Office of Advocacy

20 Years of the
Regulatory Flexibility
Act

Rulemaking in a Dynamic
Economy

Office of Advocacy
U.S. Small Business Administration
Washington, D.C.: 2000

To the President and Congress of the United States:

Twenty years ago, on September 19, 1980, Congress enacted the Regulatory Flexibility Act (RFA) mandating that agencies consider the impacts of regulatory proposals on small entities and determine in good faith whether there were equally effective alternatives that would make the regulatory burden on small business more equitable.

In 1996, Congress enacted the Small Business Regulatory Enforcement Fairness Act (SBREFA), amending the RFA in three significant ways. First, courts were given authority to review agency compliance with the RFA in appeals from agency final actions. Second, the Environmental Protection Agency (EPA) and the Occupational Safety and Health Administration (OSHA) were required to convene small business advocacy review panels to consult with small entities when the agency believed it would have to prepare an initial regulatory flexibility analysis of the small entity impacts. Finally, the Chief Counsel for Advocacy’s authority to file amicus curiae ("friend of the Court") briefs, authority first granted by the RFA in 1980, was reaffirmed and broadened.

This is the seventh report I have submitted since being nominated by the President and confirmed by the Senate in May 1994 as Chief Counsel for Advocacy. I am pleased to report that, although compliance with the RFA still remains somewhat uneven, improved agency compliance is very clearly under way. The Act has become measurably and significantly effective in achieving the law’s objective, namely, more equitable regulations. Agencies are learning to do more in-depth and quality regulatory impact analyses and seeking more guidance on how to comply with the RFA.

The Office of Advocacy is also now able to estimate the compliance costs that small businesses will not have to incur as the result of regulatory changes made in response to Advocacy’s recommendations and those of small business. These regulatory savings amounted to $20.6 billion for the three-year period 1998, 1999, and 2000 and resulted from markedly improved analyses of economic and scientific data urged upon the agencies by Advocacy and others. Agencies should be applauded for their willingness to change regulatory proposals after analyzing both burdensome impacts and alternatives that are equally effective in accomplishing public policy objectives. This, after all, was the result Congress intended when it enacted the RFA.

Since enactment of SBREFA, small entities have sought judicial review of agency compliance with the RFA. Not surprisingly, this development has been accompanied by increased agency interest in avoiding challenges to regulations. Last year we reported a noticeable increase in agency requests for Advocacy’s guidance on RFA compliance prior to publication of proposals for public comment. This phenomenon was not fleeting. Pre-proposal consultation with the Office of Advocacy has continued and expanded this year. We devoted about 4,300 professional hours this past year to pre-proposal work in addition to the estimated 4,900 hours spent on EPA and OSHA SBREFA panels. These hours also include consultations with the Office of Information and Regulatory Affairs (OIRA) of the Office of Management and Budget pursuant to an "Exchange of Letters" agreed to in January 1995. These consultations have become institutionalized in the close working relationship that has developed from our joint work on SBREFA small business advocacy review panels at EPA and OSHA.

On an informal basis, the Office of Advocacy has facilitated meetings for small businesspeople with congressional staff and with executive branch officials, convening ad hoc issue-specific meetings to discuss small business issues. Out of these meetings has emerged the realization that these discussions can lead to smarter regulations and directly benefit the work of regulatory agencies. However, the success of such meetings is directly influenced by the extent to which agency officials are willing to listen.

Not all agencies, however, are seeking consultations with the Office of Advocacy or small businesspeople prior to publishing or finalizing proposals, even though some level of outreach to the small business community is required by the RFA. Advocacy has had to critique agency impact analyses and RFA compliance deficiencies, including noncompliance with the Administrative Procedure Act (APA) and the Small Business Act. These criticisms are discussed in Appendix B to this report.

Despite this uneven performance, significant improvement is under way. As we approach a new Administration and a new Congress, I hope that the progress discussed in this report, marking the 20th anniversary of the RFA, establishes a baseline against which to measure future agency efforts to comply with the law and Advocacy’s successes in reducing inequitable regulatory burdens on small business. I will be happy to answer any questions. Just contact me at 202/205-6533.

Jere W. Glover
Chief Counsel for Advocacy

January 2001

Contents

Abbreviations

Preface

Overview: A Brief History of the RFA

RFA Compliance Now: How SBREFA Has Changed the Dynamics of Regulatory Development

The Future: Unresolved Issues on Which Reasonable People May Differ

Conclusion

Appendix A: The Regulatory Flexibility Act, as Amended

Appendix B: Fiscal Year 2000 Report on Agencies’ Compliance with the Regulatory Flexibility Act

Appendix C: Regulatory Cost Savings for Fiscal Year 2000

Appendix D: The Regulatory Flexibility Act: Changing the Culture of Federal Agencies

Appendix E: Regulatory Comments Filed by the Office of Advocacy during Fiscal Year 2000

Appendix F: Federal Court Decisions Published Since SBREFA Amended the RFA

Appendix G: Congressional Testimony Presented by the Chief Counsel for Advocacy during Fiscal Year 2000

Abbreviations

ACE-Net Access to Capital Electronic Network
AMS Agricultural Marketing Service
APA Administrative Procedure Act
APHIS Animal and Plant Health Inspection Service
ATBCB Architectural and Transportation Barriers Compliance Board
ATF Bureau of Alcohol, Tobacco and Firearms
BHC bank holding company
BLM Bureau of Land Management
BPA blanket purchase agreement
C.F.R. Code of Federal Regulations
CFSAN Center for Food Safety and Applied Nutrition
CMRA commercial mail receiving agencies
DME durable medical equipment
DMERC durable medical equipment regional carrier
DOC U.S. Department of Commerce
DOD U.S. Department of Defense
DOI U.S. Department of the Interior
DOJ U.S. Department of Justice
DOL U.S. Department of Labor
DOT U.S. Department of Transportation
EA economic area
EO executive order
EPA Environmental Protection Agency
ERISA Employee Retirement, Income, and Security Act
FAA Federal Aviation Administration
FAR Federal Acquisition Regulation
FCC Federal Communications Commission
FDA Food and Drug Administration
FDIC Federal Deposit Insurance Corporation
FHC financial holding company
FHWA Federal Highway Administration
FMC Fishery Management Council
FMCSA Federal Motor Carrier Safety Administration
FNS Food and Nutrition Service
FPI Federal Prison Industries
FRA Federal Railroad Administration
FRFA final regulatory flexibility analysis
FRS Federal Reserve System
FS Forest Service
FSIS Food Safety and Inspection Service
FSS Federal Supply Schedules
FTC Federal Trade Commission
FWS Fish and Wildlife Service
GAO General Accounting Office
SA General Services Administration
GWAC government-wide agency contract
HAP hazardous air pollutants
HCFA Health Care Financing Administration
HHA home health agencies
HHS U.S. Department of Health and Human Services
HUD U.S. Department of Housing and Urban Development
ICANN Internet Corporation for Assigned Names and Numbers
IPS interim payment system
IRFA initial regulatory flexibility analysis
IRS Internal Revenue Service
MACT maximum achievable control technology
MMS Minerals Management Service
MSHA Mine Safety and Health Administration
NARA National Archives and Records Administration
NASA National Aeronautics and Space Administration
NHTSA National Highway Traffic Safety Administration
NIST National Institute of Standards and Technology
NMFS National Marine Fisheries Service
NOAA National Oceanic and Atmospheric Administration
NPRM notice of proposed rulemaking
NPS National Park Service
OASIS outcome and assessment information set
OCC Office of the Comptroller of the Currency
OFPP Office of Federal Procurement Policy
OIRA Office of Information and Regulatory Affairs
OMB Office of Management and Budget
OSHA Occupational Safety and Health Administration
OTS Office of Thrift Supervision
P.L. Public Law
PCS personal communications services
PMB private mail box
PPS prospective payment system
PRA Paperwork Reduction Act
PRO-Net Procurement Marketing and Access Network
PWBA Pension and Welfare Benefits Administration
RFA Regulatory Flexibility Act
RHC rural health clinic
RSPA Research and Special Programs Administration
SBA Small Business Administration
SBREFA Small Business Regulatory Enforcement Fairness Act
SBIC small business investment company
SEC Securities and Exchange Commission
STAWRS state tax and wage reporting system
TLD top level domain
USDA U.S. Department of Agriculture
U.S.C. United States Code
USPS United States Postal Service
VA U.S. Department of Veterans Affairs
WHCSB White House Conference on Small Business
WIPO World Intellectual Property Organization

Preface

On September 19, 1980, the U.S. Congress enacted the Regulatory Flexibility Act (RFA) to ensure that agencies considered the impact of their regulatory proposals on small business.(1) Congress made several findings that frame the overall policy objectives of the law. The most definitive are:

"….the failure [by agencies] to recognize differences in the scale and resources of regulated entities has in numerous instances adversely affected competition in the marketplace, discouraged innovation and restricted improvements in productivity; …unnecessary regulations create entry barriers in many industries and discourage potential entrepreneurs from introducing beneficial products and services…."(2)

Stated simply, Congress did not want public policy to erect unnecessary barriers to competition; therefore, regulations should not have unintended anti-competitive consequences. Adverse consequences could be avoided if agencies considered the impact of regulations on small business and modified proposals to make them more equitable. It was Congress' intent that this be accomplished without compromising public policy objectives.

Over the last past 20 years, there has been significant turnover in policy decision-makers within the Congress, the White House and regulatory agencies. New statutory mandates have been enacted to address societal problems, many of which are complex and identified—as well as solved—by new technology and scientific knowledge. These changes complicate the task of ensuring that there is a consistent approach to complying with the RFA throughout the federal government, while at the same time giving deference to each regulatory agency's expert judgment in crafting regulations that fulfill its public policy mission.

Has progress been made? Yes and no.
Is the RFA accomplishing its objective? Yes and no.
Is the RFA still needed? Definitively, yes.

Advocacy is of the view that the RFA is still significantly viable and may always be needed. In an economy that is churning and ever changing, in which new industries emerge or change and in which small business plays such a pivotal role in generating competition, the challenge to avoid unintended consequences from potentially burdensome regulations remains the same as it was in 1980.

The reasons the challenge remains the same are several. The government is called upon to address new problems. At the same time, government agencies face an ongoing challenge to craft wise solutions based on sound economic and scientific data, which, in many instances, may not be readily available without additional research. Developing creative solutions to regulatory problems requires appropriate training and resources. Finally, agencies charged by Congress to administer specific laws do not readily see or accept their statutory obligation under the RFA to do no harm to competition by their actions. As a consequence, they do not aggressively pursue analyses of less burdensome alternatives that may be equally effective in fulfilling their public responsibilities.

Are changes needed to the RFA? That remains for the readers of this report to answer. This report is intended to present a picture of what exists today that reflects the activities of the Office of Advocacy over the last 20 years.

Overview

A Brief History of the RFA

This report marks the 20th anniversary of the enactment of the RFA—an important milestone. To put the report's contents in perspective, a brief review of some legislative and related history is presented below (see "Important Dates," page 12).

Creation of the Office of Advocacy
In June 1976, Congress created the Office of Advocacy to be headed by a Chief Counsel, appointed by the President from the private sector and confirmed by the Senate. Congress concluded that small businesses needed a voice in the councils of government —a voice that was both independent and credible—to ensure that big business' influence and well-funded lobbyists did not unduly influence public policy. The Chief Counsel's mandate, therefore, is to be an independent voice for small business in policy deliberations, a unique mission in the federal government, unlike any other. The law specifically required the Office of Advocacy to measure the costs and impacts of regulation on small business.

On the regulations, I cannot say enough…somebody has to give us some zip to let it really rip."
—James D. McKevitt, National Federation of Independent Business, 1976

Enactment of the Regulatory Flexibility Act (RFA)
Studies on the costs and impacts of regulations did not, however, do enough to influence regulatory decisions. Consequently, in September 1980, Congress enacted the Regulatory Flexibility Act (RFA) which mandated that agencies consider the impact of their regulatory proposals on small entities, analyze equally effective alternatives and make their analyses available for public comment.

The law was not intended to create special treatment for small business. Congress intended that agencies consider impacts on small business to ensure that, in their efforts to fulfill their public responsibilities, their proposals did not have unintended anti-competitive impacts and that agencies explored less burdensome alternatives that were equally, or more, effective in resolving agency objectives.

"Total cost to the U.S. economy of Federal government paperwork requirements is estimated to be $100 billion per year. Private industry cost is $25 to $32 billion per year and it is estimated that 5 million small businesses pay $15 to $20 billion of the $100 billion total. Because of limited resources, small business is woefully ill-equipped to deal with rigid regulatory and paperwork requirements."—Briefing book for the 1980 White House Conference on Small Business

The Office of Advocacy was given the responsibility for reporting annually to Congress and the President on agency compliance with this law.(3) The RFA also authorized the Chief Counsel to appear as amicus curiae (i.e. "friend of the court") in actions brought to review a rule.(4) These new responsibilities expanded the role of the Chief Counsel and the office to represent small business in the development of public policy. It was implicitly understood that the effectiveness of these responsibilities was contingent on how well the Chief Counsel asserted the independence that Congress bestowed on the office.

Important Dates in the Evolution of the RFA

This is a brief chronology of congressional and other actions that have structured or influenced the legal framework within which agencies function to comply with the RFA while fulfilling their statutory mandates. Some of the dates have been highlighted because of their importance.

June 1976 Congress enacts Public Law 94-305, creating an Office of Advocacy within the U.S. Small Business Administration charged, among other things, to "measure the direct costs and other effects of federal regulation on small businesses and make legislative and non-legislative pro- posals for eliminating excessive or unnecessary regulation of small businesses."

April 1980 The first White House Conference on Small Business calls for "sunset review" and economic impact analysis of regulations, and a regulatory review board including small firm representation.

Sept. 1980 Congress passes the Regulatory Flexibility Act (RFA), requiring agencies to analyze the impact of proposed rules on small business, consider and analyze meaningful alternatives, and publish their analyses for public comment.

Oct. 1981 The Office of Advocacy reports on the first year of Regulatory Flexibility Act experience intestimony before the Subcommittee on Export Opportunities and Special Small Business Problems of the U.S. House Committee on Small Business.

Feb. 1983 Advocacy publishes first in the series of written annual reports on agency RFA implementa- tion. Report shows spotty agency compliance.

Nov. 1986 Delegates to the second White House Conference on Small Business recommend strengthening RFA enforcement by, among other things, subjecting agency compliance to judicial review.

Sept. 1993 President Clinton issues Executive Order 12866, "Regulatory Planning and Review," requir- ing each federal agency to "tailor its regulations to impose the least burden on society, including businesses of different sizes…"

Apr. 1994 The General Accounting Office (GAO) issues a report on agencies’ compliance with the RFA that concludes: "The SBA annual reports indicated agencies’ compliance with the RFA has varied widely…Some agencies…were repeatedly characterized as satisfying the RFA’s requirements, while other agencies…were viewed by SBA as recalcitrant…Still other agen- cies’ RFA compliance reportedly varied over time…or varied by subagency…"

June 1995 The third White House Conference on Small Business asks for specific provisions to strength- en the RFA by subjecting additional agencies, including the IRS, to the law; granting judicial review of agency compliance; and including small businesses in the rulemaking process.

Oct. 1995 Advocacy submits its report to Congress, The Changing Burden of Regulation, Paperwork and Tax Compliance on Small Business. Data in the report show that small firms with fewer than 20 employees pay 40 percent more in compliance costs than large businesses per dollar of sales; or, measured differently, 33 percent more than large businesses per employee.

March 1996 The Small Business Regulatory Enforcement Fairness Act (SBREFA), is signed into law, giving courts jurisdiction to review agency compliance with the RFA, requiring the Environmental Protection Agency and the Occupational Safety and Health Administration to convene small business advocacy review panels, and affirming and expanding the Chief Counsel for Advocacy’s authority to file amicus curiae briefs in appeals brought by small entities from final agency actions.

1996-Present Advocacy conducts training sessions for more than 2,000 trade association executives and federal officials.

Jan. 7, 1998 Advocacy files its first amicus curiae brief and the court remands the challenged rule to the agency on March 13, 1998.

For 15 years, the Chief Counsel reported rather graphically that compliance with the RFA was uneven throughout the government. This was confirmed by the General Accounting Office's (GAO) study in April 1994, cited in the chronology. Recognition was growing that some "teeth" needed to be added to the RFA. This would provide more incentive for agencies to comply with Advocacy's congressional mandate deemed so important to the national economy.

Enactment of the Small Business Regulatory Enforcement Fairness Act (SBREFA)

In March 1996, the Small Business Regulatory Enforcement Fairness Act (SBREFA) became law. SBREFA raised the stakes for regulatory agencies. Congress had finally been persuaded by 15 years of uneven compliance with the law, and by the repeated urging of the small business community, to authorize the courts to review agency compliance with the RFA. "Judicial review" was thought to be the incentive that was lacking in the original statute. SBREFA also reinforced the RFA requirement that agencies reach out to small entities in the development of regulatory proposals, subjecting this outreach to judicial review as well.

"Clearly, SBREFA provided much needed ‘teeth’ to the RFA by…allowing for judicial review of selected portions of the RFA. This is a powerful tool for the small business community and has empowered small business…to fight oppressive regulations effectively."—Laura Skaer, Northwest Mining Association

Very explicit outreach responsibilities were imposed on the Environmental Protection Agency (EPA) and the Occupational Safety and Health Administration (OSHA). These two agencies are required to convene small business advocacy review panels that consult with small entities on the overall effectiveness and impacts of specific proposals.(5) This precedent-setting provision of the law institutionalizes outreach to small entities and ensures that these two agencies identify and consider effective alternatives that accomplish their public policy objectives. The Chief Counsel for Advocacy and the Office of Information and Regulatory Affairs (OIRA) of the Office of Management and Budget (OMB) are statutory members of the panels and are mandated to partner with these agencies to consult with small entities on regulatory proposals. They report their findings, jointly with agency staff, to the head of the agency. Advocacy and OIRA have access—by act of Congress—to an agency’s earliest deliberations that identify a problem, document the scope of the problem, analyze its various causes, and evaluate how best to address the problem without unnecessary harm to small business or the economy.

From a statutory perspective this overview brings us to today— four years after the passage of SBREFA and 20 years after enactment of the Regulatory Flexibility Act. The balance of this report reviews:
RFA Compliance Now
• The value of outreach to small business—RFA mandates
• The role of economic and scientific data
• Amicus curiae authority
• The significant economic impact of RFA, as amended by SBREFA
• RFA Winners, Honorable Mentions and Agencies in Need of Improvement
The Future—What Lies Ahead
Conclusion

RFA Compliance Now

How SBREFA Has Changed the Dynamics of Regulatory Development

The RFA has meant different things to different agencies. Some have viewed it as merely a procedural law—a checklist or a legal hoop to jump through—compliance with which could easily be achieved if agencies just crossed the t’s and dotted the i’s. Some agencies did not view it as having mandated an analytical process to be customized to an agency’s mission. Some failed to understand that RFA’s mandates did not lend themselves to a "cookie cutter" approach, or that the RFA specifically was designed to eliminate a "one-size-fits-all" approach to regulation. Some chose to ignore the law’s mandates altogether, at least initially. Most agencies found compliance with the RFA to be a difficult and useless exercise, in part because they were at the bottom of the learning curve on how to do the kind of impact analyses required by the RFA. They also resisted appropriate analyses because they believed the law gave special treatment and an unfair advantage to small business. Other agencies have taken substantial steps to comply with both the letter and spirit of the RFA.(6)

Judicial Review

SBREFA, which has been in effect for four years, has started to change these dynamics. Advocacy is convinced that the impetus for the change comes from the amendment that allows the courts to review agency compliance with the RFA. This, in combination with the Chief Counsel’s authority to file as amicus curiae in regulatory appeals, provides a powerful incentive for agencies to reduce the risk of having their rules judicially challenged in court and remanded for failure to comply with the RFA.

"One could say this litigation under the RFA has been a "learning experience" for the agency. Our efforts to comply with the Regulatory Flexibility Act, though well intentioned, have not always met with judicial favor. We recognize that there is room for improvement in our economic analyses, and I would like to describe the steps we are taking to make them better."—Testimony of Penelope Dalton, Assistant Administrator for Fisheries, National Marine Fisheries Service, before a subcommittee of the U.S. House of Representatives; April 29, 1999

It appears that the threat of judicial review is making agencies acutely aware of the need to perform regulatory impact analyses. By performing regulatory analyses, even with incomplete data, some agencies have begun to recognize that early review of rules for potential small business impacts results in more informed decision-making. More agencies are beginning to provide more factual information, as required by the RFA, to justify their certifications that rules will not have a significant economic impact on a substantial number of small entities. Regulatory flexibility analyses, and the economic data that supports them, are also showing real improvement. At the same time, the OSHA and EPA small business advocacy review panels are clearly demonstrating the value of early consultation with small entities. Rules have been modified and compliance costs reduced. The panels are providing concrete evidence that rulemaking that analyzes small entity impacts does not compromise public policy and results in more workable and reasonable rules.

These changes are the result of:
• small businesses challenging rules and requesting judicial review of agency compliance with the RFA; and
• Advocacy’s first amicus curiae brief filed in a case that resulted in the remand of a rule to the regulatory agency.

"The concerns of the small business community are important to the CPSC. The Commission has made significant efforts to reach out to small businesses and consider the impact of our activities on them."—Thomas W. Murr, Jr., Deputy Executive Director, U.S. Consumer Product Safety Commission (CPSC).

It is safe to say that federal agencies today are finally beginning to do what they should have been doing since the RFA first became law in 1980: considering small business concerns as rules are being developed—not as an afterthought.

Pre-Proposal Consultation—The Major Change

One of the more significant changes that emerged just in the past year is the amount of consultation agencies have sought with Advocacy prior to publication of a rule for public comment. In FY 2000, the amount of pre-proposal activity in which Advocacy has participated has dramatically increased. Advocacy estimates that approximately 18 percent of the regulatory staff’s time has been spent on pre-proposal work (an estimated 4,300 hours), exclusive of the staff time spent on SBREFA EPA and OSHA panels.(7)

"...[D]uring a recent DOT.....rulemaking, the Office of Advocacy played the leading role in persuading the agency to reverse their negative small business effect certification. By this action the entire nature of the rulemaking was changed to the benefit of small coach operators."—Norm Littler, United Motorcoach Association

An ever-increasing number of agencies are contacting Advocacy with questions about potential RFA problems and small business economic impact analyses.(8) This type of early consultation has led to the development of better rules, namely, rules that accomplish the agencies’ public policy goals while avoiding undue burdens on small entities. When Advocacy has been successful in altering a proposal prior to publication, the need to submit comments for the public record has been eliminated. This shift to pre-proposal work is productive for agencies, for Advocacy, and most important, for small business. Time and again Advocacy has successfully identified weaknesses in agency analyses before publication. It has also demonstrated how to provide information that would be the most useful to the public in order to elicit informed submissions from the public during the comment period. This early attention to RFA compliance issues helps reduce the overall cost of regulatory development and the risk that a rule will be judicially challenged. There is no question that a rule that goes through this process results in more informed public policy.

To illustrate:

• Advocacy worked with an agency in the Department of Transportation (DOT) on a rule affecting small business. This partnership resulted in the agency altering its conclusion that the rule would not significantly affect small entities. Instead, DOT made a commitment to analyze the possible economic impacts further.

• The Forest Service agreed to perform an initial regulatory flexibility analysis (IRFA), as required by the RFA, after Advocacy reviewed its draft proposal during early consultation and persuaded the agency that the rule would in fact have an impact on small commercial operations as well as on small communities.

• The Minerals Management Service dramatically improved the justification for its RFA certification so that the public was able to provide useful comments on the accuracy of the agency’s determination.

These are just a few of the many ways in which Advocacy’s work on agency compliance with the RFA is extremely beneficial—and cost effective—when done at the pre-proposal stage of regulatory development.

The Value of Outreach to Small Entities—RFA Mandates

When the RFA was enacted in 1980, Congress established procedures for agencies to follow to ensure that small entities would have the opportunity to participate in the rulemaking process.(9) These procedures included direct notification to affected entities and measures to reduce the cost or complexity of participation. Congress’ clear intent was that small entities should be at the regulatory table and that the process should be made easy for them.

This mandate was also in response to the reality that large business has well-financed lobbyists with fine-tuned government networks through which they can work very effectively to influence public policy, sometimes to the detriment of other sectors in the economy. Special interests also have ready access to other vehicles through which to make their voices heard, such as government advisory committees, negotiated rulemaking, subsidized industry conferences, etc. Given this reality, complaints that suggested outreach to small business gave it an unfair advantage are unfounded. The mandates merely balance the scales.

With the SBREFA amendments Congress took the mandated outreach process one step further.

Small Business Advocacy Review Panels—
The Outreach Process Mandated for EPA and OSHA

In 1996, SBREFA mandated that whenever EPA or OSHA finds that a regulatory proposal may have a significant economic impact on a substantial number of small entities, the agency is required to convene a panel and prepare a regulatory flexibility analysis. The review panel consists of representatives from the rulemaking agency, Advocacy, and the Office of Information and Regulatory Affairs within the Office of Management and Budget. The panel conducts its own outreach to small entities likely to be affected by the proposal, seeks their input on the proposed regulation, and prepares a report to either the EPA or OSHA with recommendations for reducing the potential impact of the rule on small businesses. The panel has 60 days in which to submit a report on its findings, which becomes part of the public rulemaking record. After the report is received, the agency may reconsider its proposal or modify it in response to the information received.

To date, work has been completed on 24 small business advocacy review panels—21 EPA panels and 3 OSHA panels (Table 1).

Table 1. SBREFA Panels through Fiscal Year 2000

Rule Subject	Date Convened	Report Completed	NPRM
Environmental Protection Agency Panels
Non-Road Diesel Engines	03/25/97	05/23/97	09/24/97
Industrial Laundries Effluent Guideline	06/06/97	08/08/97	12/12/97
Stormwater Phase 2	06/19/97	08/07/97	01/09/98
Transport Equipment Cleaning Effluent Guideline	07/16/97	09/23/97	06/25/98
Centralized Waste Treatment Effluent Guideline	11/06/97	01/23/98	01/13/99
Underground Injection Control Class V Wells	02/17/98	04/17/98	07/29/98
Ground Water	04/10/98	06/09/98	05/10/00
Federal Implementation Plan for Regional Nitrogen Oxides Reductions	06/23/98	08/21/98	09/30/98
Section 126 Petitions	06/23/98	08/21/98	09/30/98
Radon in Drinking Water	07/09/98	09/18/98	11/02/99
Long Term 1 Enhanced Surface Water Treatment	08/21/98	10/19/98	04/10/00
Filter Backwash Recycling	08/21/98	10/19/98	04/10/00
Light Duty Vehicles/Light Duty TrucksEmissions and Sulfur in Gas	08/27/99	10/26/98	05/13/99
Arsenic in Drinking Water	03/30/99	06/04/99	06/22/00
Recreational Marine Engines	06/07/99	08/27/99	In process
LDV/LDT Emissions and Sulfur In Gas	08/27/98	10/26/98	05/13/99
Diesel Fuel Sulfur Control Requirements	11/12/99	03/24/00	06/02/00
Lead Renovation and Remodeling Rule	11/23/99	03/03/00	In process
Metals Products and Machinery	12/09/99	03/03/00	In process
Concentrated Animal Feedlots	12/16/99	04/07/00	In process
Reinforced Plastics Composites	04/06/00	06/02/00	In process
Stage 2 Disinfectant Byproducts	04/25/00	06/23/00	In process
Occupational Safety and Health Administration Panels
Tuberculosis	09/10/96	11/12/96	10/17/97
Safety and Health Program Rule	10/20/98	12/19/98	In process
Ergonomics Program Standard	03/02/99	04/30/99	11/23/99
Note: NPRM = Notice of Proposed Rulemaking

Because EPA has worked on more panels, it has been able to fine-tune the process to ensure that the right kinds of information and analyses are made available to the small entities to be consulted by its panels. EPA’s performance has not always been consistent across the board, but on the whole its record surpasses other affected federal agencies.

"Each of the 15 complete SBREFA panels has resulted in positive outcomes for the Agency and small businesses. In each case the Panel’s report has included concrete recommendations to the Administrator for her to consider in the development of the subject rule."—Thomas E. Kelly, U.S. Environmental Protection Agency.

To date, approximately 400 small entities have been consulted on a very diverse array of rules. The additional input from small entity representatives has spotlighted real-life consequences of proposals under consideration. In nearly every instance to date, information provided by small entities, in combination with other data, has proven invaluable in establishing a reality check for these agencies, namely, what the real impact of the regulation is likely to be and the actual compliance costs small entities will have to bear. Regulations that have emerged from the panel process have been changed in response to the concerns of small business and are less burdensome than the regulations initially considered by the agency. In one instance, a regulation was withdrawn entirely because the data clearly demonstrated that there was no need for national regulation, saving small businesses approximately $103 million annually.(10) All of these significant changes have resulted in rules that are less burdensome on small entities without compromising the public policy objectives of the agencies.

"I was a small entity representative for industry in the SBREFA processes and worked closely with [Advocacy]...to reduce the impact of [EPA] regulations. Together we have established precedent-setting regulations and procedures that will likely save the regulated community several hundred million dollars annually."—Jack Waggener, URS Corporation.

Although work on the panels has been productive, it has also been labor-intensive. For the seven panels completed in FY 2000, Advocacy alone spent an average of 700 hours per panel—for a total of 4,900 hours.(11) While time-consuming for Advocacy (and OIRA), once the analytical process becomes part of the agency’s regulatory culture, agencies subject to the SBREFA panel process should not experience any additional burden over and above what they are already required to do under the Administrative Procedure Act (APA). Advocacy has consistently maintained that the analysis required by the RFA in preparation for a SBREFA panel is not an additional burden. Rather, it is exactly the kind of analysis an agency is already mandated to do by the APA. What the RFA added to the process was a congressional mandate to consider explicitly the impacts on small business, which agencies should have been doing all along, in order to avoid harming competition unnecessarily.

"[F]ollowing the small business panel session on ergonomics, the Office of Advocacy brought to light some major deficiencies with OSHA’s draft ergonomics proposal and the difficulty industry will have to comply with the rule."
—Don E. Gaertner, American Foundry Society.

Any additional work that may be needed to complete the 60-day panel process is offset by time saved at the other end of the regulatory process. When problems are resolved prior to publication, objections from the public are reduced and less time must be spent crafting responses. All of the rules reviewed by EPA and OSHA SBREFA panels that have now been finalized were modified significantly to mitigate unnecessary and unproductive burdens on small business and to eliminate unworkable provisions. Even OSHA’s controversial ergonomics final rule, though much criticized by small business, was changed dramatically as a result of the input from small business during the SBREFA panel process. Without that crucial step in the rule’s development, the pre-panel draft of the rule would most likely have become the proposed rule, costing small businesses even more in compliance costs. SBREFA panels continue to be an important mandate of the RFA that ensures small business a formal seat at the regulatory table, where their input can and does make a real difference.

Advocacy’s Outreach to Small Entities

In addition to its work on panels, Advocacy hosts roundtable discussions to gather information on current trends and regulatory impacts from small businesses themselves. When monitoring agency compliance with the RFA, it is useful for Advocacy to understand the impact of proposed regulations on specific industries. Frequently, the necessary historical data on those industries does not exist. In order to develop some knowledge about current industry structure, etc., these industry-specific roundtable meetings have been convened by Advocacy to discuss pending issues on an ad hoc basis with small business representatives. Representatives from relevant regulatory agencies and congressional committee staff have also been invited to participate. The meetings have uniformly been viewed as helpful in identifying and raising awareness of small business issues.

"Through the Small Business Regulatory Enforcement Fairness Act (SBREFA) of 1996, your office has provided small business a stronger voice in the federal regulatory process."—Don E. Gaertner, American Foundry Society

The Role of Economic and Scientific Data

Not all policymakers understand or accept the important role played by small business in maintaining competition. Too often they are familiar only with the literature produced by business schools and research addressing big business issues. The adverse long-term impacts of industrial concentration on price, innovation, and choice are not readily understood. This lack of understanding complicates the task of persuading agencies—often focused on other important but more narrow policy missions—that they are also responsible for the larger national policy objective of preserving competition. More specifically, this means "do no undue harm to small business."

It is a well-established economic axiom that "information rationalizes markets." Information also rationalizes public policy. This is one of the underlying reasons that Congress mandated that agencies reach out to small businesses and involve them in the process. As noted earlier, small business input on SBREFA panels has been a major influencing factor in fashioning more workable regulations.

The information obtained from these small businesses themselves, though vital, is generally anecdotal. The challenge before agencies and the Office of Advocacy is to develop statistically sound data (both economic and scientific) that document the existence, scope and causes of a problem. Additional important information assesses who the responsible parties are and the extent of their contribution to a problem. This analysis leads to an intelligent determination of how the causes can be remedied by regulation. Much of Advocacy’s time in connection with SBREFA panels is spent reviewing agency data and having it validated or challenged by independently obtained data.

The importance of data to the regulatory process and rational decision-making cannot be overemphasized. It was data that persuaded EPA to drop an industrial laundries water pollution regulation that saved small businesses approximately $103 million annually. The data showed there was no need for a national rule. It was data that convinced OSHA that its compliance cost estimates were too low for its ergonomics rule.(12)

Advocacy anticipates that one of the benefits that will emerge from early consultation with agencies on RFA issues will be increased awareness of what agencies do not know—but should know—about the industries they are trying to regulate. This will help agencies understand how the regulatory process aids in eliciting relevant information from the public. Further, agencies unwittingly fail to use, or chose to ignore, readily available in-house information (e.g., company data submitted to obtain licenses, etc.).

For now, Advocacy issues task order contracts to researchers who are hired on a task-by-task basis to analyze data in connection with specific rules. This increases Advocacy’s flexibility. It avoids the need to hire full-time staff with narrow specialties to perform tasks that can be more readily obtained at less cost to the taxpayer through a contractor for the short period of time needed to analyze a rule.(13)

Partnership with the Office of Information and Regulatory Affairs (OIRA)

On January 11, 1995, the Office of Information and Regulatory Affairs (OIRA) of the Office of Management and Budget (OMB) and Advocacy signed an "Exchange of Letters" outlining how both agencies would work together on regulatory issues. In those letters Advocacy agreed to contact OIRA whenever it had concerns about an agency’s compliance with the RFA. OIRA in turn agreed that it would consult with Advocacy when it was not able to resolve RFA issues with an agency.

The SBREFA panel process brought Advocacy and OIRA even closer together, and from this relationship a mutual respect has developed. OIRA is also responsible for ensuring agency compliance with Executive Order 12866 and the Paperwork Reduction Act, both of which concern Advocacy from a small business perspective.(14) Increasingly, OIRA is sharing agency rulemaking drafts with Advocacy in order to obtain initial comments on an agency’s RFA compliance as part of the EO review. This early access to important agency information enables Advocacy to comment at a vital stage of the rule’s development and have an impact on its final design.

Prior to promulgation of a final rule, Advocacy often participates in meetings and discussions with both OIRA and the relevant regulatory agency, in order to advocate for crucial RFA-mandated changes on behalf of small business. This important working relationship with OMB at all stages of a rule’s development has assisted the Office of Advocacy in monitoring agency compliance with the RFA more closely. This new and improved working relationship has been mutually beneficial.

Amicus Curiae Authority

Section 612 of the RFA vests in the Chief Counsel for Advocacy the authority to appear as amicus curiae (i.e., "friend of the court") in any court action to review a rule. Specifically, the Chief Counsel is authorized to present views with respect to compliance with the RFA, the adequacy of a rulemaking record pertaining to small entities, and the effect of rules on small entities. Under this section of the RFA, courts are bound to grant the amicus curiae application of the Chief Counsel.

This section of the RFA existed prior to SBREFA, albeit in a slightly different form. Prior to the 1996 SBREFA amendments, some argued that the section limited the Chief Counsel’s authority only to reviewing the effects of a rule on small entities. In this context, the courts were bound to grant the amicus curiae application of the Chief Counsel. However, this very general authority did not explicitly allow the Chief Counsel to raise RFA issues because there was no judicial review of RFA actions prior to SBREFA. Consequently, the Chief Counsel had to use creative means to enter his appearance in court actions if he wanted to challenge a regulation based on an agency’s failure to comply with the RFA. For instance, in 1994, the Office of Advocacy prepared an amicus curiae brief in the case of Time Warner Entertainment Company v. FCC, 56 F.3d 151 (D.C. Cir. 1995), cert. denied, 516 US 112 (1996). The Chief Counsel argued, among other things, that noncompliance with the RFA was arbitrary and capricious under the Administrative Procedure Act. After last-minute negotiations, the FCC agreed to alter its policy and Advocacy withdrew its notice of intent to file.

"It is our opinion that the Office of Advocacy’s interventions into our case and the subsequently filed amicus brief in support of our position challenging the regulations clarified the issues for resolution by the court. The Office of Advocacy’s brief was very persuasive to the court’s favorable interpretation of the RFA and SBREFA in accordance with congressional intent."—Laura Skaer, Northwest Mining Association.

As the Time Warner case demonstrates, the threat of filing a brief in court is sometimes sufficient to persuade an agency to change its course. For instance, in the case of Grand Canyon Air Tour Coalition v. FAA, 154 F.3d 455 (D.C. Cir. 1998), Advocacy withdrew its notice of intent to file a brief in exchange for an agreement with the U.S. Department of Transportation (DOT). The agreement required DOT to submit to the court a statement detailing new data regarding the number of aircraft subject to the regulation. Further, DOT was to include in its communication to the court a statement that the agency erroneously certified that the final rule would not have a significant economic impact on a substantial number of small entities.

In Southern Offshore Fishing Association v. Daley, 995 F. Supp. 1411 (M.D. Fla. 1998), Advocacy withdrew its notice of intent to file after it was able to obtain an agreement from the Department of Justice (DOJ) that the proper standard of review in RFA cases is the "arbitrary and capricious" standard. This acknowledgment from DOJ was significant—not only because it conceded the use of the appropriate standard, but also because it implicitly accepted Advocacy’s authority to file amicus briefs. This was an important concession, as DOJ had always objected to Advocacy’s right to file such briefs in the past.

Advocacy has filed one amicus curiae brief since passage of SBREFA. Northwest Mining Association v. Babbitt, 5 F. Supp. 2d (D.D.C. 1998), involved a hardrock mining rule with a number of major defects. Advocacy argued that major new costly requirements were being introduced for the first time after a 6-year delay in issuing a final rule, and the agency’s analysis was confusing and inadequate. The court chose to focus on the fact that the agency failed to comply with the definition of a small entity as defined in the RFA and the Small Business Act. Primarily because of Advocacy’s arguments, the rule was remanded to the agency.

Advocacy uses its amicus curiae authority judiciously. Since Advocacy is not a litigation office, the time needed for writing a brief can present a strain on the office’s resources. Therefore, in assessing whether to file a brief, Advocacy has established certain criteria. Two of the main criteria are whether the office can make a difference by getting involved and whether small business views will be adequately represented by others. The second criterion is derived from the fact that courts will not generally accept duplicative arguments made by amicus curiae.

The Significant Economic Impact of the RFA, as Amended by SBREFA

Given the uneven performance by agencies over the last 20 years, legitimate questions may be posed about the RFA. How effective has the RFA been? Has it been a total failure? What measures should be used to gauge the law’s effectiveness? These questions need to be answered, if for no other reason than to overcome agency skepticism about the true meaning of the law.

For the past three fiscal years Advocacy has measured the difference between the compliance costs of an original regulatory proposal and those associated with the rule that ultimately emerges from the regulatory process. The difference between these costs measures the extent to which regulatory impact analyses (compliance with the RFA) altered the policymakers’ views of how best to solve a problem. This measurement is termed "regulatory savings" (Table 2).

Table 2. Regulatory Savings

Fiscal Year	(1) One-Time Savings	(2) Annual Savings	(3) Cumulative Annual Total	Total (1) plus (3)
FY 1998	$0	$3.2 billion	$9.6 billion (3 years)	$9.6 billion
FY 1999	$ 3.0 billion	$2.2 billion	$4.4 billion (2 years)	$7.4 billion
FY2000	$3.2 billion	$ .4 billion	$.4 billion	$3.6 billion
TOTAL	$6.2 billion	$5.8 billion	$14.4 billion	$20.6 billion three-year total
Notes: See Appendix B for more information about the regulations that generated these savings. Some savings to small businesses are a one-time savings of costs avoided in one year (1). Others are saved by small businesses every year (2). The cumulative annual total in column (3) represents the annual savings times the number of years in which those savings have occurred, up to FY 2000.

While the three-year total of $20.6 billion in regulatory savings does not directly deposit any monies into the coffers of small business, the savings do represent monies small business did not have to expend on compliance with regulations. These figures dramatically highlight that compliance with the RFA does have a positive impact and does avoid unnecessary costs for small business. Agencies are to be applauded for adjusting their proposals when sound analyses dictate such an outcome. On the other hand, the figures also demonstrate that agencies need to do more analyses in advance of proposing regulations—which after all is the intent of the RFA.

Interestingly, the cumulative three-year total represents a return of between $1144 and $1373 for every dollar spent on Advocacy’s total budget for the past three years, assuming that Advocacy’s budget (including salaries, expenses and research funds) is between $5 and $6 million per year.(15)

The RFA Winners, Honorable Mentions, and Agencies in Need of Improvement

In the preface of this report, Advocacy noted that there has been significant turnover in the policy decision-makers within the federal government. In addition, some agencies promulgate more rules than do others; some have a spate of rules in one year, but none in another year. These factors partially explain why compliance with the RFA by agencies and some sub-agencies of major departments has been uneven over the years. Until SBREFA, there was no real incentive to institutionalize the analytical process mandated by the RFA.

Despite SBREFA, uneven compliance exists today, although Advocacy perceives some improvements in agency efforts to comply with the law. Some agencies fail consistently to provide factual bases for their certifications that rules will not have a significant impact on a substantial number of small businesses. Others fail miserably in analyzing the impact of rules on small business, or fail to make their analyses transparent, thus frustrating the public’s ability to assess the validity of the analyses or to pinpoint flaws in agency reasoning. Still others use boilerplate language either in certifications or in their analyses. Too many agencies still do not consider small business impacts as they are developing rules and address the issue only after the fact. Some agencies are learning the hard way—after court challenges—that there is a better way to develop rules. Some agencies are learning by observation. They watch what happens to other agencies that ignore the RFA. Agencies on the top of the learning curve quickly grasp how proper analyses can help them develop smarter rules.

In previous reports, Advocacy has discussed in some detail the contents of communications submitted for the record in various rulemakings. This year, that discussion is contained in Appendix B. The information contained therein provides a comprehensive overview of the diverse agencies and issues with which Advocacy has dealt in the past year. In reviewing this appendix it is important to appreciate that it contains information only on documents that are a matter of public record and does not contain any of the information or work product generated during interagency nonpublic pre-proposal discussions.

This year, in light of the RFA’s 20th anniversary, Advocacy thought it appropriate to recognize those agencies that have made the most progress (Winners), agencies that have made some progress worth noting (Honorable Mentions) and those agencies whose performance needs significant improvement.

The following criteria were used to select agencies for recognition:
• Anticipating RFA problems and seeking guidance;
• Good faith outreach to small business;
• Adequate factual information to substantiate certifications;
• Well-documented regulatory flexibility analyses;
• Factual presentation of data on the structure and economics of the industry being regulated;
• Good-faith efforts to elicit information during the rulemaking process to supplement agency data;
• Compliance with the Small Business Act’s and the RFA’s size standards and the process for seeking exceptions;
• Consideration and evaluation of truly meaningful alternatives—not just alternatives that would never be seriously considered;
• Meaningful responses to Advocacy’s critiques of regulatory proposals.

The RFA Winners

The Office of Science and Technology—EPA. The Office of Science and Technology is a division within the Environmental Protection Agency. This division has shown exemplary compliance with the objectives of the RFA during FY 2000. Its data and analyses have been extremely comprehensive, thus establishing a high level of credibility in the work of the staff. Its analytical work should serve as a model for the rest of EPA. The Office of Science and Technology has shown the ability to work effectively with the Office of Advocacy and industry during the promulgation of its rules. This relationship was instrumental in assuring significant cost savings on two rules: the metals products and machinery rule (panel completed in March 2000 and rule proposed in December 2000) and the transportation equipment cleaning rule (rule completed in August 2000). As a result of the cost savings generated by the two rules, Advocacy expects annual savings in excess of $100 million.

The Center for Food Safety and Applied Nutrition—HHS. The Center for Food Safety and Applied Nutrition (CFSAN), a division within the Department of Health and Human Services, is lauded for its efforts to help small entities. CFSAN has worked with Advocacy by offering briefings on upcoming regulations that will affect small entities before the regulations are even proposed. CFSAN seems to have made an institutional adjustment and a conscious decision to analyze thoroughly the impact of its regulations on small entities, thereby mitigating adverse impacts where possible. This institutional change came about after several harsh comments submitted earlier by Advocacy criticizing CFSAN’s analyses and its failure to comply with the RFA. Officials from CFSAN have stated that it is more productive to work with Advocacy in the earliest stages of rule promulgation than against Advocacy after a negative comment has been received. It is Advocacy’s hope that CFSAN will maintain these practices when issuing new regulations on dietary supplements—regulations that contained RFA compliance problems in the past.

The Employee Benefits Office—Treasury Department. The Employee Benefits Office of the Treasury Department has made a special effort to respond to the small business community. During the last year, Advocacy has worked with the Employee Benefits Office and Treasury in an effort to resolve two major issues: more flexibility for small business 401(k) plans and comparability testing for defined contribution plans and benefits. The office has made an effort over the last five years to work with small business to simplify small business pension plans and increase benefits to reflect real retirement needs. Ultimately the efforts of the Employee Benefits Office have increased pension participation.

Securities and Exchange Commission. The Securities and Exchange Commission (SEC) has always maintained a positive relationship with the Office of Advocacy. The two agencies have long worked closely at the pre-proposal stage (and generally) to assure that SEC’s policies remain sensitive to small business concerns. The SEC also is diligent in complying with RFA’s size standards requirements and arguably has the best record of adhering to the statutory process for obtaining exceptions. In addition, the SEC can be commended for various efforts to reach out and include small businesses in its regulatory processes, including its successful Government Business Forum on Small Business Capital Formation. Information gleaned at this forum has had a direct impact on SEC regulations and policies.

The RFA Honorable Mentions

Two agencies have made noteworthy progress and deserve recognition for their efforts, even though more needs to be done to make them "winners."

Internal Revenue Service. The SBREFA extended the RFA to IRS interpretive rules that impose recordkeeping requirements. IRS has interpreted this provision narrowly and has certified rules that would impose de facto recordkeeping burdens. By the same token, it has on other occasions performed regulatory flexibility analyses when a rule explicitly imposed a recordkeeping burden. Advocacy is of the view that the IRS should be more sensitive to de facto burdens and perform more analyses. The Department of the Treasury and the IRS have made an informal effort to reach out on regulations where it can be ascertained that a high-visibility problem exists for small businesses. In areas involving controversial definitions (such as worker classifications), cash versus accrual accounting, employment reporting, tip reporting, capitalization rules, and other industry-specific problem areas, the IRS has made a significant effort to appreciate small business concerns. The IRS and Treasury have become more amenable to gathering small business input before promulgating regulations. Such an informal effort is an encouraging sign, even if the IRS and Treasury continue to resist following the formal requirements of the RFA and SBREFA (see Appendix B).

National Marine Fisheries Service. Although Advocacy recognizes that the National Marine Fisheries Service (NMFS) still has work to do, it would be unfair not to recognize the efforts that NMFS has made to comply with the spirit of the RFA. After the passage of SBREFA, several NMFS regulations were challenged for failure to comply with the requirements of the RFA. In response to the judicial review provisions in SBREFA, NMFS began to work with Advocacy to improve its RFA compliance. By working with Advocacy on matters of concern, NMFS has addressed issues and, in some instances, like the regulations concerning "spotter planes" and the Florida Keys sanctuary, has avoided judicial review or overcome the court challenge

Noteworthy is the decision to make institutional changes in the manner in which they approached the RFA. Whereas they initially had standards to determine "significant" and "substantial," those standards were abandoned in an effort to encourage their regulators to perform an economic analysis, as opposed to simply certifying the rule and using the standards to justify the certification. NMFS consulted with Advocacy in developing the guidelines and also published them for public comment. NMFS has distributed the guidelines to all of their offices and is also providing training sessions for their regulators. NMFS should also be lauded for hiring an economist and an attorney specifically to work on RFA issues and to be a point person for their regulators in terms of RFA guidance.

In addition, NMFS has made significant attempts to increase their outreach to small entities. In addition to hiring an ombudsman to address small entity concerns, NMFS has made a concerted effort to send representatives to Advocacy roundtables. At the roundtables, NMFS listens to the concerns of the industry, explains the basis for some of its actions, and attempts to clarify misunderstandings. For example, at one roundtable, NMFS learned that some of the regional personnel would not provide fishers with information about quotas if the matter was the subject of litigation. NMFS immediately addressed the problem by instructing the regional staff to provide the information and explaining which types of information can be released when a particular fishery may be the subject of litigation. While the relationship between the industry and NMFS may be somewhat strained, it is hoped that continued open exchange of information and institutional changes will improve that relationship.

Agencies in Need of Improvement

Some agencies exhibit compliance problems in some or all aspects of the RFA. Advocacy has tried to work with these agencies; has submitted public comments that were very explicit about the agencies’ RFA deficiencies; but the agencies still need to apply the requirements of the RFA with greater consistency.

Having said this, Advocacy nevertheless wishes to extend an invitation to these agencies to develop a working relationship that will benefit the regulatory process, help small business, and produce smarter regulations. It would be Advocacy’s goal to be able to characterize them as "winners" in next year’s report.

The Federal Communications Commission. The Federal Communications Commission (FCC) is notorious for its poor compliance with the RFA. Although the FCC frequently provides detailed insight into the purposes and rationale underlying a rule, it offers only cursory discussion of a rule’s impact on small business. The FCC’s regulatory flexibility analyses are invariably cut-and-paste, offer no real insight, and are entirely divorced from the "substantive" portions of the rulemaking. The FCC also violates requirements governing size standards for small businesses established under the Small Business Act. The agency has established a general pattern of changing size standards as it sees fit, often approaching SBA to seek an exception only after it has adopted a new size standard. Advocacy recognizes the limited discretion FCC staff is allowed to exercise within an agency where decisions are made by a collegial body. This does not excuse the commission itself, however, since it has been made well aware of its legal responsibilities under the RFA. Although there have been several training sessions for commission staff, including staff of the commissioners, Advocacy sees little evidence that change is occurring to improve compliance.

The Health Care Financing Administration—HHS. The Health Care Financing Administration (HCFA) is a division within the Department of Health and Human Services. Despite HCFA’s challenging congressional mandate to implement major Medicare reforms within short statutory deadlines, Advocacy believes that it could do a better job of considering less burdensome regulatory alternatives that still meet statutory requirements and of following administrative procedures that require public notice and comment. Also, many health care providers have expressed great frustration with HCFA and some of the practices of its regional carriers, in particular. It is hoped that HCFA will rid itself of this negative public perception by looking more closely at regulatory alternatives and by forcing its regional carriers to apply HCFA’s guidelines with significantly greater consistency.

Advocacy has heard many complaints, past and present, regarding the inconsistency with which HCFA’s regional carriers apply HCFA’s guidance in processing provider claims. Many small businesses have complained that the regional carriers abuse their discretion, delay claims unnecessarily and otherwise process claims in an arbitrary fashion, with differing processing practices across the country. HCFA should make every attempt to reign in abusive and inefficient carriers.

In the past, HCFA had developed the practice of publishing rules as direct and interim final rules. This was the case in several major regulations like the ones for surety bonds for home health agencies, the interim payment system for home health agencies, and inherent reasonableness. Doing so allowed the agency to bypass notice and comment procedures required by the Administrative Procedure Act. The agency also requested expedited OMB review of paperwork requirements in a situation Advocacy believed did not warrant such a procedure. In this particular case, Advocacy had already submitted comments criticizing a similar action by the agency in an analogous situation the previous year. In both situations—issuing direct final rules and requesting expedited OMB review—affected entities are precluded from commenting on the potential effects of the rule.

Finally, on the issue of alternatives, Advocacy continues to work with the agency to devise less burdensome alternatives in its regulations. For instance, Advocacy continues to urge the agency to provide an analysis and regulatory alternatives for its rule that deals, in part, with the length of time patients can be restrained in a medical facility. A court has also ruled that this analysis is required.

HCFA has made progress in its RFA compliance efforts recently, and is beginning to consult Advocacy early on some controversial regulations.

The Food and Nutrition Service—USDA. The Food and Nutrition Service (FNS) is a division within the U.S. Department of Agriculture. At least twice in FY 2000, FNS certified that its regulations would not have a significant economic impact on a substantial number of small entities. However, there was no factual basis for the certifications. FNS does not discuss the number of small entities affected by the rule—an RFA requirement for determining whether a substantial number of small entities are, or are not, affected. Moreover, neither rule adequately explained why the impact of the rule would not be significant.

The Food Safety and Inspection Service—USDA. The Food Safety and Inspection Service (FSIS) is a division within the U.S. Department of Agriculture. It issued "policy changes" at least twice in 1999 affecting thousands of small entities.(16) Despite the impact of both policy changes, the agency failed to do any economic analyses. In the opinion of the Office of Advocacy, this violated the Administrative Procedure Act, as FSIS failed to publish the changes as proposed rules. When rules are not published for public notice and comment they are not subject to the requirements of the RFA—resulting in further negative impacts on small business. On a positive note, FSIS contacted Advocacy in September 2000, requesting a tailored briefing on how to comply with the RFA. Advocacy conducted this briefing for about 25 FSIS and USDA staff, with great emphasis on the definition of a small entity for purposes of the RFA. Advocacy hopes the briefing will serve to make FSIS more sensitive to small business issues in the future.

The Future

Unresolved Issues on Which Reasonable People May Differ

The RFA Imposes an Analytical Process on Regulatory Development—Not Just a Procedure

As stated earlier, some agencies treat the RFA as though it is solely a procedural hurdle rather than an analytical process they must follow. Often these agencies craft their regulations and then devise analyses to justify the agencies’ policies. Advocacy is of the view that the RFA requires agencies to make the analyses an integral part of regulatory development—while the rule is being drafted. Shortcuts frequently lead to folly, as illustrated by the following example in which the General Accounting Office (GAO) sanctioned a rule over Advocacy’s objections, despite concluding that the data used in the rule were fatally flawed.

The Food and Drug Administration (FDA) proposed a rule to regulate dietary supplements containing herbal ephedra (an herb that has properties similar to the chemical pseudoephedrine which is used in over-the-counter cold medications). In proposing the regulation, the agency cited thousands of adverse event reports (AERs) supposedly linked to the use of products containing herbal ephedra. The new dosage and labeling requirements in the proposal would mean that the product could no longer be marketed for weight loss. In reality the agency failed to provide a factual basis to support the need for the regulation. Further investigation by Advocacy and the industry revealed that hardly any of the AERs established a causal connection to the use of ephedra. If no causal connection is established, there is no basis for the rule.

The GAO was asked by Congress to examine the scientific basis for FDA’s proposed rule and examine FDA’s adherence to the regulatory analysis requirements for federal rulemaking. In its report, Dietary Supplements: Uncertainties in Analyses Underlying FDA’s Proposed Rule on Ephedrine Alkaloids (July 1999), the GAO found serious deficiencies with the data and studies used to support the regulation. The GAO stated that FDA did not establish a causal link between the ingestion of the products and the occurrence of adverse events for either its proposed dosing level or duration of use. FDA’s benefits analysis could not be duplicated because it failed to identify which "serious" adverse event reports it had relied upon. The GAO also stated that FDA had no internal guidance on the use of AERs for rulemaking related to dietary supplements, and the AERs were used differently in this proposed rule than in prior rulemaking. Finally, the GAO indicated that the agency did not always disclose why certain key assumptions were made, the degree of uncertainty involved in those assumptions, or the fact that alternative assumptions would have had a dramatic effect on the agency’s estimate of the benefits.

After reaching these conclusions, the GAO inexplicably found that FDA met the requirements of the RFA. This conclusion, of course, is counterintuitive. How did the GAO reach this conclusion? The obvious answer: by treating the RFA as a mere procedural statute. According to the GAO, FDA jumped through all of the necessary RFA "hoops," so the fact that the data and analysis relied on by the FDA were flawed was irrelevant. The GAO explained that although the FDA acknowledged that the rule would affect small businesses, FDA adequately described the affected small businesses and discussed alternatives in compliance with the RFA. Perhaps the FDA concluded that since the RFA does not specifically require accurate data, then the RFA requirements were technically met—a preposterous theory.

In Advocacy’s view GAO’s interpretation of the RFA’s requirements is unquestionably erroneous and deviates completely from the purpose and intent of the RFA. GAO has issued similarly flawed reports in recent years that trend toward the agency treating the RFA as a procedural statute. Advocacy has serious concerns with GAO’s conclusions about RFA compliance. In the future, GAO and other agencies must understand that the RFA imposes analytical as well as procedural requirements.

What Did Congress Mean by "Significant" and "Substantial"?

There has been much discussion over the years as to the need to define "significant" and "substantial" with some specificity. GAO is in the forefront of the effort to get specificity. Federal agencies believe that the undefined terms are too vague even though the nation has been well served by laws such as the Federal Trade Commission Act that outlaws "unfair competition" without defining "unfair competition." It is like pornography—one knows it when one sees it.

When the RFA was adopted, Congress expressly left the terms undefined so that agencies would evaluate and analyze the impact of each regulation in the context of the industries being regulated and the types of requirements being imposed by the regulation. In other words, each regulation was to be treated as if it were the equivalent of a snowflake—each different in its own way. By not defining the terms, agencies could determine whether something was "significant" or "substantial" based on the unique requirements of the regulation and in the context of an ever-changing economy and changing industry structures.

In the legislative history of the RFA, Congress discussed some of the measures an agency might use, but again, ultimately decided that definitive measures should not be included in the statute. For instance, legislative history says that the term "substantial" is intended to mean a substantial number of entities within a particular economic or other activity.(17) The history also states that agencies would not be required "to find that an overwhelming percentage [more than half] of small [entities] would be affected before requiring an IRFA."(18)

As for "significant," Congress said, "the term ‘significant economic impact’ is, of necessity, not an exact standard. Because of the diversity of both the community of small entities and of rules themselves, any more precise definition is virtually impossible and may be counterproductive."(19) Moreover, Congress identified several examples of "significant": a rule that provides a strong disincentive to seek capital;(20) having impacts greater than the $500 fine imposed for noncompliance;(21) new capital requirements beyond the reach of the entity;(22) any impact less cost-efficient than another reasonable regulatory alternative;(23) and any impact where the adverse cost impact is greater than the value of the regulatory good.

Some agencies like the Marine Fisheries Service and the Department of Health and Human Services at some point established their own definitions for these terms. The latter has said that a rule is not significant if it would not reduce revenues or raise costs of any class of affected entities by more than three to five percent within five years.

Advocacy believes it would be a daunting task to construct a specific definition or even a set of definitions that would apply to all industries for all times in an economy that is so diverse and in which the composition and cost and profit structures are constantly changing. No one can forecast how the economy will change, what industries will grow, what problems will emerge. Lack of specificity reserves the options for public policymakers to know "significant" and "substantial" when they see it and justify their analysis in the context of the economy as it exists when a rule is being developed. For these reasons, Advocacy is likely to discourage future attempts to construct a statutory or regulatory definition for these terms.

Other Suggested Amendments to the RFA

Other suggested amendments to the RFA would require agencies to weigh the indirect cost effects of regulation, and to close the loophole that allows agencies to bypass the requirements of the RFA by publishing interim or direct final rules.

The future effectiveness of the RFA may be helped or hindered based on future amendments to the law.

Budgetary Needs of Advocacy

Advocacy does not have a line item in SBA’s budget for a budget that includes salaries and expenses. Therefore, its budget and staffing are driven by SBA’s support and budget constraints. The office can do as much or as little as the budget allows.

Over the years, Advocacy’s personnel ceiling has declined dramatically, despite increases in the statutory responsibilities undertaken by the office. Staff productivity has increased dramatically, due largely to an increase in the staff’s expertise, as well as new working relationships with agencies and the regulated industries. Thus far, the staff has been able to avoid major omissions in its review of regulations, but the increase in resources being devoted to pre-proposal activity (over and above the SBREFA panel process) is stretching Advocacy’s resources. There has been some congressional interest in giving Advocacy a separate line item in the SBA’s budget for its entire operation but no action has been taken thus far.(24)

Possible Legislative Proposals

RFA Amendments. Since SBREFA became law in 1996, some observers have suggested further amendments to the RFA. For example, legislation introduced in the 106th Congress would have extended the SBREFA small business advocacy review panel requirements to the IRS and the Department of Labor’s Mine Safety and Health Administration. Advocacy has not taken a position as to whether the addition of other agencies would be advisable, but does acknowledge that the process has worked well for the agencies that are currently covered by the panel requirements. Also, Advocacy encourages agencies to convene SBREFA-like panels on their own initiative since they are obligated under the RFA to reach out to small businesses in the development of regulations. Agency compliance with the outreach provisions of the RFA is subject to judicial review and instituting SBREFA-like panels could serve to satisfy an agency’s obligations under the law.

Advocacy’s Independence. Two proposals were introduced that were designed to increase Advocacy’s independence. One proposal would have established a separate budget line item for the office and defined the conditions under which the Chief Counsel could be removed. The second proposal would have created a three-member independent commission with rulemaking authority over compliance with the RFA and mandated a majority vote for all official commission actions (including comments submitted for the public record). Advocacy supported the first proposal, but had major concerns with the second. This is primarily because the second proposal would 1) take away Advocacy’s ability to react quickly to fast-moving issues or emergencies; and 2) convert its work into litigious activities and thereby eliminate Advocacy’s early access to policymakers in the executive branch.(25) No final action has been taken on either proposal.

Conclusion

The future is a difficult thing to predict. Should we believe Patrick Henry who once said, "I know no way of judging the future but by the past?" Or should we believe Edmund Burke who said, "You can never plan the future by the past?" Burke’s theory seems more likely in light of these questions: Could anyone have predicted that after nearly 20 years of poor and/or spotty agency compliance with the RFA, some agencies would now be active partners with Advocacy in making better regulations that pose less of a burden on small entities? Could anyone have predicted that Advocacy, together with industry representatives, could save small entities billions of dollars annually by eliminating unnecessary and costly regulatory burdens?

One thing is certain: hindsight has proven the RFA critics wrong. The RFA has been and will continue to be a valuable tool in the important work of fashioning fairer and better regulations. Moreover, agencies that have worked closely with Advocacy in recent years have found that RFA compliance does not necessarily impose increased cost or burden on the agency—particularly when the cost of litigation for noncompliance with the RFA is taken into consideration.

"The Office of Advocacy’s intervention in this matter is a valuable case study in the need for small businesses to have a federally established oversight organization to whom they can appeal in cases where agency impact analyses are seriously flawed."—Stephen F. Sims, Pharmaceutical Distributors Association, regarding Advocacy’s comments on a rule issued by the Food & Drug Administration (FDA)

Although it is impossible to know what the future holds, it can at least be said that the future looks promising. Each year since the passage of SBREFA, more and more agencies have made a good-faith effort to comply with the RFA—seeking RFA training, consulting with Advocacy early in a rule’s development, etc. There is no reason for that trend to falter in the near future. Clearly, many agencies still need to do a better job and other agencies lack understanding of even basic RFA concepts. It is Advocacy’s hope that all federal agencies will grow to appreciate the value and importance of the RFA.

"FDA withdrew the most controversial portions of the proposed regulation . . . This is an astounding and unprecedented turnaround that would not have occurred without the SBA’s help . . . As a result of the support the Office of Advocacy has provided, I am now convinced the SBA is an essential watchdog to prevent ill-conceived FDA regulations."—A. Wes Siegner, Jr., Hyman, Phelps & McNamara, P.C.

In order for the regulatory environment to continue improving, the Office of Advocacy must be allowed to pursue its unique mission of representing small businesses within the federal government zealously and independently. Advocacy’s ability to pursue its mission will hinge largely on two factors. The first is adequate funding from Congress. This will ensure proper staffing of the office and continued availability of vital economic research for policymakers. The best way to ensure proper funding may be to make Advocacy’s budget a separate line item in the budget. Whatever the formula for Advocacy’s funding in the future, the office will continue to utilize its resources to serve as the nation’s watchdog against excessive government regulation. The other factor is the skill of the Chief Counsel to forge consensus between the executive and legislative branches of government and to open up policy councils to meaningful participation by small businesses. Credibility and nonpartisan relations with Congress, executive branch agencies and the small business community, as well as rapid responses to regulatory and policy initiatives, are key to effective representation of small business issues by a Chief Counsel. This is perhaps the single most important aspect in motivating the entire office, and it ensures the commitment of a team of professionals to small business.

Appendix B: Fiscal Year 2000 Report on Agencies’ Compliance with the Regulatory Flexibility Act

Table of Contents

Department of Agriculture
Agricultural Marketing Service
Food and Nutrition Service
Food Safety and Inspection Service
Forest Service

Department of Commerce
National Marine Fisheries Service

Department of Health and Human Services
Food and Drug Administration
Health Care Financing Administration

Department of the Interior
Bureau of Land Management
Fish and Wildlife Service

Department of Labor
Occupational Safety and Health Administration

Department of Transportation
Federal Aviation Administration
Federal Motor Carrier Safety Administration

Department of the Treasury
Bureau of Alcohol, Tobacco and Firearms
Internal Revenue Service
Office of Thrift Supervision

Environmental Protection Agency

Federal Communications Commission

Federal Reserve System

Securities and Exchange Commission

Federal Procurement
Environmental Protection Agency
Federal Acquisition Regulation Council

Entities Not Covered by the RFA

Internet Corporation for Assigned Names and Numbers
United States Postal Service
World Intellectual Property Organization

Department of Agriculture

The U.S. Department of Agriculture (USDA) was established in 1862 by President Lincoln. Since then, USDA has been charged with a very wide and diverse set of responsibilities such as farm support programs, soil conservation measures, feeding programs, inspection of meat and poultry, raising rural homeownership, research on pest management, biotechnology, nutrition and food safety, and management of 192 million acres of national forest and grasslands.

Historically, USDA has demonstrated a spotty history of compliance with the Regulatory Flexibility Act (RFA). As described below, throughout fiscal year 2000, the Office of Advocacy continued to work with various agencies within USDA to improve their RFA compliance activities.

In addition to the specific issues listed in this section, Advocacy has also commented on a number of other major USDA-proposed regulations. Since most of the work on these draft regulations contains confidential interagency work product, they cannot be discussed in detail herein. These proposed regulations included many important regulations, such as USDA’s rule creating national standards for organic farming and processing.

Agricultural Marketing Service

In the early 1990s, Advocacy finally convinced the Agricultural Marketing Service (AMS) that its programs were subject to the RFA. Since the passage of the Small Business Regulatory Enforcement Fairness Act (SBREFA) in 1996, AMS has included more analysis in its regulations, frequently opting to prepare an initial regulatory flexibility analysis (IRFA) rather than certify their regulations. However, many of the analyses generally seem to miss a fundamental element: an explanation of why marketing orders and promotion programs are necessary and promote better economic results than a free-market scheme. This is an arcane area of law complicated by the fact that the regulated businesses frequently decide how they are to be regulated—that is, packing requirements, fruit size requirements, whether to adopt a promotion program, etc.

The exception to the rule regarding AMS’ track record of RFA compliance is the Organic Program Office. This unit within AMS has worked diligently with Advocacy and the Office of Management and Budget (OMB) for over two years to develop regulations for a national organic program. The Organic Program staff met with Advocacy very early in the rule’s development in an attempt to make small business concerns an integral part of the rule. In terms of process and outcome, this approach is generally better than writing a rule and then figuring out how to fit small businesses into the equation.

Food and Nutrition Service

Issue: Food Stamp Retailer Eligibility. In June 1999, the Food and Nutrition Service (FNS) proposed a rule to revise the criteria for retail stores that wish to continue participating in the food stamp program. The primary purpose of the rule is to ensure that food stamp recipients continue to have adequate access to stores where they can purchase a wide variety of nutritious food items. FNS determined that a qualifying business must maintain no fewer than three different varieties of staple food items out of four statutorily defined categories, including perishable foods in at least two of those categories. For example, a retailer selling whole, skim, and chocolate milk can only claim one variety of dairy product. In order to ensure the sufficiency of stock on a continuing basis, FNS determined that a qualifying business must be able to verify at least $30,000 in wholesale purchases annually. These were deemed "Criterion A" requirements by the agency. If a business cannot meet "Criterion A" requirements, it can qualify for "Criterion B," which requires a business to have more than 50 percent of its total sales in staple foods.

Although the agency certified under the RFA that the regulation would not have a significant economic impact on a substantial number of small entities, there was no factual basis for its certification. There was no mention of the number of small entities affected by the rule, which is the basic requirement for determining whether a substantial number of small entities were affected. There was no explanation for the seemingly arbitrary requirements in the rule, such as the $30,000 minimum in wholesale purchases, and why such a requirement would have no significant economic impact on small businesses.

The intent of Congress when it mandated changes in the retailer eligibility requirements was to eliminate marginal stores that do not provide enough nutritious foods. Thus, Advocacy questioned whether there is any beneficial effect if stores covered by the rule are eliminated, even if they carry substantial amounts of staple foods. By not doing an economic analysis, the agency may also be harming the food stamp beneficiary if he or she has to travel further distances to find a store that does meet the criteria.

Advocacy filed comments with FNS on August 27, 1999, urging the agency to re-propose the regulation with either a factual basis for its certification or an IRFA. Advocacy awaits further action from the agency on the rule.

Issue: Vendor Participation Requirements for the Women, Infants, and Children Program. In June 1999, FNS published a rule that would strengthen requirements for operation of vendor management systems by limiting the number of vendors and imposing training requirements. As with the food stamp retailer rule above, the agency certified the regulation as having no significant impact on small businesses.

Advocacy again asserted that there was no factual basis or data to support the certification. There was no discussion of the costs associated with limiting the number and distribution of authorized vendors that have never defrauded the government; or a description or estimate of the number of small entities that will be affected by the rule. Therefore, the rule has the potential of affecting not only abusive vendors, but legitimate vendors as well, based on whether participants have adequate access to the program. For example, if a large chain store is serving the area adequately, a smaller store might be eliminated from the program. Controversy swirled around a similar rule that was proposed by the FNS about eight years prior to the instant rule, so the agency needs to be particularly mindful of the rule’s impact.

Advocacy filed comments with FNS on August 27, 1999, voiced these concerns, and requested that the agency re-propose the regulation with a certification and adequate factual basis for the rule, or prepare an IRFA. To date there has been no response by FNS to Advocacy’s request.

Food Safety and Inspection Service

The Food Safety and Inspection Service (FSIS) is another office within USDA that Advocacy believes still needs more work to improve RFA compliance. For example, FSIS issued "policy changes" at least twice in 1999 affecting thousands of small entities. One policy change eliminated face-to-face label reviews, and the other dealt with adding beef trimmings to the range of products that would be considered adulterated when contaminated with a particular food pathogen.

The first of these two policy changes threatened to put many courier/expediter services out of business by not allowing meat processors to use couriers to meet in person with USDA label reviewers for instant label reviews. It also threatened to do great damage to the small processors who relied on courier services to obtain rapid approval on label changes. Ironically, elimination of the face-to-face process contravened USDA’s own internal reports that hailed the process as successful and efficient. The second policy change was a sweeping expansion of FSIS policy interpretation of adulterated meat.

Despite the impact of both "policy changes," the agency failed to do any economic analyses. In Advocacy’s opinion, this violated the Administrative Procedure Act (APA) as FSIS failed to publish the changes as proposed rules. Moreover, when rules are not published for public notice and comment, they are not subject to the requirements of the RFA. Although the agency seems to have survived a court challenge in the case of the label reviews,(1b) the agency’s resources probably would have been better utilized by issuing a proposed rule and preparing a proper analysis.

In September 2000, FSIS contacted Advocacy requesting a tailored briefing on how to comply with the RFA. Advocacy conducted this briefing for about 25 FSIS and USDA staff, with great emphasis on the definition of a small entity for purposes of the RFA. Advocacy hopes the briefing will serve to make FSIS more sensitive to small business issues in the future.

Forest Service

The USDA’s Forest Service is responsible for providing a continuing flow of natural resource goods and services to help meet the needs of the nation and to contribute to the needs of the international community. It is responsible for providing a sustained flow of renewable resources (outdoor recreation, forage, wood, water, wildlife, and fish) in a manner that best meets the needs of society now and in the future. FS is also responsible for assuring that nonrenewable resources are administered in a manner to help meet the country’s needs for energy and minerals.

With the exception of timber-related issues such as the spotted owl, Advocacy’s interaction with FS was limited in the past. However, in fiscal year 2000, Advocacy became more active in FS’ regulatory process.

Issue: Limitation on Road Construction in National Forests. In October 1999, the administration directed FS to draft a rule to prohibit road construction and reconstruction in approximately 54 million acres of inventoried roadless areas. There was an exception in the rule for valid existing rights, public health and safety requirements, and conservation protection for threatened and endangered species. To meet the administration’s directive, FS assembled an interagency team to assure compliance with various requirements of laws such as the National Environmental Policy Act (NEPA) and RFA. FS asked Advocacy to be a part of that interagency team, and Advocacy’s primary role in the interagency effort was to advise the agency on RFA compliance.

Initially it was FS’ position that an RFA analysis was not necessary because the initiative would not have a significant impact on a substantial number of small entities. Advocacy believed that the proposal could have a foreseeable adverse impact on several small entities, including members of the timber industry, small natural-resource-dependent communities, members of the mining industry, recreation providers such as companies that rent snowmobiles and outfitters, and construction companies. Advocacy raised its concerns to FS verbally and in writing prior to the publication of the proposed rule in the Federal Register. Advocacy was concerned about the lack of information on the impact that the initiative would have on small businesses and communities, such as reduced revenues, increased costs, and dissolution of businesses due to the lack of access to natural resources found on federal lands.

Although FS continued to contend that there was no direct significant economic impact, in the end, the agency heeded Advocacy’s advice and prepared an economic analysis. Since FS did not have sufficient information to prepare a meaningful economic analysis, Advocacy asserted that FS had a duty to make a good-faith effort to obtain the data it needed to determine the economic impact of the proposed rule on a diverse group of small entities. Advocacy suggested that FS publish a list of questions along with the proposed rule in order to solicit the necessary information from the public. FS prepared such a list and published the proposed rule in May 2000. When the public comment period closed on July 17, 2000, FS had received thousands of comments on the proposal. Advocacy also filed comments, and acknowledged FS’ cooperation in preparing a regulatory flexibility analysis. Advocacy also stressed the importance of FS giving full consideration to the information and the alternatives provided by the public in response to the IRFA. Currently, Advocacy is working with FS as it reviews the public comments and prepares the final rule, which is expected to be published in late December 2000.

Department of Commerce

The U.S. Department of Commerce (DOC) is responsible for encouraging the nation’s economic growth, international trade, and technological advancements. A number of agencies within DOC are responsible for achieving this mandate. The agencies manage programs affecting diverse areas of commerce, such as fisheries, telecommunications, economic development, electronic commerce, and patents.

National Marine Fisheries Service

The fishing industry is dominated by small entities, and the economies of many small communities across the country are highly dependent on the fishing industry. Regulations that adversely affect the fishing industry also affect the fishing communities. The National Marine Fisheries Service (NMFS), a division of DOC’s National Oceanic and Atmospheric Administration (NOAA), promulgates the majority of the regulations affecting small entities in the fishing industry. NMFS regulates the activities of small businesses under several natural resource protection statutes such as the Marine Mammal Protection Act and the Magnuson-Stevens Fishery Conservation and Management Act.

NMFS promulgates rules through fishery councils located in different geographical parts of the country. Some councils have better information collection sys