An Evaluation of Compliance with the

Regulatory Flexibility Act by Federal Agencies

by Consad Research Corporation.

2001. [65 pages] Pittsburgh, Pennsylvania

under contract SBAHQ-99-C-0011

This Small Business Research Summary (ISSN 1076-8904) summarizes one of a series of research papers prepared under contracts

issued by the U.S. Small Business Administration’s Office of Advocacy. The opinions and recommendations of the authors of this study do

not necessarily reflect official policies of the SBA or other agencies of the U.S. government. For more information, write to the Office of

Advocacy at 409 Third Street S.W., Washington, DC 20416, or visit the office’s Internet site at www.sba.gov/advo.

Purpose

The Regulatory Flexibility Act (RFA), enacted in 1980,

requires federal agencies to determine whether their

rules would result in economic impacts that are felt

disproportionately by small businesses and other

small entities and to identify regulatory alternatives

that achieve the desired policy goal while reducing

the disproportionate impact on small business. In

1996, the Small Business Regulatory Enforcement Act

(SBREFA) was enacted as an enforcement tool for

the RFA. This research sets out to assess agency

compliance with the RFA and examine changes in

compliance over time and since the passage of the

SBREFA. It also suggests ways to make the RFA

more effective at lowering small entity burdens.

Scope and Methodology

A total sample of 274 final rules was used in this

analysis:

• 120 final rules were selected from the 1995

Unified Agendas (a comprehensive listing of

federal rules);

• 93 final rules were selected from the 1999

Unified Agendas;

• 56 final rules issued from 1996 through 1999

that had been identified by GAO’s Reports on

Federal Agency Major Rules as being major rules for

which an initial regulatory flexibility analysis

(IRFA) or a final regulatory flexibility analysis (FRFA)

was produced;

• 5 final rules that were the subject of SBREFA

review panels.

Three main research questions were studied,

among other items of interest:

• Are federal agencies complying with the RFA?

• Has the SBREFA affected rulemaking?

• What role has SBA’s Office of Advocacy played

in the process of rulemaking?

Overall Findings

Looking at a relatively large sample of actual rules,

this study painstakingly identifies patterns and

changes in compliance since the SBREFA was introduced to increase the incentives for agencies to comply. Although the study identifies improvements in

compliance, it also warns that noncompliance was a

serious problem. The researchers observed that the

most pervasive problem lies in the failure of agencies

to identify or to focus early on rulemakings with

potentially serious impacts on small entities.

An array of remedies is provided that could possibly improve the ratio of compliant to noncompliant

agencies. Of noticeable significance is the recommendation that the agencies should also do a better

job of complying with the Administrative Procedure

Act (APA) and the Electronic Freedom of

Information Act (EFIA). The APA requires the publication of all information bearing on agency rulemaking. The EFIA requires that agencies make all post1996 government documents available electronically.

The added transparency will vastly increase analysis

and public participation in the vital issue of

regulatory burdens.
Highlights

• The researchers found a marked increase in federal agency compliance with the RFA between 1995

and 1999. Within that increase, they identified significant patterns of strengths and weaknesses in the

compliance by federal agencies with the provisions

of the RFA.

• Some agencies showed marked improvements in

compliance following the passage of the SBREFA

(which overlaps the overall period in which rules

were analyzed for this study).

• Based on the rules reviewed for the study, the

number of proposed rules for which IRFAs were prepared rose from 22 in 1995 to 50 in 1999. The number of final rules for which FRFAs were prepared

rose from 22 in 1995 to 46 in 1999. The researchers

suggest that this change is attributable to the attention that agencies devote to the issue of small entity

impacts as a result of the enactment of the SBREFA.

• There was a substantial improvement in compliance with the RFA’s requirements for certification

and explanation of rules that do not have a significant economic impact on a substantial number of

small entities. In 1995, about 39 percent of final rule

notices failed to comply with either or both of these

requirements. In 1999, the rate of noncompliance

was reduced to 32 percent.

• The researchers nevertheless recognize that compliance with the RFA has been generally mixed, with

many identifiable problems in meeting almost all

requirements of the law. In addition to a continued

lack of technical compliance in some cases, there are

other cases where the letter of the law is met, but the

goal of lowering regulatory burdens on small entities

is not fully achieved. Specifically, in numerous

instances, federal agencies have not adopted regulatory alternatives that achieve their stated policy goals

while reducing small entity burdens, even when the

Office of Advocacy or the general public has

informed the agency of these alternatives.

Comments from Advocacy

Given the lack of data on this matter, the task undertaken by the researchers at Consad was undoubtedly

intricate and difficult. They managed to pull together

a database of rules from a variety of sources, and

derive trends and patterns of agency behavior vis-àvis the RFA and the SBREFA. In addition to its present utility, this study is certainly a good foundation

for future analysis and action.

Ordering Information

The full text of this report and summaries of other

studies performed under contract with the U.S. Small

Business Administration’s Office of Advocacy are

available on the Internet at www.sba.gov/advo/research.

Printed copies are available for purchase from:

National Technical Information Service

5285 Port Royal Road

Springfield, VA 22161

Tel. (800) 553-6847

TDD: (703) 487-4639

Order number: PB2002-102203

The National Technical Information Service’s

complete database of federally funded business

research is available on the Internet at www.ntis.gov.