July 17, 2000


VIA ELECTRONIC &
REGULAR MAIL


Hilda Diaz-Soltero
Associate Chief
United States Department of Agriculture
Forest Service
Washington, DC
Email: roadlessdeis@fs.fed.us

Dear Ms. Diaz-Soltero:

As stated in previous correspondence on this issue, the
Office of Advocacy of the U.S. Small Business Administration
(SBA) was established by Congress under Pub. L. No. 94-305
to represent the views of small business before federal
agencies and Congress.  Advocacy is also required by 612(a)
of the Regulatory Flexibility Act (RFA) (5 U.S.C.  601-612)
to monitor agency compliance with the RFA.  In that Advocacy
is an independent office within SBA, the comments provided
are solely those of the Office of Advocacy and do not
necessarily reflect the views of SBA.

A Brief Review of RFA Compliance Requirements

Initial Regulatory Flexibility Analysis

The RFA requires agencies to consider the impact that a
proposed rulemaking will have on small entities.  If the
proposal is expected to have a significant impact on a
substantial number of small entities, the agency is required
to prepare an initial regulatory flexibility analysis (IRFA)
describing the reasons the action is being considered; a
succinct statement of the objectives of, and legal basis for
the proposal; the estimated number and types of small
entities to which the proposed rule will apply; the
projected reporting, recordkeeping, and other compliance
requirements, including an estimate of the small entities
subject to the requirements and the professional skills
necessary to comply; all relevant Federal rules which may
duplicate, overlap, or conflict with the proposed rule; and
the significant alternatives that accomplish the stated
objectives of the of the statues and that minimize any
significant economic impact of the proposed rule on small
entities.  5 U.S.C  603.  The analysis or a summary of the
analysis must be published with the proposal for public
comment.

Final Regulatory Flexibility Analysis

When an agency issues any final rule, it must prepare a
final regulatory flexibility analysis (FRFA) when a rule
will have a significant economic impact on a substantial
number of small entities. The FRFA must discuss the comments
received, the alternatives considered and the rationale for
the final rule. Specifically, each FRFA must contain a
succinct statement of the need for and objectives of the
rule; a summary of the significant issues raised by public
comments in response to the IRFA; a summary of the agency's
assessment of such issues and a statement of any changes
made in the proposed rule as a result of such comments; a
description and an estimate of the number of small
businesses to which the rule will apply or an explanation of
why no such estimate is available; a description of the
projected reporting, recordkeeping and other compliance
requirements of the rule, including an estimate of the
classes of small entities that will be subject to the
requirement and the types of professional skills necessary
for the preparation of the report or record; and a
description of the steps the agency has taken to minimize
the significant economic impacts on small entities
consistent with the stated objectives of applicable
statutes, including a statement of the factual, policy and
legal reasons for selecting the alternative adopted in the
final rule, and the reasons for rejecting each of the other
significant alternatives.  In complying with the provisions
of section 603 and 604 of the RFA, an agency may provide
either a quantifiable or numerical description of the
effects of a proposed rule or alternatives to the proposed
rule, or more general descriptive statements if
quantification is not practicable or reliable.  5 U.S.C.
607.

Certification in Lieu of a Regulatory Flexibility Analysis

If the proposed or final rulemaking is not expected to have
a significant economic impact on a substantial number of
small entities, 5 USC 605 of the RFA allows an agency to
certify a rule, in lieu of preparing an IRFA or FRFA.  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 or final rulemaking for the rule along
with a statement providing the factual basis for the
certification.  See 5 U.S.C. 605(b).

The Proposed Rulemaking

Because of the nature of this rule, the Office of Advocacy
consistently maintained in its pre-proposal comments to the
Forest Service (FS) that certification was inappropriate
from a public policy standpoint.  On May 10, 2000, FS
published a proposed rule in the Federal Register, Vol. 65,
No. 91, p.30276 on Special Areas; Roadless Area
Conservation.  The purpose of the proposal is to protect the
environmental resources in national forests by prohibiting
road construction and reconstruction in most inventoried
roadless areas of the National Forest System and require the
evaluation of roadless area characteristics in the context
of overall multiple-use objectives during land and resource
management plan revisions.  The intent of the rulemaking is
to provide lasting protection in the context of multiple use
management for inventoried roadless areas and other unroaded
areas within the National Forest System.  Id.

Prior to the proposal, the Office of Advocacy worked with FS
in an effort to assist FS with RFA compliance.  Throughout
the process, FS has maintained that it believed that the
proposed rulemaking would not have a significant economic
impact on a substantial number of small businesses.  FS has
also contended that the proposed rule does not directly
regulate small entities and, therefore, an IRFA was not
necessary.  Nevertheless, FS prepared an Initial Regulatory
Flexibility Analysis (IRFA) at Advocacy's request.  Because
FS did not have sufficient economic information to prepare a
complete IRFA, Advocacy advised FS to include a list of
questions in the IRFA to solicit from the public information
on the economic impacts of the proposal.  FS complied with
this request also.(1) See, Fed. Reg. at 30285-30286.

FS Should Abandon Its Assertion that the Rule Does Have a
Direct Impact on Small Entities

As stated above, FS has consistently asserted that a
regulatory flexibility analysis is not required since the
proposal does not have a direct impact on small entities.
It is Advocacy's understanding that the basis of the
assertion is that the proposal establishes procedures, and
nothing more,  to be followed in local forest planning
processes.  Local FS offices will maintain the authority to
determine the actual forest plan; hence national FS is not
directly regulating small entities.  Consequently, a
regulatory flexibility analysis is not required.

Advocacy acknowledges that there is case law that states
that the RFA only requires an agency to perform a regulatory
flexibility analysis of small entity impacts when a rule
directly regulates them.  However, Advocacy asserts that the
cases are inapplicable to FS' proposal.  If anything, the
case law  and the facts support a finding that the impact of
the proposal is indeed direct, not indirect.

The primary case on the consideration of direct versus
indirect impacts for RFA purposes in promulgating
regulations is  Mid-Tex Electric Co-op Inc. v. F.E.R.C., 249
U.S. App. D.C. 64, 773 F.2d 327 (1985).  In Mid-Tex Electric
Co-op Inc. v. F.E.R.C., FERC ruled that electric utility
companies could include in their rate bases amounts equal to
50% of their investments in construction work in progress
(CWIP).  In promulgating the rule, FERC certified that the
rule would not have a significant economic impact on a
substantial number of small entities.  The basis of the
certification was that virtually all of the utilities did
not fall within the meaning of the term small entities as
defined by the RFA.  Plaintiffs argued that FERC's
certification was insufficient because it should have
considered the impact on wholesale customers of the
utilities as well as the regulated utilities.  The court
dismissed the plaintiffs' argument and concluded that an
agency may certify that no RFA analysis is necessary when it
determines that the rule will not have a significant
economic impact on a substantial number of small entities
that are not subject to the requirements of the rule.  Id.
at 64.

The US Court of Appeals for the District of Columbia applied
the holding of the Mid-Tex case in American Trucking
Associations, Inc. v. U.S. E.P.A., 175 F.3d 1027, 336
U.S.App.D.C. 16 (D.C.Cir., May 14, 1999) (hereinafter ATA).
In the ATA case, EPA established a primary national ambient
air quality standards (NAAQS) for ozone and particulate
matter.  At the time of the rulemaking, EPA certified the
rule pursuant to 5 USC  605(b).  The basis of the
certification was that EPA had concluded that small entities
were not subject to the rule because the NAAQS regulated
small entities indirectly through the state implementation
plans (SIPs).  Id.  Although the Court remanded the rule to
the agency, the Court found that EPA had complied with the
requirements of the RFA.  Specifically, the Court found that
since the States, not EPA, had the direct authority to
impose the burden on small entities, EPA's regulation did
not directly impact small entities.  The Court also found
that since the states would have broad discretion in
obtaining compliance with the NAAQS, small entities were
only indirectly affected by the standards.  Id.

In Mid-Tex, compliance with FERC's regulation by the
utilities would have a ripple effect on customers of the
small utilities.  There were several unknown factors in the
decisionmaking process that were beyond FERC's control like
whether utility companies had investments, the number of
investments, costs of the investments, the decision of what
would be recouped, who would the utilities pass the
investment costs onto, etc.   In this instance, FS is the
ultimate decision-maker and its decisions will have a direct
effect on known small entities that have profited from
multiple use of FS' lands in the past or which planned to
profit from the resources in the future.

Likewise, this matter is distinguishable from the ATA case.
Unlike the ATA case, where EPA was setting standards for the
States to implement under state regulatory authority, FS is
developing a framework for the local/regional FS offices to
use in adopting multiple use plans for national forests.
The fact that it is a local office of FS versus the national
office of FS is inconsequential.  In either event, FS will
implement the rule, not a third party entity.  Regardless of
where the office is located, FS is making the ultimate
decision of whether a road will or will not be constructed.
The proposed rule clearly states that roads may not be
constructed or reconstructed in the unroaded portions of
inventoried areas of the National Forest System unless the
road is needed for public safety, for environmental response
or restoration, for outstanding rights or interests
protected by statute or treaty, or to prevent irreparable
resource damage.  See, Section 294.12 , Fed. Reg., p. 30288.

Direct Impacts on Small Entities

Moreover, small entities will be directly affected as a
result of FS' decisions.  The word "direct" is defined as
"to regulate the activities or course of action thereof;
stemming immediately from a source, cause, or reason;
operating without agency or step.".(2)  Small entities that
already operate in national forests will have their
operations seriously curtailed. (FS recognizes that the
majority of these entities are small.)  These and others,
like the construction companies that build the roads, may
have developed their business plans based on expectations of
continued access and as a result of previously published FS
plans.  These impacts need to be evaluated.  FS has some
data already that would allow it to do so.  For example,
according to Tables 4 and 6 of the IRFA, the proposal
estimates that there will be a 45% reduction in forest
harvest in the Manti-Lasal National Forest alone in Utah.
Other forests, such as Dixie (Utah) and Shoshone (Wyoming)
will experience reductions in harvest that exceed 20%. In
Montana, the Helena Forest will experience a reduction in
total harvest volume of 12%.  In those same areas of the
country, FS controls more than 50% of the forested land
base.(3) For example, FS controls 52.3% of forested land in
Montana; 66.6% of the land in Wyoming; and 68.5% of the
forested land in Utah.(4) Considering the vast amount of
area owned by the FS, moving to or procuring from another
location to harvest or process natural resources may be
unrealistic or a short term solution.  The end result of
this proposal may be the ultimate demise of small businesses
and small governmental jurisdictions that rely on the
resources.

Advocacy recognizes that there is a substantial public
policy interest in maintaining the natural beauty of the
national forests and protecting the environmental resources
found in the national forests.   However, just these few
examples indicate that the overall impact of this initiative
could be economically devastating to many small businesses.
The high percentage of reduction, combined with the fact
that FS owns such a high percentage of the land in some
areas, indicates that this rule may have a direct economic
effect that cannot be recouped at other locations by the
small entities that rely on them.  Since the FS has some
data, and will receive additional data from the comment
period, it is not plausible for FS to continue to maintain
that the proposal will not have a direct effect on small
entities.(5)
Information Provided By the Public Must Be Addressed in the
FRFA

At the time of the proposal, FS asserted that they could not
perform a complete IRFA because it lacked sufficient
economic information about the economic impacts on the
industry.  Because its information was insufficient, FS
provided a list of questions in an attempt to obtain the
necessary information from the public.   In reviewing the
comments from the public, Advocacy hopes that FS will give
full consideration to the information provided by the
industry in response to FS' solicitation for additional
information and perform an analysis that reflects 1) the
impact on small entities that had access to resources that
will have limited or no access after the rulemaking; 2) the
impact of the regulation on small entities that were relying
on future activities that will not occur as a result of the
regulation; and 3) the impact of the regulation on
activities outside of the FS lands (i.e. small communities).

Since our comments are being submitted prior to the close of
the comment period, we cannot comment on the full scope of
the information that FS may receive from the public
regarding the economic impacts of this rule.  However, we
have received some information from the industry about
potential impacts.  The early information received indicates
that the impact may in fact be significant.  For example,
representatives of the timber industry, which FS
acknowledges is primarily dominated by small businesses,
assert that FS controls 73.3% of the saw timber in Montana;
80.8% of the saw timber in Wyoming; and 85.4% of the timber
volume in Utah.(6) In the IRFA, FS asserts that the
reduction in harvest as a result of this rule could range
from 1 to 8% depending on the location(7).  Fed. Reg. at
30286.  Considering the high dependence on FS timber in
certain areas, a 1 to 8% reduction could be economically
significant.  If not, FS needs to provide data showing why
it is not economically significant to support its conclusion
in the FRFA.

Moreover, the mining industry has indicated that the
proposal disallows mining on 43 million acres of federal
land.  It asserts that more than $7 trillion dollars of coal
and metal resources will be placed off limits by the
proposed rule.(8) If this is not correct, then FS must
explain why these resources will still be available and the
approximate costs of obtaining access to the resources in
areas where road construction and reconstruction is
prohibited.

Economic effects such as these cannot be ignored.  These
early numbers indicate that the impact may indeed be
significant.  FS needs to explain why they are not
significant and provide this information to the public.  On
the other hand, if the analysis indicates that the impact is
indeed significant, Advocacy asserts that FS must fully
address this in the FRFA and possibly repropose the rule.

Alternatives Provided By Public Must be Given Full
Consideration

The RFA requires an agency to consider alternatives to the
proposal and provide a statement of the factual, policy and
legal reasons for selecting the alternative adopted.  5 USC
605.  If a reasonable alternative is provided from a member
of the public, the agency must give it its full
consideration.  In its testimony before the House
Subcommittee on Rural Enterprises, Business Opportunities,
and Special Small Business Problems, the Northwest Mining
Association suggested the alternative of allowing temporary
roads, on an as needed basis, with either natural or
affirmative reclamation.  While Advocacy acknowledges that
it is not an expert in forest planning, this seems like an
alternative in allows harvesting of natural resources while
assuring that the forests are not permanently damaged or
irreparably harmed.  At least the mitigating impacts of this
alternative should be carefully analyzed.

Northwest Mining's suggestion is only one of what may be
several strong alternatives offered by the public as a less
burdensome solution to the problem. Failure to fully address
alternatives that may provide a workable solution to the
problem may violate the RFA and raise questions as to
whether the agency actions were arbitrary and capricious.
If challenged, a court may find that FS' treatment of
alternatives was insufficient.

In addition, Advocacy believes that FS should require local
FS planners to require local FS planners to perform an RFA
analysis in drafting future forest plans that implement this
rulemaking to assure that the implementation minimizes the
economic impact while achieving the goal of preserving the
environment. RFA compliance will provide the public with
information necessary to participate fully in the rulemaking
process and possibly provide suggestions as to ways that may
make implementation less costly.

Conclusion

The Office of Advocacy recognizes the importance of
protecting the environment, conserving our national forests,
and preserving the natural beauty of the area.  However,
there is also a significant public interest in allowing
access to natural resources in order to preserve our
economic base.  The potential economic impact of this
proposal on small businesses and small communities could be
devastating.  Prior to implementing such a rule, FS should
make every attempt to understand fully the economic impact
of its actions and to find less burdensome or mitigating
alternatives.  In the alternative, it should explain fully
why these alternatives will not help FS achieve its
environmental objectives.  As Advocacy has stated on several
occasions, 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 and considered 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."Supra. at 13.  Providing the public with a
complete economic analysis that fully discloses the
potential impact of the action and considers less burdensome
alternatives not only complies with the requirements of the
RFA, it also complies with the basic tenets of sound public
policy that balance conflicting interests.

Thank you for the opportunity to comment on this proposal.
If you have any questions, please feel free to contact us.
Please place a copy of these comments in the record.

Sincerely,

Jere W. Glover
Chief Counsel
Office of Advocacy

Jennifer A. Smith
Assistant Chief Counsel
for Economic Regulation &
International Trade

Brian Headd
Economist

Cc: Charles Rawls


ENDNOTES

1.  Usually, the Office of Advocacy does not publicize its
interaction with an agency during the prior to the proposal
of a rule.  However, since Forest Service has agreed to
release communications that it had with the Office of
Advocacy to House Committee on Small Business, Subcommittee
on Rural Enterprises, Business Opportunities, and Special
Programs, the communications are now part of the public
record.
2.  The Merriam Webster Dictionary.
3.  Testimony of Mr. Frank Glatics, President of Independent
Forest Product Association, before The House of
Representatives Subcommittee n Rural Enterprises, Business
Opportunities, and Special Business Programs, Tuesday, July
11, 2000, pp. 9-10.
4.  Id.
5.  Advocacy notes that FS may be arguing that the RFA does
not apply because the use of FS property for harvesting
natural resources is a future activity that may or may not
occur, depending on the decision of the forest planners.
While this argument may have some validity, it is not
necessarily convincing.  Some of the land that is being
placed off limits by the initiative was originally targeted
for resource harvesting.  As a result of this rule, forest
planners will not be able to allow the original tentative
multiple use plans to be implemented.  Small entities may
have relied on the original plans in making business
decisions.  This issue should be addressed.
6.  Id.
7.  On the surface, the percentages in the IRFA summary
appear to be inconsistent with the tables found in the IRFA.
FS needs to explain the inconsistencies found in the
documents.
8.  Testimony of Laura Skauer, Northwest mining Association