May 2013 No. 413
Research on State Regulatory Flexibility Acts
by Microeconomic Applications Inc. Washington, D.C. 20016.
212 pages. Under contract number SBAHQ-11-M-0205.
The impact of government regulation falls harder
on small businesses than large ones because small
businesses lack economies of scale. In small firms,
the costs of complying with a regulation are spread
over fewer employees or sales, whether measured in
dollar expenditures, employee hours, or some other
metric. Regulatory requirements may take the form
of extra paperwork, new work processes, or product
modifications, and these cost small firms more on
a unit basis to initiate than they cost large firms. To
alleviate such disproportionate effects of regulatory
compliance on small business, a federal law, the
Regulatory Flexibility Act (RFA),1 was enacted in
1980, as amended by the Small Business Regulatory
Enforcement Fairness Act of 1996 (SBREFA).2
The RFA requires agencies to consider the impact
of proposed regulations on small entities. The law
has spared small businesses from many burdensome
costs, while preserving the health, safety and other
broad goals of regulations. This burden reduction
is made possible through “flexibility” in regulatory
requirements, for example, staggering the effective
date of a regulation, exempting businesses below a
certain size from some requirements, simplifying
compliance requirements, or creating limited safe
The RFA charges the Office of Advocacy, housed
in the Small Business Administration, with monitoring
the implementation of the law, and in the 2000s,
the office launched a concerted effort urging states to
adopt similar consideration in state-level rulemaking
processes.3 This report examines these state efforts.
The Office of Advocacy published a study in 2002
which analyzed and evaluated state efforts to mitigate
the regulatory burden on small businesses.4 The
findings of this study revealed that very few states
were actively implementing protections for small
businesses against burdensome regulations. It also
suggested that genuine protection for small businesses
was the product of well written legislation
and executive orders, as well as support from the
In 2002, the Office of Advocacy launched a model
legislation initiative utilizing a model state regulatory
flexibility bill. The model bill incorporated
many elements of the RFA in a simplified form. It
was published for general use in 2005, along with
supporting documentation; a guidance document to
assist the states with adoption and implementation
was published in 2007.
By 2008, a majority of states had some form of
small business regulatory flexibility on their books.
The purpose of the present study is to see what
changes and improvements have stemmed from the
various regulatory flexibility initiatives.
• State regulatory flexibility programs differ greatly
in many dimensions, although many are based on
the same foundation, the Office of Advocacy’s model
bill. Some programs were implemented by executive
order, others by legislation; all, however, are missing
at least some of the elements found in the model bill.
• Executive branch support for regulatory flexibility
is essential to success. At a minimum, state leadership
must regard regulatory flexibility as a legitimate
activity in its own right and give priority to making
regulatory flexibility infrastructure effective.
• In addition, to be effective, regulatory flexibility
must be recognized as an activity distinct from other
small business assistance, and, as such, be given support
and resources at the departmental level.
• Guidance on regulatory flexibility is lacking in
most state programs. The most common forms of
guidance are checklists or templates for reporting
analyses; these do little more than repeat the statutory
requirements without elaboration or explanation.
• A small business regulatory advocate is an
essential element in the regulatory flexibility infrastructure.
Fewer than one-fifth of states have such an
advocacy position or office. An advocate works with
agency staff—from early in the rulemaking through
the public hearing process—to understand regulatory
flexibility principles and practices.
A comparison of New Mexico’s Small Business
Regulatory Advisory Commission and Missouri’s
Small Business Regulatory Fairness Board shows
the necessity of executive support. New Mexico
and Missouri have very similar regulatory flexibility
statutes. However, while Missouri’s Regulatory
Fairness Board flourished, New Mexico’s Regulatory
Advisory Commission foundered. The origins and
compositions of each group followed very different
courses. Missouri’s statute was adopted after two
years of operation with strong gubernatorial support
under an executive order. In addition, the Missouri
board’s membership includes the chair of the minority
business advocacy commission. New Mexico’s
advisory commission, on the other hand, was established
with no context and no experience.
In order for state regulatory flexibility to be more
effective, states need to invest more time and effort
into making state regulatory flexibility a priority. The
report contains several best practices in this regard.
The effectiveness of such measures lies in how thoroughly
these are carried out, not in their mere presence.
This study implies that policymakers should:
• Keep the focus on regulatory flexibility, e.g.,
mitigation of disproportionate burdens on small business;
• Give elements of the regulatory infrastructure
a durable, preferably statutory, foundation with clear
authority to act;
• Build a complete and well-coordinated regulatory
• Find creative, dedicated people who understand
• Make regulatory flexibility a policy priority
and provide adequate resources; and
• Recognize and prepare for the fact that this is a
Scope and Methodology
The authors gathered information from September
2011 through July 2012. Information was collected
predominantly from online sources. This was appropriate
in that openness and accessibility of information
is itself an important aspect of implementing the
process. Use of online information was a limitation
because in most states some types of useful documents
were not online. Documents generally were
available from enough states to show patterns and
the range of practices.
Conceptually, information collection was organized
and driven by assuming two roles:
• A small business owner trying to weigh in with
an opinion on a rule needs to identify four pieces of
information: regulations that may affect him or her,
the specifics of a particular regulation, how to comment
and otherwise make his or her concerns heard,
and any recourse if small businesses concerns are not
• A new regulatory agency staffer trying to learn
about the process needs to know four things: the
requirements of the regulatory flexibility law, how to
comply with the law, where to go for assistance, and
what rulemaking resources are available.
This dual approach was fruitful in identifying and
providing information on practices themselves and
experience with the responsiveness of the system.
This report was peer-reviewed consistent with
Advocacy’s data quality guidelines. More information
on this process can be obtained by contacting the
director of economic research at firstname.lastname@example.org
or (202) 205-6533.
This report is available on the Office of Advocacy’s
website at www.sba.gov/advocacy/7540. To receive
email notices of new Advocacy research, news
releases, regulatory communications, publications,
and the latest issue of The Small Business Advocate
newsletter, visit www.sba.gov/updates and subscribe
to the Small Business Regulation & Research
3. The 50 state regulatory systems vary considerably. Some are
at the forefront of regulatory policymaking; for instance the California
Air Resource Board (CARB) leads federal efforts. Others
are not fully immersed in the regulatory rigors.
4. Management Research and Planning Corporation, Analysis
of State Efforts to Mitigate Regulatory Burden on Small Businesses.
U.S. Small Business Administration, Office of Advocacy,
This document is a summary of the report identified above,
developed under contract for the Small Business Administration,
Office of Advocacy. As stated in the report, the final conclusions
of the full report do not necessarily reflect the views of the Office of
Advocacy. This summary may contain additional information, analysis,
and policy recommendations from the Office of Advocacy.