Office of Advocacy

Report on the Regulatory Flexibility Act

Annual Report of the Chief Counsel for Advocacy on Implementation of the Regulatory Flexibility Act and Executive Order 13272

April 2006

The full text of this report is available on the Office of Advocacy’s Internet site at http://www.sba.gov/advo/. Reprints in paper or microfiche are available for purchase from the National Technical Information Service, 5285 Port Royal Road, Springfield, VA 22161.

To the President and the Congress of the United States

I am pleased to present to Congress and the President this Report on the Regulatory Flexibility Act, FY 2005. Included in this report is the status of agency compliance with Executive Order 13272. The Regulatory Flexibility Act of 1980 (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 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.

September 2005 marked the 25th anniversary of the RFA. The anniversary marked a significant milestone and gave us the opportunity to look back at how the law has been working and to look ahead toward making it work even better. On September 19-20, 2005, exactly 25 years after the RFA was signed, the Office of Advocacy convened a symposium with our key partners in the implementation of the law. Our invitation list included federal agency contacts, key members of Congress, regulatory economists, e-regulation developers, attorneys involved in RFA litigation, oversight officials from the Office of Management and Budget, officials involved in regulatory flexibility at the state level, trade association representatives, and, most important, small business people. We spent September 20 in panel discussions on various aspects of how the law is implemented, including e-rulemaking, regulatory research, small business outreach, judicial review, and the process for reducing existing regulatory burdens. Conference participants had the opportunity to participate in the training Advocacy has been offering to federal agencies on proper RFA implementation. The RFA Symposium Conference Proceedings are available on Advocacy’s website at http://www.sba.gov/advo/rfa_sym0905.pdf.

In conjunction with the symposium, we released a new Advocacy-sponsored study by Mark Crain on The Impact of Regulatory Costs on Small Firms. The study shows that the smallest firms bear the largest per-employee burden of federal regulatory compliance costs. Firms with fewer than 20 employees annually spend $7,647 per employee to comply with federal regulations, or 45 percent more than the $5,282 per employee spent by firms with 500 or more employees. The report analyzes compliance costs for economic, workplace, environmental, and tax regulations, and details regulatory costs for five sectors: manufacturing, trade (wholesale and retail), services, health care, and other (a residual category). The study finds that the compliance cost per employee for small manufacturers is at least double that for medium-sized and large firms. The annual cost of U.S. federal regulations totaled $1.1 trillion in 2004. The report can be found on the Office of Advocacy website at www.sba.gov/advo/research/regulation.html.

The Office of Advocacy trained more than 20 agencies on the RFA in accordance with the requirements of E.O. 13272 in fiscal year (FY) 2005. 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 participated in Small Business Regulatory Enforcement Fairness Act (SBREFA) panels focusing on three EPA rules. The office worked successfully with seven states to pass state regulatory flexibility legislation in 2005.

In FY 2005, two cases were decided by the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit) related to the RFA. The first case was U.S. Telecom Ass’n v. FCC, 400 F.3d 29 (D.C. Cir., March 11, 2005). In February 2004, Advocacy filed a notice of intent to file a “friend of the court” brief with the D.C. Circuit. In June 2004, Advocacy withdrew its notice of intent from the court and reached a settlement with the Federal Communications Commission (FCC). The FCC agreed to more fully consider impacts on small business and to urge state regulators to consider the concerns of small rural telecom providers that seek waivers to the new portability rules. The other case decided by the D.C. Circuit was National Association of Home Builders v. United States Army Corps of Engineers, Case No. 04-5009 (D.C. Cir., July 29, 2005). Plaintiffs challenged nationwide permits issued under the Clean Water Act because the Corps did not conduct a flexibility analysis as required by the RFA. The Corps argued that permits were not rules subject to the Administrative Procedure Act (APA) or RFA. The D.C. Circuit disagreed and ruled that permits of general applicability are rules subject to the APA.

Small entities continued to help us identify and prioritize regulations that would significantly affect their operations. Advocacy hosted numerous roundtables to gather small entity input on the regulatory process and key rules. Training small business stakeholders on the valuable tools provided by the RFA and E.O. 13272 continued to help us engage a broader advocacy community and leverage limited resources.

RFA training continues to improve agency compliance in three important ways: 1) Improvements can be seen in agency submission of draft rules to Advocacy for review through the increased number of draft rules sent to Advocacy’s email notification system: notify.advocacy@sba.gov. 2) Improvements in seeking assistance early in the rulemaking process are evident in the increasing number of conversations with agency rule writers willing to discuss predecisional regulatory information with Advocacy lawyers and economists in an effort to improve RFA compliance. 3) Improvements in considering significant alternatives following discussions with Advocacy and affected small entities have occurred this year as some agency rules have contained realistic alternatives to their regulations that would benefit small entities.

In 2005, Advocacy’s involvement in agency rulemakings helped secure $6.62 billion in first-year foregone regulatory cost savings and $965 million in recurring annual savings for small entities.

In fiscal year 2006, Advocacy will continue to weave small entities into the fabric of regulatory decisionmaking at agencies. Facilitating communications between agencies and small entities helps agencies achieve compliance with the RFA and E.O. 13272 and, ultimately, reduce regulatory burdens on small entities. Efforts to train agencies and increased attention to small business impact analysis can change how government treats small entities. We are seeing results from a greater working knowledge of the RFA and the Administration’s commitment, voiced through E.O. 13272.

Thomas M. Sullivan
Chief Counsel for Advocacy

Contents

To the President and the Congress of the United States
Introduction

1 An Overview of the Regulatory Flexibility Act and Related Policy
  The RFA: A 25-Year History
  Historical Success Stories
  The Economics of the RFA
  Table 1.1 Then and Now: Small Business Economic Indicators over 25 Years
  Training: Learning to Analyze Small Firm Impacts

2 Summary of FY 2005 Federal Agency Compliance with E.O. 13272 and the RFA
  Executive Order 13272 Compliance
  Table 2.1 RFA Compliance Training under E.O. 13272 in FY 2005
  RFA and SBREFA Implementation
  Table 2.2 Regulatory Comment Letters Filed by the Office of Advocacy, Fiscal Year 2005
  Chart 2.1 Advocacy Comments by Key RFA Compliance Issue, FY 2005
  Table 2.3 Regulatory Cost Savings, Fiscal Year 2005
  Table 2.4 Summary of Estimated Cost Savings, Fiscal Year 2005

3 Advocacy Review of Agency RFA Compliance in Fiscal Year 2005
  Department of Agriculture
  Department of Commerce
  Department of Defense
  Department of Education
  Department of Energy
  Department of Health and Human Services
  Department of Homeland Security
  Department of Housing and Urban Development
  Department of the Interior
  Department of Justice
  Department of Labor
  Department of State
  Department of Transportation
  Department of the Treasury
  Department of Veterans Affairs
  Environmental Protection Agency
  Federal Acquisition Regulation Council
  Federal Communications Commission
  National Archives and Records Administration
  Securities and Exchange Commission
  Small Business Administration
  Conclusion

4 State Flexibility: Small Business Regulatory Flexibility Model Legislation Initiative Success Stories
  Chart 4.1 Mapping State Regulatory Flexibility Provisions, FY 2005
  Table 4.1 State Regulatory Flexibility, 2005 Legislative Activity
  Table 4.2 State Regulatory Flexibility Legislation, Status as of October 2005

Appendices

A Supplementary Tables
Table A.1 Cabinet Department RFA Procedures in Compliance with Section 3 (a) of E.O. 13272
Table A.2 Federal Agencies Trained in RFA Compliance, FY 2003-2005
Table A.3 SBREFA Panels through Fiscal Year 2005

B The Regulatory Flexibility Act
C Executive Order 13272
D Advocacy Legislative Priorities for the 109th Congress
E Abbreviations

Introduction

“The state of small business regulation has come a long way since the enactment of the Regulatory Flexibility Act in 1980,” said Chief Counsel for Advocacy Thomas M. Sullivan at the Office of Advocacy’s symposium on the 25th anniversary of the Regulatory Flexibility Act, September 19, 2005. At the symposium, much was said about the advances in small business regulatory policy since 1980. For example:

• In a panel on e-rulemaking, Jeffrey Lubbers of American University talked about the benefits of electronic rulemaking as an opportunity for information dissemination, government transparency, and public participation.

• Susan Dudley of George Mason University noted in a regulatory research panel that the volume of regulations continues to increase and stressed that the RFA is significant as one of the first legislative requirements to analyze the impacts of new regulations.

• Todd McCracken of the National Small Business Association in a small business outreach panel said of the increased small business involvement in the RFA process, “There’s a key qualitative significance to having real input from real businesses.”

• Karen Harned of the National Federation of Independent Business Legal Foundation, speaking about the judicial review provision introduced in 1995, said she believes that the possibility of litigation means that agencies have progressed in their compliance.

• In a panel on reducing existing burdens, Howard Radzely of the U.S. Department of Labor urged small business owners to get involved in the process and voice their regulatory concerns about the 200 laws enforced by the department.

In Chapter 1, Advocacy’s Report on the Regulatory Flexibility Act, FY 2005, takes a look at the developments in the 25-year history of the RFA. Then the report focuses on the substance of RFA and E.O. 13272 enforcement in Fiscal Year 2005, examining Advocacy’s role and overall trends in Chapter 2, individual agency achievements and ongoing challenges in Chapter 3, and developments in state regulatory flexibility law in Chapter 4.

1 An Overview of the Regulatory Flexibility Act and Related Policy

The RFA: A 25-Year History

As soon as President Gerald Ford signed Public Law 94-305 creating the Office of Advocacy in June 1976, the important work of paying attention to regulations’ effects on small firms came under the wing of the newly created independent office. Part of Advocacy’s mandate was explicitly to “measure the direct costs and other effects of government regulation on small businesses; and make legislative and nonlegislative proposals for eliminating excessive or unnecessary regulations of small businesses.”

In the fall of 1979, President Jimmy Carter added the Small Business Administration to his Regulatory Council and issued a memorandum to the heads of executive departments and agencies. He said, “I want you to make sure that federal regulations will not place unnecessary burdens on small businesses and organizations,” and directed agencies to apply regulations “in a flexible manner, taking into account the size and nature of the regulated businesses.” Agencies were to report on their efforts to the Office of Advocacy.

Meanwhile, the House and Senate Small Business and Judiciary Committees had been holding hearings on the effects of regulation. Small business people cited evidence that uniform application of regulatory requirements made it difficult for smaller businesses to compete.

By 1980, when delegates assembled for the first of three White House Conferences on Small Business, the conference report noted that “during the past decade, the growth of government regulation has been explosive, particularly in such areas as affirmative-action hiring, energy conservation, and protection for consumers, workers, and the environment. Small business people recognize that some government regulation is essential for maintaining an orderly society. But there are now 90 agencies issuing thousands of new rules each year.”

Moreover, the report said, the new Office of Advocacy had estimated that small firms spent $12.7 billion annually on government paperwork. Among the conference recommendations, the fifth highest vote-getter was a recommendation calling for “sunset review” and economic impact analysis of regulations, as well as a regulatory review board with small business representation. The conference delegates recommended putting the onus of measuring regulatory costs on the regulatory agencies-to “require all federal agencies to analyze the cost and relevance of regulations to small businesses.”

1980: The Regulatory Flexibility Act

The White House Conference recommendations helped form the impetus for the passage, in 1980, of the Regulatory Flexibility Act (RFA). The intent of the act was clearly stated:

“It is the purpose of this act to establish as a principle of regulatory issuance that agencies shall endeavor, consistent with the objectives…of applicable statutes, to fit regulatory and informational requirements to the scale of businesses…To achieve this principle, agencies are required to solicit and consider flexible regulatory proposals and to explain the rationale for their actions to assure that such proposals are given serious consideration.”

The law directed agencies to analyze the impact of their regulatory actions and to review existing rules, planned regulatory actions, and actual proposed rules for their impacts on small entities. Depending on the proposed rule’s expected impact, agencies were required by the RFA to prepare an initial regulatory flexibility analysis (IRFA), a certification, and/or a final regulatory flexibility analysis (FRFA). Rules to be included in the agencies’ “regulatory agendas” were those likely to have a “significant economic impact on a substantial number of small entities.”

Implementing the RFA

The Office of Advocacy was charged with monitoring agency compliance with the new law. Over the next decade and a half, the office carried out its mandate, reporting annually on agency compliance to the president and the Congress. But it was soon clear that the law wasn’t strong enough. A briefing paper prepared for the 1986 White House Conference on Small Business noted: “The effectiveness of the Regulatory Flexibility Act largely depends on small business’ awareness of proposed regulations and [their] ability to effectively voice [their] concerns to regulatory agencies. In addition, the courts’ ability to review agency compliance with the law is limited.”

The delegates recommended that the RFA be strengthened by requiring agencies to comply and by providing that agency action or inaction be subject to judicial review. President Ronald Reagan’s 1987 report on small business noted: “Regulations and excessive paperwork place small businesses at a disadvantage in an increasingly competitive world marketplace…This Administration supports continued deregulation and other reforms to eliminate regulatory obstacles to open competition.” But it would take an act of Congress to make judicial review law-and reaching that consensus needed more time.

Regulations’ effects on the economic environment for competition also concerned President George H.W. Bush, whose 1992 message in the annual small business report noted: “My Administration this year instituted a moratorium on new federal regulations to give federal agencies a chance to review and revise their rules. And we are looking at ways to improve our regulatory process over the long term so that regulations will accomplish their original purpose without hindering economic growth.”

In September 1993, President Bill Clinton issued Executive Order 12866, “Regulatory Planning and Review,” designed, among other things, to ease the regulatory burden on small firms. The order required federal agencies to analyze their major regulatory undertakings and to take action to ensure that these regulations achieved the desired results with minimal burden on the U.S. economy.

An April 1994 report by the General Accounting Office reviewed the Office of Advocacy’s annual reports on agency compliance with the RFA and concluded: “The SBA annual reports indicated agencies’ compliance with the RFA has varied widely from one agency to another. …the RFA does not authorize SBA or any other agency to compel rulemaking agencies to comply with the act’s provisions.”

The 1995 White House Conference and SBREFA

In June 1995, a third White House Conference on Small Business examined the RFA’s weaknesses. The Administration’s National Performance Review had recommended that agency compliance with the RFA be subject to judicial review. Still it had not happened.

Once again, the White House Conference forcefully addressed the problem. One of its recommendations fine-tuned the regulatory policy recommendations of earlier conferences, asking for specific provisions that would include small firms in the rulemaking process.

In October, the Office of Advocacy issued a report, based on research by Thomas Hopkins, that estimated the total costs of process, environmental, and other social and economic regulations to be between $420 billion and $670 billion in 1995. The report estimated that the average cost of regulation was $2,979 per employee for large firms with 500 or more employees and $5,532 per employee for small firms with fewer than 20 employees.

In March 1996, President Clinton acted on the 1995 White House Conference recommendation that was taken up by Congress, by signing Public Law 104-121, the Small Business Regulatory Enforcement Fairness Act (SBREFA). The new law gave the courts jurisdiction to review agency compliance with the RFA. Second, it mandated that the Environmental Protection Agency (EPA) and the Occupational Safety and Health Administration (OSHA) convene small business advocacy review panels to consult with small entities on regulations expected to have a significant impact on them, before the regulations were published for public comment. Third, it reaffirmed the authority of the chief counsel for advocacy to file amicus curiae (friend of the court) briefs in appeals brought by small entities from agency final actions.

Executive Order 13272

In March 2002, President George W. Bush announced his Small Business Agenda. The president gave a high priority to regulatory concerns, including as a key feature of his agenda the goal to “tear down the regulatory barriers to job creation for small businesses and give small business owners a voice in the complex and confusing federal regulatory process.”

One key goal was to strengthen the Office of Advocacy by creating an executive order that would direct agencies to work closely with Advocacy in properly considering the impact of their regulations on small business.

In August 2002, President Bush issued Executive Order 13272. It requires federal agencies to establish written procedures and policies on how they would measure the impact of their regulatory proposals on small entities and to vet those policies with Advocacy; to notify Advocacy before publishing draft rules expected to have a significant small business impact; and to consider Advocacy’s written comments on proposed rules and publish a response with the final rule. E.O. 13272 requires Advocacy to provide notification as well as training to all agencies on how to comply with the RFA. These steps set the stage for agencies to work closely with Advocacy in considering their rules’ impacts on small entities.

Implementing the Executive Order

As part of its compliance with E.O. 13272, the Office of Advocacy first reported to the Office of Management and Budget in September 2003. The report noted that Advocacy had engaged agencies on E.O. 13272 and instituted an email address (notify.advocacy@sba.gov) to make it easier for agencies to comply with notification requirements. Advocacy developed an RFA compliance guide, posted it on its website, prepared training materials, and began training agencies throughout the government.

Nearly all of the cabinet agencies submitted written plans for compliance to Advocacy and made their RFA procedures publicly available. Advocacy has also developed a Regulatory Alerts webpage at http://www.sba.gov/advo/laws/law_regalerts.html to call attention to important pending regulations that may affect small entities. The final chapter on how much small businesses and other small entities are benefiting from the RFA as amended by SBREFA and supplemented by E.O. 13272 has yet to be written. Legislation has been introduced to further enhance the RFA. Advocacy believes that as agencies adjust their regulatory development processes to accommodate the RFA and E.O. 13272’s requirements, the benefits will accrue to small firms. Agencies are making strides in that direction.

Regulatory Flexibility Timeline

June 1976 President Gerald Ford signs Public Law 94-305, creating an Office of  Advocacy within the U.S. Small Business Administration charged, among other things, to “mea-sure the direct costs and other effects of federal regulation  small businesses and make legislative and nonlegislative proposals for elimi--nating excessive or unnecessary regulations of small businesses.”

January 1980 The first White House Conference on Small Business calls for “sunset review” and economic impact analysis of regulations, and a regulatory review board that includes small business representation.

September 1980 President Jimmy Carter signs the Regulatory Flexibility Act, requiring  agencies to review the impact of proposed rules and include in published  regulatory agendas those likely to have a “significant economic impact on a substantial number of small entities.”

October 1981 The Office of Advocacy reports on the first year of RFA experience in testimony before the Subcommittee on Export Opportunities and Special Small Business Problems of the U.S. House Of Representatives Committee on Small Business.

February 1983 Advocacy publishes the first annual report on agency RFA compliance.

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

September 1993 President Bill Clinton issues Executive Order 12866, “Regulatory Planning and Review,” requiring each federal agency to “tailor its regulations to impose the least burden on society, including businesses of different sizes.”

June 1995 The third White House Conference on Small Business asks for specific provisions to strengthen the RFA-including the IRS under the law, granting judicial review of agency compliance, and including small businesses in the rulemaking process.

March 1996 President Clinton signs the Small Business Regulatory Enforcement Fairness Act, 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 the chief counsel’s authority to file amicus curiae briefs in appeals brought by small entities from final agency actions.

March 2002 President George Bush announces his Small Business Agenda, which promises to “tear down regulatory barriers to job creation for small businesses and give small business owners a voice in the complex and confusing federal regulatory process.”

August 2002 President Bush issues Executive Order 13272, “Proper Consideration of Small Entities in Agency Rulemaking,” which requires federal agencies to establish written procedures to measure the impact of their regulatory proposals on small businesses, and to consider Advocacy comments on proposed rules, and requiring Advocacy to train agencies in the requirements of the law.

December 2002 Advocacy presents model state regulatory flexibility legislation to the American Legislative Exchange Council (ALEC) for consideration by state legislators. ALEC endorses the model legislation, and states begin adopting legislation modeled on the federal law.

May 2003 Advocacy issues A Guide for Government Agencies: How to Comply with the Regulatory Flexibility Act.

September 2003 Advocacy presents its first report on agency compliance with E.O. 13272, noting the start of Advocacy’s agency training.

September 2005 In the 25th anniversary year of the RFA, Advocacy cosponsors a symposium that looks back at the RFA’s achievements and challenges and looks ahead at possible improvements. Legislation is considered in Congress to strengthen the RFA.

Historical Success Stories

SBREFA Review Panels Improve Rulemaking

In 1996, Congress fortified the Regulatory Flexibility Act with the Small Business Regulatory Enforcement Fairness Act (SBREFA). Among other things, SBREFA directed the Environmental Protection Agency (EPA) and the Occupational Safety and Health Administration (OSHA) to convene small business review panels for regulations expected to have a significant small business impact. These panels occur before the rule is published for public comment. Significant rulemaking improvements have resulted from the SBREFA panel process.

SBREFA review panels consist of representatives from the agency, Advocacy, and the Office of Information and Regulatory Affairs (OIRA) of the Office of Management and Budget (OMB). The panel reaches out to small entities likely to be affected by the proposal, seeks their input, and prepares a report with recommendations for reducing the potential small business impact. The agency may modify its proposal in response to the panel report. (See Appendix A, Table A.3 for a list of SBREFA panels through FY 2005.)

OSHA Panels

OSHA has convened seven panels since 1996. Two of the most significant were on the Safety and Health Program rule and the Ergonomics Program Standard. They demonstrate how small business input early in the regulatory process can help agencies see new ways to solve a problem through regulation-by looking at equally effective alternatives that minimize the harm to small business.

• Safety and Health Program Rule. In August 1998, OSHA notified Advocacy of its intent to propose a safety and health program rule. The proposal would have required employers to establish a workplace safety and health program to ensure compliance with OSHA standards and the “general duty” clause of the Occupational Safety and Health Act. Because the proposal covered nearly all employers (except those in construction and agriculture), a SBREFA panel was convened that included 19 small entity representative advisors. The panel report sent the message loud and clear to OSHA, OMB, and other federal agencies that realistic costs and accurate data must be used when promulgating regulations. As a result, this overly burdensome regulation never moved forward, and it was eventually removed from OSHA’s regulatory agenda, saving small businesses billions in regulatory compliance costs.

• Ergonomics Standard. In March 1999, OSHA released a draft ergonomics standard and announced its intention to convene a SBREFA panel to discuss the potential impact on small businesses. The draft proposal covered every industry and business in the United States, except those in construction, maritime trades, and agriculture. Twenty small entity representatives (including 13 recommended by Advocacy) advised the panel. During the deliberations, the small entities expressed a number of concerns, especially about OSHA’s estimates of the time and money required to comply. They provided OSHA with types of costs they felt were omitted and suggested that OSHA provide the assumptions it used when it proposed the standard in the Federal Register. The panel completed its report in April 1999. Congress repealed the ergonomics rule in March 2001. OSHA’s subsequent decision to issue guidelines instead of creating a new ergonomics rule showed that the SBREFA panel process works. Advocacy estimated in 2001 that rescinding the ergonomics standard saved small businesses $3 billion. Other observers have estimated that the actual cost would have been up to 15 times higher.

EPA Panels

EPA has convened 29 SBREFA panels since 1996. These panels have improved the cost-effectiveness of planned environmental rules and limited the adverse impact on small entities, including two small communities. Two recent successes are the panels on nonroad diesel engines and construction and development runoff.

• Nonroad Diesel Engines and Fuel Rule. In summer 2002, EPA notified Advocacy that it would propose further limits on emissions of nitrogen oxides and particulate matter from diesel-powered nonroad engines. These engines are used extensively in construction, agriculture, and other off-road applications. EPA also planned to dramatically reduce the allowable level of sulfur in diesel fuel used by nonroad engines. The rule was anticipated to have significant economic impacts on small equipment manufacturers who use diesel engines, and on small oil refiners and oil distributors. EPA convened a SBREFA panel with 20 small entity representative advisors who raised concerns about the technical and cost feasibility of EPA’s proposed rule. The panel concluded that equipment manufacturers should be allowed to purchase current engines for several additional years, while redesigning their products to accommodate the newer engines. The panel also advised that expensive aftertreatment devices should not be required on engines with less than 25 horsepower. The SBREFA panel report recommendations, which were adopted by EPA in the final rule, allowed many small equipment manufacturers to stay in business and gave them valuable time to redesign their products to comply with the new requirements.

• Construction and Development Site Runoff.In June 2002, EPA proposed a rule to reduce stormwater runoff from construction and development sites of one acre or more. The original proposal carried a price tag of almost $4 billion per year, and its requirements overlapped with existing state and local stormwater programs. Small businesses provided information about the rule’s potential impact and offered other options. The panel concluded that the rule’s requirements would add substantial complexity and cost to current stormwater requirements without a corresponding benefit to water quality. The panel recommended that EPA not impose the requirements, and focus instead on improving public outreach and education about existing stormwater rules. In March 2004, EPA announced it would not impose new requirements for construction sites. EPA found that a flexible scheme would permit state and local governments to improve water quality without an additional layer of federal requirements and without unduly harming small construction firms. In addition to the cost savings for small businesses, rescinding the original proposal saved new home buyers about $3,500 in additional costs.

EPA Conducted Two SBREFA Panels in 2005:

• Controlling the Interstate Transport of Air Pollution. In early 2005, EPA notified Advocacy that it planned to propose two related regulations to address situations where EPA acts to control emissions of air pollutants from power plants that are carried across state lines to a downwind state. On April 27, 2005, EPA convened a SBREFA panel with 16 small entity representative advisors, who raised concerns about the disproportionate cost burden the rule could impose on the 58 small entities (primarily small community municipal utilities and cooperatives) that EPA estimated would be subject to the two rules. The panel considered several regulatory alternatives, and ultimately concluded that economic burdens on small entities would be minimized by a “cap and trade” program that allows companies to purchase and sell emission credits.

• Mobile Source Air Toxics Rule. In April 2005, EPA notified Advocacy that it was planning to propose a rule that would reduce emissions of benzene, a toxic air pollutant, from gasoline, portable gasoline containers, and certain highway vehicles. On September 7, 2005, EPA convened a SBREFA panel with 11 small entity representatives chosen from portable gasoline container manufacturers, small oil refiners, and vehicle manufacturers. The panel considered several regulatory alternatives, and ultimately recommended a number of regulatory flexibilities, including giving small entities additional time to comply and allowing limited hardship exemptions for small firms that demonstrate an inability to meet the full program requirements.

SBREFA Panels Work

These panels illustrate that the SBREFA panel process indeed works to reduce the burdens on small entities. Because agencies are required to convene these panels, small businesses are able to shed light on agencies’ underlying assumptions, rationale, and data behind their draft rulemaking. In the absence of SBREFA panels, these rules would have been promulgated as originally drafted, costing small businesses millions in unnecessary regulatory costs. The panel reports allowed EPA and OSHA to examine alternatives that accomplished their regulatory objectives while protecting small businesses.

Legal History

SBREFA amended the RFA to allow small businesses for the first time to seek judicial review of agency compliance with the RFA. In addition to legal challenges brought by small entities, the chief counsel for advocacy has the right under the RFA to file amicus curiae (friend of the court) briefs in RFA cases. These provisions were important in giving the Office of Advocacy and the small business community recourse when agencies were unresponsive to the law.

Hardrock Mining

On January 7, 1998, the Office of Advocacy filed an amicus curiae brief. The case, Northwest Mining v. Babbitt, F. Supp. 2d 9 (D.D.C. 1998) raised issues about a trade association’s standing to bring a claim under the RFA and the Bureau of Land Management’s (BLM) failure to use the proper size standard for determining the number of small businesses that may be harmed by the regulation.

In May 1998, the District Court for the District of Columbia agreed with Advocacy’s arguments and ruled in favor of the plaintiff. First, the court found that the RFA extends the standing to trade associations to sue as small entities. Small entity as defined in the RFA includes the term “small organization,” which means any not-for-profit enterprise that is independently owned and operated and is not dominant in its field. Since the plaintiff was a small not-for-profit organization, it was a small entity and therefore met the requirements for standing under the RFA.

In terms of the agency use of an alternate size standard, the court stated that the BLM’s reasons for using another size standard were “unconvincing in light of the clearly mandated procedure of the RFA. The definitions section of the RFA uses phrases such as ‘‘‘small entity’ shall have the same meaning… Words such as these do not leave room for alternate interpretations by the agency.” It found that since the BLM’s certification did not observe the procedure required by law, the plaintiff was entitled to relief. Although the agency argued that maintenance of the rule was necessary to save the environment, the court disregarded that argument stating:

“While recognizing the public interest in preserving the environment, the Court also recognizes the public interest in preserving the rights of parties which are affected by government regulation to be adequately informed when their interests are at stake and to participate in the regulatory process as directed by Congress.”

Sharks!

In December 1996, the National Marine Fisheries Service (NMFS) of the Department of Commerce published a proposal to reduce the existing shark fishing quota by 50 percent, certifying that the reduction would not have a significant impact on a substantial number of small entities. In January 1997, Advocacy questioned NMFS’s decision to certify rather than perform an initial regulatory flexibility analysis. In its March 1997 final rule, NMFS upheld its original decision, but prepared a final regulatory flexibility analysis rather than certifying the rule.

In May 1997, the Southern Offshore Fishing Association brought suit against the Secretary of Commerce, challenging the quotas through judicial review provisions of laws including the RFA. Advocacy filed to intervene as amicus curiae, but withdrew after the Department of Justice stipulated that the standard of review for RFA cases should be “arbitrary and capricious,” a higher standard than originally requested.

In February 1998, the United States District Court for the Middle District of Florida ruled that NMFS’s certification of “no significant economic impact” and the FRFA failed to meet APA and RFA requirements. Noting Advocacy’s role as “watchdog of the RFA,” the Court remanded the rule and instructed the agency to analyze the economic effects and potential alternatives. Further steps culminated in the court issuing an injunction to NMFS from enforcing new regulations until the agency could establish bona fide compliance with the court’s earlier orders.

A later settlement involved a delay in any decisions on new shark fishing quotas pending a review of current and future shark stocks by a group of independent scientists. In November 2001 that study was released, indicating that NMFS had significantly underestimated the number of Atlantic sharks.

Number Portability

In March 2005, the U.S. Court of Appeals for the D.C. Circuit issued a ruling that strengthened the RFA and provided needed relief to small businesses. In U.S. Telecom Assoc. and CenturyTel, Inc. v. FCC, No. 03-1414 (D.C. Cir., decided March 11, 2005), the Court found that the Federal Communications Commission had not complied with the RFA and sent the rule, which concerned telephone number portability, back to the agency with instructions to conduct a regulatory flexibility analysis. The Court stayed enforcement of the rule on small businesses until the agency finishes a regulatory flexibility analysis. Advocacy decided against filing an amicus brief after the FCC agreed to advise state regulators to give small telecom providers more flexibility.

The case is significant for three reasons. First, it reaffirms the importance of the RFA in agency rulemaking. Other claims in this case were dismissed as harmless error. Only the claim that the FCC had failed to comply with the RFA was upheld and sent back to the FCC. Second, this decision was made by the D.C. Circuit, which is the appellate court most likely to hear appeals from federal agency rulemakings. The decision from this court that upholds the RFA can be used in other appeals from other agencies. Third, by staying the rules until the RFA analysis is done, the D.C. Circuit provided immediate relief to the small entities.

The Economics of the RFA

Office of Advocacy Indicators over the Years

When the Regulatory Flexibility Act was passed in 1980, the cost of regulation was very much on the minds of economists and policymakers. Cost studies from that time period show a general consensus that small firms were being saddled with a disproportionate share of the federal regulatory burden. Then as now, one important tool for redressing the disproportionate impact on small firms was through implementation of the RFA.

As the Office of Advocacy works with federal agencies during the rulemaking process, it seeks to measure the savings of its actions in terms of the compliance costs that small firms would have had to bear if changes to regulations not been made. The first year in which cost savings were documented was 1998. Changes to rules in that year were estimated to have saved small businesses $3.2 billion. In 2004, Advocacy actions saved small businesses more than $17 billion. Advocacy continues to measure its accomplishments through cost savings.

Ultimately, if federal agencies institutionalize consideration of small entities in the rulemaking process, the goals of the regulatory flexibility process and Executive Order 13272 will be realized to a large degree, and the amount of foregone regulatory costs will actually diminish.

Economics has provided a framework for regulatory actions and for other public policy initiatives. What has been Advocacy’s impact in influencing public policy and furthering research? Research by the Office of Advocacy and others over the past two decades has advanced the recognition that small firms are crucial to the U.S. economy.

The economy of 1980 and today differ greatly (Table 1.1). Real gross domestic product (GDP) and the number of nonfarm business tax returns have more than doubled since 1980. The unemployment rate and interest rates are much improved, and prices are higher, although inflation is significantly lower. One constant, though, is the lack of timely, relevant data on small businesses. The Office of Advocacy struggled throughout much of its early existence to measure the number of small firms accurately. The good news is that since 1988 the Census Bureau now has credible firm size data, in part because of funding from the Office of Advocacy.

Despite the data obstacles, Advocacy research shows that more women and minorities have become business owners since 1980. Small businesses are now recognized to be job generators and the source of growth and innovation. Not only are more than 99 percent of all employers small businesses, but small firms are responsible for 60 to 80 percent of all new jobs, and they are more innovative than larger firms, producing 13.5 times as many patents per employee (see the Office of
Advocacy’s “Frequently Asked Questions” at http://app1.sba.gov/faqs/faqindex.cfm?areaID=24).

Research on small entities has gained more prominence, and entrepreneurs are widely acknowledged as engines of change in their regions and industries. The Office of Advocacy will continue to document the contributions and challenges of small business owners. Armed with these data, policymakers will be able to better consider how government decisions affect small businesses and the economy.

The Impact of Regulatory Costs on Small Firms

Regulatory policy involves difficult choices. Accurate data on costs are essential to a complete understanding of the tradeoffs involved. Even though the RFA first required agencies to consider small business impacts separately 25 years ago, dependable cost estimates have often been hard to come by.

While measuring the costs of new regulations is a prerequisite for improving regulatory policy, compliance with the sum of all current regulations also places a heavy burden on small businesses. Over the past 25 years, significant gains have been made in measuring the impact of regulatory compliance on small firms. During that time, the Office of Advocacy has produced a series of research reports on this topic, and the findings have been consistent: compliance costs small firms more per employee than large firms. The most significant series of analyses began in the 1990s when Thomas Hopkins first estimated the costs of regulatory compliance for small firms. This research was refined by Mark Crain and Hopkins in 2001, and most recently by Crain in the 2005 study, The Impact of Regulatory Costs on Small Firms. Crain’s latest estimate shows that federal regulations cost small firms nearly 45 percent more per employee than large firms.

The 2005 report distinguishes itself from previous research by adopting a more rigorous methodology for its estimate on economic regulation, and it brings the information in the 2001 study up to date.

The research finds that the total costs of federal regulations have further increased from the level established in the 2001 study, as have the costs per employee. Specifically, the cost of federal regulations totals $1.1 trillion, while the updated cost per employee is now $7,647 for firms with fewer than 20 employees. The 2001 study showed small businesses with 60 percent greater regulatory burden than their larger business counterparts. The 2005 report shows that disproportionate burden shrinking to 45 percent.

Despite much progress since passage of the RFA 25 years ago, significant work remains. The hurdles include determining the total burden of rules on firms in specific industries or imposed by specific federal agencies. Estimates of these costs would help show policymakers the marginal cost of adding new rules or modifying existing ones; they would also help show the effects of repealing rules that are no longer relevant, yet still cost small businesses every year. Such analyses will become crucial as the mountain of federal regulations continues to rise. The future of small businesses will be affected by rulemaking that uses the best data available to balance the costs and benefits of regulation, while considering how additional rules will affect small firms.

Table 1.1 Then and Now:
Small Business Economic Indicators Over 25 Years

	1980	1985	1990	1995	2000	2005
Real gross domestic product (trillions of dollars)	5.2	6.1	7.1	8.0	9.8	11.1
Unemployment rate (percent)	7.2	7.2	5.6	5.6	4.0	5.2
Consumer price index (1982=100)	82.4	107.6	130.7	152.4	172.2	193.4
Prime bank loan rate (percent)	15.3	9.9	10.0	8.8	9.2	5.8
Employer firms (millions)	--	--	5.1	5.4	5.7	5.7 (e)
Nonemployer firms (millions)	--	--	--	--	16.5	18.3 (e)
Self-employment, unincorporated (millions)	8.6	9.3	10.1	10.5	10.2	10.6
Nonfarm business tax returns (millions)	13.0	17.0	20.2	22.6	25.1	29.3
Note: All figures are seasonally adjusted unless otherwise noted. Figures for “today” represent the latest data available; 2005 data are year-to-date. e = Estimate Source: Federal Reserve Board; U.S. Department of the Treasury, Internal Revenue Service; U.S. Department of Commerce, Bureau of the Census and Bureau of Economic Analysis; U.S. Department of Labor, Bureau of Labor Statistics

Training: Learning to Analyze Small Firm Impacts

One key aspect of Executive Order 13272, “Proper Consideration of Small Entities in Agency Rulemaking,” is to educate federal rulemakers on how to comply with the Regulatory Flexibility Act. Since President Bush signed E.O. 13272 in August 2002, staff at over 40 agencies have been trained.

Agency staff-attorneys, economists, policymakers and other employees involved in the regulation writing process-come to RFA training with varying levels of familiarity with the RFA, even though it has been in existence for 25 years. Some are well versed in the law’s requirements, while others are completely unaware of what it requires an agency to do when promulgating a regulation.

The three-and-a-half hour session consists of discussion, group assignments (in which participants review fictitious regulations for small business impact), and a question-and-answer session. Agency employees receive a hands-on approach to the RFA and are able to see how the law’s many requirements work in a real-life regulatory setting. By the end of the course there are always many revelations and excited faces as agency staff realize what they have to do to comply with the RFA and that Advocacy is there to help them along the way.

One of the most important themes throughout the course is that the agency should bring Advocacy into the rule development process early in the creation of a regulation. Advocacy works closely with agencies to help them determine whether a potential rule will have a significant economic impact on a substantial number of small entities. Making this determination is frequently where agencies make their initial mistakes under the RFA. The training session helps explain the steps rule writers need to take to make this decision accurately. By considering the impact of their regulations on small business from the beginning, agencies are more likely to promulgate a rule that is less burdensome with more effective compliance, while avoiding legal hassles and delays for noncompliance with the RFA.

Changing the culture of agency rule writers is a tall order, but Advocacy’s RFA training is already having an impact on the way agencies approach rule development. Many agencies that have been through training are now consulting with Advocacy earlier in the process, exchanging draft documents, and recognizing that if they lack the information they need, Advocacy can help point them in the right direction for small business data.

2. Summary of FY 2005 Federal Agency Compliance with E.O. 13272 and the RFA

Executive Order 13272 Compliance

In August 2002, President Bush signed E.O. 13272, recognizing the importance of small businesses and creating additional RFA compliance requirements on federal regulatory agencies. Section 3 of E.O. 13272 requires agencies to do three things when promulgating regulations that affect small entities.

First, agencies are required to issue written policies and procedures to ensure that they consider the potential impact of their regulations on small businesses. These must have been made publicly available in February 2003 (see Appendix A, Table A.1 for citations to the agencies’ RFA policy websites).

Second, 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.

The third requirement is that agencies address Advocacy’s written comments on a proposed rule in the agency’s final rule published in the Federal Register.

While agency compliance with both the RFA and E.O. 13272 have improved, agencies still do not reach out to Advocacy early enough in the rule development process to make a real difference in the impact of the rule on small entities. As agencies continue to make changes to their regulatory development processes to accommodate E.O. 13272’s requirements, benefits to small entities will be seen. Some agencies are making strides in that direction. These can be seen in the cost savings this fiscal year. Advocacy continues to stress the importance of agency compliance with EO 13272 as another crucial step in consideration of the impact of their rules on small entities and is hopeful that real change as a result of the executive order will continue to be seen.

RFA Training under E.O. 13272

In addition to the three agency requirements, E.O. 13272 requires Advocacy to conduct federal agency training in how to comply with the RFA and the executive order. Advocacy has trained more than half of the 66 federal agencies and independent commissions identified as promulgating regulations that affect small businesses (Table 2.1. See Appendix A, Table A.2 for a complete list.)

RFA training under E.O. 13272 is having a real impact on agencies in a number of ways. One of the most important effects of the training is a closer relationship between the agency and the Office of Advocacy. As a result of the training, agency rule writers, economists, attorneys, and policymakers recognize that there is an office that can assist them with their RFA and E.O. 13272 compliance. This closer relationship has led to several agencies contacting Advocacy earlier in the rule development process regarding rules that may have a significant impact on a substantial number of small entities. Early intervention leads to better rules for small businesses.

Another improvement as a result of the training in a few agencies is a more detailed economic analysis. Where Advocacy once saw one-paragraph certifications and economic analyses without any alternatives, there are now more substantiated certifications and IRFAs that at least acknowledge an attempt to identify alternatives for small businesses.

Finally, the RFA training has increased agency use of Advocacy’s email notification system of draft rules that may have a significant impact on a substantial number of small entities. Most agencies are still not using the system; however, the number is increasing as the ease of the system and the monetary savings is more widely known. Some agencies still insist on sending Advocacy paper copies of draft rules that arrive weeks after they are published in the Federal Register; however, those that utilize the system find it to be a convenient method of compliance with E.O. 13272. While these RFA training successes can be noted in some agencies, most have yet to jump on the E.O. 13272 compliance bandwagon. Advocacy has continued in FY 2005 to encourage agencies to comply with E.O. 13272 through its RFA training activities, including repeat training at some agencies for new employees and those who missed the initial training. This fiscal year, in addition to training regulatory agencies, Advocacy held special sessions for trade associations, congressional staff, state government officials, and Advocacy’s regional advocates.

A web-based training module planned for FY 2006 will enable Advocacy to reach agencies that have not yet been available for training, as well as to receive electronic course feedback on what agency employees have learned. With continued training on the importance of complying with the RFA and E.O. 13272, the number of regulations written with an eye toward reducing the burden on small entities will continue to grow.

Table 2.1 RFA Compliance Training under E.O. 13272 in FY 2005

Date	Agency/Organization	Type
10/06/04	Federal Communications Commission (second session)	Independent agency
10/20/04	Telecommunications trade associations	Trade associations
10/27/04	Department of Housing and Urban Development	Cabinet department
11/10/04	Department of Energy	Cabinet department
11/15/04	Department of Health and Human Services, Centers for Medicare and Medicaid Services	Unit within Cabinet department
12/01/04	Department of Homeland Security Transportation Security Administration U.S. Coast Guard	Units within Cabinet department
12/15/04	Department of Commerce Patent and Trademark Office	Unit within Cabinet department
01/12/05	Department of Transportation National Highway Traffic Safety Administration Federal Highway Administration	Units within Cabinet department
01/26/05	Department of Agriculture Animal and Plant Health Inspection Service	Unit within Cabinet department
02/02/05	Department of Education	Cabinet department
02/09/05	Department of Housing and Urban Development (second session)	Cabinet department
02/16/05	Department of Homeland Security Bureau of Customs and Border Protection Bureau of Citizenship and Immigration Services	Units within Cabinet department
03/02/05	Federal Election Commission	Independent agency
03/23/05	Access Board	Independent agency
04/06/05	Department of Defense Federal Acquisition Regulation Commission	Cabinet department Independent agency
04/27/05	Federal Communications Commission (third session)	Independent agency
05/11/05	Department of Commerce Office of Manufacturing Services	Unit within Cabinet department
05/18/05	Securities and Exchange Commission	Independent agency
06/29/05	Federal Deposit Insurance Corporation	Independent agency
07/26/05	Small Business Administration Office of Advocacy regional advocates (second session)	Advocacy regional staff
09/19/05	Training held at RFA Symposium	Trade associations, state officials, congressional staff, nonprofits, small busi-nesses, federal agencies

RFA and SBREFA Implementation

The Office of Advocacy oversees the implementation of the RFA and E.O. 13272. Following is a summary of Advocacy’s FY 2005 efforts:

Advocacy staff continued to review proposed regulations and to send comment letters to agencies where appropriate. Two dozen comment letters went to federal agencies in FY 2005 (Table 2.2).

Comment letters went to 11 agencies in FY 2005, the largest number to the Federal Communications Commission (FCC) (Chart 2.2).

As a result of Advocacy interventions, cost savings were achieved for small businesses in 10 regulations that went to the final stages in FY 2005 (Table 2.3).

Of these regulations, four had been identified in OMB Reports to Congress on the Costs and Benefits of Federal Regulations as candidates for regulatory reform because of their impact on small businesses.

Efforts to reduce the regulatory burden resulted in FY 2005 foregone regulatory cost savings of $6.62 billion in the first year and $965.6 million in annually recurring savings (Table 2.4).

Table 2.2 Regulatory Comment Letters Filed by the Office of Advocacy, Fiscal Year 2005*

Date	Agency	Comment Subject
10/04/04	FCC	Unbundled Access to Network Elements; Review of the Section 251 Unbundling Obligations of Incumbent Local Exchange Carriers, WC Dkt. No. 04-313, FCC 04-179
10/12/04	FWS	Notice of Availability of the Draft Economic Analysis on the Proposed Critical Habitat for the Santa Ana Sucker; 69 Fed. Reg. 58876 (October 1, 2004 )
11/17/04	FCC	Initial Regulatory Flexibility Analysis for the Notice of Proposed Rulemaking in Telephone Number Portability; CC Dkt. No. 95-116, FCC 04-217
11/18/04	FWS	Notice of Availability of the Draft Economic Analysis on the Proposed Critical Habitat for the Riverside Fairy Shrimp; 69 Fed. Reg. 61461 (October 19, 2004)
12/15/04	FCC	Initial Regulatory Flexibility Analysis for the Notice of Proposed Rulemaking in Communications Assistance for Law Enforcement Act and Broadband Access and Services; ET Dkt. No. 04-295, FCC 04-187
12/15/04	Commerce/BIS	Notice of Proposed Rulemaking on Revised Knowledge Definition, Revision of Red Flags Guidance and Safe Harbor; 69 Fed. Reg. 60829 (October 13, 2004)
12/17/05	OSHA	Notice of Proposed Rulemaking on Occupational Exposure to Hexavalent Chromium; 69 Fed. Reg. 59306, (October 4, 2004)
12/21/04	FCC	Ex Parte Letter regarding the regulatory flexibility analysis for Developing a Unified Intercarrier Compensation Regime; CC Dkt. No. 01-92
01/13/05	SBA	Advance Notice of Proposed Rulemaking: Small Business Selected Size Standards Issues; 69 Fed. Reg. 70197 (December 3, 2004)
01/18/05	CMS	Agency Information Collection Activities; Proposed Collection; Comment Request; 69 Fed. Reg. 67745 (November 19, 2004)
02/04/05	DOJ/CRD	Advance Notice of Proposed Rulemaking; Nondiscrimination on the Basis of Disability in State and Local Government Services; Nondiscrimination on the Basis of Disability by Public Accommodations and in Commercial Facilities; 69 Fed. Reg. 58768 (September 30, 2004)
02/07/05	EPA	Standard of Performance for New Stationary Sources and Emission Guidelines for Existing Sources: Other Solid Waste Incineration Units; 69 Fed. Reg. 71472 (December 9, 2004)
02/25/05	GSA	Access to the Federal Procurement Data System- Next Generation (FPDS-NG); 69 Fed. Reg. 77662 (December 28, 2004)
03/08/05	FCC	Verizon’s Petition for Forbearance from Title II and the FCC’s Computer Inquiry Rules; WC Dkt. No. 04-440
03/11/05	SEC	Extension of Compliance Dates for the Final Rule, Management’s Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports of Non-Accelerated Filers and Foreign Private Issuers; 70 Fed. Reg. 11528 (March 8, 2005)
03/29/05	FWS	Proposed Designation of Critical Habitat for the Southwestern Willow Flycatcher; 69 Fed. Reg. 60706 (October 12, 2004)
05/17/05	FCC	Ex Parte Letter Supporting the Extension of the Stay of the Order Regarding Rules and Regulations Implementing the Telephone Consumer Protection Act (TCPA) of 1991 (also known as the “Do-Not-Call” and the “Do-Not-Fax” rule); CG Dkt. No. 02-278, FCC 03-153
05/23/05	DOJ/CRD	Regulatory Alternatives Discussion on the Advance Notice of Proposed Rulemaking; Nondiscrimination on the Basis of Disability in State and Local Government Services; Nondiscrimination on the Basis of Disability by Public Accommodations and in Commercial Facilities; 69 Fed. Reg. 58768 (September 30, 2004)
05/23/05	FCC	Regulatory Flexibility Analysis for Developing a Unified Intercarrier Compensation Regime; CC Dkt. No. 01-92
06/28/05	FAA	Revisions to Cockpit Voice Recorder and Digital Flight Data Recorder Regulations; 70 Fed. Reg. 9751 (February 28, 2005)
07/14/05	FWS	Reopening the Comment Period on Proposed Designation of Critical Habitat for the Southwestern Willow Flycatcher; 70 Fed. Reg. 39227 (July 7, 2005)
07/27/05	FCC	Regulatory Flexibility Analysis for Special Access Rates for Price Cap Local Exchange Carriers; WC Dkt. No. 05-25
08/01/05	NMFS	Notice of Proposed Rulemaking, Fisheries of the Exclusive Economic Zone off Alaska; Groundfish Retention Standard; 70 Fed. Reg. 35054 (June 16, 2005)
08/16/05	FCC	Initial Regulatory Flexibility Analysis for Telephone Number Portability; CC Dkt. No. 95-116

*Note: The complete text of Advocacy’s regulatory comments is available on Advocacy’s website, http://www.sba.gov/advo/laws/comments/.

Chart 2.1 Advocacy Comments by Key RFA Compliance Issue, FY 2005 (percent)



Throughout Fiscal Year 2005, the Office of Advocacy advised many agencies on how to comply with the RFA. Chart 2.1 illustrates the key concerns raised by Advocacy’s comment letters and prepublication review of draft rules. The chart highlights areas for improved compliance based on Advocacy’s analysis of its FY 2005 comment letters and other regulatory interventions summarized in this report.

Table 2.3 Regulatory Cost Savings, Fiscal Year 2005

Agency		Subject Description		Cost Savings
USDA/ APHIS		Mexican Avocado Import Program. The final rule expands existing regulations to allow distribution of Mexican Hass avocados to 47 states during all months of the year. The agency delayed distribution of the avocados to California, Florida, and Hawaii (the 3 states that have all avocado producers in the United States for the first two years of the rule). 69 Fed. Reg. 69748 (November 30, 2004).		$34.55 million each year, for the first two years of the rule. Source: APHIS.
EPA		Cooling Water Intake. The rule requires facilities that have cooling water intake structures to install devices to protect fish and other aquatic species from being killed by the intake structures. As a result of a SBREFA review panel, EPA proposed an exemption for facilities that have a cooling water intake flow of 50 million gallons per day or less. This removes all small businesses from the cooling water intake rule. Research available to the panel indicated that cooling water intake flow volumes below the 50 million gallon per day threshold are unlikely to affect fish or other aquatic species. 69 Fed. Reg. 68444 (November 24, 2004). Note: This rule was identified in the OMB 2004 Report to Congress on the Costs and Benefits of Federal Regulations as a candidate for regulatory reform because of its impact on small business.		$74 million over a ten-year period, and an annualized cost savings of $10.5 million. Source: EPA.
EPA		Other Solid Waste Incinerators. The rule requires new and existing incinerators at institutions such as schools, prisons, and churches to install state-of-the-art control equipment and meet costly permitting and operating requirements, or alternatively, to shut down their incinerators and send their sold waste to a landfill. EPA agreed to exempt several types of incinerators for which alternative disposal options are not feasible, including rural incinerators at institutions located more than 50 miles from an urban area where the operator can show that no other waste disposal alternative exists. 69 Fed. Reg. 71472 (December 9, 2004).		$7.5 million per year. Source: EPA.
FCC	Restriction on Fax Advertising. Advocacy and small businesses supported legislation that would recognize a previous business relationship exemption. The Junk Fax Prevention Act of 2005 was signed into law by President Bush on July 9, 2005. Pub. L. No. 109-21, 119 Stat. 359 (2005). Note: This rule was identified in the 2004 OMB Report to Congress on the Costs and Benefits of Federal Regulations as a candidate for regulatory reform because of its impact on small business.		$3.5 billion initially and $711 million annually. Source: FCC.
NARA	Records Center Facility Standard. The rule required extreme fire prevention and control measures at all records facilities. The 2005 final rule provides flexibility from some of the more stringent standards while still maintaining safety standards. 70 Fed. Reg. 50982 (August 29, 2005). Note: This rule was identified in the 2002 OMB Report to Congress on the Costs and Benefits of Federal Regulations as a candidate for reform because of its impact on small businesses.		$63 million for the first year of the rule. Source: PRISM International.
FWS	Designation of Critical Habitat for the Bull Trout. FWS submitted a draft final rule to Advocacy. The general scope of the rule was to designate certain areas as critical habitat to protect the bull trout. The final rule published by FWS included an exemption for impounded waters from the final designation of critical habitat. The exemption provided flexibility for small businesses with no impact on the species. 70 Fed. Reg. 56212 (September 26, 2005).		Not available.
MSHA	Diesel Particulate Matter Exposure in Underground Metal and Nonmetal Mines. MSHA has proposed to revise its final rule on diesel particulate matter by staggering the effective date over a five-year period to provide greater flexibility. The final rule mandated a reduced permissible exposure limit for diesel particulates in these mines from 400 micrograms per cubic meter of air to 160 micrograms per cubic meter of air. 70 Fed. Reg. 53280 (September 7, 2005).		$1.6 million per year. Source: MSHA.
DOT/FMCSA	Hours of Service of Truckers. FMCSA amended an earlier 2003 rule that had been remanded to the agency by the U.S. Court of Appeals for the D.C. Circuit, but left in effect by Congress pending final agency action. Advocacy urged FMCSA to reduce the regulatory burdens on short-haul drivers by allowing some of them to drive two extra hours once per week (offset by rest time) as well as reducing recordkeeping requirements. FMCSA agreed to these changes. 70 Fed. Reg. 49978 (August 25, 2005). Note: This rule was identified in the 2004 OMB Report to Congress on the Costs and Benefits of Federal Regulations as a candidate for regulatory reform because of its impact on small business.		$200 million in first year and $200 million annually. Source: FMCSA.
SEC	Extension of Compliance for Periodic Reports. As required by the Sarbanes-Oxley Act of 2002, SEC published final rules June 18, 2003, requiring businesses that raise funds from public investors to report on internal controls and audit procedures. Advocacy urged SEC to delay the first compliance deadline, and the SEC extended the deadline for one year. 70 Fed. Reg. 56825 (September 29, 2005).		$2.68 billion in first year. Source: FEI.

Table 2.4 Summary of Estimated Cost Savings, FY 2005 (Dollars)

Rule / Intervention	First-Year Costs		Annual Costs
APHIS Mexican Avocado Import Program1	34,550,000		34,550,000
EPA Cooling Water Phase III2	10,500,000		10,500,000
EPA Other Solid Waste Incinerators2	7,600,000		7,600,000
DOD RFID3	62,000,000		--
FCC Do not FAX4	3,556,430,226		711,286,045
NARA Records Center Facility Standards5	63,000,000		--
FWS Bull Trout Critical Habitat Designation6	--		--
MSHA Diesel Particulate Matter7	9,274,325		1,620,869
DOT/FMCSA Hours of Service8	200,000,000		200,000,000
SEC Extension of Compliance9	2,680,000,000		--
TOTAL	6,623,354,551		965,556,914
1 Source: Animal and Plant Health Inspection Service (APHIS).
2 Source: Environmental Protection Agency (EPA).
3 Source: Department of Defense (DOD).
4 Source: U.S. Chamber of Commerce survey.
5 Source: PRISM International and National Archive and Records Administration (NARA).
6 Note: Cost savings for this rule are 2 not publicly available because savings were accrued during the draft stage of the rule.
7 Source: Mine Safety and Health Administration (MSHA).
8 Source: Federal Motor Carrier Safety Administration (FMSCA).
9 Source: Calculations were based on data from a Financial Executives International (FEI) survey.

Note: 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, savings are limited 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.

3. Advocacy Review of Agency RFA Compliance in Fiscal Year 2005

As agencies grow in their familiarity with the RFA and E.O. 13272, and with the Office of Advocacy, compliance will come more easily to the agencies. In monitoring agency compliance, Advocacy has found that there is an increase in the number of agencies that make a good-faith effort to comply with the RFA. However, even agencies 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 E.O. 13272. As in previous years, 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).

Animal and Plant Health Inspection Service

• Issue: Mexican Hass Avocado Import Program. On November 30, 2004, APHIS published a final rule regulating the importation of Hass avocados into the United States. The rule contained a final regulatory flexibility analysis. The final rule expands existing regulations to allow distribution of Mexican Hass avocados to 47 states during all months of the year. APHIS shared the draft regulation with Advocacy prior to publication. The following description summarizes small business regulatory flexibility without compromising the confidentiality of interagency deliberations

Concerned that small avocado producers in California, Florida, and Hawaii would be significantly affected by the proposal, Advocacy submitted confidential interagency comments to the agency. In the final rule, based on comments from regulated entities and Advocacy, APHIS decided to delay distribution of the avocados to California, Florida, and Hawaii for the first two years of the rule. The delay will allow small avocado producers in the affected states to better prepare for the change in market conditions and pricing. Cost savings amounting to $34.55 million each year for the first two years resulted from the flexibilities in this final rule.

• Issue: National Animal Identification System; Draft Strategic Plan and Draft Program Standards. On May 6, 2005, APHIS published in the Federal Register a notice of availability of the Draft Strategic Plan and Draft Program Standards documents for the National Animal Identification System (NAIS). The NAIS will be a mechanism for tracking animals from birth to slaughter and is designed to enhance the U.S. response to disease outbreaks across different animal species. The program will trace animals during a disease outbreak and allow APHIS and the federal and state governments and private industry to minimize the impact of an outbreak on domestic and foreign markets. The documents outline the process of developing the NAIS and the agency’s current understanding of how the system would work when implemented. In the notice, the agency solicited public feedback on various elements of the system. The following description summarizes coverage of small business flexibility under consideration without compromising the confidentiality of interagency deliberations.

Advocacy is concerned that the standards, as written, could have a significant economic impact on a substantial number of small producers and slaughtering plants. Affected entities have informed Advocacy that the proposed NAIS standards do not adequately consider existing animal identification technology already in use by some in the affected industry and that implementing the system, especially the technology infrastructure, would be costly for small businesses. Additionally, industry personnel are concerned that the publication of the proposed system did not include an initial regulatory flexibility analysis; thus, the potential costs to the industry were not clearly outlined in the proposal.

Because of extensive public interest, APHIS extended the comment period for the proposed system for an additional 30 days. In confidential interagency comments submitted to the agency, Advocacy shared industry concerns with APHIS. Advocacy also urged the agency to consider the potential economic impacts on small entities as well as alternatives to minimize the impact. APHIS has not completed work on the NAIS documents. Advocacy will continue to monitor this issue and to work with the agency to address small entity impacts.

Department of Commerce

E.O. 13272 Compliance

The Department of Commerce (DOC) complies with the requirements of E.O. 13272. Its RFA policies are publicly available in compliance with section 3(a), and DOC’s agencies notify Advocacy of draft rules as required by section 3(b). For example, the National Marine Fisheries Service (NMFS) routinely submits draft proposed and final rules to the Office of Advocacy. NMFS did not publish any final rules in FY 2005 that were the subject of any Advocacy comments; therefore, NMFS’ compliance with section 3(c) cannot be assessed. 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 also works with the Patent and Trademark Office (PTO) at the Department of Commerce. The PTO regularly submits to Advocacy draft proposed and final rules that may have a significant economic impact on a substantial number of small entities. In FY 2005, PTO staff participated in Advocacy’s RFA training program and began submitting draft regulations to Advocacy’s email notification system more regularly. The agency expressed a willingness to work with Advocacy earlier in the rulemaking process to ensure proper completion of agency initial regulatory flexibility analyses (IRFAs) and certifications. PTO did not publish any final rules in FY 2005 that were the subject of any Advocacy comment; therefore, compliance with section 3(c) of E.O. 13272 cannot be assessed. Advocacy plans to train the remaining agencies at DOC in the next fiscal year.

During the past year, Advocacy worked closely with the Office of Manufacturing and Services at the Department of Commerce. Although this office is not focused strictly on small business issues, there is a similarity between the Office of Advocacy’s mission and the purpose of the Manufacturing and Services office. To capitalize on this, Commerce loaned an economist to the Office of Advocacy to learn more about the regulatory process and, conversely, so that Advocacy could benefit from greater use of Commerce data in preparing regulatory flexibility analyses. There is potential for future collaboration between the offices in the area of impact analysis.

Bureau of Industry Standards (BIS)

• Issue: Revised Definition of “Knowledge” for “Red Flags” Guidance and Safe Harbor. On October 13, 2004, BIS published a proposed rule: Revised “Knowledge” Definition, Revision of “Red Flags” Guidance and Safe Harbor, designed to determine whether an exporter understood that it was violating exporting control rules. Current regulations apply a “high probability” standard that the exporters know that they are violating exporting controls. The proposed rule would:

- revise the definition of knowledge for determining whether or not exporters know they are violating export controls;

- revise the Export Administration regulations to incorporate a “reasonable person” standard;

- replace the phrase “high probability” with “more likely than not;”

- update the “red flags” guidance to increase the number of circumstances identified as expressly creating a red flag of potential violations of the Export Administration regulations; and

- create a safe harbor from certain knowledge-based violations if the exporter takes certain steps.

BIS certified that the rule would not have a significant economic impact on a substantial number of small entities. The basis of the certification was that the proposal was a “mere clarification.”

Advocacy discussed the proposal with small entity representatives and submitted comments questioning whether the proposed change was a mere clarification. Advocacy noted that BIS was proposing to change the definition in a way that lowers the standard for establishing whether the exporter has knowledge of a potential export control violation. Small businesses that might not have been liable in the past could potentially be held liable for an export control violation under the proposed new standard and could incur more legal expenses, fines, and penalties.

In addition, under the proposed “safe harbor” provision, businesses could learn whether BIS agrees with them that the transaction qualifies for a safe harbor. The provision was intended to help businesses avoid fines and penalties, which BIS believes would mitigate the impact of the rule. However, small business representatives are concerned that small businesses would have to wait for an extended period of time for an opinion. To prevent this, Advocacy asked BIS to give full consideration to alternatives from the industry, such as imposing a 30-day timeframe for BIS to provide an opinion on whether the transaction qualifies for a safe harbor. Advocacy also asked BIS to give full consideration to the suggestion that BIS allow for concurrent consideration of license applications while an exporter’s request is pending a determination through the safe harbor process. This rule has not been finalized.

National Marine Fisheries Service

• Issue: Designation of Critical Habitat for 12 Evolutionarily Significant Units of West Coast Salmon and Steelhead in Washington, Oregon, and Idaho. In 2000, the National Marine Fisheries Service designated critical habitat for salmon and steelhead across approximately 150,000 miles of rivers, streams, and shores in the Pacific Northwest. The agency failed to consider the economic impacts of the designation of critical habitat on small entities as required by the RFA, instead attributing all costs from designating critical habitat to the earlier decision to list the species. In light of decisions by federal courts that rejected such attribution of costs to listing decisions, NMFS revisited the rulemaking. In addition, after the first designation of critical habitat, the U.S. Geological Survey made available to NMFS more detailed watershed maps, which allowed the agency to identify more accurately areas that should be designated as critical habitat.

The agency withdrew the 2000 rulemaking and re-proposed the designation on June 14, 2004. The agency kept the comment period for the notice of proposed rulemaking open through October 30, 2004. In response to the designation of critical habitat for the salmon, small farmers, developers, ranchers and others raised concerns about the costs the rule would impose. On January 5, 2005, NMFS published a final rule that included less than 30,000 miles of the 2000 rule’s original 150,000 miles of rivers, streams, and shores. In 2000, NMFS did not provide an estimate of the costs its original rule would impose on the public, but the agency did estimate the impacts of its 2005 rule. Though there is insufficient data to provide an estimate of the cost savings the final 2005 rule represented over the original 2000 rule, it is likely that the reduction of critical habitat by 80 percent represented major cost savings for small entities.

• Issue: Fisheries of the Exclusive Economic Zone Off Alaska; Groundfish Retention Standard. On June 16, 2005, NMFS published a proposed rule on Fisheries of the Exclusive Economic Zone Off Alaska; Groundfish Retention Standard. The proposed rule implements Amendment 79 to the Fisheries Management Plan for groundfish of the Bering Sea and Aleutian Islands. The purpose of the action is to reduce bycatch and improve utilization of groundfish harvested by catcher/processor trawl vessels. It implements an annual groundfish retention standard (GRS) as well as monitoring and enforcement measures for trawl catcher/processors greater than 125 feet.

The catcher/processors for the groundfish industry contacted Advocacy regarding the size standard used for determining a small catcher processor. Instead of using the 500 employee size standard for floating factory ships in its initial regulatory flexibility analysis, NMFS used the $3.5 million annual volume standard for fish harvesting operations. Advocacy argued that without the appropriate size standard there was no way of knowing whether NMFS was correct in determining that none of the industry participants were small. The industry was also concerned about aspects of the proposal that were not recommended, like new monitoring and enforcement measures, a new observer schedule, and the installation of a new NMFS-approved scale. Advocacy asked NMFS to perform an economic analysis on the new aspects of the rule and publish the analysis for public comment. This rule has not been finalized.

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. The Department of Defense (DOD) has procedures in place that comply with section 3(a) of E.O. 13272. 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 has not published procedures that would apply to rulemakings other than those considered by the FAR Council. In compliance with section 3(b) of E.O. 13272, DOD submits prepublication rulemakings for Advocacy consideration. DOD did not publish any final rules in FY 2005 that were the subject of any Advocacy written comments; therefore, DOD compliance with section 3(c) cannot be assessed. DOD staff received RFA training in FY 2005.

• Issue: Radio Frequency Identification Tags. The Department of Defense issued a proposed regulation on April 21, 2005, to amend the Defense Federal Acquisition Regulation Supplement by adding a requirement that packages be marked with passive radio frequency identification (RFID) tags. The change would require contractors to affix passive RFID tags at the case and palletized unit load levels when shipping packaged operational rations, clothing, individual equipment, and tools.

Advocacy was involved in the confidential interagency deliberations of this rule. Advocacy’s early involvement resulted in a detailed economic analysis of the impact of the rule on small entities. DOD also conducted outreach to the small business community. The outreach includes an ongoing training program for small businesses to develop the necessary tools and knowledge to comply with the new DOD acquisition requirements.

The final rule was implemented on September 13, 2005. The flexibilities achieved in this final rule resulted in $62 million in first-year cost savings.

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 E.O. 13272. Education has not published any final rules in FY 2005 that were the subject of any Advocacy comments; therefore, Education’s compliance with section 3(c) cannot be assessed. Education staff received RFA training in FY 2005.

Department of Energy

E.O. 13272 Compliance

The Department of Energy (DOE) has complied with section 3(a) of E.O. 13272 by making its policies and procedures publicly available on its website. In FY 2005, DOE provided Advocacy with all of its draft rules when they were sent to OMB for review, in compliance with section 3(b) of the Executive Order. Advocacy has not filed comments on any DOE rules since the establishment of the section 3(c) requirement. DOE staff received RFA training in FY 2005.

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 E.O. 13272. 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 E.O. 13272 in FY 2005. Neither CMS nor FDA published final rules in FY 2005 that were the subject of any Advocacy comments; therefore, compliance with section 3(c) of E.O. 13272 cannot be assessed. HHS staff received RFA training in FY 2005.

Centers for Medicare and Medicaid Services

• Issue: Agency Information Collection Activities; Proposed Collection; Comment Request. On November 19, 2004, the Centers for Medicare and Medicaid Services published in the Federal Register a summary of proposed collections for public comment pursuant to section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995. In the summary, CMS sought comment on the national implementation and utilization of the Hospital Consumer Assessment of Health Plans Survey (HCAHPS). According to CMS the goal of the HCAHPS was to “offer consumers choice and create incentives for hospitals to improve performance in areas that are important to patients.” Ultimately, CMS plans to publish the data obtained through HCAHPS to assist consumers in selecting hospitals that deliver high-quality care. Advocacy commented on the rule on January 18, 2005, citing its concern that the HCAHPS would place a significant economic and paperwork burden on hospitals, many of which are small entities. Advocacy suggested that CMS revisit its analysis of the paperwork burden associated with the survey and consider reducing the number of survey questions.

Food and Drug Adminis-tration

• Issue: Current Good Tissue Practice for Manufacturers of Human Cellular and Tissue-Base Products; Inspection and Enforcement-Final Rule. Advocacy reviewed this final rule prepublication via confidential interagency review. Advocacy commented publicly on the proposed rule on November 5, 2001, believing that the rule had the potential to affect small businesses negatively. The FDA took into account public comments filed in response to the proposed rule and reflected those comments in the economic analysis in the final rule. The final rule allowed affected entities significant flexibility in determining how to comply with the rule. The final rule also granted affected entities the ability to seek an exemption from, or propose an alternative to, a particular provision of the rule where appropriate. Cost savings are not available for this rule.

• Issue: Beverages: Bottled Water. On October 28, 2004, Advocacy reviewed and commented through confidential interagency review on the FDA’s proposed rule seeking to revise the allowable levels of arsenic in drinking water. As a result of Advocacy’s early intervention, FDA sought comments in the published proposed rule on the profitability of small water manufacturers, on compliance costs, and on whether there were viable alternatives that would reduce the cost of the rule on small entities.

Department of Homeland Security

E.O. 13272 Compliance

The Department of Homeland Security (DHS) has made progress in complying with E.O. 13272. DHS received its RFA training in FY 2005, and it has posted its RFA policy on its website, as required by section 3(a) of E.O. 13272. DHS did not submit any draft rules to Advocacy in 2005. DHS has not published final rules in FY 2005 that were the subject of Advocacy comments; therefore section 3(c) of E.O. 13272 cannot be assessed.

Department of Housing and Urban Development

E.O. 13272 Compliance

The Department of Housing and Urban Development (HUD) made its policies and procedures available to the public in the timeframe required by section 3(a) of E.O. 13272. HUD notified Advocacy of rules that may have a significant impact on a substantial number of small entities as required by section 3(b) of E.O. 13272. HUD received RFA training in FY 2005. Advocacy and HUD developed a good working relationship in FY 2005 through the Real Estate Settlement Procedures Act (RESPA) roundtables Advocacy cosponsored with HUD (see below) and the RFA training session.

• Issue: Real Estate Settlement Procedures Act: Simplifying and Improving the Process of Obtaining Mortgages to Reduce Settlement Costs to Consumers. In 2002, HUD issued a proposed rule to revise the regulations implementing RESPA. The purpose of the proposal was to simplify and improve the process of obtaining home mortgages and to reduce settlement costs to consumers. The proposed rule was strongly opposed by small businesses throughout the real estate and settlement services industry.

Advocacy filed comments on behalf of small business on October 28, 2002. Advocacy’s comments suggested that HUD prepare a revised IRFA to provide information to the public about the industries affected by the proposal and alternatives to minimize the impact on small entities. Advocacy also emphasized its desire to continue working with HUD to ensure that improvements to the mortgage financing and settlement process are sensitive to the impact on small business.

In March 2004, HUD withdrew the draft final RESPA rule from OMB review. In the with-drawal letter to OMB, HUD Secretary
Alphonso Jackson stated that based on concerns from members of Congress and key members of consumer and industry groups he believed that it would be prudent for HUD to reexamine the RESPA rule before it is made final.

In FY 2005, Advocacy worked with HUD to perform outreach to the small business community to discuss the impact of RESPA reform on small entities and to flush out less burdensome alternatives. In addition to attending roundtables that HUD held in Washington, D.C., on RESPA reform, Advocacy and HUD cosponsored three roundtables around the country. Members of every aspect of the real estate community were invited to participate in the roundtables held in Chicago, Fort Worth, and Los Angeles. Advocacy will continue working with HUD as it evaluates the information gained from the roundtables.

Department of the Interior

E.O. 13272 Compliance

The Department of the Interior (DOI) has made its policies and procedures publicly available in compliance with section 3(a) of E.O. 13272. As required by section 3(b), DOI notifies Advocacy of rules that it has determined could have a significant economic impact on a substantial number of small entities. Prior to publication of a rule, agencies within DOI typically submitted notifications and a “record of compliance” to Advocacy. DOI also utilized Advocacy’s email notification system to inform Advocacy of draft rules that may affect small business.

The Fish and Wildlife Service (FWS) continues to certify its final designations of critical habitat for endangered species as not having a significant economic impact on a substantial number of small entities despite small business views to the contrary voiced during the process. FWS has not completed an IRFA or FRFA for its critical habitat designations. This exception to DOI’s attention to the RFA and E.O. 13272 is of concern and Advocacy will continue to work with FWS to improve its RFA and E.O. 13272 compliance. Advocacy has commented on three final rules that were published by FWS during fiscal year 2005-the final designations of critical habitat for the Southwestern willow flycatcher, the Santa Ana sucker, and the Riverside fairy shrimp (see Table 2.2). FWS did respond to Advocacy’s comments, in compliance with section 3(c).

Fish and Wildlife Service

• Issue: Endangered and Threatened Wildlife Plants; Designation of Critical Habitat for the Bull Trout. FWS submitted a draft final rule to Advocacy that would designate areas as critical habitat to protect the bull trout. The final rule published by FWS included an exemption for impounded waters from the final designation of critical habitat, providing significant relief for small farmers and businesses in the affected area while preserving the protections intended in the critical habitat designation. Cost savings achieved in this rule cannot be determined because they are based on confidential FOIA-exempt material.

Department of Justice

E.O. 13272 Compliance

The Department of Justice (DOJ) has made its policies and procedures publicly available as required by section 3(a) of E.O. 13272. DOJ 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 E.O. 13272. DOJ did not publish any final rules in FY 2005 that were the subject of any Advocacy comment; therefore, DOJ’s compliance with section 3(c) cannot be assessed. Staff at DOJ have not yet received RFA training.

Department of Labor

E.O. 13272 Compliance

The Department of Labor (DOL) has made its policies and procedures publicly available as required by section 3(a) of E.O. 13272. Agencies within DOL notify Advocacy by mail and by Advocacy’s email notification system of rules that may have a significant impact on a substantial number of small entities, as required by section 3(b) of E.O. 13272. There were no electronic notifications by OSHA or the Mine Safety and Health Administration (MSHA). Neither OSHA nor MSHA published any final rules during FY 2005 that were the subject of any Advocacy comment; therefore, compliance with Section 3(c) of E.O. 13272 cannot be assessed. Advocacy submitted comments to OSHA on its proposed occupational exposure to hexavalent chromium standard, but that rule has yet to be finalized. OSHA and MSHA frequently participate in Advocacy small business regulatory roundtables on occupational safety and health and mine safety and health issues. OSHA’s Office of Small Business Assistance has been proactive in discussing small business issues with Advocacy. As part of the SBREFA process, OSHA has contacted Advocacy to discuss rules that may have a significant economic impact on a substantial number of small entities and where a SBREFA panel is expected. The Department of Labor was previously trained in RFA compliance.

Mine Safety and Health Administration

• Issue: Diesel Particulate Matter Exposure of Underground Metal and Nonmetal Mines Rule. MSHA proposed to revise its final rule on Diesel Particulate Matter Exposure of Underground Metal and Nonmetal Mines. The final rule mandated a reduced permissible exposure limit (PEL) for diesel particulates in underground metal and nonmetal mines from 400 to 160 micrograms per cubic meter of air (total carbon) effective on January 20, 2006. MSHA proposes staggering the effective date of the final regulation over a five-year period to provide greater flexibility to mine operators. Advocacy reviewed this rule prepublication via confidential interagency review. The rule would ease the regulatory burden on small mine operators, who argued that meeting the final exposure limit was not technologically feasible (using existing filter technology) and was unduly expensive.

Advocacy raised this issue at several of its small business labor safety roundtables. The roundtables included presentations by both small business representatives and MSHA personnel. Advocacy also communicated directly with OMB and MSHA on a confidential interagency basis regarding this rule. The agency was convinced that technological feasibility issues justify the staggered implementation schedule. As a result of the flexibilities contained in this rule, first-year cost savings of $9.3 million and annual cost savings of $1.6 million will be realized by small businesses.

Occupational Safety and Health Administration

• Issue: Occupational Exposure to Hexavalent Chromium Rule. OSHA has proposed to revise its existing standard for employee exposure to hexavalent chromium (Cr(VI)) from the current level of 52 micrograms per cubic meter of air (for an 8-hour time-weighted average) to one microgram per cubic meter of air. Advocacy reviewed this rule prepublication via confidential interagency review. The rulemaking was mandated by the U.S. Court of Appeals for the Third Circuit. OSHA initiated a SBREFA panel process in 2003 that included conferring with representatives from affected small entities in several industries, including chemical, alloy, and pigment manufacturing, electroplating, welding, and aerospace.

Advocacy participated in the SBREFA panel process and submitted detailed comments to the agency recommending a permissible exposure limit of 23 micrograms per cubic meter of air based on technological and economic feasibility. This issue has been the subject of presentations by small business representatives likely to be affected by the standard at several small business labor safety roundtables hosted by Advocacy. Advocacy has worked directly with OMB and OSHA in confidential interagency deliberations. The final permissible exposure limit is expected to be published in 2006.

• Issue: Electric Power Generation, Transmission, and Distribution Rule. OSHA has proposed to update the existing standard for the construction of electric power transmission and generation installations to make them more consistent with the more recently promulgated general industry standard. Advocacy reviewed this rule prepublication via confidential interagency review. The proposal would also make miscellaneous changes to both standards, including adding provisions related to the relationship between host employers and contractors, the requirements for flame-resistant clothing, training, and electrical protective equipment. OSHA initiated a SBREFA panel process in 2003 and obtained comments on its draft proposal from representatives of small entities that would be affected by the rule.

Advocacy participated in the SBREFA panel process and has discussed the proposed rule at several of its small business labor safety roundtables. In addition, Advocacy recently hosted a conference call of the small entity representatives to obtain their input on the proposed rule and has also communicated directly with OMB and OSHA in confidential interagency deliberations. The final rule is expected to be published in 2006.

• Issue: Notice of Section 610 Review of Lead In Construction Standard. OSHA is undertaking a review of its lead in construction standard under Section 610 of the Regulatory Flexibility Act. Section 610 requires federal agencies to review their existing rules periodically to determine whether they should be continued without change, amended, or rescinded consistent with the underlying statute. OSHA’s lead standard is designed to prevent occupational exposures to lead on construction sites. It applies to many small businesses in the construction industry that must comply with its worker protection requirements.

Small business representatives from the residential remodeling industry presented issues at several small business labor safety roundtables hosted by Advocacy. Advocacy also hosted a specific small business roundtable on this issue, where small business representatives from affected industries and representatives from OSHA, HUD, and EPA (each has regulations concerning lead hazards) attended. Advocacy continues to monitor the rulemaking process.

Department of State

E.O. 13272 Compliance

The Department of State did not provide any draft rules