Annual Report on the Regulatory Flexibility Act, Fiscal Year 2000
20 Years of the
Regulatory Flexibility
Act

Rulemaking in a Dynamic
Economy

Office of Advocacy
U.S. Small Business Administration
Washington, D.C.: 2000
     ISSN 1047-5168

     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 Congress of the United States:

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

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

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

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

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

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

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

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

                                   Jere W. Glover
                              Chief Counsel for Advocacy
                              
January 2001


Contents


Abbreviations

Preface

Overview: A Brief History of the RFA

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

The Future: Unresolved Issues on Which Reasonable People May
Differ

Conclusion

Appendix A: The Regulatory Flexibility Act, as Amended

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

Appendix C: Regulatory Cost Savings for Fiscal Year 2000

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

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

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

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


Abbreviations

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

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

  "..the failure [by agencies] to recognize differences in
  the scale and resources of regulated entities has in
  numerous instances adversely affected competition in the
  marketplace, discouraged innovation and restricted
  improvements in productivity; .unnecessary regulations
  create entry barriers in many industries and discourage
  potential entrepreneurs from introducing beneficial
  products and services.."(2)
Stated simply, Congress did not want public policy to erect
unnecessary barriers to competition; therefore, regulations
should not have unintended anti-competitive consequences. Adverse
consequences could be avoided if agencies considered the impact
of regulations on small business and modified proposals to make
them more equitable. It was Congress' intent that this be
accomplished without compromising public policy objectives.

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

     Has progress been made? Yes and no.
     Is the RFA accomplishing its objective? Yes and no.
     Is the RFA still needed? Definitively, yes.
     
Advocacy is of the view that the RFA is still significantly
viable and may always be needed. In an economy that is churning
and ever changing, in which new industries emerge or change and
in which small business plays such a pivotal role in generating
competition, the challenge to avoid unintended consequences from
potentially burdensome regulations remains the same as it was in
1980.

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

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


Overview

A Brief History of the RFA


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

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

  On the regulations, I cannot say enough.somebody has to
  give us some zip to let it really rip."
  -James D. McKevitt, National Federation of Independent
  Business, 1976
Enactment of the Regulatory Flexibility Act (RFA)
Studies on the costs and impacts of regulations did not, however,
do enough to influence regulatory decisions. Consequently, in
September 1980, Congress enacted the Regulatory Flexibility Act
(RFA) which mandated that agencies consider the impact of their
regulatory proposals on small entities, analyze equally effective
alternatives and make their analyses available for public
comment.

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

  "Total cost to the U.S. economy of Federal government
  paperwork requirements is estimated to be $100 billion per
  year. Private industry cost is $25 to $32 billion per year
  and it is estimated that 5 million small businesses pay $15
  to $20 billion of the $100 billion total. Because of
  limited resources, small business is woefully ill-equipped
  to deal with rigid regulatory and paperwork
  requirements."-Briefing book for the 1980 White House
  Conference on Small Business
The Office of Advocacy was given the responsibility for reporting
annually to Congress and the President on agency compliance with
this law.(3) The RFA also authorized the Chief Counsel to appear
as amicus curiae (i.e. "friend of the court") in actions brought
to review a rule.(4) These new responsibilities expanded the role
of the Chief Counsel and the office to represent small business
in the development of public policy. It was implicitly understood
that the effectiveness of these responsibilities was contingent
on how well the Chief Counsel asserted the independence that
Congress bestowed on the office.


Important Dates in the Evolution of the RFA

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

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

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

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

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

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

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

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

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

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

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

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

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

     Jan. 7, 1998   Advocacy files its first amicus curiae brief
and the court remands the challenged rule to the agency
on March 13, 1998.
For 15 years, the Chief Counsel reported rather graphically that
compliance with the RFA was uneven throughout the government.
This was confirmed by the General Accounting Office's (GAO) study
in April 1994, cited in the chronology. Recognition was growing
that some "teeth" needed to be added to the RFA. This would
provide more incentive for agencies to comply with Advocacy's
congressional mandate deemed so important to the national
economy.


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

  "Clearly, SBREFA provided much needed `teeth' to the RFA
  by.allowing for judicial review of selected portions of the
  RFA. This is a powerful tool for the small business
  community and has empowered small business.to fight
  oppressive regulations effectively."-Laura Skaer, Northwest
  Mining Association
Very explicit outreach responsibilities were imposed on the
Environmental Protection Agency (EPA) and the Occupational Safety
and Health Administration (OSHA). These two agencies are required
to convene small business advocacy review panels that consult
with small entities on the overall effectiveness and impacts of
specific proposals.(5) This precedent-setting provision of the
law institutionalizes outreach to small entities and ensures that
these two agencies identify and consider effective alternatives
that accomplish their public policy objectives. The Chief Counsel
for Advocacy and the Office of Information and Regulatory Affairs
(OIRA) of the Office of Management and Budget (OMB) are statutory
members of the panels and are mandated to partner with these
agencies to consult with small entities on regulatory proposals.
They report their findings, jointly with agency staff, to the
head of the agency. Advocacy and OIRA have access-by act of
Congress-to an agency's earliest deliberations that identify a
problem, document the scope of the problem, analyze its various
causes, and evaluate how best to address the problem without
unnecessary harm to small business or the economy.

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


RFA Compliance Now

How SBREFA Has Changed the Dynamics of Regulatory Development


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


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

  "One could say this litigation under the RFA has been a
  "learning experience" for the agency.  Our efforts to
  comply with the Regulatory Flexibility Act, though well
  intentioned, have not always met with judicial favor.  We
  recognize that there is room for improvement in our
  economic analyses, and I would like to describe the steps
  we are taking to make them better."-Testimony of Penelope
  Dalton, Assistant Administrator for Fisheries, National
  Marine Fisheries Service, before a subcommittee of the U.S.
  House of Representatives; April 29, 1999
It appears that the threat of judicial review is making agencies
acutely aware of the need to perform regulatory impact analyses.
By performing regulatory analyses, even with incomplete data,
some agencies have begun to recognize that early review of rules
for potential small business impacts results in more informed
decision-making. More agencies are beginning to provide more
factual information, as required by the RFA, to justify their
certifications that rules will not have a significant economic
impact on a substantial number of small entities. Regulatory
flexibility analyses, and the economic data that supports them,
are also showing real improvement. At the same time, the OSHA and
EPA small business advocacy review panels are clearly
demonstrating the value of early consultation with small
entities. Rules have been modified and compliance costs reduced.
The panels are providing concrete evidence that rulemaking that
analyzes small entity impacts does not compromise public policy
and results in more workable and reasonable rules.

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

  "The concerns of the small business community are important
  to the CPSC.  The Commission has made significant efforts
  to reach out to small businesses and consider the impact of
  our activities on them."-Thomas W. Murr, Jr., Deputy
  Executive Director, U.S. Consumer Product Safety Commission
  (CPSC).
It is safe to say that federal agencies today are finally
beginning to do what they should have been doing since the RFA
first became law in 1980: considering small business concerns as
rules are being developed-not as an afterthought.


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

  "...[D]uring a recent DOT.....rulemaking, the Office of
  Advocacy played the leading role in persuading the agency
  to reverse their negative small business effect
  certification.  By this action the entire nature of the
  rulemaking was changed to the benefit of small coach
  operators."-Norm Littler, United Motorcoach Association
An ever-increasing number of agencies are contacting Advocacy
with questions about potential RFA problems and small business
economic impact analyses.(9) This type of early consultation has
led to the development of better rules, namely, rules that
accomplish the agencies' public policy goals while avoiding undue
burdens on small entities. When Advocacy has been successful in
altering a proposal prior to publication, the need to submit
comments for the public record has been eliminated. This shift to
pre-proposal work is productive for agencies, for Advocacy, and
most important, for small business. Time and again Advocacy has
successfully identified weaknesses in agency analyses before
publication. It has also demonstrated how to provide information
that would be the most useful to the public in order to elicit
informed submissions from the public during the comment period.
This early attention to RFA compliance issues helps reduce the
overall cost of regulatory development and the risk that a rule
will be judicially challenged. There is no question that a rule
that goes through this process results in more informed public
policy.

To illustrate:

Advocacy worked with an agency in the Department of
 Transportation (DOT) on a rule affecting small business. This
 partnership resulted in the agency altering its conclusion that
 the rule would not significantly affect small entities.
 Instead, DOT made a commitment to analyze the possible economic
 impacts further.
 
The Forest Service agreed to perform an initial regulatory
 flexibility analysis (IRFA), as required by the RFA, after
 Advocacy reviewed its draft proposal during early consultation
 and persuaded the agency that the rule would in fact have an
 impact on small commercial operations as well as on small
 communities.
 
The Minerals Management Service dramatically improved the
 justification for its RFA certification so that the public was
 able to provide useful comments on the accuracy of the agency's
 determination.
 
These are just a few of the many ways in which Advocacy's work on
agency compliance with the RFA is extremely beneficial-and cost
effective-when done at the pre-proposal stage of regulatory
development.


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

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

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


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

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


Table 1. SBREFA Panels through Fiscal Year 2000

Rule Subject                      Date     Report    NPRM
                                  Convene  Completed
                                  d
Environmental Protection Agency                      
Panels
Non-Road Diesel Engines           03/25/9  05/23/97  09/2
                                  7                  4/97
Industrial Laundries Effluent     06/06/9  08/08/97  12/1
Guideline                         7                  2/97
Stormwater Phase 2                06/19/9  08/07/97  01/0
                                  7                  9/98
Transport Equipment Cleaning      07/16/9  09/23/97  06/2
Effluent Guideline                7                  5/98
Centralized Waste Treatment       11/06/9  01/23/98  01/1
Effluent Guideline                7                  3/99
Underground Injection Control     02/17/9  04/17/98  07/2
Class V Wells                     8                  9/98
Ground Water                      04/10/9  06/09/98  05/1
                                  8                  0/00
Federal Implementation Plan for   06/23/9  08/21/98  09/3
Regional Nitrogen Oxides          8                  0/98
Reductions
Section 126 Petitions             06/23/9  08/21/98  09/3
                                  8                  0/98
Radon in Drinking Water           07/09/9  09/18/98  11/0
                                  8                  2/99
Long Term 1 Enhanced Surface      08/21/9  10/19/98  04/1
Water Treatment                   8                  0/00
Filter Backwash Recycling         08/21/9  10/19/98  04/1
                                  8                  0/00
Light Duty Vehicles/Light Duty    08/27/9  10/26/98  05/1
TrucksEmissions and Sulfur in     9                  3/99
Gas
Arsenic in Drinking Water         03/30/9  06/04/99  06/2
                                  9                  2/00
Recreational Marine Engines       06/07/9  08/27/99  In
                                  9                  proc
                                                     ess
LDV/LDT Emissions and Sulfur In   08/27/9  10/26/98  05/1
Gas                               8                  3/99
Diesel Fuel Sulfur Control        11/12/9  03/24/00  06/0
Requirements                      9                  2/00
Lead Renovation and Remodeling    11/23/9  03/03/00  In
Rule                              9                  proc
                                                     ess
Metals Products and Machinery     12/09/9  03/03/00  In
                                  9                  proc
                                                     ess
Concentrated Animal Feedlots      12/16/9  04/07/00  In
                                  9                  proc
                                                     ess
Reinforced Plastics Composites    04/06/0  06/02/00  In
                                  0                  proc
                                                     ess
Stage 2 Disinfectant Byproducts   04/25/0  06/23/00  In
                                  0                  proc
                                                     ess
Occupational Safety and Health                       
Administration Panels
Tuberculosis                      09/10/9  11/12/96  10/1
                                  6                  7/97
Safety and Health Program Rule    10/20/9  12/19/98  In
                                  8                  proc
                                                     ess
Ergonomics Program Standard       03/02/9  04/30/99  11/2
                                  9                  3/99
                                                     
Note: NPRM = Notice of Proposed
Rulemaking


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

  "Each of the 15 complete SBREFA panels has resulted in
  positive outcomes for the Agency and small businesses.  In
  each case the Panel's report has included concrete
  recommendations to the Administrator for her to consider in
  the development of the subject rule."-Thomas E. Kelly, U.S.
  Environmental Protection Agency.
To date, approximately 400 small entities have been consulted on
a very diverse array of rules. The additional input from small
entity representatives has spotlighted real-life consequences of
proposals under consideration. In nearly every instance to date,
information provided by small entities, in combination with other
data, has proven invaluable in establishing a reality check for
these agencies, namely, what the real impact of the regulation is
likely to be and the actual compliance costs small entities will
have to bear. Regulations that have emerged from the panel
process have been changed in response to the concerns of small
business and are less burdensome than the regulations initially
considered by the agency. In one instance, a regulation was
withdrawn entirely because the data clearly demonstrated that
there was no need for national regulation, saving small
businesses approximately $103 million annually.(10) All of these
significant changes have resulted in rules that are less
burdensome on small entities without compromising the public
policy objectives of the agencies.

  "I was a small entity representative for industry in the
  SBREFA processes and worked closely with [Advocacy]...to
  reduce the impact of [EPA] regulations.  Together we have
  established precedent-setting regulations and procedures
  that will likely save the regulated community several
  hundred million dollars annually."-Jack Waggener, URS
  Corporation.
Although work on the panels has been productive, it has also been
labor-intensive. For the seven panels completed in FY 2000,
Advocacy alone spent an average of 700 hours per panel-for a
total of 4,900 hours.(11) While time-consuming for Advocacy (and
OIRA), once the analytical process becomes part of the agency's
regulatory culture, agencies subject to the SBREFA panel process
should not experience any additional burden over and above what
they are already required to do under the Administrative
Procedure Act (APA). Advocacy has consistently maintained that
the analysis required by the RFA in preparation for a SBREFA
panel is not an additional burden. Rather, it is exactly the kind
of analysis an agency is already mandated to do by the APA. What
the RFA added to the process was a congressional mandate to
consider explicitly the impacts on small business, which agencies
should have been doing all along, in order to avoid harming
competition unnecessarily.

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


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

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

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

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

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

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

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

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


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

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

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


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

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

  "It is our opinion that the Office of Advocacy's
  interventions into our case and the subsequently filed
  amicus brief in support of our position challenging the
  regulations clarified the issues for resolution by the
  court. The Office of Advocacy's brief was very persuasive
  to the court's favorable interpretation of the RFA and
  SBREFA in accordance with congressional intent."-Laura
  Skaer, Northwest Mining Association.
As the Time Warner case demonstrates, the threat of filing a
brief in court is sometimes sufficient to persuade an agency to
change its course. For instance, in the case of Grand Canyon Air
Tour Coalition v. FAA, 154 F.3d 455 (D.C. Cir. 1998), Advocacy
withdrew its notice of intent to file a brief in exchange for an
agreement with the U.S. Department of Transportation (DOT). The
agreement required DOT to submit to the court a statement
detailing new data regarding the number of aircraft subject to
the regulation. Further, DOT was to include in its communication
to the court a statement that the agency erroneously certified
that the final rule would not have a significant economic impact
on a substantial number of small entities.

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

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

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


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

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


Table 2. Regulatory Savings

            (1)         (2)         (3)          
            One-Time    Annual      Cumulative   Total
Fiscal      Savings     Savings     Annual       (1) plus
Year                                Total        (3)

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



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

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


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

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

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

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

The following criteria were used to select agencies for
recognition:
    Anticipating RFA problems and seeking guidance;
    Good faith outreach to small business;
    Adequate factual information to substantiate certifications;
    Well-documented regulatory flexibility analyses;

    Factual presentation of data on the structure and economics
of the industry being regulated;
    Good-faith efforts to elicit information during the
rulemaking process to  supplement agency data;
    Compliance with the Small Business Act's and the RFA's size
standards and the process for seeking exceptions;
    Consideration and evaluation of truly meaningful
alternatives-not just alternatives that would never be seriously
considered;
    Meaningful responses to Advocacy's critiques of regulatory
proposals.


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

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

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

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


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

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

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

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

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


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

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

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

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

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

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

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

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

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

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


The Future

Unresolved Issues on Which Reasonable People May Differ

The RFA Imposes an Analytical Process on Regulatory
Development-Not Just a Procedure
As stated earlier, some agencies treat the RFA as though it is
solely a procedural hurdle rather than an analytical process they
must follow. Often these agencies craft their regulations and
then devise analyses to justify the agencies' policies. Advocacy
is of the view that the RFA requires agencies to make the
analyses an integral part of regulatory development-while the
rule is being drafted. Shortcuts frequently lead to folly, as
illustrated by the following example in which the General
Accounting Office (GAO) sanctioned a rule over Advocacy's
objections, despite concluding that the data used in the rule
were fatally flawed.

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

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

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

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


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

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

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

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

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

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


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

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


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

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


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

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


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

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

  "The Office of Advocacy's intervention in this matter is a
  valuable case study in the need for small businesses to
  have a federally established oversight organization to whom
  they can appeal in cases where agency impact analyses are
  seriously flawed."-Stephen F. Sims, Pharmaceutical
  Distributors Association, regarding Advocacy's comments on
  a rule issued by the Food & Drug Administration (FDA)
Although it is impossible to know what the future holds, it can
at least be said that the future looks promising. Each year since
the passage of SBREFA, more and more agencies have made a good-
faith effort to comply with the RFA-seeking RFA training,
consulting with Advocacy early in a rule's development, etc.
There is no reason for that trend to falter in the near future.
Clearly, many agencies still need to do a better job and other
agencies lack understanding of even basic RFA concepts. It is
Advocacy's hope that all federal agencies will grow to appreciate
the value and importance of the RFA.

  "FDA withdrew the most controversial portions of the
  proposed regulation . . . This is an astounding and
  unprecedented turnaround that would not have occurred
  without the SBA's help . . . As a result of the support the
  Office of Advocacy has provided, I am now convinced the SBA
  is an essential watchdog to prevent ill-conceived FDA
  regulations."-A. Wes Siegner, Jr., Hyman, Phelps &
  McNamara, P.C.
In order for the regulatory environment to continue improving,
the Office of Advocacy must be allowed to pursue its unique
mission of representing small businesses within the federal
government zealously and independently. Advocacy's ability to
pursue its mission will hinge largely on two factors. The first
is adequate funding from Congress. This will ensure proper
staffing of the office and continued availability of vital
economic research for policymakers. The best way to ensure proper
funding may be to make Advocacy's budget a separate line item in
the budget. Whatever the formula for Advocacy's funding in the
future, the office will continue to utilize its resources to
serve as the nation's watchdog against excessive government
regulation. The other factor is the skill of the Chief Counsel to
forge consensus between the executive and legislative branches of
government and to open up policy councils to meaningful
participation by small businesses. Credibility and nonpartisan
relations with Congress, executive branch agencies and the small
business community, as well as rapid responses to regulatory and
policy initiatives, are key to effective representation of small
business issues by a Chief Counsel. This is perhaps the single
most important aspect in motivating the entire office, and it
ensures the commitment of a team of professionals to small
business.


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

Table of Contents


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

Department of Commerce
     National Marine Fisheries Service

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

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

Department of Labor
     Occupational Safety and Health Administration

Department of Transportation
     Federal Aviation Administration
     Federal Motor Carrier Safety Administration

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

Environmental Protection Agency

Federal Communications Commission

Federal Reserve System

Securities and Exchange Commission

Federal Procurement
     Environmental Protection Agency
     Federal Acquisition Regulation Council

Entities Not Covered by the RFA
     Internet Corporation for Assigned Names and Numbers
     United States Postal Service
     World Intellectual Property Organization

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

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

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


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

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


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

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

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

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

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

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

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


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

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

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

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


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

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

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

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

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


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


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

NMFS promulgates rules through fishery councils located in
different geographical parts of the country. Some councils have
better information collection systems than do others. This
affects the quality and consistency of the economic analyses
performed by NMFS. The lack of consistent economic information
has hindered NMFS' ability to perform thorough and credible
economic analyses in compliance with the RFA. As an agency, NMFS
has demonstrated a significant amount of improvement in its RFA
compliance over the last few years. Advocacy believes that NFMS
has made an institutional decision to comply with the RFA rather
than circumvent its provisions. Historically, NFMS would certify
that there was no significant impact on a substantial number of
small businesses even if the certification was not supported by
the data. Subsequent to the passage of SBREFA, NMFS' RFA
compliance came under judicial and legislative attack. In
response to pressure from the courts and Congress, NMFS hired an
economist and an attorney specifically to address RFA compliance.
NMFS also hired an ombudsman for small entity issues.

In fiscal year 2000, the agency continued to make changes to its
institutional framework in an attempt to advance its compliance
with the RFA. A major change included new guidelines for review
of impacts. NMFS completed its new agency guidelines to assist
its regulators in performing economic analyses that comply with
the RFA. The guidelines stress that a certification is the
exception and should only be used in instances where the lack of
an economic impact is clear. In all other instances, the
regulators are directed to perform the necessary IRFA or final
regulatory flexibility analysis (FRFA). NMFS is also working with
its analysts to develop better alternatives to proposed rules and
to gather the financial information that it needs to perform
thorough economic analyses.

Advocacy also holds regular issues "roundtables" attended by
members of the fishing industry trade associations and officials
from NMFS, NOAA, and DOC's Office of the General Counsel. At
these meetings, fishing industry representatives have questioned
whether NMFS is using the best available science in determining
the appropriate manner to address fishery management. The best
available science provides data on the status of the stock,
which, in turn, determines which alternative(s) should be
selected to address the particular management issue. Likewise,
there are concerns about NMFS' failure to develop meaningful
alternatives that allow for the survival of the fishery during
the rebuilding period. Advocacy has raised these industry
concerns with NMFS.(2b)

Issue: Reduced Shark Quotas. On December 20, 1996, NMFS published
a proposal to reduce the existing shark fishing quota by 50
percent and certified that the reduction would not have a
significant impact on a substantial number of small entities.
Thus began a lengthy saga of communications between Advocacy and
NMFS, in which Advocacy maintained that NMFS had not complied
with the RFA and that its economic analyses were significantly
flawed.(3b) The industry sued NMFS on this issue. The case,
Southern Offshore Fishing v. Daley,(4b) was eventually referred
to a special master by the U.S. District Court for the Middle
District of Florida after an unsatisfactory remand to the agency.

On October 1, 1999, the special master submitted his findings and
recommendations to the court. The special master held that:

NMFS failed to collect meaningful economic data and this
 failure was arbitrary and     capricious. Further, NMFS did not
 have all the necessary information to evaluate and implement
 alternatives to the quota.
 
NMFS' failure to give any consideration to alternatives to the
 quota was a wanton repudiation of the court's instruction on
 remand.
 
NMFS acted with a lack of good faith and contrary to the
 court's express instructions in the preparation of the remand
 submission.
 
The special master concluded that NMFS' conduct constituted bad
faith and a lack of candor to the court. The DOC filed objections
to the special master's findings.

In November 2000, federal regulators agreed to delay a decision
on new shark fishing quotas until after a review of current and
future shark stocks by a group of independent scientists. The
decision for an independent review is part of a court settlement
reached between the National Marine Fisheries Service and the
Southern Offshore Fishing Association. The court still must
approve the settlement agreement.

Issue: Spiny Dogfish. On August 3, 1999, NMFS published a
proposed Spiny Dogfish Fishery Management Plan. The intent of the
plan was to rebuild the spawning fishing stock and eliminate
overfishing while allowing for a one-year exit fishery. The
average annual landings for the 10 years prior to the rule were
40 million pounds. The proposed plan implemented a commercial
quota that allowed for 22 million pounds in year one and 2.9 to
3.2 million pounds for years two through five.

NMFS prepared an IRFA for the proposal. In the proposal, NMFS
acknowledged that: (1) in year one of the rebuilding schedule,
there will be a 30 percent reduction in landings; (2) in the
second year, there will be an 89 percent reduction in landings;
and (3) the reduction in landings could result in the elimination
of the remaining three dogfish processing plants and the total
collapse of the U.S.-based markets for spiny dogfish harvesting
and processing.

Advocacy filed its comments on September 17, 1999, arguing that
it was counterintuitive to implement a plan to rebuild a stock
for a fishery that was being forced out of business by the
implementation of the plan. Advocacy also criticized NMFS'
failure to consider less restrictive alternatives, such as
landing limits, size limits, seasonal closings, gear
alternatives, and a fishery directed towards male dogfish.
Advocacy argued that although NMFS stated that it considered 12
alternatives to the quota, they were actually variations of two
themes: quotas and size limits. Advocacy compared the
alternatives cited to the ones used by NMFS in the Southern
Offshore Fishing case where the court characterized NMFS'
treatment of alternatives as superficial.

Advocacy also questioned whether NMFS met its obligations under
National Standard 8 of the Magnuson Act, which requires NMFS to
consider the importance of fishing resources to the fishing
community and select the alternative that minimizes the impact.
The New England Council and the Mid-Atlantic Council disagreed on
the amount of the quota, and the issue was referred to the
Secretary of Commerce. In April 2000, the rule became effective
when the Secretary of Commerce issued an opinion that reduced the
quota to 4.5 million pounds.

The industry (fishers, processors, and dealers) filed suit in
Massachusetts against DOC on February 8, 2000, and sought
injunctive relief in May 2000, on the basis that the industry
would cease operations under the allowable quota.(5b) In July
2000, the U.S. District Court upheld the Secretary of Commerce's
decision on the basis that the action was necessary to sustain
the fishery and for DOC to meet its obligations under the
Magnuson Act.


Department of Health and Human Services
The U.S. Department of Health and Human Services (HHS) is the
principal federal agency for protecting the health of all
Americans and providing essential human services, especially for
those who are least able to help themselves. HHS includes more
than 300 programs that cover a wide spectrum of activities, such
as medical and social science research, prevention of outbreak of
infectious disease, food and drug safety, Medicare (health
insurance for elderly and disabled Americans), Medicaid (health
insurance for low-income people), and financial assistance for
low-income families.

In recent years, Advocacy has actively partnered with several
branches of HHS to create a better regulatory environment for
small entities. For instance, in March 1999, Advocacy held two in-
depth training sessions for staff of its Health Care Financing
Administration (HCFA) at the agency's headquarters in Baltimore.
Those training sessions and several meetings with HCFA officials
have led to a less contentious relationship between HCFA and
Advocacy. This has in turn allowed Advocacy to have early input
on several key regulations.

Despite HCFA's challenging congressional mandate, Advocacy
believes that the agency could do a better job of considering
less burdensome regulatory alternatives that still meet statutory
requirements. Many health care providers have expressed great
frustration with HCFA and its regional carriers in particular. It
is hoped that HCFA will rid itself of this negative public
perception by looking more closely at regulatory alternatives and
by forcing its regional carriers to apply HCFA's guidelines with
significantly greater consistency.

On the other hand, the Center for Food Safety and Applied
Nutrition (CFSAN), within HHS' Food and Drug Administration
(FDA), should be lauded for its efforts to help small entities.
CFSAN has worked with Advocacy by offering briefings on upcoming
regulations that will affect small entities before the
regulations are even proposed. CFSAN seems to have made an
institutional adjustment and a conscious decision to analyze the
impact of their regulations on small entities thoroughly, thereby
mitigating adverse impacts where possible.

This institutional change at CFSAN came after several harsh
comments from Advocacy that criticized the agency's analyses and
its failure to comply with the RFA. Officials from CFSAN have
stated that it is more productive to work with Advocacy in the
earliest stages of rule promulgation than against Advocacy after
a negative comment has been received. Certainly, more agencies
should adopt this philosophy, including CFSAN's parent agency,
HHS. CFSAN has also published a small business guide on writing
effective comments to agency proposals. By following this basic
guide, small businesses are able to write effective comments that
explain the rule's impact on their business and provide
invaluable data to the agency.

Advocacy's relationship with other agencies within HHS is
described below. In addition to the regulatory issues listed in
this section, Advocacy has also commented on a number of other
major HHS-proposed regulations. However, since most of the work
on these regulations contains confidential interagency work
product, they cannot be discussed in detail herein. Some of these
regulations include a health information privacy rule that seeks
to impose strict requirements on health care providers and their
business partners regarding the handling of confidential
information; HHS' rule on standards for electronic transactions
in health care that governs confidentiality of electronic patient
health records; and FDA's egg labeling and refrigeration rule to
promote egg safety.


Food and Drug Administration
Issue: Disease Claims on Dietary Supplement Labels. This rule was
highlighted in Advocacy's 1998 annual report, but it has since
become final. In 1998, FDA published a proposed rule outlining,
and defining, the types of statements that can be made concerning
the effect of a dietary supplement on the structure or function
of the human body. The rule also established criteria for
determining when a statement about a dietary supplement is a
prohibited disease claim. On October 14, 1998, Advocacy submitted
comments regarding the proposed definition of "disease" and the
negative impact such a definition would have on small businesses.
Among other things, Advocacy proposed that FDA not expand the
definition to include otherwise legal, truthful, and
nonmisleading statements about the effects of a product on the
normal structure or function of the body. In December 1999, both
the OMB and FDA contacted Advocacy to review and comment on the
draft final rule.

When the final rule was published on January 6, 2000, the
provisions that were most harmful to small businesses had been
modified. FDA redefined "disease" to comport with the previous
statutory definition. References to journal articles/titles will
be permitted on product labeling. In addition, statements that
apply to conditions associated with natural states or processes
like pregnancy or aging will also be allowed. Finally, more
acceptable data on the number of affected small entities was
utilized, which resulted in a more accurate impact analysis of
the rule.

Issue: Drug Pedigree Requirements. The Prescription Drug
Marketing Act (PDMA) was created to combat abuses involved in the
distribution of prescription drugs. It contains drug pedigree
requirements that impose prior sale documentation obligations on
nonauthorized distributors. Central to whether a business would
have to comply with the documentation requirements is whether a
business is "an authorized distributor of record" that maintained
an "ongoing relationship" to distribute a manufacturer's
products. Guidance issued by FDA in 1988 stated that "ongoing
relationship" was to be interpreted broadly, and that the
existence of two transactions in a two-year period would be
presumptive evidence of a continuing relationship. The 1992 PDMA
amendments altered the information requirements that had to be
provided prior to each wholesale distribution of a drug.

When FDA proposed its regulations to implement the PDMA
amendments on March 14, 1994, it instituted a sudden reversal of
policy. The regulations changed the definition of "ongoing
relationship" to make it harder to become an authorized
distributor. It gave manufacturers the sole discretion to
determine who should be designated as an "authorized
distributor." The proposal required a written statement between a
manufacturer and each authorized distributor, and each
distributor must appear on the manufacturer's list of authorized
distributors. The industry requested that FDA revise the rule to
require that the pedigree go back only as far as the last
authorized distributor of record, and not for each one in the
chain.

When the final rule was published on December 3, 1999, it was
obvious that FDA rejected the industry's request. Advocacy
submitted comments to FDA on February 29, 2000, petitioning the
agency (pursuant to section 553 of the APA) to reconsider the
final rule, suspend the effective date, and reissue regulations
that will carry out the intent of Congress with respect to the
PDMA. Advocacy argued that FDA's regulatory scheme ignored the
reality of the relationship between secondary drug wholesalers
and manufacturers. Manufacturers can choose to limit those
businesses that they consider authorized distributors. Also, drug
products currently in the inventory of wholesalers would have to
be cleared out and new orders would have to cease, or be severely
limited, within one year to accommodate the actual effective date
of the rule. Moreover, secondary wholesalers (who buy from full-
line wholesalers that do not provide a pedigree) would not be
able to provide a pedigree to their customers describing
transactional information back to the manufacturers. On May 3,
2000, a delay of the effective date of the proposed rule was
announced in the Federal Register. Affected entities will not
have to comply until October 2001, pending further study and
analysis of the rule.

Issue: Pre-Market Approval for Silicone Breast Implants. Advocacy
began working on this issue in 1999 when FDA published a final
rule designating the effective date for requiring the filing of a
pre-market approval application (PMA) or a notice of completion
of product development protocol (PDP) for silicone inflatable
breast prostheses. The regulation would require commercial
distribution of the device to cease unless a manufacturer, or
importer, filed a PMA or PDP within 90 days of the effective
date. FDA estimated that the cost of compliance with the rule
would be $1 million per PMA, and certified that there would not
be a significant impact on small businesses because the industry
was aware that PMAs were inevitable.

Advocacy filed comments on September 9, 1999, saying that FDA
failed to provide a factual basis for their certification. There
were no estimates of the number of small entities affected and no
information on why the $1 million estimate per PMA was not a
significant cost for businesses to bear. Advocacy requested that
FDA republish the rule with a proper certification.

In a November 16, 1999, letter to Advocacy, FDA claimed that only
seven entities would be affected. According to the FDA, five of
the entities were large and/or foreign businesses, and they were
already legally marketing the products. FDA claimed that the two
remaining companies did not constitute a "substantial number of
small entities" per the RFA. In short, the agency declined to
republish the rule.

Advocacy submitted additional comments to the FDA on February 9,
2000, stating that the two businesses do in fact constitute a
substantial number for the purposes of the RFA because those two
businesses constituted 100 percent of regulated small entities.
The letter also alluded to a disturbing pattern whereby FDA
assumed a similar position regarding the interpretation of
"substantial number" in another rule concerning ophthalmic eye
shields. No further comment has been received from the FDA to
date.

Issue: Sterility Requirements for Aqueous-Based Drug Inhalation
Products. FDA proposed a regulation that would raise the number
of inhalation solution products manufactured with a sterile
process from 50 percent to 100 percent in order to reduce the
incidence of adverse drug reactions from contaminated nonsterile
solutions. FDA identified five firms (representing 18 percent of
the regulated industry and 100 percent of small businesses) that
did not use a sterile process or that contract out the process.
FDA stated that the five firms could expect to incur costs from
$270,000 to $1.7 million each.

Advocacy filed comments on December 18, 1997, that criticized the
lack of estimates for training and paperwork, the lack of data on
illnesses caused by nonsterile products and the lack of less
burdensome alternatives. Advocacy requested lengthening the
compliance date from one year to two and end testing products for
signs of contamination rather than requiring a sterile process.

On February 7, 2000, FDA sent Advocacy a copy of the draft final
rule for review. The rule reflected a sizeable reduction in the
small business burden. The scope of the regulation was clarified
to limit the rule's applicability, and the time for compliance
was increased to two years. For the first time, the regulation
contained data on actual adverse event reports associated with
nonsterile products that had occurred in the past. The one-year
delay resulted in a one-time saving to small businesses of $10.1
million.


Health Care Financing Administration
Issue: Medicare Ambulance Fee Schedule. This rule was highlighted
in Advocacy's 1998 annual report, but it has since become final.
In 1997, HCFA proposed a regulation to reduce Medicare costs
resulting from the use of ambulances where no medical necessity
existed, or where reduced services may suffice. HCFA proposed to
base Medicare reimbursement on the beneficiary's medical
condition rather than the type of vehicle used. The rule would
have required ambulance services to document and submit to HCFA a
record of the level of medical care needed by a beneficiary,
based on certain limited and pre-determined codes. The rule also
proposed to narrow the definition of an ambulance by requiring a
certain number of personnel to operate each vehicle and certain
minimum supply and equipment levels.

Based on Advocacy's November 4, 1997, comments, as well as other
comments filed by industry, HCFA published a final rule in 1999
that modified certain portions of the proposal. More important,
HCFA called for a negotiated rulemaking to decide the proper
definition of the various classes of ambulances. The 1999 rule
reduced the equipment requirements, modified staff requirements
to comport with state laws, and removed physician certification
requirements in certain circumstances.

On September 12, 2000, the agency published its proposed Medicare
ambulance fee schedule, which drew heavily from a fee schedule
negotiated with industry groups. For example, most of the cost
shifting will come from urban areas and go to rural areas (which
incur higher costs per trip). There will be seven categories of
ground ambulance services rather than two. There will be a set
reimbursement rate for each category, based on the relative cost
of the service, adjusted for wage differences. As a result of
these provisions rural areas will receive higher reimbursements
for the service. HCFA proposes to phase in the revised schedule
over four years. As a result of the negotiated rulemaking, the
fairness of the rule has been enhanced.

Issue: Competitive Bidding Demonstration Projects for Durable
Medical Equipment. As described in Advocacy's 1998 and 1999
annual reports, this program seeks to limit the number of
providers in a designated region for selected types of durable
medical equipment and home medical equipment supplies. Under the
demonstration, only successful bidders will be able to
participate in the Medicare reimbursement program.

Advocacy commented about the program twice, once to HCFA on
November 11, 1998, and once to OMB on December 18, 1998. Meetings
were held at OMB to negotiate the details of the regulation.
Aside from the burden imposed by the bidding requirements, the
biggest problem was that HCFA saw no need to publish a proposed
rule. It chose instead to publish a direct final rule. Additional
issues were raised during the OMB meetings, such as the program's
compatibility with the agency's proposal on consolidated billing
for skilled nursing facilities, and whether sensitive financial
data should be collected from prospective bidders that were not
finalists. HCFA redesigned some portions of the bid packages
based on concerns voiced by Advocacy and industry. Even after the
changes, the agency acknowledged that reimbursement to winning
suppliers would be reduced by 13 to 31 percent. During August and
September of 1999, HCFA apprised Advocacy of the preliminary
results of the demonstration. It showed that 14 of the 16 winning
suppliers were small entities.

In October 1999, HCFA held a public meeting on a second
demonstration project to be implemented in a different region of
the country. The meeting allowed interested parties to furnish
information and raise issues about the items selected for the
demonstration, including the proposed site and quality standards
for bidders. This marked a significant improvement over the
manner in which the first demonstration was conducted because
public input occurred before the rule reached the OMB review
stage.

In January 2000, HCFA officially proposed its second
demonstration project, but again, the agency requested emergency
OMB clearance for the bidding forms. Advocacy submitted comments
to HCFA on February 14, 2000, criticizing the agency for seeking
emergency clearance. The agency responded by indicating that it
had to fit in all five demonstrations before its authorization
expired in 2002. Advocacy argued in the alternative that the
agency was permitted, but not required, to establish five
demonstrations; therefore, emergency clearance should not have
been sought. Advocacy also opined that some of the selected items
(e.g., oxygen and wheelchairs) were not properly included in the
items subject to bidding because of the heavy service component
required for those items. Some small businesses have built a
niche market for durable medical equipment that requires special
orders or a heavy service component. No significant changes were
made to the proposal by HCFA. Advocacy will actively continue to
monitor future demonstrations.

Issue: Prospective Payment System for Home Health Agencies.
Advocacy was very involved in the predecessor to this rule, the
interim payment system (IPS) for home health agencies (HHAs).
That rule attempted to curb Medicare spending, fraud, and abuse
by changing its reimbursement policy from one based on reasonable
or actual costs to one based on caps. The caps were determined by
analyzing historical costs for some agencies, and national
average costs for other agencies. The regulation unfairly
penalized historically low-cost HHAs, by giving high-cost
agencies higher payments in most cases.

Several unsuccessful lawsuits were filed by industry across the
country. Industry relied on Advocacy's initial IPS comments to
support their respective cases to argue that the IPS regulation
violated the RFA. However, the court in Greater Dallas Health
Care Alliance v. Shalala,(6b) concluded that HCFA did not violate
the RFA and was simply doing what Congress mandated. Further
history of Advocacy's involvement in IPS can be found in
Advocacy's 1998 annual report.

The prospective payment system (PPS) was required by the Balanced
Budget Act of 1997, and was later refined by the Balanced Budget
Refinement Act of 1999, and other laws. PPS was intended to
replace the IPS with a more fair-minded approach to
reimbursement.

In the summer of 1999, HCFA requested Advocacy's comments on the
draft proposed rule for PPS. Advocacy submitted its comments on
August 26, 1999. On October 21, 1999, Advocacy was briefed by
HCFA officials on the content of the PPS draft proposed rule and
later briefed on the draft final rule on June 23, 2000. In
reviewing the rules, Advocacy found that PPS was preferable to
IPS because, among other changes, PPS will take into account the
patient mix of an agency and allow for a change-in-condition
adjustment if a patient's condition worsens. PPS will also allow
for a restart of the 60-day episode if a patient is transferred
to a different agency, and will delay for one year the 15 percent
across-the-board reduction in payments (pursuant to the Balanced
Budget Refinement Act). A town hall meeting was held by HCFA to
explain the requirements of the rule shortly after publication of
the final rule. The overall effect of the PPS rule will be to
reduce some of the burden associated with IPS.

Issue: Hospital Outpatient Prospective Payment System. This rule
was highlighted in Advocacy's 1999 annual report. Like the home
health care PPS, the hospital outpatient rule sought to change
the system of Medicare reimbursement from one that was cost-based
to one that is based on predetermined rates for individual
services.

Advocacy submitted comments to HCFA on July 29, 1999, suggesting
that the agency should exclude cancer, rehabilitation, and rural
or low-volume hospitals from the rule because they are highly
specialized facilities and use advanced treatment modalities. For
instance, the national median hospital costs proposed by HCFA did
not support the sophisticated and evolving types of treatment in
cancer hospitals. The proposal would have reduced payments to low-
volume, cancer, and rehabilitation hospitals by 17.0, 29.2, and
24.1 percent, respectively.

On November 29, 1999, the Administration signed the Balanced
Budget Refinement Act of 1999, resulting in a 10 percent increase
in payments to hospitals, and other additional payments to help
hospitals make the transition from the cost-based system. Several
specialty hospitals were excluded from the requirements of the
outpatient rule. These changes were part of the $7.2 billion in
payments given back to hospitals after the industry charged that
reductions in the Balanced Budget Act of 1997 went deeper than
Congress intended. The final rule reflecting these changes was
published on April 7, 2000. Further "give-back" legislation is
pending in Congress at this time.

Issue: Inherent Reasonableness of Medicare Services. This
proposed rule from 1998 required a revision of the process for
establishing a realistic and equitable payment amount for
Medicare Part B services when existing payment amounts are deemed
inherently unreasonable (because they are grossly excessive or
deficient). The rule described the factors HCFA would consider
and the procedures it would follow to establish appropriate
payment amounts. Congress gave HCFA the authority to bypass
notice and comment rulemaking on inherent reasonableness
determinations if the amount of the reduction does not exceed 15
percent in one year.

On November 2, 1998, Advocacy submitted comments to HCFA on this
issue. Advocacy argued that HCFA made a habit of publishing
direct and interim final rules to bypass notice and comment
procedures required by the APA. In a ten-month period studied by
Advocacy, HCFA published direct and interim final rules 58
percent of the time (excluding nonsubstantive notices, extensions
of time, and technical changes). HCFA claimed it had good cause
for bypassing notice and comment because it was not significantly
changing the existing methodology for applying inherent
reasonableness, and because it would be contrary to the public
interest to delay placing limits on grossly excessive charges.

Advocacy's letter also criticized HCFA for using the regulation
to reduce payments by more than 15 percent by simply splitting
the reduction over two years. Under HCFA's interpretation of the
legislation, a provider's payment could be reduced by 30 percent
in a two-year period, or even 45 percent in a three-year period
without notice and comment.

On April 9, 1999, the Administrator of HCFA responded to
Advocacy's concerns. The administrator defended the agency's lack
of notice and comment because she felt that HCFA was merely
announcing a procedural change authorized by statute. In
addition, the administrator claimed that: (1) the regulation only
described a process and the agency does not have the data to
predict the rule's impact; (2) the regulation does not result in
any inherent reasonableness adjustments, and; (3) only
inefficient businesses that overcharge Medicare would be
affected.

In July 2000, the General Accounting Office (GAO) released a
report on the inherent reasonableness process. GAO interviewed
Advocacy regarding its earlier comments. GAO found HCFA's process
to be generally appropriate. However, GAO criticized the
inadequacies of the Durable Medical Equipment Regional Carrier's
(DMERCs) survey process on pricing which formed the basis for
inherent reasonableness determinations. GAO also said that
bypassing notice and comment was appropriate in the rule even
though GAO issued a report in 1998 criticizing agencies
(especially HHS) for bypassing notice and comment regularly.

Advocacy submitted comments to OMB and the industry regarding
GAO's report on July 10, 2000, since an alternative renovated
inherent reasonableness regulation is currently pending. The
comments criticized GAO on a number of grounds, but focused on
GAO's criticism of the DMERC survey process. The pricing data
upon which the DMERCs rely is the basis for determining whether a
payment is grossly excessive or deficient. This is very
significant, and interested parties should have been allowed to
comment on the issue.

On September 27, 2000, Advocacy submitted comments to HCFA
regarding its continued opposition to the manner in which
inherent reasonableness has been handled procedurally. Advocacy
further indicated its disappointment with GAO's conclusions that
a proposed rule was not necessary and that the changes in the
original rule did not represent a significant change in the way
things are currently done. A resolution of this matter is still
pending.

Issue: Medicare Participation Requirements for Rural Health
Clinics. In February 2000, HCFA proposed a rule to revise the
certification and payment requirements for rural health clinics
(RHCs) pursuant to the Balanced Budget Act of 1997. Among other
things, the rule includes a new definition of a qualifying rural
shortage area in which an RHC must be located. It also
establishes criteria for identifying RHCs essential to the
delivery of primary care services, limits waivers of certain
nonphysician practitioner staffing requirements, imposes payment
limits on provider-based RHCs, and prohibits commingling office
space, equipment, and other resources of an RHC with another
entity. HCFA certified that the rule would not have a significant
economic impact on a substantial number of small entities, even
though the provisions were controversial, the agency could not
quantify the future effect of the rule on operation costs, and
all affected entities were small.

Advocacy submitted comments on April 28, 2000, arguing that the
agency did not provide a factual basis for its certification. If,
for instance, an RHC falls outside of the newly designated
shortage area, then that RHC can no longer maintain its RHC
designation. The agency assumed that RHCs that lose their status
could participate on a fee-for-service basis. However, there is
no explanation of the costs associated with the transition to a
fee-for-service contract, and no mention of whether it would
conflict with state regulations. Advocacy also remarked that the
prohibition against commingling operations did not take into
account legitimate office-sharing relationships. Finally,
Advocacy raised several issues addressing patient access to care.
Clearly, the agency should have prepared an IRFA rather than
simply certifying the rule.

Issue: Medicare Payment for Upgraded Durable Medical Equipment.
HCFA proposed a rule that will permit Medicare suppliers to
furnish upgraded durable medical equipment (DME) on an assignment
basis. Under the rule, Medicare payment would be made to the
supplier as if the DME were nonupgraded DME, and the beneficiary
purchasing, or renting, the upgraded DME would pay the supplier
the difference between the supplier's charge for the DME upgrade
and the amount paid by Medicare. The proposal was born out of the
Balanced Budget Act of 1997. It allows beneficiaries the
opportunity to obtain upgraded equipment (previously disallowed
altogether). Medicare has structured the rule so that the benefit
covers only durable medical equipment that is adequate and
effective to meet the medical needs of the beneficiary. It will
not pay extra for convenience or luxury, or more than the
applicable fee schedule amount.

The new policy is an excellent one that will give beneficiaries
the opportunity to upgrade their equipment and have Medicare pay
for a portion. However, Advocacy is concerned about a provision
within the rule that requires a 30-day reconsideration period
where consumers can return the product to the supplier. The 30-
day requirement is problematic because small suppliers may not be
able to return used custom products to the manufacturer, or sell
the custom item at retail. Ultimately, suppliers may decide to
avoid purchasing such items altogether, thereby limiting consumer
access. The requirement is also inconsistent with existing
consumer protection laws that may confuse the overall regulatory
scheme. Advocacy highlighted these issues in its June 23, 2000,
comments to HCFA. Moreover, Advocacy recommended a shorter
reconsideration period that is consistent with the Federal Trade
Commission's "cooling-off" rule requiring only three business
days. Advocacy is awaiting response from HCFA on its comments.

Issue: Outcome and Assessment Information Set (OASIS) Reporting.
OASIS is a data collection device to collect information from
patients receiving home health care. The information is collected
at designated intervals (i.e., the beginning of patient care, 30-
day intervals, and at the end of patient care). Advocacy reported
briefly on this subject in its 1999 annual report as being part
of a group of regulations that stemmed from the Balanced Budget
Act of 1997. Advocacy submitted comments to OMB on these
regulations and their paperwork impact on December 23, 1998. The
final rule was published on January 25, 1999, with a subsequent
Federal Register notice delaying implementation for non-Medicare
patients (because of privacy concerns).

Advocacy was invited to participate in a software demonstration
for OASIS in February 2000. The demonstration addressed a number
of concerns and questions; however, it was apparent that the
agency's information collection estimates were too low. The
agency stated that it would take only six minutes to complete an
extensive patient assessment. Advocacy determined that it took at
least 20 minutes. Advocacy continued to voice concern over the
inclusion of non-Medicare patients, since the primary purpose for
collecting OASIS data is to aid in establishing case mix
information for Medicare reimbursement under the home health
prospective payment system. Advocacy will continue to monitor
future developments with OASIS.

Issue: HCFA's Patient's Rights Condition of Participation,
Patient Restraint (One-Hour) Rule. At the request of Rep. Saxby
Chambliss (R-Ga.), Advocacy reviewed HCFA's patients' rights
regulation to determine whether HCFA complied with the RFA. Rep.
Chambliss received complaints that a particular portion of the
interim final rule was a particular burden on small rural
entities. More specifically, the rule would require doctors or
other licensed independent practitioners to see and evaluate the
patient for the continued need for restraint within one hour
after the initiation of the restraint.

On September 14, 2000, Advocacy sent Rep. Chambliss a letter
agreeing that the one-hour rule would impose a high burden on
rural providers since rural physicians might be great distances
away from the facility when the restraint is initiated. This one-
hour requirement was not present in the proposed rule and
therefore the public did not have an opportunity to comment on
this aspect of the rule. Moreover, there was no analysis of the
impact on rural or small hospitals, and no realistic alternatives
were proposed. Advocacy expressed its willingness to draft a
petition requesting that the agency reconsider the regulation and
its impact pursuant to the APA.

On the same day that Advocacy's letter was sent to Rep.
Chambliss, a court decision, National Association of Psychiatric
Health Systems v. Shalala,(7b) was released on the issue,
indicating that HCFA failed to comply with the RFA. Although the
court refused to disturb the agency's right to promulgate such a
rule, the court held that the RFA required HCFA to prepare a
final regulatory flexibility analysis to determine the impact of
the rule. The judge allowed the rule to remain in effect because
it was within the agency's purview to determine that patient
safety would be compromised but for the protections provided by
the regulation. For the record, Advocacy disagrees with HCFA's
patient safety argument. Greater patient injury could occur if
the patient cannot reasonably be evaluated after one hour and is
released prematurely from restraints. This scenario could result
in the patient posing a greater danger to himself/herself or to
medical staff. Advocacy will attempt to work with HCFA to resolve
this issue.


Department of the Interior


The U.S. Department of the Interior (DOI) is responsible for
protecting and providing access to the nation's natural and
cultural heritage, and honoring the nation's trust
responsibilities to Indian tribes and island communities. Several
regulatory agencies within DOI are responsible for managing the
country's natural resources. The regulatory issues at DOI affect
matters that are extremely important to small entities, such as
oil rights, minerals, hardrock mining, reclamation, fish,
wildlife, and parks.

Historically, DOI's compliance with the RFA has been problematic.
In the past, DOI's regulatory flexibility analyses consisted of
either a single sentence stating "no signifcant impact on a
substantial number of small entities" or a recitation of the RFA
compliance requirements with no accompanying analysis. During
fiscal year 2000, some agencies within DOI exhibited improvement
in RFA compliance, while others did not. Cooperation has been
improving between Advocacy and some agencies within DOI on RFA
matters. For example, the Minerals Management Service (MMS)
continued to work with Advocacy to improve its RFA compliance,
and held workshops for its regulators to learn more about RFA.
Moreover, MMS has consulted with Advocacy about RFA issues in the
rule drafting stage, and as a result, there has been some limited
improvement in DOI's compliance. Others, such as the Bureau of
Land Management (BLM), however, continue to be problematic.


Bureau of Land Management
Issue: Hardrock Mining. During fiscal year 2000, BLM has
marginally improved its efforts in complying with the RFA.
Advocacy continues to be concerned about its failure to consider
fully the impact of its actions on small businesses and its
failure to develop and analyze alternative regulatory solutions.

BLM's hardrock mining regulation of July 1991, which required
miners to obtain a reclamation bond, was the subject of the
Northwest Mining v. Babbitt case, where the federal District
Court held that BLM failed to comply with the RFA.(8b) The court
found that BLM failed to use the proper size standard in its
promulgation of the rule and remanded the rule to the agency.

In February 1999, BLM consulted with Advocacy about proposed size
standards to be applied for the industry it regulates. BLM then
used the agreed upon size standards in its revised proposal.
However, the information provided in the economic analysis was
inconsistent with, and did not support, the agency's
certification of "no significant economic impact on small
entities." Also, the agency did not consider meaningful
alternatives to the proposal. The only alternatives considered by
BLM were shifting mining operations to nonfederal lands, adopting
different techniques, shortening the life of the mine, or
temporarily halting mining until commodity prices increased. Each
of these alternatives would have had significant adverse impacts
on the industry and could not be considered reasonable options.
In fact, BLM did not perform an economic analysis of these
alternatives and did not consider alternatives that would
mitigate BLM's proposed action.

The agency published the proposal for comment prior to the
completion of a National Academy of Sciences (NAS) study.
Congress ordered BLM to obtain the NAS study to determine the
necessity of the regulation and identify possible alternatives.
Advocacy suggested that BLM extend the comment period to allow
the public a chance to review the NAS study prior to submitting
comments, but BLM declined.

Subsequent to the closing of the comment period, Congress ordered
BLM to provide at least 120 days for public comment on the NAS
report concerning environmental and reclamation requirements
relating to mining on public lands. On October 26, 1999, BLM
published a supplemental proposed rule and reopened the comment
period.

In February 2000, Advocacy submitted comments on the supplemental
proposed rule. In its comments, Advocacy asserted that the
supplemental proposal failed to cure the inadequacies found in
the original proposal. BLM provided no insight into which, if
any, of the NAS proposals it was considering, nor did it provide
an economic analysis of the alternatives suggested by NAS.
Advocacy argued that BLM must publish a new proposed rule for
public comment if it was considering any of the NAS
recommendations. Further, if BLM was considering finalizing the
proposed rule, it must comply with the court's order and publish
an adequate IRFA that addressed the inadequacies of the economic
analysis contained in the proposal, including reasonable
alternatives. Advocacy will continue to monitor any subsequent
developments concerning this rule.

Issue: Millsite Rule. On August 27, 1999, BLM published a
proposed rule in the Federal Register on locating, recording, and
maintaining mining sites. In the proposal, BLM certified that the
proposal would not have a significant economic impact on a
substantial number of small entities.

Although BLM asserted that the changes were mere clarifications,
Advocacy disagreed, insisting that the proposal would
retroactively negate BLM practices that had been in effect for
the last 20 years. For example, in the past there was no
limitation on the number of millsites that a particular claimant
could hold. The proposed "clarification" limited a claimant to no
more than an aggregate of five acres of millsite land for each
associated placer or lode mining claim. The penalty for having
more than one five-acre claim, in the aggregate, is loss of any
additional claims, including those claims that were established
prior to the finalization of the proposed rule. Moreover, miners
were previously allowed to correct errors in a mining claim or
site location, even if the error was in excess of 10 percent. The
proposal allowed miners to correct a defect in a mining claim or
site location if it was oversized by 10 percent or less. If a
miner exceeds its measurements by more than 10 percent, the claim
or site is void as of the date that it was located.

The proposal also required a "metes and bounds" description for
lode claims. However, such a description had never been required
previously. Although the proposal stated that the description did
not require a professional surveyor or engineer, Advocacy argued
that a miner would be foolish not to employ such an individual
when faced with losing the entire claim for an inaccurate
description.

Advocacy asserted that since the changes would likely result in
harsh consequences resulting from minor errors and the
invalidation of claims established in accordance with BLM's
earlier longstanding practices, BLM failed to comply with the
requirements of the RFA. More specifically, BLM used the wrong
size standard. Instead of using the 500-employee standard that
applies to mining operations, BLM used a $5 million revenue
standard to determine which businesses were small. Moreover, the
certification only referred to the imposition of fees. It
completely ignored the issue of locating, recording, and
maintaining mining claims and sites, as well as the retroactive
application of the proposal.


Fish and Wildlife Service
The mission of DOI's Fish and Wildlife Service (FWS) is to
conserve, protect, and enhance fish and wildlife and their
habitats. To carry out its mission, FWS implements provisions of
the Endangered Species Act (ESA), which includes designation of
"critical habitat." Unlike declaring a species as endangered, in
designating critical habitat the agency is required to consider
the economic impact of that designation. If an area is designated
as critical habitat, activities sponsored by federal agencies may
not occur within the proposed critical habitat areas. By FWS' own
admission, the "critical habitat" designation affects small
entities that may have previously operated in the area through
contract, grant, permit, or other federal authorization.

Advocacy is concerned with the agency's failure to provide the
economic analysis at the time of the proposed rulemaking as
required by both the RFA and the ESA. Because of an impending
court deadline, Advocacy admittedly advised FWS that it could
postpone the preparation of an economic analysis on one occasion.
Unfortunately, FWS' failure to provide economic analyses appears
to have become habitual. Instead of providing the RFA analysis
while proposing a new regulation, FWS has simply stated that it
will address the RFA issue at a later date and place a
notification in the Federal Register concerning the availability
of any analysis. FWS does not provide any timeframe for
completion of the analysis or that it intends to comply with the
publication aspect of the rule. This methodology does not comply
with the spirit of RFA.


Department of Labor


The U.S. Department of Labor (DOL) has broad regulatory authority
over wages, labor standards, and occupational safety concerns,
including mine safety. The Pension and Welfare Benefits
Administration (PWBA), Mine Safety and Health Administration
(MSHA), and the Employment Standards Administration (ESA) are
just some of the agencies within DOL which have drafted or
promulgated rules in fiscal year 2000 with significant impacts on
small businesses.

One agency in particular has a tremendous impact on small
entities because of the scope of the regulations it promulgates.
It is because of this potential regulatory burden that Congress
mandated that the Occupational Safety and Health Administration
(OSHA) follow special requirements under SBREFA when it considers
regulations that will have a significant impact on small
entities. The 1996 SBREFA amendments to the RFA established a new
analytical process for both OSHA and the Environmental Protection
Agency (EPA). The small business advocacy review panel process
under SBREFA requires these two agencies to convene a special
panel whenever the agencies cannot certify under the RFA that a
regulatory proposal will not have a significant economic impact
on a substantial number of small entities. To date, OSHA has
convened three such panels.


Occupational Safety and Health Administration
During fiscal year 2000, Advocacy has continued to work with OSHA
on various rules. One of the more significant rules, in terms of
its potential impact upon small business, is the ergonomics
program standard. The SBREFA panel on this regulatory proposal
concluded in April 1999. After making some changes to the draft
proposal, OSHA published a notice of proposed rulemaking on
November 23, 1999. The comment period was extended a number of
times; however it finally closed in March 2000.

Despite complaints from small businesses that the changes made by
OSHA have not gone far enough to reduce the adverse impact of
this proposal, Advocacy's experience in working on this and other
panels has demonstrated that small business input early in the
regulatory process improves the rule. None of the OSHA rules
subjected to a SBREFA panel have been finalized. However, the
SBREFA panel process itself (and the panel reports which were
developed as a result of that process) have only added to the
knowledge of the agency and its understanding of the realistic
impact these rules may have on small entities. The time spent on
these panels-and the subsequent work with OSHA and OMB-has been
and continues to be productive for both agencies and small
businesses.

Issue: Ergonomics Standard. The purpose of the ergonomics
standard is to reduce the number of repetitive stress disorders
and other musculoskeletal injuries employees receive as a result
of their regular work activity. The proposal covered every
industry and business in the United States except those in
construction, maritime, and agriculture. Twenty small entity
representatives were chosen to advise the panel and provide input
on the draft standard. The group included 13 owners or operators
recommended by Advocacy to represent the interests of the many
small businesses concerned about the potential impact of this
rule.

Small businesses continue to have grave concerns regarding the
proposed ergonomics standard published on November 23, 1999,
especially with respect to the cost estimates. Most small
businesses and their representatives previously indicated their
disbelief in OSHA's estimation of the time and money the draft
proposal would require for businesses to comply. OSHA did revise
its initial cost estimates and provided some small business
relief in the proposal. Written comments on the proposal provided
OSHA with additional evidence that its cost estimates
inaccurately reflected the impact on small businesses. Through
panel suggestions and recommendations from Advocacy, OSHA
provided the public with its cost and benefit assumptions in its
proposed rule. This helped small businesses analyze the impact of
the rule and assess the accuracy of OSHA's assumptions and
conclusions.

Advocacy continued to work with interested businesses, trade
associations, OSHA, and OMB to ensure that these and many other
concerns of small business were heard and taken under
consideration in preparation for the final rule. It is Advocacy's
goal to assist the agency in accomplishing its public policy
objective of a safe workplace, while avoiding an undue regulatory
burden on small business. With this in mind, Advocacy will
continue to follow the progress of OSHA's ergonomics standard and
actively participate in its analysis and development on behalf of
the millions of small businesses it will impact.(9b)


Department of Transportation
The U.S. Department of Transportation (DOT) is the primary agency
in the federal government with the responsibility for shaping and
administering policies and programs to protect and enhance the
safety, adequacy, and efficiency of the national transportation
system and services. With public safety as an overall mission of
many agencies within DOT, there is always a delicate balance in
accomplishing the agency's important safety objectives without
unduly burdening this nation's small businesses. DOT has made
progress during the past year in recognizing the importance of
considering small business effects when drafting regulations.
However, more work needs to be done to ensure that these concerns
are being addressed uniformly throughout the department.

During fiscal year 2000, DOT issued numerous regulations
affecting small businesses, and the Office of Advocacy is happy
to report that it maintained a more productive relationship with
various DOT agencies regarding pre-proposal analysis of
regulations. Slowly, some of the agencies are beginning to call
Advocacy prior to submitting rules to OMB to inquire about the
accuracy of their regulatory flexibility analysis and
assumptions. Other agencies within DOT react positively to
criticisms and suggestions on how their proposals can be amended
to comply with the RFA.

Some of the more significant DOT rules reviewed by Advocacy this
past fiscal year have been from the following agencies: the
Federal Aviation Administration (FAA), the Federal Highway
Administration (FHWA), the Federal Motor Carrier Safety
Administration (FMCSA), the Federal Railroad Administration
(FRA), the National Highway Traffic Safety Administration
(NHTSA), the Research and Special Programs Administration (RSPA),
and the U.S. Coast Guard.


Federal Aviation Administration
The FAA is responsible for air safety in the United States and
promulgates many regulations to ensure the safety of the nation's
skies. For the most part, the regulations attempt to address
safety concerns that occur in some of the larger airlines.
Admittedly, the FAA also directly regulates small business
operations, i.e., air tour safety standards. However, the vast
majority of regulations promulgated during the past year have
been tailored for problems experienced by larger airline
companies. As a consequence, Advocacy has heard from those small
businesses that feel they are unduly burdened by "big airline"
regulations, i.e., the "one-size-fits-all" syndrome. Advocacy
continues to work with these businesses and the FAA to buttress
the agency's compliance with the RFA. The FAA has made great
strides in its analysis of the small business impacts of some of
their rules this past year. However, more work needs to be done.
Advocacy will continue its positive working relationship with the
FAA as the agencies both strive to minimize the adverse impact of
such regulations on those small businesses in the industry.

Issue: Emergency Medical Equipment. On May 24, 2000, the FAA
published a proposed rule regulating the use of emergency medical
equipment onboard aircraft. The proposal required operators to
obtain and train their employees on the use of defibrillators in
case of a medical emergency necessitating their use. Advocacy
recognized the extremely important passenger safety goal that the
FAA was addressing through this proposed rule in response to a
congressional mandate. However, in an effort to ensure that the
rule was in compliance with the RFA, an adequate analysis of the
rule's impact on small business was required.

Within the proposal, the FAA certified that the rule would not
have a significant economic impact on a substantial number of
small entities and completed an economic analysis to support its
conclusion. On September 21, 2000, Advocacy filed comments on the
proposed rulemaking, asking the FAA to review its certification
statement under the RFA and to make additional information
available to the public. Specifically, Advocacy questioned FAA's
estimation of the number of small operators that would be
affected by this rule. Without a listing of the data sources in
the proposal, it was difficult to confirm FAA's estimate. More
important, the FAA's certification of no significant small
business impact appeared to be based upon data from the large
operators. Advocacy urged the FAA to comply with the RFA by
providing the information necessary for the public to assess the
accuracy of its projected impact on small operators. The Office
of Advocacy will work closely with the FAA to assist them in the
next stages of this rule's development.

Issue: Grand Canyon National Park. The FAA has proposed a rule
that assigns special flight rules and limits the number of
flights for small air tour operations over the Grand Canyon
National Park. Advocacy has been closely involved with this
rulemaking throughout its progress over the last five years. On
July 9, 1999, FAA published a notice of proposed rulemaking on
this issue. In December 1999, Advocacy worked closely with the
Office of Information and Regulatory Affairs (OIRA) at OMB.
Advocacy took part in meetings on this proposed rule and
discussed the various concerns voiced by small business. Advocacy
has encouraged FAA to review its economic impact analysis,
specifically the choice of the base year used to estimate the
impact. Advocacy also urged the FAA to comply with the RFA by
identifying and analyzing any reasonable alternatives to the
proposal that would minimize any significant economic impact on
small entities. Advocacy will continue to be concerned about
regulations that, among other things, limit small business entry
into the marketplace.


Federal Motor Carrier Safety Administration
The FMCSA was established within DOT on January 1, 2000, pursuant
to the Motor Carrier Safety Improvement Act of 1999. Formerly
part of FHWA, the FMCSA's primary mission is to prevent
commercial motor vehicle-related fatalities and injuries.

Issue: Hours of Service of Drivers. On May 2, 2000, FMCSA
published a proposed rulemaking revising its hours of service
regulations for drivers of motor carriers. FMCSA issued this
proposal in order to require motor carriers to provide drivers
with better opportunities to sleep, and thereby reduce the risk
of drivers operating commercial motor vehicles while drowsy,
tired, or fatigued, with the objective of reducing collisions. In
addition to a change in the actual number of hours drivers are
allowed to operate their motor carrier, the proposed rule
mandates the purchase and use of costly electronic on-board
recording devices.

Prior to publication of the proposal, the Office of Advocacy held
meetings and discussions with FMCSA in order to bring them into
compliance with the RFA. Advocacy worked closely with the agency
to ensure that the proposal published on May 2, 2000, would be
informative and useful for small businesses in their analysis of
the impact of the rule.

Since the rule was proposed by FMCSA, Advocacy has responded to
numerous requests for participation in meetings, roundtables and
discussions regarding this rule. Small motor carrier operators
have indicated that the rule would have a devastating impact on
them. Industry has stated that the rule would necessitate more
than 40,000 new truck drivers on the road. Small business
complaints focus on the sleeper berth requirements,
communications during rest periods, end of workweek rest periods,
hours of work permitted each day, and the mandatory purchase and
use of an electronic on-board recording device.

Advocacy attended numerous meetings on the proposal at OMB and
also with industry. A congressional hearing was held to discuss
the severity of the impact of the proposal on the industry as a
whole. Small business concerns under the RFA also were discussed
at this hearing. After a number of comment deadline extensions,
FMCSA set the deadline for comments for December 15, 2000.
Advocacy will continue to work with both the agency and OMB on
this important rule and will attempt to ensure FMCSA's compliance
with the RFA.


Department of the Treasury
The mission of the U.S. Department of the Treasury (Treasury) is
to promote prosperous and stable American and world economies and
manage the federal government's finances while safeguarding its
financial systems. Accordingly, Treasury performs four basic
functions: (1) formulating and recommending economic, financial,
tax, and fiscal policies; (2) serving as financial agency for the
United States Government; (3) enforcing law related to these
areas; and (4) manufacturing coins and currency. Of these
responsibilities, formulating and recommending tax policy and
enforcing tax law have the most dramatic impact on every
business, large or small. In addition to the Internal Revenue
Service (IRS), other divisions, such as the Bureau of Alcohol,
Tobacco, and Firearms (ATF) and the Office of Thrift Supervision
(OTS) also have an impact on the operation of some small
businesses.


Bureau of Alcohol, Tobacco and Firearms
ATF is a law enforcement organization within Treasury with
responsibilities dedicated to reducing violent crime, collecting
revenue, and protecting the public. ATF enforces federal laws and
regulations relating to alcohol, tobacco, firearms, explosives
and arson. During fiscal year 2000 Advocacy has reviewed a number
of regulations promulgated by ATF. Some of the significant rules
are discussed below.

Issue: Aggregated Packing. February 9, 1999, ATF filed a proposed
rule seeking to regulate alcohol that is packaged together but
can be broken out individually from packaging. For example, a
package of 16 one-ounce test tubes containing alcohol product may
be wrapped together and sold as a pint. This kind of packaging
previously had the approval of the ATF. However, Advocacy
believed that the proposed rulemaking would force some small
companies to go out of business. ATF, in its certification on the
rule, said the following:

  This proposal strengthens existing regulations that
  prohibit the use of unauthorized container sizes and that
  protect consumers from being misled about the identity,
  quality or quantity of the product. ATF believes that
  because this proposal addresses only deceptive or confusing
  packaging, and not the products themselves, it will not
  burden sales or otherwise impose costs on distributions or
  retailers of alcoholic beverage products, Accordingly, ATF
  certifies this proposed rule will not have a significant
  impact on a substantial number of small entities.
  Therefore, ATF is not required to conduct an initial
  regulatory flexibility analysis.(10b)
Advocacy heard from business owners and their representatives
about the potential damage that the rule could cause for small
businesses. The businesses argued that a significant number of
packagers (and the brokers, dealers and suppliers who do business
with these packagers) would suffer a substantial impact as a
direct result of this proposed regulation. Some of the packagers
have received prior approval from the ATF to market and sell its
products using distinctive packaging that might now be
prohibited. They relied on this approval as assurance that they
were in compliance with the law and existing regulations. The
businesses made significant business investments. The businesses
read the proposed regulations and concluded that compliance would
require a fundamental and expensive change in their businesses.

Advocacy filed comments on November 16, 1999, and indicated to
the ATF that the rule had the potential to have a significant
impact on a number of small businesses, and that it required a
thorough analysis. It was Advocacy's position that the rule did
more than simply strengthen the existing regulations; it
prohibited several forms of packaging that ATF had previously
approved. Advocacy has yet to hear from the ATF about its
position on this matter. Advocacy will continue to monitor all
further developments.


Internal Revenue Service
Under the APA, interpretative rules are exempt from "notice and
comment rulemaking." The RFA requires analysis of a proposed
regulation only where notice and comment rulemaking is required.
For years, the IRS escaped the requirements of the RFA because it
categorized most of its rules as "interpretative"-meaning the
rules simply carry out the intent of Congress and do not impose
any additional requirements. In 1996, SBREFA amended the RFA to
require that interpretative rules, including internal revenue
laws, that impose a collection of information requirement on
small entities would be subject to the RFA.

Since passage of SBREFA, the IRS has worked with Advocacy to
learn more about complying with the RFA. The IRS is publishing
more certifications and has done IRFAs with more frequency. In
fiscal year 2000, the IRS was responsive to Advocacy's requests
for meetings with concerned small business groups to discuss high-
visibility and/or controversial rules. Additionally, the IRS
requested suggestions from small businesses about which problems
were the most onerous, and input on the best approach to solve
such problems before the publication of regulations, technical
advice memoranda, or guidance advisories.

The IRS is providing more information in support of its
certifications that a rule will have "no significant impact on a
substantial number of small entities." Advocacy believes,
however, that the IRS could provide even more factual
justification for some rules. For example, it would be helpful to
know the number of businesses that will be affected and the costs
of recordkeeping, beyond just the length of time it takes to fill
out a form.

Advocacy is encouraged by the increasing awareness of RFA
responsibilities by Treasury and the IRS. In some cases, the
effort they have made to justify regulatory action, while
avoiding RFA compliance, has previously resulted in creating a
miniature panel-like process similar to the one that SBREFA
amendments to the RFA requires of OSHA and EPA. In those
instances, Advocacy cannot help but believe the effort has led to
better rulemaking. Treasury has opposed congressional proposals
to extend the SBREFA panel review process to IRS regulations. Yet
the outreach by Treasury and the IRS to small businesses has been
commendable. They have done an excellent job of listening to
small business concerns and acting on them. This is particularly
true for the Treasury's Office of Tax Policy, Employee Benefits
Division, that regulates pension plans. In a number of cases,
they have consulted with Advocacy and other small business groups
in an effort to anticipate problems in the pre-proposal stage and
incorporate what they learn into their rulemaking.

Issue: Most IRS Regulations Are Not Analyzed. It should be noted
that the vast majority of the IRS regulations published in fiscal
year 2000 were not subject to the RFA, even though SBREFA
extended application of the RFA to "interpretative rules" that
impose a collection of information requirement. The following are
examples of the types of IRS regulations that do not require
analysis:

The RFA applies only to "legislative" regulations. The IRS has
 always maintained that virtually all its regulations are
 interpretative and therefore exempt from the RFA. Such
 regulations simply clarify definitions or provide examples of
 application of requirements that were set by Congress, the IRS
 maintains.
 
Most IRS regulations have an impact on groups other than small
 businesses, such as individuals or large businesses; these are
 not covered by the RFA.
 
Any interpretative regulation that was proposed prior to March
 29, 1996, is not subject to the RFA even as amended by SBREFA.
 
Since IRS regulations that impose recordkeeping requirements have
been subject to the RFA only since 1996, IRS maintains it is not
required to form a plan under RFA section 610 to review
regulations they were not required to analyze in the first place.
Advocacy believes that it would be useful to coordinate the
feedback IRS is getting from the small business community on
overly burdensome or confusing rules with a routine review
process. The "Complexity Conference," held in conjunction with
the OIRA during the summer of 2000 is an excellent start in that
direction.

Issue: Rulemakings that would Benefit from Analyses. In some
instances, the IRS has made the conscious decision not to perform
an IRFA. In certain kinds of situations, Advocacy has argued that
an IRFA drafted by the IRS and shared with the persons to be
regulated would create better understanding and better policy.
For example:

Even when a rule imposes a collection  of information
 requirement, IRS has taken the view that only the portion of
 the regulation that contains such a requirement needs to be
 analyzed for its impact on small business. Advocacy believes
 that once the IRS has undertaken a review of the regulation, it
 should analyze how the entire regulation will affect small
 business. The regulator needs to know the whole impact on the
 regulated entity to properly assess any additional difficulty
 that the collection of information adds to the entity's ability
 to comply with the rule.
 
The IRS has often taken the view that unless a form is required
 (literally, a paper document that a taxpayer must complete)
 there is no recordkeeping requirement imposed by the rule. In
 cases where a proposed regulation would add a line or a section
 to an existing form, the change is generally deemed to be
 insignificant by the IRS, and therefore not a new "collection
 of information" requirement for RFA purposes. Advocacy believes
 that much more information gathering and effort goes into the
 form completion process than this policy acknowledges.
 Additions to the form add cumulatively to the burden and
 Advocacy believes it is fair for the entire burden to be
 reviewed and presented by the IRS. If the regulatory process
 works properly, then this new step would not create additional
 work. The regulator is charged with reviewing the entire burden
 in any event to make an informed decision as to whether the
 collection of information is significant.
 
The IRS occasionally alleges that a proposed regulation in an
 entirely new area will have a significant impact on a
 substantial number of small businesses, but that its
 requirements simply and specifically "flow from mandates set by
 Congress." Advocacy understands that directives from Congress
 may preclude any alternatives. However, in Advocacy's opinion
 an analysis needs to be done where there is a significant
 impact on a substantial number of small businesses. The
 analysis serves to alert the small businesses of the substance
 of the regulation so that they can prepare for compliance.
 Small entities might also be able to suggest useful
 alternatives for compliance. The analysis may serve to inform
 the legislative and administrative policymakers of the true
 burden that their decisions impose on small businesses.
 
Issue: IRS Restructuring and Reform Act. Since the plans for the
restructuring of the IRS were announced, and with the passage of
the IRS Restructuring and Reform Act of 1998, the IRS has
undertaken a massive project to reshape the agency. One of these
units is the Small Business and Self-Employed Operating (SB/SE)
Division, which will serve the millions of taxpayers that are
small businesses. The IRS recognizes that these taxpayers often
face complicated tax issues, but may lack the financial resources
to understand and address the issues. One of the primary focuses
of the SB/SE Division will be to educate small businesses about
their federal tax responsibilities and to work with them to
develop less burdensome and more practical means of compliance.
The new SB/SE division is in place and commencing operations.

The IRS restructuring process involved many administrative
changes that have an impact on small businesses. Advocacy and
countless other small business stakeholders have been involved in
a continuing process of briefings and comments on the proposed
structure and guidelines. The IRS sought Advocacy's opinions, and
the opinions of small businesses recruited by Advocacy, to help
IRS analyze its future plans. Although the effort expended by the
IRS is not exactly a regulatory activity per se, the
restructuring involves changes in the culture of the IRS that
will make it more sensitive to the needs of small business. The
IRS Restructuring and Reform Act of 1998 itself sets out small
business requirements. For example:

The act suggests that the IRS create a customer-friendly
 attitude and a division for small business. Advocacy has long
 advocated and supported this proposition. IRS has taken steps
 to implement this goal.
 
The act creates an oversight board for the IRS that includes
 someone experienced in running a small business. The board has
 now been formed.
 
In consultation with Advocacy, the small business division
 established a size standard that was suitable for determining
 which businesses will receive the specialized     attention of
 the small business division.
 
The IRS consulted with Advocacy on the manner of referrals
 between taxpayer education divisions and compliance divisions
 as well as other outreach elements (such as the Taxpayer
 Advocate).
 
Issue: IRS Outreach Programs. As part of its restructuring, the
IRS has embarked on an ambitious program of outreach. The program
is designed to unearth and report on regulatory problems. Other
efforts are primarily focused on educating small businesses about
their rights and the current legal and regulatory requirements
for their businesses. The following describes some of the more
pertinent outreach efforts made by the IRS during 2000.

Small Business CD-ROM. The IRS is exploring new ways to
 communicate with small businesses, including the use of CD-ROM
 and the Internet. The IRS and the Small Business Administration
 jointly prepared a CD-ROM entitled Small Business Resource
 Guide: What You Need To Know about Taxes and Other Topics. This
 research tool is organized by the stages of a business's life
 cycle and includes small business tax forms, publications and
 explanations about what the law and regulations require from
 small businesses.
 
IRS Web Page and Regulatory Information. The IRS Web Page
 contains a number of searchable regulation sections as well as
 a section with a "plain English" description of all regulations
 proposed and issued since 1995. Additionally, the IRS now
 includes a section entitled, "The Small Business Corner." It
 provides small business taxpayers with the information
 necessary to comply with their federal tax responsibilities.
 Finally, the IRS Bulletin publishes rules and regulations of
 interest to small businesses and the latest action taken on
 regulatory efforts.
 
OIRA and IRS Conference on Regulatory Complexity and
 Simplification. During the spring and summer of 2000, the IRS
 and OIRA hosted a series of meetings with small businesses and
 other interested groups in an effort to create an agenda of
 regulatory issues that need to be addressed by the federal
 government. Attending the conference were hundreds of small
 business owners from across the country that helped set an
 agenda for future federal action.
 
Tax Form Forums. The IRS has held two tax form forums to
 actively solicit broad-based feedback about form complexity and
 ideas to relieve the burdens associated with the forms. The IRS
 held a series of professional and business roundtables that
 reviewed in detail tax form problem issues.
 
IRS-Small Business Development Center Memorandum. In an effort
 to provide education and materials to small businesses outside
 the sometimes threatening office of the IRS, the Commissioner
 of the IRS signed an agreement that provides training
 assistance information materials for distribution by SBDCs and
 small business investment companies (SBICs). Advocacy joined
 this effort by training SBDC operators on how to pass along
 regulatory or policy complaints to Advocacy and/or the
 Regulatory Fairness Ombudsman for action.
 
Issue: Simplified Tax and Wage Reporting System. During fiscal
year 2000, Advocacy continued to work with the IRS to establish
one simple form that would satisfy the wage and tax reporting
obligations of the very smallest businesses under both federal
and state tax law. The overall program is called State Tax and
Wage Reporting System, or STAWRS. Advocacy feels that the most
important part of the system aims at burden reduction for small
businesses. Each project could significantly reduce the paperwork
burden and compliance costs for business owners through the
following mechanisms:

Single-Point Filing: The single form would have the effect of
 "tiering" reporting requirements and would make tax reporting
 dramatically easier for the smallest businesses. Advocacy's
 research has revealed that tax and wage reporting is a costly
 burden for small businesses.(11b) The solution would be to
 create a simple, multi-purpose form that eliminates duplicative
 information requested by federal, state, and local agencies
 regarding tax and wage reporting. Advocacy supported special
 legislation and a pilot program to help demonstrate the
 usefulness of "single-point filng." Started in Montana during
 fiscal year 1999, the program has successfully provided one
 form of treatment for participating small businesses. The
 template used in Montana was duplicated and computerized to
 establish the electronic "single-point filing" project
 conducted in Iowa that in turn has led to breakthroughs in
 electronic filing.
 
Commercial Off-the-Shelf Single Point Electronic Filing: This
 year the STAWRS program has moved forward to establish the
 rules and framework for the electronic filing of multiple-
 employer-related documents. The concept of the plan is to use
 one "template" document that would provide any requisite
 information to each state, federal, and local agency. Advocacy
 has worked with the executive board to decide the standards to
 be used for the project and to make sure that the small
 business point of view is not lost. The pilot project in Iowa
 went well and the IRS is now moving forward to establish
 networks of state government partners and commercial computer
 service providers to bring the program online nationally.
 
Issue: Employee Benefits Working Group and Pension Plans. The
Employee Benefits Working Group at Treasury has made a special
effort to respond to the small business community. During the
last year, Advocacy worked with this group in an effort to
resolve two major areas: more flexibility for small business
401(k) plans and comparability testing for defined contribution
plans and benefits.

401(k) Flexibility. Advocacy established a regular working
 group with Treasury and  IRS officials to bring to their
 attention minor problems that Advocacy believed could be solved
 by regulatory action rather than legislation. During these
 meetings, held during fiscal years 1999 and 2000, Advocacy
 presented a list of problematic items and involved small
 business experts in pension issues. Treasury, through its
 Office of Tax Policy, Employee Benefits Division, joined the
 meetings and used the sessions to determine issues ripe for
 action. For example, Advocacy and these groups reviewed the
 401(k) safe-harbor plans.  These are simplified pension plans
 established by Congress to give small businesses the
 opportunity to establish meaningful pensions for their
 employees within reasonable limits and without cumbersome
 formulas and complicated antidiscrimination tests. One problem
 faced by small businesses was that they had to commit to a
 participation level early in the tax year to be eligible for
 the plan. For many small businesses this is a serious problem,
 since they sometimes do not know if they will turn a profit
 until the last quarter of their tax year. As a result, small
 businesses might be afraid to take on the extra financial
 obligation at the beginning of the year. The Office of Tax
 Policy worked with the IRS to establish a procedure to allow
 small businesses to wait until November of the tax year to
 announce contribution levels.
 
New comparability testing. Comparability testing allows the age
 and service of employees to be considered in a formula that
 sets benefit levels. Because abuses had been reported, the IRS
 and Treasury intended to strengthen regulations to prevent
 abuse. As they began to consider drafting such regulations,
 questions arose concerning how far the regulations should go
 and the scope of the problem. Treasury and the IRS contacted
 Advocacy and asked that it alert small business pension experts
 that Treasury was preparing a rule in the area of comparability
 testing. A meeting was held to elicit the views of these
 experts on the effects of such a rule. All this was done before
 any proposal was made. Throughout fiscal year 2000, the working
 group met with Treasury to provide additional background and
 information about what standards should be set for the
 controversial plan on comparability testing.
 
 Treasury issued a notice announcing that it would propose a
 comparability rule andit requested general pre-rule comments
 from the public. Treasury also followed the advice of the
 working group and stated that any rule promulgated would not
 take effect before 2002. This delay served to reassure the
 pension and small business community and gave them sufficient
 time to adjust their markets to the anticipated regulation. The
 proposed regulation, incorporating the changes recommended by
 the working group, was published October 6, 2000.
 
Issue: Cash versus Accrual Accounting and Business Inventory.
These two important small business issues collided with each
other this past year. Advocacy worked throughout 1999 and into
2000 to encourage the IRS to liberalize the rules that would
allow small businesses to use cash accounts for tax purposes. It
appeared that IRS field officers were imposing accrual accounting
requirements on far more small businesses than was required by
law. The law requires large businesses to use accrual accounting
(the recognition of income and expenses when the obligation for
them occurs), rather than cash accounting (the reporting of
income or expense when the cash is actually received or
distributed). However, where a business has an inventory, the law
requires accrual accounting. Advocacy felt that very small
businesses (even ones with some inventory) should be able to use
cash accounting if they so choose because it reflects their true
income. Advocacy opined that the extra burden of accrual
accounting is not warranted in such a circumstance.

Advocacy and other trade associations formed a working group with
the IRS on the issue. They reviewed, with IRS key officers,
existing IRS policy and its impact on small business. The IRS
agreed to review the policy and issue guidance that would make it
clear that raw materials that were not a substantial part of the
business of the taxpayer would not qualify as inventory.
Therefore, the IRS would not impose accrual accounting in those
instances.

Issue: Cash versus Accrual Accounting and Installment Sales
Accounting. On December 17, 1999, a new law was enacted that
prohibited the use of the installment method of reporting income
from the sale of assets (spreading the attributable income over a
period of years) in cases when a business must use the accrual
method of accounting. This meant that when a small business that
uses accrual accounting is sold and the owner takes back a note,
the gain from the sale must all be reported in the year of the
sale, even though proceeds from the sale might not yet have been
received by the owner. For many small businesses, the business
itself is the only retirement savings account the owner has.
Clearly, the sale of all the assets is much different than a sale
of some assets. If the owner cannot take back paper, the price of
the business is reduced in value.

Working with the IRS and a number of other small business groups,
the IRS and Treasury were willing to issue guidance that created
a $1 million gross receipt threshold. Businesses below that level
could simply choose cash or accrual accounting. Above that level,
the IRS and Treasury felt that only Congress could change the
standard. Advocacy disagrees with the position espoused by the
IRS and Treasury, but supports legislation on the issue in
Congress.


The Office of Thrift Supervision
The Office of Thrift Supervision (OTS) was established as a
bureau within Treasury in 1989. As the primary regulator of all
federal and many state-chartered thrift institutions, OTS'
mission is to supervise thrift institutions to maintain their
safety and soundness in a manner that encourages a competitive
industry that meets the nation's housing, community credit and
financial service needs.

During fiscal year 2000, OTS engaged in several important
rulemakings in response to the passage of the Financial Services
Modernization Act of 1999 (the Gramm-Leach-Bliley Act). OTS
requested Advocacy's assistance on some of these proposed
regulations, which, pursuant to the Gramm-Leach-Bliley Act,
required "fast-track" implementation within six months. OTS
performed IRFAs on the rulemakings that were reviewed and
commented on by Advocacy.

Issue: Insurance Customer Protection. The Gramm-Leach-Bliley Act
regulations reviewed by Advocacy included a rule addressing
insurance customer protection. This proposed rule applies to
savings associations and any other person who, at, or on behalf
of a savings association sells, solicits, advertises, or offers
insurance products or annuities to consumers. The rule proposes
new disclosure and consumer acknowledgement requirements. It
prohibits coercion, lying, misrepresentations, and domestic
violence discrimination. The rule requires separation of deposit
activities from insurance and annuity activities, limits referral
fees, and requires that insurance and annuity sales personnel be
appropriately qualified and licensed. In order to lessen the
compliance burdens on small entities, the OTS proposal narrowed
the types of entities regulated and the definition of the
activities covered by the rule.

Advocacy also reviewed a set of privacy regulations for financial
institutions that the OTS implemented in conjunction with several
other financial agencies such as the Office of the Comptroller of
the Currency (OCC), the Federal Reserve System (FRS), and the
Federal Deposit Insurance Corporation (FDIC). The proposed
standards are intended to ensure the security and confidentiality
of customer records and information; protect against any
anticipated threats or hazards to the security or integrity of
such records; and protect against unauthorized access to or use
of such records and information that could result in substantial
harm or inconvenience to any customer. In its IRFA, the OTS
considered several alternatives to the extent that they were
consistent with the congressional mandates of the Gramm-Leach-
Bliley Act.

During the year, Advocacy also provided guidance on IRFAs
prepared by OTS for its proposed amendments to regulations
concerning mutual to stock conversions; and OTS' regulatory
proposal to require certain holding companies to notify it before
engaging in certain activities and transactions.


Environmental Protection Agency


The U.S. Environmental Protection Agency (EPA) has taken its
responsibilities under the RFA seriously since the law's
enactment in 1980. EPA's successes in this regard are not
surprising, however, since several principles underlying the RFA
were developed from an examination of EPA's regulatory work.
Further, some provisions of SBREFA were also modeled after EPA
programs. Although there remains a wide variance in RFA
compliance in individual EPA rulemakings, the agency has
historically received high marks from Advocacy for its overall
efforts.

During fiscal year 2000, Advocacy continued to be heavily
involved in pre-proposal activity with EPA. This activity has
increased since the passage of SBREFA in 1996, which required EPA
and OSHA to acquire very extensive pre-proposal input from
affected small entities and engage in the panel process discussed
in the OSHA section of this report. Listed below are five
particularly significant rulemakings where Advocacy played an
important role. Four of the rulemakings involved a SBREFA panel.
Of the four rules that required a panel proceeding, only one rule
has been promulgated to date-the transportation equipment
cleaning water pollution rule.

Issue: Secondary Aluminum Industry Obtains Regulatory Relief.
Aluminum die casters and aluminum foundries will save an
estimated $20 million annually, thanks to the efforts of Advocacy
that helped to alleviate the effects of regulations promulgated
by EPA. Advocacy worked closely with two industry trade
associations, the American Foundry Society and the North American
Die Casters Association. Advocacy objected to the inclusion of
the two industries in a draft final rule issued by the EPA, which
was published in the Federal Register on February 11, 1999. The
rule was issued to reduce hazardous air pollutants from a much
larger industry grouping, secondary aluminum production plants.

Secondary aluminum production plants recover smelt aluminum from
new and used scrap, such as beverage cans, foundry returns, and
other aluminum scrap. The rule was issued pursuant to the Clean
Air Act of 1990, which required the EPA to list and promulgate
standards for seven specific air pollutants, including dioxin and
furans. Secondary aluminum production plants were previously
identified by the EPA as an industry group known to be a "source
category" of dioxin and furans. According to EPA, there are more
than 400 traditional secondary aluminum production plants in the
United States, of which some 86 facilities are believed to be
major sources of air toxics per the EPA. In addition, the EPA
estimates that there are some 1,650 aluminum extruding, die
casting, and foundry facilities that are "potential" sources of
dioxin and furans in the United States.

Considering the potentially large costs that the two industries
would have to bear should the proposed rule be implemented,
Advocacy argued that the EPA lacked sufficient evidence of dioxin
and furan emissions to include the aluminum die casting and
foundry industries in the proposed rule. After reviewing
Advocacy's comments on the rule, the EPA determined that it would
gather further information concerning these two industries in an
effort to reevaluate the air toxics requirements and associated
economic impacts on the two industries.

Advocacy has learned that within two years, the EPA expects to
adopt an alternative standard applicable to these industries, and
to take final action to remove both industries from the current
standard that was finalized on December 15, 1999.

Issue: Flexible EPA Regulation Will Save Truck Cleaning Industry
Millions. After substantial input from Advocacy and the
transportation equipment cleaning industry, the EPA has
promulgated a water pollution rule that will save hundreds of
facilities millions of dollars in annual costs. The final rule
offers facilities that generate wastewater in cleaning trucks and
containers two options in meeting pollution standards: numerical
limits or pollution prevention. The National Tank Truck Carriers
(NTTC), an industry trade group, expects that most of its members
will employ the pollution prevention methods at substantial
savings over the traditional approach. The input of Advocacy and
of the industry in crafting the final rule represents another
success for SBREFA.

Industry specialists estimated that the initial capital costs of
the original proposed rule would exceed $80 million and that the
rule would trigger approximately $13 million in additional annual
operating costs for the tank truck cleaning industry.

In 1997, EPA, OMB, and Advocacy convened a panel to review the
proposed rule to regulate the wastewater generated by facilities
that clean tank trucks and containers transporting products. The
tank truck cleaning industry was predominately affected.

Advocacy worked with industry representatives to recommend ways
to reduce the costs of the rule without damaging the environment.
These original recommendations included exempting subcategories
of facilities that caused minimal pollution to the water and
totally exempting drums used for transporting products. Advocacy
pointed out that EPA overestimated the amount of pollution caused
by the facilities, because the estimates were based on pollutants
caused by pesticides that had long since been banned in the
United States. Therefore, in the panel report, Advocacy asked the
agency to re-evaluate how much the draft regulation would reduce
water pollution.

In July 1998, the EPA published a proposed rulemaking requiring
facilities to use expensive technology to treat the interior
wastewater generated in the cleaning of tank trucks transporting
petroleum products, food grade products, and chemicals.

The proposed regulation affected primarily "indirect
dischargers," those facilities generating wastewater sent out to
be treated by publicly owned treatment works before being
released into U.S. waters. Accepting the panel report's earlier
recommendation, the proposed regulation did exempt all drums.
However, both Advocacy and the NTTC believed that because the
proposed rule was based on incorrect pollution estimates, the
regulation for the tank truck subcategory was overly stringent.

The final rule was published in July 2000. Based on substantial
industry and Advocacy input, the EPA revised its benefit
estimates, dropping those based on removing pesticides that had
already been banned. After the revisions, the EPA found the
regulation of the truck-chemical subcategory to be one of the
least cost-effective effluent guidelines in recent history. Based
on advice from Advocacy and the NTTC, the agency decided to offer
two options: numerical pollution limits or a possibly less costly
pollution prevention approach. Advocacy, with industry input,
helped develop a methodology for analyses by EPA that is widely
recognized as a model for evaluating future effluent guidelines.

Issue: The Metals Products and Machinery SBREFA Panel. In March
2000, EPA completed a panel regulating the discharge of water
pollutants from the facilities that manufacture metal products
and machinery. This is a very important rulemaking, which is
expected to cost approximately $1 billion annually. Since EPA
estimates that the rule would affect about 10.000 facilities, at
significant cost, this was a very important SBREFA panel. EPA
staff spent substantial time planning and gathering data for the
panel before it was convened, including consultation with
representatives from the affected small entities many months
before the start of the panel process. This methodology
demonstrated the proposition that early planning and fully
informed data and analysis are the crucial ingredients for a
successful panel.

The panel was given detailed data about the various industrial
subcategories that could be subject to regulation. This permitted
the panel to formulate specific recommendations to either
eliminate industrial categories from the national regulations
(local regulations would still be applicable), or reduce the
stringency of some of the remaining regulated categories. The
federal panel members were generally unanimous on all issues,
which is another sign of a successful panel process. The proposed
rule is scheduled for publication in December 2000. Industry
representatives are expected to work closely with EPA staff
analyzing the data during the four-month comment period. Advocacy
estimates that implementation of the panel recommendations in a
final rule would save hundreds of millions of dollars annually.

Issue: Concentrated Animal Feedlots SBREFA Panel. In a panel
completed in April 2000, Advocacy considered a rule which expands
and revises Clean Water Act regulations that define which
operations are concentrated animal feeding operations (CAFOs) and
establish permit requirements and technology-based water
pollution standards for CAFOs. These are operations that confine
and feed beef cows, dairy cows, pigs, turkeys or chickens over
certain periods of time. EPA is concerned that CAFOs might
discharge pollutants into U.S. waters.

During the panel, Advocacy worked closely with an unusually large
number of small business representatives, representing a wide
range of operations, perspectives, and interests, in an effort to
help evaluate regulatory options under consideration by the EPA.
The goal was to update and improve existing CAFO rules. Advocacy
was successful in persuading the EPA to consider a number of ways
to restructure the options to help increase flexibility for
smaller operations without compromising the Clean Water Act's
objectives. Based on available data, Advocacy estimates that just
one of these "flexibilities" will help to save $2-$15 million per
year. Advocacy also persuaded EPA to collect additional data and
perform additional analysis to help inform discussions of rule
changes under consideration as the rulemaking process continues.
The proposal is scheduled for December 2000.

Issue: Reinforced Plastic Composites Industry SBREFA Panel. In
June 2000, EPA completed a panel involving an air pollution
standard for the reinforced plastic composites industry. The
reinforced plastic composites manufacturing industry would save
an estimated $68 million annually as the result of the efforts by
the EPA and Advocacy and would serve to reduce the impacts of
draft Clean Air Act regulation of hazardous air pollutants (HAPs)
under development by EPA. The regulations will result in national
emission standards for HAPs for the industry that are to be based
on the application of air pollution reduction measures known as
maximum achievable control technology (MACT). The reinforced
plastic composites manufacturing industry manufactures a wide
range of products containing reinforced plastic composite
materials, including shower enclosures, hot tub spa shells,
pickup truck caps, recreational vehicle body panels, helmets, and
storage tanks. There are several hundred identified facilities in
this source category that are believed to be major sources
subject to the regulation and are small businesses.

EPA considered MACT standards for existing facilities in the
reinforced plastic composites industry that would include
pollution prevention measures to reduce emissions of HAPs. For
larger new and existing facilities, the MACT standard would
require add-on controls, such as incinerators, to reduce
emissions. As part of the panel review process, several
regulatory flexibility provisions were evaluated with the aim of
reducing regulatory burdens for small entities.

During the panel, Advocacy consulted with the industry and its
primary trade association, the Composites Fabricators Association
(CFA). Advocacy and the industry identified to the panel several
objectionable provisions concerning the proposed standards for
existing and new sources in several subcategories. The provisions
at issue would be technically difficult and economically costly
for the industry to achieve. Advocacy worked closely with the
industry representatives and CFA to develop proposed alternate
approaches for reducing the costs of the rule without
compromising the environmental objectives of the rule.

The panel report made several recommendations that would provide
significant relief to small businesses in the industry. Among
these recommendations were the adoption of standards that are
more closely tailored to several subcategories of products in the
industry and other flexible standards for the affected small
businesses.


Federal Communications Commission
The U.S. Federal Communications Commission (FCC) is an
independent agency that was established in 1934 to regulate
interstate and international communications by radio, television,
wire, satellite, and cable. In 1996, Congress passed the
Telecommunications Act of 1996 to increase competition in
communications. This law imposes upon the FCC the obligation to
disseminate communications licenses among a wide variety of
applicants, including minorities, women, and small business. The
new law also established the Telecommunications Development Fund
to promote small business access to capital and to enhance
competition. The fund stimulates development of new technology
and promotes delivery of communications services to under- served
areas. Some proceeds from FCC spectrum auctions contribute to
this fund.

Issue: Wireless Medical Telemetry Devices. In July 1999, the FCC
proposed creating a new service for wireless medical telemetry
devices (e.g. heart monitors) to protect them from harmful
interference. Advocacy filed comments on October 18, 1999,
indicating that the FCC failed to study the rules' impact on
small business and failed to propose alternatives designed to
lessen this impact, consistent with FCC regulatory goals. On June
8, 2000, the FCC issued final rules in this proceeding. The FCC's
regulatory flexibility analysis again failed to identify small
business impact. The FCC defended its RFA compliance by asserting
that it applied the same standards to businesses of all sizes.
Advocacy filed a letter on August 28, 2000, highlighting the
agency's continued deficiencies and emphasizing that the RFA was
intended to eliminate "one-size-fits-all" regulation.

Issue: Spread Spectrum Devices. In July 1999, the FCC proposed
rules to widen the bandwidth available to spread spectrum devices
and to modify spectrum interference testing. Advocacy filed
comments indicating that the FCC failed to describe the impact
the rules would have on small business. The FCC issued final
rules on August 22, 2000.

Issue: Extending Wireless Services to Tribal Lands. In August
1999, the FCC proposed changing technical rules governing
wireless services in order to increase the cost-effectiveness of
building out wireless systems to tribal lands and other sparsely
populated areas underserved by traditional telephone services.
One proposal would lift restrictions on transfer of PCS C-Block
licenses to non-small businesses and would base future bidding
credits on commitment to serve a community, not on business size.

Advocacy opposed this proposal, in comments dated November 9,
1999, and rejected the FCC's apparent premise that large
businesses are more likely than small businesses to devote the
necessary resources to serving underserved and tribal lands. The
FCC also devoted inadequate discussion to the impact of its
proposal on small businesses and failed to propose alternatives
designed to minimize this impact. The FCC has taken some action,
but final action is pending.

Issue: Local Competition and Broadband Reporting. In late October
1999, the FCC tentatively decided to collect information
regarding local competition and broadband deployment from all
local telephone service providers. The FCC estimated the
compliance burden at 30 or more hours per report, which would be
filed quarterly. The FCC would create an exemption for those
carriers with fewer than 50,000 access lines. However, this
exemption would be waived if the carrier provides more than 1,000
broadband lines.

Advocacy filed comments on the rule in late December 1999.
Advocacy commended the FCC's efforts to balance its need for
information on the status of local competition and broadband
deployment with the burdens imposed on small businesses. Advocacy
recommended that the FCC allow voluntary surveys or adopt a short
form for small businesses. Advocacy also recommended the report
be filed annually and all information be collected on a statewide
basis, and that the broadband exemption threshold be placed at
least at 5,000 broadband lines. Finally, Advocacy asked that the
FCC provide a description in the FRFA detailing what information
the FCC is collecting, its need for the specific information
collected, and how the FCC intends to use the information
collected in later rulemakings.

In its Report and Order, the FCC adopted none of Advocacy's
recommendations. Instead, it decided to collect information on
local competition and broadband deployment on a semi-annual basis
and to exempt small businesses with less than 10,000 access lines
or 250 broadband lines per state.

Issue: Digital Audio Broadcasting. In November 1999, the FCC
issued a notice of inquiry exploring technical standards for
digital audio broadcasting technology. On November 24, 1999,
Advocacy urged the FCC to wait for real-world testing before
proceeding with this technology. The FCC also failed to study the
impact on small business of transition to digital audio
broadcasting. The FCC has taken no final action in this matter.

Issue: Auction of Spectrum at 39 GHz. In November 1999, the FCC
released a supplemental notice of proposed rulemaking to auction
spectrum licenses in the 39 GHz band on a geographic basis, by
economic area (EA).

On December 8, 1999, Advocacy filed comments with the FCC
objecting to the use of EAs as the basis for geographic
licensing. EAs are large areas that encompass both urban and
rural communities. Small businesses seeking to provide service at
39 GHz would be more likely to participate successfully in
auctions for smaller areas that more closely resemble the areas
these businesses would want to serve. Advocacy also pointed out
that the FCC originally proposed the use of smaller areas but
rejected that idea solely on the grounds that the issue was the
subject of copyright litigation, which was delaying the
implementation of the rulemaking.

The FCC's solution is to permit post-auction partitioning, but
partitioning has not proven successful in the past. Licensees
have been hesitant to give up portions of their spectrum license.
Additionally, partitioning is inefficient, would tend to drive up
the costs of licenses, forces companies to negotiate spectrum
prices with potential competitors, and is no substitute for truly
competitive auctions. The FCC has not taken further action in
this proceeding, but has approved the use of EAs in auctions for
licenses on other spectrum bands.

Issue: Auction of Spectrum at 24 GHz. In November 1999, the FCC
proposed rules to govern the 24 GHz band, including auction
rules. The FCC proposed offering the licenses on a geographic
basis, according to EAs.

On December 9, 1999, Advocacy filed comments objecting to the use
of EAs as the basis for geographic licensing. EAs are large areas
that encompass both urban and rural communities. Small businesses
seeking to provide service at 24 GHz would be more likely to
successfully participate in auctions for smaller areas that more
closely resemble the areas these businesses would want to serve.
The FCC's solution is to permit post-auction partitioning, but as
Advocacy has indicated in the context of the 39 GHz proceeding,
partitioning is an unsatisfactory solution.

The FCC has adopted final rules incorporating its EA proposal.
However, three of the five FCC commissioners issued separate
statements indicating they may consider smaller geographic areas
in future auctions to encourage small business participation. On
July 25, 2000, Advocacy filed a petition for reconsideration of
the FCC's decision.

Issue: Re-auction of Spectrum on the PCS C- and F-Blocks. In
January 2000, two large carriers requested that the FCC lift its
small business eligibility restrictions on certain C- and F-Block
personal communications service (PCS) licenses. Most of the
licenses had been issued to NextWave Personal Communications,
Inc., under rules reserving the PCS C- and F-Blocks for small
business. But the FCC cancelled the licenses for nonpayment and
planned to reauction them.

Advocacy filed comments opposing the waiver requests. Small
businesses could not hope to compete for these spectrum licenses
against large businesses. The Telecommunications Act of 1996
requires the FCC to assure the dissemination of spectrum licenses
among a variety of applicants, specifically including small
businesses, and women- and minority-owned businesses.

In June 2000, the FCC published a notice of proposed rulemaking
in which it proposed to open licenses in all markets to large
applicants. Advocacy filed comments opposing this plan and urging
the FCC not to change its rules, or at least to offer large
businesses fewer licenses than the FCC proposed.

In August 2000, the FCC issued final rules in this proceeding,
adopting its proposal to permit large businesses to bid on
licenses previously reserved for small businesses. According to
the new rules, the FCC will reconfigure each 30 MHz C-Block
license into three 10 MHz licenses per geographic market. The FCC
will divide the markets into two tiers, based on population. Tier
1 will consist of markets with greater than 2.5 million people,
and the FCC will permit big business bidding on two out of three
10 MHz licenses in each Tier 1 market. Tier 2 will consist of all
other markets, and the FCC will permit open bidding on one out of
three 10 MHz C-Block licenses in Tier 2. The FCC also will open
bidding for all 15 MHz C-Block licenses, all F-Block licenses,
and all other unsold C-Block licenses.

Issues relating to the re-auction are currently before federal
court. On October 5, 2000, Advocacy filed a petition for
reconsideration of the FCC's decision, reiterating Advocacy's
objections to eliminating the set-aside.

Issue: Amendment of Auction Anti-collusion Rules. In February
2000, the FCC proposed expanding its rules governing
communications among spectrum auction participants. The new rules
would prohibit communications regarding any applicant's bidding
strategy and would require an applicant to report any violation
of the anti-collusion rules. The FCC did not prepare a regulatory
flexibility analysis in this case, but instead, certified that
the proposed rule would not have a significant impact on a
substantial number of small entities.

Advocacy filed comments on March 28, 2000, pointing out that the
FCC's certification failed to include any factual basis for its
judgment that the proposal would have no significant impact, as
the RFA requires. In response to Advocacy's comments, on August
9, 2000, the FCC published a regulatory flexibility analysis.
Advocacy again filed comments, on August 29, 2000, because the
FCC's analysis did not describe the impact the rules would have
on small business, nor did it propose alternatives to minimize
this impact. The FCC has not taken further action in this
proceeding, but has approved the use of EAs for other spectrum.

Issue: Auction of Spectrum in the 4.9 GHz Band. In February 2000,
the FCC proposed rules to license spectrum in the 4.9 GHz band,
which has been transferred from federal government use. The FCC
proposed offering the licenses on a geographic basis, according
to EAs.

On April 26, 2000, Advocacy filed comments objecting to the use
of EAs as the basis for geographic licensing because small
businesses seeking to provide service at 4.9 GHz would be more
likely to participate successfully in auctions for smaller areas
that more closely resemble the areas these businesses would want
to serve. The FCC's solution is to permit post-auction
partitioning, but as Advocacy has indicated in the context of the
24 and 39 GHz proceedings, partitioning has not worked in the
past.

The FCC also failed to identify the significant impact EA
licensing would have on small business, and failed to propose
alternatives designed to lessen this impact. The FCC has not
taken further action in this proceeding, but has approved the use
of EAs for other spectrum.

Issue: Compatibility between Cable Systems and Consumer
Electronics Equipment. The FCC proposed rules in April 2000 to
establish labeling and copy protection standards regarding "cable-
ready" digital broadcast equipment. Advocacy filed comments in
this proceeding on May 24, 2000, indicating that the FCC's
regulatory flexibility analysis failed to describe what burden
the rules may impose on small businesses and failed to propose
alternative measures. The FCC adopted final rules on September
14, 2000, and certified that the rules would not have a
significant impact on a substantial number of small entities.

Issue: Modifications to Children's Television Programming
Reports. In early April 2000, the FCC proposed continuing
indefinitely broadcasters' children's television programming
reporting requirements. Furthermore, the FCC proposed requiring
broadcasters to file their reports on a quarterly basis instead
of annually.

Advocacy submitted a letter to the FCC in late August 2000
stating that the IRFA prepared by the FCC regarding the extension
of filing requirements of children's television programming
reports complied with the RFA, as it adequately described
projected compliance requirements and alternatives that would
minimize significant economic impact. However, Advocacy strongly
recommended an additional, supplemental IRFA be completed if the
FCC adopts the proposals made by the Center for Media Education
in its comments, because that organization's proposals would
greatly increase the compliance burdens of small broadcasters.
The FCC released its final order while this report was being
prepared, and the agency adopted Advocacy's suggestion to issue a
separate rulemaking to consider the proposed additions to the
reporting requirements.

Issue: Access Charge Reform and Universal Service. In July 2000,
the FCC published an order that fundamentally changed how fees
are assigned and collected between end-users, local exchange
carriers, and inter-exchange carriers. The order concluded two
major issue areas-access charge reform and universal service-that
have been before the FCC since the passage of the 1996
Telecommunications Act. This order greatly increased the per-line
fees on end users while reducing access charges that long-
distance users pay to local carriers for originating and
terminating long-distance phone calls. Certain long-distance
carriers voluntarily committed to lowering long-distance charges
for end users.

Advocacy filed a letter in September 2000 with the FCC, stating
that there was scant evidence that the FCC considered the impact
of this far-reaching order on small businesses or undertook even
a modicum of effort to comply with the RFA. Specifically,
Advocacy found that the FRFA was deficient because it failed to:
(1) address the significant issues raised in public comment; (2)
properly identify the small business entities impacted; and (3)
consider significant alternatives proposed in the rulemaking.
Advocacy recommended that the FCC stay any enforcement of its
order until a revised FRFA is prepared and the order is amended
based upon the conclusions of the new analysis. Advocacy
recommended that the FCC host a public workshop or hearing to
garner further input from small businesses during the course of
re-evaluating the analysis.

Issue: Publication of Regulatory Flexibility Analyses in the
Federal Register. In a series of regulatory actions throughout
the first half of 2000, the FCC failed to include the regulatory
flexibility analysis when it published its rules in the Federal
Register. Advocacy filed a letter with the FCC in early September
2000 stating that the RFA requires regulatory flexibility
analyses to be published in the Federal Register. Advocacy argued
that the FCC's failure to do so frustrated one of the key
elements of the RFA, dissemination of information for public
comment, and denied small businesses a valuable tool in the
regulatory process.


Federal Reserve System
The Federal Reserve is the central bank of the United States,
founded by Congress in 1913, to provide the nation with a safer,
more flexible, and more stable monetary and financial system. The
Federal Reserve's duties fall into four general areas: (1)
conducting the nation's monetary policy; (2) supervising and
regulating banking institutions and protecting the credit rights
of consumers; (3) maintaining the stability of the financial
system; and (4) providing certain financial services to the U.S.
government, the public, financial institutions, and foreign
official institutions.

In March 2000, the Board of Governors of the Federal Reserve
System (FRS) proposed a regulation to increase the percentage of
equity capital that bank holding companies (BHCs) that qualify as
financial holding companies (FHCs) must maintain in order to
support merchant banking investments. The Gramm-Leach-Bliley Act,
which became law in November 1999, expanded the types of merchant
banking investments that BHCs and FHCs are authorized to make.
The proposal sought to amend the FRS' consolidated capital
guidelines for BHCs by increasing the charge against regulatory
capital from the current limit of 8 percent to 50 percent. The
FRS' reason for the increase is to control excessive risk
associated with merchant banking and other investment activities.

Advocacy was concerned that this proposal could impact the level
of BHC capital that will be available for investment in SBA-
licensed small business investment companies (SBICs). Advocacy
pointed out that commercial banks represent the largest source of
SBIC private funding, and over the past 20 years the bank-owned
SBICs have never had a year in which they lost money.
Accordingly, Advocacy filed a comment letter with the FRS,
stating that the proposal failed to comply with the RFA.
Specifically, Advocacy argued that in applying a uniform increase
in capital charges to all merchant banking activities, the
proposal did not take into consideration the fact that SBICs have
demonstrated extremely low risk to bank investors.

The public comment period on this rule closed in May, and at the
end of fiscal year 2000, the FRS was still reviewing all of the
comments received on the rule in order to consider whether to
adopt this proposal.


Securities and Exchange Commission
In the aftermath of the stock market crash of October 1929,
public confidence in the nation's securities market plummeted.
The Congress found that the public's faith in the capital markets
needed to be restored. Thus, in 1934, Congress established the
U.S. Securities and Exchange Commission (SEC) to enforce newly
passed securities laws, promote stability in the markets, and
protect investors. Even today the SEC's primary mission is to
protect investors and maintain the integrity of the securities
markets.

Advocacy and the SEC have traditionally maintained a close
working relationship in an effort to improve the regulatory
environment for small businesses and small entities. While the
SEC published a large number of rules in fiscal year 2000, most
of Advocacy's involvement with the SEC concentrated on pre-
proposal work and other efforts to promote regulatory policies
that are more sensitive to small business concerns. For example,
during fiscal year 2000, in performing its RFA activities, the
SEC continued to consult with Advocacy and the SBA's Office of
Size Standards on its proposed regulations that involved size
standards issues. The SEC generally develops rules that define
the small entities in industries that it regulates. However,
whenever the agency faces situations where there is no
established SBA or SEC definition of small business, the SEC has
been diligent in consulting Advocacy and the Office of Size
Standards to develop a size standard that works best for its
regulatory purpose.

As in years past, Advocacy helped organize the 19th Annual
Government-Business Forum on Small Business Capital Formation,
which was held in San Antonio, Texas, in September 2000. This
annual conference provides a unique opportunity for small
business owners to meet with the staff of the SEC and articulate
their views on how to eliminate unnecessary governmental
impediments to raising capital and seeking credit. By spending
two full days together, small business owners and federal public
policymakers are able to develop concrete recommendations on
improving the existing securities, tax, and banking regulations
that affect small businesses.


Federal Procurement
Federal acquisition reform has been a major issue for Congress
and regulatory agencies since 1994. During the 1994-1997 period,
the administration and the United States Congress reached a
policy consensus on the need for acquisition reform and several
reform measures were legislatively implemented. Some of the
changes required a total revamping of the federal acquisition
process. The major thrust of the reform movement was to
streamline the process for procuring goods and services. The
intent was to make the federal marketplace look, be, and act like
the commercial world. If this transformation were successful,
then the federal government would be assured that its nearly $200
billion procurement budget would achieve greater spending power.

In 1994, Congress enacted the first of several major reform
laws-the Federal Acquisition Streamlining Act of 1994. The
Federal Acquisition Reform Act of 1996 was the next major
legislative change. These two laws have become the centerpieces
of governmental procurement reform, and by 1998, the impacts of
the laws were beginning to affect the procurement marketplace. In
1999, several post-acquisition reforms emerged that had the
potential to become burdensome to the small business community.
The most visible was the apparent decline in the prime contract
dollars awarded to small business. This was not the intent of the
procurement reform efforts.

Fiscal year 2000 began with some agencies proposing regulatory
procurement changes to lessen the negative impact of acquisition
reform on small businesses. Public Law 93-400 created the Office
of Federal Procurement Policy (OFPP) and the Federal Acquisition
Regulation (FAR) Council. The FAR Council is charged with the
responsibility of assisting in the direction and coordination of
federal government-wide procurement policy and regulatory
activities. The membership of the FAR Council consists of the
Administrator for Federal Procurement Policy, the Secretary of
Defense, the Administrator of the National Aeronautics and Space
Administration (NASA) and the Administrator of the General
Services Administration (GSA).

The most significant change in fiscal year 2000 involved the FAR
Council and SBA promulgating final "contract bundling"
regulations. Procurement reform made it easier for procuring
activities to combine several small business contracts into one
multi-million-dollar bundled contract. Once bundled, these
contracts usually are too large for small businesses to win in
full and open competition. These regulations are designed to
protect the small business community by giving the procuring
activity clear guidelines and procedures to follow when small
business contracts are taken for bundling.

Another milestone that emerged in fiscal year 2000 was the
increased level of awareness by the FAR Council and other
agencies of the statutory review power of Advocacy on their
procurement regulatory process. The OFPP, the FAR Council, and
several other agencies began to request Advocacy's advice prior
to proposing procurement regulatory changes. For example, DOC
requested input on its now-published proposed regulation on
rights to inventions made by nonprofit organizations and small
business firms under government grants, contracts, and
cooperative agreements. The DOT requested that Advocacy review
its pre-proposed regulation on bundling. The Department of
Veterans Affairs (VA) has also worked very closely with Advocacy
to prepare an IRFA for a proposal to simplify its acquisition
regulations for commercial health care resources.


Environmental Protection Agency
Issue: Regulation on Collection of Race and Ethnic Data from
Successful Offerors. On June 23, 2000, the EPA published a
proposed rule to amend the EPA acquisition regulation. The rule
would add a new clause designed to provide the EPA with
information regarding its contract awardees. This new clause
required the successful offeror of an EPA contract to voluntarily
identify the specific racial/ethnic category that best represents
the ownership of the business. The agency certified that this
proposed rule would not have a significant impact on a
substantial number of small entities.

Advocacy provided comments on the proposed rule. Advocacy argued
that the certification was flawed, as it lacked documentation to
support the agency's conclusion that the rule would not have a
significant impact on a substantial number of small entities.
More specifically, Advocacy said that the proposed rule would
establish a definition for business ownership of racial/ethnic
persons that would appear to be different from the current
definition in FAR (52.219) and Title 13 of the Code of Federal
Regulations, part 124.102. Further, even if one were to agree
that the definitions are different, compliance with the proposed
rule is voluntary and thus EPA does not provide a compelling
justification for its deviation from the FAR and Title 13 of the
Code of Federal Regulations. Advocacy's comment letter requested
EPA to conduct an IRFA before proceeding with this regulation.


Federal Acquisition Regulation Council
Issue: Regulation on Enhancement of Small Business Participation
on Federal Supply Schedules. On November 22, 1999, Advocacy
provided comments to FAR case 98-609, on the Federal Acquisition
Regulation, Federal Supply Schedules (FSS) Small Business
Opportunities. The proposed regulations would require the
enhancement of small business participation on federal supply
schedule programs by encouraging ordering offices to consider
small business when conducting evaluations before placing an
order. Acquisition reform has created a tremendous demand for the
use of FSS. While small businesses were being awarded the
opportunity to participate on FSS, many small businesses were not
selected by the contracting agency. In the contracting community,
FSS are considered a license to market. The ordering office has
the authority to select any vendor from the schedule. This FAR
case provides additional guidance to this selection process.

Advocacy expressed concern that the FAR Council provided an
insufficient factual basis in its IRFA for the small business
community to evaluate the potential impact of the proposed
regulation. Notwithstanding Advocacy's position, the FAR Council
published the final rule. The agency's FRFA did, however,
recognize some of the problems encountered by small businesses in
competing against large businesses for FSS work.

Issue: Regulation on Contractor Responsibility. On July 9, 1999,
FAR case 99-010, Contractor Responsibility, Labor Relations Cost,
and Costs Relating to Legal and other Proceedings, was published
in the Federal Register. By law, federal agencies can award
contracts only to "responsible sources." The proposed rule would
have provided the contracting officer with authority to reject an
apparent successful bid if the contractor had been the subject of
a specified conviction, judgment, or adverse decision in the
previous three years. The hierarchy of offenses included the
areas of tax, labor, antitrust, environmental, and consumer
protection laws. On November 8, 1999, Advocacy provided formal
comments on this proposed rule. Advocacy noted that the FAR
Council did not provide an IRFA addressing the impact of this
proposed rule on small entities. Instead, the FAR Council
attempted to certify the proposed rule. Advocacy expressed
concern with the FAR Council's lack of a factual basis for its
RFA certification of no significant impact.

The FAR Council received more than 1,500 comment letters on this
proposed rule. As a result, a revised proposed regulation on
contractor responsibility was published on June 30, 2000. This
became FAR case 1999-010. The FAR Council agreed with Advocacy's
position that a regulation of this sweeping magnitude should
include an IRFA. An IRFA was in fact published with the revised
proposed regulation.

On August 29, 2000, Advocacy submitted a formal comment on the
revised proposed rule. Advocacy argued that the IRFA raised
additional questions about the level of impact on a substantial
number of small entities. For example, the IRFA did not provide a
factual basis on the number of small businesses formally charged
with infractions covered by the proposed regulation. The IRFA
also failed to provide a factual basis for the estimation of the
number of small businesses that would be suspended for any period
of time from doing business with the federal government.
Advocacy's comment letter asked for a more detailed IRFA to be
published before any final regulation was issued.


Entities Not Covered by the RFA

Internet Corporation for Assigned Names and Numbers
The Internet Corporation for Assigned Names and Numbers (ICANN)
is a nonprofit private sector entity that was designated by the
DOC to oversee technical management of the Internet. Because
ICANN is not a federal government agency, it is not covered by
the RFA. However, ICANN has been given a great deal of authority
over the Internet and the policies that it sets will have immense
impact on companies that use the Internet.

Issue: Introduction of New Top-Level Internet Domains. In early
December 1999, ICANN's Working Group C released an interim report
on possible methods of introducing new top-level domain (TLD)
names to the Internet. In early January 2000, Advocacy submitted
comments to Working Group C supporting the introduction of an
unlimited number of new TLDs at a gradual pace following a
limited introduction and evaluation period. Advocacy also
recommended that ICANN define the technical criteria for the
evaluation beforehand and commit to introducing additional TLD
names if the criteria were met. Advocacy stated that limited
safeguards for trademark holders are appropriate as long as the
safeguards do not expand trademark rights and are balanced with
the interests of registries and domain name registrants.

In early April, Working Group C submitted its report to the Names
Council, which is the administrative body of the Domain Name
Supporting Organization. In mid-April, the Names Council gave its
recommendation to the ICANN board that it establish a policy for
the introduction of new TLDs in a measured and responsible
manner. The Names Council recommended a test-bed period where a
limited number of new TLDs would be introduced and evaluated
before more are introduced.

Advocacy submitted a letter to ICANN in July 2000 summarizing its
earlier position and supporting the introduction of new TLDs. At
its July 2000, meeting in Yokohama, Japan, ICANN approved a
resolution to add new TLDs to the Internet and initiated a
process to accept applications to run them.

Issue: Protection of Famous Marks on the Internet. ICANN created
a committee and tasked it with developing ideas on the protection
of famous marks on the Internet. Designated as Working Group B,
this committee was composed of interested volunteers and was open
to the public. Its decisions were made by consensus of the group.

In March 2000, Working Group B released a report on the
relationship of the protection of trademarks and registering
TLDs. Advocacy submitted comments on the report in early April
2000, noting serious concerns that the proposed protections for
famous marks would preclude small businesses from using common,
everyday words, as well as common family names as domain names on
the Internet. Therefore, Advocacy argued that Working Group B's
conclusion that famous marks could best be protected through the
use of a "sunrise proposal" would have a detrimental impact on
small business and should not be adopted.

The sunrise proposal would establish a pre-registration period
for trademark holders every time a new TLD is introduced. During
the sunrise period, trademark holders could register names
corresponding to their trademark and 20 variations of it.
Instead, Advocacy recommended that Working Group B adopt one of
three alternatives: (1) introduce a large number of new TLDs; (2)
create chartered new TLDs for use by trademark holders; or (3)
adopt a variation of the modified sunrise proposal. Alternative
three would permit a holder of a registered trademark to register
the name identical to its trademark during a sunrise period.
However, this would apply only  to chartered TLDs where the
charter corresponds to that trademark's international class of
industry and service.

In April 2000, over Advocacy's objections, the Names Council of
the Domain Names Supporting Organization supported and published
the formal report of Working Group B and requested comments.
Advocacy sent letters to small business trade associations
informing them of the sunrise proposal and encouraging them to
comment on the issue.

At its Yokohama, Japan, meeting in July 2000, ICANN chose not to
adopt the sunrise proposal. Instead, ICANN requested that each
applicant include a section in the proposal on how to protect
intellectual property. Several of the new proposed TLDs included
a sunrise proposal, while others did not.


United States Postal Service
The United States Postal Service (USPS) is an independent
establishment of the executive branch. It provides mail
processing and delivery services to individuals and businesses in
the United States. USPS is also responsible for protecting the
mails from loss or theft, and apprehending those who violate
postal laws.

Issue: Regulation on Commercial Mail Receiving Agencies. The USPS
is an agency whose rules are not subject to the notice and
comment provisions of the APA. As such, it is not subject to the
RFA.(12b) Nevertheless, Advocacy relied on the principles
underlying the RFA to address concerns raised by small entities
when USPS promulgated a rule concerning commercial mail receiving
agencies (CMRA).

On March 25, 1999, USPS published a final rule in the Federal
Register on delivery of mail to CMRAs. At the time that the rule
was finalized, USPS asserted that "the sole postal purpose of the
rule is to increase the safety and security of the mail." Among
other things, the rule required CMRA users to use the terms,
"private mail box" (PMB), in their mailing addresses, provide two
forms of identification when renting a mailbox, and file a PS
Form 1583 with USPS disclosing the actual location of the user.
The form would be publicly available. If a CMRA user did not
comply with the rule, USPS stated that its mail would not be
delivered.

Although USPS received over 8,000 comments in opposition to the
proposal and only 10 in favor, USPS nevertheless finalized the
rule. In promulgating the rule, USPS asserted that the rule was
necessary to combat mail fraud. However, the agency did not
provide any statistics or studies to substantiate its claim that
fraud occurred at any greater rate at CMRAs than at USPS post
office boxes.

Advocacy became involved with this issue when small businesses
notified Advocacy about the impact of the rule. Advocacy then
held roundtable discussions and conference calls with affected
small entities. Advocacy also sent letters to the Postmaster and
attended meetings to present the views of small businesses. In
its correspondence to USPS, Advocacy pointed out that the
rulemaking was not only discriminatory and arbitrary,(13b) it was
extremely costly to small businesses. The USPS allowed users one
year to add "PMB" to the address before stopping mail delivery.
However, it did not take into account either the loss that small
businesses would suffer when customers, relying on address
information contained in old materials, tried to contact the
business, or the stigma that small businesses could experience
due to the use of the term PMB in a mailing address. Furthermore,
small businesses feared that there were safety concerns regarding
the release of the actual location of a CMRA user. USPS has since
announced that it will release information about the actual
address of the CMRA user only upon receipt of a subpoena or a
court order, thus addressing one of the security concerns raised
by many users.

On March 13, 2000, USPS published a proposed rule on delivery of
mail to commercial mail receiving agencies. The proposal revised
the requirement that private mailbox users use the term PMB in
their addresses. The proposed rule amended the CMRA rule that was
finalized in March 1999, by allowing CMRA users to use the
"pound" (#) sign instead as an alternative to the PMB designator.
The proposal also allowed CMRA users to use three-line addresses.
In the proposal, USPS stated that although small business groups
have indicated that the PMB requirement may have a negative
impact on the businesses of CMRA mailbox holders, USPS was not
convinced that negative perceptions would occur. Nevertheless,
USPS asserted that it was proposing the revision in an attempt to
balance the goal of protecting the public with the concerns of
the small business community.

On April 12, 2000, Advocacy filed comments on the proposal.
Advocacy again argued that USPS did not have a rational basis for
implementing the rule, and that the rule discriminated against
CMRA users. Advocacy also raised a concern about USPS requiring
all CMRAs to adopt the "#" sign requirement, which was a
contractual obligation for Mailboxes, Etc., customers but not
necessarily for customers of independently owned CMRAs. Advocacy
argued that a government agency imposing the requirements of a
large corporation on smaller competitors gave the appearance of
impropriety and interfered with competition.

In August 2000, USPS finalized the # sign alternative. In doing
so, it also extended the compliance deadline from August 26,
2000, to August 26, 2001.


World Intellectual Property Organization
The World Intellectual Property Organization (WIPO) is an
international organization that promotes the use and protection
of intellectual property. WIPO is one of the 16 specialized
agencies of the United Nations system of organizations. It has
175 nations as member states. WIPO administers 21 international
treaties dealing with different aspects of intellectual property
protection. As an international organization, WIPO is not covered
by the RFA.

Issue: Second Internet Domain Name Process. In early July 2000,
the WIPO released a report that identified a series of issues
concerning intellectual property rights on the Internet. WIPO
sought public comment on the validity of the intellectual
property rights issues identified in the report and whether
additional issues should be addressed. Advocacy submitted a
letter to WIPO in mid-September 2000, recommending that it
request additional comments on: (1) why current legal protections
are insufficient to protect intellectual property rights; (2) why
additional protection is needed in the areas identified by the
WIPO and not in other areas; (3) how changes in policy that alter
the relationship between trademarks and domain names will affect
the nonprotected class; (4) how different proposals will affect
the domain name system; and (5) how each of the issues in WIPO's
report interacted with third-party law, actions, and policies.
Advocacy also recommended that the WIPO clarify the issues that
were presented in the report. To date Advocacy is awaiting action
by the WIPO on these issues.


Appendix C: Regulatory Cost Savings
for Fiscal Year 2000


The following details rulemaking activities that the Office of
Advocacy was involved in during fiscal year 2000 that resulted in
cost savings to small businesses. The combination of yearly
savings and one-time savings during this period totals almost
$3.6 billion.

Agen  Subject Description                 Cost Savings
cy                                        

AMS   National Organic Program. This rule Cost savings estimate
      issued by the Agricultural          not available.
      Marketing Service set national      
      standards for producing and selling
      organic products
      .
BLM   3809 Hardrock Mining Reclamation    $150 million in annual
      Bond Rule. The Bureau of Land       savings
      Management requires hardrock miners Source: BLM draft cost-
      to provide reclamation bonds for    benefit analysis for
      mining on federal lands. This rule  the Draft Final 3809
      was the subject of the Northwest    Hardrock Mining Rule.
      Mining v. Babbitt case in which, in This cost estimate
      May 1998, the court remanded the    includes compliance
      rule to BLM for its failure to      costs and the value of
      comply with the RFA, as requested   foregone mineral
      by Advocacy in its amicus curiae    production.
      brief. Although the agency has
      since re-proposed the rule, it has
      not yet been finalized. Thus, until
      the rule is final, small businesses
      do not need to comply with the bond
      requirement.
      
EPA   Concentrated Animal Feeding         $9 million in annual
      Operations (CAFO) Clean Water Act   savings(1c)
      Regulations. This Environmental     Source: The Office of
      Protection Agency rule expands and  Advocacy, based on
      revises Clean Water Act regulations EPA's economic
      that define what is a CAFO, and     analysis in the
      establish permit requirements and   rulemaking record.
      technology-based water pollution
      standards for CAFO.
      
EPA   Control of Hazardous Air Pollutants $68 million in annual
      from Reinforced Plastics Composites savings
      Industry. This rule sets technology-Source: The Office of
      based standards for the reinforced  Advocacy, based on
      plastics composites industry.       EPA's economic
                                          analysis in the
                                          rulemaking record.
                                          
EPA   Control of Hazardous Air Pollutants $20 million in annual
      from Secondary Aluminum Industry.   savings(2c)
      This rule sets technology-based     Source: The American
      standards for the secondary         Foundrymen's Society,
      aluminum industry                   Inc.
      .
EPA   Tier 2 Gasoline Sulfur Standards    $91 million in annual
      Air Pollution Rule. This rule sets  savings
      engine and vehicle standards for    Source: The Office of
      medium and light duty vehicles. It  Advocacy, based on
      also sets standards for sulfur in   EPA's economic
      gasoline.                           analysis in the
                                          rulemaking record.
                                          
EPA   Transportation Equipment Cleaning   $5 million in annual
      Industry.This rule set controls for savings
      water pollution discharges from     Source: The Office of
      transportation industry vehicles    Advocacy, based on
      such as trains, buses, trucks, and  EPA's economic
      ships                               analysis in the
      .                                   rulemaking record.
                                          
EPA   Underground Injection Well-Class V  $10 million in annual
      Safe Drinking Water Rule.This rule  savings
      regulates the discharge of chemical Source: The Office of
      wastes into drinking water.         Advocacy, based on
                                          EPA's economic
                                          analysis in the
                                          rulemaking record
                                          
FDA   Dietary Supplement Labels           Cost savings estimate
      Containing Structure/Function       not available.
      Claims. This Food and Drug
      Administration rule prohibits the
      manufacturing of dietary
      supplements that make claims
      regarding the effects of the drug
      on the body.
      
FDA   Drug Pedigree Requirements. This    Cost savings estimate
      rule requires drug wholesalers to   not available.
      maintain records of each prior
      handler of the drug.
      
FDA   Sterility Requirements for Aqueous- $10.1 million in one-
      Based Drug Products. This rule      time savings
      requires manufacturers of aqueous-  Source: FDA's
      based inhalation products to use a  statement in the final
      sterile process in the manufacture. rule, 65 Fed. Reg.
                                          34,082, 34,087 (2000).
                                          
FS    Roadless Conservation Rule. This    Cost savings estimate
      Forest Service rule prohibits the   not available.
      construction and reconstruction of
      roads in inventoried roadless areas
      found in national forest lands.
      Initially, FS alleged that the rule
      would not have a significant
      economic impact on small entities,
      including small timber and mining
      operations and communities
      dependent on revenues from timber
      sales. The Office of Advocacy
      disagreed and urged the FS to
      solicit information on the exact
      impact. Small communities responded
      rather dramatically. To offset this
      loss, Congress enacted the Secure
      Rural Schools and Community Self-
      Determination Act, which continues
      distributions to the states through
      2006. The revenues are estimated to
      be approximately $135,006,000 per
      year, based on 1997 numbers.
      
HCFA  Home Health Care Prospective        Cost savings estimate
      Payment System. With this rule, the not available.
      Health Care Financing               Note: At the time of
      Administration established a new    the printing of this
      Medicare reimbursement system for   report, additional
      home health care agencies.          "giveback" legislation
                                          (to give health
                                          providers more
                                          Medicare dollars) was
                                          being considered by
                                          Congress.
                                          
HCFA  Hospital Outpatient Prospective     Cost savings estimate
      Payment System. This rule           not available.
      established a new Medicare          Note: At the time of
      reimbursement system for hospital   the printing of this
      outpatient services.                report, additional
                                          "giveback" legislation
                                          (to give health
                                          providers more
                                          Medicare dollars) was
                                          being considered by
                                          Congress.
                                          
HHS   Health Information Privacy. This    Cost savings estimate
      Department of Health and Human      not available.
      Services rule established privacy
      standards for transferring
      electronic medical records.
      
OSHA  Safety and Health Program Rule.     $3 billion in one-time
      With this rule, the Occupational    savings
      Safety and Health Administration    Source: OSHA's
      requires every business owner to    estimate of the entire
      have a safety and health program to cost of the rule at
      prevent injuries and illnesses in   the time of proposal.
      the workplace. However, OSHA has
      indefinitely delayed the final
      implementation of the rule. The
      Office of Advocacy believes that
      the SBREFA panel report played a
      significant role in the agency's
      decision to reconsider promulgating
      the rule.
      
PWBA  ERISA Benefit Claims Rule. This     $220 million in one-
      Pension and Welfare Benefits        time savings
      Administration rule sought to       Source: The Office of
      require every employee welfare plan Advocacy, based on
      under ERISA, such as a pension or   PWBA's estimates
      health plan, to establish new       contained in other
      procedures to advise its            regulations and from
      beneficiaries about their ability   industry estimates.
      to appeal a denial of benefits.
      PWBA estimated that it would cost
      approximately $100 million for
      small businesses to amend their
      employee plans. Advocacy argued
      that the compliance cost would be
      at least $220 million, which is a
      significant burden to small pension
      plans. Additionally, Advocacy
      indicated that the record of small
      pension denial claims did not
      justify this regulatory action.
      PWBA agreed, and excluded small
      pension plans in the final version
      of the rule, thereby avoiding the
      need for approximately 635,000
      small businesses to amend their
      plans.
      
USPS  Commercial Mail Receiving           Cost savings estimate
      Agencies/Private Mailbox Rule. With not available.
      this rule, the United States Postal
      Service requires users of
      commercial mail receiving agencies
      to use the term, "PMB," or the
      pound (#) sign in their mailing
      addresses. The implementation of
      the rule was delayed two and one-
      half years to allow sufficient time
      for small businesses to phase out
      the use of old stationery and other
      business materials prior to
      obtaining materials that complied
      with the rule.
      
      Subtotals:                          $353 million in annual
                                          savings, and
                                          $3,230.1 million in
                                          one-time savings
                                          
      Grand Total Cost Savings:           $3,583,100,000 (almost
                                          $3.6 billion)
                                          



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

Synopsis
The Regulatory Flexibility Act of 1980 is an important statute
that has changed the way federal regulatory agencies relate to
small businesses in crafting regulations. The law seeks to level
the regulatory playing field for small businesses and preserve
competition in the marketplace by forcing agencies to undertake a
thorough analysis of the economic impact of their proposed
regulations and to consider alternatives that will achieve the
same public policy goals, but with more equitable impact on small
entities.

While it took nearly 20 years of persistent effort on the part of
Congress, the Small Business Administration's (SBA) Office of
Advocacy, and small businesses, as well as litigation and
amendments to the law, the Regulatory Flexibility Act has changed
how regulatory agencies evaluate regulations.


Background
Before the Regulatory Flexibility Act (RFA) was enacted in 1980,
federal agencies generally did not recognize the impact their
rules would have on small businesses, nor did they readily
understand the fact that small businesses would suffer
disproportionately-compared with large businesses-from those
regulations.(1d) More often than not, the agencies failed to
recognize or understand the important role small businesses play
in the economy.


The 1980 White House Conference on Small Business
In 1980, when hundreds of small business owners from across the
country convened in Washington, D.C., to participate in the first
White House Conference on Small Business, their message to
President Jimmy Carter and the Congress was loud and clear. They
demanded relief from burdensome federal government mandates and
argued for more flexible regulations.

Small businesses argued that when a federal agency issues a
regulation, the burden of that law often falls hardest on them.
This occurs, not through any intentional desire by the agency to
overregulate them, but rather because "one-size-fits-all"
regulations impose disproportionate costs on small entities. For
example, the direct costs involved in complying with a regulation
are approximately the same for a large company as for a small
company. But since a large company is able to spread the
compliance cost-such as additional staff time and resources and
fees for professional services-over larger output, it has the
ability to maintain a competitive advantage over a small company.

Additionally, because large businesses can afford to hire more
people-both within their companies and as professional
representatives in Washington-to monitor proposed agency
regulations and thereby have easier, more direct input in the
regulatory process, small businesses are inherently at a
disadvantage in their ability to influence the outcome of
regulatory decisions.


Congressional Response to Small Business Concerns
Recognizing the disparity in the level of input during the
rulemaking process, as well as the disparate impact on small
businesses upon implementation of regulations, the U.S. Congress
responded to small business concerns by enacting the RFA.
Congress agreed with small businesses and made specific findings
in the preamble to the RFA that "laws and regulations designed
for application to large scale entities have been applied
uniformly to small [entities, ...] even though the problems that
gave rise to the government action may not have been caused by
those small entities."(2d) As a result, Congress found that these
regulations have "imposed unnecessary and disproportionately
burdensome demands" upon small businesses with limited resources,
which, in turn, have "adversely affected competition."(3d)

To counteract the traditional, one-size-fits-all regulatory
mindset of the regulators, the RFA establishes "as a principle of
regulatory issuance that agencies shall endeavor, consistent with
the objectives of the rule and of applicable statutes, to fit
regulatory and informational requirements to the scale of the
businesses."(4d) To achieve this principle, Congress mandated
that "agencies are required to solicit and consider flexible
regulatory proposals and to explain their rationale for their
actions to assure that such proposals are given serious
consideration."(5d)


Requirements of the Regulatory Flexibility Act
Specifically, the RFA requires agencies to review their
regulatory proposals and determine if any new rule is likely to
have a "significant economic impact on a substantial number of
small entities."(6d) If such impact is likely to occur, the RFA
then requires the agencies to prepare and make available for
public comment an "initial regulatory flexibility analysis,"
describing in detail the potential economic impact of the
proposed rule on small entities.(7d)

As an essential part of this analysis, agencies are required to
identify alternatives to the proposed rule that accomplish the
stated objectives of applicable statutes but minimize any
significant economic impact of the proposed rule on small
entities.(8d) A similarly detailed regulatory flexibility
analysis is also required for final rules, which also must be
made available to the public.(9d)

By mandating this economic analysis, the RFA seeks to ensure that
agencies spend the necessary time and resources to identify and
understand the potential impact of their regulations on small
entities before it is too late to pursue alternative measures. To
accomplish this, agencies must solicit meaningful input from the
small business community early in the rulemaking process.

The RFA was also based on the rationale that when an agency
undertakes a careful analysis of its proposed regulations-with
sufficient small business input-the agency can, and will,
identify the disproportionate economic impact on small
businesses. Once an agency realizes that a rule will have such an
impact on small businesses, it is expected to seek alternative
measures to reduce or eliminate the disproportionate burden
without compromising public policy objectives.

The RFA also contains measures to ensure agency compliance with
the law, such as authorizing the chief counsel for advocacy to
appear as amicus curiae ("friend of the court") when an entity
appeals an agency's final action.(10d)


Federal Agencies' Response to the Regulatory Flexibility Act
In monitoring agencies' compliance with the law over the years as
RFA mandates, the Office of Advocacy (Advocacy) found that
federal agencies, more often than not, failed to conduct the
analyses mandated by the RFA. Some agencies ignored the RFA
altogether, while others asserted that the RFA did not apply to
them. Other agencies recognized the RFA's applicability to their
regulatory process yet failed to comply with the letter and
spirit of the law. For example, the RFA authorizes an agency to
forego the preparation and publication of initial and final
regulatory flexibility analyses for public comment "if the head
of the agency certifies that the rule will not, if promulgated,
have a significant economic impact on a substantial number of
small entities."(11d) Several congressional hearings documented
that many agencies simply fell into a habit of certifying that
their rules would have no impact without demonstrating the basis
for such a conclusion. It was clear that using "boilerplate"
language in rule after rule did not comport with the RFA's
mandate.

Equally troubling was the finding that agencies often did not
understand or accept the possibility that less burdensome
regulatory alternatives may, in fact, be equally effective in
achieving public policy objectives. This mistaken assumption
meant that many agencies failed-or even refused-to consider valid
alternatives for their proposals even when such options were
brought to their attention by small businesses during the
rulemaking process. The agencies' failure to weigh alternatives
properly not only defeats the core purpose of the RFA; it
effectively excludes small businesses from a meaningful
opportunity to influence the regulatory development process as
the Congress intended.

Finally, because the RFA as originally enacted in 1980 did not
provide for judicial review of compliance with the RFA, the small
business community was left with no remedy to enforce compliance.
Similarly, while the RFA authorized the SBA's chief counsel for
advocacy to file amicus briefs in regulatory appeals, the issue
of agency noncompliance could not be raised because the courts
did not have jurisdiction over the question.


The 1995 White House Conference on Small Business and SBREFA
Small businesses had an opportunity to point out these
shortcomings in the RFA at the 1995 White House Conference on
Small Business. They urged the administration and the Congress to
pass amendments that would add "teeth" to the law.

In response, in 1996, Congress enacted the Small Business
Regulatory Enforcement Fairness Act (SBREFA), which amended the
RFA in several critical respects.(12d) With agencies' pattern and
practice of noncompliance in mind, Congress designed the SBREFA
amendments to the RFA to ensure meaningful small business input
during the earliest stages of the regulatory development
process.(13d) The amendments also required agencies to provide
more detailed and substantive analyses of regulatory economic
impacts. SBREFA reaffirmed the authority of the chief counsel for
advocacy to file amicus curiae briefs in regulatory appeals
brought by small entities.

Most important, the SBREFA amendments added two new provisions to
the RFA:

Small Business Advocacy Review Panel Process: SBREFA mandates
 that structured     review panels be convened to ensure small
 business participation in the development of rules by the
 Environmental Protection Agency (EPA) and the Occupational
 Safety and Health Administration (OSHA) when such rules are
 anticipated to have a significant impact on a substantial
 number of small entities.
 
Judicial Review of Agency Compliance: SBREFA authorizes
 aggrieved small businesses appealing from agency final actions
 to seek judicial review of agency failure to comply with the
 RFA.
 

The RFA Today: Federal Agencies' Response to the SBREFA
Amendments
In the years since SBREFA amended the RFA, the regulatory
environment for small businesses has begun to change for the
better. As highlighted in the chief counsel for advocacy's annual
reports on RFA, over the past few years, small businesses have
played active roles in bringing about some fundamental changes in
the way federal agencies view the RFA and their responsibilities
under the law.(14d)

Numerous agencies have implemented changes to their regulatory
processes, including noticeably enhanced outreach efforts to
small businesses and internal training and resources committed to
ensure adequate regulatory flexibility analyses. Other agencies
are learning to comply with the RFA the hard way through
litigation and are carefully monitoring the latest court cases
resulting from the judicial review provisions of the RFA.

Most significantly, agencies and the Congress are paying special
attention to the changes brought about by the addition of the
small business advocacy review panel process. As a procedure for
gathering public comments, this SBREFA amendment to the RFA
mandates that small business representatives be consulted by
policymakers of EPA and OSHA, two agencies that have major impact
on a wide range of industries dominated by small businesses. The
panel process allows small businesses to find their seat at the
regulatory table, and this new process is making a difference.


Agencies are Conducting More Effective Small Business Outreach
Thanks to the RFA and SBREFA, agency outreach to small businesses
has grown significantly. Almost every federal agency today
incorporates a wide variety of mechanisms to reach out to the
communities affected by its regulations. For example, agencies
routinely participate at industry conferences; host regional
roundtable meetings; answer inquiries from small businesses via
mail, fax, and electronic mail; and use the Internet and toll-
free telephone numbers to encourage easy access to information
for small businesses.

The Department of Housing and Urban Development (HUD)'s outreach
efforts are especially noteworthy. Like many other agencies, HUD
uses its Office of Small and Disadvantaged Business Utilization
(OSDBU) to monitor RFA compliance. However, HUD has worked hard
to identify the most appropriate small-entity representatives to
receive its information. HUD's OSDBU has written to more than 700
trade associations and minority- and woman-owned business
chambers of commerce advising them of the small business rights
under the RFA as amended by SBREFA. From the very beginning of
the process, HUD has also taken aggressive measures to include
small businesses in "negotiated rulemakings" on regulations
dealing with manufactured housing, real estate settlement
procedures, Indian housing, lead-based paint, and public housing.

While outreach is certainly a necessary first step, the test of
the process' effectiveness is whether the agency considers small
business input in its decisions. Few agencies-although an
increasing number-can cite instances in which they changed
proposed regulations as a result of discussion with small
business entities.

One independent agency, the Securities and Exchange Commission
(SEC), provides a compelling success story. The SEC has had a
long history of engaging in deregulatory efforts to assist small
businesses in their capital-raising transactions. In order to
determine where regulatory assistance might be most useful, the
SEC initiated a series of "town hall" meetings across the nation
to learn from the entrepreneurs they regulate. Since 1982, the
SEC has also hosted an annual forum on small business capital
formation where small business owners and their advocates spend
two days with government officials to discuss regulatory changes
that could address their concerns. Members of Congress and other
interested parties receive written summaries of the discussions
and the recommendations that resulted and many recommendations
have been implemented.

The SEC also actively educates its staff about small business
issues. The SEC's internal training activities for its compliance
and enforcement personnel incorporate information on RFA and
SBREFA. SEC staff, including economists, who engage in rulemaking
activities receive specialized training in all aspects of legally
required administrative procedures.

This intensive outreach effort and RFA training paid off on at
least one occasion when a proposed SEC rule was revised because
of a thorough regulatory flexibility analysis. Rule 504 of the
SEC regulations permitted small companies to raise up to $1
million in "seed capital" in a 12-month period with minimal
compliance requirements.(15d)

Because of the simplicity of the rule's requirements, however,
unscrupulous securities promoters abused the rule. In addressing
the abuse, the SEC proposed a change that would restrict
securities issued pursuant to Rule 504 from subsequent
transferability. During the rulemaking process and its
accompanying regulatory flexibility analysis, the SEC realized
the proposed revision would adversely affect companies-especially
the smallest ones-by making it more difficult to raise capital.
The small businesses that commented on the rule explained that
amending the liquidity option would increase the cost of raising
capital, and in some cases even eliminate the market.

Upon further analysis and careful consideration of alternatives,
the SEC revised the proposal to preserve the liquidity option for
small companies while still addressing the potential for abuse.
By complying with the RFA, the SEC achieved its policy objective
of protecting investors and limiting the potential for abuse
without harming small business interests.


Agencies are Working to Comply with the RFA
In addition to outreach, more and more agencies are asking for
guidance in complying with the RFA and redirecting agency
resources to the actual task of complying. Compliance with the
RFA early in the regulatory process not only benefits small
businesses; it saves time, produces better regulatory proposals,
and avoids litigation for the agencies.

The Department of Agriculture (USDA) is a typical example. For a
number of years, the USDA's Agricultural Marketing Service (AMS)
refused to acknowledge that its regulations were subject to the
requirements of the RFA. Shortly after passage of SBREFA,
however, AMS agreed to train its employees in compliance with the
RFA, with the result that the Organic Program Office sought input
on a new regulation to impose federal standards for labeling and
producing organic products. This organic regulation marked the
first time since the passage of the RFA in 1980 that AMS sought
assistance and input on RFA compliance prior to publishing a
proposal. Subsequently, AMS has tried to include initial or final
regulatory flexibility analyses in nearly all of its proposed and
final regulations.

The Department of Health and Human Services, Health Care
Financing Administration (HCFA) provides another example. Since
SBREFA amended the RFA, HCFA has instituted new procedures to
seek input on controversial or burdensome regulations during the
earliest stages of rulemaking, and the administrators of HCFA and
SBA have met to discuss RFA compliance and related issues. In
addition, SBA conducted two day-long RFA/SBREFA training sessions
for HCFA employees. HCFA's commitment to comply with the RFA has
been apparent on a number of occasions when HCFA submitted draft
rules for early small business impact review.

One of the best examples of the benefits to be derived from
efforts to ensure compliance with the RFA comes from the
Department of Transportation (DOT). To implement provisions of
the Americans with Disabilities Act, DOT proposed a regulation in
March 1998 that would have required all newly purchased over-the-
road buses to be accessible to passengers with disabilities. The
rule also would have required all motor carriers, tour bus
operators, and other transportation companies to provide
accessible over-the-road bus service. Advocacy advised DOT that
its proposed rule would have a serious impact on the small bus
industry and would cause these small businesses to reduce
transportation services to the entire public, especially to those
residing in rural areas. Advocacy also suggested that a service-
based alternative to the proposed rule would provide better long-
and short-term transportation to all passengers, including those
with disabilities, and would meet the DOT's goals.

DOT staff and representatives of the affected small businesses
met to discuss the regulation and its alternative, an important
step in the DOT's RFA analysis. The meeting provided a meaningful
opportunity for small businesses to discuss cost projections and
other relevant data related to the proposed rule. After carefully
studying the entire public docket that included the information
provided by small businesses, the DOT in September 1998 published
a final rule adopting an innovative approach recommended by small
bus operators. The revised rule not only achieved the agency's
objectives, but also struck a sensible balance among all public
policy concerns raised during the public review period.
Essentially, DOT transitioned the redesign of all buses to
accommodate passengers with disabilities while maintaining
service for those who rely on small bus companies for essential
transportation. Small businesses welcomed DOT's final rule,
expected to save the small bus industry about $180 million while
guaranteeing transportation for the disabled.


The Small Business Advocacy Review Panel Process Produces Better
Regulatory Analyses
One of the more significant provisions of the 1996 SBREFA
amendments to the RFA was the establishment of the small business
advocacy review panel process. The EPA and OSHA are now required
to reach out and include small businesses in the development of
regulations.(16d) Whenever the administrator of either agency
cannot certify under the RFA that a regulatory proposal will not
have a significant economic impact on a substantial number of
small entities, the SBREFA amendment requires the agency to
convene a panel and prepare a regulatory flexibility analysis.

Each panel consists of representatives from the rulemaking
agency, the chief counsel for advocacy, and the administrator of
the Office of Information and Regulatory Affairs within the
Office of Management and Budget. The panel conducts its own
outreach to small entities likely to be affected by the proposal,
seeks their input on the proposed regulation, and prepares a
report to the administrator of either the EPA or OSHA with
recommendations, where appropriate and equitable, for reducing
the potential impact of the rule on small businesses. The panel,
which must be convened prior to publication of the proposed rule
for public comment, has 60 days in which to prepare and submit
the report on its findings to the administrator. The report
becomes a part of the public rulemaking record. After the panel's
report is received, the agency may reconsider and modify its
proposal in response to its economic impact analysis and the
information received.

Advocacy's experience in working with panels has demonstrated
that the agencies' analytical process has been greatly improved.
It is fair to conclude that the panel process has had a salutary
effect on the work of the EPA and OSHA, and that the time spent
on the panels has been, and continues to be, productive for both
agencies and small businesses.

The panel process generates better agency analysis. By
 collecting and identifying relevant economic data from the
 regulating agency, the panel process provides an objective
 basis from which to judge the impact of the regulatory proposal
 upon small business, the cause and scope of the problems
 addressed by the proposal, and the comparative contribution to
 the problem made by different-sized firms within an industry.
 The quality and extent of discussions generated through the
 panel process have been invaluable in identifying alternatives
 for achieving the agency's statutory objective while minimizing
 undue costs and burden on small businesses.
 
Direct input from small-entity representatives providing "real
 world" perspectives is   valuable to the panel process. Small
 businesses, armed with agency data and analysis at the pre-
 proposal stage, have an opportunity to provide valuable input
 on the potential impact of the rule and its design before the
 agency becomes committed to a particular approach. Their input
 is particularly useful to the agency because it is based on
 actual experiences rather than potentially flawed assumptions
 and cost analyses developed by agency staff in a vacuum. Their
 input can also help the agency identify alternatives that might
 accomplish the same policy objectives with much less burden on
 small businesses.
 
The panel process does not entail any additional agency
 resources, but uses available resources more efficiently. Under
 SBREFA, a panel is convened once an agency determines that a
 proposed rule is likely to have significant impact on a
 substantial number of small entities. The RFA already requires
 the agency to perform a regulatory flexibility analysis once it
 is determined, at this stage of rulemaking, that there will be
 such impact. The SBREFA panel approach accomplishes the same
 objectives by reviewing impact data and alternatives-but in a
 more structured process that ensures small business input when
 it matters most. Thus, the panel process marshals the same
 resources to undertake the same analysis that agencies already
 are required to do under the RFA and does it within an early
 timeframe to ensure timely development of a workable proposal.
 By working with small businesses on the panel early in the
 rulemaking process, agencies can eliminate problematic
 provisions before publishing a rule for public comment. This
 can actually save agencies time and resources that would
 otherwise be spent on reviewing and responding to written
 comments.
 

Environmental Protection Agency Panels
Since SBREFA's enactment, more than 250 small-entity
representatives have participated on 15 completed Environmental
Protection Agency panels. Each of these panels produced positive
outcomes for the EPA and small businesses. In response to small
business input, the panels made more than 140 concrete
recommendations to the EPA's administrator that address small
business concerns without compromising EPA's environmental
objectives. When EPA publishes a rule for comment, it explicitly
addresses each panel recommendation and makes the panel report
part of the public record.

The following EPA rules reviewed by SBREFA panels demonstrate how
alternative regulatory measures can indeed be less burdensome on
small businesses, at the same time that they are effective in
achieving public policy objectives.

Effluent Limitations Guidelines and Pretreatment Standards for
the Industrial Laundries Point Source Category. Relying on data
from the 1980s, the EPA identified 1,700 industrial laundries as
a potential source of hazardous waste solvents discharged to
publicly owned treatment works and initiated action in 1992 to
address the problem.

Since this rulemaking involved potentially significant economic
impacts on a substantial number of small businesses, a panel was
convened in June 1997. The panel issued a report in August 1997
making a number of substantive recommendations to the agency,
including specific exclusion options for small businesses. The
panel recommended that the agency solicit public comment on a "no-
regulation" option in the proposed rule. The recommendations were
considered and subsequently addressed in the proposed rule,
published in December 1997.

Following publication of the proposal, EPA continued to work with
the industry, which is dominated by small businesses, and
supported the industry's proposal for a strong voluntary
pollution prevention program that includes working with the
industry's customers to encourage further pollution prevention
efforts.

Comments raised by the small-entity representatives during the
panel process and by subsequent commenters on the proposal
convinced the agency that the industry discharges were not
significant enough to warrant national regulation of the entire
industry. In July 1999, the EPA withdrew its proposed rule and
announced that it would not impose national clean water standards
on industrial laundries.

The decision by the agency to select one of the alternative
options generated through the panel process as the agency's final
decision is a clear demonstration that the process established by
SBREFA is effective in producing rational public policy and that
consideration of small business impacts need not compromise
public policy objectives.

Tier 2 Light-Duty Vehicle and Light-Duty Truck Emission
Standards, Heavy-Duty Gasoline Engine Standards, and Gasoline
Sulfur Standards. As the EPA took steps to regulate the sulfur
content of gasoline in order to enable light-duty vehicles to
lower sulfur emissions, it convened a panel in June 1998. This
rulemaking became known as the "Tier 2/Gasoline Sulfur" rule, and
the panel completed its report in October 1998.

Panel members visited Frontier Oil Company's refinery in
Cheyenne, Wyoming, at the company's invitation. The panel noted
that this was a unique opportunity to gain a firsthand
perspective on what a small refinery would have to do in order to
comply with the rule.

What the panel learned was that the cost of compliance would
effectively put small refiners out of business, with a resultant
increase in gasoline prices. The panel also learned that the
small refiners' product did not contribute significantly to the
overall sulfur emission problem that EPA was trying to address.

The panel then considered a wide range of options and regulatory
alternatives for providing small businesses with flexibility in
complying with potential Tier 2 vehicle emission and gasoline
sulfur standards. In response to the comments received, as well
as additional business and technical information gathered
concerning the affected small entities, the panel ultimately
recommended several alternatives. In light of the potentially
severe impacts of the regulation on small refiners, the panel
agreed on a recommendation to delay application of its rule to
small refiners for several years, an option that also met EPA's
environmental goals.

In May 1999, the EPA issued its proposed rule based on the
panel's recommendation. The EPA's action met with approval from
the regulated industries. The proposed rule that resulted from
the panel process was clearly an appropriate regulatory solution
to achieving the desired environmental results without
unnecessarily jeopardizing small refiners, the major source of
competition in the industry.


Occupational Safety and Health Administration Panels
Since the 1996 SBREFA amendments to the RFA, OSHA has convened
several panels that have submitted reports to the OSHA
administrator. The following is a brief description of one OSHA
panel that serves as a solid case study on the effectiveness of
the panel, not only in analyzing the impact of small entities,
but in identifying where conflicting public policies need to be
reconciled.

Tuberculosis Exposure. In 1996, the first OSHA panel was convened
under SBREFA to consider a proposed rule addressing occupational
exposure to tuberculosis (TB). TB is a disease that afflicts the
most vulnerable members of our society-the sick, the poor, the
elderly, and the homeless.

In order to control and reduce instances of on-the-job employee
exposure to TB, OSHA proposed a series of specific workplace
safety requirements for which all employers would be responsible.
Specifically, the OSHA proposal required employers to develop and
implement a written plan to control worker exposure to TB, comply
with detailed requirements for work practice and engineering
controls, and keep extensive medical records on employees who may
have been exposed to TB. The proposed rule also required
employees to use respirators when performing certain job
functions or providing patient care.

The fact that potential exposure to TB is most likely to occur,
if at all, at very small organizations such as homeless shelters,
nursing facilities, home health care units, and clinics raised
concerns about the potential significant economic impact of this
proposed rule on small entities. Economic analysis indicated that
the average cost to comply with this rule for homeless shelters
alone would be about $1,000 per year, and the compliance cost for
a homeless shelter confronted with an active case of TB would be
about $41,000. Hospices, substance abuse treatment centers, and
personnel service providers, also very small entities, faced
similar and equally devastating compliance costs.

These costs raised the specter that compliance would conflict
with equally important public policy objectives-namely, providing
shelter for the homeless, dealing with substance abuse, and
providing cost-effective services that allow patients to stay at
home.

The panel finalized its report in November 1996, and OSHA
subsequently published its proposed rule in October 1997. The
documentation provided in support of the published proposal
indicated that OSHA did take into consideration some of the
panel's concerns and adopted some changes from those recommended
by the panel, such as clarifying definitions of ambiguous terms.
OSHA also agreed to undertake an extensive study on the effects
of the rule on nonprofit organizations that provide services to
the homeless.

In anticipation of the public comment period on the rule, OSHA
staff met with representatives of various small entities that had
earlier submitted comments to the panel. As expected, the
representatives of homeless shelters, nursing facilities, home
health care, and clinics continued to express strong objections
to the proposed rule because of the potential burden imposed on
the small entities. Not only did the rule propose requirements
that needlessly duplicated local infectious disease control
efforts for which small entities are already responsible, but the
health care organizations were concerned that OSHA was mandating
procedures that might conflict with the provision of medical
care.

The entities that would face dramatic impacts from the rule urged
OSHA to view this rulemaking in a new light and to consider the
practical limitations of the small entities that would be
required to comply with the rule. For example, would the
hospices, substance abuse centers, and homeless shelters be able
to allocate their very limited resources to manage TB exposure
through costly engineering controls and patient outplacement?
Would the OSHA-mandated controls be enforceable in these
workplaces, which are dependent on volunteer workers and
charitable financial support, or would the rule simply impose
greater compliance and enforcement problems?

They also urged OSHA to consider the possibility that entities
that serve high-risk populations may be forced to reduce or
eliminate services because of high OSHA compliance costs. By
forcing homeless shelters to close their doors because of high
costs and potential liabilities imposed upon their volunteer
staff, the proposed rule might indirectly cause even greater TB
exposure to the society at large by keeping the homeless on the
streets rather than in shelters.

OSHA was encouraged to view the issue in a broader context than
chiefly workplace safety and to engage both public and private
health care specialists in a search for the best approach to
controlling the disease overall-to bring conflicting national
policies into balance. In thinking "outside the box" from its
role as a government regulator, OSHA could serve as a change
agent, not only in developing controls that employers could
implement in their workplaces but in helping to limit the general
public's exposure to TB, work that could be done cooperatively
with state and local health care agencies.

As a result of these meetings and discussions, a larger coalition
of small and large health care entities, nonprofit service
providers, epidemiologists, infectious disease experts, and other
health care officials was formed to provide more comments on
OSHA's proposed rule.

As of November 1999, OSHA was continuing to review additional
public comments before finalizing this rule. It is clear,
however, that the SBREFA panel process provided the critical
venue that allowed for more extensive analysis to be received
during the regulatory development process.


Judicial Review under SBREFA is an Incentive for Agencies to
Comply with the Law
As amended by SBREFA, the RFA now allows courts to review agency
compliance with the RFA in appeals from final agency
actions.(17d) A review of litigation on the RFA over the past
three years reveals that small entities are not hesitant to
initiate court challenges in appropriate cases. In addition, a
significant body of legal precedents has already developed under
the RFA, and more cases are sure to arise in the future.

Adding value to the RFA litigation is the role of the chief
counsel and the Office of Advocacy. As part of its
congressionally mandated responsibilities under the RFA, Advocacy
routinely critiques agencies' regulatory proposals and their
compliance with the RFA. These communications are a matter of
public record that can be used-and have in fact been cited-in
judicial appeals. As a result of SBREFA's judicial review
amendment, the chief counsel's comments on agencies' regulatory
proposals are having greater impact and agencies are now taking
them more seriously than ever before.

One agency noted for its RFA reforms is the National Oceanic and
Atmospheric Administration's National Marine Fisheries Service
(NMFS) within the Department of Commerce, which has defended nine
cases or groups of cases brought against the agency. In 1999
testimony before Congress, the NMFS assistant administrator for
fisheries readily admitted that "efforts to comply with the
Regulatory Flexibility Act, though well intentioned, have not
always met with judicial favor. We recognize that there is room
for improvement in our economic analyses."(18d) If the first step
in complying with the law is to identify the problem, then it is
clear that agencies such as NMFS have learned from SBREFA that
regulations affecting small businesses deserve serious and
appropriate analysis.

This was further reinforced by a court decision in a case in
which the chief counsel filed the first amicus curiae brief as
authorized by the RFA.(19d) In Northwest Mining v. Babbitt,(20d)
the District Court for the District of Columbia ruled in favor of
small businesses. The case, brought by a trade association
against the Department of the Interior's Bureau of Land
Management (BLM), raised an issue about BLM's failure to use the
proper size standard for determining the number of small
businesses that might be harmed by the regulation. In an amicus
brief filed in January 1998, the chief counsel challenged the
agency's use of a small business size standard that was not in
compliance with the SBA's standards published under the authority
of the Small Business Act.(21d) The brief also raised concerns
about the agency's failure to comply with the Administrative
Procedure Act(22d) and about the quality of the economic analysis
put on the record by BLM.

In May 1998, the District Court issued its ruling and agreed with
the issues raised by the chief counsel, holding that BLM's
certification in its final rule violated the RFA by failing to
incorporate the correct definition of "small entity."
Accordingly, the Court remanded the case to the agency so that
the plaintiff small business trade association would have an
opportunity to provide input into the regulatory process.(23d)

Filing the amicus brief in this case unquestionably increased
agency awareness of the risks in failing to comply with the RFA.

In addition to the direct influence that an amicus brief can
have, as in the above example, even the mere possibility of the
chief counsel's intervention in litigation can have tremendous
impact on the agency's regulatory process. For example, in the
case of Grand Canyon Air Tour Coalition v. FAA,(24d) the chief
counsel filed a "Notice of Intent to File an Amicus Curiae
Brief." The case involved a DOT, Federal Aviation Administration
(FAA) rule that restricted access to the Grand Canyon National
Park by small aircraft tour operators. In its RFA analysis, the
FAA certified that the rule would not have a significant economic
impact on a substantial number of small entities. Yet the
proposal applied to an industry dominated by small businesses and
limited small business tour operators' access to fly into certain
areas, the time for flying, and the frequency of flights. The
proposal and its analysis were criticized during the FAA
rulemaking process.

In response to the imminent threat of the chief counsel's court
intervention, DOT agreed that the FAA would submit to the court a
statement detailing its analysis of new data regarding the number
of aircraft subject to the regulation, as well as a clear
statement that the agency erroneously certified under the RFA
that the rule would not have a significant economic impact on
small businesses. The notice of intent to file the brief was then
withdrawn and the court subsequently found that the FAA satisfied
the requirements necessary to demonstrate a rational decision-
making process as required by the RFA.(25d)


Conclusion
Federal agencies have begun to respond positively to the RFA as
amended by SBREFA. While some agencies still are not totally in
compliance with the law, it is clear that many of them now see
the value of the analytical process mandated by the RFA and that
the analyses produce better and more informed regulatory
decisions. Many have demonstrated that they are more eager than
ever before to meet their compliance obligations.

Compliance with the RFA, as amended by SBREFA, can result in a
win-win situation for all parties. The DOT rule, the SEC rule on
raising capital, the EPA rule on industrial laundries, and the
OSHA rule on tuberculosis all demonstrate that less burdensome
regulations that minimize economic impact on small business can
be equally effective in achieving public policy objectives.

Because of the 1996 SBREFA amendments and diligent oversight and
active involvement by Congress, the courts, small businesses, the
SBA's Office of Advocacy and the administration, federal agencies
are doing a better job of analyzing how best to solve social
problems without harming competition or unduly burdening small
businesses-the major source of competition and innovation in the
U.S. economy.


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


During fiscal year 2000, Advocacy submitted 79 comments to
various agencies and entities. The subject matter of each
regulatory action is described briefly below. For more details on
the issue, including any related Federal Register references, or
to review Advocacy's comments in their entirety, visit Advocacy's
website at: www.sba.gov/advo/laws/comments/.

Date      Agency       Comment Subject

10/04/99  FCC          Part 15 spread spectrum devices
                       
10/08/99  FTC          Proposed mergers in the oil
                       industry
                       
10/13/99  ICANN        Uniform dispute resolution
                       policy
                       
10/18/99  FCC          Wireless medical telemetry
                       service
                       
10/20/99  USPS         Delivery of mail to commercial
                       mail receiving agencies
                       
10/22/99  FCC          FCC's compliance with RFA
                       
10/27/99  ICANN        Request for a procedural policy
                       
11/05/99  EPA          Class V underground injection
                       control wells (safe drinking
                       water)
                       
11/08/99  GSA          Contractor responsibility and
                       labor relations cost
                       
11/09/99  ATF          Increase on tobacco products and
                       cigarette papers and tubes
                       
11/09/99  EPA          Pesticides and tolerance
                       processes
                       
11/09/99  FCC          Extending wireless
                       telecommunications services to
                       tribal lands
                       
11/16/99  ATF          Prohibition of certain alcohol
                       containers and standards of fill
                       
11/19/99  OMB          Commercial marine diesel rule
                       
11/22/99  GSA          Federal Supply Schedules for
                       small business opportunities
                       
11/26/99  IRS          Arbitrage restrictions on
                       state/local government tax-
                       exempt bonds
                       
12/08/99  FCC          Rules on 37.0-38.6 GHz and 38.6-
                       40.0 GHz spectrum bands
                       
12/08/99  FCC          Extending wireless
                       telecommunication services to
                       tribal lands
                       
12/09/99  EPA          National emission standards for
                       hazardous air pollutants
                       
12/09/99  FCC          Licensing of fixed services at
                       24 GHz spectrum band
                       
12/13/99  OMB          Secondary aluminum air toxics
                       standard
                       
12/20/99  FCC          Local competition and broadband
                       reporting
                       
12/20/99  OMB          Special flight rules for
                       commercial air tours in the
                       Grand Canyon
                       
12/21/99  FCC          Establishment of a Class A
                       television service
                       
01/10/00  ICANN        Introduction of new top-level
                       domains to the Internet
                       
01/24/00  BLM          Locating, recording, and
                       maintaining mining claims and
                       sites
                       
01/24/00  FCC          Digital audio broadcasting
                       systems
                       
01/31/00  FTC          Consent agreement in the Exxon-
                       Mobile merger
                       
02/09/00  FDA          Premarket approval of silicone
                       inflatable breast prostheses
                       
02/22/00  FCC          Eligibility requirements for PCS
                       C- and F-Block auctions
                       
02/23/00  BLM          Mining claims under general
                       mining laws
                       
02/25/00  HHS          Standards for privacy of
                       identifiable health information
                       
02/29/00  FCC          Part 15 spread spectrum devices
                       
02/29/00  FDA          New policies under the
                       Prescription Drug Marketing Act
                       of 1987
                       
03/01/00  FCC          Eligibility requirements for PCS
                       C- and F-Block auctions
                       
03/01/00  FDA          Procedures for processing of
                       apple cider
                       
03/02/00  OSHA         Ergonomics safety program
                       
03/17/00  FDA          Violation of the Freedom of
                       Information Act (FOIA)
                       
03/22/00  OMB          Data availability regarding the
                       regulation of radionuclides
                       
03/28/00  FCC          Communications between
                       applicants in spectrum auctions
                       
04/04/00  ICANN        Famous mark protection
                       
04/10/00  FCC          Eligibility requirements for PCS
                       C- and F-Block auctions
                       
04/11/00  EPA          Stage 2 disinfection byproducts
                       
04/12/00  EPA          Control of emissions of
                       hazardous pollutants from motor
                       vehicles
                       
04/12/00  USPS         Delivery of mail to commercial
                       mail receiving agencies
                       
04/14/00  ICANN        Final report on famous mark
                       protection
                       
04/17/00  FCC          Reconsideration of the C-Block
                       Fourth Report and Order
                       
04/25/00  OMB          Heavy-duty engine and vehicle
                       standards and diesel sulfur
                       control
                       
04/26/00  FCC          Rules to govern the 4.9 GHz
                       spectrum auction
                       
04/28/00  HCFA         Medicare program and rural
                       health clinics
                       
05/03/00  OMB          Draft arsenic proposal under the
                       Safe Drinking Water Act
                       
05/12/00  ATBCB        ADA accessibility guidelines for
                       buildings and facilities
                       
05/22/00  FRS          Bank holding companies and
                       change in bank control
                       
05/24/00  FCC          Compatibility of cable systems
                       and consumer elections equipment
                       
05/25/00  EPA          Nitrates enforcement under toxic
                       release inventory requirements
                       
06/22/00  FCC          Installment payment financing
                       for PCS licenses
                       
06/23/00  HCFA         Medicare payment for upgraded
                       durable medical equipment
                       
07/10/00  ICANN        Introduction of new top-level
                       domains to the Internet
                       
07/13/00  HUD          Proposal requiring additional
                       smoke alarms in manufactured
                       homes
                       
07/17/00  FS           Roadless area conservation
                       
08/10/00  FDA          Drug products that present
                       difficulties for compounding
                       
08/16/00  ICANN        Scope of small business and the
                       Internet
                       
08/18/00  FCC          Part 15 spread spectrum devices
                       
08/22/00  OMB          Federal Coal Mine Health and
                       Safety Act, Black Lung Benefits
                       Act
                       
08/25/00  EPA          Heavy-duty engine and vehicle
                       standards and diesel sulfur
                       control
                       
08/28/00  FCC          Wireless medical telemetry
                       services
                       
08/29/00  FCC          Communications between
                       applicants in spectrum auctions
                       
08/30/00  GSA          Contractor responsibility and
                       labor relations cost
                       
08/31/00  FCC          Licensing of fixed services at
                       24 GHz spectrum band
                       
08/31/00  USDA         Fee increases for meat, poultry
                       and egg products inspection
                       
09/07/00  FCC          Narrowband PCS competitive
                       bidding
                       
09/12/00  FCC          Access charge reform, universal
                       service
                       
09/14/00  Congress     Rep. Saxby Chambliss re HCFA's
                       compliance with the RFA
                       
09/15/00  WIPO         Internet domain name process
                       
09/20/00  EPA          Control of emissions of
                       hazardous air pollutants
                       
09/21/00  FAA          Airplanes to carry
                       defibrillators for emergency use
                       on passengers
                       
09/26/00  DOI          Surface coal mining hearings and
                       appeals
                       
09/27/00  HCFA         GAO's report on inherent
                       reasonableness regulation
                       
09/28/00  FWS          Critical habitat designation
                       


Appendix F: Federal Court Decisions Published Since SBREFA
Amended the Regulatory
Flexibility Act

The Small Business Regulatory Enforcement Fairness Act of 1996
(SBREFA) was signed into law on March 29, 1996. In amending the
Regulatory Flexibility Act of 1980 (RFA), SBREFA allowed small
businesses, for the first time, to seek judicial review of agency
compliance with the RFA. Shortly after this provision of the law
became effective, small entities began challenging a wide variety
of federal agencies' RFA actions.

In addition to legal challenges brought by small entities since
SBREFA was enacted, the Chief Counsel for Advocacy also exercised
his right under the RFA to file as amicus curiae (friend of the
court) brief in RFA cases.

The following chart lists, in chronological order, every known
significant court decision dealing with RFA issues that has been
published since 1996. A short synopsis of each case follows the
chart. While the Office of Advocacy attempts to maintain a
complete record of cases and decisions that raise RFA issues,
there is no provision in the RFA that requires notification of
case filings be sent to the Office of Advocacy. Therefore, the
following is compiled from all the information available to the
Office of Advocacy, and may not necessarily be a complete
listing.


Significant RFA Court Decisions Published since 1996

Case                         Citation            Issued     Cour
                                                            t
                                                            
Associated Builders &        976 F. Supp. 1      07/23/97   Dist
Contractors, Inc. v. Herman  (D.D.C. 1997)                  rict
                                                            
Southwestern Pennsylvania    121 F.3d 106 (3d    07/28/97   Appe
Growth Alliance v. Browner   Cir. 1997)                     als

Associated Fisheries of      127 F.3d 104 (1st   09/16/97   Appe
Main, Inc.v. Daley           Cir. 1997)                     als
                             
Motor & Equipment Mfrs. Assn 142 F.3d 449 (D.C.  04/24/98   Appe
v. Nichols                   Cir. 1998)                     als
                             
Northwest Mining Assn. v.    5 F. Supp. 2d 9     05/13/98   Dist
Babbitt                      (D.D.C. 1998)                  rict

ValueVision Intl, Inc., v.   149 F.3d 1204       07/24/98   Appe
FCC                          (D.C. Cir. 1998)               als

Grand Canyon Air Tour        154 F.3d 455 (D.C.  09/04/98          Appeals_v. FAAAppe
Coalition v. FAA             Cir. 1998)                     als
North Carolina Fisheries     27 F. Supp. 2d 650  09/28/98   Dist
Assn._v. Daley               (E.D. Va. 1998)                rict

Greater Dallas Home Care     36 F. Supp. 2d 765  02/08/99   Dist
Alliance v. United States    (N.D. Tex. 1999)               rict

Tutein v. Daley              43 F. Supp. 2d 113  03/17/99   Dist
                             (D. Mass. 1999)                rict
National Propane Gas Assn.   43 F. Supp. 2d 665  03/17/99   Dist
v. Dept. of Transportation   (N.D. Tex. 1999)               rict

Washington v. Daley          173 F.3d 1158 (9th  04/02/99   Appe
                             Cir. 1999)                     als
American Trucking Assns. v.  175 F.3d 1027       05/14/99   Appe
EPA                          (D.C. Cir. 1999)               als

Southern Offshore Fishing    55 F. Supp. 2d      06/30/99   Dist
Assn.                        1336 (M.D. Fla.     District_  rict
                             1999)               v. Daley_
Texas Office of Public       183 F.3d 393 (5th   07/30/99   Appe
Utility Counsel v. FCC       Cir. 1999)                     als

Alenco Communications, Inc.  201 F.3d 608 (5th   01/25/00   Appe
v. FCC_                      Cir. 2000)                     als

Michigan v. EPA              213 F.3d 663 (D.C.  03/03/00   Appe
                             Cir. 2000)                     als
American Moving and Storage  91 F. Supp. 2d 132  03/29/00   Dist
Assn. v. Dept. of Defense    (D.D.C. 2000)                  rict

Allied Local and Regional    215 F.3d 61 (D.C.   06/16/00   Appe
Mfrs.Caucus v. EPA           Cir. 2000)                     als

Transmission Access Policy   225 F.3d 667 (D.C.  6/30/00    Appe
Study Group v. FERC          Cir. 2000)                     als

AML Intl., Inc., v. Daley    107 F. Supp. 2d 90  07/28/00   Dist
                             (D. Mass. 2000)                rict
                                                            
Communities for a Great      112 F. Supp. 2d 29  08/23/00   Dist
Northwest, Ltd. v. Clinton   (D.D.C. 2000)                  rict

Michigan Dept. of Envtl      230 F.3d 181 (6th   08/24/00   Appe
Quality v. Browner           Cir. 2000)                     als

National Assn. of            No. CIV.A.99-2025-  09/14/00   Dist
Psychiatric Health Systems   GK, 2000 WL                    rict
v. Shalala                   1677210 (D.D.C.
                             Sept. 14, 2000)
                             
Blue Water Fishermen's Assn. No. CIV.A.99-2846-  09/25/00   Dist
v. Mineta                    RWR, 2000 WL                   rict
                             1610349
                             (D.D.C.Sept. 25,
                             2000)
                             

Federal Appeals Court Cases
Southwestern Pennsylvania Growth Alliance v. Browner, 121 F.3d
106 (3d Cir. 1997). In 1996, plaintiff petitioned for review of
an Environmental Protection Agency (EPA) rule which denied
Pennsylvania's request that the EPA redesignate an area to
attainment status for ozone, pursuant to the Clean Air Act.

During litigation, an intervening party argued that the EPA's
rule denying Pennsylvania's request was invalid because the EPA
did not comply with the RFA when it issued a short certification
that the rule would not affect a substantial number of small
entities. The court concluded that the RFA argument cannot be
raised because it was not adequately presented to the EPA during
the rulemaking process. The court also ruled, in the alternative,
that the RFA argument lacks merit, because EPA's rule
sufficiently satisfied the requirements of RFA.

Although the court ruled against the RFA argument, it
nevertheless made significant findings relating to SBREFA's
retroactive applicability. In light of the recently enacted
SBREFA amendments to the RFA, the court had to decide whether it
had jurisdiction to hear the RFA argument. The intervenor argued
that since SBREFA provided for judicial review of agency action
under the RFA, the court had jurisdiction. The EPA argued to the
contrary because the agency claimed that it published its rule
before the effective date of the SBREFA amendments.

Relying on the Supreme Court's precedent on the question of the
temporal reach of new statutes, the court held that the SBREFA
amendment entitling small entities to judicial review does not
"impair rights a party possessed when he acted, increase a
party's liability for past conduct, or impose new duties with
respect to transactions always completed." This is because the
SBREFA amendment "did not change the substantive RFA requirements
that applied to the EPA's promulgation of the final rule."
Accordingly, the court held that the intervenor properly filed
this matter for judicial review under the new SBREFA provision.

Associated Fisheries of Maine, Inc., v. Daley, 127 F.3d 104 (1st
Cir. 1997). In 1996, the National Marine Fisheries Service (NMFS)
adopted a rule to eliminate overfishing of certain fish. Although
NMFS prepared an IRFA and a FRFA for the rule, the FRFA contained
the IRFA with no changes except for answers to the submitted
comments. Thus the plaintiff brought suit challenging NMFS'
compliance with the RFA.

The court held that the FRFA prepared by NMFS pursuant to the RFA
was not inadequate on its face. The court opined that an agency
can satisfy provisions of the RFA by setting forth the
requirements for the FRFA, as long as it compiles meaningful,
easily understood analysis that covers each requisite component
dictated by the statute. The end product of this analysis must be
made readily available to the public.

The court further stated that the defendant secretary of the U.S.
Department of Commerce (DOC) complied with FRFA requirements
because the secretary explicitly considered numerous
alternatives, exhibited a fair degree of sensitivity concerning
the need to alleviate the regulatory burden on small entities
within the fishing industry, adopted some salutary measures
designed to ease that burden, and satisfactorily explained
reasons for rejecting others.

Motor & Equipment Manufacturers Association v. Nichols, 142 F.3d
449 (D.C. Cir. 1998). The plaintiffs represent businesses that
manufacture, rebuild, and sell car parts in the automobile
"aftermarket." Defendant is EPA's assistant administrator.
Plaintiffs challenged the EPA's decision to permit California to
enforce its own regulations of the on-board emissions devices
pursuant to the Clean Air Act, as well as the EPA's rule deeming
compliance with the California diagnostic device regulations to
constitute compliance with the federal diagnostic device
regulations. Plaintiffs also argued that the EPA failed to comply
with the RFA.

In ruling that California's own regulations were sufficient to
constitute federal compliance, the EPA had concluded that the
rule would not have a significant economic effect on a
substantial number of small businesses. Thus, the EPA did not
conduct a regulatory flexibility analysis on the rule. In making
its determination, however, the EPA considered only the impact of
its decision on large- and small-volume automobile manufacturers,
which did not include the businesses that the plaintiffs
represented. Thus, the plaintiffs asserted that the impact on
automobile aftermarkets should have been considered as well.

In its decision, the court disagreed and found that the RFA does
not require an analysis in such situations. It stated that an
agency is under "no obligation to conduct a small-entity impact
analysis of effects on entities which it does not regulate." The
court reasoned that, because the rule did not subject any
aftermarket businesses to regulation, EPA was not required to
conduct analysis on the rule's impact on such businesses.

ValueVision International, Inc., v. FCC, 149 F.3d 1204 (D.C. Cir.
1998). In 1997, the plaintiff challenged portions of a Federal
Communications Commission (FCC) rule setting rates, terms, and
conditions for the carriage of "leased access" programming on
cable systems. Among the issues raised, plaintiff contended that
the FCC violated the RFA in that, while the agency performed an
IRFA, it only focused on the effect of the rule on small cable
operators. The plaintiff argued that the FCC should have
considered the interests of leased access programmers-most of
whom were small businesses.

The FCC argued that the plaintiff was barred from raising the RFA
issue because it failed to argue the point below. The FCC argued
that it did issue an IRFA with the proposed rule, but the
plaintiff did not comment on the fact that the FCC's finding
granted too much attention to small cable operators and too
little to small leased access programmers.

The court ruled that the fact that the FCC addressed the issue of
small leased access programmers in its FRFA preserved the
question on appeal of whether this discussion was sufficient. The
court also held that the FCC fulfilled its obligations under the
RFA. It reasoned that the FCC's primary focus on small cable
operators was understandable since that was the group that was
directly affected by the new rule.

The court also found that the FCC's conclusion that the revised
rules would have only a "positive" effect on programmers (for
various reasons) was sufficient to satisfy the obligations of the
RFA. Although the language of Section 604 of the RFA is neutral
as to the need to perform an analysis on positive or negative
effects, the court interpreted the RFA as only applying to the
negative impact of rules on small businesses. Specifically, the
court stated that the RFA "provides that an agency shall
accompany the promulgation of new rules with a `final regulatory
flexibility analysis' assessing the negative impact of the rules
on small businesses."

Grand Canyon Air Tour Coalition v. FAA, 154 F.3d 455 (D.C. Cir.
1998). In 1996, the Federal Aviation Administration (FAA) issued
a rule restricting access to the Grand Canyon National Park by
small aircraft tour operators. The rule limited tour operators'
access to certain areas, the time for flying, and the frequency
of flights, but the FAA certified that the rule would not have a
significant economic impact on a substantial number of small
entities.

The Office of Advocacy had earlier filed comments on the FAA's
notice of proposed rulemaking (NPRM). Thus, when the matter went
to court, Advocacy filed a "Notice of Intent to File an Amicus
Curiae Brief," pursuant to its authority under Section 612(b) of
the RFA, to address FAA's noncompliance with the RFA. Advocacy
ultimately withdrew this notice in exchange for an agreement with
the U.S. Department of Transportation (DOT) that the FAA would
submit to the court a statement that the agency erroneously
certified the final rule.

The court ultimately found that the FAA performed a lengthy
analysis. It also found that the FAA satisfied the requirements
necessary to demonstrate a rational decision-making process, that
it responded to relevant comments and considered reasonable
alternatives.

Washington v. Daley, 173 F.3d 1158 (9th Cir. 1999). The State of
Washington, Midwater Trawlers Cooperative, and others appealed
the district court's dismissal of their petitions seeking to
overturn regulations that allocated groundfish catches of whiting
off the coast to four northwest Indian tribes. They also sought
review of the court's decision to grant summary judgment in favor
of the Department of Commerce secretary on the allegations that
challenged the secretary's compliance with the Magnuson Fishery
Conservation and Management Act, the Endangered Species Act, and
the RFA.

The court upheld the lower court's decision. In granting summary
judgment on the RFA issue, the district court had found that
DOC's decision that the agency action would not have a
significant economic impact on a substantial number of small
entities was valid. The district court specifically noted that
the agency concluded that the 7 percent tribal allocation of
whiting would result in a 1-3 percent reduction in annual gross
revenue for Midwater. Midwater had argued that the court erred in
considering the overall effect on its revenues, rather than the
effect only on revenue earned from the sale of whiting. The
appeals court found that the RFA only requires an agency to
consider the economic effect on the entity, not the effect on
revenue earned for a particular harvest.

American Trucking Associations v. EPA, 175 F.3d 1027 (D.C. Cir.
1999). The Clean Air Act requires EPA to promulgate and
periodically revise national ambient air quality standards
(NAAQS) for each air pollutant identified by the agency as
meeting certain statutory criteria. In 1997, EPA issued rules
revising the primary and secondary NAAQS for particulate matter
and ozone. At the time of the rulemaking, EPA certified the rule
pursuant to the RFA as not having any impact on small entities,
based on its conclusion that small entities were not directly
subject to the rule because NAAQS regulate small entities only
indirectly through state implementation plans.

Plaintiffs argued that the EPA improperly certified under the
RFA, asserting that if the EPA had complied with the RFA, it
would likely have promulgated less stringent NAAQS than those
actually chosen, which would have reduced the burden upon small
entities.

The court ruled that the EPA adequately complied with the RFA
when it certified small entities are not subject to the proposed
regulation. The court also rejected other arguments raised by the
plaintiffs. For example, relying on a letter from Advocacy to the
EPA stating that NAAQS do impose requirements upon small
entities, the plaintiffs had argued that the court must defer to
the SBA's interpretation of the RFA. The court ruled, however,
that the SBA "neither administers nor has any policymaking role
under the RFA; at most its role is advisory. Therefore, we do not
defer to the SBA's interpretation of the RFA."

Texas Office of Public Utility Counsel v. FCC, 183 F.3d 393 (5th
Cir. 1999). State agencies and telecommunications service
providers challenged various aspects of theuniversal service
order issued by the FCC to implement the Telecommunications Act
of 1996, including rules developed to modify the existing system
of support for high-cost service areas and creation of new
support programs for schools, libraries, and health care
facilities. Intervenor American Cable Television Association
challenged the FCC for failing to meet the requirements of RFA
before promulgating the order. However, since none of the
plaintiffs raised the RFA issue, and the FCC did not respond to
it, the court did not consider the matter in this case.

Alenco Communications v. FCC, 201 F.3d 608 (5th Cir. 2000). Local
exchange carriers serving predominately small towns and rural
areas sought review of the FCC's action that made various changes
to the universal telecommunications service program. Plaintiffs
argued that the FCC failed to comply with the RFA because its
FRFA did not meet the requirements of the RFA and the FCC did not
perform a full economic analysis of the actions.

Citing Associated Fisheries of Maine v. Daley, 127 F.3d 104 (1st
Cir. 1997), the court stated that the RFA was a procedural
mandate rather than a substantive one, and that review of an
agency's RFA compliance was to determine whether the agency made
a reasonable good-faith effort to carry out the mandate of the
RFA. The court found that the FCC's orders contained a
substantial discussion, including a reasoned rejection of
alternatives, which was all that the RFA required.

Regarding the plaintiffs' claim that the FCC had failed to
perform an economic analysis, the court found that the RFA does
not require a cost-benefit analysis or economic modeling. It only
requires the agency to state the steps it has taken to minimize
the significant economic impact on small entities consistent with
the stated objectives of applicable statutes. The court further
noted that the RFA specifically states that an agency may provide
either a quantifiable or numerical description of the effects of
the rule or alternatives or a more descriptive statement if
quantification is not practicable or reliable. The court
concluded that the FCC had reasonably complied with the
requirements of the RFA.

Michigan v. EPA, 213 F.3d 663 (D.C. Cir. 2000). The EPA issued a
rule mandating that 22 states revise their state implementation
plans (SIPs) to reduce nitrogen oxide emissions (Nox). In
promulgating the rule, EPA certified under the RFA 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 Nox SIP regulation did not establish requirements applicable
to small entities. EPA asserted that since the states establish
their own requirements, the states were responsible for
determining the impact of the requirements on small entities that
they regulate. Plaintiffs asserted that the certification was
improper and in violation of the RFA.

The court rejected plaintiffs' argument and found that the SIP
regulating Nox does not directly regulate individual sources of
emissions. The court concluded, therefore, that the EPA's
certification was justified.

Allied Local and Regional Manufacturers Caucus v. EPA, 215 F.3d
61 (D.C. Cir. 2000). Paint manufacturers and associations of
manufacturers and distributors of architectural coatings
petitioned for review of EPA's regulations limiting the content
of volatile organic compounds (VOCs) in consumer and commercial
products such as architectural coatings, including paints.
Plaintiffs alleged that EPA failed to comply with the RFA by
failing to discuss the economic impact of "stigmatic harm"
arising from the agency's suggestion that it may impose more
stringent VOCs in the future and asset devaluation, in that the
coatings rule allegedly will render existing product formulas
valueless.

The court ruled that Section 603 of the RFA, which discusses
IRFAs, was not subject to judicial review pursuant to Section
611(c). However, the court did have the jurisdiction to determine
whether the agency had met the overall requirement that the
decision-making not be arbitrary and capricious. The court found
that the EPA examined alternatives to product reformulation when
creating regulations limiting content of VOCs in consumer and
commercial products, and that its decisions were neither
arbitrary nor capricious. The court, therefore, found that EPA
had met its challenges under the RFA.

Transmission Access Policy Study Group v. FERC, 225 F.3d 667
(D.C. Cir. 2000). The Federal Energy Regulatory Commission (FERC)
issued Orders 888 and 889 in an effort to end discriminatory and
anticompetitive practices in the national electricity market and
to ensure that electricity customers pay the lowest prices
possible. The orders required utilities to provide access to
their transmission lines to anyone purchasing or selling
electricity in the interstate market on the same terms and
conditions as they use their own lines. FERC certified that the
rule would not have a significant economic impact on a
substantial number of small entities.

Plaintiffs argued that FERC failed to consider the impact of the
orders on nonjurisdictional entities that may have to provide
open-access transmissions and file open-access tariffs under the
orders' reciprocity provisions.

In this case, all the parties agreed that the pre-SBREFA-amended
version of the RFA applied to the matter. Under that version of
the RFA, the court held that its scope of review was quite
narrow, and limited to considering the RFA analysis as part of
its overall judgment as to whether a rule is reasonable. Using
this standard, the court held that it would not question FERC's
decision. FERC had looked at the potential impact of Order 888,
and included in the order a provision allowing an exemption from
compliance with the reciprocity conditions. The court therefore
ruled that nothing in the reciprocity conditions was
unreasonable.

Michigan Department of Environmental Quality v. Browner, 230 F.3d
181 (6th Cir. 2000). The Michigan Department of Environmental
Quality and a manufacturers' association sought review under the
Clean Air Act, disapproving revisions to the state implementation
plan. Plaintiffs argued that EPA's rulemaking violated the RFA.
However, because the plaintiffs failed to raise the issue during
the comment period, the court held that they waived them for the
purposes of appellate review.


Federal District Court Cases
Associated Builders & Contractors, Inc., v. Herman, 976 F. Supp.
1 (D.D.C. 1997). In 1993, the U.S. Department of Labor (DOL)
suspended a revised class of employees called "helpers" on
federal construction sites, and reinstated former helper
regulations pursuant to a congressional mandate. These
regulations expired in April 1996. When DOL did not implement the
revised helper regulations after the expiration, the plaintiffs
sought to have the agency re-implement and enforce the
regulations. The plaintiffs alleged that the failure to implement
the revised regulations violated the APA, the Davis-Bacon Act,
the Unfunded Mandates Act, and the RFA.

DOL had earlier certified under the RFA that its rule would not
have a significant economic impact on a substantial number of
small entities. Although the agency did not prepare a FRFA, the
court held that DOL had met the requirements of the RFA because
it had published a certification in the Federal Register along
with an adequate factual basis.

Northwest Mining Association v. Babbitt, 5 F. Supp. 2d 9 (D.D.C.
1998). In 1997, a coalition of small businesses challenged the
Bureau of Land Management (BLM) for failing to comply with the
RFA, the Small Business Act, and the APA, in promulgating a rule
that would require bonding for businesses and individuals with
mining rights. The rule was finalized nearly six years after it
was proposed. While the original proposal would have set a limit
on bonding requirements, the final rule contained provisions not
included in the original proposals-provisions that the public
therefore had no opportunity to comment on. BLM certified under
the RFA that the rule would not have a significant economic
impact on a substantial number of small entities. However, the
agency failed to substantiate its conclusions and used a series
of contradictory terms to define small businesses.

In January 1998, Advocacy filed its first ever amicus curiae
brief in court, challenging BLM's use of a small business size
standard that was not in compliance with the SBA's size standards
published in compliance with the Small Business Act. The brief
also raised concerns about BLM's failure to comply with the APA
and the substance of the economic analysis put on the record by
the BLM.

In its decision, the court agreed with Advocacy's position and
found that BLM had not complied with the RFA. The court held that
the rule's certification violated the RFA by failing to
incorporate a correct definition of "small entity." In remanding
the rule to the agency, the court reaffirmed the importance of
RFA compliance by stating: "While recognizing the public interest
in preserving the environment, the Court also recognizes the
public interest in preserving the right of parties which are
affected by government regulation to be adequately informed when
their interests are at stake and participate in the regulatory
process as directed by Congress."

North Carolina Fisheries Association, Inc., v. Daley, 27 F. Supp.
2d 650 (E.D. Va. 1998). In setting its 1997 quota for flounder
fishing, the NMFS continued the quota from the previous year. But
in doing so, the NMFS did not perform a regulatory flexibility
analysis. Instead, the agency certified that the rule would not
have a significant impact on a substantial number of small
businesses because the quota remained the same from 1996 to 1997.
However, there was no indication in the record that the NMFS
conducted any comparison of the conditions in 1996 and 1997.

The court remanded the quota to DOC, NMFS' parent agency, after
finding that DOC violated the RFA and failed to provide an
economic analysis sufficient to comply with National Standard 8
of the Magnuson-Stevens Act. The court ruled that DOC failed to
provide a proper factual statement to support its certification,
and ordered the agency to undertake enough analysis to determine
whether the quota had a significant economic impact on the North
Carolina fishery. On remand, the court granted the plaintiffs'
renewed motion for summary judgment and found that DOC "acted
arbitrarily and capriciously in failing to give any meaningful
consideration to the economic impact of the 1997 quota
regulations on North Carolina fishing communities." The court
then set aside the quota and imposed a penalty against the NMFS.

Greater Dallas Home Care Alliance v. United States, 36 F. Supp.
2d 765 (N.D. Tex. 1999). In 1998, the plaintiffs sought a
preliminary injunction alleging that Congress had acted
irrationally and unconstitutionally in passing those portions of
the Balanced Budget Act of 1997 which changed the method of
payment and reimbursement to home health care providers. The
plaintiffs further alleged that the Health Care Financing
Administration (HCFA) failed to comply with the RFA in
implementing the legislation because it did not assess the costs
and benefits of available regulatory alternatives and select
approaches to maximize these net benefits, including more cost-
effective options for regulatory relief for small businesses.

In June 1998, the court denied the plaintiffs' request for
preliminary injunction and ruled that HCFA acted properly. On the
RFA issue, the court stated that because the underlying statute
set forth in detail the formula for the new cost limit, it found
that HCFA was merely implementing Congress' directives and was,
therefore, not required to conduct a regulatory flexibility
analysis.

In a subsequent motion to reopen the case, the plaintiff sought
to include a letter written by Advocacy, dated June 15, 1998, as
new evidence. Advocacy's letter had criticized HCFA's procedure
in promulgating the regulations. The court denied the motion,
stating that the letter is a legal opinion on issues fully
presented and argued during the hearing already held. The court
also found that, even if the letter contained factual
information, it was cumulative and duplicative of evidence
presented by witnesses, and that admitting it into evidence would
be prejudicial and disruptive because the defendants would be
allowed to cross-examine the authors of the letter and call
witnesses in opposition. In February 1999, the court dismissed
the entire proceeding.

Tutein v. Daley, 43 F. Supp. 2d 113 (D. Mass. 1999). In 1998, New
England commercial fishermen of Atlantic bluefin tuna filed suit
against the DOC secretary, asserting that the secretary acted in
an arbitrary and capricious manner in issuing an advisory
guideline for defining "overfished," and by declaring the
Atlantic bluefin tuna overfished based on stock size rather that
fish mortality rates. In addition to the plaintiffs' arguments
under the Magnuson Fishery Conservation and Management Act, they
also claimed that the secretary violated the RFA by failing to
prepare a regulatory flexibility analysis for the guideline. DOC
had certified under the RFA that the guideline would not have a
significant impact upon a substantial number of small entities.

The court dismissed one of the plaintiffs' counts by ruling that
Congress did not intend to allow for judicial review of an
advisory guideline under the APA and the Magnuson Act. As for the
RFA argument, the court deferred its ruling by accepting the
agency's argument that the issue is not ripe for decision by the
court at this time. The court did find that the issue could be
reviewed within the fisheries management program and the
implementation of final regulations for consistency with national
standards and other laws such as the RFA.

National Propane Gas Association v. Department of Transportation,
43 F. Supp. 2d 665 (N.D. Tex. 1999). In 1997, DOT's Research and
Special Programs Administration (RSPA) instituted an emergency
interim final rule to address concerns about the transportation
of compressed gas on highways. RSPA later modified and adopted
the interim final rule as the emergency discharge control
regulation for loading or unloading of cargo tank motor vehicles.
The regulation required vehicle operators to shut down
immediately if they learned of a gas leakage.

Gas companies brought suit alleging various violations of the APA
and RFA. Plaintiffs challenged the rule on the ground that
defendants failed to prepare a FRFA as required by the RFA. The
agency argued that the rule was not subject to RFA because the
law applies only to rules for which an agency is required to
publish an NPRM pursuant to the APA. RSPA asserted that an NPRM
was not required here because of the emergency nature of the
rule. Nevertheless, RSPA claimed that in preparing preliminary
and final regulatory evaluations under Executive Order 12866, the
agency did analyze the impact of the interim final rule and the
final rule on all affected parties, including small businesses.

The court agreed, and found that although the agency did not
prepare a FRFA, all of the elements of a FRFA were available
throughout their summary of such analysis published in the
Federal Register. Based on this interpretation, the court found
that RSPA complied with each of the requirements of the RFA,
including responding to comments and consideration of
alternatives. The court asserted that a preliminary regulatory
evaluation was available in the docket for the public to provide
comment, and it also found that to require an additional analysis
by the agency would be duplicative.

Southern Offshore Fishing Association v. Daley, 55 F. Supp. 2d
1336 (M.D. Fla. 1999). In May 1997, the plaintiff brought suit
against the DOC secretary, challenging commercial harvest quotas
for Atlantic sharks pursuant to judicial review provisions of the
Magnuson-Stevens Act and the RFA. For the year 1997, NMFS
promulgated a 50 percent quota reduction for sharks, which the
plaintiff argued would have a significant economic impact on the
fisheries. After almost three years of litigation, this matter is
still pending, and a federal court in Florida maintains
jurisdiction of NMFS actions in this regard.

In 1997, Advocacy filed to intervene as amicus curiae in this
litigation. Although Advocacy ultimately withdrew from the matter
after the Department of Justice stipulated that the standard of
review for RFA cases should be "arbitrary and capricious,"
Advocacy's involvement during the comment period on the agency's
proposal was influential in the court's decision. For example,
the court noted that the Chief Counsel for Advocacy is the
"watchdog of the RFA," and quoted excerpts from Advocacy's
comments on the proposed rule as the court chastised NMFS for not
complying with the RFA.

In February 1998, the court ruled that DOC was not arbitrary and
capricious in its decision to reduce the quota. However, the
court found that DOC's certification of "no significant economic
impact" and the FRFA failed to meet APA standards and RFA
requirements, and remanded the matter to the agency with
instructions to undertake a rational analysis of the economic
effects and potential alternatives. The court retained
jurisdiction over the case to review the economic analysis.

On remand, the NMFS prepared a draft analysis and published it
for public comment, but after reviewing it, Advocacy again
concluded that the analysis did not comply with the RFA. The
court issued another order in October 1998, critiquing the
insufficiency of the court-ordered economic analysis of the
effects of the reduction in the shark quota submitted by NMFS.
Accordingly, the court appointed a "special master" pursuant to
Rule 53 of the Federal Rules of Civil Procedure to assist the
court in reviewing NMFS' consideration of alternatives. The
defendant objected to the special master referral, and requested
the court to instead remand the matter again to NMFS for yet
further economic analysis. The court denied this request, but,
following subsequent requests from the parties, it extended the
stay of the special master proceedings through June 1999.

In June 1999, the plaintiff filed a "Notice of Quota Reduction
Contrary to Court Order," alerting the court that NMFS had
promulgated new regulations, to become effective July 1, 1999,
which substantially reduce the Atlantic shark quotas from
operative 1997 levels and implement new, more restrictive fish
management and counting methods. The court thus issued an order
requiring the parties to show cause why "preventative relief and
contempt sanctions (including injunctive relief and fines, if
appropriate)" should not issue against the defendant agency for
its "imminent violation" of the court's earlier orders requiring
that the 1997 Atlantic shark quotas be maintained "pending remand
and until further order of the Court." Following written
responses, the court held a hearing on this new issue. The next
day, on June 25, 1999, the plaintiff filed a new lawsuit,
challenging the newly issued regulations. This new lawsuit was
consolidated with the instant matter.

On this new issue, NMFS took the position that the new
regulations are consistent with the court's previous orders
because they are merely a required step in the agency's ongoing
obligation to manage and preserve fish stocks. The plaintiff
argued that the agency cannot effectuate these new regulations
until the court relinquished jurisdiction over the ongoing remand
proceedings and entered a final order. The court agreed, and held
that NMFS violated both the spirit and letter of the court's
earlier rulings in this case by implementing the new regulations.
The court then issued an injunction to NMFS from enforcing the
new regulations until the agency can establish bona fide
compliance with the court's earlier orders.

On October 1, 1999, the special master submitted his findings and
recommendations to the court, finding that NMFS' failure to
collect meaningful economic data was arbitrary and capricious.
Additionally, the special master found that NMFS' failure to give
any consideration to alternatives to the quota was a wanton
repudiation of the court's instruction on remand, and that the
agency's conduct constituted bad faith and a lack of candor to
the court. The agency filed objections to these findings.

On March 2, 2000, the court held a hearing to determine whether
the special master's findings should be adopted. Subsequent to
this hearing, a settlement was reached between the plaintiff and
NMFS. While the court has yet to approve the settlement
agreement, in November 2000, federal regulators agreed to delay a
decision on new shark fishing quotas until after a review of
current and future shark stocks by a group of independent
scientists.

American Moving and Storage Association, Inc., v. Department of
Defense, 91 F. Supp. 2d 132 (D.D.C. 2000). The U.S. Department of
Defense (DOD) published a notice in the Federal Register
announcing a significant change in procurement policy regarding
its source for distance calculations for payments and audits in
its transportation procurement programs from a previously used
official mileage table to a new computer software program.
Plaintiffs asserted that the change would have a significant
economic impact on small carriers, requiring RFA compliance. DOD
asserted that the policy change was not a "rule" as defined by
the RFA, and therefore, it did not have to comply with the RFA.
The court agreed with the agency and held that the procurement
policy change was not a "rule" for RFA purposes. As a result, the
RFA did not apply.

AML International, Inc., v. Daley, 107 F. Supp. 2d 90 (D. Mass.
2000). NMFS implemented a management plan for the spiny dogfish
industry that imposed quotas that effectively shut down the
industry for the next five years. Plaintiffs asserted that NMFS
failed to comply with the RFA because it did not perform a
regulatory flexibility analysis in implementing the interim final
rule. Plaintiff also argued that NMFS failed to consider
alternatives.

The court found that NMFS had met its RFA obligations because it
had published an RFA analysis prior to the final rule. Regarding
the argument that NMFS failed to provide adequate notice for the
interim final rule, the court found that the agency had good
cause for bypassing the notice and comment provisions of the APA.
Therefore, NMFS was not required to perform an RFA analysis. The
court also found that the consideration of alternatives was
sufficient, opining that the agency is not required to address
all alternatives, but only the significant ones. The court found
that NMFS considered and rejected alternatives because they did
not meet the mandate of the Magnuson-Stevens Act nor provide long-
term economic benefits greater than those of the proposed action.

Finally, the court found that the RFA must be consistent with the
conservation requirements of the Magnuson Act. Accordingly, the
requirements of the RFA pertaining to adverse impacts are to be
applied to the extent practicable given the conservation
objectives of the Magnuson Act.

Communities for a Great Northwest, Ltd. v. Clinton, 112 F. Supp.
2d. 29 (D.D.C. 2000). Agricultural and environmental
organizations challenged the validity of a draft environmental
impact statement prepared for a federal land management plan.
Plaintiffs alleged that the U.S. Department of Agriculture and
BLM had violated the APA and the RFA.

The court found that the APA and RFA allow judicial review only
of final agency actions. Since a draft environmental impact
statement is not a final agency action, the court held that the
plaintiffs did not have standing to sue.

National Association of Psychiatric Health Systems v. Shalala,
No. CIV.A.99-2025-GK, 2000 WL 1677210 (D.D.C. Sept. 14, 2000).
The U.S. Department of Health and Human Services (HHS)
promulgated an interim final rule that required a physician or
other licensed independent practitioner to evaluate a patient
face to face, within one hour after the patient has been placed
in restraints or in seclusion. The rule was a condition of
participation in the Medicare program. The one-hour rule was not
a part of the proposed rulemaking. It was published as a part of
the interim final rule without opportunity for notice and
comment.

Private psychiatric hospitals and organizations that represent
private psychiatric hospitals and psychiatric units in acute care
hospitals challenged the rule. The plaintiffs alleged that HHS
failed to comply with the requirements of the APA and the RFA in
promulgating the rule. The court found that HHS had complied with
the APA, but not the RFA.

Regarding the RFA, HHS certified the rule at the time of the
proposal. Plaintiffs did not object to that certification.
However, plaintiffs argued that because the final rule was
dramatically different from the proposed rule, HHS was required
to perform an adequate FRFA or certify that the rule would not
have a significant economic impact. Plaintiffs argued that HHS'
conclusory statement that it did not "anticipate . . . a
substantial economic impact on most Medicare-participating
hospitals" did neither. Specifically, plaintiffs argued that HHS
had not met the requirements of 604(a)(2),(4), and (5) of the
RFA.

Section 604(a)(2) requires an agency to provide comments in
response to the IRFA. HHS argued that an IRFA was not needed at
the time of the proposed rule because it had certified that there
was no significant economic impact. Therefore, HHS argued that
there were no IRFA-related issues to be discussed in the FRFA.
The court agreed with HHS. Likewise, the court agreed that HHS
had met the requirements of Section 604(a)(4) of the RFA, which
requires the agency to describe reporting, recordkeeping, or
other compliance requirements, and estimate the classes of small
entities subject to the requirement and the professional skills
necessary for preparation of those requirements.

However, the court found that HHS failed to comply with Section
604(a)(5) of the RFA. This section requires the agency to
describe the steps that it has taken to minimize the significant
economic impact on small businesses, include a statement of the
factual, policy, and legal reasons for selecting the alternative
adopted in the final rule, and explain why each of the other
significant alternatives was rejected. The court found that since
there was no discussion of alternatives, HHS had not met its
obligations under the RFA. The court remanded the matter to HHS
for completion of a compliant FRFA. However, the rule remained in
effect because the plaintiffs were unable to show irreparable
harm and that the public interest would be best served by
enjoining the enforcement of the rule.

Blue Water Fisherman's Association v. Mineta, No. CIV.A.99-2846-
RWR, 2000 WL 1610349 (D.D.C. Sept. 25, 2000). NMFS promulgated
the final 1999 fishery management plan for Atlantic tuna,
swordfish, and sharks. Plaintiffs asserted that the following
provisions of the plan violated the Magnuson-Stevens Act and the
RFA: placing limits on the amount of Atlantic bluefin tuna that
can be caught and kept per fishing trip; banning of fishing
during the month of June; placing annual quotas on blue sharks
and subquotas for porbeagle sharks; and requiring all pelagic
longline fishers to install a VMS unit on their vessels.

On the RFA claim, plaintiffs argued that NMFS did not prepare an
IRFA or FRFA for the pelagic shark quotas and the Atlantic
bluefin tuna trip limits. The court dismissed the claim, stating
that the record reflected that the IRFA was in the record and the
information for the FRFA was included in the final regulatory
impact review. The court stated that there was nothing improper
about an agency performing its IRFA and FRFA in connection with
another regulatory analysis required by law.

Plaintiffs also argued that NMFS failed to define the relevant
universe of fishers who depend on revenue only from pelagic shark
or Atlantic bluefin tuna. The court found that NMFS identified
several different possible universes for sharks and evaluated the
impacts on each universe. The court reasoned that since shark
permits allow holders to catch pelagic, large, and small coastal
sharks, it would be nearly impossible to identify the universe of
fishers who catch only pelagic sharks. Likewise, the court found
that NMFS identified several relevant universes of fishers that
depend on revenue from Atlantic bluefin tuna and evaluated the
impact of trip limits on each of those groups.

Moreover, plaintiffs argued that NMFS failed to consider the
alternatives that would lessen the impact on fishers. The court
disagreed, stating that NMFS did consider alternatives and, in
fact, adopted an alternative based in part on plaintiffs'
comments. The court further stated that while NMFS clearly did
not give in-depth consideration to each alternative, the RFA only
requires the agency to consider alternatives that would
accomplish the stated objectives to the rule.

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

1.  5 U.S.C.  601 et seq.
2.  5 U.S.C.  601 2(a), (4) and (5).
3.  5 U.S.C.  612 (a).
4.  5 U.S.C.  612 (b).
5.  Specifically, panels must be convened whenever these two
agencies believe they will be required to perform an initial
regulatory flexibility analysis. See: 5 U.S.C.  609 (b).
6.  See Appendix J of the Background Paper on the Office of
Advocacy, 1994-2000, at http://www.sba.gov/advo www.sba.gov/advo,
for a list of court cases that address RFA issues.
7.  Advocacy has instituted a tracking system to document time
spent on pre-proposal work. This is one measure of work output
since the work product of these consultations (memos, meetings,
etc.) by law are not available for public disclosure.
8.  In FY 2000, Advocacy worked with the following agencies on
pre-proposal work: the Department of the Interior, the National
Forest Service, the National Marine Fisheries Service, the
Department of Labor, the Department of Transportation, the
Department of Health and Human Services, the Food and Drug
Administration, the Internal Revenue Service, the Securities and
Exchange Commission, and the Office of Information and Regulatory
Affairs.
9.  5 U.S.C. 609 (a)
10. In July 1999, EPA decided to withdraw the industrial
laundries water pollution regulation. Based on the EPA's economic
analysis, Advocacy estimates the savings to be $103 million
annually. See press release on Advocacy's home page at
www.sba.gov/advo.
11. These hours are just the hours spent by Advocacy staff on the
60-day panel process and are in addition to the 4,300 hours,
referenced earlier, spent on pre-proposal work with agencies.
12. As an aside, Advocacy's cost estimates for the ergonomics
rule were used, but misquoted, in the November 8, 2000, episode
of the TV program West Wing.
13. The scope of this work is, however, determined by the amount
of funding available..
14. Executive Order No.12866, 58 Fed. Reg. 51,735 (1993); The
Paperwork Reduction Act, 44 U.S.C. 3501 et seq.
15. Advocacy's budget and staffing are not separate items in the
SBA's budget. These figures are therefore estimates.
16. These issues were inadvertently omitted from Advocacy's FY
1999 report, but the agency has yet to address the problems
satisfactorily, in Advocacy's view. Therefore, they are mentioned
in this FY 2000 report.
17. 126 Cong. Rec. S10938 (1980), (Section-by-Section Analysis of
the Regulatory Flexibility Act).
18. 126 Cong. Rec. at S10941 and 10942.
19. 126 Cong. Rec. at S10942.
20. 126 Cong. Rec. at S10938.
21. 126 Cong. Rec. at H24578.
22. 126 Cong. Rec. at H24593.
23. 126 Cong. Rec. at H24595.
24. See Appendix "P" to the Background Paper on the Office of
Advocacy, 1994-2000 at www.sba.gov/advo.
25. See Chief Counsel's testimony of June 21, 2000, at
www.sba.gov/advo.
1b.  James V. Hurson Associates, Inc. v. Glickman, 229 F.3d. 277
(D.C. Cir. 2000).
2b.  Over the last few years, the number of comment letters that
Advocacy has written to NMFS has declined significantly. This
decline is attributable in part to improvement in NMFS' RFA
compliance efforts and partly to Advocacy's decision to try to
resolve disputes through negotiation.
3b.  See Annual Report of the Chief Counsel for Advocacy, 1998,
p.19.
4b.  995 F. Supp. 1411 (M.D. Fla. 1998).
5b.  See A.M.L. International, Inc. v. Daley, 107 F. Supp. 2d 90
(D. Mass. 2000).
6b.  36 F. Supp. 2d 765 (N.D. Tex. 1999).
7b.  National Association of Psychiatric Health Systems v.
Shalala, No. Civ.A. 99 - 2025 GK, 2000 WL 1677210, (D.D.C. Sept.
14, 2000).
8b.  Northwest Mining v. Babbitt, 5 F. Supp. 2d 9 (D.D.C. 1998).
9b.  The final ergonomics standard was published in the Federal
Register on November, 14, 2000.
10b. 64 Fed. Reg. 26, 6488.
11b. See The Changing Burden of Regulation, Paperwork and Tax
Compliance:  A Report to Congress (SBA Advocacy 1995).
12b. Section 601 of the RFA uses the same definition of "agency"
as found in 5 U.S.C.  551(1). See 5 U.S.C.  601. Pursuant to 39
U.S.C.  410, the USPS is exempt from complying with  551 of
Title 5.
13b. Advocacy made this argument because it applied only to CMRA
facilities and not to other bulk mail types of receiving
facilities such as hotels, colleges, corporate suites etc.
Moreover, there was no information to indicate that fraud was
occurring at any greater rate at CMRAs than through the regular
mail, USPS postal boxes, or other means of delivery.
1c.  The cost savings is the difference between the option
originally preferred by the EPA and the one finally selected in
the rule. The EPA had originally developed two sets of cost
estimates, leading to two estimates of cost savings. As a result,
the Office of Advocacy estimates that the savings for this rule
range from $2 million to $15 million per year. The arithmetic
average of the two figures, rounded to the nearest million,
equals $9 million.
2c.  With a 4-year deferral of the compliance date for the final
standard, small refiners realize a net cost savings for the final
rule relative to the proposed rule. Using EPA's 15-year project
life for the pollution control equipment and OMB's recommended 7
percent discount rate, the one-time and corresponding equivalent
annual net cost savings were calculated. The one-time savings
total approximately $800 million. The equivalent annual savings
are $91 million.
Note: This appendix was prepared in 1999 as a chapter for The
State of Small Business: A Report of the President.
1d.  The Regulatory Flexibility Act, Pub. L. No. 96-354, 94 Stat.
1164 (codified at 5 U.S.C.  601 et seq.), became law on
September 19, 1980.
2d.  Findings and Purposes, Pub. L. No. 96-354.
3d.  Id.
4d.  Id.
5d.  Id
6d.  5 U.S.C.  602(a)(1), 605(b).
7d.  Id.  603.
8d.  See id.  603(c).
9d.  See id.  604.
10d. Id.  612(b).
11d. Id.  605(b).
12d. The Small Business Regulatory Enforcement Fairness Act of
1996, Pub. L. No. 104-121, 110 Stat. 857 (codified at 5 U.S.C.
601 et seq.), was signed by President Clinton on March 29, 1996.
13d. See Findings, Pub. L. No. 104-121 ("Congress finds that [RFA
requirements] have too often been ignored by government agencies,
resulting in greater regulatory burdens on small entities than
necessitated by statute.")
14d. See, e.g., U.S. Small Business Administration, Office of
Advocacy, Annual Report of the Chief Counsel for Advocacy on
Implementation of the Regulatory Flexibility Act, Reports for
Calendar Years 1996, 1997, 1998, 1999.
15d. 17 C.F.R.  230.504
16d. See generally 5 U.S.C.  609(b)-(e).
17d. Id.  611.
18d. Regulatory Flexibility Act Implementation: Hearings Before
the Subcomm. on Fisheries, Conservation, Wildlife and Oceans,
Comm. on Resources, 106th Cong., 1st Sess. (1999) (Statement of
Penelope D. Dalton, assistant administrator for fisheries,
National Marine Fisheries Service, National Oceanic and
Atmospheric Administration, U.S. Department of Commerce).
19d. 5 U.S.C.  612
20d. 5 F. Supp. 2d 9 (D.D.C. 1998).
21d. 5 U.S.C.  551 et seq.
22d. 5 F. Supp. 2d 9 at 14-15.
23d. 332 U.S. Ct. App. D.C. 133 (1998).
24d. Id. at 154.
25d. Id. at 154.