THE FEDERAL REGUUTORY CUMATE IN
MARYLAND
Y4.G74/7;R 26/9
The Federal Regulatory Clinate in II...
HEARING
BEFORE THE
SUBCOMMITTEE ON NATIONAL ECONOMIC GROWTH,
NATURAL RESOURCES, AND REGULATORY AFFAIRS
OF THE
COMMITTEE ON GOVERNMENT
REFORM AND OVERSIGHT
HOUSE OP REPRESENTATIVES
ONE HUNDRED FOURTH CONGRESS
SECOND SESSION
JANUARY 26, 1996
Printed for the use of the Committee on Government Reform and Oversight
U.S. GOVERNMENT PRINTING OFFICE
40-632 CC WASHINGTON : 1997
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-055128-5
THE FEDERAL REGIMTORY CUMATE IN
MARYUND
4.G74/7:R 26/9
e Federal Regulatory Clinate in H. . .
HEARING
BEFORE THE
SUBCOMMTTEE ON NATIONAL ECONOMIC GROWTH,
NATURAL RESOURCES, AND REGULATORY AFFAIRS
OF THE
COMMITTEE ON GOVERNMENT
REFORM AND OVERSIGHT
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTH CONGRESS
SECOND SESSION
JANUARY 26, 1996
Printed for the use of the Committee on Government Reform and Oversight
U.S. GOVERNMENT PRINTING OFFICE
40-632 CC WASHINGTON : 1997
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-055128-5
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
WILLIAM F. CLINGER, Jr., Pennsylvania, Chairman
BENJAMIN A. OILMAN, New York CARDISS COLLINS, lUinois
DAN BURTON, Indiana HENRY A. WAXMAN, CaUfomia
J. DENNIS HASTERT, Illinois TOM LANTOS, California
CONSTANCE A. MORELLA, Maryland ROBERT E. WISE, Jr., West Virginia
CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York
STEVEN SCHIFF, New Mexico EDOLPHUS TOWNS, New York
ILEANA ROS-LEHTINEN, Florida JOHN M. SPRATT, Jr., South CaroUna
WILLLyvi H. ZELIFF, Jr., New Hampshire LOUISE McINTOSH SLAUGHTER, New
JOHN M. McHUGH, New York York
STEPHEN HORN, CaUfomia PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida GARY A. CONDIT, California
PETER BLUTE, Massachusetts COLLIN C. PETERSON, Minnesota
THOMAS M. DAVIS, Virginia KAREN L. THURMAN, Florida
DAVID M. McINTOSH, Indiana CAROLYN B. MALONEY, New York
JON D. FOX, Pennsylvania THOMAS M. BARRETT, Wisconsin
RANDY TATE, Washington GENE TAYLOR, Mississippi
DICK CHRYSLER, Michigan BARBARA-ROSE COLLINS, Michigan
GIL GUTKNECHT, Minnesota ELEANOR HOLMES NORTON, District of
MARK E. SOUDER, Indiana Columbia
WILLIAM J. MARTINI, New Jersey JAMES P. MORAN, Virginia
JOE SCARBOROUGH, Florida GENE GREEN, Texas
JOHN B. SHADEGG, Arizona CARRIE P. MEEK, Florida
MICHAEL PATRICK FLANAGAN, IlUnois CHAKA FATTAH, Pennsylvania
CHARLES F. BASS, New Hampshire BILL BREWSTER, Oklahoma
STEVEN C. LaTOURETTE, Ohio TIM HOLDEN, Pennsylvania
MARSHALL "MARK" SANFORD, South
CaroUna BERNARD SANDERS, Vermont
ROBERT L. EHRLICH, Jr., Maryland (Independent)
James L. Clarke, Staff Director
Kevin Sabo, General Counsel
Judith McCoy, Chief Clerk
Bud Myers, Minority Staff Director
Subcommittee on National Economic Growth, Natural Resources, and
Regulatory Affairs
DAVID M. McINTOSH, Indiana, Chairman
JON D. FOX, Pennsylvania COLLIN C. PETERSON, Minnesota
J. DENNIS HASTERT, IlUnois HENRY A. WAXMAN, CaUfomia
JOHN M. McHUGH, New York JOHN M. SPRATT, Jr., South CaroUna
RANDY TATE, Washington LOUISE McINTOSH SLAUGHTER, New
GIL GUTKNECHT, Minnesota York
JOE SCARBOROUGH, Florida PAUL E. KANJORSKI, Pennsylvania
JOHN B. SHADEGG, Arizona GARY A. CONDIT, CaUfomia
ROBERT L. EHRLICH, Jr., Maryland CARRIE P. MEEK, Florida
Ex Officio
WILLIAM F. CLINGER, Jr., Pennsylvania CARDISS COLLINS, lUinois
Mildred Webber, Staff Director
Karen Barnes, Professional Staff Member
David White, Clerk
Bruce Gwinn, Senior Policy Analyst
(II)
CONTENTS
Page
Hearing held on January 26, 1996 01
Statement of:
Abenante, Paul, president, American Bakers Association, accompanied
by William Paterakis, H&S Bakery; and John Morrison, vice president
of human resources, Schmidt Baking Co.; Alvin Manger, president,
Manger Packing Co.; and Edward Lauer, owner, Lauer's Super Thrift,
representing the Food Marketing Institute 7
DeFrancis, Joseph, president, chairman, and CEO, Pimlico Race Course;
and Timothy Capps, executive vice president, Maryland Horse Breeders
Association 43
DiCara, Joseph A., vice president, Sales and Marketing, GOW Inter-
national, Inc 58
Good, William A., executive vice president, National Roofing Contractors
Association; Mark Gaulin, president, Magco, Inc., and president, Associ-
ated Roofing Contractors of Maryland; Calvin H. Coblenz, president,
Wimpey Minerals, USA, Inc., and president, Maryland Associated Gen-
eral Contractors; William T. Popomaronis, president. Epic MD Profes-
sional Pharmacies and owner, Edwards and Anthony Pharmacy; Hugh
Brown, president. Safeguard Maintenance Corp.; Michael Stappler,
president, Overlea Caterers, Inc.; Thomas J. Meighen, safety and risk
manager, Stromberg Metals; and James Miller, executive director, Epic
Professional Pharmacies 61
Heinemann, Rabbi, rabbinic administrator, Star-K Kosher Certification ... 55
Letters, statements, etc., submitted for the record by:
Abenante, Paul, president, American Bakers Association, prepared state-
ment of 11
Brown, Hugh, president. Safeguard Maintenance Corp., prepared state-
ment of 94
Coblenz, Calvin H., president, Wimpey Minerals, USA, Inc., and presi-
dent, Maryland Associated General Contractors, prepared statement
of 78
Gaulin, Mark, president, Magco, Inc., and president. Associated Roofing
Contractors of Maryland, prepared statement of 73
Good, William A., executive vice president. National Roofing Contractors
Association, prepared statement of 64
Lauer, Edward, owner, Lauer's Super Thrift, representing the Food Mar-
keting Institute, prepared statement of 31
Manger, Alvin, president. Manger Packing Co., prepared statement of 27
Meighen, Thomas J., safety and risk manager, Stromberg Metals, pre-
pared statement of Ill
Popomaronis, William T., president. Epic MD Professional Pharmacies
and owner, Edwards and Anthony Pharmacy, prepared statement of 87
Stappler, Michael, president, Overlea Caterers, Inc., prepared statement
of 106
(HI)
THE FEDERAL REGULATORY CLIMATE IN
MARYLAND
FRIDAY, JANUARY 26, 1996
House of Representatives,
Subcommittee on National Economic Growth,
Natural Resources, and Regulatory Affairs,
Committee on Government Reform and Oversight,
Towson, MD.
The subcommittee met, pursuant to notice, at 10 a.m., at Towson
State University Student Union, Art Gallery, Osier Drive, Towson
MD, Hon. David Mcintosh (chairman of the subcommittee) presid-
ing.
Present: Representatives Mcintosh, Ehrlich, and Peterson.
Also present: Representative Radanovich.
Staff present: Mildred Webber, staff director; Karen Barnes, pro-
fessional staff member; David White, clerk; and Bruce Gwinn, sen-
ior policy analyst.
Mr. McIntosh. The Subcommittee on National Economic
Growth, Natural Resources, and Regulatory Affairs will come to
order.
Welcome to this 10th field hearing. I want to thank you for com-
ing and joining us. The subcommittee has a different approach to-
ward looking at the issue of regulatory relief. We have actively got-
ten out of Washington and had field hearings all across America
to hear from citizens about problems they have with Federal Grov-
ernment agencies and regulatory programs.
We have discovered that there are enormous problems. A tangle
of bureaucratic red tape is strangling competition, costing jobs, and
costing consumers in terms of higher prices and products that
aren't available. We are taking that information back to Washing-
ton and pursuing an aggressive legislative strategy. We are work-
ing with Speaker Gingrich on his new Corrections Day program to
try to address those problems. But your input today is enormously
helpful to us in finding out what are the real problems facing real
people here in America.
I want to thank some of my colleagues on the subcommittee for
joining me. First, Collin Peterson from Minnesota has been kind
enough to join us as the ranking Democratic member of the sub-
committee. Bob Ehrlich from Maryland is the host today, and I
want to thank him, in particular, for helping set this up. He is one
of the most outstanding freshmen Members, and I've gotten to
know and work with him very well, and you should be very proud
of the work that Bob does in representing your interests in Wash-
ington and on this subcommittee.
(1)
And then, also, I would like to ask unanimous consent of my fel-
low subcommittee members to allow a fellow freshmsm, George
Radanovich, who is in Baltimore today for the freshman advance,
to join us on the panel today. Seeing no objections, Greorge, wel-
come to our subcommittee.
Mr. Radanovich. Thanks, David.
Mr. McIntosh. Let me say a few brief words before we begin
with the hearing. Last year, we had an aggressive series of field
hearings. We're going to continue to do that around the country
next year. We're also going to look at completing work on several
initiatives that our subcommittee has put forward.
One of them will be a bill to sunset regulations which the sub-
committee and full committee have passed. We're working to bring
that up again this year on the floor of the Congress and working
with the Senate to get it passed, and have signs that President
Clinton, who spoke about the need to cut back on regulations in his
State of the Union address, would be willing to accept certain ver-
sions in that bill.
A second initiative will be on allowing flexibility. You know, in
the State of the Union, the President sent a challenge to industry
that, if you can do a better job of protecting the environment and
safety and complying with the requirements in regulations, but you
can do it in a better way, go ahead. And we're going to work on
some legislation that will allow citizens to be able to do that and
present that to the President as a way of fulfilling his challenge
and removing some of the regulatory burdens that make it hard for
American citizens to be able to have that flexibility.
We're also going to be looking at overall regulatory reform, to
say, let's put common sense back into the regulatory process. That
bill has passed the Congress. The Senate has a version that they
are working on. And I am confident that, by the end of this year,
we will be able to have a version that can be sent to the President
and, once again, get back to the principle of using common sense
in making regulations that are needed in Washington, so we don't
go too far.
One of the things that we've heard — and every time I go back to
my home State in Indiana, I hear a new example of problems with
regulations — but you continually hear examples from people where
they just don't make any sense.
I come from a farming community. One of the witnesses we had
at our hearing was a farmer named Kay Whitehead, who talked
about a regulation that governed what she could do with the ma-
nure that her pigs produced. Normally, farmers spread that on
their fields and use it to fertilize the crops. Well, one agency told
her that she could spread it on top of the fields. Another agency
came in and said, "No, you can't spread it on top of the fields, you
have to plow it in."
Kay said, "I don't really care which regulation I follow, just tell
me which one I need to do when I get rid of this manure." Now,
she did confide that her neighbors had a strong preference for her
plowing it in. [Laughter.]
But you see that type of thing day in and day out, where govern-
ment regulations give you conflicting signals, they put require-
ments on people that don't make sense, don't help the environment.
don't help health, don't help safety, but do cost a lot of money and
end up costing us jobs, when companies can't afford to hire new
employees because of the red tape.
Well, without further said on that issue, because I think we will
hear a lot of testimony today about it, let me now turn to my col-
league, Collin Peterson, who is one of the now famous Blue Dogs,
or coalition Democrats. He has been an enormous help to us in our
effort to root out regulations and, more recently, has been working
with freshmen and the other Republicans in trying to get to a bal-
anced budget.
Collin, do you have any comments?
Mr. Peterson. Thank you, Mr. Chairman. I want to thank you
for continuing to hold these hearings out in the real world. I do,
in addition to being ranking on this committee, represent the Blue
Dog wing of the Democratic party. We think that Federal regula-
tions have gotten out of control. And I think that these hearings
that we have held around the country are an important way to
help us get the Federal Government regulatory process back under
some control.
Every time we have one of these hearings, you know, we hear all
kinds of incredible stories from ordinary folks that are in small
businesses, farmers that are being driven crazy by Federal regula-
tions that they find confusing and overwhelming, a lot of times,
and a lot of times just plain stupid, you know. But I think it's real-
ly the airing of these stories that's helping us move along some of
this process, although it's been more difficult, I think, than a lot
of us expected, especially over in the Senate. We need some Blue
Dogs over in the Senate.
John Kasich we've been working with on the budget, and he told
a story about when he was first working with Senator Dole on the
budget and telling him that he was working with the Blue Dogs,
and Dole said, "Blue Dogs," he said, "we don't have any Blue Dogs
in the Senate. We've got some hot dogs," he said. [Laughter.]
And he said, "I think we maybe even have Snoop Doggy Doggy."
[Laughter.]
So Kasich thought Dole was pretty cool. He's gearing up for his
MTV appearance.
Anyway, I think that agencies need to know when their regula-
tions have become obstacles, and I think that this committee has
helped bring some message to some of the agencies. And I'm en-
couraged. I think the agencies are starting to get the message a lit-
tle bit.
Last year, the administration initiated a reinventing OSHA pro-
gram. I've had an opportunity to meet with Joe Dear a couple
times. I really think his heart is in the right place, and he's moving
things in the right direction. It's a tough job because of all the in-
stitutional problems that I think are in these agencies, but I think
we're making some progress. One of the witnesses today, we're
going to hear him talk about some of the changes that have hap-
pened as a result of this initiative that are moving, it looks like,
in the right direction.
So there's a lot to be done, but I think that we're making some
progress, and these hearings are important. I think the more we
can spend time doing oversight and keeping the heat on people, the
more progress we will make. So I look forward to the hearing
today. I am maybe going to — it depends on how long-winded all of
you get — I may have to leave a little early. It's not because I'm not
interested, but I've got some things I've got to get to doing this
afternoon.
So, again, thank you for holding the hearing, and I look forward
to hearing from the witnesses.
Mr. McIntosh. Thank you very much, Collin.
Let me now ask my colleague, Mr. Ehrlich, if you've got any
opening remarks. And, again, thank you for setting this up and
hosting it.
As I said earlier, you all should be very proud of the work that
Bob does in Washington. He's done an excellent job of representing
you.
Mr. Ehrlich. You read what I wrote very well, David, thank
you.
Before I begin — I'll be very short — I'd like to recognize for a very
few brief remarks, Mr. President, my friend, Hoke Smith, and our
host here today.
Hoke.
Mr. Smith. Thank you very much.
We're very pleased to welcome you here today. We're very proud
of Congressman Ehrlich and his support of higher education and
the reputation that he has made for himself in his first year.
Towson State University is a university of about 15,000 students.
It's the second largest university in the State of Maryland. We're
very proud of the fact that we have a very high graduation rate
while we operate in a cost-effectiv.e manner, getting something
like — in the Northeast, we were ranked 129th out of 141 of the dol-
lars we spend per student, and yet we're in the top 10 percent in
academic reputation.
The sign behind you of Metropolitan University, I think shows
our focus. Our outreach programs, whether we're talking about
where our nurses train, our occupational therapists, our teachers,
our interns in mass communication, some of whom are in the room
with the press today, focus on the metropolitan area and the prob-
lems that are in a metropolitan area, which is really the central
city plus the suburbs around it and their interaction.
I appreciate the task that you have today. I will switch hats just
for 30 seconds and say that, as an institution with 1,200 employees
and 15,000 students, that is covered by a wide range of regulations,
I appreciate the task that you have. In that capacity, I would make
one comment.
One of the things I think confronts those of us who are con-
fronted by a multiplicity of regulations is prioritizing it. And there
is a difference sometimes in the good-faith effort to comply and the
letter of the law. We do not have enough money to comply with all
regulations, to the ultimate degree, at the same time.
I think one of the important things for both the Government and
those who are trying to comply with the social purposes of those
regulations is to establish a common sense priority of where we get
the greatest public benefit for our investment. So I appreciate the
difficulty of the task that you have. We welcome you to campus.
And, again, thank you. Bob, for bringing them.
Mr. Ehrlich. Thank you very much. We need to expand the foot-
ball stadium, so we'll be talking to a few of you about hitting you
up for some money about that, too; right?
Mr. Smith. That's another regulation, because we do not have
public bathrooms, and this is one of the things. I appreciate your
support. [Laughter.]
Mr. Ehrlich. I'll be very brief. I'd like to thank my staff and the
subcommittee staff for the wonderful job they all did in putting this
thing together.
Congressman Peterson, I'll just make one real quick point about
the budget. The Blue Dogs came to the freshman meeting yester-
day, and when the Blue Dog presentation was finished, I think
they received the largest ovation that anyone, with the exception
of the Speaker, has received in our freshman class meetings. And
that's a compliment to you all, by the way.
I'd like to thank David, who is just a wonderful friend and a good
guy and a great leader of our class. The guy to my left, George, for
some reason, not apparent to me, wants to be the new president
of the class. George Radanovich is also a wonderful friend and a
great leader of our class, and I suspect will be the next president;
and you will be seeing him on the national shows. I'm actually
doing his nomination speech.
Just with respect to everyone here, thank you so much for com-
ing out. You know that the No. 1 issue in my campaign for Con-
gress was talking to you about what Government is doing to your
business, particularly in the way of job creation. The bottom line
for all of us here, Republican, Democrat, liberal, and conservative
is to create jobs, to get Government out of the way of job creation.
That's the reason for this hearing. We want to hear from the real
world, from the real life — fortunately, now, for the 2d District of
Maryland, thanks to David — what you are going through on a daily
basis and what we in Washington can do to make your life better;
to help you earn a better buck; and when you do earn that better
buck, to create that extra job or 2 or 5 or 10 or 100 that keeps this
economy going.
You are familiar with the numbers. Four out of every five new
jobs created in this country are created by small business folks,
businessmen and businesswomen who go out, take a risk, put the
house on the line, maybe their life savings on the line, to live the
American dream. Now, what we're about in this Congress is not
class warfare but celebrating what you do. We want you to be suc-
cessful. We want you to make a buck, to create jobs, and that's why
we want to hear what you have to say today.
With that, I will be quiet, David. I know George wants to make
a very brief opening statement, as well. Thank you all very much
for your support and for being here today.
Mr. McIntosh. Thank you. Bob.
G«orge, welcome to our subcommittee.
Mr. Radanovich. Thanks.
Mr. McIntosh. I hope you will be joining us on other occasions,
as well, if you have an opportunity. I thi]^ you will find it very
enlightening as we get to hear from people outside of Washington
about the problems of the Federal Ciovemment. Would you like to
make any opening remarks?
Mr. Radanovich. Thank you, Mr. Chairman, and also thank you
for sillowing me to sit on this panel, not being a member of the sub-
committee.
I am also very proud to be in my friend Bob's congressional dis-
trict. He's going to have to come out to California, too, to visit
mine.
I would like to say something briefly — and Dave, your comment
about the manure spreading in Indiana really kind of brought this
to my attention. And I just want to make sure that people realize
that overregulation stretches clear out to California, as well, with
some of these crazy stories. It's almost as though, if this gets to be
too crazy, that, you know, business can come to the point where
they can say: why don't you just step in and run the business, if
you have to go in so far as to say, spread your manure around your
farm in a certain way.
We've had situations like that in California over water policy
where farmers are having to submit crop plans, and government
people are deciding what type of crop you can plant on your land.
It gets to be, at some point, where you almost have to question
who's really doing the management of the business anymore. I
think what we're here to say is, you know, that the best kind of
regulation is self-regulation, and that's what we're encouraging,
and that's what we want to see returned back to the American peo-
ple.
I hope that we'll be able to spread that word. By learning today
on some of these examples of too much intrusion in business, we
can kind of take that on the national scene, and I think that's our
hope.
Again, thank you very much, David. Thank you for the oppor-
tunity.
And, Bob, it's wonderful to be here.
Mr. Ehrlich. Thanks, George.
Mr. Radanovich. This guy's a great guy. You've got a good man.
Mr. Ehrlich. We set this one up well, didn't we.
Mr. MclNTOSH. Thank you, George.
Let me now begin with testimony and call forward the first panel
of witnesses. I understand from the staff that Mr. Paul Abenante,
who is president of the American Bakers Association, will be ac-
companied by William Paterakis, who is with H&S Bakery, and
John Morrison, vice president of human resources at Schmidt Bak-
ing Co.; Alvin Manger, and Edward Lauer. If you all could please
come forward and take a seat at the table here.
One of the things that we have at the hearings is a session that
we call the open mic session, so that people who are here who are
not part of one of the panels will have a chance to have their say,
if you would like. Let me ask you now, if anyone would like to tes-
tify when we get to the open mic period. Karen Barnes, who is the
young lady in blue there waving her hand, if you can talk to her,
get a number, and then we can make time available for you during
that open microphone session later on in this hearing.
Grentlemen, if you would all please rise. It's the policy of the full
committee to swear in all witnesses before this subcommittee and
all subcommittees. If you would please repeat after me.
[Witnesses sworn.]
Mr. McIntosh. Thank you. Please let the record show that each
of the witnesses answered in the affirmative.
Let me now turn to Paul Abenante. Please share with us your
testimony. Feel free to summarize your points and submit addi-
tional materials for the record. And thank you for coming today. I
know you've been very engaged in a lot of these regulatory issues.
STATEMENTS OF PAUL ABENANTE, PRESmENT, AMERICAN
BAKERS ASSOCLVTION, ACCOMPANIED BY WILLIAM
PATERAKIS, H&S BAKERY; AND JOHN MORRISON, VICE
PRESIDENT OF HUMAN RESOURCES, SCHMIDT BAKING CO.;
ALVIN MANGER, PRESIDENT, MANGER PACKING CO.; AND
EDWARD LAUER, OWNER, LAUER'S SUPER THRIFT, REP-
RESENTING THE FOOD MARKETING INSTITUTE
Mr. Abenante. Thank you, Mr. Chairman, and members of the
subcommittee.
My name is Paul Abenante. I'm president of the American
Bakers Association, and it's truly a great pleasure and privilege to
be here at Towson State University this morning to discuss the
critically important topic of government regulation and its impact
on the wholesale baking industry.
First, let me say the ABA commends Chairman Mcintosh and
the subcommittee for its unrelenting efforts to examine the proper
role of Federal regulations in the Nation's economy, and we are
particularly pleased with the leadership that Chairman Mcintosh
and Congressman Bob Ehrlich have demonstrated, trying to ease
the suffocating layer of red tape that engulfs American businesses.
These issues have long been ignored by the Congress, and it is re-
freshing to see so much attention be given to them.
By way of background, the American Bakers Association is a
trade association that represents 80 percent of the Nation's whole-
sale baking industry. The ABA consists of more than 350 baker
and allied members throughout the United States. Its membership
consists of companies ranging from family owned companies to
firms that are affiliated with Fortune 500 companies.
We are pleased to have with us today Bill Paterakis from H&S
Baking Co. and John Morrison from Schmidt Baking Co., rep-
resenting two of Baltimore's finest corporate citizens and two of
ABA's most active members.
The wholesale baking industry is committed to maintaining it's
strong reputation for providing a high-quality and nutritious prod-
uct line, protecting its valuable and skilled work force, and its
stewardship over the environment. We are responsible citizens,
and, therefore, we are here today, Mr. Chairman, to discuss respon-
sible Grovemment regulations.
The ABA believes that all levels of government have an impor-
tant role in ensuring a safe and healthy food supply, safe and
healthy workplace, and a clean and healthy environment. However,
most Americans have no idea of the immense scope and magnitude
of the regulatory burden placed on baking companies and other
American businesses.
I have brought with me a chart illustrating some of the Federal,
State, and local agency regulations that H&S, Schmidt, and other
baking companies must cope with when they open their doors every
day. There are 55, and that is not inclusive; it is simply a sample.
Taken individually, some of these laws and agency regulations
may not pose an overly excessive burden, but, as a whole, the bur-
den is enormous. The drain on one compan/s resources, let alone
the entire economy, is a giant wet blanket on economic growth and
development. Every dollar that a company spends to fill out reams
of government forms, install environmental clean-up equipment of
marginal value, or fight a senseless OSHA paperwork violation is
a dollar that cannot go into hiring new employees, training existing
employees, buying a more efficient bread oven, building a new bak-
ery, or developing a new product for our consumers.
What is particularly troubling to the baking industry is the in-
flexible "one size fits all" structure of most government regulations.
The Federal Government traditionally treats all companies the
same in its regulatory framework. Another major problem in the
regulatory process is the lack of risk assessment, scientific review,
and cost-benefit analysis.
In no situation is that more clear than the Clean Air Act of 1990.
The Clean Air Act treats all manufacturing facilities virtually the
same, regardless of what substance is being emitted or the amount.
Thus, bakeries are lumped together with steel mills and oil refiner-
ies in how they must tackle air emissions.
The root of this problem is due to trace amounts of ethanol, a
product of yeast fermentation being released into the air. The oxy-
gen in the ethanol is a minor contributing factor to smog on hot
summer days in urban areas. The EPA solution is to have bakeries
spend $500,000 per oven to scrub the sweet aroma of our Nation's
air.
I have attached an article from the Wall Street Journal that elo-
quently points out how ludicrous this is. To put it bluntly, compa-
nies are forced to find savings to pay for this equipment; ultimately
at the expense of its employees, through lost wages, benefits, or
even jobs.
The Occupational Safety and Health Act is another prime exam-
ple of the Federal Government creating barriers to employment,
capital investment and, in some cases, safety and health. The origi-
nal intent of the act was to ensure safety of every worker to the
maximum extent feasible. The agency has had some beneficial im-
pact on safety and health in the workplace. It has, however,
strayed from being feasible and cost-effective.
Now, many baking companies have two safety plans: one devel-
oped in conjunction with the workers' compensation carrier to re-
duce injuries and thus reduce workers' compensation rates; and yet
another system to meet all the paperwork requirements mandated
by OSHA. The myriad of OSHA standards impacting our industry
is so complex, contradictory, and confusing that even OSHA inspec-
tors have difficulty interpreting and applying them.
One ABA member recently received an OSHA inspection focused
on the maintenance garage for its delivery trucks. A mechanic was
looking in the engine compartment of a delivery truck, checking
gauges while the engine was running. The OSHA inspector walked
up to the mechanic and informed him that he was in violation of
an OSHA lock-out/tag-out regulation.
This well-intentioned regulation requires the locking or tagging
of machinery and electrical equipment if it is malfunctioning or
being maintained. The mechanic asked the inspector about the reg-
ulation, and the inspector said that he had to turn the engine off
or risk an OSHA citation. The mechanic then asked the inspector
how he would propose to tune up the truck without it running.
One of the major concerns the baking industry faces with OSHA
is something called the general duty clause. The provision sounds
simple enough, requiring employers to provide a safe and healthy
workplace. OSHLA uses the general duty clause to cite bakers and
others if they have no standard covering the alleged hazard, have
slim evidence of potential hazard, and can recommend a remedy.
One ABA member after another has been a victim of OSHA's
drive-by shooting policy. One case in particular stands out. An ABA
member recognized the need to address a potential ergonomics
problem in a couple of plants. They invested time and money to
correct the problem, and the results were positive. OSHA inspected
these plants and determined that the company's ergonomics efforts
did not go far enough. OSHA could not, however, tell the company
what it should do to correct this perceived problem.
When the company resisted, it was cited under the general duty
clause and fined over $900,000. What is particularly frustrating is
that OSHA has no ergonomics standard. There is no consensus on
potential risk or possible correction. OSHA has no solution to the
hazards it has identified. The company has to spend tens of thou-
sands of dollars fighting this citation and awaiting an OSHA Re-
view Commission judgment. Obviously, it is a major company and
can afford to pursue its legal rights, but many baking companies
do not have the resources to fight OSHA and thus end up settling
regardless of guilt.
The ABA is particularly pleased that the House passed com-
prehensive regulatory reform. The ABA is hopeful that the Senate
will also pass common-sense reform on the regulatory process. Such
reform must contain provisions to give companies flexibility in
meeting Federal standards, have assessment of real risk, and true
cost-benefit analysis. Passage of this reform remains ABA's top leg-
islative priority.
The ABA also supports comprehensive reform of OSHA. OSHA
should be helping companies who want to operate in the safest way
and save its enforcement strength for those companies who put
their workers in harms way.
Another issue which the subcommittee should be aware of is the
growing need for skilled employees in the baking industry and the
private sector as a whole. Many baking companies are starting to
feel the pinch from the lack of young people with proper skills.
Training programs take on an added importance in bringing new
hires up to speed. This issue is one that does not require congres-
sional response or action, but it does challenge our industry, as
well as others, to face this endemic problem and have a sense of
self-examination to better the situation.
The entire area of food regulation under the FDA umbrella needs
to be reformed. The ABA is pleased that the Congress is poised to
undertake FDA reform in 1996. The ABA recommends that four
areas of FDA reform be carefully considered: national uniformity,
10
Delaney Clause reform, enhanced health claims, and the direct food
additive petition approval process. These should include principles
of regulatory reform, sound science, risk assessment, and cost-bene-
fit analysis to greatly benefit the overall processed food industry,
including the wholesale baking industry.
Mr. Chairman, as the representative of the wholesale baking in-
dustry, I am frequently asked by people, what kind of regulatory
issues could bakers possibly be interested in? As you have heard,
the baking industry is impacted in every way possible by Federal,
State, and local regulations. Over the years, even the most well-in-
tended regulatory schemes have added to the increased burden of
the baking industry.
Mr. Chairman, simply put, the regulatory pendulum has swung
too far and needs to be brought back to a sense of greater prag-
matism. We are glad that the Congress and your subcommittee
have decided to address the issue of overregulation. We have in-
cluded numerous suggestions for governmentwide and agency-spe-
cific regulatory reforms for your examination.
Thank you, Mr. Chairman, for having given us this opportunity
to appear before you this morning. I would be glad to answer any
questions you may have.
[The prepared statement of Mr. Abenante follows:]
11
AMERICAN BAKERS ASSOCUTION
STATEMENT OF
THE AMERICAN BAKERS ASSOCIATION
SUB\nTTED TO
THE HOUSE SUBCOM^^TTEE ON NATIONAL ECONOiVHC GROWTH,
NATURAL RESOURCES AND REGULATORY AFFAIRS
OF THE
HOUSE GOVERNMENT REFORM AND OVERSIGHT COM^^TTEE
January 26, 1996
12
Mr. Chairman, Members of the Subcommittee,
My name is Paul Abenante, and I ain the President of the American Bakers
Association. It is a great pleasure and privilege to be here at Towson State University
this morning to discuss the critically important topic of government regulation and its
impact on the baking industry.
First, let me say that the American Bakers Association commends Chairman
David Mcintosh and the Subcommittee for the unrelenting efforts to examine the proper
role of federal regulation in the nation's economy. We are particularly pleased with the
leadership Chairman Mcintosh and Congressman Bob Ehrlich have demonstrated in
trying to ease the suffocating layer of red tape that engulfs American businesses. These
issues have long been ignored by Congress and it is refreshing to see so much attention
now being given to them.
By way of background, the American Bakers Association (ABA) is the trade
association that represents 80 percent of the nation's wholesale baking industry. ABA
consists of more than 350 baker and allied member companies. The ABA's membership
consists of companies of all sizes, ranging from family-owned companies to firms that
are affiliated with Fortune 500 corporations. We are very pleased to have with us
today. Bill Paterakis from H & S Baking Company and John Morrison from Schmidt's
Baking Company, representing two of Baltimore's finest corporate citizens and two of
ABA's most active members.
13
The wholesale baking industry is committed to maintaining its strong reputation
for providing a high quality and nutritious product line, protecting its valuable arid
skilled workforce, and its stewardship of the environment. We are responsible citizens
and therefore we are here today, Mr. Chairman, to discuss responsible government
regulations.
The ABA believes that all levels of government have an important role in
ensuruig a safe and healthy food supply, safe and health workplaces, and a clean and
healthy environment. However, most Americans have no idea of the immense scope and
magnitude of the regulatory burden placed on baking companies and other American
businesses. I have brought with me a chart illustrating some of the federal, state and
local agencies and regulations that H & S, Schmidt's, and other baking companies must
cope with when they open their doors every day.
Taken individually, some of these laws and agency regulations may not pose an
overly excessive burden. As a whole, the burden is enormous. The drain on one
company's resources, let alone the entire economy is a giant wet blanket on economic
growth and development. Every dollar that a company spends to fdl out reams of
government forms, install environmental cleanup equipment of marginal value, or fight
a senseless OSHA paperwork violation is a dollar that can not go to hiring new
employees, training existing employees, buying a more efficient bread oven, building a
new bakery, or developing a new product for the consumer.
14
3
What is particularly troubling to the baking industry is the inflexible, "one-size-
fits-all" structure of most government regulations. The federal government traditionally
treats all companies as "the same" in its regulatory framework. Another major problem
in the federal regulatory process is the lack of risk assessment, scientific review and cost
benefit analysis. In no other situation is this clearer than the Clean Air Act of 1990.
The Clean Air Act treats all manufacturing facilities virtually the same regardless
of what substance is being emitted or the amount. Thus, bakeries are lumped together
with steel mills and oil refiners in how they must tackle air emissions. The root of this
problem is due to trace amounts of ethanol, a product of yeast fermentation, being
released into the air. The oxygen in ethanol may be a minor contributing factor to
smog on hot summer days in urban areas.
The EPA solution is to have bakeries spend $500,000 per oven to scrub the sweet
aroma from our nation's air. I have attached an article from the Wall Street Journal
that eloquently points out how ludicrous this is. To put it bluntly, companies are forced
to find the savings to pay for this equipment, ultimately at the expense of employees
through lost wages, benefits or even jobs.
The Occupational Safety and Health Act is another prime example of the federal
government creating barriers to employment, capital investment, and in some cases
safety and health. The original intent of the Act was to ensure the safety of every
worker "to the maximum extent feasible." The agency has bad some beneficial impact
on safety and health in the workplace. It has, however, strayed far from being feasible
and cost effective.
15
Now, many baking companies have two safety plans. One developed in
conjunction with their worker's compensation carrier to reduce injuries and thus reduce
workers compensation rates. And yet another system to meet all of the paperwork
requirements mandated by OSHA. The myriad of OSHA standards impacting the
industry is so complex, contradictory and confusing that even OSHA inspectors have
difficulty interpreting and applying them.
One ABA member recently received an OSHA inspection focused on the
maintenance garage for its delivery trucks. A mechanic was looking in the engine
compartment of a delivery truck, checking gauges while the engine was running. The
OSHA inspector walked up to the mechanic and informed him that he was in violation
of OSHA's lock-out/tag-out regulation.
This well intentioned regulation requires the locking or tagging of machinery and
electrical equipment if it is malfunctioning or being maintained. The mechanic asked the
inspector about the regulation and the inspector said that he had to turn the engine off
or risk an OSHA citation. The mechanic then asked the inspector how he would
propose to tune up the truck engine without it running.
The worst problem that the baking industry faces with OSHA is something called
the "general duty clause." The provision sounds simple enough, requiring employers to
provide a safe and healthy workplace. OSHA uses the general duty clause to cite bakers
and others if they have no standards covering the alleged hazard, have slim evidence of
potential hazard, and can recommend a remedy.
16
5
One ABA member after another has been a victim of OSHA's drive by shooting
policy. One case in particular stands out. An ABA member recognized the need to
address a potential ergonomics problem in a couple of plants. They invested time and
money to correct the problem, and the results were positive. OSHA inspected these
plants and determined that the company's ergonomics efforts did not go far enough.
OSHA could not, however, tell the company what it should do to correct this
perceived problem. When the company resisted, it was cited under the general duty
clause and Tmed over $900,000. What is particularly frustrating is that OSHA has no
ergonomics standard, there is no consensus on potential risk or possible correction, and
OSHA has no solution to the hazards it has identified. This company has spent tens of
thousands of dollars fighting this citation and is awaiting an OSHA Review Commission
judgement. Obviously, it is a major company and can afford to pursue its legal rights,
but many baking companies do not have the resources to fight OSHA and thus end up
settling regardless of guilt.
The ABA is particularly pleased that the House, under the leadership of
Chairman Mcintosh and Congressman Ehrlich, passed comprehensive regulatory
reform. The ABA is hopeful that the Senate also will pass common sense reform of the
regulatory process. Such reform must contain provisions to give companies fiexibility in
meeting federal standards, have assessment of real risk, and true cost benefit analysis.
Passage of this reform remains ABA's top legislative priority.
17
6
The ABA also supports comprehensive reform of the OSH Act. OSHA should be
helping companies who want to operate in the safest way and save its enforcement
strength for those companies who put their workers in harms way.
The ABA would encourage the Subcommittee, in conjunction with the House
Economic Opportunities Committee to examine the whole of workplace policy. Many
labor and employment laws were enacted during the Depression and need to be reviewed
in the context of the coming of the next century. How can laws like the National Labor
Relations Act (NLRA) and the Fair Labor Standards Act (FLSA) be updated to meet the
changing workplace?
Another issue of which the Subcommittee should be aware is the growing need
for skilled employees in the baking industry. Many baking companies are starting to
feel the pinch from the lack of young people with the proper skills. Training programs
are taking on added importance to bring new hires up to speed. The Subcommittee
should examine possible incentives to encourage training by businesses.
The entire area of food regulations under the FDA umbrella needs to be
reviewed. The ABA is pleased that Congress is poised to undertake FDA Reform in
1996. The ABA recommends that four areas of FDA Reform be carefully considered:
national unifonnity; Delaney clause reform; enhanced health claims, and a direct food
additive petition approval process. These should include the principles of regulatory
reform (sound science, risk assessment and cost-benefit analysis) to greatly benefit the
overall processed food industry including the wholesale baking industry. This reform
should assist industry with development and delivery of new products to serve the public
18
and provide /American consumers with products in a more timely, productive and cost
efficient manner.
National Uniformity - National labeling uniformity is needed to ensure that varying state
food law regulations are not in conflict with requirements prescribed under the Federal
Food Drug and Cosmetic Act. If Conjzress provides for significant food law reform but
does not address the national uniformity issue, there will be doubt and confusion as to
whether state requirements should be deemed pre-empted by federal law or regulation.
As you know, in 1990 Congress recognized the importance of uniformity by including
language in the Nutrition Labeling and Education Act (NLEA) which would pre-empt
any state labeling requirement not identical to those required by the NLEA. It is ABA's
hope that in their FDA Reform Package, Congress will include language for national
uniformity of state requirements that are not identical to requirements imposed under
the authority of the Federal Food, Drug and Cosmetic Act.
One example illustrating the need for labeling uniformity involves the State of
Arkansas with shelf stable pies (pumpkin pies, custard pies and filled breads). States
commonly accept FDA opinions of acceptability for exemptions for refrigeration in
display cases based on FDA data. On March 24, 1995, the Arkansas Department of
Health notified FDA that it would no longer issue exemptions because of the State's lack
of technical capability and laboratory support to verify such claims. Arkansas asked
FDA if it was performing verifications of such claims and if so, for the data to be
shared with the state so that exemptions could be granted. Arkansas also asked FDA
for a list of manufacturers and products to whom they had rendered direct opinions on
19
8
this subject. FDA has not responded to Arkansas, placing an enormous economic
burden on bakeries and retail stores in that state. Particularly hard hit are small
grocery and convenient stores that are not equipped to place all custard type pies in
refrigerated display cases. FDA's unwillingness to promptly respond to such requests is
a true breakdown in the system that not only hurts the industry but impacts choices for
the consumer.
The FDA also is unresponsive to private sector inquiries. The ABA receives calls
on a daily basis from frustrated bakers who do not have answers to months old
inquiries. This non-communication costs our industry money and wastes effort.
Additionally, FDA does not respond to company complaints regarding labeling violations
by competitors. The FDA, however, does have tune to set up in-house contests for FDA
employees, complete with prizes, for finding the most "egregious" labeling errors.
Mr. Chairman, I think FDA needs to get their priorities in order and remember
that private sector industry is their constituency and are dependent on FDA's decisions
and actions.
Delaney Clause Reform - It is widely accepted that the Delaney Clauses in the food
additive, color additive and animal drug provisions of the Federal Food Drug &
Cosmetic Act prevent FDA from relying on sound science and instead dictate a non-
science, zero risk policy for evaluation of new additives. There is no more important
FDA reform than that of a statutory determination that food substances may not be
prohibited on the basis of safety where the substance has been proven to present only a
negligible or insignificant risk to human health.
20
9
Enhanced Health Claims - On December 21, 1995, FDA took positive action when it
issued it's proposal and response to the earlier ABA healthy petition which provides
opportunities for the industry to move in the direction of making health claims for grain
products. This proposal by FDA removes the obstacles that the industry faced
regarding "health claims".
The FDA's intent was clear in that it had not intended to preclude such foods as
enriched bread from bearing health claims. FDA went on to say that such foods in fact
can contribute significantly to a balanced and healthful diet and to achieving compliance
with the Dietary Guidelines for Americans. This proposal also included other positive
food labeling changes that provide greater flexibility for food companies. These changes
will benefit public health by encouraging manufacturers to use health claims and
nutrient content claims that will assist consumers in making wise food choices and in
maintaining a healthy diet.
Still, in the past FDA has acknowledged that it lacks authority to establish
procedures for authorizing health claims not explicitly approved by the agency. As a
result, we urge Congress to include in the FDA reform package, a removal of the total
ban on health claims on food labels not specifically approved by FDA. This approach is
consistent with the broader theme of FDA reform that permits reliance on objective
third-party scientific review as an alternative to slow, bureaucratic prior approval.
Direct Food Additive Petition Approval Process - Reform in this area is needed to
quickly reduce the backlog of petitions and expedite decision making on future petitions.
The establishment of performance standards, a more collaborative review process
21
10
between FDA and industry, and contracting out authority to speed new product
approval times are good initial steps. However, additional action-forcing mechanisms at
FDA are needed to ensure that FDA meets Federal Food, Drug and Cosmetic Act
statutory time frames within which to reach decisions.
Third party scientific review and action-forcing mechanisms should be core
components of any meaningful food additive reform initiative. Not only would outside
expertise provide substantial scientific input into the evaluation of new food additives,
but it would also reduce materially the resources spent by FDA on any particular
petition. Once a file has been assembled and favorably acted upon by the scientific
body, there would be a presumption of approvability within a specified time unless FDA
rejected the additive and advised the petitioner in detail of the basis for the rejection.
The June 22 and 29, 1995, hearings held by the House Government Reform
Subcommittee on Human Resources and Intergovernmental Relations provide an
excellent record of FDA's discouraging history on this process. It is ABA's
understanding that later this month the same subcommittee will call for major reform in
the food additive approval process and lay the foundation for further congressional
action during the first part of 1996. Mr. Chairman, I hope your subcommittee will
carefully review and will consider endorsing this very positive development for
meaningful reform.
Inspector Training - ABA members are often perplexed by the lack of training and
authority that local FDA inspectors have when they visit plant facilities. Often, bakery
personnel must spend extra time with inspectors to educate, correct and prove/show
22
11
correct documentation to inspectors that their interpretation of regulations are not
correct. As you can imagine, this is very frustrating to plant personnel and again,
wastes time and money.
Although food regulations for the baking industry for the most part are regulated
by the FDA, there are commodity issues and nutrition issues that fall under the
Department of Agriculture that are of concern to our industry.
Agriculture Research Service - ABA works closely jvith USDA's Agriculture Research
Service on applied research and development of better and even new breeds of wheat
and grain. This is critically important in assisting the baking industry with wheat
quality and "bake-ability". Underfunding and lack of resources for such focused
research projects creates an impediment to economic growth in our industry.
Nutrition Education - On a positive note, ABA has actively been involved with several
nutrition education activities over the past year. ABA's comments on USDA's 1995
proposal to revise the school lunch program dietary requirements resulted in an updated
flnal rule that increased bread and grain servings for school aged children by abnost 50
percent in keeping with the USDA Dietary Guidelines for Americans and the Food
Guide Pyramid.
ABA has also enlisted as a partner with USDA in Team Nutrition, a new USDA
program which encourages children to learn from the beginning and to be involved in
making healthy food choices for themselves.
23
12
Lastly, ABA is pleased to see that the most recent, Fourth Edition of the Dietary
Guidelines for Americans released by USDA and HHS on January 2, 1996, positions
inclusion of grain products in a healthy diet as a priority message, as it should be.
CONCLUSION
Mr. Chairman, as the representative of the wholesale baking industry, I am
frequently asked by perplexed people, "What kind of regulatory issues could bakers
possibly be interested in?"
As you have heard, the baking industry is impacted in every way possible by
federal, state, and local regulations. Over the years, even the most well intended
regulatory schemes have added to the increasing burden on the baking industry. We
are glad that Congress and your Subcommittee have decided to address the issue of
over-regulation. We have included numerous suggestions for government-wide and
agency-specific regulatory reforms. I can tell you that regulatory reform is the highest
priority of the baking industry.
Thank you for this opportunity to share the wholesale baking industry's views
with you, Mr. Chairman, and with your Subcommittee. I will be happy to answer any
questions that you might have.
24
THE WALL STREET JOUR-VAL WEDNESDAY. APRIL 13. 1994 I
An Illegal Pleasure:
The Smell in the Air
Of Bread Being Baked
Big Bakeries Emit Ethanol,
A Pollutant That States
Are Being Pressed to Cut,J>
By Bridcct 0'Bria.n
Slaft Rctx"''' of Tiir w»li. Smcrr JotKMAi.
FORT WORTH. Texas - Here at the
pristine new plant operated by .Mrs.
Baird's Balienes Inc.. ichoolchildren on
tiptoe gaze into the windows of a gleaming.
93-(oot-Iong oven, watching some 2.00O
loaves of bread glide by.
At the end. the tour guide, a great-
great-granddaughter of the founder, se-
lects a hot loaf of whole wheat to be sliced.
buttered and shared with visitors.
There's a famt aroma of baking bread
inside the building that's far more pro-
nounced outside, where delicious smells
•n the oven's vent stack watt across
erstate 35. giving an odd homeyness to
an impersonal industnal comdor.
Come fall of 1995. pleasant bakery
smells may be a thing of the past here and
in many communities throughout the coun-
try as they comply with deadlines set by
the 1990 Clean Air Act to have industrial
plants cut their emissions. The smell of
baking bread, it turns out. is a form of air
pollution.
Unwanted Ethannl
Bread may be the staff of life and the
stuff of poetry. But knead together flour,
water and yeast, and apply heat, and you
get not just bread but ethanol. a nontoxic
substance that contributes to ozone forma-
tion. Ethanol is a "volatile organic com-
pound." or VOC in environmentalist par-
lance. It is vaponzed and released when
the internal temperature of bread reaches
174 degrees Fahrenheit, just the point in
the baking prtxess when the schoolchil-
dren were peering into the ovens.
The "yeast police." as bakers call the
Environmental Protection Agency, want
the nation's biggest bakers to spend mil-
lions of dollan to install new emission
controls. Doing so will limit the VOCs -and
the bread smells.
In Texas, whicn nas some ot the na-
tion's dirtiest cities, just how bad for the
environment can a bakery be'' State regu-
lators admit that the ethanol emission of
the average bakery "is not very much."
says Steve Davis, a spokesman for the
Texas Natural Resource Conservation
Commission, which oversees air. water
and waste matters. "But when you're
looking at the state reductions that have to
be made, you have to look at everything."
Indeed, all sorts of polluters are chang-
ing their ways as states put into effect
plans to reduce ground-level ozone 15''o in
urban areas by 1996 in compliance 'Aith
federal law. Dry cleaners have invested in
new exhaust systems, and products rang-
ing from windshield-wiper fluids to oven
cleaners are being reformulated to reduce
alcohol content and solvents. States and
the EPA are going after relatively minor
polluters because regulators have already
achieved the biggest and easiest pollution
reductions, such as limiting emissions
from chemical plants and refineries.
A Palatable Trade-Off
The American Bakers Association
thinks it can do its share without curtailing
baking smells. It is olfenng to conven its
fleet of 120.000 delivery trucks, one of 'Jie
nation's largest, to cleaner-burning natu-
ral gas and propane. That, they say. could
cut auto emissions enough that bakers
might not need to muzzle their ovens. But
state and federal regulators have yet to
agree that that will suffice.
Finding in favor of the bakeries might
well be a popular decision. "There is no
smell in the world of food to equal the
perfume of baking bread." wrote the late
James Beard in his 1973 book "Beard on
Bread." In Houston. Mrs. Baird's is adja-
cent to the playground of Inwood Elemen-
tary School. "I smell the bread and my
stomach starts to growl." says eight-year-
old Courtney Wisnoski. a third-grader.
Here in Fort Wonh. nearly 6.000 people
wrote in to describe their fondest memo-
ries of .\!rs. Baird's 193S-vintage Summit
Avenue bakery when it dosed down two
years ago. "Nearly everyone said what
they'd miss most was the aroma." says
Allen Baird. the company's chairman.
"When we lost that. I think we lost a huge
advertising tool."
When the late Ninnie Baird began her
business in 190S. she baked each Monday
for her eight children, neighbors and
friends and put the warm bread on her
windowsiU to cool. Now, at .Mrs. Baird's II
highly automated bread and cake bakenes
in Texas. 1 .500 pounds of dough is mixed at
a time in huge vats. The dough is then
kneaded by machine, flattened and rolled
on an assembly line that drops the mixture
into loaf iravs.
"You can make bread now without
touching it at any point." says .Mr. Baird.
the 71-year-old grandson of the founder,
noting that his braided white bread is sull
shaped by hand. The smell of cinnamon
buns wafts through his messy wood-pan-
eled office, where workmen are in the
midst of installing new carpeting.
The disarray will suffice as a symbol of
what may happen once proposed environ-
mental rules become final in .November.
The EPA wants commercial bakeries to
install catalytic oxidizers - nino tons of
steel the size of a pickup truck - at each
bakery. .Mr. Baird projects that it will cost
his company S4.5 million for the equipment
and S2.5 million a year for maintenance.
Whether spending all that money »ill
achieve the environmental results the EPA
is looking for "is very debatable." says Mr.
Baird. who has been working with his
engineers and the bakers' group to find
cheaper alternatives to catalytic oxidizers.
Like many Texas employers. Mrs. Baird's
has staggered shifts so workers don't cone
all at once and contnbutc to rush-hour
smog, and it is encouraging car pooling.
But that isn't enough to meet EPA require-
ments. It also has changed its baking a bit,
by adding yeast later in the mixing process
in order to cut ethanol emissions.
It was the bakers who came up with the
idea of converting their trucks instead of
their ovens. Anne Giesecke. a former EPA
analyst and now a lobbyist for the bakers'
association, sums up the idea this way:
"When you take ethanol out of the air. you
satisfy the technical air act by reducing
ethanol. but it's nontoxic, unlike, say.
benzene from cars. The EPA." says Dr.
Giesecke. "ought to learn: It's !he cars. "
Actually, the EPA/ios learned, it's just
that the offer is being batted around a big
agency intent on meeting a May 4 deadline
for emission-control plans. (After that, the
EPA can say yes or no to the plans.)
"Conceptually." convening the trucks in
lieu of buying the oxidizers could be done,
"but it's up to the state." says Rob Brener.
director of the EPA's Air Office in Wash-
ington. But when Texas proposed letting
bakenes cut emissions by just 30%. a move
that includes the truck conversion, the
EPA office that oversees Texas insisted on
80%. That gives the bakers no leeway.
An EPA spokesman says bakery emis-
sions "are in and of themselves a source of
VOCs and subject to provisions of the
QeanAirAct."
Mr. Baird squirms a bit about having to
dicker with the EPA. "Anything that has :o
dowith the clean-au- situation and. . .EPA
rules that have come upon the scene, we've
looked upon it as another ingredient we
have to put in our product mix." he says.
But "when you think of the smell of baking
bread, you don't think about polluting the
25
Mr. McIntosh. Thank you very much, Mr. Abenante, and thank
you, also, Mr. Morrison and Mr. Paterakis for joining us. Why don't
we hear from the other two witnesses on the panel, and then I do
have several questions for you, things you mentioned that would be
worth exploring.
But let me also say, thank you for bringing this chart and re-
quest if we could have a copy for use in the subcommittee, to take
back with us. I think that would be something that, if we showed
that to our colleagues on the House floor, would really help make
the point about the problems of regulations and their cumulative
effect.
Let me turn now to Mr. Manger, if you would like to share with
us your testimony. The staff has reminded me that we have re-
quested that people sum up in about 5 minutes, then we will make
sure we have time for everybody. David is keeping time, and when
you hear the ding, that's 5 minutes. But if it goes over, we're not
going to be real strict on the clock, but help us out in that way.
Mr. Manger.
Mr. Manger. Thank you, Mr. Chairman and members of the
committee, for this hearing and the opportunity to speak.
My name is Alvin Manger, a member of a family who has been
in the meat business since the mid-1800's. We're striving to stay
in business during these times of transition; however, as more and
more changes come, we are being diverted from our normal busi-
ness activities to concentrate on matters such as proposed regula-
tions, which, as you know, is very time-consuming.
Our greatest problem with the change currently being put in
place by the USDA is the lack of information available in a form
that we fully understand. Where the agency has offered meetings
for explanation, they have been in places that were some distance
and costly for small companies to attend. We are, of course, con-
cerned about the actual cash outlay, but, even more, we cannot af-
ford the time from our business as most of us are personally in-
volved in the production of product, particularly in the fall.
Even if attendance is possible, the program, as I understand it,
has been geared to the larger operation who would have people
learned in the fields of regulation and science. Thus, we need infor-
mation, at the local level, during times such as Sunday afternoons
and evenings, in a form designed for the small operator's under-
standing, with an opportunity for questions.
This is of particular importance to small plants, as they have
their own unique distinctions, which often tend to confuse the oper-
ator. Most of us have talked to our inspectors, who, as you may
know, are on our premises daily, finding that they are no more in-
formed than we are on the actual proposals of this so-called
"megaregulation."
It is very alarming to us that this very large change will be
placed on top of the ones that we now operate under. Already, this
part of the chain, from farm to table, is the most regulated, with
regulations currently numbering in the thousands, with all their
subregulations. You can imagine the confusion and misunderstand-
ing that will occur.
Of course, rumor is to follow any proposal such as this, and we
understand the USDA is unable to answer all of them, but placing
26
every proposal before those who will use them would help. Of par-
ticular concern to me is the talk of a system that will include fines
for infractions. My experience is that most of the differences be-
tween inspector and operator are misunderstandings, employees
who do not fully comprehend, or interpretation, that are usual
minor and unintentional. Fines could, of course, be an incentive to
upscale these.
The impetus to make change, as I understand it, was the E. coli
outbreak of a few years ago. This, of course, must be researched
and resolved, where possible. However, as a personal observation,
it seems to me that this additional regulation will not do what
must be done to eliminate or reduce the chance in the future.
A model is already in use that works well. Trichinae in pork was
a problem several years ago. The USDA, very wisely, searched for
the source, working first to determine the cause, then, over a pe-
riod of time, almost eliminated it. At the same time, a very con-
certed effort was made to teach the public to cook their pork prod-
ucts fully to kill any Trichinae that may be there.
This was so successful that we almost never hear of it today. The
meat processing plants were required to bring any item offered for
sale that may be considered prepared to eat, and having pork in
it, to a temperature above the safe level. The same approach, I be-
lieve, will give safer and more complete results than the current
proposal.
One other consideration I would hope you would view is that
smaller plants have many employees who have trained in our
plants but have lesser education. The new program, we are told,
will require more recordkeeping, which most of these employees
will not be able to properly handle. There is no doubt in my mind
that most of them will have to be replaced, leaving them out among
the unskilled and unemployed. This would be the greatest tragedy.
So I would urge you to consider this group.
I also would like to remind you that the kosher operations will
have a particular problem in this new change, if it goes the way
it is currently considered, in that their methods would be ham-
pered if not stopped.
I will close with the thought that the meat inspection program
now works but may have need of some refining as changes in tech-
nology show the need. However, massive changes or additions will
adversely affect the small meat plant.
Thank you.
[The prepared statement of Mr. Manger follows:]
27
TESTIMONY OF ALVIN MANOER
BEFORE THE
SUBCOMMITTEE ON NATIONAL ECONOMIC AFFAIRS,
NATURAL RESOURCES A REGULATORY AFFAIRS
OF THE
HOUSE GOVERNMENT REFORM
AND OVERSIGHT COMMITTEE
ON THE
"FEDERAL REGULATORY CLIMATE IN MARYLAND"
JANUARY 26, 1995
Good morning. My name is Alvin Manger, a member of a ftmily wix> has been m the
meat business since the mid 1800*$. We are struggling to stay in business now during these tinw>«
of transition. However, as more and more dianges come, we are being diverted fiom the nocmal
business activities, we are ^>eodiag more time on matters such as this, which as you kxww, is
very time consuming.
I want to thank you, Mr. Chairman wd memben of this Subcommittee, for calling this
important hearing and dK opportunity to speak. 1 am appearing hear today on my own bdulf at
the suggestion of my congressman, Robert L. Ehrlicb Jr.
Our greatest problem witf i the change cunemly being put in place by the USDA is ^
lack of information available in a fonn that we Ailly understand. Where tiie agency has offered
meetings for explanation. d>ey have been in places that were at some distance aod costly for
small coaqMmies to attead. We are, of course, cooceroed about the actoal cash outlay, but even
oaote, we cannot afford the time torn our business to attend, as most of us «c fenooaOy
involved in production of product, paiticularly in die &D.
Even ^en attendance is possible, the program, as I understand it, was geared to the
larger operations who would have people learned in The Fields of Regulation and Science. Thus,
we need information, at the local level, during a fonn designed for the small operators
understanding, v.dth an opportunity for questions. This is of particular importance as small plants
have their own distinctions which may tend to confuse the operator.
Most of us have talked to our inspectors, who are on the premises daily, and have found
that diey are no more informed than we are on the actual implementation of the rtew regulations,
which are currently being called Mega-Regs.
It b very alarming that this very large change will be placed on top of the ones that we
28
now operxte under. Already, (his pvt of th« chain from fimn to table is the most regulated,
currently numbering in dw thousands with all their sub-regu]atioa You can ima^ne the
confusion and misunderstanding that will occur.
Of course, rumor is to follow any proposal such as this, and we understand the U.S.D.A.
is unable to answer all of Ukoi, but placing every proposal before dK>se who will use &em would
he^. Of particular coacera to me is the talk of a system that will iitctude fines for infiractioos.
My expeiieiice is that most of the difference between inspector and operator are
misunderstandings, employees who do not fully comprehend or interpretatioDS, and usually
minor and unintentional. Fines would of course be an incentive to upscale these by some people.
The impetus to make changes, as 1 understand, is the E Coil outbreaks of a few yean ago.
This, of course, must be researched aiKl resolved where possible, however, as a personal
observation, it seems to me that this additional regulation will not do what must be done to
•limtnafy or reducc the chances in the future. A model is already in use that works well.
Trichinae in pork was a problem several yean ago. The U.S DA. very wisely went to the
source, woridng first to determine the cause, then over a period of time, almost eliminating it At
the same time, a very cooconed effort was made to teach the public to cook their pork products
to kill any Trichinae that my be there. This was so successful tiiat we almost never bear of it
The meat processing plants were required to bring any item of feared for sale diat may be
considered prepared to eat, and having pork in it, to a temperature above dK safe levd. The
same approach v^ I believe, would bring safer and more con^tete results dun the current
prt^msal.
The smaller operators have many employees who have been trained in our plants, bat
have lesser education. The new program, we are told, will require mudi more recMd keeping
which oMst of these employees vnll not be able to properly handle. There is do doubt in my
mind that most of them vail have to be replaced, leaving them out among the unskilled and
unemployed. This would be the greatest tragedy. So, I would urge you to consider this group.
I will close with the diou^ that the meat inspectioo now works, but may need some
refining as the change in technology show the need. However, massive changes or additioDS will
adversely effect the small meat plants.
29
Mr. McIntosh. Thank you, Mr. Manger, I appreciate that. I'm
hoping Mr. Peterson will be back during the questioning period. He
has worked a lot on this issue, both on our committee and in his
seat on the Agriculture Committee, and is in full agreement with
the thrust of your statement that this new regulatory approach
really doesn't make much sense. So I hope Mr. Peterson will be
able to join us when we get back to the questioning parts, because
he will have some insights there.
Finally, for the third witness on this panel, Mr. Edward Lauer,
with Lauer's Super Thrift store. Thank you for joining us.
Mr. Lauer. Thank you. It's nice to be here.
Good morning. My name is Edward Lauer, and I am president
of Lauer's Super Thrift. I am here this morning on behalf of the
Food Marketing Institute, abbreviated "FMI." FMI is my national
trade association, representing the supermarket industry.
I deeply appreciate the opportunity to participate in this hearing.
As a supermarket operator, I am very familiar with the vast num-
ber of Federal rules and regulations that affect my business. Most
Federal requirements make sense, but there are quite a few regula-
tions that have become outdated or have outlived their usefulness.
To this end, I wish to commend Chairman Mcintosh and Con-
gressman Ehrlich for your hands-on work and commitment and re-
ducing the burden of regulations that no longer make sense. As a
result of your efforts. Congress has begun to address this problem.
I am referring to the Corrections Day calendar whereby consensus
legislation can quickly be approved to relieve the private sector of
costly and unnecessary regulations.
As you know, two separate pieces of legislation, one dealing with
the archaic, 40-year-old Labor Department regulation relating to
balers, and the other to replace a redundant saccharin warning
sign requirement by the Food and Drug Administration, were over-
whelmingly approved by the House of Representatives on the Cor-
rections Day calendar this past year. Both of these bills are very
important to our industry.
Without question, the Corrections Day calendar is a great start,
in terms of dealing with antiquated and costly Federal regulatory
requirements. But what is needed is a more comprehensive ap-
proach to review and rescind those regulations we simply don't
need. Now, I understand Congress is considering such a bill, and
it has the supermarket industry's strong support for the following
reasons.
For example, did you know that the Federal Communication
Commission, FCC, wants to mandate that all workplace telephones
must be hearing-aid compatible. It doesn't matter to the FCC if an
employer doesn't have any employees with hearing impairment.
The FCC still wants all noncomplying telephones to be replaced.
Failure to comply can result in fines up to $10,000 per day. Our
industry doesn't understand the need for this FCC regulation, be-
cause we are already providing special telephones to our employees
under the American With Disabilities Act.
The Consumer Product Safety Commission, CPSC, is pressuring
grocery stores to install child safety seat belts in all new shopping
carts. Our industry contends that such an idea will be counter-
productive to the goal of child safety and reducing injuries. Our so-
30
lution is not for a CPSC directive of this kind but a more com-
prehensive educational campaign involving the media, schools, par-
ents, and our industry to help prevent injuries.
Finally, I want to bring to your attention an extremely serious
problem facing our industry. In October 1994, the USDA began a
sampling program for E. coli in ground beef at the store level. I em-
phasize "at the store level." Now, this might sound very reasonable,
in terms of protecting the consumer. But such is not the case.
Under the USDA sampling program, it takes 6 days for labora-
tory confirmation that E. coli is present in ground beef. By that
time, a grocer has already sold the product, and it has likely been
consumed. There is no way for a grocer to do a recall on ground
beef Yet, if the USDA testing finds E. coli present in the ground
beef, the adverse publicity that follows could cause financial ruin
to a supermarket, and this is just not fair.
Mr. Chairman, what we need here is for the USDA to test at the
source, using state-of-the-art science and technology. We also need
more research and public education to each consumers to cook the
product thoroughly. If you cook ground beef, E. coli will not sur-
vive. But sampling and testing at store level is not the solution.
This concludes my statement, and the supermarket industry
thanks you for the opportunity to make a presentation.
[The prepared statement of Mr. Lauer follows:]
31
GOOD MORNING. MY NAME IS ED LAUER, AND I AM PRESIDENT OF
LAUER'S SUPER THRIFT. I AM HERE THIS MORNTNG ON BEHALF OF
THE FOOD MARKETING INSTITUTE (FMI). FMl IS MY NATIONAL TRADE
ASSOCIATION, REPRESENTING THE SUPERMARKET INDUSTRY.
I DEEPLY APPRECIATE THE OPPORTUNITY TO PARTICIPATE IN THIS
IMPORTANT HEARING. AS A SUPERMARKET OPERATOR, I AM VERY
FAMILUR WITH THE VAST NUMBER OF FEDERAL RULES AND
REGULATIONS THAT AFFECT MY BUSINESS. MOST FEDERAL
REQUIREMENTS MAKE SENSE, BUT THERE ARE QUITE A FEW
REGULATIONS THAT HAVE BECOME OUTDATED OR HAVE OUTLIVED
THEIR USEFULNESS.
TO THIS END, I WISH TO COMMEND CHAIRMAN MACINTOSH AND
CONGRESSMAN BOB ERLICH FOR YOUR HARD WORK AND
COMMITMENT IN REDUCING THE BURDEN OF REGULATIONS THAT NO
LONGER MAKE ANT SENSE. AS A RESULT OF YOUR EFFORTS,
CONGRESS HAS BEGUN TO ADDRESS THIS PROBLEM. I AM REFERRING
TO THE CORRECTIONS DAY CALENDAR WHEREBY CONSENSUS
LEGISLATION CAN BE QUICKLY APPROVED TO RELIEVE THE PRIVATE
SECTOR OF COSTLY AND UNNECESSARY REGULATIONS.
32
AS YOU KNOW, TWO SEPARATE PIECES OF LEGISLATION, ONE
DEALING WITH AN ARCHAIC 40-YEAR OLD LABOR DEPARTMENT
REGULATION, RELATING TO BALERS, AND THE OTHER TO REPEAL A
REDUNDANT SACCHARIN WARNING SIGN REQUIREMENT BY THE FOOD
AND DRUG ADMINISTRATION, WERE OVERWHELMINGLY APPROVED
BY THE HOUSE OF REPRESENTATIVES ON THE CORRECTIONS DAY
CALENDAR THIS PAST YEAR. BOTH OF THESE BILLS ARE VERY
IMPORTANT TO OUR INDUSTRY.
WITHOUT QUESTION, THE CORRECTIONS DAY CALENDAR IS A GREAT
START IN TERMS OF DEALING WITH ANTIQUATED AND COSTLY
FEDERAL REQUIREMENTS, BUT WHAT IS NEEDED IS A MORE
COMPREHENSIVE APPROACH TO REVIEW AND RESCIND THOSE
REGULATIONS WE SIMPLY DON'T NEED. NOW, I UNDERSTAND
CONGRESS IS CONSIDERING SUCH A BILL, AND IT IL\S THE
SUPERMARKET INDUSTRY'S STRONG SUPPORT FOR THE FOLLOWING
REASONS.
FOR EXAMPLE, DID YOU KNOW THAT THE FEDERAL
COMMUNICATIONS COMMISSION (FCQ WANTS TO MANDATE THAT
ALL WORKPLACE TELEPHONES MUST BE HEARING AID COMPATIBLE?
33
IT DOESN'T MATTER TO THE FCC IF AN EMPLOYER DOESN'T HAVE ANT
EMPLOYEES WITH HEARING IMPAIRMENTS. THE FCC STILL WANTS
ALL NON-COMPLYING TELEPHONES TO BE REPLACED. FAILURE TO
COMPLY CAN RESULT IN FINES OF UP TO $10,000 PER DAY. OUR
INDUSTRY DOES NOT UNDERSTAND THE NEED FOR THIS FCC
REGULATION BECAUSE WE ARE ALREADY PROVIDING SPECIAL
TELEPHONES TO OUR EMPLOYEES UNDER THE AMERICANS WITH
DISABILITIES ACT (ADA).
THE CONSirMER PRODUCT SAFETY COMMISSION (CPSC) IS
PRESSURING GROCERY STORES TO INSTALL CHILD SAFETY SEAT
BELTS IN ALL NEW SHOPPING CARTS. OUR INDUSTRY CONTENDS
THAT SUCH AN IDEA WOULD BE COUNTERPRODUCTIVE TO THE GOAL
OF CHILD SAFETY AND REDUCING INJURIES. OUR SOLUTION IS NOT
FOR A CPSC DIRECTIVE OF THIS KIND, BUT A MORE COMPREHENSIVE
EDUCATIONAL CAMPAIGN, INVOLVING THE MEDIA, SCHOOLS,
PARENTS AND OUR INDUSTRY TO HELP PREVENT INJURIES.
FINALLY, I WANT TO BRING TO YOUR ATTENTION AN EXTREMELY
SERIOUS PROBLEM FACING OUR INDUSTRY. IN OCTOBER OF 1994,
USDA BEGAN A SAMPLING PROGRAM FOR E. COLI IN GROUND BEEF AT
STORE LEVEL. NOW THIS MIGHT SOUND VERY REASONABLE IN TERMS
34
OF PROTECTING CONSUMERS, BUT SUCH IS NOT THE CASE. UNDER
THE USDA'S SAMPLING PROGRAM, IT TAKES SIX DAYS FOR
LABORATORY CONFIRMATION THAT E. COLI IS PRESENT IN GROUND
BEEF. BY THAT TIME, A GROCER HAS ALREADY SOLD THE PRODUCT,
AND IT HAS LIKELY BEEN CONSUMED. THERE IS NO WAY FOR A
GROCER TO DO A RECALL ON GROUND BEEF, YET IF USDA TESTING
FINDS E. COLI PRESENT IN GROUND BEEF THE ADVERSE PUBLICITY
THAT FOLLOWS COULD CAUSE FINANCIAL RUIN TO A SUPERMARKET.
THIS IS JUST NOT FAIR-
MR. CHAIRMAN, WHAT WE NEED HERE IS FOR USDA TO TEST AT THE
SOURCE, USING STATE OF THE ART SCIENCE AND TECHNOLOGY. WE
ALSO NEED MORE RESEARCH AND PUBLIC EDUCATION TO TEACH
CONSUMERS TO COOK THE PRODUCT THOROUGHLY. IF YOU COOK
GROUND BEEF THOROUGHLY, E. COLI WON'T SURVIVE. BUT
SAMPLING AND TESTING AT STORE LEVEL IS NOT THE SOLUTION.
THIS CONCLUDES MY STATEMENT. THANK YOU.
35
Mr. McIntosh. Thank you very much, Mr. Lauer. I appreciate
your joining us and sharing that testimony.
Let me open up the questioning, actually, and offer either Mr.
Morrison or Mr. Paterakis, if you had any additional comments you
would like to add to the record based on things you know at your
particular facilities. Welcome. If you've got any good examples of
problems you've had on regulations.
Mr. Paterakis. I would say, more recently, the Clean Air Act has
been a particular burden to the baking industry. We not only have
a facility here in Maryland — actually, we have three in Maryland —
but we also have facilities in 10 other States. I guess, because of
my exposure to the Environmental Committee at the ABA, I've had
the opportunity to sit in on a lot of the State process to develop the
regulations.
I would say that, on Maryland's behalf, that Maryland has been
very cooperative, being sensitive to the business needs of the com-
munity, and allowed us to be a part of their regulatory lawmaking
process, which was very unique. Actually, it was the only State we
were allowed to sit in and voice our concerns. In other States, it
has been a complete disaster.
Mr. McIntosh. Paul mentioned the figure of $500,000 for a
scrubber. Let me ask, how does that compare to the overall cost of
the capital that you would have to put in to build a new oven?
What percentage of that does it represent?
Mr. Paterakis. A new oven would probably cost between $1 mil-
lion and $1.25 million. So it's significant.
Mr. McIntosh. OK. So you're adding as much as 50 percent to
the cost.
Mr. Paterakis. And the average production line may recapital-
ize, invest in their production line about $2 million to $3 million
in a year. So it's significant. Something else is not going to be
spent. Something else is not going to be included.
Getting back to the clean air though, probably, the last 2 years,
25 percent of my time has been dealing with the Clean Air Act. I've
also added staff to deal with the permitting requirements, also try-
ing to prove why we necessarily don't belong and be included in the
Clean Air Act.
We've also spent hundreds of thousands of dollars with consult-
ants, professionals, and attorneys, at times to help us with the per-
mit process because it's so — I've received applications for permits
with manuals that are an inch and a half thick on how to fill them
out. And we just don't have the expertise or the time to be able to
do that. So we end up now going to consultants. Title V is com-
pletely over the average businessman's head. It doesn't belong in
bakeries. And we are suffering. We have hundreds of thousands of
dollars on the line every year just to deal with Title V.
I think one accomplishment we had in Maryland when we
worked with the State — really two accomplishments: one was inno-
vative technology. They were willing to lower the standards if we
came up with innovative technology. That has actually become
something that the other States are now looking at and what
Maryland has done.
Also, we put in an exemption for small bakers, so that they
weren't burdened by all this paperwork and regulations that they
36
had really had no business being involved with. And they were
very cooperative, so we were able to eliminate the mom and pop
type of stores that are out there in the market.
Mr. McIntosh. You know, in my hometown of Muncie, Colonial
Bakery just had a shop that they closed in the last 6 months, and
ended up having to lay off about 100 people. I had not made the
connection before, but I need to now go back and look and see,
maybe these new Clean Air Act requirements were making it un-
profitable for them to continue operating at that facility. It would
be an interesting thing.
I might ask you, Mr. Abenante, to help me facilitate, if that hap-
pens to be the case, to find that out.
Mr. Abenante. I'll be glad to, Mr. Chairman.
Mr. McIntosh. Mr. Morrison.
Mr. Morrison. Yes. Not to reiterate what Mr. Paterakis said,
but H&S and Schmidt have worked very closely with the State of
Maryland on this issue, and we're very appreciative of the fact that
the State of Maryland, as Bill had mentioned before, has been very
willing and has worked with us. And that's a first.
One of my major concerns for the Schmidt Baking Co. is that
when, in fact, we are truly a small business, or maybe a medium-
sized business, depending how you look at it. But the way I look
at it, in the realm of the baking industry, we are small. We have
1,100 employees, approximately. We serve six States. We have
three bakeries, two of which are in Maryland. We service the mid-
Atlantic area — hadn't mentioned that — with approximately 600 em-
ployees, in total, here in Maryland. So we're a fairly decent-sized
employer.
We are family owned. In fact, what Bill had mentioned with re-
gards to incineration or scrubbers, or whatever you would like to
call it, it is a considerable cost to comply with the Clean Air Act.
And, in a company of our size, without a parent company, such as
some bakers are associated with, parent companies who have deep-
er pockets, it really comes down to a situation in the board room,
what do we give up? What can't we do? Do we not grow our busi-
ness? We need to enhance our fleet, et cetera. What do we do?
Ultimately, what it really comes down to, frankly, in the last
ditch effort — and we try to avoid it — is jobs.
Mr. McIntosh. Now, exactly, that's what we're really concerned
about.
I've got some questions on the E. coli issue, but before we do
that, let me ask my colleagues.
Collin, do you have any questions?
Mr. Peterson. Well, I apologize for having to leave, but the farm
bill has been expired since January 1st, and last night they decided
they are going to mark it up on Tuesday. So all heck is breaking
loose right now.
There are a couple things — and I maybe missed explanation — but
the problem you're having with the Clean Air Act you said has to
do with ethanol?
Mr. Abenante. Yes, sir. It's a VOC, a volatile organic compound.
Mr. Peterson. Right. My area produces a lot of ethanol, and
we've had a big, huge fight over this with the oil industry, who is
trying to eliminate ethanol and push MBE and all that monkey
37
business that's been going on. I also have a letter here from you
to the EPA, complimenting them on the work that they had done.
So I'm a little unclear just where it's at right now. This was from
1993.
Mr. Abenante. The letter that you have from me to the EPA,
complimenting them on the work they have done, is exactly what
Mr. Paterakis was talking about. After they pulled a gun on us and
loaded it up and we were up against the wall, we said, could you
back off a little bit and give some of the small business people an
exemption, and can you give us some flexibility in some of the
equipment and the timing that this was going to be implemented
in various States. So that was the letter complimenting them on fi-
nally begining to work with us to get some pragmatism into the
regulatory process.
Mr. Peterson. But it still is a problem, a significant problem?
Mr. Abenante. Congressman, it is a major, big time problem.
Mr. Peterson. How does the ethanol come about in this process?
Maybe you explained that, and I missed it.
Mr. Abenante. Bill can tell you better than I.
Mr. Paterakis. When yeast and sugar are exposed to the tem-
peratures that they are exposed to in the fermentation process, the
yeast actually breaks sugar down into carbon dioxide and ethanol,
and it's released in the oven. At 177 degrees, ethanol as a liquid
turns to vapor, and it's released through the oven stacks.
Mr. Peterson. So it ends up burning?
Mr. Paterakis. Excuse me.
Mr. Peterson. The ethanol burns in this process?
Mr. Paterakis. No.
Mr. Peterson. No?
Mr. Abenante. It's emitted.
Mr. Peterson. It's emitted. Isn't there a way to capture this and
try to sell it?
Mr. Abenante. We could have them put it in our trucks.
Mr. Peterson. I mean, you know, in a lot of my — ^you know, like
for the sugar beet industry in my area, they have developed a good
income stream by taking some of what used to be a problem and
turning it into a product that they are now selling to the gasoline
companies. Maybe this isn't feasible. That's my question.
Mr. Abenante. Well, I think the long and short of the answer
to your question is, this is an industry that's fundamental in its
scope, producing a 1-pound loaf of bread, getting it on a truck, and
getting it out to sell.
Mr. Peterson. You don't want to be in that business.
Mr. Abenante. The technological resources — we're not a high-
tech industry. But one thing I would mention is that, in California,
this industry spent literally millions of dollars of its own money to
do computerized-airshed modeling tests in the San Francisco Bay
area, and from that airshed modeling to determine what the impact
of VOC ethanol was on the ambient air quality. We were less than
one-half of 1 percent in impact.
And when we brought that to regulators, they said, the numbers
don't mean anything. Go ahead and spend the millions of dollars,
despite what the data shows. We said, you know, it was just abso-
lutely preposterous.
38
Mr. Peterson. Yes. Well, we know there's all kinds of examples
in different areas. But so you just emit a little, tiny bit, but they've
got you captured in this whole deal; that's what the problem is.
And you can't get an exemption or a — well, maybe we can look at
that.
I've got a bill that I just am working through for the Corrections
Day process, where the EPA was requiring, under the right-to-
know when they were burning sulphur dioxide, they had to notify
the community, even if it's a 1-pound release, which is ridiculous.
So there's all this paperwork, and there is no threat to anybody.
For 6 years, the EPA has been trying to — ^you know, we've been
trying to get them to do something with this, and they won't do
anytlung. And they all agree that it's ridiculous what they're doing,
but they won't change it.
Mr. Abenante. You've got it.
Mr. Peterson. The E. coli situation, you know, I serve on the
livestock subcommittee, and we've been dealing with this issue.
And it's ridiculous the way some of my colleagues and some others
scare the hell out of people. They don't know what they're talking
about. And we've tried to deal with this.
But it's my understanding that the Secretary has kind of put all
this on hold, and we're working through this, as I understood.
That's not true?
Mr. Manger. They're still taking samples in our wholesale plant,
looking for it. Our penalty will be, if they fmd it, our name will be
placed in the newspaper, even though we don't — everyone agrees.
Mr. Peterson. USDA is doing this?
Mr. Manger. We're a USDA meat inspector plant.
Mr. Peterson. And their inspectors are doing that?
Mr. Manger. Oh, they take samples, periodically, yes. Although
we do not slaughter, we buy from slaughtering plants and just
grind and package the meat, we are responsible for E. coli under
those rules.
Mr. Peterson. But as I understood it — you know, they had this
megaregulation which they put on hold.
Mr. Manger. That's the one I'm here for.
Mr. Peterson. Pardon?
Mr. Manger. That's the one I'm personally here for, yes.
Mr. Peterson. They put that on hold.
Mr. Manger. Well, they're still coming.
Mr. Peterson. Well, the Secretary has personally guaranteed
me, and his people, that they are not going to layer this on top of
the existing system. And they have personally guaranteed Steve
Gunderson and I that that will be the case. And they put on hold
what they were moving ahead with until we can get this sorted
out. So I think that there are some positive things happening
there.
I understand your concerns, and we have the same concerns. I
mean, I've got a huge poultry industry in my district, you know,
and we're concerned that they are going to layer this on top of
what we have. Not only is it not going to work, we're going to end
up adding a whole bunch of cost that isn't going to solve anything.
The real thing we need to do is get people to cook the meat, you
39
know. And there's nothing you can do about this, frankly. I mean,
you're right.
Mr. Manger. In the retail end, your hands are tied.
Mr. Peterson. Unless you want to just have people quit eating
ground beef, if they aren't smart enough to cook it, you know.
I think that there is a sensitivity now. I mean, I think Secretary
Glickman is the best Secretary of Agriculture we've had in a long,
long time, and I think that he's gotten this under control and
reined in whatever his name is there that was way out ahead of
himself And the chairman here helped us with some of this. So I
think we've got it moving in the right direction.
There are a number of us that are on top of this. We understand
the problem. We're going to watch.
Mr. Manger. Just to let you know how frightening it is. We had
a roving inspector brought into the area several times, this didn't
happen to me, but one of our plants was cited for having leaves on
its roof You can imagine how we come up to a regulation that's
a megareg. The people who will enforce this have no idea what
their bosses are talking about, and they do layer it. People our size
are finished.
Mr. Peterson. I understand. But they have promised us that
they are not going to let this go forward unless they get this sorted
out first. We're going to attempt to hold the Secretary and the ad-
ministration to that, and if you think that that's not happening,
we'd like to know about it. I understand that you're still worried
about it.
Mr. Manger. Well, I'd just like to see them come around areas
like this and let us start knowing what's going to happen before
they give us that 90 days to respond. Because you give us a book
this thick, we don't have the time, in 90 days, to analyze it.
Mr. McIntosh. The new procedures on E. coli, have those hap-
pened in the last 6 months? You mentioned an inspection there.
Mr. Manger. They've picked up in volume. They started some
time before this, looking at it, making decisions, and changing
ideas. But now they've picked up. They do come into our plant, and
they do go to the retail stores and pick up samples. As Mr. Lauer
says, by the time you get there, it's over.
Mr. Peterson. Aren't they doing this to try to figure out if they
can find out how to do this? I mean, isn't that part of what they're
up to right now?
Mr. Manger. Well, the threat that we have is that the/re going
to publicize they found E. coli in Lauer's Super Thrift. Man, that
would be devastating to us. We don't want the E. coli, but the E.
coli occurs at the plant where they slaughter the cattle. And I sus-
pect, if efforts were applied in the right direction, technology would
help solve the existence of E. coli in the process, a matter of
slaughtering, that the feces of the animal gets on the product.
Mr. Peterson. That's what HAACP is supposed to help us do,
although I have some questions about it.
Mr. Manger, As do I, because my understanding, at this point,
it would be one sample per one specie per 1 day. Now, we have
plants in this area that will kill approximately 10 head of cattle,
and we have 1 that kills 25. He will turn in 1; the 10 will turn in
1. We have another that kills 100; he will turn in 1. Out in the
40
West, they kill 2,000; they will turn in 1. How do you solve that
problem?
Mr. Peterson. Well, that's just one point in the process. What
HAACP is all about is tr5dng to get each of these plants to develop
a control mechanism within their plant that is basically self-regu-
lated. I mean, that's the purpose of this: for them to have these
critical points in the process so that they can catch this.
Mr. Manger. Meat inspection already has that.
Mr. Peterson. Pardon?
Mr. Manger. Meat inspection already has that.
Mr. Peterson. No.
Mr. Manger. There's a meat inspector on board.
Mr. Peterson. Well, the inspector, but he's not doing this on a
scientific basis; he's doing this on sight and smell, and taste — not
taste, but feel, you know. That's how they are doing it. There is no
scientific testing going on, except where plants have, on their own,
implemented a HAACP plan, which some of the bigger plants have.
Frankly, if you look inside of all of this, 98 percent of the plants
are not going to be any problem, because the/ve got this in place.
It's the small plants that haven't got the scientific kind of things
in place, and it will probably put them out of business if you ask
them to do this. We understand that. I've got a lot of them in my
district. But, frankly, that's where your danger is going to come,
more so than in one of the big plants, and the statistics bear that
out, if you look inside at where the problems have come from.
So it's a complicated issue, but I really do think, though, that we
have slowed down the department. We have gotten their attention.
I think the industry feels like, you know, at least the poultry indus-
try, the Cattlemen's Association, and so forth, feel like they have
at least gotten some attention here, and we're hoping that this
doesn't get out of hand.
But I just have to tell you, if somebody gets sick from E. coli in
your store, you're going to get bad publicity. I'll guarantee you this,
and the public is not going to understand it, but that's just how it
is. I mean, Jack-In-The-Box is a good example of that. It's a dif-
ficult situation.
We should get him to come down and talk to Louise Slaughter
for a while.
Mr. MclNTOSH. She's a microbiologist.
Mr. Manger. But Jack-In-The-Box's problem was undercooking,
was it not?
Mr. Peterson. Absolutely. But you can't get anybody to under-
stand that. I mean, we had people on our committee saying that
the Government should be able to protect people that don't cook
their meat at home. I mean, it's ridiculous. You know, at some
point, people have got to take responsibility for their own lives and
their own situation. But there are people out there that think the
Government can go into people's homes and protect them from
themselves. I mean, it's beyond me.
There are Members of Congress on our committee, on this sub-
committee, that think that.
Mr. Ehrlich. Frightening.
Mr. Peterson. Yes. Well, they're not Blue Dog Democrats.
Mr. MclNTOSH. Let me now turn to Representative Ehrlich.
41
Mr. Ehrlich. You just heard why we like the Blue Dogs so
much, I guess.
I asked you all to be quick because I know we have four panels,
and I promised about an hour per panel. Our time is just about up
with this panel, but I do want to ask one question.
John, you brought my bottom line up. Real quickly, two ques-
tions: What percentage of a typical loaf of bread, the retail cost of
a typical loaf of bread, do you all attribute to Federal regulation?
Second, with respect to everything we've talked about today, not
just the Clean Air Act, but everything — OSHA, the whole 9 yards —
give us, real quickly, the impact on your bottom line, with respect
to job creation and what it costs your business.
Mr. Morrison. That's an excellent question. You know, can I
take this loaf of bread and say how many slices is Government reg-
ulation? I probably could, but I wasn't really prepared to do that
today.
But what I will tell you is that the margins in the baking indus-
try are very, very tight, probably tighter than most industries, and
Bill can attest to that. What it really comes down to is that, again,
we don't have a parent company. We've had some difficulty in the
past; we're beyond that now. But $500,000 to correct some emission
situation off an oven, frankly, is a lot of money for us. And we have
to grow.
You also have to remember, I think, more importantly, that we
are competing with — and it's a very competitive business, very
price-sensitive, too, to the consumer — ^but we are competing with
larger bakers in the country whose plants may not be in such a
sensitive area, in terms of the environment. So they might not be
required to put that scrubber on, or whatever the case might be,
because of the air quality in their area. However, their bread is
coming into my backyard, and I have to deal with it, and I have
to stay competitive.
Frankly, what it really comes down to, ultimately, is, this is what
it's going to cost per week — that's the way we look at it — this is the
annual, this is a week, how can we get that money? How can we
still remain — be the low-cost producer, where can we look? Where
can we cut? And the last thing we want to do is cut jobs, because
if you cut jobs, you start cutting growth. We want to grow our busi-
ness, not only in the mid- Atlantic but in perhaps even other areas,
but in doing so, obviously, that's job creation.
However, not only the Clean Air Act, which is a big one for us,
but we're also looking for OSHA reform. I think, frankly, our com-
pany, Schmidt Baking Co., has a responsibility to its employees, to
the general public, to society and, of course, ultimately to itself,
from a moral perspective and doing the right thing. Sometimes it
seems like no good favor or deed goes unpunished, especially when
an OSHA inspector walks through the door, and you can't do any-
thing with it.
Mr. Ehrlich. Bill.
Mr. Paterakis. We, in fact, did a study in New York and New
Jersey, when we were trying to argue our case as to why we were
being overregulated. And utilizing a 3 percent profit margin, which
is the standard in the baking industry — actually, it's 2 to 3, but we
utilized the 3 percent profit, and we showed the impact on those
42
profits. And it ranged anjrwhere from 15 to 35 percent of our profits
were going to be observed by operating a catalytic oxidizer.
Mr. McIntosh. That's just one regulation.
Mr. Paterakis. One regulation. And also, to support what John
is saying, we have just recently built a bakery in Mississippi, and
we're planning on building two more in the next 4 years. The first
priority on the list of where we locate is, where is there clean air?
So all that is doing is m.oving jobs away from the urban areas out
to metropolitan areas.
Mr. Ehrlich. Good point. Thanks. Thanks for making that point.
Mr. McIntosh. Thank you all very much.
George, do you have a question?
Mr. Radanovich. Yes. I want to get an indication, if you can
share with me, regarding the VOC ethanol. I'm assuming you're all
doing business in Maryland as well as other areas. Can you give
me an idea of the level of State law that you're dealing with, with
regard to air quality, as well?
Mr. Morrison. Bill, I'm going to put that to you; you're more the
expert.
Mr. Radanovich. I'm curious about duplicity.
Mr. Paterakis. In regard to dealing with the Federal Govern-
ment and the State government?
Mr. Radanovich. Exactly. And your State government regula-
tions.
Mr. Paterakis. How they overlap?
Mr. Radanovich. Yes.
Mr. Paterakis. In Maryland, it wasn't so bad, because Maryland
acted almost like a go-between for us. In States like New Jersey,
we were actually fined by the Federal Government, Region II. Be-
fore we even understood that we were captured by the Clean Air
Act, we had a fine; all the bakers were fined. And the State didn't
prevent that from happening, nor did they come to our defense. In
fact, they just washed their hands of it, and only recently are they
starting to listen again.
So we do run into this, yes.
Mr. Radanovich. Thanks.
Mr. McIntosh. Let me ask two real quick things.
Paul, would it be possible to put together some of the data on the
question Bob was asking about — and I know it's difficult to assess
this always — but the cost of all the different regulations on an av-
erage loaf of bread, or how many slices out of a loaf of bread?
One of the problems we've had is in communicating the message
to the average person: What is the effect of regulations on your
life? Because everybody is in favor of a cleaner environment, a
healthier workplace, safety, but they don't realize the cost of need-
less regulations. And reaching those goals is important, but with-
out imposing costs that don't really help achieve those goals.
One way I've looked for is examples of how those do have an im-
pact on each of us, as consumers, as people who are working and
looking for jobs. So if that data could be accumulated, it would be
enormously helpful to us.
Mr. Abenante. We will make every effort, Mr. Chairman, to put
that together for you and Congressman Ehrlich.
Mr. Ehrlich. Thanks.
43
Mr. MclNTOSH. That would be great.
Mr. Abenante. We agree with you. I think it would be very in-
structive.
Mr. MclNTOSH. One other quick question: Have either of you
heard of the process of cold pasteurization? They sometimes call it
irradiation.
Mr. Manger. The public hasn't accepted that. We make pork
sausage, for instance. When they look at pork sausage, they expect
it to be a certain color. This would destroy that.
Mr. MclNTOSH. Oh, it changes the color.
Mr. Manger. Oh, yes, it changes all that.
Mr. MclNTOSH. It doesn't heat it up, but it does irradiate it to
kill off all the bacteria.
Mr. Manger. Our product moves rather fast, you know. Pork,
particularly, doesn't run into problems, because the public has
learned to cook, from way back. And so I don't get into quite as
much as some of the other people do.
Mr. MclNTOSH. Well, thank you all for coming. I really appre-
ciate your testimony. It's been very, very helpful.
Let me now call our second panel of witnesses. We've got two
witnesses on this panel. The first is Mr. Joseph DeFrancis, who is
president, chairman, and CEO of Pimlico Race Course. Welcome,
Mr. DeFrancis.
And then with him is also Mr. Timothy Capps, who is the execu-
tive vice president of the Maryland Horse Breeders Association.
I appreciate both of you joining us today. Thank you and wel-
come. If you could raise your right hands and repeat after me.
[Witnesses sworn.]
Mr. MclNTOSH. Please let the record show that both witnesses
answered in the affirmative.
I appreciate your coming. This is an area that is new to me.
Mr. DeFrancis. Welcome to Maryland, Mr. Chairman.
Mr. MclNTOSH. Although we do have a racetrack that was just
built in my district, in Anderson. It's owned by Churchill Downs.
And so it's something that I'm going to become familiar with. But
thank you, and please share with us your testimony.
STATEMENTS OF JOSEPH DeFRANCIS, PRESIDENT, CHAIR-
MAN, AND CEO, PIMLICO RACE COURSE; AND TIMOTHY
CAPPS, EXECUTIVE VICE PRESIDENT, MARYLAND HORSE
BREEDERS ASSOCIATION
Mr. DeFrancis. Thank you very much, Mr. Chairman. Good
morning. We very much appreciate the opportunity to be here and
appear before the subcommittee, and want to thank you and thank
the rest of the subcommittee, especially Maryland's great friend,
Congressman Ehrlich. It's a real pleasure to be here this morning.
My name is Joe DeFrancis, and I am the president and CEO of
the Maryland Jockey Club. The Maryland Jockey Club is the cor-
porate parent entity of Pimlico and Laurel Race Courses here in
Maryland that conduct thoroughbred racing. And maybe I could
just take a moment or two and share with you a little bit of the
background and tradition that we have here in Maryland that sur-
rounds thoroughbred racing, because we're very proud of it.
44
The Maryland Jockey Club is the oldest sporting organization in
all of North America. It was originally chartered in 1743 and has
been in continuous existence ever since. We celebrated our 250th
birthday just a couple of years ago. So horse racing and horse
breeding — the gentleman to my right, Tim Capps, is the executive
vice president of the Maryland Horse Breeders Association — horse
racing and horse breeding have been really integral parts of the
Maryland economy and of Maryland's culture going all the way
back, literally, to precolonial times. So we do have a very long and
very proud tradition of racing in Maryland.
Obviously, an integral part of racing, horse racing, is gambling.
And usually, when you say that word, everyone sort of perks up
and their eyes open. Gambling on horse racing results in very dif-
ferent economic impacts and economic effects than really any other
kind of gambling that you can do, whether it's bingo, the lottery,
casino gambling, you name it. The reason for that is in the nature
of horse racing.
Our gambling product, it's not ping pong balls flying out of a ma-
chine or cards being dealt across a table, our gambling product is
horses running around a racetrack in order to earn purses, in order
to earn prize money. And that prize money is funded by a portion
of all of the dollars wagered on the horse race.
So, as a result of this economic arrangement, the existence of
horse racing and gambling on horse racing, creates a market for
horses. It creates an economic demand for horses. Because a horse
is a very large and complex animal, it literally requires dozens
upon dozens of different kinds of jobs to initially breed and grow
and feed and sustain and train a race horse.
The Department of Economics — it is now called the Department
of Business and Economic Development — it went through several
prior iterations here in Maryland — has done a number of studies
of the economic impact of horse racing on the community of Mary-
land, horse racing and horse breeding. And the industry, collec-
tively, sustains roughly 20,000 jobs and contributes annually over
$1 billion to the economy of Maryland.
Now, out of those 20,000 jobs, only about 1,000, really 5 percent,
directly work for us, are employed at the racetrack in selling tick-
ets, and as security guards, and food service workers, and mainte-
nance workers, and so forth. The other 19,000, 95 percent of the
total, are people who have jobs because there is a demand for
horses. They are either involved in breeding the horse, or in train-
ing the horse, or in taking care of the horse when he's sick, or there
are accountants and lawyers that are involved in syndicating
horses. The number of ancillary spin-off jobs multiples on and on
and on.
So, as a result, the gambling that takes place on horse racing
produces far greater ancillary spin-off economic benefits than any
other form of gambling.
The gambling, of course, is very heavily regulated by the individ-
ual States. And we are regulated right down to the point where,
if we want to change the price of the racing program, we have to
go before a regulatory body and get approval. So our ability to re-
spond to changes in the marketplace, changes in consumer de-
45
mand, is very greatly hamstrung as a result of the extensive State
regulation that we are subject to.
But that really is not the subject that I'd like to speak with you
about today, because the issue of Federal regulation and really the
absence of a proper amount of Federal regulation in one very spe-
cific area is having tremendously far-reaching on the horse racing
industry across the country. It has not yet hit us here in Maryland
for reasons that will become apparent in a moment, but it is a criti-
cal issue to the rest of the horse industry throughout the United
States, and that is the question of Indian gaming.
Indian gaming is regulated on the Federal level, pursuant to the
Indian Gaming Regulatory Act of 1988. When I say "regulated," I
use that term loosely. This is an area where, as a result of the cre-
ation of a very loose Federal regulatory structure, the ability of the
States to effectively regulate a critically important policy area, in
my judgment, is dramatically undermined.
The Indian Gaming Regulatory Act essentially permits an Indian
tribe to conduct gaming on Indian lands. And the gaming oper-
ations under the act are divided into three classes: class one, class
two, and class three.
Class one includes social games for prizes of minimum value.
Class two — and I'll just read the definition quickly — includes bingo,
electronic bingo, pull tabs, lotto, punch boards, and tip jars, if
played at the same location; excludes any banking card games, i.e.,
baccarat, blackjack, or electronic games of chance, or slot machines.
The reason I went through that rather cumbersome definition is,
class three gaming is everything else.
The way the law has been interpreted, if a State, within its bor-
ders, conducts any form of class three gaming, then under IGRA,
under the Indian Gaming Regulatory Act of 1988, the State is obli-
gated to negotiate a compact — of course, there are some complex
definitions of what is an Indian tribe and what are Indian lands —
but without getting bogged down in that, if a State conducts any
form of class three gaming, which is everything other than what
I just read, then the State is obligated, under IGRA, to negotiate
a compact with an Indian tribe that has Indian lands in that State;
to allow them to conduct all forms of class three gaming.
So, for example, in Maryland, where we have a State lottery and
horse racing, because those are class three gaming under this defi-
nition of the act, were there to be a recognized Indian tribe that
would have recognized Indian lands, under the definitional section
of the act and the regulations pursuant to it. The State of Mary-
land would be obligated, under Federal law, to negotiate a compact
to allow that Indian tribe to build a full-scale Las Vegas style ca-
sino on that land, regardless of the desires of the citizens of Mary-
land, regardless of the desires of the General Assembly or the Gov-
ernor of Maryland, regardless of the needs or desires of the particu-
lar State.
That, to me, is — ^you talk about misregulation, that is
misregulation in its grossest form. There are several bills pending
before the Congress right now that would attempt to correct the
situation. One is House bill 1512, the Fair Indian Gaming Act; the
other is House bill 1364, the Indian Gaming Regulatory Act. Both
46
of those pieces of legislation would attempt to correct what I be-
lieve is just a ludicrous situation.
So I would urge you, when you get back to Washington, to con-
sult on the status of those bills with your colleagues and to support
them, because here is one area where Federal regulation has re-
sulted in complete miscarriage of anything that approximates eco-
nomic justice.
Mr. McIntosh. Thank you, Mr. DeFrancis, I appreciate that. It
is, as I say, a new area to me. I'm surprised the Federal regulation
is that involved in that area. I now see how the consequences could
be extended beyond just the Indian tribes.
Let me hear from Mr. Capps, and then we will open it up for
questioning.
Mr. Capps, if you could share with us any remarks you have on
the questions of Federal regulation.
Mr. Capps. Let me first thank you for having us here. I was
asked by Joe to accompany him, basically, I think, for political bal-
ance. Mr. DeFrancis is an ardent Republican. You might want to
take note of that, take his business card with you. And I am the
token Democrat, probably one of only two or three in the entire
horse industry, as far as I'm concerned. So thank you for letting
me be here.
Mr. Ehrlich. As Collin demonstrates, we discovered there are a
lot of good Democrats.
Mr. Capps. And, Congressman Peterson, we'll have lunch later.
We'll be the only ones in town.
I was interested in your earlier references to manure, because if
you want to know manure stories, you've come to the right place.
We know a lot about it. We spread a lot of it around, not just here
this morning, but in general. We produce a great deal of it.
My organization represents about 800 members. There are, in
the State of Maryland, over 3,500 licensed owners of race horses.
We have about 800 members who are breeders and owners. They,
together, collectively own properties that probably exceed 250,000
acres of green space, farms throughout the State. There are over
600 farms on which people raise thoroughbred horses. We will
produce this year about 1,500 new foals. There are over 200 stal-
lions standing in the State of Maryland.
The economic impact that Joe referred to in his earlier testi-
mony, on the breeding side of the industry alone, in the State of
Maryland, is about a half billion dollars a year. So it's a very sub-
stantial industry, and it involves all kinds of people. It involves
farmers, veterinarians, truckers moving product back and forth, all
sorts of ripple industry effects.
I wish, in some ways, the gentleman from the bakery industry,
who gave such an extended presentation that was so detailed, had
left their chart up here, because a lot of the agencies and a lot of
things that they talked about are issues with us. I worked for Joe
for 5 years at the race track, and I can tell you that we ran into
repeated problems with OSHA, with EPA, and so forth, on all
kinds of things.
Frankly, a lot of it was not specific to the agency as much as it
was to the constant clashes between the State and Federal regu-
lators. That was probably the biggest single issue that we ran into
47
was that, when the State decided to come out and take a look at
something we were doing, inevitably the Federal guy followed, or
vice-versa. They seemed to know what each other was doing, and
they tracked each other. And their relationships were not always
cordial, shall we say. If one guy found something, the other guy
had to find three other things, and vice- versa.
We had an OSHA situation, a MOSHA, Maryland's version of
OSHA, an OSHA situation that went on for about a year or so, I
guess. It cost us, probably, $200,000 in just legal — not legal fees,
because we weren't in court over anything, but just advice, opin-
ions, counsel, engineering surveys, and everything else, and the re-
sult was basically nothing.
At the end of it all, they levied a very tiny fine on the race track,
because I think they found some paint down in our print shop, or
something, but essentially, it was because they came in — as you
can imagine, a race track is a pretty complex operation. It's part
farm; and it's part public facility. Joe has three stable areas that
represent about 3,000 stalls. So he's got, you know, hundreds of
acres of barns and race tracks, and everything else.
The manure removal that I talked about facetiously earlier is a
major problem. About probably 30 tons or so a day of manure are
moved from those three facilities. There again, you get into all
kinds of issues between the State and Federal regulators. The
State guys say you can't put things in landfills. The Federal guys
say, you not only can't go to this landfill, but you've got to take it
out of State.
We pay excessive prices, beyond excessive prices, to literally have
manure removed out of the State of Maryland. It had to go to
Pennsylvania or New Jersey. Now, why they are recipients of
Maryland manure, I have no idea. But that became because both
the State and Federal guys decided that was the way to do it.
In addition, we were selling it to people who were using it for
mushroom farming and other farming purposes. But to get it
trucked to them cost us more than we were getting back. So we got
into problems again. This was EPA; this was the Maryland envi-
ronment people, and so forth, but a lot of it came down to clashes
between the Federal and the State people, all of whom had their
own turf to battle for.
So those are just the kinds of issues where it's OSHA or the local
derivative thereof, or EPA, or whatever. But probably our biggest
single issue, as an industry, is an economic development one, and
it will probably surprise you to learn that it involves the IRS or,
specifically, the tax code.
In 1986, the Federal Tax Reform Act, which we call, in our in-
dustry, the "Horse Racing Destruction Act," was basically designed,
obviously, to reduce marginal rates and, at the same time, reduce
preferences in the tax code. The people who invest in horses typi-
cally are higher dollar people. Obviously, that was going to impact
them to some extent, and their lawyers and accountants sit down
with them and say, OK, you shouldn't be doing this anymore; you
ought to be doing that. So there was certainly going to be some im-
pact.
We estimate, over the last 7 years or 8 years since the act start-
ed to have its full impact, that we've probably seen investment in
48
horse breeding and horse racing, horses for racing purposes, decline
by about 20 or 25 percent. The foal crop in North America has gone
from 51,000 down to 34,000 during that period. In the State of
Maryland it has declined from 2,400 down to about 1,500. At this
point, it appears to be relatively stable, but it's certainly not grow-
ing.
A lot of that has to do, not so much with the specifics of what
was in the code that caused people to suddenly decide, I've got to
go do this instead of that, but with confusion over things in the
code. The IRS, of course, is always looking at the gambling side of
the business, and they have withholding taxes on us that are very
difficult to comply with, in many cases.
But aside from that issue — and Joe could address that sepa-
rately, as a track owner — the material participation rules in the
code are extremely difficult and very complex to understand. Basi-
cally, the IRS has, over the years, pretty much refused to really es-
tablish for people what they mean. The result is that, when some-
body is uncertain of what they are likely to see at the end of the
year when they are working on their tax return with the IRS, and
we're talking about some pretty substantial investors, then they
get cold feet and they pull back, because they don't understand
those rules.
What is material participation? As an example, in the old code,
essentially 500 hours a year of hands-on participation meant that
you were a material participant, and therefore you were no longer
defined as hobbyist. You were actually involved in the business,
and you could write off appropriately. Under the new code, they
would not define the number of hours. So it didn't matter, you pret-
ty much had to prove that you were a material participant.
Well, obviously, somebody who owns a race horse is not nec-
essarily a candidate to go out and ride a race horse. And it was
those sorts of things that confused people about what they could do
and couldn't do, and what the IRS would let them do and not do,
that have become a major issue for the people in our industry.
There are bills in the House and Senate presently, or they were
introduced in the last session, that would redress some of that by
being more specific about what material participation actually is.
I do not have the numbers of the bills. They were introduced,
again, surprisingly, by the Kentucky delegation, but they are to
change the code to at least clarify what the rules are. It would un-
doubtedly be a material step — no pun intended — ^to benefit invest-
ment in our industry.
Mr. McIntosh. Thank you. I can't resist, at this point, asking
you a quick question. What do you think about the flat tax propos-
als?
Mr. Capps. The flat tax proposal — it depends on which one you're
talking about. I mean, thej^ve been around for so long. But the lat-
est versions of them, I guess, Mr. Archer has one, and I guess —
who else? The Kemp Commission. There's no one — I haven't seen
one that I would say is the proposal at this point.
But the theory always was, in our industry, that lower rates hurt
us, because it's a high-risk investment and it's a long-term payout
type of investment. So it's the tj^e of thing where lower rates
would cause people to gravitate toward less risky investments. And
49
I think, without question, my own opinion is — and I was a money
manager on Wall Street for a while — that the reason the stock
market is over 5,000 is because of the 1986 Tax Reform Act, be-
cause people went to financial investments rather than hard asset
types of investments, and horses represent that.
Would lower rates, at this point, make a big difference? A lot of
it depends on what preferences are left in the code. Absent a lot
of preferential items, it probably would not hurt us very much; it
possibly could even help. Because, again, if people don't have other
places to go, justifiably, that are going to allow them certain types
of write-offs, then they are going to come back to things that will.
This is a farming industry, basically. I mean, Joe will not have
product on his race track unless there's somebody out there who's
farming. It doesn't matter whether the guy is a millionaire or he's
scratching it out, he's still a farmer. And we've got people who run
the gamut. We've got people who are billionaires who are in this
industry, and we've got people who barely make a living who are
in it, but they just happen to love to do it. They are bitten by the
horse bug.
So we are a farming-oriented business, and the ability to clarify
the tax code so that people can deal with the farming aspects of
it is a very important issue. And that does go back to the flat tax,
because, if the preferences are not there but, at the same time, the
standard things that have applied to agriculture are still there,
then I think a lot of people will still participate. But that's a tough
one.
Mr. McIntosh. It's a little bit off our subject, but I was just very
curious, because I think it's going to be a topic next year in Wash-
ington that will have a lot of unforeseen ramifications.
Mr. Capp. Absolutely.
Mr. McIntosh. Also, you mentioned agriculture being a very im-
portant part of the industry, what I noticed, as they were opening
this new track in Anderson, was the farming community around
there was very excited because they have an opportunity to sell
their products, hay and things there.
Mr. Capps. Absolutely. That's accurate. We have probably, in our
case — and no one has ever really been able to define this sharply —
but probably half of the economic impact is from just that, people
growing feed crops and selling them, and people who are transport-
ing horses, transporting feed back and forth. I mean, you can imag-
ine a horse farm with 100 horses on it, they go through a lot of
feed in a day; they go through a lot of hay in a day.
We have issues that we deal with just on an operational basis
that are sort of mind-boggling. The blizzard is an example. We
probably used up more tractors during the blizzard, literally to
clear areas for horses to be able to get to water. I mean, I had hor-
ror stories from people out there about how tractors got stuck. One
guy literally had his — he tried to clear a pond, and of course he lost
a tractor in the pond, and they were over there trying to drag the
thing out.
So the agricultural part spills over into a lot of other things in
the community. And I'm sure, in your district, likewise, that that's
what you found.
50
In Congressman Peterson's district — not his district, but the
State — is a good example, going back to Joe's issue, of what Indian
gaming can do to the horse industry. Because, basically, the onset
of Indian gaming in Minnesota, and nearby, essentially closed the
race track there, which was a fledgling track that had only been
in existence for a few years, a very nice facility west of Minneapo-
lis, and they closed down. They are back open again because of
simulcasting, and, of course, they are trying very hard to get the
State to allow them to bring in other forms of gambling.
But this Indian issue, likewise, has certainly spilled over into
Minnesota.
Mr. McIntosh. Mr. DeFrancis, I appreciate your spending time
with us today and hope, at some point, I can come out and see your
facilities.
Mr. DeFrancis. We would love to have you. Congressman.
Mr. Ehrlich. We can definitely arrange that.
Mr. DeFrancis. We would be honored to have you. It's just a
short drive from your office on Capitol Hill. So, please, anytime
your schedule permits.
Mr. McIntosh. Unfortunately — well, not unfortunately, I really
actually prefer doing this that way — but, unfortunately, for sched-
uling purposes, we're usually in Indiana most weekends, unless I
just take off from work during the week. But we'll figure out a time
to get out there. I appreciate that.
Mr. DeFrancis. That would be wonderful. We would enjoy it.
Mr. McIntosh. Collin, did you have any questions?
Mr. Peterson. Well, you know, the irony of this whole situation
right now is: the Indians are talking about buying the track.
Mr. Capp. Joe would, I'm sure, take an offer.
Mr. Peterson. A couple of things. You know, I'm a CPA, and
probably the most horrendous thing that we've ever done in Con-
gress is the 1986 Tax Reform Act. It destroyed a lot of things be-
sides your business. But I've come to the point — and I don't support
the flat tax, but I support abolishing the IRS. I mean that. Repeal
the entire code and abolish the IRS. That is the only way we're
going to be able to get a handle on this.
If you think — well, I mean, it's all right to try this — but if you
think you're going to pass a bill to change these material participa-
tion rules with the current IRS, I mean, I wish you luck, because
I'll guarantee you, by the time they get done, whatever is in this
bill, they will have it so screwed up it will be twice as bad as it
is today.
The trouble with the IRS is, you can't get an answer out of those
people. I mean, they do not know — 50 percent of what you do, you
can't get an answer. And if they give you one, it will be wrong,
most of the time. So, I mean, the whole thing is out of control, in
my opinion, and I think we should just get rid of it and write the
code over from scratch. Get rid of all the case law; get rid of the
whole mess. And, hopefully, these guys will help us do that.
Mr. DeFrancis. It sounds like a good idea to me.
Mr. Peterson. Yes. The other thing, this Indian issue, you said
that the States are obligated. I don't believe that's correct. I think
the States have the authority to enter into these compacts. I do not
believe that they are required to enter into them.
51
But the underlying problem with this issue is this — and I have
three Indian reservations in my district and have lived with this
issue, not in gambling, but in hunting and fishing, for longer than
I want to remember — and the trouble with this whole area is the
court system.
I think it might be right to say that the courts are probably cre-
ating an obligation that the States do this. I don't think that the
law does.
Mr. DeFrancis. That's correct. I think the courts have inter-
preted the law to create an obligation.
Mr. McIntosh. But I think the law came about because the
courts were about to give this to the Indians anyway, and people
wanted to, you know, get some kind of a handle around this, so
they went ahead with this bill which gave the States' Governors
the authority to go out and do these compacts. That process was
messy at best, and people didn't know what was going on, and it
just kind of got out of control.
The trouble now is that you've got all this capital investment out
there that, you know, it's not realistic to think that you're going to
undo that. I mean, 30 miles north of where I live, in the middle
of nowhere, they built a $27-million facility in a town of 1,000 peo-
ple. There is nothing else there. I mean, it is in the middle of no-
where. It's 80 miles from Fargo, ND, 100-and-some miles from Win-
nipeg, Canada, and 250 miles from Minneapolis. And in this town
of 1,000 people, on Monday morning there will be 5,000 people at
that casino, at 8 a.m. I mean, it's unreal.
Mr. DeFrancis. I'm not surprised.
Mr. Peterson. We have 1,200 people working that didn't have
jobs, and the welfare rolls have diminished in our area. So there
are some good things that happened because of this. And I don't
think we're affecting the horse track in Minneapolis. I mean, we
have a different situation. But I understand your problems.
The trouble with this issue is that I don't know that the courts
are going to allow us to untangle this, even if we wanted to. Again,
if we pass the right kind of legislation, there are going to be law-
suits. The Indian tribes see themselves as sovereign States. We ba-
sically have given that right. That's why they can claim that, if you
have class three gambling, that they should have it, because they
are a separate State, and they have the same rights as a State.
And that has not been given to them by legislation so much as
it has been given to them by the courts, although a lot of this goes
back to the treaties and the establishment of these reservations,
and all of that. I think the one thing the Congress could do is to
disestablish reservations. I'm not so sure they are anywhere near
doing that. But I think that where this thing — it looks to me like
the first thing that Congress may deal with is this issue of taxing
them. The States cannot tax the Indian tribes, cannot tax.
Mr. DeFrancis. Because of their status as sovereign nations.
Mr. Peterson. Right. However, the Federal Government can,
and that, we have not been willing to address up to this point, but
I think that that's probably the first place that you're going to see
the Congress move. That also gets us a nexus to go in there and
take a look at what's happening in these casinos. The biggest ca-
sino in my district, the entire tribal council is now under indict-
52
ment and going to court in April. So, I mean, there is oversight
going on. It's a kind of messy way to go about it, but they are.
The IRS has been in there for 2 years under fraud. It would be
easier if we had access to their records and we could just go in and
do oversight like we do with your race tracks, and so forth. But,
I mean, it's a real problem.
The trouble now is that we've got, as I say, all this capital invest-
ment, all these jobs, all this other stuff that has developed out
there. And the solution that they are looking at in Minnesota now
is to add more — to open up gambling at the State level and let pri-
vate people go into the casino business. I personally think we have
too much gambling already, so I don't think that's a good idea, but
it's a real problem.
Mr. DeFrancis. I think the crux of the problem, if it can be de-
fined this simplistically, is in that definition of class three gam-
bling, because it is — ^you know, conceptually, looking at the Indian
tribes as sovereign nations, it strikes me as fair to allow them to
do whatever is allowed under State law to be done. But because of
the way class three gaming is defined, as I described earlier, if
State law allows a State lottery, then, under the definition of class
three gaming, it permits the Indians to build a full-scale Las Vegas
casino.
And that then leads to what you were just describing, then a tre-
mendous economic push for the legalization within the State of pri-
vate commercial casinos to compete with the Indians. And it re-
moves from the State the authority to really develop a comprehen-
sive gaming policy for its particular State, which, given the dif-
ferent economics of a State — for example, we've gone through, in
the last 8 months here, a very intensive debate about the issue of
casino gambling in Maryland. The racing industry has been one of
the strongest opponents of the prospect of casinos.
There was a lot of testimony from Mississippi, for example, as to
all the economic good that casinos have brought to Mississippi. And
given the unique characteristics of the economy of Mississippi, the
absence of an existing horse industry, the absence of the 900 breed-
ing farms that Tim represents and the 19,000 people they employ,
perhaps, for Mississippi, the full leap into the pool of casino gam-
bling was a great thing. It resulted in a net increase in jobs, a net
increase in economic development, a net increase in tax revenue,
and that was great for Mississippi.
For Maryland, it could produce very different results, because, if
the casinos put the race tracks out of business and, as a result of
the race tracks going under, Tim's farms go under, then for one job
being created by the casino, you could lose two jobs in the racing
and breeding industry.
So it is a State-by-State matter that is, I think, particularly ap-
propriate for State policymaking and State regulation. And giving
this power to the Indians through the definition of class three gam-
ing to interrupt and interfere with that process in such a dramatic
fashion is, I think, where the problem is.
Mr. Peterson. Well, you know, in Minnesota, what opened it up
was when we put the parimutuel betting on the ballot. We didn't
have any gambling before that. And the voters approved it. That's
53
what opened up the availabiHty in Minnesota. It wasn't the lottery.
The lottery came later.
Mr. DeFrancis. Right.
Mr. Peterson. In our State, even if the lottery wasn't — say the
lottery was class two, if we change the definition, you know, we'd
still have casinos because horse tracks are class three.
Mr. DeFrancis. Exactly. Exactly, and that's my whole point. If
the voters — I don't think it makes either logical or economic sense
for voters to approve parimutuel and that approval open the door
for Indians to have Las Vegas style casinos.
Mr. Peterson. So what are you saying? So parimutuels should
not be considered class three either?
Mr. DeFrancis. I think the definition of class three, rather than
being this hodgepodge of all other forms of gaming other than what
is specifically defined in class two, the definition should be much
more specific. And if the State allows parimutuel, then the Indians
should be allowed to conduct parimutuel. If the State allows black-
jack, the Indians could do blackjack. If they allow slot machines,
the Indians can have slot machines.
Mr. Peterson. I see, so it should be comparable. I see what
you're getting at.
Mr. DeFrancis. Because the State allows one thing, it shouldn't
open the door to these 19 other things that the State may have
never envisioned when they were allowing this one particular
thing.
Mr. Capps. The other part of that issue, Congressman, is that
where this got out of the box really was, in 1983, in a dispute that
arose in Oklahoma over bingo parlors on Cherokee lands that were
reservation lands and had been ceded to them by treaty. And the
State was concerned because they couldn't regulate it. What
evolved from that, as it got out of the box, because then, all of a
sudden, it wasn't just reservation land, you had Indian tribes going
out and acquiring property and then saying, "This is our land.
We're sovereign."
Mr. Peterson. But Oklahoma doesn't have reservations. They
have a lot of Indians, but they don't have any reservations.
Mr. Capps. Well, this was the dispute. The Cherokees said, "This
is sovereign land."
Mr. Peterson. Right. They originally had reservations, and they
did away with them.
Mr. Capps. Exactly, and what has occurred, as an example, here
in Maryland, during this casino debate, we've had a gentleman
come in representing an Indian tribe who wanted to acquire land
in Western Maryland.
Mr. DeFrancis. The Shawnee.
Mr. Capps. The Indian tribe was not even a Maryland-based
tribe.
Mr. DeFrancis. The Shawnee.
Mr. Peterson. Yes, but your Governor has the authority to stop
that, you know, and we have done that out in Minnesota. I mean,
initially, they allowed them to go in and put land in trust that
wasn't in their reservation. That has now been stopped.
Mr. DeFrancis. Right. The Governor has the authority to do
that.
54
Mr. Peterson. Your State has the abihty to control that, and
that's part of why they did this. They figured that the Governors
could make a better decision about this than somebody up — or the
courts. The problem is, I think the (Jovemors were underequipped
to understand what they were doing and initially entered into some
agreements. There was politics involved in this, all that sort of
thing, and it did get out of hand.
But I think, in most States, at least in our area now, they have
stopped allowing them to go out and buy land in another place and
then put a casino up. I think. Maybe it's going on in other places;
I don't know.
Mr. DeFrancis. The process to get the land — the land, under the
law, has to be taken into trust for the benefit of the Indians, and
the process of getting the land taken into trust now is much — the
hurdles are much higher than they were before.
Mr. Peterson. But at the Federal level — maybe we're getting
into this too much — but historically, the Department of the Interior
has always approved every request to put land in trust, because
they have just approached this that — so there's really no stop-gap
at the Federal level. If it comes up through the chain and every-
body signs off on it, the Federal Government is probably going to
go ahead and do it. Now that may be something we ought to try
to get the Department of Interior to look at more closely.
The trouble with this whole area is that people don't understand
it. You literally have to live with this for 20 years to understand
all the history. And the Indians have a point in all of this. I mean,
they have been treated badly by this country.
Mr. DeFrancis. No doubt about that.
Mr. Peterson. There's no question about it. We have broken
treaties. And they see this as the new buffalo.
Mr. DeFrancis. Sure.
Mr. Peterson. And it has been, in some cases. In my district,
all of the money goes back for schools, for infrastructure, water and
sewer systems, new housing. They are doing the right thing with
it. Down in the Twin Cities, they are getting $600,000 per person
payment for nothing, because the tribe is only 180 people, and they
get $600,000 a year, everv man, woman, and child. If you have a
baby, you've got an extra $500,000 of income. It's unreal.
Mr. DeFrancis. It's worth having a big family.
Mr. Peterson. So that is not, obviously, a good situation, you
know, potentially. An3rway, we've carried on too long, but maybe
we've educated a few folks on this.
Mr. McIntosh. Maybe there's fertile ground for a Corrections
Day bill in here somewhere.
Bob, do you have any questions?
Mr. Ehrlich. No. I want to thank both these great gentlemen for
coming. It just struck me, while you were both testifying, we talk
about the various elements of the business environment in any par-
ticular State in the country, the tax environment, the tort environ-
ment, and the regulatory environment, and you've touched on all
three.
One of the reasons we have problems here in Maryland, both
with respect to what the Federal Government does, but more par-
ticularly with respect to what the State does, is, we have problems
55
in our tort environment. I hate to see, Joe, the complaints filed, the
slips and falls, everything in your business.
Mr. DeFrancis. There are people who make a living at it.
Mr. Ehrlich. We know that. The tax environment, the 1986
changes, you've testified on that very eloquently. And the regu-
latory environment, confusion between States and feds, and what's
what. So you are a living example of what we're trying to do in
Washington, trying to attack each one of these three elements and
make it better for you all to go out and do your thing. So I thank
you all very much.
Mr. DeFrancis. Well, we greatly appreciate your efforts in
Washington and certainly the opportunity to come and chat with
you about some of the things that are most important on our minds
in these areas this morning.
Mr. Ehrlich. During your testimony, you saw me talk to David.
He wrote me a note. There are certain people in Washington who
think all forms of gambling are bad, and I've been telling them that
horse racing is very good. Now he understands why.
Mr. McIntosh. Exactly. I see the benefits to the community.
Let me, also, actually seriously note that if there is a problem
with the courts having misinterpreted the statute, it might be
worth looking at as something that could fit the definition of a cor-
rections bill. And maybe, Bob, if you want to work with them and
look at that, certainly that might be something we could take to
the rest of the members of the committee.
Mr. Capps. Could we suggest to you that you'd want to abolish
the court system as well as the IRS?
Mr. Ehrlich. We can only do so many things.
Mr. Peterson. Mr. Chairman, I think this is a — I wouldn't say —
I mean, some people view it that way, but there's a huge amount
of litigation here and case history. This is way beyond a corrections
deal, I think.
Mr. Ehrlich. We're trying to expand the parameters of Correc-
tions Day anyway. Thank you both.
Mr. McIntosh. Thank you. We appreciate your testimony.
Now, if we could move to the open microphone section of the
hearing. There are two people who Karen has indicated have re-
quested time, and I will call on them. If anyone else would like to,
feel free to let Karen know, and we can also include you in this.
The first is Rabbi Heinemann, who has requested time to testify.
Why don't you come forward, Rabbi Heinemann, and we will swear
you in and go forward.
Rabbi Heinemann. Is it OK if I solemnly declare or affirm in-
stead of swearing?
Mr. McIntosh. Yes, that is fine. Please raise your right hand.
[Witness sworn. 1
Mr. McIntosh. Thank you very much, Rabbi. Welcome, and we
appreciate your coming forward today.
STATEMENT OF RABBI HEINEMANN, RABBINIC
ADMINISTRATOR, STAR-K KOSHER CERTIFICATION
Rabbi Heinemann. Thank you. First, I would like to thank you
for the opportunity to come and testify in front of this important
committee.
56
My name is Rabbi Moshe Heinemann. I am the rabbinic adminis-
trator of the Star-K Kosher Certification. It's a nonprofit organiza-
tion which assures the kosher quality of products. I am involved
with the local slaughterhouses that slaughter kosher and basically
all the kosher businesses that are here in this Baltimore area. And
we are involved with hundreds of businesses that produce kosher
all over the country and in many other countries.
There are two kosher slaughterhouses in Maryland that produce
kosher, and they are basically the principal slaughterhouses over
here in the Maryland area. There are two smaller ones, but they
don't slaughter every day. But these slaughter every day. Their
business depends, in a very great measure, on the kosher produc-
tion. As I'm sure you know, kosher slaughterhouses on the East
Coast are just closing up. Everything that's left is in the Midwest.
In general, meat consumption is on the way down.
There are proposed regulations which will control Salmonella
and E. coli and other problems with meat in front of the Govern-
ment. Now, I know that, as mentioned before, they are on hold. But
I'm a little bit worried that, as soon as that hold goes off, some-
thing is going to happen. So, therefore, I think it's important that
the committee should understand what it means to the kosher in-
dustry if these regulations were put into effect.
In order to produce kosher, beside the ritual slaughtering which
it has to go through, which is not affected by any of these regula-
tions, the meat, before it can be used, has to be deveined, soaked,
and salted. This deveining, soaking, and salting process sometimes
is done at the slaughterhouse, but most times is not done in the
slaughterhouse; it is done by a different company, sometimes by
the local butcher.
J.W. Trueth, which is the largest packing house over here in
Maryland, does not have any facilities for deveining, soaking, and
salting the meat. Now, according to the regulations, this treatment
would have to be applied to the meat within a certain time after
the slaughter. It would invalidate the koshering process, which
would mean that, if it was done as the regulations say, the meat
would not be considered kosher.
In a poultry plant, it is possible to comply, because the salting
is done there immediately after the slaughter. It's possible to salt
it and apply the treatment after the salting process. It's not exactly
the way the regs have it, but I'm sure that they would make this
exclusion for them. But in the meat situation, it is not possible to
do it the way that it's set up.
I don't want anyone to get the impression that people who eat
kosher are not concerned about Salmonella poisoning and about E.
coli. We're just as concerned as anyone else. As a matter of fact,
the salting process actually takes care of the Salmonella poisoning
problem; it does not take care of the E. coli, as far as we Imow. But
the E. coli, if you cook the meat — and most people cook it — I would
say 99.9 percent of people cook it, so that wouldn't be any problem.
But there are other ways that would be acceptable to us, but it
cannot be done before the salting process, and that is really the
problem. It would end the kosher meat over here in this State, in
any State, as a matter fact. The truth is that about one-third of the
kosher meat is coming from out of the country because of the prob-
57
lems. And we don't want to see the jobs involved — hundreds of peo-
ple are involved with this in Maryland, are involved with the ko-
sher trade, and we want to preserve these jobs, and we want to
make sure that people have kosher meat to eat.
Now, it's possible to live without eating any meat. I understand
that. But, you know, we want to be fair to people. They are Ameri-
cans, and they deserve to eat meat just like anyone else does.
There's also the issue of the time restraints, that the meat has
to be cooled down to a certain temperature. I believe it's 50 degrees
within 4 hours, and 40 degrees within 24 hours. Now, also, it's a
big hardship for us, if it is at all possible.
Let us say that, for instance, this J.W. Trueth and Sons, they
would build a new facility in which they would salt the meat right
away, at the place. It's not possible for them to have it cool down
to that temperature within the required amount of hours, because
the deveining, the soaking, and the salting, even if you have many
people working on it, it has to be at least a half hour in the water
and at least an hour in the salt. You've got to devein it; you've got
to pull it apart. Besides the veins that have to be removed, there
are certain fats, membranes, glands that have to be removed before
you can do all this.
So, therefore, there is no way — it's not possible to get it done in
that time. Therefore, I want to mention that there should be some
kind of consideration for those businesses that are involved with
kosher meat, that they should be able to have an alternate way of
dealing with Salmonella poisoning, and E. coli, or any other thing.
We want it regulated; we want to make sure that it's healthy, but
not in the way that the regulations have it, in order to that we
should be able to have kosher meat over here in this State and in
this country.
I want to thank you for giving consideration to my statement and
for letting me testify in front of you.
Mr. McIntosh. Thank you very much. Rabbi Heinemann. I think
this is an excellent example of what we think of as the law of unin-
tended consequences, where oftentimes regulations set out to do a
good thing, and because, inherently, the process, when it's remote,
in Washington, they can't possibly know all of the consequences. As
a result, we see this time and time again, things that really you
can't imagine someone ever intending end up being the result. I ap-
preciate your bringing this forward to us as an example of that.
Mr. Ehrlich. I appreciate it as well. Rabbi. We have paperwork
and letters on this issue, and we're following it very closely. Thank
you.
Rabbi Heinemann. Thank you.
Mr. Peterson. May I ask a question?
Mr. McIntosh. Yes, certainly.
Mr. Peterson. I have a meatpacking plant in my district that
slaughters beef, and I toured it here a couple years ago. And they
have four or five rabbis that are on premises there all the time.
They come up from Minneapolis. I watched part of that process.
They mark the animal and they do the initial — whatever the ritual.
But I think, at that plant, then that's the end of it. Apparently,
those animals go to some other facility to do what you're sajdng.
Am I right about that?
58
Rabbi Heinemann. Yes, you are right. What happens — if they
would do it in the plant, it would be possible, not exactly according
to the way the regulations have it, but it would be possible to first
kosherize — it's already partially kosher — finish the kosherization
process and then treat it for the E. coli or the Salmonella, if it
would be necessary. It would be possible.
But if it's done in a completely different facility, which some-
times is not a USDA facility, it may be just a local butcher store,
so therefore it is definitely a problem. It would really mean no ko-
sher meat anymore, and that's really something that we want to
avoid.
Mr. Peterson. Thank you.
Rabbi HEINEMANN. Thank you very much.
Mr. McIntosh. Thank you very much, Rabbi. We appreciate your
coming forward today.
The other person who had indicated they wanted to participate
at this point was Mr. Joseph DiCara.
Mr. DiCara. Yes.
Mr. McIntosh. Welcome. Mr. DiCara, if you could please raise
your right hand.
[Witness sworn.]
Mr. McIntosh. Thank you very much. Let the record show the
witness answered in the affirmative.
Welcome, and please share with us your testimony.
STATEMENT OF JOSEPH A. DiCARA, VICE PRESIDENT, SALES
AND MARKETING, GOW INTERNATIONAL, INC.
Mr. DiCara. Mr. Chairman, thank you very much, and members
of the committee. Bob and everyone.
I was not planning on testifying; however, I found myself, just
as recently as the last witness, knowing some pretty salient points
about each of those industries. Our company is GOW International.
We are involved in international trade and development. As such,
we represent three different types of environmental mitigation
products. One is air; one is water; and one is soil stabilization.
The testimony that you heard from the American Bakers Asso-
ciation— I, in fact, testified before their Environmental Committee,
introducing them to our product. What I would like to say today
really involves something that I think has a negative effect in the
intention of the EPA regulations when they are applied. I think we
all agree that we want a clean and safe environment, and I think
that's just a matter of everyone's feelings, but the problem is a lack
of clarity.
It has been talked about here today, particularly with the Bakers
Association, you know, what do we do? How do we do it? When do
we do it? What is the result if we don't? And I think one of the
biggest fears is that, even if moneys are spent for the environ-
mental control equipment, there will not be punitive action against
those companies sifter they have spent that tremendous amount of
money in order to mitigate the VOC problem or whatever their dis-
charge may be. And I think that causes a negative impact.
I think we have to be very careful what we say is negative in
the environment, because, as you indicated and other members of
59
the committee earlier on, there is some question as to the viabiUty
of what the EPA is saying is injurious to the environment.
The intention of everyone, as I said, was to purify the air, purify
the water, and clean the rivers and bays. The other is a lack of
communication in a clear and understandable fashion for small
business. You need to be an attorney, oftentimes, to understand
what those regulations are. And while a person may have inten-
tions of complying, they don't quite understand what that means,
so they find themselves in a situation of really not going anywhere.
The EPA has designations: best available control technology and
reasonable control technology. And I don't think that the general
population of businesses are aware that there is even a designation
like that. I've been involved in the past with companies who have
spent $300,000, $500,000, $1 million on mitigation. And after they
have done that, there have been problems.
Now, it's not the fault of the business; they have sought to com-
ply with the regulations. But instead of the regulators being tuto-
rial or helpful, they have been punitive. That, again, causes people
to pull back and, again, really damages our ability to sell our prod-
ucts in the arenas where there really does need to be some safety
issues addressed.
So I think that there needs to be some real reform in the whole
way of EPA. For instance, if you call Durham or Raleigh, the cen-
ters of the EPA in the south, and you ask for certain information,
they will give it to you. You meet with those people, and you think
you have everything under control. You go to Washington, and
there is a lack of communication between Washington and their
own offices as to what is effective. So there needs to be some clari-
fication.
With respect to the Rabbi's testimony, I know J.W. Trueth and
Sons. I was involved with them several years ago in another mat-
ter. They are a small, family owned business that has been in busi-
ness since before the turn of the century, and they are a major em-
ployer in southwestern side of Baltimore County. Each couple of
years it seems that they are being confronted with a business-
threatening regulation, whether it's on the local. State, or Federal
level. And I think that there needs to be some sensitivity, because
they can't afford not to.
I've been in the kill room in that facility. I have met the rabbis
and seen the procedures, and they are the highest standards. To
say that what they are doing is inconsistent or not thorough shows
a lack of understanding of the process of koshering. So, again,
that's another part of the deal.
I thank you for being able to sort of back up, not intentionally,
as I said, but having heard the testimony, sort of reemphasizing.
I have no legal or business ties to any of these folks. It's just that
I think, in order to have good job creation across this country, we
need to have the same pla3dng field that there is across the borders
in Mexico and in Canada, in some cases, or force those govern-
ments into complying, so it's a level playing field for everyone.
Mr. McIntosh. I appreciate your testimony. In fact, as you were
mentioning about how, oftentimes, business does want to comply
with environmental regulations and other regulations, but find it
very difficult to do that in a way that is satisfactory. You may have
60
read over the summer, there were 17 riders, which are extra meas-
ures put on the appropriations bills about the environment, and
one of them was a provision that said, if business enters into a self-
audit and tries to improve its environmental record, that won't be
held against them.
We were finding that people were brushing problems under the
rug, hoping nobody would ever notice them, because they were
afraid, if they discovered the problem, then they would suddenly be
hit with a lot of fines and enforcement actions. It seemed to me,
as a very common-sense approach, a way to encourage business in
helping us clean up the environment.
Unfortunately, it got wrapped up into the political rhetoric where
the President says, oh, you're turning back the clock on environ-
mental enforcement. And he scored some political points with that
but did, I think, a great disservice to the effort to actually move
forward in a consensual way and get some real environmental ben-
efits for the community.
So there are a lot of frustrations as we deal with these problems,
and oftentimes you get people of good will on all sides, and yet they
can't move forward because of the political climate that's created
in Washington on this.
We appreciate very much your testimony.
Mr. DiCara. Thank you very much, Mr. Chairman.
Mr. Ehrlich. I've heard this before, because I know this char-
acter very well, and he's a good man. Joe, I appreciate your coming
out today.
Mr. DiCara. Thank you very much.
Mr. Ehrlich. But we'll talk. I'll introduce you to these two later.
May I, with your indulgence, make a statement?
Mr. McIntosh. Certainly.
Mr. Ehrlich. Joe, thank you very much.
Mr. DiCara. Thank you very much.
Mr. Ehrlich. I know we have two more panels left, and we have
a minority witness you may not know about who has signed up.
Mr. McIntosh. OK.
Mr. Ehrlich. This gentleman needs to get back downtown in an
hour, hour and 15 minutes, for a very important freshman meeting,
as I do, as well. I would suggest, Mr. Chairman, that we may call
the panels up together or ask everybody who is going to testify not
to read their written statement but to basically talk with us.
Mr. McIntosh. And perhaps provide a written statement for the
full record. Yes. Why don't we do that, if that's amenable to the
people who are scheduled to be on the next two panels, if we could
bring both of them up together at the same time. Very good idea.
Thank you. I hope we have enough chairs for everyone.
Let me mention for the record who our witnesses are going to be:
William A. Good, executive vice president of the National Roofing
Contractors; Mark Gaulin, president of Magco, Inc., a roofing com-
pany; Calvin Coblenz, who is president of Wimpey Materials U.S.A.
and also president of the Maryland Associated General Contrac-
tors.
With them will be William Popomaronis, who is president of
EPIC MD Professional Pharmacies and is the owner of Edwards
and Anthony Pharmacy; Hugh Brown, president of the Safeguard
61
Maintenance Corp.; Michael Stappler, president of Overlea Cater-
ers, Inc.; and Thomas Meighen, who is the safety manager at
Stromberg Metal Works, Inc.
Thank you all for coming. If you could all rise, please. And Karen
is indicating to me there is an additional witness, Jim Miller, who
is with EPIC Pharmacies. If you could all please raise your right
hands.
[Witnesses sworn.]
Mr. McIntosh. Let the record show each of the witnesses an-
swered in the affirmative. Why don't we go in the order in which
I had read off those names, and if you could, really, as Bob men-
tioned, maybe summarize the key points that you think we should
know about, and then we can really open it more into a discussion.
Mr. Good, thank you for coming.
STATEMENTS OF WILLIAM A. GOOD, EXECUTIVE VICE PRESI-
DENT, NATIONAL ROOFING CONTRACTORS ASSOCIATION;
MARK GAULIN, PRESIDENT, MAGCO, INC., AND PRESIDENT,
ASSOCIATED ROOFING CONTRACTORS OF MARYLAND; CAL-
VIN H. COBLENZ, PRESIDENT, WIMPEY MINERALS, USA, INC.,
AND PRESIDENT, MARYLAND ASSOCIATED GENERAL CON-
TRACTORS; WILLIAM T. POPOMARONIS, PRESIDENT, EPIC
MD PROFESSIONAL PHARMACIES AND OWNER, EDWARDS
AND ANTHONY PHARMACY; HUGH BROWN, PRESIDENT,
SAFEGUARD MAINTENANCE CORP.; MICHAEL STAPPLER,
PRESIDENT, OVERLEA CATERERS, INC.; THOMAS J.
MEIGHEN, SAFETY AND RISK MANAGER, STROMBERG MET-
ALS; AND JAMES MILLER, EXECUTIVE DIRECTOR, EPIC PRO-
FESSIONAL PHARMACIES
Mr. Good. Thank you, Mr. Chairman, for the opportunity.
My name is Bill Good, Mr. Chairman. I am executive vice presi-
dent of the National Roofing Contractors Association. We are a
110-year-old trade association headquartered in Chicago. We have
3,800 members from all 50 States. Our average member employs
about 35 people, so this is truly a small business operation. I do
have a written statement, Mr. Chairman, that I submitted and I
will ask be included in the record, and I will attempt to briefly
summarize what we have.
About a year and a half ago, back in September 1994, the House
Republican Research Committee's Task Force on Competitiveness
held a press conference that we were asked to participate in, and
at that time we submitted and distributed what we called our top
10 list of favorite roofing regulations. We got a lot of mileage out
of that, because it attempted to show some of the excesses that our
members have to deal with.
Just to give you a flavor, Mr. Chairman, of what was on our top
10 list, we have regulations, for example, that require roofing con-
tractors to have AIDS prevention programs in place. We have re-
quirements for roofing contractors to have fire evacuation pro-
grams. And I would just suggest that, if you're working on a roof
of a building that catches fire, it's probably not the best time to go
consult your fire evacuation program. You probably want to take
some more immediate steps.
62
We also pointed out some of the OSHA hazard communication
standard requirements that include having employer-conducted
training and employer-maintained material and safety data sheets
on any substance that an employee may encounter in the work
place. And we've had examples of members of ours get cited for al-
lowing their employees to work with hazardous materials like Joy
dishwashing detergent, for example, or chalk, or lumber, and are
required to keep a lot of paperwork and do a lot of training.
I could go on with excesses. I would rather get to the more seri-
ous point. We use the list, of course, to point out the problem, and
the problem is that the pendulum has moved to excess, and I think
there are three consequences of that that are very serious and very
compelling. One is that the excess regulation results in the cre-
ation— has resulted, in our industry anyway, in the creation of a
black market economy. It becomes very easy for unprofessional con-
tractors to compete, compete favorably, if they simply choose to ig-
nore the regulations. We're seeing that happen every day.
OSHA regulations, for example, don't apply to a self-employed
person, and in our industry we have a lot of self-employed people,
especially in the residential sector of the market. And if their costs
are 10 to 15 percent less than the good contractor, which is what
we think they are, we obviously have created a marketplace for
them.
Second is, as you referred to earlier, Mr. Chairman, is this law
of unintended consequences, and we have seen that happen in our
industry. One example I can give you is, we had a regulation come
from the Department of Transportation. It has since been cor-
rected, but the regulation was promulgated in final form, and it re-
quired— they came up with a good idea, that it would be a good
idea to seal all roofmg kettles that we use to transport asphalt on
the road, so, in the event of an accident, if they flipped over, the
asphalt wouldn't spill on the road.
It makes perfect sense except for one problem, which is, when
you seal a kettle like that, it will blow up because of the gas accu-
mulation inside the kettle. So we pointed that out to them, after
months of attempting to get a meeting, and at the meeting, finally,
they said, well, this is exactly why we like to meet with you, so we
can get this valuable input, and subsequently changed the rules.
Mr. McIntosh. Which agency was that again?
Mr. Good. That was DOT.
Mr. McIntosh. OK.
Mr. Good. Finally, and perhaps most importantly of all, the com-
pliance requirements divert resources. I think that, at least from
our point of view, is one of the most telling concerns that we have.
And, as Mr. Ehrlich suggested, they cost jobs.
In our industry, we know, for example, the studies that we've
seen in our industry suggest that the key to safety in a construc-
tion performance is the foreman. The foreman is the most influen-
tial person on a job site. And yet there is nothing in any of the reg-
ulations about working with the foreman or training the foreman.
So we would like to commit our industry's resources to doing the
things that we think will, in fact, help safety and health on the job
site. Instead, we're forced to commit our industry resources to con-
tending with regulation, litigating regulation, which this associa-
63
tion has been forced to do, and helping our members when they get
in trouble, which seems to be a daily occurrence.
So we support, certainly, efforts like those you have been under-
taking. We think that the constant vigilance of Congress is a nec-
essary component of alleviating overregulation, and we support a
number of the legislative initiatives that we know both of you have
been involved in to try to give us some relief.
Thank you, certainly, for this opportunity.
[The prepared statement of Mr. Good follows:]
64
'NAnONAL
ROOFIMG
casrmAcraRS
ASSOOAnON
Washington Offica
206 E Street, N.E.
Washington, D.C. 20002
202/546-7584
FAX: 202/546-9289
STATEMENT BY
WILLIAM A. GOOD, CAE
OF THE
NATIONAL ROOFING CONTRACTORS ASSOCIATION (NRCA)
BEFORE THE
SUBCOMMITTEE ON NATIONAL ECONOMIC GROWTH,
NATURAL RESOURCES /iND REGULATORY AFFAIRS
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
U.S. HOUSE OF REPRESENTATIVES
CONCERNING
FEDERAL REGULATION OF THE ROOFING INDUSTRY
JANUARY 26, 1996
65
The National Roofing Contractors Association (NRCA) represents more than 3,800 members
from all fifty states and 48 countries outside the U.S. NRCA members perform approximately
60 percent of all roofing work done in this country, and employ more than 100,000 workers.
NRCA was formed in 1886, and is one of the oldest national trade associations in the
construction industry.
We applaud the Subcommittee on National Economic Growth, Natural Resources and Regulatory
Affairs for holding routine oversight hearings on federal agencies and regulations. Systematic
congressional oversight is crucial to curbing the growth of regulations and removing the strangle-
hold that overregulation has on small business in this country.
NRCA members have been facing difficult times. The market for roofing work, while generally
reliable, is subject to such economic forces as interest rates, office vacancy rates, and new
housing starts. Roofing contractors are also vulnerable to the weather, and to a workforce that
is more transient than most.
The average NRCA member, in fact, employs about 35 people during the peak of his/her
season, and has annual sales of about $3.4 million. Profit margins for roofing companies
average only about three percent per year, as the marketplace is highly competitive, and there
are few, if any, barriers to entry.
Yet roofing contractors are generally resilient, and find ways to operate successfully even in the
face of these difficulties. And they rarely complain.
However, we have heard from our members with increasing frequency in the last few years,
because they are simply unable to cope with the volume of federal regulations that they are
required to understand and be in compliance with. These include complicated rules issued by
the Occupational Safety and Health Administration (OSHA), by the Environmental Protection
Agency (EPA), by the Department of Transportation (DOT), by the Department of Labor
(DOL), and of course by the Internal Revenue Service (IRS). Most roofing contractors are
hands-on managers, who do not have the luxury of hiring safety officers, or any other employees
who can be used to help the company be in compliance.
As the regulations have increased, so have the frustration levels of our members, who must now
be experts in asbestos regulations from two different agencies (OSHA and EPA), with the
Federal Motor Carrier Safety Regulations (DOT), with EPA disposal rules and underground
storage tank rules, and with federal procurement policy, just for starters.
OSHA Fall Protection Standard
On February 6, 1995, roofmg contractors had to comply with a new OSHA fall protection
standard, which resulted in the loudest and longest outpouring of protest we have ever witnessed.
Known as the "six-feet-rule," the Subpart M fall protection standard basically said that every
66
person working above six feet must have either a safety harness on, safety nets, or scaffolding
with a walkway and a guardrail. It caused tremendous disruption within the roofing industry,
home building industry and many others, and a wave of protest soon swept across Capitol Hill.
Countless individuals from the roofing industry called or wrote their representatives.
Hundreds of Maryland roofing contractors and their workers, many of them constituents of Rep.
Robert Ehrlich, Jr., circulated and signed petitions in support of H.R. 450, legislation that was
written in this Subcommittee for a moratorium on all new regulations. NRCA commends Rep.
Ehrlich, who spoke about the petitions on the floor of the House on March 1, 1995.
On March 28, 1995, NRCA testified before this Subcommittee in support of H.R. 994, the
Regulatory Sunset and Review Act of 1995, where the new Fall Protection Standard was
discussed. And on June 15, the House Subcommittee on Regulation and Paperwork held a
hearing exclusively on the Fall Protection Standard.
Ultimately, concern over the Fall Protection Standard led the House to attach an amendment to
the Labor/HHS appropriations bill (H.R. 2127) directing OSHA to reopen its fall protection rule
-- and the Senate was poised to do the same. OSHA was already negotiating with NRCA, and
the House amendment sent a strong signal to OSHA to correct the standard.
On December 8, 1995, OSHA issued "Interim Fall Protection Guidelines for Residential
Construction" to address, at least in part, concerns that were raised by NRCA since the new Fall
Protection Standard became effective. OSHA has also indicated that "it is appropriate to initiate
further proceedings" regarding the residential fall protection standard, to "evaluate the alternative
methods and procedures suggested by roofing contractors for residential roofing work" and move
"expeditiously to develop an NPRM" (Notice of Proposed Rulemaking).
NRCA's Top Ten Favorite Rooring Regs
On September 22, 1994, the House Republican Research Committee's Task Force on
Competitiveness held a press conference highlighting overregulation of the roofing industry. The
press conference and a special order on the House floor by Rep. Tom DeLay featured NRCA's
"Top Ten Favorite Roofing Regs," which is attached.
Please note that the Fall Protection Standard is not on the Top Ten list because it became
effective in 1995, after the list was put together. However, vigorous oversight in the 104th
Congress brought relief from the Fall Protection Standard, and it is also helping to bring relief
from some of the items on the list.
For example, though the Secretary of Labor and OSHA have denied reports that there is a
regulation that prohibits gum-chewing while roofing, a January 13, 1995 memo from OSHA's
Directorate of Compliance Programs to regional administrators instructed inspectors to refrain
from issuing citations under the gum-chewing provision.
67
OSHA also denied that it issues citations under its Hazard Communication Standard for
household products, such as dishwashing detergent. Yet on March 21, 1995, OSHA's
Directorate of Compliance Programs issued a memo to regional administrators stating that an
enforcement review showed that "citations have been issued for materials such as bricks, rebar,
lubricating oils, welding rods and dishwashing liquid without adequate documentation of
employee exposure to a specific hazardous chemical or that their use fails to meet OSHA's
consumer product exemption."
OSHA's Hazard Communication Standard
One of the most egregious regulatory burdens placed on the roofing industry today is OSHA's
Hazard Communication Standard, or Haz-Com, originally promulgated in 1983 for the
manufacturing sector. In 1987, OSHA expanded Haz-Com to include construction. The
standard requires employers to assess chemical hazards in the workplace; write a policy for the
safe handling of these materials including a complete inventory; and provide information and
training to exposed employees.
The cornerstone of this training is the Material Safety Data Sheet, or MSDS. It will tell you
everything you could want to know about a hazardous material such as the manufacturer's name
and address; ingredients;^ physical characteristics; flammability; reactivity; potential health
hazards; precautions for safe handling; and required personal protective equipment.
Regrettably, Haz-Com and its MSDSs are confusing, expensive, and have done little to improve
safety within the construction industry. Haz-Com was supposed to provide a single reference
source for employers and employees in the event of an emergency involving dangerous
substances, but, in fact it is the last place that they would look — Haz-Com has given us
thousands of MSDSs on everything from "air' to dishwashing detergent.
On any given day, contractors must have MSDSs at all job sites for all "hazardous" materials.
They must know which of these products are in use at each job site and make sure the correct,
brand specific MSDS is available at each job site. No wonder that in 1994, Haz-Com violations
comprised nine out of the top twenty most frequently cited OSHA standard violations
(attachment) ~ they are the easiest to identify because 100 percent compliance is nearly
impossible.
OSHA has opened the public record for various parts of the standard, sometimes for long
periods of time. A modified final Haz-Com standard was printed in the February 9, 1994
Federal Register. Despite the proliferation of paperwork, and the fact that the standard is the
most frequently cited by OSHA inspectors (a roofing contractor in Indiana was cited for not
having a brand-specific MSDS for caulk), the modified standard makes minor changes that can
be found only with a magnifying glass.
68
The President signed into law the Paperwork Reduction Act re-authorization, which overturned
Dole V. United Steelworkers of America, allowing the Office of Management and Budget (0MB)
to review third-party paperwork requirements such as Haz-Com. And OSHA's National
Advisory Committee on Occupational Safety and Health established a work group to make
recommendations regarding the inefficiencies of the current standard, particularly those related
to construction and other mobile workforce industries. But the question remains: Will the
Clinton Administration seize the opportunity to rein-in Haz-Com? Perhaps the fact that Haz-
Com was once again the most frequently cited OSHA standard in 1995 (attachment) illustrates
the quandary.
Conclusion
OSHA has been doing business the same way for 25 years, and it is clearly time for change.
There are some encouraging signs that OSHA is getting the message, and is making some
attempts to work with small businesses and to cut down on paperwork citations. However, it
is equally clear that OSHA is much more inclined to move in this direction when it feels
congressional pressure to do so.
That is why, even with administrative attempts to "reinvent" OSHA, Congress will need to pass
meaningful and permanent OSHA reforms, such as those embodied in H.R. 1834 to ensure that
necessary changes take place within the agency.
69
■.;^^ry^
;^>.:r-v .•:v^^:f^i
10. Have repair truck drivers stop to check for shifting loads
after driving 25 miles on their way to a job site 30 miles
away.
9. Spray water on roof while taking it off.
8. Require fire evacuation plan for roofing workers.
7. Fine employer if roofer smokes on the job.
6. Fine employer if roofer refuses to wear hard hat
5. Require prevention plan for AIDS exposure in roofing
work-
4. Train employees on hazards of exposure to deadly
materials like chalk, lumber and dishwashing detergent.
3. Post sign saying respirators are required even when they
are not.
2. Prohibit gum. chewing while roofing.
1. Label roofing kettles "Hot."
70
6_
33
2S
c ci
— »j n 3- >A 3 '
03tf-o- »J<DriD5C«t3
71
TOP 10 MOST FREQUENTLY VIOLATED STANDARDS - FY 95*
RANK
FY«5
ITAMOARO VWLATEO
• VKXATWRS
1
1910.1200
Hazard CommunteHio«
10,165
2
1910,147
4.700
3
1926.451
4,049
4
1910.306
VMring Mvtfwoi,
Cofnport«Wi. Ecj**pnwri
brGwwslUM
3,457
6
1910.219
MKtwwcalPoMr-
Tr»o«»ntt»)oo
A^panmt
3.355
6
1926.059
(Conitruotton)
3,315
7
1910.132
Partooal Proiactiva EqvHp.
3.070
6
1910.212
MacMn* Gwaroing
3,016
9
1910.303
EI«Ctrtc«l
2.548
10
1910.215
Airmaivt Wh««I M»chrf<«*v
2,507
' FY M («t of SApMnMc Z2. tMS|
So«/ta. OMOS IMtS ftepom.
72
Mr. McIntosh. Thank you very much, Mr. CJood. I appreciate it.
Mr. Gaulin.
Mr. Gaulin. Thanks for the opportunity. My name is Mark
Gaulin. I am president of Magco, Inc. We're an industrial-commer-
cial roofing contractor, working primarily in the Baltimore-Wash-
ington region.
The things that Bill had hit on already are items that we deal
with on a daily basis, the EPA, DOT, OSHA, and MOSHA, who has
decided to take a little step further than what OSHA does. It im-
poses a lot of burden on us. There was a particular item that I
chose to talk about today, though, that I felt was unjust to smaller
companies, young, growing companies like myself, a self-started
business 8 years ago. We've grown to a point where we employ SO-
SO people and do at least $7 million a year in sales.
We are forced in any State and Federal work to deal with what
is called contract preference or set-aside programs, minority par-
ticipation, where, by law, we're required to incorporate in our bids
anywhere from 10 to 40 percent of our bid to a minority contractor.
We perform 100 percent of the work with our own forces and we
train our own people. They come up through the ranks, and they
are taught by our methods and our technology.
For us to take a contract of $200,000 and attempt to go out and
sub a piece of a system, which is assembled directly in place and
built on the site, and sell it to a second party without necessarily
the qualifications and/or the ability to do the work. We take the li-
ability, the responsibility, and the financial responsibility. We sub
these items out in order just to comply with the regulations.
There is a whole business industry that has grown out of that.
Best intention: We understand the set-aside and the intent to give
people opportunity and give minorities opportunity to grow into the
business community, but, like anything, it has adapted into a busi-
ness in itself that people have gone into business just to comply
with this regulation and have set up makeshift businesses just to
comply. And the overall intent is not occurring, and what it is
doing is competing against us, as small businesses, and its forcing
me to provide a piece of our work out to others and remove work
from my own employees.
Thanks very much.
[The prepared statement of Mr. Gaulin follows:]
73
ROORMQ
COfTRACTORS
ASSOOAnON
WMhington Offic*
206 E SlTMt KE
Washington. D.C. 20002
202/546-75S4
FAX; 202/54«-«289
STATEMENT BY
MARKGAUUN
OF THE
ASSOCIATED ROOFING CONTRACTORS OF MARYLAND (ARCOM)
BEFORE THE
SUBCOMMrriEE ON NATIONAL ECONOMIC GROWTH,
NATURAL RESOURCES AND REGULATORY AFFAIRS
COMMTTTEE ON GOVERNMENT REFORM AND OVERSIGHT
U.S. HOUSE OF REPRESENTATIVES
CONCERNING
FEDERAL REGULATION OF IHE ROOFING INDUSTRY
JANUARY 26, 1996
74
Chairman and Members of the Subcommittee, my Dame is Mark Gaulin. I am President of
Magco, Inc. Our firm performs both flat aod steq) work on educatiooal, commercial and
industrial buildings in the greater Baltimore/Washington area. I sit on the Board of Directors
of the National Roofing Contractors Association (NRCA), and I am also this year's President
of the Associated Roofing Contractors of Maryland (ARCOM).
In February of 1995, several of my fellow Maryland roofing contractors circulated petitions in
&vor of a moratorium on federal regulations. One of the main reasons for doing this - but not
the only reason - is the growing web of regulations from the Occupational Safety and Health
Administration (OSHA). Maryland is a state-run OSHA program, but there is not a lot of
difference in how the regulations are applied and enforced.
Roofing contracton and their emplcyees signed these petitions, as well as electricians, plumbers,
property managers, carpenters and others. Those who signed diat are Mr. Ehrlich's constituents
include Brothers Roofing, The Roof Center Inc., individuals from Pasadena and others.
The people who agned these petitions arc frustrated by the layers of regulations that diey must
follow once they get the job. But I would like to discuss federal regulations that make it very
difficult to qualify for the job in the first place. I am speaking of the so-called contract
preferwice or "set-aside" programs.
Magco was established eight years ago as we worked out of my basemmt widi limited fiinds and
a handful of employees. Xlagco now employs fifty to sixty individuals with annual sales in
excess of seven million dollars. I believe that anybody with the right drive and business sense
can succeed without government help. In fact, companies with government assistance have an
unfair advantage against companies like mine, who must scratch their way up the ladder.
Magco could perform 100% of all labor with oui in-house workforce, but to bid for Federal and
State contracts requires us to "sub-out" anywhere from 15% to 40% of our contract amount.
This bunto), coupled with the added paperwork required by government agencies that administer
these programs, can increase the cost of construction 10% to 15%.
In many cases contractors incur what is referred to as a 'babysitting' cost when they are forced
to hire firms that are not comp^ent enough to complete the job without supervision. The "set-
aside' programs seem to have spawned an industry in and of itself where businesses are in
operation solely to fill minority requirements.
The added cost of these programs to already strained government budgets cannot be justified by
what is apparently a failed attempt to compensate minority businesses for past discrimination.
There is no place for discrimination in this coimtry and it should never be taken lightly, but
these kinds of government assistance programs are not necessary. Even though the construction
industry is a tough arena, good companies should be allowed to succeed without being penalized
by this kind of government overrcgulation.
Thank you for your attention. If you have any questions, I will be happy to answer them.
75
Mr. McIntosh. It seems, I imagine, often inherently unfair to
people who feel they can compete, to see that somewhat arbitrary
regulation saying they can't do the business.
Mr. Gaulin. Well, in order for us to get it out, that comes with
a fee. Chances are their competitiveness is not going to be the
same as ours, because it's a small portion. It adds an expense to
us, at which point we end up having to mark up and administer
their work, carry them through, supervise them through the
project, financially assist them, joint check agreements, or what-
ever it may take to help enforce the percentage minimum. Thus,
it affects the overall cost of all the Federal and State contracts. I
mean, it's going to affect it by 10 to 15 percent across the board.
Mr. Ehrlich. May I ask you a quick question? In my law prac-
tice, I represented subs and general contractors. I know one of the
major problems with respect to the MBE program is fronts, minor-
ity fronts.
Mr. Gaulin. Exactly.
Mr. Ehrlich. Are you still running into that problem out there?
Mr. Gaulin. They exist. There are a few contractors in my indus-
try that are capable and competent. We receive a lot of work be-
cause of quality and reputation, and things like that. And, you
know, you end up just carrying someone through the system just
in order for you to meet the requirements, and it presses on our
pressure, the pressure upon us just to maintain the quality and the
performance, and everjd^hing else like that.
But the fronts, they are out there. As long as they fill the paper-
work out, as long as the paperwork is approved, it's a legitimate
business, and there they are. But they are surviving just to fill that
need, and only that need.
Mr. Ehrlich. And you cannot do anything about it?
Mr. Gaulin. No, I must comply.
Mr. Ehrlich. Because, technically, the law is met.
Mr. Gaulin. Right. They met the law. They can sit there and
say — I brought a minority firm in on a large contract here in Balti-
more, who had not been approved, a true, legitimate minority com-
pany. Well, he hasn't filled his paperwork out; he's not approved.
Well, the gentleman is sitting there in front of him, and they all
concluded that, yeah, I guess he could be approved, and it's a legiti-
mate business.
They told me to use another firm; this one is approved. And it
was obvious, even at the meeting, that this firm was strictly in
business to fill minority slots and actually performed very little of
the work themselves, except for administrative and generate paper-
work and charge a fee for this.
Mr. McIntosh. So you're telling me the firm that actually hired
minorities and gave people work was at a disadvantage because the
way the system works right now, because they hadn't filled out the
paperwork?
Mr. Gaulin. They hadn't filled out the paperwork. They are not
the ones that are necessarily taking full advantage of this because
of the system, basically.
Mr. Ehrlich. That's a great irony. Thank you.
Mr. McIntosh. It's amazing, yes. Thank you very much.
Mr. Coblenz.
76
Mr. COBLENZ. Thank you very much, Chairman Mcintosh and
Representative Ehrlich. I appreciate the opportunity to appear be-
fore you. I'm sorry we're so short of time.
I would tell you my name is Cal Coblenz. I represent Wimpey
Minerals, the present owner of an 83-year-old Baltimore company
that I owned for 20 years, that I sold 7 years ago to a worldwide
British firm, Wimpey Minerals, or actually to Greorge Wimpey,
PLC, from London, England. They have, each year, asked me to
stay on to continue with the company, which I'm happy to do.
I would say that you should know that our company employs
about 125 people. We do $10-million to $15-million worth of paving
work around Baltimore each year, and we have enjoyed this quan-
tity of work for a number of years. I am also the president of the
Maryland Chapter of AGC, and we represent 275 employers.
I would say that I have six pages of things here that we have
to abide by, the Federal regulations, and I just thought that the
best way for me to discuss these concerns we have is to give you
a list of some of the Federal laws and regulations we deal with
daily. Believe me, as you hear here, being a contractor in the
1990's is not easy.
We would say, particularly, that OSHA is certainly one that
gives us a lot of real problems, because we have to prove that we
have adequately trained our employees. And we keep detailed
records of each employee's mandatory OSHA training. In addition
to the Federal laws and the agencies' regulations, the State of
Maryland has enacted a State law that matches the Federal re-
quirement or is more stringent many times.
In addition, all the general constructionsite requirements in our
industry have been the target for numerous costly and burdensome
regulations which we have had to fight to eliminate or, in other
cases, have resulted in little, if any, improvement in safety or envi-
ronment. The need for new regulations should always be based on
risk management, cost-benefit analysis, and sound science.
As a small business operation here in Baltimore, we want to pro-
vide jobs for local people who want work. We want to provide them
good pay, medical insurance, and retirement benefits. And we want
to either attract skilled workers into our company or to train them
in the skills we need. The millions of dollars that our industry
spends to ward off burdensome and unnecessary regulations should
be put toward employing people and rebuilding the Nation's crum-
bling infrastructure. About the only beneficiaries of all these regu-
lations are the lawyers in Washington.
OSHA was needed when it was instituted, but, through the
years, it has become a costly burden for the construction industry.
Unsafe conditions at a plant or constructionsite must be corrected,
but the exorbitant fines for minor infractions are certainly not war-
ranted. I hope that there will be some reasonable restraint.
Historically, our individual companies in the paving business
have designed their own road paving mixes to provide the longest
life cycle at a reasonable cost. Then, in 1991, ISTEA, the Inter-
modal Surface Transportation Efficiency Act, dictated that each ton
of mix we made for use in our respective States was to contain a
percentage of rubber from old tires, to increase over a period of 4
years to 20 percent of the mix in 1997. And yet the contractor was
77
still responsible for the quality of the mix. The cost per ton of mix
would have more than doubled.
After expenditures of thousands and thousands of dollars of re-
search, study, and legal fees to prove that this was not a good idea,
and with the help of many of you who are new Members in the
Congress, this mandate was removed by amendment to the Na-
tional Highway Systems bill.
Finally, I'm sure that all the Federal and State regulations that
we must comply with have noble goals, to protect workers' rights,
their safety, and to provide a good environment for us to live in,
but, in many cases, compliance with these regulations destroys op-
portunities for the very people they are intended to help. If the
Federal Government would simply let us pave roads instead of in-
creasing our costs by so many meaningless regulation and admin-
istering social welfare schemes from Washington, everybody would
be better off.
[The prepared statement of Mr. Coblenz follows:]
78
STATEMENT BY
CALVIN H. COBLENZ
OF
WIMPEY MINERALS, USA, INC.
BEFORE THE
SUBCOMMITTEE ON NATIONAL ECONOMIC GROWTH,
NATURAL RESOURCES AND REGULATORY AFFAIRS
COMMITTEE ON GOVERNMENT REFORM AiND OVERSIGHT
U.S. HOUSE OF REPRESENTATIVES
JANUARY 26, 1996
79
TESTIMONY OF CALVIN H. COBLENTZ :f
BEFORE THE HOUSE SUBCOMMITTEE ON NATIONAL
ECONOMIC GROWTH, NATURAL RESOURCES,
AND REGULATORY AFFAIRS
I WOULD LIKE TO THANK REPRESENTATIVE EHRLICH, CHAIRMAN
MCINTOSH AND THE REST OF THE SUBCOMMITTEE FOR ALLOWING ME THE
OPPORTUNTTY TO TESTIFY TODAY.
MY NAME IS CALVIN H. COBLENTZ, AND 1 AM PRESIDENT OF WIMPEY
MINERALS, USA, INC., LOCATED IN BALTIMORE, MARYLAND. I AM ALSO
PRESIDENT OF THE ASSOCIATED GENERAL CONTRACTORS OF MARYLAND.
AGC OF MARYLAND IS A TRADE ASSOCIATION REPRESENTING 275 GENERAL
CONTRACTORS THROUGHOUT THE STATE OF MARYLAND.
THE CHAIRMAN AND MEMBERS OF THE COMMFTTEE HAVE ASKED ME TO
DISCUSS THE ADVERSE IMPACT FEDERAL REGULATIONS HAVE ON
MARYLAND BUSINESSES. PERHAPS THE BEST WAY FOR ME TO DESCRIBE
THE CONCERNS I HAVE DEALING WITH FEDERAL REGULATIONS IS TO GIVE
YOU A LIST OF SOME OF THE FEDERAL LAWS AND REGULATIONS I HAVE TO
DEAL WITH ON A DAILY BASIS.
WHEN MY COMPANY RECEIVES FEDERAL MONEY ON A ROAD PROJECT, A
WHOLE HOST OF FEDERAL AND STATE REGULATORY REQUIREMENTS
COME WITH THE BUSINESS. A PARTLVL LIST OF THE VARIOUS FEDERAL
LAWS I MUST COMPLY WITH INCLUDE -
a THE CLEAN AIR ACT
80
D TBDE CLEAN WATER ACT ^
a THE PUBLIC WORKS EMPLOYMENT ACT ^
o THE CONTRACT WORK HOURS AND SAFETY STANDARDS ACT
D THE NATIONAL LABOR RELATIONS ACT
0 THE FAIR LABOR STANDARDS ACT
D THE COPELAND ACT
D THE DAVIS-BACON ACT
D THE OCCUPATIONAL SAFETY AND HEALTH ACT
□ THE AMERICANS WITH DISABILITIES ACT
D THE FAMILY AND MEDICAL LEAVE ACT (PUT IN YOUR TESTIMONY
ONLY IF YOUR COMPANY HAS SO OR MORE EMPLOYEES)
D THE CIVIL RIGHTS ACT OF 1964
□ THE CIVIL RIGHTS ACT OF 1991
D THE AGE DISCRIMINATION IN EMPLOYMENT ACT
□ THE EQUAL PAY ACT
D THE EMPLOYEE POLYGRAPH PROTECTION ACT
a THE EMPLOYEE RETIREMENT INCOME SECURITY ACT (ERISA)
□ THE IMMIGRATION REFORM AND CONTROL ACT
D THE WORKER ADJUSTMENT AND RETRAINING NOTIFICATION (WARN)
ACT
D THE WHISTLEBLOWER PROTECTION ACT AND
D TBDE EQUAL EMPLOYMENT ACT
1 PURPOSELY LEFT OUT THE FEDERAL TAX CODE AND THE VARIOUS
REPORTING REQUIREMENTS OF THE IRS.
BECAUSE OF THESE LAWS, I MUST COMPLY WITH A HOST OF FEDERAL
REGULATIONS. SOME OF THE FEDERAL AGENCIES THAT ISSUE
81
if
REGULATIONS GOVERNING MY WORKSITES INCLUDE - ^
D THE DEPARTMENT OF LABOR
D THE ENVIRONMENTAL PROTECTION AGENCY
o THE FEDERAL HIGHWAY ADMINISTRATION
D THE DEPARTMENT OF TRANSPORTATION
D THE OFHCE OF FEDERAL CONTRACT COMPLIANCE
D THE FEDERAL WAGE AND HOUR DIVISION, AND
D THE OCCUPATIONAL SAFETY AND HEALTH ADMINISTRATION
WFTH EACH OF THESE AGENCIES COMES THOUSANDS OF PAGES OF
REGULATIONS I MUST COMPLY WITH. JUST ONE AGENCY (OSHA)
REQUIRES ME TO -
D PROVIDE PERSONAL PROTECTIVE EQUIPMENT FOR MY EMPLOYEES
D KEEP DETAILED ILLNESS AND INJURY RECORDS (THE OSHA 200 OR 101
LOGS)
D KEEP A MATERIAL DATA SAFETY SHEET FOR EVERY PRODUCT THAT
COULD BE HAZARDOUS, AT EVERY WORKSITE
□ PROVIDE FIRST AH) EQUIPMENT FOR EACH WORKSITE
D PROVIDE WASH AND SANITARY FACILITIES AT EACH WORKSITE
n HAVE SAFE EQUIPMENT (DEFINED AS A METAL CONTAINER) FOR ALL
GASOLINE
D AND, PROVIDE MANDATORY SAFETY AND HEALTH TRAINING TO ALL
MY EMPLOYEES IN THE FOLLOWING AREAS ~
** GENERAL SAFETY AND HEALTH
* * MEDICAL SERVICES AND FIRST AH)
*♦
82
GASES, VAPORS, FUMES, DUSTS AND MISTS ^
HAZARDOUS COMMUNICATIONS
HEARING PROTECTION
RESPIRATORY PROTECTION
FIRE PROTECTION
SIGNALING
POWDER-OPERATED HAND TOOLS
WOODWORKING TOOLS
GAS AND ARC WELDING
GROUND FAULT PROTECTION
CRANE AND DERRICKS
MOTOR VEHICLES
EXCAVATION, TRENCHING AND SHORING, AND
BLASTING AND THE USE OF EXPLOSIVES
IN ORDER TO PROVE THAT I HAVE ADEQUATELY TRAINED MY EMPLOYEES
IN THESE AREAS, I MUST KEEP DETAILED RECORDS ON EACH EMPLOYEE'S
MANADTORY OSHA TRAINING.
INADDinON TO EACH OF THESE FEDERAL LAWS, FEDERAL AGENCIES AND
FEDERAL REGULATIONS, THE STATE OF MARYLAND HAS ENACTED A STATE
LAW THAT MIRRORS THE FEDERAL REQUIREMENTS, CREATED AN AGENCY
TO ENFORCE THE LAW AND ISSUED REGULATIONS ON TOP OF THE
FEDERAL REQUIREMENTS. IN SOME INSTANCES, MARYLAND'S
REQUIREMENTS ARE MORE STRINGENT THAN THE FEDERAL REGULATIONS.
83
AS THE PRESIDENT OF A SMALL BUSINESS, I WANT TO BE ABLE tO PROVIDE
JOBS FOR PEOPLE WHO WANT WORK. I WANT THEM TO BE ABLE TO
RECEIVE MEDICAL INSURANCE AND GENEROUS RETIREMENT BENEFITS. I
WANT TO PUT TOGETHER A PACKAGE OF EMPLOYEE BENEFITS THAT
ALLOWS ME TO ATTRACT SKILLED WORKERS INTO MY COMPANY. I
WOULD ALSO LIKE TO SPEND TIME ON FINDING NEW BUSINESS
OPPORTUNITIES AND IMPROVING THE MANAGEMENT OF MY COMPANY.
UNFORTUNATELY, I SPEND THE MAJORITY OF MY TIME ATTEMPTING TO
COMPLY WITH FEDERAL AND STATE REGULATIONS. FILING OUT THE
FEDERAL AND STATE PAPERWORK IS THE ONLY WAY I CAN PROVE THAT I
AM MEETING THE REQUTOEMENTS OF THESE LAWS. YET THE AMOUNT OF
TIME I SPENT ON THIS ACTIVITY LEAVES ME LITTLE TIME TO DO WHAT I
REALLY NEED TO BE DOING - RUNNING MY BUSINESS.
HIRING SOMEONE TO HELP ME DEAL WITH REGULATIONS DOES NOT HELP
THE ECONOMY GROW OR DECREASE BUSINESS OPPORTUNITIES FOR MY
COMPANY. EVERY PERSON I HIRE TO HANDLE RED TAPE IS ONE FEWER
PERSON I CAN HIRE TO EXPAND MY BUSINESS.
ALL OF THE FEDERAL AND STATE REGULATIONS I MUST COMPLY WITH
HAVE NOBLE GOALS - THE PROTECTION OF WORKERS RIGHTS, SAFETY
AND WELL BEING. HOWEVER, COMPLIANCE WITH THESE RULES DESTROYS
JOB OPPORTUNITIES FOR THE VERY PEOPLE THEY ARE INTENDED TO
PROTECT. IF THE FEDERAL GOVERNMENT WOULD SIMPLY LET ME PAVE
ROADS, INSTEAD OF ADMINISTERING SOCIAL WELFARE SCHEMES FROM
WASHINGTON, EVERYONE WOULD BE BETTER OFF.
84
Mr. McIntosh. Thank you. I agree with you totally on that one.
I think that's right.
Let's keep going on this. Mr. Popomaronis.
Mr. Popomaronis. Gentlemen, thank you for the time. I know
you are limited, and I will try to respect that. Hopefully, you will
have an opportunity to look into what we feel is a very in-depth
problem with community pharmacy.
Basically, community pharmacy has discriminatory pricing, and
that pricing is brought about by the drug manufacturing industry.
It has become so rampant that was once something that justifiably
held to hospital or nursing homes has now spread throughout the
entire United States, and has now become a vehicle to impair and
affect business. Unfortunately, the Federal Government has be-
come part of that equation now.
When I speak of unfair or discriminatory pricing, I speak of a
drug manufacturer that sells the same drug, that could be an ulcer
medication, to different purchasers at different prices. We're not
only talking about hospitals and nursing homes, but we're talking
about health maintenance organizations through the form of re-
bates. We're talking about other countries, like Mexico. We're talk-
ing about mail order. All of these purchasers buy at different
prices.
The only constant in the whole equation is that community phar-
macy pays the highest price for the purchase of that drug. And,
very quickly, I will tell you a couple of them. I have numerous ex-
amples, but I will hold it to two. We have a potassium pill called
K-Dur, made by Key Pharmaceuticals, a division of Schering-
Plough, a major drug manufacturer, who has offered to a preferred
purchaser that potassium pill, used by elderly, for $2.03 a bottle of
100.
Now, if you come into my community pharmacy, which is Ed-
wards and Anthony EPIC Pharmacy, and purchase that drug, my
acquisition cost is $27.31. That represents a 1,200-percent markup
that's heaved upon the backs of community pharmacy and of the
patients that come into those community pharmacies. And I want
you to think a minute. A lot of those people are elderly, OK, those
that don't have the insurance, that used five times the medications
that you or I might use.
On the border, on both the Canadian border but, more promi-
nently, down as we approach Mexico, our American citizens are
crossing the border to buy their medicines at half the price of what
I or the pharmacies down there can purchase that medication for.
How is it in the best interest of these pharmacies on the U.S. bor-
der, when American citizens go over and buy legal drugs for half
the price of what they can even acquire them to sell in the United
States?
This is the discriminatory pricing that we referred to. This is
something that benefits only the drug manufacturer. And it has
three, what I would call, deleterious effects: One, it is in the proc-
ess, as we speak, of eliminating community pharmacies as a com-
petitor in the marketplace. Three pharmacies are closing a day in
the United States. You have most recently read about the Rite-Aid-
Revco acquisition, where a larger chain is gobbling up an even larg-
85
er one, because they feel the need, the pressure, and the inability
to compete.
What has happened with the Federal Government, to get to the
point, is that the Federal Government is now — and not just the
Federal Government, all levels of government, to be fair, are suc-
cumbing to the temptation to take the short-term answer and take
advantage of these unfair prices.
You've got — I want to say Don King, but it's actually James King
of the Office of Personnel and Management, the Director, writing
a letter to — and I'm sure Congressman Ehrlich has seen it, and
Congressman Cardin, saying that, you know, I've taken a good look
at this, and I see that it's in the best interest of the Medicare Fed-
eral retirees. My question is, but what's in the best interest of com-
munity pharmacy and, more to the point, what about the economic
impact on community pharmacy?
We are in the process of providing a competitive counterbalance,
either by competing with the Revcos, and the Rite-Aids, and the Gi-
ants out there, and with these now maintenance organizations, and
with these mail order operations, as they go ahead and take advan-
tage of these prices.
It sounds really good when a drug manufacturer comes up before
you and says, "I don't know what they're talking about. The drug
price index was only increased by 1.9 percent in 1994 and into
1995. Gee, I don't understand, inflation is 2.5 percent." But if you
take a real good look at the number, as we've done, we find that
the price increases to the community pharmacy are increasing at
twice the rate of inflation; again, heaved upon the backs of the el-
derly, who can least afford to do this.
Now, you know, to me, that's a problem. To me, when we sit and
we beg the Office of Personnel Management to take a good look at
the economic impact, and you have Senator William Cohen in
Maine, and good people in both the House and the Senate saying,
"Stop, let's take a look at this." He has instituted and initiated a
study that will assess the economic impact on community phar-
macy and access for retirees.
Mr. McIntosh. Let me ask you this, Mr. Popomaronis, is there
a regulation that prohibits the community pharmacies from form-
ing a trade association or a buying group where you could take ad-
vantage of the pricing, form a larger pool to get a better price?
Mr. Popomaronis. What we are. Congressman, is — ^because of
the time constraints, I have not had the opportunity to explain that
EPIC Pharmacies is a group of over 450 community independent
pharmacies that have realized early on, back a decade ago, that we
were an island unto ourselves unless we work together and work
like a chain. We are not Ma and Pa.
We are very computer-literate, and we are very sophisticated.
And we are able and have asked the manufacturers to allow us the
opportunity to work at the same terms that you give other pur-
chasers out there. But that is not occurring.
This is now going to — it's being handled on a national level. If
you read in the Wall Street Journal, there has been a $600-million
settlement community pharmacy has litigated against the manu-
facturers, and they are now beginning — their cartel is beginning to
crumble. The conspiracy to keep the prices at a higher level for
86
community pharmacy is starting to fall, but the Government, in the
meantime, is taking advantage as the community pharmacies close.
To come to the point, we're saying that we're asking, in this case,
that you look very clearly into telling Mr. King that the 0PM
should take a very good look at the Greneral Accounting Office re-
port that assesses impact on community pharmacy before it imple-
ments plan design changes that are going to devastate the indus-
try. A letter that I will share with you, I'll get to your office, he
has done none of that. And, evidently, the Greneral Accounting Of-
fice and what they do does not have any impact in his division, and
I'm very concerned about that. I'm asking you to take a good look
at it.
Mr. McIntosh. Gladly. Please forward that letter to us, and we
can take a look at that. That doesn't seem to me fair that the Gov-
ernment should intervene and put smaller businesses at a dis-
advantage that way. It sounded to me like the remedy for EPIC is
to file an antitrust suit.
Mr. POPOMARONIS. It's certainly what's underway right now.
[The prepared statement of Mr. Popomaronis follows:]
87
Ttrtiaony of Williaa T. Popoacronis
Before the
Sub-coaaitte« on National Economic Affairs
Natural Resources h Regulatory Affairs
of the
House Governaent Refora snd Oversicht Coaaittee
en the
Eoonoaic lapact of Manage C«re Orffsjuzations on
Saall Business Coasunity PharasLcy
January 25, 199$
Good day. My naae is Williaa Popoaaronis. 1 reside in Baltiaorc
Maryland where I own and have operated a saall independent coaaunity
pharmacy for the last 20 years. With ae here today is Executive Director, Jia
Miller, serving EPIC Pharaacies since its inception in 1985. Most recently I
have accepted the position as President of EPIC Pharaacies, an independent
purchasinr alliance with over 450 independent pharaacies servinc the Mid
Atlantic rc^on.
We both thank you, Mr. Chairaan, Sind the aeabers of the Sub
Coaalttae for calUnc this important hearing.
I am first a comaunity pharaadst. Hot a lobbyist, nor an attorney or a
•pe«ch writer. Yet when Concressaan Ehrlich presented ac with the
opportunity to speak before you today, I felt coapelled to c^ve you ay
perceptions of the State of coaaunity pharaacy as it exists in 1996.
My natural tendency is to stay behind the prescription counter where
the wara eabrace of the aany elderly patients that I provide pharaaceutical
care for is constant, genuine and sincere.
Many coaaunity pharaadsts though continue to keep their heads in the
saund, like ostriches, rather than face their worst fears about the future of
pharaacies.
88
I se« « not so rosy econoaic picture for coBaunity pb«ra«cy in the
yeaur 2000. One where prescriptions are Urf ely filled through m*Sl order.
One where health care business consolidation has left but a very few
Monopolistic HMO's, aail order dispensaries, and large retail pbaraacy chains.
I see a federal governaent forced to drive health care for cost containaent,
with such an obsession to aanage care, that decisions lead to deleterious
health care consequences.
Automated teller like Machines dispense drug information and
prescriptions because independent coaaunity pbaraacy becomes extinct.
''Pharaasauras", a new dinosaur created.
Worst of all, I see today's status quo remaining with my government not
responding to the economic concerns of small business.
1 beg the committee not to consider my words as arrogant or
disrespectfuL The temptation for government at all levels to give in and
award pharmacy service contracts to monopolistic Managed Care Organizations,
because of budgetary restraints, is making my worst case scenario ^ery
quickly turn into reality.
Of course, the real cause of my economic nightmare is not the
government but the drug manufacturer. It is the drug manufacturers and
their pricing schemes that allow the same drug to be sold to different
purchasers at different prices.
Like a cancer that started with one malignant cell, it is now common
placo to find a drug manufacturer selling to a hospital, a nursing home, a mail
order house, HMO or even another counuy at different prices for the same
product!
Yet, one price remains constant....the price paid for the drug by
community pharmacy. Whether it be a major chain corporation like Rite Aid,
Giant, CVS or an independent Kke ay own, Edwards h Anthony EPIC Pharmacy,
the prices charged to community pharaacy are the highest in the industry.
How can a drug aanufacturcr Justify selling a potassiun pill K-Dur,
manufactured by Key Pharmaceutical, and used frequently by our elderly, to a
preferred purchaser for 92.03/ per lOO tablets and then turn around and sell
that same drug to a community pharaacy for $27.31/100 tablets? This
represents a 1245X markup to community pharmacy and our patients. Ho> can
the heart patch, Transderm Nltro, be sold for $8.40/ per box of 30 to the
preferred purchaser by Ciba Geigy and the same product then be sold to
community pharmacy for $39.89/a box of 307 This represents a 315% mark up
heaved on the backs of community pharmacy and our patients by drug
manufacturers.
89
How is it econoMlctJly sound for United StAtes pharaacies when our
citizens cross the Uexic«n border to buy uuiy of their dru^s «t half the
price United States Coaaunity Phaj-iiacies can buy thea for.
Drue manufacturers pricing scbeaes have three deleterious effects.
1. It accelerates the elialnation of independent coaaunity pharaacy as a
coapetitor in the Marketplace aDowinr a very few large chain
coapetitors to reaain.
2. It has and continues to cause a cost shift and Increased financial
burden on those elderly patients who have no insurance and purchase
the bulk of the aedicines at coaaunity pharaacy.
3. It liaiis access and choice for your pharaaceutical care.
This drug pricing scheme benefits only drug manufacturers. Drug
Manufacturers, many the darlings of Wall Street also own Pharaacy Benefit
Managaaent Coapanies with aail order subsidiaries.
The Federal governaent today is doing business with one of these
aonopoUes. The savings that discriminatory pricing provides select
purchasers caused the Federal governaent on January 1, 1996. through the
Office of Personnel Management and National Capital Blue Cro«« to penaUte its
standard option Medicare Part B Federal Retirees by making thea pay a 20%
co-payment if they wish to purcbase their drugs at the community pharmacy.
There Is no co-payment if retirees purchase through the saiL
In 199) thru and including 1995. Federal retiree* were advised by Blue
Cross that they could purchase their drugs by aail or at a network of local
community pharmacies without co-pay or penalty.
This network of comaunlty pharaacies accepted substantial cut in their
dispensing fee to service Federal beneficiaries as a preferred pharaacy
provider. Since January 1993, coaaunity pharaacy fee cuts have saved the
Federal EMployees Health Benefit pmgraa almost 200 aillion dollars.
Mhile the cuts were deep, the opportunity to serve Federal retirees in
my own pharaacy convinced ae to accept the new reiaburseaent.
90
When given « choice, retirees overwhelmincly desire the huaan touch
that only coaaunity phATMAcy can provide. Without auch fanfare Federal
retiree purchases through the vail slowed draaatically in 1995. Consequently,
iji 1998 with the enticeaents of unfair pricing and Uaited covpetition, 0PM
Hftdc an about face business decision through Blue Cross to one* acain
penalize Federal retirees and coanunity pharaacy.
In the short tera, this OPM decision to shift Federal Beneficiaries,
throuch what I believe is economic coercion, to a drur aanufacturer owned
aail order coapany wHl reduce rovernaent drug expenditures. But what of
the econoaic lapact on the coaaunity pbaraacy infrastructure and the
coapetitive process necessary to provide fair prices to those that purchase in
coaaunity ph«J-a*ciea?
A« I have stated the purchase and consolidation knoiyaa vertical
Integration of the pharaacy delivery systeas by drug aanufacturers has been
oecurrine at a rapid pace. The two largest Pharaacy Benefit Manaccaent
coapaniea are now owned by drug aanufactures. Approxiaately 80% of the
Pharaacy Benefit Hanageaent aarket is controlled by just five coapanies.
A3 they ratchet down relaburseaent to cost and below independent
coaaunity pharaacies are doainff at a rate of three a day and aany others
are being purchased by chain coapetitors. Even large chains are being
swallowed up by stOl larger ones as with the Rite Aid purchase of the Reveo
drug chain.
It is very likely that only a few chain coapetitors with regional aarket
presence will reaain to provide pharaacy services. Clearly the lack of
coapetition will increase as this integration of services continues.
Today. 5S)( of Aaericans participate in Pharaacy Managed Care Prograas
through Pharaacy Benefit Manageaent CoBpanie«» HMO's or aaU order drug
dispensaries. Yet a full iS% of Aaericans fall through the cracks.
r« sure the drug aanufacturer wiQ coae before you to prodaia that
these pricing policies are good for America and the Covernaent. They will
quote the drug producer price index that shows a 1.9% inflation rate for 1994,
when the CPI was only 2.5%. Yet as we unravel the nuaber and exaaine the
price increases for the top 500 drugs sold a coaaunity pharaacy both chain
and independent we see price increases passed on the nany Aaericans without
insurance at nearly twice the rate of inflation.
Clearly the Covernaent and consuaers have reason to reaain concerned
about drug prices.
Mr. Chairaan, aeabers of the coaaittcc, it is In the interest of the
Federal governaent and it's dtiiens to clearly exaaine and understand the
economic iapact these pricing scheaes have on coaaunity pharaacy.
91
Right now the General Accountinc Office h«$ studies underwey atsessutc
the economic iBp«ct on coMBunity pharBAcy and « Federal Esployees ability to
access drugs when contracts, with pharaacy benefit aanageaent coapanies
owned by drug Banufucturers are inpleaented.
Regrettably 0PM decided not to wait till the June of 1996 GAO coapletion
date and executed the contract with National Capital Blue Cross and its nail
order phaxBacy subcontractor.
I aa asking this coaaittee to say STOP, let's reexaaine the iapact of
this change carefully before it produces undesirable health consequences.
It is ay understanding that it would take a full act of congress to
rescind this contract. Up to this hearing, between Bosnia, the Budget and the
BUxtard of 16 the preservation of the coanunity pharaacy econoaie
Irifraatructure on a Federal level has gone unheard.
Finally, I cannot leave this hearing without giving the coaaittee an
understanding and the purpose for the creation of EPIC Pharaacies. EPIC
Pharaacies allow independents to coapete on a regional level with our chain
coapetitors. Wa are ]^ a weak sister. We are j^ Ma * Pa pharaacies. EPIC
Pharaades are independents who have realized that they are an island unto
theaselves without organisation. The EPIC Pharaacies alliance eaploys over
4,500 Aaericans in the aid-Atlantic region. Besides the fact that the
organization consists of 500 independent corporations, we arc all identified as
EPIC Pharaacies. We are a chain of independents.
The cost of our drug purchases because of this alliance is equal to a
•aior chain such as Giant or Rite Aid or CVS< EPIC Pharaacies are not
intlBldated by these coaaunity pharaacy coapetitors, the coapetition is
heaMhy and it is the consumer who benefits with lower costs for their drugs.
Unfortunately we are at an econoaie disadvantage by what we do not
8ee...the Federal retiree aailing for hisAer drugs to Florida, the
rebate/discounts prescription services contract signed by the HMO, and
Ajsericans we do not see who cross the borders for cheaper legal drugs.
The answer is not to put the reaaining 45% of Aaericans into aanaged
care organizations. Managed care has for the aost part yet to face the
challenge of elderly patients who purchase five tives the nuaber of
prescriptions that you or I do, and accuaulate 70% or aore of their health
expenditures after retireaent. When all Aaericans are in aanaged care,
including Medicare and Medical Assistance recipients, and cost shifting can no
longer occur, and drug cost will once again rise.
Coaaunity pharaacy and healthy coapetition can be preserved by
eUainating these drug aanufacturer pricing scheaes.
92
DruK Banufacturer* should set the rules and Apply their pricing
stAndards to aU purchsisers of the druc not just a select few.
On January It, 109€t the Wall Street Journal wrote of a pending €00
■illlon dollar settleaent for cc»Bunity pharaacy atainst sany druff
manufacturers in their conspiracy to over charge. It seeas that the Dru(
Manxifacturers Cartel has be^un to crumble.
The lefal expenses incurred on both sides of this case would never
have occured if dru^ aanufacturers voluntarily eliminated their pricing
scbeaes that artificially prop up prices to community pharmacy.
Short-sighted decisions Uke that of 0PM should be reversed and
vicorously cballenffed by this coamittee.
While the Federal Government cannot affect the pricing policies of a
manufacturer, I believe it can sensitize 0PM to the complexity of the issue and
potential barm to small business independent community pharmacy.
Thank You.
TOTAL P. IB
93
Mr. McIntosh. Yes. Well, thank you for sharing that with us
today.
Mr. Hugh Brown.
Mr. Brown. I am the owner and founder of a janitorial service
company 25 years ago here in Baltimore County, providing that
service to private industry and to the Federal Government. I am
here to speak against the 8(a) and the other preferential procure-
ment programs within the Federal Government as being discrimi-
natory to me, a citizen.
To give you a couple of examples, but I'm not going to take up
a lot of time. Two subject matters. I'm a targeted industry. My
business is an easy business for the Government to say, we'll give
a minority a contract; give it to a janitorial firm; we'll fill our
quota.
In the Washington metropolitan area alone, there are 101 con-
tracts. Federal, that I have identified that are minority contracts,
open market can't compete on. I got the list right here, supplied
them to the Congressman's office — you probably have them in your
file — 101, probably representing about $30 million annually. I can't
compete with them.
No. 2, in addition to being a targeted industry — which is illegal,
by the way — No. 2, the gentleman here from the roofing company
addressed it, and as I was sitting here I thought about it, I bid at
a sister university to this school right here, Bowie State College,
this past year. Had a minority participation goal, that they strong-
ly recommended, of 20 percent.
We went to the State of Maryland, asked for the certified list of
minority contractors in the janitorial supply and equipment busi-
ness, and they gave us a list. We contacted five of them; they all
gave us prices. Then one of our suppliers said, "Why are you going
to all these guys? They come and buy the stuff from me, mark it
up, and sell it to you." Five of them out of five, fronts; just pure
markup overhead fronts.
If you think I'm aggravated about this, I've lost 50 percent of my
business opportunities in the last couple years because they've
been going to preferential programs. Yes, I'm very upset. And I
think that the courts are finally starting to recognize the discrimi-
nation heaped on the rest of us in business. If you take the recent
decision, Adarand Constructors, out in Colorado, the new cases
being filed in New Mexico, and such, I think the tide is starting
to turn to recognize that everybody must compete in the open mar-
ketplace, subject to market forces.
I know you don't have a lot of time. That's all. I feel very strong-
ly about this, very, very strongly.
[The prepared statement of Mr. Brown follows:]
94
STATEMENT BY
HUGH BROWN
OF THE
SAFEGUARD MAINTENANCE CORPORATION
BEFORE THE
SUBCOMMITTEE ON NATIONAL ECONOMIC GROWTH,
NATURAL RESOURCES AND REGULATORY AFFAIRS
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
U.S. HOUSE OF REPRESENTATIVES
JANUARY 26, 1996
95
Good morning. My name is Hugh Brown and I am President of Safeguard Maintenance
Corporation, a Maryland Corporation which I founded and located in Baltimore County in 1976.
I want to thank you, Mr. Chairman and Congressman Ehrlich for this opportunity.
1 am here to strongly object to an^ preferential procurement programs based on race or sex. Any
law-regulation-guideline-goal-quota or objective designed to stimulate the growth of business purely
or dominantly on the basis of race or sex is not only wrong, it is discrimination at the hands of my
government.
Some of the programs include:
1) The Small Business Administration's 8(a) Minority Contracting Program.
2) The Pentagon's "Rule of Two" Program.
3a) The Federal Acquisition Streamlining Act (FASA) which wants to put women-owned
businesses on an equal footing with Small Disadvantaged Business
3b) Additionally, FASA wants to alter a current program from:
"Any procurement must be set-aside solely for small business if the Government
expects competition among small businesses and can get a reasonable price."
To:
96
"Giving preference first to small disadvantaged firms and then to small businesses."
The market erosion created by these policies continues into the area of subcontracting opportunities
as well. The General Services Administration and the Defense Department are now implementing
plans that would award huge service contracts to a single company, a practice know as "Contract
Bundling." These bundled contracts would contain goals to subcontract portions to women-owned
and small disadvantaged firms orJy. While the SBA definition of women-owned company is very
clear, the euphemism of small disadvantaged company seems to be a moving target.
I cannot presume to define this term, but I can tell you specifically who has been classified a "Small
Disadvantaged Business."
1) Bethesda, Maryland Based I-Net
By the end of its nine year stint in the 8(a) program, I-Net racked up 145 contracts
worth more than 500 million dollars, with fewer than 20 of the contracts competed
openly.
2) A group of well-known wealthy African American investors bought a television
station in Buffalo, New York, benefiting fi-om a Federal Minority preference program
that gave them a tax break to buy the station. The station was then sold for a healthy
profit.
97
3) The former Mayor of Charlotte, North CaroHna, Harvey Gantt, who is African
American, and his partners who bought a television license from the FCC under a
minority preference bidding system. They then sold the license to other investors four
months later, and Mr. Gantt pocketed a $3 million profit.
4) Wally Stevens and Stevens Engineering receiving 50 million dollars worth of
engineering contracts from the 8(a) program only to find the non-competitive multi-
million dollar contracts don't exist in the real world. He then asked for a 1 .5 million
dollar bailout from current Maryland Governor Paris Glendenning.
5) CPF Corporation is a small disadvantaged janitorial firm and a direct competitor of
mine. The owner emigrated from Spain, went to work for a competitor and then
started his own firm - taking advantage of the 8(a) program for noncompetitive
contracts including work at the Pentagon, valued at more than $2 million annually.
A recent audit of the 8(a) program conducted by the Inspector General's Office of the SB A foimd
that of 50 randomly selected participants, 35 or 70 percent had net worth's of more than $1 million.
Twelve out of the 50 participants (24%) had annual compensation of more than $750,000. Are these
examples small disadvantaged? Socially or economically disadvantaged? These preferential
programs currently provide special treatment to countless disadvantaged celebrities, millionaires,
and businesses that should have to compete in the open market like everyone else. For your
information, I have copies of the Small Business Minority Enterprise Development Division and
listing for the National Institute for the Severely Handicapped (NISH). They show the Janitorial
98
Service contracts (62 and 39 respectfully) that have been removed from the competitive market in
the Washington Metro Area alone. I estimate the minority contracts to have a value of 21 .6 million
annually and the handicapped contracts to have a value in excess of $10 million annually. This does
not include state, county, city, and private industries who also insist on a heavy minority
presence... most of it in the janitorial field. It's time to shut off the Federal, State, County and City
pipeline to these socially and economically disadvantaged millionaires.
The current administration is determined to protect the status quo, and it may well take a lawsuit
similar to the Supreme Court Decision of Adarand Constructors. Inc. v. Pena. Secretary of
Transportation et al.. 1 1 5 S.Ct. 2097 (1995), on every program to effect real change.
I don't have the time and resources to wage this long, expensive, and politically incorrect battle. I'm
too busy trying to survive in a targeted industry. The Govenunent should protect all its citizens from
unlawful discrimination - but it should not give special treatment to anyone.
On a slightly more optimistic note I can tell you that I, and many people I talk with have a great deal
of hope for this Congress. We have some faith that this Congress can change the "some people are
more equal than others" attitudes.
Businesses need to believe that the playing field is level and subject only to free market forces.
We can only hope that these changes occur, and not at the typical federal glacier speed.
99
/
In closing, I want to thank you for the opportunity to testify here today. 1 would be glad to answer
any questions that you may have.
100
Mr. McIntosh. I think people are now beginning to realize in
this country that what was a noble goal, to eliminate discrimina-
tion and give people opportunities, the pendulum has swung too
far, and it has become reverse discrimination, in some instances,
and not really creating a true marketplace where people of all
backgrounds can compete.
Mr. Brown. Well, I think what we have to look at is economi-
cally disadvantaged, not the fact that Colin Powell, O.J. Simpson,
Mr. T., Julius Erving, all very publicized individuals, have par-
taken in the minority preferential programs, including Mr. Stevens,
right here in the State of Maryland, who got $50-million worth of
8(a) programs for engineering services, then found, when he had to
get out of the program, he can't survive. And he just asked Mr.
Glendenning, a couple months ago, for a $1.5-million bailout. Give
me a break.
Mr. Ehrlich. Sir, I think the point you're making is, in addition
to the chairman's point — and I like your point about economically
disadvantaged opportunities. That should be the threshold here.
That should be the focal point.
Mr. Brown. Yes.
Mr. Ehrlich. Because, obviously, the way a lot of these pro-
grams are working, we're not hitting the targeted folks that, right-
fully, I think we should.
Mr. Brown. When I started my business, I should have qualified,
because I went and I borrowed from my life insurance policy,
friends and family, $5,000 to start my business. I should have
qualified. I didn't get any help, didn't ask for any help. But I start-
ed my business 25 years ago, and now I'm really being beaten
down by the Federal Government, because they have taken away,
not only 50 percent just in the metropolitan area, more than 50
percent of their contracts and said, "They are reserved. You can't
bid on them."
But Westinghouse doesn't want to come to me. USF&G doesn't
want to come to me. Towson State University, in their present pro-
curement for housekeeping services, has got a 20 percent minority
participation. What happened to me at Bowie? I went to suppliers;
all five of them were just fronts.
Mr. Ehrlich. Thank you.
Mr. McIntosh. I appreciate that. Although, let me put a word
of caution on. I think Mr. Brown's example is the American way,
where you reward people who take some of these risks themselves
and invest their own savings and capital. If we start down the path
of looking at economically disadvantaged people and provide an
extra subsidy, that's good, but the next step is, then, the Govern-
ment comes in and starts regulating them, and they become de-
pendent on the Government.
So it can be a slippery slope, and we need to think long and hard,
even on that criteria, because I think there is some value to saying,
we're going to reward people who do take the chances, who want
to make something for themselves, and oftentimes face failure. But
they, a lot of times, will succeed if they work hard and persevere
at it. And that tj^e of American spirit is worth rewarding, I think.
Mr. Ehrlich. The point has been made that, if this Congress
can't help you all, your long-term prospects are bleak.
101
Mr. Brown. Bob, that was my closing comment here that I had.
I said, on a slightly more optimistic note, I can tell you the people
I talk to have a great deal of hope for this Congress, you know.
Mr. Ehrlich. Thanks.
Mr. McIntosh. Thank you.
Mr. Brown. And I don't want you to — the article in the morning
Sun paper, where they said you may have become a little discour-
aged because you haven't achieved what you hoped to achieve, I
think you've made greater inroads than anybody expected you to
make. It's kind of like a beachhead at war, or a baby crawling,
stumbling, walking, and running. And don't be discouraged. You're
heading in the right direction.
Mr. McIntosh. I like that analogy. We're at Normandy.
Mr. Brown. I mean, yeah, you're at Normandy.
Mr. McIntosh. We're at Normandy, and we've got the rest of Eu-
rope to take back.
Mr. Brown. Yeah, it's the rest of Europe in front of you.
Mr. McIntosh. Thank you. Thank you.
Mr. Stappler.
Mr. Stappler. First of all, I'd like to say thank you to the chair-
man and to Mr. Ehrlich for having me here today. I'm proud to be
the anchor man of this meeting, at this point.
My name is Mike Stappler. I'm from Baltimore, been a resident
here for 39 years, one of the principals in a closely held family
owned business that's been around since 1958, called Overlea Ca-
terers, Inc. We do a variety of different things, including social ca-
tering, and also we do a lot of government contract work through
the Older Americans Act, called "Eating Together," in the area. We
also do a lot of work through the Department of Education,
through the Child and Adult Day Care Nutrition Programs. Both
of these programs are federally funded, and primarily, one of the
things I'm very concerned about recently, with the changes in some
of the economic climate, we are now running into nonprofit agen-
cies that are bidding on these government-financed contracts.
Primarily, my concern is that these agencies are going in where
we are paying taxes on the revenues that we earn; we are fostering
job growth and development and these agencies are bidding against
us. They are soliciting funds in the private sector and getting
money granted to them, and they are being granted through trusts.
Particularly, one agency. Meals on Wheels of Central Maryland,
was actually gifted a facility, practically, from the Weinberg Foun-
dation, which is a multibillion-dollar trust fund. They used this
money to build a facility which they then used to bid against us
in contracts that we held. And they are also out fund-raising
through agencies, including United Way, Associated Catholic Char-
ities, and Associated Jewish Charities. They are subsidized, in
some ways, through the government agencies.
One of the contracts that they hold is a sole-source contract with
the city of Baltimore, which is on the Title III C(2) program fund-
ed, and there is no competitive bidding on that. So here my tax dol-
lars are going to pay for the Federal Government. They take that
money to fund programs. They, then, don't ask the people that
we're bidding against to get subsidized through their tax — I would
love to be able to take the excess funds we make and plow them
102
back into my agency, and rehire new people, invest in plant prop-
erty and equipment, use it to market, and solicit for further busi-
ness in the future.
What's happened is, as we go down the line, we've seen a further
deterioration. Last week I put in a proposal on a contract which
was through a Child and Adult Day Care Nutrition Program. The
price is $1.80 a meal for food. They cut the price 45 cents a meal,
down to a $1.40-something. And the specs in that particular con-
tract were 50 percent above the federally mandated specs. And I
said, if you can get the same quality of services and products from
another vendor for 40 cents less a meal than we're doing, I advise
you strongly to take it.
And that's not something I really like to do with a client of mine.
We're very proud of the work that we do. We are a quality oper-
ation. We just cannot compete against agencies that are subsidized,
that can go out and solicit funds that are not taxed, and that then
don't have to pay tax.
Now, I've been a certified public accountant for over 15 years. I
happen to be in business. I did not choose to enter that profession
full time. I'm also a certified management accountant. It is impos-
sible to break even in a company, I can tell you. So nonprofit agen-
cies are making money in these contracts or they are losing money,
and it doesn't matter.
Unfortunately, what happens is, I have probably 100 jobs — this
is one company we're talking about, in the State of Maryland and
Baltimore — 100 jobs in our company right now. All we're doing is,
we're trading commercially developed jobs for Government-sub-
sidized jobs. That's all we're doing; turning the jobs over. We're not
really saving any money, because in the last, probably, week alone,
we've terminated and reduced our work force by five, or six, or
seven people.
You know, this deterioration that goes on over time, I mean, it's
really choking me and our board, our group, our family board, to
sit there and continually say, well, we have to cut our pricing so
low so as to be competitive but not to be able to make a profit while
we're doing it.
Mr. Ehrlich. You said you just cost yourself or cut five, six,
seven jobs?
Mr. Stappler. Right.
Mr. Ehrlich. That is directly, in your mind, attributable to
what?
Mr. Stappler. It's directly attributable to the reduction in the
number of contracts we've been able to acquire and retain. I had
a contract in Anne Arundel County; we've been the prime vendor
in that county since 1973, OK, in publicly bid contracts against
commercial firms. In 1992 or 1993, I believe it was. Meals on
Wheels came and bid on a contract. They were not qualified to do
it; and they were eliminated for not living up to the specs.
They kept dunning the government agency. "We want to come
back. We want to come back." I had a contract where they — I had
a CPI rider in this contract. The first year they said, "If you don't
accept the CPI, we'll renew the contract," even though there's no
provision for negotiation further. It's a sole option on the part of
Anne Arundel County to do this, OK. They come in and say, "Well,
103
if you accept no CPI which you're entitled to, we'll renew it," which
was illegal, in my opinion, OK, but we did it. And we said, "Fine.
We'll accept that."
The next year they said, "Well, we're not going to renew your
contract again," even though I felt like there was some type of obli-
gation on their part, since we forego the CPI we were entitled to.
And all departments said, "Well, you can just take us to court.
We'll be more than happy to. We've got three or four people here
on staff to do nothing but defend cases against a company like
yours." I said, "I don't know that it's going to be a great thing for
me to go in and sue one of my clients so they have to use me."
So, you know, after bidding it, and, again, they went in, they
low-balled the contract, and they won. And that contract was prob-
ably $300,000 or $400,000 worth of business. I've had three or four
other contracts — I had a contract recently. We were doing the meal
for $1.58; they cut the price 15 cents a meal and gave them addi-
tional items. And I'm saying, I don't know where they are coming
up with the capital, because I know what the cost of these products
and services are.
In addition to those other things, we're also required, you know,
to do State and local types of taxes that aren't involved with the
Federal Government, which ultimately have an impact on what we
do. I mean, these people can operate in an environment — if I had
sole-source contracts I don't have to bid, then I can use that to sub-
sidize my other work, and those are government-funded contracts,
as well.
So, I mean, we don't have to worry about foreign competition
coming in and killing us, because the nonprofits will drill us. Now,
when you start attacking an organization like Meals on Wheels,
you're hitting Mom, apple pie, and Chevrolet. I mean, nobody
wants to hear, "Gee, it's a terrible thing." You know, your grand-
mother might be delivering meals to somebody's house that doesn't
have food today. OK.
But when the snow is out there, 30 inches of snow that we're pil-
ing up over there, we got phone calls from Harford County and
other counties saying, "Can you send us emergency food supplies,"
because our people were working. You know, there wasn't a day we
didn't deliver food during the whole entire period.
So, you know, I mean, they will use us, and abuse us when it's,
you know, fine for them. But when it's something where a commer-
cial organization is coming in to bid — it's just not a level playing
field with nonprofit agencies.
Now, I understand, you know, in research, for example, I know
Johns Hopkins University, they do research, and they probably
compete against private labs and other things. But I think when
you have legitimate organizations that are commercially viable and
areas where they can do government contracting and go out and —
I mean, I thought the trend was, we're going to try to privatize
things. And I don't think that subsidizing jobs through the Govern-
ment, through the back door, is the same thing as saying, we want
to privatize and try to make more commercially available jobs.
We've been very proud of the fact that places like AT&T are lay-
ing off 40,000 people and, in some of those years, we create five,
six, seven jobs. We laugh and wave and say, "Hey, we created more
104
jobs than AT&T did this year." I know it sounds nuts, but, I mean,
that's how proud we are of what we do.
So I really feel like it's an area where — I don't know that it's
over-regulated, but I just think that, when the regulations that
come down from the feds say that these people can bid with impu-
nity, and they can just low-ball contracts and do them at a loss,
what would be considered, commercially, at a loss, you know, we're
not serving ourselves. Plus, they're not giving any consideration to
the fact that we're kind of subsidizing those same programs they
are paying them to bid against us on.
If you will indulge me for 1 second, since this gentleman over
here was talking about MBE, we are in the MBE program, as well,
through the city of Baltimore, on our contract through Eating To-
gether, in Title III. And just to show you how some of these things
happen that go on, recently I had a case where we were audited
for unemployment by the State of Maryland. And they audited our
subcontractors, as well, because they want to make sure that these
are legitimate operations.
One of the contractors that we were using, that was approved by
the city of Baltimore, was — I gave them this guy's information and
said, "Well, we're paying $350,000 to this agency for trucks and de-
livery people, and so forth." They audited that guy. He closed his
unemplo3Tnent account in 1989, OK, which was 6 years ago. Now,
when the guy hit me for the audit, I said, well, if a man has got
a certified minority business enterprise company in the State of
Maryland, approved by the city of Baltimore, and I'm required to
use them by Ordinance 610, I don't see where I would be respon-
sible for anything that he might be responsible for, if he's fraudu-
lently putting himself out as a viable business. I have to follow
those rules; why don't you go after him.
And what happened was, when that letter came to me, I sent a
letter off to the EOC office, which is the compliance office for the
city of Baltimore Law Department, and they said, "Fine, We'll go
address this issue with the subcontractor directly," which they did.
And they found out that, yes, he did.
In the body of Ordinance 610 in the city of Baltimore, it states,
'*You may not subcontract more than 10 percent of your sub-
contract." The guy was subcontracting 100 percent of his contract,
100, OK, the whole thing, to other subcontractors, both minority
and nonminority individuals, OK.
Now, here's what they did. They sent him a letter and asked him
to bring his records in. He had a hearing in front of the review
board. They said, "This is a joke; it's a sham." And he said, "Well,
I know the mayor, I know the Governor, I know the Congress; I
know everybody." So he throws a lot of smoke up in the air, and
they said, "Well, OK, we'll have another review by the Board of Es-
timates." The guy is still doing the job. I have not received a letter
yet from the city saying this guy should be canceled.
Now, I have two other MBE-certified guys that want to take over
this work. And I don't know why, to this day, a guy who they ad-
mittedly said has, you know, fraudulently represented himself and
blew the body of this ordinance — I mean, that is — if that's not the
crux of an MBE program, there is no such thing as the crux of a
program; it doesn't exist.
105
So when you say, are there sham companies out there, are there
people out there that are doing this? I mean, I don't have the time
or the energy or the abiUty to go out and investigate whether a
company that the city tells me is certified — I don't have the where-
withal to stop them from going out there and saying that they're
not. I mean, when the State of Maryland goes out and audits them,
and the guy has fraudulently closed his unemplo3rment account for
the last 6 years, you know, there's something wrong with the pro-
gram. It's just that simple.
And I — look, I support it. I mean, we've been doing minority
business enterprise subcontracting for almost 20 years. And I think
it's an affront to the people who are legitimate MBE program com-
panies to hear that that goes on, because that just gives guys like
you that much more ammunition to say, just blow all the programs
away; none of them should be there.
So I don't know why even the city would protect — I understand
protecting their turf, that's one thing, but to go out there and pro-
tect guys that they know are playing the game, that's another
story. So, yes, I think they're out there. And I don't want to water
down my original point of that, but, I mean, that was a particular
one, because I called the compliance office myself on that particular
issue, and I said, "Can I get rid of this guy? First of all, he's not
giving me good service, and second of all, it's a joke."
[The prepared statement of Mr. Stappler follows:]
106
STATEMENT BY
MICHAEL STAPPLER
OF
OVERLEA CATERERS, INC.
BEFORE THE
SUBCOMMITTEE ON NATIONAL ECONOMIC GROWTH,
NATURAL RESOURCES AND REGULATORY AFFAmS
COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
U.S. HOUSE OF REPRESENTATIVES
JANUARY 26, 1996
107
TBSTIMOmc or MICBABL 8TAPPLBK
Good Morning. Hy nana ia Mlcha*X Stappltr. I MB from
BaltljBor« Maryland, wh«r« I owd and op«rat« a food sarvlca
covpany, along with fiv« other »eab«rs of i^y family. I aa
Praaident of Overlea Caterers, Inc. Hbich haa b««n in bosinesa
for over 35 year*. I have been with the company ainee 1990.
I want to thank you, Mr. Chairman, and the tteaa>era of thia
coauaittee, for calling thia important Bccting, and for allo«fing
aie toaie tiate to appear before you.
I ajR a aaall busineasnan; I aa not a lobbyist, politician or
attorney. My aain concern deals with the ability of non profit
entitiea to coapete againat for profit coitpaniea in governoMnt
contracts. This is especially true where coMsrcial buainess
entities like ours exist and are able to offer products and
aervices to the government agencies.
Specifically, Meals on Kheels has bid on and %ron, aeveral
contracts funded by the federal government, which are
adMinistered by the State of Maryland and local aubdivisions of
Itoryland. This particularly bothers ae because they are a 503c
not for profit corporation. Meals on Wheels does not pay federal
or state incose taxes; Over lea Caterers does.
Meals on Wheels is allowed to raise tax free donationa to
subsidize their operations, including their food service
operations. It is not possible for there to be a level playing
fxeld in contracting %rhen the very dollars that Overlea Caterers
pays in to fund the programs are given back to an agency that
does not pay in.
Indeed, the main production facility that Meal on Wheels of
Central Maryland operates vaa funded with a major contribution by
a local not-for~Drofit trust. It is a devastating combination
when yoor conpetition can raise tax free funding, without bank
financing that haa to be paid back, and they use that as the
vehicle to bid againet you without the need to make a profit.
We don't have to worry about foreign competition coming in
and haraesing us with product dumping and price fixing, we have
the local not for profit agencies to deal with.
I believe that it is patently unfair for a non profit agency
to be allowed to compete with for profit firms in areas where the
non profit does not hav* the same burdens as the for profit
cootpanies. In some areas, agencies like the school ayatem hav«
bid on contracts for food services. In some of the regulations,
they receive preferences if they want to bid on a federal
contract or a contract funded by the federal government. Again,
they do not pay taxes and are funded by federal and local tax
108
dollar*. Th« funds w« p«y in ar« used to fa«l th« coap«tition
against us.
I have bid on ••v*l:«l contracts in the past two years that
were awarded to non profits, based on lower cost. This has
resulted in our laying off and terminating workers and downsizing
our operation. The ripple effect in teras of taxes and
eaiployment go beyond the profit and loss of the company. There
is increased uneaploynent, less personal incoate taxes collected
and less productivity for our organixation.
Z support non profit agencies, both personally and through
■y business. I think they provide valuable ssrvices to the
connsunity. When those agencies are granted an unfair advantage
coBonercially, I thinX it is tine to stop it.
I support legislation to limit profit making activities of
non profit conpanies. X am a Certified Public Accountant, and in
■y experience in business, there is really do way to insure
operating at a break even; no profit or loss. Tou make money or
lose money. If non profits make money, they can invest it back
into the agency or dispose of the funds in other vays. If they
lose money, they can raise tax free dollars to subsidize
themselves.
If my company makes profits. I am sure to pay taxes. I
vottld love the opportunity to choose to invest those profit
dollars in jobs, or invest in plant property or equipment to
enhance my business for the future, instead of paying taxes. Z
know the government will not allow me to do so, for obvious
reasons.
I believe in the current Congressional leadership. From my
perspeotive, I am glad to sse movement on various key issues and
policies that have been intrenched for my lifetime. Change is
difficult, but not impossible.
Thank you for the opportunity to testify today. Z would ba
glad to answer any questions that you may have.
109
Mr. MclNTOSH. It's a huge, huge morass; huge morass. Well,
thank you very much. I appreciate that.
Mr. Stappler. Thank you.
Mr. MclNTOSH. Our next witness is Thomas Meighen.
Mr. Meighen. Thank you. I'm Tom Meighen. I'm with Stromberg
Sheet Metal; I'm the safety and risk manager there. I've been with
them for 6 years now. I've submitted a written statement, and I'm
not going to read the whole thing. I hope you can take some time
sometime to look that over, but I'll hit on some of the key points.
I wanted to speak on OSHA, maybe some of the positive things
that I've seen in OSHA and things that have developed in the last
year or so. Talk about a targeted industry, we do both construction
and we're also a sheet metal shop. I've received notice that sheet
metal is going to be one of the targeted industries now, as far as
OSHA enforcement is concerned.
My first direct experience with OSHA was going on 3 years now,
it was February 1993. Federal OSHA came into our shop, then in
the District of Columbia, wrote a number of citations. Some of
them were founded; some were questionable, I guess, in their direct
effect on real employee safety and health. One of the big things
that came out of that was a machine guarding issue that had to
do with press brakes, which is a very versatile machine, but poten-
tially a very dangerous machine, too.
We hadn't had an accident on press brakes, attributable to the
machine guarding, for at least 12 years, records that I've gone back
on. But in working with the local field office and pushing the issue,
they couldn't come up with any real workable solutions. I kept
working with them and I kept bothering them, but ended up with
a meeting at the national office of OSHA, and we came up with a
workable solution, one that the company could live with and one
that we could apply.
As recently as this past December, I was at the national office
of OSHA, meeting with some of their people and also a sheet metal
contractors association that I'm a member of, where we're going to
try to get this program put together and accepted on a nationwide
basis. So we're seeing some efforts where they are kind of opening
the doors and working with people.
A couple of the other things that we've seen in the last year or
so come out of OSHA, one example is focused inspections. Before,
an OSHA officer would come out to a constructionsite, they were
pretty well required to cite anything that they saw that was a vio-
lation. It didn't have to have a direct influence on the safety and
health of the job. I saw one citation that was on a State plan, but
it was still under the Federal standard, where a temporary railing
had overlapped at the end by three inches, and the compliance offi-
cer took a picture and wrote it up.
So they could still really hit some things that didn't have a direct
influence. Now, with this focused inspection program, what they
are looking at now is based on all the research and information.
They are addressing the four areas that are really getting the peo-
ple hurt in the construction business. They are looking at the falls
and the fall exposures. The roofers certainly can relate to this.
They are looking at electrical hazards and electrocutions, struck-
110
bys, caught-betweens, trenching accidents, things that are really
getting the people injured.
Some of the other changes that I've seen, right now they are
working on, in negotiated rulemaking, which is basically a commit-
tee format, where labor, management, and also Federal people are
meeting to develop a standard for steel erection, which has some
very specific hazards to deal with that are unique to that industry
in itself.
So I'm seeing some progress; I'm seeing some changes there.
They are willing to talk to people. They are opening up the door.
I think they have received some kind of a wake-up call. Now, are
they perfect yet? No. No, they certainly aren't. Are they trying to
make some progress? Yes. Yes, they are.
And am I seeing some results? Yes, I am. I'm finally seeing some
of those gears turn, some people waking up and really trying to
deal with the issues that are getting the people injured, not just
the paperwork issues such as the hazcoms, and areas you didn't
have the right poster put up, so we're going to give you a citation.
It's encouraging to see that. So there is some good coming out of
that, and I just wanted to offer comment on that.
[The prepared statement of Mr. Meighen follows:]
Ill
STROMBERG METAL WORKS. INC.
MAIN PLANT i Of fees SPICULTYSHOP ^
6701 Distribution Oflve 2901 V S\iw. Hi CONTRACTING — ENGINEERING
Beltsville. MO 20705 Washingion, 0 C 20O18
Tei 301 -931 -1000 Tel 202-52&^00
F&X301-93M020 FAX 202-63S04i3
mCHMOND PLANT fitUlOKNC PIMT
1804 Curru St.. Rich.nond. v/A 23220 5812 Trjangie Rfive, Rjieign. NC 27S13
Tel. 804-355-6533 Tel 919-781-2515
FAX 1-804-353-0923 fAX 919-781-6858
Januarj 25. 1996
Chairmaji David Mcintosh and Mcmbcn of the Subcommittee on National Economic Growth.
Nittural Resources and Regulatory AfTairs of the HouM Committee on Government Reform and
Oversight
I appreciate you giving me the opportunity to speak with you today. You should be aware that my
comments are from my ONvn personal experiences and may not reflect the opinions of my employer or
other persons in the safety profession.
The focus of my commenti will be on OSHA and the positKe changes I have seen Changes which not
only help make the workplace safer but encourage input from the people who have to apply the OSHA
Standards in real life. I find myself in the unusual position of supporting the need for common sense
Government regiilation.
For nearly six years 1 have been the Saftty and Risk Manager of Strombcrg Sheet Metal Works, Inc. For
scv en years prior to this I worked primarily v^ith insurance companies in the field of safety. I have a
Bachelor of Science degree in Safety Management, am also a Chartered Property and Casualty
Underwriter (CPCU) and have earned several other safely and insurance related designations. I am acii\°e
in the safety profession and am the Treasurer of the Washington Metropolitan Area Construction Safet>'
Association (WMACSA). Co-Chairman of the District of Columbia Subcontractors Association Safct)
Committee and a member of the Sheet Metal and Air Conditioning Coniiactoi-s' National Association
Safety Committee (SMACNA). Safety and Risk Management is my chosen profession.
Stromberg Sheet Metal is a regional sheet metal fabrication and construction business with approximately
340 employees working in Maryland, Virginia, West Virginia, North Carolina and the District of
Columbia. Our main facility and offices are in Maryland. During these six years I have participated in
numerous OSHA inspections. Either through state plans or Federal OSHA we have had three inspeaions
at our fabrication sh(^ and in the area of a dozen or so at our construction sites.
My Tirst direct contact with Federal OSHA u^ at our then main fabrication plant in the District of
Columbia on February 16, 1993. A number of citations were issued, some were founded and some were
d^xitablc in their value ai^ eOcct on safety. One big issue which was addressed bad to do with machine
guarding, press brakes speciTically. A citation was issued for a lack of guarding on these machines,
however: no practical solutions were offered to protect them. While working with the local OSHA office, a
meeting was arranged with an expert at the National oHice and a workable and safe solution was
developed.
This solution is now being better defined and as recently as December 15, 1995 I sat in a meeting with
ntembcrs of the National OSHA office along with representatives from SMACNA to develop a plan to
112
Meigben
January 25, 1996
Page -2
allow tills solution to be used throughout the United States. I found this open and workable approach quite
encouraging
Within the last year I have seen several other positive things implemented by OSHA these include:
Focused inspections for construction. Under most circumstances an OSHA Compliance Officer can now
go on a construction site and address the four main issues that get woricei^ injured and killed. These
issues include falls, electrical hazards, struck by injuries and caught between hazards. Prior to
implementing this procedure a Compliance Officer was required to cite ail hazards observed no mailer
how minor. This is why violations relating to paperwork, such as the hazard communication standard .
record keeping and posting requirements, and not actual Job ha/ards used to be the most frequently cited.
The Compliance Officer should now be &eed up to do more in^xctioas and better serve the emploj-ees he
is ttjing to protect
Informal complains. All complaints by sn employee or his represeoiative used to require a detailed, time
consuming follow up by the Compliance Officer. Now a 5)'Sicm knonn as ^ne and fa.\ may be used for
informal complaints. Again, human resources can be freed up for better uses.
Negotiated rule making. A standard to address the specific hazards of steel erection is cunently being
developed in conuniitee process using represeniatrve of labor, twsiness and government to develop a
standard all can live with. The value of getting all parties together in (he development of OSHA Standards
can not be overstated.
Please, do not misunderstand me. I am not in favor of over regulation or Government intrusion. OSHA
has a purpose and their resources should be directed ai making workplaces safer. Their resources may
have been misguided in the past but I have seen significant changes in their cfiFbrts and how they do
business.
While some businesses, such as Stromberg, make a good cflbit at employee safety there are many had
operators out there. I sec them practically every day. On a cotutruction site (hey are a hazard to my
emplojees too and I have litUe influence owi their actions. Rules and regulatiotu, fines and citations, may
be the only w^ to com-ince some people.
Yes the OSHA Standards are complicated and difficult to understand. Yes. if a Compliance Officer shou?
up and really wants lo cite you he or she probably can, somewhere, find a violation.
b OSHA perfect? No. Are there areas in which they can improve? Yes. Arc they making efiforu to
improve? Yes. Can I see tcsulu? Again, Yes
Again, thank you for the (qjportunity to make these comments. I try to answer any question you may ha\ie
on this topic. Should you wish to contact me on a later date to discuss this, please £bc1 free.
Sincerely.
Thomas J. Mcighen, CPCU
Safety and Risk Manager
113
Mr. McIntosh. I appreciate that. Thanks. In fact, at one of our
field hearings in Minnesota, a small businessman mentioned that
the head of OSHA, Mr, Joe Dear, had spoken to the small business
conference at the White House and said that they were going to fig-
ure out a way to stop having fines for paperwork and nondirect
safety violations on the first visit. They would come and they would
tell what the problem was, and work with the company to try to
get them to get it corrected.
Unfortunately, we wrote them a letter to get that confirmed,
then he said, "No, no, we haven't officially changed our policy yet."
So one of the things that I hope will come up this year in Congress
is a reform act on OSHA that will let some of the things the agen-
cy's are already trying to do and the directions they are moving in,
codify those and give them the statutory authority and ability to
go ahead and do those types of activities.
What I hear everywhere from businesses is that it's in our inter-
est and we have a strong desire to have a safe workplace, you
know, most legitimate businesses. Occasionally, you will run into
examples where, obviously, somebody doesn't, and they need to
have enforcement mechanisms to force those people to be safe. But
most businessmen I talk to say they want safety; they value that,
because their workers value it. And they get a lot better productiv-
ity when they can assure their workers of that.
If we can create a climate where OSHA works with business to
develop a maximum safety ability — and, also, I'm a big fan of in-
centives, where, if you reward people for a good record, track record
on safety, I think you'll get a lot more accomplished that way. So
I want to figure out ways of promoting those types of ideas.
But you bring good news. I'm glad to hear of that success. You
may want to, as you are moving forward, if there are other people
who are encountering less success, we may call on you to share
with us how you did it in working it up through, and your presen-
tation.
Mr. Meighen. Tenacity. You have my phone number on the let-
terhead.
Mr. McIntosh. Thank you. I appreciate that.
Do you have anything on that?
Mr. Ehrlich. Yes, I just want to make a couple points real
quickly.
Tom, first of all, your points are well taken. Come over to Wash-
ington, listen to our subcommittee, listen to debate. Unlike the way
the press likes to paint a lot of things, the new regulatory agenda
with this majority in Congress is not to make an unsafe workplace;
it's to keep a safe workplace sind stop stupid regulations. And, un-
fortunately, that took me 7 seconds to say, and some attention
stops after about 4 seconds.
Let me make a couple points to all of you. First of all, I appre-
ciate very much your appearance here today.
Mr. McIntosh. We've got one more witness.
Mr. Ehrlich. Oh, yes.
Mr. McIntosh. We've got one more, the gentleman they told me.
Jim Miller, is that right?
Mr. Miller. Yes.
Mr. Ehrlich. Jim, I will hold off.
114
Mr. McIntosh. Then I'll let you close.
Mr. Ehrlich. ok, yes. I was going to close, but Fm sorry.
Mr. Miller. I'll be brief. I am Jim Miller, executive director of
EPIC pharmacies. I just want to add some clarity. Bill had a very,
very nice presentation for you all. And I'm glad you two have been
able to reconcile the Baltimore Colts issue. I noticed what State
you were from.
Mr. McIntosh. He's told me he appreciates it.
Mr. Ehrlich. In Indianapolis, we just don't talk about that.
Mr. Miller. I'm sorry.
Mr. Ehrlich. But I appreciate you bringing it up.
Mr. Miller. Just for some clarity, what Bill was referring to, in
his limited amount of time, was the fact that the Federal Govern-
ment, in their wisdom and through 0PM, has decided to institute
a 20 percent co-payment for, in all cases, seniors under the Medi-
care program of the Federal employees program to buy their pre-
scriptions. So there's a 20 percent disincentive for them to use com-
munity pharmacy. Zero co-pay at mail order. That's a true manipu-
lation of the discriminatory pricing that exists by having the Fed-
eral Government drive people to assist them, that's anticompetitive
toward community pharmacy.
Another point of clarity is that, when we speak of community
pharmacy, we speak of the Walgreens, who do billions of dollars
worth of business, not buying any better than the EPIC phar-
macies, who do — in our group, we represent sales of $350 million.
So these aren't volume issues; these are class of trade issues.
Basically, on the Federal employees program, what you have is
analogous to community pharmacies being asked to stay open for
the acute care and emergency care prescriptions for Federal em-
ployees. That means that we're not good enough or we're not des-
ignated to fill maintenance medications, but you sure do want my
community pharmacy open to take care of the needs of your acute
care children's ear infections, your heart attack people who need
Nitrostat stat, that's why they call it "Nitrostat," for their heart.
It's analogous to asking a shoe store to be open, OK, but telling
the shoe store that they can only sell socks, and the socks, you fix
the price at a low reimbursement. That's what it's analogous to, be-
cause that's exactly what's happening in pharmacy community.
And what's happening is, you're destroying — not you — but the sys-
tem is destroying the infrastructure of community pharmacies in
this country that I think have served the American public very,
very well.
And there is some cure that the Federal Government, through
the auspices of some of their agencies, like the FTC, could have
done through a closer insight and study of the long-term anti-
competitive effects of potential violations of certain acts, such as
the antitrust acts, that may have occurred by the manufacturers
who are now being cured, hopefully, by injunctive relief, through
the Federal court system.
So I don't think the Federal Government is totally — through its
regulatory — at least enforcement — is without some culpability, over
the years, with not having their agencies look at whether these
were really violations of the Robinson, Patman, Sherman, and
these other acts.
115
And I think that they continue to not look at things that are af-
fecting competition. Vertical and horizontal integration: You have
big PBM companies buying drug manufacturers. You also have hor-
izontal integration, like Revco and Rite-Aid, like American Drug
Stores with a large drug manufacturer in the West.
I think what you're doing, the long-term effects are that some-
times the short-term effects of enforcement of antitrust laws may
cause a competitive situation. But if they are not looked at on an
overview of the long-term effects, what you will do is, you're going
to have no community pharmacies, zero, and you're going to have
several big players dominate the marketplace. And I think that
spells higher prices, no competition, and that's an area where we're
leading.
Last point: We have to spend an incredible amount of money on
attorneys. I said recently that I don't go to the bathroom without
my antitrust attorney. That goes to the issue that small caterers,
or whoever it is, cannot get together — you mentioned, can we get
together? Yes, we can get together for the purpose of purchasing,
but there's a very, very succinct structure that we must have,
which we do. It's a joint integrated venture that we have to get to-
gether, because we're all competitors in the marketplace and nego-
tiate contracts, but we have to have nonexlusions and everything
in there, so we truly can't compete.
It's a fallacy to think that small businesses can get together and
form effective negotiating when you always have the threat, did
you fix a price? Did you conspire to boycott? These are burdensome.
I think they need to exist, but I think the FTC and others needs
to have an open dialog to define how can we operate without me
being scared every day whether I should even be in this job or not,
to represent small businesses. And we would like to bring that dia-
log, at some point, to the forefront of your committee, if possible.
Thank you.
Mr. McIntosh. I appreciate that. This has been helpful insight.
Bob mentioned there is a letter circulating about the 0PM purchas-
ing problem, and actually your description helped fill out the pic-
ture for me about how they are picking certain people to give pref-
erences to over others. Let me look at that also, and we will do
that.
Mr. Miller. Thank you.
Mr. McIntosh. Thank you very much.
Mr. Ehrlich. You know I agree. He'll agree, too.
Mr. McIntosh. I always listen to Bob; he's got a lot of good ad-
vice.
Mr. Miller. Thank you very much.
Mr. McIntosh. Do you want to sum up for us today?
Mr. Ehrlich. Yes, just quickly. David, thanks. I think my folks
here in the 2d Districts and surrounding districts thank you for
coming here.
Mr. McIntosh. It's great to be here.
Mr. Ehrlich. And we'll bring you back to maybe the Preakness
and some other things here. But thank you very much, David. It's
great to work with you in my first year in Congress. Two last
points, and I know I speak for you with respect to this, as well.
116
One, whenever I speak to groups of small business owners like
yourselves, either people in management positions or owners —
some of you have heard me say this before — the fact that political
education, with respect to your employees, has gone unnoticed, un-
attended to over the years, hurts what we're trying to do in helping
you in Washington.
The dichotomy between legitimate regulations and stupid regula-
tions gets lost in the politics of Washington. Pro-life, pro-choice,
pro-labor, pro-business, well, everybody is pro-labor; everybody is
pro-business. It's where do you draw the line. What makes sense;
what does not make sense? Where does this regulatory mentality
stop? That's what we're about the business of, trying to get the dia-
log and the debate going in Washington.
We need you, but, quite frankly, we not only need you, but we
need your employees to understand what we're trying to do. When
we debate OSHA reform, we're not trying to put the screws to
workers. We're trying to create more jobs so that there are more
workers, in the long run. You've all heard me say this before, but
that's a very, very important point to the public dialog in Washing-
ton. The sound bite mentality and sound bite age we live in does
not lend itself to legitimate debate on these very complex issues
we've touched on today. We need your help in this regard, and you
all know that.
Second, and I could not help — one of our favorite bills here,
David, and you know what I'm going to say — Michael, you've men-
tioned nonprofits and the fact that they are competing against you.
Nonprofits are good. I give money to nonprofits. We all give money
to nonprofits.
David Mcintosh and Ernie Istook and Bob Ehrlich have been
talking in the first year of the 104th Congress about stopping the
practice in Washington of spending taxpayer money so that some
nonprofits and other for-profit entities — stopping their practice of
taking taxpayer money and using that money to, one, further polit-
ical agendas outside the scope of their business; and, two, asking
Congress for more money, with our money.
It is not an attack on anyone. It is an attack when the relatively
few for-profit and nonprofit groups in this country who have grown
up in the last 30 to 40 years, and who have gotten used to this
bloodline from the Federal taxpayer to their interest and political
advocacy. To the extent that business and nonprofits alike can get
back to the business at hand, which is you all making a buck and
creating jobs, and nonprofits actually doing the work in the field,
and not coming to Congress and falling in love with becoming a
lobbyist, we'll all be better off.
I know I speak for you in this regard. I thank you for what
you've done.
So the next time you hear about the Mclntosh-Istook-Ehrlich bill
or, as we refer to it, the Ehrlich-Mclntosh-Istook bill.
Mr. MclNTOSH. Ending welfare for lobbyists.
Mr. Ehrlich. Anybody who is interested in actually reading the
bill and what we're trying to do, please call our office. There is a
great deal of misinformation. But there should be a relatively few
groups out there who are very concerned about cutting their blood-
117
line off, because that's what we're trying to do, for your sake, and
for every Federal taxpayer's sake.
Thank you all very much.
David, thank you.
Mr. McIntosh. Thank you. Bob. Thank you for hosting this, and
thank you to the university. This has been a very, very informative
session, and we will take all of this information and put it in the
official record in Congress. There are several good ideas for Correc-
tions Days and problems that we can continue to address this year
on the legislative front.
One of the things that Bob and I are going to be working on in
the committee is holding some hearings in Washington to put the
fire under the feet of some of these agencies, to keep pushing for
them to reduce the regulatory burden. So your testimony helps give
us the factual information we need to be able to really move for-
ward in that area.
So thank you. I appreciate it. The committee is adjourned.
[Whereupon, at 1:05 p.m., the subcommittee was adjourned.]
[Additional information submitted for the hearing record follows:]
118
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Testimony of the
National-American Wholesale Grocers' Association
International Foodservice Distributors Association
before the
Committee on Government Reform and Oversight
Subcommittee on
National Economic Growth, Natural Resources and Regulatory Affairs
Regarding Federal Regulatory Reform
January 26, 1996
On behalf of the nation's food distributors, thank you for the opportunity to submit
testimony on the regulatory burden placed on our members by the federal government.
NAWGA/lhUA is an international trade association, based in the Washington, D.C.
area, comprised of food distribution companies which primarily supply and service
independent grocers and foodservice operations throughout the U.S. and Canada.
NAWGA/lhUA's 300 member coiiq>anies operate over 1,200 distribution centers with a
combined annual sales volume of $125 billion. NAWGA/IFDA members, in combination
with their independently-owned customer firms, provide employment for several miUion
people. 56% of the groceries sold in the U.S. are supplied by the independent wholesale
distributors who compose NAWGA's membership. IFDA, meanwhile, represents member
firms that sell food and related products to restaurants, hospitals, schools, and other
institutional foodservice operations.
We would like to thank you Mr. C3iairman for your effotts to shrink the size and
scope of the government regulations affecting the business commimity. The work that you
and your colleagues on the National Economic Growth, Natural Resoiuces and Regulatory
Affairs subconunittee have done in this Congress has been crucial to laying the groimdwork
for returning a sense of perspective to the way the government operates.
We strongly support the regulatory reform proposals contained in HJl. 9, passed by
the House last year. It is crucial that federal agencies be required to perform cost benefit
201 Park WashiriKton Coun. Falls Church. VA 22046-4521 1-703-532-9400 FAX: 1-703-538-4673
119
analysis and risk assessment to detennine the costs that any proposed regulation would
impose on the affected businesses. In addition, we support H.R.994, the Regulatory Review
and Sunset Act, which would give Congress the opportunity to review all new regulations
three years after their implementation, and then revisit them every seven years to ensure that
they are still performing a needed function without creating too drastic a burden to the
economy.
As food distributors, our members operate on an extremely thin margin, often less than
one cent on the dollar. Every dollar spent complying with an utuiecessary government
regulation is money that our members could better put to use investing in their companies to
provide more jobs and create more efficient means of delivering food to the consumer. Put
simply, unnecessary govenunent regulations raise our member companies' costs of doing
business, costs that they have no choice but to pass on to their customers, which in turn result
in higher prices for cSnsumers.
NAWGA/IFDA and its members do understand that most government regulations were
originally written to provide important safeguards against very real dangers. Our trade
association, in fact, was founded ninety years ago out of the need to enact laws and
regulations to protect the quality of food distributed across state lines. Our founders
recognized the validity of these concerns, which had led Congress to enact the National Pure
Food Law. As the years have passed, however, many of the regulations originally enacted to
combat legitimate problems, have been duplicated by other agencies of the federal
government or by state and local governments, resulting in a complicated and duplicative
layering of regulations that costs billions of dollars to comply with each year.
Today's regulatory environment provides numerous examples of the need to reform the
regulatory system. The number of regulatory agencies and statutes has exploded. One of our
member companies, with only 174 employees, now faces regulations from up to 55 different
federal, state and local agencies and statues. This is one agency for every three employees.
A list of the agencies and statutes with which this company must comply is attached. Each
of these organizations issues separate regulations or requires different procedures, leaving
businesses little choice but to devote a significant amount of resources to comply. This robs
them of the ability to expand and provide more jobs for the economy.
This week, one of the first elements of the "Contract with America" went into effect.
The Congressional Compliance Act requires that Congress comply with the laws and statutes
that are in effect for the private sector. As congressional offices struggle to determine which
employees are subject to overtime requirements and ensure their facilities comply with the
myriad requirements of the Occupational Safety and Health Act and the Americans with
Disabilities Act, Congress will have the opportunity to observe first hand the problems faced
each day by American businesses. The size of the booklet, 532 pages, that all Members of
Congress received from the Office of Compliance provides an immediate view of just how
large and confusing the regulatory enviroiunent is.
120
Many of the regulations arise from outdated laws which need to be revisited by
Qjngress. The food distribution industry achieved a major victory when the Perishable
Agricultural Commodities Act, which regulates trade in fresh and frozen fruits and vegetables
was amended last year. PACA, as it is known, was written in the 1930's, yet had changed
little over the years despite the vast technological advances that now make the delivery of
perishable agricultural products quicker and safer than was possible 60 years ago.
This problem, however, is not limited to the agriculture industry. All businesses in the
nation must comply with the Fair Labor Standards Act, another law written in the 1930's to
protect the rights of workers. One of the features of this law is the distinction between those
employees exempt from the overtime provisions and those who must receive time and one
half for all hours worked over forty in a given week. For a retail or service firm, all
salespeople regardless of whether they work from outside a facility or inside an office, are
exempt from this provision. For wholesalers such as food distributors, however, inside
salespeople are not. With the new technology such as faxes and computers available, such
inside salespeople are now often the main point of contact for our member companies and
their customers. Because of this provision, inside salespeople at wholesale and distribution
companies are unable to increase their salaries through working on the commission system.
By removing this incentive to sell, companies find their growth artificially restrained by an
outdated government regulation and new jobs that could be created are lost.
Regulatory reform cannot be accomphshed by merely upxlating outmoded laws. Many
of the federal agencies continue to maintain the mindset that more government regulation is
better. An example of the pervasiveness of this philosophy in the federal government is the
insistence of the Occupational Safety and Health Administration (OSHA) to continue work on
a standard to eliminate ergonomic injuries.
OSHA has determined that a standard is necessary to prevent cumulative trauma
disorders despite the fact that such problems represented less than 4 percent of workplace
illnesses and injuries that required missed workdays in 1992. In order to prevent this small
number of injuries, OSHA has been working on a standard that would cost American industry
billions of dollars to implement. It would require many employers, including food
distributors, to radically reengineer the workplace and dramatically increase paperwork
requirements, yet would not necessarily reduce these injuries and illnesses. Ironically, if
OSHA continues on its present course and issues a proposed standard along the lines of the
two drafts that have already been made public, employers would have little choice but to
automate, eliminating jobs for millions of Americans. Yet OSHA continues its work on a
draft standard, and maintains a proposed ergonomics standard on its calendar for 1996.
Contrast this with the cooperation achieved by Congress, the Department of
Agriculture (USDA) and the food industry following the USDA's proposal known as the
"Mega Reg." This massive regulatory effort involves two major initiatives, pathogen
reduction to reduce contaminations and a mandatory Hazard Analysis and Critical Control
Points program to determine possible contamination points in the food chain. Combined, the
121
two proposals added dramatically to the already complex standards involving food handling
and processing. After objections were raised by Rep. Jim Walsh, and negotiations with
Agriculture Secretary Dan Glickman, an agreement was reached that the USDA would
review, revise or repeal its existing regulations before the publication of a final rule. This
was a major step toward reducing the layering of regulations on top of one another, and an
example of cooperation to achieve important goals that has often been lacking between the
federal government and business.
Congress clearly can make a difference in working to reduce the regulatory burdens on
American business. Just as importantly, it can be done without reducing the effectiveness of
important regulations, thereby not placing the public at risk. Making government regulations
less complex and more user-friendly will increase productivity and efficiency to allow
American companies better opportunities to compete in the global marketplace. This means
more jobs and more savings passed on to the consumer; a win-win situation for government
and business.
122
BOSTON PUBLIC LIBRARY
3 9999 05984 301 9
ABC Distribution Company's Regulatory Burden
The following is a sampline of the federal, state, and city agencies and the statutes under which
ABC must combly:
Federal Agencies
Department of Transportation
Department of Labor - Wage and
Hour Division
Environmental Protection Agency
Equal Employment Opportunity
Commission
Food and Drug Administration
Healtti Care Financing
Administration
Internal Revenue Service
Interstate Commerce Commission
Occupational Safety and Healtli
Administration
Social Security Administration
U.S. Customs Service
U.S. Department of Agriculture
USDA - P.A.C.A. Branch
Federal Statutes
Americans with Disabilities Act
Civil Rights Act
COBRA
ERISA
Family and Medical Leave Act
MSDS
Natural Resources Protection Act
State Agencies
Bureau of Unemployment
Bureau of Labor Statistics
Bureau of Corporations, Elections,
Commissions
DEP
Department of Weights and
Measures
Department of Human Services
Department of Marine Resources
Human Rights Commission
Jobs Board Coalition
State Department of Motor Vehicles
State Turnpike Authority
State Department of Labor
State Environmental Protection
Agency
State Wage and Hour Division
State Department of Agriculture
State Public Drinking Water Fund
State Water Testing
State Historical Presen/ation
State Department of Transportation
State Workers' Compensation
Commission
State Statutes
Corporate Income Tax*
Doir/ Licensing
Excise Tax*
Family and Medical Leave
Fuel Permits*
Gasoline Tax*
Meat and Poultry Licensing
Sales Tax*
Seafood Licensing
Substance Abuse Reporting
City Agencies
City Engineers
Board of Health
Planning Board
City Statutes
Personal Property Tax
Real Estate Tax
*Must comply in every state in which
they do business.
o
I
ISBN 0-16-055128-5
780160"551284
90000
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