January 6, 2006

BY ELECTRONIC MAIL

The Honorable John D. Graham
Administrator
Office of Information and Regulatory Affairs
Office of Management and Budget
New Executive Office Building, Rm. 10235
725 17th Street, N.W.
Washington, D.C.  20503

     Re:  Comments on the Office of Management and Budget's
     "Proposed Bulletin for Good Guidance Practices," 70
     Fed. Reg. 71,866

Dear Dr. Graham:

The Office of Advocacy (Advocacy) is pleased to submit the
following comments in response to the notice and request for
comments published by the Office of Management and Budget
(OMB) on its "Proposed Bulletin for Good Guidance
Practices," 70 Fed. Reg. 71,866 (Nov. 30, 2005).  Congress
established the Office of Advocacy under Pub. L. No. 94-305
to advocate the views of small entities before Federal
agencies and Congress.  Because Advocacy is an independent
entity within the U.S. Small Business Administration (SBA),
the views expressed by Advocacy do not necessarily reflect
the position of the Administration or the SBA.

Advocacy strongly supports OMB's effort to develop a
transparent, consistent process for Federal agencies to use
when they issue guidance documents.  Each year, Federal
agencies issue thousands of guidance documents stating their
interpretation of often highly complex regulatory and
technical requirements, usually without prior notice to the
public or the opportunity for public comment.  Small
businesses and their representative trade and membership
organizations have told us that these guidance documents are
then often implemented by agencies as if they were
regulations having the full force and effect of law.
Advocacy believes that the Bulletin will help ensure that
agencies use a more transparent process in developing
guidance documents.  Input from the public should improve
the quality and consistency of these documents.


Background

Small businesses have long been concerned that Federal
agencies have an incentive to issue informal guidance
documents that have the effect of expanding regulatory
compliance burdens - rather than formally promulgating rules
- in order to avoid having to go through the notice and
comment rulemaking procedures required by section 553 of the
Administrative Procedure Act (APA).(1)  In the absence of
the procedural protections of the APA, and without any real-
world feedback from affected parties, agencies may issue
poorly-conceived and unworkable directives to the regulated
community.  One of the most important procedural protections
bypassed when an agency issues guidance documents rather
than promulgating rules is the small business review
required by the Regulatory Flexibility Act (RFA)(2)  In
Advocacy's experience, agencies benefit tremendously when
they hear from small businesses and other interested parties
before taking regulatory action.  Unfortunately, despite the
fact that guidance documents often have the practical effect
of expanding the requirements imposed upon a regulated
entity, they lack the transparency and agency accountability
that administrative procedures demand for rules.(3)

This problem with guidance documents was addressed directly
by the U.S. Court of Appeals for the District of Columbia
Circuit in Appalachian Power Co. v. EPA,(4) wherein the
Court found that a guidance document relating to emissions
monitoring in fact imposed new substantive requirements on
facilities that necessitated notice and comment rulemaking.
Noting that "it is well-established that an agency may not
escape the notice and comment requirements . . . by labeling
a major substantive legal addition to a rule a mere
interpretation,"(5) the Court of Appeals sent a clear
message that agencies must follow section 553 of the APA
(and the requirements of the RFA) when they wish to impose
new substantive requirements.  Similarly, the Administrative
Conference of the United States has observed that "at times
policy statements and interpretive rules are barely
distinguishable from substantive rules for which notice and
comment is required."(6)  Accordingly, the Administrative
Conference recommended in 1976 that

     before an agency issues, amends, or repeals an
     interpretive rule of general applicability or a
     statement of general policy which is likely to have
     substantial impact on the public, the agency normally
     should utilize the procedures set forth in [APA section
     553] by publishing the proposed interpretive rule or
     policy statement in the Federal Register, with a
     concise statement of its basis and purpose and an
     invitation to interested persons to submit written
     comments . . . .(7)

Advocacy does not suggest that every guidance document
should go through the APA notice and comment rulemaking
process.  We also recognize that guidance documents can be
useful in helping agencies manage their regulatory duties.
Nevertheless, we do believe that agencies should be required
to be more consistent, transparent and accountable to the
regulated community in issuing guidance.

The Bulletin Requires Greater Agency Consistency and
Transparency

By requiring agencies to use standardized, comprehensive
procedures for issuing "significant guidance documents," the
Bulletin on Good Guidance Practices should result in
guidance documents that are more consistent and transparent.
The Bulletin calls for the internal clearance of guidance
documents by an appropriate senior agency official.
Advocacy believes this will yield more consistent documents,
as will the inclusion of standard required elements in
guidance documents.  We believe that it is very important
that guidance documents clearly be identified as "guidance"
that are non-binding and that do not carry the force of law.

The Bulletin's requirement that significant guidance
documents be available to the public in electronic form,
along with lists of significant guidance documents, should
allow affected small businesses to be better able to track
important developments.  Small businesses often cite the
difficulty under current agency practice in simply
identifying all of the agency guidance that applies to them
individually.  Providing an avenue for the public to comment
on draft agency guidance is also an important feature of the
Bulletin.  This should add at least some degree of public
participation to the guidance dissemination process.  The
opportunity for the public to review draft guidance and
submit comments gives small business representatives and the
Office of Advocacy a potential voice in the process.  It is
clear that OMB has authority to review guidance documents.
This authority is grounded in OMB's inherent role as
overseer and coordinator of the Administration's regulatory
policy, as well as OMB's overall implementation of Executive
Order 12866.(8)  We are confident that Advocacy will be able
to work with OMB's Office of Information and Regulatory
Affairs (OIRA) and the agency in question, pursuant to the
Bulletin, to resolve issues arising from controversial
guidance documents that impose significant economic impacts
upon small entities.
Advocacy is also pleased that the Bulletin contains a
mechanism to require Federal Register notice and comment
procedures for guidance documents that may be reasonably
anticipated to lead to an annual effect of $100 million or
more.  Guidance documents of this magnitude are at least
functionally equivalent to major legislative rules under
Executive Order 12866, and should be given analogous
procedural safeguards.  Importantly, the Bulletin requires
agencies to respond to comments submitted concerning draft
guidance.  This gives small businesses and Advocacy a role
in the guidance issuance process, and an avenue for
Advocacy, OIRA and an agency to address problems with an
economically significant guidance document that affects
small entities.

Recommended Improvements to the Draft Bulletin

The chief concern that small business representatives have
expressed to Advocacy about the draft Bulletin is the fear
that too many important guidance documents will not be
classified as "significant guidance documents" and will
therefore fall outside of the purview of the Bulletin.
These small business representatives believe that the
definition of "significant guidance documents" should be
expanded.  Advocacy agrees, and recommends that OMB make the
following changes to the Bulletin:

   In the definition of "guidance document" in  I(2),
     insert ", or is otherwise relied upon by an agency to
     manage the regulatory process." at the end of the
     sentence;
   In the definition of "significant guidance document" in
      I(3), delete the word "highly" in  I(3)(ii);
   In the definition of "significant guidance document" in
      I(3), move subsection (i) to become the fourth and
     final item in the list.
   In the definition of "economically significant guidance
     document" in  I(5), change the reference from "Section
     I(3)(i) of this Bulletin" to "Section I(3)(iv) of this
     Bulletin."

OMB should clarify that a guidance document that meets any
of the listed criteria in Section I(3) must comply with the
transparency and accountability requirements of the
Bulletin.

In Section II(2) of the Bulletin, beyond explicitly stating
that a document is "guidance," and is not legally binding,
Advocacy recommends that an agency be required to include an
explicit finding that the new guidance is appropriately
guidance and is not a rule.  Small business representatives
have also suggested that agencies should address the
following questions in the guidance document:

   What is the underlying need for the guidance document?
   What alternative approaches have been considered?
   Is there relevant preceding guidance (i.e., Advisory
     Circulars, Orders, etc.)?
   Who will be administering or enforcing the guidance
     materials?
   What entities are affected by the guidance?
   What are the economic impacts on the affected parties?
     Does the agency have data indicating that the guidance
     will not lead to an annual economic impact of $100
     million or more?

In reviewing the responses to these questions, the public
can provide more informed feedback to assist the agency.

In Section III of the Bulletin, OMB should explicitly state
that each agency, within a reasonable time, is expected to
compile a list of all of its guidance documents that are
currently in effect and to make that list available to the
public in electronic form.  Also, OMB should require
agencies to ensure that comments received on draft
significant guidance documents are made available to the
public in electronic form.

Finally, in Section V of the Bulletin, OMB should add the
following language, "Nothing in this Bulletin shall affect
or modify the legal obligations of Federal agencies to
comply with 5 U.S.C.  553 and 554, and related procedural
requirements."


Conclusion

Advocacy shares OMB's objective of bringing improved
consistency, transparency, and accountability to agencies'
issuance of guidance documents.  We believe that the
Bulletin on Good Guidance Practices will be an effective
tool in meeting that objective.  We look forward to working
with agencies and with OMB to implement the Bulletin to its
full potential.

For additional information or assistance relating to these
comments, please contact Keith Holman at (202) 205-6936.

Sincerely,

\s\

Thomas M. Sullivan
Chief Counsel for Advocacy

ENDNOTES

1.  5 U.S.C.  553.
2.  5 U.S.C.  601-612.
3.  In the late 1990's, for example, the U.S. Environmental
Protection Agency issued guidance documents implementing a
change in the agency's longstanding interpretation of
permitting requirements under the Clean Air Act's New Source
Review Program.  The guidance letters and memoranda, which
had the effect of imposing new compliance costs, were issued
without the public involvement formalized by the APA and the
RFA.
4.  208 F.3d 1015 (D.C. Cir. 2000).  See also, Chamber of
Commerce v. Dept. of Labor, 174 F.3d 206 (D.C. Cir. 1999)
(OSHA Directive found to be a rule requiring notice and
comment rulemaking); United States Telecom Assoc. and
Century Tel. Inc. v. FCC, No. 03-1414 (D.C. Cir., decided
March 11, 2005) (FCC "clarification" held to be a
substantive change in the agency's rules requiring notice
and comment rulemaking).
5.  208 F.3d at 1024.
6.  Administrative Conference of the United States,
Recommendation 76-5, 1 C.F.R.  305.76-5 (1976).
7.  Id.
8.  Executive Order 12866, Regulatory Planning and Review,
58 Fed. Reg. 51735 (October 4, 1993).  In determining
whether Federal agency actions are "significant regulatory
actions" under the Executive Order, the OMB Office of
Information and Regulatory Affairs must have the ability to
review and evaluate items, including guidance documents,
which are in fact actually rules.  In addition, OIRA has
repeatedly exercised its guidance oversight authority to
call for the public to nominate Federal agency guidance
documents for revision or deletion through OMB's rule reform
process, and has overseen the actual reform of guidance
documents by the agencies.  See, e.g., Informing Regulatory
Decisions:  2003 Report to Congress on the Costs and
Benefits of Federal Regulations and Unfunded Mandates on
State, Local and Tribal Entities (September 2003) at Table
10 "New Reforms Planned or Underway - Guidance Documents,"
available at
www.whitehouse.gov/omb/inforeg/2003_cost_ben_final_rpt.pdf.