SMALL BUSINESS

Small Firms Pay More for Compliance
The cost of complying with federal regulations is 45 percent higher per employee for small businesses than it is for large businesses, according to new research by the Small Business Administration’s Office of Advocacy. The study found it costs businesses with fewer than 20 employees $7,647 per worker to comply with regulations, compared with $5,282 per worker for businesses with more than 500 employees.

Environmental and tax compliance regulations are the main drivers behind the disproportionate burden on small businesses, the study found. Compliance with environmental regulations, for example, costs small businesses 364 percent more per employee than it costs large businesses. Many regulatory compliance costs, such as hiring an attorney to deal with workplace regulations, are fixed. Economies of scale enable a large business to have a lower per-employee cost for regulatory compliance, says study author W. Mark Crain, a professor of political economy at Lafayette College in Easton, Pennsylvania.

The good news for small businesses is the difference between their regulatory compliance burden and that of big businesses declined since 2000, the last time the issue was studied. In 2000, the per-employee for small businesses was 60 percent higher than it was for large businesses. The new study’s methodology differed slightly, however. The overall cost of federal regulations to businesses and individuals totaled $1.1 trillion, up from $843 billion in 2000.

Tom Sullivan, chief counsel for SBA’s Office of Advocacy, says the study is important because it shows why federal regulators need to keep small businesses in mind when they develop new regulations. Small businesses drive job creation and innovation, he says. “Anything that gets in small businesses’ way . . . really has to be looked at,” Sullivan says. “These are all barriers to entrepreneurial success.”

The leaders of Congress’ small business committees say the study demonstrates the need for legislation that would force agencies to consider the indirect economic impacts of their regulations on small businesses. The bills would also require agencies to give more weight to the Office of Advocacy’s recommendations on how to reduce the regulatory burden on small businesses. Last year, the office’s suggestions saved small businesses an estimated $17 billion in potential regulatory costs.

“This legislation simply requires federal agencies to take a closer look at proposed regulations to make sure they are not burdening small employers,” says Representative Don Manzullo (R-IL), chairman of the House Small Business Committee.

His Senate counterpart, Senator Olympia Snowe (R-ME), says, “We can and must continue our efforts to inject common sense into the regulatory arena.”

CAPITOL HILL

 Hill Resolution Keeps Government Functioning
President Bush signed legislation that Congress approved September 30 to keep the federal government functioning temporarily after it failed, for the ninth straight year, to pass all annual spending bills before the start of the new fiscal year.

The Senate voted by voice to continue federal programs through November 18 while the two chambers work on the spending bills.

By the end of the 2005 budget year at midnight September 30, Congress had passed and the president had signed only two of 11 appropriations bills that provide money for health, education, defense, foreign affairs, homeland security and other government programs.

The House passed a “continuing resolution” on September 29. Under that measure, funds through November 18 would be released at the fiscal 2005 rate or at the levels specified in House- or Senate-passed bills for fiscal 2006, whichever is lower.

POLLS

What’s Most Important Now?
With a jam-packed congressional schedule looming for the rest of the legislative year, what should the top priority be for President Bush and Congress? When an Associated Press/Ipsos poll asked a half-sample of respondents to rank eight issues, 25 percent put the economy/jobs first on the list. In second place was Iraq (19 percent), followed by energy/gas prices (17 percent). One percent volunteered that Hurricane Katrina relief should be the top priority.

The other half-sample heard the same list of issues with one addition: Katrina recovery. The hurricane came out on top, chosen by 29 percent. Iraq was second (19 percent), followed by the economy/jobs (16 percent), and energy (14 percent).

In a poll taken about a week after Katrina struck the Gulf Coast, the Pew Research Center examined views about government. Not surprisingly, a majority (56 percent) of respondents said government was “wasteful and inefficient.” Thirty-nine percent did agree with the statement that “government often does a better job than most people give it credit for.”

Faith in government has also dropped, according to Pew: In December 2004, 47 percent said they trusted the government to do the right thing “always” or “most of the time.” This time around, only 31 percent agreed, while 63 percent said they trust the government “only sometimes.”

ECONOMY

Katrina, Gas Prices Trigger Decline in Personal Income
Soaring gasoline prices and Hurricane Katrina dealt consumers a one-two punch in August, knocking down income for the first time since January and reducing spending by the fastest rate since the aftermath of the terrorist attacks in September 2001.

The Commerce Department said September 30 that Americans' personal income declined $5.3 billion, or 0.1%, in August from the preceding month, after rising 0.3% in July. The Commerce Department said the decline included $100 billion, at an annualized rate, in uninsured losses to individuals and businesses caused by Hurricane Katrina. The decline related to Katrina was offset by income gains – including $70 billion in insurance payments – in other areas, resulting in a smaller decline in total personal income.

At the same time, consumer spending in August fell by $47.2 billion, or 0.5%, marking the largest drop since November 2001. Economists said the August decline was influenced by cooling auto sales, which had been robust in July due to the popular “employee discount” programs offered by the largest auto makers.

While most economists characterize the reduction in personal income as a short-term hit, some worry that high energy prices are finally siphoning potential sales away from other spending categories, and could slow the economy if prices continue to rise.

REGULATORY

OSHA Reviews Lead in Construction Reg; EPA to Issue Proposal Before Year-End
PDCA plans to submit comments regarding OSHA’s lead in construction standard. In response to a request to assess its lead in construction standard, OSHA has begun a review to determine whether the standard should be modified to be more practical, less burdensome to small businesses, and more effective.

OSHA is charged with protecting worker health, but is reviewing how it should consider revising this standard. PDCA recently participated in an OSHA roundtable where the standard was discussed. The painting industry was cited by OSHA as a key stakeholder and focus of the review.