United States General Accounting Office

GAO Testimony

Before the Subcommittees on Government Programs and

Oversight and Regulatory Reform and Paperwork

Reduction,

Committee on Small Business

House of Representatives

For Release on Delivery

Expected at

10:00 a.m. EST

Wednesday

March 18, 1998

Regulatory Flexibility Act

Implementation of the Small

Business Advocacy Review

Panel Requirements

Statement of L. Nye Stevens

Director, Federal Management and Workforce Issues

General Government Division

GAO/T-GGD-98-75

Statement 

Regulatory Flexibility Act: Implementation

of the Small Business Advocacy Review

Panel Requirements

Mr. Chairman, Madam Chairwoman, and Members of the Subcommittees:

I am pleased to be here to discuss our report that is being issued today,

which examines the Small Business Regulatory Enforcement Fairness

Act’s (SBREFA) advocacy review panel provisions.1

 These provisions took

effect on June 28, 1996, and require the Environmental Protection Agency

(EPA) and the Occupational Safety and Health Administration (OSHA) to

convene advocacy review panels for draft rules that may have a significant

economic impact on a substantial number of small entities. The review

panels are to collect advice and recommendations from representatives of

affected small entities about the potential impact of draft rules before they

are published as notices of proposed rulemaking in the Federal Register.

SBREFA requires that several specific procedural steps be followed in

convening the panels, and that the panels consist of employees from the

regulatory agency responsible for the draft rule—EPA or OSHA—the Office

of Management and Budget’s (OMB) Office of Information and Regulatory

Affairs (OIRA), and the Small Business Administration’s (SBA) Chief Counsel

for Advocacy.

Our review focused on how the advocacy review panel process has

worked in the early period of its implementation. Our specific objectives

were to (1) determine whether EPA and OSHA had applied the advocacy

review panel requirements to all applicable rules that they proposed in the

first year of the panel requirements; (2) determine whether the EPA and

OSHA panels, the regulatory agencies themselves, and SBA’s Chief Counsel

for Advocacy followed the statute’s procedural requirements; (3) identify

any changes that EPA and OSHA made to the draft rules as a result of the

panels’ recommendations; and (4) identify any suggestions that agency

officials and small entity representatives had regarding how the advocacy

review panel process could be improved.

As of November 1, 1997, EPA and OSHA had convened five review panels.

EPA and SBA’s Chief Counsel for Advocacy disagree regarding the

applicability of the panel requirements to two other rules that EPA

proposed in December 1996—the national ambient air quality standards

for ozone and for particulate matter. Specifically, EPA and the Chief

Counsel disagree regarding whether the effects of states’ implementation

of these health standards can be separated from the standards themselves

in determining whether EPA’s rules may have a significant economic

impact on a substantial number of small entities. In our report being

1

Regulatory Reform: Implementation of the Small Business Advocacy Review Panel Requirements

(GAO/GGD-98-36, Mar. 18, 1998).

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issued today, we suggest that Congress resolve this issue by taking steps

to clarify the meaning of the term “significant impact.”

The agencies and the panels generally met SBREFA’s procedural

requirements, but there were several differences in how the panels

operated. The panels’ recommendations regarding the two proposed rules

that had been published as of November 1, 1997, focused on various

issues, such as providing small entities with greater compliance flexibility

and considering the effects of potentially overlapping regulations. The

agencies generally responded to those recommendations in the

supplementary information sections of the proposed rules. Finally, the

small entity representatives with whom we spoke and, to a lesser extent,

the agency officials we interviewed offered several suggestions to improve

the advocacy review panel process.

EPA and SBA’s Chief

Counsel for Advocacy

Disagree Regarding

Whether EPA Should

Have Convened

Additional Advocacy

Review Panels

During the first year of the advocacy review panel requirements’

implementation, OSHA convened a panel for one draft rule and published

two other proposed rules for which panels were not held. SBA’s Chief

Counsel for Advocacy agreed with OSHA’s certification that neither of these

two proposed rules required an advocacy review panel.

As of November 1, 1997, EPA had convened advocacy review panels for

four draft rules. EPA also published 17 other proposed rules that were

reviewed by OIRA for which panels were not held because EPA certified that

the proposed rules would not have a significant economic impact on a

substantial number of small entities. SBA’s Chief Counsel said that EPA

should have convened panels for 2 of these 17 proposed rules—the rules

setting national ambient air quality standards for ozone and for particulate

matter. Some of the small entity representatives that we interviewed also

said that EPA should have convened advocacy review panels for these two

proposed rules.

EPA officials said that review panels were not required for the ozone and

particulate matter rules because they would not, by themselves, have a

significant economic impact on a substantial number of small entities. The

officials said that any effects that the rules would have on small entities

would only occur when the states determine how the standards will be

specifically implemented. However, SBA’s Chief Counsel for Advocacy

disagreed with EPA’s assessment. He said that the promulgation of these

two rules cannot be separated from their implementation, and that effects

on small entities will flow “inexorably” from the standards EPA established.

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Panel Requirements

We could not determine whether EPA should have convened advocacy

review panels for the ozone and particulate matter rules because there are

no clear governmentwide criteria for determining whether a rule has a

“significant economic impact on a substantial number of small entities.”

Specifically, it is unclear whether health standards that an agency

establishes by regulation should be considered separable from

implementation requirements established by state governments or other

entities. The Regulatory Flexibility Act (RFA), which SBREFA amended, does

not define the term “significant economic impact on a substantial number

of small entities.” Although the RFA requires the SBA Chief Counsel for

Advocacy to monitor agencies’ compliance with the act, it does not

expressly authorize SBA or any other entity to interpret key provisions. In a

previous report we noted that agencies had different interpretations

regarding how the RFA’s provisions should be interpreted.2

 In another

report, we said that if Congress wishes to strengthen the implementation

of the RFA it should consider amending the act to provide clear authority

and responsibility to interpret key provisions and issue guidance.3

In our report that is being issued today, we again conclude that

governmentwide criteria are needed regarding what constitutes a

“significant economic impact on a substantial number of small entities.”

Therefore, we said that if Congress wishes to clarify and strengthen the

implementation of the RFA and SBREFA, it should consider providing SBA or

another entity with clear authority to interpret the RFA’s key provisions.

We also said that Congress could consider establishing, or requiring SBA or

some other entity to develop, governmentwide criteria defining the phrase

“significant economic impact on a substantial number of small entities.”

Specifically, those criteria should state whether the establishment of

regulatory standards by a federal agency should be separated from

implementation requirements imposed by other entities. Governmentwide

criteria can help ensure consistency in how the RFA and SBREFA are

implemented across federal agencies. However, those criteria must be

flexible enough to allow for some agency-by-agency variations in the kinds

of impacts that should be considered “significant” and what constitutes a

“substantial” number of small entities.

2

Regulatory Flexibility Act: Inherent Weaknesses May Limit Its Usefulness for Small Governments

(GAO/HRD-91-61, Jan. 11, 1991).

3

Regulatory Flexibility Act: Status of Agencies’ Compliance (GAO/GGD-94-105, Apr. 27, 1994).

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Panel Requirements

Panels, Regulatory

Agencies, and SBA’s

Chief Counsel for

Advocacy Generally

Followed Statutory

Requirements,but

Panel Procedures

Differed

As of November 1, 1997, EPA and OSHA had convened five advocacy review

panels. OSHA convened the first panel on September 10, 1996, to review its

draft standard for occupational exposure to tuberculosis (TB). EPA

convened panels to review the following four draft rules: (1) control of

emissions of air pollution from nonroad diesel engines (Mar. 25, 1997);

(2) effluent limitations guidelines and pretreatment standards for the

industrial laundries point source category (June 6, 1997); (3) stormwater

phase II—national pollutant discharge elimination system (June 19, 1997);

and (4) effluent limitations guidelines and standards for the transportation

equipment-cleaning industry (July 16, 1997).

The panels, EPA and OSHA, and SBA’s Chief Counsel for Advocacy generally

followed SBREFA’s procedural requirements on how those panels should be

convened and conducted. For example, as required by the statute:

• EPA and OSHA notified the SBA Chief Counsel before each of the panels and

provided him with information on the potential impacts of the draft rules

and the types of small entities that might be affected.

• The Chief Counsel responded to EPA and OSHA no later than 15 days after

receipt of these materials and helped identify individuals representative of

the affected small entities.

• Each of the five panels reviewed materials that the regulatory agencies

had prepared and collected advice and recommendations from the small

entity representatives.

However, there were a few minor inconsistencies with SBREFA’s specific

statutory requirements in the five panels we reviewed. For example, three

of the panels took a few days longer than the 60 days allowed by the

statute to conclude their deliberations and issue a report. Also, EPA did not

formally designate a chair for its panels until June 11, 1996—about 6

weeks later than the statute required.

Although generally consistent with SBREFA’s requirements, the panels

differed in some respects, including the degree of prepanel contact that

the agencies had with the small entity representatives and the amount and

types of information about the rules that were provided to the small entity

representatives for review. At least some of the differences between the

panels appeared to occur because the panel process was new and

evolving, and the agencies and the panels made adjustments to their

procedures as they gained experience. For example, EPA convened its first

panel by sending a draft report summarizing the agency’s prepanel

outreach to the panel members. However, EPA’s panel chair said that some

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Members of Congress and congressional staff viewed this as an attempt to

prejudice the panel members’ consideration, and the practice was

changed. For subsequent panels, EPA developed a summary of the

comments it had received from small entities before the panels were

convened, which it provided to the panel members. The panel members

themselves then gathered advice and recommendations from the small

entity representatives and drafted the final reports.

Agencies Responded

to Panel

Recommendations in

Proposed Rules

As of November 1, 1997, two of the draft rules for which EPA and OSHA held

advocacy review panels had been published as notices of proposed

rulemaking in the Federal Register—OSHA’s proposed rule on the

occupational exposure to TB and EPA’s proposed rule to control nonroad

diesel engine emissions. The panels’ recommendations for these draft

rules focused on providing small entities with flexibility in how to comply

with the rules and on the need to consider potentially overlapping local,

state, and federal regulations and enforcement. OSHA and EPA primarily

responded to the panels’ recommendations in the supplementary

information sections of the proposed rules, although OSHA also made some

changes to the text of its rule.

For example, one of the TB panel’s major recommendations was that OSHA

reexamine the application of the draft rule to homeless shelters. In the

supplementary information section of the proposed rule, OSHA said that it

was conducting a special study of this issue and would hold hearings on

issue\ related to TB exposure in homeless shelters. The TB panel also

recommended that OSHA examine the potential cost savings associated

with allowing TB training that a worker received in one place of

employment to be used to satisfy training requirements in another place of

employment. In response, OSHA changed the text of the draft rule to allow

the portability of nonsite specific training.

Although EPA and OSHA appeared to have been responsive to the panels’

recommendations in the proposed rules, it is too early to tell whether the

final rules will reflect the panels’ recommendations. The 32 small entity

representatives we interviewed were evenly split on whether they thought

that changes would be made to the rules as a result of their comments.

About one-third of the representatives believed that the agencies would

make changes, and another one-third were unsure whether changes would

be made. A final one-third of the small entity representatives said that they

did not believe that the agencies would change the rules as a result of their

comments. Some of these representatives said that the regulatory agency

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Panel Requirements

officials had already decided how the rules would be written before

convening the panels, and that the officials were not interested in making

any significant changes to the rules.

Small Entity

Representatives and

Agency Officials

Offered Suggestions

to Improve the Panel

Process

Although most of the 32 small entity representatives with whom we spoke

said that they thought the review panel process was worthwhile, about

three-fourths of them suggested changes to improve that process. Their

comments primarily focused on the following four issues: (1) the time

frames in which the panels were conducted, (2) the composition of the

groups of small entity representatives commenting to the panels, (3) the

methods the panels used to gather comments, and (4) the materials about

the draft rules that the regulatory agencies provided.

Seven of the small entity representatives said they would have liked more

advance notice of panel meetings and telephone conference calls with the

panels. Some of these representatives said that short notices had

prevented them from participating in certain panel efforts. Fourteen

representatives said they were not given enough time to study the

materials provided before being asked to comment on the draft rules. Five

representatives suggested holding the panels earlier in the rulemaking

process to increase the likelihood that the panels could affect the draft

rules.

Fourteen small entity representatives thought that the composition of

those providing input to the panels could be improved. Specifically, they

said that the panels should have obtained input from more representatives

of (1) individual small entities, not just representatives from associations;

(2) certain types of affected small entities that were not included (e.g.,

from certain geographic areas); (3) small entities that would bear the

burden of implementing the draft rules (e.g., small municipalities); and

(4) small entities that were reviewing the draft rule for the first time, and

that had not been previously involved in developing the draft rules.

Nine of the small entity representatives said that the conference calls that

OSHA and EPA typically used to obtain their views limited the amount of

discussion that could take place. Most of these representatives expressed

a preference for face-to-face meetings because they believed the

discussions would be fuller and provide greater value to the panels.

Although most of the small entity representatives said that the materials

the regulatory agencies provided to them permitted an intelligent and

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of the Small Business Advocacy Review

Panel Requirements

informed discussion of the rules’ potential impacts on small entities, eight

representatives said they believed the materials could have been

improved. Six thought the materials were too vague or did not provide

enough information. However, two representatives said that the materials

were too voluminous and complex to expeditiously review.

The agency officials we interviewed also offered suggestions for improving

the panels. Because you will be hearing from those same officials later in

this hearing, I will not go into detail about those suggestions. However,

their comments centered on some of the same issues raised by the small

entity representatives, including the timing of the panels, the materials

provided to the representatives, and the manner by which comments are

obtained.

Conclusions Many of the agency officials and small entity representatives that we

interviewed said they believed the panel process has provided an

opportunity to identify significant impacts on small entities and has given

the agencies a better appreciation of the small entities’ concerns.

However, implementation of the panel process has not been without

controversy or concern.

Our greatest concern about the panel process is the lack of clarity

regarding whether EPA should have convened advocacy review panels for

its national ambient air quality standards for ozone and for particulate

matter. That concern is directly traceable to the lack of agreed-upon

governmentwide criteria as to when a rule has a “significant economic

impact on a substantial number of small entities” under the RFA. If

governmentwide criteria had been established regarding when initial

regulatory flexibility analyses should be prepared (and, therefore, when

SBREFA advocacy review panels should be convened), the dispute regarding

whether EPA should have convened additional panels would likely not have

arisen. In particular, governmentwide criteria should address whether the

establishment of regulatory standards by a federal agency should be

separated from the subsequent implementation requirements imposed by

states or other entities.

Some of the concerns that small entity representatives expressed about

the panel process may be difficult to resolve. When panels are held earlier

in the process, it is less likely that the materials will be fully developed to

provide detailed data and analyses to the small entity representatives.

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of the Small Business Advocacy Review

Panel Requirements

However, delaying the panels until such data are available could limit the

opportunity for small entities to influence key decisions.

How agencies implement the advocacy review panel process will have a

pronounced effect on its continued viability. If small entity representatives

are given the opportunity to discuss the issues they believe are important

and see that their input is taken seriously, it is likely that they will

continue to view the panel process as a useful opportunity to provide their

comments on draft rules relatively early in the rulemaking process.

Mr. Chairman and Madam Chairwoman, this completes my prepared

statement. I would be pleased to answer any questions.

(410303) Page 8 GAO/T-GGD-98-75
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