Office of Advocacy

January 28, 1999

David L. Harlow
Field Supervisor
Arizona Ecological Services Field Office
U.S. Fish and Wildlife Service
2321 West Royal Palm Road
Suite 103
Phoenix, Arizona 85021-4951

Dear Mr. Harlow:

The Office of Advocacy of the U.S. Small Business Administration (SBA) was established by Congress under Pub. L. No. 94-305 to advocate the views of small business before federal agencies and Congress. Advocacy is also required by §612 of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612) to monitor agency compliance with the RFA. On March 28, 1996, President Clinton signed the Small Business Regulatory Enforcement Fairness Act which made a number of significant changes to the Regulatory Flexibility Act, the most significant being provisions to allow judicial review of agencies' regulatory flexibility analyses.

On December 30, 1998, the Fish and Wildlife Service (FWS) published two proposed regulations for public comment that did not comply with the requirements of the RFA. Those proposals are:

1. Endangered and Ttabindex="60" hrefatened Wildlife and Plants; Proposed Determination of Critical Habitat for the Huachuca Water Umbel, a Plant, Federal Register, Vol. 63, No. 250, p.71838; and
2. Endangered and Threatened Wildlife and Plants; Proposed Determination of Critical Habitat for the Cactus Ferruginous Pygmy-Owl, Federal Register, Vol. 63, No. 250, p. 71820.

Purpose and Potential Impact of the Rules

The purpose of the proposed rules is to designate certain areas as critical habitat for the above mentioned species. Once an area is designated as critical habitat, certain activities can no longer occur. In a designated critical habitat, a federal agency is prohibited from funding, authorizing, or carrying out actions likely to jeopardize the threatened or endangered species. Accordingly, existing business activities such as timber removal, mining, damming, livestock grazing, road construction, and managing recreational activities may not occur in the designated habitat.

The notice needs to contain an explanation of the activities that will be curtailed and/or eliminated, as well as the economic implications for those business entities. This is necessary to elicit informed comments on the proposal. The agency has a statutory obligation to do an economic analysis, as the following will explain.

Regulatory Flexibility Act Requirements

The RFA requires administrative agencies to consider the effect of their actions on small entities, including small businesses, small non-profit enterprises, and small local governments. See 5 U.S.C. §§ 601, et. seq.; Northwest Mining Association v. Babbitt, 5 F. Supp. 2d 9. When an agency issues a rulemaking proposal, the RFA requires the agency to "prepare and make available for public comment an initial regulatory flexibility analysis" which will "describe the impact of the proposed rule on small entities." 5 U.S.C. § 603(a); Id..

Initial Regulatory Flexibility Analysis

If the proposed rule is expected to have a significant economic impact on a substantial number of small businesses, an initial regulatory flexibility analysis (IRFA) must be prepared and published with the proposed rule. The required IRFA is prepared in order to ensure that the agency has considered all reasonable regulatory alternatives that would minimize the rule' s economic impact on affected small entities. In accordance with Section 603(b) of the RFA, each IRFA must address the reasons that an agency is considering the action; the objectives and legal basis of the rule; the type and number of small entities to which the rule will apply; the projected reporting, record keeping, and other compliance requirements of the proposed rule; and all federal rules that may duplicate, overlap or conflict with the proposed rule.

Certification

Section 605 of the RFA allows an agency to certify a rule, in lieu of preparing an IRFA, if the proposed rulemaking is not expected to have a significant economic impact on a substantial number of small entities. If the head of the agency makes such a certification, the agency shall publish such a certification in the Federal Register at the time of the publication of the general notice of proposed rulemaking for the rule along with a statement providing the factual basis for the certification. (Emphasis added) Id.

RFA Non-Compliance in Proposed Rulemakings

In the above referenced proposed rules, the FWS did not prepare an IRFA or a certification. It merely inserted a sentence that stated:

"In the economic analysis, we will determine whether designation of critical habitat will have a significant effect on a substantial number of small entities."

Needless to say, such a statement in no way invited informed comments and, therefore, does not satisfy the requirements of the RFA. The RFA is clear- an agency must provide an IRFA or a certification with a factual basis at the time of the proposal. The total lack of an adequate certification or IRFA is in direct contrast to the requirements of the RFA. Failure to provide such information usurps the purpose of the RFA and deprives the public of valuable economic information that may be necessary for providing meaningful comments.

Although the proposal states in the economic analysis section of the preamble that an economic analysis will be provided at the final rulemaking stage, such an inclusion is not sufficient to rectify FWS’s failure to comply with the RFA in the notice of proposed rulemaking. These proposals could have a widespread effect on several businesses including timber, mining, agriculture, and recreational management. The public has a right to know which industries will be affected, as well as the extent of the economic impact of the rulemaking, and needs to have the information available to it prior to the finalization of the rule.

Because of the potential economic implications that the regulatory initiatives on small entities, it is incumbent upon the regulators at the agency to give the RFA adequate attention. Failure to do so may lead to judicial review of the agency' s actions. Republishing the rule with the proper RFA information can only rectify FWS’s egregious noncompliance.

The Office of Advocacy recognizes the importance of protecting the environment. The requirements of the RFA are not intended to prevent an agency from fulfilling its statutory mandate. Rather it is intended to assure that the economic impacts are fairly weighed in the regulatory decision making process.

The public has an interest in knowing the potential economic impact of a particular proposed regulation. As the court stated when remanding a rule to the agency in Northwest Mining v. Babbitt, "While recognizing the public interest in preserving the environment, the Court also recognizes the public interest in preserving the rights of parties which are affected by government regulation to be adequately informed when their interests are at stake and to participate in the regulatory process as directed by Congress." Id. at 13.

If you would like to discuss this matter or if this office can be of any further assistance, please contact Jennifer A. Smith, Assistant Chief Counsel for Economic Regulation. She may be reached either by mail at the above address or by telephone at (202) 205-6943.

Please include a copy of this letter in the record of each of the above referenced proceedings. Thank you for your attention to this matter.

Sincerely,

Jere W. Glover
Chief Counsel
Office of Advocacy

Jennifer A. Smith
Assistant Chief Counsel
for Economic Regulation