The Architectural and Transportation Barriers Compliance Board, or Access Board, in conjunction with the Federal Communications Commission (FCC), has authority for implementation of section 255 of the Telecommunications Act of 1996, which assures that all telecommunications equipment and customer premises equipment for telecommunications services are designed, developed, and fabricated to be accessible to and usable for individuals with disabilities — if readily achievable. In its proposed guidelines for accessibility, usability, and compatibility of telecommunications and customer premises equipment, the board initially certified that the proposed rule would have no significant economic impact on a substantial number of small entities. However, with guidance from the Office of Advocacy and the OMB, a final regulatory flexibility analysis was developed and provisions were identified to minimize the impact on small manufacturers of such equipment, consistent with the statutory objectives. Although the Office of Advocacy did not file formal comments, it worked extensively with the Access Board in its first-time effort at drafting a regulatory flexibility analysis. The final rule and revised regulatory flexibility analysis were published on February 3, 1998.

Department of Agriculture

Food Transportation and Storage Requirements. An advanced notice of proposed rulemaking was published by the Food Safety and Inspection Service (FSIS), along with the Food and Drug Administration (FDA), to improve the safety of potentially hazardous foods in transport and storage. The Office of Advocacy commended both agencies for seeking early input from the regulated industries. However, the Chief Counsel raised concerns in a February 21, 1997, letter about a proposal that could mandate one-size-fits-all management. This would be a departure from the regulatory approach embraced by the agency in its the recent implementation of the performance-based Hazardous Analysis and Critical Control Point procedures. In its communications with the FSIS, the Office of Advocacy outlined the advantages and disadvantages of various regulatory options, including voluntary guidelines.

Use of Spearmint Oil from the Far West. This proposed rule was a landmark for the Agricultural Marketing Service (AMS) because it was the first proposal in years from this agency that included an initial regulatory flexibility analysis. The Office of Advocacy worked diligently with the AMS to train staff, and new policies were instituted to comply with the RFA. The analysis was reviewed by the Office of Advocacy and minor suggestions were provided.

Department of Commerce

Department of Health and Human Services

Inhalation Solution Products. On September 23, 1997, the Food and Drug Administration (FDA) proposed regulations that would require new sterilization processes for preparing inhalation solutions. Small manufacturers of inhalation solutions for nebulization may be a small industry sector, but the Office of Advocacy challenged this rulemaking by the FDA that would have imposed costs of up to $1.7 million per firm for compliance. In a December 18, 1997, letter, the Chief Counsel for Advocacy asserted that the agency’s proposal to require all inhalation solutions to be sterile could cause the demise of the five small businesses in the industry. With only one year to come into compliance, these small businesses would be faced with daunting costs.The FDA gave no consideration to a firm’s ability to obtain financing, construct or retrofit facilities, complete paperwork, and train employees. Furthermore, the FDA failed to comply with the RFA by considering all the significant alternatives to the rulemaking that could minimize its impact on small firms.

Latex Rubber Medical Devices. In comments submitted to the FDA on October 7, 1997, the Chief Counsel for Advocacy contended that the FDA had not provided sufficient data and analysis concerning the impact of a rule requiring labeling for rubber-containing medical devices. While the goal of the rule may have been a valid effort to alert users who might be allergic to natural rubber latex, he noted, the FDA did not comply with the RFA. The agency certified that the rule would not have a significant economic impact on a substantial number of small entities, but there was no mention in the proposed rule of the likely cost. When the FDA published the final rule, it provided a response to an industry estimate of $15,000 per device by countering that the cost would only be $1,000 to $2,000. No supporting evidence was provided for the estimate. Moreover, the FDA never estimated the number of small firms that would be affected by the rule. According to data published by the Office of Advocacy, 989 firms were in the business of fabricating rubber products. Some 90 percent of these firms had fewer than 500 employees, and were therefore small businesses.

Prohibition of Animal Proteins in Ruminant Feed. An FDA proposal to prevent "mad cow" disease from entering the U.S. cattle market, while important to the nation’s food supply, nevertheless drew criticism from the Office of Advocacy because the agency failed to fully consider the impact of the rule on small companies that use ruminant tissue in animal feeds. More important, the FDA failed to consider the benefits of regulatory alternatives.

On January 3, 1997, the FDA published a proposed rule that would no longer recognize animal protein derived from ruminant tissue as safe for use in ruminant feed. The FDA acknowledged that the rulemaking would have a significant economic impact on an estimated 1.4 million businesses engaged in ruminant production. The Office of Advocacy provided estimates from its data base on the number of small businesses in each industry group that would be affected — including dog and cat food manufacturers, producers of feeds for other animals, meat packing plants, and animal and marine oil renderers. The Office of Advocacy also analyzed the agency’s cost estimates and found that the FDA grossly underestimated the impact on small businesses and failed to consider the benefits of regulatory alternatives. Costs associated with the rule included disposal of 1.7 billion pounds of dead stock that could no longer be recycled into cattle and other ruminant feeds. The Office of Advocacy, along with industry representatives, urged the FDA to extend the 45-day comment period to allow for further analysis. The agency refused this request. On April 17, 1997, however, the FDA published a notice of a draft final rule for further comment. The final rule was published on June 5, 1997. In the end, the FDA agreed to remove the labeling requirements for pet food manufacturers, a change that resulted in a tremendous savings for this industry without jeopardizing the nation’s food supply.

Food Transportation and Storage. See the section covering the Department of Agriculture’s Food Safety and Inspection Service on page 18.

Medicare Coverage of Ambulance Services. On November 4, 1997, the Office of Advocacy submitted comments to the Health Care Financing Administration (HCFA) on a proposal that would base Medicare reimbursement to ambulance services on the beneficiary’s medical condition, rather than the type of vehicle used to transport the patient (advanced life support versus basic life support). The agency failed to analyze the impact on small firms when it published the proposed rulemaking: No description of the projected compliance costs were included, nor was there a description of the small firms that would be affected by the change in reimbursement regulations. The proposed rule would require ambulance providers to document and submit to HCFA a record of which level of care was needed by a beneficiary patient based on certain diagnostic codes. The Office of Advocacy questioned how this rule could be implemented realistically and equitably, because it would require an ambulance service to determine how to serve a patient based upon symptoms, but to be paid later based upon a diagnosis. An added complication is that many state and local laws require a minimum level of ambulance service, regardless of federal law. In some rural areas, communities may have only one type of highly equipped advanced life support ambulance to service all calls. The Office of Advocacy provided HCFA with guidelines for completing a regulatory flexibility analysis for this rulemaking.

Department of the Interior

Oil and Gas Production. The Office of Advocacy submitted comments on May 28, 1997, to the Minerals Management Service (MMS) on its failure to comply with the RFA. The proposed rule would regulate oil and gas production’s measuring methods, commingling, and security. The MMS provided no supporting data when it certified that the rule would not have a significant economic impact on a substantial number of small entities. The Office of Advocacy reminded the MMS that the certification was subject to judicial review and would probably fail under court scrutiny. Upon receipt of the comments, the MMS invited staff from the Office of Advocacy to brief its officials on the RFA and to make recommendations for improving the agency’s compliance. As a result, the MMS is now working to bring the rule into compliance before publication in final form.

Duty-Free Insular Watches. See the section on the Department of Commerce’s International Trade Administration for a joint proposed rulemaking (page 18).

Department of Justice

Methamphetamine Shipments. While the Drug Enforcement Ad min istration (DEA) does not commonly regulate small businesses, it does regulate some over-the-counter drugs handled by small retailers and wholesalers. The agency proposed a rule to prevent large bulk quantity sales to relatively anonymous buyers and the potential abuse by clandestine methamphetamine manufacturers. While a regulatory analysis was completed for retailers and wholesalers, the Office of Advocacy identified a subset within the wholesale industry that sold small quantities of methamphetamine-containing drugs to convenience stores. In addition to the exemptions provided to retailers, Advocacy recommended that the DEA study alternatives — such as less frequent reporting — that would lessen the burden on small wholesalers.

Department of Labor

Black Lung Benefits. On August 21, 1997, the Office of Advocacy submitted comments to the Employment Standards Administration (ESA) regarding the agency’s decision to certify a rule that would increase the costs of black lung insurance for mining operations by as much as 84 percent. The agency concluded that the increases would not have a significant economic impact on a substantial number of small entities. This certification was not supported by any statements in the record. The Office of Advocacy’s statistics show that the coal mining industry was dominated by small firms (1,811 small firms constituted 95 percent of the industry). Because the increase in costs was linked with payroll, the Office of Advocacy’s analysis showed that small firms were disproportionately affected. Small firms’ payroll represented a much larger portion of their annual revenues than larger firms. Officials from the ESA contacted the Office of Advocacy to review the small business statistics and cost estimates before proceeding with the rule.

Longshore and Harbor Workers’ Compensation. The ESA proposed to increase civil penalties for violations for the Longshore and Harbor Workers’ Compensation Act. The agency certified that the change would not have a significant economic impact on small firms but provided ambiguous reasoning. The Office of Advocacy asked the agency to clarify its rule and analysis before certifying the final rule. The agency responded to the Office of Advocacy’s request and clarified that the cost would be only $2,500 in the aggregate, and much less per case.

Noise Exposure. On August 1, 1997, the Office of Advocacy submitted comments to the Mine Safety and Health Administration (MSHA) regarding its proposed rule for occupational noise exposure. The Office of Advocacy had met with officials of the MSHA earlier in 1997 to discuss the RFA and the process required for using a size standard different from that required by the Small Business Administration. The agency decided to forego using an alternative standard and completed an analysis for the entire universe of affected small businesses.

However, the agency decided to certify that the rule would not have a significant economic impact on small businesses. While the agency estimated costs for small businesses to be $4,359 to as much as $14,492, the MSHA did not provide a record that demonstrated these costs were not significant. The Office of Advocacy emphasized that the analysis did not show how small mines would accommodate the need for immediate capital outlays for engineering controls and account for increased operating costs for new practices, such as administering audiograms. In addition, the regulation’s requirement to use "all feasible engineering and administrative controls" was vague, and the Office of Advocacy recommended clarification for small business implementation.

In 1997, the Office of Advocacy analyzed and made recommendations for rules of the Occupational Safety and Health Administration (OSHA) that were at various stages of development. As OSHA’s methylene chloride and respirator exposure final rules made their final round through the OMB, the Office of Advocacy ensured that the effects on small business, as supported by the rulemaking record, were considered. Following proposals, the Office of Advocacy worked with small business groups to consider the economic impact of a tuberculosis exposure regulation and a steel erection rule drafted by a negotiated rulemaking committee. The Office of Advocacy also brought small businesses into the regulatory process for many rules still under development, such as the proposed implementation of comprehensive safety and health programs, exposure limits on metal working fluid, and the revision of permissible exposure limits for air contaminants. Finally, two existing rules were reviewed under section 610 of the Regulatory Flexibility Act.

Methylene Chloride. On January 7, 1997, OSHA finalized a rulemaking for occupational exposure to methylene chloride that would place a tremendous burden on small businesses, including furniture refinishing companies, foam manufacturers, and methylene chloride manufacturers. The Office of Advocacy objected to many provisions of the rulemaking during a final OMB review in 1996. As a result of the Office of Advocacy’s efforts, OSHA made some provision in the proposed rule for manufacturers with fewer than 100 employees. On March 11, 1997, the Office of Advocacy submitted comments on the information collection requirements of the rule that had been published by OSHA for comment after the rule was made final. The Office of Advocacy emphasized in its comments that OSHA continued to use an improper definition for small businesses when assessing the effects of paperwork and other compliance burdens.

Small business organizations filed petitions with the U.S. Court of Appeals and the secretary of labor seeking to stay the rulemaking, alleging that OSHA violated the Regulatory Flexibility Act. The peti tioners referenced a letter from the Chief Counsel for Advocacy to OSHA that urged the agency to "develop flexible alternatives for small firms affected by this rulemaking, beyond micro-businesses with less than 20 employees." In support of reaching a compromise that would minimize the burden on small businesses, the Chief Counsel for Advocacy wrote a letter urging the agency to stay the rule. While awaiting a decision by the secretary of labor to reopen the rule, OSHA agreed to delay implementation.

Respirator Requirement. Working with OSHA and the OMB during the OMB review process, the Office of Advocacy recommended numerous changes to a draft final rule issued by OSHA governing respirator use in the workplace. OSHA agreed to analyze the impact of the rule on industries that have intensive use of negative pressure respirators, to define the term "ensure" (which is used throughout the regulation), and to eliminate the requirement for providing five to six respirators for fit testing. OSHA modified the rule by accepting many of the recommendations for minimizing the burden on small businesses made by the Office of Advocacy (comments submitted on April 13, 1995) and other small business representatives (such as phasing in the requirement and eliminating the use of unapproved standards).

Tuberculosis Exposure. In 1996, the first Small Business Advocacy Review Panel convened to address a draft proposed rule on occupational exposure to tuberculosis. The panel report was finalized on November 12, 1996, and the proposed rule was published on October 17, 1997. The rule included some changes from those recommended by the panel report, including a clearer definition of a "suspected infection." OSHA also agreed to undertake an extensive study of the effects of the rule on non-profit organizations that provide services to the homeless. In anticipation of commenting on the rule, the Office of Advocacy convened a meeting with representatives of organizations that submitted comments to the panel. Repre sen tatives of homeless shelters, nursing facilities, home health care, and clinics continued to express strong objections to the proposed rule because it duplicates local infectious disease control efforts and mandates procedures that may not be appropriate for medical care. As a result of this meeting, a large coalition was formed that included small and large commercial entities, non-profit service providers, epidemiologists, infectious disease experts, and health care officials to draft comments for OSHA.

Steel Erection Standard. In 1997, OSHA circulated a draft proposal of safety standards for the steel erection industry. The draft standards were developed by the Steel Erection Negotiated Rulemaking Committee, a panel convened by OSHA under negotiated rulemaking procedures set forth in the Negotiated Rulemaking Act of 1990 (5 USC 581–90). In a letter to the Chief Counsel for Advocacy on August 27, 1997, OSHA requested a waiver of the requirement under the SBREFA amendments to the RFA that a Small Business Advocacy Review Panel be convened to consider any proposals with significant small-business impacts before they are published by OSHA. In its request for a waiver, OSHA asserted that the review panel would not contribute to advancing the effective participation of small business in the rulemaking process because, in this instance, small businesses had actively contributed to developing the proposed standards through the negotiated rulemaking process.

Safety and Health Programs. At the Office of Advocacy’s initiative, OSHA agreed to work with the office and the OMB to set up a series of regional small business meetings as part of the Small Business Advocacy Review Panel process for evaluating a draft proposed rule for comprehensive safety and health programs. The rule is expected to have broad application to all firms with employees. Four meetings were held with small businesses during the summer in Atlanta, Georgia; Philadelphia, Pennsylvania; Columbus, Ohio; and Portland, Oregon. As a result of these meetings, the Office of Advocacy was able to document the initial concerns of small firms about OSHA’s rulemaking record before the expected convening of a panel in 1998.

Metal Working Fluids. Throughout 1996, the Office of Advocacy met with associations that represent small firms engaged in metal working to discuss OSHA’s plan to develop a proposed rule that would reduce the permissible exposure limit for metal working fluids. As a result of these concerted efforts of small firms and the Office of Advocacy, OSHA agreed to contract with the National Institute for Occupational Safety and Health to conduct research on exposure in small firms. This research began in January 1997. In addition, the Office of Advocacy urged OSHA to convene a standards advisory committee (SAC) with significant small business representation. In May 1997, the agency announced that three of the five employer representatives selected were from small businesses. The first meeting of the SAC was convened on September 2, 1997, and no proposed rulemaking will be developed until the SAC completes its work in 18 to 24 months.

Permissible Exposure Limits. During an Office of Advocacy roundtable on OSHA issues in February 1997, small business representatives expressed tremendous concern over OSHA’s decision to promulgate new permissible exposure limit (PEL) regulations for air contaminants under a new fast-track process of rulemaking. Moreover, the industry raised concerns about the selection of PELs, the scientific data, and the economic models being developed. In September 1997, Dr. Adam Finkel, director of OSHA Health Standards Programs, met with small business representatives during an Office of Advocacy roundtable to discuss this issue. Dr. Finkel agreed to provide the small businesses with a list of PELs under consideration and a preliminary estimate of the industries affected.

Review of Existing Regulations. OSHA decided to review two existing regulations in 1997 under section 610 of the Regulatory Flexibility Act. This section of the law requires federal agencies to periodically review rules that have a significant economic impact on a substantial number of small businesses. The Office of Advocacy commented on the lockout/tagout standard that requires employers to protect employees from hazardous energy exposure, and the ethylene oxide exposure standard. Because the input from small business was limited, the Office of Advocacy provided extensive recommendations for improving participation through trade associations and journals.

In 1996, the Office of Advocacy and the Federal Railroad Administration (FRA) initiated a working relationship that matured in 1997 when the FRA began forwarding draft regulatory analyses to the Office of Advocacy before proposed rules were published. The analyses have improved, and the agency has given special attention to the tour railroad industry. During 1997, the Office of Advocacy consulted on a personal communications equipment rule, a track safety standard, and a whistle-blowing ban. Official comments on proposed rules became unnecessary this year because of this working relationship. The most common difficulty is that many rules are drafted by federal advisory committees, in which small businesses are underrepresented, and the FRA is concerned about upsetting the delicate balance of an agreement made by the committees. The solution for this problem is more representation of small businesses on the committees and a greater appreciation by the committees for the agency’s obligations under the Regulatory Flexibility Act.

Certification of Changes. When changes are made to aircraft, the aircraft must be recertified to standards determined by the FAA. The FAA has allowed exemptions from new safety requirements in the past, but in 1997 proposed that new airworthiness standards be applied even to refurbished planes. The FAA invited the Office of Advocacy to discuss the implications of the rulemaking on small businesses. The Office of Advocacy made a series of suggestions. First, quantifying the cost of the regulation seemed difficult because any business seeking certification would encounter costs unique to the type of aircraft, the number of changes, and the particular standards. While the agency should not certify the final rule, the Office of Advocacy recommended that the FAA describe a series of scenarios to explain how the new certification would change the process and costs for small businesses. Second, the Office of Advocacy recommended that the FAA offer guidance to small businesses on how to conduct a cost/benefit analysis to determine whether retrofitting older aircraft would be more cost-effective than buying new ones.

Cargo Standards for Fire Safety. After a fire in the cargo area and the subsequent crash of a passenger airliner over Florida in 1996, the FAA reevaluated its standards for fire safety. Staff of the FAA and the Office of Advocacy met in November 1997 to discuss a proposed rule that would set new standards for aircraft cargo fire detection and suppression systems. The Office of Advocacy requested that the FAA correct its regulatory flexibility analysis by using the SBA’s definition of small business, describe the range of costs as they apply to various sizes and types of businesses, and describe costs as a percentage of revenue or profit to determine the impact on small firms. In addition, the Office of Advocacy urged the FAA to better explain why it rejected regulatory alternatives.

Department of the Treasury

Definition of Limited Partnerships. The Office of Advocacy submitted comments to, and testified before, the Internal Revenue Service (IRS) regarding the hardship that small businesses would incur as a result of proposed changes to the definition of a "limited partnership." The IRS had proposed redefining "limited partnership" without conducting a regulatory flexibility analysis. The IRS argued that its rule was "interpretative," did not impose any information collection requirements, and therefore was not subject to the RFA. In an April 14 comment letter, the Chief Counsel for Advocacy argued that the new rule would create a potential tax obligation for millions of partners that was not contemplated in the Internal Revenue Code. Moreover, the proposed change would require taxpayers to keep more detailed records in order to meet the burden of proof regarding their partnership and the amount of time they spend working with it. In testimony on May 21, 1997, before an IRS panel regarding the proposal, the Office of Advocacy recommended that the IRS withdraw its proposal until a full analysis of its impact on small businesses could be completed. The proposal was subsequently withdrawn and the Treasury Department started discussions with affected industries to resolve the matter.

Uniform Capitalization of Expenses for Property Produced in Farming Operations. On August 22, 1997, the IRS published a regulation with the intent of clarifying the deductibility of certain expenses incurred in connection with property produced in a farming business. Under the new regulation, small businesses, particularly in the nursery industry, faced new and complicated rules for determining whether plants held for growth and further cultivation were deductible or capitalized expenses. On November 21, 1997, the Office of Advocacy submitted comments urging the IRS to complete a regulatory analysis. This was required, according to the comment letter, because the "interpretative" rule would place a burden on nurseries to demonstrate that they are a "farming business" (thus allowing them to deduct the operating costs of holding plants for growth and further cultivation).

While the Office of Advocacy commended the IRS for trying to clarify its rule, the agency was told that the regulatory process would be helped "if the RFA were not routinely circumscribed with boilerplate language but, instead, was embraced by IRS." The rule could have been interpreted as requiring any grower who has plants in a portable condition (in sod balls or plastic containers) to keep records that provide a proportional allocation of all costs to each plant. However, the vast majority of plants are grown in moveable conditions. The IRS agreed to further clarification in consultation with the appropriate industries.

Electronic Filing of Tax and Payroll Payments. The Office of Advocacy worked with the IRS on the implementation of the North Atlantic Free Trade Agreement provision that requires electronic filing of payroll taxes. In order to minimize the impact on small firms, the IRS agreed to allow all businesses with under $50,000 in payroll withholding obligations to participate in electronic filing voluntarily, instead of mandating electronic payment as planned. In addition, the agency agreed not to impose penalties until January 1, 1998, on businesses not using, or inaccurately using, the system.

Substantiation of Travel and Entertainment Expenses. On March 25, 1997, the IRS issued a rule that would minimize the burden of recording travel and entertainment expenses for business deductions. As part of its follow-up to the 1995 White House Conference on Small Business, the Office of Advocacy had urged the IRS to reduce this paperwork burden. While the IRS could not change the law on the deductibility requirements, it dramatically reduced the recordkeeping required on small expenditures by raising the threshold for producing records from $25 to $75.

Efforts to Consult on RFA Compliance. On December 2, 1997, the IRS sought consultation with the Office of Advocacy for the development of upcoming analyses to determine the impact of its rules on small firms. While officials of the IRS had previously attended RFA briefings sponsored by the Office of Advocacy, this marked the first occasion that the agency approached the Office of Advocacy for RFA compliance assistance on specific regulatory analysis. In its meeting with the IRS, the Office of Advocacy provided a review of the IRS’s initial regulatory flexibility analyses under development and provided examples of acceptable methods. One of the Office of Advocacy’s principal suggestions was that the IRS stop relying on boilerplate RFA language and replace it with thoughtful analysis. Advocacy and IRS officials agreed to meet regularly to work on pending proposals and analyses.

Environmental Protection Agency

The Office of Advocacy worked extensively with the Environmental Protection Agency (EPA) and small businesses during 1997 on pre-proposed regulations before publication. Five Small Business Advocacy Review Panels were initiated on draft proposed rulemakings. The Small Business Regulatory Enforcement Fairness Act requires the EPA to convene panels with the Chief Counsel for Advocacy and officials from the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA) for proposed rules that are expected to have a significant economic impact on a substantial number of small entities. This process is valuable to small businesses because the EPA and OIRA staff learn firsthand about the impact of rule from small business representatives. The Office of Advocacy supplements this process by providing small business statistics on revenue, employment, and the number of facilities affected and by conducting independent research on the specific effects of the proposal on regulated industries.

In addition to its panel work, the Office of Advocacy continued to weigh in on EPA issues affecting small firms, including the regulations implementing the National Ambient Air Quality Standards (NAAQS), paperwork burdens arising from toxic release inventory, reporting requirements for ozone and particulate matter, chemical inventory reporting, and pesticide hazard reporting.

Emission Standards for Non-Road Diesel Engines. On September 24, 1997, the EPA published a proposed rule governing emissions from non-road diesel engines. Earlier in the year, the EPA had convened a Small Business Advocacy Review Panel. The panel sought input about the rule that would limit emissions standards from small manufacturers that use, modify, or manufacture non-road diesel engines. After the EPA followed the recommendations of small business representatives, most of the estimated 283 small businesses affected by the non-road diesel engine rule were not expected to suffer significant adverse financial impacts. The panel presented five recommended changes, and all were adopted in the September 24 proposal. Four of the recommendations left only 9 percent of small firms significantly affected, and the fifth provides relief for small companies hard hit by the rule. On October 2, 1997, the Chief Counsel for Advocacy wrote, "The publication of this rulemaking is a landmark achievement. As the first proposal [after a panel], it is a shining example of proof that the goals of mitigating adverse small business regulatory impacts and the protection of human health and the environment are not mutually exclusive." Because of the changes, the EPA was able to certify under the RFA that the proposed rule would not have a significant impact on small firms.

Effluent Guidelines for Industrial Laundries. The EPA published a proposed rule for industrial laundries on December 17, 1997, that was revised as a result of input from small businesses to a Small Business Advocacy Review Panel. The proposal would require pre-treatment standards for industrial laundries’ discharge of water pollutants that pass through publicly owned treatment works (POTWs). At the request of the Office of Advocacy, and to facilitate analysis, the EPA used a method of presenting data regarding the proposed rule that provided small businesses with more information than is generally made available. A "model plant" analysis was developed that combined data from groups of similar-sized plants and allowed review of underlying economic impacts on businesses of different sizes.

In a December 17, 1997, letter, the Chief Counsel for Advocacy noted that the EPA was able to propose a small-business exemption that covered 8 percent of the affected businesses without an adverse impact on the environment. (Ninety-three percent of the industrial laundry industry is made up of small businesses, and most of these would be subject to the new regulations.) The Office of Advocacy maintained throughout the panel process that the rule unnecessarily covered many small operations because local POTWs already regulate small businesses’ discharges adequately. Based on comments received, the EPA may increase the number of small businesses eligible for exemption under the final rule.

Storm Water Regulations. On June 16, 1997, a Small Business Advocacy Review Panel was convened for regulations under development for implementing phase II of the National Pollutant Discharge Elimination System that would affect small governmental jurisdictions, construction firms, and industrial facilities. The proposed rule would address currently unregulated discharges of storm water and provide regulatory relief to industrial facilities where materials and activities were not exposed to storm water. Among regulatory alternatives that the panel raised in its August 7, 1997, report were that the EPA:
• exempt municipalities within urban areas with populations of less than 1,000;
• draft less burdensome regulations for construction sites that disturbed no more than five acres; and
• minimize paperwork.

Independent research sponsored by the Office of Advocacy provided critical regulatory analysis for the panel. In particular, the analysis outlined the case for providing regulatory relief for construction sites.

Other Panels on EPA Rules. Two additional Small Business Advocacy Review Panels convened in 1997 to address small business concerns about draft regulatory proposals of the EPA. The final reports of these panels will be released upon publication of the proposed rules. The Chief Counsel for Advocacy co-authored the reports of both of these panels. They are:
• "Effluent Limitations Guidelines and Standards for the Transportation Equipment Cleaning Industry Category" (panel completed on September 23, 1997) and
• "Effluent Limitations Guidelines and Standards for the Centralized Waste Treatment Point Source Category" (panel completed on January 23, 1998).

Ozone and Particulate Matter Standards. In 1997, the EPA withdrew plans to convene a Small Business Advocacy Review Panel for the implementation of the National Ambient Air Quality Standards (NAAQS) for ozone and particulate matter. The EPA reasoned that the agency was setting standards for states’ and regions’ air quality, and it was not regulating small entities as a result. The Office of Advocacy maintains that the proposed rule, published on July 18, would have a significant economic impact because it requires state governments to implement regulations that will impose burdens on small firms. The Office of Advocacy documented its objections to the EPA’s position in a November 18, 1996, letter to the agency.

As a result of the Office of Advocacy’s concerns, the EPA committed to take steps to reduce these burdens. On November 7, 1997, the EPA proposed a rule regarding interstate transport of ozone. The rule would greatly reduce the need for states in the East to regulate small firms for ozone pollution. The EPA is expected to take further measures to reduce the impact on small firms of the ozone–particulate matter standards.

Community Right-to-Know Reporting for Gasoline Stations. Since 1987, the Office of Advocacy has been calling for the elimination of the reporting requirements for gasoline stations under the Emer gency Planning and Community Right-to-Know Act (EPCRA) of 1986. In 1995, the Office of Advocacy renewed its request to eliminate such reporting, contending that gasoline stations are already regulated by the federal underground storage program. Moreover, the public already knows that gas stations do, in fact, have gasoline on the premises. Filing federal EPCRA reports results in an estimated $25.3 million of unnecessary costs for small businesses. In a letter to the EPA on February 13, 1997, the Chief Counsel for Advocacy reminded the agency that this issue continues to be a priority for small gas stations and sought regulatory relief in this area.

Toxic Release Inventory. The Office of Advocacy has been seeking relief for small business since the inception of the EPA’s Toxic Release Inventory (TRI) program in 1988. Under the program, businesses are required to report to the EPA data on toxic chemicals they have released or transferred. The Office of Advocacy has argued that firms face tremendous paperwork burdens, particularly for reporting small amounts of chemical releases. In 1997, the Office of Advocacy continued to urge the EPA to take serious steps to reduce these burdens.

The EPA expanded TRI requirements to seven industries in a final rule on May 1, 1997. To offset these new burdens, the EPA delayed implementation of the new rule until July 1, 1999, saving $100 million in industry costs. Furthermore, the EPA committed to working with affected parties to review TRI paperwork burdens. The Office of Advocacy provided some specific recommendations to increase the reporting threshold to lessen the burden for more small firms. The EPA continues to work with the Office of Advocacy and stakeholders to resolve this issue.

Pesticide Reporting. Before the EPA finalized a rule for reporting by pesticide companies, the Office of Advocacy had an opportunity to recommend clarifications and revisions to minimize the burden on small firms. Under the Federal Insecticide, Fungicide, and Rodenticide Act, the EPA’s final regulation, published on September 19, 1997, requires reports on the adverse effects of pesticide use. The Office of Advocacy was concerned with various issues that were raised during the final OMB review process. The EPA agreed to define narrowly the agents and employees covered by the rule (the number of affected persons was reduced to an average of seven per firm). In response to concerns that reporting "minor adverse effects" would exponentially increase reporting requirements, the EPA agreed to review the value of the required information after three years.

Ocean Disposal and Crabbing. Plans to expand two ocean sites located near the mouth of the Columbia River in Washington for disposal of dredged material created major anguish for the Northwest crabbing industry. Waste disposal in the two expanded sites could kill a large crab population. The Office of Advocacy challenged the EPA’s certification that its decision would not have a significant impact on small firms. In response, the EPA agreed to stay the rule — scheduled to go into effect in June 1997 — for several months, until officials could review the harm to small firms in the crabbing industry.

Federal Bureau of Investigation

The Office of Advocacy worked with the Federal Bureau of Investigation (FBI) and its independent contractors in the fall of 1997 on the implementation of its rules and completion of its first regulatory flexibility analysis for "notice of capacity" requirements called for under the Communications Assistance to Law Enforcement Act (CALEA). In two previous notices, the FBI concluded that its implementation of CALEA was not subject to the RFA. The FBI reconsidered this conclusion in the light of public comment and encouragement from the OMB and the Office of Advocacy. The Office of Advocacy also recommended several edits in the FBI’s final notice and FRFA that would provide adequate notice and minimize the economic burdens to small telecommunications providers subject to the rule. These recommendations included: (1) structure and headings for the FRFA; (2) clarification of exactly what small entities would be subject to this stage of the rules; (3) clarification that the government’s reimbursement for a carrier bringing its system to maximum capacity included all expenses necessary to meet the five-day turnaround; (4) and a proposed waiver process that would address the Office of Advocacy’s concern that some small carriers (especially new entrant personal communications services [PCS] "C" and "F" Blocks) may not be able to meet the maximum capacity requirements set forth in the final rule. The final notice was released in early 1998.

Federal Communications Commission

Universal Service. In 1997, the Office of Advocacy was involved extensively in the Federal Communications Commission’s proceeding to implement universal service support systems, one of the cornerstones of the Telecommunications Act of 1996. Final rules were released on May 8, 1997, that established new programs to give schools, libraries, and rural health care centers access to telecommunications, information, and Internet service at discounts. In addition, the final rules provided for the preservation of historical support for rural and high-cost areas and low-income subscribers.

The FCC’s acknowledgment that small businesses have more than one telephone line, and its rejection of the Federal-State Joint Board on Universal Service’s recommendation that universal service support for high-cost and rural areas be eliminated or reduced for businesses with more than one phone line, was a major victory for the Office of Advocacy in 1997. The Joint Board’s recommendation, if adopted, would have had severe economic effects on small businesses in rural and high-cost areas, increasing considerably the cost of basic telephone service and the cost of living for their customers.

After submitting comments to the FCC in April and December 1996, the Office of Advocacy filed additional comments in January 1997, criticizing the Joint Board’s misperception that small businesses were only those businesses with one phone line and that all businesses with multiple lines were large businesses. Its proposal to reduce and/or eliminate universal support to multiple-line businesses would have had an adverse impact on small businesses and rural areas’ economies generally.

The Office of Advocacy asserted that the regulatory flexibility analysis accompanying the Joint Board’s recommended decision was untimely, improperly published, and inadequate. The IRFA did not reflect that cuts in rural communities’ universal service support — estimated between $1 and $3 billion — would stifle the use of advanced telecommunications and technologies (such as fax machines, the Internet, credit card and check approval machines, etc.) in these areas and would hinder the ability of small businesses to compete with similar companies in urban and suburban areas.

In its April 4, 1997, comments, the Office of Advocacy recommended that small entities be classified not by the number of telephone lines, but by annual gross receipts. The Office of Advocacy further recommended that the FCC:
• exempt institutional and small governmental entities to ensure that the needs of public health, safety, and welfare would be met; and
• provide an exemption for small firms with $5 million or less in annual gross receipts from any reduction in universal service support.

On May 8, 1997, the FCC released its final rules. It rejected the Joint Board’s recommended decision to eliminate universal support for rural and high-cost areas, and published an extensive FRFA with input from the Office of Advocacy. Moreover, the FCC elected to continue the level of support for rural and high-cost areas until it could analyze fully the development of new support mechanisms, and implemented an 18-month transition period for larger "price-cap" carriers and a three-year extension for smaller carriers serving rural areas. To better assess the changing telecommunications landscape in rural America (and in recognition of the Office of Advo cacy’s concerns regarding the economic impact on rural areas), the FCC also recommended that the Joint Board create a rural task force to assist it in its work of reforming universal service subsidies.

In response to the FCC’s request for nominations to the rural task force, the Office of Advocacy supported representation by small business consumer interests as well as the small business telecommunications providers already represented, to better address the interests of all classes of small entities.

Access Charges. The FCC’s reform of access charges was a separate but related and concurrent proceeding to its universal service rulemaking. The Office of Advocacy speculated that small businesses would encounter increased charges under anticipated access charge reform, and encouraged the FCC to look at the cumulative economic impact of its proposals on small business subscribers with multiple lines. To highlight these issues, the Chief Counsel for Advocacy submitted a letter to the FCC on April 29, 1997, that illustrated what a potential $3 increase in the subscriber line charge (SLC) would mean for an average small business with eight telephone lines, particularly if universal support for high-cost areas were reduced. The Chief Counsel also expressed reservations in his letter about the rate savings for long-distance customers to be received from interexchange carriers (IXCs or long-distance companies) that the FCC projected. (The commission’s projection was based on the supposition that these companies would pass through their FCC-imposed reduction of $1.5 billion in access charges paid to local telephone companies.) The Office of Advocacy did not believe that small business subscribers would be the beneficiaries of such a reduction in rates, at least not enough to offset the FCC’s proposed increases in certain flat-rate charges.

The FCC’s "first report and order" was adopted on May 7, 1997 (at the same time as the universal service reforms), and it addressed several of the Office of Advocacy’s concerns. First, acknowledging for the first time that small businesses have multiple phone lines, the FCC reported a four-line average. (In all previous analyses, the FCC had assumed that small businesses had one telephone line.) Second, an anticipated increase of $3.50 in the SLC for all business lines was reduced to $1.90 in the first year and capped at $3.00 for subsequent years. Third, the presubscriber interexchange carrier charge (PICC), a new, flat-rate charge created by the FCC, was reduced by almost 40 percent — from a reported proposed amount of $4.50 to $2.75 — for multiple-line businesses. It is estimated that the economic savings to small businesses will be $255.4 million from 1997 through 1998.

The Office of Advocacy continued to have major concerns that small businesses with multiple lines and low-volume long-distance usage would not be the beneficiaries of access charge reform. There fore, on November 21, 1997, the Chief Counsel for Advocacy submitted a letter to the FCC chairman that criticized the commission’s first report and order, and subsequent orders on reconsideration. The Chief Counsel asserted that the FCC violated the RFA by its failure to (1) implement the RFA properly so that the economic impact on all affected small entities would be sufficiently addressed in the public record; (2) identify properly, describe, and reasonably estimate the number of all small entities to which these rules would apply; and (3) analyze the impact of its rules on small interexchange carriers and small business end users, including examining less burdensome alternatives.

The Chief Counsel argued that a proper regulatory flexibility analysis would have uncovered the tremendous increase in telephone bills due to FCC-imposed flat rate charges for certain small business end users as well as the disproportionate impact of the elimination of the unitary rate structure option for tandem-switched transport on small IXCs. For example, pointing to record evidence that tandem switch charges could increase by 400 percent for the estimated 600 small IXCs, the Chief Counsel questioned the FCC’s conclusion that the rule change "should promote competition" when small IXCs could be forced out of business and the top four long-distance carriers — AT&T, MCI, Sprint and WorldCom — already serving 88 percent of the nation’s presubscribed lines, would further dominate the industry. In his letter, the Chief Counsel was particularly critical of the FCC’s omission of regulatory alternatives. The FCC did not provide any analysis of options presented by commenters that would have reduced the impact on small business end users or small telecommunications providers.

Toll-Free Service. The FCC’s "second report and order" prohibits, for the first time, the "hoarding and brokering" of toll-free numbers, and presumes that a subscriber in the possession of more than one number is involved in illegal activity. Furthermore, the FCC mandated that toll-free carriers terminate the service of a subscriber that the carrier believes to be hoarding or brokering toll-free numbers. On December 12, 1997, the Office of Advocacy submitted ex parte comments on the FCC’s second report and order and its notice of proposed rulemaking and argued the following:
• The FCC did not comply with the statutory requirements of the Administrative Procedure Act and the RFA when it released a new rule on toll-free service access codes.
• The proposed rules would impose egregious harm on the economic welfare of millions of small businesses that have value in, and prudently use, their toll-free numbers. Legitimate businesses, such advertising and marketing firms, telemarketers, retail and mail-order firms, and commercial publishers, could be subject to forfeitures and criminal sanctions for "hoarding and brokering" toll-free numbers if the FCC vaguely defines this activity.
• The rule was unconstitutional and extremely burdensome because the FCC’s carrier enforcement mandate did not provide adequate due process. The toll-free service of a small business subscriber could be terminated by its carrier (also impermissibly without an official FCC finding) before the small business had the opportunity to defend itself.

The loss of a toll-free number and the interruption of business can be extremely costly. The Office of Advocacy was also concerned that larger carriers would have the unfettered ability to abuse their small business subscribers for the benefit of the carrier’s larger subscribers that have higher volumes of toll-free calls. The Office of Advocacy contended that: (1) the final rule was not a logical outgrowth of the commission’s original proposed rule; (2) the final regulatory flexibility analysis failed to identify properly, describe, and reasonably estimate the number of all small entities subject to the rule; (3) the analysis also failed to detail the compliance requirements for small businesses; and (4) the analysis failed to analyze the impact of its rule on small business end users and small business toll-free providers.

Personal Communications Services. In June 1997, the Office of Advocacy convened a joint FCC-SBA focus group to address the issue of financial restructuring for personal communications services (PCS) "C" Block. The C Block auction was reserved exclusively for small businesses, and several of the largest winners had experienced some financial difficulty in meeting installment payment schedules. The focus group included representatives from the FCC’s Wireless Telecommunications Bureau and the Office of Communications Business Opportunities, and the SBA’s Office of Business Initiatives, Office of Financial Assistance, Office of Size Standards, and Office of Technology. As a result of this meeting, and further consultations with other stakeholders, the Office of Advocacy submitted comments September 8, 1997, regarding the FCC’s restructuring proceeding.

The FCC’s second report and order and "further notice of proposed rulemaking," adopted on September 15, 1997, included several of the Office of Advocacy’s recommendations: (1) C Block licensees to receive a menu of options for financial relief; (2) an option for licensees to receive amnesty (if they turn in their license(s), their debt will be forgiven); (3) a deferment of installment payments until March 1998 (however, not as long as the Office of Advocacy had requested); and (4) the preservation of exclusive small-business participation for a re-auction of returned licenses.

Broadcast Ownership. On June 30, 1997, the Office of Advocacy objected to the adoption of a series of rules proposed by the FCC that would relax several existing broadcast ownership rules. The Office of Advocacy asserted that the commission should complete an analysis of the state of the broadcast industry since the passage of the Telecommunications Act of 1996 before it finalized rules for television national ownership, cross-ownership rules for broadcasting and newspapers, attribution rules, and duopoly/local marketing agreements. Given the tremendous rate of mergers and acquisitions in the broadcast industry, as well as the impact of increased media concentration on collateral industries such as programming, syndication, and advertising, the FCC has a threefold statutory duty to: (1) serve the public interest in the promotion of a diversity of voices/owners under the Communications Act of 1934; (2) eliminate the market entry barriers for small entities under the Telecommunications Act of 1996; and (3) identify the significant economic impact that relaxation or repeal of its broadcast ownership rules would have on small entities under the RFA.

Since the Office of Advocacy’s request, the commission has funded five studies by independent contractors that examine small, minority, and women-owned broadcasters. Some of the topics under study include: (1) the impact of radio duopolies on small and minority-owned stations; (2) obstacles faced by small businesses, minorities and women in broadcast licensing; and (3) the nexus between broadcast minority ownership and programming. The studies are nearing completion. The proceedings on broadcast ownership, attribution, and national ownership are pending.

EASs are required by the Communications Act of 1934. In its final rules, the FCC took several steps to eliminate the economic burden of bringing all cable systems in compliance with the EAS requirements. First, the FCC extended the deadline for small cable systems (as defined by the number of subscribers) to implement the new EAS, providing for a five-year phase-in period for the finance and installation of the expensive upgrades. Small systems with less than 10,000 subscribers have a deadline of October 1, 2002, for installation. Systems with more than 10,000 subscribers must install EAS by December 31, 1998. Furthermore, the FCC designated different technical standards for different classes of small systems. For example, small systems with 5,000 or fewer subscribers may either provide the national level EAS message on all programmed channels or provide an audio EAS message and video interrupt on all channels by the installation date. Larger systems have increased requirements. It is estimated that the savings to small cable systems will be $83.3 million.

Federal Trade Commission

On April 30, 1997, the Office of Advocacy submitted comments to the Federal Trade Commission (FTC) on its advance notice of proposed rulemaking to amend its disclosure requirements for franchising and business opportunity ventures. The Office of Advocacy commended the FTC for complying with the RFA by reviewing the rule under section 610 that requires federal agencies to conduct periodic reviews of existing regulations. An extensive list of recommendations was presented to the FTC that included:
• Retaining federal franchisor disclosure regulations, to ensure all small business franchises have complete information;
• Requiring franchisors to disclose lawsuits filed against or by franchisees; and
• Requiring the disclosure of statistics on intra-franchise competition, earnings, and franchise renewal rates.

General Services Administration

On July 11, 1997, the Office of Advocacy once again challenged proposed regulations that would create barriers to small businesses seeking to sell goods and services to the federal government. Amend ments to the Federal Acquisition Regulation (FAR) were proposed to implement the Federal Acquisition Reform Act of 1996 (P.L. 104-106). The new law allows contracting officers to restrict the competitive range (that is, the number of offerors) if the official determines that it would result in "efficient competition." The Office of Advocacy challenged the General Service Administration’s (GSA) interpretation of the legislation when the agency proposed to allow competition to be limited when the contracting officer identified those proposals "most highly rated." This limitation could, in effect, allow the officer to select as few as two offers that were subjectively "highly rated" by the contracting officer. If allowed, the process could bypass full and open competition by permitting personal choices for the purpose of simplifying the job of the government buyer.

The Office of Advocacy urged the GSA to consider a number of recommendations, such as requiring at least one small business in the range of competitors, defining "efficient competition," and correcting significant errors in the agency’s initial regulatory flexibility analysis. The GSA suggested that only 7,000 small businesses would be significantly affected by the rule. In fact, a large number of current and potential small contractors could be shut out of federal procurement.

When the rule was finalized, the GSA took some steps to address the Office of Advocacy’s concerns. The agency completed a more thorough analysis of the rulemaking, but it failed to provide sufficient measures to minimize the impact on small firms. The Office of Advocacy commended the agency for its improved efforts, but still found it far short of assuring full and open competition.

Office of Federal Procurement Policy

See the above section on the General Services Administration for a discussion of full and open competition in government contracting.

Securities and Exchange Commission

The Office of Advocacy and the Securities and Exchange Commission (SEC) worked closely together in 1997 to improve regulatory compliance assistance for small businesses and small entities in several ways. In April 1997, the two agencies collaborated to publish Q&A: Small Business & the SEC. This compliance booklet was written under the SEC’s new policy of "plain English." It is intended to help small businesses understand how to raise capital and comply with federal securities law.

The Office of Advocacy helped arrange small business town hall meetings in 1997. Headed by SEC Chairman Arthur Levitt and the SEC commissioners throughout the country, the town hall meetings were held in Richmond, Virginia; Austin, Texas; Los Angeles, California; Tampa and Fort Lauderdale, Florida; Cambridge, Massachusetts; Evanston, Illinois; St. Louis, Missouri; and Minneapolis, Minnesota. These town hall meetings were designed to inform small businesses of recent SEC initiatives for small businesses and to gather feedback on SEC rules and regulations.

Also in 1997, the SEC consulted with the Office of Advocacy on the appointment of a small business ombudsman, a position located within the SEC’s Office of Small Business Policy, to help small businesses on compliance and enforcement issues.

The SEC is mandated by statute to hold on an annual basis a government-business forum on small business capital formation. This forum brings together small business owners, policy experts, attorneys, accountants, and government officials to make recommendations to federal regulatory agencies and Congress on how to improve access to capital for small businesses in the tax, credit and securities areas. It is an excellent venue for small businesses to share their ideas and recommendations about SEC regulatory actions and outreach. The Office of Advocacy is a member of the forum’s executive committee and works very closely with the SEC in putting together the forum and reaching out to the small business community.

In 1997, the SEC has continued to maintain high standards in implementing the Regulatory Flexibility Act and reaching out to small entities to participate in the regulatory process.

Noticeable progress has been made by federal agencies in complying with the Regulatory Flexibility Act, in large part due to the SBREFA amendments. However, significant work remains to be done to bring all agencies into compliance on a consistent basis. Several agencies still have much to learn about the importance of small business to the economy and the underlying rationale of the RFA. Some have yet to comprehend that the RFA does not require special treatment for small business. Rather, it establishes a process for analyzing how to achieve public policy objectives while still preserving a level playing field for small business.

The Office of Advocacy has devoted significant resources to educating federal agencies about the law and its overriding objectives. Staff of the Office of Advocacy have been available for consultation on specific regulatory proposals, economic impact analyses, and overall RFA compliance. When such consultation is not completely successful, the Chief Counsel for Advocacy submits extensive comments on regulatory proposals and economic analyses, and monitors challenges to final rules by small entities — all with the objective of ensuring that small business interests are appropriately considered.

The potential for review of RFA issues in appellate litigation unquestionably has provid