Office of Advocacy

Created by Congress in 1976, the Office of Advocacy of the U.S. Small Business Administration (SBA) is an independent voice for small business within the federal government. Appointed by the President and confirmed by the U.S. Senate, the Chief Counsel for Advocacy directs the office. The Chief Counsel advances the views, concerns, and interests of small business before Congress, the White House, federal agencies, federal courts, and state policy makers. Economic research, policy analyses, and small business outreach help identify issues of concern. Regional Advocates and an office in Washington, DC, support the Chief Counsel’s efforts.

For more information on the Office of Advocacy, visit <http://www.sba.gov/advo> or call (202) 205-6533. Receive email notices of new Office of Advocacy information by signing up on Advocacy’s Listservs at http://web.sba.gov/list

R ADVOCACY COMMUNICATIONS
R ADVOCACY NEWSLETTER
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To the President and the Congress of the United States

September 2005 marks the 25th anniversary of the Regulatory Flexibility Act of 1980 (RFA). As we approach the RFA’s silver anniversary, I am pleased to present to Congress and the President this Report on the Regulatory Flexibility Act, FY 2004. Included in this report is the status of agency compliance with Executive Order 13272. The RFA requires agencies to consider the impact of their rules on small entities and examine significant alternatives that minimize small entity impacts. Similarly, Executive Order 13272 (E.O. 13272) directs agencies to submit draft rules that may have a significant economic impact on small entities to the Office of Advocacy for review and to address Advocacy’s comments on proposed rules in the analysis accompanying the final rule. It also requires the Office of Advocacy to train regulatory agencies in how to comply with the RFA and E.O. 13272.

In Fiscal Year 2004, the Office of Advocacy trained 26 agencies on the RFA in accordance with the requirements of E.O. 13272. Our office also submitted written comments on a variety of agency rules, testified before Congress on small business issues and potential legislative changes to the RFA as well as agency compliance with the RFA, and worked successfully with several states to pass state regulatory flexibility legislation. In fact, during 2004, seven states enacted regulatory flexibility legislation. Additionally, Advocacy participated on four Small Business Regulatory Enforcement Fairness Act (SBREFA) panels and filed a notice of intent to submit an amicus curiae or “friend of the court” brief in a Federal Communications Commission (FCC) regulatory matter.

Throughout Fiscal Year 2004, the Office of Advocacy continued to rely on small entities to help identify and prioritize regulations that would significantly affect their operations. As part of this process, Advocacy hosted numerous roundtables to gather small entity input on the regulatory process and key rules. Advocacy also conducted RFA training for trade associations and other members of the private sector affected by agency regulations, as well as for congressional staff. These activities helped the Office of Advocacy focus our efforts on the rules and actions most important to regulated small entities. Training small business stakeholders on the valuable tools provided by the RFA and E.O. 13272 helped engage a broader advocacy community and leverage limited resources.

There were notable improvements in agency compliance with the RFA and E.O. 13272 in Fiscal Year 2004. For example, after receiving RFA training, some federal agencies began consistently submitting draft rules to Advocacy for review; others sought assistance with RFA compliance early in the rulemaking process. Further, some agencies were more willing to make regulatory changes and consider significant alternatives following discussions with Advocacy and affected small entities. Agencies willing to work with Advocacy showed significant progress in their RFA and E.O. 13272 compliance. In 2004, Advocacy’s involvement in agency rulemakings helped secure more than $17 billion in first-year cost savings and more than $2 billion in recurring annual savings for small entities.

In Fiscal Year 2005, Advocacy will continue to be a bridge between regulatory agencies and small entities. Advocacy recognizes that facilitating communications between agencies and small entities will help agencies achieve compliance with the RFA and E.O. 13272 and, ultimately, reduce regulatory burdens on small entities. Our long-term objective is for agencies to have in-house RFA expertise and to internalize thoughtful consideration of small entity impacts pursuant to the RFA and E.O. 13272.

Thomas M. Sullivan
Chief Counsel for Advocacy

Contents

Abbreviations

Introduction

1 Overview of the Regulatory Flexibility Act and Related Policy

History of the RFA
Analysis Required by the RFA
The Small Business Regulatory Enforcement Fairness Act of 1996
Executive Order 13272

2 Federal Agency Compliance and the Role of the Office of Advocacy

Is Executive Order 13272 Making a Difference?
RFA Training under E.O. 13272
  Table 1 Summary of Cabinet Department Compliance with Section 3 (a) of E.O. 13272
  Table 2 RFA Training in Federal Agencies, FY 2003-2004 RFA and SBREFA Implementation
  Chart 1 Advocacy Comments by Key RFA Compliance Issue, FY 2004
  Chart 2 Advocacy Comments and Regulatory Interventions by Agency, FY 2004
  Table 3 SBREFA Panels through Fiscal Year 2004
  Table 4 Regulatory Comment Letters Filed by the Office of Advocacy, Fiscal Year 2004
  Table 5 Regulatory Cost Savings, Fiscal Year 2004
  Table 6 Summary of Cost Savings, Fiscal Year 2004

Small Business Friendly Regulation: Model Legislation for the States

  Map: Model Legislation Initiative
  Table 7 Small Business Friendly Legislation by the Numbers

3 Advocacy Review of Agency RFA Compliance in Fiscal Year 2004

Department of Agriculture
  Agricultural Marketing Service
Department of Commerce
  National Marine Fisheries Service
Department of Defense
Department of Education
Department of Energy
Department of Health and Human Services
  Centers for Medicare & Medicaid Services
  Food and Drug Administration
Department of Homeland Security
Department of Housing and Urban Development
Department of the Interior
  Fish and Wildlife Service
Department of Justice
Department of Labor
  Employment Standards Administration
  Occupational Safety and Health Administration
Department of State
Department of Transportation
  Federal Aviation Administration
  National Highway Traffic Safety Administration
Department of the Treasury
  Internal Revenue Service
Office of the Comptroller of the Currency, Office of Thrift Supervision,
Federal Deposit Insurance Corporation, Federal Reserve System
Department of Veterans Affairs
Architectural and Transportation Barriers Compliance Board
Board of Governors of the Federal Reserve System
Environmental Protection Agency
Federal Acquisition Regulation Council
Federal Communications Commission
Federal Trade Commission
Securities and Exchange Commission
Small Business Administration

Conclusion

Appendix A: The Regulatory Flexibility Act

Appendix B: Executive Order 13272

Abbreviations

ADA Americans with Disabilities Act
AEM Association of Equipment Manufacturers
AFPA American Forest Products Association
AMS Agricultural Marketing Service
ANPRM advance notice of proposed rulemaking
APA Administrative Procedure Act
APPA American Public Power Association
APHIS Animal and Plant Health Inspection Service
BIS Bureau of Industry and Security
CAN-SPAM Controlling the Assault of Non-Solicited Pornography and Marketing Act of 2003
Check 21 The Check Clearing for the 21st Century Act
CIBO Council of Industrial Boiler OwnersCMS Centers for Medicare and Medicaid Services
COOL Country-of-Origin Labeling
CPG Compliance Policy Guide
CRA Community Reinvestment Act
CRS Computer Reservations System
CVM Center for Veterinary Medicine
DAS days at sea
DHS Department of Homeland Security
DOC Department of Commerce
DOD Department of Defense
DOE Department of Energy
DOI Department of the Interior
DOJ Department of Justice
DOL Department of Labor
DOT Department of Transportation
EBSA Employee Benefits Security Administration
E.O. Executive Order
EMA Engine Manufacturers Association
EPA Environmental Protection Agency
ESA Endangered Species Act
ESA Employment Standards Administration
FAA Federal Aviation Administration
FAR Federal Acquisition Regulation
FCC Federal Communications Commission
FDA Food and Drug Administration
FDIC Federal Deposit Insurance Corporation
FLSA Fair Labor Standards Act
FMCSA Federal Motor Carrier Safety Administration
FMP fishery management plan
FRA Federal Railroad Administration
FRFA final regulatory flexibility analysis
FRS Federal Reserve System
FTC Federal Trade Commission
FWS Fish and Wildlife Service
FY fiscal year
GSA General Services Administration
GIPSA Grain Inspection, Packers and Stockyard Administration
HHS Department of Health and Human Services
HSAR Homeland Security Acquisitions Regulations
HUD Department of Housing and Urban Development
IP Internet Protocol
IRF inpatient rehabilitation facility
IRFA initial regulatory flexibility analysis
IRS Internal Revenue Service
MACT maximum achievable control technology
MSHA Mine Safety and Health Administration
MMA Medicare Prescription Drug Improvement and Modernization Act
MO&O memorandum opinion and order
NAICS North American Industry Classification System
NANC North American Numbering Council
NATM National Association of Trailer Manufacturers
NEFMC New England Fishery Management Council
NHTSA National Highway Traffic Safety Administration
NMFS National Marine Fisheries Service
NOAA National Oceanic and Atmospheric Administration
NOx nitrogen oxide
NPRM notice of proposed rulemaking
NTCA National Telecommunications Cooperative Association
OCC Office of the Comptroller of the Currency
OIRA Office of Information and Regulatory Affairs
OMB Office of Management and Budget
OPASTCO Organization for the Promotion and Advancement of Small TelecommunicationsCompanies
OSHA Occupational Safety and Health Administration
OTS Office of Thrift Supervision
PACA Perishable Agricultural Commodities Act
PEL permissible exposure limit
P.L. Public Law
RESPA Real Estate Settlement Procedures Act
RFA Regulatory Flexibility Act
RSPA Research and Special Programs Administration
RVIA Recreational Vehicle Industry Association
SBA Small Business Administration
SBREFA Small Business Regulatory Enforcement Fairness Act
SEC Securities and Exchange Commission
TSA Transportation Security Administration
USDA United States Department of Agriculture
U.S.C. United States Code
VA Department of Veterans Affairs
VoIP Voice over Internet Protocol

Introduction

This Report on the Regulatory Flexibility Act, FY 2004 informs the President, the Office of Management and Budget, and Congress whether agencies are properly considering the impact of their rules on small entities and thus improving their compliance with the Regulatory Flexibility Act (RFA) and Executive Order (E.O.) 13272.

The RFA, enacted 25 years ago, requires federal agencies to determine the impact of their rules on small entities, consider alternatives that minimize small entity impacts, and make their analyses available for public comment. Signed by President George W. Bush in August 2002, E.O. 13272 provides a renewed incentive for agencies to improve their compliance with the RFA and give proper consideration to small entities in the agency rulemaking process.

Throughout the past year, the Office of Advocacy continued its efforts to represent small entities before regulatory agencies, lawmakers, and policymakers. The Office of Advocacy worked closely with small entities and their representatives to identify and comment on agency rules that would affect their interests. Advocacy’s Regulatory Alerts web page, located at http://www.sba.gov/advo/laws/law_regalerts.html , was a useful tool, highlighting notices of proposed rulemaking that may significantly affect small entities.

The Office of Advocacy focused on the issues that were the most important to small entities, significantly reducing regulatory burden and producing substantial cost savings. In fiscal year 2004, the Office of Advocacy achieved more than $17 billion in regulatory cost savings and more than $2 billion in recurring annual savings on behalf of small entities.

This report contains three main sections. Section 1 is a brief overview of the RFA, as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA). This initial section outlines the history of the RFA, and discusses the requirements of the original law and the SBREFA amendments.

Section 2 details the role of the Office of Advocacy. This section discusses how the Office of Advocacy works with regulatory agencies to encourage them to consider the impacts of their rules on small entities, and minimize those burdens where possible. The section uses charts and tables to illustrate Advocacy’s involvement in rulemakings by agency and type of comment. Also included is a listing of Advocacy’s formal comment letters, SBREFA panels held by EPA and OSHA, and cost savings realized by small entities in fiscal year (FY) 2004. Section 2 also contains a map outlining state regulatory flexibility legislation and a list of the RFA training sessions Advocacy conducted in the last fiscal year.

Section 3 briefly describes many of the rules in which Advocacy intervened on behalf of small businesses in 2004. Each narrative describes the agency’s action, Advocacy’s intervention in the rulemaking, and the final regulatory action and cost savings where available.

1 Overview of the Regulatory Flexibility Act and Related Policy

History of the RFA

Before Congress enacted the Regulatory Flexibility Act(1) in 1980, federal agencies did not recognize the pivotal role of small business in an efficient marketplace, nor did they consider the possibility that agency regulations could put small businesses at a competitive disadvantage with large businesses or even constitute a complete barrier to small business market entry. Similarly, agencies did not appreciate that small businesses were restricted in their ability to spread costs over output because of their lower production levels. As a result, when agencies implemented “one-size-fits-all” regulations, small businesses were placed at a competitive disadvantage with respect to their larger competitors. This problem was exacerbated by the fact that small businesses were also disadvantaged by larger businesses’ ability to influence final decisions on regulations. Large businesses have more resources and can afford to hire staff to monitor proposed regulations to ensure effective input in the regulatory process. As a result, consumers and competition were undercut while larger companies were rewarded.

The White House has taken a leadership position in standing up for small business. In 1980, when the first White House Conference on Small Business was held, small business delegates told the President and Congress that they needed relief from the unfair burdens of federal regulation. The President listened when small businesses explained that the burden of federal agency regulations often fell hardest on them. They asserted that “one-size-fits-all” regulations, although easier to design and enforce, disproportionately affected small businesses. This led the federal government to recognize the different impacts of regulations on firms of different sizes and the disparity between large and small firms in the level of input in the regulatory process. In 1980, Congress and the President enacted the RFA to alter how agencies craft regulatory solutions to problems and to change the “one-size-fits-all” approach to regulatory policy.(2)

In 1993, President Clinton issued Executive Order 12866, which required federal agencies to determine whether a regulatory action was “significant” and therefore subject to review by the Office of Management and Budget (OMB) and the analytical requirements of the executive order. In September 2003, OMB issued Circular A-4, which provides guidance to federal agencies for preparing regulatory analyses of economically significant regulatory actions under Executive Order 12866.(3)

In 1996, Congress and the President helped the Office of Advocacy to more effectively implement the RFA by enacting the Small Business Regulatory Enforcement Fairness Act (SBREFA).(4) SBREFA amended the RFA to allow a small business, appealing from an agency final action, to seek judicial review of an agency’s compliance with the RFA. Not surprisingly, this change has encouraged some agencies to increase their compliance with the requirements of the RFA.

In 2002, President George W. Bush signed Executive Order 13272, titled “Proper Consideration of Small Entities in Agency Rulemaking.” The E.O. requires agencies to place emphasis on the consideration of potential impacts on small entities when promulgating regulations in compliance with the RFA. Advocacy is required to provide the agencies with information and training on how to comply with the RFA and must report to OMB annually on agency compliance with the E.O. By signing this executive order, the President provided the small business community with another important tool to ensure that federal regulatory agencies comply with the RFA and include Advocacy in the process.

Analysis Required by the RFA

The RFA requires each federal agency to review its proposed and final rules to determine if the rules will have a “significant economic impact on a substantial number of small entities.” Section 601 of the RFA defines small entities to include small businesses, small organizations, and small governmental jurisdictions. Unless the head of the agency can certify that a proposed rule is not expected to have a significant economic impact on a substantial number of small entities,(5) an initial regulatory flexibility analysis (IRFA) must be prepared and published in the Federal Register for public comment.(6) If the analysis is lengthy, the agency may publish a summary and make the analysis available upon request. This initial analysis must describe the impact of the proposed rule on small entities. It must also contain a comparative analysis of alternatives to the proposed rule that would minimize the impact on small entities and document their comparative effectiveness in achieving the regulatory purpose.

When an agency issues a final rule, it must prepare a final regulatory flexibility analysis (FRFA) unless the agency head certifies that the rule will not have a significant economic impact on a substantial number of small entities and provides a statement containing the factual basis for the certification. The final regulatory flexibility analysis must:

· provide a succinct statement of the need for, and objectives of, the rule;

· summarize the issues raised by public comments on the IRFA and the agency’s assessment of those issues;

· describe and estimate the number of small entities to which the rule will apply or explain why no such estimate is available;

· describe the compliance requirements of the rule, estimate the classes of entities subject to it and the type of professional skills essential for compliance;

· describe the steps followed by the agency to minimize the economic impact on small entities consistent with the stated objectives of the applicable statutes; and

· give the factual, policy, and legal reasons for selecting the alternative(s) adopted in the final rule, and explain why other alternatives were rejected.(7)

The FRFA may be summarized for publication with the final rule. However, the full text of the analysis must be available for review by the public. The RFA is built on the premise that when an agency undertakes a careful analysis of its proposed regulations, with sufficient small business input, the agency can and will identify the economic impact on small businesses. Once an agency identifies the impact a rule will have on small businesses, the agency is expected to seek alternative measures to reduce or eliminate the disproportionate small business burden without compromising public policy objectives. The RFA does not require special treatment or regulatory exemptions for small business, but mandates an analytical process for determining how best to achieve public policy objectives without unduly burdening small businesses.

The Small Business Regulatory Enforcement Fairness Act of 1996

The Small Business Regulatory Enforcement Fairness Act amended the RFA in several critical respects. First, the SBREFA amendments to the RFA were specifically designed to ensure meaningful small business input during the earliest stages of the regulatory development process.

Most significantly, SBREFA authorized judicial review of agency compliance with the RFA, and strengthened the authority of the Chief Counsel for Advocacy to file amicus curiae briefs in regulatory appeals brought by small entities.

SBREFA also added a new provision to the RFA requiring the Environmental Protection Agency (EPA) and the Occupational Safety and Health Administration (OSHA) to convene small business advocacy review panels (SBREFA panels) to review regulatory proposals that may have a significant economic impact on a substantial number of small entities. The purpose of a SBREFA panel is to ensure small business participation in the rulemaking process, to solicit comments, and to discuss less burdensome alternatives to the regulatory proposal. Included on the SBREFA panel are representatives from the rulemaking agency, the Office of Management and Budget’s Office of Information and Regulatory Affairs (OIRA), and the Chief Counsel for Advocacy. The Office of Advocacy assists the rulemaking agency in identifying small entity representatives from affected industries, who provide advice and comments to the SBREFA panel on the potential impacts of the proposal. Finally, the panel must develop a report on its findings and submit the report to the head of the agency within 60 days.

Additionally, SBREFA amended the RFA to bring certain interpretative rulemakings of the Internal Revenue Service (IRS) within the scope of the RFA. The law now applies to those IRS rules (that would normally be exempt from the RFA as interpretative) published in the Federal Register that impose a “collection of information” requirement on small entities.(8) Congress took care to define the term “collection of information” to be identical to the term used in the Paperwork Reduction Act, which means that a collection of information includes any reporting or recordkeeping requirement for more than nine people.(9)

Executive Order 13272

On August 13, 2002, the President signed Executive Order 13272, titled “Proper Consideration of Small Entities in Agency Rulemaking.”(10) The E.O. strengthened the Office of Advocacy by enhancing its relationship with OIRA and directing agencies to work closely with the Office of Advocacy to properly consider the impact of their regulations on small entities.

The E.O. first required federal regulatory agencies to establish written procedures and policies on how they intend to measure the impact of their regulatory proposals on small entities, and vet those policies with the Office of Advocacy before publishing them.(11) By February 13, 2003, agencies were to have considered Advocacy’s comments and made their final procedures available to the public through the Internet or other easily accessible means.(12) Second, the agencies must notify the Office of Advocacy of draft rules expected to have a significant economic impact on a substantial number of small entities under the RFA.(13) Third, agencies must consider the Office of Advocacy’s written comments on proposed rules and publish a response to those comments with the final rule.(14) The Office of Advocacy, in turn, must provide periodic notification, as well as training, to all federal regulatory agencies on how to comply with the RFA.(15) These preliminary steps set the stage for agencies to work closely with the Office of Advocacy and properly consider the impact of their regulations on small entities.

2 Federal Agency Compliance and the Role of the Office of Advocacy

By independently representing the views of small business, the Office of Advocacy is an effective voice for small business before Congress and federal regulatory agencies. Since its creation in 1976, the Office of Advocacy has pursued its mission of creating research products that help lawmakers understand the contribution of small businesses to the U.S. economy. Since enactment of the RFA in 1980, Advocacy’s regulatory experts have monitored federal agency compliance with the law and worked to convince federal agencies to consider the impact of their rules on small businesses before the rules go into effect. In 2003, the Office of Advocacy added a new component: reducing regulatory burdens for small businesses at the state level. The Office of Advocacy’s regional advocates promoted state model legislation based on Advocacy’s experience with the federal RFA and E.O.13272.(16)

Is Executive Order 13272 Making a Difference?

With the new E.O., some agencies are increasingly recognizing the importance of small business to the nation’s economy and the benefit of considering the impacts of their rulemakings on small entities. Those agencies trying to comply with the requirements of the E.O. are coming to Advocacy earlier in the rule development process, resulting in earlier consideration of small business impacts of draft regulations. However, many agencies still do not solicit Advocacy’s input early enough in the rule development process.

Section 3(a) of the E.O requires agencies to issue written procedures and policies to ensure that their regulations consider the potential impact on small entities and make them publicly available. All Cabinet-level departments except the Department of State have submitted written plans to Advocacy. The departments have also made the procedures publicly available in compliance with the E.O. (Table 1).

Section 3(b) of E.O. 13272 requires agencies to notify Advocacy of any draft rules that may have a significant economic impact on a substantial number of small entities under the RFA. Such notifications are to be made (i) when the agency submits a draft rule to OIRA under Executive Order 12866, or (ii) if no submission to OIRA is required, at a reasonable time prior to publication of the rule by the agency. To make it easier for agencies to comply electronically with the notice requirements of the E.O. and the RFA, Advocacy established an email address, notify.advocacy@sba.gov. A few agencies have adopted an email system to advise Advocacy of such rules. The agencies that use the email exclusively(17) have found it to be a simple process for meeting the notification requirements.

Section 3(c) of E.O. 13272 requires agencies to give every appropriate consideration to Advocacy’s comments on a proposed rule. In the final rule, published in the Federal Register, an agency must respond to any written comments submitted by Advocacy on the proposed rule. Many agencies have not yet had an opportunity to comply with this section of the E.O. because the rules on which Advocacy has commented have not been finalized. More time is needed to assess overall agency compliance with this provision of the E.O.

Advocacy continues to be less satisfied with the response to E.O. 13272 by independent regulatory agencies. Of the 75 independent regulatory agencies, 16 responded to the requirements of the E.O. Of these, eight provided written procedures to Advocacy, six claimed not to regulate small entities, and two claimed to be exempt from the E.O. Independent agencies with plans are generally complying with sections 3(b) and 3(c) of the E.O., or have not had an opportunity to comply.

Advocacy remains most concerned with the noncompliance of eight particular independent agencies that regulate small entities and did not submit written procedures to Advocacy. The eight independent agencies are the Export-Import Bank of the United States, the Farm Credit Administration, the Federal Communications Commission, the Federal Deposit Insurance Corporation, the Federal Housing Finance Board, the Federal Maritime Commission, the Federal Reserve System, and the Securities and Exchange Commission. Both the Federal Communications Commission and the Federal Deposit Insurance Corporation submitted letters in response to E.O. 13272.(18) As government-wide RFA training moves forward, the training of independent agencies will be an important step in helping these agencies to comply with the executive order.

RFA Training under E.O. 13272

Executive Order 13272 requires Advocacy to train regulatory agencies on how to comply with the RFA and the E.O. Advocacy identified 66 departments, agencies, and independent commissions that promulgate regulations affecting small business. By training approximately 25 agencies each year, Advocacy hopes to complete training of all 66 agencies before FY 2008. A list of the RFA training sessions conducted in FY 2004 is in Table 2 of this report.

The government-wide rollout of the RFA training began in October 2003. Advocacy has trained more than 30 federal agencies in how to comply with the RFA and the E.O. Agencies that have participated in the rigorous half-day training are more aware of their compliance responsibilities under the RFA and the E.O. Increasingly, agency staff are willing to share draft rules and other important information with Advocacy. This enables Advocacy to better assist them in assessing the small business impacts of their draft rules. Moreover, a large part of the training is laying the foundation for productive relationships between Advocacy and the regulatory agencies. For those agencies willing to take advantage of Advocacy’s expertise, knowing where to go for assistance on RFA issues is vital.

Advocacy is in the process of developing the next phase of its RFA training program. The office is working with an outside contractor to create an online computer-based RFA training module. The online training will be useful for both new agency employees and as a review for existing employees.

Advocacy remains optimistic that small businesses will begin to realize the benefits of E.O. 13272 when agencies adjust their regulatory development processes to accommodate the requirements of the RFA and the E.O. As more agencies work with the Office of Advocacy earlier in the rule development process and give small entity impacts appropriate consideration, regulations should show more sensitivity to small business considerations. The E.O. is an important tool designed to guarantee small businesses a seat at the table where regulatory decisions are made. Advocacy will continue working closely with all federal regulatory agencies to train them on the RFA and increase compliance with both the RFA and E.O. 13272.

“We are grateful to [Advocacy] for bringing to the FCC their interactive training on addressing small business concerns in regulatory proceedings. We have worked closely with SBA’s Office of Advocacy in the past, and appreciate their efforts on behalf of small telecommunications businesses. We congratulate them on creating a fine program.” -Carolyn Fleming Williams, Director, Office of Communications Business Opportunities, Federal Communications Commission

“During the training…[Advocacy staff] did a wonderful job of articulating the purpose and requirements of the RFA. Because most of the ATF employees attending the training had no background in the RFA, your staff had a particularly hard job, but they were extremely effective…We are certain we will take advantage of [Advocacy’s offer to assist ATF in the future] as we begin to apply our training to regulatory projects.” -Stephen Rubenstein, Chief Counsel, Bureau of Alcohol, Tobacco, and Firearms

“EBSA employees have said your training was excellent. It’s a credit to all of you for keeping up the quality after so many sessions.” -Fred Siskind, Office of the Assistant Secretary for Policy, U.S. Department of Labor

Table 1 Summary of Cabinet Department Compliance with

§ 3(a) of E.O. 13272: Establishing Procedures to Promote RFA Compliance

Department	Document made available at:
Agriculture	http://www.ocio.usda.gov/directives/files/dr/DR1512-001.pdf
Commerce	www.ogc.doc.gov/ogc/legreg/testimon/108f/guidelines.htm
Defense	DOD has not submitted its own procedures separate from the FAR Council/GSA’s submission.
Education	www.ed.gov/legislation/FedRegister/finrule/2003-2/051203d.html
Energy	www.gc.doe.gov/rulemaking/eo13272.pdf
Health and Human Services	www.hhs.gov/execsec/smallbus.html
Homeland Security	www.tsa.gov/public/display?theme=5
Housing and Urban Development	www.hud.gov/offices/osdbu/policy/impact.cfm
Interior	http://elips.doi.gov/elips/release/3207.htm
Justice	www.usdoj.gov/olp/execorder13272.pdf
Labor	www.dol.gov/dol/regs/guidelines.htm
State	State has not complied.
Transportation	www.regs.dot.gov/docs/eo-13272.pdf
Treasury	www.treas.gov/regs/2002-rfa-compliance.pdf?IMAGE.X=24&IMAGE.Y=8
Veterans Affairs	www.va.gov/OSDBU/library/eo13272.htm

Note: The following independent agencies that regulate small entities did not submit written procedures under Section 3(a) of E.O. 13272: the Export-Import Bank of the United States, the Farm Credit Administration, the Federal Communications Commission (submitted letter saying not covered by executive orders), the Federal Deposit Insurance Corporation (submitted letter saying not covered by executive orders), the Federal Emergency Management Agency, the Federal Housing Finance Board, the Federal Maritime Commission, the Federal Reserve System, and the Securities and Exchange Commission.

Table 2 RFA Training in Federal Agencies, FY 2003-2004

In fulfillment of E.O. 13272 requirements, Advocacy has trained the following federal departments and agencies in how to comply with the Regulatory Flexibility Act.

Cabinet Departments

Department of Commerce
  National Oceanic and Atmospheric Administration*
Department of Health and Human Services
  Center for Medicare and Medicaid Services
  Food and Drug Administration
Department of the Interior
  Bureau of Indian Affairs
  Bureau of Land Management
  Fish and Wildlife Service
  Minerals Management Service
  National Park Service
  Office of Surface Mining, Reclamation, and Enforcement
Department of Justice
  Bureau of Alcohol, Tobacco, and Firearms
Department of Labor
  Employee Benefits Security Administration
  Employment and Training Administration
  Employment Standards Administration
  Mine Safety and Health Administration
  Occupational Safety and Health Administration
Department of Transportation
  Federal Aviation Administration
  Federal Motor Carrier Safety Administration
  Federal Railroad Administration
  Research and Special Programs Administration*
Department of the Treasury
  Alcohol, Tobacco, Tax, and Trade Bureau
  Financial Crimes Enforcement Network
  Financial Management Service
  Internal Revenue Service
  Office of the Comptroller of the Currency
Department of Veterans Affairs

Independent Federal Agencies

Environmental Protection Agency*
Federal Communications Commission
General Services Administration/FAR Council
Small Business Administration

*Trained in FY 2003

RFA and SBREFA Implementation

Advocacy promotes agency compliance with the RFA in several ways.(19) Advocacy staff members regularly review proposed regulations and work closely with small entities, trade associations, and federal regulatory contacts to identify areas of concern, then work to ensure that the RFA’s requirements are fulfilled (Charts 1 and 2).

Early intervention by the Office of Advocacy has helped federal agencies develop a greater appreciation of the role small business plays in the economy and the rationale for ensuring that regulations do not unduly stifle entrepreneurial growth. The Office of Advocacy continues to provide economic data, whenever possible, to help agencies identify industrial sectors dominated by small firms. Statistics show regulators why rules should be written to fit the unique characteristics of small businesses if public policy objectives will not otherwise be compromised. Advocacy makes statistics available on its Internet website and maintains a database of information on trade associations that can be helpful to federal agencies seeking input from small businesses.

The Office of Advocacy also promotes agency compliance with the RFA through its collaboration with a network of small business representatives. Advocacy staff regularly meet with small businesses and their trade associations regarding federal agency responsibilities under the RFA, factors to be addressed in agency economic analyses, and the judicial review provision enacted in the SBREFA amendments. Roundtable meetings with small businesses and trade associations focus on specific regulations and issues, such as procurement reform, environmental regulations, and industrial safety. Advocacy also plays a key role as a participant in the SBREFA panels convened to review EPA and OSHA rules (Table 3).

As regulatory proposals and final rules are developed, the Office of Advocacy is involved through pre-proposal consultation, interagency review under E.O. 12866, formal comment letters and informal comments to the agency, congressional testimony and “friend of the court” briefs. In 2004, Advocacy submitted a notice of intent to file an amicus curiae brief in a litigation proceeding involving the FCC’s memorandum opinion and order on local number portability. Ultimately, the notice of intent was withdrawn, as Advocacy and the FCC were able to reach a settlement agreement. Table 4 lists Advocacy’s formal comment letters to federal agencies in FY 2004.

Table 5 outlines the rules in which Advocacy intervened and assisted small businesses in obtaining cost savings. Advocacy calculates cost savings based on agency data or industry estimates in the absence of agency data. In FY 2004, revisions to federal agency actions and rulemakings in response to Advocacy’s interventions produced first-year cost savings of more than $17 billion (Table 6).

Chart 1 Advocacy Comments, by Key RFA

Compliance Issue, FY 2004 (percent)

 



Throughout Fiscal Year 2004, the Office of Advocacy advised many agencies on how to comply with the RFA. Chart 1 illustrates the key concerns raised by Advocacy's comment letters and pre-publication review of draft rules. The chart highlights areas for improved compliance based on Advocacy's analysis of its FY 2004 comment letters and other regulatory interventions summarized in this report.

Chart 2 Advocacy Comments and Regulatory Interventions by Agency, FY 2004 (percent)



Chart 2 identifies agencies that were the focus of Advocacy's letters and regulatory interventions during Fiscal Year 2004. With the volume of rulemakings in progress each year, Advocacy cannot review every rule for RFA compliance. Instead, Advocacy takes its direction from small businesses, focusing its regulatory interventions on rulemakings identified by small businesses as a priority. This chart simply illustrates the distribution of Advocacy's comment letters and other regulatory interventions across agencies and may not reflect on the agencies’ overall RFA compliance records.

Table 3 SBREFA Panels Through Fiscal Year 2004

Rule Subject	Date Convened		Report Completed	NPRM 1	Final Rule Published
Environmental Protection Agency
Non-Road Diesel Engines		03/25/97	05/23/97	09/24/97	10/23/98
Industrial Laundries Effluent Guideline		06/06/97	08/08/97	12/12/97	Withdrawn2
Stormwater Phase 2		06/19/97	08/07/97	01/09/98	12/08/99
Transport Equipment Cleaning Effluent Guideline		07/16/97	09/23/97	06/25/98	08/14/00
Centralized Waste Treatment Effluent Guideline		11/06/97	01/23/98	01/13/99	12/22/00
Underground Injection Control Class V Wells		02/17/98	04/17/98	07/29/98	12/07/99
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	10/21/98
Section 126 Petitions		06/23/98	08/21/98	09/30/98	05/25/99
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	01/14/02
Filter Backwash Recycling		08/21/98	10/19/98	04/10/00	06/08/01
Light Duty Vehicles/Light Duty Trucks Emissions And Sulfur in Gasoline		08/27/98	10/26/98	05/13/99	02/10/00
Arsenic in Drinking Water		03/30/99	06/04/99	06/22/00	01/22/01
Recreational Marine Engines		06/07/99	08/25/99	10/05/01 08/14/02	11/08/02
Diesel Fuel Sulfur Control Requirements		11/12/99	03/24/00	06/02/00	01/18/01
Lead Renovation and Remodeling Rule		11/23/99	03/03/00
Metals Products and Machinery Effluent Guideline		12/09/99	03/03/00	01/03/01	05/13/03
Concentrated Animal Feedlots Effluent Guideline		12/16/99	04/07/00	01/12/01	02/12/03
Reinforced Plastics Composites		04/06/00	06/02/00	08/02/01	04/21/03
Stage 2 Disinfection Byproducts		04/25/00	06/23/00
Long Term 2 Enhanced Surface Water Treatment		04/25/00	06/23/00	08/11/03 08/18/03
Emissions from Non-Road and Recreational Engines and Highway Motorcycles		05/03/01	07/17/01	10/05/01 08/14/02	11/08/02
Construction and Development Effluent Guideline		07/16/01	10/12/01	06/24/02	Withdrawn³
Aquatic Animal Production Industry		01/22/02	06/19/02	09/12/02	08/23/04
Lime Industry-Air Pollution		01/22/02	03/25/02	12/20/02	01/05/04
Non-Road Diesel Emissions-Tier 4 Rules		10/24/02	12/23/02	05/23/03	06/29/04
Cooling Water Intake Structures-Phase III Facilities		02/27/04	04/27/04	11/24/04
Occupational Safety and Health Administration
Tuberculosis		09/10/96	11/12/96	10/17/97	Withdrawn4
Safety and Health Program Rule		10/20/98	12/19/98	Withdrawn
Ergonomics Program Standard		03/02/99	04/30/99	11/23/99	11/14/005
Electric Power Generation, Transmission, and Distribution		04/01/03	06/30/03
Confined Spaces in Construction		09/26/03	11/24/03
Occupational Exposure to Respirable Crystalline Silica Dust		10/21/03	12/19/03
Occupational Exposure to Hexavalent Chromium		01/30/04	04/20/04	10/04/04

1 Notice of proposed rulemaking (NPRM).
2 Proposed rule was withdrawn August 18, 1999. EPA does not plan to issue a final rule.
3 Proposed rule was withdrawn on April 26, 2004. EPA does not plan to issue a final rule.
4 Proposed rule was withdrawn on December 31, 2003. OSHA does not plan to issue a final rule.
5 President Bush signed Senate J. Res. 6 on 03/20/01, which eliminated this final rule under the Congressional Review Act.

Table 4 Regulatory Comment Letters Filed by the Office of Advocacy, Fiscal Year 2004*

Date	Agency	Comment Subject
10/06/03	Treasury/IRS	Notice of Proposed Rulemaking; Depreciation of Vans and Light Trucks; 68 Fed. Reg. 40224 (July 07, 2003).
10/10/03	FCC	Ex Parte Presentation Regarding the Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991; CG Dkt. No. 02-278; FCC 03-153; 68 Fed. Reg. 44143 (July 25, 2003).
10/30/03	FCC	Reply to the Petition for Reconsideration; Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991; CG Dkt. No. 02-278; FCC 03-153; 68 Fed. Reg. 44143 (July 25, 2003).
11/03/03	Commerce/ NOAA/NMFS	Amendment 13 to the New England Groundfish Fishery Management Plan.
11/03/03	HHS/CMS	Proposed Rule; Medicare Program; Changes to the Criteria for Being Classified as an Inpatient Rehabilitation Facility; 68 Fed. Reg. 53266 (September 9, 2003).
12/05/03	USDA/AMS	Proposed Rule; Mandatory Country-of-Origin Labeling of Beef, Lamb, Pork, Fish, Perishable Agricultural Commodities, and Peanuts; 68 Fed. Reg. 61944 (October 30, 2003).
12/18/03	SEC	Proposed Rule; Security Holder Director Nominations; 68 Fed. Reg. 60784 (October 23, 2003).
12/18/03	SBA	Proposed Rule; Small Business Government Contracting Programs; 68 Fed. Reg. 60015 (October 20, 2003).
01/05/04	DHS	Interim Rule; Homeland Security Acquisition Regulation; 68 Fed. Reg. 67867 (December 4, 2003).
02/04/04	FCC	Reply Comment; Telephone Number Portability; CC Dkt. No. 95-116; FCC 03-284; 68 Fed. Reg. 68831 (December 10, 2003).
02/04/04	EPA	Toxic Chemical Release Reporting; Online Dialogue Phase II; 68 Fed. Reg. 62759 (November 5, 2003).
02/13/04	FCC	Notice of Intent to File Amicus; U.S. Court of Appeals for the District of Columbia Circuit; Telephone Number Portability; CC Dkt. No. 95-116; FCC 03-284 68; Fed. Reg. 68831 (December 10, 2003).
02/27/04	Commerce/ NMFS	Proposed Rule; Magnuson-Stevens Fishery Conservation and Management Act Provisions; Fisheries of the Northeastern United States; Northeast (NE) Multispecies Fishery; Amendment 13; Fed. Reg. 4362 (January 29, 2004).
03/12/04	Treasury/FRS	Proposed Rule; Availability of Funds and Collection of Checks; 69 Fed. Reg. 1470 (January 8, 2004).
03/29/04	Commerce/ NMFS	Proposed Rule; Fisheries of the Northeastern United States; Atlantic Sea Scallop Fishery; Amendment 10; 69 Fed. Reg. 8915 (February 26, 2004).
03/30/04	EPA	Final Determination on Effluent Limitation Guidelines and New Source Performance Standards for the Construction and Development Category; 67 Fed. Reg. 42644 (June 24, 2002).
03/31/04	FTC	Proposed Rule; Addressing the Feasibility of a National Do-Not-Email Registry under the CAN-SPAM Act; Project No. R411008, RIN 3084-AA96; 69 Fed. Reg. 11776 (March 11, 2004).
04/02/04	DOT/FAA	Proposed Rule; National Air Tour Safety Standards; 68 Fed. Reg. 60572 (October 22, 2003).
04/06/04	OCC/FRS/ FDIC/OTS	Proposed Rule; Joint Proposal to Amend the Community Reinvestment Act Regulations; 69 Fed. Reg. 5729 (February 6, 2004).
04/09/04	HUD	Withdrawal of Real Estate Settlement Procedures Act Draft Final Rule.
04/15/04	OCC/FRS/ FDIC/OTS	Request for Burden Reduction Recommendations; Consumer Protection; Lending Related Rules; Economic Growth and Regulatory Paperwork Reduction Act of 1996 Review; 69 Fed. Reg. 2852 (January 21, 2004).
04/20/04	FTC	Proposed Rule; Addressing the Small Business Impacts of the Implementation of the CAN-SPAM Act; Project No. R411008, RIN 3084-AA96; 69 Fed. Reg. 11776 (March 11, 2004).
05/14/04	OMB	OMB Draft 2004 Report to Congress on the Costs and Benefits of Federal Regulations; 69 Fed. Reg. 7987 (February 20, 2004).
05/28/04	FCC	Review of Regulatory Requirements for IP-Enabled Services; WC Dkt. No. 04-36, FCC 04-28; 68 Fed. Reg. 16193 (March 29, 2004).
06/10/04	FCC	Notice of Withdrawal; U.S. Court of Appeals for the District of Columbia Circuit; Telephone Number Portability; CC Dkt. No. 95-116; FCC 03-284; 68 Fed. Reg. 68831 (December 10, 2003).
06/10/04	EPA	Recommendations for Regulatory Revisions; Spill Prevention, Control and Countermeasure Regulation; 67 Fed. Reg. 47041 (July 17, 2002).
06/29/04	SBA	Proposed Rule; Small Business Size Standards; Restructuring of Size Standards; 69 Fed. Reg. 1310 (March 19, 2004).
07/01/04	SBA	Withdrawal of the Proposed Rule on Small Business Size Standards; 69 Fed. Reg. 39874 (July 1, 2004).
08/16/04	DOT/FAA	Supplemental Notice of Proposed Rule; Antidrug and Alcohol Misuse Prevention Programs for Personnel Engaged in Specified Aviation Activities; FAA-2002-11301; 69 Fed. Reg. 27980 (May 17, 2004).
08/24/04	FCC	Ex Parte Presentation; Regarding the Initial Regulatory Flexibility Analysis for Local Telephone Competition and Broadband Reporting; WC Dkt. No. 04-141; FCC 04-81; 69 Fed. Reg. 30252 (May 27, 2004).
09/07/04	FCC	Ex Parte Letter Supporting the Extension of the Stay of the Order Regarding Rules and Regulations Implementing the Telephone Consumer Protection Act of 1991; CG Dkt. No. 02-278, FCC 03-153; 68 Fed. Reg. 44143 (July 25, 2003).
09/21/04	FCC	Proposed Rule; Reply Comment Regarding the Initial Regulatory Flexibility Analysis for NPRM in Federal-State Joint Board or Universal Service; CC Dkt. No. 96-45, FCC 04-127; 69 Fed. Reg. 40839 (July 7, 2004).

Table 5 Regulatory Cost Savings, Fiscal Year 2004

Agency	Subject Description	Cost Savings
HUD	Real Estate Settlement Procedures Act (RESPA). HUD withdrew its proposed RESPA rule from OMB review pending further discussion with affected consumer and industry groups.	$10.3 billion in the first year. Source: HUD.
DOT	Changes to the Computer Reservation System (CRS). The final rule deregulated much of the CRS system, allowing travel agencies to negotiate their own contracts as well as permitting them to receive bonuses and other incentives from CRSs.	$438 million in the first year and annually. Source: DOT.
EPA	Water Pollution Regulations for Centralized Waste Treatment Facilities. EPA’s final rule eliminated pollution limits for the chemical molybdenum in centralized waste water treatment facilities.	$75 million in the first year and annually. Source: EPA.
EPA	Industrial, Commercial, and Institutional Boiler and Process Heater Air Toxics. EPA’s final rule exempted small facilities from new pollution control equipment installation requirements if they show no adverse impacts on neighboring facilities.	$3.75 billion in the first year and $144 million annually. Source: CIBO, AFPA, APPA.
EPA	Plywood Manufacturing Air Toxics Rule. EPA’s final rule exempted small manufacturing facilities from the plant emission requirements, provided the facilities show no adverse impacts on neighboring communities.	$500 million in the first year and $150 million annually. Source: AFPA.
EPA	Water Quality Requirements for Construction and Development Activities. EPA withdrew a proposed rule that would have imposed new storm water management requirements on construction and development activities.	$585 million in the first year and annually. Source: EPA.
EPA	Aquaculture Effluent Limitations Guidelines. EPA’s final rule substituted management requirements for numerical pollutant limits. EPA also focused the rule on the 50 largest small businesses.	$5 million in the first-year $2 million annually. Source: EPA.
EPA	Meat Processing Effluent Limitations Guidelines. EPA exempted from its final rule plants that process less than 100 million pounds of poultry, increased the limits on permissible nitrogen and ammonia discharges for plants directly connected to water bodies, and exempted indirect dischargers.	$25 million in the first year and annually. Source: EPA.
EPA	Nonroad Diesel Engines and Fuels Rule. EPA modified its final rule to allow small manufacturers additional time to meet new emissions standards for certain engines. The agency delayed the requirement for NOx adsorbers on smaller engines pending a technology review, and exempted the smallest diesel engines from the requirement to carry particulate matter filters.	$1.38 billion in the first year and annually. Sources: EPA, AEM, EMA.

 

Table 6 Summary of Cost Savings,
FY 2004 1 (Dollars)

Rule / Intervention	First-Year Costs ($)	Annual Cost ($)
HUD Real Estate Settlement Procedures Act (RESPA)2	10,300,000,000
DOT Computer Reservation System3	438,000,000	438,000,000
EPA Water Pollution Regulations for Centralized Waste Treatement Facilities4	75,000,000	75,000,000
EPA Industrial, Commercial, and Institutional Boiler and Process Heater Air Toxics Rule5	3,750,000,000	144,230,769
EPA Plywood Manufacturing Air Toxics Rule6	500,000,000	150,000,000
EPA Water Quality Requirements for Construction and Development Activities7	585,000,000	585,000,000
EPA Aquaculture Effluent Limitations Guidelines8	5,000,000	2,000,000
EPA Meat Processing Effluent Limitations Guideline9	25,000,000	25,000,000
EPA Nonroad Diesel Engines and Fuels Rule10	1,386,300,000	1,386,300,000
TOTAL	17,064,300,000	2,805,530,769
1. The Office of Advocacy generally bases its cost savings estimates on agency estimates. Cost savings for a given rule are captured in the fiscal year in which the agency agrees to changes in the rule as a result of Advocacy’s intervention. Where possible, we limit the savings to those attributable to small businesses. These are best estimates. First-year cost savings consist of either capital or annual costs that would be incurred in the rule’s first year of implementation. Recurring annual cost savings are listed where applicable.
2. Source: HUD.
3. Source: DOT.
4. Source: EPA.
5. Source: The Council of Industrial Boiler Operators, American Forest and Paper Association, American Public Power Association.
6. Source: American Forest and Paper Association.
7. Source: EPA.
8. Source: EPA.
9. Source: EPA.
10. Source: EPA, The Association of Equipment Manufacturers, and the Engine Manufacturers Association.

 

Small Business Friendly Regulation: Model Legislation for the States

Advocacy’s regional advocates, located in the Small Business Administration’s 10 regions, help identify regulatory concerns of small business by monitoring the impact of federal and state policies at the grassroots level. The regional advocates educate governors, state officials, state legislators, and small business representatives about the benefits of reducing state regulatory burdens on small business. As a result, in FY 2004, 17 states introduced regulatory flexibility legislation, and seven states signed the legislation into law. The map provides an overview of state regulatory flexibility legislation. Table 7 lists the states that are considering or that have enacted state regulatory flexibility legislation.



 

Table 7 Small Business Friendly Legislation by the Numbers

7 states enacted regulatory flexibility legislation in FY 2004
Connecticut (SB 293)	Missouri (HB 978)	South Carolina (H 4130)	Wisconsin (SB 100)
Kentucky (HB 609)	Rhode Island (S3233)	South Dakota (SB 112)
17 states introduced regulatory flexibility legislation in FY 2004
California	Kansas	Pennsylvania	Washington
Connecticut*	Kentucky*	Rhode Island*	Wisconsin*
Georgia	Missouri*	South Carolina*
Idaho	Nebraska	South Dakota*
Illinois	New Jersey	Tennessee
Current Status
10 states and 1 territory have comprehensive regulatory flexibility statutes
Arizona	Michigan	North Dakota	South Carolina*
Connecticut*	Nevada	Oklahoma	Wisconsin*
Hawaii	New York	Puerto Rico
29 states have partial or partially used regulatory flexibility statutes
California	Kentucky*	New Hampshire	Texas
Colorado	Louisiana	New Jersey	Utah
Delaware	Maine	North Carolina	Vermont
Florida	Maryland	Ohio	Washington
Georgia	Massachusetts	Oregon	West Virginia
Illinois	Minnesota	Pennsylvania
Indiana	Mississippi	Rhode Island*
Iowa	Missouri*	South Dakota*
11 states, 2 territories, and the District of Columbia have no regulatory flexibility statute
Alabama	Guam	Nebraska	Virginia
Alaska	Idaho	New Mexico	Wyoming
Arkansas	Kansas	Tennessee
District of Columbia	Montana	Virgin Islands
* Enacted in FY 2004
			As of September 30, 2004

Note: For more information on state regulatory flexibility legislation, visit Advocacy’s website at http://www.sba.gov/advo/laws/law_modeleg.html.

3 Advocacy Review of Agency RFA Compliance in Fiscal Year 2004

The general purpose of the RFA is clear. In monitoring agency compliance, the Office of Advocacy has found over the years, and reported to the President and Congress, that a number of federal agencies failed to conduct the proper analyses required by the law. In recent years, Advocacy has noticed an increase in the number of agencies that make a good-faith effort to comply with the RFA; nevertheless, some agencies continue to fall short and others, with generally good RFA compliance, from time to time fail to comply with the RFA on particular rulemakings.

Department of Agriculture

E.O. 13272 Compliance

The Department of Agriculture (USDA) has made its policies for considering small entity impacts when promulgating regulations publicly available as required by section 3(a) of the E.O. Two agencies within USDA consistently notify Advocacy of rules that may have a significant economic impact on small entities: the Animal and Plant Health Inspection Service (APHIS) and the Grain Inspection, Packers and Stockyard Administration (GIPSA).

APHIS has proposed some rules that could significantly affect a substantial number of small entities and has properly notified Advocacy as required by section 3(b) of the E.O. While the agency often certifies that its rules will not have a significant impact on a substantial number of small entities, it performs a fair number of IRFAs. Advocacy is working with the agency on improving technical aspects of its IRFAs. The agency should have a better understanding after completing RFA training slated for early 2005. Advocacy is developing contacts with key industry groups concerned with APHIS regulations. This will allow Advocacy to focus on rules that are a priority for small entities affected by APHIS’s rules.

It is too early to determine if the USDA, as a whole, is in compliance with section 3(c), the requirement to address Advocacy’s comments in their final rules, because no rules have gone final in the past two years in which Advocacy has filed comments. The USDA has not yet received RFA training. APHIS is scheduled for its first training session in 2005. Following this session and others at the department, Advocacy expects to see an improvement in E.O. compliance from the agencies within the USDA.

Agricultural Marketing Service

Issue: Mandatory Country-of-Origin Labeling of Beef, Lamb, Pork, Fish, Perishable Agricultural Commodities and Peanuts

The Farm Security and Rural Investment Act of 2002 (2002 Farm Bill) required the U.S. Department of Agriculture (USDA) to issue regulations requiring country-of-origin labeling (COOL) for certain commodities including beef, lamb, pork, fish, peanuts, and fresh and frozen fruits and vegetables.

Advocacy began working with USDA’s Agricultural Marketing Service (AMS) on COOL prior to its publication of a proposed rule. On October 30, 2003, AMS issued a proposed rule requiring food retailers to notify customers of the country of origin of covered commodities beginning September 30, 2004. It also proposed considerable recordkeeping and record retention requirements for food producers and retailers. AMS prepared an initial regulatory flexibility analysis (IRFA) as required by the RFA to analyze the proposed rule’s economic impacts on small entities.

On December 5, 2003, Advocacy filed comments on the proposed rule, requesting that AMS expand its analysis to address the potential economic impacts on small retailers, suppliers and producers/growers licensed under the Perishable Agricultural Commodities Act of 1930 (PACA) and PACA-exempt small food entities. Advocacy urged AMS to lessen the compliance burdens on small businesses by reducing the record retention requirements. In its letter, Advocacy also provided specific data on the rule’s economic impact on small entities obtained from outreach to affected small businesses, including a roundtable held on November 17, 2003.

Because of concerns regarding the potential cost of mandatory COOL, Congress included language in the 2004 Consolidated Appropriations Act that delayed implementation of the rule for all covered commodities, except wild and farm-raised fish and shellfish, until September 2006. Advocacy welcomed this reprieve to allow additional time for AMS to study COOL and develop less burdensome ways to implement it.

On September 30, 2004, AMS published an interim final COOL rule for fish and shellfish. Consistent with Advocacy’s prior recommendations, the interim final rule permits food labels to display the country of origin. AMS reduced the record retention requirement for producers and retailers to one year in cases where the food label sufficiently establishes country of origin. In addition, the agency announced it will delay active enforcement until September 2005, which allows time for retailers and producers to exhaust existing inventories of labels and packing materials.

“The SBA Office of Advocacy held important roundtables to help identify the disproportionate impact of mandatory country-of-origin labeling on smaller producers, suppliers, and retailers. Advocacy’s findings and the comments submitted to Members of Congress and the Administration were instrumental in educating the different branches of government about the problems that the law would pose for small businesses.” -Deborah White, Associate General Counsel for Regulatory Affairs, Food Marketing Institute

Department of Commerce

E.O. 13272 Compliance

The RFA compliance policies of the Department of Commerce (DOC) are publicly available as required by section 3(a), and the department notified Advocacy of draft rules as required by section 3(b). The agency within DOC that had the greatest involvement with Advocacy in FY 2004 was the National Marine Fisheries Service (NMFS). NMFS routinely submits to Advocacy draft proposed and final rules that it believes will have a significant economic impact on a substantial number of small entities as required by the E.O.. The Bureau of Industry and Security (BIS) also submitted a draft proposed rule to Advocacy for review. In its final rules, NMFS has addressed Advocacy’s comments as required by section 3(c) of the E.O. As one of the agencies involved in Advocacy’s RFA training pilot program, NMFS was one of the first agencies to receive RFA training. Advocacy plans to train the remaining agencies at the DOC in the next fiscal year.

National Marine Fisheries Service

Amendment 13 is a comprehensive fishery management plan (FMP) designed to rebuild the fishing stock in New England, eliminate overfishing, and reduce bycatch, which occurs when other fish are unintentionally caught. It includes several recreational and commercial fishery management measures such as possession limits, fishing area closures, trip limits, days-at-sea limitations, and gear restrictions. Advocacy began working with the fishing industry and the National Marine Fisheries Service (NMFS) on Amendment 13 in the summer of 2002 because of concerns that Amendment 13 would be overly burdensome to small fishers.

On January 29, 2004, NMFS published a notice of proposed rulemaking to implement Amendment 13. Although the proposed rule reflected a significant recommendation from the small fishers, they still had numerous concerns about provisions governing default measures for establishing fishing mortality rates, conditional fishing area closures, and the extension of cod trip limits and gear requirements to the eastern U.S. and Canadian coastline.

On February 27, 2004, Advocacy submitted comments to NMFS encouraging full consideration of the fishing industry’s concerns. Advocacy also suggested that NMFS improve its RFA analysis by publishing a summary of the small entity impacts, presenting a more thorough analysis of the reporting and recordkeeping costs, supplying more detail on the classification of vessels, and providing the public with access via the Internet to the tables that supplemented the analysis. Advocacy also asked NMFS to conduct a more thorough analysis of the impact on recreational vessels.

NMFS issued a final rule on April 27, 2004, to implement Amendment 13. In the final rule, the agency responded to the issues raised by Advocacy as required by E.O. 13272. In addition, NMFS provided some of the information that Advocacy requested to clarify the IRFA, such as providing a table to summarize impacts, and providing information about vessel size and party vessels. NMFS also modified the rule as it applied to U.S./Canada management areas.

On September 14, 2004, NMFS issued a proposed rule to adjust Amendment 13 to allow for additional fishing of groundfish. Advocacy will continue to work with the industry as NMFS implements adjustments for Amendment 13.

Issue: Amendment 10 to the Atlantic Sea Scallop Fishery

Amendment 10 is a comprehensive long-term program to manage the sea scallop fishery in the northeastern United States. The amendment seeks to maximize scallop yield through an area rotation management program and includes measures to minimize the adverse effects of fishing on essential fishing habitat, establishes days-at-sea allocations, and introduces measures to eliminate bycatch.

On February 26, 2004, NMFS issued a proposed rule to implement Amendment 10. NMFS proposed to allow areas to be closed and reopened to fishing on a rotational basis, depending on the condition and size of the scallop resource in the areas. The scallop industry advised Advocacy that it was most concerned about provisions that required scallop fishers to increase the diameter of the gear rings and the size of the fishing mesh. Additionally, the scallop fishers raised concerns that the days at sea (DAS) set aside for observer coverage and the compensation for early trip termination were potentially inconsistent with the intent of the New England Fishery Management Council (NEFMC), which assisted NMFS in the development of Amendment 10.

Advocacy submitted comments on March 29, 2004, questioning the lack of data to support NMFS’s conclusion that the long-term benefits of the gear modifications outweighed the short-term costs and revenues lost. Further, Advocacy took issue with the agency’s method for determining the offset for observer costs and the compensation for trips that are terminated early.

In its letter, Advocacy encouraged NMFS to carefully consider the comments filed by affected small entities, clarify aspects of the rule that impose unnecessary burdens on small entities, and address RFA compliance issues raised by Advocacy in the final regulatory flexibility analysis. Advocacy also recommended that the NMFS review the NEFMC’s management plan to determine if the changes in the proposal were consistent with it. Advocacy also suggested that NMFS make the gear modifications optional until it has enough data to analyze the impact of the gear modification on small entities.

On June 23, 2004, NMFS issued a final rule to implement Amendment 10. In the final rule, NMFS addressed some of the issues raised by Advocacy by adjusting the multiplier for the DAS observer coverage and by allowing the vessel operator to determine whether a trip must be terminated early.

On August 26, 2004, NMFS published a proposed rule to adjust Amendment 10 to allow scallop fishing within the areas closed to multispecies fishing. If adopted, this change could give scallop fishers additional opportunities to fish, thereby reducing the economic impact of Amendment 10. Advocacy will continue to work with the scallop fishery and NMFS as the agency makes framework adjustments to implement Amendment 10.

“The Office of Advocacy has been an important element in the government’s development of increasingly complicated scallop rulemaking processes. They have helped re-open some of the nation’s historically most productive scallop grounds on Georges Bank, off New England; asked probing and effective questions about disproportionate costs; and helped address and fix practical economic and safety concerns that fishermen have had about a new management regime. We really appreciate Advocacy’s responsiveness and assistance over the years.” -Marjorie Orman, Board Member, Fisheries Survival Fund and Owner, Solveig’s Settlement House, Fairhaven, Massachusetts

Department of Defense

E.O. 13272 Compliance

The defense-related regulations of greatest interest to small businesses are procurement regulations issued by the Federal Acquisition Regulation (FAR) Council. Consideration of small business impacts in these rulemakings is covered by the policies and procedures of the FAR Council submitted to Advocacy by the General Services Administration. The Department of Defense (DOD) has not published procedures that would apply to rulemakings supplemental to the FAR Council. Advocacy will continue to work with DOD to encourage it to publish procedures pursuant to this section. In FY 2004, DOD did not provide Advocacy with any draft rules under section 3(b) of the E.O., and Advocacy is not aware of any proposed rules being released that would have triggered the notice requirement. In addition, DOD did not issue any final rules in FY 2004 that were previously the subject of comments from Advocacy, so it is too early to report on DOD’s compliance with section 3(c) of the E.O.

Department of Education

E.O. 13272 Compliance

The Department of Education (Education) has made its policies and procedures publicly available as required by section 3(a) of E.O. 13272. Education notifies Advocacy through Advocacy’s email notification system of draft rules that may have a significant impact on a substantial number of small entities, as required by section 3(b) of the E.O. Education has not finalized any rules in the past fiscal year on which Advocacy has filed comments. Therefore, it is too early to report on Education’s compliance with section 3(c) of the E.O.

Department of Energy

E.O. 13272 Compliance

The Department of Energy (DOE) has complied with section 3(a) of the E.O. by making its policies and procedures publicly available on its website. DOE is scheduled for RFA training in FY 2005. In FY 2004, DOE did not provide any draft rules to Advocacy under section 3(b) and the Office of Advocacy is not aware of any proposed rules being issued that would have triggered the notice requirement prior to publication. Advocacy has not filed comments on any DOE rules that have gone final in the last fiscal year, so it is too early to report on DOE’s compliance with section 3(c) of the E.O.

Department of Health and Human Services

E.O. 13272 Compliance

The Department of Health and Human Services (HHS) made its policies and procedures publicly available as required by section 3(a) of the E.O. The Centers for Medicare and Medicaid Services (CMS) and the Food and Drug Administration (FDA), two agencies that often promulgate rules that affect small businesses, did not consistently submit drafts of rules pursuant to section 3(b) of the E.O. in 2004. CMS participated in two RFA training sessions in FY 2004 and additional trainings are planned for next year. FDA has also received training on how to comply with the RFA and the E.O. With regard to section 3(c), it is still too early to report on HHS’s compliance with this provision, as no rules have been finalized this fiscal year on which Advocacy has filed comments. Advocacy will continue to work with HHS to improve its compliance with the E.O.

Centers for Medicare and Medicaid Services

Issue: Medicare Program; Changes to the Criteria for Being Classified as an Inpatient Rehabilitation Facility

On September 9, 2003, CMS published a proposed rule seeking to change the criteria Medicare uses for classifying a hospital as an inpatient rehabilitation facility (IRF). For an IRF to be eligible for Medicare payment during its most recent cost reporting period, CMS proposed that 75 percent of the IRF’s total patient population must require intensive rehabilitation services for treatment of one or more of 10 qualifying medical conditions. CMS acknowledged that the proposed rule would likely have a significant economic impact on a substantial number of small entities and prepared an IRFA as required by the RFA.

Small entities informed Advocacy that the proposed rule could cause affected IRFs to close because they could not meet its eligibility requirements. On November 3, 2003, Advocacy filed comments on the proposed rule citing concerns that it would negatively impact patient care and reduce the economic viability of IRFs. Advocacy questioned the adequacy of the data used by CMS to justify the proposed rule. Advocacy encouraged CMS to reduce the IRF patient threshold to 50 percent or less for a three-year period while CMS acquired more data.

On May 7, 2004, CMS published a final rule that adopted several of Advocacy’s suggestions. In particular, CMS adopted lower patient thresholds for a three-year period while the agency continued to study the issues. CMS also made changes to the qualifying medical conditions consistent with concerns raised by Advocacy and small IRFs. CMS also addressed Advocacy’s comments as required by E.O. 13272. The changes made by CMS should enable IRFs to retain their eligibility for Medicare reimbursement, and save significant revenues while providing appropriate patient care.

Issue: Medicare Program; Medicare Prescription Drug Benefit

In December 2003, Congress passed and President Bush signed into law the Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA). The MMA created a Medicare prescription drug benefit that will become available by January 1, 2006. On August 3, 2004, CMS published a proposed rule implementing the Medicare prescription drug benefit. The proposed rule was consistent with recommendations made by Advocacy in a May 2002 comment letter on CMS’s proposed rule to establish a Medicare-endorsed prescription drug card. Advocacy has encouraged CMS to issue a final rule that retains these recommendations to help reduce the economic impact on small pharmacies.

Advocacy’s 2002 comments sought to ensure that small pharmacies could join card programs that offered a drug discount card and that card sponsors would be prohibited from offering a “mail order only” benefit. These recommendations had been reflected in CMS’s final Medicare-Endorsed Prescription Drug Card rule from September 2002. However, the 2002 prescription drug card initiative was invalidated by the United States District Court for the District of Columbia-resulting in Congress passing and the President signing into law the MMA authorizing CMS to undertake the prescription drug discount benefit program. On August 3, 2004, CMS published a proposed rule seeking to implement the Medicare prescription drug benefit. The proposed rule included provisions that were consistent with the suggestions Advocacy made to CMS on the earlier iterations of the rule. As a result of Advocacy’s participation in this CMS rulemaking, many small independent pharmacies will be able to participate and compete in the Medicare discount drug card program.

Food and Drug Administration

Issue: Compliance Policy Guide 7125.40; Sec. 608.400 - Compounding of Drugs for Use in Animals

The Animal Medicinal Drug Use Clarification Act of 1994 granted the FDA the authority to enforce the compounding of drugs intended for use in animals. The FDA’s Center for Veterinary Medicine (CVM) issued a Compliance Policy Guide (CPG) in 1996. The guide informed FDA staff, industry and the public of the agency’s position on the types of compounding that might be subject to enforcement action. In July 2003, without the benefit of notice and comment rulemaking, the FDA updated the CPG to promote consistency in its veterinary drug compounding policies.

In November 2003, Advocacy met with representatives from several pharmaceutical compounding organizations regarding the economic impact of the revised CPG. Advocacy subsequently met with the FDA to discuss the CPG and encouraged the agency to meet with the compounding organizations. In May 2004, Advocacy facilitated a meeting between the FDA and the compounding organizations to discuss the implications of the updated CPG for the industry. The FDA later announced its intention to draft and publish for public comment a revised CPG on veterinary pharmaceutical compounding in the near future. Advocacy will continue to monitor development of the rule and work with the affected small entities and the FDA to ensure proper consideration of small entity impacts as required by the RFA and E.O. 13272.

“The SBA’s Office of Advocacy provided critical assistance to thousands of independent pharmacists across the nation after the United States Food and Drug Administration’s Center for Veterinary Medicine released a Compliance Policy Guide which would have had a devastating economic impact on the industry. Advocacy’s intervention and facilitation of direct meetings between pharmacists and FDA officials was crucial in having this CPG reviewed and rewritten. Without Advocacy’s ability to intercede, thousands of pharmacies would have been left without a voice, and would have been unduly impacted.” -Mark Deion, President, Deion Associates & Strategies, Inc.

Department of Homeland Security

E.O. 13272 Compliance

The Department of Homeland Security (DHS) policies and procedures statement is publicly available on its website, as required by section 3(a) of the E.O. DHS has not complied with the notice requirements of section 3(b) of the E.O. Several DHS staff received an RFA briefing in anticipation of more detailed training sessions. Agencies within DHS will be trained in the next fiscal year, beginning with the Transportation Security Administration (TSA). In addition, the Office of Advocacy recently met with new DHS personnel retained to work on regulatory compliance issues. In the past year, DHS primarily published interim rules requesting public comments. Advocacy has not filed written comments on any DHS rules that have been issued as final rules this fiscal year. Therefore, it is still too early to report on DHS compliance with section 3(c) of the E.O.

Issue: Homeland Security Acquisitions

On December 4, 2003, DHS published for comment an interim rule titled Homeland Security Acquisitions Regulations (HSAR). The rule consolidated the department’s acquisition regulations into a single location within the Code of Federal Regulations. DHS had issued the interim rule under the “good cause” exemption to the notice and com