www.sba.gov/advo

Office of Advocacy 

Advocacy: the voice of small business in government 

A Guide for Government 

Agencies 

How to Comply with the Regulatory 

Flexibility Act 

Implementing the President's Small Business Agenda 

and Executive Order 13272 

June 2010 
 

 

 

FOREWORD 

Economic freedom is the foundation for individual success and prosperity. This freedom 

is evident in the entrepreneurial small business sector, which creates most of the new jobs 

and a large share of the innovations in the American economy. When government takes 

small businesses into consideration in developing regulations, it saves time and money 

for the nation’s most productive sector. 

Executive Order 13272, signed August 13, 2002, gave federal agencies new direction in 

their efforts to assess the impact of their proposed rulemakings on small businesses and 

other small organizations under the Regulatory Flexibility Act (RFA). It also directed the 

Small Business Administration’s Office of Advocacy to provide agencies with 

information on how to comply with the President’s directive. 

This compliance guide, prepared with input from regulatory agencies, is designed to be 

used by agency rule writers and policy analysts as a step-by-step manual for complying 

with the RFA. A careful review of the requirements is recommended before policy 

analysts begin to draft regulations, and then again at each stage of the process. 

The Office of Advocacy continues to provide training to agency personnel in RFA 

compliance and has worked with many agencies since the executive order was signed. 

Advocacy welcomes additional opportunities to assist in new phases of training. 

Thanks to all who contributed by reviewing and commenting on this guide. Further 

suggestions for improvements are welcome. For more information about the RFA and 

E.O. 13272, visit the Advocacy website at www.sba.gov/advo, or call us at (202) 205­

6533. 

To those charged to carry out the nation’s regulatory flexibility requirements, the Office 

of Advocacy offers its strong support and encouragement. You have a crucial role in 

keeping the nation on track for sustained economic growth by ensuring the continued 

strength of the resilient small business sector. 
 

ACKNOWLEDGMENTS 

The Office of Advocacy’s deep appreciation is extended to all reviewers of this guide, 

including those representing the Department of Labor, the Environmental Protection 

Agency, the Food and Drug Administration’s Center for Food Safety and Applied 

Nutrition, the Office of Management and Budget’s Office of Information and Regulatory 

Affairs, the House Committee on Small Business, and Advocacy staff. 

As a tool for effective implementation of the Regulatory Flexibility Act, the guide helps 

create fairer and more effective regulation for all small entities, especially small 

businesses. 

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CONTENTS 

FOREWORD i 

ACKNOWLEDGMENTS ii 

INTRODUCTION 1 

CHAPTER 1 WHERE DO WE BEGIN? FIRST STEPS OF RFA ANALYSIS 3 

The RFA decision process 4
 

Does the RFA apply? 5
 

Relevance of the Administrative Procedure Act 5
 

The APA and RFA exemptions 5
 

RFA now applies to certain Internal Revenue Service interpretative rules 6
 

Executive orders and interagency cooperation 7
 

How to certify: The RFA threshold analysis 8
 

Organizing the threshold report 9
 

“Factual basis” requirement for certification 10 

What is the definition of a small entity? 11
 

Changing a size standard 12
 

Certification using alternate definitions of “small business” 13
 

Assessing the impact on small entities 14
 

Which segment of the economy or industry will be regulated? 15
 

How to categorize small entity sectors 16
 

Definition of “significant” and “substantial” 17
 

Direct versus indirect impact 20
 

Adverse versus beneficial impact 21
 

What adequate and inadequate certifications look like 22
 

An example of adequate certification 22
 

Examples of inadequate certifications 23
 

Certification checklist 26
 

CHAPTER 2 PREPARING A PROPOSED RULE: THE INITIAL REGULATORY FLEXIBILITY 

ANALYSIS 29
 

The RFA decision process 29
 

Issues to be addressed in the analysis 30
 

Elements of an IRFA 32
 

Reasons action is being considered 33
 

Objectives of the proposed rule 33
 

Description and estimate of the number of small entities 33
 

Estimating compliance requirements 34
 

Significant alternatives considered 35
 

Duplicative, overlapping, and confusing rules 37
 

Using other analyses to satisfy the IRFA requirements 38
 

When an IRFA may be waived or delayed 39
 

What an IRFA should look like: A real-life example 39
 

Example of an initial regulatory flexibility analysis 40
 

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CHAPTER 3 PREPARING A FINAL RULE: THE FINAL REGULATORY FLEXIBILITY 

ANALYSIS 47
 

The RFA decision process 47
 

Issues to be addressed in the analysis 48
 

Additional questions to be addressed in a FRFA 50
 

Have all significant issues been assessed? 50
 

Has the number of small entities been estimated? 50
 

Has the impact on small entities been minimized? 50
 

Have all alternatives been reviewed? 51
 

Permissible delays in publication 52
 

What a FRFA should look like: A real-life example 52
 

Example of a final regulatory flexibility analysis 53
 

CHAPTER 4 REGULATORY PANELS 59
 

Who must hold SBREFA panels? 59
 

How is the decision to hold a SBREFA panel made? 59
 

How does a SBREFA panel work? 60
 

Suggested panel timeline 61
 

CHAPTER 5 RFA LITIGATION: WHAT THE COURTS HAVE SAID 63
 

Where do we begin? First steps of an RFA analysis 63
 

Does the RFA apply? 63
 

What qualifies as a rulemaking under the APA? 63
 

Exemptions under the APA 64
 

The certification statement 65
 

The decision process 65
 

Size standards 66
 

The agency must conduct an adequate analysis before certifying 67
 

Direct versus indirect impact on small entities 69
 

The initial regulatory flexibility analysis 71
 

The final regulatory flexibility analysis 72 

General content 72
 

Is a FRFA always required? 72
 

Considering alternatives to the final rule 73
 

Analysis of the economic impact 76
 

Public comments 78
 

Judicial review 79
 

CHAPTER 6: ADDITIONAL RFA REQUIREMENTS 81
 

Semi-annual regulatory agenda 81
 

Periodic review of existing rules 82
 

Small entity compliance guides 83
 

Informal compliance assistance 84
 

Regulatory enforcement fairness 85
 

Penalty reduction policies 85
 

Congressional review 86
 

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CONCLUSION 89 

APPENDICES 

Appendix A: The Regulatory Flexibility Act as amended 91
 

Appendix B: Small business by the numbers 99
 

Appendix C: Small business statistics for regulatory analysis 103
 

Appendix D: Memorandum of understanding with OMB 107
 

Appendix E: Executive Order 13272 111
 

Appendix F: Executive Order 12866 113
 

Appendix G: Abbreviations used in this guide 127
 

Appendix H: Office of Advocacy staff 129
 

Appendix I: Office of Information and Regulatory Affairs contacts 130
 

Appendix J: Section 610 of the Regulatory Flexibility Act: Best practices for 131
 

federal agencies 

INDEX 140
 

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INTRODUCTION 

In June 1976, Congress created the Office of Advocacy, headed by a Chief Counsel 

appointed by the President from the private sector and confirmed by the Senate. Congress 

concluded that small businesses needed a voice in the councils of government—a voice 

that was both independent and credible. Congress specifically required the Office of 

Advocacy to measure the costs and impacts of regulation on small business. The Chief 

Counsel’s mandate, therefore, is to be an independent voice for small business in policy 

deliberations—a unique mission in the federal government. 

The Regulatory Flexibility Act (RFA),1 enacted in September 1980, requires agencies to 

consider the impact of their regulatory proposals on small entities, analyze effective 

alternatives that minimize small entity impacts, and make their analyses available for 

public comment. The RFA applies to a wide range of small entities, including small 

businesses, not-for-profit organizations, and small governmental jurisdictions. 

The RFA does not seek preferential treatment for small entities, require agencies to adopt 

regulations that impose the least burden on small entities, or mandate exemptions for 

small entities. Rather, it requires agencies to examine public policy issues using an 

analytical process that identifies, among other things, barriers to small business 

competitiveness and seeks a level playing field for small entities, not an unfair advantage. 

The size of the business, government unit, or not-for-profit organization being regulated 

has a bearing on its ability to comply with federal regulations. For example, the costs of 

complying with a particular regulation—measured in staff time, recordkeeping, outside 

expertise, and other direct compliance costs—might be roughly the same for a company 

with sales of $10 million as for a company with sales of $1 million. In a larger business, 

however, the costs of compliance can be spread over a larger volume of production. For 

small entities, a burdensome regulation could affect the ability to set competitive prices, 

to devise innovations, or even to make a profit.2 In some cases, a small business may be 

unable to stay in business because of the cost of a regulation. Simply stated, fixed costs 

have a greater impact on small entities because small entities have fewer options for 

recovering them. For firms employing fewer than 20 employees, the annual regulatory 

burden is nearly $6,975 per employee—almost 60 percent more than that of firms with 

more than 500 employees.3 Without the necessary facts, it is possible for an agency to 

cause serious unintended or unforeseen adverse impacts on small businesses. 

1 Regulatory Flexibility Act, Pub. L. No. 96-354, 94 Stat. 1164 (codified at 5 U.S.C. § 601).
 2 See Todd A. Morrison, Economies of Scale in Regulatory Compliance: Evidence of the Differential
 

Impacts of Regulation by Firm Size, report no. PB85-178861, prepared by Jack Faucett Associates, Inc., for
 

the U.S. Small Business Administration, Office of Advocacy (Springfield, Va.: National Technical 

Information Service, 1985).

3 See W. Mark Crain and Thomas D. Hopkins, The Impact of Regulatory Costs on Small Firms, report no.
 

PB2001-107067, prepared by Hopkins and Crain for the U.S. Small Business Administration, Office of
 

Advocacy (Springfield, Va.: National Technical Information Service, 2001).
 
 

 

 

 

 

 

 

 

In essence, the RFA asks agencies to be aware of the economic structure of the entities 

they regulate and the effect their regulations may have on small entities. To this end, the 

RFA requires agencies to analyze the economic impact of proposed regulations when 

there is likely to be a significant economic impact on a substantial number of small 

entities, and to consider regulatory alternatives that will achieve the agency’s goal while 

minimizing the burden on small entities. The concept underlying this analytical 

requirement is that agencies will revise their decisionmaking processes to take account of 

small entity concerns in the same manner that agency decisionmaking processes were 

modified subsequent to the enactment of the National Environmental Policy Act 

(NEPA).4 The RFA then acts as a statutorily mandated analytical tool to further assist 

agencies in meeting the rational rulemaking standard set forth in the Administrative 

Procedure Act, just as NEPA was intended to rationalize decisions concerning major 

federal actions that would affect the environment. 

The Small Business Regulatory Enforcement Fairness Act (SBREFA), enacted in March 

1996,5 amended the RFA and provided additional tools to aid small business in the fight 

for regulatory fairness. The most significant amendments made by SBREFA were: 

•	 Judicial review of agency compliance with some of the RFA’s provisions. 

•	 Requirements for more detailed and substantive regulatory flexibility analyses. 

•	 Expanded participation by small entities in the development of rules by the 

Occupational Safety and Health Administration (OSHA) and the Environmental 

Protection Agency (EPA). 

This compliance guide should be utilized by regulatory agencies as a tool for following 

the requirements of the Regulatory Flexibility Act. In preparing this guide, the Office of 

Advocacy has received input from regulatory agencies, the Office of Management and 

Budget, small business associations, and Congress. This new compliance guide also 

reflects Advocacy’s 22 years of experience with the RFA and contains the spirit of 

interagency cooperation and small business’ vital importance to the economy recognized 

in Executive Order 13272.6 Advocacy hopes the guide will be a useful tool and welcomes 

comments on ways to improve its usefulness to regulatory agencies. 

The guide includes how-to information on determining when the RFA applies to a 

proposed regulation, performing initial and final regulatory flexibility analyses, and 

meeting other RFA requirements, including periodic review of existing rules and small 

business compliance guides. Also included are a section on litigation so that agencies 

may learn how courts have ruled on RFA compliance, as well as examples, where 

available, of actual agency regulatory analyses. For more assistance, contact the Office of 

Advocacy at (202) 205-6533, or one of the Advocacy contacts listed in Appendix F. 

4 See Associated Fisheries of Maine v. Daley, 127 F.3d 104, 114 (1st Cir. 1997) noting parallels between
 

NEPA and the RFA.
 5 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.).

6 Exec. Order No. 13,272, 67 Fed. Reg. 53,462 (Aug. 16, 2002). The Executive Order was signed by
 

President George W. Bush on August 13, 2002. See Appendix E.
 

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CHAPTER 1 WHERE DO WE BEGIN? FIRST STEPS OF RFA 

ANALYSIS 

We begin by briefly examining the general purpose of the Regulatory Flexibility Act and 

its overall requirements. The Regulatory Flexibility Act requires agencies to consider the 

impact of their rules on small entities.7 When the proposed regulation will impose a 

significant economic impact on a substantial number of small entities, the agency must 

evaluate alternatives that would accomplish the objectives of the rule without unduly 

burdening small entities. Inherent in the RFA is a desire to remove barriers to 

competition and encourage agencies to consider ways of tailoring regulations to the size 

of the regulated entities.8 

The RFA, like the National Environmental Policy Act, imposes analytical requirements 

on federal agencies. Both statutes require disclosure of effects and mechanisms to reduce 

adverse consequences and improve beneficial consequences.9 The RFA does not require 

that agencies necessarily minimize a rule’s impact on small entities if there are 

significant, legal, policy, factual, or other reasons for not minimizing impact. The RFA 

requires only that agencies determine, to the extent practicable, the rule’s economic 

impact on small entities and to explore regulatory alternatives for reducing any 

significant economic impact on a substantial number of such entities. Once that process is 

finished, agencies must explain the reasons for their ultimate regulatory choices. 

The goal of Congress in creating the RFA was to change the regulatory culture in 

agencies and mandate that they consider regulatory alternatives that achieve statutory 

purposes, while still minimizing the impacts on small entities. Regulatory flexibility 

analyses built into the regulatory development process at the earliest stages will help 

agency decisionmakers achieve regulatory goals with realistic, cost-effective, and less 

burdensome regulations. 

The following chart shows an overall picture of the RFA decisionmaking process. This 

chapter focuses on the first steps, highlighted in the chart. 

7 See this chapter’s section on p. 11 titled “What is the definition of a small entity?”
 8 See generally, FINDINGS AND PURPOSES, SEC. 2(a)–(b).
 9 Nothing in the RFA states that an economic impact must be adverse prior to performing an analysis.
 

3 
 

 

The RFA decision process
 

NO 

DEFINE THE PROBLEM 

AND DESCRIBE THE 

REGULATED ENTITIES 

BY SIZE AND NUMBER 

ESTIMATE ECONOMIC 

IMPACTS BY SIZE 

CATEGORY 

DETERMINE WHICH SIZE 

CATEGORIES INCUR 

SIGNIFICANT IMPACTS 

DO A SUBSTANTIAL NUMBER OF 

ENTITIES IN ANY SIZE 

CATEGORY INCUR SIGNIFICANT 

IMPACTS? 

CERTIFY RULE AS 

REQUIRING NO FURTHER 

RFA ANALYSIS 

CHAPTER 2—BEGIN 

INITIAL REGULATORY 

FLEXIBILITY
 

ANALYSIS
 

YES 

DISTRIBUTE A DRAFT 

INITIAL REGULATORY 

FLEXIBILITY ANALYSIS 

DECISIONMAKERS OR
 

REG. NEGOTIATING 

PANELS
 

DISCUSS
 

REG. ALTERNATIVES
 

SELECTION OF A
 

REGULATORY 

PROPOSAL
 

COMPLETE INITIAL 

REGULATORY 

FLEXIBILITY ANALYSIS 

PUBLISH PROPOSAL IN 

THE FEDERAL 

REGISTER 

CHAPTER 3—PREPARE 

FINAL REGULATORY 

FLEXIBILITY ANALYSIS 

MAKE FINAL RULE 

DECISIONS 

EXAMINE PUBLIC 

COMMENTS
 

PUBLISH FINAL RULE
 

IN THE FEDERAL
 

REGISTER
 

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Does the RFA apply? 

One of the first decisions to make is whether the Regulatory Flexibility Act applies to the 

particular regulation. Application of the RFA is tied to rulemakings required to be 

published pursuant to the notice and comment requirements of the Administrative 

Procedure Act (APA) or some other statute. After having determined the scope of the 

problem and the potential entities affected by the rule under consideration, the agency 

must decide whether the RFA applies to its decision. This requires the agency to ascertain 

whether the regulation must be issued pursuant to notice and comment by the APA or 

some other statute or whether one of the exemptions to notice and comment rulemaking 

in the APA applies and therefore the RFA does not apply. 

Relevance of the Administrative Procedure Act 

The RFA applies to any rule subject to notice and comment rulemaking under section 

553(b) of the Administrative Procedure Act (APA)10 or any other law. This includes any 

rule of general applicability governing federal grants to state and local governments, for 

which agency procedures provide opportunity for notice and comment. For instance, 

some agencies, such as the Rural Utilities Service, have their own administrative rules 

that require notice and comment even though the agency’s rules may be exempt from the 

APA notice and comment requirement. 

The APA and RFA exemptions 

The RFA requires analysis of a proposed regulation only where notice and comment 

rulemaking is required. Rules are exempt from APA notice and comment requirements, 

and therefore from the RFA requirements, when any of the following is involved: (1) a 

military or foreign affairs function of the United States, or (2) a matter relating to agency 

management or personnel or to public property, loans, grants, benefits, or contracts.11 In 

addition, except where notice or hearing is required by statute, the APA does not apply 

(1) to interpretative rules, general statements of policy, or rules of agency organization, 

procedure or practice; or (2) when the agency for good cause finds (and incorporates the 

finding and a brief statement of reasons therefor in the rules issued) that notice and public 

procedure thereon are impracticable, unnecessary, or contrary to the public interest.12 

Under the circumstances described above, the RFA would not apply. 

Interpretative rules generally interpret the intent expressed by Congress. The easiest type 

of interpretative rule to recognize is one in which an agency does not insert its own 

judgments or interpretations in implementing a rule, and simply regurgitates statutory 

language. One legal treatise on the subject says that interpretative rules are any rules that 

10 5 U.S.C § 553(b).
 11 Id .at § 553(a). There are statutes, such as the Competition in Contracting Act, the Federal Acquisition
 

Streamlining Act, and the Federal Acquisition Reform Act, that mandate that changes to contracting rules
 

be issued pursuant to notice and comment. These acts represent some other statute requiring notice and
 

comment rulemaking.

12 Id. at § 553(b)(A).
 

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an agency issues without exercising delegated legislative power to make law through 

rules.13 The treatise goes on to state that the difference between legislative and 

interpretative rulemaking is the weight courts give the agency decisions on review.14 

In the case of legislative rules, agencies are given the authority to establish requirements 

not specifically mentioned in the authorizing statute that may be the basis for a rule. An 

example of this would be setting an ambient air quality standard or regulating in the 

public interest as set out in the Communications Act of 1934. See Whitman v. American 

Trucking Associations for a discussion of what constitutes a standard governing 

delegation of legislative authority by Congress to the executive branch.15 

The RFA presents its own exemptions as well. Section 601(2) states that the RFA does 

not apply to rules of particular applicability relating to rates, wages, corporate or financial 

structures, or reorganizations thereof, prices, facilities, appliances, services or 

allowances.16 

RFA now applies to certain Internal Revenue Service interpretative rules 

The Small Business Regulatory Enforcement Fairness Act amended the RFA to bring 

certain interpretative rulemakings of the Internal Revenue Service (IRS) within the scope 

of the RFA. The law now applies to those IRS rules published in the Federal Register 

(that would normally be exempt from the RFA as interpretative rules) that impose a 

“collection of information” requirement on small entities.17 Congress took care to define 

the term “collection of information” to be identical to the term used in the Paperwork 

Reduction Act, which means that a collection of information includes any reporting or 

recordkeeping requirement for more than nine people.18 

13 K. Davis, Administrative Law Treatise, § 7:8 (1958).
 14 Davis at §§ 7:8-7:13.
 15 American Trucking Ass’ns v. EPA, 175 F.3d 1027, 1044 (D.C. Cir. 1999); Whitman v. American
 

Trucking Ass’ns, 531 I/S/ 457 (2001). 16 5 U.S.C. § 601(2).
 17 Id. at § 601(b)(1)(a).
 18 Id. at § 601(7).
 

(7) The term “collection of information” 

a) means the obtaining, causing to be obtained, soliciting, or requiring the disclosure to third 

parties or the public, of facts or opinions by or for an agency, regardless of form or format, calling 

for either— 

(i) answers to identical questions posed to, or identical reporting or recordkeeping 

requirements imposed on, 10 or more persons, other than agencies, instrumentalities, or 

employees of the United States; or 

(ii) answers to questions posed to agencies, instrumentalities, or employees of the United 

States which are to be used for general statistical purposes; and 

(8) The term "record-keeping requirement" means a requirement imposed by an agency on persons to 

maintain specified records. 

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Executive orders and interagency cooperation 

Executive Order 12866 lays out additional analytical requirements for agencies when 

promulgating rules pursuant to delegations from Congress and the overarching mandate 

of the APA. The President’s order establishes regulatory goals that can help agencies to 

which the executive order applies19 understand the importance of conducting regulatory 

flexibility analyses. This goal may add context to discussions preceding an agency’s 

certification decision. 

The Regulatory Philosophy. Federal agencies should promulgate only such 

regulations as are required by law, are necessary to interpret the law, or are made 

necessary by compelling public need, such as material failures of private markets to 

protect or improve the health and safety of the public, the environment, or the 

well-being of the American people. In deciding whether and how to regulate, 

agencies should assess all costs and benefits of available regulatory alternatives, 

including the alternative of not regulating. Costs and benefits should include both 

quantifiable measures (to the fullest extent possible) and qualitative measures of costs 

and benefits that are difficult to quantify, but essential to consider.20 

In addition, Executive Order 12866 specifies 12 principles agencies should use when 

developing regulations. Of the 12, number 11 has particular relevance to the RFA 

certification decision21 and the analysis needed to prepare a factual basis for that 

decision: 

(11) Each agency shall tailor its regulations to impose the least burden on society,
 

including individuals, businesses of differing sizes, and other entities (including
 

small communities and governmental entities), consistent with obtaining the
 

regulatory objectives, taking into account, among other things, and to the extent
 

practicable, the costs of cumulative regulations.22
 

Executive Order 13272, “Proper Consideration of Small Entities in Agency 

Rulemaking,” was signed by President George W. Bush on August 13, 2002, and requires 

federal agencies to publish how they will comply with the statutory mandates of the 

RFA.23 The purpose of E.O. 13272 is to ensure that agencies work closely with 

Advocacy to address small business issues as early as possible in the regulatory process, 

particularly as they relate to disproportionate regulatory burden. The order sets out a 

series of responsibilities for both regulating agencies and the Office of Advocacy. 

19 Exec. Order No. 12,866 does not apply to independent regulatory commissions such as the Federal
 

Election Commission, the Federal Communications Commission, and the Securities and Exchange
 

Commission.
 20 Exec. Order No. 12,866 § 1(a), 58 Fed. Reg. 51,735 (Sept. 30, 1993).
 21 5 U.S.C. § 605(b). The RFA permits an agency to certify that a proposed rule would not have a
 

significant economic impact on a substantial number of small entities, if the preliminary (threshold)
 

analysis supports such a decision.

22 Exec. Order No. 12,866 § 1(b). Note that Exec. Order No. 12,866 applies to individuals and requires that
 

regulations impose the least burden on society—standards that differ from those of the RFA. However, the 

fact that application of the order must be “consistent with” maintaining an agency’s regulatory objectives
 

makes the order somewhat parallel to the RFA.

23 Exec. Order No. 13,272, 67 Fed. Reg. 53,461 (Aug. 13, 2002).
 

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•	 Agencies will establish policies on how to measure their impact on small entities and 

will work with Advocacy to establish those procedures. 

•	 The Office of Advocacy is instructed to train agencies on how to properly account for 

small entity impact when agencies draft regulations and to continue to work with 

agencies from time to time as required. 

•	 Agencies are to submit proposed rules with significant small entity effects to the 

Office of Advocacy prior to publication and are required to consider the Office of 

Advocacy’s comments on the rule. 

•	 The Office of Advocacy is required to report annually to the Office of Management 

and Budget (OMB) on whether agencies are complying with this executive order. 

Both executive orders reinforce executive intent that agencies give serious attention to 

impacts on small entities and develop a comprehensive set of regulatory alternatives to 

reduce the regulatory burden on small entities. 

How to certify: The RFA threshold analysis 

After an agency begins regulatory development and determines that the RFA applies, it 

must decide whether to conduct a full regulatory flexibility analysis or to certify that the 

proposed rule will not “have a significant economic impact on a substantial number of 

small entities.”24 The record an agency builds to support a decision to certify is subject to 

judicial review.25 

In order to certify a rule under the RFA, an agency should be able to answer the 

following types of questions: 

•	 Which small entities will be affected? 

•	 Have adequate economic data been obtained? 

•	 What are the economic implications/impacts of the proposal or do the data reveal a 

significant economic impact on a substantial number of small entities? 

If, after conducting an analysis for a proposed or final rule, an agency determines that a 

rule will not have a significant economic impact on a substantial number of small entities, 

section 605(b) provides that the head of the agency may so certify. The certification must 

include a statement providing the factual basis for this determination, and the 

certification may be published in the Federal Register at the time the proposed or final 

rule is published for public comment.26 A certification must include, at a minimum, a 

24 5 U.S.C. § 605(b). The decision to certify a rule parallels the finding of no significant impact under 

NEPA. As with that NEPA determination, the decision to certify, because it is subject to judicial review, 

should be based on a sound threshold analysis similar to the environmental assessment mandated in 

Council on Environmental Quality regulations to support a finding of no significant impact or laying the 

groundwork for a full environmental impact statement. 

25 Id. at § 611(a). 26 There are circumstances where it may be appropriate to publish an IRFA for the proposed rule, and based 

on comments received, publish a certification for the first time in the final rule. See Chapter 3 of this guide 

for a detailed discussion of final regulatory flexibility analyses. 

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description of the affected entities and the impacts that clearly justify the “no impact” 

certification. The agency’s reasoning and assumptions underlying its certification should 

be explicit in order to obtain public comment and thus receive information that would be 

used to re-evaluate the certification. 

Clearly, an agency should identify the scope of the problem and the impact of the 

solution on affected entities before moving forward with a regulatory proposal. At times, 

despite a good-faith effort on the part of an agency to obtain data, an agency may still be 

uncertain about whether to certify. In those instances, an advance notice of proposed 

rulemaking (ANPRM) may be necessary to solicit data. As a final recourse, the agency 

should err on the side of caution and perform an initial regulatory flexibility analysis 

(IRFA) with the available data and information, and solicit comments from small entities 

regarding impact. 27 Then, if appropriate, the agency can certify the final rule. If an 

agency lacks sufficient information to make a certification decision, the agency should 

engage in reasonable outreach efforts.28 

Organizing the threshold report 

Certification analysis discussed in this chapter does not require the depth of analysis 

necessary in an initial regulatory flexibility analysis,29 as discussed in Chapter 2 of this 

guide. Nevertheless, this “threshold” analysis can offer important insights into the nature 

of regulatory impacts. Although a study of alternatives is not required at this stage, it 

often leads to the skeleton of regulatory alternatives that can reduce or eliminate any 

disproportionate impacts on small entities. For this reason, Advocacy encourages 

certification analysis as early in the rule development process as possible. 

Agency certifications of final rules are subject to judicial review30 and courts evaluate 

them by determining whether the statement of basis and purpose accompanying the rule 

identifies a “factual basis” to support the certification.31 A helpful threshold report will 

directly support the elements that must appear in the Federal Register Notice of Proposed 

Rulemaking preamble. The Office of Advocacy believes the threshold analysis should 

discuss the following items:32 

1) Description of small entities affected 

27 5 U.S.C. § 605(b). The Office of Advocacy would expect this situation to be rare because agency efforts
 

to develop the rule should include a reasonable effort to explore all the effects of the rule, including the 

effects on small entities. For more information on preparing an initial regulatory flexibility analysis, see
 

Chapter 2.

28 Id. at § 609. Outreach is important to obtain information required by the RFA, to obtain relevant input 

from affected small entities. See Chapter 6 for a discussion of agency outreach to small entities.

29 An initial regulatory flexibility analysis (IRFA) is a document containing the agency’s data and analysis
 

regarding the potential impact of the proposed rule. A detailed description of the requirements of an IRFA
 

can be found in Chapter 2 of this guide.

30 5 U.S.C. § 611.
 31 Id. at § 605(b).
 32 For additional detail, see the certification checklist at the end of this chapter.
 

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•	 A brief economic and technical statement on the regulated community, 

describing some of the following types of information:33 

a) The diversity in size of regulated entities 

b) Revenues in each size grouping 

c) Profitability in each size grouping 

2) Economic impacts on small entities 

•	 A fair, first estimate of expected cost impacts, or a reasonable basis for 

assuming costs would be de minimis or insignificant within all 

economic or size groupings of the “small” regulated community 

•	 The rationale for the certification decision, based on the analysis 

presented
 

3) Significant economic impact criteria
 

• The criteria used to examine whether first-estimate costs are 

significant
 

4) Substantial number criteria
 

•	 The criteria used to examine whether the entities experiencing 

significant impacts constitute a substantial number of entities in any of 

the regulated size groupings 

5) Description of assumptions and uncertainties 

•	 The sources of data used in the economic and technical analysis34 

•	 The degree of uncertainty in the cost estimates, when uncertainty is 

large
 

6) Certification statement
 

“Factual basis” requirement for certification 

What is a “factual basis?” The Office of Advocacy interprets the “factual basis” 

requirement to mean that, at a minimum, a certification should contain a description of 

the number of affected entities and the size of the economic impacts and why either the 

number of entities or the size of the impacts justifies the certification. 

The agency’s reasoning and assumptions underlying its certification should be explicit in 

order to elicit public comment. Again, agency certifications in final rules are subject to 

33 When an agency does not have quantitative data to support its certification, the agency should explain 

why such data are not available and request comments. 34 Section 607 of the RFA directs agencies to provide a “quantifiable or numerical description of the effects 

of the proposed rule or alternatives to the proposed rule” and allows a qualitative approach if 

“quantification is not practical or reliable.” Thus, agencies are expected to make reasonable efforts to 

acquire quantitative or other information to support analysis of the rules under sections 603 and 604 of the 

RFA. Such a standard is not required for section 605 certifications, but some agencies use section 607 as a 

model for preparing certifications. With regard to certification analyses, EPA wisely advises its rulewriters 

to employ the same approach: use quantitative analysis unless the “information necessary to conduct a 

quantitative analysis is not reasonably available.” Revised Interim Guidance for EPA Rulewriters: 

Regulatory Flexibility Act, as amended by the Small Business Regulatory Enforcement Fairness Act, 

Regulatory Management Division, EPA Office of Policy, p. 20 (March 29, 1999). This guidance is 

currently under revision. 

10 
 

 

 

 

 

 

 

 

 

judicial review. Thus, certifications of “no significant economic impact on a substantial 

number of small entities” have major legal implications for agencies. Consequently, 

certifications that simply state that the agency has found that the proposed or final rule 

will not have a significant economic impact on a substantial number of small entities are 

not sufficient under section 605(b). 

The “more than just a few” standard for determining if a rule will have an impact on a 

“substantial number of small entities” is a rigorous test for agencies to follow. However, 

the Office of Advocacy encourages a conservative approach.35 In other words, if an 

agency has miscalculated the impacts of a regulation because its standard for determining 

“substantial number” was set too high, the certification may give rise to avoidable court 

challenges.36 

Prior to the enactment of SBREFA amendments in 1996, the RFA required only that a 

certification be supported by a “succinct statement explaining the reasons for the 

certification,”37 and since such statements were not subject to judicial review, even as 

part of the record on review, agencies could avoid substantive explanations by using 

boilerplate certifications. The amended version of the RFA now requires that 

certifications be supported by a “statement of factual basis.” In amending the RFA, 

Congress intended that agencies should do more than provide boilerplate and 

unsubstantiated statements to support their RFA certifications. Courts will overturn an 

agency’s final certification if it is not adequate.38 

What is the definition of a small entity? 

The definition of “small entity” is important because it is the starting point for 

determining the degree of impact a regulation will have on small entities. Three types of 

small entities are defined in the RFA: 39 

Small business. Section 601(3) of the RFA defines a “small business” as having the 

same meaning as “small business concern” under section 3 of the Small Business Act. 

This includes any firm that is “independently owned and operated” and is “not dominant 

in its field of operation.”40 The Small Business Administration (SBA) has developed size 

standards to carry out the purposes of the Small Business Act and those size standards 

can be found in 13 C.F.R., section 121.201. The Small Business Act prohibits an agency 

from adopting a different definition of small business when promulgating regulations to 

35 Five small firms in an industry with more than 1,000 small firms is not likely to be interpreted as a
 

“substantial number”; on the other hand, the same five small firms in an industry with only 20 firms would
 

be a substantial number. See the discussion of the definitions of “significant” and “substantial” later in this
 

chapter.
 36 See Chapter 5 of this guide for information on what the courts have held in these types of cases.
 37 See Lehigh Valley Farmers, Inc., v. Block, 640 F. Supp. (E.D. Pa. 1986), aff’d on other grounds, 828 

F.2d.
 38 See North Carolina Fisheries Ass’n v. Daley, 27 F. Supp. 2d 650 (E.D. Va. 1998).
 39 Appendix C lists data sources that may be helpful in drawing distinctions between large and small 

entities.
 40 15 U.S.C. § 632.
 

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carry out a delegation of authority from Congress unless the agency follows the 

procedures set forth in SBA’s regulations.41 In addition, an agency may feel that the 

classification used by the Administrator for a particular sector is inappropriate in doing 

the analysis required by the RFA. The agency is then authorized to use a different 

definition, solely for purposes of complying with the RFA, after consultation with the 

Chief Counsel. That consultation does not obviate the need for the agency to comply with 

section 3 of the Small Business Act should the agency be interested in promulgating a 

regulation that utilizes a different definition of small business than that developed by the 

Administrator.42 

Small organization. Section 601(4) defines a small organization as any not-for-profit 

enterprise that is independently owned and operated and not dominant in its field (for 

example, private hospitals and educational institutions). Agencies may develop one or 

more alternative definitions of “small organization” for purposes of this chapter, provided 

that they: (1) give an opportunity for public comment and (2) publish the final definition 

in the Federal Register. However, an agency that decides a different definition is 

appropriate for purposes of complying with the RFA is required to follow the procedures 

set forth in section 601(4). 

Small governmental jurisdiction. Section 601(5) defines small governmental 

jurisdictions as governments of cities, counties, towns, townships, villages, school 

districts, or special districts with a population of less than 50,000. Agencies may develop 

one or more alternative definitions for this term provided that they: (1) give opportunity 

for public comment, (2) base definitions on factors such as low population density and 

limited revenues, and (3) publish final definitions in the Federal Register. The alternative 

definition developed under this section applies only to the agency’s compliance with the 

RFA. The agency may develop different size standards for small governmental 

jurisdictions in the development of its regulations. . 

Agency decisions under section 601 of the RFA are subject to judicial review. Thus, any 

agency size standard determination that differs from the SBA’s size standard is subject to 

review.43 

Changing a size standard 

It is important to draw a distinction when it comes to determining appropriate size 

standards. If an agency chooses to change a size standard after a determination that 

SBA’s size standard is inadequate, the agency must either consult with the Office of 

Advocacy or seek approval of SBA’s Administrator, depending on the circumstances. As 

stated in section 601(3) of the RFA, “the term small business has the same meaning as 

41 13 C.F.R. § 121.902(b).
 42 Northwest Mining Ass’n v. Babbitt, 5 F. Supp. 2d 9 (D.D.C. 1998).
 43 5 U.S.C. § 611(a); see also Chapter 5 of this guide for a discussion of how the courts have handled this
 

issue.
 

12 
 

 

 

 

 

 

 

 

 

 

 

the term ‘small business concern’ under section 3 of the Small Business Act.”44 Section 

3(a)(1) of the Small Business Act states that: 

a small business concern, including but not limited to enterprises that are engaged in the 

business of production of food and fiber, ranching and raising of livestock, aquaculture, 

and all other farming and agricultural related industries, shall be deemed to be one which 

is independently owned and operated and which is not dominant it its field of operation.45 

Once this test is met, SBA’s regulations further define small businesses by industry in 

terms of annual revenues or number of employees.46 

For RFA analysis purposes, if an agency wants to use a different size standard, the 

agency can do so only after consultation with the Office of Advocacy and after an 

opportunity for public comment. In addition, that new size standard must be published in 

the Federal Register. 

For RFA purposes, the same procedures are required for small organizations and small 

governmental jurisdictions. If an agency wants to use a different definition than those 

provided in sections 601(4) and 601(5) of the RFA, then consultation, public comment, 

and publication in the Federal Register are required. 

On the other hand, if an agency seeks to change the definition of a small business for 

rulemaking purposes (i.e., for purposes of determining how to apply a regulation to a 

business of a certain size), the agency must use the procedures outlined in section 

3(a)(2)(C)(i)-(ii) of the Small Business Act and SBA’s regulations found in 13 CFR 

121.902(b). Those procedures essentially outline the information an agency needs to 

submit in order for SBA’s Administrator to approve a new size standard, as well as when 

in the rulemaking process an agency needs to obtain that approval. 

Note, however, that section 3(a)(2)(C) indicates that an agency need not obtain SBA’s 

approval of a different standard if it is specifically authorized by statute relevant to the 

rulemaking. For example, the Department of Labor cannot use the SBA definition of 

small business in developing the regulations for the Family and Medical Leave Act 

because that statute provides a specific definition of what constitutes a small business. 

Certification using alternative definitions of “small business” 

A certification of a rule that regulates business (rather than small organizations or small 

governmental jurisdictions) means that the agency is using the SBA’s definition of small 

business, unless the rulemaking agency states otherwise. 

If an agency intends to rely on a small business definition for its certification that differs 

from the definition detailed in section 601(3) of the RFA as amended, it must first consult 

44 Small Business Act, Pub. L. No. 85-536, codified as amended, 15 U.S.C. § 631 et seq. 45 Id.
 46 13 CFR 121.201. See http://www.sba.gov/size/.
 

13 
 

 

 

 

 

 

 

 

 

 

 

with the Office of Advocacy on an appropriate definition or size standard. In addition, the 

preamble to the rule must notify the public that it is using a different standard in order to 

provide an opportunity for comment. The agency must publish its proposed definition(s) 

in the Federal Register. 

The following is an example of an acceptable certification statement indicating that a 

different size standard has been used by the agency to certify a rule: 

Pursuant to section 605(b) of the Regulatory Flexibility Act, 5 U.S.C. §605 (b), the head 

of (name of agency or department) certifies that this rule will not have a significant 

economic impact on a substantial number of small entities (explain the factual basis for 

the certification). In making this determination, the agency (used or did not use) the 

SBA definition of small business found at 13 C.F.R. 121.201) (quote the SBA size 

standard used or insert a statement such as the following). Instead, after consultation 

with the Office of Advocacy, the small business definition used by the (name of the 

agency) for this certification is: (insert definition used and explain rationale for the 

alternative). Comments are solicited on the appropriateness of this size standard in 

certifying that this rule will not have a significant impact on a substantial number of 

small entities. 

Assessing the impact on small entities 

Determining a rule’s impact on small entities is an important part of the rulemaking 

process. The RFA requires agencies to conduct sufficient analyses to measure and 

consider the regulatory impacts of the rule to determine whether there will be a 

significant economic impact on a substantial number of small entities. No single 

definition can apply to all rules, given the dynamics of the economy and changes that are 

constantly occurring in the structure of small-entity sectors. 

Every rule is different. The level, scope, and complexity of analysis may vary 

significantly depending on the characteristics and composition of the industry or smallentity sectors to be regulated. This is why it is important that agencies make every effort 

to conduct a sufficient and meaningful analysis when promulgating rules. The preparation 

of the required analysis calls for due diligence, knowledge of the regulated small entity 

community, sound economic and technical analysis, and good professional judgment.47 

One of the first steps in the analytical process includes understanding the nature and 

economics of the industry/entities being regulated, and identifying how much each sector 

is contributing to the problem the agency is trying to address and mitigate. A goal of the 

entire APA/RFA process is to give the public a complete understanding of what the 

agency is doing. Small businesses cannot provide informed comments if the agency fails 

to identify the rule as one that will have a significant impact on a substantial number of 

small businesses. In turn, informed comments provide useful tools for the agency to 

construct the least burdensome, most effective regulations. 

47 See OMB’s government-wide information guidelines, 67 Fed. Reg. 842 (Feb. 22, 2002). These 

guidelines were issued under authority contained in the Information Quality Law, Pub. L. 106-554. 

14 
 

 

 

 

 

 

 

 

 

 

 

Because almost every industrial category will have more small than large businesses,48 

determining the impact on small businesses plays a key role in compliance with the RFA. 

In turn, to the extent that the costs of compliance are sufficiently significant that some 

entities will be unable to comply, the agency’s selected regulatory solution probably will 

not achieve its statutory goal. Thus the analytical requirements, including the decision to 

certify, play a key role in the agency meeting its overall requirement of rational 

rulemaking, i.e., that the solution selected by the agency will meet the objectives the 

agency is attempting to meet. 

As discussed in the previous section defining a small entity, it is important that agencies 

also examine the impact of their proposed regulations on small governmental 

jurisdictions. There are tens of thousands of these small jurisdictions throughout the 

United States that fall under the RFA’s threshold of a population of less than 50,000. The 

growing demand for government services has far exceeded the financial capacities of 

many local governments, particularly the smallest ones, to provide those services while 

maintaining long-term fiscal viability. Costly federal regulations, both new and existing, 

often exacerbate an already difficult situation for many small communities. Like small 

businesses, small communities face economic challenges, lack the economies of scale, 

and in many cases have fewer technical and financial options available to them. All of 

these factors increase a small jurisdiction’s cost to undertake and complete mandated 

regulatory initiatives. 

Which segment of the economy or industry will be regulated? 

To know whether a regulatory proposal affects a substantial number of small entities, the 

regulator must first know how many regulated entities exist and which are small. In 

examining this, the analyst best serves the process by identifying each group of regulated 

entities with similar economic and industrial characteristics. Each group constitutes its 

own universe of regulated small entities that the proposal may influence significantly. If 

the regulated community is segmented properly, each group will have similar economic 

characteristics, and an examination of a typical entity or use of the group’s mean 

characteristics will normally allow very rapid economic analysis for the group. This 

approach allows identification of those groups covered by the RFA. 

Congress enacted the Small Business Regulatory Enforcement Fairness Act to achieve 

“fundamental changes . . . needed in the regulatory and enforcement culture of Federal 

agencies to make agencies more responsive to small business . . . without compromising 

the statutory missions of the agencies.”49 Thus, to meet the basic SBREFA goal, analysts 

will routinely want to economically segment industrial sectors into several appropriate 

size categories smaller than the Small Business Act section 3 definition. Only by so doing 

will the analyst accurately identify and analyze those entities covered by the RFA. 

48 This does not mean that small businesses dominate that sector of the market; for example, in
 

telecommunications, although there are many small businesses, four large regional telephone companies
 

still dominate the market.
 49 SBREFA § 202(3).
 

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Consider the following example of how the SBA definition of a small business may not 

adequately address the nuances that exist within the universe of affected small entities: 

SBA established a size standard for the drinking water supply industry at $5 

million in revenues, equating approximately to a city serving 30,000 people. EPA 

has proposed an alternative definition—a small water supply would serve no 

more than 10,000 people. Such a system generates somewhat less than a million 

dollars in annual revenue. However, EPA does not stop by looking only at the 

supply serving 10,000 people. It also examines sub-populations of the water 

supply industry serving fewer than 100 people, 101-500 people, 501-3,300 and 

3,300-10,000. Water supplies in the smallest size category generate revenues less 

than one-tenth that of those in the 10,000-25,000 size category. More 

significantly, 90 percent of regulated water supplies serve fewer than 500 people, 

and on average, water supplies in those two size categories have net losses, costs 

being spread to other municipal revenue streams. EPA typically examines each of 

these small water supply size categories and, in keeping with the Regulatory 

Flexibility Act, has proposed different “available treatment technologies” for 

each water supply size, reflecting the wide range in economic viability within the 

industry. Each of the size categories below the “small water supply” size cut-off 

stands as its own universe of economically similar regulated entities. EPA 

recognized the regulatory significance of this and incorporated it into its 

analysis.50 

Agencies should identify and examine various economically similar small regulated 

entities so that they will have a baseline from which to determine whether a significant 

regulatory cost will have an impact on a substantial number of small entities. An 

understanding of the differences in economic impacts across the various regulated 

communities often generates different regulatory alternatives. When the agency is ready 

to prepare its IRFA, sound analysis implies that agencies look at the various subsectors of 

the regulated community, the differences among them, and additional sound regulatory 

alternatives that can achieve the statutory mission while mitigating unnecessary economic 

impacts on small entities. 

How to categorize small entity sectors 

The agency’s first step in a threshold analysis consists of identifying the industry, 

governmental and nonprofit sectors they intend to regulate. In the past, many agencies 

used the Standard Industrial Classification (SIC) codes to categorize regulated businesses 

on an industry-by-industry basis. In 1999, the SIC system was replaced by the North 

American Industry Classification System (NAICS), which breaks down industry sectors 

in much greater detail.51 

50 For a full discussion of this issue, see EPA’s National Primary Drinking Water Regulations; Arsenic 

Clarifications to Compliance and New Source Contaminants Monitoring, 66 Fed. Reg. 6976, 6987 (Jan. 22, 

2001).

51 Effective January 1, 1997, the federal government, for statistical purposes, replaced the SIC system with 

NAICS. For purposes of small business size standards, SBA adopted the NAICS definitions for all 

industries effective October 1, 2000. Because NAICS is a new statistical system, there were changes to the 

descriptions of many industry structures in the shift from SIC to NAICS. 

16 
 

 

 

 

 

 

 

Using the NAICS classifications, SBA defines small businesses in terms of firm revenues 

or employees. Different criteria may be helpful to agencies in assessing the composition 

of a small entity sector. The IRS categorizes firm (corporation and partnership) size by 

assets. Industry associations apply some or all of these three criteria (revenues, 

employment, and/or assets) and often add to or replace them with their own technical 

criteria. In addition to SBA definitions, federal regulators may use any one or multiple 

criteria to identify their universes of small regulated entities.52 

Definition of “significant” and “substantial” 

The agency’s second step in a threshold analysis is to determine whether there is a 

significant economic impact on a substantial number of small entities. The RFA does not 

define “significant” or “substantial.” In the absence of statutory specificity, what is 

“significant” or “substantial” will vary depending on the problem that needs to be 

addressed, the rule’s requirements, and the preliminary assessment of the rule’s impact. 

The agency is in the best position to gauge the small entity impacts of its regulations. 

Significance should not be viewed in absolute terms, but should be seen as relative to the 

size of the business, the size of the competitor’s business, and the impact the regulation 

has on larger competitors. For example, a regulation may be significant solely because 

the disparity in impact on small entities may make it more difficult for them to compete 

in a particular sector of the economy than large businesses. This may relate to their ability 

to pass costs through to customers or to reduce the marginal cost of such a regulation to 

an insignificant element of their production functions. 

One measure for determining economic impact is the percentage of revenue or percentage 

of profits affected. For example, if the cost of implementing a particular rule represents 3 

percent of the profits in a particular sector of the economy and the profit margin in that 

industry is 2 percent of gross revenues (an economic structure that occurs in the food 

marketing industry, where profits are often less than 2 percent), the implementation of the 

proposal would drive many businesses out of business (all except the ones that beat a 3 

percent profit margin). That would be a significant economic impact. 

However, the economic impact does not have to completely erase profit margins to be 

significant. For example, the implementation of a rule might reduce the ability of the firm 

to make future capital investment, thereby severely harming its competitive ability, 

particularly against larger firms. This scenario may occur in the telecommunications 

industry, where a regulatory regime that harms the ability of small companies to invest in 

needed capital will not put them out of business immediately, but over time may make it 

impossible for them to compete against companies with significantly larger 

capitalizations. The impact of that rule would then be significant for smaller 

telecommunications companies. 

52 The SBA definitions here are found in § 3(a)(2) of the Small Business Act and are not the RFA 

definitions referenced above. 

17 
 

 

 

 

 

 

 

 

 

Other measures may be used; to illustrate, the impact could be significant if the cost of 

the proposed regulation (a) eliminates more than 10 percent of the businesses’ profits; (b) 

exceeds 1 percent of the gross revenues of the entities in a particular sector or (c) exceeds 

5 percent of the labor costs of the entities in the sector. 

Some agencies have already developed criteria for determining whether a particular 

economic impact is significant and whether the proposed action will affect a substantial 

number of small entities. Standards must be flexible enough to work for the individual 

agency. The following examples are meant to be illustrative of different types of criteria 

that may be used. They are not meant to imply a standard, acceptable formula. Advocacy 

welcomes input from other agencies on their standards. 

•	 The Department of Health and Human Services has determined that a rule is 

significant if it would reduce revenues or raise costs of any class of affected 

entities by more than 3 to 5 percent within five years. This approach may work 

well for an agency, depending upon the circumstances. It becomes complex, 

however, in the attempt to apply a simple rule fairly to varied industries and 

regulatory schemes. A 2 percent reduction in revenues in one industrial category 

would be significant if the industry’s profits are only 3 percent of revenues. More 

than 60 percent of small businesses do not claim a profit and do not pay taxes; 

therefore, an agency would not be able to apply a profit-based criterion to these 

firms. 

•	 The EPA has prepared extensive guidance for its rulewriters concerning 

“significant economic impact” and “substantial number.” With respect to small 

businesses, the agency advises that the offices compare the annualized costs as a 

percentage of sales (“sales test”) to examine significant economic effect. For the 

same purpose, it also discusses alternative uses of a cash flow test and a profits 

test.53 

The absence of a particularized definition of either “significant” or “substantial” does not 

mean that Congress left the terms completely ambiguous or open to unreasonable 

interpretations. Thus, the Office of Advocacy relies on legislative history for general 

guidance in defining these terms.54 

Legislative history of “significant economic impact.” With regard to the term 

“significant economic impact,” Congress said: 

53 Revised Interim Guidance for EPA Rulewriters. 54 Admittedly, throughout this guide, references are made to “adverse” impacts and efforts to “mitigate” 

impacts. This, after all, is the primary concern of the law. Legislative history, however, makes it clear that 

Congress intended that regulatory flexibility analyses also address “beneficial” impacts. Therefore, an 

agency cannot certify a proposed rule if the economic impact will be significant but positive. If an agency 

so finds, it should conduct a regulatory flexibility analysis to determine if alternatives can enhance the 

economic benefits flowing to small entities. See discussion in this chapter on adverse versus beneficial 

impacts. 

18 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The term ‘significant economic impact’ is, of necessity, not an exact standard. Because of 

the diversity of both the community of small entities and of rules themselves, any more 

precise definition is virtually impossible and may be counterproductive. Any more 

specific definition would require preliminary work to determine whether the regulatory 

analysis must be prepared.55 

Congress also stated that, 

Agencies should not give a narrow reading to what constitutes a “significant economic 

impact”...a determination of significant economic effect is not limited to easily 

quantifiable costs.

56 

Congress has identified several examples of “significant impact”: a rule that provides a 

strong disincentive to seek capital;57 175 staff hours per year for recordkeeping;58 

impacts greater than the $500 fine (in 1980 dollars) imposed for noncompliance;59 new 

capital requirements beyond the reach of the entity;60 and any impact less cost-efficient 

than another reasonable regulatory alternative.61 Note that even below these thresholds, 

impacts may be significant. Other, more specific examples are contained in the House of 

Representatives Report on the RFA.62 

Legislative history of “substantial number.” To affect a substantial number, a 

proposed regulation must certainly have an impact on at least one small entity. At the 

other end of the range, legislative history would not require agencies “to find that an 

overwhelming percentage [more than half] of small [entities] would be affected” before 

requiring an IRFA.63 Legislative history also says that the term “substantial” is intended 

to mean a substantial number of entities within a particular economic or other activity.64 

The intent of the RFA, therefore, was not to require that agencies find that a large number 

of the entire universe of small entities would be affected by a rule. Quantification of 

“substantial” may be industry- or rule-specific. However, it is very important that 

agencies use the broadest category, “more than just a few,” when initially reviewing a 

55 126 Cong. Rec. S10,942 (Aug. 6, 1980).
 56 Id. at S10,940.
 57 Id. at S10,938.
 58 Id.
 59 126 Cong. Rec. H24,578 (Sept. 8, 1980).
 60 Id. at H24,593.
 61 Id. at H24,595.
 62 “A gas station owner spent 600 hours last year filling out just his federal reporting forms. An Idaho
 

businessman paid a $500 fine [in 1980 dollars] rather than fill out a federal form that was 63 feet long. A
 

New Hampshire radio station paid $26.23 in postage to mail its license renewal back to Washington. A
 

dairy plant licensed by 250 local governments, three states, and 20 agencies had 47 inspections in one 

month. A butcher had one federal agency tell him to put a grated floor in his shop one month and then the
 

next month was told by another federal agency he could not have a grated floor. A company was forced out
 

of the toy business because one of its main products was inadvertently placed on a federal ban list. An
 

Oregon company with three small shops received federal forms weighing 45 pounds.” 126 Cong. Rec.
 

H8,467 (Sept. 8, 1980).

63 126 Cong. Rec. S10,941 and 10,942 (Aug. 8, 1980) (Section-by-Section Analysis of the Regulatory
 

Flexibility Act).

64 Id. at S10,938.
 

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regulation before making the decision to certify or do an initial regulatory flexibility 

analysis. The goal at this stage of the process is to ensure that the broadest possible 

impacts are fully considered. The interpretation of the term “substantial number” is not 

likely to be five small firms in an industry with more than 1,000 small firms. On the other 

hand, it is important to recognize that five small firms in an industry with only 20 small 

firms would be a substantial number. Depending on the rule, the substantiality of the 

number of small businesses affected should be determined on an industry-specific basis 

and/or on the number of small businesses overall. For example, the Internal Revenue 

Service, when changing the tax deposit rules, would examine the entire universe of small 

businesses to see how many would be affected. On the other hand, a change by the Food 

and Drug Administration in the regulation of meat irradiators might affect only 15 firms, 

but that would be the entire industry. 

Direct versus indirect impact 

The courts have held that the RFA requires an agency to perform a regulatory flexibility 

analysis of small entity impacts only when a rule directly regulates them. 

The primary case on the issue of direct versus indirect impacts for RFA purposes is MidTex Electric Cooperative, Inc., v. FERC (Mid-Tex).65 In Mid-Tex, the Federal Energy 

Regulatory Commission (FERC) was proposing regulations affecting how generating 

utilities included construction work in progress in their rates. Generating utilities were 

large businesses, but their customers included numerous small entities, such as electric 

cooperatives. FERC authorized large electric utilities to pass these costs through to their 

transmitting and retail utility customers. This increased the cost to the transmitting 

utilities, which may or may not have been able (because of regulation by their rates 

commissions) to pass the costs on to their residential and business customers. These 

smaller utilities challenged the rule, asserting that the impact on them should have been 

considered. The court concluded that an agency may certify the rule pursuant to section 

605(b) when it determines that the rule will not have a direct impact on small entities.66 

The U.S. Court of Appeals for the District of Columbia applied the holding of the MidTex case in American Trucking Associations, Inc., v. EPA67 (hereafter ATA). In the ATA 

case, EPA established a primary national ambient air quality standard (NAAQS) for 

ozone and particulate matter. The basis of the EPA’s certification was that the NAAQS 

regulated small entities indirectly through state implementation plans. The court found 

that since the states, not EPA, had the direct authority to impose the burden on small 

entities, EPA’s regulation did not have a direct impact on small entities. 

Although it is not required by the RFA, the Office of Advocacy believes that it is good 

public policy for the agency to perform a regulatory flexibility analysis even when the 

impacts of its regulation are indirect. In the case of the NAAQS standard at issue in ATA, 

65 Mid-Tex Elec. Coop v. FERC, 773 F.2d 327 (D.C. Cir. 1985).
 66 Id. at 342.
 67American Trucking Ass’ns v. EPA, 175 F.3d 1027, 1044 (D.C. Cir. 1999), aff’d in part and rev’d in part
 

on other grounds, Whitman v. American Trucking Ass’ns, 531 I/S/ 457 (2001).
 

20 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

EPA had to estimate the impacts of the proposed rules on small entities in order to 

comply with the mandate of E.O. 12866. Therefore, the agency could have examined 

alternatives that would have been less burdensome on small entities. If an agency can 

accomplish its statutory mission in a more cost-effective manner, the Office of Advocacy 

believes that it is good public policy to do so. The only way an agency can determine this 

is if it does not certify regulations that it knows will have a significant impact on small 

entities even if the small entities are regulated by a delegation of authority from the 

federal agency to some other governing body.68 

Adverse versus beneficial impact 

Congress considered the term “significant” to be neutral with respect to whether the 

impact is beneficial or harmful to small businesses. Therefore, agencies need to consider 

both beneficial and adverse impacts in an analysis. The RFA legislative history has 

explicit insights into congressional intent with respect to beneficial impacts: 

Agencies may undertake initiatives which would directly benefit such small entities. 

Thus, the term ‘significant economic impact’ is neutral with respect to whether such 

impact is beneficial or adverse. The statute is designed not only to avoid harm to small 

entities but also to promote the growth and well-being of such entities.69 

Moreover, early drafts of the RFA used the term “significant adverse” impact, but the 

final bill used only the term “significant impact.”70 

Courts have applied definitions for “significant impact” in cases involving other statutes. 

For example, in a case involving the National Environmental Policy Act (NEPA), 

Friends of Fiery Gizzard v. Farmers Home Administration,71 the court held that a full 

environmental impact statement (EIS) does not need to be prepared if the only impact of 

the project will be beneficial. However, the court acknowledged that when both negative 

and beneficial effects are present, an EIS must be prepared even if the agency feels that 

the beneficial effects outweigh the negative ones.72 (This case does not say that beneficial 

impacts should not be considered for the preliminary assessment, nor does it say that 

beneficial impacts are never a factor.) Earlier cases interpreting NEPA held that 

beneficial impacts should be a consideration in the rulemaking process.73 

Several agencies have taken issue with the Office of Advocacy’s interpretation of 

significant economic impact. However, the Office of Advocacy believes that its 

68 See Chapter 5 of this guide for a more detailed discussion of the direct versus indirect impact issue.
 69 126 Cong. Rec. H8,468 (daily ed. Sept. 8, 1980).
 70 See an early draft of the RFA, S2147, 1st Sess. (1979).
 71 Friends of Fiery Gizzard v. Farmers Home Admin., 61 F.3d 501, 505 (6th Cir. 1995).
 72 Id. at 505.
 73 See Hiram Clarke Civic Club v. Lynn, 476 F.2d 421, 426-27 (5th Cir. 1973) (Considering only negative
 

impacts “raises serious questions about the adequacy of the investigatory basis underlying the HUD
 

decision not to file an EIS.”); Environmental Defense Fund v. Marsh, 651 F.2d 983, 993 (5th Cir. 1981),
 

stating “[A] beneficial impact must nevertheless be discussed in an EIS, so long as it’s significant. NEPA is
 

concerned with all significant environmental effects, not merely adverse ones.”
 

21 
 

 

 

 

 

 

 

 

 

interpretation is consistent with the legislative history and overall purposes of the RFA. 

The Office of Advocacy does not dispute that the RFA intends for agencies to “minimize 

the significant economic impact.”74 However, the Office of Advocacy’s interpretation 

does not necessarily mean that agencies should minimize beneficial impacts—that 

certainly would be contrary to the purposes of the RFA. Instead, Advocacy believes that 

agencies can minimize the adverse impact by including beneficial impacts in the analysis. 

It is possible to do this with minimal effort and without necessarily triggering the need 

for an IRFA. Moreover, analyzing beneficial impacts lends credibility to the alternatives 

selected by the agency. 

Once the certification decision is made, the agency must notify the Office of Advocacy 

and publish its certification in the Federal Register. It is good regulatory practice to get 

the notice to Advocacy as soon as possible. It has been useful to the agency to share a 

draft certification statement with Advocacy for confidential feedback on the adequacy of 

the statement. At a minimum, the notification should come at the same time as 

publication. Publication of a proposal alone can work for most certified regulations, but 

there will always be those proposals for which solid community comments in advance 

can be vitally important (e.g., through an advance notice of proposed rulemaking). 

What adequate and inadequate certifications look like 

Refer to the certification checklist at the end of this chapter for a review of the elements 

of a certification that meets all requirements. 

An example of an adequate certification 

The following example of an adequate certification by the U.S. Small Business 

Administration is from the proposed rule on Small Business Investment Companies. 

When an agency issues a rulemaking proposal, the Regulatory Flexibility Act (RFA) 

requires the agency to “prepare and make available for public comment an initial 

regulatory flexibility analysis” which will “describe the impact of the proposed rule on 

small entities.” (5 U.S.C. §. 603(a)). Section 605 of the RFA allows an agency to certify a 

rule, in lieu of preparing an analysis, if the proposed rulemaking is not expected to have a 

significant economic impact on a substantial number of small entities. 

This proposed rule directly affects all SBICs, of which there are currently 432. SBA 

estimates that approximately 75 percent of these SBICs are small entities. Therefore, 

SBA has determined that this proposed rule will have an impact on a substantial number 

of small entities. 

However, SBA has determined that the impact on entities affected by the proposed rule 

will not be significant. The effect of the proposed rule will be to allow SBICs the 

flexibility to choose the optimal structure for their investments without having to notify 

or seek approval from SBA. SBA expects the impact of the proposed rule will be a 

reduction in the paperwork burden for SBICs. SBA asserts that the economic impact of 

74 5 U.S.C. § 601, Congressional Findings and Declaration of Purpose. 

22 
 

 

 

 

 

 

 

 

 

 

 

 

 

the reduction in paperwork, if any, will be minimal and entirely beneficial to small 

SBICs. Accordingly, the Administrator of the SBA hereby certifies that this rule will not 

have a significant economic impact on a substantial number of small entities. SBA invites 

comment from members of the public who believe there will be a significant impact 

either on SBICs, or on companies that receive funding from SBICs.75 

Examples of inadequate certifications 

Following are three examples of inadequate certifications that were effectively 

challenged and refuted through formal comments to the agency or through the courts.76 

Shark Protection. Southern Offshore Fishing Association v. Daley77 offers a landmark 

legal decision recognizing the failure of an agency to adequately examine the market to 

determine whether there was a significant impact on a substantial number of small 

entities. On December 20, 1996, the National Marine Fisheries Service (NMFS), National 

Oceanic and Atmospheric Administration (NOAA) published the proposed rule for the 

Atlantic Shark Fisheries: Quotas, Bag Limits, Prohibitions, and Requirements.78 While 

NMFS did not have a sufficient basis for certification of this particular rule, it is not an 

indication of an overall problem with NMFS’ RFA compliance. The proposed rule, 

among other things, reduced the commercial quotas for sharks by 50 percent. NMFS 

prepared a certification in lieu of an IRFA for the proposal. As the basis for the 

certification NMFS stated, in part: 

Reducing the commercial quota is not expected to have a significant impact on a 

substantial number of small entities primarily because of the large degree of 

diversification in fishing operations that exist in the fleet and the already short shark 

fishing season, as outlined in the Regulatory Impact Review. 

Advocacy submitted comments asserting that the certification was inappropriate. In its 

comments, Advocacy pointed out that NMFS’ criteria for assessing regulatory impact 

indicated that the proposal would have a significant economic impact on a substantial 

number of small entities.79 NMFS’ regulatory impact review stated that the majority of 

the participants in the fishing industry are small businesses and that there were 326 

fisherman, 134 of which qualified for direct permits in the shark fishery. Approximately 

41 percent of the shark fishery consisted of fishermen who only fished for sharks. The 

75 67 Fed. Reg. 35,055, at 35,056 (May 17, 2002). Note that although this certification addressed beneficial 

impacts, the agency acknowledged that even those impacts would be minimal and therefore correctly 

certified the rule. 

76 For another example of an improper certification, see Chapter 5 under the discussion of North Carolina 

Fisheries v. Daley.

77 Southern Offshore Fishing Ass’n v. Daley, 995 F. Supp. 1411 (M.S. Fla. 1998). 78 61 Fed. Reg. 67,295. 79 At that time, NMFS criteria provided that a rule had a significant impact on a substantial number of 

small entities if 20 percent of those engaged in the fishery had either a reduction in gross revenues by more 

than 5 percent, an increase in total costs of production by more than 5 percent, or a 10 percent increase in 

compliance costs; or if 2 percent of small business entities were forced to cease business operations. 

NMFS no longer uses these criteria. Advocacy was pleased with NMFS’s decision to abandon these criteria 

and institute new guidelines for determining economic impact on the fishing industry. 

23 
 

 

 

 

 

 

 

 

 

 

 

 

remaining fishermen were pelagic longline fishermen that also primarily fished for tuna 

and swordfish. Advocacy, therefore, concluded that the rule would have an impact on a 

substantial number of small entities. 

In terms of significant economic impact, the Office of Advocacy argued that it was 

logical to infer that a 50 percent reduction in catch would result in a loss in revenue of at 

least 5 percent. The Office of Advocacy supported its inference with information 

obtained from fishery associations. For example, the Directed Shark Fishery Association 

asserted that the majority of the 134 directed shark vessels would lose more than 20 

percent of their income. Some were expected to lose as much as 50 percent of their 

income. Similarly, the North Carolina Fisheries Association contended that more than 20 

percent of their full-time shark fishermen would go out of business as a result the 

proposed rulemaking. Accordingly, Advocacy concluded that by the criteria set forth by 

NMFS, the impact of the proposed rulemaking would be significant. 

Advocacy also presented information that indicated that NMFS’ assumption that the 

affected industries would diversify was not realistic. Advocacy asserted that the cost of 

converting to another fishery could range from $3,000 to $25,000 per boat, depending on 

the vessel. At that time, Advocacy’s statistics indicated that the average gross revenue of 

a sole fisherman was $139,000 per year. Obtaining the equipment necessary to diversify 

could amount to approximately 18 percent of the business' gross revenues, which would 

also be a significant economic impact. 

The members of the fishing industry successfully challenged NMFS’ RFA compliance in 

Southern Offshore Fishing Association v. Daley.80 

Telecommunications System Construction and Specifications. In another case, the 

Rural Utilities Service (RUS) certified that the final rule did not have a significant 

economic impact on a substantial number of small entities because small entities were not 

subject to any requirements that were not applied equally to large entities. While the rule 

did subject all entities to the same regulation, this justification ignored the 

disproportionate impact regulations often have on small businesses. In addition, RUS was 

depriving itself of the opportunity to learn about the rule’s impact on small businesses. 

The Office of Advocacy filed the following comment with the RUS: 

Congress knew about the tendency of agencies to impose “one-size-fits-all” regulations 

and specifically rejected it. As Congress states, one-size-fits-all regulations are 

unnecessary and disproportionately burdensome to small businesses. This has been born 

out by a recent economic study commissioned by Advocacy.81 This study showed that a 

firm with less than 20 employees shouldered regulatory costs 60 percent greater per 

employee than firms with more than 500 employees. Because of the disparity of the 

impact of governmental regulations, the agency cannot certify a rule on the basis that all 

entities have the same regulatory obligations.82 

80 Southern Offshore Fishing. This case is discussed in Chapter 5 of this guide.
 81 W. Mark Crain and Thomas D. Hopkins, The Impact of Regulatory Costs on Small Firms (2001).
 82 See http://www.sba.gov/advo/laws/comments/rus02_0308.pdf.
 

24 
 

 

 

 

 

 

 

 

 

 

 

 

 

Offshore Oil and Gas Well Operations. One of the responsibilities of the Minerals 

Management Service (MMS) of the Department of the Interior is to ensure safety in 

offshore oil and gas well operations. While MMS did not have a sufficient basis for 

certification of this particular rule, it is not an indication of an overall problem with 

MMS’ RFA compliance. In February 1998, MMS proposed a rule to update and clarify 

MMS regulations on postlease operations.83 MMS prepared a certification in lieu of an 

IRFA for the proposal. As a basis for the certification, MMS stated: 

In general, a company needs large technical and financial resources and experience to 

safely conduct offshore activities. However, many of the leases and operators have less 

than 500 employees and are small businesses. It is likely that a State lessee applying 

for a right-of-use and easement on the OCS may be a small business. The costs 

associated with obtaining the benefit (right-of-use and easement) would be minimal. 

The application fee is estimated to be $2,350 per application and the rental is estimated 

to be $5,000. 

Advocacy submitted comments84 asserting that the certification was based on 

generalizations and unsubstantiated assumptions. In its comments, Advocacy identified 

databases and a means for a threshold analysis to help determine whether the agency 

should have certified, finding that the MMS had not provided sufficient information to 

document a rational basis for its decision to certify the rule. Advocacy stated: 

For the purposes of its analysis, the Office of Advocacy referred to SIC 1381, Drilling 

Oil and Gas Wells. While Advocacy acknowledges that SIC 1381 may include more than 

drilling on the outer Continental Shelf, Advocacy submits the numbers for the sake of 

argument in an effort to point out the inherent weaknesses in MMS's certification. 

According to this SIC data, there are a total of 1,380 firms that drill oil and gas wells. Of 

that 1,380 firms, 1,341 or 97% qualify as small firms in that they have fewer than 500 

employees; 654 firms have 1-4 employees. The 654 firms constitute 47% of all firms 

large and small. Needless to say, 47% of an industry represents a substantial number of 

firms and suggests that certification of this rulemaking may be improper. 

In the 1-4 employee sector, the estimated receipts for a firm are $46,774, with an annual 

payroll of $32,187. The estimated cost of the proposed rule is $7,350 ($2,350 per 

application and $5,000 for the rental) per year. The $7,350 amounts to approximately 

16% of the annual receipts for that sector. Although there are no hard rules for defining 

significant economic impact on a substantial number of small entities, a proposal that will 

impose on 47% of an industry an additional cost of 16% of annual receipts should at least 

raise a warning sign for a regulatory agency that the proposal could interfere with profits 

and company survival. It should also indicate to the agency that certification may be 

improper under the RFA. 

83 63 Fed. Reg. 7,335. 84 It should be noted that in the comments Advocacy also commended MMS for the improvement that it 

made in its certification process. Instead of an unsupported allegation of no significant economic impact on 

a substantial number of small entities, MMS did provide a basis for the certification. MMS has continued to 

work with Advocacy to improve its RFA compliance. 

25 
 

 

 

 

 

 

 

 

 

Certification checklist
 

1. Request for comment on Look for: 

proposed rules √ A request for comment on the certification; and, 

√ A request for comment on the threshold economic analysis 

and its underlying assumptions. 

2. Description and estimate of Look for: 

number of small entities to √ The North American Industry Classification System (NAICS 

which the rule applies codes) categories for those entities subject to the regulation; 

√ A breakdown of each industry by several entity sizes, which 

should include the SBA size standard for each industry; 

√ Any alternative operational size definition used to tier 

requirements under the rule; 

√ For each size category in each industry, information on 

revenues, profit or other measures of economic sustainability. 

3. Estimate of economic 

impacts on small entities 

Look for: 

√ A set of tables, charts and discussion for a typical entity in 

each size category in each industry: 

√ Estimates of the cost impacts of the proposal; 

√ Estimates of the beneficial impacts of the proposal. 

4. Criteria for “significant The best analyses will not use a preset criterion, but instead will 

economic impacts” examine one or more of the following: 

√ Long-term insolvency, measured as regulatory costs 

significantly reducing typical profits for the size category; 

√ Short-term insolvency, measured as increased operating 

expenses or new debt larger than cash reserves and cash 

flow can support, causing nonmarginal firms to close; 

√ Disproportionality, based on whether regulations place 

small entities at a significant competitive disadvantage; 

√ Inefficiency based on whether the social costs imposed on 

small entities outweigh the social benefits of regulating them. 

Look for a cogent explanation underlying any conclusionary 

statements about preset “criteria.” 

5. Criteria for substantial 

number 

Look for: 

√ The North American Industry Classification System (NAICS 

codes) of those regulated; 

√ A stratification of each industry by size, which should 

include the SBA size standard for each industry; 

√ Any alternative operational size definition used to tier 

requirements under the rule; 

√ Description of size categories demonstrating all entities 

within the category share similar economic characteristics; 

√ Whether a ‘percentage of entities significantly affected’ 

approach is used; 

√ Whether a ‘minimum number’ approach is used. (This is 

usually arbitrary and probably capricious); 

√ Justification of whatever criterion is used. 

Typically, if an industry is properly segmented, analysis of a 

typical entity within the segment will indicate whether most or 

few will be significantly affected, as all within the segment 

should have similar economic characteristics. 

26 
 

 

 

6. Examination of industry Look for: 

segments with significant √ An estimate of how many segments within an industry will 

economic impacts experience significant impacts: if even one significant 

segment will, an IRFA is needed; 

√ An estimate of entities experiencing significant impacts. 

Other entities with similar economic characteristics should 

also be adversely impacted, and finding any adversely 

impacted tends to imply there is a segment that deserves 

special attention. The resulting IRFA should materially 

address the problems in that segment, recognizing the rest 

have few, if any impacts. 

7 Disclosure of assumptions Look for: 

√ A discussion on how sensitive underlying assumptions are 

to conclusions on whether there is no significant economic 

impact on a substantial number of small entities; 

√ A discussion on the uncertainty associated with the most 

significant underlying assumptions; 

√ A presentation on the range of potential findings, as reflects 

the underlying uncertainty in assumptions. 

8. Certification statement by Look for: 

the head of the agency √ A finding under 5 U.S.C. § 605, the Regulatory Flexibility 

Act, that “the proposed rule, if promulgated, will not have a 

significant economic impact on a substantial number of small 

entities.” 

27
 
28
 
 

 

 

 

 

—

 

CHAPTER 2 PREPARING A PROPOSED RULE: THE INITIAL 

REGULATORY FLEXIBILITY ANALYSIS 

The RFA decision process 

DEFINE THE PROBLEM
 

AND 

DESCRIBE THE 

REGULATED ENTITIES
 

CERTIFY RULE AS REQUIRING 

NO FURTHER RFA ANALYSIS NO CHAPTER 1 – DO A 

SUBSTANTIAL NUMBER OF
 

ENTITIES IN ANY SIZE CATEGORY 

INCUR SIGNIFICANT IMPACTS?
 

YES 

CHAPTER 2 BEGIN 

INITIAL 

REGULATORY 

FLEXIBILITY 

ANALYSIS 

DECISIONMAKERS OR 

REG. NEGOTIATING 

PANELS 

DISCUSS 

REG. ALTERNATIVES 

DISTRIBUTE A DRAFT 

INITIAL REGULATORY 

FLEXIBILITY ANALYSIS 

SELECTION OF A 

REGULATORY 

PROPOSAL 

COMPLETE INITIAL 

REGULATORY 

FLEXIBILITY ANALYSIS 

PUBLISH PROPOSAL IN 

THE FEDERAL 

REGISTER 

EXAMINE PUBLIC 

COMMENTS 

CHAPTER 3—PREPARE 

FINAL REGULATORY 

FLEXIBILITY ANALYSIS 

MAKE FINAL RULE 

DECISIONS 

PUBLISH FINAL RULE
 

IN THE FEDERAL
 

REGISTER
 

ESTIMATE ECONOMIC
 

IMPACTS BY SIZE
 

CATEGORY
 

DETERMINE WHICH SIZE
 

CATEGORIES INCUR
 

SIGNIFICANT IMPACTS
 

29 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

During the preparation of a proposed rule, an agency must prepare an initial regulatory 

flexibility analysis (IRFA) if it determines that a proposal may impose a significant 

economic impact on a substantial number of small entities.85 (If the agency determines 

that the proposed rule does not have such an impact, it should certify the rule as discussed 

in Chapter 1 of this guide.) 

The RFA requires agencies to publish the IRFA, or a summary thereof, in the Federal 

Register at the same time it publishes the proposed rulemaking.86 The IRFA must include 

a discussion of each element required by section 603 of the RFA, and the agency must 

also send a copy of the IRFA to the Chief Counsel for Advocacy.87 Executive Order 

13272 requires agencies to notify Advocacy when the agency submits a draft proposed or 

final rule to the Office of Information and Regulatory Affairs (OIRA) under Executive 

Order 12866, or at a reasonable time prior to publication of the rule by the agency.88 

Moreover, the earlier a copy of the IRFA is provided to Advocacy, the more opportunity 

exists for constructive involvement and feedback to the agency. If an agency is preparing 

a series of closely related rules, it may, to avoid duplicative action, consider them one 

rule for the purposes of complying with the IRFA requirement.89 

Issues to be addressed in the analysis 

Section 603 of the RFA requires agencies to perform a detailed analysis of the potential 

impact of the proposed rule on small entities.90 In order to perform this analysis, an 

agency must enumerate the objectives and goals of the rule, as well any additional 

reasons the agency is pursuing the rule. 

The agency then must examine the costs and other economic implications for the industry 

sectors targeted by the rule.91 Impacts include costs of compliance and economic 

implications that derive from additional compliance costs such as economic viability 

(including closure), competitiveness, productivity, and employment. The analysis should 

identify cost burdens for the industry sector and for the individual small entities affected. 

Costs might include engineering and hardware acquisition, maintenance and operation, 

employee skill and training, administrative practices (including recordkeeping and 

reporting), productivity, and promotion. The agency must also consider alternatives to the 

proposed regulation that would accomplish the agency's goals while not 

disproportionately burdening small businesses. As part of the discussion of the 

alternatives under section 603(c), it is recommended that the agency address, in less 

detail than in the proposal, the costs and other economic implications. 

85 For a full discussion of "significant economic impact on a substantial number of small entities," and the
 

requirements of a proper certification statement, see Chapter 1 of this guide.

86 5 U.S.C. § 603(a).
 87 Id. 88 Exec. Order No. 13,272, § 3(b).
 89 5 U.S.C. § 605(c).
 90 Id. at § 603(b)-(c).
 91 When such data are unavailable, the agency should state why and request comments.
 

30 
 

 

 

 

 

 

 

Some of the important questions the agency should address in preparing an IRFA are: 

•	 Should the agency redefine “small entity” for purposes of the IRFA? 

•	 Which small entities are affected the most? Are all small entities in an industry 

affected equally or do some experience disparate impacts such that aggregation of the 

industry would dilute the magnitude of the economic effect on specific subgroups?92 

•	 Are all the required elements of an IRFA present, including a clear explanation of the 

need for and objectives of the rule?93 

•	 Has the agency identified and analyzed all major cost factors? 

•	 Has the agency identified all significant alternatives that would allow the agency to 

accomplish its regulatory objectives while minimizing the adverse impact or 

maximizing the benefits to small entities? 

•	 Can the agency use other statutorily required analyses to supplement or satisfy the 

IRFA requirements of the RFA? 

•	 Are there circumstances under which preparation of an IRFA may be waived or 

delayed? 

•	 What portion of the problem is attributable to small businesses (i.e., is regulation of 

small businesses needed to satisfy the statutory objectives)? 

•	 Does the proposed solution meet the statutory objectives in a more cost-effective or 

cost-beneficial manner than any of the alternatives considered? 

The results of the analysis should allow interested parties to compare the impacts of 

regulatory alternatives on the differing sizes and types of entities affected by the rule. It 

will enable direct comparison of small and large entities to determine the degree to which 

the alternatives chosen disproportionately affect small entities or a specific subset of 

small entities. Further, the analysis will examine whether the alternatives are effectively 

designed to achieve the statutory objectives. 

The agency must balance the thoroughness of an analysis and practical limits of an 

agency's capacity to carry out the analysis. Agencies should consult available information 

on how to conduct an economic analysis, such as the guidelines in OMB’s Economic 

Analysis of Federal Regulations under Executive Order 12866 and should review small 

business data, including data referenced in Appendix C, “Small Business Statistics for 

Regulatory Analysis.” 

If economic data are available, an agency should utilize the data in preparing an IRFA. 

When data are not readily available, the agency should consult with industry sources or 

other third parties to collect data. If the data collection is inadequate, then agencies 

should solicit the data as part of the proposed rulemaking. 

92 See discussion on pp. 14-15 of this guide on this issue.
 93 An agency may want to avoid repeating relevant text by cross-referencing the needs and objectives of the 

rule in its IRFA.
 

31 
 

 

 

 

 

 

 

Elements of an IRFA 

The preparation of an IRFA should be coordinated with the development of the data and 

analysis the agency will use in preparing the proposed rule under the requirements of the 

Administrative Procedure Act. In doing so, the agency should be mindful of the 

requirements of the RFA and collect data based on size. The development of a rational 

rule will require the acquisition of data that describe the scope of the problem, the entities 

affected, and the extent of those effects. Without such information, the agency will be 

unable to develop a rational rule.94 

Under section 603(b) of the RFA, an IRFA must describe the impact of the proposed rule 

on small entities and contain the following information: 

1.	 A description of the reasons why the action by the agency is being considered. 

2.	 A succinct statement of the objectives of, and legal basis for, the proposed rule. 

3.	 A description—and, where feasible, an estimate of the number—of small entities 

to which the proposed rule will apply. 

4.	 A description of the projected reporting, recordkeeping, and other compliance 

requirements of the proposed rule, including an estimate of the classes of small 

entities that will be subject to the requirement and the types of professional skills 

necessary for preparation of the report or record. 

5.	 An identification, to the extent practicable, of all relevant federal rules that may 

duplicate, overlap, or conflict with the proposed rule. 

Section 603(c) requires an agency to include a description of any significant alternatives 

to the proposed rule that minimize significant economic impacts on small entities while 

accomplishing the agency’s objectives. The approach an agency takes while developing 

an IRFA depends on such factors as the quality and quantity of available information and 

the anticipated severity of a rule's impacts on small entities subject to the rule. Section 

607 of the RFA requires agencies to develop a quantitative analysis of the effects of a 

rule and its alternatives using available data. If quantification is not practicable or 

reliable, agencies may provide general descriptive statements regarding the rule’s 

effects.95 This second option is a last resort when it is not practicable for the agency to 

complete a significant quantitative analysis. 

The principal issues an agency should address in an IRFA are the impact of a proposed 

rule on small entities and the comparative effectiveness and costs of alternative 

regulatory options. Each of the specific elements of the IRFA is discussed in turn below. 

94 Bowen v. AHA, 476 U.S. 610, 643 (186); National Ass’n of Home Health Agencies v. Schweiker, 690 

F.2d 932, 949 (D.C. Cir. 1982); Chocolate Mfrs. Ass’n v. Block, 755 F.2d 1098, 1103 (4th Cir. 1985). 

95 5 U.S.C. § 607. 

32 
 

 

 

 

 

 

 

 

 

 

 

 

Reasons action is being considered 

For the first element of the IRFA, the agency must discuss the reasons it is considering 

the proposed rule.96 The agency should list any issue to be addressed in the rulemaking 

and should be thorough in listing its reasons as this section provides insight into the need 

for the rule. 

Generally, the agency addresses this topic in the preamble to the rule. The agency can 

summarize its discussion in the rulemaking, if the rulemaking addresses all the reasons 

the agency is considering the action. The discussion of the reasons leads directly into the 

objectives of the rule, the next element of the IRFA. 

Objectives of the proposed rule 

For the second element of the IRFA, the agency must list the objectives of the proposed 

rule.97 Again, the agency should be thorough when discussing its objectives, as this 

discussion conveys to the public the goals of the rulemaking and why the agency is 

taking specific actions contained within the proposed rule. This section provides the 

justification for the agency’s actions, balancing the compliance requirements against the 

need for the rule. Such a discussion should include how the rule is achieving the statutory 

objectives. Compliance with this requirement should not be difficult since agencies are 

required to explain their proposed actions and the reasons underlying those proposed 

actions in order to elicit comment from the public as required by section 553 of the 

APA.98 

As with the reasons for the proposed rule, the agency is likely to have addressed this 

topic in the rulemaking. The agency can draw from the language of the rulemaking to 

satisfy this section of the IRFA, as long as it lists all the objectives of the proposed rule 

that would entail compliance requirements with a significant economic impact on a 

substantial number of small entities. 

Description and estimate of the number of small entities 

The third element of the IRFA requires the agency to identify the classes of small entities 

affected by the proposed rule and provide an estimate of the number of small entities in 

each of those classes.99 In particular, the agency should pay special attention to small 

entities expected to face disproportionate impacts relative to other entities in the industry, 

whether those entities are large or small. Classification requires the development of a 

profile for the affected industry or industries and categorization by various size classes 

within each affected industry. It is crucial that the agency list all industry classes affected 

by the rule. Specifically, if the agency imposes a compliance requirement on a class of 

small entities, it must identify that class of small entities in this section of the IRFA. 

96 Id. at § 603(b)(1).
 97 Id. at § 603(b)(2).
 98 See Spartan Radiocasting v. FCC, 619 F.2d 314, 321 (4th Cir. 1980).
 99 5 U.S.C. § 603(b)(3).
 

33 
 

 

 

 

 

 

 

 

 

As a default, section 601 of the RFA requires agencies to use size standards set by the 

SBA in determining whether businesses are small businesses. SBA’s Office of Size 

Standards set these standards using the North American Industry Classification System 

(NAICS).100 Agencies must identify each of the affected classes according to their 

NAICS code. Once the agency has identified all the affected industries by code, it can use 

the NAICS code in combination with the U.S. Census data101 to gain an estimate of the 

number of entities in each class. To help agencies with this element of the IRFA, the 

Office of Advocacy provides a full listing of NAICS codes along with the U.S. Census 

data for each class on its web page.102 

If the agency determines that the existing SBA size standards for small businesses are not 

appropriate, the RFA permits the agency, after notice and comment, to establish one or 

more alternative definitions of a small entity that are appropriate for the rule.103 The RFA 

requires an agency to consult with the Office of Advocacy when performing an RFA 

analysis using a different small business size standard than that provided by the SBA.104 

Estimating compliance requirements 

For the fourth element of the IRFA, the agency must describe and estimate the 

compliance requirements of the proposed rule.105 This is one of the two most important 

elements in the IRFA, because the alternatives the agency examines in the IRFA will be 

designed to minimize these compliance burdens. Provision of a list in the IRFA enables 

small entities to more easily identify potential burdens and tailor their comments in the 

rulemaking process to those burdens that most affect them without wading through many 

Federal Register pages. 

As stated by the RFA, some of the costs the agency must describe in the IRFA include 

the costs of any recordkeeping; professional expertise, such as lawyer, accountant, or 

engineering, needed to comply with recordkeeping; and reporting requirements. Section 

603 also requires that the agencies examine other compliance requirements, which may 

include, for example, the following: (a) capital costs for equipment needed to meet the 

regulatory requirements; (b) costs of modifying existing processes and procedures to 

comply with the proposed rule; (c) lost sales and profits resulting from the proposed rule; 

(d) changes in market competition as a result of the proposed rule and its impact on small 

entities or specific submarkets of small entities; (e) extra costs associated with the 

payment of taxes or fees associated with the proposed rule; and (f) hiring employees 

dedicated to compliance with regulatory requirements. 

Since all rules are different and impose different compliance requirements, the RFA 

contemplates that agencies will prepare analyses to determine all significant long- and 

100 See http://www.sba.gov/size/. 101 See http://www.census.gov/. 102 Office of Advocacy, Economic Statistics and Research (visited Sept. 26, 2002), 

http://www.sba.gov/advo/stats/us99_n6.pdf. 103 See the size standard discussion in Chapter 1.
 104 5 U.S.C. § 601(3).
 105 Id.at § 603(b)(4).
 

34 
 

 

 

 

 

 

 

 

short-term compliance costs. Agencies should list the compliance requirements separately 

to provide greater transparency. 

The IRFA should also, to the extent practicable, compare the costs of compliance for 

small and large entities to determine whether the proposed rule affects small entities 

disproportionately, to analyze the ability of small entities to pass on these costs in the 

form of price increases or user fees, and to assess the effects on firms’ profitability or 

their ability to provide services. This should be done in conjunction with an estimation of 

the costs of compliance relative to changes in market structure and the competitive status 

of various subclasses of small entities as well as the competitive positions of small 

entities in comparison with larger entities.

106 

Significant alternatives considered 

The keystone of the IRFA is the description of any significant alternatives to the 

proposed rule that accomplish the stated objectives of applicable statutes and that 

minimize the rule’s economic impact on small entities.107 It is the development and 

adoption of these alternatives that provides regulatory relief to small entities. 

Analyzing alternatives establishes a process for the agency to evaluate proposals that 

achieve the regulatory goals efficiently and effectively without unduly burdening small 

entities, erecting barriers to competition, or stifling innovation. This process provides an 

additional filter by which the agency conducts rational rulemaking mandated by the APA. 

Rather than focus on the overall costs and benefits of a particular regulation (as might be 

required by statute, such as the best achievable control technology, or by the regulatory 

analysis requirements of E.O. 12866), the RFA requires the agency to undertake an 

analysis in order to discover the least costly method of attaining the statutory objectives 

of the rulemaking agency. Instead of analyzing the impacts of its regulatory actions on all 

relevant sectors of the economy, the IRFA narrows the scope of the particular review to 

small entities. The premise underpinning the IRFA is that, everything else being equal, 

the most rational alternative is often the one that achieves the objective of the agency at 

the lowest cost. Since small entities typically constitute the vast majority of entities in a 

particular industry under the SBA size standards, it often makes the most economic sense 

106 Competitive status is not relevant when the small entities regulated by the proposed rule are not-forprofit organizations or governmental jurisdictions. In regulations that are limited to nonprofits or 

governmental jurisdictions, changes in regulatory costs should not affect the competitive status of the 

entities. However, there are certain nonprofit and governmental jurisdictions that do compete with forprofit enterprises, such as electric cooperatives. In preparing an IRFA, the agency must be mindful of the 

type of small entity regulated and tailor its analytical requirements to those entities.

107 5 U.S.C. at § 603(c). Since the RFA is an economically neutral statute, the IRFA should examine 

alternatives to ensure that the proposed rule is maximizing any beneficial impact on small entities. In the 

case of a rule that has a significant beneficial effect, the failure to consider alternatives that enhance the 

beneficial effect means that the agency has not examined alternatives that “minimize” the economic impact 

of the proposed rule. For example, if a rule increases revenue to a small entity by $100 and an alternative 

exists that meets the statutory objective of the agency and increases revenue by $200, then the agency has 

not complied with the RFA if it did not examine the second alternative. The failure to provide the small 

entity with a potential extra $100 in revenue in essence does not minimize the economic impact on small 

entities. 

35 
 

 

 

 

 

 

 

 

 

 

 

to adopt the regulatory strategy that imposes the least cost on small entities because that 

generally would represent the most cost-effective strategy meeting the agency’s statutory 

objectives. 

The kinds of alternatives that are possible will vary based on the particular regulatory 

objective and the characteristics of the regulated industry. However, section 603(c) of the 

RFA gives agencies some alternatives that they must consider at a minimum: 

1.	 Establishment of different compliance or reporting requirements for small entities 

or timetables that take into account the resources available to small entities. 

2.	 Clarification, consolidation, or simplification of compliance and reporting
 

requirements for small entities.
 

3.	 Use of performance rather than design standards. 

4.	 Exemption for certain or all small entities from coverage of the rule, in whole or 

in part. 

Additional alternatives include adopting different standards for the size of businesses or 

modifying the types of equipment that are required for large and small entities. In short, 

the agency should consider a variety of mechanisms to reach the regulatory objective 

without regard to whether that mechanism is statutorily permitted. In some cases, the 

identification of regulatory alternatives that would be beneficial to the economy but 

cannot be implemented because of a statutory directive provides Congress with a clear 

legislative path. It is critical to remember that the IRFA is designed to explore less 

burdensome alternatives and not simply those alternatives it is legally permitted to 

implement. Returning to the analogy between RFA and NEPA, Council on 

Environmental Quality regulations providing guidance on NEPA compliance expect the 

agency to examine a “no-action” alternative even if such alternative would violate the 

statutory mandate, such as the need to protect a threatened and endangered species 

pursuant to the Endangered Species Act. Similarly, an agency might examine an 

exemption of small businesses even if the statute does not permit it because that informs 

Congress, the public, and the courts that it understands the implications of its regulatory 

action and is taking a less desirable course of action than it wishes. Such an assessment 

follows the parallels between the RFA and NEPA while providing information to the 

regulated community and decisionmakers in other branches of the federal government. 

Agencies are not limited to alternatives that minimize burdens for small entities. As 

EPA’s 1992 RFA guidance recognized, cost-effective alternatives for small entities often 

are cost-effective for all entities.108 Agencies should identify regulatory alternatives at the 

earliest stage of rulemaking and not wait until after the proposed rule is finished to 

develop alternatives. This is crucial because otherwise the agency may have already 

bought into one particular regulatory solution without considering alternatives. Such 

predeterminations by the agency violate the basic tenet of rational rulemaking under the 

APA by making the notice and comment process irrelevant. Interpretations of the notice 

and comment provisions of the APA contemplate a dialogue between the agency and the 

108 See Revised Interim Guidance for EPA Rulewriters, p. 18. 

36 
 

 

 

 

 

 

 

 

 

 

 

 

 

regulated community.109 An agency already predisposed to only one way of thinking 

undermines the notice and comment procedure, thereby leaving itself open to a finding by 

a court that the agency action was arbitrary, capricious, or otherwise not in accordance 

with the law under section 706 of the APA.110 Thus, the development of alternatives in 

the RFA demonstrates to the court that an agency did not in the proposed rule have a 

predisposition to rule in a manner that eviscerates the notice and comment process. If an 

agency is unable to analyze small business alternatives separately, then alternatives that 

reduce the impact for businesses of all sizes must be considered. 

Consistent with an agency’s obligations under section 609 of the RFA, agencies should 

perform outreach to interested groups to help develop regulatory solutions. In doing so, 

agency personnel should recognize that different sectors of an industry may have very 

different perspectives on a particular regulatory approach. The agency, before adopting 

one approach, should ensure that it contacts small entities and their representatives as 

well as large entities and their representatives. This type of communication is not 

prohibited by the APA and will help the agency focus on potential benefits and costs of 

various approaches to small businesses. 

In essence, this outreach is an informal approach to the advance notice of proposed 

rulemaking that agencies often undertake to flesh out the parameters of a particular rule. 

Except in cases of emergencies or statutory deadlines, the Office of Advocacy strongly 

recommends that agencies consider using advance notices of proposed rulemaking for the 

most significant rules to identify potentially interested small entities and obtain estimates 

on the costs and benefits to small entities of various regulatory options. In particular, 

advance notices of proposed rulemaking will be extremely useful in developing 

information on the economic and structural characteristics of the industry and small 

entities within that industry. Where the agency does not use an advance notice of 

proposed rulemaking, it should consider requesting information in the proposal regarding 

the economic and structural characteristics of the industry, including such items as the 

typical firm size, typical profits and losses, and the marginal costs of production. 

Duplicative, overlapping, and conflicting rules 

The sixth and final element of the IRFA is to identify any duplicative, overlapping, and 

conflicting federal rules.111 Rules are duplicative or overlapping if they are based on the 

same or similar reasons for the regulation, the same or similar regulatory goals, and if 

they regulate the same classes of industry. Rules are conflicting when they impose two 

conflicting regulatory requirements on the same classes of industry.112 

109 See Chocolate Mfrs. Ass’n v. Block, 755 f.2d 1098, 1103 (4th Cir. 1985). 110 See McLouth Steel Prods. v. EPA, 838 F.2d 1317, 1324 (D.C. Cir. 1988); Levesque v. Block,723 F.2d 

175, 187 (1st Cir. 1983); United States Steel Corp. v. EPA, 595 F.2d 207, 214 (5th Cir. 1979). 111 5 U.S.C. § 603(b)(5). 112 For example, under the now repealed ergonomics rule, OSHA would have forced skilled nursing 

facilities to acquire mechanical lifts to move patients. On the other hand, regulations promulgated by the 

Centers for Medicare and Medicaid Services (CMS) mandated that patients have a right not to be moved 

using mechanical lifts. Thus, the OSHA and CMS regulations would have been at cross purposes with 

respect to providing ergonomic protection for employees. 

37 
 

 

 

 

 

 

 

 

 

 

 

 

 

This section of the IRFA requires the agency to examine the potential conflicting and 

duplicative rules that can unnecessarily add cumulative regulatory burdens on small 

entities without any gain in regulatory benefits. By identifying overlapping, duplicative, 

or inconsistent regulations, the agency might be able to avoid adding an additional 

regulatory burden (even one as simple as an additional report that is already filed 

elsewhere).113 

Because of the breadth and volume of federal regulations, a review of all existing rules on 

a particular industry group can be an onerous task for a federal agency. Nevertheless, it is 

important that the agency try to identify potential conflicting, duplicative, and 

overlapping regulations. The IRFA should include a request for comments identifying 

such rules. At the very least, the agency should review its own rules and identify any 

rules that cover the same subject matter and affect the same classes of industry. In fact, 

the law already requires such a review under section 610 of the RFA. 

Using other analyses to satisfy the IRFA requirements 

The RFA permits agencies to prepare IRFAs in conjunction with, or as a part of, other 

analyses required by law as long as the RFA’s requirements are satisfied.114 Agencies 

need to exercise caution when relying on other analyses to satisfy the RFA, as they may 

not necessarily be a complete substitute for a regulatory flexibility analysis. In fact, these 

other analyses will prove far more useful as sources for data to be used in the IRFA than 

as substitutes for an IRFA. For major rules that require the preparation of a regulatory 

impact analysis (RIA) under Executive Order 12866, agencies may prepare the RIA and 

the regulatory flexibility analyses together. Nevertheless, the agency must keep in mind 

that the RIA is a much broader analysis of benefits and costs and does not focus on the 

cost effectiveness of regulatory compliance for small entities. Thus, the focus of the RIA 

under the executive order is not a substitute for the IRFA. Agencies can coordinate their 

preparation of regulatory flexibility analyses with any other analyses accompanying a 

rule.115 In doing so, however, agencies should ensure that such analyses describe 

explicitly how the requirements of the Regulatory Flexibility Act are satisfied. Similarly, 

agencies can develop evaluations of administrative burdens associated with reporting and 

recordkeeping requirements in concert with the paperwork burden analysis prepared 

under the Paperwork Reduction Act. However, Paperwork Reduction Act analysis is not 

a substitute for RFA compliance analysis. 

113 In 1999, EPA relieved hundreds of thousands of facilities—facilities that were already filing federal
 

underground storage tank forms for gasoline and diesel fuel with local authorities—from filing very similar
 

reports for the same fuels under the federal community right-to-know law. 114 5 U.S.C. § 605(a).
 115 Many requirements of Exec. Order No. 12,866 parallel those in the RFA. See Chapter 1 for a detailed
 

discussion.
 

38 
 

 

 

 

 

 

When an IRFA may be waived or delayed 

Section 608 of the RFA provides that an agency may waive or delay the completion of 

some or all the requirements of section 603 regarding preparation of IRFAs if the agency 

is promulgating the rule in response to an emergency that makes compliance with the 

RFA impracticable.116 Promulgating agencies must publish the waiver or delay in the 

Federal Register no later than the date of publication of the final rule. If a true emergency 

exists, the agency must explain clearly why the circumstances constitute an emergency. 

The RFA does not specifically allow certifications of proposed (or final) rules issued 

pursuant to section 605(b) to be waived or delayed. Certifications must be published at 

the time of the proposed or final rule. As discussed in Chapter 1, federal agencies must 

make a threshold assessment regarding the impact of proposed rules on small entities and 

this assessment, if it results in a certification, is judicially reviewable. 

What an IRFA should look like: A real-life example 

On the following pages, a satisfactory IRFA by the Federal Trade Commission contains 

the elements required by the RFA and a thorough analysis of the regulation’s potential 

impact on small entities when insufficient data are available on cost or impact.117 

116 5 U.S.C. § 608(a).
 117 For an example of a satisfactory IRFA when cost/impact data are available, see the CMS proposed rule
 

on Medicare Program; Revisions to Payment Policies Under the Physician Fee Schedule for Calendar 2003,
 

67 Fed. Reg. 43,846 (June 28, 2002). For another example, see U.S. Department of Transportation (DOT)
 

proposed rule on Regulatory Assessment for Changes in Vessel and Facility Response Plans: 2003 

Response Requirements, 67 Fed. Reg. 63,331, where DOT properly analyzed alternatives to the rule.
 

39 
 

 

 

 

 

 

 

 

 

EXAMPLE OF AN INITIAL REGULATORY FLEXIBILITY ANALYSIS 

FEDERAL TRADE COMMISSION 

16 CFR PART 312 

Children's Online Privacy Protection Rule 

AGENCY: Federal Trade Commission 

ACTION: Initial Regulatory Flexibility Analysis 

SUMMARY: The Commission is publishing this initial regulatory flexibility analysis to aid the 

public in commenting upon the small business impact of its proposed rule implementing the 

Children's Online Privacy Protection Act (“COPPA” or “the Act”). 

DATES: Written comments must be submitted on or before August 6, 1999. 

ADDRESSES: Written comments should be submitted to Secretary, Federal Trade Commission, 

Room H-159, 600 Pennsylvania Avenue, NW, Washington, DC 20580. The Commission requests 

that commenters submit the original plus five copies, if feasible. To enable prompt review and 

public access, comments also should be submitted, if possible, in electronic form, on either a 5­

1/4 or a 3-1/2 inch computer disk, with a disk label stating the name of the commenter and the 

name and version of the word processing program used to create the document. (Programs based 

on DOS or Windows are preferred. Files from other operating systems should be submitted in 

ASCII text format.) Alternatively, the Commission will accept comments submitted to the 

following e-mail address <kidsrule@ftc.gov>. Individual members of the public filing comments 

need not submit multiple copies or comments in electronic form. All submissions should be 

captioned: “Children's Online Privacy Protection Rule- IRFA Comment, P994504.” Comments 

will be posted on the Commission's Web site: <http://www.ftc.gov>. 

FOR FURTHER INFORMATION CONTACT: Toby Milgrom Levin, (202) 326-3156, Loren 

G. Thompson, (202) 326-2049, or Jill Samuels, (202) 326-2066, Division of Advertising 

Practices, Bureau of Consumer Protection, Federal Trade Commission, 601 Pennsylvania Avenue 

NW, Washington, DC 20580. 

SUPPLEMENTARY INFORMATION: This notice supplements the Commission's initial 

notice of proposed rulemaking, 64 FR 22750 (Apr. 27, 1999), for a Children's Online Privacy 

Protection Rule, 16 CFR Part 312, to implement the requirements of the Children's Online 

Privacy Protection Act of 1998 (“the Act”), Title XIII, Omnibus Consolidated and Emergency 

Supplemental Appropriations Act, 1999, Pub. L. 105-277, 1112 Stat. 2681, ___ (Oct. 21, 1998). 

The Commission's notice of proposed rulemaking did not include an initial regulatory flexibility 

analysis pursuant to the Regulatory Flexibility Act (5 U.S.C. 603) based on a certification that the 

proposed rule will not have a significant economic impact on a substantial number of small 

entities (5 U.S.C. 605). See 64 FR at 22761. 

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In the Notice of Proposed Rulemaking, the Commission concluded that the proposed rule's 

requirements are expressly mandated by the COPPA. In the Commission's view, the Act's 

requirements account for most, if not, all of the economic impact of the proposed rule, and the 

Commission's proposal adds little, if any, additional independent compliance burden to the 

statutory requirements. For example, as reiterated below, the proposed rule consistently 

incorporates the overall “performance” standards set forth in the statute rather than mandating 

any particular compliance method or approach. See 5 U.S.C. 603(c)(3). Moreover, certain 

provisions of the rule (e.g., definitions taken directly from the statute, enforceability of rule by the 

Commission and the states, severability of the rule's provisions) would appear to have no material 

effect on the costs or burdens of compliance under the rule for regulated entities, regardless of 

size. Thus, the marginal cost, if any, that would be imposed by the rule on regulated entities, 

including small entities, would not be substantial. Since the Regulatory Flexibility Act does not 

require an initial (or final) regulatory flexibility analysis when a “rule” will not have a significant 

economic impact on a substantial number of small entities (5 U.S.C. 605), such an analysis did 

not accompany the proposed rule. Nonetheless, in its Notice of Proposed Rulemaking to 

implement the COPPA, the Commission expressly invited public comment on the proposed rule's 

effect on the costs, profitability, competitiveness of, and employment in small entities to ensure 

that no significant economic impact on a substantial number of small entities would be 

overlooked. See 64 FR at 22761. 

In response, the Commission received comments suggesting, among other things, that the 

Commission publish an initial regulatory flexibility analysis under the Regulatory Flexibility Act. 

While the Commission continues to believe that such an analysis is not technically required, the 

Commission has decided to publish the following analysis to provide further information and 

opportunity for public comment on the small business impact, if any, of the rule. The 

Commission notes that it has already afforded a period of public comment on the proposed rule 

for such comments, and will be conducting a public workshop on July 20, 1999, on the issue of 

obtaining parental consent under the rule. See 64 FR 34595 (June 28, 1999). The workshop will 

provide an additional opportunity for public comment on how compliance with that particular 

requirement might be achieved, while minimizing the potential impact of the requirement on 

regulated entities, including small entities, to the extent the Commission has any discretion on 

that issue. The July 30th deadline for comments in response to the initial regulatory flexibility 

analysis set forth below is scheduled to coincide with the close of the comment period that will 

follow the public workshop described earlier. 

Description of the reasons that action by the agency is being considered. 

The COPPA requires the Commission to promulgate this rule not later than one year after the date 

of enactment of the Act. COPPA § 1303(b)(1). 

Succinct statement of the objectives of, and legal basis for, the proposed rule. 

To prohibit unfair and deceptive acts and practices in connection with commercial websites' and 

online services' collection and use of personal information from and about children by: (1) 

enhancing parental involvement in a child's online activities in order to protect the privacy of 

children in the online environment; (2) helping to protect the safety of children in online fora such 

as chat rooms, home pages, and pen-pal services in which children may make public postings of 

identifying information; (3) maintaining the security of children's personal information collected 

online; and (4) limiting the collection of personal information without parental consent. The legal 

basis for the proposed rule is the COPPA. 

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Description of and, where feasible, an estimate of the number of small entities to which the 

proposed rule will apply. 

In general, the rule will apply to any commercial operator of an online service or Internet website 

directed to children or a commercial operator of an online service or Internet website who has 

actual knowledge that he or she is collecting personal information from a child. See proposed 

Rule § 312.3 (general requirements). The rule does not apply to nonprofit entities. See proposed 

Rule § 312.2 (defining “operator”). A precise estimate of the number of small entities that fall 

within the rule is not currently feasible because the definition of a website directed to children 

turns on a number of factors that will require a factual analysis on a case-by-case basis. The 

Commission seeks any information or comment on these issues, as noted below. 

Description of the projected reporting, recordkeeping and other compliance requirements of the 

proposed rule, including an estimate of the classes of small entities that will be subject to the 

requirement and the type of professional skills necessary for preparation of the report or record. 

The statute and proposed rule do not directly impose any “reporting” or “recordkeeping” 

requirements within the meaning of the Paperwork Reduction Act, but would require that 

operators make certain third-party disclosures to the public, i.e., provide parents with notice of 

their privacy policies. See proposed rule §§ 312.3 (a) (notice on website or online service), 

312.4(a), (b), and (c) (format and contents of notice), 312.5(c)(3) and (4) (parental notification to 

obtain consent), 312.6(a)(1) (parental notification of information being collected on children). 

The Commission is seeking clearance from the Office of Management and Budget (OMB) for 

these requirements and the Commission's Supporting Statement submitted as part of that process 

is being made available on the public record of this rulemaking. 

The statute and proposed rule also contain a number of compliance requirements not subject to 

the Paperwork Reduction Act, including but not limited to obtaining verifiable parental consent to 

collect personal information from children, § 312.5(b); allowing parents to have the opportunity 

to review and make changes to information provided by their children, § 312.6; and developing 

and implementing methods for maintaining the confidentiality, security, and integrity of personal 

information collected from children, § 312.8. These statutorily mandated obligations do not 

require operators to file reports or maintain records within the meaning of the Paperwork 

Reduction Act, although the Commission recognizes that there are potential compliance costs 

associated with these requirements. As noted above, the only class of small entities that would be 

subject to the above-described compliance requirements would be commercial operators of 

websites or online services directed to children or those commercial operators who have actual 

knowledge that they are collecting information from children, as discussed earlier. 

Since the rule does not directly mandate “reporting” or “recordkeeping” within the meaning of 

the Paperwork Reduction Act, the rule does not require professional skills for the preparation of 

“reports” or “records” under that Act. The statute and rule do require that certain third-party 

disclosures (i.e., privacy policy notices) may initially require professional attorney and computer 

programmer time to develop and post. For purposes of its Supporting Statement to OMB under 

the Paperwork Reduction Act, the Commission estimated approximately 60 hours per site (83 

percent attorney hours, 17 percent programmer hours) in the first year and six hours per web site 

in subsequent years. However, the Commission, as noted below, seeks further comment on the 

actual costs or expenditures, if any, of developing and posting the required privacy policy notices, 

and the extent to which these costs may differ or vary for small entities. (See the Supporting 

Statement submitted by the Commission to OMB at 

42 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

<http://www.ftc.gov/os/1999/9906/childprivsup>) It is important to note, however, that the 

Commission anticipates that any expenditures for professional attorney or programmer time may 

be significantly reduced or eliminated if websites avail themselves of software or other 

compliance tools or kits that make it easier and less costly to meet the rule's notice requirements. 

A number of industry groups have already developed privacy policy toolkits which are available 

online as part of their self-regulatory efforts in the privacy area. The Commission seeks further 

comment on this issue. 

Certain of the statute's and rule's other non-Paperwork Reduction Act requirements may require 

some clerical or computer programmer time for compliance. For example, an employee may be 

required to review parental responses to the operator's requests for consent. Depending on the 

method chosen by the operator to seek parental consent, some employee training may be required, 

e.g., training an employee manning a toll-free telephone number to recognize whether a child or 

adult is on the line. Similar skills would be required of employees responsible for handling 

requests from parents who want to review the information provided by their children. Finally, 

computer programming and security expertise will be required to ensure that the operator 

maintains the confidentiality, security, and integrity of the data collected from children. Because 

the Commission currently has no basis on which to determine the number of hours required to 

conduct such tasks and as these requirements are not subject to the Paperwork Reduction Act, the 

Commission has not attempted here to provide an estimate in terms of burden hours, but is 

instead seeking reliable information and comment on costs and burdens for small entities. 

Identification, to the extent practicable, of all relevant federal rules that may duplicate, overlap or 

conflict with the proposed rule. 

The Commission is unaware of any duplicative, overlapping, or conflicting federal rules. As 

noted below, the Commission seeks comments and information about any such rules, as well as 

any other state, local, or industry rules or policies that require website operators and online 

services to implement business practices (e.g., notification, parental consent, security measures, 

etc.) that would comply with the requirements of the Commission's proposed rule. 

Description of any significant alternatives to the proposed rule that accomplish the stated 

objectives of applicable statutes and that minimize any significant economic impact of the 

proposed rule on small entities, including alternatives considered, such as: (1) establishment of 

differing compliance or reporting requirements or timetables that take into account the resources 

available to small entities; (2) clarification, consolidation, or simplification of compliance and 

reporting requirements under the rule for such small entities; (3) use of performance rather than 

design standards; (4) any exemption from coverage of the rule, or any part thereof, for such small 

entities. 

Under the proposed rule, subject operators will be free to choose one or more methods to achieve 

the goals of the rule based on their individual business models and needs. In many instances the 

proposed rule utilizes a performance standard to permit as much flexibility as possible for website 

operators to comply with the rule. For example, proposed Rule § 3.12.4(b) minimizes the burden 

on website operators and online service providers by permitting the notice to be posted by 

providing “links” to notices, rather than requiring complete texts of the notice, on each “page” or 

other location(s) where personal information is collected from children. Likewise, the 

requirements for parental notice (proposed Rule § 312.4(c)) are flexible and open-ended for all 

entities, not just small entities, requiring simply that the operator make “reasonable efforts, taking 

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into account available technology, to ensure” that notice reaches parents. See also proposed Rule 

§ 312.5 regarding parental consent. 

Although these rules impose some costs, it is important to recognize that the requirements of 

notice, consent, access and security are mandated by the COPPA itself. Although the Commission 

has sought to minimize the burden on all businesses, including small entities, by incorporating the 

statute's flexible “performance” standards, the Commission does not have the discretion to 

provide for exemptions from the COPPA based on size of the operator. Likewise, the proposed 

rule attempts to clarify, consolidate, and simplify the statutory requirements for all entities, 

including small entities, but the Commission has little discretion, if any, to mandate different 

compliance methods or schedules for small entities that might “take into account the resources 

available to small entities” but not comply with the statutory requirements. For example, the 

COPPA requires the posting of privacy policies by websites and online services before 

information is collected from children and a waiver for small entities of that prior notice 

requirement (e.g., by permitting notice after the fact) would be inconsistent with the statutory 

mandate. See COPPA, Pub. L. No. 105-277, § 1303(b)(1)(A)(i) and (ii). 

Nevertheless, the Commission is seeking to address the variability of online businesses and to 

devise performance standards to allow for flexibility and innovation to achieve compliance with 

the mandated COPPA protections. Throughout the rulemaking proceeding, the Commission has 

made every effort to gather information regarding the economic impact of the COPPA's parental 

notice and consent requirements on all operators, including small entities. Thus, the Federal 

Register notice announcing the proposed rule included a number of questions for public comment 

regarding the costs and benefits associated with these key requirements with respect to small 

entities. 

In addition, the agenda for the July 20th public workshop includes topics designed to elicit 

economic impact information, particularly as it would affect small businesses. The workshop will 

examine a wide range of mechanisms to implement parental consent so as to obtain a rich record 

of how operators, including small entities, can comply with the statutory requirement. 

QUESTIONS FOR COMMENT TO ASSIST REGULATORY FLEXIBILITY ANALYSIS: 

1. Please provide comment on any or all of the provisions in the proposed rule with regard to (a) 

the impact of the provision(s) (including any benefits and costs), if any, and (b) what alternatives, 

if any, the Commission should consider, as well as the costs and benefits of those alternatives, 

paying specific attention to the effect of the rule on small entities in light of the above analysis. In 

particular, please provide the above information with regard to the following sections of the 

proposed rule: 

a. the requirement that notice be placed on the website, § 312.4(b); 

b. the requirement that notice be provided to parents, § 312.4(c); 

c. the requirement that operators obtain verifiable parental consent, § 312.5; 

d. the requirement that parents be allowed to review and correct personal information 

provided by their children, § 312.6; 

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e. the requirement that operators take steps to ensure the confidentiality, safety, and 

integrity of the information provided to them, § 312.8; and 

f. any other requirement not mentioned above. 

Costs to “implement and comply” with the rule include expenditures of time and money for: any 

employee training; attorney, computer programmer, or other professional time; preparing relevant 

materials; processing materials, including, for example, processing parental consent materials or 

requests for access to information; and recordkeeping. 

2. Please describe ways in which the rule could be modified to reduce any costs or burdens for 

small entities consistent with the COPPA's mandated requirements. 

3. Please describe whether and how technological developments (such as the development and 

implementation of digital signatures) could reduce the costs of implementing and complying with 

the rule for small entities or other operators. 

4. Please provide any information quantifying the economic benefits to website operators of 

collecting personal information from or about children, including any information showing: 

advertising revenues based in part upon the number of children registered at a site; revenue 

derived from the sale or rental of children's personal or aggregate information to others; 

efficiencies resulting from marketing to a targeted audience; or revenue resulting from designing 

a customized and appealing site. 

5. Please identify all relevant federal, state or local rules that may duplicate, overlap or conflict 

with the proposed rule. In addition, please identify any industry rules or policies that require 

website operators and online services to implement business practices (e.g., notification, parental 

consent, security measures, etc.) that would already comply with the requirements of the 

Commission's proposed rule. 

By direction of the Commission. 

Donald S. Clark 

Secretary 

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46
 
 

 

 

—

CHAPTER 3 PREPARING A FINAL RULE: THE FINAL REGULATORY 

FLEXIBILITY ANALYSIS 

The RFA decision process 

NO 

YES 

DEFINE THE PROBLEM 

AND DESCRIBE THE 

REGULATED ENTITIES 

BY SIZE AND NUMBER 

ESTIMATE ECONOMIC 

IMPACTS BY SIZE 

CATEGORY 

DETERMINE WHICH SIZE 

CATEGORIES INCUR 

SIGNIFICANT IMPACTS 

DO A 

SUBSTANTIAL NUMBER OF 

ENTITIES IN ANY SIZE CATEGORY 

INCUR SIGNIFICANT IMPACTS? 

CHAPTER 2—BEGIN 

INITIAL REGULATORY 

FLEXIBILITY 

ANALYSIS 

CERTIFY RULE AS REQUIRING 

NO FURTHER RFA ANALYSIS 

DECISIONMAKERS OR 

REG. NEGOTIATING 

PANELS 

DISCUSS 

REG. ALTERNATIVES 

DISTRIBUTE A DRAFT 

INITIAL REGULATORY 

FLEXIBILITY ANALYSIS 

SELECTION OF A 

REGULATORY 

PROPOSAL 

COMPLETE INITIAL 

REGULATORY 

FLEXIBILITY ANALYSIS 

PUBLISH PROPOSAL IN 

THE FEDERAL 

REGISTER 

EXAMINE PUBLIC 

COMMENTS 

CHAPTER 3 PREPARE 

FINAL REGULATORY 

FLEXIBILITY ANALYSIS 

MAKE FINAL RULE 

DECISIONS 

PUBLISH FINAL RULE 

IN THE FEDERAL 

REGISTER 

47 
 

 

 

 

 

 

 

 

 

 

 

When promulgating a final rule, agencies must prepare a final regulatory flexibility 

analysis (FRFA) unless the agency finds that the final rule will not have a significant 

economic impact on a substantial number of small entities or the final rule is issued under 

the APA provision allowing for good cause to forego notice and comment rulemaking.118 

When the agency publishes its final rule, it must also publish the FRFA, or a summary of 

the FRFA, in the Federal Register.

119 Draft final rules that are not certified must be 

submitted to Advocacy before publication in the Federal Register.120 The agency must 

also make copies of the FRFA available to the public. These published FRFAs are then 

subject to judicial review.121 If agencies are uncertain, they may obtain Advocacy 

input/comments on the FRFA prior to its publication in the Federal Register. 

The RFA mandates that agencies revise their initial regulatory flexibility analysis based 

on the public comments received. Agencies routinely create a summary of the public’s 

comments to be published along with the final rules. In developing this summary, the 

agency should specifically summarize comments from small entities even if the 

comments of the small entities do not relate to the RFA. This will help the agency 

prepare a more accurate FRFA or demonstrate support for a certification. Once the 

agency determines that it cannot certify the final rule under section 605(b), the agency 

must prepare a FRFA. If the agency determines that the rulemaking will not result in a 

significant economic impact on a substantial number of small entities, the head of the 

agency may so certify under section 605(b) of the RFA, and provide a copy of the 

certification to the Chief Counsel for Advocacy.122 

Issues to be addressed in the analysis 

Section 604(a) of the RFA outlines the central issues the agency must address in the 

FRFA. In short, agencies must evaluate the impact of a rule on small entities and describe 

their efforts to minimize the adverse impact. To the extent that the final regulation has 

significant beneficial economic impacts, the agency should describe efforts to ensure that 

the benefits of the final rule maximize benefits to small businesses and minimize adverse 

economic impacts. 

118 5 U.S.C. § 604 and 605(b). The APA provision is found in 5 U.S.C. § 553 (b)(B). 

119 Id. at § 604(b). Since the actual FRFA usually more accurately informs the public of the agency’s efforts 

to analyze costs and alternatives, it is good practice to include the actual FRFA in the final rule as 

published in the Federal Register. 120 Exec. Order No. 13,272, 67 Fed. Reg. 53,462 (Aug. 16, 2002). 121 5 U.S.C. § 611. 122 As indicated earlier in the discussion concerning certifications, RFA § 605(b) requires that the 

certification appear in either the proposed or final rule. Although it is fairly clear that the certification must 

appear in the final rule if there is no certification in the proposed rule, it is not clear whether the 

certification must be duplicated in the final rule if it already appears in the proposed rule. The Office of 

Advocacy believes that, given the emphasis in the law on public notice, the certification should also appear 

in the final rule even though there may have already been a certification in the proposed rule. Doing so will 

help demonstrate the continued validity of the certification after receipt of public comments. For a more 

detailed discussion of certifications, see Chapter 1 of this guide. 

48 
 

 

 

 

 

 

 

 

The requirements for a FRFA are somewhat different than those for an IRFA. The 

requirements for the FRFA are very similar to the requirements that the courts impose on 

the development of a statement of basis and purpose for a final rule under section 553 of 

the APA.123 The only additional requirements are those that relate to ensuring the items 

in the FRFA are easily identifiable to small entities without having to search the entire 

Federal Register notice. The agency should coordinate the preparation of the FRFA with 

development of the basis and purpose statement in the preamble. The preparation of a 

basis and purpose statement is not a substitute for a FRFA or for real agency 

consideration of significant alternatives that are more cost-effective to small entities but 

still achieve the objectives of the agency. The requirements, outlined in section 

604(a)(1)–(5), are highlighted in italics below: 

1) A succinct statement of the need for, and objectives of, the rule. The agency can 

cross-reference to a similar succinct statement in the supplementary information if 

the cross reference enables small entities to easily identify the need for and 

objectives of the rule. 

2) A summary of the significant issues raised by the public comments in response 

to the IRFA, 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. 

Under the APA, agencies are required to respond to comments addressing 

relevant statutory considerations.124 Since the RFA constitutes a relevant statutory 

consideration, the agency is obligated under the APA to respond to comments on 

the RFA and relate how it changed the proposal, if at all, in response to the 

comments. 

3) A description and an estimate of the number of small entities to which the rule 

will apply or an explanation of why no such estimate is available. 

4) A description of the projected reporting, recordkeeping, and other compliance 

requirements of the rule, including an estimate of the classes of small entities that 

will be subject to the requirement and the types of professional skills necessary 

for preparation of the report or record. 

5) A description of the steps the agency has taken to minimize the significant 

adverse economic impact on small entities consistent with the stated objectives of 

applicable statutes, including a statement of the factual, policy, and legal reasons 

for selecting the alternative adopted in the final rule and why each of the other 

significant alternatives to the rule considered by the agency was rejected. Again 

123 E.g., Troy Corp. v. Browner, 120 F.3d 277, 289 (D.C. Cir. 1997); Lloyd Noland Hosp. v. Heckler, 762 

F.2d 1561, 1566-67 (11th Cir. 1985); United States v. Nova Scotia Foods, 568 F.2d 240, 252 (2d Cir. 1977); 

Portland Cement Ass’n v. Ruckelshaus, 486 F.2d 375, 393 (D.C. Cir. 1973), cert. denied, 417 U.S. 921 

(1974); Automotive Parts & Accessories Ass’n v. Boyd, 4057 F.2d 330, 338 (D.C. Cir. 1968). 124 Id. 

49 
 

 

 

 

 

 

 

 

 

 

this requirement already is mandated by the rational rulemaking requirements of 

the APA.125 

Additional questions to be addressed in a FRFA 

A number of important questions will assist the agency in preparing a FRFA: 

Have all significant issues been assessed? 

Have all significant issues raised in the public comments regarding the IRFA been 

summarized and assessed, and have any changes been made since the publication of the 

proposed rule as a result of those comments? The RFA does not require agencies to 

address every issue raised during the public comment period—only the significant ones. 

The RFA does require agencies to assess (and not just present) the significant issues 

raised by interested stakeholders. Agencies are also required to publish in the final rule 

the specific changes that were made to the proposed rule in response to the public 

comments. Although there is no requirement to do so, some agencies include in their 

FRFAs the number of times a particular comment was raised. 

Has the number of small entities been estimated? 

Is it possible to estimate the number of small entities to which the rule will apply? If not, 

why not? The RFA requires that during its IRFA preparation, the agency must estimate 

the number of small entities affected. An additional FRFA requirement is that if no 

estimates of the number of affected small entities are available, agencies must explain 

why. An agency must have a strong argument that it cannot estimate the number of small 

entities, as in the case of a regulation affecting an emerging industry about which little is 

known. 

If an agency is uncertain about how to proceed in the absence of firm data, Advocacy 

advises agencies to construct public records that reflect aggressive and meaningful public 

outreach. Agencies should compile economic data on the industries/organizational sectors 

to be regulated and the economic impacts on small entities within those sectors. If such 

efforts produce inconclusive data or fail entirely, the agency may demonstrate its efforts 

to comply with the requirements of the RFA and explain why such data were not 

available. Moreover, this will demonstrate to the courts that the agency was conducting 

rational rulemaking by determining the universe of affected entities. 

Has the adverse economic impact on small entities been minimized? 

Agencies must consider, and may adopt, one or more significant alternatives to minimize 

the rule’s burden on small entities.126 Some of the traditional alternatives may include 

125 See American Textile Mfrs. Inst. v. Donovan, 452 U.S. 490, 539-41 (1981). 126 The outcome of a rulemaking would be superior if the agency adopted a standard that achieves its 

objectives but reduces burdens or increases benefits to small entities. Development of regulations that have 

50 
 

 

 

 

 

 

 

 

 

 

lengthening the time for compliance; tiering the compliance requirements based on the 

size of the business or degree to which small entities contribute to the problem; providing 

for exemptions for parts of the rule or the entire rule for small entities; timing compliance 

to correspond with other statutory deadlines with related requirements; allowing for 

increased flexibility in the methods used for achieving the agency’s objectives (for 

example, using a performance standard instead of requiring a specific technology); 

making requirements less prescriptive; etc. Such alternatives also include providing 

regulatory relief to all regulated entities, such as lowering the overall stringency of a 

standard or changing the regulatory threshold. In the first instance, it remains the 

obligation of the agency to develop significant alternatives pursuant to the RFA. 

Otherwise the agency is transferring its statutory RFA mandate to those entities that can 

least afford or have the least expertise in rulemaking processes to craft alternatives— 

small entities. Even after the agency has crafted alternatives, it should, as a matter of 

course, in the proposed rule and IRFA, specifically request whether any other alternatives 

exist that the agency has not considered. Small entities may be able to provide additional 

alternatives based on the analysis already performed by the agency, i.e., it may spark 

ideas that small entities may not have thought of absent such analysis. Adoption of this 

procedure will ensure that agencies have met their obligation to consider alternatives to 

the final regulatory solution as mandated by the RFA. 

Have all significant alternatives been reviewed? 

Has the statement of factual, policy, and legal reasons for selecting the alternative 

adopted in the final rule, and the reasons for rejecting other significant alternatives, been 

included or appropriately cross-referenced for easy identification by small entities? The 

Small Business Regulatory Enforcement Fairness Act (SBREFA)127 made significant 

changes to this section of the RFA with respect to compliance requirements. Prior to 

1996, an agency needed only state the alternatives and the reason (or reasons) for 

rejecting a particular alternative. As a result of the amendments, an agency must now 

include a statement of the factual, policy, and legal reasons for selecting the alternative 

adopted in the final rule. This explanation already is required under the APA, and the 

FRFA will help the agency demonstrate compliance with the APA’s rulemaking 

procedures through the clarification of the reasons for selecting or rejecting particular 

alternatives. In addition to educating the courts, the rationales might spur action by 

Congress to correct a flaw that the agency identified. Thus, the FRFA, if done correctly, 

can play a key role in the development of public policy. The agency must also detail for 

the public record why each of the other significant alternatives was rejected; again, this is 

a requirement of APA rulemaking requiring the agency to explain how it considered all 

small entity orientation will be beneficial in the long run to the agency. Since most regulated entities are 

small, rules that have a small entity orientation will likely garner greater support from that community, 

increased compliance, reduced penalties, and quicker achievement of the agency’s statutory objective. A 

regulation that does not have such small entity orientation will face resistance from the regulated 

community, force the agency to increase enforcement, and delay accomplishment of whatever goal the 

agency was attempting to reach. For example, if the OSHA ergonomics rule had gone into effect, it is 

unlikely that many small entities could have complied. The Department of Labor would have expended 

scarce resources to obtain compliance without accomplishing the goal of increasing worker safety. 

127 5 U.S.C. § 604(a)(5). 

51 
 

 

 

 

 

 

 

relevant statutory criteria including those mandated by the RFA. The changes indicate 

that agencies were not providing specific explanations of their final actions. There should 

be significant articulable and supportable reasons for rejecting alternatives. The 

development and consideration of alternatives is subject to judicial review.128 

Permissible delays in publication 

Section 608(b) of the RFA provides that an agency may delay, but not waive, the 

completion of a FRFA if the rule is being promulgated in response to an emergency that 

makes compliance with the RFA impracticable. Under this provision, the agency must 

publish its reasons for the delay upon publication in the Federal Register. The delay may 

not exceed 180 days after the final rule is published; otherwise the rule lapses and has no 

effect. The rule cannot be re-promulgated until a FRFA has been completed. This section 

is also subject to judicial review. 

What a FRFA should look like: A real-life example 

On the following pages is an example of a satisfactory FRFA released by the National 

Highway Traffic Safety Administration (NHTSA). This FRFA contains each of the 

elements required by the RFA and presents a thorough analysis of the regulation’s impact 

on small entities.129 

128 See National Ass’n of Psychiatric Health Sys. v. Shalala, 120 F. Supp. 2d 33 (D.D.C. 2000), in which
 

the court ordered HHS to complete a FRFA that discussed less burdensome alternatives considered and
 

rejected in order to comply with the RFA. 129 For an additional example of a satisfactory FRFA, see the Environmental Protection Agency final rule 

for Effluent Guidelines and Standards for the Organic Chemicals, Plastics, and Synthetic Fibers Industry,
 

58 Fed. Reg. 36,872-01.
 

52 
 

 

 

EXAMPLE OF A FINAL REGULATORY FLEXIBILITY ANALYSIS 

FINAL ECONOMIC ASSESSMENT 

NATIONAL HIGHWAY TRAFFIC SAFETY ADMINISTRATION 

FMVSS No. 213 

FMVSS No. 225 

Child Restraint Systems, 

Child Restraint Anchorage Systems 

Office of Regulatory Analysis Plans and Policy

February 1998
 

53 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

FINAL REGULATORY FLEXIBILITY ANALYSIS 

The Regulatory Flexibility Act of 1980 (Public Law 96-354) requires agencies to evaluate the 

potential effects of their proposed and final rules on small businesses, small organizations and 

small governmental jurisdictions. 

Section 603 of the Act requires agencies to prepare and make available for public comment a 

final regulatory flexibility analysis (FRFA) describing the impact of final rules on small entities. 

Section 603(b) of the Act specifies the content of a FRFA. Each FRFA must contain: 

• A description of the reasons why action by the agency is being considered; 

• A succinct statement of the objectives of, and legal basis for, the final rule; 

•	 A description of and, where feasible, an estimate of the number of small entities to which 

the final rule will apply; 

•	 A description of the projected reporting, record keeping and other compliance 

requirements of the final rule including an estimate of the classes of small entities which 

will be subject to the requirement and the type of professional skills necessary for 

preparation of the report or record; 

•	 An identification, to the extent practicable, of all relevant Federal rules which may 

duplicate, overlap or conflict with the final rule. 

•	 Each final regulatory flexibility analysis shall also contain a description of any significant 

alternatives to the final rule which accomplish the stated objectives of applicable statutes 

and which minimize any significant economic impact of the final rule on small entities. 

1. Description of the reasons why action by the agency is being considered 

NHTSA is considering this action to improve compatibility between child restraints and vehicle 

safety belts and increase the correct installation of child restraints. 

The correct use of child restraints is important because of the number of children killed and 

injured in vehicle accidents. Annually, about 600 children less than five years of age are killed 

and over 70,000 are injured as occupants in motor vehicle crashes. 

While child restraints are highly effective in reducing the likelihood of death or serious injury in 

motor vehicle crashes, the degree of their effectiveness depends on how they are installed. 

NHTSA estimates that the potential effectiveness of child restraints, when correctly used, is 71 

percent. However, it is estimated that imperfect securing of children in the child restraints and/or 

the child restraints in vehicles reduce that effectiveness from the potential 71 percent to an actual 

59 percent. 

Child restraint effectiveness is affected by limitations imposed by vehicle belt design, and by belt 

anchorage locations. Some belt systems can be used to secure a child restraint only when used 

with an accessory item that impedes movement of the belt or child restraint in a crash, such as a 

54 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

locking clip or supplemental strap. Some belt systems, such as an automatic seat belt, may not be 

compatible with a child restraint at all. 

The agency recognizes the difficulty of designing vehicle seat belts to restrain both child restraint 

systems and a wide range of weights and sizes of individuals. Some vehicle seats have the seat 

belt anchorage positioned far forward of the vehicle “seat bight” (the intersection of the seat 

cushion and the seat back). Forward-mounted anchor points may better protect an adult using the 

vehicle seat belt system by drawing the vehicle belt low across the pelvis where the body can best 

tolerate the forces in a crash. However, when used with a child restraint, the belt anchor is too far 

forward of the seat bight to adequately resist the initial forward motion of the child restraint, 

which can result in a greater likelihood of a head impact. 

Child restraint effectiveness is also reduced by incorrect securing of children and child restraints 

due to the complexities of adapting vehicle belts to those purposes and due to failure to follow 

instructions. A four-state study done for NHTSA in 1996 examined people who use child restraint 

systems and found that approximately 80 percent of the persons made at least one significant 

error in using the systems. Observed misuse due to a locking clip being incorrectly used or not 

used when necessary was 72 percent, and misuse due to the vehicle safety belt incorrectly used 

with a child restraint (unbuckled, disconnected, misrouted, or untightened) or used with a child 

too small to fit the belts was 17 percent. 

2. Objectives of, and legal basis for, the final rule 

This document requires that motor vehicles and add-on child restraints be equipped with a means 

independent of vehicle safety belts for securing child restraints to vehicle seats. 

The difficulty with using vehicle safety belts to attach child restraints arises from the fact that 

those belts are primarily designed to restrain and protect larger and older vehicle occupants. 

Given the inability to change vehicle belt design and anchorage location because of this purpose, 

the agency is seeking a means of securing a child restraint that is independent of the safety belt. 

This final rule reduces allowable head excursion to effectively require child restraints to be 

equipped with an upper tether strap, and requires vehicles to have two factory-installed, userready anchor points for attaching the tether. It also requires vehicles to have two rear vehicle 

seating positions equipped with a specialized lower anchorage system, and requires child 

restraints to be equipped with means of attaching to that system. 

NHTSA has issued this final rule under the authority of 49 U.S.C. 322, 30111, 30115, 30117 and 

30166; delegation of authority at 49 CFR 1.50. The agency is authorized to issue Federal motor 

vehicle safety standards that meet the need for motor vehicle safety. 

3. Description and estimate of the number of small entities to which the final rule will apply 

The final rule affects motor vehicle manufacturers, almost all of which would not qualify as small 

businesses, and aftermarket child restraint manufacturers. NHTSA estimates there to be about 10 

manufacturers of aftermarket child restraints, four of which could be small businesses. 

Business entities are generally defined as small businesses by Standard Industrial Classification 

(SIC) code, for the purposes of receiving Small Business Administration assistance. One of the 

criteria for determining size, as stated in 13 CFR 121.601, is the number of employees in the firm. 

There is no separate SIC code for child restraints, or even a category that they fit into well. 

55 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

However, in order to qualify as a small business in all of the SIC codes that the child restraint 

manufacturers currently are listed under, including those business ventures other than child 

restraints, in the Standard and Poor's Register of Corporations, Directors and Executives, 1995, 

the firm must have fewer than 500 employees. In addition, to qualify as a small business in the 

Motor Vehicle Parts and Accessories category (SIC 3714), the firm must have fewer than 500 

employees. Thus, it is assumed that any child restraint manufacturer with fewer than 500 

employees would be considered a small business. Several of the child restraint manufacturers 

(Table 19) are subsidiaries of larger corporations. In this case, the total number of employees of 

the corporation are considered in relation to the 500 employee limit to qualify as a small business. 

4. Description of the projected reporting, record keeping and other compliance requirements for 

small entities 

The final rule sets new performance requirements that would enhance the safety of child 

restraints. Child restraint manufacturers must certify that their products comply with the final 

rule. Manufacturers could use any means to determine that their products comply, so long as they 

exercise due care in making their certification. Manufacturers of child restraints should be 

familiar with the final test responsibilities because the test is almost identical to current test 

requirements. 

The final rule will result in new designs for child restraints and an increase in the price of child 

restraints, which may have a significant economic impact on a substantial number of small 

businesses. If the price elasticity of demand for child restraints were somewhat elastic, an 

increase in the price of a child restraint could lead to a decrease in demand for the product, 

notwithstanding the restraint use laws. NHTSA does not know the specific elasticity of demand 

for child restraints, but believes it is highly inelastic. Based on comments submitted to the 

NPRM, it would appear that the elasticity of demand for child restraints might be inelastic. 

NHTSA believes that an increase in the price ($9.62) of a child restraint will not lead to any 

significant decrease in demand for the product. 

An increase in child restraint prices may also affect loaner and giveaway programs. While such a 

program could have fewer seats available, comments submitted to the NPRM indicate that if the 

new seats perform as projected, there would be minor effect on the loaner programs. 

There are no additional reporting or record keeping requirements in this final rule for child 

restraint manufacturers or small businesses. 

5. Duplication with other Federal rules 

There are no relevant Federal rules which may duplicate, overlap or conflict with the final rule. 

6. Description of any significant alternatives to the Final rule 

NHTSA tentatively believes that there are no alternatives to the final rule which would 

accomplish the stated objectives of 49 U.S.C. §30101 et seq. and which would minimize any 

significant economic impact of the final rule on small entities. As discussed in the preamble to 

this final rule, NHTSA considered a number of other approaches to minimize or eliminate 

compatibility problems between child restraints and vehicle seats. 

56 
 

 

 

Table 19
 

Employment of Child Restraint Manufacturers*
 

(less than 500 employees qualifies as a small business)
 

Number of 

Manufacturer Employees 

Babyhood Manufacturing Co. 10 

Century 1,000 

COSCO (Dorel Company) 1,000 

Early Development Co. has less than 10 employees, large 

However, it is partly owned and a joint venture with Takata of Japan company 

Evenflo itself has 250 employees, but 

Evenflo is a division of Spalding & Evenflo Co. Inc. 2,600 

Ferno-Washington, Inc. 515 

Gerry is a product of Evenflo, which has 250 employees, 

But Evenflo is a subdivision of Spalding & Evenflo Co. Inc. 2,600 

Kolcraft 500 

Safeline Children's Products Co. < 10 

Little Cargo, Inc. <10 

* Source: Standard and Poor's Register of Corporations, Directors, and Executives, 1995. 

57
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SAE Recommended Practice J1819, “Securing Child Restraint Systems in Motor Vehicle Rear 

Seats,” provides voluntary design guidelines that designers of both the vehicle and child restraint 

can evaluate each product for compatibility. However, J1819 alone has not solved the 

compatibility problems. It is a tool for evaluating compatibility problems, not a requirement that 

vehicle seats and child restraints must be compatible. NHTSA believes it is very difficult for a 

single system to optimize the safety protection for adults of all ranges and child restraints of 

different types. 

Another alternative is the current “lockability” requirement, which requires vehicle lap belts or 

the lap belt portion of lap/shoulder belts to be capable of being used to tightly secure child 

restraints, without the need to attach a locking clip or any other device to the vehicle’s seat belt 

webbing. NHTSA tentatively believes that the lockability requirement is insufficient alone in 

addressing compatibility problems. While the requirement ostensibly makes a locking clip 

obsolete, it still depends on the user knowing enough and making the effort to manipulate the belt 

system. Also, the vehicle belt must be routed correctly through the child restraint, which may not 

be an easy task in all cases. Further, the lockability requirement does not address compatibility 

problems arising from forward-mounted seat belt anchors. Thus, excessive forward movement of 

a child restraint can still occur, even if the feature is engaged and the belt is “locked.” 

Another alternative discussed in the preamble is the “Car Seat Only (CSO)” system suggested by 

Cosco. The CSO system consists of a simple lap belt installed for a vehicle seating position. No 

changes are needed to child restraint systems. 

NHTSA is concerned that the CSO system might not make attaching a child restraint significantly 

easier than it is today. The CSO belt would have to be correctly routed through the child restraint, 

which is a problem occurring with present seats. In some cases, it appears that it might be 

difficult to cinch up the belt with the CSO system. Another concern relates to the potential that 

the CSO belt would be inadvertently used by an adult occupant as a restraint, particularly in a 

seating position equipped with a lap belt, even if the CSO belt were labeled. 

As discussed and analyzed throughout this assessment, the agency considered requiring a rigid to 

rigid system or a nonrigid to nonrigid system. The agency finally decided to require a rigid 6 mm 

bar anchorage system in the vehicle, but allow the child restraint manufacturers to use any type of 

connector they wanted to connect to the rigid bars. Certainly for the small business child restraint 

manufacturers, the final rule provides the most flexibility possible of the alternatives considered. 

58 
 

 

 

 

 

 

 

 

 

 

 

 

 

CHAPTER 4 REGULATORY PANELS 

In 1996, SBREFA amended the RFA to include a number of important provisions. One of 

those was section 609, which requires, among other things, that certain agencies conduct 

special outreach efforts to ensure that small entity views are carefully considered prior to 

the issuance of a proposed rule. This outreach is accomplished through the work of small 

business advocacy review panels, often referred to as SBREFA panels. 

Who must hold SBREFA panels? 

The statute requires that the Environmental Protection Agency (EPA) and the 

Occupational Safety and Health Administration (OSHA) evaluate their regulatory 

proposals to determine whether SBREFA panels should be convened. The requirement 

for SBREFA panels may appear to impose additional steps for EPA and OSHA in their 

rulemaking processes. However, the panel process only formalizes the outreach 

requirements and analyses that the Administrative Procedure Act and the RFA already 

mandate for all new rules that affect small businesses. Any additional work that may be 

needed in this special early outreach effort should be offset by time saved at the other end 

of the regulatory process. When problems are resolved before a proposed rule is 

published, objections from the public are reduced. Experience has shown that the panel 

process results in better rules, better compliance and reduced litigation. In at least one 

instance, EPA withdrew a regulatory proposal based on work performed in connection 

with the panel process.130 

How is the decision to hold a SBREFA panel made? 

For each proposed rule, the RFA requires that an agency either certify that the proposal 

has no significant economic impact on a substantial number of small entities, or prepare 

an initial regulatory flexibility analysis (IRFA) on the proposal.131 Whenever EPA or 

OSHA determines that a regulatory proposal may have a significant economic impact on 

a substantial number of small entities, the law further requires that the agency convene a 

SBREFA panel. This SBREFA panel outreach must take place before the publication of 

the proposed rule. SBREFA panels are required for all EPA and OSHA rules for which 

an IRFA is required. However, the Chief Counsel for Advocacy may waive the panel 

requirement upon the request of EPA or OSHA under certain conditions. To waive the 

panel requirement, the Chief Counsel must find that convening a panel would not 

advance the effective participation of small entities in the rulemaking process. Section 

609(e) of the RFA lays out several factors in making this determination, including 

consideration of whether small entities have already been consulted in the rulemaking 

process and whether special circumstances warrant the prompt issuance of a rule. 

130 See EPA’s Effluent Limitations Guidelines for Industrial Laundries; 64 Fed. Reg. 45071, withdrawn by
 

EPA on August 18, 1997.

131 See Chapter 1 for a detailed discussion of how to certify a proposed rule and Chapter 2 on how to 

prepare an initial regulatory flexibility analysis.
 

59 
 

 

 

 

 

 

 

 

 

 

 

How does a SBREFA panel work? 

A SBREFA panel consists of a representative or representatives from the rulemaking 

agency, the Office of Management and Budget’s Office of Information and Regulatory 

Affairs (OIRA) and the Chief Counsel for Advocacy. 

The panel solicits information and advice from small entity representatives (SERs), who 

are individuals that represent small entities affected by the proposal. SERs help the panel 

better understand the ramifications of the proposed rule. Invariably, the participation of 

SERs provides extremely valuable information on the real-world impacts and compliance 

costs of agency proposals. 

The law requires that a SBREFA panel be convened and complete its report with 

recommendations within a 60-day period. The formal panel process begins with the 

convening of the panel by the rulemaking agency. The date is normally fixed after 

consultation with both Advocacy and OIRA. Before convening, the three agencies 

usually work together to discuss regulatory alternatives and their advantages and 

disadvantages. The rulemaking agency usually has preliminary discussions with small 

entities about its draft proposal before the panel is formally convened. These preparations 

ensure that the panel process can be completed during the statutorily specified 60-day 

period. 

The product of a SBREFA panel’s work is its panel report on the regulatory proposal 

under review. The panel completes its final report, including its recommendations, early 

in a rule’s developmental stages, so that the agency has the benefit of the report’s 

findings prior to publication of a proposed rule. The panel report also becomes part of the 

official docket for the proposed rule. 

The purpose of the panel process is threefold. First, the panel process ensures that small 

entities that would be affected by a regulatory proposal are consulted about the pending 

action and offered an opportunity to provide information on its potential effects. Second, 

a panel can develop, consider, and recommend less burdensome alternatives to a 

regulatory proposal when warranted. Finally, the rulemaking agency has the benefit of 

input from both real-world small entities and the panel’s report and analysis prior to 

publication. 

Suggested SBREFA panel timeline 

The RFA provides that the formal panel process must be concluded within 60 days from 

the formal convening of the panel to the completion of its report. Experience has shown 

that the panel process works best if agencies and panel members accomplish as much 

preliminary work as possible before the formal convening of the panel. A suggested 

timeline follows, although panel members have flexibility to adjust their pre-panel work 

schedules to ensure the best outcome for each individual rule. 

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SUGGESTED PANEL TIMELINE 1 

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CHAPTER 5 RFA LITIGATION: WHAT THE COURTS HAVE SAID 

This chapter examines litigation regarding the Regulatory Flexibility Act and is 

organized in sections corresponding to those of the compliance guide overall. The section 

does not reflect the Office of Advocacy’s opinion of the cases; rather, it is intended to 

provide the reader with information on specific case law and what the courts have held 

regarding agency compliance with the RFA. 

Where do we begin? First steps of RFA rule analysis 

Does the RFA apply? 

An agency must first consider whether the RFA applies to the regulatory proposal at 

issue. An appropriate consideration begins with an examination of the Administrative 

Procedure Act (APA) as it relates to the RFA. 

If, under the APA or any rule of general applicability governing federal grants to state 

and local governments, the agency is required to publish a general notice of proposed 

rulemaking (NPRM), the RFA must be considered.132 Significantly, some agencies, such 

as the Rural Utilities Service, have their own administrative rules that require notice and 

comment even though the agency’s rules may be exempt from the APA. If an NPRM is 

not required, the RFA does not apply. 

Further, only actions that qualify as rulemaking under the APA that affect small entities 

or small entity concerns trigger the protections of the RFA.133 Small entities whose 

concerns must be accounted for include small businesses, small not-for-profit 

organizations, and small governmental jurisdictions—cities, counties, towns, townships, 

villages, school districts, or special districts, with a population of less than 50,000.134 

What qualifies as a rulemaking under the APA? 

Rules are exempt from APA requirements, and therefore from the RFA requirements, 

when any of the following is involved: 

1.	 Military or foreign affairs functions of the United States. 

2.	 Matters relating to agency management or personnel or to public property, loans, 

grants, benefits, or contracts. 

3.	 Rates, wages, corporate or financial structures or reorganization thereof, prices, 

facilities, appliances, services or allowances.135 

132 5 U.S.C. § 604(a).
 133 Atlantic Fish Spotters Ass’n v. Evans, 206 F. Supp. 2F.d 81, 93 (D. Mass. 2002).
 134 5 U.S.C. § 601(3)-(5). See also Chapter 1 of this guide for a discussion of what qualifies as a small
 

entity.

135 5 U.S.C. § 553(a).
 

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Also exempt from the APA requirement for notice and comment rulemaking are 

interpretative rules.136 Interpretative rules generally require no judgments and little by the 

agency on implementation, but rather interpret the language or intent expressed by 

Congress. Legislative rules require judgments and great discretion; an example is setting 

a clean air standard for the nation. 

Exemptions under the APA 

The D.C. District Court has addressed exemptions under the APA in determining whether 

the action qualifies as a rulemaking requiring notice and comment. In the following cases 

the courts held that the RFA did not apply because the APA requirements for notice and 

comment are inapplicable: 

Military or foreign affairs functions of the United States. In reviewing the early RFA 

case, In re Sealed Case,137 the D.C. District Court held that regulations such as those 

delineating the products subject to the ban on importation into the United States of 

uranium ore, uranium oxide, textiles, and coal from South Africa, fell under the foreign 

affairs function of the United States; thus, the provisions of the Administrative Procedure 

Act, 5 U.S.C. 553, requiring notice of proposed rulemaking and opportunity for public 

participation were inapplicable. Because a notice of proposed rulemaking is not required 

for this rule, the Regulatory Flexibility Act, 5 U.S.C. §601 et seq., did not apply.138 

Interpretative rules. In the more recent case of National Association for Home Care v. 

Shalala,139 the plaintiffs argued that the Department of Health and Human Services failed 

to consider alternatives to the proposed rule as required by the RFA. The agency, 

however, asserted that the Balanced Budget Act (BBA) did not grant the Secretary any 

discretion in implementing the Interim Payment System (IPS). The court agreed, holding 

that the BBA was an interpretative rather than substantive rule, given its high degree of 

specificity regarding the implementation of the IPS. As an interpretative rule, the BBA 

need not comply with the RFA. The court stated generally that the RFA does not apply to 

interpretative rules which merely clarify or explain existing laws or regulations.140 

Publications not subject to the APA and rate exemptions. In American Moving and 

Storage Association, Inc., v. DOD, 141 the D.C. District Court examined a notice 

published in the Federal Register by the Department of Defense announcing a significant 

change in procurement policy regarding its source for distance calculations for payments 

and audits in its transportation programs from a previously used official mileage table to 

a new computer software program. The plaintiffs asserted that the change would have a 

significant economic impact on small carriers, requiring RFA compliance. DOD asserted 

that the policy change was not a “rule” as defined by the RFA, and therefore, it did not 

136 SBREFA amended the RFA to bring certain interpretative rulemakings of the Internal Revenue Service 

within coverage of the RFA. The law now applies to those IRS rules published in the Federal Register that 

would normally be exempt from the RFA as interpretative rules, but that impose a “collection of 

information” requirement on small entities. For a more detailed discussion, see Chapter 1. 137 In re Sealed Case, 666 F. Supp. 231, 236 (D.D.C. 1987). 138 Id. 

139 National Ass’n for Home Care v. Shalala, 135 F. Supp. 2d 161, 165 (D.D.C. 2001). 140 Id. 141 American Moving and Storage Ass’n v. DOD, 91 F. Supp. 2d 132, 136 (D.D.C. 2000). 

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have to comply with the RFA. The court agreed with the agency and held that the 

procurement policy change was not a “rule” for RFA purposes. The court further found 

that even if the RFA definition of a rule included some procurement policy changes, the 

calculations for payments and audits were exempt from the definition by the APA 

exception relating to rates.142 As a result, the RFA did not apply.143 

The certification statement 

The decision process 

An agency may certify that no regulatory flexibility analysis is necessary when it 

determines that the rule will not have a significant economic impact on a substantial 

number of small entities that are subject to the requirements of the rule. However, an 

agency must provide a factual basis for the certification. A mere statement that there will 

be no effect is not sufficient. The agency must conduct an analysis demonstrating that it 

has considered the potential effects of the regulation.144 

Cases in which the certification violated the RFA. In a number of cases, the 

certification was found to have violated the RFA. 

In Northwest Mining Association v. Babbitt, 

145 the Bureau of Land Management (BLM) 

published a final rule in February 1997 that would impose a bonding requirement on 

hardrock mining. The rule was originally proposed in 1991. While the original proposal 

would have set a limit on bonding requirements, the final rule contained burdensome 

provisions not included in the proposal—provisions on which the public, therefore, had 

no opportunity to comment. The BLM certified 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. In remanding the rule, the court stated that the final rule’s 

certification violated the RFA because the factual basis for the certification that the 

agency provided failed to incorporate the correct definition of small entity.146 

In North Carolina Fisheries Association v. Daley,147 the District Court for the Eastern 

District of Virginia found that NMFS violated the RFA when it certified that there would 

not be a significant economic impact on a substantial number of small entities, because 

the fishing quota would remain unchanged. The court remanded the matter to NMFS with 

instructions to perform a proper analysis because even though the quota was the same, 

the agency provided no data to show that the quota was still valid. 

142 5 U.S.C. § 553(b) (1996).
 143 Id. at 136.
 144 North Carolina Fisheries Ass’n v. Daley, 16 F. Supp. 2d 647, 652 (E.D. Va. 1997).
 145 Northwest Mining Ass’n v. Babbitt, 5 F. Supp. 2d 9, 14 (D.D.C. 1998).
 146 Id. at 652.
 147 North Carolina Fisheries Ass’n v. Daley, 16 F. Supp. 2d 647 (E.D. Va. 1997).
 

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In Harlan Land Co. v. United States Department of Agriculture, 

148 the District Court for 

the Eastern District of California found the certification analysis performed by the 

Animal and Plant Health Inspection Services (APHIS) of the U.S. Department of 

Agriculture (USDA) was inadequate. APHIS had published a final rule allowing the 

importation of lemons, grapefruit and oranges from various areas in Argentina. APHIS 

prepared an economic analysis of the rule and determined that the rule would not have a 

significant economic impact on a substantial number of small entities. Based on that 

determination, APHIS did not prepare an RFA analysis.149 Citrus growers brought suit 

against the USDA and APHIS, arguing that the agency violated both the APA and the 

RFA in issuing the rule. The economic analysis in the final rule focused on the impact 

that the Argentine imports would have on the supply and prices of citrus fruit in the 

United States and the resulting costs and benefits to domestic growers, etc. The analysis 

failed to consider what the costs would be if Argentine plant pests were introduced into 

U.S. citrus orchards. The court found that APHIS’ determination of a lack of significant 

economic impact on a substantial number of small entities was based on its conclusion 

that there was a negligible risk of pest introduction. The court considered the risk 

assessment to be flawed and thus remanded the final rule to the defendants for 

consideration of the economic impact that the importation of Argentine citrus will have 

on small businesses. 

Where the court found that certification was appropriate. In Associated Builders and 

Contractors, Inc., v. Herman, the Department of Labor suspended a revised class of 

employees called “helpers” on federal construction sites in 1993 and reinstated former 

helper regulations pursuant to a congressional mandate.150 Regarding the RFA, the 

Department of Labor certified that the rule would not have a significant economic impact 

on a substantial number of small entities. Although the agency did not prepare a final 

regulatory flexibility analysis (FRFA), the court held that the Department of Labor 

properly published a certification in the Federal Register along with a statement of 

151 reasons.

Size standards 

It is important that an agency use the size standard contained in the Small Business 

Administration’s small business size standard regulations,152 promulgated by the SBA 

under the Small Business Act, or follow the consultation procedures outlined in section 

601(3) of the RFA. 

Incorrect size standard. In Northwest Mining Association v. Babbitt, discussed above, 

the court held that BLM violated the RFA because the agency failed to use the 

appropriate size standard as defined by the Small Business Administration (SBA). The 

court noted that “the RFA requires agencies to use the Small Business Administration's 

148 Harlan Land Co. v. United States Dept. of Agric., 186 F. Supp. 2d 1076 (E.D. Cal. 2001).
 149 Id. at 1097.
 150 Associated Builders and Contractors, Inc., v. Herman, 976 F. Supp. 1 (D.D.C. 1997).
 151 Id. 152 13 C.F.R. § 121.201 (1996). 

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definition of small entity.”153 Continuing, the court stated that “section 601 of the RFA 

sets forth, in relevant part, ‘[f]or the purposes of this chapter ... the term 'small entity' 

shall have the same meaning as the term 'small business' ....’”154 The term “small 

business” has the same meaning as the term “small business concern” under section 3 of 

the Small Business Act.155 The SBA publishes these small business definitions in 13 

C.F.R. § 121.201. Division B of section 121.201 provides, in pertinent part, that mining 

concerns must have 500 or fewer employees to be considered “small.”156 Therefore, the 

standard for “small miner” which the BLM must use when performing an initial or final 

regulatory flexibility analysis or when certifying “no significant impact” is a 500 or fewer 

employee standard. By using a definition other than the SBA's, the BLM violated the 

procedure of law mandated by the statute. The court found that the definitions section of 

the RFA uses phrases such as “ 'small entity' shall have the same meaning ...” and “'small 

business' has the same meaning ...” 157 (emphasis added). The court concluded that words 

such as those do not leave room for alternate interpretations by the agency. The rule was 

remanded to the agency. 

Use of Incorrect Size Standard Cured. In Small Business in Telecommunications v. the 

Federal Communications Commission (FCC), 158 the FCC adopted its own definition of 

“small business” regarding its Lower Channel Report and Order concerning a regulatory 

scheme for specialized mobile radio (SMR) service in the 800 to 900 MHz range. The 

Court of Appeals for the District of Columbia Circuit held that although the FCC failed to 

seek approval from the SBA for its definition, the omission did not nullify the entire 

rulemaking, since SBA did ultimately approve the definition prior to commencement of 

the lower channel auction.159 If the agency modifies a small business size standard in the 

implementation of a rule, it must seek approval from the SBA Administrator.160 

The agency must conduct an adequate analysis before certifying 

The landmark legal decision recognizing an agency’s failure to adequately examine the 

impact on affected entities before certification is the 1998 case, Southern Offshore 

Fishing Association v. Daley.161 In that matter, the National Marine Fisheries Service 

(NMFS) published a proposed rulemaking to institute a 50 percent reduction in the shark 

fishing industry. NMFS certified that the rule would not have a significant economic 

impact on a substantial number of small entities. Although the agency published a FRFA 

at the time it finalized the rule, the court found that the agency certified without making a 

“reasonable, good-faith effort,” prior to issuance of the final rule, to inform the public 

about the potential adverse effects of its proposals and about less harmful alternatives. 

153 Northwest Mining Ass’n, 5 F. Supp. 2d at 15. See chapter 1 for detail on exceptions to using SBA size
 

standards.
 154 5 U.S.C. § 601(6).
 155 15 U.S.C. § 632; 5 U.S.C. § 601(3).
 156 Id. 157 5 U.S.C. § 601.
 158 Id. at § 605(b).
 159 Small Businesses in Telecomm. v. FCC, 251 F.3d 1015, 1025 (D.C. Cir. 2001).
 160 Id. at 1025.
 161 Southern Offshore Fishing, 995 F. Supp. at 1437.
 

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The agency continued to deny that its proposal would likely have a significant impact on 

a substantial number of small entities after receiving public comments challenging the 

certification. The court concluded that the preparing of a FRFA constituted “an attempt to 

agreeably decorate a stubborn conclusion” that there was no significant impact on a 

substantial number of small entities. The court remanded the agency’s certification 

determination, requiring it to “undertake a rational consideration of the economic effects 

and potential [regulatory] alternatives.”162 

North Carolina Fisheries. The North Carolina Fisheries cases provide further guidance 

on what constitutes adequate analysis prior to certification that there will be no 

significant economic impact on a substantial number of small entities. 

The first case arose in 1997.163 There, the National Marine Fisheries Service (NMFS) set 

the 1997 quota for flounder fishing by continuing the quota from the previous year. In 

doing so, 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. There was no 

record showing that the agency did any comparison between conditions in 1996 and 

1997. The court stated that “a simple conclusory statement that, because the quota was 

the same in 1997 as it was in 1996, there would be no significant economic impact, is not 

an analysis.”164 The court remanded the issue to the agency with orders to “undertake 

enough analysis to determine whether the quota had a significant economic impact on the 

North Carolina Fishery.”165 The court further ordered the department to “include in [the] 

analysis whether the adjusted quota will have a significant economic impact on small 

entities in North Carolina.”166 

The issue returned to the court in 1998.167 The issue before the court on remand 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.168 

After review, the court concluded 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.”169 The court further stated that as part of an adequate analysis before 

certification, the agency must consider alternatives less burdensome to small entities.170 

The court concluded that “Congress has not intended for administrative agencies to 

circumvent the fundamental purposes of the RFA by invocation of the certification 

provision.” The court felt that Secretary Daley’s certification in this instance amounted to 

162 Id. 163 North Carolina Fisheries, 16 F. Supp. 2d at 647. 164 Id at 653. 165 Id. 166 Id. 167 North Carolina Fisheries Ass’n v. Daley, 27 F. Supp. 2d 650 (E.D. Va. 1998).
 168 Id. at 660.
 169 Id. at 668.
 170 Id. at 660.
 

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an effort to avoid the requirements of the RFA, specifically the requirement to consider 

alternative ways to minimize economic impacts. 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. 

Court cases have held that the agency must account for the public comments it received 

challenging the initial determination that no significant economic impact was likely.171 In 

Northwest Mining Association v. Babbitt,

172 the court addressed the Bureau of Land 

Management (BLM) claims that the Northwest Mining Association (NWMA) did not 

have standing to object to its final rule under either the APA or the RFA because it did 

not submit comments during the notice and comment period. The NWMA asserted that it 

did not need to submit comments during the notice and comment period because the 

BLM's original rule proposal did not properly inform it that its interests were at stake. 

The court agreed with the NWMA, holding that because there was no way the NWMA 

could have submitted comments regarding issues on which it was not informed were at 

stake, the agency must consider even comments not submitted during the formal notice 

and comment period.173 

Direct versus indirect impact on small entities 

Must the agency consider the indirect effects of the proposed regulation? It was first 

held in Mid-Tex Electric Cooperative, Inc., v. Federal Energy Regulatory Commission 

(FERC) that a regulatory flexibility analysis is required when an agency determines that 

the rule will have a significant economic impact on a substantial number of small entities 

that are subject to the requirements of the rule.174 In that case, FERC proposed a rule that 

allowed electric utilities to include in their rate bases amounts equal to 50 percent of their 

investments in construction work in progress. In response to an argument that FERC 

“should have considered the impact of the proposed rule on wholesale and retail 

customers of the jurisdictional entities subject to rate regulation by the Commission,” 

FERC stated that “the RFA does not require the Commission to consider the effect of this 

rule, a federal rate standard, on nonjurisdictional entities whose rates are not subject to 

the rule.”175 

The court agreed, reasoning that “Congress did not intend to require that every agency 

consider every indirect effect that any regulation might have on small businesses in any 

stratum of the national economy.”176 The court concluded that “an agency may properly 

certify that no regulatory flexibility analysis is necessary when it determines that the rule 

will not have a significant economic impact on a substantial number of small entities that 

are subject to the requirements of the rule.”177 

171 See generally, National Truck Equip. Ass’n v. NHTSA, 919 F.2d 1148 (6th Cir. 1990); Northwest 

Mining Ass’n v. Babbitt, 5 F. Supp. 2d 9 (D.D.C. 1998). 172 Northwest Mining Ass’n, 5 F. Supp. 2d 9.
 173 Id at 13.
 174 Mid-Tex Elec. Coop v. FERC, 773 F.2d 327, 342 (D.C. Cir. 1985).
 175 Id. at 341.
 176 Id. 177 Id. at 343. 

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In viewing this decision, the same court later held in United Distribution Companies. v. 

FERC178 that an agency is under no obligation to conduct a small entity impact analysis 

of effects on entities it does not regulate. Because in this case FERC had no jurisdiction 

to regulate the local distribution of natural gas, it could not be required to conduct a 

regulatory flexibility analysis for those entities engaged in the local distribution of the 

179 gas.

Although Mid-Tex occurred prior to the passage of the Small Business Regulatory 

Enforcement Fairness Act (SBREFA) of 1996, post-SBREFA courts have upheld its 

reasoning. For example, in Motor and Equipment Manufacturers Ass’n v. Nichols,180 the 

court found that because the deemed-to-comply rule did not subject any aftermarket 

businesses to regulation, EPA was not required to conduct a regulatory 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. 

A number of other cases have held similarly.181 

Likewise in American Trucking Associations v. EPA,182 EPA established a primary 

national ambient air quality standard (NAAQS) for ozone and particulate matter. At the 

time of the rulemaking, EPA certified the rule pursuant to 5 USC § 605(b). The basis of 

the certification was that EPA had concluded that small entities were not subject to the 

rule because the NAAQS only regulated small entities indirectly through the state 

implementation plans.183 Although the court remanded the rule to the agency for nonRFA reasons, the court found that EPA had complied with the requirements of the RFA. 

Similarly, in Michigan v. EPA,

184 EPA certified that its revised NAAQS would not have 

a significant economic impact within the meaning of the RFA. According to the EPA, the 

NAAQS itself imposed no regulations upon small entities. Instead, several states regulate 

small entities through the state implementation plans they are required by the Clean Air 

Act to develop. Because the NAAQS regulated small entities only indirectly—that is, 

insofar as it affected the planning decisions of the states—the EPA concluded that small 

entities were not “subject to the proposed regulation.” The court agreed, stating that states 

have broad discretion in determining the manner in which they will achieve compliance 

with the NAAQS. In conclusion, the court stated that “a State may, if it chooses, avoid 

imposing upon small entities any of the burdens of complying with a revised 

NAAQS.”185 

178 United Dist. Cos. v. FERC, 88 F.3d 1105, 1170 (D.C. Cir. 1996). 

179 Id. 180 Motor and Equip. Mfrs. Ass’n v. Nichols, 142 F.3d 449,467 (D.C. Cir. 1998).
 181 See American Trucking Ass’ns. v. EPA, 175 F.3d at 1044; Michigan v. EPA, 213 F.3d 663, 689 (D.C.
 

Cir. 2000); Cement Kiln Recycling Coalition v. EPA, 255 F.3d 855, 868 (D.C. Cir. 2001). 182 American Trucking, 175 F.3d at 1027.
 183 Id. 184 Michigan v. EPA, 213 F.3d at 689. 185 Id. 

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The court in Cement Kiln Recycling Coalition v. EPA186 further bolstered the notion that 

indirect impacts should be disregarded by noting that the RFA is not intended to apply to 

every entity that may be targeted by the proposed regulation. The fact that the rule will 

have economic impacts in many sectors of the economy does not change this. The court 

reasoned that “requiring an agency to assess the impact on all of the nation's small 

businesses possibly affected by a rule would be to convert every rulemaking process into 

a massive exercise in economic modeling, an approach we have already rejected.”187 

An entity can otherwise experience indirect impacts through its dealings with the entity 

that experiences direct impacts, such as through increased after-market prices or newly 

required modifications to necessary equipment. Some courts have stated that this impact 

would likewise not require a regulatory flexibility analysis.188 

The initial regulatory flexibility analysis 

Because an agency’s initial regulatory flexibility analysis cannot be the subject of 

litigation,189 case law provides a detailed discussion only for the final regulatory 

flexibility analysis. It is important to note that although the IRFA is not judicially 

reviewable, a proper IRFA is necessary to provide the foundation for a good FRFA. An 

agency cannot develop an adequate FRFA if the IRFA did not lay the proper foundation 

for eliciting public comments and seeking additional economic data and information on 

the regulated industry’s profile and regulatory impacts. Further, without an adequate 

IRFA, small entities cannot provide informed comments on regulatory alternatives that 

are not adequately addressed in the IRFA.190 

In Allied Local and Regional Manufacturers Caucus v. EPA, paint manufacturers and 

associations of manufacturers and distributors of architectural coatings petitioned for 

review of EPA’s regulations limiting the content of volatile organic compounds (VOCs) 

in consumer and commercial products such as architectural coatings, including paints. 

Plaintiffs alleged that EPA failed to comply with the RFA by failing to discuss the 

economic impact of “stigmatic harm” arising from the agency’s suggestion that it may 

impose more stringent VOCs in the future, and of asset devaluation, in that the coatings 

rule allegedly will render existing product formulas valueless. The court ruled that 

section 603 of the RFA, which discusses IRFAs, was not subject to judicial review 

pursuant to section 611(c). However, the court did have the jurisdiction to determine 

whether the agency had met the overall requirement that the decisionmaking not be 

arbitrary and capricious. The court found that the EPA examined alternatives to product 

reformulation when creating regulations limiting content of VOCs in consumer and 

186 Cement Kiln, 255 F.3d at 868.
 187 Id.
 188 See, e.g., Nichols, 142 F.3d at 467; Cement Kiln, 255 F.3d at 868.
 189 Because § 611 of the RFA does not mention § 603, the IRFA requirement, a court would consider a prepromulgation challenge unripe.

190 Southern Offshore Fishing, 995 F. Supp. at 1434 and 1436 (“the agency could not possibly have
 

complied with § 604 by summarizing and considering comments on an IRFA that NMFS never prepared”).
 

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commercial products, and that its decisions were neither arbitrary nor capricious. The 

court, therefore, found that EPA had met its obligations under the RFA.191 

Similarly, in U.S. Cellular Corp. v. FCC, 192 the court noted that an IRFA is not subject to 

judicial review. There, the FCC adopted an order requiring wireless carriers to bear 

financial responsibility for enhanced 911 implementation, rather than having local 

government guarantee costs. Plaintiffs argued that the FCC failed to issue an IRFA and 

that the FRFA did not contain a description of the steps the agency took to minimize the 

impact on small businesses, as required by the RFA. The court held that the RFA 

expressly prohibits courts from considering claims of noncompliance with RFA section 

603’s requirement to issue an IRFA.193 

The final regulatory flexibility analysis 

General content 

Section 604 of the RFA prescribes the content of the FRFA. Courts have found that an 

agency can satisfy the requirements of section 604 “as long as it compiles a meaningful, 

easily understood analysis that covers each requisite component dictated by the statute 

and makes the end product readily available to the public.”194 For example, in Associated 

Fisheries of Maine, Inc., v. Daley, the court stated that the Secretary of Commerce had 

complied with FRFA requirements because the Secretary explicitly considered numerous 

alternatives, exhibited a fair degree of sensitivity concerning the need to alleviate the 

regulatory burden on small entities within the fishing industry, adopted some salutary 

measures designed to ease that burden, and satisfactorily explained reasons for adopting 

others. Similarly, in Alenco Communications v. FCC,

195 the court held that the regulatory 

analysis was compliant with the terms of the RFA where the agency provides a lengthy 

analysis of the economic impact of the proposed rule on small businesses and responds to 

comments submitted by the Office of Advocacy and other commenters.196 

Is a FRFA always required? 

A FRFA is required in every instance where an agency finalizes a rule after being 

required to publish a general notice of proposed rulemaking under section 553 of the 

APA or any other law. The exception is when the agency certifies the rule will not have a 

significant economic impact on the affected entities, as discussed above. 

191 Allied Local and Reg’l Mfrs. Caucus v. EPA, 215 F.3d 61 (D.C. Cir. 2000). 

192 U.S. Cellular Corp. v. FCC, 254 F.3d 78, 89 (D.C. Cir. 2001). 

193 Id. 

194 Associated Fisheries of Maine, Inc., v. Daley, 127 F.3d 104, 115 (1st Cir. 1997); Grand Canyon Air 

Tour Coalition v. FAA, 154 F.3d 455, 470 (D.C. Cir. 1998); National Propane Gas Ass’n v. DOT, 43 F. 

Supp. 2d 665, 681 (N.D. Tex. 1999); Associated Builders and Contractors, Inc., v. Herman, 976 F. Supp. 1 

(D.D.C. 1997). 

195 Alenco Communications v. FCC, 201 F.3d 608 (5th Cir. 2000).
 196 Id. at 625.
 

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However, in the event that the publication of an NPRM is impossible due to the 

emergency nature of the rule, the requirements of the RFA may be satisfied by publishing 

a FRFA subsequent to the rulemaking.197 In National Propane Gas Ass’n v. DOT,198 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 grounds 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 because of the emergency nature of the rule. 

Nevertheless, RSPA claimed that in preparing preliminary and final regulatory 

evaluations under Executive Order 12866, the agency did analyze the impact of the 

interim final rule and the final rule on all affected parties, including small businesses. The 

court agreed, and found that although the agency did not prepare a FRFA, all of the 

elements of a FRFA were available throughout their summary of such analysis published 

in the Federal Register. The court thus 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. 

Considering alternatives to the final rule 

Section 604 of the RFA requires the agency to consider alternatives that would achieve 

the statutory objectives while lessening the regulatory burden on affected small entities. 

This involves making a “reasonable, good-faith effort to canvass major options and 

weigh their probable effects.”199 

In AML International, Inc., v. Daley, 200 the National Marine Fisheries Service 

implemented a management plan for the spiny dogfish industry that imposed quotas that 

effectively shut down the industry for the next five years. Plaintiffs asserted that NMFS 

failed to comply with the RFA because the NMFS failed to consider alternatives. The 

court found that NMFS’ consideration of alternatives was sufficient. NMFS considered 

and rejected alternatives because they did not meet the mandate of the Magnuson-Stevens 

Act or provide long-term economic benefits greater than those of the proposed action.201 

197 National Propane Gas Ass’n, 43 F. Supp. 2d at 681. 

198 Id. 

199 National Ass’n of Psychiatric Health Sys., v. Shalala, 120 F. Supp. 2d 33, 42 (D. D.C. 2000).
 200 AML Int’l v. Daley, 107 F. Supp. 2d 90 (D. Mass. 2000).
 201 Id. at 105.
 

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Similarly, in Ace Lobster Co. v. Evans, 

202 the Department of Commerce imposed 

limitations on the number of lobster traps that could be used in a particular area. Lobster 

fisherman and business owners alleged that the Department of Commerce implemented 

the regulations in violation of the APA, the Magnuson-Stevens Act, and the RFA. The 

basis for the assertion was that during the comment period, numerous commenters 

submitted information about an alternative plan for the lobster fishery, which was 

approved by the Lobster Conservation and Management Team and submitted for 

consideration as an alternative. The agency rejected the alternative because it would 

likely increase the number of lobster traps in offshore waters and increase the lobster 

mortality rate. Plaintiffs alleged that the defendant did not adequately analyze the 

selected alternative or consider the alternative that would mitigate the negative economic 

impacts on offshore fishing fleets, and that the agency’s concern for verification of prior 

fishing fleets was unfounded.203 The court stated that under the standard for judicial 

review of compliance with the RFA, the court reviews only whether the agency 

conducted a complete IRFA and FRFA in which it described steps to minimize the 

economic impact of its regulations on small entities and discussed alternatives, providing 

a reasonable explanation for rejections. The RFA permits the agency to select an 

alternative that is more economically burdensome if there is evidence that other 

alternatives would not accomplish the objectives of the statute. Because the agency 

examined the alternative and decided that, while less onerous, it did not achieve the 

conservation goals, it met its obligations under the RFA. The court further found that 

there was sufficient analysis and explanation of the other rejected alternatives.204 

What kinds of alternatives must the agency consider? In Associated Fisheries of 

Maine, the court first held that section 604 does not require that a FRFA address every 

alternative, only significant ones.205 The RFA does permit the agency to select an 

alternative that is more economically burdensome if there is evidence that other 

alternatives would not accomplish the stated objectives of the applicable statutes.206 

What is a significant alternative? This question was recently clarified by the court in 

Little Bay Lobster Co. v. Evans.

207 There, the court stated that “significant alternatives” 

are those with potentially lesser impacts on small entities (versus large-scale entities) as a 

whole, and not those that may lessen the regulatory burden on some particular small 

entity. Further, the agency is not obligated under the RFA to address alternatives that 

might have had lesser impacts on some small entities vis a vis other similarly affected 

small entities.208 

202 Ace Lobster Co. v. Evans, 165 F. Supp. 2d 148 (D. R.I. 2001).
 203 Id. at 185.
 204 Id. 205 Associated Fisheries of Maine, 127 F.3d at 115; see also Grand Canyon Air Tour Coalition, 154 F.3d at
 

470 and Blue Water Fishermen’s Ass’n v. Mineta, 122 F. Supp. 2d 150, 178 (D. D.C. 2000). 206 Associated Fisheries of Maine, 127 F.3d at 114.
 207 Little Bay Lobster Co v. Evans, 2002 WL 1005105, Slip. Op. (D. N.H. May 16, 2002).
 208 Id. at 25.
 

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In Hall v. Evans, 209 the Department of Commerce determined that the monkfish fishery 

was overfished. To address the problem, the agency implemented a fishery management 

plan to prescribe landing limits for vessels holding limited access monkfish permits. The 

limits allowed categories A and C vessels using trawl gear to land up to 1,500 pounds of 

monkfish tailweight per day at sea, while vessels using any gear other than trawl or 

“mobile” gear may land up to 300 pounds of monkfish tailweight per day at sea. The 

plaintiffs filed suit asserting that the regulations violated the Magnuson Act and the RFA. 

The plaintiffs asserted that the defendant’s RFA analysis: (1) failed to recognize the costs 

of forcing closures of the directed monkfishing industry within 4 years, supposedly to 

allow the industry to receive positive revenue benefits after 20 years; (2) forced 

particularly harsh consequences on small businesses; and (3) failed to conduct an 

assessment of meaningful and more gradual restrictions in order to avoid severe costs to 

small businesses. Plaintiffs asserted that neither the IRFA nor the FRFA provided an 

assessment of the real economic impact on small entities in that the IRFA failed to assess 

the number and quality of vessels affected by the regulations and failed to address the 

disparity in landing allocations between different gear types. Although the regulations 

were set aside for violation of the Magnuson Act, the court found no violation of the 

RFA. With respect to the RFA allegations, the court found that there was enough 

evidence in the IRFA to show that the defendants considered both the economic effect of 

the fishery plan as a whole upon small entities and less onerous alternatives.210 

What kind of description of the alternatives considered must the agency include in 

the FRFA? The RFA requires a statement of the factual, policy, and legal reasons for 

selecting the alternative adopted by the final rule and why each one of the other 

significant alternatives to the rule considered by the agency that affect the impact on 

small entities was rejected. 

In Ashley County Medical Center v. Thompson, 

211 the Department of Health and Human 

Services imposed upper payment limit (UPL) regulations that would reduce the upper 

limit on what states could reimburse locally owned public hospitals for services to 

Medicaid beneficiaries. The plaintiffs alleged that the FRFA failed to describe the steps 

the agency had taken to minimize the significant economic impact on hospitals, and 

failed to discuss any affirmative steps the agency had taken or intended to take to 

mitigate the injury that the 2002 UPL rule would cause to public hospitals. The court, 

noting that the RFA requires only that the agency describe steps taken and not that the 

agency take any particular steps, stated that if there were no steps that could have been 

taken to minimize the impact on small businesses, then the statutory requirement would 

have been met simply by reporting that information. The court noted that the agency had 

provided a description of the alternatives considered and rejected in the Federal Register, 

and thus all the requirements of the RFA were clearly satisfied.212 

209 Hall v. Evans, 165 F. Supp. 2d 114 (D.R.I. 2001).
 210 Id. at 147.
 211 Ashley County Med. Ctr. v. Thompson, 205 F. Supp. 2d 1026 (E.D. Ark. May 13, 2002).
 212 Id. 

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Conversely, in Nat’l Assoc. of Psychiatric Health Sys. v. Shalala,

213 the plaintiffs 

challenged an interim final rule promulgated by the Department of Health and Human 

Services (HHS) that required a face-to-face evaluation of patients within one hour after 

the patient has been placed in restraints or seclusion. The plaintiffs argued that the 

Secretary failed to conduct an adequate analysis before adopting the one-hour provision. 

The court agreed with the plaintiffs, stating that it could not find that the Secretary made 

a good-faith effort to canvass major alternatives and weigh their probable effects.214 

Specifically, the Secretary did not obtain data or analyze available data on the impact of 

the final rule on small entities, nor did she properly assess the impact the final rule would 

have on small entities. The court stated that by these omissions the Secretary totally 

failed to comply with section 5 of section 604(a) of the RFA.215 The court thus remanded 

the matter to HHS for completion of a compliant FRFA.216 

However, in Southern Offshore Fishing Ass’n v. Daley,

217 the court stated that the 

agency’s consideration of alternatives was inadequate. Particularly troublesome to the 

court was the “agency’s apparently superficial analysis of less restrictive alternatives to 

the quota reduction. After extensive discussion and summary of its statistical modeling, 

[the agency’s] report devotes only four of fifty pages to considering potential 

alternatives.”218 

Exceptions to the requirement of considering alternatives 

•	 Where uniform requirements are mandated by statute, a statement to that effect by 

the implementing agency obviates the need to solicit or consider proposals which 

include differing compliance standards.219 

•	 Where the Secretary is not granted the authority to examine alternatives in
 

implementing the regulation.220
 

Analysis of the economic impact 

What type of analysis must the agency conduct? It is now well established that the 

RFA does not require an economic analysis, per se.221 Rather, the RFA mandates only 

that the agency describe the steps it took “to minimize the economic impact on small 

entities consistent with the stated objectives of applicable statutes.”222 Neither costbenefit analysis nor economic modeling is specifically required. However, such an 

213 National Ass’n of Psychiatric Health Sys. v. Shalala, 120 F. Supp. 2d 33 (D.D.C. 2000).
 214 Id. at 44.
 215 Id.
 216 Id. at 42. 217 Southern Offshore Fishing Ass’n v. Daley, 995 F. Supp. 1411 (M.D. Fla. 1998).
 218 Southern Offshore Fishing Ass’n. at 1437.
 219 Greater Dallas Home Care Alliance v. United States, 10 F. Supp. 2d 638, 648 (N.D. Tex. 1998).
 220 Greater Dallas Home Care Alliance v. United States, 36 F. Supp. 2d 765, 769 (N.D. Tex. 1999).
 221 Alenco Communications, 201 F.3d at 625; see also Ashley County Med. Ctr 205 F. Supp. 2d at 1026; 

and Ace Lobster, 165 F. Supp. 2d at 184.
 222 Alenco Communications, 201 F.3d at 625.
 

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examination may be required by the underlying statute or E.O. 12866, working in concert 

with the RFA. 

An agency can satisfy the requirements of an economic impact analysis by providing 

either a quantifiable or numerical description of the effects of a proposed rule or 

alternatives to the proposed rule, or more general descriptive statements if quantification 

is not practicable or reliable.223 Courts have stated that sufficient analysis and 

explanations for the rejection of alternatives are all that is necessary to satisfy this 

requirement.224 

Where the majority of businesses likely to experience impacts are deemed small, it 

follows that any attempt to reduce the adverse economic impacts of a regulation aimed at 

them is necessarily an attempt to minimize the negative effects of the regulation on small 

business.225 

What is the relevant economic impact that agencies should consider? For the purpose 

of flexibility analysis, the relevant economic “impact” is the impact of compliance.226 

The RFA requires only that the agency consider the economic effect on the entity, and 

not the effect on specific revenue earned.227 This means that the agency need not consider 

how one particular element of the affected entity’s business is affected. Rather, the 

agency should evaluate the regulation’s entire effect. 

What type of information should the agency consider? The agency should consider 

economic data and information regarding the regulated industry’s profile and the 

anticipated regulatory impacts. The agency needs to consider the scope of the problem 

and the small business contribution to that problem. If necessary, the agency should seek 

additional information of this type through public comments, outside research, 

stakeholder meetings, etc. 

It is important that the agency appropriately consider all relevant information. It has been 

held that although an agency has considerable discretion to act on the basis of less than 

perfect information when performing the analysis of the rule’s economic impact on small 

entities, it is not permissible to omit known information in order to skew the results.228 

In North Carolina Fisheries Ass’n v. Daley,

229 the court examined the agency’s economic 

analysis. In performing the analysis, the Secretary of Commerce utilized criteria 

employed internally by the National Marine Fisheries Service (NMFS) in evaluating the 

economic impacts of regulations under the RFA. Thus, the Secretary considered the 

223 Id. 224 Ace Lobster, 165 F. Supp. 2d at 185.
 225 Associated Fisheries of Maine, 127 F.3d at 115.
 226 Mid-Tex, 773 F.2d at 342.
 227 Washington v. Daley, 173 F.3d 1158, 1170 (9th Cir. 1999).
 228 North Carolina Fisheries, 27 F. Supp. 2d at 660.
 229 Id. 

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following criteria:

230 

Criterion 1: Does the action result in revenue loss of more than 5 percent for 20 

percent or more of the participants? 

Criterion 2: Does the action result in 2 percent of the entities ceasing operations? 

Based on the NMFS's internal guidelines, the Secretary found that there would be no 

significant economic impact on a substantial number of small businesses arising from the 

1997 summer flounder quota. In making this determination, the economic analysis used 

the total number of vessels to be issued moratorium permits as “the universe for the 

evaluation of impacts.” The small entities or communities studied constituted the whole 

state of North Carolina. Examining the unadjusted 1997 quota first, the economic 

analysis stated that it was “possible” that criterion 1 would be triggered by reducing the 

income of more than 20 percent of the entire North Carolina fleet by more than 5 percent. 

The economic analysis next considered the NMFS's criterion under the initial 1997 quota 

adjustment. Under the adjustment, the economic analysis determined that 57 percent of 

the vessels with home ports in North Carolina are projected to have revenue reductions of 

greater than 5 percent. The economic analysis further maintained that an additional 43 

percent of North Carolina's flounder fleet may have reduced revenues by 25 percent or 

more. Despite this assessment, the economic analysis concluded that there were no 

significant economic impacts and asserted that any adverse effects arising from the initial 

1997 quota adjustment were offset by previous revenues the fishermen had earned from 

overfishing.231 The court concluded that the Secretary prepared an economic analysis 

utterly lacking in compliance with the requirements of the RFA. In the first place, the 

Secretary did not consider a community any smaller than the entire state of North 

Carolina. In the second place, the Secretary completely ignored readily available data that 

would have shown the number of fishing vessels likely to experience the impacts of the 

agency's regulatory actions. The agency’s economic analysis indicating that there would 

be no significant economic impact on a substantial number of small entities was the result 

of impermissibly considering too large a community and ignoring readily available 

data.232 

Public comments 

Ordinarily, an agency must seek public comments regarding each proposal and the basis 

for the agency’s decision in each case. The agency must be responsive to the comments it 

receives, accounting for the dismissal of significant alternatives proposed in the IRFA or 

by the commenters. Failure to seek public comments or to be responsive frustrates 

important public participation and will result in a breach of the RFA. An agency might 

consider eliciting information such as additional economic data, or information regarding 

the regulated industry’s profile and regulatory impacts through public comments. 

230 It should be noted that NMFS no longer uses these criteria for its RFA analyses.
 231 North Carolina Fisheries, 27 F. Supp. 2d at 660.
 232 Id.
 

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Must an agency always seek public comment? An agency need not seek comment on 

information that is supplementary to the decision. That is to say, an agency is entitled to 

rely on information not exposed to comment only as long as it is not substantially related 

to the agency’s rationale.233 Any information relied on in the analytical process at all, 

however, must be included in the IRFA. 

Judicial review 

The 1996 SBREFA amendment provides, for the first time, for judicial review of agency 

action under the RFA and allows the Chief Counsel for Advocacy to file as amicus curiae 

(friend of the court) in regulatory appeals. 

233 National Mining Ass’n v. Chao, 160 F. Supp. 2d 47, 88 (D.D.C. 2001). 

79 
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CHAPTER 6 ADDITIONAL RFA AND SBREFA REQUIREMENTS 

This chapter addresses additional agency responsibilities beyond the rulemaking process. 

Under the RFA and SBREFA, agencies have ongoing responsibilities toward small 

entities with respect to (1) providing notice of rulemakings, (2) reviewing existing rules, 

(3) developing compliance guides, (4) establishing penalty reduction policies, and (5) 

offering compliance assistance. In addition, SBREFA created a process for small 

businesses to report excessive federal agency enforcement actions. 

Semi-annual regulatory agenda 

Section 602 of the RFA requires federal agencies to publish a regulatory flexibility 

agenda in the Federal Register during April and October of each year. Each agency is 

required to list all rules it expects to propose or promulgate that are likely to have a 

significant economic impact on a substantial number of small entities. To be useful to 

small entities, the regulatory flexibility agenda should include a realistic assessment of 

the regulations under consideration by the agency for development in the coming year. 

Agencies generally prepare and publish their regulatory flexibility agenda with the 

unified regulatory agenda required by Executive Order 12866. 

The regulatory flexibility agenda must contain: 

•	 A brief description of the subject area of any rule the agency expects to propose 

or promulgate that is likely to have a significant economic impact on a substantial 

number of small entities. (See Chapter 1 of this guide for a discussion of how to 

certify a rule.) 

•	 A summary of the nature of each such rule under consideration, the objectives and 

the legal basis for issuing each rule, and an approximate schedule for completing 

action on any rule for which an agency has issued a general notice of proposed 

rulemaking (NPRM). 

•	 The name and telephone number of an agency official knowledgeable about the 

rule. 

The RFA requires agencies to endeavor to provide direct notification of the agenda to 

small entities or their representatives, or to publish the agenda in publications that small 

entities are likely to receive, and to invite comments in the agenda.234 

The law also requires each agency to transmit its regulatory flexibility agenda to the 

Chief Counsel for Advocacy for comment, if any. The Office of Advocacy welcomes the 

234 See § 609 of the RFA regarding the outreach to small entities to obtain needed comment during agency 

rulemaking. An example of a useful outreach tool is the U.S. Department of Transportation’s Docket 

Management System (DMS). DMS offers a service (listserv) to which a small entity can subscribe and 

tailor to receive notification when certain documents reach the DMS. 

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opportunity to provide an agency with input on a pre-publication draft of the agency’s 

regulatory flexibility agenda. Advocacy will review the draft agenda and may provide 

comment on its completeness and the agency’s assessment as to whether a given rule will 

or will not affect small entities. At a minimum, each agency must provide the Office of 

Advocacy with a copy of the regulatory flexibility agenda upon its publication. If the 

agenda is submitted upon publication, the Office of Advocacy will offer comments; 

however, the agency and the small entities reviewing the agenda will not receive the 

benefit of Advocacy’s pre-publication review. 

Periodic review of existing rules 

Section 610 of the RFA requires agencies to review all regulations that have a significant 

economic impact on a substantial number of small entities within 10 years of their 

adoption as final rules.235 The purpose of the review is to assess the impact of existing 

rules on small entities and to determine whether the rules should be continued without 

change, amended, or rescinded (consistent with the objectives of applicable statutes) to 

minimize impacts on small entities. Agency practices pursuant to section 610 vary.236 

Each year, agencies must publish in the Federal Register and solicit public comments on 

a list of the rules the agency will review under section 610 over the succeeding 12 

months. The list must briefly describe each rule, including the need and legal basis for it. 

At a minimum, agencies must review each individual rule that has a significant economic 

impact on a substantial number of small entities within 10 years of the rule's 

promulgation. Agencies should have reviewed all rules promulgated prior to 1980 by 

January 1, 1991. Agency compliance with section 610 of the RFA is subject to judicial 

review. 

In advance of publishing the agency's section 610 list in the Federal Register, the Office 

of Advocacy recommends that each agency provide Advocacy with notice of the rules the 

agency is considering for review. The Office of Advocacy may, if practicable, provide 

feedback to the agency on the rules selected for section 610 review. Agencies are 

encouraged to contact Advocacy as early in the process as possible to enable Advocacy to 

assist in identifying rules for review. 

Following publication of the Federal Register notice, Advocacy can assist with outreach 

to small entities subject to the regulations under review to obtain comment on the rules. 

For instance, the Office of Advocacy can help identify small entities to appear at agency 

hearings or stakeholder meetings on the rules under review. Through Advocacy’s 

network of Regional Advocates, the Office of Advocacy can spread the word to small 

entities that do not otherwise have a Washington, D.C., presence. 

235 In 2007, the Office of Advocacy issued a Best Practices document to assist agencies in their section 610 

compliance. See Appendix J on p. 131

236 See generally Regulatory Flexibility Act: Agencies’ Interpretations of Review Requirements Vary 

(GAO/GGD-99-55, April 1999.) 

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In reviewing rules to minimize impacts on small entities, agencies must consider the 

following: 

•	 The continued need for the rule. 

•	 The nature of complaints or comments received concerning the rule from the 

public. 

•	 The complexity of the rule. 

•	 The extent to which the rule overlaps, duplicates, or conflicts with other federal 

rules and, to the extent feasible, with state and local governmental rules. 

•	 The length of time since the rule has been evaluated or the degree to which 

technology, economic conditions, or other factors have changed since adoption of 

the rule. 

During the review process, the Office of Advocacy encourages each agency to contact 

trade associations that represent small entities affected by the rules under review. The 

Office of Advocacy can help agencies identify relevant trade associations and individual 

small entities affected by the rule. Small entities and their representatives can provide the 

agency with information on the rule’s impacts, as well as recent industry developments to 

aid in the agency’s analysis and valuable insights on the factors listed above. 

Upon conclusion of the agency’s review, it is beneficial to publish in the Federal 

Register the agency’s determination of what, if any, action it will take pursuant to the 

review. Federal agencies may also find it helpful to coordinate the section 610 review 

process with its preparation for and publication of the agency’s semi-annual regulatory 

flexibility agenda. 

Small entity compliance guides 

For each rule (or related series of rules) requiring a final regulatory flexibility analysis, 

section 212 of SBREFA requires the agency to publish one or more small entity 

compliance guides. Agency compliance with this requirement is varied.237 In other 

words, unless the agency is going to certify that the rule will not have a significant 

economic impact on a substantial number of small entities, the agency must issue a small 

entity compliance guide, and designate it as such. As appropriate to the rule, Advocacy 

urges agencies to write the small entity compliance guide in plain and simple language. It 

should be readily understandable from the perspective of small entities subject to the rule. 

The guide is to inform a small entity of its obligations and responsibilities under the rule. 

It may be appropriate to prepare separate guides for different classes or groups of small 

entities. The guides may cover federal and state requirements affecting the small entities 

subject to the rule.238 

237 See generally Regulatory Reform: Compliance Guide Requirement Has Had Little Effect on Agency
 

Practices (GAO-02-172, December 2001).
 238 See § 215 of 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.).
 

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In preparing a small business compliance guide, agencies should look to the small entity 

comments in the rulemaking record as one indicator of the type of questions to answer or 

issues to clarify in the compliance guide. In addition, it would be beneficial for the 

agency to contact small entities subject to the rule (or their trade associations) to solicit 

input on topics to address in the compliance guide. Agencies may engage the assistance 

of outside consultants and/or trade associations in the drafting and dissemination process. 

Small entities and their trade associations can also provide recommendations on the best 

venue for distribution of the compliance guides, through the agency website and/or 

through small business associations and organizations. 

Most important, to be helpful to small entities, the agency should issue the compliance 

guide shortly after issuance of the final rule and well before the deadline for small entity 

compliance. To accomplish this, an agency should include development of the 

compliance guide in the rule development timetable and planning process. As with the 

regulatory analyses required under the RFA, the agency should anticipate the need to 

allocate appropriate personnel and resources toward developing the compliance guide at 

the inception of the rule development process. 

Although the compliance guide requirement under SBREFA is not specific in many 

regards as to what agencies are required to do, Advocacy has noted several instances in 

which agencies have failed to meet even the most basic requirements of the statute. For 

instance, the FAR Council239 publishes a list of rules for which a FRFA was prepared. 

This is not a compliance guide. 

Compliance guides issued pursuant to section 212 are not subject to judicial review under 

SBREFA; however, the content of the compliance guide may serve as evidence of the 

reasonableness or appropriateness of any proposed fines, penalties, or damages in a civil 

or administrative action against a small business for a violation.240 

Informal compliance assistance 

Section 213 of SBREFA acknowledges the importance of compliance assistance and 

directs agencies that regulate small entities to establish a practice of answering inquiries 

from small entities. Agencies are to provide information and advice about compliance, 

helping small entities interpret and apply the law to specific facts provided by the small 

entity making the inquiry. As with the content of the compliance guides, guidance given 

by agencies on how the law is to be applied to a specific factual situation provided by the 

239 The Federal Acquisition Regulation (FAR) Council prepares and issues revisions to the uniform policies 

and procedures for acquisition by all executive agencies. The FAR Council does this in conjunction with 

the Defense Acquisition Regulations (DAR) Council and the Civilian Agency Acquisition (CAA) Council. 

48 C.F.R § 1 (2000).

240 Sections 231–233 of SBREFA amended the Equal Access to Justice Act (EAJA). These provisions 

expanded the ability of parties in litigation with the government to recover attorney fees under that law. In 

administrative and judicial proceedings, if the government's demand to enforce a party’s compliance with a 

statutory or regulatory requirement is unreasonable when compared with the judgment or decision, the 

party may be entitled to attorney fees and other expenses related to defending against the action. SBREFA 

increased the allowable attorney fees from $75 per hour to $125 per hour. 

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small entity may be considered evidence of the reasonableness or appropriateness of 

proposed fines, penalties, or damages imposed on the small entity. Under this section, 

and using existing resources as practicable, agencies are to institute a practice of 

providing informal compliance assistance. Agencies were required to establish a program 

to provide informal compliance assistance within one year of SBREFA’s enactment in 

1996 and to report to Congress on their programs no later than two years after 

enactment.241 

Regulatory enforcement fairness 

Section 222 of SBREFA establishes a process for small businesses to register complaints 

about excessive enforcement actions. Pursuant to the law, the Administrator of the U.S. 

Small Business Administration has designated a “Small Business and Agriculture 

Regulatory Enforcement Ombudsman” (the “Ombudsman”) and established a Small 

Business Regulatory Fairness Board (the “Fairness Board”) in each of the SBA’s 10 

regions. 

Each small business regulatory fairness board advises the Ombudsman on small business 

matters relating to agency enforcement activities and assists the Ombudsman with the 

preparation of the annual report to Congress. The fairness boards have the authority to 

hold hearings. Fairness board members are small business owners and operators 

appointed by the SBA Administrator after consultation with the chairperson and ranking 

minority members of the House and Senate Committees on Small Business. 

The Ombudsman has established a process to receive comments from small businesses on 

agency enforcement activities and, when appropriate, the Ombudsman passes such 

comments on to the agency for review and response. The Ombudsman is required to 

report annually to Congress on agency enforcement efforts based on comments received 

from small business concerns and from the regulatory fairness boards. 

For more information on the Ombudsman, please visit http://www.sba.gov/ombudsman/. 

Penalty reduction policies 

Agencies regulating activities of small entities are required, under section 223 of 

SBREFA, to establish a policy or program to provide for the reduction (and, under 

appropriate circumstances, the waiver) of civil penalties for violations of a statutory or 

regulatory requirement by a small entity. SBREFA grants agencies broad discretion with 

respect to the scope of their penalty reduction and waiver policies.242 Agencies were to 

implement their small entity penalty reduction and waiver programs within one year of 

241 The Committee on Small Business and the Committee on Governmental Affairs of the U.S. Senate and 

the Committee on Small Business and the Committee on the Judiciary of the U.S. House of Representatives 

were to receive agency reports required under sections 213 and 223 of SBREFA. 

242 See generally Regulatory Reform: Implementation of Selected Agencies’ Civil Penalty Relief Policies for 

Small Entities (GAO-01-280, February 2001). The Office of Advocacy maintains that agencies should 

define small entities in accordance with section 601 of the RFA. 

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the enactment of SBREFA in 1996 and to report on their programs to Congress one year 

later.243 Under appropriate circumstances, an agency may consider the ability to pay as a 

factor in determining penalty assessments on small entities. 

Policies or programs established by agencies should contain conditions or exclusions that 

may include, but are not limited to: 

•	 Requiring a small entity to correct the violation within a reasonable period of 

time. 

•	 Limiting the applicability of the policy to violations discovered through 

participation by a small entity in a compliance assistance or audit program 

operated or supported by the agency or a state.
 

•	 Excluding small entities that have been subject to multiple enforcement actions by 

the agency. 

•	 Excluding violations involving willful or criminal conduct. 

•	 Excluding violations that pose serious health, safety or environmental threats. 

•	 Requiring a good-faith effort to comply with the law. 

Congressional review 

Section 251 of SBREFA, also known as the Congressional Review Act, requires agencies 

to provide Congress with notice of final agency rulemaking actions and the opportunity 

to review a “major rule” before it becomes effective.244 Before a final rule can become 

effective, the agency promulgating the rule must submit a report to the House of 

Representatives, the Senate, and the Comptroller General of the U.S. Government 

Accountability Office (GAO).245 The report must contain the following information: 

•	 A copy of the rule. 

•	 A concise general statement about the purpose of the rule, including whether it is 

a “major rule.”246 

•	 The proposed effective date of the regulation. 

In addition, the agency is required to include with its report to the Comptroller General, 

and make available to both houses of Congress, the following information: 

•	 A copy of the cost-benefit analysis of the rule, if any. 

•	 The agency's actions relevant to sections 603, 604, 605, 607, and 609 of the RFA. 

243 Approximately 22 of the 77 agencies that assess penalties submitted a report pursuant to section 223 of
 

SBREFA. House of Representatives Report 106-8, Part I, pp. 5-6. 244 Codified at Chapter 8 of title 5, United States Code.
 245 5 U.S.C. § 801. The GAO’s website, www.gao.gov, includes information on major rules, including a
 

form for submitting a rule under the Congressional Review Act. 246 A “major rule” is a rule that the Administrator of the Office of Information and Regulatory Affairs
 

(OIRA) of the Office of Management and Budget (OMB) finds has resulted or is likely to result in an 

annual impact on the economy of $100 million or more; have a major impact on an industry, government,
 

or consumers; or have an effect on competition, productivity, or international trade. 5 U.S.C. § 804(2).
 

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• The agency's actions relevant to sections 202, 203, 204, and 205 of the Unfunded 

Mandates Reform Act of 1995.247 

Major rules cannot take effect until the end of a 60-legislative-day period beginning on 

the latter of: (1) the date Congress receives the agency’s report or (2) the date of the 

rule’s publication in the Federal Register. Congress may disapprove or rescind a rule by 

a joint resolution of disapproval, subject to a presidential veto.248 

247 2 U.S.C. § 1501.
 248 This congressional authority was first used in S. J. Res. 6, introduced in accordance with 5 U.S.C. § 802, 

passed the House and Senate, and was signed into law on March 20, 2001 to prevent an ergonomics
 

regulation issued by the Occupational Safety and Health Administration from going into effect.
 

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CONCLUSION 

The RFA does not seek preferential treatment for small entities, does not require agencies 

to adopt regulations that impose the least burden on small entities, and does not mandate 

exemptions for small entities. 

Rather, as this guide has illustrated, the RFA establishes an analytical process for 

determining how public policy issues can best be achieved without erecting barriers to 

competition, stifling innovation, or imposing undue burdens on small entities. In so 

doing, it seeks a level playing field for small entities, not an unfair advantage. 

This guide is designed to help institutionalize these concepts so that they become part of 

a regulatory agency’s analytical fiber. The SBA’s Office of Advocacy hopes that this 

guide helps to achieve this objective. 

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APPENDIX A THE REGULATORY FLEXIBILITY ACT
 

The following text of the Regulatory Flexibility Act of 1980, as amended, is taken from 

Title 5 of the United States Code, sections 601–612. The Regulatory Flexibility Act was 

originally passed in 1980 (P.L. 96-354). The act was amended by the Small Business 

Regulatory Enforcement Fairness Act of 1996 (P.L. 104-121). 

Congressional Findings and Declaration of Purpose 

(a) The Congress finds and declares that — 

(1) when adopting regulations to protect the health, safety and economic welfare of the 

Nation, Federal agencies should seek to achieve statutory goals as effectively and efficiently as 

possible without imposing unnecessary burdens on the public; 

(2) laws and regulations designed for application to large scale entities have been applied 

uniformly to small businesses, small organizations, and small governmental jurisdictions even 

through the problems that gave rise to government action may not have been caused by those 

smaller entities; 

(3) uniform Federal regulatory and reporting requirements have in numerous instances 

imposed unnecessary and disproportionately burdensome demands including legal, accounting 

and consulting costs upon small businesses, small organizations, and small governmental 

jurisdictions with limited resources; 

(4) the failure to recognize differences in the scale and resources of regulated entities has 

in numerous instances adversely affected competition in the marketplace, discouraged innovation 

and restricted improvements in productivity; 

(5) unnecessary regulations create entry barriers in many industries and discourage 

potential entrepreneurs from introducing beneficial products and processes; 

(6) the practice of treating all regulated businesses, organizations, and governmental 

jurisdictions as equivalent may lead to inefficient use of regulatory agency resources, 

enforcement problems and, in some cases, to actions inconsistent with the legislative intent of 

health, safety, environmental and economic welfare legislation; 

(7) alternative regulatory approaches which do not conflict with the stated objectives of 

applicable statutes may be available which minimize the significant economic impact of rules on 

small businesses, small organizations, and small governmental jurisdictions; 

(8) the process by which Federal regulations are developed and adopted should be 

reformed to require agencies to solicit the ideas and comments of small businesses, small 

organizations, and small governmental jurisdictions to examine the impact of proposed and 

existing rules on such entities, and to review the continued need for existing rules. 

(b) It is the purpose of this Act [enacting this chapter and provisions set out as notes under this 

section] to establish as a principle of regulatory issuance that agencies shall endeavor, consistent 

with the objectives of the rule and of applicable statutes, to fit regulatory and informational 

requirements to the scale of the businesses, organizations, and governmental jurisdictions subject 

to regulation. To achieve this principle, agencies are required to solicit and consider flexible 

regulatory proposals and to explain the rationale for their actions to assure that such proposals are 

given serious consideration. 

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Regulatory Flexibility Act 

§ 601 Definitions 

§ 602 Regulatory agenda 

§ 603 Initial regulatory flexibility analysis 

§ 604 Final regulatory flexibility analysis 

§ 605 Avoidance of duplicative or unnecessary analyses 

§ 606 Effect on other law 

§ 607 Preparation of analyses 

§ 608 Procedure for waiver or delay of completion 

§ 609 Procedures for gathering comments 

§ 610 Periodic review of rules 

§ 611 Judicial review 

§ 612 Reports and intervention rights 

§ 601 Definitions 

For purposes of this chapter — 

(1) the term “agency” means an agency as defined in section 551(1) of this title; 

(2) the term “rule” means any rule for which the agency publishes a general notice of proposed 

rulemaking pursuant to section 553(b) of this title, or any other law, including any rule of general 

applicability governing Federal grants to State and local governments for which the agency 

provides an opportunity for notice and public comment, except that the term “rule” does not 

include a rule of particular applicability relating to rates, wages, corporate or financial structures 

or reorganizations thereof, prices, facilities, appliances, services, or allowances therefor or to 

valuations, costs or accounting, or practices relating to such rates, wages, structures, prices, 

appliances, services, or allowances; 

(3) the term “small business” has the same meaning as the term “small business concern” under 

section 3 of the Small Business Act, unless an agency, after consultation with the Office of 

Advocacy of the Small Business Administration and after opportunity for public comment, 

establishes one or more definitions of such term which are appropriate to the activities of the 

agency and publishes such definition(s) in the Federal Register; 

(4) the term “small organization” means any not-for-profit enterprise which is independently 

owned and operated and is not dominant in its field, unless an agency establishes, after 

opportunity for public comment, one or more definitions of such term which are appropriate to 

the activities of the agency and publishes such definition(s) in the Federal Register; 

(5) the term “small governmental jurisdiction” means governments of cities, counties, towns, 

townships, villages, school districts, or special districts, with a population of less than fifty 

thousand, unless an agency establishes, after opportunity for public comment, one or more 

definitions of such term which are appropriate to the activities of the agency and which are based 

on such factors as location in rural or sparsely populated areas or limited revenues due to the 

population of such jurisdiction, and publishes such definition(s) in the Federal Register; 

(6) the term “small entity” shall have the same meaning as the terms “small business,” “small 

organization” and “small governmental jurisdiction” defined in paragraphs (3), (4) and (5) of this 

section; and 

(7) the term “collection of information” — 

(A) means the obtaining, causing to be obtained, soliciting, or requiring the disclosure to 

third parties or the public, of facts or opinions by or for an agency, regardless of form or format, 

calling for either — 

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(i) answers to identical questions posed to, or identical reporting or 

recordkeeping requirements imposed on, 10 or more persons, other than agencies, 

instrumentalities, or employees of the United States; or 

(ii) answers to questions posed to agencies, instrumentalities, or employees of the 

United States which are to be used for general statistical purposes; and 

(B) shall not include a collection of information described under section 3518(c)(1) of 

title 44, United States Code. 

(8) Recordkeeping requirement — The term “recordkeeping requirement” means a requirement 

imposed by an agency on persons to maintain specified records. 

§ 602. Regulatory agenda 

(a) During the months of October and April of each year, each agency shall publish in the Federal 

Register a regulatory flexibility agenda which shall contain — 

(1) a brief description of the subject area of any rule which the agency expects to propose 

or promulgate which is likely to have a significant economic impact on a substantial number of 

small entities; 

(2) a summary of the nature of any such rule under consideration for each subject area 

listed in the agenda pursuant to paragraph (1), the objectives and legal basis for the issuance of 

the rule, and an approximate schedule for completing action on any rule for which the agency has 

issued a general notice of proposed rulemaking, and 

(3) the name and telephone number of an agency official knowledgeable concerning the 

items listed in paragraph (1). 

(b) Each regulatory flexibility agenda shall be transmitted to the Chief Counsel for Advocacy of 

the Small Business Administration for comment, if any. 

(c) Each agency shall endeavor to provide notice of each regulatory flexibility agenda to small 

entities or their representatives through direct notification or publication of the agenda in 

publications likely to be obtained by such small entities and shall invite comments upon each 

subject area on the agenda. 

(d) Nothing in this section precludes an agency from considering or acting on any matter not 

included in a regulatory flexibility agenda, or requires an agency to consider or act on any matter 

listed in such agenda. 

§ 603. Initial regulatory flexibility analysis 

(a) Whenever an agency is required by section 553 of this title, or any other law, to publish 

general notice of proposed rulemaking for any proposed rule, or publishes a notice of proposed 

rulemaking for an interpretative rule involving the internal revenue laws of the United States, the 

agency shall prepare and make available for public comment an initial regulatory flexibility 

analysis. Such analysis shall describe the impact of the proposed rule on small entities. The initial 

regulatory flexibility analysis or a summary shall be published in the Federal Register at the time 

of the publication of general notice of proposed rulemaking for the rule. The agency shall 

transmit a copy of the initial regulatory flexibility analysis to the Chief Counsel for Advocacy of 

the Small Business Administration. In the case of an interpretative rule involving the internal 

revenue laws of the United States, this chapter applies to interpretative rules published in the 

Federal Register for codification in the Code of Federal Regulations, but only to the extent that 

such interpretative rules impose on small entities a collection of information requirement. 

(b) Each initial regulatory flexibility analysis required under this section shall contain — 

(1) a description of the reasons why action by the agency is being considered; 

(2) a succinct statement of the objectives of, and legal basis for, the proposed rule; 

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(3) a description of and, where feasible, an estimate of the number of small entities to 

which the proposed rule will apply; 

(4) a description of the projected reporting, recordkeeping and other compliance 

requirements of the proposed rule, including an estimate of the classes of small entities which will 

be subject to the requirement and the type of professional skills necessary for preparation of the 

report or record; 

(5) an identification, to the extent practicable, of all relevant Federal rules which may 

duplicate, overlap or conflict with the proposed rule. 

(c) Each initial regulatory flexibility analysis shall also contain a description of any significant 

alternatives to the proposed rule which accomplish the stated objectives of applicable statutes and 

which minimize any significant economic impact of the proposed rule on small entities. 

Consistent with the stated objectives of applicable statutes, the analysis shall discuss significant 

alternatives such as — 

(1) the establishment of differing compliance or reporting requirements or timetables that 

take into account the resources available to small entities; 

(2) the clarification, consolidation, or simplification of compliance and reporting 

requirements under the rule for such small entities; 

(3) the use of performance rather than design standards; and 

(4) an exemption from coverage of the rule, or any part thereof, for such small entities. 

§ 604. Final regulatory flexibility analysis 

(a) When an agency promulgates a final rule under section 553 of this title, after being required 

by that section or any other law to publish a general notice of proposed rulemaking, or 

promulgates a final interpretative rule involving the internal revenue laws of the United States as 

described in section 603(a), the agency shall prepare a final regulatory flexibility analysis. Each 

final regulatory flexibility analysis shall contain — 

(1) a succinct statement of the need for, and objectives of, the rule; 

(2) a summary of the significant issues raised by the 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; 

(3) a description of and an estimate of the number of small entities to which the rule will 

apply or an explanation of why no such estimate is available; 

(4) a description of the projected reporting, recordkeeping and other compliance 

requirements of the rule, including an estimate of the classes of small entities which will be 

subject to the requirement and the type of professional skills necessary for preparation of the 

report or record; and 

(5) a description of the steps the agency has taken to minimize the significant economic 

impact on small entities consistent with the stated objectives of applicable statutes, including a 

statement of the factual, policy, and legal reasons for selecting the alternative adopted in the final 

rule and why each one of the other significant alternatives to the rule considered by the agency 

which affect the impact on small entities was rejected. 

(b) The agency shall make copies of the final regulatory flexibility analysis available to members 

of the public and shall publish in the Federal Register such analysis or a summary thereof. 

§ 605. Avoidance of duplicative or unnecessary analyses 

(a) Any Federal agency may perform the analyses required by sections 602, 603, and 604 of this 

title in conjunction with or as a part of any other agenda or analysis required by any other law if 

such other analysis satisfies the provisions of such sections. 

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(b) Sections 603 and 604 of this title shall not apply to any proposed or final rule if the head of 

the agency certifies that the rule will not, if promulgated, have a significant economic impact on a 

substantial number of small entities. If the head of the agency makes a certification under the 

preceding sentence, the agency shall publish such certification in the Federal Register at the time 

of publication of general notice of proposed rulemaking for the rule or at the time of publication 

of the final rule, along with a statement providing the factual basis for such certification. The 

agency shall provide such certification and statement to the Chief Counsel for Advocacy of the 

Small Business Administration. 

(c) In order to avoid duplicative action, an agency may consider a series of closely related rules as 

one rule for the purposes of sections 602, 603, 604 and 610 of this title. 

§ 606. Effect on other law 

The requirements of sections 603 and 604 of this title do not alter in any manner standards 

otherwise applicable by law to agency action. 

§ 607. Preparation of analyses 

In complying with the provisions of sections 603 and 604 of this title, an agency may provide 

either a quantifiable or numerical description of the effects of a proposed rule or alternatives to 

the proposed rule, or more general descriptive statements if quantification is not practicable or 

reliable. 

§ 608. Procedure for waiver or delay of completion 

(a) An agency head may waive or delay the completion of some or all of the requirements of 

section 603 of this title by publishing in the Federal Register, not later than the date of publication 

of the final rule, a written finding, with reasons therefor, that the final rule is being promulgated 

in response to an emergency that makes compliance or timely compliance with the provisions of 

section 603 of this title impracticable. 

(b) Except as provided in section 605(b), an agency head may not waive the requirements of 

section 604 of this title. An agency head may delay the completion of the requirements of section 

604 of this title for a period of not more than one hundred and eighty days after the date of 

publication in the Federal Register of a final rule by publishing in the Federal Register, not later 

than such date of publication, a written finding, with reasons therefor, that the final rule is being 

promulgated in response to an emergency that makes timely compliance with the provisions of 

section 604 of this title impracticable. If the agency has not prepared a final regulatory analysis 

pursuant to section 604 of this title within one hundred and eighty days from the date of 

publication of the final rule, such rule shall lapse and have no effect. Such rule shall not be 

repromulgated until a final regulatory flexibility analysis has been completed by the agency. 

§ 609. Procedures for gathering comments 

(a) When any rule is promulgated which will have a significant economic impact on a substantial 

number of small entities, the head of the agency promulgating the rule or the official of the 

agency with statutory responsibility for the promulgation of the rule shall assure that small 

entities have been given an opportunity to participate in the rulemaking for the rule through the 

reasonable use of techniques such as— 

(1) the inclusion in an advanced notice of proposed rulemaking, if issued, of a statement 

that the proposed rule may have a significant economic effect on a substantial number of small 

entities; 

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(2) the publication of general notice of proposed rulemaking in publications likely to be 

obtained by small entities; 

(3) the direct notification of interested small entities; 

(4) the conduct of open conferences or public hearings concerning the rule for small 

entities including soliciting and receiving comments over computer networks; and 

(5) the adoption or modification of agency procedural rules to reduce the cost or 

complexity of participation in the rulemaking by small entities. 

(b) Prior to publication of an initial regulatory flexibility analysis which a covered agency is 

required to conduct by this chapter— 

(1) a covered agency shall notify the Chief Counsel for Advocacy of the Small Business 

Administration and provide the Chief Counsel with information on the potential impacts of the 

proposed rule on small entities and the type of small entities that might be affected; 

(2) not later than 15 days after the date of receipt of the materials described in paragraph 

(1), the Chief Counsel shall identify individuals representative of affected small entities for the 

purpose of obtaining advice and recommendations from those individuals about the potential 

impacts of the proposed rule; 

(3) the agency shall convene a review panel for such rule consisting wholly of full time 

Federal employees of the office within the agency responsible for carrying out the proposed rule, 

the Office of Information and Regulatory Affairs within the Office of Management and Budget, 

and the Chief Counsel; 

(4) the panel shall review any material the agency has prepared in connection with this 

chapter, including any draft proposed rule, collect advice and recommendations of each 

individual small entity representative identified by the agency after consultation with the Chief 

Counsel, on issues related to subsections 603(b), paragraphs (3), (4) and (5) and 603(c); 

(5) not later than 60 days after the date a covered agency convenes a review panel 

pursuant to paragraph (3), the review panel shall report on the comments of the small entity 

representatives and its findings as to issues related to subsections 603(b), paragraphs (3), (4) and 

(5) and 603(c), provided that such report shall be made public as part of the rulemaking record; 

and 

(6) where appropriate, the agency shall modify the proposed rule, the initial regulatory 

flexibility analysis or the decision on whether an initial regulatory flexibility analysis is required. 

(c) An agency may in its discretion apply subsection (b) to rules that the agency intends to certify 

under subsection 605(b), but the agency believes may have a greater than de minimis impact on a 

substantial number of small entities. 

(d) For purposes of this section, the term “covered agency” means the Environmental Protection 

Agency and the Occupational Safety and Health Administration of the Department of Labor. 

(e) The Chief Counsel for Advocacy, in consultation with the individuals identified in subsection 

(b)(2), and with the Administrator of the Office of Information and Regulatory Affairs within the 

Office of Management and Budget, may waive the requirements of subsections (b)(3), (b)(4), and 

(b)(5) by including in the rulemaking record a written finding, with reasons therefor, that those 

requirements would not advance the effective participation of small entities in the rulemaking 

process. For purposes of this subsection, the factors to be considered in making such a finding are 

as follows: 

(1) In developing a proposed rule, the extent to which the covered agency consulted with 

individuals representative of affected small entities with respect to the potential impacts of the 

rule and took such concerns into consideration. 

(2) Special circumstances requiring prompt issuance of the rule. 

(3) Whether the requirements of subsection (b) would provide the individuals identified 

in subsection (b)(2) with a competitive advantage relative to other small entities. 

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§ 610. Periodic review of rules 

(a) Within one hundred and eighty days after the effective date of this chapter, each agency shall 

publish in the Federal Register a plan for the periodic review of the rules issued by the agency 

which have or will have a significant economic impact upon a substantial number of small 

entities. Such plan may be amended by the agency at any time by publishing the revision in the 

Federal Register. The purpose of the review shall be to determine whether such rules should be 

continued without change, or should be amended or rescinded, consistent with the stated 

objectives of applicable statutes, to minimize any significant economic impact of the rules upon a 

substantial number of such small entities. The plan shall provide for the review of all such agency 

rules existing on the effective date of this chapter within ten years of that date and for the review 

of such rules adopted after the effective date of this chapter within ten years of the publication of 

such rules as the final rule. If the head of the agency determines that completion of the review of 

existing rules is not feasible by the established date, he shall so certify in a statement published in 

the Federal Register and may extend the completion date by one year at a time for a total of not 

more than five years. 

(b) In reviewing rules to minimize any significant economic impact of the rule on a substantial 

number of small entities in a manner consistent with the stated objectives of applicable statutes, 

the agency shall consider the following factors— 

(1) the continued need for the rule; 

(2) the nature of complaints or comments received concerning the rule from the public; 

(3) the complexity of the rule; 

(4) the extent to which the rule overlaps, duplicates or conflicts with other Federal rules, 

and, to the extent feasible, with State and local governmental rules; and 

(5) the length of time since the rule has been evaluated or the degree to which 

technology, economic conditions, or other factors have changed in the area affected by the rule. 

(c) Each year, each agency shall publish in the Federal Register a list of the rules which have a 

significant economic impact on a substantial number of small entities, which are to be reviewed 

pursuant to this section during the succeeding twelve months. The list shall include a brief 

description of each rule and the need for and legal basis of such rule and shall invite public 

comment upon the rule. 

§ 611. Judicial review 

(a) (1) For any rule subject to this chapter, a small entity that is adversely affected or 

aggrieved by final agency action is entitled to judicial review of agency compliance with the 

requirements of sections 601, 604, 605(b), 608(b), and 610 in accordance with chapter 7. Agency 

compliance with sections 607 and 609(a) shall be judicially reviewable in connection with 

judicial review of section 604. 

(2) Each court having jurisdiction to review such rule for compliance with section 553, or 

under any other provision of law, shall have jurisdiction to review any claims of noncompliance 

with sections 601, 604, 605(b), 608(b), and 610 in accordance with chapter 7. Agency compliance 

with sections 607 and 609(a) shall be judicially reviewable in connection with judicial review of 

section 604. 

(3) (A) A small entity may seek such review during the period beginning on the date 

of final agency action and ending one year later, except that where a provision of law requires 

that an action challenging a final agency action be commenced before the expiration of one year, 

such lesser period shall apply to an action for judicial review under this section. 

(B) In the case where an agency delays the issuance of a final regulatory 

flexibility analysis pursuant to section 608(b) of this chapter, an action for judicial review under 

this section shall be filed not later than— 

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(i) one year after the date the analysis is made available to the public, or 

(ii) where a provision of law requires that an action challenging a final 

agency regulation be commenced before the expiration of the 1-year period, the number of days 

specified in such provision of law that is after the date the analysis is made available to the 

public. 

(4) In granting any relief in an action under this section, the court shall order the agency 

to take corrective action consistent with this chapter and chapter 7, including, but not limited to 

— 

(A) remanding the rule to the agency, and 

(B) deferring the enforcement of the rule against small entities unless the court 

finds that continued enforcement of the rule is in the public interest. 

(5) Nothing in this subsection shall be construed to limit the authority of any court to stay 

the effective date of any rule or provision thereof under any other provision of law or to grant any 

other relief in addition to the requirements of this section. 

(b) In an action for the judicial review of a rule, the regulatory flexibility analysis for such rule, 

including an analysis prepared or corrected pursuant to paragraph (a)(4), shall constitute part of 

the entire record of agency action in connection with such review. 

(c) Compliance or noncompliance by an agency with the provisions of this chapter shall be 

subject to judicial review only in accordance with this section. 

(d) Nothing in this section bars judicial review of any other impact statement or similar analysis 

required by any other law if judicial review of such statement or analysis is otherwise permitted 

by law. 

§ 612. Reports and intervention rights 

(a) The Chief Counsel for Advocacy of the Small Business Administration shall monitor agency 

compliance with this chapter and shall report at least annually thereon to the President and to the 

Committees on the Judiciary and Small Business of the Senate and House of Representatives. 

(b) The Chief Counsel for Advocacy of the Small Business Administration is authorized to appear 

as amicus curiae in any action brought in a court of the United States to review a rule. In any such 

action, the Chief Counsel is authorized to present his or her views with respect to compliance 

with this chapter, the adequacy of the rulemaking record with respect to small entities and the 

effect of the rule on small entities. 

(c) A court of the United States shall grant the application of the Chief Counsel for Advocacy of 

the Small Business Administration to appear in any such action for the purposes described in 

subsection (b). 

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APPENDIX B SMALL BUSINESS BY THE NUMBERS 

Frequently Asked Questions About Small Business 

What is a small business? 

The Office of Advocacy defines a small business for research purposes as an independent 

business having fewer than 500 employees. Firms wishing to be designated small 

businesses for government programs such as contracting must meet size standards 

specified by the U.S. Small Business Administration (SBA) Office of Size Standards. 

These standards vary by industry; see www.sba.gov/size. 

How important are small businesses to the U.S. economy? 

Small firms: 

• Represent 99.7 percent of all employer firms. 

• Employ just over half of all private sector employees. 

• Pay 44 percent of total U.S. private payroll. 

• Have generated 64 percent of net new jobs over the past 15 years. 

• Create more than half of the nonfarm private gross domestic product (GDP). 

• Hire 40 percent of high tech workers (such as scientists, engineers, and computer 

programmers). 

• Are 52 percent home-based and 2 percent franchises. 

• Made up 97.3 percent of all identified exporters and produced 30.2 percent of the 

known export value in FY 2007. 

• Produce 13 times more patents per employee than large patenting firms; these 

patents are twice as likely as large firm patents to be among the one percent most 

cited. 

Source: U.S. Dept. of Commerce, Bureau of the Census and International Trade Admin.; Advocacy-funded research by 

Kathryn Kobe, 2007 (www.sba.gov/advo/research/rs299tot.pdf) and CHI Research, 2003 

(www.sba.gov/advo/research/rs225tot.pdf); U.S. Dept. of Labor, Bureau of Labor Statistics. 

What share of net new jobs do small businesses create? 

Firms with fewer than 500 employees accounted for 64 percent (or 14.5 million) of the 

22.5 million net new jobs (gains minus losses) between 1993 and the third quarter of 

2008. Continuing firms accounted for 68 percent of net new jobs, and the other 32 

percent reflect net new jobs from firm births minus those lost in firm closures (1993 to 

2007). 

Source: U.S. Dept. of Labor, Bureau of Labor Statistics, Business Employment Dynamics. Note that the methodology 

used for the figures above counts job gains or losses in the actual class size where they occurred. 

How many businesses open and close each year? 

An estimated 627,200 new employer firms began operations in 2008, and 595,600 firms 

closed that year. This amounts to an annual turnover of about 10 percent for entry and 10 

percent for exit. Nonemployer firms have turnover rates three times as high as those of 

employer firms, mostly because of easier entry and exit conditions. 

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Starts and Closures of Employer Firms, 2004–2008 

Category 2004 2005 2006 2007 2008 

Births 628,917 644,122 670,058 663,100e 627,200e 

Closures 541,047 565,745 599,333 571,300e 595,600e 

Bankruptcies 34,317 39,201 19,695 28,322 43,546 

Notes: e = Advocacy estimate. Bankruptcies include nonemployer firms. For a discussion of methodology, see 

Brian Headd, 2005 (www.sba.gov/advo/research/rs258tot.pdf). 

Source: U.S. Dept. of Commerce, Bureau of the Census; Administrative Office of the U.S. Courts; U.S. Dept. of 

Labor, Employment and Training Administration. 

What is small firms’ share of employment? 

Small businesses employ just over half of U.S. workers. Of 119.9 million nonfarm 

private sector workers in 2006, small firms with fewer than 500 workers employed 60.2 

million and large firms employed 59.7 million. Firms with fewer than 20 employees 

employed 21.6 million. While small firms create a majority of the net new jobs, their 

share of employment remains steady since some firms grow into large firms as they 

create new jobs. Small firms’ share of part-time workers (21 percent) is similar to large 

firms’ share (18 percent). 

Source: U.S. Dept. of Commerce, Bureau of the Census: Statistics of U.S. Businesses, Current Population Survey. 

How many small businesses are there? 

In 2008, there were 29.6 million businesses in the United States, according to Office of 

Advocacy estimates. Census data show that there were 6.0 million firms with employees 

in 2006 and 21.7 million without employees in 2007 (the latest available data). Small 

firms with fewer than 500 employees represent 99.9 percent of the 29.6 million 

businesses (including both employers and nonemployers), as the most recent data show 

there were about 18,000 large businesses in 2006. 

Source: Office of Advocacy estimates based on data from the U.S. Dept. of Commerce, Bureau of the Census, and U.S. 

Dept. of Labor, Employment and Training Administration. 

What is the survival rate for new firms? 

Seven out of ten new employer firms last at least two years, and about half survive five 

years. More specifically, according to new Census data, 69 percent of new employer 

establishments born to new firms in 2000 survived at least two years, and 51 percent 

survived five or more years. Firms born in 1990 had very similar survival rates. With 

most firms starting small, 99.8 percent of the new employer establishments were started 

by small firms. Survival rates were similar across states and major industries. 

Source: U.S Dept. of Commerce, Bureau of the Census, Business Dynamics Statistics. Note that the figures could be 

skewed slightly by the rare occurrence of new firms opening multiple establishments in their first few years. 

How are small businesses financed? 

Commercial banks and other depository institutions are the largest lenders of debt capital 

to small businesses. They accounted for almost 65 percent of total traditional credit to 

small businesses in 2003. (This includes credit lines and loans for nonresidential 

mortgages, vehicles, equipment, and leases.) Credit cards account for much of the growth 

in small business lending over the past few years. For more information, see Advocacy’s 

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annual publication, Small Business Lending in the United States 

(www.sba.gov/advo/research/ lending.html). 

How do regulations affect small firms? 

Very small firms with fewer than 20 employees annually spend 45 percent more per 

employee than larger firms to comply with federal regulations. These very small firms 

spend four and a half times as much per employee to comply with environmental 

regulations and 67 percent more per employee on tax compliance than their larger 

counterparts. For data broken out by industry, see www.sba.gov/advo/ 

research/rs264tot.pdf. 

Annual Cost of Federal Regulations by Firm Size, All Business Sectors (Dollars) 

Type of Regulation Cost per Employee for Firms with: 

<20 Employees 500+ Employees 

All Federal Regulation $7,647 $5,282 

Environmental 3,296 710 

Economic 2,127 2,952 

Workplace 928 841 

Tax Compliance 1,304 780 

Source: The Impact of Federal Regulations on Small Firms, an Advocacy-funded study by W. Mark Crain, 2005 

(www.sba.gov/advo/research/rs264tot.pdf). 

Whom do I contact about regulations? 

To submit comments on proposed regulations, send email to advocacy@sba.gov or visit 

Advocacy’s regulatory alerts page at www.sba.gov/advo/laws/law_regalerts.html. To 

inquire about unfair regulatory enforcement, contact SBA’s Office of the National 

Ombudsman at ombudsman@sba.gov. 

What is the role of women, minority, and veteran entrepreneurs? 

Of the 23 million nonfarm businesses in 2002, women owned 6.5 million businesses, 

generating $940.8 billion in revenues, employing 7.1 million workers, and paying $173.7 

billion in payroll. Another 2.7 million firms were owned equally by both women and 

men. Also in 2002, minorities owned 4.1 million firms that generated $694 billion in 

revenues and employed 4.8 million people. Hispanic Americans owned 6.6 percent of all 

U.S. businesses; African Americans, 5 percent; Asian Americans, 4.6 percent; American 

Indians or Alaska Natives, 0.8 percent; and Native Hawaiian or other Pacific Islanders, 

0.1 percent. Veterans made up 14 percent of all owners in 2002, and 7 percent of them 

were service-disabled. 

In 2007, the overall rate of self-employment (unincorporated and incorporated) 

was 10 percent, and the rate was 7.1 percent for women, 7.4 percent for Hispanic 

Americans, 5.2 percent for African Americans, 10.1 percent for Asian Americans and 

Native Americans, and 14.4 percent for veterans. According to a recent study, servicedisabled veterans were less likely than non-service-disabled veterans to be employed, and 

they had lower self-employment rates. 

Source: U.S. Dept. of Commerce, Bureau of the Census, Survey of Business Owners; Office of Advocacy: Women in 

Business (www.sba.gov/advo/research/rs280.pdf) and Minorities in Business 

(www.sba.gov/advo/research/rs298.pdf); Open Blue Solutions, 2007 (www.sba.gov/advo/research/rs291tot.pdf), and 

Office of Advocacy: The Small Business Economy, 2009 (Table A.13, www.sba.gov/advo/research/sbe.html). 

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What research exists on the cost and availability of health insurance? 

For many years, the cost and availability of health insurance have been top small business 

concerns. These concerns are driven by premium increases and administrative costs. 

Advocacy research shows that: (1) insurers of small health plans have higher 

administrative expenses than those that insure larger group plans, and (2) employees at 

small firms are less likely to have coverage than the employees of larger entities. 

A Kaiser Family Foundation study confirmed the connection between the size of a 

firm and whether it offers health insurance. The Kaiser survey shows that about half of 

businesses with fewer than 10 workers offer health benefits to their employees. The ratio 

grows to about three-fourths for firms with 10–24 employees, to almost 90 percent for 

firms with 25–49 employees, and to 98 percent for firms with 200 employees or more. 

Two-thirds of workers in firms of all sizes take health insurance coverage when offered. 

Overall in 2007, small firm employees were almost twice as likely as large firm 

employees to be uninsured (24.6 percent vs.12.6 percent, respectively). 

Source: National Federation of Independent Business; Kaiser Family Foundation; Advocacy-funded research by Rose 

C. Chu and Gordon R. Trapnell, 2003 (www.sba.gov/advo/research/rs224tot.pdf); Joel Popkin and Company, 2005 

(www.sba.gov/advo/research/rs262tot.pdf); and Econometrica, Inc., 2007 

(www.sba.gov/advo/research/rs295tot.pdf); and Office of Advocacy: The Small Business Economy, 2009 

(www.sba.gov/advo/research/sbe.html) 

How can I get more information?
 

For more information, visit Advocacy’s website: www.sba.gov/advo. Specific points of
 

interest include:
 

• Economic research: www.sba.gov/advo/research. 

• Firm size data (U.S., state, and metropolitan static and dynamic data): 

www.sba.gov/advo/research/data.html. 

• Small firm lending studies: www.sba.gov/advo/research/lending.html. 

• Small business profiles by state and territory: 

www.sba.gov/advo/research/profiles. 

• The Small Business Advocate newsletter: www.sba.gov/advo/newsletter.html. 

For email delivery of Advocacy’s newsletter, press, regulatory news, and research, sign 

up at http://web.sba.gov/list. For RSS feeds, visit www.sba.gov/advo/rsslibrary.html. 

Direct questions to (202) 205-6533 or advocacy@sba.gov. 

The SBA’s Office of Advocacy was created by Congress in 1976 to protect, strengthen, 

and effectively represent the nation’s small businesses within the federal government. As 

part of this mandate, the Office conducts policy studies and economic research on issues 

of concern to small business and publishes data on small business characteristics and 

contributions. For small business resources, statistics, and research, visit the Office of 

Advocacy’s home page at www.sba.gov/advo. 

Is there a PDF version of the FAQ? 

Yes. The pdf version is located at: http://www.sba.gov/advo/stats/sbfaq.pdf 

Updated September 2009. 

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APPENDIX C SMALL BUSINESS STATISTICS FOR REGULATORY 

ANALYSIS 

One of the most difficult tasks in preparing an analysis for the Regulatory Flexibility Act 

is locating statistics on small business. The information in this appendix should help 

federal agencies identify data sources appropriate for regulatory analyses. 

The IRS received an estimated 24.4 million business tax returns in 1999. Of these, 72 

percent were for sole proprietorships, 20 percent for corporations, and 8 percent for 

partnerships. About 23 percent of tax returns are filed by about 5.6 million firms with 

employees; the remainder represent the full- and part-time self-employed. By U.S. Small 

Business Administration size standards, about 99.7 percent of all firms are small and 

have fewer than 500 employees. 

Ideally, the data used to analyze the costs and benefits of government regulation should 

be longitudinal micro-data for individual firms — that is, data that can be used to trace 

the performance of a collection of firms over several years. Unfortunately, virtually all 

publicly available data on individual firms are subject to confidentiality restrictions. 

Individual names and addresses not only cannot be disclosed, but data must also be 

presented so that individual firm performance cannot be identified or intuited, even by 

statistical manipulation. Therefore, most government agencies release summary 

information, grouping data by industry, size, and/or location. It is worthwhile noting that 

there also is a problem associated with using grouped data through time: the firms that 

make up the group change. Some firms start up while others go out of business. Some 

firms expand into a higher size cohort, while others decline into a smaller size category. 

It is difficult, if not impossible, to clearly separate changes to firms that remain in the 

group from changes in the composition of the group. 

The data sources listed here generally cover statistics on industry employment, payroll, 

and receipts. Most databases available from government sources do not provide financial 

data—the balance sheet and income statement information needed for analyses of the cost 

of regulations. This is the most sensitive type of information and is rarely available even 

in aggregate form. Profit information also is usually unavailable. While data such as that 

reported by the Census Bureau will always lag by two to three years, new data on firm 

dynamics —especially on firm births and deaths—are now becoming more available 

from both public and private sources. 

Definitions 

Various terms are used in data collection. It is important for those who use the data to 

understand the variations and their subtle distinctions. 

Establishment: an establishment is the smallest unit in which business activity is 

conducted and on which statistical information is collected. The establishment concept 

does not refer to either ownership or taxpaying status. Establishments may be branches of 

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larger firms and may therefore differ in purchasing power, advertising coverage, 

management and control systems, technical resources, and access to capital and credit 

from separately owned and operated businesses of similar size. (Most very small 

businesses are single establishments.) 

Enterprise: the enterprise or firm concept refers to all establishments owned by a 

“parent” company. For instance, an enterprise may own subsidiaries, branches, and 

unrelated establishments. In most instances, it is necessary to use the enterprise concept 

to study the characteristics of small firms since the ownership issue is critical for 

assessing the impact of a given policy. About 15 percent of total employment can be 

found in small establishments (fewer than 100 employees) owned by larger firms (more 

than 100 employees). 

The Office of Advocacy's Census-Based Small Business Database 

Beginning in late 1991, the SBA’s Office of Advocacy contracted with the Economic 

Surveys Division of the Bureau of the Census to produce linked longitudinal data files on 

an enterprise basis. The SBA’s Small Business Database, an extension of the Census 

Bureau’s Enterprise Statistics program, includes information gathered from 5.6 million 

enterprises and 7.0 million establishments (as of 1999). (To see these data, go to the 

Office of Advocacy’s website at www.sba.gov/ADVO/stats. Click on “firm size data.”) 

The Office of Advocacy’s data files generally include the number of establishments, 

firms, payroll per firm, and receipts per firm for various size classes based on firm 

employment size. The data are also broken out by location and/or industry. 

Data are generally available at the four-digit Standard Industrial Classification (SIC) code 

level of industrial detail for the United States overall, and at the two-digit level by state. 

The SIC system is being replaced by the North American Industry Classification System 

(NAICS), and data are increasingly available on a 6-digit NAICS. The 1999 industry data 

delineated for more than 1,200 industries can be downloaded from the Office of 

Advocacy’s website. 

Customized tabulations or copies of the database are available. Inquiries can be directed 

to Mr. Trey Cole, Bureau of the Census, at (301) 457-3320. Some of these data have 

already been published by a variety of sources, including the data tables compiled by the 

Office of Advocacy and published in the President’s annual economic report, The State of 

Small Business: A Report of the President249. Other tables from this database have been 

published in the SBA’s Handbook of Small Business Data250 and in other reports. 

249 Executive Office of the President, The State of Small Business: A Report of the President (Washington,
 

D.C.: U.S. Government Printing Office, annual)

250 U.S. Small Business Administration, Office of Advocacy, Handbook of Small Business Data, 1994 ed.
 

(Washington, D.C.: U.S. Government Printing Office, 1994).
 

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Characteristics of Small Business Owners and Employees, 1997 

A publication of the Office of Advocacy, Characteristics of Small Business Owners and 

Employees, 1997,251 uses data from two sources: the Census Bureau’s Current Population 

Survey (1993–1996) and the Characteristics of Business Owners 1992 (a survey that was 

co-funded by the Office of Advocacy). It uses these sources to describe the businesses’ 

sources of capital, their profitability, employment, major industry, and home-based status 

of women and minority business owners. Because 85 percent of the firms covered by the 

Characteristics of Business Owners survey have no employees, this data source provides 

some information on potential regulatory impacts on very small firms, particularly their 

ability to absorb the burden of federal regulation. 

Other Federal Agency Data on Small Firms 

Federal Reserve Survey of Small Business Finances 

Within the past 15 years (1987, 1993, and 1998), the Federal Reserve Board has 

conducted three major surveys of small firm finances. The first two were in conjunction 

with the Office of Advocacy. The National Survey of Small Business Finances (NSSBF), 

now the Survey of Small Business Finances (SSBF) has been the most detailed 

examination to date of the credit needs of small firms, as well as their sources and uses of 

funds. The survey collects information on small businesses (those with fewer than 500 

employees) in the United States. Owner characteristics, firm size, use of financial 

services, and the income and balance sheets of the firm are some examples of the types of 

information collected. These data may be of use for regulatory analysis when capital 

costs associated with regulations are at issue. 

Census Bureau’s Characteristics of Business Owners Survey252 

For the year 1987, and again for the 1992–1994 period, the Minority Business 

Development Agency of the U.S. Department of Commerce and the SBA’s Office of 

Advocacy contracted with the Census Bureau to produce the Characteristics of Business 

Owners (CBO) Survey data. The CBO is a survey of 125,000 small firms. The CBO is 

the only nationally representative source of information about many of the subjects 

covered in the survey: demographic characteristics of the owner and economic 

characteristics of the firm such as sales, export status, franchise status, hours and weeks 

worked by the business owner, sources of debt and equity capital, etc. 

251 U.S. Small Business Administration, Office of Advocacy, Characteristics of Small Business Owners 

and Employees, 1997, report no. PB98 – 127111 (Springfield, VA.: National Technical Information 

Service, 1998). Also available on the Office of Advocacy’s Internet site: http://www.sba.gov/advo/ 

252 U.S. Department of Commerce, Bureau of the Census, Characteristics of Business Owners: 1992, CBO1 (Washington, D.C.: U.S. Government Printing Office, 1997). 

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IRS Statistics of Income 

Each quarter, the Statistics of Income (SOI) division of the Internal Revenue Service 

publishes the SOI Bulletin. This publication contains data for both households and 

businesses and is an invaluable source of statistical information. Data on business firms 

are generally classified by receipt size class for proprietorships, partnerships, and 

corporations. Data on business profits from the IRS are elusive. For sole proprietorships 

and partnerships, only data on net income are available. 

For small business corporations, more data are available. The IRS Source Book for 

Corporations contains data for corporations by asset size class. Balance sheet and income 

statement information is available for corporations in about 15 different asset classes. 

From these detailed data, it is possible to calculate rates of return on assets as well as the 

profits of small business (generally subchapter S) corporations. 

Data on Self-Employed Persons 

Each year, the March Current Population Survey of the Bureau of the Census asks a 

series of expanded questions about self-employment as part of its firm-size supplement. 

These questions include the hours and weeks spent working in the business during the 

previous year, the income earned, the demographics of the business owner, whether the 

firm (owner) has or provides benefits, and several related questions about the industry of 

the firm. These data are available from the Population Division of the Bureau of the 

Census at (301) 763-4100. 

Private Data Sources 

The Kauffman – Ernst and Young Data Base of Fast Growth Companies (KEYFGC) is a 

promising new database that relies on data from two sources: the accounting firm of Ernst 

and Young for employment and sales information, and the Dun & Bradstreet Corporation 

for financial data. The major promise of these data is the ability to understand where and 

how fast-growing companies develop over time, including details about their locations 

and industries. In addition, the KEYFGC data set is one of the only databases with actual 

financial data available on individual (but unidentified) companies. 

Economic Research on Small Businesses 

Over its history, the SBA’s Office of Advocacy has both conducted and contracted for 

research on a variety of small business topics. The scope and breadth of the research 

conducted under the auspices of the Office of Advocacy can be found at 

http://www.sba.gov/advo/research/. 

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APPENDIX D MEMORANDUM OF UNDERSTANDING 

MEMORANDUM OF UNDERSTANDING 

BETWEEN 

THE OFFICE OF ADVOCACY, U.S. SMALL BUSINESS ADMINISTRATION 

AND 

THE OFFICE OF INFORMATION AND REGULATORY AFFAIRS,
 

OFFICE OF MANAGEMENT AND BUDGET
 

I. BACKGROUND 

The Office of Advocacy of the U.S. Small Business Administration (Advocacy) and the Office of 

Information and Regulatory Affairs of the Office of Management and Budget (OIRA) recognize 

that small entities (including small businesses, non-profit organizations and small governmental 

jurisdictions) as defined in 5 U.S.C. § 601, often face a disproportionate share of the Federal 

regulatory burden compared with their larger counterparts. Advocacy and OIRA further recognize 

that the best way to prevent unnecessary regulatory burden is to participate in the rulemaking 

process at the earliest stage possible and to coordinate both offices to identify draft regulations 

that likely will impact small entities. 

Inasmuch as Advocacy and OIRA share similar goals, the two agencies intend to enhance their 

working relationship by establishing certain protocols for sharing information and providing 

training for regulatory agencies on compliance with the Regulatory Flexibility Act (RFA) and 

various other statutes and Executive orders that require an economic analysis of proposed 

regulations. 

II. PURPOSE 

The purpose of this Memorandum of Understanding (MOU) between Advocacy and OIRA is to 

achieve a reduction in unnecessary regulatory burden for small entities. This initiative also is 

intended to generate better agency compliance with the RFA and other statutes and Executive 

orders requiring an economic analysis of proposed regulations. 

III. AUTHORITY 

This agreement is under the authority of 15 U.S.C. § 634(a) et seq., 5 U.S.C. § 601 et seq.; 

Executive Order 12866, as amended, and other relevant provisions of law. 

IV. OBJECTIVES 

To the extent consistent with Advocacy and OIRA authority, Advocacy and OIRA agree to 

accomplish the following objectives: 

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a.	 Establish an information sharing process between Advocacy and OIRA when a 

draft rulemaking is likely to impact small entities. 

b.	 Establish Advocacy guidance for Federal agencies on the requirements of the 

RFA. 

c.	 Establish training for Federal agencies on compliance with the RFA. 

V.	 SCOPE 

Nothing in this MOU shall be construed to limit or otherwise affect the authority of the Office of 

Advocacy as established in 15 U.S.C. § 634a et seq. or the authority, management or policies of 

OIRA. 

VI.	 RESPONSIBILITIES 

a.	 Advocacy 

1.	 During OIRA’s prepublication review of an agency’s rule under Executive 

Order 12866, OIRA may consult with Advocacy regarding whether an 

agency should have prepared a regulatory flexibility analysis. Advocacy will 

designate staff by issue and/or agency to facilitate such discussions. If OIRA 

is uncertain as to small business impact or RFA compliance, OIRA may send 

a copy of the draft rule to Advocacy for evaluation. 

2.	 If Advocacy’s discussions with an issuing agency do not result in an 

acceptable accommodation, Advocacy may seek the assistance of OIRA 

during the regulatory review process under Executive Order 12866 and may 

recommend that OIRA return the rule to the agency for further consideration. 

3.	 Advocacy will monitor agency compliance with the RFA by reviewing the 

semi-annual regulatory agenda and the analyses that agencies publish in the 

Federal Register. Similarly, Advocacy will review the initial regulatory 

flexibility analyses that agencies provide directly to Advocacy. If Advocacy 

finds that a rule does not comply with the RFA, Advocacy will raise these 

concerns with OIRA. 

4.	 Advocacy shall provide OIRA with a copy of any correspondence or formal 

comments that Advocacy files with an agency concerning RFA compliance. 

5.	 Advocacy will develop guidance for agencies to follow on how to comply 

with the RFA. 

6.	 Advocacy will organize training sessions for Federal agencies on how to 

comply with the analytical requirements of the RFA. 

b.	 OIRA 

Consistent with OIRA’s responsibility to ensure adequate interagency coordination, 

OIRA shall endeavor to do the following: 

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1.	 During OIRA’s prepublication review of an agency’s rule pursuant to 

Executive Order 12866, OIRA will consider whether the agency should have 

prepared a regulatory flexibility analysis. If Advocacy has a concern in this 

regard, OIRA will provide a copy of the draft rule to Advocacy. In addition, 

upon request, OIRA may, as appropriate, provide Advocacy with draft 

proposals and accompanying regulatory analyses. 

2.	 If, in the judgment of Advocacy or OIRA, an agency provides an inadequate 

regulatory flexibility analysis, or if an agency provides a rule with an 

inadequate certification pursuant to section 605 of the RFA, OIRA may 

discuss and resolve the matter with the agency in the context of the 

regulatory review process under Executive Order 12866. Where OIRA 

deems it appropriate, OIRA may return a rule to the agency for further 

consideration. 

3.	 If Advocacy or OIRA are concerned about an information collection 

requirement contained in a rule which OIRA is reviewing under the 

Paperwork Reduction Act, OIRA may discuss and resolve the matter with the 

agency.. 

4.	 OIRA will endeavor to provide assistance, as appropriate, at the request of 

Advocacy in support of its development of guidance for agencies to follow in 

complying with the RFA and its training sessions on the analytical 

requirements of the RFA. 

c. Joint Advocacy-OIRA Responsibilities 

For rulemakings and information collection requests related to urgent health, safety, 

environmental, and homeland security matters, Advocacy and OIRA shall endeavor to 

cooperate and discuss their concerns in an expeditious manner. 

VII. TERM 

This MOU shall take effect on the date of signature of both parties, and will remain in effect for 

three years, at which time it may be renewed by mutual agreement of Advocacy and OIRA. 

VIII. AMENDMENT 

This MOU may be amended in writing and at any time by mutual agreement of Advocacy’s Chief 

Counsel or his/her designee and the Administrator of OIRA or his/her designee. 

IX. TERMINATION 

Either Advocacy or OIRA may terminate this MOU upon 90 days advance written notice. 

X. POINTS OF CONTACT 

Points of contact for this MOU are as follows: 

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_____________________________ 

_____________________________ 

For Advocacy: 

Thomas M. Sullivan 

Chief Counsel 

Office of Advocacy 

U.S. Small Business Administration 

409 Third Street, SW 

Suite 7800 

Washington, DC 20416 

(202) 205-6533 

(202) 205-6928 (fax) 

For OIRA: 

Dr. John D. Graham 

Administrator 

Office of Information and Regulatory Affairs 

Office of Management and Budget 

262 Old Executive Office Building 

Washington, DC 20503 

(202) 395-4852 

(202) 395-3047 (fax) 

XI. ACCEPTANCE 

The undersigned parties hereby accept the terms of this MOU: 

FOR THE OFFICE OF ADVOCACY: 

/s/ 

Thomas M. Sullivan, Chief Counsel 

FOR THE OFFICE OF INFORMATION AND REGULATORY AFFAIRS 

/s/ 

John D. Graham, Administrator 

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APPENDIX E EXECUTIVE ORDER 13272 

Title 3-­

The President 

Executive Order 13,272 of August 13, 2002 

Proper Consideration of Small Entities in Agency Rulemaking 

By the authority vested in me as President by the Constitution and the laws of the 

United States of America, it is hereby ordered as follows: 

Section 1. General Requirements. Each agency shall establish procedures and policies 

to promote compliance with the Regulatory Flexibility Act, as amended (5 U.S.C. 601 

et seq.) (the ``Act''). Agencies shall thoroughly review draft rules to assess and take 

appropriate account of the potential impact on small businesses, small governmental 

jurisdictions, and small organizations, as provided by the Act. The Chief Counsel for 

Advocacy of the Small Business Administration (Advocacy) shall remain available to 

advise agencies in performing that review consistent with the provisions of the Act. 

Sec. 2. Responsibilities of Advocacy. Consistent with the requirements of the Act, 

other applicable law, and Executive Order 12,866 of September 30, 1993, as amended, 

Advocacy: 

(a) shall notify agency heads from time to time of the requirements of the Act, 

including by issuing notifications with respect to the basic requirements of the Act 

within 90 days of the date of this order; 

(b) shall provide training to agencies on compliance with the Act; and 

(c) may provide comment on draft rules to the agency that has proposed or intends to 

propose the rules and to the Office of Information and Regulatory Affairs of the Office 

of Management and Budget (OIRA). 

Sec. 3. Responsibilities of Federal Agencies. Consistent with the requirements of the 

Act and applicable law, agencies shall: 

(a) Within 180 days of the date of this order, issue written procedures and policies, 

consistent with the Act, to ensure that the potential impacts of agencies' draft rules on 

small businesses, small governmental jurisdictions, and small organizations are 

properly considered during the rulemaking process. Agency heads shall submit, no 

later than 90 days from the date of this order, their written procedures and policies to 

Advocacy for comment. Prior to issuing final procedures and policies, agencies shall 

consider any such comments received within 60 days from the date of the submission 

of the agencies' procedures and policies to Advocacy. Except to the extent otherwise 

specifically provided by statute or Executive Order, agencies shall make the final 

procedures and policies available to the public through the Internet or other easily 

accessible means; 

(b) Notify Advocacy of any draft rules that may have a significant economic impact 

on a substantial number of small entities under the Act. Such notifications shall be 

made (i) when the agency submits a draft rule to OIRA under Executive Order 12,866 

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if that order requires such submission, or (ii) if no submission to OIRA is so required, 

at a reasonable time prior to publication of the rule by the agency; and 

(c) Give every appropriate consideration to any comments provided by Advocacy 

regarding a draft rule. Consistent with applicable law and appropriate protection of 

executive deliberations and legal privileges, an agency shall include, in any 

explanation or discussion accompanying publication in the Federal Register of a final 

rule, the agency's response to any written comments submitted by Advocacy on the 

proposed rule that preceded thefinal rule; provided, however, that inclusion is not 

required if the head of the agency certifies that the public interest is not served thereby. 

Agencies and Advocacy may, to the extent permitted by law, engage in an exchange of 

data and research, as appropriate, to foster the purposes of the Act. 

Sec. 4. Definitions. Terms defined in section 601 of title 5, United States Code,
 

including the term ``agency,'' shall have the same meaning in this order.
 

Sec. 5. Preservation of Authority. Nothing in this order shall be construed to impair or 

affect the authority of the Administrator of the Small Business Administration to 

supervise the Small Business Administration as provided in the first sentence of 

section 2(b)(1) of Public Law 85-09536 (15 U.S.C. 633(b)(1)). 

Sec. 6. Reporting. For the purpose of promoting compliance with this order, Advocacy 

shall submit a report not less than annually to the Director of the Office of 

Management and Budget on the extent of compliance with this order by agencies. 

Sec. 7. Confidentiality. Consistent with existing law, Advocacy may publicly disclose 

information that it receives from the agencies in the course of carrying out this order 

only to the extent that such information already has been lawfully and publicly 

disclosed by OIRA or the relevant rulemaking agency. 

Sec. 8. Judicial Review. This order is intended only to improve the internal 

management of the Federal Government. This order is not intended to, and does not, 

create any right or benefit, substantive or procedural, enforceable at law or equity, 

against the United States, its departments, agencies, or other entities, its officers or 

employees, or any other person. 

THE WHITE HOUSE, 

August 13, 2002. 

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APPENDIX F EXECUTIVE ORDER 12866 

Regulatory Planning and Review 

Public Papers of the Presidents 

September 30, 1993 

The American people deserve a regulatory system that works for them, not 

against them: a regulatory system that protects and improves their health, safety, 

environment, and well-being and improves the performance of the economy 

without imposing unacceptable or unreasonable costs on society; regulatory 

policies that recognize that the private sector and private markets are the best 

engine for economic growth; regulatory approaches that respect the role of State, 

local, and tribal governments; and regulations that are effective, consistent, 

sensible, and understandable. We do not have such a regulatory system today. 

With this Executive order, the Federal Government begins a program to reform 

and make more efficient the regulatory process. The objectives of this Executive 

order are to enhance planning and coordination with respect to both new and 

existing regulations; to reaffirm the primacy of Federal agencies in the regulatory 

decision-making process; to restore the integrity and legitimacy of regulatory 

review and oversight; and to make the process more accessible and open to the 

public. In pursuing these objectives, the regulatory process shall be conducted so 

as to meet applicable statutory requirements and with due regard to the discretion 

that has been entrusted to the Federal agencies. 

Accordingly, by the authority vested in me as President by the Constitution and 

the laws of the United States of America, it is hereby ordered as follows: 

Section 1. Statement of Regulatory Philosophy and Principles. (a) The Regulatory 

Philosophy. Federal agencies should promulgate only such regulations as are 

required by law, are necessary to interpret the law, or are made necessary by 

compelling public need, such as material failures of private markets to protect or 

improve the health and safety of the public, the environment, or the well-being of 

the American people. In deciding whether and how to regulate, agencies should 

assess all costs and benefits of available regulatory alternatives, including the 

alternative of not regulating. Costs and benefits shall be understood to include 

both quantifiable measures (to the fullest extent that these can be usefully 

estimated) and qualitative measures of cost and benefits that are difficult to 

quantify, but nevertheless essential to consider. Further, in choosing among 

alternative regulatory approaches, agencies should select those approaches that 

maximize net benefits (including potential economic, environmental, public 

health and safety, and other advantages; distributive impacts; and equity), unless a 

statute requires another regulatory approach. 

113 
 

(b) The Principles of Regulation. To ensure that the agencies' regulatory programs 

are consistent with the philosophy set forth above, agencies should adhere to the 

following principles, to the extent permitted by law and where applicable: 

(1) Each agency shall identify the problem that it intends to address (including, 

where applicable, the failures of private markets or public institutions that warrant 

new agency action) as well as assess the significance of that problem. 

(2) Each agency shall examine whether existing regulations (or other law) have 

created, or contributed to, the problem that a new regulation is intended to correct 

and whether those regulations (or other law) should be modified to achieve the 

intended goal of regulation more effectively. 

(3) Each agency shall identify and assess available alternatives to direct 

regulation, including providing economic incentives to encourage the desired 

behavior, such as user fees or marketable permits, or providing information upon 

which choices can be made by the public. 

(4) In setting regulatory priorities, each agency shall consider, to the extent 

reasonable, the degree and nature of the risks posed by various substances or 

activities within its jurisdiction. 

(5) When an agency determines that a regulation is the best available method of 

achieving the regulatory objective, it shall design its regulations in the most costeffective manner to achieve the regulatory objective. In doing so, each agency 

shall consider incentives for innovation, consistency, predictability, the costs of 

enforcement and compliance (to the government, regulated entitles, and the 

public), flexibility, distributive impacts, and equity. 

(6) Each agency shall assess both the costs and the benefits of the intended 

regulation and, recognizing that some costs and benefits are difficult to quantify, 

propose or adopt a regulation only upon a reasoned determination that the benefits 

of the intended regulation justify its costs. 

(7) Each agency shall base its decisions on the best reasonably obtainable 

scientific, technical, economic, and other information concerning the need for, 

and consequences of, the intended regulation. 

(8) Each agency shall identify and assess alternative forms of regulation and shall, 

to the extent feasible, specify performance objectives, rather than specifying the 

behavior or manner of compliance that regulated entities must adopt. 

(9) Wherever feasible, agencies shall seek views of appropriate State, local, and 

tribal officials before imposing regulatory requirements that might significantly or 

uniquely affect those governmental entities. Each agency shall assess the effects 

of Federal regulations on State, local, and tribal governments, including 

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specifically the availability of resources to carry out those mandates, and seek to 

minimize those burdens that uniquely or significantly affect such governmental 

entities, consistent with achieving regulatory objectives. In addition, as 

appropriate, agencies shall seek to harmonize Federal regulatory actions with 

related State, local, and tribal regulatory and other governmental functions. 

(10) Each agency shall avoid regulations that are inconsistent, incompatible, or 

duplicative with its other regulations or those of other Federal agencies. 

(11) Each agency shall tailor its regulations to impose the least burden on society, 

including individuals, businesses of differing sizes, and other entities (including 

small communities and government entities), consistent with obtaining the 

regulatory objectives, taking into account, among other things, and to the extent 

practicable, the costs of cumulative regulations. 

(12) Each agency shall draft its regulations to be simple and easy to understand, 

with the goal of minimizing the potential for uncertainty and litigation arising 

from such uncertainty. 

Sec. 2. Organization. An efficient regulatory planning and review process is vital 

to ensure that the Federal Government's regulatory system best serves the 

American people. (a) The Agencies. Because Federal agencies are the repositories 

of significant substantive expertise and experience, they are responsible for 

developing regulations and assuring that the regulations are consistent with 

applicable law, the President's priorities, and the principles set forth in this 

Executive order. 

(b) The Office of Management and Budget. Coordinated review of agency 

rulemaking is necessary to ensure that regulations are consistent with applicable 

law, the President's priorities, and the principles set forth in this Executive order, 

and that decisions made by one agency do not conflict with the policies or actions 

taken or planned by another agency. The Office of Management and Budget 

(OMB) shall carry out that review function. Within OMB, the Office of 

Information and Regulatory Affairs (OIRA) is the repository of expertise 

concerning regulatory issues, including methodologies and procedures that affect 

more than one agency, this Executive order, and the President's regulatory 

policies. To the extent permitted by law, OMB shall provide guidance to agencies 

and assist the President, the Vice President, and other regulatory policy advisors 

to the President in regulatory planning and shall be the entity that reviews 

individual regulations, as provided by the this Executive order. 

(c) The Vice President. The Vice President is the principal advisor to the 

President on, and shall coordinate the development and presentation of 

recommendations concerning, regulatory policy, planning, and review, as set forth 

in this Executive order. In fulfilling their responsibilities under this Executive 

order, the President and the Vice President shall be assisted by the regulatory 

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policy advisors within the Executive Office of the President and by such agency 

officials and personnel as the President and the Vice President may, from time to 

time, consult. 

Sec. 3. Definitions. for purposes of this Executive order: (1) "Advisors" refers to 

such regulatory policy advisors to the President as the President and Vice 

President may from time to time consult, including, among the others: (1)the 

Director of OMB; (2) the Chair (or another member) of the Council of Economic 

Advisers; (3) the Assistant to the President for Economic Policy; (4) the 

Assistance to the President for Domestic Policy; (5) the Assistant to the President 

for National Security Affairs; (6) the Assistant to the President for Science and 

Technology; (7) the Assistant to the President for Intergovernmental Affairs; (8) 

the Assistant to the President and Staff Secretary; (9) the Assistant to the 

President and Chief of Staff to the Vice President; (10) the Assistant to the 

President and Counsel to the President; (11) the Deputy Assistant to the President 

and Director of the White House Office of Environmental Policy; and (12) the 

Administrator of OIRA, who also shall coordinate communications relating to this 

Executive order among the agencies, OMB, the other Advisors, and the Office of 

the Vice President. 

(b) "Agency," unless otherwise indicated, means any authority of the United 

States that is an "agency" under 44 U.S.C. 3502(1), other than those considered to 

be independent regulatory agencies, as defined in 44 U.S.C. 3502(10). 

(c) "Director" means the Director of OMB. 

(d) "Regulation" or "rule" means an agency statement of general applicability and 

future effect, which the agency intends to have the force and effect of law, that is 

designed to implement, interpret, or prescribe law or policy or to describe the 

procedure or practice requirements of an agency. It does not, however, include: 

(1) Regulations or rules issued in accordance with the formal rulemaking 

provisions of 5 U.S.C. 556, 557; 

(2) Regulations or rules that pertain to a military or foreign affairs function of the 

United States, other than procurement regulations and regulations involving the 

import or export of non-defense articles and services; 

(3) Regulations or rules that are limited to agency organization, management, or 

personnel matters; or 

(4) Any other category of regulations exempted by the Administrator of OIRA. 

(e) "Regulatory action" means any substantive action by an agency (normally 

published in the Federal Register) that promulgates or is expected to lead to the 

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promulgation of a final rule or regulation, including notices of inquiry, advance 

notices of proposed rulemaking, and notices of proposed rulemaking. 

(f) "Significant regulatory action" means any regulatory action that is likely to 

result in a rule that may: 

(1) Have an annual effect on the economy of $100 million or more or adversely 

affect in a material way the economy, a sector of the economy, productivity, 

competition, jobs, the environment, public health or safety, or State, local, or 

tribal governments or communities; 

(2) Create a serious inconsistency or otherwise interfere with an action taken or 

planned by another agency; 

(3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan 

programs or the rights and obligations of recipients thereof; or 

(4) Raise novel legal or policy issues arising out of legal mandates, the President's 

priorities, or the principles set forth in this Executive order. 

Sec. 4. Planning Mechanism. In order to have an effective regulatory program, to 

provide for coordination of regulations, to maximize consultation and the 

resolution of potential conflicts at an early stage, to involve the public and its 

State, local, and tribal officials in regulatory planning, and to ensure that new or 

revised regulations promote the President's priorities and the principles set forth in 

this Executive order, these procedures shall be followed, to the extent permitted 

by law: 

(a) Agencies' Policy Meeting. Early in each year's planning cycle, the Vice 

President shall convene a meeting of the Advisors and the heads of agencies to 

seek a common understanding of priorities and to coordinate regulatory efforts to 

be accomplished in the upcoming years. 

(b) Unified Regulatory Agenda. For purposes of this subsection, the term 

"agency" or "agencies" shall also include those considered to be independent 

regulatory agencies, as defined in 44 U.S.C. 3502(10). Each agency shall prepare 

an agenda of all regulations under development or review, at a time and in a 

manner specified by the Administrator of OIRA. The description of each 

regulatory action shall contain, at a minimum, a regulation identifier number, a 

brief summary of the action, the legal authority for the action, any legal deadline 

for the action, and the name and telephone number of a knowledgeable agency 

official. Agencies may incorporate the information required under 5 U.S.C. 602 

and 41 U.S.C. 402 into these agendas. 

(c) The Regulatory Plan. For purposes of this subsection, the term "agency" or 

"agencies" shall also include those considered to be independent regulatory 

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agencies, as defined in 44 U.S.C. 3502(10). (1) As part of the Unified Regulatory 

Agenda, beginning in 1994, each agency shall prepare a Regulatory Plan (Plan) of 

the most important significant regulatory actions that the agency reasonably 

expects to issue in proposed or final form in that fiscal year or thereafter. The Plan 

shall be approved personally by the agency head and shall contain at a minimum: 

(A) A statement of the agency's regulatory objectives and priorities and how they 

relate to the President's priorities; 

(B) A summary of each planned significant regulatory action including, to the 

extent possible, alternatives to be considered and preliminary estimates of the 

anticipated costs and benefits; 

(C) A summary of the legal basis for each such action, including whether any 

aspect of the action is required by statute or court order; 

(D) A statement of the need for each such action and, if applicable, how the action 

will reduce risks to public health, safety, or the environment, as well as how the 

magnitude of the risk addressed by the action relates to other risks within the 

jurisdiction of the agency; 

(E) The agency's schedule for action, including a statement of any applicable 

statutory or judicial deadlines; and 

(F) The name, address, and telephone number of a person the public may contact 

for additional information about the planned regulatory action. 

(2) Each agency shall forward its Plan to OIRA by June 1st of each year. 

(3) Within 10 calendar days after OIRA has received an agency's Plan, OIRA 

shall circulate it to other affected agencies, the Advisors, and the Vice President. 

(4) An agency head who believes that a planned regulatory action of another 

agency may conflict with its own policy or action taken or planned shall promptly 

notify, in writing, the Administrator of OIRA, who shall forward that 

communication to the issuing agency, the Advisors, and the Vice President. 

(5) If the Administrator of OIRA believes that planned regulatory action of an 

agency may be inconsistent with the President's priorities or the principles set 

forth in this Executive order or may be in conflict with any policy or action taken 

or planned by another agency, the Administrator of OIRA shall promptly notify, 

in writing, the effected agencies, the Advisors, and the Vice President. 

(6) The Vice President, with the Advisors' assistance, may consult with the heads 

of agencies with respect to their Plans and, in appropriate instances, request 

further consideration or inter-agency coordination. 

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(7) The Plans developed by the issuing agency shall be published annually in the 

October publication of the Unified Regulatory Agenda. This publication shall be 

made available to the Congress; State, local, and tribal governments; and the 

public. Any views on any aspect of any agency Plan, including whether any 

planned regulatory action might conflict with any other planned or existing 

regulation, impose any unintended consequences on the public, or confer any 

unclaimed benefits on the public, should be directed to the issuing agency, with a 

copy to OIRA. 

(d) Regulatory Working Group. Within 30 days of the date of this Executive 

order, the Administrator of OIRA shall convene a Regulatory Working Group 

("Working Group"), which shall consist of representatives of the heads of each 

agency that the Administrator determines to have significant domestic regulatory 

responsibility, the Advisors, and the Vice President. The Administrator of OIRA 

shall chair the Working Group and shall periodically advise the Vice President on 

the activities of the Working Group. The Working Group shall serve as a forum to 

assist agencies in identifying and analyzing important regulatory issues 

(including, among others (1) the development of innovative regulatory 

techniques, (2) the methods, efficacy, and utility of comparative risk assessment 

in regulatory decision-making, and (3) the development of short forms and other 

streamlined regulatory approaches for small businesses and other entities). The 

Working Group shall meet at least quarterly and may meet as a whole or in 

subgroups of agencies with an interest in particular issues or subject areas. To 

inform its discussions, the Working Group may commission analytical studies and 

reports by OIRA, the Administrative Conference of the United States, or any 

other agency. 

(e) Conferences. The Administrator of OIRA shall meet quarterly with 

representatives of State, local, and tribal governments to identify both existing 

and proposed regulations that may uniquely or significantly affect those 

governmental entities. The Administrator of OIRA shall also convene, from time 

to time, conferences with representatives of businesses, nongovernmental 

organizations, and the public to discuss regulatory issues of common concern. 

Sec. 5. Existing Regulations. In order to reduce the regulatory burden on the 

American people, their families, their communities, their State, local, and tribal 

governments, and their industries; to determine whether regulations promulgated 

by the executive branch of the Federal Government have become unjustified or 

unnecessary as a result of changed circumstances; to confirm that regulations are 

both compatible with each other and not duplicative or inappropriately 

burdensome in the aggregate; to ensure that all regulations are consistent with the 

President's priorities and the principles set forth in this Executive order, within 

applicable law; and to otherwise improve the effectiveness of existing regulations: 

(1) Within 90 days of the date of this Executive order, each agency shall submit to 

OIRA a program, consistent with its resources and regulatory priorities, under 

which the agency will periodically review its existing significant regulations to 

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determine whether any such regulations should be modified or eliminated so as to 

make the agency's regulatory program more effective in achieving the regulatory 

objectives, less burdensome, or in greater alignment with the President's priorities 

and the principles set forth in this Executive order. Any significant regulations 

selected for review shall be included in the agency's annual Plan. The agency 

shall also identify any legislative mandates that require the agency to promulgate 

or continue to impose regulations that the agency believes are unnecessary or 

outdated by reason of changed circumstances. 

(b) The Administrative of OIRA shall work with the Regulatory Working Group 

and other interested entities to pursue the objectives of this section. State, local, 

and tribal governments are specifically encouraged to assist in the identification 

of regulations that impose significant or unique burdens on those governmental 

entities and that appear to have outlived their justification or be otherwise 

inconsistent with the public interest. 

(c) The Vice President, in consultation with the Advisors, may identify for review 

by the appropriate agency or agencies other existing regulations of an agency or 

groups of regulations of more than one agency that affect a particular group, 

industry, or sector of the economy, or may identify legislative mandates that may 

be appropriate for reconsideration by the Congress. 

Sec. 6. Centralized Review of Regulations. The guidelines set forth below shall 

apply to all regulatory actions, for both new and existing regulations, by agencies 

other than those agencies specifically exempted by the Administrator of OIRA: 

(a) Agency Responsibilities. (1) Each agency shall (consistent with its own rules, 

regulations, or procedures) provide the public with meaningful participation in the 

regulatory process. In particular, before issuing a notice of proposed rulemaking, 

each agency should, where appropriate, seek the involvement of those who are 

intended to benefit from and those expected to be burdened by any regulation 

(including, specifically, State, local, and tribal officials). In addition, each agency 

should afford the public a meaningful opportunity to comment on any proposed 

regulation, which in most cases should include a comment period of not less than 

60 days. Each agency also is directed to explore and, where appropriate, use 

consensual mechanisms for developing regulations, including negotiated 

rulemaking. 

(2) Within 60 days of the date of this Executive order, each agency head shall 

designate a Regulatory Policy Officer who shall report to the agency head. The 

Regulatory Policy Officer shall be involved at each stage of the regulatory process 

to foster the development of effective, innovative, and least burdensome 

regulations and to further the principles set forth in this Executive order. 

(3) In addition to adhering to its own rules and procedures and to the requirements 

of the Administrative Procedure Act, the Regulatory Flexibility Act, the 

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Paperwork Reduction Act, and other applicable law, each agency shall develop its 

regulatory actions in a timely fashion and adhere to the following procedures with 

respect to a regulatory action: 

(A) Each agency shall provide OIRA, at such times and in the manner specified 

by the Administrator of OIRA, with a list of its planned regulatory actions, 

indicating those which the agency believes are significant regulatory actions 

within the meaning of this Executive order. Absent a material change in the 

development of the planned regulatory action, those not designated as significant 

will not be subject to review under this section unless, within 10 working days of 

receipt of the list, the Administrator of OIRA notifies the agency that OIRA has 

determined that a planned regulation is a significant regulatory action within the 

meaning of this Executive order. The Administrator of OIRA may waive review 

of any planned regulatory action designated by the agency as significant, in which 

case the agency need not further comply with subsection (a)(3)(B) or subsection 

(a)(3)(C) of this section. 

(B) For each matter identified as, or determined by the Administrator of OIRA to 

be, a significant regulatory action, the issuing agency shall provide to OIRA: 

(i) The text of the draft regulatory action, together with a reasonably detailed 

description of the need for the regulatory action and an explanation of how the 

regulatory action will meet that need; and 

(ii) An assessment of the potential costs and benefits of the regulatory action, 

including an explanation of the manner in which the regulatory action is 

consistent with a statutory mandate and, to the extent permitted by law, promotes 

the President's priorities and avoids undue interference with State, local, and tribal 

governments in the exercise of their governmental functions. 

(C) For those matters identified as, or determined by the Administrator of OIRA 

to be, a significant regulatory action within the scope of section 3(f)(l), the agency 

shall also provide to OIRA the following additional information developed as part 

of the agency's decision-making process (unless prohibited by law): 

(i) An assessment, including the underlying analysis, of benefits anticipated from 

the regulatory action (such as, but not limited to, the promotion of the efficient 

functioning of the economy and private markets, the enhancement of health and 

safety, the protection of the natural environment, and the elimination or reduction 

of discrimination or bias) together with, to the extent feasible, a quantification of 

those benefits; 

(ii) An assessment, including the underlying analysis, of costs anticipated from 

the regulatory action (such as, but not limited to, the direct cost both to the 

government in administering the regulation and to businesses and others in 

complying with the regulation, and any adverse effects on the efficient 

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functioning of the economy, private markets (including productivity, 

employment, and competitiveness), health, safety, and the natural environment), 

together with, to the extent feasible, a quantification of those costs; and 

(iii) An assessment, including the underlying analysis, of costs and benefits of 

potentially effective and reasonably feasible alternatives to the planned regulation, 

identified by the agencies or the public (including improving the current 

regulation and reasonably viable nonregulatory actions), and an explanation why 

the planned regulatory action is preferable to the identified potential alternatives. 

(D) In emergency situations or when an agency is obligated by law to act more 

quickly than normal review procedures allow, the agency shall notify OIRA as 

soon as possible and, to the extent practicable, comply with subsections (a)(3)(B) 

and (C) of this section. For those regulatory actions that are governed by a 

statutory or court-imposed deadline, the agency shall, to the extent practicable, 

schedule rulemaking proceedings so as to permit sufficient time for OIRA to 

conduct its review, as set forth below in subsection (b)(2) through (4) of this 

section. 

(E) After the regulatory action has been published in the Federal Register or 

otherwise issued to the public, the agency shall: 

(i) Make available to the public the information set forth in subsections (a)(3)(B) 

and (C); 

(ii) Identify for the public, in a complete, clear, and simple manner, the 

substantive changes between the draft submitted to OIRA for review and the 

action subsequently announced; and 

(iii) Identify for the public those changes in the regulatory action that were made 

at the suggestion or recommendation of OIRA. 

(F) All information provided to the public by the agency shall be in plain, 

understandable language. 

(b) OIRA Responsibilities. The Administrator of OIRA shall provide meaningful 

guidance and oversight so that each agency's regulatory actions are consistent 

with applicable law, the President's priorities, and the principles set forth in this 

Executive order and do not conflict with the policies or actions of another agency. 

OIRA shall, to the extent permitted by law, adhere to the following guidelines: 

(1) OIRA may review only actions identified by the agency or by OIRA as 

significant regulatory actions under subsection (a)(3)(A) of this section. 

(2) OIRA shall waive review or notify the agency in writing of the results of its 

review within the following time periods: 

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(A) For any notices of inquiry, advance notices of proposed rulemaking, or other 

preliminary regulatory actions prior to a Notice of Proposed Rulemaking, within 

10 working days after the date of submission of the draft action to OIRA; 

(B) For all other regulatory actions, within 90 calendar days after the date of 

submission of the information set forth in subsections (a)(3)(B) and (C) of this 

section, unless OIRA has previously reviewed this information and, since that 

review, there has been no material change in the facts and circumstances upon 

which the regulatory action is based, in which case, OIRA shall complete its 

review within 45 days; and 

(C) The review process may be extended (1) once by no more than 30 calendar 

days upon the written approval of the Director and (2) at the request of the agency 

head. 

(3) For each regulatory action that the Administrator of OIRA returns to an 

agency for further consideration of some or all of its provisions, the Administrator 

of OIRA shall provide the issuing agency a written explanation for such return, 

setting forth the pertinent provision of this Executive order on which OIRA is 

relying. If the agency head disagrees with some or all of the bases for the return, 

the agency head shall so inform the Administrator of OIRA in writing. 

(4) Except as otherwise provided by law or required by a Court, in order to ensure 

greater openness, accessibility, and accountability in the regulatory review 

process, OIRA shall be governed by the following disclosure requirements: 

(A) Only the Administrator of OIRA (or a particular designee) shall receive oral 

communications initiated by persons not employed by the executive branch of the 

Federal Government regarding the substance of a regulatory action under OIRA 

review; 

(B) All substantive communications between OIRA personnel and persons not 

employed by the executive branch of the Federal Government regarding a 

regulatory action under review shall be governed by the following guidelines: (i) 

A representative from the issuing agency shall be invited to any meeting between 

OIRA personnel and such person(s); 

(ii) OIRA shall forward to the issuing agency, within 10 working days of receipt 

of the communication(s), all written communications, regardless of format, 

between OIRA personnel and any person who is not employed by the executive 

branch of the Federal Government, and the dates and names of individuals 

involved in all substantive oral communications (including meetings to which an 

agency representative was invited, but did not attend, and telephone conversations 

between OIRA personnel and any such persons); and 

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(iii) OIRA shall publicly disclose relevant information about such 

communication(s), as set forth below in subsection (b)(4)(C) of this section. 

(C) OIRA shall maintain a publicly available log that shall contain, at a minimum, 

the following information pertinent to regulatory actions under review: 

(i) The status of all regulatory actions, including if (and if so, when and by whom) 

Vice Presidential and Presidential consideration was requested; 

(ii) A notation of all written communications forwarded to an issuing agency 

under subsection (b)(4)(B)(ii) of this section; and 

(iii) The dates and names of individuals involved in all substantive oral 

communications, including meetings and telephone conversations, between OIRA 

personnel and any person not employed by the executive branch of the Federal 

Government, and the subject matter discussed during such communications. 

(D) After the regulatory action has been published in the Federal Register or 

otherwise issued to the public, or after the agency has announced its decision not 

to publish or issue the regulatory action, OIRA shall make available to the public 

all documents exchanged between OIRA and the agency during the review by 

OIRA under this section. 

(5) All information provided to the public by OIRA shall be in plain, 

understandable language. 

Sec. 7. Resolution of Conflicts. To the extent permitted by law, disagreements or 

conflicts between or among agency heads or between OMB and any agency that 

cannot be resolved by the Administrator of OIRA shall be resolved by the 

President, or by the Vice President acting at the request of the President, with the 

relevant agency head (and, as appropriate, other interested government officials). 

Vice Presidential and Presidential consideration of such disagreements may be 

initiated only by the Director, by the head of the issuing agency, or by the head of 

an agency that has a significant interest in the regulatory action at issue. Such 

review will not be undertaken at the request of other persons, entities, or their 

agents. 

Resolution of such conflicts shall be informed by recommendations developed by 

the Vice President, after consultation with the Advisors (and other executive 

branch officials or personnel whose responsibilities to the President include the 

subject matter at issue). The development of these recommendations shall be 

concluded within 60 days after review has been requested. 

During the Vice Presidential and Presidential review period, communications with 

any person not employed by the Federal Government relating to the substance of 

the regulatory action under review and directed to the Advisors or their staffs or to 

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the staff of the Vice President shall be in writing and shall be forwarded by the 

recipient to the affected agency(ies) for inclusion in the public docket(s). When 

the communication is not in writing, such Advisors or staff members shall inform 

the outside party that the matter is under review and that any comments should be 

submitted in writing. 

At the end of this review process, the President, or the Vice President acting at the 

request of the President, shall notify the affected agency and the Administrator of 

OIRA of the President's decision with respect to the matter. 

Sec. 8. Publication. Except to the extent required by law, an agency shall not 

publish in the Federal Register or otherwise issue to the public any regulatory 

action that is subject to review under section 6 of this Executive order until (1) the 

Administrator of OIRA notifies the agency that OIRA has waived its review of 

the action or has completed its review without any requests for further 

consideration, or (2) the applicable time period in section 6(b)(2) expires without 

OIRA having notified the agency that it is returning the regulatory action for 

further consideration under section 6(b)(3), whichever occurs first. If the terms of 

the preceding sentence have not been satisfied and an agency wants to publish or 

otherwise issue a regulatory action, the head of that agency may request 

Presidential consideration through the Vice President, as provided under section 7 

of this order. Upon receipt of this request, the Vice President shall notify OIRA 

and the Advisors. The guidelines and time period set forth in section 7 shall apply 

to the publication of regulatory actions for which Presidential consideration has 

been sought. 

Sec. 9. Agency Authority. Nothing in this order shall be construed as displacing 

the agencies' authority or responsibilities, as authorized by law. 

Sec. 10. Judicial Review. Nothing in this Executive order shall affect any 

otherwise available judicial review of agency action. This Executive order is 

intended only to improve the internal management of the Federal Government and 

does not create any right or benefit, substantive or procedural, enforceable at law 

or equity by a party against the United States, its agencies or instrumentalities, its 

officers or employees, or any other person. 

Sec. 11. Revocations. Executive Orders Nos. 12291 and 12498; all amendments 

to those Executive orders; all guidelines issued under those orders; and any 

exemptions from those orders heretofore granted for any category of rule are 

revoked. 

William J. Clinton 

The White House, September 30, 1993. 

Filed with the Office of the Federal Register, 12:12 pm., October 1, 1993 

125 
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APPENDIX G ABBREVIATIONS USED IN THIS GUIDE
 

Advocacy Office of Advocacy, U.S. Small Business Administration 

ANPRM advance notice of proposed rulemaking 

APHIS Animal and Plant Health Inspection Service 

APA Administrative Procedure Act 

ATA American Trucking Association 

BBA Balanced Budget Act 

BLM Bureau of Land Management 

CAA Civilian Acquisition Agency 

C.F.R Code of Federal Regulations 

CMS Centers for Medicare and Medicaid Services 

COPPA Children’s Online Privacy Protection Act 

DAR Defense Acquisition Regulations 

DOC Department of Commerce 

DOD Department of Defense 

DOI Department of the Interior 

DOL Department of Labor 

DOT Department of Transportation 

E.O. Executive Order 

EPA Environmental Protection Agency 

FAR Federal Acquisition Regulation 

FCC Federal Communications Commission 

FERC Federal Energy Regulatory Commission 

FmHA Farmers Home Administration 

FR Federal Register 

FRFA final regulatory flexibility analysis 

FTC Federal Trade Commission 

GAO General Accounting Office, now Government Accountability Office 

HHS U.S. Department of Health and Human Services 

IPS Interim Payment System 

IRFA initial regulatory flexibility analysis 

IRS Internal Revenue Service 

MMS Minerals Management Service 

NAAQS national ambient air quality standard 

NAICS North American Industry Classification System 

NEPA National Environmental Policy Act 

NHTSA National Highway Traffic Safety Administration 

NMFS National Marine Fisheries Service 

NOAA National Oceanic and Atmospheric Administration 

NPRM notice of proposed rulemaking 

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 

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RFA Regulatory Flexibility Act 

RSPA Research and Special Programs Administration 

SBA Small Business Administration 

SBIC small business investment company 

SBREFA Small Business Regulatory Enforcement Fairness Act 

SERS small entity representatives 

SIC Standard Industrial Classification system 

USDA U.S. Department of Agriculture 

U.S.C. United States Code 

UPL upper payment limit 

VOCs volatile organic compounds 

128 
APPENDIX H OFFICE OF ADVOCACY STAFF 

Telephone (202) 205-6533 Fax (202) 205-6928

Office of the Chief Counsel

Winslow Sargeant Chief Counsel for Advocacy 202-205-6533

Claudia Rayford Acting Deputy Chief Counsel 202-205-6804

Office of Interagency Affairs (Legal Staff) 

Charles Maresca Director 202-205-6978

Jamie Belcore Saloom Telecommunications and Energy 202-205-6890

Kevin Bromberg Environment 202-205-6964

Major Clark Procurement and Small Business 202-205-7150

Vacant Environment, Regulatory Reform 202-205-6936

Nancy Ing Website Coordinator 202-205-6944

Bruce Lundegren Safety, Transportation, and Security 202-205-6144

Linwood Rayford Food, Drugs, and Health 202-401-6880

Kate Reichert Education and Intellectual Property 202-205-6972

Janis Reyes Labor and Immigration 202-619-0312

Jennifer Smith Economic Regulation 202-205-6943

Joe Sobota Veterans 202-205-6952

Dillon Taylor Taxes, Securities, and Pensions 202-401-9787

Office of Economic Research

Chad Moutray Director 202-205-6973

Zoltan Acs Chief Economist 202-205-6749

Brian Headd Small Business Dynamics 202-205-6553

Victoria Jackson Finance 202-205-6191

Joe Johnson Regulatory Analysis 202-205-6951

Jules Lichtenstein Labor and Benefits 202 205-6537

Ying Lowrey Entrepreneurs, Women, Minorities 202-205-6947

Radwan Saade Regulatory Analysis 202-205-6878

Office of Information

Jody Wharton Director 202-205-6933

Thaddeus Inge Congressional Affairs 202-205-6888

Rebecca Krafft Writer/Editor 202-205-6224

Robert Kleinsteuber Writer/Editor 202-205-6958

Patrick Morris Press/Media Manager 202-205-6941

Kathryn Tobias Senior Editor 202-205-6938

Administrative Support Branch

Luckie Wren Director 202-205-7749

Angie Hamilton Program Assistant 202-205-6562

Shelia Myles Administrative Specialist 202-205-6564

Tymillia Robertson Program Assistant 202-619-2310

Natalyn Tart-Jones Administrative Specialist 202-205-6181

Regional Affairs

Shawne McGibbon Region III Advocate 202-272-0397

Updated August 2010
 

 

 

 

 

 

APPENDIX I OFFICE OF INFORMATION AND REGULATORY 

AFFAIRS 

Administrator (202) 395-4852 

Deputy Administrator (202) 395-5897 

Health, Transportation and General Government Branch (202) 395-7316 

Information Policy Technology Branch (202) 395-3785 

Natural Resources, Energy and Agriculture Branch (202) 395-3084 

Statistical and Science Policy Branch (202) 395-3093 

130 
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APPENDIX J SECTION 610 OF THE REGULATORY FLEXIBILITY 

ACT: BEST PRACTICES FOR FEDERAL AGENCIES 

Introduction 

Section 610 of the Regulatory Flexibility Act (RFA)253 requires federal agencies to 

review regulations that have a significant economic impact on a substantial number of 

small entities254 within 10 years of their adoption as final rules. These periodic rule 

reviews are a mechanism for agencies to assess the impact of existing rules on small 

entities and to determine whether the rules should be continued without change, or should 

be amended or rescinded, consistent with the objectives of applicable statutes. Agency 

compliance with section 610’s periodic review requirement has varied substantially from 

agency to agency since 1980.255 While some agencies systematically review all of their 

existing rules, other agencies review few, if any, of their current rules. Agencies also 

vary considerably in the amount of public involvement they allow, and the amount of 

information they provide to the public about their reviews. 

The Office of Advocacy, an independent office within the U.S. Small Business 

Administration (Advocacy), has previously given relatively little guidance to agencies on 

section 610. In 2003, pursuant to the requirements of Executive Order 13,272, 256 

Advocacy issued a general guide on how to comply with the RFA, including section 

610.257 The 2003 guide did not, however, address commonly asked questions about 

section 610, such as the timing and scope of reviews, how the public can be involved, and 

how agencies should communicate with the public about their reviews. The 2003 guide 

also did not provide examples of retrospective reviews that were, in Advocacy’s view, 

conducted properly. 

This best practices document is intended to provide Advocacy’s interpretation of section 

610 of the RFA and answer common questions about conducting retrospective reviews of 

253 5 U.S.C. § 610 (2000). 254 “Small entities” include small businesses that meet the Small Business Administration size standard for 

small business concerns at 13 C.F.R. § 121.201, small governmental jurisdictions with a population of less 

than 50,000, and small organizations that are independently owned not-for-profit enterprises and which are 

not dominant in their field. See 5 U.S.C. §§ 601(3)-(5). 255 See, for example, Government Accountability Office, Reexamining Regulations: Opportunities Exist to 

Improve Effectiveness and Transparency of Retrospective Reviews (GAO-07-791), July 2007; General 

Accounting Office, Regulatory Flexibility Act: Agencies’ Interpretations Vary (GAO/GGD-99-55) April 

1999. See also Michael R. See, Willful Blindness: Federal Agencies’ Failure to Comply with the 

Regulatory Flexibility Act’s Periodic Review Requirement – and Current Proposals to Invigorate the Act, 

33 Fordham Urb. L.J. 1199-1255 (2006). 256 Exec. Order No. 13,272 § 2(a), 67 Fed. Reg. 53,461 (Aug. 13, 2002) (“Advocacy . . . shall notify agency 

heads from time to time of the requirements of the [RFA], including by issuing notifications with respect to 

the basic requirements of the Act . . . .”)

257Office of Advocacy, How to Comply with the Regulatory Flexibility Act: A Guide for Government 

Agencies (May 2003) available at http://www.sba.gov/advo/laws/rfaguide.pdf. 

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existing regulations in a transparent manner. Advocacy intends this document to 

supplement the 2003 RFA guide; like the 2003 guide, it was developed to meet 

Advocacy’s continuing responsibility under Executive Order 13,272 to “notify agency 

heads from time to time of the requirements of the [RFA].”258 

The statutory text of Section 610, 5 U.S.C. § 610 

§ 610. Periodic review of rules 

(a) Within one hundred and eighty days after the effective date of this chapter, each 

agency shall publish in the Federal Register a plan for the periodic review of the rules 

issued by the agency which have or will have a significant economic impact upon a 

substantial number of small entities. Such plan may be amended by the agency at any 

time by publishing the revision in the Federal Register. The purpose of the review shall 

be to determine whether such rules should be continued without change, or should be 

amended or rescinded, consistent with the stated objectives of applicable statutes, to 

minimize any significant economic impact of the rules upon a substantial number of such 

small entities. The plan shall provide for the review of all such agency rules existing on 

the effective date of this chapter within ten years of that date and for the review of such 

rules adopted after the effective date of this chapter within ten years of the publication of 

such rules as the final rule. If the head of the agency determines that completion of the 

review of existing rules is not feasible by the established date, he shall so certify in a 

statement published in the Federal Register and may extend the completion date by one 

year at a time for a total of not more than five years. 

(b) In reviewing rules to minimize any significant economic impact of the rule on a 

substantial number of small entities in a manner consistent with the stated objectives of 

applicable statutes, the agency shall consider the following factors— 

(1) the continued need for the rule; 

(2) the nature of complaints or comments received concerning the rule from the 

public; 

(3) the complexity of the rule; 

(4) the extent to which the rule overlaps, duplicates or conflicts with other Federal 

rules, and, to the extent feasible, with State and local governmental rules; and 

(5) the length of time since the rule has been evaluated or the degree to which 

technology, economic conditions, or other factors have changed in the area affected by 

the rule. 

(c) Each year, each agency shall publish in the Federal Register a list of the rules which 

have a significant economic impact on a substantial number of small entities, which are 

to be reviewed pursuant to this section during the succeeding twelve months. The list 

shall include a brief description of each rule and the need for and legal basis of such rule 

and shall invite public comment upon the rule. 

258 Exec. Order No. 13,272 § 2(a), 67 Fed. Reg. 53,461 (Aug. 13, 2002). 

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Legislative history of the RFA relating to section 610. 

Statements made during the 1980 debate on the Regulatory Flexibility Act demonstrate 

that Congress intended for section 610 to be a mechanism that requires agencies to 

periodically re-examine the regulatory burden of their rules vis-à-vis small entities, 

considered in the light of changing circumstances.259 This view was also reflected in 

Advocacy’s initial 1982 guidance explaining the then-new RFA, which stated that 

The RFA requires agencies to review all existing regulations to 

determine whether maximum flexibility is being provided to 

accommodate the unique needs of small businesses and small entities. 

Because society is not static, changing environments and technology 

may necessitate modifications of existing, anachronistic regulations to 

assure that they do not unnecessarily impede the growth and 

development of small entities.260 

Put simply, the objective of a section 610 review is like the goal of many other 

261 

retrospective rule reviews: to determine whether an existing rule is actually working 

as it was originally intended and whether revisions are needed. Has the problem the rule 

was designed to address been solved? Are regulated entities (particularly small entities) 

able to comply with the rule as anticipated by the agency? Are the costs of compliance in 

line with the agency’s initial estimates? Are small businesses voicing continuing 

concerns about the difficulty they have complying with the rule? The section 610 review 

is an excellent way to address these questions. 

Is a section 610 review necessary even if the current rule did not impose a significant 

economic impact on a substantial number of small entities at the time the rule was 

promulgated? 

259 House Debate on the Regulatory Flexibility Act, 142 Cong. Rec. H24,575, H24,583-585 (daily ed. Sept. 

8, 1980) (“At least once every 10 years, agencies must assess regulations currently on the books, with a 

view toward modification of those which unduly impact on small entities.” (Statement of Rep. McDade)) 

(“[A]gencies must review all regulations currently on the books and determine the continued need for any 

rules which have a substantial impact on small business.” (Statement of Rep. Ireland)). Similarly, the 

section-by-section analysis of the periodic review provision of S. 299, which became the RFA, notes that 

the required factors in a section 610 review mirror the evaluative factors in President Carter’s Executive 

Order 12,044, Improving Government Regulations. Exec. Order 12,044, 43 Fed. Reg. 12,661 (March 24, 

1978). Pursuant to that Executive Order, President Carter issued a Memorandum to the Heads of Executive 

Departments and Agencies in 1979, further instructing federal agencies: “As you review existing 

regulatory and reporting requirements, take particular care to determine where, within statutory limits, it is 

possible to tailor those requirements to fit the size and nature of the businesses and organizations subject to 

them.” President Jimmy Carter, Memorandum to the Heads of Executive Departments and Agencies, 

November 16, 1979. 260 Office of Advocacy, The Regulatory Flexibility Act (October 1982). 261 Typical agency-initiated retrospective regulatory reviews include post-hoc validation studies, reviews 

conducted pursuant to petitions for rulemaking or reconsideration, paperwork burden reviews, and reviews 

undertaken to advance agency policies. 

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In some cases, yes. Even if an agency was originally able to certify properly under 

section 605 of the RFA that a rule would not have a significant economic impact on a 

substantial number of small entities,262 changed conditions may mean that the rule now 

does have a significant impact and therefore should be reviewed under section 610. 

For example, there may be many more small businesses that are subject to the rule now 

than when the rule was promulgated. The cost of compliance with a current rule may 

have sharply increased because of a required new technology. If there is evidence 

(such as new cost or burden data) that a rule is now having a significant economic 

impact on a substantial number of small entities, including small communities or small 

non-profit organizations, Advocacy believes that the agency should conduct a section 

610 review. 

Advocacy is aware that some agencies interpret section 610 not to require the periodic 

review of rules that were originally certified when they were promulgated as having no 

significant economic impact on a substantial number of small entities. This narrow 

interpretation of the section 610 review requirements discounts several important 

considerations. First, evidence of significant current impacts to small entities from an 

existing rule may call into question the accuracy of the original determination that the 

rule would have no significant impact. Second, as time passes and the agency (along 

with regulated small entities) are better able to measure and understand the impacts of a 

regulation, it benefits the agency to use the periodic review process to update their rules 

and perform regulatory “housekeeping.” Third, limiting section 610 reviews only to rules 

that were found to have a significant economic impact on a substantial number of small 

entities at the time of promulgation would severely undercut section 610. EPA and 

OSHA, for example – which between them determine that at most one or two rules each 

year will have such an impact – will exclude each of the hundreds of other rules 

promulgated annually which may now significantly impact small entities from section 

610 review. Given the legislative history of section 610, it is very difficult to believe that 

Congress intended this outcome. Finally, a reading of the plain language of section 610 

supports Advocacy’s interpretation. If Congress meant to limit periodic reviews, it would 

have simply required agencies to review rules that had a significant impact, rather than 

rules which have a significant impact. 

An agency may learn about the current impacts of an existing rule through complaints 

from small entities or petitions for a section 610 or other retrospective review of the rule. 

If these complaints and/or petitions are founded on reliable cost and impact data, the 

agency will have a clear indication that small entities are now being impacted by the rule. 

Scope of the review: What should be included? 

Once an agency has determined that an existing rule has a significant economic impact on 

a substantial number of small entities at the present time, the agency’s section 610 review 

should, at a minimum, address each of the five factors listed in section 610(b)(1)-(5): 

262 See 5 U.S.C. § 605(b). 

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•	 Whether or not there a continuing need for this rule, consistent with the stated 

objectives of the applicable statutes; 

•	 Whether the public has ever submitted comments or complaints about this rule; 

•	 The degree of complexity of this rule; 

•	 Whether some other federal or state requirement accomplishes the same 

regulatory objective as this rule; and 

•	 The length of time since the agency has reviewed this rule, and/or the extent to 

which circumstances have changed which may affect regulated entities. 

Particular attention should be paid to changes in technology, economic circumstances, 

competitive forces, and the cumulative burden faced by regulated entities. Has the 

impact of the rule on small entities remained the same? 

Section 610(b) requires an agency to evaluate and minimize “any significant economic 

impact of a rule on a substantial number of small entities in a manner consistent with the 

stated objectives of applicable statutes.” To accomplish this, agencies may want to use an 

economic analysis similar to the Initial Regulatory Flexibility Analysis (IRFA) under 

section 603 of the RFA, taking into account the limitations on data availability and 

limited agency resources.263 Agencies have the discretion to place significant weight on 

other relevant factors, in addition to the types of economic data required by an IRFA. 

These other factors include an agency’s experience in implementing the rule, as well as 

the views expressed over time by the public, regulated entities, and Congress. With the 

benefit of actual experience with a rule, the agency and other interested parties should be 

in a good position to evaluate potential improvements to the rule. Several factors deserve 

attention here such as the benefits achieved by the regulation, unintended market effects 

and market distortions, unusually high firm mortality rates in specific industry subsectors, and widespread noncompliance with reporting and other paperwork 

requirements. Thus, a useful review should go beyond obvious measures such as 

ensuring that regulatory requirements are expressed in plain language and that paperwork 

can be filed electronically. The analysis should be aimed at understanding and reducing 

burdens that unnecessarily impact small entities. 

As a matter of good practice, the section 610 analysis should be based on relevant data, 

public comments, and agency experience. The agency should make use of available data 

and data supplied by the public, and indicate the sources of the data. To the extent that an 

agency relies on specific data to reach a conclusion about the continuing efficacy of a 

rule, the agency should be able to provide that data. The agency should explain its 

assumptions so that stakeholders can understand its analysis. 

263 See 5 U.S.C. § 603. Indeed, the legislative history of S.299, which became the RFA, notes that “[i]n 

reviewing existing rules, agencies should follow the procedures described in sections 602-609 [of the RFA] 

to the extent appropriate.” 142 Cong. Rec. H24,575, H24,583-585 (daily ed. Sept. 8, 1980). In the context 

of a section 610 review, the elements of an IRFA analysis that should be present include: a discussion of 

the number and types of small entities affected by the rule, a description of the compliance requirements of 

the rule and an estimate of their costs, identification of any duplicative or overlapping requirements, and a 

description of possible alternative regulatory approaches. See also Office of Advocacy, How to Comply 

with the Regulatory Flexibility Act: A Guide for Government Agencies (May 2003) at 29-40, available at 

http://www.sba.gov/advo/laws/rfaguide.pdf. 

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Timing of the review: When does the agency have to start and finish? 

The language of section 610 specifies that the review should take place within 10 years 

after the date a rule is promulgated. While agencies need to gain some experience with a 

rule before undertaking a retrospective review, the review may take place prior to the 10­

year mark. If an agency substantially revises a rule after its initial promulgation, it is 

arguable as to whether the 610 review may be delayed to correspond to the revision date. 

Advocacy would not likely object to a revision of the date, but agencies should seek input 

from Advocacy on this point. 

Section 610 does not specifically set a limit on the amount of time for a rule review. 

Some agencies have reported that they spend more than a year on each section 610 

review. It is within an agency’s discretion to determine how much time it needs to spend 

on retrospective rule reviews. Advocacy recognizes that section 610 reviews may take 

more than a year in order to permit adequate time to gather and analyze data, to allow 

public comment, and to consider those comments in the review. Of course, some reviews 

could take less time, based on the complexity of the issues and the nature of the regulated 

industry. 

Agencies may wish to take advantage of the opportunity afforded in section 605(c) of the 

RFA to consider a series of “closely related rules” as one rule for periodic review 

purposes. An agency can accomplish a comprehensive section 610 review of closely 

related rules, satisfying the requirements of the RFA while potentially reducing the 

agency resources required. 

How should agencies communicate with interested entities about section 610 

reviews they are conducting? 

Section 610(c) of the RFA requires agencies to publish in the Federal Register a list of 

the rules they plan to review in the upcoming year. Agencies use the Unified 

Regulatory Agenda for this purpose.264 This listing requirement is intended to give 

small entities early notice of the section 610 reviews so that they will be ready and able 

to provide the agency with comments about the rule under review. As a practical 

matter, however, agencies often give stakeholders no other information about the 

ongoing status of a section 610 review, what factors an agency is considering in 

conducting the review, how comments can be submitted to the agency, or, ultimately, 

the factual basis on which the agency made its section 610 review findings. 

Agencies should communicate with interested entities about the status of ongoing section 

610 reviews, as well as those they have completed, to enhance transparency. This 

information may be most efficiently communicated via an agency website or other 

electronic media, and should inform interested parties of their ability to submit 

comments, as well as the agency’s commitment to consider those comments. Several 

agencies already utilize web-based communications as an outreach tool during section 

264 The Unified Regulatory Agenda can be accessed at www.reginfo.gov. 

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610 reviews.265 

Insights about an existing regulation received from regulated entities and other interested 

parties should be a key component of a retrospective rule review. By making the review 

process transparent and accessible, agencies are more likely to identify improvements that 

will benefit all parties at the conclusion of the review. Advocacy can help agencies who wish 

to communicate with small entity stakeholders – by hosting roundtables, working through 

trade groups, and getting a specific message to a targeted audience. Advocacy is ready to 

assist agencies in their outreach efforts. 

Can other agency retrospective rule reviews satisfy the requirements of section 610? 

Yes. Agencies that undertake retrospective rule reviews to satisfy other agency 

objectives may also be able to satisfy the periodic review requirement of section 610, as 

long as the rule reviews are functionally equivalent. For example, agencies that 

evaluated a current regulation pursuant to the Office of Management and Budget’s 2002 

publicly-nominated rule reform process266 or OMB’s manufacturing rule reform 

process267 could qualify as section 610 reviews, if they otherwise met the criteria for 

section 610 review. Similarly, agencies that undertook retrospective reviews of their 

regulatory programs because of complaints or petitions from regulated entities could 

qualify as section 610 reviews – as long as the review includes the minimum factors 

required by section 610. The best way for agencies to get “credit” for a section 610 

review in these circumstances is to communicate adequately with stakeholders, and with 

Advocacy. 

Examples: In Advocacy’s view, what are some recent retrospective rule reviews 

(conducted pursuant to section 610 or otherwise) that have been successful? 

Federal Railway Administration’s Section 610 Review of Railroad Workplace 

Safety – On December 1, 2003, the Department of Transportation’s Federal Railroad 

Administration completed a section 610 review of its railroad workplace safety 

regulations. After determining that the workplace safety regulations had a significant 

economic impact on a substantial number of small entities, the FRA examined the rules 

in light of section 610’s review factors. Although the FRA did not recommend any 

regulatory change as a result of this review, they provided a good description of its 

analysis of the workplace safety regulations under each review factor and the agency’s 

conclusions. See www.fra.dot.gov/downloads/safety/railroad_workplace_safety.pdf. 

265 See, e.g., www.osha.gov, www.epa.gov, and www.dot.gov and search for “RFA section 610.” 266 See Table 9, “New Reforms Planned or Underway – Regulations” and Table 10, “New Reforms Planned 

or Underway – Guidance Documents” in Informing Regulatory Decisions: 2003 Report to Congress on the 

Costs and Benefits of Federal Regulations and Unfunded Mandates on State, Local, and Tribal Entities 

(September 2003) at 26-34; available at www.whitehouse.gov/omb/inforeg/2003_cost_ben_final_rept.pdf. 267 See Regulatory Reform of the U.S. Manufacturing Sector (2005). 

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EPA’s RCRA Review - As a result of public nominations for reforms to the 

Environmental Protection Agency’s hazardous waste management program under the 

Resource Conservation and Recovery Act (RCRA), EPA evaluated the program and 

identified duplicative requirements, such as forcing filers to submit reports to multiple 

locations when one location is adequate. By reducing or eliminating these procedures 

after public notice and comment, EPA enabled regulated entities to collectively save up 

to $3 million per year while preserving the protections of the RCRA program. The 

retrospective review was successful because it involved a detailed review of the 

program’s requirements and their costs, based on years of practical experience. The 

agency considered technical changes such as computerization that have made some of the 

older paperwork requirements redundant, and found ways to modernize the program to 

reflect current realities. See 71 Fed. Reg. 16,862 (April 4, 2006). 

OSHA Excavations Standard – In March 2007, the Occupational Safety and Health 

Administration (OSHA) completed a section 610 review of its rules governing 

excavations and trenches. These standards had been in place since 1989, and were 

designed to ensure that trenches do not collapse on workers and that excavated material 

does not fall back into a trench and bury workers. In the review, OSHA did a good job of 

seeking public input on how and whether the rule should be changed. While the agency 

ultimately decided that no regulatory changes to the standard were warranted, it did 

determine that additional outreach and worker training would help continue the 

downward trend of fewer deaths and injuries from trench and excavation work. OSHA 

concluded that its current Excavations standard has reduced deaths from approximately 

90 per year to about 70 per year. See 72 Fed. Reg. 14,727 (March 29, 2007). 

FCC Section 610 Review of 1993-1995 Rules – In May 2005, the Federal 

Communications Commission undertook a section 610 review of rules the Commission 

adopted in 1993, 1994, and 1995 which have, or might have, a significant economic 

impact on a substantial number of small entities. The FCC solicited public comment on 

the rules under review, explained the criteria it was using to review the rules, and gave 

instructions on where to file comments. This approach was transparent because the 

agency allowed adequate time for comments (three months) and gave interested parties 

sufficient information to prepare useful comments. See 70 Fed. Reg. 33,416 (June 8, 

2005). 

How can agencies get section 610 assistance from the Office of Advocacy? 

The Office of Advocacy is ready to assist agencies that are planning a retrospective review of 

their regulations, to ensure that the review fully meets the requirements of section 610. 

Discussions with the Office of Advocacy are confidential interagency communications, and 

the Advocacy staff is ready to assist you. For more information about this guidance, or for 

other questions about compliance with section 610, please contact Advocacy at (202) 205­

6533. 

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74 

INDEX 

abbreviations, 127
 

Ace Lobster Company v. Evans, 

alternatives considered in, 74
 

type of analysis required, 77n
 

Administrative Procedure Act, 2, 5, 7, 63, 72, 73,
 

basis and purpose statement in, 49
 

exemptions from coverage, 64
 

and FRFAs, 48
 

and IRFAs, 32, 33, 35
 

outreach requirement in, 59
 

reasons for selecting final rule, 51
 

advance notice of proposed rulemaking, 9, 22, 37
 

adverse vs. beneficial impact, 18n, 21, 35n, 48, 49
 

Advocacy, Office of, SBA, 2
 

comments on certifications by, 24, 25
 

and compliance guides, 83
 

and E.O. 13272 provisions, 7
 

FRFA comments solicited from, 48
 

IRFA submission to, 30
 

memorandum of understanding, 107
 

outreach by, 81, 82
 

and periodic review of existing rules, 82
 

and regulatory agenda, 81
 

and regulatory panels, 59, 60
 

and size standards, 12, 14
 

small business data from, 99, 103
 

staff list, 115
 

website, 102
 

Agriculture, U.S. Department of, 66
 

Alenco Communications v. FCC
 

adequacy of FRFA in, 72 

minimizing economic impact, 76n 

Allied Local and Regional Manufacturers Caucus 

v. EPA 

adequacy of RFA analysis in, 71
 

alternatives
 

consideration of, 35, 73, 74
 

exceptions to requirements for, 76 

in FRFA, 49, 50, 75, 76
 

SBREFA provisions concerning, 51
 

“significant alternatives” clarified, 74
 

American Moving and Storage Association, Inc., v. 

DOD 

procurement change exempted in, 62
 

American Textile Manufacturers Institute v.
 

Donovan
 

minimizing adverse impact, 50n
 

American Trucking Associations v. Environmental
 

Protection Agency, 6n
 

and direct vs. indirect impact, 20, 70
 

AML International, Inc., v. Daley 

alternatives considered in, 73
 

analysis
 

adequacy of, 67
 

type required, 76
 

see also economic analysis
 

Animal and Plant Health Inspection Service
 

economic analysis by, 66
 

Ashley County Medical Center v. Thompson 

alternatives considered in, 75
 

Associated Builders and Contractors, Inc., v. 

Herman 

and appropriate certification, 66
 

Associated Fisheries of Maine, Inc., v. Daley, 2n,
 

77n
 

adequacy of FRFA in, 72
 

significant alternatives considered, 74
 

Atlantic Fish Spotters Association v. Evans 

APA trigger for RFA, 63n 

Automotive Parts & Accessories Associatin v. 

Boyd 

APA applicability to FRFAs, 49n 

Balanced Budget Act, 64
 

basis and purpose statement, 49
 

beneficial impacts, 18n, 21, 35n, 48
 

Blue Water Fishermen’s Association v. Mineta
 

significant alternatives considered, 74
 

Bureau of, see the next part of the bureau’s name
 

cash flow as economic measure, 18
 

Cement Kiln Recycling Coalition v. EPA
 

and indirect effects of regulation, 70n, 71
 

Centers for Medicare and Medicaid Services
 

and conflicting rules, 38n, 39n
 

certification, 8, 48, 48n
 

adequate example of, 22
 

beneficial impacts example, 22
 

checklist for, 26
 

delay not permitted, 39
 

different size standard example, 14
 

factual basis requirement for, 10
 

FRFA public comments leading to, 48
 

inadequate examples, 23
 

inclusion in proposed and final rules, 48n
 

litigation concerning, 65, 66, 67, 68
 

“more than just a few” standard for, 11
 

waiver not permitted, 39
 

Chief Counsel for Advocacy, see Advocacy,
 

Office of
 

Chocolate Manufacturers Association v. Block 

consideration of alternatives in, 37n 

Civilian Agency Acquisition Council 

and compliance guides, 84n 

Clean Air Act 

140 
 

 

 

 

 

 

 

 

 

 

 

 

and indirect effects of regulation, 70
 

collection of information defined, 6n
 

Commerce, U.S. Department of
 

alternatives considered by, 74, 75, 76
 

economic analysis of, 77
 

FRFA by, 72
 

inadequate certification by, 68
 

Competition in Contracting Act, 5n
 

compliance assistance for small entities, 84
 

compliance guides, 83
 

compliance requirements
 

in FRFA, 49
 

in IRFA, 34
 

Comptroller General
 

report required to, 85
 

conflicting rules, 37
 

congressional committees
 

compliance assistance reports to, 85n
 

Congressional Review Act, 86
 

courts, see litigation
 

costs
 

as economic impact measure, 18
 

estimating, 34
 

of regulation, 1
 

Council on Environmental Quality, 36
 

Defense Acquisition Regulations Council
 

and compliance guides, 84n
 

Defense, U.S. Department of
 

procurement and RFA, 64
 

delays
 

in certification not permitted, 39
 

in FRFA, 52
 

in IRFA, 39
 

Department of, see next part of department name
 

direct vs. indirect impact, 20, 69
 

see also indirect effects of regulation
 

Directed Shark Fishery Association, 24
 

duplicative rules, 37
 

economic analysis, 17, 30, 72, 75, 77
 

by industry sector, 15, 16
 

information for preparing, 99, 103
 

in IRFAs, 31
 

litigation concerning, 65, 66, 71, 75, 76
 

not specifically required, 76
 

outreach as a tool for, 37, 59
 

quantitative vs. qualitative, 7, 19, 32, 77
 

see also analysis
 

emergency rules, 73
 

and SBREFA panels, 59
 

enforcement of regulations, 85
 

Environmental Defense Fund v. Marsh
 

and analyzing beneficial impacts, 21n
 

environmental impact statements
 

and beneficial impacts, 21
 

Environmental Protection Agency, U.S.
 

and direct vs. indirect impact, 20, 70
 

economic impact analysis criteria, 18
 

eliminating duplicative rules, 38n
 

guidance of, 10n
 

IRFA by, 71
 

new SBREFA requirements of, 2, 59
 

satisfactory FRFA by, 52n
 

Equal Access to Justice Act, 12, 84n
 

ergonomics rule, 38n, 51n, 87n
 

Executive Order 12866, 7
 

and economic analysis, 77
 

IRFA requirements in, 30, 31
 

and NAAQS standard, 20
 

regulatory agenda requirement, 81
 

regulatory impact analysis and IRFA, 38
 

text of, 113
 

Executive Order 13272, 2
 

Advocacy-related requirements, 30
 

text of, 111
 

exemptions
 

to RFA coverage, 5, 6
 

under APA, 64
 

existing rules, periodic review of, 82
 

factual basis requirement for certification, 10
 

Family and Medical Leave Act
 

and size standards, 13
 

Federal Acquisition Reform Act, 5n
 

Federal Acquisition Regulation Council
 

and compliance guides, 84
 

Federal Acquisition Streamlining Act, 5n
 

Federal Communications Commission, 7n
 

FRFA by, 72
 

IRFA and judicial review, 72
 

size standard used by, 67
 

Federal Election Commission, 7n
 

Federal Energy Regulatory Commission
 

and direct vs. indirect impact, 20, 69
 

Federal Register 

and certification process, 8, 22
 

and congressional review, 87
 

and delay of FRFA, 52
 

and delay of IRFA, 39
 

FRFA publication required, 48
 

IRFA publication required, 30
 

and periodic review of existing rules, 82
 

size standard publication in, 13, 14
 

and waiver of IRFA, 39
 

Federal Trade Commission
 

example of satisfactory IRFA, 40
 

final regulatory flexibility analysis (FRFA), 47
 

adverse economic impact minimized, 50
 

alternatives reviewed, 51
 

and basis and purpose statements, 49
 

delays in publication permitted, 52
 

141 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

elements to be addressed in, 48
 

example of satisfactory, 52n, 53
 

issues must be assessed in, 50
 

litigation concerning, 68, 72
 

number of small entities estimated, 50
 

public comments in, 48, 49
 

waiver not permitted, 52
 

Food and Drug Administration 

and “substantial number,” 20
 

FRFA, see final regulatory flexibility analysis
 

Friends of Fiery Gizzard v. FmHA
 

beneficial impacts in, 21
 

Government Accountability Office, report required
 

to, 85
 

Grand Canyon Air Tour Coalition 

significant alternatives considered, 74
 

Greater Dallas Home Care Alliance v. United 

States 

exceptions to considering alternatives, 76
 

Hall v. Evans 

consideration of alternatives in, 75
 

Harlan Land Company v. USDA 

and economic analysis requirement, 66
 

Health and Human Services, U.S. Department of
 

alternatives considered by, 75, 76
 

economic impact analysis criteria, 18
 

Hiram Clarke Civic Club v. Lynn 

and beneficial impacts, 21n 

impact assessment, 30
 

adverse vs. beneficial, 21
 

direct vs. indirect, 20
 

quantitative vs. qualitative, 7, 19, 32, 77
 

In re Sealed Case 

exemptions of military/foreign affairs, 64
 

indirect effects of regulations, 20
 

litigation concerning, 69
 

industry sector analysis, 15, 16, 34
 

Information and Regulatory Affairs, Office of
 

(OIRA)
 

contact list, 116
 

and IRFAs, 30
 

memorandum of understanding, 107
 

participation in regulatory panels, 60
 

see also Management and Budget, Office
 

of 

initial regulatory flexibility analysis (IRFA), 29
 

alternatives considered, 35
 

and beneficial impacts, 22, 35n
 

delaying, 39
 

description of small entities for, 33
 

elements of, 32
 

estimating compliance requirements, 34
 

example of satisfactory, 39, 39n, 40
 

identifying duplicative, overlapping, and 

conflicting rules, 37
 

in lieu of certifying, 9
 

judicial review not applicable, 71, 72
 

litigation related to, 71
 

objectives of rules included in, 33
 

other analyses to satisfy requirement, 38
 

questions to address, 31
 

reasons included in, 33
 

waiving, 39
 

Interior, U.S. Department of the
 

inadequate certification by, 25
 

Internal Revenue Service
 

applicability of RFA to, 6
 

estimating additional taxes, 34n
 

and “substantial number,” 20
 

interpretative rules, 5, 6
 

litigation concerning, 64
 

IRFA, see initial regulatory flexibility analysis
 

judicial review, 63, 79
 

certifications subject to, 9, 11, 39
 

and compliance guides, 84
 

and consideration of alternatives, 52, 74
 

IRFAs not subject to, 71, 72
 

FRFAs subject to, 48, 52
 

size determinations subject to, 12
 

see also litigation
 

Labor, U.S. Department of
 

and size standard, 13
 

Land Management, Bureau of
 

incorrect size standard used by, 65, 66
 

and public comment, 69
 

legislative rules, 6
 

Lehigh Valley Farmers, Inc., v. Block, 11n
 

Levesque v. Block
 

and consideration of alternatives, 37n
 

litigation concerning RFA, 63 

see also judicial review and specific
 

issues or names of individual cases
 

Little Bay Lobster Company v. Evans
 

definition of significant alternatives in, 74
 

Lloyd Noland Hospital v. Heckle 

APA applicability to FRFAs, 49n 

Magnuson-Stevens Act, 73, 74, 75
 

major rules defined, 86, 86n, 87
 

Management and Budget, Office of
 

and E.O. 13272 provisions, 8
 

economic analysis guidelines (cite), 31
 

and regulatory panels, 59
 

see also Information and Regulatory
 

Affairs, Office of 

McLouth Steel Products v. EPA 

consideration of alternatives in, 37n 

142 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

memorandum of understanding, Advocacy and
 

OIRA, 107
 

Michigan v. EPA 

and indirect effects of regulation, 70
 

Mid-Tex Electric Cooperative, Inc., v. FERC, 77n
 

and direct vs. indirect impact, 20, 69
 

Military or foreign affairs functions of government
 

exemption of, 64
 

Minerals Management Service
 

inadequate certification by, 25
 

“more than just a few” standard, 11, 19
 

Motor and Equipment Manufacturers Association 

v. Nichols 

and indirect effects of regulation, 70
 

national ambient air quality standard
 

applicability to indirect impacts, 20
 

National Association for Home Care v. Shalala 

and exemptions of interpretative rules, 64
 

National Association of Psychiatric Health
 

Systems v. Shalala
 

alternatives in FRFA, 52n, 73, 76
 

National Environmental Policy Act, 2, 3
 

and beneficial impacts, 21
 

nonstatutory alternatives considered, 36
 

National Highway Traffic Safety Administration
 

satisfactory example of FRFA, 53
 

National Marine Fisheries Service
 

alternatives considered by, 67, 68, 73, 78
 

economic impact analysis by, 77
 

inadequate certification by, 23, 67, 68
 

National Mining Association v. Chao 

and public comments, 79n 

National Propane Gas Association v. DOT 

emergency rules and RFA coverage, 73
 

North American Industry Classification System,
 

16, 34
 

North Carolina Fisheries Association v. Daley,
 

11n, 24
 

analysis in, 65, 77
 

improper certification in, 23n, 68
 

Northwest Mining Assocation v. Babbitt, 12n
 

and definition of small entity, 65
 

incorrect size standard in, 66
 

and public comment requirement, 69
 

notice and comment requirements, 48, 63, 64, 69
 

notice of proposed rulemaking, 81
 

litigation concerning, 63, 73
 

threshold analysis for, 9
 

number of small entities
 

estimating for FRFA, 49, 50
 

estimating for IRFA, 33
 

objectives of rules
 

requirement for FRFA, 49
 

requirement for IRFA, 33
 

Occupational Safety and Health Administration
 

and conflicting rules, 38n
 

ergonomics rule, 38n, 51n, 87n
 

new requirements of, 2
 

regulatory panels requirement for, 59
 

Office of, see the next part of the office’s name
 

oil and gas wells, regulation of, 25
 

OIRA, see Office of Information and Regulatory
 

Affairs
 

Ombudsman, Small Business and Agriculture
 

Regulatory Enforcement Fairness, 85
 

outreach to small businesses, 37, 48, 59, 81
 

DOT tool for, 81n
 

Advocacy assistance with, 82
 

see also public comment
 

overlapping rules, 37
 

Paperwork Reduction Act, 6
 

and RFA analysis, 39
 

penalty reduction policies, 85
 

periodic review of existing rules, 82
 

Portland Cement Association v. Ruckelshaus
 

APA applicability to FRFAs, 49n
 

procurement policy and RFA, 64, 65
 

profits as economic impact measure, 17
 

public comments
 

on compliance guides, 83
 

exceptions to requirements for, 79
 

inclusion with FRFA, 48, 49, 50
 

at IRFA stage, 37
 

litigation concerning, 69, 73, 78, 79
 

in regulatory panels, 59
 

role in regulatory enforcement, 85
 

quantitative vs. qualitative analysis, 7, 19, 32, 77
 

rates
 

litigation involving exemption for, 65, 69
 

reasons for rules identified, 33
 

recordkeeping requirements, 6, 49
 

regulatory agenda, 81
 

regulatory enforcement fairness, 85
 

Regulatory Flexibility Act of 1980 (RFA)
 

adverse vs. beneficial impact in, 21
 

analytical process for, 4 (chart), 14
 

direct vs. indirect impact in, 20
 

economic impact analysis, 17
 

exemptions to, 5, 6
 

FRFA requirements in, 47
 

history of, 1
 

industry sector analysis for, 15
 

IRFA requirements in, 29
 

litigation concerning, 63
 

purpose of, 3
 

regulatory panels requirements of, 59
 

text of, 91
 

143 
 

 

 

 

 

 

 

 

 

 

regulatory impact analysis (RIA), 38
 

regulatory panels, 59
 

timeline for, 60, 61
 

report requirements
 

by agencies, 85, 86, 87
 

by SBREFA panels, 60
 

by the Office of Advocacy, 8
 

Research and Special Programs Administration 

emergency rules, 73
 

revenue as economic impact measure, 17
 

RFA, see Regulatory Flexibility Act
 

Rural Utilities Service, 5, 63
 

inadequate certification by, 24
 

sales as economic impact measure, 18
 

SBREFA, see Small Business Regulatory
 

Enforcement Fairness Act
 

SBREFA panels, see regulatory panels
 

sector analysis, 15, 16
 

Securities and Exchange Commission, 7n
 

semi-annual regulatory agenda, 81
 

significant alternatives
 

clarified in litigation, 74
 

definition of, 17
 

significant economic impact
 

definition of, 17
 

legislative history of, 18
 

size standards, 34
 

alternative, 13
 

changes in, 12
 

litigation concerning, 66, 67
 

Small Business Administration, 11
 

Small Business Act, 12, 13, 17n
 

Small Business Administration, U.S.,
 

certification example, 22
 

Ombudsman, 85
 

size standards of, 11, 17, 34, 66
 

small business data, 99, 103
 

see also Advocacy, Office of
 

Small Business and Agriculture Regulatory
 

Enforcement Fairness Ombudsman, 85
 

small business data, 99, 103
 

Small Business in Telecommunications v. FCC 

size standard used in, 67
 

small business investment companies
 

certification example regarding, 22
 

Small Business Regulatory Enforcement Fairness
 

Act (SBREFA), 2, 6
 

agency compliance guides, 83
 

alternative development requirements, 51
 

attorney fees increased in, 84n
 

Congressional Review Act in, 85
 

and indirect effects of regulation, 70
 

and industrial analysis, 15
 

penalty reduction policies in, 85
 

and regulatory panels, 59
 

small entity compliance assistance, 84
 

small business
 

definition of, 11, 13
 

definition by industry, 17
 

role in preparing compliance guides, 82
 

role in regulatory enforcement, 85
 

soliciting comments from, 37, 38, 48, 59
 

small entity
 

comments on compliance guides, 83
 

definition of, 11, 65
 

penalty reduction policies, 85
 

representatives on SBREFA panels, 60
 

small governmental jurisdiction
 

and competition, 35n
 

definition of, 12, 15, 63
 

small nonprofits
 

and competition, 35n
 

small organization
 

definition of, 12
 

Southern Offshore Fishing Association v. Daley 

inadequate analysis in, 67
 

inadequate certification in, 23, 24
 

inadequate alternatives consideration, 76
 

Spartan Radiocasting v. FCC 

applicability to IRFAs, 33n
 

Standard Industrial Classification system, 16
 

statistics, 99, 103
 

substantial number
 

definition of, 17
 

legislative history of, 18
 

telecommunications system 

regulations concerning, 24
 

Texas Food Industry Association v. USDA, 12n
 

threshold analysis, 9
 

trade associations
 

role in preparing compliance guides, 83
 

Transportation, U.S. Department of
 

docket management system of, 81n
 

emergency rules, 73
 

satisfactory IRFA cited, 39n
 

Troy Corporation v. Browner 

APA applicability to FRFAs, 49n 

U.S. Cellular Corporation v. FCC 

IRFA not subject to judicial review, 72
 

U.S. Department of, see next part of name
 

Unfunded Mandates Reform Act of 1995, 86
 

United Distribution Companies v. FERC 

and indirect effects of regulation, 70
 

United States Steel v. EPA 

and consideration of alternatives, 37n 

United States v. Nova Scotia Foods 

APA applicability to FRFAs, 49n 

144 
Washington v. Daley, 77n 

Whitman v. American Trucking Associations, 6 

145 
Rev. 07/10 

146