Unpaid family members do the paperwork in less than 10 per-
cent of cases.
• The cost of paperwork :llso varies by subject matter and Firm size. The more paperwork
and record-keeping that must be sent outside, the more expensive the paperwork and
record-keeping. Owners of larger, small firms pay higher average prices per hour because
they are more likely to send their paperwork to outside professionals and because the
value of their time on average is higher.
• The estimated average per hour cost of paperwork and record-keeping for small busi-
nesses is $48.72. By subject matter the average per hour cost is: $74.24 for tax-related,
$62.16 for financial, $47.96 for licenses and permits, $43.50 for government information
requests, $42.95 for customers/clients, $40.75 for personnel, $39.27 for purchases, and
$36.20 for maintenance (buildings, machines, or vehicles).
• The typical small business employs a blend of electronic and paper record-keeping. Less
than 10 percent use paper exclusively and a handful use only electronic means. The type
of record most frequently completed and maintained on paper is licenses and permits.
• lncreased computerization helps small-business owners cope with their paperwork and
record-keeping responsibilities. Ninety-two (92) percent of small-business owners use
one or more computers in their business. Fifty-eight (58) percent of users employ the
Internet regularly for business purposes, and 57 percent of regular users have a high-
speed connection.
• About half hold all types of records seven years or more, but nvo-thirds to three-quar-
ters hold financial and tax records that long.
• Applicable records are typically destroyed in a manner that protects the privacy of indi-
viduals. However, between 15 to 20 percent of owners trash paper records (in contrast
to shredding or burning them) and about one in four simply delete electronic records.
Owners treat personally sensitive records in virtually the same manner that they treat
those sensitive to others.
• No single difficulty creates the government paperwork problem. The most frequently
cited problem is unclear and/or confusing instructions (29%). The second most fre-
quently cited difficulty is the volume of paperwork (24%). Duplicate information requests
(11%) place third, followed by maintenance of records that ordinarily would not be kept
(10%) and requests for inaccessible or non-existent information (9%). 1\venty (20) per-
cent could not decide.
. ~
"' c
Paperwork and Record-keeping
A complex world demands increasing amounts of documentation and
record-keeping. But, to small-business owners papen\'Ork remains at
best a necessary evil. Properly organized and maintained records often
do protect them from misunderstandings - even accusations. They
also can help better manage the business by substituting for institu-
tional memory. Yet when generated for no apparent reason, duplicat-
ing other information requests, or accompanied by foolish and
unproductive comple.xity, the necessary evil becomes a costly irritant.
In f a ~ 1 , little agitates small-business owners more reflexively than the
mention of papen,·ork. Relief from many of the worst excesses has
fortunately emerged. The computer has helped small-business owners
cope, and will offer increasing assistance over time. However, small-
business owners fen'ently pray that the technology is more than a tem-
porary respite, more than a brief pause in the burden created by the
relentless gro\\1h in demand for records and documentation. Only
time will tell if their prayers ha\'e been answered. Meanwhile, this
issue of the National Small Business Poll addresses papenvork and
record-keeping with an emphasis on that demanded by gO\·ernment.
The survey on which this report is based
focused on eight types (subjects) of com-
mon paperwork and record-keeping:
personnel records, financial records, main-
tenance (equipment, vehicles, and building)
records, licenses and permits, records
of purchases, government information
requests, customer or client records, and
tax records. Half of the survey sample
addressed four topical areas and the second
half addressed the other four.
Most small businesses handle each type
of record queried. All prepare and keep tax
(Q#9) and financial (Q#3) records. Less
than one percent do not keep records of
their purchases (Q#6). However, as many
as 15 percent do not hold maintenance
records of any kind (Q#4); 9 percent do
not file or keep (copies of) government
requests for information (Q#7), 7 percent,
do the same with licenses and permits
(Q#5 ), 3 percent, have no personnel
records (Q#2), and 2 percent, no cus-
tomer/client records (Q#8).
The People Responsible
The person responsible for filling out paper-
work and keeping records varies enormous-
ly by the subject matter of paperwork
completed and the type of records kept.
Owners are most likely to fill out the most
routine paperwork needs themselves. For
example, they handle the paperwork for
licenses and permits 55 percent of the time
(Q#5). They also frequently do the
paperwork and record-keeping associated
with purchases (46%) (Q#6) and cus-
tomers/clients (46%)(Q#8). But small
employers infrequently deal with "the
books." Just 12 percent do their own tax
paperwork and record-keeping (Q#9),
though 31 percent take care of the firm's
financial records (#Q3).
An employee or employees handle a
major, but not dominant share of the paper-
work and record-keeping responsibilities.
They are most prominent in preparing and
keeping maintenance records (56%)(Q#4).
More typically, employees prepare and
maintain personnel records in 27 percent of
small businesses (Q#2) and Fill government
demands for infonnation in 23 percent of
Firms (Q#7).
Employee size of finn has a significant
association with the people responsible for
paperwork. Many of the responsibilities
assumed by employers in the smallest firms
become the responsibility of employees in
larger ones. For example, an employee or
employees handle the maintenance paper-
work and record-keeping in 17 percent of
the businesses employing fewer than 10 peo-
ple/ but in 56 percent of the businesses
employing 20 or more. The paperwork and
record-keeping for licenses and permits show
a similar pattern. In 15 percent of the smaU-
est firms employees handle licenses and per-
mits; in 50 percent of the largest they do.
Outside firms and/or individuals are
employed from time to time to perform the
papenvork and record-keeping function. But
these outsiders dominate finance and taxes.
Forty-three (43) percent have their finan-
cial record-keeping shipped outside the firm
and 74 percent send their tax work out.
Firm size differences that often character-
ize the individuals responsible for paper-
work and record-keeping are non-existent
in the former and modest in the latter. Out-
side contractors also do paperwork and
record-keeping for government information
requests in about one of four businesses
(26%) and the personnel work in 18 per-
cent of them.
The stereotypical unpaid family mem-
ber does the paperwork and record-keeping
in no more than 6 to 7 percent of firms, and
much less often in the areas of finance and
tax. They obviously contribute in individual
firms. However, unpaid family members no
longer are, if they ever were, involved in the
firm's paperwork on a broad scale.
About 5 to 10 percent of small busi-
nesses use combinations of people and
organizations, for example, owners and
accounting firms, to handle their paperwork
and record-keeping. This number varies lit-
tle by subject matter.
The Personnel Cost
The cost of paperwork to the small firm is
primarily a function of the number of hours
spent times the dollar per hour cost of the
personnel working on it. Other costs such
as equipment or space for records storage
are usually smaller. For small-business own-
ers, the number of hours spent completing
a particular type of paperwork and main-
taining those records is very difficult to
estimate. Cost per hour is easier, and so
the survey had respondents focus on cost
questions. Despite the fact that 20 - 30
percent usually believed that they could
not provide a prudent estimate of hourly
costs, the remainder provided reasonable
and consistent estimates that are llseful for
several purposes.
The most transparent paperwork costs
are the wages and benefits paid employees
who complete and maintain records and the
fees charged by outside firms that do the
same thing. The two arc not directly com-
parable, however, as the outsider fees
include everything from equipment and
space to supervision and management.
Therefore, as expected, the per hour cost
varies notably by the people who performed
the services and the subject matter of the
papenvork involved.
Small-business owners say that the
most e..xpensive help is for tax paperwork
and records at an average of $83.69 per
hour (Q#9a). The cost rises to an average
of more than $100 per hour for those with
firms employing 10 or more people. The
second most expensive area is financial
records at $74.20 per hour (Q#3a).
The hourly cost drops substantially in
all other areas: $52.43 for license and per-
mits (Q#5a), $46.18 for government
information requests (Q#7a), $42.75
for customer/client records (Q#8a),
$31.06 personnel (Q#2a), $30.29 mainte-
nance (Q#4a), and $25.90 for purchases
(Q#6a). Observe that the costs for gov-
ernment r.equirements tend to be much
higher per hour than they are for commer-
cial functions.
Owners and unpaid family members also
spend time on paperwork ~ n d record-keep-
ing. The survey asked those who use unpaid
family help to estimate the cost if they had
to purchase those services in the open mar-
ket. 1n other words, how much would it cost
. ~
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if small-business owners had to hire some-
one to replace the unpaid family help. Since
relatively few use them, the number making
the estimate is small (n=57) and the results
should be used cautiously. Still, the estimate
of $24.87 per hour is reasonable, and is sim-
ilar to the amount paid employees for doing
similar work.
Estimating the hourly cost of the owner
was addressed indirectly. The first step
asked the policy question whether or not
the government should reimburse small-
business owners for dealing with the added
p:lperwork and record-keeping it requires
of a business. Respondents divided almost
equally on the question (47% - 51%) with a
few percentage points more in the negative
(Q#l). A number of plausible interpreta-
tions could explain this rather surprising
result. One explanation is that no one
should be paid to do something that should
not be done in the first place; a second is
that record-keeping and inform:Hion sub-
mission is a civic obligation that is just part
of being a business owner. Whatever the
reason, the question was used as a platform
to have small-business owners estimate the
cost of their time.
Those who responded that they should
be paid to complete government papenvork
were subsequently asked how much would
be a fair per hour amount to claim for their
time and effort. Owner responses were rea-
sonable and consistent. The average per
hour amount is $43.30 (Q#la). The
amount rises as the size of firm owned rises.
Owners of businesses employing fewer than
10 people say that they should be reim-
bursed at $37.18 per hour, while owners of
firms employing 20 people or more say their
worth is $68.36 pet hour.
Those who opposed the idea of reim-
bursement were asked to make a similar
estimate assuming the decision was made
to provide reimbursement. This group did
not play along as well as the first as evi-
denced by the 12 percent who apparently
would refuse to apply for reimbursement
(Q#lb). Still, with the exception of those
employing 20 or more people, the hourly
estimates among those for and against reim-
bursement are remarkably close. The latter
group's estimate is $40.72, just $2.48 lower
than the former's. If those who responded
"nothing" are eliminated, the average
hourly estimate for those believing reim-
bursement inappropriate is $48.89, $5.59
higher than those who believe they should
be reimbursed.
Hourly Cost of Paperwork
A weighted average of direct personnel
paperwork costs by subject matter can be
calculated by multiplying the percent com-
pleting a specific type of paperwork with the
hourly cost of that person/fim1, and totaling
them. The problem with this approach is that
the figure would include non-personnel costs
when outsiders provide the services and only
wages and benefits when provided by those
associated with the business.
A review of the cost 3ssigned outsiders
compared to that assigned employees
shows a ratio of about 2.3: I for the four
paperwork types that had enough cases of
each to compare. Outsiders therefore cost
3 little over twice as much in direct out-
lays. A significant, but non-identifi3ble,
part of that difference can be attributable
to overhead costs in one and not the other;
part likely can be attributed to outsider
expertise; etc. Assuming (arguably) that
about one-third of the differential or $10
per hour can be attributed directly to over-
head and the remainder to other factors,
and ignoring the often small number of
cases in certain cells, calculations were run
separating employees from outsiders and
adding overhead to employees (effectively
increasing the hourly cost of employees by
between one-third and one-half), unpaid
family, and owners to produce a more rep-
resentative cost.
The data outlined above yield the aver-
age hourly cost for all paperwork and the
overage hourly paperwork cost for each of
the eight topical areas investigated. Small-
business owners spend, d i r ~ c t l y or indi-
rectly, an average of $48.72 per hour on
paperwork. The :JmOtlOt varies substantial-
ly by topic. Tax-related paperwork and
record-keeping cost $74.24 per hour;
financial, $62.16 per hour; licenses and
permits, $47.96 per hour; government
requests for information, $43.50 per
hour; customer/client records, $42.95 per
hour; personnel, $40.75 per hour; pur-
chases, $39.27 per hour; and $36.20 per
hour on maintenance paperwork and
Paper or Electronic
Pencil and paper has given way to keyboard
and disk in many smaU businesses. Still, the
old has hardly surrendered to the new. The
typical small business today employs a blend
of paper and electronic means to create,
submit, and record documents and is likely
to do so for a long time.
About two-thirds to three·qu;Jrters of
small employers report that they use some
combination of paper and electronic records
in nearly every area of paperwork exam-
ined. Approximately, three times as many
say th.t they use nothing but paper com-
pared to those who are exclusively (or
almost so) electronic. One notable excep-
tion to this general rule involves licenses
and permits.
Licenses and permits are vastly more
paper-oriented than the remainder of sub·
ject matter. Fifty-nine [59) percent of small-·
business owners say that they handle their
licenses and pennits and keep them exclu-·
sively in paper [Q#5b); 38 percent use a
combination of paper and electronic and just
2 percent are totally electronic. Licenses and
permits are issued by local and state govern-
ment for the most part. Since this is the
paperwork and record-keeping topic where
electronic means has penetrated small busi-
ness far less than any other, the inference is
that these governments use computer tech-
nology less frequently in dealing with small-
business entities than either the Federal
government or the private sector.
The subject matter second most:
dependent on paper is maintenance, in all.
likelihood because so much of it is com-·
pleted in the field and away from an office.
Still, just 35 percent report that their main-
tenance paperwork is exclusively in paper
[Q#4b); 56 percent is • combination, and
6 percent is electronic only.
The Internal Revenue Service [IRS) at
the direction of the Congress is attempting
to drive taxpayers, including small-business
owners, to file electronically. Nineteen (19)
percent of small-business owners report that
their tax records are completed and main-
tained on paper [Q#9b); just 4 percent have
them solely in electronic form; the remain--
der use a combination of paper and elec··
tronic. Still, tax records are the paperwork
area where the second smallest percentage
of small-business owners use paper exclu-
sively. Pressing them to do more therefore
appears to be for the convenience of the
IRS, not the owners.
The smallest percentage using paper only
is found among financial records; just 14 per-
cent complete and keep their financial
records on paper exclusively (Q#3b). How-
ever, financial records are no more likely to
be only in electronic form than are most
other types. The record type most frequent-
lyall-electronic, though only in 12 percent
of firms, is customer/client records [Q#8b).
The use of electronic means to handle
papenvork implies the use of computers and
the Internet. Over the years, both have
increasingly penetrated common practice in
smilller finns. Today, 92 percent have one or
more computers in their business [Q#13),
up from 83 percent in 1999. Another two
plus percent who do not have a computer in
their business have one in their personal res-
idence that they use for business purposes
[Q#13d). Forty-two (42) percent of those
who have one or more computers have stand
alone pes, 19 percent have a local area net-
work, and 36 percent have both [Q#I3a).
Inter-connected computers are more likely
to be found in larger, small firms than in
s m ~ l I e r , small firms though the difference is
less than might have been expected.
Ninety (90) percent of small-business
owners with one or more business comput-
ers, or more than four in five small employ-
ers, are connected to the Internet [Q#I3b).
More importantly, 58 percent claim to use
the Internet regularly though not necessari-
ly to transfer documents and records. The
percentage rises to 72 percent in businesses
employing 20 or more people. Service is
increasingly high-speed. Of those who use
the Internet regularly, 57 percent claim to
have D5L or cable in contrast to 35 per-
cent who report dial-up [Q#13c). At a min-
imum, therefore, 25 to 30 percent of all
small businesses subscribe to high speed
Internet service and the number is undoubt-
edly somewhat higher.
Maintaining Records
Two major issues in records maintenance
are the length of time records are kept
[needed) and their accessibility when not
in immediate use. A third maintenance
issue, destruction of records, will be dis-
cussed later.
'" G:
Q. /-Io/ding Records
Small-business owners keep their records
for long periods on .ver.ge. About h.lf keep
their records on any topic seven years or
more. But there is a significant variation
both from owner to owner and from sub-
ject matter to subject matter. Meaningful
averages cannot be calculated because so
many either keep their records indefinitely
which can also mean a long time or forever,
or they could not be specific such as it
depends, no schedule for disposal, or they
are pitched periodic.lly.
An examination of the way owners treat
personnel records is illustrative: just 2 per-
cent dispose of personnel records upon an
employee's termination (Q#2c). Another
11 percent get rid of them within two years.
But half (49%) keep personnel records
seven years or more. Maintenance records
offer a similar perspective, though a larger
proportion dispose of maintenance records
sooner. Ten (10) percent hold them two
years or less (Q#4c). Still, half (51%) keep
them seven years or longer.
The records most quickly pitched are
expired licenses and permits. 1\venty-three
(23) percent dispose of them within two
yenrs (Q#5c). Again, half (51%) keep them
seven years or more. Small-business owners
also keep customer and client records com-
p.mtively briefly.
Tax and financial records are held
longest. No one gets rid of tax records in
less th.n two yenrs while 65 percent of
small employers retain tax records seven
yenrs or more (Q#9c). It is widely believed
that old tax records should be kept for a
minimum of seven years. But that percep-
tion is not necessarily accurate. A shorter
period is usually sufficient. Still, smail-busi-
ness owners appear to be playing it safe,
consciollsly or not.
Owners appear to keep financial records
even longer than tax records. Yet, the rea-
sonably close relationship between financial
and tax records is expected as the two are
effectively tied. Seventy-four (74) percent
hold their financial records seven or more
yenrs (Q#3c). Just two percent sny that
they dispose of them in two years or less.
b. Ilccessilig Records
Government (or others) can request
information and/or records that are faith-
fully retained, but access to those records
can make compliance with seemingly sim-
ple requests very difficult. Access c.n be
more or less easy depending on how well
files are labeled and organized, and where
they are stored. The survey probed stor-
age since organization of files could not
be assessed.
Records can be housed where they are
readily accessible, such as in files or on
shelves; they can be stored on-site, such as
in a closet, attic, or basement; or they can
be stored off-site. About 40 percent of
small-business owners believe that their
records are immediately accessible for most
types of paperwork held - even two years
.fter they are current. Forty-one (41) per-
cent say that a two-year-old financial record
is immediately .ccessible (Q#3d); 37 per-
cent say the same about maintenance
records (Q#4d); 40 percent believe licens-
es and permits are immediately accessible
two yenrs .fter they h.ve expired (Q#5d);
40 percent believe the same about records
of purchases (Q#6d); and, t.x records are
immediately accessible in 43 percent of
cnses (Q#9d).
Comparatively few small-business
owners choose to store their records off-
site, the place that seems to offer them
least access. Two years after records are
current, between 10 and 15 percent of
small-business owners house records from
all subject matters off-site. An exception
is tax records. Twenty (20) percent store
their tax records off-site, most likely
under the control of the individual or
organization preparing the tax filing. Twen-
ty (20) percent also store records of gov-
ernment requests for information off-site,
though the reason for such action on
this particulnr type of record is not obvi-
ous (Q#7d).
. The type of paperwork and record most
closely held, at least in the two years after
they are current, is customer/client infor-
m.tion. Forty-eight (48) percent h.ve old
customer/client records immediately acces-
sible while just 12 percent h.ve them off-
site (Q#8d). In contrnst, personnel records
are least accessible. Just 28 percent of small-
business owners have them immediately
accessible and 15 percent have them stored
off-site (Q#2d). These choices reflect both
priorities and personal interests.
Records Destruction and Privacy
Most records will be destroyed at some point
even when small-business owners claim that
they intend to keep them indefinitely or for
a long time. Destruction of records would
be of little interest except that if not dis-
posed of properly, privacy issues could arise.
The possibility of mishandling documents
during their disposal, and hence revealing
private information, may be remote, but the
potential for suits and violation of laws
remain. All types of records do not possess
latent prohlerns however, just those types of
records that could reveal private informa-
tion about employees and customers. Thus,
the survey only asked questions about
destruction of personnel records and cus-
tomer/client information to be contrasted
with the disposal procedures used for infor-
mation sensitive only to owners.
The most common way to dispose of
paper records is to shred them. Sixty (60)
percent who have paper records say that they
shred personnel records and 7 percent burn
them (Q#2e) while 52 percent say that they
shred customer/client records and 7 percent
bum them (Q#8e). In contrast, 58 percent
say that they shred Financial records and 7
percent bum them (Q#3e) while 46 percent
shred their tax records and 8 percent burn
them (Q#ge). Though about 1a percent
more are likely to claim that they never dis-
pose of tax records than other types, small-
business owners use the least problematic
methods to dispose of records with their pri-
vacy interests in the same proportions and
same manners as records with privacy inter-
est for their employees and their customers.
The most problematic way to dispose
of such records is to trash them. Sixteen
(16) to 17 percent trash personnel, finan-
cial, and tax records. But 28 percent trash
customer/client records. Customer/client
records range from such sensitive material
as medical and personal financial records to
Christmas card lists. All customer/client
infonnation, therefore, may not have priva-
cy implications. Regardless, a relatively
small, but notable, number of smaIl-busi-
ness owners may employ questionable
records disposal policies.
Increasingly, records are held electroni-
cally on disk. Respondents opted from
among three choices to describe the way
they dispose of electronic records. The most
satisfactory is either to destroy them or to
reformat the disk. 1\venty-one (21) percent
with electronic records lise that option with
personnel records while 13 percent retain
them (Q#2f). But only 13 percent destroy
the disk or refonnat it with customer/client
records on it while 15 percent retain them
(Q#8f). Deleting the files and emptying
the recycle bin (in Microsoft) is another sat-
isfactory method. This procedure is
employed by 28 percent for the former and
25 percent for the latter. That leaves about
one in four who merely delete both types
of records. While generally sufficient, sim-
ply deleting records may be inadequate
when pitted against a snooper with consid-
erable computer skills. Thus, records dis-
posed of by just deleting them leaves the
small-business owner in potential jeopardy.
Somewhat less than one in ten claim to
dispose of their electronic records in anoth-
er manner, but the manner is unspecified.
Small-business owners appear to treat the
records that are sensitive to them in much
the same manner as records that are sensitive
to employees and customers/clients. 1\venty-
two (22) percent simply delete their tax
records (and don't empty the recycle bin)
(Q#9f) while 18 percent do so with flOan-
cial records (Q#3f). They are also more reluc-
tant to discuss disposal of these records as
evidenced by the greater non-response, par-
ticularly regarding tax records.
Finally, a question was posed regarding
security and access for both personnel and
customer/client records. Eighty-six (86)
percent of small-business owners, and 98
percent of those employing 20 or more peo-
ple, say that they secure personnel records
and limit access to them (Q#2g). Eighty-
nine (89) percent say that they secure and
limit access to customer/client records,
though no difference appears by size of
firm (Q#8g).
The Problem with
Government Paperwork
SmalJ-business owners levy a constant bar-
rage of complaints about government paper-
work. An appropriate response to those
complaints is a request for specifics. What
is the problem?
The aspect of government paperwork
more difficult for more owners th::m any
other is not even paperwork per se. Rather,
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it is the clarity of the instructions and under-
standing what the public official wants in
response. "Rventy-nine (29) percent say that
the instructions are the most difficult part
of the government paperwork problem
(Q# 12). Those owning the smallest firms
are most likely to register this criticism.
The second most frequent complaint is
the volume of paperwork to be completed
and submitted. "Rventy-four (24) percent
identify the volume problem which increas-
_ es to 36 percent for those employing 20
people or more. Eleven (II) percent point
out duplicate requests for the same infor-
mation as their prime concern. Another 10
percent report maintenance of records that
they ordinarily would not keep as theirs.
Fewest (7%) cite requests for information
that they do not have or is not accessible.
Almost 20 percent have another paperwork
problem or cannot decide among them.
The broad distribution across various
possible answers suggests that there is no
single paperwork problem. There are many
problems and that implies the need for
many solutions.
Final Comments
Computerization has had a positive impact
on the paperwork burden of small-business
owners and will continue to do so. Unfor-
tunately, the paperwork burden is not a bur-
den that can be entirely alleviated by this
technology. Paperwork and record-keeping
involve considerably more than filing infor-
mation request (demand) forms and storing
copies. It involves understanding the infor-
mation needed and the form in which it is
required, acquiring the necessary informa-
tion and organizing it in a useful way, deter-
mining what to keep and for how long, etc.
And, then there is the cost. Even with the
most efficient computer equipment, docu-
mentation is not cheap. It requires people
to organize and input the necessary dilta,
and people are expensive.
The result is that paperwork and
record-keeping continue to represent a
major aggravation for small-business own-
ers. But it is also a place where they can
use sweat equity to save cash. When asked
how much they would be willing to pay to
have someone take over all the paperwork
they must complete, 17 percent said noth-
ing and 5 percent indicated less than $10
per hour (Q#ll). Still, it is better to nei-
ther pay someone to handle paperwork nor
to put in this type of sweat equity. That sit-
uation would occur if the demands for
records were not made in the first place.
Papenvork, therefore, becomes particularly
burdensome for those who do not have the
resources to hire someone to do the p<lper-
work for them. Among that group are peo-
ple just stClrting businesses} those who could
use the greatest asset they have, themselves,
for higher purposes than completing Clnd
maintClining forms.
Paperwork and Record-keeping
(Please review notes at t"e table's end.)
1-9 emp
Employee Size of Firm
10-19 emp 20-249 emp All Firms
I. Do you think government should compensate you for dealing with the
added paperworl< and record-keeping it requires of your business?
I.Yes 45.1% 53.5% 52.6% 46.7%
2.No 52.7 46.5 46.2 51.4
3. (DKIRefuse) 1.2 1.3 0.4
Total 100.0% 100.0% 100.0% 100.0%
N 355 200 202 757
Ia. What do you think would be a fair per hour amount to claim for your
time and efforts? (If "Yes" in Q#I.)
I. <$10 per hour 7.1% 4.4% 4.9% 6.5%
2. $1 0 - 19 per hour 21.9 17.8 22.0 21.4
3. $20 - 29 per hour 23.0 24.4 19.5 22.8
4. $30 - 49 per hour 11.3 4.4 7.3 10.0
5. $50 - 99 per hour 11.3 15.6 19.5 12.7
6. $100 per hour or more 7.8 15.6 14.6 9.5
7. (DKIRefuse) 17.7 17.8 12.2 17.1
Total 100.0% 100.0% 100.0% 100.0%
N 180 164 175 383
Ave. $37.18 $57.71 $68.36 $43.30
lb. If the decision were made to reimburse you, what do you think would
be a fair per hour amount to claim for your time and effort? (If UNo"
in Q#I.)
I. Nothing 12.6% 10.0% 13.2% 12.4%
. ~

2. <$10 per hour 2.9 2.5 2.6 2.8
3. $10 - 19 per hour 17.4 15.0 15.8 17.1 8

4. $20 - 29 per hour 13.7 22.5 18.4 15.0
'" ."
5. $30 - 49 per hour 6.0 12.5 2.6 6.3 "

6. $50 - 99 per hour 14.6 7.5 13.2 8.2
7. $100 per hour or more 7.1 12.5 13.2 8.2 •
8. (DKIRefuse) 25.7 17.5 21.1 24.5
Total 100.0% 100.0% 100.0% 100.0%
N 163 105 105 373

Ave. $38.54 $55.20 $43.92 $40.72

'" u:
1-9 emp
Employee Size of Firm
10-19 emp 20-249 emp All Firms
2. Who does your business's personnel paperwork and record.keeping? Is it:
I. You 42.9% 28.6% 21.4% 39.3%
2. An unpaid family member 8.1 204 6.7
3. An employee or employees 2004 45.2 57.1 26.6
4. An outside firm or individuals 18.9 11.9 I 1.9 17.5
5. (Combinations of peoplelfirms) SA 11.9 9.5 6.5
6. (Do not keep that
kind of record) 3.6 2.9
7. (DKIRefuse) 0.6 0.5
Total 100.0% 100.0% 100.0% 100.0%
N 186 101 107 394
2a. What is the approximate hourly cost of such a person, including
benefits, or of the firm hired? (If employee, individual or outside firm
in Q#2.)
I. <$10 per hour 10.2% 53% -% 8.2%
2. $10 - 19 per hour 30.7 31.6 32.0 31.0
3. $20 - 29 per hour 11.8 36.9 28.0 17.0
4. $30 - 49 per hour 7.9 10.5 12.0 8.8
5. $50 - 99 per hour 15.0 8.0 12.3
6. $100 or more per hour 1.6 5.3 4.0 2.3
7. (DK/Refuse) 22.8 103 16.0 10.5
Total 100.0% 100.0% 100.0% 100.0%
N 65 54 72 190
Ave. $28.07 $27.64 $46045 $31.06

" •
'" ."
Are the business's personnel records kept on paper, electronically,
or both? (If keep personnel records in Q#2.)
I. Paper 25.5% 19.0% 16.3% 23.9%
2. Electronically 9.7 7.1 4.7 8.9
3. Both 64.2 73.8 79.1 66.7
4. (DKIRefuse) 0.6 0.5
Total 100.0% 100.0% 100.0% 100.0%
N 178 100 106 384
1-9 emp
Employee Size of Firm
10-19 emp 20-249 emp All Firms
2c. After an employee leaves, how long do you keep those records before
getting rid of them?
I. Upon termination 2.8% -%
2.2 years or less 11.5 7.1
3.3 - 6 years 23.2 24.7
4.7 years or more 21.6 32.4
5. Indefinitely 25.5 31.0
6. (Other, depends,
periodically toss, etc.) 2.2 2.4
7. (DKJRefuse) 13.1 2.4
Toeal 100.0% 100.0%
N 178 100
I 1.1
I 1.1
2d. Two years after an employee leaves, how accessible are their records?
Are they:? (If kept 2 years or more in Q#2c.)
I. Immediately accessible 27.9% 32.5% 20.5% 27.6%
2. Stored on-site 50.0 55.0 59.0 51.5
3. Stored off-site 15.3 12.5 17.9 15.3
4. (Gone. disposed off) 0.7 0.5
5. (DKJRefuse) 6.1 2.6 5.1
Toeal 100.0% 100.0% 100.0% 100.0%
N 163 98 97 358
2e. How do you dispose of personnel records that are on paper? Do you:?
(If "Paper" or "Both" in Q#2b,)
I.Trash them 14.9% 18.4% 17.5% 15.6%
2. Burn them 7.3 10.5 5.0 7.4
3. Shred them 61.1 50.0 62.5 60.1
4. (Other) 1.7 10.5 2.5 2.7
5. (Don't dispose of) 5.6 2.5 4.6
6. (DKJRefuse) 9.4 10.5 10.0 9.6
Toeal 100.0% 100.0% 100.0% 100.0%
N 161 93 102 356
1·9 emp
Employee Size of Firm
10·19 emp 20-249 emp All Firms
2f. How do you dispose of electronic personnel records? Do you:? <If
HElectronically" or UBoth" in Q#2b.)
I. Delete them 24.5% 18.8% 22.2% 23.6%
2. Delete them and empty
the recycle bin 28.3 28.1 25.0 27.9
3. Destroy or reformat
the disk 19.4 21.9 27.8 20.7
4. (Other) 3.8 12.5 4.3
5. (Don't Dispose of) 11.8 12.5 16.7 12.5
6. (OK/Refuse) 12.2 6.3 8.3 I 1.1
Total 100.0% 100.0% 100.0% 100.0%
N 132 80 89 301
2g. Do you secure and limit access to personnel records?
I.Yes 83.8% 92.9% 97.6% 86.2%
2. No 13.7 7.1 2.4 I 1.9
3. (OK/Refuse) 2.5 1.9
Total 100.0% 100.0% 100.0% 100.0%
N 178 100 106 384
3. Who does your business's financial paperwork and record-keeping? Is it:
I. You 29.3% 21.4% 9.8% 26.6%
2. An unpaid family member 3.6 2.9
3. An employee or employees 12.0 19.0 34.1 14.9
4.An outside firm or individuals 43.4 42.9 39.0 42.9
5. (Combinations of peoplelfirms) I 1.7 16.7 17.1 12.7
6. (Do not keep that kind
of record)
. ~ 7. (OK/Refuse)

Total 100.0% 100.0% 100.0% 100.0%

N 186 101 107
3a. What is the approximate hourly cost of such a person, including benefits,

or of the firm hired? (If employee, individual or outside firm in Q#3.)
I. <$10 per hour 2.2% -% -% 1.7%
2.$10-19perhour 9.7 8.3 6.7 9.2
.= 3. $20 - 29 per hour 7.6 12.5 20.0 9.6
4. $30 - 49 per hour 14.6 8.3 13.3 13.8
5. $50 - 99 per hour 21.1 20.8 13.3 20.1
6. $100 or more per hour 13.5 20.8 23.3 15.5 ..
.g 7. (OK/Refuse) 31.4 29.2 23.3 30.1
'" Total 100.0%
100.0% 100.0% 100.0%
N 96 59 76 231
N Ave. $75.28 $68.52 $72.83 $74.20
Employee Size of Firm
1-9 emp 10-19 emp 20-249 emp All Firms
3b. Are the business's financial records kept on paper, electronically, or both?
I. Paper 14.2% 11.9% 9.5% 13.5%
2. Electronically 9.9 4.8 9.5 9.4
3. Both 75.0 83.3 81.0 76.4
4. (DKIRefuse) 0.9 0.7
Total 100.0% 100.0% 100.0% 100.0%
N 186 101 107 394
3c. How long do you keep those records before getting rid of them?
I. 2 years or less 1.8% -% 2.4% 1.7%
2.3 - 6 years 18.7 12.8 22.0 18.4
3. 7 years or more 37.6 38.5 36.6 37.6
4. Indefinitely 35.8 43.6 31.7 36.2
5. (Other. depends,
periodically toss. etc.) 3.3 2.6 2.9
6. (DK/Refuse) 2.7 2.6 7.3 3.2
Total 100.0% 100.0% 100.0% 100.0%
N 186 101 107 394
3d. If you need a financial record that is two years old, how accessible is
it? Is it:?
I. Immediately accessible 39.3% 47.6% 50.0% 41.2%
2. Stored on·site 45.9 35.7 31.0 43.4
3. Stored off-site 12.9 16.7 13.7 13.7
4. (Gone. disposed off)
5. (DKIRefuse) 1.8 2.4 1.6
Total 100.0% 100.0% 100.0% 100.0%
N 186 101 107 394
3e. How do you dispose of financial records that are on paper? Do you:?
or IlBoth" in Q#3b.)
I.Trash them 15.9% 25.0% 15.8% 16.8%
2. Burn them 7.1 10.0 5.3 7.2
3. Shred them 57.4 52.5 65.8 57.8
4. (Other) 4.4 2.5 3.7
5. (Don't dispose of) 10.8 7.5 10.5 10.4
6. (DK/Refuse) 4.4 2.5 2.6 4.0
Total 100.0% 100.0% 100.0% 100.0%
N 166 95 96 357
1-9 emp
Employee Size of Firm
10-19 emp 20-249 emp All Firms
3f. How do you dispose of electronic financial records? Do you:? <If "Elec_
tronically" or "Both" in Q#3b.)
I. Delete them 17.8% 13.9% 24.3% 18.1%
2. Delete them and empty
the recycle bin 28.1 30.6 24.3 28.0
3. Destroy or reformat
the disk 18.1 16.7 24.3 18.6
4. (Other) 10.3 13.9 9.6
5. (Don·t Dispose of) 13.2 8.3 10.8 12.4
6. (DKIRefuse) 12.5 16.7 16.2 13.3
Total 100.0% 100.0% 100.0% 100.0%
N 157 90 95 342
4. Who does your business's maintenance paperwork and record-keeping? 15 it::
I. You 44.0%
2.An unpaid family member 9.3
3.An employee or employees 17.1
4.An outside firm or individuals 6.9
5. (Combinations of people/firms) 3.9
6. (Do not keep that kind
of record) 17.4
7. (DKIRefuse) 1.5
Total 100.0%
N 186
31.0% 18.6% 40.1%
2.4 7.6
45.2 55.8 23.8
7.1 4.7 6.7
7.1 4.7 4.3
2.4 11.6 15.3
4.8 4.6 2.2
100.0% 100.0% 100.0%
101 107 394
4a. What is the approximate hourly cost of such a person, including benefits,
or of the firm hired? (If employee, individual or outside firm in Q#4.)
I. <$10 per hour -% -% -% 0.8%
2.$10-19perhour 40.9 30.8 41.7
3. $20 - 29 per hour 31.8 30.8 22.0
0 4. $30 - 49 per hour 9.1 15.4 13.4

5. $50 - 99 per hour 9.1
7.7 5.5
e 6. $100 or more per hour 3.8 5.5
7. (DKIRefuse) 9.1 11.5 11.0
0': Total 100.0% 100.0% 100.0% 100.0%
N 40 51 66 157
Ave. $33.05 $22.92 $28.11 $30.29

. ~
. ~
'" u:
Employee Size of Firm
1-9 emp 10-19 emp 20-249 emp All Firms
4b. Are the business's maintenance records kept on paper, electronically,
or both? (If keep maintenance records in Q#4.)
I. Paper 35.4% 30.0% 37.8% 35.0%
2. Electronically 6.6 2.5 2.7 5.7
3. Both 54.7 62.5 54.1 55.6
4. (DK/Refuse) 3.3 5.0 5.4 3.7
Total 100.0% 100.0% 100.0% 100.0%
N 152 97 96 345
4c. How long do you keep those records before getting rid of them?
I. 2 years or less 8.1% 12.5% 16.2% 9.5%
2.3 - 6 years 28.5 24.6 32.0 28.4
3.7 years or more 23.4 27.9 19.3 23.4
4. Indefinitely 28.7 27.5 21.6 27.8
5. (Other, depends,
periodically toss. etc.) 5.9 2.7 4.9
6. (DK/Refuse) 5.5 7.5 8.1 6.0
Total 100.0% 100.0% 100.0% 100.0%
N 152 97 96 345
4d. If you need a maintenance record that is two years old, how accessible
is it? Is it:? (If 2 years or more in Q#4c.)
I. Immediately accessible 37.6% 32.5% 41.2% 37.4%
2. Stored on-site 48.9 52.5 44.1 48.8
3. Stored off-site 7.9 10.0 I 1.8 8.5
4. (Gone. disposed off)
5. (DK/Refuse) 5.7 5.0 2.9 5.3
Total 100.0% 100.0% 100.0% 100.0%
N 147 96 88 331

5. Who does your business's license and permit paperwork and record-I<eeping?

'" ."
Is it:
I. You 59.6% 45.2% 28.6% 55.0%
2. An unpaid family member 5.4 2.4 4.6
3.An employee or employees 15.1 31.0 50.0 20.2
4.An outside firm or individuals 8.7 7.1 9.5 8.7
5. (Combinations of people/firms) 4.2 7.1 4.8 4.6 . ~
6. (Do not keep that kind
of record) 6.6 7.1 7.1 6.7
7. (DK/Refuse) 0.3 0.2
. ~
Total 100.0% 100.0% 100.0% 100.0%
186 101 107 394 '" N G:
Employee Size of Firm
1-9 emp 10·19 emp 20·249 emp All Firms
Sa. What is the approximate hourly cost of such a person, including benefits,
or of the firm hired! (If employee, individual or outside firm in Q#5.)
I. <$10 per hour -% -% -% 4.2%
2. $10· 19 per hour 25.0 33.6
3. $20 - 29 per hour 29.2 10.9
4. $30 - 49 per hour 8.3 11.8
5. $50 . 99 per hour 8.3 13.4
6. $100 or more per hour 12.5 13.4
7. (OK/Refuse) 16.7 12.6
Total 100.0% 100.0% 100.0% 100.0%
N 43 39 63 145
Ave. $49.31 $71.41 $49.38 $52.43
5b. Are the business's license and permit records kept on paper, electroni-
cally, or both! (If keep license and permit records in Q#5.)
I. Paper 58.4% 64.1% 56.4% 58.8%
2. Electronically 1.9 2.6 1.8
3. Both 38.4 35.9 41.0 38.4
4. (OK/Refuse) 1.3 1.1
Total 100.0% 100.0% 100.0% 100.0%
N 173 95 100 368
5c. After they expire, how long do you keep those records before getting
rid of them?
I. 2 years or less 22.1% 28.9% 20.5% 22.6%
2.3 - 6 years 19.2 15.4 20.0 18.8
3. 7 years or more 20.6 18.8 18.5 20.3
4. Indefinitely 31.1 28.9 28.2 30.6
.~ 5. (Other. depends.
periodically toss. etc.) 3.5 5.3 5.1 3.9
6. (OK/Refuse) 3.5 2.6 7.7 3.9
'"~ Total 100.0% 100.0% 100.0% 100.0%
"" N 173 95 100 368
~ 5d. If you wanted to retrieve a license or permit that expired two years
ago, how accessible is it! Is it:? (If kept 2 years or more in Q#5c.)
I. Immediately accessible 40.5% 43.8% 36.4% 40.4%
" 2. Stored on-site 46.4 46.9 48.5 46.6
3. Stored off-site 6.9 6.3 12.1 7.4
'" 4. (Gone. disposed off) 4.2 3.1 3.0 4.0 ..
5. (OK/Refuse) 1.9 I.S
. ~
'" Total 100.0% 100.0% 100.0% 100.0% u:
N 146 79 84 309
1-9 emp
Enlployee Size of Firm
10-19 emp 20-249 emp All Firms
6. Who does your business's purchase paperwork and recordekeeping? Is it:
I.You 50.7%
2.An unpaid family member 7.6
3.An employee or employees 21.4
4.An outside firm or individuals 8.6
5. (Combinations of peoplelfirms) 10.9
6. (00 not keep that kind
of record) 0.9
7. (OK/Refuse)
6a. What is the approximate hourly cost of such a person, including bene-
fits, or of the firm hired? <If employee, individual or outside firm in
I. <$10 per hour -% -% 4.2% 2.2%
2. $10 - 19 per hour 34.6 41.7 33.8
3. $20 - 29 per hour 34.6 16.7 22.3
4. $30 - 49 per hour 7.7 12.5 10.8
5. $50 - 99 per hour 3.8 12.5 9.4
6. $100 or more per hour 1.4
7. (OK/Refuse) 19.2 12.5 20.1
Total 100.0% 100.0% 100.0% 100.0%
N 48 55 63 166
Ave. $26.90 $22.69 $25.62 $25.90
6b. Are records of your purchases kept on paper, electronically, or both?
(If keep purchase records in Q#6.)
I. Paper 25.2:% 16.3% 16.7% 23.4%
2. Electronically 10.3 7.0 5.6 9.5
3. Both 64.5 76.7 77.8 67.1
4. (OK/Refuse)
Total 100.0% 100.0% 100.0% 100.0%
N 167 99 94 360
1-9 emp
Employee Size of Firm
10-19 emp 20-249 emp All Firms
"' c
6c. How long do you keep those records before getting rid of them?
I. 2 years or less 4.3% 7.0% 8.6% 5.0%
2.3 - 6 years 32.6 33.1 32.3 32.4
3. 7 years or more 37.7 41.3 42.0 38.7
4. Indefinitely 22.0 14.0 11.4 20.1
5. (Other. depends.
periodically toss. etc.) 1.3 2.3 1.3
6. (DKIRefuse) 2.0 2.3 5.7 2.4
Total 100.0% 100.0% 100.0% 100.0%
N 167 99 94 360
6d. If you wanted to retrieve a purchase record that expired two years
ago, how accessible is it? Is it:? (If 2 years or more in Q#6c.)
I. Immediately accessible 36.6% 27.8% 35.5% 35.4%
2. Stored on-site 48.9 55.6 48.4 49.7
3. Stored off-site 14.5 16.7 16.1 14.9
4. (Gone. disposed off)
5. (DK/Refuse)
Total 100.0% 100.0% 100.0% 100.0%
N 131 85 81 297
7. Who does your business's paperwork and record-keeping for government
information requests? Is it:
I. You 34.1% 18.6% 19.4% 31.0%
2. An unpaid family member 3.9 3.1
3. An employee or employees 19.3 32.6 47.2 23.4
4.An outside firm or individuals 25.6 27.9 22.2 25.5
5. (Combinations of people/firms) 8.2 18.6 5.6 9.1
6. (Do not keep that kind
of record) 8.9 2.3 5.6 7.8
7. (DKIRefuse)
Total 100.0% 100.0% 100.0% 100.0%
N 169 99 95 363
Employee Size of Firm
1-9 emp 10-19 emp 20-249 emp All Firms
7a. What is the approximate hourly cost of such a person, including benefits,
or of the firm hired? (If employee, individual or outside firm in Q#7.)
I. <$1 0 per hour -% -% -% -%
2.$10 - 19 per hour 23.4 24.0 28.0 24.1
3. $20 - 29 per hour 9.5 20.0 8.0 10.7
4. $30 - 49 per hour 10.9 8.0 16.0 11.2
5. $50 - 99 per hour 12.4 16.0 20.0 13.9
6. $100 or more per hour 8.8 12.0 8.0 9.1
7. (OK/Refuse) 35.0 20.0 20.0 13.0
Total 100.0% 100.0% 100.0% 100.0%
N 74 56 64 194
Ave. $45.21 $50.94 $45.59 $46.18
7b. Are copies of those information requests kept on paper, electronically,
or both? (If keep government information requests in Q#7.)
I. Paper 30.9% 17.5% 20.0% 28.3%
2. Electronically 8.6 5.0 2.9 7.6
3. 80th 59.7 77.5 77.1 63.5
4. (OK/Refuse) 0.7 0.6
Total 100.0% 100.0% 100.0% 100.0%
N 153 95 89 337
7e. How long do you keep those records before getting rid of them?
t. 2 years or more 4.0% -% 3.0% 3.4%
2.3 - 6 years 27.1 28.0 31.2 27.6
3.7 years or more 39.9 47.0 47.6 41.4
4. Indefinitely 22.5 17.5 15.2 21.2
5. (Other, depends,
periodically toss, etc.) 0.7 2.5 0.9
. ~
6. (OK/Refuse) 5.8 5.0 3.0 5.4

Total 100.0% 100.0% 100.0% 100.0%

'" ."
N 153 95 89 337

7d. If you wanted to retrieve a government information request that was
two years ago, how accessible,is it? Is it:? <'f 2 years or more in Q#7c.) <E
I. Immed!ately accessible 38.2% 30.0% 26.5% 36.1%

2. Stored on-site 41.8 45.0 50.0 43.0
. ~
3. Stored off-site 18.5 22.5 23.5 19.5 "
4. (Gone, disposed off)
5. (OK/Refuse) 1.5 2.5 1.4
" .g
Total 100.0% 100.0% 100.0% 100.0%
N 152 95 88 335 '" ;;:
1-9 emp
Employee Size of Firm
10-19 emp 20-249 emp All Firms
3r. How do you dispose of electronic financial records? Do you:? <If "Elec_
tronically" or UBoth" in Q#3b.)
I. Delete them 17.8% 13.9% 24.3% 18.1%
2. Delete them and empty
the recycle bin 28.1 30.6 24.3 28.0
3. Destroy or reformat
the disk 18.1 16.7 24.3 18.6
4. (Other) 10.3 13.9 9.6
5. (Don't Dispose of) 13.2 8.3 10.8 12.4
6. (DKIRefuse) 12.5 16.7 16.2 13.3
Total 100.0% 100.0% 100.0% 100.0%
N 157 90 95 342
4. Who does your business's maintenance paperwork and record-keeping? Is it:
I. You 44.0%
2.An unpaid family member 9.3
3. An employee or employees 17.1
4.An outside firm or individuals 6.9
5. (Comblnadons of people/firms) 3.9
6. (Do not keep that kind
of record) 17.4
7. (DK/Refuse) 1.5
Total 100.0%
N 186
31.0% 18.6% 40.1%
2.4 7.6
45.2 55.8 23.8
7.1 4.7 6.7
7.1 4.7 4.3
2.4 11.6 15.3
4.8 4.6 2.2
100.0% 100.0% 100.0%
101 107 394
4a. What is the approximate hourly cost of such a person, including benefits,
or of the firm hired! (If employee, individual or outside firm in Q#4.)
I. <$10 per hour -% -% -% 0.8%
2.$10 - 19 per hour 40.9 30.8 41.7
3. $20 - 29 per hour 31.8 30.8 22.0
0 4. $30 - 49 per hour 9.1 15.4 13.4
" •
5. $50 - 99 per hour
9.1 7.7 5.5
6. $1 00 or more per hour 3.8 5.5
7. (DKIRefuse) 9.1 I 1.5 11.0
Total 100.0% 100.0% 100.0% 100.0%
N 40 51 66 157
Ave. $33.05 $22.92 $28.11 $30.29
. ~
1-9 emp
Employee Size of Firm
10-19 emp 20-249 emp All Firms
8c. How long after someone stops being a customer or client do you keep
those records before getting rid of them?
I. 2 years or less 11.8% 12.2% 17.6% 12.4%
2.3 - 6 years 34.1 36.0 31.7 34.1
3. 7 years or more 23.7 25.0 33.0 24.6
4. Indefinitely 27.7 22.0 14.7 25.9
5. (Other, depends.
periodically toss, etc.) 0.3 2.4 0.5
6. (OK/Refuse) 2.4 2.4 2.9 2.4
Total 100.0% 100.0% 100.0% 100.0%
N 164 96 92 352
8d. If you wanted to retrieve a customer or client record that was two
years ago, how accessible is it? Is it:? <If 2 years or more in Q#8c.)
I. Immediately accessible
2. Stored on-site
3. Stored off-site
4. (Gone, disposed off)
5. (OK/Refuse)
8e. How do you dispose of customer or client records that are on paper?
Do you:? (If "Paper" or UBoth" in Q#8b.)
I.Trash them 28.8% 27.8% 26.7% 28.5%
2. Burn them 7.2 5.6 10.0 7.3
3. Shred them 51.9 50.0 56.7 52.1
4. (Other) 4.5 8.3 4.5
5. (Oon't dispose of) 5.7 5.6 6.7 5.8
6. (OK/Refuse) 1.9 2.8 1.8
Total 100.0% 100.0% 100.0% 100.0%
N 146 84 80 310
. ~
'" ;;:
1-9 emp
Employee Size of Firm
10-19 emp 20-249 emp All Firms
8f. How do you dispose of electronic customer or client records? Do you:?
(If "Electronically" or UBoth" in Q#8b.)
I. Delete them 22.9% 35.3% 35.5% 25.7%
2. Delete them and empty
the recycle bin 26.9 23.5 16.1 25.3
3. Destroy or reformat
the disk 10.6 17.6 22.6 12.7
4. (Other) 9.3 5.9 3.2 8.2
5. (Don't Dispose of) 17.2 8.8 9.7 15.4
6. (DKIRefuse) 13.2 8.8 12.9 12.7
Total 100.0% 100.0% 100.0% 100.0%
N 124 80 78 282
8g. Do you secure and limit access to customer or client records?
I.Yes 89.3% 90.2% 82.9% 88.8%
2.No 10.1 9.8 14.3 10.4
3. (DKIRefuse) 0.7 2.9 0.8
Total 100.0% 100.0% 100.0% 100.0%
N 164 96 92 352
9. Who does your business's tax records? Is it:
I. You 13.9% 2.4% 2.8% 11.5%
2.An unpaid family member 2.3 1.8
3. An employee or employees 5.6 4.8 I 1.1 6.0
4.An outside firm or individuals 71.6 83.3 83.3 74.0
5. (Combinations of people/firms) 6.6 9.5 2.8 6.6
6. (Do not keep that kind
of record)
'ii. 7. (DKIRefuse)
Total 100.0% 100.0% 100.0% 100.0%
N 169 99 95 363

9a. What is the approximate hourly cost of such a person, including benefits,
or of the firm hired? <If employee, individual or outside firm in Q#9.)
I. <$10 per hour -% -% -% -%
2. $10 - 19 per hour 6.8 5.3 6.1 6.6
3. $20 - 29 per hour 9.0 5.3 7.5 . ~
" 4. $30 - 49 per hour 11.5 5.3 9.1
5. $50 - 99 per hour 14.1 15.8 24.2 15.4
6. $1 00 or more per hour 18.4 34.2 33.3 22.0
" 7. (DK/Refuse) 40.2 34.2 27.3

'" Total 100.0% 100.0% 100.0% ii: 100.0%
N 129 88 88 305
N Ave. $76.71 $103.02 $104.40 $83.69
Employee Size of Firm
1-9 emp 10-19 emp 20-249 emp All Firms
9b. Are your tax records I<ept on paper, electronically, or both?
1. Paper 19.7% 19.0% 13.5% 19.0%
2. Electronically 4.6 2.4 2.7 4.2
3. Both 72.5 78.6 81.1 74.0
4. (DKIRefuse) 3.3 2.7 2.9
Total 100.0% 100.0% 100.0% 100.0%
N 169 99 95 363
9c. How long do you keep those records before getting rid of them?
I. 2 years or less -% -% -% -%
2.3 - 6 years 23.2 21.3 10.4 19.4
3. 7 years or more 39.7 46.1 59.8 42.3
4. Indefinitely 34.5 27.9 24.3 32.8
5. (Other, depends,
periodically toss, etc.) 2.3 0.3
6. (DKIRefuse) 5.6 2.3 5.4 5.2
Total 100.0% 100.0% 100.0% 100.0%
N 169 99 95 363
9d. If you wanted to retrieve a tax record that is two years old, how
accessible is it? Is it:? (If kept 2 years or more in Q#9c.)
I. Immediately accessible 44.1% 42.9% 41.7% 43.7%
2. Stored on-site 35.5 33.3 25.0 34.3
3. Stored off-site 18.4 23.8 33.3 20.4
4. (Gone, disposed off)
5. (DKIRefuse) 1.9 1.6
Total 100.0% 100.0% 100.0% 100.0%
N 169 99 95 363
ge. How do you dispose of tax records that are on paper? Do you:? (If
"Paper" or "Both" in Q#9b.)
I. Trash them 16.0% 19.5% 14.7% 16.3%
2. Burn them 8.5 7.3 5.9 8.1
3. 5hred them 44.9 48.8 52.9 46.1
4. (Other) 8.5 4.9 2.9 7.6
5. (Don't dispose of) 16.7 12.2 17.6 16.3
6. (DK/Refuse) 5.3 7.3 5.9 5.6
Total 100.0% 100.0% 100.0% 100.0%
N 156 96 89 341

. ~
. ~
'" ;;:
1-9 emp
Employee Size of Firm
10-19 emp 20-249 emp All Firms
9f. How do you dispose of electronic tax records? Do you:? (If HElectroni-
cally" or "Both" in Q#9b.)
I. Delete them 21.9% 28.1% 18.8% 22.2%
2. Delete them and empty
the recycle bin 19.3 12.5 18.8 18.5
3. Destroy or reformat
the disk 9.0 12.5 25.0 I 1.1
4. (Other) 7.7 6.3 6.3 7.4
5. (Oon't Dispose of) 15.5 18.8 15.6 15.8
6. (OK/Refuse) 26.6 21.9 15.6 24.9
Total 100.0% 100.0% 100.0% 100.0%
N 128 79 80 287
10. You indicated that an unpaid family member kept some business records
for you. If you had to put'chase that service, about how much on a dollars
per hour basis, including benefits, would you have to pay for someone else
to do it?
I. <$10 per hour -% -% -% 2.2%
2. $10 - 19 per hour 41.2
3. $20 - 29 per hour 14.4
4. $30 - 49 per hour 15.5
5. $50 - 99 per hour 6.7
6. $100 or more per hour 1.1
7. (OK/Refuse) 18.9
Total 100.0% 100.0% 100.0% 100.0%
N 49 6 2 57
Ave. $24.93 $15.99 $38.50 $24.87
II. If you could pay someone to take over all the paperwork you must com-
plete, how much, on a dClllars per hour basis, would you be willing to pay?
I. Nothing 16.8% 18.8% 12.7% 16.6%
2. $1 - 10 per hour 5.3 2.4 2.5 4.8
"'" § 3. $1 0 - 19 per hour 28.5 22.4 24.1 27.4
'" 4. $20 - 29 per hour 15.7 22.4 17.7 16.6

5. $30 - 49 per hour 5.7 5.9 7.6 5.9
:f 6. $50 - 99 per hour 5.5 8.2 8.9 6.1
7. $100 or more per hour 3.0 2.4 3.8 3.0
8. (OK/Refuse)
19.5 17.6 22.8 19.6
Total 100.0% 100.0% 100.0% 100.0%
N 355 200 202 757
"' Ave. $22.39 $21.71 $25.27 $22.58 -;;
Employee Size of Firm
1-9 emp 10-19 emp 20-249 emp All Firms
12. What is the most difficult aspect of government papel'Work for your business?
I. Volume of information
completed and submitted 21.4% 28.2% 35.9% 23.5%
2. Maintenance of records you
ordinarily wouldn't keep 9.1 14.1 15.4 10.3
3. Clarity of the instructions
and understanding
the requirements 30.3 22.4 20.5 28.5
4. Duplicate requests from
various agencies or
governments 11.5 10.6 10.3 11.3
S. Requests (or information
you don't have or is
not accessible 7.4 8.2 5.1 7.2
6. (Other) 4.9 3.5 5.1 4.7
7. (OK/Refuse) 15.5 12.9 7.7 14.5
Total 100.0% 100.0% 100.0% 100.0%
N 355 200 202 757
13. Do you have one or more computers in your business?
I. Yes 90.7% 96.5% 96.2% 91.9%
2. No 9.1 3.5 3.8 8.0
3. (OK/Refuse) 0.2 0.1
Total 100.0% 100.0% 100.0% 100.0%
N 355 200 202 755
13a. Do you have stand alone pes, a local area network, or both? (If HYes"
in Q#13.)
I. Stand alone PCs 47.8% 30.5% 18.4% 42.8%
. ~
2. Local area network 18.3 18.3 23.7 18.9

3. Both 31.5 47.6 56.6 35.9
4. (OK/Refuse) 2.4 3.7 1.3 2.4
"" §
Total 100.0% 100.0% 100.0% 100.0%
N 319 193 195 707

13b. Does your business use the Internet for business reasons regularly,
periodically, or aren't you on the Internet?
. ~
I. Regularly 55.7% 61.0% 72.4% 58.0%
2. Periodically 33.4 29.3 23.7 31.9
3. No Internet access 10.4 8.5 2.6 9.4
4. (OK/Refuse) 0.5 1.2 1.3 0.7
'" Total 100.0% 100.0% 100.0% 100.0% u::
N 319 193 195 707
. ~
Employee Size of Firm
1-9 emp 10-19 emp 20-249 emp All Firms
13c. How do you reach the Internet? (If "Regularly" in Q#13b.)
I. Dial-up connection 8.9% 26.5% 21.8% 35.3%
2. DSL 38.3 53.1 36.4 39.8
3. Cable 16.5 16.3 21.8 17.2
4. (Other) 5.0 4.1 14.5 6.1
5. (DKIRefuse) 1.2 5.5 0.5
Total 100.0% 100.0% 100.0% 100.0%
N 177 118 139 434
13d. Do you have a computer in your residence that you use for business
purposes? (If "No" in Q#13.)
I. Yes -% -% -% 33.3%
2. No 67.7
3. (DKIRefuse)
Total 100.0% 100.0% 100.0% 100.0%
N 35 7 7 49
Employee Size of Firm
1-9 ernp 10-19 emp 20-249 emp All Firms
01. Which best describes your position in the business?
I. Owner/manager 86.2% 82.4% 76.9% 84.9%
2. Owner but NOT manager 5.5 7.1 6.4 5.8
3. Manager but NOT owner 8.3 10.6 16.7 9.4
Total 100.0% 100.0% 100.0% 100.0%
N 355 200 202 757
02. Is your primary business activity:: (NAles code)
I.Agriculture, forestry, fishing 2.8% 1.2% 1.2% 2.5%
2. Construction 8.8 8.5 10.0 8.9
3. Manufacturing. mining 8.5 9.8 8.8 8.4
4. Wholesale trade 5.8 4.9 8.8 6.0
5. Retail trade 20.3 26.8 16.3 20.6
6. Transportation and
warehousing 1.1 1.2 1.2 1.1
7. Information 0.5- 1.2 0.5
8. Finance and insurance 4.6 1.2 2.5 4.0
9. Real estate and rental leasing 3.5' 6.1 3.8 4.1
10. Professionallscientifid
technical services 12.3 13.4 10.0 12.2
I I. Adm. support/waste
management services 3.9 2.4 2.5 3.6
12. Educational services 1.6 1.2 1.4
13. Health care and
social assistance B 4.9 8.8 4.0
14.Arts, entertainment,
or recreation 1.'1 5.0 1.6
I5.Accommodations or
food service 2.S 9.8 15.0 4.5 . ~
16. Other service, incl. repair.

personal care 14.8 7.3 3.8 12.9
17. (Other) 3.0 1.2 1.2 2.9
18. (OK/Refuse) 0.8 0.1

Total 100.0% 100.0% 100.0% 100.0%

N 355 200 202 757 &:
. ~
. ~
Enlployee Size of Firm
1-9 emp 10-19 emp 20-249 emp All Firms
03. Over the last two years, have your real volume sales:?
I. Increased by 30 percent
or more 10.3% 12.9% 11.5% 10.7%
2. Increased by 20 to 29 percent 8.8 11.8 10.3 9.2
3. Increased by 10 to 19 percent 22.7 20.0 30.8 23.2
4. Changed less than 10 percent
one way or the other 26.0 30.6 26.9 26.6
S. Decreased by 10 percent
or more 25.9 22.4 17.9 24.7
6. (DKJRefuse) 6.3 2.4 2.6 5.s
Total 100.0% 100.0% 100.0% 100.0%
N 355 200 202 757
04. Is this business operated primarily from the home, including any associated
structures such as a garage or a barn?
I. Yes 33.3% 7.1% 5.1% 27.7%
2. No 65.6 91.8 94.9 71.3
3. (DKJRefuse) 1.1 1.2 1.0
Total 100.0% 100.0% 100.0% 100.0%
N 355 200 202 757
OS. How long have you owned or operated this business?
'" C
I. < 6 years
2. 6-10 years
3. 11-20 years
4. 21-30 years
5.31 years+
6. (DKJRefuse)
25.4% 23.5% 15.2% 24.2%
20.8 12.9 20.3 20.0
27.3 24.7 30.4 27.3
18.3 23.5 16.5 18.7
6.6 12.9 16.5 8.2
1.6 2.4 1.2 1.6
100.0% 100.0% 100.0% 100.0%
355 200 202 757
Employee Size of Firm
1-9 emp 10-19 emp 20-249 emp All Firms
06. What is your highest level of formal education?
I. Did not complete high school 2.4% 2.4% -% 2.1%
2. High school diplomaiGED 19.5 17.9 14.1 18.8
3. Some college or an
associates degree 26.1 19.0 23.1 25.1
4. Vocational or technical
school degree 3.3 3.6 1.3 3.1
5. College diploma 30.3 33.3 42.3 31.8
6. Advanced or professional
degree 17.3 22.6 19.2 18.0
7. (DK/Refuse) 1.1 1.2 1.0
Total 100.0% 100.0% 100.0% 100.0%
N 355 200 202 757
07. Please tell me your age.
I. <25 0.6% -% -% 0.4%
2.25·34 8.0 6.0 7.5 7.8
3.35-44 19.8 21.4 23.8 20.4
4.45-54 34.1 31.0 32.5 33.6
5.55-64 26.6 29.8 25.0 26.8
6.65+ 8.6 9.5 8.8 8.8
7. (DK/Refuse) 2.2 2.4 2.5 2.3
Total 100.0% 100.0% 100.0% 100.0%
N 355 200 202 757
08. What is the zip code of your business?
I. East (zips 0 I0·219) 13.9% 16.3% 20.5% 14.8%
2. South (zips 220-427) 23.8 20.9 17.9 22.9
3. Mid-West (zips 430-567, " . ~
600-658) 22.1 18.6 20.5 21.6

4. Central (zips 570-599. 0
660-898) 22.7 26.7 26.9 23.6

5. West (zips 900-999) 15.5 16.3 12.8 15.3 B
6. (DK/Refuse) 1.9 1.2 1.3 1.7
Total 100.0% 100.0% 100.0% 100.0%
N 355 200 202 757
. ~
" .g
'" u:
Employee Size of Firn1
1-9 emp 10-19 emp 20-249 emp All Firms
09. Population Density
I. Highly Urban 8.6% 15.5% 14.1% 9.9%
2. Urban 20.7 17.9 15.4 19.9
3. Fringe Urban 18.4 20.2 23.0 19.0
4. Small Cities and Towns 22.9 15.5 20.5 21.9
5. Rural 23.5 23.8 20.5 23.3
6. No Data 5.8 7.1 6.4 6.0
Total 100.0% 100.0% 100.0% 100.0%
N 355 200 202 757
010. Sex
Male 80.8% 83.5% 88.6% 81.9%
Female 19.2 16.5 11.4 18.1
Total 100.0% 100.0% 100.0% 100.0%
N 355 200 202 757
Table Notes
I.AlI percentages appearing are based on
weighted data.
2.All "Ns" appearing are based on ul1wcight.
cd data.
3. Data are not presented where there are
fewer than 50 unweighted cases.
4. ( )s around an answer indicate a volun-
teered response.
WARNING - When reviewing the
table, care should be taken to distinguish
between the percentage of the population
and the percentage of those asked a partic-
ular question. Not every respondent was
asked every question. All percentages
appearing on the table use the number asked
the question as the denominator.
Data Collection Methods
The data for this survey report were col-
lected for the NFIB Research Foundation
by the executive interviewing group of The
Gallup Organization. Tbe interviews for this
edition of the Poll were conducted between
August 7 - September 6, 2003 from a sam-
ple of small employers. "Small employer"
was defined for purposes of this survey as a
business owner employing no fewer than
one individual in addition to the owner(s)
and no more than 249.
The sampling frame used for the survey
was drawn at the Foundation's direction from
the mes of the Dun & Bradstreet Corpora-
tion, an imperfect me but the best currently
available for public use. A random strati fled
sample design was employed to compensate
for the highly skewed distribution of small-
business owners by employee size of firm
(Table AI). Almost 60 percent of employers
in the United States employ just one to four
people meaning that a random sample would
yield comparatively few larger small employ-
ers to interview. Since size within the small-
business population is often an important dif-
ferentiating variable, it is important that an
adequate number of interviews be conduct-
ed among those employing more than I0
people. The interview quotas established to
achieve these added interviews from larger,
small-business owners were arbitrary but ade-
quate to allow independent examination of
the 10-19 and 20-249 employee size classes
as well as the 1-9 employee size group.
Table AI
Sample Composition Under Varying Scenarios
Expected from
Random Sample'" Obtained from Stratified Random Sample
Employee Percent Percent Percent
Size of Interviews D i s t r i ~ Interview Distri· Completed Distd-
Firm Expected bution Quotas bution Interviews bution
1-9 593 79 350 47 355 47
10-19 82 II 200 27 200 27
20-249 75 10 200 27 202 27
All Firms 750 100 750 101 757 101
"Somple universe developed from sP«ial runs supplied to the NFI8 Research Foundation by the Bureau of the Census (1997 dOlO).
inThis Series
Volume I. Issue I
Issue 2
Issue 3
Issue 4
Issue 5
Issue 6
Issue 7
Issue 8
Volume 2, Issue I
Issue 2
Issue 3
Issue 4
Issue 5
Issue 6
Issue 7
Issue 8
Volume 3. Issue I
Issue 2
Issue 3
Issue 4
The Changing Search
(or Employees
The Use and Value of Web Sites
The Cash Flow Problem
Adjusting to Cost Increases
Coping with Regutation
Success. Satisfaction and Growth
Getting Paid
Workploce So(ety
Postal Rates
Administering the Sales Tax
Advice and Advisors
Families in Business
Business Insurance
Pre-ownership Experience
Contacting Government
Compensating Employees
Reinvesting in the Business
Health Insurance
The NFIB Research Foundation is a small-busi-
ness-oriented research and information organization
affiliated with the National Federation of Indepen-
dent Business. the nation's largest small and inde-
pendent business advocacy organization. Located in
Washington, DC. the Foundation's primary purpose
is to explore the policy related problems small·busi-
ness owners encounter. Its periodic reports include
Small Business Economic Trends, Small Business Problems
and Priorities. and now the National Small Business Poll.
The Foundation also publishes ad hoc reports on
issues of concem to small-business owners. Includ-
ed are analyses of selected proposed regulations using
jes Regulatory Impact Model (RIM). The foundation's
functions were recently transferred from the NFIB
Education Foundation.
1201 "F" Street NW
Suite 200
Washington, DC 20004
July 2,2010
Document Control Office
Office of Pollution Prevention and Toxics (OPPT)
Envimnmental Protection Agency
1200 Pennsylvania Avenue, NW
Washington, DC 20460-0001
Re: Lead; Renovation, Repair, and Painting Program for Public and Commercial
Buildings [Docket ill: EPA-HQ-OPPT-2010-0173]
These comments are submitted for the record to the Environmental Protection Agency (EPA) on
behalf of the National Federation of Independent Business (NF1B) and the NFffi Small Business
Legal Center in response to the Advanced Notice of Proposed Rulemaking (ANPRM) on Lead;
Renovation, Repair, and Painting Program (RRP) for Public and Commercial Buildings
published in the May 6, 20I0 edition of the Federal Register.
NFIB is the nation's leading small business advocacy association, representing members in
Washington, D.C. and all 50 state capitals. Founded in 1943 as a nonprofit, nonpartisan
organization, NFIB's mission is to promote and protect the light of its members to own,
operate, and grow their businesses. NFffi represents about 350,000 independent business
owners who are located thmughout the United States, including thousands of members in the
construction and specialty trades affected by tllis notice. The NFffi Small Business Legal
Center is a nonprofit, public interest law finn established to provide legal resources and be the
voice for small businesses in tile nation's courts tllrough representation on issues of public
interest affecting small businesses.
The EPA is beginning the process of regulating the renovation, repair, and painting activities
of public and commercial buildings under the Toxic Substances Control Act. Tllis process is
aimed at developing lead-safe work practices and other requirements for renovations on the
exteriors of public and commercial buildings and to determine whether lead-based paint
hazards are created by interior renovation, repail', and painting projects in public and
commercial buildings.
NF1B's chiefconcem is the economic impact of the rule on small business owners. We believe
tile EPA should take advantage of tile considerable time it has between now and the f m a ~ r u l e
stage to develop standards that achieve its desired goal of protecting people from exposure to
lead while at the same time impacting small businesses as little as possible.
FIB Comments on Lead; Renovation, Repair, and Painting Program for Public and Commercial Buildings
Docket 10: EPA-HO-OPPT-2010-0173 July 2,2010
In the ANPRM, the EPA wrote: "In many respects, EPA's approach to detennining whether
and how to regulate... will be similar to the approach taken towards renovation activities in
and on target housing and child-occupied housing." Because that approach, and the
implementation of it, caused significant hardship on the regulated community, much of oW"
discussion will stem from the feedback NFlB received from its members fi-om that April 2008
final rule. We hope the EPA can utilize that feedback to improve the forthcoming rule.
Lack of Communication with the Regulated Community
The most troublesome problem we heard from our members regarding the 2008 rule was lack
ofcommunication from the EPA 10 the regulated community. Many of oW" members contacted
us in the weeks before the compliance date of April 22, 20I0, to let us know they had just
heard about the rule and needed help to meet the requirements on time. In discussions, it
seemed that many heard about the rule through word-of-mouth from vendors and other
contractors. While the EPA has a fairly robust RRP website - that included a training finder
and other valuable infOImation - very few of our members knew about it until late in the
process. The result was the following:
Classes: Many of our members were forced to scramble to get training classes for employees
on time. We were told on several occasions that the only trainers within several-hours drive
were fully booked through the compliance deadline. Had more businesses known about the
rule earlier, they could have found classes in a reasonable timeframe. Furthennore, better
communication would have helped the EPA appropriately gauge the number of trainers they
needed, what areas needed additional tminers, and prevented the huge demand on trainers
right before the deadline.
NFlBis deeply concerned that the EPA's lack of communication created a situation where
contractors seeking training were price gouged. One member in particular - who found out
about the rule from his neighbor in early April- told us that all of the low cost classes that he
could possibly attend were full. The cost of those classes was $99. One trainer, a few hoW"s
away, had available slots but the cost of the class was $325.
For the EPA to create a situation where small businesses could be taken advantage of is
disappointing. Research has shown that regulation already impacts small businesses at a
proportionally greater rate than larger firms. I Small businesses cannot afford to pay upwards
of $200 more per class, per employee because they were not aware of a regulation affecting
the very core of their business.
Certification: Many members suddenly found their livelihood jeopardized just weeks before
the compliance date. They discovered that as ofApril 22, their finn would need to be certified
by the EPA in lead-safe practices. However, the EPA's rule states that it has 90 days to
complete its review of the application. Therefore, many fmns were concemed that they would
have to refuse or tum down work once the complian::e date anived if they had not received
their certification.
I I Crain, W. Mark, The Impact of Regulatory Costs on Small Firms, 2005,
NFIB Comments on Lead; Renovation, Repair, and Painting Program for Public and Commercial Buildings
Docke! JD' EPA-HO-OPPT-2010-0171 July 2,2010
While we were pleased to see the EPA aIillOUnCe - after the compliance date - that it would
not enforce penalties on firms that had filed their application and had their employees trained,
tlus did nothing to alleviate the concems of small businesses in the days leading up to
deadline. It is very likely that maI1Y fUlUS tumed down work to avoid breaking the law. It is a
shame and unacceptable that small businesses were forced into a position to cease work,
paI1iculaI'ly in an econonUc climate that has been patticularly devastating to the construction
and renovation industry.
One member that had applied for certi fication and was making evelY effort possible to get his
employees trained within days after the deadline told us: "I've been in this business for 35
years and never broken the law or skiIted any requirement. But I have no choice but to do so
now because l'm not going to let my family and employees down. If we shut down, even for a
few weeks, the business will have to close."
EPA's Inability to Enforce Creates a Double-Edged Sword for Small Businesses
Our member's stOly about the possibility of performing illegal work lughlights a patticular
problem with the rule; the EPA lacks the ability to adequately enforce it.
The EPA has too few inspectors and resources to ensure that jobs are being perfol111ed by
cettified firms and trained workers. Instead, the EPA bas said that it will rely on tile customers
of conshuction and renovation services to "tum in" non-compliant contractors. The EPA has
launched a public awareness campaign aimed at driving up demand for lead-safe services,
with the notion that customers will not hire fillUS tllat are not certified.
Creating such a demand is unlikely, pmticularly when customers get bids tbat are hundreds of
dollars, if not thousands, less from unce,tified contractors. When someone offers to do the
same job at a significant savings, the incentive for the customer to demand lead-safe work is
Even worse, the small businesses that comply with the expensive rule will be priced out of the
marketplace. So, under tbe current situation, not only is it more expensive for them to do tile
work, they are also less likely to get work. For a small business operating on a tlun profit
margin, if any, this rule is devastating.
Suggestions for the Public and Commercial Buildings Rule
Given the problems with the April 2008 rule and its large effect on small businesses, NFLB
suggests the EPA consider tbe following as it moves fOlward with the Public and Commercial
Buildings Rule:
The EPA should keep celtification and training requirements the same as the April 2008 rule.
NFIB proposes that the ce,tification and training requirements for tbe previous rule be the
same for tlus upcoming proposal. Therefore, if a firm is cel1ified for one rule, it is certified for
both - without the additional costs that would be required for a separate certification. The
NFIB Comments on Lead; Renovation, Repair, and Painting Program for Public and Commercial Buildings
DockellD: EPA-HO-OPPT-2010-0173 July2,2010
same would also be true of training for workers. There may be some slight deviation from lead
abatement procedures for housing as opposed to public and commercial buildings. However,
we believe the EPA can achieve its purpose without adding to the already substantial costs
imposed on small business owners.
The EPA should describe in the forthcoming NPRM its co=unication plan. As noted earlier,
the great failure of the previous rule was its faulty communication plan. Many small
businesses did not know about the lUle until very close to the compliance deadline, and
undoubtedly many may not know about it now. Small businesses do not have compliance staff
like large businesses. The burden of compliance falls on the small business owner, who also
has responsibilities ranging from ordering inventoryand hiring employees, to taking out the
trash at the end of the day. Asking a small business owner to thumb tln'ough the Federal
Register evelyday is not a fair expectation. The EPA simply must do more this time around.
Once the lUle is promulgated, NFIB recommends that the EPA mail all rums that have
completed certification a one-page fact sheet explaining how the rule will affect them, and
provide information as to how they can find out more. In addition, the EPA should utilize the
free advertising the EPA plans to use on television and radio to promote lead safety to
consumers via the Ad Council. Dedicate some of this communications channel to specifically
target the constlUction and renovation induslly. Lastly, when issuing its Notice of Proposed
Rulemaking (NPRM), the EPA should solicit input from Ihe regulated community on what
other communications channels will be effective.
The EPA should not rely solely, or even largely, on elecll'onic means to connnunicate about
the lUle. Many lUral areas still lack fast - or even reliable - Internet access.
The EPA should explore every possibility to enforce penalties on FInns tI,al are willingly non-
compliant. Unfortunately, there is very little NFlB can offer the EPA regarding what the
agency can do about its lack of ability to enforce the rule. The EPA entered into a legal
agreement to promulgate these two lUles knowing that it had no way to sufficiently enforce
either one. The losers are the small businesses that, at great cost, have complied with the lUle
only to be outbid on projects by non-compliant companies. For these entrepreneurs, they can
only hope that the agency can come up with a sufficient enforcement mechanism to prevent
uncertified fi,ms from performing construction and renovation projects.
NFrB is concerned about the economic impact this lUle will have on small businesses. The
precursor to this rule, published in 2008, required small businesses to pay for expensive
certification and training. Even worse, the EPA's inability to adequately enforce the lUle has
decreased the likelihood that a compliant small business can compete for work.
Beyond the economic impact, the EPA failed to adequately connnunicate the lUle and its
requirements to the regulated community, and small businesses in particular.
NFl B Comments on Lead; Renovation, Repair, and Painting Program for Public and Commercial Buildings
DockellD: EPA-HQ-OPPT-2010-0173 July 2,2010
Moving fOlward, the EPA should help keep compliance costs down by allowing the
cettification and training for the housing IUle to be sufficient for this IUle. In addition, NFIB
encourages the EPA to publish in the fOlthcoming NPRM a robust communications plan, and
seek feedback from the regulated community.
Because ofthe great burden that the previous IUle had on small businesses, we strongly
encoW'age the EPA to make a concerted effOlt to help small businesses with this IUle. Thank
you for yoW' time and consideration. Should you require fiuther infonnation, please contact
Daniel Bosch at 202-314-2052.
Susan Eckerly
Senior Vice President
Puhlic Policy
N T C A ~
. '''''''''In u '.. Ill.. In",
71Ie l'<lltw o/RlIrnf Ttl«Olnmll.nimtiotu
January I 1, 20 II
ChaiJman DalTeU Issa
House Committee on Oversight and Government RefOlm
B350A Rayburn House Office Building
Washington, DC 20515
FAX: (202) 225-3974
Dear ChaiJman Issa:
Congratulations on your re-election and your chainnanship of the Oversight and Government
RefolTll Committee and thank you for your leadership on identifYing federal regulations that are
inefficient, outdated, ineffective, or hannful to our economy.
Our association represents the small, lUral communications providers across the country that
provide broadband and other telecom services that Americans in sparsely populated, hard-to-reach
areas need in order to have the same advantages as their urban neighbors. These lUral providers
serve areas that the biggest providers do not serve and they must use their resources very efficiently
in order to grow and offer the most advanced service.
I have heard from a number of our members about the many challenges they face in obtaining
rights-of-way (ROW) pelTllits from a web of various local, state, tribal, and federal agencies in their
efforts to deploy broadband. Communications providers of all sizes experience the same problems
when trying to build the infrastlUcture to provide faster and better service to customers.
Gaining rights-of-way access can be a cumbersome, lengthy, and costly process that delays private
sector investment in broadband infrastlUcture. The National Broadband Plan addressed some of
these concems and recommended that the FCC establish a joint task force made up of local, state,
and tribal governments to establish guidelines for rates, terms, and conditions for access to public
In many states federal agencies are responsible for the rights-of-way permits on federal lands and
are often slow to respond to rights-of-way requests. Agencies such as the Forest Service, the
Bureau of Reclamation, the Bureau of Land Management, the National Park Service, the Bureau of
Indian Affairs, the Federal Aviation Administration are often involved in the process. Your
committee's oversight of the FCC's efforts, with input from these agencies and small and large
cormnunications providers, could go a long way toward a more complete, efficient, and thorough
solution to this widespread problem.
America will not achieve its goal of being a world leader in high-speed broadband and wireless
availability to all citizens if federal agencies cannot work with providers toward building the
necessary infrastructure.
412t Wilson Boulevard· Tenth Floor· Arlington, Virginia 22203
Phonen03.35t .2000 . Fax/703.35 I.2001 . www.ntea.org

The Yoire ofRuml Te/«ornnllmicalioru
Thank you for your attention to this important matter. Please contact me if! can provide more
insight into this or any other issue that your committee is working on.

Tom Wacker
Vice President of Government Affairs
National Telecommunications Cooperative Association
4121 Wilson Boulevard· Tenth Floor· Arlington, Virginia 22203
Phonel703.351.2000 . Fax/703.351.2001 . www.ntca.org
Pebble Project and Section 404(c) of the Clean Water Act
January 2011
The Pebble Project located in Southwest Alaska, is investigating one of the largest
deposits of copper, gold, molybdenum and silver in the world. The Pebble Partnership (Anglo
American, PLC, and Northern Dynasty Mines) is exploring this mineral deposit on State of
Alaska lands that are available for mining. Olttp:llwww.pebblepm1nership.com/home)
The project is in the pre-pennitting stage. Hundreds of extensive environmental studies
are informing the configuration of p o s s i b " ~ mining activities and mining methods. To date,
nearly $500 million has been invested by the pal1ners in activities that include research, studies
and field work in nrder to best understand the fish, wildlife, geology and other resources in the
area. The studies will facilitate configuring the mine so that the standards for 67 types of state
and federal pennits that are needed can be met or exceeded. The project may be ready for
pelmitting in late 2011.
If pennits are applied for and granted, capital costs to build out the mine will be several
billion dollars. About 2000 jobs are projected for mine constlUction that will likely last three or
more years. Another 1000 ongoing skilled mining jobs (averaging $75,000 per year each) will
be provided over the life of the mine. These jobs will be available for Native Alaskans and
others living in IUral areas where the traditional economic outlook is bleak and unemployment
rates are very high.
However, in May 2010 some opponents of mining in the area of the Pebble Project
requested that the EPA preemptively prohibit. under Section 404(c) of the Clean Water Act,
deposit of fill material related to "metallic sulfide mining" for a "potential Pebble mine" into
wetlands in two drainages totaling 20,000 square miles near the mine site area. (See attached
petition, Geoffrey Y. Parker.)
This petition and consideration of it is without precedent and inconsistent with traditional
use of Clean Water Act section 404 authority by the EPA. (See attached legal memo, Reeves
Amodio.) The request for 404(c) action by EPA comes before mining permit sublnittal by Pebble
and before NEPA review. It does not consider any of the results of relevant baseline
environmental work that the company has compiled at considerable expense over roughly six
years, work that has been done to plan a mine compatible with the sUlToundillg fish, wildlife, and
Moreover, if EPA undertakes the review, it undercuts the ability of The Pebble
Partnership to get full and fair consideration of the pemlits and mine plan that it believes will
comply with all state and federal environmental laws. A prospective 404(c) review would not
only be costly and time consuming for EPA, it could prejudice futme Pebble permitting
decisions by EPA and could stifle more investment in and attendant jobs related to this project
and other mining projects. In addition, preemptive use 404(c) would become the weapon of
choice to stop large projects that are quite needed now for private sector job creation.
EPA's logical and justified course should be to reject the petition outrigbt as it lacks any
meaningful substantive basis on its face. Instead of doing this, within a few weeks of receiving
the petition, Administrator Jackson and others at EPA traveled to the epicenter of Pebble
opposition and held meetings about the project thereby receiving a somewhat skewed view of
"community opposition." The Adminish'ator did meet with the company officials briefly in
Anchorage during that visit, but the pending petition was not known by the company at that time.
There are many people in the rural part of Alaska where the mine would be located who want the
pennitting process for Pebble to proceed.
Alaska's govemor, Sean Pamell, wrote in strong opposition to the preemptive 404(c)
review by EPA, noting that the lands on which Pebble would be located are State of Alaska lands
that were selected for mining development and have been designated for mineral activities under
the borough land plans for years. (See attached letter from Governor Pamell). The govemor
directly asked for the Administrator to decline the petition.
Interestingly, the Pebble Partnership has made many unique commitments to protect the
mine site while exploring and to not go forward if the mine carmot be constructed in a manner
that meets enviromnentallaws. The partnership took the unprecedented step of undertaking a
significant stakeholder engagement program conducted by the Keystone Center. Their corporate
philosophy is that the company will respect and coexist with healthy fish, wildlife and other
natural resources in Southwest Alaska and rely on the best science to plan and operate the mine.
For the nation, the mine would be a reliable source of US-derived copper, a strategic
mineral that is vital to the US economy and touches daily life of everyone. Indeed, the green
economy including wind turbines, electric vehicles, hybrid vehicles, electrical h'ansmission, solar
power generation, and computer technologies depend on supplies of copper. Pebble will also
produce molybdenum an important metal used to make steel for rifle barrels, bicycles, ski
equipment, light bulbs, food handling equipment, chemical processing equipment, machines, gas
turbines, automotive parts and even ski wax.
The partnership simply wishes to have "due process" and fair treatment in the pennitting
system as there is substantial tin1e, energy, funding and effmt that has gone into planning and
designing this modem, world-class mine. Preemptive 404(c) review is extra-procedural and
hence an unfair undertaking that would compromise full and fair review of the permit and plan
that may be submitted by the partnership. It should be rejected by the EPA.
Comrie!: Duane Gibson. Nkuk Lindsay. Bernie Robinson. Dennis Hertel (202-289-9881) or hck Victory (202-360-5464).
Phon" (907) 222..859
Fox: (907) 277-2242
634 KSlreet
Anchorage, Alaska 99501
Dennis J. McLerran, Regional Administrator
U.S. Environmental Protection Agency, Region 10
Regional Administrator's Office, RA-140
1200 Sixth Avenue, Suite 900
Seattle, WA 98101
Re: Secondary effects on subsistence and recreational use from a potential Pebble mine.
Dear Mr. McLerran:
I and my co-counsel represent several federally-recognized Tribes that, in accompanying
correspondence, have requested EPA to initiate a public process, under Section 404(c) of the
Clean Water Act, to identify and designate waters and wetlands in the Kvichak and Nushagak
river drainages of Southwest Alaska where discharge of dredge and fill material associated with
metallic sulfide mining, such as a potential Pebble mine, could be prohibited or restricted.
Much of the discussion of a potential Pebble mine focuses, understandably, on risks to
commercial salmon fisheries_ This letter focuses on risks to subsistence and recreation (chiefly
sport fishing), in order to draw a distinction.
A distinction is this. With respect to commercial fishing, significant damage or loss may
depend, for the most part, on events such as acid mine drainage, seepage from or failure of
tailings facilities, other pollution, genetic loss, etc.; and at least some of these events are likely to
occur if for no other reason than that containment must be forever. Such events would be
secondary effects to discharges of dredge and fill into waters and wetlands. With respect to
subsistence and sport fishing, significant damage or loss may occur not only by such means, but
also by other secondary effects such as increased competition due to increased use, population,
access, crowding, etc. Sport hunting is likely to suffer similarly. Thus, while discharges under
Section 404 for a Pebble mine (or similar metallic sulfide mine) inevitably will have direct and
cumulative effects where the discharges occur, this letter focuses on impacts that are likely to
result, secondarily and in combination with other impacts (of increased use, access, etc.), in
significant loss or damage to subsistence and recreational use of fish and wildlife.
I. Summary of the 404(e) Regulations and the 404(b)(l) Guidelines.
The 404(c) regulations define an "unacceptable adverse effect" as
impact on an aquatic or wetland ecosystem which is likely to result in ...
significant loss of or damage to fisheries ... , or wildlife habitat or recreation
Leiter to USEPA, re: Subsistence and Recreation
areas. In evaluating the unacceptability of such impacts, consideration should be
given to the relevant portions of the section 404(b)(I) guidelines (40 CFR part
Page 2
The purposes of the Guidelines are "to restore and maintain the chemical, physical, and
biological integrity ofwaters of the United States through the control of discharges of dredged or
fill material,',2 and to implement Congressional policies expressed in the Clean Water Act.
Accordingly, the Guidelines establish a rebuttable presumption against allowing any discharge:
Fundamental to these Guidelines is the precept that dredged or fill material should
nol be discharged into the aquatic ecosystem, unless it can be demonstrated that
such a discharge will not have an unacceptable adverse impact either individually
or in combination with known and/or probable impacts of other activities
affecting the ecosystems of concern.
Thus, the Guidelines prohibit a discharge whenever it results, "either individually or in
combination" with other known or probable impacts, in an unacceptable adverse impact. The
Guidelines further declare:
From a national perspective, the degradation or destruction of special aquatic
sites, such as filling operations in wetlands, is considered to be among the most
severe environmental impacts covered by these Guidelines. The guiding principle
should be that degradation or destruction of special sites [such as wetlands] may
represent an irreversible loss of valuable aquatic resources.
The 404(b)(I) Guidelines address direct, cumulative and secondary effects.
Cumulative effects are the changes in an aquatic ecosystem that are attributable to the
collective effect of a number of individual discharges of dredged or fill materiai.
Secondary effects are effects on an aquatic ecosystem that are associated with a discharge
of dredged or fIJI materials, but do not result from the actual placement of the dredged or
fill material.
Information about secondary effects must be considered prior to a final
decision under Section 404.
Secondary effects may present issues of greater
I 40 CFR 231.2(e) (italics added). The 404(b)(I) Guidelines (40 CFR Part 230) are promulgated
by the EPA in conjunction with the Secretary of the Army acting through the Chief of Engineers
under Section 404(b)(I) of the Clean Water Act. 40 CFR 230.2.
240 CFR 230.1 (a) (italics added).
3 40 CFR 230. 1(b).
4 40 CFR 230. 1(c) (italics added).
'40 CFR 230.1 (d) (italics added). Wetlands are a "special aquatic site." 40 CFR Part 230,
subpwt E.
6 40 CFR 230.11.
7 40 CFR 230.11 (g)(I).
8 40 CFR230.11(h)(I).
Letter to USEPA. reo Subsistence and Recreation
significance than direct effects. 10 The Guidelines address effects on human uses of
resources. I
In practice, this includes secondary effects on such uses.
II. Overview of the Economic Uses of Fish and Wildlife in the Bristol Bay Area.
Page 3
The most recent study of economic values associated with salmon of the Bristol Bay
drainages is: John Duffield13 et aI., Economics of Wild Salmon Watersheds: Bristol Bay, Alaska
(2007) (see Appendix, Tribes' letter requesting a 404(c) process). 14 According to Duffield, the
economy ofthe Bristol Bay region depends on three main types of activities - publicly funded
services (government plus non-profits), activities associated with the commercial exploitation of
the natural resources of the region (commercial fishing and recreation), and subsistence. 15
With respect to commercial salmon fishing, Duffield estimates that commercial salmon
caught in Bristol Bay in 2005 had a wholesale value of $226 million in the regional economy. 16
With respect to subsistence, Duffield estimates that subsistence harvest of fish and game,
by approxinJately 7600 people residing in the Bristol Bay drainages, accounts for 204 million
pounds of subsistence harvest per year for an average of315 pounds per person annually,17 and
that this results in an estimated net economic value annually of between $78 and $143 million.
With respect recreation, Duffield estimates that in 2005 the fish and wildlife in these
drainages accounted for nearly 51,000 recreational trips, 19 which generated $91 mHlion in
expenditures within Alaska.
With respect to sport fishing trips, Alaska residents account for
40 CFR 23004l(b) ("minor loss of wetland acreage may result in major losses through
secondary impacts").
11 40 CFR Part 230, Subpart F.
12 An example of a previous EPA action under 404(c) that addresses secondary effects on human
use of resources is the Recommended'Determination of [EPA Region IV] Pursuant to Section
404(c) of the Clean Water Act Concerning the Yazoo Backwater Area Pumps Project (June 23,
13 Dr. Duffield, PhD, is a professor of natural resource economics at the University of Montana
and is a co-author ofthe treatise: Ward, Kevin M. and John W. Duffield, 1992, Natural Resource
Damages: Law and Economics, New York, John Wiley & Sons.
14 Page citations herein are to the full study listed in the Appendix to the Tribes' letter to EPA re
404(c). A shorter version of the study was published in USDA Forest Service Proceedings
RMRS-P-49 (2007).
15 Duffield et aI., at 93.
16 Duffield et aI., at l6. The "economic value" of commercial salmon fishing in Bristol Bay can
be estimated by various values, such as ex-vessel value, expenditure value, wholesale value, net
profit, etc., in various geographical contexts, such as a local, regional, or national economy. See
Duffield generally.
17 Duffield et aI., at 84 - 85.
\8 Duffield et aI., at 107 - 108.
19 .
Duffield et aI., at 16, 99.
Letter to USEPA, reo Subsistence and Recreation Page 4
approximately 65 percent of the trips to the area, and nonresidents 35 percent?l Total angler
effort is on the order of 100,000 angler days per year.
When sport fishing was the sole or
primaryJurpose ofthese trips, the sport fishing accounted for $61 million in expenditures within
Alaska, of which $48 million were expenditures by the one-third of sport fishers who are non-
residents of Alaska24 With respect to sport hunting and wildlife viewing/tourism, they
accounted for $13 million and $17 million respectively, in expenditures within Alaska.
With respect to employment, the following table from Duffield, et aI. reflects the
distribution of full-lime-equivalent jobs.
FTE 'obs
Alaska Residents
Total Full Time Equivalent (FTE) Employment in Alaska
De endent on Bristol Ba Wild Salmon Ecos stems, 2005
Commercial fishing
Commercial processing
Sport fishing
Sport hunting
Wildlife viewing / tourism
Total FTE .obs
1598 1829 3,430 2,110 5,540
Ill. Secondary Effects on Subsistence and Recreational Use of Fish and Wildlife.
A Pebble mine, and associated development and access, are likely to increase competition
for subsistence and recreational use of fish and game in the Bristol Bay drainages. At various
times, the Pebble Limited Partnership (PLP) has asserted that a Pebble mine will require several
thousand workers to build it, and a thousand workers to operate it, though PLP's estimates of the
number of workers fluctuate. This increased activity inevitably will bring additional residents to
the area in other roles, also. Even if stipulations on mining-related permits, such as wetland
permits under Section 404, could protect fish and wildlife habitat outside of the sites at which
dredge and fill material would be discharged, significant increases in demand for fish and game
resources, in access demands, and in secondary development are likely to increase competition
for fish and game.
21 Duffield et at., at 15.
22 Duffield, et aI., at 17.
23 Duffield et aI., at 15-16, 101.
24 [d.
25 Duffield et aI., at 16.
26 Duffield et al., at 17. Hunting is included because wild salmon returning from the sea perform
an "ecosystem service" of nutrient recycling to support habitat functions. See id. at 24-26. In
Alaska, marine nitrogen accounts for as much as 90 percent of the nitrogen in brown bears. See
Robert J. Naiman et aI., Riparia: Ecology, Conservation, and Management of Streamside
Communities, 184-185 (2005).
Letter to USEPA, fe: Subsistence and Recreation Page 5
For purposes of Section 404(c) and the 404(b)(1) Guidelines, EPA may consider the
quality of subsistence and recreational use and socio-economic impacts resulting from changes in
subsistence and recreational use pattems
A. Subsistence and EnvirOlllmental Justice.
In the Bristol Bay drainages, the share of the population that is Alaska Native is relatively
high at 70 percent, compared to Alaska as a whole, with 16 percenl.
Accordingly, subsistence
is a major concern to the Tribes, and so, the Appendix to the Tribes's letter to EPA on 404(c)
provides internet links to maps (used by the Bureau of Land Management) which identify
subsistence.use areas for the villages and communities in the area that use the Kvichak and
Nushagak drainages for subsistence. The demographic aspects raise issues ofenvironmental
justice under"Executive Order 12898. It requires that each Federal agency shall make achieving
environmental justice part of its mission by identifying and addressing disproportionately high
and adverse human health and environmental effects of its programs, policies, and activities on
Jow-income and minority populations.
Most of the central provisions of State and federal subsistence laws were drafted nearly
thirty years ago. Both provide two "tiers" ofa subsistence preference (16 U.S.C. § 3114; AS
16.05.258), but they differ with respect to who can participate. Federal law limits subsistence on
federal lands to rural Alaska residents. State law allows all Alaskans to qualify, preliminarily,
for subsistence on non-federallands?9 Under both schemes, when the total harvest by
subsistence and other users of a fish or game stock exceeds sustained yield, the Tier I preference
restricts or eliminates non-subsistence users. When the subsistence harvest alone exceeds
sustained yield, the Tier II preference is triggered and subsistence is restricted by statutory
criteria that allocate subsistence opportunities. On federal lands, 16 U.S.C. § 3114 allocates
subsistence opportunities by three criteria: (I) customary and direct dependence on the
populations as the mainstay of livelihood; (2) local residency; and (3) availability of alternative
resources. The State, however, must avoid local residency criteria as being unconstitutional
under the Alaska Constitution. These distinctions in who can hunt and fish in particular
situations have divided Alaskans and are known colloquially as the "subsistence dilemma.,,30
27 See e.g., USEPA, Recommended Detennination pursuant to Section 404(c) Concerning the
Yazoo Backwater Area Pumps Project, supra (portions address potential changes in quality of,
and economic benefits derived from, fishing and hunting in the Yazoo Backwater Area).
28 Duffield et al., at II.
29 McDowell v. Slale, 785 P.2d I (Ak. 1989) (Alaska constitution bars State from limiting
subsistence to rural residents).
30 A Pebble mine may increase pressure (which already exists) to revise federal subsistence law
to be protect only Alaska Native people, lUld to apply it more broadly than only on federal land
(i. e., to Native corporation lands also). Congress probably could adopt a "Native only"
subsistence provision under the Indian Powers clauses of the US Constitution, but the Alaska
legislature cannot under the Alaska Constitution. Doing so would drive state and federal
governments further apart on subsistence law, and would be very divisive among state residents.
A proposed Pebble mine is likely to add to pressures to do so.
Letter to USEPA, reo Subsislence and Recreation
Page 6
A potential Pebble mine is likely to be caught upon the horns of this dilemma, because
the Bristol Bay drainages (unlike locations ofother large mines in Alaska) are the source of
world-class fish and game resources (e.g., salmon, trout, char, grayling, pike, lake trout, caribou,
moose, and bears) that attract users locally, regionally, nationally, and internationally. No other
large Alaskan mine is located in a region that does so. This distinction implies that Pebble and
associated development are likely to result in increasing the numbers of new local11lral residents,
visitors from Alaska and perhaps elsewhere, and the amount ofsecondary development.] I
Because of the land ownership pattern, new local residents are likely to settle in the vicinity of
Iliamna, Newhalen and Nondalton. However, their uses of lands and resources will reach
beyond, to state lands in the Kvichak and Nushagak drainages (and to private land, including
Native land, with and without permission) where state subsistence law applies, and to federal
land (Lake Clark and Katmai nationals parks and preserves, and BLM lands) where federal
subsistence law applies. The Pebble Partnership may restrict fishing or hunting by employees
while at the mine site, but it cannot limit development of private land, or the activities of new
local residents who are either not its employees, or are visitors. Even well-intentioned
restrictions on access to protect subsistence uses of resources tend to be transitory and ineffective
(e.g., the Dalton Highway, formerly "the North Slope Haul Road" is now open to public use).
With respect to federal law, the new local residents will be rural residents for purposes of
subsistence in federal parks and preserves and BLM lands. They will compete with both current
17lral residents engaged in subsistence and sport hunters who visit the area. As total subsistence
demand increases due to new rural residents, Federal subsistence law, first, will restrict or
eliminate sport hunting in the federal Lake Clark and Katrnai Preserves (where sport hunting has
been allowed). Second, when subsistence demand of all (new and current) rural residents
surpasses sustained yield of a fish or game population (most likely a game population) on federal
land, some rural residents will be disqualified under the criteria at 16 U.S.C. § 3114. However,
the local-residency criterion will not be particularly effective, because new and current rural
residents will all be local rural residents for purposes of federal subsistence law. The first and
third criteria - i.e., (1) customary and direct dependence as the mainstay of livelihood; and (3)
availability of alternative resources - will disqualify some subsistence users on federal lands, not
unlike the disqualification that occurs under the State's divisive and controversial Tier II hunts.
Hence, current rural residents would experience increased competition, diminished subsistence
opportunity, and disqualification on federal lands, because ofan influx ofnew rural residents.
With respect to state subsistence law, conflicts are likely to be more intense because all
Alaska residents can qualify for subsistence 011 nonfederallands. Some game populations, such
as Mulchatna caribou and Nushagak moose, may have to be managed as Tier II state subsistence
IUUlts, in which all sport hunters and many subsistence hunters would be excluded.
Thus, the discharge of dredge and fill material for a Pebble or similar mine is likely to
result, in combination with other impacts, in a significant loss of subsistence by current
subsistence users. Furthennore, because the population in the Bristol Bay drainages is
substantially Native Alaskan, a Pebble mine (or similar metallic sulfide mine) is likely to have
11 For reasons addressed in Part B below, additional visitors may not result in less, not more
recreational expenditures.
Lcttcr to USEPA, rc: Subsistence and Recreation
Page 7
disproportionately high, adverse, secondwy effects, in combination with other impacts, on
subsistence use by Alaska Natives in the Kvichak and Nushagak drainages. This raises issues of
environrnentaljustice under Executive Order 12898. Again, the Yazoo Backwater Area Pumps
Project (see fn. 12, supra) provides analogy. In that case, EPA concluded that the project would
have disproportionate adverse effects on subsistence fishing and hunting activities of low-income
and minority populations, and that a 404(c) decision to bar the project would not.
B. Sport Fishing.
As said above, in the Bristol Bay drainages, approximately two-thirds of the sport-fishing
trips are by local residents,33 and approximately two-thirds of the sport-fishing expenditures are
by nomesidents. With respect to sport fishing e},.'penditures, the Duffield study is consistent with
others published in the 1980's. Generally speaking, the studies have found or implied that two .
factors drive expenditures for services ofremote fishing lodges in the Bristol Bay drainages: (1)
desire for large rainbow trout as a target species, ahead of king salmon, silver salmon and other
species, and (2) concern about crowding
Most of the commercial lodges and camps are
located in the Kvichak and Nushagak drainages
Duffield compared sport fishing in the Bristol Bay drainages to sport fishing on the Kenai
Peninsula. Anglers fishing the road-accessible Kenai Peninsula generally were less concerned
with crowding or desire to fishing remote roadless areas than were anglers in the Bristol Bay
drainages,36 and were more likely to pursue salmon.
According to Duffield, these findings are
consistent with the general finding from Romberg (1999), that there are different market
segments of Alaskan sport fishing, and that different types of waters attract different types of
Generally, in primarily road-accessible fisheries of Southcentral Alaska, Alaska
residents account for about two-thirds of sport fishing effort (measured in angler-days).39 In
32 USEPA, Recommended Determination pursuant to Section 404(c) Concerning the Yazoo
Backwater Area Pumps Project, supra, at 65 - 67.
33 Duffield, et aI., at 51 (estimated 19,488 sport fishing trips by Bristol Bay area residents versus
12,966 sport fishing trips by non-"residents of Alaska).
34Duffield, et al., at 46 - 48 (large rainbow trout viewed as over 26 inches in survey). See also
Jon lssacs & Associates, "Commercial Recreation Service Providers Study" (1986) for Bristol
Bay Coastal Resource Servo Area (focuses on NushagaklMulchatna drainage); D. A. Ackley,
"An Economic Evaluation of Recreational Fishing in Bristol Bay, Alaska," Masters Thesis,
UAAlJuneau (1988) (focuses on KvichaklNaknek drainages; includes Iliamna Lake area).
35 The authors can provide a copy of the State's "Bristol Bay Area Plan Planning Regions,
Recreation Lodges & Camps" (2005) prepared for the State's 2005 Bristol Bay Area Plan but not
f,ublished in the Plan itself.
6Duffield, et aI., at 43.
31 Duffield, et al., at 45.
38 Duffield, et aI., at 43.
39 ADF&G, Fishery Data Series, No. 09-47, "Estimates of Participation, Catch, and Harvest in
Alaska Sport Fisheries in 2005,37 (This Data Series defines "Southcentral Alaska" as including
Kenai Peninsula, Matanuska-Susitna Valley, and Bristol Bay drainages, but the last account for a
small percentage of all angling effort as this data series defines "Southcentral Alaska.")
Letter to USEPA, re: Subsistence and Recreation Page 8
contrast, in the Bristol Bay drainages, where residents account for two-thirds of the sport fishing
trips and nonresidents account for two-thirds of the expenditures, the nonresidents who purchase
multi-day "trip packages" (oflodge, guiding and air taxi services) in the Bristol Bay drainages,
account for over half ofthe total sport fishing expenditures.
Duffield addresses potential development within the area that could result in road access
(by ferry from Homer, Alaska) and thus would impact crowding and size and abwldance of
rainbow trout in the region.
The survey indicates that 45.4% of non-residents and 30.5% of
residents feel that the road access would cause them to either stop fishing in the Bristol Bay area
(and fish other areas of Alaska) or stop fishing in Alaska entirely.42 Nearly 80 percent of non-
resident lodge clients responded that they oppose developing road access in Bristol Bay area, and
nearly 60 percent responded that they would not fish the Bristol Bay area if good road access
were developed in the area.
For purposes of 404(c) and the 404(b)(I) Guidelines, the dredge and fill of wetlands to
develop a Pebble mine and access to it, in combination with increased crowding, population and
access, is likely to result in significant loss of sport fishing within the lodge, guiding and air taxi
industries, as non-residents who seek trout at uncrowded, internationally famous destinations are
displaced by residents who seek salmon and are more tolerant of crowding. That would simply
shift expenditures of residents from road-accessible destinations in the Kenai Peninsula or
Matanuska-Susitna Valley to the Kvichak and Nushagak drainages while displacing nonresidents
who account for the majority of sport fishing expenditures in the Bristol Bay drainages.
IV, Existence Value.
Although the focus here is on subsistence and sport fishing, the values of renewable
resource services in principle should be available in perpetuity. Hence, EPA might consider
what has been said about existence value of tile Bristol Bay watersheds. According to Duffield,
et al., a major Uflknown is the total value for existence and bequest (also called passive use
values).44 Subject to qualifications, Duffield, et al" estimate that the existence value of the
watersheds is in the range of$6.0 billion to $10.2 billion.
cc: Lisa P. Jackson, EPA, Administrator, Washington, D.C.
Phil North, EPA, Kenai, Alaska
40 Duffield, et aI., at 55 - 56; see also id. at 50 (re distribution of expenditures).
41 Duffield, et aI., at 58.
42 Duffield, et. ai, at 58.
43 Duffield, et. ai, at 61.
44 Duffield, et. al, at 110.
4S Duffield, et. ai, at 112.
Alaska Independent Fishermen's
Marketing Association
P.O. Box 60131
Seattle, WA 98160
Phone/Fax (206) 542-3930
May 13, 2010
LiRa P. lack!;oll,
U.S. I!nvirolllnent3.1 Protection Agency. Ariel RiM Building
1200 Pen",;ylvani. Avenue, N.W. •
Wnshington, DC20460
May. 12 2011" eG: 413PM Pl
Dennis J. McLerran, Regional Adminislnttor
U.S. Environmental Protection Allency, ROillonl0
R.t:gional Administrator's Office, RA-l40
1200 Sil<lh Avenue, Suite 900
Sealtlc, WA 98101
Re: Endorsement of Tribes' request that EPA Initiate a public process under Secllon 404(c)
of the Clean Waler Act, regarding dlscharg.. related to potantlal matallic sulflda mining
in the Kvlchak and Nushagak drainages of Southwest Alaska.
Dear Ms. Jackson and Mr. McLerran:
ATI'MA Cooperative (Alaska Independent fishermen's Marketing Assncitll;on) i, a mcmbcr-bMed eooPCI1l-
tiv. Moolllmereilll fishers, orglUlized under the laws ofthe State of Alaska. ATJlMA's mcrobcm fish for .al-
mon in Bristoillay in Southwest Ata.ka. AtfMA has (ong opposed development ofII potential Pebble Mine.
lfdeveloped. it would mine a large metallic sulfide deposit locatild at the divide between Upper Talorik
Crock in the Kvichal< River drainage nnd lhe North and South Forks ofthe Kokluli Ri.er drainage. The Kvi-
ch8k River drainage hi,;t(lrlcally pl\1duccs more sockeye salmon than any other river in the world, and the
Nushagak Itiver drainage produces die mosl salmon oftho other c8ughtln the c01nmerciall1shC1Ic..
ofEri.tol Bay. APchhle Mine threatens these commercial fish,,·ies.
AlFMAis workinK with several federally-rCllollni7.cd tribC$ inlhc Kvickak ltlldNushagllk drainages on mat-
ters related to n potential Pebble Mine. AIFMA's boanJ of directors received and endorsed draft correspon-
dence by the Tribes that rcq\U.'S1S EPA to initiate n public proce.,s under Soction 404(0) ofthe Clean Water
Act, to protect Willers. wetllllld5. fish, wildlife, and ;ubsil1lcncc and rccrcatiorta1 lise. in the Kvichak and Nu-
shllgltk drainages and the commercial fisheries in Bristol Bay fronl direct, cumulative and stCOndlUYeffects
of disoh:lJ'ges associated with metallic sultid.c mining, includIng a pou:ntiaJ Pebble Mille. Wellndersrnnd that
the Tnl",,' louer h.. now been sent to EPA.
Thislelter oonfirms AlFMA's endorsement of the Tribes' letter and n:quest for a 404(c) puhlic process.
AIFMA will do all it COn to assist such a pmc05.,. Thankyuu.
Sincerely yours,

David HarsHa
From Six Federally-recognized Tribes
in the Kvichak and Nushagak River Drainages of Southwest Alaska:
Nondalton Tribal Council, Koliganik Village Council, New Stuyahok Traditional Council,
Ekwok ViJ1age Council, Curyung Tribal Council, Levelock Village Council
May 2, 2010 (mailed May 21, 2010)
Lisa P. Jackson, Administrator
U.S. Envirorunental Protection Agency, Ariel Rios Building
1200 Pennsylvania Avenue, N.W.
Washington, DC 20460
Dennis J. McLerran, Regional Administrator
U.S. Envirorunental Protection Agency, Region 10
Regional Administrator's Office, RA-140
1200 Sixth Avenue, Suite 900
Seattle, WA 98101
Re: Tribes request that EPA initiate a public process under Section 404(c) of the Clean Water
Act, to protect waters, wetlands, fish, wildlife, fisheries, subsistence and public uses in the
Kvichak and Nushagak drainages and Bristol Bay of Southwest Alaska from metallic sulfide
mining, including a potential Pebble mine.
Dear Ms. Jackson and Mr. McLerran:
Our federally recognized tribes, from the Kvichak and Nushagak river drainages of
southwest Alaska, have government-to-government relations with the United States, and are
represented by the undersigned tribal councils. We are writing with assistance of counsel.
Section 404(c) of the Clean Water Act authorizes EPA to prohibit or restrict the discharge
of dredge or fill material, including mine wastes, at defined sites in waters ofthe United States,
including wetlands, whenever EPA determines, after notice and opportunity for hearing, that the
use of such sites for disposal would have an "unacceptable adverse effect" on fisheries, wildlife,
municipal water supplies or recreational areas. EPA may do so prior to applications for permits
to discharge such material. 40 CFR 23 1.1(a). "Unacceptable adverse effect" is defmed as:
impact on an aquatic or wetland ecosystem which is likely to result in significant
degradation of municipal water supplies (including surface or ground water) or
significant loss of or damage to fisheries, shellfishing, or wildlife habitat or
recreation areas. In evaluating the unacceptability ofsuch impacts, consideration
should be given to the relevant portions of the section 404(b)(1) guidelines (40
CFR Part 230).1
1 40 CPR 231.2(e) (italics added). The purposes of the 404(b)(I) Guidelines are "to restore and
maintain the chemical, physical, and biological integrity of waters ofthe United States through
the control ofdischarges of dredged or fill material," and to implement Congressional policies
Letter, SW Alaska Tribes to EPA, re: 404(c)
Page I
We request that EPA initiate a 404(c) public process to identify wetlands and waters in
the Kvichak and Nushagak river drainages of southwest Alaska, where discharges associated
with potential large scale metallic sulfide mining, could be prohibited or restricted due to such
effects. This initial scope would include the Pebble deposit (which straddles a divide between
these drainages) and other metallic sulfide deposits in the area of that deposit. (We Wlderstand
that Kemuk MOWltain may be the site of another metallic sulfide deposit.) During such a public
process, some members of the public may urge a broader or narrower scope. The "scope" of a
404(c) process is one of many issues that should be resolved through a public process. The
deposits in the area of the Pebble claims, which precipitate this situation, should be included.
We are addressing tllis to both of you because: (I) 40 CFR 231.3(a) provides that a
regional administrator makes the decision of whether to initiate a 404(c) public process; (2) in
this instance, initiating a 404(c) process effectuates three of EPA's national priorities,2 and three
of EPA's regional priorities;) (3) initiating a 404(c) process promotes EPA's goal that decisions
be based on science, law, transparency, and stronger EPA oversight;4 and (4) doing so is
consistent with EPA's national priorities of increased oversight of mineral processing
expressed in the Clean Water Act. The Guidelines establish a rebuttable presumption against
allowing any discharge unless it can be demonstrated that the discharge will not have an
Wlacceptable adverse impact "either individually or in combination with known and/or probable
impacts of other activities affecting the ecosystems ofconcern." The Guidelines declare:
From a national perspective, the degradation or destruction of special aquatic
sites, such as filling operations in wetlands, is considered to be among the most
severe environmental impacts covered by these Guidelines. The guidingprinciple
should be that degradation or destruction ofspecial sites [such as wetlands] may
represent an irreversible loss of valuable aquatic resources.
40 CFR 230.1 (italics added). The Guidelines address direct, cumulative and secondary effects.
40 CFR 230.11. Secondary effects are those associated with a discharge, but do not result from
actual placement of the material, and must be considered prior to agency action Wlder §404. 40
CFR 230.lI(h)(I). In this case, a 404(c) process should address potential secondary effects on
commercial, subsistence, and recreational fishing and hWlting, and public use of parks and
preserves. See 40 CFR Part 230, subpart F. All are at issue as discussed herein and in attached
letter from counsel, and in the briefing paper attached to enclosed letter to State Rep. Edgmon.
2These include: (I) protecting America's waters; (2) expanding the public conversation on
environmentalism and working for environmental justice; and (3) forging strong partnerships
between EPA, tribes and states. See EPA's seven national priorities at
http://blog.epa.govladministrator/20I 0101/12/seven-priorities-for-epas-futw·e/#more-636.
) These include: (1) working with Tribal Governments to protect and restore the natural
resources on which tribal communities rely for their physical, cultural and economic well-being;
(2) protecting and restoring watersheds; and (3) promoting sustainable practices and strategic
partnerships, including with tribal governments. See EPA's six regional priorities at
http://yosemite.epa.govIRI0/EXTAFF.NSFlReports/2007-20II +Region+I O+Strategy (last
visited Feb. 12,2010), and EPA's Region 10 Strategy for Enhancing Tribal Environments at
http://yosenlite.epa.gov/rI0/EXTAFF.NSF/Reports/07-11+Tribal (last visited Feb 12,2010).
4Id. Pebble mine also raises issues that may require the assistance ofEPA staff in other offices.
S EPA's national priorities for enforcement and compliance for FY 2008 - 2010 and FY 20II -
2013 (proposed) are at http://www.epa.gov/oecaerth/datalplanningipriorities/index.htrnl#new.
Letter, SW Alaska Tribes to EPA, re: 404(c)
Page 2
increased attention to Environmental Justice. Furthermore, EPA's on-going 404(c) process with
respect to the Spruce No. I mine in West Virginia indicates that EPA prefers to be proactive, i.e.,
"to address environmental concerns effe,:tiveiy prior to permit issuance.,,6
We make this request for the following reasons.
1. The cultural, ecological and economic importance of the Kvichak and Nushagak
river drainages, and the magnitude of a potential Pebble mine, indicate that the
scope of a 404(c) public process should be broad at the outset.
Pursuant to 40 CFR 23 I.3(a), a Regional Administrator's initial decision ofwhether to
commence a 404(c) process turns on whether there is "reason to believe" that "an 'unacceptable
adverse effect' could result." (Italics added). This initial decision is based upon "evaluating the
information available.,,7
The Kvichak River drainage historically produces more sockeye salmon than any other
drainage in the world. Sockeye salmon drive the commercial salmon fisheries of Bristol Bay,
which are the state's most valuable salmon fisheries. Within the Bristol Bay drainages, the
Nushagak River drainage, also produces vast numbers ofsockeye, and produces the largest runs
of other species, including chinook, coho, chum and pink salmon. Both drainages are critical to
the wild commercial salmon fisheries, subsistence fisheries, internationally famous sport
fisheries, and abundant wildlife. The fish serve many onshore, near-shore and offshore uses and
ecological functions, including in the North Pacific. The drainages provide water supplies to
numerous villages and communities, many of which are substantially populated by Alaska
Native people.
The Pebble Limited Partnership (PLP), which seeks to develop the Pebble mining claims,
divides them into "Pebble West" and "Pebble East." The former may be susceptible to an open
pit mine. The latter (a more recent discovery) may be susceptible to an underground mine.
6 See EPA, Spruce No. I Mine 404(c) Questions & Answers for Web Posting, Oct. 16,2009
(italics added), http://www.epa.gov/owow/wetlands/pdflspruce I Oct 16 2009 9 and a.pdf
(visited Jan. 26,2010). EPA took this position when it invoked the 404(c) public process after
years of working with the applicant and other agencies. Spruce No.1 is the largest proposed
mountaintop removal operation in Appalachia, would clear 2200 acres, and fill seven miles of
streams. By contrast, just the open pit portion of a Pebble mine (per applications filed in 2006
and subsequently suspended) would be about two square miles (over 46,000 acres).
7Because EPA staff has access to EPA's materials, our counsel have prepared an Appendix
which lists other potentially relevant doctunents, from other agencies, the mining claimants,
academic or professional publications, professional papers, and presidential documents
applicable to environmental issues, tribal relations, and environmental justice. We assume that
none would be overlooked and simply call these documents to yow' attention.
8 Nondalton is closer to a potential Pebble mine than any other community. Dillingham's
Curyung Tribal Council represents the largest tribe in the Bristol Bay drainages of about 2400
members. Koliganek, New Stuyahok, Ekwok and Levelock are downstream of Pebble.
9 EPA routinely recognizes that mine voids, from open pit and underground mines, are sources of
acid mine drainage. We call to your attention P. Younger, "Don'tforget the voids: aquatic
Leller, SW Alaska Tribes to EPA, Te: 404(c)
Page 3
2006, Northern Dynasty Mines, Inc. (NDM)IO filed, and then supplemented, nine applications
with the Alaska Department of Natural Resources (ADNR), and then requested ADNR to
suspend them. ADNR did so. Four sought to appropriate water. Five sought to
construct tailings impoundment dams. 1 These nine applications were based solely on Pebble
West. The surface area of the water ofjust two tailings impoundments, as then proposed, would
have covered over ten square miles (6400 acres). "Beaches" of waste would have surrounded the
impoundments created by five dams or embankments up to 740 feet high and several miles long.
The 2006 applications for Pebble West showed that NDM had considered about a dozen
potential waste disposal sites. All or many appeared to involve vast wetlands under EPA's
jurisdiction. The proposed open pit would have involved about 16.5 miles of 54-inch diameter
pipelines to manage discharge tailings, and over two hundred miles of IS-inch diameter pipelines
to transport a slurry concentrate for dewatering and ocean shipment from Cook Inlet, and to
return used slurry water to the mine facilities. After suspending the applications, PLP bas
concentrated on exploring Pebble East. It has resulted in more than doubling the amount of
potential mine waste, to about ten billion tons of waste. Hence, the questions of where, how and
whether the vast volume of waste can be safely and permanently handled are major unresolved
issues that involve a vast amount of discharge under Section 404 into a vast amount of wetlands.
Because a Pebble mine, associated facilities, and similar metallic sulfide mines could also
have various direct, cumulative, secondary adverse effects in combination with other impacts
over a vast area, our tribes recommend that EPA consider a wide geographic area of the Kvichak
and Nushagak drainages for purposes of § 404(c), at least initially for a public process. Our
reasons include: (l) the importance of the Kvichak and Nushagak drainages for fish, wildlife,
and commercial, subsistence and recreational use of fish and wildlife; and the abundance of
waters and wetlands that support fish, wildlife and public uses; (2) the location of the Pebble
deposit at a divide between Upper Talarik Creek, which flows directly to Iliamna Lake (a
significant rearing Jake for sockeye salmon) in the Kvichak drainage, and the North and South
Forks of the Koktuli River in the Nushagak drainage; (3) the large scale of the deposit and a
Pebble mine; 12 (4) the acid generating potential of the host rock, voids, wastes, and dust; (5) the
necessity of dewatering a vast area, likely to great depths; (6) the fact that no comparable mine
apparently exists in terms of risk to commercial salmon fisheries, subsistence, recreation, and
pollutionfrom abandoned mines in Europe," submitted at the Workshop on Mine and Quarry
Waste - the Burden from the Past, held by the Oil'. Gen. for the Envir. and Jt. Research Cen. for
ED and EC nations, at Orta, Italy, 2002. The paper indicates that voids can vastly exceed waste
depositories as sources of water pollution (see Table 1 therein, and discussion); see
http://viso.jrc.ec.europa.eu/pecomines ext/events/workshop/ProceedingsOrtaWorkshop. pdf.
10 We understand that NDM is the American subsidiary ofNorthern Dynasty Minerals Ltd., of
which an affiliate is apparently a partner in PLP. See announcement ofPLP partnership at
II The applications comprise over 2000 pages. The attached appendix lists the website posting
them. A law journal article (listed in the appendix) swnmarizes these applications.
12 The financial commitment necessary to develop Pebble mine is huge, for various reasons such
as the cost of power, and is inconceivable as a small mine.
Letter, SW Alaska Tribes to EPA, re: 404(c)
Page 4
abundance of wetlands and water proximate to ground level; (7) the apparent existence of other
metallic sulfide deposits in the Pebble area and perbaps at Kemuk Mountain; (8) the likelihood
that discharge of dredge and fill material, including mine wastes from a Pebble mine or similar
mines, and dewatering, will adversely affect vast amounts of wetlands and waters; (9) the facts
that the behavior of metallic sulfide mines is difficult to predict; that the record of preventing
water pollution from them is not good; that acid mine drainage is a major risk; and that this risk
is perhaps increased by abundance of surface and groundwater; 13 (10) the facts that Pebble
implies a huge quantity of potential mine waste (perhaps ten billion tons), uncertainty over how
wastes might be handled, and that pipelines could move wastes to various discharge sites; (II)
the immensity of the task ofcontaining contaminants forever, including acid drainage; (12) the
magnitude of potential direct, cwnulative, and secondary effects on commercial fishing,14
subsistence and recreation, including in combination with increased population, access and
competition for fish and game;15 (13) the ecological functions that salmon perform throughout
their life cycle in marine and fresh waters; (14) the fact that juvenile salmon bave been shown to
be present in many waters within the Pebble claims wbere salmon bad been undocumented
previously for purposes ofthe state's Anadromous Fisb Act; (15) the likelihood that a
transportation route to Cook Inlet could implicate significant beach spawning of sockeye salmon
in the north-eastern portion of Iliamna Lake; (16) the likelihood that a Pebble mine, its
transportation corridor, and nearly settlement areas could adversely affect areas previously
identified as by the State as (a) "essential" moose wintering areas, or "important" spring-,
summer- and fall moose habitats, (b) "essential" caribou calving grounds, and (c) "essential"
brown bear concentration streams; and (17) the vast amount of compensatory mitigation likely to
be required and its questionable sufficiency.16 All these reasons justify a broad initial scope for a
404(c) process.
2. The magnitude of the issues and PLP's recent decision to terminate its Technical
Working Groups justify an EPA decision to commence a 404(c) process at this time.
Moreover, the process should be commenced at this time. PLP recently terminated its
Technical Working Groups (TWGs), approximately ten in number. They were composed of
federal and state officials who, in an advisory capacity, had sought for several years to review
and comment upon PLP's baseline study plans before PLP implemented them, and to review
results, in order to advise PLP as it progressed toward an environmental impact statement (EIS)
under the National Environmental Policy Act (NEPA). During the life of these working groups,
information suggests that PLP was not as forthcoming as agency officials had hoped.
13 The State of Wisconsin has imposed a moratorium on pemlits for metallic sulfide mining, by
requiring that before permits may issue, a proponent demonstrate one such mine in North
America that has operated for ten years without polluting water, and one that has closed for ten
years without polluting water. Thus, water pollution at Pebble appears likely.
14 A listing under the Endangered Species Act of a stock of salmon bound for the Kvichak or
Nushagak drainages could affect the commercial fisheries in Bristol Bay.
15 See accompanying letter from counsel addressing likely effects on subsistence and recreational
use from a potentia] Pebble mine.
16 For such reasons, much of this issue is characterized as short-term private interests in mining a
nonrenewable resource versus long-term public/quasi-public interests in commercial, subsistence
and recreational uses of fish, wildlife, waters and other renewable resources on public lands.
Lener, SW Alaska Tribes to EPA, re: 404(c)
Page 5
PLP's decision to end the TWGs strongly suggests that federal, state and tribal entities
may be more likely to face greater informational deficits as they head into an EIS process, than
might have been otherwise. Commencing a 404(c) process may help to remedy some of these
information deficits before PLP finalizes its design, submits applications, and triggers an EIS.
Because of the magnitude of the issues, all parties (e.g., PLP, federal, state, local and
tribal entities, and the public) will benefit from EPA initiating a 404(c) process before, and not
after, PLP submits its anticipated permit applications for a proposed Pebble mine, and before an
EIS process commences. I? Moreover, because the potential to invoke a 404(c) process exists,
postponing an initial decision to do so until applications are filed serves no affected party. 18
3. EPA should commence a 404(c) public process in pari because infirmities in the
State's 200S Bristol Bay Area Plan render waiting for the EIS process impractical.
Our request asks EPA to commence a 404(c) process before an EIS process has begun or
run its course. Ordinarily, the analysis ofalternatives required by NEPA should provide the
information for the evaluation of alternatives under the 404(b)(1) Guidelines. 40 CFR
230.10(a)(4). However, in this instance, infirmities in the State's 2005 Bristol Bay Area Plan
(2005 BBAP) render waiting for the NEPAlEIS process impractical.
We are enclosing copies of two other letters, which address the methods that ADNR
employed in preparing its 2005 BBAP.
It classifies state land, including at Pebble, its access
corridor, and nearby settlement lands, into land classification categories and establishes
guidelines and statements of intent. The methods used by the 2005 BBAP to do so include:
I. using primarily marine criteria, such as whether land is a walrus haulout, to determine
whether inland uplands, such as those at Pebble, qualify for classification as fish and
wildlife habitat (see 2005 BBAP, p. 2-9; a link to the 2005 BBAP is in the Appendix);
2. omission ofsalmon in non-navigable waters from the process of designating and
classifying land as habitat (see 2005 BBAP, pp. 3-323 - 3-330);
3. omission ofmoose and caribou from that process (see 2005 BBAP, p. 2.9);
4. lack of a land use classification categoryfor subsistence hunting andfishing, while
ADNR has a public recreation land category that includes sport hunting andfishing (see
ADNR's land planning regulations at II AAC 55.050 - .230 and 2005 BBAP); and then
17 PLP recently postponed its applications from 2010 until 2011, and may delay furtller.
18 Furthermore, a 404(c) process appears to be less costly than an EIS. Facing issues proactively
could reduce all costs of agencies, PLP and the public prior to and during an EIS.
19 One letter, from our counsel to Col. Koenig, of the U. S. Army Corps of Engineers, Alaska
District, and Mr. John Pavitt ofEPA's Alaska Operations Office, seeks discussions of whether
the tribes may be cooperating agencies on any EIS prepared for a proposed Pebble mine. The
other, from our six tribes and the Alaska Independent Fishermen's Marketing Association
(AIFMA), urges State Rep. Edgmon, while the Alaska legislature is out of session, to facilitate
public discussions in the region of whether the legislature should consider legislation to establish
a state fish and game refuge or critical habitat area that would include most state land in the
Kvichak and Nushagak drainages, including land at the Pebble site.
Lelter, SW Alaska Tribes to EPA, re: 404(0)
Page 6
5. defining recreation as excluding sport hunting and fishing for purposes of preparing the
2005 BBAP (see 2005 BBAP, p. A-I 1).2
Based on these and other methods, the 2005 BBAP reclassifies land at Pebble as solely as
mineral land, extinguishes habitat classifications of the prior 1984 BBAP on nearly all wetlands,
including those that are hydrologically important to fish habitat (a concern in the 1984 BBAP),
and almost totally omits references to wetlands in planning units for state land in the Nushagak
and Kvichak drainages. As explained in the letter to the Corps ofEngineers, Alaska District, and
the EPA Alaska Operations Office, as long as the 2005 BBAP is in effect, every alternative in an
EIS that would permit a Pebble mine will rest upon such mineral classifications and the methods
ADNR used in adopting land use classifications, guidelines and statements of intent.
NEPA regulations provide that an EIS must analyze and address any applicable state land
use plan.
This requirement, in effect, is likely to put federal agencies in a difficult position of
explaining, in public and on the record, why they would evaluate federal permit applications to
develop state land, including wetlands, where the State's land classifications, guidelines and
statements of intent rest upon (I) using primarily marine criteria to determine whether Pebble is
habitat, (2) excluding salmon in non-navigable waters such as Upper Talarik Creek, (3)
excluding moose and caribou, (4) having no land use classification category for subsistence
hunting and fishing where there is one for sport hunting and fishing, and (5) then defining
recreation as excluding sport hunting and fishing. Regardless of whether such methods are
lawful or not (and we believe the present ones are not), to ignore them would be facially contrary
to 40 CFR § 1506.2(d), and would beg the question of what the classifications, guidelines and
statements of intent should be applicable, in the absence of the 2005 BBAP and its methods. No
one can answer that question.
Because no one can do so, we doubt that federal agencies can engage in legally required,
reasoned decision-making necessary to approve federal permits so long as the 2005 BBAP is in
This leaves little room for any decision other than to commence a 404(c) before, and not
qfter, PLP submits its permit applications, and before an EIS process commences. To do
otherwise will compel EPA, the Corps and other agencies, in the context ofNEPA and an EIS
20 In Nondalton Tribal Council, et al., v. ADNR., 3AN-09-46 CI (3
Jud. Dis!., Ak.), these six
tribes, AIFMA and Trout Unlimited, Inc. allege that ADNR's 2005 BBAP uses many unlawful
methods to classify state land, and establish guidelines and management intent, including where
Pebble and its facilities might be located. The litigation is undecided. See also, enclosed letter
to Rep. Edgmon, and briefing paper (pt. I) regarding 2005 BBAP. With respect to ADNR's lack
of a subsistence category, ADNR claims that its habitat classifications accommodate subsistence,
even though the 2005 BBAP reduces the upland acreage classified or co-classified as habitat by
90 percent, from 12 million acres to 768,000 acres, when compared to the former 1984 BBAP.
21 40 CFR § 1506.2(d) provides that to integrate an EIS into state planning processes, an EIS
shall discuss any inconsistency of a proposed action with any approved state land use plan; and
where inconsistency exists, the EIS should describe the extent to which the federal agency would
reconcile its proposed action with the plan. In other words, an EIS on any potential Pebble mine
will have to consider and analyze the applicable state land use plan.
22 The 2005 BBAP appears fatal, from a legal standpoint, as a basis for an EIS that would
support issuing permits for Pebble. See Briefing Paper, Pt. II, attached to letter to Rep. Edgmon.
Letter, SW Alaska Tribes to EPA, re: 404(c)
Page 7
process, either to defend the State's methods used in the 2005 BBAP (which would be
untenable), or to ignore them, which would be contrary to 40 CFR § 1506.2(d).
For three reasons, this situation seems straightforward. First, the importance of the
Kvichak and Nushagak river drainages and the magnitude of the issues raised by a potential
Pebble mine warrant an EPA decision now, to commence a 404(c) public process. Second, all of
the concerns raised to date, coupled with the recent decision of the Pebble Limited Partnership to
tenninate its Technical Working Groups, justify commencing a 404(c) process at this tinle.
Third, the infinnities of ADNR's 2005 Bristol Bay Area Plan provide additional reason to
commence a 404(c) process at this time. These infIrmities leave little room for any decision
other than to do so before, and not after, PLP submits its permit applications, and before an EIS
process commences, because during an EIS process no governmental agency could lawfully
defend or ignore the 2005 Bristol Bay Area Plan.
Thank you for your attention to this matter. We look forward to hearing from you. We
hope to work in a public process under Section 404(c) of the Clean Water Act with the U. S.
Environmental Protection Agency.
Sincerely yours,
Date: S ~ / I l
Enclosures (2)
Letter, SW Alaska Tribes 10 EPA, re: 404(c)
ack Hobson; President
Nondalton Tribal Council
P.O. Box 49
Nondalton, Alaska 99640
Page 8
process, cither to defend Ihe State'8 methods used in the 2005 B13AP (which would be
untenable), OJ: to ignore til om, which woul'd be contrary to 40 CFR § 1506.2(d).
For three reasons, this situation seems straightforward. Firs1. the importMee of the
Kviehnk and Nusbagak river drainages and the magnitude of the issues raised by a pOlcnlial
Pebble mine warrant an EPA decis.ion DOW, to commcnee a 404(c) public process. Second. '1/1 "r
the coDeems raised to date, coupled with the recent decision oIlllc Pebble Limited Partnership to
telmiuate its Technical Working Groups, justify commencing a 404(c) at this time.
Third, the infitmitics of ADNR's 2005 BIistol Bay Area Plan provide additional rea-son to
commonce 11404(c) process at this time. These infirmities leave little room for any decision
other than to do so bqfore, and not cifter, PLP submits ils permit application8, and hqfQre llll ErS
process commences, because during an BIS process no governmental agency could lawfully
defend or ignore the 2005 Bristol Bay Area Plan.
ThllJlk y011 for your attention to this matter. We look fOlward 10 hearing tTdm yOll. We
hope to work in a public process lUldcr Section 404{c) of lhe Clean Water Act with the U. s.
Environmental Protection Age.ncy.
Sincerely yours.


Oennis Andrew, President
New Stuyabok Traditional Council
P.O. 130:< 49
New Stuyahok. Alaska 99b36
LeUer, SW Alnskn Tribe. to EPA, re: 404(0)
New Stuyahok Traditional Council
Pngo &
process, either to defend the State's methods used in the 2005 BBAP (which would be
untenable), or to ignQ!'O them. which would be contrmy to 40 CFR § 1506.2(d).
For three reasol\S, this situation seems straightforward. First, the importance of the
Kvicbalc and Nushagak rivet" drainages and the magnitude ofthe issues raised by a potential
Pebble mine warrant lII1 EPA decision now, to COl1llDence a 404(0) public process. Second, all of
the concerns raised to date, coupled with the recent decision ofthe Pebble LimitedPllI1nCl'Ship to
t.ermi:nate its Technical Working Groups, justify COII1JlleI1Cing a404(c) procesa at this time.
Third, the infirmlties of ADNR's 2005 Bristol BayArea Plan provide additional reason to
commence a 404(0) process at this time. These infirmities leave little rOQm fonny decision
other than to do so before, and not Djier, PLP submits its permit applications, and before an BIS
process commences, because duringan EIS process no governmental agency could lawfully
defend or ignore the 2005 Bristol Bay Area Plan.
Thank you for your attention to this JDJllter. We look forward to hearing from you. We
hope to work in a public process under Section 404(c) ofthe Clean Water Act with the U. S.
Enviromnental Protection Agency.
Sincerely yoUlll,
Date: 5- 10 -\()
Enclosures (2)
LcIlcr. SW AIasb Tribes lO EPA, reo 404(0)
&oo/coo 10
~ ~ ~
~ Sergie Chukwak, President
Levelock Village Council
P.O. Box 70
Levelock, Alaska 99625
Lcveloclt ViUlII\e Council
X Y ~ BO:lO O L O l / l L / ~ O
process, either to defend111. State's methods used 1he BBAP would be
Wltcnable), or to ignore tbem, which would be couttary to 40 CPR § 1506.2(d},
, '
Enclosures (2)

Lett.,. SW Alaska Tribes 10 EPA. reo 404(<\ Ekwok ViUliIIe l;:ouncil Puc S
process. either to defend the Stale's methods used in the 2005 BBAP (which would be
untenable). or to ignorcjtbem. which would be contrary to 40 CFR § lS06.2(d).
Forthrcc this silualion seems straigbtfOlWard. first, the importance aftlle
Kviehak and Nushagakl.ivcr drainages and the magnitude ofthe issues raised by a JlOtential
Pebble mine warraD1 an/EPA decision now, to commenee a 404(c) public process. Second, all of
the concerns raisedto date, coupled with the recent decision of the Pebble Limited Partnership to
terminate its Technical Working Groups,justify cormnencing a 404(c) process at this time.
Third, the infinnitics ofiADNR' s 2005 Bristol.Bay Area Plan provide additional reason to
commence a 404(c) process at this time. These infrrmitics leave little room for any decision
other than to do so befoJ;e, and not afler, PLP submits ilS permit applications, and before an EJS
process commences, during an EIS process no govemmentalllgcncy could lawfully
defend or ignore the 2005 Bristol Bay Area Plan.
Thank you for attention to this Dllltter. We lookforward to helIring from you. We
hope to work in a public process und.et- Section 404(c) oflbc Clean Water Act with the U. S.
Environmental Agency.
Sincerely yows,

o ildcn, President
Curyung Tribal Council
P.O. Box 216
531 D Street
Dillingham, Alaska 99576
Enclosures (2)
Letter. SWA1asIal Tribes to EPA, re: 404(0)
, .
, .
CuryUllg Tribal Council PageS
------ --------
, .-
process, either to defend the State's metl!lods used inthe 2005 BBAP (which would be
untenable). or to ignore them, whil:h would be conttaryto 40 CFR § 1506.2(d).
For three reasons, this situationSl:ems straightforward. First, tile importance ofthe
Kvicbak and Nushagak river drainages and the magnitude ofthe issues raised by a potential
Pebble mine warrant an EPA decision now, to commence a <W4(c) public process. second, all of
the concerns raised to date, coupled with the recent decision ofthe Pebble Limited Partnership to
tenninate its Technical Working Groups, jnstifY commencing a 404(c) process at this time.
Third, the infirmities ofADNR's 2005 Bristol Bay Area Plan provide additional reason to
commence a 404(c) process at this time. These infirmities leave little room for any decision
other than to do so before, and not qfter, PLP submits its pennit applications. and before an EIS
process commences, because during an EIS process no governmental agency could lawfully
defend or ignore the 2005 Bristol Bay Area Plan.
Thank you for your attention to this matter. We look forward to hearing from you. We
hope to work in a public proceSS'under Section404(c) of the Clean Water Act with the U. S.
EnViromnentai Protection Agency.
Sincerely yours,
Date: _",,0=:_' -.... J3<.L-..!- __
Enclosures (2)
Leuer, SW Ala$ka Tribes to EPA, rc: 404(c)
41.JIt?HW d. 'M.,,4.
Herman Nelson, Sr., President
Koliganek Village Cowci!
P.O. Box 5057
Koliganek. Alaska 99576
KoliganekVillage Council Page 8
process. either to defend the State's methods used in the 2005 BBAP (which would be
untenable), or to ignore them, which would be contrary to 40 CFR § l506.2(d).
For three reasons, this situation seems straightforward. First, the importance of the
Kvichak and Nushagak river drainages and the magnitude of the issues raised by a potential
Pebble mine warrant an EPA decision now, to commence a 404(c) public process. Second, all of
the concerns raised to date, coupled with the recent decision of the Pebble Limited Partnership to
terminate its Technical Working Groups,justify commencing a 404(c) process at this time.
Third, the infirmities of ADNR' s 2005 Bristol Bay Area Plan provide additional reason to
commence a 404(c) process at this time. These infirmities leave little room for any decision
other than to do so before, and not ajier, PLP submits its permit applications, and before an EIS
process commences, because during an ETS process no governmental agency could lawfully
defend or ignore the 2005 Bristol Bay Area Plan.
Thank you for your attention to this matter. We look forward to hearing from you. We
hope to work in a public process under Section 404(c) of the Clean Water Act with the U. S.
Environmental Protection Agency.
Sincerely yours,
Dated: __.l=-----_:z._d_-_/_
634 K treet
Anchorage, Alaska 9950 I
(907) 222-6859
Co-Counsel to Signatory Tribes
Enclosures (2)
~ f , P t J ~
Tliomas E. Meacham, Attorney
9500 Prospect Drive
Anchorage, Alaska 99507-5924
(907) 346-1077
Co-Counsel to Signatory Tribes
Letter, SW Alaska Tribes to EPA, re: 404(c) Co-counsels' Signature Page
Page 8
An Abstracted List of Potentially Relevant Information
(This list assumes that EPA has access to its own agency documents, and
therefore this list does not include such documents.)
Alaska Department ofFish and Game, The Catalog of Waters Importantfor the Spawning,
Rearing or Migration ofAnadromous Fishes and its associated Atlas, available at
http://www.sf.adfg.state.ak.us/SARR/AWC/index.cfinlFNmain.overview (last visited December
The Catalog of Waters Important for the Spawning, Rearing or Migration of
Anadromous Fishes ("Anadromous Waters Catalogue") and its associated Atlas
of maps cUlTentiy contain about 16,000 streams, rivers or lakes in Alaska which
have been specified as being important for the spawning, rearing or migration of
anadromous fish. Based upon thorough surveys of a few drainages, it is believed
that this number represents Jess than 50% ofthe streams, rivers and lakes actually
used by anadromous species. It is estimated that at least an additional 20,000 or
more anadromous water bodies have not been identified or specified under AS
16.0S.871(a), a state permitting statute.
In recent years, work for the Nature Conservancy has added about a hundred
miles of previously undocumented anadromous waters in the vicinity of Pebble.
Alaska Department of Natural Resources, Alaska Department of Fish and Game, Alaska
Department Environmental Conservation, Bristol Bay Area Plan for State Lands (1984),
available at http://www.dnr.alaska.gov/mlw/planning/areaplanslbristol/index.htm (last visited
December 30, 2009).
Area plans generally have an administrative life of about twenty years, are
prepared by the Alaska Department ofNatural Resources, and apply to state-
owned and state-selected lands. By state statute, area plans must (I) be based on
an inventory of uses and resources; (2) designate primary uses of units of state
land; these designations convert to classifications of the land; and (3) adopt
general and unit specific guidelines and statements of intent to guide management
decisions. The Bristol Bay Area Plan of 1984, prepared and adopted by ADNR,
ADF&G, and ADEC, contains a set of five habitat maps, and three maps of
subsistence use areas for 31 communities and villages in the Bristol Bay
drainages. The 1984 Plan remains useful because the later-prepared 2005 Bristol
Bay Area Plan lacks comparable maps and comparable cartographic identification
of essential and important habitats. The maps from the 1984 Plan are not posted
on ADNR's web pages, but may be obtained separately either from ADNR or
from counsel to the tribes. BLM's Resource Management Plan has identical or
similar maps of subsistence use areas.
Leiter, SW Alaska Tribes to EPA, re: 404(c)
Page 9
Alaska Department ofNatural Resources, Bristol Bay Area Planfor State Lands (2005),
available at http://www.dnr.alaska.gov/miw/planning/areaplanslbristollindex.htm (last visited
December 30, 2009).
See above abstract ofthe 1984 Bristol Bay Area Plan. The Bristol Bay Area Plan
of2005, prepared and adopted by ADNR, is currently the subject of litigation in
Nondalton Tribal Council, et 01., v. State, Department ofNatural Resources, 3DI-
09-046 CI, wherein these six Tribes, AlFMA Cooperative (a cooperative
association of commercial fishers), and Trout Unlimited seek to have the 2005
Plan declared unlawful.
Directorate General for the Envirorunent and the Joint Research Centre, Workshop on Mine and
Quarry Waste - the Burden from the Past
(llttp://viso. jrc.ec.europa.eu/pecomines extlevents/workshoplProceedingsOrtaWorkshop. pdf, last
visited Jan. 25,2010)
This is a collection of papers submitted at the conference organized by the for
European Union and European Community nations, held at Octa, Italy, in 2002.
Many seem useful. In particular, the paper by P. Younger, "Don'tforget/he voids:
aquall<pollutionfrolll abandomd mineJ ill Europe," indicates that mine voids can vastly
exceed mine waste depositories as sources of water pollution (see Table 1 therein,
and discussion).
Duffield et aI., Economics of Wild Salmon Watersheds: Bristol Bay, Alaska 15 at
http://www.housemajoritv.or!!lcomslhfshltrout unlimited report.pdf (Feb. 2007) (last visited
Jan. 6, 2010).
This report provides estimates of the economic values associated with the
sustainable use of wild salmon ecosystem resources, primarily fisheries and
wildlife, of the major watersheds of the Bristol Bay, Alaska region. Both regional
economic significance and social benefit-cost accounting frameworks are utilized.
This study reviews and summarizes existing economic research on the key
economic sectors (e.g., corrunercial fishery, subsistence fishery, recreation, and
goverrunental expenditure and values) in this area. The study also reports recent
findings based on original survey data on expenditures, net benefits, attitudes, and
motivations of recreational anglers.
William 1. Hauser, d/b/a "Fish Talk, Consulting," Potential Impacts ofthe Proposed Pebble Mine
on Fish Habitat and Fishery Resources of Bristol Bay (2007).
This paper appears to have useful information about salmon production proximate
to the proposed road/access route to Pebble, including the hydrological
characteristics of areas used by sockeye salmon for beach spawning in
northwestern Iliamna Lake, which is irrunediately down-gradient from the
proposed road/access route.
Letter, SW Alaska Tribes 10 EPA, re: 4D4(c)
Page ID
Northern Dynasty Mines, Inc. (NDM), Pebble Project: Applications for surface and ground water
rights, and initial applications for certificates of approval to construct dams (2006), available at
http://www.dnr.alaska.gov/mlw/mining/largemine/pebblelwaterapp.htm (last visited December
Shortly after NDM filed these applications, NDM requested DNR to suspend
processing them, and DNR agreed to do so. They contain information on the
Pebble West portion of the ore body, proposed routes for road access, pipelines
and power, and information relevant to the types offacilities envisioned and the
magnitude of the project.
Office of the President, Executive Order 12898 (Feb. 11, 1994) re: Federal Actions to Address
Environmental Justice in Minority Populations and Low-Income Populations, available at
http://www.epa.gov/compliance/resources/policies/ej/exec order 12898.pdf (last visited
December 30, 2009).
Section 4-4 on subsistence consumption offish and wildlife may bear upon EPA
decision-making under Section 404(;:).
Office of the President, Executive Order 13175 (Nov. 6,2000) re: Consultation and Coordination
with Indian Tribal Governments, available at http://www.epa.gov/fedreg/eo/eo13175.htm
(last visited December 30, 2009). This executive order applies to federal-tribal relationships.
Office of the President, Memorandum for the Heads of Executive Departments and Agencies, re:
Tribal Consultation (Nov. 5, 2009), available at
http://www.gpoaccess.gov/presdocs/2009IDCPD-200900887.pdf (last visited December 30,
2009). This presidential memorandum supplements Executive Order 13175.
Parker, et al., "Pebble Mine: Testing the Limits ofAlaska's Large Mine Permitting Process,"
Alaska Law Review, Vol. 25:1 (June 2008), available at
www.law.duke.edulshell/cite.pl?25+Alaska+L.+Rev.+l+pdf (last visited December 30, 2009).
This lawjournal article, by lawyers and biologists, examines the adequacy of the
state's large mine petmitting process and finds it insufficient to deal with large
metallic sulfide mines such as a Pebble mine.
The article contains over 170
footnotes, many with links to sources. Many of the non-legal sources may be
useful to the Regional Administrator of EPA in making the initial determination
of whether there is "reason to believe" that metallic sulfide mining in the area of
Pebble "could result" in "unacceptable adverse effect," and therefore whether to
commence a 404(c) process. The citations cover: (l) academic and professional
literature on impacts that dissolved copper may have on salmonids and other fish,
including a discussion of additive and synergistic effects; (2) academic and
professional literature on the role that genetic diversity plays in overall
productivity of salmon stocks; (3) EPA documents on acid mine drainage; (4)
23 The authors have represented or assisted clients or entities opposed to or concerned about a
Pebble mine, and continue to do so.
Letler, SW Alaska Tribes to EPA, re: 404(c)
Page 11
documents from Pebble Limited Partnership or Northern Dynasty on the nature of
the ore body, (5) documents from Northern Dynasty submitted as part of its 2006
applications for water rights and approval of dams, (6) a recent study by Dr. John
Duffield (University of Montana) of the economic values and job production
associated with wild salmon producing watersheds of the Bristol Bay drainages,
and (7) other related materials. Some of the links to PLP and NDM materials are
no longer active or have been replaced by more up-to-date sources on PLP's
webpages (see below).
Pebble Limited Partnership, various websites at http://www.pebblepartnership.coml.
State of Alaska, Alaska Statutes, Title 38, Chap. 38.04 (land use plarrning and classification) at
http://www.legis.state.ak.uslbasis/folio.asp. and ADNR regulations (land use plarrning and
classification), II AAC 55.010 -- .280 at
Trasky & Associates, Analysis of the Potential Impacts of Copper Sulfide Mining on the Salmon
Resources of the Nushagak and Kvichak Watersheds (2007).
This two-volume report may, or may not, be public at the present time. It was
prepared for the Nature Conservancy in Alaska. Mr. Trasky is a retired Regional
Supervisor of the Alaska Department ofFish and Game, Habitat Division, Region
III, which includes the Bristol Bay drainages.
US Department of the Interior, Bureau of Land Management, Subsistence Use Area Maps,
Proposed Resource Management Plan (RMP) for BLM lands in the Bristol Bay drainages, and
Final Environmental Impact Statement on the proposed RMP (December 2007), available at
http://www.blm.gov/ak/st/en/prog/planninglbay nop eis home page/bay feis documents.html
(last visited Jan. 7, 2010).
The final EIS on BLM's proposed Resource Management Plan contains maps of
subsistence use areas of many of the villages and communities in the Bristol Bay
drainages. The internet links to the maps of subsistence use areas that appear to
include significant amounts ofthe Kvichak and Nushagak drainages are:
http://www.blm.gov/pgdata/etc/medialib/b1m1ak/afolbay nop eis finaI.Par.39744
.File.datlMap3-51 Aleknagik.pdf (last visited Jan. 7, 2010)
Dillingham: .
http://www.blm.gov/pgdata/etc/rnedialiblblmlak/afolbay nop eis finaI.Par.16048
.File.dat/Map3-52 Dillingham.pdf(last visited Jan. 7, 2010)
htto:llwww.blm.gov/pgdata/etc/medialiblblrn/ak/afolbay rmp eis finaI.Par.76842
.File.datIMap3-53 Ekwok.pdf (last visited Jan. 7, 2010)
Leller, SW Alaska Tribes to EPA, reo 404(c)
Page 12
http://www.blrn.gov/pgdata/etc/rnedialiblblrn/aklafolbay nnp eis fmal.Par.33049
.File.datIMap3-54 Igiugig.pdf(last visited Jan. 7,2010)
http://www.blrn.gov/pgdata/etclrnedialiblblrn/aklafo/bay nnp eis finaI.Par.78607
.File.datIMap3-55 Iliamna.pdf (last visited Jan. 7, 2010)
http://www.blm.gov/pgdata/etclrnedialiblbirn/aklafolbay nnp eis final.Par.64140
.File.datIMap3-57 Kokhanok.pdf(last visited Jan. 7,2010)
http://www.blrn.gov/pgdata/etclmedialiblblm/aklafolbay nnp eis fma1.Par.58501
.File.datlMap3-59 Levelock.pdf(last·visited Jan. 7,2010)
http://www.blrn.gov/pgdata/etc/rnediaJiblblrn/akIafolbay rmp eis final.Par.56441
.File.datIMap3-58 Koliganek.pdf(last visited Jan. 7,2010)
http://www.blrn.gov/pgdata/etc/medialiblblm/aklafolbay nnp eis fina1.Par.65865
.FiJe.datIMap3-60 Manokotak. pdf (last visited Jan. 7, 2010)
http://www.blm.gov/pgdata/etc/medialiblblrn/akfafo/bay nnp eis fmal.Par.36771
.File.datIMap3-62 Nondalton.pdf(last visited Jan. 7, 2010)
Pedro Bay:
http://www.blrn.gov/pgdata/etclmedialiblblmlaklafolbay rmp eis final.Par.89854
.File.datIMap3-63 PedroBay.pdf (last visited Jan. 7, 20 I0)
http://www.blm.gov/pgdata/etclmedialiblbfrn/akfafolbay rmp eis finaI.Par.4004.
File.datIMap3-64 Platinum.pdf (last visited Jan. 7, 2010)
Portage Creek:
http://www.blm.gov/pgdata/etclmedialiblblm/aklafolbay nnp eis fina1.Par.78039
.File.datlMap3-65 PortageCreek.pdf (last visited Jan. 7,2010)
Port Alsworth:
http://www.blm.gov/pgdata/etc/medialiblblrnlaklafolbay rmp eis fmal.Par.1 01 00
.File.datIMap3-66 PortAlsworth.pdf(last visited Jan. 7, 2010)
New Stuyahok:
Letter, SW Alaska Tribes to EPA, re: 404(c)
Page 13
----- - -- - ---- ----
http://www.blm.gov/pgdataletc/medialiblblmlakJafolbay rillp eis fina1.Par.90357
.File.datIMap3-68 NewStuyahok.pdf (last visited Jan. 7,2010)
http://www.blm.gov/pgdataletc/medialiblblmlakJafo/bay rmp eis fmal.Par.42891
.File.datlMap3-69 Togiak.pdf(last visited Jan. 7,2010)
Twin Hills:
http://www.blm.gov/pgdataletc/medialiblblmlakJafolbay rmp eis final.Par.66104
.File.datIMap3-70 TwinHills.pdf (last visited Jan. 7, 2010)
Letter. SW Alaska Tribes to EPA, re: 404(c)
Page 14
August 31, 2010
Dennis J. McLerran, Regional Administrator
EPA, Region X
Regional Administrator's Office, RA-140
1200 6th Avenue, Suite 900
Seattle, Washington 98101
RE: Timing and Role of 404(c) Review
Dear Mr. McLerran:
You have received two requests asking EPA to commence an evaluation under
404(c) of the Clean Water Act. They pertain to the Kvichak: and Nushagak:
River drainages of southwest Alaska. Requestors seek to prohibit or restrict discharge
of dredge spoils or fill from any "metallic sulfide mining" into any wetland or waters of
those drainages. The request from six tribes (May 2, 2010) calls for evaluation of a
wide geographic area, not a specified locale. The request is ditected to an entire
industrial category, not a particular discharge of a particular material. The request from
Bristol Bay Native Corporation (August 12, 2010) is equally unrefined, initially
speaking of a "carefully tailored prohibition" but never offering any made-to-measure
alterations which might achieve a fitting balance.
On behalf of Pebble Limited Partnership (PLP) this firm offers the view that
pursuing such amorphous 404(c) evaluations, or commencing any 404(c) review at this
time, would be inconsistent with the traditional use of this statutory authority; would
unreasonably appropriate decision-making customarily vested in NEPA reviewers and
permitting processors; and would not be conducive to the end-goal of a 404(c) process,
which is for the Administrator to determinc whether a proposed discharge of specified
material into a defmed area will have an unacceptable adverse effect on certain
enumerated resources after taking into account proposed corrective actions. For these
reasons, PLP respectfully suggests that the two requests be tabled until NEPA and
permit processes have run their course. At that time EPA can better ascertain whether
there exists any need for a truly "tailored" restrictioll on any specifically defined
disposal site. This suggestion is supported by the following analysis.
(901) 121.1103
Direct Facsllrll/e
(901) 121-7199
rob erl@reevtllmodio
Sao L

Suite 300
(907) 221-7100
(907) 222-7199

Dennis J. McLerran
August 31,2010
Page 2
Under Clean Water Act section 404(b), the Army Corps of Engineers may specify in
dredge or fill permits those areas where dredge spoils or fill may be discharged. These disposal
sites are selected through application of the Army's public interest test and EPA's 404(b)(1)'
·guidelines. 33 Us.c. §1344(b); 33 C.F.R. §323.6, §325.2(a)(6); 40 C.F.R. Part 230. The
Administrator ofEPA is authorized to deny, restrict or prohibit the specification of a disposal site
if, after notice and opportunity for public hearing, he or she determines that the discharge of such
materials into such area will have unacceptable adverse effects on municipal water supplies,
shellfish beds, fishery areas, wildlife or recreation. 33 Us. C. §1344(c). A process to be
followed by the Administrator is set-out in federal regulations. 40 C.F.R. Part 231.
In 1979, when promulgating regulations to implement 404(c), EPA opined that this
authority might be exercised at any time. The process may be invoked before a permit is applied
for, while an application is pending, or after a permit has been issued. 44 FedReg. 58076 (Oct.
9, 1979).1 However, as far back as 1979 EPA felt confident that most environmental problems .
would be prevented through the routine operation of the permit program. Id at 58,079. And,
.indeed, 404(c) has never been used preemptively.
The first recorded exercise was a restriction on the placement of solid waste in certain
areas of the North Miami Landfill. In that case a permit had issued five years earlier, substantial
deposition of garbage had already taken place, and the impacts had been quantified in actual test
results. EPA stated that it was, "in effect, ... vetoing a permit [already] issued by the Corps of
Engineers." 46 FedReg. 10,203 (Feb. 2, 1981).
Subsequently, EPA has tried to resolve specification problems before permit issuance.
This policy is based on both a concern for the plight of the applicant and a desire to protect the
site before any adverse impacts occur. Indeed, Army Corps regulations now allow the permit
process to continue but demand that the final permit be withheld pending resolution of any
404(c) intervention. 33 C.F.R. §323.6(b). There is no risk in waiting. Consequently, EPA has
never initiated the 404(c) process before an applicant submitted his or her permit application and
substantial reviews had taken place under routine permit programs.
For instance, the most recent exercise of 404(c) involves Spruce No.1 Mine in West
Virginia, a case relied upon by the six tribes in their request that Region X be "proactive." Yet
EPA did not commence that 404(c) process at Spruce Mine until after the agency had
____1 ..'to_C.E.R...l'art231,..the..!l.O'!(c.).. _
DeW1is J. McLerran
August 31, 2010
Page 3
r .
commented repeatedly on a Draft Environmental Impact Statement; had offered its assistance to
the Army Corps and the permittee following a Final Environmental Impact Statement; had
presented localized and specified concerns during development of a Programmatic
Environmental Impact Statement; and had exercised its other authorities through both the
NPDES permit process and the Dredge and Fill Pennit process. 75 Fed.Reg. 16,791 at "Project
History" (April 2, 2010).
The "proactive" approach proposed by Bristol Bay Native Corporation and the six tribes
is not consistent with precedent.
EPA's traditional approach is well founded on the words used by Congress in 404(c):
(c) The Administrator is authorized to prohibit the specification (including the
withdrawal of specification) of any defined area as a disposal site, and he is
authorized to deny or restrict the use of any defined area for specification
(including the withdrawal of specification) as a disposal site, whenever he
determines, after notice and opportunity for public hearings, that the discharge of
such materials into such area will have an unacceptable adverse effect on
municipal water supplies, shellfish beds and fishery areas (including spawning
and breeding areas), wildlife, or recreational areas. Before making such
determination, the Administrator shall consult with the Secretary. The
Administrator shall set forth in writing and make public his findings and his
reasons for making any determination under this subsection. (emphasis supplied)
To make any reasoned detennination, there must be a "defmed area" to evaluate. Most
404(c) determinations have been fairly modest in their areal extent, focused upon specific
segments of waterways or particular units within a larger site. A typical example was Atlantic
Richfield's (ARCO) proposal to place 112,000 cubic yards of gravel on 21.5 acres of tundra to
construct a production well pad and an east-west access road near the Kuparuk River on Alaska's
North Slope. Region X issued a proposed 404(c) determination for the purpose of staying
activity under an already issued pennit and solicited data on whether the specified discharge in
the specified location would or would not cause unacceptable adverse effects on wildlife. 56
Fed.Reg. 22,161 (May 14, 1991). As a result of several meetings between Region 10 and
ARCO, the company identified an alternative pad location and road alignment. ARCO applied
for and received a modification of their Corps permit to authorize the new configuration. EPA
then withdrew its proposed 404(c) determination because these modifications satisfied the
Region that wildlife in the area would not be unacceptably affected. 56 Fed.Reg. 58,247 (Nov.
18, 1991). In contrast, the pending requests g;enerally address two watersheds. The Kvichak
River drains more than 8,000 square miles while the Nushagak River watershed encompasses
---------_._------_.---_._----_.__._-_._-_._---_.•...••••_- •.-
Dennis J. McLerran
August 31, 2010
Page 4
more than 12,000 additional square miles. This cannot fairly be considered a "defined area" as
sought by Congress.
Before denying or restricting "the use", EPA has to know what that use will be. At a
minimum the agency must have a project description on which to base "findings." So, for
example, in the largest areal exercise of 404(c) to date -- a 630,000 acre Yazoo Backwater Civil
Works Project -- EPA was able to focus upon particular subunits and provide particularized
comments on various alternative activities because they had been identified in an Environmental
Impact Statement. 73 Fed.Reg. 54,398 (Sept. 19, 2008). Here, the requests reference "a
potential Pebble mine," which is a prospective undertaking not yet defined by any current project
EPA is to determine the effects of discharging "such materials into such area." The first
step in this analysis is for a Regional Administrator to determine what "could result." 40 C.F.R.
§231.1(a). The last step is to set forth written findings on the adverse effects those materials
"will have." §404(c). Both steps require a particularized knowledge about the materials to be
discharged and the methods of disposal into the specified site. Here, the requestors make a bald
allegation that PLP's undertaking will be a "metallic sulfide mine" with "acid-generating waste
rock." The term "metallic sulfide mine" is not a recognized term of art. While waste rock from a
mine in the Kvichak and Nushagak River drainages may have acid-generating potelltial, whether
it does generate will pivot on the methods and manner of discharging such material into such
area. Any hypotheticals evaluated at this time would be naught but speculation.
Finally, Congress gave 404(c) a definite focus on particular types of resources. EPA
looks for the effect on municipal water supplies, shellfish beds and fishery areas, wildlife, or
recreational areas. The broader inquiries called for under routine permit programs ought go first.
As EPA noted when it first outlined this process:
Section 404(c) authority should not be confused with the Administrator's
obligation under section 309 of the Clean Air Act to comment on environmental
impact statements (EIS) prepared for section 404 projects and to refer such
projects to the Council on Environmental Quality when he finds them to be
environmentally unsatisfactory. Comments, objections to Corps permits, and
CEQ referrals may be based on any kind of environmental impact. On the other
hand, 404(c) authority may be exercised only where there is an unacceptable
adverse effect on municipal water supplies, shellfish, fisheries, wildlife or
recreation. 44 Fed.Reg. at 58076.
In swn, subsections 404(b) and (c) involve "specification." The goal of 404(c) is to
identify those impacts that are "unacceptable" because they are "likely to result in significant
degradation." §231.2(e). EPA has the burden of proving, with written findings offact, its "basis
'--- .. _ - - - ~ .
Dennis J. McLerran
August 31, 2010
for any determination of unacceptable adverse impacts." 44 Fed.Reg. at 58080. The level of
certainty is that such materials "will have" these impacts when discharged into the "defined
area." Such conclusions require a level of knowledge typically developed during NEPA review
and routine permit processing. Accordingly, 404(c) has become known as EPA's "veto"
authority, not EPA's preliminary authority. Reasoned exercise of this extraordinary,
discretionary program
strongly suggests that it be held in abeyance unless and until a measure of
last resort is required to correct particularized problems in specified areas.
"'" P"""",hip

Susan E. Reeves
cc: Client
2 ''By statute, the Administrator is authorized rather than mandated to overrule the Corps. 33 U.S.C.
§1344(c). Because this power is discretiol)ary, the citizen suit provision of the Clean Water Act does not
apply." Preserve Endangered Area of Cobb 's History, Inc. v. U.S. Army Corps ofEngineers, 87 F.3d
1242,1249 (C.A. I I[Ga.) 1996).
But see, South Carolina Coastal Conservation League v. U. S. Army Corps of Engineers, 2008 WL
4280376, *5-'8 (D.S.C. 2008)(citing cases in accord with Cobb's History but ultimately concluding that
it was bound by a 4
Circuit decision it deemed to have recognized a "dUly" of "oversight imposed by
_ .
PO 60>. I 1000I
lun,3u. Alask, 99811·0001

f",,: 907.465·)532
Governor Sean Parnell
September 21, 2010
The Honorable Lisa P. Jackson
U.S. Environmental Protection Agency
Ariel Rios Building
1200 Pennsylvana Avenue, NW
Washington, DC 20460
Dear Administrator Jackson,
550 w.st 7lh Al<lIu. # I 700
Anchor,S•. Ab,k, 9950 I
I am writing regarding the petition your agency received from six federally recognized tribes to
initiate the Clean Water Act Section 404(c) process to prohibit or restrict discharges of dredged or
fill materials, including mine tailings, within the watersheds that would include the Pebble Mine. I
ask that you decline to invoke Section 404(c) at this time for reasons I will explain.
Let me begin by assuring you that we share a goal of protecting the waters, wetlands, fish, wildlife,
fisheries, subsistence, and public uses of the: Bristol Bay watershed. This area is home to bountiful
natural resources and beauty including vast runs of sockeye and other pacific salmon that supporr
immensely valuable commercial, subsistence, and sport fisheries. As Governor, I will do evetything
in my power to see that any new development fully protects the resource values of the area, and
does not come at the expense of what we have today.
\1Vh.ile I understand and share the petitioners' desire to protect the resources in Bristol Bay, I
disagree that invoking the 404(c) process at this time would contribute to that goal. At best, it would
wasre agency and public time and resources. At worst, it would work against our mutual aims. I offer
the following thoughts for your consideration.
/I pITma/J1lr 404M ntltrminalioll </JectivelyprrJhibiling mining il/lh, alTa UJfJII/tI impinge on SIal,lannllIt pllll/ning
aNlhon'!Y. Much of the land in the Bristol Bay area belongs to the State of Alaska. We have completed
several iterations of land planning for these .lands including exhaustive public outreach and
deliberations to find a balance between competing interests and potential land uses. While we
recognize that initiating the 404(c) process does not necessarily lead to a particular outcome, even
the possibility tl,ar the process would conclude with a prohibition against mining over vast expanses
of State lands causes us great concern. Federal preemption of traditional State land use authority is
an alarming prospect to say the least. To start with, it would undo years of planning effort, but the
effects do not stop there. There has been tremendous investment in the area based on the potential
for mineral development. We cannot fathom the liability and legal challenges that could accompany
TI,e Honorable Lisa P. Jackson
September 21, 2010
Page 2
an unprecedented, after-the-fact determ.ination by the federal government that mineral developm.ent
from these State lands is no longer viable.
CI.an Wakr /lcl J.dian 404(c) dl'n na proluliallt bgalld Ihate illdllded ill Ih. CI.an Waler/lcl
S.dian 404(b)(1) p.mlil p,»mt. The regulations that implement the two parts of the Clean Water Act
include virtually the same prohibitions, and call for virtually the same analyses and findings. Where
Section 404(c) roles prohibit "unacceptable adverse effects on municipal water supplies, shellfish
beds and fishery areas (mcluding spawning and breeding areas), wildlife, or recreational areas," the
Section 404(b)(1) rules prohibit "significantly adverse effects ... on municipal water supplies,
plankton, fish, shellfish, wildlife, and speci,,[ aquatic sites" as well as "recreational" and "aesthetic"
"values." TI,e prohibitions and standards are very similar. The difference, of course, is that you are
being asked to invoke Section 404(e) now "head of any environmental planning and pennitting
processes, whereas the Section 404(b)(1) process would come later as part of the permit process for
Pebble or another mine. The fact remains clut Section 404(c) does not offer any more protection for
area resources than does Section 404(b).
The ,.comil mlT<nlly ill1llj}icielll 1o 1IIppol11heji.lldillg! dellland.d I!J Ihe 404(c) proml, and could not begin to
approach the record that will exist upon completion of the National Environmental Policy Act
(NEPA) and pennit processes that would be required for new mine development. As a\read}'
mentioned, the 404(c) process hinges on the Environmental Protection Agency (EPA) deciding
whethcr there will be "unacceptable adverse impacts" on "municipal water supplies, shellfish beds
and fishery areas (including spawning and breeding areas), wildlife, or recreational areas." The
em·ironmental planning and pennitting process for the Pebble Mine alone will nccessarily produce
volumes of studies and information that would allow for fully informed decisions about potential
impacts from mining in the area.
Nol enollgh iJ knowlI aholll lIIill. pl""J ill Ih. 0,.010gallge lil/padJ OJ nqllirtd I!J Ihe 404{f) p,»mJ. State and
federal agencies have yet to receive designs or pennit applications for ti,e Pebble Project, or any
other major mine in the Bristol Bay area. Without a specific proposal, EPA cannot evaluate the
potential impacts or risks from the project. We do not know where facilities would be located, which
wetlands might be impacted, or what the characteristics of the dredged or fill material would be.
/I 1IItI1I1i'Witl404{t.) procw tWlllol be ,»lIdlld.d ii, Ih. Iii",frmll< tIIvitiOlled I!J Ihe "glll"IioIlJ. While the 404(c)
process can he initiated before receipt of a permit application, the normal course would begin with a
notice of a proposed determination by the Regional Administrator and conclude with a final
detecrnination by the Administrator approximately five months later. We recognize that time frames
can be extended for good cause, but doubt that anyone envisioned extending the process over the
multiple yeats it would take to collect information, complete the impact analyses, and develop a
sound record on a par with what we could "'(pect from the NEPA and permit processes for a new
mine development proposal.
The 404«) proel!J1 u'O/l1d Jhorl c!Jallge p"b!iepartkipalioll. The public notice and opportunity for comment
and hearing associated with the 404(c) process could not rival the outreach, education, consultation,
and other public involvement that would occur should the Pebble Mine or another mine advance to
the NEPA and permitting phase.
The Honorable Lisa P. Jackson
September 21,2010
Page 3
A pmJJoll/f't 404(c) tklermiT/olion '.!Jt,tillt!yprohibiliT/g miT/iI/I, il/ Ibe t/f'tO /VDI/Id disproportiOT/ale/y impof/l7lral
f'tsideT/ls olldAlosfeo Nt/lim. Approximately 70 percent of area residents are Alaska Native (2009).
Seventeen percent faU below the poverty level (2008). The arca has seen an 18 pcrcent population
decline in the last ten years. Knowing of your keen interest in the effects of EP.A decisions on
disadvantaged populations, we hope you would take into account that a 404(c) decision to preclude
mining in this economicaU)· depressed region would abruptly and conclush'ely deny area residents
any opportunity to avail thcmselves of the benefits they might seck from responsible mining.
The iT/ltT/dedpurpose t/Ild Inte utility oflhe 404«)Profess is iT/ oddmsing or/I/ol Dr imminelll ad/JIm !Otcls whm Ihe
NEJ'A ondfJ/mJit P'VctsseS bOlllfoilldor where there is reason to belicve thar tlley will fail. In essence,
the 404(c) process is best used as a backstop for the other applicable provisions of Section 404,
including application of the 404(b)(1) gwdclines and the interagency coordination and dispute
resolution procedures developed pursuant to 404(q). There is no purpose or advantage to initiating
the process now.
For these reasons, I firmly believe initiating a 404(c) process would be ill-advised and potentially
contraty to our shared goal of protecting area resources. I would appreciate your lllking OUr
concerns into account. Jf there is anything else we can do to assist you, please contact my office at
Sean Parnell
cc: The Honorable Lisa Murkowski, U.S. Senate
The Honorable Mark Begich, U.S. Senate
The Honorable Don Young, U.S. House of Representatives
Dennis McLerran, Regional Administrator, EPA Region 10
John Katz, Director State and Federal Relations, Office of the Governor
Portland Cement Association
February 1, 2011
The Hon. Darrell Issa
House Committee on Government Reform and Oversight
Washington, DC 20515
Dear Mr. Chairman:
Thank you for your letter soliciting tile Portland Cement Association's (PCA) perspectives on
federal regulatory concerns and tlIeir impact on jobs. As you may be aware, domestic cement
manufacturers are among the most higWy regulated enterprises in the country. Although we have a
decades-long history of cooperation with the Environmental Protection Agency (EPA), the industry is
currently facing an avalanche of EPA rules ranging frol11 tighter air quality standards and EPA-
imposed limits on greenhouse gas (GHG) emissions to rules aimed specifically at our sector. The
cumulative impact of these rules, detailed in the attached economic study, will cost Americans much
needed jobs as the industry continues to struggle from the steepest economic downturn since the
1930s. By way of background, PCA is a trade association representing 25 cement companies,
operating 97 manufacturing plants in 36 states, with distribution centers in all 50 states. PCA
members account for 97.1% of domestic cement making capacity.
PCA has recently completed a cumulative economic analysis outlining these impacts and
includes the following higWights:
• 4000 lost jobs by 2015, on top of 4000 lost jobs since 2007;
• Two EPA rules will impose $5.4 billion in compliance costs by 2015;
• One EPA rule will close 18 plants nationwide by 2013;
• And increased imports totaling 56% of domestic consumption by 2025.
The U.S. cement industry provides more than 15,000 high-wage jobs with average
compensation of $75,000 per year, and along with allied industries, accounts for nearly $27.5 billion
ofGDP. In recent years, our sector has shed over 4,000 jobs, a nearly 25% reduction of the sector's
workforce. As the industry attempts to recover in this dire economic climate, in September 20 I0, EPA
finalized the Portland Cement National Emission Standards for Hazardous Air Pollutants (NESHAP).
Imposing a September 20 13 compliance deadline, the rule puts at lisk the closure 18 of the 97 cement
plants nationwide and throws an additional I 800 Americans out of work. In addition to further
downsizing domestic payrolls and domestic mannfacturing capacity, the rule will cost $3.4 lIillion
over a three year period for an industry that currently generates just over $6.5 billion in annual
revenue. Industry revenues have dropped by approximately 35% from tlIeir historic nonns and are
not expected to recover for another five years. Therefore establishing a 2013 compliance deadline for
a $3.4 billion rule, which is approximately half the industry's current alUmal revenues, will needlessly
weaken an industry attempting to recover from tbe worst market conditions since the 1930s.
500 New Jersey Avenue, NW.. 7'" Floor
Washington, DC 20001
202.408.9494 Fax 202.408.0877
Page Two
Chainnan Issa
Not only does the Portland Cement NESHAP distort economic realities, but it may also have
adverse enviromnental impacts, especially with respect to mercury emissions. While the
environmental benefits for reducing emissions of nominal amounts of domestic mercury are uncertain,
it is clear that outsomcing domestic manufacturing capacity to developing countries will merely result
in environmental leakage and therefore increase global mercury emissions, putting the nation in a
position in which it inlpOrtS more cement and more air pollution. Such an outcome will not only
undennine the nation's economic secmity, but it threatens to degrade the environment and public
health as well. Because the costly Portland Cement NESHAP is scheduled to hit the industry during a
time of major financial vulnerability, cement manufacturers request that Congress explore legislative
remedies that will give industry more time to recover and preserve domestic jobs before assuming
unreasonable compliance burdens and undesirable enviroIUllental outcomes.
For more information related to this issue, please contact Bryan Brendle in PCA's Washington
office at (202) 408-9494. Thank you very much for your consideration of tltis issue.
Aris Papadopoulos
Chainnan of the Board of Directors
Attachment: Report - Cumulative Econonllc lmpacts of EPA Rules on Cement Manufacturers
Bl'9l1king Mlilysis of the Economy, Construction lind Cement Industries
Contact: » Ed Sullivan, Chief Economist 847.972.9006 ~ osulliv.nOcement.org
January 2011
Overview Impact of Existing and Proposed Regulatory Standards on
Domestic Cement Capacity·
Executive Summary
Already a heavily regulated industry, the U.S. cement industry is currently faced with seven different
existing or proposed Environmental Protection Agency (EPA) regulatory standards:
• National Ambient Air Quality Standards (NMQS}--Currenlly effeclive
• Greenhouse gas reporting-Currenlly effecllve
• New Source Performance Standards (NSPS}--Currently effective
• Clean Air Act's "Tailoring Rule"-Currently effective
• National Emission Standards for Hazardous Air Pollutants (NESHAP}--Currently effective, with
compliance required in 2013
• New standards for Commercial and Industrial Solid Waste Incinerators (CISWI)-Proposed and
compliance to be effective in 2015.
• Fly Ash determlnallon as a hazardous waste-Proposed and assumed to be effective in 2015
PCA examined the cumulative impact of these re!lulations on United States cement, concrete, and
construction industries, especialiy potential impact on construction costs, employment, and the
The EPA regulations will hinder the cement industry's ongoing modernization efforts to remain globally
competitive. This is a subtle message to the industry 10 shut down plants and source cement from foreign
sources - thereby exporting emissions along with the jobs associated with cement production.
Regulations will export jobs
EPA regulations could result in the direct loss of 3,000 to 4,000 jobs in the cement industry by 2015.
Cement industry jobs are typicaity high-wage jobs. These Industry job losses translate into $200 miliion to
$260 million in lost wages annualiy. PCA estimates that 18 plants could be forced to close because of the
inability to meet standards or because the compliance investment required may not be f1nancialiy justifiable.
The construction industry could lose another 12,000 to 19,000 jobs because of higher construction costs.
These direct job losses could be amplified if indlre'ct impacts are considered. The indirect Job and wage
toses would be the resuit of less regional economic activity, mostly in areas concentraled near the plant
shutdowns, and magnifying the potential distress In these communities. In total, more Ihan 80,000 jobs
could be lost due to EPA regulations targeting the cement industry. These job losses will stem from a
combination of closed plants, reduced national construction due to increased costs, and amplified by
downstream muitiplier effects.
The combination of the industry's pre-existing financial commitment to provide a reliable and efficient supply
of cement to the U,S, market, coupled with sustained harsh economic and financial realities may overwhelm
the industry's financial capability to comply with the EPA standards, EPA's short three-year compliance
period for NESHAP, which addresses mercury and three other pollutants, requires compliance investments
to begin soon, PCA estimates 2009 cement industry revenues at approximately $6,5 billion, For 2010-
2012, total industry revenues are projected at $Hl billion, The $3.4 billion in investment required to comply
with NESHAP standards equates to more than 16 percent of industry revenues accumulated during the
years preceding NESHAP compliance (2010-2012),
The study estimates that current and proposed EPA regulations could add $2.4 to $3,9 billion to annual
construction costs. Increased cement Iconcrete construction costs would raise the concrete costs for a
construction project 22 to 36 percent.
Moreover, as the country's largest consumer of cemenVconcrete, the public sector would be hardest hit.
PCA calculates that EPA compliance costs could add as much as $1,2 to $2 billion annually to state and
local governments' expenditures just to maintain existing roadways and bridges. The addition of new roads
and bridges would increase the price tag even further.
The nation's current construction downturn has already caused low capacity utilization rates at cement
plants and a slowdown in capital investment. An uncertain regulatory environment could reduce expected
returns on investments in the United States and contribute to corporate decisions to wait-and-see before
making further investments in the United States.
Regulations will export emissions
Lacking further investment in capacity expansion, the United States cement industry will become
increasingly dependent on imports as a source of supply,
At the same time that many of these regulations require compliance, an anticipated increase in population
will result in additional demand for housing, commercial buildings, public bUildings and infrastructure - an
boosting demand for cement consumption, Population in the United States Is expected to grow by 35
million persons by 2020 and 46 million persons by 2025 compared to 2007 levels.
The cumulative impact of these regulations will force increased reliance on imports to meet expected future
consumption, Assuming all of the EPA regulations are enacted, from approximate 2010 levels of 5.9 million
metric tons, Imports are expected to reach 62 mililon metric tons in 2 0 2 ~ r roughly 56 percent of the US
consumption. Keep in mind, the industry currently operates roughly 125 import terminals with an estimated
capacity of 45 million metric tons. Increased reliance on imports dramatically increases the probability of
future material supply shortages In the U.S. construction industry.
Because a significant portion of the Improvement in emissions due to EPA regulations comes from plant .
closures, the EPA standards effectively export our emissions and our jobs to other cement supplying
countries, while at the same time, absent global cement plant emission standards, increasing overall global
For example, EPA's potential classification of fly ash as a hazardous waste, without an exemption for
beneficial re-use, will virtually eliminate its use in concrete mixes, increasing net CO, and other emissions
associated with cement manufacture, and reduce the performance characteristics of concrete in some
If EPA designates fly ash as a hazardous waste under the proposed rule, It would reverse decades of
progress in sustainability of building materials, Use of fly ash In concrete production is recognized
worldwide as a practice that improves the performance and sustainability of concrete by adding decades to
the life of construction projects, and greatly reducing carbon dioxide emissions and resource consumption
in cement production.
Another regulation that will have a negative environmental impact is the new standards for Commercial and
Industrial Solid Waste Incinerators (CISWI), which negates the incentive for cement plants to burn
alternative fuels, like tire-derived fuel (TDF). The CISWI standard potentially reverses decades of
environmental cleanup success and EPA support for using TDF as a fuel. A significant reducllon in the
use of TDF would materialize under potential CISWI standards and could lead to a seven-fold increase in
scrapped tires that must be land filled by 2025 - creating a new environmental concern.
PCA's Market Intelligence Group is tasked to provide a rough estimate of the potential impact on domestic
cement production resulting from seven different existing or proposed Environmental Protection Agency
(EPA) regulatory standards. These standards are at different stages of potential enactment, ranging from
in-place standards to the public comment stage. As a result, in some instances, peA must make
assumptions regarding the substance end timing of these potential regulations. The standards Include:
• National Ambient Air Quality Standards (NAAQS) (Currently effective);
• Greenhouse gas reporting (Currently effective).
• New Source Performance Standards (NSPS) (Currently effective).
.• Clean Air Act's "Tailoring Rule" (Currently effective).
• National Emission Standards for Hazardous Air Pollutants (NESHAP) (Compliance 2013).
• Potential new standards for Commercial and Industrial Solid Waste Incinerators (CISWI)
(Proposed compliance to be effective 2015).
• Fly Ash determination as a hazardous waste (Assumed to be effective 2015).
PCA assesses the impacts of EPA regulatory standards by presenting a scenario representing an
environment with no new EPA regUlations (Baseline Scenario) and comparing those conclusions against a
scenario that Includes all EPA regulatory standards (Compliance Scenario). The difference between the
two scenarios represents the aggregated Impact of EPA regulations. While a myriad of impacts could also
arise from the enforcement of more rigorous EPA standards, this report focuses on the Impact on United
States cement consumption, cement production, cement capacity, import volume and penetration, the cost
to the cement Industry attached to compliance, potential impacts on construction costs, and the potential
Impacts on employment.
EPA has been vague regarding the meshing of these standards into a coherent regulatory strategy directed
at emitting industries, including those targeting cement producers. PCA, as·a result, Is forced to make
assumptions regarding the coherency and consistency of EPA's regulatory policies targeting the cement
industry. Actual form and substance of EPA regulations that characterize the compliance scenario may
differ significantiy from the regulations that eventually materialize. As a result, risk should be attached to
PCA's impact estimates.
Key Findings
• The EPA's potential classification of fly ash as a hazardous waste, without an exemption for
beneficial re-use, will virtually eliminate its use in concrete mixes leading to a 30 million metric ton
increase in cement consumption by 2025, reduce domestic cement supply by roughly 2.0 million
metric tons, increase costs, net CO, and other emissions associated with cement manufacture, and
reduce the performance characteristics of concrete in some cases,
• The NESHAP standards alone could force the closure of 16 cement plants representing 11 million
metric tons of capacity. An additional 3 plants are at high risk of closure, representing an additional
2.5 million metric tons. These high risk plants are assumed to continue to operate.
• EPA's regulations that trigger "new source" designations under the NESHAP, CISWI or NSPS
standards could hinder the cement industry's ongoing modernization efforts to remain world class
competitive, and as a result, could eventually lead to an additional 4 plant closures representing
another 3.4 miltion metric tons 01 capacity beyond NESHAP. Furthermore, this aspect of the EPA's
standards is a sUbtle message to the industry to shut down plants and source cement Irom lorelgn
sources - thereby exporting emissions along with jobs, associated with cement production.
• EPA regulations will result in a dependence on cement imports. Imports are expected to increase
from roughly 5.9 million metric tons in 2010 to an estimated 36 million metric tons In 2015, 62
million metric tons by 2020, and 62 million metric tons by 2025. The industry currenlly operates
roughly 125 import terminals with an estimated capacity of 45 million metric tons. Increased
reliance on imports dramatically increases the probabllliy 01 future material supply shortages in the
U.S. construction industry.
• EPA regulations could potentially lead to higher overall concrete costs to the construction industry
of at least $2.5 to nearly $4 billion annually.
• EPA regulations could result in the direct loss 01 3,000 to 4,000 jobs In the cement industry and
potentially another 12,000 to 19,000 direct Jobs in the construction industry due to higher
construction costs. These direct Job losses could be amplified il up and downstream Indirect
impacts are considered. In total, more than 60,000 jobs could be lost due to EPA regulations.
• To meet NESHAP standards, PCA estimates that 90% of all cement plants will be forced to invest
in bag houses to meet particulate metter standards. To comply with the combined Hg, THC, and
HCI standards, PCA estimates that 9% of all plants will be required to invest in stand-alone wet
scrubber systems, 75% of all plants will be required to invest in ACI systems, 20% of all plants will
be required to invest in wet scrubber-ACI combination systems, and 65% of all plants will be
required to Invest in Regenerative Thermal Oxidizer (RTO) systems.
• To meet CISWI standards, PCA estimates that 67% of all alternative fuel burning cement plants, a
subset of the total universe of plants, will be forced to invest In bag houses to meet particulate
matter, lead and cadmium standards. This includes investments to existing bag houses and in
some cases the construction of new bag houses. To comply with the combined Hg, SOx and HCI
standards, PCA estimates that 22% of all plants will be required to invest in a stand-alone wet
scrubber system, and 62% of all plants will be required to invest in wet scrubber-ACI systems. To
comply with NOx, 22% of all plants will be required to invest in SNCR systems. To comply with
carbon monOXide, 39% of plants will be required to Invest in burner systems.
• To comply wilh NESHAP standards, the industry must Invest at least $3.4 billion. An additional $2.0
billion must be invested to meet CISWI standards. This excludes potentiat spending by plants PCA
estimates will close due to the inability to meet standards or due to the excessive financial burdens.
• The combination of the industry's pre-existing financial commitment to provide a reliable and
efficient supply of cement to the U.S. market, coupled with sustained harsh economic and financial
realities may overwhelm the industry's financial capability to comply with the NESHAP standards
and proposed CISWI standards. NESHAP will be in force in three short years, which means that
compliance investments must begin soon. PCA estimates total industry revenues during 2010-
'2012 at $19 billion. The $3.4 billion ;n investment required 10 comply with NESHAP standards
equales to more than 18% of industry revenues accumulated during the years preceding NESHAP
compliance (2010-2012).
Baseline Scenario (No Emission Policy)
U.S. Cement Consumption Projections
Longer term cement consumption will be dictated by population gains, and this implies cement
consumption will reach nearly 150 million metric tons by 2025.
u.s. cement consumption reached nearly 70 million metric tons In 2010, compared to near record levels 01
128 million metric tons recorded in 2005. This decline renecls current economic adversities. With
economic recovery, cement consumption is expected to reach 112 million metric tons in 2015, 131 million
metric tons in 2020, and 147 million metric tons in 2025.
All market segments and regions recorded significant declines in cement consumption through 2009. This
reflects a peak-to-trough decline in cement volumes of nearly 59 million metric tons - the worst In U.S.
history. Tightened lending standards, weak labor markets and rising foreclosures continue to hamper an
oversupplied residential construction market. Nonresidential construction is experiencing the brunt of Ihe
financial credit crisis as many projects have been delayed or canceled. This, coupled with rising vacancy
rates and long project planning timelines, creates an expectation of a long recovery for commercial
construction Is expected. Public construction markets have demonstrated dramatic weakness as state
governments struggle with soaring fiscal deficits from fallin9 tax revenues. With public construction
accounting for roughly 50% of cement consumption, this sector will play an important role in determining the
industry's outiook. These underlying fundamentals suggest a recovery in cement consumption during
2010-2012 could be extremely modest.

"".... ,...... _... -" .'
Cerrent Consurrptioo: LongTerm
Million MaCtJcTons

1975 1980 1915 1990 1995 2000 2005 2010 2015 2020 2025 2030
G.O'Nth in Conlca' 01 PQp..uuO" CNn9n SlOt\..... US EconomIC Cro-..1tl. St'Of'Ig
Global Growth. Chm.Mo Ctwnge LegtSlaIJon o1nd the "Grten Re-votutlon
Beyond 2012, volume gains in cement consumption are expected to become more robust. A new highway
bill may materialize In 2013. In addition, substantive job gains during 2009-2012 will Improve state fiscal
conditions - leading to a revival in state construction spending. In the context of sustained economic
growth, residential and nonresidential construction is also expected to record significant gains. By 2013, it
is likely that all three construction sectors (public, residential and nonresidential) will record strong positive
growth. Even with this, PCA believes the peak-to-peak recovery period (past peak 2005) will take eleven"to
twelve years.
Longer term, PCA expects the U.S. economic growth rate will underperform consensus projections of 3%
annually. As the U.S. population ages, slower economic growth may materialize. The argument for slower,
future long-term economic growth rates is anchored In future demographic changes and Its likely impact on
spending habits among age groups. The persistent and sustained aging of the population will slow
consumer spending. This will be compounded by other Issues. PCA calculates that the aging of America
will result in a 50 basis point reduction in growth of consumer spending and overall economic activity by
2020. PCA's long-term cement consumption projections are based on 2.4% real GOP growth. Upside risks
are contained In PCA projections.
PCA projects long-term cement consumption will reach 131 million metric tons by 2020 anej 147 million
metric tons by 2025 - reflecting growth of 32 million tons compared to 2007 levels and growing at a 1.0%
compound annual rate. Roughly 76% of the growth in cement consumption Is driven by growth In
popUlation. The remaining 19% is driven by gains In growth in per capita cement consumption'. In
comparison, during 1994-2007, cement consumption grew 29 million metric tons at a compound annual
growth rate of 2.3%. During 1994-2007, 63% of the market growth was driven by population gains and 17%
by gains in cement consumption per capita.
Long-term cement projections are calculated by combining Bureau of Census' (BOC) population projections
with per capita cement consumption estimates to yield total cement consumption. Changes in per capita
cement consumption are driven by projecled economic activity at the state level and measured by real
gross state product.
The anticipated increase in population will result in additional demand for housing, commercial bUildings,
public buildings and infrastructure - alt boosting demand for cement consumption. Population In the United
States is expected to grow by 35 million persons by 2020 and 46 million persons by 2025 compared to
2007 levels. According to the Bureau of Census (BOC) April 2005 forecast, U.S. 2007 populalion is
estimated at almost 302 million persons and is expected to reach 344 million persons by 2020 and 346
million persons by 2025 - reflecting a 16% increase over 2007 levels.
PCA projections may be conservative. Nationally, per capita cement consumption is expected to reach
0.392 metric tons per capita by 2020, compared to 0.362metric tons per capita recorded in 2007. This
reflects an increase of slighlty more than 3%. The projections fall welt below Ihose experienced during the
previous 13 year period when per capita cement consumption grew by nearly 17.2%. Economic growth
directly Impacts growth In per capita cement consumption. Stronger economic aclivity leads to higher
household formation, stronger fiscal conditions at the state level, and higher expected return on real
investments, leading to higher levels of residential, public, and nonresidential construction activity. Stronger
long-term economic growth wltl encourage greater construction activity and hence cement consumption per
capita. According to PCA estimates, per capita cement consumption grows 0.5% for every one percent
increase in real GOP growth.
I The projected per capita growth rate is exaggerated by the current depressed market, lowering the jump-off point.
Fly Ash Usage
Fly ash usage by the concrete/cement industry is expected to increase on a sustained basis-
reducing CO
emissions as well as other emissions associated with the manufacture of cement and
lowering costs to end users of concrete.
Since fly ash can be a substitute for cement in concrete mixes, its' usage could directly impact cement
consumption projections. The baseline scenario assumes conlinued gains in the use of fly ash in concrete
mixes - at the expense of cement consumption growth. The use of fly ash in concrete mixes has been
increasing steadily - constituting roughly 15 million metric tons, or 10.5% of total cementitious material
consumption (cement, slag cement and fly ash in 2010). By 2030, PCA expects fly ash will account for
14%-15% of total cemenlilious material consumption. Given this increase and fly ash use as raw feed in
cement kilns, PCA expects fly ash consumption wiil reach nearly 33 million tons by 2030, Not only will the
use of this fly ash reduce construction costs and improve concrete's durability characteristics for some
applications. but for every ton used, it directly replaces cement In the concrete mix. Since fly ash requires
no catcination, it reduces C02 emissions and other emissions associated with the manufacture of cement.
U.S. Cement Capacity Projections
Increases in cement capacity and additives will likely be offset by the structural decline in wet kiln
The portland cement industry in the United States is currently comprised of more than 30 producers
operating more than 167 kiins in 2008 with an estimated domestic clinker capacity of nearty 92 million
metric tons. Gypsum is mixed with clinker to form portland cement. Gypsummmestone currently accounts
for 7.5% of the mix. Including gypsum and limestone additions, domestic cement capacity Is currently
estimated at 99 million metric tons.
Domestic cement capacity is expected to reach roughly 107 miilion metric tons In 2015 and beyond. These
estimates reflect planned capacity expansions. Capacity estimates also include assumptions regarding the
continued retirement of older wet kiins.
PCA assumes no new capacity is added beyond these announced plans. This assumption may have merit.
Large multinational companies dominate ownership of the United States cement industry. Within a
multinational company, each geographic region, such as the United States, competes against other global
regions for scarce corporate investment dollars (keep in mind, expanding cement capacity is extremely
expensive - a two million metric ton plant now costs upwards of $575 mlliion). The rate of return on new
capacity investment in the United States is compared against returns in other countries. Current financiat
distress caused by low utilization rates and an uncertain regulatory environment could reduce expected
returns on investments in the United States and contribute to corporate decisions to wait-and-see before
making further Investments in the United States. The bottom line is that investment in cement plants in the
U.S. is nowfacing higher risk, because of difficulty to achieve environmental compliance, and lower returns
due to increased environmental compliance cost. Higher risk and lower returns drives off investment.
In addition to clinker capacity expansions, changes In U.S. specifications allowing for increased use of
limestone in portland cement could increase the potential domestic supply. Further changes in U.S.
specifications occurred in 2010 allowing for increased use of inorganic cemenlilious materials such as fly
ash and slag. How much these specification changes increase cement capacity depends on how plants
Frot1I SpWl:lrlUUOl'l

Fly A.t1 a"d SlollJl
...... -
• •
elect to exercise lhese options. Gypsumnimestone allowances currently add 7.5%. PCA expects that total
additions will grow to 10% by 2025, adding more than 2.0 million metric tons to domestic cement supply.
Expansions. in cement supply are expected to be largely offset by displacements of capacity. Economic
stress and declining cement consumption have resulted In commissioning delays and slower planned ramp-
ups for new plants. Two planned "greenfield" plants have been postponed Indefinitely. Permanent or
temporary shutdowns at 16 plants have been announced or are planned. Plant shutdowns since 2006 have
reduced domestic clinker capacity by 9.7 million metric tons. Some, but not all, of these capacity
displacements may be permanent. Of the closure announcemenls, seven plants are considered
permanent, reflecting nearly 4 million metric tons. Of the remaining temporary closures, PCA assumes
these plants will remain closed until stronger market conditions may dictate reopening. Plants that are idled
for more than 2 years have an added risk of being considered as 'New Sources'. This designation would
greatly reduce the probability of a kiln re-start and may result in downside risk to PCA capacity projections.
In addition to cyclical displacement of capacity, lh,e cement Industry has been gradually phasing out Its wet
kiln clinker capacity, reducing Its clinker capacity by approximately one million metric tons annually during
the past ten years. The wet kiln process is an older proces.s and Is typically less energy efficienr. During
the past two years, the phase-out of wet kilns has accelerated - reducing wet kiln clinker capacity by neariy
5.6 million metric tons. In the context of current economic distress, the potential for higher energy prices in
the future, and impending federal GHG controls, the acceleraled pace of wet kiln rellrement is expected to
continue. PCA assumes total wet kiln clinker capacity will decline to 2.7 million melric tons in 2020 and
beyond compared to 12 million metric tons in 200". This assumption suggests a 9.3 million ton reduction in
existing wet-kiln clinker capacity by 2020-2025.
2 Note: the last wet kiln was Installed 35 years ago.
Combining estimates of capacity expansion, changes in specification standards, and the structural shut
down of wet kilns, translates into domestic clinker capacity estimates at roughly 97 million metric tons in
2015 and 95 million metric tons in 2025, With gypsum and limestone additives, this translates into 107
million metric tons of cement capacity by 2015,
U,S, Baseline Imported Cement Projections
Lacking further investment in capacity expansion, the United States cement industry will become
increasingly dependent on imports as a source of supply,
Aside from domestic supply, the cement industry operates roughly 125 import terminals with an estimaled
capacity of 45 million metric tons. The ability and Willingness to import cement Is determined by demand
conditions, prevailing global shipping rales, and the availability of ships to carry cement. Imports are
viewed as swing supply, with volume Increasing and decreasing depending upon the shortfall between
domestic capacity and total United States consumption.
Imports have declined since 2006 from 36 million metric tons to roughly 5.9 million metric tons In 2010.
Weak demand is largely responsible for this decline. In the context of weak demand condllions and low
domestic utilization rates, imports share declined to 9.3% market share in 2010, compared to a 28.2%
market share in 2006. With a gradual economic recovery expected, higher domeslic utilization rales will
emerge slowly and import shares are expected to remain near 9% through 2012. In the context of
sustained growth, a recovery in utilization rates is expected to materialize, prompting import market shares
to increase. From expected 2010 levels of 5.9 million metric tons, imports are expected to reach 12 million
metric tons by 2015 (11% market share), 32 million metric tons in 2020 (24%), and 48 million metric tons in
2025 (nearly 33%).
U.S. Baseline Clinker Production Projections
Longer tenn cement production will be capped by high utilization rates and a possible hiatus on
further expansion initiatives.
Actual domestic clinker production declined from gO million metric tons In 2006 to less than 60 million metric
tons In 2010, With the economic recovery, cement production is expected to reach 90 million metric tons in
2015 and beyond. These projections reflect PCA's estimates regarding domestic capacity, cement
consumption, import volume, exports, and probable inventory changes.
U.S. Kiln Fuel Composition Characteristics
While coal will continue to be the main source of kiln fuel, the Industry will increase its reliance on
alternative fuels.
The cement industry has made large strides in improving fuel efficiency over the pasl two decades. On
average, the industry currently requires 4.1 million British Thermal Units (BTUs) of fuel per equivalent
metric ton. This compares to roughly 4.5 million BTUs per equivalent metric ton in 2000, indicating an
improvement in fuel efficiency of roughly g% over the past decade.
During 2007-2009, an average of 12 percent of total fuel consumption in BTUs was composed of alternative
fuel sources. Of these alternative fuel sources, approximately one-third were tire-derived, almost 40% were
from solvents, 3% were from oil, and one quarter were from other solid wastes and miscellaneous
Baseline: No Emission Policy
2005 2010 2015 2020 2025
US Cement Industry
US Cement Consumption (000 tons) 128,035 68,879 111 831 131 388 147,112
US Clinker Capacity (000 tonsI 94,693 96,877 107,467 106,403 105824
US Produclion (000 tons) 89,981 58,286 90480 90359 90,148
imoorts (ODD tons) 27305 5900 12,000 32,000 48000
Total Fuel Consumotion (billion BTU, bbtu) 341,999 233144 361,919 361436 360,593
Primarv Fuel Consumption (bbtu) 307009 207123 321828 318,163 310957
Alternative Fuel Consumption Ibbtu) 34989 26021 40,091 43,273 49,636
Alternative Fuel Plants (AFP)
Capacity at AFP (000 tonsI 48,209 49,923 55370 54,941 54,941
Production at AFP (000 IonsI 44,496 30036 46,618 46656 46,803
Total Fuel Consumetion (bbtul 177,984 120,146 186,471 186625 187,213
Primary Fuel Consumetien Ibblul 142,995 94,125 146380 143353 137,577
Plant Alternative Fuel Consumetion (bbtul 34,989 26021 40,091 43,273 49636
Planl Tire Derived Fuel Cbbtu) 12,143 8,587 13,230 14,280 16,380
Scrapped Tires Consumed Imillions) 58 39 63 68 78
Scrapped Tire Stockeile Imillions) 188 222 392 311 126
Fly Ash
Fly Ash Production Million Metric Tons 71,100 65,568 71,520 73,632 75616
Beneficial Use Consumetion 29,118 27,392 44,376 50,625 56,358
Concrete Consumetion 14504 8898 15565 19,842 23,721
Cement Kiln Consumolion as raw material 2834 3017 4,404 4,458 4458
CemenVConcrete Share of Beneficiai Use 59.6% 43.5% 45.0% 48.0% 50.0%
Estimated Landfili 41982 38176 27144 23,007 19258
Sources: PCA, USGS, Various EPA emissions documents.
Note: No credible Cadmium emissions data for cement kilns could be found and is omitted from analvsis.
u.s. Cement Plant Fuel Consumption
2005 (% Composition)
Alternative Fuels
alternate fuel sources. Tlre-derived fuel (TDF) is a significant energy source due to Its relatively high BTU
value. A decrease in its use would lead to higher fuel costs and higher emissions rates·. As for primary
fuels during this period, coal and coke represented over 80% of total fuel consumption, whereas natural gas
represented around 3.5%. These are supplemented by middle distillates, gasoline, residual oil, and
liquefied propane gas (LPG).
Compliance With EPA Standards Scenario
The EPA emission compliance scenario Includes all assessments regarding cemenl consumption and
capacity changes contained in the baseline scenario. The compliance scenario assumes the EPA declares
fly ash as a hazardous waste, but provides allowances for beneficial use of fly ash in cement production
and concrete. This assumption changes the cement consumplion outlook significantly. Potential impacts
on cement capacity, domestic cement production, capacity utilization and Imports aTe estimated in the
context of assumed EPA Imposed emission policies.
Seven different, existing or proposed, EPA regulatory standards are considered In the compliance scenario.
These standards are at different stages of potential enactment, ranging from in-place standards to the
public commenl stage. The existing and proposed standards, with enforcement dates in parenthesis,
'The EPA states on its website (epa.gov/epawasle/conserve/malerlals/t1res/ldf.hlmUcemenIl "based on over
15 years of experience with more than 80 individual facilities, EPA recognizes thallhe use of lire-derived
fuels is a viable alternative to the use of fossil fuels. EPA testing shows thai TDF has a higher BTU value
lhan coal.
• National Ambient Air Quality Standards (NAAQS) (Currently effeclive);
• Greenhouse gas reporting (Currently effective).
• Clean Air Act's "Tailoring Rule" (Currently effective).
• New Source Performance Standards (Currently effeclive).
• National Emission Standards for Hazardous Airborne Pollutants (NESHAP) (Compliance 2013).
• Potential new standards for Commercial and Industrial Solid Waste Incineration (CISWI) (Proposed
compliance 2015).
• Fly Ash determination as a hazardous waste (Assumed to be effective 2015).
The EPA has been vague regarding the meshing of these standards into a coherent regulatory strategy
directed at emilling industries, including those targeting cement producers. Lacking definitive rulings on
EPA standards, PCA is forced to make assumptions regarding the timing, coverage and scope of EPA
policies that impact cement plant emissions.
Compliance Scenario: Fly Ash Ruling
peA assumes the EPA will not classify fly ash used in concrete mixes and cement as a hazardous
waste. While the EPA has yet to reach a final ruling on fly ash, this report assumes an enforcement
date of 2015.
Most EPA standards impact the cement industry's supply side by mandating compliance cost investments
and the annual operating costs associated with those investments. EPA's proposal on fiy ash, however, has
potentially large impacts on cement consumption, with smaller impacts on the supply side. Consumplion
levels playa role in determining plant operaling rates, expected return on investments (ROI), and imports.
As a result, the fly ash rule must be addressed fimt in the compliance scenario. Otherwise, all other
assumptions and assessments made in the baseline scenario pertaining to consumption remain in place for
lhe compliance scenario.
Fly ash is a by-product of coal combustion from electric ulilities and independent power producers. A large
portion of fly ash generated from electricity generation is recycled in cement and concrete. The benefits of
using fly ash in concrete come from improved durability, increased ultimate compressive and flexural
strengths, reduced permeability, and millgalion of alkali silica reacllvity (ASR). Concrete made with fly ash
often extends the life of construclion projects by decades, minimizing environmenial impacts of rebUilding.
Since fly ash requires no calcination (converting limestone to cement) and therefore produces no carbon
dioxide (C02) or other emissions excluding those associated with the inilial coal combustion, it is
environmentallyatlractive. Finally, fly ash is less expensive than cement, reducing the cost of construction
Coal powered electric utilities account for roughly 22.5% of total United Slates electric power, or roughly
100 quadrillion BTUs. Total energy consumption will grow in the years ahead. Based on stalislics from the
American Coal Ash Association (ACAA), roughly 7'0 million tons of fly ash is produced as a by-product of
this energy generation annually. According to the Energy Informalion Agency (EIA), coal powered
electricity generation will account for slightly less lhan 22% of total electric power by 2030 - or roughly 110
quadrillion BTUs. This implies that the fly ash by-product of coal combustion from electric utililies will
increase from current levels, despite efforts to pursue renewable energy power sources. PCA eslimates
that 76 million tons of fly ash will be produced in 2025.
Roughly 30 million tons of fly ash produced annually is re-used for beneficial purposes. This implies that
roughly 40 million tons of fly ash Is committed to landfills. The ACAA identifies 15 major users of fly ash
ranging from construclion to agricultural industries. Cement and concrele are the largest consumers of fly
ash for beneficial purposes. Fly ash is normally contained in the concrele mix, accounting for roughly 12
million tons of consumption annually. Fly ash is also used in cement kilns as raw feed, accounting for
roughly 3 million tons of consumption annually.
Coal combustion residuals, often referred to as coal ash, are currently considered exempt wastes under an
amendment to the Resource Conservation and Recovery Act (RCRA). EPA is proposing to regulate, for the
first time, coal ash, in order to address the risks posed by the disposal of the wastes generated by electric
utilities and independent power producers. EPA is considering reclassifying fly ash as a hazardous waste
under Subtitle C of the Resource Conservation and Recovery Act. EPA may exclude from the hazardous
designation material used for beneficial purposes (as specified by EPA).
Should the EPA designate fly ash as a hazardous waste under the proposed rule, it would reverse decades
of progress in sustainability of building materials. Use of fly ash in concrete production has become
recognized worldwide as a practice that improves the performance and sustainability of concrete by adding
decades to the life of construction projects, and greatly reducing carbon dioxide emissions and resource
consumption in cement production. Moreover, the proposal would be inconsistent with the EPA's
Comprehensive Procurement Guideline program mandating procuring agencies to purchase certain
designated products containing recycled materials, including, In particular, cement and concrete containing
fly ash. These standards are often amplified by state mandates for fly ash usage in public construction
EPA concluded the public comment stage regarding fly ash's designation as a hazardous waste. EPA is
currently considering two options; (1) designation of all fly ash as a hazardous waste when disposed or as a
solid waste and (2) omitting the designation of fly ash as a hazardous waste if its use has beneficial
purposes. For this report, PCA assumes EPA will omit the designation of fly ash as a hazardous waste for
concrete mixes and cement kiln use. While EPA has yet to reach a final ruling on fly ash, this report
assumes an enforcement date of 2015.
While this may seem a generous assumption, in all likelihood fly ash usage, even if beneficial, will be open
to legal actions, with similar results as if it were declared a hazardous waste. Fly ash's designation as a
hazardous waste, whether for beneficial use or not, would have several impacts including; stigmatization of
its use as an ingredient In concrete or cement, raise the potenlial of law suits against producers and end-
users of fly ash, including electric utilities, cement and concrete producers, and construction companies,
and potentially raise insurance premiums for principals that continue to employ the use of fly ash.
The exposure to legal action will dramatically hinder, and possibly eliminate, the use of fly ash use in
concrete mixes. Typicany, parties with the largest financial resources are the most exposed to law suits -
namely the electric utilities. PCA assumes that rather than sell fly ash for beneficial use and risk exposure
to legal action, most electric utilities will landfill fly ash'. The additionat costs associated with this decision
are likely to be built into the rate base for the coal burning electric utility. In such a scenario, it makes little
difference whether concrete producers and construction companies opt to accept legal risks associated with
fly ash usage because coal burning electric utility companies will stop selling fly ash.
This scenario Implies that the fly ash ruling could increase electricity costs to consumers. According to this
scenario, coal burning utilities will forego revenues associated with fly ash sales and incur landfill costs
(estimated at $300 per ton). At 15 million tons of fly ash used by the cemenVconcrete industry annually,
this implies a net incremental cost to coal burning utilities of roughly $5.7 billion annually. Keep in mind,
• "The stigma of being associated with hazardous waste is real and is already affecting the markets'. Thomas A
Adams, Executive Director of the American Coal Ash Association. EPA public hearing, October 27, 2010, KnOXVille,
cement/concrete usage of fly ash is expected to increase according to the baseline scenario, implying even
larger potential net incremental costs to coal burning utilities. PCA estimales that this could translate into
roughly a 4% increase in incremental cosls to coal burning utilities which will likely be passed onto
consumers In the form of higher electricity rates. As a signlftcant consumer of electricity. cement
production cost would significantly increase resulting in upward price pressure on cement.
Million MetricTons
1995 2000 2005 2010 2015 2020 2025 2030
Fly Ash Ruling Impact: Higher Cement Consumption
Without the use of ffy ash In concrete mixes, cement consumption will Increase dramatical/y.
The elimination of fly ash usage suggests a significant increase in cement consumption. While the ratio can
vary depending upon the application, one ton of fly ash in the concrete mix is assumed to displace one ton
of cement consumption. The baseline scenario assumes the use of fly ash in concrete mixes has been
increasing steadily, constituting roughly 10.5% of lolal cementitious material consumption (cement, slag
cement and fly ash). By 2025, PCA expects fly ash will accounl for 14%-15% of tolal cemenlilious material
consumption. PCA expecls fly ash consumplion used in concrete mixes will reach nearly 30 million tons by
2025. This implies thai cement consumption will increase by an equal amount.
Fly Ash Ruling Impact: Increases Construction Costs
Concrete construction costs wiJIlncrease. adding nearly $1 billion annually to total United States
construction costs.
In most construction projects. fly ash accounts for 15% to 40% of the cementitious material mix. This will
vary by project and region depending upon the availability of slag as well as user preferences. During 2001-
2010 the price of fly ash averaged 565.55 per ton compared to 590.52 per ton for cement. Using these
averages implies that concrete mixes using:
• A 15% ny ash mix averaged $86.77 per ton, or a savings of $3.74 per ton -translating into a 4.1%
reduction in concrete costs for a construction project;
• A 25% ny ash mix (most common) averaged $84.27 per ton, or a savings of $6.24 per ton,
translating into a 6.9% reduction in concrete costs for a construction project.
• A 40% ny ash mix averaged $80.53 per ton, or a savings of $9.99 per ton, translating inlo an 11 %
reduction in concrete costs for a construction project.
Using a five year average of cementilious material intensities, out of everyone million real 1996 dollars of
construction activity, roughly $14,500 is attributed to cementitious material costs. Prior to the recession's
collapse of construction activity, the construction market was averaging roughly $750 billion in real
construction spending. This transtates into roughly $11 billion In cementilious material spending. A
hazardous waste designation for fly ash would likely increase construction costs 4% to 11 % per
construction project.
Fly Ash Ruling Impact: Lowers Domestic Cement Supply
Use of supplementary cementitious material could be reduced by 25%, reducing domestic cement
supply by more than 2.0 million metric tons.
Specincation changes have allowed for an increase In the amount of limestone and added to ground clinker
to form cement. Recently, specification changes have permitted the use of Inorganic materials, or fly ash,
to be added to limestone, gypsum, and ground clinker 10 form cement. PCA's baseline scenario assumed
Ihat "inorganic· additions (fly ash and slag) would represents a 2.5% national average of the cement mix by
2015 and beyond. Under the proposed ny ash ruling, these additions cease. This Implies that while
domestic supply of clinker remains unchanged by the ny ash rule, domestic supply of cement is reduced by
roughly 2.5 million metric Ions annually by 2015.
The combination of increased demand of roughly 16 million metric tons in 2015, 20 million metric tons in
2020, and 24 million metric tons in 2025 and reduced domestic supply of roughly 2.5 to 3.0 miltion metric
tons annually suggests thaI the fly ash rule will push domestic production 10 its Iimils and add significantly to
either domestic manufacturers' incentive to invest or increase their volume of imports. Given the context of
a harsh regulatory environment facing domestic producers, aside from the fly ash rule, it is unlikely
additional investment will be forthcoming. The disparity between increased cement demand and reduced
cement supply suggests a dramatic increase in imports beginning in 2015.
To compensate for the elimination of fly ash as an addition to the cement mix, PCA assumes that domestic
cement production will increase to offset the shortfall. This implies a higher utilization rate among existing
domestic plants beginning in 2015 (2.5% increase in production). Compared to cement production, this
implies that the absence of fly ash additions to the cement mix increases:
• C02 emissions by more than 2.5 million tons annually.
• Mercury (Hg) emissions by 820 pounds Ibs annually.
• Total hydrocarbons (THe) emissions by 1.5 million pounds annually.
• Particulate Matter (PM) emissions by 1.2 million pounds annually.
• Nitrogen oxide (NOx), sulfur dioxide (Sox), dioxin/furans (D/F), carbon monoxide (CO), lead (Pb),
cadmium (Cd) generated by alternative fuel burning plants will also increase.
%Addlllon '0 Mill
2000 2005 2010 2015 2020 2025 2030
These assessments dramatically underestimate the potential increase in emissions associated with the fly
ash ruling due to peA's assumption that it is unlikely additional investment in capacity expansion will be
forthcoming given the context of a harsh regulatory environment facing domestic producers. By itself, the fly
ash ruling would imply an increase in more than 25 million metric tons by 2025 of cement consumption in
the United States due to fly ash's elimination in concrete mixes. Absent other existing and potential
regulations this ruling would encourage increases in investment to expand domestic cement capacity to
meet the increase in forced consumption. Assuming 25% of this new, forced demand would be met by
imports, this Implies capacity expansion eqUivalent to 11 new cement plants at an average capacity of 2
million tons operating at 90% utilization. This equates to an increase in domestic production eventually
reaching 20 million metric tons annually, adding to economic activity (GDP) and employment.
If PCA's assumption regarding additional capacity investment is relaxed, cement production would increase
significantly and the emissions associated with cement production would increase as well, even with
optimal emission capture technologies in place. Accordingly, the absence of fly ash additions to the
concrete mixes increases domestic production and hence emissions by the following:
• C02 emissions by 16-24 million tons annually during 2015-2025;
• Mercury (Hg) emissions by 3.3 to 4.5 thousand pounds annually during 2015-2025.
• Hydrochloric Acid (HCl) emissions by 1.2 to 1.7 million pounds annually during 2015-2025.
• Total hydrocarbons (THC) emissions by 6 to 8 million pounds annually during 2015-2025.
• Particulate Matter (PM) emissions by 4.8 to 6.7 million pounds annually during 2015-2025.
The ruling on its surface, seems to run counter to a coordinated EPA emission reduction strategy (fly ash all
about 'off coal"; EPA assumes no stigma). Or, it implies a coordinated EPA strategy that successfully
reduces wastes by exporting the problem. PCA's assumption that is unlikely additional investment will be
forthcoming given the context of a harsh regulatory environment facing domestic producers falls in-line with
the latter. Keep in mind, removing fly ash from concrete mixes increases cement production - either
domestically or in foreign source countries or both. The extent to which the corresponding emission
increases are realized in the United States is dependent on further investment in United States cement
capacity. World-wide emissions arising from increased cement production will result from the fly ash ruling.
If the additional cement is not produced in the United States, it will be produced elsewhere and the
emissions associated with additional cement production will be released, plus the emissions associated
with its transportation back to the U.S.
Fly Ash Ruling Impact: Domestic Kiln Usage and Cost Impacts
Raw feed costs will increase - adding to the costs of cement and concrete.
The fly ash ruling not only impacts the volume of cement consumption and its supply, but would also have
an impact on the cost of producing cement in the United States. Fly ash is used in cement kilns as raw
feed, accounting for roughly 3 million tons of fly ash consumption annually. Fly ash is used mainly for its
alumina In cement kilns but also contributes silica, Iron and calcium to the raw material mix. It improves
clinker quality, mainly due to Its lower alkali content and fineness. The rate of substitution is generally 3-5%
of the raw materials. Use of fly ash in cement kilns may also release unburned carbon - reducing energy
requirements at the kiln. The fiy ash ruling would end its use in the kiln. This ruling, therefore, seems to
run contrary 10 the EPA's Tailoring Rule aimed al best practices to reduce C02 emissions.
Other materials would be used to offset fly ash's displacement in -the kilns. One benefit of fly ash usage is
low cost. It is likely that the replacement materials would be more expensive than fly ash - potentially
increasing the manufacturing cost per ton of cement. PCA estimates roughly a $4 Increase in material cost
per ton for the replacement of fly ash in the kiln. At roughly 3 million metric tons of fly ash consumed
annually this translates into a $12 million increase in kiln material costs per year or roughly $0.15 to $0.20
per ton when dispersed across national production.
Fly Ash Ruling Impact: Demolition Costs
A hazardous waste designation could lead to substantive Increase in demolition costs associated
wIth the containment of fly ash.
The legal risk associated with fly ash's designation as a hazardous waste pertains to both continued use in
construction and for the demolition of existing concrete structures. A hazardous waste designation could
lead to substantive demolition costs associated with the containment of fly ash. Presumably these costs
will be borne by the demolition company and passed onto the site developer. Even in this context, legal
risks remain. peA has not addressed this issue in the current stUdy.
Compliance Scenario: NESHAP & CISWllmpact
EPA has recently ruled on National Emission Standards for Hazardous Air Pollutanls (NESHAP). This
regulation requires compliance in 2013, requiring cement producers to invest billions of dollars In
compliance equipment targeting specific emissions prior to lhe compliance date. At the same time, EPA
recently proposed a broader set of emission standards, and at different levels of tolerance and
measurement, than NESHAP, for emissions generated by allernative fuel burning plants under Commercial
and Industrial Solid Waste Incineration (CISWI). CISWI is scheduled for enactment in 2015.
EPA has not issued guidance regarding compliance for alternative fuel burning plants during the time gap
between NESHAP and CISWlimplementation, or the 2013-2015 period. Conceivably, an allernative fuel
burning plant (which has been enco,uraged by the EPA) could be faced with investing by 2013 in
compliance equipment for NESHAP and a different set of compliance equipment for CISWI by 2015. Such
a scenario suggests a lack of coordination between the two policies. At issue is the EPA's designation of
specific cement plants as either a cement kiln or an incinerator - not both. Such a scenario amounts to
double jeopardy.
As a resull, PCA assumes allemative fuel burning plants, or potential CISWI plants, do not have to conform
to NESHAP standards in 2013, but must commit to a CISWI designation at that time. These plants would
then be forced to comply with CISWI standards in 2015.
In any case, the proposed CISWI standards must be analyzed in the context of NESHAP. The proposed
CISWI standard presents cement plant executives with two options including; (1) continue to burn
alternative fuels and invest in compliance technologies, or (2) discontinue the burning of alternative fuels,
avoid CISWI compliance, and then become subject to NESHAP standards. Which option is chosen will be
based on cement industry executives weighing the potential marginal change in CISWI compliance costs
against NESHAP compliance costs and considering the potential fuel costs savings resulling from the
continued burning of alternative fuels. PCA's assumption suggests these decisions must be made well in
advance of 2013 so facilities can prepare for compliance.
PCA's NESHAP and CISWI analysis includes all assessments regarding cement consumption and capacity
changes contained in the baseline scenario. Potential impacts on cement capacity, domestic cement
production, imports, and total U.S. cement emissions are estimated in the context of the existing NESHAP
standards and the EPA proposed CISWI standards.
Three layers of analysis were performed to determine emission control policy impacts on cement capacity.
First, PCA must split the universe of cement plants into CISWI plants and NESHAP plants.
Second, emission conlroltechnologies are applied to each plant's expected emissions. Expected
emissions by plant were calculated using the same method identified in the baseline scenario. Six emission
control technologies were applied to bring plants into compliance including enhanced bag house/ESP
controls, ACI systems, wet scrubber systems, RTO systems, selective non-catalytic reduction systems
(SNCR), and kiln burner design enhancements. Bag house/ESP controls, ACI systems, and wet scrubber
systems address emission compliance efforts for both the NESHAP and CISWI standards. RTO systems
are targeted at reducing total hydrocarbons contained only in the NESHAP standard. SNCR enhancements
are targeted at reducing nllrogen oxide (NO
). Kiln burner designs are targeted at carbon monoxide
emissions. Regulations aimed at reducing nitrogen oxide and carbon monoxide are only in the proposed
CISWI standard. No other systems or technology measures are considered in the context of this analysis.
Technology efficiencies were assumed in the capture of emissions by each system. Regardless of costs, if
a plant failed to meet the standard, it was assumed to be a forced closure.
In the third layer of analysis, plants capable of meeting the NESHAP and CISWI standards were subjected
to cost analysis. PCA assumes a 15 year horizon for the capitalization of fixed costs. For plants with less
than an estimated 15 years left in quarry life, fixed emission compliance costs are capitalized over the
longest period possible. Annual operating costs for the compliance syslems were also included in the
analysis. Finally, these estimales are based on a 90% utilizalion rate.
Each these EPA standards also include provisions for "new source" emillers that imposed emission limits
which are considerably more severe lhan "existing source emitters". New greenfield plants that are
commissioned after 2013 are assumed to be subject to these tighter standards. Major modifications to
existing plants could force a reclassification of a plant from an exisling source to a new source.
Designation of NESHAP and CISWI Plants
According to PCA's Laber/Energy data, sixty one plants used alternative fuels in their ~ i l n s on a sustained
basis during 2006-2008. Of these, 16 plants' alternative fuel usage accounted for less than one percent of
their total fuel consumplion. Those plants were excluded from the analysis in this report. This report
includes only the remaining 45 planIs that burn alternative fuels accounting for more than 1% of their total
fuel usage. In the context of regulation uncertainty, PCA assumes no additional cement plants will begin
burning alternative fuels. Alternative fuels include scrap tires, solvents, waste oil and other solids and
liquids. Coal, petroleum coke, natural gas, middlE! distillates, residual 011, and liquids/gases are considered
primary fuels and plants burning only these fuels are not considered subject 10 CISWI standards.
PCA compares the CISWI compliance cosls againsl NESHAP compliance costs. This results in the
incremental increase in inveslmentlo comply with CISWI over lhe existing NESHAP standards. Finalty,
lhese incremental changes in CISWI compliance costs were weighed against the potential fuel cost savings
arising from alternative fuel usage. If the marginal increase in compliance cosls for CISWI are more than
offset by fuel savings, then plants are assumed to continue burning alternalive fuels and comply with
CISWI. Planls lacking this return are assumed to discontinue burning alternative fuels and would lhen fall
under NESHAP rules. PCA assumes this compliance decision must be performed well before the onsel of
NESHAP compliance.
Emission Control Technology Assumptions
Technotogy assumptions were made regarding the effectiveness of various emission conlrol systems,
Sparse evidence exists regarding the actual effectiveness of emission control technologies applied to
cement kilns. The emissions caplured by the various technologies are often based on theorelfcal estimates
of capture efficiencies and may not reflect actual operating efficiencies. Furthermore, it
should be noted that emission capture efficiencies used in this report may differ from the estimates
Indicated elsewhere in the PCA comments. Due to uncertainlfes regarding emission control efficiencies,
PCA has assigned its own estimates regarding emission capture efficiencies. Considerable effort was
undertaken by PCA to yield fair and realistic emission capture efficiencies. PCA's emission capture
assumptions are typically less optimistic than those assumed by EPA.
Mercury (Hg) Emission Control Assumptions (NESHAP and CISWI)
The bulk of mercury emission control is likely to oc,cur through the use of ACI systems, wet scrubber
systems, or a combination of beth. According to some experts, ACt systems are preferred. PCA estimates
that ACI systems can potentially capture 75% of H!l emissions. EPA estimates the capture efficiency at
90%. Wet scrubber syslems alone are believed 10 be less effective than ACI syslems as they do nol
capture the elemental form of mercury. peA estimates lhat wet scrubber systems could potentially capture
50% of Hg emissions. The EPA estimates the caplure efficiency at 80%. Use of an ACI system coupled
with a wet scrubber is expected to capture 65% of mercury emissions. EPA estimates the capture
efficiency of this combination at 96%. Keep in mind, most research regarding Hg emission control and
capture has targeted coal burning utilities. These form the basis of EPA's high emission capture
I Technoloqy Assumptions Reqardinq the Recapture of Emissions
Bao house -- --
99% -- -
99% 99%
RTO 95% - - - -- - - -
RTO-Wet Scrubber 95%
-- - -- - -
SNCR - - - 90%
-- -
- -
Web Scrubber 50% 99% - - 60%
-- -
ACI 75% - 60%
- - -
Wet Scrubber-ACt 65% 99% -- - -
Cooting & Burning --
- 90%
- -
Source: PCA
assumptions. The chemical dynamics inside a cement kiln, however, are far different than lhose of a utility
boiler. The lower capture rate assumed by PCA suggests that fewer plants can meelthe NESHAP
standards and therefore would likely shut down.
Total Hydrocarbons (THC) Emission Control Assumptions (NESHAP Only)
The bulk of total hydrocarbon emission control is likely to occur through the use of an ACI system, RTO
system, or a wet scrubber combined with an RTO system. PCA estimates an ACt system can capture 50%
of total hydrocarbon emissions. The EPA estimates the emission capture at 75%. The addition of an RTO
system, increases hydrocarbon capture 10 95%, compared to 96% estimated by the EPA. An RTO's
emission capture cannot be guaranteed at emission rates below 10 ppmv regardless of inlet THC
Particulate Matter (PM) Emission Control Assumptions (NESHAP and CISWI)
The butk of particulate mailer emission control is likely to occur through the use of bag houses and
enhancements to existing bag houses. Bag house systems capture nearly all particulate matter emissions.
peA accepts EPA's estimate of 99.9% emission capture.
Hydrochloric Acid (HCl) Emission Control Assumptions (NESHAP and CISWI)
The bulk of hydrochloric acid emission control is likely to occur through the use of wet scrubber systems.
PCA and EPA agree that wet scrubber systems will likely capture 99.9% of all hydrochloric acid emissions.
PCA notes that EPA has not considered that the capture of mercury in a wet scrubber may result in the
added concentration of mercury in the by-products generated by wet scrubbers. EPA has also not
considered that many plants do not have availability of water to supply a wet scrubber system.
Sulfur Dioxide (SO,) Emission Control Assumptions (CISWI Only)
Several strate9ies could be employed to address SOx emissions includin9 the use of wet scrubber
systems, lime injection and hydration systems, as well as calcinatory stip steam systems. PCA assumes
the bulk of sulfur dioxide control is likely to occur throu9h the use of wet scrubber systems. PCA assumes
that wet scrubber systems will likely capture 80% of all sulfur dioxide.
Nitrogen Oxide (NO
) Emission Control Assumptions (CISWI Only)
The bulk of nitrogen oxide emission control is likely to occur through the use of selective non-catalytic
reduction systems (SNCR). PCA assumes that SNCR systems will capture at most 50% of all nitrogen
oxide emissions. It should be noted, the perlormance of an SNCR system is very variable, almost as
variable as the pyroprocessing systems on which they are installed. NO, reduction is dependent on how
much NO, emissions is generated. The more NO, available, the more efficient is the NO, reduction
process. In a perverse way. a plant with relatively low NO, may have less reduction than a plant with a
higher NO,.
Carbon Monoxide (CO) Emission Control Assumptions (CISWI Only)
The bulk of carbon monoxide emission control is likely to occur through enhancements to burner systems
and strict adherence to good combustion practices. PCA assumes that these enhancements will likely
capture 99% of all carbon monoxide emissions.
Dloxin/Furan (D/F) Emission Control Assumptions (CISWI Onty)
The bulk of dioxin/furan emission control is likely to occur by achieving cooler exhaust temperalures to the
kiln system air pollution control devise (APCD), or bag house. Enhancements to ACPD design including
the use of ACI will likely capture 99% of all dloxin/furan emission.
lead (Pb) Emission Control Assumptions (CISWI Only)
The bulk of lead emission control is likely to occur through the use of ba9 houses and enhancements to
existing bag houses. Bag house systems capture nearly all lead emissions. PCA assumes 99% of all lead
emissions are captured.
Cadmium (Cd) Emission Control Assumptions (CISWI Only)
PCA's search for cadmium emrssions data for cement kilns was more than ten years old and covered only
13 plants. Analysis of cadmium emissions, therefore has been omitted from this report. It is likely that the
bulk of cadmium emission (99%) will be captured through the use of bag houses and enhancements to
existing bag houses. Since nearly all CISWI plants will require investment in bag house systems to capture
other emissions, omission of Cadmium in this analysis is unlikely to result in any significant skewing of the
Industry Capital Costs to Comply with EPA Emission Standards
Total industry investments to comply with NESHAP standards are estimated at $3.4 billion and an
additional $2.0 billion to comply with CISWI.
No cement plant in the United States can currently meet all NESHAP and/or CISWI standards
simultaneousiy. As a result, all cement plants will require investment in emission capture systems. PCA
employs EPA and PCA kiln and plant emission information to determine whether a plant must expend
capital to reach compliance.
The emission standards differ between NESHAP and CISWI. The standards use different measures for
compliance limits. All emission data by plant, used in this report were sourced from one of several sources
including: (1) EPA's ISIS model used for NESHAP, (2) EPA's National Emission Inventory database, (3)
PCA SN3046 - Air Emissions Data Summary for Portland Cement Pyroprocessing, (4) PCA SN3050 - Air
Emissions Data Summary for Portland Cement Pyroprocessing Operations Firing Tire-Derived Fuels, (5)
PCA's annual Labor/Energy Input Survey. Units of measurement for the toxic air pollutants available from
these various sources often did not map directly to CISWI and/or NESHAP emission limit units, therefore
conversions were required. For mercury (Hg) emissions, PCA used the EPA plant-by-plant study on Hg
omissions from the cement industry, reflecting 2006 information. (EPA: The Toxics Release Inventory (TRI)
2006)5. A follow-up study was performed reflecting 2007 information for some 50 cement plants. Historical
benchmarks on plant-by-plant Hg emissions reflect the most recently available data for each plant.
On a plant-by-plant basis, PCA employs a matrix solution that accounts for the plant's emissions of THC,
Hg, HCI, PM, NOx, SOx, D/F, Pb and CO and employs PCA technology emission capture assumptions to
determine which emission systems must be employed at the plant to comply with EPA standards. A plant
with extremely high levels of Hg, HCI, and SOx, for example, would likely be forced to invest in an ACI-wet
scrubber system. Investment in the ACI-wet scrubber system to comply with mercury emissions, for
example, would presumably also take care of their HCI emissions at the same time. This investment for
mercury control would also reduce SO, emissions by 60%. Double counting of systems required for
compliance is eliminated through this process. Each plant is carefully assessed using this methodology.
For the NESHAP plants, PCA estimates that 90% cement plants will be forced' to invest in bag houses to
meet particulate mailer standards. This includes investments to existing bag houses and in some cases
the construction of new bag houses. To comply with the combined Hg, THC, PM, and HCI standards, PCA
estimates that 9% of all plants will be required to invest in a stand-alone wet scrubber system, 75% of all
plants will be required to Invest in ACI systems, 20% of all plants will be required to invest in wet scrubber-
ACI systems, and 65% of all plants will be required to invest in RTO systems. The methodology used to
arrive at these estimates may differ from estimates Indicated elsewhere in other peA comments.
For the CISWI plants, PCA estimates that 67% of all CISWI cement plants will be forced to invest in bag
houses to meet particulate maller, lead and cadmium standards. This includes investments to existing bag
houses and in some cases the construction of new bag houses. To comply with the combined Hg, SOx and
HCI standards, PCA estimates that 22% of all piants will be required to invest in a stand-alone wet scrubber
system, 62% of all plants will be required to invest in wet scrubber-ACI systems. To meet NOx standards
5 EPA: The Toxies Release Inventory (TRI) 2006
22% of all plants will be required to invest in SNCR systems. To meet carbon monoxide standards 39% will
be required to invest in burner systems.
PCA capital cost estimates for each emission control system are based on survey information from cement
companies as well as equipment manufacturers and based on an average 1.2 million ton dry kiln cement
plant with a pre-calciner and a pre-heater. Adjustments to this information are made to account for
differences in the type of plant, such as a long dry or wet kiln. PCA assumes a 29% emission equipment
installation cost premium for long dry kilns and a 143% cost premium for a wet kiln. Adjustments to this
information are also made to account for size differences among plants.
This survey information reflects current estimated investment costs on emission systems. This informalion
contains significant upside risk In the context of likely market conditions facing emission equipment
suppliers. The cement industry will be mandated to install a massive amount of emission control equipment
to comply with both NESHAP and CISWI. This equipment must be in-place within three years for NESHAP
compliance and five years for CISWI compliance. There are a limited number of emission control
equipment suppliers. Keep in mind, while there are 30 or more emission equipment suppliers only 6-8 are
cement kiln emission focused. Demand for their services from the cement industry will increase
dramatically. A premium will likely be placed on the urgency to install the systems over a short period of
lime. This dynamic is likely to be amplified as the overali economy regains traction. The likely outcome Is
an escalation in the costs of these systems. A 10% to 20% premium over existing costs is possible. PCA
assumes a 15% increase over the survey information. Please note that these adjusted equipment cost
estimates differ from the current equipment cost estimates indicated elsewhere in the PCA comments.
Based on these adjustments, PCA's estimates for a 1.2 million ton dry kiln with a pre-calciner and pre-
heater are as follows:
• Bag house System =$9.2 million
• Activated carbon injection (ACI) =$17.5 million
• Wet Scrubber System =$22.1 million
• ACt system combined with a wet scrubber system =$39.6 million
• Regenerative thermal oxidizer system (RTO) =$20.2 million
• RTO system combined with a wet scrubber system =$42.3 million
• Selective cataly1ic reduction systems (SNCR) =$ 8.5 million (wet kiln), $3.5 million (dry kiln).
• Burner Enhancements =$ 1 million
U.S. cement industry will be forced to spend billions of dollars to comply. Six plants would be forced to
spend in excess of $100 million to reach compliance. Total industry investments to comply with NESHAP
standards are estimated at $3.4 billion. Total industry investments to comply with CISWI standards are
estimated at $2.0 billion ($5.4 billion for total NESHAP and CISWI compliance).
Industry's Financial Ability to Comply with NESHAP Emission Standards
Large compliance expenditures are magnified in the context of the short compliance time horizon of
three to five years. Further, this expenditure comes at a time when the financial ability of the
Industry to meet these investment requirements has been greatly reduced by current economic
The cement industry is still in the midst of aggressive investment in domestic capacity to modernize and
expand its kilns. The commitment to these investments were made in response to domestic shortage
conditions that materialized during 2003-2006, an understanding that dependence on the free flow of
foreign supply is dictated by uncertain international logistic conditions surrounding dry bulk carriers thereby
impacting freight rates, and in recognition of the long-term demographic trends that suggest slrong demand
requirements in the United States. Furthermore, the $6.7 billion commitment to expand and modernize in
the domestic industry was undertaken before the current economic hardships were clearly understood.
Capitalization and financial commitment to many of these projects are already in-place.
Furthermore, harsh demand conditions currently face the industry. Since 2005, cement consumption
declined by 59 million metric tons - or roughly 46%. With the slower than expected economic recovery,
these conditions are unlikely to abate soon. Utilization rates are likely to remain near 60% through 2012
and hence the industry's financial perfomnance will remain depressed.
The EPA's short three year compliance period for NESHAP suggests that compliance investments must
begin soon. PCA estimates total 2009 cement industry revenues at less than $6.5 billion. For 2010-2012,
total industry revenues are eslimated at $19 billion. The $3.4 billion in investment required to comply with
NESHAP standards equates to more than 18% of industry revenues accumulated during the years
preceding NESHAP compliance (2010-2012).
Investments to comply with CISWI standards do not have to be in-place until 2015. The $2.0 billion in
investment required to comply with CISWI standards equates to more than 6% of industry revenues
accumulated during the years preceding CISWI compliance (2010-2014). This assessment assumes a
substantive recovery in cement consumption materializes in 2013 and beyond.
The combination of the industry's pre-existing financial commitment to provide reliable and efficient supply
of cement to the U.S. market, coupled with sustained harsh economic and financial realities may overwhelm
the industry's financial capability to comply with the NESHAP and proposed CISWI standards.
Forced Cement Capacity Closures Due to NESHAP and CISWI Emission Standards
NESHAP standards will force 18 cement plants to close, perhaps more.
NESHAP emission standards will force cement plants to close beginning in 2013. Closures are expected to
come in two forms. First, some plant's emissions are sufficiently high that even with the installation of
emission capture systems they will not be able to meet NESHAP standards. Second, even if a plant can
technically meet the NESHAP standards, the compliance investment required may not be justified on a
financial basis. In either case, PCA assumes closure of the plant.
PCA estimates that 18 plants could be forced to close due to the inability to meet NESHAP or CISWI
standards or because the compliance investment required may not be justified on a financial basis. These
closures represent roughly 11 million metric tons of clinker capacity, or roughly 12% of current capacity. Of
these plants, 7 burn alternative fuels and would be subject to CISWI standards. Each of these alternative
fuel burning plants would require at least as much compliance investment to meet the more comprehensive
and harsher CISWI compliance. These 7 alternative fuel burning plants are assumed to be shut down in
2015 when CISWI enforcement begins. An addilional 3 plants, reflecting 2.5 mJIIlon tons of clinker capacity,
are at high risk of closure. These high risk plants are assumed to continue to operate.
Unfortunately, the process of plant closures confronting tight emission standards may have already begun.
Since August 2006, seven plants, with an estimated annual capacity of nearly 4 million metric tons, have
been announced for permanent closure. Undoubtedly, the harsh recession contributed to the decision to
close these plants. Weak cyclical demand conditions, however, would likely dictate temporary - not
permanent closures. It is likely that the prospect of tight emission standards, coupled with expectation for a
slow recovery in demand, contributed to decisions to permanently close these plants. According to ISIS
model runs, each of these plants would have been forced to close under the EPA's NESHAP standards.
These plants are not included in PCA's estimate of NESHAP closures. If included, NESHAP expected
closures would equate to 25 plants and 15 million metric tons. These plant closures include:
Recent Permanent Plant Closures
Buzzi Unicorn: Independence, Kansas Cem.x: Davenport. California
0 Capacity: 324.000 metrfc tons annually 0 Capacity: 642,000 metric tons annuany
Employmenl estimated at 108 workers 0 Employment estimated at 114 wor\(ers
Essroc: Frederick, Mary1and ESlroc: a.sumor, Pennsytvanla
0 Capaclly: 308.000 metric Ions annually 0 Capacity: 605,000 metric Ions annually
0 Employment esUmaled al 82 wor1cers 0 Employment estimated at 111 workers
Holclm: Claritsvill•• Missouri Holclm: Dundee, Michigan
0 Capacity: 948.000 metric tons annually 0 Capadly: 830,000 melrlc tons annually
0 Employment estimated 01164 wor1<:et'$ 0 Employment eshated at 155 workers
Texas Industries: Riverside, CalifornIa
0 Capaclty: 86.000 metric tons annually
0 Employment estimated at 88 workers
Compliance Scenario: Impact on Alternative Fuel Practices by the Cement Industry
C/SW/ standards will force two thirds of all cement plants to eventually discontinue the use of
alternative fuels.
CISWI emission standards will force cement plants to opt between compliance or discontinue alternative
fuel usage. The decision to discontinue the use of alternative fuels is expected to be based on two factors.
First, some plant's emissions are sufficiently high that even with the installation of emission control systems
they will not be able 10 meet CISWI standards. Second, even if a plant can technically meet the CISWI
standards, the compliance investment required may not be justified on a financial basis. In either case, PCA
assumes the discontinued use of alternative fuels.
According to PCA's Labor/Energy data, sixty one plants used alternative fuels in their kilns on a sustained
basis during 2006-2006. Of these, 16 plants' alternative fuel usage accounted for less than one percent of
their total fuel consumption. Since the alternative fuel reliance of these plants are relatively small, each of
these plants are assumed to discontinue burning alternative fuels rather than incur CISWI compliance
Among the remaining 45 plants that burn alternative fuels, PCA estimates that 18 plants could be forced to
disconlinue the use of alternative fuels due to the inability to meet "existing facilities· CISWI standards or
because the compliance investment required may not be justified on a financial basis. Fifteen of these
plants discontinue the use of alternative fuels due to financial criteria. An additional three of these plants
cannot meel"existing facilities" CISWI emission standards based on assumptions regarding existing
technology and the ability to capture emissions.
Keep in mind, 24 of the 45 cement kilns covered by CISWI are at least 35 years old and may require
substantial investment and modification to insure efficiency and remain "world-class" competitive. Such
investments could resull in existing plants being reclassified as new sources and subject to more severe
emission standards. Given this, the technical ability to meet the CISWI standards as well as industry
compliance costs could be underestimated if this impact is not taken into consideration. PCA assumes that
all plants require a major upgrading or maintenance investment wilhin 35 years of initial plant launch. This
suggests that all plants commissioned before 1985 could be subject to a major reinvestment - and could
resull in an EPA reclassification of the plant as a "new source· within five years after the CISWI standard
has been imposed. These 24 plants represent nearly 25 million metric tons of capacily.
Cement Plants Burning Alternative Fuels
2015 2025
Total Cement Plants Burninq Allernative Fuels in 2010 61 61
Less: Marqinal Burners 16
Less: Failure to Meet CISWI "Existinq Facilities" 3
Less: Failure to Meet ROI under CISWI "Existinq Facilities" 15
Less: Failure to Meet CISWI "New Facilities" 7
Total Cement Plants Burninq Alternative Fuels 27 20
Percent Reduction 55.7% 67.2%
Source: PCA
Plants originally commissioned during this time period, but which have had significant capaclly changes
have been excluded from this analysis. Even with no new greenfield plants, our analysIs suggests the
emission standards facIng the industry will be essentially tightened as the industry pursues normal
investment to maIntain efficiency and competitiveness. For nitrogen oxide (NO,l, as an example, the
effective CISWI emission standard Is lowered from 1,100 ppmv to 140 ppmv by 2020 - representing a
dramatic tightening of the standard facing Ihe industry. Among those commissioned before 1985, PCA
estimates an additional 7 plants will discontinue burning alternative fuels.
Compliance Scenario: CISWI Impact on Scrap Tire Stockpiles
CISWI will dramatically increase the number of tires in landfills.
Three hundred and eleven million scrap tires were generated in 2009 according to the Rubber
Manufacturers Association (RMA). The amount of tires scrapped annually is determined by the number of
vehicles on the road and vehicle miles travelled. Historically, 1.24 tires annually are scrapped per vehicle on
the road. Based on United States Census projections of population growth, licensed drivers and the
number of vehicles per driver, PCA estimates the number of scrap tires produced annually will increase by
an average of roughly 2.8 million each year - reaching over 356 million scrapped tires per year by 2025.
Scrapped tires are used as alternative fuel, used in products, or placed in landfills. Since 2005, roughly
55% of scrapped tires were used as alternative fuels, 33% used in other products and 24% placed in
landfills. Totaling Ihese uses equates to 112% and is explained by a reduction in stockpiled tires. In 2005,
stockpiled tires were estimated at 188 million by the RMA. PCA estimates 2009 stockpiles at 125 million
The cement industry is the largest consumer of tire derived fuel (TDF), utitizing nearly 60 million tires
annually and accounting for nearly 40% of all scrapped tires used as fuel. Recent adverse economic
condilions has forced a decline in domestic cement production, and as a result, prompted a temporary
cyclical decline In TDF consumption by the cement industry. As the economy recovers, cement production
and its consumption of TDF will recover.
The recovery in consumption of TDF, attributed to stronger production levels, is expected to be
supplemented by changes in cement kiln fuel characteristics In the years ahead - favoring alternative fuels.
A gradual and sustained recovery in world economic conditions leading to synchronized world growth is
expected to emerge In 2013 and beyond. Much of this growth will be fueled by conditions among lesser
developed economies. Indeed, the Energy Information Agency (EIA) expects world economic growth will
average 3.2% during 2010-2030. In Ihe context of these world growth conditions, it is likely that oil prices
will record sustained gains. Indeed, the Energy Information Agency (EIA) expects oil prices will reach $105
per barrel in 2015, $132 per barrel in 2020, and $156 in 2025. Given Ihese increases and potential
substitution effects, all fossil fuel prices, Including coal, are expected to Increase. PCA uses EIA fuel price
projections. Lacking EIA guidance, PCA employs rough cross-elasticity of demand estimates to project
other fossil fuel prices.
Alternative fuel prices beat to a different drummer. While these fuels are influenced by overall fuel prices,
supply of these fuels are dictated by producer and consumer activity of end-products, such as tires. The
disparity In price drivers between fossil fuels and alternative fuels suggests a change in the relative fuel
costs - favoring alternative fuels. Such a potential implies an Incentive for change in kiln fuel
characteristics in favor of alternative fuels at the expense of coal.
PCA estimates the current average fuel cost differential between primary and alternative kiln fuels at
roughly $15 per ton. As fossil fuel prices Increase, the cost differential margin will Increase to an estimated
$16 per ton in 2015, $18 per Ion in 2020, and $20 per ton in 2025. The potential widening in price
differentials between primary and alternative kiln fuels suggests cement companies will increasingly rely
upon alternative fuels. This point has been borne out by long term trends in cement kiln alternative fuel
usage. Keep in mind, use of alternative fuels also reduces greenhouse gas emissions.
Based on the likelihood of the eventual widening in the differential between primary and alternative cement
kiln fuels, PCA expects alternative fuel usage will increase in proportion to primary fuels. In 2008,
alternative fuels accounted for nearly 11% of total cement kiln fuel consumed. This share is expected 10
reach 12% in 2015, nearly 15% in 2020, and nearly17% in 2025. These gains are expected 10 come at the
expense of coal.
With the economic slowdown resulting in production declines, TDF usage for all industries Is expected to
decline. This suggests the proportion of lires going into landfills will increase and the stockpile of scrapped
tires will increase as well. PCA estimates the stockpile of tires will increase from 188 million tires in 2005 to
246 million tires in 2010, with further increases in tire stockpiles materializing as long as industrial
production remains depressed - reaching a cyclical peak of 392 million tires in 2015. Sustained declines in
tire stockpiles are expected to materialize dUring 2015-2025, reducing stockpiles to 311 million tires in
2020, and 126 million in 2025. The cement industry's consumption of scrapped tires plays an important
role in reducing the scrapped tire stockpile. According to this scenario, existing cement kilns using TDF
continue - allowing 63 million scrapped tires to be consumed by the cement Industry in 2015, 68 million in
2020, and nearly 78 million in 2025.
P C ~ ~ ; .
~ ~ _ ......._....-
Total Scrap TIres in Stockpiles
• I
~ - - - - - - -
CISWI rules would significantly reduce the amount of scrapped tires consumed by the cement industry.
Under CISWI, PCA estimates cementlnduslry scrapped tire consumption would decline to 27 million tires in
2015 and roughly 20 million tires annually during 2020-2025. Holding all other assessments Included in our
baseline analysis constant, scrapped tire stockpiles would reach 358 million tires In 2015 nearly 534 million
Iires in 2020, and more than 600 million tires In 2025. The CISWI standard potenlially reverses decades of
environmental cleanup success and EPA support for using TDF as a fuel.
Compliance Scenario: "New Source" Emitters
EPA's regulatory standards are not static - they are dynamic and are designed to become ever
more difficult to meet as time passes.
EPA's regulatory standards are not static -they are dynamic and are designed to become ever more
difficult to meet as time passes. This is accomplished by a set of standards for existing sources and much
more rigorous standards for new sources. EPA's NESHAP and CISWI standards emission limits, for
example, are considerably more severe for new sources than existing sources. New greenfield plants
commissioned after 2013 are subject 10 the new source emission standards. Major modifications to

- . -----=--" -- --
Capacity/Ige Distribution
Percent of Total capacity/200BI

NESHAP & CISWI Stand3'ds lOf
EJUSt'''g Regulal on
more f1ild sources·
P,.t950 19SO.. 1960's
\'\'t!( 137 M\4T
0",; 63 7 MMT
1970'$ 1910's or II.
existing plants could force, or "trigger", a reclassification of the plant from an existing source to a new
source - potentially requiring further compliance investment for cement plants. Similarly, the New Source
Performance Standards (NSPS) and the Clean Air Act's Tailoring Rule contain an investment'trigger"
prompting compliance investment.
Keep in mind, 63% of all cement kilns are at least 30 years old and may require substantial investment and
modification to insure efficiency and to remain 'world-class' competitive. Such investments could result in
existing plants being reclassified as new sources and then subject to more severe emission standards.
Consequently, the technical ability to meet EPA standards, as well as industry compliance costs,. could be
underestimated If this impact is not taken into consideration. PCA assumes that all plants require a major
kiln investment within 35 years of initial plant launch. This suggests that all plants commissioned on or
before 1990 could be SUbject to a major reinvestment during the forecast horizon - and result in an EPA
reclassification of the plant as a new source. This represents 33 plants. According to this methodology, 15
plants would have to engage in major investment by 2015, representing nearly 14.5 million metric tons, 14
plants by 2020 representing 14 million metric tons, and 4 plants by 2025 represenling 3.3 million metric tons
of capacity. Plants originally commissioned during this time period, but which have already had significant
capacity changes have been excluded from this analysis. Even with no new greenfield plants, our
analysis suggests the effective emission standards facing the industry will be tIghtened as the
industry pursues normal investment to maintain efficiency and competitiveness.
New source triggers are particularly alarming and could lead to dacisions to abstain from necessary
competitive investments that have always been on-going and, most recently done at an aggressive pace.
In some ways the "new source" trigger provisions send a clear signal to cement producers not to invest to
remain world-class competitive. Keep in mind, large mullinatiOlial companies dominate ownership of the
United States cement industry. Within a mullinational company, each geographic region, such as the North
America, competes for scarce corporate Investment dollars (expanding cement capacity is extremely
expensive - a two million metric ton plant now costs upwards of $600 million). The rate of return on
investment for new capacity in the United States is compared against returns in other countries. The new
source provisions could reduce expected returns on investments in the United States and contribute to
corporate decisions to pursue other options to source the United States cement market.
Compliance Scenario: New Source Performance Standards (NSPS)
New source designations will likely deter investment to remain world-class competitive or force
additional plant closures.
The EPA's New Source Performance Standards (NSPS) are aimed at "progressively tightening emission
standards over time to achieve steady improvement in air quality without unreasonable economic
disruption. This is accomplished by mandating significant improvement in source emitters when they make
a substantive investment in plants to modernize to remain competitive. In other words, re-investment in
domestic production facilities will trigger NSPS compliance. For the cement Industry, the NSPS
targets three key emissions including nitrogen dioxide (NOx), sulfur dioxide (SOx) and particulate mailer
(PM). The EPA's NSPS requires "new source" cement emitters to comply to:
• NO, emissions at 1.5 pounds per ton of clinker.
• S02 emissions at 0.4 pounds per ton of clinker.
• PM emissions at 0.01 pounds per ton of clinker.
These standards require cement plants to comply with these standards when modernizationflnvestment
results in an hourly Increase In NO" S02 or PM emissions. If there is no increase in hourly emissions from
the modernization/investment, then the NSPS standards have no impact on cement producers' overall
emission compliance strategy.
Unfortunately, many of the older plants that will require modernization investment during the forecast
horizon are characterized by smaller sized kilns. According to peA's Plant Information Survey report, the
average kiln size requiring modernization investmf!nts during the forecast horizon is 760,000. This
compares against an average of 1.8 million metric tons for kilns buill between 2000-2010 (950,000 metric
tons if one massive new plant is excluded from the calculation). Larger kiln sizes, due to the economies of
scale, lowers per ton fixed costs under -norma'" operating conditions (greater than 80% utilization rate).
These lower costs can improve a planVcompany is regional competitiveness, with some of the potential
cost savings passed onto users of concrete for the construction of residential, nonresidential and public
structures. Given the existing trends to lower fixed costs via larger kiln sizes, it is likely that any major
modernization investment at a cement plant will resull in an increase in hourly emission rates of NO" SO,
and PM.
Assuming the typical modernization investment palterns are extended into the future, PCA believes that all
34 plants requiring modernization investment during the forecast horizon will be forced to comply with
NSPS standards. Compliance with NSPS standards will require investment in bag houses to meet
particulate matter emissions standards, SCNR systems to meet NOx emissions standards, and wet
scrubber systems to meet SO, emission standards. In most instances, these systems may already be in
place due to NESHAP (PM) and/or CISWI standards (PM, NOx, Sax).
New Source Performance Standards (NSPS)
Existing New Source NewSource New Source
PM 0.04
0.24 0.01
Sources: Federal Register: V7511174. V75#JD7
Note: CISWlstandords Ofe tsllmoted can'lerslons bosed on general volumetric emissions. stack moisture, and oxygen It'IIeIJ
PCA assumes that plants with specific emission control equipment already in place to meet "existing
source" NESHAP and CISWI standards, but that cannot meet the more rigorous new source standards, will
delay modernization investments and let the plants run as long as they remain viable. As tong as strong
demand conditions prevail, these plants coutd remain open throughout the forecast horizon. This possibility
is heightened in the context of PCA assessments regarding the fly ash ruling. A moderate recession
prompting sub-80% utilization rates, however, could necessitate a closing of these plants - some
The key result of the NSPS and new source initiatives is to thwart modernizalion investments in the cement
industry. Such investments during the past ten years have been responsible for sustained improvement in
energy use, emissions and production costs - resulting in a 20% reduction in high carbon fuel consumption,
roughly a 6% reduction in emtssions per ton of clinker, and cement prices that have remained remar1<ably
stable (absent the cement shortage era that was promulgated by easy lending standards and the indUStry's
dependence on imports). NSPS could increasingly hinder modernization investments diminishing these
future beneficial trends.
NESHAP's, CISWI's and NSPS's tighter "new source" emission standards can be triggered by major
investments/modernization to existing facilities. If nonmal modernization/investment strategies were
pursued, however, additional cement plants would face closure. The "new source" standards are
significantly tighter than "existing source" standards. This could force the 33 older plants, which would
normally be subject to investment during the forecast horizon to consider investing or close. If normal
modernization/investment strategies are not pursued to remain world class competitive it could
eventually lead to an additional 4 plant closures representing another 3.4 million metric tons of
capacity. This estimate is not included in PCA's compliance scenario estimates.
Compliance Scenario: Clean Air Act Tailoring Rule
The EPA's exercise of the Clean Air Act (CAA) with regard to C02 emissions targeted at the cement
industry could be interpreted as a tacit first step in climate change regulation. Effeclive in 2011 for all plants
that emit at least 100,000 tons of greenhouse gases (GHG) per year, any major investments resulting in a
75,000 ton increase in GHG emissions will be required to invest in "best available control technology"
(BACT) to limit C02 emissions.
The production of cement results in C02 emissions. For every ton of cement produced, roughly 0.9 tons of
C02 is emitted. The emission of C02 arises from two sources, namely process emissions and combustion
emissions. Process related emissions from cement production are created through a chemical reaction that
converts limestone to calcium oxide and C02. The quantity of process-related emissions from cement
production is proportional to the lime content of the clinker. These emissions generated during the
calcination process are naturally occurring and as a result BACT compliance has no impact. These
emissions account for 55% of C02 emissions released In the manufacture of one ton of clinker.· The
remaining C02 emissions are generated by fuel combustion.
Given the existing trends to lower fixed costs via larger kiln sizes, it is likely that any major modernization
investment at a cement plant will result in an increase in production and hence an increase in C02
emissions in excess of the Tailoring rule thresholds, This implies that all 33 plants requiring a major
investmenVmodernization during the forecast horizon will be subject to the Tailoring Rule. There are a
multitude of processes and equipment that can be combined to reduce C02 emissions. These key "best
available control technology" (BACT) to limit C02 combustion emissions generated during the manufacture
of cement focused on in this report include;
• Conversion from the wet process to the dry process, which is significantly less energy intensive
• Installation of pre-heaters and pre-calciners, thereby Improving energy efficiency and reducing
• Substitution.of lower carbon content fuels (natural gas) for coal, coke and petroleum coke, an
alternative fuels..
• Greater use of limestone in the grinding of cement, thereby reducing the C02 content per ton of
Major investments trigger compliance with the Tailoring Rule. The industry is already aggressively pursuing
the conversion of its capacity from the wet process to the dry process. It is unlikely that any major
investment In a wet kiln will materialize, hence there will be no trigger for the Tailoring Rule. The wet kiln
process is an older process and is typically less energy efficient.
During the past two years, the phase-out
• CO Emissions Profile of the U.S. Cementlnduslry, Lisa J. Hanle, U.S. Environmental Protection Agency
7 Note: the last wet kiln was installed 35 years ago.
of wet kilns has accelerated - reducing wei kiln clinker capacity by nearly 5.6 million metric tons. In the
context of current economic distress, the potential for higher energy prices in the future, the accelerated
pace of wet kiln retirement is expected to continue. This suggests that cement producers will maintain
the operation of wet kilns and let the plants run as long as they remain viable, but will not invest in
these plants.
More than 80% of all dry cement kilns use pre-heaters and pre-calcinators to save on energy consumption.
It is likely that older dry kiln plants among the 33 likely to require inveslment during the forecast horizon are
characterized by a smaller presence of these devices. In the context of rising energy prices it is likely that
all kilns will install pre-healers and pre-calciners at a time of major investment - with or withoul the Tailoring
Perhaps the most significant impact the Tailoring Rule could exert on costs comes in the form of the
possible substitution of lower carbon content fuel,; (natural gas) for coal, coke and petroleum coke. In order
to determine the change in production costs resulting from a change in fuel types, fuel input cost data from
the Energy Information Agency was used to determine that natural gas cosl almost 140% more than coal
on a equivalent BTU basis. As a resull, PCA has assessed that the cost per ton of clinker production would
increase nearly 12% if the industry were to switch from coal as a kiln fuel source to natural gas·.
Other EPA Regulations Impacting the Cement Industry
The EPA has also initiated new standards regarding greenhouse gas reporting and the National Ambient
Air Quality Standards (NAAQS). While each initiative could impact cemenl production costs. In the context
of NESHAP, CISWI, NSPS and the Tailoring Rule, these initiatives are believed to represent less of an
immediate threat to the industry and are not addressed in this report.
EPA Regulations' Impact on U.S. Imported Cement Projections
The increase in cement consumption resulting from the fly ash ruling, combined with the reduction
in cement capacity due to NESHAP/CISWI will force increased reliance on imporls to maet expected
future consumption. Imporl share is expected to reach 32% in 2015, 47% In 2020 and nearly 56% in
2025, compared to roughly 9% estimated In 2010.
Compared to the baseline scenario, cement consumption estimates increase under the compliance
scenario due to the fly ash ruling, adding 16 million metric tons to cemenl consumption in 2015,20 million
metric tons in 2020, and 23 million metric tons in 2025. With the forced closure of domestic plants due to
NESHAP emission slandards, an increased reliance on cemenl imports is expected to materialize. PCA
eslimales import share is expected to reach 32% in 2015, 47% in 2020 and nearly 56% in 2025, compared
10 roughly 9% estimated for 2009. These share eslimates reflecl volume estimates of 36 million metric tons
in 2015, nearly 62 million metric tons in 2020, and 82 million metric tons in 2025. The current U.S. import
terminal capacity is estimated at 45 million metric tons.
• This calculation is based on the conversion rate of relative fuel BTU costs and its impact on clinker costs implied in
the study "Fuel Switching from Coal to Natural Gas - California Portland Cement Industry", Environ International
Corporation, August 22, 2008.
Compliance Scenario
2005 2010 2015 2020 2025
US Cement Industry
us Cement Consumption (000 Ions) 128,035 68,879 127,397 151,229 170,833
US Clinker Capacity fOOD tons) 94,693 96,877 97,874 95,604 95604
US Production fOOD Ions1 89,981 58286 85,976 83508 83,186
Imports (000 tonsl 27,305 5,900 36,000 62 ,000 82,000
Tolal Fuel Consumption (billion BTU. bblu) 341,999 237,896 343,904 334 033 332,746
Primarv Fuel Consumption (bbtu) 307,009 211,345 315,750 316091 314,113
Alternative Fuel Consumption Cbbtul 34,969 26,551 18,359 15,942 18633
Alternative Fuel Plants (AFPI
CaoacitvalAFPCOOOtonsl 46209 49,923 22,465 22,465 20,219
Productipn al AFP fOOO Ions1 46209 49,923 22.003 21,959 19,737
Total Fuel Consumption Cbblul 177,964 120,146 194.555 191,956 191 220
Primary Fuel Consumption fbbtu) 142,995 94,125 176196 176.016 172,567
Planl Alternaliye Fuel Consumption Cbbtu) 34969 26,021 18,359 15,942 18,633
Plant Tire Derived Fuel Cbblul 12,143 8,567 5.759 4,532 4,796
Scrapped Tires Consumed (millions) 58 39 27 21 20
Scrapped Tire Stockpile Cmillions)· 168 246 358 534 604
Flv Ash
Flv Ash Production 71,100 65,568 71,520 73,632 75.616
Beneficial Use Consumption 29,116 27,392 0 0 0
Concrete Consumption 14,504 8,698 0 0 0
Cement Kiln Consumption 2834 3,017 0 0 0
CemenVConcrete Share of Beneficial Use 59,6% 43.5%
-- -
Estimated Landfill 41,982 36,176 71,520 73,632 75,616
Sources: PCA, USGS, Various EPA emissions documents.
Note: No credible Cadmium emissions data for cement kilns could be found and is omitted from analYsis.
Impact on Global Emissions
A significant portion of the improvement in emissions due to EPA regulations comes from plant
closures, Displaced domestic production implies an increase in foreign production and higher
emissions in those countries. The EPA standards effectively export our emissions to cement
supplying countries.
Absent global cement plant emission standards, the improvement in global emissions arising from EPA
policy is limited to the Improvements attributed to the implementation of emission controls at U.S. cement
plants and plant closures. Since U.S. cemenl plant ctosures necessilate an increase in imports, the
potential policy impact of NESHAP emission standards is to export the emission 10 foreign cement
producing countries which have more relaxed emission standards than those proposed under NESHAP.
Indeed. global emissions associated with cement manufacture are likely to increase due to EPA
regulations. Removing fly ash from concrete mixes, for example, increases cement production, either
domestically or in foreign source countries or both. The extent to which the corresponding emission
increases are realized in the United States depends on further investment in United States cement
capacity. World-wide emissions arising from increased cement production will be a result of the fly ash
ruling. If the additional cement is not produced in the United States. II will be produced elsewhere and the
emissions associated with additional cement production will be released.
EPA Regulations Impact on U.S. Construction Costs
EPA regulations could add $2.4 billion to nearly $4 billion in annual construction costs.
The average costs associated with the cement industry's compliance to EPA regulations could Increase
domestic production costs by $22 to $36 per ton. Keep in mind, the increase in costs by a particUlar
cement plant will depend on its designation as a CISWI or NESHAP plant, the composition of current
emissions and the need for compliance equipment, its use of fly ash In its kiln, and dependence on coai
fired utilities for electricity. Wide variations in cost increases from EPA regulations among cement
producers could exist. This assessment includes;
• Capital costs associated with compliance investments dispersed over a 15 year time horizon,
• Annual operating associated with compliance systems.
• The increase in fuel costs for plants forced 10 stop burning cheaper alternative fuels.
• The increase in kiln costs associated with the replacement of fly ash by limestone,
• The increase in costs associated with the replacement of fly ash In concrete by cement,
• The increase in electricity costs associated with fly ash's hazardous waste designation,
• The possible substitution of lower carbon content fuels (nalural gas) for coal, coke and petroleum
coke due to the Tailoring Rule.
Using a five year average of cementitious material intensities, out of every one million real1g96 dollars of
construction activity, roughly $14,500 is attributed to cementitious material costs. Prior to the recession's
collapse of construction activity, the construction market was averaging roughly $750 billion in real
construction spending. This translates into roughly $11 billion In cementitious material spending. Cost
increases resulting from EPA regulation could increase cemenVconcrete construction costs between 22%
to 36% per construction project. This translates 10 an estimated $2.4 billion to $3.9 billion (rea/1996 $) in a
'typical' $750 billion construction market.
The largest consumer of cemenVconcrete is the public sector. accounting for 50% of cement consumption.
High cement consuming public construction efforts include new highways, bridges, schools, public buildings
as well as water, sewer and conservation projects. Of public construction activity, more than 90% is
undertaken by state and local governments. PCA estimates that EPA compliance costs could add as
much as $1.2 to $2 billion annually to state and local governments' expenditures just to maintain existing
roadways and bridges.
EPA Regulations Impact on U.S. Employment
EPA regulations could in the direct loss of 3,000 to 4,000 jobs in the cement industry and
potentially another 12,000 to 19,000 direct jobs in the construction Industry due to higher
construction costs. These direct job losses could be amplified If up and downstream
impacts are considered.
The potential closure of plants in the industry due to EPA regulations could result in a direct job loss of
3,000 to 4,000 jobs. These jobs are typically high paying jobs and translate into $200 million to $260 million
in lost wages. Loss of these jobs and wages results in less economic activity and leads to further joblosses,
often referred to as the "employment multiplier effect". PCA calculates these additional job losses at 6,500
to 10,000 jobs·. Most of these job losses would be concentrated in areas near the plant shutdowns,
magnifying the potential distress in these communities.
Cost increases in the manufacture of cement and concrete due to EPA compliance will displace some
construction activity. In doing so, some jobs that may have been created, might not materialize due to the
EPA regulations. PCA roughly estimates these potential direct job losses in the construction sector at
12,000 to 19,000. Employment multiplier effects could add another 30,000 to 50,000 job losses.
NSPS and new source iniliatives could thwart modernization and expansion of investments In the cement
industry. Based on the age composition of kilns operating in the United States, dozens of large·scale
investments could be foregone and the jobs these investments would provide. PCA makes no estimate
regarding the magnitude of these potential job losses.
• Employment multiplier used is based on aworking paper by Josh Bivens, Economic Polley Institute, August 2003.
805 15
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Washington, DC 20005
Office: (202) 449 -9866 • Fax: (866) 436 -1080
The Voice of Rural & Regional Carriers
January 14, 2011
The Honorable Darrell Issa
Committee on Oversight & Government Reform
United S t . ~ t e s House of Representatives
2157 Rayburn House Office Building
Washington, DC 20515
Dear Chairman Issa:
RCA appreciates the opportunity to commellt on how existing and proposed Federal regulations impact
job and economic growth in the wireless industry. As powerful drivers of the economy on the path
towards recovery, rural and regional carriers depend on regulations d1at promote competition.
Regulatory certainty is parllcularly crucial at :a tit:"e when d1e most recent Federal Communications
Commission (FCC) Wireless Competition Report failed to find, for the first titne, that d,e industry was
sufficiendy competitive
The Rural Cellular Association (RCA) is a trade association representing d1e interests of nearly 100
regional and lural wireless carriers d1at provide services throughout the Nation and are licensed to serve
more d1an 80 percent of the country. Most of RCA's members serve fewer than 500,000 customers. As
the wireless industry continues to grow, so does wireless market consolidation. The largest two wireless
carriers now serve two-thirds of all subscribers. Absent regulatmy reform in several areas, dus pattern
of consolidation will continue at d1e expense of rural and regional carriers and will threaten economic
growdl, local jobs, and consumer choice. Specifically, current and proposed Universal Service Fund
(USF) and spectmm interoperability regulations need irnmediMe attention to support economic and job
Universal Service Fund
As evidenced by d1e planned deployments of 4'" Generation (4G) mobile broadband services, most
mobile wireless carriers plan to provide SelYlCeS to urban and densely populated areas first. At d1e same
titne, all Americans depend on robust and reliable wireless networks for communications, educational
and employment opportunities, safety, and overall connectivity. To expand communications services to
areas d1at otherwise lack an immediate business case, d1e FCC created d1e USF High-Cost program "to
ensure that consumers in rural, insular, and high-cost areas have access to telecoffiluunications services
at rates that are affordable and reasonably comparable to d10se in urban areas.,,2 As rural and regional
wireless carriers began to receive USF support, high-quality services to consumers living in remote and
hard to reach areas that otherwise would have been left belilnd have vasdy expanded.
In 2008, d1e FCC instituted an "interim" cap on competitive eligible telecOlmnunications carriers
(CETCs) (CETCs are mostly wireless service providers) in an attempt to control growth of d1e high cost
I FCC, If'Mobile 1/7/1.1,", Compelilioll fuport, FCC 10-81 (l\[ay 20, 2010).
2 FCC, htlp:/lwww.fcc.gov/wcbbapd/univcrsal 5crvicc/highcosr.hrml
Chairman Darrell Issa
Committee on Oversight & Govemmem Refom>
January 14, 2011
fund, which is subsidized by an assessment on U1terstate telecommunications services utilized by
consumers. Despite tlus cap, ti,e lugh cost fund has continued to grow.' Yet ti,e cap has impeded ti,e
growtil of mobile wireless networks. Since 2008, competitive options for consumers in rural and
regional areas have decreased, and tI>e overa.ll size of ti,e fund is unsustainable. Furtllermore, tI1e cap
has linuted econol1uc and job growtl1 tllat corresponds witll increased reaeh of wireless networks.
The negative impacts of ti,e "interim" cap have been exacerbated by the FCC's recent decision' in ti,e
Co,,' Wi,./ess proceeding. Under ti,e current rnles, when a CETC relinquishes ETC status in a state,
relinquished funds go back into ti,e USF monies and are made available for otller CETCs to
access. In tlus Order, ti,e rcc adopts a rnlc tI1at relinquished support will now go back to ti,e FCC, to
be repurposed on other universal service iilltiatives, including tI1e mobility fund, rural healtll care,
schools and libraries, and the lifeline program. Beyond the questionable legal basis based on
administrative procedures, tllis regulatory action denies rural and regional carriers tile opportunity to
access tllOse funds to help bring advanced wireless services and associated jobs to hard to reach areas
throughout ti,e state. An immediate reversal of bOtll the "interim" cap and following Co,,, decision
would promote increased service in lugh cost areas, and economic and job grOWtll tllat follows.
The FCC's current proposals for bot!> ti,e Mobility Fund and ti,e Connect America Fund (CAF)
increase uncertainty and potentially furtller linut ti,e ability of rural and regional carriers to compere Witll
the larger carriers. With increased uncertainty, capital tllat wonld otherwise fuel economic growth
rennins on ti,e sidelines. Continued wireless growtll in lugh cost areas will stagnate and could force
several carriers to close their businesses.
As proposed, tI1e Mobility Fund will provide a vel)' limited amount of support to wireless carriers to
deploy 3rd Generation nerworks (or better) at tI1e e"pense of currently selvice pro,Tiders. The
FCC proposes to disburse funds to winners tlllough reverse auctions, a mechanism tllat is inherently
anri-competitive. Reverse auctions perpetuates a "race-to-the-bottOtll" dlat allows auction participants
to game ti,e system dllough tlleir own market dominant positions, and provide minimum quality service
willie elinunating their competition. Even worse, single winner reverse auctions would essentially create
government-funded monopolies, resulting in lugher prices and/or reduced services. We anticipate tllat
ti,e rcc will utilize same reverse auction mechanism in tI1e proposed CAF. Willie reverse auctions
might bring competition witllin an electrOluc auction room, it wonld not have a competitively neutral
effect in ti,e marketplace.
Despite claims tllat SF reform will be competitively and technologically neutral, ti,e National
Broadband Plan proposes an unequal phase-down period - ten years for supported wireline providers,
but fi,'e years for wireless prO\,iders. Tlus unequal phase down is not competitively nor teclll1ologically
neutral and supports outdated teclll1ology, despite ti,e fact that wireless is tI1e most efficient, cost-
effective means of bringing broadband to rmal America.; RCA supports tile Commission's goal to
extend Universal Selvice support to broadband services; however, ti,e proposed CAF runs contrary to
this goal and will harm rural and regional cru:riers in tI1e process.
3 "TIle universal service contribution factor for the first quarler of 20 11 be 0.153 or 13.5 percem." PropoJrd First Quarltr 2011
U'li!li'rsnl Stnict COllln'blllio1l Fac/or, Public IQ(ice. D:\ 10-2344 (December 13.2010).
.. See FCC On/frill/he Il/allfr of High-Coil Srn'ia Support; FrderalS/a/eJoill/ Botlrd 011 UI/illl'rso! Sen'ice. FCC 10-205 (December 30.
>OBl Technical Report No.1
Chairman Darrell Issa
Committee on Oversight & Government Reform
January 14, 2011
Willie there is broad consensus for USF reform, RCA continues to push fOJ: reform that is truly
competitively and teclmologically neutral and success-based. A policy that allows any carrier d,at can
enter the market and secure enough customers with d,e corresponding support, will limit growth of the
fund and will also allow consumers to detenll.ine d,e technology and carrier d,at best meets dleir needs.
USF refoml must offer remess from the current and proposed regulatory oversteps of the Commission
and promote d,e continued growth of rural and regional carriers as consumers continue to choose
mobile solutions to meet their needs.
RCA recommends the Committee immediately require d,e FCC to lift d,e "interim" cap on USF
support for CETCs and to distribute all USF support funds for wireless carriers to d,ese CETCs as
statutorily required. Additionally, RCA asks d,e Conmuttee to revisit proposed SF reform programs
to ensure dley are competitively and technologically neutral. Certainty is needed for continued
investment in d,e deployment of wireless networks. An immediate assurance to wireless camers d,at
they will receive support fOJ: capital and operating expenses will expedite current deployment plans and
fostet additional growth of mobile wireless networks.
Since d,e beginlling of mobile wireless service's success, intetoperability has played a key role in
promoting a healdlY, competitive environment. Carriers have been able to enter the marketplace,
bringing with them additional capital investments and the jobs needed to build and maintain the
network. The FCC established an analog compatibility standard when originally licensing cellular
spectrum' As a result, iuteroperability continued as the standard in subsequent PCS and AWS spectrum
bands made available for mobile wireless use. With dus precedent, 700 MHz auction participants
expected d,e spectrum to be interoperable. This expectation of interoperability lead to greatet auction
competition and, as a result, almost $19 billion in re"enue for d,e U.S. Treasury.'
Current FCC regulations do not require interoperability in the 700 MHz band, and, after the auction's
completion, the two largest camers developed their own privatized band plans that prevent competition
from d,e Lower A Block winners and jeopardizes the Lower A Block licensees' investment. With
standards set by d,e international, non-governmental 3"' Generation Partnership Project, four separate
band classes have been created, eliminating the econonlies of scale and competition in the equipment
market fot 4G LTE networks in the 700 MHz band.
Many rural and regional wireless carriers invested heavily and secured licenses in d,e 2008 700 MHz
auction. Yet, as a result of d,e FCC's failure to iulpose an interoperability standard in the 700 lv[Hz
spectrum, they are unable to obtain equipment to deploy next generation networks at an econonlically
competitive cost. The deployment of 4G LTE networks in rural and regional areas has been delayed,
keeping investment capital and corresponding jobs on the sideline at a time when tlus iuvestment can
playa key role in d,e nation's recovery. Furthet, ti,e separate band classes present a technical barrier to
roaming. A return to ti,e Reagan-era requirement of interoperability will help to testore competition to
'47 C.F.R. § 22.901 (b). The analog eomparibility standard sunset in 2008. See also 17 FCC Red 22140 (2002).
7 Ser Auctioll 0]700 iV/HZ Balld Lim1ii's Closc.r, IVil/llillg Bidders AI/Houllc"dforAne/ioll 73, Report No. AUC·08·73-1 (Auction 73), Public
Notice. D.l\ 08-595 (March 20. 2008) (Alle/joll 7J Closing P j \ ~ ; IN a/so E/m/IIIH, AI/t/;oll '!flOO 1IIHt Baud Lircusu CloSt's, IlYiJllli,&. Bidders
.Au//Oillfc,d]OrAlle/ioll 73. Report No..AUC-08-73-1 (:\uction 73), Public Norice (1\Iarch 26. 2008).
Chairman Darrell Issa
Committee on Oversight & Government Refonn
January 14,2011
the market and provide a boost to local jobs and economic health of the conununities in which rural and
regional carners axe intertwined.
The lack of an interoperability requirement also poses significant problems for public safety officials,
who are working to create the long-needed nationwide interoperable broadband public safety network.
Public safety must be ahle to communicate in the event of a disaster, and therefore must have access to
equipment that is capable of roaming on all networks, public safety and commercial. As reported by the
Congressional Research Sen'ice, interoperability could reduce the cost of public safety devices by $2500
per delllce, while providing seamless roaming and network redundancy to ensure sen<ice in areas where the
public safety network is not yet deployed or if d,e public safety network goes down or reaches capacity.'
Tnteroperability affects more than just roaming capabilities and equipment costs. As noted above, the
success of the 2008 700 l'vIHz auction was dependent on participation of numerous rural and regional
carriers, bidding mostly on Lower A Block spectrum. In fact, ti,e Lower A Block 700 MHz licenses
commanded a higher price ($1.16) than ti,e pper C Block ($0.76).' Based on FCC precedent, auction
participations assumed that ti,e spectrum would be interoperable and equipment and roaming would be
present to allow for network deployment. Lack of interoperability creates uncertainty for current and
future 700 MHz spectrum holders. Smaller carriers will be unwilling to commit the capital
needed to participate witl,out the certainty that interoperability provides. Without competition from ti,e
smaller carriers, auction revenues will be lower tI,an expected. As University of Matyland Economist
Peter Cramton has found,lo a lack of interoperability will severely limit revenue raised in future auctions
due to decreased participation and competition.
Future specrrum license auctions are widely seen as a significant source of revenue for ti,e Treasury for
the near future. This summer ti,e FCC intends to auction an additional 16 licenses in the 700 MHz
Lower A and Lower B blocks tI,at were not sold during the previous 700 MHz auction or returned to
the Commission following bidder default." Potential new bidders run the risk tI,at the dominant
carriers will again block tlleir participation and competition, and tI,ey will be discouraged from
RCA strongly encourages ti,e Committee to urge the Cotmnission to grant the existing Fair Purchasers
AJlLmce Petition for Rulemaking" on interoperable equipment in the 700 l'vIHz spectrum to return to
ti,e Reagan-era FCC requirement of interoperability \Vitlun spectrum bands.
II Linda K. Moore, PI/hli, Safe!J COIIIIN/III;ftlliolli tllJd Spl'Clmm IVsoJlm's: Poli9' IssuufOr COl/greff, Congressional Research Service, Sepl. 1.
2010, at 8.
!l SuAuctioJl of 700 Nff-iZ Bmld Umuti Closrs. "'illlling Bidderf A1I110111/crdfOr AI/ctioll 73, Report 1 o. _-\UC-08- 3-1 (Auclion 73), Public
Not.ice, DA 08-595 V'[arch 20, 2008) (Alle/iall 73 Closing lie also Erratum, Aue/iou of700 A[HZ Baud l..ictJliei CloSfl, IF/illlliNg Bidden
AIIIIOIIIICfdJor Alldioll 73, Report No. AUC-08- 3-1 73), Public Nonce (March 26,2008).
Iil Ste Peter Cramton, 700 A1H" Dr/lice Flexibility Promo/fJ Competi/ioll (August 9, 2010). available in Ex Pm1r Letter from Rcbeccit
·nlOmpson, General Counsel for Rural Cellular Association, to Marlene I-I. Dortch, Secretary, FCC, filed in R.M-t1592 (filed Aug. 10,
II Aue/ioll of700 iV/HZ Baud Ua!llJfi Schrdl/ledjor}mllld'J' 24,2008,. NOlite (lIId Fi/ill,g IvquirnJlrJl/i, i\ltiJliulllnJ OprNil1,g Bid.r, Rtsen'e PI7(U,
UpJ!'"1 Pa)'mtllls, alld Olher Procedllmfor Alldiolls 73 alld 76, Public NOlice, D.\ 07-4171, 22 FCC Red 18,141 (\VfB 2007).
12 RC:\ Comments, AuelioN of700 AmZ Bfmd Uerl/iff Sfhrdl/ledfor )119' 19, 2011.. COIIJJllf11l SOltgh/ 011 Comp/i/iut Biddillg Proadllrufor AlldioJJ
92, .\U Docket No. 10-248 Qanuary 12,2011).
13 See 700 MHz Block AGood Faith Purchasers Alliance Petition for Rulemaking, filed in RM-11592 (Sept. 29, 2009); see also
RCA Comments at 19-20, filed in RM-11592 (Match 31,2010).
Chainnan Darrell Issa
Committee on Oversight & Government RefOffil
January 14, 2011
Willie the above current and proposed FCC regulations have negatively impacted the ability of rural and
regional wireless carriers to support job growth and economic gains, there are several additional steps
the Commission could take to promote competition and growth in the industry. Supporting automatic
data roaming will promote competition and give rural and regional carriers the chance to continue to
innovate and grow. Every consumer in Anlerica wants their device's data and voice services to work
wherever they find themselves where a compatible network is present. There is no technical reason why
roaming on compatible networks should not be the norm, and roaming promotes competition in every
market. Congress and the FCC should take policy steps to ensure consumers' wireless devices will work
to receive voice or dam infortnation.
Please do uot hesitate to c o n t . ~ c t me with any questions, and please let me know if RCA can be of any
Best Regards,
Steven K. Berr}'
President & CEO
cc: TI,e Honorable Elijah Cummings, Ranking Member
~ ~ J } c ~
Smoll Bllliness &Enlrepreneurship (ouncil
January 12, 2011
The Honorable Darrell E. Issa
Committee on Oversight and Govelmnent Reform
U.S. House of Representatives
2157 Raybum House Office Building
Washington, DC 20515
Re: Regulations and Proposed Regulatory Initiatives that Negatively Impact Jobs, the
Economy and Small Business Growth
Dear Chainnan Issa:
The Small Business & Entrepreneurship Council (SBE Council) is pleased to provide the
Committee on Oversight and Government RefOlID with ideas that will lead to an improved
environment for job creation, investment and risk taking by our nation's entrepreneurs. SBE
Council has identified a variety of govemment regulations and proposed initiatives that hinder
job creation and economic recovery, and we look fOIWard to working with you and the
Committee on the priorities outlined in this letter.
SBE Council is a nonpartisan, nonprofit advocacy and research organization dedicated to
protecting small business and promoting entrepreneurship. With nearly 100,000 members and
250,000 small business activists nationwide, SBE Council is viewed as one of the most powerful
voices for entrepreneurs. In addition to our work on federal policies, SBE Council is higWy
engaged at the local, state, and international levels, collaborating with elected officials, policy
experts and business leaders on initiatives and policies that enhance competitiveness and
improve the environment for business start-up and growth.
SBE Council is pleased that you are tackling the serious issue of burdensome and
counterproductive overregulation. Unfortunately, business owners remain on edge regarding the
tidal wave of federal government regulation that has been advanced or proposed over the past
two years -- all of which will impose new costs or lead to unintended consequences for small
fml1s. The pain of the harsh recession was intensified and lengthened by this hyper-regulatory
environment. Uncertainty continues to linger as entrepreneurs are bracing for new costs or
consequences that they expect will arrive (and, in fact, already have) with the implementation of
major pieces of legislation or policies like the Patient Protection and Affordable Care Act
(PPACA), the Dodd-Frank financial overhaul bill, as well as restraints and intrusions imposed on
the energy sector which are now leading to price instability and higher gas prices. Of course,
higher costs on small business owners mean fewer resources for job creation and investment.
SBE Council supports a comprehensive review of the vast alTay of major rules that have been
promulgated in 2010, as well as those in the pipeline. The U.S. business sector sin1ply cannot
compete internationally given this costly regulatory trend. America's businesses are being
regulated into the ground, and unless Washington breaks from this destructive trend, the
economy will vastly underperfOIm ifnot stagnate.
SBE Council strongly encourages the Committee to ask key federal depm1ment and agency
heads to come before the Committee to detail their philosophies and specific initiatives, with a
focus on how they believe their plans or programs will lead to job creation, economic growth and
efficient govemment. SBE Council urges the strategic use of the Congressional Review Act
(CRA) to oveliurn regulations that pose an immediate and burdensome cost threat to small
businesses. We suppOI1 a full audit of key federal agencies and depm1ments to determine if they
are properly complying with the Small Business Regulatory Enforcement Fairness Act, or
requirements that they conduct specific cost analysis. Mounting regulatory costs are taking their
toll on business. With access to capital and credit still tight, compounded by economic
instability and higher energy and health coverage costs, small business owners lack the resources
and confidence they need to hire. The prospect of additional regulatory burdens and costs drives
greater uncel1ainty. Job creation does not flourish in such an environment.
As you know, America's small business owners are disproportionately impacted by regulation.
The U.S. Small Business Administration's Office of Advocacy has reported that the per-
employee cost of federal regulation has reached staggering levels. Their most recent regulatory
impact study found that in 2008, the per-employee regulatory cost for small businesses with
fewer than 20 employees was $10,585 - compared to $7,755 for fmns with more than 500
employees. With regm'd to environmental regulation, the disparity between small and large finns
is stunning -- $4,101 per employee for small firms versus $883 per employee for larger ones.
Small manufacturers take the biggest cost hit, according to the Office of Advocacy repol1. They
pay a staggering $28,316 per employee in total regulatory costs.
Regulation of big business deeply impacts small firms as well. The threat of new regulation
spawns uncertainty for larger enterprises too, leading to a pull back in investment, which not
only hut1s itillovation and job growth but the amount of business that is conducted with
entrepreneurs. The findings of a Business Roundtable report ""Mutual Benefits, Shared Growth:
Small and Large Companies Working Together," demonstrate the close economic ties between
small and large businesses. U.S.-parent operations of the typical U.S. multinational buys goods
and services from more than 6,000 American small businesses; buys a total of more than $3
billion in inputs fi'om these small-business suppliers; and relies on these small-business suppliers
for more than 24 percent of its total input purchases, according to the report. In sum, small
businesses are critically important partners with large multinationals. Regulations tJlat impose
requirements, mandates and new costs on big business, also affect the health of thousands upon
thousands of small businesses - as suppliers and consumers.
Washington's apparent disconnect regarding the costs and impact of intrusive government
regulation on AJne,;can business and the economy is alanning. SBE Council is hopeful that your
work to shed light on burdensome regulation and its effect on job creation and healthy economic
groWtJl will restore balance and accountability in this most critical area. If not, business
investment and growth - along witlljob creation and U.S. competitiveness - will continue to
Regulations and Proposed nnitiatives of Concern to SHE Council
SBE Council suggests that tJle Committee first focus on reforming and paring back recently
enacted laws whose implementation will inflict long-term damage on the U.S. economy. In
addition, there are regulatory proposals in the pipeline that will vastly harm small businesses and
their ability to create jobs. The specifics are listed below.
Patient Protection and Affordable Care Act (PPACA)
During the debate over the Patient Protection and Affordable Care Act (PPACA), the new health
care law was pOitrayed as an effort to reduce health care, healtb coverage and taxpayer costs.
The early outcomes of its implementation show it is accomplishing none of this. The law is
already leading to decreased choices for consumers (as small competitors leave the market), and
we now know that most small business employees will not be allowed to "keep the health
coverage they currently have." Health coverage costs continue to go higher. And, disturbingly,
the politically connected, favored and powerful are receiving waivers from the stringent
SBE Council supports full repeal ofPPACA. We have long advocated an approach that
encourages competition, leads to more affordable prices and expands upon what is working in
the marketplace (like Health Savings Accounts). As an alternative to full "repeal and replace,"
we encourage the Committee to address these specific regulatory provisions in PPACA as they
will vastly raise small business costs, lead to job loss and reduce choices in the marketplace:
Expanded I 099 Reporting Mandate (Section 9006): Repeal the provision. There has been no
justification offered for imposing this paperwork nightmare on America's small businesses. Its
implementation will lead to staggering compliance costs and job loss.
Individual M(lIIdate: Repeal the mandate. America's selfcemployed cannot afford the
govenunent-designed plans that are taking shape, and certainly cannot afford the tax penalty
imposed if they fail to comply with the mandate.
Employer Mandate: Repeal the provision. Real health care reform would focus on affordability
rather than punishing business owners for not providing a benefit they cannot afford. In addition,
as it is now structured, the mandate encourages businesses to drop coverage. Even proponents
have to admit this outcome is perverse.
Grandjathering RIde: Change the existing rule (cUlTently designed to kick all health care plans
out of grandfathered status) tluough legislation. A new definition would reflect ti,e true spirit
and intent of the term "grandfather status" which is this: All health care plans in place prior to
the date of enactment of the PPACA will be protected - as promised - and consumers will be
able to keep the plans they cUlTently have, without condition.
Medical Loss Ratio Rule: Change existing rule, through legislation. Repeal it. Small to mid-size
insurers are leaving the marketplace as a result of the inflexible nature of the regulation, which
means less competition and fewer choices for small business owners and consumers. SBE
Council also fears that the rule will lead to ti,e loss of various consumer-directed health plans,
which are becoming more popular with small businesses and the sel f-employed.
The Regulation Abolishing "Mini-Medical" Plans: Repeal it. These plans play an important role
in the health insurance marketplace, and are coveted by those who use them. HHS has granted
numerous waivers to companies, unions, and health insurers regarding these plans, which proves
they hold an important niche in the marketplace. Small business owners require more options in
the marketplace, and mini-med plans offer some entrepreneurs who lack rich resources the
opportunity to provide a coverage option.
Federal Government Procurement
Since our founding in 1994, SBE Council has been working to make the federal govelllment
procurement system more accessible for small business owners. Recent actions and proposals by
the Obama Administration have the potential to set small business owners back in their effOlts to
bid on and access govelllment contracts.
Project Lahar Agreements (PLAs): Prohibit govemment-mandated PLAs through legislation
(Govenunent Neutrality in Contracting Act). In April 20 I0, President Obama finalized
Executive Order 13502, which encourages and authorizes the use of union-only PLAs on federal
constluction projects. Union-only PLAs restrict competition by requiring that a contract be
awarded only to companies who agree to collective bargaining and union hiring. Taxpayers lose
under PLA's, as well as small to mid-size fums who can't compete under such schemes. Federal
govelllment procurement rules require a competitive bidding process, and PLAs run counter to
the rules of fairness, transparency and best value for taxpayers.
"High Road Initiative ": The Obama Administration has been working on an initiative that
would grant competitive advantage to govemment contractors whose salaries and benefits meet
labor standards established by the federal govemment. If implemented, the initiative would put
small business contractors at a competitive disadvantage in the federal procurement space and
drive taxpayer costs higher. Any such initiatives must be stopped and/or challenged by
3 Percent WitilllOlding Mandate: Repeal it. The mandate, advanced as part of Section 511 of the
Tax increase Prevention and Reconciliation Act of2005 (P.L. 109-222), will increase
government costs and bureaucracy at all levels (local, state and federal); raise costs for
taxpayers; restrict cash flow for small finns; and drive small business owners away from the
govemment procurement marketplace. The bottom line is that the withholding mandate on
govenUllent contractors will cost much more than the $7 billion it slated to bring in over a five
year period.
Micromanagement of tbe Workplace ltv the Federal Government
InjlllY and Illness Prevention Program (I2P2) - "OSHA's highest regulotoly priority": The U.S.
Labor Depaltment believes they do not have enough resources to ensure that businesses are
complying with all federal workplace regulations. Therefore, they are embarking on a
"Plan/Prevent/Protect" regulatory initiative which. according to their words, "Employers and
others must' tind and fix' violations - that is, assure compliance - before a Labor Department
investigator arrives at the workplace." According to Labor, businesses "must understand that the
bW'den is on them to obey the law, not on the Labor Department to catch them violating the
law." Got that? So. they are replacing "catcb me if you can" with "Plan/Prevent/Protect."
Meaning, they will require regulated entities to develop extensive, time-conswning internal
processes that will serve as a "check" on how they are complying with compliance. In SBE
Council's reading of the massive regulatory initiative, employers and workers will be highly
engaged in developing plans and policing their own workplace to ensure compliance with all
DoL regulations. For example, beyond health and safety compliance, it is reported that
employers would work with employees on documenting job classifications, identifying who is
"exempt" or an independent contractor and why, and hold training sessions to make sure
everyone understands the differences of these classifications. Obviously, this effOlt to fully
micromanage every American workplace would be a nightmare for small business owners. The
proposed rule has not been released, but SBE Council urges the Committee to conduct
immediate oversight on "Plan/Prevent/Protect" as it appears the Depal1ment is creating a
monstrous scheme that is impracticable for small business owners.
OSHA's Proposed IntellJretotion Regarding Noise Exposure: OSHA published a new "Proposed
Interpretation" of the term "feasible administrative or engineering controls" as used in the
Occupational Noise Exposure Standards for General industry and Constmction. The Proposed
Interpretation will require employers to implement costly engineering or administrative controls,
even if they have an excellent heal'ing conservation program. SBE Council believes that OSHA
cannot change its Prior Interpretation without undertaking a fOlmalmlemaking process. OSHA
is pOltraying the Proposed Interpretation as an enforcement interpretation, thus circumventing
the notice-and-conunent process. SBE Council encourages the Committee to challenge OSHA in
its approach as we believe it can be challenged under the Paper Reduction Act, the Regulatory
Flexibility Act, Executive Order 13272, and the Small Business Regulatory Enforcement
Faimess Act. Office of Management and Budget (OMB) review is also required as it surpasses
the $100 million economic impact threshold and involves a novel legal or policy issue.
Energy and the Environment- EPA Accountability, More Energy Production and
Environmental Protectioll Agency: The general regulatory tluust of the Administration with
regard to energy and the environment will lead to less energy, higher energy prices, a
disincentive to manufacture in the U.S. and massive job loss. Our energy sector is being forced
into a regulatory vice -- caps and restrictions are being imposed on how much America can use
and produce, while excessive regulation on energy nse and the industry are driving costs higher.
Anti-energy activists in the regulatory bureaucracies seem accountable to no one. Unfortunately,
small business owners and their workforce will bear the brunt of higher costs and widespread job
loss if initiatives at the Environmental Protection Agency move forward.
SBE Council encourages the Committee to bring accountability to the EPA. We suppOltthe use
of preemption or the CRA in ovel1Uming specific rules especially where the EPA has not
conducted statutorily-reqnired analyses (it has refused in some instances). From EPA's set of
rules on electric power generators to greenhouse gas (GHG) regulation, to its reconsideration of
the National Ambient Air Quality Standards for Ground-Level Ozone to "Boiler MACT"
industrial emission standards, to its decision to allow the use of 15 percent ethanol motor fuel
blend (EI5) and more, the agency has put the U.S. economy on a disastrous course. Energy
drives business and the economy - it all stam with energy. lfnot stopped, the EPA's ruinous
regulatory course will undermine economic recovery, and cause long-term economy-wide pain
for consumers, workers and small business owners.
Energy Development alld Production: The U.S. has been blessed with abundant natural
resources to support our growing energy needs. UnfOl1Unately, the oil and natural gas sector is
getting mixed signals from the federal govemment in regards to the future of offshore drilling
and development in general. More than 7 million jobs in small businesses are supported by the
oil and natural gas industry, but new restrictions and general uncertainty threaten these
businesses and their workforce. [n addition, hundreds of thousands of new jobs can be created if
the federal goverrunent develops a more rational and stable policy toward domestic energy
development. This is a critical area where regulators and policymakers in the Administration
must be challenged.
Dodd-Frank Financial Overhaul Legislation
New regulations being proposed (and to be pursued) under the auspices of Dodd-Frank have the
potential to further restrict access to, and raise the cost of, capital and credit. Proposed Federal
Reserve lUles regarding interchange fees and forthcoming Consumer Financial Protection Bureau
(CFPB) regulations, for example, could make a currently challenging problem much worse for
small business owners.
CFPB and Small Business: The new CFPB is required to detenuine whether proposed
regulations will negatively impact entrepreneurs' ability to access affordable capital and credit.
The CFPB infrasttucture is now being developed, which is a gond time for the Committee to
detennine how they will address this small business requirement in the lUle-making process.
Because the Obama Administration strongly opposed the inclusion of this requirement in the
Dodd-Frank bill, SBE Council believes the CFPB must be closely monitored to ensure this small
business protection is taken se,iously by those building the bureau, and developing regulations to
implement Dodd-Frank.
Miscellaneous: Regulatory Actions and Activities
SBE Council is generally concerned about the uptick in investigations on small business by
federal regulatory agencies and depa,tments. There is a proper balance that must be achieved
between the use of investigations and enforcement (I&E) and working with business to educate
about the law to ensure compliance. We do know there is an uptick on the I&E front as evident
by budgetary priorities, new f&E hires, repOlts of investigatory outcomes and the regulatory
tluust and agenda in general. Oversight by the Committee in terms of focusing on the priorities
of the department and agencies, and their rationale for increased hires (for example) aimed at
I&E will keep the federal govemment accountable in achieving a balanced approach between
enforcement, education and helping business attain compliance with the law. SBE Council has
outlined some areas below, as well as fOlthcoming proposed lUles to keep an eye out for.
Uptick in Investigations Regarding "Misclassified" Individuals: More resow'ces have been
allocated within the Labor Department and the Internal Revenue Service (rRS) to investigate
"misclassified" individuals. There appears to be a focus on small businesses as it is easier and
quicker to audit smaller finns. As is now stands, the 20-point Independent Contractor (IC) law is
arbitrary which means two investigators could audit a small firm and come out with two different
conclusions as to whether a finn has misclassified an IC or not. The rRS is in the process of
developing a new lUle for 10ng-tenl1 independent contractors, and SBE Council is concemed that
the goal of this effort - along with the uptick in investigations - is to discourage the use of
independent contractors. The solution is to change the outdated 20-point test to a more modem,
streamlined approach.
Shift at Labor Depar/mem - Emphasis on Compliance: A robust shift has been underway at
Labor, a move away from voluntary compliance to investigations and enforcement. For example,
DoL's Wage and Hour Division budget has increased to hire 288 new inspectors (which has
already grown from 731 in 2009 to 894 in Q1 in 20 lO). Other budget features include the
addition of 130 safety and health inspectors, 25 whistle-blowers, and 20 full-time employees to
"restore" OSHA's rule-making capabilities. There is also the move away from "Opinion
Letters" to "Administrator Interpretation." Regulatory initiatives and activities have pointed to a
more confrontational posture with business, which SBE Council hopes does not replace
constructive engagement.
Expanded J099 Reportingfor Rental Property OlVners: Repeal the provision. Tucked in the
Small Business Jobs Act of 20 l 0, this provision mandates that (beginning in 20 II) recipients of
rental income from real estate will be subject to the same information-reporting requirements as
taxpayers engaged in a trade or business. Similar to the broader expanded l009-MlSC reporting
mandate in PPACA, owners of real property who receive rental income will be required to issue
a 1099 for payments totaling $600 or more during the course of the year for any expenses related
to their rental properties. The provision includes payments made to plumbers, carpenters or
exterminators in the course of generating rental income.
Chainnan Issa, SBE Council appreciates the opportunity to provide input to the Committee. We
look forward to providing additional ideas and solutions that will help move the U.S. economy
back to strong levels of growth and job creation. Our organization and its members have
additional issues of concem not outlined in this letter, and we will follow up in future
SBE Council appreciates your leadership. We look fOlward to working with you on advancing
policies that promote entrepreneurship and strengthen U.S. competitiveness and our economy.
Karen Kerrigan
President & CEO
SBE Council - 2944 Hunter Mill Road· Suite 204 . Oakton, VA 22124 . 703-242-5840
Protecting Small Business, Promoting Entrepreneurship
Society of Plastics Industry Response
With respect to EPA and the Toxic Substances Control Act (TSCA), key regulatory activities
affecting the plastics industry include chemical action plans, the polymer exemption rule and
inventory update reporting. Other regulatory actions concerning air and waste are also a
As many are aware, chemical action plans are one of the EPA's newer approaches to using
existing authorities for chemicals management. The plans are intended to outiine risks that
specific chemicals may present, and identify the steps EPA is taking or may take to address
those concerns. SPI is the industry lead in responding to the plan for long-chain
perfluorinated chemicals (PFCs), and has members interested in plans for other chemicals.
Industry and EPA also continue to work together in an industry-initiated stewardship
program. But given EPA concerns, the Agency could seek a ban on the manufacture, import
and use of these PFCs in the US. A key industry concern is that in the past, as EPA is
aware, stricter regulation in the US and other developed countries of one of these PFCs led
to a shift in production elsewhere - changing the landscape of global competitiveness.
EPA also amended the "polymer exemption rule" last year to exclude certain perfluorinated
chemicals. The exemption was intended to encourage the manufacture of safer polymers by
reducing certain reporting burdens and allowing EPA to focus on substances expected to
pose higher risk. Now, for the perfluorinated chemicals no longer eligible for the exemption,
those who intend to manufacture or import them must complete a process that can be
lengthy and disruptive to the supply chain, or to obtain another exemption. The change
was made because EPA believes that it can no ionger conclude that the excluded polymers
"will not present an unreasonable risk to human health or the enVironment," even though
EPA has not made an actual finding of "unreasonable risk."
Specific chemicals aside, the plastics industry also shares in the regulatory challenges facing
US manufacturing more broadly. Examples:
TSCA inventory update reporting (IUR). EPA has yet to finalize a rule that proposed
significant changes for industry, and presently expects industry to be ready to report
starting June 1. EPA may require submission of information that could be difficult to
obtain, require use of a reporting system that raises concerns, and change reporting
criteria to impact more businesses and confidential business information. EPA has
not adequately demonstrated why it needs this data, that IUR is the appropriate way
to collect it, and has not tailored the proposal to minimize the burden to the
regulated community (or to the agency itself, for that matter).
Burn-off ovens and Commercial and Industrial Solid Waste Incineration Units
(CISWI). EPA proposed a rule for emissions from these sources. SPI's key interest
is burn-off ovens, which should remain exempt. Their use in the industry is for
cleaning machined parts - not for solid wastes, and not by combustion or
incineration - so used this way, they would be inappropriately regulated under the
On the OSHA front, key concerns include proposed rulemakings regarding combustible dust,
consultation agreements and walking-working surfaces; the forthcoming activity on injury
and illness prevention programs (I2P2); and the now withdrawn but not forgotten proposals
concerning MSD recordkeeping requirements and occupational noise.
For the proposed rule for combustible dust, SPI has expressed concerns with issues
including: the definitions and need for clarity, sampling and testing of dusts, employee
training, different methods to control dusts, and compliance assistance from OSHA.
Combustible dust is a complex issue, with a number of factors that have to be present for
an explosion to actually occur. The potential requirements for businesses to comply with
OSHA's proposed rule can be significant in terms of cost and changes to existing facilities,
and some are already experiencing difficulty with testing methods. There is also concern
with related activities ongoing within the National Fire Protection Association, and the
potential adoption or incorporation of "consensus" standards.
OSHA has also proposed changes to its On-site Consultation Program and Safety and Health
Achievement and Recognition Program eSHARP) procedures. Consultation offers assistance
to small and medium-sized businesses, some of which achieve "SHARP" status and
exemption from certain OSHA inspections - an exemption OSHA seeks to remove. We
would rather see OSHA consider ways to optimize its resources to proVide compliance
assistance programs and better support employers who proactively seek help in improving
workplace safety. OSHA's current proposal instead presents a deterrent to participation in
such programs.
With respect to walking-working surfaces, OSHA's proposed rule contains vague and broad
requirements more than actual requirements to address specific hazards. While this may
proVide some fleXibility for employers, it may also leave uncertainty as to whether they
have actually achieved compliance with the standard, and could leave them vulnerable to
citations during inspections if hazards are not well-defined, requirements are unclear, and
compliance becomes subjective. In the plastics industry, the fall-protection provision also
presents concerns, given the difficulty working around or on certain equipment for routine
There has been much discussion but no proposed rule yet for Injury and Illness Prevention
Programs (I2P2); as expressed during stakeholder meetings, there are concerns as to how a
new requirement would relate to existing OSHA standards, the impact on small businesses,
how the actual scope and requirements of a rule could impact a company's existing
programs, the anticipated costs and benefits, and what kind of support OSHA will prOVide.
There is also concern that this could be used to introduce broad requirements to capture
ongoing rulemakings, such as for combustible dust, or other standards/requirements where
OSHA has not gained traction.
SPI is also monitoring actiVity follOWing Withdraw of OSHA's proposed interpretation of
occupational noise and its proposed rule concerning recording/recordkeeping of
musculoskeletal disorders (MSDs). On noise, OSHA proposed an interpretation in such a
way that requirements to protect employees from occupational noise - even if existing
controls were sufficiently doing so - could be expanded almost regardless of cost, with
limited flexibility, and outside a formal rulemaking process. On the MSD recordkeeping, this
would require significant resources for employers Without key fundamentals, such as a
broadly accepted definition for MSDs.
President end Chief EXe<:utive Officer
.: : ; : ~ ~ : .
...... .....
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, H •
January 26, 20 II
The Honorable Darrell E. Issa
Committee on Oversight and Government Re[onn
2157 Rayburn House Office Building
Washington, DC 20515
Dear Mr. Chai'man:
Thank you [or your recentleller soliciting om views concerning existing and proposed
regulations and the current rulemaking processes o[ the Federal Communications
Commission ("the Commission"). USTelecom represents innovative broadband
companies ranging from some of the smallest rural telecoms in the nation to some of the
largest companies in the U.S. economy. Om members offer a wide range of advanced
broadband services, including voice, intemet access, video, and data, on both a fixed and
mobile basis. What unites our diverse membership is our shared determination to deliver
broadband services to all Americans _. regardless of their location.
Currently the Commission has before it a number of proceedings that, upon their
reSOlution, could provide our member companies with important regulatory certainty.
Many of these proceedings involve issues upon which there is little or no dispute about
the appropriate Commission action. For example, USTelecom has filed a petition asking
the Commission to eliminate costly equal access requirements for small telephone
companies, just as it had previously done for larger companies. The Commission
requested public comment on our petition and no opposition was filed. We look forward
to the Commission's linal action on thc issue.
In other proceedings, there is broad agreemcnt that Commission action is essential to
providing businesses with the policy direction necessary to make investment and
expansion decisions, evcn if there remains some lack of consensus on specific details.
For example, at the very top of the list is.the need for Commission action to update and
rationalize its existing rules relating to intercarrier compensation and universal service.
Changes to the current mechanisms are necessary in light of the changing competitive
landscape and technologies in this industry. Indeed, the Commission launched a broad
notice of rulemaking to address many of these issues in 200 I. It will be impossible to
reach 100% national broadband buildout without an efficient and effective universal
service program and sensible reform to the Commission's regulatory framework for
payments between and among carriers. We understand the Commission will be issuing
an NPRM on intercarrier compensation in the near future. But while universal service
distribution decisions are expected to be included in that NPRM as well, contribution
607 14th Street NW, Suite 400' Washington, DC 20005·2051' 202.326.7244 T· 202.315.3347 F
presldenl@uslelccom.OI"g •
January 26, 20 I I
Page 2
issues will nOI be addressed there - and so we hope the Commission will be moving
forward on that element of universal servicc rcform in the near future.
While these are complex and difficult issues to rcsolve, there are some related, interim
issues aOecting inlercarrier compensation the Commission can address immediately.
Traffic pumping, phantom traffic, and payment for IP-traffic are each before the
Commission, and there is widespread consensus that action on these issues is important
and need not await resolution of the larger and more complicated questions in the
anticipated NPRM. Indeed, the Commission's own National Broadband Plan
recommended action on these items. We believe the FCC has a sufficient record and
ample jurisdictional authority to deal with each of these issues right now.
Mr. Chairman, thank you again for providing us an opportunity to share our views.
USTelecom looks forward 10 continuing to work with the Committee in its important
work of easing regulatory impediments to job creation.
d!dt c? ?//?4
Walter B. McCormick, Jr.
cc: The Honorable Elijah Cummings
The Honorable Fred Upton
The Honorable Henry Waxman
The Honorable Greg Walden
The Honorable Anna Eshoo
607 14th Slreet NW, Suite 400' Washington. DC 20005·2051 • 202.326.7244 T' 202.315.3347 F
presidenl@uslelecom.org •
January 10.2011
The Honorable Darrell Issa
Committee on Oversight and Government Reform
U.S. House of Representatives
Washington. DC 20515
Dear Chairman Issa:
On behalf of the Window & Door Manufacturers Association. we would like to thank you for the
opportunity to identify existing or proposed regulations tQat are negatively impacting job growth in our
industry. WDMA is a national trade association representing the leading producers of commercial and
residential doors. windows. and skylights for domestic and export markets. Our members sell to
distributors. dealers. builders. remodelers. architects. contractors and homeowners.
Along with our building industry association colleagues. we have already raised our concerns about the
detrimental impact of the U.S. Environmental Protection Agency's (EPA) Lead: Renovation, Repair and
Painting Rule and its proposed amendments in a separate joint industry letter. However. there are two
other issues we would like to bring to the attention of the Committee.
Department of Energy Involvement in ICC Energv Code Development
Specifically. we urge your attention to actions by the Department of Energy (DOE) that interfere with the
private-sector development of energy efficiency codes for commercial and residential buildings.
Legislation introduced in the last Congress called for DOE to review revisions to model energy
conservation codes and standards to evaluate the energy savings over previous codes. Moreover. the
proposed legislation specified percentage-based increases in energy efficiency to be implemented by state
and local governments with DOE oversight. While the legislation passed the House. it was never
considered by the Senate. Yet. DOE has taken an active role in promoting these objectives. unsanctioned
by Congress. in their participation in the International Code Council's model code development process.
During the recent development of the 2012 edition of the International Energy Conservation Code
(IECC). a model energy conservation code for commercial and residential buildings adopted by nearly all
states. DOE reported that its proposed revisions to the code would improve energy savings by 30.6%
relative to the 2006 IECe. Despite repeated requests. DOE did not explain how it calculated its savings
estimate and leveraged pending legislation heavily as the need for approval of its proposed revisions.
WDMA believes that DOE must make public its technical assumptions and methodologies to ensure that
all stakeholders have equal access to the infommtion and are able to have a full. open and informed
WDMA. fellow stakeholders. and consumers will be adversely affected if energy efficiency requirements
are adopted without confirmation that they are based upon concrete. scientifically supported information.
Chicago Office: 401 N. MIchigan Ave" Suite 2200 I ChICago. Il60611 I Phone: 312-321-6802 I Fax: 312-673-&922 I www.wrlmJ.com
Washington Office: 2025 M St. NW. SUite BOO I Washington., DC 20036 I Phone: 202-367-1157 I Fax: 202-367-2280 I www.wdma.com
WDMA Letter to Chairman Issa
January 10,2011
Page two
Without the opportunity to review underlying assumptions, the industry faces great uncertainty in
planning to respond to new energy efficiency requirements. As manufacturers of energy efficient building
products who have already experienced significant job loss due to the housing and construction downturn,
our manufacturers can ill afford additional uncertainty. We hope that you will consider reviewing DOE's
activities to determine whether steps can be taken to ensure a more open, transparent and collaborative
process for industry to work with DOE in their development of proposed amendments to the IECC and
other model energy codes and standards which DOE actively influences.
OSHA Noise Reduction Proposal
The Occupational Safety and Health Administration (OSHA) has proposed a new regulatory action that
would add millions of dollars in new compliance costs for manufacturers. OSHA has announced its plans
to change its official interpretation of workplace noise exposure requirements and enforcement. Under
OSHA's proposal, employers would be required to use extensive "engineering and administrative
controls" to protect employees from loud workplace noises instead of primarily using effective personal
protective equipment like earplugs. The Agency has proposed redefining the existing standards to require
employers to perform any changes that are "capable of being done" regardless of the effectiveness of
current procedures.
OSHA's current approach to noise control requirements have proven to be effective in protecting
employees from hearing loss. According to the Bureau of Labor Statistics, the number of hearing loss
incidents have decreased by almost one-third over the last five years alone. Should this proposal be
implemented, most manufacturers would be forced to make sweeping changes to their workplaces --
including diverting resources away from jobs toward costly new practices and equipment -- even if
mechanisms are already in place to protect employees from loud noises. .
WDMA is very concerned that OSHA is attempting to make these changes outside of the fonnal
rulemaking process. According to OSHA's plan, these changes must be adopted regardless of the costs,
unless an employer can prove to the Agency that making such changes will "put them out of business."
This proposal would significantly increase costs and uncertainty, limit employer flexibility and cost jobs,
and it cel1ainly merits review by your COlllmitl.ee.
Thank you for the opportunity to submit these issues for your consideration, and we look forward to
working with the Committee in the 11t
Congress. If you have any questions, please feel free to contact
me at (202) 367-1280 or mobrien@wdma.com.
Michael O'Brien, CAE
President & CEO
l : ~ . ... p.
Center for Regulatory Effectiveness
Suite 500
1601 Connecticut Avenue, N.W.
Washington, D.C. 20009
Tel: (202) 265-2383 Fax: (202) 939-6969
secretaryl@mbsdc.com www.TheCRE.com
December 24, 2010
Congressman Darrell E. Issa
Ranking Member
Committee on Oversight and Govemment Reform
2157 Raybum House Office Building
. Washington, DC 20515-6143
Dear Congressman Issa:
The Center for Regulatory Effectiveness (CRE) appreciates the opportunity to assist the
Comniittee on Oversight and Government Reform in identifying regnlatory programs that have negatively
impacted job growth. We are limiting our response to those rules for which we have a detailed working
knowledge of their shortcomings. We are in a position to provide additional details if you wish.
A. CMS Competitive Bidding Program
The Centers for Medicare and Medicaid Services' (CMS) competitive bidding program
for durable medical equipment (DME) is a regulation that will be directly responsible for
destroying thousands of small businesses and the associated jobs. CMS adJilittedly "expect[s]
that this final rule will have a significant impact on a substantial number of small suppliers."
Results from the Round 1 Rebid confirm that most existing home medical equipment suppliers
will lose all Medicare business in the affected areas. I
It is important to recognize that many of the job losses are not inherent in competitive
bidding itself, but rather in the way in which CMS implemented the program. Importantly, CMS
received a letter, signed by over 160 economists including two Nobel laureates, detailing specifiC;
problems with the way CMS conducted the bidding program.
The inefficiencies and lack of
transparency in the bidding process ultimately displace existing home medical equipment
suppliers and thousands of associated jobs. Notably, CRE has received hundreds of calls from
Medicare recipients across the country who are scared and angry that they will lose trusted home
medical equipment providers because of CMS' bidding program. You can hear the voices of
Medicare recipients opining on CMS' program on our competitive bidding discussion forum,
hUp:/Iwww.tllecre.com/blog/wp-contentiuploads/20 IO/09/stal'k-lettcf.pdf
B. NOAAlNMFS Gulf of Mexico Take Rules
In 2004, Minerals Management Service
petitioned NOAA's National Marine Fisheries
Service (NMFS) to promulgate rules under the Marine Mammal Protection Act for the oil and
gas industry's use of seismic air guns to explore for oil and gas in the Gulf of Mexico. The
purpose of these rules is to impose conditions on seismic exploration in the Gulf of Mexico that
prevent any unacceptable effects on marine mammals, such as whales. NOAAlNMFS has not
yet proposed any of these rules.
The oil and gas industry does not oppose Gulf of Mexico take rules. Moreover, the
industry wants NOAAlNMFS to publish thc rules soon, because the niles will provide certainty
and protection against NGO attacks. However, environmental NGOs have a track record of
demanding and litigating for seismic rules (as well as Navy sonar rules) that are impossible to
comply with. If NGOs succeed in having NOAAlNMFS or a court implenient seismic rules,
then oil and gas exploration will shut down in the Gulf of Mexico. This result would cause a
substantial loss of jobs throughout the Gulf area and throughout the rest of the Uni ted States. It
would also increase the United States dependence on foreign oil.
C. EPA Endocrine Disrupter Screening Program
The Endocrine Disruptor Screening Program is EPA's response to a statutory
requirement in the Food Quality Protection Act and the Safe Drinking Water Act Amendments in
1996. These amendments require that EPA screen pesticide chemicals for their potential to
produce effects similar to those produced by the female hormones (estrogell) in humans. They
give EPA the authoriry-to screen certain other chemicals and to include other endocrine effects.
In October 2009, after years of wasteful effOlt and millions of tax dollars spent, EPA produced a
Jist of pesticide chemicals to be tested and list of II tests to be used in a so-called Tier J test
program. Companies that fail the Tier 1 tests will have to conduct Ticr 2 tests, which don't exist
yet. The Tier 2 tests will determine whether the chemicals will be further regulated or perhaps
even banned.
The cost of performing the EDSP tests will not likely cost many jobs, but the test results
might. Failing these tests could result in a product ban or regulations so stringent that persons
involved in their manufachlre could lose their jobs. Farmers who depend on these pesticides
might be unable to produce a profitable crop. These adverse consequences would be
unacceptable, because most of the EDSP tests are unreliable. Many of the tests are new, and
many of them did not pass peer review for their accuracy and reliability. Therefore, jobs could be
lost on the basis of tests that have not been demonstrated to be adequate for their intended use.
On May 19, 2010, Minerals Management Service was reorganized. The relevant agency is now the Bureau
of OCelln Energy Management, Regulation and Enforcement (BOEMRE).
D. Conclusion
As a nationally recognized clearinghouse for methods to improve the federal regulatory
process, CRE is very well acquainted with the significant impact and costs the regulatory framework
can have on the U.S. economy. Accordingly, CRE is pleased to learn that the Committee 01\
Oversight and Government Reform will be examining this essential issue.
CRE is pleased to have the opportunity to identify existing and proposed regulations that
negatively impact job growth for the Committee on Oversight and Government RefOlm. CRE
welcomes the opportunity to assist the Committee in the future as it considers the impact of these and
other regulations on U.S jobs. Should you have any questions or require additional information.,
please contact me at (202) 265-2383.
~ i : J ~
Jim Tozzi
Member, Board of Advisors
Regulatory Process Reform Opportunities for 2011
The 112
Congress is overwhelmed by anecdotes of Executive branch regulation
run amok. Many stories will be true and relief of some sort will be justified. Attending to
them individually, however, would miss three larger points:
1. Congress has enough expertise for oversight on few specific regulations.
Overseeing the breadth and depth of regulations issued by any single Federal
agency requires expertise well beyond Congress's oversight capacity. Agencies
will always muster greater expertise than Congress. For them, regulation is a
full-time job.
2. Even the most ill advised regulation has its advocates. Some of the most
persuasive advocates will be rentseeking businesses that profit from regulation.
NGOs will defend regulations by appeals to sympathetic beneficiaries. These
appeals can succeed even when benefits never materialize.
3. III advised regulation is not random. but rather the product of agency or abuse of
or noncompliance with administrative procedures. These procedures were
established to protect the public, but they no longer work for the benefit of the
American people.
Reducing the propensity of agencies to issue bad regulations requires broad process
reform. This paper outlines six areas in which Congressional oversight of administrative
procedures can achieve long-lasting benefits.
Where helpful, examples are provided from the Environmental Protection Agency
(EPA) and the Patent and Trademark Office (PTO). I chose these two agencies for two
reasons. First, both agencies routinely issue regulatory actions that impose billions of
dollars annually in costs. Second, EPA regulations are notoriously controversial but PTO
regulations are not. PTO regulations would be highly controversial if the Office did not
systematically evade administrative laws and Executive branch procedures.
1. PAPERWORK REDUCTION ACT..••.........•...................•..•....•.•..•••.•.•.•••••..•••.••••..........2
A. Open Govern.ment Initiative 6
B. Scientific Integrity 6
Richard B. Belzer, Ph.D.

1. Paperwork Reduction Act
The Paperwork Reduction Act (PRA) is the most important procedural statute that
hardly anyone has ever heard of, yet it was enacted 30 years ago. Federal agencies do not
educate the public about it. OMB's Office of Information and Regulatory Affairs (OlRA) is
responsible for enforcing the PRA, but OMB is too aloofby culture and temperament to engage
the public. Agencies evade the spirit of the law by publishing incomprehensible notices and
withholding information critical for informed comment. Agencies say they minimize paperwork
burden, but they do so simply by grossly underestimating it. OlRA tolerates this because its
officials would rather devote resources to Executive Order 12,B66 review and other activities.
Agencies are forbidden from imposing paperwork burdens that have not been approved
by OMB, and the PRA has extraordinarily powerful public protection provisions (44 U.S.C. §
3512,5 C.F.R. § 1320.6). In principle, but not always in practice, these protections ensure that
agencies minimally obey the law.
The PRA's purpose is to minimize Federal paperwork burden. Each agency is required
to have an independent office tasked with this function; few if any are actually indepen'dent.
OIRA has ample authority to disapprove information collections where paperwork costs (i.e.,
"burden") exceed social benefits (i.e., "practical utility') It doesn't exercise this authority much;
disapprovals are rare. PRA compliance is reminiscent of an old joke about why labor
productivity in the Soviet Union was so bad: "The State pretends to pay us, so we pretend to
work." The PRA is similar: OMB pretends to enforce the law, so agencies pretend to comply.
Some agencies (e.g., the Environmental Protection Agency) are very good at complying
with the form of the PRA's requirements but much less often comply with its substance. OMB
has approved virtually every paperwork requirement EPA imposes. But EPA systematically
understates actual burden. For example, attention has been focused recently on the burdens on
industrial facilities resulting from EPA's Title VGreenhouse Gas Tailoring Rule (75 Fed. Reg.
31,514). EPA claims this is "a burden relief rule" that "does not impose any new requirements.....
Given the text of the law, EPA cares about securing OMB approval; demonstrating the value of
this information or accurately estimating burden; never mind minimizing it, matters not at all.
Other agencies (e.g., the Patent and Trademark Office) are simply dismissive of their
PRA responsibilities. The Patent Office has never bothered to seek OMB approval for perhaps
billions of dollars in annual paperwork burdens related to applying for and prosecuting a patent
application. Legally, the USPTO cannot enforce these requirements. But in practice it has no
difficulty at all, because the PRA's strong public protections fall apart when the public seeks to
enforce a right or obtain a benefit from an agency that can hold that right or benefit hostage.
Inattention to the PRA may be the proximate cause of reports that paperwork burdens
have exploded in recent years. In the debate over the health care law, which in §9006(b)
requires a Form 1099-MISC be filed for evelY purchase over $600, paperwork burdens were
ignored. All eyes were on the JCT's estimated 10-year revenue gain of $17.1 billion. Yet
paperwork burden could exceed JCT's projected gain in tax revenue. Also, no one examined
whether the IRS could actually process these additional1099s, which is an essential
prerequisite for practical utility under the PRA (44 U.S.C. § 3502(1l)["the ability of an agency to
... process such information in a timely and useful fashion"]).
GAO recently told Congress that revenue gains would exceed costs. However, this
conclusion is dubious. GAO's cost estimates were based on a sample size of nine.

44 U.S.C. § 3501 et seq.
Richard B. Belzer, Ph.D.

2. Information Quality Act
... [60]
106 [60]
12 [60J
78 [60]
Best Performers
Average Days to Respond
- [60]
-- [60]
162 [601
147 [60]
340 [90J
386 [60]
-- [60]
Days to Respond
How Agencies Compare
Agency nonfeasance
results from the absence of
judicial review and
oversight. To Indudes all agencies where N 2. C tAT O.l.k
date, petItIOners have secured CHtLKBOu
only a partial review on the merits in Federal court, and only once, in Prime Time v. Vi/sack,
599 F.3d 678 (D.C. Cir. 2010).
In 2000 Congress directed OMB to more aggressively exercise its authority to
improve the quality of information disseminated by Federal agencies. OMB's 2002
guidelines required each agency to establish its own implementing guidelines. Agency
guidelines were to include administrative procedures whereby the public could seek and
obtain correction of information failing to meet OMB's quality standards. OMB required
agencies to establish pre-dissemination review procedures to minimize the dissemination
of erroneous information. Virtually every Federal agency met the October 1, 2002, deadline.
(The Department of Homeland Security remains the most notable violator.)
My review of all 193 petitions submitted FY2003-10 shows that agencies routinely
violate their most elementary procedures. Most agencies committed to respond within 60
days. Agencies met that goal less than 30% of the time; the average response time was 200
days. Petitioners often found agency responses unsatisfying. An unknown number simply
gave up, but about a third took advantage of the right to an independent administrative
appeal. On average, agencies took another 197 days to respond. One reason so few appeals
have been filed is that agency responses to appeals do not appear to be genuinely
independent. Some petitions and appeals have languished for years.
This chart shows how
average response time varies
across Federal agencies for
Requests for Correction (i.e..
initial) petitions and Requests
for Reconsideration (i.e.,
appeals). The number in
square brackets is the agency's
definition of a "timely"
response. Only the Treasury
Department has met its goal,
and the Labor Department has
been close.
Meanwhile, Congress has not conducted any oversight. This is strategically
important for regulatory reform, because many major regulations rely on information that
is wildly out of sync with applicable quality standards (most notably, objectivity). For
example, several controversial recent EPA regulations depend on egregiously biased
portrayals of scientific information that has been subject to petitions for correction. Agency
responses have largely avoided the merits. The Courts' willingness to defer to Agency
expertise would be tested if EPA had to respond honestly to information quality challenges.

Pub. L. 106-554, Sec. 515; 44 U.S.C. § 3516 note.
Richard B. Belzer, Ph.D.

3. Executive Order 12,866
OMB has performed centralized regulatory review since 1981, when President Reagan
issued Executive Order 12,291. Executive Order 12,866 significantly reduced the scope of OMB
review and muddled the review principles. The Obama administration planned at the outset to
make major changes to these procedures and principles. About 200 persons and organizations
responded to its unprecedented and curious request for public comment. Rumors of the
impending release of a revised Executive Order have circulated multiple times since Summer
2009. (The Executive Order released with considerable fanfare on January 18, 2011, is not the
one that has been anticipated. Stripped of its promotional dressing, this EO has very little new
content and leaves existing procedures intact.)
In his comment letter to OMB, then-Ranking Member Issa noted, "Any change in this
directive should be approached with caution and with an eye towards improving regulatory
effectiveness while minimizing regulatory burden." He proposed a dialogue on modernizing
regulatory review that emphasized such things as information quality ("[t]he need for accuracy,
objectivity and transparency in the analysis of potential risks"), and enhanced procedural
transparency (OMB should "rateD the quality of the analysis supporting all major regulations").
The Obama Administration has not formally changed the review process or its
substantive criteria, and insight about what informal changes have occurred is hard to come by.
Nonetheless, there is ample evidence that the intensity of OMB review has declined significantly.
In 2009, half OMB's 593 reviews were completed in 29 calendar days or less. For the 125
economically significant rules OIRA reviewed-those draft rules that agencies acknowledge
have effects exceeding $100 million in anyone year-half of OIRA's reviews were completed in
24 calendar days or less. OMB completed more than 20% of these nominally high-intensity
reviews in 10 calendar days or less. Twenty-six rules (nine of them major) were reviewed in
one day or less. Six rules were published in the Federal Register before they were reviewed.
Congress needs a clear picture of the regulatory process to inform possible procedural
changes. One proposal that has been discussed extensively is the REINS Act. As written,
however, the REINS Act could leave Congress relying solely on self-interested agency estimates
of benefits, costs, and other effects. There would be neither the time nor a mechanism for
agency estimates to be independently reviewed. Congress might want to learn OMB's opinions,
but it is virtually certain that the President would never allow this.
Congress also would have to rely on agencies (or OMB) to correctly designate rules as
"major."ln 2009, OMB reviewed 468 draft regulatory actions not classified as economically
significant (i.e., "major").
How many of them had economic effects exceeding $100 million, but were incorrectly
classified to avoid being labeled as "major"?
How often has an agency succeeded in evading the "major" rule designation by dividing
a very expensive rule into multiple small rules?
No one knows the answer to either question, but as written the REINS Act would
unintentionally exacerbate both problems.

58 Fed. Reg. 51735, Sep. 30, 1993.
Richard B. Belzer, Ph.D.

4. Good Guidance Practices
Agencies have gravitated to issuing guidance in lieu of regulation, and in principle this
could be a favorable trend. Unfortunately, agency affinity for guidance often appears to be less
motivated by a desire for regulatory flexibility than an interest in avoiding the procedural and
analytic requirements of rule making. For example, EPA has implemented through guidance its
controversial suite of risk assessment practices, which have extraordinary regulatory impacts.
The Patent and Trademark Office publishes without public comment or regulatory analysis
thousands of pages of gUidance in its Manual of Patent Examining Practices. It even enforces
unpublished internal memoranda. Some of the PTa's guidance (e.g., restriction practice in
Chapter 800) unambiguously conflicts with both law and regulation.
In response to these latter trends, in 2007 OMBissued a government-wide directive on
Good Guidance Practices ("GGP"). This action stirred partisan but not substantive controversy;
every administration has quietly reviewed selected guidance documents. In 2009, President
Obama revoked President Bush's Executive Order 13,422, removing OMB's authority to review
major guidance documents. The extent to which OMB reviewed guidance from 2007-09, or
continues to do so informally, cannot be readily determined from public information. When
OMB reviews guidance, no record is established in its public database.
Interestingly, President Obama left the GGP in place. The GGP requires each agency to
create a web page listing every significant guidance document and noting which ones are in
force, superseded, or rescinded. These web pages would be extremely valuable to each agency's
regulated community, which otherwise has to expend extraordinary resources simply finding
these documents and figuring out which ones (if any) might apply. Predictably, EPA is a leader
in procedural compliance. On the other hand the Patent and Trademark Office simply refuses to
implement the GGP. EPA's GGP web pages include a well-functioning index and a web-based
search utility. PTa has one web page with about 20 links, many well-known omissions, no
search capability, and no way to distinguish between operative, superseded, and expired
The GGP also restates two very important substantive provisions of the Administrative
Procedure Act. First, agencies choosing to issue guidance generally must avoid binding the
public with regulatory language such as "shall," "must:' "required:' and "requirement." No one
has systematically researched whether they comply. Second, the GGP requires agencies to
enforce any limits they choose to place on their own personnel so long as regulated parties are
not disadvantaged. Regulated parties, whether they are dealing with the EPA or the PTa, often
say that language in guidance that appropriately restricts the government's exercise of
discretion is ignored, but language that inappropriately restricts the public is enforced as if it
were regulatory.
Congressional oversight on GGP compliance would act as a brake on the misuse of
guidance and provide welcome insight and predictability about actual agency practice. This also
would draw attention to the extent that agencies have complied with its procedural
requirements. Some agency heads are likely to be embarrassingly unfamiliar with the GGP.
Inquiries directed to the regulated community could yield a bountiful list of guidance
documents that are not properly disclosed or do not adhere to the sustentative requirement
that they exclude regulatory language.

72 Fed. Reg. 3432 (Jan 25, 2007.
5. Presidential Initiatives

A. Open Government Initiative
On January 21, 2009, President Obama issued a memorandum directing Federal
agencies to establish "an unprecedented level of openness" based on a "system of
transparency, public participation, and collaboration." It took OMB nearly a year to organize
this initiative, and the product of that effort is not substantial.
Agencies' duties under the Directive are actually quite limited. They must take
certain actions only "[t]o the extent practicable and subject to valid restrictions." Their
main task is to establish an Open Government Web Page from which "at least three high-
value data sets" would be made public. Agencies can be expected to choose to highlight
databases based on strategic considerations. EPA, for example, uses its Open Government
Web Page to make it easier to access information the Agency has long promoted. In contrast,
the Open Government Web Page of the Patent and Trademark Office is bereft of content.
Congressional oversight ofagency performance even of these limited efforts would
be worthwhile, as would a review focusing on the timidity of the Open Government
Directive itself. It would be useful to learn which databases agencies are declining to make
B. Scientific Integrityt
in early 2009 President Obama issued another memorandum stating, "[s]cience and
·the scientific process must inform and guide decisions of my Administration" because "[t]he
public must be able to trust the science and scientific process informing public policy
decisions." The president directed his subordinates not to interfere with science ("Political
officials should not suppress or alter scientific or technological findings and conclusions"),
and to ensure that scientific information is fully disclosed ("If scientific and technological
information is developed and used by the Federal Government, it should ordinarily be made
available to the public").
The president directed the Office of Science and Technology Policy (OSTP) to
"ensur[e] the highest level of integrity in all aspects of the executive branch's involvement
with scientific and technological processes" by developing "recommendations for
Presidential action designed to guarantee scientific integrity throughout the executive
branch." The deadline for OSTP to implement this directive was July 7, 2009.
OSTP Director Holdren finally issued his implementing memorandum on December
17,2010--17 months late. The memorandum, which piggybacks on the Open Government
directive, is exclusively hortatory (agencies should, never shall) and is subject to unlimited
agency discretion (data and models underlying regulatory proposals and policy decisions
need be disclosed only "where appropriate"). The president's prohibition against
interference is not actually binding ("political officials should not suppress or alter scientific
or technological findings"); however, "public affairs officers" may alter findings "in no
The Scientific integrity Directive is subtly weaker than Bush Administration policy.
OMB's 2005 peer review guidelines required agencies to select peer reviewers "based on
expertise, experience and skills." The new Directive says reviewers should be "qualified."

74 Fed. Reg. 4685, Jan. 21;1009; Orszag Memo M-10-06, Dec. 8, 2009.
74 Fed. Reg. 10671, Mar. 11, 2009; Holdren Memorandum, Dec 17, 2010).
Richard B. Belzer, Ph.D.
rbbeIze [@j;)ost.harvard.edu
The directive invites agencies to "[e]stablish principles for conveying scientific and
technological information." It does not mention OMB's 2002 Information Quality Guidelines,
which established binding principles that agencies appear not to follow seriously.
Each Administration is accused of allowing policy and politics to interfere with
science, and White House officials are especially susceptible to the temptation. Two recent
incidents, both involving the Mississippi Canyon Block 252 ("Deepwater Horizon") blowout,
implicate Assistant to the President for Energy and Climate Change Carol Browner. On
August 4,2010, Browner publicly claimed that more than 75% of the oil was "gone." She
based this on a NOAA report that had not yet been peer reviewed, which she interpreted in
an extremely favorable and misleading, way. In the other case, Interior Secretary Salazar
tasked seven external experts recommended by the National Academy of Engineering to
peer review a DOl report on drilling safety recommendations. This report they reviewed did
not include a drilling moratorium. But Browner or someone on her staff added the
moratorium recommendation to the report's Executive Summary, plus text implying that
the peer reviewers agreed with it. They did not, for both procedural reasons (they had not
reviewed the recommendation] and substantive ones (they considered the
recommendation unscientific).
In response to Congressional complaints, the Interior Department's Acting Inspector
General reviewed the incident and delivered the weakest of exonerations, agreeing th!lt
Administration officials misled Congress and the public but that they did not seem to intend
to do so. Interestingly, she did not consider the matter a question of scientific integrity, as
the external reviewers did, but one of Information Quality Act compliance. She concluded
that DOl had not "definitively violated the IQA" because only the Executive Summary had
been tampered with. (It is a prima [acie violation of applicable information quality
guidelines--and scientific integrity-to add anything to an executive summary that is not
contained in, is different from, or conflicts with the document being summarized.)
Yet it is not surprising that this IG report is so weak. IGs usually operate
independently of agency and White House officials, but increasingly they are drawn into
supporting Administration programs and policies (e.g., estimates of "jobs saved" reported
by Recovery.Gov). Some IGs have become vulnerable to termination for political reasons
(e.g., Gerald Walpin). The author of the DOIIG report was a career civil servant appointed in
an acting capacity. It is unreasonable to expect genuine independence in such a case.
Nevertheless, scientific integrity in the Federal government remains a serious
problem worthy of Congressional oversight----<:!ven if President Obama's directive was
misguided and OSTP's implementing memorandum is tepid. The issue that Congress can
deal with establishing a clear line between science and policy, which has become blurred
beyond recognition. Sometimes, political will have the high moral ground because many
Federal scientists strive to embed their personal policy views within ostensibly scientific
work. Political officials are right to object to this practice. When they do, however, they can
expect to be accused of political interference with science----<:!specially by the very Federal
scientists who seek to usurp officials' legitimate authority.
Finally, Congress sometimes makes matters worse by asking scientists to opine on
policy, which many scientists are happy to do. This results in a predictably left-liberal bias
in Federal policymaking because members of the academy have a well-documented left-
liberal tilt. It may be impossible to prevent scientists from giving their opinions.
Nonetheless, Congress could achieve major regulatory reform simply by insisting that they
strictly separate scientific data and analysis from policy advice.
From: Fred Smith [mailto: FSmith@cei.org]
Sent: Monday, January 03, 2011 6:39 PM
To: Moore, Kristina
Cc: Amanda France
Subject: Follow up to Rep. Issa's inquiry
Dear Representative Issa:
I'm pleased to respond to your request for suggestions on regulations ha1111ful to our
economy. To date, those seeking to examine the appropriate role of govel11ment have focused on
taxation and spending. Congress should continue to scrutinize those burdens on the
economy. However, we at the Competitive Enterprise Institute have spent 26 years focusing on
the less salient, the hidden burdens, arising from the growth of the regulatory state. Hearings to
ensure that regulations receive the same critical attention of these more "honest" forms of
intervention are overdue. If the people are able to seeJar whol11 ti,e regulalOly bell tolls, the
opportunity to liberate our economy, and thus stimulate economic growth, will be greatly
enhanced. One hopeful sign is that Tea Patty activists, who supported many members of the new
freslunan class, have done much to increase public awareness of the costs of regulation and have
called for refonn. We propose you undertake the following investigations in the House
Committee on Oversight and Government Refonn.
Shortly after his election, President Barack Obama said: "Cap and trade was just one way of
skinning the cat; it was not the only way. It was a means, not an end. And I'm going to be
looking for other means to address this problem." Congress should investigate these "other
means," as the Obama Administration pursues energy rationing without any Congressional
involvement. The proposed regulations will depress investment, destroy jobs, raise energy prices
for consumers, drive energy-intensive manufacturing jobs abroad, and create perpetual economic
• Runaway regulation under the Clean Air Act. In regulating greenhouse gas
emissions, the Environmental Protection Agency (EPA) is trying to pick and choose
which provisions of the Clean Air Act it wants to implement. But that is not how the
Clean Air Act was set up. Under the Act, regulation under one section trips regulation
under multiple other sections. Even if EPA tries to avoid this outcome, environmental
pressure groups have already filed several lawsuits to compel the agency to begin
regulating greenhollse gas emissions under other sections. Unless Congress intervenes,
every building larger than a single-family dwelling likely will become subject to carbon
controls in the near future.
• EPA's administrative cap-and-trade power grab. The EPA plans to propose
greenhouse gas emissions control technology standards for power plants in July 2011
under the Clean Air Act. One ofthe primary options the EPA is reportedly considering is
a cap-and-trade program. The fact that even the Democratic-controlled Il1
refused to enact a cap-and-trade program appears not to matter to Climate Czar Carol
Browner or EPA Administrator Lisa Jackson. The EPA's authority under the Clean Air
Act requires clarification and the agency's unilateral actions require investigation.
• De facto moratorium on American oil and gas production. Political decisions by
Interior Secretary Ken Salazar and his appointees have led to a steep decline in domestic
oil and gas production on federal lands and offshore areas. Production is already down
and will almost certainly decline huiher. The extent of these cancellations is not fully
apparent because they have been done piecemeal. An investigation is needed to put all
the pieces together and thus show the damage done-and being done-to America's
domestic oil and gas industry.
• Attack on Appalachian coal mining. On April I, 20 I0, the EPA announced and
immediately implemented rules for regulating a new "pollutant" under the Clean Water
Act in order to stop new (and even surface coal mining projects in central
Appalachia. This is already a huge threat to West Virginia and Kentucky and will also
probably impact Virginia and Pennsylvania. However, there is no reason to believe that
the new salinity standards can be confined only to central Appalachia or applied only to
block surface coal mines. The fact that any surface disturbance can increase salinity in
nearby streams means that environmental pressure groups and NIMBY activists can file
suit in federal court, under the Clean Water Act, to require the new standards to be
applied nationwide. Thus, a threat to one region will almost certainly spread if Congress
does not act to stop it.
• Locking up federal lands. The amount of federal land managed under the Multiple Use
and Sustained Yield Act has been slll'inking since the 1960s, as lands have been placed in
one category of special environmental protection or another. Many of these withdrawals
have been done by Congress through the creation of new Wilderness Areas, new National
Wildlife Refuges, etc. However, more and more lands are being designated
administratively without any Congressional involvement or by abusing existing laws such
as the 1906 Antiquities Act. Huge productive resources-hard rock minerals, oil and gas,
timber, coal-are thereby being placed off limits. Inventories of the resources that have
been removed from potential use need to be undertaken and hearings should be held.
• CAFE gone wild. The 2007 anti-energy bill mandated higher Corporate Average Fuel
Economy (CAFE) standards for new cars and light trucks. The Obama administration
granted California's request for a waiver under the Clean Air Act and implemented the
new CAFE standards on a faster schedule than Congress had required. But even before
the 35.5-miles-per-gallon fleet average takes effect in the 2016 model year, the EPA has
started to push for progressive improvements in fuel economy that will lead to a 47- to
62-miles-per-gallon standard by 2025. This ins311ity must be stopped before taxpayers are
facing a much wider federal bailout and takeover of the auto industry.
• Debit card interchange fees set by the Federal Reserve. On December 16, 2010, the
Federal Reserve issued regulation implementing the Durbin Amendment to the Dodd-
Frank fmancial refonn law, which puts controls on the interchange fees retailers pay to
process debit cards. The amendment-favored by some of the nation's 131'gest retailers-
requires the Fed to "establish standards" to assess whether interchange fees are
"reasonable and propoliional to the cost." H.owever, the Fed's proposed rule goes way
beyond what the Durbin Amendment requires. If implemented as proposed, merchants
will never pay more than 12 cents for any customer's transactions, whether it's for $1.00
or $10,000. Yet the costs of processing debit cards will not go away. They will simply be
shifted to the community banks and credit unions that issue debit cards and ultimately on
to consumers. There are efforts undelway in Congress to delay or repeal the Durbin
Amendment, and even soon-to-be [olmer House Financial Services Committee Chairman
Barney Frank (D-Mass.), criticized the Fed on CNBC for setting the fees "too low."
Ideally, Congress should repeal the Durbin Amendment. Short of that, it should require
the Fed to justify the rates it has set.
Having failed to enact some key items in their legislative agenda-including the misleadingly
named Employee Free Choice Act (EFCA)-into law, organized labor and the Obama
administration have indicated that they will seek to make an end run around Congress by
imposing pro-union labor organizing rules through the regulatory process, mainly through the
National Labor Relations Board (NLRB) and National Mediation Board (NMB). Congress
should resist any such attempts.
• National Labor Relations Board. The NLRB is considering allowing remote electronic
voting (E-Voting), which would allow unions to conduct organizing elections via phone
or the Il1temet. The NLRB says it wants to keep the voting secret, but it would not be
difficult for a union organizer using a laptop computer or some other mobile device to
pressure an individual worker to vote for the union. The NLRB is also considering
expedited elections, which essentially would function as ambush elections. Employers
would have very little time to respond to union organizing campaigns, which gives the
union a significant advantage.
• National Mediation Board. The NMB recently amended the Railway Labor Act (RLA),
which regulates labor relations for railways and airlines, to skew voting rules in unions'
favor. Under the previous interpretation ofRLA voting rules, which dated back to 1934, a
union needed to get a majority of all members in the bargaining unit to vote for
unionization. Under the new interpretation, unions only need to get a maj0l1ty of votes
cast, which can lead to a union being celtified as the monopoly bargaining agent for a
group of employees with only a minority of those employees having voted for the union.
For example, if a union tries to organize a company that has 1,000 employees and on the
day of the election only sao vote, the union would need only 251 votes to win.
Congress should demand from both the NLRB and NMB a thorough explanation of the policy
changes they are pursuing. For changes which the agencies have already enacted, Congress
should restore accountability through a resolution of disapproval under
the Congressional Review Act of 1996, wllich allows Congress to review-and, when needed,
repeal-agency-promulgated rules. Even if not all CRA resolutions succeed, they can force
lawmakers and regulators to account for the costs of the rules they impose on the rest of us. It
would be even better still for new regulations to meet this kind of scrutiny on a routine basis.
Tech and Telecom
America's tlu'iving information technology and telecommunications sectors face a serious threat
from Washington. Proposals to enact unwaminted, destructive regulations enjoy substantial
support among Democrats in Congress, yet these rules threaten domestic job creation and U.S.
consumers. The high-tech sector's most serious threats come from two agencies, the Federal
Trade Conunisstion (FTC) and Federal Communications Commission (FCC), led by pro-
regulation Obama appointees Jon Leibowitz and Julius Genachowski, respectively.
• FedCl'al Communications Commission. In late December, the FCC voted 3-2 along
party lines to pass a net neutrality rule-the so-called "Open Internet" order-forbidding
Internet Service Providers fi-OIn engaging in many kinds of pro-competitive broadband
traffic prioritization, discrimination, and tiering-despite the D.C. Circuit Court's April
20 I0 Comeosl CO/po v. F. C. C ruling, which held that the agency lacked the statutory
authority to enforce net neutrality. Regulatory uncertainty will continue to shroud the
Internet marketplace until Congress or the courts clarify the FCC's proper role in
broadband governance. A legal challenge to the FCC's net neutrality mle will likely take
many years, so it is imperative that Congress act swiftly to amend the Communications
Act to explicitly strip the FCC of authority to regulate the network management practices
of Internet Service Providers. Short of that, Congress should hold hearings to examine the
weak rationale behind the FCC's Open Internet order. Chainnan Julius Genachowski
should be asked why his agency declined to defer to the Department of Justice's antitmst
division, which concluded in early 2010 that spectrum liberalization, not new regulation,
was the most desirable policy lever for spurring greater broadband competition.
• Federal Trade Commission. The FTC is proceeding down a path ofhannful regulation
in the context oflnternet privacy and infornlation collection. The agency has yet to
propose a fonnal rule, so prompt congressional action could prevent it from proceeding
further. In December 20 I0, the FTC's Bureau of Consumer Protection issued a report on
the state of consumer privacy, in which it advocated the creation of a "Do Not Track" list
and called on Congress to enact privacy legislation regulating the collection of consumer
infonnation. Some FTC officials are reportedly considering moving forward with new
regulations based on the agency's repOli. Congress should bar the agency from imposing
prescriptive new mandates on finns that collect infonnation about individuals. Existing
enforcement mechanisms, combined with evolving common law standards, are well
equipped to handle privacy tlu'eats as they surface. These flexible mechanisms, unlike
detailed federal regulations, tend to evolve along with teclmology. Congress should
demand that Consumer Protection Bureau head David Vladeck and FTC Chairnlan Jon
Leibowitz demonstrate the prevalence of actual-not speculative-eonsumer hann that
existing mechanisms cannot adequately address before establishing any new rules.
Let me conclude with a suggestion that you consider an oversight series of hearings on the ways
in which technological progress has been divelied from an increasingly consumer-friendly path
to one designed to please regulators. Once upon a time, Americans were generation that each
new generation of products would outperfonn-and be less expensive than-its
predecessor. Now we find the popular incandescent light bulb made illegal, larger cars penalized,
dishwashers made to clean poorly as they use less energy, and toilets that must be flushed more
than once. We have divelied the skills of our most creative entrepreneurs into delicate balancing
acts between satisfying the approval of regulatory overseers and the desire to sell a quality
product at an affordable price. We need to reverse this trend, and bring back to all sectors of our
economy the innovative spirit that is emblematic of our frontier sectors-including the Internet,
software, and gaming. An oversight hearing noting the design, cost and maintenance problems
that emerge when political interests replace individual choice would do much to dramatize the
dangers of the nanny regulatory state. It would offer an excellent opportunity to communicate to
the American public the need to rein in the regulatory state.
The above listing of issues provides for a good start to take on the challenge of bringing the size
and growth of goverrunent under control. However, it is only a start. We look forward to
working with you and your colleagues in the near future to help bring the principles of limited
govemment back to our nation's capital.
Fred L. Smith, Jr.
President, Competitive Enterprise Institute
1899 L5t NW, Floor 12, DC 20036
Direct: 202.331.2275

The ASSOciation of Chief Human Resource
January 5, 20 II
The Honorable Dan·ell Issa
House Committee on Oversight and Government Reform
u.s. House of Representatives
2157 Rayburn House Office Building
Washington, DC 20515
Dear Chairman Issa:
On behalf of the HR Policy Association and in response to your request for a Hst of concerns
regarding job killing regulations, I am fOlwarding to you a recent paper our Association published
entitled "A New Approach to Employment Regulation in the 21 st Century." The paper higWights,
from an employers' perspective, many of th.e regulations and regulatory processes that impede
economic growth and job creation in the United States.
I hope this paper will be useful to you as you revisit regulations impacting employment in
America. If you have any questions, please do not hesitate to me at 202-789-8670. Thank you for
your consideration.

Jeffrey C. McGuiness
President & CEO
www.hrprll y 0r1 1100 rtp',l'
I I,. t.
1/. gt i1
nlO hrpJ _y
o Il
44 _ ,
ANew Approach to Employment
Regulation in the 21 st Century
The Views of Chief Human Resource Officers
Regarding Formulating and Maintaining
Contemporary Employment Policy
August 16, 2010

••~ P O L I C Y
The Association of Chief Human Resource Officers
202.789.8670 I FAX 202.449.5648 I WWW.HRPOLlCY.ORG
About the Association 1
I. Executive Summary 2
II. Introduction 3
III. The Economic Recovery and Factors
Associated with Job Creation 4
IV. The Current Regulatory Climate 6
V. A Reexamination of Employment Policy 6
VI. Making a Bad Situation Worse:
Pending Legislative and Regulatolry Initiatives 8
VII. A Prime Example of Regulatory Failure:
The 1938 Fair Labor Standards Act.. 10
VIII. Recommendations for a New Approach to
Employment Regulation 15
IX. Conclusion 20
Endnotes 35
A New Approach to Employment Regulation in the 21" Century
About the Association
HR Polky Association is the lead organization representing chief
human resource officers of major employers. The Association consists
of more than 300 of the largest corporations doing business in the United
States and globally, and these employers are represented in the
organization by their most senior human resource executive.
Collectively, their companies employ more than 10 million employees in
the United States, nearly 9 percent of the p r i v a t ~ sector workforce, and
20 million employees worldwide. They have a combined market
capitalization of more than $7.5 trillion. These senior corporate officers
participate in the Association because of their passionate interest in the
direction of human resource policy. Their objective is to use the
combined power of the membership to act as a positive influence to
improve public policy, the HR marketplace, and the human resource
profession. For more infoffiJation visit www.hrpolicy.org
. ©2010 HR Policy Association 1 August 16, 2010
A New Approach to Employment Regulation in the 21" Century
The following paper describes a new approach to regulation being
called for by the Chief Human Resonrce Officers of more than 300 large
companies employing in the aggregate over 20 million people globally.
A significant part of the responsibility ofa corporate Chief Human
Resource Officer is to ensure the company's compliance with a host of
employment, labor, benefits, safety, privacy and other laws and
regulations gc,vel11ing the workplace and the relationship between
employers and employees.
What we are seeking is a new approach to employment policy that
includes a broad reexamination of existing laws and regulations by
policymakers and the stakeholders that results in a full understanding of
their impact on economic growth and then ensures the continuation of
protections that are needed and relevant to today's workplace in a way
that does not impact negatively on economic growth in the United States.
Seven Recommendations for a New Approach to
Employmen,t Regulation
I. Policymakers need to put the same energy into reexamining
employment laws and regulations already on the books as they do into
enacting new ones.
2. The process of reexamining existing laws and regulations shonld be
done in a non-adversarial manner that brings together the key
stakeholders to develop consensus recommendations.
3. Consideration needs to be given by Congress in fonnulating a
rigorous analytical process to be used in enacting new employment
legislation and regulation that asks a series of detailed questions
regarding the impact of the legislation on the competitiveness of
employers, the manner in which protections are provided employees,
and the process by which the objectives of the laws are achieved.
4. For all new laws and regulations, policymakers should first invite the
stakeholders to form a consensus among themselves on the best
5. All new employment laws and regulations should be preceded by an
Employee Retention and Hiring Cost Analysis that examines the
impact of the proposal on preservation and creation of American jobs.
6. Employers should be able to maintain nnifonn human resource
policies in all fifty states through a broad federal preemption of state
employment laws.
7. The use of private litigation to enforce federal employment laws
should be minimized or eliminated.
©2010 HR Policy Association 2 August 16, 2010
A New Approach to Employment Regulation in the 21" Century
During the decades immediately following the Second World War,
the United States experienced nnprecedented economic growth that, for a
while, far ontpaced that of the rest of the world. With little fear oflosing
ground to economic competitors outside our borders, the employment
regulatory scheme established during the New Deal was significantly
expanded during the last halfof the 20"' Century. This resnlted in a
highly complex scheme of mandates, restrictions, and reporting
requirements, covering the American workplace that was further
reinforced and expanded by the burgeoning growth of employment
litigation enconraged by monetary penalties and liability contained in
these regulations. This trend continued even as competition to
America's dominant economic position emerged globally.
With the 21" Century upon us and America struggling to climb out
of the Great Recession, as many of its global competitors recover far
more rapidly, we believe that tbe time has come to rethink the
fundamental assumptions and principles the United States bas followed
regarding the role of government in the workplace. Congress and the
administration are cnrrently considering a vast array of proposals to
expand that role to an even greater extent. However, we would suggest
instead a close examination of what is already in place with an eye
towards improving its relevance and workability in the contemporary
work environment, instead of strict enforcement of laws that are no
longer relevant to the way people live and work.
This by no means suggests the current employment policy regime be
dismantled. Ifa law or regulation is succeeding in providing a needed
protection or securing a fundamental right in an economically sound
matter, it should be retained. The fundamental problem is that most
workplace laws that were placed on the books decades ago have never
been reconsidered even though the workplace has changed dramatically.
In fact, a unique aspect of employment laws is that they virtually never
sunsel. In sharp contrast, most federal spending programs expire after
four or five years, forcing Congress to reconsider them on a regular basis
to ensure that they are still viable. True, Congress rarely allows these
laws to expire, but in being forced to reconsider them, refinements are
made, with some aspects being expanded and others being contracted or
even abandoned. While the results are anything but perfect, at least the
most obvious needs are addressed--often by consensus of all affected
©2010 HR Policy Association 3 August 16,2010
A New Approach to Employment Regulation in the 21" Century
No such reexamination takes place when it comes to employment
regulation. Laws and regulations are placed on the books without any
built-in mechanism for reexamination or improvement. If anything, they
become more complex and difficult for employers to navigate through
the addition of layers of regulations and interpretations by the conrts. To
make matters worse, few of these laws are preemptive, leaving the states
free in most cases to impose additional layers of requirements that in
many cases conflict with the requirements imposed by otber states or
even the federal law itself.
As the United States seeks to regain its fomler economic strength, a
necessary component of this effort must be a reconsideration of how the
employment relationship is regulated. Historically, a particular Congress
or administration is considered to be successful only if it passes new laws
or issues new regulations increasing workplace requirements and adding
compliaoce burdens and liabilities for employers.
We believe the time has come for the nation to ask whether the effort
to achieve a just society can be done in a manner that does not result in
higher unemployment and an uncompetitive business environment. The
purpose of this paper is to seek to begin a dialogue with federal
policymakers on this critically important subject.
In the course of the paper, we raise a number of questions and
suggest guidelines for the debate. It is worth noting that many of these
examples are drawn from a law written in the 1930s to address the
workplace of that era-the Fair Labor Standards Act. Perhaps no other
law on the books better illustrates what happens when laws are not
subjected to the same kind of critical reexamination and reinvention that
American businesses have learned is necessary for the long-term survival
and success of any enterprise.
The Economic Recovery and Factors Associated
with Job Creation
Given the current economic situation, an examination of employment
regulatioo policy is particularly critical because the ability of employers
to compete on a global scale is unequivocally tied to the workplace and
the laws and regulations that shape it. While the precipitous economic
decline that produced the Great Recession may have been arrested, the
number of payroll jobs is still 7.4 million below the level that preceded
the downturn. Further, there are more than five unemployed Americans
for every job opening. I Attempts to jump-start the recovery have
involved massive federal expenditures coupled with sweeping policy
cbanges touching virtually all areas of the economy. However, we are
©2010 HR Policy Association 4 August 16, 2010
A~ I e w Approach to Employment Regulation in the 21" Century
deeply concellled that existing employment policy-and the direction it
appears to be heading-is undennining these efforts because of its
impact on U.S. competitiveness, innovation, and employment growth.
The Costs of Regulations. The comprehensive structure of U.S.
workplace laws, regulations, and taxes plays a role in virtually every
decision by an employer with respect to hiring, promotions, tenninations,
scheduling, sharing of data, use and design of facilities, changes in
operations, and location of work. All of these laws and policies have a
cost, and with each additional mandate or tax, another cost is layered
onto employment decisions.
Thus, the ability of employers to add newjobs to the economy
depends to a large extent on the costs associated with those jobs. This is
not just a question of the dollar amounts involved in wages and benefits.
It also includes numerous other factors that influence the decision by an
employer as to whether it is economically feasible to even continue an
existing position, let alone add new ones. When it comes to workplace
regulation, t h . ~ s e factors include, among other things:
• the administrative costs associated with compliance with a law or
regulation, including the tracking and recordkeeping associated with
the data needed to demonstrate compliance;
• the time spent by human resource officers, supervisors, managers,
and company leadership in planning and ensuring compliance with
each workplace rule;
• the legal costs associated with establishing protocols to ensure
compliance while maintaining continuous internal auditing to make
certain that these protncols are being followed;
• the potential legal costs for addressing complaints and, nltimately,
litigation as well as defending against enforcement actions brought
by the government or private parties where allegations of
noncompliance are involved (including the costs of settlement where
the expense of defending such actions may exceed the potential
liability); and
• the inability to achieve savings or competitive advantages as a result
of restrictions that preclude the development of more efficient and
productive workplace policies and procedures, even where they may
be to the mutual benefit of both the employer and the employees.
As policymakers continue to strive for a full economic recovery, it is
essential that they consider the interplay between the goals of adding and
restoring jobs and the costs of employment regulation associated with
each job.
©2010 HR Policy Association 5 August 16. 2010
ANew Approach to Employment Regulation in the 21" Century
The Curreint Regulatory Climate
Employers are deeply concerned abont the relationship between
government and business and the extent to which it becomes higWy
adversarial in the employment policy context. The most significant
driver of the American economy for the past two centuries has been the
ability of the private sector to create economic opportunities and jobs.
Yet, we see a disturbing trend in the recent regnlatory climate that
instead seems to view employers as a malevolent force that must
constantly be placed nnder severe restraints. There appears to he a
general belief among many policymakers that, absent strong
govermnental enforcement schemes, employers will not treat employees
fairly and will. take advantage of them. 1llere is no question that there
have heen many instances over the years of certain companies taking
actions that hanned employees, and it can be said that to some extent,
business has brought this mindset on itself. However, the political
system in'the United States is such that public policy results in the sins of
the bad actors being punished by foisting harsh regulatory schemes on all.
employers, regardless of their past behavior.
Association members helieve that instead of continuing the
adversarial relationship between govemment and business, particularly at
a time of high unemployment, the goverlllllent should try to work with
employers to help create hothjobs and the conditions for their placement
in the United States. This can be manifested in numerous policy areas,
including education, training, tax, and trade policy. Yet, when it comes
to employment regnlation, this is not the message they receive from the
repeated statements and tllreats by govenunent officials that employers
should expect far stiffer enforcement of existing employment laws
coupled with even tougher measures and mandates. What is needed
instead are statements pledging a partnership with business to create new
markets and long tellll employment opportunities.
AReexamination of Employment Policy
With this in mind, we seek a broad re-examination of the impact of
the nation's regnlatory stmcture covering the workplace and the
employment relationship. We need to ask whether the nation has
reached a tipping point where the nation's labor, employment, and
benefit laws have become so complex, burdensome, and difficult to
administer that they have become both counterproductive and job killers.
In addressing this issue, we must recognize that many of these laws-
with the Fair Labor Standards Act of 1938 being a prime example--were
fOllllulated in a period when the workplace was significantly different
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A New Approach to Employment Regulation in the 21" Century
than today, and there was less concern about gnods and services being
perfonned outside our borders under different, and often more flexible,
regulatory schemes.
General Consensus on Fundamental Rights and
Protec.tions. We wish to emphasize that we are not suggesting a race
to the bollom that abandons fundamental employment protections.
Indeed, the vast majority of laws regulating the workplace address
legitimate concerns, and they rest upon a set of core principles that
nearly all people believe should be part of the employer-employee
relationship. For example, there is a broad consensus that:
• Employees should be treated with respect by employers.
• Employees should not be taken advantage of by employers.
• Employees should not be discriminated against in hiring,
compensation} advancement, and tennination using inappropriate
factors or criteria.
• Employees should not have to fear or suffer from bodily hann in
their workplace that is reasonably preventable.
• Employees should be able to fornl a union and engage in collective
bargaining if they choose to do so in an annosphere free of coercion
by either the employer or union organizers.
Although there will always be a small minority of employers that
will try to take advantage of their employees just as there will always be
a small minority of employees who will try to take advantage of their
employer, it is important to recognize that the vast majority of employers
understand that running a workplace that lacks respect for employees,
fair compensation, essential health and safety protections, and non-
discriminatnry treatment ultimately becomes a self-defeating practice
that results in a loss of competitive edge.
Traps for Well-Intentioned Employers. The frustration
employers have with the existing regulatory regime is that it often takes
overly prescriptive approaches that, if not adhered to in a very careful
manner, can result in "gotcha" penalties for employers who had no intent
to either violate the law or take advantage of their employees. Indeed,
"one size fits all" prescriptions can inhibit the employer's ability to
accommodate both its employees' needs as well as its own in a mutually
satisfactory maImer. Thus, as is often the case under the 1938 Fair Labor
Standards Act, companies and their employees find themselves having to
force the workplace into a construct designed solely to comply with
the law.
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The problems employers confront in complying with workplace
regulations are further exacerbated by the potential for costly litigation.
The United States is one of the few nations that provides for enforcement
of many of its employment laws through private actions before juries,
frequently resulting in significant monetary damages. Even employers
who are in compliance with the law spend a considerable amount of time
and resources dealing with nuisance lawsuits driven by the plaintiffs'
bar. All too frequently, these suits are filed with the objective nfshaking
the employer down for a settlement in retum for withdrawing the case.
And after tbe lawyers take their cut of the settlement for bOtll fees and
"expenses," plaintiffs are often left with cmmbs. In the case of class
actions which are now available for most employment laws, the problem
is compounded as lawyers often walk away with huge fees while
individual plaintiffs may only receive a modest share nfthe recovery. It
should cnme as no surprise that the United States, among all the
industrialized nations, has the highest number of lawyers per capita.'
Making a Bad Situation Worse: Pending
Legislati"e and Regulatory Initiatives
Despite the megaload of existing employment regulation, both
Congress and the current administration are considering a plethora of
proposals that, rather than fixing existing problems, would add to the
costs of employment by mandating new benefits and/or creating new
layers of regulation. Among others, these proposals include:
• The Paycheck Fairness Act, which would ignite a new explosion of
litigation by establishing unlimited jury awards of compensatory and
punitive damages for pay discrimination claims and setting a
precedent for the same change in all other discrimination laws, while
making it easier to prevail in such actions even where the employer
used non-discriminatory factors such as experience, productivity and
• The Healthy Families Act, which would directly add to the costs of
employing American workers by mandating paid sick leave
policies---<:overing all full-time and part-time employees-that
would extend well beyond the policies of most large and small
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• The Employee Free Choice Act, which is designed to unionize
more workplaces though so-called "card checks" that deny
employees the ability to adequately assess the pros and cons of
unionization and exercise their choice in an un-coerced confidential
manner, while having government-appointed arbitrators decide the
wages, benefits and all other terms and conditions of employment in
newly-un.ionized workplaces;
• New Wage and Hour Reporting Requirements, which the
Department of Labor has announced will be proposed in 2010, that
would invite employees and independent contractors to pursue
litigation against companies based on disputes as to whether they are
exempt or non-exempt under the arcane, antiquated rules tbat define
those exemptions;
• Proposed EEOC regulations implementing the Americans with
Disabilities Act Amendments, which would create confusion and
disruption in tbe workplace by broadening ADA coverage to include
minor impainnents that then obligate the employer to provide a
"reasonable accommodation" in scheduling or other important
workplace policies;
• The Working Families F l e ~ i b i l i t y Act, which would insert the
federal government in the decision between an employer and
employee on the scheduling and location of work by regulating how
the employer responds to those requests and generating litigation
where tbey are denied in whole or in part; and
• The FOREWARN Act (S. 1374/B.R. 3042), which would expand
the employer's requirement to provide advance notice of layoffs by
lowering the thresbold to include smaller events and increasing the
amount of notice from 60 to 90 days, further taxing the employer's
ability to predict relatively minor fluctuations in workforce needs.
What is most troubling is that these major policy cbanges, and
numerous others, are being considered on a piecemeal basis, with little
consideration for the broader perspective of how they would collectively
add 10 the costs of employment, which are already significant under
existing requirements.
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APrime Example of Regulatory Failure: The 1938
Fair Labor Standards Act
Of all employment laws and regulations that are out of synch with
today's workplace, the prime example is the Fair Labor Standards Act
(FLSA), enacted in 1938 during the Great Depression. On its face, the
FLSA is a very simple and meritorious attempt to protect employees
against exploitation and "sweatshop" working conditions. The dual
purpose of the law is to provide a minimum wage (currently $7.25 per
hour) and ensure that workers who are not othenvise exempt are paid
time-and-a-half overtime for hours worked in excess of forty in a given
workweek. The most common exemption, is for Ilwhite collar"
employees who must be paid a salary. Unfortunately, these simple
concepts have been translated into countless vague and inconsistent rules
and exceptions that are increasingly out of step with the times.
Examples of Problems. Employers regularly deal with following
kinds of situations forced by the statute's inflexibilities:
• Work schedules are carefully designed to avoid excessive overtime.
Thus, even if employees would prefer to work eight days in a row,
with six clays off in a row, the employer cannot afford such a
schedule because it would involve at least two full days of overtime.
• Because employers fear that FLSA violations will occur because of
employees engaging in work that is not being tracked, they impose
restrictions on the use of social media outside of working hours.
Thus, nonexempt employees are discouraged or prohibited from
checking emails off-hours due to the risk of not reporting their time
worked. In occupations such as off-site repainnen where the use of
Blackbenies or other personal digital assistaots (PDAs) is essential,
some employers require the employee to keep these at one of the
employer's locations, picking it up and dropping it off there,
regardless of the location of site visits.
• The law creates disincentives toward engaging nonexempt
employees in trouble-shooting and decision-making:
a When something goes wrong on a shift and the current shift
needs to call someone on the prior shift, the administrative
burden of reporting the "time worked" for the prior-shift
employee's six-minute phone call discourages the contact.
a Nonexempt employees may be routI"nely excluded from off-site
meetings or trips which could be beneficial to them and the
company because of the administrative difficulty of detennining
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what time is compensable and the actual cost, once detennined.
For e"ample, a group of exempt engineers may decide to have an
off-site retreat to improve the design of a product. Even though
the non-exempt draftsmen may not be essential to the meeting,
the en.gineers may want to include them so that they have a better
understanding of the direction of the project and because they are
viewed as part of lIthe team." Yet, because of uncertainties for
nonexempt employees sUITounding extension of the workday,
paying for travel time to and from the meeting, whether any
meals served before the 'meeting are considered "on the clock"
and so forth, the company may have a policy of not including
"non-essential" employees in such meetings.
o In team situations where nonexempt employees are actively
involved in deciding how the work is to be perfonned, the
employer often has to discourage them-to the point of imposing
discipline-from engaging in "after hours" discussions with their
co-workers or engaging in any other work, such as writing a
proposal for addressing a particular problem.
Such division of employees based on job classification is
increasingly out of sync with corporate cultures which depend on team-
work. Further, the inability to participate in off-hours or off-site events
stunts the career growth of nonexempt employees who lose the benefit of
these activities.
• Nonexempt employees are often at a disadvantage when their
employers offer non-work-related events during the workday for
employees to pmticipate in, such as Earth Day celebrations, diversity
network events, corporate United Way campaign events, and so
forth. In 24/7 operatious, these events will always be taking place
dllling the working hours of some segment of the workforce. Thus,
in order to participate, those nonexempt employees must be
compensated for that time and are thus less likely to get management
support for participating as fully as exempt employees, including
being able to serve as leaders or organizers.
• Employers are discouraged from paying bonuses and other fonns of
incentive pay to nonexempt employees because the law requires such
amounts to be included in the employees' rate of pay for purposes of
calculating overtime. For example, an employer may want to extend
pay-for-perfonnance incentives to nonexempt employees by offering
annual in<oentive payments for achieving certain perfonnance targets.
However,. payment of the incentive will require.recalculation of
overtime pay for the year. Moreover, when making the decision to
provide such incentives, the employer often doesn't know how much
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overtime tbe employees will work, thus preventing an accurate
projection of costs. To avoid tbis administrative complexity and
potential legal exposure, some employers simply conclude that they
are not going to extend incentive pay programs to nonexempt
• At a time when upgrading the skills of American workers is a
priority, t:mployers are discouraged from offering optional training to
their employees because the FLSA regulations require that
. employees be paid for the time spent during the training unless it is
"not directly related" to their jobs, even though they are not being
required to take it. For example, an employer may provide training
for a new software program tbat only certain of its computer
programmers will use. Clearly, tbe employer should pay for the
training time for tbose employees. However, other programmers
may wish to also learn the program to broaden their expertise. Yet,
the employer may decide not to offer it to them because its lawyers
say it may be viewed as "directly related" to their jobs.
The FLSA Workplace. In considering the FLSA, it is important
to understand the state of the American workplace when the 1938 law
was enacted. The Depression-era workplace was characterized by:
• a fixed beginning and end to both the workday and the workweek in
most American workplaces;
• with the exception of certain occupations (e.g., repairmen and truck
drivers), the perfornlance of the vast majority of work taking place in
the workplace because of the lack of communications teclmology
allowing the perfonnance ofjobs from remote locations;
• a far more stratified and predictable designation of occupations, as
compared to today's workplaces wbere there is a greater blurring of
distinctions and a more rapid evolution ofjob descriptions; and
• a greater preponderance of manual labor because of the relative
absence of technology and mechanization that transfonned the way
work is perfonned today.
TIle FLSA was passed at a time when Ford Motor Company was
making Model A's on its production lioe with considerable manual labor
and relatively very little automation. Witb technology and robotics,
today's production workers use tbeir minds and computers to an extent
that was beyond the imagination of science fiction writers in the
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Today, in fact, the entire concept of work is changing as the United
States moves from a manufacturing to a service economy that is highly
dependent on teclmoJogy and much more mobile. Yet, the basic
structure of the FLSA has never been fundamentally reexamined. The
FLSA and its regulations simply have not kept pace with the changes in
the workplace. The FLSA was enacted in 1938 and, though it has been
amended in a noteworthy manner 17 times, those ameQdments have, for
the most part, been limited to expanding coverage to specific categories
of employees and increasing the minimum wage, while occasionally
addressing very narrow aspects of the law.' Even though the minimum
wage seems to generate far greater attention in public policy discussions,
most of the difficulties created by the FLSA fall under the overtime
requirement. As a result, there is a tremendous amount oflitigation
brought by the plaintiffs' bar exploiting the differences between
Depression-era regulations and 21st Century workplace practices.
A considerable share of the friction within the FLSA arises from the
"white collar" regulations, which have created numerous difficulties in
figuring out which employees are subject to overtime requirements and
which are exempt. In 2004, the Bush Administration updated the
regulations defming the white collar exemptions.' However, the revised
regulations continue to cause compliance difficulties and generate
significant litigation because of the continuing evolution of Ule
workplace. Meanwhile, despite predictions that the changes would
result in six million Americans losing overtime,' no studies have been
offered since to verify that this happened. Moreover, our own informal
contacts with our members indicate that, if anything, most employees
whose status changed in the wake of the regulations were shifted from
exempt to nonexempt.
Explosion of Litigation. The problems in complying wiu, the
FLSA are exacerbated by the fact that that the statute provides not only
for enforcement by the Department of Labor, but also by private actions.
As a result, th.e private bar has taken advantage of the law's lack of
clarity by pursuing highly lucrative class actions against employers who
struggle to as,;ertain what is required. Thus, the nlllnber of FLSA
lawsuits has quadrupled from about 1,500 per year in the early 1990s to
over 6,000 in 2009,' and this does not count the number of cases brought
nnder state laws which often vary from the federal law. Faced with the
uncertainties of the law, companies often settle these cases, with a
median settlement cost of $7.4 million for federal cases and $ J0 million
for state cases.
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Lack of Preemption. On top of all the problems created by the
federal wage and hour laws, additional inflexibilities and complexities
are created by state laws, which are not preempted as long as they are
more "protective.
Thus, California has significantly narrower criteria
for which employees are exempt from overtime. For example, in order
to be considered an exempt computer employee in California, an
individual must perfonl1 duties involving the exercise of discretion more
than 50 percent of the time in each work week and earn at least $79,050
annually' Under federal law, there is no discretion requirement, the
exemption is measured over a longer period of time and is not based on a
hard-and-fast percentage test, and the employee needs to earn $23,660
annually. Thus, two different employees, one working in California and
another working in another state for the same company, may be subject
to entirely different scheduling and compensation schemes even though
they are perfornling exactly the same kind of work.
In addition, states may provide varying definitions of the workweek
or other factors detennining when overtime must be paid. In California,
most employees must be paid overtime for any hours worked in excess of
eight in a single day, regardless of how many hours he or she works the
rest of the week. In addition, an employer must provide a 30 minute
meal break during which the employee is relieved of all duties, unless the
job requires the employee to be on duty during meals, ~ u c h as a security
guard at a remote location. I. Thus, a nonexempt employee must be
forced by the employer to take a half-hour lunch break, even if the
employee would prefer a working lunch that would enable him or her to
leave work a half hour earlier. In situations where nonexempt employees
work closely with exempt employees, this is yet another situation where
the wage and hour law creates divisions in the workplace.
The Fair Labor Standards Act is not the only dysfunctional
employment law on the books, but any attempt to revamp our workplace
regulatory scheme should begin with it.
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Recommendations for aNew Approach to
Employment Regulation
We are. proposing a new altitude towards employment regulation,
one that would provide basic protections without posing a threat to job
growth, recognizing that without employment in the first place, the
protections are a moot point. The following is a seven step process that
would be the foundation of this new attitude.
I. Policymakers need to put the same energy into reexamining
employment laws and regulations already on the books as they do
into enacting new ones.
Employment laws, unlike most other statutes, rarely expire or sunset,
which results in the unfortunate trend of these laws remaining static and
not being adapted to changes in technology, the workplace, or work
practices. And when they are amended, lawmakers simply add new
layers of regulation without reviewing what is already in place. Rather
than discouraging employers from keeping or adding employees in the
United States by adding new costs and regulatory burdens, policymakers
should instead examine the requirements and mandates already on the
books and assess each law on a regular basis going forward. We are not
suggesting that most employment laws and regulations should be
repealed. In many instances, that would not be wise. However, very few
laws currently in place are free of components that are either
counterproductive, vague, unduly prescriptive, or in conflict with other
laws or consensual policy objectives.
2. The process of reexamining existing laws and regulations should be
done in a non-adversarial manner that brings together the key
stakeholders to develop consensus recommendations.
As part of the reexamination process, we recommend the
establishment of a task force for each major employment law currently
on the books, with equal representation by employers and employee
advocates whose mission is to recommend how to improve the law in a
manner that achieves the needed protections without impeding
employment growth. Ideally, each task force would reach a consensus
on solutions' addressing deficiencies that both sides recognize are needed.
Even where consensus is not reached, the process itself would identify
for policymakers deficiencies raised by those affected by the law as well
as areas where the law is working properly.
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3. Consideration needs to be given by Congress in fonnulating a
rigorous analytical process to be used in enacting new employment
legislation and regulation that asks a series of detailed questions
regardine the impact of the legislation on the competitiveness of
employers. the manner in which protections are provided employees.
and the process by which the objectives of the laws are achieved.
Far too often, the exclusive focus of policymakers is actions taken by
scofflaw employers with deplorable human resource even
though they are typically a small minority of all employers. The
resulting law and regulations are exclusively focused on correcting those
deficiencies, with litlle regard for their impact on employers with more
typical, desirable practices. To ensure a broader perspective, we
recommend that policymakers establish a fomlal process whereby
policymakers condnct a comprehensive analysis of all aspects of a new
law or regulation snch that the objectives are achieved with the full
understanding of the implications of the proposal on all stakeholders.
Such questions that would be a part of that analysis would be the
• Are the regulations contemporary?
• Are the regulations readily understandable by all those affected by
• Can the regulations be easily and consistently applied and enforced?
• Is there sufficient flexibility in the rules such that employers can
accommodate the need for family friendly policies without running
afoul ofthe law?
• Are the rules consistent with what today's employees genuinely want
and need while providing sufficient protections for low-wage
• What is the objective of the regulatory requirement, and what is the
best way to achieve that objective without causing undue disruptions
to employers?
• Can the regulations account for changes and do they allow for
changes in the use of technology, the workplace, and employee
Ii festyles?
• Can the requirements be applied consistently across the 50 states and
in the counties and cities of those states?
• Do policymakers and regulators fully understand ti,e consequences
of the regulatory scheme they have designed before it has heen
• Do the rules demand infomlation that employers do not have or
cannot easily obtain without incurring new costs?
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• Do the regulations contain any elements or requirements that
unnecessarily create ill will among employees?
• Do regulations impose reqnirements that are not contained in the
4. For all new laws and regulations. policymakers should first invite the
stakehold,ors to fonll a consensus among themselves on the best
Under tbe current system, Congress usually moves employment
legislation at the bebest of one or more interest groups in a bighly
adversarial manner, with the bill reflecting the approach most desired by
those groups. Upon enactment of the new legislation, a federal agency is
typically authorized or required to issue regnlations implementing the
new law, resolving ambiguities and providing the regulated parties
greater detail as to what is required. In issuing these regulations, the
agency must tben typically follow the Administrative Procedures Act
(P.L. 79-404) which generally requires public participation in the
rulemaking through varions notice and comment procedures.
Employment legislation is generally no different in this regard.
However, as long as the regulatory agency follows the specified steps in
the APA, there is no mechanism for guaranteeing that all affected parties
playa meaningful role. This is exacerbated by the fact that the agency
employees-both political appointees and career-do not necessarily
have "real world" experience to infonll the nIles tbey write.
Few American employers would hold up European workplace laws,
witll their focus on job protection at the expense ofjob mobility and
growth, as eX<Ullples to be followed. However, there is one component
of the European Union's system that deserves a closer look. Articles 138
and 139 of the European Community Treaty (EC) give both business and
labor-the so..called "Social Parlners"-a right to preempt all European
Conunission proposals by agreeing npon tbeir own jointly-drafted nIles.
The Commission is required to allow the parties nine montlls to reach a
"framework agreement," and may only proceed if either party decides
not to exercis" its right of preemption or if the parties fail to reach
agreement within that time frame. I I
Though the details of the social partners' preemption system are
embedded in the highly unique European Union system of governance,
the concept itself is transportable. Indeed, a recent example of a similar
approach took place in the United States during consideration of the
Americans with Disabilities Act Amendments Act of 2008 (ADAAA;
P.L. 101-336). After a bill with broad bipartisan snpport was strongly
opposed by employers, Congressional leaders asked the business
community and disability rights gronps to meet and seek an alternative
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they could both support. At the time, the legislation was being driven by
certain court decisions interpreting the ADA that most agreed would or
should not be allowed to stand because they narrowed the definition of
"disability." However, employers were concerned that Congress would
go much farther in seeking to overturn those decisions, effectively
deeming virtually every minor impainnent a covered udisability." Thus,
the task of the groups was to find a way to reverse the court decisions
with a scalpel, not a meat cleaver.
The resul t of the negotiations was an evenly balanced approach,
ultimately passed by Congress as the ADAAA, which reversed the
decisions but avoided disruption of the workplace by ensuring that the
"reasonable a.cconnnodations" employers would have to provide under
the ADA would be limited to those severe conditions the ADA was
originally intended to address. Significantly, the legislation passed the
House by a vote of 402 to 17, and unanimously by the Senate.
Unfortunately, as if to further make the case for a consensus-based
approach, the Equal Employment Opportunity, without first seeking
consensus among Ihe patties, proposed implementing regulations that, in
the view of the business community completely undernlined the
compromise which had been reached." As this is being written, the final
regulations have yet 10 be issued.
We recognize that the European social partners-style approach may
not work in all instances when it comes to legislation. The dynamics of
the American legislative process are such that it is rarely clear that a
particular piece oflegislation will become law. Nevertheless, we would
encourage Congress to follow the ADAAA model in all future
employment legislation.
Regulations, however, are far more amenable to this process. Once a
law is passed, regulations are a virtual certainty, and tile affected parties
know that, unless they reach agreement, a regulatory scheme may be
imposed that bears little or no resemblance to workplace realities and
may become subject to years of litigation.
Currently, tile process of"negotiated rulemaking" is rarely used and
is typically limited to highly technical areas such as environmental rules
where much of the process is driven by scientific data. Yet, the
experience io passing the ADAAA shows that workplace rules are also
amenable 10 oegotiated solutions. Thus, any new employment legislation
enacted henceforth by Congress should require the agency charged with
promulgating regulations to first give employers and other constituencies
a reasonable period of time to achieve a consensus approach before
acting on ils own. I f a consensus is achieved, the agency should be
required to adopt it as agreed upon by the parties. This new approach to
employment regulations could either be achieved on an ad hoc basis as a
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component of all new laws or, better yet, it could be achieved through
amendment to the APA that would apply generically to all new
employment regulations.
5. All new employment laws and regulations should be preceded by an
Retention and Hiring Cost Analysis that examines the
impact of the proposal on preservation and creation of American
Currently, before issuing regulations, the agencies are required by a
number of laws to perform various analyses of economic impact,
paperwork burdens, cost-benefit ratios. and so forth. However, none of
these required analyses specifically address the impact of employment
regulations on the costs of hiring and retaining employees. At a time
when unemployment is above 9 percent and likely to stay at that level for
a long time to come, we believe that this series of economic analyses
required for all new legislation should include something like an
Employee Retention and Hiring Cost Analysis that would examine the
• the administrative costs associated with compliance;
• the costs entailed in time spent ensuring compliance by human
resource departments and other levels of management;
• the legal costs associated with establishing protocols coupled with
regular audits to ensure compliance;
• the potential costs of defending against and/or settling litigation and
enforcement actions, recognizing that even employers who diligently
comply Witll the laws are subjected to these; and
• lost efficiency, productivity and competitive advantage denied by
precluding the development of certain workplace policies and
6. Employers should be able to maintain uniform human resource
policies in all fifty states through a broad federal preemption of state
employment laws.
One of the most successful federal employment policies has been the
broad preemption by the Employee Retirement Income Security Act
(ERISA) of state and local laws regulating self-insured employer-
provided health insurance. This has saved employers and their
employees considerable sums by enabling large employers with multi-
state operations to provide uniform benefits across the country, and thus
avoiding administrative costs tbat would be involved in seeking to
micromanage differences among thousands of jurisdictions.
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As has been done under ERISA and the National Labor Relations
Act, federal policymakers should recognize that employment policy is a
national concern, and federal laws should serve as both a floor and a
ceiling. Since state and local laws have proliferated in a number of
areas, most prominently wage and hour and employment discrimination,
we fully recognize the political obstacles to dismantling these laws by
applying preemption to existing statutes. However, at a minimum, any
new enactments should include preemption as a standard feature. Ln
addition, Congress could create a far more competitive economic
environment if multi-state employers were only subject to federal labor,
employment, and benefit laws.
7. The use of private litigation to enforce federal employment laws
should be minimized or eliminated.
The proliferation of nuisance lawsuits exploiting areas of uncertainty
in the laws has become a major economic drain, stifling economic
growth. At the very least, this should be contained by retaining "make
whole" remedies (e.g., reinstatement, back pay, etc.) as the exclusive
remedies where they now exist as such, while retaining the current
$50,000 to $300,000 cap on compensatory and punitive damages for
discrimination claims. An even more ideal solution would be to
restructure existing enforcement schemes along the lines of the National
Labor Relations Board, where the Board's General Counsel has the
exclusive ability to consider allegations of labor law violations, dismiss
those that are without merit, and prosecute those that are. The NLRB's
track record is by no means perfect, but this procedure has precluded the
kinds of shakedowns by plaintiffs' lawyers that have occurred under
other laws.
Our objective in providing these recommendations is, as much as
anything, to shift the debate on employment regulation policy to ensure a
broader perspective and recognition of its impact onlbe United States'
competitive posture in the world. We hope these are received in the
spirit in which they are offered. Ultimately, a dialogue is what we seek.
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I Applied Economic Strategies, estimate based on the latest available Bureau of Labor Statistics data.
2 American Bar Association, Council of European Lawyers and other sources.
3 See 54 Stal. 615 (\940), 6\ Stal. 64 (1947), 63 Stal. 910 (1949), 69 Stal. 7t 1(1955),70 Stal. 1118 (1956), P.L. 87-
30 (1961), PL 88-38 (1963), P.L. 89-601 (1966), P.L. 93-259 (1974), P.L. 95-151 (1977), P.L. 99-150 (1985), PL
101-157 (1989), PL 104-26 (1995), P.L. 104-188 (1996), P.L. 105-334 (1998), P.L. 106-202 (2000), and P.L. 110-
28 (2007).
469 Fed. Reg. 22122, April 23, 2004.
S Ross Eisenbrey, "Longer Hours, Less Pay - Labor Department's new rules could strip overtime protection from
millions of workers," Economic Policy Institute, Briefing Paper #152, July 14,2004.
6 U.S. Courts, Annual Report of the Director, Table C-2A, various years.
7 Samuel Estreicher and Kristina Yost. "Measuring the Value of Class and Collective Action Employment
Settlements: A Preliminary Assessment, New York University S c ~ o o l of Law, Working Paper No. 08-03, January
829 U.S.C. 218.
9 California Labor Code Section 515.5.
10 Even in those instances, there must be a written agreement for an on-the-job paid meal period that is revocable by
the employee at any time. California Code of Regulatiol1s, Title 8, §II 040.
11 See Keller & Darby (ed.), International Labor and Employment Laws" Volume I, 1-39-41 (BNA,2003).
12 See letter from Michael D. Peterson, Associate General Counsel and Director, Labor and Employment Policy, HR
Policy Association, to Mr. Stephen L1eweleyn, Executive Officer, Executive Secretariat, Equal Employment
Opportunity Commission, transmitting the Association's views on the proposed ADAAA regulations (Nov. 19,
2009), available at htlp://www.hmolicy.orgldownloads/2009/09-
©2010 HR Policy Association 21 August 16, 2010
. ~ I George Mason University
From 'he Desk ojRichard Williams. Ph D.
January 5, 20 II
Vill SlllJfE-mail (Kristillll.Moon'@maiJ.llollse.gov)
The Honorable Darrell Issa, Chainnan
House of Representatives
Commillee on Oversight and Government Refol1n
2157 Raybum House Office Building
Washington, D.C. 20515-6143
Dear Representative Issa:
Thank you for the opportunity to provide the House Committee on Oversight and Govemment Refoml with
infonnation regarding the Mercatus Center's research on the relationship between regulations and the U.S.
economy and potential improvement to the regulatory process. As a university-based research center, the
Mercatus Centcr works to bridge the gap between academic research and public policy problems. For over
20 years, scholars at the Mercatus Center have been studying regulations, and we continue to pursue
research in this area.
The following letter and allachment constitute a brief response to your written request of December 8,
20 IO. They are based on a review of the economics literature on regulation. My colleagues and I would be
happy to provide additional infol1nation as you consider the committee's priorities in this important area.
The attached review finds that there are several ways in which regulations affect U.S. investments, jobs,
and the economy. The three most important areas regtllation affects are uncertainty, competitiveness, and
the cost of doing business.
• Uncertainty: When there is uncertainty about demand, factor costs, or access to capital, businesses
may decide to wait for more certainty before they invest in new projects and employees.
• Competitiveness: To the extent that U.S. regulations are more onerous than those of competing
countries, finns may choose to relocate production to those countries thereby eliminating
employment in the United States.
• The Cost of Doing Business: Expenditures on regulatory monitoring and compliance reallocate
jobs from the prodnction of goods and services demanded by coosumers in the marketplace to
regulatory compliance and may factor into decisions not to start businesses.
While the above have implications for employment and the overall economy, the economic literature
suggests that the effect of regulations is likely small at the macro level. However, at the micro level, the
effect of regulations on job creation and sustainability of particular businesses can be great. That is,
regulations may not affect the overall quantity ofjobs in the economy, but they will make certain jobs too
costly to create or sustain.
Given the indisputable cost of regulation and the effect regulation has on intemational trade, it is essential
that proposed reglJlations achieve meaningful social benefits in excess of the costs of implementing them.
3301 NOrlh Fairfax Drive, SUIte 450. Arlington. VA 22201 Phone'OO) 993-4930 Fax: (703) 99)·4935 www merccllus org
There is much room for improvement in the regulatory process, and effective oversight can help ensure that
regulations meet the following standards for sound policy:
~ There is evidence, supported by sound science, of a significant and systemic social problem (not
just a potential problem) i.e., a market failure, a govermnent failure or an overriding social need,
that the regulation will address;
• There is evidence (again, supported by sound science) of at least one solution that will solve a
significant part of the problem; and
• The agency has a solution that is worth the costs and will not put the United States at a competitive
l1lfee sources of infonnation can help identify rules that may not satisfy the above criteria and signal
possibly problematic rules.
I. The Mercatus Rel,'Ulatory Report Card analyzes the quality and use of sound economic analysis for
proposed rules.
2. Input into Agency Rulemaking by the Intemational Trade Administration (ITA) of the Department
of Commerce details ITA's concerns about the potential effect of a rulemaking on jobs and
3. Data Quality Act challenges-administrative challenges to the scientific basis for rules nnder the
Data Quality Act-often indicate when poor science has been used to support regulatory claims.
Bad policy happens for many reasons. Public Choice economics has shown that, where there are problems
with rules, regulators may be satisfying the int,erests of specific actors (e.g., themselves, activists, regulated
indusb'Y) rather than advancing the welfare of the general public. Despite much progress since the passage
of the Administrative Procedures Act more than 60 years ago and subsequent congressional amendments
and executive orders, it is still far too easy to advance special interests without satisfying the basic tenets of
quality regulation. Effective oversight can chaBenge regulations that are at odds with the public interest and
do not satisfy the minimal criteria necessary for quality regulations, and understanding regulatory
incentives is absolutely necessary to the creation of institutions focused on the pursuit of effective
Richard A. Williams, Ph.D.
Director of Policy Research
Richard Williams
Director of Policy Research
The total cost of regulation in the United States is difficult to calculate, but one estimate puts tbe cost at
$1.75 trillion in 2008.' Total expenditures by the U.S. government were about $2.9 trillion in 2008. Thus,
out of a total of $4.6 trillion in resources allocated by the federal govenunent, 38% of the total is for
If regulations always produced goods and services that were val ned as highly as market-produced goods
and services, then this would not be a cause for alarm. But that is precisely what is not known. In fact,
there is evidence to the contrary for many regulations. Where regulations take resources out of the private
sector for less valuable uses, overall consumer welfare is diminished. For example, if regulations address
minor risks (such as de millimus risks from pesticide residues), the additional resources used to address
those risks are not used by consumers to address major risks privately, for example, buying safer cars.
Regulation also impacts the creation and sustainability ofjobs. For example, regulation can create
regulatory compliance jobs at the expense ofjobs that are more highly valued by the market (i.e.,
consumers). Economists refer to this as the misallocation of resources-when capital and labor are
directed to less productive or unproductive uses. This can have very real consequences for the economy.
For example, when government instituted policies to increase homeownership, people were encouraged to
make larger investments in housing than they otherwise would have made. The capital to produce those
homes-many of which are now in default and are selling at rock bottom prices-might have been used
more productively, purchasing education or saving for retirement.'
• The ideas presellted ill this doeumellt do 1I0t represellt official positiolls oJthe Mereatus Cell tel' at
George Masoll Ulliversity.
1 Nicole V. Crain and W. Mark Crain, "The Impact of Regulatory Costs on Small Firms," Small Business Research
Summary, No. 371 (Washington, DC: Small Business Administration, 2010),
http://geoffdavis.house.govlUploadedFilesfThe_lmpact_oCRegulatory_Costs_on_Small_Firms. pdf.
2 For a very good discussion of this see Russell Roberts, Gambling With Otlter People's Money: How Perverted
Incentives Caused the Financial Risk (Arlington, V A: Mercatus Center at George Mason University. 2010),
http://mereatus. orglsites!defauItlli les!pub1icat ion/RUSS-Ii naI. pdf.
From an economic perspective, however, it is important to note that the total number ofjobs can be a
misleading measure of the costs and benefits of regulation. Bad policies can increase total jobs, and good
policies can decrease total jobs.'
There are several possible avenues for regulations to affect investment and, ultimately,jobs.
Uncertainty: First, investment may be temporarily withheld when there is uncertainty about tbe size and
scope of new regulatOly initiatives. This is particularly true for investments that cannot be easily reversed
(i.e., reselling capital for its purchase price). Investment in new capital is inevitably accompanied by the
hiring of new labor. For fimls that must rely on a constant source offmancial capital (i.e., smaller finns),
one current source of uncertainty is how the new financial rules will affect their abilities to borrow. About
1/3 of small fmns rely on regular borrowing to finance capital
Competitiveness: Regulations also can affect jobs by forcing new investment to move overseas where the
investment is subject to less onerous regulations.
Competition and Entrv: Regulations that impose large start-up costs on businesses, such as licensing and
pennitting, may create a "wedge" that prevents new finns from entering an existing industry, which can
reduce competitiou in that industry.
Direct Creation of Jobs: Finns must reallocate resources, including new hires, in order to comply with
regulations. The resources utilized to comply witb regulations will not be utilized for other productive
activities. The net effect on employment is difficult to estimate for any particular regulation. The key
question is whether or not the resources that go to compliance are producing a mix of goods and services
that cnnsumers value more as compared to what they give up.
Empirical Analysis of Regulation, Investmemt, and Jobs
A quick review of the empirical Literature on the relationship between regulations and employment
snggests that, at the macro level, any effects are likely to be small, although probably negative. For
example, Cole and Elliott found, "Environmental regulation costs are not found to have a statistically
significant effect on employment..." in the United Kingdom between 1980 and 2003.'
3 One reason that employment is not a good policy goal is that technological progress, which is key to keeping the
country competitive, often reduces employment in particular industries. Technological improvements mean that
more outputs will be produced more cheaply with fewer inputs including labor. Between 1880 and 1930, the number
oflabar hours to produce 100 bushels of com (on 2, Y; acres) was reduced from 80 to 20. By 2002, 100 bushels of
com could be produced on less than I acre. A law banning tractors or mechanical harvesters could increase
employment dramatically. but it would also lower productivitYJ reduce farmers' income. and increase food prices
.. William C. Dunkelberg and Holly Wade, NFlB Small Business Economic Trends (Washington, DC: National
Federation of Independent Business, 2009), !!!!llJ6.vlVlV.nlib.com/P011alslOIPDFlsbet/SBET2009I 2.pdf. About 1/3
of small firms rely on regular borrowing to finance capital.
5 Matthew A. Cole and Rob J. Elliott, "Do Environmental Regulations Cost Jobs? An Industry-Level Analysis of the
UK," TI,e B.E. Journol ofEcollomic Allolysis & Policy 7, I (2007).
This will not be the case at the micro level, however, where specific industries may see large productivity
decreases and ultimately relocate overseas. The clear effect of regulation, then, is not in the total number
ofjobs lost or created but in the composition of the workforce-the types ofjobs that are lost or created.
Job creation and sustainability are intimately linked with investment, and regulation can have a significant
impact on investment. Below we explore in more detail the effects of regulation on uncertainty and
international competitiveness and their relationship to investment and jobs.
Two types of uncertainty can affect decisions by firms to invest: (a) uncertainty about demand for their
products (demand uncertainty) and (b) uncertainty about factor costs (labor and capital) (factor
uncertainty). Major regulations-such as those recently authorized regarding financial services, health
care, or greenhousc gas rules-can affect both demand and factor uncertainty.
As the United Statcs tries to recover from the Great Recession, one key type of factor uncertainty is
whether finns will have access to credit in the future. Uncertainty about access to credit has a greater
impact on firms, small lim,s in particular, that need continuous access to credit in order to finance
investments. On the other hand, the new Dodd-Frank financial services bill may have created a new kind
of uncertainty for large [mns with any financial activities. If they are designated as "too big to fail,"
federal oversight may control their operations. This generates uncertainty about future business operations
and potential profits.
To the extent that manufacturers are uncertain about upcoming changes in the legal and regulatory
environments, they are unable to assess the likelihood of positive returns on inveshnent and react by
either holding assets in cash, at least temporarily, or finding other, more certain investment environments.
The effects of uncertainty are well stated by Richard Fisher of the Federal Reserve Bank of Dallas:
Operating a business under conditions of excessive uncertainty is like playing a game
when you don't know the rules. Without rules, it is impossible to develop a strategy or
playbook. Business leaders are forced to call a lime-out: They remove their players from
the field and anxiously wait on the sidelines until they have a better idea how to play the
game. Too much uncertainty can create ecollOlnic stasis as more and more decisions get
delayed, retarding commihnents to expansion of payrolls and capital expenditures and
slowing the entire economy.6
How will the landscape be sculpted by the new Bureau of Consumer Financial Protection,
and how will potential conflicts between this bureau and other financial regulatory
agencies be managed? What will come of the Treasury's study, as mandated by the act,
of Fannie Mae and Freddie Mac? What capital requirements and eventual exemptions in
over-the-counter derivatives transactions will be established?'
6 Richard W. Fisher, "Random Refereeing: How Uncertainty Hinders Economic Growth (\Vilh Reference to Lucky
Puppies, Pepper...and Salt, lawrence Summers and Thomas Jefferson)" (Remarks, Greater San Antonio Chamber of
Commerce, San Anlonio. TX, July 29, 20 I0), htlp:lldallasfed.org/newslspeecheslfisherI20IOlrs I00729.crm
7 Ibid.
Irreversible investments are those investments in capital whose resale value will be less than the price
paid. As an ontgrowth of his dissertation, Ben Bemanke, currently chainnan of the Federal Reserve
Board, wrote abont the effects of uncertainty on ineversible investments:
The key observation is that, when individual projects are irreversible, agents must make
investment timing decisions that trade off the extra returns from early commitment
against the benefits of increased infomlation gained by waiting. In an environment in
which the underlying stnchastic structnre is itself subject to random change, events whose
long-run implications are nncertain can create an investment cycle by temporarily
increasing the retums to waiting for infonnation'
Other research supports Bemanke's observations. Empirically, using volatility of stock market returns,
Leahy and Whited used panel data on 600 U.S. manufacturing finns over the period of 1981 to 1987 and
found that uncertainty in returns had a significant negative effect on investment that was irreversible.'
Bulan also explores the types of investments that are irreversible. He finds that if uncertainty affects an
individual finn, as opposed to the entire industry, there can be as mnch as 1/3 less investment by the
finn.'o He provides a table that tries to highlight investments that are more likely to be irreversible and
hence likely to be more affected by an uncertain regulatory environmeot. Types of irreversible
investments include office and industrial buildings, specialized machinery, electrical equipment, aircraft,
and fann buildings and equipment." Finns in these types of industries are likely to need more regulatory
certainty over a longer period than others. In addition, Rosenberg found that idiosyncratic uncertainty for
Filmish fmns reduced both investment and labor demand and had a larger impact on smaller fimls and on
more diversified fitTlls.
Uncertainty has more to do with future regulations than proposed or existing regulations. Various tools,
such as the semi-annual Unified Agenda of Federal Regulatory and Deregulatory Actions and the annual
Regulatory Plan that has statements of agency priorities, offer some help. But these tools indicate mainly
what the government plans to do in the coming year. Planning horizons for irreversible inveshnents
usually have much longer timeframes. Infonllal signals about possible new regulations and taxes may
contradict statements in the unified agenda and regulatory plan. Longer-run priority lists with
commitment to sound analysis that will infonn policy may be helpfill in offsetting some of the
uncertainty. A movement in this direction would reduce the number of regulations, have longer periods
from the final rules to compliance, and more constant regulatory plans. In the absence of these kinds of
changes, capital will always be seeking higher returns, and companies will wait only so long for certainty.
Eventually, overseas markets may look more attractive.
8 Ben S. Bernanke, "Irreversibility, Uncertainty. and Cyclicallnvestment/' Journal a/Economics 97, 1
(February 1983): 85-106 .
9 Leahy, John V., and Toni M. Whited, "The Effect of Uncertainty on Investment: Some Stylized Facts," JOllrnal oj
MOlley, Credit {llId Sallking, XXVlll (1996): 64-83.
10 Laarni T. Bulan, "Real Options. Irreversible Investment and Finn Uncertainty: New Evidence from U.S. Finns,"
Review ofFinancial Economics: Special Issue all Real Options, 14 (2005): 255-279,
" Ibid.
12 Matts Rosenberg, "Does Uncertainty Affect Investment and Labor Demand? (working paper, Swedish School of
Economics and Business Administration, August 2002), http://dhanken.shh.fi/dspaceibitstream/10227116512/471-
International Competitiveness
The federal regulatory system is one key factor in determining whether investors continue to invest in the
United States. In tough economic times, it should be expected that countries would seek to refonn tbeir
regulatory systems to compete for international capital. To the extent that U.S. regulations are more
onerous than those in otber countries-particularly countries that offer similar property rights and
infrastructure-the United States risks losing inveshnent capital and jobs.
In the World Bank Doing Business ratlkings, the United States fell from number one in highest quality
regulatory systems a few years ago to number four in 2010, behind Singapore, New Zealand, and Hong
Kong QlItp://www.doingbusiness.org/). In the 1980s, the United States was one of only four countries to
require that regulatory impact analysis be done before major regulations could be issued. Now all 30
countries in the OECD, as well as the EU itself, have such programs. Many countries have wider
coverage than ours. The 2010 World Bank Doing Business study reported that 287 refonns in 183
countries made it easier to do business. 11,e United States, however, did not implement one refonn. One
might argue that the United States has not suffered an absolute decline in regulatory quality, but it has
suffered a relative decline.
Research by Stewart distinguishes between two different kinds of regulation and their effects on
international competition: product regulation (e.g., product liability rules, pesticide regulation, taxes on
lead content in fuels) and process regulations (e.g., mine reclamation laws, liability for hazardous waste
cleanup). He concludes that process regulations are likely to make domestic finns less competitive
internationally than product regulations, which he asserts can be more easily harmonized between
This, of course, assumes that countries will hannonize these regulations. He concludes' that
nations that have "more stringent regulatory and liability laws"like the U.S. have a disadvantage as new
industrial facilities will locate where compliance costs are lower. He adds that the problem is worse where
there are "relatively rigid, legalistic command-and-control" types of regulations."
Competitiveness between countries due to their regulatory regimes can be similar to competition between
U.S. states. One report shows that California "lost 79,000 manufacturing jobs between 2003 and 2007,
while seven other states with a meaningful percentage of U.S. manufacturing gained 62,000."" "Part of
the problem," according to the senior managing economist at the (Milken) Institute, "is that regulations
change so often in California that it's difficult for companies to plan. The state enacted an average of 15
changes in labor law each year from 1992 to 2002, four times more than state legislatures averaged
I] Richard B. Stewart, "Environmental Regulation and International Competitiveness.." Yale LmvJollmal, 102
" Ibid, 2056-57. The Congressional Budget Office studied the effects on productivity from environmental
regulation in the mid 1980's. They found "no statistical evidence"... to support the contention that environmental
regulation has hampered the efficiency of the U.S. economy in the aggregate." However, they did find that the type
of environmental regulation, that is, how flexible tbe stand.ard (e.g., performance standards versus control over
technology) can affect economic performance. Congressional Budget Office, Environmental Regulation and
Ecol/omic Efficiel/CY (Washington, DC: Congress of the United States, 1985),
Ii Alana Semuels, uLosses of factory jobs in California blamed on regulation," Los Angeles Times (June 23, 2009),
http://www.latimes.com/businesslla-fi- faetory23-2009jun23,0,3441 163.story.
nationwide."" This type of effect would also certainly be a problem at the national and intel11ational
Regulations can and do affect employment through their'effects on productivity, uncertainty, competition,
and compliance. Regulation's largest effect is on the composition of U.S. production between market-
demanded goods and regulatory goods. Increasing employment to producc regulatory goods that are not
as highly valued as market goods raises the risk of a misallocation of resources, which will leave the
United States less competitive than other countries. Three factors are key to achieving quality regulations:
• There is evidence, supported by sound science, of a significant and systemic social problem (not
just a potential problem), i.e., a market failure, a govemment failure or an overriding social need,
that the regulation will address.
• There is evidence (again, supported by sound science) of at least one solution that will solve a
significant part of the problem.
• The agency has a solution that is worth the costs and will not put the United States at a
competitive disadvantage.
When examining federal rulemaking processes and specific regulations, we suggest three sources of
information to help identify regulations that do not satisfy tbe above stated criteria.
I. The Mercatus Regulatory Report Card,
2. The Intemational Trade Admjnistration of the Department of Commerce, and
3. Administrative challenges to agency evidence and data under tbe Data Quality Act.
Mereatus Regulatory Report Card
For the last two years, the Mercatus Center has evaluated the quality and use of economic analysis in the
promulgation of economically significant proposed regulations-those for which the costs or benefits are
projected to be $100 million or more."
Every president since President Nixon has used an executive order to require agencies to conduct and
consider economic analysis before making a decision on wbether to promulgate a new regulation. If the
infonnation is incomplete or of poor quality, at a minimum it shows that that agencies are ignoring the
president's instructions. Given the value of economic analysis in improving regulation, when agencies fail
to conduct quality analysis, there is a bigher risk the rulemaking process will yield lower quality
regulatory policy.
We use three assessment criteria to evaluate rulemakings for the Regulatory Report Card:
I. Opeuness: How easily can the infonned layperson find the analysis, nnderstand it, and verify the
underlying assumptions and data?
16 Ibid.
17 The Regulatory Report Card can be found at www.Merc3tus.orglreportcard.
2. Analysis: How well does the analysis define and measnre the outcomes or benefits the regulation
seeks to accomplish, define the systemic problem the regulation seeks to solve, identify and
assess altematives, and evaluate costs and benefits?
3. Use: How much did the analysis affect decisions in the proposed rule, and what provisions did the
agency make for tracking the rule's effectiveness in the future?
Within those three categories, we selected four qnestions that will help to identify regulations that may
not meet the standards for sound regulations and therefore deserve further scrutiny."
1. Systemic Problem: How well does the analysis identify and demonstrate the existence of a market
failure or other systemic problem the regulation is supposed to solve?
If an agency scores poorly on this, there is no evidence that the agency is addressing a real social
problem as opposed to regulating for other reasons.
2. Alternatives: How well does the analysis assess the effectiveness ofaltemative approaches?
If an agency has not identified and analyzed a number of approaches, it may mean the agency has
settled on an approach without ever knowing if there are more effective ways to solve the
3. Benefit-cost analysis: How well does the analysis assess costs and benefits?
If an agency has done a poor job on this, it may mean that the there is no theory or evidence that
the regulation will solve the problem or do so at a reasonable cost.
4. Net Benefits: Did the agency maximize net benefits or explain why it chose another option?
If an agency cannot or chooses not to explain why it has not chosen the option that maximizes net
benefits for society, the agency may have ignored the evidence that its analysis has produced.
For each of the above four questions (as for aLI questions in our Report Card), we used a six-point scoring
scale (see Table 1) to determine how well the agency did in its regulatory analysis. Each question was
scored by at least two reviewers.
Table 1: Regulatory Scorecard Scoring Scale
Score Criteria
5 Complete analysis of all or almost all aspects, with one or more "best practices"
4 Reasonably thorough analysis of most aspects and/or shows at least one "best practice"
3 Reasonably thorough analysis of some aspects
2 Some relevant discussion with some documentation of analysis
18 As the report card is updated as new rules are proposed, additional rules may be added to this list.
Perfunctory statement with little explanation or documentation
Little or no relevant content
If an economically significant regulation scores poorly (a "2" or lower) on all four questions, it becomes a
reasonable candidate for further review. Table 2 below shows regulations that scored a "2" or worse on
each of these four questions. A score of"2" reflects only some relevant discussion with some
documentation of analysis. A score of" I" indicates the agency merely offered an assertion with no
supporting analysis or data, and a zero indicates that the topic was not even discussed.
Table 2: Poorly Scoring Rules on Four Questions
Systemic Cost Net
Rule Title Agency Pub Date Problem Alternatives Analysis Benefits
Hazard Communications Standard
Department of
9/30/2009 2 2
This proposed rule would modify
OSHA's existing Hazard
Communication Standard to confonn
with the UN Globally Hannoruzed
System of Classification and for safety
data sheets.
Renewable Fuels Program Protection
Agency 5/26/2009 2
With this proposed rule, the
Enviromnental Protection Agency is
enacting the requirements of the Energy
Independence and Security Act of 2007
Cranes and Derricks in Construction
Department of
10/9/2008 2 2 2 2
OSHA is proposing a rule to protect
employees from the hazards associated
with hoisting equipment when used to
perfonn construction activities.
Refuge Alternatives for Underground Department of
Coal Mines Labor
6/16/2008 2 2 2
The Mine Safety and Health
Administration (MSHA) is proposing
requirements for refuge alternatives in
underground coal mines and the training
of miners in their use.
HIPAA Electronic Transaction Health and
Standards Human Services
8/22/2008 2 2
This rule proposes to adopt updated
versions of the standards for electronic
transactions originally adopted in the
regulations entitled, "Health Insurance
Refonn: Standards for Electronic
Table 2: Poorly Scoring Rules on Four Questions (conl'd)
Employment Eligibility Verification
The rule proposes to amend the Federal
Acquisition Regulation (FAR) to require
that certain contracts contain a clause
requiring that the contractor and
subcontractor utilize the E-Verify System to
verify employment eligibility of all newly
hired employees of the contractor or
subcontractor and all employees directly
engaged in the perfonnance of work in the
United States under those contracts.
6/12/2008 2 2
Modifications to the HTPAA Privacy,
Security, and Enforcement Rules
The purpose of these modifications is to
implement recent statutory amendments
under the Health Infonnation Technology
for Economic and Clinical Health Act ("the
HITECH Act" or "the Act"), to strengthen
the privacy and security protection of health
infonnation, and to improve the workability
and effectiveness of these HIPAA Rules.
Health and
Human Services 7/14/2010
o o o
international Trade Administration
Another source of infomlation on the potential regulatory impact on competitiveness and jobs is the list of
mlemakiogs commented on by the Intemational Trade Administration (ITA) of the U.S. Department of
Commerce. The ITA "consults with U.S. industry and regulatory agencies to assess the impact of
proposed domestic and intemational regulatory policies that affect U.S. industry's competitiveness and
the expansion of U.S. exports."" The ITA publishes a list of proposed mlemakings by federal agencies
for which it offers input at http://trade.gov/maslian/industrvregulationmasinputlindex.asp. Although the
website does not detail specific concems raised by the ITA, the rulemakings in which the ITA has
expressed an interest are listed in Table 3.
Table 3: International Trade Administration (Department of Commerce) Manufacturing and
Services Input into Federal Rulemaking Process
Proposed Rules
EPA's National Ambient Air Qualifv Standards for Ozone
Final Rules
DHS' Importer Security Filing Rule
OSHA's Worker Exposure to Hexavalent Chromium Rule
Acropora Critical Habitat Rule
Americans With Disabilities Act
Container Security Initiative
Corporate Average Fuel Economy Standards
Definition of Solid Waste
Electronic Stability Control System Safety Standards
Enhanced Airworthiness Program for Airplane Systems
Ephedrine. Pseudoephedrine. and PhenylproDanolamine Reguirements
Global Harmonization Standard
Green Sturgeon Critical Habitat Rule
Industrial Boilers Maximum Achievable Control Technology
19 http://trade.gov/competitivenesslindex.asp
Lead National Ambient Air Qualitv Standards
Lithium Batteries Rule
Mandatory Reporting of Greenhouse Gases Rule
New Conservation and Management Measures and Resolutions for Antarctic Marine LiVing
Resources Under the Auspices of CCAMLR
Occupational Exposure to Beryllium
Occupational Exposure to Crystalline Silica
RealiD Act
Renewable Fuel Standards 01 and (II)
Rules of Origin
Safety Standards for Cranes and Derricks
Side Impact Protection Safetv Standards
Smalltooth Sawfish Critical Habitat Rule
Spill Prevention, Control, and Countermeasure Rules 01 and OJ)
Tailpipe Greenhouse Gas Emissions Standards
Transportation Worker Identification Credential
Transporter Continuous Operation
Western Hemisphere Travel Initiative 20
Data Quality Act
The Data Quality Act, passed in 200 I, requires federal agencies to ensure and maximize the "quality,
utility, objectivity, and integrity" of infonnation disseminated by the agencies. Each federal agency has
produced its own guidelines demonstrating how it intends to comply with this law. There have been some
substantive challenges to data, but agency responses are commonly slow, in contradiction to their own
guidance." The purpose of the act is to ensure that agencies utilize reliable data and evidence. The current
statute does not provide for judicial review of agency decisions. The lack of more substantive penalties
for presenting poor data may have limited the challenges that have been offered so far. Though some
20 http://www.trade.gov/mas/ianJindustryregulatiomnasinputlindex.asp
21 For a discussion on how this law affected EPA early on, see Nina Hardman "Impact of the Data Quality Act on
Decisionmaking at the Environmental Protection Agency" (major paper, Virginia Polytechnic Institute and State
University, Blacksburg, VA, 2006), http://nr.ncr.vt.edu/majoryaperslNina_Hardman.pdf.
challenges may be spurious, Data Quality Act challenges may offer the best list available of possible
problems with evidence used 10 supp0r! proposed regulations. A list of data quality petitions can be found
at the Center for Regulatory Effectiveness website, http://thecre.com/qllality/pelitions.hlml.
Congress has not engaged in a comprehensive review of regulatory processes and standards since the
passage of the Administrative Procedures Act in 1946. As a result of subsequent laws and executive
orders, there is a somewhat more transparent process as well as more analysis. However, there is room for
much improvement" As Wray poinls oUI, "The Government Accountability Office (GAO) asserts that a
thorough review of the regulalory process is particularly timely now because of the long-tenn fiscal
imbalance facing the United States.""
First, analysis from the Mercatus Regulatory Report Card shows that, for many economically significant
regulations, the quality of regulatory analysis is generally low, varies widely, and has not improved much
between the last two administrations." This condition exists despite decades-old requirements to conduct
in-depth economic analysis and use it in decision making. What's more, although the Office of
Infonnation and Regulatory Affairs exercises at least some check over executive branch agencies' quality
and use of analysis, no such check exists for "independent agencies." Some, such as the Securities and
Exchange Commission, do some economic analysis, but many do not, aud there is no mechanism for
oversight of those that do.
Second, a key concern that has surfaced from the Mercatus Regulatory Report Card is that many agencies
provide no evidence that they use the analysis they produce. This occurs despite the fact that Executive
Order 12866 has a fairly easy test to meet: agencies are required to show that costs are "jnstified" by
benefits. One study found that many agency economists felt that their analysis was at best ignored or, at
worst in some cases, they were ordered to come to the "right" conclnsion." Potential solutions to this
problem are discussed below.
Third, it is not clear whether the Data Quality Act in its present fonn-because it is too new or because
there have not been that many challenges---ensures that agencies present high-quality evidence. However,
it is clear that challenges to data quality begin with the agency and end within the executive branch. There
is no challenge beyond tbe executive branch. Some consideration might be given to either judicial or
congressional oversight of data challenges.
Fourth, the General Accounting Office and others have highlighted the problems associated with
"ensuring outcome-oriented perfonnance measurement and accountability for individual rules.,,26
Ultimately, if agencies are to assess whether a regulation has achieved its objective, the agencies must
22 See for example, http://mercatus.orglpuhlicalion/assessing.-cJUBIity-regulatorv-analysis.
2] Henry Wray. "Performance Accountability for Regulations," 2r Cell/my Regulation: Discovering Better
Solll1iOI1S for Enduring Problems (Arlington, VA: Mercatus Center at George Mason University, 2007) 23, citing
U.S. Government Accountability Office, RegulatDlY Re/onll: Prior Reviews 0/Federal Regulatory Process
Initiatives Reveal Opportunities/or Improvements (Washington, DC: GAO, 2005) 11.
24 Ibid.
2S Richard Williams, "The Influence of Regulatory Economists in Federal Health and Safety Agencies" (working
paper, Mercatus Center at George Mason University, 2008), http://mercatus.orglpublication/innuence-regulatorv-
~ 6 Henry Wray, "Performance Accountability for Regulations," 2p
Ce11lll1Y Regulation: Discol'eJi1Jg Beller
Soilltions[or Ellduring Problems (Arlington, VA: Mercatus Center at George Mason University, 2007) 23 and Scott
Farrow, l<lmproving the Regulatory Process Throughout its Life Cycle: Nine Recommendations to a New
Administration," 2P' Ce11lll1Y Regulatioll: Discovering Beller Solutions[or Enduring Problems (Arlington, VA:
Mercatus Center at George Mason University, 2007), 37.
begin with clear, outcome-oriented objectives. All regulations should articulate outcomes, such as the
number of childhood asthma cases prevented by an environmental regulation, rather than inputs or
activities, such as the number of people "protected" (i.e., covered by) the regulation. Next, they should
have measnrable targets with timeframes for achievement of those targets. In many cases, this also should
include an end point that indicates when a problem can be considered "solved." Achievement of these
goals should be a major deternlinant of an agency's budge!."
Fifth, even having sound economic analysis available to decision makers in bnreaucracies does not
necessarily change the incentives within those agencies. Golden writes, " ... beginning with the New Deal
era in Washington and the behavioral era in the social sciences, scholars identified a variety of factors that
led tl,em to believe that the career bureaucracy was insufficiently responsive to elected presidents."" A
nwnber of incentives might cause agency decision makers to go a different direction than that desired by
the president or Congress. In some cases, personal philosophies will dominate decisions-whether those
are pro- or anti-business or anti-capitalism. In some cases, decisions are made just to reduce pressure from
the media or political pressure. Some decisions are intended to reward specific stakeholders, whether
businesses or activists. Finally, some are taken to build up a bureaucratic empire or simply attain
promotion. Congress can help to keep agencies on track by taking a more active role in monitoring
regulations to ensure that bureaucracies follow the spirit as well as the letter of the law.
With the above in mind, a number of things can be done to improve the regulatory process, including:
I) Require that all agencies, including independent agencies, conduct economic analysis
(including effects on international competition). Also require that all analyses must be
approved by the Office of Management and Budget. Further, in order to be certain that
decision makers (and other interested parties) have access to the data, models, and
conclusions of these analyses, they should be published at least six mnnths prior to the
issuance of the proposed regulation.
2) Ensure that all regulations are tied to Government Performance and Results Act goals.
Require agencies to track progress in meeting those goals. Tie agencies' budgets to their
success or failure rates.
3) Consider refonns that require Congress to exercise more oversight over regulations,
which may also include conducting independent economic research.
Finally, there is the issue of too many federal rules overall. The Federal Register contains all rules,
proposed rules, presidential documents, and notices. In 2008, there were 31,879 of these." Since 2002,
each annual addition has contained more than 70,000 pages.'o These pages are dense. For a person to keep
up, she would need to read every page, the equivalent of one person reading 400 novels per year." By
contrast, the first volume of the Federal Register, puhlished in 1936, was II pages long."
Final rules are codified in the Code ojFederal Regulations (CFR). In 2009, these rules were published in
226 books, which took 163,333 pages.
There is no prioritization, and there is no way to search by type
27 Three Mercatus scholars-Maurice McTigue, Henry \Vray, and Jerry Ellig-will outline how regulatory agencies
should be held accountable for results in a forthcoming book to be published by Taylor and Francis.
28 Marissa Martino Golden, What Motivates Bureaucrats? Politics and At/ministration During the Reagan Yean.
(New York: Columbia University Press, 2000), 4.
,. http://www.federalregister.govllearn/frJacls.pdf..
30 Ibid.
Jl This calculation assumes that each page in the Federnl Register is about twice the length of the page of a
paperback novel and that the average novel has around 350 pages.
l:! Ibid.
33 Ibid.
of industry to see which rules apply to which industries. The language is also dense. (See the appendix of
the rules for the quality of green beans for an example.) Assuming an individual could read and
comprehend the CFR at a rate of about 5 minutes per page and could read for 10 hours a day, it would
take nearly 4 years to read the entire CFR.
The penalties for not knowing what is in the CFR are huge. As one author put it, "Failurc to learn of and
conform to regulations can have serious legal consequences, including criminal penalties. Failure to find
the cheapest way to conform can be expensive. Failure to learn of proposal for new laws or regulations
and to participate in hearings and use otber channels to help shape their final fonn can bring permanently
higher costs or loss of markets. So can failure to foresee changes in laws and regulations and to take
timely action in advance to minimize losses or maximize gains from the change."34
The federal government has been adding rules since the very first regulatory agency and, with a few
notable exceptions, not subtracting many." Many studies (Tom different branches of social science find
perverse effects from having too many rules. Hwang and Lin report that "if infonnation load keeps
increasing and finally exceeds the capacity of decision makers, infonnation processing will cease being
increased. Instead, decision makers will decrease infornlation processing as tbey experience a
phenomenon tenned 'information overload.'036 Another author identified a problem with additional rules
in the nuclear power industry: "Regulators and industry officials come to view confonnity or compliance
with the rules rather than actual perfonnance indicators as the measure of safety. So much time and
attention are devoted to these surrogate'measures of safety ('complying with the regulations') that the
larger goal of such regulation is frequently neglected."3? Hale cites railway, nuclear, and chemical
industries, where he analyzes the attempt to tum humans into robots where "rulebooks continually grew
and never diminished." This practice ends up making staff into "habitual and professional violators of
rules, just to get their work done.',3'
One interesting approach to solving the, problem may come from other areas, particularly the creation of a
mechanism similar to that used by the Base Realigrunent and Closing Commission (BRAe). Mercatus
scholar Jerry Brito has analyzed why BRAC succeeded and found that it was politically feasible for
members to vote for the principle of closing bases, but not (or particular base closures.
• BRAC allowed
members to vote mostly on the principle, not on the specifics, by grouping bases together and requiring an
up or down vote on the group. Establishing a BRAC-type commission for every major area of federal
regulation might provide an objective mechanism for identifying and eliminating regulations that are no
longer necessOlY or as effective as needed.
Federal regulations govern every aspect of our lives and affect nearly every major business decision. Yet,
for most Americans, both the costs and the benefits of regulations are hidden. Many of the historical
reasons for regulation, such as infonnation failures, are dissipating in a modem world dominated by web-
based communication. As evidenced by the recent financial crisis and the last several decades of study,
3 ~ Edward Fulton Denison, Accou11ting[or Slower Economic GroWl": the Unired Srates ;11 the 1970 's (Washington.
DC: The Brookings Institution, 1979), 130.
35 Airline deregulation was on notable exception.
36 Mark 1. Hwang and Jerry Lin, "Information Dimension, Lnformation Overload and Decision Quality/' JOllrnal of
hljormot;oll Sciellce 25 (1999): 213.
37 Jack N. Barkenbus. "Is Self Regulation Possible'?" Journal ofPoliCY Ana(ysis amI Management 2 (1983): 578,
J8 Andrew Hale, "Railway Safety Management: The Challenge of the New Millennium," (keynote address,
Occupational Safety & Health Conference of the nion Intemationale des Chemins de Fer, Paris, France, September
3. Jeny Brito, "The BRAC Model for Spending Reform," Merco/tls 011 PoliCy 70 (February 2010),
government failures are as real, and can impose just as severe consequences, as market failures. If the
United States is to remain competitive, it must not waste society's valuable resources. Ultimately, it is not
a victory if there is a temporary growth in jobs, but those jobs produce goods and services that prevent the
United States from being internationally competitive. Other countries have been looking carefully to
reduce their regulatory burdens.'" As intemationaltrade grows (see Chart 1), the United States cannot
afford to shackle itself with rules that are inefficient or ineffective.
Chart 1: Growth in International Trade
Growth In global nonagricultural has outpaced agricultural trade
Trillion SUS
05 2000 95 90 85 80 75 70
Nonagricultural merChandise....:'
.. -.....
...-' ..'
........ Agriculture
....... .. .. ------_ ...... --_.
'r"'1".......-=-r-,-, ..:,-""--i'-'-""-T'--"'--'i--'T--T-cr-",-.:,·-:,-....;-,-,.r-rr-r--.--r,,---,,-.--...-
1962 65
Source: UN Comlrade.
- --
Source: Anne Effland et al. "World Trade Organization and Globalization Facilitate Growth in
Agricultural Trade," Amber Waves 6 (June 2008): 26,
oW The EUl5 project is an example. "In the wake of worst economic downturn since the Great Depression, the
importance of effective regulation has never been as obvious as it is now. EU15 aims to stimulate debate on
regulatory policy and how to do it better, to bring about real reform that improves lives."
hltp:l/wwlV.oecd.org/doc/lllle/lt/24/0,3746,e/lj649_34141_41909720_1_1j _1,00."'1111
Standard of Quality for Green Beans
21 CFR Part 155, Subpart B Section 120
(b)Qllality. (I) When tested by the method prescribed in paragraph (b)(2) of this section:
(i) In the case of cut beans and diagonal cut beans under paragraphs (a)(2)(iii) (c ) and (d) of this section
and mixtures of two or more optional fonns under paragraph (a)(2)(iii)(g) of this section, not more than
60 units per 340 g (12 oz) drained weight are less than 13 mOl (0.50 in) long: Provided. That where the
number of units per 340 g (12 oz) drained weight exceeds 240, not more than 25 percent by count of the
total units are less than 13 mm (0.50 in) long.
(ii) In case O,ere are present pods or pieces of pods 10.7 mm (27/64-inch) or more in diameter, there are
not more than 12 strings per 340 gm (12 ounces) of drained weight which will support 227 gm (one-half
pound) for 5 seconds or longer.
(iii) The deseeded pods contain not more than 0.15 percent by weight of fibrous material.
(iv) There are not more than 10 percent by weight of blemished units of which amount not more than one-
half may be materially damaged by insect or pathological injury. A unit is considered blemished when the
aggregate blemished area exceeds the area ofa circle 3 mm (1/8in) in diameter. Materially damaged
means that the unit is damaged to the extent that the appearance or eating quality of the unit is seliously
(v) There are not more than 8 unstemmed units per 340 g (12 oz) drained weight.
(vi) The combined number of leaves, detached stems, and other extraneous vegetable matter shall not
average mnre than 3 pieces per 340 g (12 oz) drained beans.
(2) Canned beans shall be tested by the following method to detennine whether they meet the
requirements of paragraph (b)(I) of this section:
(i) Detennine the gross weight of the container. Open and distribute the contents of the container over the
meshes of a U.S. No.8 circular sieve with openings of2.36 mm (0.0937 in), which has been previously
weighed. The diameter of the sieve is 20.3 cm (8 in) if the quantity of contents of the container is less
than 1.36 kg (3 Ib) and 30.5 cm (12 in) if such quantity is 1.36 kg (3 Ib) or more. The bottom of the sieve
is woven-wire cloth that complies with the specifications of such cloth set forth in "Official Methods of
Analysis of the Association of Official AJlalytical Chemists," 15th ed. (1990), vol. 2, p. xii, Table I,
"Nominal Dimensions of Standard Test Sieves (USA Standard Series)," under the heading "Definitions of
Tenns and Explanatory Notes," which is incorporated by reference in accordance with 5 U.S.C. 552(a)
and I CFR part 51. Copies may be obtained from the AOAC INTERNATIONAL, 481 North Frederick
Ave., suite 500, Gaithersburg, MD 20877, or may be examined at the National Archives and Records
Administration (NARA). For infoffi13tion on the availability of this material at NARA, call 202-741-
6030, or go to:l1llp://www.arcllives.govlfederal_regislerlcode_ofJederaIJeglllalions/ibr_localions.l1lml.
Without shifting the material on the sieve, incline the sieve 17 to 20deg. to facilitate drainage. Two
minutes after drainage begins, weigh the sieve and the drained material. Record in grams (ounces) the
weight so found, less the weight of the sieve, as the drained weight. Dry and weigh the empty container
and sublractthis weight from the gross weight to obtain the net weight. Calculate the percent of drained
liquid in the net weight.
(ii) Pour the drained material from the sieve into a flat tray and spread it in a layer of fairly unifonn
thickness. Count Ihe tOlalnumber of units. For the purpose of this count, loose seeds, pieces of seed, loose
stems, and extraneous material are nol to be included. Divide the number of units by the drained weight
recorded in paragraph (b)(2)(i) of this section and multiply by 340 to obtain the number of units per 340 g
(12 oz) drained weight.
(iii) Examine the drained material in the tray, weigh and record weight of blemished units, count and
record the number of unstemmed units; and, in case the material consists of tlle optional ingredient
specified in paragraph (a)(2)(iii) (c), (d) or (f) of this section, count and record the number of units
which are less than 13 mm (0.50 in.) long. If the number of units per 340 g (12 oz.) is 240 or less, divide
the number of units which are less than 13 mill (0.50 in.) by the drained weight recorded in paragraph
(b)(2)(i) of this section and multiply by 340 to obtain the number of such units per 340 g (12 oz.) drained
weight. If the number of units per 340 g (12 oz.) exceeds 240, divide the number of units less than 13 mOl
(0.50 in.) long by the total number of units and multiply by 100 to detennine the percentage by count of
the total units which are less than 13 mm (0.50 in.) long.
(a) Divide the weight of blemished units by the drained weight recorded in paragraph (b)(2)(i) of this
section and multiply by 10010 obtain the percentage by weight of blemished units in the container.
(b) Divide the nnmber of unstemmed units by the drained weight recorded in paragraph (b)(2)(i) of this
section and multiply by 340 to obtain the number of unstemmed units per 340 g (12 oz.) of drained
(iv) Remove from the tray the extraneous vegetable material, count, record count, and return to tray.
(v) Remove from the tray one or more representative samples of99 to 113 g (31/2to 4 ounces) covering
each sample as taken to prevent evaporation.
(vi) From each representative sample selected in paragraph (b)(2)(v) of this section, discard any loose
seed and extraneous vegetable material and detach and discard any attached stems. Except with optional
style of ingredient specified in paragraph (a)(2)(iii)(b ) of this scction (pods sliced lengthwise), trim off,
as far as the end of the space formerly occupied by the seed, any pOition of pods from which the seed has
become separated. Remove and discard any portions of seed from the trimmings and reserve the
trimmings for paragraph (b)(2)(viii) of this section. Weigh and record the weight of the trimmed pods.
Deseed the trimmed pods and reserve the deseeded pods for paragraph (b)(2)(viii) of this section. Remove
strings from the pods during the deseeding operation. Reserve these strings for testing as prescribed in
paragraph (b)(2)(vii) of this section. In the case of pods sliced lengthwise, remove seed and pieces of seed
and reserve the deseeded pods for use as prescribed in paragraph (b)(2)(viii) of this seclion.
(vii) If strings have been removed for testing, as prescribed in paragraph (b)(2)(vi) of this section, test
them as follows:
Fasten clamp, weighted to 250 g (8.8 oz.), to one end of the string, grasp the other end with the fUlgers (a
cloth may be used to aid in holding the string), and lift gently. Count the string as tough ifit supports the
250 g (8.8 oz.) weight for at least 5 seconds. If the string breaks before 5 seconds, test such parts into
which it breaks as are 13 mm (1/2in.) or more in length; and if any such part of the string supports the 250
g (8.8 oz.) weight for at least 5 seconds, count the string as tough. Divide the number of tough strings by
the weight of the sample recorded in paragraph (b)(2)(v) of this section and multiply by 340 to obtain the
number of tough strings per 340 g (12 oz.) drained weight.
(viii) Combine the deseeded pods with the trimmings reserved in paragraph (b)(2)(vi) of this section, and,
if strings were tested as prescribed in paragraph (b)(2)(vii) of this section, add such strings broken or
unbroken. Weigh and record weight of combined material. Transfer to the metal cup of a malted-milk
stirrer and mash with a pestle. Wash material adhering to the pestle back into cup with 200 cc of boiling
water. Bring mixture nearly to a boil, add 25 cc of 50 percent (by weight) sodium hydroxide solution and
bling to a boil. (If foaming is excessive, I cc of capryl alcohol may be added.) Boil for 5 minutes, then
stir for 5 minutes with a malted-milk stitTer capable ofa no-load speed of at least 7,200 rpm. Use a rotor
with two scalloped buttons shaped as shown in exhibit I as follows:
r ~ ~ ~
ROTOfl, ~
View or download PDF
Transfer the material from the cup to a previously weighed 30-mesh monel metal screen having a
diameter of about 9-10 em (31/2to 4 in.) and side walls about 2.5 em (I in.) high, and wash fiber on the
screen with a stream of water using a pressure not exceeding a head (vertical distance between upper level
of water and outlet of glass tube) of 152 em (60 in.), delivered through a glass tube 7.6 em (3 in.) long and
3 mrn (1/8in.) inside diameter inserted into a rubber tube of 6 nun (1I4in.) inside diameter. Wash the
pulpy portion of the material through the screen and continue washing until the remaining fibrous
material, moistened with phenolphthalein solution, does not show any red color after standing 5minutes.
Again wash to remove phenolphthalein. Dry the screen containing the fibrous material for 2 hours at 100
deg. C, cool, weigh, and deduct weight of screen. Divide the weight of fibrous material by the weight of
combined deseeded pods, trimmings, and strings and multiply by 100 to obtain the percentage of fibrous
(ix) If the drained weight recorded in paragraph (b)(2)(i) of this section was less than 340 g (12 oz.), open
and examine separately for extraneous material, as directed in paragraph (b)(2)(iv) of this section,
additional containers until a total of not less than 340 g (12 oz.) of drained material is obtained. To
determine the number of pieces of extraneous vegetable material per 340 g (12 oz.) of drained weight,
total the number of pieces of extraneous vegetable material found in all containers opened, divide this
sum by the sum of the drained weights in these containers and multiply by 340.
(3) Detennine compliance as specified in 155.3(b) except that a lot shall be deemed to be in compliance
for extraneous plant material based on an average of all containers examined.
(4) If the quality of the canned green beans or canned wax beans falls below the standard of quality
prescribed by paragraph (b)(I) oflhis section, the label shall bear the general statement of substandard
quality specified in 130.14(a) of this chapler, in the manner and foml therein specified; but in lieu of the
words presclibed for the second line inside the rectangle the following words may be used, when the
quality of canned green beans or canned wax beans falls belnw the standard in one only of the following
(i) "Excessive number very short pieces", if th" canned green beans or canned wax beans fail to meet the
requirements of paragraph (b)(1 )(i) of this section.
(ii) "Excessive number blemished units", if they fail to meet the requirements of paragraph (b)(l)(iv) nf
this sectinn.
(iii) "Excessive number unstemmed units", if they fail to meet the requirements of paragraph (b)(I)(v) of
this section.
(iv) "Excessive foreign material", if they fail to meet the requirements of paragraph (b)(I)(vi) ofth]s
Richard Williams is the Mercatus Center's Director of Policy Research. Prior to joining the Mercaills Center, he served as the
director for social sciences at the Center for Food Safety and Applied Nutrition in the Food and Drug Administration for 27
years. He also served as an advisor to the Harvard Center for Risk Analysis and taught economics al Washington and Lee
University. Dr. Williams is a U.S. AmlY vetcran who served in Vietnam.
Dr. Williams is an expert in benefit·cost analysis and risk analysis, particularly associated with food safety and nutrition. He has
published in Risk Arwlysis and the Journal ofPolicy Analysis and Management and has addressed numerous international
governments, including the United Kingdom, South Korea, Yugoslavia, and Australia.
Dr. Williams received his PhD and MA in economics from Virginia Tech in Blacksburg, VA, and his BS in business
administration from Old Dominion University in Norfolk, VA.
For more information or to meet 'Nith the scholars, contact
Robin Bowen. Associate Director of Outreach, (703) 993·8582, rbolNen5@gmu.edu
Mercatus Center at George Mason University. 3351 North Fairfax Drive. Arlington, VA 22201
Tile ide(ls presented ill Illis document do 1101 represeJl/ official positio1ls ofIlle Mercaflls Cenler at George Mason University.
January 11,2011
The Honorable Darrell Issa
Chairman, Committee on Oversight
and Govenunent Reform
B350A Rayburn House Office Building
Washington, DC 20515
Dear Mr. Chairman,
This is in response to your letter ofNovernber 15, 2010, requesting "assistance in identifying
existing and proposed regulations that have negatively impacted job growth." We share your
concern over the growing burden of regulation and commend your efforts to address this critical
issue. This letter is submitted consistent with applicable law, including section 1602(8)(B)(viii)
oftille 2 and section 4911 (d)(2)(A) and (B) oftitle 26 of the United States Code.
As you point out in your letter, the burdens of regulation on Americans have increased at an
alarming rate. Based on data from the Government Accountability Office, we have calculated
that an unprecedented 43 major new regulations were imposed by Washington in fiscal year
2010, with costs topping $26.5 billion (net ofthe small amount of deregulation that took
place}-more than any other year for which records are available.
The list that follows identifies 20 regulations we consider to be especially threatening to
economic growth, job creation, investment, and innovation. The items listed are grouped by
subject, and the order does not indicate any ranking of priority. This should not be considered a
comprebensive list of needed regulatory reforms.
1. Individual Health Insurance Mandate
The "individual mandate," slated to take effect in 2014, is the cornerstone of the Patient
Protection and Affordable Care Act (PPACA) adopted by Congress last year. It requires all U.S.
citizens to obtain health insurance or face financial penalties imposed by the Internal Revenue
Service-a fine that escalates from $95 or I percent of taxable income in 2014 to $695 or 2.5
percent of taxable income in 2016. Subsidies to purchase coverage will be provided to those who
meet generous income eligibility requirements.
214 Massachusetts Avenue, NE Washington, DC 20002-4999 (202) 546·4400 heritage.org
January 11,2011
The Honorable Darrellissa
Page 2
Experience with similar schemes at the state level indicates that the individual mandate will not
solve the dilemmas created by the uninsured. However, the subsidies required to fulfill the
mandate will impose a massive economic burden on taxpayers. But the most pernicious effects
extend well beyond the economic. Never before has the federal government attempted to force
Americans to purchase a product or service, and a multitude of legal challenges to this provision
have been filed. To allow this regulatory overreach to stand would undermine fundamental
constitutional constraints on government powers and curtail individual liberties to an
unprecedented degree.
2. Employer Health Insurance Mandate
The "employer mandate," slated for 2014, is also a key element of the PPACA. It requires
companies with 50 or more employees to provide health benefits or face a penalty of$2,000 per
Although several years away from taking effect, the employer mandate already shows signs of
prompting unintended consequences. A number of major corporations are considering dropping
health care coverage--the premiums for which are escalating under other provisions of the
law-in favor of paying the penalty. E i t h l ~ r way, the employer mandate constitutes a major new
tax on business, the costs of which will be borne by workers and consumers in the form oflower
wages, job losses, and higher prices for goods and services.
3. Insurer Coverage Mandates
The new health care statute imposes a multitude of coverage dictates on private insurers,
including coverage for dependent children through the age of26, no co-pays or deductibles for
preventive services, no coverage exclusions for pre-existing conditions, no annual or lifetime
limits on coverage, and a prescribed share of premium revenues that must be devoted to patient
care expenses. Starting in 2014, the law also requires the following services to be part of a basic
plan: "ambulatory patient services; emergency services; hospitalization; maternity and newborn
care;.mental health and substance use disorder services, including behavioral health treatment;
prescription drugs; rehabilitative and habilitative services and devices; laboratory services;
preventive and wellness services and chronic disease management, and; pediatric services,
including oral and vision care."
Taken together, these coverage mandates will substantially raise the cost of insurance, thereby
denying consumers and employers opportunities to customize affordable coverage. The
insurance mandates also impose a rigid standard of care that will prove less flexible in adapting
to advances in medicine and the changing; needs of patients.
4. Consumer Financial Protection Bun,au Regulations
The Consumer Financial Protection Bureau, to be established pursuant to the Dodd-Frank
fmancial regulation bill, will wield ill-defined powers to create and enforce regulations on all
kinds of consumer-oriented financial products, including loans, mortgages, and credit cards.
Although ensconced within the Federal Reserve, the bureau will act independently.
January 11,2011
The Honorable Darrell Issa
Page 3
The bureau is charged with protecting consumers from "unfair, deceptive and abusive" business
practices. These terms are vague. While unfair and deceptive have been defined in other contexts
(such as Federal Trade Commission regulation), the word abusive is almost completely
undefined and would thus grant the bureau an inordinate amount of regulatory discretion.
At the same time, a regulatory crackdown on the terms and conditions of financial products will
ultimately reduce the options available to consumers. And for many consumers, especially those
with lower incomes or impaired credit histories, this will make credit more expensive and harder
to obtain.
The bureau's semi·independent status is also problematic. Lacking accountability and seemingly
any direct understanding of how its actions could affect the industry's financial viability, the new
bureau is far more likely to act in arbitrary fashion, swayed by the whims of the political
appointees who will wield the regulatory power. That means a lot less of the regulatory certainty
that otherwise engenders private sector investment and job growth.
S. Debit Card Interchange Fee Regulation (the "Durbin Amendment")
The new financial reform law requires the: Federal Reserve to regulate the fees that financial
institutions may charge retailers for processing debit card purchases. The statute calls for such
"interchange" fees to be "reasonable" and "proportional" to the cost of processing debit card
transactions-whatever that is.
The prospect of more costly debit card transactions is already prompting linancial institutions to
hike fees on a variety of credit inslnunents. Consumers are also likely to face higher interest
rates and reduced credit options.
6. Proxy Access Rules
These regulations, also from the Dodd-Frank law, require finns to include board nominations
(and proposed ousters) submitted by either an individual shareholder or a shareholder group in
the proxy materials they assemble and distribute to shareholders.
At its most fundamental, this regulation presumes that goverrunent regulators know better than
corporate officers and shareholders how to establish governance procedures. And rather than
allow corporate officers and shareholders to customize procedures to their unique circumstances,
the proxy access dictate ignores the vast differences among finns.
Proponents clliiro that the new rules will enhance shareholders' rights. But there is no
constitutional "right" to proxy access. Instead, the rule undermines state law rights of
shareholders to establish corporate governance procedures. The real beneficiaries of the
regulation are activists and special interest groups who will now be able to manipulate proxy
access to focus attention on social and political causes at the expenses of the legitimate business
concerns of the stockholders. It will also make it easier for predator takeover groups to demand
that the company purchase their stock holdings at a high premium or face a hostile takeover
January 11, 20II
The Honorable Darrell Issa
Page 4
The rules also invite habitual meddling by regulators in the access disputes that will inevitably
arise. They have already prompted litigation.
7. Credit Card Regnlation
The 2009 CARD act imposes federal restrictions on the terms and conditions of credit card
services by limiting when interest rates may be increased on existing balances, requiring
financial institutions to lower the interest rates of consumers whose rates had been increased
when they pay their bills on time for six months, requiring a 45-day notice period for significant
changes in credit card terms, mandating a 21-day pay period for credit card bills, prohibiting
assessment of over-limit fees unless the cardholder agrees to allow transactions to go through
rather than be denied, and requiring gift cards and gift certificates to remain valid for at least five
By restricting the ability of financial finns to cover credit risks, the regulations have already
caused higher interest rates and annual fees and lower credit limits, especially for moderate
income borrowers. These actions further diminish the access to credit that is necessary for small
business investment and job growth. As noted by bank analyst Meredith Whitney, "Small
businesses primarily fund themselves tluuugh credit cards and loans from local lenders.... Those
same consumers that regulators are trying to help are actually being hurt by a vast reduction in
available credit."
8. Phase-Out of Incandescent Light Bulbs
The Energy Independence and Security Act of 2007 imposed stringent efficiency requirements
that effectively phase out the incandescent bulbs upon which the world has relied upon for more
than a century.
Proponents of the phase-out tout the supposed energy-saving attributes of costly compact
fluorescent bulbs. LED lighting is also gaining favor. But rather than eliminate incandescent
bulbs, consumers ought to have a choice among all types of lighting the market has to offer.
Consumer choice and competition will ultimately determine the type of bulbs best suited for
various applications and family budgets.
The light bulb regulation is also a job-killer, leading to the closure of the last American light bulb
factory. (The vast majority of fluorescen\. bulbs are manufactured in China.)
9. Appliance Energy Standards
During the past three decades, Congress has imposed a multitude of energy efficiency standards
for a host of appliances, including:
Battery chargers and external power supplies,
Ceiling fans and ceiling fan Ught kits,
• Central air conditioners and heat pumps,
• Clothes washers and dryers,
January 11,2011
The Honorable Darrell Issa
Page 5

Cooking products,


Direct heating equipment,


Furnace fans,

Furnaces and boilers,

Fluorescent and incandescent lamps,

Fluorescent lamp ballasts,

Plumbing products,

Pool heaters,

Refrigerators and freezers,

Air conditioners,

Torchieres, and

Water heaters.
In effect, efficiency standards allow government to control how we clean our clothes, cook our
food, wash our dishes, and light, heat, and cool our homes. No longer do consumers exercise the
freedom to balance appliance performance against cost. In many cases, the efficiency standards
increase the price of appliances by more than consumers will recoup from energy savings.
Taxpayers also pay heavily through tax credits provided to manufacturers for producing energy-
efficient appliances. Depending on the efficiency of the model and the date of manufacture,
dishwasher manufacturers can claim a tax: credit of $45 to $75 for every new unit. The credit for
residential or commercial clothes washers ranges from $75 to $250 per unit and for refrigerators
from $50 to $200 per unit.
It is also worth noting that consumers acrually increase energy consumption when the cost of
using electricity declines (i.e., greater efficiency). And, by forcing R&D to focus on energy
efficiency, investment in other product innovations suffers.
10. Corporate Average Fuel Economy (CAFE) Standards
New fuel efficiency standards set by the National Highway Traffic Safety Administration and the
Environmental Protection Agency (EPA) require automakers to attain a fleet-wide average fuel
January 11,2011
The Honorable Darrell Issa
Page 6
economy level of34.1 miles per gallon (mpg) by model year 2016
for passenger cars, light-duty
trucks, and medium-duty passenger vehicles. The new regulation-running some 300 pages-
will dictate specific fuel efficiency standards by model type, weighted by sales volume. This will
require significantly greater investment in re-engineering.
Justification for CAFE has evolved over time from endi!lg "dependence on foreign oil" to
reducing air pollution to mitigating global wamling. No matter the intent, problems with the
regulation abound. To the extent the standards increase sticker prices, consumers are more likely
to hold on to older, less fuel efficient vehicles. A host of research also documents that increased
fuel efficiency, by lowering the cost of driving, actually increases travel-thereby negating at
least some of the supposed environmental effects. CAFE standards have also undercut the
domestic auto industry by forcing production of unprofitable (and less popular) small cars in
order to offset the fuel efficiency ratings of larger, more profitable models. But most troublesome
of all is the fact that CAFE standards have resulted in tens of thousands of deaths by constraining
production oflarger, more protective vehicles.
11. EPA Endangerment Finding
The basis for the EPA's regulation of carbon dioxide is the agency's "finding" that so-called
greenhouse gases are "air pollutants" actionable under the Clean Air Act. In the 2007 case
Massachusetts v. EPA, the U.S. Supreme Court ruled that such gases fall under agency pUrview
and within the scope of the act. Legislative history says otherwise.
The EPA has acknowledged that the endangerment finding and concomitant regulations will, for
the first time, impose costly requirements on millions of businesses and other "facilities,"
including apartment buildings, office buildings, and even churches. Farmers will also be
entangled in the costly regulations. Overall, cumulative gross domestic product losses could
reach nearly $7 trillion by 2029, and annual job losses could exceed 800,000 in several years.
Aside from being costly, the "finding" is factually wrong. There is no scientific consensus on the
theory of anthropogenic climate change, and significant evidence to the contrary exists. The
agency's endangerment "finding" is all the more suspect given evidence of alleged fraud and
deception in the very source documents the agency relied upon to reach its conclusions.
12. Tailpipe Rule
The EPA's new limits on carbon dioxide (C02) emissions require automakers to achieve a fleet-
wide average of 50 grams of C02 per mile by 2016 for passenger cars, light-duty trucks, and
'The EPA has established a slightly more stringent fuel efficiency standard (35.5 mpg) to limit emissions of carbon
dioxide, which arc directly related to the amount of fuel burned. However, because the EPA will award emissions
reduction credits for improvements to air conditioning systems---credits that National Highway Tra.ffic Safety
Administration (NHTSA) is barred from awarding-the two standards are equivalent.
January 11,2011
The Honorable Darrell Issa
Page 7
medium-duty passenger vehicles. Emissions of C02 are directly related to the volume offuel
burned. Consequently, the emissions standard equates to a fuel efficiency standard of35.5 mpg?
The EPA estimates that the emissions crackdown will add about $1,000, on average, to sticker
prices by 2016. Consumers are thus more likely to hold on to older, more polluting cars. Whether
consumers will realize cost savings from greater fuel efficiency depends on a host of variables,
including vehicle type, local temperatures, and driving habits. Having established the emissions
restrictions on mobile sources, the agency is now authorized to impose C02 controls on all
manner of "stationary" sources, ranging from the comer bakery to office buildings.
13. Renewable Fuel Standards (RFS)
The RFS constitute national quotas on the volume of "renewable fuels," including com,
sugarcane and cellulosic ethanol, bio-diesel, and biomass that must be blended into
transportation fuel. The 20I0 RFS was set at 12.95 billion gallons and is slated to increase to 36
billion gallons by 2022. For the first time, quotas have been established for specific categories of
renewable fuels based on projected reductions of greenhouse gas emissions. Of particular note,
the EPA raised the cap on ethanol, a fuel that is more costly, less efficient, and more polluting
than gasoline.
The RFS represents a massive subsidy by consumers for the "renewables" industry. Without
these subsidies, there is little demand for more costly fuel blends. Moreover, government dictates
on the nation's fuel mix are driven by political considerations more than environmental
economic outcomes. For example, the artificial demand created by the quotas, in conjunction
with subsidies, creates powerful incentives to convert sensitive forest land into agriculture; less
productive farmland is also utilized with increased use of agricultural chemicals. Shifting
farmland from food crops to com for rene:wables is also projected to increase food costs by $10
per person per year-{)r $40 for a family of four, according to the EPA.
14. The Community Reinvestment Mandates
In response to claims of widespread unjust discrimination in lending ("red-lining"), Congress in
1977 enacted the Community Reinvestment Act (CRA), which required regulated depository
institutions to demonstrate that they serve: the "convenience and needs" of the communities in
which they do business. Under the act, all banking institutions insured by the Federal Deposit
Insurance Corporation must undergo an evaluation to determine compliance based on 12
assessment factors.
CRA is based on the obsolete concept of brick-and-mortar bank branches as the only providers
of deposit and loan services in their geographic areas. In reality, regulators count all online
'The NHTSA has established a slightly less stringent fuel efficiency standard (34.1 rnpg). Because the EPA will
award emissions reduction credits for improvements to air conditioning systems--credits that NHTSA is barred
from awarding-the two standards are equivalent.
January 11,2011
The Honorable Darrell Issa
Page 8
deposits when calculating a bank's lending obligations-even when the online customer lives
outside the bank's service area.
CRA also discourages banks from locating branches in or near lower-income neighborhoods,
since that would automatically bring that neighborhood into the bank's assessment area. As a
result, low- and moderate-income workers may actually)1ave even less access to needed
financial services.
15. Section 404 Financial Reporting Re.quirements (Sarbanes-Oxley)
Section 404 of the Public Company Accounting Reform and Investor Protection Act of 2002
(Sarbanes-Oxley) requires publicly traded companies to undertake both internal and external
audits of financial reporting systems and submit reports describing the scope and adequacy of its
procedures to the Security and Exchange Commission (and distribute the findings to investors
and include it in the fiml'S annual report).
The regulation was prompted by the accounting failures of Enron and WorldCom, as well as the
prosecution and subsequent dissolution of accounting giant Arthur Andersen. According to the
Institute ofInternal Auditors, Section 404 is intended to provide "a level of comfort with respect
to the reliability of future financial statements assuming there is no significant change in the
quality of the system of internal control."
However, compliance with Section 404 has imposed significant costs on frrrns that likely
outweigh the benefits of the additional reporting-particularly for smaller companies and
companies of any size that are considering going public. To some extent, this reflects the shift of
responsibility for internal financial controls from the chief financial officer to the chief executive
officer and the resulting heightened caution in financial oversight. External auditors are likewise
questioning every detail of financial accounting, perfornling far more extensive and complex
audits than ever before.
16. Network Neutrality
The Federal CODU11Unications Commission (FCC) on December 21 adopted "network neutrality"
regulations in defiance of both Congress and a federal appeals court. The new rules restrict how
Internet service providers such as Comcast or Verizon manage the digital transmissions flowing
through their networks. The new rules would hobble the ability of network owners to efficiently
manage traffic flows and chill the investment needed to keep the Internet growing. The end
result: a slower and less dynamic Web. In addition, the rules give the government a role in
deciding how content is treated on the W(:b, potentially threatening the free flow ofinfornlation.
17. FCC Media Ownership Rules
The FCC enforces a variety of limits on ownership of media outlets. Among these are a ban on
joint ownership of a newspaper and broadcast station in the same market, limits on the number of
local stations owned by a network, and limits on the number of stations in a market that can be
owned by the same firm. The FCC is required by law to review these rules every four years and
recently started its latest quadrennial review.
January 11,2011
The Honorable Darrell Issa
Page 9
Most of these rules are decades old, dating back as far as 1941. The media world, however, has
changed dramatically since that time. Rather than relying on a limited number of broadcast
stations and newspapers, consumers today enjoy hundreds of channels offered by a multitude of
service providers, and-increasingly-virtually unlimited information sources on the Internet. At
the same time, many traditional sources of information-newspapers in particular-have lost
their dominance, with many facing bankruptcy.
In such a world, ownership restrictions on media outlets make little sense. Any competitive
problems that may arise can be addressed under existing antitrust law enforced by the
Department of Justice and the Federal Trade Commission.
18. FCC Merger Review Authority
Under current law, the FCC must approve all transfers of radio spectrum licenses and
telecommunications operating certificates. For practical purposes, tltis means that mergers and
acquisitions involving broadcasters and telecommunications firms must be approved by the FCC.
Such transactions, however, are also thoroughly reviewed by antitrust authorities at either the
Federal Trade Commission or the Department of Justice. This redundant review has been
defended on the grounds that the standard used by the FCC-whether the merger serves the
"public interest, convenience, and necessity"-is different than that applied by antitrust
authorities, which is focused on market competition.
In most cases, however, the primary issue in the FCC review, despite the different standard, is
consumer choice and competition. This makes the FCC's review redundant; it does not add
anything to the analysis of antitrust authorities. It does, however, impose delays on time-sensitive
business transactions.
The "public interest" standard allows the FCC to consider broader issues than competition. But
what exactly those issues are is ambiguous. Wltile concepts such as "diversity" and "universal
service" have been cited, the "public interest" standard itself is notoriously vague and arbitrary.
As a result, the FCC wields almost unlimited discretion in reviewiug mergers, which allows the
agency to use merger review to promote its own pet causes. Although mergers are rarely rejected
outright, the FCC frequently imposes extensive conditions on a merger, routinely including
service restrictions or mandates only tangentially related to the merger.
Most recently, for example, the FCC has been considering the proposed merger of.Comcast and
NBC. Even though the two firms largely do not compete against each other, the commission is
looking to condition its merger approval on regulation ofNBC TV programming sales and
impose mandates on how Comcast sells broadband Internet service.
19. Dairy Price Controls
U.S. consumers pay inflated prices for dairy products due to a variety offederal programs tllat
manipulate the supply and demand of dairy products. The Department of Agriculture, for
example, issues "Milk Marketing Orders" that set the milk prices tllat processors must pay based
January 11,2011
The Honorable Darrelllssa
Page 10
on the products they make. Dairy farmers in each of the 10 government-drawn regions then split
the proceeds--effectively constituting a cartel.
To maintain demand for dairy products-and thus higher prices-the government also purcbases
cheese, butter, and nonfat dry milk through its Price Support Program.
The program adds up to huge wealth redistribution from' consumers and taxpayers to dairy
farmers. Not only are the costs of dairy products higher, but so too are the prices for every
product made with dairy ingredients.
20. Sugar Protectionism
The byzantine system of price supports and subsidies for domestic sugar production dates to
1789, when the U.S. first imposed tariffs on sugar imports. Tariffs remain in place, along with
government-backed loans to sugar processors that require repayment only if the price of sugar
exceeds a floor price set by the Department of Agriculture. Inflated sugar prices are also
maintained by production quotas (a.k.a. "marketing allotments"), while in some instances, the
government pays processors to dump inventory to reduce supply, thereby maintaining higher
prices. Most recently, the 2008 farm bill authorized the government to purchase "excess" sugar
imports that would otherwise dilute the market share of domestic suppliers. The "excess" impOlts
are sold-at a loss-to ethanol producers.
These various schemes are responsible for steep declines in U.S. industries that utilize sugar in
their products. They are drawn instead to Canada, where sugar prices are less than half that in
U.S., while they're a third cheaper in Mexico. Consequently, for each job in sugar production
"saved" through subsidies and price supports, nearly three confectionary manufacturing jobs are
lost as American companies relocate abroad, according to the Department of Commerce.
Please feel free to contact us for additional information.
Janles Gattuso
Senior Research Fellow in Regulatory Po.licy
Diane Katz
Research Fellow in Regulatory Policy
January 5, 20 II
The Honorable Darrell Issa, Chainnan
United States House of Representatives
Committee on Oversight and Govenunent Refonn
2157 Raybull1 House Office Building
Washington, DC 20515-6143
Dear Chainnan Issa:
Red Cavaney
Senior Vice President, Government Affairs
ConocoPhillips Company
1776 Eye Street. N.W. Suite 700
Washington, D.C. 20006
This letter is in response to the Committee on Oversight and Govell1ment Reform's request for regulatory
infonnation that negatively impacts the economy and jobs, dated December 10,2010. We appreciate the
Committee's desire to understand the current oil and natural gas industry'S regulatory state.
As requested, ConocoPhilhps is providing a list of existing and proposed regulations that we believe can
negatively impact jobs in our industry. Individual regulations are categorized by major disciplines, but
they are not listed in any particular order.
While the attached list of regulations is significant in scope, it is not a complete list of all federal
regulations with which the company must comply. We also note that state and local regulations add
further complexity to our business. Consequently, ConocoPhillips seeks to ensure that regulations are
constructive and effective, while avoiding duplication or connict to the greatest extent possible.
ConocoPhillips remains committed to continued engagement with the United States House of
Representatives on this important matter and I trust you will fll1d our response useful as the Committee
begins to examine regulations that negatively impact the economy and jobs. Thank you for this
opportunity to present ConocoPhillips' concerns and wc will follow up with a more infonnative
summation of federal regulatory challenges in the near future.
Yours sincerely,
Red Cavaney
Senior Vice President
Govell1lllent Affairs
cc: The Honorable Edolphus Towns
ConocoPhillips has identified the following existing and proposed regulations that can negatively impact
the economy and job growth:
Financial Reform
• Disclosure of payments by resource extraction issuers to the U.S. Securities & Exchange
• New Commodity Futures Trading Commission definitions of specific financial transactions
• Commodity Futures Trading Commission registration and regulation of , Swap Dealers' and
'Major Swap Participants'
Environmental & Climate Change
• Revisions to National Ambient Air Quality Standards, intending to tigbten current ozone
standards, would necessitate further regulatory actions by individual states and have far-reaching
effects on the economy and jobs
• Potential regulation of oil & gas exploration and production operations under New Source
Review, Prevention of Significant Deterioration and Maximum Achievable Control Technology
• Prolonged uncertainty on emission control technologies and work practice requirements
associated with New Source Perfonnance Standards updates are delaying refinery projects
• Delays and changes to proposed Maximum Achievable Control Technology requirements
affecting refinery heaters and boilers
• Pennitting greenhouse gases (OHOs) from stationary sources through existing Clean Air Act
regulations that were designed for traditional air pollutants, including the New Source Review
Prevention of Significant Deterioration, Title V, New Source Perfonnance Standards and other
regulations (also referred to as the OHO Tailoring Rule)
• Mandatory greenhouse gas reporting rules for exploration and production operations requiring
detailed inventory and reporting of emissions, including fugitive methane emissions
• Interpretation of Outer Continental Shelf air pollution compliance within 25 miles of States'
seaward boundaries
• Development of new mles under the Clean Water Act for cooling water intake structures at
existing refineries and other facilities
• Altered pennilling under the Safe Drinking Water Act when diesel is used in hydraulic fracturing
• Reconsideration of exemptions under the Resource Conservation and Recovery Act for hazardous
wastes associated with exploration and production operations
• Potentially significant changes to major stationary source detenninations which affect pennit
requirements for exploration and production activities (ie. withdrawal ofWehnlln memo)
• Increasing proposals for detenninations and listings of additional endangered and threatened
species and adding climate change affects on habitats to existing criteria for consideration
• Impact of the Council on Environmental Quality's published guidance to federal agencies on how
to evaluate the effects of climate change/greenhouse gases, and consider opportunities to mitigate
them, under National Environmental Protection Act reviews
• Expansive information request from refineries under Risk and Technology Review protocols to
assess remaining risk of hazardous air pollntants and consider further technology improvements
Oil & Gas Exploration and Production
• Bureau of Land Management instruction memorandum significantly modifies existing leasing
policies and effectively restricts or delays access for oil and gas development
• Bureau of Land Management directive designating areas having wildemess characteristics as
"wild lands" which could place more federal lands with oil and gas resource potential off-limits
to development
• Awaiting Bureau of Land Management's implementation of inspe.ction fee program for current
oil and gas leases based on the number of active and inactive wells
• Numerous regulations on new offshore procedures by the Bureau of Ocean Energy Management
Regulation and Enforcement, including but not limited to tile Drilling Safety Rule, Oil Spill
Prevention Plans, Safety and Environmental Systems Rule and Worst Case Discharge
Calculations, are causing permitting and development delays
• Council on Environmental Quality's guidance requiring federal agencies to review and seek
public input on previously approved actions erodes the efficiencies of categorical exclusions to
comply with the National Environmental Policy Act
• Occupational Safety and Health Administration's proposed reinterpretation of noise standards to
require "technically feasible", rather than "economically feasible", engineering controls
• New regulations on air emissions from portable and temporary sources
Fuel Standards
• Potential for overlaying a national Low Carbon Fuel Standard in addition to the existing
Renewable Fuel Standard with both standards being extraordinarily challenged technologically
and economically.
• Premature waiver of 10% ethanol blending limit in gasoline, allowing up to 15% by volume,
inadequately protects consumers from vehicle and equipment malfunctions and distorts the fuel
supply chain which is already highly fragmented
Peter H. Lawson
Vice President
Government Relations
1350 I Street, NW
Suite 450
Washington, D.C. 20005
January 12, 2011
The Honorable Darrell Issa
Committee on Oversight and Government Reform
U.S. House of Representatives
. Washington, D.C. 20515
Dear Chairman Issa:
Thank you for your December 8, 2010 letter inviting Ford to identify regulations that negatively
impact the economy and jobs in the automotive industry.
As the Alliance of Automobile Manufacturers (Alliance) has explained in a letter dated
January 11, the auto industry's key concern is the need for a single national program regulating
motor vehicle fuel economy and greenhouse gas (GHG) emissions. At present, there are
regulations in place that enable us to have a single national program for the 2012 through 2016
model years. At the state level, however, an effort is underway to promulgate state-specific
motor vehicle GHG standards for 2017 and beyond. If such state regulations go forward, it
would be contrary to the national interest in maintaining a single national program for motor
vehicle fuel economy and GHG standards.
Background: "One National Program"
Since the 1970s, the National Highway Traffic Safety Administration (NHTSA) has been setting
nationwide Corporate Average Fuel Economy (CAFE) standards for vehicles sold throughout
the U.S., pursuant to the Energy Policy and Conservation Act (EPCA). In 2007, the Supreme
Court held in Massachusetts v. EPA that greenhouse gases such as carbon dioxide (C0
) are
pollutants subject to regulation by EPA under the Clean Air Act (CAA). This decision created the
basis for regulatory coordination between NHTSA and EPA. The primary greenhouse gas
emitted by automobiles is carbon dioxide (C0
), and the amount of CO
emitted by automobiles
is directly proportional to the amount of fuel consumed. ThUS, standards regulating CO
emissions from automobiles are essentially fuel economy standards by another name.
NHTSA and EPA are in a position to coordinate their efforts and develop harmonized federal fuel
economy and GHG standards. In fact, they have already done so in a joint rulemaking
published in May, 2010, setting vehicle fuel economy and GHG standards for the 2012-2016
model years. This joint rulemaking, which we refer to as "One National Program," enables
manufacturers to build a single fleet of vehicles that meets both the NHTSA and EPA standards
and that can be sold nationwide.
The Problem: State Regulations That Would Interfere With "One National Program"
Our paramount concern is that California may set competing 2017-2025 vehicle GHG standards
that would be enforced by individual states or groups of states. If enacted and enforced, such
state regulations would 1) undermine the One National Program framework, and/or 2) result in a
single state setting national policy with respect to fuel economy and GHG emissions.
In 2004, the California Air Resources Board (CARB) adopted state-specific GHG standards for
motor vehicles covering the 2009-2016·model years. These standards differed in structure and
stringency from the federal CAFE standards, and they would have applied only to vehicles sold
in California and states adopting the California program. The California GHG standards were
eventually adopted by some thirteen other states as well. The enforcement of these state-
specific standards would have had a detrimental impact on the auto industry, and the 8 million
jobs it directly supports, by forcing manufacturers to comply with incompatible state and federal
GHG regulations.
The Alliance, the Association of International Automobile Manufacturers, the National
Automobile Dealers Association, and various individual dealers pursued litigation in several
jurisdictions to overturn state vehicle GHG standards on the grounds that they are preempted by
EPCA, which specifically prohibits state laws and regulations "related to" fuel economy
standards. This litigation was at the appellate stage when the Obama Administration intervened
to broker a temporary solution to the problem. In May 2009, President Obama announced a
compromise establishing One National Program, in order to avoid a confusing patchwork of fuel
economy and GHG regulations. Under the compromise, EPA and NHTSA agreed to conduct a
joint rulemaking to establish 2012-2016 CO
standards and fuel economy standards that align
with each other-these are the May 2010 federal standards already mentioned above. In
addition, California agreed to modify its regulations to provide that compliance with the 2012-
2016 federal requirements will constitute compliance with the California GHG regulations for
California and other states that adopted California's requirements. As a condition to achieving
One National Program, automobile manufacturers were required to dismiss the litigation
challenging the state GHG standards. The compromise held promise that the One National
Program approach would become the established framework for setting motor vehicle fuel
economy and GHG standards for the future.
The One National Program announcement did not address model year 2017 and beyond.
Unfortunately, California seems to be taking steps toward developing a new set of state-specific
GHG standards that would take effect beginning with the 2017 model year. CARB has indicated
that proposed new state GHG regulations covering model years 2017-2025 will be issued in the
spring of this year, well in advance of the process underway at NHTSA and EPA, and the Board
is planning to hold a hearing on these regulations in April'
, In Drder tD be enfDrceable, any new GHG rules adDpted by CalifDrnia WDuid need to receive a waiver of
preemptiDn from EPA pursuant tD SectiDn 209 Df the CAA. The 2009-2016 CalifDrnia GHG rules received
such a waiver Df preemptiDn from EPA in June 2009, althDugh they are nDt being enfDrced against
manufacturers complying with the federal standards during the 2012-2016 model years.
Ford believes it is essential that the One National Program framework be maintained for
establishing vehicle fuel economy and GHG emission standards. Limiting greenhouse gas
emissions is a policy issue that requires national solutions. State-specific vehicle GHG
standards would be inherently incompatible with federal standards and would subdivide the U.S.
market for motor vehicles. The potential impacts and costs of such standards include the
• Adversely impacting automotive-related employment in states not adopting the California
• Forcing dealers in affected states to restrict, ration, or eliminate sales of selected models
• Forcing manufacturers to reduce or eliminate production of selected models
• Reducing the selection of vehicles available to consumers in affected states
A reasonable and effective single national program is the best way to preserve U.S. jobs, avoid
economic harm, and protect consumer choice. If California moves ahead with motor vehicle
GHG regulations for 2017-2025, it would harm these important national interests.
Peter H. Lawson
Vice President
Government Relations
PHONE (740) 926-1351
FAX (740) 926-1615
OHIO 43902
Chairman, President & Chief Executive Officer
Dec:ember 31, 20 I0
The Honorable Darrell E. Issa
Ranking Member
House Committee on Oversight and Government Reform
2157 Rayburn HOB
Washington, DC 20515
Dear Ranking Member Issa:
We are writing in response to your letter of December 8, 2010, which expressed the
interest of the House Committee on Oversight and Government Reform ("Committee") in
learning more about impacts from certain government regulations, and particularly those of the
Obama Administration's United States Environmental Protection Agency ("USEPA").
Congressman Issa, your interest in this effort is to be lauded, and we appreciate your
reaching out to help hard working Americ:ans in the private sector, such as the 3,000 employees
of Murray Energy Corporation, a coal mining company, whose jobs and lives are being
destroyed by Mr. Obama and his out-of-control, radical USEPA and his appointees to it.
It is a disaster to see our jobs eliminated in the coal mines for little or no environmental
benefit. Our people only want to work in honor and dignity, and Mr. Obama and his USEPA
bureaucrats are attempting to destroy the use of coal and the lives of their families. Coal supplies
fifty percent (50%) of the electricity generated in America, and coal-fired electricity is about
one-third (1/3) of the cost of electricity produced from any other source. We are going to see
people on fixed incomes, poor families and manufacturers of world competing products severely
and adversely impacted.
In order to assist in the work of your Committee, here are the primary regulations or
undertakings by Mr. Obama and the USEPA, both existing and proposed, that are negatively
impacting the domestic coal industry; or soon will:
1. USEPA Endangerment and Green House Gas Regulations
2. Clean Air Transport Rule Impl1ementation
3. Clean Water Act Permitting Flaws (Sections 402 and 404)
The Honorable Darrell E. Issa
December 31, 2010
Page 2
4. Coal Combustion Residuals (Coal Ash) Proposed Ruling
5. Maximum Achievable Control Technology Implementation for Power Plants
6. Promulgation of Proposed Emissions Standards for Petroleum Refmeries and Fossil
Fuel Power Plants
7. National Ambient Air Quality Standards ("NAAQS") for Ozone Implementation
8. NAAQS for Particulate Matter Ruling
9. Secondary NAAQS for N0
and SOx Regulation
We have also attached a document that describes most of these regulatory problems with
the Obama USEPA and rules that it is promulgating illegally and without any Congressional
Your correspondence also requests input on how to reform specific regulatory proposals
by the USEPA and Mr. Obama. One of ll1e first proposals plarmed by the USEPA is to move
forward with implementation of the Clean Air Transport Rule, which must include changes that
allow for more time for United States companies to comply along with the creation of a clear
interstate trading system to lessen the significant costs that would otherwise affect millions of
ratepayers in a number of states. This is just one example, and the attachment to this letter more
fully explains the problems and some solutions and why the involvement of Congress is so
important at this time.
Again, Ranking Member Issa, ll1ank you for this opportunity to share some of our
thoughts about specific regulations that are in place, or are being piarmed, that disastrously affect
the coal industry and related parts of the energy sector. America, our industry and jobs, are
under siege by Mr. Obama and his USEPA. They must be stopped immediately. I, personally,
am here to continue to help this effort and you in any possible way.
Robert E. Murray
Chairman, President and Chief Executive Officer
The Facts About Coal: Ir the United States, coal provides nearly 50% of the country's
electricity supply, powering vcr 600 electric power plants. Coal is the most abundant fossil fuel
produced in the United Stat s with coal currently being mined in 26 states across the nation.
Approximately 95% of the Cl al used in the, United States is used for generating electricity. Coal
is also used as Il basic eoerg) source in sted prOduction, cement manufacturing, and in the paper
industry. Its affordability al,d abundance, and the important American jobs it supports, will
continue to make COalll vital resource for decades.
The Attac:Jc. on Coal: Over e last two years, the nation's coal indUStry has been the target ofa
calculated effon by the 0' ama Administration, the EPA and others to force utilities and
manufactur:ers to abandon as a fuel source with the objective of eliminating the use of coal
(and the coal industry) in tl c very ncar future. The coordinated attacks on the industry are
focused on every aspect of coal use: from the mining and processing of coal, to the Use or
burning of coal, to the of residual coal ash from boilers. These reckless and shortsighted
efforts will seriously the reliability of the nation's electrical grid and are being
undertaken without regard fo what is in thc: best interests ofthe nation and without consideration
for the hundreds of thousand: ofdirect and indirect jobs that will be lost if such cfforts succeed.
Below are some of the me t important issues affecting the coal industry, its partners, and
COnsumers today.
Issue 1: EPARegul lions and Rulemakings
Description: At this time, there are severn! significant and complex regulations that are
either currently in ffcct or that have been proposed by the EPA concerning the
regulation of Grecnh use Gases (GHGs) and other regulations lmder the Clean Air Act
that will have a seriou impact on the coal industry. A few of the most important include:
)- EPA Elldanl!erment Findinl! - In December 2009, the EPA released its Endangerment
Finding for GHGs fol owed quickly thereafter hy the EPA's release of the Tailpipe Rule,
Tailoring Rule and T'/ning Rule in 2010. These actions by the EPA are part of an EPA
effort to develop lIJJd implement a costly economy-wide GHO regulatory scheme
completely without tIt,e oversight Or involvement by any state government or the U.S.
Congress. These by the EPA represent an unprecedented expanSion of EPA
authority beyond its TstOrica1 role of protecting the environment to now attempting to
control the United State's economy by picking and choosing which businesses and
industries survive an prosper and which businesses and industries are eliminated. It is
important to note th< t the Endangerment Finding relied neAJ:ly exclusively on climate
reports compiled by ~ e Intergovel1:unental Panel on Climate Change (!Pee) although the
accuracy and scientif c integrity of !PCC's assessments and reports has been called into
doubt by the release fmaterials from the University of East Anglia's Climatic Research
Unit. The controvers over evidence tending to show that the IPCC assessments lacked a
valid, scientific fow dation bas been referred to as "Climategate." The States of
Alabama, Virginia a"d Texas along with several organizations, including the U.S.
Chamber of Comme ce, are participating in lawsuits challenging the Endangerment
Finding and related rl guJations.
» EPA TransDort Rut - In July 20I0, the EPA proposed the so-called Transport Rule to
replace the EPA's 20 5 Clean Air Interstate Rule (CAIR) in a wholesale manner. Once
finalized, the Transport Rule will mstrict the interstate transport of power plant emissions
by significantly limi ing emissions from coal fired electric generation units within 31
midwestern, southern and eastern states plus the District of Columbia. The Transport
Rule is part of a suit( of regulatory actions by the EPA aimed at curbing emissions from
coal-fired power PI; through the elimination of the use of coal for the generation of
electricity. The Tran ort Rule will also result in the shuttering of a number of coal-fired
power plants thereby placing the nation's electrical grid at risk. The EPA projects that
the arulUal direct cost to the power sector of complying with the Transport Rule will be
$2.8 billion - a figur that grossly underestimates the actual costs. Many believe that
CAIR is sufficient to chieve the SlUlle reductioIUl in ernissioIUl as the Transport Rule in a
more balanced, prac .cal and less costly manner that does not seek to penalize and
eliminate the coal iud stry.
» EPA's National Am lent Air olU.litv Standards fr>J ... 0\01<\ fnr The EPA has
announced proposed evisions to the NAAQS for ozone. The proposed ozone standards
are more stringent wfd will result in new nonattaimnent area designations across the
United States that wil impact the coal industry by preventing both expansion of existing
projects and i n v e s t m e ~ t in new projects thereby impeding job creation. Additionally, the
EPA's proposal for a Istrieter ozone standard will slow down economic growth, diminish
the international com etiveness of U.S. industries and drive down U.S. energy supplies.
The new more string nt standards could cost hundreds of rural American counties, and
those counties that ha e a strong manufacturing base, millions ofdollars in fines.
Action: We u ge members ofCongress to take a close look at how the foregoing
regulations and propo a1s will impact their constituents. The EPA is using the Clean Air
Act to aggressively p ace controls on all sectors of the U.S. economy. In particular, we
request that Congress first pass legislation imposing a moratorium on EPA's actions to
allow time to comple e detailed studies and analyses of the cumulative effects of EPA's
Endangerment FindiI g, Transport Rule and related regulations on the United States'
economy. including 'mpaets to jobs, the electrical grid, individual industries, and
ultimately the Amen:an. people. In addition, any regulation of GHGs must allow for
interstate trading of credits and the extension of the' regulatory deadlines to ensure
existing technologies an meet pollution limits at a reasonable cost. In Congress, recent
bipartisan efforts in both the House and Senate sought to either remove the EPA's
authority to regulate 3HGs under the Clean AU Act (authored by Senator Murkowskil
Representatives Porn oy and Peterson) or to put these regulations on hold for two years
(authored by Senator Rockefeller). Simill\! legislation should be introduced in the I 12
Congress and deservrcontinUed bipartisan support. Detailed oversight of all of the EPA
regulations and their' pact onjobs must be conducted.
Issue 2: CODlJ'ressio al Can-and-Trade Legislative Efforts
Actlonj We support the introduction of legislation in the Il2
Congress to
impose a moratorium pn the EPA's actions to allow time to oomplete delailed studies and
analyses of the cumuJ",tive effects of EPA's Endangennent Finding, Transport Rule and
related regulations on the United States' economy, inclUding impacts to jobs, individual
industries, the electri aJ grid, and ultiInalely the American people. More importantly,
given the tremendous nationwide ramifications of implementing a new GHG regulatory
scheme, we support tI e principle thai tho decision of whether or not to implement such a
scheme should be left to the United States Congress - not an uneleated body such as the
EPA. Accordingly, a P1oratorium on the EPA's actions is required in order 10 allow time
to complete the detail d analyses of the cumulative effects of the EPA's actions over the
11ISt two years. The data and information can then be used to inform the national
debate as 10 the need IndloT structure of any GHG regulatory scheme.
Description: In June 2009 during the 1lith Congress, the House of Representatives
passed H.R. 2454 (W oonan-Markey Bill) which would have created a GHG cap and tax
system across the enfire economy. However, this effort was not considered by the
Senate because it clear tel many Members that the legislation was rife wilh
potential for abuse would have cost consumers in the midwest and other states
thousands of dollars year on their electricity bill. Still, the Obama Administration's
EPA continues to tT ove forward with efforts to illegally and unilaterally, without
Congressional author ty, develop and implement a new nationwide OHG regulatory
scheme. These unbal anced and short-sighted actions by the EPA have the potential to
cause severe economi harm to the I:Ountry through the destruction ofjobs, elimination of
entire industries, and increases in energy costs across the nation.
Issue 3: Clean Water Act Section 402 and 404 Permits
J;> Description: Clean Uater Act Section 402 permits govern the discharge of pollutants
into waters of the U States while Section 404 permits allow for the placement of
dredge and fill materi ill in \Vaters of the United States. 'The ability to obtain Section 402
and Section 404 pem 'ts in a timely and predictable manner is an absolute necessity for
conducting all types f coal mining activities - underground mining, surface mining, and
coal cleaning and prE:] aration operations. Starting shortly after the Obama Administration
took office in early 009, the EPA undertook to significantly alter the process for the
issuance ofboth 402 nd 404 permits. Even though Section 404 permits are issued by the
U.S. Army Corps of Engineers with the EPA historically having a limited role in the
Section 404 pennitti g process, the EPA objected to several proposed mining projects
leading to extreme d lays or outright permit denials. Further, even though the Clean
Water Act grants eac slate in the first instance sole regulatory authority to promulgate
water quality standar Is to be applicable within individual states, the EPA has attempted
to develop and appl its own water quality standards in direct violation of the Clean
Water Act. These a tiol15 by the EPA have effectively created a moratorium on the
issuance of Section 02 and Section 404 permits for roal mining operatiol15 in the
Appalachian states, puticularly Ohio, West Virginia and Kentucky. In fact, the EPA is
now holding up over two hundred Section 402 and Section 404 permits and have been
doing so in SOme case for oVer a year.
Action: Each Section 402 and Section 404 permit request has its own unique and
technical aspects tha require review. Still, arbitrarily putting a hold on hundreds of
legitimate permit apt lications is putting thousands of hardworking Americans on the
sidelines in a struggling economy. If there are mine operations and miners that are
affected in your state it is importllnt that you encollr.lge the EPA to stop its effort to
impose its own gui< elines and nlgulations on the Section 402 and 404 permitting
processes in violatio of the Clean Water Act and to move forward with its permit
reviews without delays. The Obama Administration's EPA is hiding behind the
claim that they are reviewing the permits" in an effort to delay the permitting
process and increase osts significantly for coal companies with the ultimate objective of
forcing roal rompani s to abandon coal mining projects altogether which will lead to the
eventual destruction coal industry in the United States.
Issue 4: Coal Ash R"(Jlllation
Description: The COlbUStiOn of coal at power plants produces several residual materials
that together are oft, referred to as "coal ash." Elecrric power plants typically dispose of
coal ash in impoundr ents situated near the plant Coal ash also has beneficial uses in
other industries. Fo e/lamp!e, coal ash is used by coal companies in mining and
reclamation activities including use of coal as for mine reclamatiOn and subsidence
control, soil additive , neutralizing acid mine drainage, road stabilization, and other
beneficial uses. In Ju e 2010, the EPA published a proposed rule that would regulate the
disposal of coal ash ~ o m electric utilities and independent power producers under the
Resouroe Conservatio/t and Recovery Act (RCM). The EPA has suggested two options
for regulating coal as ~ under RCRA. The first, regulating coal ash under Subtitle C of
RCM, would classi Dr coal ash as a "hazardous waste." Regulating coal ash under
Subtitle D of RCM would classify the material as non-hazardous waste. Subtille C
classification would ave many negative impacts for the coal industry, elecrric utility
indUStry, and a num er of other industries leading to increased costs for energy and
durable goods to the Ponswner. Labeling coal ash as a hazardous waste will also make
the material much les attractive to the important recycling industry. Today, 43% of all
coal ash is re-used, often to produce road base materials, concrete, cement, and
wallboard. Declarin coal ash, which has been used safely for decades, as "hazardous"
not only hurts the coa and utility industries but also the road builders W1d home builders,
further destroying the !economic recovery.
Action: Earli L,. this year, a bipartisan group of Members ofCongress opposed the
regulation of coal as as a hazardous waste under Subtitle C of ReM. You should
support the effort to a 'oid regulation of coal ash as a hazardous waste and encourage the
EPA to work with jndividual states to develop an appropriate framework for the
regulation of coal as as a non-hazardous waste that is protective of public health and
continues to promote Ihe recycling and beneficial use of coal ash. In addition, you should
support a determinati<ln that the federal Office of Surface Mining is the proper agency for
issuing any new fed I'al regulations governing the use or storage of coal ash at coal
mining and reclamatilln operations.
Issue 5: Renewable klectricity Standard
De8cription: In t h e ~ a s t few Congresses, legislation has been introduced (commonly
called the Renewable lectricity Standard, or RES) that requires II specific percentage of
electricity to be prod ced from renewable sources of energy. Definitions of what can
qualify as "renewable vary slightly but include wind, solar, geothermal, tidal, and small
hydropower resource. Recent efforts have passed the House of Representatives that
would have mandatell 15% of the U.S. energy portfolio come from renewable sources by
the year 2020. witli a portion of that percentage coming from energy efficiency
improvements if The Senate Energy and Natural Resources Committee also
moved similar legisl ion. but it did not see action on the Senate floor. Currently. the
total domestic electri ity powered by renewable resources in the United States is around
7%. Mandating an ItEs of the I'evels considered by Congress will result in shifting
energy inputs to less ffordable or efficient options. resulting in drastically higher prices
for consumers. Furtl er. it creates winners and losers at the state level based upon the
electricity generating Fapabilities of each individual state. There is also the potential for
action in Congress 0 a "clean energy standard.' which includes clean coal and nuclear
power as eligible sOIUFes to achieve an energy portfolio mandate.
ActIon: Any distorts the market and picks winners and losers for domestic
energy production. n addition, over twenty-five stales, including Ohio. New Jersey.
Texas and Minnesota have already adopted their own RES tailored specifically to their
own needs and gene -ating capabilities. As a result, establishing a new federal RES
standard would be d\ plicalive in many cases making a one-size-fits-all approach at the
national level countc -productive, costly, inefficient nod unfair to many states, Going
forward. unrealistic wd costly federal government mandates should be opposed so as not
to place new costs on the backs of Ameriean consumers.
Issue 6: Clean Coal
Description: Since "e passage of the Clean Air Act Amendments in 1990, there bave
been a number of c1 an coal technology advancement effons, meanlng technology that
reduces the pollutant associated with the burning of coal. There are already more than
$12 billion in clean" al technology research projects underway across the United Slates.
One of the most co nmonly disc\lSsed large-scale clean coal technologies is carbon
capture and storage CCS). The goal of CCS is to capturc carbon dioxide (C02) at
industrial SOUrces suc as coal bunting power plants. The CO, is compressed and then
injected and stored blow groWld in geologic formations. There are three large CCS
demonstration project operating in the U.S., but it is important to note that the procedure
has not been applied 0 any large-scale electricity generation projects thus far due to a
number ofinfrastructtlTe. cost, and legal impediments.
Action: Signi"cant funding is required in order to make necessary advancements
in CCS, as the techno ogy is not ready for commercial applications. Various studies have
indicated that around $8 billion in necessary research and development funds is needed
over the next 15-20 ears to approach commercial deployment of CCS. As such, it is
important that no G G emission reduction program.9 or regulations take effect which
assumes CCS will be available ill the near term. For example, climate legislation
proposed in the last (:Ongress required that emissions reductions by coal burning power
plants start in 2013 • which is a minimum of ten years before CCS would be available.
The authors of the Ie claimed the CCS provisions in the legislation would save
coal jobs, but the rea ity is the jobs would have completely disappeared long before the
CCS teohnology wouln be available.
Conclusion: It is clear th t the EPA is consistently exceeding the boundaries of its legal
authority in the slew of rules actions and strategies undertaken or put forth by the agency in the
last two years • while sin ultaneously interfering with processes and issues that are the
responsibility ofother federa agencies. These reoent rules, actions and strategies are clearly part
of a deliberate and calculate< attempt by the Obama Administration to force electric utilities to
abandon coal as a fuel sourc4: by making it too expensive for utilities to bwn coal- all without
any regard for the of the destrocti ve consequences such actions will have On the
nation's economy and the co31 industry. Accordingly, assertive steps must be taken in Congress
to conduct pointed, oversight of the EPA with regard to these actions and rules and
their impacts on coal mining, manufacturing, power producers, the agricultural sector, thousands
of small businesses, and mil ions of American consumers. TIle first step in this process is for
Congress to pass legislation imposing a moratorium on EPA's actions to allow time to complete
detailed sOOdies and analys s of the cwnuJative effects of EPA's Endangennent Finding,
Transport Rule and related on the United States' economy, inclUding impacts to jobs,
individual industries, the e*tricaI grid, and ultimately the American people. In addition,
funding for EPA and other agencie,s bent on creating stacks of burdensome regulations
should also be decreased, res ting in savinlgs to taxpayers while bolstering the economy.
Roaring Springs Water
listing of existing and proposed regulations which will negatively impact our business:
-Ongoing attack on BPA with new studies by NIH in progress, despite the
continued evidence from many studies done around the world showing
no serious health risks associated with use of BPA in packaging
-The new Healthcare law which at this time it is impossible to calculate the long term
increased cost impact, but it will be significant
-OSHA plans to reverse decades-old policy regarding noise standards. Currently,
employers may use effective personal protective equipment (PPE) like earplugs
rather than extensive engineering and administrative controls that involve
noise ---{jampening technologies for machines and work scheduling to protect
employees from excessive levels of noise. The Agency has announced it will
reinterpret noise control standards to now require employers to reduce noise
levels in the workplace through any possible engineering and administrative
overhauls that are "capable of being done" - instead of accepting the use of
devices like earplugs - regardless of costs. The Agency has further indicated
that it plans to enforce these changes by instructing OSHA inspectors to cite
employers with OSHA violations should they fail to make the required changes.
-The proposed Employee Free Choice Act (Card Check) which has been discussed for
several years.
-The false and misleading claims by the Environmental Working Group relating to
Labeling on bottled water
January 10,20 I0
Honorable Darrell E. Issa
Committee on Oversight and Governmcnt Reform
2157 Rayburn House Office Building
Washington, DC 20515-6143
Dear Chairman Issa:
TEL: (202) 775-1700
FAX: (202) 822·0928
Thank you for your December 10,2010 letter regarding regulatory issues facing Toyota
and the automobile industry.
Toyota has a long history ofleader:ship in fuel economy and has the highest fleet fuel
economy of all full-line automobile manufacturers in the U.S. market. This is a result of our
leadership in developing and commercializing not only our revolutionary hybrid technology, but
also a myriad of other, less visible, improvements to vehicle powertrains and design. Toyota
very much intends to keep investing and innovating to provide the best fuel economy possible,
consistent with consumer desires. Furthermore, many of these investments are taking place in
the United States. Toyota's impact in the United States includes 10 manufacturing facilities with
additional vehicle development and sales facilities, direct employment exceeding 28,000, and
direct investment exceeding $18 billion.
Toyota is committed to manufacturing vehicles where we sell them. However, in order
for automakers to continue to invest in the development and manufacture of vehicles that meet
consumer expectations at an affordable price, it is important to maintain strong focus on
regulatory consistency, clarity, simplification and feasibility in order to minimize the cost of
regulation. .
New vehicle fuel economy and greenhouse gas regulations require major investments in
advanced powertrain technology and vehide design, and represent perhaps the most significant
and expensive regulations facing our company and our industry. Nonetheless, Toyota continues
to support a regulatory approach to improving fllel economy and reducing greenhouse gas
emissions. 1n 2009, Toyota supported the joint regulatory program for fuel economy and
greenhouse gas emissions established by the National Highway Traffic Safety Administration
(NHTSA) and the Environmcntal Protection Agency (EPA) for Model Years 2012-2016. As pal1
of the agreement, the State of California agreed to take certain steps to harmonize AB1493, a
California state law to regulate greenhousl: gas emissions from vehicles, with the federal
program. We continue to support this agreement, which avoidcd a massive challenge of
conflicting and overlapping regulatory requirements for the industry. Working together, the U.S.
will be on the cusp of achieving the levels established for Model Year 2020 in the 2007 Energy
Independence and Security Act (EISA) four years before the date in that statute.
Recently, EPA, NHTSA, and California have embarked on an efTort to regulate fuel
economy/greenhouse gases for Model Years 2017-2025. Even though projecting this far in the
future involves highly speculative judgments regarding consumer desires, fuel prices and
available technologies, Toyota and other manufacturers have agreed to work with the federal
and State agencies to try to develop a national program to follow the one in place for MY 20 I2-
Without a single national fuel economy program for motor vehicles, Toyota is concerned
that industry may very well be confronted with a repetition of the uritenable situation it faced in
2009 as a result of the unintended consequences of differing regulatory standards. California is
targeting final approval of its standards as soon as April, 20 I I, while EPA and NHTSA have
identified numerous outstanding issues that need to be resolved before setting their standards,
and are targeting Fall of2012. On the current course, the potential exists for both federal and
state-by-state standards to apply side-by-side, each essentially regulating the same vehicle
attribute -- fuel economy/greenhouse gases.
This potential would create an unworkable patchwork of regulations because adoption of
the California greenhouse gas rules by other states actually results in different state-by-state
stringencies depending on customer preferences and the resultant product mix sold in each state.
As an example, although Toyota offers for sale the same vehicle models nationwide, buyers in
different states have particular geographk tastes (e.g., buyers in states with more rural areas
purchase more SUVs and in those states with urban areas which lean toward more fuel efficient
passenger cars). A national program allows manufacturers to balance these market differences,
allows flexibility among dealers and avoids a morass of state-by-state product and technology
plans, distribution nightmares, difficulty meeting consumer needs and other severe
complications. Variations such as these make it difficult, at best, for any manufacturer to
conduct business, meet stricter fuel economy standards and meet the needs of our customers.
Clearly, the actions for the MY 2017-2025 period should not lead to this type of result. A single
national approach is an absolute necessity for the automobile industry.
Another factor that should be considered is that the authority ofNHTSA, EPA and
California to regulate fuel economy and grcenhouse gases derives from different legal sources
which can conflict ifnot addressed. Such conflicts further complicate the regulations, add
unnecessary costs, and could hinder manufacturers' ability to comply. While there are several
examples, we raise one as an illustration. Under EISA, NHTSA's authority to set standards is
limited to five years. This statutory time frame may conflict with the Agencies' stated intent to
develop standards now that cover MYs 2017-2025. Toyota suggests that EISA's 5-year
maximum window for establishing standards makes sense here. To the extent standards are
established for a longer time period (e.g. through MY25) a mid-course review should be
established so that all parties have the opportunity to review the projections and assumptions
made at the time the standards arc initially set, and make necessary adjustments based on
changing conditions in the future. Finally, Toyota suggests that the standards setting process
must consider the underlying legal frameworks of the differing statutory schemes and harmonize
the differences that do not help improve fuel economy but add more compliance costs.
Another significant concern to Toyota is the recent EPA approval of higher amounts of
ethanol in gasoline for Model Year 2007 and newer vehicles. Moving from E-l 0 to E-15
represents a 50% increase in the alcohol content of the fuel above the level these vehicles were
designed to accept. Unfortunately, the data used by EPA in connection with this decision does
not adequately consider the effect this change will have on our legacy fleet, and we cannot
recommend the usc of the fuel to our customers. Industry organizations are contesting this EPA
action in litigation.
Toyota supports the use of higher amounts of ethanol in motor fuel if this is done on a
prospective basis, rather than the retroactive manner in which EPA has proceeded. Ifproper
leadtime is provided to vehicle manufacturers, petroleum refiners and marketers, the use of
higher amounts of ethanol could be accommodated without exposing millions of owners of
existing vehicles to potential problems with their vehicles due to use of a fuel their vchicles were
not designed to use. In support of a long-term solution, and to avoid a continually moving
ethanol blending target, Toyota stands ready to develop E-20 compatible vehicles in the future.
This is provided adequate lead time is given to phase-in such vehicles, that measures are
developed to prevent misfueling in legacy vehicles not designed to use fuel greater than E-l 0,
and that action is taken to ensure that EI0 gasoline remains available in the market for legacy
vehicles that were designed for such fuel.
Toyota looks forward to working with you, your committee and other committees on
these important issues.
Vice President,
Government & Industry Affairs
February 1,2011
The Honorable Darrell Issa
Chaimlan, House Committee on Oversight and Government Refoffil
2347 Raybum House Office Building
Washington, DC 20515
Dear Representative Issa:
Charlotte Pipe and Foundry is a 110 year-old, family-owned business in Charlotte, NC. We make cast iron and
plastic pipe and fittings for plumbing systems - all our products are proudly made in tbe U.S. We employ more
than 1,350 hard-working Americans and we have not had a forced lay-off in more than 35 years - even during
tltis four-year depression in residential and commercial construction, we have kept our people working (albeit at
reduced hours) with full benefits. We feel strongly about taking care of our associates - our greatest asset.
However, North Carolina has not fared as well. The state has lost 250,000 jobs since the start of the recession,
ltitting a record-high unemployment rate of 11.2% last year. Yet, EPA and other agencies feel now is the tiDle to
impose new rules and regulations that will hurt job-creators struggling to emerge from the recession.
For example, EPA's proposal to further tighten the National Ambient Air Quality Standard (NAAQS) for ozone
to 60 or 70 parts per billion. Typically, EPA wailS at least five years before revising standards, but tbe agency is
re-opening the standard after it was tightened from 84 to 75 ppb in 2008. A preliminaty analysis by North
Carolina's Department of Environmental and Natural Resources shows tbat the proposed lintits will pusb every
metropolitan area in the state out of attainment, placing the estimated $90 billion compliance cost squarely on
the backs of manufacturers, oil refiners and utilities. (Mobile sources of ozone - by far the largest sources-
tend to be filled with voters and therefore are typically exempted from bearing the direct costs of compliance.)
Particulate matter (pM 2.5) standards are also under review by the EPA. PM 2.5 lintits are currently set at IS
ppb. New levels being considered are between 12 - 14 ppb - which are approaching background levels. For
example, naturally-occurring levels in rural Oakboro, NC (where we were considering building a new more
energy-efficient foundry) are at 12.8 ppb. Clearly we cannot locate a plant on the area of real estate we own and
meet these backgrowld levels. Even if the standards remain we have only a window of 2.2 ppb to
work with. Instead of the 450 acres we own, we would need 4,500 acres ofland on which to build to comply.
Finally, wltile Cap and Trade may be dead, the EPA's plan to regulate GHGs under the Clean Air Act will have
the same net effect. Allowing the EPA to proceed is to allow unelected bureaucrats to usurp the will and
authority of the Congress. Attempts to impose carbon restrictions via a "clean energy" standard and the use of
costly renewables also have the same net effect - dramatically ltigher energy prices from carbon-free sources
wltich will add ntillions of dollars to our operating costs, making it extremely difficult for us to compete witl1
Chinese imports already at a labor, subsidy, currency, safety and environmental cost advantage. The last of our
manufacturing base will likely disappear - and our Company will have a very difficult time surviving as well.
Thank you for your consideration of these important issues. Preserving our manufacturing base in a matter of
national security and we hope you will fight unnecessary burdens placed on tl10se who put America to work.
Bradford Muller
Vice President, Marketing
PO 8ox35430 Charlotte, NC 28235 U5A - 704/372-5030 800/438-6091 FAX 800/553-1605
701 Pennsylvania Avenue, NW
S u i t ~ 800 .
Washington, DC 200°4-2654
leI: 2.02783 8700
Fax: 2027838150
Stephen /. Ubi
President and. Chief Executive Officer
Direct: 2.02 434 TWO
January 10,2011
Advanced Mediall TechnolQgy As50dation
Chairman Darrell Issa
House Committee on Oversight and Government Reform
2157 Rayburn House Office Building
Washington, DC 20515-6143
Dear Chairman Issa,
Thank you for your letter dated December 29,2010 concerning existing and proposed
regulations that affect the medical teclmology industry.
As you know, AdvaMed (or the Advanced Medical Technology Association) is the
largest medical teclmology trade association in the world. AdvaMed members range
from the largest to the smallest medical technology irmovators and manufacturers of
medical devices, diagnostic products and medical information systems that are
transforming health care through earlier detection, less invasive procedures and more
efficient treatments. AdvaMed members produce nearly 90 percent of health care
technology purchased annually in the United States, and more than 50 percent of products
purchased globally.
Additionally, the medical technology industry is an important manufacturing industry and
a driver of current and future U.S. economic growth. The industry employs more than
400,000 Americans directly, with total direct and indirect employment exceeding two
million. Between 2005 and 2007, the industry created 70,000 neV>' jobs in America, a
V>'orkforce growth of20 percent in just two years. Medical technology jobs are good-
paying jobs, V>'ith V>'ages exceeding those for the work force as a whole by 40 percent and
exceeding average V>'ages in other manufacturing industries by 22 percent. Medical
teclmology is one of the feV>' American manufacturing industries that consistently exports
more than it imports, and exports doubled between 1998 and 2008, to $33 billion
While today the U.S. is the recognized V>'orld leader in medical technology, its continued
leadership is by no means assured. A number of factors, including current and proposed
U.S. regulations and aggressive efforts by foreign competitors to attract medical
technology investment, threaten to undermine U.S. leadership and competitiveness. If
Bringing innovation to patient care worldwide
America fails to lead in medical technology in this century of the life sciences, America's
long-term future as the world's most powerful economy will be jeopardized.
However, there are specific steps that can be taken to preserve America's leadership in
the medical technology industry. These steps include making the support of innovation a
priority across all federal agencies that affect medical care and research; reforming the
FDA review process for medical devices to ensure a consistent, predictable process for
approving safe and effective medical devices; ensuring that Medicare payment policies
support medical innovation; establishing a vigorous trade policy that supports export
growth and provides a level playing field for U.S.-based manufacturing; implementing
strategic tax policies to promote economic growth and job creation; and sUPPOlting and
incentivizing the American research and development infrastructure. The future potential
for American economic growth driven by medical technology is great, and taking these
steps would maximize future job creation opportunities.
As you know, the medical technology industry is very heavily regulated and beneficiaries
of government programs like Medicare and Medicaid are important consumers of our
products.' As a result, the ability of the U.S industry to continue to be a world leader and
a generator of good jobs and economic growth is heavily dependent on the wisdom of
Federal policies and regulations. Forthcoming regulations that could have the most
significant impact on the medical device industry are those concerning FDA regulation of
medical devices, implementation of the medical device tax, health delivery system
reform, and transport of components of medical devices. It is essential that federal policy
in these 'areas promote an environment that fosters innovation and Job creation.
Again, thank you for contacting us on this topic. I welcome the opportunity to speak with
you further on these and other issues, and look fOlward to working with you to advance
job creation in the U.S. medical technology industry.
~ f . t A {
Stephen J. Ubi
President and Chief Executive Office
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January 21, 2011
Congressman Darrell Issa (R-CA)
Committee on Oversight and Government Reform
2157 Rayburn House Office Bldg
Washington DC 20515
Dear Chairman Issa:
Thank you for the opportunity to provide a list of concerns that AlA has with existing and
proposed regulations that would negatively impact the economy and jobs. We have tried to focus
on those items that are of the greatest concern. Some of these issues stem from legislation that
has been enacted and could have significant negative consequences for our industry.
The first set of matters fall within the procurement process internal to the Department of
Defense. These follow Secretary Gates' request for ideas from industry on how to best achieve
efficiencies at DOD and make funding available to support the war fighter. Fair acqUisition
policies are needed to maintain a competitive defense acquisition environment and a healthy
defense and aerospace industrial base. In orderto maintain a competitive industrial base, the
government must develop contracting and financial policies that encourage ancj rewarcj good
performance, promote fairness and stability, incentlvizecost savings and establish balanced and
eqUitable risk-reward financial relationships. Attached you will find a summary of the
recommendations we provided to Secretary Gates.
Another area of significant concern is the pending implementation of the three percent tax
withholding on ail government contracts. This rule will negatively impact industry cash flow,
which is particularly onerous for our smail suppliers who face a chailenging environment to
secure financing. It also Is expected to cost the taxpayers several billion do]Jars as a result of
increased costs and decreased competition. This was outlined in the report the Department of
Defense submitted to Congress, which estimated that the cost to that department alone would
exceed $17 billion. Attached you will find a paper detailing our specific concerns.
Best regards,

Marion C. Blakey
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August 17, 2010
Fair acquisition policies are needed to maintain a competitive defense acquisition environment
and a healthy defense and aerospace industrial base. In order to maintain a competitive
industrial base, the government should develop contracting and financial policies that
encourage and reward good performance, promote fairness and stability, incent cost savings,
and establish balanced and equitabie risk-reward financial relationships.
In response to Under Secretary Carter's call
for ideas to restore affordability and productivity in
defense spending, AlA provided 97 initiatives' that will reduce costs. From that list, AlA has
selected several that can be accomplished within current 000 authorities.
Problem Statement: The type of contract 000 uses often does not incent cost savings.
Annual contracts require repetitive negotiations and audits. They do not encourage investment
in cost saving technologies or changes in process because there is no expectation of profiting
from the savings.
While consuming $105 billion of the DoD's budget, weapon system readiness remains
unacceptably low as the Department continues to use the personnel intensive, massed logistics
support policies of the past. This situation contributes to increasing backorders, slow supply
chain responsiveness, poor asset visibility, and slow customer response times.
There has been a steady erosion of the streamlined approach to commercial item acquisition.
The definition of "commercial item" has been narrowed and over 50 requirements have been
added to Federal Acquisition Regulation Part 12 contracts.
1 Memorandum for Acquisition Professionals, Subject: Better Buying Power: Mandate for Restoring
Affordability and Productivity In Defense Spending, June 28, 2010.
2 DoD Efficiency Initiative: Aerospace and Defense industry Input to DUSD(IP), July 26,2010.
1. Propose additional mUlti-year procurements.
2. Increase the use of long term performance- and outcome-based product support
3. Expand the definition of commercial products to include defense products with
competitive direct commercial sales to foreign governments and buys "of a type" and use
commercial-type contracts for commercial items.
Savings: The use of multi-year procurements allows industry to strike more favorable deals
with subcontractors and encourages industry to make investments that reduce future costs.
Administrative costs for annual proposals, audits, fact finding, and negotiations are also
reduced. Multi-year procurement savings can exceed 10 percent. The Generai Accountability
Office reportecf' that the median multi-year procurement savings for aircraft candidate programs
in the 1980s was 10.7 percent and in the 1990s-2000s was 7.2 percent.
Performance- and outcome-based product support contracts provide incentives to increase
measurable capability rates while decreasing costs. The OSD Product Support Assessment
Team reported that performance-based logistics agreements have saved or avoided over $1
billion in cost. Comparing FY04 to FY09 dollars per flight hour for one large aircraft platform
shows a 28 percent decrease in cost while maintaining an 84-85 percent mission capable rate.
The benefits of employing commercial item acquisition processes are many and w'ldely
recognized. The 000 Inspector General's office identified the benefits of commercial
acquisition in its audit report, 0-2006-115, Commercial Contracting for the Acquisition of
Defense Systems, September 29, 2006. Expanding the definition of commercial items allows
companies to gain the benefits of using Federal Acquisition Regulation Part 12, so that the
government can receive state-of-the-art technology without the delays attendant to its own
development process and at a market tested price that compensates producers for their own
investments, the costs of which are spread over a considerably larger customer base. Sales to
foreign customers are highly competitive, so 000 should be able to use pricing on such ,
contracts in lieu of certified cost or pricing data when it buys the same product. Cost data can
be obtained for changes from the equipment sold overseas.
Problem Statement: The current proposai and negotiation process is lengthy and
cumbersome and often results in unfairly low returns for contractors.
Contracting Officers assume a reasonable price can only be based on the submission of
voluminous cost data - even for commercial Items where data may not be available in the form
demanded and for items with several lots of production history. Contractors have had to submit
extensive amounts of cost data for the C-17 (63,000 pages), F-22 mUlti-year (94,000 pages),
and F-18 (20,000 pages) even though all three aircraft have extensive incurred cost history.
Such extensive data submissions take time and effort to compile and review which protracts
procurement lead times, increases overheads, and wastes the time of people who could be
employed more productively.
Forward pricing rate agreements were instituted to save the time of having to negotiate rates for
each contract and so that experts could deal with the unique issue related to rates. Lately, the
government has stopped negotiating forward pr.icing rate agreements, leaving rates to each
individual negotiator. This results in significantly longer negotiations and increased costs in
3 General Accountability Office, GAO-DB-2gB, "DEFENSE ACQUISITIONS: DOD's Practices and
Processes for Multiyear Procurement Should Be Improved," February 200B, Table 3.
personnel time while at the same DoD anguishes because contracts are not being definitized
timely. For some companies rate agreements have not been completed in over a year and one
major prime contractor has no rate agreements in piace at its largest locations.
Defense industry profitability lags significantly behind its industrial peers. Earning a fair return
allows the industry to compete for needed resources, provide economic value to its investors,
cover legitimate business costs, and continue to provide the best defense systems in the world.
In February 2009, the Institute for Defense Analysis, under contract to the Department of
Defense, released a report, "Defense Department Profit and Contract Finance Policies and
Their Effects on Contract and Contractor Performance." The report states that the margins for
the defense industry are lower than companies in other sectors. The recent history depicted in
the following chart demonstrates that the Defense Industry has had the lowest profit
performance (operating margins) of any major industry.
Defense Industry Operating Margin-the Lowest Returns Amongst Its Peers
-CSIS Defense Indclt
-S&P sao (0' defl
- S&P Software &.
Source: Bloomberg; analysis by CSIS Group
Notes: (1) (SIS Defense Index comprises 34 publicaJly-traded companies with majority of revenues derived from defense business.
(2) For the S&P 500 (SIS obtained historical data for the period 1988-2009 for the constituents as of July 2010,
For many years DOD has used the Weighted Guidelines to develop profit positions on
negotiated contracts. Recently, DoD has arbitrarily cut profits that are offered, often citing the
need to save money for DoD or because contractors do not deserve profit on subcontracts.
1. Reduce the volume of cost or pricing data for all proposals, especially for those where
such data does not already exist or for re-procurements when no significant changes
have occurred. '
2. Re-institute timely enterprise-wide rate negotiation and use of forward pricing rates.
3. Eliminate serial reviews of contractor proposals prior to negotiation.
4. Reinvigorate the use of weighted guidelines to develop profit objectives. Recognize
contract technical difficulty and contractor cost saving initiatives.
Savings: Significant reductions are expected on proposal preparation cost and the time
required proposing and negotiating contracts. This will result in reductions in number of people
involved in the contracting process and a reduction in bid and proposal costs.
Arbitrary and unfair profits on contracts that result in low returns prevent contractor investments
and ultimately result in a weakened defense industry, as was seen in the early 1990s as a result
of unfair DoD policies.
Problem Statement: The oversight process makes multiple, sometimes contradictory,
demands on contractors that drive up overhead costs.
Agencies in the Department of Defense are providing different interpretations of poiicy that
cause contractors who have common systems, to make agency-specific adjustments. For
example, DCAA uses its internal control audit planning summary (ICAPS) ratings as a measure
of a contractor's system compliance. Lack of consistent policy interpretations result in
determinations of inadequate proposals due to immateriai fact finding questions and adverse
audit reports for contractor failure to supply unavailable information. Sometimes paper records
are stored at a central storage facility and retrieval of the paper record cannot be made within
the time frame demanded by the auditor. It is not clear to the contractor, or often to the
government officials, where responsibility, accountability, and authority lie when conflicts take
place. Such conflicts can delay contract award and drive up costs.
1. Combine multi-agency compliance reviews.
2. Estabiish a single point DCMA/DCAA authority at major primes to drive commonality and
3. Base audits on materiality and risk.
savings: Quality can be improved through policy collaboration and discussions of technical
requirements, selection of acceptable estimating methodologies, and early disclosure of audit
findings allowing faster correction of problems. Reductions can be achieved in the number of
people supporting reviews, in resolving differences, and in responding to requests for
information. Costs can also be reduced in bid and proposal costs and in financing costs
incurred while payment actions are being held for government audit.
Higher savings can be achieved by the adoption of more significant efficiencies in the following
o Export control reforms (already underway).
o Eliminating non-value added unique requirements that can be identified through
an updated Coopers & Lybrand-like study and convening a joint government-
industry cost reduction team.
o Requirements reform and stability.
We are working to develop additional, specific recommendations that we will provide to DoD by
Prepared by: Richard Sylvester, VP Acquisition Policy, 7 0 3 ~ 3 5 8 - 1 045
The ability of the defense industrial base to produce the best military equipment at the best
value for taxpayers is dependent on several important factors. Below are a number of initiatives
that Aerospace Industries Association and its more than 300 members endorse for
Streamline Export Control
There are key aspects of export control reform that relate directly to acquisition and program
management which DoD can and should address in real time. Adoption of export control
reform enables effective global development, production and sustainment efforts; it supports
effective program management; it permits more effective, focused use of U.S. Government
resources to review/authorize exports. Export reform also eliminates inefficiencies and avoids
the need for hundreds - if not thousands - of licenses for predictable and repetitive transactions
between the same parties under the same program.
• Designate an overall "lead" senior official to coordinate internal export control policy and
processes, and to act as primary point of contact with industry.
• Re-structure DoD's technology disclosure review processes to ensure timely decisions
and a transparent appeals process. Specifically, Policy and AT&L should present to the
Secretary of Defense a set of joint recommendations within 45 days, to include the
o Designation of a "lead" or "co-leads" to manage and coordinate processes.
o Requirement that Services identify needs not less than 90 days in advance of
requiring a disclosure decision.
o Consolidation of duplicative review boards and coordinate all DOD tech review
processes - LO/CLO, Service disclosure policies (TTSARB, TTSARP, TopLine) and
ENDP - to review requests concurrently and respond to requests within 60 days with
a written Memo of Action.
o Enforcement of consistent policies and timelines for each committee (regarding
submissions, deliberations, escalation, communication of outcomes), and ensure
appropriate oversight of compliance at Under Secretary/Military Service level.
o Adequate staffing to meet mandated committee deadlines.
o Sixty day debrief and appeal process for industry to engage with Service sponsors.
o Process for reconciling divergent outputs at the DepSecDef level. Issue final
instructions within 15 days of a final determination on the appeal.
• Adopt a new, comprehensive program licensing management model and work with
Department of State and industry to develop such a model within 60 days.
o Key elements -
- The model would identify categories of Technologies, Systems, Components,
- Define/tailor protection requirements for each category.
- Pre-qualify non-US companies for each category.
- Each company responsible for its own ITAR compliance.
o A specific Licensing Plan, based on the model, would be developed and adopted at
program inception; failing that, as soon thereafter as is practicable.
o The program Licensing Plan should allow for a single authorization to cover all
transactions within a defined scope (technology, participants), other than those
involving the most sensitive technologies.
o Once an authorization is approved and Congress notified, no further approvals
should be required for transactions covered within the scope of the authorization.
• Continue the review and reform activities of the Arms Transfer Technology Release
Senior Steering Group (ATIRSSG) and encourage an open consultation with industry as
it forms its recommendations.
• Expedite the Section 1248 report on commercial satellites and support legislative fixes
that will level the global playing field for U.S. commercial satellite manufacturers.
Promote Efficient Use of Government and Contractor Resources
A recent Price Waterhouse Coopers study indicated that defense industry productivity as
measured by revenue per employee increased 8.51 % annually from 2000 to 2008 compared to
5.15% annually for the companies in the Dow Jones Industrial Average. Adding the recession
year of 2009, the defense industry still achieved average productivity increases of8% over this
time period. However, additional productivity increases could be achieved by increasing the
efficiency of Government and contactor resources.
Improve Processes and Procedures
• Simplify the contracting process.
o Reduce bid and proposal costs by reducing the volume of cost and pricing data.
- Raise the Truth in Negotiation Act threshold to more accurately reflect the impact
of inflation.
- Clarify within FAR 15.404-39b), 15.404-4(a), and Table 15-2 that contractors are
not required to generate cost or pricing dat in order to comply with the Truth in
Negotiations Act.
- Petition Congress to repeal the condition added by Section 8170f the FY03
NDAA (Pub. L 107-314) (and delete DFARS 215.403-1 (c)(4)(A)(1)) in order to
restore a PCO's judgment as to the level of "other than cost or pricing data"
sufficient ot arrive at a fair price.
• Example: Under the current TINA threshold of $650,000, a recent major
production proposal with a Bill of Material (BaM) consisting of 92,011 line
items, there were 170 suppliers required to provide cost or pricing data
which in turn also required the completion of detailed supplier cost
analysis by the contractor. If the threshold were raised to a level of
$1.012M, then the number of suppliers would be reduced to only 131
suppliers which would still provide detailed coverage of approximately
93% of the BOM. On other production proposals the number of suppliers
would be reduced from 127 to 99 with 88% BOM coverage and from 23 to
16 with 84% BOM coverage. Data indicates that using either prior
purchase order history or a current supplier quotation reduced by
historical decrement factors yields the same degree of estimate accuracy
versus the results of the detailed cost analysis.
• Example: FAR 15.404-3.(b) and FAR Table 15-2 Section II.A are often
cited as the "requirement" to obtain supplier quotes, supporting supplier
cost and pricing data and performing detailed supplier cost analysis prior
to submitting a prime contract proposal. However, other sections of FAR
(notably 15.403-4(a); FAR 2.101 Definitization of Cost and Pricing Data;
and FAR Table 15-2 Note 1) cite that a contractor's obligation under TINA
is met when all cost or pricing data reasonably available prior to price
settlement has been properly disclosed. While industry acknowledges
that FAR 15.404-3(c) requires suppler proposals, supporting cost and
pricing data be obtained and detailed analysis be completed prior to
subcontract award, the only obligation under TINA is to provide this
information prior to prime contract price settlement, and only to the extent
the data exists prior to this date. This position is supported by case law in
ASBCA No. 16458, Paceco, Inc. as well as multiple citations within FAR.
The current government position is having the unintended consequence
of significantly increasing the time and cost required to prepare initial
proposals and updates.
• Recent proposal page counts for long-term production items were as
follows: C-17 FY08 proposal (63,000 pages); F-22 MY (94,000 pages);
F-18 (20,000 pages).
• Example: For multi-year proposal cost estimation, DCAA expects LTAs
to be split out from non-LTA buys, with only the costs of the non-LTA
buys allowed to be escalated through the use of Global Insight indices.
This requires considerable additional work on the part of contractor cost
estimators. Global Insight indices are developed using a mix of both LTA
and non-LTA buys, so the blend of contractor LTA and non-LTA bUys
should also be escalated using the indices for both.
o Reinstitute timely enterprise-wide negotiation and use of forward pricing rates, rather
than each contracting officer negotiating rates, and include contractor's global cost
reduction targets/goals.
• Example: There are instances where this has not been completed for
over a year which delays impacted our ability to complete negotiations
and in some cases bid on efforts. .
• Example: In 2007, 50% of a major contractor's largest locations had
negotiated FPRAs. Today, that company has no FPRAs.
o Establish a working group to determine improvements to weighted guidelines.
- Reinvigorate the use of the DOD Weighted Guidelines (WGL) model, process,
and analysis while making improvements that allow for the Government to create
the desired motivation in contractors and recognize the value of their
- Consistently provide for adequate recognition of contractor's efforts associated
with subcontract management and subcontract performance as part of the
program performance and technical risk factors of the Weighted Guidelines
Model that are not adequately covered today.
- Provide for greater weight and emphasis given to the Cost Efficiency Factor,
particularly as it relates to internal productivity improvements that reduce costs
that a contractor implements using its own funding. In addition, the Cost
Efficiency Factor should recognize the Contractor's use of its own funds that help
and assist the Government during funding gaps over the course of the program
to ensure its success, e.g. procurement of long lead material to protect
Government's desired schedule; program start up pending final release and
execution of the contract, etc.
- Revisit the adequacy of all WGL ranges ana factors and relate these better to
risk. In particular revise those associated with contract type and give more
consideration (higher factor) for FP development effort and immature technology
- Revisit FAR 15.404-4 and DFAR 215.404-71 for any improvements or
clarifications that need to be made resulting from the updates to the WGL model.
In particular, would recommend a rebalancing of the three profit factors. Would
recommend that less emphasis be placed on Facilities capital employed and
more on cost efficiency.
a . Leverage established supply schedules, corporate agreements, and forward pricing
rate agreements to eliminate redundant negotiations.
a Focus negotiations on total cost savings, not on reducing individual elements of cost,
some of which have already been incurred.
• Example: On the Air Force Corporate Contract (a multi-year/multi-item
contract) a "Market Basket" pricing approach is utilized. This approach
ensures unit price integrity in years when part numbers are not forecasted
and also keeps prices low based on supply chain management efficiency
a Eliminate requests for unnecessary information.
a Increase the use of parametric estimating.
a Conduct subcontract analysis within the Government.
• Example: Based on data that one company tracks as part of its cost
analysis workflow tool and some conservative assumptions, it would take
an average of 194 days from the time it receives an RFP from the
customer until the time it completes all cost analyses from suppliers on its
larger production programs. This does not include the time it would take
for each tier of the supply base to complete their cost analyses of their
suppliers exceeding the TINA threshold. If two tiers of suppliers need to
complete cost analyses prior to completion of the prime level supplier
analyses, it is estimated that another 122 days would be needed in the
proposal cycle time for a total of 316 days. This assumes 1
suppliers have a similar cycle time as the company and subsequent tiers
are not as complex. Adding a requirement for lower level tiers in the
supply chain would further increase this already unrealistic and
unaffordable situation.
a Reduce reporting and flow-down requirements for subcontractors.
• Example: Requiring executive compensation reports for subcontractors
which are privately-held will increase workload and costs.
• Example: The Federal Acquisition Regulation (FAR) interim rule on
subcontractor and executive compensation reporting requirements will
drive increases in workload and costs.
• Example: Reevaluate security restrictions imposed by contract - apply
precision and focus in defining the type and nature of unclassified data
that must be protected and the methods for protecting it. Leaving open-
end requirements and overly broad definitions in place drives up cost-
perhaps unnecessarily. Avoid over-classification of information.
•, Example: Avoid CONUS and onerous place of performance clauses
unless absolutely necessary to meet defined security or other mandated
• Example: Weekly Earned Value Measurement and variance reporting is
required on some programs and it drives tremendous cost and noise into
the management system. Weekly EVM is not recommended by EVM
experts for many good reasons.
• Example: There are now instances of CSDR requirements on Fixed Price
Production programs where this is not a requirement to have a CPR.
With no CPR requirement there is nothing for the Government to
reconcile to' the data to. This requirement can be time consuming and
difficult to provide in some systems.
• Example: The ACRN billing structure versus the Clin structure has
prevented us from billing and receiving payment in cases and has led to
reporting complexity.
• Example: Some of our government customers do not understand the
mechanics of cost type contracts and Earned Value and are imposing
requirements that become unmanageable.
• Example: The authorized unpriced work (AUW) process adds cost -
especially when the customer gives direction to proceed with the work but
does not communicate (and/or know) what the work scope is. This
creates a rework and opens up areas for audit findings, which creates its
own workload in responding to CARs.
o Maximize use of single contracting method for multiple customer requirements (e.g.
BOA, Tri-Services, etc. agreements).
• Example: USDC EGI Multi-Services agreement currently has five (5) US
Gov!. End Users under one agreement. This requires negotiations with
only one US Gov!. Contracting Officer resulting in fewer procurement
solicitations and reduced negotiation cost and cycle time.
• Example: This results in one set of Ts&Cs versus having to negotiate
individual terms with each of the 5 US Govt. Agency End Users.
o Maximize use of on "Best Value" Procurement versus FAR Part 15.
• Example: This allows for the competitive award to be based on "Best
Value" which takes into account other factors in addition to cost/price for
award determination such as technical, past performance, schedule, etc.
o Utilize ALPHA Contracting when feasible.
• Example: A large strategic D&S contract successfully implemented
ALPHA contracting primarily to reduce cycle time and the cost of
contracting. This resulted in eliminating "serial" activities with
"concurrent" activities thus reducing fact finding, re-proposal and
negotiation costs and cycle time.
- Evaluate/reconsider domestic preference requirements.
Reinforce the legal boundaries of the Buy American Act with prime contractors -
BAA does not impose a requirement below the "component" level (I.e., it only
applies to items that go "directly" into the end product).
Reconsider the BAA evaluative penalty level - NASA and other buying
commands only impose a 6% evaluative penalty - DoD imposes a 50% penalty
(effectively stating that they will pay a 50% premium for domestic end products).
Enforce the BAA as it was drafted - it applies only to contracts for product - R&O
contracts are services and should not be subjected to the rigors of BAA..
Make use of the available exceptions to BAA as outlined in the DFARS (e.g., the
exception for spare and replacement parts provided by the original foreign
Revise the FSG structure as it applies to the Trade Agreements Act - it makes
little sense, for example, to give "engine accessories" a TAA exception to BAA
requirements, but not "engine components."
• Work pro-actively with industry to determine when solicitations include anti-terrorism
technologies (ATT). For solicitations that are determined to include ATT, pro-actively
request a pre-qualification designation notice from DHS.
• Follow current regulatory guidelines for allowable costs.
o Minimize contract-by-contract negotiation of allowable cost categories.
o Reinstitute timely enterprise-wide negotiation of forward-pricing rates.
o Make certain industry interest costs allowable to encourage efficient funding of
• Restore direct billing.
• Return to a preference for commercial items, processes, and practices.
o Reduce the number of unique clauses imposed on FAR Part 12 contracts.
• Example: The number of "federal-unique" clauses that can be imposed in
a FAR Part 12 prime contract has grown to about 50 provisions (FAR
o Expand the definition of commercial product to include defense products with
competttive direct commercial sales to foreign governments.
o Add flexibility to the definition of "commercial item" to allow 000 to buy innovative
products that do not yet have substantial commercial sales.
o Revise FAR 52.212-4 Alt I to allow commercial time and materials based on
commercial labor rates to alloW non-traditional contractors to support 000.
o Promote Government personnel understanding and consistent application of
commercial item criteria by updating and reissuing the Commercial Item
Determination Handbook.
• Example: Inconsistent understanding and application of the FAR Part 2
commercial item definition among Contracting Officers leads to items
being inappropriately eliminated from consideration and suppliers exiting
the process.
• Example: Regulations and 000 guidance is sometimes ignored by
Contracting Officers. In 2006 the C-17 Program Office took the position
that nothing on the aircraft was commercial, without regard to the
regulations or guidance.
• Example: The "of-a-type" category of commercial item is often
misunderstood byContracting Officers.
Rationalize Government and Contractor Infrastructure
• Provide incentives for closing and combining contractor facilities and close inefficient
government facilities.
Increase the Use of Performance- and Outcome-Based Product Support Strategies
• Require sustainment and life-cycle cost modeling.
• Increase reliance on commercial supply chains.
• Example: DLA adopted commercial supply chains for pharmaceuticals,
food, clothing, fuel, bottled gas, shop materials, and tires. These efforts
reduced inventory and improved customer delivery times 2-4 days. For
naval aviation tires, the commercial supply chain provides 100%
availability, delivery to Iraq in 55 hours, a 75% reduction in inventory, and
$46M in savings. If expanded across all DLA items, costs could be
· reduced by $2.88 to 3.78 per year.
• Re-evaluate in-sourcing policies based on independent cost-benefit analysis.
• Eliminate low-priority and redundant Government services/activities and consolidate
shared services.
Improve the Acquisition Workforce Skills and Training
• Focus on training, skills development, and knowledge transfer.
• Include industry as partners in providing training.
Eliminate Government-Unique Processes and Procedures
The 1994 study, "The 000 Regulatory Cost Premium: A Quantitative Assessment," popularly
known as the "Coopers & Lybrand Study," measured the total cost associated with the 000
regulatory environment and determined that 000 was paying an 18% cost premium. Since the
Coopers & Lybrand report was published, additional requirements have been added to the
regulatory environment. There are a number of actions that 000 should take to eliminate
Government-unique processes and procedures and reduce the cost premium. Those actions
include the following:
• Create a rapid acquisition process and adopt the best practices for all acquisitions.
• Restore materiality and good' jUdgment in audits and eliminate non-value-added audit
o Restore materialtty.
• Example: One of our member companies indicates that the increase in
audit requirements has caused his company to increase its compliance
staff by 20%.
• Example: DCM is holding up a $200M billing for one of our companies
because the auditor wants an original receipt for a $120 vendor invoice.
• Example: DCM has issued findings that are in contradiction with
Generally Accepted Accounting principles and common industry
practices that do not have any adverse impact to the Government. Using
GMP for asset lives, using longer payment terms instead of taking early-
payment discounts, and using electronic systems instead of 3-way
invoice match are all examples of findings where Honeywelll,\/as required
to undertake expensive and lengthy studies to prove no harm to the
• Example: EVM Joint Surveillance Reviews (JSRs) have grown to meet
DCMA driven requirements and the reviews can take upwards of a week
each month at certain locations while also increasing follow up support
and action closure as well. The reviews require support by the Program
Teams and EVM Compliance Officers. The required support is impacting
estimates as this cost was not previously estimated on these programs.
• Example: DCMA is consistently adding reviews and requests for
information outside of the EVM JSR process (like the 14-point schedule
assessment, trip-wire assessments, etc.). These requests take time to
perform as well as respond to any questions or findings. We have to
respond to the violation of percentages that are defined as goals which
mayor may not be valid (especially in the 14-point assessment).
• Example: Redundancy in audits is taking place. We have provided the
same or similar data at different times to different DCM auditors
because they either won't talk to each other, or do not wantto rely on an
onsite auditors finding, or believe they haven't adequately performed
their job if they don't get the origin'!l d'!ta and do the review themselves.
• Example: DCM audits keep coming and they do not seem to close out.
There have been threats of penalties for not adequately supporting.
• Example: We are reviewed by the local DCMA as well as our customer's
DCMA which is adding more requirements to the process. Some of
those requirements have specifically violated the ANSI standard (i.e., you
can never have retro changes - retro changes are not a good idea but
the standard allows for retro changes under specific conditions). DCMA
should not be imposing requirements over and above the criteria.
• Example: The EVMS validation process and requirements are not
clearly defined which may result in ongoing reviews to meet expectations
or excessive cost to implement to an expected requirement in order to
a Reduce the amount of time to plan and perform contract audits.
• Example: On the Air Force Corporate Contract, "one pass" (alpha)
pricing was utilized. In "one pass" pricing, a team of Government pricing
personnel consisting of contracting officers,price analysts, and
representatives of the Defense Contract Audit Agency and the Defense
Contract Management Agency met with Honeywell staff to negotiate
prices based on the cost data contained in the Honeywell's approved
cost accounting and estimating systems. This approach reduced the
need for proposal updates which in turn lowered administrative costs and
administrative lead times. Alpha contracting would have helped minimize
the audit issues experienced on SPLS II.
a Reduce bid and proposal cost by eliminating full assist audits when only rate
audits are requested.
• Example: When Prime Contractors request a simple rate audit for
Honeywell proposals, DCM is regularly launching full cost & pricing
audits instead. - causing unwarranted delays and unnecessary
• Example: the work hours of Honeywell cost estimating/pricing staff is
now approximately 50% supporting audits instead of working on new
a Re-institute the use of IPTs to allow for iterative discussions regarding technical
requirements, basiss of estimate work scope, selection of estimating
methodologies, and early disclosure of audit issues.
a Develop a method for a Government agency to assess and grant, if applicable,
contractor self-oversight. This is to include criteria, conditions, and performance
for when self-oversight should be revoked.
a Clearly define the responsibility, accountability, and authority between DCM and
• Use the Sarbanes-Oxley requirements to certify business systems for publicly-traded
• Update the 1994 Coopers & Lybrand study on the cost premium for unique requirements.
Coopers & Lybrand found an 18% cost premium from Government-unique requirements.
• Convene a joint industry/DoD teamto identify and eliminate unnecessary, no- or low-
value-added processes and procedures.
• Example: DCM is requiring that test equipment Bill of Materials (BOMs)
be added into the consolidated BOM for proposals for cost estimating
purposes, even though parts for test equipment are typically procured in a
different time frame and cannot actually be combined with the rest of the
BOM for volume discounts.
• Example: CMMI requirement: Most contractors consider CMMI as a
competitive advantage and therefore have achieved CMMI; however, it
drives unnecessary assessment costs in some cases.
• Example: Some development programs would benefit, in innovation, cost
and quality, if there was allowance for tailored/flexible quality
management systems (not mandate AS91 00 or IS09001)..
• Example: Mission Assurance requirements such as Technical Operating
Reports should be flowed as guidelines that can be met with contractor or
industry best practices.
• Example: Recently stood-up EVM Center uses the Level II CAR as the
form to document all findings.
• Example: Liberal DCMA interpretations/definitions at some sites cause
Level II CARs to be written. This results in contractor Root Cause
Analysis (RCA) and Corrective Action (CA) for some minor non-
• Example: Some DCMA commands are considering writing a contractor
CAR for every CAR written against one of its suppliers.
• Example: Unnecessarily conservative Critical Safety Item (CSI)
designation approaches create CSllists larger than necessary. In 2009,
the C-17 program, a mature program, the CSIlist was expanded as much
as 30% with no known deterioration in delivered quality.
• Example: Conformity designation, on development programs, is more
subjective thim necessary and therefore often results in a conservative
approach. On the Italian Tanker program, for example, conformity
designation (number of parts requiring conformity process) was inflated
due to conservative approach.

• Simplify/combine multi-agency compliance reviews.
• Example: Lack of consistent interpretations is resulting in determinations
of inadequate proposals due to unresolved immaterial fact finding
questions, adverse audit reports due to failure to supply information that is
not available and has never been previously provided, inconsistent
determinations on the adequacy of information supporting commercial
item determinations. Contractors typically deploy common processes
across the enterprise. DCM uses itslCAPs ratings as a measure of
contractor's "ticketed" system compliance. The inconsistencies sited
above results in differing ICAPs ratings between contractor locations
notwithstanding the contractor's use of common processes.
• Develop cross-agency adaptations of modern contractor practices, including virtual
documents and staff located away from manufacturing sites
• Example: A Honeywell proposal cost volume was created by an estimator
located in Puerto Rico, though the manufacturing was done at various
U.S. mainland sites. DCAA could not determine whether the proposal
should be audited in Puerto Rico, in Florida, or in Arizona - and the
proposal validity expired before the audit was conducted.
• Example: One DCMA office issued a CAR to Honeywell, requiring that
Honeywell proposals be audited at the location where the estimator sits,
though the proposal was for a system manufactured at another site. At
the same time, DCAA is requiring in-person audits at the manufacturing
site, regardless of where the estimator is located. Using telephone and
on-line meeting technology, DCAA and DCMA personnel should be able
to work with an estimator at any location to conduct their audit.
• Example: DCAA is requiring review of original paper documents, though
Honeywell records are primarily electronic, and paper copies may be
stored at many different locations.
• Restrict agency-unique rulemaking that drives inefficiencies and costs and allow for
public comment on policies that affect industry.
• Example: Military Departments and Defense Agencies have instituted
different requirements for resolving conflicts-of-interest.
• Example: DCAA direction on Forward Pricing Rates (Memorandum
PSP73.5.1.A1201 0-020 dated June 4, 2010); DCAA audit treatment of
supplier cost absent completion of cost analysis (Memorandum PSP
730.5.1 dated June 30, 2009); recent unpUblished DCAA audit practice
requiring that Contractor Enterprise cost reduction challenges/goals be
reflected in FPRP/FPRA (versus disclosed in accordance with TINA
requirements); recent unpublished Buying Command and DCAA practice
of requiring 100% of proposal Bill of Materials for suppliers over the TINA
threshold to have current quotes and Cost Analysis reports included in
the initial proposal. Each of these and other "policy" guidance was issued
with no prior coordination with industry and in many cases the issued
policy overturned decades long industry practices that were successfully
used in the contracting process.
Improve Requirements Definition and Ensure Requirements and Proqram Stabilitv
Instability and unpredictability make it difficult for businesses to plan operations efficiently, to
forecast hiring needs, and to invest in modernization of facilities and innovative technologies.
Among the greatest cost drivers are major changes in requirements during program
performance. Some actions to be taken to achieve stability include:
• Adequately define requirements at the outset of a contract, based on
cost/schedule/performance trades.
o Limit supplementation by use of key system attributes.
o Maximize the use of Configuration Steering Boards to manage requirements
o Clarify FAR 15.603(c)(5) to define a "known agency requirement" as a point in time
when requirements and budgets are identified and validated by an approved
requirements document to minimize the costs of unsolicited proposals.
• Example: On the Air Force Secondary Power Logistics Solution (SPLS)
Contract, an Integrated Process Team (IPT) consisting of Air Force and
Honeywell personnel was used from the beginning of the program to
determine a defined product/service. This approach reduced the need for
proposal updates which in turn lowered administrative costs and
administrative lead times. Honeywell recommends the use of Joint
Integrated Process Teams whenever possible.
• Adequately fund undefinitized contracts or annual contract increments.
• Expand the acquisition workforce human capital plan to include human capital
associated with requirements definition and management in the Military Departments
and Defense Agencies and allow use of the acquisition workforce development fund for
hiring, training, and retaining personnel for requirements definition outside of
OUSD(AT&L) and Military Department contracting and oversight organizations.
• Improve communications with industry on emerging requirements.
o Institute quarterly DoD Executive Level II meetings with Industry CEOs to share
information on emerging requirements, technology capabilities, and industrial
• Establish performance metrics for translating defined requirements into effective
o Performance-based approaches
o Improved cost estimating
o Effective competition
o Appropriate contract types
o Appropriate contract lengths
o Effective contract management
• Lower the threshold for savings and award additional multi-year contracts to promote
stability, lower procurement solicitation, fact-finding, re-proposal, and negotiation cycle-
• Example: One company has a five year production plan for a DoD
program that is funded one year at a time.
• Example: One product requires only 26 units over the program life. DoD
is buying two units in year one, no units in year two, and eight units in
year three. If bought together, the cost would be $1 M less.
• Example: One contractor received a requirement for four units of spares
two months after delivering a 43 unit buy. If bought in a single lot, DoD
would have saved over $120,000.
• Example - A large four (4) year long term firm-fixed price contract with a
Prime Contractor for US Government. and Commercial launch vehicle
products resulted in performing one (1) versus four (4) separate fact
finding and negotiation sessions, thus reducing negotiation costs and
cycle time.
• Stabilize production rates and limit the variation in quantity provisions to reasonable
quantities that do not impact the supply chain.
• Establish fact-based, true-cost baselines for budget stability.
o Use cost-as-an independent-variable (CAIV) methodologies to maintain the cost
o More widely use the Special Termination Cost clause in DFARS 252.249-7000 to
restrict termination liability to specific bounds to free up allocated funds for more
productive uses.
o Sparingly use payment withholds based on risk and harm to government.
o Support repeals of the 3% payment withhold imposed by the "Tax Increase
Prevention and Reconciliation Act of 2005" (Pub. L. 109-222).
Unintended Impacts of Policy Decisions
The Federal Government creates policies intended to advance worthwhile goals. Often these
policies have secondary impacts on contractors that drive up costs. We recommend that 000
champion a requirement that future regulations be accompanied by a cost-benefit statement so
decision makers will know the cost impact of the new requirement and able to make an informed
judgment about the costs and benefits of implementation. Some policy decisions with
unintended consequences include:
• 000 wants increased competition, but bid and proposal costs are being cut. B&P costs
increase as contractors submit more proposals.
• 000 wants to accelerate innovation and encourage entry of new competitors, but RFPs
often insist on the contractor providing its technical data and software developed at
private expense, thus undermining the incentive for contractor innovation.
• 000 wants increased productivity brought about by increased automation and capital
expenses, yet 000 negotiators are arbitrarily reducing overhead costs and placing a
premium on direct labor in profit negotiations.
• 000 wants to reduce or eliminate profit on major subcontracts: Continuance of this
behavior will affect "make or buy" decisions and encourage prime contractors to
vertically integrate, with unintended consequences for the industrial base.
• 000 wants to benefit from increased cash flows, but the 3% mandatory withhold on
payments reduces cash flow and drives costly development of new systems and
processes for 000 and contractors. In 2008 000 estimated the cost of compliance with
the withhold mandate to be $17 billion over the first five years. Including state and local
governments and industry, that cost increases to $75 billion.
• 000 does not adequately fund undefinitized contracts or annual contract increments,
thus forcing use of contractor funds with interest unallowable. Nevertheless, 000
wishes to take back profit when it does provide cash flow advantages. This appears to
be an inconsistent initiative.
Prepared by: Ric Sylvester, VP Acquisition Policy, 703-358-1045