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[House Report 112-288]
[From the U.S. Government Publishing Office]

112th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    112-288

======================================================================

 
             SMALL BUSINESS SIZE STANDARD FLEXIBILITY ACT 
                                OF 2011

                                _______
                                

 November 16, 2011.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

Mr. Graves of Missouri, from the Committee on Small Business, submitted 
                             the following,

                              R E P O R T

                             together with

                            DISSENTING VIEWS

                        [To accompany H.R. 585]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Small Business, to whom was referred the 
bill (H.R. 585) to amend the Small Business Act to provide for 
the establishment and approval of small business concern size 
standards by the Chief Counsel for Advocacy of the Small 
Business Administration, having considered the same, report 
favorably thereon without amendment and recommend that the bill 
do pass.

                                CONTENTS

                                                                   Page
   I. Purpose of the Bill and Summary.................................2
  II. Background and the Need for Legislation.........................2
 III. Hearings........................................................2
  IV. Committee Consideration.........................................3
   V. Committee Votes.................................................3
  VI. Section-by-Section Analysis of H.R. 585.........................6
 VII. Congressional Budget Cost Estimate..............................8
VIII. Unfunded Mandates..............................................11
  IX. New Budget Authority, Entitlement Authority, and Tax Expenditur11
   X. Oversight Findings.............................................11
  XI. Statement of Constitutional Authority..........................11
 XII. Congressional Accountability Act...............................12
XIII. Federal Advisory Committee Statement...........................12
 XIV. Statement of No Earmarks.......................................12
  XV. Performance Goals and Objectives...............................12
 XVI. Changes in Existing Law Made by the Bill, as Reported..........12
XVII. Dissenting Views...............................................14

                      I. Purpose and Bill Summary

    The purpose of H.R. 585, the ``Small Business Size Standard 
Flexibility Act of 2011,'' is to amend the Small Business Act 
by transferring certain size standard determination functions 
from the Administrator of the Small Business Administration 
(SBA) to the Office of the Chief Counsel for Advocacy. 
Currently, the Administrator, pursuant to Sec. 3(a)(2) of the 
Small Business Act (15 U.S.C. Sec. 632(a)(2), has the authority 
to determine what constitutes a small business for the purposes 
of the Small Business or any other Act. Should an agency wish 
to draft a regulation that adopts a size standard different 
from the one already adopted by the Administrator in 
regulations implementing the Small Business Act, the agency 
must obtain approval of the Administrator. However, that 
requires the Administrator to have a complete understanding of 
the regulatory regime of that other act--knowledge usually 
outside the expertise of the SBA. However, the Office of the 
Chief Counsel for Advocacy, an independent office within the 
SBA, represents the interests of small businesses in rulemaking 
proceedings (as part of its responsibility to monitor agency 
compliance with the Regulatory Flexibility Act, 5 U.S.C. 
Sec. Sec. 601-12, (RFA)) does have such expertise. Therefore, 
it is logical to transfer the limited function on determining 
size standards of small businesses for purposes other than the 
Small Business Act and Small Business Investment Act of 1958 to 
the Office of the Chief Counsel for Advocacy.

                        II. Need for Legislation

    The RFA allows a federal agency to consult with the Office 
of the Chief Counsel for Advocacy if it wishes to use a 
different size standard than the one adopted by the SBA in 
carrying out the agency's analytical responsibilities under the 
RFA. However, if an agency then uses that alternative size 
standard for developing a final rule, it must obtain the 
approval of the SBA as set forth in Sec. 3(a)(2) of the Small 
Business Act. H.R. 585, by transferring the authority in 
Sec. 3(a)(2) to the Office of the Chief Counsel for Advocacy 
avoids the potential for inconsistent decisions in the federal 
government concerning size standards. Finally, the Office of 
the Chief Counsel for Advocacy has expertise, through its work 
in reviewing agency compliance with the RFA, to understand the 
context in which an agency is seeking to utilize a size 
standard different than that promulgated by the SBA.

                             III. Hearings

    The Committee met on June 15, 2011 to receive testimony 
from outside experts on H.R. 585 at a hearing entitled 
``Lifting the Weight of Regulations: Growing Jobs by Reducing 
Regulatory Burdens.'' The witnesses noted their support for 
H.R. 585 in an effort to avoid possibly inconsistent decisions 
about small business size standard.
    H.R. 585 had been incorporated into previous versions of a 
broader bill dealing with amendments to the RFA. In committee 
hearings on those bills, full support was provided for the 
provision that is now H.R. 585.

                      IV. Committee Consideration

    The Committee on Small Business met in open session, with a 
quorum being present, on July 13, 2011 and ordered H.R. 585 
reported without amendment to the House by a recorded vote of 
13 yeas to 8 noes at 4:07 p.m. During the markup, one amendment 
was offered by Ms. Velazquez (D-NY). The amendment would have 
prohibited the transfer of authority to the Chief Counsel 
unless the Chief Counsel certified the Office of Advocacy had 
the personnel and absorb the cost of such transfer. The 
amendment was not agreed to by a recorded vote of 11 yeas to 12 
noes at 4:03 p.m.

                           V. Committee Votes

           Amendment to H.R. 585 Offered by Ms. Velazquez of 
                                New York

  Add, at the end of the bill, the following:

SEC. 3. EFFECTIVE DATE; STUDY AND CERTIFICATION REQUIRED REGARDING 
                    COST, RESOURCE DUPLICATION AND AGENCY WASTE.

  This Act and the amendments made by this Act shall not take 
effect until the date that the Chief Counsel for Advocacy of 
the Small Business Administration--
          (1) reports to the Committee on Small Business of the 
        House of Representatives and the Committee on Small 
        Business and Entrepreneurship of the Senate on the 
        feasibility, personnel resources required, and overall 
        cost to the Chief Counsel of carrying out the 
        responsibilities of the Chief Counsel under the 
        amendments made in section 2, including an analysis of 
        whether carrying out such responsibilities will result 
        in a duplication of functions in the Small Business 
        Administration, including those of the Office of Size 
        Standards; and
          (2) certifies to the Committee on Small Business of 
        the House of Representatives and the Committee on Small 
        Business and Entrepreneurship of the Senate that the 
        Chief Counsel may carry out the responsibilities of the 
        Chief Counsel under the amendments made in section 2 
        without incurring any additional costs.
        
        
              VI. Section-by-Section Analysis of H.R. 585

Section 1. Short title

    Provides a short title for H.R. 585.

Section 2. Establishment and approval of small business concern size 
        standards by the Chief Counsel for Advocacy

    In 1992, Senators Dale Bumpers (D-AR) and Malcolm Wallop 
(R-WY) were incensed at actions taken by the Nuclear Regulatory 
Commission (NRC) to increase fees for byproduct users of 
fissile material under the Atomic Energy Act. The NRC did not 
perform an adequate assessment of these fee increases on small 
entities as required by the RFA. In establishing these fees, 
the NRC utilized a different set of definitions than had been 
set by the SBA under Sec. 3 of the Small Business Act. Senators 
Bumpers and Wallop sponsored an amendment to the Small Business 
Act requiring that federal agencies wishing to adopt a 
definition of small business that varied from those promulgated 
by the Small Business Administration (SBA) pursuant to its 
Sec. 3 authority must issue the new size standard for notice 
and comment and then obtain approval of the Administrator of 
the SBA.
    While the Administrator has significant acumen in setting 
size standards, that expertise is limited to the use of size 
standards for purposes of the Small Business Act and Small 
Business Investment Act of 1958. As a result, the Administrator 
is not the proper official to determine size standards for 
purposes of other agencies' regulatory activities. The 
Administrator is not fluent with the vast array of federal 
regulatory programs, is not in constant communication with 
small entities that might be affected by another federal 
agency's regulatory regime, and does not have the analytical 
expertise to assess the regulatory impact of a particular size 
standard on small entities. Furthermore, the Administrator's 
standards are: very inclusive, not developed to comport with 
other agencies' regulatory regimes, and lack sufficient 
granularity to examine the impact of a proposed rule on a 
spectrum of small businesses. When other agencies have sought 
the approval of the Administrator under the amendments made to 
Sec. 3 of the Small Business Act by Senators Bumpers and 
Wallop, the Office of Size Standards consulted with personnel 
in the Office of Advocacy on the rectitude of an agency's 
definition of small business that varied from those set forth 
in the SBA's regulations interpreting the Small Business Act.
    Given this rationale, it is appropriate to split the size 
standard functions in the Small Business Act. Section 2 of H.R. 
585 provides that the Administrator shall establish size 
standards to carry out the purposes of the Small Business Act 
or Small Business Investment Act of 1958. Section 2 then 
delegates the authority to approve a size standard for purposes 
of all other statutes to the Chief Counsel. The Chief Counsel 
is only entitled to rule on size standards for definitions of 
small business concerns if the agency issuing the regulation 
does not adopt a size standard approved by the Administrator 
for carrying out the purposes of the Small Business Act or 
Small Business Investment Act. This will constrain the number 
of size standard decisions by the Chief Counsel and allow 
agencies to utilize already established standards rather than 
have to go through the Chief Counsel for approval of each 
standard. If a federal agency adopts, as a definition of small 
business, a size standard approved by the Administrator, the 
federal agency need not seek approval of the Chief Counsel 
pursuant to Sec. 3 of the Small Business Act as amended by H.R. 
585. The determination of a size standard for other regulatory 
purposes has no effect on the requirements of an agency that 
wishes to develop a definition of small business as set forth 
in Sec. 601(3) of the RFA. Thus, there are two different size 
standard approvals that the Chief Counsel may be forced to 
make: (1) the size determination for analyzing the proposed and 
final rule pursuant to the RFA; and (2) the definition of a 
small business that may be included in the text of the final 
rule.
    Nothing in the legislation requires that the agency 
promulgating a regulation must utilize the size standards in 
its rules for purposes of complying with the RFA. However, it 
would be logical for the agency to explain the rationale for 
adopting different definitions in the statement of basis and 
purpose as well as any FRFA or certification. To be sure, an 
agency may use a different definition of small business for 
purposes of compliance with the RFA if the agency adopts the 
Administrator's definition of small business in the rule at 
issue.
    An alternative to the approach taken in H.R. 585 would be 
for the Administrator to make all size standard determinations 
with the concurrence of the Chief Counsel on those size 
standards developed to implement statutes other than the Small 
Business Act or Small Business Investment Act. Adoption of that 
regulatory regime could lead to the anomalous result of the 
Chief Counsel and Administrator making different determinations 
on the same size standard. Under Sec. 601 of the RFA, the 
default size standard for agency compliance with the RFA are 
the ones adopted by the Administrator and set forth in Part 121 
of Title 13, Code of Federal Regulations. However, the RFA 
permits the agency to utilize a different standard in complying 
with the RFA after consultation with the Chief Counsel for 
Advocacy. The agency then uses that standard for its initial 
and final regulatory flexibility analyses which results in the 
agency adopting a small business exemption identical to the 
definition of a small business in its regulatory flexibility 
analyses. Since that definition is different than the one 
adopted by the Administrator, the agency must seek the approval 
of the Administrator. If the Administrator disapproves that 
standard, then a small business exemption that the Chief 
Counsel and the agency thought was appropriate would not be put 
into effect.\1\ H.R. 585 avoids these potentially anomalous 
results by vesting the Chief Counsel with the sole authority to 
make size decisions for the purposes of other regulatory 
programs.
---------------------------------------------------------------------------
    \1\This could be particularly problematic if the size standard 
adopted by the agency with the concurrence of the Chief Counsel is 
larger than the size standard promulgated by the Administrator. The 
Administrator might feel such an expansion of the term ``small 
business'' inappropriate.
---------------------------------------------------------------------------
    Section 2(c) makes conforming changes in Sec. 3(a)(3). The 
Chief Counsel is added to ensure that size standards vary from 
industry to industry as is appropriate given the context of the 
rulemaking for which the Chief Counsel has been asked to 
approve a definition of small business.
    The Chief Counsel's decision on size standards should be 
rational and subject to judicial review. Section 2(d) 
authorizing judicial review eliminates litigation over whether 
Congress intended a private right of action under Cort v. Ash, 
422 U.S. 66 (1975), or whether the decision was left to the 
discretion of the agency pursuant to Heckler v. Chaney, 470 
U.S. 821 (1985).
    To be sure, the Office of Advocacy could be placed in the 
odd circumstance of being a respondent in an action in which it 
is defended by the Department of Justice while at the same time 
filing an amicus brief against the Department of Justice on 
whether the agency complied with the RFA. Given the fact, the 
Chief Counsel's ``intervention'' in the RFA compliance aspect 
of the case is as an amicus rather than as a party, the 
Committee does not believe the odd litigation stance will prove 
problematic to the court reviewing the case or the Department 
of Justice's defense of the Chief Counsel. The odd alignment of 
defendants and friends of the court should not complicate 
judicial review because courts often face challenges in which 
one party challenging an agency action may agree with the 
agency in opposition to a stance taken by another party 
challenging the same rules. Despite the potential alignment of 
interests, the Department of Justice should be able to fulfill 
its obligations to defend the Chief Counsel on the size 
standard decision\2\ even though the Chief Counsel may be 
filing an amicus brief in opposition to the Justice 
Department's other agency defendant. Finally, given the nature 
of the claims and the record on review, the Department of 
Justice's defense of the action will reveal client confidences 
concerning the development of the rule to a ``party'' opposed 
to the rule.
---------------------------------------------------------------------------
    \2\It is very unlikely that the Chief Counsel will condemn an 
agency's compliance with the RFA because of a size standard used in the 
regulation was approved by the Chief Counsel. That actually would be 
the height of irrational decisionmaking.
---------------------------------------------------------------------------
    Nothing in these changes made by H.R. 585 are designed to 
authorize a specific challenge to the size determination made 
by the agency and the Office of Advocacy pursuant to 
Sec. 601(3). To the extent that a party believes that the size 
standard utilized in complying with the RFA was unreasonable, 
the adversely affected small entity may challenge the agency's 
compliance with the RFA as set forth in Sec. 611.
    The changes made in H.R. 585 will not represent a 
significant strain on the resources of the Office of the Chief 
Counsel for Advocacy. According to data from the SBA, there 
have been approximately 25 requests by other agencies under the 
authority of amended section 3 of the Small Business Act since 
the date of amendment in 1992. That works out to between one to 
two requests per year. Even that may be an overestimate since 
the vast majority of requests were made by the Federal 
Communications Commission to implement its authority to auction 
spectrum under Sec. 309(j) of the Communications Act of 1934, 
47 U.S.C. Sec. 309(j). Given that the number of such auctions 
will continue to diminish as the government runs out of 
spectrum to auction, the Office of the Chief Counsel for 
Advocacy should have sufficient resources to handle the 
authority transferred to it under this legislation.

             VII. Congressional Budget Office Cost Estimate

    H.R. 585 would amend the Small Business Act to require 
federal agencies obtain the approval of the Chief Counsel for 
Advocacy rather than the Administrator if they wish to use a 
definition of small business for the purposes of acts others 
than the Small Business Act or Small Business Investment Act of 
1958. No additional authorities or transfers are made between 
the Administrator and the Chief Counsel for Advocacy under the 
bill.
    Based on information from the Office of the Chief Counsel 
for Advocacy and other agencies, the Congressional Budget 
Office estimates that implementing H.R. 585 would cost $6 
million over the 2012-2016 period subject to appropriation of 
the necessary amounts. Pay-as-you go procedures do not apply to 
this legislation because it would not affect direct spending or 
revenues.

                                     U.S. Congress,
                               Congressional Budget Office,
                                Washington, DC, September 27, 2011.
Hon. Sam Graves,
Chairman, Committee on Small Business,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 585, the Small 
Business Size Standard Flexibility Act of 2011.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susan Willie.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

H.R. 585--Small Business Size Standard Flexibility Act of 2011

    Summary: H.R. 585 would authorize the Chief Counsel for 
Advocacy within the Small Business Administration (SBA) to 
specify standards to be used by federal agencies to determine 
whether a business should be considered a small business under 
certain statutes. Currently, the Administrator of SBA sets size 
standards for purposes of implementing the Small Business Act 
and the Small Business Investment Act; the Administrator 
consults with the agency's Chief Counsel for Advocacy in 
determining size standards to be used by federal agencies in 
implementing other statutory provisions. H.R. 585 would split 
the duties, authorizing the Chief Counsel for Advocacy to 
determine and approve size standards for other federal 
regulatory agencies while retaining the Administrator's 
authority to set size standards for purposes of the Small 
Business Act and the Small Business Investment Act.
    Based on information from the SBA, CBO estimates that 
implementing H.R. 585 would cost $6 million over the 2012-2016 
period, assuming appropriation of the necessary amounts. 
Enacting H.R. 585 would not affect direct spending or revenues; 
therefore, pay-as-you-go procedures do not apply.
    H.R. 585 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would not affect the budgets of state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of H.R. 585 is shown in the following table. 
The costs of this legislation fall within budget function 370 
(commerce and housing credit).

----------------------------------------------------------------------------------------------------------------
                                                                 By fiscal year, in millions of dollars--
                                                         -------------------------------------------------------
                                                            2012     2013     2014     2015     2016   2012-2016
----------------------------------------------------------------------------------------------------------------
                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Estimated Authorization Level...........................        *        1        2        2        2         7
Estimated Outlays.......................................        *        1        1        2        2         6
----------------------------------------------------------------------------------------------------------------
Note: * = less than $500,000.

    Basis of estimate: For this estimate, CBO assumes that the 
bill will be enacted near the end of 2011, the necessary 
amounts will be appropriated each year, and spending will 
follow historical patterns for similar activities.
    Under current law, many statutes provide special 
considerations for small businesses. For example, small 
businesses enjoy set-asides in federal contracting policy and 
pay lower fees to apply for patents and trademarks. In order 
for the SBA and other agencies to determine eligibility for 
such special consideration, the SBA has established size 
standards that businesses must meet to be considered a small 
business.
    In some cases, the underlying statute clearly defines the 
required characteristics of a small business; in other cases, 
however, statutes authorize the implementing agency to make 
those determinations. In the latter instance, an agency may use 
the SBA's established size standards or may set a standard of 
its own, developed in consultation with SBA and the Chief 
Counsel for Advocacy at the SBA (an independent department 
within the agency) and approved by the SBA Administrator.
    Under H.R. 585, the SBA would retain its authority to 
develop size standards for programs under the Small Business 
Act and the Small Business Investment Act, while the Chief 
Counsel for Advocacy would be authorized to specify size 
standards for agencies developing regulations under any other 
statute. Further, the Chief Counsel for Advocacy would approve 
the size standard selected by an agency if it deviated from 
SBA's prescribed standards.
    Based on information from the Chief Counsel for Advocacy 
and the SBA, CBO expects that the Office of Advocacy would 
ultimately need 10 additional staff positions to implement its 
new authority. Because the Office of Advocacy is an independent 
department within SBA, the office does not have access to SBA's 
legal and administrative support services; therefore, the 
Office would need to develop that capacity separately. CBO 
assumes that most of the new positions would fill that need; 
the remaining positions would provide additional expertise in 
developing size standards. CBO estimates that implementing the 
provisions of H.R. 585 would cost $6 million over the 2012-2016 
period, assuming appropriation of the necessary amounts, mostly 
for salaries and expenses. Those costs are net of any savings 
in the SBA's Office of Size Standards that would result from 
narrowing its authority.
    Pay-As-You-Go considerations: None.
    Intergovernmental and private-sector impact: H.R. 585 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would not affect the budgets of state, 
local, or tribal governments.
    Estimate prepared by: Federal costs: Susan Willie; Impact 
on state, local, and tribal governments: Elizabeth Cove 
Delisle; Impact on the private sector: Amy Petz and Samuel 
Wice.
    Estimate approved by: Theresa Gullo, Deputy Assistant 
Director for Budget Analysis.

                        VIII. Unfunded Mandates

    H.R. 585 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act, Pub. 
L. No. 104-4, and would impose no costs on state, local or 
tribal governments.

          IX. New Budget Authority, Entitlement Authority and 
                            Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House, the Committee provides the following opinion and 
estimate with respect to new budget authority, entitlement 
authority and tax expenditures.
    The Committee does not adopt as its own the estimate of new 
budget authority contained in the cost estimate prepared by the 
Director of the Congressional Budget Office pursuant to 
Sec. 402 of the Congressional Budget Act of 1974.
    The Committee believes that the Congressional Budget Office 
failed to comprehend the scope of the authority being 
transferred in this legislation from the Administrator to the 
Office of the Chief Counsel for Advocacy. Currently, an agency 
must obtain the approval of the Administrator if the agency 
wishes to use a definition of small business different than one 
developed by the Administrator. This authority has been used a 
total of 32 times by federal agencies (22 times by the Federal 
Communications Commission for the auctioning of spectrum 
pursuant to Sec. 309(j) of the Federal Communication Act of 
1934) since 1992. That is less than 2 approvals per year.
    Under H.R. 585, it is only the authority that has been used 
32 times in history that will be transferred to the Office of 
the Chief Counsel for Advocacy. The Committee does not believe 
that it will cost between $1 and $2 million per year for the 
Office of the Chief Counsel for Advocacy to make a 
determination on the one to two requests for size standards 
that it might receive in a given year. As a result, the 
Committee believes that the Office of the Chief Counsel for 
Advocacy can perform the transferred function within its 
current budget and requires no additional budgetary outlays. 
The bill does not contain any new entitlement authority, tax 
expenditures, or tax revenue.

                         X. Oversight Findings

    In accordance with clause 2(b)(1) of rule X of the Rules of 
the House, the oversight findings and recommendations of the 
Committee on Small Business with respect to the subject matter 
contained in H.R. 585 are incorporated into the descriptive 
portions of this report.

               XI. Statement of Constitutional Authority

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
authority for this legislation in Art. I, Sec. 8, cls. 1, 3, 
and 18.

                 XII. Congressional Accountability Act

    H.R. 585 does not relate to the terms and conditions of 
employment or access to public services or accommodations 
within the meaning of Sec. 102(b)(3) of Pub. L. No. 104-1.

             XIII. Federal Advisory Committee Act Statement

    H.R. 585 does not establish or authorize the establishment 
of any new advisory committees as that term is defined in the 
Federal Advisory Committee Act, 5 U.S.C. App. 2.

                     XIV. Statement of No Earmarks

    Pursuant to clause 9 of rule XXI, H.R. 585 does not contain 
any congressional earmarks, limited tax benefits or limited 
tariff benefits as defined in subsections (e), (f) or (g) of 
clause 9 of rule XXI of the Rules of the House.

                  XV. Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House, the Committee establishes the following performance 
related goals and objectives for this legislation:
    H.R. 585 includes provisions designed to streamline the 
process of obtaining approval of size standards for the 
purposes of acts other than the Small Business Act and Small 
Business Investment Act of 1958.

       XVI. Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

SMALL BUSINESS ACT

           *       *       *       *       *       *       *

  Sec. 3. (a)(1) * * *
          (2) Establishment of size standards.--
                  [(A) In general.--In addition to the criteria 
                specified in paragraph (1), the Administrator 
                may specify detailed definitions or standards 
                by which a business concern may be determined 
                to be a small business concern for the purposes 
                of this Act or any other Act.]
                  (A) In general.--In addition to the criteria 
                specified in paragraph (1)--
                          (i) the Administrator may specify 
                        detailed definitions or standards by 
                        which a business concern may be 
                        determined to be a small business 
                        concern for purposes of this Act or the 
                        Small Business Investment Act of 1958; 
                        and
                          (ii) the Chief Counsel for Advocacy 
                        may specify such definitions or 
                        standards for purposes of any other 
                        Act.

           *       *       *       *       *       *       *

                  (C) Requirements.--Unless specifically 
                authorized by statute, no Federal department or 
                agency may prescribe a size standard for 
                categorizing a business concern as a small 
                business concern, unless such proposed size 
                standard--
                          (i) * * *

           *       *       *       *       *       *       *

                          [(iii) is approved by the 
                        Administrator.]
                          (iii) except in the case of a size 
                        standard prescribed by the 
                        Administrator, is approved by the Chief 
                        Counsel for Advocacy.
          (3) When establishing or approving any size standard 
        pursuant to paragraph (2), the Administrator or Chief 
        Counsel for Advocacy, as appropriate shall ensure that 
        the size standard varies from industry to industry to 
        the extent necessary to reflect the differing 
        characteristics of the various industries and consider 
        other factors deemed to be relevant by the 
        Administrator or Chief Counsel for Advocacy.

           *       *       *       *       *       *       *

          (6) Judicial review of standards approved by chief 
        counsel.--In the case of an action for judicial review 
        of a rule which includes a definition or standard 
        approved by the Chief Counsel for Advocacy under this 
        subsection, the party seeking such review shall be 
        entitled to join the Chief Counsel as a party in such 
        action.

           *       *       *       *       *       *       *

                         XVII. DISSENTING VIEWS

                              ----------                              

      H.R. 585--THE SMALL BUSINESS SIZE STANDARD FLEXIBILITY ACT 
                                OF 2011

Background

    Under current law, the Small Business Administration (SBA) 
unambiguously approves size standards for all laws, including 
the Small Business Act and any other statute. With regard to 
the SBA, these standards are most notably used to determine 
eligibility for the agency's lending and contracting programs. 
For statutes unrelated to the SBA, size standards are used to 
determine eligibility for certain federal programs or in the 
application of certain other laws. To this point, the Small 
Business Act states that ``. . . the Administrator may specify 
detailed definitions or standards by which a business concern 
may be determined to be a small business concern for the 
purposes of this Act or any other Act.''\1\
---------------------------------------------------------------------------
    \1\15 U.S.C. Sec. 632(a)(2)(A).
---------------------------------------------------------------------------
    This responsibility is not legally altered although the 
Regulatory Flexibility Act contains language that permits 
agencies to consult with the Office of Advocacy regarding an 
alternative definition for ``small business concern.'' The RFA 
states ``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.''\2\ By requiring that the Office of 
Advocacy only be consulted, and not approve an alternative 
definition for ``small business concern,'' it is clear that the 
SBA retains full legal authority over size standard 
determinations.
---------------------------------------------------------------------------
    \2\5 U.S.C. Sec. 601(3).
---------------------------------------------------------------------------
    As a result, the SBA's Office of Size Standards has served 
as the sole approval authority for determining size standards--
for both the Small Business Act and all other statutes. When an 
agency is seeking to use a size standard other than those 
approved by the SBA, the agency may consult with the Office of 
Advocacy. Such consultation is sensible, as the Office of 
Advocacy has significant knowledge of the regulatory 
environment outside of the canon of SBA law. However, the SBA's 
Office of Size Standards, with its historical involvement, 
expertise, and staff resources in this area, remains the 
appropriate entity to approve such size standards.

Impact of Legislation

    H.R. 585 rewrites 15 U.S.C. Sec. 632(a)(2)(A) and 
effectively splits the approval of size standards between the 
SBA and the Office of Size Standards. Under the legislation, 
the SBA would establish size standards related to the Small 
Business Act and the Small Business Investment Act of 1958. It 
then delegates the authority to approve a size standard for 
purposes of all other statutes to the Office of Advocacy.
            Creates bureaucratic duplication and confusion
    While the legislation permits the SBA to continue to 
approve size standards for its enabling statutes, it removes 
SBA's authority to do so for other statutes. The result would 
be to create a duplicate size standard authority in both the 
SBA and the Office of Advocacy. Both the SBA and the Office of 
Advocacy would have personnel who would analyze and evaluate 
size standards. Through the bifurcation of these 
responsibilities, taxpayers would effectively be forgoing the 
economies of scale that are currently enjoyed by the operation 
of a single Office of Size Standards in the SBA.
    Having two such entities that have the same mission is not 
a transfer of function, but an inefficient and duplicative 
reorganization. It was for these reasons that in 2004, Thomas 
Sullivan, the Chief Counsel of the Office of Advocacy under 
President George W. Bush testified before this committee saying 
that ``[t]he SBA's Office of Size Standards has the necessary 
expertise and resources to make appropriate decisions regarding 
industry size determinations, so I do not believe that that 
[this legislative change] will benefit small entities.''\3\
---------------------------------------------------------------------------
    \3\Hearing before the Committee on Small Business, U.S. House of 
Representatives, entitled ``Improving the Regulatory Flexibility Act--
H.R. 2345,'' May 5, 2004, Washington, D.C.
---------------------------------------------------------------------------
    Having two entities duplicate size standards approvals will 
create bureaucratic confusion. In this regard Mr. Sullivan 
further testified ``that vesting the authority to determine 
size standards to . . . Advocacy may cause confusion over which 
SBA office determines size standards.''\4\ He followed by 
saying that he did ``not believe that the proposed [language] 
will benefit small entities.''\5\ Such concerns remain relevant 
today, as the duplication of size standard responsibilities 
will cause agencies and small firms to understand not only the 
minutiae of size standards but also the inner-working of SBA's 
bureaucracy. Instead of having one central office, there will 
now be two--further muddling small businesses' relationship 
with the federal government.
---------------------------------------------------------------------------
    \4\Ibid.
    \5\Ibid.
---------------------------------------------------------------------------
    Such duplication also runs counter to the committee's Views 
and Estimates on the SBA's FY 2012 Budget Submission, which was 
approved by voice vote on March 15, 2011.\6\ In its Views and 
Estimates letter, the committee cites several instances of 
duplication in the agency's programs and, as a result, requests 
that funds be terminated for such programs. Similarly, the 
enactment of H.R. 585 would create clear duplication within the 
SBA and the Office of Advocacy as both entities would be able 
to approve size standards.
---------------------------------------------------------------------------
    \6\See ``Entrepreneurial Development Programs'' heading, 
specifically the subheading concerning the Women's Business Center, 
Veterans Business Outreach Centers, and PRIME, and the Office of Native 
American Affairs in letter to Committee on the Budget regarding the 
Committee on Small Business' Views and Estimates on the SBA's FY 2012 
Budget Submission. Letter can be found at http://smbiz.house.gov/
UploadedFiles/March_17 _Views_and_Estimates_Letter.pdf.
---------------------------------------------------------------------------
    Maintaining the current consultative relationship between 
the Office of Advocacy is more sensible. On this matter, Frank 
Swain, the Chief Counsel of the Office of Advocacy under 
President Ronald Reagan stated during the June 15, 2011 hearing 
on H.R. 585 with regard to the Office of Advocacy's role in 
size standard determinations ``that . . . they ought to be 
consultative with the SBA Size Standards office. . . .''\7\
---------------------------------------------------------------------------
    \7\Hearing before the Committee on Small Business, U.S. House of 
Representatives, entitled ``Lifting the Weight of Regulations: Growing 
Jobs by Reducing Regulatory Burdens,'' June 15, 2011, Washington, D.C.
---------------------------------------------------------------------------
    An amendment was offered by Ranking Member Velazquez to 
ensure that such duplication would not impose any new costs on 
taxpayers. Unfortunately, this amendment was defeated by a vote 
of 11 to 12.
            Imposes unnecessary costs
    The Office of Advocacy has a current budget of $9 million 
and 46 employees. The approval of H.R. 585 would add new 
responsibilities and costs to this office as size standard 
approval and determination requires in-depth industry research 
and analysis. Such examination may include sector specific 
surveys, statistical analysis, and regulatory requirements. On 
this last point, when SBA issues revised size standards, it 
does so through notice and comment rulemaking. This entails not 
only writing the rule, but also soliciting and summarizing 
comments. This process is costly and the Office of Advocacy 
will be required to take on these rulemaking responsibilities.
    These new responsibilities would require additional 
statistical and legal staff resources, adding as much as 20 
percent or more per year to the office's annual budget. As CBO 
notes in its cost estimate, ``. . . the Office of Advocacy 
would ultimately need 10 additional staff positions to 
implement its new authority. Because the Office of Advocacy is 
an independent department within SBA, the office does not have 
access to SBA's legal and administrative support services; 
therefore, the office would need to develop that capacity 
separately. CBO assumes that most of the new positions would 
fill that need; the remaining positions would provide 
additional expertise in developing size standard.''\8\
---------------------------------------------------------------------------
    \8\Congressional Budget Office, Cost Estimate for H.R. 585, 
September 27, 2011.
---------------------------------------------------------------------------
    Given the limited budget and staff resources of the Office 
of Advocacy, this change will add to the mission of the office 
and may create challenges for it to carryout its existing 
duties. To this point, Frank Swain, the Chief Counsel of the 
Office of Advocacy under President Ronald Reagan stated during 
the June 15, 2011 hearing that ``I think the chief counsel has 
plenty to do without being in the size standard business.''\9\
---------------------------------------------------------------------------
    \9\Ibid.
---------------------------------------------------------------------------
            Detracts from primary mission of advocating for small 
                    businesses
    The Office of Advocacy's mission is to provide an 
independent voice for small business within the federal 
government. In carrying out this mission, it advances the 
views, concerns, and interests of small business before 
Congress, the White House, federal agencies, federal courts, 
and state policymakers. H.R. 585 will undermine this specific 
mission by adding the administrative responsibility of size 
standard determination to its responsibilities.
    Requiring the Office of Advocacy to take on size standard 
determinations will require them to deviate from their current 
mission of advocating for small businesses in the regulatory 
process. Approval of a size standard will require the office to 
deploy staff resources to these tasks, removing them from their 
core responsibilities tied to advocating for small businesses.
    Instead, the Office of Advocacy should remain as the 
primary voice of small businesses and the SBA Office of Size 
Standards should maintain its role as the primary authority on 
size standards. Doing so not only benefits small businesses, 
but also the taxpayer.

Conclusion

    Despite alleging to solve bureaucratic inefficiencies, H.R. 
585 ironically creates such a problem. While proponents may 
suggest that the legislation simply ``transfers'' a function 
from one department to another, what it is really doing is 
creating a duplicative function within another department. Such 
``duplication'' is regularly cited by proponents of the 
legislation as a rationale to eliminate many of the SBA's 
entrepreneurial development programs, including those that 
serve women, Veterans, and Native Americans. Perhaps these 
programs could be saved from elimination if they were simply 
labeled as a ``transfer'' of training functions for women, 
Veterans, and Native Americans. Such irony is not lost on the 
committee's Democrats.
    In closing, it is important to remember one simple fact--
the SBA already operates an Office of Size Standards. And given 
its eponymous mission, the SBA's Office of Size Standards is 
better positioned to maintain all size standard tasks as it can 
take advantage of the obvious economies of scale and scope 
associated with these functions.
                                                Nydia M. Velazquez.

                                  

```