Annual Report of the
          Chief Counsel for Advocacy
          on Implementation of the
          Regulatory Flexibility Act,
          Fiscal Year 1999
          The Eve of the Act's 20th Anniversary
          
                            Contents

     Executive Overview                                        
     
     The Regulatory Flexibility Act and Agency Compliance      
     with the Law
     
     Highlights of Advocacy's RFA Activities during Fiscal     
     Year 1999
     
     Department of Agriculture                                 
     Department of Commerce                                    
     Department of Health and Human Services                   
     Department of Interior                                    
     Department of Labor                                       
     Department of the Treasury                                
     Environmental Protection Agency                           
     Federal Communications Commission                         
     Federal Trade Commission                                  
     Federal Procurement Agencies                              
     United States Postal Service                              
     
     Conclusion                                                
     
     Appendix A:  The Regulatory Flexibility Act               
     
     Appendix B:  RFA Court Decisions Published since the      
     1996 SBREFA Amendments to the RFA
     
     Appendix C:  The Office of Advocacy, U.S. Small           
     Business Administration
     
     Appendix D:  Regulatory Comments Filed by the Office      
     of Advocacy during Fiscal Year 1999
     
     Appendix E:  RFA-Related Testimony Presented by the       
     Office of Advocacy during Fiscal Year 1999
     
     
     To the President and Congress of the United States:
     
     The Regulatory Flexibility Act (RFA) will be 20 years old on
     September 19, 2000.  This is the nineteenth annual report
     submitted by a Chief Counsel for Advocacy since enactment of
     that law, and the fourth report since enactment of the 1996
     Small Business Regulatory Enforcement Fairness Act (SBREFA)
     amendments to the RFA.
     
     I am pleased to report that the RFA, as amended by the 1996
     SBREFA amendments, is making a difference.  There is a
     noticeable cultural change underway in agencies and here is
     the tangible proof:
     
    	  As a result of RFA intervention by Advocacy, small
          businesses, and SBREFA panels, agencies-to their credit-made
          changes to final regulations in Fiscal Year 1999 that reduced
          potential regulatory costs by almost $5.3 billion.

          And, this was accomplished without compromising public
          policy objectives.
     
     In 1980, Congress enacted the RFA with the expectation that
     agencies would alter their approach to regulatory
     development and consider regulatory alternatives that were
     less burdensome on small business but equally effective in
     achieving public policy objectives.
     
     In 1996, Congress strengthened the RFA with SBREFA
     amendments that: authorize the courts to review agency
     compliance with the RFA, providing for the first time an
     enforcement remedy; require the Environmental Protection
     Agency (EPA) and the Occupational Safety and Health
     Administration (OSHA) to convene Small Business Advocacy
     Review Panels to ensure real world input from affected small
     entities on burdensome impacts; and reaffirm the authority
     of the Chief Counsel to file amicus curiae (friend of the
     court) briefs in regulatory appeals.
     
     Small Business Advocacy Review Panels-The Importance of Data
     Since enactment of SBREFA, 18 Small Business Advocacy Review
     Panels completed work on a diverse range of EPA and OSHA
     regulatory proposals.  Approximately 300 small entities
     throughout the country were consulted in the course of the
     panels' deliberations.  Arguably the most rewarding aspect
     of the panel process is the fact that small entities brought
     real world experiences to the panels' discussions.  Small
     entities seldom challenged the need for regulatory
     solutions, but the information they provided did in fact
     challenge agency estimates as to cost and regulatory
     effectiveness.  This input was important in identifying
     equally effective alternatives-all of which resulted in
     major changes to regulatory proposals.  In one instance, a
     proposal was withdrawn in its entirety when the data showed
     there was no need for a national regulation.
     
     Significantly, lessons learned through the panel process and
     court decisions as to the importance of data is not lost on
     other agencies.  Agencies are beginning to appreciate how
     important economic impact analyses and industry input are to
     their public policy and regulatory efforts.
     
     The Impact of RFA and SBREFA on Other Agencies
     The fact that agency compliance with RFA may now be reviewed
     by the courts, coupled with the fact that small entities are
     taking advantage of this remedy to challenge agency
     compliance, provides a strong incentive for agencies to
     examine more carefully the small business impact of their
     regulatory proposals.  For example, we have seen changes at
     agencies such as the Health Care Finance Administration and
     the Agricultural Marketing Service, the impact of which is
     not yet clear.  But what we do know is that they are now
     seeking Advocacy's assistance early in their deliberations
     on how best to comply with the RFA.  Industries regulated by
     these agencies are dominated by small entities whose
     survival-or extinction-in the marketplace hinges on the
     level of regulatory burden they must bear.  The RFA in such
     instances is a safety net for small entities.
     
     Some agencies, still struggling with economic impact
     analyses, argue that the RFA imposes additional burdens on
     limited resources.  Advocacy is of the view that if, in
     fact, the analytical process mandated by RFA is imposing
     additional burdens, it is only because agencies have not
     internalized the process.  Some agencies have yet to accept
     the concept that less burdensome alternatives may be equally
     effective in achieving statutory mandates.  Once this
     concept is accepted, the analytical process mandated by the
     RFA will be second nature and the regulatory process itself
     will be more efficient.
     
     When Good News Is Also Bad News
     As stated above, increased compliance with the RFA resulted
     in changes to regulations that saved small business almost
     $5.3 billion in potential costs.  That is the good news.
     The bad news, however, is that agencies proposed regulations
     that-but for the RFA and the intervention of Advocacy and
     others-would have imposed unnecessary costs of $5.3 billion
     on small business.
     
     Data and agency resistance to the consideration of
     meaningful and less burdensome alternatives is the heart of
     the problem.  Moreover, agencies do not yet clearly
     understand that compliance with the RFA does not mean
     special treatment for small business at the expense of sound
     public policy.  Correcting these misconceptions will remain
     the focus of Advocacy's activities in the coming years.
     
     In a departure from previous reports, and to be consistent
     with the information that must be reported each year under
     the Government Performance and Results Act of 1993, this
     year's RFA report is on a fiscal year basis rather than on a
     calendar year basis.  If you have any questions or comments,
     please feel free to call me at (202) 205-6533, or contact me
     via e-mail at jere.glover@sba.gov.
     
     Respectfully submitted,
     
     
     Jere W. Glover
     Chief Counsel for Advocacy
     March 2000

                          Abbreviations
     
     AMS            Agricultural Marketing Service
     APHIS               Animal and Plant Health Inspection
     Service
     APA            Administrative Procedure Act
     BLM            Bureau of Land Management
     C.F.R.              Code of Federal Regulations
     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
     EPA            Environmental Protection Agency
     FAA            Federal Aviation Administration
     FAR            Federal Acquisition Regulation
     FCC            Federal Communications Commission
     FDA            Food and Drug Administration
     FMC            Fishery Management Council
     FNS            Food and Nutrition Service
     FPI            Federal Prison Industries
     FRFA           final regulatory flexibility analysis
     FSIS           Food Safety and Inspection Service
     FTC            Federal Trade Commission
     FWS            Fish and Wildlife Service
     GAO            General Accounting Office
     GSA            General Services Administration
     HCFA           Health Care Financing Administration
     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
     IRFA           initial regulatory flexibility analysis
     IRS            Internal Revenue Service
     MMS            Minerals Management Service
     MSHA           Mine Safety and Health Administration
     NARA           National Archives and Records Administration
     NASA           National Aeronautics and Space 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
     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
     P.L.           Public Law
     PRA            Paperwork Reduction Act
     PWBA           Pension and Welfare Benefits Administration
     RFA            Regulatory Flexibility Act
     RSPA           Research and Special Programs Administration
     SBA            Small Business Administration
     SBREFA         Small Business Regulatory Enforcement
     Fairness Act
     SEC            Securities and Exchange Commission
     USDA           U.S. Department of Agriculture
     U.S.C.              United States Code
     USPS           United States Postal Service
     VA             U.S. Department of Veterans Affairs
     WIPO           World Intellectual Property Organization

         Annual Report on the Regulatory Flexibility Act
                       Fiscal Year 1999  7
                       Executive Overview

Introduction

In 1980, Congress enacted the Regulatory Flexibility Act (RFA)
with a mandate to federal regulatory agencies to analyze the
impact of their regulations on small entities and to consider
alternatives that would be equally effective in achieving public
policy goals without unduly burdening small entities.

In 1996, Congress enacted the Small Business Regulatory
Enforcement Fairness Act (SBREFA) which amended the RFA in
several significant ways.  First, it gave the courts jurisdiction
to review agency compliance with the RFA, thus providing for the
first time an enforcement venue to ensure agency compliance with
the law.  Second, it mandated that the Environmental Protection
Agency (EPA) and the Occupational Safety and Health
Administration (OSHA) convene Small Business Advocacy Review
Panels to consult with small entities on the impact of
regulations before the regulations are published for public
comment.  This amendment formalized for these two agencies a
process for involving small entities in the agencies'
deliberations on the effectiveness of regulations that would
impose mandates on them.  Third, it reaffirmed the authority of
the Chief Counsel of Advocacy to file amicus curiae (friend of
the court) briefs in appeals brought by small entities from
agency final actions.  (See Appendix A for the complete text of
the law.)

By the end of Fiscal Year 1999, SBREFA had been in effect for a
little over three years.  It is clear that the 1996 amendments
are having a major impact on the work of federal agencies.  Small
entities are increasingly seeking judicial review of agency
compliance with the RFA and having some success.  (Appendix B
provides a summary of all significant RFA court decisions that
have been published since 1996.)  Agencies are watching court
decisions closely and are increasingly seeking assistance from
the Office of Advocacy in the earliest stages of regulatory
development, thus expanding the work of Advocacy in pre-proposal
activities to minimize harmful small business impacts.


The Role of the Office of Advocacy

Congress created the Office of Advocacy within the U.S. Small
Business Administration in 1976 to be an independent voice for
small business in the formulation of public policy.  The office
was given, among others, very specific statutory mandates to:

     Y    examine and report on the constantly changing role of small
       business in the economy;

     Y    measure the direct costs and other effects of government
       regulation on small business;

     Y    determine the impact of the tax structure on small
       businesses;

     Y    study the ability of financial markets and institutions to
       meet small business credit needs; and

     Y    recommend specific measures for creating an environment in
       which all businesses will have the opportunity to compete on a
       level playing field.

The RFA requires the Chief Counsel for Advocacy to report
annually to the President and the Congress on agency compliance
with the law, and the SBREFA made the Chief Counsel a statutory
member of the EPA and OSHA Small Business Advocacy Review Panels.

Essential to these mandates:

     Y    research on small business trends in the economy;

     Y    independent analyses of the impact of regulations on small
       business;

     Y    two-way communications with small business trade
       associations and leaders throughout the country on regulatory
       impacts and emerging issues;

     Y    ad hoc, industry-specific roundtables to discuss small
       business concerns; and

     Y    meaningful small business participation in the development
       of public policy.

A detailed description of the Office of Advocacy is in Appendix C
of this report.

Regulatory Issues-More Diverse and More Complex

In recent years, the economy has been extremely
dynamic-constantly churning-with technology changing industry
structure at an extremely rapid pace, creating new challenges for
analyses of regulatory impacts on small business.  Small business
is a major force in the changing economic landscape, contributing
major technological innovations that are spurring growth in the
economy and creating most of the new jobs.  As such, the
continued viability of small business must be ensured.

As the economy becomes more technology based, not surprisingly,
regulations are dealing with more and more complex societal
issues.  If regulations are unduly burdensome, however, they
could dampen the economic growth experienced in recent years.
Therefore, regulatory impact analyses are taking on an ever
increasingly important role in public policy deliberations.

Data Sources-Statistical As Well As Anecdotal

Policy makers are increasingly aware that the key to rational
decision making is data.  To provide answers to inquiries about
small business issues, the Office of Advocacy contracts with
independent entities for research on a wide range of emerging
public policy issues, such as the cost of regulation, contract
bundling, etc., as well as research on industry specific economic
impacts.  It also maintains a database, unique in the federal
government, on small business characteristics.  It has recently
designed a new database, the Business Information Tracking Series
(BITS), in cooperation with the Bureau of the Census, that allows
researchers to track specific companies through various stages of
growth.  This database will provide some important insights on
public policy needs.  For information on Advocacy's most recent
research reports and papers, visit Advocacy's home page at
www.sba.gov/advo.

In addition to this unique statistical data which provides an
historical perspective on small business trends, current or
anecdotal data are compiled by Advocacy through discussions with
small businesses, their representatives, and economic experts.
Ad hoc industry specific roundtables and conference calls are
held periodically to identify emerging issues and small business
impacts.  Advocacy has also hosted focus group discussions on
emerging trends with leading futurists, prominent small business
leaders, banking experts and researchers, and industrial
organization economists.

Impact of SBREFA-The Role of Data and Savings Achieved

SBREFA is having a major impact on the regulatory culture.  Of
this, Advocacy has no doubt.  There is a marked increase in
requests for Advocacy's assistance prior to publication of a rule
for public comment.  And Advocacy is playing a more important
role in the 90-day review of major rules conducted by the Office
of Information and Regulatory Affairs of the Office of Management
and Budget, a review that is mandated by Executive Order 12866.
This is a change from Advocacy's pre-SBREFA experience.  There is
also increased willingness on the part of regulatory agencies to
participate in Advocacy's industry roundtables where discussions
focus on current problems.  These roundtables play an important
role in opening up dialogue between small entities and government
regulators.  There is little doubt that this changing culture is
the result of the SBREFA amendment that authorizes the courts to
review agency compliance with the RFA.  This change in the law
provides a significant incentive for agencies to do what they can
to avoid legal challenges to their rules.

A few agencies, such as the National Marine Fisheries Service,
the Health Care Finance Administration, and the Agricultural
Marketing Service, have instituted some changes in response to
RFA mandates, but the impact of the changes is not yet clear.
However, any change could be significant since industries
regulated by these agencies are part of the basic structure of
the economy and are industries dominated by small entities.
While regulations affecting these industries are not front-page
news, regulatory impacts can often mean the difference between
survival and extinction of small entities in the industries.

Having said this, it is important to note that this cultural
change is by no means uniform among regulatory agencies.  The
largest hurdle to overcome remains agency resistance to the
concept that regulatory alternatives that are less burdensome on
small business may, in fact, be equally effective in achieving
public policy objectives.  Economic data thus become the force
majeure in overcoming this resistance.  And the value of economic
data has been demonstrated time and again in the work of the
Small Business Advocacy Review Panels where data has resulted in
creative solutions to public policy mandates.

Small Business Advocacy Review Panels-Lessons Learned

Since enactment of SBREFA, work has been completed on 18 Small
Business Advocacy Review Panels: 15 EPA panels and 3 OSHA panels.
Approximately 300 small entities have been consulted on a very
diverse range of rules.  Independent data on the impact of
regulatory proposals have played an important role in the
deliberations of the panels.  The additional input from small
entity representatives spotlighted real life consequences of
proposals under consideration.  Regulations that emerged from
this process have been changed in response to the information
provided, and are, for the most part, less burdensome than the
regulations originally considered.  In one instance, a regulation
was withdrawn entirely because the data clearly demonstrated that
there was no need for national regulation.

It is important to emphasize that, although the regulations that
emerged from the panels' deliberations were less burdensome on
small entities, public policy objectives were not compromised.
The lessons learned are the importance of data to rational
decision making in solving societal problems and how valuable
information on real world small business impacts can be in
identifying equally effective regulatory alternatives.

Although work on the panels has been productive, it has also been
labor intensive.  It is estimated that Advocacy alone has spent
an average of 500 to 600 hours on each panel for a total of
between 3,500 and 4,000 hours on the panels completed in Fiscal
Year 1999.  Work on two OSHA panels completed this year-given the
scope of the regulations considered-probably consumed more than
the average.

Regulatory Savings

The impact of SBREFA goes beyond just modifications to the rules
considered by the EPA and OSHA panels.  As stated earlier,
agencies logically wish to avoid judicial challenges to their
rules and are taking greater care to comply with the RFA.  The
potential for judicial review provides a great incentive for
agencies to integrate the comments of Advocacy and others into
their deliberations.  Agencies, to their credit, have changed
rules to minimize burdens on small entities and the changes made
in Fiscal Year 1999 alone reduced the potential cost of
regulations by almost $5.3 billion.  The specific cost savings
are detailed in the table on page 6.

Advocacy Activities in Fiscal Year 1999

Advocacy's activities primarily take the form of public record
communications with agencies on the impact of their regulations
on small business, and whether their regulatory justifications
and analyses of alternatives comply with the RFA.  (Appendix D
provides a complete list of all written communications and other
Advocacy RFA activities during Fiscal Year 1999.)  This is in
addition to Advocacy's work on EPA and OSHA panels and to its
increasing workload involving pre-proposal consultations with
regulatory agencies.  This year's report highlights some of those
public record communications to illustrate the range of issues
Advocacy must address.  Advocacy targets its resources to those
regulations where it can make a difference or where the small
business interest is significant, but underrepresented, in the
regulatory process.  To accomplish this, Advocacy reviewed over
1,300 proposed and final rules and submitted 76 formal comments
for the public record.

Advocacy also testifies before Congress and agencies on public
policy issues such as agency compliance with the RFA.  (Appendix
E contains the complete text of Advocacy testimony during Fiscal
Year 1999.)  Finally, this year's report contains a description
of Advocacy's activities involving two entities not subject to
the RFA-the Internet Corporation of Assigned Domain Names and
Numbers and the U.S. Postal Service.  Advocacy became involved
with these two entities because the entities' activities are
having a major impact on small businesses that dominate the
affected market.  Advocacy is of the view that small businesses
need a spokesperson to represent them in the proceedings of these
two entities.

Conclusion

This is the nineteenth report submitted by a Chief Counsel for
Advocacy since enactment of the RFA in 1980.  It is the fourth
report since enactment of the 1996 SBREFA amendments.  It should
be noted that this year's report is on a fiscal year basis rather
than on a calendar year basis.  This change was made in order to
be consistent with the information that must be reported each
year under the Government Performance and Results Act of 1993
(GPRA).

Even a cursory review of all these reports will reveal
differences.  The main differences are the role of data in
regulatory development and the impact of judicial review.  Cost
savings can now be documented using the data generated by the
regulatory agencies themselves and/or by other third party
sources.  These savings are the true measure of the RFA's impact.

While the savings are, on the one hand, good news, they are at
the same time, bad news-meaning agencies are still proposing
regulations that are burdensome on small business.  It is for
this reason that Advocacy continues to maintain that the biggest
hurdle to overcome is agency resistance to the notion that less
burdensome alternatives can be equally effective in accomplishing
public policy objectives.  It is this concept that needs to be
inculcated into regulatory agency deliberations.  And it is the
concept that will remain the focus of Advocacy's work in the
coming years.

          REGULATORY COST SAVINGS FOR FISCAL YEAR 1999

AGENCY           SUBJECT           ANNUAL SAVINGS    ONE-TIME
                                                     SAVINGS
EPA    Air Pollution Control from  $3 million(1)         
       Recreational Marine
       Engines
EPA    Effluent Limitations         $103 million         
       Guidelines for Industrial        (2)
       Laundries
EPA    Inventory Update Rule        $13 million          
                                        (3)
EPA    Radon Health Risk            $275 million         
       Reduction                        (4)
FCC    Customer Proprietary                            $476
       Network Information                          million(5)
FCC    Truth-In-Billing and                          $431.46
       Billing Format                               million(6)
FTC    Children's Online Privacy                       $75
       Protection                                   million(7)
HCFA   Competitive Bidding for     not available         
       Medical Equipment
       Suppliers
HCFA   Interim Payment System for       $260          $1,000
       Home Health Agencies          million(8)     million(9)
HCFA   Prospective Payment System      $1,440            
       for Hospital Outpatient      million(10)
       Services
ICANN  Internet Domain Name        not available         
       Dispute Resolution Policy
MMS    Determination of Need for   not available         
       the Royalty-In-Kind
       Program
NARA   Agency Records Center                          $1,076
                                                   million(11)
NMFS   Amendment 7 to the               $40              
       Atlantic Sea Scallop         million(12)
       Fishery Management Plan
NPS    Commercial Fishing in       not available         
       Glacier Bay
Treasu Small Business Pension      $83.4 million  
ry     Plans                            (13)
            SUBTOTALS:             $2,239,400,000 $3,058,460,00
                                                        0
GRAND TOTAL COST SAVINGS IN FY99:         $5,297,860,000

NOTES

1.  Source:  The Office of Advocacy, based on EPA's economic
analysis in the rulemaking record.

2.  Source:  The Office of Advocacy, based on EPA's economic
analysis in the rulemaking record.  The industry estimate,
according to the Uniform and Textiles Service Association, is
$200 to $450 million per year.

3.  Source:  The Office of Advocacy, based on EPA's economic
analysis in the rulemaking record, July 29, 1999.

4.  Source:  The Office of Advocacy, based on EPA's economic
analysis in the rulemaking record.

5.  Source:  FCC, Independent Alliance, and National Telephone
Cooperative Association.  Estimate reflects the average of the
cost savings estimates provided by trade associations.

6.  Source:  FCC and National Telephone Cooperative Association.

7.  Source:  The Office of Advocacy.  The FTC estimates that as a
result of the changes to the rule, 300 small businesses are
excluded from having to comply with the requirements that would
have cost each company $250,000.

8.  Source:  Bureau of National Affairs (Nov. 19, 1999).  The
legislation saves $1.3 billion over 5 years, which averages out
per year to $260 million in annual savings.

9.  Source:  Bureau of National Affairs (Nov. 19, 1999).  The
legislation saves $1 billion during the first year alone in
addition to the $1.3 billion saved over 5 years.

10. Source:  Bureau of National Affairs (Nov. 19, 1999).  The
legislation saves $7.2 billion over 5 years, which averages out
per year to $1.44 billion in annual savings.

11. Source:  National Archives and Records Administration.

12. Source:  David Frulla, Esq., counsel to the scallop industry.
The estimate reflects the expected revenue that the industry will
gain from scallop fishing in the George's Bank area.

13. Source: Joint Committee on Taxation, United States Congress,
H. Report 104-737 at 364.  The rule saves $834 million over 10
years, which averages out per year to $83.4 million in annual
savings.


 Annual Report on the Regulatory Flexibility Act

                     Fiscal Year 1999 
               The Regulatory Flexibility Act and
                 Agency Compliance with the Law

The Regulatory Flexibility Act (RFA)(1) is an important statute
that at long last, due largely to the 1996 SBREFA amendments, is
having an impact in the way the government views the role of
small business in the economy.  In brief, the RFA mandates an
analytical process that agencies must follow in order to level
the regulatory playing field for small businesses and to preserve
competition in the marketplace without compromising public policy
objectives.  Agencies must undertake a thorough analysis of the
economic impact of their proposed regulations, and consider
alternatives that will achieve the same public policy goals, but
with more equitable impact on small entities.

History of the RFA

Before the RFA was enacted in 1980, federal agencies did not
evaluate, nor did they see the need to evaluate, the impact that
their rules would have on small businesses.  It was not readily
understood that small businesses would suffer
disproportionately-compared to large businesses-from one-size-
fits-all regulations, and that this could harm competition.  More
often than not,  agencies failed to recognize or understand the
dynamic role that small businesses play and how important they
are to the nation's economic growth.

In 1980, when the first White House Conference on Small Business
was held in Washington, delegates to that conference sent a
message to the President and the Congress that was loud and
clear.  They took serious issue with burdensome federal
government regulations and sought relief.  Small businesses
argued that when a federal agency issues a regulation, the burden
of that law often falls hardest on them, not through any
intentional desire by the agency to harm them, but rather,
because one-size-fits-all regulations were easier to design and
easier to enforce.  No thought was given to any disproportionate
impact, nor to the possibility that alternatives might be equally
effective in achieving public policy objectives.  Direct costs
involved in complying with a regulation are often approximately
the same for a large company as for a small company.  But, since
a large company is able to spread the compliance cost over larger
output, it has the ability to maintain a competitive advantage
over a small company subject to the same regulation.

Additionally, because large businesses can afford to hire more
people to monitor proposed agency regulations and have easier and
more direct input into the regulatory process, small businesses
are inherently at a disadvantage in influencing final decisions
on regulations.

Recognizing this disparity in the level of input in the
regulatory process, as well as the disparate regulatory impact on
small businesses, Congress enacted the RFA in 1980 to alter how
agencies craft regulatory solutions to societal problems and to
change the one-size-fits-all regulatory mindset of the
regulators.(2)

The Analysis Required by the RFA

The RFA requires a federal agency to review its regulatory
proposals and determine if any new rule is likely to have a
"significant economic impact on a substantial number of small
entities."  If such impact is likely to occur, the agency must
then 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.

An essential part of this analysis is the identification of
alternatives to the proposed rule which could accomplish the same
regulatory objectives but with reduced economic impact on small
entities.  By mandating this analytical process, the RFA seeks to
ensure that agencies understand not only the industries they are
regulating, but the potential impact of their regulations on
small entities before it becomes too late to pursue alternative
measures.  Therefore, during this process, it is crucial for the
agencies to solicit meaningful input from the small business
community as early as possible.

The RFA is premised on the concept that when an agency undertakes
a careful analysis of its proposed regulations-with sufficient
small business input-the agency can, and will, identify any
disproportionate economic impact on small businesses.  Thus, once
an agency realizes the impact that a rule will have on small
businesses, the RFA expects that the agency will seek alternative
measures in order to reduce or eliminate the disproportionate
burden on small businesses without compromising public policy
objectives.  The RFA does not require special treatment for small
business, nor regulatory exceptions for small business.  Rather,
it mandates an analytical process for determining how best to
achieve public policy objectives without unduly burdening small
business.

Federal Agencies' Response to the RFA

The requirements of the RFA are clear.  However, in monitoring
agencies' compliance with RFA, the Office of Advocacy has found
over the years, and so reported to the President and the
Congress, that federal agencies often failed to conduct the
proper analyses as mandated by the law.  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 regulations, yet failed to comply with its requirements.

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 the agency's public policy objectives.  Thus, many
agencies failed-or even refused-to consider valid alternatives to
their proposals even when such options were brought to their
attention by small businesses during the rulemaking process.

Agency failures to weigh alternatives properly not only defeat
the core purpose of the RFA, they effectively preclude the
opportunity for small business to influence the regulatory
development process as Congress intended.  Until 1996, there was
no way to force agencies to comply.  Nor did the small business
community have any remedy to seek redress.  And, although the RFA
authorized the Chief Counsel for Advocacy to file amicus curiae
briefs in court cases involving agency regulation, Advocacy could
not raise the issue of agency noncompliance because the courts
did not have jurisdiction over the question.

The 1996 SBREFA Amendments to the RFA

The 1995 White House Conference on Small Business provided small
business owners another opportunity to seek an amendment to the
RFA authorizing judicial review of agency compliance with the
RFA.  They urged Congress to pass amendments that would add teeth
to the law.

In 1996, Congress enacted the Small Business Regulatory
Enforcement Fairness Act (SBREFA),(3) which amended the RFA in
several critical respects.  The SBREFA amendments to the RFA were
specifically designed to ensure meaningful small business input
during the earliest stages of the regulatory development process.

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

The SBREFA amendments also added a new provision to the RFA: a
requirement that Small Business Advocacy Review Panels be
convened to review EPA and OSHA rules that might affect small
entities.  The purpose of the panels is to elicit comments from
small entities on a rule's impact and on alternatives that should
be considered, and to develop a report on the panel's findings
for the head of the agency within 60 days.

Impact of the SBREFA Amendments

Three full years after SBREFA amended the RFA, there are now
visible signs that the regulatory environment for small
businesses has changed for the better.  The fact that courts may
now review agency compliance with the RFA is a significant
inducement for agencies to improve compliance in order to avoid
court challenges.  Consequently, some agencies have implemented
significant changes to their rulemaking deliberations in order to
do a better job with RFA compliance.  More and more agencies are
reaching out to Advocacy early in the process to seek guidance on
compliance with the RFA.  In addition, Advocacy has conducted
several training sessions for agency personnel and continues to
do so at an agency's request.  Some agencies have hired personnel
specifically to monitor internally the agency's compliance with
the analytical process mandated by the law.

Judicial Review

Other agencies are learning to comply with the RFA as the result
of litigation, which is producing a body of case law interpreting
the RFA.  Agencies are carefully monitoring these developments to
avoid similar challenges to their rules,  since it has become
clear that small entities are not hesitant to initiate court
challenges in appropriate cases.  (See Appendix B for a list of
known cases filed since passage of SBREFA.)

Small Business Advocacy Review Panels

SBREFA mandated that, whenever EPA or OSHA finds that a
regulatory proposal may have 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.

It has been Advocacy's experience working on the panels that the
agencies' economic impact analyses have greatly improved, and the
RFA-mandated process has been productive for both the agencies
and small businesses.  Since the time the SBREFA amendments were
enacted through the end of Fiscal Year 1999, 18 panel reports had
been completed (15 EPA and 3 OSHA) and approximately 300 small
entities had been consulted by the panels on the rather diverse
issues as described in the following chart.

           EPA SBREFA PANELS THROUGH FISCAL YEAR 1999
                                
        Rule Subject             Date      Report    NPRM
                               Convened   Complete
                                              d
Non-Road Diesel Engines        03/25/97   05/23/97  09/24/9
                                                       7
Industrial Laundries Effluent  06/06/97   08/08/97  12/12/9
Guideline                                              7
Stormwater Phase 2             06/19/97   08/07/97  01/09/9
                                                       8
Transport Equipment Cleaning   07/16/97   09/23/97  06/25/9
Effluent Guideline                                     8
Centralized Waste Treatment    11/06/97   01/23/98  01/13/9
Effluent Guideline                                     9
Underground Injection Control  02/17/98   04/17/98  07/29/9
Class 5 Wells                                          8
Ground Water                   04/10/98   06/09/98    in
                                                    process
Federal Implementation Plan    06/23/98   08/21/98  09/30/9
for Regional Nitrogen Oxides                           8
Reductions
Section 126 Petitions          06/23/98   08/21/98  09/30/9
                                                       8
Radon in Drinking Water        07/09/98   09/18/98  11/02/9
                                                       9
Long Term 1 Enhanced Surface   08/21/98   10/19/98    in
Water Treatment                                     process
Filter Backwash Recycling      08/21/98   10/19/98    in
                                                    process
Light Duty Vehicles/ Light     08/27/99   10/26/98  05/13/9
Duty Trucks Emissions and                              9
Sulfur in Gas
Arsenic in Drinking Water      03/30/99   06/04/99    in
                                                    process
Recreational Marine Engines    06/07/99   08/27/99    in
                                                    process
                                

           OSHA SBREFA PANELS THROUGH FISCAL YEAR 1999

        Rule Subject             Date      Report   NPRM
                               Convened   Complete
                                              d
Tuberculosis                   09/10/96   11/12/96  10/17/9
                                                       7
Safety and Health Program      10/20/98   12/19/98    in
Rule                                                process
Ergonomics Program Standard    03/02/99   04/30/99  11/23/9
                                                       9

             Highlights of Advocacy's RFA Activities
                     during Fiscal Year 1999

Introduction

Since the Small Business Regulatory Enforcement Fairness Act
(SBREFA) went into effect in June 1996, Advocacy has completed
work on 15 EPA Small Business Advocacy Review Panels and 3 OSHA
panels.  Work on the panels is labor intensive, consuming
approximately 500 to 600 professional hours.  However, the work
has been very productive.

In addition to the panels, the Office of Advocacy also evaluated
over 1,300 proposed, interim, and final rules issued by federal
agencies, and submitted 76 formal written communications to the
agencies.  As in previous years, Advocacy targeted its resources
to those rules where its involvement would likely make a
difference, commenting on the deficiencies in agency compliance
with the RFA and the potential impact on small business of agency
proposals.  Generally, these involve proposals where small
business interests are significant, but underrepresented in the
regulatory process.  In other instances, Advocacy takes action on
regulations proposed by agencies which have a poor record of RFA
compliance, or where an agency specifically requests Advocacy's
assistance in developing a systematic approach to RFA compliance.

Each year since the passage of the 1996 SBREFA amendments to the
RFA, Advocacy is finding that its staff expends more and more
resources working with agencies on rules before they are
published for public comment.  Advocacy is of the view that this
increase in pre-proposal work is largely attributable to the
statutory change that allows courts to review agency RFA
compliance in appeals from agency final actions.  Agencies
logically wish to avoid such reviews.

Summary of the Regulatory Flexibility Act

Before proceeding to the discussion of Advocacy's RFA activities
during Fiscal Year 1999, it might be helpful to summarize the key
provisions of the law.  This should help provide a context for
the section that follows.  (The full text of the law is in
Appendix A of this report.)

In brief, the RFA requires federal agencies either to certify
that the rule will not have a significant economic impact on a
substantial number of small entities and provide a factual basis
for the determination, or prepare a regulatory flexibility
analysis.

     Y    Certification:  If a regulation is found to not have a
       significant economic impact on a substantial number of small
       entities, the head of an agency may certify to that effect, but
       must provide a factual basis for this determination.  This
       certification must be published with the proposed rule in the
       Federal Register for public comment to ensure that the
       certification is warranted.

     Y    Initial Regulatory Flexibility Analysis:  If a proposed rule
       is expected to have a significant economic impact on a
       substantial number of small entities, an initial regulatory
       flexibility analysis (IRFA) must be prepared and published in the
       Federal Register for public comment.  This initial analysis must
       describe the impact of the proposed rule on small entities,
       contain a comparative analysis of alternatives to the proposed
       rule that would minimize the impact on small entities, and
       document their comparative effectiveness in achieving the
       regulatory purpose.  If the analysis is lengthy, the agency may
       publish a summary and make the analysis available upon request.

     Y    Final Regulatory Flexibility Analysis:  When an agency
       issues a final rule, it must prepare a final regulatory
       flexibility analysis (FRFA) or certify that the rule will not
       have a significant impact on a substantial number of small
       entities and provide a statement of the factual basis for such
       certification.  The final regulatory flexibility analysis must
       provide a succinct statement of the need for, and objectives of,
       the rule; summarize the issues raised by public comments on the
       IRFA (or certification) and the agency's assessment of those
       issues; describe and estimate the number of small entities to
       which the rule will apply or explain why no such estimate is
       available; describe the compliance requirements of the rule;
       estimate the classes of entities subject to them and the type of
       professional skills essential to compliance; describe the steps
       followed by the agency to minimize the economic impact on small
       entities consistent with the stated objectives of the applicable
       statutes; and give the factual, policy, and legal reasons for
       selecting the alternative(s) adopted in the final rule,
       explaining why other alternatives were rejected.  If the analysis
       is lengthy, the agency may publish a summary and make the
       analysis available upon request.

What follows is a discussion of some of the more significant
regulatory and policy work performed by the Office of Advocacy
between October 1998 and September 1999.  Many of  these Fiscal
Year 1999 activities involve work on issues initially discussed
in previous years' reports.  The regulatory process is, after
all, a continuum of activities with important work continuing
from one year to the next and, in some instances, with additional
interventions by the Congress and the courts.  (A complete list
of written communications and other Advocacy is in Appendix D of
this report.)

                    DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

Issue: Organic Food Production, Handling, and Labeling

In 1997, Agricultural Marketing Service (AMS) proposed a
regulation that was intended to set national standards for
organic farmers, handlers and certifying agents.  It marked the
first time that AMS consulted with Advocacy on a proposed
regulation.  After receiving nearly 300,000 comments (mostly
negative) on the proposal, AMS decided to rethink the highly
controversial elements of the regulation and to re-propose it at
a later time.  Currently, with a new staff and administrator,
AMS, along with OMB, are working with Advocacy on the new
regulations, which will be published in the near future.
Advocacy has had two opportunities to provide comments on the
draft regulation in the hope of minimizing the burden on small
entities.

Food Safety and Inspection Service

Issue: Label Review Appointments

In 1998, Food Safety and Inspection Service (FSIS) decided to
eliminate face-to-face appointments with courier/expediter firms
that seek label approvals for meat, poultry, and egg products on
behalf of their food processor clients.  FSIS implemented this
sweeping policy change in a "notice of procedural change" rather
than by notice and comment rulemaking.  As referenced in the 1998
report on the RFA, Advocacy submitted comments criticizing the
agency for ignoring proper notice and comment procedures, which
are required under the Administrative Procedure Act (APA).(4) New
events have subsequently transpired on this issue.

A coalition of label expediters filed suit(5) against FSIS
claiming, among other things, that the agency was attempting to
implement a "rule" rather than a mere "procedural change" and
should have adhered to proper APA procedures.  The court filed an
opinion on August 30, 1999, denying the plaintiffs' motion for
summary judgment.  In its analysis, the court drew a fine
distinction between procedural and substantive rules by stating
that FSIS's proposal alters the manner in which label approval
requests are received and processed by the agency, but does not
alter the substantive criteria upon which the agency bases its
label approval decisions or the outcome of those decisions.  The
court also stated that the fact that label expediters would be
forced out of business was a mere "collateral" effect that was
insufficient to transform a procedural rule into a substantive
rule.

The plaintiffs filed an appeal, and requested that Advocacy file
an amicus curiae brief in support of their position.  Hoping that
the issue could instead be resolved through direct discussions
with the agency, the Chief Counsel for Advocacy met with USDA
officials to discuss ways to minimize the burden on small
businesses-the label expediters and the food processors who rely
on speedy label reviews to get their products to market.
Advocacy presented evidence that the face-to-face process was
more efficient than the mail-in process, that small processors
relied upon label expediters to remain competitive in the market,
and that the sudden change in policy eroded trust in the
government (especially since FSIS attempted to change its policy
twice by rulemaking, but failed).  The agency pledged to revisit
the issue and take small business into consideration.

                     DEPARTMENT OF COMMERCE

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

National Marine Fisheries Service

The office within the DOC that promulgates the majority of the
regulations affecting small entities is the National Marine
Fisheries Service (NMFS), which is a division of the department's
National Oceanic and Atmospheric Administration.  NMFS regulates
the activities of small businesses under several natural resource
protection statutes such as Marine Mammal Protection Act and the
Mabnuson-Stevens Fishery Conservation and Management Act.

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.
NMFS promulgates rules through fishery councils located in
different geographical parts of the country.  Some councils have
better information collection systems than others.  This affects
the quality and consistency of the economic analyses performed by
NMFS.  The lack of consistent economic information has hindered
NMFS's ability to perform thorough and credible economic analyses
in compliance with the RFA.  Having said this, NMFS can
nevertheless be criticized for not taking aggressive steps
earlier to address this deficiency.

But constructive changes are now afoot at NMFS.  The agency has
made changes in its institutional framework in an attempt to
advance its compliance with the RFA.  NMFS hired an economist and
an attorney specifically to handle RFA issues.  NMFS is also in
the process of instituting new guidelines for determining

"significant economic impact" and is holding workshops for its
regulators to discuss the new guidelines.  In addition, NMFS is
attempting to collect additional financial information from the
fishing industry that will enable NMFS to assess accurately the
potential impact of its actions on the fishing industry.
Hopefully, the institutional changes will also encourage
consistency in the quality of the information provided in their
economic analyses, as well as improve overall compliance with the
RFA.

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.(6) The shark fishing
industry sued NMFS, and the case (Southern Offshore Fishing v.
Daley(7)) was eventually referred to a special master by the U.S.
District Court for the Middle District of Florida.

On October 1, 1999, the special master submitted his findings and
recommendations to the court.  In brief, the special master found
that:

     Y    NMFS did not have all the necessary information to evaluate
       and implement alternatives to the quota.  However, NMFS had
       failed to collect meaningful economic data and this failure was
       arbitrary and capricious.
     
     Y    NMFS's failure to give any consideration to alternatives to
       the quota was a wanton repudiation of the court's instruction on
       remand.

     Y    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's conduct constituted bad
faith and a lack of candor to the court.  The DOC filed
objections to the special master's findings.  A hearing on
whether the special master's findings should be adopted by the
court was scheduled for March 2, 2000.

Issue: Atlantic Sea Scallops

On December 18, 1998, NMFS proposed Amendment 7 to the Atlantic
Sea Scallop Fishery Management Plan.  The purpose of the proposal
was to reduce the fishing mortality rate of the Atlantic sea
scallop by eliminating overfishing in order to rebuild the
stocks.  NMFS suggested several changes to meet that goal, such
as a reduction in the number of days at sea, and limiting the
areas where fishing could occur.

Advocacy commented on the NMFS's proposal, and cited Southern
Offshore Fisheries v. Daley(8) in questioning the agency's
failure to consider an alternative submitted by members of the
fishing industry.  The fishing industry had earlier suggested
that an area in George's Bank that was rich with scallops be
opened up for fishing.  The industry's proposal was supported by
a scientific study concluding that there were so many scallops in
the George's Bank area that scallops were dying from
overcrowding.  In its comments to NMFS, Advocacy asserted that
this alternative regulatory option presented a "win-win" solution
for everyone, and that the proposal should be considered
seriously by NMFS.

In June 1999, the Secretary of Commerce ordered NMFS to reopen
the area of George's Bank suggested by the fishing industry.
According to the industry's estimation, this regulatory
alternative that Advocacy supported would result in $40 million
dollars of revenue for the Atlantic sea scallop fisheries.

Internet Corporation for Assigned Names and Numbers

The Internet Corporation for Assigned Names and Numbers (ICANN)
is a non-profit corporation, independent of the federal
government, that was formed in 1998 to take over responsibility
for the Internet protocol (IP) address space allocation, protocol
parameter assignment, domain name system management, and root
server system management functions.  Originally, the federal
government had delegated these functions to the Internet Assigned
Numbers Authority and other entities.  In accordance with a
presidential directive, the Department of Commerce transferred
these management functions to this non-profit, private sector
entity with international representation.

In preparation for the meeting of its board of directors in
Berlin, Germany, in May 1999, ICANN requested comments on a
proposed system to resolve disputes of Internet domain names.
Advocacy submitted comments stating its belief that ICANN did not
provide reasonable notice in violation of ICANN's own bylaws, and
asked ICANN to revise the comment period and postpone a final
decision until there was ample opportunity to consider all the
comments filed.  Advocacy also recommended that ICANN adopt the
World Intellectual Property Organization (WIPO)'s definition of
abusive registration.  Finally, Advocacy recommended that ICANN
postpone making any decision to give special protections to
"famous and well-known marks" until the Domain Name Supporting
Organization (DNSO) had a chance to review the issue.

In August 1999, ICANN proposed adopting a uniform dispute
resolution policy to determine cases of "cybersquatting."
Advocacy wrote ICANN on August 25, 1999, supporting a mandatory
uniform dispute resolution process that is narrowly tailored to
rectify situations of blatant abusive registrations.

Furthermore, while Advocacy agreed with ICANN's Working Group A
(which was formed to discuss the dispute resolution process) that
several issues in the report merit further discussion, it
questioned whether WIPO was the appropriate forum for these
clarifications.  Advocacy instead recommended that DNSO consider
the clarifications.  Regardless of which body handles the
clarification, Advocacy proposed that it should consider the role
of small businesses and the impact these rules will have upon
them.

ICANN adopted the basic premise of a dispute resolution policy at
its August 1999 meeting in Santiago, Chile.  Advocacy played a
role in drafting the specific details of the policy to ensure
that they were not unfairly burdensome on small businesses.  The
implementation documents were approved at ICANN's November 1999
meeting in Los Angeles, and the policy went into effect for all
the new competitive registrars in December 1999 and for Network
Solutions in January 2000.

             DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

Issue: Dietary Supplements Containing Ephedra

As described in the 1998 report, Food and Drug Administration
(FDA) proposed to limit the dosage of dietary supplements and to
require label warnings in such a way that this product could no
longer be used for weight loss.  The regulations, as written,
would put thousands of distributors out of business.  Advocacy
criticized the agency in a letter that stated, among other
things, that the agency did not consider alternatives to minimize
the burden on small businesses, and that the agency relied on
faulty scientific evidence to support the need for the
regulation.

Subsequent to publication of the 1998 report, the General
Accounting Office (GAO) published its findings on FDA's
regulatory procedures in this instance.  The GAO concluded that
FDA's analysis relied heavily on poorly documented reports of
adverse events, and that FDA's analysis of impacts was not
transparent and did not fully reflect uncertainties in the
underlying data and assumptions.  The GAO recommended that FDA go
back and obtain additional information to support the agency's
conclusions before proceeding to a final rule, and improve the
transparency of the cost-benefit analysis in the final rule.  In
spite of these findings, however, GAO mysteriously concluded that
the FDA complied with the requirements of the RFA.

On April 29, 1999, Advocacy submitted a letter to GAO supportive
of GAO's work in analyzing FDA's proposal, but also expressing
concern about GAO's conclusion that FDA complied with the RFA
when FDA's analysis of impacts was clearly inadequate.  The
premise of the RFA, as Advocacy explained in its letter, is to
require agencies to consider fully the effects of their
rulemaking on small entities.  The key requirement of the RFA is
the preparation of initial and final regulatory flexibility
analyses when a rule is likely to have a significant economic
impact on a substantial number of small entities.  If, as GAO
would have it, the analysis and the facts, data, or science
underlying the analysis do not need to be valid, then Advocacy
believes the RFA-mandated analysis would merely become a
procedural hoop with no value to the regulatory process.
Advocacy pointed out that, while the RFA does not state how much
analysis is required or what type of analysis is adequate, it
believes that bad or invalid analysis certainly cannot qualify as
meeting the requirements of the RFA.  Unfortunately, GAO did not
adopt Advocacy's position.

Health Care Financing Administration

Issue: Various Issues Resulting from the Balanced Budget Act of
1997

A number of Medicare payment reforms affecting home health
agencies, nursing homes, hospital outpatient centers, teaching
hospitals, etc., were enacted in the Balanced Budget Act of 1997.
As indicated in the 1998 report, Advocacy submitted comments to
Health Care Financing Administration (HCFA) on the hospital
outpatient prospective payment system, the home health interim
payment system (and its successor, the home health prospective
payment system), home health surety bonds, and the Outcomes and
Assessment Information Set (OASIS).  In addition, the Chief
Counsel for Advocacy testified before the Senate Small Business
Committee on the surety bond issue.  Advocacy had been fairly
critical of HCFA's implementation of the Medicare payment reforms
because of their severe impact on small businesses and possible
beneficiary access problems.

Subsequent to these Advocacy activities, there was a groundswell
of grassroots lobbying by stakeholders to get Congress to restore
some of the severe cuts triggered by the Balanced Budget Act of
1997.  Advocacy's comments on the surety bond issue spurred
Senator Christopher Bond to introduce a resolution of disapproval
that would have "vetoed" the regulation.  Instead, HCFA withdrew
the regulation, and the GAO did a study that indicated that the
impact would fall squarely on the shoulders of small business.
HCFA is redesigning the surety bond program accordingly.

Most recently, Congress enacted Medicare "giveback"
legislation-reportedly totaling $27 billion over 10 years-to
provide relief to health care providers who were unfairly hurt by
the earlier cuts.  For instance, nursing homes will get $1.3
billion in extra aid for medically complex patients, hospitals
(cancer and teaching hospitals) will get about $7.2 billion over
five years, outpatient programs will get about $9.6 billion over
10 years, health maintenance organizations (HMOs) will get $2.9
billion over five years as a result of increased physician fee-
for-service payments, and the scheduled 15 percent reduction in
home health payments will be delayed for one year.

Throughout this process, an important change has taken place at
HCFA.  The agency is now consulting with Advocacy in the early
stages of the regulatory process.  In this past year alone, HCFA
consulted with Advocacy on at least two occasions involving major
regulations prior to formal proposal.  Part of the impetus for
these remarkable changes-including the "giveback"
legislation-stemmed from the comment letter and other early
action that Advocacy undertook on surety bonds for home health
agencies.

Issue: Competitive Bidding for Durable Medical Equipment

As described in the 1998 report, this project 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.  Subsequent to
publication of the 1998 report, HCFA selected other demonstration
sites for competitive bidding.  Unlike the first demonstration in
Polk County Florida, however, HCFA invited stakeholders to
participate in the process before finalizing the parameters of
the upcoming demonstration.  Moreover, HCFA has kept Advocacy
apprised of the progress and outcome of the first demonstration.

                     DEPARTMENT OF INTERIOR

There are several regulatory agencies within the Department of
Interior (DOI) 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.

As noted in the 1998 report, DOI's compliance with the RFA
historically has been problematic.  In the past, DOI's regulatory
flexibility analyses consisted of either a single sentence
stating "no significant impact on a substantial number of small
entities" or a recitation of the RFA compliance requirements.  In
1998, there has been some, but not marked, improvement in DOI's
compliance.  Cooperation has been improving between Advocacy and
some agencies within DOI on RFA matters.  The Minerals Management
Services and the National Park Services are particularly
noteworthy, while the Bureau of Land Management has not made as
much progress.

Minerals Management Service

Issue: Royalty in Kind

The Royalty in Kind (RIK) program is an example of the improved
cooperation between a DOI agency and Advocacy.  In 1999, Minerals
Management Service (MMS) contacted Advocacy about its RIK
program, which was developed pursuant to the Minerals Leasing Act
of 1920 (MLA).  The MLA allows DOI to take federal oil in kind,
in lieu of royalty cash payments, which it then sells to
"eligible refiners" for use in their refineries.  The RIK program
was implemented by MMS to maintain a robust oil refinery industry
consisting of large and small facilities.

When MMS contacted Advocacy, MMS was considering discontinuation
of the program because it felt that the program was no longer
necessary.  MMS also asserted that participation by small
refiners in the RIK program had declined significantly over the
last few years.  MMS believed that the decline was due to a lack
of interest by small refiners.  MMS asked Advocacy to review the
program and to provide an opinion as to its continued value, if
any.

Advocacy then convened an industry roundtable to discuss the
program.  Advocacy also held conference calls with members of the
industry to ascertain the value of the program to small
operations.  After reviewing information from the agency and the
industry, Advocacy concluded that the program had merit from a
small business perspective and that declining participation by
small businesses was due to inefficiencies in the program.  MMS
subsequently decided to continue the program and eliminated the
inefficiencies, but did not allow the small refiners who had
dropped out of the program to reenter.

Advocacy urged the agency to allow small refiners to reenter the
program.  MMS eventually decided to reopen a new bidding process
for the RIK program.  The new contracts will allow all small
refiners to participate in the program-even those who had left
it.  Under the new program, approximately 100,000 barrels of
royalty oil per day will be offered for sale to small businesses.

National Park Service

Issue: Commercial Fishing in Glacier Bay, Alaska

The National Park Service (NPS) is another example of an agency
within DOI that is making an effort to comply with the
requirements of the RFA.  In April 1997, NPS proposed a
regulation that would prohibit commercial fishing in non-
wilderness waters of Glacier Bay proper.  NPS contended that the
prohibition was necessary to "conserve the scenery and the
natural and historic objects and wildlife therein."

The proposal provided a seasonal exemption from that prohibition
for a period of 15 years for commercial fishers who could
demonstrate a reasonable history of participation in a specific
Glacier Bay fishery.  The proposal was devoid, however, of any
economic information about the potential impact on the industry,
even though it was known that the proposal would effectively put
several operations out of business and would likely have a
substantial economic impact on small fishing villages.  Despite
this knowledge, the NPS certified that the rule would not have a
significant economic impact on a substantial number of small
entities.

In February 1999, Advocacy questioned the certification and urged
NPS to perform an IRFA.  NPS then sought Advocacy's assistance
and prepared an IRFA as required by the RFA.  The rule was
finalized in October 1999.  The final rule contains less
stringent eligibility criteria for determining which businesses
were able to continue to fish under the exemption provisions of
the rule.

Bureau of Land Management

Issue: Hardrock Mining

The Bureau of Land Management (BLM) has improved its efforts
somewhat on 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 inability to develop and
analyze alternative regulatory solutions.

BLM's hardrock mining regulation which requires miners to obtain
a reclamation bond, was the subject of the Northwest Mining v.
Babbitt(9) case.  In that case, the U.S. District Court for the
District of Columbia remanded the rule to the agency for failure
to comply with the RFA.  The basis of the court's finding was
that BLM had not used the proper size standard.

In February 1999, in preparing the proposed rule, BLM consulted
with Advocacy about the size standards requirements and used the
proper size standard in its revised proposal.  However, the
information provided in the economic analysis was inconsistent
with, and did not support, the agency's finding of "no
significant economic impact."  Also, the agency did not consider
meaningful alternatives to the proposal.  The only alternatives
considered by BLM were shifting mining operations to non-federal
lands, adopting different techniques, shortening the life of the
mine, or temporarily halting mining until commodity prices
increase.  Each of these 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, nor, more significantly, did the agency
consider alternatives that would mitigate BLM's proposed action.

Finally, the agency published the proposal for comment prior to
the completion of a National Academy of Sciences study that was
intended to determine the necessity of the regulation and
identify possible alternatives.  Although Advocacy suggested that
BLM extend the comment period to allow the public a chance to
review the study prior to submitting comments, BLM would not.
BLM only reopened the comment period after Congress directed it
to do so through the 1999 Emergency Supplemental Appropriations
Act.

                       DEPARTMENT OF LABOR

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, Mine Safety and Health Administration, and the
Employment Standards Administration are just some of the agencies
within DOL that have drafted or promulgated rules in Fiscal Year
1999 that have significant impacts on small businesses.

However, one agency in particular, the Occupational Health and
Safety Administration (OSHA), has a tremendous impact on small
entities due to the kind and scope of regulations it promulgates.
In the 1996 SBREFA amendments to the RFA, Congress mandated that
OSHA follow special processes when it considers regulations that
will have a significant impact on small entities.

The 1996 SBREFA amendments established a new regulatory analysis
process for OSHA (which also applies to the Environmental
Protection Agency).  The new process requires OSHA to convene a
Small Business Advocacy Review Panel whenever the agency cannot
certify under the RFA that a regulatory proposal will not have
significant economic impact on a substantial number of small
entities.

Occupational Safety and Health Administration

During Fiscal Year 1999, Advocacy worked closely with OSHA on two
very important panels: the Safety and Health Program Rule panel,
which concluded in December 1998; and the Ergonomics Program
Standard panel, which concluded in April 1999.  Advocacy's
experience in working on these and other panels has demonstrated
that small business input early in the regulatory process vastly
alters the agency's views on how best to solve a problem through
regulation.  The process forces the agency to look at equally
effective alternatives that do not harm competition.

Although neither of these OSHA rules have been finalized, the
SBREFA panel process itself, and the panel reports which were
developed as a result of the process, have only added to the
knowledge of the agency and its understanding of the realistic
impact these rules would likely have on small entities.  The time
spent on these panels and the follow up work which continues with
OSHA as well as with the Office of Information and Regulatory
Affairs at the Office of Management and Budget has been, and
continues to be, productive for both agencies and small
businesses.

Issue: Ergonomics Standard

On March 4, 1999, OSHA released a draft of an ergonomics standard
and announced its intention to convene a SBREFA panel to discuss
the potential impacts of the draft rule on small businesses.  The
purpose of the ergonomics standard is to reduce the number of
repetitive stress disorders and other musculoskeletal injuries
which employees receive as a result of their regular work
activity.  The draft proposal covered every industry and business
in the United States, except those in construction, maritime
trades, and agriculture.  Twenty small entity representatives
were chosen to advise the panel and provide input into the draft
standard.  The group included 13 owners or operators recommended
by Advocacy to represent the interest of the many small
businesses concerned about the potential impact of this rule.

During the SBREFA panel's deliberations, the small entities
expressed a number of concerns about the proposal, especially
with the cost estimates.  Most indicated a disbelief in OSHA's
estimation of time and money that the draft proposal would
require.  The small entities provided the agency with types of
costs which they felt were omitted from the calculations and
suggested that OSHA provide the public with its assumptions when
it proposes the standard in the Federal Register.  The panel
recommended that OSHA review its cost estimates and input from
the small entities in order to reflect more accurately the
economic impact of the ergonomics standard on small entities

Throughout the process Advocacy worked with both OSHA and OMB to
ensure that the many  concerns of the small business
representatives on the panel were heard and taken under
consideration in the panel report completed on April 30, 1999.
OSHA then reviewed and revised somewhat its draft ergonomics
standard and submitted it to OMB in July for mandatory 90-day
review.  OSHA published the proposed ergonomics rule in the
Federal Register for public comment on November 23, 1999.  It is
anticipated that OSHA will have additional public hearings on
this proposal prior to the rule becoming final.

Issue: Safety and Health Program Rule

As reported in the 1998 report, OSHA notified Advocacy on August
28, 1998, of its intent to propose a safety and health program
rule.  The proposal seeks to reduce the number of job-related
fatalities, illnesses, and injuries by requiring employers to
establish a workplace safety and health program to ensure
compliance with OSHA standards and the "general duty" clause of
the Occupational Safety and Health Act.  Elements of the rule
include requirements for management leadership and employee
participation, hazard identification and assessment, hazard
prevention and control, information and training, and evaluation
of program effectiveness.  In addition, existing safety and
health programs would have to demonstrate that they satisfy these
core elements.

Because the scope of the proposal covers nearly all employers,
except those engaged in construction and agriculture, a SBREFA
panel was convened on October 20, 1998.  The panel consulted with
19 small entity representatives, who voiced numerous concerns
from the small business perspective.  On December 10, 1998, the
panel's report was submitted to OSHA, with numerous
recommendations and findings of the panel with respect to the
draft rule.  The panel found that:

     Y    OSHA had underestimated the costs of the proposed rule and
       should review its cost estimates.  OSHA should clearly present,
       in the preamble to any proposed rule, information on the key
       assumptions and estimates underlying the estimated program-
       related costs, hazard control costs, and benefits associated with
       the rule.  Also, OSHA should add to its cost analysis the cost of
       evaluating compliance by entities with existing health and safety
       programs and seek comment on the need for legal assistance and
       the cost of such assistance when conducting such an evaluation.

     Y    OSHA should analyze and give special attention and
       consideration to an alternative regulation which would regulate
       those industries with high risks based on reports of injuries,
       illnesses and deaths, leaving other industries to be regulated
       under existing OSHA standards and state requirements.

     Y    The issue of increased litigation risk, including employers'
       perception of such risk, deserves further review and OSHA should
       describe the issue in the preamble and solicit comment on it.

     Y    OSHA should more clearly identify the basis for its
       preliminary conclusion that state health and safety programs are
       effective in reducing job-related injuries and illnesses.

     Y    OSHA should clearly explain its draft enforcement policy in
       its regulatory document, and solicit comment on the content of
       the enforcement policy and its possible inclusion in the
       regulatory document.

Since this rule is a major rule, it must be submitted to OMB for
review as required by Executive Order 12866.  OMB will then have
90 days to review the proposal, after which it will be determined
whether or not to publish the rule in the Federal Register for
public comment.  By the end of Fiscal Year 1999, the rule had not
been submitted to OMB for review.  OSHA officials have stated
that the rule will be submitted to OMB some time in 2000.

Pension Welfare Benefits Administration

Issue: Benefit Claims Regulation

The Pension Welfare Benefits Administration (PWBA) proposed
regulations to set new standards for the processing of group
health, disability, pension, and other employee benefit plan
claims filed by participants and beneficiaries of employment
benefit plans.  Notwithstanding the fact that the proposal, in
its preamble, admitted that there would be millions of dollars in
aggregate compliance costs which would be "mostly to small
pension plans," PWBA made a determination that the rule would not
have "a significant economic impact on a substantial number of
small entities."

In January 1999, Advocacy filed comments insisting that PWBA
comply with the RFA by undertaking a regulatory flexibility
analysis, since small plans will bear the brunt of the cost.
Advocacy also questioned the need for such procedures for small
pension plans when there was no apparent evidence that any
problem existed warranting such regulations.  PWBA withdrew the
proposed regulations and is redrafting them to respond to the
comments that were filed.

Issue: No Independent Trustee for Small Pension "Plans"

In response to discussions in the pension administration
industry, Advocacy and industry representatives asked PWBA
whether it had any plans to require all pension plans to use an
independent financial institution as trustee or custodian.  If
so, this would be a significant burden for small firms since most
small businesses use the owner as the trustee.

In January 1999, DOL announced that small businesses that
sponsored pension plans would not be required to have independent
financial institutions act as trustees.

                   DEPARTMENT OF THE TREASURY

The Department of 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.
Besides the Internal Revenue Service, other divisions, such as
the Office of Thrift Supervision, and the Bureau of Alcohol,
Tobacco and Firearms, also have an impact on the operation of
some small businesses.  Only IRS activities are highlighted here.

Internal Revenue Service

The RFA requires analysis of a proposed regulation only where
notice and comment rulemaking is required.(10) Under the
Administrative Procedure Act (APA), "interpretative rules" are
exempt from notice and comment rulemaking.  For years the
Internal Revenue Service (IRS) has escaped the requirements of
the RFA because the agency 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
issued by the IRS that imposed a collection of information
requirement would be subject to the RFA.

Since passage of SBREFA, the IRS has worked with Advocacy to
enhance its compliance with the RFA.  As a result, the IRS is not
just relying on the APA exception, but, rather, is performing
some analyses of the impact of its interpretative rules on small
business and is certifying most of them as having no significant
impact on a substantial number of small entities.  In Fiscal Year
1999, there were visible signs that the IRS's regulatory approach
toward small business was getting better.  For example, the IRS
was more responsive to Advocacy's inquiries on small business
issues.  The IRS agreed to hold meetings when requested with
concerned small business groups to discuss high visibility or
controversial rules.  The IRS has increasingly requested
suggestions from small businesses-before the publication of
regulations, technical advice memoranda, or guidance
advisories-about which problems were the most onerous and whether
there were better approaches to solve such problems.

Advocacy is encouraged by the increasing awareness of Treasury
and the IRS, in particular, to the requirements of the RFA.  In
some cases, when the IRS consults small entities, its efforts
lead  to better rulemaking.  While the IRS's motive may be to
avoid any proposed new legislative requirement that it convene
Small Business Advocacy Review Panels, the IRS has done a lot to
improve its outreach to the small business community.

These issues aside, the majority of the regulations published by
the IRS in FY 1999 were not subject to the RFA.  The IRS's
reasons for why the RFA did not apply to its regulatory actions
in those circumstances included:

     Y    The RFA applies to legislative regulations.  The IRS has
       always maintained that virtually all its regulations are
       interpretative, and thus exempt from the RFA.
  
     Y    Many IRS regulations clarify definitions or provide examples
       of application.  Without more, they do not require analysis under
       SBREFA.
  
     Y    Any interpretative regulation that was proposed prior to
       March 2, 1996, is not subject to the RFA as amended by SBREFA.
  
     Y    Most IRS regulations have an impact on individuals, large
       entities, or activities that do not involve small business.

     Y    Unless there is a form required (that is, a piece of paper
       that is to be filled out by the taxpayer), there is no
       recordkeeping requirement imposed by the rule.  Also, if there is
       simply an addition or amendment to an existing form, the change
       is insignificant, and there is no new collection of information
       requirement.  The IRS refuses to look at the document as a whole,
       though Advocacy has urged the agency to do so.

Issue: Restructuring of the IRS

Since the passage of the IRS Restructuring and Reform Act of
1998, the IRS has undertaken a major project to reshape the
agency.  The administrative changes that will result from the
restructuring will have major impact on small businesses.  Thus,
although this issue is not a regulatory activity per se, Advocacy
and small businesses have been involved in a continuing process
of consultations with the IRS in the hopes that the changes will
encourage the agency to become more sensitive to small businesses
in future regulatory proposals.
In response to the Restructuring Act the IRS has sought
Advocacy's opinions, and those of small business groups that
Advocacy introduced to the IRS, in order to develop a more small-
business-friendly environment.  For example, the Restructuring
Act created a small business division within the IRS, and the
agency consulted with Advocacy to establish a size standard for
the businesses that fall within the jurisdiction of the division
that was suitable for serving the small business community.

However, Advocacy is disappointed that at the close of Fiscal
Year 1999, the IRS had failed to appoint members to the IRS
oversight board that was to be created to oversee the operation
of the IRS as part of the restructuring effort.  Advocacy has
urged the IRS to appoint at least one small business owner to
serve on the board.

Issue: ISO 9000

ISO 9000 is an international quality standard with which U.S.
manufactures must comply in order to bid for contracts and to
distribute products overseas.  Because expensive training and
certifications are required in order to meet the ISO 9000
standards, small businesses have sought permission to write off
these costs from taxes in the year that costs are paid.  While
agreeing that the costs can be deducted from taxes, the IRS
adopted the position that the costs should be deducted over a
period of years, to coincide with the income attributable to
them.

At the invitation of the IRS, Advocacy and a number of small
business groups formed a working group to discuss and resolve the
issue of the deductibility of ISO 9000 costs.  The working group
proposed a clarifying revenue ruling, which the IRS is currently
considering.  This is an example where the IRS is actively
addressing regulatory problems directly and discussing pre-
proposals with the regulated sector.

Issue: Electronic Federal Taxpaying System

The IRS published a requirement that businesses with employment
tax obligations greater than $50,000 must pay these taxes using
the electronic federal taxpaying system (EFTPS).  This
requirement posed a hardship for many small businesses that were
not given adequate notice of the requirement or of ways to reduce
the cost of setting up transactions.  The requirement, which was
part of the North American Free Trade Agreement (NAFTA), was to
have gone into effect in 1997.  However, at the insistence of
Advocacy, Congress, trade associations, and concerned small
businesses, the enforcement date was postponed, and emphasis was
placed instead on obtaining voluntary compliance to meet revenue
goals.  Finally, in 1999, the IRS amended the requirement to
minimize the hardship by raising the threshold for mandatory
electronic submissions to $200,000-effectively excluding many
small businesses from the need to comply with mandatory
electronic reporting.

Issue: Unrelated Business Income Tax

In 1997, Advocacy asked the IRS to consider a rule to clarify the
application of the unrelated business income tax to travel and
tour activities of nonprofit entities.  Regulations were issued
in April 1998.  The regulations were a collection of existing
court rulings that established the boundaries of which commercial
touring activities are "substantially related" to the statutory
mission of a tax-exempt organization.  Current law requires that
a commercial activity of a non-profit entity be substantially
related to the purpose for which it was chartered in order for
the activity to be tax exempt (e.g., charitable, educational,
scientific, etc.).

When it became clear that a large number of groups on both sides
of the issue wished to file comments on the regulation, Advocacy,
in September 1998, requested the IRS to schedule the regulation
for a public hearing.  The IRS then held a hearing in February
1999, at which Advocacy testified on behalf of small businesses.
First, Advocacy argued that the RFA should apply to the
regulation since it imposed a de facto collection of information
standard.  Advocacy also urged a stronger standard be established
to prevent tax-favored, nonprofit organizations from competing
unfairly against taxpaying small businesses.  Finally, Advocacy
pointed out that pursuing business ventures to provide financial
support for other exempt activities was not a sufficient reason
under the law to circumvent the unrelated business income tax.

This matter is still pending before the IRS, but the agency has
since held a series of meetings with interested small business
organizations to develop more information.

Issue: Simplified Tax and Wage Reporting System

During Fiscal Year 1999, Advocacy continued to work with the IRS
to establish a simple filing form that would satisfy the wage and
tax reporting obligations of the very smallest businesses under
both federal and state tax law.  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 reporting is a major
burden to small businesses, and the development of a simple,
single, multi-purpose form that eliminates duplicative filings of
tax and wage information requested by federal, state, and local
agencies would reduce significantly such burdens.  Thus, in
Fiscal Year 1999, the IRS developed a pilot "single point filing"
program that was initiated in Montana.  Thus far, the pilot
program has proved to be successful, and the IRS is currently
duplicating the pilot in Iowa but with electronic single point
filing.  Advocacy supported special legislation to enable the
pilot program, and will continue to work with the IRS to ensure
that the program is replicated throughout the nation.

Issue: Cash vs. Accrual Accounting

The IRS rules require 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, the rules also require that accrual
accounting be used where a business (small or large) has an
inventory.

During Fiscal Year 1999, Advocacy became aware that the IRS field
officers were imposing accrual accounting requirements on far
more small businesses than is required by law.  It was found that
the IRS was strictly enforcing this requirement against small
businesses even in circumstances where the inventory found was
only a very small part of their business.  For example, in once
case, the IRS enforced this requirement against a dentist who
ordered and fitted a bridge for some patients.  Similarly, the
IRS would have enforced this requirement against heating and air-
conditioning contractors who had ductwork on hand to lay out
systems in a home or building.

In response to this enforcement problem, Advocacy and some
concerned trade associations formed a working group with key
officers of the IRS and reviewed the existing IRS policy and its
impact on small business.  As a result, 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, and therefore not impose
accrual accounting in those instances.

Issue: Small Business Pension Plans

Over the years, Advocacy has formed informal roundtable groups
around issues of concern to small businesses.  During Fiscal Year
1999, Advocacy's roundtables covering tax and pension issues met
with the pension policy decision makers at the IRS and Treasury
to review regulatory burdens that prevented small businesses from
participating in 401(k) plans.

These plans provide tax benefits to businesses and employees who
contribute to investments that are set aside for the employees'
retirement.  The Small Business Jobs Protection Act of 1996 had
created a "safe harbor" that would allow small businesses to
participate in 401(k) programs without having to fulfill various
burdensome tests and other requirements.  However, one drawback
is that a business has to declare early in the tax year if it
intends to make the contributions necessary to participate in the
safe-harbor program. Small businesses do not know from one year
to the next what their profits will be, and thus, small business
owners are afraid to make such a financial commitment in order to
participate in the 401(k) safe harbor program.

As a result of the meeting with the Advocacy roundtables, the IRS
and Treasury have agreed to review and clarify the law to help
small businesses participate in the plan.  Finally, the IRS has
implemented the regulations Advocacy sought for two years since
the passage of the Small Business Job Protection Act of 1996.(11)
The Act, the regulations, and the simplified rules they create
set up a small business plan that is expected to save small
businesses over $80 million a year.

                 ENVIRONMENTAL PROTECTION AGENCY

As detailed above, the 1996 SBREFA amendments to the RFA
established a new regulatory analytical process specifically for
the Environmental Protection Agency (EPA) and the Occupational
Safety and Health Administration (OSHA).  The Small Business
Advocacy Review Panel process requires these two agencies to
convene a special panel whenever the agencies cannot certify
under the RFA that a regulatory proposal will not have
significant economic impact on a substantial number of small
entities.

The panel, consisting of representatives from the agency,
Advocacy, and Office of Information and Regulatory Affairs within
the Office of Management and Budget, reaches out to small
entities likely to be affected, seeks their input on the proposed
regulation, and prepares a report to the administrator of either
the EPA or OSHA with recommendations for reducing the potential
impact of the rule on small businesses.

Advocacy's experience in working with panels since 1996 has
demonstrated that through the use of these structured procedures,
the agencies' analytical process is greatly improved.  Thus, it
is fair to conclude that the panel process has had a constructive
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, with the benefits redounding to small businesses
without compromising public policy objectives.

For EPA's rulemakings, over 250 small entity representatives have
already participated on fifteen completed EPA panels since SBREFA
was enacted in 1996.  Each of these 15 panels produced positive
outcomes for the EPA and small businesses.  In response to small
business input, the panels made over 140 concrete recommendations
to the EPA that address small business concerns to be considered
in the development of a proposed rule.  When EPA publishes a rule
for comment, the EPA explicitly addresses each panel
recommendation, and makes the panel report part of the public
record.

The following are some EPA regulatory activities during Fiscal
Year 1999-some involving the SBREFA panels and others not-that
demonstrate how that agency's approach to rulemaking now
routinely takes into consideration small business interests.

Issue: Tier 2/Gasoline Sulfur Rule

The EPA convened a panel in June 1998 on an action to regulate
the sulfur content of gasoline in order to enable light-duty
vehicles to lower sulfur emissions (Tier 2 light-duty vehicle and
light-duty truck emission standards, heavy-duty gasoline engine
standards and gasoline sulfur standards, or the "Tier 2/Gasoline
Sulfur" rule).  The panel completed its report in October 1998.

During the panel process, its members made a site visit to
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 first-hand perspective on what a small
refinery would have to do in order to comply with the proposed
rule.  What the panel learned on this trip was that the cost of
compliance would effectively put small refiners out of business,
with a resultant increase in gasoline prices.  More importantly,
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.  This regulatory option would
still accomplish the environmental goals that EPA wanted to meet.

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 as well as from Advocacy.  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, which are the major source of competition in the
industry.  The final rule, which was issued in December 1999,
adhered very closely to the approach of the proposal for small
refiners.

Issue: Effluent Limitations Guidelines for Industrial Laundries

In 1992, the EPA initiated regulatory action that identified
1,700 industrial laundries as a potential source of hazardous
waste solvents discharged to publicly-owned treatment works.
Since this rulemaking involved potentially significant economic
impact on a substantial number of small businesses, a SBREFA-
mandated review panel was convened in June 1997.  A report was
issued by the panel in August 1997, making a number of
substantive recommendations to the agency.  Among others, the
panel suggested specific exclusion options for small businesses,
and recommended that the agency solicit public comment on a "no-
regulation" option in the proposed rule.  The panel's
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 business-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.  Thus, in July 1999, the EPA withdrew its proposed rule
and announced that it would not impose national clean water
standards on industrial laundries.

Issue: Gas Stations Gain Relief from Duplicative Paperwork

Small gasoline station owners used to be burdened by duplicative
government reporting requirements.  Under the various federal and
state laws, these small businesses were responsible for
submitting basically the same information to three separate
regulatory entities: state and local emergency planning
commission offices (as well as local fire departments), state
underground storage tanks (UST) offices, and the EPA.  As
required by the Resource Conservation and Recovery Act, the
information provided on the EPA forms was similar and comparable
to information submitted to state UST offices.

To further aggravate the duplicative filing burdens on small gas
station owners, sections 311 and 312 of the Emergency Planning
and Community Right-to-Know Act of 1986 (EPCRA) required all
businesses to report to the EPA if gasoline was present on their
premises.  While it is clear to all that retail gas stations have
gasoline present on their premises, about 200,000 small gasoline
outlets nationwide were required, under EPA's interpretation of
the law, to report this fact year after year, expending about
558,000 hours in paperwork and over $16 million in costs per
year.

After more than ten years of pursuing relief from this
requirement, in February 1999, Advocacy and the small businesses
were finally successful in eliminating this duplicative reporting
requirement when the EPA's Administrator signed a rule into
effect.

Issue: Chemical Inventory Update Rule

In August 1999, the EPA issued a proposed rule involving
modifications to the Chemical Inventory Update rule.  Under this
rule, importers and manufacturers of chemicals in quantities
above a certain reporting threshold were required to report
information about the quantity and use of those chemicals to the
EPA for use in characterizing chemical hazards.  Working closely
with OMB and EPA during the interagency review process under
Executive Order 12866, Advocacy was able to achieve savings of
approximately $13 million dollars per reporting cycle, or
approximately 25 percent of the cost.  In particular, Advocacy
strongly sought and was successful in obtaining exemption for
importers and producers of natural gas from reporting
requirements, since this burden substantially duplicated the
required reporting made by the same firms to the Department of
Energy.

Issue: Persistent Bioaccumulative Toxics-Toxic Release Inventory
Reporting

Since the rule was initiated in 1988, Advocacy has worked with
EPA on the Toxic Release Inventory reporting rule, and Advocacy
was instrumental in getting the EPA to implement simplified
estimation techniques in the original 1988 rule, and a simplified
Form A in 1994.

During 1999, Advocacy became involved in interagency review of
two rules affecting the reporting of chemicals that are known as
"persistent bioaccumulative toxics."  These are chemicals that
are potentially more harmful because they accumulate in the
environment.  In both rulemakings, Advocacy was critical of the
need to increase the reporting burden on industry, with
questionable benefits to the right-to-know objectives of the
statute.  As a result, EPA eliminated about 30 percent of the
reporting burden in the January 1999 proposal, which included
establishing a lower reporting threshold for about 25 chemicals
and chemical categories.  The final rule on this proposal was
promulgated in October 1999 with few revisions.

The second rule, which would lower the reporting threshold for
lead, was proposed in August 1999.  Advocacy expects that this
rulemaking will be completed in 2000.

                FEDERAL COMMUNICATIONS COMMISSION

Issue: Small Local Telephone Carriers as Small Businesses

Throughout Fiscal Year 1999, the Federal Communications
Commission (FCC) issued regulatory flexibility analyses that
stated small incumbent local exchange carriers (ILECs) were not
small businesses because they were dominant in their field of
business.  On May 27, 1999, in a letter sent to the FCC, Advocacy
disagreed with the FCC's determination that small ILECs were
dominant in their fields of operation and, therefore, not small
businesses under the RFA.  Advocacy stated that the SBA has the
statutory authority to define small businesses, and that the SBA
defines dominance on a national basis.  Advocacy thus requested
that the FCC consider small ILECs as small businesses when
conducting an RFA analysis.  After several telephone
conversations and a meeting between Advocacy and FCC staff, the
agency agreed to reword its regulatory flexibility analysis and
consider small ILECs as small businesses.

Issue: Customer Proprietary Network Information

In April 1998, the FCC released an order designed to protect
private and personal information about a customer's name,
address, calling patterns, and calling plans (records referred to
as "customer proprietary network information," or CPNI).  The FCC
adopted very stringent and burdensome rules that required local
telephone companies to maintain records and create safeguards
that were far in excess of the statutory mandate.

On July 3, 1998, Advocacy filed an ex parte letter with the FCC,
asserting that the FCC's rule violated several statutory duties
set forth in the Paperwork Reduction Act (PRA).  Advocacy argued
that the FCC did not develop a specific, objectively supported
estimate of burden, failed to seek public comments on the
accuracy of the agency's estimate of the burden of the proposed
collection of information, and did not evaluate whether the
proposed collection is necessary and useful.  Moreover, since the
FCC changed the rule materially from the original proposal,
Advocacy maintained that the agency then had a duty to submit new
data to the OMB in support of its PRA request for approval.

In December 1998, Advocacy joined a coalition of industry
representatives that was formed in response to a request from the
FCC that the industry itself propose alternatives to the agency's
actions.  The coalition submitted a proposal to the FCC in
January 1999 which would protect the personal information of
telecommunications carriers while imposing substantially less
costs on the industry than the FCC's original proposal.  In
August 1999, the FCC issued an order which revised its earlier
decision and adopted the industry coalition's proposal almost
entirely.

Issue: Broadband Deployment

In August 1998, the FCC released an order and a notice of
proposed rulemaking to encourage broadband deployment in the
nation.  Broadband is form of high-capacity, high speed data
communication that is commonly used for connection to the
Internet.

On October 16, 1998, Advocacy filed comments with the FCC,
asserting that the FCC's regulatory flexibility analysis was
insufficient.  First, Advocacy argued that the FCC failed to
include all classes of small entities in its analysis when it
neglected to recognize small incumbent local exchange carriers
(ILEC) as small entities.  Second, the FCC failed to describe
adequately the proposed reporting, recordkeeping, and other
compliance requirements, by disclosing only three of the six
compliance requirements proposed, and not completely disclosing
the other three that were discussed.  Third, Advocacy's comments
pointed out that the FCC failed to consider significant
alternatives to the proposed reporting, recordkeeping, and other
compliance requirements that can minimize the significant
economic impact of the proposed rules.

The FCC released a Third Report and Order in which it dismissed
Advocacy's concerns regarding the IRFA in its FRFA.  The FCC
stated that it had properly identified all classes of entities,
and that it had adequately described the compliance requirements
and alternatives in the text of the proposed rule.

Issue: Spectrum License Transfer to Leap Wireless

In November 1998, the FCC issued a notice soliciting comment on
the transfer of several Personal Communications Service (PCS)
spectrum licenses from a small business to Leap Wireless, which
is a spin-off company from Qualcomm, Inc.  Leap Wireless had
earlier asked the FCC to be considered a "very small business"
for purposes of qualifying for various benefits in the auction
process.

On December 14, 1998, Advocacy filed with the FCC a petition to
deny, arguing that the FCC should deny Leap Wireless the status
of very small business.  Advocacy did not object, however, to the
transfer of the spectrum licenses to Leap Wireless.  Advocacy
argued that Leap Wireless did not qualify as a very small
business, because the company should be considered an affiliate
of Qualcomm, its former parent company.  Doing so would be
consistent with the FCC's affiliation and attribution rules,
judging the situation by a totality of circumstances.  For
example, Qualcomm had considerable, and thus impermissible,
influence over Leap Wireless, based on the inherent nature of
Leap Wireless as Qualcomm's spin-off.  Additionally, in analyzing
the common stock and management interests between Leap Wireless's
and Qualcomm's directors and officers, the source of Leap
Wireless's assets, operating capital, investment capital, and
multiple contractual arrangements, Advocacy argued that Leap
Wireless cannot be considered a very small business that should
be allowed to take advantage of auction benefits.

In April 1999, the FCC issued an order which approved the
transfer upon certain conditions.  The FCC agreed with Advocacy
that Leap Wireless was a subsidiary of Qualcomm and required
numerous separation efforts before the FCC would approve the
transfer.  These conditions include restructuring the financing
so that it no longer was financed in the majority by Qualcomm, as
well as restructuring the board so that former Qualcomm officials
were no longer in control.

Issue: Commercial Mobile Radio Service Spectrum Cap

In December 1998, the FCC released a notice of proposed
rulemaking asking for comment as to whether the agency should
raise or suspend altogether the spectrum cap on commercial mobile
radio service (CMRS).  Currently, a single spectrum licensee is
limited to 45 megahertz (MHz) of spectrum in the cellular, PCS,
and specialized mobile radio services.

On February 10, 1999, Advocacy filed reply comments with the FCC
that stated that the 45 MHz spectrum cap has served a valuable
and useful purpose in promoting competition, lowering entry
barriers, and encouraging technological innovation.  Advocacy
recommended that, if the FCC decides to eliminate the spectrum
cap, then all licenses must be assigned before the spectrum cap
is relaxed; the spectrum cap should only be raised-not
eliminated; CMRS build-out requirements should be maintained; and
new spectrum cap rules should be applied evenly to all markets.

In September 1999, the FCC released an order that adopted all of
Advocacy's recommendations.  The FCC kept the spectrum cap in
urban areas at 45 MHz and  raised the spectrum cap to 55 MHz in
rural areas in order to spur deployment of services.  The agency
also relaxed ownership attribution benchmarks to help increase
the availability of capital to all wireless carriers.

Issue: Inter-Carrier Compensation for Internet Service Providers

In February 1999, the FCC released a notice of proposed
rulemaking that solicited comment on whether Internet service
providers (ISP) should receive compensation for the termination
of telephone calls onto their network.  On July 14, 1999,
Advocacy sent a letter to the FCC stating that two aspects of the
FCC's IRFA were insufficient to satisfy the statutory
requirements of the RFA.  First, Advocacy commented that the FCC
did not accurately identify all small entities affected by the
rulemaking by not including small ISPs.  Second, Advocacy argued
that the FCC did not consider alternatives to minimize the impact
upon small entities.

The FCC has not taken further action on this issue since the
proposed rulemaking.

Issue: Local Telephone Service Line-Sharing

In March 1999, the FCC proposed rules to require incumbent local
exchange carriers (ILEC) to allow ISPs to use local telephone
lines to provide broadband service without providing local
telephone service that would run on the same line.  This division
is called "line-sharing."

In a letter sent to the FCC on July 26, 1999, Advocacy agreed
that the FCC had statutory authority to require line-sharing and
that it was in the public interest to do so.  However, Advocacy
argued that the notice was vague and it did not provide
sufficient notice to provide a basis for a rulemaking.  In
addition, Advocacy pointed out that the FCC's regulatory
flexibility analyses did not satisfy the requirements of RFA.
Thus, Advocacy recommended that the FCC consider comments
received in response to the notice, but also issue a second
further notice of proposed rulemaking along with revised
regulatory flexibility analyses before adopting rules regarding
line sharing.
Issue: Truth in Billing

In June 1999, the FCC issued the truth-in-billing rule as well as
a further notice of proposed rulemaking, seeking public comment
on the manner in which certain charges are organized and
described on telephone bills.  The FCC intended these rules to
provide customers with helpful information regarding their
telephone service.

In comments filed with the FCC on July 27, 1999, Advocacy stated
that, while it supports the FCC's goal to reduce unauthorized
charges to customers by clarifying information on telephone
bills, the agency's regulatory flexibility analysis suffers from
the same vagueness and lack of basic information as the telephone
bills the rulemaking was designed to cure.  Advocacy pointed out
that both the initial and final regulatory flexibility analyses
were fundamentally flawed, as they did not analyze any of the
compliance requirements contained in the order, and the notice
failed to estimate the cost of these far-reaching and expensive
regulations on small businesses.

On August 30, 1999, Advocacy also sent a letter to OMB stating
that the FCC did not properly balance the compliance burdens upon
small wireline carriers, especially in light of Year 2000 (Y2K)
compliance requirements.  The FCC also relied improperly on the
waiver process to ease compliance burdens on small carriers when
an exception in the rulemaking would have been more appropriate.
Therefore, Advocacy asked OMB to disapprove the information
collection contained in the truth-in-billing order.  In a letter
to the FCC on September 3, 1999, Advocacy supported requests for
a limited waiver to the rules.  Advocacy stated that the
regulations adopted by the FCC are unduly burdensome on small
businesses and would interfere with other important public policy
goals, such as Year 2000 computer conversion preparations.

In response to concerns raised by Advocacy, as well as by the OMB
and affected sectors of the industry, the FCC agreed to postpone
enforcement of two of the most expensive requirements until April
2000.

                    FEDERAL TRADE COMMISSION

Issue: Children's Online Privacy Protection

Historically, the Federal Trade Commission (FTC) is an agency
that consistently works to comply with the RFA.  The agency's
work on this issue serves as another concrete example of its
efforts to do so.

On April 27, 1999, the FTC published the Children's Online
Privacy Protection Rule to implement the Children's Online
Privacy Protection Act of 1998 (COPPA), which prohibits unfair
and deceptive acts and practices in connection with the
collection and use of personal information from and about
children on the Internet.

The goals of COPPA are to enhance parental involvement in a
child's online activities, help protect the safety of children in
online forums (such as chat rooms, home pages, pen-pal services)
where children may make public postings of identifying
information, maintain the security of children's personal
information collected online, and limit the collection of
children's personal information without parental consent.  To
achieve these goals, the FTC proposed several requirements for
the collection of information by Internet advertisers, retailers,
etc., including parental notification, prominent display of
information on collection of information policies, and security
procedures to protect a child's personal information.  The FTC
certified that the proposed rule would not have a significant
economic impact on a substantial number of small businesses.

Advocacy questioned the FTC's certification, discussing several
provisions of the proposed rule that could be quite costly to
small businesses.  Advocacy suggested that the FTC prepare an
IRFA to analyze fully the potential impact of the proposal on
small businesses, define which small businesses needed to comply
with the proposal, and analyze possible alternatives to the
proposal.

Conversations and meetings held between the FTC and Advocacy
staff focused on how much regulatory discretion COPPA gave to the
FTC.  Subsequently, the FTC published an IRFA.  As a result, the
FTC implemented an alternative that specifically defined which
small businesses needed to comply with the rulemaking.  This
change resulted in cost savings of approximately $75 million.

                  FEDERAL PROCUREMENT AGENCIES

Federal acquisition reform has been a major issue for Congress
and regulatory agencies since 1994.  The Federal Acquisition
Streamlining Act of 1994(12) and the Federal Acquisition Reform
Act of 1996(13) represent significant reform initiatives that are
intended to reduce paperwork burdens on federal contractors,
facilitate the acquisition of commercial products, enhance the
use of simplified procedures for small purchases, and improve the
efficiency of the laws governing the procurement of goods and
services.

The purpose of the acquisition reform efforts is to make the
government operate more like a commercial buyer and make it
easier and more appealing for businesses to participate in
government markets.  In turn, the federal government would also
be assured that its nearly $200 billion procurement budget would
achieve greater spending power.  Some of the changes required a
total revamping of the federal acquisition process in order to
streamline the process for the procuring of goods and services.

As a result of major procurement reform adopted between 1994 and
1997, 1998 was a year of implementation, adjustment, and
evaluation.  While the overall acquisition reform process has
been positive, the past year or two saw the emerging of several
post-reform actions that have the potential to be negative to
small businesses.  The most visible sign in this regard is the
apparent decline in the prime contract dollars awarded to small
business.  Accordingly, 1999 saw the beginning of implementing
regulatory measures to correct certain portions of the federal
procurement system.

Federal Acquisition Regulations Council

Issue: Additional Authority to Contracting Officers

The Federal Acquisition Regulations (FAR) system was established
to codify and publish uniform policies and procedures for
acquisition by all executive agencies.  The FAR is issued and
maintained jointly under the statutory authorities granted to the
FAR Council, consisting of the Secretary of Department of
Defense, Administrator of the General Services Administration
(GSA), and the Administrator of the National Aeronautics and
Space Administration.  GSA's "FAR Secretariat" publishes the FAR
on behalf of the FAR Council.

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.  This
proposed rule issued by the FAR Council would provide a federal
contracting officer with unilateral authority to reject an
apparently successful bid.  The proposed rule would give this
power to the contracting officer even if a final adjudication had
not been reached by an established review board or body.

On November 8, 1999, Advocacy filed comments, expressing concerns
with the FAR Council's lack of a factual basis for its
certification under the RFA that the proposal would have no
significant impact on a substantial number of small businesses.
Subsequent to the submission of this letter, the FAR Council,
through its representative, the Office of Federal Procurement
Policy, initiated correspondence with Advocacy regarding the FAR
Council's compliance with RFA.  The issue is still pending.

Department of Justice, Bureau of Prisons, Federal Prison
Industries

Issue: Engine Electrical Component

The Federal Prison Industries (FPI) is a wholly owned government
corporation that was created by statute in 1934.  FPI was given
several statutory mandates, one of which is to serve as a
"mandatory source" in selling its products to federal agencies.
Under this requirement, agencies are generally required to buy
from FPI before they can buy from the private sector.

On March 31, 1999, Advocacy commented on FPI's proposed
"Competitive Impact Study, Federal Supply Code 2920, Engine
Electrical Component."  The study provides justification for the
expansion of FPI's market share of current engine electrical
components.  Ironically, in the study, FPI identified at least
four small businesses that would be adversely harmed by the
proposed expansion.  To illustrate, if the expansion were to
occur, FPI estimated that one small business would lose more than
thirty percent of its business base.  As a result of Advocacy's
letter, FPI agreed to restrict its expansion into the engine
electrical component market.

National Archives and Records Administration

Issue: Agency Records Centers

The National Archives and Records Administration (NARA) provides
federal agencies with standards, procedures, and guidelines for
the use of commercial records storage facilities.  On April 30,
1999, NARA published a notice of proposed rulemaking on agency
record centers, and subsequently extended the public comment
period to July 7, 1999.  In that notice NARA certified that the
requirements it proposed would not have a significant impact on a
substantial number of small entities, but provided no factual
basis for the certification as required by the RFA.

Advocacy expressed concern with NARA's lack of a factual basis
for its certification, which prompted NARA to publish an IRFA on
September 15, 1999.  During the public comment process, NARA
received many suggestions from small businesses, which the agency
ultimately accepted when it issued its final rule.  NARA
estimates that the costs to small businesses to comply with the
final rule were substantially mitigated by several changes that
were made as a result of the RFA analysis on the rule.

                  UNITED STATES POSTAL SERVICE

Issue:    Regulation on Commercial Mail Receiving Agencies
                                
The U.S. Postal Service (USPS) is not an agency whose rules are
subject to the notice and comment provisions of the
Administrative Procedures Act.  As such, it is not subject to the
RFA.(14) Nevertheless, Advocacy used the principles of 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 term PMB
(standing for "private mail box"), in their 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,
which form would be publicly available.  If a CMRA user did not
comply with the rule, USPS stated that the mail would not be
delivered.

Although USPS received over 8,000 comments in opposition to the
proposal and only 10 comments in favor, USPS finalized the rule.
In promulgating the rule, USPS asserted that the rule was
necessary to combat mail fraud.  USPS, however, did not have any
statistics or studies to prove that fraud occurred at any greater
rate at CMRAs than at USPS's own post office boxes.

Since USPS is not an agency subject to the RFA, Advocacy did not
initially become involved in this issue but did so when small
businesses began notifying Advocacy about the impact of the final
rule.  Advocacy then held roundtables and conference calls with
small entities.  Advocacy also sent letters to the Postmaster and
attended meetings to present the views of small businesses.  In
its correspondence, Advocacy pointed out that the rulemaking was
not only discriminatory and arbitrary,(15) it was extremely
costly to small businesses.  While the USPS had allowed users one
year to add PMB to the address before stopping mail delivery, it
did not take into account either the loss that small businesses
would suffer from customers relying on address information
contained in old materials to contact the business, or the stigma
of having to use PMB in an address.  Also there were safety
concerns regarding the release of the actual location of a CMRA
user.

USPS has since announced that it will only release information as
to the actual address of the CMRA user upon receipt of a subpoena
or a court order, thus addressing one of the security concerns
raised by many users.

Further, at the end of October, USPS stated that it would be
publishing a revised rulemaking to address the PMB issue.  To
date that has not occurred.  Advocacy will continue to work
closely with small entities and attend meetings at USPS in an
attempt to minimize the impact of the rule on small entities.

                           Conclusion

The 1998 RFA report concluded that the Office of Advocacy
witnessed renewed interest by federal agencies on compliance with
the RFA, and that a cultural change is underway in the agencies'
approach to RFA activities.

During Fiscal Year 1999, Advocacy saw this trend continue, and
federal agencies appear to be more eager than ever before to
comply with the law.  Agencies are working with Advocacy much
earlier in the rulemaking process to identify problems when they
are easier to correct.  Early consultation also means that
Advocacy is spending more of its resources on pre-proposal, non-
public work with the agencies.

In the end, the true measure of the RFA's effectiveness is how
well agencies are analyzing the impact of its rules on small
business.  This past fiscal year, rules were changed in response
to information demonstrating there were less burdensome
alternatives that were equally effective in achieving public
policy goals.  These alternatives reduced the cost of proposals
to small business by almost $5.3 billion.  While agencies deserve
credit for integrating information on less costly regulations
into their decision process and changing their regulatory
proposals, the RFA's ultimate goal is to have this process
integrated into each agency's decision process so that rules
proposed will not be unduly burdensome on small business.  Some
agencies are striving toward this objective; others still have
much work to do.

ENDNOTES

1.  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.

2.  Congress agreed with small businesses when it specifically
found 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."  Findings and Purposes,
Pub. L. No. 96-354.  As a result, Congress found that these
regulations have "imposed unnecessary and disproportionately
burdensome demands" upon small businesses with limited resources,
which, in turn, has "adversely affected competition."  Id.

3.  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.

4.  U.S. Small Business Administration, Office of Advocacy,
Annual Report of the Chief Counsel for Advocacy on Implementation
of the Regulatory Flexibility Act, Calendar Year 1998
(Washington, D.C. U.S. Small Business Administration, 1999),
p.17.

5.  James V. Hurson Associates, Inc. v. Glickman, No. 98-2120
(D.D.C. 1998).

6.  See Annual Report of the Chief Counsel, 1998, p.19.

7.  995 F. Supp. 1411 (M.D. Fla 1998).

8.  Id.

9.  5 F. Supp. 2d 9 (D.D.C. 1998).

10. See 5 U.S.C.  601(2).

11. Pub. L. No. 104-188.

12. Pub. L. No. 103-355.

13. Pub. L. No. 104-106.

14. The RFA defines "agency" as an agency as defined in section
551(1) of Title 5, 5 U.S.C.  601(1).  Pursuant to 39 U.S.C.
410, USPS is exempt from complying with the section 551 of Title
5.  USPS, therefore, is not an agency as defined by the RFA.

15. Advocacy asserted that the rule was arbitrary and
discriminatory because it only applied to CMRA facilities and not
other bulk mail types of receiving facilities such as hotels,
large businesses, colleges, corporate suites, etc.  Moreover,
there was no information to indicate that fraud was occurring at
any greater rate at CMRAs then through the regular mail, USPS
postal boxes, or other means of delivery.


 Annual Report on the Regulatory Flexibility Act

                     Fiscal Year 1999 
               The Regulatory Flexibility Act and
                 Agency Compliance with the Law

The Regulatory Flexibility Act (RFA)(1) is an important statute
that at long last, due largely to the 1996 SBREFA amendments, is
having an impact in the way the government views the role of
small business in the economy.  In brief, the RFA mandates an
analytical process that agencies must follow in order to level
the regulatory playing field for small businesses and to preserve
competition in the marketplace without compromising public policy
objectives.  Agencies must undertake a thorough analysis of the
economic impact of their proposed regulations, and consider
alternatives that will achieve the same public policy goals, but
with more equitable impact on small entities.

History of the RFA

Before the RFA was enacted in 1980, federal agencies did not
evaluate, nor did they see the need to evaluate, the impact that
their rules would have on small businesses.  It was not readily
understood that small businesses would suffer
disproportionately-compared to large businesses-from one-size-
fits-all regulations, and that this could harm competition.  More
often than not,  agencies failed to recognize or understand the
dynamic role that small businesses play and how important they
are to the nation's economic growth.

In 1980, when the first White House Conference on Small Business
was held in Washington, delegates to that conference sent a
message to the President and the Congress that was loud and
clear.  They took serious issue with burdensome federal
government regulations and sought relief.  Small businesses
argued that when a federal agency issues a regulation, the burden
of that law often falls hardest on them, not through any
intentional desire by the agency to harm them, but rather,
because one-size-fits-all regulations were easier to design and
easier to enforce.  No thought was given to any disproportionate
impact, nor to the possibility that alternatives might be equally
effective in achieving public policy objectives.  Direct costs
involved in complying with a regulation are often approximately
the same for a large company as for a small company.  But, since
a large company is able to spread the compliance cost over larger
output, it has the ability to maintain a competitive advantage
over a small company subject to the same regulation.

Additionally, because large businesses can afford to hire more
people to monitor proposed agency regulations and have easier and
more direct input into the regulatory process, small businesses
are inherently at a disadvantage in influencing final decisions
on regulations.

Recognizing this disparity in the level of input in the
regulatory process, as well as the disparate regulatory impact on
small businesses, Congress enacted the RFA in 1980 to alter how
agencies craft regulatory solutions to societal problems and to
change the one-size-fits-all regulatory mindset of the
regulators.(2)

The Analysis Required by the RFA

The RFA requires a federal agency to review its regulatory
proposals and determine if any new rule is likely to have a
"significant economic impact on a substantial number of small
entities."  If such impact is likely to occur, the agency must
then 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.

An essential part of this analysis is the identification of
alternatives to the proposed rule which could accomplish the same
regulatory objectives but with reduced economic impact on small
entities.  By mandating this analytical process, the RFA seeks to
ensure that agencies understand not only the industries they are
regulating, but the potential impact of their regulations on
small entities before it becomes too late to pursue alternative
measures.  Therefore, during this process, it is crucial for the
agencies to solicit meaningful input from the small business
community as early as possible.

The RFA is premised on the concept that when an agency undertakes
a careful analysis of its proposed regulations-with sufficient
small business input-the agency can, and will, identify any
disproportionate economic impact on small businesses.  Thus, once
an agency realizes the impact that a rule will have on small
businesses, the RFA expects that the agency will seek alternative
measures in order to reduce or eliminate the disproportionate
burden on small businesses without compromising public policy
objectives.  The RFA does not require special treatment for small
business, nor regulatory exceptions for small business.  Rather,
it mandates an analytical process for determining how best to
achieve public policy objectives without unduly burdening small
business.

Federal Agencies' Response to the RFA

The requirements of the RFA are clear.  However, in monitoring
agencies' compliance with RFA, the Office of Advocacy has found
over the years, and so reported to the President and the
Congress, that federal agencies often failed to conduct the
proper analyses as mandated by the law.  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 regulations, yet failed to comply with its requirements.

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 the agency's public policy objectives.  Thus, many
agencies failed-or even refused-to consider valid alternatives to
their proposals even when such options were brought to their
attention by small businesses during the rulemaking process.

Agency failures to weigh alternatives properly not only defeat
the core purpose of the RFA, they effectively preclude the
opportunity for small business to influence the regulatory
development process as Congress intended.  Until 1996, there was
no way to force agencies to comply.  Nor did the small business
community have any remedy to seek redress.  And, although the RFA
authorized the Chief Counsel for Advocacy to file amicus curiae
briefs in court cases involving agency regulation, Advocacy could
not raise the issue of agency noncompliance because the courts
did not have jurisdiction over the question.

The 1996 SBREFA Amendments to the RFA

The 1995 White House Conference on Small Business provided small
business owners another opportunity to seek an amendment to the
RFA authorizing judicial review of agency compliance with the
RFA.  They urged Congress to pass amendments that would add teeth
to the law.

In 1996, Congress enacted the Small Business Regulatory
Enforcement Fairness Act (SBREFA),(3) which amended the RFA in
several critical respects.  The SBREFA amendments to the RFA were
specifically designed to ensure meaningful small business input
during the earliest stages of the regulatory development process.

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

The SBREFA amendments also added a new provision to the RFA: a
requirement that Small Business Advocacy Review Panels be
convened to review EPA and OSHA rules that might affect small
entities.  The purpose of the panels is to elicit comments from
small entities on a rule's impact and on alternatives that should
be considered, and to develop a report on the panel's findings
for the head of the agency within 60 days.

Impact of the SBREFA Amendments

Three full years after SBREFA amended the RFA, there are now
visible signs that the regulatory environment for small
businesses has changed for the better.  The fact that courts may
now review agency compliance with the RFA is a significant
inducement for agencies to improve compliance in order to avoid
court challenges.  Consequently, some agencies have implemented
significant changes to their rulemaking deliberations in order to
do a better job with RFA compliance.  More and more agencies are
reaching out to Advocacy early in the process to seek guidance on
compliance with the RFA.  In addition, Advocacy has conducted
several training sessions for agency personnel and continues to
do so at an agency's request.  Some agencies have hired personnel
specifically to monitor internally the agency's compliance with
the analytical process mandated by the law.

Judicial Review

Other agencies are learning to comply with the RFA as the result
of litigation, which is producing a body of case law interpreting
the RFA.  Agencies are carefully monitoring these developments to
avoid similar challenges to their rules,  since it has become
clear that small entities are not hesitant to initiate court
challenges in appropriate cases.  (See Appendix B for a list of
known cases filed since passage of SBREFA.)

Small Business Advocacy Review Panels

SBREFA mandated that, whenever EPA or OSHA finds that a
regulatory proposal may have 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.

It has been Advocacy's experience working on the panels that the
agencies' economic impact analyses have greatly improved, and the
RFA-mandated process has been productive for both the agencies
and small businesses.  Since the time the SBREFA amendments were
enacted through the end of Fiscal Year 1999, 18 panel reports had
been completed (15 EPA and 3 OSHA) and approximately 300 small
entities had been consulted by the panels on the rather diverse
issues as described in the following chart.

           EPA SBREFA PANELS THROUGH FISCAL YEAR 1999
                                
        Rule Subject             Date      Report    NPRM
                               Convened   Complete
                                              d
Non-Road Diesel Engines        03/25/97   05/23/97  09/24/9
                                                       7
Industrial Laundries Effluent  06/06/97   08/08/97  12/12/9
Guideline                                              7
Stormwater Phase 2             06/19/97   08/07/97  01/09/9
                                                       8
Transport Equipment Cleaning   07/16/97   09/23/97  06/25/9
Effluent Guideline                                     8
Centralized Waste Treatment    11/06/97   01/23/98  01/13/9
Effluent Guideline                                     9
Underground Injection Control  02/17/98   04/17/98  07/29/9
Class 5 Wells                                          8
Ground Water                   04/10/98   06/09/98    in
                                                    process
Federal Implementation Plan    06/23/98   08/21/98  09/30/9
for Regional Nitrogen Oxides                           8
Reductions
Section 126 Petitions          06/23/98   08/21/98  09/30/9
                                                       8
Radon in Drinking Water        07/09/98   09/18/98  11/02/9
                                                       9
Long Term 1 Enhanced Surface   08/21/98   10/19/98    in
Water Treatment                                     process
Filter Backwash Recycling      08/21/98   10/19/98    in
                                                    process
Light Duty Vehicles/ Light     08/27/99   10/26/98  05/13/9
Duty Trucks Emissions and                              9
Sulfur in Gas
Arsenic in Drinking Water      03/30/99   06/04/99    in
                                                    process
Recreational Marine Engines    06/07/99   08/27/99    in
                                                    process
                                

           OSHA SBREFA PANELS THROUGH FISCAL YEAR 1999

        Rule Subject             Date      Report   NPRM
                               Convened   Complete
                                              d
Tuberculosis                   09/10/96   11/12/96  10/17/9
                                                       7
Safety and Health Program      10/20/98   12/19/98    in
Rule                                                process
Ergonomics Program Standard    03/02/99   04/30/99  11/23/9
                                                       9

             Highlights of Advocacy's RFA Activities
                     during Fiscal Year 1999

Introduction

Since the Small Business Regulatory Enforcement Fairness Act
(SBREFA) went into effect in June 1996, Advocacy has completed
work on 15 EPA Small Business Advocacy Review Panels and 3 OSHA
panels.  Work on the panels is labor intensive, consuming
approximately 500 to 600 professional hours.  However, the work
has been very productive.

In addition to the panels, the Office of Advocacy also evaluated
over 1,300 proposed, interim, and final rules issued by federal
agencies, and submitted 76 formal written communications to the
agencies.  As in previous years, Advocacy targeted its resources
to those rules where its involvement would likely make a
difference, commenting on the deficiencies in agency compliance
with the RFA and the potential impact on small business of agency
proposals.  Generally, these involve proposals where small
business interests are significant, but underrepresented in the
regulatory process.  In other instances, Advocacy takes action on
regulations proposed by agencies which have a poor record of RFA
compliance, or where an agency specifically requests Advocacy's
assistance in developing a systematic approach to RFA compliance.

Each year since the passage of the 1996 SBREFA amendments to the
RFA, Advocacy is finding that its staff expends more and more
resources working with agencies on rules before they are
published for public comment.  Advocacy is of the view that this
increase in pre-proposal work is largely attributable to the
statutory change that allows courts to review agency RFA
compliance in appeals from agency final actions.  Agencies
logically wish to avoid such reviews.

Summary of the Regulatory Flexibility Act

Before proceeding to the discussion of Advocacy's RFA activities
during Fiscal Year 1999, it might be helpful to summarize the key
provisions of the law.  This should help provide a context for
the section that follows.  (The full text of the law is in
Appendix A of this report.)

In brief, the RFA requires federal agencies either to certify
that the rule will not have a significant economic impact on a
substantial number of small entities and provide a factual basis
for the determination, or prepare a regulatory flexibility
analysis.

     Y    Certification:  If a regulation is found to not have a
       significant economic impact on a substantial number of small
       entities, the head of an agency may certify to that effect, but
       must provide a factual basis for this determination.  This
       certification must be published with the proposed rule in the
       Federal Register for public comment to ensure that the
       certification is warranted.

     Y    Initial Regulatory Flexibility Analysis:  If a proposed rule
       is expected to have a significant economic impact on a
       substantial number of small entities, an initial regulatory
       flexibility analysis (IRFA) must be prepared and published in the
       Federal Register for public comment.  This initial analysis must
       describe the impact of the proposed rule on small entities,
       contain a comparative analysis of alternatives to the proposed
       rule that would minimize the impact on small entities, and
       document their comparative effectiveness in achieving the
       regulatory purpose.  If the analysis is lengthy, the agency may
       publish a summary and make the analysis available upon request.

     Y    Final Regulatory Flexibility Analysis:  When an agency
       issues a final rule, it must prepare a final regulatory
       flexibility analysis (FRFA) or certify that the rule will not
       have a significant impact on a substantial number of small
       entities and provide a statement of the factual basis for such
       certification.  The final regulatory flexibility analysis must
       provide a succinct statement of the need for, and objectives of,
       the rule; summarize the issues raised by public comments on the
       IRFA (or certification) and the agency's assessment of those
       issues; describe and estimate the number of small entities to
       which the rule will apply or explain why no such estimate is
       available; describe the compliance requirements of the rule;
       estimate the classes of entities subject to them and the type of
       professional skills essential to compliance; describe the steps
       followed by the agency to minimize the economic impact on small
       entities consistent with the stated objectives of the applicable
       statutes; and give the factual, policy, and legal reasons for
       selecting the alternative(s) adopted in the final rule,
       explaining why other alternatives were rejected.  If the analysis
       is lengthy, the agency may publish a summary and make the
       analysis available upon request.

What follows is a discussion of some of the more significant
regulatory and policy work performed by the Office of Advocacy
between October 1998 and September 1999.  Many of  these Fiscal
Year 1999 activities involve work on issues initially discussed
in previous years' reports.  The regulatory process is, after
all, a continuum of activities with important work continuing
from one year to the next and, in some instances, with additional
interventions by the Congress and the courts.  (A complete list
of written communications and other Advocacy is in Appendix D of
this report.)

                    DEPARTMENT OF AGRICULTURE

Agricultural Marketing Service

Issue: Organic Food Production, Handling, and Labeling

In 1997, Agricultural Marketing Service (AMS) proposed a
regulation that was intended to set national standards for
organic farmers, handlers and certifying agents.  It marked the
first time that AMS consulted with Advocacy on a proposed
regulation.  After receiving nearly 300,000 comments (mostly
negative) on the proposal, AMS decided to rethink the highly
controversial elements of the regulation and to re-propose it at
a later time.  Currently, with a new staff and administrator,
AMS, along with OMB, are working with Advocacy on the new
regulations, which will be published in the near future.
Advocacy has had two opportunities to provide comments on the
draft regulation in the hope of minimizing the burden on small
entities.

Food Safety and Inspection Service

Issue: Label Review Appointments

In 1998, Food Safety and Inspection Service (FSIS) decided to
eliminate face-to-face appointments with courier/expediter firms
that seek label approvals for meat, poultry, and egg products on
behalf of their food processor clients.  FSIS implemented this
sweeping policy change in a "notice of procedural change" rather
than by notice and comment rulemaking.  As referenced in the 1998
report on the RFA, Advocacy submitted comments criticizing the
agency for ignoring proper notice and comment procedures, which
are required under the Administrative Procedure Act (APA).(4) New
events have subsequently transpired on this issue.

A coalition of label expediters filed suit(5) against FSIS
claiming, among other things, that the agency was attempting to
implement a "rule" rather than a mere "procedural change" and
should have adhered to proper APA procedures.  The court filed an
opinion on August 30, 1999, denying the plaintiffs' motion for
summary judgment.  In its analysis, the court drew a fine
distinction between procedural and substantive rules by stating
that FSIS's proposal alters the manner in which label approval
requests are received and processed by the agency, but does not
alter the substantive criteria upon which the agency bases its
label approval decisions or the outcome of those decisions.  The
court also stated that the fact that label expediters would be
forced out of business was a mere "collateral" effect that was
insufficient to transform a procedural rule into a substantive
rule.

The plaintiffs filed an appeal, and requested that Advocacy file
an amicus curiae brief in support of their position.  Hoping that
the issue could instead be resolved through direct discussions
with the agency, the Chief Counsel for Advocacy met with USDA
officials to discuss ways to minimize the burden on small
businesses-the label expediters and the food processors who rely
on speedy label reviews to get their products to market.
Advocacy presented evidence that the face-to-face process was
more efficient than the mail-in process, that small processors
relied upon label expediters to remain competitive in the market,
and that the sudden change in policy eroded trust in the
government (especially since FSIS attempted to change its policy
twice by rulemaking, but failed).  The agency pledged to revisit
the issue and take small business into consideration.

                     DEPARTMENT OF COMMERCE

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

National Marine Fisheries Service

The office within the DOC that promulgates the majority of the
regulations affecting small entities is the National Marine
Fisheries Service (NMFS), which is a division of the department's
National Oceanic and Atmospheric Administration.  NMFS regulates
the activities of small businesses under several natural resource
protection statutes such as Marine Mammal Protection Act and the
Mabnuson-Stevens Fishery Conservation and Management Act.

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.
NMFS promulgates rules through fishery councils located in
different geographical parts of the country.  Some councils have
better information collection systems than others.  This affects
the quality and consistency of the economic analyses performed by
NMFS.  The lack of consistent economic information has hindered
NMFS's ability to perform thorough and credible economic analyses
in compliance with the RFA.  Having said this, NMFS can
nevertheless be criticized for not taking aggressive steps
earlier to address this deficiency.

But constructive changes are now afoot at NMFS.  The agency has
made changes in its institutional framework in an attempt to
advance its compliance with the RFA.  NMFS hired an economist and
an attorney specifically to handle RFA issues.  NMFS is also in
the process of instituting new guidelines for determining

"significant economic impact" and is holding workshops for its
regulators to discuss the new guidelines.  In addition, NMFS is
attempting to collect additional financial information from the
fishing industry that will enable NMFS to assess accurately the
potential impact of its actions on the fishing industry.
Hopefully, the institutional changes will also encourage
consistency in the quality of the information provided in their
economic analyses, as well as improve overall compliance with the
RFA.

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.(6) The shark fishing
industry sued NMFS, and the case (Southern Offshore Fishing v.
Daley(7)) was eventually referred to a special master by the U.S.
District Court for the Middle District of Florida.

On October 1, 1999, the special master submitted his findings and
recommendations to the court.  In brief, the special master found
that:

     Y    NMFS did not have all the necessary information to evaluate
       and implement alternatives to the quota.  However, NMFS had
       failed to collect meaningful economic data and this failure was
       arbitrary and capricious.
     
     Y    NMFS's failure to give any consideration to alternatives to
       the quota was a wanton repudiation of the court's instruction on
       remand.

     Y    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's conduct constituted bad
faith and a lack of candor to the court.  The DOC filed
objections to the special master's findings.  A hearing on
whether the special master's findings should be adopted by the
court was scheduled for March 2, 2000.

Issue: Atlantic Sea Scallops

On December 18, 1998, NMFS proposed Amendment 7 to the Atlantic
Sea Scallop Fishery Management Plan.  The purpose of the proposal
was to reduce the fishing mortality rate of the Atlantic sea
scallop by eliminating overfishing in order to rebuild the
stocks.  NMFS suggested several changes to meet that goal, such
as a reduction in the number of days at sea, and limiting the
areas where fishing could occur.

Advocacy commented on the NMFS's proposal, and cited Southern
Offshore Fisheries v. Daley(8) in questioning the agency's
failure to consider an alternative submitted by members of the
fishing industry.  The fishing industry had earlier suggested
that an area in George's Bank that was rich with scallops be
opened up for fishing.  The industry's proposal was supported by
a scientific study concluding that there were so many scallops in
the George's Bank area that scallops were dying from
overcrowding.  In its comments to NMFS, Advocacy asserted that
this alternative regulatory option presented a "win-win" solution
for everyone, and that the proposal should be considered
seriously by NMFS.

In June 1999, the Secretary of Commerce ordered NMFS to reopen
the area of George's Bank suggested by the fishing industry.
According to the industry's estimation, this regulatory
alternative that Advocacy supported would result in $40 million
dollars of revenue for the Atlantic sea scallop fisheries.

Internet Corporation for Assigned Names and Numbers

The Internet Corporation for Assigned Names and Numbers (ICANN)
is a non-profit corporation, independent of the federal
government, that was formed in 1998 to take over responsibility
for the Internet protocol (IP) address space allocation, protocol
parameter assignment, domain name system management, and root
server system management functions.  Originally, the federal
government had delegated these functions to the Internet Assigned
Numbers Authority and other entities.  In accordance with a
presidential directive, the Department of Commerce transferred
these management functions to this non-profit, private sector
entity with international representation.

In preparation for the meeting of its board of directors in
Berlin, Germany, in May 1999, ICANN requested comments on a
proposed system to resolve disputes of Internet domain names.
Advocacy submitted comments stating its belief that ICANN did not
provide reasonable notice in violation of ICANN's own bylaws, and
asked ICANN to revise the comment period and postpone a final
decision until there was ample opportunity to consider all the
comments filed.  Advocacy also recommended that ICANN adopt the
World Intellectual Property Organization (WIPO)'s definition of
abusive registration.  Finally, Advocacy recommended that ICANN
postpone making any decision to give special protections to
"famous and well-known marks" until the Domain Name Supporting
Organization (DNSO) had a chance to review the issue.

In August 1999, ICANN proposed adopting a uniform dispute
resolution policy to determine cases of "cybersquatting."
Advocacy wrote ICANN on August 25, 1999, supporting a mandatory
uniform dispute resolution process that is narrowly tailored to
rectify situations of blatant abusive registrations.

Furthermore, while Advocacy agreed with ICANN's Working Group A
(which was formed to discuss the dispute resolution process) that
several issues in the report merit further discussion, it
questioned whether WIPO was the appropriate forum for these
clarifications.  Advocacy instead recommended that DNSO consider
the clarifications.  Regardless of which body handles the
clarification, Advocacy proposed that it should consider the role
of small businesses and the impact these rules will have upon
them.

ICANN adopted the basic premise of a dispute resolution policy at
its August 1999 meeting in Santiago, Chile.  Advocacy played a
role in drafting the specific details of the policy to ensure
that they were not unfairly burdensome on small businesses.  The
implementation documents were approved at ICANN's November 1999
meeting in Los Angeles, and the policy went into effect for all
the new competitive registrars in December 1999 and for Network
Solutions in January 2000.

             DEPARTMENT OF HEALTH AND HUMAN SERVICES

Food and Drug Administration

Issue: Dietary Supplements Containing Ephedra

As described in the 1998 report, Food and Drug Administration
(FDA) proposed to limit the dosage of dietary supplements and to
require label warnings in such a way that this product could no
longer be used for weight loss.  The regulations, as written,
would put thousands of distributors out of business.  Advocacy
criticized the agency in a letter that stated, among other
things, that the agency did not consider alternatives to minimize
the burden on small businesses, and that the agency relied on
faulty scientific evidence to support the need for the
regulation.

Subsequent to publication of the 1998 report, the General
Accounting Office (GAO) published its findings on FDA's
regulatory procedures in this instance.  The GAO concluded that
FDA's analysis relied heavily on poorly documented reports of
adverse events, and that FDA's analysis of impacts was not
transparent and did not fully reflect uncertainties in the
underlying data and assumptions.  The GAO recommended that FDA go
back and obtain additional information to support the agency's
conclusions before proceeding to a final rule, and improve the
transparency of the cost-benefit analysis in the final rule.  In
spite of these findings, however, GAO mysteriously concluded that
the FDA complied with the requirements of the RFA.

On April 29, 1999, Advocacy submitted a letter to GAO supportive
of GAO's work in analyzing FDA's proposal, but also expressing
concern about GAO's conclusion that FDA complied with the RFA
when FDA's analysis of impacts was clearly inadequate.  The
premise of the RFA, as Advocacy explained in its letter, is to
require agencies to consider fully the effects of their
rulemaking on small entities.  The key requirement of the RFA is
the preparation of initial and final regulatory flexibility
analyses when a rule is likely to have a significant economic
impact on a substantial number of small entities.  If, as GAO
would have it, the analysis and the facts, data, or science
underlying the analysis do not need to be valid, then Advocacy
believes the RFA-mandated analysis would merely become a
procedural hoop with no value to the regulatory process.
Advocacy pointed out that, while the RFA does not state how much
analysis is required or what type of analysis is adequate, it
believes that bad or invalid analysis certainly cannot qualify as
meeting the requirements of the RFA.  Unfortunately, GAO did not
adopt Advocacy's position.

Health Care Financing Administration

Issue: Various Issues Resulting from the Balanced Budget Act of
1997

A number of Medicare payment reforms affecting home health
agencies, nursing homes, hospital outpatient centers, teaching
hospitals, etc., were enacted in the Balanced Budget Act of 1997.
As indicated in the 1998 report, Advocacy submitted comments to
Health Care Financing Administration (HCFA) on the hospital
outpatient prospective payment system, the home health interim
payment system (and its successor, the home health prospective
payment system), home health surety bonds, and the Outcomes and
Assessment Information Set (OASIS).  In addition, the Chief
Counsel for Advocacy testified before the Senate Small Business
Committee on the surety bond issue.  Advocacy had been fairly
critical of HCFA's implementation of the Medicare payment reforms
because of their severe impact on small businesses and possible
beneficiary access problems.

Subsequent to these Advocacy activities, there was a groundswell
of grassroots lobbying by stakeholders to get Congress to restore
some of the severe cuts triggered by the Balanced Budget Act of
1997.  Advocacy's comments on the surety bond issue spurred
Senator Christopher Bond to introduce a resolution of disapproval
that would have "vetoed" the regulation.  Instead, HCFA withdrew
the regulation, and the GAO did a study that indicated that the
impact would fall squarely on the shoulders of small business.
HCFA is redesigning the surety bond program accordingly.

Most recently, Congress enacted Medicare "giveback"
legislation-reportedly totaling $27 billion over 10 years-to
provide relief to health care providers who were unfairly hurt by
the earlier cuts.  For instance, nursing homes will get $1.3
billion in extra aid for medically complex patients, hospitals
(cancer and teaching hospitals) will get about $7.2 billion over
five years, outpatient programs will get about $9.6 billion over
10 years, health maintenance organizations (HMOs) will get $2.9
billion over five years as a result of increased physician fee-
for-service payments, and the scheduled 15 percent reduction in
home health payments will be delayed for one year.

Throughout this process, an important change has taken place at
HCFA.  The agency is now consulting with Advocacy in the early
stages of the regulatory process.  In this past year alone, HCFA
consulted with Advocacy on at least two occasions involving major
regulations prior to formal proposal.  Part of the impetus for
these remarkable changes-including the "giveback"
legislation-stemmed from the comment letter and other early
action that Advocacy undertook on surety bonds for home health
agencies.

Issue: Competitive Bidding for Durable Medical Equipment

As described in the 1998 report, this project 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.  Subsequent to
publication of the 1998 report, HCFA selected other demonstration
sites for competitive bidding.  Unlike the first demonstration in
Polk County Florida, however, HCFA invited stakeholders to
participate in the process before finalizing the parameters of
the upcoming demonstration.  Moreover, HCFA has kept Advocacy
apprised of the progress and outcome of the first demonstration.

                     DEPARTMENT OF INTERIOR

There are several regulatory agencies within the Department of
Interior (DOI) 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.

As noted in the 1998 report, DOI's compliance with the RFA
historically has been problematic.  In the past, DOI's regulatory
flexibility analyses consisted of either a single sentence
stating "no significant impact on a substantial number of small
entities" or a recitation of the RFA compliance requirements.  In
1998, there has been some, but not marked, improvement in DOI's
compliance.  Cooperation has been improving between Advocacy and
some agencies within DOI on RFA matters.  The Minerals Management
Services and the National Park Services are particularly
noteworthy, while the Bureau of Land Management has not made as
much progress.

Minerals Management Service

Issue: Royalty in Kind

The Royalty in Kind (RIK) program is an example of the improved
cooperation between a DOI agency and Advocacy.  In 1999, Minerals
Management Service (MMS) contacted Advocacy about its RIK
program, which was developed pursuant to the Minerals Leasing Act
of 1920 (MLA).  The MLA allows DOI to take federal oil in kind,
in lieu of royalty cash payments, which it then sells to
"eligible refiners" for use in their refineries.  The RIK program
was implemented by MMS to maintain a robust oil refinery industry
consisting of large and small facilities.

When MMS contacted Advocacy, MMS was considering discontinuation
of the program because it felt that the program was no longer
necessary.  MMS also asserted that participation by small
refiners in the RIK program had declined significantly over the
last few years.  MMS believed that the decline was due to a lack
of interest by small refiners.  MMS asked Advocacy to review the
program and to provide an opinion as to its continued value, if
any.

Advocacy then convened an industry roundtable to discuss the
program.  Advocacy also held conference calls with members of the
industry to ascertain the value of the program to small
operations.  After reviewing information from the agency and the
industry, Advocacy concluded that the program had merit from a
small business perspective and that declining participation by
small businesses was due to inefficiencies in the program.  MMS
subsequently decided to continue the program and eliminated the
inefficiencies, but did not allow the small refiners who had
dropped out of the program to reenter.

Advocacy urged the agency to allow small refiners to reenter the
program.  MMS eventually decided to reopen a new bidding process
for the RIK program.  The new contracts will allow all small
refiners to participate in the program-even those who had left
it.  Under the new program, approximately 100,000 barrels of
royalty oil per day will be offered for sale to small businesses.

National Park Service

Issue: Commercial Fishing in Glacier Bay, Alaska

The National Park Service (NPS) is another example of an agency
within DOI that is making an effort to comply with the
requirements of the RFA.  In April 1997, NPS proposed a
regulation that would prohibit commercial fishing in non-
wilderness waters of Glacier Bay proper.  NPS contended that the
prohibition was necessary to "conserve the scenery and the
natural and historic objects and wildlife therein."

The proposal provided a seasonal exemption from that prohibition
for a period of 15 years for commercial fishers who could
demonstrate a reasonable history of participation in a specific
Glacier Bay fishery.  The proposal was devoid, however, of any
economic information about the potential impact on the industry,
even though it was known that the proposal would effectively put
several operations out of business and would likely have a
substantial economic impact on small fishing villages.  Despite
this knowledge, the NPS certified that the rule would not have a
significant economic impact on a substantial number of small
entities.

In February 1999, Advocacy questioned the certification and urged
NPS to perform an IRFA.  NPS then sought Advocacy's assistance
and prepared an IRFA as required by the RFA.  The rule was
finalized in October 1999.  The final rule contains less
stringent eligibility criteria for determining which businesses
were able to continue to fish under the exemption provisions of
the rule.

Bureau of Land Management

Issue: Hardrock Mining

The Bureau of Land Management (BLM) has improved its efforts
somewhat on 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 inability to develop and
analyze alternative regulatory solutions.

BLM's hardrock mining regulation which requires miners to obtain
a reclamation bond, was the subject of the Northwest Mining v.
Babbitt(9) case.  In that case, the U.S. District Court for the
District of Columbia remanded the rule to the agency for failure
to comply with the RFA.  The basis of the court's finding was
that BLM had not used the proper size standard.

In February 1999, in preparing the proposed rule, BLM consulted
with Advocacy about the size standards requirements and used the
proper size standard in its revised proposal.  However, the
information provided in the economic analysis was inconsistent
with, and did not support, the agency's finding of "no
significant economic impact."  Also, the agency did not consider
meaningful alternatives to the proposal.  The only alternatives
considered by BLM were shifting mining operations to non-federal
lands, adopting different techniques, shortening the life of the
mine, or temporarily halting mining until commodity prices
increase.  Each of these 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, nor, more significantly, did the agency
consider alternatives that would mitigate BLM's proposed action.

Finally, the agency published the proposal for comment prior to
the completion of a National Academy of Sciences study that was
intended to determine the necessity of the regulation and
identify possible alternatives.  Although Advocacy suggested that
BLM extend the comment period to allow the public a chance to
review the study prior to submitting comments, BLM would not.
BLM only reopened the comment period after Congress directed it
to do so through the 1999 Emergency Supplemental Appropriations
Act.

                       DEPARTMENT OF LABOR

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, Mine Safety and Health Administration, and the
Employment Standards Administration are just some of the agencies
within DOL that have drafted or promulgated rules in Fiscal Year
1999 that have significant impacts on small businesses.

However, one agency in particular, the Occupational Health and
Safety Administration (OSHA), has a tremendous impact on small
entities due to the kind and scope of regulations it promulgates.
In the 1996 SBREFA amendments to the RFA, Congress mandated that
OSHA follow special processes when it considers regulations that
will have a significant impact on small entities.

The 1996 SBREFA amendments established a new regulatory analysis
process for OSHA (which also applies to the Environmental
Protection Agency).  The new process requires OSHA to convene a
Small Business Advocacy Review Panel whenever the agency cannot
certify under the RFA that a regulatory proposal will not have
significant economic impact on a substantial number of small
entities.

Occupational Safety and Health Administration

During Fiscal Year 1999, Advocacy worked closely with OSHA on two
very important panels: the Safety and Health Program Rule panel,
which concluded in December 1998; and the Ergonomics Program
Standard panel, which concluded in April 1999.  Advocacy's
experience in working on these and other panels has demonstrated
that small business input early in the regulatory process vastly
alters the agency's views on how best to solve a problem through
regulation.  The process forces the agency to look at equally
effective alternatives that do not harm competition.

Although neither of these OSHA rules have been finalized, the
SBREFA panel process itself, and the panel reports which were
developed as a result of the process, have only added to the
knowledge of the agency and its understanding of the realistic
impact these rules would likely have on small entities.  The time
spent on these panels and the follow up work which continues with
OSHA as well as with the Office of Information and Regulatory
Affairs at the Office of Management and Budget has been, and
continues to be, productive for both agencies and small
businesses.

Issue: Ergonomics Standard

On March 4, 1999, OSHA released a draft of an ergonomics standard
and announced its intention to convene a SBREFA panel to discuss
the potential impacts of the draft rule on small businesses.  The
purpose of the ergonomics standard is to reduce the number of
repetitive stress disorders and other musculoskeletal injuries
which employees receive as a result of their regular work
activity.  The draft proposal covered every industry and business
in the United States, except those in construction, maritime
trades, and agriculture.  Twenty small entity representatives
were chosen to advise the panel and provide input into the draft
standard.  The group included 13 owners or operators recommended
by Advocacy to represent the interest of the many small
businesses concerned about the potential impact of this rule.

During the SBREFA panel's deliberations, the small entities
expressed a number of concerns about the proposal, especially
with the cost estimates.  Most indicated a disbelief in OSHA's
estimation of time and money that the draft proposal would
require.  The small entities provided the agency with types of
costs which they felt were omitted from the calculations and
suggested that OSHA provide the public with its assumptions when
it proposes the standard in the Federal Register.  The panel
recommended that OSHA review its cost estimates and input from
the small entities in order to reflect more accurately the
economic impact of the ergonomics standard on small entities

Throughout the process Advocacy worked with both OSHA and OMB to
ensure that the many  concerns of the small business
representatives on the panel were heard and taken under
consideration in the panel report completed on April 30, 1999.
OSHA then reviewed and revised somewhat its draft ergonomics
standard and submitted it to OMB in July for mandatory 90-day
review.  OSHA published the proposed ergonomics rule in the
Federal Register for public comment on November 23, 1999.  It is
anticipated that OSHA will have additional public hearings on
this proposal prior to the rule becoming final.

Issue: Safety and Health Program Rule

As reported in the 1998 report, OSHA notified Advocacy on August
28, 1998, of its intent to propose a safety and health program
rule.  The proposal seeks to reduce the number of job-related
fatalities, illnesses, and injuries by requiring employers to
establish a workplace safety and health program to ensure
compliance with OSHA standards and the "general duty" clause of
the Occupational Safety and Health Act.  Elements of the rule
include requirements for management leadership and employee
participation, hazard identification and assessment, hazard
prevention and control, information and training, and evaluation
of program effectiveness.  In addition, existing safety and
health programs would have to demonstrate that they satisfy these
core elements.

Because the scope of the proposal covers nearly all employers,
except those engaged in construction and agriculture, a SBREFA
panel was convened on October 20, 1998.  The panel consulted with
19 small entity representatives, who voiced numerous concerns
from the small business perspective.  On December 10, 1998, the
panel's report was submitted to OSHA, with numerous
recommendations and findings of the panel with respect to the
draft rule.  The panel found that:

     Y    OSHA had underestimated the costs of the proposed rule and
       should review its cost estimates.  OSHA should clearly present,
       in the preamble to any proposed rule, information on the key
       assumptions and estimates underlying the estimated program-
       related costs, hazard control costs, and benefits associated with
       the rule.  Also, OSHA should add to its cost analysis the cost of
       evaluating compliance by entities with existing health and safety
       programs and seek comment on the need for legal assistance and
       the cost of such assistance when conducting such an evaluation.

     Y    OSHA should analyze and give special attention and
       consideration to an alternative regulation which would regulate
       those industries with high risks based on reports of injuries,
       illnesses and deaths, leaving other industries to be regulated
       under existing OSHA standards and state requirements.

     Y    The issue of increased litigation risk, including employers'
       perception of such risk, deserves further review and OSHA should
       describe the issue in the preamble and solicit comment on it.

     Y    OSHA should more clearly identify the basis for its
       preliminary conclusion that state health and safety programs are
       effective in reducing job-related injuries and illnesses.

     Y    OSHA should clearly explain its draft enforcement policy in
       its regulatory document, and solicit comment on the content of
       the enforcement policy and its possible inclusion in the
       regulatory document.

Since this rule is a major rule, it must be submitted to OMB for
review as required by Executive Order 12866.  OMB will then have
90 days to review the proposal, after which it will be determined
whether or not to publish the rule in the Federal Register for
public comment.  By the end of Fiscal Year 1999, the rule had not
been submitted to OMB for review.  OSHA officials have stated
that the rule will be submitted to OMB some time in 2000.

Pension Welfare Benefits Administration

Issue: Benefit Claims Regulation

The Pension Welfare Benefits Administration (PWBA) proposed
regulations to set new standards for the processing of group
health, disability, pension, and other employee benefit plan
claims filed by participants and beneficiaries of employment
benefit plans.  Notwithstanding the fact that the proposal, in
its preamble, admitted that there would be millions of dollars in
aggregate compliance costs which would be "mostly to small
pension plans," PWBA made a determination that the rule would not
have "a significant economic impact on a substantial number of
small entities."

In January 1999, Advocacy filed comments insisting that PWBA
comply with the RFA by undertaking a regulatory flexibility
analysis, since small plans will bear the brunt of the cost.
Advocacy also questioned the need for such procedures for small
pension plans when there was no apparent evidence that any
problem existed warranting such regulations.  PWBA withdrew the
proposed regulations and is redrafting them to respond to the
comments that were filed.

Issue: No Independent Trustee for Small Pension "Plans"

In response to discussions in the pension administration
industry, Advocacy and industry representatives asked PWBA
whether it had any plans to require all pension plans to use an
independent financial institution as trustee or custodian.  If
so, this would be a significant burden for small firms since most
small businesses use the owner as the trustee.

In January 1999, DOL announced that small businesses that
sponsored pension plans would not be required to have independent
financial institutions act as trustees.

                   DEPARTMENT OF THE TREASURY

The Department of 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.
Besides the Internal Revenue Service, other divisions, such as
the Office of Thrift Supervision, and the Bureau of Alcohol,
Tobacco and Firearms, also have an impact on the operation of
some small businesses.  Only IRS activities are highlighted here.

Internal Revenue Service

The RFA requires analysis of a proposed regulation only where
notice and comment rulemaking is required.(10) Under the
Administrative Procedure Act (APA), "interpretative rules" are
exempt from notice and comment rulemaking.  For years the
Internal Revenue Service (IRS) has escaped the requirements of
the RFA because the agency 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
issued by the IRS that imposed a collection of information
requirement would be subject to the RFA.

Since passage of SBREFA, the IRS has worked with Advocacy to
enhance its compliance with the RFA.  As a result, the IRS is not
just relying on the APA exception, but, rather, is performing
some analyses of the impact of its interpretative rules on small
business and is certifying most of them as having no significant
impact on a substantial number of small entities.  In Fiscal Year
1999, there were visible signs that the IRS's regulatory approach
toward small business was getting better.  For example, the IRS
was more responsive to Advocacy's inquiries on small business
issues.  The IRS agreed to hold meetings when requested with
concerned small business groups to discuss high visibility or
controversial rules.  The IRS has increasingly requested
suggestions from small businesses-before the publication of
regulations, technical advice memoranda, or guidance
advisories-about which problems were the most onerous and whether
there were better approaches to solve such problems.

Advocacy is encouraged by the increasing awareness of Treasury
and the IRS, in particular, to the requirements of the RFA.  In
some cases, when the IRS consults small entities, its efforts
lead  to better rulemaking.  While the IRS's motive may be to
avoid any proposed new legislative requirement that it convene
Small Business Advocacy Review Panels, the IRS has done a lot to
improve its outreach to the small business community.

These issues aside, the majority of the regulations published by
the IRS in FY 1999 were not subject to the RFA.  The IRS's
reasons for why the RFA did not apply to its regulatory actions
in those circumstances included:

     Y    The RFA applies to legislative regulations.  The IRS has
       always maintained that virtually all its regulations are
       interpretative, and thus exempt from the RFA.
  
     Y    Many IRS regulations clarify definitions or provide examples
       of application.  Without more, they do not require analysis under
       SBREFA.
  
     Y    Any interpretative regulation that was proposed prior to
       March 2, 1996, is not subject to the RFA as amended by SBREFA.
  
     Y    Most IRS regulations have an impact on individuals, large
       entities, or activities that do not involve small business.

     Y    Unless there is a form required (that is, a piece of paper
       that is to be filled out by the taxpayer), there is no
       recordkeeping requirement imposed by the rule.  Also, if there is
       simply an addition or amendment to an existing form, the change
       is insignificant, and there is no new collection of information
       requirement.  The IRS refuses to look at the document as a whole,
       though Advocacy has urged the agency to do so.

Issue: Restructuring of the IRS

Since the passage of the IRS Restructuring and Reform Act of
1998, the IRS has undertaken a major project to reshape the
agency.  The administrative changes that will result from the
restructuring will have major impact on small businesses.  Thus,
although this issue is not a regulatory activity per se, Advocacy
and small businesses have been involved in a continuing process
of consultations with the IRS in the hopes that the changes will
encourage the agency to become more sensitive to small businesses
in future regulatory proposals.
In response to the Restructuring Act the IRS has sought
Advocacy's opinions, and those of small business groups that
Advocacy introduced to the IRS, in order to develop a more small-
business-friendly environment.  For example, the Restructuring
Act created a small business division within the IRS, and the
agency consulted with Advocacy to establish a size standard for
the businesses that fall within the jurisdiction of the division
that was suitable for serving the small business community.

However, Advocacy is disappointed that at the close of Fiscal
Year 1999, the IRS had failed to appoint members to the IRS
oversight board that was to be created to oversee the operation
of the IRS as part of the restructuring effort.  Advocacy has
urged the IRS to appoint at least one small business owner to
serve on the board.

Issue: ISO 9000

ISO 9000 is an international quality standard with which U.S.
manufactures must comply in order to bid for contracts and to
distribute products overseas.  Because expensive training and
certifications are required in order to meet the ISO 9000
standards, small businesses have sought permission to write off
these costs from taxes in the year that costs are paid.  While
agreeing that the costs can be deducted from taxes, the IRS
adopted the position that the costs should be deducted over a
period of years, to coincide with the income attributable to
them.

At the invitation of the IRS, Advocacy and a number of small
business groups formed a working group to discuss and resolve the
issue of the deductibility of ISO 9000 costs.  The working group
proposed a clarifying revenue ruling, which the IRS is currently
considering.  This is an example where the IRS is actively
addressing regulatory problems directly and discussing pre-
proposals with the regulated sector.

Issue: Electronic Federal Taxpaying System

The IRS published a requirement that businesses with employment
tax obligations greater than $50,000 must pay these taxes using
the electronic federal taxpaying system (EFTPS).  This
requirement posed a hardship for many small businesses that were
not given adequate notice of the requirement or of ways to reduce
the cost of setting up transactions.  The requirement, which was
part of the North American Free Trade Agreement (NAFTA), was to
have gone into effect in 1997.  However, at the insistence of
Advocacy, Congress, trade associations, and concerned small
businesses, the enforcement date was postponed, and emphasis was
placed instead on obtaining voluntary compliance to meet revenue
goals.  Finally, in 1999, the IRS amended the requirement to
minimize the hardship by raising the threshold for mandatory
electronic submissions to $200,000-effectively excluding many
small businesses from the need to comply with mandatory
electronic reporting.

Issue: Unrelated Business Income Tax

In 1997, Advocacy asked the IRS to consider a rule to clarify the
application of the unrelated business income tax to travel and
tour activities of nonprofit entities.  Regulations were issued
in April 1998.  The regulations were a collection of existing
court rulings that established the boundaries of which commercial
touring activities are "substantially related" to the statutory
mission of a tax-exempt organization.  Current law requires that
a commercial activity of a non-profit entity be substantially
related to the purpose for which it was chartered in order for
the activity to be tax exempt (e.g., charitable, educational,
scientific, etc.).

When it became clear that a large number of groups on both sides
of the issue wished to file comments on the regulation, Advocacy,
in September 1998, requested the IRS to schedule the regulation
for a public hearing.  The IRS then held a hearing in February
1999, at which Advocacy testified on behalf of small businesses.
First, Advocacy argued that the RFA should apply to the
regulation since it imposed a de facto collection of information
standard.  Advocacy also urged a stronger standard be established
to prevent tax-favored, nonprofit organizations from competing
unfairly against taxpaying small businesses.  Finally, Advocacy
pointed out that pursuing business ventures to provide financial
support for other exempt activities was not a sufficient reason
under the law to circumvent the unrelated business income tax.

This matter is still pending before the IRS, but the agency has
since held a series of meetings with interested small business
organizations to develop more information.

Issue: Simplified Tax and Wage Reporting System

During Fiscal Year 1999, Advocacy continued to work with the IRS
to establish a simple filing form that would satisfy the wage and
tax reporting obligations of the very smallest businesses under
both federal and state tax law.  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 reporting is a major
burden to small businesses, and the development of a simple,
single, multi-purpose form that eliminates duplicative filings of
tax and wage information requested by federal, state, and local
agencies would reduce significantly such burdens.  Thus, in
Fiscal Year 1999, the IRS developed a pilot "single point filing"
program that was initiated in Montana.  Thus far, the pilot
program has proved to be successful, and the IRS is currently
duplicating the pilot in Iowa but with electronic single point
filing.  Advocacy supported special legislation to enable the
pilot program, and will continue to work with the IRS to ensure
that the program is replicated throughout the nation.

Issue: Cash vs. Accrual Accounting

The IRS rules require 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, the rules also require that accrual
accounting be used where a business (small or large) has an
inventory.

During Fiscal Year 1999, Advocacy became aware that the IRS field
officers were imposing accrual accounting requirements on far
more small businesses than is required by law.  It was found that
the IRS was strictly enforcing this requirement against small
businesses even in circumstances where the inventory found was
only a very small part of their business.  For example, in once
case, the IRS enforced this requirement against a dentist who
ordered and fitted a bridge for some patients.  Similarly, the
IRS would have enforced this requirement against heating and air-
conditioning contractors who had ductwork on hand to lay out
systems in a home or building.

In response to this enforcement problem, Advocacy and some
concerned trade associations formed a working group with key
officers of the IRS and reviewed the existing IRS policy and its
impact on small business.  As a result, 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, and therefore not impose
accrual accounting in those instances.

Issue: Small Business Pension Plans

Over the years, Advocacy has formed informal roundtable groups
around issues of concern to small businesses.  During Fiscal Year
1999, Advocacy's roundtables covering tax and pension issues met
with the pension policy decision makers at the IRS and Treasury
to review regulatory burdens that prevented small businesses from
participating in 401(k) plans.

These plans provide tax benefits to businesses and employees who
contribute to investments that are set aside for the employees'
retirement.  The Small Business Jobs Protection Act of 1996 had
created a "safe harbor" that would allow small businesses to
participate in 401(k) programs without having to fulfill various
burdensome tests and other requirements.  However, one drawback
is that a business has to declare early in the tax year if it
intends to make the contributions necessary to participate in the
safe-harbor program. Small businesses do not know from one year
to the next what their profits will be, and thus, small business
owners are afraid to make such a financial commitment in order to
participate in the 401(k) safe harbor program.

As a result of the meeting with the Advocacy roundtables, the IRS
and Treasury have agreed to review and clarify the law to help
small businesses participate in the plan.  Finally, the IRS has
implemented the regulations Advocacy sought for two years since
the passage of the Small Business Job Protection Act of 1996.(11)
The Act, the regulations, and the simplified rules they create
set up a small business plan that is expected to save small
businesses over $80 million a year.

                 ENVIRONMENTAL PROTECTION AGENCY

As detailed above, the 1996 SBREFA amendments to the RFA
established a new regulatory analytical process specifically for
the Environmental Protection Agency (EPA) and the Occupational
Safety and Health Administration (OSHA).  The Small Business
Advocacy Review Panel process requires these two agencies to
convene a special panel whenever the agencies cannot certify
under the RFA that a regulatory proposal will not have
significant economic impact on a substantial number of small
entities.

The panel, consisting of representatives from the agency,
Advocacy, and Office of Information and Regulatory Affairs within
the Office of Management and Budget, reaches out to small
entities likely to be affected, seeks their input on the proposed
regulation, and prepares a report to the administrator of either
the EPA or OSHA with recommendations for reducing the potential
impact of the rule on small businesses.

Advocacy's experience in working with panels since 1996 has
demonstrated that through the use of these structured procedures,
the agencies' analytical process is greatly improved.  Thus, it
is fair to conclude that the panel process has had a constructive
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, with the benefits redounding to small businesses
without compromising public policy objectives.

For EPA's rulemakings, over 250 small entity representatives have
already participated on fifteen completed EPA panels since SBREFA
was enacted in 1996.  Each of these 15 panels produced positive
outcomes for the EPA and small businesses.  In response to small
business input, the panels made over 140 concrete recommendations
to the EPA that address small business concerns to be considered
in the development of a proposed rule.  When EPA publishes a rule
for comment, the EPA explicitly addresses each panel
recommendation, and makes the panel report part of the public
record.

The following are some EPA regulatory activities during Fiscal
Year 1999-some involving the SBREFA panels and others not-that
demonstrate how that agency's approach to rulemaking now
routinely takes into consideration small business interests.

Issue: Tier 2/Gasoline Sulfur Rule

The EPA convened a panel in June 1998 on an action to regulate
the sulfur content of gasoline in order to enable light-duty
vehicles to lower sulfur emissions (Tier 2 light-duty vehicle and
light-duty truck emission standards, heavy-duty gasoline engine
standards and gasoline sulfur standards, or the "Tier 2/Gasoline
Sulfur" rule).  The panel completed its report in October 1998.

During the panel process, its members made a site visit to
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 first-hand perspective on what a small
refinery would have to do in order to comply with the proposed
rule.  What the panel learned on this trip was that the cost of
compliance would effectively put small refiners out of business,
with a resultant increase in gasoline prices.  More importantly,
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.  This regulatory option would
still accomplish the environmental goals that EPA wanted to meet.

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 as well as from Advocacy.  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, which are the major source of competition in the
industry.  The final rule, which was issued in December 1999,
adhered very closely to the approach of the proposal for small
refiners.

Issue: Effluent Limitations Guidelines for Industrial Laundries

In 1992, the EPA initiated regulatory action that identified
1,700 industrial laundries as a potential source of hazardous
waste solvents discharged to publicly-owned treatment works.
Since this rulemaking involved potentially significant economic
impact on a substantial number of small businesses, a SBREFA-
mandated review panel was convened in June 1997.  A report was
issued by the panel in August 1997, making a number of
substantive recommendations to the agency.  Among others, the
panel suggested specific exclusion options for small businesses,
and recommended that the agency solicit public comment on a "no-
regulation" option in the proposed rule.  The panel's
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 business-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.  Thus, in July 1999, the EPA withdrew its proposed rule
and announced that it would not impose national clean water
standards on industrial laundries.

Issue: Gas Stations Gain Relief from Duplicative Paperwork

Small gasoline station owners used to be burdened by duplicative
government reporting requirements.  Under the various federal and
state laws, these small businesses were responsible for
submitting basically the same information to three separate
regulatory entities: state and local emergency planning
commission offices (as well as local fire departments), state
underground storage tanks (UST) offices, and the EPA.  As
required by the Resource Conservation and Recovery Act, the
information provided on the EPA forms was similar and comparable
to information submitted to state UST offices.

To further aggravate the duplicative filing burdens on small gas
station owners, sections 311 and 312 of the Emergency Planning
and Community Right-to-Know Act of 1986 (EPCRA) required all
businesses to report to the EPA if gasoline was present on their
premises.  While it is clear to all that retail gas stations have
gasoline present on their premises, about 200,000 small gasoline
outlets nationwide were required, under EPA's interpretation of
the law, to report this fact year after year, expending about
558,000 hours in paperwork and over $16 million in costs per
year.

After more than ten years of pursuing relief from this
requirement, in February 1999, Advocacy and the small businesses
were finally successful in eliminating this duplicative reporting
requirement when the EPA's Administrator signed a rule into
effect.

Issue: Chemical Inventory Update Rule

In August 1999, the EPA issued a proposed rule involving
modifications to the Chemical Inventory Update rule.  Under this
rule, importers and manufacturers of chemicals in quantities
above a certain reporting threshold were required to report
information about the quantity and use of those chemicals to the
EPA for use in characterizing chemical hazards.  Working closely
with OMB and EPA during the interagency review process under
Executive Order 12866, Advocacy was able to achieve savings of
approximately $13 million dollars per reporting cycle, or
approximately 25 percent of the cost.  In particular, Advocacy
strongly sought and was successful in obtaining exemption for
importers and producers of natural gas from reporting
requirements, since this burden substantially duplicated the
required reporting made by the same firms to the Department of
Energy.

Issue: Persistent Bioaccumulative Toxics-Toxic Release Inventory
Reporting

Since the rule was initiated in 1988, Advocacy has worked with
EPA on the Toxic Release Inventory reporting rule, and Advocacy
was instrumental in getting the EPA to implement simplified
estimation techniques in the original 1988 rule, and a simplified
Form A in 1994.

During 1999, Advocacy became involved in interagency review of
two rules affecting the reporting of chemicals that are known as
"persistent bioaccumulative toxics."  These are chemicals that
are potentially more harmful because they accumulate in the
environment.  In both rulemakings, Advocacy was critical of the
need to increase the reporting burden on industry, with
questionable benefits to the right-to-know objectives of the
statute.  As a result, EPA eliminated about 30 percent of the
reporting burden in the January 1999 proposal, which included
establishing a lower reporting threshold for about 25 chemicals
and chemical categories.  The final rule on this proposal was
promulgated in October 1999 with few revisions.

The second rule, which would lower the reporting threshold for
lead, was proposed in August 1999.  Advocacy expects that this
rulemaking will be completed in 2000.

                FEDERAL COMMUNICATIONS COMMISSION

Issue: Small Local Telephone Carriers as Small Businesses

Throughout Fiscal Year 1999, the Federal Communications
Commission (FCC) issued regulatory flexibility analyses that
stated small incumbent local exchange carriers (ILECs) were not
small businesses because they were dominant in their field of
business.  On May 27, 1999, in a letter sent to the FCC, Advocacy
disagreed with the FCC's determination that small ILECs were
dominant in their fields of operation and, therefore, not small
businesses under the RFA.  Advocacy stated that the SBA has the
statutory authority to define small businesses, and that the SBA
defines dominance on a national basis.  Advocacy thus requested
that the FCC consider small ILECs as small businesses when
conducting an RFA analysis.  After several telephone
conversations and a meeting between Advocacy and FCC staff, the
agency agreed to reword its regulatory flexibility analysis and
consider small ILECs as small businesses.

Issue: Customer Proprietary Network Information

In April 1998, the FCC released an order designed to protect
private and personal information about a customer's name,
address, calling patterns, and calling plans (records referred to
as "customer proprietary network information," or CPNI).  The FCC
adopted very stringent and burdensome rules that required local
telephone companies to maintain records and create safeguards
that were far in excess of the statutory mandate.

On July 3, 1998, Advocacy filed an ex parte letter with the FCC,
asserting that the FCC's rule violated several statutory duties
set forth in the Paperwork Reduction Act (PRA).  Advocacy argued
that the FCC did not develop a specific, objectively supported
estimate of burden, failed to seek public comments on the
accuracy of the agency's estimate of the burden of the proposed
collection of information, and did not evaluate whether the
proposed collection is necessary and useful.  Moreover, since the
FCC changed the rule materially from the original proposal,
Advocacy maintained that the agency then had a duty to submit new
data to the OMB in support of its PRA request for approval.

In December 1998, Advocacy joined a coalition of industry
representatives that was formed in response to a request from the
FCC that the industry itself propose alternatives to the agency's
actions.  The coalition submitted a proposal to the FCC in
January 1999 which would protect the personal information of
telecommunications carriers while imposing substantially less
costs on the industry than the FCC's original proposal.  In
August 1999, the FCC issued an order which revised its earlier
decision and adopted the industry coalition's proposal almost
entirely.

Issue: Broadband Deployment

In August 1998, the FCC released an order and a notice of
proposed rulemaking to encourage broadband deployment in the
nation.  Broadband is form of high-capacity, high speed data
communication that is commonly used for connection to the
Internet.

On October 16, 1998, Advocacy filed comments with the FCC,
asserting that the FCC's regulatory flexibility analysis was
insufficient.  First, Advocacy argued that the FCC failed to
include all classes of small entities in its analysis when it
neglected to recognize small incumbent local exchange carriers
(ILEC) as small entities.  Second, the FCC failed to describe
adequately the proposed reporting, recordkeeping, and other
compliance requirements, by disclosing only three of the six
compliance requirements proposed, and not completely disclosing
the other three that were discussed.  Third, Advocacy's comments
pointed out that the FCC failed to consider significant
alternatives to the proposed reporting, recordkeeping, and other
compliance requirements that can minimize the significant
economic impact of the proposed rules.

The FCC released a Third Report and Order in which it dismissed
Advocacy's concerns regarding the IRFA in its FRFA.  The FCC
stated that it had properly identified all classes of entities,
and that it had adequately described the compliance requirements
and alternatives in the text of the proposed rule.

Issue: Spectrum License Transfer to Leap Wireless

In November 1998, the FCC issued a notice soliciting comment on
the transfer of several Personal Communications Service (PCS)
spectrum licenses from a small business to Leap Wireless, which
is a spin-off company from Qualcomm, Inc.  Leap Wireless had
earlier asked the FCC to be considered a "very small business"
for purposes of qualifying for various benefits in the auction
process.

On December 14, 1998, Advocacy filed with the FCC a petition to
deny, arguing that the FCC should deny Leap Wireless the status
of very small business.  Advocacy did not object, however, to the
transfer of the spectrum licenses to Leap Wireless.  Advocacy
argued that Leap Wireless did not qualify as a very small
business, because the company should be considered an affiliate
of Qualcomm, its former parent company.  Doing so would be
consistent with the FCC's affiliation and attribution rules,
judging the situation by a totality of circumstances.  For
example, Qualcomm had considerable, and thus impermissible,
influence over Leap Wireless, based on the inherent nature of
Leap Wireless as Qualcomm's spin-off.  Additionally, in analyzing
the common stock and management interests between Leap Wireless's
and Qualcomm's directors and officers, the source of Leap
Wireless's assets, operating capital, investment capital, and
multiple contractual arrangements, Advocacy argued that Leap
Wireless cannot be considered a very small business that should
be allowed to take advantage of auction benefits.

In April 1999, the FCC issued an order which approved the
transfer upon certain conditions.  The FCC agreed with Advocacy
that Leap Wireless was a subsidiary of Qualcomm and required
numerous separation efforts before the FCC would approve the
transfer.  These conditions include restructuring the financing
so that it no longer was financed in the majority by Qualcomm, as
well as restructuring the board so that former Qualcomm officials
were no longer in control.

Issue: Commercial Mobile Radio Service Spectrum Cap

In December 1998, the FCC released a notice of proposed
rulemaking asking for comment as to whether the agency should
raise or suspend altogether the spectrum cap on commercial mobile
radio service (CMRS).  Currently, a single spectrum licensee is
limited to 45 megahertz (MHz) of spectrum in the cellular, PCS,
and specialized mobile radio services.

On February 10, 1999, Advocacy filed reply comments with the FCC
that stated that the 45 MHz spectrum cap has served a valuable
and useful purpose in promoting competition, lowering entry
barriers, and encouraging technological innovation.  Advocacy
recommended that, if the FCC decides to eliminate the spectrum
cap, then all licenses must be assigned before the spectrum cap
is relaxed; the spectrum cap should only be raised-not
eliminated; CMRS build-out requirements should be maintained; and
new spectrum cap rules should be applied evenly to all markets.

In September 1999, the FCC released an order that adopted all of
Advocacy's recommendations.  The FCC kept the spectrum cap in
urban areas at 45 MHz and  raised the spectrum cap to 55 MHz in
rural areas in order to spur deployment of services.  The agency
also relaxed ownership attribution benchmarks to help increase
the availability of capital to all wireless carriers.

Issue: Inter-Carrier Compensation for Internet Service Providers

In February 1999, the FCC released a notice of proposed
rulemaking that solicited comment on whether Internet service
providers (ISP) should receive compensation for the termination
of telephone calls onto their network.  On July 14, 1999,
Advocacy sent a letter to the FCC stating that two aspects of the
FCC's IRFA were insufficient to satisfy the statutory
requirements of the RFA.  First, Advocacy commented that the FCC
did not accurately identify all small entities affected by the
rulemaking by not including small ISPs.  Second, Advocacy argued
that the FCC did not consider alternatives to minimize the impact
upon small entities.

The FCC has not taken further action on this issue since the
proposed rulemaking.

Issue: Local Telephone Service Line-Sharing

In March 1999, the FCC proposed rules to require incumbent local
exchange carriers (ILEC) to allow ISPs to use local telephone
lines to provide broadband service without providing local
telephone service that would run on the same line.  This division
is called "line-sharing."

In a letter sent to the FCC on July 26, 1999, Advocacy agreed
that the FCC had statutory authority to require line-sharing and
that it was in the public interest to do so.  However, Advocacy
argued that the notice was vague and it did not provide
sufficient notice to provide a basis for a rulemaking.  In
addition, Advocacy pointed out that the FCC's regulatory
flexibility analyses did not satisfy the requirements of RFA.
Thus, Advocacy recommended that the FCC consider comments
received in response to the notice, but also issue a second
further notice of proposed rulemaking along with revised
regulatory flexibility analyses before adopting rules regarding
line sharing.
Issue: Truth in Billing

In June 1999, the FCC issued the truth-in-billing rule as well as
a further notice of proposed rulemaking, seeking public comment
on the manner in which certain charges are organized and
described on telephone bills.  The FCC intended these rules to
provide customers with helpful information regarding their
telephone service.

In comments filed with the FCC on July 27, 1999, Advocacy stated
that, while it supports the FCC's goal to reduce unauthorized
charges to customers by clarifying information on telephone
bills, the agency's regulatory flexibility analysis suffers from
the same vagueness and lack of basic information as the telephone
bills the rulemaking was designed to cure.  Advocacy pointed out
that both the initial and final regulatory flexibility analyses
were fundamentally flawed, as they did not analyze any of the
compliance requirements contained in the order, and the notice
failed to estimate the cost of these far-reaching and expensive
regulations on small businesses.

On August 30, 1999, Advocacy also sent a letter to OMB stating
that the FCC did not properly balance the compliance burdens upon
small wireline carriers, especially in light of Year 2000 (Y2K)
compliance requirements.  The FCC also relied improperly on the
waiver process to ease compliance burdens on small carriers when
an exception in the rulemaking would have been more appropriate.
Therefore, Advocacy asked OMB to disapprove the information
collection contained in the truth-in-billing order.  In a letter
to the FCC on September 3, 1999, Advocacy supported requests for
a limited waiver to the rules.  Advocacy stated that the
regulations adopted by the FCC are unduly burdensome on small
businesses and would interfere with other important public policy
goals, such as Year 2000 computer conversion preparations.

In response to concerns raised by Advocacy, as well as by the OMB
and affected sectors of the industry, the FCC agreed to postpone
enforcement of two of the most expensive requirements until April
2000.

                    FEDERAL TRADE COMMISSION

Issue: Children's Online Privacy Protection

Historically, the Federal Trade Commission (FTC) is an agency
that consistently works to comply with the RFA.  The agency's
work on this issue serves as another concrete example of its
efforts to do so.

On April 27, 1999, the FTC published the Children's Online
Privacy Protection Rule to implement the Children's Online
Privacy Protection Act of 1998 (COPPA), which prohibits unfair
and deceptive acts and practices in connection with the
collection and use of personal information from and about
children on the Internet.

The goals of COPPA are to enhance parental involvement in a
child's online activities, help protect the safety of children in
online forums (such as chat rooms, home pages, pen-pal services)
where children may make public postings of identifying
information, maintain the security of children's personal
information collected online, and limit the collection of
children's personal information without parental consent.  To
achieve these goals, the FTC proposed several requirements for
the collection of information by Internet advertisers, retailers,
etc., including parental notification, prominent display of
information on collection of information policies, and security
procedures to protect a child's personal information.  The FTC
certified that the proposed rule would not have a significant
economic impact on a substantial number of small businesses.

Advocacy questioned the FTC's certification, discussing several
provisions of the proposed rule that could be quite costly to
small businesses.  Advocacy suggested that the FTC prepare an
IRFA to analyze fully the potential impact of the proposal on
small businesses, define which small businesses needed to comply
with the proposal, and analyze possible alternatives to the
proposal.

Conversations and meetings held between the FTC and Advocacy
staff focused on how much regulatory discretion COPPA gave to the
FTC.  Subsequently, the FTC published an IRFA.  As a result, the
FTC implemented an alternative that specifically defined which
small businesses needed to comply with the rulemaking.  This
change resulted in cost savings of approximately $75 million.

                  FEDERAL PROCUREMENT AGENCIES

Federal acquisition reform has been a major issue for Congress
and regulatory agencies since 1994.  The Federal Acquisition
Streamlining Act of 1994(12) and the Federal Acquisition Reform
Act of 1996(13) represent significant reform initiatives that are
intended to reduce paperwork burdens on federal contractors,
facilitate the acquisition of commercial products, enhance the
use of simplified procedures for small purchases, and improve the
efficiency of the laws governing the procurement of goods and
services.

The purpose of the acquisition reform efforts is to make the
government operate more like a commercial buyer and make it
easier and more appealing for businesses to participate in
government markets.  In turn, the federal government would also
be assured that its nearly $200 billion procurement budget would
achieve greater spending power.  Some of the changes required a
total revamping of the federal acquisition process in order to
streamline the process for the procuring of goods and services.

As a result of major procurement reform adopted between 1994 and
1997, 1998 was a year of implementation, adjustment, and
evaluation.  While the overall acquisition reform process has
been positive, the past year or two saw the emerging of several
post-reform actions that have the potential to be negative to
small businesses.  The most visible sign in this regard is the
apparent decline in the prime contract dollars awarded to small
business.  Accordingly, 1999 saw the beginning of implementing
regulatory measures to correct certain portions of the federal
procurement system.

Federal Acquisition Regulations Council

Issue: Additional Authority to Contracting Officers

The Federal Acquisition Regulations (FAR) system was established
to codify and publish uniform policies and procedures for
acquisition by all executive agencies.  The FAR is issued and
maintained jointly under the statutory authorities granted to the
FAR Council, consisting of the Secretary of Department of
Defense, Administrator of the General Services Administration
(GSA), and the Administrator of the National Aeronautics and
Space Administration.  GSA's "FAR Secretariat" publishes the FAR
on behalf of the FAR Council.

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.  This
proposed rule issued by the FAR Council would provide a federal
contracting officer with unilateral authority to reject an
apparently successful bid.  The proposed rule would give this
power to the contracting officer even if a final adjudication had
not been reached by an established review board or body.

On November 8, 1999, Advocacy filed comments, expressing concerns
with the FAR Council's lack of a factual basis for its
certification under the RFA that the proposal would have no
significant impact on a substantial number of small businesses.
Subsequent to the submission of this letter, the FAR Council,
through its representative, the Office of Federal Procurement
Policy, initiated correspondence with Advocacy regarding the FAR
Council's compliance with RFA.  The issue is still pending.

Department of Justice, Bureau of Prisons, Federal Prison
Industries

Issue: Engine Electrical Component

The Federal Prison Industries (FPI) is a wholly owned government
corporation that was created by statute in 1934.  FPI was given
several statutory mandates, one of which is to serve as a
"mandatory source" in selling its products to federal agencies.
Under this requirement, agencies are generally required to buy
from FPI before they can buy from the private sector.

On March 31, 1999, Advocacy commented on FPI's proposed
"Competitive Impact Study, Federal Supply Code 2920, Engine
Electrical Component."  The study provides justification for the
expansion of FPI's market share of current engine electrical
components.  Ironically, in the study, FPI identified at least
four small businesses that would be adversely harmed by the
proposed expansion.  To illustrate, if the expansion were to
occur, FPI estimated that one small business would lose more than
thirty percent of its business base.  As a result of Advocacy's
letter, FPI agreed to restrict its expansion into the engine
electrical component market.

National Archives and Records Administration

Issue: Agency Records Centers

The National Archives and Records Administration (NARA) provides
federal agencies with standards, procedures, and guidelines for
the use of commercial records storage facilities.  On April 30,
1999, NARA published a notice of proposed rulemaking on agency
record centers, and subsequently extended the public comment
period to July 7, 1999.  In that notice NARA certified that the
requirements it proposed would not have a significant impact on a
substantial number of small entities, but provided no factual
basis for the certification as required by the RFA.

Advocacy expressed concern with NARA's lack of a factual basis
for its certification, which prompted NARA to publish an IRFA on
September 15, 1999.  During the public comment process, NARA
received many suggestions from small businesses, which the agency
ultimately accepted when it issued its final rule.  NARA
estimates that the costs to small businesses to comply with the
final rule were substantially mitigated by several changes that
were made as a result of the RFA analysis on the rule.

                  UNITED STATES POSTAL SERVICE

Issue:    Regulation on Commercial Mail Receiving Agencies
                                
The U.S. Postal Service (USPS) is not an agency whose rules are
subject to the notice and comment provisions of the
Administrative Procedures Act.  As such, it is not subject to the
RFA.(14) Nevertheless, Advocacy used the principles of 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 term PMB
(standing for "private mail box"), in their 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,
which form would be publicly available.  If a CMRA user did not
comply with the rule, USPS stated that the mail would not be
delivered.

Although USPS received over 8,000 comments in opposition to the
proposal and only 10 comments in favor, USPS finalized the rule.
In promulgating the rule, USPS asserted that the rule was
necessary to combat mail fraud.  USPS, however, did not have any
statistics or studies to prove that fraud occurred at any greater
rate at CMRAs than at USPS's own post office boxes.

Since USPS is not an agency subject to the RFA, Advocacy did not
initially become involved in this issue but did so when small
businesses began notifying Advocacy about the impact of the final
rule.  Advocacy then held roundtables and conference calls with
small entities.  Advocacy also sent letters to the Postmaster and
attended meetings to present the views of small businesses.  In
its correspondence, Advocacy pointed out that the rulemaking was
not only discriminatory and arbitrary,(15) it was extremely
costly to small businesses.  While the USPS had allowed users one
year to add PMB to the address before stopping mail delivery, it
did not take into account either the loss that small businesses
would suffer from customers relying on address information
contained in old materials to contact the business, or the stigma
of having to use PMB in an address.  Also there were safety
concerns regarding the release of the actual location of a CMRA
user.

USPS has since announced that it will only release information as
to the actual address of the CMRA user upon receipt of a subpoena
or a court order, thus addressing one of the security concerns
raised by many users.

Further, at the end of October, USPS stated that it would be
publishing a revised rulemaking to address the PMB issue.  To
date that has not occurred.  Advocacy will continue to work
closely with small entities and attend meetings at USPS in an
attempt to minimize the impact of the rule on small entities.

                           Conclusion

The 1998 RFA report concluded that the Office of Advocacy
witnessed renewed interest by federal agencies on compliance with
the RFA, and that a cultural change is underway in the agencies'
approach to RFA activities.

During Fiscal Year 1999, Advocacy saw this trend continue, and
federal agencies appear to be more eager than ever before to
comply with the law.  Agencies are working with Advocacy much
earlier in the rulemaking process to identify problems when they
are easier to correct.  Early consultation also means that
Advocacy is spending more of its resources on pre-proposal, non-
public work with the agencies.

In the end, the true measure of the RFA's effectiveness is how
well agencies are analyzing the impact of its rules on small
business.  This past fiscal year, rules were changed in response
to information demonstrating there were less burdensome
alternatives that were equally effective in achieving public
policy goals.  These alternatives reduced the cost of proposals
to small business by almost $5.3 billion.  While agencies deserve
credit for integrating information on less costly regulations
into their decision process and changing their regulatory
proposals, the RFA's ultimate goal is to have this process
integrated into each agency's decision process so that rules
proposed will not be unduly burdensome on small business.  Some
agencies are striving toward this objective; others still have
much work to do.

ENDNOTES

1.  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.

2.  Congress agreed with small businesses when it specifically
found 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."  Findings and Purposes,
Pub. L. No. 96-354.  As a result, Congress found that these
regulations have "imposed unnecessary and disproportionately
burdensome demands" upon small businesses with limited resources,
which, in turn, has "adversely affected competition."  Id.

3.  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.

4.  U.S. Small Business Administration, Office of Advocacy,
Annual Report of the Chief Counsel for Advocacy on Implementation
of the Regulatory Flexibility Act, Calendar Year 1998
(Washington, D.C. U.S. Small Business Administration, 1999),
p.17.

5.  James V. Hurson Associates, Inc. v. Glickman, No. 98-2120
(D.D.C. 1998).

6.  See Annual Report of the Chief Counsel, 1998, p.19.

7.  995 F. Supp. 1411 (M.D. Fla 1998).

8.  Id.

9.  5 F. Supp. 2d 9 (D.D.C. 1998).

10. See 5 U.S.C.  601(2).

11. Pub. L. No. 104-188.

12. Pub. L. No. 103-355.

13. Pub. L. No. 104-106.

14. The RFA defines "agency" as an agency as defined in section
551(1) of Title 5, 5 U.S.C.  601(1).  Pursuant to 39 U.S.C.
410, USPS is exempt from complying with the section 551 of Title
5.  USPS, therefore, is not an agency as defined by the RFA.

15. Advocacy asserted that the rule was arbitrary and
discriminatory because it only applied to CMRA facilities and not
other bulk mail types of receiving facilities such as hotels,
large businesses, colleges, corporate suites, etc.  Moreover,
there was no information to indicate that fraud was occurring at
any greater rate at CMRAs then through the regular mail, USPS
postal boxes, or other means of delivery.


 Annual Report on the Regulatory Flexibility Act
                         
             Fiscal Year 1999     Appendix B:
                                
             RFA Court Decisions Published since the
                1996 SBREFA Amendments to the RFA

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) 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 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
Advocacy.  Therefore, the following is compiled from all the
information available to the Office of Advocacy, and may not
necessarily be a complete listing.

            RFA COURT DECISIONS PUBLISHED SINCE 1996

CASE                   CITATION              DATE    COURT
                                             ISSUED
Associated Builders &  976 F. Supp. 1        07/23/  Distri
Contractors, Inc. v.   (D.D.C. 1997)         97      ct
Herman
Southwestern           121 F.3d 106 (3d      07/28/  Appeal
Pennsylvania Growth    Cir. 1997)            97      s
Alliance v. Browner

Associated Fisheries   127 F.3d 104          09/16/  Appeal
of Maine, Inc. v.      (1st Cir. 1997)       97      s
Daley
Motor & Equipment      142 F.3d 449 (D.C.    04/24/  Appeal
Manufacturers          Cir. 1998)            98      s
Association v. Nichols
Northwest Mining       5 F. Supp. 2d 9       05/13/  Distri
Association v. Babbitt (D.D.C. 1998)         98      ct
ValueVision            149 F.3d 1204 (D.C.   07/24/  Appeal
International, Inc. v. Cir. 1998)            98      s
FCC
Grand Canyon Air Tour  154 F.3d 455 (D.C.    09/04/  Appeal
Coalition v. FAA       Cir. 1998)            98      s
North Carolina         27 F. Supp. 2d 650    09/28/  Distri
Fisheries Association, (E.D. Va. 1998)       98      ct
Inc. v. Daley
Greater Dallas Home    36 F. Supp. 2d 765    02/08/  Distri
Care Alliance v.       (N.D. Tex. 1999)      99      ct
United States
Tutein v. Daley        43 F. Supp. 2d 113    03/17/  Distri
                       (D. Mass. 1999)       99      ct
National Propane Gas   43 F. Supp. 2d 665    03/17/  Distri
Association v.         (N.D. Tex. 1999)      99      ct
Department of
Transportation
State of Washington v. 173 F.3d 1158 (9th    04/02/  Appeal
Daley                  Cir. 1999)            99      s
American Trucking      175 F.3d 1027 (D.C.   05/14/  Appeal
Association v. EPA     Cir. 1999)            99      s
Southern Offshore      55 F. Supp. 2d 1336   06/30/  Distri
Fishing Association v. (M.D. Fla. 1999)      99      ct
Daley

                   FEDERAL APPEALS COURT CASES

Southwestern Pennsylvania Growth Alliance v. Browner, 121 F.3d
106 (3d Cir. 1997)

In 1996, Southwestern Pennsylvania Growth Alliance petitioned the
court for review of an EPA final rule which denied the
Commonwealth of Pennsylvania's request that the EPA redesignate
the Pittsburgh-Beaver Valley nonattainment area to attainment
status for ozone, pursuant to the Clean Air Act.  In the
litigation, Advanced Manufacturing Network intervened and argued
that the EPA's final 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 intervenor may not raise its RFA
argument because it was not adequately presented to the EPA
during the rulemaking process.  The court also ruled, in the
alternative, that the intervenor's RFA argument lacks merit,
because the EPA's final rule was sufficient to satisfy the
requirements of the RFA.

Although the court ruled against the intervenor on its RFA
arguments, it nevertheless made significant findings relating to
SBREFA's retroactive applicability.  In light of the recently
enacted SBREFA amendments to the RFA, the court was confronted
here with the question of whether it had jurisdiction to hear the
intervenor's RFA argument in this case.  The intervenor argued
that since SBREFA provided for judicial review of agency action
under the RFA, the court had the jurisdiction to hear its
argument that the EPA failed to comply with the RFA.  The EPA
argued to the contrary, that the SBREFA does not provide
jurisdiction over the intervenor's RFA claim, because the EPA
published its final rule before the effective date of the SBREFA
amendments (90 days after the Act was enacted).

Relying on the Supreme Court's precedent on the question of the
temporal reach of new statutes (Landgraf v. USI Film Prods., 511
U.S. 244 (1994), Lindh v. Murphy, 521 U.S. 320 (1997)), 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.

In this regard, the court carefully analyzed the language of the
SBREFA amendments and found that the only mention about the
applicability to past agency action is the section that states:
"This subtitle shall become effective on the expiration of 90
days after the date of enactment of this subtitle, except that
such amendments shall not apply to interpretative rules for which
a notice of proposed rulemaking was published prior to the date
of enactment."  Since this provision expressly states that SBREFA
does not apply to interpretive rules that were promulgated before
the effective date, the court found that SBREFA does apply to
legislative rules that were promulgated before the effective
date, such as the EPA's legislative rule, which is the subject of
this litigation.
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 cod, haddock, and yellowtail
flounder.  Although the 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.  In this litigation, the
Associated Fisheries of Maine brought suit challenging the action
and NMFS' compliance with the RFA.

The court held that the FRFA prepared by NMFS pursuant the RFA
was not inadequate on its face, notwithstanding the plaintiff's
claim that the FRFA could not consist simply of an IRFA with
responses to submitted comments attached.  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 Secretary of Commerce complied
with the 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 Mfrs. Ass'n v. Nichols, 142 F.3d 449 (D.C. Cir.
1998)

The plaintiffs represented businesses that manufacture, rebuild,
and sell car parts in the automobile "aftermarket."  Defendant
Nichols was the assistant administrator for EPA.  The 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 only considered 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:

          While EPA only considered whether its deemed-
          to-comply rule would have `a substantial
          impact' on `large and small volume automobile
          manufacturers,' . . . it was not obliged to
          conduct a regulatory flexibility analysis for
          any other business, including the businesses
          represented by petitioners.  An agency is
          under `no obligation to conduct a small
          entity impact analysis of effects on entities
          which it does not regulate.'  United
          Distribution Cos. v. FERC, 88 F.3d 1105, 1170
          (D.C. Cir. 1996); see also Mid-Tex Elec. Co-
          op, Inc. v. FERC, 773 F.2d 327, 342 (D.C.
          Cir. 1985).  Because the deemed-to-comply
          rule did not subject any aftermarket
          businesses to regulation, EPA was not
          required to conduct a flexibility analysis as
          to small aftermarket businesses.  It was only
          obliged to consider the impact of the rule on
          small automobile manufacturers subject to the
          rule, and it met that obligation.

ValueVision Int'l, 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.  The court 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.

It also found that the FCC's conclusion that the revised rules
would have only a "positive" effect on programmers (because of
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 final
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 under the RFA, 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.  Thus, when the matter went to
court, the Office of 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 that the
FAA would "submit to the court a statement detailing the new data
regarding the number of aircraft subject to the regulation . . .
[and] include in their communication to the court a statement
that the agency erroneously certified under the Regulatory
Flexibility Act that the final rule would not have a significant
economic impact on a substantial number of small entities."

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, the Midwater Trawlers Cooperative, West
Coat Seafood Processors Association and Fisherman's Marketing
Association appealed the district court's dismissal of their
petitions seeking to overturn regulations allocating groundfish
catches of whiting off the Washington coast to four Northwest
Indian tribes.  They also sought review of the court's decision
to grant summary judgment in favor of the Secretary of Commerce
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 found that the
Department of Commerce'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 seven percent tribal
allocation of whiting would result in a one to three 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.

Am. Trucking Ass'n 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 final 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.  The basis of
the certification was that EPA concluded 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 agreed with the agency and 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 the Office of 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."

                  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 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 the
Department did not implement the revised helper regulations after
the expiration, the plaintiffs sought to have the Department re-
implement and enforce the regulations.  The plaintiffs alleged
that the failure to implement the revised regulations violated
the Administrative Procedure Act, the Davis-Bacon Act, the
Unfunded Mandates Act, and the Regulatory Flexibility Act.

The Department of Labor 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 the Department had met
the requirements of the RFA because it had published a
certification in the Federal Register along with an adequate
factual basis.

Northwest Min. Ass'n 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) with 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.  The 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, the Office of 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 the Office of Advocacy's
position and found that BLM had not complied with the RFA.  The
court held that the final rule's certification violated the RFA
by failing to incorporate correct definition of "small entity.
In remanding the rule to the agency, the court reaffirmed the
importance of agency compliance with the RFA 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 Ass'n, 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 the Department of Commerce, NMFS'
parent agency, after finding that the Department 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 the Department failed to provide a proper factual
statement to support its certification under the RFA.  The court
ordered the Department to undertake enough analysis to determine
whether the quota had a significant economic impact on the North
Carolina Fishery.

On remand, the issue before the court was whether the Secretary
of Commerce had discharged his responsibilities under the RFA and
under National Standard 8 of the Magnuson Act to perform an
economic analysis.  The court granted the plaintiffs' renewed
motion for summary judgment, stating:

          After review of the Secretary's so-called
          Economic Analysis and the independent
          expert's comments, the Court finds that the
          Secretary of Commerce 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.  Instead, the
          Secretary has produced a so-called economic
          report that obviously is designed to justify
          a prior determination.

Because the court found that the Secretary and the agency did not
uphold their responsibilities under the law, it set aside the
1997 summer flounder 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 the Office of 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.

Finally, in February 1999, the court dismissed the entire
proceeding through a motion for summary judgment granted to the
defendant government agencies.

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 Secretary of Commerce, 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 as 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 regulatory flexibility analysis for the
guideline.  The Department 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.

Nat'l Propane Gas Ass'n v. Dep't Transp., 43 F. Supp. 2d 665
(N.D. Tex. 1999)

In 1997, the Department of Transportation'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.  RSPA
argued that the rule was not subject to the RFA because the RFA
applies only to the rules for which an agency is required to
publish a notice of proposed rulemaking pursuant to Section 553
of the APA.  RSPA asserted that the APA did not require a notice
of proposed rulemaking here due to 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.  As such, the court found that RSPA complied
with each of the requirements found in 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 Ass'n v. Daley, 55 F. Supp. 2d 1336
(M.D. Fla. 1999)

In May 1997, the plaintiff fishing association initiated suit
against the secretary of the Department of Commerce, challenging
commercial harvest quotas for Atlantic sharks pursuant to
judicial review provisions of Magnuson-Stevens Act and RFA.  For
the year 1997, NMFS promulgated a 50 percent quota reduction for
sharks, which the plaintiffs argued would have a significant
economic impact on the fisheries.  After almost three years of
litigation, this matter is still pending, and the United States
District Court for the Middle District of Florida maintains
jurisdiction of NMFS' actions in this regard.

In 1997, the Office of Advocacy filed to intervene as amicus
curiae in this litigation.  Although the Office ultimately
withdrew from the matter after the Department of Justice
stipulated that the standard of review for RFA cases should be
"arbitrary and capricious," the Office of Advocacy's involvement
during the period of comment on the regulatory 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 the Secretary was not
arbitrary and capricious in his decision to reduce the quota.
However, in determining whether NMFS complied with the RFA, the
court found that the secretary's certification of "no significant
economic impact" and the FRFA failed to satisfy the APA standards
and RFA requirements.  The court criticized the agency's economic
analyses and failure to comply with the law.  The court stated:

          NMFS prepared a FRFA lacking procedural or
          rational compliance with the requirements of
          the RFA.  Section 604 requires that any FRFA
          contain `a summary of the significant issues
          raised by public comments in response to the
          initial regulatory flexibility analysis, a
          summary of the assessment of the agency of
          such issues and a statement of any changes
          made in the proposed rule as a result of such
          comments.' . . .  NMFS could not possibly
          have complied with  604 by summarizing and
          considering comments on an IRFA that NMFS
          never prepared.  NMFS's refusal to recognize
          the economic impacts of its regulations on
          small business also raises serious questions
          about its efforts to minimize those impacts
          through less drastic alternatives. . . .
          NMFS may not have rationally considered
          whether and how to minimize the 1997 quotas'
          economic impacts because the agency
          fundamentally misapprehended the unraveling
          economic effect of its regulations on small
          business.

The court remanded the agency's RFA determinations to the
Secretary 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.  Because of the delicate status of the Atlantic sharks,
the court ruled that the public interest requires maintenance of
the 1997 Atlantic shark quotas pending remand and further review
of the court.

On remand, the NMFS prepared a draft analysis and published it
for public comment.  After reviewing the draft analysis, the
Office of Advocacy concluded that the analysis did not comply
with the RFA.  Specifically, Advocacy commented that the analysis
lacked important substantive information about the economic
impact of this rulemaking on small businesses.  A major flaw in
the analysis was that the agency did not use a consistent
definition of the industry.  Another major flaw was the fact that
the analysis was based on gross revenues without considering the
impact on profits.  The agency also assumed a certain level of
diversification that was not supported by information on the
industry's structure.  The Office of Advocacy's comment also
addressed the agency's failure to present the economic
information in a manner that could be understood by the public,
perform an economic analysis of the alternatives, and address all
of the concerns raised by the court.

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.
The court found, "the 1997 quota visited on shark fishermen a
tangible and significant economic hardship."  It stated that
relying on the 2,000 plus permit holders as the operative
universe of shark fishermen, when a smaller pool was more
representative of the industry, enabled NMFS to disperse
arithmetically the statistical impact of the quotas on shark
fishermen.  The court also found that "NMFS inadequately
considered, and perhaps overlooked altogether, feasible
alternatives or adjustments to the 1997 quotas that may mitigate
the quotas' pecuniary injury to the directed shark fisherman."
In doing so, the court stated that "the defendant affords minimal
treatment to more realistic and constructive alternatives."
Therefore, the court appointed a "special master" pursuant to
Rule 53 of the Federal Rules of Civil Procedure to assist the
court in reviewing the 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, the court
extended the stay of the special master proceedings through June
1999.

In June 1999, the plaintiffs 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 reduces the Atlantic shark quotas from
operative 1997 levels and implements new, more restrictive fish
management and counting methods.

The court then 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
plaintiffs 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 newly issued
regulations are consistent with the court's previous orders
because they representing merely a required step in the agency's
ongoing obligation to manage and preserve fish stocks.  The
plaintiffs argued that the agency cannot effectuate these new
regulations until the court relinquished jurisdiction over the
ongoing remand proceedings and entered a final order.  In its
ruling on June 30, 1999, the court agreed with the plaintiffs
that the defendant has violated both the spirit and letter of the
court's earlier rulings in this case by implementing the new
regulations.  The court harshly criticized the agency's behavior
and stated:

          Having observed NMFS's conduct in this
          litigation, as well as in North Carolina
          Fisheries Ass'n v. Daley, 27 F. Supp. 2d 650
          (E.D. Va. 1998, Doumar, J.) and Atlantic Fish
          Spotters Ass'n v. Daley, 8 F. Supp. 2d 113
          (D. Mass. 1998, Tauro, C.J.), I reluctantly
          conclude that in this instance NMFS is an
          agency willing to pursue its institutional
          objectives without acknowledging applicable
          Congressional and judicial limitations.  The
          Court has found in this case that the agency
          illegally instituted the 1997 quotas by
          failing to minimize and account for the
          socio-economic impact of the quotas on small
          business, precisely in defiance of the
          Congressional mandate that NMFS wisely
          balance shark interests against human
          interests.  Although the preservation of
          Atlantic shark species is a benevolent,
          laudatory goal, conservation does not justify
          government lawlessness.  According to
          Congress, NMFS cannot act to preserve sharks
          heedless of the human costs.  The Magnuson
          Act and the RFA place on the agency an
          affirmative and significant statutory
          obligation to protect the interests of
          fishers by pursuing feasible and less
          restrictive alternatives to monolithic
          regulatory measures that adversely and
          materially affect small business.  See 16
          U.S.C.  1855(f) and 5 U.S.C.  611(a)(1).
          From the time that the plaintiffs instituted
          this action on May 2, 1997, over two years
          ago, the Court has yet to find that NMFS
          complied with the law.  Although empowered to
          regulate, NMFS is not empowered to regulate
          in any manner it chooses, regardless of cost,
          lawfully or unlawfully.

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.  The court emphasized
that the injunction is not "punishment for governmental
misconduct."  Rather, the court's "intention is merely to enforce
the will of Congress as expressed in the RFA in which
consideration of the economic damage to fishers became a
condition precedent to lawful regulation of the fishery by NMFS."

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.  The
court has scheduled a hearing for March 2, 2000, to determine
whether the special master's findings should be adopted by the
court.
                           Appendix C:
                                
                     The Office of Advocacy,
               U.S. Small Business Administration


The Office of Advocacy of the U.S. Small Business Administration,
established by Congress in 1976 under Public Law 94-305, serves a
unique role in government.  The Office is headed by a Chief
Counsel for Advocacy, who is appointed from the private sector by
the President and confirmed by the Senate.  The Office's mission
is to represent the views of small business before federal
agencies and Congress.  The Chief Counsel also is charged with
monitoring federal agencies' compliance with the Regulatory
Flexibility Act (RFA) and reporting annually to Congress on its
implementation.  In brief, the office's statutory
responsibilities are to:

         examine the role of small business in the economy and its
       contributions to competition;
         evaluate the financial markets and the credit needs of small
       business;
         measure the cost of regulations on small businesses using
       economic research; and
         monitor federal agency compliance with the RFA, as amended
       by the Small Business Regulatory Enforcement Fairness Act of 1996
       (SBREFA).

Under the Office of Advocacy's legislative mandate to represent
small business views before the Congress and federal
policymakers, the Chief Counsel may take (and at times has taken)
positions contrary to those of the administration and Congress on
matters affecting small businesses.

Three units within the Office of Advocacy carry out its
functions: the Office of Interagency Affairs, the Office of
Economic Research, and the Office of Information.

The Office of Interagency Affairs, staffed primarily by
attorneys, is active in policy development.  Its major
responsibility is the review of regulatory proposals from all
federal agencies.  It also provides staff support to the Chief
Counsel for work on SBREFA-mandated Small Business Advocacy
Review Panels convened for EPA and OSHA regulations.  The staff
also reviews regulations for their impact on small business and
submits formal comments to agencies about their proposed
regulations, their economic analyses regarding the economic
impacts of these proposed regulations on small business, and the
agencies' compliance with the RFA.

In a court of appeals, the Chief Counsel has the statutory
authority under the RFA to file an amicus curiae brief.  Also
pursuant to its statutory authority, the Office of Interagency
Affairs prepares an annual report to Congress and the President
on federal agencies' compliance with the RFA.  In addition to
reviewing regulatory proposals, the staff of the Office of
Interagency Affairs develop policy proposals and comment on
proposed legislation pending before the Congress.

The Office of Economic Research co-sponsors data collection by
agencies such as the Bureau of the Census, the Federal Reserve
Board, and the Internal Revenue Service on important small
business topics including small-firm characteristics, minority-
and women-owned businesses, and small business economic trends.
Through the Office of Advocacy, government entities and the
general public can access Census data for some 1,200 industries
organized by four-digit standard industrial classification (SIC)
codes and data for 900 industries on a state-by-state basis by
two-digit SIC codes.  Another resource made available by the
Office of Economic Research is banking data that makes available,
for the first time, comprehensive data on banks' lending to small
businesses.

The Office of Economic Research also sponsors small business
research on subjects such as acquisitions and mergers,
competition, employment and training, franchising, regulations,
energy, productivity, taxes, and women- and minority-owned
businesses.  Each year, the Office of Economic Research compiles
economic data on small business and information on policy
research that is published in The State of Small Business: A
Report of the President.

As the outreach branch of the Office of Advocacy, the Office of
Information publishes a monthly newsletter, The Small Business
Advocate, disseminating it to approximately 10,000 individuals,
academicians, trade associations, and others interested in small
business issues.  The Office of Information also edits and
manages the publication of numerous Office of Advocacy documents
such as: The State of Small Business: A Report of the President;
Catalog of Small Business Research; annual implementation reports
on the 1995 White House Conference on Small Business; Small
Business Economic Indicators; and the Annual Report of the Chief
Counsel for Advocacy on Implementation of the Regulatory
Flexibility Act.

The Office of Advocacy engages in a wide range of other projects
designed to encourage the growth of small businesses.  The Office
continues to oversee projects such as:

         the implementation of the recommendations of the 1995 White
       House Conference on Small Business;
         the initiation of an Internet-based investment service,
       called ACE-Net, that is designed to improve small business access
       to venture capital;
         the development of a model stock purchase agreement that
       will reduce the costs of negotiated agreements for equity
       investments in small businesses across state lines; and
         the establishment of a procurement system, called PRO-Net,
       an Internet-based resource that, among other things, makes
       available to government procurement offices and contractors
       information about women-owned firms and minority-owned firms that
       are part of the SBA's 8(a) program.

Additional information about the Office of Advocacy is available
from:  Office of Advocacy, U.S. Small Business Administration,
409 Third Street, S.W., Washington, D.C. 20416.  Telephone (202)
205-6532; fax (202) 205-6928; Internet website:
www.sba.gov/ADVO/.